FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
[ ] 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: 0-16195
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1214948
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
or organization)
375 Saxonburg Boulevard
Saxonburg, PA 16056
(Address of principal
executive offices) (Zip Code)
Registrant's telephone number, including area code: 724-352-4455
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date:
At May 7, 1999, 6,859,966 shares of Common Stock, no par
value, of the registrant were outstanding.
II-VI INCORPORATED AND SUBSIDIARIES
INDEX
Page No.
--------
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements:
Independent Accountants' Report . . . . . . . . 3
Condensed Consolidated Balance Sheets
- March 31, 1999 and June 30, 1998. . . . . . . 4
Condensed Consolidated Statements of Earnings
-- Three and nine months ended March 31, 1999
and 1998. . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
-- Nine months ended March 31, 1999
and 1998. . . . . . . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated
Financial Statements. . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations . . . . . . . . . . . . . 11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk (no significant changes
since June 30, 1998)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . 13
2
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
II-VI Incorporated and Subsidiaries:
We have reviewed the accompanying condensed consolidated balance sheet
of II-VI Incorporated and Subsidiaries as of March 31, 1999, and the
related condensed consolidated statements of earnings for the three-
month and nine-month periods ended March 31, 1999 and 1998, and the
related condensed consolidated statements of cash flows for the nine-
month periods ended March 31, 1999 and 1998. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and of making inquiries of persons
responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of
an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of II-VI Incorporated
and Subsidiaries as of June 30, 1998, and the related consolidated
statements of earnings, shareholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated August 7,
1998, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of June 30, 1998 is
fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
April 21, 1999
3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements:
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
March 31, June 30,
Assets 1999 1998
--------- --------
Current Assets
Cash and cash equivalents $ 4,483 $ 4,160
Accounts receivable - net 10,779 11,018
Inventories 9,380 10,056
Other current assets 1,475 1,998
------- -------
Total Current Assets 26,117 27,232
Property, Plant and Equipment, net 36,537 35,887
Other Assets 4,990 4,655
------- ------
$67,644 $67,774
======= =======
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 5,145 $ 5,833
Accounts payable 1,204 2,810
Accrued salaries, wages and bonuses 2,255 2,972
Accrued profit sharing contribution 404 711
Other current liabilities 1,835 1,418
Current portion of long-term debt 42 68
------- -------
Total Current Liabilities 10,885 13,812
Long-Term Debt--less current portion 2,568 2,308
Other Liabilities,
primarily deferred income taxes 2,287 1,591
Commitments & Contingencies - -
Shareholders' Equity
Preferred stock, no par value; authorized -
5,000,000 shares; unissued - -
Common stock, no par value;
authorized - 30,000,000 shares;
issued - 6,859,966 shares at March 31, 1999;
6,834,786 shares at June 30, 1998 18,660 18,468
Accumulated other comprehensive income (197) 435
Retained earnings 35,351 31,922
------- -------
53,814 50,825
Less treasury stock, at cost
- 534,440 shares at March 31, 1999;
384,440 shares at June 30, 1998 1,910 762
------- -------
51,904 50,063
------- -------
$67,644 $67,774
======= =======
- -See notes to condensed consolidated financial
statements.
4
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
Three Months Ended
March 31,
1999 1998
-------- --------
Revenues
Net sales:
Domestic $ 8,109 $ 7,954
International 7,151 7,781
-------- --------
15,260 15,735
Contract research and development 278 495
-------- --------
15,538 16,230
-------- --------
Costs, Expenses & Other (Income) Expense
Cost of goods sold 8,792 9,101
Contract research and development 146 382
Internal research and development 617 516
Selling, general and administrative 3,592 3,727
Interest expense 61 64
Other expense (income) - net 107 (105)
-------- --------
13,315 13,685
-------- --------
Earnings Before Income Taxes 2,223 2,545
Income Taxes 725 762
-------- --------
Net Earnings $ 1,498 $ 1,783
======== ========
Basic Earnings Per Share $ 0.24 $ 0.28
======== ========
Diluted Earnings Per Share $ 0.23 $ 0.27
======== ========
- -See notes to condensed consolidated financial statements.
5
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
Nine Months Ended
March 31,
1999 1998
-------- --------
Revenues
Net sales:
Domestic $ 23,833 $ 23,764
International 19,732 21,232
-------- --------
43,565 44,996
Contract research and development 976 1,811
-------- --------
44,541 46,807
-------- --------
Costs, Expenses & Other (Income) Expense
Cost of goods sold 26,838 25,204
Contract research and development 686 1,376
Internal research and development 1,769 1,161
Selling, general and administrative 10,035 10,829
Interest expense 341 91
Other (income) expense - net (173) 51
-------- --------
39,496 38,712
-------- --------
Earnings Before Income Taxes 5,045 8,095
Income Taxes 1,616 2,416
-------- --------
Net Earnings $ 3,429 $ 5,679
======== ========
Basic Earnings Per Share $ 0.54 $ 0.88
======== ========
Diluted Earnings Per Share $ 0.53 $ 0.85
======== ========
- -See notes to condensed consolidated financial statements.
6
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
Nine Months Ended
March 31,
1999 1998
-------- --------
Cash Flows from Operating Activities
Net earnings $ 3,429 $ 5,679
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 3,645 3,073
(Gain) loss on foreign currency transactions (216) 383
Writedown of property held for sale 200 -
Deferred income taxes 240 (31)
Increase (decrease) in cash from changes in:
Accounts receivable 692 (3,337)
Inventories 810 (2,308)
Accounts payable (1,930) (118)
Other operating net assets 155 (1,694)
-------- --------
Net cash provided by operating activities 7,025 1,647
-------- --------
Cash Flows from Investing Activities
Additions to property, plant and equipment (4,051) (16,932)
(Additions to) disposals of other assets (600) 2
-------- --------
Net cash used in investing activities (4,651) (16,930)
-------- --------
Cash Flows from Financing Activities
(Payments on) proceeds from
short-term borrowings, net (729) 4,467
(Payments on) proceeds from long-term borrowings (22) 1,933
Proceeds from sale of common stock 151 406
Purchase of treasury stock (1,148) -
-------- --------
Net cash (used in) provided by
financing activities (1,748) 6,806
Effect of exchange rate changes on cash and
cash equivalents (303) (241)
-------- --------
Net increase (decrease) in cash
and cash equivalents 323 (8,718)
Cash and Cash Equivalents at Beginning of Period 4,160 10,854
-------- --------
Cash and Cash Equivalents at End of Period $ 4,483 $ 2,136
======== ========
Cash paid for interest $ 304 $ 54
======== ========
Cash paid for income taxes $ 773 $ 2,919
======== ========
- -See notes to condensed consolidated financial statements.
7
II-VI Incorporated and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
The consolidated financial statements for the three and nine
month periods ended March 31, 1999 and 1998 are unaudited. In
the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation for the periods presented have been included.
These interim statements should be read in conjunction with the
audited consolidated financial statements and footnotes thereto
contained in the Company's 1998 Annual Report to shareholders.
The consolidated results of operations for the three and nine
month periods ended March 31, 1999 and 1998 are not necessarily
indicative of the results to be expected for the full year.
Note B - Inventories ($000)
The components of inventories are as follows:
March 31, June 30,
1999 1998
--------- --------
Raw materials $ 2,684 $ 3,220
Work in progress 4,252 3,633
Finished goods 2,444 3,203
--------- --------
$ 9,380 $ 10,056
========= ========
Note C - Property, Plant and Equipment ($000)
Property, plant and equipment consist of the following:
March 31, June 30,
1999 1998
--------- --------
Land and land improvements $ 1,551 $ 1,501
Buildings and improvements 19,348 16,951
Machinery and equipment 39,584 37,980
--------- --------
60,483 56,432
Less accumulated depreciation 23,946 20,545
--------- --------
$ 36,537 $ 35,887
========= ========
8
II-VI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
Note D - Debt
On December 31, 1997, the Company entered into a $10.0 million
unsecured line of credit agreement with PNC Bank, which was
scheduled to expire December 30, 1998. The Company received an
extension of the expiration date from the bank to March 31,
1999.
On March 26, 1999, the Company replaced its $10.0 million
unsecured line of credit agreement by entering into a $15.0
million unsecured committed line of credit agreement with PNC
Bank that expires on March 25, 2000. This line of credit may
be extended for an additional two years. The average interest
rate in effect as of March 31, 1999 was 5.88%. As of March 31,
1999, the total borrowings under this line of credit were $5.0
million. The Company is subject to certain restrictive
covenants under this agreement.
Note E - Earnings Per Share
The following table sets forth the computation of earnings per
share for the periods indicated:
Three Months Ended Nine Months Ended
March 31, March 31,
(000 except per share data) 1999 1998 1999 1998
- -------------------------------------------------------------------------
Net earnings $1,498 $1,783 $3,429 $5,679
Divided by:
Weighted average shares 6,323 6,445 6,368 6,433
- -------------------------------------------------------------------------
Basic earnings per share $ 0.24 $ 0.28 $ 0.54 $ 0.88
- -------------------------------------------------------------------------
Net earnings $1,498 $1,783 $3,429 $5,679
Divided by:
Weighted average shares 6,323 6,445 6,369 6,433
Dilutive effect of common
stock equivalents 137 232 137 245
- -------------------------------------------------------------------------
Diluted weighted average
common shares 6,460 6,677 6,506 6,678
- -------------------------------------------------------------------------
Diluted earnings per share $ 0.23 $ 0.27 $ 0.53 $ 0.85
- -------------------------------------------------------------------------
9
II-VI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited), Continued
Note F - Other Comprehensive Income
During the quarter ended September 30, 1998, the Company
adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" which requires the Company to
report and disclose a measure ("comprehensive income") of all
changes in shareholders' equity that result from transactions
and other economic events of the period other than transactions
with owners.
The components of comprehensive income, net of related tax,
were as follows for the periods indicated ($000):
Three Months Ended March
31,
Three Months Ended Nine Months Ended
March 31, March 31,
------------------ ----------------
1999 1998 1999 1998
------ ------ ------ ------
Net earnings $1,498 $1,783 $3,429 $5,679
Cumulative translation
adjustments (133) 163 (632) 171
------ ------ ------ ------
Comprehensive income $1,365 $1,946 $2,797 $5,850
====== ====== ====== ======
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Results of Operations
- ---------------------
Net earnings for the third quarter of fiscal 1999, ended March 31, 1999
were $1,498,000 ($0.23 per share-diluted) on revenues of $15,538,000.
This compares to net earnings of $1,783,000 ($0.27 per share-diluted) on
revenues of $16,230,000 in the third quarter of fiscal 1998. For the
nine months ended March 31, 1999, net earnings were $3,429,000 ($0.53
per share-diluted) on revenues of $44,541,000. This compares with net
earnings of $5,679,000 ($0.85 per share-diluted) on revenues of
$46,807,000 for the same period last fiscal year.
Order bookings for the third quarter of fiscal 1999 were $14,655,000
compared to $16,083,000 for the same period last year, a decrease of 9%.
Year-to-date order bookings for 1999 decreased 10% to $43,959,000 from
$48,958,000 for the same period last year. Year-to-date manufacturing
bookings decreased 10% to $43,718,000 from $48,455,000 last fiscal year.
For the quarter, the manufacturing bookings decrease was attributable to
decreased bookings at the Company's VLOC subsidiary and at the Company's
eV PRODUCTS division. Bookings of infrared optics and material products
increased by approximately 5%. For the year-to-date, approximately 75%
of the decrease in manufacturing bookings was attributable to bookings
at the Company's VLOC subsidiary and the remaining decrease was
attributable to bookings of infrared optics and material products.
Revenues for the third quarter of fiscal 1999 decreased 4% to
$15,538,000 compared to $16,230,000 for the same period last year.
Year-to-date revenues for fiscal 1999 decreased 5% to $44,541,000 from
$46,807,000 for the same period last year. For both the quarter and
year-to-date, the decrease was related equally to decreased shipments of
infrared optics and material products and decreased shipments at the
Company's VLOC subsidiary. These decreases were offset by increases in
shipments at the Company's eV PRODUCTS division of approximately 40% for
the quarter and approximately 15% for the year-to-date.
Manufacturing gross margin for the third quarter of fiscal 1999 was
$6,468,000 or 42% of revenues compared to $6,634,000 or 42% of revenues
for the same period last year. Year-to-date for fiscal 1999,
manufacturing gross margin was $16,727,000 or 38% of revenues compared
to $19,792,000 or 44% of revenues for the same period last year. The
lower gross margin percentage for the year-to-date reflects higher per
unit costs at the Company's VLOC subsidiary and continued price
sensitivity in the infrared optics and materials market. The
manufacturing gross margin percentage has increased from 34% of revenues
in the first quarter of fiscal 1999 to 42% of revenues in the third
quarter of fiscal 1999 and reflects increases in every product line.
Internal research and development expenses for the third quarter of
fiscal year 1999 were $617,000 or 4% of revenues compared to $516,000 or
3% of revenues for the same period last year. Year-to-date for fiscal
1999, internal research and development expenses were $1,769,000 or 4%
of revenues compared to $1,161,000 or 2% of revenues for the same period
last year. The increased expense for the quarter and year-to-date is
the result of internally funded projects associated with the development
of new materials to improve and expand product offerings, as well as
continued efforts to improve material growth yields.
Selling, general and administrative expenses for the third quarter of
fiscal 1999 were $3,592,000 or 23% of revenues compared to $3,727,000 or
23% of revenues for the same period last year. Year-to-date for fiscal
1999, selling, general and administrative expenses were $10,035,000 or
23% of revenues compared to $10,829,000 or 23% of revenues for the same
period last year. The dollar decreases for the quarter and year-to-date
reflect planned discretionary cost reductions, decreased expense
associated with the Company's worldwide profit-driven bonus programs and
improved utilization of existing personnel and resources.
Interest expense for the third quarter of fiscal 1999 was $61,000
compared to $64,000 for the same period last year. Year-to-date for
fiscal 1999, interest expense was $341,000 compared to $91,000 for the
same period last year. The year-to-date fluctuation is the direct
result of increased borrowings.
Other expense for the third quarter of fiscal 1999 was $107,000 compared
to other income of $105,000 for the same period last year. Year-to-date
for fiscal 1999, other income was $173,000 compared to other expense of
$51,000 for the same period last year. The quarter fluctuation was
primarily the result of foreign currency translation losses. The year-
11
to-date fluctuation was the result of foreign currency translation gains
offset by the writedown of certain assets held for sale.
For fiscal 1999, the Company's year-to-date effective income tax rate
was 32% which was higher than the 30% income tax rate for the same
period last fiscal year. The increase in the effective income tax rate
is the result of higher state income taxes and lower earnings from
certain foreign subsidiaries.
Liquidity and Capital Resources
- -------------------------------
Cash increased during the first nine months of fiscal 1999 by $323,000
primarily due to net earnings before depreciation and amortization of
$7,074,000 and reductions of accounts receivable and inventories
totaling $1,502,000. This increase was offset by $4,051,000 in capital
expenditures, a reduction of accounts payable of $1,930,000 due to
payment of amounts in the normal course of business, the repurchase of
150,000 shares of the Company's common stock, repayment of short-term
borrowings and payment of compensation costs relating to the Company's
fiscal 1998 worldwide profit-driven bonus programs.
The Company generated $7,025,000 in cash from operations for the first
nine months of fiscal 1999. The $7,074,000 in cash generated from net
earnings before depreciation and amortization for the nine months ended
March 31, 1999 and reductions of accounts receivable and inventories
were offset by a reduction of accounts payable in the normal course of
business and the payment of compensation costs relating to the Company's
fiscal 1998 worldwide profit-driven bonus programs.
The Company has a $15.0 million unsecured committed line of credit with
PNC Bank that expires on March 25, 2000. This line of credit may be
extended for an additional two years.
The current cash balance and the existing credit facility, as well as
cash to be provided by operations during the remainder of fiscal year
1999, will be used for working capital needs, further capital
expenditures for facilities and equipment, scheduled debt payments, and
possible acquisitions of complementary businesses, products, or
technologies.
Other Matters
- -------------
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting
from the use of computer programs which have been written using two
digits, rather than four, to define the applicable year of business
transactions.
The Company has developed a formal plan to address the Year 2000
implications of its information technology and noninformation technology
systems. The first phase of this plan is complete and consisted of an
evaluation of the systems impacted by the Year 2000 issue. The second
phase of this plan is substantially completed and consisted of an
evaluation of the third parties with whom the Company has significant
relations and their Year 2000 compliance. The last phase of this plan
will be the implementation of corrective measures deemed necessary, as
identified during the first two stages of the plan. This phase has
begun and is expected to be completed by June 30, 1999.
Based upon the information obtained from the first two stages of the
plan, the Company does not believe its information technology and
noninformation technology systems will experience significant Year 2000
problems. However, there can be no assurance that the third parties
with whom the Company has significant relations will not experience
disruptions in their business that could have a material adverse affect
on the Company. An example of a worst case scenario caused by the Year
2000 issue would be the failure in the accounting systems of a
significant number of the Company's key customers which resulted in a
delay in the payment of invoices issued by the Company.
To date, the Company has spent approximately $150,000 on the Year 2000
issue and believes that the remaining potential cost related to the Year
2000 issue will range between $150,000 and $250,000.
Although the Company has developed and expects to execute the plan
described above, due to the inherent uncertainty and complexity involved
with the Year 2000 issue, there can be no assurance that the Company
will address all aspects of the Year 2000 issue. A contingency plan is
expected to be developed by June 30, 1999.
12
This Management's Discussion and Analysis contains forward looking
statements as defined by Section 21E of the Securities Exchange Act of
1934, as amended, including the statements regarding the Company's
ability to fund future working capital needs, capital expenditures,
scheduled debt payments and possible acquisitions and the Company's plan
to address the Year 2000 issue. Actual results could differ from such
statements if worldwide economic conditions change, competitive
conditions intensify, technology problems emerge, and/or if suitable
acquisitions cannot be consummated. There are additional risk factors
that could affect the Company's business, results of operations or
financial condition. Investors are encouraged to review the risk
factors set forth in the Company's 1998 Form 10-K as filed with the
Securities and Exchange Commission on September 23, 1998.
PART II - OTHER INFORMATION
---------------------------
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits.
