<PAGE>
UNITED STATES
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 OCTOBER 3, 1998
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 NUMBER 1-10606
______________________
CADENCE DESIGN SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
______________________
DELAWARE 77-0148231
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2655 SEELY AVENUE, BUILDING 5, SAN JOSE, CALIFORNIA 95134
(Address of principal executive offices) (Zip Code)
(408) 943-1234
Registrant's telephone number, including area code
______________________
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
--------- ----------
At November 7, 1998, there were 221,828,768 shares of the registrant's Common
Stock, $0.01 par value outstanding.
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets:
October 3, 1998 and January 3, 1998. . . . . . . . . . . 3
Condensed Consolidated Statements of Income:
Three and Nine Months Ended October 3, 1998 and
September 27, 1997 . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows:
Nine Months Ended October 3, 1998 and September 27,
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements. . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . 12
Item 3. Quantitative and Qualitative Disclosures About Market
Risk . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 26
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 27
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 27
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
October 3, January 3,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 207,727 $ 207,024
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,231 97,180
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 236,866 205,006
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . 86,582 99,849
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 569,406 609,059
----------- -----------
Property, plant, and equipment, net. . . . . . . . . . . . . . . . . . . . . . . 248,019 197,421
Software development costs, net. . . . . . . . . . . . . . . . . . . . . . . . . 13,548 15,068
Purchased software and intangibles, net. . . . . . . . . . . . . . . . . . . . . 91,154 10,117
Installment contract receivables . . . . . . . . . . . . . . . . . . . . . . . . 95,269 61,326
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,826 130,859
----------- -----------
$ 1,183,222 $ 1,023,850
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . $ 1,105 $ 794
Accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . 161,831 156,426
Payable to Ambit shareholders . . . . . . . . . . . . . . . . . . . . . . . . 252,990 - -
Income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,480 5,161
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109,431 106,414
----------- -----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 560,837 268,795
----------- -----------
Long-term liabilities:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,461 1,599
Minority interest liability . . . . . . . . . . . . . . . . . . . . . . . . . 325 121
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 30,167 26,238
----------- -----------
Total long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . 31,953 27,958
----------- -----------
Stockholders' equity:
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - - -
Common stock and capital in excess of par value . . . . . . . . . . . . . . . 626,602 502,602
Treasury stock at cost (9,644 and 6,739 shares, respectively) . . . . . . . . (205,781) (97,285)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177,080 328,934
Accumulated translation adjustment. . . . . . . . . . . . . . . . . . . . . . (7,469) (7,154)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . 590,432 727,097
----------- -----------
$ 1,183,222 $ 1,023,850
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Product . . . . . . . . . . . . . . . $ 173,269 $ 135,480 $ 489,865 $ 354,343
Services. . . . . . . . . . . . . . . 67,704 40,355 184,733 113,723
Maintenance . . . . . . . . . . . . . 67,634 59,031 196,020 164,815
------------- ------------- ------------- -------------
Total revenue. . . . . . . . . . . 308,607 234,866 870,618 632,881
------------- ------------- ------------- -------------
Costs and expenses:
Cost of product . . . . . . . . . . . 15,614 11,253 40,325 30,296
Cost of services. . . . . . . . . . . 50,061 28,520 138,066 80,582
Cost of maintenance . . . . . . . . . 12,338 7,039 32,869 18,425
Marketing and sales . . . . . . . . . 76,052 63,261 216,663 178,119
Research and development. . . . . . . 44,854 35,927 129,522 100,979
General and administrative. . . . . . 16,660 14,251 49,484 40,093
Unusual items . . . . . . . . . . . . 278,333 - - 364,290 34,114
------------- ------------- ------------- -------------
Total costs and expenses . . . . . 493,912 160,251 971,219 482,608
------------- ------------- ------------- -------------
Income (loss) from operations . (185,305) 74,615 (100,601) 150,273
Other income, net. . . . . . . . . . . . 1,328 4,386 6,523 22,397
------------- ------------- ------------- -------------
Income (loss) before provision
for income taxes . . . . . . (183,977) 79,001 (94,078) 172,670
Provision for income taxes . . . . . . . 8,785 23,700 57,776 51,801
------------- ------------- ------------- -------------
Net income (loss) . . . . . . . $ (192,762) $ 55,301 $ (151,854) $ 120,869
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Basic net income (loss) per share. . . . $ (0.91) $ 0.27 $ (0.72) $ 0.63
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Diluted net income (loss) per share. . . $ (0.91) $ 0.24 $ (0.72) $ 0.56
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common shares
outstanding . . . . . . . . . . . . . . 212,292 204,168 211,505 190,432
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average common and
potential common shares
outstanding -- assuming dilution . . . 212,292 231,627 211,505 214,971
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
October 3, September 27,
1998 1997
------------- -------------
<S> <C> <C>
Cash and Cash Equivalents at Beginning of Period . . . . . . . . . . . . . . . . $ 207,024 $ 284,512
------------- -------------
Cash Flows from Operating Activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (151,854) 120,869
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . 64,544 41,838
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . (29,400) (13,401)
Write-off of equipment and other assets, net . . . . . . . . . . . . . . . . 3,903 3,253
Write-off of in-process research and development . . . . . . . . . . . . . . 339,500 4,860
Other long-term liabilities and minority interest expense. . . . . . . . . . 3,861 4,957
Gain on sale of subsidiary stock . . . . . . . . . . . . . . . . . . . . . . - - (13,061)
Changes in operating assets and liabilities, net of effect of acquired and
disposed businesses:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,432) (20,696)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . 24,220 (10,455)
Installment contract receivables . . . . . . . . . . . . . . . . . . . . . (34,290) - -
Accrued liabilities and payables . . . . . . . . . . . . . . . . . . . . . (19,199) 35,576
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,761 55,573
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,222 (10,206)
------------- -------------
Net cash provided by operating activities. . . . . . . . . . . . . . . . 264,836 199,107
------------- -------------
Cash Flows from Investing Activities:
Maturities of short-term investments--held-to-maturity . . . . . . . . . . . . 48,802 19,600
Purchases of short-term investments--held-to-maturity. . . . . . . . . . . . . (35,852) (67,688)
Maturities of short-term investments--available-for-sale . . . . . . . . . . . 537,552 - -
Purchases of short-term investments--available-for-sale. . . . . . . . . . . . (491,553) - -
Purchases of property, plant, and equipment. . . . . . . . . . . . . . . . . . (84,395) (62,341)
Capitalization of software development costs . . . . . . . . . . . . . . . . . (17,316) (11,077)
Increase in purchased software, intangibles, and other assets. . . . . . . . . (30,990) (43,713)
Net proceeds from sale of subsidiary stock . . . . . . . . . . . . . . . . . . - - 18,582
Effect of deconsolidation on cash. . . . . . . . . . . . . . . . . . . . . . . - - (25,118)
Purchase of businesses, net of acquired cash . . . . . . . . . . . . . . . . . (100,134) 38,357
Sale of put warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,302 5,688
Purchase of call options . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,302) (5,688)
------------- -------------
Net cash used for investing activities . . . . . . . . . . . . . . . . . (173,886) (133,398)
------------- -------------
Cash Flows from Financing Activities:
Principal payments on capital lease obligations and long-term debt . . . . . . (699) (21,795)
Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,949 41,383
Purchases of treasury stock. . . . . . . . . . . . . . . . . . . . . . . . . . (150,035) (33,138)
------------- -------------
Net cash used for financing activities . . . . . . . . . . . . . . . . . (89,785) (13,550)
------------- -------------
Effect of exchange rate changes on cash. . . . . . . . . . . . . . . . . . . . . (462) (4,114)
------------- -------------
Increase in Cash and Cash Equivalents. . . . . . . . . . . . . . . . . . . . . . 703 48,045
------------- -------------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . . . . . . . $ 207,727 $ 332,557
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
CADENCE DESIGN SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 3, 1998.
The condensed consolidated financial statements included herein reflect all
adjustments (which include only normal, recurring adjustments) that are, in the
opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the full fiscal year.
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain amounts in the consolidated financial statements as of January 3,
1998 and for the three and nine months ended September 27, 1997, have been
reclassified to conform with the 1998 presentation.
REVENUE RECOGNITION
Effective January 4, 1998, the Company adopted Statement of Position (SOP)
97-2, "Software Revenue Recognition." SOP 97-2 provides guidance on applying
generally accepted accounting principles in recognizing revenue on software
transactions. The adoption of SOP 97-2 did not have a material impact on the
Company's consolidated financial position or results of operations.
ACQUISITIONS
In September 1998, the Company acquired all of the outstanding stock of
Ambit Design Systems, Inc. (Ambit), a California corporation, for cash. The
total purchase price was $255 million, and the acquisition was accounted for as
a purchase. In connection with the acquisition, net intangibles of $250.9
million were acquired. The results of operations of Ambit and the estimated
fair value of the assets acquired and liabilities assumed are included in the
Company's financial statements from the date of acquisition. Intangibles
arising from the acquisition are being amortized on a straight-line basis over
seven years.
Management estimates that $214.4 million of the purchased intangibles
was purchased in-process technology that had not yet reached technological
feasibility and has no alternative future use. Accordingly, this amount was
immediately expensed in the Condensed Consolidated Statement of Income upon
consummation of the acquisition. The value assigned to purchased in-process
technology, based on a valuation prepared by an independent third-party
appraisal company, was determined by identifying research projects in areas
for which technological feasibility has not been established. The value was
determined by estimating the costs to develop the purchased in-process
technology (Buildgates synthesis product architecture, Placement Knowledgeable
Synthesis, data path compiler, and static timing engine) into commercially
6
<PAGE>
viable products, estimating the resulting net cash flows from such projects,
and discounting the net cash flows back to their present value. The discount
rate includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The in-process
technology is expected to be commercially viable in 1999. If these projects
are not successfully developed, business, operating results, and financial
condition of the Company may be adversely affected. Additionally, the value of
other intangible assets acquired may become impaired.
The following table represents unaudited consolidated pro forma information
as if the Company and Ambit had been combined as of the beginning of the periods
presented. The pro forma data are presented for illustrative purposes only and
are not necessarily indicative of the combined financial position or results of
operations of future periods or the results that actually would have resulted
had the Company and Ambit been a combined company during the specified periods.
The pro forma results include the effects of the amortization of intangible
assets and adjustments to the income tax provision. The pro forma combined
results exclude acquisition-related charges for purchased in-process technology
related to Ambit.
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
October 3, September 27,
1998 1997
------------- -------------
<S> <C> <C>
(In thousands)
Revenue. . . . . . . . . . . . . . . . . . . . . . $ 881,434 $ 634,009
------------- -------------
------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . $ 54,346 $ 113,004
------------- -------------
------------- -------------
Net income per common share:
Basic . . . . . . . . . . . . . . . . . . . . . $ 0.26 $ 0.59
------------- -------------
------------- -------------
Diluted . . . . . . . . . . . . . . . . . . . . $ 0.23 $ 0.53
------------- -------------
------------- -------------
</TABLE>
In September 1998, the Company acquired Bell Labs' Integrated Circuit
Design Automation Group of Lucent Technologies Inc. (BLDA), for cash. The total
purchase price was $58 million, and the acquisition was accounted for as a
purchase. In connection with the acquisition, net intangibles of $60.6 million
were acquired. The results of operations of BLDA and the estimated fair value
of the assets acquired and liabilities assumed are included in the Company's
financial statements from the date of acquisition. Intangibles arising from the
acquisition are being amortized on a straight-line basis over five years.
Management estimates that $42.7 million of the purchased intangibles was
purchased in-process technology that had not yet reached technological
feasibility and has no alternative future use. Accordingly, this amount was
immediately expensed in the Condensed Consolidated Statement of Income upon
consummation of the acquisition. The value assigned to purchased in-process
technology, based on a valuation prepared by an independent third-party
appraisal company, was determined by identifying research projects in areas
for which technological feasibility has not been established. The value was
determined by estimating the costs to develop the purchased in-process
technology (Formalcheck verification tool and Clover design rule checking and
extraction tool) into commercially viable products, estimating the resulting
net cash flows from such projects, and discounting the net cash flows back to
their present value. The discount rate includes a factor that takes into
account the uncertainty surrounding the successful development of the
purchased in-process technology. The in-process technology is expected to be
commercially viable in 2000. If these projects are not successfully developed,
business, operating results, and financial condition of the Company may be
adversely affected. Additionally, the value of other intangible assets
acquired may become impaired.
In March 1998, the Company acquired all of the outstanding stock of
Excellent Design, Inc. (EXD), a Japanese corporation, for cash. The total
purchase price was $40.9 million, and the acquisition was accounted for as a
purchase. In connection with the acquisition, net intangibles of $48.7 million
were
7
<PAGE>
acquired. The results of operations of EXD and the estimated fair value of the
assets acquired and liabilities assumed are included in the Company's financial
statements from the date of acquisition. Intangibles arising from the
acquisition are being amortized on a straight-line basis over five years.
Management estimates that $42 million of the purchased intangibles was
purchased in-process technology that had not yet reached technological
feasibility and has no alternative future use. Accordingly, this amount was
immediately expensed in the Condensed Consolidated Statement of Income upon
consummation of the acquisition. The value assigned to purchased in-process
technology, based on a valuation prepared by an independent third-party
appraisal company, was determined by identifying research projects in areas
for which technological feasibility has not been established. The value was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net
cash flows from such projects, and discounting the net cash flows back to
their present value. The discount rate includes a factor that takes into
account the uncertainty surrounding the successful development of the
purchased in-process technology. If these projects are not successfully
developed, business, operating results, and financial condition of the
Company may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
In February 1998, the Company acquired all of the outstanding stock of
Symbionics Group Limited (Symbionics), a U.K. corporation, for approximately
1 million shares of the Company's common stock and $21.3 million of cash. The
total purchase price was $46.1 million, and the acquisition was accounted for as
a purchase. In connection with the acquisition, net intangibles of $46 million
were acquired. The results of operations of Symbionics and the estimated fair
value of the assets acquired and liabilities assumed are included in the
Company's financial statements from the date of acquisition. Intangibles
arising from the acquisition are being amortized on a straight-line basis over
five years.
Management estimates that $40 million of the purchased intangibles was
purchased in-process technology that had not yet reached technological
feasibility and has no alternative future use. Accordingly, this amount was
immediately expensed in the Condensed Consolidated Statement of Income upon
consummation of the acquisition. The value assigned to purchased in-process
technology, based on a valuation prepared by an independent third-party
appraisal company, was determined by identifying research projects in areas
for which technological feasibility has not been established. The value was
determined by estimating the costs to develop the purchased in-process
technology into commercially viable products, estimating the resulting net
cash flows from such projects, and discounting the net cash flows back to
their present value. The discount rate includes a factor that takes into
account the uncertainty surrounding the successful development of the
purchased in-process technology. If these projects are not successfully
developed, business, operating results, and financial condition of the
Company may be adversely affected. Additionally, the value of other
intangible assets acquired may become impaired.
Pro forma results of operations of BLDA, EXD, and Symbionics have not been
presented because the effects of these acquisitions were not material on either
an individual or an aggregated basis.
COMPREHENSIVE INCOME (LOSS)
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which was adopted by the Company in the first quarter of 1998. SFAS
No. 130 requires companies to report a new, additional measure of income on the
income statement or to create a new financial statement that has the new measure
of income on it. "Comprehensive income" includes foreign currency translation
gains and losses and other unrealized gains and losses that have been previously
excluded from net income (loss) and reflected instead in equity.
8
<PAGE>
A summary of comprehensive income (loss) follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(In thousands)
Net income (loss). . . . . . . $ (192,762) $ 55,301 $ (151,854) $ 120,869
Foreign currency translation
adjustment . . . . . . . . 1,830 393 (315) (2,358)
------------- ------------- ------------- -------------
Comprehensive income (loss). . $ (190,932) $ 55,694 $ (152,169) $ 118,511
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is calculated by dividing net income
(loss) by the weighted average shares of common stock outstanding during the
period, and for diluted net income (loss) per share, net income (loss) is
divided by the weighted average shares of common stock outstanding and potential
common shares during the period. Potential common shares included in the
dilution calculation consist of dilutive shares issuable upon the exercise of
outstanding common stock options, warrants, contingent issuances of common
stock, and put warrants computed using the treasury stock method. For the
periods in which the Company had losses, potential common shares from common
stock options, warrants, contingent issuances of common stock, and put warrants
are excluded from the computation of diluted net loss per share as their effects
are antidilutive.
The following is a reconciliation of the weighted average common shares
used to calculate basic net income (loss) per share to the weighted average
common and potential common shares used to calculate diluted net income (loss)
per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(In thousands)
Weighted average common shares
used to calculate basic net income
(loss) per share . . . . . . . . . . . 212,292 204,168 211,505 190,432
Options. . . . . . . . . . . . . . . . - - 27,253 - - 24,222
Warrants and other contingent
common shares . . . . . . . . . . . - - 206 - - 240
Puts . . . . . . . . . . . . . . . . . - - - - - - 77
------------- ------------- ------------- -------------
Weighted average common and
potential common shares used to
calculate diluted net income (loss)
per share . . . . . . . . . . . . . . 212,292 231,627 211,505 214,971
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
Had the Company recorded net income for the three and nine months ended
October 3, 1998, dilutive weighted outstanding options would have been
19 million and 22.5 million shares, respectively, and weighted outstanding
warrants and other dilutive contingent shares would have been 0.6 million and
0.4 million shares, respectively.
REPRICING OF STOCK OPTIONS
In order to continue to attract and retain employees, the Board of
Directors authorized the repricing of options to purchase shares of common stock
effective as of the close of business on September 4, 1998 to the then fair
market value of $22.59 per share. Under the terms of the repricing,
9
<PAGE>
optionees were required to extend their existing vesting schedules in exchange
for the repriced options. All repriced options maintained the same expiration
terms. Approximately 3.7 million options were repriced under this program. The
Board of Directors and Executive Officers were excluded from the repricing.
CREDIT FACILITY
In October 1998, the Company entered into a senior unsecured credit
facility (the 1998 Facility) with a syndicate of banks which allows the Company
to borrow up to $355 million. The Facility is divided between a $177.5 million
three year revolving credit facility (the Three Year Facility) and a $177.5
million 364-day revolving credit facility convertible to a three year term loan
(the 364-Day Facility). The Three Year Facility expires September 29, 2001 and
the 364-Day Facility will either expire on September 29, 1999, and be converted
to a three year term loan with a maturity date of September 29, 2002, or at the
option of the bank group, be renewed for an additional one year period. The
Company has the option to pay interest based on LIBOR plus a spread of between
0.50% and 1.00%, based on a pricing grid tied to a financial covenant or the
higher of the Federal Funds Rate plus 0.50% or the prime rate. In addition,
commitment fees are payable on the unutilized portions of the Three Year
Facility at rates between 0.18% and 0.30% based on a pricing grid tied to a
financial covenant and on the unutilized portion of the 364 Day Facility at a
fixed rate of 0.10%. The 1998 Facility contains certain financial and other
covenants. As of October 3, 1998, the Company had no outstanding borrowings
under the 1998 Facility.
In April 1996, the Company entered into a senior secured revolving credit
facility (the 1996 Facility) which allowed the Company to borrow up to $120
million through April 1999. As a result of the Company securing the 1998
Facility, the 1996 Facility was terminated in September 1998.
FINANCING
The Company has a customer finance program whereby it may transfer
qualifying accounts receivables to certain financing institutions on a
non-recourse basis. These transfers are recorded as sales and accounted for
in accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities."
CONTINGENCIES
Refer to Part II, Item 1 for a description of legal proceedings.
PUT WARRANTS AND CALL OPTIONS
The Company has two seasoned authorized stock repurchase programs. Under
one program, the Company repurchases common stock to satisfy estimated
requirements for shares to be issued under its Employee Stock Purchase Plan
(ESPP) over the next 12 months. The shares acquired under the second program
will be used to meet the recurring share issuance requirements of the 1997 Stock
Option Plan.
As part of its authorized repurchase programs, the Company has sold put
warrants through private placements. At October 3, 1998, there were 5.4 million
put warrants outstanding which entitle the holder to sell one share of common
stock to the Company on a specified date and at a specified price ranging from
$20.88 to $35.14 per share. Additionally, during the same period, the Company
purchased call options that entitle the Company to buy on a specified date one
share of common stock at a specified
10
<PAGE>
price. At October 3, 1998, the Company had 3.8 million call options outstanding
at prices ranging from $21.13 to $35.39 per share to satisfy anticipated stock
repurchase requirements under the Company's systematic repurchase programs. The
put warrants and call options outstanding at October 3, 1998 are exercisable on
various dates through November 1999.
If exercised, the put warrants will be settled with the issuance of stock
equal to the difference between the exercise price and the fair value at the
date of exercise. Accordingly, settlement of the put warrants could cause the
Company to issue a substantial number of shares, depending on the exercise price
of the put warrants and the per share fair value of the Company's common stock
at the time of exercise. In addition, settlement of the put warrants could lead
to the disposition by put warrant holders of shares of the Company's common
stock that such holders may have accumulated in anticipation of the exercise of
the put warrants or call options, which may impact the price of the Company's
common stock. At October 3, 1998, because the put warrants will be settled with
stock, if exercised, no amount was classified out of stockholders' equity in the
consolidated balance sheet. The effect of the exercise of these put warrants
and call options is reported in stockholders' equity.
NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
It requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met and that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and cannot be applied retroactively. The Company
has not yet determined the impact SFAS No. 133 will have on its financial
position, results of operations, or cash flows.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The Company anticipates that SOP 98-1 will not have
a material impact on its consolidated financial statements.
SUBSEQUENT EVENTS
In October 1998, the Company began to draw on its 364-Day Facility to fund
the acquisition of the outstanding shares of Ambit. As of November 7, 1998, the
Company had $125 million outstanding under the 1998 Facility.
In October 1998, the Company announced a restructuring for the fourth
quarter of 1998 with a related charge estimated at approximately $36 million.
This charge is required to cover expenses related to staff reductions of
approximately 560 employees and facilities and program streamlining.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION
CONTAINS FORWARD-LOOKING STATEMENTS BASED ON CURRENT EXPECTATIONS THAT INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW IN
"FACTORS THAT MAY AFFECT FUTURE RESULTS" AND "LIQUIDITY AND CAPITAL RESOURCES."
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
REVENUE
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 % Change 1998 1997 % Change
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(In millions)
Product. . . . . . . $ 173.3 $ 135.5 28% $ 489.9 $ 354.4 38%
Services . . . . . . 67.7 40.4 68% 184.7 113.7 62%
Maintenance. . . . . 67.6 59.0 15% 196.0 164.8 19%
------------- ------------- ------------- -------------
Total revenue . . $ 308.6 $ 234.9 31% $ 870.6 $ 632.9 38%
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<CAPTION>
SOURCES OF REVENUE AS A PERCENT OF TOTAL REVENUE
<S> <C> <C> <C> <C>
Product. . . . . . . 56% 58% 56% 56%
Services . . . . . . 22% 17% 21% 18%
Maintenance. . . . . 22% 25% 23% 26%
</TABLE>
The increase in product revenue of $37.8 million and $135.5 million for the
three and nine month periods ended October 3, 1998, respectively, when compared
to the same periods of 1997, was attributable primarily to increased demand for
products used by customers to develop integrated circuits (ICs) and deep
submicron designs, including design entry tools, custom layout tools, analog
design tools, automatic place-and-route tools, and verification tools.
Services revenue increased $27.3 million and $71 million in the three and
nine month periods ended October 3, 1998, respectively, when compared to the
same periods of 1997. The increase in services revenue was primarily the result
of increased demand for the Company's services offerings throughout the world.
The increase in maintenance revenue of $8.6 million and $31.2 million for
the three and nine month periods ended October 3, 1998, respectively, as
compared to the same periods of 1997, was attributable primarily to an increase
in the Company's installed base of products and the sale of higher priced
maintenance contracts which on average require higher support levels.
Revenue from international sources was approximately $150.2 million and
$134.2 million, or 49% and 57% of total revenue, for the third quarters of 1998
and 1997, respectively. For the nine month period ended October 3, 1998,
revenue from international sources was $436 million, as compared to $336.3
million for the same period of 1997, representing 50% and 53%, respectively, of
total revenue for each period. The increase in total revenue from international
sources in the third quarter of 1998, as compared to the same period of 1997,
was primarily attributable to revenue growth in Japan. Total revenue growth
from international sources for the third quarter of 1998, was partially offset
by a $9.1 million negative impact on revenue as a result of the weakening of
certain foreign currencies, primarily the Japanese yen, in relation to the U.S.
dollar.
12
<PAGE>
<TABLE>
<CAPTION>
COST OF REVENUE
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 % Change 1998 1997 % Change
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(In millions)
Product. . . . . . . $ 15.6 $ 11.3 39% $ 40.3 $ 30.3 33%
Services . . . . . . $ 50.1 $ 28.5 76% $ 138.1 $ 80.6 71%
Maintenance. . . . . $ 12.3 $ 7.0 75% $ 32.9 $ 18.4 78%
<CAPTION>
COST OF REVENUE AS A PERCENT OF RELATED REVENUE
<S> <C> <C> <C> <C>
Product. . . . . . . 9% 8% 8% 9%
Services . . . . . . 74% 71% 75% 71%
Maintenance. . . . . 18% 12% 17% 11%
</TABLE>
Cost of product revenue includes costs of production personnel,
packaging and documentation, royalties, and the amortization of goodwill and
capitalized software development costs. Cost of product increased by $4.3
million and $10 million for the three and nine month periods ended October 3,
1998, respectively, as compared with the same periods of 1997, primarily due
to higher amortization costs associated with goodwill and capitalized
software development costs and an increase in product royalty costs.
Cost of services revenue includes personnel and related costs associated
with providing services to customers and the infrastructure to manage a services
organization, as well as costs to recruit, develop and retain services
professionals. Cost of services revenue increased by $21.6 million and $57.5
million for the three and nine month periods ended October 3, 1998,
respectively, as compared with the same periods of 1997, primarily due to the
addition of services professionals by the Company, through acquisitions and
increased hiring, and the continued investment in developing new services
offerings. Services gross margins have been and may continue to be adversely
affected by the cost of integrating new service professionals as well as the
Company's inability to fully utilize these resources. In addition, services
gross margins may continue to be adversely affected by the Company's inability
to achieve operating efficiencies with its resources when implementing a growing
number of services offerings.
Cost of maintenance revenue includes the cost of customer services such as
hot-line and on-site support and the production cost of the maintenance renewal
process. Cost of maintenance revenue increased by $5.3 million and $14.5 million
for the three and nine month periods ended October 3, 1998, respectively, as
compared with the same periods of 1997, primarily due to additional costs
associated with supporting a larger installed base of products, including
products acquired, additional costs to provide higher support levels on a per
customer basis, and establishing a new centralized customer response center.
<TABLE>
<CAPTION>
OPERATING EXPENSES
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 % Change 1998 1997 % Change
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
(In millions)
Marketing and sales. . . . . . . . $ 76.1 $ 63.3 20% $ 216.7 $ 178.1 22%
Research and development . . . . . $ 44.9 $ 35.9 25% $ 129.5 $ 101.0 28%
General and administrative . . . . $ 16.7 $ 14.3 17% $ 49.5 $ 40.1 23%
<CAPTION>
OPERATING EXPENSES AS A PERCENT OF TOTAL REVENUE
<S> <C> <C> <C> <C>
Marketing and sales. . . . . . . . 25% 27% 25% 28%
Research and development . . . . . 15% 15% 15% 16%
General and administrative . . . . 5% 6% 6% 6%
</TABLE>
13
<PAGE>
The increase in marketing and sales expenses of $12.8 million in the third
quarter of 1998, as compared with the third quarter of 1997, was primarily the
result of an increase of $10 million in employee related expenses attributable
to increased headcount and commissions, as well as an increase in sales support
costs in Japan of $4.1 million. The increase in marketing and sales expenses in
the third quarter of 1998 was partially offset by a $1.9 million decrease
resulting from the weakening of certain foreign currencies, primarily the
Japanese yen, in relation to the U.S. dollar in the third quarter of 1998, as
compared with the third quarter of 1997. For the nine month period ended
October 3, 1998, as compared with the same period of 1997, the increase in
marketing and sales expenses of $38.6 million was primarily the result of an
increase of $25 million in employee related expenses attributable to increased
headcount and commissions, as well as an increase in sales support costs in
Japan of $6.5 million.
The Company's investment in research and development, prior to the
reduction for capitalization of software development costs, was $50.6 million
and $40.2 million for the third quarters of 1998 and 1997, respectively,
representing 16% and 17% of total revenue, respectively. The increase in net
research and development expenses for the third quarter of $9 million was
primarily attributable to employee related costs of $3.9 million due to
increased headcount and facilities costs of $3.2 million. The Company
capitalized $5.7 million and $4.3 million of software development costs for the
third quarters of 1998 and 1997, respectively, which represented 11% of total
research and development expenditures made in each of those periods, resulting
primarily from general increases in new product development. The increase in
net research and development expenses of $28.5 million for the nine month period
ended October 3, 1998, as compared with the same period of 1997, was primarily
the result of an increase of $16.1 million in employee related expenses
attributable to increased headcount, facilities costs of $9.8 million and
management information systems costs of $5.5 million, partially offset by an
increase in the capitalization of software development costs of $6.2 million.
