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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission File Number:
December 31, 1996 0-26482
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TRIKON TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 95-4054321
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9255 Deering Avenue, Chatsworth, California 91311
(Address of principal executive offices)
(818) 886-8000
(Registrant's telephone number, including area code)
PLASMA & MATERIALS TECHNOLOGIES, INC.
(Former name, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No
Par Value
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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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant on March 31, 1997, based on the closing price of the Common Stock as
reported by the Nasdaq National Market on such date, was approximately
$86,920,484. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of March 31, 1997, the Registrant had outstanding 14,368,045 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
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TRIKON TECHNOLOGIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 1996
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Page
PART I
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Item 1. Business........................................................... 1
Item 2. Properties.........................................................12
Item 3. Legal Proceedings..................................................12
Item 4. Submission of Matters to a Vote of Security Holders................12
PART II
Item 5. Market for Registrant's Common Equity and
Related Shareholder Matters........................................14
Item 6. Selected Consolidated Financial Data of Trikon.....................16
Selected Combined Financial Data of Electrotech....................24
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Trikon...............................................18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations of Electrotech..........................................25
Item 8. Financial Statements and Supplementary Data........................31
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................31
PART III
Item 10. Directors and Executive Officers of Trikon.........................32
Item 11. Executive Compensation.............................................34
Item 12. Security Ownership of Certain Beneficial
Owners and Management..............................................39
Item 13. Certain Relationships and Related Transactions.....................40
PART IV
Item 14. Exhibits, Financial Statement......................................42
Schedules, and Reports on Form 8-K.................................45
</TABLE>
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PART I
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). These statements are in "Item 1. Business" in
paragraph 4 under "--Products--Planar 200 Flowfill(TM)," paragraph 3 under "--
Customers," paragraph 8 under "--Research, Development and Engineering,"
paragraph 4 under "--Joint Development Agreements," and the paragraph
under "--Environmental Matters." Such statements can also be found under "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations of Trikon" in paragraphs 3 and 4 under "--Overview," paragraphs 2, 3,
5, 8 and 9 under "--Results of Operations" and paragraphs 7, 10 and 12 under "--
Liquidity and Capital Resources." In addition, such statements can be found in
paragraph 2 under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations of Electrotech--Administrative Expenses."
Forward-looking statements may also be found in various sections of this Annual
Report on Form 10-K that are not specifically set forth above. Actual results
could differ materially from those projected in the forward-looking statements
as a result of a number of factors, including those set forth herein.
ITEM 1. BUSINESS
Introduction
Trikon Technologies, Inc., formerly Plasma & Materials Technologies, Inc.
(together with its subsidiaries, "Trikon" or the "Company"), designs,
manufactures and markets advanced high density, low pressure plasma sources,
process modules and plasma processing systems, and develops, manufactures,
markets and services semiconductor fabrication equipment for the worldwide
semiconductor manufacturing industry. These products are used for etch, physical
vapor deposition (PVD, which is commonly referred to as "sputtering") and
chemical vapor deposition (CVD) applications and are sold to semiconductor
manufacturers worldwide. Trikon currently offers a modular line of etch
equipment which utilizes the Company's patented MORI(TM) source technology for
polysilicon and metal etch applications in the fabrication of semiconductor
devices and other products for the etch market, including its Omega(TM)
Inductively Coupled Plasma (ICP) system. In addition, semiconductor
manufacturers use the Company's patented MORI(TM) source technology for plasma
CVD of silicon dioxide films and photoresist stripping. Certain other
manufacturers also use the MORI(TM) source for the plasma etching of films in
the fabrication of large area active matrix liquid crystal displays. Some of the
customers that have purchased or have placed orders for the Company's plasma
processing systems include Texas Instruments, Dallas Semiconductor, LG Semicon,
Hyundai, Samsung, Toshiba and Canon Sales. Trikon also offers new leading-edge
products including the Sigma sputter system for PVD, with optional Forcefill(TM)
module, and the Planar 200 Flowfill(TM) system for inter-metal dielectric CVD.
Forcefill(TM) technology allows manufacturers to eliminate the use of multistep
CVD tungsten-plug based metallization processes and to utilize an entirely
aluminum-based PVD multi-level metal scheme in sub-0.5 micron Integrated Circuit
(IC) manufacturing. Trikon's new CVD process technology, Flowfill(TM), forms
high quality silicon dioxide layers which possess the properties of both gap
fill and planarization.
Recent Developments
Electrotech Acquisition. On November 15, 1996, Trikon acquired all the
issued and outstanding shares (the "Acquisition") of Electrotech Limited and
Electrotech Equipments Limited (collectively, "Electrotech"). Electrotech
develops, manufactures, markets and services semiconductor fabrication equipment
for the worldwide semiconductor manufacturing industry. The aggregate purchase
price paid by the Company in the Acquisition, excluding $7,976,995 in
acquisition costs, was $145,700,000 consisting of $75,000,000 paid in cash and
the issuance of 5,600,000 shares of common stock of the Company ("Common Stock")
with an estimated fair market value of $70,700,000, based on the last sales
price for the Common Stock on the day prior to the public announcement of the
parties agreement to the terms of the Acquisition. Following consummation of
the Acquisition, Christopher D. Dobson, former majority owner of Electrotech,
and Nigel Wheeler, former President of Electrotech, became the Chairman of the
Board of Directors, and President and Chief Operating Officer, respectively, of
the Company. Unless the context otherwise requires, all references herein to
"Trikon" or the "Company" include Electrotech with respect to all periods on and
after November 15, 1996.
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Name Change. On March 31, 1997, the Company changed its name to Trikon
Technologies, Inc. The Company believes that the Trikon name better suits a
company with a multi-continent presence and a number of non-plasma based
products.
Products
Trikon offers a line of modular solutions which are designed to meet the
varying requirements of its customers for etching of polysilicon, metal and
oxide films, stripping of photoresist, metal deposition and CVD of oxide films.
Trikon's line of equipment includes the MORI(TM) plasma source, the MORI(TM)
stand-alone process module for etch, strip or CVD applications, the PINNACLE
8000/*/system and the PINNACLE 8000R(TM) system. In addition, the Electrotech-
originated product line includes the Sigma Forcefill(TM) system, the Delta 201
system, the Planar 200 Flowfill(TM) system and the Omega(TM) 201-2 system.
Etch
PINNACLE 8000/*/ and PINNACLE 8000R(TM)
In December 1995, Trikon introduced its PINNACLE 8000R(TM) cluster tool
platform, a more compact version of its existing PINNACLE 8000/*/system, that
includes certain additional features that enable increased ease in operation.
Each of Trikon's PINNACLE 8000/*/and PINNACLE 8000R(TM) systems is a dual wafer
cassette, vacuum loadlocked cluster tool which can incorporate up to four MESC-
compatible process modules. The dual wafer cassette loadlock configuration
enables the system to continuously process wafers. System throughput varies, and
is primarily dependent on the film application, the operating configuration and
the number of process modules attached to the system. For a typical polysilicon
etch process, with each process module performing the same process, throughput
varies from 40-60 wafers per hour for a two module configuration, to 70-90
wafers per hour for a four module configuration. This compares to a throughput
of 30-40 wafers per hour for competitive two module systems. Floorspace required
for a PINNACLE 8000R(TM) is approximately 44 square feet with two process
modules and 65 square feet with four process modules. By comparison, floorspace
required for a Pinnacle 8000/*/ is approximately 88 square feet with four
process modules. List prices for the PINNACLE 8000/*/ and PINNACLE 8000R(TM)
currently range from $1,800,000 for a standard two module system to $2,800,000
for a four module system, and from $1,900,000 for a standard two module system
to $3,400,000 for a four module system, respectively.
MORI(TM)
Trikon's MORI(TM) plasma source is also sold as a subsystem on a limited
geographic and application basis to OEM licensees of Trikon's MORI(TM)
technology. Trikon currently sells the MORI(TM) source to Leybold of Germany for
incorporation into Leybold's systems that are sold worldwide for etching large
area, active matrix liquid crystal displays. Trikon sells its MORI(TM) source to
Canon Sales for incorporation into Canon Sales' systems for photoresist
stripping that are sold in the Japanese and Korean markets, and to NEC Anelva
for incorporation into NEC Anelva's systems for metal and oxide etching that are
sold in the Japanese market. Trikon's stand-alone process module, common to
Trikon's PINNACLE 8000/*/ and PINNACLE 8000R(TM) systems, incorporates the
MORI(TM) plasma source and can be configured for etch, strip or CVD
applications. The process module can be sold to customers either to increase the
capacity of existing system platforms, or to provide additional process
capability. List price for a standard process module configured for etch
applications is currently $500,000.
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Omega(TM) 201-2
Trikon's Omega(TM) 201-2 metal etch system integrates the field-proven 200-
series hardware as used on other current Trikon products with Trikon's ICP
technology. Although mainly targeted at metal interconnect, the technology is
also able to address oxide and polysilicon etch and is compatible with all etch
applications. The Omega(TM) 201-2 metal etch system has been designed to address
the special requirements of metal etch while minimizing the space utilized in
the clean room. The system has a passivation unit which minimizes post-etch
corrosion by combining the use of a downstream plasma with radiant heating of
the wafer backside to maximize photoresist strip rates and drive off involatile
chlorine-containing materials. The Omega(TM) 201-2 also has a wafer temperature
control system which ensures that etch residues are minimized and often
eliminates the need to harden the photoresist using a deep UV process. The price
for Trikon's Omega(TM) etch system ranges from approximately $700,000 to
approximately $1,400,000, depending on the configuration of the system.
Physical Vapor Deposition
Sigma
Layers of metal alloys can be deposited by Trikon's Sigma product line, a
sputtering machine with multiple process chambers. This product deposits a very
thin uniform layer of interconnect metal on the whole surface of the
semiconductor wafer. Subsequent lithography and etching turns this layer into
an intricate pattern of interconnect wiring on the many individual semiconductor
devices, each a complex and integrated functioning circuit. Sigma is designed
to be one of the cleanest PVD systems on the market, with particular application
in multi-layer metallization. Trikon's strategy is to offer semiconductor
manufacturers, who are currently using 0.8 micron to 1.0 micron design rules, a
way to avoid the adoption of CVD tungsten, a relatively difficult, dirty and
expensive process. Trikon offers system configurations which bridge the gap
from non-hole-fill technology, at approximately 1.0 micron, to the adoption of
Trikon's Forcefill(TM) technology onto the Sigma platform, which is capable of
filling holes smaller than 0.25 micron. The selling price for the Sigma system
ranges from approximately $1.5 million to approximately $2.5 million, depending
on the configuration of the system.
Sigma Forcefill(TM)
The Sigma Forcefill(TM) system is being developed to extend Trikon's
standard Sigma metallization product capability into the sub-0.5 micron market.
The Forcefill(TM) technology is used with traditional aluminum techniques and
eliminates the relatively complicated and difficult use of tungsten. The process
can be carried out on a standard Sigma series system with an attached
Forcefill(TM) module, which involves depositing a layer of aluminum such that it
forms a bridge over the holes. When adequate bridging is achieved, the wafer is
transferred under vacuum to the Forcefill(TM) module where the aluminum is
heated and forced under very high pressure into the hole, thus achieving a void-
free fill. Forcefill(TM) allows manufacturers to eliminate the use of CVD
tungsten and to utilize an entirely aluminum-based multi-level metal scheme.
DRAM and logic applications are both target markets for Forcefill(TM), since the
cost saving per layer is substantial, and the interconnect speed is improved.
The average selling price of the Sigma Forcefill(TM) system ranges from
approximately $3.5 million to approximately $4.0 million, depending on the
configuration of the system. Sigma Forcefill(TM) products continue to be subject
to customer review and evaluation and Trikon is presently applying considerable
efforts to attain functionality and reliability levels acceptable to Trikon's
target markets.
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Chemical Vapor Deposition
Planar 200 Flowfill(TM)
The planarized intermetal dielectric market requires a suitable insulating
material to protect the microscopic wiring in a chip, a number of which have
various undesirable characteristics. The most common insulating material is
silicon dioxide, which, when deposited by conventional techniques, is unable to
fill the increasingly small gap spacing required by next generation ICs. Trikon
has developed a new CVD process technology, Flowfill(TM), to form high quality
silicon dioxide layers which possess the properties of both gap fill and
planarization. In the Planar 200 Flowfill(TM) multi-chambered cluster system,
the advanced planarization layer consists of three films which are deposited
sequentially. The plasma CVD films are deposited in one module and the CVD
planarizing flow layer is deposited in the Flowfill(TM) module with no vacuum
breaks between the process steps. The flow layer has the ability to fill sub-
micron features less than 0.2 micron wide, with a 5 to 1 height to width ratio,
and achieve typical planarization of 80% for gaps up to 20 microns.
Alternative technologies to Trikon's Flowfill(TM) system include spin on
glass (SOG) and high density plasma (HDP) combined with chemical mechanical
polishing (CMP). SOG is deposited in single or multiple spins. This technique is
complex and slow due to the number of steps involved. In addition, although each
individual step may be clean, the combination can lead to a high number of added
particles, which can decrease yield. HDP gap fills a wafer with silicon dioxide
in one system, but the rough spots on the wafer must be planarized using a CMP
process in a second system.
For a number of reasons, Trikon's initial shipments of the Planar 200
Flowfill(TM) have targeted the DRAM market. First, due to the competitive nature
of the DRAM market, cost is a primary concern to DRAM manufacturers. Certain
DRAM manufacturers have indicated that Flowfill(TM) will offer significant cost
advantages for next generation DRAMs relative to both the SOG and HDP processes.
Second, due to the circuit designs of a DRAM, the maximum distance between metal
lines is 80 to 100 microns; Flowfill(TM) provides a high level of planarity for
gaps of this size. The selling price for the Planar 200 Flowfill(TM) system
ranges from approximately $1.4 million to approximately $2.5 million, depending
on the configuration of the system. Flowfill(TM) systems continue to be subject
to customer review and evaluation and Trikon is presently applying considerable
efforts to attain functionality and reliability levels acceptable to Trikon's
target market.
In February 1997, the Company announced an advance in the depositing of low
dielectric constant (low-k) materials used in IC layering and production using
the Flowfill(TM) technologies (the "Flowfill(TM) CVD Development"). By lowering
the dielectric constant, the speed of an IC increases. Trikon has tested a low-k
material for use in its Flowfill(TM) system that mixes methylsilane gas with
hydrogen peroxide to produce a high quality insulatory layer that is self -
planarizing. While management believes that this low-k process is a significant
advancement in the intermetal dielectric market, additional testing is
necessary. There can be no assurance that this process will result in the
successful manufacture and production of ICs. See Note 12 of Notes to
Consolidated Financial Statements.
Delta 201
Trikon's Delta 201 is a versatile, single-chamber production system for
producing films, including silicon dioxide or silicon nitride. The films
deposited by this system are used to insulate the interconnect wiring of a
semiconductor wafer. The Delta 201 is a relatively low-cost system and its
small dimensions make it attractive to customers, who are often short of
cleanroom space. The Delta 201 also addresses the gallium arsenide
semiconductor market and incorporates a wafer handling mechanism that is suited
to handle fragile and high-cost gallium arsenide wafers. The average selling
price for the Delta 201 system is approximately $600,000.
<PAGE>
Customers
The Company sells its systems to semiconductor manufacturers located
throughout the United States, Europe, Asia/Pacific, Korea and Japan. The
following is a list of customers who have purchased, leased or have current
orders for Trikon products either directly with the Company or through its
distribution and OEM relationships:
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AT&T LSI Logic Philips
Daewoo Matsushita Ricoh
Dallas Semiconductor Micron Technology Samsung
Fujitsu Mitsubishi Sharp
GEC Plessey Motorola Siemens
Hitachi National Semiconductor Sony
Hyundai NEC TEMIC
IBM OKI Texas Instruments
IC Works Olivetti Toshiba
LG Semicon Orbit Semiconductor TriQuint
Leybold Tower Semiconductor
</TABLE>
Trikon's total revenue includes amounts from certain individual customers
that exceed 10% of total revenue. Revenue from Hyundai and Siemens represents
19% and 12% of total revenue, respectively, for the year ended December 31,
1996. Revenue from five customers represented 19%, 15%, 12%, 11% and 11% each
of total revenue for the year ended December 31, 1995 and revenue from six
customers represented 19%, 17%, 17%, 15%, 15% and 12% each of total revenue for
the ten months ended December 31, 1994. During the year ended December 31,
1995, sales to Alcan-Tech, Canon Sales and NEC Anelva in Japan, and to LG
Semicon and Hyundai in Korea, accounted for 25% and 18% of the Company's total
revenue, respectively, for that period. During the ten months ended December
31, 1994, sales to Canon Sales and NEC Anelva in Japan, and to Samsung and
Hyundai in Korea, accounted for 31% and 32% of the Company's total revenue,
respectively, for that period. The Company's operating results could be
materially adversely affected by the loss of business from or the cancellation
of orders by or decreases in the prices of products sold to these or other
customers located in Germany, Japan and Korea. See Note 1 of Notes to
Consolidated Financial Statements.
Sales other than in the United States accounted for approximately 77%, 47%
and 66% of total revenue in the years ended December 31, 1996 and 1995, and the
ten months ended December 31, 1994, respectively. The Company anticipates that
sales outside the United States will continue to account for a significant
portion of its total revenue. In addition, with the acquisition of Electrotech,
which sells primarily to international locations including Germany, Japan and
Israel, the Company expects that sales to Japanese, Korean, and European
semiconductor manufacturers will continue to represent a significant percentage
of the Company's product sales through at least 1997.
All export sales by the Company must be licensed by the Office of Export
Administration of the U.S. Department of Commerce and related U.K. and other
foreign agencies performing similar functions. Although Trikon has experienced
no difficulty in obtaining these licenses, the Company's failure to obtain these
licenses in the future could have a material adverse effect on Trikon's results
of operations. A number of other risks arise in the international market place,
including unexpected changes in regulatory requirements, exchange rates, tariffs
and other barriers, political and economic instability, difficulties in accounts
receivable collections, extended payment terms, the challenges of maintaining a
readily available supply of spare parts, difficulties in managing distributors
or representatives, difficulties in staffing and managing foreign subsidiary
operations, potentially adverse tax consequences, and the fluctuation of foreign
currency exchange rates. Wherever possible, international sales of Trikon's
products are denominated in U.S. dollars in order to reduce the risks associated
with such currency
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fluctuation. There can be no assurance that the Company will be able to avoid
these and other risks relating to the conduct of business internationally.
Marketing, Sales and Customer Support
Trikon's long range goal is to market its products and services directly to
all end use customers to the extent it is efficient and cost effective. In the
current stage of Trikon's growth, it is not efficient or cost effective to
market products and services through a direct sales force in all regions.
Consequently, Trikon has established multiple sales channels to market products
and services to match Trikon's efforts in each region. Trikon currently markets
and sells its products primarily through three separate sales channels, direct
sales, distributor arrangements and OEM agreements. In selected regions and
countries, Trikon uses a combination of direct sales, distributor arrangements,
OEM agreements and sales representatives.
As a result of the Acquisition, Trikon expanded its field sales and support
organizations worldwide, focusing on marketing within each product division.
The Company now has sales and marketing offices located in the United States,
United Kingdom, Europe and Asia to enable sales and service personnel to provide
dedicated worldwide support to new and existing customers. The field based
sales, service, and applications personnel now report into a unified management
structure based on country geography. This gains efficiency through cross
training and critical mass for support. Sales staff now represent the full
Trikon product line to its customers, gaining leverage in the selling cycle. In
select international countries, Trikon will continue to use distributor or
representative organizations for sales, but is moving to full direct support
organizations for customer control and satisfaction.
In the United States, Trikon markets and sells its products principally
through its direct sales organization. In Korea, Trikon markets and sells its
products direct through the sales staff of its wholly owned Korean subsidiary.
The Korean market is served by a direct sales group in order to meet Korean
semiconductor manufacturers' requirements of having direct local representation
for sales, customer support and spare parts. In Hong Kong, Taiwan, Singapore
and China, the Company has sales agents which has increased flexibility and
responsiveness to customer needs in those areas. The European market is served
by a direct sales group in the United Kingdom which offers sales, customer
support and spare parts.
Trikon currently believes that the most efficient strategy for penetrating
the Japanese market is to have a distribution agreement with a well established
and experienced sales organization. Trikon has appointed Canon Sales as its
exclusive etch system distributor in Japan, and in July 1995 entered into a
definitive agreement for such appointment. The agreement is year-to-year,
renewable automatically unless either party terminates at least 90 days before
the end of the year, and establishes the price to Canon as a specified
percentage discount from Trikon's then-current published U.S. list price.
Although management believes that it maintains a good relationship with Canon
Sales, there can be no assurance that the relationship will continue. In
addition, PVD and CVD sales in Japan are distributed through Innotech
Corporation. Trikon has also set up a sales staff located at its wholly owned
Japanese subsidiary to help establish its own experienced sales organization.
In addition, Trikon has established a distributor relationship with
Techlink for the Taiwan market. Trikon maintains active OEM agreements in Japan
and Europe. Trikon currently sells the MORI(TM) source to Leybold of Germany for
incorporation into Leybold's systems that are sold worldwide for etching large
area, active matrix liquid crystal displays. Trikon sells its MORI(TM) source to
NEC Anelva for incorporation into NEC Anelva's systems for metal and oxide
etching which are sold in the Japanese market, and to Canon Sales for
incorporation into Canon Sales' systems for photoresist stripping that are sold
in the Japanese and Korean markets.
Trikon believes that providing its customers with evaluation systems of its
equipment products is critical to its sales efforts. The ability to evaluate
Trikon's systems on a trial basis is expected by the semiconductor manufacturing
customers to whom Trikon markets. The average duration of a trial period for
systems is
<PAGE>
approximately one year. Consequently, as Trikon expands its sales efforts, it
believes that it will need to significantly increase its investment in
demonstration and evaluation systems. The failure or inability of Trikon to
convert a demonstration system placed with a customer to a final sale could have
a material adverse effect on the Company.
Trikon believes that high quality customer support, customer training, and
field consultation are key components in a customer's decision in selecting a
semiconductor equipment supplier. The ability to provide a processing system
with a high degree of reliability, low cost, high yield, high uptime and high
mean time between failure greatly influences a customer's purchase decision.
This requires experienced, responsive local support with quality personnel and
the ready availability of spare parts. Trikon believes that a focused field
support organization that works closely with its customers provides invaluable
feedback from customers with respect to system cost effectiveness, and typically
results in technical advances through continuous design improvement. To further
ensure customer satisfaction, Trikon also provides service and maintenance
training as well as process application training for its customers' personnel on
a fee basis. Trikon maintains an extensive inventory of spare parts which
allows Trikon to provide overnight delivery for many parts.
Research, Development and Engineering
Trikon believes that its future success will depend, in part, upon its
ability to continue to improve its systems and its process technologies and to
develop new technologies and systems that compete effectively on the basis of
total cost of ownership and performance. These technologies and systems will
also need to meet customer requirements and emerging industry standards.
Accordingly, Trikon devotes a significant portion of its personnel and the
financial resources to research and development programs and seeks to maintain
close relationships with its customers in order to remain responsive to their
product needs.
As of December 31, 1996, the Company employed 159 professional and
technical personnel in research, development and engineering. These employees
are organized in the following departments: research and development, hardware
engineering, software engineering, customer specials engineering, systems
engineering, documentation and manufacturing engineering, and customer
applications.
The research and development group is responsible for identifying new
technology applications and developing processes to meet customer requirements.
Major research and development programs currently address PVD and CVD
applications, polysilicon and integrated stack etch applications, metal etch
applications, including aluminum, and oxide etch applications.
Research and development activities for the Company is run by a general
manager of each of the two product divisions. The etch division, which is
managed by a U.S. based general manager, conducts most its development
activities in Chatsworth, California. There are approximately 55 individuals
currently engaged in research and development activities for the etch division,
46 of which work in the U.S. and nine of which work in the UK.
The deposition division is managed by a United Kingdom based General
Manager. Research and development activities for the deposition division are
conducted in the United Kingdom with peripheral support by U.S. personnel.
There are 104 individuals in the U.K. engaged in research in the deposition
division. Coordination of research and development activities for both the etch
and deposition product divisions is managed by Nigel Wheeler, the President and
Chief Operating Officer of Trikon, who resides in the United Kingdom. In
addition, the etch and deposition divisions are run as separate profit centers
with each General Manager having profit and loss responsibility for their
respective operations.
Trikon's research, development and engineering expenses were $10.1 million,
$4.6 million and $3.6 million for the years ended December 31, 1996 and 1995,
and the ten months ended December 31, 1994, respectively, and
<PAGE>
represented 24.0%, 21.5% and 41.2% of total revenue for these three periods,
respectively. In addition to direct research and development expenses, the
Company recognized a one-time charge of $86.0 million for acquisition related
in-process research and development, in the year ended December 31, 1996, due to
the Acquisition.
In addition to the Company's direct research, development and engineering
expenses, significant expenditures in research, development and engineering have
been made by Leybold, Canon Sales and NEC Anelva, with whom the Company has
entered into OEM agreements. These arrangements provide the Company with
expanded resources and knowledge to broaden the use of Trikon's MORI(TM) plasma
technology in the etch, PVD and CVD markets. No information on the amount of
these expenditures has been disclosed to the Company, however, the Company
believes that total expenditures exceed the Company's direct expenditures for
the same applications over the same periods identified above.
Although Trikon believes that it has allocated sufficient resources to its
research, development and engineering efforts, the success of new system
introductions is dependent on a number of factors, including timely completion
of new system designs and market acceptance. There can be no assurance that the
Company will be able to improve its existing systems and process technologies or
develop new technologies or systems. In addition, the Company may incur
substantial unanticipated costs to establish the functionality and reliability
of its future product introductions early in the product's life cycle.
Joint Development Arrangements
In April 1996, Trikon entered into an agreement with NEC Anelva to jointly
develop a high density plasma dielectric CVD system. Pursuant to the agreement,
the two companies intended to jointly develop, market, and manufacture such CVD
system based upon Trikon's MORI(TM) source. As a result of the Flowfill(TM) CVD
Development, the Company and NEC Anelva have jointly determined to discontinue
their joint development effort in this area.
On March 29, 1996, Trikon entered into a number of agreements with PMT CVD
Partners, L.P. (the "CVD Partnership") and the limited partners thereof (the
"Limited Partners"). The CVD Partnership was sponsored by Trikon to fund
research and development costs and expenses relating to CVD technology and
applications using MORI(TM) source technology. An aggregate of approximately
$5,350,000 was invested by the Limited Partners in the CVD Partnership to fund
such research and development efforts, which were performed by Trikon under an
agreement with the CVD Partnership. Trikon has been paid for such services in
an amount equal to its actual direct costs, as defined, plus a stated percentage
of such costs. During the year ended December 31, 1996, the amount of such
research and development payments to Trikon by the CVD Partnership was
$2,841,427. Under the applicable agreement, Trikon is obligated to pay stated
royalties to the CVD Partnership on sales of developed CVD products, and the
royalty percentage will vary based on the geographic location of the sale.
In connection with the Flowfill(TM) CVD Development, the Company announced
that it would henceforth focus all of its CVD resources to further evaluate and
develop products based on the Flowfill(TM) technology. In that regard, Trikon
advised the Limited Partners that it had decided to discontinue the research and
development efforts of the CVD Partnership. One of the Limited Partners has
indicated that it believes such action was inconsistent with the terms of the
research and development agreement entered into between the Company and the CVD
Partnership, and that, accordingly, a settlement of any and all claims that the
Limited Partners may have in connection with such discontinuance is appropriate.
The parties have had only preliminary discussions regarding the resolution of
this dispute, though all funding by the CVD Partnership of MORI(TM) source-based
CVD research and development has been discontinued. See Notes 6 and 12 to
Consolidated Financial Statements.
Trikon and LG Semicon have agreed to jointly develop an oxide etch process
utilizing Trikon's PINNACLE 8000R(TM) cluster tool. Trikon's wholly owned Korean
subsidiary will manage the process development work, which will be conducted at
LG Semicon's Cheong-Ju research and development facility in South Korea and at
Trikon's
<PAGE>
headquarters in California. Trikon believes that this joint development project
will help Trikon's PINNACLE 8000R(TM) system achieve acceptance in the oxide
etch market. Although management believes that it maintains a good relationship
with LG Semicon, there can be no assurance that the relationship will remain
positive, or that the joint development project will be successfully completed.
In the event of a termination of Trikon's agreement with LG Semicon, or the
failure by the parties to successfully develop an oxide etch process based on
Trikon's PINNACLE 8000R(TM) cluster tool, Trikon's ability to penetrate the
oxide etch market would be adversely affected.
Manufacturing
In order to maintain close control of its manufacturing processes, Trikon's
deposition division operates in a vertically integrated manner at the Company's
South Wales facility, taking full responsibility for the manufacturing of
virtually all components for Trikon's systems. This approach has enabled the
Company to ensure quality control and reduce dependence on third party suppliers
for its PVD and CVD products. On the other hand, the manufacturing operations
of Trikon's etch division, located in Chatsworth, California, is a horizontally
integrated structure consisting of materials planning and procurement, assembly,
system integration and final test.
Trikon's modular product line, which is designed around the SEMI MESC
industry standard, enables the Company to use a large number of components and
sub-assemblies which are common not only to the Company's product line but also
to systems manufactured by other companies in the industry, both competitive and
non-competitive. Examples of common sub-assemblies are wafer aligners and
vacuum cassette elevators obtained from Brooks Automation in Massachusetts, and
RF power supplies obtained from RF Power Products in New Jersey. Examples of
sub-assemblies obtained from outside suppliers that are unique to the Company's
systems products include gas box assemblies and fabricated vacuum chambers.
Trikon's Chatsworth, California operations rely on outside suppliers to
manufacture substantially all of the components and a portion of sub-assemblies
used in their plasma processing systems. Certain of these are obtained from a
sole supplier or a limited group of suppliers. For example, the wafer cassette
elevator load locks used in the Company's PINNACLE 8000/*/ and PINNACLE
8000R(TM) plasma processing systems are sole sourced from Brooks Automation. The
Company relies on outside suppliers generally, and a sole or limited group of
suppliers an adequate supply of required components, as well as reduced control
over pricing and timely delivery of components. Because the manufacture of
certain of these components and sub-assemblies is a complex process and can
require long lead times, there can be no assurance that delays or shortages
caused by suppliers will not occur. Any inability to obtain adequate deliveries
or any other circumstance that would require the Company to seek alternate
sources of supply or to manufacture such components internally could delay the
Company's ability to ship its systems and could have a materially adverse effect
on the Company.
Competition
The markets served by Trikon's products are highly competitive and subject
to rapid technological change. Significant competitive factors include system
performance, cost of ownership (which is dependent upon yield, throughput and
reliability), size of installed base, depth and breadth of product line and
customer support.
Trikon faces significant competition from various suppliers of systems that
utilize alternative technologies, including other manufactures of HDP systems.
In the etch market, the Company faces competition from suppliers of reactive ion
etch (RIE) systems, including Applied Materials, Lam Research and Tokyo
Electron. Trikon's MORI(TM) based etch systems also face competition from ICP
based etch systems marketed by Applied Materials and Lam Research, as well as
the electron cyclotron resonance (ECR) based etch system marketed by Hitachi.
In the high density plasma CVD market, Trikon's primary competitors are Applied
Materials, Novellus and Lam Research. In the PVD market, Trikon's Forcefill(TM)
technology faces competition from suppliers of aluminum and tungsten-plug PVD
systems, such as Applied Materials, and a number of other competitors, including
NEC Anelva, MRC,
<PAGE>
Novellus, Varian and Ulvac. Trikon's Flowfill(TM) technology faces competition
from other CVD manufacturers, including Applied Materials, Lam Research,
Novellus and Watkins-Johnson.
Virtually all of the Company's primary competitors are substantially larger
companies with broader product lines, and have well established reputations in
the etch, PVD, CVD and SOG markets, longer operating histories, greater
experience with high volume manufacturing, broader name recognition,
substantially larger customer bases, and substantially greater financial,
technical, manufacturing and marketing resources than the Company. Trikon also
faces potential competition from new entrants in the market, including
established manufacturers in other segments of the semiconductor capital
equipment market, who may decide to diversify into the Company's market segment.
There can be no assurance that Trikon's competitors will not develop
enhancements to or future generations of competitive products that will offer
price and performance features that are superior to those offered by the
Company's systems.
Intellectual Property
Trikon relies on a variety of types of intellectual property protection to
protect its proprietary technology, including patent, copyright, trademark and
trade secret laws, non-disclosure agreements, and other intellectual property
protection methods. Although the Company believes that its patents and
trademarks may have value, the Company believes that its future success will
also depend on the innovation, technical expertise and marketing abilities of
its personnel. The Company currently holds eleven patents in the United States,
two patents in the United Kingdom, two patents in Taiwan, one patent in each of
Germany, France, Italy and the Netherlands. The Company currently has
approximately 49 patent applications pending worldwide and intends to file
additional patent applications, as appropriate. The Company's patents and patent
applications pending are all in the field of semiconductor manufacture and are
predominantly concerned with inductively coupled plasma etching (ICP),
deposition of dielectric layers by plasma and thermal means and in particular to
Trikon's MORI(TM) plasma source, the global planarization by a dielectric film
(Flowfill(TM)) and the process of filling semiconductor contact holes by
deformation of interconnect metal by high pressure (Forcefill(TM)) and the
equipment related to these processes. The Company also holds a copyright on its
MACSE(TM) proprietary software. The Company also has five trademarks that are
registered with the United States patent and trademark office, including
PINNACLE 8000/*/and PINNACLE 8000R(TM) and uses a number of trademarks that are
registered or for which an application for registration has been filed in the
United States and certain other countries, including Forcefill(TM) and
Flowfill(TM).
There can be no assurance that patents will be issued on the pending
applications or that competitors will not be able to legitimately ascertain
proprietary information embedded in the Company's products which is not covered
by patent or copyright. In such case, the Company may be precluded from
preventing the competitor from making use of such information. In addition,
should the Company wish to assert its patent rights against a particular
competitor's product, there can be no assurance that any claim in a Company
patent will be sufficiently broad nor, if sufficiently broad, any assurance that
the Company's patent will not be challenged, invalidated or circumvented, or
that the Company will have sufficient resources to prosecute its rights. The
Company's policy is to vigorously protect and defend its patents, trademarks and
trade secrets.
The Company has abandoned its ICP patent in Europe and does not intend to
renew the related patents in the United States. Trikon is opposing an issued
German patent held by a competitor which relates to a process similar to
Forcefill(TM). The Company's management and its advisors believe this patent is
too broadly worded and as presently worded there is some possibility that an
infringement by Trikon might be alleged. There can be no assurance as to the
outcome of these proceedings.
The Company's involvement in any patent or other intellectual property
dispute or in any action to protect trade secrets and know-how, even if
successful, could have a material adverse effect on the Company and its
business. Adverse determinations in any such action could subject the Company
to significant liabilities, require the Company to seek licenses from third
parties, which might not be available, and possibly prevent the Company
<PAGE>
from manufacturing and selling its products, any of which could have a material
adverse effect on the Company and its business.
Environmental Matters
The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals and gases used during its customer demonstrations and in
research and development activities. Public attention has increasingly been
focused on the environmental impact of operations which use hazardous materials.
In 1995, the United Kingdom adopted a new and comprehensive environmental law
known as the Environmental Act of 1995 (the "Environmental Act"), which, among
other things, deals with the allocation of responsibility for the cleanup of
contaminated property and expands potential liability with respect to the
remediation of such contamination. Trikon owns or leases a number of facilities
in the United Kingdom, and compliance with the Environmental Act is anticipated
to result in certain expenses. A reserve of $435,000 for the estimated
potential liability of these expenses has been recorded in connection with the
Acquisition. There can be no assurance that such expenses will not exceed
present estimates. Failure to comply with present or future regulations could
result in substantial liability to the Company, suspension or cessation of the
Company's operations, restrictions on the Company's ability to expand at its
present locations, or requirements for the acquisition of significant equipment
or other significant expense. To date, compliance with environmental rules and
regulations has not had a material effect on the Company's operations. At the
present time, the Company believes that it is in material compliance with all
applicable environmental rules and regulations.
Backlog
As of December 31, 1996, the Company's backlog was $23.5 million, as
compared to $8.7 million at December 31, 1995. The Company's backlog at
December 31, 1996 consisted primarily of orders for its PVD, CVD and etch
products, a substantial majority of which consisted of Electrotech products.
The Company includes in its backlog all purchase orders that provide for
delivery within twelve months. The Company's business is characterized by large
purchase contracts for standard products with related customized options. All
orders are subject to cancellation or delay by the customer with limited or no
penalty. Because of possible changes in delivery schedules and cancellations of
orders, the Company's backlog at any particular date is not necessarily
representative of actual sales for any succeeding periods.
Employees
At December 31, 1996, the Company had 678 regular employees, including 159
engaged in research, development and 44 in sales and marketing, 171 in customer
support, 255 in manufacturing, and 49 in general administration and finance. In
March 1997, the Company announced an approximate 8% workforce reduction
affecting all such employee groups.
The Company believes its future success will depend in large part on its
ability to attract and retain highly skilled employees, particularly those
highly skilled design, process and test engineers involved in the manufacture of
existing systems and the development of new systems and processes. The
competition for such personnel is intense. The Company faces the task of
quickly identifying, recruiting, training and integrating new employees. There
can be no assurances that the Company will be successful in doing so or, if
successful, in retaining such employees.
None of the employees of the Company are covered by a collective bargaining
agreement, and the Company has not entered into employment agreements with any
of its employees, with the exception of a three-year employment agreement
entered into with Nigel Wheeler, the Company's President and Chief Operating
Officer, as of November 15, 1996. The Company considers its relationships with
its employees to be good.
<PAGE>
Financial Information Relating to Foreign and Domestic Operations and Export
Sales
See Note 3 of Notes to Consolidated Financial Statements.
ITEM 2. PROPERTIES
Certain information concerning the Company's principal properties at
December 31, 1996 is set forth below:
<TABLE>
<CAPTION>
Location Type Principal Use Square Footage Ownership
- -------------- --------------- ------------------------ -------------- ---------
<S> <C> <C> <C> <C>
Chatsworth, CA Office, plant & Headquarters, Marketing, 34,000 leased
warehouse Manufacturing, Research 20,000 leased
and Engineering 2,540 leased
Newport, Gwent, Office, plant & European Headquarters, 102,000 leased
United Kingdom warehouse Manufacturing, Sales and
Customer Support
Bristol, United Office & Research and Engineering 55,700 owned
Kingdom laboratories
</TABLE>
The Company has a number of smaller properties and field offices located in
the United States, the United Kingdom, Germany, Japan and Korea. The Company
believes that its properties adequately serve the Company's present needs.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of its business, the Company may be involved in
legal proceedings from time to time. As of the date hereof, there are no
material legal proceedings pending against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 10, 1996, the Company held its 1996 Annual Meeting of
Shareholders (the "Annual Meeting"). The following proposals were submitted to
the shareholders at the Annual Meeting for them to:
1. Consider and vote to approve the Share Purchase Agreement dated as of
July 17, 1996, as amended (the "Share Purchase Agreement"), entered into among
the Company, Electrotech, Christopher D. Dobson and the other shareholders of
Electrotech, and all transactions contemplated thereby. Pursuant to the terms
of the Share Purchase Agreement, the Company acquired 100% of the outstanding
capital stock of Electrotech and, directly or indirectly, each subsidiary
thereof for an aggregate consideration of $145,700,000 consisting of $75,000,000
paid in cash and the issuance of 5,600,000 shares of Common Stock with an
estimated fair market value of $70,700,000, based on the last sales price for
the Common Stock on the day prior to the public announcement of the parties'
agreement to the terms of the Acquisition. This proposal was approved by the
shareholders with 5,678,048 shares voted in favor, 23,887 shares voted against,
10,185 shares withheld as abstentions and 1,966,892 broker non-vote and unvoted
shares.
2. Elect each of Dr. Gregor A. Campbell, John A. Rollwagen, Brian D.
Jacobs, G. Bradford Jones, Charles Thompson and Dr. Hiroyuki Mizuno as a
director of the Company to serve from such time through the
<PAGE>
following year until their respective successor is duly elected and qualified.
Each of Dr. Campbell, Dr. Mizuno and Messrs. Rollwagen, Jones and Jacobs was
reelected as director with 7,625,387 shares voted in favor and 53,625 shares
withheld. Mr. Thompson was reelected as director with 7,625,387 shares voted in
favor and 53,625 shares withheld.
3. Consider and vote to approve the amendment of the Company's 1991 Stock
Option Plan (the "Option Plan") to increase the number of shares of Common Stock
which may be issued thereunder from 900,000 to 1,300,000 (and to 2,400,000 if
the Acquisition occurs). This proposal was approved by the shareholders with
7,030563 shares voted in favor, 286,240 shares voted against, 30,376 shares
withheld as abstentions and 331,833 broker non-vote and unvoted shares. Because
the Acquisition was consummated, the number of shares of Common Stock reserved
for issuance under the Option Plan was increased to 2,400,000.
4. Consider and vote to ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 31, 1996.
This proposal passed with 7,670,127 shares voted in favor, 3,850 shares voted
against, and 5,035 shares withheld as abstentions.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Market for the Registrant's Common Equity
The Company's Common Stock began trading in the over-the-counter market on
August 23, 1995 upon effectiveness of the registration statement relating to the
Company's initial public offering (the "Initial Public Offering"), and is quoted
on the Nasdaq National Market ("Nasdaq") under the symbol "TRKN". The quarterly
high and low sale prices for the Company's Common Stock as reported on Nasdaq
for each full quarterly period since August 23, 1995 are as follows:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1995
Fourth quarter.................................. $17.50 $ 9.00
1996
First quarter................................... 16.00 8.10
Second quarter.................................. 20.00 11.00
Third quarter................................... 15.50 10.50
Fourth quarter.................................. 16.75 11.25
</TABLE>
As of March 31, 1997, there were 132 shareholders of record of the
Company's Common Stock.
The Company has not declared or paid cash dividends to its shareholders.
The Company anticipates that all of its earnings in the near future will be
retained for the development and expansion of its business and, therefore, does
not anticipate paying dividends on its Common Stock in the foreseeable future.
Declaration of dividends on the Common Stock will depend, among other things,
upon levels of indebtedness, future earnings, the operating and financial
condition of the Company, its capital requirements and general business
conditions. The agreements governing the Company's indebtedness contain
provisions which prohibit the Company from paying dividends on its Common Stock.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of Trikon--Liquidity and Capital Resources."
Unregistered Sales of the Registrant's Equity Securities During Last Fiscal Year
Convertible Notes. On October 7, 1996, in connection with the Acquisition,
the Company issued and sold $86,250,000 in principal amount of 7-1/8%
Convertible Subordinated Notes Due 2001 (the "Convertible Notes"), in reliance
upon the exemption provided by Section 4(2) of the Securities Act of 1933, as
amended (the "Securities Act"), and Regulations D and S thereunder, as
transactions exempt from the registration requirements of the Securities Act to
persons reasonably believed by Salomon Brothers Inc and Unterberg Harris, as the
initial purchasers (the "Initial Purchasers") of the Convertible Notes, to be
"qualified institutional buyers" (as defined by Rule 144A under the Securities
Act), other institutional "accredited investors" (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) or in transactions complying with the
provisions of Regulation S under the Securities Act. The Convertible Notes were
sold by the Company at a discount of 3.75% to the Initial Purchasers. The
Convertible Notes are traded in the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") Market. See Note 5 to the Notes to
Consolidated Financial Statements.
<PAGE>
The Convertible Notes are convertible, at the option of the holder, at any
time prior to maturity, unless previously redeemed or repurchased, into a
maximum of 5,516,470 shares of Common Stock at a conversion price of $15.635 per
share, subject to adjustment in certain events. This conversion price was
determined by arms-length negotiation between the Company and the Initial
Purchasers based upon current conversion premiums then in effect for similar
transactions by similar issuers.
Pursuant to its agreement with the purchasers of the Convertible Notes, the
Company filed with the Commission a registration statement covering resales by
such purchasers of the Convertible Notes and the Common stock issuable upon
conversion thereof (the "Shelf Registration Statement"). The Shelf Registration
Statement has not yet become effective pending the filing of this Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 and subsequent
Commission examination and comment, if applicable. The Convertible Notes
provide that, because the Shelf Registration Statement did not become effective
on or prior to January 15, 1997, the Convertible Notes have since that date
borne additional interest at the rate of 0.5% per annum and will continue to
bear such additional interest until the Shelf Registration Statement becomes
effective.
Warrants. On March 29, 1996, Trikon entered into a number of agreements
with PMT CVD Partners, L.P. (the "CVD Partnership") and the limited partners
thereof (the "Limited Partners"). The CVD Partnership was sponsored by Trikon
to fund research and development costs and expenses relating to CVD technology
and applications using MORI(TM) source technology. See "Item 1. Business--Joint
Development Agreements." In connection with the formation of the CVD
Partnership, the Limited Partners received warrants to purchase an aggregate of
277,662 shares of Trikon's Common Stock at an exercise price of $12.75 per
share. The warrants become exercisable for a one-year period following exercise
of the option (the "Option") held by Trikon to purchase all of the Limited
Partners' interests in the CVD Partnership, but only if the Option is actually
exercised by Trikon. No value has been assigned to the warrants because they
only become exercisable upon the exercise by the Company of the Option. Upon
the exercise of the Option, the warrants would be valued and recorded as part of
the purchase price of the technology. The Company issued such warrants in
reliance on the exemption provided by Section 4(2) of the Securities Act in
reliance upon representations by each such investor that it was an "accredited
investor" as defined in Rule 501(a) under the Securities Act and otherwise in
reliance on Regulation D under the Securities Act.
The Note Purchase Agreement. On December 16, 1996, the Company entered
into an agreement with five investors, confirming a commitment to provide an
unsecured subordinated debt in the amount of $6,250,000 (the "Note Purchase
Agreement"). See "Item 13. Certain Relationships and Related Transactions." On
the date of execution of the Note Purchase Agreement, each investor received a
warrant to acquire up to 49,020 shares of Common Stock with an exercise price of
$12.75. Each such warrant became exercisable with respect to 50% of such shares
on the commitment by such investors to provide financing to the Company under
the Note Purchase Agreement. Any advances made under the Note Purchase
Agreement will trigger the exercisability of the warrants with respect to the
remaining shares covered by such warrants. At December 31, 1996, warrants with
respect to an aggregate of 122,550 shares of Common Stock at an exercise price
of $12.75 were exercisable by such investors. All such warrants expire on
December 16, 2001. The Company issued such warrants in reliance on the
exemption provided by Section 4(2) of the Securities Act in reliance upon
representations by each such investor that it was an "accredited investor" as
defined in Rule 501(a) under the Securities Act and otherwise in reliance on
Regulation D under the Securities Act.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA OF TRIKON
The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Form 10-K. The selected consolidated financial data set forth below for the ten
months ended December 31, 1994, and as of and for the years ended December 31,
1995 and 1996, has been derived from the audited financial statements of the
Company included elsewhere in this Form 10-K. The selected consolidated
financial data set forth below as of and for the fiscal year ended February 28,
1993, 1994, and as of December 31, 1994 have been derived from audited financial
statements of the Company not included in this Form 10-K. The selected
consolidated financial data for the ten months ended December 31, 1993 and for
the twelve months ended December 31, 1994 have been derived from unaudited
consolidated financial statements of the Company, but include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the results of operations for the periods
presented.
<TABLE>
<CAPTION>
Year Ended Ten Months ended Year ended
December 31 Twelve months December 31 February 28
----------- ended ---------------- --------------
December 31,
1996(1) 1995(2) 1994(3) 1994 1993(3) 1994 1993
------- ------- ----------- ---- ------- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations:
Revenues:
Product sales.............................. $ 39,386 $20,890 $ 9,813 $ 8,005 $ 4,435 $ 6,244 $ 4,215
Contract revenue........................... 2,841 -- -- -- -- -- --
License revenue............................ -- 400 700 700 1,900 1,900 --
-------- ------- ------- ------- ------- ------- -------
Total revenues........................... 42,227 21,290 10,513 8,705 6,335 8,144 4,215
Costs and expenses:
Cost of goods sold......................... 24,596 11,144 6,444 5,404 3,218 4,259 2,442
Research and development................... 10,145 4,567 4,210 3,584 2,186 2,812 2,218
Selling, general andadministrative......... 16,592 5,943 3,917 3,382 1,688 2,224 1,806
Amortization of intangibles................ 482 -- -- -- -- -- --
In-process technology...................... 86,029 -- -- -- -- -- --
-------- ------- ------- ------- ------- ------- -------
Total costs and expenses:................ 137,844 21,654 14,571 12,370 7,092 9,295 6,466
-------- ------- ------- ------- ------- ------- -------
Loss before interest and income tax
provision (benefit)........................ (95,617) (364) (4,058) (3,665) (757) (1,151) (2,251)
Interest:
Interest expense........................... (1,821) (294) (159) (146) (213) (227) (94)
Interest income............................ 1,628 777 143 125 15 32 26
-------- ------- ------- ------- ------- ------- -------
Income (loss) before income tax provision
(benefit).................................. (95,810) 119 (4,074) (3,686) (955) (1,346) (2,319)
Income tax provision (benefit).............. (1,335) 1 54 54 51 51 --
-------- ------- ------- ------- ------- ------- -------
Net income (loss)........................... $(94,475) $ 118 $(4,128) $(3,740) $(1,006) $(1,397) $(2,319)
======== ======= ======= ======= ======= ======= =======
Net income (loss) per share (4)............. $(10.03) $0.02 $(0.82) $(0.75)
======== ======= ======= =======
Number of shares used in per share
computation (4)........................... 9,420 6,593 5,013 5,013
======== ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31 February 28
------------------------------- --------------
1996(1) 1995(2) 1994(3) 1994 1993
------- ------- ------- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital........................................................ $ 56,515 $47,670 $ 6,171 $ 5,926 $ 609
Total assets........................................................... 183,180 59,293 16,631 12,080 5,032
Long-term obligations (including long-term debt and capital lease
obligations, less current portion, income taxes payable and pension
obligation)........................................................... 5,095 686 733 145 387
Convertible subordinated notes......................................... 86,250 -- -- -- --
Redeemable convertible preferred stock.................................
-- -- 14,205 8,705 1,250
Shareholders' equity (deficit), excluding redeemable convertible
preferred stock....................................................... 31,248 53,413 (4,419) (646) 820
</TABLE>
____________________
(1) Includes the assets and liabilities, as of December 31, 1996, and the
results of operation from November 15, 1996 to December 31, 1996 of
Electrotech Equipments Limited and Electrotech Limited (collectively,
"Electrotech") acquired on November 15, 1996 (see Note 2 of the Notes to the
Consolidated Financial Statements).
(2) On August 29, 1995, the Company completed its Initial Public Offering,
resulting in $40,093,235 of net proceeds to the Company. These funds have
been used to cover the Company's working capital needs, its investment in
demonstration systems and capital expenditures, and to pay a portion of the
cash paid in the Acquisition.
(3) During 1994, the Company changed its fiscal year end from the last day of
February to December 31. Information for the twelve months ended December
31, 1994 (unaudited) is provided for comparison to the information for the
year ended December 31, 1995. Information for the ten months ended December
31, 1993 (unaudited) is provided for comparison to the information for the
ten months ended December 31, 1994.
(4) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF TRIKON
The following discussion should be read in conjunction with the Company's
consolidated financial statements and notes thereto and "Selected Consolidated
Financial Data of Trikon" included elsewhere in this Form 10-K. This discussion
contains forward looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. These statements are subject
to certain risks and uncertainties, including slowing growth in the demand for
semiconductors and challenges from the Company's competition that could cause
actual results to differ materially from those projected. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
Overview
The Company develops, manufactures, markets and services semiconductor
equipment for the worldwide semiconductor manufacturing industry. These products
are used for etch, CVD, and PVD applications. The etch systems consist of the
PINNACLE 8000(R) and PINNACLE 8000R(TM) systems (selling price between
$1,800,000 for a standard two-module system to $3,400,000 for a four-module
system), the Omega(TM) 201-2 system (selling price between $700,000 and
$1,400,000, depending on the configuration of the system), and a stand-alone
MORI(TM) plasma source process module which lists for approximately $500,000.
The Company's CVD products consist of the Delta 201 (selling price approximately
$600,000), and the Planar 200 Flowfill (TM) system, selling price ranging
between $1,400,000 and $2,500,000, depending on the configuration of the system.
The Company's PVD products are the Sigma system (selling price ranges from
$1,500,000 to $2,500,000) and the Sigma Forcefill(TM) whose selling price ranges
from $3,500,000 to $4,000,000, depending on the configuration of the system.
The Omega(TM) 201-2 system, the Delta 201, the Planar 200 Flowfill(TM)
and the Sigma and Sigma Forcefill(TM) products were obtained with the
acquisition of Electrotech on November 15, 1996.
Electrotech Acquisition. On November 15, 1996, the Company acquired
Electrotech Limited and Electrotech Equipments Limited, privately-owned United
Kingdom companies founded in 1968, for an aggregate consideration of $75.0
million in cash and 5,600,000 shares of Common Stock, with an estimated fair
market value of $70.7 million, based on the closing sales price of a share of
Common Stock on Nasdaq on the last day prior to the public announcement of the
parties' agreement to the terms of the Acquisition. Electrotech develops,
manufactures, markets and services semiconductor fabrication equipment with
products and technologies for etch, CVD and PVD applications. The Acquisition
expanded the Company's product lines and its sales and service organization
which will enable the Company to have a greater presence throughout the United
States, Europe and Asia.
Semiconductor Industry Downturn. The semiconductor industry is highly
cyclical and has historically experienced periodic downturns, which have been
characterized by diminished product demand and production overcapacity. During
1996, the semiconductor industry experienced a downturn which created a volatile
market that resulted in the semiconductor manufacturers rescheduling and pushing
out orders due to diminished product demand and production overcapacity. The
Company believes that such downturn will continue through at least the third
quarter of 1997. As a result, the Company anticipates reporting lower sales for
the first quarter of 1997 than the fourth quarter of 1996 and anticipates
incurring a significant loss during the quarter. In certain instances, industry
downturns have lasted for extended periods of time. Each of Trikon's operations
have been and will continue to be dependent on the current and anticipated
market demand for integrate circuits (IC's) and products utilizing IC's that are
produced by semiconductor manufacturers. The current weakness in demand in the
semiconductor industry, and any continuation of this weakness in the future, is
likely to materially and adversely affect the Company's business and results of
operations.
<PAGE>
Results of Operations
The following table sets forth certain consolidated operating data as a
percentage of total revenue for the periods indicated:
<TABLE>
<CAPTION>
Twelve months
Year ended December 31 ended
---------------------- December 31,
1996(1) 1995(2) 1994(3)
------- ------- -------
<S> <C> <C> <C>
Revenues:
Product sales............................................. 93.3% 98.1% 93.3%
Contract revenue.......................................... 6.7 -- --
License revenue........................................... -- 1.9 6.7
----- ----- -----
Total revenues........................................... 100.0 100.0 100.0
Costs and Expenses:
Cost of goods sold....................................... 58.2 52.3 61.3
Research and development................................. 24.0 21.5 40.0
Selling, general and administrative...................... 39.4 27.9 37.3
Amortization of intangibles.............................. 1.1 -- --
In-process technology.................................... 203.7 -- --
----- ----- -----
Total costs and expenses................................ 326.4 101.7 138.6
----- ----- -----
Loss before interest and income tax provision (benefit)... (226.4) (1.7) (38.6)
Interest income (expense), net............................ (0.5) 2.3 (0.2)
----- ----- -----
Income (loss) before income tax provision (benefit)....... (226.9) 0.6 (38.8)
Income tax provision (benefit)............................ (3.2) -- 0.5
----- ----- -----
Net income (loss)......................................... (223.7)% 0.6% (39.3)%
===== ===== =====
Gross margin on product sales............................. 37.5% 46.7% 34.3%
</TABLE>
____________________
(1) Includes the results of operations from November 15, 1996 to December 31,
1996 of Electrotech, acquired on November 15, 1996. See Note 2 of the Notes
to the Consolidated Financial Statements.
(2) On August 29, 1995, the Company completed its Initial Public Offering,
resulting in $40,093,235 of net proceeds to the Company. The funds have
been used to cover the Company's working capital needs, its investment in
demonstration systems and capital expenditures, and to pay a portion of the
cash paid in the acquisition of Electrotech.
(3) During 1994, the Company changed its fiscal year end from the last day of
February to December 31. Information for the twelve months ended December
31, 1994 (unaudited) is provided for comparison to the information for the
year ended December 31, 1995.
Product Sales. Product sales increased to approximately $39.4 million for
fiscal 1996 from approximately $20.9 million for 1995, an increase of 89%.
Product sales in 1994 were $8.0 million. The increase in 1996 product sales was
attributable to the increased sales of the Company's PINNACLE 8000R(TM) systems
and the six week revenues achieved following the Company's acquisition of
Electrotech on November 15, 1996. Shipments increased to twelve PINNACLE
8000R(TM) systems, one PINNACLE 8000(R) system, six process modules and eight
MORI(TM) sources in fiscal 1996 compared to eight PINNACLE 8000(R) systems, one
PINNACLE 8000R(TM) system, five process modules, and
<PAGE>
twenty MORI(TM) sources shipped in fiscal 1995, and three PINNACLE 8000(R)
systems and three APEX 7000(R) systems during the twelve months ended December
31, 1994. Included in the 1996 sales figures is $8.8 million in product sales
from Electrotech from the sales of three Omega(TM) 201-2 etch systems, two Sigma
Forcefill(TM) systems, and spare parts for the six week period from November 15,
1996 to December 31, 1996. The Company had no sales of Apex systems during 1995
and 1996, and expects that most of its product sales in the near term will be
derived primarily from sales of its Flowfill(TM) and Forcefill(TM) products and
its advanced PINNACLE 8000R(TM) systems.
Sales outside of the United States accounted for approximately 77%, 47% and
66% of total revenue in the years ended December 31, 1996 and 1995, and for the
twelve months ended December 31, 1994. The Company anticipates that sales
outside of the United States will continue to account for a significant portion
of its total revenue. In addition, with the acquisition of Electrotech, which
sells primarily to international locations including Germany, Japan and Israel,
the Company expects that sales to Japanese, Korean and European semiconductor
manufacturers will continue to represent a significant percentage of the
Company's product sales through at least 1997. In addition, because of the
large unit price associated with the Company's systems, the Company anticipates
that its product sales will continue to be made to a small number of customers
in any given quarter. See Note 1 of Notes to Consolidated Financial Statements.
Contract Revenue. For fiscal 1996, the Company received $2.8 million in
contract revenue as compared to no contract revenue for fiscal 1995 and the
twelve months ended December 31, 1994. This increase was due to the March 1996
agreement between Trikon and PMT CVD Partners, L.P. See Notes 1 and 6 to Notes
to Consolidated Financial Statements.
License Revenue. The Company has entered into licensing agreements with
Leybold, Canon Sales, NEC, Anelva and Watkins-Johnson which grant certain rights
for the use of the Company's MORI(TM) technology. These agreements provide for
an initial lump-sum license payment and generally provide the licensee with the
right, upon making further payments, to expand the scope of the license. For
fiscal 1996, the Company received no license revenue, as all these licenses were
fully paid. In fiscal 1995, license revenue was $0.4 million compared to $0.7
million for the twelve months ended December 31, 1994. The Company does not
anticipate the receipt of any additional license revenue from its licensing
agreements for at least the next twelve months. However, the Company may enter
into additional license agreements as it deems appropriate in order to broaden
the applications of its technologies, or to improve the Company's market
penetration.
Gross Margin on Product Sales. The Company's gross margin on product sales
for the year ended December 31, 1996, was 37.5%, as compared to 46.7% and 34.3%
for fiscal 1995 and the twelve months ended December 31, 1994, respectively.
The decrease in gross margin from 1995 to 1996 was primarily due to a low gross
margin of 14% on Electrotech's products shipped for the period from November 15,
1996 to December 31, 1996. The low gross margin was due to the write-up of
Electrotech's inventory on hand to the fair market value of such inventory as of
November 15, 1996, resulting from the allocation of the Electrotech purchase
price as required under Accounting Principles Board Opinion No. 16 ("APB No.
16"). The write-up increased cost of goods sold by approximately $3.0 million
for the period from November 15, 1996 to December 31, 1996, as the related
products were shipped. There is approximately $7.6 million in inventory that,
as of December 31, 1996, relates to the write-up of inventory to the fair market
value at the Acquisition date, based on APB No. 16. The $7.6 million write-up
will affect cost of goods sold as products are shipped from Electrotech in
fiscal year 1997. Gross margins have also been negatively impacted due to
issues related to the slower industry conditions noted above, and will continue
to be adversely affected in 1997.
Research and Development Expenses. Research and development expenses were
$10.1 million or 24.0% of total revenue for fiscal year 1996. This compared to
$4.6 million or 21.5% of total revenue on research and development related
activities in fiscal 1995, and $4.2 million or 40.0% of total revenue in the
twelve months ended December 31, 1994. Electrotech incurred $1.7 million in
research and development expenses for the period from
<PAGE>
November 15, 1996 to December 31, 1996, which is included in research and
development expenses of $10.1 million noted above. The major focus of the
Company's research and development efforts during fiscal 1996 was in the
development of new processes and advancing its proprietary plasma source
technology, as well as adding enhancements to its existing products. In
addition, expenses in 1996 included reimbursed costs incurred associated with
the contract revenue from PMT CVD Partners, L.P. with respect to CVD
applications of the Company's technology. See Note 6 of Notes to Consolidated
Financial Statements. Electrotech's research and development efforts were
focused on increasing the development of its Forcefill(TM) and Flowfill(TM)
technologies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $16.6 million or 39.4% of total revenue in fiscal
1996, as compared to $5.9 million or 27.9% of total revenue in fiscal 1995 and
$3.9 million or 37.3% of total revenue in the twelve months ended December 31,
1994. Included in fiscal 1996 expenses is $3.1 million in selling, general and
administrative expenses related to Electrotech for the period from November 15,
1996 to December 31, 1996. The year-to-year dollar increases were primarily due
to the continued expansion of the Company's foreign operations. In addition,
the Company recorded additional expenses in 1996, including the establishment of
a $3.4 million reserve for doubtful accounts related to two shipments recorded
during 1996 to a distributor whose ability to pay is in question. The Company
has also added employees over the past two years to its sales and administration
and customer support areas to accommodate increased sales. The Company
anticipates that selling, general and administration expenses will continue to
grow in relation to the growth in revenue.
Loss From Operations. The Company realized a $95.6 million loss from
operations in fiscal 1996 as compared to a $0.4 million loss from operations in
fiscal 1995 and a $4.1 million loss from operations for the twelve months ended
December 31, 1994. The loss from operations in fiscal 1996 was due primarily to
a one-time acquisition related in-process research and development charge of
$86.0 million, a charge for the allowance for doubtful accounts of $3.4 million
and lower margins on Electrotech sales due to the $3.0 million charge resulting
from the allocation of the purchase price to write-up inventory values, in
accordance with APB No. 16 which was recorded in cost of goods sold as the
related inventory was shipped. The Company anticipates that operating results
will also be unfavorably impacted by approximately $7.6 million in fiscal 1997,
due to the write-up of Electrotech's inventory upon consummation of the
Acquisition to its fair market value.
Interest Income/Expense. Interest income increased to $1.6 million in
fiscal 1996 from $0.8 million in fiscal 1995 and $0.1 million in the twelve
months ended December 31, 1994. This was due to income derived from the
Company's short and long-term investments of the proceeds from the Convertible
Notes issued and sold during 1996, until such proceeds were spent in connection
with the Acquisition, and the proceeds of the public offering of the Company's
Common Stock, completed in the third quarter of fiscal 1995. Interest income in
1995 resulted in the Company's profitability in fiscal 1995, notwithstanding a
$0.4 million loss from operations.
Interest expense increased to $1.8 million in fiscal 1996 from $0.3 million
in fiscal 1995 and $0.2 million in the twelve months ended December 31, 1994.
This was due to the accrual of interest payable to the bondholders of the
convertible debt raised to fund part of the Acquisition. In addition, interest
expense was recorded for the utilization of the Company's $35.0 million working
capital facility from November 15, 1996 through December 31, 1996.
Income Taxes. The Company recorded a $1.3 million income tax benefit in
fiscal 1996 in comparison to accruing only the minimum state requirements in
fiscal 1995 and the minimum state requirements along with certain foreign
withholding taxes for the twelve months ended December 31, 1994. The $1.3
million benefit represents the combination of a foreign tax benefit associated
with the Electrotech operating loss and the reversal of deferred tax credits
established at November 15, 1996 for the difference in the tax basis and
financial reporting basis of the Electrotech assets acquired. The effective tax
rate differs from the statutory tax rate due to certain one-time non-deductible
charges (i.e., primarily the write-off of the in-process technology) and losses
for which no benefit has been provided. The Company's utilization of its
domestic and foreign net operating losses and credit carryforwards depends
<PAGE>
upon future income and may be subject to an annual limitation, required by the
Internal Revenue Code of 1986 and similar state provisions. See Note 7 of Notes
to Consolidated Financial Statements.
The Company has operating subsidiaries in several countries, and each
subsidiary is taxed based on the laws of the jurisdiction in which it operates.
Because taxes are incurred at the subsidiary level, and one subsidiary's tax
losses cannot be used to offset the taxable income of subsidiaries in other
jurisdictions, the Company's consolidated effective tax rate may increase to the
extent it reports tax losses in some subsidiaries and taxable income in others.
The subsidiaries are subject to taxation in countries where they operate, and
such operations generally are taxed at rates similar to or higher than tax rates
in the United States. The payment of dividends or distributions by the
subsidiaries to the United States would be subject to withholding taxes in the
country of domicile and may be mitigated under the terms of relevant double tax
treaties.
Liquidity and Capital Resources
At December 31, 1996 the Company had $21.7 million in cash, cash
equivalents and short-term investments, compared to $38.7 million at December
31, 1995. The decrease in cash, cash equivalents and short-term investments
resulted from the use of cash in operating activities of $9.4 million and use of
cash in investing activities of $74.5 which was offset by cash provided by
financing activities of $78.0 million. The use of cash in operating activities
primarily represents investments in operating assets and liabilities amounting
to approximately $5.7 million related to sales volume increases and cash
operating losses of approximately $3.7 million.
