Letter to Our Shareholders:
Cabletron Systems continues to perform as one of the major internetworking
companies in the industry. For the fiscal year ending February 28, 1997,
Cabletron reported sales of $1.4 billion, an increase of 28 percent over the
$1.1 billion reported for fiscal year 1996. Net income for fiscal year 1997
was $222.1 million or $1.43 per share, compared to $144.5 million or $0.95
per share for fiscal year 1996. All results have been re-stated to reflect
the acquisitions that occurred in fiscal year 1997. Cabletron also announced
a two-for-one stock split in November 1996, the company's second stock split
in the past three years.
This has been a very busy year for Cabletron. We picked up where we left off
in fiscal year 1996 (when we acquired a business unit of Standard
Microsystems, Inc.) by making four more strategic technology acquisitions.
Agreements with Zeitnet, Inc. (for Asynchronous Transfer Mode or ATM),
Network Express, Inc. (for Integrated Services Digital Network or ISDN),
Netlink, Inc. (for frame relay) and The OASys Group (for telecommunications
management applications) have allowed us to enhance our existing product line
and still provide the tightly integrated, end-to-end solutions our customers
demand. Whether it's through internal development or an outside acquisition,
Cabletron is committed to being the single, reliable source for today's
growing enterprise networks.
And while today's networks are demanding better performance, more horsepower
and faster connections, what about tomorrow's infrastructures? Cabletron is
already ahead of the game, developing solutions that meet and exceed the
mission-critical requirements for future environments. During the past year
alone, Cabletron has introduced powerful switches that lay the groundwork for
a full-blown ATM network or Gigabit Ethernet backbone. Both are relatively
new technologies. At the same time, we have introduced innovative network and
systems management applications that work with the fastest growing management
platform in the industry: SPECTRUM. These applications allow companies to
monitor and control precious networked resources including bandwidth
allocation, e-mail file servers and selected databases from a centralized
location.
It doesn't seem that long ago that Cabletron was a two-man operation based in
a small garage. Times have certainly changed to the point where we are now a
billion-dollar company on the verge of even greater success. The substantial
investments we've made in R&D, acquisitions, service and support, our global
sales strategy and our people will springboard Cabletron well into the next
century and change the way customers rely on their information networks.
We are grateful to all of our customers, suppliers, partners and employees,
because without you, this year could not have been as successful as it was.
Thank you. We are equally appreciative of our shareholders whose continued
support helps keep Cabletron's momentum building.
Sincerely,
/s/ S. Rober Levine /s/ Craig, R. Benson
S. Robert Levine Craig R. Benson
President and Chief Executive Officer Chairman and Chief Operating Officer
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT UNDER SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . to . . . .
Commission File Number 1-10228
CABLETRON SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2797263
State or other jurisdiction of (I.R.S. Employee
incorporation or organization) identification no.)
35 Industrial Way, Rochester, New Hampshire 03866
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (603) 332-9400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Common Stock, Name of each exchange on which registered:
$0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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
As of May 8, 1997, 157,047,949 shares of the Registrant's common stock were
outstanding. The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant as of May 8, 1997 was approximately $4.4
billion.
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K (229.405) is not contained herein and will not be contained,
to the best of the registrant's knowledge, in definitive proxy for information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Part III Proxy Statement to be filed with the Securities and Exchange Commission
in connection with the 1997 Annual Meeting of Stockholders.
<PAGE>
TABLE OF CONTENTS
PART I
Item
Page
1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
4a. Executive Officers of the Registrant 9
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters 10
6. Selected Financial Data 11
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
8. Consolidated Financial Statements and Supplementary Data 17-30
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 32
PART III
10. Directors and Executive Officers of the Registrant 32
11. Executive Compensation 32
12. Security Ownership of Certain Beneficial Owners
and Management 32
13. Certain Relationships and Related Transactions 32
PART IV
14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 33
<PAGE>
PART I
Unless otherwise indicated, all information in this Annual Report on Form 10-K
gives effect to a two-for-one stock split of the Company's common stock
implemented as a 100 percent stock dividend, effective November 27, 1996.
1. ITEM 1. Business
General
Cabletron Systems, Inc. (referred to herein as "Cabletron," "Registrant" or "the
Company") develops, manufactures, markets, installs and supports a wide range of
standards-based local area network and wide area network (LAN and WAN,
respectively) connectivity hardware and software products (including intelligent
switches and hubs, remote access devices, and sophisticated management
software). Cabletron delivers products to address the full range of networking
technologies, including Ethernet, Fast Ethernet, Gigabit Ethernet, token ring,
fiber distributed data interface (FDDI), asynchronous transfer mode (ATM),
integrated services digital network (ISDN) and frame relay.
The Company's networking strategy, known as Synthesis, is a strategic framework
which combines infrastructure products and technologies, automated management
tools, and support services. Synthesis allows the creation of a network with
enhanced performance and capabilities, manageability, and reliability and a
lower overall cost structure. The Company's products includes the MMAC-Plus
products, the Company's modular advanced switching intelligent hubs, the
SmartSwitch products, switching products which provide a high density of
switched ports for predominant technologies using a combination of ASICs and
RISC-based processors, the MMAC, the Company's wiring closet smart hub, and ISDN
and frame relay products. All of the Company's intelligent networking products
are managed by SPECTRUM, Cabletron's sophisticated enterprise-wide network
management system. The Company also produces and supports other networking
products, such as adapter cards, other interconnection equipment, wiring cables,
and file server products, and provides a wide range of networking services. The
Company believes that its broad product line and full service capabilities
enable it to offer its customers "The Complete Networking Solution(R)"
Recent Product Line Acquisitions
Fiscal 1997 Acquisitions
In July 1996, the Company acquired ZeitNet Inc. ("ZeitNet"), a privately held
manufacturer and a leader in providing high-quality, low-cost solutions for
connecting applications, servers and workgroups to high-performance asynchronous
transfer mode (ATM) networks. Under the terms of the agreement, Cabletron issued
approximately 3.3 million shares of common stock for all of the outstanding
shares of ZeitNet (as well as all shares to be issued pursuant to ZeitNet
options assumed by Cabletron) in a transaction accounted for as a pooling of
interests.
In August 1996, the Company acquired Network Express, Inc. ("Network Express"),
a publicly held manufacturer and a provider of ISDN high-speed LAN switched
access solutions. Under the terms of the agreement, Cabletron issued
approximately 2.9 million shares of common stock for all of the outstanding
shares of Network Express (as well as all shares to be issued pursuant to
Network Express options assumed by Cabletron) in a transaction accounted for as
a pooling of interests.
In December 1996, the Company acquired Netlink, Inc. ("Netlink"), a privately
held manufacturer and supplier of frame relay access solutions for
multi-protocol, mission-critical networks. Under the terms of the agreement,
Cabletron issued approximately 3.8 million shares of common stock for all of the
outstanding shares of Netlink (as well as all shares to be issued pursuant to
Netlink options assumed by Cabletron) in a transaction accounted for as a
pooling of interests.
In February 1997, the Company acquired The OASys Group, Inc. ("OASys"), a
privately-held developer of software used to manage telecommunications devices
and connections in high-speed, fiber-optic networks. Cabletron issued
approximately 226,000 shares of common stock for all of the outstanding shares
of OASys (as well as all shares to be issued pursuant to OASys options assumed
by Cabletron) in a transaction accounted for as a purchase.
Fiscal 1996 Acquisitions
In order to broaden the range of switching products offered by the Company, in
January 1996 Cabletron acquired the Enterprise Networks Business Unit (ENBU) of
Standard Microsystems Corporation for $85.7 million. The products acquired from
<PAGE>
the ENBU include standalone Fast Ethernet market, as well as a modular chassis
offering several networking technologies. The transaction was accounted for as a
purchase.
Cabletron is a Delaware corporation organized in 1988. The executive offices
of the Company are located at 35 Industrial Way, Rochester, New Hampshire
03866 (telephone: (603) 332-9400).
Products and Services
The Company's operations are grouped into the product areas discussed below.
Smart Switches and Hubs, and Related Products
MMAC-Plus
The MMAC-Plus is an enterprise-level backbone switching chassis. The MMAC-Plus,
with its high bandwidth (aggregate bandwidth 60 Gbps), switching rate (aggregate
switching rate of 10 million packets/cells per second) and modularity (up to 14
separate MMAC-Plus modules), is designed to operate as the central switching hub
for networks containing large numbers of nodes and multiple disparate networking
technologies. Each MMAC-Plus module implements one or more of the following
technologies: ATM cell transport, SecureFast packet switching (Cabletron's own
standards-based switching technology), SecureFast Virtual networking and network
layer routing or standard MAC layer bridging. In addition to accommodating the
latest networking technologies, the MMAC-Plus is designed to integrate
customers' legacy systems. The MMAC-Plus, like all members of the MMAC family,
is designed to be highly fault tolerant.
MMAC-Plus 6
The MMAC-Plus 6, introduced in 1996, is a six module switching chassis. The
MMAC-Plus 6 offers many of the MMAC-Plus' advanced capabilities, including
distributed virtual routing, high performance switching and embedded management,
in a product designed to be used in the wiring closet or smaller distributed
data centers. The MMAC-Plus 6 enables deployment of dedicated bandwidth to the
desktop, with support for over 200 shared or switched Ethernet ports.
SmartSwitch 6000
The SmartSwitch 6000, based upon the Company's SmartSwitch architecture, is
intended primarily for the wiring closet environment. The SmartSwitch 6000,
which principally provides interconnectivity between Fast Ethernet, ATM or FDDI
backbone connections and local Ethernet connections, accepts up to five
SmartSwitch modules, including a thirteen port 10 Mbps Ethernet module, a two
port 100 Mbps Fast Ethernet module, a single port FDDI module and an ATM module.
By allowing virtually any combination of these modules, the SmartSwitch 6000
provides customers with substantial flexibility.
SmartSwitch 2200
The SmartSwitch 2200 is a standalone switch that provides twenty-four 10Mbps
switch ports and two 100 Mbps switch ports and has been designed specifically
for use at the workgroup or desktop level of the enterprise. The SmartSwitch
2200 offers both high-performance Ethernet switching and also high-speed
backbone connections through either Fast Ethernet, FDDI, or ATM.
MMAC
First introduced in 1988, the Multi Media Access Center (MMAC) provides
centralized management and connectivity for any standard LAN or WAN through a
variety of networking technologies. The MMAC supports both previously existing
networking technologies such as Ethernet, token ring, FDDI and Systems Network
Architecture (SNA) as well as emerging advancements including ATM and
Cabletron's own SecureFast Switching. With more than one hundred MMAC interface
modules available, customers can custom configure a network according to their
particular needs. As requirements change, the MMAC can be reconfigured to
provide a smooth migration to higher bandwidth technologies.
ATX
Cabletron's ATX (acquired from the ENBU of SMC) provides high-performance,
multiprotocol LAN solutions for high-capacity backbone or departmental networks.
The ATX permits high-bandwidth switching between Ethernet, token ring, FDDI and
100BASE-T LANs, with full connectivity to ATM.
<PAGE>
Standalone Switches
Cabletron offers three families of standalone switches: the FN family of
departmental Ethernet network switches (acquired from the ENBU of SMC); the
ZX-250 family of ATM workgroup and interworkgroup switches (acquired from
ZeitNet); and the SFCS family of products for ATM datacenter applications
(through the Company's partnership with Fore Systems). The FN10 provides
switched 12 or 24 Ethernet ports with two optional Fast Ethernet ports, while
the FN100 is designed to support full 10 Mbps or 100Mbps connectivity on eight
ports. The SmartCell ZX-250 ATM switch family combines high-performance ATM
switching with advanced networking software in a compact platform. The SFCS
switches are designed to meet the needs of the LAN backbone networks. They offer
a wide variety of options for connectivity with LAN to ATM access devices,
inter-switch links, and entry to the WAN backbone.
Wide Area Networking Products
Cabletron's CyberSWITCH family of products includes both internally developed
remote access products, as well as Network Express' remote access product line.
The CyberSWITCH products provide connectivity from the small office/home office
(SOHO) environment, to the central site locations of corporations.
In its acquisition of Netlink Cabletron acquired products for transmitting data
over frame relay for WAN connectivity. For branch locations, the Netlink FRX
products provide seamless integration of all network traffic over frame relay to
provide prioritized service to mainframe-based applications. For the data center
of a company, the Netlink FRX product brings multiprotocol, T1 and frame relay
networking through a scaleable, parallel processing architecture.
Network Management Software
As enterprise networks grow in number, become more diverse and complex and
incorporate increasing bandwidth capacity, organizations require more
sophisticated network management systems. SPECTRUM, Cabletron's enterprise-wide
network management software, allows network administrators to monitor and
control all of the physical layer components making up a worldwide network.
SPECTRUM, which integrates a graphical user interface and a UNIX-based
client/server architecture, provides powerful network management tools in an
easy-to-use, scaleable and distributed environment. SPECTRUM incorporates IMT, a
form of artificial intelligence that provides SPECTRUM with the ability to model
every element of the network, including physical cables, network devices, and
applications. SPECTRUM is designed to enable network administrators to view
worldwide enterprise networks and diagnose, actively anticipate and correct
problems at many levels, including the individual node level. The Company has
developed SPECTRUM modules for a wide range of network products, including over
110 applications for third-party products. The Company plans to continue to
develop SPECTRUM system enhancements and modules to increase the number of
third-party network products for which SPECTRUM is applicable. OASys' TL1/CMIP
product, which is being integrated into SPECTRUM will position Cabletron to
manage gigabit-speed telco carrier networks. OASys products support the
management of SONET (Synchronous Optical Network) devices, which are becoming
prevalent among telco carries for high bandwidth communications. Cabletron also
offers SPECTRUM toolkits, Application Program Interfaces (APIs), and Platform
External Interfaces (PEIs) which are designed to enable the Company's customers
and partners to quickly and easily establish links with SPECTRUM.
The Company believes that SPECTRUM has helped to establish Cabletron as a leader
in the field of network management software and contributes to the market
acceptance of the Company's interconnectivity hardware. SPECTRUM is sold both to
purchasers of Cabletron's LAN and WAN products and on a stand-alone basis as a
network management platform.
Network Interconnection Equipment
The Company manufactures a line of dual-port and multiport stand-alone
repeaters, which are designed to connect up to eight Ethernet/IEEE 802.3
segments together or to an Ethernet backbone. The Company also produces Desktop
Network Interface ("DNI") cards, which enable the user to connect directly to
10BASE-T unshielded twisted pair, fiber optic or coaxial cabling via a built-in
transceiver on the card, and provide high-speed Ethernet and Token Ring data
connections for various personal computer platforms.
<PAGE>
Service and Support
Cabletron is one of the few companies that, in addition to manufacturing a broad
line of network equipment, also offers a wide range of services for networks,
including service maintenance; consulting, design and configuration; project
planning; project management; training; testing, certification and
documentation; and performance analysis. To provide service to our multinational
customers, Cabletron has introduced World/One, a program that offers focused
account management and global support, as well as special tools and privileges,
to qualifying multinational corporations. Cabletron offers comprehensive
training programs to ensure that customers receive the maximum benefit from
their networks. Cabletron's service group forms an integral part of the
Company's marketing strategy, as it constitutes a key element of the complete
networking solution offered by the Company. The Company believes that the
combination of its broad line of networking products, its emphasis on service,
and its close acquaintance with customers' needs enable it to compete
effectively.
Other Products
The Company's other products include test equipment designed to analyze networks
and protocols and to verify proper installation and operation of the network,
cabling, transceivers, repeaters and other devices. The Company also sells
electronically-tested Ethernet coaxial cable, shielded twisted pair (IBM-type)
wire, unshielded twisted-pair wire and optical fiber cut to specific lengths.
Distribution and Marketing
Cabletron distributes its products through a substantial direct sales force that
is supplemented by several distributors and other resellers through the Synergy
Plus Program. The Company's direct sales are made by approximately 200-plus
sales representatives located in 33 countries around the world. This direct
sales force is supplemented by more than 2,500 people located at the Company's
headquarters and regional in-house technical services and sales support staff.
The Company believes that its ratio of in-house sales, marketing and technical
services and sales support staff to field sales force is among the highest in
the industry and contributes significantly to the effectiveness of the Company's
field sales force. The Company's international locations use various sales
strategies depending on the best channel of distribution for each country. Such
strategies include a direct sales presence, a direct sales force working with
local distributors or a combination of the two. The Synergy Plus Program is a
blueprint for resellers that outlines the building blocks of a business
relationship with Cabletron. The blueprint sets forth the principles of the
relationship, including level of information and training, business support and
services, pricing structure, and levels of organization. Synergy Plus offers a
comprehensive, well-defined business strategy, a clear pricing policy, and
effective support in sales and marketing.
The Company actively employs several methods to market its products, including
regular participation in trade shows as both a vendor and networker, frequent
advertisement in trade journals, regular attendance by corporate officers at
press briefings and trade seminars, submission of demonstration products to
selected customers for evaluation, and direct mailings and telemarketing
efforts.
Customers
Cabletron's end-user customers include commercial, industrial and manufacturing
companies; federal, state and local government agencies; brokerage and
investment banking firms; multinational and international companies; insurance
companies and other financial institutions; universities; and leading accounting
and law firms.
In fiscal 1997, no single customer represented more than 3% of Cabletron's net
sales, and the Company's top ten customers represented, in the aggregate,
approximately 13% of its net sales. Net sales to the federal government
accounted for approximately 12% of the Company's sales during the last fiscal
year. Most of the Company's contracts with the federal government are on a
fixed-price basis. The books and records of the Company are subject to audit by
the General Services Administration, the Department of Labor and other
government agencies.
<PAGE>
Competition
The computer networking industry is intensely competitive and subject to
increasing consolidation. Cabletron expects competition to increase
significantly in the future from its primary competitors (Cisco Systems, Inc.,
Bay Networks, Inc. and 3Com Corporation) and other existing competitors and from
potential competitors that may enter Cabletron's existing or future markets.
Increased competition could result in price reductions, reduced margins and loss
of market share, any or all of which could materially and adversely affect
Cabletron's business and operating results and increase fluctuations in
operating results. Cabletron's margins may also decrease as a result of changes
in product mix, increased sales through lower margin sales channels, increased
component costs and higher research and development and sales, general and
administrative expenses which may be necessary in future periods to meet the
demand of greater competition. Competitors may develop new products with
features that could adversely affect the competitive position of Cabletron's
products. There can be no assurance that Cabletron will be successful in
selecting, developing, manufacturing and marketing new products or enhancing its
existing products or that Cabletron will be able to respond effectively to
technological changes, new standards or product announcements by competitors.
Cabletron's competitors include many large domestic and foreign companies, as
well as emerging companies attempting to sell products to specialized markets
such as those addressed by Cabletron.
For other factors related to the Company's competitive outlook, see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations-Business Environment and Risks Factors."
Research and Development
The networking industry is characterized by rapid technological advances,
frequent product introductions and evolving industry standards. Cabletron
believes that its future success depends on its ability to continue to enhance
its existing products and to develop on a timely basis technologically advanced
new products that meet industry standards, perform successfully and achieve
market acceptance. Because of the nature of the Company's distribution system,
which places heavy reliance on direct sales to end-users, Cabletron believes it
has been able to react quickly to changes in customer demand and users' needs.
Additionally, the Company has representatives on many of the industry committees
drafting evolving standards. In recent years, Cabletron has substantially
increased its research and development expenses and its staff of software and
hardware engineers. There can, however, be no assurance that the Company will be
successful in selecting, developing, manufacturing and marketing new products
that will perform satisfactorily and achieve market acceptance or in enhancing
its existing products. Nor can there be any assurance that the Company will be
able to respond effectively to technological changes or new product
announcements by others or that the Company will be successful in augmenting its
software capability. In addition, technological changes may render portions of
the Company's inventory obsolete.
During fiscals years 1997, 1996 and 1995, research and development expenses were
$161.7 million, $127.3 million and $89.1 million, respectively. The Company
believes that as networks grow larger and more complex, end-users' evaluation of
network technology will increasingly be based on the software component of
products, particularly in the area of network control management. As of February
28, 1997 approximately 60% of the personnel in the Company's research and
development department consisted of software development personnel. The
remaining personnel were involved in hardware development. The Company intends
to continue to increase both its research and development budget and engineering
staff.
Supply of Components
Cabletron's network interconnection products are manufactured principally in
printed circuit board format produced from Company designs together with
standard and semi-custom components. Certain components used in Cabletron's
products are presently available from only one source and others are available
only from a limited number of sources.
Many of the connectors, power supplies, and ASICs used in Cabletron's products
are sole sourced. These sole sourced products are either proprietary or patented
by the manufacturer, or designed to Cabletron's specifications. Cabletron
utilizes the design and manufacturing capabilities of many of the leading
companies in the semiconductor industry. The Company believes current agreements
with these suppliers will adequately meet its design and production requirements
for the foreseeable future.
<PAGE>
The supply of critical integrated circuits, which are often proprietary and are
used in the Company's DNI cards and bridging products, remains steady. The
demand for critical DRAM, SRAM and Flash products has decreased but is monitored
carefully. Sources of supply are in place to meet manufacturing and engineering
requirements. Agreements with strategically sourced silicon vendors are in place
and continue to be updated for changes in design and manufacturing volumes.
The Company believes it is well positioned to meet its raw material
requirements. Most other parts are multiple sourced. The Company continues to
improve its materials support by utilizing world class suppliers and effectively
managing raw material flows. The Company believes its relationship with its
suppliers is good, but the inability to develop alternatives if and as required
in the future, or to obtain sufficient sole or limited source components as
required in the future, could result in delays or reductions in product
shipments, which could adversely affect the Company's operating results.
Manufacturing
Since the Company manufactures and assembles virtually all of its products, it
maintains direct control over production, quality and product availability. By
controlling its manufacturing process, Cabletron is able to maintain a strict
quality control program, respond to changes in market demand and offer its
customers modified or customized products.
Intellectual Property
The Company relies upon US and foreign patents, copyright and trademark laws,
and upon trade secret laws to establish its proprietary rights to its products.
The Company holds a number of US and foreign trademark registration and patent
rights. The Company currently has several US and foreign trademark registrations
and patent applications pending.
There can be no assurance that the steps taken by Cabletron in this regard will
be adequate to prevent misappropriation of its technology or that Cabletron's
competitors will not independently develop technologies that are substantially
equivalent or superior to Cabletron's technology. In addition, the laws of some
foreign countries do not protect Cabletron's proprietary rights to the same
extent as do the laws of the United States. No assurance can be given that any
patents issued to Cabletron will not be challenged, invalidated or circumvented
or that the rights granted thereunder will provide competitive advantages.
Backlog
The Company's backlog at February 28, 1997, was approximately $125.0 million,
compared with backlog at February 29, 1996, of approximately $129.5 million. In
general, orders included in backlog may be canceled or rescheduled by the
customer without significant penalty. Therefore, backlog as of any particular
date may not be indicative of the Company's actual sales for any succeeding
fiscal period. The Company does not anticipate any problems in fulfilling its
backlog within the upcoming fiscal year.
Inventory and Working Capital
The Company's policy is to maintain a sufficient inventory of products to permit
the shipping of most customer orders that require rapid delivery within 24 to 48
hours of receipt. This delivery policy requires higher levels of inventory than
those of other companies in the networking industry. Additional financial
information on inventories and working capital is contained in "Management's
Discussion and Analysis of Financial Conditions and Results of Operations" at
pages 12 to 16 of this document.
Employees
As of February 28, 1997, the Company had 6,607 full-time employees. The
Company's employees are not represented by a union or other collective
bargaining agent and the Company considers its relations with its employees to
be good.
Domestic and Foreign Financial Information
Financial information concerning foreign and domestic operations is contained in
Note 13 of "Notes to the Consolidated Financial Statements" included at page 30
of this document.
<PAGE>
ITEM 2. Properties
The Company owns and occupies a number of buildings Rochester, New Hampshire
including a 206,000 square-foot manufacturing facility which also accommodates a
portion of corporate engineering buildings totaling 122,000 square-feet which
accommodate sales, marketing, administration and technical support personnel,
and a warehousing and distribution facility, totaling 221,000 square-feet. The
Company owns a 114,000 square-foot engineering building in Merrimack, New
Hampshire. The Company also occupies facilities in Newington and Nashua, New
Hampshire, Andover and Framingham, Massachusetts, Ann Arbor, Michigan and Santa
Clara, California.
The Company leases three manufacturing buildings totaling 87,000 square feet in
Ironton, Ohio, a 100,000 square-foot manufacturing facility in Limerick,
Ireland, and a 50,000 square-foot distribution center in Shannon, Ireland, to
support its European sales activities. The Company also leases a 62,000
square-foot research and development facility in Durham, New Hampshire and a
34,000 square-foot engineering office in Nashua, New Hampshire. Cabletron also
leases sales and technical support offices that range from 1,000 to 20,000
square feet at various locations throughout the world.
The Company believes that its facilities are adequate to support anticipated
sales growth over the next 12 to 18 months. Such growth, however, will require
additional production employees and capital equipment. The Company believes that
adequate supplies of labor are available in the areas where the Company's
manufacturing operations are located.
Financial information regarding leases and lease commitments are contained in
Note 8 of "Notes to the Consolidated Financial Statements" included at page 25
of this document.
ITEM 3. Legal Proceedings
The Company is involved in various legal proceedings and claims arising in the
ordinary course of business. Management believes that the disposition of these
matters would not have a material adverse effect on the consolidated financial
position or results of operations of the Company.
ITEM 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of the Company's security holders.
<PAGE>
ITEM 4a. Executive Officers of the Registrant
The executive officers of the Company are as follows:
Name Age Position
S. Robert Levine 39 President, Chief Executive Officer
and Director
Craig R. Benson 42 Chairman, Chief Operating Officer,
Treasurer and Director
Christopher J. Oliver 36 Director of Engineering and
Manufacturing
David J. Kirkpatrick 45 Director of Finance and Chief
Financial Officer
S. Robert Levine founded the Company in March 1983 and has been President and
Chief Executive Officer and a director of the Company since that date.
Craig R. Benson was Director of Operations from November 1984 until April of
1989, when he became Chairman, Chief Operating Officer and Treasurer.
Christopher J. Oliver has been Director of Engineering and Manufacturing of the
Company since February 1985.
David J. Kirkpatrick has been Director of Finance and Chief Financial Officer of
the Company since August 1990. From 1986 to 1990 he was the Vice President of
Zenith Data Systems, a subsidiary of Zenith Electronics Corporation.
The Company's success is dependent in large part on S. Robert Levine, President
and Chief Executive Officer, Craig R. Benson, Chairman and Chief Operating
Officer, Christopher J. Oliver, Director of Engineering and Manufacturing, and
other key technical, sales and management personnel, the loss of one or more of
whom could adversely affect Cabletron's business.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
STOCK PRICE HISTORY
The following table sets forth the high and low sale prices for the Company's
Common Stock as reported on the New York Stock Exchange (symbol - CS) during the
last three fiscal years. As of February 28, 1997, the Company had approximately
3,500 stockholders of record. The Company has paid no dividends on its Common
Stock and anticipates it will continue to reinvest earnings to finance future
growth.
Fiscal 1997 High Low
First quarter $43.56 $31.63
Second quarter 36.06 26.50
Third quarter 41.50 27.56
Fourth quarter $42.50 $28.00
Fiscal 1996 High Low
First quarter $27.88 $19.44
Second quarter 29.81 24.31
Third quarter 43.88 26.00
Fourth quarter $41.63 $32.94
Fiscal 1995 High Low
First quarter $26.50 $17.85
Second quarter 22.23 16.53
Third quarter 26.44 20.50
Fourth quarter $24.63 $18.69
Note: The above stock prices have been adjusted for the two-for-one stock
split November 27, 1996.
<PAGE>
ITEM 6. SELECTED FINANCIAL
DATA
CABLETRON SYSTEMS, INC.
Income Statement Data: FISCAL YEAR ENDED
(in thousands, except per
share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
February February February February February
28, 29, 28, 28, 28,
1997 1996 1995 1994 1993
--------- --------- -------- --------- --------
Net sales .............. $1,406,552 $1,100,349 $833,218 $602,486 $419,607
Cost of sales 575,107 448,699 340,424 246,154 170,924
Research and development 161,674 127,289 89,129 61,456 42,315
Selling, general and
administrative ......... 286,469 223,083 166,649 118,373 82,345
Nonrecurring items 63,024 94,343 -- -- --
--------- ---------- -------- -------- --------
Income from operations 320,278 206,935 237,016 176,503 124,023
Interest income 19,422 17,891 5,572 5,948 5,583
--------- ---------- -------- -------- --------
Income before taxes 339,700 224,826 242,588 182,451 129,606
Income taxes 117,575 80,341 86,014 64,130 46,405
--------- ---------- -------- -------- --------
Net income ............. $ 222,125 $ 144,485 $156,574 $118,321 $ 83,201
========== ========== ======== ======== ========
Net income per share ... $ 1.43 $ 0.95 $ 1.08 $ 0.82 $ 0.59
========== ========== ======== ======== ========
Weighted average shares
outstanding ............ 155,207 151,525 145,125 143,692 141,456
========== ========== ======== ======== ========
</TABLE>
Included in fiscal 1997 results are $39.2 million (net of tax) of nonrecurring
items related to all acquisitions for the fiscal year. Excluding these one-time
charges, fiscal year 1997 net income would have been $261.4 million or $1.68 per
share, compared to fiscal 1996 net income of $205.4 million or $1.36 per share
before nonrecurring acquisition related expenses of $60.8 million (net of tax).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: February February February February February
28, 29, 28, 28, 28,
(in thousands) 1997 1996 1995 1994 1993
--------- --------- -------- --------- --------
Working capital $676,336 $485,152 $381,758 $258,463 $234,114
Total assets 1,306,855 996,908 702,200 502,377 344,517
Stockholders' equity 1,081,498 809,886 593,942 425,719 289,279
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS
AND RESULTS OF OPERATIONS
The discussion below contains certain forward-looking statements relating to,
among other things, estimates of economic and industry conditions, sales trends,
expense levels and capital expenditures. Actual results may vary from those
contained in such forward-looking statements. See "Business Environment and Risk
Factors" below.
Results of Operations
This table sets forth Cabletron's net sales, cost of sales, expenses by
category, income from operations, interest income, income before income taxes
and net income expressed as percentages of net sales, for the fiscal years ended
February 28, 1997, February 29, 1996 and February 28, 1995:
1997
1996 1995
----
Net sales 100.0% 100.0% 100.0%
Cost of sales 40.9 40.8 40.9
------ ------ ------
Gross profit 59.1 59.2 59.1
Research and development 11.5 11.6 10.7
Selling, general and administrative 20.4 20.3 20.0
Nonrecurring items 4.5 8.6 --
------ ------ ------
Income from operations 22.7 18.7 28.4
Interest income 1.4 1.6 0.7
------ ------ ------
Income before income taxes 24.1 20.3 29.1
------ ------ ------
Net income 15.8% 13.1% 18.8%
====== ====== ======
Acquisitions
During fiscal 1997 the Company augmented its product line and expanded its
markets by acquiring: (1) ZeitNet Inc., a manufacturer of ATM products, in July
1996; (2) Network Express, Inc., a manufacturer of remote access equipment, in
August 1996; (3) Netlink, Inc., a manufacturer of frame relay products, in
December 1996; and (4) The OASys Group, Inc., a software developer, in February
1997. The nonrecurring charges related to these acquisitions were $39.2 million
(net of tax). Excluding these one time charges, fiscal 1997 net income would
have been $261.4 million or $1.68 per share.
During fiscal 1996 the Company acquired the Enterprise Networks Business Unit
from Standard Microsystems Corporation in January 1996. The acquisition added a
line of Fast Ethernet products, as well as switching products for token ring,
Ethernet and FDDI. For fiscal 1996 net income would have been $205.4 million or
$1.36 per share before acquisition related expenses of $60.8 million (net of
tax).
Revenues
Net sales in fiscal 1997 increased by 27.8%, to $1,406.6 million, from $1,100.3
million in fiscal 1996, a 32.1% increase from $833.2 million in fiscal 1995. The
increases in revenues in fiscal years 1997, 1996 and 1995 were primarily the
result of increases in sales of the MMAC-Plus and the MMAC and in fiscal 1997,
the SmartSwitch product lines.
Net sales outside the United States in fiscal 1997 were $408.2 million, or 29.0%
of net sales, compared to $329.2 million or 29.9% of net sales in fiscal 1996
and $242.9 million or 29.2% of net sales in fiscal 1995. In addition to its
direct international sales force, the Company sells its products through several
international distributors. Management anticipates that foreign shipments will
continue to increase in absolute dollars during the coming fiscal year.
The Company currently has 41 foreign subsidiaries throughout the world. The
impact of fluctuations in foreign exchange rates on operations was not
significant in fiscal 1997.
<PAGE>
During fiscal 1997, growth in net sales was attributed to the SmartSwitch and
the MMAC-Plus product lines and other switching products, small stackable hubs
and SPECTRUM, the Company's network management software. During fiscal 1996,
MMAC-Plus, token ring management interface modules for the MMAC and the
MMAC-Plus, small stackable hubs, bridges and routers, and network management
(SPECTRUM) accounted for the largest sales growth within the network
interconnection products. During fiscal 1995, the MMAC, including token ring
modules, SPECTRUM and other network management software, accounted for the
largest sales growth within the network interconnection products.
Net sales of diagnostic test instruments, installation and maintenance services,
and other products were $188.1 million or 13.4% of net sales in fiscal 1997,
compared to $97.8 million or 8.9% of net sales in fiscal 1996 and $59.7 million
or 7.2% of net sales in fiscal 1995. Sales of diagnostic test instruments are on
a downward trend due to greater functionality being incorporated into more
intelligent devices. Management anticipates diagnostic test instruments to
decrease as a percentage of sales in the next fiscal year. Installation and
maintenance services are an integral part of Cabletron's customer development
and support activities. Management anticipates that sales of such services and
other products could increase in absolute sales dollars in the future year.
Costs, Expenses and Interest Income
Cost of sales was $575.1 million or 40.9% of net sales in fiscal 1997, compared
to $448.7 million or 40.8% of net sales in fiscal 1996 and $340.4 million or
40.9% of net sales in fiscal 1995. The Company was able to maintain its gross
margins in fiscal 1997, 1996 and 1995 by introducing and selling products with
improved functionality, further developing its service maintenance program and
improving purchasing and manufacturing efficiencies.
Research and development ("R&D") expenses in fiscal 1997 increased to $161.7
million or 11.5% of net sales, compared to $127.3 million or 11.6% of net sales
in fiscal 1996. In fiscal 1995, R&D expenses were $89.1 million or 10.7% of net
sales. The increased R&D spending in fiscal 1997 reflected increased hiring of
software and hardware engineers, the addition of engineers through acquisitions
and associated costs related to the development of new products. The increased
expenditures in R&D over the past three fiscal years in both absolute spending
and as a percentage of sales are indicative of the commitment the Company has
made to remain in the forefront of developing new and innovative products for
the networking industry, as exemplified by the Company's SmartSwitch family of
products.
Selling, general and administrative ("SG&A") expenses were $286.5 million or
20.4% of net sales in fiscal 1997, compared to $223.1 million or 20.3% of net
sales in fiscal 1996 and $166.6 million or 20.0% of net sales in fiscal 1995.
Increases in SG&A spending resulted from expanding the sales and support
workforce, establishing additional office locations domestically and
internationally, the addition of administrative personnel as a result of
acquisitions and increased administrative spending primarily due to increases in
volume.
For fiscal 1997 a $63.0 million nonrecurring charge was taken for the
acquisitions of ZeitNet, Network Express, Netlink and The OASys Group. In fiscal
1996 a $94.3 million nonrecurring charge was taken for the purchase of the ENBU
of SMC and Fivemere Limited (purchased by Network Express in fiscal 1996).
Interest income in fiscal 1997 was $19.4 million compared to $17.9 million in
fiscal 1996 and $5.6 million in fiscal 1995. The increase in interest income
reflects increased cash and marketable securities acquired from favorable
operating results.
Income
Income before income taxes was $339.7 million or 24.1% of net sales in fiscal
1997, compared to $224.8 million or 20.3% of net sales in fiscal 1996 and $242.6
million or 29.1% of net sales in fiscal 1995. In fiscal 1997 the Company's
nonrecurring charges related to acquisitions was $63.0 million as compared to
$94.3 million in fiscal 1996. As a consequence, the increase in income before
income taxes in fiscal 1997, was in part due to the $31.3 million decrease in
nonrecurring charges. The decrease in income before income taxes, in fiscal
1996, as a percentage of sales, was due primarily to expenses related to the
acquisition of the ENBU of SMC and Fivemere (Network Express). The tax rate for
fiscal 1997 was 34.6%, a 1.1% decrease from a tax rate of 35.7% for fiscal 1996,
which was due to tax loss carryforwards of the acquired aforementioned
acquisitions.
<PAGE>
Net income was $222.1 million in fiscal 1997, compared to $144.5 million in
fiscal 1996 and $156.6 million in fiscal 1995. Excluding the above nonrecurring
charges for fiscal 1997 and 1996 the Company would have realized net income of
$261.4 million and $205.4 million in fiscal 1997 and 1996, respectively.
Liquidity and Capital Resources
Accounts receivable, net of allowance for doubtful accounts, were $219.9 million
at February 28, 1997 or 52 days of sales outstanding, compared to $153.3 million
or 43 days of sales outstanding in accounts receivable at February 29, 1996.
This increase in receivables reflects timing on shipments and collections. These
trends are expected to continue for the intermediate term.
The Company has historically maintained higher levels of inventory than its
competitors in the networking industry in order to implement its policy of
shipping most orders requiring immediate delivery within 24 to 48 hours.
Worldwide inventories were $197.4 million at February 28, 1997 or 109 days of
inventory, compared to $160.8 million or 112 days of inventory at the end of the
preceding fiscal year. The decrease of days in inventory was the result of
improving inventory control procedures.
Net cash provided by operating activities was $189.0 million in fiscal 1997,
compared to $79.2 million in fiscal 1996 and $150.3 million in fiscal 1995.
Capital expenditures for fiscal 1997 of $94.4 million included $58.9 million for
the engineering computer hardware and software and $3.3 million for leasehold
improvements. During fiscal 1996, $67.8 million of capital expenditures included
$9.8 million for building costs of which $3.4 million was for the purchase of an
engineering building, $21.4 million for engineering computer hardware and
software, $5.5 million for manufacturing and related equipment and $19.0 million
for expanding global sales operations. During fiscal 1995, capital expenditures
of $66.1 million included approximately $8.2 million for building costs related
to expanding manufacturing and distribution capacities and enlarging worldwide
sales operations, $12.5 million for manufacturing and manufacturing support
equipment and $15.0 million for engineering hardware and software, and $15.0
million in support of expanded global sales activities.
Cash, cash equivalents, marketable securities and long-term investments
increased during fiscal 1997 to $568.3 million, from $432.4 million in the prior
fiscal year. State and local municipal bonds of approximately $464.9 million,
maturing in three years or less, were being held by the Company at February 28,
1997.
At February 28, 1997, the Company did not have any short or long term borrowing
or any significant financial commitments outstanding, other than those required
in the normal course of business.
On March 7, 1997 the Company obtained a $250 million revolving credit facility
with Chase Manhattan Bank, First National Bank of Chicago and several other
lenders. The facility has a term of three years but the Company has the option
to extend the facility for an additional two years. As of May 27, 1997 the
Company had not drawn down any money under the facility.