For the nine month periods ended October 3, 1998 and September 27, 1997, the
Company capitalized $17.3 million and $11.1 million of software development
costs, which represented 12% and 10%, respectively, of total research and
development expenditures made in each of those periods. The increase resulted
primarily from general increases in new product development. In any given
period, the amount of capitalized software development costs may vary depending
on the exact nature of the development performed.
General and administrative expenses increased by $2.4 million and $9.4
million for the three and nine month periods ended October 3, 1998,
respectively, as compared to the same periods of 1997. This was primarily
attributable to an increase in bad debt expense of $1.2 million and $3.1
million, consulting services fees of $0.7 million and $2.4 million, and employee
related expenses of $0.2 million and $1.9 million, for the three and nine month
periods ended October 3, 1998, respectively, as compared to the same periods of
1997.
UNUSUAL ITEMS
Described below are unusual items and restructuring charges during the
three months ended October 3, 1998. There were no unusual items in the three
month period ended September 27, 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(In millions)
Write-off of in-process research and development . . . $ 257.5 $ - - $ 339.5 $ 4.9
Restructuring charges. . . . . . . . . . . . . . . . . 20.8 - - 24.8 29.2
------------- ------------- ------------- -------------
$ 278.3 $ - - $ 364.3 $ 34.1
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
During the nine months ended October 3, 1998, the Company made a number of
purchase acquisitions. The consolidated financial statements include the
operating results of each business from the
14
<PAGE>
date of acquisition. A summary of purchase acquisitions for the nine months
ended October 3, 1998, follows:
<TABLE>
<CAPTION>
Purchased
Technology
Entity Name: Purchase Price Purchase Date Charge
-------------- ------------- ------------------
<S> <C> <C> <C>
(In millions)
Ambit Design Systems, Inc. $ 255.0 September 1998 $ 214.4
Bell Labs' Integrated Circuit
Design Automation Group $ 58.0 September 1998 $ 42.7
Symbionics Group Limited $ 46.1 February 1998 $ 40.0
Excellent Design, Inc. $ 40.9 March 1998 $ 42.0
</TABLE>
In September 1998, the Company acquired all of the outstanding stock of
Ambit Design Systems, Inc. (Ambit), a California corporation, for cash. The
total purchase price was $255 million, and the acquisition was accounted for as
a purchase. In connection with the acquisition, net intangibles of $250.9
million were acquired.
Upon consummation of the Ambit acquisition, the Company immediately
expensed $214.4 million representing purchased in-process technology that had
not yet reached technological feasibility and has no alternative future use
(see Notes to Condensed Consolidated Financial Statements). The value was
determined by estimating the costs to develop the purchased in-process
technology (Buildgates synthesis product architecture, Placement Knowledgeable
Synthesis, Data Path Compiler, and Static Timing engine) into commercially
viable products, estimating the resulting net cash flows from such projects,
and discounting the net cash flows back to their present value. The discount
rate includes a factor that takes into account the uncertainty surrounding the
successful development of the purchased in-process technology. The in-process
technology is expected to be commercially viable in 1999.
In September 1998, the Company acquired Bell Labs' Integrated Circuit
Design Automation Group of Lucent Technologies Inc. (BLDA), for cash. The total
purchase price was $58 million, and the acquisition was accounted for as a
purchase. In connection with the acquisition, net intangibles of $60.6 million
were acquired.
Upon consummation of the BLDA acquisition, the Company immediately
expensed $42.7 million representing purchased in-process technology that had
not yet reached technological feasibility and has no alternative future use
(see Notes to Condensed Consolidated Financial Statements). The value was
determined by estimating the costs to develop the purchased in-process
technology (Formalcheck verification tool and Clover design rule checking and
extraction tool) into commercially viable products, estimating the resulting
net cash flows from such projects, and discounting the net cash flows back to
their present value. The discount rate includes a factor that takes into
account the uncertainty surrounding the successful development of the
purchased in-process technology. The in-process technology is expected to be
commercially viable in 2000.
The resulting net cash flows from such projects are based on the Company
management's estimates of revenues, cost of revenues, research and development
costs, selling, general and administrative costs, and income taxes from such
projects. These estimates are based on the following assumptions:
The revenue projections are based on the potential market size that the
projects are addressing, the Company's ability to gain market share in these
segments, and the life cycle of in-process technology.
15
<PAGE>
These estimates also include anticipated growth related to the Company's
utilization of the acquired technologies in conjunction with the Company's
products, the Company's marketing and distribution of the resulting products
through its resellers, and the Company's enhancement to the acquired products
by providing incremental financial support and stability. Estimated total
revenues from the purchased in-process product areas peak in years 2003-2004
and decline rapidly in 2005-2006 as other new products are expected to enter
the market. In addition, a portion of the anticipated revenues has been
attributed to enhancements of the base technology under development, and has
been excluded from net cash flow calculations. Existing technology was valued
at $26.4 million and $17.6 million related to the Ambit and BLDA
acquisitions, respectively. There can be no assurances that these assumptions
will prove accurate, or that the Company will realize the anticipated benefit
of the acquisition. See "Factors That May Affect Future Results -- Risks of
Mergers and Acquisitions."
The net cash flows generated from the in-process technology are expected
to benefit from economies of scale through leveraging the Company
infrastructure (i.e., sales through existing channels at lower direct selling
costs, consolidated marketing and advertising programs, and a fully scaled
general and administrative structure), although there can be no assurance such
economies of scale will be achieved or benefits will be realized. Earnings
before interest, taxes, and depreciation are estimated to be approximately
54% to 61% for the sales generated from in-process technology. The Company's
corporate tax rate (28.5%) is used in determining the net free cash flows.
The discount of the net cash flows to their present value is based on
the weighted average cost of capital (WACC). The WACC calculation produces
the average required rate of return of an investment in an operating
enterprise, based on various required rates of return from investments in
various areas of the enterprise. The WACC assumed for the Company, as a
corporate business enterprise, is 11% to 12%. The discount rate used to
discount the net cash flows from purchased in-process technology is 20% to
25%. This discount rate is higher than the WACC due to the inherent
uncertainties in the estimates described above, including the uncertainty
surrounding the successful development of the purchased in-process
technology, the useful life of such technology, the profitability levels of
such technology, if any, and the uncertainty of technological advances,
all of which are unknown at this time.
If these projects are not successfully developed, the Company's
business, operating results, and financial condition may be materially
adversely affected in future periods. In addition, the value of other
intangible assets acquired may become impaired.
Unusual items also include restructuring charges of $20.8 million for
the three month period ended October 3, 1998, for the reduction in personnel
associated with the integration of its services organization and the
consolidation of facilities. In connection with the restructuring activities,
the Company reduced its workforce by approximately 101 employees. The
majority of the restructuring charges will be utilized during 1998, with the
exception of facility costs which will be paid out through the year 2008, and
some severance costs and other restructuring charges to be paid during 1999.
In February 1998, the Company acquired all of the outstanding stock of
Symbionics Group Limited (Symbionics), a U.K. corporation, for approximately 1
million shares of the Company's common stock and $21.3 million of cash. The
total purchase price was $46.1 million, and the acquisition was accounted for as
a purchase. In connection with the acquisition, net intangibles of $46 million
were acquired. Upon consummation of the Symbionics acquisition, the Company
immediately expensed $40 million representing purchased in-process technology
that had not yet reached technological feasibility and has no alternative future
use (see Notes to Condensed Consolidated Financial Statements).
In March 1998, the Company acquired all of the outstanding stock of
Excellent Design, Inc. (EXD), a Japanese corporation, for cash. The total
purchase price was $40.9 million, and the acquisition was accounted for as a
purchase. In connection with the acquisition, net intangibles of $48.7
million were acquired. Upon consummation of the EXD acquisition, the Company
immediately expensed $42 million representing purchased in-process technology
that had not yet reached technological feasibility and had no alternative
future use (see Notes to Condensed Consolidated Financial Statements).
16
<PAGE>
Included in unusual items for the nine month period ended September 27,
1997 was a $4.9 million write-off of in-process technology associated with an
acquisition and a $29.2 million restructuring charge due to the Company's
merger with High Level Design Systems, Inc. and Cooper and Chyan Technology,
Inc., its reorganization into business units, and expenses to restructure the
Company's international business operations.
OTHER INCOME, NET AND INCOME TAXES
Other income, net of other expenses, decreased by $3.1 million for the
three month period ended October 3, 1998, as compared to the same period of
1997, primarily due to a decrease in interest income of $2.1 million and a
higher interest expense of $0.6 million. For the nine month period ended
October 3, 1998, other income, net of other expenses, decreased by $15.9
million, as compared to the same period of 1997, primarily due to the $13.1
million gain on the sale of stock recorded in the first quarter of 1997 and a
decrease in interest income of $4 million.
The Company's estimated effective tax rate in the three and nine month
periods ended October 3, 1998 was 28.5%, excluding the effect of the write-offs
of in-process technology of $82 million and $214.8 million in the
first and third quarters of 1998, respectively, which is not deductible for
income tax purposes. This compares to 30% for the same periods of the prior
year. The decrease in the effective rate was due to the difference in tax rates
between domestic and foreign operations.
YEAR 2000 UPDATE
Year 2000 computer issues create risks for the Company, the full extent
and scope of such risks have not yet been fully assessed. In the event that
internal products and systems, or those products and systems provided or
utilized by third parties do not correctly recognize and process date data
information beyond the year 1999, material adverse effects on the Company's
business, operating results, and financial condition could result.
To address Year 2000 issues, the Company has initiated a program
designed to address the most critical Year 2000 items that would affect the
Company's products, its worldwide business systems, and the operations of the
following functions: research and development, finance, sales, manufacturing,
and human resources. Assessment and remediation efforts regarding these
critical items are proceeding in parallel. The Company is also creating a
plan to work with critical suppliers to determine that such suppliers'
operations and the products and services they provide the Company are Year
2000 capable or to monitor their progress towards Year 2000 capability. The
Company has not commenced work on contingency plans to address potential
problems with its internal systems or the systems of its supplier and
customers or other third parties.
In 1995, the Company commenced a worldwide business systems replacement
project with systems that use programs primarily from SAP America, Inc.
(SAP), PeopleSoft, Inc. (PeopleSoft), and Siebel Systems, Inc. (Siebel). The
new systems are targeted at bringing approximately seventy percent (70%) of
the Company's business computer systems into Year 2000 compliance. In
addition, in September 1997, the Company commenced an investigation of the
condition of Year 2000 readiness of all of its other internal business
applications. This effort began with an inventory to identify current
business applications, an evaluation of their Year 2000 readiness status and
development of plans for remediation and testing of all discovered issues.
As of June 1998, of the 60 business application systems that had been
identified, 50 had been modified or replaced and determined to be Year 2000
ready. Recently, the Company has identified additional areas requiring Year
2000 assessment, remediation, and testing, specifically software interfaces
and applications used to interact with vendors, as well as applications that
are unique to the various international operations. The Company expects that
all business critical applications shall be Year 2000 ready by the fourth
quarter of 1999.
In 1997, the Company commenced a program to inventory, assess,
remediate, and test the Year 2000 capability of the Cadence software
products. As a result of those efforts, the Company believes the most
current release of Cadence software products are Year 2000 Compliant. The
Company defines the term "Year 2000 Compliant" to mean that the software will
not: (a) cease to perform due solely to a change in date to or after January
1, 2000, nor (b) generate incorrect or ambiguous data or results with respect
to same-century and/or multi-century formulas, functions, date values, and
date data interfaces. Cadence continues to further validate current products,
new releases for such products, as well as new products, products acquired
through acquisitions, and releases through testing and code reviews. There is
no assurance that products acquired through acquisition, such as Ambit and
BLDA products, are Year 2000 Compliant. All Cadence Year 2000 activities
concerning the Company's current products are expected to be completed by
October 1999.
In July 1998, the Company established a cross functional Year 2000
project team to identify and resolve all remaining Year 2000 readiness
issues. The primary remaining issues consist of assessing the Year 2000
impact for outside vendors, customers, and facilities as well as the
remaining 30% of the internal business systems that are not yet assessed as
Year 2000 ready. Project plans are being developed and will include the
process of identifying and prioritizing critical suppliers and customers at
the direct interface level, and communicating with them about their plans and
progress in addressing Year 2000 issues. Detailed evaluations of the most
critical third parties have been initiated. It is expected that all Year
2000 project plans and 1999 budgets will be completed by the first quarter of
1999 and the remaining inventories completed by the end of the second quarter
of 1999. This effort will be followed by each business function conducting a
focused level of ranking and functional assessment of its inventory to
establish the methods and actions required to resolve any Year 2000 issues
discovered. The assessment efforts are estimated to be completed by the
second quarter of 1999. The remediation (modification or replacement of
existing software or systems) and the testing phases of the project plans are
expected to take place throughout most of 1999 and are estimated to be
completed, for all business critical items, by the fourth quarter of 1999.
All remaining issues (which are considered low priority or low risk to the
business) are planned to be addressed as time permits and could continue
through the first half of 2000.
It is estimated that the 1999 budget for Year 2000 related costs to
resolve remaining readiness issues will be approximately $15 million. The
costs of implementing the SAP, PeopleSoft, and Siebel business application
systems are not included in these cost estimates. The total cost associated
with required modifications to become Year 2000 ready is not expected to
have a material adverse effect on the Company's business, operating results
and financial condition. The Company's current estimates of the amount of
time and costs necessary to implement and test its systems are based on the
facts and circumstances existing at this time. The estimates were derived
utilizing multiple assumptions of future events including the continued
availability of certain resources, implementation success and other factors.
New developments may occur that could affect the Company's estimates for the
required modifications to become Year 2000 ready. These developments
include, but are not limited to: (a) the availability and cost of personnel
trained in this area, (b) the ability to locate and correct all relevant
computer code and equipment, and (c) the planning and modification success
needed to achieve full implementation.
Readers are cautioned that the foregoing discussion regarding Year 2000
computer issues contains forward-looking statements based on current
expectations that involve risks and uncertainties and should be considered in
conjunction with the following. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations of the Company. Such failures could
materially and adversely affect the Company's business, operating results,
and financial condition. Due in large part to the uncertainty of the Year
2000 readiness of third-party suppliers and customers, as well as the lack of
a final Year 2000 project plan for the remaining internal business systems
that are not yet assessed as Year 2000 ready, the Company is currently
unable to determine whether the consequences of Year 2000 issues will have a
material impact on the Company's business, operating results or financial
condition. The Company's programs addressing Year 2000 computer issues is
expected to reduce the Company's level of uncertainty regarding Year 2000
issues and, in particular, about the Year 2000 readiness of its material
internal operations, suppliers, customers, and other third-parties. In
addition, the Company believes that the current Year 2000 activities
surrounding the Company's software products and internal systems have reduced
the risk of any disruption caused by any Year 2000 issues in these areas.
SINGLE EUROPEAN CURRENCY
The Company is in the process of addressing the issues raised by the
introduction of the Single European Currency ("Euro") as of January 1, 1999 and
during the transition period ending January 1, 2002. The Company expects that
its internal systems that will be affected by the initial introduction of the
Euro will be Euro capable by January 1, 1999, and does not expect the costs of
system modifications to be material. The Company does not presently expect that
introduction and use of the Euro will materially affect the Company's foreign
exchange and hedging activities, or the Company's use of derivative instruments,
or will result in any material increase in costs to the Company. While the
Company will continue to evaluate the impact of the Euro introduction over time,
based on currently available information, management does not believe that the
introduction of the Euro currency will have a material adverse impact on the
Company's business, operating results, and financial condition.
NEW ACCOUNTING STANDARDS
Effective January 4, 1998, the Company adopted SOP 97-2, "Software Revenue
Recognition." SOP 97-2 provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. The
adoption of SOP 97-2 did not have a material impact on the Company's
consolidated financial position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded on
the balance sheet as either an asset or liability measured at its fair value.
It requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999 and cannot be applied
retroactively. The Company has not yet determined the impact SFAS No. 133 will
have on its financial position, results of operations, or cash flows.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." The Company anticipates that SOP 98-1 will not have
a material impact on its consolidated financial statements.
LIQUIDITY AND CAPITAL RESOURCES
At October 3, 1998, the Company's principal sources of liquidity consisted
of $246 million of cash, cash equivalents, and short-term investments, compared
to $304.2 million at January 3, 1998, and a new $355 million senior unsecured
credit facility. As of November 7, 1998, the Company had borrowings of $125
million under the credit facility.
Cash generated from operating activities increased $65.7 million for the
nine months ended October 3, 1998, as compared to the nine months ended
September 27, 1997. The increase was due primarily to increases in net income
excluding unusual items and certain other non-cash charges, partially
17
<PAGE>
offset by changes in the balances of operating assets and liabilities. An
important contributor to the increase was the Company's software financing
program, whereby interests in the Company's qualified accounts receivables
are transferred to third party financial institutions on a non-recourse basis
in exchange for cash.
At October 3, 1998, the Company had working capital of $8.6 million
compared with $340.3 million at January 3, 1998. Working capital reductions
were generated primarily by an increase in current liabilities, due primarily to
the $253 million payable to Ambit shareholders, and a decrease in cash and
short-term investments of $58.2 million. The decrease in cash was primarily due
to the repurchase of the Company's stock, capital expenditures, and
acquisitions, partially offset by cash generated from operations.
In addition to its short-term investments, the Company's primary investing
activities were acquisitions, purchases of property and equipment, purchases of
software, intangibles, and other assets, and the capitalization of software
development costs that in the aggregate represented $232.8 million and $78.8
million of cash used for investing activities in the nine months ended October
3, 1998 and September 27, 1997, respectively. Also contributing to cash from
investing activities for the nine month period ended September 27, 1997, were
net proceeds related to the sale of Integrated Measurement Systems, Inc. (IMS)
stock of $18.6 million, which was partially offset by the loss to the Company of
IMS cash of $9.5 million due to deconsolidation.
As part of its authorized stock repurchase programs, the Company has sold
put warrants and purchased call options through private placements. The Company
has a maximum potential obligation related to put warrants at October 3, 1998 to
buy back 5.4 million shares of its common stock at an aggregate price of
approximately $144 million through November 1999.
Anticipated cash requirements for the remainder of 1998 include the
purchase of treasury stock through the exercise of call options for the
Company's stock repurchase programs, disbursements to Ambit shareholders of
approximately $253 million, and the contemplated additions of property, plant,
and equipment of approximately $25 million.
As part of its overall investment strategy, the Company has committed to
participating in a venture capital partnership as a limited partner. The
Company's total committed investment of at least $50 million will be made over
the next three to four years. As of October 3, 1998, the Company had
contributed approximately $27.3 million, which is reflected in other non-current
assets in the accompanying condensed consolidated balance sheet, net of
operating losses.
The Company anticipates that current cash and short-term investment
balances, cash flows from operations, and the $355 million credit facility will
be sufficient to meet its working capital requirements on a short- and long-term
basis.
FACTORS THAT MAY AFFECT FUTURE RESULTS
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The EDA industry and the commercial electronic design and consulting
industry in which the Company competes are subject to rapid technological
developments, evolving industry standards, changes in customer requirements, and
frequent new product introductions and enhancements. As a result, the Company's
future revenues and operating results will depend on its ability to develop or
acquire new products and enhance its existing products and processes on a timely
basis to keep pace with innovations in technology and to support a range of
changing computer software, hardware platforms, and customer preferences.
Changes in manufacturing technology may render the Company's software tools
obsolete. There can be no assurance that the Company will be able to
successfully develop new products to address new customer requirements and
technological changes, or that such products will achieve market
18
<PAGE>
acceptance. Lack of market acceptance or significant delays in product
development could result in a loss of competitiveness of the Company's products,
with a resulting loss of revenues.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
The Company's operating expenses are partially based on its expectations
regarding future revenue. Since expenses are usually committed in advance of
revenues, and because only a small portion of expenses vary with revenue, the
Company's consolidated results of operations may be disproportionately impacted
by lower than expected revenue. Factors that may affect operating results
include, among other things: (i) the timing and introduction of new products;
(ii) the mix of products and services sold; (iii) the timing of significant
orders from and shipments to or implementations for customers; (iv) product and
services pricing and discounts; (v) the timing of completion of acquisitions;
and (vi) general economic conditions. In addition, the Company's focus on
providing services is relatively recent, and therefore quarter to quarter
comparisons may not be meaningful. For example, the revenue growth from this
source from the 1997 periods to the 1998 periods may not be indicative of future
growth. Although the Company's revenues are not generally seasonal in nature,
the Company has experienced, and may continue to experience, decreases in first
quarter revenue compared with the preceding fourth quarter, which is believed to
result primarily from the budgeting and expenditure cycles of the Company's
customers.
HIGHLY COMPETITIVE MARKET
The Company operates in the highly competitive EDA industry and in the
emerging commercial electronics design and consulting markets. The EDA industry
continues to be characterized by falling prices, rapid technological change, and
new market entrants. The Company's success is dependent upon its ability to
develop innovative, cost competitive EDA software products and take them to
market in a timely manner. The Company competes with a number of companies,
including Avant! Corporation, Mentor Graphics Corp., Synopsys, Inc., and
Zuken-Redac. The Company also experiences competition from manufacturers of
electronic devices that have developed and/or have the capability to develop
their own EDA software. Some of these companies may have substantially greater
financial, marketing, and technological resources than the Company.
The EDA industry has relatively low barriers to entry, and, therefore,
the number of the Company's actual and potential competitors is significant.
A potential competitor that possesses the necessary knowledge of electronic
circuit and systems design, production, and operations could develop
competitive EDA tools using a moderately priced computer workstation and take
such tools to market quickly. There can be no assurance that development of
competitive products will not result in a shift of customer preferences away
from the Company's products, resulting in a significant decrease in the sales
of the Company's comparable products. In addition, there can be no assurance
that the Company will successfully identify new product opportunities,
develop and take new products to market in a timely manner and achieve market
acceptance of its products. Failure to do so may have a material adverse
effect on the Company's business, operating results, and financial condition.
In the electronics design and consulting markets, the Company competes with
numerous EDA and other consulting companies. This emerging market represents
the outsourcing of an activity by electronics manufacturers that has
traditionally been performed in house, and is thus subject to the customers'
"make versus buy" decisions. As a result, the Company's services business must
also compete with the internal design capabilities of manufacturers of
electronic devices, many of which have substantially greater financial,
marketing, and technological resources than the Company. Therefore, the
Company's ability to obtain such business is dependent upon its ability to offer
better strategic concepts and technical solutions, competitive prices, a quicker
response or a combination of these factors. There can be no assurance the
Company will be able to effectively compete in this area, and any failure to
compete in the electronic design and consulting market may have a material
adverse effect on the Company's
19
<PAGE>
business, operating results, and financial condition.
The electronics design and consulting service businesses have relatively
low barriers to entry and, therefore, EDA and other electronics companies and
management consulting firms have entered and may continue to enter into this
market. The pricing model for services is susceptible to supply and demand
volatility for labor as well as the Company's continuing ability to provide
competitive time-to-market benefits to its customers. Some of the Company's
current and potential competitors in the electronics design and consulting
services businesses may have substantially greater financial, marketing, and
technological resources than the Company. There can be no assurance that the
Company will be able to compete successfully in these businesses, and any
failure to compete in this business may have a material adverse effect on the
Company's business, operating results, and financial condition.
RISK OF SERVICES BUSINESS
The Company has recently increased its focus on offering electronics design
and consulting services. The market for such services in the electronics design
area is relatively new and evolving rapidly. In order to increase revenues and
sustain operating results from the Company's services business, the Company must
continue to gain market acceptance for its professional services, which will
depend substantially on its ability to offer better strategic concepts and
technical solutions, competitive prices, a timely response or a combination of
these factors. Failure to successfully operate its services business would have
a material adverse effect on the Company's business, operating results, and
financial condition.
The Company's professional services contracts generally reflect a high
amount of revenue per order. The loss of individual orders, therefore, could
have a significant impact on the revenue and operating results of the Company.
The timing of revenue from the Company's services business is also difficult to
predict because of the length and variability of the sales and implementation
cycles. In addition, a substantial portion of the Company's revenues from
services are earned pursuant to fixed price contracts. Variances in costs
associated with those contracts could have a material adverse effect on the
Company's business, operating results, and financial condition.
The professional services business is labor-intensive. Accordingly, the
ability to expand its services business is dependent on its ability to hire and
retain adequate professional services personnel. The market for professional
services personnel is highly competitive. In general, the high component of
salaries in the cost structure of the professional services business results in
lower gross margins than in the Company's software business. Services gross
margins have been and may continue to be adversely affected by the cost of
integrating new service professionals as well as the Company's inability to
fully utilize these resources. In addition, services gross margins may continue
to be adversely affected by the Company's inability to achieve operating
efficiencies with its resources to implement a growing number of services
offerings.
RISKS ASSOCIATED WITH MERGERS AND ACQUISITIONS
The Company has been involved, and may in the future be involved, in a
number of merger and acquisition transactions. These transactions have been
motivated by many factors, including the desire to obtain new technologies, the
desire to expand and enhance the Company's product and services lines and the
desire to attract personnel. Growth through acquisition has several
identifiable risks, including risks related to integration of the previously
distinct businesses into a single unit, the substantial management time devoted
to such activities, undisclosed liabilities, the failure to realize anticipated
benefits (such as cost savings and synergies) and issues related to product
transition (such as distribution, engineering and customer support).
Realization of any of these risks in connection with an acquisition by the
Company could have a material adverse effect on the Company's business,
operating results, and financial condition.
20
<PAGE>
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the efforts and abilities of its senior
management, its research and development staff and a number of other key
management, sales, support, technical, and services personnel. The Company has
recently increased its focus on offering professional services to its customers,
the growth of which is directly dependent on the attraction and retention of
personnel. The market for highly skilled employees is intensely competitive.
To the extent that the Company is not able to attract, retain, train, and
motivate highly skilled employees, directly or through acquisition, who are able
to provide EDA and other design services that satisfy customer's expectations,
the Company's business, operating results, and financial condition could be
materially adversely affected.
RISKS OF INTERNATIONAL OPERATIONS
The Company expects that international revenues will continue to account
for a significant portion of its total revenues. The Company's international
operations involve a number of risks normally associated with such operations
including, among others, adoption and expansion of government trade
restrictions, volatile foreign exchange rates, currency conversion risks,
limitations on repatriation of earnings, reduced protection of intellectual
property rights, the impact of possible recessionary environments in economies
outside the U.S., longer receivables collection periods and greater difficulty
in accounts receivable collection, difficulties in managing foreign operations,
political and economic instability, unexpected changes in regulatory
requirements, tariffs and other trade barriers, and move to a single European
currency. In addition, political or economic conditions in a specific country
or region, government spending factors and natural disasters could have a
material adverse impact on the Company's future international business as well
as the Company's international operations. Currency exchange fluctuations in
countries in which the Company conducts business could also materially adversely
affect the Company's business, operating results, and financial condition. A
portion of the Company's international revenues are derived from Asia. Recent
economic uncertainty and related weakening of foreign currencies has had, and
may continue to have an adverse effect on the Company's revenues and operating
results. The Company enters into forward contracts to hedge the short-term
impact of foreign currency fluctuations. Although the Company attempts to
reduce the impact of foreign currency fluctuations, significant exchange rate
movements may have a material adverse impact on the Company's consolidated
results of operations.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
Cadence's success is dependent, in part, upon its proprietary technology.
The Company generally relies upon patents, copyrights, trademarks, and trade
secret laws to establish and maintain its proprietary rights in its technology
and products. Cadence has a program to file applications for and obtain patents
in the United States and in selected foreign countries where a potential market
for Cadence's products exists. Cadence has been issued a number of patents;
other patent applications are currently pending. There can be no assurance that
any of these patents will not be challenged, invalidated or circumvented or that
any rights granted thereunder will provide competitive advantages to Cadence.
In addition, there can be no assurance that patents will be issued from pending
applications, or that claims allowed on any future patents will be sufficiently
broad to protect Cadence's technology. In addition, the laws of some foreign
countries may not permit the protection of Cadence's proprietary rights to the
same extent as do the laws of the United States. Although Cadence believes the
protection afforded by its patents, patent applications, copyrights and
trademarks has value, the rapidly changing technology in the EDA industry makes
Cadence's future success dependent primarily on the innovative skills,
technological expertise, and management abilities of its employees rather than
on patent, copyright, and trademark protection.
Because of the existence of a large number of patents in the EDA industry
and the rapid rate of issuance of new patents, it is not economically
practicable to determine in advance whether a product or
21
<PAGE>
any of its components infringes patent rights of others. From time to time,
Cadence receives notices from or is sued by third parties regarding patent or
other intellectual property claims or is called upon to defend or indemnify a
customer against such a claim of a third party. If infringement is alleged,
Cadence believes that, based upon industry practice, any necessary license or
rights under such patents may be obtained on terms that would not have a
material adverse effect on Cadence's business, operating results, and financial
condition. Nevertheless, there can be no assurance that the necessary licenses
would be available on acceptable terms, or at all, or that Cadence would prevail
in any such challenge. Many of Cadence's products are designed to include
software or other intellectual property licensed from third parties, and it may
be necessary in the future to seek or renew licenses relating to various aspects
of its products. The inability to obtain certain licenses or other rights or to
obtain such licenses or rights on favorable terms, or the need to engage in
litigation could have a material adverse effect on Cadence's business, operating
results, and financial condition.