10.01 Agreement by and between PNC Bank,
National Association and
II-VI Incorporated for Amended
and Restated Letter Agreement
for Committed Line of Credit and
Japanese Yen Term Loan Filed herewith.
15.01 Accountants' awareness letter
dated May 13, 1999 Filed herewith.
27.01 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K.
None.
13
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.
II-VI INCORPORATED
(Registrant)
Date: May 13, 1999 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief Executive Officer
Date: May 13, 1999 By: /s/ James Martinelli
James Martinelli
Treasurer & Chief Financial Officer
14
EXHIBIT INDEX
-------------
Exhibit No.
- -----------
10.01 Agreement by and between PNC Bank,
National Association and II-VI Incorporated
for Amended and Restated Letter Agreement
for Committed Line of Credit and Japanese
Yen Term Loan Filed herewith.
15.01 Accountants' awareness letter dated
May 13, 1999 Filed herewith.
27.01 Financial Data Schedule Filed herewith.
AMENDED AND RESTATED LETTER AGREEMENT
March 26, 1999
II-VI Incorporated
375 Saxonburg Boulevard
Saxonburg, PA 16056
Attention: James Martinelli
Treasurer and Chief Financial Officer
Re: $15,000,000 Committed Line of Credit
237,000,000 Japanese Yen Term Loan
Gentlemen:
We are pleased to inform you that PNC Bank, National Association (the
"Bank") has approved II-VI Incorporated's (the "Borrower") request for
(i) a renewal, restatement and increase of its existing $10,000,000
unsecured, committed line of credit (the "Existing Line of Credit"), as
presently governed by the terms of that certain Letter Agreement dated
September 25, 1997 (the "Existing Letter Agreement") and as evidenced by
Borrower's $10,000,000 Committed Line of Credit Note to the Bank, dated
September 25, 1997 (the "Existing Line Note") and (ii) a restatement of
its existing 237,000,000 Japanese Yen rate protection term loan (the
"Existing Rate Protection Term Loan"), as presently governed by the
terms of the Existing Letter Agreement and as evidenced by Borrower's
237,000,000 Rate Protection Term Note (Euro-Yen/Cap) to the Bank, dated
September 25, 1997 (the "Existing Rate Protection Term Note"). Upon
execution of this letter (the "Agreement"), the Existing Letter
Agreement shall be deemed canceled and all of the indebtedness
outstanding thereunder shall be governed by the terms and conditions of
this Agreement and the Notes. All the details regarding your restated
loans are outlined in the following sections of this Agreement.
1. Defined Terms. Words and terms used herein without definition
shall have the respective meanings assigned thereto on Schedule I
attached hereto.
2. The Line of Credit.
(a) Commitment. The first credit facility covered by this
Agreement is a committed revolving line of credit (the "Line of Credit")
under which the Borrower may request and the Bank, subject to the terms
and conditions of this letter, agrees to make advances ("Advances") in
Dollars or Optional Currency to the Borrower from time to time under the
Line of Credit until the Expiration Date, in an aggregate amount not to
exceed at any time the Line of Credit Commitment minus the Letters of
Credit Outstanding. Subject to the terms and conditions hereof, the
Borrower shall have the right to borrow, repay and reborrow amounts
under the Line of Credit until the Expiration Date; provided that
principal amounts outstanding and all accrued unpaid interest under the
Line of Credit shall be repaid in full on or before the Expiration Date.
(b) Extension of Expiration Date Borrower may request that the
Expiration Date be extended for all or a portion of the Line of Credit
Commitment to a date which is no later than the 364th day after the
then-current Expiration Date; provided that (i) any such extension
request shall be made in writing (an "Extension Request") by Borrower
and delivered to the Bank no earlier than sixty (60) days prior to (but
no later than thirty (30) days prior to) the then-current Expiration
Date, and (ii) no more than two (2) such 364-day Extension Requests may
be made by the Borrower. The Bank may, in its sole discretion without
any obligation whatsoever, accept or reject such Extension Request by
giving written notice to the Borrower no later than fifteen (15) days
prior to the then-effective Expiration Date; provided that any failure
by the Bank to so notify the Borrower shall be deemed a rejection by the
Bank of such Extension Request and the Line of Credit Commitment will
terminate (and the principal amount outstanding and all accrued and
unpaid interest under the Line of Credit shall be due and payable in
full) on the then-current Expiration Date. If the Bank accepts such
Extension Request, the Expiration Date shall be automatically extended
to the date which is the 364th day after the then-current Expiration
Date.
Borrower acknowledges and agrees that (x) the Bank has not made any
representations to the Borrower regarding its intent to agree to any
extensions set forth in this Section, (y) the Bank shall have no
obligation to extend the Expiration Date, and (z) the Bank's agreement
to one extension shall not commit the Bank to any additional extensions.
(c) Note. The Borrower's obligation to repay the Advances shall be
evidenced by an amended and restated promissory note (which shall amend
and restate the Existing Line Note) in the form of Exhibit A attached
hereto (the "Line of Credit Note").
(d) Advance Procedures. The Borrower may request Advances under the
Line of Credit upon giving oral or written notice to the Bank by 11:00
a.m. (Pittsburgh, Pennsylvania time) (i) on the day (which shall be a
Business Day) of the proposed Advance, in the case of Advances bearing
interest at the Base Rate Option, (ii) three (3) Business Days prior to
the proposed Advance, in the case of Advances bearing interest at the
Euro-Rate Option, or (iii) four (4) Business Days prior to the proposed
Advance, in the case of Advances funded in an Optional Currency (which
Advance must bear interest at the Euro-Rate Option); in each case
specifying the date and the Dollar or Dollar Equivalent (if applicable)
amount thereof, the Euro-Rate Interest Period pursuant to Section 2(g)
of this Agreement (if applicable), and for Advances to be funded in an
Optional Currency, the currency in which the Advance is to be funded.
Any oral request for an Advance shall be followed promptly thereafter by
the Borrower's written confirmation to the Bank. The Borrower
authorizes the Bank to accept telephonic requests for Advances, and the
Bank shall be entitled to rely upon the authority of any person
providing such instructions. The Borrower hereby indemnifies and
holds the Bank harmless from and against any and all damages, losses,
liabilities, costs and expenses (including reasonable attorneys' fees
and expenses) which may arise or be created by the acceptance of
telephone requests or making Advances. The Bank will enter on its books
and records, which entry when made will be presumed correct, the date
and amount of each Advance, the interest rate and interest period
applicable thereto, as well as the date and amount of each payment.
(e) Rate of Interest. Each Advance outstanding under the Line of
Credit will bear interest at a rate or rates per annum as may be
selected by the Borrower from the interest rate options set forth below
(except that no Advance to which the Base Rate Option shall apply may be
made in an Optional Currency):
(i) Base Rate Option. A rate of interest per annum (computed on the
basis of a year of 365 or 366 days, as the case may be, and the actual
number of days elapsed) equal to the sum of the Base Rate plus the
Applicable Margin. If and when the Prime Rate or the Federal Funds
Effective Rate changes, the rate of interest with respect to any Advance
to which the Base Rate Option applies will change automatically without
notice to the Borrower, effective on the date of any such change.
(ii) Euro-Rate Option. A rate of interest per annum (computed on the
basis of a year of 360 days and the actual number of days elapsed
(provided that for Advances made in an Optional Currency for which a 365
day basis is the only market practice available to the Bank, such rate
shall be calculated on the basis of a year of 365 or 366 days, as the
case may be, and the actual number of days elapsed) equal to the sum of
the Euro-Rate plus the Applicable Margin, for the applicable Euro-Rate
Interest Period. The Euro-Rate shall be adjusted with respect to any
Advance to which the Euro-Rate Option applies on and as of the effective
date of any change in the Euro-Rate Reserve Percentage. The Bank shall
give prompt notice to the Borrower of the Euro-Rate as determined or
adjusted in accordance herewith.
The foregoing notwithstanding, it is understood that the Borrower may
select different Interest Rate Options to apply simultaneously to
different portions of the Advances and may select up to seven (7)
different Euro-Rate Interest Periods to apply simultaneously to
different portions of the Advances bearing interest under the Euro-Rate
Option. In no event will the rate of interest hereunder exceed the
maximum rate allowed by law.
(iii) Euro-Rate Unascertainable or Unavailable. If the
Bank determines (which determination shall be final and conclusive)
that, by reason of circumstances affecting the interbank eurodollar
market generally, deposits in dollars (in the applicable amounts) are
not being offered to banks in the interbank eurodollar market for the
selected term, or adequate means do not exist for ascertaining the Euro-
Rate, then the Bank shall give notice thereof to the Borrower.
Thereafter, until the Bank notifies the Borrower that the circumstances
giving rise to such suspension no longer exist, (a) the availability of
the Euro-Rate Option shall be suspended, and (b) the interest rate for
all Advances then bearing interest under the Euro-Rate Option shall be
converted at the expiration of the then current Euro-Rate Interest
Period(s) to, and any new Advances shall be made at, the Base Rate
Option.
(iv) Illegality. In addition, if, after the date of this Agreement,
the Bank shall determine (which determination shall be final and
conclusive) that any enactment, promulgation or adoption of or any
change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by a governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank with any guideline,
request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall make it unlawful
or impossible for the Bank to make or maintain or fund loans under the
Euro-Rate Option, the Bank shall notify the Borrower. Upon receipt of
such notice, until the Bank notifies the Borrower that the circumstances
giving rise to such determination no longer apply, (a) the availability
of the Euro-Rate Option shall be suspended, and (b) the interest rate on
all Advances then bearing interest under the Euro-Rate Option shall be
converted to the Base Rate Option either (i) on the last day of the then
current Euro-Rate Interest Period(s) if the Bank may lawfully continue
to maintain Advances under the Euro-Rate Option to such day, or (ii)
immediately if the Bank may not lawfully continue to maintain Advances
under the Euro-Rate Option.
(f) Default Rate. After the principal amount of all or any part of
the Advances shall have become due and payable, whether by acceleration
or otherwise, and upon the occurrence and during the continuance of any
Event of Default, all Advances and Reimbursement Obligations shall bear
interest at a rate per annum, and the Letter of Credit Fee shall be
increased by an amount, equal to 200 basis points (2%) per annum above
the rate otherwise in effect (the "Default Rate"). The Default Rate
shall continue to apply whether or not judgment shall be entered on the
Line of Credit Note.
(g) Interest Rate Election. Subject to the terms and conditions of
this Agreement, at the end of each Euro-Rate Interest Period applicable
to any Advance, the Borrower may renew the Euro-Rate Option applicable
to such Advance or convert such Advance to the Base Rate Option;
provided that, during any period in which any Event of Default (as
hereinafter defined) has occurred and is continuing, any Advances
bearing interest under the Euro-Rate Option shall, at the Bank's sole
discretion, be converted at the end of the applicable Euro-Rate Interest
Period to the Base Rate Option and the Euro-Rate Option will not be
available to Borrower with respect to any new Advances until such Event
of Default has been cured by the Borrower or waived by the Bank. The
Borrower shall notify the Bank of each election of an Interest Rate
Option, each conversion from one Interest Rate Option to another, the
amount of the Advances then outstanding to be allocated to each Interest
Rate Option and where relevant the interest periods therefor. In the
case of converting to the Euro-Rate Option, such notice shall be given
at least three (3) Business Days prior to the commencement of any Euro-
Rate Interest Period. If no notice of conversion or renewal is timely
received by the Bank, the Borrower shall be deemed to have converted
such advance to the Base Rate Option. Any such election shall be
promptly confirmed by the Borrower in writing by such method as the Bank
may require.
(h) Optional Currencies. The Bank will determine the Dollar Equivalent
amount of (i) proposed Advances or Letters of Credit to be denominated
in an Optional Currency as of the requested Borrowing Date or date of
issuance, as the case may be, (ii) outstanding Advances or Letters of
Credit Outstanding denominated in an Optional Currency as of the last
Business Day of each month, and (iii) outstanding Advances denominated
in an Optional Currency as of the end of each Euro-Rate Interest Period
(each such date under clauses (i) through (iii) a "Computation Date").
(i) The Bank shall be under no obligation to make Advances or issue
Letters of Credit requested by the Borrower which are denominated in an
Optional Currency if Bank notifies the Borrower by 12:00 noon
(Pittsburgh, PA time) three (3) Business Days prior to the Borrowing
Date or date of issuance for such Advance or Letter of Credit that the
Optional Currency is not then available for such Advances or Letter of
Credit. If the Borrower receives a notice described in the preceding
sentence, the Borrower may, by notice to the Bank not later than 5:00
p.m. (Pittsburgh, PA time) three (3) Business Days prior to the
Borrowing Date or date of issuance for such Advance or Letter of Credit,
withdraw the request for such Advance or Letter of Credit and the Bank
shall not make such Advance or issue such Letter of Credit. If the
Borrower does not withdraw such request before such time, the Borrower
shall be deemed to have requested that the Advance or Letter of Credit
shall be made in Dollars in an amount equal to the Dollar Equivalent
amount of such Advance or Letter of Credit and shall bear interest under
the Base Rate Option.
(ii) If the Borrower delivers a notice requesting that the Bank renew
the Euro-Rate Option with respect to an outstanding Advance denominated
in an Optional Currency, the Bank shall be under no obligation to renew
such Euro-Rate Option if Bank delivers to the Borrower a notice by 12:00
noon (Pittsburgh, PA time) three (3) Business Days prior to the
effective date of such renewal that it cannot continue to provide
Advances in such Optional Currency. If the Bank has so notified the
Borrower that any such continuation of Advances denominated in an
Optional Currency is not then available, any notice of renewal with
respect thereto shall be deemed withdrawn, and such Optional Currency
Advance shall be redenominated into a Base Rate Advance in Dollars with
effect from the last day of the Euro-Rate Interest Period with respect
to any such Optional Currency Advance. The Bank will promptly notify
the Borrower of any such redenomination, and in such notice, the Bank
will state the aggregate Dollar Equivalent amount of the redenominated
Optional Currency Advance as of the Computation Date with respect
thereto.
(iii) The Borrower shall pay to the Bank from time to time in Dollars
the Bank's then in effect customary fees and administrative expenses
payable with respect to Advances denominated in an Optional Currency or
Letters of Credit issued in an Optional Currency as the Bank may
generally charge or incur in connection with the funding, maintenance,
modification (if any), assignment or transfer (if any), negotiation, and
administration of Advances denominated in an Optional Currency or
Letters of Credit issued in an Optional Currency.
(iv) Notwithstanding anything contained herein to the contrary, the
entire amount of principal of and interest on any Advance made in an
Optional Currency shall be repaid in the same Optional Currency in which
such Advance was made, provided, however, that if it is impossible or
illegal for Borrower to effect payment of an Advance in the Optional
Currency in which such Advance was made, or if Borrower defaults in its
obligations to do so, the Bank may in its sole discretion permit such
payment to be made (i) at and to a different location, subsidiary,
affiliate or correspondent of the Bank, or (ii) in the Equivalent Amount
of Dollars or (iii) in an Equivalent Amount of such other currency
(freely convertible into Dollars) as the Bank may in its sole discretion
designate. Upon any events described in (i) through (iii) of the
preceding sentence, Borrower shall make such payment and Borrower agrees
to hold Bank harmless from and against any loss incurred by Bank arising
from the cost to Bank of any premium, any costs of exchange, the cost of
hedging and covering the Optional Currency in which such Advance was
originally made, and from any change in the value of Dollars, or such
other currency, in relation to the Optional Currency that was due and
owing. Such loss shall be calculated for the period commencing with the
first day of the Euro-Rate Interest Period for such Advance and
continuing through the date of payment thereof. Without prejudice to
the survival of any other agreement of Borrower hereunder, Borrower's
obligations under this Section 2(h)(iv) shall survive termination of
this Agreement.
(v) Notwithstanding anything contained herein to the contrary, Bank
may, with respect to notices by Borrower for Advances in an Optional
Currency or voluntary prepayments of less than the full amount of an
Optional Currency Advance, engage in reasonable rounding of the Optional
Currency amounts requested to be loaned or repaid; and, in such event,
Bank shall promptly notify Borrower of such rounded amounts and
Borrower's request or notice shall thereby be deemed to reflect such
rounded amounts.
(vi) If on any Computation Date the Dollar Equivalent Line of Credit
Usage is equal to or greater than the Line of Credit Commitment as a
result of a change in exchange rates between one (1) or more Optional
Currencies and Dollars, then the Bank shall notify the Borrower of the
same. The Borrower shall pay or prepay Advances (subject to Borrower's
indemnity obligations under Section 2(m) hereof) within three (3)
Business Days after receiving such notice by an amount such that the
Dollar Equivalent Line of Credit Usage shall not exceed the Line of
Credit Commitment after giving effect to such payments or prepayments.
(vii) If (a) as a result of the implementation of the European monetary
union, any Optional Currency ceases to be lawful currency of the nation
issuing the same and is replaced by a European common currency (the
"Euro") or (b) any Optional Currency and the Euro are at the same time
recognized by any governmental authority of the nation issuing such
currency as lawful currency of such nation and the Bank shall so request
in a notice delivered to the Borrower, then any amount payable hereunder
by any party hereto in such Optional Currency shall instead be payable
in the Euro and the amount so payable shall be determined by translating
the amount payable in such Optional Currency to the Euro at the exchange
rate recognized by the European Central Bank for the purpose of
implementing the European monetary union. Prior to the occurrence of
the event or events described in clause (a) of (b) of the preceding
sentence, each amount payable hereunder in any Optional Currency will,
except as otherwise provided herein, continue to be payable only in that
Optional Currency.
The Borrower agrees at the request of the Bank, to compensate the Bank
for any loss, cost, expense or reduction in return that Bank shall
reasonably determine shall be incurred or sustained by the Bank as a
result of the implementation of the European monetary union and that
would not have been incurred or sustained but for the transactions
provided for herein. A certificate of the Bank setting forth the Bank's
determination of the amount or amounts necessary to compensate Bank
shall be delivered to the Borrower, and shall be conclusive absent
manifest error so long as such determination is made on a reasonable
basis. The Borrower shall pay the Bank the amount shown as due on any
such certificate within ten (10) days after the receipt thereof.