In the opinion of management, internally generated funds from operations and
existing cash, cash equivalents and marketable securities will be adequate to
support Cabletron's working capital and capital expenditure requirements for
both short and long term needs.
Business Environment and Risk Factors
THE FOLLOWING ARE CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR"
PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company may occasionally make forward-looking statements and estimates such
as forecasts and projections of the Company's future performance or statements
of management's plans and objectives. These forward-looking statements may be
contained in, among other things, SEC filings and press releases made by the
Company and in oral statements made by the officers of the Company. Actual
results could differ materially from those in such forward-looking statements.
Therefore, no assurances can be given that the results in such forward-looking
statements will be achieved. Important factors that could cause the Company's
actual results to differ from those contained in such forward-looking statements
include, among others, the factors mentioned below.
<PAGE>
Cabletron's primary competitors have recently acquired several other networking
companies possessing complementary technologies, and Cabletron expects that such
acquisitions will continue in the future. The acquisition of these technologies
may allow Cabletron's primary competitors to offer new products without the
lengthy time delays typically associated with internal product development. As a
consequence, such competitors may be able to more swiftly meet the growing
demand for so-called "end-to-end" enterprise-wide networking solutions. With
such increased competition, Cabletron anticipates an increase in the degree of
sales variability and a decreased ability to predict aggregate sales demand.
Certain of these acquisitions may also have the effect of limiting Cabletron's
access to commercially significant technologies. The greater resources of the
competitors engaged in these acquisitions may permit them to accelerate the
development and commercialization of new competitive products and the marketing
of existing competitive products to their larger installed bases. Cabletron
expects that competition will increase substantially as a result of these and
other industry consolidations.
In the past, Cabletron has relied upon a combination of internal product
development and partnerships with other networking vendors to broaden its
product line to meet this demand for "end-to-end" enterprise wide solutions. The
increasing competitiveness among vendors, together with acquisitions by
Cabletron and its competitors of smaller networking companies possessing
complementary technologies, may materially limit Cabletron's ability to continue
to partner with other vendors for new or complementary products. In the future,
Cabletron expects to meet the demand for a broad array of products primarily
through internal development and acquisitions. There can be no assurance that
Cabletron will be successful in developing or acquiring products that will meet
customers' needs.
Volatility of Stock Price. As is frequently the case with the stocks of high
technology companies, the market price of Cabletron's stock has been, and may
continue to be, volatile. Factors such as quarterly fluctuations in results of
operations, increased competition, the introduction of new products by Cabletron
or its competitors, expenses or other difficulties associated with assimilating
OASys, Netlink, Network Express, ZeitNet and other companies that may be
acquired in the future by Cabletron, changes in the mix of sales channels, the
timing of significant customer orders (the average dollar amount of customer
orders has increased in recent periods), and macroeconomic conditions generally,
may have a significant impact on the market price of the stock of Cabletron. In
addition, the stock market has from time to time experienced extreme price and
volume fluctuations, which have particularly affected the market price for many
high technology companies and which, on occasion, have appeared to be unrelated
to the operating performance of such companies. Past financial performance
should not be considered a reliable indicator of future performance and
investors should not use historical trends to anticipate results or trends in
future periods. Any shortfall in revenue or earnings from the levels anticipated
by securities analysts could have an immediate and significant adverse effect on
the market price of Cabletron's stock in any given period.
Fluctuations in Operating Results. A variety of factors may cause
period-to-period fluctuations in the operating results of Cabletron. Such
factors include, but are not limited to, the rate of growth of the market for
the Company's products, product mix, competitive pricing pressures, costs of
materials, and timely availability, revenue and expenses related to new
products, upgrades of existing products, as well as delays in customer purchases
and variability in overall customer purchasing patterns. Further, because of the
possibility of customer changes in delivery schedules, cancellation of orders,
purchasing patterns or inventory levels, backlog as of any particular date is
not indicative of future revenue. In particular, Cabletron has been experiencing
longer sales cycles for its core products as a result of the increasing dollar
amount of customer orders and longer customer planning cycles. In addition, the
increase in the average dollar amount of customer orders has increased the
possibility that the operating results for a quarter could be materially
adversely affected if a number of large customer orders are either not received
or are delayed, due, for example, to cancellations, delays or deferrals by
customers. Cabletron plans to continue to invest in research and development,
sales and marketing and technical support staff, and its earnings could be
adversely affected if it is unable to match spending to revenue levels.
Moreover, with industry standards established and new standards emerging, more
companies have developed standards-based products and are seeking to compete on
the basis of price. If Cabletron does not respond with lower production costs,
pricing pressures could adversely affect future earnings. Accordingly, past
results may not be indicative of future results. There can be no assurance that
the announcement or introduction of new products by the Company or its
competitors, or a change in industry standards, will not cause customers to
defer or cancel purchases of the Company's existing products, which could have a
<PAGE>
material adverse effect on the Company's business, financial condition or
results of operations. The market of the Company's products is evolving. The
rate of growth of the market and the resulting demand for the Company's recently
introduced products is subject to a high level of uncertainty. The rate of
growth in the market in recent periods has exceeded the long term historical
rate of growth in similar markets. If the market fails to grow or grows more
slowly than anticipated, the Company's business, financial condition or results
of operations would be materially adversely affected.
Technological Changes. The market for networking products is subject to rapid
technological change, evolving industry standards and frequent new product
introductions, and therefore requires a high level of expenditures for research
and development. Cabletron may be required to incur significant expenditures to
develop such new integrated product offerings. There can be no assurance that
customer demand for products integrating routing, switching, hub, network
management and remote access technologies will grow at the rate expected by
Cabletron, that Cabletron will be successful in developing, manufacturing and
marketing new products or product enhancements that respond to these customer
demands or to evolving industry standards and technological change, that
Cabletron will not experience difficulties that could delay or prevent the
successful development, introduction, manufacture and marketing of these
products (especially in light of the increasing design and manufacturing
complexities associated with the integration of technologies), or that its new
product and product enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Cabletron's business, operating
results and financial condition may be materially and adversely affected if
Cabletron encounters delays in developing or introducing new products or product
enhancements or if such product enhancements do not gain market acceptance. In
order to maintain a competitive position, Cabletron must also continue to
enhance its existing products and there is no assurance that it will be able to
do so. In addition, the demand for traditional "shared media" hubs such as the
Company's basic MMAC product have been experiencing declines over the last few
years, and there can be no assurance that such decline will not accelerate. A
portion of future revenues will come from new products and services. Cabletron
cannot determine the ultimate effect that new products will have on its
revenues, earnings or stock price.
Acquisition Strategy. Cabletron has addressed the need to develop new products,
in part, through the acquisition of other companies. Acquisitions involve
numerous risks including difficulties in the assimilation of the operations,
technologies and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which Cabletron has no or limited direct prior experience and where
competitors in such markets have stronger market positions, and the potential
loss of key employees of the acquired company. Achieving the anticipated
benefits of an acquisition will depend in part upon whether the integration of
the companies' businesses is accomplished in an efficient and effective manner,
and there can be no assurance that this will occur. The successful combination
of companies in the high technology industry may be more difficult to accomplish
than in other industries. The combination of such companies will require, among
other things, integration of the companies' respective product offerings and
coordination of their sales and marketing and research and development efforts.
There can be no assurance that such integration will be accomplished smoothly or
successfully. The difficulties of such integration may be increased by the
necessity of coordinating geographically separated organizations. The
integration of certain operations following an acquisition will require the
dedication of management resources that may temporarily distract attention from
the day-to-day business of Cabletron. The inability of management to
successfully integrate the operations of such companies could have a material
adverse effect on the business and results of operations of Cabletron. In
addition, as commonly occurs with mergers of technology companies, during the
pre-merger and integration phases, aggressive competitors may undertake formal
initiatives to attract customers and to recruit key employees through various
incentives.
Dependence on Key Personnel and Management of Change. Cabletron's success
depends upon the continued contributions of Craig R. Benson, Chairman and Chief
Operating Officer, S. Robert Levine, President and Chief Executive Officer,
Christopher J. Oliver, Director of Engineering and Manufacturing, and certain
other key personnel, many of whom would be difficult to replace. If these key
personnel were to leave Cabletron, operating results could be adversely
affected. The success of Cabletron will depend on the ability of Cabletron to
attract and retain skilled employees, and on the ability of its officers and key
employees to manage change successfully.
<PAGE>
Product Protection and Intellectual Property. Cabletron's success depends in
part on its proprietary technology. Cabletron attempts to protect its
proprietary technology through patents, copyrights, trademarks, trade secrets
and license agreements. Cabletron believes, however, that its success will
depend to a greater extent upon innovation, technological expertise and
distribution strength. There can be no assurance that the steps taken by
Cabletron in this regard will be adequate to prevent misappropriation of its
technology or that Cabletron's competitors will not independently develop
technologies that are substantially equivalent or superior to Cabletron's
technology. In addition, the laws of some foreign countries do not protect
Cabletron's proprietary rights to the same extent as do the laws of the United
States. No assurance can be given that any patents issued to Cabletron will not
be challenged, invalidated or circumvented or that the rights granted thereunder
will provide competitive advantages.
Although Cabletron does not believe that its products infringe the proprietary
rights of any third parties, third parties have asserted infringement and other
claims against Cabletron from time to time, and there can be no assurance that
third parties will not assert such claims against Cabletron in the future or
that such claims will not be successful. Patents have been granted recently on
fundamental technologies incorporated in Cabletron's products. Since patent
applications in the United States are not publicly disclosed until the patent
issues, applications may have been filed by third parties which, if issued as
patents, could relate to Cabletron's products. In addition, participants in
Cabletron's industry also rely upon trade secret law. Cabletron could incur
substantial costs and diversion of management resources with respect to the
defense of any claims relating to proprietary rights which could have a material
adverse effect on Cabletron's business, financial condition and results of
operations. Furthermore, parties making such claims could secure a judgment
awarding substantial damages, as well as injunctive or other equitable relief
which could effectively block Cabletron's ability to license its products in the
United States or abroad. Such a judgment could have a material adverse effect on
Cabletron's business, financial condition and results of operations.
Dependence on Suppliers. Cabletron's products include certain components,
including application specific integrated circuits ("ASICs"), that are currently
available from single or limited sources, some of which require long order lead
times. In addition, certain of Cabletron's products and subassemblies are
manufactured by single source third parties. With the increasing technological
sophistication of new products and the associated design and manufacturing
complexities, Cabletron anticipates that it may need to rely on additional
single source or limited suppliers for components or manufacture of products and
subassemblies. Any reduction in supply, interruption or extended delay in timely
supply, variances in actual needs from forecasts for long order lead time
components, or change in costs of components could affect Cabletron's ability to
deliver its products in a timely and cost-effective manner and may adversely
impact Cabletron's operating results and supplier relationships.
New Accounting Pronouncements
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"). As permitted by SFAS
123, the Company will continue to measure its compensation cost in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Therefore, the adoption of SFAS 123 was not material to the
Company's financial condition or results of operations; however, the proforma
impact on earnings per share has been disclosed in the Notes to Consolidated
Financial Statements as required by SFAS 123.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 123"). SFAS
128 establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic net
income per share and diluted net income per share. The impact on diluted net
income per share is not expected to be material. The Company plans to adopt SFAS
128 in its fiscal quarter ending February 28, 1998 and at that time all
historical net income per share data will be restated to conform to the
provisions of SFAS No. 128.
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CABLETRON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
February 28, 1997 and February 29, 1996
(in
thousands)
Assets 1997 1996
---- ----
Current
assets:
Cash and cash equivalents $214,828 $106,102
Short-term investments(note 4) 165,396 172,896
Accounts receivable, net of allowance
for doubtful accounts ($15,476 and
$6,655 in 1997 and 1996,
respectively) 219,896 153,256
Inventories (note 5) 197,438 160,806
Deferred income taxes (note 9) 57,107 38,315
Prepaid expenses and
other assets 35,925 31,711
--------- --------
Total current assets 890,590 663,086
--------- --------
Long-term investments (note 4) 188,081 153,424
Long-term deferred income taxes (note 9) 29,627 23,473
Property, plant and equipment, net (note 6) 198,557 153,904
Other assets --- 3,021
========== ========
Total assets $1,306,855 $996,908
========== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 68,604 $ 38,826
Accrued expenses (note 7) 135,208 120,572
Income taxes payable 10,442 18,536
---------- --------
Total current liabilities 214,254 177,934
Long-term deferred income taxes (note 9) 11,103 9,088
---------- ---------
Total liabilities 225,357 187,022
---------- ---------
Commitments and contingencies (notes 8 and 10)
Stockholders' equity (notes 11 and 12):
Preferred stock, $1.00 par value.
Authorized
2,000 shares; none issued --- ---
Common stock, $0.01 par value.
Authorized
240,000 shares; issued and outstanding
156,305 and 152,892 shares in 1997
and 1996, respectively 1,563 776
Additional paid-in capital 266,829 218,792
Retained earnings 812,885 591,518
---------- --------
1,081,277 811,086
Cumulative translation adjustment 221 (1,049)
Notes receivable, stockholders --- (151)
---------- --------
Total stockholders' equity 1,081,498 809,886
---------- --------
Total liabilities and stockholders'
equity $1,306,855 $996,908
========== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended February 28, 1997, February 29, 1996 and February 28, 1995 (in
thousands, except per share amounts)
1997 1996 1995
---- ---- ----
Net sales (note 13) $1,406,552 $1,100,349 $833,218
Cost of sales 575,107 448,699 340,424
---------- ---------- --------
Gross 831,445 651,650 492,794
profit
Operating expenses:
Research and development 161,674 127,289 89,129
Selling, general and
administrative 286,469 223,083 166,649
Nonrecurring items (note 3) 63,024 94,343 ---
---------- ---------- --------
Income from operations 320,278 206,935 237,016
Interest income 19,422 17,891 5,572
---------- ---------- --------
Income before income taxes 339,700 224,826 242,588
Income taxes (note 9) 117,575 80,341 86,014
---------- ---------- --------
Net income $ 222,125 $ 144,485 $156,574
========== ========== ========
Net income per common share $ 1.43 $ 0.95 $ 1.08
========== ========== ========
Weighted average number of shares
outstanding 155,207 151,525 145,125
========== ========== ========
See accompanying notes to consolidated financial statements.
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended February 28, 1997,
February 29, 1996 and February 28, 1995
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
(in thousands) ADDITIONAL CUMULATIVE NOTES TOTAL
COMMON PAID-IN RETAINED TRANSLATION RECEIVABLE STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT STOCKHOLDERS' EQUITY
- - ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBURARY 28, 1994 ......... $309 $139,515 $290,888 ($3,171) ($335) $427,206
- - ------------------------------------------------------------------------------------------------------------------------------
Repayments of notes receivable,
stockholders .................... -- -- -- -- 131 131
Canceled 38 shares upon employee
terminations, net ............... -- (30) -- -- 30 --
Issuance of common stock, net ........ 19 8,584 -- -- (195) 8,408
Exercise of options for 741
shares of common stock .......... 3 4,884 -- -- -- 4,887
Tax benefit for options exercised .... -- 5,712 -- -- -- 5,712
Issuance of 136 shares under employee
stock purchase plan ............. -- 2,287 -- -- -- 2,287
Stock dividend from stock split ...... 429 (11) (429) -- -- (11)
Stock repurchased and retired ........ (3) (13,056) -- -- -- (13,059)
Effect of foreign currency translation -- -- -- 1,807 -- 1,807
Net income ........................... -- -- 156,574 -- -- 156,574
- - ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1995 ......... 757 147,885 447,033 (1,364) (369) 593,942
- - ------------------------------------------------------------------------------------------------------------------------------
Repayments of notes receivable,
stockholders .................... -- -- -- -- 218 218
Issuance of common stock, net ........ 9 41,765 -- -- -- 41,774
Issuance of common stock for
Fivemere acquisition ............ 1 2,564 -- -- -- 2,565
Exercise of options for 1,453
shares of common stock .......... 8 17,214 -- -- -- 17,222
Tax benefit for options exercised .... -- 7,215 -- -- -- 7,215
Issuance of 154 shares under employee
stock purchase plan ............. 1 3,322 -- -- -- 3,323
Stock repurchased and retired ........ -- (1,173) -- -- -- (1,173)
Effect of foreign currency translation -- -- -- 315 -- 315
Net income ........................... -- -- 144,485 -- -- 144,485
- - ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 29, 1996 ......... 776 218,792 591,518 (1,049) (151) 809,886
- - ------------------------------------------------------------------------------------------------------------------------------
Issuance of common stock, net ........ 15 8,562 -- -- -- 8,577
Exercise of options for 1,345
shares of common stock .......... 10 18,012 -- -- -- 18,022
Repayment of notes receivable ........ -- -- -- -- 151 151
Issuance of common stock for The
OASys Group acquisition ......... 2 6,955 -- -- -- 6,957
Tax benefit for options exercised .... -- 8,302 -- -- -- 8,302
Stock split .......................... 758 -- (758) -- -- --
Issuance of 197 shares under employee
stock purchase plan ............. 2 6,206 -- -- -- 6,208
Effect of foreign currency translation -- -- -- 1,270 -- 1,270
Net income ........................... -- -- 222,125 -- -- 222,125
- - ------------------------------------------------------------------------------------------------------------------------------
BALANCE AT FEBRUARY 28, 1997 ......... $1,563 $266,829 $812,885 $221 -- $1,081,498
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On November 27, 1996, the Company's common stock split 2-for-1 and was
distributed as a stock dividend. All share amounts have been adjusted
accordingly.
See accompanying notes to consolidated financial statements.
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 28, 1997, February 29, 1996 and
February 28, 1995
(in thousands)
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net income $222,125 $144,485 $156,574
Adjustments to reconcile net income to net
cash
provided by operating activities:
Depreciation and amortization 49,704 32,739 31,144
Provision for losses on accounts
receivable 9,140 435 187
Loss on disposal of property, plant and
equipment 87 93 174
Deferred income taxes (22,933) (38,766) (4,434)
Changes in assets and liabilities:
Accounts receivable (74,925) (55,795) (29,623)
Inventories (37,669) (55,597) (23,168)
Prepaid expenses and other assets (1,709) (18,947) (3,427)
Accounts payable and accrued expenses 52,812 66,882 12,400
Income taxes payable (7,653) 3,705 10,476
-------- -------- --------
Net cash provided by operating
activities 188,979 79,234 150,303
-------- -------- ---------
Cash flows from investing activities:
Capital expenditures (94,368) (67,760) (66,116)
Purchase of available-for-sale securities (203,667) (124,968) (71,598)
Purchase of held-to-maturity securities (247,855) (205,852) (282,712)
Sales/maturities of marketable securities 424,308 236,393 323,682
-------- -------- --------
Net cash used in investing
activities (121,582) (162,187) (96,744)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of short-term
notes 8,577 15,607 ---
Principal payments on debt --- (438) (377)
Repayment of notes receivable from
stockholders --- 217 131
Repurchase of common stock --- (1,173) (13,070)
Tax benefit of options exercised 8,302 7,215 5,712
Proceeds from sale of common stock --- 28,548 8,258
Common stock issued to employee stock
purchase plan 6,208 3,323 2,287
Proceeds from exercise of stock options 18,022 17,164 4,887
-------- -------- --------
Net cash provided by financing
activities 41,109 70,463 7,828
-------- -------- --------
Effect of exchange rate changes on cash 220 159 712
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents 108,726 (12,331) 62,099
Cash and cash equivalents, beginning of
year 106,102 118,433 56,334
-------- -------- --------
Cash and cash equivalents, end of year $214,828 $106,102 $118,433
======== ======== ========
Cash paid during year for:
Income taxes $132,291 $142,733 $ 68,420
======== ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note (1) Business Operations
The Company develops, manufactures, markets, designs, installs and supports a
broad range of standards-based local and wide area network connectivity hardware
and software products.
Note (2) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Cabletron Systems,
Inc. (the "Company") and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.
(b) Investments
Held-to-maturity securities are those investments which the Company has the
ability and intent to hold until maturity. Held-to-maturity securities are
recorded at amortized cost, adjusted for amortization of premiums and discounts,
which approximates market value. Available-for-sale securities are also recorded
at amortized cost, adjusted for amortization of premiums and discounts. Due to
the nature of the Company's investments and the resulting low volatility, the
difference between fair value and amortized cost is not material.
(c) Inventories
Inventories are stated at the lower of cost or market. Costs are determined at
standard which approximates the first-in, first-out (FIFO) method.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided on
straight-line and accelerated methods over the estimated useful lives of the
assets. Leasehold improvements are amortized over the shorter of the lives of
the related assets or the term of the lease. The Company reviews its long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If it is determined that
the carrying amount of an asset cannot be fully recovered, an impairment loss is
recognized.
(e) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
The Company has reinvested earnings of its foreign subsidiaries and, therefore,
has not provided income taxes which could result from the remittance of such
earnings. The unremitted earnings at February 28, 1997 amounted to approximately
$125.7 million. Furthermore, any taxes paid to foreign governments on those
earnings may be used, in whole or in part, as credits against the US tax on any
dividends distributed from such earnings. It is not practicable to estimate the
amount of unrecognized deferred US taxes on these undistributed earnings.
(f) Net Income Per Share
Net income per share of common stock is based on the weighted average number of
shares outstanding during the period. The effect of outstanding stock options is
excluded from the computation because the dilutive effect is not material.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS 128
establishes a different method of computing net income per share then is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS 128, the Company will be required to present both basic net
income per share and diluted net income per share. The impact on diluted net
income per share is not expected to be material.
<PAGE>
The Company plans to adopt SFAS 128 in its fiscal quarter ending February 28,
1998 and at that time all historical net income per share data will be restated
to conform to the provisions of SFAS No. 128.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(g) Foreign Currency Translation and Transaction Gains and Losses
Assets and liabilities of the Company's foreign operations are translated into
US dollars at the exchange rate in effect at the balance sheet date and revenue
and expenses are translated at average rates in effect during the period. The
resultant translation adjustment is reflected as a separate component of
stockholders' equity on the consolidated balance sheets. Transaction gains
(losses) are reflected in the consolidated statements of income and were not
material.
(h) Statements of Cash Flows
Cash and cash equivalents consist of cash in banks and short-term investments
with original maturities of three months or less.
(i) Revenue Recognition
Sales are recognized upon shipment of products and software. In the case of
design, consulting, installation, support services and evaluations, revenues are
recognized upon completion and acceptance of such products and services.
Revenues from service contracts are recognized ratably over the period the
services are performed. Warranty costs and sales returns and allowances are
accrued at the time of shipment.
(j) Derivatives
The Company uses derivative financial instruments, principally forward exchange
contracts and options in its management of foreign currency exposure. These
financial instruments are designed to minimize exposure and reduce risk from
exchange rate fluctuations in the regular course of the Company's international
business operations. Market value gains and losses are included in income as
incurred and effectively offset gains and losses on foreign currency assets or
liabilities that are hedged.
(k) Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) New Accounting Pronouncement
The Company has adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS 123"). As permitted by SFAS
123, the Company measures compensation cost in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Therefore, the adoption of SFAS 123 was not material to the Company's financial
condition or results of operations; however, the proforma impact on earnings per
share has been disclosed in the Notes to Consolidated Financial Statements as
required by SFAS 123.
Note (3) Business Combinations
For acquisitions accounted for under the pooling-of-interests method, all
financial data of Cabletron has been restated to include the historical
financial data of these acquired companies. For acquisitions accounted for as
purchases, Cabletron's consolidated results of operations include the operating
results of the acquired companies from their acquisition dates. Acquired assets
and liabilities were recorded at their estimated fair market values at the
acquisition date and the aggregate purchase price plus costs directly
attributable to the completion of acquisitions have been allocated to the assets
and liabilities acquired.
<PAGE>
On July 26, 1996, the Company acquired ZeitNet Inc., a privately held
manufacturer of ATM products. Under the terms of the agreement, Cabletron issued
approximately 3.3 million shares of common stock for all of the outstanding
shares (and all shares issuable upon exercise of options) of ZeitNet in a
transaction accounted for as a pooling of interests. In connection with the
acquisition, the Company recorded nonrecurring charges of $23.0 million.
On August 1, 1996, the Company acquired Network Express, Inc., a publicly held
manufacturer of ISDN LAN switched access solutions. Under the terms of the
agreement, Cabletron issued approximately 2.9 million shares of common stock for
all of the outstanding shares (and all shares issuable upon exercise of options)
of Network Express in a transaction accounted for as a pooling of interests. In
connection with the acquisition, the Company recorded nonrecurring charges of
$20.0 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (3) Business Combinations (continued)
On December 11, 1996, the Company acquired Netlink Inc., a privately held
manufacturer of frame relay products. Under the terms of the agreement,
Cabletron issued approximately 3.8 million shares of common stock for all of the
outstanding shares (and all shares issuable upon exercise of options) of Netlink
in a transaction accounted for as a pooling of interests. In connection with the
acquisition, the Company recorded nonrecurring charges of $13.0 million.
Revenues, operating income (loss), and net income (loss) of the four entities
during the periods preceding the acquisitions are presented in the following
table.
(in thousands)
Unaudited
------------------------
Nine Three
months months Fiscal Fiscal
ended ended 1996 1995
11/30/96 5/31/96
Revenues:
Cabletron Systems, Inc. $1,025,997 $664,439 $1,069,715 $810,684
ZeitNet, Inc. --- 2,140 4,395 2,879
Network Express, Inc --- 3,177 18,997 11,113
Netlink, Inc. 7,935 --- 7,242 8,542
---------- -------- ---------- --------
$1,033,932 $669,756 $1,100,349 $833,218
========== ======== ========== ========
Operating income (loss):
Cabletron Systems, Inc. $234,842 $135,813 $227,562 $238,363
ZeitNet, Inc. --- (2,965) (8,890) 171
Network Express, Inc. --- (2,293) (9,415) 419
Netlink, Inc. (2,856) --- (2,322) (1,937)
--------- --------- --------- --------
$231,986 $130,555 $206,935 $237,016
========= ========= ========= =========
Net income (loss):
Cabletron Systems, Inc. $161,789 $94,047 $164,418 $161,974
ZeitNet, Inc. --- (2,972) (8,938) 155
Network Express, Inc. --- (2,154) (8,475) 466
Netlink, Inc. (2,887) --- (2,520) (6,021)
-------- ------- --------- --------
$158,902 $88,921 $144,485 $156,574
======== ======= ======== ========
<PAGE>
Note that the fiscal 1997 interim financial information is presented for the
interim periods nearest the dates that the combinations were consummated.
On February 7, 1997, the Company acquired The OASys Group, Inc., a privately
held developer of software targeted at managing telecommunications devices and
connections used in high-speed, fiber-optic networks. Cabletron issued
approximately 226,000 shares of common stock for all of the outstanding shares
(and all shares issuable upon exercise of options) of OASys in a transaction
accounted for as a purchase and, accordingly, the acquired assets and
liabilities were recorded at their estimated fair market values at the date of
acquisition. The total purchase price of $7.0 million included $6.7 million for
in-process research and development and $0.3 million for nonrecurring charges
which included adjustments to conform with Cabletron's accounting policies.
The Company's consolidated results of operations include the operating results
of the acquired business from its acquisitions date. Proforma financial
information is not presented as it is not material to the consolidated financial
statements.
On January 12, 1996, the Company acquired the Enterprise Networks Business Unit
from Standard Microsystems Corporation. The acquisition was accounted for as a
purchase and, accordingly, the acquired assets and liabilities were recorded at
their estimated fair market values at the date of the acquisition. The total
purchase price of $85.7 million included $67.8 million for in-process research
and development and $17.9 million for nonrecurring charges which included
adjustments to conform the ENBU accounting policies with the Company's
accounting policies. The Company's consolidated results of operations include
the operating results of the acquired business from its acquisition date.
Proforma financial information is not presented as it is not material to the
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (4) Investments
Investments are summarized as follows at February 28, 1997 and February 29,
1996:
1997 1996
---------------------------- -----------------------------
(in thousands) Long Long
Current Term Total Current Term Total
-------- -------- -------- --------- -------- --------
Held-to-maturity $84,261 $115,209 $199,470 $130,079 $115,500 $245,579
Available-for-sale 81,135 72,872 154,007 42,817 37,924 80,741
======== ======== ======== ========= ======== ========
Total $165,396 $188,081 $353,477 $172,896 $153,424 $326,320
======== ======== ======== ========= ======== ========
The contractual maturities for the above securities are less than three years.
Note (5) Inventories
Inventories consist of the following at February 28, 1997 and February 29,
1996:
(in thousands) 1997 1996
---- ----
Raw materials $64,685 $52,642
Work-in-process 57,070 39,317
Finished goods 75,683 68,847
-------- --------
Total $197,438 $160,806
======== ========
<PAGE>
Note (6) Property, Plant and Equipment
Property, plant and equipment consist of the following at February 28, 1997 and
February 29, 1996:
(in thousands) 1997 1996 Estimated useful
---- ---- lives
---------------
Land and land improvements $7,751 $1,760 ---
Buildings and building
improvements 38,015 37,058 30-40 years
Construction in progress 305 --- ---
Equipment 284,621 194,366 3-5 years
Furniture and fixtures 11,711 14,004 5-7 years
Leasehold improvements 9,448 6,445 3-5 years
Motor vehicles 4,690 3,651 3-5 years
-------- --------
350,541 257,284
Less accumulated
depreciation and amortization 151,984 103,380
-------- --------
$198,557 $153,904
======== ========
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (7) Accrued Expenses
Accrued expenses consist of the following at February 28, 1997 and February 29,
1996:
(in thousands) 1997 1996
---- ----
thousands)
Salaries and benefits $ 15,527 $ 18,625
Deferred revenue 50,041 38,325
Warranty 19,315 18,719
Other 50,325 44,903
-------- --------
Total $135,208 $120,572
======== ========
Note (8) Leases
The Company leases manufacturing and office facilities under noncancelable
operating leases expiring through the year 2020. The leases provide for
increases based on the consumer price index and increases in real estate taxes.
Rent expense associated with operating leases was approximately $12,179,000,
$10,265,000 and $7,642,000 for the years ended February 28, 1997, February 29,
1996 and February 28, 1995, respectively.
Total future minimum lease payments under all noncancelable operating leases as
of February 28, 1997, are as follows:
(in Year
thousands)
1998 $8,108
1999 5,163
2000 3,538
2001 2,720
2002 1,853
Thereafter 7,825
-------
$29,207
=======
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (9) Income Taxes
Income before income taxes is summarized as follows:
(in thousands) 1997 1996 1995
---- ---- ----
Total US domestic income $313,017 $173,515 $202,620
Total foreign subsidiaries income 26,683 51,311 39,968
-------- -------- --------
Total income before income taxes $339,700 $224,826 $242,588
======== ======== ========
Currently payable:
Federal $117,546 $92,109 $63,944
State 21,962 20,807 19,286
Foreign 1,000 11,519 7,218
Deferred tax benefit (22,933) (44,094) (4,434)
-------- -------- -------
Total tax expense $117,575 $80,341 $86,014
======== ======== =======
The following is a reconciliation of the effective tax rates to the statutory
federal tax rate:
1997 1996 1995
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income tax (net of federal
tax benefit) 3.6 3.8 4.7
Exempt income of foreign sales
corporation, net of tax (0.7) (1.1) (0.7)
Research and experimentation credit (0.7) --- (1.1)
Foreign operations (2.7) (1.6) (2.7)
Other 0.1 (0.4) 0.3
---- ----- ----
34.6% 35.7% 35.5%
===== ===== =====
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at February 28, 1997 and
February 29, 1996 are presented below:
(in thousands) 1997 1996
---- ----
Deferred tax assets:
Accounts receivable $ 4,996 $ 2,019
Inventories 33,859 27,993
Other reserves and accruals 24,079 5,454
Acquired research and
development 29,262 26,322
Domestic net operating loss
carryforwards 27,213 ---
Foreign net operating loss
carryforwards 5,636 3,268
------- -------
Total gross deferred tax assets 125,045 65,056
Less valuation allowance (38,381) (3,268)
------- ------
Net deferred tax assets 86,664 61,788
------- ------
Deferred tax liabilities:
Property, plant and equipment (11,033) (9,088)
------- -------
Total gross deferred
liabilities (11,033) (9,088)
------- -------
Net deferred tax assets $75,631 $52,700
======= =======
<PAGE>
At February 28, 1997, the Company had domestic net operating loss (NOL)
carryforwards for tax purposes of $27,213,000 expiring in fiscal 1998 through
fiscal 2010. The NOL carryforwards were acquired from acquisitions of ZeitNet
Inc., Network Express, Inc., Netlink, Inc. and The OASys Group, Inc.
The net change in the total valuation allowance for the year ended February 28,
1997 was an increase of $4,619,000. In assessing the realizability of deferred
tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Based upon the
level of historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible, management
believes it is more likely than not the Company will realize the benefits of
these deductible differences, net of the existing valuation allowance at
February 28, 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (10) Financial Instruments and Concentration of Credit Risk
The Company uses derivative financial instruments, principally forward exchange
contracts and options, in its management of foreign currency exposures arising
from its international operations. These contracts primarily require the Company
to purchase or sell certain foreign currencies either with or for US dollars at
contractual rates. The Company's foreign currency hedging activities are used to
minimize adverse foreign exchange movements on the eventual dollar net cash
inflows of its foreign denominated net assets. The Company does not hold or
issue derivative financial instruments for trading purposes.
At February 28, 1997 and February 29, 1996, the Company had forward exchange
contracts and purchased option contracts, all having maturities less than two
years, in the contractual amount of $69 million (forward contracts $31 million
and option contracts $38 million) and $90 million (forward contracts $49 million
and option contracts $41 million), respectively.
Realized and unrealized foreign exchange gains and losses are recognized in
operating income and offset foreign exchange gains and losses on the underlying
exposures. The Company's derivative financial instruments are revalued at the
balance sheet date and the carrying amount approximates the fair value of the
instruments.
Several major international financial institutions are counterparties to the
Company's financial instruments. It is Company practice to monitor the financial
standing of the counterparties and limit the amount of exposure with any one
institution. The Company may be exposed to credit loss in the event of
nonperformance by the counterparties to these contracts, but believes that the
risk of such loss is remote and that it would not be material to its financial
position and results of operations.
The carrying amounts of cash, cash equivalents, accounts receivable and accounts
payable approximate fair value because of the short maturity of these financial
instruments.
For the year ended February 28, 1997, no single customer represented more than
3% of net sales. However, sales to the federal government accounted for
approximately 12% of net sales for the year ended February 28, 1997.
With respect to trade receivables, concentration of credit risk is limited, due
to the diverse areas covered by the Company's operations. Any probable bad debt
loss has been provided for in the allowance for doubtful accounts. The carrying
amounts for cash, short-term and long-term investments, receivables, accounts
payable and accrued liabilities approximate fair value because of the short
maturity of these instruments.
Note (11) Common Stock
On November 27, 1996, the Company's common stock split 2-for-1 and was
distributed as a stock dividend. On September 12, 1994, the Company's common
stock split 2.5-for-1 and was distributed as a stock dividend. All share and per
share amounts have been adjusted accordingly.
<PAGE>
Note (12) Stock Plans
(a) Equity Incentive and Directors Plans
The Company has an Equity Incentive Plan which provides for the availability of
25,000,000 shares of common stock for the granting of a variety of incentive
awards to eligible employees. As of February 28, 1997, the Company had issued
19,953,680 stock options under the Equity Incentive Plan, which were granted at
fair market value at the date of grant, vest over a three to five year period
and expire within six to ten years from the date of grant.
The Company has a Directors Option Plan which provides for the availability of
1,250,000 shares of common stock for purchase by nonemployee directors of the
Company. The Directors Option Plan provides for issuance of options at their
fair market value on the date of grant. The options vest over a period of three
years and expire six years from the date of grant. A total of 381,000 stock
options are outstanding under the Directors Option Plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (12) Stock Plans (continued)
A summary of option transactions under the two plans follows:
Weighted
average
exercise
price of
shares under
Shares plan
--------- ------------
Options outstanding at February 28, 1994 6,302,028 $12.29
--------- ------------
Granted and assumed 2,736,182 21.18
Exercised (740,980) 6.60
Cancelled (440,004) 15.96
--------- ------------
Options outstanding at February 28, 1995 7,857,226 15.72
--------- ------------
Granted and assumed 3,898,112 28.50
Exercised (1,453,402) 11.13
Cancelled (465,410) 24.28
--------- ------------
Options outstanding at February 29, 1996 9,836,526 20.02
--------- ------------
Granted and assumed 6,542,663 29.67
Exercised (1,345,415) 12.50
Cancelled (1,497,219) 24.28
--------- ------------
Options outstanding at February 28, 1997 13,536,555 $24.96
========== ============
Options exercisable at February 28, 1997 3,356,372 $14.88
========== ============
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options as of February 28, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Weighted
average Weighted Weighted
remaining average average
Range of Number contractual outstanding Options exercise
exercise outstanding life option exercisable price
prices (years) price
- - -------------- ----------- ----------- ---------- ----------- --------
$0.053 - 15.00 2,104,815 5.7 $ 5.38 1,681,115 $5.14
$15.01 - 30.00 4,407,408 7.4 24.00 1,268,117 22.67
$30.01 - 45.00 7,004,068 8.9 31.38 402,075 30.60
$45.01 - 65.00 20,264 8.0 46.83 5,065 46.83
---------- ---------
13,536,555 3,356,372
========== =========
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (12) Stock Plans (continued)
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
stock option and employee stock purchase plans, accordingly, no compensation
expense has been recognized in the consolidated financial statements for such
plans. The following assumptions were used in the calculation of these values
for fiscal years 1996 and 1997, respectively: volatility of 63.97%, risk free
interest rate of 6.18% and expected life of 3.7 years. Had compensation cost for
the Company's stock option plans been determined based upon the fair value at
the grant date for awards under these plans consistent with the methodology
prescribed under SFAS 123, "Accounting for Stock-based Compensation," the
Company's net income would have been reduced to the pro forma amounts indicated
below:
(in thousands) 1997 1996
---- ----
Net income As reported $222,125 $144,485
Pro forma 207,109 121,302
The effect of applying SFAS 123 as shown in the above proforma disclosure is not
representative of the proforma effect on net income in future years because it
does not take into consideration proforma compensation expense related to grants
made prior to fiscal 1996.