RISK OF FAILURE TO OBTAIN EXPORT LICENSES
Cadence is required to comply with the regulations of the United States
Department of Commerce with respect to the shipment of its products and other
technologies outside the United States to certain countries and certain end
users. Although to date, Cadence has not encountered any material difficulty in
complying with these regulations, any difficulty in such compliance in the
future could have an adverse effect on the Company's business, operating
results, and financial condition.
RISKS OF BUSINESS INTERRUPTION
The Company's operations are dependent on its ability to protect its
computer equipment and the information stored in its databases against damage by
fire, natural disaster, power loss, telecommunications failures, unauthorized
intrusion, and other catastrophic events. The Company believes it has taken
prudent measures to reduce the risk of interruption in its operations. However,
there can be no assurance that these measures will be sufficient. Any damage or
failure that causes interruptions in the Company's operations could have a
material adverse effect on its business, operating results, and financial
condition.
IMPLEMENTATION OF NEW SYSTEMS
The Company is currently in the process of transitioning to new computer
software for its financial, accounting, project system accounting, and order
management information systems. The successful implementation of these new
systems is crucial to the efficient operation of the Company's business. There
can be no assurance that the Company will implement its new systems in an
efficient and timely manner or that the new systems will be adequate to support
the Company's operations. Problems with installation or initial operation of
the new systems could cause substantial management difficulties in operations
planning, financial reporting, and management and thus could have a material
adverse effect on the Company's business, operating results, financial
condition, and results of operations.
YEAR 2000 COMPLIANCE
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations of the Company. Such failures could materially and adversely
affect the Company's business, operating results, and financial condition.
Due in large part to the uncertainty of the Year 2000 readiness of
third-party suppliers and customers, as well as the lack of a final Year 2000
project plan for the remaining internal business systems that are not yet
assessed as Year 2000 ready, the Company is currently unable to determine
whether the consequences of Year 2000 issues will have a material impact on
the Company's business, operating results or financial condition. The
Company's programs addressing Year 2000 computer issues, described under
"Year 2000 Update," are expected to reduce the Company's level of uncertainty
regarding Year 2000 issues and, in particular, about the Year 2000 readiness
of its material internal
22
<PAGE>
operations, suppliers, customers, and other third-parties. In addition, the
Company believes that the current Year 2000 activities relating to the
Company's software products and internal systems have reduced the risk of any
disruption caused by any Year 2000 issues in these areas.
STOCK REPURCHASE PROGRAM RISKS
The Company, as part of its authorized stock repurchase program, has
purchased call options that entitle the Company to buy on a specified day one
share of common stock at a specified price to satisfy anticipated stock
repurchase requirements under the Company's systematic repurchase programs.
Additionally, the Company has sold put warrants through private placements. If
exercised, the put warrants will be settled with the issuance of stock.
Accordingly, settlement of the put warrants could cause the Company to issue a
substantial number of shares, depending on the exercise price of the put
warrants and the per share fair value of the Company's common stock at the time
of exercise. In addition, settlement of the put warrants could lead to the
disposition by put warrant holders of shares of the Company's common stock that
such holders may have accumulated in anticipation of the exercise of the put
warrants or call options, which may impact the price of the Company's common
stock.
VOLATILITY OF STOCK PRICE
Due to the foregoing, as well as other factors, past financial performance
should not be considered an indicator of future performance. In addition, the
Company's participation in a highly dynamic industry often results in
significant volatility of the Company's common stock price. Factors such as
fluctuations in revenues or operating results, including failure to meet
expectations of securities analysts, announcements of technological innovations
or new products by the Company or its competitors, or developments in or
disputes regarding patents and proprietary rights could have a significant
adverse effect on the trading price of the Company's common stock in any given
period. Moreover, the stock market has from time to time experienced extreme
price and volume fluctuations, which have particularly affected the market for
technology companies, and which have often been unrelated to the operating
performance of such companies. These broad market fluctuations, as well as
general economic, political, and market conditions may adversely affect the
market price of the Company's common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company places its
investments with high credit quality issuers and, by policy, limits the amount
of credit exposure to any one issuer. As stated in its policy, the Company is
averse to principal loss and seeks to preserve its invested funds by limiting
default risk, market risk, and reinvestment risk.
The Company mitigates default risk by investing in only high credit quality
securities that it believes to be low risk and by positioning its portfolio to
respond appropriately to a significant reduction in a credit rating of any
investment issuer or guarantor. The portfolio includes only marketable
securities with active secondary or resale markets to ensure portfolio
liquidity.
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The table below presents the carrying value and related weighted average
interest rates for the Company's investment portfolio. The carrying value
approximates fair value at October 3, 1998. All investments mature in one year
or less.
<TABLE>
<CAPTION>
Carrying Average
Value Interest Rate
---------- -------------
<S> <C> <C>
(In millions, except for average interest rates)
Investment Securities:
Cash equivalents-fixed rate . . . . . . . . . . . . . . . $ 31.2 5.18%
Short-term investments-fixed rate . . . . . . . . . . . . 36.1 5.75%
Short-term investments-variable rate. . . . . . . . . . . 2.0 5.60%
---------
Total investment securities. . . . . . . . . . . . . . 69.3 5.49%
Cash equivalents-variable rate. . . . . . . . . . . . . . 48.4 4.78%
---------
Total interest bearing instruments . . . . . . . . . . $ 117.7 5.20%
---------
---------
</TABLE>
FOREIGN CURRENCY RISK
The Company transacts business in various foreign currencies, primarily in
Japanese yen and certain European currencies. The Company has established a
foreign currency hedging program, utilizing foreign currency forward exchange
contracts (forward contracts) to hedge certain foreign currency transaction
exposures in Japan, Canada, Asia, and certain European countries. Under this
program, increases or decreases in the Company's foreign currency transactions
are partially offset by gains and losses on the forward contracts, so as to
mitigate the possibility of foreign currency transaction gains and losses. The
Company does not use forward contracts for trading purposes. All outstanding
forward contracts at the end of a period are marked-to-market with unrealized
gains and losses included in other income (expense), and thus are recognized in
income in advance of the actual foreign currency cash flows. As these forward
contracts mature, the realized gains and losses are recorded and are included in
net income as a component of other income (expense). The Company's ultimate
realized gain or loss with respect to currency fluctuations will depend on the
currency exchange rates and other factors in effect as the contracts mature.
The table below provides information as of October 3, 1998 about the
Company's material forward contracts. The information is provided in U.S.
dollar equivalent amounts. The table presents the notional amounts (at contract
exchange rates) and the weighted average contractual foreign currency exchange
rates. These forward contracts mature in less than thirty days.
<TABLE>
<CAPTION>
Average
Notional Contract
Forward Contracts: Amount Rate
-------- --------
<S> <C> <C>
(In millions, except for average contract rates)
Japanese yen. . . . . . . . . . . . . . . . . . . . . . . $ 32.7 143.61
French francs . . . . . . . . . . . . . . . . . . . . . . $ (5.7) 5.93
Italian lira. . . . . . . . . . . . . . . . . . . . . . . $ 4.6 1,749.28
German deutschemarks. . . . . . . . . . . . . . . . . . . $ 4.3 1.77
Canadian dollars. . . . . . . . . . . . . . . . . . . . . $ (3.9) 1.52
</TABLE>
The unrealized gain (loss) on the outstanding forward contracts at October
3, 1998 was immaterial to the Company's consolidated financial statements. Due
to the short-term nature of the forward contracts, the fair value at October 3,
1998 was negligible. The realized gain (loss) on these contracts as they
matured was not material to the consolidated operations of the Company.
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<PAGE>
EQUITY PRICE RISK
The Company, as part of its authorized repurchase program, has purchased
call options that entitle the Company to buy on a specified day one share of
common stock at a specified price to satisfy anticipated stock repurchase
requirements under the Company's systematic repurchase programs. Additionally,
the Company has sold put warrants through private placements.
The table below provides information at October 3, 1998 about the Company's
put warrants and call options. The table presents the contract amounts and the
weighted average strike prices. The put warrants and call options expire at
various dates through November 1999.
<TABLE>
<CAPTION>
1998 1999 Estimated
Maturity Maturity Fair Value
-------- -------- ----------
<S> <C> <C> <C>
(Shares and contract amounts in millions)
Put Warrants:
Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 4.2
Weighted average strike price . . . . . . . . . . . . . . $ 24.34 $ 27.22
Contract amount . . . . . . . . . . . . . . . . . . . . . $ 29.7 $ 114.3 $ 25.2
Call Options:
Shares. . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 2.9
Weighted average strike price . . . . . . . . . . . . . . $ 24.47 $ 27.19
Contract amount . . . . . . . . . . . . . . . . . . . . . $ 20.8 $ 78.8 $ 8.8
</TABLE>
If exercised, the put warrants will be settled with stock. Settlement of
the put warrants with stock could cause the Company to issue a substantial
number of shares, depending on the exercise price of the put warrants and the
per share fair value of the Company's common stock at the time of exercise. In
addition, settlement of the put warrants in stock could lead to the disposition
by put warrant holders of shares of the Company's common stock that such holders
may have accumulated in anticipation of the exercise of the put warrants or call
options, which may adversely impact the price of the Company's common stock.
INTEREST RATE SWAP RISK
The Company entered into a 4.8% fixed interest rate swap in connection with
its accounts receivable financing program to modify the interest rate
characteristics of the receivables sold to a certain financing institution on a
non-recourse basis. At October 3, 1998 the maturity distribution of the $26
million notional amount was in quarterly installments of approximately $2
million commencing in January 1999 and ending in October 2001. The estimated
fair value at October 3, 1998 was negligible.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company is involved in various disputes and
litigation matters which arise in the ordinary course of business. These
include disputes and lawsuits related to intellectual property, licensing,
contracts, distribution arrangements, and employee relations matters.
The Company filed a complaint in the United States District Court for the
Northern District of California on December 6, 1995 against Avant! Corporation
(Avant!) and certain of its employees for misappropriation of trade secrets,
copyright infringement, conspiracy, and other illegalities.
On January 16, 1996, Avant! filed various counterclaims against the Company
and the Company's former President and Chief Executive Officer, and with leave
of the court, on January 29, 1998 filed a second amended counterclaim. The
second amended counterclaim alleges, INTER ALIA, that the Company and its former
President and Chief Executive Officer had cooperated with the Santa Clara County
District Attorney and initiated and pursued its complaint against Avant! for
anticompetitive reasons, engaged in wrongful activity in an attempt to
manipulate Avant!'s stock price and utilized certain pricing policies and other
acts to unfairly compete against Avant! in the marketplace. The second amended
counterclaim also alleges that certain Company insiders engaged in illegal
insider trading with respect to Avant!'s stock. The Company and its former
President and Chief Executive Officer believe that each has meritorious defenses
to Avant!'s claims, and each intends to defend such action vigorously. By an
order dated July 13, 1996, the court bifurcated Avant!'s counterclaim from the
Company's complaint and stayed the counterclaim pending resolution of the
Company's complaint. The counterclaim remains stayed.
On April 19, 1996, the Company filed a motion seeking a preliminary
injunction to prevent further use of Cadence copyrighted code and trade secrets
by Avant!. On March 18, 1997, the District Court issued an order in which it
granted in part and denied in part that motion. On September 23, 1997, the
United States Court of Appeals for the Ninth Circuit reversed the District
Court's decision and directed the District Court (a) to issue an order
enjoining the sale of Avant!'s ArcCell products and (b) to determine whether
Avant!'s Aquarius software infringes Cadence's code and, if so, to enter an
order enjoining the sale of that software. In an order issued on December 19,
1997, as modified on January 26, 1998, the district court entered an injunction
barring any further infringement of Cadence's copyrights in Design Framework II
software, or selling, licensing, or copying such product derived from Design
Framework II, including but not limited to, Avant!'s ArcCell products. On
February 19, 1998, Avant! filed a petition for WRIT OF CERTIORAI to the United
States Supreme Court, requesting a review of the Ninth Circuit Court's decision.
On April 17, 1998, the Company filed its opposition to Avant!'s Petition with
the Supreme Court. That petition was denied without comment by the United
States Supreme Court. On July 9, 1998, Cadence filed additional motions seeking
to enjoin further sale of Avant!'s Aquarius products on copyright and trade
secret grounds. The Court currently is considering those motions.
By an order dated July 22, 1997, the District Court stayed most activity
in the case pending in that Court and ordered Avant! to post a $5 million
bond, in light of criminal proceedings pending against Avant! and several of
its executives. On July 9, 1998, the Company filed a motion requesting that
the stay be lifted. The Court is currently considering that motion. The
District Court has not yet set a trial date. The Company intends to pursue
its claim vigorously.
Management believes that the ultimate resolution of the disputes and
litigation matters discussed above will not have a material adverse impact on
the Company's financial position or results of operations.
26
<PAGE>
ITEM 5. OTHER INFORMATION
Pursuant to a recent change to the proxy rules, unless a stockholder who
wishes to bring a matter before the stockholders at the Company's 1999 annual
meeting of stockholders notifies the Company of such matter prior to February
14, 1999, management will have discretionary authority to vote all shares for
which it has proxies in opposition to such matter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
10.45 Revolving Credit Agreement, dated September 30, 1998, by and
between ABN-AMBRO Bank and the Registrant.
10.46 Amendment, dated October 16, 1998, to the Revolving Credit
Agreement, by and between ABN-AMRO Bank and the Registrant
(Exhibit 10.45).
10.47 Agreement and Plan of Reorganization, dated September 3, 1998, by
and among the Registrant, Ambit Design Systems, Inc., and
Adirondack Transaction Corp. (incorporated by reference to
Exhibit 2.01 to the September 30, 1998 Form 8-K).
27.01 Financial data schedule for the period ended October 3, 1998.
</TABLE>
(b) Reports on Form 8-K:
On July 21, 1998, the Registrant filed a Current Report on Form 8-K
reporting that the Company issued shares of common stock and the related
acquisition of Esperan Limited, a United Kingdom corporation.
On September 30, 1998, the Registrant filed a Current Report on Form
8-K reporting the Company's completion of the acquisition of Ambit Design
Systems, Inc.
On September 30, 1998, the Registrant filed a Current Report on Form
8-K reporting the Company's completion of the acquisition of certain assets
and liabilities of Bell Labs' Integrated Circuit Design Automation Group of
Lucent Technologies, Inc.
27
<PAGE>
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.
CADENCE DESIGN SYSTEMS, INC.
(REGISTRANT)
DATE: November 13, 1998 By: /s/ John R. Harding
------------------------- -------------------------------------
JOHN R. HARDING
President and Chief Executive Officer
DATE: November 13, 1998 By: /s/ H. Raymond Bingham
------------------------- -------------------------------------
H. RAYMOND BINGHAM
Executive Vice President
and Chief Financial Officer
28
<PAGE>
- - --------------------------------------------------------------------------------
CADENCE DESIGN SYSTEMS, INC.
---------------------------------
$250,000,000
CREDIT AGREEMENT
Dated as of September 29, 1998
---------------------------------
ABN AMRO BANK N.V.,
AS AGENT
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
BANK OF MONTREAL,
THE FIRST NATIONAL BANK OF CHICAGO
KEYBANK NATIONAL ASSOCIATION, AND
UBS AG, NEW YORK BRANCH,
AS CO-AGENTS
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS 1
SECTION 1.01 CERTAIN DEFINED TERMS 1
SECTION 1.02 ACCOUNTING PRINCIPLES. 15
(a) ACCOUNTING TERMS 15
(b) GAAP CHANGES 15
(c) "FISCAL YEAR" and "FISCAL QUARTER" 15
SECTION 1.03 INTERPRETATION 15
ARTICLE II THE LOANS 16
SECTION 2.01 THE LOANS. 16
(a) REVOLVING LOANS 16
(b) TERM LOANS 16
SECTION 2.02 BORROWING PROCEDURE. 17
(a) NOTICE TO THE AGENT 17
(b) NOTICE TO THE BANKS 17
SECTION 2.03 NON-RECEIPT OF FUNDS 17
SECTION 2.04 LENDING OFFICES 18
SECTION 2.05 EVIDENCE OF INDEBTEDNESS. 18
SECTION 2.06 MINIMUM AMOUNTS 18
SECTION 2.07 REQUIRED NOTICE 18
ARTICLE III INTEREST AND FEES; CONVERSION OR CONTINUATION 19
SECTION 3.01 INTEREST. 19
(a) INTEREST RATE 19
(b) INTEREST PERIODS 19
(c) INTEREST PAYMENT DATES 20
(d) NOTICE TO THE BORROWER AND THE BANKS 20
SECTION 3.02 DEFAULT RATE OF INTEREST 20
SECTION 3.03 FEES. 20
(a) REVOLVING COMMITMENT FEE 20
(b) AGENCY FEE 21
(c) FEES NONREFUNDABLE 21
SECTION 3.04 COMPUTATIONS 21
SECTION 3.05 CONVERSION OR CONTINUATION. 21
2.
<PAGE>
Page
----
(a) ELECTION 21
(b) AUTOMATIC CONVERSION 21
(c) NOTICE TO THE AGENT 21
(d) NOTICE TO THE BANKS 22
SECTION 3.06 REPLACEMENT OF REFERENCE BANKS 22
SECTION 3.07 HIGHEST LAWFUL RATE 22
ARTICLE IV REDUCTION OF REVOLVING COMMITMENTS; REPAYMENT; PREPAYMENT 22
SECTION 4.01 REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENTS. 22
(a) OPTIONAL REDUCTION OR TERMINATION 22
(b) MANDATORY TERMINATION. The Revolving Commitments
shallterminate on the Revolving Expiry Date. 22
(c) SCHEDULED MANDATORY REDUCTIONS 22
(d) APPLICATION 23
(e) NOTICE 23
(f) ADJUSTMENT OF REVOLVING COMMITMENT FEE; NO
REINSTATEMENT 23
(g) NO FUNDING LOSSES 23
SECTION 4.02 REPAYMENT OF THE LOANS. 23
(a) REVOLVING LOANS 23
(b) TERM LOANS 24
SECTION 4.03 PREPAYMENTS. 24
(a) OPTIONAL PREPAYMENTS 24
(b) MANDATORY PREPAYMENTS. 24
(c) NOTICE; APPLICATION 24
ARTICLE V YIELD PROTECTION AND ILLEGALITY 24
SECTION 5.01 INABILITY TO DETERMINE RATES 24
SECTION 5.02 FUNDING LOSSES 24
SECTION 5.03 REGULATORY CHANGES. 25
(a) INCREASED COSTS 25
(b) CAPITAL REQUIREMENTS 25
(c) REQUESTS 26
SECTION 5.04 ILLEGALITY 26
SECTION 5.05 FUNDING ASSUMPTIONS 26
SECTION 5.06 OBLIGATION TO MITIGATE 26
SECTION 5.07 SUBSTITUTION OF BANKS 26
ARTICLE VI PAYMENTS 27
3.
<PAGE>
Page
----
SECTION 6.01 PRO RATA TREATMENT 27
SECTION 6.02 PAYMENTS. 27
SECTION 6.03 TAXES. 27
SECTION 6.04 NON-RECEIPT OF FUNDS 29
SECTION 6.05 SHARING OF PAYMENTS 29
ARTICLE VII CONDITIONS PRECEDENT 30
SECTION 7.01 CONDITIONS PRECEDENT TO THE INITIAL LOANS 30
SECTION 7.02 CONDITIONS PRECEDENT TO ALL LOANS 31
ARTICLE VIII REPRESENTATIONS AND WARRANTIES 31
SECTION 8.01 REPRESENTATIONS AND WARRANTIES 31
ARTICLE IX COVENANTS 35
SECTION 9.01 REPORTING COVENANTS 35
SECTION 9.02 FINANCIAL COVENANTS 38
SECTION 9.03 ADDITIONAL AFFIRMATIVE COVENANTS 38
SECTION 9.04 NEGATIVE COVENANTS 40
ARTICLE X EVENTS OF DEFAULT 44
SECTION 10.01 EVENTS OF DEFAULT 44
SECTION 10.02 EFFECT OF EVENT OF DEFAULT 46
ARTICLE XI THE AGENT 47
SECTION 11.01 Authorization and Action 47
SECTION 11.02 LIMITATION ON LIABILITY OF AGENT; NOTICES; CLOSING. 47
SECTION 11.03 AGENT AND AFFILIATES 48
SECTION 11.04 NOTICE OF DEFAULTS 49
SECTION 11.05 NON-RELIANCE ON AGENT 49
SECTION 11.06 INDEMNIFICATION 49
SECTION 11.07 DELEGATION OF DUTIES 50
SECTION 11.08 SUCCESSOR AGENT 50
SECTION 11.09 CO-AGENTS 50
ARTICLE XII MISCELLANEOUS 50
SECTION 12.01 AMENDMENTS AND WAIVERS 50
SECTION 12.02 NOTICES. 51
SECTION 12.03 NO WAIVER; CUMULATIVE REMEDIES 52
4.
<PAGE>
Page
----
SECTION 12.04 COSTS AND EXPENSES; INDEMNIFICATION. 52
SECTION 12.05 RIGHT OF SET-OFF 53
SECTION 12.06 SURVIVAL 53
SECTION 12.07 OBLIGATIONS SEVERAL 54
SECTION 12.08 BENEFITS OF AGREEMENT 54
SECTION 12.09 BINDING EFFECT; ASSIGNMENT. 54
SECTION 12.10 GOVERNING LAW 56
SECTION 12.11 SUBMISSION TO JURISDICTION. 56
(a) SUBMISSION TO JURISDICTION 56
(b) NO LIMITATION 57
SECTION 12.12 WAIVER OF JURY TRIAL 57
SECTION 12.13 LIMITATION ON LIABILITY 57
SECTION 12.14 CONFIDENTIALITY 57
SECTION 12.15 ENTIRE AGREEMENT 58
SECTION 12.16 SEVERABILITY 58
SECTION 12.17 COUNTERPARTS 58
5.
<PAGE>
SCHEDULES ANNEXES
Annex 1 Pricing Grid
Schedule 1 Revolving Commitments and Pro Rata Shares
Schedule 2 Borrower's Account; Lending Offices; Addresses for Notices
Schedule 8.01(a) Organization and Powers
Schedule 8.01(g) Litigation
Schedule 8.01(h) Environmental Matters
Schedule 8.01(k) Subsidiaries
Schedule 9.04(a) Existing Liens
Schedule 9.04(e) Existing Investments
EXHIBITS
Exhibit A Form of Revolving Note
Exhibit B Form of Term Note
Exhibit C Form of Notice of Borrowing
Exhibit D Form of Compliance Certificate
Exhibit E Form of Opinion of Counsel to the Borrower
Exhibit F Form of Assignment and Acceptance
6.
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of September 29,
1998, is made among Cadence Design Systems, Inc., a Delaware corporation (the
"Borrower"), the financial institutions listed on the signature pages of this
Agreement under the heading "BANKS" (each a "Bank" and, collectively, the
"Banks"), Bank of America National Trust and Savings Association, Bank of
Montreal, The First National Bank of Chicago, KeyBank National Association
and UBS AG, New York Branch, as co-agents hereunder, and ABN AMRO Bank N.V.,
as agent for the Banks hereunder (in such capacity, the "Agent").
The Borrower has requested the Banks to make revolving loans to the
Borrower in an aggregate principal amount of up to $250,000,000 at any time
outstanding. The Banks are severally willing to make such loans to the
Borrower upon the terms and subject to the conditions set forth in this
Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS.
As used in this Agreement, the following terms shall have the
following meanings:
"364-DAY COMMITMENT" means, with respect to each Bank, such portion
of such Bank's Revolving Commitment equal to such Bank's Pro Rata Share of
the lesser of (i) $125,000,000 and (ii) the aggregate Revolving Commitments
of all the Banks.
"ABN AMRO" means ABN AMRO Bank N.V.
"AFFILIATE" means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person.
For purposes of the foregoing, "control," "controlled by" and "under common
control with" with respect to any Person shall mean the possession, directly
or indirectly, of the power (i) to vote 10% or more of the securities having
ordinary voting power of the election of directors of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or
otherwise.
"AGENT" has the meaning set forth in the introduction to this
Agreement.
"AGENT'S ACCOUNT" means the account of the Agent set forth on
Schedule 2 or such other account as the Agent from time to time shall
designate in a written notice to the Borrower and the Banks.
"APPLICABLE FEE AMOUNT" means with respect to the Revolving
Commitment fee
7.
<PAGE>
payable hereunder, the amount set forth opposite the indicated Level below
the heading "3-Year Commitment Fee" or "364-Day Commitment Fee", as the case
may be, in the pricing grid set forth on Annex I in accordance with the
parameters for calculations of such amount also set forth on Annex I.
"APPLICABLE MARGIN" means (i) with respect to Base Rate Loans, 0%
per annum; and (ii) with respect to Eurodollar Rate Loans, the amount set
forth opposite the indicated Level below the heading "Eurodollar Rate Spread"
in the pricing grid set forth on Annex I in accordance with the parameters
for calculations of such amounts also set forth on Annex I.
"ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in Section
11.02(a).
"BANK" and "BANKS" each has the meaning set forth in the recital of
parties to this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy."
"BASE RATE" means for any day the higher of: (i) the Federal Funds
Rate, PLUS 1/2 of 1% per annum, or (ii) the prime commercial lending rate of
ABN AMRO as announced from time to time at its Chicago, Illinois, office.
Each change in the interest rate on the Loans or other Obligations bearing
interest at the Base Rate based on a change in the Base Rate shall be
effective as of the effective date of such change in the Base Rate.
"BASE RATE LOAN" means a Loan bearing interest at a rate determined
by reference to the Base Rate.
"BORROWER" has the meaning set forth in the recital of parties to
this Agreement.
"BORROWER'S ACCOUNT" means the account of the Borrower set forth on
Schedule 2, or such other account as the Borrower from time to time shall
designate in a written notice to the Agent.
"BORROWING" means a borrowing consisting of simultaneous Loans made
at any one time by the Borrower from the Banks pursuant to Article II.
"BUSINESS DAY" means a day (i) other than Saturday or Sunday, and
(ii) on which commercial banks are open for business in Chicago, Illinois.
"CAPITAL LEASE" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP, would, at
the time a determination is made, be required to be recorded as a capital
lease in respect of which such Person is liable as lessee.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 8.01 are satisfied or waived by all Banks (or, in the case
of Section 8.01(a), waived by the Person entitled to receive such payment).
8.
<PAGE>
"COMPLIANCE CERTIFICATE" means a certificate of a Responsible Officer
of the Borrower, in substantially the form of Exhibit D, with such changes
thereto as the Agent or any Bank may from time to time reasonably request.
"CONSOLIDATED CASH FLOW" means, as of any date of determination for
the 12-month period ended on such date, Consolidated Net Income for such
period PLUS depreciation expense, amortization expense and other non-cash
expenses (including write-offs of acquired in-process research and
development costs) which were deducted in determining Consolidated Net
Income, of the Borrower and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net
Income PLUS Consolidated Interest Expense PLUS income tax expense PLUS
depreciation expense, amortization expense and other non-cash expenses
(including write-offs of acquired in-process research and development costs)
which were deducted in determining Consolidated Net Income, of the Borrower
and its Subsidiaries on a consolidated basis, as determined in accordance
with GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, interest
expense (including that attributable to Capital Leases) of the Borrower and
its Subsidiaries on a consolidated basis, including all commissions,
discounts and other fees and charges owed with respect to standby letters of
credit, as determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the net income of
the Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period, as determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date of
determination, Consolidated Total Assets MINUS Consolidated Total
Liabilities; PROVIDED, HOWEVER, that there shall be excluded from
Consolidated Total Assets the following: (i) all assets which would be
classified as intangible assets in accordance with GAAP, including goodwill,
organizational expense, research and development expense, patent
applications, patents, trademarks, trade names, brands, copyrights, trade
secrets, customer lists, licenses, franchises and covenants not to compete;
and (ii) all treasury stock.
"CONSOLIDATED TOTAL ASSETS" means, as of any date of determination,
the total assets of the Borrower and its Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES" means, as of any date of
determination, the total liabilities of the Borrower and its Subsidiaries on
a consolidated basis, as determined in accordance with GAAP.
"CONVERSION DATE" means September 29, 1999, unless extended
pursuant to Section 4.01(c).
"DEFAULT" means an Event of Default or an event or condition which
with notice
9.
<PAGE>
or lapse of time or both would constitute an Event of Default.
"DOLLARS" and the sign "$" each means lawful money of the United
States.
"ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $5,000,000,000, (ii) a commercial bank
organized under the laws of any other country which is a member of the OECD,
or a political subdivision of any such country, and having a combined capital
and surplus of at least $5,000,000,000, PROVIDED that such bank is acting
through a branch or agency located in the United States and licensed by the
United States or any state thereof; and (iii) a Person that is primarily
engaged in the business of commercial banking and that is (A) a Subsidiary of
a Bank, (B) a Subsidiary of a Person of which a Bank is a Subsidiary, or (C)
a Person of which a Bank is a Subsidiary.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directives, requests, licenses,
authorizations and permits of, and agreements with (including consent
decrees), any Governmental Authorities, in each case relating to or imposing
liability or standards of conduct concerning public health, safety and
environmental protection matters, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Clean Air Act, the
Federal Water Pollution Control Act of 1972, the Solid Waste Disposal Act,
the Federal Resource Conservation and Recovery Act, the Toxic Substances
Control Act, the Emergency Planning and Community Right-to-Know Act, the
California Hazardous Waste Control Law, the California Solid Waste
Management, Resource Recovery and Recycling Act, the California Water Code
and the California Health and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is under common control with the Borrower within the
meaning of Section 4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of
the Internal Revenue Code.