Cash provided by financing activities resulted primarily from the offering
of Convertible Subordinated Notes (the "Convertible Notes") completed on October
7, 1996. The Convertible Notes raised gross proceeds of $86,250,000, which
amount was used in the acquisition of Electrotech. The Convertible Notes carry
interest that is payable semi-annually at an annual interest rate of 7-1/8%. The
Convertible Notes have a maturity date of October 15, 2001 and are convertible
at any time at the option of the holder into Common Stock at the conversion rate
of $15.635 per share.
On November 15, 1996, the Company entered into a three-year senior secured
credit facility with certain domestic and U.K. lenders (the "Working Capital
Facility") that permits the Company and its subsidiaries to borrow an aggregate
of up to $35.0 million, subject to borrowing base limitations, based upon
eligible accounts receivable. As of December 31, 1996, the Company had $17.1
million available under the Working Capital Facility, of which $14.5 million in
borrowings was outstanding. The Working Capital Facility places certain
restrictions on the Company, which among other things prohibit the Company from
paying cash dividends, limits the amount of capital expenditures and require the
Company to comply with certain financial ratios and covenants.
On November 14, 1996, the Company received a commitment of terms from five
investors for an unsecured subordinated debt commitment. On December 16, 1996,
the Company entered into a Note Purchase Agreement (the "Note Purchase
Agreement") with the five investors confirming such commitment for unsecured
subordinated debt in the amount of $6,250,000. The interest rate on amounts
drawn under the Note Purchase Agreement will be the bank's prime rate plus 4%.
Interest is payable quarterly. The ability to borrow under the Note Purchase
Agreement expires January 1, 1998 and amounts borrowed under the Note Purchase
Agreement plus accrued but unpaid interest is due on January 1, 2000.
Amounts drawn under the Note Purchase Agreement are unsecured obligations
of the Company. No amounts were outstanding under the Note Purchase Agreement as
of December 31, 1996. The Note Purchase Agreement contains covenants that are
comparable to those contained in the Convertible Notes.
On November 15, 1996, Trikon consummated the acquisition of Electrotech for
an aggregate consideration, excluding acquisition costs of $8.0 million, of
$145.7 million consisting of $75.0 million in cash and 5.6 million shares of
newly-issued Common Stock having a fair market value of $70.7 million, based on
the $12.625 per share closing
<PAGE>
price of Common Stock on July 17, 1996, the last day prior to the public
announcement of the acquisition of Electrotech. The net proceeds from the sale
of the Convertible Notes, borrowings under the Working Capital Facility, and
cash and short term investments were used to fund the acquisition of Electrotech
and to pay off $17.6 million of short-term debt assumed as part of such
acquisition.
At December 31, 1996 and March 31, 1997, the Company was out of compliance
with the covenants established under the Working Capital Facility. Its lenders
have granted the Company a waiver of such covenant violations as of December 31,
1996 and as of March 31, 1997. The Company is negotiating with its lenders to
make various amendments to the loan agreement, including revising its covenants
for the duration of the Working Capital Facility such that the Company will be
able to remain in compliance with such amended covenants during the coming year.
Company management anticipates completing the amendment and executing such
agreement in the second quarter of 1997. The Company anticipates the amended
Working Capital Facility to contain terms similar to those currently in place.
The Convertible Notes contain certain provisions which provide that, upon
the occurrence of an "Event of Default", as defined, could cause the
Convertible Notes to become due and payable immediately. Such an Event of
Default would occur if, among other things, the Company were to default on the
Working Capital Facility or any other secured indebtedness, as defined, caused
by the failure to pay principal and interest payments when due or resulting in
the acceleration of such indebtedness prior to its express maturity in excess of
$10.0 million. The Convertible Notes and the Working Capital Facility have been
classified as long-term debt under the presumption that the Working Capital
Facility will be amended such that the Company will be able to comply with the
applicable financial covenants over the coming year.
During 1996, $10.0 million was invested in capital equipment, as the
Company used funds to expand its applications laboratory to support process
development and customer demonstrations and Electrotech finalized development of
a new corporate facility in South Wales.
The Company anticipates that it will spend approximately $16 million for
capital expenditures during fiscal 1997. This is expected to include
investments in demonstration and test equipment, information systems, leasehold
improvements and other capital items that should enable the Company to expand
its ability to support and develop new products and services. In addition, the
Company expects to increase its investment in inventory of demonstration systems
at customer sites.
In March 1996, Trikon sponsored a partnership with certain third-party
investors to fund research and development costs and expenses relating to CVD
technology and applications. Third-party investors invested an aggregate of
approximately $5,350,000 in the partnership, which aggregate amount was
available to fund such costs and expenses. At December 31, 1996, approximately
$2,133,038 remained available for future funding of such research and
development. As noted above, the Company does not anticipate that any of such
remaining funds will be made available for such research and development. See
Notes 6 and 12 to Notes to Consolidated Financial Statements.
The Company believes that cash provided or available from operations, the
Working Capital Facility, borrowings under the Note Purchase Agreement and other
sources of cash available to the Company, including cash, cash equivalents and
short-term investments on hand, will be sufficient to support the Company's
liquidity needs over the next 12 months. However, if the Company is unable to
amend the Working Capital Facility under similar terms as currently exists, the
Company's ability to generate adequate cash may be substantially affected.
Impact of Inflation
Although the Company cannot accurately anticipate the effect of inflation
on its operations, to date inflation has not had a material effect on the
Company's product sales or results of operations.
<PAGE>
ITEM 6. (continued) SELECTED COMBINED FINANCIAL DATA OF ELECTROTECH
The selected combined financial data presented below for the fiscal year
ended June 30, 1993, and as of and for each of the three fiscal years ended June
30, 1994, 1995, and 1996 are derived from audited combined financial statements
of Electrotech, which have been audited by Ernst & Young Chartered Accountants,
independent auditors, and, except with respect to the June 30, 1993 financial
statements, are contained elsewhere herein. The selected combined financial
data presented below as of June 30, 1993 and as of and for the year ended June
30, 1992 and as of September 30, 1996 and for the three months ended September
30, 1996 and 1995 are derived from unaudited combined financial statements of
Electrotech, which are not contained herein. The combined financial statements
below are presented in British pounds sterling. For reference purpose, the Noon
Buying Rate was U.S. $1.65 = (Pounds)1 on December 12, 1996. All of the
selected combined financial data below is prepared under accounting principles
generally accepted in the United Kingdom ("UK GAAP"), which differ in certain
respects from United States generally accepted accounting principles ("US
GAAP"). The selected combined financial data set forth below is qualified in
its entirety by, and should be read in conjunction with, Electrotech's combined
financial statements and related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Electrotech," which
are included in this Form 10-K.
<TABLE>
<CAPTION>
Three Months
Ended
September 30 Year Ended June 30
------------------------------ ---------------------------------------------
1996 1995 1996 1995 1994
-------------- -------------- ------------- -------------- -------------
(in thousands of British pounds)
<S> <C> <C> <C> <C> <C>
Combined Profit and Loss Accounts Data:
Sales.......................................... (Pounds)10,197 (Pounds)7,761 (Pounds)49,012 (Pounds)34,496 (Pounds)23,807
Cost of sales.................................. 5,218 3,760 23,406 17,014 11,496
-------------- ------------- -------------- -------------- --------------
Gross profit................................... 4,979 4,001 25,606 17,482 12,311
Operating expenses:
Research and development costs................. 1,702 1,239 6,674 4,421 3,332
Administrative expenses........................ 2,321 1,861 8,295 8,615 7,161
-------------- ------------- -------------- -------------- --------------
Total operating expenses....................... 4,023 3,100 14,969 13,036 10,493
-------------- ------------- -------------- -------------- --------------
Operating profit (loss)........................ 956 901 10,637 4,446 1,818)
Profit on disposal of businesses(1)............ -- -- -- 5,040 --
-------------- ------------- -------------- -------------- --------------
Profit on ordinary activities before interest.. 956 901 10,637 9,486 1,818
Interest payable, net.......................... (211) (146) (609) (438) (255)
-------------- ------------- -------------- -------------- --------------
Profit on ordinary activities before taxation.. 745 755 10,028 9,048 1,563
Tax on profit on ordinary activities........... 332 344 3,721 3,530 574
-------------- ------------- -------------- -------------- --------------
Profit for the period.......................... (Pounds)413 (Pounds)411 (Pounds)6,307 (Pounds)5,518 (Pounds)989
============== ============= ============== ============== ==============
<CAPTION>
1993 1992
-------------- -------------
<S> <C> <C>
Combined Profit and Loss Accounts Data:
Sales.......................................... (Pounds)16,547 (Pounds)13,919
Cost of sales.................................. 7,967 6,790
------------- --------------
Gross profit................................... 8,580 7,129
Operating expenses:
Research and development costs................. 2,365 2,207
Administrative expenses........................ 4,659 6,764
------------- --------------
Total operating expenses....................... 7,024 8,971
------------- --------------
Operating profit (loss)........................ 1,556 (1,842)
Profit on disposal of businesses(1)............ -- 4,652
------------- --------------
Profit on ordinary activities before interest.. 1,556 2,810
Interest payable, net.......................... (95) (376)
------------- --------------
Profit on ordinary activities before taxation.. 1,461 2,434
Tax on profit on ordinary activities........... 627 1,110
------------- --------------
Profit for the period.......................... (Pounds)834 (Pounds)1,324
============= ==============
</TABLE>
<TABLE>
<CAPTION>
As of As of June 30
September 30, ---------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
-------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Combined Balance Sheet Data:
Working capital................. (Pounds)15,847 (Pounds)16,422 (Pounds)14,035 (Pounds)10,547 (Pounds)10,075 (Pounds) 8,173
Total assets.................... 47,427 51,030 38,339 28,005 22,093 18,173
Long-term obligations........... 977 948 1,339 1,932 2,559 1,097
Total shareholder's equity...... 27,013 26,621 20,401 14,844 13,836 12,884
</TABLE>
- ----------------------------
(1) Represents the profits, before taxes, recognized on the sales of Surface
Technology Systems Limited during the fiscal year ended June 30, 1995 and
the sale of the business of Plasma Products Limited during the fiscal year
ended June 30, 1992.
<PAGE>
ITEM 7. (continued) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF ELECTROTECH
The following discussion should be read in conjunction with the combined
financial statements of Electrotech and notes thereto and "Selected Combined
Financial Data of Electrotech" included elsewhere in this Form 10-K. The
combined financial statements of Electrotech combine the consolidated financial
statements of each of Electrotech Equipments Limited (ETE) and Electrotech
Limited (ET), which are subject to common control. The financial information
for Electrotech has been prepared in accordance with UK GAAP and in British
pounds. See Note 29 of the notes to the Electrotech combined financial
statements for a reconciliation to US GAAP for selected financial information
Background
A privately-owned company, Electrotech was founded in 1968 by three
scientists from the European research division of ITT as a small manufacturer of
vacuum accessories. By 1980, the core technologies of Electrotech had been
developed to address plasma etch (1975), plasma enhanced CVD (1978) and PVD
(1980). Electrotech opened sales offices in the U.S. and continental Europe
markets in the 1970's, appointed its first sales agents in Japan in 1983 and,
thereafter, expanded into other areas of the Asia/Pacific region.
In 1995, Electrotech sold its Surface Technology Systems Limited ("STS")
subsidiary to Sumitomo Precision Products Co. Limited, resulting in a gain of
(Pounds)5.0 million, before taxes, in the fiscal year ended June 30, 1995. The
proceeds from the sale of STS were used to fund a portion of a major expansion
program which included a move in 1996 into new corporate and manufacturing
headquarters in Newport, South Wales.
Results of Operations
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain line items in the combined profit and loss
accounts related to the operations of Electrotech:
<TABLE>
<CAPTION>
Three Months
Ended
September 30 Year Ended June 30
--------------- ------------------------
1996 1995 1996 1995 1994
------- ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
Sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 51.2 48.4 47.8 49.3 48.3
------- ------ ----- ------- -----
Gross margin.................................... 48.8 51.6 52.2 50.7 51.7
Research and development expenses............... 16.7 16.0 13.6 12.8 14.0
Administrative expenses......................... 22.8 24.0 16.9 25.0 30.1
------- ------ ----- ------- -----
Total operating expenses........................ 39.5 40.0 30.5 37.8 44.1
Profit on disposal of business.................. -- -- -- 14.6 --
------- ------ ----- ------- -----
Profit on ordinary activities before interest... 9.3 11.6 21.7 27.5 7.6
Interest payable, net........................... (2.0) (1.9) (1.2) (1.3) (1.1)
------- ------ ----- ------- -----
Profit on ordinary activities before taxation... 7.3 9.7 20.5 26.2 6.5
Tax charge on profit on ordinary activities..... 3.3 4.4 7.6 10.2 2.4
------- ------ ----- ------- -----
Profit for the period........................... 4.0% 5.3% 12.9% 16.0% 4.1%
======= ====== ===== ======= =====
</TABLE>
<PAGE>
Comparison Of The Three Months Ended September 30, 1996 To The Three Months
Ended September 30, 1995
Revenues
Total revenues were (Pounds)10.2 million for the three months ended
September 30, 1996 compared to (Pounds)7.8 million for the three months ended
September 30, 1995, an increase of 30.8%. Notwithstanding such period-to-period
increase, revenues for the quarter ended September 30, 1996 decreased from
(Pounds)15.2 million, or 33%, as compared to revenues for the quarter ended June
30, 1996.
The period-to-period increase in revenues is primarily due to increased
sales of PVD products (Forcefill(TM) and Sigma). Units shipped increased to four
Sigma systems and two Forcefill(TM) modules in the three months ended September
30, 1996, compared to two Sigma systems and one Forcefill(TM) module in the
three months ended September 30, 1995. Revenues from these products were
(Pounds)7.8 million, representing 76.6% of total revenues in the three months
ended September 30, 1996 compared to revenues of (Pounds)2.9 million,
representing 37.1% of total revenues in the three months ended September 30,
1995. Revenues from the sales of PVD products increased by 169% between the two
quarters. The increase in revenues from the sale of Sigma products from quarter
to quarter was primarily due to higher unit selling prices and a reduction in
the number of sales made through distributors.
There were no sales of CVD products (Flowfill(TM), Delta and ND) during the
quarter ended September 30, 1996. During the quarter ended September 30, 1995,
there were sales of one Flowfill(TM), one Delta and one ND system, resulting in
total revenues of (Pounds)1.4 million.
Revenues from sales of Omega(TM) etch products were (Pounds)600,000 for the
three months ended September 30, 1996 and (Pounds)1.5 million for the three
months ended September 30, 1995, a decrease of 60% between the two periods.
During the three months ended September 30, 1996, two Omega(TM) etch systems
were shipped, compared to three Omega(TM) systems, during the three months ended
September 30, 1995.
Gross Margin
Electrotech's gross margin was 48.8% in the three months ended September
30, 1996 and 51.6% in the three months ended September 30, 1995. The decrease
in gross margin is primarily due to the effect of exchange rate fluctuations on
conversion to pounds sterling of revenues earned in other currencies.
Research and Development Expenses
Research and development expenses include costs associated with the
definition, design and development of new products. Research and development
expenses were (Pounds)1.7 million for the three months ended September 30, 1996,
compared to (Pounds)1.2 million for the three months ended September 30, 1995,
an increase of 41.7%. This increase is primarily due to increased development
costs on Forcefill(TM) and Flowfill(TM) technologies.
Electrotech considers its research and development activities to be crucial
to its future success and, therefore, expects its research and development
expenditures to continue to rise in monetary terms, although not necessarily as
a percentage of sales.
Administrative Expenses
Administrative expenses consist of personnel costs and overhead for
administration, finance, sales and marketing, information systems, human
resources and general management. Administrative expenses were (Pounds)2.3
million during the three months ended September 30, 1996 compared to (Pounds)1.9
million during the three months ended September 30, 1995, an increase of 21.0%
over such periods. Significant variations in expenditure between the two
periods were in payroll costs, which increased to (Pounds)945,000 from
(Pounds)827,000, an increase of 14.3%, and automobile and
<PAGE>
travel costs which increased to (Pounds)580,000 from (Pounds)365,000, an
increase of 58.9%. Included in administrative expenses for the three months
ended September 30, 1996 were currency exchange gains of (Pounds)303,000
compared to currency exchange gains of (Pounds)150,000 for the three months
ended September 30, 1995.
In January 1996, Electrotech commenced partial occupation of new leased
premises in Newport, South Wales. Electrotech anticipates that the property
will be fully occupied by early 1997. Following full occupation of the property
the rental charge and depreciation of improvements will increase administrative
expenses by approximately (Pounds)1.2 million per annum. Management anticipates
that general and administrative expenses will continue to increase in support of
planned business expansion in markets outside the United Kingdom.
Interest Expense, Net
Net interest expense was (Pounds)211,000 in the three months ended
September 30, 1996 compared to (Pounds)146,000 in the three months ended
September 30, 1995, an increase of 44.5% over such periods. The increase was
primarily due to increased working capital requirements necessary to fund the
expansion of the business.
Income Tax Expense
Income tax expense was (Pounds)332,000 in the three months ended September
30, 1996 compared to (Pounds)344,000 in the three months ended September 30,
1995, a decrease of 3.5% over such periods. The effective tax rates were 44.6%
and 45.5%, respectively. The high effective tax rate for both periods was
primarily due to a larger portion of earnings arising in countries with a higher
effective tax rate than the U.K.
Worldwide Tax Expense
ET and ETE each operate as a holding company. ET and its subsidiaries
operate in the United Kingdom. ETE has operating subsidiaries in several
countries, and each subsidiary is taxed based on the laws of the jurisdiction in
which it operates. Because taxes are incurred at the subsidiary level, and one
subsidiary's tax losses cannot be used to offset the taxable income of
subsidiaries in other jurisdictions, ETE's consolidated effective tax rate may
increase to the extent it reports tax losses in some subsidiaries and taxable
income in others. The subsidiaries are subject to taxation in countries where
they operate, and such operations generally are taxed at rates similar to or
higher than tax rates in the United Kingdom. The payment of dividends or
distributions by the subsidiaries to ETE would be subject to withholding taxes
in the country of domicile and may be mitigated under the terms of relevant
double tax treaties with the United Kingdom.
Comparison Of The Year Ended June 30, 1996 To The Year Ended June 30, 1995
Revenues
Total revenues were (Pounds)49.0 million for the year ended June 30, 1996
compared to (Pounds)34.5 million for the year ended June 30, 1995, an increase
of 42.0%. Total revenues included sales of (Pounds)3.8 million for the year
ended June 30, 1995 and no sales in the comparable period in fiscal 1996 related
to STS.
The increase in revenues is primarily due to sales of Sigma products.
Units shipped increased to 17 Sigma systems and five Forcefill(TM) modules in
the year ended June 30, 1996, compared to 15 Sigma systems and four
Forcefill(TM) modules in the year ended June 30, 1995. Revenues from these
products were (Pounds)26.5 million, representing 54.2% of total revenues in the
year ended June 30, 1996 compared to revenues of (Pounds)18.0 million,
representing 57.9% of total revenues (less STS revenues) in the year ended June
30, 1995. Revenues from the sales of Sigma products increased by 47.2% between
the two years. The increase in revenues of approximately 47% from the sale of
Sigma
<PAGE>
products from year to year was primarily due to higher unit selling prices and a
reduction in the number of sales made through distributors.
Revenues from sales of Planar 200 Flowfill(TM) products were (Pounds)4.6
million for the year ended June 30, 1996 and (Pounds)1.5 million for the year
ended June 30, 1995, an increase of 206%. Six Planar 200 Flowfill(TM) systems
were shipped during the year ended June 30, 1996, compared to the shipment of
two such systems during the year ended June 30, 1995.
Revenues from sales of Omega(TM) and Delta products were (Pounds)7.3
million and (Pounds)2.1 million for the year ended June 30, 1996 and were
(Pounds)2.0 million and (Pounds)1.1, respectively, for the year ended June 30,
1995, an increase of 265% and 91%, respectively, between the two periods. During
the year ended June 30, 1996, 14 Omega(TM) etch systems and five Delta systems
were shipped, compared to four Omega(TM) systems and four Delta systems,
respectively, during the year ended June 30, 1995. Unit prices on Delta systems
have significantly improved from year to year.
Gross Margin
Electrotech's gross margin was 52.2% in the year ended June 30, 1996 and
50.7% in the year ended June 30, 1995. Excluding sales and related costs of
sales of STS, the gross margin for the year ended June 30, 1995 was 51.9%. The
gross margins achieved by Electrotech were influenced primarily by changes in
product mix. Overall gross margins are also influenced by the portion of total
sales which are sold through distributors at reduced sales prices and the impact
of currency exchange rates on sales denominated in currencies other than pounds
sterling.
Research and Development Expenses
Research and development expenses include costs associated with the
definition, design and development of new products. Research and development
expenses were (Pounds)6.7 million for the year ended June 30, 1996, compared to
(Pounds)4.4 million for the year ended June 30, 1995 (including (Pounds)0.3
million of STS expenses), an increase of 63.4% (excluding STS expenses). This
increase is primarily due to increased development costs on Forcefill(TM) and
Flowfill(TM) technologies, including an expenditure of (Pounds)1.0 million on
machines dedicated to research and development having an estimated useful life
of less than one year.
Electrotech considers its research and development activities to be crucial
to its future success and, therefore, expects its research and development
expenditures to continue to rise in monetary terms, although not necessarily as
a percentage of sales.
Administrative Expenses
Administrative expenses consist of personnel costs and overhead for
administration, finance, sales and marketing, information systems, human
resources and general management. Administrative expenses were (Pounds)8.3
million during the year ended June 30, 1996 compared to (Pounds)8.6 million
during the year ended June 30, 1995, a decrease of 3.7% over such periods.
Excluding administrative expenses and non-recurring expenditures associated with
the sale of STS, administrative expenses were (Pounds)7.1 million during the
year ended June 30, 1995. Significant variations in expenditure between the two
periods were in payroll costs, which increased to (Pounds)3.4 million from
(Pounds)2.8 million, an increase of 21.4%, and travel costs which increased to
(Pounds)2.1 million from (Pounds)1.5 million, an increase of 40%. Included in
administrative expenses for the year ended June 30, 1996 were currency exchange
gains of (Pounds)604,000 compared to currency exchange losses of (Pounds)73,000
for the year ended June 30, 1995.
In January 1996, Electrotech commenced partial occupation of new leased
premises in Newport, South Wales. Electrotech anticipates that the property
will be fully occupied by early 1997. Following full occupation of the property
the rental charge and depreciation of improvements will increase administrative
expenses by approximately (Pounds)1.2 million
<PAGE>
per annum. Management anticipates that general and administrative expenses will
continue to increase in support of planned business expansion in markets outside
the United Kingdom.
Interest Expense, Net
Net interest expense was (Pounds)609,000 in the year ended June 30, 1996
compared to (Pounds)438,000 in the year ended June 30, 1995, an increase of
39.0% over such periods. The increase was primarily due to increased working
capital requirements necessary to fund the expansion of the business.
Income Tax Expense
Income tax expense was (Pounds)3.7 million in the year ended June 30, 1996
compared to (Pounds)3.5 million in the year ended June 30, 1995, an increase of
5.7% over such periods. The effective tax rates were 37.1% and 39.0%,
respectively. The high effective tax rate for the year ended June 30, 1995 was
primarily due to a larger portion of earnings arising in countries with a higher
effective tax rate than the U.K.
Comparison Of The Year Ended June 30, 1995 To The Year Ended June 30, 1994
Revenues
Total revenues, exclusive of STS revenues, were (Pounds)30.7 million in the
fiscal year ended June 30, 1995 compared to (Pounds)18.4 million in the year
ended June 30, 1994, an increase of 66.9%. The increase in revenues was
primarily attributable to increased sales of Sigma products. Shipments
increased to 15 Sigma systems and four Forcefill(TM) modules in fiscal 1995,
compared to four Sigma systems and one Forcefill(TM) module in fiscal 1994.
Revenues from these products were (Pounds)18.0 million in fiscal 1995 compared
to (Pounds)5.2 million in fiscal 1994, an increase of 246.2%.
Revenues from sales of Planar 200 Flowfill(TM) products were (Pounds)1.5
million for the year ended June 30, 1995 and (Pounds)1.3 million for the year
ended June 30, 1994. Two Planar 200 Flowfill(TM) systems were shipped in each of
fiscal year 1995 and 1994.
Revenues from sales of Omega(TM) and Delta products in fiscal 1995 were
(Pounds)2.0 million and (Pounds)1.1 million, respectively, compared to
(Pounds)2.7 million and (Pounds)631,000, respectively, in fiscal 1994, a
decrease of 25.9% and an increase of 74.3%, respectively. During fiscal 1995
four Omega(TM) systems and four Delta systems were shipped, compared to five
Omega(TM) systems and two Delta systems in fiscal 1994.
Revenues from STS were (Pounds)3.8 million in fiscal 1995, compared to
(Pounds)5.4 million in fiscal 1994.
Gross Margin
Gross margin was 50.7% and 51.7% for the years ended June 30, 1995 and
1994, respectively. The gross margins achieved by Electrotech was influenced by
changes in product mix, the portion of total sales which are sold through
distributors at reduced sales prices and the impact of currency exchange rates
on sales denominated in currencies other than pounds sterling.
Research and Development Expenses
Research and development expenses, exclusive of expenses of STS, were
(Pounds)4.1 million in the year ended June 30, 1995, compared to (Pounds)2.8
million in the year ended June 30, 1994, an increase of 46.4%. The increased
expenditure was primarily attributable to research and development of the
Forcefill(TM) and Flowfill(TM) technologies.
<PAGE>
Research and development expenses as a percentage of revenues were 12.8% in
fiscal 1995 compared with 14.0% in fiscal 1994.
Administrative Expenses
Administrative expenses, exclusive of expenses of STS, were (Pounds)7.5
million in the year ended June 30, 1995 compared to (Pounds)5.4 million in the
year ended June 30, 1994. Excluding a non-recurring expenditure associated with
the sale of STS, administrative expenses in fiscal 1995 amounted to (Pounds)7.1
million, an increase of 31.5% from fiscal 1994.
Interest Expense, Net
Net interest expense was (Pounds)438,000 and (Pounds)255,000 in the fiscal
years ended June 30, 1995 and 1994, respectively. The increases were primarily
due to increased working capital requirements due to the expansion of the
business.
Income Tax Expense
Worldwide income tax expense was (Pounds)3.5 million in the fiscal year
ended June 30, 1995. This amount included (Pounds)2.0 million in respect of the
gain on the sale of STS. The effective tax rate was 39.0% in the year ended
June 30, 1995. Income tax expense was (Pounds)574,000 in fiscal 1994, an
effective tax rate of 36.7%.
Worldwide Tax Expense
ET and ETE each operated as a holding company. ET and its subsidiaries
operate in the United Kingdom. ETE has operating subsidiaries in several
countries, and each subsidiary is taxed based on the laws of the jurisdiction in
which it operates. Because taxes are incurred at the subsidiary level, and one
subsidiary's tax losses cannot be used to offset the taxable income of
subsidiaries in other jurisdictions, ETE's consolidated effective tax rate may
increase to the extent it reports tax losses in some subsidiaries and taxable
income in others. The subsidiaries are subject to taxation in countries where
they operate, and such operations generally are taxed at rates similar to or
higher than tax rates in the United Kingdom. The payment of dividends or
distributions by the subsidiaries to ETE would be subject to withholding taxes
in the country of domicile and may be mitigated under the terms of relevant
double tax treaties with the United Kingdom.
Liquidity and Capital Resources
Net cash provided by operating activities was (Pounds)4.9 million for the
year ended June 30, 1996 against a net outflow from operating activities of
(Pounds)3.3 million in the year ended June 30, 1995. Net cash outflows from
operating activities were (Pounds)2.7 million in fiscal 1994. The net cash
inflows and outflows from operating activities reflect movements in the working
capital of Electrotech.
Net cash provided by operating activities was (Pounds)2.3 million for the
three months ended September 30, 1996 against a net inflow from operating
activities of (Pounds)147,000 in the three months ended September 30, 1995. The
net cash inflows from operating activities reflect movements in the working
capital of Electrotech.
Net cash used in investing activities was (Pounds)4.8 million in the year
ended June 30, 1996. This was primarily due to capital expenditure at the new
premises at Newport, South Wales. There was a net cash inflow from investing
activities of (Pounds)4.1 million in the year ended June 30, 1995, comprised of
an inflow of (Pounds)6.6 million from the sale of STS less capital expenditures
of (Pounds)2.5 million. The net cash used in investing activities was
(Pounds)745,000 in fiscal 1994. Net cash used in financing activities was
(Pounds)188,000 in the year ended June 30, 1996. Net cash used in financing
activities was (Pounds)400,000 in both fiscal 1995 and fiscal 1994. All cash
used in financing relates to repayments made against the medium-term bank loan.
<PAGE>
Net cash used in investing activities was (Pounds)1.1 million in the three
months ended September 30, 1996 and (Pounds)1.2 million in the three months
ended September 30, 1995. In both periods, this was primarily due to capital
expenditure at the new premises at Newport, South Wales.
Due to recent growth in Electrotech's sales and its development of new
products, Electrotech's existing facilities have reached their capacity limit.
Electrotech has leased a 102,000 square foot facility into which it moved
certain of its sales, customer support and financing operations in January 1996.
Approximately 20,000 square feet of the facility are currently in use, and the
remaining space is being built out with a view to full occupancy later in 1997.
The rental of the new premises is (Pounds)500,000 per annum.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statements
Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF TRIKON.
The following table sets forth certain information concerning Trikon's directors
and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- ----- --------------------------------------------------------
<S> <C> <C>
Dr. Gregor A. Campbell...... 36 Director and Chief Executive Officer
Christopher D. Dobson....... 60 Director and Chairman of the Board
Nigel Wheeler............... 47 Director, President and Chief Operating Officer
John W. LaValle............. 39 Senior Vice President, Chief Financial Officer and Secretary
Harvey J. Frye.............. 44 Vice President, Sales & Marketing
Steve Rhoades............... 36 Vice President
Dr. David J. Hemker......... 34 Vice President, Technology
Robert J. Snyder............ 55 Vice President, Operations
Craig S. Montesanti......... 37 Director of Finance and Administration
John A. Rollwagen(1)........ 56 Director
Brian D. Jacobs(1).......... 35 Director
G. Bradford Jones(2)........ 42 Director
Charles Thompson(2)......... 67 Director
Dr. Hiroyuki Mizuno......... 67 Director
- --------------
</TABLE>
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Dr. Campbell is a founder of Trikon, and has been a director since Trikon
was formed in 1985. Dr. Campbell has been the Chief Executive Officer of Trikon
since 1988. Dr. Campbell served as President of Trikon from 1988 until November
1996. Dr. Campbell also served as Trikon's Secretary from August to December
1994.
Mr. Dobson joined Trikon's board of directors as Chairman in November 1996
upon Trikon's acquisition of Electrotech. Mr. Dobson was a co-founder of
Electrotech and was the Chairman of Electrotech's board of directors from 1971
to November 1996.
Mr. Wheeler joined Trikon as a director and the President and Chief
Operating Officer in November 1996 upon Trikon's acquisition of Electrotech.
From July 1993 to November 1996, Mr. Wheeler served as Electrotech's Chief
Executive Officer. From July 1987 to July 1993, Mr. Wheeler was the General
Operations Director of Electrotech and had served in other capacities with
Electrotech since 1980.
Mr. LaValle joined Trikon in November 1994 as Vice President and Chief
Financial Officer, and became Secretary in December 1994. In November 1996, Mr.
LaValle became Senior Vice President. Before joining Trikon, Mr. LaValle served
from September 1989 to November 1994 as Vice President, Chief Financial Officer
and Secretary of Superconductor Technologies, Inc.
Mr. Frye joined Trikon in June 1994 as Vice President, Sales, and became
Vice President, Sales & Marketing in May 1995. Prior to joining Trikon, Mr.
Frye served as Vice President of Fab Product Sales for KLA Instruments Corp.
from March 1993 to June 1994, and was Vice President, Sales for KLA Instruments
Corp.'s Wafer Inspection Division from June 1986 to March 1993.
Mr. Rhoades joined Trikon in October 1993, became Vice President,
Engineering in April 1995 and became the Vice President and General Manager of
the CVD Partnership in July 1996. From March 1990 to October 1993, Mr. Rhoades
was employed by Applied Materials, where he managed metal etch process
development.
<PAGE>
Dr. Hemker joined Trikon in August 1993, and became Vice President,
Technology in May 1995. From April 1989 to August 1993, Dr. Hemker was a member
of the technical staff at Applied Materials.
Mr. Snyder joined Trikon in March 1996 as Vice President of Operations.
Before joining Trikon, Mr. Snyder served from September 1992 to December 1995 as
Vice President and General Manager of two divisions of Joslyn Corporation, Air
Dry Corporation and ADK Pressure Equipment Corporation, and was President of
Ultranautics from December 1990 to September 1992.
Mr. Montesanti joined Trikon in February 1991 as Director of Finance and
Administration. Before joining Trikon, Mr. Montesanti served from February 1983
to February 1991 as Assistant Controller of Ioptex Research Inc.
Mr. Rollwagen joined Trikon's board of directors as Chairman in December
1993 and resigned as Chairman, but not as a director, in November 1996 upon
Trikon's acquisition of Electrotech. From August 1975 to January 1993, Mr.
Rollwagen served in various executive positions at Cray Research, Inc. Mr.
Rollwagen became President of Cray Research in 1977 and Chairman and Chief
Executive Officer in 1981. Mr. Rollwagen also currently serves as a senior
advisor to St. Paul Venture Capital, Inc. ("St. Paul Venture Capital") and as a
director of Computer Network Technology, Inc.
Mr. Jacobs has served as a director of Trikon since March 1993. Mr. Jacobs
is currently an executive vice president of St. Paul Venture Capital, which he
joined in June 1992. From June 1989 to June 1992, Mr. Jacobs was a senior
associate with the Security Pacific Venture Capital Group. Mr. Jacobs also
serves as a director of several private corporations.
Mr. Jones has served as a director of Trikon since August 1990. Mr. Jones
is currently a general partner in the firm of Brentwood Venture Capital, which
he joined in 1981. Mr. Jones also serves as a director of Interpore
International, ISOCOR, Onyx Acceptance Corp., Aastrom Biosciences and several
privately-held companies.
Mr. Thompson was elected as a director of Trikon in April 1996. Mr.
Thompson retired February 1, 1996 as Senior Vice President and Director of
Worldwide Marketing at Motorola Semiconductor, a position that he held for 20
years. Mr. Thompson joined Motorola in 1969. Prior to 1969, Mr. Thompson
worked for 18 years at General Electric Company in a variety of computer-related
executive positions.
Dr. Mizuno was elected as a director of Trikon in April 1996. Dr. Mizuno
is retired, having served as Distinguished Technology Advisor at Matsushita
Electric Industrial Co., Ltd. ("Matsushita") in Osaka, Japan from June 1994 to
June 1996. Dr. Mizuno joined the Matsushita group of companies in 1952 and has
served Matsushita and its related companies in a number of senior management
positions. Until June of 1994, Dr. Mizuno served as Executive Vice President
and as a Senior Member of the Board of Directors of Matsushita. Dr. Mizuno also
served as Director of the New Media Development Association in Japan from April
1991 to March 1993 and as Chairman of the Institute of Television Engineers of
Japan from June 1982 to May 1993.
Officers are appointed by the Board of Directors and serve at the
discretion of the Board. There are no family relationships among the directors
and executive officers of Trikon.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Summary of Cash and Certain Other Compensation
The following table sets forth all compensation received for services rendered
to Trikon in all capacities for the years ended December 31, 1996 and 1995 and
the ten months ended December 31, 1994, by (i) Trikon's Chief Executive Officer
and (ii) each of the other four most highly compensated executive officers of
Trikon who were serving as executive officers at December 31, 1996 and whose
total compensation exceeded $100,000 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-----------------
COMPENSATION SECURITIES
FISCAL ---------------------- UNDERLYING STOCK ALL OTHER
NAME AND PRINCIPAL POSITION(1) YEAR(2) SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- ------------------------------------ ------- ---------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
Dr. Gregor A. Campbell.............. 1996 $210,000 $ -- 43,000 $ 2,895(3)
Chief Executive Officer 1995 160,000 36,708 96,666 779(3)
1994 135,383 25,000 -- 185(3)
John A. Rollwagen(4)................ 1996 144,000 -- -- --
Director 1995 100,000 -- 73,333 --
1994 44,000 -- -- --
James F. Marshall(5)................ 1996 170,000 -- 12,000 4,691(3)
Executive Vice President and 1995 140,001 339 30,000 174(3)
Chief Operating Officer 1994 118,462 25,000 -- 119(3)
John W. LaValle..................... 1996 130,000 -- 32,000 320(3)
Senior Vice President, Chief 1995 120,000 173 20,000 66(3)
Financial Officer and Secretary 1994 11,538 -- 36,667 --
Harvey J. Frye...................... 1996 150,001 -- 7,000 6,278(6)
Vice President, Sales & 1995 140,000 256 30,000 35,802(7)
Marketing 1994 82,385 10,000 45,000 10,760(8)
</TABLE>
_______________
(1) Each of Christopher D. Dobson, the Chairman of the Board, and Nigel Wheeler,
a director and the President and Chief Operating Officer of the Company,
joined Trikon in November 1996 upon the Company's acquisition of
Electrotech. Mr. Dobson currently receives cash compensation of
approximately $300,000 annually and Mr. Wheeler, pursuant to an employment
contract discussed below, is paid an annual base salary of $250,000 (net of
any U.S. taxes or other assessments so long as he is not a U.S. citizen) and
received in connection with the execution of such agreement an option to
purchase 200,000 shares of Common Stock. See Footnote 1 to the following
"Option Grants in Last Fiscal Year" table. Because neither of their total
compensation exceeded $100,000 for the fiscal year ended December 31, 1996,
they are not listed in the above table.
(2) During 1994, Trikon changed its fiscal year end from the last day of
February to December 31. Consequently, compensation information presented in
this table for 1994 is for a ten-month period only.
(3) This amount represents premiums paid by Trikon for life insurance of which
the officer's designee is the beneficiary.
(4) In June 1995, Mr. Rollwagen agreed to increase his duties as Chairman of the
Board to a half-time basis, and in exchange therefor, Trikon agreed to pay
him an annual salary of $144,000 as well as to pay for certain expenses.
Mr. Rollwagen resigned as Chairman of the Board, but not as a director, in
November 1996 upon Trikon's acquisition of Electrotech. In consideration of
the Board of Directors' desire that Mr. Rollwagen remain a member of the
Board following his resignation, the Board approved the extension of Mr.
Rollwagen's
<PAGE>
annual salary through December 31, 1997, subject to his continued
participation as a director and senior advisor to the Company. The Board
also approved at such time the immediate vesting of all of Mr. Rollwagen's
outstanding, unvested options to purchase an aggregate of (i) 9,335 shares
of Common Stock at an exercise price of $1.05 per share and (ii) 53,333
shares of Common Stock at an exercise price of $6.30 per share.
(5) Mr. Marshall resigned from the Company effective December 31, 1996.
(6) Of this amount, (i) $5,904 represents a car allowance and (ii) $374
represents premiums paid by Trikon for life insurance of which the officer
is the beneficiary.
(7) Of this amount, (i) $30,000 represents reimbursement for relocation
expenses, (ii) $102 represents premiums paid by Trikon for life insurance of
which the officer is the beneficiary and (iii) $5,700 represents a car
allowance.
(8) Of this amount, (i) $7,170 represents reimbursement of relocation expenses,
(ii) $82 represents premiums paid by Trikon for life insurance of which the
officer is the beneficiary and (iii) $3,508 represents a car allowance.
Trikon currently has no employment contracts with any of the Named
Executive Officers. However, the Company does have an employment contract with
Nigel Wheeler, a director and the President and Chief Operating Officer of
Trikon, dated November 15, 1996, pursuant to which Mr. Wheeler is to be
nominated as a director and to act as the President and Chief Operating Officer
for the three-year term of the agreement. The agreement renews annually unless
terminated by either party. Under the agreement, Mr. Wheeler is paid a base
salary of $250,000 per year, net of any U.S. taxes or other assessments so long
as he is not a U.S. citizen. The base salary is subject to certain annual,
upward adjustments by the Company. In addition, Mr. Wheeler is eligible to
receive an annual performance bonus for each year of service. Mr. Wheeler was
also granted, in connection with entering into such agreement, options to
acquire 200,000 shares of Common Stock at an exercise price of $11.625 per
share, the fair market value of a share of Common Stock on the date of grant.
The employment agreement further provides certain customary insurance, vacation
benefits and termination provisions.
1991 STOCK OPTION PLAN
Trikon's 1991 Stock Option Plan (the "Option Plan") provides for the
granting of either incentive stock options or nonqualified stock options to
specified employees, directors, consultants and advisors of Trikon. The Option
Plan is administered by the Compensation Committee of the Board of Directors.
The exercise price of stock options granted under the Option Plan must be
equal to at least the fair market value of the stock subject to the option on
the date of the grant (or 110% with respect to holders of more than 10% of the
voting power of Trikon's outstanding Common Stock). Options granted under the
Option Plan are non-transferable and generally expire thirty days after the
termination of an optionee's service to Trikon. Upon the dissolution or
liquidation of Trikon or upon any reorganization, merger or consolidation in
which Trikon does not survive, the Option Plan, and each outstanding option
granted thereunder shall terminate, provided that each optionee to whom no
substitute option has been tendered by the surviving corporation in any such
transaction shall have the right to exercise in whole or in part any unexpired
option or options issued to him or her, without regard to the vesting provisions
thereof.
In connection with the Acquisition, Trikon established a Share Option and
Reimbursement Agreement solely for its U.K. employees pursuant to which a
maximum of 926,530 shares of Common Stock reserved for issuance under the Option
Plan have been set aside for issuance pursuant to the terms of a stock option
plan (the "Share Option Scheme") approved by the Board of Inland Revenue in the
United Kingdom. The Rules of the Share Option Scheme are similar to those in
the Option Plan and offer no benefits to share option holders that would not be
available in all material respects to participants of the Option Plan.
Accordingly, the Share Option Scheme essentially runs in parallel with the
Option Plan, but is limited to the United Kingdom employees of Trikon, and
926,530 shares out of a total of 2,400,000 shares available under the Option
Plan are allotted to the Share Option Scheme.
<PAGE>
STOCK OPTION GRANTS
The following table sets forth each grant of stock options made during the
year ended December 31, 1996 to each of the Named Executive Officers. No stock
appreciation rights ("SARs") have ever been granted by Trikon.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES PERCENT OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------
NAME(1) GRANTED(#) PERIOD(%) (S/SH)(2) DATE 5% 10%
- ---------------------- ------------- ---------------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Dr. Gregor A. Campbell 18,000(4) 4.73% $ 8.87 01/17/06 $100,476 $254,646
25,000(5) 6.56 14.00 10/23/06 220,150 557,900
John A. Rollwagen(6).. -- -- -- -- -- --
James F. Marshall(7).. 12,000 3.15 8.87 04/30/97 66,984 169,764
John W. LaValle....... 7,000(4) 1.84 8.87 01/17/06 39,074 99,029
25,000(5) 6.56 14.00 10/23/06 220,150 557,900
Harvey J. Frye........ 7,000(4) 1.84 8.87 01/17/06 39,074 99,029
</TABLE>
_____________
(1) Nigel Wheeler, a director and the President and Chief Operating Officer of
Trikon, was granted an option to purchase 200,000 shares of Common Stock at
an exercise price of $11.625 per share, representing the fair market value
of a share of Common Stock on the date of grant, in connection with his
assumption of such positions upon Trikon's acquisition of Electrotech in
November 1996. Such option vests in equal, annual increments of 25% over
the four-year period following its date of grant. Because Mr. Wheeler is not
a Named Executive Officer, his option holdings are not listed in this table.
See Footnote 1 to the preceding "Summary Compensation Table."
(2) Represents the fair market value of the underlying shares of Common Stock at
the time of grant.
(3) Represents the value of the shares of Common Stock issuable upon the
exercise of the option, assuming the stated rates of price appreciation for
ten years, compounded annually, with the aggregate exercise price deducted
from the final appreciated value. Such annual rates of appreciation are for
illustrative purposes only, are based on requirements of the Securities and
Exchange Commission and do not reflect Trikon's estimate of future stock
appreciation. No assurance can be given that such rates of appreciation, or
any appreciation, will be achieved.
(4) Represents stock options that vest in equal, annual increments of 25% over
the four-year period following their date of grant, January 17, 1996.
(5) Represents stock options that vest in equal, annual increments of 25% over
the four-year period following their date of grant, October 23, 1996.
(6) In November 1996, in connection with Mr. Rollwagen's resignation as
Chairman, the Board of Directors approved the acceleration of the vesting of
all of Mr. Rollwagen's outstanding, unvested options to purchase an
aggregate of 62,668 shares of Common Stock. See Footnote 4 to the preceding
"Summary Compensation Table."
(7) Mr. Marshall resigned from the Company effective December 31, 1996. All of
Mr. Marshall's unexercised options to purchase Common Stock will terminate
on April 30, 1997.
<PAGE>
AGGREGATED STOCK OPTION EXERCISES IN FISCAL YEAR 1996 AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth the number and value of shares acquired by the
Named Executive Officers upon exercise of stock options during Trikon's fiscal
year ended December 31, 1996 and of the exercisable and unexercisable options
held by each of the Named Executive Officers at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR-END(#) FISCAL YEAR END($)(2)
NAME(1) EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dr. Gregor A. Campbell... -- $ -- 70,111/69,556 $245,855/332,730
John A. Rollwagen(3)..... -- -- 96,666/0 649,328/0
James F. Marshall(4)..... 10,000 147,000 43,332/43,333 413,449/402,867
John W. LaValle.......... 16,667 157,666 25,000/39,667 0/313,665
Harvey J. Frye........... -- -- 29,334/52,666 263,670/447,955
</TABLE>
_____________
(1) See Footnote 1 to the preceding "Option Grants in Last Fiscal Year" table
concerning the grant of an option to purchase 200,000 shares of Common Stock
to Mr. Wheeler, a director and the President and Chief Operating Officer of
the Company.
(2) These values are calculated using the December 31, 1996 closing price of
Common Stock on Nasdaq of $11.75 per share, less the exercise price of the
options, multiplied by the number of shares to which the options relate.
(3) See Footnote 4 to the preceding "Summary Compensation Table" for information
concerning the acceleration of the vesting of all of Mr. Rollwagen's
outstanding, unvested options.
(4) Mr. Marshall resigned from the Company effective December 31, 1996. All of
Mr. Marshall's unexercised options to purchase Common Stock will terminate
on April 30, 1997.
DIRECTOR COMPENSATION
The Company's directors do not currently receive any cash compensation for
service on the Board of Directors or any committee thereof, but outside
directors may be reimbursed for certain expenses in connection with attendance
at Board and committee meetings and may receive grants of options to purchase
Common Stock upon their initial joining of the Board and any reelection as a
director thereafter.
In April 1996, the Board, in connection with their election to the Board of
Directors, approved the grant to each of Charles Thompson and Dr. Hiroyuki
Mizuno of an option to purchase 12,500 shares of Common Stock at an exercise
price of $14.75 per share, which price represented the fair market value of a
share of Common Stock on the date of grant, which option vests in equal, annual
increments of 25% over the four-year period following their date of grant,
subject to such individual's continued service as a director of the Company.
In addition, in October 1996 the Compensation Committee, following their
reelection as directors, approved the grant to each of the outside directors,
Messrs. Jones, Jacobs and Thompson and Dr. Mizuno, of an option to purchase
2,500 shares of Common Stock at an exercise price of $14.00 per share, which
price represented the fair market value of a share of Common Stock on the date
of grant, which option vests in equal, annual increments of 25% over the four-
year period following their date of grant, subject to such individual's
continued service as a director of the Company.
In June 1995, Mr. Rollwagen agreed to increase his duties as the Chairman
of the Board of the Company to a half-time basis. In consideration therefor,
the Company agreed to pay Mr. Rollwagen an annual salary of $144,000, as well as
certain expenses. In November 1996, Mr. Rollwagen resigned as Chairman of the
Board, but not as a director, upon Trikon's acquisition of Electrotech. In
consideration of the Board of Directors' desire that Mr. Rollwagen remain a
member of the Board following his resignation, the Board approved the extension
of Mr. Rollwagen's annual salary through December 31, 1997, subject to his
continued participation as a director and senior advisor to the Company. The
Board also approved at such time the immediate vesting of all of
<PAGE>
Mr. Rollwagen's outstanding, unvested options to purchase an aggregate of (i)
9,335 shares of Common Stock at an exercise price of $1.05 per share and (ii)
53,333 shares of Common Stock at an exercise price of $6.30 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors of Trikon (the
"Compensation Committee") consisted of Messrs. Rollwagen, Jones and Robelen from
January 1, 1996 until April 24, 1996, at which time Mr. Robelen resigned as a
director of Trikon and a member of the Compensation Committee and Mr. Rollwagen
resigned from the Compensation Committee. Simultaneously with such resignations
from the Compensation Committee, the Board of Directors voted to reduce the
number of members of the Compensation Committee from three to two. On April 24,
1996, Charles Thompson was appointed by the Board to fill the remaining vacancy
on the Compensation Committee. From April 24, 1996 through the fiscal year
ended December 31, 1996, the Compensation Committee consisted of Messrs. Jones
and Thompson, who are the current members of such committee.
Other than Mr. Rollwagen, Trikon's Chairman of the Board until November
1996, none of these individuals was at any time during the fiscal year ended
December 31, 1996 or at any other time an officer or employee of Trikon. No
executive officer of Trikon serves as a member of the Board or the Compensation
Committee of any other entity which has one or more executive officers serving
as a member of Trikon's Board of Directors or Compensation Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16(a)"), requires Trikon's
directors and certain of its officers, and persons who own more than 10% of a
registered class of Trikon's equity securities (collectively, "Insiders"), to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission (the "Commission"). Insiders are required by Commission
regulations to furnish Trikon with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5s were
required for those persons, Trikon believes that its Insiders complied with all
applicable Section 16 filing requirements for 1996, on a timely basis, with the
exception of the following late filings by (i) Brian D. Jacobs, a director of
the Company, who filed a Form 5 in February 1997 to report his indirect
acquisition in November 1996 of a warrant to purchase 24,510 shares of Common
Stock that was acquired by St. Paul Fire and Marine Insurance Company ("St.
Paul"), (ii) St. Paul, which filed a Form 5 in February 1997 to report its
acquisition in November 1996 of a warrant to purchase 24,510 shares of Common
Stock, (iii) David W. Chonette, John L. Walecka and Roger C. Davisson, each of
whom is a general partner of Brentwood V Ventures, L.P., the sole general
partner of Brentwood Associates V, L.P. ("Brentwood"), and each of whom filed a
Form 5 in February 1997 to report each of their indirect disposition of 300,000
shares of Common Stock as a result of Brentwood's distribution (the "Brentwood
Distribution") to its partners of such shares in July 1996, (iv) Brentwood V
Ventures, L.P., which filed a Form 5 in February 1997 to report its indirect
disposition of 300,000 shares of Common Stock pursuant to the Brentwood
Distribution, (v) G. Bradford Jones, a director of the Company, who filed a Form
5 in February 1997 to report his indirect acquisition in November 1996 of a
warrant to purchase 49,020 shares of Common Stock that was acquired by
Brentwood, and (vi) Charles Thompson and Dr. Hiroyuki Mizuno, each of whom is a
director of the Company and each of whom filed an amended Form 3 in February
1997 to reflect each of their acquisition in April 1996 of an option to purchase
12,500 shares of Common Stock, which was subject to shareholder approval of an
amendment to the Option Plan at the Annual Meeting, which approval was obtained.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of March 31, 1997 by (i) each person (or group or
affiliated persons) who is known by Trikon to own beneficially more than 5% of
Trikon's outstanding Common Stock, (ii) each of Trikon's directors, (iii)
Trikon's Chief Executive Officer and each of the other Named Executive Officers
and (iv) Trikon's directors and executive officers as a group. Except as
indicated in the footnotes to this table, the persons named in the table, based
on information provided by such persons to the Company, have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws, where
applicable.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED PERCENT OF CLASS(1)
- ---------------------------------------------- ----------------- -------------------
<S> <C> <C>
Christopher D. Dobson......................... 4,853,334 34.0%
Ringland Way, Newport
Gwent, NP6 2TA, UK
St. Paul Fire & Marine Insurance Company(2)... 1,098,068 7.5
8500 Normandale Lake Boulevard, Suite 1940
Bloomington, MN 55437
Dr. Gregor A. Campbell(3)..................... 378,777 2.6
Nigel Wheeler................................. -- --
John A. Rollwagen(4).......................... 167,618 1.2
James F. Marshall(5).......................... 7,998 *
John W. LaValle(6)............................ 16,667 *
Harvey J. Frye(7)............................. 33,084 *
Brian D. Jacobs(2)............................ 1,098,068 7.4
G. Bradford Jones(8).......................... 589,306 3.9
Charles Thompson(7)........................... 3,125 *
Hiroyouki Mizuno, Ph.D.(7).................... 3,125 *
All current directors and executive officers as a group
(15 persons)(9)............................. 7,200,366 48.8%
</TABLE>
* Less than 1%.
(1) Percent ownership is based on the number of shares of Common Stock
outstanding as of March 31, 1997, which number was 14,368,045 shares,
plus any shares issuable pursuant to options or warrants held by the person
in question which may be exercised within 60 days after March 31, 1997.
(2) Represents 1,027,448 shares held by St. Paul Fire & Marine Insurance Company
("St. Paul"), and also includes 68,954 shares issuable under warrants
held by St. Paul that are exercisable within 60 days of March 31, 1997. Also
includes 1,666 shares issuable under stock options, held by Brian D.
Jacobs, exercisable within 60 days of March 31, 1997. Pursuant to an
agreement between Mr. Jacobs and St. Paul, ownership of the shares
underlying such options will be transferred to St. Paul upon their exercise
by Mr. Jacobs. Mr. Jacobs, a director of Trikon, is an executive vice
president of St. Paul Venture Capital, Inc., an affiliate of St. Paul. Mr.
Jacobs disclaims beneficial ownership of the shares held by St. Paul, except
to the extent of his pecuniary interest therein.
(3) Includes 74,611 shares issuable under stock options exercisable within 60
days of March 31, 1997.
(4) Includes 96,666 shares issuable under stock options exercisable within 60
days of March 31, 1997.
(5) Represents shares issuable under stock options exercisable within 60 days of
March 31, 1997. Mr. Marshall resigned from the Company effective December
31, 1996.
(6) Includes 1,750 shares issuable under stock options exercisable within 60
days of March 31, 1997.
(7) Represents shares issuable under stock options exercisable within 60 days of
March 31, 1997.
<PAGE>
(8) Represents 8,028 shares held by Mr. Jones and 519,547 shares held by
Brentwood V, L.P. ("Brentwood V"). Also includes 1,666 shares issuable under
stock options, held by Mr. Jones, and 60,065 shares issuable under warrants
held by Brentwood V, all of which are exercisable within 60 days of March
31, 1997. Mr. Jones, a director of Trikon, David W. Chonette, Roger S.
Davisson and John L. Walecka are each general partners of Brentwood V
Ventures, L.P., the general partner of Brentwood V. Each of Messrs. Jones,
Chonette, Davisson and Walecka disclaims beneficial ownership of the shares
held by Brentwood V, except to the extent of his pecuniary interest therein.
(9) Includes an aggregate of 390,624 shares held by all current directors and
executive officers that are subject to options and warrants that are
exercisable within 60 days of March 31, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
CVD Partnership
On March 29, 1996, Trikon entered into a number of agreements with PMT CVD
Partners, L.P. (the "CVD Partnership") and the limited partners thereof (the
"Limited Partners"). The CVD Partnership was sponsored by Trikon to fund
research and development costs and expenses relating to CVD technology and
applications using MORI(TM) source technology. An aggregate of $5,350,000 was
invested by the Limited Partners in the CVD Partnership to fund such research
and development efforts, which were performed by Trikon under an agreement with
the CVD Partnership. Trikon has been paid for such services in an amount equal
to its actual direct costs, as defined, plus a stated percentage of such costs.
During the year ended December 31, 1996, the amount of such research and
development payments to Trikon by the CVD Partnership was $2,841,427. Under the
applicable agreement, Trikon is obligated to pay stated royalties to the CVD
Partnership on sales of developed CVD products, and the royalty percentage will
vary based on the geographic location of the sale.
In connection with the Flowfill(TM) CVD Development, the Company announced
that it would henceforth focus all of its CVD resources to further evaluate and
develop products based on the Flowfill(TM) technology. In that regard, Trikon
advised the Limited Partners that it had decided to discontinue the research and
development efforts of the CVD Partnership. One of the Limited Partners has
indicated that it believes such action was inconsistent with the terms of the
research and development agreement entered into between the Company and the CVD
Partnership and that, accordingly, a settlement of any and all claims that the
Limited Partners may have in connection with such discontinuation is
appropriate. The parties have had only preliminary discussions regarding the
resolution of this dispute, though all funding by the CVD Partnership of
MORI(TM) source-based CVD research and development has been discontinued. See
Notes 6 and 12 to Consolidated Financial Statements.
The Limited Partners of the CVD Partnership include SBIC Partners, L.P.
("SBIC Partners") and NorWest Equity Partners, V ("NorWest"). Each of SBIC
Partners and NorWest invested $2,500,000 in the CVD Partnership. As of March
31, 1996, SBIC Partners held 638,604 shares of Common Stock, or approximately
7.4% of the shares of Common Stock outstanding, and NorWest and its affiliates
held 603,898 shares of Common Stock, or approximately 7.0% of the shares of
Common Stock outstanding.
In connection with the formation of the CVD Partnership, Trikon entered
into option agreements (the "Option Agreements") with the Limited Partners.
Pursuant to the Option Agreements, Trikon has a presently exercisable option
(the "Option"), expiring March 29, 2001, to acquire all of the Limited Partners'
interest in the CVD Partnership and thereby effectively acquire full ownership
of the developed technology and terminate further royalty obligations. The
option price formula (the "Option Price") is determined by multiplying each
Limited Partner's invested capital in the CVD Partnership by a 40% compounded
annual rate of return, provided that, regardless of the date of exercise, the
minimum Option Price shall equal at least two times each Limited Partner's
invested capital. The Option Price may be paid in cash, shares of Trikon's
Common Stock (based on 90% of the fair market value of such shares) or any
combination thereof, in the sole discretion of Trikon. Trikon may exercise the
Option at its sole discretion.
<PAGE>
In connection with the formation of the CVD Partnership, the Limited
Partners received warrants (the "Warrants") to purchase an aggregate of 277,662
shares of Trikon's Common Stock at a purchase price of $12.75 per share. The
Warrants become exercisable for a one-year period following exercise of the
Option, but only if the Option is actually exercised by Trikon. In connection
with their investment in the CVD Partnership, each of SBIC Partners and NorWest
received a Warrant to purchase 130,726 shares of Common Stock.
Note Purchase Agreement
On December 16, 1996, the Company entered into a Note Purchase Agreement
(the Note Purchase Agreement) with five investors, including Brentwood
Associates V, L.P. ("Brentwood"), St. Paul Fire & Marine Insurance Company ("St.
Paul"), and SBIC Partners, confirming their equal $1,250,000 commitments for
unsecured subordinated debt in the amount of $6,250,000, which commitments were
given prior to the Acquisition to satisfy a working capital closing condition
thereto. Prior to the Acquisition in November 1996, St. Paul, SBIC Partners and
Brentwood beneficially owned approximately 12.3%, 7.3%, and 6.5% of the Common
Stock outstanding, respectively.
The interest rate on amounts drawn under the Note Purchase Agreement is the
bank's prime rate plus 4%. Interest is only payable quarterly in arrears on
amounts then outstanding. The ability to borrow under the Note Purchase
Agreement expires January 1, 1998 and amounts borrowed under the Note Purchase
Agreement plus accrued but unpaid interest is due on January 1, 2000.
On the date of execution of the Note Purchase Agreement, each investor
received a warrant to acquire up to 49,020 shares of Common Stock with an
exercise price of $12.75. Each such warrant became exercisable with respect to
50% of such shares on the commitment by such investors to provide financing to
the Company under the Note Purchase Agreement. Any advances made under the Note
Purchase Agreement will trigger the exercisability of the remaining shares
covered by such warrants. At December 31, 1996, warrants with respect to an
aggregate of 122,550 shares of Common Stock at an exercise price of $12.75 were
exercisable by such investors. All such warrants expire on December 16, 2001.
--------------------------------
The following companies are mentioned in this Annual Report on Form 10-K:
Alcan-Tech Co., Inc. ("Alcan-Tech"), Anelva Corporation, a subsidiary of NEC
Corporation ("NEC Anelva"), Applied Materials, Inc. ("Applied Materials"), AT&T
Corp. ("AT&T"), Brooks Automation, Inc. ("Brooks Automation"), Canon Sales Co.,
Inc. ("Canon Sales"), Dallas Semiconductor Corporation ("Dallas Semiconductor"),
Fujitsu Ltd. ("Fujitsu"), GEC Plessey ("GEC Plessey"), Hitachi, Ltd.
("Hitachi"), Hyundai Corp. ("Hyundai"), Lam Research Corporation ("Lam
Research"), Leybold AG ("Leybold"), LG International America ("LG Semicon"),
Matsushita ("Matsushita"), Micron Technology ("Micron Technology"), Mitsubishi
("Mitsubishi"), Motorola ("Motorola"), NEC Corporation ("NEC"), Novellus
Systems, Inc. ("Novellus"), OKI Electric Industry Co., Ltd. ("OKI"), Olivetti
(Olivetti), Ricoh ("Ricoh"), Samsung Co. Ltd. ("Samsung"), Sharp Corp.
("Sharp"), Siemens ("Siemens"), Sony ("Sony"), Techlink Semiconductor Co., Ltd.
("Techlink"), TEMIC ("TEMIC"), Texas Instruments Incorporated ("Texas
Instruments"), Tokyo Electron Ltd. ("Tokyo Electron"), Toshiba Corporation
("Toshiba"), Tower Semiconductor ("Tower Semiconductor"), and Watkins-Johnson
Company ("Watkins-Johnson").
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) (1) Index to Financial Statements
PAGE
----
<S> <C>
Report of Independent Auditors F-1
Consolidated Balance Sheets -- December 31, 1996 and 1995 F-2
Consolidated Statements of Operations -- Years ended December 31, 1996 and 1995, and
the ten months ended December 31, 1994 F-4
Consolidated Statements of Shareholders' Equity (Deficit) -- Years ended December 31,
1996 and 1995 and the ten months ended December 31, 1994 F-5
Consolidated Statements of Cash Flows -- Years ended December 31, 1996 and 1995
and the ten months ended December 31, 1994 F-6
Notes to Consolidated Financial Statements F-8
Supplemental Financial Statements of Electrotech Equipments Limited and Electrotech
Limited:
Report of Independent Auditors F-26
Combined Profit and Loss Accounts -- Years ended June 30, 1996, 1995 and 1994 F-27
Combined Statements of Total Recognized Gains and Losses -- Years ended June 30,
1996, 1995 and 1994 F-28
Combined Balance Sheets -- June 30, 1996 and 1995 F-29
Combined Cash Flow Statements -- Years ended June 30, 1996, 1995 and 1994 F-30
Notes to the Combined Financial Statements F-31
(a) (2) Index to Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts F-47
</TABLE>
All other schedules for which provision is made in the applicable accounting
requirements of the Securities and Exchange Commission are not required under
the related instructions or are not applicable and therefore have been omitted.
(a) (3) List of Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1# Share Purchase Agreement dated July 17, 1996 (the "Share Purchase Agreement") among the Company,
Electrotech and the Electrotech Shareholders
2.2# Amendment No. 1 to Share Purchase Agreement dated as of September 9, 1996
2.3# Amendment No. 2 to Share Purchase Agreement dated as of October 16, 1996
2.4# Amendment No. 3 to Share Purchase Agreement dated as of November 13, 1996
3.1 Seventh Restated Articles of Incorporation of the Company
3.2 Certificate of Ownership of Plasma & Materials Technologies, Inc. amending the Company's
Seventh Restated Articles of Incorporation to effect the change of its name to "Trikon
Technologies, Inc."
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.3 Bylaws of the Company, as amended and currently in effect
4.1# Indenture dated as of October 7, 1996 between the Company and U.S. Trust Company of
California, N.A.
4.2* Warrant to Purchase Common Stock issued to St. Paul Fire and Marine Insurance Company on
November 29, 1993
4.3* Warrant to Purchase Common Stock issued to Brentwood Associates V, L.P. on November 29, 1993
4.4+++ Form of Common Stock Purchase Warrant issued to certain of the Limited Partners (as hereinafter defined)
on March 29, 1996.
4.5 Form of Promissory Note issued to each investor under the Note Purchase Agreement (as hereinafter defined)
on December 16, 1996
4.6 Form of Common Stock Purchase Warrant issued to each investor under the Note Purchase
Agreement on December 16, 1996
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
- -----------------------------------
10.1 1991 Stock Option Plan of the Company, as amended to date, including the Company's Share
Option Scheme for its U.K. employees and the related Share Option and Reimbursement Agreement
Between the Company, Electrotech and certain of Electrotech's subsidiaries
10.2# Employment Agreement dated as of November 15, 1996 between the Company and Nigel Wheeler
10.3# Registration Agreement dated as of November 15, 1996 between the Company and Christopher D.