(b) Employee Stock Purchase Plans
The Company has two Employee Stock Purchase Plans (ESPP) which provide for the
combined availability of 4,500,000 shares of common stock to be purchased by
employees who have completed a minimum period of employment. Under the 1989
ESPP, employees must be continuously employed for a period of six months and
under the 1995 ESPP employees must be continuously employed for a period of two
years. Under these plans, options are granted to eligible employees twice yearly
and are exercisable through the accumulation of employee payroll deductions from
two to ten percent of employee compensation as defined in the plan, to a maximum
of $1,904 annually, for each plan, (adjusted to reflect increases in the
consumer price index) which may be used to purchase stock at 85 percent of the
fair market value of the common stock at the beginning or end of the option
period, whichever amount is lower. In fiscal 1997, 197,262 shares were purchased
at a weighted average price of $31.47 (153,768 at $21.43 and 136,698 at $16.75,
for 1996 and 1995, respectively). The remaining balance of both ESPPs for
purchase by employees at February 28, 1997 was 3,514,937 shares.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note (13) Geographic Area Information
(dollars in thousands)
% of % of % of
1997 Total 1996 Total 1995 Total
---- ----- ---- ----- ---- -----
Net Sales:
US $ 998,384 71.0% $771,179 70.1% $590,331 70.8%
Direct Foreign Export 38,457 2.7 35,378 3.2 37,889 4.5
----------- ----- ---------- ----- -------- -----
Total US Source 1,036,841 73.7 806,557 73.3 628,220 75.3
Europe 273,972 19.5 215,796 19.6 155,467 18.7
Other (1) 95,739 6.8 77,996 7.1 49,531 6.0
----------- ----- ---------- ----- -------- -----
Total Sales $1,406,552 100.0% $1,100,349 100.0% $833,218 100.0%
========== ===== ========== ===== ======== =====
Income from
Operations:
US $282,480 88.2% $169,103 81.7% $196,792 83.0%
Europe 29,877 9.3 33,834 16.4 39,343 16.6
Other (1) 7,921 2.5 3,998 1.9 881 0.4
-------- ---- -------- ---- -------- ----
Total Income
from Operations $320,278 100.0% $206,935 100.0% $237,016 100.0%
======== ===== ========= ===== ======== =====
Identifiable Assets:
US $1,122,762 85.9% $841,979 84.4% $588,028 83.7%
Europe 119,527 9.2 115,949 11.7 92,548 13.2
Other (1) 64,566 4.9 38,980 3.9 21,624 3.1
---------- ----- -------- ----- -------- -----
Total Assets $1,306,855 100.0% $996,908 100.0% $702,200 100.0%
========== ===== ======== ===== ======== =====
(1) Includes Australia, Latin America and the
Pacific Rim countries.
Note (14) Quarterly Financial Data (unaudited)
(in thousands, except per share amounts)
Income Net
Net Gross From Net Income
Sales Profit Operations Income Per Share (a)
1997
First Quarter $ 323,499 $190,645 $ 85,672 $ 57,139 $0.37
Second Quarter 340,940 202,085 50,141 36,908 (b) 0.24
Third Quarter 361,558 213,960 99,029 67,742 0.44
Fourth Quarter 380,555 224,756 85,436 60,336 (c) 0.39
---------- -------- -------- -------- -----
Total Year $1,406,552 $831,445 $320,278 $222,125 $1.43
========== ======== ======== ======== =====
1996
First Quarter $ 247,337 $146,612 $ 68,048 $ 46,262 $0.31
Second Quarter 266,804 158,067 74,968 51,389 0.34
Third Quarter 284,193 168,213 78,619 54,286 0.36
Fourth Quarter 302,015 178,758 (14,699) (7,451) (d) (0.05)
---------- --------- -------- -------- ------
Total Year $1,100,349 $651,650 $206,935 $144,485 $0.95
========== ======== ======== ======== ======
(a) Due to rounding some totals will not add.
(b) Includes $43.0 million nonrecurring charge related to the acquisitions of
ZeitNet and Network Express.
(c) Includes $20.0 million nonrecurring charge related to the acquisitions of
Netlink and OASys.
(d) Includes $94.3 million nonrecurring charge related to acquisitions of
SMC's Enterprise Networks Business Unit and Fivemere (by
Network Express)
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cabletron Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Cabletron
Systems, Inc. and subsidiaries as of February 28, 1997 and February 29, 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended February 28, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Cabletron Systems,
Inc. and subsidiaries as of February 28, 1997 and February 29, 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended February 28, 1997, in conformity with generally accepted
accounting principles.
Boston, Massachusetts
March 21, 1997
<PAGE>
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Information relating to the Directors of the Company is set forth in the section
entitled "Election of Directors," appearing in the Company's Proxy Statement for
its 1997 Annual Meeting of Stockholders ("Proxy Statement"), which is
incorporated herein by reference. Information relating to the executive officers
of the Company is included in Item 4a, "Executive Officers of the Registrant,"
appearing in Part I hereof. Information with respect to directors and executive
officers who failed to timely file reports required by Section 16(a) of the
Securities Exchange Act of 1934 may be found in the Proxy Statement under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance." Such
information is incorporated herein by reference.
ITEM 11. Executive Compensation
See the information set forth in the section entitled "Executive Compensation,"
appearing in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders, which is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
See the information set forth in the section entitled "Election of Directors -
Beneficial Ownership," appearing in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders, which is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions
See the information set forth in the section entitled "Certain Transactions,"
appearing in the Company's Proxy Statement for its 1997 Annual Meeting of
Stockholders, which is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report:
1. Consolidated financial statements (see item 8)
The consolidated financial statements of Cabletron Systems, Inc. can be
found in this document on the following pages:
page(s)
Independent Auditors' Report 31
Consolidated Balance Sheets at February 28, 1997
and February 29, 1996 17
Consolidated Statements of Income for fiscal years
1997, 1996 and 1995 18
Consolidated Statements of Stockholders' Equity
for fiscal years 1997, 1996 and 1995 ` 19
Consolidated Statements of Cash Flows for fiscal years
1997, 1996 and 1995 20
Notes to Consolidated Financial Statements 21-30
2. Consolidated financial statement schedule
The consolidated financial statement schedule of Cabletron
Systems, Inc. is included in Part IV of this report:
Independent Auditors' Report 31
Schedule II - Valuation and Qualifying Accounts 36
All other schedules have been omitted since they are not required, not
applicable or the information has been included in the consolidated financial
statements or the notes thereto.
<PAGE>
3. Exhibits
The following exhibits unless herein filed are incorporated by reference.
3.1 Restated Certificate of Incorporation of Cabletron Systems, Inc., a
Delaware corporation, which is incorporated by reference to Exhibit
3.1 of the Company's Registration Statement on Form S-1, No.
33-28055, (the First Form S-1).
3.2 Certificate of Correction of the Company's Restated Certificate of
Incorporation, which is incorporated by reference to Exhibit 3.1.2
of the Company's Registration Statement on Form S-1, No. 33-42534
(the Third Form S-1).
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation of Cabletron Systems, Inc., incorporated by
reference to Exhibit 4.3 of the Company's Registration Statement on
Form S-3, No. 33-54466, (the First Form S-3).
3.4 Amended bylaws of Cabletron Systems, Inc., which is incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement on
the Third Form S-1.
10.1 1989 Restricted Stock Purchase Plan, which is incorporated by
reference to Exhibit 10.1 of the First Form S-1.
10.2 1989 Restricted Stock Plan, which is incorporated by reference to
Exhibit 10.2 of the First Form S-1.
10.3 1989 Equity Incentive Plan, as amended, which is incorporated by
reference to Exhibit 4 of the Company's Registration Statement on
Form S-8, No.33-50454.
10.4 1989 Employee Stock Purchase Plan, as amended, which is incorporated
by reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-8, No. 33-31572.
10.5 1989 Stock Option Plan for Directors, as amended, which is
incorporated by reference to Exhibit 10.5 of the Third Form S-1.
10.6 Agency Agreement between the Registrant and International
Cable Networks Inc., which is incorporated by reference to Exhibit
10.6 of the First Form S-1.
10.7 Modification dated October 1990, of the Blue, Inc. Lease, relating
to leased premises in Ironton, Ohio, which is incorporated by
reference to Exhibit 10.8 of the First Form S-3.
10.8 Lease dated October 19, 1992 between the Registrant and Heidelberg
Harris, Inc., relating to leased premises in Durham, New Hampshire,
which is incorporated by reference to Exhibit 10.9 of the First Form
S-3.
10.9 Lease dated December 1, 1991 between the Registrant and George L.
Beattie, Ruth V. Blomstedt and Dan A. Wooley, as trustees of the
Execpark Realty Trust, relating to leased premises in Merrimack, New
Hampshire, which I s incorporated by reference to Exhibit 10.10 of
the First Form S-3.
10.10 Lease dated July 3, 1992 between the Registrant and Shannon Free
Airport Development Company Limited, relating to leased premises in
Limerick, Ireland, which is incorporated by reference to Exhibit
10.12 of the Company's Registration Statement on the First Form S-3.
10.11 Lease dated July 15, 1996 between the Registrant and the Lawrence
County Economic Development Corporation, relating to leased premises
in Ironton, Ohio, which is filed with this form 10-K.
10.12 Credit Agreement dated March7, 1997, between the Registrant and the
Chase Manhattan Bank, as administrative agent, the First National
Bank of Chicago, as syndication agent and certain other lenders
relating to the Company's $250,000,000 revolving credit facility.
11.1 Statement regarding computation of per share earnings.
22.1 Subsidiaries of Cabletron Systems, Inc.
23.1 Consent of Independent Auditors.
(b) The Registrant filed on form 8-K during the last quarter of the fiscal year
ended February 28, 1997, as follows:
The Company filed this report on form 8-K to disclose certain information
that Network Express had filed confidentially before the Company had acquired
them.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Cabletron Systems, Inc.:
Under date of March 21, 1997, we reported on the consolidated balance sheets of
Cabletron Systems, Inc. and subsidiaries as of February 28, 1997 and February
29, 1996, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year period ended
February 28, 1997. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related consolidated
financial statement schedule as listed in item 14(a)2 of this Form 10-K. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
financial statement schedule based on our audits.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 21, 1997
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
CABLETRON SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended February 28, 1997, February 29, 1996 and February 28, 1995
(in thousands)
<S> <C> <C> <C> <C> <C>
Amounts
attributable
Balance at to changes Balance
in
beginning Charged to foreign Amounts at end
Description of period expense currency written off of period
rates
Allowance for
doubtful
accounts
February 28, 1997 $6,655 $10,698 ($1) ($1,876) $15,476
February 29, 1996 $6,190 $2,725 $1 ($2,261) $6,655
February 28, 1995 $6,066 $124 --- --- $6,190
</TABLE>
<PAGE>
Signatures
Pursuant to the requirement of Section 13 or 15(d) 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.
CABLETRON SYSTEMS, Inc.
Date: May 28, 1997 By: /s/ S. Robert Levine
S. Robert Levine
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Titles Date
/s/ S. Robert Levine President, Chief Executive Officer, May 28, 1997
S. Robert Levine and Director
/s/ Craig R. Benson Chairman, Chief Operating Officer May 28, 1997
Craig R. Benson Treasurer and Director
/s/ David J. Kirkpatrick Director of Finance and Chief May 28, 1997
David J. Kirkpatrick Financial Officer
/s/ Michael D. Myerow Secretary and Director May 28, 1997
Michael D. Myerow
/s/ Paul R. Duncan Director May 28, 1997
Paul R. Duncan
/s/ Donald F. McGuinness Director May 28, 1997
Donald F. McGuinness
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
10.11 Lease between the Registrant and Lawrence County
Economic Development Corporation 46
10.12 Credit Agreement between the Registrant and the Chase
Manhattan Bank, the First National Bank of Chicago and
and other lenders for a $250,000,000 revolving credit
facility 65
11.1 Statement regarding computation of per share earnings 39
22.1 Subsidiaries of Cabletron Systems, Inc. 40
23.1 Consent of Independent Auditors 41
<PAGE>
EXHIBIT 11.1
CABLETRON SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For Years Ended February 28, 1997, February 29, 1996 and February 28, 1995
1997 1996 1995
---- ---- ----
(in thousands, except per share data)
Net Income Per Common Share - (non-dilutive)
Net income $222,125 $144,485 $156,574
======== ======== ========
Weighted average number of common
shares
outstanding 155,207 151,525 145,125
======= ======= =======
Net income per common share $ 1.43 $ 0.95 $ 1.08
======== ======== ========
Net Income Per Common Share - (full dilution)
Net income $222,125 $144,485 $156,574
========= ======== ========
Weighted average number of common
shares
outstanding 155,207 151,525 145,125
Add net additional common shares upon
exercise of
common stock options 3,726 3,646 1,892
-------- ------- -------
Adjusted average common shares outstanding 158,933 155,171 147,017
======== ======= =======
Net income per common share $ 1.40 $ 0.93 $ 1.07
======== ======= =======
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF CABLETRON SYSTEMS, INC.
Cabletron Systems de Argentina S.A.(Argentina)
Cabletron Systems Pty. Limited (Australia)
Cabletron Systems do Brasil Representacoes Ltda. (Brazil)
Cabletron Systems of Canada Limited (Canada)
Cabletron Systems Chile (Chile)
Cabletron Systems de Colombia Ltda. (Colombia)
Cabletron Systems Inc. - Organizacni Slozka (Czech Republic)
Cabletron Systems Acquisition, Inc. (Delaware)
Cabletron Systems Government Sales, Inc. (Delaware)
Cabletron Insurance Company (Vermont)
Cabletron Systems Sales & Service, Inc. (Delaware)
Cabletron Systems Ltd. (England)
Cabletron Systems S.A. (France)
International Cable Networks, Inc.(Virgin Islands)
Cabletron Systems, GmbH (Germany)
Cabletron Systems Limited (Ireland)
Cabletron Systems (Distribution)Limited (Ireland)
Cabletron Systems Inc. (Hong Kong)
Cabletron Systems S.r.l. (Italy)
Cabletron Systems, K.K. (Japan)
Cabletron Systems, Pte Ltd (Korea)
Cabletron Systems Sdn Bhd (Malaysia)
Cabletron Systems, S.A. de C. V.(Mexico)
Cabletron Systems Benelux BV (Netherlands)
Netlink, Inc. (Delaware)
Netlink, Ltd (UK)
Network Express, Inc. (Michigan)
Network Express GmbH (Germany)
Network Express K.K. (Japan)
Network Express Europe Limited (UK)
The OASys Group, Inc. (California)
Cabletron Systems, Pte Ltd.(Singapore)
Cabletron Systems, Ltd (South Africa)
Cabletron Systems S.A. (Spain)
Cabletron Systems Sweden AB (Sweden)
Cabletron Systems de Venezuela C.A.(Venezuela)
Fivemere Ltd (UK)
Fivemere Asia-Pacific Singapore Limited
Fivemere Developments Limited
ZeitNet Inc. (California)
ZeitNet India Private Limited (India)
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Cabletron Systems, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-50454, 33-31572 and 33-42490) on Form S-8 of Cabletron Systems, Inc. of our
reports dated March 21, 1997, relating to the consolidated balance sheets of
Cabletron Systems, Inc. and subsidiaries as of February 28, 1997 and February
29, 1996, and the related consolidated statements of income, stockholders'
equity and cash flows and the related schedule for each of the years in the
three-year period ended February 28, 1997, which reports are included in the
February 28, 1997 Annual Report to Stockholders on Form 10-K of Cabletron
Systems, Inc.
Boston, Massachusetts
May 29, 1997
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors Officers
S. Robert Levine S. Robert Levine
President and Chief Executive Officer, President and Chief Executive Officer
Cabletron Systems, Inc.
Craig R. Benson
Craig R. Benson Chairman of the Board
Chairman of the Board, Chief Operating Officer and
Chief Operating Officer and Treasurer, Treasurer
Cabletron Systems, Inc.
Christopher J. Oliver
Michael D. Myerow Director of Engineering and
Partner in law firm of Myerow & Poirier Manufacturing
Paul R. Duncan David J. Kirkpatrick
Executive Vice President Director of Finance and
and President, Specialty Business Group Chief Financial Officer
Reebok International, Ltd.
Michael D. Myerow
Donald F. McGuinness Secretary
Chairman of the Board,
Electronic Designs, Inc.
STOCKHOLDER INFORMATION
Annual Meeting of Stockholders Transfer Agent
The Annual Meeting of Stockholders will State Street Bank and Trust Company
take place at 10:00 a.m. on Thursday, is the Transfer Agent and Registrar
July 10, 1997 at the Cabletron Systems, of the Company's common stock.
Training Facility, Pease International Inquires regarding lost
Trade-port, Newington, NH 03801 certificates, change of address,
name or ownership should be
addressed to:
Stockholder Inquiries Boston EquiServe
Inquiries relating to financial information PO Box 8200
of Cabletron Systems, Inc. should be Boston, MA 02266-8200
addressed to:
Cabletron Systems, Inc. Independent Auditors
Investor Relations KPMG Peat Marwick LLP
PO Box 5005 99 High Street
Rochester, NH 03866-5005 Boston, MA 02110
Telephone: (603) 337-4225
Facsimile: (603)332-4004 Legal Counsel
Ropes & Gray
Listing One International Place
Cabletron Systems, Inc. common stock is Boston, MA 02110
traded on the New York Stock Exchange -
symbol CS.
<PAGE>
WORLDWIDE LOCATIONS
Corporate Headquarters
Cabletron Systems, Inc.
Rochester, NH
Phone: (603) 332-9400
North America
ALASKA
Anchorage
Phone: (205) 733-1772
ARIZONA
Phoenix
Phone: (602) 953-8500
CALIFORNIA
Inglewood
Phone: (310) 342-5942
Newport Beach
Phone: (714) 852-4126
Sacramento
Phone: (916) 449-9622
San Diego
Phone: (619) 497-2546
San Jose
Phone: (408) 383-1550
Santa Clara
Phone: (408) 986-9100
COLORADO
Denver
Phone: (303) 331-0990
CONNECTICUT
Hartford
Phone: (860) 947-7684
FLORIDA
Ft. Lauderdale
Phone: (305) 776-2004
Tallahasse
Phone: (904) 309-0212
Tampa
Phone: (813) 282-1227
GEORGIA
Atlanta
Phone: (404) 395-9909
HAWAII.
Honolulu
Phone: (808) 532-9830
IDAHO
Post Falls
Phone: (208) 773-1711
ILLINOIS
Chicago
Phone: (312) 214-2595
Rolling Meadows
Phone: (708) 364-4555
INDIANA
Indianapolis
Phone: (317) 587-1600
IOWA
Iowa City
Phone: (319) 337-3330
KANSAS
Overland Park
Phone: (913) 338-7119
KENTUCKY
Lexington
Phone: (606) 225-8518
LOUISIANA
Metaire
Phone: (504) 836-5526
MARYLAND
Baltimore
Phone: (410) 385-5224
MICHIGAN
Grand Rapids
Phone: (313) 953-1334
Livonia
Phone: (313) 953-8510
Ann Arbor
Phone: (313) 761-5005
MINNESOTA
Minnetonka
Phone: (612) 449-5214
MISSOURI
St. Louis
Phone:( 314) 542-3142
NEBRASKA
Omaha
Phone: (402) 496-9390
NEVADA
Las Vegas
Phone: (702) 892-3775
NEW YORK
New York
Phone: (212) 643-9560
Rochester
Phone: (716) 383-4240
NORTH CAROLINA
Durham
Phone: (919) 484-8381
Charlotte
Phone: (704) 525-4895
Greensboro
Phone: (910) 299-2928
OHIO
Cincinnati
Phone: (513) 762-7646
Columbus
Phone: (614) 785-6416
Independence
Phone: (216) 573-3709
OKLAHOMA
Tulsa
Phone: (918) 492-2895
OREGON
Lake Oswego
Phone: (503)968-6919
PENNSYLVANIA
Erie
Phone: (814) 454-5755
Philadelphia
Phone: (215) 569-5100
Pittsburgh
Phone: (412) 928-4999
RHODE ISLAND
Lincoln
Phone: (401) 334-1600
SOUTH CAROLINA
Columbia
Phone: (803) 748-1232
TENNESSEE
Goodlesville
Phone: (615) 859-7797
TEXAS
Austin
Phone: (512) 794-9166
Dallas
Phone: (972) 931-6222
Houston
Phone: (713) 871-3134
San Antonio
Phone: (210) 344-7241
WORLDWIDE LOCATIONS CONTINUED
UTAH
Salt Lake City
Phone: (801) 350-9480
VIRGINIA
Herndon
Phone: (703) 736-9100
Richmond, VA 23236
Phone: (804) 323-0291
WASHINGTON
Bellevue
Phone: (206) 637-2977
WISCONSIN
Milwaukee
Phone: (414) 221-0475
Madison
Phone: (608) 273-9192
PUERTO RICO
Guaynabo
Phone: (787) 273-6770
Canada
CALGARY
Calgary
Phone: (403) 234-8012
VANCOUVER
Vancouver
Phone: (604) 688-2550
OTTAWA
Ottawa
Phone: (613) 782-2320
TORONTO
Toronto
Phone: (416) 213-8222
MONTREAL
Montreal
Phone: (514) 395-4949
EUROPE
BELGIUM
Belgium
Phone: 011-32-2176-4901
CZECH REPUBLIC
Praha
Phone: 011-42-2-2423-8127
ENGLAND
Berkshire
Phone: 011-44--635-580000
London
Phone: 011-44-171-312-0210
Cheshire, England WA7 1HR
Phone: 011-44-928-579013
FRANCE
Rosny-Sous-Bois
Phone: 011-33-148-947072
GERMANY
Frankfurt
Phone: 011-49-610-339900
Berlin
Phone: 011-49-30-399-5939
Munich
Phone: 011-49-89-3177450
ITALY
Assago
Phone: 011-39-2-892-2021
NETHERLANDS
Woerden
Phone: 011-31-348-433155
RUSSIA
Moscow
Phone: 011-7501-258-7673
SCOTLAND
Sterling
Phone: 011-44-1786-449-264
SPAIN
Madrid
Phone: 011-34-1326-4320
SWEDEN
Taby
Phone: 011-46-8792-6040
SWITZERLAND
Zurich
Phone: 011-41-1308-3610
Latin America
ARGENTINA
Buenos Aires
Phone: 011-54-13-42777
BRASIL
Sao Paulo
Phone: 011-55-11-5561-0888
Rio de Janeiro
Phone: 011-55-21-532-1504
Curitiba
Phone: 011-55-41-232-7154
CHILE
Santiago
Phone: 011-56-2203-3733
COLUMBIA
Santa fe de Bogata
Phone: 011-57-1-2960009
MEXICO
Mexico City
Phone: 011-525-629-9904
Guadalajara
Phone: 011-52-3678-9224
Monterrey
Phone: 011-52-8-335-9234
VENEZUELA
Caracas
Phone: 011-58-2285-6267
Pacific Rim
AUSTRALIA
Brisbane
Phone: 011-61-7367-1750
Canberra
Phone: 011-61-6-257-2422
Melbourne
Phone: 011-61-3526-3639
Sydney
Phone: 011-61-29950-5900
CHINA
Beijing
Phone: 011-86-1-8492748
Shanghai
Phone: 011-86-21-6248-1120
HONG KONG
Wanchai
Phone: 011-852-539-6882
INDIA
Bombay
Phone: 011-91-22-2184-434
New Delhi
Phone: 011-91-11-462-1586
JAPAN
Tokyo
Phone: 011-81-3-3459-1981
KOREA
Seoul
Phone: 011-822-739-5257
WORLDWIDE LOCATIONS CONTINUED
MALAYSIA
Penang
Phone: 011-60-3754-4388
Selangor
Phone: 011-60-3754-4388
SINGAPORE
The Cavendish
Phone: 011-65-775-5355
TAIWAN
Taipei Hsien
Phone: 011-886-2-6487641
THAILAND
Bangkok
Phone: 011-662-661-9238
Middle East
SAUDI ARABIA
Phone: 011-9661-462-0101
Africa
SOUTH AFRICA
Johannesburg
Phone: 011-27-11-709-1300
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<EXCHANGE-RATE> 1.00
<CASH> 214,828
<SECURITIES> 165,396
<RECEIVABLES> 235,372
<ALLOWANCES> 15,476
<INVENTORY> 197,438
<CURRENT-ASSETS> 898,424
<PP&E> 342,633
<DEPRECIATION> 151,910
<TOTAL-ASSETS> 1,306,855
<CURRENT-LIABILITIES> 214,255
<BONDS> 0
0
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<COMMON> 1,563
<OTHER-SE> 1,081
<TOTAL-LIABILITY-AND-EQUITY> 1,306,855
<SALES> 1,406,552
<TOTAL-REVENUES> 1,406,552
<CGS> 595,326
<TOTAL-COSTS> 595,326
<OTHER-EXPENSES> 490,949
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,422
<INCOME-PRETAX> 339,700
<INCOME-TAX> 117,575
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<DISCONTINUED> 0
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<NET-INCOME> 225,125
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</TABLE>
Exhibit 10.11
AGREEMENT OF LEASE
This Agreement of Lease, or "Lease" made this 15th day of July, 1996, by
and between:
LANDLORD: Lawrence County Economic Development Corporation, a
corporation duly organized pursuant to the laws of the State of Ohio,
(hereinafter referred to as "LANDLORD").
TENANT: Cabletron Systems, Inc., a corporation duly organized pursuant to
the laws of the State of Delaware, (hereinafter referred to as "TENANT").
WITNESSETH:
WHEREAS, it is in the intention of the LANDLORD to promote the creation of
additional employment opportunities for the citizens of Southeastern Ohio; and
WHEREAS, pursuant to mense agreements, the TENANT has agreed to create
additional employment opportunities for the citizens of Southeastern Ohio
subject to the LANDLORD leasing to TENANT the Leased Premises (hereinafter
defined);
NOW, THEREFORE, IN CONSIDERATION of One Dollar ($1.00) and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, and the mutual promises contained herein,
the parties agree as follows:
DATA SHEET
A. LEASED PREMISES. The land described in Exhibit A, attached hereto and
made a part hereof, including all easements, rights, privileges and
appurtenances thereunto belonging or pertaining, and all of the right, title and
interest of LANDLORD therein, and in the streets and ways adjacent thereto,
together with the buildings and other structures and other improvements now or
hereafter to be erected upon the land, including, without limitation, the
building to be erected in accordance with the Building Plans attached hereto as
Exhibit B and made a part hereof (the "Building"), all machinery, fixtures and
equipment forming or becoming attached to said buildings or other structures,
including, but without limitation, sectional buildings, electric equipment, gas
equipment, plumbing equipment, heating, air conditioning and ventilating
equipment, elevators and escalators, awnings, screens, blinds, shades, cabinets,
stoves, disposals, refrigerators, floor coverings, lifts, sprinkler equipment,
incinerating equipment, fire alarm systems, trees, hardy shrubs and perennial
flowers, and also including all materials stored on the land for incorporation
into the improvements.
As set forth in the description of the land contained in Exhibit A, the
right to possession and quiet enjoyment by the TENANT of the land which is part
of the Leased Premises is subject to the right of the LANDLORD and/or a
representative of Allied- Signal Inc. to enter upon the land which is part of
the Leased Premises during TENANT's daytime business hours and upon reasonable
notice for the purposes of inspecting, examining, testing and performing any
maintenance to the monitoring well situate on the land which is part of the
Leased Premises, the presence and location of which is set forth in Exhibit A.
B. TERM. The term of the Lease shall commence on the Commencement
Date, as defined in, and as to be determined in accordance with, Article 3.B. of
this Lease, and shall continue for seven (7) years (the "Initial Term") unless
renewed and extended or unless sooner terminated in accordance with the terms of
this Lease.
TENANT shall have four (4) options to renew the term of this Lease, each
option to be for three (3) year extension terms (each such extension term is
hereinafter referred to as an "Extension Term").
C. PERMITTED USE. Any purpose or use permitted by any
governmental authority having jurisdiction acting under any present or future
law, statute, or ordinance.
D. TOTAL MINIMUM ANNUAL RENT. As set forth in Article 5 hereof.
ARTICLE 1. (PREMISES). LANDLORD hereby leases to TENANT, and TENANT hereby
leases from LANDLORD, subject to and with the benefit of the terms, covenants,
conditions and provisions of this Lease, the Leased Premises.
ARTICLE 2. (COVENANT OF QUIET ENJOYMENT). LANDLORD hereby warrants that it, and
no other person, corporation or entity has the right to lease the Leased
Premises, and further, that so long as TENANT shall perform each and every
covenant to be performed by TENANT hereunder, TENANT shall have peaceful and
quiet possession of the Leased Premises without hindrance on the part of
LANDLORD, its authorized representatives, anyone under LANDLORD'S control, or
anyone claiming by or through LANDLORD, subject only to the right of
Allied-Signal Inc. to inspect, examine, test and maintain the monitoring well as
described in Section A. of the Data Sheet.
ARTICLE 3. (TERM).
A. Term. The term of this Lease shall begin on the Commencement Date
(as defined in and determined in accordance with Article 3.B.) and shall
terminate (unless renewed or extended or sooner terminated in accordance with
the terms hereof) upon the expiration of seven (7) years. (The word "term" shall
mean the Initial Term and shall include all Extension Terms.)
B. Commencement Date Pre-Conditions. The "Commencement Date" shall be
the date which is five (5) days after the date upon which all of the following
events shall have occurred:
(i) Construction of the Building and all other improvements to the
Leased Premises, including, without limitation, site work, landscaping, access
roads, and parking areas, shall have been substantially completed as determined
in accordance with Article 3.C. below, and all LANDLORD's Work, as set forth in
Article 10 hereof shall have been substantially completed in accordance with the
"Building Plans" as set forth in Article 10 hereof. Notwithstanding the above,
to the extent that LANDLORD is prevented from substantially completing
landscaping by reason of weather, LANDLORD may cause the same to be accomplished
after the Commencement Date and the same shall not be deemed a precondition to
the Commencement Date.
(ii) TENANT shall have received from LANDLORD's architect a
certificate to the effect that the Leased Premises are substantially complete
and that LANDLORD's Work, as set forth in Article 10 hereof, has been
substantially completed in accordance with the Building Plans.
(iii) The Leased Premises shall have been delivered to TENANT for
TENANT's use, occupancy, and the completion of any TENANT improvements to be
made to the Leased Premises.
(iv) The LANDLORD's representative shall have delivered to TENANT
(at TENANT's cost and expense) a policy of title insurance in accordance with
Article 31 hereof and LANDLORD shall have correctly certified to TENANT that all
LANDLORD's representations and warranties of LANDLORD set forth herein are true
and complete in all material respects.
(v) Every certificate of occupancy or permit required by law to
permit the Leased Premises to be used for their intended purposes in accordance
with the terms of this Lease shall have been issued by the appropriate public
authority, shall have been delivered to TENANT, and shall be in effect. The
delivery of the required certificate(s) of occupancy or permit shall either be a
delivery in hand, evidenced by a written receipt signed by TENANT, or a delivery
by United States certified mail, postage prepaid, return receipt requested, to
the TENANT evidenced by an appropriately endorsed return receipt showing
delivery to the addressee. Notwithstanding the above, in the event that a final
certificate of occupancy or permit cannot be issued solely by reason of work to
be done by TENANT pursuant to the terms of this Lease, then this condition shall
be deemed satisfied if TENANT is provided with a temporary certificate of
occupancy or permit together with a certification from the applicable building
authority and LANDLORD's architect to the effect that a permanent certificate of
occupancy or permit shall be issued upon completion by TENANT of work to be
performed by TENANT in accordance with the terms hereof.
In no event shall the Commencement Date occur prior to April 1, 1997.
C. "Substantial Completion" Defined. The Leased Premises and LANDLORD's
Work shall be deemed "substantially completed" when all of LANDLORD's Work, as
defined and set forth in Article 10 hereof, has sufficiently advanced to permit
TENANT, upon completion of the Work to be performed by it hereunder, which shall
include the Work set forth in Exhibit B-1 attached hereto and made a part hereof
("TENANT's Work"), and upon installation of TENANT's equipment, fixtures and
inventory, to open the Leased Premises for business as intended by TENANT, and
the only items to be completed by LANDLORD are of a so-called "punch list"
nature which shall have no adverse impact upon the business operations of
TENANT. In any case, however, LANDLORD's Work shall not be deemed substantially
completed until:
(a) the Building has been permanently connected with all necessary
public utility lines and with municipal (or private) water and sewerage systems,
meeting all applicable governmental requirements and all requirements as set
forth in the Building Plans;
(b) the roof, all exterior walls and all finished floors of
the Building shall have been completed;
(c) all heating, air conditioning, ventilating, lighting, sprinkler
and plumbing fixtures and equipment (and all piping, wiring, duct work and other
facilities required for the intended use of such fixtures and equipment, or
required for the intended use of the water or sewage systems or of any utility
serving the Building) shall have been installed and be capable of operating in
accordance with applicable specifications;
(d) all interior painting and all work requiring
interior scaffolding in the Building shall have been completed;
(e) all floors and doors in the Building shall be free and clear
of all obstructions;
(f) all entrances and openings into the Premises and the
Building shall have been secured; and
(g) all parking areas and interior roadways serving the Leased
Premises as shown on the Building Plans shall have completed and access thereto
shall be available from the public ways.
D. Occupancy Prior To Commencement Date. TENANT shall accept possession
and take occupancy of the manufacturing sections of the Leased Premises
designated in Exhibit B at such time prior to the Commencement Date as those
sections have been substantially completed, but in no event earlier than the
later of the following: (i) March 1, 1997; and (ii) such time as the LANDLORD's
architect certifies to TENANT that the remainder of LANDLORD's Work at the
Leased Premises shall be substantially completed within thirty (30) days. During
such period after TENANT accepts possession and takes occupancy of such section
and prior to the Commencement Date, TENANT shall pay a pro rata portion of the
Minimum Annual Rent at the rates set forth in Article 5 (as the same may be
adjusted in accordance therewith) based upon the ratio that the number of square
feet of the Leased Premises with respect to which possession has been accepted
bears to the total square footage of the Leased Premises to be built. The period
between the date of such possession and the Commencement Date is hereinafter
referred to as the "Pre-Commencement Date Occupancy Period".
E. Construction Self-Help. TENANT shall, from time to time after taking
possession of the Leased Premises, submit to LANDLORD punch lists setting forth
all items which remain incomplete or which require correction or which are
defective of which TENANT is then aware. LANDLORD shall, prior to payment of
retainage to its contractor(s), which in any event shall not be until all punch
list items submitted by LANDLORD within thirty (30) days of the Commencement
Date have been corrected, promptly cause to be repaired, replaced, or completed
any of such items set forth in such punch lists. After such time as LANDLORD has
paid the retainage to its contractor(s), LANDLORD shall assign all construction
warranties to TENANT and shall cooperate with TENANT in causing the
contractor(s) to correct any defective items.
In the event that LANDLORD shall fail to fully complete all such punch list
items within thirty (30) days after receipt of any such punch list from TENANT
(or if any such work shall reasonably require more than thirty (30) days to
complete, LANDLORD shall fail to commence the same within said thirty (30) day
period and shall not be diligently prosecuting the same to completion), then
TENANT shall have the right to complete the same and to reimburse itself for all
costs and liabilities incurred (together with interest thereon at the Interest
Rate as hereinafter defined), and in doing so, by withholding the amount of such
costs, liabilities and interest from the next due and succeeding installment(s)
of Minimum Annual Rent and any other payments to be made to LANDLORD hereunder
on a cumulative basis, as such installment(s) and other payments come due, until
TENANT has been fully reimbursed.
The Interest Rate as used in this Lease shall be the Prime Rate of
interest then being quoted in the Wall Street Journal, as the same may change
from time to time, plus two percent (2%).
F. Notice of Lease; Commencement Date Agreement. LANDLORD and TENANT shall,
upon execution hereof, execute a recordable notice or memorandum of this Lease.
The notice shall contain such information as either party may request, except
the rent and other charges payable by TENANT, and shall include a recordable
copy of Exhibit A, which shall be furnished by LANDLORD. After the Commencement
Date, TENANT shall execute and deliver to LANDLORD counterpart copies of a
recordable instrument setting forth the Commencement Date, and LANDLORD, not
more than sixty (60) days following receipt of those copies from TENANT, shall
execute, deliver and redeliver to TENANT all such counterpart copies except one
(1) to be retained by LANDLORD. In no event shall the entire Lease be recorded.
G. Extensions to Term. TENANT shall have the right to extend this Lease
and the term hereunder for four (4) Extension Terms. Each Extension Term shall
be for three (3) years, on the same terms and conditions and provisions as the
original term hereof, except the rate of rental shall be adjusted as provided in
Article 5. Each Extension Term shall commence immediately after the end of the
Initial Term or the preceding Extension Term, as the case may be. Unless the
TENANT shall notify the LANDLORD in writing of its intention not to extend this
Lease at least ninety (90) days prior to the termination of the Initial Term, or
any Extension Term, as the case may be, then the TENANT shall be deemed to have
exercised its right to extend this Lease for the next Extension Term.
ARTICLE 4. (USE). TENANT shall at all times conduct its business in a reputable
manner and in accordance with law and will not conduct its business within the
Leased Premises contrary to any law, statute, regulation or ordinance. The
Leased Premises shall not be used in such manner, that in accordance with any
requirement of law or of any public authority, LANDLORD shall be obliged on
account of the purpose of manner of said use to make any addition or alteration
to the land or to the Building or improvements comprising the Leased Premises.
ARTICLE 5. (RENT). TENANT covenants and agrees to pay to LANDLORD at the address
set out in the heading of this Lease, or at such other place as LANDLORD may
designate in writing to TENANT, rental at the rates and times set forth below.
A. Minimum Annual Rent During The Initial Term. Minimum Annual Rent during
each of the first six (6) years of the Initial Term of this Lease shall be Five
Dollars Eighty Cents ($5.80) per square foot of Building annually, or Six
Hundred Ninety Six Thousand Dollars ($696,000.00) annually, payable monthly, in
advance, in installments of Fifty Eight Thousand Dollars ($58,000.00), on the
day of each month which is the same day as the Commencement Date, adjusted as
set forth in Article 5.B. below. During the seventh (7th) year of the Initial
Term, Minimum Annual Rent shall be Three Dollars Ninety Cents ($3.90) per square
foot of Building annually, or Four Hundred Sixty Eight Thousand Dollars
($468,000.00) annually, payable monthly, in installments of Thirty Nine Thousand
Dollars ($39,000.00) on the day of each month which is the same day as the
Commencement Date, adjusted as set forth in Article 5.B.
B. Adjustments To Minimum Annual Rent During The Initial Term. The LANDLORD has
represented that the acquisition of the Leased Premises and the construction of
improvements to the Leased Premises are to be financed by it as follows:
(i) An interim construction loan of Four Million Five Hundred
Thousand Dollars ($4,500,000.00) at an interest rate of Seven and Seventy Five
One Hundredths Percent (7.75%) for twelve (12) months (the "Construction Loan").
The Construction Loan is to be paid down to approximately One Million Four
Hundred Thousand Dollars ($1,400,000.00) at the time of receipt of permanent
financing described below and thereafter interest shall be payable at Seven and
Seventy Five One Hundredths Percent (7.75%) amortized over approximately nine
(9) years (the "Bank Loan").
(ii) A State 166 loan in the amount of Two Million Three Hundred
Thousand Dollars ($2,300,000.00) for a term of approximately seven (7) years
amortized over a period of approximately six (6) years with an interest rate of
Zero Percent (0%) for the first year, One Percent (1%) the second year, Two
Percent (2%) the third year, Three Percent (3%) the fourth year, and Four
Percent (4%) the fifth and sixth years of the amortization period (the "State
166 Loan").
(iii) A CDBG loan in the amount of Two Hundred Twenty Eight Thousand
Dollars ($228,000.00) at Three Percent (3%) interest over a term of six (6)
years with a one (1) year deferral of interest and principal (the "CDBG Loan").
The Bank Loan, the CDBG Loan, the State 166 Loan, and the Construction Loan are
hereinafter referred to as the "Loans".
(iv) A State 412 Grant in the amount of Three Hundred Thousand
Dollars ($300,000.00), an ARC Grant in the amount of Two Hundred Fifty Thousand
Dollars ($250,000.00), and a Grant from CDBG in the amount of Two Hundred
Seventy Two Thousand Dollars ($272,000.00) (the "Grants").