"EURODOLLAR BUSINESS DAY" means a Business Day on which dealings in
Dollar deposits are carried on in the London interbank market.
"EURODOLLAR RATE" means for each Interest Period for each
Eurodollar Rate Loan the rate per annum (rounded upward, if necessary, to the
nearest 1/100 of 1%) determined by the Agent pursuant to the following
formula:
Eurodollar Rate = Interbank Rate
------------------------------------
100% - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date
of any change in the Eurodollar Reserve Percentage.
10.
<PAGE>
"EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate
determined by reference to the Eurodollar Rate.
"EURODOLLAR REFERENCE BANK" means ABN AMRO, subject to the
provisions of Section 3.06.
"EURODOLLAR RESERVE PERCENTAGE" means the maximum reserve
requirement percentage (including any ordinary, supplemental, marginal and
emergency reserves), if any, as determined by the Agent, then applicable
under Regulation D in respect of Eurocurrency funding (currently referred to
as "Eurocurrency Liabilities") of a member bank in the Federal Reserve System
with deposits exceeding $1,000,000,000.
"EVENT OF DEFAULT" has the meaning set forth in Section 10.01.
"EXISTING FACILITY" means the Revolving Credit Agreement dated as
of April 11, 1996, among the Borrower, the financial institutions party
thereto, and Credit Lyonnais, as agent for such financial institutions.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"FEE LETTER" means the mandate letter dated August 25, 1998 by and
between the Borrower and the Agent.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by
the Agent, equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for any day of determination (or if such
day of determination is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day which is a Business Day, the average of the quotations
for such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"FINAL MATURITY DATE" means September 29, 2002.
"FIXED CHARGE COVERAGE RATIO" has the meaning specified in Section
9.02(c).
"FUNDED DEBT" of any Person means, without duplication, (a) all
interest-bearing Indebtedness of such Person (whether on- of off-balance
sheet), (b) all obligations of such Person in respect of any letter of
credit, and (c) all obligations of such Person with respect to leases which
are or should be capitalized on the balance sheet of such Person in
accordance with GAAP. Notwithstanding the foregoing, for purposes of Section
9.02(c), Funded Debt shall not include (i) any Indebtedness which is
subordinated to the Obligations on terms and conditions satisfactory to the
Agent and the Majority Banks in their reasonable discretion and for which no
principal payment is due before the second anniversary of the Final Maturity
Date, or (ii) any obligations of such Person under any Permitted Receivables
Purchase Facility.
11.
<PAGE>
"FRB" means the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles in the U.S.
as in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or other
governmental department, commission, board, bureau, agency, central bank,
court, tribunal or other instrumentality or authority, domestic or foreign,
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GUARANTY OBLIGATION" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect
to any Indebtedness, lease, dividend, letter of credit or other obligation
(the "primary obligations") of another Person (the "primary obligor"),
including any obligation of that Person (i) to purchase, repurchase or
otherwise acquire such primary obligations or any property constituting
direct or indirect security therefor, or (ii) to advance or provide funds (A)
for the payment or discharge of any such primary obligation, or (B) 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 (iii) to
purchase property, securities or services primarily for the purpose of
assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, (iv) in
connection with any synthetic lease or other similar off balance sheet lease
transaction, or (v) otherwise to assure or hold harmless the holder of any
such primary obligation against loss in respect thereof.
"HAZARDOUS SUBSTANCES" means any toxic or hazardous substances,
materials, wastes, contaminants or pollutants, including asbestos, PCBs,
petroleum products and byproducts, and any substances defined or listed as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances" (or similarly identified), regulated under or forming the basis
for liability under any applicable Environmental Law.
"IRS" means the Internal Revenue Service, or any successor thereto.
"INDEBTEDNESS" means, for any Person: (i) all indebtedness or
other obligations of such Person for borrowed money or for the deferred
purchase price of property or services; (ii) 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; (iii) all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or
sale of such property); (iv) all obligations under Capital Leases; (v) all
reimbursement or other obligations of such Person under or in respect of
letters of credit and bankers acceptances, and all net obligations in respect
of Rate Contracts; (vi) all reimbursement or other obligations of such Person
in respect of any bank guaranties, shipside bonds, surety bonds and similar
instruments issued for the account of such Person or as to which such Person
is otherwise liable for reimbursement of drawings or payments; (vii) all
Guaranty Obligations; and
12.
<PAGE>
(viii) all indebtedness of another Person secured by any Lien upon or in
property owned by the Person for whom Indebtedness is being determined,
whether or not such Person has assumed or become liable for the payment of
such indebtedness of such other Person. For all purposes of this Agreement,
the Indebtedness of any Person shall include all recourse Indebtedness of any
partnership or joint venture or limited liability company in which such
Person is a general partner or a joint venturer or a member.
"INSOLVENCY PROCEEDING" means (i) any case, action or proceeding
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (ii) any general assignment for the
benefit of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors, in each case undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"INTERBANK RATE" means the rate per annum determined by the Agent,
on the basis of quotations furnished to it by the Eurodollar Reference Bank,
to be the average (rounded upward, if necessary, to the nearest 1/16 of 1%)
of the rates at which deposits in Dollars are offered to the Eurodollar
Reference Bank by prime banks in the London interbank market at approximately
11:00 A.M. (London time), two Eurodollar Business Days before the first day
of such Interest Period, in an amount substantially equal to the proposed
Eurodollar Rate Loan to be made, continued or converted by the Eurodollar
Reference Bank and for a period of time comparable to such Interest Period.
"INTEREST PAYMENT DATE" means a date specified for the payment of
interest pursuant to Section 3.01(c).
"INTEREST PERIOD" means, with respect to any Eurodollar Rate Loan,
the period determined in accordance with Section 3.01(b) applicable thereto.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986,
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"LENDING OFFICE" has the meaning set forth in Section 2.04.
"LIEN" means any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement, charge or encumbrance, lien
(statutory or other), or other preferential arrangement (including any
conditional sale or other title retention agreement, any financing lease
having substantially the same economic effect as any of the foregoing or any
agreement to give any security interest).
"LIQUIDITY RATIO" means, as of any date of determination, the ratio
of (i) (A) cash, PLUS (B) cash equivalents, PLUS (C) accounts receivable
included in current assets, PLUS (D) Consolidated Cash Flow, MINUS (E)
capital expenditures for the 12-month period ended on such date of
determination, MINUS (F) capitalization of software, in each case, for the
Borrower and its Subsidiaries on a consolidated basis determined in
accordance with GAAP, to (ii) Consolidated Total Liabilities.
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"LOAN DOCUMENTS" means this Agreement, the Notes, the Fee Letter
and all other certificates, documents, agreements and instruments delivered
to the Agent and the Banks under or in connection with this Agreement.
"LOANS" means the Revolving Loans and the Term Loans.
"MAJORITY BANKS" means at any time Banks holding at least 51% of
the then aggregate unpaid principal amount of the Loans, or, if no such
principal amount is then outstanding, Banks having at least 51% of the
aggregate Revolving Commitments.
"MATERIAL ADVERSE EFFECT" means any event, matter, condition or
circumstance which has or would reasonably be expected to have a material
adverse effect on the business, properties, results of operations or
condition (financial or otherwise) of the Borrower and its Subsidiaries taken
as a whole.
"MATERIAL SUBSIDIARY" means any Subsidiary the total assets of
which constitute 20% or more of Consolidated Total Assets, measured as of the
last day of the then most recent fiscal quarter.
"MINIMUM AMOUNT" has the meaning set forth in Section 2.06.
"MOODY'S" means Moody's Investors Service, Inc. and any successor
thereto that is a nationally recognized rating agency.
"MOODY'S RATING" means the rating issued from time to time by
Moody's with respect to the Borrower's senior unsecured long term debt.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" means when used in respect of any issuance of
any debt or equity securities of the Borrower or any Subsidiary, the gross
proceeds received by the Borrower or such Subsidiary from such issuance less
all direct costs and expenses incurred or to be incurred, and all federal,
state, local and foreign taxes assessed or to be assessed, in connection
therewith.
"NOTES" means the Revolving Notes and the Term Notes.
"NOTICE" means a Notice of Borrowing, a Notice of Conversion or
Continuation or a Notice of Prepayment.
"NOTICE OF BORROWING" has the meaning set forth in Section 2.02(a).
"NOTICE OF CONVERSION OR CONTINUATION" has the meaning set forth in
Section 3.05(c).
"NOTICE OF PREPAYMENT" has the meaning set forth in Section 4.03.
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"OBLIGATIONS" means the indebtedness, liabilities and other
obligations of the Borrower to the Agent or any Bank under or in connection
with the Loan Documents, including all Loans, all interest accrued thereon,
all fees due under this Agreement and all other amounts payable by the
Borrower to the Agent or any Bank thereunder or in connection therewith,
whether now or hereafter existing or arising, and whether due or to become
due, absolute or contingent, liquidated or unliquidated, determined or
undetermined.
"OECD" means the Organization for Economic Cooperation and
Development.
"OPERATING LEASE" means, for any Person, any lease of any property
of any kind by that Person as lessee which is not a Capital Lease.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PENSION PLAN" means any employee pension benefit plan covered by
Title IV of ERISA (other than a Multiemployer Plan) that is maintained for
employees of the Borrower or any ERISA Affiliate or with regard to which the
Borrower or an ERISA Affiliate is a contributing sponsor within the meaning
of Sections 4001(a)(13) or 4069 of ERISA.
"PERMITTED INVESTMENTS" means, in respect of the Borrower or any
Subsidiary, short-term investment grade debt securities of any type
authorized from time to time under an investment policy for short-term cash
investments approved by the Borrower's board of directors or such
Subsidiary's board of directors, as the case may be.
"PERMITTED LIENS" means:
(i) Liens in favor of the Banks or the Agent for the benefit
of the Banks to secure the Obligations;
(ii) the existing Liens listed in Schedule 9.04(a);
(iii) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and which are adequately reserved
for in accordance with GAAP;
(iv) Liens of materialmen, mechanics, warehousemen, carriers
or employees or other like Liens arising in the ordinary course of
business and securing obligations either not delinquent or being
contested in good faith by appropriate proceedings which are
adequately reserved for in accordance with GAAP and which do not in
the aggregate materially impair the use or value of the property or
risk the loss or forfeiture of title thereto;
(v) Liens consisting of deposits or pledges to secure the
payment of worker's compensation, unemployment insurance or other
social security benefits or obligations, or to secure the
performance of bids, trade contracts, leases (other
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than Capital Leases), public or statutory obligations, surety or
appeal bonds or other obligations of a like nature incurred in the
ordinary course of business (other than for indebtedness or any
Liens arising under ERISA);
(vi) easements, rights of way, servitudes or zoning or
building restrictions and other minor encumbrances on real property
and irregularities in the title to such property which do not in
the aggregate materially impair the use or value of such property
or risk the loss or forfeiture of title thereto;
(vii) statutory landlord's Liens under leases to which the
Borrower or any of its Subsidiaries is a party;
(viii) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off
or similar rights and remedies as to deposit accounts or other
funds maintained with a creditor depository institution; PROVIDED
that (i) such deposit account is not a dedicated cash collateral
account and is not subject to restrictions against access by the
Borrower in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by the
Borrower or any Subsidiary to provide collateral to the depository
institution;
(ix) Liens (A) upon or in any property acquired or held by the
Borrower or any of its Subsidiaries to secure the purchase price of
such property or Indebtedness incurred solely for the purpose of
financing the acquisition of such property, or (B) existing on such
property at the time of its acquisition, PROVIDED that the Lien is
confined solely to the property so acquired and improvements
thereon;
(x) Liens on assets of Persons which become Subsidiaries of
the Borrower after the date hereof, PROVIDED that such Liens
existed at the time any such Persons became Subsidiaries of the
Borrower and were not created in anticipation thereof;
(xi) Liens on Receivables in connection with any Permitted
Receivables Purchase Facility.
(xii) Leases or subleases and licenses and sublicenses
granted to others in the ordinary course of business and not
interfering in any material respect with the business of the
Borrower and any interest or title of a lessor or licensor under
any lease or license;
(xiii) Liens on equipment leased by the Borrower pursuant
to an operating lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the
purpose of financing the lease of such equipment (including Liens
arising from UCC financing statements regarding leases permitted by
this Agreement);
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(xiv) Liens arising from judgments, decrees or attachments
to the extent and only so long as such judgment, decree or
attachment has not caused or resulted in an Event of Default;
(xv) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in
connection with the importation of goods;
(xvi) Liens incurred in connection with the extension, renewal,
refunding, refinancing, modification, amendment or restatement of
the Indebtedness secured by Liens of the type described in clauses
(i) through (xv) above, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of Indebtedness being
extended, renewed or refinanced does not increase; and
(xvii) Liens not otherwise permitted hereunder securing
Indebtedness in an aggregate principal amount not to exceed 10% of
Consolidated Tangible Net Worth, measured as of the last day of the
then most recent fiscal quarter, at any time outstanding.
"PERMITTED RECEIVABLES PURCHASE FACILITY" shall mean any
receivables sales, financing or securitization programs now or hereafter
entered into by the Borrower or any of its Subsidiaries, in each case for the
purpose of financing Receivables, including, without limitation, (a) that
Receivables Sale Agreement dated as of September 30, 1998, among Cadence
Receivables Corporation, Cadence Credit Corporation, the Borrower, Windmill
Funding Corporation, the liquidity providers from time to time party thereto,
and ABN AMRO Bank N.V., as the enhancer and the agent, together with the
other agreements in connection therewith; (b) that Agreement Re: Purchase
and Sale of Receivables dated June 19, 1998, between the Borrower and ABN
AMRO Bank N.V.; (c) that letter agreement with respect to the sale of certain
receivables of the Borrower dated September 26, 1997, between the Borrower
and Credit Lyonnais, Los Angeles Branch; (d) that Purchase and Sale Program
Agreement dated as of February 25, 1998, between the Borrower, as the seller
and the servicer, and BancBoston Leasing Inc.; (e) that Purchase and Sale
Program Agreement dated as of May 22, 1998, between the Borrower, as the
seller and the servicer, and Prime Leasing, Inc.; (f) that Purchase and Sale
Program Agreement dated as of June 8, 1998, between the Borrower, as the
seller and the servicer, and Sanwa Business Credit Corporation; (g) that
Purchase and Sale Program Agreement dated as of June 24, 1998, between the
Borrower, as the seller and the servicer, and Software Lease Finance Group,
Inc.; (h) that Receivables Sales Agreement dated July 7, 1998, between
Cadence Design Systems Limited and Kleinwort Benson Program Management
Limited; and (i) those certain Assignment and Acknowledgements entered into
between Cadence Design Systems Limited and AT&T Capital Limited, in each case
as amended, restated or supplemented from time to time.
"PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or any
other entity of whatever nature or any
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Governmental Authority.
"PLAN" means any employee pension benefit plan as defined in
Section 3(2) of ERISA (including any Multiemployer Plan) and any employee
welfare benefit plan, as defined in Section 3(1) of ERISA (including any plan
providing benefits to former employees or their survivors).
"PREMISES" means any and all real property, including all buildings
and improvements now or hereafter located thereon and all appurtenances
thereto, now or hereafter owned, leased, occupied or used by the Borrower and
its Subsidiaries.
"PRO RATA SHARE" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal) at such time of such Bank's Revolving
Commitments divided by the combined Revolving Commitments of all Banks (or,
if all Revolving Commitments have been terminated, the aggregate principal
amount of such Bank's Loans divided by the aggregate principal amount of the
Loans then held by all Banks). The initial Pro Rata Share of each Bank is
set forth opposite such Bank's name in Schedule 1 under the heading "Pro Rata
Share."
"RATE CONTRACTS" means interest rate swaps, caps, floors and
collars, currency swaps, or other similar financial products designed to
provide protection against fluctuations in interest, currency or exchange
rates.
"RECEIVABLES" means any rights to payment for license fees, whether
in the form of accounts receivable, general intangibles, instruments, chattel
paper or otherwise.
"RECEIVABLES RELATED ASSETS" means (a) any rights arising under the
documentation governing or relating to Receivables, including, without
limitation, rights in respect of Liens securing such Receivables, (b) any
proceeds of such Receivables and any lockboxes or accounts in which such
proceeds are deposited, (c) spread accounts and other similar accounts, and
any amounts on deposit therein, established in connection with any Permitted
Receivables Purchase Facility, (d) any warranty, indemnity, dilution and
other intercompany claim arising out of any Permitted Receivables Purchase
Facility, and (e) other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection
with asset securitization transactions involving accounts receivable.
"REGULATION D" means Regulation D of the FRB.
"REGULATORY CHANGE" has the meaning set forth in Section 5.03.
"RELATED PERSON" has the meaning set forth in Section 11.06.
"REQUIRED NOTICE DATE" has the meaning set forth in Section 2.07.
"RESPONSIBLE OFFICER" means, with respect to any Person, the chief
executive officer, the president, the chief financial officer, the treasurer
or the controller of such Person, or any other senior officer of such Person
having substantially the same authority and
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responsibility; or, with respect to compliance with financial covenants, the
chief financial officer, the treasurer or the controller of any such Person,
or any other senior officer of such Person involved principally in the
financial administration or controllership function of such Person and having
substantially the same authority and responsibility.
"REVOLVING COMMITMENT" means, when used with reference to any Bank
at the time any determination thereof is to be made, the amount set forth
opposite the name of such Bank on Schedule 1, as from time to time reduced
pursuant to Section 4.01, or, where the context so requires, the obligation
of such Bank to make Revolving Loans up to such amount on the terms and
conditions set forth in this Agreement.
"REVOLVING EXPIRY DATE" means September 29, 2001.
"REVOLVING LOAN" has the meaning set forth in Section 2.01(a).
"REVOLVING NOTE" means a Promissory Note of the Borrower payable to
the order of a Bank, in substantially the form of Exhibit A.
"S&P" means Standard & Poor's Rating Group of Standard & Poor's
Corporation and any successor thereto that is a nationally recognized rating
agency.
"S&P RATING" means the rating issued from time to time by S&P with
respect to the Borrower's senior unsecured long term debt.
"SEC" means the Securities and Exchange Commission, or any
successor thereto.
"SOLVENT" means, as to any Person at any time, that (i) the fair
value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 101(31) of the Bankruptcy Code; (ii) 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; and
(iii) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"SUBSIDIARY" means any corporation, association, partnership, joint
venture or other business entity of which more than 50% of the voting stock
or other equity interest is owned directly or indirectly by any Person or one
or more of the other Subsidiaries of such Person or a combination thereof.
Unless the context otherwise clearly requires, references to a "Subsidiary"
shall mean a Subsidiary of the Borrower.
"SWAP TERMINATION VALUE" means, in respect of any one or more Rate
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Rate Contracts, (i) for any date on or
after the date such Rate Contracts have been closed out and termination
value(s) determined in accordance therewith, such termination value(s), and
(ii) for any date prior to the date referenced in clause (a) the amount(s)
determined as the mark-to-
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market value(s) for such Rate Contracts, as determined by the Borrower based
upon one or more mid-market or other readily available quotations provided by
any recognized dealer in such Rate Contracts (which may include any Bank).
"TAXES" has the meaning set forth in Section 6.03.
"TERM LOAN" has the meaning set forth in Section 2.01(b).
"TERM NOTE" means a Promissory Note of the Borrower payable to the
order of a Bank, in substantially the form of Exhibit B.
"TERMINATION EVENT" means any of the following:
(i) with respect to a Pension Plan, a reportable event
described in Section 4043 of ERISA and the regulations issued
thereunder (other than a reportable event not subject to the
provisions for 30-day notice to the PBGC under such regulations);
(ii) the withdrawal of the Borrower or an ERISA Affiliate from
a Pension Plan during a plan year in which the withdrawing employer
was a "substantial employer" as defined in Section 4001(a)(2) or
4062(e) of ERISA;
(iii) the taking of any actions (including the filing of a
notice of intent to terminate) by the Borrower, an ERISA Affiliate,
the PBGC, a Plan Administrator, or any other Person to terminate a
Pension Plan or the treatment of a Plan amendment as a termination
of a Pension Plan under Section 4041 of ERISA;
(iv) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Pension Plan; or
(v) the complete or partial withdrawal of the Borrower or an
ERISA Affiliate from a Multiemployer Plan.
"UCC" means the Uniform Commercial Code of the jurisdiction the law
of which governs the Loan Document in which such term is used or the
attachment, perfection or priority of the Lien on any Collateral.
"UNFUNDED ACCRUED BENEFITS" means the excess of a Pension Plan's
accrued benefits, as defined in Section 3(23) of ERISA, over the current
value of that Plan's assets, as defined in Section 3(26) of ERISA.
"UNITED STATES" and "U.S." each means the United States of America.
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"VENTURE FUND" means Telos Venture Partners, L.P.
SECTION 1.02 ACCOUNTING PRINCIPLES.
(a) ACCOUNTING TERMS.
Unless otherwise defined or the context otherwise requires, all
accounting terms not expressly defined herein shall be construed, and all
accounting determinations and computations required under the Loan Documents
shall be made, in accordance with GAAP, consistently applied.
(b) GAAP CHANGES.
If GAAP shall have been modified after the Closing Date and the
application of such modified GAAP shall have a material effect on any
financial computations hereunder (including the computations required for the
purpose of determining compliance with the covenants set forth in Section
9.02), then such computations shall be made and the financial statements,
certificates and reports due hereunder shall be prepared, and all accounting
terms not otherwise defined herein shall be construed, in accordance with
GAAP as in effect prior to such modification, unless and until the Majority
Banks and the Borrower shall have agreed upon the terms of the application of
such modified GAAP.
(c) "FISCAL YEAR" and "FISCAL QUARTER".
References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Borrower.
SECTION 1.03 INTERPRETATION.
In the Loan Documents, except to the extent the context otherwise
requires:
(i) Any reference to an Article, a Section, a Schedule or an
Exhibit is a reference to an article or section thereof, or a
schedule or an exhibit thereto, respectively, and to a subsection
or a clause is, unless otherwise stated, a reference to a
subsection or a clause of the Section or subsection in which the
reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement or any other Loan
Document as a whole and not merely to the specific Article,
Section, subsection, paragraph or clause in which the respective
word appears.
(iii) The meaning of defined terms shall be equally applicable
to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation."
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(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments
and other modifications thereto, but only to the extent such
amendments and other modifications are not prohibited by the terms
of the Loan Documents.
(vi) References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any table of contents, captions and headings are for
convenience of reference only and shall not affect the construction
of this Agreement or any other Loan Document.
(viii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding";
and the word "through" means "to and including."
(ix) The use of a word of any gender shall include each of the
masculine, feminine and neuter genders.
(x) This Agreement and the other Loan Documents are the
result of negotiations among the Agent, the Borrower and the other
parties, have been reviewed by counsel to the Agent, the Borrower
and such other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Banks or the
Agent merely because of the Agent's or Banks' involvement in their
preparation.
ARTICLE II
THE LOANS
SECTION 2.01 THE LOANS.
(a) REVOLVING LOANS.
Each Bank severally agrees, on the terms and conditions hereinafter
set forth, to make revolving loans (each a "Revolving Loan" and,
collectively, the "Revolving Loans") to the Borrower from time to time on any
Business Day during the period from the Closing Date until the Revolving
Expiry Date, in an aggregate principal amount up to but not exceeding at any
time outstanding such Bank's Revolving Commitment. Within the limits of each
Bank's Revolving Commitment, during such period the Borrower may borrow,
repay the Revolving Loans in whole or in part, and reborrow, all in
accordance with the terms and conditions hereof.
(b) TERM LOANS.
Each Bank severally agrees, on the terms and conditions hereinafter
set forth, to
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make a term loan (each a "Term Loan" and, collectively, the "Term Loans") to
the Borrower on the Conversion Date in a principal amount up to but not
exceeding one-half of such Bank's Revolving Commitment. Any amount of the
Term Loans repaid may not be reborrowed.
SECTION 2.02 BORROWING PROCEDURE.
(a) NOTICE TO THE AGENT.
Each Borrowing shall be made on a Business Day upon written or
telephonic notice (in the latter case to be confirmed promptly in writing)
from the Borrower to the Agent, which notice shall be received by the Agent
not later than 2:00 P.M. (New York City time) on the Required Notice Date.
Each such notice, except as provided in Sections 5.01 and 5.04, shall be
irrevocable and binding on the Borrower, shall be in substantially the form
of Exhibit C (a "Notice of Borrowing") and shall specify whether the
Borrowing consists of Base Rate Loans or Eurodollar Rate Loans and the other
information required thereby; PROVIDED, HOWEVER, that, if so requested by the
Agent, all Borrowings made on the Closing Date through the earlier of (i) 60
days following the Closing Date; and (ii) the post-closing syndication of the
Revolving Commitments by ABN AMRO to one or more Banks, shall have the same
Interest Period and shall be Base Rate Loans or Eurodollar Rate Loans for
Interest Periods no longer than one month.
(b) NOTICE TO THE BANKS.
The Agent shall give each Bank prompt notice by telephone
(confirmed promptly in writing) or by facsimile of each Borrowing, specifying
the information contained in the Borrower's Notice and such Bank's Pro Rata
Share of the Borrowing. On the date of each Borrowing, each Bank shall make
available such Bank's Pro Rata Share of such Borrowing, in same day or
immediately available funds, to the Agent for the Agent's Account, not later
than 3:00 P.M. (New York City time). Upon fulfillment of the applicable
conditions set forth in Article VII and after receipt by the Agent of any
such funds, and unless other payment instructions are provided by the
Borrower, the Agent shall make such funds available to the Borrower by
crediting the Borrower's Account with same day or immediately available funds
on such Borrowing date.
SECTION 2.03 NON-RECEIPT OF FUNDS.
Unless the Agent shall have received notice from a Bank prior to
the date of any Borrowing that such Bank shall not make available to the
Agent such Bank's Pro Rata Share of such Borrowing, the Agent may assume that
such Bank has made such portion available to the Agent on the date of such
Borrowing in accordance with Section 2.02(b) and the Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent such Bank shall not have so made
such Pro Rata Share available to the Agent, and the Agent in such
circumstances shall have made available to the Borrower such amount, such
Bank agrees to repay to the Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount
is made available to the Borrower until the date such amount is repaid to the
Agent, at the Federal Funds Rate. If
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such Bank shall repay to the Agent such corresponding amount, such amount so
repaid shall constitute such Bank's Loan as part of such Borrowing for
purposes of this Agreement. If such amount is not made available by such
Bank to the Agent on the Business Day following the Borrowing date, the Agent
shall notify the Borrower of such failure to fund and, upon demand by the
Agent, the Borrower shall pay such amount to the Agent for the Agent's
Account, together with interest thereon for each day elapsed since the date
of such Borrowing, at a rate per annum equal to the interest rate applicable
at the time to the Loans comprising such Borrowing.
SECTION 2.04 LENDING OFFICES
The Loans made by each Bank may be made from and maintained at
such offices of such Bank (each a "Lending Office") as such Bank may from
time to time designate (whether or not such office is specified on Schedule
2). A Bank shall not elect a Lending Office that, at the time of making such
election, increases the amounts which would have been payable by the Borrower
to such Bank under this Agreement in the absence of such election. With
respect to Eurodollar Rate Loans made from and maintained at any Bank's
non-U.S. offices, the obligation of the Borrower to repay such Eurodollar
Rate Loans shall nevertheless be to such Bank and shall, for all purposes of
this Agreement (including for purposes of the definition of the term
"Majority Banks") be deemed made or maintained by it, for the account of any
such office.
SECTION 2.05 EVIDENCE OF INDEBTEDNESS.
The Loans made by each Bank shall be evidenced by one or more loan
accounts maintained by such Bank in accordance with its usual practices. The
loan accounts maintained by the Agent and each such Bank shall be rebuttable
presumptive evidence of the amount of the Loans made by such Bank to the
Borrower and the interest and payments thereon. Any failure so to record or
any error in doing so shall not, however, limit or otherwise affect the
obligation of the Borrower hereunder to pay any amount owing with respect to
the Loans. At the request of any Bank, (i) as additional evidence of the
Indebtedness of the Borrower to such Bank resulting from the Revolving Loans
made by such Bank, the Borrower shall execute and deliver for account of such
Bank pursuant to Article VII a Revolving Note, dated the Closing Date,
setting forth such Bank's Revolving Commitment as the maximum principal
amount thereof, and (ii) on the Conversion Date, as additional evidence of
the Indebtedness of the Borrower to such Bank resulting from the Term Loan
made by such Bank, the Borrower shall execute and deliver for account of such
Bank pursuant to Article VII a Term Note, dated the Conversion Date, in the
principal amount of the Term Loan made by such Bank on the Conversion Date.
SECTION 2.06 MINIMUM AMOUNTS.
Any Borrowing, conversion, continuation, Revolving Commitment
reduction or prepayment of Loans hereunder shall be in an aggregate amount
determined as follows (each such specified amount a "Minimum Amount"): (i)
any Borrowing or partial prepayment of Base Rate Loans shall be in the amount
of $250,000 or a greater amount which is an integral multiple of $50,000;
(ii) any Borrowing, continuation or partial prepayment of, or conversion
into, Eurodollar Rate Loans shall be in the amount of $2,500,000 or a greater
amount which is an integral multiple of $100,000; and (iii) any partial
Revolving Commitment reduction under
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Section 4.01(a) shall be in the amount of $5,000,000 or a greater amount
which is an integral multiple of $5,000,000.