The parties hereto agree, at the time of or at any time following the
implementation of the European monetary union, to use reasonable efforts
to enter into an agreement amending this Agreement in order to reflect
the implementation of such monetary union, to permit (if feasible) the
Euro to qualify as an Optional Currency under the terms and conditions
of the definition of such term and to place the parties hereto in the
position with respect to the settlement of payments of the Euro as they
would have been with respect to the settlement of the Optional
Currencies it replaced.
(viii) For all purposes of this Agreement and the Line of Credit
Note with respect to any aspects of the Euro-Rate, any Advance under the
Euro-Rate Option or any Optional Currency, Bank shall be presumed to
have obtained rates, funding, currencies, deposits, and the like in the
applicable interbank market regardless whether it did so or not; and
Bank's determination of amounts payable under, and actions required or
authorized by this Agreement shall be calculated, at Bank's option, as
though Bank funded its Advances under the Euro-Rate Option through the
purchase of deposits of the types and maturities corresponding to the
deposits used as a reference in accordance with the terms hereof in
determining the Euro-Rate applicable to such Advances, whether in fact
that is the case.
(i) Taxes.
(i) No Deductions. All payments made by Borrower hereunder and under
the Notes and Reimbursement Agreement shall be made free and clear of
and without deduction for any present or future taxes, levies, imposts,
deductions, charges, or withholdings, and all liabilities with respect
thereto, excluding taxes imposed on the net income of Bank and all
income and franchise taxes applicable to Bank (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings, and
liabilities being hereinafter referred to as "Taxes"). If Borrower
shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under the Notes or the Reimbursement Agreement,
(i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to
additional sums payable under this Section) Bank receives an amount
equal to the sum it would have received had no such deductions been
made, (ii) Borrower shall make such deductions and (iii) Borrower shall
timely pay the full amount deducted to the relevant tax authority or
other authority in accordance with applicable law.
(ii) Stamp Taxes. In addition, Borrower agrees to pay any present or
future stamp or documentary taxes or any other excise or property taxes,
charges, or similar levies which arise from any payment made hereunder
or from the execution, delivery, or registration of, or otherwise with
respect to, this Agreement, the Notes or the Reimbursement Agreement
(hereinafter referred to as "Other Taxes").
(iii) Indemnification for Taxes Paid by Bank. Borrower shall indemnify
Bank for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed by any jurisdiction on
amounts payable under this Section) paid by Bank and any liability
(including penalties, interest, and expenses) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. This indemnification shall be made within 30 days
from the date Bank makes written demand therefor.
(iv) Certificate. Promptly upon the Bank's request from time to time,
Borrower shall furnish to Bank the original or a certified copy of a
receipt evidencing payment of any Taxes or Other Taxes. If no Taxes
are payable in respect of any payment by Borrower, such Borrower shall,
if so requested by Bank, provide a certificate of an officer of Borrower
to that effect.
(v) Survival. Without prejudice to the survival of any other
agreement of Borrower hereunder, the agreements and obligations of
Borrower contained in this Section shall survive the payment in full of
principal and interest hereunder and under any instrument delivered
hereunder.
(j) Judgment Currency Procedures for Judgments.
(i) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder or under the Notes or
Reimbursement Agreement in any currency (the "Original Currency") into
another currency (the "Other Currency"), the parties hereby agree, to
the fullest extent permitted by law, that the rate of exchange used
shall be that at which in accordance with normal banking procedures Bank
could purchase the Original Currency with the Other Currency after any
premium and costs of exchange on the Business Day preceding that on
which final judgment is given.
(ii) The obligation of Borrower in respect of any sum due from Borrower
to Bank hereunder shall, notwithstanding any judgment in an Other
Currency, whether pursuant to a judgment or otherwise, be discharged
only to the extent that, on the Business Day following receipt by Bank
of any sum adjudged to be so due in such Other Currency, Bank may in
accordance with normal banking procedures purchase the Original Currency
with such Other Currency. If the amount of the Original Currency so
purchased is less than the sum originally due to Bank in the Original
Currency, Borrower agrees, as a separate obligation and notwithstanding
any such judgment or payment, to indemnify Bank against such loss.
(k) Payment Terms of Line of Credit. The Borrower shall pay accrued
interest on the unpaid principal balance of the Line of Credit Note in
arrears: (a) for the portion of the Advances bearing interest under the
Base Rate Option, on the last Business Day of each calendar quarter
during the term of the Line of Credit, (b) for the portion of the
Advances bearing interest under the Euro-Rate Option, on the last day of
the respective Euro-Rate Interest Period for each such Advance, (c) if
any Euro-Rate Interest Period is longer than three (3) months, then also
on the three (3) month anniversary of such interest period and every
three (3) months thereafter, and (d) for all Advances, at maturity,
whether by acceleration of the Line of Credit Note or otherwise, and
after maturity, on demand until paid in full. All outstanding Advances
under the Line of Credit and accrued interest thereon shall be due and
payable in full on the Expiration Date.
(l) Prepayment of Advances. The Borrower shall have the right to
prepay at any time and from time to time, in whole or in part, without
penalty, any Advance under the Line of Credit which is accruing interest
under the Base Rate Option. If the Borrower prepays all or any part of
any Advance which is accruing interest under the Euro-Rate Option on
other than the last day of the applicable Euro-Rate Interest Period, the
Borrower shall pay to the Bank, on demand therefore, all amounts due
pursuant to paragraph (m) below, including the Cost of Prepayment, if
any.
(m) Yield Protection. The Borrower shall pay to the Bank, on written
demand therefor, together with the written evidence of the justification
therefor, all direct costs incurred, losses suffered or payments made by
Bank by reason of any change in law or regulation or its interpretation
imposing any reserve, deposit, allocation of capital, or similar
requirement (including without limitation, Regulation D of the Board of
Governors of the Federal Reserve System) on the Bank, its holding
company or any of their respective assets. In addition, the Borrower
agrees to indemnify the Bank against any liabilities, losses or expenses
(including loss of margin, any loss or expense sustained or incurred in
liquidating or employing deposits from third parties, and any loss or
expense incurred in connection with funds acquired to effect, fund or
maintain any Advance (or any part thereof) bearing interest under the
Euro-Rate Option) which the Bank sustains or incurs as a consequence of
either (i) the Borrower's failure to make a payment on the due date
thereof, (ii) the Borrower's revocation (expressly, by later
inconsistent notices or otherwise) in whole or in part of any notice
given to Bank to request, convert, renew or prepay any Advance, or (iii)
the Borrower's payment, prepayment or conversion of any Advance bearing
interest under the Euro-Rate Option on a day other than the last day of
the applicable Euro-Rate Interest Period, including but not limited to
the Cost of Prepayment. "Cost of Prepayment" means an amount equal to
the present value, if positive, of the product of (a) the difference
between (i) the yield, on the beginning date of the applicable interest
period, of a U.S. Treasury obligation with a maturity similar to the
applicable interest period minus (ii) the yield, on the prepayment date,
of a U.S. Treasury obligation with a maturity similar to the remaining
maturity of the applicable interest period, and (b) the principal amount
to be prepaid, and (c) the number of years, including fractional years
from the prepayment date to the end of the applicable interest period.
The yield on any U.S. Treasury obligation shall be determined by
reference to Federal Reserve Statistical Release H.15(519) "Selected
Interest Rates". For purposes of making present value calculations, the
yield to maturity of a similar maturity U.S. Treasury obligation on the
prepayment date shall be deemed the discount rate. The Cost of
Prepayment shall also apply to any payments made after acceleration of
the maturity of the Advances. The Bank's determination of an amount
payable under this paragraph shall, in the absence of manifest error, be
conclusive and shall be payable on demand.
(n) Conversion of Advances to a Term Loan. Provided that no Event of
Default or Default exists on either the date such Term Conversion
Request is delivered or on the Conversion Date, the Borrower shall have
the option, by delivering written notice (the "Term Conversion
Request"), which notice shall be irrevocable, to the Bank no earlier
than twenty (20) days prior to (but no later than ten (10) days prior
to) the Initial Expiration Date, to convert the principal amount of
Advances then outstanding on the Initial Expiration Date, or a portion
thereof, to an amortizing term loan (the "Term Loan") payable over a two
(2) year period (based upon a five (5) year amortization) as set forth
below. Commencing on the last day of the calendar quarter immediately
following the month in which the Conversion Date occurs, the principal
balance of the Term Loan shall be paid in seven (7) equal consecutive
quarterly installments of principal in an amount determined by dividing
the principal balance of the Term Loan on the Conversion Date by twenty
(20), with one (1) final balloon payment on the second anniversary of
the Conversion Date in an amount equal to the remaining outstanding
principal balance under the Term Loan. The obligation of the Borrower
to repay the Term Loan shall be evidenced by a separate promissory note
in form and content satisfactory to the Bank (the "Term Note").
Interest on the unpaid balance of the Term Loan will be charged at the
rates, and be payable on the dates and times, as set forth in the Term
Note.
Upon the Borrower's election to convert the principal amount of Advances
then outstanding on the Initial Expiration Date (or a portion thereof)
to a Term Loan, then assuming the Bank, in its sole discretion, decides
to extend the Expiration Date in accordance with Section 2(b) hereof,
the Line of Credit Commitment shall be permanently reduced by an amount
equal to the principal amount of such Term Loan automatically without
need for any further action or documentation.
(o) Reduction of Line of Credit Commitment. Subject to the indemnity
provisions of Section 2(m) hereof, the Borrower shall have the right at
any time and from time to time upon five (5) Business Days' prior
written notice to the Bank to permanently terminate, or from time to
time permanently reduce in whole or in minimal principal amounts of
$5,000,000, or an integral multiple thereof, the Line of Credit
Commitment in effect at such time. Any such reduction or termination
shall be accompanied by (i) the payment in full of any Commitment Fee
then accrued on the amount of such reduction or termination, and (ii) if
on any date when the Line of Credit Commitment is reduced the Dollar
Equivalent Line of Credit Usage exceeds the Line of Credit Commitment as
so reduced, then the payment of an amount equal to such excess so that,
after giving effect to such payment, the Dollar Equivalent Line of
Credit Usage does not exceed the Line of Credit Commitment as so
reduced. Additionally, to the extent the Letters of Credit
Outstanding exceed the Line of Credit Commitment as so reduced, then on
any such date when the Line of Credit Commitment is reduced the Borrower
shall make a deposit (in an amount equal to such excess) into the Cash
Collateral Account. From the effective date of any such reduction, the
obligations of Borrower to pay the Commitment Fee pursuant to Section 19
hereof shall correspondingly be reduced or cease. Notice of such
reduction shall be irrevocable once given and the portion of the Line of
Credit Commitment so reduced shall not be available for borrowing once
such notice has been given.
3. The Letters of Credit.
(a) Subject to the terms and conditions hereof, the Borrower may
request that the Bank, in lieu of cash Advances under the Line of
Credit, issue a letter of credit (each a "Letter of Credit") for the
account of the Borrower by delivering to the Bank a completed
application and a reimbursement agreement (a "Reimbursement Agreement")
for Letters of Credit in such form as the Bank may specify from time to
time by no later than 10:00 a.m., Pittsburgh time, at least three (3)
Business Days, or such shorter period as may be agreed to by the Bank,
in advance of the proposed date of issuance. Each Letter of Credit
shall be either a standby letter of credit or a commercial letter of
credit and may be denominated in either Dollars or an Optional Currency.
Subject to the terms and conditions hereof, the Bank will issue for the
account of the Borrower one or more Letters of Credit in Dollars or an
Optional Currency provided that each Letter of Credit shall (A) have a
maximum maturity of twelve (12) months from the date of issuance in the
case of standby Letters of Credit and six (6) months from the date of
issuance in the case of commercial Letters of Credit, and (B) in no
event expire later than ten (10) Business Days prior to the Expiration
Date, and provided further that in no event shall (i) the Dollar
Equivalent amount of Letters of Credit Outstanding exceed, at any one
time, $5,000,000 or (ii) the Dollar Equivalent Line of Credit Usage
exceed, at any one time, the Line of Credit Commitment. This Agreement
is not a pre-advice for the issuance of a Letter of Credit and is not
irrevocable.
(b) Borrower agrees to be bound by the terms of the Bank's letter of
credit application and Reimbursement Agreement and the Bank's written
regulations and customary practices relating to Letters of Credit. In
the event of a conflict between such application or Reimbursement
Agreement and this Agreement, this Agreement shall govern. It is
understood and agreed that, except in the case of gross negligence or
willful misconduct, the Bank shall not be liable for any error,
negligence and/or mistakes, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of
Credit or any modifications, amendments or supplements thereto.
4. The Term Loan.
(a) Type of Facility. The second credit facility covered by this
Agreement is Borrower's Existing Rate Protection Term Loan (the "Rate
Protection Term Loan") in the amount of 237,000,000 Japanese Yen.
(b) Interest Rate. Amounts outstanding under the Rate Protection Term
Loan will bear interest at the rate or rates as provided in the Rate
Protection Term Note.
(c) Repayment. Principal of, and interest accrued on, the Rate
Protection Term Loan shall be payable on the dates and times as provided
in the Rate Protection Term Note.
(d) Note. The obligation of the Borrower to repay the Rate Protection
Term Loan shall continue to be evidenced by the Existing Rate Protection
Term Note (the "Rate Protection Term Note"). The Borrower acknowledges
and agrees that, effective the date of this Agreement, Section 4 of the
Rate Protection Term Note (entitled "Other Loan Documents") is hereby
amended by substituting the date "September 25, 1997" contained therein
and replacing it with the following date and words "March 26, 1999, and
any amendments, modifications, renewals or restatements thereof".
5. Use of Proceeds. The proceeds of the Advances and Letters of
Credit shall be used by the Borrower to fund working capital needs of
the Borrower and other general corporate purposes and to fund Permitted
Acquisitions and Permitted Stock Repurchases. The proceeds of the Rate
Protection Term Loan were used by the Borrower to fund foreign exchange
transactions as provided under the Existing Letter Agreement.
6. Loan Documents. This Agreement, the Line of Credit Note, the Term
Note (if applicable), the Rate Protection Term Note, the Reimbursement
Agreement, the Guarantees and the other loan documents referenced herein
and/or delivered pursuant hereto are collectively referred to as the
"Loan Documents".
7. Guarantees. The Borrower must cause each Guarantor to execute
and deliver to the Bank a guaranty and suretyship agreement
(collectively, the "Guarantees"), in substantially the form of Exhibit B
attached hereto, under which each Guarantor will unconditionally jointly
and severally guarantee the due and punctual payment of all indebtedness
owed to the Bank by the Borrower.
8. Collateral. (a) If at any time the Leverage Ratio is greater than
1.50 to 1.0 for a period of two (2) consecutive quarters (the "Trigger
Date"), the Borrower shall (within ten (10) Business Days from Bank's
demand therefore and at Borrower's sole cost and expense) pledge (or
cause to be pledged) to the Bank, as collateral security for all
obligations owing by Borrower to Bank under the Loan Documents (i) a
first priority perfected lien on all of Borrower's and its domestic
Subsidiaries' accounts receivable, inventory, equipment, fixtures,
chattel paper, documents, instruments and general intangibles, and (ii)
a first priority perfected lien on 65% of the voting stock of Borrower's
foreign Subsidiaries. Failure to timely pledge such collateral and
stock shall constitute an Event of Default.
(b) If the Leverage Ratio is less than or equal to 1.5 to 1.0 for a
period of four (4) consecutive quarters after the Trigger Date, then the
Bank shall release, at Borrower's expense, the collateral described in
subsection (a) above with the exception that the pledged stock of
Borrower's foreign Subsidiaries will not be released.
9. Conditions to Lending. The obligation of the Bank to make any
Advance under the Line of Credit or issue any Letter of Credit is
subject to the conditions that:
(a) in the case of the initial Advance and initial Letter of Credit
hereunder, the Borrower shall (i) provide to the Bank this Agreement,
the Line of Credit Note, the Reimbursement Agreement, and the
Guarantees, each duly executed by the Borrower and the Guarantors, as
the case may be; (ii) provide to the Bank evidence of the due
authorization by the Borrower and the Guarantors of this Agreement, the
Line of Credit Note, the Reimbursement Agreement and the Guarantees;
(iii) provide to the Bank such other instruments as the Bank shall
reasonably require in form and substance satisfactory to the Bank; and
(iv) provide to the Bank an opinion of counsel to the Borrower and the
Guarantors addressing such matters relating to the Borrower and the
Guarantors and this transaction as the Bank may request.
(b) each request for an Advance (including the initial Advance) under
the Line of Credit or the issuance of a Letter of Credit (including the
initial Letter of Credit) shall constitute a certification by the
Borrower that the Borrower shall have performed and complied with all
agreements and conditions herein required under this Agreement, and at
the time of such Advance or Letter of Credit, no condition or event
shall exist which constitutes a Default or an Event of Default.
The Bank will not be obligated to make any Advance under the Line of
Credit or issue any Letter of Credit if any Event of Default or Default
shall have occurred and be continuing.
10. Affirmative Covenants. Unless waived in writing by the Bank or
until payment in full of the Rate Protection Term Loan, the Term Loan
(if applicable), the Line of Credit and all Reimbursement Obligations,
and the termination of the Line of Credit and cancellation of all
Letters of Credit:
(a) The Borrower shall maintain books and records in accordance with
GAAP and give representatives of the bank access thereto at all
reasonable times, including permission to examine, copy and make
abstracts from any of such books and records and such other information
as the Bank may from time to time reasonably request, and the Borrower
will make available to the Bank for examination copies of any reports,
statements or returns which the Borrower may make to or file with any
governmental department, bureau or agency, federal or state.
(b) Within 90 days of the end of the Borrower's fiscal year, the
Borrower will deliver to the Bank (i) its annual report on Securities
and Exchange Commission Form 10K, and (ii) its consolidated balance
sheet and consolidated statement of income, retained earnings and cash
flows for the fiscal year, audited and certified without qualification
by a certified public accountant acceptable to the Bank and prepared in
accordance with GAAP, together with (A) a certificate in substantially
the form of Exhibit C attached hereto (a "Compliance Certificate") from
the Chief Financial Officer of the Borrower setting forth detailed
calculations necessary to demonstrate Borrower's compliance with the
financial covenants set forth below for the period then ended, and
showing whether any Event of Default exists and, if so, the nature
thereof and the corrective measures Borrower proposes to take, and (B)
any management letters of Borrower's accountants addressed to the
Borrower.