Dobson
OTHER MATERIAL CONTRACTS
- -----------------------------------
10.4***+ International Technology License and Sales Agreement between the Company and Alcan-Tech Co.,
Inc. dated November 15, 1991
10.5***+ International Technology License and Sales Agreement between the Company and Anelva
Corporation, dated February 7, 1992
10.6*+ Technology License and Sales Agreement between the Company and Leybold AG dated December 8,
1992
10.7***+ Technology License and Sales Agreement between the Company and Watkins-Johnson Company dated
December 23, 1993
10.8* Master Lease Agreement between Phoenix Leasing Inc. and the Company, effective December 16,
1993 and ending December 16, 1997
10.9* Royalty Agreement dated October 3, 1986 by and between the Company and Messrs. Conn, Campbell
and Goebel
10.10* Assignment of Royalty Rights dated June 8, 1990 executed by Messrs. Conn and Campbell in favor
of the Company
10.11* Agreement entered into the 25th day of June 1986 by and between the Company and
Leybold-Heraeus GmbH
10.12**+ Distribution Agreement dated July 1, 1995 by and between the Company and Canon Sales
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.13# Registration Agreement dated as of October 7, 1996 among the Company, Salomon Brothers
Inc and Unterberg Harris
10.14++ Agreement of Limited Partnership of PMT CVD Partners, L.P. (the "CVD Partnership") dated as of
March 29, 1996, entered into between CVD, Inc. (the "General Partner") and the limited
partners listed therein (the "Limited Partners")
10.15+++ Form of Option Agreement, dated as of March 29, 1996, entered into between the Company and
certain of the Limited Partners
10.16+++ Form of Partnership Subscription Agreement, dated as of March 29, 1996, entered into among the
Partnership, the General Partner and certain of the Limited Partners
10.17+++ Share Subscription and Shareholders Agreement, dated as of March 29, 1996, entered into
between the General Partner and the Limited Partners, as the shareholders of the General
Partner
10.18+++ Research & Development Agreement, dated as of March 29, 1996, entered into between the Company
and the CVD Partnership
10.19+++ Technology License Agreement, dated as of March 29, 1996, entered into between the Company and
the CVD Partnership
10.20 Credit Agreement dated as of November 15, 1996 between the Company, Electrotech, NationsBank
of Texas, N.A. and Lloyds Bank plc
10.21 Note Purchase and Loan Agreement dated as of December 16, 1996 (the "Note Purchase Agreement")
by and among the Company and the persons listed on Schedule 1 thereto
10.22 Lease dated July 5, 1985 concerning the Company's facilities at Newport, Gwent, United Kingdom,
as assigned to Electrotech Limited effective January 19, 1995
11 Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors
24.## Power of Attorney
27 Financial Data Schedule
</TABLE>
_____________
* Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-4450) on July 11, 1995.
** Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-94450) on July 28, 1995.
*** Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-94450) on August 22, 1995.
+ Certain portions of this exhibit have been omitted from the copies filed as
part of Amendment No. 1 or Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-94450), as the case may be, and
are the subject of an order granting confidential treatment with respect
thereto.
++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 1996 (File No. 0-26482) on May 15, 1996.
+++ Filed as an exhibit to the Company's Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the Quarterly Period Ended March 31, 1996 (File No. 0-
26482) on October 3, 1996.
# Filed as an exhibit to the Company's Current Report on Form 8-K (File No.
0-26482) on November 27, 1996.
## Set forth in the signature page hereto.
<PAGE>
(b) REPORTS ON FORM 8-K
On November 27, 1996, the Company filed a Current Report on Form 8-K (File
No. 0-26482) (the "Form 8-K") under "Item 2. Acquisition or Disposition of
Assets," "Item 7. Financial Statements and Exhibits" and "Item 9. Sales of
Equity Securities Pursuant to Regulation S," in order to report its acquisition
of Electrotech and the issuance of 5,600,000 shares of its Common Stock in
reliance on the exemption provided by Regulation S under the Securities Act to
the shareholders of Electrotech in connection therewith. The financial
statements of Electrotech called for by Rule 3.05 of Regulation S-X under the
Securities Act and the pro forma financial information required by Article 11 of
Regulation S-X pursuant to Item 7 of the Form 8-K were incorporated by reference
from the Company's Proxy Statement dated September 11, 1996, as supplemented on
October 1, 1996.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements 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.
Date: April 7, 1997 Trikon Technologies, Inc.
By: /s/ John W. LaValle
-------------------
John W. LaValle
Senior Vice President, Chief Financial
Officer and Secretary
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dr. Gregor A. Campbell and John W. LaValle, and
each of them his true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Gregor A. Campbell Director and Chief Executive Officer April 7, 1997
- ----------------------------
Dr. Gregor A. Campbell
/s/ Nigel Wheeler Director, President and Chief Operating April 15, 1997
- ---------------------------- Officer
Nigel Wheeler
/s/ John W. LaValle Senior Vice President, Chief Financial April 7, 1997
- ---------------------------- Officer and Secretary (Principal Financial
John W. LaValle Accounting Officer)
/s/ Christopher D. Dobson Director and Chairman of the Board April 15, 1997
- ----------------------------
Christopher D. Dobson
/s/ John A. Rollwagen Director April 14, 1997
- ----------------------------
John A. Rollwagen
/s/ Brian D. Jacobs Director April 14, 1997
- ----------------------------
Brian D. Jacobs
/s/ G. Bradford Jones Director April 9, 1997
- ----------------------------
G. Bradford Jones
/s/ Hiroyuki Mizuno Director April 11, 1997
- ----------------------------
Dr. Hiroyuki Mizuno
/s/ Charles Thompson Director April 7, 1997
- ----------------------------
Charles Thompson
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Trikon Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Trikon
Technologies, Inc. (formerly Plasma & Materials Technologies, Inc.) and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for the
years ended December 31, 1996 and 1995, and the ten month period ended December
31, 1994. Our audits also included the financial statement schedule listed in
the index of Item 14 (a) (2). These financial statements and the schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Trikon
Technologies, Inc. and subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1996 and 1995 and the ten month period ended December 31,
1994, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, California
February 26, 1997, except for Note 12,
the first sentence of Note 1 and
the fourth paragraph of Note 5,
as to which the date is April 11, 1997
F-1
<PAGE>
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
-------- --------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................. $ 20,187,662 $24,770,363
Short-term investments..................................... 1,464,165 13,992,109
Accounts receivable, less allowance of $3,402,000 at
December 31, 1996 and none at December 31, 1995.......... 27,229,806 8,423,272
Inventories................................................ 53,837,131 5,453,835
Prepaid expenses........................................... 4,723,449 223,970
------------ -----------
Total current assets....................................... 107,442,213 52,863,549
Property, equipment and leasehold improvements:
Land....................................................... 2,290,232 --
Machinery and equipment.................................... 16,487,383 5,178,478
Furniture and fixtures..................................... 4,299,382 1,171,833
Leasehold improvements..................................... 10,992,630 1,383,191
------------ -----------
34,069,627 7,733,502
Less accumulated depreciation and amortization............. 5,325,741 3,157,459
------------ -----------
28,743,886 4,576,043
Demonstration inventory....................................... 6,080,431 1,367,233
Other assets.................................................. 429,596 356,171
Intangible assets:
Developed technology....................................... 29,741,777 --
Assembled workforce........................................ 5,564,985 --
Covenant not to compete.................................... 392,592 --
Financing costs............................................ 4,515,426 --
Other intangibles.......................................... 269,299 130,011
------------ -----------
40,484,079 130,011
------------ -----------
Total assets.................................................. $183,180,205 $59,293,007
============ ===========
</TABLE>
F-2
<PAGE>
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1996 1995
------- --------
<S> <C> <C>
Liabilities and shareholders' equity
Current liabilities:
Bank credit line........................................ $ 14,151,000 $ --
Accounts payable........................................ 18,943,275 3,724,984
Accrued expenses........................................ 7,119,815 5,424
Warranty and related expenses........................... 2,552,856 556,497
Accrued salaries and related liabilities................ 1,211,481 415,093
Income tax payable...................................... 3,960,000 --
Convertible notes - interest payable.................... 1,431,099 --
Current portion of long-term debt and capital
lease obligations...................................... 1,557,810 491,561
------------- -----------
Total current liabilities............................... 50,927,336 5,193,559
Long-term debt and capital lease obligations,
less current portion.................................... 983,889 686,230
Deferred income taxes..................................... 9,659,832 --
Income tax payable........................................ 351,000 --
Pension obligation........................................ 3,760,000 --
Convertible subordinated notes............................ 86,250,000 --
Commitments and contingencies
Shareholders' equity:
Preferred Stock undesignated
Authorized shares - 20,000,000
Issued and outstanding - None......................... -- --
Common Stock, no par value:
Authorized shares - 16,666,666
Issued and outstanding - 14,310,410 at December 31,
1996 and 8,659,843 at December 31, 1995............... 131,873,023 60,975,483
Cumulative translation adjustments...................... 1,412,200 --
Accumulated deficit..................................... (102,037,075) (7,562,265)
------------- -----------
Total shareholders' equity................................ 31,248,148 53,413,218
------------- -----------
Total liabilities and shareholders' equity................ $ 183,180,205 $59,293,007
============= ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------------ DECEMBER 31,
1996 1995 1994
-------------- ------------- -----------------
<S> <C> <C> <C>
Revenues:
Product sales....................................... $ 39,385,818 $20,889,713 $ 8,004,646
Contract revenue.................................... 2,841,427 -- --
License revenue..................................... -- 400,000 700,000
------------ ----------- -----------
42,227,245 21,289,713 8,704,646
Costs and expenses:
Costs of goods sold................................. 24,596,756 11,143,716 5,403,614
Research and development............................ 10,145,185 4,566,853 3,583,371
Selling, general and administrative................. 16,591,811 5,943,702 3,382,246
Amortization of intangibles......................... 481,880 -- --
In-process technology............................... 86,028,748 -- --
------------ ----------- -----------
137,844,380 21,654,271 12,369,231
------------------------------------------------
Loss before interest and income tax
provision (benefit)................................. (95,617,135) (364,558) (3,664,585)
Interest:
Interest expense.................................... (1,820,692) (293,603) (146,343)
Interest income..................................... 1,627,907 776,846 125,630
------------ ----------- -----------
Income (loss) before income tax
provision (benefit)................................. (95,809,920) 118,685 (3,685,298)
Income tax provision (benefit)........................ (1,335,110) 800 54,400
------------ ----------- -----------
Net income (loss)..................................... $(94,474,810) $ 117,885 $(3,739,698)
============ =========== ===========
Net income (loss) per share........................... $ (10.03) $ 0.02 $ (0.75)
============ =========== ===========
Number of shares used in per share computation........ 9,420,020 6,593,311 5,013,127
============ =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK (SERIES A AND B) COMMON STOCK
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance at March 1,
1994.................................... 2,823,837 $ 3,035,903 923,990 $ 162,429
Exercise of options..................... -- -- 14,600 15,330
Sale of Common Stock
warrants............................... -- -- -- 1,500
Issue costs of (Series E)
Redeemable Convertible
Preferred Stock........................ -- -- -- --
Net loss................................. -- -- -- --
---------- ----------- ----------- ------------
Balance at December 31, 1994.............. 2,823,837 3,035,903 938,590 179,259
Exercise of options...................... -- -- 48,460 50,883
Issue costs of (Series F)
Redeemable Convertible
Preferred Stock........................ -- -- -- --
Conversion of warrants to
Common Stock........................... -- -- 64,553 --
Common Stock issued during
the Initial Public Offering............ -- -- 3,162,500 40,093,235
Conversion of Convertible
Preferred Stock (Series A and B)
to Common Stock........................ (2,823,837) (3,035,903) 941,279 3,035,903
Conversion of Redeemable
Convertible Preferred
Stock (Series C, D, E and
F) to Common Stock..................... -- -- 3,504,461 17,616,203
Net income............................... -- -- -- --
---------- ----------- ----------- ------------
Balance at December 31,
1995..................................... -- -- 8,659,843 60,975,483
Exercise of options...................... -- -- 45,567 127,540
Issuance of stock for bonuses............ -- -- 5,000 70,000
Issuance of Common Stock for
acquisition of Electrotech............. -- -- 5,600,000 70,700,000
Cumulative translation
adjustments............................ -- -- -- --
Net loss................................. -- -- -- --
---------- ----------- ----------- ------------
Balance at December 31,
1996.................................... -- $ -- 14,310,410 $131,873,023
========== =========== =========== ============
<CAPTION>
CUMULATIVE
ACCUMULATED TRANSLATION
DEFICIT ADJUSTMENTS TOTAL
----------- ----------- -----
<S> <C> <C> <C>
Balance at March 1,
1994.................................... $ (3,844,048) $ -- $ (645,716)
Exercise of options..................... -- -- 15,330
Sale of Common Stock
warrants............................... -- -- 1,500
Issue costs of (Series E)
Redeemable Convertible
Preferred Stock........................ (50,394) -- (50,394)
Net loss................................. (3,739,698) -- (3,739,698)
------------- ----------- ------------
Balance at December 31, 1994.............. (7,634,140) -- (4,418,978)
Exercise of options...................... -- -- 50,883
Issue costs of (Series F)
Redeemable Convertible
Preferred Stock........................ (46,010) -- (46,010)
Conversion of warrants to
Common Stock........................... -- -- --
Common Stock issued during
the Initial Public Offering............ -- -- 40,093,235
Conversion of Convertible
Preferred Stock (Series A and B)
to Common Stock........................ -- -- --
Conversion of Redeemable
Convertible Preferred
Stock (Series C, D, E and
F) to Common Stock..................... -- -- 17,616,203
Net income............................... 117,885 -- 117,885
------------- ----------- ------------
Balance at December 31,
1995..................................... (7,562,265) -- 53,413,218
Exercise of options...................... -- -- 127,540
Issuance of stock for bonuses............ -- -- 70,000
Issuance of Common Stock for
acquisition of Electrotech............. -- -- 70,700,000
Cumulative translation
adjustments............................ -- 1,412,200 1,412,200
Net loss................................. (94,474,810) -- (94,474,810)
------------- ----------- ------------
Balance at December 31,
1996.................................... $(102,037,075) $1,412,200 $ 31,248,148
============= ========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31 ENDED
------------------------------- DECEMBER 31,
1996 1995 1994
-------------- --------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $(94,474,810) $ 117,885 $(3,739,698)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization........................... 1,937,287 1,242,681 773,617
Provision for loss on accounts receivable............... 3,402,000 -- --
Write-off of purchased in-process technology............ 86,028,748 -- --
Amortization of intangibles............................. 481,880 -- --
Deferred income taxes................................... (1,145,248) -- --
Advances to employees/officer/shareholder............... -- 55,145 23,624
Changes in operating assets and liabilities:
Accounts receivable.................................... (5,492,534) (7,334,660) 231,089
Inventories............................................ (10,442,494) 564,534 (3,978,006)
Prepaid expenses....................................... 312,521 (34,356) (154,898)
Accounts payable and other accrued expenses............ 9,949,108 1,087,919 1,003,799
Deferred revenue....................................... -- -- (1,025,000)
------------ ------------ -----------
Net cash used in operating activities...................... (9,443,542) (4,300,852) (6,865,473)
INVESTING ACTIVITIES
Purchases of property, equipment and
leasehold improvements.................................... (10,032,037) (1,099,100) (1,644,143)
Proceeds from sales of short-term investments.............. 33,426,654 3,000,000 --
Purchases of short-term investments........................ (20,898,710) (16,992,109) --
Purchase of Electrotech, net of cash
acquired of $4,444,000................................... (76,831,575) -- --
Other assets............................................... (185,713) (329,627) 17,749
------------ ------------ -----------
Net cash used in investing activities...................... (74,521,381) (15,420,836) (1,626,394)
FINANCING ACTIVITIES
Net borrowings (repayments) under bank
credit lines............................................. 14,151,000 (2,000,000) 2,000,000
Repayment of debt acquired in acquisition
of Electrotech........................................... (17,631,000) -- --
Proceeds from issuance of convertible
subordinated notes....................................... 86,250,000 -- --
Financing costs........................................... (4,515,426) -- --
Proceeds from sale of Preferred Stock
(net of issuance costs).................................. -- 3,365,193 5,449,606
Proceeds from Initial Public Offering
(Common Stock)........................................... -- 40,093,235 --
Proceeds from sale of Common Stock and
Warrants................................................. 197,540 50,883 16,830
Payments on capital lease obligations...................... (482,092) (581,013) (371,221)
------------ ------------ -----------
Net cash provided by financing activities.................. 77,970,022 40,928,298 7,095,215
Effect of exchange rate changes on cash.................... 1,412,200 -- --
------------ ------------ -----------
Net increase (decrease) in cash and
cash equivalents......................................... (4,582,701) 21,206,610 (1,396,652)
Cash and cash equivalents at beginning of year............ 24,770,363 3,563,753 4,960,405
------------ ------------ -----------
Cash and cash equivalents at end of year................... $ 20,187,662 $ 24,770,363 $ 3,563,753
============ ============ ===========
</TABLE>
F-6
<PAGE>
TRIKON TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31 ENDED
--------------------------- DECEMBER 31,
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL STATEMENT OF CASH FLOWS
INFORMATION:
Cash paid during the period for:
Interest.......................................... $ 496,000 $ 289,796 $ 134,230
Taxes (primarily foreign in 1996 and 1994)........ 221,000 800 50,000
Non-cash investing and financing
activities:
Equipment acquired under capital
lease........................................... $ -- $ 527,981 $1,216,653
Conversion of Series (C, D,
E and F) Preferred Stock to
Common Stock.................................... -- 17,616,203 --
--
Acquisition of Electrotech:
Fair market value of assets acquired.............. $206,936,075
Fair market value of liabilities assumed.......... (53,259,080)
Issuance of Common Stock.......................... (70,700,000)
Cash acquired..................................... (4,444,000)
Acquisition costs of $7,976,000, less
amounts paid through December 31, 1996........... (1,701,420)
------------
Cash paid to acquire Electrotech.................. $ 76,831,575
============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-7
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Background
On March 31, 1997, Plasma & Materials Technologies, Inc. changed its name
to Trikon Technologies, Inc. Trikon Technologies, Inc. and its subsidiaries (the
Company) designs, manufactures and markets advanced etch, physical vapor
deposition and chemical vapor deposition products and systems for the world-wide
semiconductor manufacturer market.
The consolidated financial statements of the Company include the accounts
of its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Use of Estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents represent short-term investments that are highly liquid,
are of limited credit risk and have original maturities of three months or less
when purchased.
Short-Term Investments
The Company accounts for investments in debt and equity securities in
accordance with Statement of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt and Equity Securities." SFAS 115
requires investment securities to be classified as trading, available for sale,
or held to maturity. Management determines the appropriate classification of
its investments at the time of purchase and reevaluates the classification at
each balance sheet date. As of December 31, 1996 and 1995, all investments in
the short-term investment portfolio are classified as available for sale.
Investments classified as available for sale are required to be recorded at fair
value and any temporary difference between an investment's cost and its fair
value is recorded as a separate component of shareholders' equity.
Major Customers and Concentration of Credit Risk
Accounts receivable consists primarily of amounts due from original
equipment manufacturers, end use customers, and distributors within the
Company's industry. At December 31, 1996, three customers represented 19%, 12%
and 11%, respectively, of the Company's total accounts receivable. At December
31, 1995, five customers represented 26%, 25%, 15%, 14% and 12%, respectively,
of the Company's total accounts receivable.
The Company performs credit evaluations and analysis of amounts due from
its customers; however, the Company does not require collateral. An estimate of
uncollectible accounts has been provided for in the financial statements.
F-8
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Total revenue includes amounts from certain individual customers that
exceed 10% of total revenue. Revenue from two customers represented 19% and 12%
each of total revenue for the year ended December 31, 1996, revenue from five
customers represented 19%, 15%, 12%, 11% and 11% each of total revenue for the
year ended December 31, 1995, and revenue from six customers represented 19%,
17%, 17%, 15%, 15% and 12% each of total revenue for the ten months ended
December 31, 1994.
The Company's revenue was generated from sales to the following geographic
areas.:
<TABLE>
<CAPTION>
TEN MONTHS ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31,
1996 1995 1994
------------ ------------ ----------------
<S> <C> <C> <C>
United States.................... $ 9,854,278 $11,276,066 $2,929,896
Europe........................... 8,654,663 241,041 120,075
Asia Pacific (primarily Japan
and Korea)..................... 23,718,304 9,772,606 5,654,675
----------- ----------- ----------
Total............................ $42,227,245 $21,289,713 $8,704,646
=========== =========== ==========
</TABLE>
Inventory
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Components......... $17,754,456 $3,774,458
Work-in-process.... 32,993,125 1,611,382
Finished goods..... 3,089,550 67,995
----------- ----------
$53,837,131 $5,453,835
=========== ==========
</TABLE>
For certain of the Company's products, the Company relies on either a sole
supplier or a limited group of suppliers. The manufacture of certain of the
Company's products is a complex process and can require long lead times. Any
inability to obtain adequate deliveries or any other circumstance that would
require the Company to seek alternate sources of supply or to manufacture such
components internally could delay the Company's ability to ship its systems and
could have a materially adverse effect on the Company.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets (5 years for machinery and equipment
and furniture and fixtures) or the lease term, which ever is shorter. Owned
buildings are depreciated using the straight-line method over 50 years.
Demonstration Inventory
Demonstration or evaluation units represent completed systems located at
certain strategic customer sites or at the Company's facilities. The Company
provides these demonstration systems at no charge for a specified evaluation
period. All operating costs incurred during the evaluation period are paid by
the customer. At the conclusion of the agreed upon evaluation period, provided
that the equipment performs to required specifications, management expects that
the customer, while not obligated to do so, will purchase
F-9
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
the system. Demonstration inventory is stated at the lower of cost or estimated
net realizable value and is depreciated on a straight line method over four
years, if the product is not sold after one year.
Intangible Assets
Intangible assets arose primarily from the allocation of the purchase price
of the acquisition of Electrotech Equipments Limited and Electrotech Limited,
discussed in Note 2, to their estimated fair value. Intangible assets are
amortized on a straight-line basis over ten years for developed technology,
eight years for assembled workforce and three years for the covenant not to
compete.
Financing cost consists of costs incurred primarily related to the issuance
of the convertible subordinate notes and in obtaining the working capital
facility. Financing costs are amortized over the term of the related credit
facility using the effective interest method.
Other intangible assets consist primarily of patents and are amortized on a
straight line basis over 5 years.
The Company periodically reviews intangible assets for impairment in value.
Intangible assets are reflected net of accumulated amortization of $710,572 and
$38,967 at December 31, 1996 and 1995, respectively.
Accounting for Income Taxes
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting basis and tax basis of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Revenue Recognition
Product sales consist primarily of system, component and spare parts sales.
Revenues related to system, component and spare parts sales are recognized upon
shipment and transfer of title or upon customer acceptance and transfer of title
in the case of demonstration inventory unit sales. Estimated costs to be
incurred by the Company related to product installation (which are not
significant) and warranty fulfillment are recorded at the date of shipment.
Contract revenue represents revenue earned under a contract to perform
research and development for a limited partnership in which the Company is the
general partner.
License fee revenue is derived from the grant of the non-exclusive rights
to use, sell and manufacture certain technologies developed by the Company.
Research and Development Costs
Research and development costs are expensed as incurred and include the
cost incurred under the contract to perform research and development for a
limited partnership.
F-10
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Advertising Expense
The cost of advertising is expensed as incurred. The Company incurred
$214,243, $44,306, and $99,509 of advertising costs in the year ended December
31, 1996 and 1995, and the ten months ended December 31, 1994, respectively.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with
Accounting Principles Board Opinion (APB) No. 25 "Accounting for Stock Issued
to Employees" which generally measures compensation expense based on the excess
of the quoted market price over the option price on the measurement date. In
October 1995, Statement of Financial Accounting Standard (SFAS) No. 123
"Accounting for Stock Based Compensation" was issued. SFAS No. 123 provides
alternative accounting treatment to APB No. 25 with respect to stock-based
compensation and requires certain additional disclosures, including disclosures
if the Company elects not to adopt the accounting requirements of SFAS No. 123.
The Company has adopted the disclosure requirements of SFAS No. 123 and has
elected to continue to measure compensation costs following present accounting
rules under APB No. 25, and, accordingly, recognizes no compensation for the
stock option grants since the exercise price of stock options granted equals the
quoted market price of the underlying stock at the date of grant.
Net Income (Loss) Per Share
Net income (loss) per share is computed using the weighted average number
of shares of Common Stock outstanding. Common equivalent shares from stock
options and warrants (using the treasury stock method) have been included in the
computation when dilutive. Through August 29, 1995 (date of the Company's
initial public offering) common equivalent shares from the redeemable
convertible Preferred Stock and convertible Preferred Stock which converted into
Common Stock in connection with the Company's Initial Public Offering are
included as if converted at the original date of issuance, even though inclusion
is anti-dilutive. Pursuant to the Securities and Exchange Commission (SEC) Staff
Accounting Bulletins, all common and common equivalent shares issued by the
Company at an exercise price below the Initial Public Offering price of $14.00
per share during the twelve-month period prior to the offering (cheap stock)
have been included in the calculation as if they were outstanding (using the
treasury stock method at the Initial Public Offering price and the if-converted
method for redeemable convertible Preferred Stock and convertible Preferred
Stock) for the ten months ended December 31, 1994 and through the date of the
Initial Public Offering for the year ended December 31, 1995. The weighted
average number of shares used in the computation for the year ended December 31,
1996 excludes common equivalent shares from options and warrants because they
would be antidilutive.
Historical net loss per share is computed as described above, except that
it excludes the convertible preferred stock because it is anti-dilutive for
periods which incurred a net loss. Historical net loss per share is as follows:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
Net income (loss) per share $ 0.02 $ (1.89)
Shares used in computing net loss per
share 6,593,311 1,981,848
</TABLE>
F-11
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Foreign Currency Translation
The functional currency of most of the Company's foreign subsidiaries is
the local currency. The Company translates the assets and liabilities of its
foreign subsidiaries at the rate of exchange in effect at the balance sheet date
and translates the income statement items at the average exchange rate for the
year. Translation adjustments are recorded as a component of shareholders'
equity in the consolidated balance sheet. Transaction gains and losses other
than those that relate to transactions deemed to be of a long-term nature are
recognized in earnings. Exchange losses amounted to $951,000, in the year ended
December 31, 1996 and none in the year ended December 31, 1995 and the ten
months ended December 31, 1994.
Reclassifications
Certain amounts in 1995 and 1994 have been reclassified in the Consolidated
Financial Statements to be consistent with the 1996 presentation.
2. BUSINESS ACQUISITION
On November 15, 1996, the Company acquired all the issued and outstanding
shares of Electrotech Limited and Electrotech Equipments Limited (Electrotech).
Electrotech develops, manufactures, markets and services semiconductor
fabrication equipment for the worldwide semiconductor manufacturing industry.
The aggregate purchase price paid by the Company, excluding approximately
$7,976,000 in acquisition costs, was $145,700,000 consisting of $75,000,000 paid
in cash and the issuance of 5,600,000 shares of Common Stock of the Company with
an estimated fair market value of $70,700,000, based on the quoted market price
the last day prior to the public announcement of the parties agreement to the
acquisition terms.
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 acquisition. The purchase price, plus costs directly
attributable to the completion of the acquisition, have been allocated to the
assets and liabilities acquired. Approximately $86,028,748 of the total
purchase price represented the value of the in-process research and development
that had not yet reached technological feasibility and was charged to the
Company's operations. The fair value of the in-process research and development
was estimated by an independent appraiser. Purchased in-process technology was
analyzed through interviews and analysis of data concerning each of
Electrotech's projects in development (i.e. Forcefill(TM) and Flowfill(TM)).
Expected future cash flows of the developmental projects were discounted to
present value taking into account risks associated with the inherent
difficulties and uncertainties in completing the projects, and thereby achieving
technological feasibility, and the risks related to potential changes in future
target markets. The Company's expected post-acquisition business strategies
were considered as they relate to Electrotech's current products and projects in
development. Considerable efforts are being applied by Electrotech to its
Forcefill(TM) and Flowfill(TM) projects to attain product functionality and
reliability levels acceptable to their intended target market.
The developed technology was appraised using the same methodology used for
the valuation of in-process technology for products which had reached
technological feasibility and were generating revenues. The risks related to
the characteristics and application of each product, existing and future
markets, and assessments of the stage in the product's life cycle were
considered. The assembled workforce value was determined based on an appraisal
utilizing a cost valuation methodology. To arrive at the estimate of the fair
value of the assembled workforce, the replacement cost was estimated based on
the costs to recruit and interview candidates, and to train new employees in
their positions. Search, interview, and training costs per employee were
totalled to arrive at an indication of total acquisition costs per employee, and
then multiplied by the number of employees being acquired to arrive at a total
cost.
F-12
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
The Company's consolidated results of operations include the operating
results of Electrotech from the acquisition date. The following unaudited pro
forma information combines the consolidated results of operations of the Company
and Electrotech as if the acquisition occurred on January 1, 1996 and 1995,
respectively. The pro forma information is presented for illustrative purposes
only, and is not necessarily indicative of what the actual results of operations
would have been during such periods or representative of future operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
(UNAUDITED)
Total revenues......... $109,280,000 $75,673,000
Gross profit........... 57,302,000 38,466,000
Net loss............... (10,306,000) (1,045,000)
Net loss per share..... (0.72) (0.09)
</TABLE>
The pro forma information presented above does not reflect the write-off of
in-process research and development costs of $86,028,748 nor any portion of the
write-off of the write-up of inventory which at November 15, 1996 totalled $10.6
million and which will be charged to cost of goods sold as the acquired
inventory is sold. The in-process research and development charge and an
allocated portion of the inventory charge ($3,008,270) were included in the
actual operating results for the year ended December 31, 1996.
F-13
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
3. FINANCIAL INFORMATION RELATING TO FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31 ENDED
----------------------------- DECEMBER 31,
1996 1995 1994
------------ --------- -------------
<S> <C> <C> <C>
Sales
Unaffiliated Customers
North America $ 33,446,245 $21,289,713 $ 8,704,646
Europe 8,781,000 -- --
Inter-geographic
North America -- -- --
Europe 174,000 -- --
Eliminations (174,000) -- --
------------ ----------- -----------
$ 42,227,245 $21,289,713 $ 8,704,646
============ =========== ===========
Operating loss
North America $ (5,582,142) $ (364,558) $(3,664,585)
Europe/(1)/ (90,034,993) -- --
------------ ----------- -----------
$(95,617,135) $ (364,558) $(3,664,585)
============ =========== ===========
Identifiable assets:
United States $ 60,567,887 $59,293,007 $16,630,924
Europe 122,612,318 -- --
------------ ----------- -----------
$183,180,205 $59,293,007 $16,630,924
============ =========== ===========
Export Sales from the United States $ 23,585,431 $10,013,647 $ 5,774,750
============ =========== ===========
</TABLE>
(1) Includes a $86,028,748 charge for in-process technology, and a $3,008,270
charge to cost of goods sold, representing a portion of the purchase price
of Electrotech allocated to inventory, which was sold subsequent to the
acquisition date.
4. FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, cash
equivalents, short-term investments, accounts receivable, accounts payable,
capital lease obligations, borrowings under the revolving line of credit and the
convertible subordinated notes. The carrying amounts at December 31, 1996 of
these financial instruments approximates their fair value, except for the
convertible subordinated notes for which the fair market value was approximately
$84,250,000, based on quoted market rates.
F-14
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Information about contractual maturities of short-term investments at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
DUE AFTER ONE
DUE IN ONE YEAR YEAR THROUGH DUE AFTER THREE
OR LESS THREE YEARS YEARS
--------------- ------------- ---------------
<S> <C> <C> <C>
U.S. Treasury Securities and obligations
of U.S. Government Agencies.......... $ -- $749,704 $ --
U.S. Corporate Securities............... -- -- 714,461
----------- -------- --------
$ -- $749,704 $714,461
=========== ======== ========
</TABLE>
At December 31, 1996 and 1995, $248,933 and $12,006,158, respectively, of
investments in debt securities are included in cash and cash equivalents on the
accompanying balance sheet because their original maturity date is three months
or less when purchased.
Gross unrealized holding gains and losses on sales of short-term
investments were not significant as of or for the year ended December 31, 1996
or 1995. There were no realized gains and losses on sales of short-term
investments during the year ended December 31, 1996 or 1995. The Company
manages its cash equivalents and short-term investments as a single portfolio of
highly marketable securities, all of which are intended to be available to meet
the Company's current cash requirements.
The Company invests in a variety of financial instruments such as
commercial paper, commercial bonds, and municipal bonds. The Company, by
policy, limits the amount of credit exposure with any one financial institution
or commercial issuer.
5. REVOLVING LINES OF CREDIT AND LONG-TERM DEBT
On November 14, 1996 the Company entered into a senior secured credit
agreement with certain banks in the United States and United Kingdom (the
"Working Capital Facility") that permits the Company and its U.K. subsidiary to
borrow up to an aggregate of $35 million, subject to certain borrowing base
limitations based on eligible accounts receivable. The Working Capital Facility
consists of a "U.S. Facility" and a "U.K. Facility". Borrowings made based on
the borrowing base in the United States are made under the U.S. Facility and
borrowings made based on the borrowing base of the U.K. subsidiary are made
under the U.K. Facility. The total amount available for borrowing under the
Working Capital Facility at December 31, 1996 was $17.1 million of which $14.2
million was outstanding. The Working Capital Facility is secured by
substantially all the assets of the Company and expires November 15, 1999.
Borrowings under the U.S. Facility carry interest at the banks reference
rate plus the applicable margin or the federal funds rate plus 0.5% and the
applicable margin and borrowings under the U.K. Facility carry interest at the
LIBOR rate plus the applicable margin. Interest is payable on a quarterly
basis. The applicable margin is determined by the Company's debt to cash flow
ratio. The applicable margin for borrowings under the U.S. Facility and the
U.K. Facility was 0.5% and 2.5%, respectively, at December 31, 1996. The
weighted average interest rate on all borrowings outstanding at December 31,
1996 under the Working Capital Facility was 9.93%. The Company is charged a
commitment fee of 0.05% on the average unused portion of the U.S. and U.K.
facilities.
The Working Capital Facility contains sub-facilities which provide for the
issuance of letters of credit up to $4,000,000 ($3,000,000 in the U.K. and
$1,000,000 in the U.S.) and an overdraft line of credit up to 2.5 million Pounds
Sterling ($4.3 million at December 31, 1996). Amounts outstanding under these
sub-
F-15
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
facilities reduce the amounts available under the U.K. and U.S. Facilities.
No amounts were outstanding under these subfacilities as of December 31, 1996.
The Working Capital Facility places certain restrictions on the Company,
which among other things, prohibits the Company from paying cash dividends,
limits the amount of capital expenditures and requires the Company to comply
with certain financial ratios and covenants. At December 31, 1996 and March 31,
1997 the Company was not in compliance with certain financial ratio requirements
which were waived by its lenders as of December 31, 1996 and March 31, 1997.
The Company is negotiating with its lenders to make various amendments to the
Working Capital Facility revising the covenants for the duration of the Working
Capital Facility such that the Company will be able to remain in compliance with
such amended covenants during the coming year. The Company anticipates the
amended Working Capital facility will contain terms similar to those currently
in place. Although the Company believes it will be successful in amending the
Working Capital Facility, there can be no assurance that such amendments will be
received.
The Company's United Kingdom subsidiary has a term-loan from Lloyd's Bank
PLC which is secured by property in Bristol, United Kingdom. Interest is
payable monthly for borrowings at a fixed rate of 10.0025% per annum. At
December 31, 1996, the amount outstanding was $1,026,000 which is repayable by
three equal semi-annual installments ending May 23, 1998. This agreement places
no restrictions on the Company and does not require the Company to comply with
certain financial ratios or covenants.
In connection with the acquisition of Electrotech, the Company issued
$86,250,000 of Convertible Subordinated Notes (the Convertible Notes). The
Convertible Notes bear interest at 7 1/8% which is payable in semi-annual
installments beginning on April 15, 1997. The Convertible Notes mature on
October 15, 2001, and are unsecured obligations of the Company and are
subordinated in right of payment to all existing and future debt (as defined) of
the Company, including without limitation, all debt arising under the Working
Capital Facility. The Notes are convertible, at the option of the holder, into
shares of Common Stock at a conversion price of $15.635 per share, subject to
adjustment in certain events.
The Convertible Notes contain certain provisions which provide that, upon
the occurrence of an "Event of Default", as defined, could cause the Convertible
Notes to become due and payable immediately. Such an Event of Default would
occur if, among other things, the Company were to default on the working Capital
Facility or any other secured indebtedness, as defined, caused by the failure to
pay principal and interest payments when due or resulting in the acceleration of
such indebtedness prior to its express maturity in excess of $10.0 million. The
Convertible Notes and the Working Capital Facility have been classified as long-
term under the presumption that the Working Capital Facility will be amended
such that the Company will be able to comply with the applicable financial
covenants over the coming year.
On November 14, 1996, the Company received a commitment of terms from five
investors for an unsecured subordinated debt commitment. On December 16, 1996,
the Company entered into a Note Purchase Agreement (the Note Purchase Agreement)
with the five investors to provide a commitment for unsecured subordinated debt
in the amount of $6,250,000. The interest rate on amounts drawn under the Note
Purchase Agreement is the bank's prime rate plus 4%. Interest is payable
quarterly. The ability to borrow under the Note Purchase Agreement expires
January 1, 1998 and amounts borrowed under the Note Purchase Agreement plus
accrued but unpaid interest is due on January 1, 2000.
Amounts drawn under the Note Purchase Agreement are unsecured obligation of
the Company. No amounts were outstanding under the Note Purchase Agreement as
of December 31, 1996. The Note Purchase Agreement contains covenants that are
comparable to those contained in the Convertible Notes.
F-16
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
The principal amount of long-term debt maturing in each of the five years
following 1996 is as follows:
<TABLE>
<S> <C>
1997 $ 684,000
1998 342,000
1999 --
2000 --
2001 86,250,000
</TABLE>
6. PMT CVD PARTNERS, L.P. AND OTHER JOINT DEVELOPMENT AGREEMENTS
In August 1994, the Company entered into an original equipment
manufacturing and joint development agreement with a customer. This arrangement
ended in March 1995. Under this agreement, the Company incurred costs on behalf
of the customer and received reimbursement of approximately $350,000 in 1995 and
$1,000,000 in 1994. Such costs were primarily for the customer's share of
supplies and prototype materials used under the agreement. The reimbursement of
costs incurred were netted against the related research and development expense.
Any technology developed under this agreement is jointly owned by the Company
and the customer.
On March 29, 1996, the Company entered into a number of agreements with PMT
CVD Partners, L.P. (the Limited Partnership) and the limited partners thereof
(the Limited Partners). The Limited Partnership was formed to fund research and
development costs and expenses relating to chemical vapor deposition (CVD)
technology and applications. An aggregate of approximately $5,350,000 was
invested in the Limited Partnership to fund such research and development
efforts. The Limited Partnership owns the rights to the technology developed.
The Company has entered into a license agreement with the Limited Partnership
whereby the Company is obligated to pay stated royalties to the Limited
Partnership, ranging from 2% to 5% of sales of related products depending on the
geographic location of the sale. There is no provision for royalty payments to
the Limited Partners in fiscal 1996. The Company has been granted an exclusive
option to purchase all of the Limited Partners' interest in the Limited
Partnership, based on an established purchase price formula which terminates the
Company's obligation under the license agreement, the Company may exercise such
option at its sole discretion and is under no obligation to repay the funds
received for research and development. (See Note 12 regarding the recent
termination of the Company's development efforts under the Limited Partnership).
The Company has agreed to provide certain personnel to the Limited
Partnership to perform such research and development activities. The Company
will be paid for such services at an amount equal to its actual direct costs, as
defined, plus a stated percentage of such costs. During the year ended December
31, 1996, the amount of research and development costs incurred, including the
stated percentage of 250% of direct costs, with respect to CVD technology and
applications was $2,841,427 and is reflected in contract revenue in the
accompanying statement of operations. The actual total cost incurred under the
arrangement approximated the amount of revenues recognized and was recorded in
research and development expense.
F-17
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
7. INCOME TAXES
The income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal................ $ 7,086 $ -- $ --
State.................. 33,584 800 800
Foreign................ (230,532) -- 53,600
----------- ----- -------
(189,862) 800 54,400
Deferred:
Foreign................ (1,145,248) -- --
----------- ----- -------
(1,145,248) 800 --
----------- ----- -------
$(1,335,110) $ 800 $54,400
=========== ===== =======
</TABLE>
The loss before income taxes of the Company's foreign subsidiaries for the
year ended December 31, 1996, excluding the $86,028,748 charge for in-process
technology and the $3,008,270 charge to cost of goods sold, related to the
allocation of the purchase price in the acquisition of Electrotech, was
approximately ($1,350,000). Income or loss before income taxes of the Company's
foreign subsidiaries was not significant in 1995 and prior years.
A reconciliation of the statutory federal income tax rate to the effective
tax rate, as a percentage of income(loss) before tax, is as follows:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED DECEMBER 31 ENDED
-------------------------- DECEMBER 31,
1996 1995 1994
---------- ---------- -------------
<S> <C> <C> <C>
Statutory federal income tax rate -
provision (benefit).................................. (35)% 34% (34)%
Nondeductible in-process technology
charge............................................... 31 -- --
Change in valuation reserve
attributable to utilization of
operating loss carryforwards......................... -- (34)
Change in valuation reserve due to net
operating loss carryforwards not
utilized............................................. 3 -- 34
Foreign income taxes.................................. -- -- 2
--- --- ---
(1)% -- % 2%
=== === ===
</TABLE>
F-18
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Significant components of the Company's deferred tax liabilities and assets
are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Domestic:
State taxes not benefited............................. $ 294,110 $ 132,081
Foreign:
Basis difference from acquisition of
Electrotech......................................... 9,691,832 --
Tax depreciation in excess of book.................... 1,360,000 --
----------- ----------
11,345,942 132,081
Deferred tax assets:
Domestic:
Allowances not currently deductible for
tax purposes........................................ 1,674,353 102,435
Accrued expenses not currently deductible
for tax purposes.................................... 460,340 321,542
Book depreciation in excess of tax depreciation....... 290,897 73,890
Net operating loss carryforwards...................... 2,374,831 2,075,098
Foreign tax credit carryforwards...................... 284,872 273,277
Research and development and other credits............ 1,462,578 1,123,346
Foreign:
Allowances and accruals not currently deductible
for tax purposes.................................... 1,392,000 --
----------- ----------
7,939,871 3,969,588
Less valuation reserve on domestic deferred
tax assets.......................................... 6,253,761 3,837,507
----------- ----------
Net deferred tax assets................................. 1,686,110 132,081
----------- ----------
Net deferred tax liabilities............................ $ 9,659,832 $ --
=========== ==========
</TABLE>
The basis difference from the acquisition of Electrotech arises from the
purchase price allocation to certain assets with no corresponding change in the
tax basis of such assets. At the acquisition date the Company recorded a
deferred tax liability of $10,828,000 for this basis difference, of which
approximately $1,136,000 was reflected as a portion of the deferred tax benefit
recorded in the statement of operations for the year ended December 31, 1996.
At December 31, 1996, the Company had research and development credit
carryforwards of approximately $977,000 and $486,000 for federal and state tax
purposes, respectively, that expire at various dates through 2011. At December
31, 1996 the Company also had net operating loss carryforwards for federal and
state income tax purposes of approximately $6,109,000 and $3,203,000,
respectively, which expire at various dates through 2011. The Company's
utilization of its net operating loss and credit carryforwards depends upon
future income and is subject to an annual limitation due to the ownership change
limitations provided by the Internal Revenue Code of 1986 and similar state
provisions.
F-19
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
8. COMMITMENTS AND CONTINGENCIES
LEASES:
The Company leases certain equipment under capital leases. The Company also
leases its offices, manufacturing facilities and certain equipment under
noncancelable operating lease agreements. Certain leases are subject to
escalation clauses based on applicable inflation indexes.
Cost of equipment under capital leases included in property and equipment
at December 31, 1996 and 1995 was $3,135,000 and $2,832,531, and accumulated
amortization was $948,688 and $946,298, respectively. Amortization expense
under these leases is included in depreciation expense.
Future minimum lease payments under capital leases and noncancelable
operating leases with initial terms of one year or more consisted of the
following at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
----------- ------------
<S> <C> <C>
1997............................. $ 948,686 $1,988,338
1998............................. 603,456 1,687,414
1999............................. 133,875 1,227,910
2000............................. -- 1,142,170
2001............................. -- 1,142,170
---------- ----------
1,686,017 $7,188,002
==========
Less amounts representing imputed interest..... 170,318
----------
Present value of net minimum lease payments,
including classified as current.............. $1,515,699
==========
</TABLE>
Rental expense for operating leases was $689,228, $338,834 and $288,524 for
the year ended December 31, 1996 and 1995 and the ten months ended December 31,
1994, respectively.
CONTINGENCIES:
The Company is opposing an issued German patent held by a competitor which
relates to a process similar to the Company's Forcefill product. The Company's
management and its advisors believe this patent is too broadly worded and as
presently worded there is some possibility that an infringement by the Company
might be alleged. The Company can not predict the outcome of this matter and
there can be no assurance as to the possible effects of this matter on the
financial statements of the Company.
9. PREFERRED STOCK AND WARRANTS
The Board of Directors has the authority to issue up to 20,000,000 shares
of Preferred Stock in one or more series with rights, preferences, privileges
and restrictions to be determined at the Board's discretion.
On August 24, 1995, the Company converted 2,823,837 shares of Preferred
Stock (Series A and B) into 941,279 shares of Common Stock and 10,513,382 shares
of Preferred Stock (Series C, D, E and F) into 3,504,461 shares of Common Stock
in connection with its Initial Public Offering.
In November 1991 and July 1992, the Company issued warrants to purchase an
aggregate of 21,940 shares of Common Stock (the 1992 Common Stock Warrants) at
an exercise price of $3.90 per share exercisable at any time through the date
which is five years following the closing of an initial public offering of the
Company's Common Stock. In September 1995, the warrants were exercised and the
F-20
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
Company issued 17,470 shares of Common Stock, and the remaining warrants were
canceled in consideration of the exercise. In connection with the Company's
guaranty for its eligible inventory line of credit in June 1994, the Company
issued warrants to purchase an aggregate of 50,000 shares of Common Stock at an
exercise price of $1.05 per share exercisable at any time through June 5, 2000
(the 1994 Common Stock Warrants). In August 1995, the warrants were exercised
and the Company issued 47,083 shares of Common Stock, and the remaining warrants
were canceled in consideration of the exercise. In connection with the issuance
of the Series D Preferred Stock in November 1993, the Company issued warrants to
purchase an aggregate of 80,000 shares of Common Stock at an exercise price of
$4.50 per share exercisable at any time through December 31, 1998 (the 1993
Warrants). The fair market value of these warrants was deemed to be immaterial
on the date of issuance.
In connection with the formation of the Limited Partnership discussed in
Note 6, the Limited Partners received warrants (the CVD Warrants) to purchase an
aggregate of 277,662 shares of the Company's Common Stock at a purchase price of
$12.75 per share. The CVD Warrants become exercisable for a one-year period
following exercise of the option to purchase all of the Limited Partners'
interest in the Partnership (the Option), but only if the Option is actually
exercised by the Company. No value has been assigned to the CVD Warrants
because they only become exercisable upon the exercise by the Company of the
Option. Upon the exercise of the Option, the CVD Warrants would be valued and
recorded as part of the purchase price of the technology.
On the date of execution of the Note Purchase Agreement discussed in Note
5, each investor received a warrant (the Note Purchase Agreement Warrants) to
acquire up to 49,020 shares of Common Stock with an exercise price of $12.75.
Each such warrant became exercisable with respect to 50% of such shares on the
commitment by such investors to provide financing to the Company under the Note
Purchase Agreement. Any advances made under the Note Purchase Agreement will
trigger the exercisability of the remaining shares covered by such warrants. At
December 31, 1996, warrants with respect to an aggregate of 122,550 shares of
Common Stock at an exercise price of $12.75 were exercisable by such investors.
All such warrants expire on December 16, 2001. The Company has not assigned any
value to the 50% of the Warrants that are currently exercisable, as such amounts
are not significant to the financial statements.
At December 31, 1996, the following warrants were outstanding:
<TABLE>
<CAPTION>
Number of Shares
Warrant Shares Exercisable Exercise Price Expiration Date
- -------------------- ---------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
1993 Common Warrants 80,000 80,000 $ 4.50 December 31, 1998
CVD Warrants 277,662 -- $12.75 One year from date
they become exercisable
Note Purchase Agreement -
Warrants 245,100 122,550 $12.75 October 7, 2001
</TABLE>
10. STOCK OPTIONS
In October 1996, the Company changed its "Non-Qualified" Employee Option
Plan to an Incentive Stock Option Plan (the Option Plan) on a go forward basis.
The Option Plan provides options to purchase up to 2,400,000 shares, at December
31, 1996, of the Company's Common Stock for officers, directors, and key
employees, at an exercise price equal to the fair market value on the date of
grant as determined by the Board of Directors. The shares issued under the
Option Plan shall become vested over periods up to five
F-21
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
years and have a maximum term of ten years. A summary of the changes in the
status of options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES PRICE RANGE AVERAGE PRICE
OUTSTANDING PER SHARE PER SHARE
----------- -------------- ---------------
<S> <C> <C> <C> <C>
Outstanding at February 28, 1994... 302,366 $1.05 - $ 1.05 $ 1.05
Granted.......................... 128,834 1.05 - 1.05 1.05
Canceled......................... (37,800) 1.05 - 1.05 1.05
Exercised........................ (14,600) 1.05 - 1.05 1.05
------- ----- ------ ------
Outstanding at December 31, 1994... 378,800 1.05 - 1.05 1.05
Granted.......................... 392,807 1.65 - 13.63 6.45
Canceled......................... (60,868) 1.05 - 8.00 1.24
Exercised........................ (48,460) 1.05 - 1.05 1.05
------- ----- ------ ------
Outstanding at December 31, 1995... 662,279 1.05 - 13.63 4.23
Granted.......................... 416,336 8.88 - 14.75 12.14
Canceled......................... (79,149) 1.05 - 14.75 5.66
Exercised........................ (45,567) 1.05 - 6.30 2.81
------- ----- ------ ------
Outstanding at December 31, 1996... 953,899 $1.05 - $14.75 $ 7.63
======= ===== ====== ======
</TABLE>
At December 31, 1996, 1995 and 1994, 369,896, 95,518, and 83,213 shares
were exercisable at weighted-average prices of $5.95, $1.20 and $1.05,
respectively.
Option shares available for grant at December 31, 1996 were 1,329,375. Of
the shares available for grant, approximately 932,100 option shares have been
set aside to be granted to certain employees of Electrotech.
Fair Value Disclosure
Statement of Financial Accounting Standards No. 123, Accounting for Awards
of Stock-Based Compensation to Employees (SFAS No. 123) requires the use of
option valuation models to provide supplemental information regarding options
granted after 1994. Pro forma information regarding net income and earnings per
share shown below was determined as if the Company had accounted for its
employee stock options under the fair value method of that statement.
The fair value of the options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1996 and 1995, respectively: Risk-free interest rates of 5.9%
and 6.1%; a zero dividend yield in both years; volatility factors of the
expected market price of the Company's Common Stock of 65.7% and 65.7%; and an
expected life of the options of 5.5 years and 5.5 years. These assumptions
resulted in weighted-average fair values of $7.62 and $4.04 per share for stock
options granted in 1996 and 1995, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and extremely limited transferability. In
addition, the assumptions used in option valuation models (see above) are highly
subjective, particularly the expected stock price volatility of the underlying
stock. Because changes in these subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not provide a reliable single measure of the fair value of its employee stock
options.
F-22
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma effect on
net income for 1996 and 1995 is not representative of the pro forma effect on
net income in future years, because it does not take into consideration pro
forma compensation expense related to grants made prior to 1995. Pro forma
information in future years will reflect the amortization of a larger number of
stock options granted in several succeeding years. The Company's pro forma
information is as follows:
<TABLE>
<CAPTION>
Years ended December 31
1996 1995
<S> <C> <C>
Pro forma net loss.............. $(95,157,298) $(43,461)
Pro forma primary earnings
per share....................... $ (10.10) $ (0.01)
</TABLE>
Information regarding stock options outstanding as of December 31, 1996 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------------
Weighted
Weighted Average Weighted
Average Remaining Average
Price Range Shares Exercise Price Contractual Life Shares Exercise Price
- ----------- ------ --------------- ---------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Under $5.00 254,237 $ 1.14 6.98 136,628 $ 1.08
$5.00 to $10.00 415,768 $ 7.23 8.63 158,204 $ 6.35
Over $10.00 283,894 $14.01 9.55 75,064 $13.97
</TABLE>
11. EMPLOYEE BENEFIT PLANS
United States 401(k)
In November 1993, the Company established a 401(k) plan (the Plan) covering
substantially all of its employees. The Plan allows eligible employees to
contribute up to 15% of their compensation. Company contributions are voluntary
and at the discretion of the Board of Directors. There were no contributions
made by the Company for the years ended December 31, 1996 and 1995, and the ten
month period ended December 31, 1994.
United Kingdom Pension Plan
Electrotech operates a pension plan known as "The Electrotech Retirements
Benefits Scheme", (the Plan), which undertakes to provide retirement benefits to
participating employees based upon their final pensionable salary. The assets
of the Plan are administered by the Trustees and are separate from those of the
Company.
Employer contributions are made at rates recommended by a qualified actuary
following his triennial valuation of the fund. Contributions made during the six
week period from November 15, 1996 to December 31, 1996 amounted to $41,000.
The assumptions which have the most significant effect on the results of
the valuation are those relating to the rate of return on investments and the
rates of increase in salaries and pensions It has been assumed that the
investment return is 2% higher per annum than future salary and pension.
F-23
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
The group also makes contributions to a Group Personal Pension plan for
employees who are not members of the final salary plan. Total contributions to
the group plan and personal pension plan in the six week period from November
15, 1996 to December 31, 1996 amounted to $99,000.
The following table sets forth the plan and funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1996.
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations (including
vested benefits of $7,881,200)................... $ 7,881,200
============
Projected benefit obligation for service
rendered to date.................................. $(10,042,500)
Fair value of plan assets (consisting of
various cash funds)............................... 5,629,100
------------
Projected benefit obligation in excess of
plan assets....................................... (4,413,400)
Unrecognized net loss.............................. 653,400
------------
Net pension liability recognized in the
consolidated balance sheet........................ $ (3,760,000)
============
</TABLE>
The unfunded project benefit obligation at the acquisition date was
approximately $3,742,000 and was recorded as the net pension liability at that
date.
Vested benefits are calculated by reference to that portion of the
accumulated benefit obligation which is not contingent upon an employee
remaining in the service of the employer. The discount rate and pensions
inflation used in determining the actuarial present value of the projected
benefit obligation were 7.25% and 6.25%, respectively, at December 31, 1996.
The expected long-term rate of return on plan assets were 9% at December 31,
1996.
The components of net pension expense for the year ended December 31, 1996 are
as follows:
<TABLE>
<S> <C>
Service cost................................... $ 34,700
Interest cost on projected benefit obligation.. 87,400
Return on plan assets.......................... (62,800)
Net amortization or deferral................... --
--------
Net periodic pension cost...................... $ 59,300
========
</TABLE>
12. SUBSEQUENT EVENT
The Company has recently determined that certain characteristics of the CVD
technology of Electrotech known as "Flowfill" are superior to the high density
plasma CVD processes being pursued by the Limited Partnership pursuant to the
R&D Agreement (the R&D Agreement) entered into as of March 29, 1996 between the
Limited Partnership and the Company (under which the Company performs all
research and development work for the Limited Partnership). The Company has,
accordingly, decided to discontinue further research and development work under
the R&D Agreement and instead focus its consolidated efforts, on its own behalf
and not on behalf of the Limited Partnership, upon the Flowfill CVD technology
used in the Electrotech equipment. The Company has communicated this decision
to the limited partners of the Limited Partnership, and one of the limited
partners has communicated to the Company that the
F-24
<PAGE>
TRIKON TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996
discontinuation of the project is inconsistent with the R&D Agreement and
representations made by the Company in connection therewith and that,
accordingly, a settlement of any and all claims that the limited partners of the
Limited Partnership may have in connection with such discontinuation is
appropriate. The Company is presently preparing to formulate an offer to be
made to the limited partners of the Limited Partnership to terminate the R&D
Agreement and all related agreements, and obtain a release from the limited
partners of the Limited Partnership of all rights and claims in connection with
the Limited Partnership, the R&D Agreement and the ancillary agreements entered
into by the various parties in connection therewith. The amount of the possible
offer or range of the offer can not be reasonably estimated at this time;
however, it could be material to the future operating results of the Company.
F-25
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the directors of Electrotech Equipments Limited and Electrotech Limited
We have audited the accompanying consolidated balance sheets of Eletrotech
Equipments Limited and Electrotech Limited as of June 30, 1996 and 1995 and the
related profit and loss accounts and statements of cash flows for each of the
three years ended June 30, 1996. These combined financial statements are the
responsibility of the companies' directors. Our responsibility is to express an
opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards which do not differ in any significant respect from United States
generally accepted auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurances about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Eletrotech
Equipments Limited and Electrotech Limited as of June 30, 1996 and 1995, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 1996 in conformity with accounting principles
generally accepted in the United Kingdom which differ in certain respects from
those followed in the United States (see Note 29 of the notes to the combined
Financial Statement).
Ernst & Young
Chartered Accountants
Registered Auditor
Cardiff, Wales
August 28, 1996
F-26
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
SALES(3)
Continuing operations..................... (Pounds) 49,012 (Pounds) 30,703 (Pounds) 18,402
Discontinued operations................... -- 3,793 5,405
---------------- ---------------- ----------------
49,012 34,496 23,807
COST OF SALES............................. 23,406 17,014 11,496
---------------- ---------------- ----------------
GROSS PROFIT.............................. 25,606 17,482 12,311
Research and development costs............ 6,674 4,421 3,332
Administrative expenses................... 8,295 8,615 7,161
---------------- ---------------- ----------------
OPERATING PROFIT(4)
Continuing operations..................... 10,637 4,322 1,798
Discontinued operations................... -- 124 20
---------------- ---------------- ----------------
10,637 4,446 1,818
PROFIT ON DISPOSAL OF DISCONTINUED
OPERATIONS(5)............................. -- 5,040 --
---------------- ---------------- ----------------
PROFIT ON ORDINARY ACTIVITIES
BEFORE INTEREST........................... 10,637 9,486 1,818
Interest receivable(8).................... 216 125 65
Interest payable(9)....................... 825 563 320
---------------- ---------------- ----------------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION........................... 10,028 9,048 1,563
Tax on profit on ordinary activities(10).. 3,721 3,530 574
---------------- ---------------- ----------------
PROFIT FOR THE FINANCIAL YEAR............. 6,307 5,518 989
Retained profit brought forward........... 18,011 12,412 11,356
Exchange difference on opening balance.... (67) 30 16
Amortization of revaluation surplus....... 51 51 51
---------------- ---------------- ----------------
RETAINED PROFIT AT THE END OF THE
FINANCIAL YEAR............................ (Pounds) 24,302 (Pounds) 18,011 (Pounds) 12,412
================ ================ ================
</TABLE>
A summary of the significant adjustments to profit for the financial year
(net income) which would be required if US Generally Accepted Accounting
Principles had been applied instead of UK Generally Accepted Accounting
Principles is set forth in Note 29 of the Notes to the Combined Financial
Statements.
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-27
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
PROFIT FOR THE FINANCIAL YEAR............. (Pounds) 6,307 (Pounds) 5,518 (Pounds) 989
Exchange differences on foreign
currency translation..................... (87) 39 19
--------------- --------------- ---------------
Total recognized gains and losses for
the year................................. (Pounds) 6,220 (Pounds) 5,557 (Pounds) 1,008
=============== =============== ===============
NOTE OF HISTORICAL COST PROFITS
AND LOSSES
Reported profit on ordinary activities
before taxation.......................... (Pounds) 10,028 (Pounds) 9,048 (Pounds) 1,563
Difference between historical cost
depreciation charge and the actual
depreciation charge for the year
calculated on the revalued
amount................................... 51 51 51
--------------- --------------- ---------------
Historical cost profit on ordinary
activities before taxation............... (Pounds) 10,079 (Pounds) 9,099 (Pounds) 1,614
--------------- --------------- ---------------
Historical cost profit for the year....... (Pounds) 6,358 (Pounds) 5,569 (Pounds) 1,040
=============== =============== ===============
</TABLE>
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-28
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JUNE 30
------------------------------------
1996 1995
---------------- -----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
ASSETS
FIXED ASSETS
Intangible assets(11)................... (Pounds) 18 (Pounds) 27
Tangible assets(12)..................... 11,496 7,969
---------------- ----------------
11,514 7,996
CURRENT ASSETS
Inventories(13)......................... 17,438 12,741
Accounts receivable(14)................. 20,002 16,034
Cash.................................... 2,076 1,568
---------------- ----------------
39,516 30,343
---------------- ----------------
TOTAL ASSETS............................. (Pounds) 51,030 (Pounds) 38,339
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank loans and overdrafts............... (Pounds) 8,106 (Pounds) 2,591
Trade accounts payable.................. 4,669 4,078
Corporate tax........................... 3,353 3,810
Accruals and deferred income............ 1,672 1,196
Other current liabilities(15)........... 5,294 4,633
---------------- ----------------
23,094 16,308
NONCURRENT LIABILITIES
Long-term borrowings(16)................ 400 800
Corporate tax(16)....................... 203 406
Other noncurrent liabilities(16)........ 345 133
---------------- ----------------
948 1,339
PROVISION FOR LIABILITIES AND CHARGES
Deferred taxation(18)................... 367 291
---------------- ----------------
TOTAL LIABILITIES........................ 24,409 17,938
SHAREHOLDERS' EQUITY
Share capital(19)....................... 11 11
Revaluation reserve(20)................. 2,308 2,379
Profit and loss account................. 24,302 18,011
---------------- ----------------
26,621 20,401
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY................................. (Pounds) 51,030 (Pounds) 38,339
================ ================
</TABLE>
A summary of the significant adjustments to shareholder's equity which
would be required if US generally accepted accounting principles had been
applied instead of UK generally accepted accounting principles is set forth in
Note 29 of the Notes to the Combined Financial Statements.
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-29
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
COMBINED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
--------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES(21)............... (Pounds) 4,918 (Pounds) (3,336) (Pounds) (2,712)
---------------- ---------------- ----------------
RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE....................
Interest received.................... 216 125 65
Interest paid........................ (825) (563) (320)
---------------- ---------------- ----------------
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE... (609) (438) (255)
TAXATION
UK corporate tax paid/(recovered).... (3,866) 244 (6)
Overseas tax paid.................... (439) (74) (277)
---------------- ---------------- ----------------
TAX (PAID)/RECOVERED.................... (4,305) 170 (283)
---------------- ---------------- ----------------
INVESTING ACTIVITIES
Payments to acquire tangible fixed
assets.............................. (4,849) (2,532) (771)
Receipts from sale of subsidiary
company(22)......................... -- 6,631 --
Receipts from sale of tangible fixed
assets.............................. 26 33 26
---------------- ---------------- ----------------
NET CASH (OUTFLOW)/INFLOW FROM
INVESTING ACTIVITIES................... (4,823) 4,132 (745)
---------------- ---------------- ----------------
NET CASH (OUTFLOW)/INFLOW BEFORE
FINANCING............................... (4,819) 528 (3,995)
---------------- ---------------- ----------------
FINANCING
Medium-term bank loan repayments(25). (400) (400) (400)
Increase in other noncurrent
liabilities......................... 212 -- --
---------------- ---------------- ----------------
NET CASH OUTFLOW FROM FINANCING......... (188) (400) (400)
---------------- ---------------- ----------------
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS(23)........................ (Pounds) (5,007) (Pounds) 128 (Pounds) (4,395)
================ ================ ================
</TABLE>
A summary of the cash flow statement under US generally accepted accounting
principles is set forth in Note 29 of the Notes to the Combined Financial
Statements.
The Notes to the Combined Financial Statements form part of these Combined
Financial Statements.
F-30
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
The combined financial statements combine the consolidated financial
statements of Electrotech Equipments Limited with those of Electrotech Limited,
which are not part of a UK group but are subject to common control.
During the year ended June 30, 1995 the investment in Surface Technology
Systems Limited was sold. The combined financial statements include the
unaudited results of this discontinued operation up to the date of sale.
The combined financial statements have been prepared in accordance with
applicable accounting standards in the United Kingdom. The principal accounting
policies adopted in the preparation of the combined financial statements are set
out below and have been consistently applied. The combined financial statements
have been prepared under the historical cost convention, modified to include the
revaluation of freehold buildings.
2. ACCOUNTING POLICIES
Depreciation
Depreciation has been calculated to write off the cost of tangible fixed
assets over their expected useful lives using the following rates:
a) Intangible assets
Licenses 10.0% of original cost
b) Tangible assets
Freehold land and buildings 2.0% of cost or valuation
Plant and machinery 20.0% of net book value
Training and demonstration machines 20.0% of cost
Fixtures and fittings 12.5% of net book value
Office equipment 20.0% of net book value
Motor vehicles 25.0% of net book value
Portable buildings 20.0% of net book value
Leasehold additions and improvements are depreciated over the remaining life
of the lease.
Inventories
Inventories have been valued at the lower of cost and net realizable value.
The cost of finished goods includes a relevant proportion of production
overheads.
Deferred taxation
Deferred taxation is provided on the liability method to take account of
timing differences between the treatment of certain items for accounts purposes
and their treatment for tax purposes. Tax deferred or accelerated is accounted
for in respect of all material timing differences to the extent that it is
considered that a net liability may crystallize.
F-31
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
2. ACCOUNTING POLICIES (CONTINUED)
Development expenditure
Expenditure on research and development is written off against profits in
the year in which it is incurred.
Foreign exchange
The profit and loss accounts and balance sheets of the overseas subsidiaries
have been translated into sterling at the average rates of exchange for the year
and the rates of exchange ruling at the balance sheet date respectively.
Exchange differences arising between the translation into sterling of the net
assets of these subsidiaries at rates ruling at the beginning and end of the
year are dealt with through retained earnings and reserves.
Leasing
Tangible fixed assets acquired under finance leases or hire purchase
contracts are capitalized and depreciated in the same manner as other tangible
assets. The related obligations, net of future finance charges, are included in
creditors.
Rentals payable under operating leases are charged to the profit and loss
account on a straight line basis over the period of the lease.
Government grants
Government grants are credited to the profit and loss account by
installments over the expected useful economic lives of the assets to which they
relate.
Pension costs
Electrotech Equipments Limited, Electrotech Limited and their subsidiary
companies operate a pension scheme known as "The Electrotech Retirement
Benefits Scheme" which undertakes to provide retirement benefits to
participating employees based upon their final pensionable salary. The assets of
the scheme are administered by the Trustees and are separate from those of
Electrotech Equipments Limited, Electrotech Limited and their subsidiaries.
Employer contributions to the scheme are made in accordance with the
recommendations of an independent qualified actuary based upon his triennial
valuations of scheme assets and calculations of funding requirements to meet
future benefits. These contributions are charged to profit and loss account when
incurred.
3. SALES
Sales represent the value, excluding UK value added tax, of goods and
services supplied to customers during the year.