The Minimum Annual Rent as set forth in Article 5.A. above during the
Initial Term has been based upon the "Assumptions To Cabletron Building
Projections ("Assumption Sheet") and accompanying Ten (10) year Annual Cash Flow
Projections ("Cash Flow Projections") dated July , 1996, provided by LANDLORD
and attached hereto as Schedule 1 and made a part hereof. At least five (5) days
prior to the Commencement Date, LANDLORD shall provide to TENANT a statement
certified by LANDLORD as true and accurate, setting forth:
(a) actual project costs incurred itemized as set forth in item
Number 9 of the Assumption Sheet and providing adequate backup detail to allow
TENANT to review each expenditure made;
(b) actual amounts of grants and loans received together with the
payment terms and interest rates;
(c) a loan payment schedule to be attached to this Lease as Schedule
2 showing payment dates of interest and principal under the Loans;
(d) revisions to Schedule 1, if any, which LANDLORD and TENANT have
agreed upon.
LANDLORD shall provide TENANT with the opportunity to audit from time to time
all transactions and payments related to the project to determine actual costs
thereof upon five (5) days written notice from TENANT, and any items that
TENANT's audit accurately discloses as not properly includable in such project
costs shall be removed therefrom for the purposes of determining rental or the
amount of the purchase price of the Leased Premises under this Lease.
To the extent that (A) the actual costs (including contingencies) incurred
by LANDLORD for any of the items listed in item Number 9 of the Assumption Sheet
are less than as stated in such item Number 9, or (B) the original principal
amounts or interest rates for any of the Loans are less than as stated in
Schedule 1 or Schedule 2, or (C) the amount of the Grants are greater than as
set forth in Schedule 1, or (D) timing of payment of the amounts of interest or
project cost payments result in a net benefit to LANDLORD as compared to the
projections shown in Schedules 1 or 2, or (E) any Elective Changes are made by
TENANT to construction of the improvements in accordance with Article 10 hereof
which result in an agreed upon decrease in project costs as set forth in
Schedule 1, then, at TENANT's option to be provided by LANDLORD in writing
within thirty (30) days after the amounts of such charges have been delivered,
either
(x) The Minimum Annual Rent during the first six (6) years of
the Initial Term shall remain at Six Hundred Ninety Six Thousand Dollars
($696,000.00) per annum and during the seventh (7th) year of the Initial Term at
Four Hundred Sixty Eight Thousand Dollars ($468,000.00) per annum, as set forth
above, as it otherwise may be adjusted pursuant hereto and all savings and
increased cash flow from that shown on Schedule 2 shall be applied to reduce the
principal amounts of the Loans (payment first to be made on the Bank Loan to the
extent that the same is permissible), such that the cash on hand at the
beginning of each Lease Year as shown in Schedule 1 shall be no greater than as
shown on the Cash Flow Projection, or
(y) The Minimum Annual Rent shall be reduced to such amount as
is necessary to reduce the principal balances of the Loans at the same times and
dates as would exist had they been paid down in accordance with Schedules 1 and
2, such that the cash on hand at the beginning of each Lease Year as shown in
Schedule 1 shall be no greater than as shown on the Cash Flow Projection.
To the extent that (i) any Elective Changes are made by TENANT to the
construction of the improvements in accordance with Article 10 hereof, and to
the extent that such Elective Changes result in an agreed upon increase in the
project costs as set forth in Schedule 1, or (ii) any other changes are made to
the project which are approved in advance by TENANT (both as to nature and
amount) and which do not result from LANDLORD's negligence or failure to
properly insure, such excess costs shall be funded by the Bank Loan, and the
Minimum Annual Rent shall be increased to such amount as is necessary to reduce
the principal balance of the Bank Loan to the same amount as would exist at the
end of the Initial Term as set forth in Schedules 1 and 2.
C. Initial Payment of Minimum Annual Rent. Contemporaneous with the
execution of this Lease, TENANT shall deposit into a certificate of deposit or
interest bearing money market account, with a lending institution acceptable to
LANDLORD and TENANT which shall act as an escrow agent, the sum of One Million
Dollars ($1,000,000.00). Such sum, together with interest earned thereon, shall
be held in escrow by the escrow agent and shall be released from such escrow
only upon the TENANT providing such escrow agent with a certificate signed by
the President, Treasurer, or Secretary of TENANT stating that the Leased
Premises are substantially complete and that a Certificate of Occupancy has been
issued and that the Commencement Date has occurred. All interest earned prior to
the Commencement Date shall be used by LANDLORD to pay project costs as set
forth in Schedule 1. The One Million Dollar ($1,000,000.00) amount shall be
treated, as between LANDLORD and TENANT, as prepaid Minimum Annual Rent,
provided, however, that the same shall be held in an interest bearing account
and the same shall be utilized by LANDLORD solely to pay down the Loans as shown
on the Cash Flow Projection. TENANT shall not be required to make further
payments of Minimum Annual Rent during the term until the full amount of such
advance payment, plus interest earned after the Commencement Date, has been
amortized against payments of Minimum Annual Rent required under the Lease.
LANDLORD shall, on a quarterly basis, provide TENANT with a statement of
interest earned on the advance payment of rent.
In the event that TENANT terminates this Lease as elsewhere provided
herein, then upon receipt of a written certificate from the President,
Treasurer, or Secretary of TENANT, stating that the Lease has been terminated by
TENANT, such escrow agent or LANDLORD shall return such One Million Dollars
($1,000,000.00) or any remaining balance thereof, plus interest earned thereon,
to TENANT, and LANDLORD shall have no rights therein.
D. Minimum Annual Rent During Extension Terms. During each of
the Extension Terms, Minimum Annual Rent shall be equal to Two Hundred Forty
Thousand Dollars ($240,000.00) per year, payable in monthly installments of
Twenty Thousand Dollars ($20,000.00).
E. Representations of LANDLORD. LANDLORD represents and warrants that all
revenue generated from payments by TENANT or other sources hereunder shall be
utilized to reduce the balance of and pay any interest payable under the Loans
and that no cash on hand in excess of amounts set forth in Schedules 1 and 2
shall be retained by LANDLORD, that the Loans have no prepayment penalties
except as disclosed in Schedules 1 and 2, that no financing other than that set
forth in Schedules 1 and 2 shall be obtained in connection with the Leased
Premises, that no mortgages or other liens shall be placed upon the Leased
Premises other than to secure the Loans, that all amounts due under the Loans
shall be paid promptly when due, that funds representing actual cash on hand as
shown in Schedule 1 shall be segregated in an interest bearing account, all
interest to be treated as cash in hand, and that cash generated from payments
due under this Lease shall not be utilized other than to make payments under the
Loans.
F. Tax on Rentals. The TENANT shall pay, as additional rent, before any
fine, penalty, interest or cost may be added thereto for nonpayment, any tax
that may be levied, assessed or imposed upon or measured by the rents reserved
hereunder, or upon a commercial lease by any governmental authority acting under
any present or future law, excluding any tax that may be payable upon the income
of LANDLORD.
G. No Set Off. TENANT covenants to pay all rents when due and, except as
expressly permitted to the contrary hereunder, without any set off, deduction or
demand whatsoever. Any monies paid or expenses incurred by LANDLORD to correct
violations of any of the TENANT'S obligations hereunder shall constitute
additional rent. Any additional rent provided for in this Lease becomes due with
the next installment of Minimum Annual Rent due after receipt of notice by
TENANT of such additional rent from LANDLORD. Rentals and statements required of
TENANT shall be paid or delivered to LANDLORD at the place designated for
notices to LANDLORD. If any payment of rent or additional rent due hereunder is
received by LANDLORD more than ten (10) days after written notice that it has
not been paid, then LANDLORD may, in addition to any other remedies LANDLORD may
have for late payment of rent, assess a late charge in the amount of five
percent (5%) of the late payment plus reasonable costs and expenses incurred by
LANDLORD in collecting such late rental.
ARTICLE 6. (TAXES). TENANT shall pay to LANDLORD, upon written notice from
LANDLORD or, at TENANT's option directly to the appropriate taxing authority, as
additional rent, all real estate taxes levied against the land and Building of
the Leased Premises during the term hereof. For purposes of this Article, "real
estate taxes" shall include payments for special assessments which legally
benefit the property, excluding any special assessments arising in connection
with the initial construction of the improvements to the Leased Premises. If
special assessments are imposed on the property during any portion of the term
or any option term, LANDLORD shall elect, or TENANT may elect, to pay any such
special assessments over the longest possible period not to exceed the length of
the then current term of the Lease and all periods for which options have
theretofore been exercised.
TENANT may, at TENANT'S option and expense, contest any such taxes.
LANDLORD shall, if required, cooperate with TENANT in such contest. If LANDLORD
so desires, and with written approval of TENANT, LANDLORD may contest any taxes
not contested by TENANT. Any tax savings resulting from any such contest shall
be passed on to TENANT. If either LANDLORD or TENANT elects to contest the
taxes, any costs and fees incurred in such contest shall be the responsibility
of said party and all refunds, net of such costs and expenses which shall be
repaid to the party incurring the same, shall belong to TENANT.
For the Tax Year (as hereinafter defined) in which this Lease commences or
terminates, the provisions of this Article shall apply, but TENANT'S liability
for any taxes for such year shall be subject to a pro rata adjustment, based
upon the amount of time within said Tax Year during which the Term occurs.
Nothing herein or in this Lease otherwise contained shall require or be
construed to require TENANT to pay any inheritance, estate, succession,
transfer, gift, franchise, income, or profit taxes that are or may be imposed
upon LANDLORD, its successor or assigns unless the same are imposed by the
taxing authorities in substitution for real estate taxes, in which case such
taxes shall be paid as if the same were taxes pursuant to the terms hereof.
For the purpose of this Lease, the term "Tax Year" shall mean the twelve
(12) month period established as the real estate tax year by the taxing
authorities having lawful jurisdiction over the Leased Premises.
ARTICLE 7. (LEASE YEAR). The term "Lease Year" as used in this Lease shall mean
the period of twelve (12) consecutive full calendar months, with the first Lease
year beginning on the date of Commencement Date of this Lease as set forth in
Article 3 hereof. Each succeeding Lease year shall commence upon the anniversary
date of the Commencement Date of the first Lease Year.
ARTICLE 8. (MAINTENANCE). After such time as all contractors defects have been
remedied in accordance with Article 3, TENANT agrees to make all repairs
(including replacements and alterations where necessary) necessary to keep the
exterior, structure, and interior of the Leased Premises in good order, repair
and condition, excluding, however, any items which are the responsibility of
LANDLORD to correct owing to their delivery in defective condition,
incompleteness, or failure to comply with the Building Plans. The exterior and
structure shall include (without limitation) each of the following:
(i) the outside walls and exterior faces thereof;
(ii) the roof and all roof covering and components;
(iii) the foundations and floor slab;
(iv) the gutters, downspouts and roof drain systems;
(v) the marquees and the light fixtures (and the bulbs therefor)
which are attached to, or a part of the marquees;
(vi) all structural members;
(vii) all wiring, plumbing, pipes, conduits and other water,
sewerage, utility and sprinkler fixtures and equipment (including, without
limitation, all connections with and components of any private sewage system)
serving the Leased Premises which are located within the Leased Premises; and
(viii) window frames and window sashes.
TENANT agrees to keep the Leased Premises in good repair and to keep the
same in good order, and in a clean, sanitary and safe condition in accordance
with the laws of Ohio and in accordance with all directions, rules and
regulations of the health officer, fire marshal, building inspector or other
proper officers of the governmental agencies having jurisdiction, at the sole
cost of TENANT.
LANDLORD shall assign to TENANT the benefit of all guarantees and
warranties applicable to the Leased Premises, including initial construction
warranties and guaranties. LANDLORD represents and warrants that construction
warranties and guaranties as set forth in Exhibit B-2 attached hereto and made a
part hereof shall be received by LANDLORD in connection with its construction of
the improvements. LANDLORD agrees that it shall have included in all
construction contracts relating to the Leased Premises or the Building to which
LANDLORD is a party, a provision to the effect that any and all rights and
remedies of LANDLORD, as owner, under any such contract, relating to the quality
of construction, may be assigned to TENANT and are intended to be assigned to
and for the benefit of TENANT. LANDLORD further agrees to take all reasonable
actions as may be necessary or appropriate to aid TENANT in enforcing any of
such rights or remedies.
It is expressly understood that except as set forth in this Lease, that
LANDLORD shall have no obligation to make any repairs or replacements whatsoever
to the Leased Premises.
TENANT will promptly notify LANDLORD of any material damage to the Leased
Premises. LANDLORD shall have the right to inspect the nature, character and
extent thereof, and TENANT shall timely repair the same at its expense to
prevent further damage to the Leased Premises. If TENANT shall fail to commence
repairs hereunder and diligently pursue the same within thirty (30) days, of
receipt of notice to repair received from LANDLORD, LANDLORD may make the same
and TENANT agrees to pay, as additional rent, the cost thereof to LANDLORD plus
Interest on such costs, upon LANDLORD'S demand therefor.
ARTICLE 9. (UTILITIES). TENANT shall be solely responsible for promptly paying
all charges for heat, water, sewer, gas, electricity or any other utility used
or consumed in the Leased Premises during the Term.
ARTICLE 10. (CONSTRUCTION).
A. Landlord's Work. LANDLORD has prepared complete working drawings
and specifications (the "Building Plans") which are attached hereto as Exhibit
B. and made a part hereof. LANDLORD shall cause to be done all work set forth in
the Building Plans except work specifically designated as work to be done by
TENANT ("LANDLORD's Work").
LANDLORD warrants that Building Plans shall conform to applicable
governmental requirements (including, without limitation, all applicable
federal, state and local laws relating to "architectural barriers" affecting the
physically handicapped and to all environmental protection and zoning laws); and
to sound and generally accepted engineering practices as applied to the site
conditions.
The Building Plans have been submitted to TENANT for its approval, and
TENANT has approved the same.
Neither TENANT's approval of the Building Plans nor any inspection TENANT
may make of LANDLORD's Work shall relieve LANDLORD of its obligations to design
and perform LANDLORD's Work in accordance with the requirements stated in this
Article, and LANDLORD shall make all changes required to cure LANDLORD's failure
to discharge those obligations. LANDLORD shall be solely responsible for both
the cost of and any delay resulting from any correction in LANDLORD's Work
performed in accordance with the Building Plans, which correction is required by
any governmental authority having jurisdiction.
TENANT may require changes ("Elective Changes"), in the Building Plans and
construction work after TENANT's final approval thereof, other than those which
may become necessary. If any Elective Changes made by TENANT shall result in a
net increase or decrease in the cost of LANDLORD's Work, then the amount of such
net increase or decrease shall result in an increase or decrease in the Minimum
Annual Rent payable in accordance with Article 5 hereof. All such Changes,
whether Elective or otherwise, shall be submitted by written "change order"
signed by TENANT, it being understood and agreed that TENANT shall not be
required to accept and/or pay for any work deviating from the Building Plans
which is not covered by a proper "change order" or pay more for such work than
is stated in such "change order". Increased or reduced amounts payable on
account of any Elective Change required by TENANT shall be agreed upon between
LANDLORD and TENANT in advance before any such change is effectuated. Such
increased or decreased costs shall be certified to by LANDLORD's architect or
engineer or contractor. On TENANT's written request therefor, LANDLORD shall
deliver to TENANT reasonably satisfactory evidence substantiating in detail the
changes in the cost of LANDLORD's Work resulting from TENANT'S Elective Changes.
B. Construction. LANDLORD shall begin LANDLORD's Work on or prior to August
1, 1996, ("Starting Date") and shall diligently prosecute the completion of
LANDLORD's Work on all business days and weekends, as necessary, without
interruption, in a good and workmanlike manner, using first quality material, in
accordance with the Building Plans (as they may be changed, as provided above)
and with applicable governmental requirements. LANDLORD's Work shall be fully
completed no later than April 1, 1997 ("Completion Date").
LANDLORD agrees that it shall cause to be constructed the Building and
common areas serving the same in accordance with the Building Plans. LANDLORD
shall not allow any changes or revisions of the Building Plans without the
consent of TENANT.
C. TENANT's Work. TENANT's Work shall include only the work described in
Exhibit B-1. Exhibit B-1 shall be updated to include TENANT's Building plans
when the same have been prepared. Prior to delivery of possession, LANDLORD
shall, on such date(s) as it may deem consistent with good construction
practice, make the Premises available to TENANT for the performance of TENANT's
Work by TENANT prerequisite to the opening of its business or for the moving of
fixtures or equipment owned by TENANT into the Leased Premises. TENANT agrees
that with respect to such activities and work during such period, it will (i)
not damage, delay or interfere with the prosecution or completion of any work
being performed by LANDLORD; (ii) comply with all procedures and regulations
prescribed by LANDLORD from time to time for coordination of such work and
activities with any work being performed by LANDLORD; and (iii) have in full
force and effect comprehensive general liability insurance as called for in
Article 18 hereof satisfactory to LANDLORD.
D. TENANT's Termination Rights. If LANDLORD has not begun LANDLORD's Work
by the Starting Date, TENANT shall have the right to terminate this Lease at any
time thereafter, but before LANDLORD begins LANDLORD's Work. If LANDLORD has not
completed LANDLORD's Work by July 1, 1997, for any reason whatsoever, TENANT
shall have the right to terminate this Lease at any time thereafter, but before
LANDLORD's Work has been completed. TENANT's termination rights shall be
exercised by written notice to LANDLORD, and upon the giving of such notice the
One Million Dollars ($1,000,000.00) sum plus interest in the escrow account
described in Article 5 hereof shall be returned to TENANT upon certification to
the escrow agent by TENANT of its termination of this Lease, and all obligations
and liabilities of the parties under this Lease shall cease and terminate.
E. Entry and Inspection by TENANT. During the course of construction TENANT
shall appoint representative(s) who shall be on site on a daily basis and who
shall have the right to enter the Leased Premises to inspect and monitor
LANDLORD'S Work and the progress thereof, to approve changes therein, and to
install TENANT's fixtures, equipment and inventory, and for purposes incidental
thereto. TENANT shall provide LANDLORD with a listing of persons who are
authorized to approve changes to LANDLORD's Work.
F. Alterations and Decoration. TENANT shall have the right, from time to
time, to redecorate the Leased Premises, to add or remove windows, doors,
doorways and loading docks and to make such other interior and/or exterior,
structural and/or nonstructural installations, erections, changes, modifications
and alterations in, on or to such parts of the Leased Premises (and the roof and
walls) as TENANT shall deem expedient or desirable for its purposes, provided
such installations, erections, alterations and changes shall not impair the
structural soundness of the Building. TENANT shall not, however, make any
structural change to the Building which will result in a change in the area of
the Leased Premises (except minor changes resulting from the construction of
additional loading docks and doorways) without first having obtained LANDLORD's
written consent thereto, which LANDLORD agrees shall not unreasonably be
withheld or delayed. Within a reasonable time before beginning any work
affecting the structure of the Building, TENANT shall submit complete working
drawings and specifications therefor to LANDLORD for its approval, which
approval shall not be unreasonably withheld or delayed. All salvage from any
such work shall belong to TENANT, but all permanent improvements (except as
otherwise provided herein) shall belong to LANDLORD and become a part of the
realty. LANDLORD agrees that during the term hereof, it shall not make any
alterations or additions to the Premises without obtaining the prior written
consent of TENANT.
ARTICLE 11. (INSURANCE).
A. Liability Insurance. Effective upon the Commencement Date or such
earlier time as possession of the Leased Premises or any portion thereof is
delivered to TENANT, TENANT shall maintain with respect to the Premises (or the
portions thereof which are occupied by TENANT) and its activities thereon or
therefrom broad form comprehensive general liability insurance with minimum
limits of liability of at least Five Million Dollars ($5,000,000.00). TENANT
shall deliver a certificate of such insurance to LANDLORD upon the commencement
of the term and continuing evidence of such coverage annually. Such insurance
policy shall be in a form reasonably satisfactory to LANDLORD and shall be
placed with a company qualified to do business in the location of the Leased
Premises and which is reasonably acceptable to LANDLORD, and shall provide the
same cannot be canceled without at least thirty (30)days prior written notice to
LANDLORD.
Renewal insurance certificates shall be provided to LANDLORD not less than
thirty (30) days preceding the expiration of the prior policy.
B. Personal Property Insurance. TENANT shall carry, with respect to
its personal property, fixtures and equipment upon and its leasehold
improvements to the Premises, insurance against fire and such other insurance
and coverages as may be required by law or be dictated by prudent business
practices.
C. Worker's Compensation Insurance. TENANT shall carry
worker's compensation insurance covering all its employees, and if TENANT shall
contract with any independent contractor for the furnishing of labor, materials
or services to TENANT.
D. Limits. The limits and nature of insurance hereinabove provided may,
from time to time, be increased and expanded so as to provide comparable
protection subject to conditions existing from time to time as determined by
LANDLORD and TENANT. No insurance shall be required to be carried by TENANT
hereunder until the Commencement Date shall have occurred except with respect to
the making of its improvements in the Leased Premises.
E. Fire Or Casualty. On and after the Commencement Date, TENANT shall
maintain with respect to Building fire insurance (with "special coverage" or
"all risk" endorsements including "differences in conditions") in an amount not
less than the full replacement cost thereof naming LANDLORD and TENANT as
insureds. For the purposes of this Article the Leased Premises shall be deemed
to include, without limitation, improvements to the realty which may, from time
to time, be made (whether by TENANT or others), such as painting, light
fixtures, floor coverings, partitions, and signs, to the extent the same are
customarily insurable as a part of the realty and covered by TENANT'S fire
insurance. The proceeds of such insurance shall be applied in accordance with
Article 16 hereof.
F. Waiver of Subrogation. LANDLORD and TENANT agree that (insofar as and to
the extent that such agreement may be effective without invalidating or making
it impossible to secure insurance coverage or payment from responsible insurance
companies doing business in the State of Ohio) with respect to any property loss
which is covered by insurance then being carried by LANDLORD or TENANT,
respectively, the party carrying such insurance and suffering said loss releases
the other of and from any and all claims with respect to such loss; and they
further agree that their respective insurance companies shall have no right of
subrogation against the other on account thereof, even though extra premium may
result therefrom, unless the same would invalidate or prevent payment under said
policies of insurance.
ARTICLE 12. (INDEMNITY).
A. TENANT's Indemnity. After delivery of the Leased Premises or any
portion thereof to TENANT, TENANT will indemnify LANDLORD and save it harmless
and defend it from and against any and all claims, actions, damages, liability,
losses and expenses in connection with loss of life, personal injury and/or
damage to property arising from or out of any occurrence in, upon or at the
Leased Premises, or the occupancy or use by TENANT of the Leased Premises, or
any part thereof, or occasioned wholly or in part by any act or omission of
TENANT, its agents, contractors and their employees, employees, servants,
lessees or concessionaires, except to the extent that the same (i) results from
the negligence or wrongful act of LANDLORD or its servants, agents, contractors,
or invitees or (ii) related to the existence of Hazardous Waste (as defined
below) on the Premises or adjoining premises prior to the Commencement Date, or
(iii) the same occurs in a portion of the Premises not yet delivered to TENANT
or as a result of construction activities being conducted by LANDLORD.
B. Hazardous Waste Indemnity. TENANT hereby indemnifies and agrees to
defend, protect and hold LANDLORD, its employees or agents, harmless from and
against any and all losses, liabilities, fines, charges, damages, injuries,
penalties, response costs, costs, expenses and claims of any and every kind
whatsoever paid, incurred or suffered by, or asserted against the LANDLORD
including, without limitation, the costs of any required or necessary repair,
cleanup or detoxification, and the preparation and implementation of any
closure, remedial or other required plan and all reasonable costs and expenses
incurred by LANDLORD in connection therewith, including, but not limited to,
reasonable attorneys' fees for, with respect to the escape, seepage, leakage,
spillage, discharge, emission, discharging or release of any Hazardous Material
(as hereinafter defined) from or on the Leased Premises after TENANT takes
possession of the same as a result of the actions of TENANT or its servants,
agents, or subcontractors, except to the extent that the same results from
Hazardous Waste present on the Leased Premises or adjoining premises prior to
the time TENANT has taken possession of the same (including, without limitation,
any losses, liabilities, damages, injuries, costs, expenses or claims asserted
or arising under any federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing liability
or standards of conduct concerning, any Hazardous Material).
LANDLORD hereby indemnifies and agrees to defend, protect and hold TENANT,
its employees or agents, harmless from and against any and all losses,
liabilities, fines, charges, damages, injuries, penalties, response costs,
costs, expenses and claims of any and every kind whatsoever paid, incurred or
suffered by, or asserted against the TENANT including, without limitation, the
costs of any required or necessary repair, cleanup or detoxification, and the
preparation and implementation of any closure, remedial or other required plans
and all reasonable costs and expenses incurred by TENANT in connection
therewith, including, but not limited to, reasonable attorneys' fees for, with
respect to, or as a direct or indirect result of the presence on or under, or
the escape, seepage, leakage, spillage, discharge, emission, discharging or
release of any Hazardous Material (as hereinafter defined) from or on the Leased
Premises occurring prior to TENANT taking possession of the Leased Premises or
resulting from the negligence of LANDLORD, its agents, servants, or
subcontractors (including, without limitation, any losses, liabilities, damages,
injuries, costs, expenses or claims asserted or arising under any federal, state
or local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of conduct
concerning, any Hazardous Material).
For purposes herein, the term "Hazardous Material" means and includes any
flammable explosives, oil, radioactive materials, or hazardous, toxic or
dangerous waste, substance or related material included, but not limited to,
substance defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act as amended, 42 U.S.C.
Section 9601, et seq.; or any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time hereafter in
effect.
ARTICLE 13. (MECHANIC'S LIENS). TENANT and LANDLORD agree to promptly pay all
sums of money in respect of any labor, services, materials, supplies or
equipment furnished or alleged to have been furnished to, in, at, or about the
Leased Premises, or furnished to their respective agents, employees, contractors
or subcontractors, which may be secured, by any mechanics, materialman,
suppliers or other type of lien against the Leased Premises. In the event any
such or similar lien shall be filed, the party responsible therefor shall within
twenty-four (24) hours of receipt of notice thereof, give notice to the other
party of such lien, and shall, within ten (10) days after receiving notice of
the filing of the lien, discharge such lien by payment of the amount due the
lien claimant.
However, LANDLORD or TENANT may in good faith contest such lien provided
that within such ten (10) day period, TENANT or LANDLORD provides the other with
a surety bond protecting against said lien in an amount at least one and
one-half (1-1/2) times the amount claimed as a lien.
ARTICLE 14. (ASSIGNMENT OR SUBLETTING). TENANT shall and agrees not to sell,
assign, mortgage, pledge, franchise or in any manner transfer this Lease within
six (6) years of the commencement of this Lease, and thereafter, shall not do so
without the previous written consent of the LANDLORD, in each instance first
obtained, which consent shall not be unreasonably withheld. Notwithstanding the
foregoing, TENANT may at any time sublease all or portions of the Building or
the Leased Premises for a term not to exceed the balance of the term hereof plus
extensions thereof theretofore duly exercised by TENANT, and TENANT may assign
the lease in connection with a merger, consolidation, sale of all or
substantially all of the assets or stock of TENANT, or the like, or to a
subsidiary or to an affiliate of TENANT. Consent by LANDLORD to one assignment
of this Lease or to one sale, mortgage, pledge or other transfer, including
licensing or the grant of a concession, shall not be a waiver of LANDLORD's
right under this Article as to any subsequent similar action. Notwithstanding
any assignment or subletting, TENANT shall remain fully liable on this Lease and
shall not be released from performing any of the terms, covenants and conditions
of this Lease. This prohibition includes any subletting or assignment which
would otherwise occur by operation of law.
Notwithstanding anything herein contained to the contrary, unless
otherwise agreed at any time by the relevant State Authority funding the
applicable Grant described in Article 5 B. (iv), should TENANT assign its
interest in this Lease to a party other than to (i) a subsidiary or affiliate or
(ii) a party to a merger, consolidation, or sale of all or substantially all of
the assets of stock of TENANT, which has not agreed to directly assume the
obligations undertaken by TENANT with respect to the creation of employment
opportunities, then the amount of each such Grant shall be treated as being
amortized over ten (10) years on a straight line basis from the date of such
Grant, and any unamortized portion thereof at the time of such assignment shall
be payable to the City of Ironton, Ohio within thirty (30) days after such
assignment.
LANDLORD'S rights to assign this Lease are and shall remain unqualified.
Upon any sale of the Leased Premises and provided the purchaser assumes all
obligations under this Lease, LANDLORD shall thereupon be entirely freed of all
obligations of the LANDLORD hereunder and shall not be subject to any liability
resulting from any act or omission or event occurring after such conveyance,
except that any covenant or obligation of LANDLORD hereunder affecting land
owned or payment of Loans or cash flow shall continue. Upon the sale or other
transfer of LANDLORD'S interest in this Lease, TENANT agrees to recognize and
attorn to such transferee as LANDLORD, and TENANT further agrees to execute and
deliver a recordable instrument setting forth the provisions of this paragraph.
In the event of any such transfer by LANDLORD, TENANT may, at its election,
arrange to pay its rent directly to the holders of the Loans to ensure that the
same are reduced in accordance with Schedules 1 and 2 hereof.
ARTICLE 15. (EMINENT DOMAIN).
A. Taking Resulting In Termination Of Lease. If at any time during the
term of this Lease or any extension thereof the whole or substantially all of
the Leased Premises shall be taken for any public or quasi-public purpose by any
lawful power or authority by the exercise of the right of condemnation or
eminent domain or by agreement between the LANDLORD and those authorized to
exercise such right in lieu of such taking, this Lease and the term hereby
granted, shall terminate and expire on the date of such taking, and the Minimum
Annual Rent and additional rent and all other charges herein reserved and
provided to be paid by TENANT shall be appropriately adjusted and apportioned
and paid to the date of such taking.
In the event of a taking of a portion of the Leased Premises, TENANT shall
have the right to terminate this Lease effective as of the date of the taking by
giving the other in writing notice of such termination within thirty (30) days
after TENANT receives notice of the taking if:
(i) As a result of the taking the Leased Premises are deprivedo
of access from the public road serving the same; or
(ii) Such part of the Building or parking areas are taken as would
render the balance of said Building or parking areas, after restoration,
unsuitable in TENANT's reasonable judgment for the proper operation of its
business.
Upon any termination under the provisions of this Article 15, the Minimum
Annual Rent, additional rent, and all other sums to be paid by TENANT shall be
appropriately adjusted and apportioned and paid to the date of such taking.
In the event a taking results in the termination of this Lease pursuant to
the applicable provisions, then TENANT may exercise its option to purchase
hereunder (on or after September 1, 1998) at any time within one hundred eighty
(180) days prior to such taking, and in such event, the net proceeds of any
award or awards, after the payment of all expenses incurred in the recovery
thereof, shall be distributed to TENANT. If TENANT does not purchase, then the
net proceeds of any award shall be distributed as follows:
(i) By paying to the holders of the Loans an amount equal to the
unpaid balance of the Loans plus interest after payment by LANDLORD and
application against the Loans of all cash on hand generated from this Lease in
excess of the product of Twenty Five Thousand Dollars ($25,000.00) and the
number of full Lease Years from the Commencement Date through the date of
termination which is or should have been in the possession of LANDLORD at such
time in accordance with Schedules 1 and 2;
(ii) Unless otherwise agreed by the relevant State Authority funding
the applicable Grant, by paying to the City of Ironton, Ohio the unamortized
portion of any such Grant at the time of termination (such Grant being treated
as being amortized over ten (10) years on a straight line basis from the date of
such Grant); and
(iii) Any balance remaining shall be payable to TENANT.
In such event, any prepaid rental shall be returned to TENANT and LANDLORD
shall be permitted to retain any amounts of cash on hand in its possession
generated from this Lease up to an amount equal to the product of Twenty Five
Thousand Dollars ($25,000.00) and the number of full Lease Years from the
Commencement Date to the date of termination.
B. Taking Not Resulting In Termination Of Lease. If only a portion of the
Leased Premises is taken and this Lease is not terminated pursuant to the
applicable provisions of this Article 15, then this Lease shall continue in full
force and effect with respect to that part of the Leased Premises not so taken,
without any effect upon the term of this Lease or any diminution of TENANT'S
obligations thereunder except for the reduction in Minimum Annual Rent
hereinafter provided.
The net proceeds of any award or awards, after the payment of all expenses
incurred in the recovery thereof shall be distributed in the following order of
priority:
(i) First to LANDLORD and shall be used by LANDLORD so far as is
necessary in restoring the Building and other improvements constructed by
LANDLORD pursuant to this Lease;
(ii) To TENANT and shall be used by TENANT so far as necessary in
restoring TENANT's improvements to the Building and other improvements
constructed by TENANT pursuant to this Lease;
(iii) Any balance shall be used to reduce the principal balance of
the Loans, and to the extent that there is any excess, it shall be payable to
TENANT.
From the date of the taking and until completion of such restoration,
TENANT shall be entitled to a fair and proportionate abatement of the Minimum
Annual Rent according to the extent to which there has been interference with
its operation of its business. Upon completion of such restoration, the Minimum
Annual Rent thereafter payable shall be reduced equitably and proportionately,
based upon the extent to which TENANT's use of the Leased Premises has been
affected and the amount that the principal balance of the Loans has been
reduced, such that the balance of the Loans shall amortize to the amounts set
forth in Schedule 2 at the conclusion of the Initial Term.
ARTICLE 16. (DESTRUCTION). If the Leased Premises shall be partially damaged by
any casualty insurable under the insurance policy paid for by the TENANT
pursuant to the terms hereof, TENANT shall, upon receipt of the insurance
proceeds and except as provided below, promptly repair the same (including any
repairs to TENANT's improvements made hereunder). If the Leased Premises (a) by
reason of such occurrence are rendered wholly untenantable or (b) are damaged as
a result of a risk which is not covered by insurance or (c) are destroyed or
damaged to the extent of at least Thirty Five Percent (35%), Twenty Five Percent
(25%), or Fifteen Percent (15%) of the total cost of replacing the Leased
Premises, during the third-last, second-last, or last year, respectively of the
Initial Term or of any Extension Term hereof, or (d) are at any time damaged to
the extent of Sixty Percent (60%) or more of the then monetary value thereof,
then or in any of such events, TENANT may elect to cancel this Lease by notice
of cancellation within sixty (60) days after such event and thereupon this Lease
shall expire.
In the event that this Lease is terminated by TENANT pursuant to the terms
hereof, the insurance proceeds shall be payable in the following order or
priority:
(i) By paying to the holders of the Loans an amount equal to the
unpaid balance of the Loans plus interest after payment by LANDLORD and
application against the Loans of any cash on hand generated from this Lease
which is in LANDLORD's possession or which should be in LANDLORD's possession in
accordance with Schedules 1 or 2 in excess of the product of Twenty Five
Thousand Dollars ($25,000.00) and the number of full Lease Years from the
Commencement Date through the date of termination;
(ii) Unless otherwise agreed by the relevant State Authority funding
the applicable Grant, by paying to the City of Ironton, Ohio the unamortized
portion of any such Grant at the time of termination (such Grant being treated
as being amortized over ten (10) years on a straight line basis from the date of
such Grant); and
(iii) Any balance remaining shall be payable to TENANT.
In such event, any prepaid rental shall be returned to TENANT and LANDLORD
shall be permitted to retain any amounts of cash on hand in its possession
generated from this Lease up to an amount equal to the product of Twenty Five
Thousand Dollars ($25,000.00) and the number of full Lease Years from the
Commencement Date to the date of termination.
If at any time during the term, the whole or any part of the Leased
Premises shall be destroyed or damaged by fire or other casualty, then in each
such case the rent and the other charges payable by TENANT shall be abated in an
amount which reflects the nature and extent of the injury to the business
conducted in the Leased Premises at the time of the destruction or damage and to
which the Leased Premises have been thereby rendered unfit for their intended
purposes, as well as the extent to which the Leased Premises have thereby been
rendered unfit for the conduct of such business and the amount that the
principal balance of the Loans has been reduced, such that the balance of the
Loans shall amortize to the amounts set forth in Schedule 2 at the conclusion of
the Initial Term. Such abatement shall come into effect on the date on which the
destruction or damage occurred and shall continue in effect until LANDLORD has
restored the Leased Premises to then prior condition, and for any further period
of time which TENANT, in the exercise of reasonable diligence, may require to
open the restored portion of the Leased Premises for business in normal manner
or, if this Lease is terminated because of the destruction or damage, until the
termination date.
ARTICLE 17. (SURRENDER OF PREMISES). This Lease shall terminate at the end of
the Initial Term hereof, or any Extension Term hereof, and TENANT hereby waives
notice to vacate the Leased Premises and agrees that LANDLORD shall be entitled
to the benefit of all provisions of law respecting the summary recovery of
possession of premises from a tenant holding over to the same extent as if
statutory notice had been given. For the period of six (6) months prior to the
expiration of the Initial Term or any Extension Term (provided the option for
the next Extension Term has not been exercised), LANDLORD shall have the right
to display on the exterior of the Leased Premises in any window or doorway
thereof, the customary sign "For Rent" and during such period LANDLORD may show
the Leased Premises and all parts thereof to prospective tenants during normal
business hours.
On the last day of the term, as the same may be extended, or on the sooner
termination thereof, TENANT shall peaceably surrender the Leased Premises in
good order, condition and repair, broom clean, fire and other unavoidable
casualty and reasonable wear and tear only excepted. TENANT shall, at is
expense, remove its trade fixtures, equipment, and signs from the Leased
Premises and any property not removed on the last day of the term shall be
deemed abandoned. Any abandoned fixtures or property of TENANT may be removed by
LANDLORD, the cost of which shall be charged to TENANT as additional rent. Any
damages caused by TENANT in the removal of such items shall be repaired at the
TENANT'S expense. All alterations, additions, improvements and fixtures (other
than TENANT'S signs, trade fixtures, and equipment) which shall have been made
or installed by either LANDLORD or TENANT upon the Leased Premises and all hard
surface bonded or adhesively affixed flooring, shall remain upon and be
surrendered with Leased Premises as a part thereof, without disturbance,
molestation or injury, and without charge, at the expiration or termination of
this Lease and shall then become property of LANDLORD. If the Leased Premises be
not so surrendered, TENANT shall indemnify LANDLORD against loss, liability or
expense resulting from delay by TENANT in so surrendering the Leased Premises,
or failure to leave the Leased Premises in the condition required hereunder
including, but not limited to, claims made by any succeeding tenant founded upon
such delay. TENANT shall promptly surrender all keys to the Leased Premises to
LANDLORD at the place then fixed for payment of rent and shall inform LANDLORD
of combinations on any locks and safes on the Leased Premises.
ARTICLE 18. (DEFAULT). The following shall be Events of Default hereunder:
A. A default in the payment, when due, of any rent, whether additional or
Minimum which exists ten (10) days after TENANT's receipt of written notice from
LANDLORD that the same shall be due.