(c) Within 45 days of the end of each of the Borrower's fiscal
quarters, the Borrower will deliver to the Bank its quarterly report on
Securities and Exchange Commission Form 10Q.
(d) Within 45 days of the end of each of the Borrower's first three
fiscal quarters, the Borrower will deliver to Bank its consolidated
balance sheets and consolidated statements of income, retained earnings
and cash flow together with a Compliance Certificate from the Chief
Financial Officer of the Borrower setting forth detailed calculations
necessary to demonstrate Borrower's compliance with the financial
covenants set forth below for the period then ended, and showing whether
any Event of Default exists and, if so, the nature thereof and the
corrective measures Borrower proposes to take.
(e) The Borrower will promptly submit to Bank such other information
relating to the Borrower as the Bank may reasonably request.
(f) The Borrower will pay and discharge when due all indebtedness and
all taxes, assessments, charges, levies and other liabilities imposed
upon the Borrower, its income, profits, property or business, except
those which currently are being contested in good faith by appropriate
proceedings and for which the Borrower shall have set aside adequate
reserves or made other adequate provision with respect thereto
acceptable to the Bank in its sole discretion.
(g) The Borrower will do all things necessary to maintain, renew and
keep in full force and effect its organizational existence and all
rights, permits and franchises necessary to enable it to continue its
business; continue in operation in substantially the same manner as at
present; keep its properties in good operating condition and repair; and
make all necessary and proper repairs, renewals, replacements, additions
and improvements thereto.
(h) The Borrower will maintain with financially sound and reputable
insurers, insurance with respect to its property and business against
such casualties and contingencies, of such types and in such amounts as
is customary for established companies engaged in the same or similar
business and similarly situated.
(i) The Borrower will comply with all laws applicable to the Borrower
and to the operation of its business (including any statute, rule or
regulation relating to employment practices and pension benefits or to
environmental, occupational and health standards and controls).
(j) The Borrower shall cause, at all times, the indebtedness
outstanding under this Agreement to rank at least pari passu with all
other indebtedness for borrowed money of the Borrower, the principal
amount of which is in excess of $1,000,000.
11. Negative Covenants. Unless waived in writing by the Bank or
until payment in full of the Rate Protection Term Loan, the Term Loan
(if applicable), the Line of Credit and all Reimbursement Obligations,
and the termination of the Line of Credit and cancellation of all
Letters of Credit, the Borrower covenants and agrees that it will not,
without the Bank's prior written consent:
(a) Make or permit any material change in the nature of its business
as carried on as of the date of this Agreement or permit any change in
control of more than a majority of its board of directors or its voting
stock.
(b) Create, assume, incur or suffer to exist any mortgage,
pledge, encumbrance, security interest, lien or charge of any kind upon
any of its property (including without limitation the stock of
Borrower's foreign Subsidiaries), now owned or hereafter acquired, or
acquire or agree to acquire any kind of property under conditional sales
or other title retention agreements; provided, however, that the
foregoing restrictions shall not prevent the Borrower from:
(i) incurring liens for taxes, assessments or governmental charges or
levies which shall not at the time be due and payable or can thereafter
be paid without penalty or are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which
it has created adequate reserves;
(ii) making pledges or deposits to secure obligations under workers'
compensation laws or similar legislation;
(iii) granting additional liens or security interests to secure existing
or future indebtedness in an aggregate principal amount at any time not
to exceed $1,000,000; or
(iv) granting liens or security interests in favor of the Bank.
(c) Create, incur, guarantee, endorse (except endorsements in the
course of collection), assume or suffer to exist any indebtedness,
except:
(i) indebtedness to the Bank;
(ii) open account trade debt incurred in the ordinary course of
business and not past due; or
(iii) existing indebtedness and future indebtedness (including without
limitation any Seller Notes) in an aggregate principal amount at any
time not to exceed $1,750,000, and any refinancings thereof; provided
that the amount of the refinancing indebtedness is not more than the
outstanding amount of the refinanced indebtedness.
(d) Liquidate, or dissolve, or merge or consolidate with any person,
firm, corporation or other entity (except for mergers or consolidations
where the Borrower is the surviving entity), or sell, lease, transfer or
otherwise dispose of all or any substantial part of its property or
assets, whether now owned or hereafter acquired (except for the sale of
non-material assets in an aggregate fair market value not to exceed
$1,000,000 at any time).
(e) Make acquisitions of all or substantially all of the property or
assets of any person, firm, corporation or other entity, except for
Permitted Acquisitions.
(f) Declare or pay any dividends on or make any distribution with
respect to any class of its equity, or purchase, redeem, retire or
otherwise acquire any of its equity, except for Permitted Stock
Repurchases.
(g) Make or have outstanding any loans or advances to or otherwise
extend credit to any person, firm or corporation, except in the ordinary
course of business.
(h) Enter into (or permit any of its Subsidiaries to enter into) any
agreement with any person which prohibits it (or its Subsidiaries) from
granting any liens on any of its property (real or personal) to the
Bank.
12. Financial Covenants. Unless waived in writing by the Bank or until
payment in full of the Rate Protection Term Loan, the Term Loan (if
applicable), the Line of Credit and all Reimbursement Obligations, and
the termination of the Line of Credit and cancellation of all Letters of
Credit:
(a) Minimum Net Worth. The Borrower will not allow its Tangible Net
Worth to be less than $41,000,000 at any time, (i) to be increased at
the end of each fiscal quarter commencing on March 31, 1999 by an amount
equal to (x) 50% of Borrower's net income (if a positive number) for the
fiscal quarter most recently then ending, and (y) 100% of the net cash
proceeds (defined as the cash proceeds received from any equity offering
net of reasonable transaction costs (including any underwriting,
brokerage or other customary selling commissions and reasonable legal,
advisory and other fees and expenses associated therewith and actually
incurred)) from the issuance by the Borrower of any equity securities or
other equity capital investments for the fiscal quarter most recently
then ending, and (ii) to be decreased by the amount (as calculated in
accordance with GAAP) attributed to any Permitted Stock Repurchase.
(b) Leverage Ratio. The Borrower will maintain as of the end of each
fiscal quarter, a Leverage Ratio of not greater than 2.5 to 1.
(c) Interest Coverage Ratio. The Borrower will maintain as of the end
of each fiscal quarter an Interest Coverage Ratio of at least 5.0 to
1.0.
(d) Capital Expenditures. The Borrower will not make Capital
Expenditures in any one fiscal year of the Borrower in excess of 125% of
the capital expenditures reflected in the Borrower's most recent five
year plan attached hereto as Schedule V. Carryover is not permitted.
13. Representations and Warranties. To induce the Bank to extend the
Line of Credit, and upon each request for the making of any Advance
under the Line of Credit or the issuance of any Letter of Credit to the
Borrower, the Borrower represents and warrants to the Bank as follows:
(a) The Borrower is duly organized, validly existing and in good
standing under the laws of the state of its incorporation or
organization and has the power and authority to own and operate its
assets and to conduct its business as now or proposed to be carried on,
and is duly qualified, licensed and in good standing to do business in
all jurisdictions where its ownership of property or the nature of its
business requires such qualification or licensing.
(b) The Borrower has the power to make and carry out the terms of the
Loan Documents and has taken all necessary corporate action to authorize
the execution, delivery and performance of the Loan Documents.
(c) The Loan Documents constitute the legally binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.
(d) All of the Borrower's domestic and foreign Subsidiaries in
existence on the date hereof are listed on Schedule III attached hereto.
(e) The making and performance of the Loan Documents do not and will
not violate in any respect any provisions of (i) any federal, state or
local law or regulation or any order or decree of any federal, state or
local governmental authority, agency or court, or (ii) the
organizational documents of the Borrower or of any of its Subsidiaries,
or (iii) any mortgage, contract or other undertaking to which the
Borrower is a party or which is binding upon the Borrower or any of its
Subsidiaries or any of their respective assets, and do not and will not
result in the creation or imposition of any security interest, lien,
charge or other encumbrance on any of their respective assets pursuant
to the provisions of any such mortgage, contract or other undertaking.
(f) Neither the Borrower nor any of its Subsidiaries is in default
with respect to any material order, writ, injunction or decree (i) of
any court or (ii) of any Federal, state, municipal or other governmental
instrumentality. The Borrower and each Subsidiary is substantially
complying with all applicable statutes and regulations of each
governmental authority having jurisdiction over its activities, except
where failure to comply would not have a material adverse effect on the
Borrower and its Subsidiaries, taken as a whole.
(g) There are no actions, suits, proceedings or governmental
investigations pending or, to the knowledge of the Borrower, threatened
against the Borrower which could result in a material adverse change in
its business, assets, operations, financial condition or results of
operations and there is no basis known to the Borrower or its officers
or directors for any such action, suit, proceedings or investigation.
(h) The Borrower's latest financial statements provided to the Bank
are true, complete and accurate in all material respects and fairly
present the financial condition, assets and liabilities, whether
accrued, absolute, contingent or otherwise and the results of the
Borrower's operations for the period specified therein. The Borrower's
financial statements have been prepared in accordance with GAAP. Since
the date of the latest financial statements provided to the Bank, the
Borrower has not suffered any damage, destruction or loss which has
materially adversely affected its business, assets, operations,
financial condition or results of operations.
(i) The Borrower has filed all returns and reports that are required
to be filed by it in connection with any federal, state or local tax,
duty or charge levied, assessed or imposed upon the Borrower or its
property, including unemployment, social security and similar taxes and
all of such taxes have been either paid or adequate reserve or other
provision has been made therefor.
(j) Each employee benefit plan as to which the Borrower may have any
liability complies in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), including minimum funding requirements, and (i) no Prohibited
Transaction (as defined under ERISA) has occurred with respect to any
such plan, (ii) no Reportable Event (as defined under Section 4043 of
ERISA) has occurred with respect to any such plan which would cause the
Pension Benefit Guaranty Corporation to institute proceedings under
Section 4042 of ERISA, (iii) the Borrower has not withdrawn from any
such plan or initiated steps to do so, and (iv) no steps have been taken
to terminate any such plan.
(k) The Borrower is in compliance, in all material respects, with all
Environmental Laws, including, without limitation, all Environmental
Laws in jurisdictions in which the Borrower owns or operates, or has
owned or operated, a facility or site, stores collateral, arranges or
has arranged for disposal or treatment of hazardous substances, solid
waste or other waste, accepts or has accepted for transport any
hazardous substances, solid waste or other wastes or holds or has held
any interest in real property or otherwise. Except as otherwise
disclosed Schedule IV attached hereto, no litigation or proceeding
arising under, relating to or in connection with any Environmental Law
is pending or, to the best of the Borrower's knowledge, threatened
against the Borrower, any real property which the Borrower holds or has
held an interest or any past or present operation of the Borrower. No
release, threatened release or disposal of hazardous waste, solid waste
or other wastes is occurring, or to the best of the Borrower's knowledge
has occurred, on, under or to any real property in which the Borrower
holds any interest or performs any of its operations, in violation of
any Environmental Law. As used in this Section, "litigation or
proceeding" means any demand, claim notice, suit, suit in equity,
action, administrative action, investigation or inquiry whether brought
by a governmental authority or other person, and "Environmental Laws"
means all provisions of laws, statutes, ordinances, rules, regulations,
permits, licenses, judgments, writs, injunctions, decrees, orders,
awards and standards promulgated by any governmental authority
concerning health, safety and protection of, or regulation of the
discharge of substances into, the environment.
(l) The Borrower owns or is licensed to use all patents, patent
rights, trademarks, trade names, service marks, copyrights, intellectual
property, technology, know-how and processes necessary for the conduct
of its business as currently conducted that are material to the
condition (financial or otherwise), business or operations of the
Borrower.
(m) No part of the proceeds of the Advances will be used for
"purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation U of the Board of
Governors of the Federal Reserve System as now and from time to time in
effect or for any purpose which violates the provisions of the
Regulations of such Board of Governors.
(n) As of the date hereof and after giving effect to the transactions
contemplated by the Loan Documents, (i) the aggregate value of the
Borrower's assets will exceed its liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities), (ii) the Borrower
will have sufficient cash flow to enable it to pay its debts as they
mature, and (iii) the Borrower will not have unreasonably small capital
for the business in which it is engaged.
(o) None of the Loan Documents contains or will contain any untrue
statement of material fact or omits or will omit to state a material
fact necessary in order to make the statements contained in this
Agreement or the Loan Documents not misleading. There is no fact known
to the Borrower which materially adversely affects or, so far as the
Borrower can now foresee, might materially adversely affect the
business, assets, operations, financial condition or results of
operation of the Borrower and which has not otherwise been fully set
forth in this Agreement or in the Loan Documents.
(p) The Borrower has reviewed the areas within its business and
operations which could be adversely affected by, and has developed or is
developing a program to address on a timely basis the risk that certain
computer applications used by the Borrower may be unable to recognize
and perform properly date-sensitive functions involving dates prior to
and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000
Problem is not reasonably expected to result in any material adverse
effect on the business, properties, assets, financial condition, results
of operations or prospects of the Borrower, or the ability of the
Borrower to duly and punctually pay or perform its obligations hereunder
and under the other Loan Documents.
14. Events of Default. The occurrence of any of the following events
(whatever the reason therefor and whether voluntary, involuntary or
effected by operation of law) will be deemed to be an "Event of
Default":
(a) the nonpayment of any principal, interest, reimbursement
obligation or other indebtedness under this Agreement, the Notes or any
other Loan Document when due;
(b) The occurrence of any event of default or default and the lapse of
any notice or cure period under any Loan Document or any other debt,
liability or obligation to the Bank of any Obligor;
(c) the filing by or against the Borrower of any proceeding in
bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding (and, in the case of any such
proceeding instituted against the Borrower, such proceeding is not
dismissed or stayed within thirty (30) days of the commencement thereof
(provided that the Bank is not obligated to make any Advances or issue
any Letters of Credit under the Line of Credit during such 30 day
period));
(d) any assignment by the Borrower for the benefit of creditors, or
any levy, garnishment, attachment or similar proceeding (in excess of
$100,000 in the aggregate) is instituted against any property of the
Borrower held by or deposited with the Bank (and, in the case of any
levy, garnishment, attachment or similar proceeding instituted against
any such property of the Borrower, such proceeding is not dissolved
within ten (10) days of the commencement thereof (provided that the Bank
is not obligated to make any Advances or issue any Letters of Credit
under the Line of Credit during such ten (10) day period));
(e) a default with respect to any other indebtedness of any Obligor
for borrowed money in excess of $100,000 in the aggregate, if the effect
of such default is to cause or permit the acceleration of such debt;
(f) the commencement of any foreclosure or forfeiture proceeding,
execution or attachment against any collateral (having a fair market
value in excess of $100,000 in the aggregate) securing the obligations
of any Obligor to the Bank, and the failure of such Obligor to discharge
such proceeding within ten (10) days of the commencement thereof;
(g) the entry of a final judgment in excess of $100,000 in the
aggregate against any Obligor and the failure of such Obligor to
discharge the judgment within ten (10) days of the entry thereof;
(h) in the event that this Note or any guarantee executed by any
Guarantor is secured, the failure of any Obligor to provide the Bank
with additional collateral if in the opinion of the Bank at any time or
times, the market value of any of the collateral securing this Note or
any guarantee has depreciated;
(i) any material adverse change in the business, assets, operations,
financial condition or results of operations of any Obligor;
(j) any Obligor ceases doing business as a going concern;
(k) the revocation or attempted revocation, in whole or in part, of
any guarantee by any Guarantor;
(l) any representation or warranty made by any Obligor to the Bank in
any Loan Document, or any other documents now or in the future
evidencing or securing the obligations of any Obligor to the Bank, is
false, erroneous or misleading in any material respect; or
(m) the failure of any Obligor to observe or perform any covenant or
other agreement with the Bank contained in any Loan Document or any
other documents now or in the future evidencing or securing the
obligations of any Obligor to the Bank.
15. Consequences of an Event of Default. Upon the occurrence of an
Event of Default: (a) the Bank shall be under no further obligation to
make Advances hereunder or issue Letters of Credit, as the case may be;
(b) if an Event of Default specified in clause (c) or (d) above shall
occur, the unpaid principal balance of the Notes then outstanding and
all interest accrued thereon together with any additional amounts
payable hereunder and thereunder shall be immediately due and payable
without demand or notice of any kind; (c) if any other Event of Default
shall occur, the unpaid principal balance of the Notes then outstanding
and all interest accrued thereon together with any additional amounts
payable hereunder and thereunder, at the option of the Bank and without
demand or notice of any kind, may be accelerated and become immediately
due and payable; (d) the Bank may require the Borrower to, and the
Borrower shall thereupon, deposit in a non-interest-bearing account (the
"Cash Collateral Account") with the Bank, as cash collateral for its
obligations under the Loan Documents, an amount equal to the aggregate
maximum amount currently or at any time thereafter available to be drawn
on all outstanding Letters of Credit, and the Borrower hereby pledges to
the Bank, and grants to the Bank a security interest in, all such cash
collateral as security for such obligations. Upon the curing of all
existing Events of Default to the satisfaction of the Bank, the Bank
shall return such cash collateral to the Borrower; (e) at the option of
the Bank, the Notes will bear interest at the Default Rate from the date
of the occurrence of the Event of Default; and (f) the Bank may exercise
from time to time any of the rights and remedies available to the Bank
under the Loan Documents or under applicable law.
16. Right of Setoff. In addition to all liens upon and rights of
setoff against the money, securities or other property of the Borrower
given to the Bank by law, the Bank shall have, with respect to the
Borrower's obligations to the Bank under the Loan Documents and to the
extent permitted by law, a contractual possessory security interest in
and a contractual right of setoff against, and the Borrower hereby
assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys,
securities and other property of the Borrower now or hereafter in the
possession of or on deposit with, or in transit to, the Bank whether
held in a general or special account or deposit, whether held jointly
with someone else, or whether held for safekeeping or otherwise,
excluding, however, all IRA, Keogh, and trust accounts. Every such
security interest and right of setoff may be exercised without demand
upon or notice to the Borrower. Every such right of setoff shall be
deemed to have been exercised immediately upon the occurrence of an
Event of Default hereunder without any action of the Bank, although the
Bank may enter such setoff on its books and records at a later time.