F-32
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
4. OPERATING PROFIT
Operating profit is stated after charging:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Auditor's remuneration.................. (Pounds) 88 (Pounds) 102 (Pounds) 98
Depreciation of owned assets............ 1,280 810 597
Hire of assets--operating leases........ 490 543 542
Loss on disposal of tangible fixed
assets................................. 44 -- 4
Net loss on currency translation........ -- 73 --
And after crediting:
Net gain on currency translation........ 604 -- 29
Profit on disposal of tangible fixed
assets................................. 20 12 15
Rental income........................... 46 93 109
</TABLE>
5. PROFIT ON DISPOSAL OF DISCONTINUED OPERATIONS
The profit on disposal of discontinued operations is the net profit before
taxation on the sale of a subsidiary, Surface Technology Systems Limited, during
March 1995.
6. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Directors' emoluments.................... (Pounds) 264 (Pounds) 369 (Pounds) 200
Directors' pension contributions......... 8 33 26
--------------- ---------------- ---------------
Total directors' remuneration............ 272 402 226
=============== ================ ===============
The remuneration of the Chairman
and highest paid director was:
Electrotech Equipments Limited......... 176 270 134
Electrotech Limited.................... -- -- --
=============== ================ ===============
</TABLE>
F-33
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
6. DIRECTORS' REMUNERATION (CONTINUED)
The remuneration of the directors, including the above, fell within the
following ranges:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Nil-5,000................................ 2 1 2
10,001-15,000............................ -- 1 --
65,001-70,000............................ -- -- 1
70,001-75,000............................ -- 1 --
85,001-90,000............................ 1 -- --
130,001-135,000.......................... -- -- 1
175,001-180,000.......................... 1 -- --
265,001-270,000.......................... -- 1 --
</TABLE>
7. STAFF COSTS
The average number of persons employed during the year was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
NO. NO. NO.
--------------- ---------------- ---------------
<S> <C> <C> <C>
Management and administration............ 102 102 86
Production............................... 432 337 275
Sales and marketing...................... 24 30 28
--------------- ---------------- ---------------
558 469 389
=============== ================ ===============
</TABLE>
The aggregate payroll costs of these persons were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Wages and salaries....................... (Pounds) 11,775 (Pounds) 10,263 (Pounds) 7,729
Social security costs.................... 902 758 571
Pension costs............................ 298 242 124
--------------- ---------------- ---------------
(Pounds) 12,975 (Pounds) 11,263 (Pounds) 8,424
=============== ================ ===============
</TABLE>
8. INTEREST RECEIVABLE AND SIMILAR INCOME
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Bank interest............................ (Pounds) 216 (Pounds) 125 (Pounds) 65
--------------- ---------------- ---------------
(Pounds) 216 (Pounds) 125 (Pounds) 65
=============== ================ ===============
</TABLE>
F-34
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
9. INTEREST PAYABLE AND SIMILAR CHARGES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Bank interest............................ (Pounds) 739 (Pounds) 402 (Pounds) 101
Overseas tax interest.................... 22 -- 18
Interest on amounts payable within
five years.............................. 64 161 201
--------------- ---------------- ---------------
(Pounds) 825 (Pounds) 563 (Pounds) 320
=============== ================ ===============
</TABLE>
10. TAX ON PROFIT ON ORDINARY ACTIVITIES
The taxation charge is made up as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
UK corporate tax charge at 33%........... (Pounds) 2,467 (Pounds) 1,097 (Pounds) 348
UK corporate tax on profit on disposal of
discontinued operation.................. -- 1,964 --
Overseas tax............................. 1,178 389 74
Deferred tax............................. 76 80 152
--------------- ---------------- ---------------
(Pounds) 3,721 (Pounds) 3,530 (Pounds) 574
=============== ================ ===============
</TABLE>
11. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
License transferred from associated
company:
Cost as at July 1 and June 30............ (Pounds) 90 (Pounds) 90 (Pounds) 90
--------------- ---------------- ---------------
Accumulated depreciation as at
July 1.................................. 63 54 45
Provided in year......................... 9 9 9
--------------- ---------------- ---------------
Accumulated depreciation as at
June 30................................. 72 63 54
--------------- ---------------- ---------------
Net book value at June 30, 1996,
1995 and 1994........................... (Pounds) 18 (Pounds) 27 (Pounds) 36
=============== ================ ===============
</TABLE>
F-35
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
12. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT,
MACHINERY FIXTURES,
FREEHOLD LEASEHOLD AND EQUIPMENT &
LAND AND LAND AND MOTOR &
BUILDINGS BUILDINGS VEHICLES FITTINGS TOTAL
-------------- -------------- -------------- -------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
COST
At July 1, 1993........ (Pounds) 4,522 (Pounds) 34 (Pounds) 5,175 (Pounds) 3,142 (Pounds) 12,873
Additions.............. -- -- 298 476 774
Disposals.............. -- -- (5) (116) (121)
Exchange differences... (2) -- (2) 1 (3)
-------------- -------------- -------------- -------------- ---------------
At June 30, 1994....... 4,520 34 5,466 3,503 13,523
-------------- -------------- -------------- -------------- ---------------
DEPRECIATION
At July 1, 1993........ 427 12 3,815 2,374 6,628
Charge for the year.... 106 2 320 163 591
Disposals.............. (1) -- (5) (94) (100)
Exchange differences... -- -- (1) 1 --
-------------- -------------- -------------- -------------- ---------------
At June 30, 1994....... 532 14 4,129 2,444 7,119
-------------- -------------- -------------- -------------- ---------------
NET BOOK VALUE
AT JUNE 30, 1994...... (Pounds) 3,988 (Pounds) 20 (Pounds) 1,337 (Pounds) 1,059 (Pounds) 6,404
============== ============== ============== ============== ===============
</TABLE>
F-36
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
12. TANGIBLE FIXED ASSETS--(CONTINUED)
<TABLE>
<CAPTION>
PLANT,
MACHINERY FIXTURES,
FREEHOLD LEASEHOLD AND EQUIPMENT &
LAND AND LAND AND MOTOR &
BUILDINGS BUILDINGS VEHICLES FITTINGS TOTAL
-------------- -------------- -------------- -------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
COST
At July 1, 1994........ (Pounds) 4,520 (Pounds) 34 (Pounds) 5,466 (Pounds) 3,503 (Pounds) 13,523
Additions.............. -- 139 2,006 398 2,543
Disposals.............. -- -- (460) (415) (875)
Exchange differences... (14) -- (2) 18 2
-------------- -------------- -------------- -------------- ---------------
At June 30, 1995....... 4,506 173 7,010 3,504 15,193
-------------- -------------- -------------- -------------- ---------------
DEPRECIATION
At July 1, 1994........ 532 14 4,129 2,444 7,119
Charge for the year.... 102 2 489 217 810
Disposals.............. -- -- (430) (273) (703)
Exchange differences... (4) -- (3) 5 (2)
-------------- -------------- -------------- -------------- ---------------
At June 30, 1995....... 630 16 4,185 2,393 7,224
-------------- -------------- -------------- -------------- ---------------
NET BOOK VALUE
AT JUNE 30, 1995....... (Pounds) 3,876 (Pounds) 157 (Pounds) 2,825 (Pounds) 1,111 (Pounds) 7,969
============== ============== ============== ============== ===============
COST
At July 1, 1995........ (Pounds) 4,506 (Pounds) 173 (Pounds) 7,010 (Pounds) 3,504 (Pounds) 15,193
Additions.............. 2,534 -- 1,763 552 4,849
Disposals.............. (107) -- (15) (109) (231)
Exchange differences... (3) -- (4) (5) (12)
-------------- -------------- -------------- -------------- ---------------
At June 30, 1996....... 6,930 173 8,754 3,942 19,799
-------------- -------------- -------------- -------------- ---------------
DEPRECIATION
At July 1, 1995........ 630 16 4,185 2,393 7,224
Charge for the year.... 96 54 862 259 1,271
Disposals.............. (66) -- (6) (109) (181)
Exchange differences... (2) -- (4) (5) (11)
-------------- -------------- -------------- -------------- ---------------
At June 30, 1996....... 658 70 5,037 2,538 8,303
-------------- -------------- -------------- -------------- ---------------
NET BOOK VALUE
AT JUNE 30, 1996....... (Pounds) 6,272 (Pounds) 103 (Pounds) 3,717 (Pounds) 1,404 (Pounds) 11,496
============== ============== ============== ============== ===============
</TABLE>
The net book value of the freehold land and buildings on the historical
cost basis as at June 30, 1996 was (Pounds)3,970,000 (1995: (Pounds)1,543,000).
Included in the total net book value of tangible fixed assets at June 30, 1996
was (Pounds)688,000 (1995: (Pounds)372,000) in respect of assets held under hire
purchase agreements.
F-37
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
13. INVENTORIES
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
Raw materials and parts................. (Pounds) 10,627 (Pounds) 6,077
Work in progress........................ 5,552 5,377
Finished goods.......................... 1,259 1,287
---------------- ----------------
(Pounds) 17,438 (Pounds) 12,741
================ ================
</TABLE>
The difference between the purchase price or production cost of inventories
and their replacement price is not material.
14. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
Trade debtors........................... (Pounds) 17,406 (Pounds) 13,416
Other debtors........................... 1,492 2,172
Prepayments and accrued income.......... 1,024 328
Amounts owed by companies under common
control................................ 80 118
---------------- ----------------
(Pounds) 20,002 (Pounds) 16,034
================ ================
</TABLE>
15. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
Obligations under hire purchase
contracts(see note 17)................. (Pounds) 242 (Pounds) 180
Warranty provisions..................... 1,107 702
Payments received on account............ 2,779 1,886
Other creditors......................... 46 36
Other tax and social security........... 640 1,324
Amount owed to companies under common
control................................ 80 105
Current installment due on medium-term
loan................................... 400 400
---------------- ----------------
(Pounds) 5,294 (Pounds) 4,633
================ ================
</TABLE>
F-38
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
16. NONCURRENT LIABILITIES
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
US mortgage loan........................ (Pounds) 38 (Pounds) 37
Hire purchase installments due within
five years............................. 287 66
Long term element of DTI grant
receivable............................. 20 30
---------------- ----------------
345 133
UK medium-term bank loan................ 400 800
UK corporation tax...................... 203 406
---------------- ----------------
(Pounds) 948 (Pounds) 1,339
================ ================
</TABLE>
The UK bank loan is for a period of five years from May 20, 1993 and is
repayable by equal semi-annual installments of (Pounds)200,000 from that date.
The loan carries a fixed interest rate of 10.0025% per annum and is secured by a
debenture over the assets of Electrotech Equipments Limited, Electrotech Limited
and their subsidiaries.
The mortgage loan in the United States is to be repaid in installments
ending in 1998. Interest on the loan is charged at 9.75% per annum.
17. OBLIGATIONS UNDER HIRE PURCHASE CONTRACTS
The maturity of these amounts is as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
Amounts payable:
Within one year...................... (Pounds) 244 (Pounds) 195
In two to five years................. 287 71
---------------- ----------------
531 266
Less: finance charges allocated to
future periods....................... 2 20
---------------- ----------------
(Pounds) 529 (Pounds) 246
================ ================
</TABLE>
Obligations under hire purchase contracts are analyzed as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
Current obligations..................... (Pounds) 242 (Pounds) 180
Noncurrent obligations.................. 287 66
---------------- ----------------
(Pounds) 529 (Pounds) 246
================ ================
</TABLE>
F-39
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
18. DEFERRED TAXATION
<TABLE>
<CAPTION>
AS OF JUNE 30
------------------------------------------------------
1996 1995 1994
---------------- ---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
At July 1............................... (Pounds) 291 (Pounds) 211 (Pounds) 59
Charge for the year..................... 76 80 152
---------------- ---------------- ----------------
At June 30.............................. (Pounds) 367 (Pounds) 291 (Pounds) 211
================ ================ ================
</TABLE>
No provision has been made for the potential tax liability that would arise
on the disposal of the freehold land and buildings at the revalued amount shown
in the balance sheet. The potential tax liability at June 30, 1996 amounts to
(Pounds)500,000 (1995: (Pounds)500,000), but no provision for this is required
since the directors have no plans to dispose of the property in the foreseeable
future and, in the event of a disposal, it is considered that no tax liability
would arise after taking account of "rollover" relief.
In addition, no provision has been made for the potential tax liability
that would arise on the disposal of land and buildings on which Scientific
Research Allowances have been claimed. The potential liability at June 30, 1996
amounts to (Pounds)246,000 (1995: (Pounds)246,000).
Deferred taxation provided in the accounts and the amounts not provided are
as follows:
<TABLE>
<CAPTION>
PROVIDED NOT PROVIDED
AS OF JUNE 30 AS OF JUNE 30
----------------------------------- -----------------------------------
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C>
Capital allowances in
advance of depreciation................ (Pounds) 367 (Pounds) 291 (Pounds) -- (Pounds) --
Other timing differences................ -- -- 246 246
---------------- ---------------- ---------------- ----------------
(Pounds) 367 (Pounds) 291 (Pounds) 246 (Pounds) 246
================ ================ ================ ================
</TABLE>
19. SHARE CAPITAL
<TABLE>
<CAPTION>
ELECTROTECH EQUIPMENTS LIMITED ELECTROTECH LIMITED
----------------------------------------------------- -----------------------------------
"A" "B"
VOTING NON-VOTING
ORDINARY ORDINARY ORDINARY
SHARES OF SHARES OF SHARES OF
(Pounds)1 EACH (Pounds)1 EACH TOTAL (Pounds)1 EACH COMBINED
-------------- -------------- ------- -------------- ----------
(IN BRITISH POUNDS)
<S> <C> <C> <C> <C> <C>
Authorized at July 1, 1994,
June 30, 1995 and 1996...... 82 9,918 10,000 575 10,575
============== ============== ======= ============== ==========
Issued and fully paid at
July 1, 1994, June 30, 1995
and 1996.................... 82 9,918 10,000 575 10,575
============== ============== ======= ============== ==========
</TABLE>
F-40
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
20. REVALUATION RESERVE
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
At July 1......................................... (Pounds) 2,333 (Pounds) 2,384 (Pounds) 2,435
Less: amortization of revaluation surplus......... 51 51 51
--------------- --------------- ---------------
2,282 2,333 2,384
Exchange difference arising on consolidation...... 26 46 37
--------------- --------------- ---------------
At June 30........................................ (Pounds) 2,308 (Pounds) 2,379 (Pounds) 2,421
=============== =============== ===============
</TABLE>
The revaluation reserve arises on the valuation of freehold properties
owned by a subsidiary company as valued by Chestertons on 6 June 1991. The
valuation was carried out in accordance with the Statement of Asset Valuation
Practice ("SAVP") notes issued by the Royal Institute of Chartered Surveyors
and in particular, SAVP note 2:1.
21. RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW)
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Operating profit.................................. (Pounds) 10,637 (Pounds) 4,446 (Pounds) 1,818
Depreciation...................................... 1,280 806 597
Loss/(Profit) on sale of tangible fixed
assets........................................... 25 (12) (11)
Currency exchange differences..................... (87) 37 21
Increase in inventories........................... (4,697) (2,638) (5,387)
Increase in accounts receivable................... (3,968) (8,622) (1,967)
Increase in current liabilities................... 1,728 2,647 2,217
--------------- --------------- ----------------
Net cash inflow/(outflow) from
operating activities............................. (Pounds) 4,918 (Pounds) (3,336) (Pounds) (2,712)
=============== =============== ================
</TABLE>
22. SALE OF SUBSIDIARY UNDERTAKING
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Net book value of assets sold..................... (Pounds) -- (Pounds) 151 (Pounds) --
Tangible fixed assets............................. -- 1,440
Non-cash equivalent working capital............... (679) --
--------------- --------------- ---------------
Cash and cash equivalents......................... -- 912 --
Profit on disposal................................ -- 5,040 --
--------------- --------------- ---------------
Cash consideration (net of expenses).............. (Pounds) -- (Pounds) 5,952 (Pounds) --
=============== =============== ===============
</TABLE>
F-41
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
22. SALE OF SUBSIDIARY UNDERTAKING (CONTINUED)
The net inflow of cash and cash equivalents in respect of the sale of the
subsidiary undertaking is as follows:
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash consideration (net of expenses).............. (Pounds) -- (Pounds) 5,952 (Pounds) --
Cash balance of subsidiary undertaking............ -- 679 --
--------------- --------------- ---------------
(Pounds) -- (Pounds) 6,631 (Pounds) --
=============== =============== ===============
</TABLE>
23. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS DURING THE YEAR
<TABLE>
<CAPTION>
AS OF JUNE 30
-----------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Balance at July 1................................. (Pounds) (1,023) (Pounds) (1,151) (Pounds) 3,244
Net cash flow in the year......................... (5,007) 128 (4,395)
--------------- --------------- ---------------
Balance at June 30................................ (Pounds) (6,030) (Pounds) (1,023) (Pounds) (1,151)
=============== =============== ===============
</TABLE>
F-42
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
24. ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS AS SHOWN IN THE
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30
---------------------------------------- CHANGE IN
1996 1995 YEAR
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash at bank and in hand........................... (Pounds) 2,076 (Pounds) 1,568 (Pounds) 508
Bank overdrafts.................................... (8,106) (2,591) (5,515)
--------------- --------------- ---------------
(Pounds) (6,030) (Pounds) (1,023) (Pounds) (5,007)
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30
---------------------------------------- CHANGE IN
1996 1995 YEAR
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash at bank and in hand........................... (Pounds) 1,568 (Pounds) 465 (Pounds) 1,103
Bank overdrafts.................................... (2,591) (1,616) (975)
--------------- --------------- ---------------
(Pounds) (1,023) (Pounds) (1,151) (Pounds) 128
=============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30
---------------------------------------- CHANGE IN
1996 1995 YEAR
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash at bank and in hand........................... (Pounds) 465 (Pounds) 3,436 (Pounds) (2,971)
Bank overdrafts.................................... (1,616) (192) (1,424)
--------------- --------------- ---------------
(Pounds) (1,151) (Pounds) 3,244 (Pounds) (4,395)
=============== =============== ===============
</TABLE>
25. ANALYSIS OF CHANGES IN LOAN FINANCING DURING THE YEAR
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-----------------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Total financing at July 1............................ (Pounds) 1,200 (Pounds) 1,600 (Pounds) 2,000
Loan repayments...................................... (400) (400) (400)
--------------- --------------- ---------------
Total financing at June 30........................... (Pounds) 800 (Pounds) 1,200 (Pounds) 1,600
=============== =============== ===============
</TABLE>
26. PENSIONS
Electrotech Equipments Limited, Electrotech Limited and their subsidiaries
operate a pension scheme known as "The Electrotech Retirements Benefits
Scheme" which undertakes to provide retirement benefits to participating
employees based upon their final pensionable salary. The assets of the scheme
are administered by the Trustees and are separate from those of the companies.
Employer contributions to the scheme are made at rates recommended by a
qualified actuary following his triennial valuation of the fund. At the date of
the latest actuarial valuation, April 6, 1993, the market value of the assets of
the scheme was (Pounds)4,562,000 which represented 145% of the benefits that had
accrued to members, after allowing for expected future increases in earnings.
F-43
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
26. PENSIONS (CONTINUED)
The assumptions which have the most significant effect on the results of the
valuation are those relating to the rate of return on investments and the rates
of increase in salaries and pensions. It has been assumed that the investment
return is 2% higher per annum than future salary and pension increases.
Employer contributions to the scheme from July 1, 1994 to April 30, 1995
were made at the rate of 6% of pensionable salaries, and from May 1, 1995 at the
rate of 8.8% of pensionable salaries.
The group also makes contributions to a Group Personal Pension plan for
employees who are not members of the final salary scheme. Total contributions to
the group scheme and personal pension plan in the year ended June 30, 1996
amounted to (Pounds)298,000 (1995: (Pounds)242,000).
27. LEASING COMMITMENTS
Electrotech had annual commitments under noncancelable operating leases as
detailed below:
<TABLE>
<CAPTION>
AS OF JUNE 30
---------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ------------------------------ -------------------------------
LAND & LAND & LAND &
BUILDING OTHER BUILDING OTHER BUILDING OTHER
------------- ------------- ------------- ------------- -------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C> <C> <C> <C>
Leases which expire
In 1 year...................... (Pounds) 42 (Pounds) 57 (Pounds) -- (Pounds) 40 (Pounds) -- (Pounds) 8
In 2-5 years................... 35 180 -- 88 -- 67
In more than five years........ 617 -- 637 -- 167 --
------------- ------------- ------------- ------------ ------------- ------------
Total financing at June 30..... (Pounds) 694 (Pounds) 237 (Pounds) 637 (Pounds) 128 (Pounds) 167 (Pounds) 75
============= ============= ============= ============ ============= ============
</TABLE>
28. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------------------------------------
1996 1995 1994
--------------- --------------- ---------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Profit for the financial year................ (Pounds) 6,307 (Pounds) 5,518 (Pounds) 989
Shareholders' funds at beginning of year..... 20,401 14,844 13,836
Exchange difference on opening balance....... (87) 39 19
--------------- --------------- ---------------
Shareholders' funds at end of year........... (Pounds) 26,621 (Pounds) 20,401 (Pounds) 14,844
=============== =============== ===============
</TABLE>
29. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES
The combined financial statements are prepared under accounting principles
generally accepted in the United Kingdom ("UK GAAP") which differ in certain
respects from United States generally accepted principles ("US GAAP").
Differences estimated to have a significant effect on combined net income and
shareholders' equity are set out below.
F-44
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
Revaluation of Land and Buildings
Certain land and buildings were revalued in 1991 on the basis of their
value to the business and they are included in these combined financial
statements at that valuation less subsequent depreciation. Under US GAAP, such
revaluations would not be reflected in the financial statements. Land and
buildings would be included at historical cost under US GAAP with depreciation
computed on such cost.
Deferred Taxation
Provision is made for deferred taxation using the liability method on all
material timing differences to the extent that it is probable that the
liabilities will crystallize in the foreseeable future. Under US GAAP, as set
out in Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes", deferred taxation is generally provided on a full liability
basis on all temporary differences.
Pensions
Under UK GAAP the cost of providing pensions is accounted for over the
working lives of the employees in the scheme. Under US GAAP, FAS 87 requires
that a specific actuarial approach is applied for measuring the pension cost,
the objective of which is to recognize in each accounting period the cost of
providing the pension benefits earned by employees in that period.
The following is a summary of the effect of the above differences on profit
for the financial year (net income) and equity shareholders' funds:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------------------------------
1996 1995 1994
--------------- --------------- -------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
NET INCOME
Profit for the financial year............. (Pounds) 6,307 (Pounds) 5,518 (Pounds) 989
Adjustments
Depreciation adjustment as a result
of revaluation........................... 51 51 51
Pensions (net of tax effect)............ (189) (155) (67)
--------------- --------------- -------------
Net income as adjusted to accord with
US GAAP.................................. (Pounds) 6,169 (Pounds) 5,414 (Pounds) 973
=============== =============== =============
</TABLE>
F-45
<PAGE>
ELECTROTECH EQUIPMENTS LIMITED AND ELECTROTECH LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
AS OF JUNE 30, 1996
Environmental Cleanup
An environmental survey is in the process of being completed in respect of
all currently owned properties and previously and currently leased properties.
For US GAAP purposes, an accrual of (Pounds)281,000 has been recorded as an
adjustment in shareholders' equity, as reported.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------------
1996 1995
---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Shareholders' equity as reported..... (Pounds) 26,621 (Pounds) 20,401
Adjustments
Revaluation..................... (2,542) (2,542)
Depreciation adjustment as a
result of revaluation.......... 250 199
Deferred taxation............... (246) (246)
Pensions (net of tax effect).... (1,287) (1,287)
Environmental reserve........... (281) (281)
---------------- ----------------
Shareholders' equity as adjusted
to accord with US GAAP.............. (Pounds) 22,515 (Pounds) 16,244
================ ================
</TABLE>
Consolidated Cash Flow Statement
The consolidated statements of cash flows prepared in accordance with UK
GAAP present substantially the same information as that required under US GAAP.
UK GAAP and US GAAP differ, however, with regard to classification of items
within the statements and as regards the definition of cash and cash
equivalents.
Under US GAAP, cash and cash equivalents would not include bank overdrafts
and borrowings with initial maturities of less than three months. Under UK GAAP,
cash flows are presented separately for operating activities, servicing of
finance and returns on investments, taxation, investing activities and financing
activities. US GAAP, however, requires only three categories of cash flow
activity to be reported: operating, investing and financing. Cash flows from
taxation and servicing of finance and returns on investments shown under UK GAAP
would be included as operating activities under US GAAP.
The categories of cash flow activity under US GAAP can be summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
--------------------------------------------------------
1996 1995 1994
----------------- ---------------- ----------------
(IN THOUSANDS OF BRITISH POUNDS)
<S> <C> <C> <C>
Cash inflows/(outflows) from
operating activities................... (Pounds) 4 (Pounds) (3,604) (Pounds) (3,250)
Cash (outflows)/inflows on investing
activities............................. (4,823) 4,132 (745)
Cash outflows from financing
activities............................. (188) (400) (400)
---------------- ---------------- ----------------
(Decrease)/increase in cash and cash
equivalents............................ (5,007) 128 (4,395)
Cash and cash equivalents at July 1..... (1,023) (1,151) 3,244
---------------- ---------------- ----------------
Cash and cash equivalents at June 30.... (Pounds) (6,030) (Pounds) (1,023) (Pounds) (1,151)
================ ================ ================
</TABLE>
F-46
<PAGE>
TRIKON TECHNOLOGIES, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996 AND 1995, AND THE TEN MONTHS ENDED
DECEMBER 31, 1994
<TABLE>
<CAPTION>
Additions Deductions
-------------------------------------- --------------------
Amounts
Balance at Charged to Charged to Charged to Balance at
Beginning Costs and Other Reserve Net of End of
Description of Period Expenses Accounts Reinstatement Period
- ----------------------------- ----------------- -------------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
items $ -- $3,402,000 $ -- $ -- $3,402,000
------- ---------- -------------- -------------- ----------
$ -- $3,402,000 $ -- $ -- $3,402,000
======= ========== -------------- ============== ==========
Year ended December 31, 1995
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
items $33,522 $ (33,522) $ -- $ -- $ --
------- ---------- -------------- -------------- ----------
$33,522 $ (33,522) $ -- $ -- $ --
======= ========== ============== ============== ==========
Ten months ended December
31, 1994
Reserves and allowances
deducted from asset
accounts:
Allowance for doubtful
items $30,000 $ 3,522 $ -- $ -- $ 33,522
------- ---------- -------------- -------------- ----------
$30,000 $ 3,522 $ -- $ -- $ 33,522
======= ========== ============== ============== ==========
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NUMBER
- ------ ---------------------------------------------------------------------------------------------------- ------
<C> <S> <C>
2.1# Share Purchase Agreement dated July 17, 1996 (the "Share Purchase Agreement") among the Company,
Electrotech and the Electrotech Shareholders
2.2# Amendment No. 1 to Share Purchase Agreement dated as of September 9, 1996
2.3# Amendment No. 2 to Share Purchase Agreement dated as of October 16, 1996
2.4# Amendment No. 3 to Share Purchase Agreement dated as of November 13, 1996
3.1 Seventh Restated Articles of Incorporation of the Company
3.2 Certificate of Ownership of Plasma & Materials Technologies, Inc. amending the Company's
Seventh Restated Articles of Incorporation to effect the change of its name to "Trikon
Technologies, Inc."
3.3 Bylaws of the Company, as amended and currently in effect
4.1# Indenture dated as of October 7, 1996 between the Company and U.S. Trust Company of
California, N.A.
4.2* Warrant to Purchase Common Stock issued to St. Paul Fire and Marine Insurance Company on
November 29, 1993
4.3* Warrant to Purchase Common Stock issued to Brentwood Associates V, L.P. on November 29, 1993
4.4+++ Form of Common Stock Purchase Warrant, issued to certain of the Limited Partners (as hereinafter defined)
on March 29, 1996.
4.5 Form of Promissory Note issued to each investor under the Note Purchase Agreement on December
16, 1996
4.6 Form of Common Stock Purchase Warrant issued to each investor under the Note Purchase
Agreement on December 16, 1996
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
- -----------------------------------
10.1 1991 Stock Option Plan of the Company, as amended to date, including the Company's Share
Option Scheme for its U.K. employees and the related Share Option and Reimbursement Agreement
Between the Company, Electrotech and certain of Electrotech's subsidiaries
10.2# Employment Agreement dated as of November 15, 1996 between the Company and Nigel Wheeler
10.3# Registration Agreement dated as of November 15, 1996 between the Company and Christopher D.
Dobson
OTHER MATERIAL CONTRACTS
- -----------------------------------
10.4***+ International Technology License and Sales Agreement between the Company and Alcan-Tech Co.,
Inc. dated November 15, 1991
10.5***+ International Technology License and Sales Agreement between the Company and Anelva
Corporation, dated February 7, 1992
10.6*+ Technology License and Sales Agreement between the Company and Leybold AG dated December 8,
1992
10.7***+ Technology License and Sales Agreement between the Company and Watkins-Johnson Company dated
December 23, 1993
10.8* Master Lease Agreement between Phoenix Leasing Inc. and the Company, effective December 16,
1993 and ending December 16, 1997
10.9* Royalty Agreement dated October 3, 1986 by and between the Company and Messrs. Conn, Campbell
and Goebel
10.10* Assignment of Royalty Rights dated June 8, 1990 executed by Messrs. Conn and Campbell in favor
of the Company
10.11* Agreement entered into the 25th day of June 1986 by and between the Company and
Leybold-Heraeus GmbH
10.12**+ Distribution Agreement dated July 1, 1995 by and between the Company and Canon Sales
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NUMBER
- ------ ---------------------------------------------------------------------------------------------------- ------
<C> <S> <C>
10.13# Registration Agreement dated as of October 7, 1996 among the Company, Salomon Brothers
Inc and Unterberg Harris
10.14++ Agreement of Limited Partnership of PMT CVD Partners, L.P. (the "CVD Partnership") dated as of
March 29, 1996, entered into between CVD, Inc. (the "General Partner") and the limited
partners listed therein (the "Limited Partners")
10.15+++ Form of Option Agreement, dated as of March 29, 1996, entered into between the Company and
certain of the Limited Partners
10.16+++ Form of Partnership Subscription Agreement, dated as of March 29, 1996, entered into among the
Partnership, the General Partner and certain of the Limited Partners
10.17+++ Share Subscription and Shareholders Agreement, dated as of March 29, 1996, entered into
between the General Partner and the Limited Partners, as the shareholders of the General
Partner
10.18+++ Research & Development Agreement, dated as of March 29, 1996, entered into between the Company
and the CVD Partnership
10.19+++ Technology License Agreement, dated as of March 29, 1996, entered into between the Company and
the CVD Partnership
10.20 Credit Agreement dated as of November 15, 1996 between the Company, Electrotech, NationsBank
of Texas, N.A. and Lloyds Bank plc
10.21 Note Purchase and Loan Agreement dated as of December 16, 1996 (the "Note Purchase Agreement")
by and among the Company and the persons listed on Schedule 1 thereto
10.22 Lease dated July 5, 1985 concerning the Company's facilities at Newport, Gwent, United Kingdom,
as assigned to Electrotech Limited effective January 19, 1995
11 Computation of Per Share Earnings
21 Subsidiaries of the Registrant
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors
24.## Power of Attorney
27 Financial Data Schedule
</TABLE>
_____________
* Filed as an exhibit to the Company's Registration Statement on Form S-1
(Registration No. 33-4450) on July 11, 1995.
** Filed as an exhibit to Amendment No. 1 to the Company's Registration
Statement on Form S-1 (Registration No. 33-94450) on July 28, 1995.
*** Filed as an exhibit to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-94450) on August 22, 1995.
+ Certain portions of this exhibit have been omitted from the copies filed as
part of Amendment No. 1 or Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 33-94450), as the case may be, and
are the subject of an order granting confidential treatment with respect
thereto.
++ Filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the
Quarterly Period Ended March 31, 1996 (File No. 0-26482) on May 15, 1996.
+++ Filed as an exhibit to the Company's Amendment No. 1 to Quarterly Report on
Form 10-Q/A for the Quarterly Period Ended March 31, 1996 (File No. 0-
26482) on October 3, 1996.
# Filed as an exhibit to the Company's Current Report on Form 8-K (File No.
0-26482) on November 27, 1996.
## Set forth in the signature page hereto.
<PAGE>
EXHIBIT 3.1
SEVENTH RESTATED ARTICLES OF INCORPORATION
OF
PLASMA & MATERIALS TECHNOLOGIES, INC.
Gregor A. Campbell and John La Valle hereby certify as follows:
1. They are the President and Secretary, respectively, of Plasma &
Materials Technologies, Inc., a California corporation.
2. The Articles of Incorporation of the corporation, as amended to
the date of the filing of this Certificate, are amended and restated to read as
follows:
I
The name of the Corporation is Plasma & Materials Technologies, Inc.
II
The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
Upon the amendment of this Article III pursuant to the filing of these
Seventh Restated Articles of Incorporation with the California Secretary of
State, each outstanding share of the Corporation's common stock (the "Common
Stock") is converted into 1/3 of a share of Common Stock.
IV
The Corporation is authorized to issue two classes of shares
designated "Common Stock" and "Preferred Stock", respectively. The number of
shares of Common Stock authorized to be issued is 50,000,000 and the number of
shares of Preferred Stock authorized to be issued is 20,000,000.
Subject to Section 4(c) of this Article IV, the Board of Directors of
the Corporation is authorized to determine the number of series into which
shares of Preferred Stock may be
<PAGE>
divided and the designation of any such series; and except with respect to the
Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock and the Series
F Preferred Stock which are described below, the Board of Directors is
authorized to determine the rights, preferences, privileges and restrictions
granted to or imposed upon the Preferred Stock or any series thereof or any
holders thereof, to determine and alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly-unissued series of Preferred
Stock or the holders thereof, to fix the number of shares constituting any
series prior to the issue of shares of that series, and to increase or decrease,
within the limits stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series (but
not below the number of shares of such series then outstanding), the number of
shares of any such series subsequent to the issue of shares of that series.
The Corporation is authorized to issue 2,100,000 shares of Series A
Preferred Stock, 800,000 shares of Series B Preferred Stock, 1,400,000 shares of
Series C Preferred Stock, 5,000,000 shares of Series D Preferred Stock,
2,625,000 shares of Series E Preferred Stock and 2,500,000 shares of Series F
Preferred Stock. The rights, preferences, privileges and restrictions of each
such series of Preferred Stock and the Common Stock, as well as of the holders
of such stock, are as set forth below in this Article IV.
The Corporation has effected a one-for-three reverse stock split,
effective on the date of filing of these Seventh Restated Articles of
Incorporation. All of the following prices set forth below have not been
adjusted to reflect such reverse stock split.
Section 1. Definitions
-----------
For purposes of Sections 1 through 6 of this Article IV the following
definitions shall apply:
(a) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Corporation after the filing of these Seventh
Restated Articles of Incorporation, whether or not subsequently reacquired
or retired by the Corporation, other than:
(i) Shares issuable upon conversion of the Convertible Preferred
Stock;
(ii) Shares of Common Stock issued to employees or directors of
(or consultants to) the Corporation, or
2
<PAGE>
issuable upon exercise of stock options granted to such employees,
directors or consultants, pursuant to stock-based compensation plans
approved by the Board; and
(iii) Shares issued or issuable by way of stock split or stock
dividend.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Common Stock" shall mean the Common Stock of the Corporation.
(d) "Conversion Price" shall have the meaning set forth in Section
5(a) of this Article IV.
(e) "Convertible Preferred Stock" shall mean the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock.
(f) "Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are at any time directly or
indirectly convertible into or exchangeable for Additional Shares of Common
Stock.
(g) "Corporation" shall mean this corporation.
(h) "Ratchet Adjustment Period" shall mean the period commencing upon
the filing of these Seventh Restated Articles of Incorporation and ending
on such date thereafter as the Corporation has received cumulative
consideration, for the issuance and sale of Additional Shares of Common
Stock (excluding any Series F Preferred Stock) after such date of filing,
aggregating at least $3,500,000.
(i) "Redeemable Preferred Stock" shall mean the Series D Preferred
Stock, the Series E Preferred Stock and the Series F Preferred Stock;
(j) "Series A Preferred Stock" shall mean the Series A Preferred Stock
of the Corporation.
(k) "Series B Preferred Stock" shall mean the Series B Preferred Stock
of the Corporation.
(l) "Series C Preferred Stock" shall mean the Series C Preferred Stock
of the Corporation.
3
<PAGE>
(m) "Series D Preferred Stock" shall mean the Series D Preferred Stock
of the Corporation.
(n) "Series E Preferred Stock" shall mean the Series E Preferred Stock
of the Corporation.
(o) "Series F Preferred Stock" shall mean the Series F Preferred Stock
of the Corporation.
Section 2. Dividends
---------
In each fiscal year of the Corporation, the holders of shares of
Convertible Preferred Stock shall be entitled to receive, before any cash
dividends shall be paid or declared and set aside for the Common Stock in such
fiscal year, when and as declared by the Board, out of funds legally available
for that purpose, dividends payable in an amount per share for such fiscal year
equal to the per share amount, if any, of any cash dividend declared, paid or
set aside for the Common Stock during such fiscal year, multiplied by the number
of shares of Common Stock into which each such share of Convertible Preferred
Stock is then convertible. Dividends for the Convertible Preferred Stock
declared by the Board of Directors but not paid shall accrue.
Section 3. Liquidation, Dissolution or Winding Up
--------------------------------------
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, including a merger, acquisition or
other reorganization in which the Corporation is not the surviving entity, all
assets or surplus funds of the Corporation shall be distributed to the holders
of the Common Stock and the Convertible Preferred Stock on a pro rata basis
according to the number of shares of Common Stock (i) then held, with respect to
the Common Stock, and (ii) into which the shares of Convertible Preferred Stock
then held are then convertible, in the case of the Convertible Preferred Stock;
provided, however, that if such distribution would result in a distribution of
- -------- -------
less than $3.50 per share of Common Stock, then the assets and funds of the
Corporation shall be distributed in the following order of priority:
(i) First, ratably among the holders of the Series E Preferred
-----
Stock and the Series F Preferred Stock until such holders have
received $2.10 per share;
(ii) Second, ratably among the holders of the Series D Preferred
------
Stock until such holders have received $1.50 per share;
4
<PAGE>
(iii) Third, ratably among the holders of the Series C Preferred
-----
Stock until such holders have received $1.00 per share;
(iv) Fourth, ratably among the holders of the Series A Preferred
------
Stock and the Series B Preferred Stock in proportion to the respective
preferential amounts to which the shares of each such series are
entitled (which shall be $1.00 per share for the Series A Preferred
Stock and $1.30 per share for the Series B Preferred Stock) until such
holders have received such respective preferential amounts;
(v) Fifth, ratably among the holders of the Common Stock until
-----
such holders have received $0.50 per share; and
(vi) Sixth, to the holders of the Common Stock and the Convertible
-----
Preferred Stock on a pro rata basis according to the number of shares
of Common Stock (A) then held, with respect to the Common Stock, and
(B) into which the shares of Convertible Preferred Stock then held are
convertible, in the case of the Convertible Preferred Stock.
No adjustment to the Conversion Price pursuant to these Articles of
Incorporation shall alter the above liquidation preference dollar amounts.
(b) The provisions of Section 3(a) shall be subject to the rights of
any series of Preferred Stock with preference or priority over or on a parity
with the Convertible Preferred Stock with respect to the right to receive
distributions upon liquidation, dissolution or winding up.
(c) The dollar amounts specified in Section 3(a) shall be equitably
adjusted in the event of any stock splits, stock dividends or similar capital
modifications affecting the Common Stock or the Convertible Preferred Stock
after the filing of these Seventh Restated Articles of Incorporation.
(d) Insofar as any distribution pursuant to Section 3(a) consists of
property other than cash, the value thereof shall, for purposes of the
provisions of Section 3(a), be the fair value at the time of such distribution,
as determined in good faith by the Board.
5
<PAGE>
Section 4. Voting
------
(a) At all meetings of the stockholders of the Corporation and in the
case of any actions of stockholders in lieu of a meeting, each share of Common
Stock shall be entitled to one vote, and each share of Convertible Preferred
Stock shall be entitled to that number of votes equal to the number of whole
shares of Common Stock into which such share is then convertible (in accordance
with Section 5 hereof) on the record date set for the meeting or action or, if
no record date is set, on the date of such meeting or the date such action is
taken. Except as otherwise expressly provided in Sections 4(b), 4(c), 4(d),
4(e) and 4(f) below or as required by law, the holders of Common Stock and
Convertible Preferred Stock shall vote together as a single class in accordance
with the preceding sentence, and neither the Common Stock nor any series of
Convertible Preferred Stock shall be entitled to vote as a separate class on any
matter to be voted on by shareholders of the Corporation.
(b) The Corporation shall not amend, alter or repeal the preferences,
privileges, special rights or other powers of any series of Convertible
Preferred Stock, as set forth herein, in a manner adverse to the holders
thereof, (i) with respect to the Series A Preferred Stock, Series B Preferred
Stock and/or Series C Preferred Stock, without the affirmative vote of the
holders of a majority of the then outstanding shares of such affected series,
and (ii) with respect to the Series D Preferred Stock, the Series E Preferred
Stock and/or the Series F Preferred Stock, without the affirmative vote of the
holders of at least two-thirds of the then outstanding shares of such affected
series. For this purpose, the authorization or issuance of any series of
Preferred Stock, pursuant to a Certificate of Determination executed and filed
pursuant to Section 401 of the California Corporations Code, with preference or
priority over or on a parity with any series of Convertible Preferred Stock as
to the right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up, voting rights, conversion rights or the
right to consent to certain transactions of the Company, shall not be deemed to
alter the preferences and privileges of such series of Convertible Preferred
Stock and is herein expressly authorized by action of the Board of Directors
pursuant to this Article IV, subject to the provisions of Section 4(c) below.
(c) The Corporation shall not authorize or issue, or obligate itself
to issue, any other preferred equity security, whether junior or senior to or on
a parity with any series of the Convertible Preferred Stock as to dividend
rights, redemption or sinking fund rights, liquidation, preferences, conversion
rights, voting rights or otherwise, without (i) the affirmative vote of
6
<PAGE>
the holders of a majority of the then outstanding shares of the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting
for this purpose as a single class of stock, and (ii) the affirmative vote of
the holders of a majority of the then outstanding shares of the Series D
Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock,
with each such series voting for this purpose as a separate class of stock.
(d) The Corporation shall not effect any sale, lease, assignment,
transfer or other conveyance of all or substantially all of the assets of the
Corporation, or any merger or reorganization (as this term is defined in Section
181 of the California Corporations Code) involving the Corporation, or any
dissolution, liquidation or winding up of the Corporation, without the
affirmative vote of the holders of a majority of the then outstanding shares of
the Series D Preferred Stock, the Series E Preferred Stock and the Series F
Preferred Stock, with each such series voting for this purpose as a separate
class of stock.
(e) During such time as there exists and is continuing an "Event of
Default" (as defined in that certain Stock Purchase Agreement, dated as of
November 17, 1993, by and among the Corporation and the original purchasers of
the Series D Preferred Stock, that certain Stock Purchase Agreement, dated as of
August 26, 1994, by and among the Corporation and the original purchasers of the
Series E Preferred Stock, or that certain Stock Purchase Agreement dated as of
the date of the filing of these Seventh Restated Articles of Incorporation, by
and among the Corporation and the original purchasers of the Series F Preferred
Stock, such that an "Event of Default" as defined under any of such agreements
shall constitute an "Event of Default" for purposes of this Section 4(e) of
these Seventh Restated Articles of Incorporation), then (i) the holders of the
Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and
Series F Preferred Stock, voting together for this purpose as a single class of
stock, shall be entitled to elect five members of the Board, (ii) if at least
fifty percent (50%) of the shares of Series A Preferred Stock and Series B
Preferred Stock (as a group) theretofore issued remain outstanding, the holders
of the Common Stock, Series A Preferred Stock and Series B Preferred Stock,
voting together for this purpose as a single class of stock, shall be entitled
to elect two members of the Board, and (iii) the remaining members of the Board
shall be elected by the holders of the Common Stock and Convertible Preferred
Stock, voting together for this purpose as a single class of stock. Such right
of the holders of the Series C Preferred Stock, Series D Preferred Stock, Series
E Preferred Stock and Series F Preferred Stock to elect five directors shall
continue until such
7
<PAGE>
Event of Default shall no longer exist, at which point the directors shall again
be elected in accordance with Section 4(a) of these Seventh Restated Articles of
Incorporation. At any time after the right to elect five directors is so vested
in the Series C Preferred Stock, Series D Preferred Stock, Series E Preferred
Stock and Series F Preferred Stock, and at any time after such right terminates,
the holders of 5% or more of the outstanding shares of either the Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
Preferred Stock, as a group, the Common Stock, Series A Preferred Stock and
Series B Preferred Stock, as a group, or the Common Stock and Convertible
Preferred Stock, as a group, shall have the right to call a special meeting of
shareholders for the purpose of electing all members of the Board, such right to
be exercisable by delivering a request in writing for the calling of the special
meeting to the President or Secretary, or to the Chairman of the Board or a Vice
President, if there be such. The officer receiving the request shall forthwith
cause notice to be given to the shareholders entitled to vote that a meeting
will be held at a time requested by the person or persons calling the meeting,
which time shall be not less than 35 nor more than 60 days after the receipt of
the request. If the notice is not given within 20 days after receipt of the
request, the shareholders calling the meeting shall have the rights accorded to
them pursuant to subdivision (c) of Section 601 of the California Corporations
Code. Upon the election of directors at any such special meeting, the terms of
all persons who were directors immediately prior thereto shall terminate, and
the directors elected at such special meeting shall constitute the directors of
the Corporation until the next annual meeting (or, if earlier, until another
special meeting is convened in accordance with the foregoing provisions of this
paragraph).
(f) In the case of any vacancy in the office of a director occurring
among the directors elected by the holders of the Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
pursuant to Section 4(e) above, the remaining director or directors so elected
by such holders may, by affirmative vote of a majority of such remaining
directors (or the remaining director so elected if there is only one such
director), elect a successor or successors to hold the office for the unexpired
term of the director or directors whose place or places shall be vacant. In the
case of any vacancy in the office of a director occurring among the directors
elected by the holders of the Common Stock, Series A Preferred Stock and Series
B Preferred Stock pursuant to Section 4(e) above, the remaining director or
directors so elected by such holders may, by affirmative vote of a majority
thereof (or the remaining director so elected if there is only one such
director), elect a successor or successors to hold the office for
8
<PAGE>
the unexpired term of the director or directors whose place or places shall be
vacant. In the case of any vacancy in the office of a director occurring among
the directors elected by the holders of the Common Stock and Convertible
Preferred Stock pursuant to Section 4(e) above, the remaining director or
directors so elected by such holders may, by affirmative vote of a majority
thereof (or the remaining director so elected if there is only one such
director), elect a successor or successors to hold the office for the unexpired
term of the director or directors whose place or places shall be vacant.
Additionally, the holders of the Series C Preferred Stock, Series D Preferred
Stock, Series E Preferred Stock and Series F Preferred Stock (voting together as
a single class of stock for this purpose) may elect a director at any time to
fill any vacancy in the office of a director elected by them pursuant to Section
4(e) above and which has not been filled by the directors in accordance with the
foregoing, the holders of the Common Stock, Series A Preferred Stock and Series
B Preferred Stock (voting together as a single class of stock for this purpose)
may elect a director at any time to fill any vacancy in the office of a director
elected by them pursuant to Section 4(e) above and which has not been filled by
the directors in accordance with the foregoing, and the holders of the Common
Stock and Convertible Preferred Stock (voting together as a single class of
stock for this purpose) may elect a director at any time to fill any vacancy in
the office of a director elected by them pursuant to Section 4(e) above and
which has not been filled by the directors in accordance with the foregoing.
Section 5. Conversion
----------
The holders of the Convertible Preferred Stock shall have the
following conversion rights (the "Conversion Rights"):
(a) Optional Conversion. Each share of Convertible Preferred Stock
-------------------
shall be convertible, without the payment of any additional consideration by the
holder thereof and at the option of the holder thereof, at any time after the
date of issuance of such share, at the office of the Corporation or any transfer
agent for the Common Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing (i) $1.00, in the case of
the Series A Preferred Stock and the Series C Preferred Stock, (ii) $1.30, in
the case of the Series B Preferred Stock, (iii) $1.50, in the case of the Series
D Preferred Stock and (iv) $2.10, in the case of the Series E Preferred Stock
and the Series F Preferred Stock, by the Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The Conversion Price
at which shares of Common Stock shall be deliverable upon conversion without the
payment of any additional consideration by the holder thereof
9
<PAGE>
(the "Conversion Price") shall at the time of the filing of these Seventh
Restated Articles of Incorporation initially be (i) $1.00, in the case of the
Series A Preferred Stock and the Series C Preferred Stock, (ii) $1.30, in the
case of the Series B Preferred Stock, (iii) $1.50, in the case of the Series D
Preferred Stock and (iv) $2.10, in the case of the Series E Preferred Stock and
the Series F Preferred Stock. Each such initial Conversion Price shall be
subject to adjustment, in order to adjust the number of shares of Common Stock
into which the Convertible Preferred Stock is convertible, as hereinafter
provided.
(b) Automatic Conversion.
--------------------
(i) Each share of the Convertible Preferred Stock shall automatically
be converted into shares of Common Stock upon the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of the
Corporation's Common Stock if (A) if such closing occurs on or prior to December
31, 1995, the per share price is not less than $2.50 (as adjusted in the event
of stock dividends, stock splits and similar capital modifications) and the
aggregate purchase price of the Common Stock sold pursuant to such registration
equals or exceeds $15,000,000, or (B) if such closing occurs after December 31,
1995, the per share price is not less than $5.00 (as adjusted in the event of
stock dividends, stock splits and similar capital modifications) and the
aggregate purchase price of the Common Stock sold pursuant to such registration
equals or exceeds $10,000,000.
(ii) Additionally, any of the series of the Convertible Preferred
Stock, other than the Series D Preferred Stock, the Series E Preferred Stock and
the Series F Preferred Stock, shall be automatically converted into shares of
Common Stock upon either (x) the optional conversion into Common Stock of a
cumulative number of shares of such series representing a majority of the
aggregate number of shares of such series theretofore issued by the Corporation,
or (y) the affirmative vote (approving such automatic conversion) of the holders
of a majority of the shares of such series then outstanding. The shares of
Series D Preferred Stock, Series E Preferred Stock and Series F Preferred Stock
(treated as separate series) shall be automatically converted into shares of
Common Stock upon either (xx) the optional conversion into Common Stock of a
cumulative number of shares of such series representing at least two-thirds of
the aggregate number of shares of such series theretofore issued by the
Corporation, or (yy) the affirmative vote (approving such automatic conversion)
of the holders of at least two-thirds of the shares of such series then
outstanding.
10
<PAGE>
(c) Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Convertible Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price.
(d) Mechanics of Optional Conversion. Before any holder of
--------------------------------
Convertible Preferred Stock shall be entitled to convert the same into full
shares of Common Stock, he or it shall surrender the certificate or certificates
therefor, endorsed or accompanied by written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorney duly authorized in writing, at the office
of the Corporation or of any transfer agent for the Convertible Preferred Stock,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same and shall state therein such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Convertible Preferred Stock, or to his or its nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Convertible Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date. From and after such date, all rights of the holder
with respect to the Convertible Preferred Stock so converted shall terminate,
except only the right of such holder, upon the surrender of his or its
certificate or certificates therefor, to receive certificates for the number of
shares of Common Stock issuable upon conversion thereof and cash for fractional
shares.
(e) Mechanics of Automatic Conversion. All holders of record of
---------------------------------
shares of Convertible Preferred Stock will be given at least 30 days' prior
written notice of the anticipated date of any automatic conversion referenced in
Section 5(b) and four days' written notice of the actual date of such
conversion. The Corporation shall also exercise best efforts to provide four
days telephonic notice of such actual conversion date to said holders. Each
such notice shall designate a place for automatic conversion of all of the
shares of such Convertible Preferred Stock pursuant to Subsection 5(b). Such
notice will be sent by mail, first class, postage prepaid, to each record holder
of Convertible
11
<PAGE>
Preferred Stock at such holder's address appearing on the stock register. On or
before the date fixed for conversion, each holder of shares of Convertible
Preferred Stock shall surrender his or its certificate or certificates for all
such shares to the Corporation at the place designated in such notice, and shall
thereafter receive certificates for the number of shares of Common Stock or
other securities to which such holder is entitled. On the date fixed for
conversion, all rights with respect to the Convertible Preferred Stock will
terminate, except only the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock or other securities into which such Convertible
Preferred Stock has been converted and cash for fractional shares. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. All certificates evidencing
shares of Convertible Preferred Stock which are required to be surrendered for
conversion in accordance with the provisions hereof shall, from and after the
date such certificates are so required to be surrendered, be deemed to have been
retired and cancelled and the shares of Convertible Preferred Stock represented
thereby converted into Common Stock for all purposes, notwithstanding the
failure of the holder or holders thereof to surrender such certificates on or
prior to such date. As soon as practicable after the date of such automatic
conversion and the surrender of the certificate or certificates for Convertible
Preferred Stock as aforesaid, the Corporation shall cause to be issued and deliv
ered to such holder, or to his or its written order, a certifi cate or
certificates for the number of full shares of Common Stock or other securities
issuable on such conversion in accordance with the provisions hereof and cash as
provided in Subsection 5(c) in respect of any fraction of a share of Common
Stock otherwise issuable upon such conversion.
(f) Certain Adjustments to Conversion Price Applicable to all
---------------------------------------------------------
Convertible Preferred Stock.
- ---------------------------
(i) Adjustment for Stock Splits, Stock Dividends and Combinations of
----------------------------------------------------------------
Common Stock. In the event the outstanding shares of Common Stock shall, after
- ------------
the filing of these Seventh Restated Articles of Incorporation, be further
subdivided (split), or combined (reverse split), by reclassification or
otherwise, or in the event of any dividend or other distribution payable on the
Common Stock in shares of Common Stock, the applicable Conversion Price in
effect immediately prior to such subdivision, combination, dividend or other
distribution shall, concurrently with the effectiveness of such subdivision,
12
<PAGE>
combination or dividend or other distribution, be proportionately adjusted.
(ii) Adjustment for Merger or Reorganization, Etc. In case of a
---------------------------------------------
reclassification, reorganization or exchange (other than described in Subsection
(i) above) or any consolidation or merger of the Corporation with another
corporation (other than a merger, acquisition or other reorganization in which
the Corporation is not the surviving entity, any of which shall be considered a
liquidation pursuant to Section 3 of this Article IV), each share of Convertible
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such
Convertible Preferred Stock would have been entitled upon such reclassification,
reorganization, exchange, consolidation, merger or conveyance; and, in any such
case, appropriate adjust ment (as determined by the Board) shall be made in the
application of the provisions herein set forth with respect to the rights and
interests thereafter of the holders of the Convertible Preferred Stock, to the
end that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the applicable Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Convertible Preferred Stock.
(iii) Adjustments for Other Dividends and Distributions. In the
-------------------------------------------------
event the Corporation at any time or from time to time after the filing of these
Seventh Restated Articles of Incorporation makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, then and in each such event provision shall be made so that the
holders of Convertible Preferred Stock shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Company which they would have received had their
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the conversion date, retained such securities receivable by them
as aforesaid during such period, subject to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Convertible Preferred Stock.
13
<PAGE>
(g) Adjustment to Conversion Price of Series C Preferred Stock, Series
------------------------------------------------------------------
D Preferred Stock, Series E Preferred Stock and (after the Ratchet Adjustment
- -----------------------------------------------------------------------------
Period) Series F Preferred Stock for Issue or Sale of Additional Shares of
- --------------------------------------------------------------------------
Common Stock. In case at any time or from time to time on or after the filing
- ------------
of these Seventh Restated Articles of Incorporation the Corporation shall issue
or sell Additional Shares of Common Stock for a consideration per share less
than the Conversion Price of the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock or the Series F Preferred Stock,
as the case may be, then in effect, then and in each such case the then
Conversion Price of the Series C Preferred Stock, the Series D Preferred Stock
or the Series E Preferred Stock, as the case may be, or the Series F Preferred
Stock if such issuance or sale occurs after the Ratchet Adjustment Period, shall
be reduced to an adjusted Conversion Price (computed to the nearest cent, a half
cent being treated as a full cent) by dividing
(A) the sum of (X) the result obtained by multiplying the number of
shares of Common Stock outstanding immediately prior to such issue or sale by
the Conversion Price then in effect, and (Y) the consideration, if any, received
by the Corporation upon such issue and sale, by
(B) the number of shares of Common Stock outstanding immediately
after such issue or sale.
For purposes of adjusting the Conversion Price pursuant to the
foregoing clauses (A) and (B), Common Stock shall be deemed to be outstanding at
a particular time if it is outstanding at such time or if at such time (I) it
can be acquired upon the conversion of any then outstanding shares of
Convertible Preferred Stock or (II) it can be purchased upon the exercise of any
outstanding rights or options, or acquired upon the conversion of any
outstanding Convertible Securities, or acquired upon the conversion of any
Convertible Securities which can be purchased upon the exercise of any
outstanding rights or options.
No adjustment to the Conversion Price of the Series F Preferred Stock
shall be made pursuant to this Section 5(g) upon the issue or sale of Additional
Shares of Common Stock during the Ratchet Adjustment Period; rather, any such
issue or sale during the Ratchet Adjustment Period shall, with respect solely to
the Series F Preferred Stock, be subject to the adjustment provisions of Section
5(h) below.
(h) Adjustment to Conversion Price of Series F Preferred Stock for
--------------------------------------------------------------
Issue or Sale of Additional Shares of Common Stock During Ratchet Adjustment
- ----------------------------------------------------------------------------
Period. In case at any time or
- ------
14
<PAGE>
from time to time during the Ratchet Adjustment Period the Corporation shall
issue or sell Additional Shares of Common Stock for a consideration per share
less than the Conversion Price of the Series F Preferred Stock then in effect,
then and in each such case the then Conversion Price of the Series F Preferred
Stock shall be reduced to a price equal to the consideration per share for which
such Additional Shares of Common Stock are issued.
(i) Further Provisions for Adjustment of Conversion Price of Series C
-----------------------------------------------------------------
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Series F
- --------------------------------------------------------------------------------
Preferred Stock. For the purpose of Sections 5(g) and 5(h) above (applicable
- ---------------
solely to the Series C Preferred Stock, the Series D Preferred Stock, the Series
E Preferred Stock and the Series F Preferred Stock), the following provisions
shall be applicable:
(A) Issuance or Sale of Convertible Securities. In case at any time
------------------------------------------
on or after the filing of these Seventh Restated Articles of Incorporation, the
Corporation shall issue or sell any Convertible Securities, there shall be
determined as of the date of issue the price per share for which Additional
Shares of Common Stock are issuable upon the conversion or exchange thereof,
such determination to be made by dividing (X) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (Y) the maximum number of Additional Shares of Common Stock
issuable upon conversion or exchange of all of such Convertible Securities; and
such issue or sale shall be deemed to be an issue or sale for cash (as of the
date of issue or sale of such Convertible Securities) of such maximum number of
Additional Shares of Common Stock at the price per share so determined.
If such Convertible Securities shall by their terms provide for an
increase or increases, with the passage of time, in the amount of additional
consideration, if any, payable to the Corporation, or in the rate of exchange,
upon the conversion or exchange thereof, the adjusted Conversion Price shall,
forthwith upon any such increase becoming effective, be readjusted (but to no
greater extent than originally adjusted) to reflect the same.
If any rights of conversion or exchange evidenced by such Convertible
Securities shall expire without having been exercised, the adjusted Conversion
Price shall forthwith be readjusted to be the adjusted Conversion Price which
would have been in effect had an adjustment been made on the
15
<PAGE>
basis that the only Additional Shares of Common Stock issued or sold were those
actually issued upon the conversion or exchange of such Convertible Securities,
and that they were issued or sold for the consideration actually received by the
Corporation upon such conversion or exchange, plus the consideration, if any,
actually received by the Corporation for the issue or sale of such Convertible
Securities as were actually converted or exchanged.
(B) Grant of Rights or Options for Common Stock. In case at any time
-------------------------------------------
on or after the filing of these Seventh Restated Articles of Incorporation, the
Corporation shall grant any rights or options to subscribe for, purchase or
otherwise acquire Additional Shares of Common Stock, there shall be determined
as of the date of issue the price per share for which Additional Shares of
Common Stock are issuable upon the exercise of such rights or options, such
determination to be made by dividing (X) the total amount, if any, received or
receivable by the Corporation as consideration for the granting of such rights
or options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such rights or options, by (Y)
the maximum number of Additional Shares of Common Stock of the Corporation
issuable upon the exercise of such rights or options; and the granting of such
rights or options shall be deemed to be an issue or sale for cash (as of the
date of the granting of such rights or options) of such maximum number of
Additional Shares of Common Stock at the price per share so determined.
If such rights or options shall by their terms provide for an increase
or increases, with the passage of time, in the amount of additional
consideration payable to the Corporation upon the exercise thereof, the adjusted
Conversion Price shall, forthwith upon any such increase becoming effective, be
readjusted (but to no greater extent than originally adjusted) to reflect the
same.
If any such rights or options shall expire without having been
exercised, the adjusted Conversion Price shall forthwith be readjusted to be the
adjusted Conversion Price which would have been in effect had an adjustment been
made on the basis that the only Additional Shares of Common Stock so issued or
sold were those actually issued or sold upon the exercise of such rights or
options and that they were issued or sold for the consideration actually
received by the Corporation upon such exercise, plus the consideration, if any,
actually received by the Corporation for the granting of all such rights or
options, whether or not exercised.
16
<PAGE>
(C) Grant of Rights or Options for Convertible Securities. In case at
-----------------------------------------------------
any time on or after the filing of these Seventh Restated Articles of
Incorporation the Corporation shall grant any rights or options to subscribe
for, purchase or otherwise acquire Convertible Securities, such Convertible
Securities shall be deemed, for the purposes of such Section 5, to have been
issued and sold (as of the date of the granting of such option or rights) for
the total amount received or receivable by the Corporation as consideration for
the granting of such rights or options plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the exercise
of such rights or options.
If such rights or options shall by their terms provide for an increase
or increases, with the passage of time, in the amount of additional
consideration payable by the Corporation upon the exercise thereof, the adjusted
Conversion Price shall, forthwith upon any such increase becoming effective, be
readjusted (but to no greater extent than originally adjusted) to reflect the
same.
If any such rights or options shall expire without having been
exercised, the adjusted Conversion Price shall forthwith be readjusted to be the
adjusted Conversion Price which would have been in effect had an adjustment been
made on the basis that the only Convertible Securities so issued or sold were
those actually issued or sold upon the exercise of such rights or options and
that they were issued or sold for the consideration actually received by the
Corporation upon such exercise, plus the consideration, if any, actually
received by the Corporation for the granting of all such rights or options,
whether or not exercised.
(D) Determination of Consideration. Upon any issuance or sale for a
------------------------------
consideration other than cash, or a consideration part of which is other than
cash, of any Additional Shares of Common Stock or Convertible Securities or any
rights or options to subscribe for, purchase or otherwise acquire any Additional
Shares of Common Stock or Convertible Securities, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration as determined in good faith by the Board.
In case any Additional Shares of Common Stock or Convertible Securities or any
rights or options to subscribe for, purchase or otherwise acquire any Additional
Shares of Common Stock or Convertible Securities shall be issued or sold
together with other stock or securities or other assets of the Corporation for a
consideration which covers two or more thereof, the consideration for the issue
or sale of such Additional Shares of Common Stock or Convertible Securities or
such rights or options shall be deemed to be the
17
<PAGE>
portion of such consideration allocated thereto in good faith by the Board.
(E) Shares Considered Outstanding. The number of shares of Common
-----------------------------
Stock outstanding at any given time shall include shares issuable in respect of
scrip certificates issued in lieu of fractions of shares of Common Stock.
(F) Duration of Adjusted Conversion Price. Following each computation
-------------------------------------
or readjustment of an adjusted Conversion Price as provided above in this
Section 5, the new adjusted Conversion Price shall remain in effect until a
further computation or readjustment thereof is required by this Section 5.
(G) Other Action Affecting Common Stock. In case after the filing of
-----------------------------------
these Seventh Restated Articles of Incorporation the Corporation shall take any
action affecting its shares of Common Stock, other than an action described
above in this Section 5, which in the good faith opinion of the Board would have
a materially adverse effect upon the conversion rights of the Series C Preferred
Stock, the Series D Preferred Stock, the Series E Preferred Stock or the Series
F Preferred Stock, as the case may be, granted herein, the Conversion Price
shall be adjusted in such manner and at such time as the Board may in good faith
determine to be equitable in the circumstances.
(j) Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Convertible Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request, at any time, of any holder of Convertible Preferred Stock, furnish or
cause to be furnished to such holder a like certificate setting forth: (i) such
adjustments and readjustments; (ii) the applicable Conversion Price at the time
in effect; and (iii) the number of shares of Common Stock and the amount, if
any, of other property which at the time would be received upon the conversion
of the Convertible Preferred Stock.
(k) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters) or other distribution, any capital reorganization of
18
<PAGE>
the Corporation, any reclassification or recapitalization of the Corporation's
capital stock, any consolidation or merger with or into another corporation, any
transfer of all or substantially all of the assets of the Corporation or any
dissolution, liquidation or winding up of the Corporation, the Corporation shall
mail to each holder of Convertible Preferred Stock at least ten (10) days prior
to the date specified for the taking of a record, a notice specifying the date
on which any such record is to be taken for the purpose of such dividend or
distribution.
(l) Common Stock Reserved. The Corporation shall reserve and keep
---------------------
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Convertible Preferred Stock.
(m) Payment of Taxes. The Corporation will pay all taxes (other than
----------------
taxes based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Convertible Preferred Stock, other than any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Convertible Preferred Stock so converted were registered.
Section 6. Mandatory Redemption of Series C Preferred Stock.