SECTION 2.07 REQUIRED NOTICE.
Any Notice hereunder shall be given not later than the date
determined as follows (each such specified date a "Required Notice Date"):
(i) any Notice with respect to a Borrowing of, or conversion into, Base Rate
Loans shall be given not later than the date of the proposed borrowing or
conversion; (ii) any Notice with respect to any Borrowing or continuation of,
or conversion into, Eurodollar Rate Loans shall be given at least three
Eurodollar Business Days prior to the date of the proposed Borrowing,
conversion or continuation; (iii) any Notice with respect to any prepayment
under Section 4.03(a) shall be given at least one Business Day prior to the
date of the proposed prepayment, in the case of Base Rate Loans, and at least
three Eurodollar Business Days prior to the date of the proposed prepayment,
in the case of Eurodollar Rate Loans; and (iv) any Notice with respect to any
Revolving Commitment reduction under Section 4.01(a) shall be given at least
five Business Days prior to the proposed prepayment date.
ARTICLE III
INTEREST AND FEES; CONVERSION OR CONTINUATION
SECTION 3.01 INTEREST.
(a) INTEREST RATE.
The Borrower shall pay interest on the unpaid principal amount of
each Loan from the date of such Loan until such principal amount shall be
paid in full, at the following rates:
(i) during such periods as such Loan is a Base Rate Loan, at
a rate per annum equal at all times to the Base Rate PLUS the
Applicable Margin; and
(ii) during such periods as such Loan is a Eurodollar Rate
Loan, at a rate per annum equal at all times during each Interest
Period for such Eurodollar Rate Loan to the Eurodollar Rate for
such Interest Period PLUS the Applicable Margin.
(b) INTEREST PERIODS.
The initial and each subsequent Interest Period for Eurodollar Rate
Loans shall be a period of one, two, three or six months. The determination
of Interest Periods shall be subject to the following provisions:
(A) in the case of immediately successive Interest Periods, each
successive Interest Period shall commence on the day on which the next
preceding Interest Period expires;
(B) if any Interest Period pertaining to an Eurodollar Rate Loan
would otherwise end on a day which is not a Business Day, that Interest
Period shall be extended to the next
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succeeding Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such
Interest Period shall end on the immediately preceding Business Day;
(C) no Interest Period shall extend beyond (1) the Revolving
Expiry Date with respect to any Revolving Loan, and (2) the Final Maturity
Date with respect to any Term Loan;
(D) any Interest Period pertaining to a Eurodollar Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the ending calendar month of
such Interest Period) shall end on the last Business Day of the ending
calendar month of such Interest Period;
(E) there shall be no more than ten Interest Periods in effect at
any one time.
(c) INTEREST PAYMENT DATES.
Subject to Section 3.02, interest on the Loans shall be payable in
arrears at the following times:
(i) interest on each Base Rate Loan shall be payable
quarterly on the last Business Day in each calendar quarter, on the
date of any prepayment or conversion of any such Base Rate Loan,
and at maturity;
(ii) interest on each Eurodollar Rate Loan shall be payable on
the last day of each Interest Period for such Eurodollar Rate Loan,
PROVIDED that (A) in the case of any such Interest Period which is
greater than three months, interest on such Eurodollar Rate Loan
shall be payable on each date that is three months, or any integral
multiple thereof, after the beginning of such Interest Period, and
on the last day of such Interest Period, and (B) if any prepayment,
conversion, or continuation is effected other than on the last day
of such Interest Period, accrued interest on such Eurodollar Rate
Loan shall be due on such prepayment, conversion or continuation
date as to the principal amount of such Eurodollar Rate Loan
prepaid, converted or continued PLUS all amounts required under
Section 5.02.
(d) NOTICE TO THE BORROWER AND THE BANKS.
Each determination by the Agent hereunder of a rate of interest and
of any change therein, including any changes in the Applicable Margin, (ii)
the Base Rate during any periods in which Base Rate Loans shall be
outstanding, and (iii) the Eurodollar Reserve Percentage (if any) during any
periods in which Eurodollar Rate Loans shall be outstanding, in the absence
of manifest error shall be conclusive and binding on the parties hereto and
shall be promptly notified by the Agent to the Borrower and the Banks. Such
notice shall set forth in reasonable detail the basis for any such
determination or change. The failure of the Agent to give any such notice
specified in this subsection shall not affect the Borrower's obligation to
pay such interest or fees.
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SECTION 3.02 DEFAULT RATE OF INTEREST.
Notwithstanding Section 3.01, in the event that any amount of
principal of or interest on any Loan, or any other amount payable hereunder
or under the Loan Documents, is not paid in full when due (whether at stated
maturity, by acceleration or otherwise), the Borrower shall pay interest on
such unpaid principal, interest or other amount, from the date such amount
becomes due until the date such amount is paid in full, and after as well as
before any entry of judgment to the extent permitted by law, payable on
demand, at a rate per annum equal at all times to the Base Rate PLUS 2%.
SECTION 3.03 FEES.
(a) REVOLVING COMMITMENT FEE.
The Borrower agrees to pay to the Agent for the account of each
Bank a fee on the average daily unused portion of such Bank's Revolving
Commitment as in effect from time to time from the Closing Date until the
Revolving Expiry Date at a rate per annum equal to the Applicable Fee Amount,
payable quarterly in arrears on the last Business Day of each calendar
quarter, commencing on the first such date after the Closing Date, and on the
earlier of the date such Revolving Commitment is terminated hereunder or the
Revolving Expiry Date.
(b) AGENCY FEE.
The Borrower agrees to pay to the Agent for its own account such
fee for agency services rendered by it as specified in the Fee Letter.
(c) FEES NONREFUNDABLE.
All fees payable under this Section 3.03 shall be nonrefundable.
SECTION 3.04 COMPUTATIONS.
All computations of interest based upon the Base Rate (including
interest accruing based upon the Federal Funds Rate) shall be made on the
basis of a year of 365 or 366 days, as the case may be, for the actual number
of days occurring in the period for which such interest is payable. All
computations of Revolving Commitment fee and of interest based upon the
Eurodollar Rate shall be made on the basis of a year of 360 days for the
actual number of days occurring in the period for which such Revolving
Commitment fee or interest is payable, which results in more interest being
paid than if computed on the basis of a 365-day year.
SECTION 3.05 CONVERSION OR CONTINUATION.
(a) ELECTION.
The Borrower may elect (i) to convert all or any part of (A)
outstanding Base Rate Loans into Eurodollar Rate Loans, or (B) outstanding
Eurodollar Rate Loans into Base Rate Loans; or (ii) to continue all or any
part of a Loan with one type of interest rate as such;
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PROVIDED, HOWEVER, that if the aggregate amount of Eurodollar Rate Loans in
respect of any Borrowing shall have been reduced, by payment, prepayment, or
conversion of part thereof to be less than $2,500,000, such Eurodollar Rate
Loans shall automatically convert into Base Rate Loans, and on and after such
date the right of the Borrower to continue such Loans as, and convert such
Loans into, Eurodollar Rate Loans, as the case may be, shall terminate. The
continued or converted Base Rate and Eurodollar Rate Loans shall be allocated
to the Banks ratably in accordance with their Pro Rata Shares. Any
conversion or continuation of Eurodollar Rate Loans shall be made on the last
day of the current Interest Period for such Eurodollar Rate Loans. No
outstanding Loan may be converted into or continued as a Eurodollar Rate Loan
if any Event of Default has occurred and is continuing.
(b) AUTOMATIC CONVERSION.
On the last day of any Interest Period for any Eurodollar Rate
Loans, such Eurodollar Rate Loans shall, if not repaid, automatically convert
into Base Rate Loans unless the Borrower shall have made a timely election to
continue such Eurodollar Rate Loans as such for an additional Interest Period
or to convert such Eurodollar Rate Loans, in each case as provided in
subsection (a).
(c) NOTICE TO THE AGENT.
The conversion or continuation of any Loans contemplated by
subsection (a) shall be made upon written or telephonic notice (in the latter
case to be confirmed promptly in writing) from the Borrower to the Agent,
which notice shall be received by the Agent not later than 11:00 A.M.
(California time) on the Required Notice Date. Each such notice (a "Notice
of Conversion or Continuation") shall, except as provided in Sections 5.01
and 5.04, be irrevocable and binding on the Borrower, shall refer to this
Agreement and shall specify: (i) the proposed date of the conversion or
continuation, which shall be a Business Day; (ii) the outstanding Loans (or
parts thereof) to be converted into or continued as Base Rate or Eurodollar
Rate Loans; (iii) the aggregate amount of the Loans which are the subject of
such continuation or conversion, which shall be in a Minimum Amount; (iv) if
the conversion or continuation consists of any Eurodollar Rate Loans, the
duration of the Interest Period with respect thereto; and (v) that no Event
of Default exists hereunder.
(d) NOTICE TO THE BANKS.
The Agent shall give each Bank prompt notice by telephone
(confirmed promptly in writing) or by facsimile of (i) the proposed
conversion or continuation of any Loans, specifying the information contained
in the Borrower's Notice and such Bank's Pro Rata Share thereof or (ii), if
timely notice was not received from the Borrower, the details of any
automatic conversion under subsection.
SECTION 3.06 REPLACEMENT OF REFERENCE BANKS.
If the Loans of the Eurodollar Reference Bank are prepaid in full
or its Revolving Commitment shall terminate (otherwise than on termination of
all the Revolving
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Commitments), or if the Eurodollar Reference Bank transfers its Loans in full
to an unaffiliated Person or otherwise shall cease to be a Bank hereunder,
the Agent shall, in consultation with the Borrower and with the approval of
the Majority Banks, appoint another similarly situated Bank to replace such
Bank as Eurodollar Reference Bank.
SECTION 3.07 HIGHEST LAWFUL RATE.
Anything herein to the contrary notwithstanding, if during any
period for which interest is computed hereunder, the applicable interest
rate, together with all fees, charges and other payments which are treated as
interest under applicable law, as provided for herein or in any other Loan
Document, would exceed the maximum rate of interest which may be charged,
contracted for, reserved, received or collected by any Bank in connection
with this Agreement under applicable law (the "Maximum Rate"), the Borrower
shall not be obligated to pay, and such Bank shall not be entitled to charge,
collect, receive, reserve or take, interest in excess of the Maximum Rate,
and during any such period the interest payable hereunder shall be limited to
the Maximum Rate.
ARTICLE IV
REDUCTION OF REVOLVING COMMITMENTS;
REPAYMENT; PREPAYMENT
SECTION 4.01 REDUCTION OR TERMINATION OF THE REVOLVING COMMITMENTS.
(a) OPTIONAL REDUCTION OR TERMINATION.
The Borrower may, upon prior notice to the Agent delivered on the
Required Notice Date, terminate in whole or reduce ratably in part, as of the
date specified by the Borrower in such notice, any then unused portion of the
Revolving Commitments, PROVIDED that each partial reduction shall be in a
Minimum Amount.
(b) MANDATORY TERMINATION.
The Revolving Commitments shall terminate on the Revolving Expiry
Date.
(c) SCHEDULED MANDATORY REDUCTIONS.
On the Conversion Date, the Revolving Commitment of each Bank shall
automatically reduce by an amount equal to such Bank's Pro Rata Share of the
aggregate Revolving Commitment reduction shown for such date below:
<TABLE>
<CAPTION>
Date Aggregate
---- Reduction Amount
----------------
<S> <C>
Conversion Date $125,000,000
</TABLE>
PROVIDED, HOWEVER, that the Borrower may give written notice to the Banks
(through the Agent) at least 30 prior to the Conversion Date then in effect
that it requests the Agent and the Banks to extend the Conversion Date for an
additional one year period. The Banks and the Agent may
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grant or reject such request in their sole discretion, and the Borrower
acknowledges that there is no commitment or understanding that the Conversion
Date will be extended. If such request is granted by the Agent and all of
the Banks, the Conversion Date then in effect shall be so extended, subject
to such changed terms and payment of such fee (if any) as shall have been
agreed upon by the Borrower, the Banks and the Agent. In no event shall the
Conversion Date be extended beyond the Revolving Expiry Date. Pursuant to
Section 2.01(b), on the Conversion Date each Bank shall make the Term Loans
to the Borrower in an aggregate amount up to but not exceeding its Pro Rata
Share of the amount by which the Revolving Commitments are so reduced.
(d) APPLICATION.
The amount of any Revolving Commitment reduction under subsection
(a) shall be applied first, to the full extent thereof, to the scheduled
mandatory reduction of the Revolving Commitments to be made on the Conversion
Date.
(e) NOTICE.
The Agent shall give each Bank prompt notice of any termination or
reduction of its Revolving Commitments under this Section 4.01.
(f) ADJUSTMENT OF REVOLVING COMMITMENT FEE; NO REINSTATEMENT.
From the effective date of any reduction or termination prior to
the Revolving Expiry Date, the Revolving Commitment fee payable under Section
3.03(a) shall be computed on the basis of the Revolving Commitments as so
reduced or terminated. Once reduced or terminated, the Revolving Commitments
may not be increased or otherwise reinstated.
(g) NO FUNDING LOSSES.
The Borrower shall have no obligation to compensate any Bank
pursuant to Section 5.02 for any funding losses incurred as a result of any
prepayments in connection with the mandatory reduction of the aggregate
Revolving Commitment pursuant to Section 4.01(c), so long as the Borrower
requests the making of the Term Loans pursuant to Section 2.01(b) in an
amount equal to the amount by which the aggregate Revolving Commitment is
reduced.
SECTION 4.02 REPAYMENT OF THE LOANS.
(a) REVOLVING LOANS.
The Borrower shall repay to the Banks in full on the Revolving
Expiry Date the aggregate principal amount of the Revolving Loans outstanding
on such date.
(b) TERM LOANS.
The Borrower shall repay to the Banks the aggregate principal
amount of the Term Loans on the Final Maturity Date.
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SECTION 4.03 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS.
Subject to Section 5.02, the Borrower may, upon prior notice to the
Agent not later than the Required Notice Date, prepay the outstanding amount
of the Loans in whole or ratably in part, without premium or penalty.
Partial prepayments shall be in Minimum Amounts.
(b) MANDATORY PREPAYMENTS.
On the Revolving Commitment reduction date specified in Section
4.01(c), the Borrower shall prepay the outstanding principal amount of the
Revolving Loans, in an amount equal to the excess (after giving effect to the
scheduled Revolving Commitment reduction and the making of the Term Loans
pursuant to Section 2.01(b)) of the Revolving Loans over the aggregate
Revolving Commitments.
(c) NOTICE; APPLICATION.
The notice given of any prepayment (a "Notice of Prepayment") shall
specify the date and amount of the prepayment and whether the prepayment is
of Base Rate or Eurodollar Rate Loans or a combination thereof, and if of a
combination thereof the amount of the prepayment allocable to each. Such
Notice of Prepayment shall also specify whether the prepayment is of
Revolving Loans, Term Loans or a combination thereof. Upon receipt of the
Notice of Prepayment the Agent shall promptly notify each Bank thereof. If
the Notice of Prepayment is given, the Borrower shall make such prepayment
and the prepayment amount specified in such Notice shall be due and payable
on the date specified therein, with accrued interest to such date on the
amount prepaid.
ARTICLE V
YIELD PROTECTION AND ILLEGALITY
SECTION 5.01 INABILITY TO DETERMINE RATES.
If the Agent shall determine that adequate and reasonable means do
not exist to ascertain the Eurodollar Rate, or the Majority Banks shall
determine that the Eurodollar Rate does not accurately reflect the cost to
the Banks of making or maintaining Eurodollar Rate Loans, then the Agent
shall give telephonic notice (promptly confirmed in writing) to the Borrower
and each Bank of such determination. Such notice shall specify the basis for
such determination and shall, in the absence of manifest error, be conclusive
and binding for all purposes. Thereafter, the obligation of the Banks to
make or maintain Eurodollar Rate Loans hereunder shall be suspended until the
Agent (upon the instructions of the Majority Banks) revokes such notice.
Upon receipt of such notice, the Borrower may revoke any Notice then
submitted by it. If the Borrower does not revoke such Notice, the Banks
shall make, convert or continue Loans, as proposed by the Borrower, in the
amount specified in the Notice submitted by the Borrower, but such Loans
shall be made, converted or continued as Base Rate Loans instead of
Eurodollar Rate Loans, as the case may be.
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SECTION 5.02 FUNDING LOSSES.
In addition to such amounts as are required to be paid by the
Borrower pursuant to Section 5.03, the Borrower shall compensate each Bank,
promptly upon receipt of such Bank's written request made to the Borrower
(with a copy to the Agent), for all losses, costs and expenses (including any
loss or expense incurred by such Bank in obtaining, liquidating or
re-employing deposits or other funds to fund or maintain its Eurodollar Rate
Loans), if any, which such Bank sustains: (I) if the Borrower repays,
converts or prepays any Eurodollar Rate Loan on a date other than the last
day of an Interest Period for such Eurodollar Rate Loan (whether as a result
of an optional prepayment, mandatory prepayment, a payment as a result of
acceleration or otherwise); (II) if the Borrower fails to borrow a Eurodollar
Rate Loan after giving its Notice (other than as a result of the operation of
Section 5.01 or 5.04); (III) if the Borrower fails to convert into or
continue a Eurodollar Rate Loan after giving its Notice (other than as a
result of the operation of Section 5.01 or 5.04); or (IV) if the Borrower
fails to prepay a Eurodollar Rate Loan after giving its Notice. Any such
request for compensation shall set forth the basis for requesting such
compensation and shall, in the absence of manifest error, be conclusive and
binding for all purposes.
SECTION 5.03 REGULATORY CHANGES.
(a) INCREASED COSTS.
If after the date hereof, the adoption of, or any change in, any
applicable law, rule or regulation, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority
charged with the interpretation or administration thereof (a "Regulatory
Change"), or compliance by any Bank (or its Lending Office) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority shall impose, modify or deem applicable any reserve,
special deposit or similar requirement (including any such requirement
imposed by the FRB, but excluding with respect to any Eurodollar Rate Loan
any such requirement included in the calculation of the Eurodollar Rate)
against assets of, deposits with or for the account of, or credit extended
by, any Bank's Lending Office or shall impose on any Bank (or its Lending
Office) or on the United States market for the interbank eurodollar market
any other condition affecting its Eurodollar Rate Loans or its obligation to
make Eurodollar Rate Loans, and the result of any of the foregoing is to
increase the cost to such Bank (or its Lending Office) of making or
maintaining any Eurodollar Rate Loan hereunder, or to reduce the amount of
any sum received or receivable by such Bank (or its Lending Office) under
this Agreement with respect thereto, by an amount deemed by such Bank, in
good faith and on a non-discriminatory basis, to be material, then from time
to time, within 30 days after written demand by such Bank (with a copy to the
Agent), the Borrower shall pay to such Bank such additional amounts as shall
compensate such Bank for such increased cost or reduction in respect of its
Eurodollar Rate Loans hereunder.
(b) CAPITAL REQUIREMENTS.
If any Bank shall have determined in good faith that any Regulatory
Change regarding capital adequacy, or compliance by such Bank (or any
corporation controlling such
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Bank) with any request, guideline or directive regarding capital adequacy
(whether or not having the force of law) of any Governmental Authority, has
or shall have the effect of reducing the rate of return on such Bank's or
such corporation's capital as a consequence of such Bank's obligations
hereunder to a level below that which such Bank or such corporation would
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's or such corporation's policies with respect to
capital adequacy), by an amount deemed, in good faith and on a
non-discriminatory basis, by such Bank to be material, then from time to
time, within 30 days after written demand by such Bank (with a copy to the
Agent) in reasonable detail describing such reduction, the Borrower shall pay
to such Bank such additional amounts as shall compensate such Bank for such
reduction in respect of its obligations hereunder.
(c) REQUESTS.
Any such request for compensation by a Bank under this Section 5.03
shall set forth the basis of calculation thereof and shall, in the absence of
manifest error, be conclusive and binding for all purposes. In determining
the amount of such compensation, such Bank may use any reasonable averaging
and attribution methods.
SECTION 5.04 ILLEGALITY.
If any Bank shall determine that it has become unlawful, as a
result of any Regulatory Change, for such Bank to make, convert into or
maintain Eurodollar Rate Loans as contemplated by this Agreement, such Bank
shall promptly give notice of such determination to the Borrower (through the
Agent), and (I) the obligation of such Bank to make or convert into
Eurodollar Rate Loans, as the case may be, shall be suspended until such Bank
gives notice that the circumstances causing such suspension no longer exist;
and (II) each of such Bank's outstanding Eurodollar Rate Loans, as the case
may be, shall, if requested by such Bank, be converted into a Base Rate Loan
not later than upon expiration of the Interest Period related to such
Eurodollar Rate Loan, or, if earlier, on such date as may be required by the
applicable Regulatory Change, as shall be specified in such request. Any
such determination shall, in the absence of manifest error, be conclusive and
binding for all purposes.
SECTION 5.05 FUNDING ASSUMPTIONS.
Solely for purposes of calculating amounts payable by the Borrower
to the Banks under this Article V, each Eurodollar Rate Loan made by a Bank
(and any related reserve, special deposit or similar requirement) shall be
conclusively deemed to have been funded at the Interbank Rate used in
determining the Eurodollar Rate for such Eurodollar Rate Loan by a matching
deposit or other borrowing in the interbank eurodollar market for a
comparable amount and for a comparable period, whether or not such Eurodollar
Rate Loan is in fact so funded.
SECTION 5.06 OBLIGATION TO MITIGATE.
Each Bank agrees that as promptly as practicable after it becomes
aware of the occurrence of an event that would entitle it to give notice
pursuant to Section 5.03(a), 5.03(b) or 5.04, and in any event if so
requested by the Borrower, each Bank shall use reasonable efforts to
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make, fund or maintain its affected Eurodollar Rate Loans through another
Lending Office if as a result thereof the increased costs would be avoided or
materially reduced or the illegality would thereby cease to exist; PROVIDED,
HOWEVER, that such Bank shall not be obligated to select an alternative
Lending Office if such Bank determines that (A) as a result of such selection
such Bank would be in violation of any applicable law, regulation, treaty, or
guideline, or would incur additional costs or expenses or (B) such selection
would be inadvisable for regulatory reasons or inconsistent with the
interests of such Bank.
SECTION 5.07 SUBSTITUTION OF BANKS.
Upon the receipt by the Borrower from any Bank (an "Affected Bank")
of a request for compensation under Section 5.03, a notice under Section 5.04
or a request for payment under Section 6.03, the Borrower may (i) request one
more of the other Banks to acquire and assume all or part of such Affected
Bank's Loans and Revolving Commitment; or (ii) designate an Eligible Assignee
satisfactory to the Borrower to acquire and assume all or part of such
Affected Bank's Loans and Revolving Commitment (a "Replacement Bank"). Any
such designation of a Replacement Bank under clause (ii) shall be subject to
the prior written consent of the Agent (which consent shall not be
unreasonably withheld). In connection with any such assumption (A) the
Replacement Bank shall pay to the Affected Bank in immediately available
funds on the date of the assignment the principal amount of the Loans made by
the Affected Bank hereunder which are being acquired by the Replacement Bank,
and (B) the Borrower shall pay to the Affected Bank in immediately available
funds on the date of the assignment the interest accrued to the date of the
assignment on the Loans which are being acquired by the Replacement Bank and
all other amounts then accrued for the Affected Bank's account or owed to it
hereunder with respect to such Loans, including any amounts owing under
Section 5.02.
ARTICLE VI
PAYMENTS
SECTION 6.01 PRO RATA TREATMENT.
Except as otherwise provided in this Agreement, each Borrowing
hereunder, each Revolving Commitment reduction, each payment (including each
prepayment) by the Borrower on account of the principal of and interest on
the Loans and on account of any Revolving Commitment fee, and each conversion
or continuation of Loans, shall be made ratably in accordance with the
respective Pro Rata Shares of the Banks.
SECTION 6.02 PAYMENTS.
(a) PAYMENTS.
The Borrower shall make each payment under the Loan Documents,
unconditionally in full without set-off, counterclaim or other defense, not
later than 2:00 P.M. (California time) on the day when due to the Agent in
Dollars and in same day or immediately available funds, to the Agent's
Account. The Agent shall promptly thereafter distribute like funds relating
to the payment of principal or interest, Revolving Commitment fee or any
other
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amounts payable to the Banks, ratably (except as a result of the operation of
Article V) to the Banks in accordance with their Pro Rata Shares.
(b) APPLICATION.
(i) Unless the Agent shall receive a timely election by the
Borrower with respect to the application of any principal payments, each
payment of principal by the Borrower shall be applied (A) first, to the Base
Rate Loans then outstanding, and (B) second, to the Eurodollar Rate Loans.
(c) EXTENSION.
Whenever any payment hereunder shall be stated to be due, or
whenever any Interest Payment Date or any other date specified hereunder
would otherwise occur, on a day other than a Business Day, then, except as
otherwise provided herein, such payment shall be made, and such Interest
Payment Date or other date shall occur, on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation
of payment of interest or Revolving Commitment fee hereunder.
SECTION 6.03 TAXES.
(a) NO REDUCTION OF PAYMENTS.
The Borrower shall pay all amounts of principal, interest, fees and
other amounts due under the Loan Documents free and clear of, and without
reduction for or on account of, any present and future taxes, levies,
imposts, duties, fees, assessments, charges, deductions or withholdings and
all liabilities with respect thereto excluding, in the case of each Bank and
the Agent, income and franchise taxes imposed on it by the jurisdiction under
the laws of which such Bank or the Agent is organized or in which its
principal executive offices may be located or any political subdivision or
taxing authority thereof or therein, and by the jurisdiction of such Bank's
Lending Office and any political subdivision or taxing authority thereof or
therein (all such nonexcluded taxes, levies, imposts, duties, fees,
assessments, charges, deductions, withholdings and liabilities being
hereinafter referred to as "Taxes"). If any Taxes shall be required by law
to be deducted or withheld from any payment, the Borrower shall increase the
amount paid so that the respective Bank or the Agent receives when due (and
is entitled to retain), after deduction or withholding for or on account of
such Taxes (including deductions or withholdings applicable to additional
sums payable under this Section 6.03), the full amount of the payment
provided for in the Loan Documents.
(b) DEDUCTION OR WITHHOLDING; TAX RECEIPTS.
If the Borrower makes any payment hereunder in respect of which it
is required by law to make any deduction or withholding, it shall pay the
full amount to be deducted or withheld to the relevant taxation or other
authority within the time allowed for such payment under applicable law and
promptly thereafter shall furnish to the Agent (for itself or for redelivery
to the Bank to or for the account of which such payment was made) an original
or
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certified copy of a receipt evidencing payment thereof, together with such
other information and documents as the Agent or any Bank (through the Agent)
may reasonably request.
(c) INDEMNITY.
If any Bank or the Agent is required by law to make any payment on
account of Taxes, or any liability in respect of any Tax is imposed, levied
or assessed against any Bank or the Agent, the Borrower shall indemnify the
Agent and the Banks for and against such payment or liability, together with
any incremental taxes, interest or penalties, and all costs and expenses,
payable or incurred in connection therewith, including Taxes imposed on
amounts payable under this Section 6.03. A certificate of the Agent or any
Bank as to the amount of any such payment shall, in the absence of manifest
error, be conclusive and binding for all purposes. If any Bank shall obtain
a credit with respect to all or part of any tax paid or indemnified by the
Borrower pursuant to this Section 6.03, then, to the extent such items have
not previously been taken into account in computing the amount of any payment
pursuant to this sentence or the amount of indemnification payable under this
Section 6.03, such Bank shall promptly pay to the Borrower an amount equal to
the amount of such credit, reduced by the amount of any prior payments by
such Bank to, or for the benefit of, the Borrower arising from the same
claim. All computations required hereunder shall be made by such Bank,
acting reasonably and in good faith and the results of such computations
shall be delivered to the Borrower. At the request and expense of the
Borrower the accuracy of such computations shall be verified by such Bank's
independent accounts.
(d) FORMS 1001 AND 4224.
Each Bank that is incorporated under the laws of any jurisdiction
outside the United States agrees to deliver to the Agent and the Borrower on
or prior to the Closing Date, and in a timely fashion thereafter, Form 1001,
Form 4224 or such other documents and forms of the I.R.S., duly executed and
completed by such Bank, as are required under United States law to establish
such Bank's status for United States withholding tax purposes.
(e) MITIGATION.
Each Bank agrees that as promptly as practicable after it becomes
aware of the occurrence of an event that would cause the Borrower to make any
payment in respect of Taxes to such Bank or a payment in indemnification with
respect to any Taxes, and in any event if so requested by the Borrower
following such occurrence, each Bank shall use reasonable efforts to make,
fund or maintain its affected Loan (or relevant part thereof) through another
Lending Office if as a result thereof the additional amounts so payable by
the Borrower would be avoided or materially reduced; PROVIDED, HOWEVER, that
such Bank shall not be obligated to select an alternative Lending Office if
such Bank determines that (A) as a result of such selection such Bank would
be in violation of any applicable law, regulation, treaty, or guideline, or
would incur additional costs or expenses or (B) such selection would be
inadvisable for regulatory reasons or inconsistent with the interests of such
Bank.