17. Notices. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing
and will be effective upon receipt if delivered personally to such
party, or if sent by facsimile transmission with confirmation of
delivery, or by nationally recognized overnight courier service, to the
address set forth below or to such other address as any party may give
to the other in writing for such purpose.
To the Bank:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Mr. Eric Bruno, Assistant Vice President
Facsimile No.: (412) 762-7353
With a copy to:
PNC Bank, National Association
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222
Attention: Thomas S. Bott, Managing Counsel
Facsimile No.: (412) 762-4334
To the Borrower:
II - VI Incorporated
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
Attention: James Martinelli, Treasurer and Chief Financial Officer
Facsimile No.: (724) 352-5299
With a copy to:
Sherrard, German & Kelly, PC
One Oliver Plaza, 35th Floor
Pittsburgh, Pennsylvania 15222
Attention: Robert D. German, Esq.
Facsimile No.: (412) 261-6221
18. Documentation Fee. On the date of this Agreement, the
Borrower shall pay to the Bank a documentation fee of $5,000.00.
19. Commitment Fees. Accruing from the date hereof until the
Expiration Date, the Borrower agrees to pay to the Bank in Dollars a
commitment fee (the "Commitment Fee") equal to the Applicable Commitment
Fee Rate (computed on the basis of a year of 365 or 366 days, as the
case may be, and actual days elapsed) on the average daily Equivalent
Amount in Dollars equal to the Line of Credit Commitment minus the sum
of all Advances then outstanding plus all Letters of Credit Outstanding.
All Commitment Fees shall be payable quarterly in arrears beginning June
30, 1999, and continuing on the last Business Day of each fiscal quarter
after the date hereof and on any date that the Line of Credit Commitment
is terminated or reduced as provided in Section 2(o) hereof, on the
Expiration Date, or upon acceleration of the Line of Credit Note.
20. Letter of Credit Fees. The Borrower shall pay to the Bank in
Dollars a fee (the "Letter of Credit Fee") on the daily average Dollar
Equivalent amount of outstanding standby Letters of Credit for the
period from such standby Letter of Credit's opening date to its expiry
date at a rate per annum equal to the then Applicable Margin applicable
to Advances bearing interest under the Euro-Rate Option, which fee shall
be payable on the last Business Day of each fiscal quarter, in arrears,
following the issuance of each standby Letter of Credit, and on the
Expiration Date. The Borrower shall also pay to the Bank in Dollars (i)
the Bank's then in effect customary fees payable with respect to
commercial Letters of Credit and (ii) the Bank's then in effect
customary fees and administrative expenses payable with respect to all
Letters of Credit as the Bank may generally charge or incur from time to
time in connection with the issuance, maintenance, modification (if
any), assignment or transfer (if any), negotiation, and administration
of Letters of Credit.
21. Expenses. The Borrower shall reimburse the Bank for the Bank's
expenses (including the reasonable fees and expenses of the Bank's
outside and in-house counsel) in connection with the collection of all
of the Borrower's obligations to Bank, including but not limited to
enforcement actions relating to the Loan Documents.
22. Depository. The Borrower will establish and maintain at the Bank
the Borrower's primary depository accounts.
23. Governing Law. This Agreement, the Notes and the other Loan
Documents shall be governed by the laws of the Commonwealth of
Pennsylvania, excluding its conflict of law rules.
24. Counterparts. This Agreement may be executed in counterparts,
each of which when executed by the Borrower and the Bank shall be
regarded as an original.
25. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement between
the Borrower and the Bank concerning the Loans and supersedes all other
prior agreements and understandings, both written and oral, between the
parties with respect to the Loans.
26. Amendments and Waivers. No modification, amendment or waiver of
any provision of this Agreement nor consent to any departure by the
Borrower therefrom, will in any event be effective unless the same is in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which
given. No notice to or demand on the Borrower in any case will entitle
the Borrower to any other or further notice or demand in the same,
similar or other circumstance.
27. Preservation of Rights. No delay or omission on the part of the
Bank to exercise any right or power arising hereunder will impair any
such right or power or be considered a waiver of any such right or power
or any acquiescence therein, nor will the action or inaction of the Bank
impair any right or power arising hereunder. The Bank's rights and
remedies hereunder are cumulative and not exclusive of any other rights
or remedies which the Bank may have under other agreements, at law or in
equity.
28. Successors and Assigns. This Agreement will be binding upon and
inure to the benefit of the Borrower and the Bank and their respective
heirs, executors, administrators, successors and assigns; provided,
however, that the Borrower may not assign this Agreement in whole or in
part without the prior written consent of the Bank and the Bank at any
time may assign this Agreement in whole or in part.
29. Indemnity. The Borrower agrees to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who
controls the Bank (the "Indemnified Parties") and to hold each
Indemnified Party harmless from and against any and all claims, damages,
losses, liabilities and expenses (including, without limitation, all
reasonable fees of counsel with whom any Indemnified Party may consult
and all expenses of litigation or preparation therefor) which any
Indemnified Party may incur or which may be asserted against any
Indemnified Party in connection with or arising out of the matters
referred to in this Agreement or in the other Loan Documents by any
person, entity or governmental authority (including any person or entity
claiming derivatively on behalf of the Borrower), whether (a) arising
from or incurred in connection with any breach of a representation,
warranty or covenant by the Borrower, or (b) arising out of or resulting
from any suit, action, claim, proceeding or governmental investigation,
pending or threatened, whether based on statute, regulation or order, or
tort, or contract or otherwise, before any court or governmental
authority, which arises out of or relates to this Agreement, any other
Loan Document, or the use of the proceeds of the Loan; provided,
however, that the foregoing indemnity agreement shall not apply to
claims, damages, losses, liabilities and expenses solely attributable to
an Indemnified Party's gross negligence or willful misconduct. The
indemnity agreement contained in this Section shall survive the
termination of this Agreement, payment of any Loan and assignment of any
rights hereunder. The Borrower may participate at its expense in the
defense of any such action or claim.
30. Assignments and Participations. At any time, without any notice
to the Borrower, the Bank may sell, assign, transfer, negotiate, grant
participation in, or otherwise dispose of all or any part of the Bank's
interest in the Loans. The Borrower hereby authorizes the Bank to
provide, without any notice to the Borrower, any information concerning
the Borrower, including information pertaining to the Borrower's
financial condition, business operations or general creditworthiness, to
any person or entity which may succeed to or participate in all or any
part of the Bank's interest in the Loans.
31. Consent to Jurisdiction. The Borrower hereby agrees that any
action or proceeding arising out of or relating to this Agreement or the
other Loan Documents may be commenced in, and Borrower irrevocably
consents to the exclusive jurisdiction of, any state or federal court
located for the county or judicial district where the Bank's office
indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to the
Borrower at the Borrower's address set forth herein and service so made
will be deemed to be completed on the business day after deposit with
such courier; provided that nothing contained in this Agreement will
prevent the Bank from bringing any action, enforcing any award or
judgment or exercising any rights against the Borrower individually,
against any security or against any property of the Borrower within any
other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the
most convenient forum for both the Bank and the Borrower. The Borrower
waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Agreement or any
other Loan Document.
32. WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK IRREVOCABLY WAIVE
ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENTS OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH LOAN
DOCUMENTS. THE BORROWER AND THE BANK ACKNOWLEDGE THAT THE FOREGOING
WAIVER IS KNOWING AND VOLUNTARY.
If the foregoing accurately reflects the understanding of the parties,
please execute the duplicate original of this Agreement and the other
Loan Documents and return them to me.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: /s/ Eric Bruno
Eric Bruno, Assistant Vice President
Agreed to and accepted, with the intent to be legally bound,
this 26th day of March, 1999
II-VI INCORPORATED
By: /s/ James Martinelli
Name: James Martinelli
Title: Treasurer and Chief Financial Officer
SCHEDULE I TO LETTER AGREEMENT
Defined Terms
In addition to the words and terms defined elsewhere in the Agreement,
the following words and terms shall have the following respective
meanings:
Advances shall have the meaning assigned to such term in Section 2(a) of
the Agreement.
Applicable Commitment Fee Rate shall mean the percentage rate per annum
based on the Leverage Ratio then in effect according to the pricing grid
on Schedule II to the Agreement across from the heading "Commitment
Fee". The Applicable Commitment Fee Rate shall be computed in
accordance with the parameters set forth on Schedule II to the
Agreement.
Applicable Margin shall mean the respective percentage spread to be
added to the Base Rate under the Base Rate Option and the Euro Rate
under the Euro-Rate Option based on the Leverage Ratio then in effect
according to the pricing grid on Schedule II to the Agreement across
from the headings "Base Rate" and "Euro-Rate", respectively. The
Applicable Margin shall be computed in accordance with the parameters
set forth on Schedule II to the Agreement.
Base Rate shall mean the greater of (i) the Prime Rate, or (ii) the
Federal Funds Effective Rate plus fifty (50) basis points (0.50%) per
annum.
Base Rate Option shall mean the interest rate option described in
Section 2(e)(i) of the Agreement.
Borrowing Date shall mean, with respect to any Advance, the date for the
making thereof or the renewal or conversion thereof at or to the same or
a different Interest Rate Option, which shall be a Business Day.
Business Day shall mean any day other than a Saturday or Sunday or a
legal holiday on which commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania; and (i) if the
applicable Business Day relates to any Advance to which the Euro-Rate
Option applies, such day must also be a day on which dealings are
carried on in the London interbank market, (ii) with respect to advances
or payments of Advances or any other matters relating to Advances
denominated in an Optional Currency, such day also shall be a day on
which dealings in deposits in the relevant Optional Currency are carried
on in the applicable interbank market, and (iii) with respect to
advances or payments of Advances denominated in an Optional Currency,
such day shall also be a day on which all applicable banks into which
Advance proceeds may be deposited are open for business and foreign
exchange markets are open for business in the principal financial center
of the country of such currency.
Capital Expenditures shall mean, for any period, the sum of, without
duplication, (a) all cash expenditures made, directly or indirectly, by
the Borrower and any of its Subsidiaries during such period for
equipment, fixed assets, real property or improvements, or for
replacements or substitutions therefor or additions thereto, that have
been or should be, in accordance with GAAP, reflected as additional
property, plant or equipment on a consolidated balance sheet of the
Borrower and its Subsidiaries.
Cash Collateral Account shall have the meaning assigned to such term in
Section 15 of the Agreement.
Closing Date shall mean the date upon which this Agreement has been
executed by the Borrower and the Bank and all conditions precedent
specified in Section 9 of the Agreement have been satisfied or waived by
the Bank.
Commitment Fee shall have the meaning assigned to such term in Section
19 of the Agreement.
Compliance Certificate shall have the meaning assigned to such term in
Section 10(b) of the Agreement.
Computation Date shall have the meaning assigned to such term in Section
2(h) of the Agreement.
Control shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract
or otherwise, including the power to elect a majority of the directors
or trustees of a corporation or trust, as the case may be.
Conversion Date shall mean the date upon which the Advances (or a
portion thereof) are converted to a term loan in accordance with Section
2(n) of the Agreement.
Cost of Prepayment shall have the meaning assigned to such term in
Section 2(m) of the Agreement.
Default shall mean any event or condition which with notice or passage
of time or both would constituted an Event of Default.
Default Rate shall have the meaning assigned to such term in Section
2(f) of the Agreement.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean the lawful
currency of the United States of America.
Dollar Equivalent shall mean, with respect to any amount of any
currency, the Equivalent Amount of such currency expressed in Dollars.
Dollar Equivalent Line of Credit Usage shall mean at any time the sum of
(i) the Dollar Equivalent amount of Advances then outstanding and (ii)
the Dollar Equivalent amount of Letters of Credit Outstanding.
EBIT shall mean, for any period, the consolidated net income (or net
loss) of the Borrower and its Subsidiaries for such period as determined
in accordance with GAAP, plus (a) the sum of (i) interest expense, (ii)
income tax expense, (iii) extraordinary or unusual losses deducted in
calculating net income, (iv) to the extent deducted in calculating net
income (or net loss), other non-cash charges, less (b) the sum of (i)
extraordinary or unusual gains added in calculating net income, (ii) to
the extent added in calculating net income (or net loss), other non-cash
credits.
EBITDA shall mean, for any period, the consolidated net income (or net
loss) of the Borrower and its Subsidiaries for such period as determined
in accordance with GAAP, plus (a) the sum of (i) interest expense, (ii)
income tax expense, (iii) depreciation expense, (iv) amortization
expense, (v) extraordinary or unusual losses deducted in calculating net
income, (vi) to the extent deducted in calculating net income (or net
loss), other non-cash charges, less (b) the sum of (i) extraordinary or
unusual gains added in calculating net income, (ii) to the extent added
in calculating net income (or net loss), other non-cash credits.
Equivalent Amount shall mean, at any time, as determined by Bank (which
determination shall be conclusive absent manifest error), with respect
to an amount of any currency (the "Reference Currency") which is to be
computed as an equivalent amount of another currency (the "Equivalent
Currency"): (i) if the Reference Currency and the Equivalent Currency
are the same, the amount of such Reference Currency, or (ii) if the
Reference Currency and the Equivalent Currency are not the same, the
amount of such Equivalent Currency converted from such Reference
Currency at Bank's spot selling rate (based on the market rates then
prevailing and available to Bank) for the sale of such Equivalent
Currency for such Reference Currency at a time determined by Bank on the
second Business Day immediately preceding the event for which such
calculation is made.
Equivalent Currency shall have the meaning assigned to such term in the
definition of Equivalent Amount.
Euro shall have the meaning assigned to such term in Section 2(h)(vii)
of the Agreement.
Euro-Rate shall mean the following: (A) with respect to any Advances
denominated in Dollars comprising any portion to which the Euro-Rate
Option applies for any Euro-Rate Interest Period, the interest rate per
annum determined by the Bank by dividing (the resulting quotient rounded
upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the
rate of interest determined by the Bank in accordance with its usual
procedures (which determination shall be conclusive absent manifest
error) to be the average of the London interbank offered rates for U.S.
Dollars quoted by the British Bankers' Association as set forth on Dow
Jones Markets Service (formerly known as Telerate) display page 3750 (or
appropriate successor or, if the British Bankers' Association or its
successor ceases to provide such quotes, a comparable replacement
determined by the Bank) as of approximately 11:00 a.m. Greenwich Mean
Time two (2) Business Days prior to the first day of such Euro-Rate
Interest Period for an amount comparable to such Advance and having a
borrowing date and a maturity comparable to such Euro-Rate Interest
Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. Such Euro-Rate may also be expressed by the following
formula:
Average of London interbank offered rates on Dow Jones
Markets Service display page 3750 as quoted by
Euro-Rate = British Bankers' Association or appropriate successor
-----------------------------------------------------
1.00 - Euro-Rate Reserve Percentage
(B) with respect to any Advances denominated in Optional Currency
comprising any portion to which the Euro-Rate Option applies for any
Euro-Rate Interest Period, the interest rate per annum determined by
Bank by dividing (the resulting quotient rounded upward to the nearest
1/100th of 1 percent per annum) (i) the rate of interest per annum
determined by Bank in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the rate
of interest per annum for deposits in the relevant Optional Currency
quoted by British Bankers' Association and which appears on the relevant
Telerate Page (or, if no such quotation is available on such Telerate
Page, on the appropriate Reuters Screen) at approximately 9:00 a.m.,
Pittsburgh time, two (2) Business Days prior to the first day of such
Euro-Rate Interest Period for delivery on the first day of such Euro-
Rate Interest Period for a period, and in an amount, comparable to such
Euro-Rate Interest Period and principal amount of such Advance ("LIBO
Rate") by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. Such Euro-Rate may also be expressed by the following
formula:
LIBO Rate
Euro-Rate =
1 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option
outstanding on the effective date of any change in the Euro-Rate Reserve
Percentage as of such effective date. The Bank shall give prompt notice
to the Borrower of the Euro-Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.
The Euro-Rate for any Advances shall be based upon the Euro-Rate for the
currency in which such Advances are requested.
Euro-Rate Interest Period shall mean the period of one (1), two (2),
three (3) or six (6) months selected by the Borrower commencing on the
date of disbursement of an Advance and each successive period selected
by the Borrower thereafter; provided, that if a Euro-Rate Interest
Period would end on a day which is not a Business Day, it shall end on
the next succeeding Business Day, unless such day falls in the
succeeding calendar month in which case the Euro-Rate Interest Period
shall end on the next preceding Business Day. In no event shall any
Euro-Rate Interest Period end on a day after the Expiration Date.
Euro-Rate Option shall mean the interest rate option described in
Section 2(e)(ii) of the Agreement.
Euro-Rate Reserve Percentage shall mean the maximum percentage
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as
determined by the Agent which is in effect during any relevant period as
prescribed by the Board of Governors of the Federal Reserve System (or
any successor) for determining the reserve requirements (including
supplemental, marginal and emergency reserve requirements) with respect
to eurocurrency funding (currently referred to as "Eurocurrency
Liabilities") of a member bank in such System.
Event of Default shall have the meaning assigned to such term in Section
14 of the Agreement.
Expiration Date means March 25, 2000, or such later date as may be
designated by the Bank in writing its sole discretion in accordance with
Section 2(b) of the Agreement.
Extension Request shall have the meaning assigned to such term in
Section 2(b) of the Agreement.
Federal Funds Effective Rate shall mean for any day the rate per annum
(based on a year of 360 days and actual days elapsed and rounded upward
to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New
York (or any successor) on such day as being the weighted average of the
rates on overnight federal funds transactions arranged by federal funds
brokers on the previous trading day, as computed and announced by such
Federal Reserve Bank (or any successor) in substantially the same manner
as such Federal Reserve Bank computes and announces the weighted average
it refers to as the "Federal Funds Effective Rate" as of the date of
this Agreement; provided, if such Federal Reserve Bank (or its
successor) does not announce such rate on any day, the "Federal Funds
Effective Rate" for such day shall be the Federal Funds Effective Rate
for the last day on which such rate was announced.
GAAP shall mean generally accepted accounting principles in effect from
time to time consistently applied from period to period subject in the
case of interim statements to normal year-end adjustments.