B. A default in the performance of any of TENANT'S obligations under this
Lease other than those set forth in paragraph (a) above which exists thirty (30)
days, and such additional time, if any, as is reasonably necessary to cure the
default if the default is of such a nature that it cannot be reasonable cured
within thirty (30) days, after the TENANT shall have received written notice
from the LANDLORD of such default; provided, however, that nothing contained
herein shall be construed as precluding the LANDLORD from having such remedy as
may be and become necessary in order to preserve the LANDLORD'S rights and the
interests of the LANDLORD in the Leased Premises and in this Lease, even before
the expiration of the grace period provided for in this paragraph, if, under the
particular circumstances then existing, the allowance of such grace or the
giving of such notice would prejudice or endanger the rights and estate of the
LANDLORD in this Lease and in the Leased Premises.
So long as any Event of Default shall exist, then LANDLORD, in addition to,
and not in limitation of, any and all other rights or remedies available to it
by law, shall have the right, without notice to terminate this Lease and to
reenter upon the Leased Premises (with or without process of law where the
default consists of nonpayment of rent, the TENANT hereby waiving any demand for
possession of the Leased Premises). TENANT covenants and agrees that upon such
termination, TENANT will surrender and deliver up the Leased Premises peaceably
to LANDLORD, or the agent or attorney for the LANDLORD, immediately upon such
termination. TENANT covenants, in case of any termination by reason of an Event
of Default by TENANT hereunder, to pay LANDLORD all costs of enforcing its
rights under this Lease (including, without limitation, reasonable attorneys'
fees and expenses), and loss of rent during the then current term. LANDLORD
agrees to utilize reasonable efforts to relet the Leased Premises in the event
of such termination.
ARTICLE 19. (HOLDING OVER). In the event TENANT remains in possession of the
Leased Premises after the expiration of this Lease and without the execution of
a new Lease, it shall be deemed to be occupying the Leased Premises as a tenant
at will at one and one quarter (1.25) times the Minimum Annual Rent last in
effect, subject to all the conditions, provisions and obligations of this Lease
insofar as the same can be applicable to a tenancy at will, cancelable by either
party upon thirty (30) days written notice to the other.
ARTICLE 20. (INSPECTION). TENANT will permit LANDLORD, its agents, employees and
contractors to enter all parts of the Leased Premises to inspect the same and to
enforce or carry out any provision of this Lease upon forty-eight (48) hours
written notice to TENANT, or immediately in case of an emergency.
ARTICLE 21. (NON-WAIVER). No reference to any specific right or remedy shall
preclude either party from exercising any other right or from having any other
remedy or from maintaining any action to which it may otherwise be entitled
either at law or in equity.
Either party's failure to insist upon a strict performance of any covenant
of this Lease or to exercise any option or right herein contained shall not be a
waiver of relinquishment for the future of such covenant, right or option, but
the same shall remain in full force and effect.
ARTICLE 22. (SUBORDINATION). LANDLORD reserves the right to subject and
subordinate this Lease to the lien of any mortgage or mortgage(s) hereinafter
placed against LANDLORD'S interest in said Leased Premises to secure the Loans
in amounts no greater than as set forth in Schedules 1 and 2. TENANT covenants
and agrees to execute and deliver upon demand of LANDLORD, its successors and
assigns, at any time during the term hereof, such further instruments and
certificates subordinating this Lease to a lien of any mortgage securing the
Loans, provided that all such instruments, of subordination shall recognize the
validity and contents of this Lease and the rights of the TENANT herein in the
event of a foreclosure of such mortgage upon the interest of LANDLORD, as long
as TENANT shall have faithfully performed all of the terms and covenants and
conditions of this Lease, and shall not be in default under the terms of any
such mortgage as aforesaid.
Whether or not this Lease is subordinated to any mortgages, LANDLORD
shall, within thirty (30) days of execution hereof, secure written agreements
from each holder of the Loans recognizing this Lease, agreeing not to disturb
TENANT's possession hereunder, and agreeing to and recognizing the prepayment of
rental by TENANT hereunder and the option to purchase of TENANT hereunder.
ARTICLE 23. (CAPTIONS & HEADINGS). The captions and headings used herein
are intended only for the convenience of the reference and are not to be used in
constructing this instrument.
ARTICLE 24. (APPLICABLE LAW). This Lease shall be construed under the laws of
the State of Ohio. If any provision of this Lease, or portion thereof, or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease shall not be affected
thereby and each provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
ARTICLE 25. (SUCCESSORS). This Lease and the covenants and conditions herein
contained shall inure to the benefit of and be binding upon LANDLORD, its
successors and assigns, and upon TENANT, its successors and permitted assigns.
ARTICLE 26. (SIGNAGE). TENANT may erect such signs in the Leased Premises
as are permitted under law.
ARTICLE 27. (NO PARTNERSHIP). Any intention to create a joint venture
or partnership relation between the parties hereto is hereby expressly
disclaimed.
ARTICLE 28. (ESTOPPEL). TENANT agrees that at any time, and from time to time at
reasonable intervals, within ten (10) days after written request by LANDLORD,
TENANT will execute, acknowledge and deliver to LANDLORD, LANDLORD'S
mortgagee(s), or an assignee designated by LANDLORD, a writing ratifying this
Lease and certifying:
(i) that TENANT has entered into occupancy of the Leased
Premises and the date of such entry if such is the case;
(ii) that this Lease is in full force and effect, and has not been
assigned, modified, supplemented or amended in any way (or if there has been any
assignment, modification, supplement or amendment, identifying the same),
(iii) that this Lease represents the entire agreement between LANDLORD and
TENANT as to the subject matter hereof (or if there has been any assignment,
modification, supplement or amendment, identifying the same);
(iv) the date of commencement and expiration of the term;
(v) that all conditions under this Lease to be performed by LANDLORD
have been satisfied (and, if not, what conditions remain unperformed);
(vi) that to the knowledge of the signer of such writing, no default
exists in the performance or observance of any covenant or condition in this
Lease and there are no defenses or offsets of which the signer may have
knowledge;
(vii) that Minimum Annual Rent and all other rentals have been paid
under this Lease.
ARTICLE 29. (OPTION).
A. Option. The LANDLORD hereby grants to the TENANT the exclusive
and irrevocable option to purchase the Leased Premises subject to the terms of
this Article 29.
B. Price. The purchase price that TENANT shall pay to LANDLORD for
the Leased Premises shall be an amount equal to the sum of the amounts of all
principal outstanding and interest payable under the Bank Loan, State 166 Loan,
and CDBG Loan described in Schedule 1 plus, unless otherwise agreed by the
relevant State Authority funding the applicable Grant, the unamortized portion
of any such Grant at the time of termination (each such Grant being treated as
being amortized over ten (10) years on a straight line basis from the date of
such Grant, such amount to be paid to LANDLORD or the City of Ironton, Ohio, as
LANDLORD may direct), less the greater of (i) any amounts of cash on hand
resulting from the Lease in the possession of LANDLORD at the time of the
closing, and (ii) such amounts as should have been in LANDLORD's possession at
such time in accordance with Schedules 1 and 2, in either case in excess of the
product of the number of full lease years as have elapsed from the Commencement
Date to the time of the closing and Twenty Five Thousand Dollars ($25,000.00).
C. Term. The option hereby granted may be exercised at any time
during the Initial Term after September 7, 1998 or during any Extension Term
hereof, so long as this Lease is in full force and effect at such time,
provided, however, that the closing hereunder shall not occur prior to the
expiration of the second Lease Year of the term except as herein otherwise
provided.
D. Exercise of Option. The option hereby granted shall be exercised
by written notice delivered to the Landlord at the address stated herein.
E. Title. On the exercise by the TENANT of the option to purchase the
Leased Premises, the LANDLORD agrees to convey good and marketable fee simple
title to the Leased Premises free and clear of all liens, mortgages and other
encumbrances and subject only to: (i) matters set forth on Exhibits A and C
hereof, and (ii) encumbrances, restrictions, easements and other matters
affecting title to the land which are created subsequent to the date of this
Lease and approved at such time by the TENANT.
F. Closing. The sale hereby contemplated will be consummated as follows:
(i) Closing Date: The date of closing will be the date specified by the
TENANT by written notice to the LANDLORD but no earlier than thirty (30) days
after exercise of the option.
(ii) Seller's Instruments: At closing, the LANDLORD will deliver or
cause to be delivered to the TENANT a warranty deed covering the Leased Premises
and such additional documents as shall be reasonably requested by the TENANT to
consummate the purchase by the TENANT.
(iii) Buyer's Instruments: At closing, the TENANT will deliver to
the LANDLORD current funds in the amount of the purchase price of the Leased
Premises and such additional documents as shall be reasonably requested by the
LANDLORD to consummate the sale to the TENANT.
ARTICLE 30. (NOTICES). Any notice desired or required to be given under this
Lease shall be sent postage prepaid, registered or certified mail, return
receipt requested, as to LANDLORD: Lawrence County Economic Development
Corporation, P.O. Box 488, South Point, Ohio 45680, and as to TENANT: Cabletron
Systems, Inc., 35 Industrial Way, Rochester, New Hampshire 03867, Attention:
Contracts Department, with a copy to Michael D. Myerow, Esquire at 1000 Franklin
Village Drive, Franklin, Massachusetts 02038, or at such other address as each
party may from time to time designate in writing to the other.
ARTICLE 31. (TITLE & ZONING).
A. LANDLORD's Title Warranties. LANDLORD hereby covenants with TENANT and
warrants and represents to TENANT that LANDLORD is the record owner of the land
described in Exhibit A in fee simple absolute. LANDLORD further covenants with
TENANT and also warrants and represents to TENANT as follows:
(i) that the Leased Premises, and all right of TENANT hereunder are
free and clear of all encumbrances and restrictions (whether contained in deeds,
leases or other instruments or agreements) except those described in Exhibit C;
and
(ii) that this Lease is and shall remain prior to all other interests
covering the Leased Premises, subject only to any mortgage to which this Lease
may be subordinated in accordance with the terms of this Lease; and
(iii) that LANDLORD and each person executing this Lease on behalf of
LANDLORD (or in any representative capacity) have full right and lawful
authority to execute this Lease; and
(iv) that there is no legal impediment whether arising out of any matter
described in Exhibit C, or out of any Building, zoning, fire, health, safety or
(environmental protection law, or otherwise) to the construction and use of the
Leased Premises for their intended purposes and in accordance with the
provisions of this Lease, or to the exercise and enjoyment by TENANT of its
rights and privileges under this Lease; and
(v) that, as of the Commencement Date, LANDLORD shall have complied with
all federal, state and local environment laws, ordinances and regulations
applicable to the Leased Premises (as a Building rather than for any particular
use), so that the business to be conducted by TENANT from the Leased Premises
may be operated in a normal manner and without hindrance or molestation from any
person or entity on account of any failure to comply with any of the same; and
(vi) that LANDLORD will not make or enter into any agreement, or Lease
which is inconsistent with any of TENANT's rights or privileges under this
Lease.
LANDLORD acknowledges that TENANT has relied on each of the foregoing
covenants, warranties and representations in executing this Lease, and that each
of the same is material.
B. TENANT's Remedies. If any warranty or representation contained in this
Article shall prove to be false, or if any change in applicable law shall have a
material, and substantially adverse effect on TENANT's right to conduct a
business in the Leased Premises, or if LANDLORD'S failure to perform any of its
obligations under this Lease or any of its obligations to any governmental
authority having jurisdiction over the Leased Premises shall prevent or
materially adversely affect TENANT'S use and enjoyment of the Leased Premises or
rights under this Lease, then, in any such case, TENANT shall have the right to
terminate this Lease by written notice to LANDLORD sent at any time thereafter.
TENANT's termination notice shall take effect on the sixtieth (60th) day after
LANDLORD's receipt of the notice, unless the default or other condition
justifying TENANT's termination has been cured or removed prior to that day,
provided, however, that if LANDLORD shall have commenced any administrative
and/or judicial proceeding during such sixty (60) day period, the objective of
which is to contest any such change in law, or any order, decree, law or
regulation preventing or affecting TENANT's use and enjoyment of the Leased
Premises or the Common Facilities, as aforesaid, and if LANDLORD shall be
diligently prosecuting any such proceedings in good faith, then said sixty (60)
day period shall be extended through a final adjudication (not subject to
further appeal) of any such proceedings. TENANT agrees to cooperate with
LANDLORD and participate, without cost to TENANT, in all such aforementioned
proceedings instituted by LANDLORD. The rent and other payments required of
TENANT under this Lease for the sixty (60) day period (as such sixty (60) day
period may be extended pursuant hereto) or the portion thereof ending with the
date on which the default or condition shall be cured or removed) shall be
abated in proportion to the extent of the injury to the business conducted in
the Leased Premises at the beginning of the period, and LANDLORD shall refund
all unearned rent and other charges paid in advance by TENANT.
C. Title Certificate. Within five (5) days after execution hereof, LANDLORD
shall deliver to TENANT at TENANT's expense, a current opinion, running to
TENANT, of an attorney of a title insurance company (each reasonably acceptable
to TENANT) setting forth the state of LANDLORD's title, which shall include,
without limitation, all encumbrances and restrictions upon the Leased Premises
and TENANT's rights hereunder as set forth in Exhibits A and C, and no others.
D. Title Insurance. In addition to and without limiting any of LANDLORD's
covenants, warranties and representations or any of TENANT's remedies under this
Article 30, LANDLORD's representative shall deliver to TENANT, contemporaneous
with the execution of this Lease, a commitment for a leasehold title insurance
policy, issued by a title insurance company reasonably satisfactory to TENANT,
which commitment shall provide for the issuance to TENANT of a Leasehold title
insurance policy insuring TENANT's Leasehold interest and TENANT's option to
purchase granted hereof in the Leased Premises in the amount of Five Million
Dollars ($5,000,000.00), in accordance with and subject only to matters
described in Exhibits A and C hereto attached. The policy shall be issued within
thirty (30) days of execution of this Lease. Upon issuance of such policy,
TENANT shall reimburse LANDLORD for the premiums payable in connection therewith
which are in excess of LANDLORD's title insurance costs shown in Schedule 1.
Such excess premium shall be equal to approximately Four Thousand Twenty Dollars
($4,020.00).
ARTICLE 31. (ENTIRE AGREEMENT). This Lease and the Exhibits thereto constitute
the full and complete agreement between the parties hereto and there are no
other terms, obligations, covenants, representations, warranties or conditions
other than contained herein.
IN WITNESS WHEREOF, LANDLORD and TENANT have caused this Lease to be
signed, sealed and delivered as of the day first above written.
LANDLORD: Lawrence County TENANT: Cabletron Systems, Inc.
Development Economic
Corporation
By: /s/ BILL DINGUS By: /s/ MICHAEL D. MYEROW
Bill Dingus Michael D. Myerow
Its: President Its: Secretary
By: /s/ DON EDWARDS
Don Edwards
Its: Treasurer
3215599.01
Exhibit 10.12
CREDIT AGREEMENT
dated as of
March 7, 1997
among
CABLETRON SYSTEMS, INC.,
CERTAIN SUBSIDIARY BORROWERS,
THE LENDERS PARTY HERETO
THE CHASE MANHATTAN BANK,
as Administrative Agent
and
THE FIRST NATIONAL BANK OF CHICAGO
as Syndication Agent
$250,000,000 REVOLVING CREDIT FACILITY
TABLE OF CONTENTS
<PAGE>
ARTICLE IDefinitions 5
SECTION 1.01. Defined Terms. 5
SECTION 1.02. Classification of Loans and Borrowings 18
SECTION 1.03. Terms Generally 18
SECTION 1.04 Accuonting Terms; GAAP 19
ARTICLE IIThe Credits 19
SECTION 2.01. Commitments19
SECTION 2.02. Loans and Borrowings 19
SECTION 2.03. Requests for Borrowings 20
SECTION 2.04. Letters of Credit 21
SECTION 2.05. Funding of Borrowings 25
SECTION 2.06. Interest Elections 25
SECTION 2.07. Termination, Reduction and Extension of Commitments 27
SECTION 2.08. Repayment of Loans; Evidence of Debt 29
SECTION 2.09. Prepayment of Loans 29
SECTION 2.10. Fees 30
SECTION 2.11. Interest 31
SECTION 2.12. Alternate Rate of Interest 32
SECTION 2.13. Increased Costs 32
SECTION 2.14. Break Funding Payments 33
SECTION 2.15. Taxes 34
SECTION 2.16. Payments Generally; Pro Rata Treatment; Sharing of Set-offs 35
SECTION 2.17. Mitigation Obligations; Replacement of Lenders 36
SECTION 2.18. Increase of Commitments 37
ARTICLE III 39
SECTION 3.01 The Guarantee 39
SECTION 3.02 Obligations Unconditional 39
SECTION 3.03 Reinstatement 40
SECTION 3.04 Subrogation 40
SECTION 3.05 Remedies 41
SECTION 3.06 Instrument for the Payment of Money 41
SECTION 3.07 Continuing Guarantee 41
ARTICLE IVRepresentations and Warranties 41
SECTION 4.01. Organization; Powers 41
SECTION 4.02. Authorization; Enforceability 41
SECTION 4.03. Governmental Approvals; No Conflicts 42
SECTION 4.04. Financial Condition; No Material Adverse Change42
SECTION 4.05. Properties 42
SECTION 4.06. Litigation and Environmental Matters 43
SECTION 4.07. Compliance with Laws and Agreements 43
SECTION 4.08. Investment and Holding Company Status43
SECTION 4.09. Taxes 43
SECTION 4.10. ERISA.43
SECTION 4.11. Disclosure 44
ARTICLE VConditions 44
SECTION 5.01. Effective Date 44
SECTION 5.02. Each Credit Event 45
SECTION 6.01. Financial Statements and Other Information45 SECTION 6.02.
Notices of Material Events 47 SECTION 6.03. Existence; Conduct of Business
47 SECTION 6.04. Payment of Obligations 47 SECTION 6.05. Maintenance of
Properties; Insuranc 47 SECTION 6.06. Books and Records; Inspection Rights
48 SECTION 6.07. Compliance with Laws 48 SECTION 6.08. Use of Proceeds 48
ARTICLE VIINegative Covenants 48
SECTION 7.01. Indebtedness 48
SECTION 7.02. Liens 49
SECTION 7.03. Fundamental Changes 49
SECTION 7.04. Investments, Loans, Advances, Guarantees and Acquisitions;
Hedging Agreements. 50
SECTION 7.05. Transactions with Affiliates 52
SECTION 7.06. Restrictive Agreements 52
SECTION 7.07. Leverage Ratio. 53
SECTION 7.08. Interest Coverage Ratio 53
SECTION 7.09. Tangible Net Worth 53
ARTICLE XMiscellaneous 57
SECTION 10.01. Notices 57
SECTION 10.02. Waivers; Amendments 58
SECTION 10.03. Expenses; Indemnity: Damage Waiver 59
SECTION 10.04. Successors and Assigns 60
SECTION 10.05. Survival. 62
SECTION 10.06. Counterparts; Integration Effectiveness 62
SECTION 10.07. Severability 63
SECTION 10.08. Right of Setoff63
SECTION 10.09. Governing Law; Jurisdiction; Consent to Service of Process 63
SECTION 10.10. WAIVER OF JURY TRIAL 64
SECTION 10.11. Headings 64
SECTION 10.12. Confidentiality64
SECTION 10.13. Subsidiary Borrowers 65
<PAGE>
CREDIT AGREEMENT dated as of March 7, 1997, among CABLETRON SYSTEMS, INC., each
of the subsidiaries of the Company designated by the Company from time to time
as Subsidiary Borrowers hereunder, the LENDERS party hereto, THE CHASE MANHATTAN
BANK, as Administrative Agent, and THE FIRST NATIONAL BANK OF CHICAGO, as
Syndication Agent. The parties hereto agree as follows:
ARTICLE I
DefinitionsARTICLE IDefinitions
As used in this Agreement, the following terms have the meanings specified
below:
", when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.
"Adjusted LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, an interest rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period
multiplied by (b) the Statutory Reserve Rate.
"Administrative Agent" means The Chase Manhattan Bank, in its capacity as
administrative agent for the Lenders hereunder.
"Administrative Ouestionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
greater of (a) the Prime Rate in effect on such day or (b) the Federal Funds
Effective Rate in effect on such day plus 1/2 of it. Any change in the Alternate
Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate
shall be effective from and including the effective date of such change in the
Prime Rate or the Federal Funds Effective Rate, respectively.
"Applicable Percentage" means, with respect to any Lender, the percentage of
the total Commitments represented by such Lender's Commitment. If the
Commitments have terminated or expired, the Applicable Percentages shall be
determined based upon the Commitments most recently in effect, giving effect to
any assignments.
"Applicable Rate" means, for any day, with respect to any ABR Loan or
Eurodollar Loan or with respect to the facility fees payable hereunder, the
applicable rate per annum set forth in the table below under the caption "ABR
Spread", "Eurodollar Spread" or "Facility Fee Rate", as the case may be, set
forth opposite the applicable Leverage Ratio as at the last day of the most
recently ended fiscal quarter of the Company for which financial statements have
been delivered pursuant to Section 6.01(a) or 6.01(b), as the case may be,
together with the related compliance certificate for such fiscal quarter or
fiscal year, as the case may be, required by Section 6.01(c).
- - ----------------------------------------------------------------------------
Range of Leverage ABR Spread Eurodollar Spread Facility Fee
Ratio: Rate
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Greater than or equal 0% 0.45% 0.20%
to 2.00 to 1
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Greater than or equal 0% 0.30% 0.15%
to 1.00 to 1 and less
than 2.00 to 1
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Greater than or equal 0% 0.25% 0.125%
to 0.50 to 1 and less
than 1.00 to 1
- - ----------------------------------------------------------------------------
- - ----------------------------------------------------------------------------
Less than 0.50 to 1 0% 0.20% 0.10%
- - ----------------------------------------------------------------------------
From and including the Effective Date to but excluding the fifth Business Day
following the date of receipt of the first financial statements delivered
pursuant to Section 6.01(a) or 6.01(b), as the case may be, together with the
related compliance certificate for such fiscal quarter or fiscal year, as the
case may be, required by Section 6.01(c), the "Applicable Rate" shall be
determined in accordance with the certificate delivered pursuant to Section
5.01(d). The "Applicable Rate" shall be adjusted on the fifth Business Day
following the date of receipt of the relevant financial statements pursuant to
Section 6.01(a) or 6.01(b), as the case may be, and the related compliance
certificate for such fiscal quarter or fiscal year, as the case may be, required
by Section 6.01(c). In the event the financial statements for any fiscal quarter
or fiscal year or the certificate required by Section 6.01(c) are not delivered
when due and such financial statements and/or certificate are not delivered
prior to the date upon which the resultant Default shall become an Event of
Default, then, effective upon such Default becoming an Event of Default, during
the period from the date upon which such financial statements were required to
be delivered until one Business Day following the date upon which they actually
are delivered, the Applicable Rate with respect to any ABR Loan or Eurodollar
Loan or with respect to the facility fees payable hereunder, as the case may be,
shall be the highest rate provided for in the above table; provided that,
notwithstanding the foregoing, the Applicable Rate shall not as a consequence of
this definition be reduced for any period during which an Event of Default
arising under clauses (a), (b), (d) (with respect to any covenant, condition or
agreement contained in Section 7.07, 7.08 or 7.09), (h), W or (j) of Article
VIII shall have occurred and be continuing.
"Assignment and Acceptance" means an assignment and acceptance entered into
by a Lender and an assignee in accordance with Section 10.04(b) (with the
consent of any party whose consent is required by Section 10.04(b)), and
accepted by the Administrative Agent, in the form of Exhibit A or any other form
approved by the Administrative Agent.
"Availability Period" means the period from and including the Effective Date
to but excluding the earlier of the Maturity Date and the date of termination of
the Commitments.
"Board" means the Board of Governors of the Federal Reserve System of the United
States of America.
"Borrowers" means the Company and each Subsidiary Borrower.
"Borrowing" means Loans of the same Type, made, converted or continued on the
same date and, in the case of Eurodollar Loans, as to which a single Interest
Period is in effect.
"Borrowing Request" means a request by the Company for a Borrowing in
accordance with section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in New York City are authorized or required by law to
remain closed; provided that, when used in connection with a Eurodollar Loan,
the term "Business Day" shall exclude any day on which banks are not open for
dealings in dollar deposits in the London interbank market.
"Capital Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP, and the amount of such
obligations shall be the capitalized amount thereof determined in accordance
with GAAP.
"Change in Control" means (a) the acquisition of ownership, directly or
indirectly, beneficially or of record, by any Person or group (within the
meaning of the Securities Exchange Act of 1934 and the rules of the SEC
thereunder as in effect on the date hereof) (other than Craig R. Benson, S.
Robert Levine, Kenneth R. Levine and/or Christopher J. Oliver), of shares
representing more than 40 of the aggregate ordinary voting power represented by
the issued and outstanding capital stock of the Company or (b) occupation of a
majority of the seats (other than vacant seats) on the board of directors of the
Company by Persons who were neither (i) nominated by the board of directors of
the Company nor (ii) appointed by directors so nominated.
"Change in Law" means (a) the adoption of any law, rule or regulation after
the date of this Agreement, (b) any change in any law, rule or regulation or in
the interpretation or application thereof by any Governmental Authority after
the date of this Agreement or (c) compliance by any Lender or the Issuing Bank
(or, for purposes of Section 2.13(b), by any lending office of such Lender or by
such Lender's or the Issuing Bank's holding company, if any) with any request,
guideline or directive (whether or not having the force of law) of any
Governmental Authority made or issued after the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Commitment" means, with respect to each Lender, the commitment of such
Lender to make Revolving Loans and to acquire participations in Letters of
Credit hereunder, expressed as an amount representing the maximum aggregate
amount of such Lender's Revolving Credit Exposure hereunder, as such commitment
may be (a) reduced from time to time pursuant to Section 2.07, (b) increased
from time to time pursuant to Section 2.18 and (c) reduced or increased from
time to time pursuant to assignments by or to such Lender pursuant to Section
10.04. The initial amount of each Lender's Commitment is set forth on Schedule
2.01, or in the Assignment and Acceptance pursuant to which such Lender shall
have assumed its Commitment, as applicable.
"Company" means Cabletron Systems, Inc., a Delaware corporation.
"Control" means 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 ability to exercise voting power, by contract or otherwise.
"Controlling" and "Controlled" have meanings correlative thereto.
"Credit Documents" means this Agreement and the promissory notes (if any)
delivered pursuant to Section 2.08(e).
"Credit Parties" means, collectively, the Borrowers and the Guarantor.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"dollars" or "$" refers to lawful money of the United States of America.
"EBITDA" means, for any period, the sum for the Company and its Subsidiaries
(determined on a consolidated basis without duplication) of the following: (a)
net income for such period (calculated after eliminating extraordinary gains and
losses and unusual or non-recurring items) plus (b) income and other taxes (to
the extent deducted in determining net income) for such period plus (c)
depreciation, amortization and any other non-cash charges, including, without
limitation, purchase accounting adjustments required or permitted by Opinions
No. 16 and 17 of the Accounting Principles Board and the write-off of
in-progress technology and research and development in connection with a
permitted acquisition (to the extent deducted in determining net income) for
such period plus (d) the aggregate amount of Interest Expense for such period
minus (e) the aggregate amount of interest income for such period (to the extent
not included in computing Interest Expense).
"Effective Date" means the date on which the conditions specified in
Section 5.01 are satisfied (or waived in accordance with Section 10.02).
"Environmental Laws" means all laws, rules, regulations, codes,
ordinances, orders, decrees, judgments, injunctions, notices or binding
agreements issued, promulgated or entered into by any Governmental Authority,
relating in any way to the environment, preservation or reclamation of natural
resources, the management, release or threatened release of any Hazardous
Material or to health and safety matters.
"Environmental Liability" means any liability, contingent or otherwise
(including any liability for damages, costs of environmental remediation, fines,
penalties or indemnities), of the Company or any Subsidiary directly or
indirectly resulting from or based upon (a) violation of any Environmental Law,
(b) the generation, use, handling, transportation, storage, treatment or
disposal of any Hazardous materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that, together with the Company, is treated as a single employer
under Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer under
Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043
of ERISA or the regulations issued thereunder with respect to a Plan (other than
an event for which the 30-day notice period is waived); (b) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the
filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an
application for a waiver of the minimum funding standard with respect to any
Plan; (d) the incurrence by the Company or any of its ERISA Affiliates of any
liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan
administrator of any notice relating to an intention to terminate any Plan or
Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the
Company or any of its ERISA Affiliates of any liability with respect to the
withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the
receipt by the Company or any ERISA Affiliate of any notice, or the receipt by
any Multiemployer Plan from the Company or any ERISA Affiliate of any notice,
concerning the imposition of Withdrawal Liability or a determination that a
Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA.
"Eurodollar", when used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are bearing interest
at a rate determined by reference to the Adjusted LIBO Rate.
"Event of Default" has the meaning assigned to such term in Article VIII.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, the Issuing Bank or any other recipient of any payment to be made by or
on account of any obligation of any Borrower hereunder, (a) income or franchise
taxes imposed on (or measured by) its net income by the United States of
America, or any state or political subdivision thereof, or by the jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located or, in the case of any Lender, in which its applicable lending
office is located, or in each case any political subdivision thereof, (b) any
branch profits taxes imposed by the United States of America or any state or
political subdivision thereof or any similar tax imposed by any other
jurisdiction in which any Borrower is located, or any political subdivision
thereof, and (c) in the case of a Foreign Lender to the Company or any
Subsidiary Borrower organized under the laws of the United States of America or
any State thereof (other than an assignee pursuant to a request by the Company
under Section 2.17(b)), any withholding tax that is imposed on amounts payable
by the Company or such Subsidiary Borrower, as the case may be, to such Foreign
Lender at the time such Foreign Lender becomes a party to this Agreement (except
to the extent that such Foreign Lender's assignor (if any) was entitled, at the
time of assignment, to receive additional amounts from the Company or such
Subsidiary Borrower, as the case may be, with respect to such withholding tax
pursuant to Section 2.15(a)) or is attributable to such Foreign Lender's failure
or inability to comply with Section 2.15(e).
"Federal Funds Effective Rate" means, for any day, the weighted average
(rounded upwards, if necessary, to the next 1/100 of 1% of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published on the next succeeding Business
Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if
necessary, to the next 1/100 of 1%) of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Financial officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Company.
"Foreign Lender" means any Lender that is organized under the laws of a
jurisdiction other than the United States of America, any State thereof or the
District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government.
"Guarantee" of or by any Person (the "guarantor") means any obligation,
contingent or otherwise, of the guarantor guaranteeing or having the economic
effect of guaranteeing any Indebtedness or other obligation of any other Person
(the "primary obligor") in any manner, whether directly or indirectly, and
including any obligation of the guarantor, direct or indirect, (a) to purchase
or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or other obligation or to purchase (or to advance or supply funds
for the purchase of) any security for the payment thereof, (b) to purchase or
lease property, securities or services for the purpose of assuring the owner of
such Indebtedness or other obligation of the payment thereof, (c) to maintain
working capital, equity capital or any other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness or other obligation or (d) as an account party in respect of any
letter of credit or letter of guaranty issued to support such Indebtedness or
obligation; provided that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business.
"Guarantor" means the Company, as guarantor of the obligations of the Subsidiary
Borrowers.
"Hazardous Materials" means all explosive or radioactive substances or
wastes and all hazardous or toxic substances, wastes or other pollutants,
including petroleum or petroleum distillates, asbestos or asbestos containing
materials, polychlorinated biphenyls, radon gas, infectious or medical wastes
and all other substances or wastes of any nature regulated pursuant to any
Environmental Law.
"Hedging Agreement" means any interest rate protection agreement, foreign
currency exchange agreement, commodity price protection agreement or other
interest or currency exchange rate or commodity price hedging arrangement.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person under conditional sale or other title retention
agreements relating to property acquired by such Person, (d) all obligations of
such Person in respect of the deferred purchase price of property or services
due more than one year from the date of purchase, (e) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed, (f) all Guarantees by such Person of Indebtedness of others other
than Permitted Vendor Financing, (g) all Capital Lease Obligations of such
Person, (h) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty exceeding
$50,000,000 in the aggregate, W all obligations, contingent or otherwise, of
such Person in respect of bankers' acceptances and (j) (for purposes of the
Leverage Ratio only) all obligations of such Person under any lease treated as
an operating lease under GAAP and as a loan or financing for U.S. income tax
purposes (and, for purposes of determining the amount of Indebtedness reflected
by such lease, the stipulated loss value, termination value or other equivalent
amount shall be used). The Indebtedness of any Person shall include the
Indebtedness of any other entity (including any partnership in which such Person
is a general partner) to the extent such Person is liable therefor as a result
of such Person's ownership interest in or other relationship with such entity,
except to the extent the terms of such Indebtedness provide that such Person is
not liable therefor.
"Indemnified Taxes" means Taxes other than Excluded Taxes and Other Taxes.
"Interest Coverage Ratio" means, as at any date, the ratio of (a) EBITDA
for the period of four consecutive fiscal quarters of the Company ending on, or
most recently ended prior to, such date to (b) Interest Expense paid or payable
in cash for such period.
"Interest Election Request" means a request by the Company to convert or
continue a Borrowing in accordance with Section 2.09.
"Interest Expense" means, for any period, the sum, for the Company and its
Subsidiaries (determined on a consolidated basis without duplication), of the
following: (a) all interest in respect of Indebtedness accrued or capitalized
during such period (whether or not actually paid during such period) plus (b)
the net amounts payable (or minus the net amounts receivable) under interest
rate protection agreements accrued during such period (whether or not actually
paid or received during such period) including, without limitation, fees, but
excluding reimbursement of legal fees and other similar transaction costs.
"Interest Payment Date" means (a) with respect to any ABR Loan, the last
day of each March, June, September and December and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing
of which such Loan is a part and, in the case of a Eurodollar Borrowing with an
Interest Period of more than three months, duration, each day prior to the last
day of such Interest Period that occurs at intervals of three months, duration
after the first day of such Interest Period.
"Interest Period" means with respect to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or six months
(or, with the consent of each Lender, nine or twelve months) thereafter, as the
Company may elect; provided that (i) if any Interest Period would end on a day
other than a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless, in the case of a Eurodollar Borrowing only, such
next succeeding Business Day would fall in the next calendar month, in which
case such Interest Period shall end on the next preceding Business Day and (ii)
any Interest Period pertaining to a Eurodollar Borrowing that commences on the
last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest
Period) shall end on the last Business Day-of the last calendar month of such
Interest Period. For purposes of this definition, the date of a Borrowing shall
be the date on which such Borrowing is made or the effective date of the most
recent conversion or continuation of a Borrowing, as the case may be.
"Issuing Bank" means The Chase Manhattan Bank, in its capacity as the
issuer of Letters of Credit hereunder, and its successors in such capacity as
provided in Section 2.04(i). The Issuing Bank may, in its discretion, arrange
for one or more Letters of Credit to be issued by Affiliates of the Issuing
Bank, in which case the term "Issuing Bank" shall include any such Affiliate
with respect to Letters of Credit issued by such Affiliate.
"LC Disbursement" means a payment made by the Issuing Bank pursuant to a
Letter of Credit.
"LC Exposure" means, at any time, the sum of (a) the aggregate undrawn
amount of all outstanding Letters of Credit at such time plus (b) the aggregate
amount of all LC Disbursements that have not yet been reimbursed by or on behalf
of the Company at such time. The LC Exposure of any Lender at any time shall be
its Applicable Percentage of the total LC Exposure at such time.
"Lenders" means the Persons listed on Schedule 2.01 and any other Person
that shall have become a party hereto pursuant to an Assignment and Acceptance,
Section 2.07 or Section 2.18, other than any such Person that ceases to be a
party hereto pursuant to an Assignment and Acceptance or Section 2.07.
"Letter of Credit" means any letter of credit issued pursuant to this Agreement.
"Leverage Ratio" means, as at any date, the ratio of (a) all Indebtedness of the
Company and its Subsidiaries (determined on a consolidated basis without
duplication) on such date to (b) EBITDA for the period of four consecutive
fiscal quarters of the Company ending on, or most recently ended prior to, such
date.
"LIBO Rate" means, with respect to any Eurodollar Borrowing for any
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the
Administrative Agent from time to time for purposes of providing quotations of
interest rates applicable to dollar deposits in the London interbank market) at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period, as the rate for dollar deposits with a
maturity comparable to such Interest Period. In the event that such rate is not
available at such time for any reason, then the "LIBO Rate" with respect to such
Eurodollar Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest Period are
offered by the principal London office of the Administrative Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust,
lien, pledge, hypothecation, encumbrance, charge or security interest in, on or
of such asset or (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset.
"Loans" means the loans made by the Lenders to the Borrowers pursuant to this
Agreement.
"Margin Stock" means "margin stock" within the meaning of Regulations U
and X of the Board (or any successor regulation thereto).
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or condition, financial or otherwise, of
the Company and its Subsidiaries taken as a whole, (b) the ability of any Credit
Party to perform any of its obligations under any of the Credit Documents to
which it is a party or (c) the rights or remedies of the Lenders under the
Credit Documents.
"Material Subsidiary" means, as of any date, any Subsidiary (a) the value
of whose net assets equals or exceeds 5% of the net assets of the Company and
its Subsidiaries on a consolidated basis or (b) whose net profits before
interest and taxation equals or exceeds 5% of the net profits before interest
and taxation of the Company and its Subsidiaries on a consolidated basis.
"Maturity Date" means March 31, 2000, subject to extension as provided in
Section 2.07(d).
"Moody's" means Moody's Investors Service, Inc.
"Multiemplover Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies arising
from the execution, delivery or enforcement of, or otherwise with respect to,
this Agreement and the other Credit Documents, provided that there shall be
excluded from "Other Taxes" all Excluded Taxes.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA and any successor entity performing similar functions.
"Permitted Encumbrances" means:
(a) Liens imposed by law for taxes that are not yet due or are being
contested in compliance with Section 6.04;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
statutory landlord's and other like Liens imposed by law, arising in the
ordinary course of business and securing obligations that are not overdue
by more than 60 days or are being contested in compliance with Section
6.04;
(c) pledges and deposits made in the ordinary course of business in
compliance with workers' compensation, unemployment insurance and other
social security laws or regulations;
(d) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature, in each case in the ordinary course of
business;
(e) Liens arising from judgments that do not constitute an Event of
Default under clause W of Article VIII;
(f) licenses, leases and subleases granted to other Persons in the
ordinary course of business; and
(g) easements, zoning restrictions, rights-of-way and similar encumbrances
on real property imposed by law or arising in the ordinary course of
business that do not secure any monetary obligations and do not materially
detract from the value of the affected property or interfere with the
ordinary conduct of business of the Company or any Subsidiary;
provided that the term "Permitted Encumbrances" shall not include any Lien
securing Indebtedness.
"Permitted Investments" means:
(a) direct obligations of, or obligations the principal of and interest on
which are unconditionally guaranteed by, the United States of America (or
by any agency thereof to the extent such obligations are backed by the
full faith and credit of the United States of America), in each case
maturing within one year from the date of acquisition thereof;
(b) investments in commercial paper maturing within 270 days from the date
of acquisition thereof and having, at such date of acquisition, a credit
rating of at least A-2 from S&P or P-2 from Moody's;
(c) investments in certificates of deposit, banker's acceptances and time
deposits maturing within 180 days from the date of acquisition thereof
issued or guaranteed by or placed with, and money market deposit accounts
issued or offered by, any domestic office of any commercial bank organized
under the laws of the United States of America or any State thereof which
has a combined capital and surplus and undivided profits of not less than
$250,000,000;
(d) repurchase agreements with a term of not more than 30 days for
securities described in clause (a) above and entered into with a financial
institution satisfying the criteria described in clause (c) above;
(e) investments in money market mutual funds substantially all of the
assets of which are comprised of securities of the type set forth in
clauses (a), (b), (c), (d), (f) and/or (g) of this definition, so long as
such fund has total assets of at least $1,000,000,000 and has been
established for at least two years;
(f) investments in medium term notes issued by corporations or banks with
a long term debt rating of at least BBB+ by S&P or Baal by Moody's;
(g) investments in tax-exempt municipal obligations of any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, with a credit rating of
at least BBB+ by S&P or Baal by Moody's; and
(h) investments in auction rate preferred stock or money market preferred
stock, in each case with a credit rating of at least BBB+ by S&P or Baal
by Moody's.