------------------------------------------------
In the event of any merger or other reorganization in which the
Corporation is the surviving entity, and in the event of any acquisition by the
Corporation of any corporation or other business entity in which the Corporation
is the surviving entity, then unless such merger, reorganization or acquisition
has been approved by the affirmative vote of the holders of a majority of the
outstanding shares of the Series C Preferred Stock voting as a separate class
(it being acknowledged that such separate class approval by the Series C
Preferred Stock shall not be required, pursuant to Section 4 hereof, in order to
effect such merger, reorganization or acquisition), the Corporation shall, prior
to or concurrent with the effective date of such merger, reorganization or
acquisition, redeem all of those shares of Series C Preferred Stock which were
voted against such merger, reorganization or acquisition at a price of $1.00 per
share. The Corporation shall submit any such merger, reorganization or
acquisition to the separate class vote of the Series C Preferred Stock in order
to implement the foregoing. If, on or prior to such date of redemption, the
Corporation deposits with any bank or trust company in this state as a trust
fund a sum sufficient to so redeem such shares of Series C Preferred Stock, with
19
<PAGE>
irrevocable instructions and authority to the bank or trust company to pay, on
or after the date fixed for redemption, the redemption price of such shares of
Series C Preferred Stock to the holders thereof upon surrender of the share
certificates therefor, then from and after the date fixed for redemption such
shares of Series C Preferred Stock shall be deemed redeemed. The deposit shall
constitute full payment of the redemption price of such shares of Series C
Preferred Stock and from and after the date fixed for redemption such shares of
Series C Preferred Stock shall no longer be deemed outstanding and the holders
thereof shall cease to be shareholders with respect to such shares and shall
have no rights with respect thereto except only the right to receive from the
bank or trust company payment of the redemption price of the shares without
interest, upon surrender of their certificates therefor. If any such shares of
Series C Preferred Stock are converted into Common Stock pursuant to these
Seventh Restated Articles of Incorporation prior to such date fixed for
redemption, the bank or trust company forthwith shall return to the Corporation
funds deposited for shares so converted. After one year following the date
fixed for redemption, the bank or trust company shall return to the Corporation
funds deposited and not claimed and thereafter the holder of a share certificate
for Series C Preferred Stock so redeemed shall look solely to the Corporation
for payment.
Section 7. Redemption of Redeemable Preferred Stock.
----------------------------------------
(a) Mandatory Redemption at Election of Holders. The Corporation
-------------------------------------------
shall, at the election of the holders of the Redeemable Preferred Stock, redeem
such of the Redeemable Preferred Stock as such holders elect, in the manner and
at the Redemption Price hereinafter specified. In the event the Corporation
does not have sufficient funds legally available to redeem all such Redeemable
Preferred Stock which the holders thereof so elect to have redeemed, the
Corporation shall redeem pro rata (based upon the number of shares as to which
each holder elects to have redeemed) the number of shares of Redeemable
Preferred Stock it can legally redeem, and shall redeem the remainder elected
for redemption as soon as the Corporation has funds legally available therefor.
(b) Price. The redemption price (the "Redemption Price") for the
-----
Redeemable Preferred Stock shall be an amount per share equal to (i) in the case
of the Series D Preferred Stock, $1.50 plus any dividends declared but unpaid
thereon and (ii) in the case of the Series E Preferred Stock and the Series F
Preferred Stock, $2.10 plus any dividends declared but unpaid thereon.
(c) Election Procedure. The Corporation shall be required to redeem
------------------
the Redeemable Preferred Stock only if it receives at its principal place of
business from any holder of
20
<PAGE>
the Redeemable Preferred Stock written notice (an "Election Notice"), within the
first 120 days of the fiscal year of the Corporation commencing in 1999 or
within the first 120 days of any subsequent fiscal year, that such holder elects
to require the Corporation to redeem a specified number of shares (or all
shares) of such holder's Redeemable Preferred Stock in accordance with the
provisions hereof. Within ten (10) days after its first receipt of an Election
Notice during any such 120-day period, the Corporation shall mail written
notice, postage prepaid, to each holder of record of the Redeemable Preferred
Stock notifying each such holder that the Corporation has received such Election
Notice. The Corporation shall redeem such of the Redeemable Preferred Stock as
any holder of the Redeemable Preferred Stock elects to have redeemed by
delivering an Election Notice to the Corporation, at its principal place of
business, within such 120-day period; provided, however, that any such 120-day
period shall be extended solely to the extent necessary to provide that the
holders of the Redeemable Preferred Stock shall have a period of at least 30
days, following the Corporation's mailing of written notice of its first receipt
of an Election Notice, to deliver Election Notices to the Corporation in
accordance with this sentence.
(d) Redemption Notice by Company. The Corporation shall, not less
----------------------------
than thirty (30) days after the expiration of any applicable 120-day period
referred to in paragraph (c) above (or, if extended pursuant to the proviso to
the last sentence of paragraph (c), not less than thirty (30) days after the
expiration of such extension), mail written notice ("Redemption Notice"),
postage prepaid, to each holder of record of Redeemable Preferred Stock which
has delivered an Election Notice in accordance with paragraph (c) above, at the
holder's post office address last shown on the records of the Corporation. The
Redemption Notice shall state:
(i) the number of the outstanding shares of the Redeemable
Preferred Stock to be redeemed;
(ii) the number of shares of the Redeemable Preferred Stock held
by the holder which the Corporation shall redeem in accordance with
the provisions hereof;
(iii) that the shares of Redeemable Preferred Stock held by the
holder which the Corporation shall so redeem shall be redeemed in four
equal lots of 25% each on four separate dates (each a "Redemption
Date" and collectively the "Redemption Dates"), the first of which
shall be a specified date not later than sixty (60) days after the
giving of the Redemption Notice, and the other three of which shall be
each of the dates
21
<PAGE>
90, 180 and 270 days subsequent to such first Redemption Date;
(iv) the Redemption Price; and
(v) the time and manner in, and place at, which the holder is to
surrender to the Corporation on each of the four Redemption Dates the
certificate or certificates representing the shares of Redeemable
Preferred Stock to be redeemed on each such date.
(e) Surrender of Stock. On or before each Redemption Date, each
------------------
holder of Redeemable Preferred Stock to be redeemed pursuant to this Section 7
shall surrender to the Corporation the certificate or certificates representing
the shares to be redeemed on such Redemption Date, in the manner and at the
place designated in the Redemption Notice, and upon each such Redemption Date
the Redemption Price for such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, or
to such payee as such owner may designate in writing to the Corporation prior to
each such Redemption Date, and each surrendered certificate shall be cancelled
and retired.
(f) Termination of Rights. If the Redemption Notice is duly given and
---------------------
if, on or prior to a Redemption Date, the Redemption Price is paid, then
notwithstanding that the certificates evidencing any of the shares of Redeemable
Preferred Stock so called for redemption on such Redemption Date have not been
surrendered, all rights with respect to such shares shall forthwith after such
Redemption Date cease.
(g) Number of Redemption Procedures. The Corporation shall be
-------------------------------
required to redeem the Redeemable Preferred Stock in accordance with this
Section 7 on four annual occasions only (with each such annual occasion
including four separate quarterly redemptions in accordance with this Section
7), and all redemption rights of the holders of the Redeemable Preferred Stock
under this Section 7 shall terminate after the Corporation has redeemed any of
the Redeemable Preferred Stock in accordance with this Section 7 on four
separate annual occasions.
Section 8. Reissuance of Preferred Stock.
-----------------------------
Any shares of Convertible Preferred Stock which may be redeemed,
purchased or acquired by the Corporation or converted into Common Stock shall
return to the status of authorized and unissued Preferred Stock of an
undesignated series.
22
<PAGE>
V
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. The
Corporation is authorized to provide indemnification of agents (as defined in
Section 317 of the California Corporations Code) for breach of duty to the
Corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the California Corporations Code, subject to the limits on
such excess indemnification set forth in Section 204 of the California
Corporations Code.
3. The amendments and restatement set forth herein have been duly
approved and adopted by the Board of Directors of this Corporation.
4. The amendments set forth herein have been duly approved by the
required vote of the shareholders in accordance with Sections 902 and 903 of the
California Corporations Code. The Corporation has outstanding 2,865,171 shares
of Common Stock, 2,027,307 shares of Series A Preferred Stock, 796,530 shares of
Series B Preferred Stock, 1,400,000 shares of Series C Preferred Stock,
4,869,999 shares of Series D Preferred Stock, 2,619,049 shares of Series E
Preferred Stock and 1,624,334 shares of Series F Preferred Stock. The number of
shares voting in favor of the amendments equaled or exceeded the vote required
for approval. The percentage vote required for the approval of the amendments
was more than 50% of the Common Stock, more than 50% of the Series A Preferred
Stock, more than 50% of the Series B Preferred Stock, more than 50% of the
Series C Preferred Stock, at least two-thirds (66-2/3%) of the Series D
Preferred Stock, at least two-thirds (66-2/3%) of the Series E Preferred Stock,
and at least two-thirds (66-2/3%) of the Series F Preferred Stock, each voting
as a separate class.
The undersigned each further declares under penalty of perjury under
the laws of the State of California that the matters set forth in this
certificate are true and correct of his own knowledge.
Dated: July 31, 1995.
/s/ Gregor A. Campbell
-----------------------------
Gregor A. Campbell, President
/s/ John LaValle
-----------------------------
John LaValle, Secretary
23
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF OWNERSHIP
OF
PLASMA & MATERIALS TECHNOLOGIES, INC.
Gregor A. Campbell and John W. La Valle certify that:
1. They are the President and the Secretary, respectively, of Plasma
& Materials Technologies, Inc., a California corporation.
2. This corporation owns all the outstanding shares of Trikon
Technologies, Inc., a California corporation.
3. The Board of Directors of this corporation duly adopted the
following resolution:
RESOLVED, that this corporation merge Trikon Technologies, Inc.,
its wholly-owned subsidiary corporation, into itself and assume all
its obligations pursuant to Section 1110 of the California
Corporations Code; and
RESOLVED FURTHER, that, pursuant to and effective upon such
merger, Article I of the Articles of Incorporation of this corporation
shall be amended to provide as follows:
"The name of the Corporation is Trikon Technologies, Inc."
4. Article I of the Articles of Incorporation of this corporation is
amended to read as follows:
"The name of this corporation is Trikon Technologies, Inc."
5. The foregoing amendment of the Articles of Incorporation of this
corporation provides only for the change of the name of the surviving
corporation in a merger pursuant to Section 1110 of the California Corporations
Code, and requires no shareholder approval.
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
DATE: March 19, 1997
--------
/s/ Gregor A. Campbell
-----------------------------
Gregor A. Campbell, President
/s/ John W. LaValle
--------------------------
John W. LaValle, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
TRIKON TECHNOLOGIES, INC.
ARTICLE I
Applicability
-------------
Section 1. Applicability of Bylaws.
-----------------------
These Bylaws govern, except as otherwise provided by statute or its
Articles of Incorporation, the management of the business and the conduct of the
affairs of the Corporation.
ARTICLE II
Offices
-------
Section 1. Principal Executive Office.
--------------------------
The location of the principal executive office of the Corporation
is 9255 Deering Avenue, Chatsworth, California 91311.
Section 2. Other Offices.
-------------
The Board of Directors may establish other offices at any place or
places within or without the State of California.
Section 3. Change in Location or Number of Offices.
---------------------------------------
The Board of Directors may change any office from one location
to another or eliminate any office or offices.
<PAGE>
ARTICLE III
Meetings of Shareholders
------------------------
Section 1. Place of Meetings.
-----------------
Meetings of the shareholders shall be held at any place within or
without the State of California designated by the Board of Directors or, in the
absence of such designation, at the principal executive office of the
Corporation.
Section 2. Annual Meetings.
---------------
An annual meeting of the shareholders shall be held following the
end of the fiscal year of the Corporation at a date and time designated by the
Board of Directors. Directors shall be elected at each annual meeting and any
other proper business may be transacted thereat.
Section 3. Special Meetings.
----------------
(a) Special meetings of the shareholders may be called by a
majority of the Board of Directors, the Chairman of the Board, the President or
the holders of shares entitled to cast not less than 10 percent of the votes at
such meeting.
(b) Any request for the calling of a special meeting of the
shareholders shall (1) be in writing, (2) specify the date, which, except in the
case of a request by the Board of Directors, shall be not less than 35 or more
than 60 days after the receipt of the request, and the time thereof, (3) specify
the general nature of the business to be transacted thereat and (4) be given
either personally or by first-class mail, postage prepaid, or other means of
written communication to the Chairman of the Board, President, any vice
president or Secretary of the Corporation. The officer receiving a proper
request to call a special meeting of the shareholders shall, within 20 days
after receipt of such request, cause notice to be given pursuant to the
provisions of Section 4 of this Article to the shareholders entitled to vote
thereat that a meeting will be held at the date and time specified by the person
or persons calling the meeting.
(c) No business may be transacted at a special meeting unless the
general nature thereof was stated in the notice of such meeting.
<PAGE>
Section 4. Notice of Annual, Special or Adjourned Meetings.
-----------------------------------------------
(a) Whenever any meeting of the shareholders is to be held, a
written notice of such meeting shall be given in the manner described in
subdivision (d) of this Section not less than 10 (or, if sent by third-class
mail, 30) nor more than 60 days before the date thereof to each shareholder
entitled to vote thereat. The notice shall state the place, date and hour of the
meeting and (1) in the case of a special meeting, the general nature of the
business to be transacted or (2) in the case of the annual meeting, those
matters which the Board of Directors, at the time of the giving of the notice,
intend to present for action by the shareholders including, whenever directors
are to be elected at a meeting, the names of nominees intended at the time of
giving of the notice to be presented by the board for election.
(b) Any proper matter may be presented at an annual meeting for
action, except as is provided in subdivision (f) of Section 601 of the
Corporations Code of the State of California.
(c) Notice need not be given of an adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken, except that if the adjournment is for more than 45 days or if after the
adjournment a new record date is provided for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote thereat.
(d) Notice of any meeting of the shareholders or any report shall
be given either personally or by first-class mail, or, if there are more than
500 persons holding shares on the record date for the shareholders' meeting,
notice may be sent third-class mail, postage prepaid, or by other means of
written communication, addressed to the shareholder at his address appearing on
the books of the Corporation or given by him to the Corporation for the purpose
of notice; or if no such address appears or is given, at the place where the
principal executive office of the Corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice or report shall be deemed to
have been given at the time when delivered personally to the recipient or
deposited in the mail or sent by other means of written communication. An
affidavit of mailing of any notice or report in accordance with the provisions
of these Bylaws or the General Corporation Law of the State of California,
executed by the Secretary, assistant secretary or any transfer agent of the
Corporation, shall be prima facie evidence of the giving of the notice or
report.
3
<PAGE>
(e) If any notice or report addressed to the shareholder at his
address appearing on the books of the Corporation is returned to the Corporation
by the United States Postal Service marked to indicate that the United States
Postal Service is unable to deliver the notice or report to the shareholder at
such address, all future notices or reports shall be deemed to have been duly
given without further mailing if the same shall be available for the shareholder
upon his written demand at the principal executive office of the Corporation for
a period of one year from the date of the giving of the notice or report to all
other shareholders.
Section 5. Record Date.
-----------
(a) The Board of Directors may fix a time in the future as a
record date for the determination of the shareholders (1) entitled to notice of
any meeting or to vote thereat, (2) entitled to receive payment of any dividend
or other distribution or allotment of any rights or (3) entitled to exercise any
rights in respect of any other lawful action. The record date so fixed shall be
not more than 60 nor less than 10 days prior to the date of any meeting of the
shareholders nor more than 60 days prior to any other action.
(b) In the event no record date is fixed:
(1) The record date for determining the shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which
notice is given or, if the notice is waived, at the close of business
on the business day next preceding the day on which the meeting is
held;
(2) The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors has been taken, shall be the
day on which the first written consent is given;
(3) The record date for determining shareholders for any
other purpose shall be at the close of business on the day on which
the Board of Directors adopts the resolution relating thereto, or the
60th day prior to the date of such other action, whichever is later.
(c) Only shareholders of record on the close of business on the
record date are entitled to notice and to vote or to receive a dividend,
distribution or allotment of rights or to
4
<PAGE>
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the Corporation after the record date.
(d) A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the Board of Directors fixes a new record date for the adjourned
meeting, but the Board shall fix a new record date if the meeting is adjourned
for more than 45 days from the date set for the original meeting.
Section 6. Quorum.
------
(a) A majority of the shares entitled to vote at a meeting of the
shareholders, represented in person or by proxy, shall constitute a quorum for
the transaction of business thereat.
(b) Except as provided in Section 6(c) below, the affirmative vote
of a majority of the shares represented and voting at a duly held meeting at
which a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) shall be the act of the shareholders,
unless the vote of a greater number is required by law or the Articles of
Incorporation.
(c) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, provided that any action taken (other than adjournment) is approved by
at least a majority of the shares required to constitute a quorum.
Section 7. Adjournment.
-----------
Any meeting of the shareholders may be adjourned from time to time
whether or not a quorum is present by the vote of a majority of the shares
represented thereat either in person or by proxy. At the adjourned meeting the
Corporation may transact any business which might have been transacted at the
original meeting.
Section 8. Validation of Defectively Called, Noticed or Held Meetings.
----------------------------------------------------------
(a) The transactions of any meeting of the shareholders, however
called and noticed, and wherever held, are as valid as though had at a meeting
duly held after regular call and notice, if a quorum is present either in person
or by proxy,
5
<PAGE>
and if, either before or after the meeting, each of the persons entitled to vote
thereat, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
(b) Attendance of a person at a meeting shall constitute a waiver
of notice of and presence at such meeting, except (1) when the person objects,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened, and (2) that attendance at a meeting
is not a waiver of any right to object to the consideration of any matter
required by the General Corporation Law of the State of California to be
included in the notice but not so included, if such objection is expressly made
at the meeting.
(c) Any written waiver of notice shall comply with subdivision (f)
of Section 601 of the Corporations Code of the State of California.
Section 9. Voting for Election of Directors.
--------------------------------
(a) Every shareholder complying with subdivision (b) of this
section and entitled to vote at any election of directors may cumulate his votes
and give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which his shares are normally
entitled, or distribute his votes on the same principle among as many candidates
as he thinks fit.
(b) No shareholder shall be entitled to cumulate his votes (i.e.
cast for any candidate a number of votes greater than the number of votes which
such shareholder normally is entitled to cast) unless the candidate's or
candidates' names for which he desires to cumulate his votes have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting prior to the voting of his intention to cumulate his votes. If any one
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination.
(c) Election for directors may be by voice vote or by ballot
unless any shareholder entitled to vote demands election by ballot at the
meeting prior to the voting, in which case the vote shall be by ballot.
(d) In any election of directors, the candidates receiving the
highest number of affirmative votes of the shares
6
<PAGE>
entitled to be voted for them up to the number of directors to be elected by
such shares are elected as directors; votes against the director and votes
withheld shall have no legal effect.
Section 10. Proxies.
-------
(a) Every person entitled to vote shares may authorize another
person or persons to act with respect to such shares by a written proxy signed
by him or his attorney-in-fact and filed with the Secretary or the Corporation.
A proxy shall be deemed signed if the shareholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by him or his attorney-in-fact.
(b) Any duly executed proxy shall continue in full force and
effect until the expiration of the term specified therein or upon its earlier
revocation by the person executing it prior to the vote pursuant thereto (1) by
a writing delivered to the Corporation stating that it is revoked, (2) by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or (3) as to any meeting by attendance at the meeting and voting
in person by the person executing the proxy. No proxy shall be valid after the
expiration of 11 months from the date thereof unless otherwise provided in the
proxy. The date contained on the form of proxy shall be deemed to be the date of
its execution.
(c) A proxy which states that it is irrevocable is irrevocable for
the period specified therein subject to the provisions of subdivisions (e) and
(f) of Section 705 of the Corporations Code of the State of California.
Section 11. Inspectors of Election.
----------------------
(a) In advance of any meeting of the shareholders, the Board of
Directors may appoint either one or three persons (other than nominees for the
office of director) as inspectors of election to act at such meeting or any
adjournments thereof. If inspectors of election are not so appointed, or if any
person so appointed fails to appear or refuses to act, the Chairman of any such
meeting may, and on the request of any shareholder or his proxy shall, appoint
inspectors of elections (or persons to replace those who so fail or refuse to
act) at the meeting. If appointed at a meeting on the request of one or more
shareholders or the proxies thereof, the majority of shares represented in
person or by proxy shall determine whether one or three inspectors are to be
appointed.
7
<PAGE>
(b) The duties of inspectors of election and the manner of
performance thereof shall be as prescribed in Section 707 of the Corporations
Code of the State of California.
Section 12. Action by Written Consent.
-------------------------
(a) Subject to subdivisions (b) and (c) of this section, any
action which may be taken at any annual or special meeting of the shareholders
may be taken without a meeting, without a vote and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes which
would have been necessary to authorize or take such action at a meeting in which
all shares entitled to vote thereon were present and voted. All such consents
shall be filed with the Secretary of the Corporation and maintained with the
corporate records.
(b) Except for the election of a director by written consent to
fill a vacancy (other than a vacancy created by removal), directors may be
elected by written consent only by the unanimous written consent of all shares
entitled to vote for the election of directors. In the case of an election of a
director by written consent to fill a vacancy (other than a vacancy created by
removal), any such election requires the consent of a majority of the
outstanding shares entitled to vote.
(c) Unless the consents of all shareholders entitled to vote have
been solicited in writing, notice of any shareholder approval without a meeting
by less than unanimous written consent shall be given as provided in subdivision
(b) of Section 603 of the Corporations Code of the State of California.
(d) Any shareholder giving a written consent, or his proxyholders,
or a personal representative of the shareholder or their respective
proxyholders, may revoke the consent by a writing received by the Corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the Secretary of the
Corporation, but may not do so thereafter. Such revocation is effective upon its
receipt by the Secretary of the Corporation.
8
<PAGE>
ARTICLE IV
Directors
---------
Section 1. Number and Qualification of Directors.
-------------------------------------
(a) The authorized number of directors shall be not less than
five (5) nor more than nine (9). The exact number of Directors shall be fixed
from time to time, within the limits specified in this subdivision, by an
amendment of subdivision (b) of this Section adopted by the Board of Directors.
(b) The exact number of Directors shall be eight (8) until
changed as provided in subdivision (a) of this Section.
(c) The maximum or minimum authorized number of Directors may
only be changed by an amendment of this Section approved by the vote or written
consent of a majority of the outstanding shares entitled to vote; provided,
however, that in no case shall the stated maximum number of Directors exceed two
times the stated minimum number of authorized Directors minus one.
Section 2. Election of Directors.
---------------------
Directors shall be elected at each annual meeting of the
shareholders.
Section 3. Term of Office.
--------------
Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which he is elected and
until a successor has been elected.
Section 4. Vacancies.
---------
(a) A vacancy in the Board of Directors exists whenever any
authorized position of director is not then filled by a duly elected director,
whether caused by death, resignation, removal, change in the authorized number
of directors or otherwise.
(b) Except for a vacancy created by the removal of a director,
vacancies on the Board of Directors may be filled by a majority of the directors
then in office, whether or not less than a quorum, or by a sole remaining
director. A vacancy created by the removal of a director shall be filled only
by shareholders.
9
<PAGE>
(c) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written consent other
than to fill a vacancy created by removal requires the consent of a majority of
the outstanding shares entitled to vote.
Section 5. Removal.
-------
(a) The Board of Directors may declare vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony.
(b) Any or all of the directors may be removed without cause if
such removal is approved by a majority of the outstanding shares entitled to
vote; provided, however, that no director may be removed (unless the entire
Board of Directors is removed) if the votes cast against removal, or not
consenting in writing to such removal, would be sufficient to elect such
director if voted cumulatively at an election at which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of directors authorized at
the time of his most recent election were then being elected.
(c) Any reduction of the authorized number of directors does not
remove any director prior to the expiration of his term of office.
Section 6. Resignation.
-----------
Any director may resign effective upon giving written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors of the Corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the resignation is effective at a future
time, a successor may be elected to take office when the resignation becomes
effective.
Section 7. Fees and Compensation.
---------------------
Directors may be reimbursed for their expenses, if any, for
attendance at each meeting of the Board of Directors and may be paid a fixed sum
determined by resolution of the Board of Directors for attendance at each such
meeting. No such payments shall preclude any director from serving the
Corporation in any other capacity and receiving compensation in any manner
therefor.
10
<PAGE>
Section 8. Approval of Loans to Officers
-----------------------------
The Corporation may, upon the approval of the Board of Directors
alone, make loans of money or property to, or guarantee the obligations of, any
officer of the Corporation or its parent or subsidiary, whether or not a
director, or adopt an employee benefit plan or plans authorizing such loans or
guaranties provided that (i) the Board of Directors determines that such a loan
or guaranty or plan may reasonably be expected to benefit the corporation, (ii)
the corporation has outstanding shares held of record by 100 or more persons
determined as provided in Section 605 of the Code) on the date of approval by
the Board of Directors, and (iii) the approval of the Board of Directors is by a
vote sufficient without counting the vote of any interested director or
directors.
ARTICLE V
Committees of the Board of Directors
------------------------------------
Section 1. Designation of Committees.
-------------------------
The Board of Directors may, by resolution adopted by a majority of
the authorized number of directors, designate (1) one or more committees, each
consisting of two or more directors and (2) one or more directors as alternate
members of any committee, who may replace any absent member at any meeting of
the committee. The appointment of members or alternative members of a committee
requires the vote of a majority of the authorized number of directors. Any
member or alternate member of a committee shall serve at the pleasure of the
Board.
Section 2. Powers of Committees.
--------------------
Any committee, to the extent provided in the resolution of the
Board of Directors designating such committee, shall have all the authority of
the Board, except with respect to:
(a) The approval of any action for which the General
Corporation Law of the State of California also requires approval by
the shareholders;
(b) The filling of vacancies on the Board or in any
committee thereof;
11
<PAGE>
(c) The fixing of compensation of the directors for serving
on the Board or on any committee thereof;
(d) The amendment or repeal of these ByLaws or the adoption
of new bylaws;
(e) The amendment or repeal of any resolution of the Board
which by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the Corporation,
except at a rate or in a periodic amount or within a price range
determined by the Board of Directors; or
(g) The designation of other committees of the Board or the
appointment of members or alternate members thereof.
ARTICLE VI
Meetings of the Board of Directors
----------------------------------
and Committees Thereof
----------------------
Section 1. Place of Meetings.
-----------------
Regular meetings of the Board of Directors shall be held at any
place within or without the State of California which has been designated from
time to time by the Board or, in the absence of such designation, at the
principal executive office of the Corporation. Special meetings of the Board
shall be held either at any place within or without the State of California
which has been designated in the notice of the meeting or, if not stated in the
notice or there is no notice, at the principal executive office of the
Corporation.
Section 2. Organization Meeting.
--------------------
Immediately following each annual meeting of the shareholders the
Board of Directors shall hold a regular meeting for the purpose of organization
and the transaction of other business. Notice of any such meeting is not
required.
12
<PAGE>
Section 3. Other Regular Meetings.
----------------------
Other regular meetings of the Board of Directors shall be held
without call at such time as shall be designated from time to time by the Board.
Notice of any such meeting is not required.
Section 4. Special Meetings.
----------------
Special meetings of the Board of Directors may be called at any
time for any purpose or purposes by the Chairman of the Board or the President
or any vice president or the Secretary or any two directors. Notice shall be
given of any special meeting of the Board.
Section 5. Notice of Special Meetings.
--------------------------
(a) Notice of the time and place of special meetings of the Board
of Directors shall be delivered personally or by telephone to each director or
sent to each director by first-class mail or telegraph, charges prepaid. Such
notice shall be given four days prior to the holding of the special meeting if
sent by mail or 48 hours prior to the holding thereof if delivered personally or
given by telephone or telegraph. The notice or report shall be deemed to have
been given at the time when delivered personally to the recipient or deposited
in the mail or sent by other means of written communication.
(b) Notice of any special meeting of the Board of Directors need
not specify the purpose thereof and need not be given to any director who signs
a waiver of notice or a consent to holding the meeting or an approval of minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to him. All
such waivers, consents and approvals shall be filed with the corporate records
or made a part of the minutes.
Section 6. Quorum; Action at Meetings;
--------------------------
Telephone Meetings.
------------------
(a) A majority of the authorized number of directors shall
constitute a quorum for the transaction of business. Every act or decision done
or made by a majority of the directors present at a meeting held duly at which a
quorum is present is the act of the Board of Directors, unless action by a
greater proportion of the directors is required by law or the Articles of
Incorporation.
13
<PAGE>
(b) A meeting at which a quorum is initially present may continue
to transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
(c) Members of the Board of Directors may participate in a meeting
through use of conference telephone or similar communications equipment, so long
as all members participating in such meeting can hear one another. A member who
participates in a meeting pursuant to this subdivision (c) shall be deemed
'present' at such meeting for purposes of these Bylaws.
Section 7. Adjournment.
-----------
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than 24 hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the directors
who were not present at the time of the adjournment.
Section 8. Action Without a Meeting.
------------------------
Any action required or permitted to be taken by the Board of
Directors may be taken without a meeting, if all members of the Board
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board. Such action by written consent shall have the same force and effect as a
unanimous vote of such directors.
Section 9. Meetings of and Action by Committees.
------------------------------------
The provisions of this article apply to committees of the Board of
Directors and incorporators and action by such committees and incorporators with
such changes in the language and its members for the Board and its members.
14
<PAGE>
ARTICLE VII
Officers
--------
Section 1. Officers.
--------
The Corporation shall have as officers, a president, a secretary
and a chief financial officer. The chief financial officer shall also be the
treasurer of the Corporation unless the Board of Directors has by resolution
designated another person to hold such position. The Corporation may also have
at the discretion of the Board, a Chairman of the Board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this article. One person may hold two or more offices.
Section 2. Election of Officers.
--------------------
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
article, shall be chosen by the Board of Directors.
Section 3. Subordinate Officers, Etc.
-------------------------
The Board of Directors may appoint by resolution, and may empower
the Chairman of the Board, if there be such an officer, or the President, to
appoint such other officers as the business of the Corporation may require, each
of whom shall hold office for such period, have such authority and perform such
duties as are determined from time to time by resolution of the Board or, in the
absence of any such determination, as are provided in these ByLaws. Any
appointment of an officer shall be evidenced by a written instrument filed with
the Secretary of the Corporation and maintained with the corporate records.
Section 4. Removal and Resignation.
-----------------------
(a) Any officer may be removed, either with or without cause, by
the Board of Directors or, except in case of any officer chosen by the Board, by
any officer upon whom such power of removal be conferred by resolution of the
Board.
(b) Any officer may resign at any time effective upon giving
written notice to the Chairman of the Board, President, any vice president or
Secretary of the Corporation,
15
<PAGE>
unless the notice specifies a later time for the effectiveness of such
resignation.
Section 5. Vacancies.
---------
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these ByLaws for regular appointments to such office.
Section 6. Chairman of the Board.
---------------------
If there is a Chairman of the Board, he shall preside at all
meetings of the Board of Directors and shareholders and exercise and perform
such other powers and duties as may be from time to time assigned to him by
resolution of the Board.
Section 7. President.
---------
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the President shall be the chief executive officer and general manager of the
Corporation and shall, subject to the control of the Board, have general
supervision, direction and control of the business and affairs of the
Corporation. In the absence of the Chairman of the Board, or if there be none,
the President shall preside at all meetings of the shareholders and at all
meetings of the Board. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed from time to time by
resolution of the Board.
Section 8. Vice President.
--------------
In the absence or disability of the President, the vice presidents
in order of their rank as fixed by the Board of Directors or, if not ranked, the
Vice President designated by the Board, shall perform all the duties of the
President, and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the President. The vice presidents shall have such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board or as the President may from time
to time delegate.
16
<PAGE>
Section 9. Secretary.
---------
(a) The Secretary shall keep or cause to be kept (1) the minute
book, (2) the share register and (3) the seal, if any, of the Corporation.
(b) The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the Board of Directors required by these
ByLaws or by law to be given, and shall have such other powers and perform such
other duties as may be prescribed from time to time by the Board.
Section 10. Chief Financial Officer.
-----------------------
(a) The Chief Financial Officer shall be the treasurer of the
Corporation and shall keep, or cause to be kept, the books and records of
account of the Corporation.
(b) The Chief Financial Officer shall deposit all monies and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated from time to time by resolution of the Board
of Directors. He shall disburse the funds of the Corporation as may be ordered
by the Board of Directors, shall render to the President and the Board, whenever
they request it, an account of all of his transactions as Chief Financial
Officer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed from time to
time by the Board or as the President may from time to time delegate.
ARTICLE VIII
Records and Reports
-------------------
Section 1. Minute Book Maintenance and Inspection.
--------------------------------------
The Corporation shall keep or cause to be kept in written form at
its principal executive office or such other place as the Board of Directors may
order, a minute book which shall contain a record of all actions by its
shareholders, Board or committees of the Board including the time, date and
place of each meeting; whether a meeting is regular or special and, if special,
how called; the manner of giving notice of each meeting and a copy thereof; the
names of those present at each meeting of the Board or committees thereof; the
number of shares present or represented at each meeting of the shareholders; the
proceedings of all meetings; any written waivers of notice, consents to the
holding
17
<PAGE>
of a meeting or approvals of the minutes thereof; and, written consents for
action without a meeting.
Section 2. Share Register - Maintenance and Inspection.
-------------------------------------------
The Corporation shall keep or cause to be kept at its principal
executive office, or if so provided by resolution of the Board of Directors,
with the Corporation's transfer agent or registrar, a share register, or a
duplicate share register, which shall contain the names of the shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for the same and the number and date of cancellation
of every certificate surrendered for cancellation.
Section 3. Books and Records of Account - Maintenance and Inspection.
---------------------------------------------------------
The Corporation shall keep or cause to be kept at its principal
executive office or such other place as the Board of Directors may order,
adequate and correct books and records of account.
Section 4. Bylaws - Maintenance and Inspection.
-----------------------------------
The Corporation shall keep at its principal executive office, or
in the absence of such office in the State of California, at its principal
business office in that state, the original or a copy of the ByLaws as amended
to date.
Section 5. Annual Report to Shareholders.
-----------------------------
The Board of Directors shall cause an annual report to be sent to
the shareholders not later than 120 days after the close of the fiscal year of
the Corporation. Such report shall comply with the provisions of Section 1501 of
the California Corporations Code and shall be sent in a manner specified in
Section 4(d) of Article III of these Bylaws at least 15 days prior to the annual
meeting of shareholders to be held during the next fiscal year.
18
<PAGE>
ARTICLE IX
Miscellaneous
-------------
Section 1. Checks, Drafts, Etc.
-------------------
All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, and any assignment or endorsement thereof,
issued in the name or payable to the Corporation, shall be signed or endorsed by
such person or persons and in such manner as, from time to time, shall be
determined by resolution of the Board of Directors.
Section 2. Contracts, Etc. - How Executed.
------------------------------
The Board of Directors, except as otherwise provided in these
ByLaws, may authorize any officer or officers, agent or agents, to enter into
any contract or execute any instrument in the name of and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized or ratified by the Board, no officer,
employee or other agent shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or to any amount.
Section 3. Certificates of Stock.
---------------------
All certificates shall be signed in the name of the Corporation by
the Chairman of the Board or the President or a vice president and by the
Treasurer or an assistant treasurer or the Secretary or an assistant secretary,
certifying the number of shares and the class or series thereof owned by the
shareholder. Any or all of the signatures on a certificate may be by facsimile
signature. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.
Section 4. Lost Certificates.
-----------------
Except as provided in this section, no new certificate for shares
shall be issued at any time. The Board of Directors may, in case any share
certificate or certificate for
19
<PAGE>
any other security is lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, upon such terms and conditions as the Board may
require, including provision for indemnification of the Corporation secured by a
bond or other adequate security sufficient to protect the Corporation against
any claim that may be made against it, including any expense or liability, on
account of the alleged loss, theft or destruction of such certificate or the
issuance of such new certificate.
Section 5. Representation of Shares of
---------------------------
Other Corporations.
------------------
Any person designated by resolution of the Board of Directors or,
in the absence of such designation, the Chairman of the Board, the President or
any vice president or the Secretary, or any other person authorized by any of
the foregoing, is authorized to vote on behalf of the Corporation any and all
shares of any other corporation or corporations, foreign or domestic, owned by
the Corporation.
Section 6. Construction and Definitions.
----------------------------
Unless the context otherwise requires, the general provisions,
rules of construction and definitions contained in the Corporations Code of the
State of California shall govern the construction of these Bylaws.
Section 7. Indemnification of Directors,
----------------------------
Officers and Employees.
----------------------
(a) The Corporation shall, to the maximum extent permitted by the
General Corporation Law of the State of California, and as the same from time to
time may be amended, indemnify each of its agents against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding to which such person was or is a party or is
threatened to be made a party arising by reason of the fact that such person is
or was an agent of the Corporation. For purposes of this Section 7, an "agent"
of the Corporation includes any person who is or was serving at the request of
the Corporation as a director, officer, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the Corporation or of another enterprise
at the request of such predecessor corporation; "proceeding" means any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative, and includes an
20
<PAGE>
action or proceeding by or in the right of the Corporation to procure a judgment
in its favor; and "expenses" includes attorneys' fees and any expenses of
establishing a right to indemnification under this subdivision (a).
(b) The right of indemnification provided in this Section shall
inure to each person referred to herein, and shall extend to his legal
representatives in the event of his death. The right of indemnification provided
herein shall not be exclusive of any other rights to which any such person, or
any other individual, may be entitled as a matter of law, or pursuant to any
agreement, vote of directors or shareholders or otherwise.
(c) The Corporation shall, if and to the extent the Board of
Directors so determines by resolution, purchase and maintain insurance in an
amount and on behalf of such agents of the Corporation as the Board may specify
in such resolution against any liability asserted against or incurred by the
agent in such capacity or arising out of the agent's status as such whether or
not the Corporation would have the capacity to indemnify the agent against such
liability under the provisions of this section.
ARTICLE X
Amendments
----------
Section 1. Amendments.
----------
New Bylaws may be adopted or these Bylaws may be amended or
repealed by the affirmative vote of a majority of the outstanding shares
entitled to vote. Subject to the next preceding sentence, bylaws (other than a
bylaw or amendment thereof specifying or changing a fixed number of directors or
the maximum or minimum number, or changing from a fixed to a variable board or
vice versa) may be adopted, amended or repealed by the Board of Directors.
21
<PAGE>
Exhibit 4.5
The following form of Promissory Note was issued by the Company to each of
St. Paul Fire & Marine Insurance Company, SBIC Partners, L.P., Brentwood
Associates V., L.P., Bruce Hendry and Tonkawa N.G. Partners on December 16,
1996.
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND ARE SUBJECT TO
CERTAIN INVESTMENT REPRESENTATIONS. THESE SECURITIES MAY NOT BE SOLD, OFFERED
FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER THE
ACT, AND THE APPLICABLE BLUE SKY LAWS OR AN EXEMPTION THEREFROM.
SUBORDINATED PROMISSORY NOTE
Chatsworth, California
$1,250,000 ____________, 1996
FOR VALUE RECEIVED, Plasma & Materials Technologies, Inc., a California
corporation (the "Company"), promises to pay to the order of ________________, a
Minnesota corporation, its successors and assigns (the "Holder"), at
______________________________, or at such other place designated at any time by
the Holder hereof, in lawful money of the United States of America and in
immediately available funds, the lesser of (i) One Million Two Hundred Fifty
Thousand Dollars ($1,250,000) or, (ii) the unpaid aggregate principal amount of
the Loan advanced hereunder together with interest on the unpaid balance
accruing at the rate specified herein (this "Note").
The Company promises to pay interest on the unpaid principal amount hereof
from time to time outstanding from the date hereof until the payment hereof
(whether by maturity or otherwise) and after maturity until paid, at a variable
rate equal to the prime rate of interest at Bank of America, N.A. plus 4%, and
adjusted from time to time as the prime rate changes, with interest payable
quarterly beginning on December 31 and payable quarterly on each March 31, June
30, September 30, and December 31 thereafter on all unpaid principal amounts
outstanding during the preceding quarter. This Note is one of a Series of notes
issued under that certain Note Purchase and Loan Agreement, dated as of _______,
1996 ("Note Purchase Agreement") by and among the Company and St. Paul Fire and
Marine Insurance Company, SBIC Partners, L.P., Brentwood Associates V, L.P.,
Bruce Hendry and Tonkawa N.G. Partners. Capitalized terms used in this Note
without definition shall have the respective meanings set forth in the Note
Purchase Agreement.
1. Subordination.
-------------
(a) Senior Debt. This Note is unsecured in all respects. The Company
-----------
covenants and agrees, and the Holder of this Note by acceptance hereof
covenants and agrees, that the payment of the principal of and the interest
on this Note is hereby expressly subordinated, to the extent and in the
manner hereinafter set forth, to the prior payment of the principal of,
premium, if any, interest on and other amounts due on indebtedness of the
Company, whether outstanding on the date of this Note or thereafter
created, incurred, assumed or guaranteed by the Company; unless, in the
instrument creating or evidencing or pursuant
2
<PAGE>
to which indebtedness is outstanding, it is expressly provided that such
indebtedness is not senior in right of payment to this Note ("Senior
Debt"). Senior Debt includes, with respect to the obligations described
above, interest accruing, pursuant to the terms of such Senior Debt, on or
after the filing of any petition in bankruptcy or for reorganization
relating to the Company, whether or not post-filing interest is allowed in
such proceeding, at the rate specified in the instrument governing the
relevant obligation. Notwithstanding anything to the contrary in the
foregoing, Senior Debt shall not include: (a) indebtedness of or amounts
owed by the Company for compensation to employees, or for goods, services
or materials purchased in the ordinary course of business; (b) indebtedness
of the Company to a Subsidiary of the Company; or (c) any liability for
Federal, state, local, foreign or other taxes, owed or owing by the
Company. No payment shall be made on this Note (i) unless all amounts then
due and payable on all Senior Debt have been paid in full or (ii) if at the
time of such payment there shall have occurred and be continuing any event
of default with respect to any Senior Debt permitting the holders thereof
to accelerate the maturity of such indebtedness. However, provided that the
Company has paid all amounts then due and payable with respect to all
Senior Debt and there is no continuing default with respect to any Senior
Debt, the Company shall be obligated to pay the amounts due pursuant to
this Note when due. Upon (i) the maturity of such Senior Debt, including by
acceleration or otherwise, (ii) any distribution of the assets of the
Company upon dissolution, winding up, liquidation or reorganization of the
Company, the holders of such Senior Debt shall be entitled to receive
payment in full before the Holder is entitled to receive any payment. In
the event of any payment is made to the Holder in violation of this Section
1(a), the payment made to the Holders shall be immediately paid over to the
holders of such Senior Debt.
(b) Other Debt. This Note shall rank equal in right of payment to the
----------
Company's existing 7-1/8% convertible subordinated debt, pursuant to the
Indenture dated as of October 7, 1996 (the "Indenture"), in the original
principal amount of $86,250,000 This Note shall rank equal in right of
payment to all other indebtedness of the Company, except for (i) any Senior
Debt, with respect to which the Note is expressly subordinated pursuant to
the terms of Section 1(a), and (ii) indebtedness expressly made subordinate
to this Note.
2. Advances. From time to time, but prior to January 1, 1998, Holder agrees,
--------
subject to the terms and conditions herein, and in the Note Purchase Agreement,
to make advances to Company, on a Pro Rata Basis with the other Holders, in an
aggregate amount not to exceed the stated amount of this Note. As a condition
to making any advances hereunder, the Company shall deliver to the Holder the
documents required by Sections 5.3 and 5.4 of the Note Purchase Agreement. The
advances shall be added to the principal balance hereunder at the time of wire
transfer of funds from Holder to Company. Any principal amount repaid to the
Holder by the Company shall reduce the amount available for advance and may not
be reborrowed by the Company.
3. Endorsement. The Holder is irrevocably authorized to endorse on the
-----------
attached schedule (or a continuation thereof) appropriate notations to evidence
the date and amount of any amount advanced hereunder and any payment of
principal by the Company; provided that the failure by
3
<PAGE>
Holder to make any such endorsement shall not affect the obligations of the
Company hereunder. Holder shall furnish Company with an updated copy of the
attach schedule upon making any such notation.
4. Maturity. The entire principal balance hereof, together with all accrued
--------
and unpaid interest thereon, shall be due and payable on December 31, 1999.
5. Prepayment. The Company may, at its option, at any time prepay this Note,
----------
either in whole, or from time to time, in part, at 101% of the principal amount
prepaid, together with interest accrued and unpaid thereon to the date of such
prepayment.
6. Events of Default and Acceleration. Any part or all of the amount due
----------------------------------
to the Holder hereunder, at the option of the Holder, unless the Holder and the
Company have agreed in writing to an extension or other accommodation, shall
become immediately due and payable without notice or demand (which are expressly
waived by the Company) upon the occurrence of any of the following events of
default:
(a) The Company fails to make any payment of interest on this Note within
10 days of the date such payment is required to be made in accordance with
the terms of this Note;
(b) The Company fails to make the payment of principal of the Note when the
same becomes due and payable at maturity;
(c) The Company fails to perform any of its obligations (other than payment
obligations) under, or to comply with any of the terms, conditions, and
covenants contained in this Note or the Note Purchase Agreement, within 30
days after written notice of such failure, provided, however, that in the
event such failure has not been remedied within such 30-day period, but the
Company is diligently working to remedy it, the Company shall have an
additional 30 days to remedy such failure;
(d) The Company fails to cure default in the payment of any material
indebtedness owing to any other firm or person within the cure period, if
any, applicable to such default or the default shall not have been waived
in writing;
(e) any warranty or representation made in the Note Purchase Agreement or
any statement, warranty, or representation that has been or in the future
is made in any other certificate, report, document, instrument or agreement
delivered to the Holder pursuant to the Note Purchase Agreement shall be
false or inaccurate in any material respect when made or any representation
or warranty made in connection with any indebtedness shall be false or
inaccurate in any material respect which materially impairs the Holder's
rights under this Note or the Note Purchase Agreement; or
(f) Any "Event of Default" under the Indenture shall have occurred.
7. Remedies. The remedies of Holder as provided herein shall be cumulative
--------
and concurrent with all other remedies provided by law or in equity and may be
pursued singly, successively or together at the sole direction of the holder and
may be exercised as often as occasion therefor
4
<PAGE>
shall arise. No act or omission or commission by Holder, including specifically,
any failure to exercise any right, remedy or recourse, shall be deemed a waiver
or release of the same, such waiver or release to be effective only as set forth
in a written document executed by Holder and then only to the extent
specifically recited therein. A waiver or release with reference to one event
shall not be construed as continuing as a bar to or as a waiver or release of
any subsequent right, remedy or recourse as to any subsequent event.
8. Affirmative Covenants. Until the repayment in full of all amounts due
---------------------
Holder under this Note, the Company shall keep all covenants set forth in
Section 7 of the Note Purchase Agreement.
9. Attorney's Fees. Subject to any applicable notice and cure periods, if the
---------------
principal and interest on this Note is not paid when due, whether or not
collection is initiated by the prosecution of any suit, or by any other judicial
proceeding, or this Note is placed in the hands of an attorney for collection,
the Company shall pay, in addition to all other amounts owing hereunder, all
court costs and reasonable attorney's fees incurred by the Holder in connection
therewith.
10. Waiver and Consent. The Company hereby waives presentment for payment,
------------------
notice of nonpayment, protest, notice of protest and all other notices, filing
of suit and diligence in collecting the amounts due under this Note and agrees
that the Holder shall not be required first to initiate any suit or exhaust its
remedies against the undersigned or any other person or parties in order to
enforce payment of this Note, and consents to any extension, rearrangement,
renewal or postponement of the time for payment of this Note, and to any other
indulgence with respect thereto without notice, consent or consideration to any
of them.
11. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California.
12. Miscellaneous Provisions. This Note shall be binding on the successors and
------------------------
assigns of Company and inure to the benefit of the Holder, its successors,
endorsees and assigns. If any terms or provisions of this Note are deemed
invalid, the validity of all other terms an provisions hereof shall in no way be
affected thereby. This Note may not be changed orally, but only by an agreement
in writing and signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
IN WITNESS WHEREOF the Company has signed this Note as of the date written
above.
PLASMA & MATERIALS
TECHNOLOGIES, INC.
By /s/ John W. LaValle
------------------------------
Its CFO
-------------------------
5
<PAGE>
RECORD OF ADVANCES AND REPAYMENTS
<TABLE>
<CAPTION>
==============================================================================================
Advance Repayment Outstanding Notation
Date Commitment Amount Amount Principal Balance Made By:
Amount
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
__/__/96 $1,250,000
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
===============================================================================================
</TABLE>
6
<PAGE>
EXHIBIT 4.6
The following form of Common Stock Purchase Warrant was issued by the
Registrant to each of St. Paul Fire & Marine Insurance Company, SBIC Partners,
L.P., Brentwood Associates V. L.P., Bruce Hendry and Tonkawa N.G. Partners.
<PAGE>
THE SECURITIES EVIDENCED BY THIS WARRANT OR ISSUABLE UPON EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE BLUE SKY LAWS AND ARE SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS.
THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH APPLICABLE BLUE
SKY LAWS OR AN EXEMPTION THEREFROM.
Warrant No. 96-_ December 16, 1996
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, and permitted assigns
("Warrantholder"), is entitled to purchase from Plasma & Materials Technologies,
Inc., a California corporation (the "Company"), on the terms and conditions
contained herein, Forty-Nine Thousand and Twenty (49,020) shares of the
Company's Common Stock, no par value per share (the "Common Stock"), at a price
of Twelve Dollars and Seventy-Five Cents ($12.75) per share (the "Warrant
Price").
1. Exercisability of Warrant. This Warrant shall be exercisable in
-------------------------
the following manner: (a) fifty percent (50%) of the shares of Common Stock
subject hereto (the "Warrant Shares") shall be immediately exercisable and (b)
the remaining shares of Common Stock subject hereto (the "Remaining Warrant
Shares") shall be exercisable, if at all, following the funding by Warrantholder
of all or any portion of the amount that such Warrantholder has committed to
fund (the "Commitment") under that certain Note Purchase and Loan Agreement
dated as of an even date herewith (the "Note Purchase Agreement") among the
Company, Warrantholder and the other parties thereto. Following each funding
under the Note Purchase Agreement, the Remaining Warrant Shares will become
exercisable in an amount equal to that number of shares determined by
multiplying the Remaining Warrant Shares by a fraction, the numerator of which
is the dollar amount actually funded at such time by Warrantholder under the
Note Purchase Agreement and the denominator of which is the Commitment.
2. Method of Exercise; Payment; Issuance of New Warrant; Transfer
--------------------------------------------------------------
and Exchange. This Warrant may be exercised by Warrantholder, in whole or in
- ------------
part, by the surrender of this Warrant, properly endorsed, at the principal
office of the Company at 9255 Deering Avenue, Chatsworth, California 91311, and
by (a) the payment to the Company of the then applicable Warrant Price of the
Common Stock being purchased, which Warrant Price may be paid, in whole or in
part, by the delivery of cash, check and/or Notes (as defined in the Note
Purchase Agreement) in an amount equal to such Warrant Price, and (b) delivery
to the Company of a customary investment letter executed by Warrantholder,
confirming that the shares of Common Stock being purchased are being acquired
for Warrantholder's own account and not with a view to or for sale in connection
with any
2.
<PAGE>
distribution of such shares, acknowledging securities law restrictions
applicable to such shares, and agreeing that certificates evidencing such shares
shall bear a legend accordingly restricting the transfer of such shares. In the
event of any exercise of the rights represented by this Warrant, certificates
for the shares of Common Stock so purchased shall be delivered to Warrantholder
within a reasonable time after the rights represented by this Warrant shall have
been so exercised, and unless this Warrant has expired, a new Warrant
representing the number of shares of Common Stock, if any, with respect to which
this Warrant shall not then have been exercised or that may become exercisable
after such date, shall also be issued to Warrantholder within such time. In
lieu of exercising this Warrant for a specified number of shares of Common Stock
(the "Exercised Shares") and paying the aggregate Warrant Price therefor (the
"Exercise Price"), Warrantholder may elect, at any time after the Exercise Date
and prior to the expiration of this Warrant, to receive a number of shares of
Common Stock equal to the number of Exercised Shares minus that number of shares
of Common Stock having an aggregate Fair Market Value equal to the Exercise
Price. Following such election, the number of shares of Common Stock covered by
this Warrant shall be deemed automatically reduced by the number of Exercised
Shares. For purposes of this Warrant, the "Fair Market Value" shall mean the
closing sales prices of Common Stock quoted on Nasdaq National Market or, if
then traded on a national securities exchange, the average closing prices of
Common Stock on the principal national securities exchange on which listed or,
if quoted on the Nasdaq over-the-counter system, the average of the mean of the
closing bid and asked prices of Common Stock quoted on such system, in any such
case on each of the ten (10) trading days immediately preceding the date of such
conversion.
3. Stock Fully Paid; Reservation of Shares. The Company covenants
---------------------------------------
and agrees that all shares of Common Stock that may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be fully paid and
nonassessable and free from all liens. The Company covenants and agrees that,
during the period within which the rights represented by this Warrant may be
exercised, it shall reserve for the purpose of the issuance upon exercise of the
purchase rights evidenced by this Warrant, at least the maximum number of shares
of Common Stock as are issuable upon the exercise of the rights represented by
this Warrant.
4. Restrictions on Transferability of Securities; Compliance with
--------------------------------------------------------------
Securities Act.
- --------------
(a) Restrictions on Transferability. This Warrant and the shares of
-------------------------------
Common Stock issuable hereunder shall not be transferable except upon the
conditions specified in this Section 4, which conditions are intended to insure
compliance with the provisions of the Securities Act of 1933, as amended (the
"Securities Act"). Each holder of this Warrant or the Common Stock issuable
hereunder will cause any proposed transferee of the Warrant or such Common Stock
to agree to take and hold such securities subject to the provisions and upon the
conditions specified in this Section.
3.
<PAGE>
(b) Restrictive Legend. Each certificate representing (i) this
------------------
Warrant, (ii) the shares of Common Stock issued upon exercise of the Warrant and
(iii) any other securities issued in respect of such shares of Common Stock upon
any stock split, stock dividend or similar event (collectively, the "Restricted
Securities"), shall (unless otherwise permitted by the provisions of Section
4(c) below or unless such securities have been registered under the Securities
Act) be imprinted with the following legend, in addition to any legend required
under applicable state securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND ARE
SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THESE SECURITIES MAY
NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT AND SUCH APPLICABLE BLUE SKY LAWS
OR AN EXEMPTION THEREFROM.
Upon request of a holder of a certificate with such legend imprinted
thereon, the Company shall remove the foregoing legend therefrom or, if
appropriate, issue to such holder a new certificate therefor free of any
transfer legend, if, with such request, the Company shall have received either
the opinion referred to in Section 4(c)(i) or the "no-action" letter referred to
in Section 4(c)(ii) to the effect that any transfer by such holder of the
securities evidenced by such certificate will be exempt from the registration
and/or qualification requirements of, and that such legend is not required in
order to establish compliance with the Securities Act, and if applicable, any
state securities laws under which transfer restrictions on such securities had
been previously imposed.
(c) Notice of Proposed Transfers. The holder of each certificate
----------------------------
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4(c). Prior to any proposed
transfer of any Restricted Securities, the holder thereof shall give written
notice to the Company of such holder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of the proposed transfer
in sufficient detail, and shall be accompanied by either (i) an unqualified
written legal opinion addressed to the Company from counsel who shall be
reasonably satisfactory to such parties, which opinion shall be reasonably
satisfactory in form and substance to such parties' legal counsel, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act and any applicable state securities laws,
or (ii) a "no-action" letter from the Securities and Exchange Commission (and
any necessary state securities administrator) to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Commission (or such administrators) that action be taken with
respect thereto, whereupon the holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in
4.
<PAGE>
accordance with the terms of the notice delivered by the holder to the Company.
Each certificate evidencing the Restricted Securities transferred as above
provided shall bear the appropriate restrictive legend set forth in Section 4(b)
above.
5. Adjustment of Purchase Price and Number of Shares of Common
-----------------------------------------------------------
Stock. The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the happening of certain events, as follows:
(a) Consolidation, Merger, Reorganization, Etc. If the Company at any
-------------------------------------------
time while this Warrant remains outstanding and unexpired shall consolidate with
or merge into any other corporation, reorganize or reclassify, or in any manner
change the securities then purchasable upon the exercise of this Warrant, then
upon consummation thereof this Warrant shall thereafter represent the right of
Warrantholder to receive, to the extent this Warrant is exercisable as provided
above in Section 1, in lieu of shares of Common Stock, the cash or such number
of securities to which Warrantholder would have been entitled upon consummation
thereof if Warrantholder had exercised this Warrant immediately prior thereto.
Upon any such event, an appropriate adjustment shall also be made to the Warrant
Price, if necessary in the good faith judgment of the Board of Directors of the
Company, to preserve the economic benefit intended to be conferred upon
Warrantholder in accordance with its terms.
(b) Subdivision or Combination of Shares; Dividends and Distribution
----------------------------------------------------------------
of Common Stock. If the Company at any time shall subdivide or combine its
- ---------------
Common Stock, or take a record of the holders of its Common Stock for the
purpose of entitling them to receive without payment a dividend payable in, or
other distribution of, Common Stock or other securities, then the number of
shares of Common Stock purchasable hereunder shall be adjusted to that number
determined by multiplying the number of shares purchasable upon the exercise of
this Warrant immediately prior to such adjustment by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately after such subdivision, combination, dividend or
distribution, and (ii) the denominator of which shall be the total number of
shares of Common Stock outstanding immediately prior to such subdivision,
combination, dividend or distribution. Additionally, the Warrant Price shall be
adjusted to that price determined by multiplying the Warrant Price in effect
immediately prior to such subdivision, combination, dividend or distribution by
a fraction (x) the numerator of which shall be the total number of shares of
Common Stock outstanding immediately prior to such subdivision, combination,
dividend or distribution, and (y) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after such subdivision,
combination, dividend or distribution.
(c) When any adjustment is required to be made in the Warrant Price,
either initially or as adjusted hereunder, the Company shall forthwith determine
the
5.
<PAGE>
new Warrant Price and shall (i) prepare and retain on file a statement
describing in reasonable detail the method used in arriving at the new Warrant
Price; and (ii) cause a copy of such statement to be mailed to Warrantholder as
of a date within ten (10) days after the date when the circumstances giving rise
to the adjustment occurred.
6. Fractional Shares. No fractional shares of Common Stock will be
-----------------
issued in connection with any exercise hereunder but in lieu of such fractional
shares, the Company shall make a cash payment therefor upon the basis of the
fair market value of the Common Stock on the date of such exercise.
7. Registration Rights. The Warrant Shares shall have registration
-------------------
rights provided for in the Note Purchase Agreement.
8. Governing Law. This Warrant shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the laws of
the State of California.
9. Expiration of Warrant. This Warrant shall terminate and expire
---------------------
and shall no longer be exercisable on or after December 16, 2001.
IN WITNESS WHEREOF, this Warrant has been duly executed and issued by
a duly authorized officer of the Company as of this 16th day of December, 1996.
PLASMA & MATERIALS TECHNOLOGIES, INC.,
a California corporation
By: /s/ John W. LaValle
_______________________________________
John W. LaValle
Vice President, Chief Financial Officer
and Secretary
6.
<PAGE>
FORM OF SUBSCRIPTION
--------------------
(To be signed only upon exercise of Warrant)
To the Company:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, __________________________ (______) of the number of
shares of Common Stock purchasable under this Warrant and herewith makes payment
of ____________ Dollars ($______) therefor, and requests that a certificate(s)
for such shares be issued in the name of, and delivered to, ___________________,
whose address is ____________________________________________________________.
The undersigned represents that it is acquiring such shares of Common
Stock for its own account for investment purposes only and not with a view to or
for sale in connection with any distribution thereof.
DATED:___________ __________________________________________
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant)
_________________________________________
_________________________________________
(Address)
7.
<PAGE>
EXHIBIT 10.1
PLASMA & MATERIALS TECHNOLOGIES, INC.
1991 STOCK OPTION PLAN
SECTION 1. Description of Plan. This is the 1991 Stock Option Plan (the
"Plan") of Plasma & Materials Technologies, Inc., a California corporation (the
"Company"). Under the Plan, employees, directors, consultants and advisors of
the Company or any of its Subsidiaries, to be selected as set forth below, may
be granted options ("Options") to purchase shares of the Common Stock of the
Company ("Common Stock"). For purposes of the Plan, the term "Subsidiary" means
any corporation 50% or more of the voting stock of which is owned by the Company
or by a Subsidiary of the Company. It is intended that the Options under the
Plan will either qualify for treatment as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended (the "Code") and be
designated Incentive Stock Options, or not qualify for such treatment and be
designated Nonqualified Stock Options.
SECTION 2. Purpose of this Plan. The purpose of the Plan and of granting
options to employees, directors, consultants and advisors is to further the
growth, development and financial success of the Company and its subsidiaries by
providing additional incentives to such persons by assisting them in acquiring
shares of Common Stock and to benefit directly from the Company's growth,
development and financial success.
SECTION 3. Eligibility. The persons who shall be eligible to receive
grants of Options under the Plan shall be the employees, directors, consultants
and advisors of the Company or any of its Subsidiaries. A person who holds an
Option is herein referred to as a "Participant." More than one Option may be
granted to any one Participant. Notwithstanding the foregoing, no Incentive
Stock Option may be granted to any person who then owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of a Subsidiary unless (a) the Option Price (as hereinafter defined)
is at least 110% of the fair market value of the Common Stock on the date of
grant, and (b) the termination date of such Option is not later than five years
after the date such Option is granted. For this purpose, a person's stock
ownership is determined using the constructive ownership rules contained in Code
Section 424(d).
Only employees of the Company or a Subsidiary may be granted Incentive
Stock Options under the Plan. The exercise of an Incentive Stock Option will
not qualify for favorable income tax treatment unless the Participant remains an
employee of the Company or a Subsidiary at all times during the period beginning
on the date of the grant of the Incentive Stock Option and ending on the date
three months before the date of the exercise of the Incentive Stock Option. For
this purpose, a Participant who is on a leave of absence that exceeds ninety
days will be considered to have terminated his employment on the ninety-first
day of the leave of absence, unless the Participant's rights to reemployment are
guaranteed by statute or contract. However, a Participant will not be
considered to have incurred a termination of employment because of a transfer of
employment between the Company and a Subsidiary (or vice versa).
The aggregate fair market value (determined as of the time an Option is
granted) of the Common Stock for which any Participant may be granted Incentive
Stock Options first exercisable in any calendar year under the Plan and any
other incentive stock option plans (which qualify under Section 422 of the Code)
of the Company or any Subsidiary shall not exceed $100,000.
SECTION 4. Administration. This Plan shall be administered by the Board
of Directors of the Company or a committee thereof (in either case, the
"Board"). The Board shall be composed of individuals who qualify under Rule 16b-
3 promulgated by the Securities and Exchange Commission and under Code Section
162(m).
The Board is authorized and empowered to administer the Plan and, subject
to the Plan, (a) to select the Participants, to specify the number of shares of
Common Stock with respect to which Options are granted to each such Participant,
to specify the Option Price (as hereinafter defined) and the terms of Options,
and in general to
<PAGE>
grant Options; (b) to determine, subject to the limits of Section 3 hereof,
whether Options will be Incentive Stock Options or Nonqualified Stock Options;
(c) to determine the dates upon which Options shall be granted and to provide
for the terms and conditions of the Options in a manner consistent with this
Plan, which terms and conditions need not be identical as to the various Options
granted; (d) to interpret the Plan; (e) to prescribe, amend and rescind rules
relating to the Plan; and (f) to determine the rights and obligations of
Participants under the Plan. The interpretation and construction by the Board
of any provision of the Plan or of any Option granted thereunder shall be final.
No member of the Board shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
SECTION 5. Shares Subject to the Plan. The number of shares of Common
Stock which may be purchased pursuant to the exercise of Options granted under
the Plan shall be 1,300,000 shares; provided, however, that such number shall be
increased to 2,400,000 shares upon, and subject to the occurrence of, the
closing contemplated by that certain Share Purchase Agreement dated as of July
17, 1996 among PMT, Electrotech Limited and Electrotech Equipments Limited
(collectively, "Electrotech") and the shareholders of Electrotech pursuant to
which PMT acquires all of the outstanding capital stock of Electrotech. Such
number shall in any event be adjusted to reflect all stock splits, stock
dividends or similar capital changes. Upon the expiration or termination for
any reason of an outstanding Option which shall not have been exercised in full,
any shares of Common Stock then remaining unissued which shall have been
reserved for issuance upon such exercise shall again become available for the
granting of additional Options under the Plan. The maximum number of shares
that may be issued to any Participant shall be 500,000. For this purpose, an
Option granted to a Participant shall be continued to be outstanding despite its
cancellation, and the repricing of an Option shall be treated as the grant of a
new option.
SECTION 6. Option Price. The purchase price per share (the "Option
Price") of the shares of Common Stock underlying each Option shall be determined
in each case by the Board with respect to each specific Option but shall not be
less than the fair market value of such shares on the date of grant. In the
event that the Company acquires another entity, the Board may authorize the
issuance of Options ("Substitute Options") to the individuals performing
services for the acquired entity in substitution of stock options previously
granted to those individuals in connection with their performance of services
for such entity upon such terms and conditions as the Board shall determine,
taking into account the conditions of Code Section 424(a) in the case of a
Substitute Option that is intended to be an Incentive Stock Option.
SECTION 7. Exercise of Options. Subject to all other provisions of the
Plan, each Option shall be exercisable for the full number of shares of Common
Stock subject thereto, or any part thereof, in five equal cumulative annual
installments commencing one year after the date of grant (provided the
Participant is employed by the Company at the time of vesting), or in such other
installments and at such other intervals as the Board may in any specific case
or cases otherwise specifically determine in granting such Option. Each Option
shall terminate and expire, and shall no longer be subject to exercise, ten
years after the date of grant thereof, or at such earlier date as the Board may
otherwise specifically determine in granting such Option. The Option shall be
exercised by the Participant by giving written notice to the Company specifying
the number of full shares to be purchased and accompanied by payment of the full
purchase price therefor in cash, by check or in such other form of lawful
consideration (including promissory notes or shares of Common Stock then held by
the Participant) as the Board may approve from time to time.
SECTION 8. Option. Each Option granted under the Plan shall be evidenced
by a written stock option executed by the Company and delivered to the
Participant, which shall be substantially in the form attached as Exhibit A
hereto, or shall be in such other form as specified by the Board. Such stock
option shall indicate whether such Option is to be an Incentive Stock Option or
a Nonqualified Stock Option and, if an Incentive Stock Option, shall contain
terms and conditions permitting such Option to qualify for treatment as an
incentive stock option under Section 422 of the Code.