SECTION 6.04 NON-RECEIPT OF FUNDS.
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Unless the Agent shall have received notice from the Borrower prior
to the date on which any payment is due to any of the Banks hereunder that
the Borrower shall not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If
and to the extent the Borrower shall not have so made such payment in full to
the Agent, each Bank shall repay to the Agent forthwith on demand such amount
distributed to such Bank together with interest thereon, for each day from
the date such amount is distributed to such Bank until the date such Bank
repays such amount to the Agent, at the Federal Funds Rate.
SECTION 6.05 SHARING OF PAYMENTS.
If any Bank shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) on
account of the Loans made by it (other than pursuant to a provision hereof
providing for non-pro rata treatment) in excess of its Pro Rata Share of
payments on account of the Loans obtained by all the Banks, such Bank shall
forthwith advise the Agent of the receipt of such payment, and within five
Business Days of such receipt purchase from the other Banks (through the
Agent), without recourse, such participations in the Loans made by them as
shall be necessary to cause such purchasing Bank to share the excess payment
ratably with each of them in accordance with the respective Pro Rata Shares
of the Banks; PROVIDED, HOWEVER, that if all or any portion of such excess
payment is thereafter recovered by or on behalf of the Borrower from such
purchasing Bank, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. No
documentation other than notices and the like referred to in this Section
6.05 shall be required to implement the terms of this Section 6.05. The
Agent shall keep records (which shall be conclusive and binding in the
absence of manifest error) of participations purchased pursuant to this
Section 6.05 and shall in each case notify the Banks following any such
purchases.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.01 CONDITIONS PRECEDENT TO THE INITIAL LOANS.
The obligation of each Bank to make its initial Loan shall be
subject to the satisfaction of each of the following conditions precedent on
or before the Closing Date:
(a) FEES AND EXPENSES.
The Borrower shall have paid (i) all fees then due in accordance
with Section 3.03 and (ii) all invoiced costs and expenses then due in
accordance with Section 12.04(a).
(b) LOAN DOCUMENTS.
The Agent shall have received the following Loan Documents: (i)
this Agreement, (ii) the Notes, executed by the Borrower, for any Banks
requesting Notes; and
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(iii) the Fee Letter, executed by each of the respective parties thereto.
(c) ADDITIONAL CLOSING DOCUMENTS AND ACTIONS.
The Agent shall have received the following, in form and substance
satisfactory to it and the Banks:
(i) a certificate of a Responsible Officer of the Borrower,
dated the Closing Date, stating that (A) the representations and
warranties contained in Section 8.01 and in the other Loan
Documents are true and correct on and as of the date of such
certificate as though made on and as of such date and (B) on and as
of the Closing Date, no Default shall have occurred and be
continuing or shall result from the initial Borrowing; and
(ii) evidence that all amounts outstanding under the Existing
Facility have been paid in full (or will, concurrently with the
initial Loans hereunder, be paid in full) and all commitments to
lend thereunder terminated.
(d) CORPORATE DOCUMENTS.
The Agent shall have received the following, in form and substance
satisfactory to it:
(i) certified copies of the certificate or articles, as the
case may be, of incorporation of the Borrower, together with
certificates as to good standing and tax status, from the Secretary
of State or other Governmental Authority, as applicable, of the
Borrower's state of incorporation, each dated as of a recent date
prior to the Closing Date;
(ii) a certificate of the Secretary or Assistant Secretary of
the Borrower, dated the Closing Date, certifying (A) copies of the
bylaws of the Borrower and the resolutions of the Board of
Directors of the Borrower authorizing the execution, delivery and
performance of the Loan Documents and (B) the incumbency, authority
and signatures of each officer of the Borrower authorized to
execute and deliver the Loan Documents and act with respect
thereto, upon which certificate the Agent and the Banks may
conclusively rely until the Agent shall have received a further
certificate of the Secretary or an Assistant Secretary of the
Borrower canceling or amending such prior certificate;
(iii) LEGAL OPINION.
The Agent shall have received the opinion of Cooley Godward
LLP, counsel to the Borrower, dated the Closing Date, in
substantially the form of Exhibit E.
(e) COMPLIANCE CERTIFICATE.
The Agent shall have received a completed Compliance Certificate
for the
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Borrower's fiscal quarter ended on July 4, 1998.
(f) MATERIAL ADVERSE EFFECT.
On and as of the date of such Borrowing, there shall have occurred
no Material Adverse Effect since January 4, 1998.
SECTION 7.02 CONDITIONS PRECEDENT TO ALL LOANS.
The obligation of each Bank to make a Loan on the occasion of each
Borrowing shall be subject to the satisfaction of each of the following
conditions precedent:
(a) NOTICE.
The Borrower shall have given the Notice of Borrowing as provided
in Section 2.02(a).
(b) REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
On the date of such Borrowing, both before and after giving effect
thereto and to the application of proceeds therefrom: (i) the
representations and warranties contained in Section 8.01 and in the other
Loan Documents shall be true, correct and complete on and as of the date of
such Borrowing as though made on and as of such date; and (ii) no Default
shall have occurred and be continuing or shall result from such Borrowing.
For purposes of this Section 7.02(b), the representation and warranty made in
Section 8.01(p) shall be deemed instead to refer to the last day of the most
recent quarter and year for which financial statements have then been
delivered; the preceding clause (i) shall not be deemed to refer to any other
representations and warranties which relate solely to an earlier date
(PROVIDED that such other representations and warranties shall be true,
correct and complete as of such earlier date); and the preceding clause (i)
shall take into account any amendments to the Schedules and other disclosures
made in writing by the Borrower to the Agent and the Banks after the Closing
Date and approved by the Agent and the Majority Banks. The giving of any
Notice of Borrowing and the acceptance by the Borrower of the proceeds of
each Borrowing following the Closing Date shall each be deemed a
certification to the Agent and the Banks that on and as of the date of such
Borrowing such statements are true.
(c) ADDITIONAL DOCUMENTS.
The Agent shall have received, in form and substance satisfactory
to it, such additional approvals, opinions, documents and other information
as the Agent or any Bank (through the Agent) may reasonably request.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
SECTION 8.01 REPRESENTATIONS AND WARRANTIES.
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The Borrower represents and warrants to each Bank and the Agent
that:
(a) ORGANIZATION AND POWERS.
Each of the Borrower and its Material Subsidiaries (i) is a
corporation or partnership duly organized or formed, as the case may be,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or formation, (ii) except as set forth on Schedule 8.01(a),
is qualified to do business and is in good standing in each jurisdiction in
which the failure so to qualify or be in good standing would result in a
Material Adverse Effect and (iii) has all requisite power and authority to
own its assets and carry on its business and, with respect to the Borrower,
to execute, deliver and perform its obligations under the Loan Documents.
(b) AUTHORIZATION; NO CONFLICT.
The execution, delivery and performance by the Borrower of the Loan
Documents have been duly authorized by all necessary corporate action of the
Borrower and do not and will not (i) contravene the terms of the certificate
or articles, as the case may be, of incorporation and the bylaws of the
Borrower or result in a breach of or constitute a default under any indenture
or loan or credit agreement or any other agreement, lease or instrument to
which the Borrower is a party or by which it or its properties may be bound
or affected; (ii) violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree or the like binding on or affecting the
Borrower; or (iii) except as contemplated by this Agreement, result in, or
require, the creation or imposition of any Lien upon or with respect to any
of the properties of the Borrower.
(c) BINDING OBLIGATION.
The Loan Documents constitute, or when delivered under this
Agreement will constitute, legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their
respective terms.
(d) CONSENTS.
No authorization, consent, approval, license, exemption of, or
filing or registration with, any Governmental Authority, or approval or
consent of any other Person, is required for the due execution, delivery or
performance by the Borrower of any of the Loan Documents.
(e) NO DEFAULTS.
Neither the Borrower nor any of its Material Subsidiaries is in
default under any material contract, lease, agreement, judgment, decree or
order to which it is a party or by which it or its properties may be bound.
(f) TITLE TO PROPERTIES; LIENS.
The Borrower and its Material Subsidiaries have good and marketable
title to, or
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valid and subsisting leasehold interests in, their properties and assets, and
there is no Lien upon or with respect to any of such properties or assets,
except for Permitted Liens.
(g) LITIGATION.
Except as set forth on Schedule 8.01(g), there are no actions,
suits or proceedings pending or, to the best of the Borrower's knowledge,
threatened against or affecting the Borrower or any of its Subsidiaries or
the properties of the Borrower or any of its Subsidiaries before any
Governmental Authority or arbitrator which if determined adversely to the
Borrower or any such Subsidiary would result in a Material Adverse Effect.
(h) COMPLIANCE WITH ENVIRONMENTAL LAWS.
Except as set forth on Schedule 8.01(h), and except in respect of
matters that in the aggregate are not and cannot reasonably be expected to
result in a Material Adverse Effect, the Borrower and each Material
Subsidiary is in full compliance with all Environmental Laws, whether in
connection with the ownership, use, maintenance or operation of its Premises
or the conduct of any business thereon, or otherwise. Neither the Borrower,
any Material Subsidiary, nor to the best of the Borrower's knowledge, any
previous owner, tenant, occupant, user or operator of the Premises, or any
present tenant or other present occupant, user or operator of the Premises
has used, generated, manufactured, installed, treated, released, stored or
disposed of any Hazardous Substances on, under, or at the Premises, except in
compliance with all applicable Environmental Laws. To the best of the
Borrower's knowledge, no Hazardous Substances have at any time been spilled,
leaked, dumped, deposited, discharged, disposed of or released on, under, at
or from the Premises, nor have any of the Premises been used at any time by
any Person as a landfill or waste disposal site. Except as set forth on
Schedule 8.01(h), there are no actions, suits, claims, notices of violation,
hearings, investigations or proceedings pending or, to the best of the
Borrower's knowledge, threatened against or affecting the Borrower, any
Material Subsidiary or with respect to the ownership, use, maintenance and
operation of the Premises, relating to Environmental Laws or Hazardous
Substances.
(i) GOVERNMENTAL REGULATION.
Neither the Borrower nor any of its Material Subsidiaries is
subject to regulation under the Public Utility Holding Company Act of 1935,
the Federal Power Act, the Investment Company Act of 1940, the Interstate
Commerce Act, any state public utilities code or any other federal or state
statute or regulation limiting its ability to incur Indebtedness.
(j) ERISA.
(i) The Borrower and all ERISA Affiliates have satisfied all
applicable contribution requirements under Section 412(c)(11) of
the Internal Revenue Code and have never sought a waiver under
Section 412(d) of the Internal Revenue Code;
(ii) no Termination Event has occurred and is continuing, or
is
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reasonably expected to occur;
(iii) the aggregate amount of Unfunded Accrued Benefits under
all Pension Plans (excluding in such computation Pension Plans with
assets greater than accrued benefits) does not exceed $5,000,000;
(iv) there is no condition or event under which the Borrower,
any ERISA Affiliate, or any Plan maintained by the Borrower or any
ERISA Affiliate could be subject to any risk of material liability
under ERISA or the Internal Revenue Code, regardless of whether the
Borrower or any ERISA Affiliate engaged in a transaction giving
rise to the liability;
(v) neither the Borrower nor any ERISA Affiliate has
unfunded, contingent liability that exceeds $5,000,000 with respect
to Plans that provide post-retirement welfare benefits; and
(vi) all Plans maintained by, or contributed to by, the
Borrower or any ERISA Affiliate comply in all material respects,
and have been administered in material compliance with, the
requirements of applicable law (including, if applicable, foreign
law, ERISA and the Internal Revenue Code), and in accordance with
each Plan's terms.
(k) SUBSIDIARIES.
The name, capital structure and ownership of each Subsidiary of the
Borrower on the date of this Agreement is as set forth in Schedule 8.01(k).
All of the outstanding capital stock of, or other interest in, each such
Subsidiary has been validly issued, and is fully paid and nonassessable.
Except as set forth in such Schedule, on the date of this Agreement the
Borrower has no equity interest in any Person.
(l) MARGIN REGULATIONS.
The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying "margin stock" (within the meaning of
Regulations G or U of the FRB). No part of the proceeds of the Loans will be
used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock, except in accordance
with the provisions of Regulations T, U, and X of the FRB.
(m) TAXES.
Each of the Borrower and its Material Subsidiaries has duly filed
all tax and information returns required to be filed, and has paid all taxes,
fees, assessments and other governmental charges or levies that have become
due and payable, except to the extent such taxes or other charges are being
contested in good faith and are adequately reserved against in accordance
with GAAP.
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(n) PATENTS AND OTHER RIGHTS.
Each of the Borrower and its Subsidiaries possesses all permits,
franchises, licenses, patents, trademarks, trade names, service marks,
copyrights and all rights with respect thereto, free from burdensome
restrictions, that are reasonably necessary for the ownership, maintenance
and operation of its business and neither the Borrower nor any such
Subsidiary is in violation of any rights of others with respect to the
foregoing, except where the failure to do so would not reasonably be expected
to result in a Material Adverse Effect.
(o) INSURANCE.
The properties of the Borrower and its Material Subsidiaries are
insured, with financially sound and reputable insurance companies, in such
amounts, with such deductibles and covering such risks as is customarily
carried by companies engaged in similar businesses and owning similar
properties in the localities where the Borrower or such Material Subsidiary
operates.
(p) FINANCIAL STATEMENTS.
The audited consolidated balance sheet of the Borrower and its
Subsidiaries as at January 4, 1998, and the related consolidated statements
of income, shareholders' equity and cash flows for the fiscal year then
ended, and the unaudited consolidated balance sheet of the Borrower and its
Subsidiaries as at July 4, 1998, and the related consolidated statements of
income, shareholders' equity and cash flows, for the quarter then ended and
the 6- month period then ended, are complete and correct and fairly present
the financial condition of the Borrower and its Subsidiaries as at such dates
and the results of operations of the Borrower and its Subsidiaries for the
periods covered by such statements, in each case in accordance with GAAP
consistently applied, subject, in the case of the July 4, 1998 financial
statements, to normal year-end adjustments and the absence of notes.
(q) LIABILITIES.
Neither the Borrower nor any of its Material Subsidiaries has any
material liabilities, fixed or contingent, that are not reflected in the
financial statements referred to in subsection (p), in the notes thereto or
otherwise disclosed in writing to the Banks, other than liabilities arising
in the ordinary course of business since July 4, 1998.
(r) LABOR DISPUTES, ETC.
There are no strikes, lockouts or other labor disputes against the
Borrower or any of its Material Subsidiaries, or, to the best of the
Borrower's knowledge, threatened against or affecting the Borrower or any of
its Material Subsidiaries, and no event of loss has occurred with respect to
any assets or property of the Borrower or any of its Subsidiaries, which
would reasonably be expected to result in a Material Adverse Effect.
(s) SOLVENCY.
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Each of the Borrower and its Material Subsidiaries is Solvent.
(t) YEAR 2000.
The Borrower and its Material Subsidiaries have reviewed the areas
within their business and operations which could be adversely affected by,
and have developed or are developing a program to address on a timely basis,
the "Year 2000 Problem" (that is, the risk that computer applications used by
the Borrower and its Material Subsidiaries may be unable to recognize and
perform properly date-sensitive functions involving certain dates prior to
and any date on or after December 31, 1999), and have made related
appropriate inquiry of material suppliers and vendors. Based on such review
and program, the Borrower believes that the "Year 2000 Problem" will not have
a Material Adverse Effect.
(u) DISCLOSURE.
None of the representations or warranties made by the Borrower in
the Loan Documents as of the date of such representations and warranties, and
none of the statements contained in each exhibit, report, certificate or
written statement furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Agent and the Banks 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 the light of the circumstances under which they
are made, not misleading, as of the time made or delivered.
ARTICLE IX
COVENANTS
SECTION 9.01 REPORTING COVENANTS.
So long as any of the Obligations shall remain unpaid or any Bank
shall have any Revolving Commitment, the Borrower agrees that:
(a) FINANCIAL STATEMENTS AND OTHER REPORTS.
The Borrower shall furnish to the Agent in sufficient copies for
distribution to the Banks:
(i) as soon as available and in any event within 55 days
after the end of each of the first three fiscal quarters of each
fiscal year, a consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such quarter, and the related
consolidated statements of income, shareholders' equity and cash
flows of the Borrower and its Subsidiaries for such quarter and the
portion of the fiscal year through the end of such quarter,
prepared in accordance with GAAP consistently applied, all in
reasonable detail and setting forth in comparative form the figures
for the corresponding period in the preceding fiscal year, together
with a certificate of a Responsible Officer of the Borrower stating
that such financial statements fairly present the financial
condition of the Borrower and its
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Subsidiaries as at such date and the results of operations of the
Borrower and its Subsidiaries for the period ended on such date and
have been prepared in accordance with GAAP consistently applied,
subject to changes resulting from normal, year-end audit
adjustments and except for the absence of notes;
(ii) as soon as available and in any event within 100 days
after the end of each fiscal year, a consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such fiscal
year, and the related consolidated statements of income,
shareholders' equity and cash flows of the Borrower and its
Subsidiaries for such fiscal year, prepared in accordance with GAAP
consistently applied, all in reasonable detail and setting forth in
comparative form the figures for the previous fiscal year,
accompanied by a report thereon of a firm of independent certified
public accountants of recognized national standing, which report
shall be unqualified as to scope of audit or the status of the
Borrower and its Subsidiaries as a going concern;
(iii) together with the financial statements required
pursuant to clauses (i) and (ii), a Compliance Certificate of a
Responsible Officer as of the end of the applicable accounting
period;
(iv) promptly after the giving, sending or filing thereof,
copies of all reports, if any, which the Borrower sends to the
holders of its respective capital stock or other securities and of
all reports or filings, if any, by the Borrower with the SEC or any
national securities exchange.
As to any information contained in materials furnished pursuant to clause (iv),
the Borrower shall not be separately required to furnish such information under
clause (i) or (ii), but the foregoing shall not be in derogation of the
obligation of the Borrower to furnish the information and materials described in
clauses (i) and (ii) at the times specified therein.
(b) ADDITIONAL INFORMATION.
The Borrower shall furnish to the Agent:
(i) promptly after the Borrower has knowledge or becomes
aware thereof, notice of the occurrence or existence of any Default;
(ii) prompt written notice of (A) any proposed acquisition of
stock, assets or property by the Borrower or any of its Material
Subsidiaries that could reasonably be expected to result in
material environmental liability under Environmental Laws, and
(B)(1) any spillage, leakage, discharge, disposal, leaching,
migration or release of any Hazardous Substances required to be
reported to any Governmental Authority under applicable
Environmental Laws, and (2) all actions, suits, claims, notices of
violation, hearings, investigations or proceedings pending, or to
the best of the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Material Subsidiaries or with
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respect to the ownership, use, maintenance and operation of the
Premises, relating to Environmental Laws or Hazardous Substances;
(iii) prompt written notice of all actions, suits and
proceedings before any Governmental Authority or arbitrator
pending, or to the best of the Borrower's knowledge, threatened
against or affecting the Borrower or any of its Material
Subsidiaries which if adversely determined would be reasonably
expected to have a Material Adverse Effect;
(iv) promptly after the Borrower has knowledge or becomes
aware thereof, (A) notice of the occurrence of any Termination
Event, together with a copy of any notice of such Termination Event
to the PBGC, and (B) the details concerning any material action
taken or proposed to be taken by the IRS, PBGC, Department of Labor
or other Person with respect thereto;
(v) the information regarding insurance maintained by the
Borrower and its Material Subsidiaries as required under Section
9.03(c);
(vi) within 30 days of the date thereof, or, if earlier, on
the date of delivery of any financial statements pursuant to
subsection (a), notice of any material change in accounting
policies or financial reporting practices by the Borrower or any of
its Material Subsidiaries;
(vii) promptly after the occurrence thereof, notice of any
labor controversy resulting in or threatening to result in any
strike, work stoppage, boycott, shutdown or other material labor
disruption against or involving the Borrower or any of its Material
Subsidiaries;
(viii) upon the reasonable request from time to time, but
no more often than once per fiscal quarter, of the Agent or any
Bank (through the Agent), the Swap Termination Values, together
with a description of the method by which such values were
determined, relating to any then-outstanding Rate Contracts to
which the Borrower or any of its Material Subsidiaries is party;
(ix) prompt written notice of any other condition or event
which has resulted, or that could reasonably be expected to result,
in a Material Adverse Effect; and
(x) such other information respecting the operations,
properties, business or condition (financial or otherwise) of the
Borrower or its Subsidiaries as any Bank (through the Agent) may
from time to time reasonably request.
Each notice pursuant to this subsection (b) shall be accompanied by a written
statement by a Responsible Officer of the Borrower setting forth details of
the occurrence referred to therein, and stating what action the Borrower
proposes to take with respect thereto.
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SECTION 9.02 FINANCIAL COVENANTS.
So long as any of the Obligations shall remain unpaid or any Bank
shall have any Revolving Commitment, the Borrower agrees that:
(a) MINIMUM CONSOLIDATED EBITDA.
The Borrower shall maintain as of the last day of each fiscal
quarter a minimum Consolidated EBITDA for the period of four fiscal quarters
ended on such date (taken as a single accounting period) of not less than
$200,000,000;
(b) MINIMUM LIQUIDITY
The Borrower shall maintain as of the last day of each fiscal
quarter a minimum Liquidity Ratio of not less than 1.00 to 1.00; and
(c) MINIMUM FIXED CHARGE COVERAGE RATIO.
The Borrower shall maintain as of the last day of each fiscal
quarter a ratio (such ratio, the "Fixed Charge Coverage Ratio") of (i)
Consolidated EBITDA to (ii) the sum of (without duplication) (A) Consolidated
Interest Expense PLUS (B) 25% of Funded Debt PLUS (C) taxes paid in cash,
PLUS (D) payments in respect of Capital Leases, in each case, of the Borrower
and its Subsidiaries on a consolidated basis, as determined in accordance
with GAAP, for the 12-month period ended on such date, of not less than 1.50
to 1.00.
SECTION 9.03 ADDITIONAL AFFIRMATIVE COVENANTS.
So long as any of the Obligations shall remain unpaid or any Bank
shall have any Revolving Commitment, the Borrower agrees that:
(a) PRESERVATION OF EXISTENCE, ETC.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, (i) maintain and preserve its legal existence, and (ii)
maintain and preserve its rights to transact business and all other rights,
franchises and privileges necessary or desirable in the normal course of its
business and operations and the ownership of its properties, except in
connection with transactions permitted by Section 9.04.
(b) PAYMENT OF OBLIGATIONS.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, pay and discharge (i) all taxes, fees, assessments and
governmental charges or levies imposed upon it or upon its properties or
assets prior to the date on which penalties attach thereto, and all lawful
claims for labor, materials and supplies which, if unpaid, might become a
Lien upon any properties or assets of the Borrower or any Material
Subsidiary, except to the extent such taxes, fees, assessments or
governmental charges or levies, or such claims, are being contested in good
faith by appropriate proceedings and are adequately reserved against in
accordance with GAAP;
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(ii) all lawful claims which, if unpaid, would by law become a Lien upon its
property not constituting a Permitted Lien; and (iii) all Indebtedness, as
and when due and payable, but subject to any subordination provisions
contained in any instrument or agreement evidencing such Indebtedness.
(c) MAINTENANCE OF INSURANCE.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, carry and maintain in full force and effect, at its own
expense and with financially sound and reputable insurance companies,
insurance in such amounts, with such deductibles and covering such risks as
is customarily carried by companies engaged in the same or similar businesses
and owning similar properties in the localities where the Borrower or such
Subsidiary operates, including fire, extended coverage, business
interruption, public liability, property damage and worker's compensation.
Upon the request of the Agent or any Bank, the Borrower shall furnish to the
Agent from time to time a certificate of the Borrower's insurance broker or
other insurance specialist stating that all premiums then due on the policies
relating to insurance have been paid, that such policies are in full force
and effect and that such insurance coverage and such policies comply with all
the requirements of this subsection.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, keep adequate records and books of account, in which
complete entries shall be made in accordance with GAAP, reflecting all
financial transactions of the Borrower and its Material Subsidiaries.
(e) INSPECTION RIGHTS.
Upon reasonable prior notice to the Borrower (except during the
existence of an Event of Default, in which case no prior notice shall be
required), the Borrower shall at any reasonable time and from time to time
permit the Agent and the Banks or any of their respective agents or
representatives to visit and inspect any of the properties of the Borrower
and its Material Subsidiaries and to examine and make copies of and abstracts
from the records and books of account of the Borrower and its Material
Subsidiaries, and to discuss the business affairs, finances and accounts of
the Borrower and any such Material Subsidiary with any of the officers or
accountants of the Borrower or such Material Subsidiary; PROVIDED that with
respect to any such discussions with the Borrower's or any Material
Subsidiary's accountants, the Borrower shall be given a reasonable
opportunity to have a representative participate in or otherwise be present
at any such discussion; and PROVIDED FURTHER that so long as no Event of
Default has occurred and is continuing, the Borrower's prior written consent
(which consent shall not be unreasonably withheld) shall be required prior to
any discussions between the Agent or any Bank or any of their respective
agents or representatives, on the one hand, and the Borrower's or any
Material Subsidiary's accountants, on the other.
(f) COMPLIANCE WITH LAWS, ETC.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, comply
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in all material respects with the requirements of all applicable laws, rules,
regulations and orders of any Governmental Authority (including all
Environmental Laws) and the terms of any indenture, contract or other
instrument to which it may be a party or under which it or its properties may
be bound, except to the extent that the failure to so comply would not
reasonably be expected to result in a Material Adverse Effect.
(g) MAINTENANCE OF PROPERTIES, ETC.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, maintain and preserve all of its properties necessary or
useful in the proper conduct of its business in good working order and
condition in accordance with the general practice of other corporations of
similar character and size, ordinary wear and tear excepted.
(h) LICENSES.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, obtain and maintain all licenses, authorizations, consents,
filings, exemptions, registrations and other governmental approvals necessary
in connection with (i) the execution, delivery and performance of the Loan
Documents and the consummation of the transactions therein contemplated and
(ii) the operation and conduct of its business and ownership of its
properties, except, in the case of this clause (ii), where the failure to do
so would not reasonably be expected to have a Material Adverse Effect.
(i) ACTION UNDER ENVIRONMENTAL LAWS.
The Borrower shall, and shall cause each of its Material
Subsidiaries to, upon becoming aware of the presence of any Hazardous
Substance or the existence of any environmental liability under applicable
Environmental Laws with respect to the Premises, take all actions, at their
cost and expense, as shall be necessary or advisable to investigate and clean
up the condition of the Premises, including all removal, containment and
remedial actions, and restore the Premises to a condition in compliance with
applicable Environmental Laws.
(j) USE OF PROCEEDS.
The Borrower shall use the proceeds of the Loans solely for general
corporate purposes, including the repurchase of the Borrower's stock for
immediate cancellation and for acquisitions, in each case, in compliance
herewith.
(k) FURTHER ASSURANCES AND ADDITIONAL ACTS.
The Borrower shall execute, acknowledge, deliver, file, notarize
and register at its own expense all such further agreements, instruments,
certificates, documents and assurances and perform such acts as the Agent or
the Majority Banks shall reasonably deem necessary or appropriate to
effectuate the purposes of the Loan Documents, and promptly provide the Agent
with evidence of the foregoing satisfactory in form and substance to the
Agent or the Majority Banks.
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SECTION 9.04 NEGATIVE COVENANTS.
So long as any of the Obligations shall remain unpaid or any Bank
shall have any Revolving Commitment, the Borrower agrees that:
(a) LIENS; NEGATIVE PLEDGES.
The Borrower shall not create, incur, assume or suffer to exist any
Lien upon or with respect to any of its properties, revenues or assets,
whether now owned or hereafter acquired, other than Permitted Liens.
(b) CHANGE IN NATURE OF BUSINESS.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, engage in any material line of business substantially
different from those lines of business carried on by it at the date hereof or
other businesses incidental or reasonably related thereto. Without limiting
the generality of the preceding sentence, the parties hereto agree that this
subsection 9.04(b) shall not operate to prohibit any Permitted Receivables
Purchase Facility otherwise permitted hereunder.
(c) RESTRICTIONS ON FUNDAMENTAL CHANGES.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, merge with or consolidate into, or acquire all or
substantially all of the assets of, any Person, or sell, transfer, lease or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets, except that:
(i) any of the Borrower's wholly owned Subsidiaries may merge
with, consolidate into or transfer all or substantially all of its
assets to another of the Borrower's wholly owned Subsidiaries or to
the Borrower and in connection therewith such Subsidiary may be
liquidated or dissolved;
(ii) the Borrower or any of its Subsidiaries may sell or
dispose of assets in accordance with the provisions of subsection
9.04(d);
(iii) the Borrower or any of its Subsidiaries may make any
investment permitted by subsection 9.04(e); and
(iv) the Borrower or any of its Subsidiaries may merge with or
consolidate into any other Person, PROVIDED that (A) the Borrower
is the surviving corporation in respect of any merger or
consolidation involving the Borrower, (B) subject to the preceding
clause (A), after giving effect to any such merger or consolidation
the surviving entity in respect thereof shall be a wholly owned
Subsidiary, and (C) no such merger or consolidation shall be made
if a Default would exist immediately after giving effect thereto.