Guarantor shall mean each of the Borrower's domestic subsidiaries as
listed on Schedule III attached to the Agreement, and any other
guarantor of the obligations of the Borrower to the Bank existing on the
date of the Agreement or arising in the future.
Guarantees shall have the meaning assigned to such term in Section 7 of
the Agreement.
Initial Expiration Date shall mean the date that is 364 days from the
date of the Agreement.
Interest Coverage Ratio shall mean the ratio of EBIT to the consolidated
interest expense of the Borrower and its Subsidiaries, measured on a
rolling four fiscal quarter basis.
Interest Rate Option shall mean the Base Rate Option or the Euro-Rate
Option.
Letter of Credit shall have the meaning assigned to that term in Section
3(a) of the Agreement.
Letter of Credit Fee shall have the meaning assigned to that term in
Section 20 of the Agreement.
Letters of Credit Outstanding shall mean at any time the sum of (i) the
aggregate undrawn Stated Amount of outstanding Letters of Credit and
(ii) the aggregate amount of all unpaid and outstanding Reimbursement
Obligations.
Leverage Ratio shall mean the ratio of Total Indebtedness to EBITDA,
measured on a rolling four fiscal quarter basis.
Line of Credit shall have the meaning assigned to such term in Section
2(a) of the Agreement.
Line of Credit Commitment shall mean $15,000,000, as the same may be
reduced pursuant to Sections 2(o) of the Agreement.
Line of Credit Note shall have the meaning assigned to such term in
Section 2(c) of the Agreement.
Loans shall mean the Line of Credit, the Rate Protection Term Loan and
the Term Loan (if applicable).
Loan Documents shall have the meaning assigned to such term in Section 6
of the Agreement.
Material Adverse Change shall mean any set of circumstances or events
which (a) has or could reasonably be expected to have any material
adverse effect upon the validity or enforceability of the Agreement or
any of the other Loan Documents, (b) is or could reasonably be expected
to be material and adverse to the business, properties, assets,
financial condition or results of operations of the Borrower and its
Subsidiaries, taken as a whole, (c) impairs materially or could
reasonably be expected to impair materially the ability of the Borrower
and its Subsidiaries taken as a whole to duly and punctually pay their
indebtedness, or (d) impairs materially or could reasonably be expected
to impair materially the ability of the Bank to enforce its legal
remedies pursuant to the Agreement or any other Loan Document.
Notes shall mean the Line of Credit Note, the Rate Protection Term Note
and the Term Note (if applicable).
Obligor means the Borrower and each Guarantor.
Optional Currency shall mean any of the following currencies (a) the
Australian dollar, (b) the British Pound Sterling, (c) the Canadian
dollar, (d) the Deutsche Mark, (e) the Italian Lira, (f) the Japanese
Yen, (g) the Spanish Peseta, and (h) the Singapore dollar, and any other
freely convertible foreign currency, as determined pursuant to the
currency codes in effect from time to time under ISO International
Standard 4217 or any successor thereto and as approved by the Bank in
writing in its sole discretion.
Original Currency shall have the meaning assigned to such term in
Section 2(j)(i) of the Agreement.
Other Currency shall have the meaning assigned to such term in Section
2(j)(i) of the Agreement.
Other Taxes shall have the meaning assigned to such term in Section
2(i)(ii) of the Agreement.
Overnight Rate shall mean for any day with respect to any Advances in an
Optional Currency, the rate of interest per annum as determined by the
Bank at which overnight deposits in the such currency, in an amount
approximately equal to the amount with respect to which such rate is
being determined, would be offered for such day in the applicable
offshore interbank market.
Permitted Acquisitions shall mean acquisitions by the Borrower of all or
substantially all of the assets or capital stock of any Person, provided
that (i) such Person is in a similar line of business as carried on by
the Borrower on the date of this Agreement, (ii) the board of directors
or other applicable governing body shall have consented to and approved
such acquisition, (iii) at the time of such acquisition no Event of
Default or Default then exists or would result therefrom, (iv) each of
the representations and warranties contained in Section 13 of the
Agreement shall be true and correct in all material respects both before
and after giving effect to such acquisition, and (v) any liens or
indebtedness assumed or issued in connection with such acquisition are
otherwise permitted under Section 11(b) or 11(c) of the Agreement.
Permitted Stock Repurchases shall mean the repurchase by Borrower of
shares of its capital stock, provided that the aggregate consideration
paid in connection with all such Permitted Stock Repurchases shall not
exceed $5,000,000 at any time.
Person shall mean any individual, company, partnership, limited
liability company, joint venture, corporation, association, business
trust, unincorporated organization, or any other entity.
Prime Rate shall mean for any day the rate publicly announced by the
Bank from time to time as its prime rate, which rate is not tied to any
external rate of interest or index and does not necessarily reflect the
lowest rate of interest actually charged by the Bank to any particular
class or category of customers.
Reimbursement Agreement shall have the meaning assigned to such term in
Section 3(a) of the Agreement.
Reimbursement Obligation shall mean the obligation of the Borrower to
reimburse the Bank in an amount equal to the Dollar Equivalent amount(s)
paid by the Bank under the Letters of Credit, plus accrued interest
thereon.
Reference Currency shall have the meaning assigned to such term in the
definition of Equivalent Amount.
Seller Notes shall mean any notes issued by the Borrower in connection
with any Permitted Acquisition, the payment of which are subject to the
terms and conditions of a Subordination Agreement executed in favor of
the Bank.
Stated Amount shall mean as to any Letter of Credit, the lesser of (i)
the face amount thereof, or (ii) the remaining available undrawn amount
thereof (regardless of whether any conditions for drawing could then be
met)
Subordination Agreement shall mean a subordination agreement in form and
content satisfactory to the Bank, whereby the payment of the Seller
Notes are subordinated to the prior payment in full of all obligations
owing by the Borrower to the Bank under the Loan Documents.
Subsidiary shall mean, at any time, any Person of which 50% or more (by
number of shares or number of votes) of the outstanding capital stock or
shares of beneficial interest normally entitled to vote for the election
of one or more directors (regardless of any contingency which does or
may suspend or dilute the voting rights) is at such time owned directly
or indirectly through one or more Subsidiaries by Borrower (including,
without limitation, the entities listed on Schedule III attached
hereto), or (ii) any Person which is Controlled or capable of being
Controlled by Borrower or one or more of Borrower's Subsidiaries.
Tangible Net Worth shall mean stockholder's equity in the Borrower less
any advances to third parties and any items properly classified as
intangibles, in accordance with generally accepted accounting
principles.
Taxes shall have the meaning assigned to such term in Section 2(i)(i) of
the Agreement.
Term Conversion Request shall have the meaning assigned to such term in
Section 2(n) of the Agreement.
Term Loan shall have the meaning assigned to such term in Section 2(n)
of the Agreement.
Term Note shall have the meaning assinged to such term in Section 2(n)
of the Agreement.
Total Indebtedness shall mean any and all indebtedness, obligations or
liabilities (whether matured or unmatured, liquidated or unliquidated,
direct or indirect, absolute or contingent or joint and several) of the
Borrower and its Subsidiaries for or in respect of: (i) borrowed money,
(ii) amounts raised under or liabilities in respect of any note purchase
or acceptance credit facility, (iii) reimbursement obligations
(contingent or otherwise) under any letter of credit, currency swap
agreement, hedging contracts, or other interest rate management device,
raw materials management device or commodities management device (except
raw materials or commodity management devices entered into in the
ordinary course of business), (iv) any other transaction (including
forward sale or purchase agreements, capitalized leases and conditional
sales agreements) having the commercial effect of a borrowing of money
entered into by Borrower or any of its Subsidiaries to finance its
operations or capital requirements (but not including trade payables and
accrued expenses incurred in the ordinary course of business which are
not represented by a promissory note or other evidence of indebtedness),
or (v) any guaranty of any of the foregoing.
Trigger Date shall have the meaning assigned to such term in Section
8(a) of the Agreement.
Year 2000 Problem shall have the meaning assigned to such term in
Section 13(p) of the Agreement.
<TABLE>
SCHEDULE II TO LETTER AGREEMENT
Pricing Grid 1
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
<S> <C> <C> <C> <C> <C>
BASIS FOR If the Leverage If the Leverage If the Leverage If the Leverage If the Leverage
PRICING Ratio is less Ratio is greater Ratio is greater Ratio is greater Ratio is greater
than or equal than 0.75 to 1.0 than 1.0 to 1.0 than 1.5 to 1.0 than 2.0 to 1.0.
to 0.75 to 1.0. but less than or but less than or but less than or
equal to 1.0 to equal to 1.5 to equal to 2.0 to
1.0. 1.0. 1.0.
EURORATE + 75 87.5 100 112.5 125
BASE RATE + 0 0 0 0 0
COMMITMENT
FEE 7.5 10 12.5 15 17.5
</TABLE>
For purposes of determining the Applicable Margin and the Applicable Commitment
Fee Rate:
(a) The Applicable Margin and the Applicable Commitment Fee Rate on the
Closing Date shall be those set forth under Level II.
(b) The Applicable Margin and the Applicable Commitment Fee Rate shall be
recomputed as of the end of each fiscal quarter ending after the
Closing Date based on the Leverage Ratio as of such quarter end; provided
that if the Borrower fails to deliver the financial statements required by
Section 10(b) and 10(d) of the Agreement and the related Compliance
Certificate by the 90th day after any fiscal year, or the 45th day after
any fiscal quarter, the Applicable Margin and the Applicable Commitment Fee
Rate shall be those that would apply if the Leverage Ratio were greater
than 2.0 to 1.0 and shall apply until such financial statements and
Compliance Certificate are delivered. Any increase or decrease in the
Applicable Margin or the Applicable Commitment Fee Rate computed as of a
quarter end shall be effective on the date on which the Compliance
Certificate evidencing such computation is delivered under Section 10(b)
and 10(d) of the Agreement.
SCHEDULE III TO LETTER AGREEMENT
Domestic Subsidiaries
Name Jurisdiction of Incorporation
* II-VI Delaware, Incorporated (Delaware)
* VLOC Incorporated (Pennsylvania)
Foreign Subsidiaries
Name Jurisdiction of Incorporation
* II-VI Singapore Pte., Ltd. (Singapore)
* II-VI Worldwide, Incorporated (Barbados)
* II-VI Japan Incorporated (Japan)
* II-VI U.K. Limited (United Kingdom)
* II-VI Optics (Suzhou) Co., Ltd. (China)
SCHEDULE IV TO LETTER AGREEMENT
Environmental Litigation
------------------------
None
SCHEDULE V TO LETTER AGREEMENT
II-VI Incorporated
Capital Expenditures Budget for Fiscal Years Ended June 30, 1999, 2000
and 2001 (Obtained from February 1999 Five Year Plan)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
June 30, 1999 June 30, 2000 June 30, 2000
------------- ------------- -------------
Total Capital
Expenditures Budget $6,545,900 $8,684,200 $7,404,900
EXHIBIT "A" TO LETTER AGREEMENT
AMENDED AND RESTATED COMMITTED LINE OF CREDIT NOTE
$15,000,000.00 Pittsburgh, Pennsylvania
March 26, 1999
FOR VALUE RECEIVED, the undersigned, II-VI INCORPORATED, a Pennsylvania
corporation with an address at 375 Saxonburg Boulevard, Saxonburg, PA
16056 (herein called the "Borrower"), hereby promises to pay to the
order of PNC BANK, NATIONAL ASSOCIATION (the "Bank") the lesser of (i)
the principal sum of FIFTEEN MILLION AND 00/100 U.S. Dollars (U.S.
$15,000,000.00), or (ii) the aggregate unpaid principal balance of all
Advances made by the Bank to the Borrower pursuant to Sections 2 and 3
of the Letter Agreement dated as of March 26, 1999, between the Borrower
and the Bank (as the same may be amended, modified, renewed or restated
from time to time, the "Agreement"), payable on the Expiration Date.
The Borrower shall pay interest on the unpaid principal balance hereof
from time to time outstanding from the date hereof at the rate or rates
per annum and at the times as specified in the Agreement.
Upon the occurrence and during the continuation of an Event of Default,
the Borrower shall pay interest on the entire principal amount of the
then outstanding Advances evidenced by this Line of Credit Note at a
rate per annum (based on a year of 360 days and actual days elapsed)
equal to two hundred basis points (2% per annum) above the rate of
interest otherwise applicable with respect to such Advances. Such
interest rate will accrue before and after any judgment has been
entered.
If any payment or action to be made or taken hereunder shall be stated
to be or become due on a day which is not a Business Day, such payment
or action shall be made or taken on the next following Business Day and
such extension of time shall be included in computing interest or fees,
if any, in connection with such payment or action.
Subject to the provisions of the Agreement, payments of both principal
and interest shall be made without setoff, counterclaim or other
deduction of any nature at the office of the Bank located at 249 Fifth
Avenue, Pittsburgh, Pennsylvania 15222-2707, in lawful money of the
United States of America in immediately available funds.
This Note is the Line of Credit Note referred to in, and is entitled to
the benefits of, the Agreement and other Loan Documents, including the
representations, warranties, covenants, conditions, security interests
or liens contained or granted therein. The Agreement among other things
contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events and also for prepayment, in certain
circumstances, on account of principal hereof prior to maturity upon the
terms and conditions therein specified.
All capitalized terms used herein shall, unless otherwise defined
herein, have the same meanings given to such terms in the Agreement.
Except as otherwise provided in the Agreement, the Borrower waives
presentment, demand, notice, protest and all other demands and notices
in connection with the delivery, acceptance, performance, default or
enforcement of this Line of Credit Note and the Agreement.
This Line of Credit Note shall bind the Borrower and its successors and
assigns, and the benefits hereof shall inure to the benefit of the Bank
and its successors and assigns. All references herein to the "Borrower"
and the "Bank" shall be deemed to apply to the Borrower and the Bank,
respectively, and their respective successors and assigns.
This Line of Credit Note and any other documents delivered in connection
herewith and the rights and obligations of the parties hereto and
thereto shall for all purposes be governed by and construed and enforced
in accordance with the internal laws of the Commonwealth of Pennsylvania
without giving effect to its conflicts of law principles.
This Line of Credit Note amends and restates, and is in substitution
for, that certain Committed Line of Credit Note in the original
principal amount of $10,000,000 payable to the Bank and dated September
25, 1997 (the "Existing Note"). However, without duplication, this Note
shall in no way extinguish, cancel or satisfy Borrower's unconditional
obligation to repay all indebtedness evidenced by the Existing Note or
constitute a novation of the Existing Note. Nothing herein is intended
to extinguish, cancel or impair the lien priority or effect of any
security agreement, pledge agreement or mortgage with respect to the
Borrower's obligations hereunder and under any other document relating
hereto.
WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY
JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING OF ANY TYPE AS TO ALL
MATTERS AND THINGS ARISING OUT OF THIS NOTE.
IN WITNESS WHEREOF, the undersigned has executed this Line of Credit
Note by its duly authorized officers with the intention that it
constitute a sealed instrument.
[SEAL] II-VI INCORPORATED
Attest: /s/ Craig A. Creaturo By: /s/ James Martinelli
Name: Craig A. Creaturo Name: James Martinelli
Title: Corporate Controller Title: Treasurer and
II-VI Incorporated Chief Financial Officer
EXHIBIT "B" TO LETTER AGREEMENT
Guaranty and Suretyship Agreement PNCBANK
THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Guaranty") is made and
entered into as of this 26th day of March, 1999, by II-VI DELAWARE,
INCORPORATED. (the "Guarantor"), with an address at 103 Springer
Building, 3411 Silverside Road, Wilmington, Delaware, 19810 in
consideration of the extension of credit by PNC BANK, NATIONAL
ASSOCIATION (the "Bank"), with an address at One PNC Plaza, 249 Fifth
Avenue, Pittsburgh, Pennsylvania 15222-2707 to II-VI INCORPORATED, a
Pennsylvania corporation with an address at 375 Saxonburg Blvd.,
Saxonburg, Pennsylvania 16056 (the "Borrower"), and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
1. Guaranty of Obligations. The Guarantor hereby guarantees, and
becomes surety for, the prompt payment and performance of all loans,
advances, debts, liabilities, obligations, covenants and duties owing by
the Borrower to the Bank or to any other direct or indirect subsidiary
of PNC Bank Corp., of any kind or nature, present or future (including
any interest accruing thereon after maturity, or after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to the Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding), whether or not evidenced by any note, guaranty or other
instrument, whether arising under any agreement, instrument or document,
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan, equipment
lease or guarantee, under any interest or currency swap, future, option
or other interest rate protection or similar agreement, or in any other
manner, whether arising out of overdrafts on deposit or other accounts
or electronic funds transfers (whether through automated clearing houses
or otherwise) or out of the Bank's non-receipt of or inability to
collect funds or otherwise not being made whole in connection with
depository transfer check or other similar arrangements, whether direct
or indirect (including those acquired by assignment or participation),
absolute or contingent, joint or several, due or to become due, now
existing or hereafter arising, and any amendments, extensions, renewals
or increases and all costs and expenses of the Bank incurred in the
documentation, negotiation, modification, enforcement, collection or
otherwise in connection with any of the foregoing, including reasonable
attorneys' fees and expenses (hereinafter referred to collectively as
the "Obligations"). If the Borrower defaults under any such
Obligations, the Guarantor will pay the amount due to the Bank.
2. Nature of Guaranty; Waivers. This is a guaranty of payment and not
of collection and the Bank shall not be required, as a condition of the
Guarantor's liability, to make any demand upon or to pursue any of its
rights against the Borrower, or to pursue any rights which may be
available to it with respect to any other person who may be liable for
the payment of the Obligations.
This is an absolute, unconditional, irrevocable and continuing guaranty
and will remain in full force and effect until all of the Obligations
have been indefeasibly paid in full, and the Bank has terminated this
Guaranty. This Guaranty will remain in full force and effect even if
there is no principal balance outstanding under the Obligations at a
particular time or from time to time. This Guaranty will not be
affected by any surrender, exchange, acceptance, compromise or release
by the Bank of any other party, or any other guaranty or any security
held by it for any of the Obligations, by any failure of the Bank to
take any steps to perfect or maintain its lien or security interest in
or to preserve its rights to any security or other collateral for any of
the Obligations or any guaranty, or by any irregularity,
unenforceability or invalidity of any of the Obligations or any part
thereof or any security or other guaranty thereof. The Guarantor's
obligations hereunder shall not be affected, modified or impaired by any
counterclaim, set-off, deduction or defense based upon any claim the
Guarantor may have against the Borrower or the Bank, except payment or
performance of the Obligations.