2
<PAGE>
SECTION 9. Issuance of Common Stock. The Company's obligation to issue
shares of Common Stock upon the exercise of an Option is expressly conditioned
upon the making of such investment representations and related undertakings by
the Participant (or his legal representative, heir or legatee, as the case may
be) in order to comply with the requirements of any exemption from any
securities law registration or other qualification of such shares which the
Company in its sole discretion shall deem necessary or advisable. Such required
representations and undertakings may include representations and agreements that
such Participant (or his legal representative, heir or legatee): (a) is
purchasing such shares for investment and not with any present intention of
selling or otherwise disposing thereof; and (b) agrees to have placed upon the
face and reverse of any certificates evidencing such shares a legend setting
forth (i) any representations and undertakings which such Participant has given
to the Company or a reference thereto, and (ii) that, prior to effecting any
sale or other disposition of any such shares, the Participant must furnish to
the Company an opinion of counsel, satisfactory to the Company and its counsel,
to the effect that such sale or disposition will not violate the applicable
requirements of state and federal laws and regulatory agencies.
SECTION 10. Nontransferability. No Option shall be assignable or
transferable except by will or by the laws of descent and distribution. During
the lifetime of a Participant, any Option granted to him shall be exercisable
only by him. After the death of a Participant, the Option granted to him may be
exercised, prior to its termination as provided by Section 13(b), only by his
legal representative, his legatee or by any other person who acquired the right
to exercise the Option by reason of the death of the Participant.
SECTION 11. Recapitalization, Reorganization, Merger or Consolidation. If
the outstanding shares of Common Stock of the Company are increased, decreased
or exchanged for different securities through reorganization, merger,
consolidation, recapitalization, reclassification, stock split, stock dividend
or like capital adjustment, a proportionate adjustment shall be made (a) in the
aggregate number of shares of Common Stock which may be issued pursuant to the
exercise of Options under the Plan, as provided in Section 5, and (b) in the
number, price and kind of shares subject to any outstanding Option granted under
the Plan.
Upon the dissolution or liquidation of the Company or upon any
reorganization, merger or consolidation in which the Company does not survive,
the Plan and each outstanding Option shall terminate; provided that in such
event: (a) each Participant to whom no Option has been tendered by the
surviving corporation in accordance with all of the terms of clause (b)
immediately below shall have the right until five days before the effective date
of such dissolution or liquidation, or such merger or consolidation in which the
Company is not the surviving corporation, to exercise in whole or in part any
unexpired Option or Options issued to him, without regard to the installment
provisions of Section 7 of the Plan or any option agreement; or (b) in its sole
and absolute discretion, the surviving corporation may, but shall not be so
obligated, tender to any Participant holding an Option, an option or options to
purchase shares of the surviving corporation, and such new option or options
shall contain such terms and provisions as shall be required to preserve
substantially all of the rights and benefits of any Option then outstanding
under the Plan. Each Participant shall be given written notice by the Company
of any such proposed or contemplated dissolution, liquidation, reorganization,
merger or consolidation at least thirty-five (35) days prior to the effective
date thereof, which notice shall advise such Participant of the proposed
dissolution, liquidation, reorganization, merger or consolidation and the rights
of the Participant pursuant to this paragraph.
To the extent that the foregoing adjustments relate to stock or securities
of the Company, such adjustments shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as hereinbefore
expressly provided in this Section 11, the Participant shall have no rights by
reason of any subdivision or consolidation of shares of stock of any class or
the payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and the number or price of shares of
Common Stock subject to any Option shall not be affected by, and no adjustment
shall be made by reason of, any dissolution, liquidation, reorganization, merger
or consolidation, or any issue by the Company of shares of stock of any class,
or rights to purchase or subscribe for stock of any class, or securities
convertible into shares of stock of any class.
3
<PAGE>
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications or changes
in its capital or business structures or to merge, consolidate, dissolve or
liquidate or to sell or transfer all or any part of its business or assets.
SECTION 12. Rights as a Shareholder. A Participant holding an Option, or
a transferee of an Option, shall have no rights as a shareholder with respect to
any shares covered by his Option until the date of the issuance of a stock
certificate to him for such shares, and no adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued, except as expressly provided in
Section 11.
SECTION 13. Termination of Options. Each Option granted under the Plan
shall set forth a termination date thereof, which date shall be not later than
ten years from the date such Option is granted. Except where earlier
termination is required by the terms of the Option, all Options shall terminate
and expire upon the first to occur of the following events:
(a) the expiration of 30 days from the date of such Participant's
termination of employment (other than by reason of death), except that if
the Participant is disabled (within the meaning of Section 22(e)(3) of the
Internal Revenue Code) at the time of his termination of employment, the
expiration of one year from the date of the Participant's termination of
employment;
(b) the expiration of 180 days from the date of the death of such
Participant if his death occurs while he is employed by the Company or any
of its subsidiaries; or
(c) the termination of the Option pursuant to Section 11 of the Plan.
The termination of employment of a Participant by death or otherwise shall
not accelerate or otherwise affect the number of shares with respect to which an
Option may be exercised, and the Option may only be exercised with respect to
that number of shares which could have been purchased under the Option had the
Option been exercised by the Participant on the date of such termination.
For purposes of the above, in the case of Options granted to Participants
who are directors of the Company or consultants or advisors to the Company,
"employment" shall mean service as such director, consultant or advisor to the
Company.
SECTION 14. Withholding of Taxes. The Company shall deduct and withhold
from the wages, salary, bonus and other income paid by the Company to the
Participant the requisite tax upon the amount of taxable income, if any,
recognized by the Participant in connection with the exercise in whole or in
part of any Option or the sale of Common Stock issued to the Participant upon
exercise of the Option, all as may be required from time to time under any
federal or state tax laws and regulations. This withholding of tax shall be
made from the Company's concurrent or next payment of wages, salary, bonus or
other income to the Participant or by payment to the Company by the Participant
of the required withholding tax, as the Board may determine.
SECTION 15. Termination of Plan. The Plan shall terminate when all
Options granted hereunder either have been fully exercised, and all shares of
Common Stock which may be purchased pursuant to the exercise of such Options
have been so purchased, or have expired, and in any event not later than ten
(10) years from the date of the adoption of the plan or the date of the approval
of the Plan by the shareholders of the Company, whichever is earlier. However,
the Board may in its absolute discretion terminate the Plan at any time. No
such termination, other than as provided for in Section 11 hereof, shall in any
way affect any Option then outstanding.
4
<PAGE>
SECTION 16. Amendment of Plan. The Board may at any time amend or
terminate this Plan. However, no amendment or termination may impair the rights
of the Participant holding an Option without the Participant's consent. Also,
except as may otherwise be permitted under Rule 16b-3 promulgated by the
Securities and Exchange Commission, no amendment to the Plan may be adopted
without the approval of the shareholders that would materially (a) increase the
number of shares that may be issued to Participants subject to Section 16 of the
Securities Exchange Act of 1934 ("Insiders"), (b) increase the benefits accruing
to Insiders, or (c) modify the requirements for Insiders to participate.
Further, the approval of shareholders must also be obtained if the Plan is
amended in a way that relates to the class of individuals entitled to receive
Incentive Stock Options, or the aggregate number of shares of Common Stock that
may be issued under the Plan.
SECTION 17. Amendment of Options. The Board may modify an existing
Option, including the right to (a) change the exercise price, (b) accelerate the
right to exercise it, (c) extend or renew it, or (d) cancel it and issue a new
Option. However, no modification may be made to an Option that would impair the
rights of the Participant holding the Option without his consent. Whether a
modification of an existing Incentive Stock Option will be treated as the
issuance of a new Incentive Stock Option will be determined in accordance with
the rules of Code Section 424(h). Whether a modification of an existing Option
granted to an Insider will be treated as a new grant for purposes of Section 16
of the Securities Exchange Act of 1934 will be determined in accordance with
Rule 16b-3.
5
<PAGE>
RULES OF THE
PLASMA & MATERIALS TECHNOLOGIES, INC.
(UNITED KINGDOM COMPANIES)
SHARE OPTION SCHEME
1. DEFINITIONS
1.1 In these Rules the following words and expressions shall have the following
meanings:
"Announcement Date" the date on which the annual or half-yearly results
of the Company are announced.
"Appropriate Period" the meaning given in Paragraph 15(2) of Schedule 9.
"Approval Date" the date on which the Scheme is approved by the Board
of Inland Revenue under Schedule 9.
"Associated Company" has the same meaning in Section 416 of ICTA 1988.
"Auditors" the auditors for the time being of the Company
(acting as experts and not as arbitrators).
"Board" the Board of Directors of the Company or, except in
Rule 10.4, a duly constituted committee thereof.
"Company" Plasma & Materials Technologies, Inc.
"Control" has the same meaning as in Section 840 of ICTA 1988.
1
<PAGE>
"Dealing Day" a day on which the Stock Exchange is open for the
transaction of business.
"Date of Grant" the date on which an Option is, was, or is to be
granted under the Scheme.
"Eligible Employee" any director of any Participating Company who is
required to devote to his duties not less than 25
hours per week (excluding meal breaks) or any
employee (other than one who is a director) of any
Participating Company, provided that the director or
employee is not precluded by paragraph 8 of Schedule
9 from participating in the Scheme.
"ICTA 1988" The Income and Corporation Taxes Act 1988.
"Market Value" on any day the average of the middle market
quotations of a Share as derived from the Daily
Official List of The Stock Exchange for the 3
immediately preceding Dealing Days. (Provided that if
the Dealing Days do not fall within the period
specified in Rule 2, only such days as do fall within
that period will be taken into account in arriving at
the Market Value or, if not applicable, on any day
the market value of a Share determined in accordance
with the provisions of Part VIII of the Taxation of
Chargeable Gains Act 1992 and agreed for the purposes
of the Scheme with the Inland Revenue Shares
Valuation Division on or before that day.)
"Option" a right to acquire Shares granted (or to be granted)
in accordance with the Rules of this Scheme.
2
<PAGE>
"Option Holder" an individual to whom an Option has been granted
or his personal representatives.
"Participating Company" the Company and any other company of which the
Company has Control and which is for the time
being nominated by the Board to be a Participating
Company.
"Schedule 9" Schedule 9 ICTA 1988.
"Scheme" the employee share option scheme constituted and
governed by these rules as from time to time
amended.
"Share" a share of Common Stock of the Company which
satisfies the conditions specified in paragraphs
10-14 inclusive of Schedule 9.
"Subscription Price" the price at which each Share subject to an Option
may be acquired on the exercise of that Option
determined in accordance with Rule 2.
"Subsisting Option" an option which has neither lapsed nor been
exercised.
1.2 Where the context so admits the singular shall include the plural and vice
versa and the masculine shall include the feminine.
1.3 Any reference in the Scheme to any enactment includes a reference to that
enactment as from time to time modified, extended or re-enacted.
3
<PAGE>
2. INVITATION TO APPLY FOR OPTIONS
2.1 At any time or times within a period of four weeks after an Announcement
Date or the Approval Date, and in any case not earlier than the Approval
Date nor later than the tenth anniversary thereof, the Board may in its
absolute discretion select any number of individuals who may at the
intended Date of Grant be Eligible Employees and invite them to apply for
the grant of Options to acquire Shares in the Company.
2.2 Each invitation shall specify:
i) the date (being neither earlier than 7 nor later than 14 days after
the issue of the invitation) by which an application must be made,
ii) the maximum number of Shares over which that individual may on that
occasion apply for an Option, being determined at the absolute
discretion of the Board save that it shall not be so large that the
grant of the Option over that number of Shares would cause the limit
specified in Rule 5.2 to be exceeded, and
iii) the Subscription Price at which Shares may be acquired on the
exercise of any Option granted in response to the application.
2.3 Each invitation shall be accompanied by an application in such form, not
inconsistent with these Rules, as the Board may determine.
2.4 i) The Subscription Price shall not be less than the nominal value of a
Share, and
ii) Subject to Rule 8, the Subscription Price shall not be less than the
Market Value of a Share on the day the invitation to apply for an
Option was issued pursuant to Rule 2.1.
4
<PAGE>
3. APPLICATIONS FOR OPTIONS
3.1 Not later than the date specified in the invitation each Eligible Employee
to whom an invitation has been issued in accordance with Rule 2 above may
apply to the Board, using the application form supplied, for an Option over
a number of Shares not exceeding the number specified in the invitation.
3.2 Each application shall be accompanied by a payment of (Pounds)1 in
consideration for the Option to be granted.
4. GRANT OF OPTIONS
4.1 Not later than the twenty-first day following the issue of invitations the
Board may grant to each applicant who is still an Eligible Employee an
Option over the number of Shares specified in his application.
4.2 As soon as possible after Options have been granted the Board shall issue
an option certificate in respect of each Option in such form, not
inconsistent with these Rules, as the Board may determine.
4.3 No Option may be transferred, assigned or charged and any purported
transfer, assignment or charge shall cause the Option to lapse forthwith.
Each option certificate shall carry a statement to this effect.
5. LIMITATIONS ON GRANTS
5.1 No Options shall be granted pursuant to Rule 4 above if such grant would
result in the aggregate of:
i) the number of Shares over which Subsisting Options have been granted
under this Scheme, and
ii) the number of Shares which have been issued on the exercise of Options
granted under this Scheme,
5
<PAGE>
exceeding 800,000 Shares.
5.2 Any option granted to an Eligible Employee shall be limited to take effect
so that the aggregate Market Value of Shares subject to that Option, when
aggregated with the Market Value of shares subject to Subsisting Options,
shall not exceed (Pounds)30,000.
5.3 For the purposes of Rule 5.2:
i) Options shall include all Options granted under this Scheme and all
options granted under any other scheme, not being a savings-related
share option scheme, approved under Schedule 9 and established by the
Company or any Associated Company thereof.
ii) The Market Value of shares shall be calculated as at the time the
Options in relation to those shares were granted or such earlier time
as may have been agreed in writing with the Board of Inland Revenue.
6. EXERCISE OF OPTIONS
6.1 Subject to Rule 9 below and provided always that at all times the Option
has not lapsed it may be exercised in whole or in part in five (5) equal
cumulative annual installments commencing one year after the Date of Grant
or in such other installments and/or at such other intervals as may be
specified in the invitation to apply for the grant of the Option.
6.2 An Option shall lapse on the latest of the following events:
i) the Option Holder ceasing to be employed by a Participating Company;
and, the earliest of:
6
<PAGE>
ii) the tenth anniversary of the Date of Grant, or such shorter period as
may be specified in the invitation to apply for the grant of the
Option,
iii) the expiration of 180 days from the Option Holder's death if his
death occurs while he is employed by any Participating Company,
iv) the expiration of 30 days following the Option Holder ceasing to be a
director or employee of any Participating Company, other than by
reason of his death, except that if Option Holder is disabled at the
time he ceases to be a director or employee, the expiration of one
year from the date of termination,
v) unless a release has been effected under Rule 7.4, six months after
the Option has become exercisable in accordance with Rule 7, and
vi) the Option Holder being adjudicated bankrupt.
6.3 The termination of Employment of an Option Holder by death or otherwise
shall not accelerate or otherwise affect the number of Shares with respect
to which an Option may be exercised, and the Option may only be exercised
with respect to that number of Shares which could have been purchased under
the Option had the Option been exercised by the Option Holder on the date
of such termination.
7. TAKEOVERS AND LIQUIDATIONS
7.1 If any person obtains Control of the Company as a result of making:
i) a general offer to acquire the whole of the issued share capital of
the Company which is made on a condition such that if it is satisfied
the person making the offer will have Control of the Company, or
7
<PAGE>
ii) a general offer to acquire all the shares in the Company which are
of the same class as the Shares,
then any Subsisting Option may subject to Rule 7.4 below be exercised
within six months of the time when the person making the offer has obtained
Control of the Company and any condition subject to which the offer is made
has been satisfied.
7.2 If under Section 425 of the Companies Act 1985 or any provisions of United
States law having similar effect the Court sanctions a compromise or
arrangement proposed for the purposes of or in connection with a scheme for
the reconstruction of the Company or its amalgamation with any other
company or companies, any Subsisting Option may subject to Rule 7.4 below
be exercised within six months of the Court sanctioning the compromise or
arrangement.
7.3 If any person becomes bound or entitled to acquire shares in the Company
under Section 428 to 430 of the said Act of 1985 or Articles 421 to 423 of
the said Order of 1986 or any provisions of United States law having
similar effect any Subsisting Option may subject to Rule 7.4 below be
exercised at any time when that person remains so bound or entitled.
7.4 If as a result of the events specified in Rules 7.1 or 7.2 a company has
obtained Control of the Company, or if a company has become bound or
entitled as mentioned in Rule 7.3, the Option Holder may, by agreement with
that other company (the "Acquiring Company"), within the Appropriate
Period, release each Subsisting Option (the "Old Option") for an option
(the "New Option") which satisfies the conditions that it:
i) is over shares in the Acquiring Company or some other company falling
within paragraph (b) or paragraph (c) of Paragraph 10, Schedule 9
which satisfy the conditions specified in Paragraphs 10 to 14
inclusive of Schedule 9.
8
<PAGE>
ii) is a right to acquire such number of such shares as has on acquisition
of the New Option an aggregate Market Value equal to the aggregate
Market Value of the shares subject to the Old Option on its release,
iii) has a subscription price per share such that the aggregate price
payable on the complete exercise equals the aggregate price which
would have been payable on complete exercise of the Old Option, and
iv) is otherwise identical in terms to the Old Option.
The New Option shall, for all other purposes of this scheme, be treated as
having been acquired at the same time as the Old Option.
Where any New Options are granted pursuant to this clause 7.4, Rules 4.3,
6, 7, 8, 9, 10.1 and 10.3 to 10.6 shall, in relation the New Options, be
construed as if references to the Company and to the Shares were references
to the Acquiring Company or, as the case may be, to the other company to
whose shares the New Options relate, and to the shares in that other
company, but reference to Participating Company shall continue to be
construed as if references to the Company were references to Plasma &
Materials Technologies, Inc.
7.5 If the Company passes a resolution for voluntary winding up, any Subsisting
Option may be exercised within six months of the passing of the resolution.
7.6 For the purposes of this Rule 7, other than Rule 7.4, a person shall be
deemed to have obtained Control of a Company if he and others acting in
concert with him have together obtained Control of it.
7.7 The exercise of an Option pursuant to the preceding provisions of this Rule
7 shall be subject to the provisions of the Rule 9 below.
9
<PAGE>
7.8 Where in accordance with Rule 7.4 Subsisting Options are released and New
Options granted the New Options shall not be exercisable in accordance with
Rule 7.1, 7.2 and 7.3 above by virtue of the event by reason of which the
New Options were granted.
8. VARIATION OF SHARE CAPITAL
In the event of any variation of the share capital of the Company by way of
capitalization or rights issue, consolidation, subdivision or reduction of
capital or otherwise, the number of Shares subject to any Option and the
Subscription Price for each of those Shares shall be adjusted in such manner as
the Auditors confirm in writing to be fair and reasonable provided that:
i) the aggregate amount payable on the exercise of an Option in full is
not increased,
ii) the Subscription Price for a Share is not reduced below its nominal
value,
iii) no adjustment shall be made without the prior approval of the Board
of Inland Revenue, and
iv) following the adjustment the Shares continue to satisfy the conditions
specified in paragraphs 10 to 14 inclusive of Schedule 9.
9. MANNER OF EXERCISE OF OPTIONS
9.1 No Option may be exercised by an individual at any time when he is
precluded by paragraph 8 of Schedule 9 from participating in the Scheme.
9.2 No Option may be exercised at any time when the shares which may be thereby
acquired do not satisfy the conditions specified in paragraphs 10-14 of
Schedule 9.
10
<PAGE>
9.3 An Option shall be exercised by the Option Holder giving notice to the
Company in writing of the number of Shares in respect of which he wishes to
exercise the Option accompanied by the appropriate payment and the relevant
option certificate and shall be effective on the date of its receipt by the
Company.
9.4 Shares shall be allotted and issued or transferred pursuant to a notice of
exercise within 30 days of the date of exercise and a definitive share
certificate issued to the Option Holder in respect thereof. Save for any
rights determined by reference to a date preceding the date of allotment or
transfer, such Shares shall rank pari passu with the other shares of the
same class in issue at the date of allotment.
9.5 When an Option is exercised only in part, the balance shall remain
exercisable on the same terms as originally applied to the whole Option and
a new option certificate shall be issued accordingly by the Company as soon
as possible after the partial exercise.
10. ADMINISTRATION AND AMENDMENT
10.1 The Scheme shall be administered by the Board whose decision on all
disputes shall be final.
10.2 The Board may from time to time amend these Rules provided that:
i) no amendment may materially affect an Option Holder as regards an
Option granted prior to the amendment being made,
ii) no amendment may be made which would make the terms on which Options
may be granted materially more generous or would increase the limit
specified in Rule 5.1 without the prior approval of the Company in
general meeting, and
iii) no amendment shall have effect until approved by the Board of Inland
Revenue.
11
<PAGE>
10.3 The cost of establishing and operating the Scheme shall be borne by the
Participating Companies in such proportions as the Board shall determine.
10.4 The Board may establish a committee consisting of not less than three Board
members to whom any or all of its powers in relation to the Scheme may be
delegated. The Board may at any time dissolve the Committee, alter its
constitution or direct the manner in which it shall act.
10.5 Any notice or other communication under or in connection with the Scheme
may be given by the Company either personally or by post and to the Company
either personally or by post to the secretary; items sent by post shall be
prepaid and shall be deemed to have been received 72 hours after posting.
10.6 The Company shall at all times keep available sufficient authorised and
unissued Shares or shall otherwise procure that sufficient issued Shares
are available for transfer to satisfy the exercise to the full extent still
possible of all Options which have neither lapsed nor been fully exercised,
taking account of any other obligations of the Company to issue unissued
Shares.
12
<PAGE>
SHARE OPTION AND REIMBURSEMENT AGREEMENT
This Agreement Regarding Share Options ("Agreement") is entered into
by and between PLASMA & MATERIALS TECHNOLOGIES, INC., a California corporation
("PMT") and each of the companies identified on the signature pages to this
Agreement (each, a "Company" and collectively, the "Companies").
RECITALS
--------
A. PMT owns, directly or indirectly, all of the issued and
outstanding shares of each of the Companies.
B. Each of the Companies desires to reward certain employees whose
services have contributed significantly to the success of the Companies and to
motivate those employees to continue in their employment by granting such
employees options to purchase shares of PMT, a company whose shares are publicly
traded.
C. PMT is willing to grant options over a maximum of 800,000 shares
of its common stock to certain employees of the Companies on terms similar to
those contained in the Plasma & Materials Technologies 1991 Stock Option Plan
(the "PMT Stock Option Plan").
D. The Companies having employees within the United Kingdom desire
that PMT grant the foregoing options pursuant to the terms of a stock option
plan ("Share Option Scheme") that is approved by the U.K Inland Revenue. The
Companies with employees outside of the United Kingdom or with employees within
the United Kingdom who may be granted options exceeding the amount permitted by
the Share Option Scheme desire that PMT grant options pursuant to the PMT Stock
Option Plan.
E. PMT is willing to adopt and administer the Share Option Scheme
and grant options to the employees of the Companies under the Share Option
Scheme and the PMT Stock Option Plan, on the terms and subject to the conditions
of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and the covenants,
agreements, and conditions contained herein, the sufficiency of which is hereby
acknowledged, the parties hereby agree as follows:
1. Adoption of Share Option Scheme/PMT Stock Option Plan. PMT
-----------------------------------------------------
hereby agrees to grant options over a maximum of 800,000 shares of its common
stock to certain employees of the Companies to assist the Companies in rewarding
and retaining employees whose efforts contribute to the success of the
Companies. Subject to the terms and conditions set forth below, each of the
parties hereby approves, adopts, ratifies, and agrees to be bound by the Share
Option Scheme, substantially in the form attached to this
<PAGE>
Agreement as Exhibit A-1, and the PMT Stock Option Plan, a copy of which is
attached as Exhibit A-2, as applicable.
2. Administration.
--------------
(a) General. The Companies acknowledge and agree that the Share
-------
Option Scheme will be administered under the general direction of the Board of
Directors of PMT, and any duly appointed committees of the Board.
(b) Special Committee. Pursuant to Section 10.4 of the Share
-----------------
Option Scheme and Section 4 of the PMT Stock Option Plan, PMT hereby establishes
a committee to administer the Share Option Scheme and the PMT Stock Option Plan
insofar as either relates to the grant of options to employees of the Companies.
The committee shall be comprised of Mr. Christopher D. Dobson, representing the
Companies, and two members of the Board of Directors of PMT to be named
("Committee"). The Committee shall review the employees selected by each Company
to receive options and determine the number of shares of common stock over which
options will be granted, the subscription price therefor, and whether the
options will be granted under the Share Option Scheme or the PMT Stock Option
Plan, in each case in accordance with the terms of such scheme or plan.
(c) Notification of Awards. The Committee shall promptly notify
----------------------
each Company of its decision to award share options to an employee or employees
of that Company and the terms on which such award will be made. In the case of
awards under the Share Option Scheme, a Company so notified shall thereupon
invite the designated employee or employees to apply for a grant of options
under the Share Option Scheme. Such invitation shall be in the form of the
Letter of Invitation attached to this Agreement as Exhibit B-1 and be
accompanied by an Application Form, substantially in the form attached as
Exhibit B-2. In all other cases, a Company so notified shall cooperate with the
Committee in advising employees of such awards in whatever manner the Committee
may determine.
(d) Option Certificate. In the case of awards under the Share
------------------
Option Scheme, upon receipt of an Application Form and payment of the option
premium specified in the Share Option Scheme, the Company receiving such
application shall immediately transmit the application to the Committee via
facsimile and international courier. The Committee shall thereupon grant to the
employee applying therefor an option ("Option") over the number of shares
specified in the application and, as soon as practicable thereafter, issue to
the employee an Option Certificate substantially in the form attached to this
Agreement as Exhibit C-1, with a copy to the employer-Company. The Option
Certificate shall be accompanied by a Notice of Exercise of Option,
substantially in the form attached as Exhibit C-2, to be used by the employee to
notify PMT of his or her intention to exercise the Option under the Share Option
Scheme. In all other cases, the Committee shall deliver a written stock option
to the employee in the form prescribed under the PMT Stock Option Plan and a
Notice of Exercise of Option. (For convenience, this written stock option shall
also be referred to as an "Option Certificate".)
2
<PAGE>
(e) Deemed Delivery. The delivery by an employee of an
---------------
Application Form or Notice of Exercise of Option to his or her employer shall be
deemed delivery to PMT of such application or notice for purposes of the Share
Option Scheme.
3. Exercise of Share Options.
-------------------------
(a) Notice. An employee who wishes to exercise his or her Option
------
shall do so by completing, signing, and delivering a Notice of Exercise of
Option to PMT care of his or her employer-Company together with payment of the
subscription price in full for the shares specified in the notice. The Option
shall be deemed exercised on the date that the employer-Company receives such
notice and payment (the "Effective Date"). The employer-Company shall promptly
(i) forward such notice to PMT via facsimile and international courier and (ii)
confirm in writing that the employee is then employed by such Company or, if
not, the date of and reason for termination.
(b) Issuance of Shares. Within thirty (30) days after the
------------------
Effective Date, PMT shall issue a share certificate to the employee representing
the number of shares, fully paid and non-assessable, specified in the employee's
Notice of Exercise of Option. If an employee exercises an option as to only part
of the shares covered thereby, PMT shall also issue a new Option Certificate
covering the balance of the option shares, which option shall remain exercisable
on the same terms as originally applied to the whole Option.
(c) Payment. In consideration of the issuance of shares to an
-------
employee(s) of a Company, as soon as practicable after the Effective Date, the
employer-Company shall pay to PMT in U.S. dollars, by bank wire transfer, an
amount equal to the sum of (i) the total subscription price paid by the employee
(translated to U.S. dollars at the exchange rate published in the Wall Street
Journal on the Effective Date), plus (ii) the amount computed by multiplying the
number of shares issued to the employee by the highest closing price quoted for
PMT common stock during the thirty (30) day period ending on the Effective Date
less the subscription price paid by the employee.
(d) Securities Registration. Each of the Companies whose
-----------------------
employees have been granted options under the Share Option Scheme and/or PMT
Stock Option Plan shall cooperate with PMT in complying with any and all
applicable securities regulations upon the issuance of shares to employees under
such plans and shall promptly reimburse PMT for a proportionate share of the
expenses incurred in complying with such regulations.
4. Other Terms.
-----------
(a) Notices. Except as otherwise provided herein, all notices,
-------
requests, consents and other communications required or permitted hereunder
shall be in writing and shall be hand-delivered, deposited prepaid for next day
delivery by Federal Express or other similar overnight courier, mailed airmail,
first class postage prepaid,
3
<PAGE>
registered or certified mail, or transmitted by facsimile to the parties at the
addresses and numbers listed on Exhibit D attached to this Agreement. Such
notices, requests, consents and other communications shall for all purposes of
this Agreement be treated as being effective or having been given, if delivered
personally, upon delivery, if delivered by overnight courier, upon twenty-four
(24) hours after deposit, or, if sent by mail, upon the earlier of actual
receipt or the fifth day after the same has been deposited in a regularly
maintained receptacle for the deposit of mail, and postage prepaid and addressed
as set forth above.
(b) Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the remainder
of such provision or the remaining provisions of this Agreement.
(c) Waiver and Amendment. No amendment, modification,
--------------------
termination or waiver of any provision of this Agreement shall be effective
unless the same shall be in writing and signed by each party, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
(d) Parties in Interest. All of the terms and provisions of this
-------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties.
(e) Governing Law; Jurisdiction. This Agreement shall be
---------------------------
governed by and construed in accordance with the laws of the State of
California, without reference to conflicts of law principles.
(f) Entire Agreement. This Agreement embodies the entire
----------------
agreement and understanding of the parties in respect of the subject matter
contained herein and supersedes all prior negotiations, agreements and
understandings among the parties with respect to such subject matter. There are
no restrictions, promises, representations, warranties, covenants, or
undertakings, other than those expressly set forth or referred to in this
Agreement.
(g) Counterparts. This Agreement may be executed in
------------
counterparts with the same effect as if all parties had signed the same
document. All counterparts so executed shall be deemed to be an original, shall
be construed together and shall constitute one agreement.
4
<PAGE>
(h) Captions. The captions in this Agreement are for convenient
--------
reference only and shall have no legal effect.
(i) Due Authorization. Each of the parties hereby represents and
-----------------
warrants that this Agreement has been duly executed and delivered by an
authorized representative of such party.
(j) Conflicts. In the event of any discrepancy between this
---------
Agreement and the Share Option Scheme, the Share Option Scheme shall prevail.
(k) Incorporation By Reference. Every Exhibit attached and
--------------------------
referred to in this Agreement is incorporated herein by reference as though
fully set forth in the main body of this Agreement.
[Signature Pages Follow]
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective on and as of the date first written above.
PMT: PLASMA & MATERIALS TECHNOLOGIES, INC.,
a California corporation
By: /s/
__________________________________________
Its:_________________________________________
COMPANIES: ELECTROTECH LIMITED.,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
ELECTROTECH EQUIPMENTS LIMITED.,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
ELECTROTECH (ASIA) LIMITED,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
(Signatures Continued)
6
<PAGE>
ELECTROTECH INTERNATIONAL LIMITED,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
E.T. FABRICATIONS LIMITED,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
E.T. ELECTROTECH RESEARCH LIMITED,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
E.T. EQUIPMENTS LIMITED,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
(Signatures Continued)
7
<PAGE>
VACUUM CONTROL SYSTEMS LTD,
an English corporation
By: /s/
__________________________________________
Its:_________________________________________
ELECTROTECH EQUIPMENTS, GmbH,
a German limited liability company
By: /s/
__________________________________________
Its:_________________________________________
ELECTROTECH EQUIPMENTS, SARL,
a French limited liability company
By: /s/
__________________________________________
Its:_________________________________________
EXHIBITS
Exhibit "A-1" -- Share Option Scheme
Exhibit "A-2" -- PMT Stock Option Plan
Exhibit "B-1" -- Form of Letter of Invitation
Exhibit "B-2" -- Form of Application
Exhibit "C-1" -- Form of Option Certificate
Exhibit "C-2" -- Form of Notice of Exercise
Exhibit "D" -- Addresses of Parties
8
<PAGE>
EXHIBIT 10.20
CREDIT AGREEMENT
between
PLASMA & MATERIALS TECHNOLOGIES, INC.,
US Borrower,
ELECTROTECH LIMITED and
ELECTROTECH EQUIPMENTS LIMITED,
UK Borrowers,
NATIONSBANK OF TEXAS, N.A.,
Administrative Agent,
LLOYDS BANK PLC
UK-Collateral Agent,
and
CERTAIN LENDERS,
Lenders
$35,000,000
Dollar Equivalent
November 15, 1996
[LOGO OF PLASMA & MATERIALS TECHNOLOGIES, INC.]
PLASMA & MATERIALS TECHNOLOGIES, INC. ("US BORROWER"), HEREBY DESIGNATES THE "US
OBLIGATION" AND THE "UK OBLIGATION" AS GUARANTEED BY US BORROWER UNDER THIS
CREDIT AGREEMENT AS "DESIGNATED SENIOR DEBT," AS THAT TERM IS DEFINED IN THE
INDENTURE (AS RENEWED, EXTENDED, AMENDED, OR SUPPLEMENTED) DATED AS OF OCTOBER
7, 1996, BETWEEN US BORROWER AND U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
PROVIDING FOR THE ISSUANCE OF US BORROWER'S 7-1/8% CONVERTIBLE SUBORDINATED
NOTES DUE 2001.
---------------------------------------
PREPARED BY HAYNES AND BOONE, L.L.P.
---------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
<C> <S> <C>
TABLE OF CONTENTS......................................................... (i)
LIST OF SCHEDULES AND EXHIBITS............................................ (v)
SECTION 1 DEFINITIONS AND TERMS......................................... 1
1.1 Definitions................................................... 1
1.2 Time References.............................................. 19
1.3 Other References............................................. 19
1.4 Accounting Principles........................................ 19
SECTION 2 US FACILITY.................................................. 19
2.1 Commitment................................................... 19
2.2 Borrowing Procedure.......................................... 20
2.3 LC Subfacility............................................... 21
2.4 Requests..................................................... 23
2.5 Termination.................................................. 24
SECTION 3 UK FACILITY.................................................. 24
3.1 Commitment................................................... 24
3.2 Borrowing Procedure.......................................... 24
3.3 Overdraft Subfacility........................................ 26
3.4 BG/LC Subfacility............................................ 27
3.5 Requests..................................................... 29
3.6 Termination.................................................. 30
3.7 Joint and Several............................................ 30
SECTION 4 PAYMENT TERMS................................................ 30
4.1 Notes and Payments........................................... 30
4.2 Interest and Principal Payments.............................. 31
4.3 Interest Options............................................. 32
4.4 Rate Quotations.............................................. 32
4.5 Default Rate................................................. 33
4.6 Interest Recapture........................................... 33
4.7 Interest Calculations........................................ 33
4.8 Maximum Rate................................................. 33
4.9 Interest Periods............................................. 34
4.10 Conversions.................................................. 34
4.11 Order of Application......................................... 34
4.12 Sharing of Payments.......................................... 35
4.13 Offset....................................................... 35
4.14 Booking Borrowings........................................... 36
4.15 Basis Unavailable or Inadequate for Euro Rate................ 36
4.16 Additional Costs............................................. 36
4.17 Change in Laws............................................... 37
4.18 Funding Loss................................................. 37
4.19 Taxes, Grossing Up Provisions, and Value Added Tax........... 38
SECTION 5 FEES......................................................... 41
5.1 Treatment of Fees............................................ 41
5.2 Initial Commitment Fees...................................... 41
5.3 Unused Commitment Fees....................................... 41
</TABLE>
Table of Contents
-----------------
<PAGE>
<TABLE>
<C> <S> <C>
5.4 BG and LC Fees............................................... 42
5.5 Structure/Syndication and Administrative Fees................ 42
5.6 Collateral Fees.............................................. 42
SECTION 6 SECURITY..................................................... 42
6.1 Guaranties................................................... 42
6.2 US Collateral................................................ 42
6.3 UK Collateral................................................ 43
6.4 Further Assurances........................................... 43
6.5 Release of Collateral........................................ 43
SECTION 7 CONDITIONS PRECEDENT......................................... 44
7.1 Conditions Precedent for US Facility......................... 44
7.2 Conditions Precedent for UK Facility......................... 44
7.3 Other Conditions Precedent................................... 44
7.4 Conditions Material.......................................... 45
SECTION 8 REPRESENTATIONS AND WARRANTIES............................... 45
8.1 Purpose and Regulation U..................................... 45
8.2 Corporate Existence, Good Standing, and Authority............ 45
8.3 Subsidiaries and Names....................................... 45
8.4 Authorization and Contravention.............................. 45
8.5 Binding Effect............................................... 46
8.6 Financials and Existing Debt................................. 46
8.7 Projections.................................................. 46
8.8 Solvency..................................................... 46
8.9 Litigation................................................... 46
8.10 Taxes........................................................ 46
8.11 Environmental Matters........................................ 46
8.12 Employee Plans............................................... 47
8.13 Properties; Liens............................................ 47
8.14 Government Regulations....................................... 47
8.15 Transactions with Affiliates................................. 47
8.16 Debt......................................................... 47
8.17 Leases....................................................... 47
8.18 Insurance.................................................... 48
8.19 Labor Matters................................................ 48
8.20 Intellectual Property........................................ 48
8.21 Full Disclosure.............................................. 48
SECTION 9 AFFIRMATIVE COVENANTS........................................ 48
9.1 Certain Items Furnished...................................... 48
9.2 Use of Credit................................................ 50
9.3 Books and Records............................................ 50
9.4 Inspections.................................................. 50
9.5 Taxes........................................................ 50
9.6 Payment of Obligations....................................... 50
9.7 Expenses..................................................... 50
9.8 Maintenance of Existence, Assets, and Business............... 51
9.9 Insurance.................................................... 51
9.10 Environmental Matters........................................ 51
9.11 Subsidiaries................................................. 51
9.12 Indemnification.............................................. 51
</TABLE>
(ii) Table of Contents
-----------------
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 10 NEGATIVE COVENANTS FOR COMPANIES............................. 52
10.1 Payroll Taxes................................................ 53
10.2 Debt......................................................... 53
10.3 Prepayments.................................................. 53
10.4 Subordinated Debt............................................ 53
10.5 Capital Expenditures......................................... 54
10.6 Investments.................................................. 54
10.7 Employee Plans............................................... 54
10.8 Transactions with Affiliates................................. 54
10.9 Compliance with Governmental Requirements and Documents...... 54
10.10 Distributions................................................ 54
10.11 Assignment................................................... 54
10.12 Fiscal Year and Accounting Methods........................... 55
10.13 New Businesses............................................... 55
10.14 Government Regulations....................................... 55
10.15 Strict Compliance............................................ 55
SECTION 11 NEGATIVE COVENANTS FOR DOMESTIC COMPANIES.................... 55
11.1 Disposition of Assets........................................ 55
11.2 Liens........................................................ 55
11.3 Mergers, Consolidations, and Dissolutions.................... 55
SECTION 12 NEGATIVE COVENANTS FOR FOREIGN COMPANIES..................... 55
12.1 Disposition of Assets........................................ 56
12.2 Liens........................................................ 56
12.3 Mergers, Consolidations, and Dissolutions.................... 56
SECTION 13 FINANCIAL COVENANTS.......................................... 56
13.1 Tangible-Net Worth........................................... 56
13.2 Current Ratio................................................ 56
13.3 EBITDA....................................................... 57
13.4 Senior Debt/EBITDA........................................... 57
13.5 Interest Coverage............................................ 57
13.6 Projections.................................................. 57
SECTION 14 EVENTS OF DEFAULT............................................ 58
14.1 Payments..................................................... 58
14.2 Covenants.................................................... 58
14.3 Debtor Relief................................................ 58
14.4 Judgments and Attachments.................................... 58
14.5 Government Action............................................ 58
14.6 Misrepresentation............................................ 58
14.7 Change of Control............................................ 59
14.8 Other Funded Debt............................................ 59
14.9 Validity and Enforceability.................................. 59
14.10 BGs or LCs................................................... 59
SECTION 15 RIGHTS AND REMEDIES.......................................... 59
15.1 Remedies..................................................... 59
15.2 Judgment Currency............................................ 60
15.3 Company Waivers.............................................. 60
15.4 Performance by Administrative Agent.......................... 61
15.5 Not in Control............................................... 61
15.6 Course of Dealing............................................ 61
15.7 Cumulative Rights............................................ 61
</TABLE>
(iii) Table of Contents
-----------------
<PAGE>
<TABLE>
<C> <S> <C>
15.8 Application of Proceeds...................................... 61
15.9 Certain Proceedings.......................................... 61
15.10 Expenditures by Lenders...................................... 62
15.11 Diminution in Value of Collateral............................ 62
15.12 UK Borrowers' Obligations.................................... 62
SECTION 16 AGENTS AND LENDERS........................................... 62
16.1 Agents....................................................... 62
16.2 Expenses..................................................... 64
16.3 Proportionate Absorption of Losses........................... 64
16.4 Delegation of Duties; Reliance............................... 64
16.5 Limitation of Agents' Liability.............................. 65
16.6 Event of Default............................................. 66
16.7 Collateral Matters........................................... 66
16.8 Limitation of Liability...................................... 66
16.9 Relationship of Lenders...................................... 67
16.10 Benefits of Agreement........................................ 67
SECTION 17 MISCELLANEOUS................................................ 67
17.1 Nonbusiness Days............................................. 67
17.2 Communications............................................... 67
17.3 Form and Number of Documents................................. 67
17.4 Exceptions to Covenants...................................... 67
17.5 Survival..................................................... 67
17.6 Governing Law................................................ 67
17.7 Invalid Provisions........................................... 67
17.8 Certain Reinstatement........................................ 68
17.9 Amendments, Waivers, Consents, Supplements, and Conflicts.... 68
17.10 Multiple Counterparts........................................ 69
17.11 Parties...................................................... 69
17.12 Venue, Service of Process, and Jury Trial.................... 70
17.13 Information Regarding Borrowers.............................. 71
17.14 Entirety..................................................... 71
</TABLE>
(iv) Table of Contents
-----------------
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Schedule 1 - Lenders and Commitments
Schedule 4.3 - Mandatory-Liquid-Assets-Costs Formula
Schedule 7.1 - Closing Documents for US Facility
Schedule 7.2 - Closing Documents for UK Facility
Schedule 8.3 - Companies
Schedule 8.7 - Projections
Schedule 8.9 - Litigation and Judgments
Schedule 8.11 - Environmental Matters
Schedule 8.12 - Employee-Plan Matters
Schedule 8.13(a) - Real Property
Schedule 8.13(b) - Existing Liens
Schedule 8.13(c) - Sale of Property
Schedule 8.15 - Affiliate Transactions
Schedule 8.16 - Existing Debt
Schedule 8.17 - Existing Leases
Schedule 8.18 - Landlord Insured Properties
Schedule 8.20 - Infringement Claims
Exhibit A-1 - US-Facility Note
Exhibit A-2 - UK-Facility Note
Exhibit B - Guaranty
Exhibit C-1 - Security Agreement
Exhibit C-2 - Collateral Assignment of Intellectual Property
Exhibit C-3 - Financing Statement
Exhibit C-4 - Landlord Estoppel Letter
Exhibit C-5 - Customer Estoppel Letter
Exhibit D-1 - Borrowing Request for US Facility
Exhibit D-2 - Borrowing Request for UK Facility
Exhibit D-3 - Conversion Notice for US Facility
Exhibit D-4 - [Intentionally Blank]
Exhibit D-5 - LC Request
Exhibit D-6 - BG/LC Request
Exhibit D-7 - Borrowing-Base Report for US Facility
Exhibit D-8 - Borrowing-Base Report for UK Facility
Exhibit D-9 - Compliance Certificate
Exhibit E-1 - Opinion of US counsel to Domestic Companies
Exhibit E-2 - Opinion of Intellectual Property Counsel
Exhibit F - Assignment and Assumption Agreement
</TABLE>
(v) Table of Contents
-----------------
<PAGE>
CREDIT AGREEMENT
----------------
THIS AGREEMENT is entered into as of November 15, 1996, between the
following parties:
. PLASMA & MATERIALS TECHNOLOGIES, INC., a California corporation ("US
BORROWER").
. ELECTROTECH LIMITED, a corporation (registered No. 1373344) organized under
the laws of England, and ELECTROTECH EQUIPMENTS LIMITED, a corporation
(registered No. 939289) organized under the laws of England (collectively,
"UK BORROWERS").
. Lenders (defined below).
. NATIONSBANK OF TEXAS, N.A., as Administrative Agent for Lenders.
. LLOYDS BANK PLC, UK-Collateral Agent for Lenders.
SECTION 1.1 contains other definitions used in this agreement.
US Borrower has requested that the Lenders under the US Facility extend
credit to US Borrower not to exceed a total outstanding principal amount equal
to the total US-Facility Commitments, to be used by US Borrower as provided in
SECTION 8.1 as a revolving-credit facility (the "US FACILITY") and to be funded
by the Lenders under the US Facility from time to time in a combination of
advances and letters of credit denominated in Dollars. The US Facility thus
encompasses the LC Subfacility. The Lenders under the US Facility are willing
to extend the requested credit on the terms and conditions of this agreement.
UK Borrowers have requested that the Lenders under the UK Facility extend
credit to UK Borrowers not to exceed a total outstanding principal amount equal
to the Dollar Equivalent of the total UK-Facility Commitments, to be used by UK
Borrowers as provided in SECTION 8.1 as a revolving-credit facility (the "UK
FACILITY") and to be funded by the Lenders under the UK Facility from time to
time in a combination of advances, letters of credit, bank guarantees, and
overdraft and other financial accommodations variously denominated in Dollars,
Deutsche Marks, Pound Sterling, or other Alternative Currency. The UK Facility
thus encompasses the BG/LC Subfacility and the Overdraft Subfacility. The
Lenders under the UK Facility are willing to extend the requested credit on the
terms and conditions of this agreement.
ACCORDINGLY, for adequate and sufficient consideration, Borrowers, Lenders,
and Agents agree as follows:
SECTION 1 DEFINITIONS AND TERMS.
- --------- ---------------------
1.1 DEFINITIONS. As used in the Loan Documents:
-----------
"ADMINISTRATIVE AGENT" means, at any time, NationsBank of Texas, N.A. (or
its successor appointed under SECTION 16), acting as administrative, US-
collateral, managing, and syndication agent for Lenders under the Loan
Documents.
Credit Agreement
----------------
<PAGE>
"AFFILIATE" of a Person means any other individual or entity who directly
or indirectly controls, is controlled by, or is under common control with that
Person. For purposes of this definition (a) "control," "controlled by," and
"under common control with" mean possession, directly or indirectly, of power to
direct or cause the direction of management or policies (whether through
ownership of voting securities or other interests, by contract, or otherwise),
and (b) the Companies are "Affiliates" of each other.
"AGENTS" mean, at any time, Administrative Agent and UK-Collateral Agent.
"ALTERNATIVE CURRENCY" means either Pound Sterling or Deutsche Marks (or
any other freely convertible currency designated as such by the Administrative
Agent).
"APPLICABLE MARGIN" means, for any day, the margin of interest over the
Base Rate or the Euro Rate, as the case may be, that is applicable when the Base
Rate or Euro Rate, as applicable, is determined under this agreement. The
Applicable Margin is subject to adjustment (upwards or downwards, as
appropriate) based on the ratio of the Companies' Funded Debt to EBITDA as
provided in the following table:
<TABLE>
<CAPTION>
<S> <C> <C>
=================================================================
Applicable Applicable
Ratio of Funded Debt to Margin for Margin for
EBITDA Base-Rate Euro-Rate
Borrowings Borrowings
=================================================================
4.25 to 1.00 or more 1.00% 3.00%
- -----------------------------------------------------------------
Less than 4.25 to 1.00, but 3.75 to 0.75% 2.75%
1.00 or more
- -----------------------------------------------------------------
Less than 3.75 to 1.00, but 2.75 to 0.50% 2.50%
1.00 or more
- -----------------------------------------------------------------
Less than 2.75 to 1.00, but 2.00 to 0.25% 2.25%
1.00 or more
- -----------------------------------------------------------------
Less than 2.00 to 1.00 0.00% 2.00%
=================================================================
</TABLE>
For purposes of the definition of APPLICABLE MARGIN, EBITDA is calculated for
the Companies' most recently-completed-four-fiscal quarters, and Funded Debt is
determined as of the last day of that four-fiscal-quarter period. The
calculation of EBITDA for any period before the date of this agreement shall be
made on the basis of the combined Financials, before the date of this agreement,
of US Borrower and of UK Borrowers and their Subsidiaries to the extent acquired
by US Borrower in the Electrotech Acquisition. From the date of this agreement
through the date that Administrative Agent receives the Current Financials and
Compliance Certificate for the year ending December 31, 1996, the Applicable
Margin is deemed to be 2.50% for Euro-Rate Borrowings and 0.50% for Base-Rate
Borrowings. After Administrative Agent's receipt of the Current Financials and
Compliance Certificate for the year ending December 31, 1996, the Applicable
Margin in effect at any time (whether in the middle of an Interest Period or
otherwise) is based upon the ratio of the Companies' Funded Debt to EBITDA as
determined from the Current Financials and related Compliance Certificate then
most recently received by Administrative Agent, effective as of the date
received by Administrative Agent. If US Borrower fails to timely furnish to
Administrative Agent any Financials and related Compliance Certificate as
required by this agreement, then the maximum Applicable Margin applies from the
date those Financials and related Compliance Certificate are required to be
delivered and remain in effect until US Borrower furnishes them to
Administrative Agent.
Credit Agreement
----------------
2
<PAGE>
"ARRANGER" means NationsBanc Capital Markets, Inc.
"ASSIGNEE" is defined in SECTION 17.11(c).
"ASSIGNMENTS" is defined in SECTION 17.11(c).
"BASE RATE" for any day means:
(a) For Borrowings under the US Facility, the greater of either (i)
the annual interest rate most recently established by Administrative Agent
as its general reference rate (which may not necessarily represent the
lowest or best rate actually charged to any customer) in effect at its
principal office in Dallas, Texas, automatically fluctuating upward and
downward without special notice to any Borrower or any other Person, or
(ii) the sum of the Fed-Funds Rate plus 0.5%; or
(b) For the Overdraft Exposure, the base rate of Overdraft Lender from
time to time.
"BASE-RATE BORROWING" means a Borrowing under the US Facility bearing
interest at the sum of the Base Rate plus the Applicable Margin.
"BG" means a bank guarantee issued for the account of either UK Borrower by
the Issuer under the BG/LC Subfacility.
"BG/LC EXPOSURE" means, at any time and without duplication, the sum of the
Dollar Equivalent of (a) the total outstanding amount under every BG issued
under the UK Facility, plus (b) the total face amount of all undrawn and
uncancelled LCs issued under the UK Facility, plus (c) the total unpaid
reimbursement obligations of UK Borrowers for any payments made under any of
those BGs or drawings under any of those LCs.
"BG/LC REQUEST" means a request for a BG or a LC under the BG/LC
Subfacility, substantially in the form of EXHIBIT D-6, and signed by Responsible
Officers of both UK Borrowers.
"BG/LC SUBFACILITY" means a subfacility of the UK Facility for the
issuance of BGs and LCs, as described in Section 3.4, under which the BG/LC
Exposure (a) may never exceed the combined single limitation of $3,000,000 (or
the Dollar Equivalent of that amount denominated in Alternative Currencies) and
(b) together with the Dollar Equivalent of Principal Debt of the UK Facility,
and (without duplication) the Overdraft Exposure, may never exceed the Dollar
Equivalent of the lesser of either (i) the total UK-Facility Commitments or (ii)
the Borrowing Base for the UK Facility.
"BORROWERS" means US Borrower and UK Borrowers.
"BORROWING" means any amount disbursed under the Loan Documents by one or
more Lenders to or on behalf of any Borrower (either as an original disbursement
of funds, a renewal, extension, or continuation of an amount outstanding), a
payment under a LC or BG, or any amounts outstanding or other financial
accommodation to either UK Borrower under the Overdraft Subfacility.
"BORROWING BASE" means -- at any time, for any Borrower, and without
duplication -- the sum of the Dollar Equivalent of (a) 80% of Eligible Accounts
owed to that Borrower by Domestic Persons and certain Foreign Subsidiaries of
Domestic Persons designated by agreement of all Lenders from time to time, plus
(b) 50% of Eligible Accounts owed to that Borrower by Foreign Persons (including
any Foreign Subsidiary of any Domestic Person that has not been designated by
Lenders as being included
Credit Agreement
----------------
3
<PAGE>
in clause (a) preceding), plus (c) through the first anniversary date of this
agreement, 50% of Eligible-Dated Accounts owed to that Borrower by any Person,
and after the first anniversary date of the date of this agreement, none of
those Eligible-Dated Accounts, plus (d) 100% of Eligible Accounts, whether owed
by Domestic or Foreign Persons, to the extent not already included under any of
the preceding clause and to the extent supported by one or more letters of
credit that are in form and substance and issued by one or more financial
institutions acceptable to Administrative Agent in its sole discretion, plus (e)
25% of Eligible-Demonstration Systems owned by that Borrower (so long as the
portion of Eligible-Demonstration Systems included in this clause for both
Borrowing Bases under this agreement may never exceed $2,000,000). The
Borrowing Base for the US Facility is the Borrowing Base applicable to US
Borrower, and the Borrowing Base for the UK Facility is the total Borrowing Base
applicable to both UK Borrowers.
"BORROWING-BASE DEFICIENCY" means any amount by which any limitation in
Sections 2.1 or 2.3(a) (in respect of the US Facility) or SECTIONS 3.1, 3.3, or
3.4(a) (in respect of the UK Facility), as the case may be, is exceeded, for any
reason whatsoever.
"BORROWING-BASE REPORT" means either (a) for the US Facility, a report
delivered by US Borrower, substantially in the form of EXHIBIT D-7, and signed
by a Responsible Officer of US Borrower, or (b) for the UK Facility, a report
delivered by UK Borrowers, substantially in the form of EXHIBIT D-8, and signed
by Responsible Officers of both UK Borrowers.
"BORROWING DATE" means the date on which a Borrowing is to be disbursed
under SECTIONS 2.2, 2.3, 3.2, 3.3, or 3.4.
"BORROWING REQUEST" means a written request for a Borrowing that must be
either (a) for a Borrowing under the US Facility, signed by a Responsible
Officer of US Borrower, and substantially in the form of EXHIBIT D-1, or (b) for
Borrowing under the UK Facility (other than under the Overdraft Subfacility),
signed by Responsible Officers of both UK-Borrowers, and substantially in the
form of EXHIBIT D-2.
"BUSINESS DAY" means any day other than Saturday, Sunday, and any other day
that commercial banks are authorized by law to be closed in California, Texas,
or London, which, for purposes of any (a) Euro-Rate Borrowing denominated in
Pound Sterling or fundings in, or conversions to or from, Pound Sterling, must
also be a day when commercial banks are open for international business in
London, and (b) Euro-Rate Borrowing denominated in Deutsche Marks or other
Alternative Currency or fundings in, or conversions to or from, Deutsche Marks
or other Alternative Currency, must also be a day when commercial banks are open
for international business in Germany or, as the case may be, the principal
financial center in the country of that other Alternative Currency.
"CAPITAL LEASE" means any lease or sublease that is required by GAAP to be
capitalized on a balance sheet.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S)(S)9601 et seq.
"CHANGE IN LAW" means, in respect of SECTION 4.19(b)(iv) any
implementation, introduction, enactment, imposition, abolition, withdrawal, or
variation or change of any law, order, regulation, published practice, or
official directive, published ruling, notice, concession, guideline, request, or
requirement or statement of policy or published practice statement by the Bank
of England, the European Union, or any central bank, fiscal, governmental,
local, international, national, or other competent authority or agency (whether
or not having the force of law but in respect of which compliance by banks and
other
Credit Agreement
----------------
4
<PAGE>
financial institutions in the relevant jurisdiction is generally customary) or
any change in any interpretation or application, or the introduction or making
of any new or further or difference interpretation or application by any court,
tribunal, central bank, fiscal, governmental, local, international, national, or
other competent authority or agency or compliance with any new or different
request or direction made after the date hereof (whether or not having the force
of law but in respect of which compliance by banks and other financial
institutions in the relevant jurisdiction is generally customary) from any
central bank, fiscal, governmental, local, international, national, or other
competent authority.
"CLOSING DATE" means a Business Day on or before November 30, 1996, which
(although intended to be virtually concurrent) may be different for the US
Facility and the UK Facility and which (a) for the US Facility, is the date
agreed to by US Borrower and Administrative Agent on or after which the initial
Borrowing or other extension of credit under the US Facility may occur and (b)
for the UK Facility, is the date agreed to by UK Borrowers and Administrative
Agent on or after which the initial Borrowing or other extension of credit under
the UK Facility may occur.
"COMMITMENT PERCENTAGE" means, for any Lender, the proportion (stated as a
percentage) that (a) in respect of the US Facility, its US-Facility Commitment
(if any) bears to the total US-Facility Commitments of all Lenders, (b) in
respect of the UK Facility, its UK-Facility Commitment (if any) bears to the
total UK-Facility Commitments of all Lenders, and (c) in respect of both of
those facilities combined, the sum of its US-Facility Commitment (if any) and
its UK-Facility Commitment (if any) bears to the sum of the total US-Facility
Commitments of all Lenders and the total UK-Facility Commitments of all Lenders.
"COMPANIES" means, at any time, US Borrower and each of its Subsidiaries.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form of
EXHIBIT D-9 and signed by a Responsible Officer of US Borrower.
"CONVERSION NOTICE" means a notice of conversion to a different Type of
Borrowing, new Interest Period(s), or both under the US Facility, which must be
signed by a Responsible Officer of US Borrower and be substantially in the form
of EXHIBIT D-3.
"CURRENT FINANCIALS" means, unless otherwise specified, either:
(a) Except as provided in CLAUSE (B) below, the (i) Companies'
consolidated Financials for the year ended December 31, 1995, (ii)
Companies' consolidated Financials for the six months ended June 30, 1996,
and (iii) consolidated Financials for the consolidated group in which UK
Borrowers were included for the year ended June 30, 1996; or
(b) At any time after annual Financials are first delivered under
SECTION 9.1, the (i) Companies' annual Financials then most recently
delivered to Administrative Agent under SECTION 9.1(A) and (ii) Companies'
quarterly Financials then most recently delivered to Administrative Agent
under SECTION 9.1(B).
"DEBT" means -- for any Person, at any time, and without duplication -- the
sum of (a) all obligations for borrowed money, (b) all obligations evidenced by
bonds, debentures, notes, or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services except trade accounts payable
arising in the ordinary course of business, (d) all obligations arising under
acceptance facilities or facilities for the discount or sale of accounts
receivable, (e) all direct or contingent obligations in respect of letters of
credit, (f) liabilities secured (or for which the holder of the Debt has an
existing
Credit Agreement
----------------
5
<PAGE>
Right, contingent or otherwise, to be so secured) by any Lien existing on
property owned or acquired by that Person, (g) Capital Leases, plus (h) all
guaranties, endorsements, and other contingent obligations for Debt of others.
"DEBTOR LAWS" means the Bankruptcy Code of the United States of America and
all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, administration, insolvency, reorganization,
suspension of payments, or similar Governmental Requirements affecting
creditors' Rights in any relevant jurisdiction.
"DEFAULT PERCENTAGE" means -- at any time and for any Lender -- the
proportion (stated as a percentage) that (a) in respect of the US Facility, the
amount (if any) of the US-Facility-Commitment Usage owed to it directly (less
any participations sold to other Lenders under this agreement) or indirectly
(through participations purchased from other Lenders under this agreement) bears
to the total US-Facility-Commitment Usage, (b) in respect of the UK Facility,
the amount (if any) of the UK-Facility-Commitment Usage owed to it directly
(less any participations sold to other Lenders under this agreement) or
indirectly (through participations purchased from other Lenders under this
agreement) bears to the total UK-Facility-Commitment Usage, and (c) in respect
of both of those facilities combined, the amount of the US-Facility-Commitment
Usage and UK-Facility Commitment Usage owed to it directly (less any
participations sold to other Lenders under this agreement) or indirectly
(through participations purchased from other Lenders under this agreement) bears
to the total of the US-Facility-Commitment Usage and the UK-Facility-Commitment
Usage.
"DEFAULT RATE" means, for any day, an annual interest rate equal from day
to day to the lesser of either (a) the Maximum Rate or (b) in respect of:
(i) Borrowings or other amounts owing in respect of the US
Obligation, the sum of the Base Rate for Borrowings under the US Facility
plus 4%;
(ii) the Overdraft Exposure, the sum of the Base Rate for the
Overdraft Exposure plus 4%; and
(iii) Borrowings and other amounts owing in respect of the UK
Obligation (other than the Overdraft Exposure), the sum of one or more Euro
Rates that Administrative Agent determines in its sole reasonable
discretion should be applicable to those Borrowings and other amounts in
order to most fairly reflect the cost to the Lenders under the UK Facility
of maintaining those Borrowings or amounts outstanding, plus 4%, plus any
applicable Mandatory-Liquid-Assets Costs.
"DEUTSCHE MARKS" and the abbreviation "DM" mean the lawful currency of the
Federal Republic of Germany.
"DISTRIBUTION" means, with respect to any shares of any capital stock or
other equity securities issued by a Person (a) the retirement, redemption,
purchase, or other acquisition for value of those securities, (b) the
declaration or payment of any dividend on or with respect to those securities,
(c) any loan or advance by that Person to, or other investment by that Person
in, the holder of any of those securities, and (d) any other payment by that
Person with respect to those securities.
"DOLLAR EQUIVALENT," at any time, means (a) any amount denominated in
Dollars and (b) for any amount denominated in an Alternative Currency, an amount
of Dollars into which Administrative Agent determines that it could convert the
relevant amount of that Alternative Currency by using the applicable-
Credit Agreement
----------------
6
<PAGE>
quoted-spot rate reported on Reuters Screen Page 261 at 11:00 (London time)
three Business Days before the day on which the calculation is made.
"DOLLARS" and the symbol "$" mean lawful currency of the United States of
America.
"DOMESTIC" means, in respect of any Person, organized under the laws of,
and domiciled in, the United States of America or one of its states, e.g., a
Domestic Company, a Domestic Subsidiary, or any other Domestic Person.
"DOUBLE TAX TREATY" means any treaty dealing with the taxation of residents
in the jurisdictions to which the treaty relates entered into by the governments
of any jurisdictions in which any party to this agreement is a resident for Tax
purposes.
"EBITDA" means -- for any Person, for any period, and without duplication -
- - the sum of:
(a) the sum of (i) net income from operations, plus (ii) to the extent
included in the calculation of that net income amount, Interest Expense and
income Tax expense; plus
(b) to the extent included in the calculation of the amount in CLAUSE
(A) above, depreciation and amortization expenses from continuing
operations.
"ELECTROTECH ACQUISITION" means the acquisition of the capital stock of UK
Borrowers by US Borrower pursuant to the Electrotech Agreement.
"ELECTROTECH AGREEMENT" means the Share Purchase Agreement dated as of July
17, 1996, between US Borrower, UK Borrowers, Christopher D. Dobson, and the
other shareholders of UK Borrowers.
"ELIGIBLE ACCOUNTS" means the enforceable and outstanding accounts of US
Borrower (in respect of the Borrowing Base for the US Facility) or of UK
Borrowers (in respect of the Borrowing Base for the UK Facility), that are
subject to Lender Liens, except (a) the portion of any account not paid within
120 days after the respective invoice's issue date, (b) the portion of any
account against the payment of which the account debtor is entitled to any
allowable discount, owns a corresponding account payable, or has asserted any
defense, setoff, or counterclaim, (c) any account on which the account debtor
is an Affiliate of any Company, is a Governmental Authority, is not Solvent, or
is the subject of any proceedings under any Debtor Laws, (d) any account which
either Administrative Agent or Required Lenders elect -- in their sole
respective discretion and effective upon ten-days advance notice to either US
Borrower or UK Borrowers, as applicable -- to exclude because of the account
debtor's unsatisfactory financial condition or payment record or unfavorable
risk of priority of collection under laws applicable to it (other than laws of
the United States of America or one of its states in respect of US Borrower or
laws of England in respect of UK Borrowers), (e) any account not arising out of
a sale of inventory in the ordinary course of business, and (f) any account
subject to a Lien that is not a Permitted Lien. Notwithstanding anything herein
to the contrary, solely in respect of the Borrowing Base for the US Facility,
the amount indicated as the amount to be paid to US Borrower in the purchase
order received by US Borrower from Hyundai and dated as of November 11, 1996,
shall be included in this definition of Eligible Accounts for a period of 30
days, commencing with the Closing Date, and after such 30-day period if said
purchase order has not resulted in a finally consummated sale for the account of
Hyundai, any amount with respect to such purchase order previously allowed to be
included in this definition of Eligible Accounts shall not be included in this
definition until such time as such amount otherwise meets the requirements set
forth herein.
Credit Agreement
----------------
7
<PAGE>
"ELIGIBLE-DATED ACCOUNTS" means the enforceable and outstanding accounts of
US Borrower (in respect of the Borrowing Base for the US Facility) or of UK
Borrowers (in respect of the Borrowing Base for the UK Facility), that existed
before the date of this agreement and would otherwise constitute Eligible
Accounts except that they may be outstanding more than 120 days after the
respective invoice's issue date.
"ELIGIBLE-DEMONSTRATION SYSTEMS" means finished products owned by a
Borrower and used for purposes of demonstrating performance capabilities to its
customers if (a) properly noted on US Borrower's balance sheet as a line item or
properly included in either UK Borrower's balance sheet as part of its plant and
equipment, as the case may be, and (b) if either (i) located on that Borrower's
premises, (ii) located on the premises of a customer of that Borrower who has
executed and delivered to Administrative Agent an estoppel agreement in
substantially the form of EXHIBIT C-5, or (iii) as of the Closing Date, located
on the premises of Siemens, A.G.
"EMPLOYEE PLAN" means any employee-pension-benefit plan (a) covered by
Title IV of ERISA and established or maintained by any Borrower or any ERISA
Affiliate (other than a Multiemployer Plan) and (b) established or maintained by
any Borrower or any ERISA Affiliate, or to which any Borrower or any ERISA
Affiliate contributes, under the Governmental Requirements of any Foreign
country.