"Permitted Vendor Financing" means Guarantees issued by the Company or any
Subsidiary in respect of obligations of customers in connection with the
financing of sales of inventory and services to such customers in an aggregate
amount at any one time not exceeding $100,000,000.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan (other than a Multiemployer
Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code
or Section 302 of ERISA, and in respect of which the Company or any ERISA
Affiliate is (or, if such plan were terminated, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Prime Rate" means the rate of interest per annum publicly announced from
time to time by The Chase Manhattan Bank as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective from and including the date such change is publicly announced as being
effective.
"Register" has the meaning set forth in Section 10. 04 (c) .
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors of such Person and such Person's Affiliates.
"Required Lenders" means, at any time, Lenders having Revolving Credit
Exposures and unused Commitments representing at least 51% of the sum of the
total Revolving Credit Exposures and unused Commitments at such time.
"Restricted Payment" means any dividend or other distribution (whether in
cash, securities or other property) with respect to any shares of any class of
capital stock of the Company or any Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit, on
account of the purchase, redemption, retirement, acquisition, cancellation or
termination of any such shares of capital stock of the Company or any option,
warrant or other right to acquire any such shares of capital stock of the
Company.
"Revolving Credit Exposure" means, with respect to any Lender at any time,
the sum of the outstanding principal amount of such Lender's Loans and its LC
Exposure at such time.
"SEC" means the Securities and Exchange Commission or any governmental
authority succeeding to its principal functions.
"S&P" means Standard & Poors.
"Statutory Reserve Rate" means a fraction (expressed as a decimal), the
numerator of which is the number one and the denominator of which is the number
one minus the aggregate of the maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves) expressed as a decimal
established by the Board to which the Administrative Agent is subject for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board). Such reserve percentages shall include those imposed
pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute
eurocurrency funding and to be subject to such reserve requirements without
benefit of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D or any comparable
regulation. The Statutory Reserve Rate shall be adjusted automatically on and as
of the effective date of any change in any reserve percentage.
"subsidiary" means, with respect to any Person (the "parent") at any date,
any corporation, limited liability company, partnership, association or other
entity (a) of which securities or other ownership interests representing more
than 50% of the equity or more than 50% of the ordinary voting power or, in the
case of a partnership, more than 50% of the general partnership interests are,
as of such date, owned, controlled or held or (b) that is, as of such date,
otherwise Controlled, by the parent or one or more subsidiaries of the parent or
by the parent and one or more subsidiaries of the parent.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Borrower" means any Subsidiary designated as a Borrower pursuant to
Section 10.13.
"Syndication Agent" means The First National Bank of Chicago, in its
capacity as syndication agent hereunder.
"Tangible Net Worth" means, as at any date for any Person, the sum for the
Company and its Subsidiaries (determined on a consolidated basis without
duplication), of the following:
(a) the amount of capital stock; plus
(b) the amount of surplus and retained earnings (or, in the case of a
surplus or retained earnings deficit, minus the amount of such deficit);
minus
(c) the sum of the following: cost of treasury shares and the book value
of all assets that should be classified as intangibles (without
duplication of deductions in respect of items already deducted in arriving
at surplus and retained earnings) but in any event including goodwill,
minority interests, research and development costs, trademarks, trade
names, copyrights, patents and franchises, unamortized debt discount and
expense, all reserves and any write-up in the book value of assets
resulting from a revaluation thereof subsequent to February 29, 1996.
"Taxes" means any and all present or future taxes, levies, imposts,
duties, deductions, charges or withholdings imposed by any Governmental
Authority.
"Transactions" means the execution, delivery and performance by the Credit
Parties of the Credit Documents, the Borrowing of Loans hereunder, the use of
the proceeds thereof and the issuance of Letters of Credit hereunder.
"Type", when used in reference to any Loan or Borrowing, refers to whether
the rate of interest on such Loan, or on the Loans comprising such Borrowing, is
determined by reference to the Adjusted LIBO Rate or the Alternate Base Rate.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result
of a complete or partial withdrawal from such Multiemployer Plan, as such terms
are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Classification of Loans and BorrowingsSECTION 1.02.
Classification . For purposes of this Agreement, Loans and Borrowings may be
classified and referred to by Type (e.g., a "Eurodollar Loan" or "Eurodollar
Borrowing", as the case may be).
. The definitions of terms herein shall apply equally to the singular and plural
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any Person shall be construed to
include such Person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words "asset" and "property" shall be construed to
have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.
. Accounting Terms; GAAP. Except as otherwise expressly provided herein, all
terms of an accounting or financial nature shall be construed in accordance with
GAAP, as in effect from time to time; provided that, if the Company notifies the
Administrative Agent that the Company requests an amendment to any provision
hereof to eliminate the effect of any change occurring after the date hereof in
GAAP or in the application thereof on the operation of such provision (or if the
Administrative Agent notifies the Company that the Required Lenders request an
amendment to any provision hereof for such purpose), regardless of whether any
such notice is given before or after such change in GAAP or in the application
thereof, then such provision shall be interpreted on the basis, of GAAP as in
effect and applied immediately before such change shall have become effective
until such notice shall have been withdrawn or such provision amended in
accordance herewith.
ARTICLE II
The Credits
ARTICLE IIThe Credits
. Subject to the terms and conditions set forth herein, each Lender agrees to
make Loans from time to time during the Availability Period to the Company or
one or more Subsidiary Borrowers hereunder in an aggregate principal amount that
will not result in such Lender's Revolving Credit Exposure exceeding such
Lender's Commitment. Within the foregoing limits and subject to the terms and
conditions set forth herein, the Borrowers may borrow, prepay and reborrow
Loans.
.ECTION 2.02. Loans and BorrowingsSECTION 2.02. Loans and Borrowings
(a) Each Loan shall be made as part of a Borrowing consisting of Loans
made by the Lenders ratably in accordance with their respective Commitments. The
failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided that the
Commitments of the Lenders are several and no Lender shall be responsible for
any other Lender's failure to make Loans as required.
(b) Subject to Section 2.12, each Borrowing shall be comprised entirely of
ABR Loans or Eurodollar Loans as the Company may request in accordance herewith.
Each Lender at its option may make any Eurodollar Loan by causing any domestic
or foreign branch or Affiliate of such Lender to make such Loan; provided that
any exercise of such option shall not affect the obligation of the Borrowers to
repay such Loan in accordance with the terms of this Agreement.
(c) At the commencement of each Interest Period for Eurodollar Borrowing,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$100,000 and not less than $2,000,000. At the time that each ABR Borrowing is
made, such Borrowing shall be in an aggregate amount that is an integral
multiple of $100,000 and not less than $500,000; provided that an ABR Borrowing
may be in an aggregate amount that is equal to the amount that is required to
finance the reimbursement of an LC Disbursement as contemplated by Section
2.04(e). Borrowings of more than one Type may be outstanding at the same time;
provided that there shall not at any time be more than a total of eight
Eurodollar Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Company
shall not be entitled to request, or to elect to convert or continue, any
Borrowing if the Interest Period requested with respect thereto would end after
the Maturity Date.
. To request a Borrowing, the Company shall notify the Administrative Agent of
such request by telephone (a) in the case of a Eurodollar Borrowing, not later
than 1:00 p.m., New York City time, three Business Days before the date of the
proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 11:00
a.m., New York City time, on the date of the proposed Borrowing. Each such
telephonic Borrowing Request shall be irrevocable and shall be confirmed
promptly by hand delivery or telecopy to the Administrative Agent of a written
Borrowing Request in a form approved by the Administrative Agent and signed by
the Company. Each such telephonic and written Borrowing Request shall specify
the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a
Business Day;
(iii)the identity of the Borrower for such Borrowing;
(iv) whether such Borrowing is to be an ABR
Borrowing or a Eurodollar Borrowing;
(v) in the case of a Eurodollar Borrowing, the initial Interest Period to
be applicable thereto, which shall be a period contemplated by the definition of
the term "Interest Period"; and
(vi) the location and number, of the account of the Company or the
applicable Subsidiary Borrower to which funds are to be disbursed.
If no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing. If no Interest Period is specified with
respect to any requested Eurodollar Borrowing, then the Company shall be deemed
to have selected an Interest Period of one month's duration. Promptly following
receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender's Loan to be made as part of the requested Borrowing.
. SECTION 2.04. Letters of CreditSECTION 2.04. Letters of Credit
(a) General. Subject to the terms and conditions set forth herein, the
Company may request the issuance of Letters of Credit for its own account or for
the account of any Subsidiary, in a form reasonably acceptable to the
Administrative Agent and the Issuing Bank, at any time and from time to time
during the Availability Period. In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Company to,
or entered into by the Company with, the Issuing Bank relating to any Letter of
Credit, the terms and conditions of this Agreement shall control.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions.
To request the issuance of a Letter of Credit (or the amendment, renewal or
extension of an outstanding Letter of Credit), the Company shall hand deliver or
telecopy (or transmit by electronic communication, if arrangements for doing so
have been approved by the Issuing Bank) to the Issuing Bank and the
Administrative Agent (reasonably in advance of the requested date of issuance,
amendment, renewal or extension) a notice requesting the issuance of a Letter of
Credit, or identifying the Letter of Credit to be amended, renewed or extended,
the date of issuance, amendment, renewal or extension, the date on which such
Letter of Credit is to expire (which shall comply with paragraph (c) of this
Section), the amount of such Letter of Credit, the name and address of the
beneficiary thereof and such other information as shall be necessary to prepare,
amend, renew or extend such Letter of Credit. If requested by the Issuing Bank,
the Company also shall submit a letter of credit application on the Issuing
Bank's standard form in connection with any request for a Letter of Credit, with
such changes thereto as the Company and the Issuing Bank may agree. A Letter of
Credit shall be issued, amended, renewed or extended only if (and upon issuance,
amendment, renewal or extension of each Letter of Credit the Company shall be
deemed to represent and warrant that), after giving effect to such issuance,
amendment, renewal or extension (i) the LC Exposure shall not exceed $50,000,000
and (ii) the sum of the total Revolving Credit Exposures shall not exceed the
total Commitments.
(c) Expiration Date. Each Letter of Credit shall expire at or prior to the
close of business on the earlier of W the date one year after the date of the
issuance of such Letter of Credit (or, in the case of any renewal or extension
thereof, one year after such renewal or extension) and (ii) the date that is
five Business Days prior to the Maturity Date.
(d) Participations. By the issuance of a Letter of Credit (or an amendment
to a Letter of Credit increasing the amount thereof) and without any further
action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby
grants to each Lender (other than the Issuing Bank), and each Lender (other than
the Issuing Bank) hereby acquires from the Issuing Bank, a participation in such
Letter of Credit equal to such Lender's Applicable Percentage of the aggregate
amount available to be drawn under such Letter of Credit. In consideration and
in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
the Issuing Bank, such Lender's Applicable Percentage of each LC Disbursement
made by the Issuing Bank and not reimbursed by the Company on the date due as
provided in paragraph (e) of this Section, or of any reimbursement payment
required to be refunded to the Company for any reason. Each Lender (other than
the Issuing Bank) acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including any amendment, renewal or extension of any Letter of
Credit or the occurrence and continuance of a Default or reduction or
termination of the Commitments, and that each such payment shall be made without
any offset, abatement, withholding or reduction whatsoever provided, however,
that no Lender shall be obligated to acquire a participation in a Letter of
Credit if, at the time such Letter of Credit was issued, the Issuing Bank had
been notified in writing by a Lender or the Company that an Event of Default had
occurred and was continuing.
(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in
respect of a Letter of Credit, the Company shall reimburse such LC Disbursement
by paying to the Administrative Agent an amount equal to such LC Disbursement
not later than 2:00 p.m., New York City time, on the date that such LC
Disbursement is made, if the Company shall have received notice of such LC
Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such
notice has not been received by the Company prior to such time on such date,
then not later than 2:00 p.m., New York City time, on the Business Day that the
Company receives such notice, if such notice is received prior to 10:00 a.m.,
New York City time, on the day of receipt, or (ii) the Business Day immediately
following the day that the Company receives such notice, if such notice is not
received prior to such time on the day of receipt; provided that, if such LC
Disbursement is not less than $500,000, the Company may, subject to the
conditions to borrowing set forth herein, request in accordance with Section
2.03 that such payment be financed with an ABR Borrowing in an equivalent amount
and, to the extent so financed, the Company's obligation to make such payment
shall be discharged and replaced by the resulting ABR Borrowing. If the Company
fails to make such payment when due, the Administrative Agent shall notify each
Lender of the applicable LC Disbursement, the payment then due from the Company
in respect thereof and such Lender's Applicable Percentage thereof. Promptly
following receipt of such notice, each Lender shall pay to the Administrative
Agent its Applicable Percentage of the payment then due from the Company, in the
same manner as provided in Section 2.05 with respect to Loans made by such
Lender (and Section 2.05 shall apply, mutatis mutandis, to the payment
obligations of the Lenders), and the Administrative Agent shall promptly pay to
the Issuing Bank the amounts so received by it from the Lenders. Promptly
following receipt by the Administrative Agent of any payment from the Company
pursuant to this paragraph, the Administrative Agent shall distribute such
payment to the Issuing Bank or, to the extent that Lenders have made payments
pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders
and the Issuing Bank as their interests may appear. Any payment made by a Lender
pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement
(other than the funding of ABR Loans as contemplated above) shall not constitute
a Loan and shall not relieve the Company of its obligation to reimburse such LC
Disbursement.
(f) Obligations Absolute. The Company's obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement under any and all circumstances whatsoever and
irrespective of any lack of validity or enforceability of any Letter of Credit
or this Agreement, or any term or provision therein, (ii) any draft or other
document presented under a Letter of Credit proving to be forged, fraudulent or
invalid in any respect or any statement therein being untrue or inaccurate in
any respect, (iii) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or other document that does not comply strictly with the
terms of such Letter of Credit, or (iv) any other event or circumstance
whatsoever, whether or not similar to any of the foregoing, that might, but for
the provisions of this Section, constitute a legal or equitable discharge of the
Company's obligations hereunder. Neither the Administrative Agent, the Lenders
nor the Issuing Bank, nor any of their Related Parties, shall have any liability
or responsibility by reason of or in connection with the issuance or transfer of
any Letter of Credit or any payment or failure to make any payment thereunder
(irrespective of any of the circumstances referred to in the preceding
sentence), or any error, omission, interruption, loss or delay in transmission
or delivery of any draft, notice or other communication under or relating to any
Letter of Credit (including any document required to make a drawing thereunder),
any error in interpretation of technical terms or any consequence arising from
causes beyond the control of the Issuing Bank; provided that the foregoing shall
not be construed to excuse the Issuing Bank from liability to the Company to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Company to the extent permitted by
applicable law) suffered by the Company that are caused by the Issuing Bank's
failure to exercise the standard of care agreed hereunder (as set forth in the
next sentence) to be applicable when determining whether drafts and other
documents presented under a Letter of Credit comply with the terms thereof. The
parties hereto expressly agree that the Issuing Bank shall be deemed to have
exercised the agreed standard of care in the absence of gross negligence or
wilful misconduct on the part of the Issuing Bank when determining whether
drafts and other documents presented under a Letter of Credit comply with the
terms thereof, and shall be deemed to have failed to exercise the agreed
standard of care only if it shall have engaged in gross negligence or wilful
misconduct when making such determination. In furtherance of the foregoing and
without limiting the generality thereof, it is understood that the Issuing Bank
may accept documents that appear on their face to be in substantial compliance
with the terms of a Letter of Credit without responsibility for further
investigation, regardless of any notice or information to the contrary, and may
make payment upon presentation of documents that appear on their face to be in
substantial compliance with the terms of such Letter of Credit; provided that,
notwithstanding the foregoing, the Issuing Bank shall have the right, in its
sole discretion, to decline to accept such documents and to make such payment if
such documents are not in strict compliance with the terms of such Letter of
Credit.
(g) Disbursement Procedures. The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit. The Issuing Bank shall promptly notify the
Administrative Agent and the Company by telephone (confirmed by telecopy) of
such demand for payment and whether the Issuing Bank has made or will make an LC
Disbursement thereunder; provided that any failure to give or delay in giving
such notice shall not relieve the Company of its obligation to reimburse the
Issuing Bank and the Lenders with respect to any such LC Disbursement.
(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement,
then, unless the Company shall reimburse such LC Disbursement in full on the
date such LC Disbursement is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made
to but excluding the date that the Company reimburses such Disbursement, at the
rate per annum then applicable to ABR Loans; provided that, if the Company fails
to reimburse such LC Disbursement when due pursuant to paragraph (e) of this
Section, then Section 2.11(c) shall apply. Interest accrued pursuant to this
paragraph shall be for the account of the Issuing Bank, except that interest
accrued on and after the date of payment by any Lender pursuant to paragraph (e)
of this Section to reimburse the Issuing Bank shall be for the account of such
Lender to the extent of such payment.
(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at
any time by written agreement among the Company, the Administrative Agent, the
replaced Issuing Bank and the successor Issuing Bank, provided that the identity
of any successor Issuing Bank shall be subject to the approval of the Required
Lenders. The Administrative Agent shall notify the Lenders of any proposed
replacement of the Issuing Bank. At the time any such replacement shall become
effective, the Company shall pay all unpaid fees accrued for the account of the
replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective
date of any such replacement, (i) the successor Issuing Bank shall have all the
rights and obligations of the Issuing Bank under this Agreement with respect to
Letters of Credit to be issued thereafter and (ii) references herein to the term
"Issuing Bank" shall be deemed to refer to such successor or to any previous
Issuing Bank, or to such successor and all previous Issuing Banks, as the
context shall require. After the replacement of an Issuing Bank hereunder, the
replaced Issuing Bank shall remain a party hereto and shall continue to have all
the rights and obligations of an Issuing Bank under this Agreement with respect
to Letters of Credit issued by it prior to such replacement,.but shall not be
required to issue additional Letters of Credit.
(j) Cash Collateralization. If any Event of Default shall occur and be
continuing, on the Business Day that the Company receives notice from the
Administrative Agent or the Required Lenders (or, if the maturity of the Loans
has been accelerated, Lenders with LC Exposure representing greater than 51% of
the total LC Exposure) demanding the deposit of cash collateral pursuant to this
paragraph, the Company shall deposit in an account with the Administrative
Agent, in the name of the Administrative Agent and for the benefit of the
Lenders, an amount in cash equal to the LC Exposure as of such date plus any
accrued and unpaid interest thereon; provided that the obligation to deposit
such cash collateral shall become effective immediately, and such deposit shall
become immediately due and payable, without demand or other notice of any kind,
upon the occurrence of any Event of Default with respect to the Company
described in clause (h) or W of Article VIII. Such deposit shall be held by the
Administrative Agent as collateral for the payment and performance of the
obligations of the Company under this Agreement. The Administrative Agent shall
have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Other than any interest earned on the investment
of such deposits, which investments shall be made at the option and sole
discretion of the Administrative Agent and at the Company's risk and expense,
such deposits shall not bear interest. Interest or profits, if any, on such
investments shall accumulate in such account. Moneys in such account shall be
applied by the Administrative Agent to reimburse the Issuing Bank for LC
Disbursements for which it has not been reimbursed and, to the extent not so
applied, shall be held for the satisfaction of the reimbursement obligations of
the Company for the LC Exposure at such time or, if the maturity of the Loans
has been accelerated (but subject to the consent of Lenders with LC Exposure
representing greater than 51% of the total LC Exposure), be applied to satisfy
other obligations of the Company under this Agreement. If the Company is
required to provide an amount of cash collateral hereunder as a result of the
occurrence of an Event of Default, the Administrative Agent shall, at the
request of the Company, release moneys in such account to the Company to the
extent the balance in such account exceeds the LC Exposure at such time. Any
amount that is not applied or released as aforesaid shall be returned to the
Company within three Business Days after all Events of Default have been cured
or waived.
. SECTION 2.05. Funding of BorrowingsSECTION 2.05. Funding of Borrowings
(a) Each Lender shall make each Loan to be made by it hereunder on the
proposed date thereof by wire transfer of immediately available funds by 1:00
p.m., New York City time, to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders. The
Administrative Agent will make such Loans available to the relevant Borrower by
promptly crediting the amounts so received, in like funds, to the account of the
Company or the Subsidiary Borrower specified by the Company pursuant to Section
2.03; provided that ABR Loans made to finance the reimbursement of an LC
Disbursement as provided in Section 2.04(e) shall be remitted by the
Administrative Agent to the Issuing Bank.
(b) Unless the Administrative Agent shall have received notice from a
Lender prior to the proposed date of any Borrowing that such Lender will not
make available to the Administrative Agent such Lender's share of such
Borrowing, the Administrative Agent may assume that such Lender has made such
share available on such date in accordance with paragraph (a) of this Section
and may, in reliance upon such assumption, make available to the relevant
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
then the applicable Lender and such Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to such Borrower to but excluding the date of payment to the Administrative
Agent, at W in the case of such Lender, the Federal Funds Effective Rate or (ii)
in the case of such Borrower, the interest rate applicable to the Loans made on
the occasion of such Borrowing. If such Lender pays such amount to the
Administrative Agent, then such amount shall constitute such Lender's Loan
included in such Borrowing.
.ECTION 2.06. Interest ElectionsSECTION 2.06. Interest Elections
(a) Each Borrowing initially shall be of the Type specified in the
applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall
have an initial Interest Period as specified in such Borrowing Request.
Thereafter, the Company may elect to convert such Borrowing to a different Type
or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may
elect Interest Periods therefor, all as provided in this Section. The Company
may elect different options with respect to different portions of the affected
Borrowing, in which case each such portion shall be allocated ratably among the
Lenders and the Loans comprising each such portion shall be considered a
separate Borrowing, provided that each such Eurodollar Borrowing shall be in an
aggregate amount that is an integral multiple of $100,000 and not less than
$2,000,000. In the event that the Company, on the same day, converts or
continues all or any portion of two or more ABR or Eurodollar Borrowings into or
as Eurodollar Borrowings with Interest Periods of equal duration, the portions
of such Eurodollar Borrowings having Interest Periods of equal duration shall be
deemed to constitute a single Eurodollar Borrowing for purposes hereof.
(b) To make an election pursuant to this Section, the Company shall notify
the Administrative Agent of such election by telephone by the time that a
Borrowing Request would be required under Section 2.03 if the Company were
requesting a Borrowing of the Type resulting from such election to be made on
the effective date of such election. Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery or
telecopy to the Administrative Agent of a written Interest Election Request in a
form approved by the Administrative Agent and signed by the Company.
(c) Each telephonic and written Interest Election Request shall specify
the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if
different options are being elected with respect to different portions
thereof, the portions thereof to be allocated to each resulting Borrowing
(in which case the information to be specified pursuant to clauses (iii)
and (iv) below shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest
Election Request, which shall be a Business Day;
(iii)whether the resulting Borrowing is to be an ABR Borrowing or a
Eurodollar Borrowing; and
(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest
Period to be applicable thereto after giving effect to such election,
which shall be a period contemplated by the definition of the term
"Interest Period".
If any such Interest Election Request requests a Eurodollar Borrowing but
does not specify an Interest Period, then the Company shall be deemed to have
selected an Interest Period of one month's duration.
(d) Promptly following receipt of an Interest Election Request, the
Administrative Agent shall advise each Lender of the details thereof and of such
Lender's portion of each resulting Borrowing.
(e) If the Company fails to deliver a timely Interest Election Request
with respect to a Eurodollar Borrowing prior to the end of the Interest Period
applicable thereto, then, unless such Borrowing is repaid as provided herein, at
the end of such Interest Period such Borrowing shall be converted to an ABR
Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the Administrative Agent, at the request of
the Required Lenders, so notifies the Company, then, so long as an Event of
Default is continuing W no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar
Borrowing shall be converted to an ABR Borrowing at the end of the Interest
Period applicable thereto.
SECTION 2.07. Termination, Reduction and Extension of CommitmentsSECTION 2.07.
. Termination, Reduction and Extension of Commitments
(a) Unless previously terminated, the Commitments shall terminate on the
Maturity Date.
(b) The Company may at any time terminate, or from time to time reduce,
the Commitments; provided that W each reduction of the Commitments shall be in
an amount that is an integral multiple of $100,000 and not less than $500,000
and (ii) the Company shall not terminate or reduce the Commitments if, after
giving effect to any concurrent prepayment of the Loans in accordance with
Section 2.09, the sum of the Revolving Credit Exposures would exceed the total
Commitments.
(c) The Company shall notify the Administrative Agent of any election to
terminate or reduce the Commitments under paragraph (b) of this Section at least
three Business Days prior to the effective date of such termination or
reduction, specifying such election and the effective date thereof. Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof. Each notice delivered by the Company pursuant
to this Section shall be irrevocable; provided that a notice of termination of
the Commitments delivered by the Company may state that such notice is
conditioned upon the effectiveness of other credit facilities or any other
transaction specified in such notice, in which case such notice may be revoked
by the Company (by notice to the Administrative Agent on or prior to the
specified effective date) if such condition is not satisfied. Any termination or
reduction of the Commitments shall be permanent. Each reduction of the
Commitments shall be made ratably among the Lenders in accordance with their
respective Commitments.
(d) The Company may, by notice to the Administrative Agent (which shall
promptly notify the Lenders) not less than 60 days and not more the 90 days
prior to March 31st of any year (the "Applicable Extension Date"), request that
the Lenders extend the Maturity Date then in effect hereunder (the "Existince of
Maturity Date") for a period of one year from the Existing Maturity Date;
provided that the Company may request only two extensions pursuant to this
Section 2.07(d). Each Lender, acting in its sole discretion, shall, by notice to
the Administrative Agent (which shall notify the Company) given not later than
the date which is 30 days prior to the Applicable Extension Date (the "Consent
Date), advise the Administrative Agent whether or not such Lender agrees to such
extension; provided that each Lender that determines not to extend the Maturity
Date (a "Non-extendinq Lender") shall notify the Administrative Agent (which
shall notify the other Lenders and the Company) of such fact promptly after such
determination (but in any event no later than the Consent Date) and any Lender
that does not advise the Administrative Agent on or before the Consent Date
shall be deemed to be a Non-extending Lender. The election of any Lender to
agree to such extension shall not obligate any other Lender to so agree.
(ii) The Company shall have the right, at any time after the Consent Date
and on or before the Applicable Extension Date to replace any Non-extending
Lender with, and otherwise add to this Agreement, one or more other Persons
(which may include increasing the Commitment of any Lender) (each an "Additional
Commitment Lender"), with the approval of the Administrative Agent (which
approval shall not be unreasonably withheld), each of which Additional
Commitment Lenders shall have entered into an agreement in form and substance
satisfactory to the Company and the Administrative Agent pursuant to which such
Additional Commitment Lender shall, effective as of the Applicable Extension
Date (but only if the requisite Lenders shall have consented to the relevant
extension under clause (iii) below), undertake a Commitment (and, if any such
Additional Commitment Lender is already a Lender, its Commitment shall be in
addition to such Lender's Commitment hereunder on such date), provided that in
no event shall the aggregate amount of Commitments in effect immediately prior
to the request of an extension pursuant to this Section 2.07(d) be increased
pursuant to this Section 2.07(d).
(iii)If (and only if) the total of the Commitments of the Lenders that
have agreed under clause (ii) above so to extend the Maturity Date shall be at
least 80% of the aggregate amount of the Commitments in effect immediately prior
to the Consent Date, then, effective as of the Applicable Extension Date, the
Existing Maturity Date shall be extended by one year (except that, if such date
is not a Business Day, such Existing Maturity Date as so extended shall be the
next preceding Business Day) and each Additional Commitment Lender shall
thereupon become a "Lender" for all purposes of this Agreement.
Notwithstanding the foregoing, the extension of the Existing Maturity Date
shall not be effective with respect to any Lender unless:
(A) no Default shall have occurred and be continuing on and as of each of
the date of the notice requesting such extension and the Applicable
Extension Date;
(B) each of the representations and warranties made by the Credit Parties
in this Agreement and the other Credit Documents shall be true and
complete on and as of each of the date of the notice requesting such
extension and the Applicable Extension Date with the same force and effect
as if made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date, as
of such specific date); and
(C) each Non-extending Lender shall have been paid in full by the
Borrowers all amounts owing to such Lender hereunder on or before the
Applicable Extension Date.
Even if the Existing Maturity Date is extended as aforesaid, the Commitment of
each Non-extending Lender shall terminate on the Applicable Extension Date and
each Lender other than a Nonextending Lender shall, on such date, be deemed to
acquire its pro rata share of any participations in Letters of Credit held by
each Non-extending Lender on such date.
SECTION 2.08. Repayment of Loans; Evidence of DebtSECTION 2.08. Repayment of
Loans; evidence of Debt
(a) Each Borrower hereby unconditionally promises to pay to the
Administrative Agent for the account of each Lender the then unpaid principal
amount of each Loan made to such Borrower on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual practice an
account or accounts evidencing the indebtedness of each Borrower to such Lender
resulting from each Loan made by such Lender to such Borrower, including the
amounts of principal and interest payable and paid to such Lender from time to
time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall
record W the amount of each Loan made hereunder, the Type thereof and the
Interest Period applicable thereto, (ii) the amount of any principal or interest
due and payable or to become due and payable from the relevant Borrower to each
Lender hereunder and (iii) the amount of any sum received by the Administrative
Agent hereunder for the account of the Lenders and each Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b)
or (c) of this Section shall be prima facie evidence of the existence and
amounts of the obligations recorded therein; provided that the failure of any
Lender or the Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Borrowers to repay
the Loans in accordance with the terms of this Agreement.
(e) Any Lender may request that Loans made by it be evidenced by a
promissory note. In such event, the Company shall prepare, execute and deliver
to such Lender a promissory note payable to the order of such Lender (or, if
requested by such Lender, to such Lender and its registered assigns) in a form
approved by the Administrative Agent. Thereafter, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 10.04) be represented by one or more promissory
notes (payable to the order of each Lender holding a portion of such Loans or,
if such promissory note is a registered note, to such Lender and its registered
assigns).
.ECTION 2.09. Prepayment of LoansSECTION 2.09. Prepayment of Loans
(a) The Borrowers shall have the right at any time and from time to time
to prepay any Borrowing in whole or in part, subject to prior notice in
accordance with paragraph (b) of this Section without premium or penalty (except
to the extent provided in Section 2.14).
(b) The Company shall notify the Administrative Agent by telephone
(confirmed by telecopy) of any prepayment hereunder (i) in the case of
prepayment of a Eurodollar Borrowing, not later than 1:00 p.m., New York City
time, three Business Days before the date of repayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time,
on the date of prepayment. Each such notice shall be irrevocable and shall
specify the prepayment date and the principal amount of each Borrowing or
portion thereof to be prepaid; provided that, if a notice of prepayment is given
in connection with a conditional notice of termination of the Commitments as
contemplated by Section 2.07, then such notice of prepayment may be revoked if
such notice of termination is revoked in accordance with Section 2.07. Promptly
following receipt of any such notice relating to a Borrowing, the Administrative
Agent shall advise the Lenders of the contents thereof. Each partial prepayment
of any Borrowing shall be in an amount that would be permitted in the case of an
advance of a Borrowing of the same Type as provided in Section 2.02. Each
prepayment of a Borrowing shall be applied ratably to the Loans included in the
prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the
extent required by Section 2.11.
.ECTION 2.10. FeesSECTION 2.10. Fees
(a) The Company agrees to pay to the Administrative Agent for the account
of each Lender a facility fee, which shall accrue at the Applicable Rate on the
daily amount of the Commitment of such Lender (whether used or unused) during
the period from and including the Effective Date to but excluding the date on
which such Commitment terminates; provided that, if such Lender continues to
have any Revolving Credit Exposure after its Commitment terminates, then such
facility fee shall continue to accrue on the daily amount of such Lender's
Revolving Credit Exposure from and including the date on which its Commitment
terminates to but excluding the date on which such Lender ceases to have any
Revolving Credit Exposure. Accrued facility fees shall be payable in arrears on
the last day of March, June, September and December of each year and on the date
on which the Commitments terminate, commencing on the first such date to occur
after the date hereof; provided that any facility fees accruing after the date
on which the Commitments terminate shall be payable on demand. All facility fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day).
(b) The Company agrees to pay to the Administrative Agent for the account
of each Lender a participation fee with respect to its participations in Letters
of Credit, which shall accrue at the Applicable Rate which is applicable to
Eurodollar Loans on the average daily amount of such Lender's LC Exposure
(excluding any portion thereof attributable to unreimbursed LC Disbursements)
during the period from and including the Effective Date to but excluding the
later of the date on which such Lender's Commitment terminates and the date on
which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a
fronting fee, which shall accrue at the rate of 0.0625% per annum on the average
daily amount of the LC Exposure (excluding any portion thereof attributable to
unreimbursed LC Disbursements) during the period from and including the
Effective Date to but excluding the later of the date of termination of the
Commitments and the date on which there ceases to be any LC Exposure, as well as
the Issuing Bank's standard fees with respect to the issuance, amendment,
renewal or extension of any Letter of Credit or processing of drawings
thereunder. Participation fees and fronting fees accrued through and including
the last day of March, June, September and December of each year shall be
payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that all such fees
shall be payable on the date on which the Commitments terminate and any such
fees accruing after the date on which the Commitments terminate shall be payable
on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph
shall be payable within 10 days after demand. All participation fees and
fronting fees shall be computed on the basis of a year of 360 days and shall be
payable for the actual number of days elapsed (including the first day but
excluding the last day).
(c) The Company agrees to pay to the Administrative Agent, for its own
account, fees payable in the amounts and at the times separately agreed upon
between the Company and the Administrative Agent.
(d) All fees payable hereunder shall be paid on the dates due, in
immediately available funds, to the Administrative Agent for distribution, in
the case of facility fees and participation fees, to the Lenders or, in the case
of fronting fees, to the Issuing Bank. Fees paid shall not be refundable under
any circumstances.
.ECTION 2.11. InterestSECTION 2.11. Interest
(a) The Loans comprising each ABR Borrowing shall bear interest at a rate
per annum equal to the sum of (i) the Alternate Base Rate plus (ii) the
Applicable Rate.
(b) The Loans comprising each Eurodollar Borrowing shall bear interest at
a rate per annum equal to the sum of (i) the Adjusted LIBO Rate for the Interest
Period in effect for such Borrowing plus (ii) the Applicable Rate.
(c) Notwithstanding the foregoing, if any principal of or interest on any
Loan or any fee or other amount payable by the Borrowers hereunder is not paid
when due, whether at stated maturity, upon acceleration or otherwise, such
overdue amount shall bear interest, after as well as before judgment, at a rate
per annum equal to in the case of overdue principal of any Loan, plus the rate
otherwise applicable to such Loan as provided above or (ii) in the case of any
other amount, plus the rate applicable to AER Loans as provided above.
(d) Accrued interest on each Loan shall be payable in arrears on each
Interest Payment Date for such Loan; Provided that interest accrued pursuant to
paragraph (c) of this Section shall be payable on demand, (ii) in the event of
any repayment or prepayment of any Loan (other than a prepayment of an ABR Loan
prior to the end of the Availability Period), accrued interest on the principal
amount repaid or prepaid shall be payable on the date of such repayment or
prepayment, (iii) in the event of any conversion of any Eurodollar Loan prior to
the end of the current Interest Period therefor, accrued interest on such Loan
shall be payable on the effective date of such conversion and (iv) all accrued
interest shall be payable upon termination of the Commitments.
(e) All interest hereunder shall be computed on the basis of a year of 360
days, except that interest computed by reference to the Alternate Base Rate at
times when the Alternate Base Rate is based on the Prime Rate shall be computed
on the basis of a year of 365 days (or 366 days in a leap year), and in each
case shall be payable for the actual number of days elapsed (including the first
day but excluding the last day). The applicable Alternate Base Rate, Adjusted
LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and such
determination shall be conclusive absent manifest error.
. If prior to the commencement of any Interest Period for a Eurodollar
Borrowing:rest
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that adequate and reasonable means do not
exist for ascertaining the Adjusted LIBO Rate or the LIBO Rate, as applicable,
for such Interest Period; or
(b) the Administrative Agent is advised by the Required Lenders that the
Adjusted LIBO Rate or the LIBO Rate, as applicable, for such Interest Period
will not adequately and fairly reflect the cost to such Lenders (or Lender) of
making or maintaining their Loans (or its Loan) included in such Borrowing for
such Interest Period;
then the Administrative Agent shall give notice thereof to the Company and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Company and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
(ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing
shall be made as an ABR Borrowing.
.ECTION 2.13. Increased CostsSECTION 2.13. Increased Costs
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit or
similar requirement against assets of, deposits with or for the account
of, or credit extended by, any Lender (except any such reserve requirement
reflected in the Adjusted LIBO Rate); or
(ii) impose on any Lender or the Issuing Bank or the London interbank
market any other condition affecting this Agreement or Eurodollar Loans
made by such Lender or any Letter of Credit or any participation therein;
and the result of any of the foregoing shall be to increase the cost to such
Lenders of making or maintaining any Eurodollar Loan (or of maintaining its
obligation to make any such Loan) or to increase the cost to such Lender or the
Issuing Bank of participating in, issuing or maintaining any Letter of Credit or
to reduce the amount of any sum received or receivable by such Lender or the
Issuing Bank hereunder (whether of principal, interest or otherwise), then the
Company will pay to the Administrative Agent for the account of such Lender or
the Issuing Bank such additional amount or amounts as will compensate such
Lender or the Issuing Bank, as the case may be, for such additional costs
incurred or reduction suffered.
(b) If any Lender or the Issuing Bank determines that any Change in Law
regarding capital requirements has or would have the effect of reducing the rate
of return on such Lender's or the Issuing Bank's capital or on the capital of
such Lender's or the Issuing Bank's holding company, if any, as a consequence of
this Agreement or the Loans made by, or participations in the Letters of Credit
held by, such Lender, or the Letters of Credit issued by the Issuing Bank, to a
level below that which such Lender or the Issuing Bank or such Lender's or the
Issuing Bank's holding company could have achieved but for such Change in Law
(taking into consideration such Lender's or the Issuing Bank's policies and the
policies of such Lender's or the Issuing Bank's holding company with respect to
capital adequacy), then from time to time the Company will pay to the
Administrative Agent for the account of such Lender or the Issuing Bank, as the
case may be, such additional amount or amounts as will compensate such Lender or
the Issuing Bank or such Lender's or the Issuing Bank's holding company for any
such reduction suffered.
(c) A certificate of a Lender or the Issuing Bank setting forth the amount
or amounts necessary to compensate such Lender or its holding company or the
Issuing Bank or its holding company, as the case may be, as specified in
paragraph (a) or (b) of this Section shall be delivered to the Company (with a
copy to the Administrative Agent) and shall be conclusive absent manifest error.