Notice of acceptance of this Guaranty, notice of extensions of credit to
the Borrower from time to time, notice of default, diligence,
presentment, notice of dishonor, protest, demand for payment, and any
defense based upon the Bank's failure to comply with the notice
requirements of the applicable version of Uniform Commercial Code ss 9-
504 are hereby waived. The Guarantor waives all defenses based on
suretyship or impairment of collateral.
The Bank at any time and from time to time, without notice to or the
consent of the Guarantor, and without impairing or releasing,
discharging or modifying the Guarantor's liabilities hereunder, may (a)
change the manner, place, time or terms of payment or performance of or
interest rates on, or other terms relating to, any of the Obligations;
(b) renew, substitute, modify, amend or alter, or grant consents or
waivers relating to any of the Obligations, any other guaranties, or any
security for any Obligations or guaranties; (c) apply any and all
payments by whomever paid or however realized including any proceeds of
any collateral, to any Obligations of the Borrower in such order, manner
and amount as the Bank may determine in its sole discretion; (d) settle,
compromise or deal with any other person, including the Borrower or the
Guarantor, with respect to any Obligations in such manner as the Bank
deems appropriate in its sole discretion; (e) substitute, exchange or
release any security or guaranty; or (f) take such actions and exercise
such remedies hereunder as provided herein.
3. Repayments or Recovery from the Bank. If any demand is made at any
time upon the Bank for the repayment or recovery of any amount received
by it in payment or on account of any of the Obligations and if the Bank
repays all or any part of such amount by reason of any judgment, decree
or order of any court or administrative body or by reason of any
settlement or compromise of any such demand, the Guarantor will be and
remain liable hereunder for the amount so repaid or recovered to the
same extent as if such amount had never been received originally by the
Bank. The provisions of this section will be and remain effective
notwithstanding any contrary action which may have been taken by the
Guarantor in reliance upon such payment, and any such contrary action so
taken will be without prejudice to the Bank's rights hereunder and will
be deemed to have been conditioned upon such payment having become final
and irrevocable.
4. Financial Statements. Unless compliance is waived in writing by
the Bank or until all of the Obligations have been paid in full, the
Guarantor will promptly submit to the Bank such information relating to
the Guarantor's affairs (including but not limited to annual financial
statements and tax returns for the Guarantor) or any security for the
Guaranty as the Bank may reasonably request.
5. Enforceability of Obligations. No modification, limitation or
discharge of the Obligations arising out of or by virtue of any
bankruptcy, reorganization or similar proceeding for relief of debtors
under federal or state law will affect, modify, limit or discharge the
Guarantor's liability in any manner whatsoever and this Guaranty will
remain and continue in full force and effect and will be enforceable
against the Guarantor to the same extent and with the same force and
effect as if any such proceeding had not been instituted. The Guarantor
waives all rights and benefits which might accrue to it by reason of any
such proceeding and will be liable to the full extent hereunder,
irrespective of any modification, limitation or discharge of the
liability of the Borrower that may result from any such proceeding.
6. Events of Default. The occurrence of any of the following shall be
an "Event of Default" hereunder: (i) any Event of Default (as defined
in any of the Obligations); (ii) any default under any of the
Obligations that does not have a defined set of "Events of Default" and
the lapse of any notice or cure period provided in such Obligations with
respect to such default; (iii) demand by the Bank under any of the
Obligations that have a demand feature; (iv) the Guarantor's failure to
perform any of its obligations hereunder; (v) the falsity, inaccuracy or
material breach by the Guarantor of any written warranty, representation
or statement made or furnished to the Bank by or on behalf of the
Guarantor; or (vi) the termination or attempted termination of this
Guaranty. Upon the occurrence of any Event of Default, (a) the
Guarantor shall pay to the Bank the amount of the Obligations; or (b) on
demand of the Bank, the Guarantor shall immediately deposit with the
Bank, in U.S. dollars, all amounts due or to become due under the
Obligations, and the Bank may at any time use such funds to repay the
Obligations; or (c) the Bank in its discretion may exercise with respect
to any collateral any one or more of the rights and remedies provided a
secured party under the applicable version of the Uniform Commercial
Code; or (d) the Bank in its discretion may exercise from time to time
any other rights and remedies available to it at law, in equity or
otherwise.
7. Right of Setoff. In addition to all liens upon and rights of setoff
against the Guarantor's money, securities or other property given to the
Bank by law, the Bank shall have, with respect to the Guarantor's
obligations to the Bank under this Guaranty and to the extent permitted
by law, a contractual possessory security interest in and a contractual
right of setoff against, and the Guarantor hereby assigns, conveys,
delivers, pledges and transfers to the Bank all of the Guarantor's
right, title and interest in and to, all of the Guarantor's deposits,
moneys, securities and other property now or hereafter in the possession
of or on deposit with, or in transit to, the Bank or any other direct or
indirect subsidiary of PNC Bank Corp., whether held in a general or
special account or deposit, whether held jointly with someone else, or
whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of
setoff may be exercised without demand upon or notice to the Guarantor.
Every such right of setoff shall be deemed to have been exercised
immediately upon the occurrence of an Event of Default hereunder without
any action of the Bank, although the Bank may enter such setoff on its
books and records at a later time.
8. Collateral. This Guaranty is secured by the property described in
any collateral security documents which the Guarantor executes and
delivers to the Bank and by such other collateral as previously may have
been or may in the future be granted to the Bank to secure any
obligations of the Guarantor to the Bank.
9. Costs. To the extent that the Bank incurs any costs or expenses in
protecting or enforcing its rights under the Obligations or this
Guaranty, including reasonable attorneys' fees and the costs and
expenses of litigation, such costs and expenses will be due on demand,
will be included in the Obligations and will bear interest from the
incurring or payment thereof at the Default Rate (as defined in any of
the Obligations).
10. Postponement of Subrogation. Until the Obligations are
indefeasibly paid in full, the Guarantor postpones and subordinates in
favor of the Bank any and all rights which the Guarantor may have to (a)
assert any claim against the Borrower based on subrogation rights with
respect to payments made hereunder, and (b) any realization on any
property of the Borrower, including participation in any marshalling of
the Borrower's assets.
11. Power to Confess Judgment. The Guarantor hereby empowers any
attorney of any court of record, after the occurrence of any Event of
Default hereunder, to appear for the Guarantor and, with or without
complaint filed, confess judgment, or a series of judgments, against the
Guarantor in favor of the Bank for the amount of the Obligations and an
attorney's commission of the greater of 10% of such principal and
interest or $1,000 added as a reasonable attorney's fee, and for doing
so, this Guaranty or a copy verified by affidavit shall be a sufficient
warrant. The Guarantor hereby forever waives and releases all errors in
said proceedings and all rights of appeal and all relief from any and
all appraisement, stay or exemption laws of any state now in force or
hereafter enacted.
No single exercise of the foregoing power to confess judgment, or a
series of judgments, shall be deemed to exhaust the power, whether or
not any such exercise shall be held by any court to be invalid,
voidable, or void, but the power shall continue undiminished and it may
be exercised from time to time as often as the Bank shall elect until
such time as the Bank shall have received payment in full of the
Obligations and costs. Notwithstanding the attorney's commission
provided for in the preceding paragraph (which is included in the
warrant for purposes of establishing a sum certain), the amount of
attorneys' fees that the Bank may recover from the Guarantor shall not
exceed the actual attorneys' fees incurred by the Bank.
12. Notices. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing
and will be effective upon receipt. Such notices and other
communications may be hand-delivered, sent by facsimile transmission
with confirmation of delivery and a copy sent by first-class mail, or
sent by nationally recognized overnight courier service, to the
addresses for the Bank and the Guarantor set forth above or to such
other address as one may give to the other in writing for such purpose.
13. Preservation of Rights. No delay or omission on the Bank's part to
exercise any right or power arising hereunder will impair any such right
or power or be considered a waiver of any such right or power, nor will
the Bank's action or inaction impair any such right or power. The
Bank's rights and remedies hereunder are cumulative and not exclusive of
any other rights or remedies which the Bank may have under other
agreements, at law or in equity. The Bank may proceed in any order
against the Borrower, the Guarantor or any other obligor of, or
collateral securing, the Obligations.
14. Illegality. In case any one or more of the provisions contained in
this Guaranty should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
15. Changes in Writing. No modification, amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom will be effective unless made in a writing signed by the Bank,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on
the Guarantor in any case will entitle the Guarantor to any other or
further notice or demand in the same, similar or other circumstance.
16. Entire Agreement. This Guaranty (including the documents and
instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written
and oral, between the Guarantor and the Bank with respect to the subject
matter hereof; provided, however, that this Guaranty is in addition to,
and not in substitution for, any other guarantees from the Guarantor to
the Bank.
17. Successors and Assigns. This Guaranty will be binding upon and
inure to the benefit of the Guarantor and the Bank and their respective
heirs, executors, administrators, successors and assigns; provided,
however, that the Guarantor may not assign this Guaranty in whole or in
part without the Bank's prior written consent and the Bank at any time
may assign this Guaranty in whole or in part.
18. Interpretation. In this Guaranty, unless the Bank and the
Guarantor otherwise agree in writing, the singular includes the plural
and the plural the singular; references to statutes are to be construed
as including all statutory provisions consolidating, amending or
replacing the statute referred to; the word "or" shall be deemed to
include "and/or", the words "including", "includes" and "include" shall
be deemed to be followed by the words "without limitation"; and
references to sections or exhibits are to those of this Guaranty unless
otherwise indicated. Section headings in this Guaranty are included for
convenience of reference only and shall not constitute a part of this
Guaranty for any other purpose. If this Guaranty is executed by more
than one party as Guarantor, the obligations of such persons or entities
will be joint and several.
19. Indemnity. The Guarantor agrees to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who
controls the Bank (the "Indemnified Parties") and to hold each
Indemnified Party harmless from and against any and all claims, damages,
losses, liabilities and expenses (including all reasonable fees and
charges of internal or external counsel with whom any Indemnified Party
may consult and all expenses of litigation or preparation therefor)
which any Indemnified Party may incur or which may be asserted against
any Indemnified Party as a result of the execution of or performance
under this Guaranty; provided, however, that the foregoing indemnity
agreement shall not apply to claims, damages, losses, liabilities and
expenses solely attributable to an Indemnified Party's gross negligence
or willful misconduct. The indemnity agreement contained in this
Section shall survive the termination of this Guaranty. The Guarantor
may participate at its expense in the defense of any such claim.
20. Governing Law and Jurisdiction. This Guaranty has been delivered
to and accepted by the Bank and will be deemed to be made in the State
where the Bank's office indicated above is located. THIS GUARANTY WILL
BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
GUARANTOR DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE
BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS
RULES. The Guarantor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court in the county or judicial
district where the Bank's office indicated above is located; provided
that nothing contained in this Guaranty will prevent the Bank from
bringing any action, enforcing any award or judgment or exercising any
rights against the Guarantor individually, against any security or
against any property of the Guarantor within any other county, state or
other foreign or domestic jurisdiction. The Guarantor acknowledges and
agrees that the venue provided above is the most convenient forum for
both the Bank and the Guarantor. The Guarantor waives any objection to
venue and any objection based on a more convenient forum in any action
instituted under this Guaranty.
21. Equal Credit Opportunity Act. If the Guarantor is not an
"applicant for credit" under Section 202.2 (e) of the Equal Credit
Opportunity Act of 1974 ("ECOA"), the Guarantor acknowledges that (i)
this Guaranty has been executed to provide credit support for the
Obligations, and (ii) the Guarantor was not required to execute this
Guaranty in violation of Section 202.7(d) of the ECOA.
22. WAIVER OF JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL
RIGHT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS GUARANTY, ANY
DOCUMENTS EXECUTED IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION
CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE GUARANTOR ACKNOWLEDGES THAT
THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Guarantor acknowledges that it has read and understood all the
provisions of this Guaranty, including the confession of judgment and
waiver of jury trial, and has been advised by counsel as necessary or
appropriate.
WITNESS the due execution hereof as a document under seal, as of the
date first written above, with the intent to be legally bound hereby.
[SEAL] II-VI DELAWARE, INCORPORATED
Attest: /s/ Craig A. Creaturo By: /s/ Francis J. Kramer
Name: Craig A. Creaturo Name: Francis J. Kramer
Title: Corporate Controller Title: President
II-VI Incorporated
Guaranty and Suretyship Agreement PNCBANK
THIS GUARANTY AND SURETYSHIP AGREEMENT (this "Guaranty") is made and
entered into as of this 26th day of March, 1999, by VLOC
INCORPORATED. (the "Guarantor"), with an address at 7826 Photonics
Drive, New Port Richey, Florida, 34655 in consideration of the extension
of credit by PNC BANK, NATIONAL ASSOCIATION (the "Bank"), with an
address at One PNC Plaza, 249 Fifth Avenue, Pittsburgh, Pennsylvania
15222-2707 to II-VI INCORPORATED, a Pennsylvania corporation with an
address at 375 Saxonburg Blvd., Saxonburg, Pennsylvania 16056 (the
"Borrower"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged.
1. Guaranty of Obligations. The Guarantor hereby guarantees, and
becomes surety for, the prompt payment and performance of all loans,
advances, debts, liabilities, obligations, covenants and duties owing by
the Borrower to the Bank or to any other direct or indirect subsidiary
of PNC Bank Corp., of any kind or nature, present or future (including
any interest accruing thereon after maturity, or after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding relating to the Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding), whether or not evidenced by any note, guaranty or other
instrument, whether arising under any agreement, instrument or document,
whether or not for the payment of money, whether arising by reason of an
extension of credit, opening of a letter of credit, loan, equipment
lease or guarantee, under any interest or currency swap, future, option
or other interest rate protection or similar agreement, or in any other
manner, whether arising out of overdrafts on deposit or other accounts
or electronic funds transfers (whether through automated clearing houses
or otherwise) or out of the Bank's non-receipt of or inability to
collect funds or otherwise not being made whole in connection with
depository transfer check or other similar arrangements, whether direct
or indirect (including those acquired by assignment or participation),
absolute or contingent, joint or several, due or to become due, now
existing or hereafter arising, and any amendments, extensions, renewals
or increases and all costs and expenses of the Bank incurred in the
documentation, negotiation, modification, enforcement, collection or
otherwise in connection with any of the foregoing, including reasonable
attorneys' fees and expenses (hereinafter referred to collectively as
the "Obligations"). If the Borrower defaults under any such
Obligations, the Guarantor will pay the amount due to the Bank.
2. Nature of Guaranty; Waivers. This is a guaranty of payment and not
of collection and the Bank shall not be required, as a condition of the
Guarantor's liability, to make any demand upon or to pursue any of its
rights against the Borrower, or to pursue any rights which may be
available to it with respect to any other person who may be liable for
the payment of the Obligations.
This is an absolute, unconditional, irrevocable and continuing guaranty
and will remain in full force and effect until all of the Obligations
have been indefeasibly paid in full, and the Bank has terminated this
Guaranty. This Guaranty will remain in full force and effect even if
there is no principal balance outstanding under the Obligations at a
particular time or from time to time. This Guaranty will not be
affected by any surrender, exchange, acceptance, compromise or release
by the Bank of any other party, or any other guaranty or any security
held by it for any of the Obligations, by any failure of the Bank to
take any steps to perfect or maintain its lien or security interest in
or to preserve its rights to any security or other collateral for any of
the Obligations or any guaranty, or by any irregularity,
unenforceability or invalidity of any of the Obligations or any part
thereof or any security or other guaranty thereof. The Guarantor's
obligations hereunder shall not be affected, modified or impaired by any
counterclaim, set-off, deduction or defense based upon any claim the
Guarantor may have against the Borrower or the Bank, except payment or
performance of the Obligations.
Notice of acceptance of this Guaranty, notice of extensions of credit to
the Borrower from time to time, notice of default, diligence,
presentment, notice of dishonor, protest, demand for payment, and any
defense based upon the Bank's failure to comply with the notice
requirements of the applicable version of Uniform Commercial Code ss 9-
504 are hereby waived. The Guarantor waives all defenses based on
suretyship or impairment of collateral.
The Bank at any time and from time to time, without notice to or the
consent of the Guarantor, and without impairing or releasing,
discharging or modifying the Guarantor's liabilities hereunder, may (a)
change the manner, place, time or terms of payment or performance of or
interest rates on, or other terms relating to, any of the Obligations;
(b) renew, substitute, modify, amend or alter, or grant consents or
waivers relating to any of the Obligations, any other guaranties, or any
security for any Obligations or guaranties; (c) apply any and all
payments by whomever paid or however realized including any proceeds of
any collateral, to any Obligations of the Borrower in such order, manner
and amount as the Bank may determine in its sole discretion; (d) settle,
compromise or deal with any other person, including the Borrower or the
Guarantor, with respect to any Obligations in such manner as the Bank
deems appropriate in its sole discretion; (e) substitute, exchange or
release any security or guaranty; or (f) take such actions and exercise
such remedies hereunder as provided herein.
3. Repayments or Recovery from the Bank. If any demand is made at any
time upon the Bank for the repayment or recovery of any amount received
by it in payment or on account of any of the Obligations and if the Bank
repays all or any part of such amount by reason of any judgment, decree
or order of any court or administrative body or by reason of any
settlement or compromise of any such demand, the Guarantor will be and
remain liable hereunder for the amount so repaid or recovered to the
same extent as if such amount had never been received originally by the
Bank. The provisions of this section will be and remain effective
notwithstanding any contrary action which may have been taken by the
Guarantor in reliance upon such payment, and any such contrary action so
taken will be without prejudice to the Bank's rights hereunder and will
be deemed to have been conditioned upon such payment having become final
and irrevocable.
4. Financial Statements. Unless compliance is waived in writing by
the Bank or until all of the Obligations have been paid in full, the
Guarantor will promptly submit to the Bank such information relating to
the Guarantor's affairs (including but not limited to annual financial
statements and tax returns for the Guarantor) or any security for the
Guaranty as the Bank may reasonably request.