"ENVIRONMENTAL INVESTIGATION" means any environmental site assessment,
investigation, audit, compliance audit, or compliance review conducted at any
time or from time to time -- whether at the request of either Agent or any
Lender, upon the order or request of any Governmental Authority, or at the
voluntary instigation of any Company -- concerning any Real Property or the
business operations or activities of any Company, including, without limitation
(a) air, soil, groundwater, or surface-water sampling and monitoring, and (b)
preparation and implementation of any closure or remedial plans.
"ENVIRONMENTAL LAW" means any applicable Governmental Requirement that
relates to protection of the environment or to the regulation of any Hazardous
Substances, including, without limitation, CERCLA, the Hazardous Materials
Transportation Act (49 U.S.C. (S) 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. (S) 6901 et seq.), the Clean Water Act (33 U.S.C. (S)
1251 et seq.), the Clean Air Act (42 U.S.C. (S) 7401 et seq.), the Toxic
Substances Control Act (15 U.S.C. (S) 2601 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. (S) 136 et seq.), the Emergency
Planning and Community Right-to-Know Act (42 U.S.C. (S) 11001 et seq.), the Safe
Drinking Water Act (42 U.S.C. (S) 201 and (S) 300f et seq.), the Rivers and
Harbors Act (33 U.S.C. (S) 401 et seq.), the Oil Pollution Act (33 U.S.C. (S)
2701 et seq.), analogous state, local, and foreign Governmental Requirements,
and any analogous future enacted or adopted Governmental Requirement.
"ENVIRONMENTAL LIABILITY" means any liability, loss, fine, penalty, charge,
lien, damage, cost, or expense of any kind to the extent that it results (a)
from the violation of any Environmental Law, (b) from the Release or threatened
Release of any Hazardous Substance, or (c) from actual or threatened damages to
natural resources.
"ENVIRONMENTAL PERMIT" means any permit, or license, from any Governmental
Authority that is required under any Environmental Law for the lawful conduct of
any business, process, or other activity.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" means any Person that, for purposes of Title IV of ERISA,
is a member of any Borrower's controlled group or is under common control with
that Borrower within the meaning of Section 414 of the IRC (which provisions are
deemed by this agreement to apply to Foreign Persons).
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"EURO RATE" means -- for a Euro-Rate Borrowing and for the relevant
Interest Period -- the annual interest rate (rounded upward, if necessary, to
the nearest 0.01%) equal to the London interbank offered rate for deposits in
the currency in which that Borrowing is denominated under this agreement, at
approximately 11:00 a.m. (London time) two Business Days before the first day
(or, solely in the case of Borrowings denominated in Pound Sterling, on the
first day) of the Interest Period for a term comparable to the Interest Period,
that appears on (i) Telerate Page 3750 (or any successor page) or (ii) if no
rate so appears, then on Reuters Screen LIBO Page for a Borrowing denominated in
Dollars, on Reuters Screen Page FWDW for a Borrowing denominated in Pound
Sterling, or on Reuters Screen Page FWDT for a Borrowing denominated in Deutsche
Marks, or on the relevant Reuters Screen-page for any other Alternative
Currency.
"EURO-RATE BORROWING" means a Borrowing bearing interest at the sum of the
Euro Rate plus the Applicable Margin.
"EVENT OF DEFAULT" is defined in SECTION 14.
"FED-FUNDS RATE" means, for any day, the annual rate (rounded upwards, if
necessary, to the nearest 0.01%) determined (which determination is conclusive
and binding, absent manifest error) by Administrative Agent to be equal to (a)
the weighted average of the rates on overnight federal-funds transactions with
member banks of the Federal Reserve System arranged by federal-funds brokers on
that day, as published by the Federal Reserve Bank of New York on the next
Business Day, or (b) if those rates are not published for any day, the average
of the quotations at approximately 10:00 a.m. received by Administrative Agent
from three federal-funds brokers of recognized standing selected by
Administrative Agent in its sole discretion.
"FINANCIALS" of a Person means balance sheets, profit and loss statements,
reconciliations of capital and surplus (for Domestic Companies), and statements
of cash flow prepared (a) according to GAAP (subject to year-end audit
adjustments with respect to interim Financials) and (b) except as stated in
SECTION 1.4, in comparative form to prior year-end figures or corresponding
periods of the preceding fiscal year or other relevant period, as applicable.
"FOREIGN" means, in respect of any Person, organized under the laws of a
jurisdiction other than -- or domiciled outside of -- the United States of
America or one of its states, e.g., a Foreign Company, a Foreign Subsidiary, or
any other Foreign Person.
"FUNDED DEBT" means -- for any Person, at any time, and without
duplication -- the sum of (a) the principal amount of the Subordinated Notes,
(b) the principal amount of all other Debt for borrowed money, (c) the total
amount capitalized on the balance sheet of that Person with respect to Capital
Leases, plus (d) Debt under acceptance facilities or facilities for the discount
or sale of accounts receivable.
"FUNDING LOSS" means any loss, expense, or reduction in yield (but not any
Applicable Margin) that any Lender reasonably incurs because (a) any Borrower
fails or refuses for any reason whatsoever (other than a default by
Administrative Agent or that Lender claiming that loss, expense, or reduction in
yield) to take any Borrowing that it has requested under this agreement, or (b)
any Borrower prepays or pays any Borrowing or converts any Borrowing to another
Type, in each case, other than on the last day of the applicable Interest
Period.
Credit Agreement
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"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
the Financial Accounting Standards Board that are applicable from time to time.
"GOVERNMENT SECURITIES" means -- to the extent they mature within one year
from the date in question -- readily marketable (a) direct full faith and credit
obligations of the United States of America or obligations guaranteed by the
full faith and credit of the United States of America, and (b) obligations of an
agency or instrumentality of, or corporation owned, controlled or sponsored by,
the United States of America that are generally considered in the securities
industry to be implicit obligations of the United States of America.
"GOVERNMENTAL AUTHORITY" means any (a) local, state, territorial, federal,
or foreign judicial, executive, regulatory, administrative, legislative, or
governmental agency, board, bureau, commission, department, or other
instrumentality, (b) private arbitration board or panel, or (c) central bank.
"GOVERNMENTAL REQUIREMENTS" means all applicable statutes, laws, treaties,
ordinances, rules, regulations, orders, writs, injunctions, decrees, and
judgments and legally binding opinions and interpretations of any Governmental
Authority.
"HAZARDOUS SUBSTANCE" means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any Environmental
Law, including, without limitation, any hazardous substance within the meaning
of (S) 101(14) of CERCLA.
"HEDGING AGREEMENT" means, for any Person, any present or future, whether
master or single, agreement, document or instrument providing for or
constituting an agreement to enter into (a) commodity hedges in the normal
course of business in accordance with prior practices of that Person before the
date of this agreement for purposes of hedging material purchases, (b) foreign-
currency purchases and swaps and interest-rate swaps that collectively never
exceed an aggregate notional sum of the Dollar Equivalent of $15,000,000, and
(c) interest-rate-hedging products involving payment premium for which that
Person has no future liability.
"INTEREST EXPENSE" means -- for any Person, for any period, and without
duplication -- all interest on Funded Debt, whether paid in cash or accrued as a
liability and payable in cash during any subsequent period (including, without
limitation, the interest component of Capital Leases), as determined by GAAP,
and premium or penalty for repayment, redemption, or repurchase of Debt.
"INTEREST PERIOD" means, for Euro-Rate Borrowings, any period of one, two,
three, or six months.
"INVESTMENT" means, in respect of any Person, any loan, advance, extension
of credit, or capital contribution to that Person, any investment in that
Person, or any purchase or commitment to purchase any equity securities or Debt
issued by that Person or substantially all of the assets or a division or other
business unit of that Person.
"IRC" means the Internal Revenue Code of 1986.
"ISSUER" means (a) NationsBank of Texas, N.A., with respect to each LC
issued under the LC Subfacility, and (b) Lloyds Bank Plc, with respect to each
BG and LC issued under the BG/LC Subfacility.
Credit Agreement
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"LC" means a documentary or standby letter of credit issued for the account
of a Borrower by an Issuer under either the LC Subfacility or the BG/LC
Subfacility.
"LC AGREEMENT" means a letter of credit application and agreement for an LC
(in form and substance satisfactory to Administrative Agent and the applicable
Issuer) executed by the Borrower seeking the LC and submitted to the applicable
Issuer with a copy to Administrative Agent.
"LC EXPOSURE" means, at any time and without duplication, the sum of (a)
the total face amount of all undrawn and uncancelled LCs issued under the LC
Subfacility plus (b) the total unpaid reimbursement obligations of US Borrower
under drawings under any of those LCs.
"LC REQUEST" means a request for a LC under the LC Subfacility
substantially in the form of EXHIBIT D-5, and signed by a Responsible Officer of
US Borrower.
"LC SUBFACILITY" means a subfacility of the US Facility for the issuance of
LCs, as described in SECTION 2.3, under which the LC Exposure may never (a)
collectively exceed $1,000,000 and (b) together with the Principal Debt of the
US Facility may never exceed the lesser of either (i) the total US-Facility
Commitments or (ii) the Borrowing Base for the US Facility.
"LENDER LIEN" means any present or future Lien (subject only to any
applicable Permitted Lien) securing the US Obligation, the UK Obligation, or
both and assigned, conveyed, or granted to or created in favor of either Agent
for the benefit of any Lenders.
"LENDERS" means the financial institutions (including, without limitation,
Issuers and Overdraft Lender) named on SCHEDULE 1 or on the most-recently-
amended SCHEDULE 1, if any, delivered by Administrative Agent under this
agreement, and, subject to this agreement, their respective successors and
permitted assigns (but not any Participant who is not otherwise a party to this
agreement). The Lenders under the US Facility are those with a US-Facility
Commitment beside their respective names on that SCHEDULE 1, and the Lenders
under the UK Facility are those with a UK-Facility Commitment beside their
respective names on that SCHEDULE 1.
"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds prior
to the claims of other creditors or the owners.
"LITIGATION" means any action by or before any Governmental Authority.
"LOAN DOCUMENTS" means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this agreement,
(b) all guaranties, guarantees, security agreements, debentures, assignments,
charges, and other agreements, documents, and instruments in favor of either
Agent or any Lender (or either Agent on behalf of any Lenders) ever delivered
under this agreement or otherwise delivered in connection with all or any part
of the US Obligation or the UK Obligation, whether to create or perfect Lender
Liens or otherwise, (c) all BGs, LCs, and LC Agreements, (d) the letter
agreement described in SECTION 5.5, and (e) all renewals, extensions, and
restatements of, and amendments and supplements to, any of the foregoing.
"MANDATORY-LIQUID-ASSETS COSTS" means, for any Lender, the additional costs
to that Lender of compliance with the reserve-asset ratio from time to time
required by the Bank of England, calculated in accordance with SCHEDULE 4.3, and
expressed as an annual percentage rate.
Credit Agreement
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"MATERIAL-ADVERSE EVENT" means any circumstance or event that, individually
or collectively, is reasonably expected to result in any (a) material impairment
of (i) the ability of any Borrower to perform any of its respective payment or
other material obligations under any Loan Document, or (ii) the ability of
either Agent or any Lender to enforce any of those obligations or any of its
respective Rights under the Loan Documents, (b) material and adverse effect on
the business, assets, operations, financial or other condition, or prospects of
any Borrower (individually) or of the Companies (as a whole) as represented in
each case to Lenders in the Current Financials most recently delivered before
the date of this agreement, in the Projections, in Offering Memorandum, in the
Proxy Statement, or in any other written information delivered to Lenders before
the date of this agreement, or (c) Event of Default or Potential Default.
"MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest that,
under applicable Governmental Requirements, that Lender is permitted to contract
for, charge, take, reserve, or receive on the US Obligation or the UK
Obligation.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Sections
3(37) or 4001(a)(3) of ERISA or Section 414(f) of the IRC (or any similar type
of plan established or regulated under the laws of any foreign country) to which
any Borrower or any ERISA Affiliate is making, or has made, or is accruing, or
has accrued, an obligation to make contributions.
"1933 ACT" means the Securities Act of 1933.
"1934 ACT" means the Securities and Exchange Act of 1934.
"NOTES" means the US-Facility Notes and the UK-Facility Notes.
"OFFERING MEMORANDUM" means the Offering Memorandum dated October 1, 1996,
prepared and circulated by US Borrower, and providing for the issuance and sale
of the Subordinated Notes.
"ORGANIZATIONAL DOCUMENTS" means, for any Person, the documents for its
formation and organization, which, for example, for a (a) corporation are its
corporate charter and bylaws, (b) for a partnership is its partnership
agreement, (c) for a limited-liability company are its certificate of
organization and regulations, and (d) for a trust is the trust agreement or
indenture under which it is created.
"OSHA" means the Occupational Safety and Health Act of 1970, 29 U.S.C. (S)
651 et seq.
"OVERDRAFT BALANCES" means any credit balance on any account of either UK
Borrower (or any of their respective Foreign Subsidiaries) with Overdraft Lender
to the extent that the credit balance is freely available to be set off by
Overdraft Lender against liabilities owed to Overdraft Lender by that UK
Borrower.
"OVERDRAFT DIFFERENTIAL" means the lesser of either (a) the difference of
(i) all amounts outstanding by way of overdraft or other accommodations provided
by Overdraft Lender for the benefit of either UK Borrower under the Overdraft
Subfacility minus (ii) (Pounds)2,500,000, or (b) (Pounds)1,500,000.
"OVERDRAFT EXPOSURE" means, at any time, the sum of (a) all amounts
outstanding by way of overdraft for the benefit of each UK Borrower under the
Overdraft Subfacility at that time net of any credit balance on any account of
that UK Borrower with Overdraft Lender to the extent that the credit balance is
freely available to be set off by Overdraft Lender against liabilities owed to
Overdraft Lender
Credit Agreement
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by that UK Borrower, plus (b) the actual and contingent liabilities of each UK
Borrower under SECTION 3.3, plus (c) the other amounts that Overdraft Lender
determines fairly represents the total exposure at that time of Overdraft Lender
in respect of any other facility or financial accommodation provided under the
Overdraft Subfacility.
"OVERDRAFT LENDER" means Lloyds Bank Plc.
"OVERDRAFT SUBFACILITY" means a subfacility of the UK Facility for
overdrafts and other accommodations provided by Overdraft Lender to either UK
Borrower under which (a) the Overdraft Exposure may never exceed
(Pounds)2,500,000 (i.e., "net") and (b) all amounts outstanding by way of
overdraft for the benefit of either UK Borrower under the Overdraft Subfacility
at that time without regard to netting against credit balances as provided in
CLAUSE (A) of the definition of the term Overdraft Exposure may never exceed
(Pounds)4,000,000 (i.e., "gross").
"PARTICIPANT" is defined in SECTION 17.11(B).
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITTED DEBT" is defined in SECTION 10.2.
"PERMITTED INVESTMENTS" means the following:
Government Securities.
Readily marketable direct obligations of any state of the United
States of America given on the date of such investment a credit rating of
at least Aa by Moody's Investors Service, Inc., or AA by Standard & Poor's
Corporation, in each case due within one year from the making of the
investment.
Certificates of deposit issued by, bank deposits in, euro rate
deposits through, bankers' acceptances of, and repurchase agreements
covering Government Securities executed by, (i) any Lender or (ii) any bank
incorporated under the laws of the United States of America or any of its
states or any branch or office located in the United States of America of a
bank incorporated under the laws of any jurisdiction outside the United
States of America, in either case having on the date of the investment a
short-term certificate of deposit credit rating of at least P-2 by Moody's
Investors Service, Inc., or A-2 by Standard & Poor's Corporation, in each
case due within one year after the date of the making of the investment.
Repurchase agreements covering Government Securities executed by
a broker or dealer registered under Section 15(b) of the 1934 Act having on
the date of the investment capital of at least $100,000,000, due within 30
days after the date of the making of the investment, so long as the maker
of the investment receives written confirmation of the transfer to it of
record ownership of the Government Securities on the books of a "primary
dealer" in the Government Securities as soon as practicable after the
making of the investment.
Readily marketable commercial paper of corporations doing
business in and incorporated under the laws of the United States of America
or any of its states or of any corporation that is the holding company for
a bank described in CLAUSE (C) above and having on the date of the
investment a credit rating of at least P-1 by Moody's Investors Service,
Inc., or
Credit Agreement
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A-1 by Standard & Poor's Corporation, in each case due within 90 days after
the date of the making of the investment.
"Money market preferred stock" issued by a corporation
incorporated under the laws of the United States of America or any of its
states given on the date of the investment a credit rating of at least Aa
by Moody's Investors Services, Inc., and AA by Standard & Poor's
Corporation, in each case having an investment period not exceeding 50
days, so long as (i) the amount of all of those investments issued by the
same issuer does not exceed $5,000,000 and (ii) the total amount of all of
those investments does not exceed $10,000,000.
A readily redeemable "money market mutual fund" sponsored by a
bank described in CLAUSE (C) above, or a registered broker or dealer
described in CLAUSE (D) above, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
CLAUSES (A) through (F) above and having on the date of those investment
total assets of at least $1,000,000,000.
The Electrotech Acquisition.
Investments by any Company in respect of any other Company so
long as (A) the Company making the Investment and the Company in respect of
which the Investment is made are both then in compliance with SECTIONS 6
and 9.11, and (B) no Event of Default or Potential Default exists at the
time of the Investment or would otherwise result from it being made.
Loans or advances to directors, officers, and employees of the
Companies that never exceed a total of the Dollar Equivalent of $500,000
outstanding.
Indebtedness of customers created in any Company's ordinary
course of business in a manner consistent with its present practices.
Hedging Agreements.
(k) Acquisitions of new wholly owned Subsidiaries if (i) the sole
consideration for the acquisition is the issuance of capital stock of US
Borrower, (ii) at least 30-days prior written notice of any intended
acquisition is given to Administrative Agent along with pro forma
Financials indicating that the Companies will be in compliance with SECTION
13 after the acquisition is consummated, and (iii) no Potential Default,
Event of Default, or Material-Adverse Event exists or will exist
immediately after the acquisition is consummated.
"PERMITTED LIENS" means, at any time, the following:
(a) The existing Liens that are described on SCHEDULE 8.13(B) (to the
extent that such schedule does not indicate they are to be extinguished as
a condition precedent to extensions of credit under this agreement) and all
renewals, extensions, amendments, and modifications of any of them to the
extent that the total-principal amount each individually secures never
exceeds the total-principal amount secured by it on the date of this
agreement.
(b) Lender Liens.
(c) Any interest or title of a lessor in assets being leased under an
operating lease that does not constitute Debt.
Credit Agreement
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(d) Rights of setoff or recoupment and banker's Liens.
(e) Pledges or deposits (that shall not cover any US Collateral or UK
Collateral other than cash) made to secure payment of workers'
compensation, unemployment insurance, or other forms of governmental
insurance or benefits or to participate in any fund in connection with
workers' compensation, unemployment insurance, pensions, or other social
security programs.
(f) Good-faith pledges or deposits (that shall not cover any US
Collateral or UK Collateral other than cash) (i) for 10% or less of the
amounts due under (and made to secure) any Company's performance of bids,
tenders, contracts (except for the repayment of borrowed money), or leases,
or (ii) made to secure statutory obligations, surety or appeal bonds,
indemnity, performance, or other similar bonds, or customs or brokers liens
benefitting any Company in the ordinary course of its business.
(g) Zoning and similar restrictions on the use of (and easements,
restrictions, covenants, title defects, and similar encumbrances on) real
property that do not materially impair the use of the real property and
that are not violated by existing or proposed structures or land use.
(h) If no Lien has been filed in any jurisdiction or agreed to (i)
claims and Liens for Taxes not yet due and payable, (ii) mechanic's Liens
and materialman's Liens for services or materials (real or personal) and
similar Liens incident to construction and maintenance of real property, in
each case for which payments is not yet due and payable, (iii) landlord's
Liens for rental not yet due and payable, and (iv) Liens of warehousemen,
carriers, and vendors and similar Liens securing obligations that are not
yet due and payable.
(i) Any of the following to the extent that the validity or amount is
being properly contested in good faith, reserve or other appropriate
provision (if any) required by GAAP has been made, levy and execution has
not issued or continues to be stayed, they do not individually or
collectively detract materially from the value of the property of the
Person in question or materially impair the use of that property in the
operation of its business, and (other than any such Liens given statutory
priority) they are subordinate to the Lender Liens to the extent that they
cover any US Collateral or UK Collateral: (i) Claims and Liens for Taxes;
(ii) claims and Liens upon, and defects of title to, real or personal
property, including any attachment of personal or real property or other
legal process before adjudication of a dispute on the merits; (iii) claims
and Liens of mechanics, materialmen, warehousemen, carriers, landlords,
vendors, or other like Liens; (iv) Liens incident to construction and
maintenance of real property; and (v) adverse judgments, attachments, or
orders on appeal for the payment of money.
(j) Liens arising under Hedging Agreements that do not cover any US
Collateral or UK Collateral.
(k) Liens that secure any of the Permitted Debt described in SECTION
10.2(E) and any renewal, extension, amendment, or modification of those
Liens so long as they never cover any assets except the assets acquired,
constructed, or improved with that Permitted Debt and the proceeds thereof.
(l) Liens that secure any of the Permitted Debt described in SECTION
10.2(G) and any renewal, extension, amendment, or modification of those
Liens so long as those Liens, renewals, extensions, amendments, and
modifications never cover any US Collateral or UK Collateral.
Credit Agreement
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"PERSON" means any individual, entity, or Governmental Authority.
"POTENTIAL DEFAULT" means any event's occurrence or any circumstance's
existence that would (upon any required notice, time lapse, or both) become an
Event of Default.
"POUND STERLING" and the symbol "(Pounds)" means the lawful currency of the
United Kingdom.
"PREDECESSOR" means any Person for whose obligations and liabilities any
Company is reasonably expected to be liable as the result of any merger, de
facto merger, stock purchase, asset purchase or divestiture, combination, joint
venture, investment, reclassification, or other similar business transaction.
"PRINCIPAL DEBT" means, at any time, the unpaid principal balance of
Borrowings.
"PROJECTIONS" means the financial projections for the Companies that are
attached as SCHEDULE 8.7.
"PROXY STATEMENT" means the Proxy Statement dated September 11, 1996, and
supplemented October 1, 1996, and filed by US Borrower with the SEC under
Section 14(a) of the 1934 Act.
"REAL PROPERTY" means any land, buildings, fixtures, and other improvements
to land now or in the future directly or indirectly owned by any Company, leased
to or otherwise operated by any Company, or subleased by any Company to any
other Person.
"RELEASE" means any "release" as defined under any Environmental Law.
"REPRESENTATIVES" means, for any Person, its representatives, officers,
directors, employees, accountants, attorneys, and agents.
"REQUIRED LENDERS" means, at any time, any combination of Lenders holding
(directly or indirectly) at least either (a) before the Termination Date, 66-
2/3% of the sum of the total US-Facility Commitments plus the total UK-Facility
Commitments, or (b) on or after the Termination Date, 66-2/3% of the sum of the
US-Facility-Commitment Usage plus the UK-Facility-Commitment Usage.
"RESPONSIBLE OFFICER" means the chairman, president, chief executive
officer, chief financial officer, or treasurer of US Borrower or a director or
the secretary of the relevant UK Borrower.
"RIGHTS" means rights, remedies, powers, privileges, and benefits.
"SEC" means the Securities and Exchange Commission.
"SENIOR DEBT" means, at any time, the Companies' consolidated Funded Debt
other than the Subordinated Debt.
"SOLVENT" means, as to any Person, that (a) the total fair market value of
its assets exceeds its liabilities, (b) it has sufficient cash flow to enable it
to pay its Debts as they mature, and (c) it does not have unreasonably small
capital to conduct its businesses.
"STATED-TERMINATION DATE" means November 15, 1999.
"SUBORDINATED DEBT," at any time, means (a) the Subordinated Notes and (b)
Debt, whether to repurchase or redeem any Subordinated Notes or otherwise, so
long as that Debt (i) is subject to
Credit Agreement
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subordination, payment blockage, and standstill provisions at least as favorable
to Lenders as applicable to the Subordinated Notes, (ii) is subject to
representations, covenants, events of default, and other provision not
significantly more onerous to US Borrower than the Subordinated Notes, (iii)
does not have any scheduled or mandatory principal or sinking fund payment due
before December 31, 1999, and (iv) is upon terms and conditions otherwise
reasonably acceptable to Required Lenders.
"SUBORDINATED-NOTE INDENTURE" means the Indenture dated as of October 7,
1996, between US Borrower and U.S. Trust Company of California, N.A.
"SUBORDINATED-NOTE PROCEEDS" means, at any time, the proceeds of the sale
of the Subordinated Notes pursuant to the Offering Memorandum.
"SUBORDINATED NOTES" means the 7-1/8% Convertible Subordinated Notes Due
2001, issued by US Borrower in accordance with the Offering Memorandum and the
Subordinated-Note Indenture.
"SUBSIDIARY" of any Person means any corporation, partnership, or other
entity of which 50% or more (in number of votes) of the stock (or equivalent
interests) is owned of record or beneficially, directly or indirectly, by that
Person.
"TANGIBLE-NET WORTH" means -- at any time and for any Person -- the sum of
(i) its stockholders' equity, plus (ii) amounts excluded from stockholders'
equity under GAAP relating to the establishment of an employee stock ownership
plan, minus (iii) the total (without duplication of deductions already made in
arriving at stockholders' equity) of the book value of all assets that would be
treated as intangible assets under GAAP, including, without limitation,
goodwill, trademarks, trade names, copyrights, patents, and unamortized debt
discount and expense (other than any such intangibles acquired or realized in
connection with the Electrotech Acquisition, up to but not in excess of
$22,000,000).
"TAXES" means all present and future taxes (including, without limitation,
gross receipts, sales, use, consumption, property, income, franchise, capital,
occupational, value added and excise taxes), withholdings, assessments, levies,
imposts, customs, and other duties, fees or charges, of any nature whatsoever,
together with any penalties, fines or interest thereon or other additions
thereto imposed, withheld, levied or assessed by any taxing authority or
Governmental Authority or by any international authority, and "TAX," "TAXATION,"
and cognate expressions shall be construed accordingly;
"TERMINATION DATE" means the earlier of either (a) the Stated-Termination
Date or (b) the effective date that Lenders' commitments to lend and issue BGs
and LCs under this agreement are fully canceled or terminated.
"TYPE" means any type of Borrowing determined with respect to the
applicable interest option.
"UCC" means the Uniform Commercial Code as enacted in Texas or other
applicable jurisdictions.
"UK BORROWERS" is defined in the preamble to this agreement.
"UK COLLATERAL" is defined in SECTION 6.3.
"UK-COLLATERAL AGENT" means, at any time, Lloyds Bank Plc (or its successor
appointed under SECTION 16), acting as UK-collateral agent for the Lenders under
the UK Facility.
"UK FACILITY" is defined in the recitals to this agreement.
Credit Agreement
----------------
17
<PAGE>
"UK-FACILITY COMMITMENT" means, at any time and for any Lender, the amount
(if any) stated beside that Lender's name on the most-recently amended SCHEDULE
1 for the UK Facility (which amount is subject to reduction and cancellation as
provided in this agreement), under which is encompassed the BG/LC Subfacility
and the Overdraft Subfacility.
"UK-FACILITY-COMMITMENT USAGE" means, at any time, the Dollar Equivalent of
the sum of (a) the Principal Debt of Borrowings under SECTION 3.2, plus (b) the
BG/LC Exposure, plus (c) the Overdraft Exposure.
"UK-FACILITY NOTE" means a promissory note substantially in the form of
EXHIBIT A-2.
"UK OBLIGATION" means all present and future (a) Debts, liabilities, and
obligations of any Company to either Agent, any Lender under the UK Facility,
Overdraft Lender, or the Issuer under the BG/LC Subfacility and related to the
UK Facility and any Loan Document, whether principal, interest, fees, costs,
attorneys' fees, or otherwise, (b) Debts, liabilities, or obligations owed by
any Foreign Company to any Lender or its one or more Affiliates under any
agreement, document, or instrument related to any interest swap or foreign-
currency purchase or swap described in the definition of Hedging Agreement, and
(c) renewals, extensions, and modifications of any of the foregoing.
"UK-REVOLVING-COMMITMENT PERCENTAGE" means -- for any Lender under the UK
Facility and at any time -- the proportion (stated as a percentage) that (a) its
UK-Facility Commitment (less, in the case of Overdraft Lender, the Dollar
Equivalent of Overdraft Lender's net commitment under the Overdraft Subfacility)
bears to (b) the total UK-Facility Commitments of all Lender (less the Dollar
Equivalent of Overdraft Lender's net commitment under the Overdraft
Subfacility).
"US COLLATERAL" is defined in SECTION 6.2.
"US BORROWER" is defined in the preamble to this agreement.
"US FACILITY" is defined in the recitals to this agreement.
"US-FACILITY COMMITMENT" means, at any time and for any Lender, the amount
stated beside that Lender's name on the most-recently amended SCHEDULE 1 for the
US Facility (which amount is subject to reduction and cancellation as provided
in this agreement), under which is encompassed the LC Subfacility.
"US-FACILITY-COMMITMENT USAGE" means, at any time, the sum of (a) the
Principal Debt of the US Facility plus (b) the LC Exposure.
"US OBLIGATION" means all present and future (a) Debts, liabilities, and
obligations of any Domestic Company to Administrative Agent, any Lender, the
Issuer under the LC Subfacility, or Arranger and related to the US Facility and
any Loan Document, whether principal, interest, fees, costs, attorneys' fees, or
otherwise, (b) Debts, liabilities, or obligations owed by any Company to any
Lender or its one or more Affiliates under any agreement, document, or
instrument related to any interest swap or foreign-currency purchase or swap
described in the definition of Hedging Agreement, and (c) renewals, extensions,
and modifications of any of the foregoing.
"US-FACILITY NOTE" means a promissory note substantially in the form of
EXHIBIT A-1.
Credit Agreement
----------------
18
<PAGE>
"VALUE ADDED TAX" means value added tax as provided for in the Value Added
Tax Act 1994 and legislation (or purported legislation and whether delegated or
otherwise) supplemental thereto or in any primary or secondary legislation
promulgated by the European Union or any official body or agency thereof, and
any tax similar or equivalent to value added tax imposed by any country other
than the United Kingdom and any similar or turnover tax replacing or introduced
in addition to any of the same.
TIME REFERENCES. Unless otherwise specified, in the Loan Documents
---------------
(a) time references (e.g., 10:00 a.m.) are to time in Dallas, Texas, and (b) in
calculating a period from one date to another, the word "from" means "from and
including" and the word "to" or "until" means "to but excluding."
OTHER REFERENCES. Unless otherwise specified, in the Loan Documents
----------------
(a) where appropriate, the singular includes the plural and vice versa, and
words of any gender include each other gender, (b) heading and caption
references may not be construed in interpreting provisions, (c) monetary
references are to currency of the United States of America, (d) section,
paragraph, annex, schedule, exhibit, and similar references are to the
particular Loan Document in which they are used, (e) references to "telecopy,"
"facsimile," "fax," or similar terms are to facsimile or telecopy transmissions,
(f) references to "including" mean including without limiting the generality of
any description preceding that word, (g) the rule of construction that
references to general items that follow references to specific items are limited
to the same type or character of those specific items is not applicable in the
Loan Documents, (h) references to any Person include that Person's heirs,
personal representatives, successors, trustees, receivers, and permitted
assigns, (i) references to any Governmental Requirement include every amendment
or supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it, and
replacement or substitution for it.
ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan
---------------------
Documents (a) GAAP determines all accounting and financial terms and compliance
with financial covenants, (b) GAAP in effect on the date of this agreement
determines compliance with financial covenants, (c) otherwise, all accounting
principles applied in a current period must be comparable in all material
respects to those applied during the preceding comparable period, (d) all
accounting and financial terms and compliance with reporting covenants must be
on a consolidated basis, as applicable, and (e) compliance with financial
covenants must be on a consolidated basis.
SECTION US FACILITY.
- -------- -----------
COMMITMENT. Subject to the provisions in the Loan Documents, each
----------
Lender under the US Facility severally but not jointly agrees to lend to US
Borrower that Lender's Commitment Percentage under the US Facility of requested
or required Borrowings under the US Facility, which US Borrower may borrow,
repay, and reborrow under this agreement subject to the following conditions:
.Each Borrowing under the US Facility may only occur on a Business Day
on or after the Closing Date for the US Facility and before the
Termination Date.
.Each Borrowing under the US Facility may only be (i) $300,000 or a
greater integral multiple of $100,000 if a Base-Rate Borrowing or (ii)
$2,000,000 or a greater integral multiple of $1,000,000 if a Euro-Rate
Borrowing.
.No such Borrowing is permitted that would cause the US-Facility
Commitment Usage to exceed the lesser of either the total US-Facility
Commitments or the Borrowing Base for the US Facility.
Credit Agreement
----------------
19
<PAGE>
.No such Borrowing is permitted that would cause the US-Facility-
Commitment Usage (whether direct or participated) owed to any Lender
under the US Facility to exceed that Lender's US-Facility Commitment.
The foregoing limitations are conditions to Borrowings under the US Facility,
the exceeding of which results in mandatory prepayments becoming due under
SECTION 4.2(C). However, any such excess is part of the US Obligation for all
purposes, including, without limitation, US Borrower's obligations to pay same
in accordance with the Loan Documents.
BORROWING PROCEDURE. The following procedures apply to Borrowings
-------------------
under the US Facility:
BORROWING REQUEST. US Borrower may request a Borrowing under the
-----------------
US Facility by making or delivering a Borrowing Request to Administrative
Agent, which is irrevocable and binding on US Borrower, which must state
the Type, amount, and Interest Period for the Borrowing, and which must be
received by Administrative Agent no later than (i) 10:00 a.m. on the third
Business Day before the Borrowing Date for any Euro-Rate Borrowing, or (ii)
11:00 a.m. on the Borrowing Date for any Base-Rate Borrowing.
Administrative Agent shall promptly on the day received notify each Lender
under the US Facility about the contents of the Borrowing Request.
FUNDING. Each Lender under the US Facility shall remit its
-------
Commitment Percentage under the US Facility of each requested Borrowing
under the US Facility to Administrative Agent's principal office in Dallas,
Texas, in funds that are available for immediate use by Administrative
Agent by 2:00 p.m. on the applicable Borrowing Date. Subject to receipt of
those funds, Administrative Agent shall (unless to its actual knowledge any
of the applicable conditions precedent have not been satisfied by US
Borrower or waived by the requisite Lenders) make those funds available to
US Borrower by (at US Borrower's option according to the related Borrowing
Request) (i) wiring the funds to or for the account of US Borrower at the
direction of US Borrower or (ii) depositing the funds in US Borrower's
account with Administrative Agent.
FUNDING ASSUMED. Absent contrary written notice from a Lender
---------------
under the US Facility, Administrative Agent may assume that each such
Lender has made its Commitment Percentage under the US Facility of the
requested Borrowing available to Administrative Agent on the applicable
Borrowing Date, and Administrative Agent may, in reliance upon that
assumption (but shall not be required to), make available to US Borrower a
corresponding amount. If any such Lender fails to make its Commitment
Percentage under the US Facility of any requested Borrowing available to
Administrative Agent on the applicable Borrowing Date, then Administrative
Agent may recover the applicable amount on demand (i) from that Lender
together with interest, commencing on the Borrowing Date and ending on (but
excluding) the date Administrative Agent recovers the amount from that
Lender, at an annual interest rate equal to the Fed-Funds Rate, or (ii) if
that Lender fails to pay its amount upon demand, then from US Borrower
together with interest at the rate applicable to that Borrowing. No Lender
under the US Facility is responsible for the failure of any other Lender
under the US Facility to make its Commitment Percentage of the US Facility
of any Borrowing available as required by SECTION 2.2(B); however, failure
of any Lender under the US Facility to make its Commitment Percentage of
the US Facility of any Borrowing so available does not excuse any other
Lender under the US Facility from making its Commitment Percentage of the
US Facility of any Borrowing so available.
Credit Agreement
----------------
20
<PAGE>
LC SUBFACILITY.
--------------
(a) CONDITIONS. Subject to the provisions of the Loan Documents, the
----------
Issuer for the LC Subfacility agrees, if requested by US Borrower, to issue
LCs upon US Borrower's delivering a LC Request and a LC Agreement, both of
which must be received by that Issuer no later than the second Business Day
before the Business Day on which the requested LC is to be issued, subject
to the following conditions:
. LCs may only be issued on or after the Closing Date for the US
Facility and must expire on or before three Business Days before
the Termination Date.
. Each LC must be in the face amount of at least $100,000.
. No such LC may be issued that would cause the LC Exposure to
exceed the amount of the LC Subfacility.
. No such LC may be issued that would cause the US-Facility
Commitment Usage to exceed the lesser of either the total US-
Facility Commitments or the Borrowing Base for the US Facility.
. No such LC may be issued that would cause the US-Facility-
Commitment Usage (whether direct or participated) owed to that
Issuer under the US Facility to exceed that Issuer's US-Facility
Commitment.
The foregoing limitations are conditions to LCs under the LC Subfacility,
the exceeding of which results in mandatory prepayments becoming due under
SECTION 4.2(c). However, any such excess is part of the US Obligation for
all purposes, including, without limitation, US Borrower's obligations to
pay same in accordance with the Loan Documents.
(b) PARTICIPATION. Immediately upon that Issuer's issuance of a LC,
-------------
that Issuer shall be deemed to have sold and transferred to each other
Lender under the US Facility, and each other such Lender shall be deemed
irrevocably and unconditionally to have purchased and received from that
Issuer, without recourse or warranty, an undivided interest and
participation to the extent of such Lender's Commitment Percentage under
the US Facility in the LC and all applicable Rights of that Issuer in the
LC (other than Rights to receive certain fees provided in SECTION 5.4 to be
for that Issuer's sole account). The Issuer shall as soon as practicable
advise Administrative Agent who shall as soon as practicable advise the
Lenders under the US Facility of any such issuance and their relative
participations.
(c) REIMBURSEMENT OBLIGATION. To induce that Issuer to issue and
------------------------
maintain LCs, and to induce the Lenders under the US Facility to
participate in issued LCs, US Borrower agrees to pay or reimburse that
Issuer (i) on the first Business Day after the Issuer notifies
Administrative Agent and US Borrower that it has made payment under a LC,
the amount paid by the Issuer and (ii) within five Business Days after
demand, the amount of any additional costs, expenses, and fees that Issuer
customarily charges for amending LC Agreements, for honoring drafts under
letters of credit, and for taking similar action in connection with letters
of credit. If US Borrower has not reimbursed the Issuer for any drafts
paid by the date on which reimbursement is required under this section,
then Administrative Agent is irrevocably authorized to fund US Borrower's
reimbursement obligations as a Base-Rate Borrowing under the US Facility if
proceeds are available under the US Facility and if the conditions in this
agreement for such a US Borrowing
Credit Agreement
----------------
21
<PAGE>
(other than any notice requirements or minimum funding amounts) have, to
Administrative Agent's knowledge, been satisfied. The proceeds of that
Borrowing shall be advanced directly to the Issuer to pay US Borrower's
unpaid reimbursement obligations. If funds cannot be advanced under the US
Facility, then US Borrower's reimbursement obligation shall constitute a
demand obligation. US Borrower's obligations under this section are
absolute and unconditional under any and all circumstances and irrespective
of any setoff, counterclaim, or defense to payment that US Borrower may
have at any time against the Issuer or any other Person. From the date
that the Issuer pays a draft under a LC until US Borrower either reimburses
or is obligated to reimburse the Issuer for that draft under this section,
the amount of that draft bears interest payable to the Issuer at the rate
then applicable to Base-Rate Borrowings. From the due date of the
respective amounts due under this section, to the date paid (including any
payment from proceeds of a Base-Rate Borrowing), unpaid reimbursement
amounts accrue interest that is payable on demand at the Default Rate.
(d) GENERAL. The Issuer under the LC Subfacility shall promptly
-------
notify Administrative Agent and US Borrower of the date and amount of any
draft presented for honor under any LC (but failure to give notice will not
affect US Borrower's obligations under this agreement). The Issuer shall
pay the requested amount upon presentment of a draft unless presentment on
its face does not comply with the terms of the applicable LC. When making
payment, the Issuer may disregard (i) any default or potential default that
exists under any other agreement and (ii) obligations under any other
agreement that have or have not been performed by the beneficiary or any
other Person (and the Issuer is not liable for any of those obligations).
US Borrower's reimbursement obligations to the Issuer, and the Lenders
under the US Facility, and each such Lender's obligations to the Issuer,
under this section are absolute and unconditional irrespective of, and the
Issuer is not responsible for (i) the validity, enforceability,
sufficiency, accuracy, or genuineness of documents or endorsements (even if
they are in any respect invalid, unenforceable, insufficient, inaccurate,
fraudulent, or forged) except as otherwise provided in CLAUSE (f) below,
(ii) any dispute by any Company with or any Company's claims, setoffs,
defenses, counterclaims, or other Rights against the Issuer, any Lender, or
any other Person, or (iii) the occurrence of any Potential Default or Event
of Default. The Issuer shall promptly pay to Administrative Agent
reimbursement payments received from US Borrower for Administrative Agent
to promptly distribute to all Lenders under the US Facility according to
their respective Commitment Percentages under the US Facility.
(e) LENDERS' OBLIGATIONS. If US Borrower fails to reimburse the
--------------------
Issuer as provided in SECTION 2.3(c) by the date on which reimbursement is
due under that section, and funds cannot be advanced under the US Facility
to satisfy the reimbursement obligations, then Administrative Agent shall
promptly notify each Lender under the US Facility of that failure, of the
date and amount paid, and of each such Lender's Commitment Percentage under
the US Facility of the unreimbursed amount. Each such Lender shall
promptly and unconditionally make available to Administrative Agent in
immediately available funds its Commitment Percentage under the US Facility
of the unpaid reimbursement obligation. Funds are due and payable to
Administrative Agent before the close of business on the Business Day when
Administrative Agent gives notice to each such Lender of US Borrower's
reimbursement failure (if notice is given before 1:00 p.m.) or on the next
succeeding Business Day (if notice is given after 1:00 p.m.). All amounts
payable by any such Lender accrue interest after the due date at the Fed-
Funds Rate from the day the applicable draft or draw is paid by
Administrative Agent to (but not including) the date the amount is paid by
that Lender to Administrative Agent. Upon receipt of those funds,
Administrative Agent shall make them available to the Issuer.
Credit Agreement
----------------
22
<PAGE>
(f) ISSUER'S DUTIES. The Issuer under the LC Subfacility agrees with
---------------
US Borrower and each Lender under the US Facility that it will exercise and
give the same care and attention to each LC that it issues as it gives to
its other letters of credit. Each such Lender and US Borrower agree that,
in paying any draft under any LC, the Issuer has no responsibility to
obtain any document (other than any documents expressly required by the
respective LC) or to ascertain or inquire as to any document's validity,
enforceability, sufficiency, accuracy, or genuineness or the authority of
any Person delivering it. Neither the Issuer nor its Representatives will
be liable to any such Lender or any Company for any LC's use or for any
beneficiary's acts or omissions. Any action, inaction, error, delay, or
omission taken or suffered by the Issuer or any of its Representatives in
connection with any LC, applicable drafts or documents, or the
transmission, dispatch, or delivery of any related message or advice, if in
good faith and in conformity with applicable Governmental Requirements and
in accordance with the standards of care specified in the Uniform Customs
and Practices for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 (as amended or modified), is
binding upon the Companies and Lenders and, except as provided in SECTION
2.3(e), does not place that Issuer or any of its Representatives under any
resulting liability to any Company or any Lender. Administrative Agent is
not liable to any Company or any Lender for any action taken or omitted, in
the absence of gross negligence or willful misconduct, by that Issuer or
its Representative in connection with any LC.
(g) CASH COLLATERAL. On the Termination Date and if requested by the
---------------
Lenders under the US Facility while an Event of Default exists, US Borrower
shall provide Administrative Agent, for the benefit of Lenders under the US
Facility, cash collateral in an amount to equal the then-existing LC
Exposure (with interest on that cash collateral accruing to the benefit of
US Borrower).
(h) INDEMNIFICATION. US BORROWER SHALL PROTECT, INDEMNIFY, PAY, AND
---------------
SAVE ADMINISTRATIVE AGENT, THE ISSUER UNDER THE LC SUBFACILITY, AND EACH
OTHER LENDER UNDER THE US FACILITY, AND THEIR RESPECTIVE REPRESENTATIVES
HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES,
DAMAGES, COSTS, CHARGES, AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
FEES) WHICH ANY OF THEM MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE OF THE
ISSUANCE OF ANY LC, ANY DISPUTE ABOUT IT, OR THE FAILURE OF ANY ISSUING
LENDER TO HONOR A DRAW REQUEST UNDER ANY LC AS A RESULT OF ANY ACT OR
OMISSION (WHETHER RIGHT OR WRONG) OF ANY PRESENT OR FUTURE GOVERNMENTAL
AUTHORITY. HOWEVER, NO PERSON IS ENTITLED TO INDEMNITY UNDER THE FOREGOING
FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(i) LC AGREEMENTS. Although referenced in any LC, terms of any
-------------
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner. The fees and other amounts
payable with respect to each LC are as provided in this agreement, drafts
under each LC are part of the US Obligation, only the events specified in
this agreement as an Event of Default shall constitute a default under any
LC Agreement, and the terms of this agreement control any conflict between
the terms of this agreement and any LC Agreement.
2.4 REQUESTS. Each Borrowing Request under the US Facility and LC Request
--------
constitutes a representation and warranty by US Borrower that as of the
Borrowing Date or the date of issuance of the requested LC, as the case may be,
all of the applicable conditions precedent in SECTION 7.1 have been satisfied.
Credit Agreement
----------------
23
<PAGE>
2.5 TERMINATION. US Borrower may -- upon giving at least five Business
-----------
Days prior written and irrevocable notice to Administrative Agent -- terminate
all or part of the US Facility. US Borrower may not, however, terminate all of
the US Facility without Administrative Agent's prior written consent unless the
UK Facility is concurrently terminated in accordance with SECTION 3.6. Each
partial termination must be in an amount of not less than $1,000,000 or a
greater integral multiple of $1,000,000 and must be ratable in accordance with
the Commitment Percentage of each Lender under the US Facility. At the time of
any termination, US Borrower shall pay to Administrative Agent, for the account
of each Lender under the US Facility, as applicable, any amounts that may then
be due under SECTION 4.2(c)(i), all accrued and unpaid fees under this
agreement, the interest attributable to the amount of that termination, and any
related Funding Loss. Any part of the US-Facility Commitments that are
terminated may not be reinstated.
SECTION 3 UK FACILITY.
- --------- -----------
3.1 COMMITMENT. Subject to the provisions in the Loan Documents, each
----------
Lender under the UK Facility severally but not jointly agrees to lend to UK
Borrowers that Lender's UK-Revolving-Commitment Percentage of requested or
required Borrowings under the UK Facility (other than under the Overdraft
Subfacility) which UK Borrowers may borrow, repay, and reborrow under this
agreement subject to the following conditions:
. Each Borrowing under the UK Facility may only occur on a Business Day
on or after the Closing Date for the UK Facility and before the
Termination Date.
. Each such Borrowing shall be due and payable on the last day of the
relevant Interest Period.
. Each such Borrowing may be denominated in Dollars or -- subject to
SECTION 3.2(D) -- an Alternative Currency and shall be a minimum
amount of $2,000,000 (or the equivalent in that Alternative Currency
and a round amount in that Alternative Currency as is acceptable to
Administrative Agent) or a greater integral multiple of $1,000,000 (or
the equivalent in that Alternative Currency and a round amount in that
Alternative Currency as is acceptable to Administrative Agent).
. No such Borrowing is permitted that would cause the UK-Facility-
Commitment Usage (calculated at the then-Dollar Equivalent of that
amount) to exceed the lesser of either the total UK-Facility
Commitments or the Borrowing Base for the UK Facility.
. No such Borrowing is permitted that would cause the UK-Facility-
Commitment Usage (calculated at the then-Dollar Equivalent of that
amount) (whether direct or participated) owed to any Lender under the
UK Facility to exceed that Lender's UK-Facility Commitment.
The foregoing limitations are conditions to Borrowings under the UK Facility,
the exceeding of which results in mandatory prepayments becoming due under
SECTION 4.2(c). However, any such excess is part of the UK Obligation for all
purposes, including, without limitation, UK Borrowers' joint and several
obligations to pay same in accordance with the Loan Documents.
3.2 BORROWING PROCEDURE. The following procedures apply to Borrowings
-------------------
under the UK Facility other than Borrowings under the Overdraft Subfacility:
Credit Agreement
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24
<PAGE>
(a) BORROWING REQUEST. UK Borrowers may request a Borrowing under
-----------------
the UK Facility by making or delivering a Borrowing Request to
Administrative Agent, which is irrevocable and binding on UK Borrowers,
which must state which UK Borrower is to receive that Borrowing and state
the currency (Dollars, Pound Sterling, Deutsche Marks or other Alternative
Currency), amount, and Interest Period for each Borrowing under the UK
Facility, and which must be received by Administrative Agent no later than
10:00 a.m. on the third Business Day before the Borrowing Date.
Administrative Agent shall promptly on the day received notify each Lender
under the UK Facility about the contents of the Borrowing Request.
(b) FUNDING. Each Lender under the UK Facility shall remit its UK-
-------
Revolving-Commitment Percentage of each requested Borrowing under the UK
Facility to Administrative Agent's principal office in Dallas, Texas (or,
at Administrative Agent's discretion and only in respect of the UK
Facility, to an account of Administrative Agent with a bank in the United
Kingdom that Administrative Agent may from time to time designate by
written notice to UK Borrowers and the Lenders under the UK Facility), in
funds that are available for immediate use by Administrative Agent by 2:00
p.m. (London time) on the applicable Borrowing Date in the currency
requested. Subject to receipt of those funds, Administrative Agent shall
(unless to its actual knowledge any of the applicable conditions precedent
have not been satisfied by UK Borrowers or waived by the requisite Lenders
under the UK Facility) make those funds available to the designated UK
Borrower by wiring the funds to or for the account of the designated UK
Borrower at the direction of the designated UK Borrower.
(c) FUNDING ASSUMED. Absent contrary written notice from a Lender
---------------
under the UK Facility, Administrative Agent may assume that each such
Lender has made its UK-Revolving-Commitment Percentage of the requested
Borrowing available to Administrative Agent on the applicable Borrowing
Date, and Administrative Agent may, in reliance upon that assumption (but
shall not be required to), make available to the designated UK Borrower a
corresponding amount. If any such Lender fails to make its UK-Revolving-
Commitment Percentage of any requested Borrowing available to
Administrative Agent on the applicable Borrowing Date, then Administrative
Agent may recover the applicable amount on demand (i) from that Lender
together with interest, commencing on the Borrowing Date and ending on (but
excluding) the date Administrative Agent recovers the amount from that
Lender, at an annual interest rate equal to the Fed-Funds Rate, or (ii) if
that Lender fails to pay its amount upon demand, then from UK Borrowers (on
a joint and several basis) together with interest at the rate applicable to
that Borrowing. No Lender under the UK Facility is responsible for the
failure of any other Lender under the UK Facility to make its UK-Revolving-
Commitment Percentage of any Borrowing available as required by SECTION
3.2(b); however, failure of any such Lender to make its UK-Revolving-
Commitment Percentage of any Borrowing so available does not excuse any
other Lender under the UK Facility from making its UK-Revolving-Commitment
Percentage of any Borrowing so available.
(d) CONDITIONS FOR ALTERNATIVE CURRENCIES. A Borrowing under the UK
-------------------------------------
Facility (other than under the Overdraft Subfacility) may not be
denominated in an Alternative Currency unless Administrative Agent has
confirmed to UK Borrowers that such Alternative Currency is available for
such Borrowings. If no later than 10:00 a.m. on the second Business Day
before the Borrowing Date for a Borrowing in an Alternative Currency a
Lender under the UK Facility notifies Administrative Agent that:
(i) the Lender cannot fund its share of that Borrowing in the
proposed Alternative Currency; or
Credit Agreement
----------------
25
<PAGE>
(ii) an authorization of a Governmental Authority is required
in respect of that Alternative Currency to permit its use by the
Lender to make its share of that Borrowing available; or
(iii) the use of that Alternative Currency is restricted or
prohibited,
then Administrative Agent shall notify UK Borrowers and each Lender under
the UK Facility by 1:00 p.m. on the same day and that Borrowing shall not
be made, and UK Borrowers are jointly and severally liable for any
resulting Funding Loss. If no such notice is so given, then the Borrowing
shall be made as requested subject to the other terms and conditions of the
Loan Documents.
3.3 OVERDRAFT SUBFACILITY. Subject to the terms of this agreement and
---------------------
only if no Event of Default or Potential Default exists, the Overdraft
Subfacility is available for utilization by either UK Borrower until the earlier
of either the Termination Date or any earlier date on which Overdraft Lender
terminates the Overdraft Subfacility by notice to UK Borrowers and
Administrative Agent. The Overdraft Subfacility shall be made available on such
terms as shall be agreed between Overdraft Lender and UK Borrowers from time to
time that are not inconsistent with the other terms of this agreement so long
as:
. Each UK Borrower shall complete such mandate and other like documents
in respect of the Overdraft Subfacility as Overdraft Lender may
reasonably require and that are not inconsistent with the other terms
of this agreement.
. None of the Overdraft Subfacility may be utilized that would cause the
UK-Facility-Commitment Usage (calculated at then-Dollar Equivalent of
that amount) to exceed the lesser of either the total UK-Facility
Commitments or the Borrowing Base for the UK Facility.
. None of the Overdraft Subfacility may be used that would cause the UK-
Facility-Commitment Usage (calculated at then-Dollar Equivalent of
that amount) for Overdraft Lender to exceed its UK-Facility
Commitment.
. None of the Overdraft Subfacility may be utilized that would cause
the limitations in the definition of the Overdraft Subfacility to be
exceeded.
The foregoing limitations are conditions to overdrafts and other accommodations
under the Overdraft Subfacility, the exceeding of which results in mandatory
prepayments becoming due under SECTION 4.2(c). However, any such excess is part
of the UK Obligation for all purposes, including, without limitation, UK
Borrowers' joint and several obligations to pay same in accordance with the Loan
Documents. For the avoidance of doubt, Overdraft Lender may, without liability,
return cheques unpaid if the payment of those cheques would result in a breach
of the foregoing limitations. Subject to the foregoing conditions, Overdraft
Lender agrees to make the Overdraft Subfacility available on a revolving basis
to UK Borrowers to be utilized on any business day in London by way of overdraft
on usual banking terms (including that amounts outstanding by way of overdraft
are repayable on demand and are subject to agreement between Overdraft Lender
and UK Borrowers), whether by way of BACS facilities and such other facilities
or financial accommodation as each case on such terms (not inconsistent with the
other terms of this agreement) as Overdraft Lender and UK Borrowers may from
time to time agree.
Credit Agreement
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26
<PAGE>
3.4 BG/LC SUBFACILITY.
-----------------
(a) CONDITIONS. Subject to the provisions of the Loan Documents, the
----------
Issuer for the BG/LC Subfacility agrees, if requested by UK Borrowers, to
issue BGs (if it may lawfully do so) or LCs upon UK Borrowers delivering a
BG/LC Request and, if applicable, a LC Agreement, both of which must be
received by Administrative Agent and that Issuer no later than the second
Business Day before the Business Day on which the requested BG or LC is to
be issued, subject to the following conditions:
. BGs and LCs may only be issued on or after the Closing Date for the
UK Facility and must expire on or before three Business Days before
the Termination Date.
. There may be no more than 20 outstanding BGs and LCs, collectively,
at any time.
. Each LC and BG must state on its face its expiry date and the maximum
amount available and otherwise be in form and substance acceptable to
the Issuer and Administrative Agent.
. No such BG or LC may be issued that would cause the BG/LC Exposure
(calculated at then-Dollar Equivalent of that amount) to exceed the
amount of the BG/LC Subfacility.
. No such BG or LC may be issued that would cause the UK-Facility-
Commitment Usage (calculated at then-Dollar Equivalent of that amount)
to exceed the lesser of either the total UK-Facility Commitments or
the Borrowing Base for the UK Facility.
. No such BG or LC may be issued that would cause the UK-Facility-
Commitment Usage (calculated at then-Dollar Equivalent of that amount)
(whether direct or participated) owed to that Issuer under the UK
Facility to exceed that Issuer's UK-Facility Commitment.
The foregoing limitations are conditions to BGs and LCs under the BG/LC
Subfacility, the exceeding of which results in mandatory prepayments
becoming due under SECTION 4.2(c). However, any such excess is part of the
UK Obligation for all purposes, including, without limitation, UK
Borrowers' joint and several obligations to pay same in accordance with the
Loan Documents. The Issuer shall as soon as practicable advise
Administrative Agent who shall as soon as practicable advise the Lenders
under the UK Facility of any such issuance.
(b) REIMBURSEMENT OBLIGATION. To induce that Issuer to issue and
------------------------
maintain BGs or LCs, UK Borrowers jointly and severally agree to pay or
reimburse the Issuer (i) on the first Business Day after the Issuer
notifies Administrative Agent and UK Borrowers that it has made payment
under a BG or LC, the amount paid by that Issuer and (ii) within five
Business Days after demand, the amount of any additional costs, expenses,
and fees that Issuer customarily charges for amending LC Agreements, for
honoring drafts under bank guarantees or letters of credit, and for taking
similar action in connection with bank guarantees or letters of credit. If
UK Borrowers have not reimbursed the Issuer for any drafts paid by the date
on which reimbursement is required under this section, then Administrative
Agent is irrevocably authorized to fund the UK Borrowers' reimbursement
obligations as a Borrowing under the UK Facility if proceeds are available
under the UK Facility and if the conditions in this agreement for such a
Borrowing under the UK Facility (other than any notice requirements or
minimum funding amounts) have, to Administrative Agent's knowledge, been
satisfied. The proceeds of that Borrowing shall be advanced directly to
the Issuer to pay UK Borrowers' unpaid reimbursement obligations. If funds
cannot be advanced under the UK Facility, then UK Borrowers'
Credit Agreement
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<PAGE>
reimbursement obligation shall constitute a demand obligation. UK
Borrowers' obligations under this section are absolute and unconditional
under any and all circumstances and irrespective of any setoff,
counterclaim, or defense to payment that either UK Borrower may have at any
time against the Issuer or any other Person. From the date that the Issuer
pays a draft under a BG or LC until the UK Borrowers either reimburse or
are obligated to reimburse the Issuer for that draft under this section,
the amount of that draft bears interest payable to the Issuer at an annual
interest rate equal to the sum of the Issuer's cost of funds, plus the
Applicable Margin for Euro-Rate Borrowings, plus the applicable Mandatory-
Liquid-Assets Costs. From the due date of the respective amounts due under
this section, to the date paid (including any payment from proceeds of a
Borrowing), unpaid reimbursement amounts accrue interest that is payable on
demand at the Default Rate.
(c) GENERAL. The Issuer under the BG/LC Subfacility shall promptly
-------
notify Administrative Agent and UK Borrowers of the date and amount of any
draft presented for honor under any BG or LC (but failure to give notice
will not affect UK Borrowers' obligations under this agreement). The
Issuer shall pay the requested amount upon presentment of a draft unless
presentment on its face does not comply with the terms of the applicable BG
or LC. When making payment, that Issuer may disregard (i) any default or
potential default that exists under any other agreement and (ii)
obligations under any other agreement that have or have not been performed
by the beneficiary or any other Person (and that Issuer is not liable for
any of those obligations). UK Borrowers' reimbursement obligations to the
Issuer and the Lenders under the UK Facility, and each such Lender's
obligations to the Issuer, under this section are absolute and
unconditional irrespective of, and the Issuer is not responsible for (i)
the validity, enforceability, sufficiency, accuracy, or genuineness of
documents or endorsements (even if they are in any respect invalid,
unenforceable, insufficient, inaccurate, fraudulent, or forged) except as
otherwise provided in CLAUSE (e) below, (ii) any dispute by any Company
with or any Company's claims, setoffs, defenses, counterclaims, or other
Rights against the Issuer, any Lender, or any other Person, or (iii) the
occurrence of any Potential Default or Event of Default. The Issuer shall
promptly pay to Administrative Agent reimbursement payments received from
either UK Borrower for Administrative Agent to promptly distribute to all
Lenders under the UK Facility according to their respective UK-Revolving-
Commitment Percentages.
(d) LENDERS' OBLIGATIONS. If UK Borrowers fail to reimburse the
--------------------
Issuer as provided in SECTION 3.4(b) by the date on which reimbursement is
due under that section, and funds cannot be advanced under the UK Facility
to satisfy the reimbursement obligations, then Administrative Agent shall
promptly notify each Lender under the UK Facility of that failure, of the
date and amount paid, and of each such Lender's UK-Revolving-Commitment
Percentage of the unreimbursed amount. Each Lender under the UK Facility
shall promptly and unconditionally make available to Administrative Agent
in immediately available funds its UK-Revolving-Commitment Percentage of
the unpaid reimbursement obligation, whereupon, subject to receipt of those
funds, Administrative Agent shall make them available to the Issuer. Funds
are due and payable to Administrative Agent by the close of business
(Dallas time) three Business Days after notification for amounts payable in
Dollars, Deutsche Marks, or other Alternative Currency (other than Pound
Sterling) and one Business Day after notification for amounts payable in
Pound Sterling. All amounts payable by any Lender under the UK Facility
accrue interest after the due date at the Fed-Funds Rate from the day the
applicable draft or draw is paid by Administrative Agent to (but not
including) the date the amount is paid by that Lender to Administrative
Agent. Upon receipt of those funds, Administrative Agent shall make them
available to the Issuer.
Credit Agreement
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28
<PAGE>
(e) ISSUER'S DUTIES. The Issuer under the BG/LC Subfacility agrees
---------------
with each Lender and each UK Borrower under the UK Facility that it will
exercise and give the same care and attention to each BG or LC that it
issues as it gives to its other bank guarantees and letters of credit.
Each such Lender and UK Borrowers agree that, in paying any draft under any
BG or LC, the Issuer has no responsibility to obtain any document (other
than any documents expressly required by the respective BG or LC) or to
ascertain or inquire as to any document's validity, enforceability,
sufficiency, accuracy, or genuineness or the authority of any Person
delivering it. Neither the Issuer nor its Representatives will be liable
to any such Lender or any Company for any BG's or LC's use or for any
beneficiary's acts or omissions. Any action, inaction, error, delay, or
omission taken or suffered by the Issuer or any of its Representatives in
connection with any BG or LC, applicable drafts or documents, or the
transmission, dispatch, or delivery of any related message or advice, if in
good faith and in conformity with applicable Governmental Requirements and
in accordance with the standards of care specified in the Uniform Customs
and Practices for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500 (as amended or modified), is
binding upon the Companies and Lenders and, except as provided in SECTION
3.4(d), does not place the Issuer or any of its Representatives under any
resulting liability to any Company or any Lender. Administrative Agent is
not liable to any Company or any Lender for any action taken or omitted, in
the absence of gross negligence or willful misconduct, by the Issuer or its
Representative in connection with any BG or LC.
(f) CASH COLLATERAL. On the Termination Date and if requested by the
---------------
Lenders under the UK Facility while an Event of Default exists, UK
Borrowers shall provide Administrative Agent, for the benefit of Lenders
under the UK Facility, cash collateral in an amount to equal the then-
existing BG/LC Exposure (with interest on that cash collateral accruing to
the benefit of UK Borrowers).
(g) INDEMNIFICATION. UK BORROWERS SHALL JOINTLY AND SEVERALLY
---------------
PROTECT, INDEMNIFY, PAY, AND SAVE ADMINISTRATIVE AGENT, THE ISSUER UNDER
THE BG/LC SUBFACILITY, AND EACH OTHER LENDER UNDER THE UK FACILITY, AND
THEIR RESPECTIVE REPRESENTATIVES HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, DEMANDS, LIABILITIES, DAMAGES, COSTS, CHARGES, AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' FEES) WHICH ANY OF THEM MAY INCUR OR BE
SUBJECT TO AS A CONSEQUENCE OF THE ISSUANCE OF ANY BG OR LC, ANY DISPUTE
ABOUT IT, OR THE FAILURE OF THE ISSUER TO HONOR A DRAW REQUEST UNDER ANY BG
OR LC AS A RESULT OF ANY ACT OR OMISSION (WHETHER RIGHT OR WRONG) OF ANY
PRESENT OR FUTURE GOVERNMENTAL AUTHORITY. HOWEVER, NO PERSON IS ENTITLED
TO INDEMNITY UNDER THE FOREGOING FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(h) LC AGREEMENTS. Although referenced in any LC, terms of any
-------------
particular agreement or other obligation to the beneficiary are not
incorporated into this agreement in any manner. The fees and other amounts
payable with respect to each BG and LC are as provided in this agreement,
drafts under each BG and LC are part of the UK Obligation, only the events
specified in this agreement as an Event of Default shall constitute a
default in respect of any BG and LC, and the terms of this agreement
control any conflict between the terms of this agreement and any LC
Agreement.
3.5 REQUESTS. Each Borrowing Request under the UK Facility, borrowing or
--------
other accommodation under the Overdraft Subfacility, and BG/LC Request
constitutes a joint and several representation and warranty by UK Borrowers that
as of the Borrowing Date, the date of issuance of the
Credit Agreement
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29
<PAGE>
requested BG or LC, or the date of the borrowing or accommodation, as the case
may be, that all of the applicable conditions precedent in SECTION 7.2 have been
satisfied.
3.6 TERMINATION. UK Borrowers may -- upon giving at least five Business
-----------
Days prior written and irrevocable notice to Administrative Agent -- terminate
all or part of the UK Facility. UK Borrowers may not terminate all of the UK
Facility without Administrative Agent's prior written consent unless the US
Facility is concurrently terminated in accordance with SECTION 2.5. Each
partial termination must (a) be in an amount of not less than the Dollar
Equivalent of $1,000,000 or a greater integral multiple of the Dollar Equivalent
of $1,000,000, (b) be ratable in accordance with each Lender's UK-Revolving-
Commitment Percentages, and (c) be accompanied by a concurrent partial
termination of the Overdraft Subfacility in the same ratio as the partial
termination of the overall UK Facility. At the time of any termination, UK
Borrower shall pay to Administrative Agent, for the account of each Lender under
the UK Facility, as applicable, any amounts that may then be due under SECTION
4.2(c)(ii), all accrued and unpaid fees under this agreement, the interest
attributable to the amount of that termination, and any related Funding Loss.