The Company shall pay the Administrative Agent for the account of such Lender or
the Issuing Bank, as the case may be, the amount shown as due on any such
certificate within 10 days after receipt thereof.
(d) Failure or delay on the part of any Lender or the Issuing Bank to
demand compensation pursuant to this Section shall not constitute a waiver of
such Lender's or the Issuing Bank's right to demand such compensation; provided
that the Company shall not be required to compensate a Lender or the Issuing
Bank pursuant to this Section for any increased costs or reductions incurred
more than six months prior to the date that such Lender or the Issuing Bank, as
the case may be, notifies the Company of the Change in Law giving rise to such
increased costs or reductions and of such Lender's or the Issuing Bank's
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the six-month period referred to above shall be extended to include the period
of retroactive effect thereof.
. In the event of (a) the payment of any principal of any Eurodollar Loan prior
to the last day of an Interest Period applicable thereto (including as a result
of an Event of Default), (b) the conversion of any Eurodollar Loan prior to the
last day of the Interest Period applicable thereto, (c) the failure to borrow,
convert, continue or prepay any Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice is permitted to be
revocable under Section 2.09(b) and is revoked in accordance herewith), or (d)
the assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Company pursuant to
Section 2.17, then, in any such event, the Company shall compensate each Lender
for the loss, cost and expense attributable to such event. The loss to any
Lender attributable to any such event shall be an amount determined by such
Lender to be equal to the excess, if any, of W the amount of interest that such
Lender would pay for a deposit equal to the principal amount of such Loan for
the period from the date of such payment, conversion, failure or assignment to
the last day of the then current Interest Period for such Loan (or, in the case
of a failure to borrow, convert or continue, the duration of the Interest Period
that would have resulted from such borrowing, conversion or continuation) if the
interest rate payable on such deposit were equal to the Adjusted LIBO Rate for
such Interest Period, over (ii) the amount of interest that such Lender would
earn on such principal amount for such period if such Lender were to invest such
principal amount for such period at the interest rate that would be bid by such
Lender (or an affiliate of such Lender) for dollar deposits from other banks in
the eurodollar market at the commencement of such period. A certificate of any
Lender setting forth any amount or amounts that such Lender is entitled to
receive pursuant to this Section shall be delivered to the Company and shall be
conclusive absent manifest error. The Company shall pay such Lender the amount
shown as due on any such certificate within 10 days after receipt thereof.
.ECTION 2.15. TaxesSECTION 2.15. Taxes
(a) Any and all payments by or an account of any obligation of the Credit
Parties hereunder shall be made free and clear of and without deduction for any
Indemnified Taxes or Other Taxes; provided that if any Credit Party shall be
required to deduct any Indemnified Taxes or Other Taxes from such payments, then
the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent, Lender or Issuing Bank (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the relevant Credit Party shall make such
deductions and (iii) such Credit Party shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable law.
(b) The Credit Parties shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
(c) The Company shall indemnify the Administrative Agent, each Lender and
the Issuing Bank (by payment to the Administrative Agent for the account of such
Lender), within 10 days after written demand therefor (with a copy to the
Administrative Agent), for the full amount of any Indemnified Taxes or Other
Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or
attributable to amounts payable under this Section) paid by the Administrative
Agent, such Lender or the Issuing Bank, as the case may be, which any Credit
Party failed to pay under paragraphs (a) and (b) above and any penalties,
interest and reasonable expenses arising therefrom or with respect thereto,
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
imposed or asserted by the relevant Governmental Authority; provided that the
Company shall have the right to contest, reasonably and in good faith to
appropriate Governmental Authorities, whether such Indemnified Taxes or Other
Taxes were correctly or legally asserted so long as the Company shall have
reimbursed to the Administrative Agent, such Lender or the Issuing Bank (as the
case may be) the amount so paid by the Administrative Agent, such Lender or the
Issuing Bank. A certificate as to the amount of such payment or liability
delivered to the Company by a Lender, by the Issuing Bank or by the
Administrative Agent on its own behalf or on behalf of a Lender or the Issuing
Bank, shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified Taxes or Other
Taxes by any Credit Party to a Governmental Authority, such Credit Party shall
deliver to the Administrative Agent the original or a certified copy of a
receipt issued by such Governmental Authority evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment reasonably
satisfactory to the Administrative Agent.
(e) Any Foreign Lender that is entitled to an exemption from or reduction
of withholding tax under the law of the jurisdiction in which a Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to the Company (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by the Company, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate.
SECTION 2.16. Payments Generally; Pro Rata Treatment;
Sharing of Set-offsSECTION 2.16. Payments Generally; Pro Rata Treatment;Sharing
of .etoffs
(a) Each Credit Party shall make each payment required to be made by it
hereunder (whether of principal, interest, fees or reimbursement of LC
Disbursements, or of amounts payable under Section 2.13, 2.14 or 2.15, or
otherwise) prior to 2:00 p.m., New York City time, on the date when due, in
immediately available funds, without set-off or counterclaim. Any amounts
received after such time on any date may, in the discretion of the
Administrative Agent, be deemed to have been received on the next succeeding
Business Day for purposes of calculating interest thereon. All such payments
shall be made to the Administrative Agent at its offices at 270 Park Avenue, New
York, New York. The Administrative Agent shall distribute any such payments
received by it for the account of any other Person to the appropriate recipient
promptly following receipt thereof. If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing interest,
interest thereon shall be payable for the period of such extension. All payments
hereunder shall be made in dollars.
(b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, unreimbursed LC
Disbursements, interest and fees then due hereunder, such funds shall be applied
W first, to pay interest and fees then due hereunder, ratably among the parties
entitled thereto in accordance with the amounts of interest and fees then due to
such parties, and (ii) second, to pay principal and unreimbursed LC
Disbursements then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal and unreimbursed LC Disbursements then
due to such parties.
(c) If any Lender shall, by exercising any right of set-off or
counterclaim or otherwise, obtain payment in respect of any principal of or
interest on any of its Loans or participations in LC Disbursements resulting in
such Lender receiving payment of a greater proportion of the aggregate amount of
its Loans and participations in LC Disbursements and accrued interest thereon
than the proportion received by any other Lender, then the Lender receiving such
greater proportion shall purchase (for cash at face value) participations in the
Loans and participations in LC Disbursements of other Lenders to the extent
necessary so that the benefit of all such payments shall be shared by the
Lenders ratably in accordance with the aggregate amount of principal of and
accrued interest on their respective Loans and participations in LC
Disbursements; Provided that W if any such participations are purchased and all
or any portion of the payment giving rise thereto is recovered, such
participations shall be rescinded and the purchase price restored to the extent
of such recovery, without interest, and (ii) the provisions of this paragraph
shall not be construed to apply to any payment made by the Credit Parties
pursuant to and in accordance with the express terms of this Agreement or any
payment obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in LC Disbursements to any
assignee or participant, other than to the Credit Parties or any Subsidiary or
Affiliate thereof (as to which the provisions of this paragraph shall apply).
The Credit Parties consent to the foregoing and agree, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Credit Parties rights of set-off and counterclaim with respect to such
participation as fully as if such Lender were a direct creditor of the Credit
Parties in the amount of such participation.
(d) Unless the Administrative Agent shall have received notice from the
Company prior to the date on which any payment is due to the Administrative
Agent for the account of the Lenders or the Issuing Bank hereunder that a
Borrower will not make such payment, the Administrative Agent may assume that
such Borrower has made such payment on such date in accordance herewith and may,
in reliance upon such assumption, distribute to the Lenders or the Issuing Bank,
as the case may be, the amount due. In such event, if such Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or the Issuing Bank with such
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of payment to the Administrative
Agent, at the Federal Funds Effective Rate.
(e) If any Lender shall fail to make any payment required to be made by it
pursuant to Section 2.05(b) or 2.16(d), then the Administrative Agent may, in
its discretion (notwithstanding any contrary provision hereof), apply any
amounts thereafter received by the Administrative Agent for the account of such
Lender to satisfy such Lender's obligations under such Sections until all such
unsatisfied obligations are fully paid.
SECTION 2.17. Mitigation Obligations; Replacement of LendersSECTION 2.17.
.itigation Obligations; Replacement of Lenders
(a) If any Lender requests compensation under Section 2.13, or if the
Credit Parties are required to pay any additional amount to any Lender or any
Governmental Authority for the account of any Lender pursuant to Section 2.15,
then such Lender shall use reasonable efforts to designate a different lending
office for funding or booking its Loans hereunder or to assign its rights and
obligations hereunder to another of its offices, branches or affiliates, if, in
the judgment of such Lender, such designation or assignment W would eliminate or
reduce amounts payable pursuant to Section 2.13 or 2.15, as the case may be, in
the future and (ii) would not subject such Lender to any unreimbursed cost or
expense and would not otherwise be disadvantageous to such Lender. The Company
hereby agrees to pay all reasonable costs and expenses incurred by any Lender in
connection with any such designation or assignment.
(b) If any Lender requests compensation under Section 2.13, or if the
Credit Parties are required to pay any additional amount to any Lender or the
Administrative Agent or any Governmental Authority for the account of any Lender
pursuant to Section 2.15, or if any Lender defaults in its obligation to fund
Loans hereunder, then the Company may, at its sole expense and effort, upon
notice to such Lender and the Administrative Agent, require such Lender to
assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 10.04), all its interests, rights and
obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); Provided that W the Company shall have received the prior written
consent of the Administrative Agent (and, if a Commitment is being assigned, the
Issuing Bank), which consent shall not unreasonably be withheld, (ii) such
Lender shall have received payment of an amount equal to the outstanding
principal of its Loans, accrued interest thereon, accrued fees and all other
amounts payable to it hereunder, from the assignee (to the extent of such
outstanding principal and accrued interest and fees) or the Borrowers (in the
case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for compensation under Section 2.13 or payments required
to be made pursuant to Section 2.15, such assignment will result in a reduction
in such compensation or payments. A Lender shall not be required to make any
such assignment and delegation if, within five days after the Company notifies
such Lender of its intent to require such Lender to make the assignment
contemplated by this Section 2.17, as a result of a waiver by such Lender or
otherwise, the circumstances entitling the Company to require such assignment
and delegation cease to apply.
. SECTION 2.18. Increase of CommitmentsSECTION 2.18. Increase of Commitments
(a) The Company shall have the right at any time prior to the Maturity
Date to increase the aggregate principal amount of the Commitments by an
aggregate amount for all such increases not exceeding $50,000,000 by (i)
requesting to the Administrative Agent that the existing Lenders increase the
aggregate principal amount of their Commitments in a principal amount not less
than $10,000,000 or an integral multiple of $1,000,000 in excess thereof or (ii)
adding one or more Persons to this Agreement as Lenders, with the approval of
the Administrative Agent (which approval shall not be unreasonably withheld),
provided that the Commitment of any such Person shall be in a principal amount
not less than $10,000,000 (or such lesser amount which, when added to the
existing Commitments, shall cause the aggregate principal amount of all
increases of the Commitments to equal $50,000,000). The Commitments may not be
increased pursuant to this Section 2.18 more than once during any calendar year.
(b) In the event that the Company exercises its option pursuant to clause
W of Section 2.18(a), the Administrative Agent shall promptly notify each Lender
of such request, and each Lender shall in turn, in its sole discretion, within
30 days after receipt of such notice, notify the Administrative Agent in
writing, which notice shall be irrevocable, (i) of the principal amount by which
it agrees to increase its Commitment (with respect to each such Lender, its
"Proposed Increased Commitment") or (ii) that it does not agree to increase its
Commitment. In no event shall a Lender's Proposed Increased Commitment exceed
the principal amount of the increase requested by the Company. If any Lender
shall fail to notify the Administrative Agent in writing of its decision to
increase its Commitment, such Lender shall be deemed not to agree to an
increase. The Administrative Agent shall first allocate the requested increase
of Commitments to each Lender that agrees to increase its Commitment in an
amount equal to such Lender's pro rata share of the requested increase
(determined in accordance with the existing Commitments) or, if such Lender's
Proposed Increased Commitment is less than its pro rata share of the requested
increase (determined in accordance with the existing Commitments), in an amount
equal to such Lender's Proposed Increased Commitment. The remaining portion of
the requested increase, if any, shall be allocated to the Lenders whose Proposed
Increased Commitments exceed their respective pro rata share of such requested
increase (determined in accordance with the existing Commitments) pro rata in
accordance with each such Lender's Proposed Increased Commitment. The
Administrative Agent shall notify the Company and the Lenders of such allocation
and the date such increase shall be effective, which date shall be not less than
5 Business Days after such notification has been given to the Company and the
Lenders. In no event shall a Lender's allocated share of the increased
Commitments exceed its Proposed Increased Commitment.
(c) In the event that the Company exercises its option pursuant to clause
(ii) of Section 2.18(a), each Person which shall be added as a Lender shall
promptly deliver to the Administrative Agent an agreement in form and substance
satisfactory to the Company and the Administrative Agent pursuant to which such
Person shall undertake a Commitment. Upon the effective date of such agreement
as specified therein, such Person shall become a Lender hereunder and the
Administrative Agent shall record the information reflecting such agreement in
the Register.
(d) Notwithstanding any other provision of this Section 2.18, the right of
the Company to increase the aggregate principal amount of the Commitments shall
be subject to the following conditions:
(i) no Default shall have occurred and be continuing on and as of each of
the date of the request by the Company referred to in Section 2.18(a) and
the effective date of the increase of Commitments under Section 2.18(b) or
the addition of a Lender pursuant to Section 2.18(c), as the case may be
(the "Relevant Increased Commitment Date");
(ii) the representations and warranties of the Credit Parties set forth in
this Agreement and the other Credit Documents shall be true and correct on
and as of the date of the request by the Company referred to in Section
2.18(a) and the Relevant Increased Commitment Date;
(iii)if any Loans shall be outstanding hereunder on any Relevant Increased
Commitment Date, the Company shall, notwithstanding any provisions
contained herein regarding the minimum amount or pro rata nature of such
borrowing or prepayment (A) borrow ABR Loans on the Relevant Increased
Commitment Date or, in the case of Eurodollar Loans, on the last day of
the first Interest Period(s) to expire thereafter (1) from the Lenders
increasing their Commitments (in the case of an increase effected pursuant
to Section 2.18(b)) or (2) from the Person or Persons becoming Lenders (in
the case of an increase effected pursuant to Section 2.18(c) and (B)
prepay AER Loans (on the Relevant Increased Commitment Date) and
Eurodollar Loans (on the last day of the first Interest Period(s) to
expire thereafter) owing to the other Lenders in such amounts and such
types that, after giving effect thereto, all of the Eurodollar Loans and
all of the AER Loans shall be allocated among the Lenders pro rata in
accordance with the amounts of their respective Commitments (after giving
effect to the increase in the aggregate amount of the Commitments), all in
accordance with Section 2.09 (other than any provision regarding the
minimum amount of such prepayment contained therein);
(iv) the Company shall not have reduced the Commitments pursuant to
Section 2.07(b); and
(v) at no time shall the aggregate principal amount of the Commitments
exceed $300,000,000.
Each request for an increase of the Commitments under this Section 2.18 shall be
deemed to constitute a representation and warranty by the Credit Parties as to
the matters specified in clauses and (ii) above (both as of the date of the
request by the Company referred to in Section 2.18(a) and, unless the Company
notifies the Administrative Agent to the contrary prior to the Relevant
Increased Commitment Date, on such Relevant Increased Commitment Date).
ARTICLE IIIARTICLE III
. The Company hereby guarantees to each Lender and the Administrative Agent and
their respective successors and assigns the prompt payment in full when due
(whether at stated maturity, by acceleration or otherwise) of the principal of
and interest on the Loans made by the Lenders to, the Subsidiary Borrowers and
all other amounts from time to time owing to the Lenders, the Administrative
Agent or the Issuing Bank by the Subsidiary Borrowers under this Agreement
(collectively, the "Guaranteed Obligations"), in each case strictly in
accordance with the terms thereof. The Company hereby further agrees that if the
Subsidiary Borrowers shall fail to pay in full when due (whether at stated
maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the
Company will promptly on demand pay the same, and that in the case of any
extension of time of payment or renewal of any of the Guaranteed Obligations,
the same will be promptly paid in full when due (whether at extended maturity,
by acceleration or otherwise) in accordance with the terms of such extension or
renewal.
. The obligations of the Company under Section 3.01 are absolute, unconditional,
irrespective of the value, genuineness, validity, regularity or enforceability
of the obligations of the Subsidiary Borrowers under this Agreement or any other
agreement or instrument referred to herein or therein, or any substitution,
release or exchange of any other guarantee of or security for any of the
Guaranteed Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever that might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 3.02 that the obligations of the Company
hereunder shall be absolute and unconditional under any and all circumstances.
Without limiting the generality of the foregoing, it is agreed, to the fullest
extent permitted by law, that the occurrence of any one or more of the following
shall not alter or impair the liability of the Company hereunder which shall
remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the Company, the
time for any performance of or compliance with any of the Guaranteed obligations
shall be extended, or such performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of this Agreement
or any other agreement or instrument referred to herein or therein shall be done
or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under this Agreement or any
other agreement or instrument referred to herein or therein shall be waived or
any other guarantee of any of the Guaranteed Obligations or any security
therefor shall be released or exchanged in whole or in part or otherwise dealt
with; or
(iv) any lien or security interest granted to, or in favor of, the
Administrative Agent or any Lender or Lenders as security for any of the
Guaranteed Obligations shall fail to be perfected.
To the fullest extent permitted by law, the Company hereby expressly waives
diligence, presentment, demand of payment to any Subsidiary Borrower, protest
and all notices whatsoever, and any requirement that the Administrative Agent or
any Lender exhaust any right, power or remedy or proceed against the Subsidiary
Borrowers under this Agreement or any other agreement or instrument referred to
herein or therein, or against any other Person under any other guarantee of, or
security for, any of the Guaranteed Obligations.
. The obligations of the Company under this Article III shall be automatically
reinstated if and to the extent that for any reason any payment by or on behalf
of any Subsidiary Borrower in respect of the Guaranteed obligations is rescinded
or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise and the Company agrees that it will indemnify the
Administrative Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the
Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
. The Company hereby waives, until payment in full of the Guaranteed
obligations, all rights of subrogation or contribution, whether arising by
contract or operation of law (including, without limitation, any such right
arising under the U.S. Bankruptcy Code) or otherwise by reason of any payment by
them pursuant to the provisions of this Article III.
. The Company agrees that, as between the Company and the Lenders, the
obligations of the Subsidiary Borrowers under this Agreement may be declared to
be forthwith due and payable as provided in Article VIII (and shall be deemed to
have become automatically due and payable in the circumstances provided in said
Article VIII) for purposes of Section 3.01 notwithstanding any stay, injunction
or other prohibition preventing such declaration (or such obligations from
becoming automatically due and payable) as against the Subsidiary Borrowers and
that, in the event of such declaration (or such obligations being deemed to have
become automatically due and payable), such obligations (whether or not due and
payable by the Subsidiary Borrowers) shall forthwith become due and payable by
the Company for purposes of Section 3.01.
SECTION 3.06 Instrument for the Payment of MoneySECTION 3.06 Instrument for
the . The Company hereby acknowledges that the guarantee in this Article III
constitutes an instrument for the payment of money, and consents and agrees that
any Lender or the Administrative Agent, at its sole option, in the event of a
dispute by such Guarantor in the payment of any moneys due hereunder, shall have
the right to bring motion-action under New York CPLR Section 3324.
. The guarantee in this Article III is a continuing guarantee, and shall apply
to all Guaranteed Obligations whenever arising.
ARTICLE IV
Representations and WarrantiesARTICLE IVRepresentations and Warranties
Each Credit Party represents and warrants (as to itself and its
Subsidiaries only) to the Lenders that:
. Each of the Company and its Subsidiaries is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization, has
all requisite power and authority to carry on its business as now conducted and,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect, is qualified to
do business in, and is in good standing in, every jurisdiction where such
qualification is required.
SECTION 4.02. Authorization; EnforceabilitySECTION 4.02. Authorization; .
The Transactions are within each Credit Party's corporate powers and have been
duly authorized by all necessary corporate and, if required, stockholder action.
Each of this Agreement and each other Credit Document has been duly executed and
delivered by each Credit party thereto and constitutes a legal, valid and
binding obligation of each such Credit Party, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors, rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
SECTION 4.03. Governmental Approvals; No ConflictsSECTION 4.03.
Governmental . The Transactions (a) do not require any consent or approval of,
registration or filing with, or any other action by, any Governmental Authority,
except such as have been obtained or made and are in full force and effect, (b)
will not violate any applicable law or regulation or the charter, by-laws or
other organizational documents of the Company or of any of Subsidiary or any
order of any Governmental Authority, (c) will not violate or result in a default
under any indenture, agreement or other instrument binding upon the Company or
any Subsidiary or its assets, or give rise to a right thereunder to require any
payment to be made by the Company or any Subsidiary, and (d) will not result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary.
SECTION 4.04. Financial Condition; No Material Adverse ChangeSECTION 4.04.
.inancial Condition; No Material Adverse Change
(a) The Company has heretofore furnished to the Lenders its consolidated
balance sheet and statements of income, stockholders equity and cash flows (i)
as of and for the fiscal year ended February 29, 1996, reported on by KPMG Peat
Marwick L.L.P., independent public accountants, and (ii) as of and for the
fiscal quarter and the portion of the fiscal year ended November 30, 1996,
certified by its chief financial officer. Such financial statements present
fairly, in all material respects, the financial position and results of
operations and cash flows of the Company and its consolidated Subsidiaries as of
such dates and for such periods in accordance with GAAP, subject to year-end
audit adjustments and the absence of footnotes in the case of the statements
referred to in clause (ii) above.
(b) Since February 29, 1996, there has been no material adverse change in
the business, assets, operations, prospects or condition, financial or
otherwise, of the Company
and its Subsidiaries, taken as a whole.
.ECTION 4.05. PropertiesSECTION 4.05. Properties
(a) Each of the Company and its Subsidiaries has good title to, or valid
leasehold interests in, all its real and personal property material to its
business, except for minor defects in title that do not interfere with its
ability to conduct its business as currently conducted or to utilize such
properties for their intended purposes.
(b) Each of the Company and its Subsidiaries owns, or is licensed to use,
all trademarks, tradenames, copyrights, patents and other intellectual property
material to its business, and the use thereof by the Company and its
Subsidiaries does not infringe upon the rights of any other Person, except for
any such infringements that, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
SECTION 4.06. Litigation and Environmental MattersSECTION 4.06. Litigation
and Environmental Matters
(a) There are no actions, suits or proceedings by or before any arbitrator
or Governmental Authority now pending against or, to the knowledge of any Credit
Party, threatened against or affecting the Company or any Subsidiary (i) as to
which there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect or (ii) that involve this
Agreement or the Transactions.
(b) Except with respect to any matters that, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect, neither the Company nor any Subsidiary (i) has failed to comply with any
Environmental Law or to obtain, maintain or comply with any permit, license or
other approval required under any Environmental Law, (ii) has become subject to
any Environmental Liability, (iii) has received notice of any claim with respect
to any Environmental Liability or (iv) knows of any basis for any Environmental
Liability.
SECTION 4.07. Compliance with Laws and AgreementsSECTION 4.07. Compliance
with . Each of the Company and its Subsidiaries is in compliance with all laws,
regulations and orders of any Governmental Authority applicable to it or its
property and all indentures, agreements and other instruments binding upon it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect. No Default has occurred and is continuing.
SECTION 4.08. Investment and Holding Company StatusSECTION 4.08.
Investment and . Neither the Company nor any Subsidiary is (a) an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or (b) a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
. Each of the Company and its Subsidiaries has timely filed or caused to be
filed all Tax returns and reports required to have been filed and has paid or
caused to be paid all Taxes required to have been paid by it, except (a) Taxes
that are being contested in good faith by appropriate proceedings and for which
the Company or such Subsidiary, as applicable, has set aside on its books
adequate reserves or (b) to the extent that the failure to do so could not
reasonably be expected to result in a Material Adverse Effect.
No ERISA Event has occurred or is reasonably expected to occur that, when
taken together with all other such ERISA Events for which liability is
reasonably expected to occur, could reasonably be expected to result in a
Material Adverse Effect. The present value of all accumulated benefit
obligations of all under funded Plans (based on the assumptions used for
purposes of Statement of Financial Accounting Standards No. 87) did not, as of
the date of the most recent financial statements reflecting such amounts, exceed
the fair market value of the assets of all such under funded Plans by more than
$10,000,000.
. The Company has disclosed to the Lenders all agreements, instruments and
corporate or other restrictions to which the Company or any Subsidiary is
subject, and all other matters known to it, that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
The reports, financial statements, certificates or other information furnished
by or on behalf of the Company or any Subsidiary to the Administrative Agent or
any Lender in connection with the negotiation of this Agreement or delivered
hereunder (as modified or supplemented by other information so furnished), when
taken as a whole, do not contain any misstatement of material fact or omit to
state any material fact necessary to make the statements therein in the light of
the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Company represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time.
ARTICLE V
ConditionsARTICLE VConditions
. The obligations of the Lenders to make Loans and of the Issuing Bank to issue
Letters of Credit hereunder shall not become effective until the date on which
each of the following conditions is satisfied (or waived in accordance with
Section 10.02):
(a) The Administrative Agent (or its counsel) shall have received from
each party hereto either (i) a counterpart of this Agreement signed on behalf of
such party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy transmission of a signed signature page of this
Agreement) that such party has signed a counterpart of this Agreement.
(b) The Administrative Agent shall have received a favorable written
opinion (addressed to the Administrative Agent and the Lenders and dated the
Effective Date) of Ropes & Gray, counsel for the Company and its Subsidiaries,
substantially in the form of Exhibit B, and covering such other matters relating
to the Company and its Subsidiaries, this Agreement or the Transactions as the
Required Lenders shall reasonably request. The Company hereby requests such
counsel to deliver such opinion.
(c) The Administrative Agent shall have received such documents and
certificates as the Administrative Agent or its counsel may reasonably request
relating to the organization, existence and good standing of the Company, the
authorization of the Transactions and any other legal matters relating to the
Company, this Agreement or the Transactions, all in form and substance
satisfactory to the Administrative Agent and its counsel.
(d) The Administrative Agent shall have received a certificate, dated the
Effective Date and signed by the President, a Vice President or a Financial
Officer of the Company, confirming compliance with the conditions set forth in
paragraphs (a) and (b) of Section 5.02 and specifying the Leverage Ratio as of
said date.
(e) Each of the Administrative Agent and the Syndication Agent shall have
received all fees and other amounts due and payable on or prior to the Effective
Date, including, to the extent invoiced, reimbursement or payment of all
out-of-pocket expenses required to be reimbursed or paid by the Company
hereunder. The Administrative Agent shall notify the Company and the Lenders of
the Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of the Lenders to make Loans and
of the Issuing Bank to issue Letters of Credit hereunder shall not become
effective unless each of the foregoing conditions is satisfied (or waived
pursuant to Section 10.02) at or prior to 3:00 p.m., New York City time, on
March 14, 1997 (and, in the event such conditions are not so satisfied or
waived, the Commitments shall terminate at such time).
. The obligation of each Lender to make a Loan to the Company or any Subsidiary
Borrower, and of the Issuing Bank to issue, amend, renew or extend any Letter of
Credit, is subject to the satisfaction of the following conditions:
(a) The representations and warranties of the Credit Parties set forth in
this Agreement and the other Credit Documents shall be true and correct on and
as of the date of such Loan is made or the date of issuance, amendment, renewal
or extension of such Letter of Credit, as applicable.
(b) At the time of and immediately after giving effect to the making of
such Loan or the issuance, amendment, renewal or extension of such Letter of
Credit, as applicable, no Default shall have occurred and be continuing.
Each borrowing of a Loan by the Company or a Subsidiary Borrower and each
issuance, amendment, renewal or extension of a Letter of Credit shall be deemed
to constitute a representation and warranty by the Credit Parties on the date
thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE VI
Affirmative Covenants
Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid in
full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Company covenants and agrees with
the Lenders that:
SECTION 6.01. Financial Statements and Other InformationSECTION 6.01.
Financial . The Company will furnish to the Administrative Agent (with
sufficient copies for each Lender), and the Administrative Agent shall promptly
furnish to each Lender:
(a) within 10 Business Days after the electronic filing of the same with
the SEC, but in no event later than 120 days after the end of each fiscal year
of the Company, its audited consolidated balance sheet and related statements of
operations, stockholders' equity and cash flows as of the end of and for such
year, setting forth in each case in comparative form the figures for the
previous fiscal year, all reported on by KPMG Peat Marwick L.L.P. or other
independent public accountants of recognized national standing (without a "going
concern" or like qualification or exception and without any qualification or
exception as to the scope of such audit) to the effect that such consolidated
financial statements present fairly in all material respects the financial
condition and results of operations of the Company and its consolidated
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied;
(b) within 10 Business Days after the electronic filing of the same with
the SEC, but in no event later than 60 days after the end of each of the first
three fiscal quarters of each fiscal year of the Company, its consolidated
balance sheet and related statements of operations, stockholders, equity and
cash flows as of the end of and for such fiscal quarter and the then elapsed
portion of the fiscal year, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Company and its
consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes;
(c) concurrently with any delivery of financial statements under paragraph
(a) or (b) above, a certificate of a Financial Officer of the Company W
certifying as to whether a Default has occurred and, if a Default has occurred,
specifying the details thereof and any action taken or proposed to be taken with
respect thereto, (ii) setting forth reasonably detailed calculations
demonstrating compliance with Sections 7.07, 7.08 (including a calculation of
the amount of Interest Expense paid or payable in cash) and 7.09, (iii) setting
forth the Applicable Rates to be applied commencing on the fifth Business Day
following the date of receipt by the Administrative Agent of such certificate
and the related financial statements and (iv) stating whether any change in GAAP
or in the application thereof has occurred since the date of the audited
financial statements referred to in Section 4.04 and, if any such change has
occurred, specifying the effect of such change on the financial statements
accompanying such certificate;
(d) concurrently with any delivery of financial statements under paragraph
(a) above, a certificate of the accounting firm that reported on such financial
statements stating whether they obtained knowledge during the course of their
examination of such financial statements of any Default (which certificate may
be limited to the extent required by accounting rules or guidelines);
(e) promptly after the same become publicly available, copies of all
periodic and other reports, proxy statements and other materials filed by the
Company or any Subsidiary with the SEC, or any Governmental Authority succeeding
to any or all of the functions of said Commission, or with any national
securities exchange, or distributed by the Company to its shareholders
generally, as the case may be; and
(f) promptly following any request therefor, such other information
regarding the operations, business affairs and financial condition of the
Company or any Subsidiary, or compliance with the terms of this Agreement, as
the Administrative Agent or any Lender may reasonably request.
. The Company will furnish to the Administrative Agent prompt written notice of
the s following (and the Administrative Agent shall promptly furnish a copy of
such notice to each Lender):
...... (a) the occurrence of any Default;
.....(b) the filing or commencement of any action, suit or proceeding by or
before any arbitrator or Governmental Authority against or affecting the
Company or any Affiliate thereof that, if adversely determined, could
reasonably be expected to result in a Material Adverse Effect;
.....(c) the occurrence of any ERISA Event that, alone or together with any
other ERISA Events that have occurred, could reasonably be expected to
result in liability of the Company and its Subsidiaries in an aggregate
amount exceeding $10,000,000; and
.....(d) any other development that results in, or could reasonably be expected
to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of
a Financial officer or other executive officer of the Company setting forth the
details of the event or development requiring such notice and any action taken
or proposed to be taken with respect thereto.
SECTION 6.03. Existence; Conduct of BusinessSECTION 6.03. Existence;
Conduct of . The Company will, and will cause each Subsidiary to, do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence and the rights, licenses, permits, privileges and
franchises material to the conduct of its business; provided that the foregoing
shall not prohibit any merger, consolidation, liquidation, dissolution or sale
permitted under Section 7.03.
. The Company will, and will cause each Subsidiary to, pay its obligations,
including Tax liabilities, that, if not paid, could result in a Material Adverse
Effect before the same shall become delinquent or in default, except where (a)
the validity or amount thereof is being contested in good faith by appropriate
proceedings, (b) the Company or such Subsidiary has set aside on its books
adequate reserves with respect thereto in accordance with GAAP and (c) the
failure to make payment pending such contest could not reasonably be expected to
result in a Material Adverse Effect.
SECTION 6.05. Maintenance of Properties; InsurancSECTION 6.05. Maintenance
of e. The Company will, and will cause each Subsidiary to, (a) keep and maintain
all property material to the conduct of its business in good working order and
condition, ordinary wear and tear excepted, and (b) maintain, with financially
sound and reputable insurance companies, insurance in such amounts and against
such risks as are customarily maintained by companies engaged in the same or
similar businesses operating in the same or similar locations.
SECTION 6.06. Books and Records; Inspection RightsSECTION 6.06. Books and
. The Company will, and will cause each Subsidiary to, keep proper books of
record and account in which full, true and correct entries are made of all
dealings and transactions in relation to its business and activities in
accordance with GAAP. The Company will, and will cause each Subsidiary to,
permit representatives designated by the Administrative Agent or any Lender,
upon reasonable prior notice through the Administrative Agent and at reasonable
times, to visit and inspect its properties, to examine and make extracts from
its books and records, and to discuss its affairs, finances and condition with
its officers and independent accountants, provided that, so long as no Default
shall have occurred and be continuing, not more than one such visit by
representatives of the Administrative Agent and/or one or more of the Lenders
must be permitted during any calendar year.
. The Company will, and will cause each Subsidiary to, comply with all laws,
rules, regulations and orders of any Governmental Authority applicable to it or
its property, except where the failure to do so, individually or in the
aggregate, could not reasonably be expected to result in a Material Adverse
Effect.
. The proceeds of the Loans will be used only for general corporate purposes of
the Company or any Subsidiary (including any acquisition of all or substantially
all of the capital stock of any Person, provided that such acquisition has been
approved by the board of directors of such Person). No part of the proceeds of
any Loan will be used, whether directly or indirectly, for any purpose that
entails a violation of any of the regulations of the Board, including
Regulations G, U and X.
ARTICLE VII
Negative Covenants
ARTICLE VIINegative Covenants
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder have been paid in full and
all Letters of Credit have expired or terminated and all LC Disbursements shall
have been reimbursed, the Company covenants and agrees with the Lenders that:
. The Company will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Indebtedness, except:
...... (a) Indebtedness created hereunder;
(b) Indebtedness of the Company to any Subsidiary and
of any Subsidiary to the Company or another Subsidiary (including Guarantees by
the Company of Indebtedness of any Subsidiary or by any Subsidiary of
Indebtedness of the Company or any other Subsidiary);
(c) Indebtedness of the Company or any Subsidiary as an account party in
respect of letters of credit issued in the ordinary course of business and not
supporting Indebtedness;
(d) Indebtedness of Subsidiaries to Persons other than the Company or
another Subsidiary in an aggregate principal amount not exceeding $45,000,000;
(e) Indebtedness of the Company that is subordinated by its terms to the
obligations of the Company to pay principal of and interest on the Loans and all
other amounts owing hereunder, and governed by documentation containing terms
not less favorable than those typically found in publicly issued subordinated
debt or otherwise in form and substance reasonably satisfactory to the Required
Lenders; and
(f) other Indebtedness of the Company in an aggregate principal amount not
exceeding $200,000,000; Provided that the aggregate principal amount of such
other Indebtedness secured by assets of the Company and/or its Subsidiaries
shall not exceed $45,000,000.
. The Company will not, and will not permit any Subsidiary to, create, incur,
assume or permit to exist any Lien on any Property or asset now owned or
hereafter acquired by it, or assign or sell any income or revenues (including
accounts receivable) or rights in respect of any thereof, except:
(a) Permitted Encumbrances;
(b) Liens with respect to goods shipped and documents related thereto
created in connection with the issuance of trade letters of credit;
(c) any Lien on Margin Stock; and
(d) any Lien on any property or asset of the Company or any Subsidiary
securing Indebtedness permitted by Section 7.01(d) or Section 7.01(f).
.ECTION 7.03. Fundamental ChangesSECTION 7.03. Fundamental Changes
(a) The Company will not, and will not permit any Subsidiary to, merge
into or consolidate with any other Person, or permit any other Person to merge
into or consolidate with it, or liquidate or dissolve, except that, if at the
time thereof and immediately after giving effect thereto no Default shall have
occurred and be continuing (i) any Person may merge into the Company in a
transaction in which the Company is the surviving corporation, (ii) any
Subsidiary may merge into another Subsidiary, provided that, if only one such
Subsidiary is a Subsidiary Borrower, the Subsidiary Borrower shall be the
surviving corporation, (iii) any Subsidiary may merge into another Person if the
Person surviving the merger becomes or remains a Subsidiary (and, if such
Subsidiary was a Subsidiary Borrower immediately prior to such merger, becomes a
Subsidiary Borrower) and (iv) any Subsidiary (other than a Subsidiary Borrower)
may liquidate or dissolve; provided that any such merger involving a Person that
is not a wholly owned Subsidiary immediately prior to such merger shall not be
permitted unless also permitted by Section 7.04.
(b) The Company will not, and will not permit any Subsidiary to, sell,
transfer, lease or otherwise dispose of any part of its assets (including the
stock of any of its Subsidiaries), in each case whether now owned or hereafter
acquired, except that:
(i) any Subsidiary may sell, transfer, lease or otherwise dispose of its
assets to the Company or to another Subsidiary;
(ii) the Company or any Subsidiary may sell, transfer, lease or otherwise
dispose of inventory or other assets in the ordinary course of business;
(iii) the Company or any Subsidiary may sell, transfer, lease or
otherwise dispose of any obsolete assets;
(iv) the Company or any Subsidiary may bell, transfer or otherwise dispose
of any Margin Stock;
(v) in addition to the transactions permitted under the foregoing clauses,
the Company or any Subsidiary may sell, transfer, lease or otherwise
dispose of any assets for not less than fair market value if the value of
the assets sold, transferred, leased or disposed pursuant to such
transaction, when added to the value of all other assets theretofore sold,
transferred, leased or disposed pursuant to this clause (v), does not
exceed 25% of the Company's consolidated tangible assets (as set forth in
the most recent audited financial statement of the Company provided
pursuant to the Section 6.01(a)).
(c) The Company will not, and will not permit any Subsidiary to, engage to
any material extent in any business other than businesses of the type conducted
by the Company and its Subsidiaries on the date of execution of this Agreement
and businesses reasonably related thereto.
SECTION 7.04. Investments, Loans, Advances, Guarantees and Acquisitions;
Hedging Agreements.SECTION 7.04. Investments, Loans, Advances, Guarantees and
Acquisitions; Hedging Agreements.