5. Enforceability of Obligations. No modification, limitation or
discharge of the Obligations arising out of or by virtue of any
bankruptcy, reorganization or similar proceeding for relief of debtors
under federal or state law will affect, modify, limit or discharge the
Guarantor's liability in any manner whatsoever and this Guaranty will
remain and continue in full force and effect and will be enforceable
against the Guarantor to the same extent and with the same force and
effect as if any such proceeding had not been instituted. The Guarantor
waives all rights and benefits which might accrue to it by reason of any
such proceeding and will be liable to the full extent hereunder,
irrespective of any modification, limitation or discharge of the
liability of the Borrower that may result from any such proceeding.
6. Events of Default. The occurrence of any of the following shall be
an "Event of Default" hereunder: (i) any Event of Default (as defined
in any of the Obligations); (ii) any default under any of the
Obligations that does not have a defined set of "Events of Default" and
the lapse of any notice or cure period provided in such Obligations with
respect to such default; (iii) demand by the Bank under any of the
Obligations that have a demand feature; (iv) the Guarantor's failure to
perform any of its obligations hereunder; (v) the falsity, inaccuracy or
material breach by the Guarantor of any written warranty, representation
or statement made or furnished to the Bank by or on behalf of the
Guarantor; or (vi) the termination or attempted termination of this
Guaranty. Upon the occurrence of any Event of Default, (a) the
Guarantor shall pay to the Bank the amount of the Obligations; or (b) on
demand of the Bank, the Guarantor shall immediately deposit with the
Bank, in U.S. dollars, all amounts due or to become due under the
Obligations, and the Bank may at any time use such funds to repay the
Obligations; or (c) the Bank in its discretion may exercise with respect
to any collateral any one or more of the rights and remedies provided a
secured party under the applicable version of the Uniform Commercial
Code; or (d) the Bank in its discretion may exercise from time to time
any other rights and remedies available to it at law, in equity or
otherwise.
7. Right of Setoff. In addition to all liens upon and rights of setoff
against the Guarantor's money, securities or other property given to the
Bank by law, the Bank shall have, with respect to the Guarantor's
obligations to the Bank under this Guaranty and to the extent permitted
by law, a contractual possessory security interest in and a contractual
right of setoff against, and the Guarantor hereby assigns, conveys,
delivers, pledges and transfers to the Bank all of the Guarantor's
right, title and interest in and to, all of the Guarantor's deposits,
moneys, securities and other property now or hereafter in the possession
of or on deposit with, or in transit to, the Bank or any other direct or
indirect subsidiary of PNC Bank Corp., whether held in a general or
special account or deposit, whether held jointly with someone else, or
whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of
setoff may be exercised without demand upon or notice to the Guarantor.
Every such right of setoff shall be deemed to have been exercised
immediately upon the occurrence of an Event of Default hereunder without
any action of the Bank, although the Bank may enter such setoff on its
books and records at a later time.
8. Collateral. This Guaranty is secured by the property described in
any collateral security documents which the Guarantor executes and
delivers to the Bank and by such other collateral as previously may have
been or may in the future be granted to the Bank to secure any
obligations of the Guarantor to the Bank.
9. Costs. To the extent that the Bank incurs any costs or expenses in
protecting or enforcing its rights under the Obligations or this
Guaranty, including reasonable attorneys' fees and the costs and
expenses of litigation, such costs and expenses will be due on demand,
will be included in the Obligations and will bear interest from the
incurring or payment thereof at the Default Rate (as defined in any of
the Obligations).
10. Postponement of Subrogation. Until the Obligations are
indefeasibly paid in full, the Guarantor postpones and subordinates in
favor of the Bank any and all rights which the Guarantor may have to (a)
assert any claim against the Borrower based on subrogation rights with
respect to payments made hereunder, and (b) any realization on any
property of the Borrower, including participation in any marshalling of
the Borrower's assets.
11. Power to Confess Judgment. The Guarantor hereby empowers any
attorney of any court of record, after the occurrence of any Event of
Default hereunder, to appear for the Guarantor and, with or without
complaint filed, confess judgment, or a series of judgments, against the
Guarantor in favor of the Bank for the amount of the Obligations and an
attorney's commission of the greater of 10% of such principal and
interest or $1,000 added as a reasonable attorney's fee, and for doing
so, this Guaranty or a copy verified by affidavit shall be a sufficient
warrant. The Guarantor hereby forever waives and releases all errors in
said proceedings and all rights of appeal and all relief from any and
all appraisement, stay or exemption laws of any state now in force or
hereafter enacted.
No single exercise of the foregoing power to confess judgment, or a
series of judgments, shall be deemed to exhaust the power, whether or
not any such exercise shall be held by any court to be invalid,
voidable, or void, but the power shall continue undiminished and it may
be exercised from time to time as often as the Bank shall elect until
such time as the Bank shall have received payment in full of the
Obligations and costs. Notwithstanding the attorney's commission
provided for in the preceding paragraph (which is included in the
warrant for purposes of establishing a sum certain), the amount of
attorneys' fees that the Bank may recover from the Guarantor shall not
exceed the actual attorneys' fees incurred by the Bank.
12. Notices. All notices, demands, requests, consents, approvals and
other communications required or permitted hereunder must be in writing
and will be effective upon receipt. Such notices and other
communications may be hand-delivered, sent by facsimile transmission
with confirmation of delivery and a copy sent by first-class mail, or
sent by nationally recognized overnight courier service, to the
addresses for the Bank and the Guarantor set forth above or to such
other address as one may give to the other in writing for such purpose.
13. Preservation of Rights. No delay or omission on the Bank's part to
exercise any right or power arising hereunder will impair any such right
or power or be considered a waiver of any such right or power, nor will
the Bank's action or inaction impair any such right or power. The
Bank's rights and remedies hereunder are cumulative and not exclusive of
any other rights or remedies which the Bank may have under other
agreements, at law or in equity. The Bank may proceed in any order
against the Borrower, the Guarantor or any other obligor of, or
collateral securing, the Obligations.
14. Illegality. In case any one or more of the provisions contained in
this Guaranty should be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
15. Changes in Writing. No modification, amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom will be effective unless made in a writing signed by the Bank,
and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or demand on
the Guarantor in any case will entitle the Guarantor to any other or
further notice or demand in the same, similar or other circumstance.
16. Entire Agreement. This Guaranty (including the documents and
instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written
and oral, between the Guarantor and the Bank with respect to the subject
matter hereof; provided, however, that this Guaranty is in addition to,
and not in substitution for, any other guarantees from the Guarantor to
the Bank.
17. Successors and Assigns. This Guaranty will be binding upon and
inure to the benefit of the Guarantor and the Bank and their respective
heirs, executors, administrators, successors and assigns; provided,
however, that the Guarantor may not assign this Guaranty in whole or in
part without the Bank's prior written consent and the Bank at any time
may assign this Guaranty in whole or in part.
18. Interpretation. In this Guaranty, unless the Bank and the
Guarantor otherwise agree in writing, the singular includes the plural
and the plural the singular; references to statutes are to be construed
as including all statutory provisions consolidating, amending or
replacing the statute referred to; the word "or" shall be deemed to
include "and/or", the words "including", "includes" and "include" shall
be deemed to be followed by the words "without limitation"; and
references to sections or exhibits are to those of this Guaranty unless
otherwise indicated. Section headings in this Guaranty are included for
convenience of reference only and shall not constitute a part of this
Guaranty for any other purpose. If this Guaranty is executed by more
than one party as Guarantor, the obligations of such persons or entities
will be joint and several.
19. Indemnity. The Guarantor agrees to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who
controls the Bank (the "Indemnified Parties") and to hold each
Indemnified Party harmless from and against any and all claims, damages,
losses, liabilities and expenses (including all reasonable fees and
charges of internal or external counsel with whom any Indemnified Party
may consult and all expenses of litigation or preparation therefor)
which any Indemnified Party may incur or which may be asserted against
any Indemnified Party as a result of the execution of or performance
under this Guaranty; provided, however, that the foregoing indemnity
agreement shall not apply to claims, damages, losses, liabilities and
expenses solely attributable to an Indemnified Party's gross negligence
or willful misconduct. The indemnity agreement contained in this
Section shall survive the termination of this Guaranty. The Guarantor
may participate at its expense in the defense of any such claim.
20. Governing Law and Jurisdiction. This Guaranty has been delivered
to and accepted by the Bank and will be deemed to be made in the State
where the Bank's office indicated above is located. THIS GUARANTY WILL
BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE BANK AND THE
GUARANTOR DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE
BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS
RULES. The Guarantor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court in the county or judicial
district where the Bank's office indicated above is located; provided
that nothing contained in this Guaranty will prevent the Bank from
bringing any action, enforcing any award or judgment or exercising any
rights against the Guarantor individually, against any security or
against any property of the Guarantor within any other county, state or
other foreign or domestic jurisdiction. The Guarantor acknowledges and
agrees that the venue provided above is the most convenient forum for
both the Bank and the Guarantor. The Guarantor waives any objection to
venue and any objection based on a more convenient forum in any action
instituted under this Guaranty.
21. Equal Credit Opportunity Act. If the Guarantor is not an
"applicant for credit" under Section 202.2 (e) of the Equal Credit
Opportunity Act of 1974 ("ECOA"), the Guarantor acknowledges that (i)
this Guaranty has been executed to provide credit support for the
Obligations, and (ii) the Guarantor was not required to execute this
Guaranty in violation of Section 202.7(d) of the ECOA.
22. WAIVER OF JURY TRIAL. THE GUARANTOR IRREVOCABLY WAIVES ANY AND ALL
RIGHT THE GUARANTOR MAY HAVE TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS GUARANTY, ANY
DOCUMENTS EXECUTED IN CONNECTION WITH THIS GUARANTY OR ANY TRANSACTION
CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE GUARANTOR ACKNOWLEDGES THAT
THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Guarantor acknowledges that it has read and understood all the
provisions of this Guaranty, including the confession of judgment and
waiver of jury trial, and has been advised by counsel as necessary or
appropriate.
WITNESS the due execution hereof as a document under seal, as of the
date first written above, with the intent to be legally bound hereby.
[SEAL] VLOC INCORPORATED
Attest: /s/ Craig A. Creaturo By: /s/ Francis J. Kramer
Name: Craig A. Creaturo Name: Francis J. Kramer
Title: Corporate Controller Title: Vice President
II-VI Incorporated
EXHIBIT "C" TO LETTER AGREEMENT
COMPLIANCE CERTIFICATE
For the Fiscal Year Ended , 19
----------------- ----
or
For the Fiscal Quarter Ended _________________, 19___
-----------------, ---
Reference is hereby made to that certain Letter Agreement dated as of
March 26th, 1999 (the Credit Agreement, together with all exhibits and
schedules thereto and all extentions, renewals, amendments,
substitutions and replacements thereof, is hereinafter referred to as
the "Credit Agreement"), by and among II-VI INCORPORATED, a Pennsylvania
corporation (the "Borrower"), and PNC BANK, NATIONAL ASSOCIATION (the
"Bank"). All capitalized terms used herein as defined terms which are
not defined herein but which are defined in the Credit Agreement shall
have the same meanings herein as in the Credit Agreement.
This Compliance Certificate is being delivered to the Bank pursuant to
Section 10 of the Credit Agreement simultaneously with the delivery of
the annual or quarterly reports required by Section 10 of the Credit
Agreement for the fiscal period referred to above. The undersigned, the
Chief Financial Officer of the Borrower, hereby certifies to the Bank,
as follows:
1. CHECK ONE:
- ----- The annual audited financial statements being delivered to the
Bank with this Compliance Certificate are true, complete, and correct.
OR
- ----- The quarterly financial statements being delivered to the Bank
with this Compliance Certificate are true, complete and correct and
present fairly the financial position of the Borrower and the results of
its operations and its cash flows for the Fiscal Quarter set for above
in conformity with GAAP consistently applied (except that such financial
statements may not contain all of the footnote disclosures required by
GAAP).
2. No Default or Event of Default exists on the date of this
Compliance Certificate; no Default or Event of Default has occurred since
the date of the previously delivered Compliance Certificate; no Material
Adverse Change has occurred since the date of the previously delivered
Compliance Certificate; and no event has occurred since the date of the
previously delivered Compliance Certificate which may result in a
Material Adverse Change.
[NOTE: If any Default, Event of Default, Material Adverse Change, or
event which may result in a Material Adverse Change has occurred or is
continuing, set forth on a seperate sheet the nature thereof and the
action which the Borrower has taken, is taking or proposes to take with
respect thereto.]
3. The Borrower's compliance with the financial covenants set forth
in Section 12 of the Credit Agreement is as follows:
a. Net Worth. As of [insert date of current
-------------------
financial statements]:
(A) The Borrower's Tangible Net Worth was
---------------------
(B) Fifty percent (50%) of the Borrower's consolidated net income (if
positive) for the fiscal quarter ending was
----------------------------
$ .
-------------------------
(C) One hundred percent (100%) of the aggregate amount of net proceeds
of each equity offering for the fiscal quarter ending
equals $ .
- ---------------------- -----------------------------
(D) The sum of $41,000,000 plus the amount set forth in item (B) above
plus the amount set forth in item (C) above equals
$ .
----------------------
Under Section 12(a) of the Credit Agreement, the amount set forth in
item (A) above is required to be greater than or equal to the amount set
forth in item (D) above. Therefore, the Borrower [is/is not]
--------
in compliance with Section of the Credit Agreement.
-----
b. Leverage Ratio. As of [insert date of
----------------------
current financial statement]:
(A) The Borrower's Total Indebtedness was $ .
-----------------------
(B) The Borrower's EBITDA for the four (4) most recently completed
fiscal quarters (taken as a single accounting period) was
$ , determined as follows:
------------------------
The Sum of:
(i) The Borrower's consolidated net income for the four (4) most
recently completed fiscal quarters taken as a single accounting period
was $ ;
-------------------------
Excluding from consolidated net income:
(a) The Borrower's extraordinary or non-recurring items of gain or
loss (including those created by mandated changes in accounting
treatment) for the Borrower for the four (4) most recently completed
Fiscal quarters (taken as a single accounting period) were
$ ; and
------------------
(b) The Borrower's gains or losses accounted for on the equity method,
except to the extent of cash distributions received, for the four (4)
most recently completed fiscal quarters (taken as a single accounting
period) were $ ; plus
----------------
(ii) The Borrower's consolidated income tax expense for the four (4)
most recently completed fiscal quarters (taken as a single accounting
period) was $ ; plus
--------------------
(iii) The Borrower's consolidated interest expense for the four (4) most
recently completed fiscal quarters (taken as a single accounting period)
was $ ; plus
---------------
(iv) The Borrower's consolidated depreciation and amortization expenses
for the four (4) most recently completed fiscal quarters (taken as a
single accounting period) were $ ; and
-------------------
(v) Other consolidated non-cash expenses for the Borrower for the four
(4) most recently completed fiscal quarters (taken as a single
accounting period) were $ .
-----------------------------
(C) The ratio of the amount set forth in item (A) above to the amount
calculated in item (B) above is to 1.0.
-------
Under Section 12(b) of the Credit Agreement, the ratio set forth in item
(C) above is required to be less than or equal to 2.5 to 1.0. Therefore,
the Borrower [is/is not] in compliance with Section of the
-------
Credit Agreement.
c. Interest Coverage Ratio. As of [insert date of
------------------
current financial statements]:
(A) The Borrower's EBIT for the four (4) most recently completed
fiscal quarters (taken as a single accounting period) was
$ .
------------------------
(B) The Borrower's consolidated interest expense for the four (4) most
recently completed fiscal quarters (taken as a single accounting period)
was $ .
-------------------------
(C) The ratio of the amount set forth in item (A) above to the amount
set forth in item (B) above is to
---- -----
Under Section 12(c) of the Credit Agremeemnt, the ratio set forth in
item (C) above is required to be greater than or equal to 5.0 to 1.0.
Therefore, the Borrower [is/is not] in compliance with Section of
------
the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has duly executed this Compliance
Certificate as said officer, for and on behalf of the Borrower, on the
day of , .
- ------ ------------ --------
II-VI INCORPORATED
By:
-------------------------------
Name:
-----------------------------
Title:
-----------------------------
1 All pricing is expressed in basis points. A basis point is equal to
1/100 of 1%.
May 13, 1999
II-VI Incorporated
375 Saxonburg Boulevard
Saxonburg, PA 16056
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited
interim financial information of II-VI Incorporated and Subsidiaries for
the periods ended March 31, 1999 and 1998, as indicated in our report
dated April 21, 1999; because we did not perform an audit, we expressed
no opinion on that information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
is incorporated by reference in Registration Statement No. 33-19511, No.
33-38019, No. 33-19510, No. 33-63739, and No. 333-12737 on Form S-8 and
Registration No. 333-04531 on Form S-3.
We also are aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1999
<PERIOD-START> JAN-01-1999 JUL-01-1998
<PERIOD-END> MAR-31-1999 MAR-31-1999
<CASH> 4,483 4,483
<SECURITIES> 0 0
<RECEIVABLES> 11,147 11,147
<ALLOWANCES> 368 368
<INVENTORY> 9,380 9,380
<CURRENT-ASSETS> 26,117 26,117
<PP&E> 60,483 60,483
<DEPRECIATION> 23,946 23,946
<TOTAL-ASSETS> 67,644 67,644
<CURRENT-LIABILITIES> 10,885 10,885
<BONDS> 2,568 2,568
0 0
0 0
<COMMON> 18,660 18,660
<OTHER-SE> 33,280 33,280
<TOTAL-LIABILITY-AND-EQUITY> 67,644 67,644
<SALES> 15,538 44,541
<TOTAL-REVENUES> 15,538 44,541
<CGS> 8,938 27,524
<TOTAL-COSTS> 8,938 27,524
<OTHER-EXPENSES> 4,316 11,631
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 61 341
<INCOME-PRETAX> 2,223 5,045
<INCOME-TAX> 725 1,616
<INCOME-CONTINUING> 1,498 3,429
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,498 3,429
<EPS-PRIMARY> 0.24 0.54
<EPS-DILUTED> 0.23 0.53
</TABLE>