(d) SALES OF ASSETS.
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The Borrower shall not sell, lease, transfer, or otherwise dispose
of, or part with control of (whether in one transaction or a series of
transactions) any assets (including any shares of stock in any Subsidiary or
other Person), except sales or other dispositions of any of the following:
(i) any inventory in the ordinary course of business;
(ii) any Permitted Investments;
(iii) any assets which have become worn out or obsolete or
which are promptly being replaced, in the ordinary course of
business;
(iv) any Receivables pursuant to any Permitted Receivables
Purchase Facility; and
(v) any other assets to the extent not otherwise permitted
hereunder; PROVIDED that such assets do not constitute Substantial
Assets and such sale or disposition is made for fair value; and
PROVIDED FURTHER that (A) at the time of any such sale or
disposition, no Default shall exist or shall result therefrom, (B)
the aggregate sales price from such sale or disposition shall be
paid in cash, or, if approved by the board of directors of the
Borrower, capital stock or debt obligations so long as the
aggregate sales price paid in capital stock or debt obligations,
when added to the non-cash sales price of all other assets sold,
leased, transferred or otherwise disposed of after the Closing Date
pursuant to this Section 9.04(d)(vi), does not exceed 5% of
Consolidated Tangible Net Worth measured as of the last day of the
then most recent fiscal quarter, and (C) no dispositions of
accounts or notes receivable shall be permitted under this clause
(vi) unless in connection with the sale of all or substantially all
of a business unit, division or Subsidiary of the Borrower and such
sale is otherwise permitted hereunder.
For purposes of clause (vi), a sale, lease, transfer or other disposition of
assets shall be deemed to be of "Substantial Assets" if such assets, when
added to all other assets sold, leased, transferred or otherwise disposed of
after the Closing Date (other than assets sold in the ordinary course of
business), shall exceed 10% of Consolidated Tangible Net Worth measured as of
the last day of the then most recent fiscal quarter.
(e) LOANS AND INVESTMENTS.
The Borrower shall not, and shall not permit any of its
Subsidiaries to, purchase or otherwise acquire the capital stock, assets
(constituting a business unit), obligations or other securities of or any
interest in any Person, or otherwise extend any credit to, guarantee the
obligations of or make any additional investments in any Person, other than
in connection with:
(i) extensions of credit in the nature of accounts
receivable, general intangibles or notes receivable arising from
the licensing of software or the sales
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of goods or services in the ordinary course of business;
(ii) investments by the Borrower in the capital stock of
wholly-owned Subsidiaries, and extensions of credit by the Borrower
to any of its wholly owned Subsidiaries or by any of its wholly
owned direct or indirect Subsidiaries to another of its wholly
owned direct or indirect Subsidiaries or the Borrower, in each case
in the ordinary course of business ;
(iii) Permitted Investments;
(iv) Investments permitted under Section 9.04 (c)(iv);
(v) to the extent not otherwise permitted under this
subsection 9.04(e), additional purchases of or investments in joint
ventures or the capital stock, assets, obligations or other
securities of or interest in other Persons not exceeding 10% of
Consolidated Tangible Net Worth, measured as of the last day of the
then most recent fiscal quarter, as to all such investments in the
aggregate, PROVIDED that (A) in the case of any such acquisition or
investment the prior, effective written consent or approval to such
acquisition or investment of the board of directors or equivalent
governing body of the acquiree is obtained and (B) immediately
after giving effect thereto, no Default shall have occurred and be
continuing;
(vi) Guaranty Obligations permitted under subsection 9.04(a);
(vii) Investments in the Venture Fund, so long as the
aggregate unrecovered Investment made therein (not counting
recoveries fairly characterized as income) does not exceed
$60,000,000;
(viii) Investments existing on the Closing Date disclosed
in Schedule 9.04(e);
(ix) Investments consisting of the endorsement of negotiable
instruments for deposit;
(x) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or
suppliers and in settlement of delinquent obligations of, and other
disputes with, customers or suppliers arising in the ordinary
course of business;
(xi) Investments in the ordinary course of business consisting
of (A) compensation of employees, officers and directors of the
Borrower or a Subsidiary, as the case may be, so long as the board
of directors of the Borrower or such Subsidiary determines that
such compensation is in the best interests of the Borrower or such
Subsidiary, (B) travel advances, employee relocation loans and
other employee loans and advances, (C) loans to employees, officers
or
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directors relating to the purchase of equity securities of the
Borrower, and (D) other loans to officers and employees approved by
the board of directors; and
(xii) Investments in connection with any Permitted
Receivables Purchase Facility.
(f) TRANSACTIONS WITH RELATED PARTIES.
Except in connection with any Permitted Receivables Purchase
Facility, the Borrower shall not, and shall not permit any of its Material
Subsidiaries to, enter into any transaction, including the purchase, sale or
exchange of property or the rendering of any services, with any Affiliate,
any officer or director thereof or any Person which beneficially owns or
holds 5% or more of the equity securities, or 5% or more of the equity
interest, thereof (a "Related Party"), or enter into, assume or suffer to
exist, or permit any Material Subsidiary to enter into, assume or suffer to
exist, any employment or consulting contract with any Related Party, except a
transaction or contract which is in the ordinary course of the Borrower's or
such Material Subsidiary's business and which, when considered in the
aggregate with all such transactions between the Related Party and the
Borrower or such Material Subsidiary, such aggregate transactions are upon
fair and reasonable terms not less favorable to the Borrower or such Material
Subsidiary than it would obtain in a comparable arm's length transaction (or
series of transactions) with a Person not a Related Party.
(g) HAZARDOUS SUBSTANCES.
The Borrower shall not, and shall not permit any of its Material
Subsidiaries to, use, generate, manufacture, install, treat, release, store
or dispose of any Hazardous Substances, except in compliance with all
applicable Environmental Laws.
(h) ACCOUNTING CHANGES.
The Borrower shall not, and shall not suffer or permit any of its
Material Subsidiaries to, (i) make any significant change in accounting
treatment or reporting practices, except as required or permitted by GAAP,
or, in respect of any non-U.S. Subsidiary, as required or permitted by
generally accepted accounting principles as then in effect in the
jurisdiction in which such non-U.S. Subsidiary is located or (ii) without the
prior written consent of the Majority Banks (not to be unreasonably
withheld), change its fiscal year or that of any of its consolidated
Subsidiaries, except to change the fiscal year of a Subsidiary acquired in
connection with a permitted acquisition to conform its fiscal year to the
Borrower's.
ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01 EVENTS OF DEFAULT.
Any of the following events which shall occur shall constitute an
"Event of Default":
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(a) PAYMENTS.
The Borrower shall fail to pay (i) when due any amount of principal
of any Loan or Note, or (ii) within three days after the date due, any
amount of interest on any Loan or Note or any fee or other amount payable
hereunder or under any of the Loan Documents.
(b) REPRESENTATIONS AND WARRANTIES.
Any representation or warranty by the Borrower under or in
connection with the Loan Documents shall prove to have been incorrect in any
material respect when made or deemed made.
(c) FAILURE BY BORROWER TO PERFORM CERTAIN COVENANTS.
The Borrower shall fail to perform or observe any term, covenant or
agreement contained in Section 9.02, subsections (a)(i) or (j) of Section
9.03 or Section 9.04.
(d) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS.
The Borrower shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement or any other Loan Document
on its part to be performed or observed and any such failure shall remain
unremedied for a period of 30 days after either (A) a responsible officer of
the Borrower knew or reasonably should have known of such failure or (B) the
Borrower receives written notice thereof by the Agent or any Bank.
(e) INSOLVENCY; VOLUNTARY PROCEEDINGS.
The Borrower or any Material Subsidiary (i) ceases or fails to be
Solvent, or generally fails to pay, or admits in writing its inability to
pay, its debts as they become due, subject to applicable grace periods, if
any, whether at stated maturity or otherwise; (ii) voluntarily ceases to
conduct its business in the ordinary course; (iii) commences any Insolvency
Proceeding with respect to itself; or (iv) takes any action to effectuate or
authorize any of the foregoing; or
(f) INVOLUNTARY PROCEEDINGS.
(i) Any involuntary Insolvency Proceeding is commenced or filed
against the Borrower or any Material Subsidiary, or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied
against a substantial part of the Borrower's or any Material Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or
such writ, judgment, warrant of attachment, execution or similar process
shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Borrower or any Material Subsidiary
admits the material allegations of a petition against it in any Insolvency
Proceeding, or an order for relief (or similar order under non-U.S. law) is
ordered in any Insolvency Proceeding; or (iii) the Borrower or any Material
Subsidiary acquiesces in the appointment of a receiver, trustee, custodian,
conservator, liquidator, mortgagee in possession (or
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agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
(g) DEFAULT UNDER OTHER INDEBTEDNESS.
(i) The Borrower or any of its Material Subsidiaries shall fail (A)
to make any payment of any principal of, or interest or premium on, any
Indebtedness (other than in respect of the Loans) having an aggregate
principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated
credit arrangement) of more than $10,000,000 (or its equivalent in another
currency) when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace or notice period, if any, specified in the agreement or
instrument relating to such Indebtedness as of the date of such failure; or
(B) to perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any such
Indebtedness, when required to be performed or observed, or any other event
shall occur or condition shall exist under any such agreement or instrument,
and such failure, event or condition shall continue after the applicable
grace or notice period, if any, specified in such agreement or instrument, if
the effect of such failure, event or condition is to accelerate, or to permit
the acceleration of, the maturity of such Indebtedness; or (ii) any such
Indebtedness shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to
the stated maturity thereof; (iii) there occurs under any Rate Contract an
Early Termination Date (as defined in such Rate Contract) resulting from (A)
any event of default under such Rate Contract as to which the Borrower or any
Material Subsidiary is the Defaulting Party (as defined in such Rate
Contract) or (B) any Termination Event (as so defined) as to which the
Borrower or any Material Subsidiary is an Affected Party (as so defined),
and, in either event, the Swap Termination Value owed by the Borrower or such
Material Subsidiary as a result thereof is greater than $10,000,000 (or its
equivalent in another currency).
(h) JUDGMENTS.
(i) A final judgment or order for the payment of money in excess of
$50,000,000 (or its equivalent in another currency) which is not fully
covered by third-party insurance shall be rendered against the Borrower or
any of its Material Subsidiaries; or (ii) any non-monetary judgment or order
shall be rendered against the Borrower or any Material Subsidiary which has
or would reasonably be expected to have a Material Adverse Effect; and in
each case there shall be any period of 30 consecutive days during which such
judgment continues unsatisfied or during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect.
(i) ERISA.
(i) The Borrower or an ERISA Affiliate shall fail to satisfy its
contribution requirements in an amount in excess of $5,000,000 under Section
412(c)(11) of the Internal Revenue Code, whether or not it has sought a
waiver under Section 412(d) of the Internal Revenue Code; (ii) in the case of
a Termination Event involving the withdrawal from a Pension
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Plan of a "substantial employer" (as defined in Section 4001(a)(2) or Section
4062(e) of ERISA), the Borrower's or an ERISA Affiliate's proportionate share
of that Pension Plan's Unfunded Accrued Benefits is more than $5,000,000;
(iii) in the case of a Termination Event involving the complete or partial
withdrawal from a Multiemployer Plan, the Borrower or an ERISA Affiliate has
incurred a withdrawal liability in an aggregate amount exceeding $5,000,000;
(iv) in the case of a Termination Event not described in clause (ii) or
(iii), the Unfunded Accrued Benefits of the relevant Pension Plan or Plans
exceed $5,000,000; (v) a Plan of the Borrower or an ERISA Affiliate that is
intended to be qualified under Section 401(a) of the Internal Revenue Code
shall lose its qualification, and the loss can reasonably be expected to
impose on the Borrower or an ERISA Affiliate liability (for additional taxes,
to Plan participants, or otherwise) in the aggregate amount of $5,000,000 or
more; (vi) the commencement or increase of contributions to, the adoption of,
or the amendment of a Plan by, the Borrower or an ERISA Affiliate shall
result in a net increase in unfunded liabilities to the Borrower or an ERISA
Affiliate in excess of $5,000,000; or (vii) the occurrence of any combination
of events listed in clauses (ii) through (vi) that involves a net increase in
aggregate Unfunded Accrued Benefits and unfunded liabilities in excess of
$5,000,000.
(j) DISSOLUTION, ETC.
The Borrower or any of its Material Subsidiaries shall (i)
liquidate, wind up or dissolve (or suffer any liquidation, wind-up or
dissolution), except to the extent expressly permitted by Section 9.04, (ii)
suspend its operations other than in the ordinary course of business, or
(iii) take any corporate action to authorize any of the actions or events set
forth above in this subsection (j).
(k) SUBORDINATION PROVISIONS.
The subordination provisions of any agreement or instrument
governing any Indebtedness subordinated to the Obligations shall for any
reason be revoked or invalidated, or otherwise cease to be in full force and
effect, any Person shall contest in any manner the validity or enforceability
thereof or deny that it has any further liability or obligation thereunder,
or the Indebtedness hereunder shall for any reason be subordinated or shall
not have the priority contemplated by this Agreement or such subordination
provisions.
(l) MERGERS AND ACQUISITIONS.
The Borrower or any Subsidiary shall acquire or otherwise merge or
consolidate with any Person for cash consideration (in whole or in part)
without the prior, effective written consent or approval to such acquisition,
merger or consolidation of the board of directors or equivalent governing
body of such Person.
SECTION 10.02 EFFECT OF EVENT OF DEFAULT.
If any Event of Default shall occur and be continuing, the Agent
shall, at the request of, or may, with the consent of, the Majority Banks,
(I) by notice to the Borrower, (A) declare the Revolving Commitments of the
Banks to be terminated, whereupon the same
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shall forthwith terminate, and (B) declare the entire unpaid principal amount
of the Loans and the Notes, all interest accrued and unpaid thereon and all
other Obligations to be forthwith due and payable, whereupon the Loans and
the Notes, all such accrued interest and all such other Obligations shall
become and be forthwith due and payable, without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by
the Borrower, PROVIDED that if an event described in Sections 10.01(e) or
10.01(f) shall occur, the result which would otherwise occur only upon giving
of notice by the Agent to the Borrower as specified in this clause (i) shall
occur automatically, without the giving of any such notice; and (II) whether
or not the actions referred to in clause (i) have been taken, proceed to
enforce all other rights and remedies available to the Agent and the Banks
under the Loan Documents and applicable law.
ARTICLE XI
THE AGENT
SECTION 11.01 Authorization and Action.
Each Bank hereby appoints ABN AMRO as Agent and authorizes the
Agent to take such action as agent on its behalf and to exercise such powers
and perform such duties under this Agreement and the other Loan Documents as
are delegated to the Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto. The duties and obligations of
the Agent are strictly limited to those expressly provided for herein, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Agent. As to any matters not expressly provided for by the Loan Documents
(including enforcement or collection of the Loan Documents), the Agent shall
not be required to exercise any discretion or take any action, but shall be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of the Majority
Banks, and such instructions shall be binding upon all Banks; PROVIDED,
HOWEVER, that except for action expressly required of the Agent hereunder,
the Agent shall in all cases be fully justified in failing or refusing to act
under any Loan Document unless it shall be indemnified to its satisfaction by
the Banks against any and all liability and expense which may be incurred by
reason of taking or continuing to take any such action, and that the Agent
shall not in any event be required to take any action which exposes the Agent
to liability or which is contrary to any Loan Document or applicable law.
Nothing in any Loan Document shall, or shall be construed to, constitute the
Agent a trustee or fiduciary for any Bank. In performing its functions and
duties hereunder, the Agent shall act solely as the agent of the Banks and
does not assume and shall not be deemed to have assumed any obligation
towards or relationship of agency or trust with or for the Borrower. Without
limiting the generality of the foregoing, the use of the term "agent" in this
Agreement and the other Loan Documents with reference to the Agent is not
intended to connote any fiduciary or other implied (or express) obligations
arising under agency doctrine of any applicable law. Instead, such term is
used merely as a matter of market custom, and is intended to create or
reflect only an administrative relationship between independent contracting
parties.
SECTION 11.02 LIMITATION ON LIABILITY OF AGENT; NOTICES; CLOSING.
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(a) LIMITATION ON LIABILITY OF AGENT.
Neither the Agent nor any Affiliate thereof nor any of their
respective directors, officers, employees or agents shall be liable for any
action taken or omitted to be taken by it or them under or in connection with
any Loan Document, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the Agent
(i) may treat a Bank as the holder of its Loans for all purposes hereof
unless and until such Bank and its assignee shall have delivered to the Agent
and the Borrower an Assignment and Acceptance Agreement substantially in the
form of Exhibit F (an "Assignment and Acceptance"), and the Agent receives
written notice of the assignment in substantially the form of Schedule 1 to
the Assignment and Acceptance and the other conditions to assignment set
forth in Section 12.09 shall have been satisfied; (ii) may consult with legal
counsel (including counsel to the Borrower, independent public accountants
and other experts selected by it and shall not be liable for any action taken
or omitted to be taken in good faith by it in accordance with the advice of
such counsel, accountants or experts; and (iii) shall incur no liability to
any Bank under or in respect of any Loan Document by acting upon any notice,
consent, certificate, telegram, facsimile, telex or teletype message,
statement or other instrument or writing believed by it to be genuine and
signed or sent by the proper party or parties or by acting upon any
representation or warranty made or deemed to be made hereunder or under any
other Loan Document. Further, the Agent (A) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for the
accuracy or completeness of any information, exhibit or report furnished
under any Loan Document, for any statements, warranties or representations
(whether written or oral) made or deemed made in or in connection with any
Loan Documents; (B) shall have no duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of
this Agreement or any other Loan Document on the part of the Borrower or any
other Person or to inspect the property, books or records of the Borrower or
any other Person; and (C) shall not be responsible to any Bank for the due
execution, legality, validity, enforceability, genuineness, sufficiency,
value or collectibility of this Agreement or any other Loan Document or any
of the Collateral.
(b) NOTICES.
Promptly upon receipt thereof, the Agent shall forward to each Bank
originals or copies, as specified in this Agreement or any other Loan
Document, of all agreements, instruments, opinions, financial statements,
notices and other documents delivered by the Borrower or any other Person to
the Agent pursuant to any Loan Document for distribution to the Banks.
Except for any of the foregoing expressly required to be furnished to the
Banks by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
(c) CLOSING.
For purposes of determining compliance with the conditions
specified in
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Section 7.01, each Bank that has executed this Agreement shall be deemed to
have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent (or made available) by the Agent to such
Bank for consent, approval, acceptance or satisfaction, or required
thereunder to be consented to or approved by or acceptable or satisfactory to
such Bank, unless an officer of the Agent responsible for the transactions
contemplated by the Loan Documents shall have received notice from such Bank
prior to the Closing Date specifying its objection thereto and either such
objection shall not have been withdrawn by notice to the Agent to that effect
on or prior to the Closing Date or, if any Borrowing on the Closing Date has
been requested, the Bank shall not have made available to the Agent on or
prior to the Closing Date the Bank's Pro Rata Share of any Borrowing.
SECTION 11.03 AGENT AND AFFILIATES.
With respect to its Revolving Commitment, the Loans made by it, the
Notes issued to it and all other Obligations owing to it as a Bank, the Agent
shall have the same rights and powers under the Loan Documents as any other
Bank and may exercise the same as though it were not the Agent; and the term
"Bank" or "Banks" shall, unless otherwise expressly indicated, include the
Agent in its individual capacity. The Agent and its Affiliates may accept
deposits from, lend money to, act as trustee under indentures of and
generally engage in any kind of business with the Borrower, and any Affiliate
thereof, all as if the Agent were not the Agent hereunder and without any
duty to account therefor to the Banks.
SECTION 11.04 NOTICE OF DEFAULTS.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of a Default hereunder (other than nonpayment of principal of or
interest on the Loans or of any fees or any of its costs and expenses) unless
the Agent has actual knowledge thereof or has received notice in writing from
a Bank or the Borrower referring to this Agreement, describing such event or
condition and expressly stating that such notice is a "notice of default."
Should the Agent receive such notice of the occurrence of a Default, the
Agent shall promptly give notice thereof to the Banks. The Agent thereupon
shall take such action with respect to such Default as shall be reasonably
directed by the Majority Banks; PROVIDED that, unless and until the Agent
shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with
respect to such Default as it shall deem advisable in the best interests of
the Banks.
SECTION 11.05 NON-RELIANCE ON AGENT.
Each Bank has itself been, and will continue to be, based on such
documents and information as it has deemed appropriate, solely responsible
for making its own independent appraisal of and investigations into the
financial condition, creditworthiness, condition, affairs, status and nature
of the Borrower or any of its Subsidiaries. Accordingly, each Bank confirms
to the Agent that it has not relied, and will not hereafter rely, on the
Agent (i) to check or inquire on such Bank's behalf into the adequacy,
accuracy or completeness of any information provided by the Borrower or any
other Person under or in connection with the Loan Documents or the
transactions herein contemplated (whether or not such information has been or
is hereafter
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distributed to such Bank by the Agent), or (ii) to assess or keep under
review on such Bank's behalf the financial condition, creditworthiness,
condition, affairs, status or nature of the Borrower or any Subsidiary.
SECTION 11.06 INDEMNIFICATION.
The Banks agree to indemnify the Agent, and any Affiliates,
directors, officers, employees, agents, counsel and other advisors
(collectively, the "Related Persons") of the Agent (to the extent not
reimbursed by the Borrower, ratably in accordance with the respective Pro
Rata Shares of the Banks, against and hold each of them harmless from any and
all liabilities, obligations, losses, claims, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever, including the reasonable fees and disbursements of counsel to the
Agent (including allocated costs of internal counsel), which may be imposed
on, incurred by, or asserted against the Agent or any such Related Person to
be indemnified, in any way relating to or arising out of the Loan Documents,
the use or intended use of the proceeds of the Loans or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent or
other such Related Person to be indemnified in connection with any of the
foregoing; PROVIDED that no Bank shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements to the extent they are found by a
final decision of a court of competent jurisdiction to have resulted from the
gross negligence or willful misconduct of the Agent, or any other Related
Person to be indemnified.
SECTION 11.07 DELEGATION OF DUTIES.
The Agent may, in its discretion, employ from time to time one or
more agents or attorneys-in-fact (including any of the Agent's Affiliates) to
perform any of the Agent's duties under the Loan Documents. The Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
SECTION 11.08 SUCCESSOR AGENT.
Subject to the appointment and acceptance of a successor Agent as
provided below, the Agent may resign at any time by giving 90 days' written
notice thereof to the Banks and the Borrower. Upon any such resignation, the
Borrower shall have the right to appoint a successor Agent from among the
Banks, with the consent of the Majority Banks (which shall not be
unreasonably withheld), and the Borrower and the Banks shall use their best
efforts so to appoint a successor Agent. If no successor Agent shall have
been so appointed by the Borrower and the Majority Banks, and shall have
accepted such appointment, prior to the effective date of the retiring
Agent's resignation, the retiring Agent may, on behalf of the Banks, appoint
a successor Agent from among the Banks. Upon the effectiveness of the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges, duties and obligations of the retiring Agent, and
the retiring Agent shall be discharged from its duties and obligations under
the Loan Documents. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Article XI shall inure to its benefit as to any
actions taken or omitted to be taken by it
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while it was Agent under the Loan Documents.
SECTION 11.09 CO-AGENTS.
None of the Banks identified on the facing page or signature pages
of this Agreement as a "co-agent" shall have any right, power, obligation,
liability, responsibility or duty under this Agreement other than those
applicable to all Banks as such. Without limiting the foregoing, none of the
Banks so identified as a "co-agent" shall have or be deemed to have any
fiduciary relationship with any Bank. Each Bank acknowledges that it has not
relied, and will not rely, on any of the Banks so identified in deciding to
enter into this Agreement or in taking or not taking action hereunder.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01 AMENDMENTS AND WAIVERS.
Except as otherwise provided herein or in any other Loan Document,
(I) no amendment to any provision of this Agreement or any of the other Loan
Documents shall in any event be effective unless the same shall be in writing
and signed by the Borrower, the Agent and the Majority Banks (or the Agent
with the written consent of the Majority Banks); and (II) no waiver of any
provision of this Agreement or any other Loan Document, or consent to any
departure by the Borrower, shall in any event be effective unless the same
shall be in writing and signed by the Agent and the Majority Banks (or the
Agent with the consent of the Majority Banks). Any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; PROVIDED, HOWEVER, that, notwithstanding the
foregoing provisions of this Section 12.01, any term or provision of Article
XI (other than the provisions of Section 11.08 pertaining to Borrower
consent) may be amended without the agreement or consent of, or prior notice
to, the Borrower; and PROVIDED FURTHER, HOWEVER, that, unless in writing and
signed by all of the Banks (or by the Agent with the written consent of all
the Banks), no amendment, waiver or consent shall do any of the following:
(A) increase the amount, or extend the stated expiration or
termination date, of the Revolving Commitments of the Banks or change the
aggregate amount by which or to which the Revolving Commitments are required
to be reduced as provided in Section 4.01(c);
(B) reduce the principal of, or interest on, the Loans or any fee
or other amount payable to the Banks hereunder;
(C) postpone any date fixed for any payment in respect of
principal of, or interest on, the Loans or any fee or other amount payable to
the Banks hereunder;
(D) change the definition of "Majority Banks" or any definition or
provision of this Agreement requiring the approval of Majority Banks or some
other specified amount of Banks;
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(E) consent to the assignment or transfer by the Borrower of any
of its rights and obligations under the Loan Documents;
(F) waive any of the conditions specified in Article VII;
(G) amend, modify or waive the provisions of Section 6.01, 6.05 or
12.07; or
(H) amend, modify or waive the provisions of this Section 12.01;
and
PROVIDED, FURTHER, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent in addition to the Banks required hereinabove
to take such action, affect the rights, obligations or duties of the Agent
under any Loan Document.
SECTION 12.02 NOTICES.
(a) NOTICES.
All notices and other communications provided for hereunder and
under the other Loan Documents shall, unless otherwise stated herein, be in
writing (including by facsimile transmission followed by a telephone call by
the sender to confirm receipt by the recipient party) and mailed, sent or
delivered to the respective parties hereto at or to their respective
addresses or facsimile numbers set forth in Schedule 2, or at or to such
other address or facsimile number as shall be designated by any party in a
written notice to the other parties hereto. All such notices and
communications shall be effective (i) if delivered by hand, when delivered;
(ii) if sent by mail, upon the earlier of the date of receipt or five
Business Days after deposit in the mail, first class (or air mail, with
respect to communications to be sent to or from the United States), postage
prepaid; and (iii) if sent by facsimile transmission, upon verbal
confirmation of receipt by the recipient party; PROVIDED, HOWEVER, that
notices and communications to the Agent shall not be effective until received.
(b) FACSIMILE AND TELEPHONIC NOTICE.
The Borrower acknowledges and agrees that the agreement of the
Agent and the Banks herein and in any other Loan Document to receive certain
notices by telephone and facsimile is solely for the convenience and at the
request of the Borrower. The Agent and the Banks shall be entitled to rely
on the authority of any Person purporting to be a Person authorized by the
Borrower to give such notice and the Agent and the Banks shall not have any
liability to the Borrower or other Person on account of any action taken or
not taken by the Agent and the Banks in reliance upon such telephonic or
facsimile notice. The obligation of the Borrower to repay the Loans and the
other Obligations shall not be affected in any way or to any extent by any
failure by the Agent and the Banks to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Agent and the Banks of a
confirmation which is at variance with the terms understood by the Agent and
the Banks to be contained in the telephonic or facsimile notice.
SECTION 12.03 NO WAIVER; CUMULATIVE REMEDIES.
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No failure on the part of the Agent or any Bank to exercise, and no delay in
exercising, any right, remedy, power or privilege under any Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise
of any such right, remedy, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies under the Loan Documents are cumulative
and not exclusive of any rights, remedies, powers and privileges that may
otherwise be available to the Agent or any Bank.
SECTION 12.04 COSTS AND EXPENSES; INDEMNIFICATION.
(a) COSTS AND EXPENSES.
The Borrower agrees to pay not later than 30 days after written
demand therefor, including a statement of account, whether or not the
transactions contemplated hereby shall be consummated:
(i) the reasonable out-of-pocket costs and expenses of the
Agent and any of its Affiliates, and the reasonable fees and
disbursements of counsel to the Agent, in connection with the
negotiation, preparation, execution, delivery and syndication of
the Loan Documents, and any amendments, modifications or waivers
requested by the Borrower of the terms thereof; and
(ii) all costs and expenses of the Agent, its Affiliates and
the Banks, and fees and disbursements of counsel (including
allocated costs of internal counsel), in connection with (A) any
Default, (B) the enforcement or attempted enforcement of, and
preservation of any rights or interests under, the Loan Documents,
and (C) any out-of-court workout or other refinancing or
restructuring or any bankruptcy case, including any losses, costs
and expenses sustained by the Agent and any Bank as a result of any
failure by the Borrower to perform or observe its obligations
contained in the Loan Documents.
(b) INDEMNIFICATION.