(a) The Company will not, and will not permit any Subsidiary to, purchase,
hold or acquire (including pursuant to any merger with any Person that was not a
wholly owned Subsidiary prior to such merger) any capital stock, evidences of
indebtedness or other securities (including any option, warrant or other right
to acquire any of the foregoing) of, make or permit to exist any loans or
advances to, Guarantee any obligations of, or make or permit to exist any
investment or any other interest in, any other Person, or purchase or otherwise
acquire (in one transaction or a series of transactions) any assets of any other
Person constituting a business unit, except:
(i) Permitted Investments;
(ii) investments by the Company in the capital
stock of Subsidiaries;
(iii)loans or advances made by the Company to any Subsidiary and made by
any Subsidiary to the Company or any other Subsidiary;
(iv) Guarantees constituting Indebtedness permitted by Section 7.01;
(v) minority investments in the capital stock of any Person engaged in the
same or substantially similar lines of business to that engaged in by the
Company as of the date hereof not to exceed an aggregate amount of $80,000,000;
Provided that each such investment has been approved by the Board of Directors
of such Person;
(vi) purchases of publicly traded capital stock of any Person engaged in
the same or substantially similar lines of business to that engaged in by the
Company as of the date hereof, in an amount not to exceed St of the capital
stock of such Person, provided that (A) the aggregate consideration paid or
payable (including any noncash consideration) for such capital stock does not
exceed $15,000,000 and (B) the aggregate consideration paid or payable
(including any non-cash consideration) for capital stock of all Persons under
this clause (vi) does not exceed $60,000,000; and provided further that any such
purchase which leads to the acquisition of all or substantially all of the
capital stock of such Person shall be required to comply with the requirements
of clause (vii) below;
(vii)in addition to the Investments permitted under the foregoing clauses,
the Company and its Subsidiaries may acquire all or substantially all of the
capital stock of any Person (other than any Subsidiary) (each an "Acquired
Entity"), in a single transaction or a series of related transactions, so long
as:
(A) each Acquired Entity shall engage in the same or substantially similar
lines of business to that engaged in by the Company as of the date hereof;
(B) with respect to any such acquisition where. the consideration to be
paid or payable (including any non-cash consideration) will exceed
$50,000,000, the Company shall deliver to the Administrative Agent, no
later than five Business Days prior to the consummation of such
acquisition, a copy of the draft acquisition agreement (including
schedules and exhibits);
(C) immediately prior to such acquisition and after giving effect thereto,
no Default shall have occurred or be continuing; and
(D) after giving effect to such acquisition the Company shall be in
compliance with Sections 7.07, 7.08 and 7.09 (the determination of such
compliance to be calculated on a pro forma basis, as at the end of and for
the period of four fiscal quarters most recently ended prior to the date
of such acquisition for which financial statements of the Company and its
Subsidiaries are available, under the assumption that such acquisition
shall have been made or consummated, and any Indebtedness in connection
therewith shall have been incurred, at the beginning of the applicable
period, and under the assumption that interest for such period had been
equal to the actual weighted average interest rate in effect for the Loans
hereunder on the date of such acquisition), and on or prior to the date of
the consummation of such acquisition, the Company shall have delivered to
the Administrative Agent a certificate of a Financial Officer certifying
as to W compliance by the Company with the requirements of this clause (D)
(and providing the calculations thereof in reasonable detail, together
with sufficient back-up information as reasonably requested by the
Administrative Agent) and (y) the matters specified in clause (C) above.
(b) The Company will not, and will not permit any Subsidiary to, enter
into any Hedging Agreement, other than Hedging Agreements entered into to hedge
or mitigate risks, including anticipated transactions, to which the Company or
any Subsidiary is exposed in the conduct of its business or the management of
its liabilities, provided that in no event shall the Company or any Subsidiary
be permitted to enter into any Hedging Agreement for speculative purposes.
SECTION 7.05. Transactions with AffiliatesSECTION 7.05. Transactions with
. The Company will not, and will not permit any Subsidiary to, sell, lease or
otherwise transfer any property or assets to, or purchase, lease or otherwise
acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates, except (a) at prices and on terms and
conditions not less favorable to the Company or such Subsidiary than could be
obtained on an arm's-length basis from unrelated third parties and (b)
transactions between or among the Company and its Subsidiaries not involving any
other Affiliate, unless such transaction complies with the requirements of
clause (a) of this Section 7.05 as to such other Affiliate. . The Company will
not, and will not permit any Subsidiary to, directly or ts indirectly, enter
into, incur or permit to exist any agreement or other arrangement that
prohibits, restricts or imposes any condition upon the ability of any Subsidiary
(a) to pay dividends or other distributions with respect to any shares of its
capital stock, (b) to make or repay loans or advances to the Company or any
other Subsidiary or (c) to transfer any of its property or assets to the Company
or any other Subsidiary; provided that (i) the foregoing shall not apply to
restrictions and conditions imposed by law or by this Agreement, (ii) the
foregoing shall not apply to customary restrictions and conditions contained in
agreements relating to the sale of any Subsidiary pending such sale, provided
such restrictions and conditions apply only to the Subsidiary that is to be sold
and such sale is permitted hereunder, (iii) the foregoing shall not apply to
restrictions or conditions imposed by any agreement relating to any Person, or
the property or assets of such Person, acquired by the Company or any Subsidiary
and existing at the time of such acquisition (or by any extension, renewal,
replacement, refinancing, modification or restatement of any such agreement, so
long as it does not impose any more restrictive restriction or condition), which
restrictions or conditions (A) are not applicable to any Person or the property
or assets of any Person other than the Person or the property or assets of such
Person so acquired and (B) were not put in place in anticipation of such
acquisition and (iv) the foregoing clause (c) shall not apply to restrictions
and conditions arising or agreed to in the ordinary course of business (A) that
restrict in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
type of property or asset or (B) that exists by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any property
or assets of the Company or any Subsidiary not otherwise prohibited by this
Agreement and, in each case, that do not, individually or in the aggregate,
detract from the value of the property or assets of the Company or any
Subsidiary in any manner material to the Company an its Subsidiaries, taken as a
whole.
The Company will not permit the Leverage Ratio to exceed 2.50 to 1 at any
time.
. The Company will not permit the Interest Coverage Ratio to be less than or
equal to 3.00 to 1 as at the last day of each fiscal quarter of the Company.
. The Company will not permit Tangible Net Worth to be less than $500,000,000
at any time.
ARTICLE VIII
Events of Default
If any of the following events ("Events of Default") shall occur:
(a) any Borrower shall fail to pay any principal of any Loan or the
Company shall fail to pay any reimbursement obligation in respect of any LC
Disbursement when and as the same shall become due and payable, whether at the
due date thereof or at a date fixed for prepayment thereof or otherwise;
(b) any Borrower shall fail to pay any interest on any Loan or any fee or
any other amount (other than an amount referred to in clause (a) of this
Article) payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of five days;
(c) any representation or warranty made or deemed made by or on behalf of
any Credit Party in or in connection with this Agreement or any amendment or
modification hereof, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with this Agreement or any
amendment or modification hereof, shall prove to have been incorrect in any
material respect when made or deemed made;
(d) the Company or any Subsidiary Borrower shall fail to observe or
perform any covenant, condition or agreement contained in Section 6.03 (with
respect to any Borrower's existence) or 6.08 or in Article VII;
(e) the Company shall fail to observe or perform any covenant, condition
or agreement contained in this Agreement (other than those specified in clauses
(a) through (d), inclusive, of this Article), and such failure shall continue
unremedied for a period of 30 days after notice thereof from the Administrative
Agent (given at the request of any Lender) to the Company;
(f) the Company or any Subsidiary shall fail to make any payment (whether
of principal or interest and regardless of amount) in respect of Indebtedness of
the Company or any Subsidiary in an aggregate principal amount exceeding
$10,000,000 (other than under this Agreement), when and as the same shall become
due and payable (after giving effect to any applicable grace period);
(g) any event or condition occurs that W results in any Indebtedness of
the Company or any Subsidiary in an aggregate principal amount exceeding
$10,000,000 (other than under this Agreement) becoming due prior to its
scheduled maturity or (ii) after giving effect to any applicable grace period,
enables or permits the holder or holders of any such Indebtedness or any trustee
or agent on its or their behalf to cause any such Indebtedness to become due, or
to require the prepayment, repurchase, redemption or defeasance thereof, prior
to its scheduled maturity; provided that this clause (g) shall not apply to
secured Indebtedness that becomes due as a result of the voluntary sale or
transfer of the property or assets securing such Indebtedness;
(h) an involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking W liquidation, reorganization or other relief in
respect of the Company or any Material Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any Material Subsidiary or for a substantial
part of its assets, and, in any such case, such proceeding or petition shall
continue undismissed for 60 days or an order or decree approving or ordering any
of the foregoing shall be entered;
(i) the Company or any Material Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution of,
or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (h) of this Article, (iii) apply for or consent to
the appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Company or any Material Subsidiary or for a substantial
part of its assets, (iv) file an answer admitting the material allegations of a
petition filed against it in any such proceeding, (v) make a general assignment
for the benefit of creditors or (vi) take any action for the purpose of
effecting any of the foregoing;
(j) the Company or any Material Subsidiary shall admit in writing that it
is unable to pay its debts as they become due;
(k) one or more judgments for the payment of money in an aggregate amount
in excess of $5,000,000 shall be rendered against the Company, any Subsidiary or
any combination thereof and the same shall remain undischarged for a period of
30 consecutive days during which execution shall not be effectively stayed, or
any action shall be legally taken by a judgment creditor to attach or levy upon
any assets of the Company or any Subsidiary to enforce any such judgment;
(1) an ERISA Event shall have occurred that, in the opinion of the
Required Lenders, when taken together with all other ERISA Events that have
occurred, could reasonably be expected to result in a Material Adverse Effect;
or
(m) a Change in Control shall occur;
then, and in every such event (other than an event with respect to any Borrower
described in clause (h) or W of this Article), and at any time thereafter during
the continuance of such event, the Administrative Agent may, and at the request
of the Required Lenders shall, by notice to the Company, take either or both of
the following actions, at the same or different times: (i) terminate the
Commitments, and thereupon the Commitments shall terminate immediately, and (ii)
declare the Loans then outstanding to be due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Loans so
declared to be due and payable, together with accrued interest thereon and all
fees and other obligations of the Borrowers accrued hereunder, shall become due
and payable immediately, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Borrowers; and in case of any
event with respect to any Borrower described in clause (h) or W of this Article,
the Commitments shall automatically terminate and the principal of the Loans
then outstanding, together with accrued interest thereon and all fees and other
obligations of the Borrowers accrued hereunder, shall automatically become due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers.
ARTICLE IX
The Administrative Agent
Each of the Lenders and the Issuing Bank hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.
The bank serving as the Administrative Agent hereunder shall have the same
rights and powers in its capacity as a Lender as any other Lender and may
exercise the same as though it were not the Administrative Agent, and such bank
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Company or any Subsidiary or other Affiliate
thereof as if it were not the Administrative Agent hereunder.
The Administrative Agent shall not have any duties or obligations except
those expressly set forth herein. without limiting the generality of the
foregoing (a) the Administrative Agent shall not be subject to any fiduciary or
other implied duties, regardless of whether a Default has occurred and is
continuing, (b) the Administrative Agent shall not have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated hereby that the Administrative Agent is
required to exercise in writing by the Required Lenders, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Company or any Subsidiary that is communicated to or obtained by
the bank serving as Administrative Agent or any of its Affiliates in any
capacity. The Administrative Agent shall not be liable for any action taken or
not taken by it with the consent or at the request of the Required Lenders or in
the absence of its own gross negligence or wilful misconduct. The Administrative
Agent shall be deemed not to have knowledge of any Default unless and until
written notice thereof is given to the Administrative Agent by the Company or a
Lender, and the Administrative Agent shall not be responsible for or have any
duty to ascertain or inquire into (i) any statement, warranty or representation
made in or in connection with this Agreement, (ii) the contents of any
certificate, report or other document delivered hereunder or in connection
herewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein, (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement or any other
agreement, instrument or document, or (v) the satisfaction of any condition set
forth in Article V or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Administrative Agent
also may rely upon any statement made to it orally or by telephone and believed
by it to be made by the proper Person, and shall not incur any liability for
relying thereon. The Administrative Agent may consult with legal counsel (who
may be counsel for the Company and its Subsidiaries), independent accountants
and other experts selected by it, and shall not be liable for any action taken
or not taken by it in accordance with the advice of any such counsel,
accountants or experts.
The Administrative Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Administrative Agent. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such subagent, and shall apply to their respective
activities in connection with the syndication of the credit facilities provided
for herein as well as activities as Administrative Agent.
Subject to the appointment and acceptance of a successor Administrative
Agent as provided in this paragraph, the Administrative Agent may resign at any
time by notifying the Lenders, the Issuing Bank and the Company. Upon any such
resignation, the Required Lenders shall have the right, in consultation with the
Company, to appoint a successor. If no successor shall have been so appointed by
the Required Lenders and shall have accepted such appointment within 30 days
after the retiring Administrative Agent gives notice of its resignation, then
the retiring Administrative Agent may, on behalf of the Lenders and the Issuing
Bank, appoint a successor Administrative Agent which shall be a bank with an
office in New York, New York, with a combined capital and surplus of at least
$500,000,000 or an Affiliate of any such bank. Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring Administrative Agent and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Company to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Company and
such successor. After the Administrative Agent's resignation hereunder, the
provisions of this Article and Section 10.03 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Administrative Agent.
Each Lender acknowledges that it has, independently and without reliance
upon the Administrative Agent, the Syndication Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the
Administrative Agent, the Syndication Agent or any other Lender and based on
such documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this Agreement, any related agreement or any document furnished hereunder
or thereunder.
The Syndication Agent, in its capacity as such, shall have no obligations,
duties or liabilities whatsoever under this Agreement.
ARTICLE X
MiscellaneousARTICLE XMiscellaneous
. Except in the case of notices and other communications expressly permitted to
be given by telephone, all notices and other communications provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed by certified or registered mail or sent by telecopy, as follows:
(a) if to any of the Borrowers, to the Company at 35 Industrial Way,
Rochester, New Hampshire 03867, Attention of Moya S. Joosten (Telecopy No.
(603) 337-4566);
(b) if to the Administrative Agent, to The Chase Manhattan Bank, Loan
and Agency Services Group, One Chase Manhattan Plaza, Eighth Floor, New York,
New York 10081, Attention of Janet Belden (Telecopy No. (212) 552-5658), with a
copy to The Chase Manhattan Bank, 999 Broad Street, Bridgeport, Connecticut
06604, Attention of David Nackley (Telecopy No. (203) 382-6314); and
(c) if to any Lender (including in its capacity as Issuing Bank), to it at
its address (or telecopy number) set forth in its Administrative Questionnaire.
Any party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto. All notices and
other communications given to any party hereto in accordance with the provisions
of this Agreement shall be deemed to have been given on the date of receipt.
.ECTION 10.02. Waivers; AmendmentsSECTION 10.02. Waivers; Amendments
(a) No failure or delay by the Administrative Agent, the Issuing Bank or
any Lender in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the Issuing
Bank and the Lenders hereunder are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or consent to any departure by the Credit Parties therefrom shall
in any event be effective unless the same shall be permitted by paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. Without limiting the
generality of the foregoing, the making of a Loan or issuance of a Letter of
Credit shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent, any Lender or the Issuing Bank may have had notice or
knowledge of such Default at the time.
(b) Neither this Agreement nor any provision hereof may be waived, amended
or modified except pursuant to an agreement or agreements in writing entered
into by the Credit Parties and the Required Lenders or by the Credit Parties and
the Administrative Agent with the consent of the Required Lenders; provided that
no such agreement shall (i) increase the Commitment of any Lender without the
written consent of such Lender, (ii) reduce the principal amount of any Loan or
LC Disbursement or reduce the rate of interest thereon, or reduce any fees
payable hereunder, without the written consent of each Lender affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan
or LC Disbursement, or any interest thereon, or any fees payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone the
scheduled date of expiration of any Commitment, without the written consent of
each Lender affected thereby, (iv) change Section 2.16(b) or (c) in a manner
that would alter the pro rata sharing of payments required thereby, without the
written consent of each Lender, (v) release the Guarantor from its obligations
hereunder, without the written consent of each Lender or (vi) change any of the
provisions of this Section or the definition of "Required Lenders" or any other
provision hereof specifying the number or percentage of Lenders required to
waive, amend or modify any rights hereunder or make any determination or grant
any consent hereunder, without the written consent of each Lender; provided
further that no such agreement shall amend, modify or otherwise affect the
rights or duties of the Administrative Agent or the Issuing Bank hereunder
without the prior written consent of the Administrative Agent or the Issuing
Bank, as the case may be.
SECTION 10.03. Expenses; Indemnity: Damage WaiverSECTION 10.03. Expenses;
Indemnity: Damage Waiver
(a) The Company shall pay W all reasonable out-of-pocket expenses incurred
by the Administrative Agent, the Syndication Agent and their respective
Affiliates, including the reasonable fees, charges and disbursements of counsel
for the Administrative Agent, in connection with the syndication of the credit
facilities provided for herein, the preparation and administration of this
Agreement or any amendments, modifications or waivers of the provisions hereof
(whether or not the transactions contemplated hereby or thereby shall be
consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing
Bank in connection with the issuance, amendment, renewal or extension of any
Letter of Credit or any demand for payment thereunder and (iii) all
out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank or
any Lender, including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement, including its rights
under this Section, or in connection with the Loans made or Letters of Credit
issued hereunder, including in connection with any workout, restructuring or
negotiations in respect thereof.
(b) The Company shall indemnify the Administrative Agent, the Syndication
Agent, the Issuing Bank and each Lender, and each Related Party of any of the
foregoing Persons (each such Person being called an ("Indemnitee"), by payment
to the Administrative Agent for the account of such Lender or any of its Related
Persons, against, and hold each Indemnitee harmless from, any and all losses,
claims, damages, liabilities and related expenses, including the fees, charges
and disbursements of any counsel for any Indemnitee, incurred by or asserted
against any Indemnitee arising out of, in connection with, or as a result of W
the execution or delivery of-this Agreement or any agreement or instrument
contemplated hereby, the performance by the parties hereto of their respective
obligations hereunder or the consummation of the Transactions or any other
transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use
of the proceeds therefrom (including any refusal by the Issuing Bank to honor a
demand for payment under a Letter of Credit if the documents presented in
connection with such demand do not strictly comply with the terms of such Letter
of Credit), (iii) any actual or alleged presence or release of Hazardous
Materials on or from any property owned or operated by the Company or any
Subsidiary, or any Environmental Liability related in any way to the Company or
any Subsidiary, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnitee is a
party thereto; provided that such indemnity shall not, as to any Indemnitee, be
available to the extent that such losses, claims, damages, liabilities or
related expenses have resulted from the gross negligence or wilful misconduct of
such Indemnitee.
(c) To the extent that the Company fails to pay any amount required to be
paid by it to the Issuing Bank, the Syndication Agent or the Administrative
Agent (for its own account) under paragraph (a) or (b) of this Section, each
Lender severally agrees to pay to the Administrative Agent, the Syndication
Agent or the Issuing Bank, as the case may be, such Lender's Applicable
Percentage (determined as of the time that the applicable unreimbursed expense
or indemnity payment is sought) of such unpaid amount; provided that the
unreimbursed expense or indemnified loss, claim, damage, liability or related
expense, as the case may be, was incurred by or asserted against the
Administrative Agent, the Syndication Agent or the Issuing Bank in its capacity
as such.
(d) To the extent permitted by applicable law, the Credit Parties shall
not assert, and hereby waive, any claim against any Indemnitee, on any theory of
liability, for special, indirect, consequential or punitive damages (as opposed
to direct or actual damages) arising out of, in connection with, or as a result
of, this Agreement or any agreement or instrument contemplated hereby, the
Transactions, any Loan or Letter of Credit or the use of the proceeds thereof.
(e) All amounts due under this Section shall be payable promptly after written
demand therefor.
.ECTION 10.04. Successors and AssignsSECTION 10.04. Successors and Assigns
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), except that no Credit Party may assign or otherwise transfer
any of its rights or obligations hereunder without the prior written consent of
each Lender (and any attempted assignment or transfer by any Credit Party
without such consent shall be null and void). Nothing in this Agreement,
expressed or implied, shall be construed to confer upon any Person (other than
the parties hereto, their respective successors and assigns permitted hereby
(including any Affiliate of the Issuing Bank that issues any Letter of Credit)
and, to the extent expressly contemplated hereby, the Related Parties of each of
the Administrative Agent, the Issuing Bank and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.
(b) Any Lender may assign to one or more assignees all or a portion of its
rights and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it); provided that W except in the
case of an assignment to a Lender or an Affiliate of a Lender, each of the
Company, the Administrative Agent and the Issuing Bank must give their prior
written consent to such assignment (which consent shall not be unreasonably
withheld), (ii) except in the case of an assignment to a Lender or an Affiliate
of a Lender or an assignment of the entire remaining amount of the assigning
Lender's Commitment, the amount of the Commitment of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Administrative
Agent) shall not be less than $10,000,000 unless each of the Company and the
Administrative Agent otherwise consent, (iii) each partial assignment shall be
made as an assignment of a proportionate part of all the assigning Lender's
rights and obligations under this Agreement, (iv) the parties to each assignment
shall execute and deliver to the Administrative Agent an Assignment and
Acceptance, together with a processing and recordation fee of $2,500, and (v)
the assignee, if it shall not be a Lender, shall deliver to the Administrative
Agent an Administrative Questionnaire; provided further that any consent of the
Company otherwise required under this paragraph shall not be required if an
Event of Default under clause (h) or (i) of Article VIII has occurred and is
continuing. Upon acceptance and recording pursuant to paragraph (d) of this
Section, from and after the effective date specified in each Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the extent
of the interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Sections 2.13,
2.14, 2.15 and 10.03). Any assignment or transfer by a Lender of rights or
obligations under this Agreement that does not comply with this paragraph (b)
shall be treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (e) of
this Section.
(c) The Administrative Agent, acting for this purpose as an agent of the
Borrowers, shall maintain at one of its offices in The City of New York a copy
of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans and LC Disbursements owing to, each Lender
pursuant to the terms hereof from time to time (the "Register"). The entries in
the Register shall be conclusive, and the Borrowers, the Administrative Agent,
the Issuing Bank and the Lenders may treat each Person whose name is recorded in
the Register pursuant to the terms hereof as a Lender hereunder for all purposes
of this Agreement, notwithstanding notice to the contrary. The Register shall be
available for inspection by the Company, the Issuing Bank and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee, the assignee's completed
Administrative Questionnaire (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b) of
this Section and any written consent to such assignment required by paragraph
(b) of this Section, the Administrative Agent shall accept such Assignment and
Acceptance and record the information contained therein in the Register. No
assignment shall be effective for purposes of this Agreement unless it has been
recorded in the Register as provided in this paragraph.
(e) Any Lender may, without the consent of the Company, the Administrative
Agent or the Issuing Bank, sell participations to one or more banks or other
entities (a "Participant") in all or a portion of such Lender's rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (i) such Lender's obligations under
this Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (iii) the Borrowers, the Administrative Agent, the Issuing Bank and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may provide that
such Lender will not, without the consent of the Participant, agree to any
amendment, modification or waiver described in the first proviso to Section
10.02(b) that affects such Participant. Subject to paragraph (f) of this
Section, the Borrowers agree that each Participant shall be entitled to the
benefits of Sections 2.13, 2.14 and 2.15 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this Section.
(f) A Participant shall not be entitled to receive any greater payment
under Section 2.13 or 2.15 than the applicable Lender would have been entitled
to receive with respect to the participation sold to such Participant, unless
the sale of the participation to such Participant is made with the Company's
prior written consent. A Participant that would be a Foreign Lender if it were a
Lender shall not be entitled to the benefits of Section 2.15 unless the Company
is notified of the participation sold to such Participant and such Participant
agrees, for the benefit of the Borrowers, to comply with Section 2.15(e) as
though it were a Lender.
(g) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including any such pledge or assignment to a Federal Reserve Bank, and
this Section shall not apply to any such pledge or assignment of a security
interest; provided that no such pledge or assignment of a security interest
shall release a Lender from any of its obligations hereunder or substitute any
such assignee for such Lender as a party hereto.
All covenants, agreements, representations and warranties made by the Credit
Parties herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Commitments have not expired or terminated. The provisions of
Sections 2.13, 2.14, 2.15 and 10.03 and Article IX shall survive and remain in
full force and effect regardless of the consummation of the transactions
contemplated hereby, the repayment of the Loans, the expiration or termination
of the Letters of Credit and the Commitments or the termination of this
Agreement or any provision hereof.
SECTION 10.06. Counterparts; Integration EffectivenessSECTION 10.06. .
This Agreement may be executed in counterparts (and by different parties hereto
on different counterparts), each of which shall constitute an original, but all
of which when taken together shall constitute a single contract. This Agreement
and any separate letter agreements with respect to fees payable to the
Administrative Agent constitute the entire contract among the parties relating
to the subject matter hereof and supersede any and all previous agreements and
understandings, oral or written, relating to the subject matter hereof. Except
as provided in Section 5.01, this Agreement shall become effective when it shall
have been executed by the Administrative Agent and when the Administrative Agent
shall have received counterparts hereof which, when taken together, bear the
signatures of each of the other parties hereto, and thereafter shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns. Delivery of an executed counterpart of a signature page
of this Agreement by telecopy shall be effective as delivery of a manually
executed counterpart of this Agreement.
. Any provision of this Agreement held to be invalid, illegal or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such invalidity, illegality or unenforceability without affecting the
validity, legality and enforceability of the remaining provisions hereof; and
the invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction. . If an Event of Default
arising under clause (a) or (b) of Article VIII shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Credit Parties against any of and all the
obligations of the Credit Parties now or hereafter existing under this Agreement
held by such Lender, irrespective of whether or not such Lender shall have made
any demand under this Agreement and although such obligations may be unmatured.
The rights of each Lender under this Section are in addition to other rights and
remedies (including other rights of setoff) which such Lender may have.
SECTION 10.09. Governing Law; Jurisdiction; Consent to
Service of ProcessSECTION 10.09. Governing Law; Jurisdiction; Consent to Service
of process
(a) This Agreement shall be construed in accordance with and governed by the law
of the State of New York.
(b) Each Credit Party hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern District of New York, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in such New
York State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that the Administrative Agent, the Issuing Bank or any Lender
may otherwise have to bring any action or proceeding relating to this Agreement
against any Credit Party or its properties in the courts of any jurisdiction.
(c) Each Credit Party hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in any court referred to
in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(d) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B)
ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION.
. Article and Section headings and the Table of Contents used herein are for
convenience of reference only, are not part of this Agreement and shall not
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to
maintain the confidentiality of the Information (as defined below), except that
Information may be disclosed (a) to its and its Affiliates, directors, officers,
employees and agents, including accountants, legal counsel and other advisors
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Information and instructed to keep
such Information confidential), (b) to the extent requested by any regulatory
authority, (c) to the extent required by applicable laws or regulations or by
any subpoena or similar legal process, (d) to any other party to this Agreement,
(e) in connection with the exercise of any remedies hereunder or any suit,
action or proceeding relating to this Agreement or the enforcement of rights
hereunder, (f) subject to an agreement containing provisions substantially the
same as those of this Section, to any assignee of or Participant in, or any
prospective assignee of or Participant in, any of its rights or obligations
under this Agreement, (g) with the consent of the Company or (h) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Section or (ii) becomes available to the Administrative Agent,
the Issuing Bank or any Lender on a nonconfidential basis from a source other
than the Company. For the purposes of this Section, "Information" means all
information received from the Company relating to the Company or any Subsidiary
or their respective business, other than any such information that is available
to the Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by the Company. Any Person required to maintain the confidentiality
of Information as provided in this Section shall be considered to have complied
with its obligation to do so if such Person has exercised the same degree of
care to maintain the confidentiality of such Information as such Person would
accord to its own confidential information.
. The Company may from time to time designate one or more Subsidiaries as
Subsidiary Borrowers hereunder by delivering to the Administrative Agent an
agreement, in form and substance satisfactory to the Administrative Agent,
pursuant to which such Subsidiary agrees to be a party to and bound by this
Agreement, and subject to the obligations of a "Subsidiary Borrower", a
"Borrower" and a "Credit Party" hereunder. Any Subsidiary may, upon notice by
the Company to the Administrative Agent, withdraw as a Subsidiary Borrower
hereunder if no Loans to such Subsidiary Borrower are outstanding hereunder or
if any such Loans are repaid contemporaneously with such withdrawal. Upon
receipt by the Administrative Agent of such notice, each Lender shall be
released from its obligations to make Loans to such Subsidiary and such
Subsidiary shall cease to be a "Subsidiary Borrower" hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
CABLETRON SYSTEMS, INC.
by___________________________
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent
by__________________________
Name:
Title:
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Syndication Agent by
by___________________________
Name:
Title:
THE BANK OF NEW YORK
by__________________________
Name:
Title:
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY
by_______________________
Name:
Title:
CITIBANK, N.A.
by_______________________
Name:
Title:
THE DAI-ICHI KANGYO BANK, LTD.
by________________________
Name:
Title:
DEUTSCHE BANK AG, NEW YORK AND/CR
CAYMAN ISLANDS BRANCH
by_______________________
Name:
Title:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
by_______________________
Name:
Title:
FLEET BANK, NATIONAL ASSOCIATION
by________________________
Name:
Title:
NATIONSBANK OF TEXAS, N.A.
by________________________
Name:
Title:
THE SAKURA BANK, LIMITED
by_________________________
Name:
Title:
STATE STREET BANK AND TRUST COMPANY
by________________________
Name:
Title:
WACHOVIA BANK OF GEORGIA, N.A.
by______________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
by________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
by________________________
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
by________________________
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
by_______________________
Name:
Title:
MELLON BANK, N.A.
by_______________________
Name:
Title:
<PAGE>
Schedule 2.01
COMMITMENTS
Lender Commitment
The Chase Manhattan Bank $17,500,000.00
The First National Bank of Chicago $17,500,000.00
The Bank of New York $15,000,000.00
Bank of Tokyo-Mitsubishi Trust Company $15,000,000.00
Citibank, N.A. $15,000,000.00
The Dai-Ichi Kangyo Bank, Ltd. $15,000,000.00
Deutsche Bank AG, New York and/or
Cayman Islands Branch $15,000,000.00
First Union National Bank
of North Carolina $15,000,000.00
Fleet Bank, National Association $15,000,000.00
NationsBank of Texas, N.A. $15,000,000.00
The Sakura Bank, Limited $15,000,000.00
State Street Bank and Trust Company $15,000,000.00
Wachovia Bank of Georgia, N.A. $15,000,000.00
Bank of America National Trust and
Savings Association $10,000,000.00
The Bank of Nova Scotia $10,000,000.00
Credit Lyonnais New York Branch $10,000,000.00
The First National Bank of Boston $10,000,000.00
Mellon Bank, N.A. $10,000,000.00
<PAGE>
EXHIBIT A
[Form of Assignment and Acceptance]
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of March 7, 1997 (as
modified and supplemented and in effect from time to time, the "Credit
Agreement"), between Cabletron Systems, Inc., a Delaware corporation (the
"Company"), the Subsidiary Borrowers from time to time party thereto, the
lenders named therein, The Chase Manhattan Bank, as administrative agent for
such lenders, and The First National Bank of Chicago, as syndication agent.
Terms defined in the Credit Agreement are used herein as defined therein.
_____________________________ the "Assignor") and _________________ (the
"Assignee") agree as follows:
1. The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor without recourse to the Assignor, as of the
Effective Date as set forth in Schedule 1 hereto (the "Effective Date"), an
interest (the "Assigned Interest") in and to the Assignor's rights and
obligations under the Credit Agreement with respect to the credit facility
contained in the Credit Agreement as is set forth on Schedule 1 (the "Assigned
Facility"), in a principal amount and percentage as set forth on Schedule 1.
2. The Assignor (i) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any instrument or document
furnished pursuant thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Credit Agreement or any
instrument or document furnished pursuant thereto, other than that it has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim and (ii) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of the Company, any Subsidiary or any other obligation or
the performance or observance by the Company or any Subsidiary or any other
obligor of any of their respective obligations under the Credit Agreement or any
instrument or document furnished pursuant hereto or thereto.
3. The Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Credit Agreement, together with copies of the financial statements
referred to in Section 4.04 thereof, the financial statements delivered pursuant
to Section 6.01 thereof, if any, and such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to enter
into this Assignment and Acceptance; (iii) agrees that it will, independently
and without reliance upon the Assignor, the Administrative Agent or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Credit Agreement, any promissory note or any other instrument
or document furnished pursuant hereto or thereto; (iv) appoints and authorizes
the Administrative Agent to take such action as administrative agent on its
behalf and to exercise such powers and discretion under the Credit Agreement,
any promissory note or any other instrument or document furnished pursuant
hereto or thereto as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are incidental thereto; and (v) agrees
that it will be bound by the provisions of the Credit Agreement and will perform
in accordance with its terms all the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender including, if it
is organized under the laws of a jurisdiction outside the United States of
America, its obligation pursuant to Section 2.14(e) of the Credit Agreement to
deliver the forms prescribed by the Internal Revenue Service of the United
States certifying as to the Assignee's exemption from United States withholding
taxes with respect to all payments to be made to the Assignee under the Credit
Agreement, or such other documents as are necessary to indicate that all such
payments are subject to such tax at a rate reduced by an applicable tax treaty.
4. Following the execution of this Assignment and Acceptance, it will be
delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent pursuant to Section 10.04 of the Credit Agreement,
effective as of the Effective Date (which date shall not, unless otherwise
agreed to by the Administrative Agent, be earlier than five Business Days after
the date of such acceptance and recording by the Administrative Agent and shall
in no event be earlier than the date the information contained herein is
recorded in the Register pursuant to Section 10.04 of the Credit Agreement).
5. Upon such acceptance and recording, from and after the Effective Date,
the Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignee which accrue subsequent to the Effective Date.
6. From and after the Effective Date, (i) the Assignee shall be a party to
the Credit Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and shall be
bound by the provisions thereof and (ii) the Assignor shall, to the extent
provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Credit Agreement except as provided in
Section 10.05 of the Credit Agreement.
7. This Assignment and Acceptance shall be governed by and construed in
accordance with the law of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Assignment and
Acceptance by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.
<PAGE>
Schedule I to
Assignment and Acceptance
relating to the Credit Agreement,
dated as of March 7, 1997,
between Cabletron Systems, Inc.,
the Subsidiary Borrowers party thereto,
the lenders named therein,
The Chase Manhattan Bank,
as administrative agent for the Lenders
(in such capacity, the "Administrative Agent"),
and The First National Bank of Chicago,
as syndication agent
Name of Assignor:
Name of Assignee:
Effective Date of Assignment:
Principal Percentage
Amount Assigned Assigned
[ASSIGNEE] [ASSIGNOR]
By: BY:
Title: Title:
[Consented to and] Accepted:
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:
Title:
[Consented to:
CABLETRON SYSTEMS, INC.
By:
[Consented to:
[NAME OF ISSUING BANK]
By:
Title: I
<PAGE>
EXHIBIT B
Form of Opinion
of
Ropes & Gray
_____________, 1997
The Chase Manhattan Bank, as Administrative Agent
Loan and Agency Services Group-
One Chase Manhattan Plaza
New York, New York 10081
The First National Bank of Chicago, as Syndication Agent
One First National Plaza
Chicago, Illinois 60670
Each of the Lenders listed on the signature pages to the Credit Agreement
Ladies and Gentlemen:
This opinion is being furnished to you pursuant to Section 5.01 of the
Credit Agreement dated as of March _, 1997 (the "Credit Agreement") among
Cabletron Systems, Inc., a Delaware corporation (the 'Company"), each of the
Lenders listed on the signature pages thereto, The Chase Manhattan Bank, as
Administrative Agent and The First National Bank of Chicago, as Syndication
Agent. Terms defined in the Credit Agreement and not otherwise defined herein
are used herein with the meanings so defined.
We have acted as counsel to the Company in connection with the Credit
Agreement. We have participated in the preparation of the Credit Agreement and
have examined copies thereof executed by the Company. We have also examined such
Certificates, documents and records, and have made such examination of law, as
we have deemed necessary to enable us to render the opinions expressed below. In
addition, we have examined and relied upon representations and warranties
contained in the Credit Agreement and in certificates delivered to you in
connection therewith as to matters of fact (other than facts constituting
conclusions of law).
We call your attention to the fact that the Credit Agreement provides that
it is to be governed by the laws of the State of New York and we understand that
you are relying on the advice of your own counsel with respect to all matters
involving New York law. For purposes of rendering the opinions expressed in
paragraph 3 below, we have assumed that the Credit Agreement provides that it is
to be governed by and construed in accordance with the internal laws of The
Commonwealth of Massachusetts. The opinions expressed below are limited to
matters governed by the laws of The Commonwealth of Massachusetts, the General
Corporation Law of the State of Delaware and the federal laws of the United
States.
Based on the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with corporate powers
adequate for the execution, delivery and performance of the Credit Agreement and
for carrying on the business now conducted by it as described in the Company's
Annual Report on Form 10-K for the year ended February 29, 1996.
2. The Credit Agreement, including the borrowings by the Company thereunder
and the incurrence by the Company of liability in respect of Letters of Credit
thereunder, has been duly authorized by all necessary corporate action on the
part of the Company.
3. [Each of) the Credit Agreement [and the Notes being delivered today
under the Credit Agreement] has been duly executed and delivered by the Company
and (subject to the qualifications stated in the penultimate paragraph hereof)
is a legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms.
4. The execution and delivery of the Credit Agreement by the Company, and
the compliance by the Company with the terms of the Credit Agreement, will not
result in any violation of, or be in conflict with, any terms or provision of:
(a) its charter or bylaws or (b) any presently existing federal or Massachusetts
law, statute or governmental regulation.
5. Under existing provisions of law, no approval of or authorization or
other action by any federal or Massachusetts governmental authority is required
to be obtained by the Company in connection with the execution, delivery or
performance of the Credit Agreement.
6. Neither the Company nor any Subsidiary of the Company is an "investment
company" as defined in, or subject to regulation under, the Investment Company
Act of 1940 or a "holding company" as defined in, or subject to regulation
under, the Public Utility Holding Company Act of 1935.
7. To our knowledge, after having made inquiry of the Company but without
having investigated any governmental records or court dockets, there is no
governmental action or proceeding and no litigation pending against the Company
which places in question the validity or enforceability of, or seeks to enjoin
the performance of, the Credit Agreement.
Our opinion that each of the Credit Agreement [and the Notes being
delivered today under the Credit Agreement] is the legal, 'valid and binding
obligation of the Company, enforceable in accordance with its terms, is subject
to (i) bankruptcy, insolvency, reorganization, moratorium and other similar laws
affecting the rights and remedies of creditors, (ii) general principles of
equity, regardless of whether applied in, proceedings in equity or at law, and
(iii) the fact that the enforcement of the indemnity provisions contained in the
Credit Agreement may be limited by applicable federal or state securities laws.
We express no opinion as to (i) the effect of the laws of any jurisdiction in
which any Under is located (other than The Commonwealth of Massachusetts) that
limit the interest, fees or other charges such Lender may impose, (ii) Section
3.06 or the second sentence of Section 2.16(c) of the Credit Agreement, and
(iii) Section 10.09(c) of the Credit Agreement, insofar as such Section relates
to the subject matter jurisdiction of the United States District Court for the
Southern District of New York to adjudicate any controversy related to the
Credit Agreement.
The foregoing opinion is solely for your benefit, and for the benefit of such
other Lenders as may from time to time become parties to the Credit Agreement,
and all participants in or assignees of the Loans pursuant to Section 10.04 of
the Credit Agreement, and may not be relied on by any other Person.
Very truly yours,
Ropes & Gray