Whether or not the transactions contemplated hereby shall be
consummated, the Borrower hereby agrees to indemnify the Agent, each Bank and
any Related Person thereof (each an "Indemnified Person") against, and hold
each of them harmless from, any and all liabilities, obligations, losses,
claims, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever, including the reasonable fees
and disbursements of counsel to an Indemnified Person (including allocated
costs of internal counsel), which may be imposed on, incurred by, or asserted
against any Indemnified Person, (i) in any way relating to or arising out of
any of the Loan Documents, the use or intended use of the proceeds of the
Loans, or the transactions contemplated hereby, (ii) with respect to any
investigation, litigation or other proceeding relating to any of the
foregoing, irrespective of whether the Indemnified Person shall be designated
a party thereto, or (iii) in any way relating to or arising out of the use,
generation, manufacture, installation, treatment, storage or presence, or the
spillage, leakage, leaching, migration, dumping, deposit, discharge, disposal
or release, at any time, of any
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Hazardous Substances on, under, at or from any Premises, including any
personal injury or property damage suffered by any Person, and any
investigation, site assessment, environmental audit, feasibility study,
monitoring, clean-up, removal, containment, restoration, remedial response or
remedial work undertaken by or on behalf of the any Indemnified Person at any
time, voluntarily or involuntarily, with respect to the Premises (the
"Indemnified Liabilities"); PROVIDED that the Borrower shall not be liable to
any Indemnified Person for any portion of such Indemnified Liabilities to the
extent they are found by a final decision of a court of competent
jurisdiction to have resulted from such Indemnified Person's gross negligence
or willful misconduct. If and to the extent that the foregoing
indemnification is for any reason held unenforceable, the Borrower agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
(c) OTHER CHARGES.
The Borrower agrees to indemnify the Agent and each of the Banks
against and hold each of them harmless from any and all present and future
stamp, transfer, documentary and other such taxes, levies, fees, assessments
and other charges made by any jurisdiction by reason of the execution,
delivery, performance and enforcement of the Loan Documents.
SECTION 12.05 RIGHT OF SET-OFF.
Upon the occurrence and during the continuance of any Event of
Default, each Bank hereby is authorized, to the extent permitted by
applicable statute, at any time and from time to time, without notice to the
Borrower (any such notice being expressly waived by the Borrower), to set off
and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by such Bank to or for the credit or the account of the Borrower
against any and all of the Obligations of the Borrower now or hereafter
existing under this Agreement and the other Loan Documents, irrespective of
whether or not such Bank shall have made any demand under this Agreement or
any such other Loan Document and although such Obligations may be unmatured.
Each Bank agrees promptly to notify the Borrower (through the Agent) after
any such set-off and application made by such Bank; PROVIDED that the failure
to give such notice shall not affect the validity of such set-off and
application. The rights of each Bank under this Section 12.05 are in
addition to other rights and remedies (including other rights of set-off)
which such Bank may have.
SECTION 12.06 SURVIVAL.
All covenants, agreements, representations and warranties made in
any Loan Documents shall, except to the extent otherwise provided therein,
survive the execution and delivery of this Agreement, the making of the Loans
and the execution and delivery of the Notes, and shall continue in full force
and effect so long as the Banks have any Revolving Commitments, any Loans
remain outstanding or any other Obligations remain unpaid or any obligation
to perform any other act under any Loan Document remains unsatisfied.
Without limiting the generality of the foregoing, the obligations of the
Borrower under Sections 5.02, 5.03, 6.03 and 12.04, and of the Banks under
Sections 6.03 and 11.06, and all similar obligations under the other Loan
Documents (including all obligations to pay costs and expenses and all
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indemnity obligations), shall survive the repayment of the Loans and the
termination of the Revolving Commitments.
SECTION 12.07 OBLIGATIONS SEVERAL.
The obligations of the Banks under the Loan Documents are several.
The failure of any Bank or the Agent to carry out its obligations thereunder
shall not relieve any other Bank or the Agent of any obligation thereunder,
nor shall any Bank or the Agent be responsible for the obligations of, or any
action taken or omitted by, any other Person hereunder or thereunder.
Nothing contained in any Loan Document shall be deemed to cause any Bank or
the Agent to be considered a partner of or joint venturer with any other Bank
or Banks, the Agent or the Borrower.
SECTION 12.08 BENEFITS OF AGREEMENT.
The Loan Documents are entered into for the sole protection and
benefit of the parties hereto and their successors and assigns, and no other
Person other than Affiliates of the Agent and the Related Persons referred to
in Sections 11.06, 12.04 and 12.14 shall be a direct or indirect beneficiary
of, or shall have any direct or indirect cause of action or claim in
connection with, any Loan Document.
SECTION 12.09 BINDING EFFECT; ASSIGNMENT.
(a) BINDING EFFECT.
This Agreement shall become effective when it shall have been
executed by the Borrower and the Agent and when the Agent shall have been
notified by each Bank that such Bank has executed it and thereafter shall be
binding upon, inure to the benefit of and be enforceable by the Borrower, the
Agent and each Bank and their respective successors and assigns.
(b) ASSIGNMENT.
The Borrower shall not have the right to assign its rights and
obligations hereunder or under the other Loan Documents or any interest
herein or therein without the prior written consent of the Banks. Each Bank
may sell, assign, transfer or grant participations in all or any portion of
such Bank's rights and obligations hereunder and under the other Loan
Documents to any Bank or Eligible Assignee on the basis set forth below in
this subsection (b).
(i) Any Bank may, with the written consent of the Borrower
and the Agent (which in each case shall not be unreasonably
withheld), at any time assign and delegate to one or more Eligible
Assignees all, or any ratable part of all, of the Loans, the
Revolving Commitments and the other rights and obligations of such
Bank hereunder; PROVIDED, HOWEVER, that (i) no consent of the
Borrower shall be required during the existence of an Event of
Default; (ii) no consent of the Borrower or the Agent shall be
required in connection with any assignment and
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delegation by a Bank to an Eligible Assignee that is another Bank
or an Affiliate of such Bank; and (iii) except in connection with
an assignment of all of a Bank's rights and obligations with
respect to its Revolving Commitment and Loans, any such assignment
to an Eligible Assignee that is not a Bank hereunder shall be equal
to or greater than $15,000,000.
(ii) In the event of any such assignment, unless and until (A)
an Assignment and Acceptance and notice of assignment shall have
been delivered pursuant to clause (i) of Section 11.02(a), (B) the
Agent shall have received payment of an administrative transfer
charge in the amount of $3,500 from the assigning Bank (unless the
assignee shall otherwise agree to pay such charge), and (C) the
Agent and the Borrower shall have received all tax forms and
documents required under Section 6.03(d), such assignee shall not
be entitled to exercise the rights of a Bank under this Agreement
and the other Loan Documents with respect to such assignment and
the Agent shall not be obligated to make payment of any amount to
which such assignee may become entitled thereunder other than to
the assigning Bank. Subject to satisfaction of the foregoing
conditions in connection with any assignment, upon the
effectiveness of such assignment the assignee shall be deemed a
"Bank" for all purposes of this Agreement and the other Loan
Documents with respect to the rights and obligations assigned to
it, and the other Loan Documents with respect to the rights and
obligations assigned to it, and the assigning Bank shall, to the
extent that rights and obligations hereunder and under the other
Loan Documents have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights and be released from its
obligations under the Loan Documents; PROVIDED, HOWEVER, that the
assigning Bank shall not relinquish its rights under Article V or
under Sections 6.03 and 12.04 to the extent such rights relate to
the time prior to the effective date of the Assignment and
Acceptance.
(iii) In connection with any partial assignment, upon the
request of the assigning Bank or the assignee, (A) the Borrower
shall execute and deliver substitute Notes to the assigning Bank or
the assignee, dated the effective date of such assignment, setting
forth the respective Revolving Commitments of such assigning Bank
and assignee as the maximum principal amount thereof (in the case
of substitute Revolving Notes), or the principal amount of the Term
Loans held by such assigning Bank and assignee (in the case of
substitute Term Notes), and containing other appropriate
insertions, and the assigning Bank shall thereupon return the Notes
previously held by it; and (B) Schedules 1 and 2 shall be deemed
amended to reflect the adjustment of the Revolving Commitments and
Pro Rata Shares of the Banks resulting therefrom and the Lending
Office, if any, and address for notices of the assignee.
(iv) In the event of any grant of a participation, the
granting Bank shall remain a "Bank" for purposes of this Agreement,
the Borrower, the other Banks and the Agent shall continue to deal
solely and directly with such Bank in
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connection with this Agreement and the other Loan Documents, and no
Bank shall transfer or grant any participating interest under which
the participant shall have rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other
Loan Document, except to the extent such amendment, consent or
waiver would require unanimous consent as described in the second
proviso to Section 12.01. In the case of any such participation,
the participant shall not have any of the rights of a Bank under
this Agreement or the other Loan Documents, except that the
participant shall (A) be deemed to have a right of setoff under
Section 12.05 in respect of its participation to the same extent as
if it were a "Bank" hereunder, PROVIDED that such participant shall
also be considered a "Bank" for purposes of Section 6.05; and (B)
such participant shall also be entitled to the benefits of Sections
5.02, 5.03, 6.03 and 12.04, PROVIDED that any amounts payable under
Sections 5.03 or 6.03 to any participant shall not exceed the
amounts which would have been payable by the Borrower thereunder to
the Bank granting such participation.
(v) The Borrower agrees that in connection with any such
grant or assignment, such Bank may deliver to the prospective
participant or assignee financial statements and other relevant
information relating to the Borrower and its Subsidiaries.
(vi) Each Bank shall obtain from any such prospective
participant or assignee a confidentiality agreement in which such
participant or assignee agrees to an obligation of confidentiality
substantially similar to the terms of Section 12.14.
(vii) Notwithstanding any other provision in this Agreement,
any Bank may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this
Agreement and any Note held by it in favor of any Federal Reserve
Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted
under applicable law.
SECTION 12.10 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CALIFORNIA.
SECTION 12.11 SUBMISSION TO JURISDICTION.
(a) SUBMISSION TO JURISDICTION.
The Borrower hereby (i) submits to the non-exclusive jurisdiction
of the courts of the State of California and the Federal courts of the United
States sitting in the State of California for the purpose of any action or
proceeding arising out of or relating to the Loan
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Documents, (ii) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such courts, (iii) irrevocably
waives (to the extent permitted by applicable law) any objection which it now
or hereafter may have to the laying of venue of any such action or proceeding
brought in any of the foregoing courts, and any objection on the ground that
any such action or proceeding in any such court has been brought in an
inconvenient forum and (iv) agrees that a final judgment in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner permitted by law.
(b) NO LIMITATION.
Nothing in this Section 12.11 shall limit the right of the Agent or
the Banks to bring any action or proceeding against the Borrower or its
property in the courts of other jurisdictions.
SECTION 12.12 WAIVER OF JURY TRIAL.
THE BORROWER, THE BANKS AND THE AGENT HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING
OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY
OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS,
OR OTHERWISE. THE BORROWER, THE BANKS AND THE AGENT HEREBY AGREE THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT
THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. A COPY OF
THIS SECTION 12.12 MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE
WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT.
SECTION 12.13 LIMITATION ON LIABILITY.
No claim shall be made by the Borrower or its Affiliates against
the Agent, the Banks or any of their respective Related Persons for any
special, indirect, exemplary, consequential or punitive damages in respect of
any breach or wrongful conduct (whether or not the claim therefor is based on
contract, tort or duty imposed by law), in connection with, arising out of or
in any way related to the transactions contemplated by the Loan Documents or
any act or omission or event occurring in connection therewith; and the
Borrower hereby waives,
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releases and agrees not to sue upon any such claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
SECTION 12.14 CONFIDENTIALITY.
Each Bank and the Agent shall hold all non-public information
relating to the Borrower and its Subsidiaries obtained by it under this
Agreement in accordance with its customary procedures for handling
confidential information of this nature, except for: (i) disclosure to its
Affiliates or to its counsel or to any agent or advisor acting on its behalf
in connection with the negotiation, execution or performance of the Loan
Documents; (ii) disclosure as reasonably required in connection with a
transfer to a prospective assignee or participant of all or part of its Loans
or any participation therein, as provided in Section 12.09(b); (iii)
disclosure as may be required or requested by any Governmental Authority or
representative thereof or pursuant to legal process; (iv) disclosure to any
Person and in any proceeding necessary in such Bank's or the Agent's judgment
to protect its interests in connection with any claim or dispute involving
such Bank or the Agent; and (v) any other disclosure with the prior written
consent of the Borrower. Prior to any disclosure by any Bank or the Agent of
such non-public information permitted under clause (iii) (other than in
connection with an examination of the financial condition of such Bank, the
Agent or any of their Affiliates by any Governmental Authority), it shall, if
permitted by applicable laws or judicial order, notify the Borrower of such
pending disclosure. In no event shall any Bank or the Agent be obligated or
required to return any materials furnished by the Borrower or its
Subsidiaries. Notwithstanding the foregoing, such obligation of
confidentiality shall not apply if the information or substantially similar
information (A) is rightfully received by any Bank or the Agent from a Person
other than the Borrower or any of its Affiliates without such Bank or the
Agent being under an obligation to such Person not to disclose such
information, or (B) is or becomes part of the public domain.
SECTION 12.15 ENTIRE AGREEMENT.
The Loan Documents reflect the entire agreement among the Borrower,
the Banks and the Agent with respect to the matters set forth herein and
therein and supersede any prior agreements, Revolving Commitments, drafts,
communications, discussions and understandings, oral or written, with respect
thereto.
SECTION 12.16 SEVERABILITY.
Whenever possible, each provision of the Loan Documents shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of any of the Loan
Documents shall be prohibited by or invalid under any such law or regulation
in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only
to the extent of such prohibition or invalidity without affecting the
remaining provisions of such Loan Document, or the validity or effectiveness
of such provision in any other jurisdiction.
SECTION 12.17 COUNTERPARTS.
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This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE BORROWER
------------
CADENCE DESIGN SYSTEMS, INC.
By
Name:
Title:
THE AGENT
---------
ABN AMRO BANK N.V., AS AGENT
By
Name:
Title:
By
Name:
Title:
THE BANKS
---------
ABN AMRO BANK N.V., AS A BANK
By
Name:
Title:
By
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By
Name:
Title:
70.
<PAGE>
BANK OF MONTREAL
By
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By
Name:
Title:
UBS AG, NEW YORK BRANCH
By
Name:
Title:
By
Name:
Title:
71.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as
of October 16, 1998, is made among Cadence Design Systems, Inc., a Delaware
corporation (the "Borrower"), the financial institutions listed on the signature
pages hereof under the heading "EXISTING BANKS" (each an "Existing Bank" and,
collectively, the "Existing Banks"), the financial institutions listed on the
signature pages hereof under the heading "NEW BANKS" (each a "New Bank" and,
collectively, the "New Banks"), Bank of America National Trust and Savings
Association, Bank of Montreal, The First National Bank of Chicago, KeyBank
National Association and UBS AG, New York Branch, as co-agents, and ABN AMRO
Bank N.V., as agent for the Banks (in such capacity, the "Agent").
The Borrower, the Existing Banks and the Agent are parties to a Credit
Agreement dated as of September 29, 1998 (the "Credit Agreement"). The Borrower
has requested that the Existing Banks agree to certain amendments to the Credit
Agreement in order to (i) increase the size of the revolving credit facility
available thereunder from $250,000,000 to $355,000,000 and (ii) permit the New
Banks to become parties to the Credit Agreement. The Existing Banks have agreed
to such request, subject to the terms and conditions hereof.
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Amendment (including in the Recitals hereof) and not otherwise defined
herein shall have the meanings assigned to them in the Credit Agreement.
(b) INTERPRETATION. The rules of interpretation set forth in
Section 1.03 of the Credit Agreement shall be applicable to this Amendment and
are incorporated herein by this reference.
SECTION 2 AMENDMENTS TO THE CREDIT AGREEMENT.
(a) AMENDMENTS. The Credit Agreement shall be amended as follows,
effective as of the date of satisfaction of the conditions set forth in Section
3 (the "Effective Date"):
(i) The definition of "364-Day Commitment" set forth in
Section 1.01 of the Credit Agreement shall be amended by deleting the dollar
amount "$125,000,000" in clause (i) of such definition and substituting
therefor the dollar amount "$177,500,000";
(ii) The definition of "Permitted Liens" set forth in
Section 1.01 of the Credit Agreement shall be amended by deleting clause (xi)
of such definition and substituting the following therefor:
"(xi) Liens on Receivables and Receivables Related
Assets in connection with any Permitted Receivables Purchase
Facility;"
<PAGE>
(iii) The definition of "Receivables Related Assets" set
forth in Section 1.01 of the Credit Agreement shall be amended by deleting
clause (e) of such definition and substituting the following therefor:
"(e) other assets which are customarily transferred or in
respect of which security interests are customarily granted
in connection with factoring or asset securitization
transactions involving Receivables."
(iv) Section 4.01 of the Credit Agreement shall be amended
by deleting the dollar amount "$125,000,000" in subsection (c) thereof and
substituting therefor the dollar amount "$177,500,000";
(v) Section 9.04(c) of the Credit Agreement shall be
amended by (A) deleting the word "and" at the end of clause (iii), (B)
deleting the period at the end of clause (iv) and replacing it with "; and",
and (C) adding a new clause (v) to such Section to read as follows:
"(v) the Borrower or any of its Subsidiaries may sell,
transfer or dispose of any Receivables and Receivables Related Assets
pursuant to any Permitted Receivables Purchase Facility."
(vi) Section 9.04(d) of the Credit Agreement shall be
amended by deleting clause (iv) of such section and substituting the
following therefor:
"(iv) any Receivables and Receivables Related Assets
pursuant to any Permitted Receivables Purchase Facility; and"
(vii) Section 10.01(g)(i) of the Credit Agreement shall be
amended by deleting clause (A) of such Section and substituting the following
therefor:
"(A) to make any payment of any principal of, or interest or
premium on, any single Indebtedness (other than in respect of
the Loans) having a principal amount (including undrawn
committed or available amounts and including amounts owing to
all creditors under any combined or syndicated credit
arrangement) of more than $10,000,000 (or its equivalent in
another currency) when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace or
notice period, if any, specified in the agreement or
instrument relating to such Indebtedness as of the date of
such failure;"
(viii) Schedule 1 of the Credit Agreement shall be amended and
restated in its entirety in the form of Schedule 1 attached hereto.
REFERENCES WITHIN CREDIT AGREEMENT. Each reference in the
Credit Agreement to "this Agreement" and the words "hereof," "herein,"
"hereunder," or words of like import, shall mean and be a reference to the
Credit Agreement as amended by this Amendment.
2.
<PAGE>
SECTION 3 CONDITIONS OF EFFECTIVENESS. The effectiveness of this
Amendment shall be subject to the satisfaction of each of the following
conditions precedent:
(a) EXECUTED AMENDMENT. The Agent shall have received an executed
counterpart of this Amendment from each of the Borrower, the Existing Banks and
the New Banks.
(b) ADDITIONAL CLOSING DOCUMENTS AND ACTIONS. The Agent shall have
received, in form and substance satisfactory to it, a certificate of a
Responsible Officer of the Borrower dated the Effective Date, stating that
(A) the representations and warranties contained in Section 4 hereof are true
and correct on and as of the Effective Date, and (B) on and as of the Effective
Date, after and giving effect to the amendment of the Credit Agreement
contemplated hereby, no Default shall have occurred and be continuing.
(c) CORPORATE DOCUMENTS. The Agent shall have received, in form and
substance satisfactory to it, a certificate of the Secretary or Assistant
Secretary of the Borrower, dated the Effective Date, certifying that true and
correct copies of (A) the resolutions of the Board of Directors of the Borrower
authorizing the execution, delivery and performance of this Amendment and (B)
incumbency, authority and signatures of each officer of the Borrower authorized
to execute and deliver this Amendment are attached to the Certificate of
Secretary dated September 29, 1998, as Exhibits C and D respectively, and such
resolutions and incumbency remain in full force and effect.
(d) MATERIAL ADVERSE EFFECT. On and as of the Effective Date, there
shall have occurred no Material Adverse Effect since the date of this Amendment.
(e) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the Effective
Date, after giving effect to the amendment of the Credit Agreement contemplated
hereby:
(i) the representations and warranties contained in Section 4 hereof
shall be true and correct on and as of the Effective Date as though made on and
as of such date; and
(ii) no Default shall have occurred and be continuing.
(f) ADDITIONAL DOCUMENTS. The Agent shall have received, in form and
substance satisfactory to it, such additional approvals, opinions, documents and
other information as the Agent or any Existing Bank or New Bank (through the
Agent) may reasonably request.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE BORROWER. To induce
the Existing Banks and the New Banks to enter into this Amendment, the Borrower
hereby confirms and restates, as of the date hereof, the representations and
warranties made by it in Section 8.01 of the Credit Agreement and in the other
Loan Documents. For the purposes of this Section 4, (i) each reference in
Section 8.01 of the Credit Agreement to "this Agreement," and the words
"hereof," "herein," "hereunder," or words of like import in such Section, shall
mean and be a reference to the Credit Agreement as amended by this Amendment,
and each reference in such Section to "the Loan Documents" shall mean and be a
reference to the Loan Documents as amended as contemplated hereby, (ii) the
representation and warranty set forth in Section 8.01(p)
3.
<PAGE>
of the Credit Agreement shall be deemed instead to refer to the last day of
the most recent fiscal quarter and fiscal year for which financial statements
have then been delivered, (iii) any representations and warranties which
relate solely to an earlier date shall not be deemed confirmed and restated
as of the date hereof (PROVIDED that such representations and warranties
shall be true, correct and complete as of such earlier date), and (iv) the
preceding clause (i) shall take into account any amendments to the Schedules
and other disclosures made in writing by the Borrower to the Agent and the
Banks after the Closing Date and approved by the Agent and the Majority Banks.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF NEW BANKS. Each New Bank
represents and warrants to the Agent, the Existing Banks, each other New Bank
and the Borrower that (i) it is duly organized and existing and it has full
power and authority to take, and has taken, all action necessary to execute and
deliver this Amendment and any other documents required or permitted to be
executed or delivered by it in connection with this Amendment, and to fulfill
its obligations hereunder and under the Credit Agreement; (ii) no notices to, or
consents, authorizations or approvals of, any Person are required for its due
execution, delivery and performance of this Amendment; and apart from any
agreements or undertakings or filings required by the Credit Agreement, no
further action by, or notice to, or filing with, any Person is required of it
for such execution, delivery or performance; (iii) this Amendment has been duly
executed and delivered by it and constitutes the legal, valid and binding
obligation of such New Bank, enforceable against such New Bank in accordance
with the terms hereof, subject, as to enforcement, to bankruptcy, insolvency,
moratorium, reorganization and other laws of general application relating to or
affecting creditors' rights and to general equitable principles; and (iv) it is
an Eligible Assignee.
SECTION 6 NEW BANKS ACCEDE TO CREDIT AGREEMENT. With effect on and
after the Effective Date (as defined in Section 2 hereof), each New Bank shall
be a party to the Credit Agreement and accede to all of the rights and be
obligated to perform all of the obligations of a Bank under the Credit
Agreement, including the requirements concerning confidentiality and the payment
of indemnification, with a Revolving Commitment in the amount set forth in
SCHEDULE 1 hereto opposite the name of such New Bank. Each New Bank agrees that
it shall perform in accordance with their terms all of the obligations which by
the terms of the Credit Agreement are required to be performed by it as a Bank.
Each New Bank hereby appoints and authorizes the Agent to take such action as
agent on its behalf and to exercise such powers under the Credit Agreement and
the other Loan Documents as are delegated to the Agent by the Banks pursuant to
the terms of the Credit Agreement and such other Loan Documents.
SECTION 7 MISCELLANEOUS.
(a) NOTICE. The Agent shall notify the Borrower, the Existing Banks
and the New Banks of the occurrence of the Effective Date and thereafter
distribute to the Borrower, the Existing Banks and the New Banks copies of all
documents delivered under Section 3.
(b) CREDIT AGREEMENT OTHERWISE NOT AFFECTED. Except as expressly
amended pursuant hereto, the Credit Agreement shall remain unchanged and in full
force and effect and is hereby ratified and confirmed in all respects. The
Existing Banks', the New Banks' and the Agent's execution and delivery of, or
acceptance of, this Amendment and any other documents
4.
<PAGE>
and instruments in connection herewith (collectively, the "Amendment
Documents") shall not be deemed to create a course of dealing or otherwise
create any express or implied duty by any of them to provide any other or
further amendments, consents or waivers in the future.
(c) NO RELIANCE BY BORROWER. The Borrower hereby acknowledges and
confirms to the Agent, the Existing Banks and the New Banks that the Borrower is
executing this Amendment and the other Amendment Documents on the basis of its
own investigation and for its own reasons without reliance upon any agreement,
representation, understanding or communication by or on behalf of any other
Person.
(d) INDEPENDENT CREDIT DECISION BY NEW BANKS. Each New Bank
(a) acknowledges that it has received a copy of the Credit Agreement and the
Schedules and Exhibits thereto, together with copies of the most recent
financial statements referred to in Section 8.01(p) of the Credit Agreement, and
such other documents and information as it has deemed appropriate to make its
own credit and legal analysis and decision to enter into this Amendment; and
(b) agrees that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit and legal decisions in
taking or not taking action under the Credit Agreement and the other Loan
Documents.
(e) COSTS AND EXPENSES. The Borrower agrees to pay to the Agent on
demand the reasonable out-of-pocket costs and expenses of the Agent, and the
reasonable fees and disbursements of counsel to the Agent, in connection with
the negotiation, preparation, execution and delivery of this Amendment and any
other documents to be delivered in connection herewith.
(f) BINDING EFFECT. This Amendment shall be binding upon, inure to
the benefit of and be enforceable by the Borrower, the Agent and each Bank and
their respective successors and assigns.
(g) GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA.
(h) COMPLETE AGREEMENT; AMENDMENTS. This Amendment, together with
the other Amendment Documents and the other Loan Documents, contains the entire
and exclusive agreement of the parties hereto and thereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
commitments, drafts, communications, discussion and understandings, oral or
written, with respect thereto. This Amendment may not be modified, amended or
otherwise altered except in accordance with the terms of Section 12.01 of the
Credit Agreement.
(i) SEVERABILITY. Whenever possible, each provision of this Amendment
shall be interpreted in such manner as to be effective and valid under all
applicable laws and regulations. If, however, any provision of this Amendment
shall be prohibited by or invalid under any such law or regulation in any
jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform
to the minimum requirements of such law or regulation, or, if for any
5.
<PAGE>
reason it is not deemed so modified, it shall be ineffective and invalid only
to the extent of such prohibition or invalidity without affecting the
remaining provisions of this Amendment, or the validity or effectiveness of
such provision in any other jurisdiction.
(j) COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute but one and the same agreement.
(k) INTERPRETATION. This Amendment and the other Amendment Documents
are the result of negotiations between and have been reviewed by counsel to the
Agent, the Borrower and other parties, and are the product of all parties
hereto. Accordingly, this Amendment and the other Amendment Documents shall not
be construed against any of the Banks or the Agent merely because of the Agent's
or any Bank's involvement in the preparation thereof.
(l) LOAN DOCUMENTS. This Amendment and the other Amendment Documents
shall constitute Loan Documents.
[SIGNATURE PAGES FOLLOW.]
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment, as of the date first above written.
THE BORROWER
CADENCE DESIGN SYSTEMS, INC.
By
-----------------------------------------
Name:
Title:
THE AGENT
ABN AMRO BANK N.V., as Agent
By
-----------------------------------------
Name:
Title:
By
-----------------------------------------
Name:
Title:
THE EXISTING BANKS
ABN AMRO BANK N.V., as a Bank
By
-----------------------------------------
Name:
Title:
By
-----------------------------------------
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By
-----------------------------------------
Name:
Title:
7.
<PAGE>
BANK OF MONTREAL
By
-----------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
-----------------------------------------
Name:
Title:
KEYBANK NATIONAL ASSOCIATION
By
-----------------------------------------
Name:
Title:
UBS AG, NEW YORK BRANCH
By
-----------------------------------------
Name:
Title:
THE NEW BANKS
BARCLAYS BANK PLC
By
-----------------------------------------
Name:
Title:
8.
<PAGE>
BANQUE NATIONALE DE PARIS
By
-----------------------------------------
Name:
Title:
By
-----------------------------------------
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By
-----------------------------------------
Name:
Title:
THE NORTHERN TRUST COMPANY
By
-----------------------------------------
Name:
Title:
BANKBOSTON, N.A.
By
-----------------------------------------
Name:
Title:
9.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CADENCE
DESIGN SYSTEMS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED OCTOBER
3, 1998 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> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> OCT-03-1998
<CASH> 207,727
<SECURITIES> 38,231
<RECEIVABLES> 250,591
<ALLOWANCES> 13,724
<INVENTORY> 0
<CURRENT-ASSETS> 569,406
<PP&E> 427,080
<DEPRECIATION> 179,061
<TOTAL-ASSETS> 1,183,222
<CURRENT-LIABILITIES> 560,837
<BONDS> 0
0
0
<COMMON> 420,821
<OTHER-SE> 169,611
<TOTAL-LIABILITY-AND-EQUITY> 1,183,222
<SALES> 870,618
<TOTAL-REVENUES> 870,618
<CGS> 211,260
<TOTAL-COSTS> 211,260
<OTHER-EXPENSES> 759,959
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,569
<INCOME-PRETAX> (94,078)
<INCOME-TAX> 57,776
<INCOME-CONTINUING> (151,854)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (151,854)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>