Any part of the UK-Facility Commitments that are terminated may not be
reinstated.
3.7 JOINT AND SEVERAL. UK Borrowers are jointly and severally liable for
-----------------
the UK Obligation. The failure of either UK Borrower to perform its obligations
under any of the Loan Documents shall not affect the obligations of the other UK
Borrower, and the effectiveness of the Loan Documents shall not be revoked or
impaired as to either UK Borrower by any contingency affecting the other UK
Borrower, by the revocation or release of any obligation thereunder of either UK
Borrower, by any time or any indulgence granted to either UK Borrower, or by any
variation or amendment to the terms of any of the Loan Documents.
SECTION 4 PAYMENT TERMS.
- --------- -------------
4.1 NOTES AND PAYMENTS.
------------------
(a) NOTES. The Principal Debt of the US Facility and interest on it
-----
are evidenced by the US-Facility Notes, one payable to each Lender under
the US Facility. The Principal Debt of the UK Facility (other than under
the Overdraft Subfacility) and interest on it are evidenced by the UK-
Facility Notes, one payable to each Lender under the UK Facility.
(b) PAYMENT. UK Borrowers must make each payment and prepayment
-------
under the Overdraft Subfacility directly to Overdraft Lender in funds
available for immediate use by Overdraft Lender by 1:00 p.m. (London time)
on the day due. Each Borrower must make each payment and prepayment it
owes under the Loan Documents to Administrative Agent's principal office in
Dallas, Texas (or, at Administrative Agent's discretion and only in respect
of the UK Facility, to an account of Administrative Agent with a bank in
the United Kingdom that Administrative Agent may from time to time
designate by written notice to UK Borrowers and the Lenders under the UK
Facility) in funds available for immediate use by Administrative Agent by
1:00 p.m. on the day due. Subject to SECTION 4.8, any funds not received
by the applicable deadline on any day in the preceding two sentences shall
continue to accrue interest as if they were received on the next Business
Day. Administrative Agent shall promptly pay to each Lender the part of
any payment or prepayment to which that Lender is entitled under this
agreement on the same day Administrative Agent receives the funds from any
Borrower.
(c) PAYMENT ASSUMED. Unless Administrative Agent has received notice
---------------
from a Borrower before the date on which any payment or prepayment is due
under this agreement that
Credit Agreement
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30
<PAGE>
US Borrower will not make that payment or prepayment in full, then
Administrative Agent may assume that US Borrower to have made the full
payment or prepayment due and may (in reliance upon that assumption and
without any obligation to) cause to be distributed to each relevant Lender
on that date the amount then due to each relevant Lender in respect of that
payment or prepayment. If and to the extent US Borrower does not make the
full payment or prepayment due to Administrative Agent, each relevant
Lender receiving any portion of it shall repay to Administrative Agent on
demand the amount distributed to that Lender by Administrative Agent
together with interest for each day from the date that Lender received
payment from Administrative Agent until the date that Lender repays
Administrative Agent (unless such repayment is made on the same day as such
distribution), at an interest rate equal to the Fed-Funds Rate.
4.2 INTEREST AND PRINCIPAL PAYMENTS.
-------------------------------
(a) INTEREST PAYMENTS. Accrued interest on each Euro-Rate Borrowing
-----------------
is due and payable on the last day of its respective Interest Period. If
any Interest Period for a Euro-Rate Borrowing is greater than three months,
then accrued interest is also due and payable on the date three months
after the commencement of the Interest Period. Accrued interest on each
Base-Rate Borrowing is due and payable on the last day of each March, June,
September, and December -- commencing on the first of those dates that
follows the applicable Closing Date -- and on the Termination Date.
Accrued interest on the Overdraft Subfacility is payable on demand.
(b) PRINCIPAL PAYMENTS. The Principal Debt of Borrowings under the
------------------
Overdraft Subfacility are due and payable as provided in SECTION 3.3. Each
Euro-Rate Borrowing under the UK Facility is due and payable on the earlier
of either the Termination Date or the last day of its applicable Interest
Period. All Principal Debt is due and payable on the Termination Date.
(c) PREPAYMENTS.
-----------
(i) Upon demand, US Borrower shall make a mandatory prepayment
of Principal Debt of the US Facility at least in the amount of any
Borrowing-Base Deficiency that may ever exist under the US Facility
for whatever reason, including, without limitation, because of a
downward fluctuation of the Borrowing Base for the US Facility or any
partial reduction of the US-Facility Commitments.
(ii) Upon demand, UK Borrowers shall jointly and severally make a
mandatory prepayment of any combination of Principal Debt of the UK
Facility or the Overdraft Exposure at least in the amount of any
Borrowing-Base Deficiency that may ever exist under the UK Facility
for whatever reason, including, without limitation, because of a
downward fluctuation of the Borrowing Base for the UK Facility or any
partial reduction of the UK-Facility Commitments.
(iii) If Administrative Agent ever determines that, as a result of
fluctuations in exchange rates, the Dollar Equivalent of the UK-
Facility-Commitment Usage ever exceeds the total UK-Facility
Commitments, then, upon demand, UK Borrowers shall jointly and
severally make a mandatory prepayment of any combination of the
Principal Debt of the UK Facility or the Overdraft Exposure at least
in the amount of that excess. Any Lender under the UK Facility may
request that Administrative Agent determine, in which event
Administrative Agent shall promptly determine, the Dollar Equivalent
of the UK-Facility-Commitment Usage for purposes of this CLAUSE (iii).
Credit Agreement
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31
<PAGE>
(iv) Any Borrower may at any time prepay, without penalty and
in whole or in part, any of the Principal Debt for which it is
obligated under the Loan Documents in amounts not less than either (i)
the amount of any Euro-Rate Borrowing or (ii) otherwise the lesser of
either (A) the Dollar Equivalent of $1,000,000 or greater integral
multiples of the Dollar Equivalent of $1,000,000, or (B) the total
unpaid balance of the Principal Debt of the US Facility or the UK
Facility, as the case may be.
(v) Upon demand (A) US Borrower shall pay any Funding Loss
resulting from any prepayment of whatever nature of any of the
Principal Debt of the US Facility, and (B) UK Borrowers shall jointly
and severally pay any Funding Loss resulting from any prepayment of
whatever nature of any of the Principal Debt of the UK Facility.
(vi) Conversions under SECTION 4.10 are not prepayments.
(d) REQUIRED CURRENCY. UK Borrowers shall make all principal,
-----------------
interest, and other payments and prepayments for which they are obligated
in the currency in which that obligation was originally denominated (the
"REQUIRED CURRENCY"). However, the failure by UK Borrowers to make any
payment or prepayment in any Required Currency (other than Dollars) on the
date due solely because the Required Currency has ceased to be freely
transferable and convertible into Dollars in the relevant interbank market
shall not constitute an Event of Default if UK Borrowers pay (i) on that
due date, the Dollar Equivalent (as calculated by Administrative Agent in
good faith) of the amount of the Required Currency due on that date and (b)
within ten days after demand through Administrative Agent by any Lender
under the UK Facility, the amount that will (in the reasonable
determination of that Lender) reimburse that Lender for any loss or expense
caused by the failure of UK Borrowers to make that payment or prepayment in
the Required Currency on the date due. That Lender shall submit a
statement as to any such loss or expense (including calculations in
reasonable detail) to Administrative Agent and UK Borrowers, which shall,
in the absence of manifest error, be conclusive and binding on UK
Borrowers.
4.3 INTEREST OPTIONS. Except that the Euro Rate may not be selected in
----------------
respect of the US Facility when an Event of Default or Potential Default exists
and except as otherwise provided in this agreement, Borrowings bear interest at
an annual rate equal to the lesser of either the Maximum Rate, or in respect of
Borrowings under the:
(a) US Facility, the sum of the Base Rate for the US Facility plus
the Applicable Margin or the sum of the Euro Rate plus the Applicable
Margin (in each case as designated or deemed designated by US Borrower for
a Borrowing under the US Facility);
(b) UK Facility, the sum (i) of the Euro Rate, plus (ii) the
Applicable Margin, plus (iii) in respect of Borrowings in Pound Sterling,
any Mandatory-Liquid-Assets Costs; and
(c) Overdraft Subfacility, the sum of the Base Rate for the Overdraft
Subfacility, plus the Applicable Margin.
Each change in the applicable Base Rates and the Maximum Rate is effective,
without notice to any Borrower or any other Person, upon the effective date of
change.
4.4 RATE QUOTATIONS. Any Borrower may call Administrative Agent before
---------------
delivering a Borrowing Request to receive an indication of the interest rates
then in effect, but the indicated rates do
Credit Agreement
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32
<PAGE>
not bind Administrative Agent or any Lenders or affect the interest rate that is
actually in effect when that Borrower makes a Borrowing Request or on the
Borrowing Date.
4.5 DEFAULT RATE. If permitted by applicable Governmental Requirements,
------------
all past-due Principal Debt, past-due payment and reimbursement obligations in
connection with BGs or LCs, and past-due interest accruing on any of the
foregoing bears interest from the date due (stated or by acceleration) at the
Default Rate until paid, regardless whether payment is made before or after
entry of a judgment.
4.6 INTEREST RECAPTURE. If the designated interest rate applicable to any
------------------
Borrowing exceeds the Maximum Rate, the interest rate on that Borrowing is
limited to the Maximum Rate, but any subsequent reductions in the designated
rate shall not reduce the interest rate thereon below the Maximum Rate until the
total amount of accrued interest equals the amount of interest that would have
accrued if that designated rate had always been in effect. If at maturity
(stated or by acceleration), or at final payment of any Note, the total interest
paid or accrued is less than the interest that would have accrued if the
designated rates had always been in effect, then, at that time and to the extent
permitted by applicable Governmental Requirements, the Borrower or Borrowers
obligated on that Note shall pay an amount equal to the difference between (a)
the lesser of the amount of interest that would have accrued if the designated
rates had always been in effect and the amount of interest that would have
accrued if the Maximum Rate had always been in effect, and (b) the amount of
interest actually paid or accrued on that Note.
4.7 INTEREST CALCULATIONS. Interest on the Overdraft Exposure and on
---------------------
Borrowings denominated in Pound Sterling shall be calculated on the basis of
actual number of days (including the first day but excluding the last day)
elapsed over a 365- or 366-day year (as the case may be). All other interest
shall be calculated on the basis of actual number of days elapsed (including the
first day but excluding the last day) elapsed but computed as if each calendar
year consisted of 360 days (unless the calculation would result in an interest
rate greater than the Maximum Rate, in which event it will be computed on the
basis of a year of 365 or 366 days, as the case may be). All interest rate
determinations and calculations by Overdraft Lender in respect of the Overdraft
Subfacility and otherwise by Administrative Agent are conclusive and binding
absent manifest error.
4.8 MAXIMUM RATE. Regardless of any provision contained in any Loan
------------
Document, no Lender is entitled to contract for, charge, take, reserve, receive,
or apply, as interest on all or any part of the US Obligation or UK Obligation,
any amount in excess of the Maximum Rate, and, if any Lender ever does so, then
any excess shall be treated as a partial prepayment of principal and any
remaining excess shall be refunded to the appropriate Borrower or Borrowers. In
determining if the interest paid or payable exceeds the Maximum Rate, Borrowers,
Administrative Agent, and Lenders shall, to the maximum extent lawful, (a) treat
all Borrowings under the US Facility as but a single extension of credit and all
Borrowings under the UK Facility as but a single extension of credit (and
Lenders, Administrative Agent, and Borrowers agree that is the case and that
provision in this agreement for multiple Borrowings is for convenience only),
(b) characterize any nonprincipal payment as an expense, fee, or premium rather
than as interest, (c) exclude voluntary prepayments and their effects, and (d)
amortize, prorate, allocate, and spread the total amount of interest throughout
the entire contemplated term of this agreement. However, if the applicable
Principal Debt is paid in full before the end of their full contemplated term,
and if the interest received for its actual period of existence exceeds the
Maximum Amount, each applicable Lender shall refund any excess (and may not, to
the extent lawful, be subject to any penalties provided by any applicable laws
for contracting for, charging, taking, reserving, or receiving interest in
excess of the Maximum Amount). If Texas laws are applicable for purposes of
determining the "Maximum Rate" or the "Maximum Amount," then those terms mean
the "indicated rate ceiling" from time to time in effect under Article 5069-
1.04, Title 79, Revised Civil Statutes of Texas. Borrowers agree that Chapter
15,
Credit Agreement
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<PAGE>
Subtitle 79, Revised Civil Statutes of Texas, 1925 (which regulates certain
revolving credit loan accounts and revolving triparty accounts), does not apply
to the Loan Documents.
4.9 INTEREST PERIODS. When Borrower requests any Euro-Rate Borrowing, it
----------------
may elect the applicable Interest Period, subject to SECTION 17.1 and the
following conditions: (a) The initial Interest Period for a Euro-Rate Borrowing
commences on the applicable Borrowing Date or conversion date, and each
subsequent Interest Period applicable to any Borrowing commences on the day when
the next preceding applicable Interest Period expires; (b) if any Interest
Period for a Euro-Rate Borrowing begins on a day for which no numerically
corresponding Business Day in the calendar month at the end of the Interest
Period exists, then the Interest Period ends on the last Business Day of that
calendar month; (c) if a Borrower is required to pay any portion of a Euro-Rate
Borrowing before the end of its Interest Period in order to comply with the
payment provisions of the Loan Documents, then it shall also pay any related
Funding Loss; and (d) no more than five Interest Periods may be in effect at one
time for either the US Facility or the UK Facility.
4.10 CONVERSIONS. Subject to the applicable dollar limits of SECTION 2.1
-----------
and provided that US Borrower may not convert to or select a new Interest Period
for a Euro-Rate Borrowing at any time when an Event of Default or Potential
Default exists, US Borrower may (a) convert a Euro-Rate Borrowing on the last
day of the applicable Interest Period to a Base-Rate Borrowing, (b) convert a
Base-Rate Borrowing at any time to a Euro-Rate Borrowing, and (c) elect a new
Interest Period for a Euro-Rate Borrowing. That election may be made by delivery
to Administrative Agent a Conversion Notice by no later than 10:00 a.m. on the
second Business Day before the conversion date or the last day of the Interest
Period, as the case may be (for conversion to a Euro-Rate Borrowing or election
of a new Interest Period), and no later than 11:00 a.m. on the last day of the
Interest Period (for conversion to a Base-Rate Borrowing). Absent timely
delivery of a Conversion Notice or if an Event of Default or Potential Default
exists, then, each Euro-Rate Borrowing under the US Facility shall be deemed
converted to a Base-Rate Borrowing effective when the applicable Interest Period
expires.
4.11 ORDER OF APPLICATION.
--------------------
(a) NO EVENT OF DEFAULT. Except as otherwise provided by any Loan
-------------------
Document, if no Event of Default or Potential Default exists, then any
payment or prepayment by (i) US Borrower shall be applied to the US
Obligation in the order and manner as US Borrower shall direct and (ii)
either UK Borrower shall be applied to the UK Obligation in the order and
manner as that UK Borrower shall direct.
(b) EVENT OF DEFAULT. If an Event of Default or Potential Default
----------------
exists or if the appropriate Borrower fails to give direction, then, except
as provided in the last sentence of this paragraph, any payment (including
proceeds from the exercise of any Rights) in respect of the US Obligation
shall be applied to the US Obligation or in respect of the UK Obligation
shall be applied to the UK Obligation, in each case, in the following
order: (i) To all fees and expenses for which either applicable Agent or
any applicable Lender has not been paid or reimbursed in accordance with
the Loan Documents (and if that payment is less than all applicable unpaid
or unreimbursed fees and expenses, then the payment shall be paid against
applicable unpaid and unreimbursed fees and expenses in the order of
incurrence or due date); (ii) to accrued interest on the applicable
Principal Debt; (iii) to any applicable LC or BG/LC, as the case may be,
reimbursement obligations that are due and payable and that remain unfunded
by a Borrowing; (iv) to the remaining applicable Principal Debt in the
order as Required Lenders may elect (but Required Lenders agree to apply
proceeds in an order that will minimize any Funding Loss); (v) to the
remaining US Obligation or UK Obligation, as the case may be, in the order
and
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<PAGE>
manner Required Lenders deem appropriate; and (vi) as a deposit with
Administrative Agent, for the benefit of Lenders, as security for and
payment of any subsequent LC or BG/LC, as the case may be, reimbursement
obligations. Notwithstanding the foregoing, upon any Event of Default,
Overdraft Lender is entitled and instructed to first setoff against any of
the Overdraft Balances all amounts outstanding under the Overdraft
Subfacility (including without limitation, the Overdraft Differential)
before the foregoing provisions become applicable; Overdraft Lender is
entitled to retain for its own account the amount of that setoff up to but
not in excess of the Overdraft Differential and shall otherwise share that
setoff with Lenders under SECTION 4.12(b).
(c) SEPARATE OBLIGATIONS. Nothing in CLAUSE (b) above requires or
--------------------
permits any payment or prepayment of the US Obligation to be applied to any
portion of the UK Obligation or any payment or prepayment of the UK
Obligation to be applied to any portion of the US Obligation.
(d) DISTRIBUTION TO LENDERS. Subject to the last sentence of CLAUSE
-----------------------
(b) above, each payment or prepayment made under this SECTION 4 shall be
distributed to each Lender in accordance with (i) before the Termination
Date, its Commitment Percentage under the US Facility or its UK-Revolving-
Commitment Percentage, as applicable, of that payment or prepayment, and
(ii) on and after the Termination Date, its Default Percentage under the US
Facility or the UK Facility, as applicable, of that payment or prepayment.
4.12 SHARING OF PAYMENTS.
-------------------
(a) If any Lender under the US Facility obtains any payment or
prepayment with respect to the US Obligation (whether voluntary,
involuntary, or otherwise, including, without limitation, as a result of
exercising its Rights under SECTION 4.13) that exceeds the part of that
payment or prepayment that it is then entitled to receive under the Loan
Documents, then that Lender shall purchase from the other Lenders under the
US Facility participations that will cause the purchasing Lender to share
the excess payment or prepayment ratably with each such other Lender in
accordance with the Loan Documents.
(b) If any Lender under the UK Facility obtains any payment or
prepayment with respect to the UK Obligation (whether voluntary,
involuntary, or otherwise, including, without limitation, as a result of
exercising its Rights under the last sentence of SECTION 4.11(b) or SECTION
4.13) that exceeds the part of that payment or prepayment that it is then
entitled to receive under the Loan Documents, then that Lender shall
purchase from the other Lenders under the UK Facility participations that
will cause the purchasing Lender to share the excess payment or prepayment
ratably with each such other Lender in accordance with the Loan Documents.
(c) If all or any portion of any excess payment or prepayment is
subsequently recovered from a purchasing Lender under CLAUSE (a) or (b)
above, then the purchase shall be rescinded and the purchase price restored
to the extent of the recovery.
(d) Each Borrower agrees that any Lender purchasing a participation
from another Lender under this section may, to the fullest extent lawful,
exercise all of its Rights of payment (including the Right of offset) with
respect to that participation as fully as if that Lender were the direct
creditor of that Borrower in the amount of that participation.
4.13 OFFSET. If an Event of Default has occurred and is then continuing
------
unwaived, each Lender is entitled to exercise (for the benefit of all Lenders in
accordance with SECTION 4.12) the Rights of offset
Credit Agreement
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<PAGE>
and banker's Lien against each and every account and other property, or any
interest therein, that any Company may now or hereafter have with, or which is
now or hereafter in the possession of, that Lender to the extent of the full
amount of the US Obligation or UK Obligation, as the case may be, owed (directly
or participated) to it.
4.14 BOOKING BORROWINGS. To the extent permitted by applicable
------------------
Governmental Requirements, any Lender may make, carry, or transfer its share of
Borrowings at, to, or for the account of any of its branch offices or the office
or branch of any of its Affiliates, so long as no additional costs are incurred
by any Borrower as a result thereof. However, no Affiliate or branch is
entitled to receive any greater payment under SECTION 4.16 than the transferor
Lender would otherwise have been entitled to receive with respect to those
Borrowings, and a transfer may not be made if, as a direct result of it, SECTION
4.15, 4.17, 4.19(a), or 4.19(b) would apply to any of the US Obligations or UK
Obligations, as the case may be. If any of the conditions of SECTIONS 4.16,
4.17, 4.19(a), or 4.19(b) ever apply to a Lender, that Lender shall, to the
extent possible, carry or transfer its UK Borrowings at, to, or for the account
of any of its branch offices or the office or branch of any of its Affiliates so
long as the transfer is consistent with the other provisions of this section,
does not create any burden or adverse circumstance for that Lender that would
not otherwise exist, and eliminates or ameliorates the conditions of SECTIONS
4.16 or 4.17 as applicable.
4.15 BASIS UNAVAILABLE OR INADEQUATE FOR EURO RATE. If, on or before any
---------------------------------------------
date when a Euro Rate is to be determined for a Borrowing, Administrative Agent
reasonably determines that the basis for determining the applicable rate is not
available or any Lender reasonably determines that the resulting rate does not
accurately reflect the cost to that Lender of making or converting Borrowings at
that rate for the applicable Interest Period, then Administrative Agent shall
promptly notify Borrowers and Lenders of that determination (which is conclusive
and binding on Borrowers absent manifest error) and the applicable Borrowing
shall bear interest (a) in respect of the US Facility, at the sum of the Base
Rate for the US Facility plus the Applicable Margin, and (b) in respect of each
Lender under the UK Facility (other than under the Overdraft Subfacility) at the
sum of the cost to that Lender of funding its participation in the UK Facility
plus the Applicable Margin for Euro-Rate Borrowings plus any applicable
Mandatory-Liquid-Assets Cost. Until Administrative Agent notifies US Borrower
that those circumstances no longer exist, the commitments of the Lenders under
the US Facility to make, or to convert to, Euro-Rate Borrowings, as the case may
be, are suspended.
4.16 ADDITIONAL COSTS.
----------------
(a) RESERVES. With respect to any Euro-Rate Borrowing (i) if any
--------
change in any present Governmental Requirement, any change in the
interpretation or application of any present Governmental Requirement, or
any future Governmental Requirement imposes, modifies, or deems applicable
(or if compliance by any Lender with any requirement of any Governmental
Authority results in) any requirement that any reserves (including, without
limitation, any marginal, emergency, supplemental, or special reserves) be
maintained (other than any reserve included in the Reserve Requirement),
and if (ii) those reserves reduce any sums receivable by that Lender under
this agreement or increase the costs incurred by that Lender in advancing
or maintaining any portion of any Euro-Rate Borrowing, then (iii) that
Lender (through Administrative Agent) shall deliver to the applicable
Borrower or Borrowers a certificate setting forth in reasonable detail the
calculation of the amount necessary to compensate it for its reduction or
increase (which certificate is conclusive and binding absent manifest
error), and (iv) that Borrower or those Borrowers shall pay that amount to
that Lender within five days after demand. The provisions of and
undertakings and indemnification in this CLAUSE (a) survive the
satisfaction and payment of the US Obligation and UK Obligation and
termination of this agreement. This CLAUSE (a) is
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36
<PAGE>
to be applied to avoid duplication and otherwise without prejudice to any
Mandatory-Liquid-Assets Costs payable by any Borrower under this agreement.
(b) CAPITAL ADEQUACY. With respect to any Borrowing, LC, or BG, if
----------------
any change in any present Governmental Requirement, any change in the
interpretation or application of any present Governmental Requirement, or
any future Governmental Requirement regarding capital adequacy, or if
compliance by any Lender with any request, directive, or requirement
imposed in the future by any Governmental Authority regarding capital
adequacy, or if any change in its written policies or in the risk category
of this transaction, in any of the foregoing events or circumstances,
reduces the rate of return on its capital as a consequence of its
obligations under this agreement to a level below that which it otherwise
could have achieved (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by it to be material (and it may, in
determining the amount, utilize reasonable assumptions and allocations of
costs and expenses and use any reasonable averaging or attribution method),
then (unless the effect is already reflected in the rate of interest then
applicable under this agreement) Administrative Agent or that Lender
(through Administrative Agent) shall deliver to the applicable Borrower or
Borrowers a certificate setting forth in reasonable detail (but the Lender
shall not be obligated to disclose confidential information) the
calculation of the amount necessary to compensate it (which certificate is
conclusive and binding absent manifest error), and that Borrower or those
Borrowers shall pay that amount to Administrative Agent or that Lender
within five days after demand. The provisions of and undertakings and
indemnification in this CLAUSE (b) shall survive the satisfaction and
payment of the Obligation and termination of this agreement.
4.17 CHANGE IN LAWS. If any Governmental Requirement makes it unlawful for
--------------
any Lender to make or maintain any Borrowings, then that Lender shall promptly
notify Borrowers and Administrative Agent, and:
(a) as to undisbursed funds, the requested Borrowing shall be made as
another Type of Borrowing if lawful or otherwise shall not be made;
(b) as to any outstanding Base-Rate Borrowing (i) if not prohibited
by applicable Governmental Requirements, then that Base-Rate Borrowing
shall be converted to a Euro-Rate Borrowing as of three Business Days after
the date of notice, or (ii) if that conversion will not resolve the
unlawfulness, then applicable Borrower or Borrowers shall promptly prepay
that Base-Rate Borrowing without penalty; and
(c) as to any outstanding Euro-Rate Borrowing (i) if maintaining a
Euro-Rate Borrowing until the last day of the applicable Interest Period is
unlawful, then that Borrowing shall be converted to a Base-Rate Borrowing
as of the date of notice, or (ii) if not prohibited by applicable
Governmental Requirements, that Euro-Rate Borrowing, if under the US
Facility, shall be converted to a Base-Rate Borrowing as of the last day of
the applicable Interest Period, or (iii) if any conversion will not resolve
the unlawfulness, or in any case under the UK Facility, then the applicable
Borrower or Borrowers shall promptly prepay that Euro-Rate Borrowing
without penalty but with related Funding Loss.
4.18 FUNDING LOSS. US BORROWER IN RESPECT OF THE US OBLIGATION AND UK
------------
BORROWERS JOINTLY AND SEVERALLY IN RESPECT OF THE UK OBLIGATION SHALL INDEMNIFY
EACH LENDER AGAINST, AND PAY TO IT UPON DEMAND, ANY FUNDING LOSS OF THAT LENDER.
WHEN ANY LENDER DEMANDS THAT A BORROWER PAY ANY FUNDING LOSS, THAT LENDER SHALL
DELIVER TO THAT BORROWER AND ADMINISTRATIVE AGENT A CERTIFICATE SETTING FORTH IN
REASONABLE
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<PAGE>
DETAIL THE BASIS FOR IMPOSING FUNDING LOSS AND THE CALCULATION OF THE AMOUNT,
WHICH CALCULATION IS CONCLUSIVE AND BINDING ABSENT MANIFEST ERROR. THE
PROVISIONS OF AND UNDERTAKINGS AND INDEMNIFICATION IN THIS SECTION SURVIVE THE
SATISFACTION AND PAYMENT OF THE US OBLIGATION AND UK OBLIGATION AND TERMINATION
OF THIS AGREEMENT.
4.19 TAXES, GROSSING UP PROVISIONS, AND VALUE ADDED TAX.
--------------------------------------------------
(a) US FACILITY.
-----------
(i) If any Taxes shall ever become payable by Administrative
Agent or any Lender or shall be ruled (by a Governmental Authority) payable
by Administrative Agent or any Lender in respect of the US Facility, such
Taxes shall, if lawful, be paid by (or if such Taxes have already been
paid, shall be reimbursed by) US Borrower, together with interest and
penalties, if any, except for Taxes payable on or measured by the overall
net income of any such Lender or Administrative Agent and except for
interest and penalties incurred as a result of the gross negligence or
wilful misconduct of Administrative Agent or any Lender. Administrative
Agent or such Lender (through Administrative Agent) shall notify US
Borrower and deliver to US Borrower a certificate setting forth in
reasonable detail the calculation of the amount of such Taxes, which
certificate shall be conclusive and binding (absent manifest error), and US
Borrower shall promptly pay such amount (including any additional Taxes
applicable to the additional sums paid under this SECTION 4.19(a)(i), such
that Administrative Agent or such Lender receives an amount equal to the
sum it would have received had no such Taxes been payable by Administrative
Agent or any Lender with respect to the US Facility) to Administrative
Agent for its account or the account of such Lender, as the case may be.
However, if Administrative Agent or any Lender, as the case may be,
determines that it has received, realized, utilized, and retained a Tax
benefit by reason of any deduction or withholding in respect of which US
Borrower has made an increased payment or paid a compensating sum under
this SECTION 4.19(a), then Administrative Agent or that Lender shall (if
Administrative Agent or that Lender has received all amounts which are then
due and payable by US Borrower under any of the provisions of this
agreement or any other Loan Document) pay to US Borrower such amount, if
any, as Administrative Agent or that Lender reasonably determines will
leave Administrative Agent or that Lender in no worse position than it
would have been in if the deduction or withholding had not been required.
Nothing herein contained shall interfere with the right of Administrative
Agent or any Lender, as the case may be, to arrange its Tax affairs in
whatever manner it thinks fit.
(ii) To the extent lawful and applicable, each Lender under the
US Facility shall execute and deliver to US Borrower and Administrative
Agent from time to time two duly completed copies of U.S. Internal Revenue
Service Form 4224, Form 1001, Form W-8, or other appropriate Internal
Revenue Service form that entitles it to a complete exemption from U.S.
federal withholding Tax on all interest or fee payments in respect of the
US Facility under the Loan Documents.
(b) UK FACILITY. All sums payable to Administrative Agent and each
-----------
Lender in respect of the UK Facility shall be paid in full without any set-
off or counterclaim whatsoever and free and clear of all deductions or
withholdings for or on account of any Tax whatsoever save only as may be
required by law. If any deduction or withholding for or on account of any
Tax is required by law in respect of any payment due to Administrative
Agent or any Lender, as the case may be, pursuant to or in connection with
the UK Facilities, then UK Borrowers shall jointly and severally:
Credit Agreement
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<PAGE>
(i) ensure or procure that the deduction or withholding is
made and that it does not exceed the minimal legal requirement therefor;
(ii) pay, or procure the payment of, the full amount deducted or
withheld to the relevant Taxation authority in accordance with the
applicable law;
(iii) increase the payment in respect of which the deduction or
withholding for or on account of Tax is required so that the net amount
received and retained (free from any liability in respect of such deduction
or withholding) by Administrative Agent or any Lender after the deduction
or withholding (and after taking account of any further deduction or
withholding which is required to be made as a consequence of the increase)
shall be equal to the amount which Administrative Agent or that Lender
would have been entitled to receive in the absence of any requirement to
make a deduction or withhold; and
(iv) use reasonable endeavors promptly to deliver or procure the
delivery to Administrative Agent or that Lender appropriate receipts
evidencing the deductions or withholding which has been made in accordance
with this SECTION 4.19(b).
If Administrative Agent is obliged to make any deduction or withholding
from any payment to any Lender (an "AGENCY PAYMENT") which represents an
amount or amounts received by the Administrative Agent from either UK
Borrower pursuant to the UK Facilities, then UK Borrowers shall jointly
and severally pay directly to the relevant Lender such sum (a "COMPENSATING
SUM") as will, after taking into account any deduction or withholding which
UK Borrowers are obliged to make from the compensating sum, enable that
Lender to receive and retain (free from any liability in respect of such
deduction or withholding), on the due date for payment of the agency
payment, an amount equal to the agency payment which that Lender would have
received in the absence of any obligation to make a deduction or
withholding.
However, if Administrative Agent or any Lender, as the case may be,
determines that it has received, realized, utilized, and retained a Tax
benefit by reason of any deduction or withholding in respect of which a UK
Borrower has made an increased payment or paid a compensating sum under
this SECTION 4.19(b), then Administrative Agent or that Lender shall (if
Administrative Agent or that Lender has received all amounts which are then
due and payable by UK Borrowers under any of the provisions of this
agreement or any other Loan Document) pay to UK Borrowers such amount, if
any, as Administrative Agent or that Lender reasonably determines will
leave Administrative Agent or that Lender in no worse position than it
would have been in if the deduction or withholding had not been required.
Nothing herein contained shall interfere with the right of Administrative
Agent or any Lender, as the case may be, to arrange its Tax affairs in
whatever manner it thinks fit.
A Borrower shall only be required to make any payment or increased payment
pursuant to this SECTION 4.19(b) where it relates to a payment of interest
(other than, for the avoidance of doubt, interest at the Default Rate) to
the extent that the obligation to make a deduction or withholding (in
respect of which such a payment or increased payment is made) arises as a
result of:
(A) the Lender not being a Bank as that term is defined in
Section 840A of the Income and Corporation Taxes Act 1988 and at the time
the interest was paid the Person beneficially entitled to the interest was
within the charge to corporation Tax in the United Kingdom as respects the
interest, other than where that Lender has ceased to be a Bank, as so
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<PAGE>
defined, or has ceased to be within the charge to corporation Tax in the
United Kingdom as a consequence of a Change in Law occurring after the date
of this agreement; or
(B) the Lender not being resident for Tax purposes in any
jurisdiction with which the United Kingdom (or any other jurisdiction where
any of UK Borrowers are resident for Tax purposes) has, on the date of this
agreement, a Double Tax Treaty that allows for payments of interest to be
paid to that jurisdiction from the United Kingdom (or such other
jurisdictions where either UK Borrowers is resident for Tax purposes) free
of any deduction or withholding, other than where such Lender has ceased to
so resident as a consequence of a Change in Law occurring after the date of
this agreement.
Each Lender will (at no additional cost to it) make and file all such Tax
returns and statements as Administrative Agent or UK Borrowers may
reasonably notify and request to be made or filed in connection with or for
the purpose of avoiding any such deduction or withholding under this
SECTION 4.19(b). Nothing herein shall interfere with the right of
Administrative Agent or any Lender to arrange its Tax affairs in whatever
manner it thinks fit.
(c) GROSSING-UP OF INDEMNITY PAYMENTS FOR UK FACILITY. If
-------------------------------------------------
Administrative Agent or any Lender under the UK Facility, as the case may
be, makes a payment or suffers a loss in respect of which it is entitled to
be indemnified, reimbursed, or otherwise kept harmless pursuant to any
provision of this agreement and Administrative Agent or that Lender, as the
case may be, considers that:
(i) the Loss or payment is not or is unlikely to be wholly
deductible in computing the profits of Administrative Agent or that Lender
for the purposes of Tax whilst the payment to be made by way of indemnity
or reimbursement (for the purpose of this SECTION 4.19(c), the "PAYMENT")
will or is likely to give rise to a Tax liability for such Administrative
Agent or Lender; or
(ii) the payment is likely to give rise to a Tax liability for
Administrative Agent or that Lender in any accounting period of
Administrative Agent or that Lender earlier than the accounting period in
which the Loss or payment is or is likely to be deductible;
then, at the time of making the payment UK Borrowers shall jointly and
severally pay such an amount (the "ADDITIONAL PAYMENT") as will, after
taking into account any Tax liability likely to be suffered or incurred by
Administrative Agent or that Lender in respect of the payment or additional
payment, leave Administrative Agent or that Lender in the same after-Tax
position as it would have been in had the payment not given rise to any
such Tax liability and the loss or payment had not been so deductible.
However, if:
(A) at the time of the payment, Administrative Agent or that
Lender considers that no additional payment is necessary but subsequently
considers that an additional payment is necessary so to indemnify
Administrative Agent or that Lender the additional payment shall be paid by
UK Borrowers to Administrative Agent or that Lender following a demand by
Administrative Agent or that Lender; or
(B) if it subsequently proves that any payment by UK Borrowers to
either Administrative Agent or any Lender, as the case may be, under this
SECTION 4.19(c) by way of an additional payment or payment by
Administrative Agent or any Lender, as the case may be, to UK Borrowers was
calculated on an incorrect basis, such adjustment shall be made between
Credit Agreement
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<PAGE>
Administrative Agent or that Lender and UK Borrowers as Administrative
Agent or that Lender considers necessary to restore the after-Tax position
of Administrative Agent or that Lender to that which it would have been if
no adjustment had been necessary.
(d) VALUE ADDED TAX. All payments made by UK Borrowers under this
---------------
agreement are calculated without regard to Value Added Tax. If any payment
by either UK Borrower constitutes the whole or any part of the
consideration for a taxable or deemed taxable supply (whether that supply
is taxable pursuant to the exercise of an option or otherwise) by any of
the Lenders, the amount of that payment shall be increased by an amount
equal to the amount of Value Added Tax which is chargeable in respect of
the taxable supply in question.
SECTION 5 FEES.
- --------------
5.1 TREATMENT OF FEES. The fees described in this SECTION 5 (a) are not
-----------------
compensation for the use, detention, or forbearance of money, (b) are in
addition to, and not in lieu of, interest and expenses otherwise described in
this agreement, (c) are payable in accordance with SECTION 4.1, (d) are non-
refundable, (e) to the fullest extent permitted by law, bear interest, if not
paid when due, at the Default Rate, and (f) are calculated on the basis of a
year of 360 days.
5.2 INITIAL COMMITMENT FEES.
-----------------------
On the Closing Date for the US Facility, US Borrower shall pay to
Administrative Agent an initial commitment fee of $192,500 for the ratable
account of the Lenders under the US Facility in accordance with their
respective Commitment Percentages of it.
On the Closing Date for the UK Facility, US Borrower shall pay to
Administrative Agent an initial commitment fee of $420,000 for the ratable
account of the Lenders under the UK Facility in accordance with their
respective Commitment Percentages of it.
5.3 UNUSED COMMITMENT FEES. The following unused commitment fees are due
----------------------
and payable as they accrue on the last day of each March, June, September, and
December -- commencing on the first of those dates that follows the date of this
agreement -- and on the Termination Date.
US Borrower shall pay to Administrative Agent unused commitment
fees, for the ratable account of the Lenders under the US Facility in
accordance with their respective Commitment Percentages of it, each
installment of which is calculated for the calendar quarter (or portion of
a calendar quarter commencing on the date of this agreement or ending on
the Termination Date) preceding and including the date it is due, and is
equal to the product of (i) 0.50% of the amount by which the daily average
total US-Facility Commitments exceed the daily average US-Facility-
Commitment Usage times (ii) a fraction with the number of days in the
applicable quarter or portion of it as the numerator and 360 as the
denominator.
UK Borrowers shall jointly and severally pay to Administrative
Agent unused commitment fees, for the ratable account of the Lenders under
the UK Facility in accordance with their respective Commitment Percentages
of it, each installment of which is calculated for the calendar quarter (or
portion of a calendar quarter commencing on the Closing Date for the UK
Facility or ending on the Termination Date) preceding and including the
date it is due, and is equal to the product of (i) 0.50% of the amount by
which the daily average total UK-Facility Commitments exceed the sum of the
daily average UK-Facility-Commitment Usage times (ii) a
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<PAGE>
fraction with the number of days in the applicable quarter or portion of it
as the numerator and 360 as the denominator.
5.4 BG AND LC FEES.
--------------
(a) As an inducement for the issuance and extension of each LC under
the LC Subfacility and payable on the date of issuance or extension, US
Borrower shall pay to the Issuer under the LC Subfacility, (i) a fronting
fee equal to an annual percentage of 0.25% of the face amount of the LC for
its tenor, for the Issuer's sole account, and (ii) an issuance or extension
fee equal to an annual percentage of the face amount of the LC for its
tenor, which percentage is the Applicable Margin in effect for Euro-Rate
Borrowings on the date of issuance or extension, to be shared with the
Lenders under the US Facility ratably in accordance with their respective
Commitment Percentages under the US Facility.
(b) As an inducement for the issuance and extension of each BG and LC
under the BG/LC Subfacility and payable on the date of issuance or
extension, UK Borrowers shall jointly and severally pay to the Issuer under
the BG/LC Subfacility (i) a fronting fee equal to an annual percentage of
0.25% of the face amount of the BG or LC for its tenor, for the Issuer's
sole account, and (ii) an issuance or extension fee equal to an annual
percentage of the face amount of the BG or LC for its tenor, which
percentage is the Applicable Margin in effect for Euro-Rate Borrowings on
the date of issuance or extension, to be shared with the Lenders under the
UK Facility ratably in accordance with the respective UK-Revolving-
Commitment Percentages.
STRUCTURE/SYNDICATION AND ADMINISTRATIVE FEES. US Borrower shall pay
---------------------------------------------
to Administrative Agent the Structure/Syndication Fee and the Administrative
Fees in accordance with the Fees Letter (as it may be amended by the parties to
it) dated as of September 24, 1996, between Administrative Agent, Arranger, and
US Borrower.
COLLATERAL FEES. UK Borrowers shall jointly and severally pay to UK-
---------------
Collateral Agent collateral fees in accordance with the separate letter
agreement to that effect (as it may be amended by the parties to it) dated the
Closing Date for the UK Facility, between UK-Collateral Agent and UK Borrowers.
SECTION 6 SECURITY.
- ------------------
6.1 GUARANTIES. US Borrower shall cause each other present and future
----------
Domestic Company to unconditionally guarantee full payment and performance of
the US Obligation. US Borrower shall, and shall cause each other present and
future Domestic Company to, unconditionally guarantee full payment and
performance of the UK Obligation. UK Borrowers shall cause each other present
and future Foreign Company to unconditionally guarantee full payment and
performance of the UK Obligation.
6.2 US COLLATERAL. US Borrower shall cause full payment and performance of
-------------
the US Obligation and the Domestic Companies' guaranties of the UK Obligation to
be secured by Lender Liens on all of the following items and types of property
(as more particularly described in various other Loan Documents, the "US
COLLATERAL"):
(a) All present and future accounts receivable, contract rights,
general intangibles, chattel paper, documents, instruments, money, deposit
accounts, inventory, equipment, fixtures, real property, patents,
copyrights, service marks, trademarks, tradenames, and license agreements
now or in the future owned by each present and future Domestic Company.
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<PAGE>
(b) 100% of all present and future capital stock now or in the future
issued by each present and future Domestic Company (other than US Borrower)
and 65% of all present and future capital stock now or in the future issued
by each present and future Foreign Company that is a direct Subsidiary of
any Domestic Company.
(c) All collateral ever required under SECTION 2.3(G).
(d) All present and future cash and non-cash proceeds of any of the
other US Collateral.
6.3 UK COLLATERAL. UK Borrowers shall cause full payment and performance
-------------
of the UK Obligation to be secured by Lender Liens on all of the following items
and types of property (as more particularly described in various other Loan
Documents, the "UK COLLATERAL"):
(a) All present and future accounts receivable, contract rights,
general intangibles, chattel paper, documents, instruments, money, deposit
accounts, inventory, equipment, fixtures, real property (whether fee or
leasehold), patents, copyrights, service marks, trademarks, trade names,
and license agreements now or in the future owned by each present and
future Foreign Company.
(b) 100% of all present and future capital stock now or in the future
issued by each present and future Foreign Company that is not a direct
Subsidiary of any Domestic Company.
(c) All collateral ever required under SECTION 3.4(F).
(d) All present and future cash and non-cash proceeds of any of the
other UK Collateral.
6.4 FURTHER ASSURANCES. UK Borrowers shall (only in respect of the UK
------------------
Facility) and Borrower shall (in respect of US Facility and the UK Facility) --
and shall cause each other appropriate Company to -- perform the acts, duly
authorize, execute, acknowledge, deliver, file, and record any additional
writings, and pay all filings fees and costs as either Agent or Required Lenders
may reasonably deem appropriate or necessary to perfect and maintain the Lender
Liens and preserve and protect the Rights of Agents and Lenders under any Loan
Document. Without limiting the generality of the foregoing, Borrowers covenant
and agree with Agents and Lenders that, promptly upon the request of
Administrative Agent or Required Lenders, each Borrower shall (a) cause to be
registered with the appropriate Governmental Authorities all present and future
copyrights now or in the future owned by any Company and designated by
Administrative Agent or Required Lenders, and (b) cause to be modified or
clarified any financing statement, whether described on SCHEDULE 8.13(B) or not,
that Administrative Agent or Required Lenders deem, in their respective sole
discretion, to be overly broad and in conflict with the first priority intended
to be created in the US Collateral. The failure of the documentation related to
any guarantee or Lender Lien required by this SECTION 6 to be listed on either
SCHEDULE 7.1 or 7.2 is not a waiver by Agents or Lenders of the right to require
that documentation to be delivered at any date after the two Closing Dates.
6.5 RELEASE OF COLLATERAL.
---------------------
Upon US Borrower's written request and at US Borrower's cost and
expense, Administrative Agent shall cause the Lender Liens on all US
Collateral to be released if (i) no Lender under the US Facility or the UK
Facility has any commitment to make advances, issue
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<PAGE>
LCs or BGs, or otherwise extend credit under any Loan Document, (ii) the US
Obligation and UK Obligation have been fully paid and performed, (iii) all
uncancelled and undrawn LCs and BGs have been either fully cash secured or
backed by letters of credit acceptable in the sole discretion of the
applicable Issuer, and (iv) Administrative Agent does not in good faith
believe that there are reasonable grounds for any payment or prepayment
under any Loan Document lawfully to be required to be rescinded, restored,
or returned for any reason.
(b Upon UK Borrowers' written request and at UK Borrowers' joint and
several cost and expense, Administrative Agent and UK-Collateral Agent
shall cause the Lender Liens on all UK Collateral to be released if (i) no
Lender under the UK Facility has any commitment to make advances, issue LCs
or BGs, or otherwise extend credit under any Loan Document, (ii) the UK
Obligation has been fully paid and performed, (iii) all uncancelled and
undrawn LCs and BGs have been either fully cash secured or backed by
letters of credit acceptable in the sole discretion of the Issuer under the
BG/LC Subfacility, and (iv) neither Administrative Agent nor UK-Collateral
Agent in good faith believes that there are reasonable grounds for any
payment or prepayment of any of the UK Obligation lawfully to be required
to be rescinded, restored, or returned for any reason.
SECTION 7 CONDITIONS PRECEDENT.
- ------------------------------
7.1 CONDITIONS PRECEDENT FOR US FACILITY. No Lender under the US Facility
------------------------------------
is obligated to fund the initial Borrowing under it or issue any LC unless (a)
Administrative Agent has received all of the items described on SCHEDULE 7.1
(other than each item, if any, specifically noted on that schedule as being
required to be delivered by a date later than the applicable Closing Date) and
(b) the conditions precedent under SECTION 7.2 have been fully satisfied or
waived in writing by Lenders.
7.2 CONDITIONS PRECEDENT FOR UK FACILITY. No Lender under the UK Facility
------------------------------------
is obligated to fund the initial Borrowing under it or issue any LC or BG unless
(a) Administrative Agent or UK-Collateral Agent has received all of the items to
be received by it as described on SCHEDULE 7.2 (other than each item, if any,
specifically noted on that schedule as being required to be delivered by a date
later than the applicable Closing Date), (b) the conditions precedent in SECTION
7.1 have been fully satisfied or waived in writing by Lenders, (c) the
Electrotech Acquisition has been consummated, and (d) Lloyds Bank Plc shall have
agreed to extend the approximate (Pounds)800,000 term loan to UK Borrowers on
terms and intercreditor arrangements reasonably acceptable to Administrative
Agent and secured only by Liens on UK Borrowers' Thornbury Laboratories
facilities and other assets acceptable to Lenders.
7.3 OTHER CONDITIONS PRECEDENT. No Lender is obligated to fund (as
--------------------------
opposed to continue or convert) any Borrowing or issue any LC or BG unless on
the applicable Borrowing Date or issue date (and after giving effect to the
requested Borrowing, LC, or BG), as the case may be (a) Administrative Agent
(and the appropriate Issuer, if applicable) timely receives a Borrowing Request,
a LC Request and related LC Agreement, or a BG/LC Request and related LC
Agreement, as the case may be, (b) the Issuer receives any applicable fees then
due and payable under SECTION 5.4, (c) all of the representations and warranties
of the Companies in the Loan Documents are true and correct in all material
respects (unless they speak to a specific date or are based on facts which have
changed by transactions contemplated or expressly permitted by this agreement),
(d) no Material-Adverse Event, Event of Default, or Potential Default exists,
(e) none of the matters disclosed in any supplements to SCHEDULE 8.9, 8.11, 8.12
or 8.20 have been objected to by Administrative Agent or Lenders, (f) no
Borrowing-Base Deficiency will exist after giving effect to the Borrowing or LC
or BG issuance, and (g) if requested by Administrative Agent or Lenders,
Borrowers have delivered to Administrative Agent evidence substantiating
satisfaction of any other conditions precedent under the Loan Documents to that
Borrowing, LC, or BG, as the case may be.
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<PAGE>
7.4 CONDITIONS MATERIAL. Each condition precedent in this agreement is
-------------------
material to the transactions contemplated by this agreement, and time is of the
essence with respect to each condition precedent.
SECTION 8 REPRESENTATIONS AND WARRANTIES. US Borrower represents and warrants
- ----------------------------------------
the following to Agents and Lenders as to US Borrower and all other Companies,
and UK Borrowers jointly and severally represent and warrant the following to
Agents and Lenders only as to UK Borrowers and all other Foreign Companies:
8.1 PURPOSE AND REGULATION U. Borrowers will use LCs and BGs for general
------------------------
corporate purposes and the proceeds of their respective Borrowings solely for
their respective working capital and general corporate purposes. No Company is
engaged principally, or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any "margin stock"
within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System, as amended. No part of the proceeds of any LC draft or drawing
or Borrowing will be used, directly or indirectly, for a purpose that violates
any Governmental Requirement, including, without limitation, Regulation U.
8.2 CORPORATE EXISTENCE, GOOD STANDING, AND AUTHORITY. Each Company is
-------------------------------------------------
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation. Except where not a Material-Adverse Event, each
Company is duly qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction where the nature and extent of its
business and properties require due qualification and good standing (each of
which jurisdictions is identified on SCHEDULE 8.3, as supplemented from time to
time, subject to SECTION 7.3(E), by a supplement to that schedule that is
dated, executed, and delivered by US Borrower to Administrative Agent to reflect
changes in that schedule as a result of transactions permitted by the Loan
Documents). Each Company possesses all requisite authority and power to conduct
its business as is now being conducted and as proposed under the Loan Documents
to be conducted and to own and operate its assets as now owned and operated and
as proposed to be owned and operated under the Loan Documents.
8.3 SUBSIDIARIES AND NAMES. The Electrotech Acquisition has been
----------------------
completed in substantial accordance with the Electrotech Agreement without
(unless otherwise agreed to by Administrative Agent with the approval of
Lenders) waiver by any party to that agreement of any material condition
precedent to its performance under that agreement. SCHEDULE 8.3 (as
supplemented from time to time by a supplement to that schedule that is dated,
executed, and delivered by US Borrower to Administrative Agent to reflect
changes in that schedule as a result of transactions permitted by the Loan
Documents), after giving effect to the Electrotech Acquisition, describes (a)
all of the Companies, (b) every name or trade name used by each Company during
the five-year period before the date of this agreement, and (c) every change of
each Company's name during the four-month period before the date of this
agreement. All of the outstanding shares of capital stock (or similar voting
interests) of any Borrower's respective Subsidiaries are duly authorized,
validly issued, fully paid, and nonassessable, owned of record and beneficially
as described in SCHEDULE 8.3, free and clear of any Liens except Permitted
Liens, and not subject to any warrant, option, or other acquisition Right of any
Person or subject to any transfer restriction except restrictions imposed by the
Loan Documents and by securities and general corporate laws.
8.4 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by each
-------------------------------
Company of each Loan Document to which it is a party and the performance by it
of its obligations under those Loan Documents (a) are within its corporate
power, (b) have been duly authorized by all necessary corporate action, (c)
require no action by or filing with any Governmental Authority (except any
action or filing that has been taken or made on or before the applicable Closing
Date), (d) do not violate any provision of its
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----------------
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<PAGE>
charter or bylaws, and (e) do not violate any provision of law applicable to it
or any material agreement to which it is a party except violations that
individually or collectively are not a Material-Adverse Event.
8.5 BINDING EFFECT. Upon execution and delivery by all parties to it,
--------------
each Loan Document will constitute a legal and binding obligation of each
Company party to it, enforceable against that Company in accordance with that
Loan Document's terms except as that enforceability may be limited by Debtor
Laws and general principles of equity.
8.6 FINANCIALS AND EXISTING DEBT. The Current Financials were prepared in
----------------------------
accordance with GAAP and present fairly, in all material respects, the
Companies' consolidated financial condition, results of operations, and cash
flows as of, and for the portion of the fiscal year ending on their dates
(subject only to normal year-end adjustments for interim statements). Except
for transactions directly related to, specifically contemplated by, or expressly
permitted by the Loan Documents or as disclosed in the reports filed by US
Borrower with the SEC pursuant to the 1934 Act and delivered to Administrative
Agent and Lenders after the date of the Current Financials, no material adverse
changes have occurred in the Companies' consolidated financial condition from
that shown in the Current Financials.
8.7 PROJECTIONS. Although Borrowers cannot assure Agents or Lenders that
-----------
the Projections will be achieved, the Projections were prepared by Borrowers in
good faith based upon the assumptions contained in the Projections, which they
believe were reasonable and consistent with each other and with all material
facts then known to Borrowers.
8.8 SOLVENCY. On each Borrowing Date and the date any LC or BG is issued,
--------
each Company is (and after giving effect to the requested Borrowing, LC, or BG
will be) Solvent.
8.9 LITIGATION. Except as disclosed on SCHEDULES 8.9, 8.13(B), or 8.20 --
----------
as supplemented from time to time, subject to SECTION 7.3(E), by a supplement to
either of those schedules that is dated, executed, and delivered by US Borrower
to Administrative Agent to reflect changes in that schedule -- and matters
covered (subject to reasonable and customary deductible and retention) by
adequate insurance (a) no Company is subject to, or aware of the threat of, any
Litigation that is reasonably likely to be determined adversely to any Company
and, if so adversely determined, would be a Material-Adverse Event, and (b) no
outstanding and unpaid judgments against any Company exist that would be a
Material-Adverse Event.
8.10 TAXES. Except where not a Material-Adverse Event (a) all Tax returns
-----
of each Company required to be filed have been filed (or extensions have been
granted) before delinquency, and (b) all Taxes imposed upon each Company that
are due and payable have been paid before delinquency except as being contested
as permitted by SECTION 9.5.
8.11 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 8.11 -- as
---------------------
supplemented from time to time, subject to SECTION 7.3(E), by a supplement to
that schedule that is dated, executed, and delivered by US Borrower to
Administrative Agent to reflect changes in that schedule -- (a) no Company has
received notice from any Governmental Authority that it has actual or potential
Environmental Liability and no Company has knowledge that it has any
Environmental Liability, which actual or potential Environmental Liability in
either case constitutes a Material-Adverse Event, and (b) no Company has
received notice from any Governmental Authority that any Real Property is
affected by, and no Company has knowledge that any Real Property is affected by,
any Release of any Hazardous Substance which constitutes a Material-Adverse
Event.
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----------------
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<PAGE>
8.12 EMPLOYEE PLANS. Except as disclosed on SCHEDULE 8.12 or where not a
--------------
Material-Adverse Event (a) no Employee Plan subject to ERISA has incurred an
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
512 of the IRC), (b) neither any Company nor any ERISA Affiliate has incurred
liability -- except for liabilities for premiums that have been paid or that are
not past due -- under ERISA to the PBGC in connection with any Employee Plan,
(c) neither Any Company nor any ERISA Affiliate have withdrawn in whole or in
part from participation in a Multiemployer Plan in a manner that has given rise
to a withdrawal liability under Title IV of ERISA, (d) neither Any Company nor
any ERISA Affiliate have engaged in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the IRC), (e) no "reportable event" (as
defined in Section 4043 of ERISA) has occurred excluding events for which the
notice requirement is waived under applicable PBGC regulations, (f) neither any
Company nor any ERISA Affiliate has any liability, or are subject to any Lien,
under ERISA or the IRC to or on account of any Employee Plan, (g) each Employee
Plan subject to ERISA and the IRC complies in all material respects, both in
form and operation, with ERISA and the IRC, and (h) no Multiemployer Plan
subject to the IRC is in reorganization within the meaning of Section 418 of the
IRC. None of the matters disclosed on SCHEDULE 8.12 give rise to any other
"reportable events," as defined above.
8.13 PROPERTIES; LIENS. Each Company has good and marketable title to all
-----------------
its property reflected on the Current Financials as being owned by it except for
property that is obsolete or that has been disposed of in the ordinary course of
business between the date of the Current Financials and the date of this
agreement or, after the date of this agreement, as permitted by SECTIONS 11.1 or
12.1 and otherwise as disclosed on SCHEDULE 8.13(C). Except as described on
SCHEDULE 8.13(A) no Company owns any Real Property. No Lien exists on any
property of any Company (a) on the date of this agreement except the existing
Liens described on SCHEDULE 8.13(B) and (b) at anytime after the date of this
agreement except Permitted Liens. Except as otherwise disclosed on SCHEDULE
8.13(B), no Company is party or subject to any agreement, instrument, or order
which in any way restricts its ability to allow Liens to exist upon any of its
assets except the Loan Documents.
8.14 GOVERNMENT REGULATIONS. No Company is subject to regulation under the
----------------------
Investment Company Act of 1940 or the Public Utility Holding Company Act of
1935.
8.15 TRANSACTIONS WITH AFFILIATES. Except as otherwise disclosed on
----------------------------
SCHEDULE 8.15 or permitted by SECTION 10.8, no Company is a party to a material
transaction with any of its Affiliates.
8.16 DEBT. No Company has any Debt (a) on the date of this agreement,
----
except the existing Debt described on SCHEDULE 8.16, and (b) at anytime after
the date of this agreement, except Permitted Debt. Unless otherwise provided in
this agreement, UK Borrowers are entitled to cancel all commitments to extend
credit under, and to prepay all indebtedness under, the loan facilities provided
by Lloyds Bank Plc to UK Borrowers as described on SCHEDULE 8.16. The US
Obligation and US Borrower's guarantee of the UK Obligation both constitute
"Designated Senior Debt," as defined in the Subordinated-Note Indenture. The
Subordinated-Note Proceeds as of the date of this agreement total $89,682,032.
8.17 LEASES. Except as otherwise disclosed in SCHEDULE 8.13(B), and except
------
where not a Material-Adverse Event (a) each Company enjoys peaceful and
undisturbed possession under all leases necessary for the operation of its
properties and assets, none of which contains any unusual or burdensome
provisions which might materially affect or impair the operation of those
properties and assets, and (b) all material leases under which any Company is a
lessee are in full force and effect. All leases of Real Property under which
any Company is a lessee and where any of its inventory, equipment, or fixtures
is located are described on Schedule 8.17.
Credit Agreement
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<PAGE>
8.18 INSURANCE. Except as otherwise disclosed on SCHEDULE 8.18, each
---------
Company maintains with financially sound, responsible, and reputable insurance
companies or associations (or, as to workers' compensation or similar insurance,
with an insurance fund or by self-insurance authorized by the jurisdictions in
which it operates) insurance concerning its properties and businesses against
casualties and contingencies and of types and in amounts (and with co-insurance
and deductibles) as is customary in the case of similar businesses.
8.19 LABOR MATTERS. Except where not a Material-Adverse Event (a) no
-------------
actual or threatened strikes, labor disputes, slow downs, walkouts, work
stoppages, or other concerted interruptions of operations that involve any
employees employed at any time in connection with the business activities or
operations at the Real Property exist, (b) hours worked by and payment made to
the employees of any Company or any Predecessor have not been in violation of
the Fair Labor Standards Act or any other applicable Governmental Requirements
pertaining to labor matters, (c) all payments due from any Company for employee
health and welfare insurance, including, without limitation, workers
compensation insurance, have been paid or accrued as a liability on its books,
(d) the business activities and operations of each Company are in compliance
with OSHA and other applicable health and safety laws.
8.20 INTELLECTUAL PROPERTY. Except as disclosed on SCHEDULE 8.20 (none of
---------------------
which matters constitute a Material-Adverse Event) (a) each Company owns or has
the right to use all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications and trade names
necessary to continue to conduct its businesses as presently conducted by it and
proposed to be conducted by it immediately after the date of this agreement, (b)
each Company is conducting its business without infringement or claim of
infringement of any license, patent, copyright, service mark, trademark, trade
name, trade secret or other intellectual property right of others, and (c) no
infringement or claim of infringement by others of any material license, patent,
copyright, service mark, trademark, trade name, trade secret or other
intellectual property of any Company exists.
8.21 FULL DISCLOSURE. With respect to information regarding each
---------------
respective Borrower contained in the Proxy Statement, the Offering Memorandum,
and US Borrower's reports filed with the SEC pursuant to the 1934 Act, such
Borrower represents and warrants that such documents do not contain any untrue
statements of material fact and do not omit to state a material fact necessary
in order to make the statements made therein, in light of the circumstances
under which they were made, not misleading. All information previously
furnished in writing to Administrative Agent by or at the direction of the
respective Borrower in connection with the Loan Documents was -- and all
information furnished in writing to Administrative Agent in the future by or at
the direction of that Borrower will be -- true and accurate in all material
respects or (if a projection) based on reasonable estimates on the date the
information is stated or certified.
SECTION 9 AFFIRMATIVE COVENANTS. For so long as any Lender is committed to lend
- -------------------------------
or issue LCs or BGs under this agreement and until the US Obligation and the UK
Obligation have been fully paid and performed, UK Borrowers (jointly and
severally and only in respect of UK Borrowers and all other Foreign Companies)
and US Borrower (in respect of US Borrower and all other Companies) covenant and
agree with Agents and Lenders that, without first obtaining Required Lenders'
consent to the contrary:
9.1 CERTAIN ITEMS FURNISHED. US Borrower shall cause the following to be
-----------------------
furnished to Administrative Agent:
(a) ANNUAL FINANCIALS. Promptly after preparation but no later than
-----------------
90 days after the last day of each fiscal year of the Companies, Financials
showing the Companies' consolidated
Credit Agreement
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<PAGE>
and consolidating financial condition and results of operations as of, and
for the year ended on, that last day, accompanied by (i) the opinion,
without material qualification of Ernst & Young or other firm of
nationally-recognized independent certified public accountants reasonably
acceptable to Required Lenders, based on an audit using generally accepted
auditing standards, that the consolidated portion of those Financials were
prepared in accordance with GAAP and present fairly, in all material
respects, the Companies' consolidated financial condition and results of
operations, (ii) a Compliance Certificate, (iii) a summary form, reasonably
acceptable to Administrative Agent, of the Companies' accounts-receivable
aging, and (iv) a report of revenues, gross margins, and operating profits
of the Companies for the prior fiscal quarter on a business-segment basis.
(b) QUARTERLY FINANCIALS. Promptly after preparation but no later
--------------------
than 45 days after the last day of each of the first three fiscal quarters
of the Companies each year, Financials showing the Companies' consolidated
and consolidating financial condition and results of operations for that
fiscal quarter and for the period from the beginning of the current fiscal
year to the last day of that fiscal quarter, accompanied by (i) a
Compliance Certificate, (ii) a summary form, reasonably acceptable to
Administrative Agent, of the Companies' accounts-receivable aging, and
(iii) a report of revenues, gross margins, and operating profits of the
Companies for the prior fiscal quarter on a business-segment basis.
(c) BORROWING-BASE REPORTS. Borrowing-Base Reports for the US
----------------------
Facility and for the UK Facility (i) as required on SCHEDULE 7.1 and 7.2
and (ii) otherwise, promptly after preparation but no later than 30 days
after the last day of each calendar month.
(d) FINANCIAL PROJECTIONS. No later than 120 days after the last day
---------------------
of each fiscal year of the Companies, financial projections of the
Companies for the next-succeeding-two-year period following that last day,
in the form reasonably satisfactory to Administrative Agent, setting forth
management's projections for each fiscal quarter of the next-succeeding-
fiscal year and on a yearly basis thereafter.
(e) OTHER REPORTS. Promptly after preparation and distribution,
-------------
accurate and complete copies of all reports and other material
communications about material financial matters or material corporate plans
or projections by or for any Company for distribution to any Governmental
Authority or any creditor including, without limitation, each Form 10-K,
10-Q, and S-8 filed with the SEC.
(f) EMPLOYEE PLANS. As soon as possible and within 30 days after any
--------------
Company knows that any event which would constitute a reportable event
under Section 4043(b) of Title IV of ERISA with respect to any Employee
Plan subject to ERISA has occurred, or that the PBGC has instituted or will
institute proceedings under ERISA to terminate that plan, deliver a
certificate of a Responsible Officer of US Borrower setting forth details
as to that reportable event and the action which that Company or an ERISA
Affiliate, as the case may be, proposes to take with respect to it,
together with a copy of any notice of that reportable event which may be
required to be filed with the PBGC, or any notice delivered by the PBGC
evidencing its intent to institute those proceedings or any notice to the
PBGC that the plan is to be terminated, as the case may be. For all
purposes of this section, each Company is deemed to have all knowledge of
all facts attributable to the plan administrator under ERISA.
(g) OTHER NOTICES. Notice (promptly after any Company knows) of (i)
-------------
the existence and status of any Litigation that is reasonably likely to be
adversely determined and, if determined
Credit Agreement
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<PAGE>
adversely to any Company, would be a Material-Adverse Event, (ii) any
change in any material fact or circumstance represented or warranted by any
Company in any Loan Document, (iii) an Event of Default or Potential
Default, specifying the nature thereof and what action the Companies have
taken, are taking, or propose to take.
(h) OUTSTANDING CONDITIONS. By the deadline noted for it on SCHEDULE
----------------------
7.1 or SCHEDULE 7.2, as the case may be, each item, if any, beside which is
noted a deadline for delivery to Agents later than the applicable Closing
Date.
(i) OTHER INFORMATION. Promptly upon the reasonable request of
-----------------
either Agent or any Lender, such information (not otherwise required to be
furnished under this agreement) about any Company's business affairs,
assets, and liabilities.
9.2 USE OF CREDIT. Borrowers shall use BGs, LCs, and the proceeds of
-------------
Borrowings only for the purposes represented in this agreement and not for any
other purpose, and, in particular, shall not use (a) any Borrowings under the UK
Facility for any fees, costs, or expenses related to the Electrotech Acquisition
or otherwise in violation of any provision of the United Kingdom Companies Act
of 1985, and (b) any Borrowings for any redemption of any Subordinated Notes or
any "Designated Event Payment" under the Subordinated-Note Indenture.
9.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and
-----------------
accounts necessary to prepare Financials in accordance with GAAP.
9.4 INSPECTIONS. Upon reasonable request, each Company shall allow either
-----------
Agent or any Lender (or their respective Representatives) to inspect any of its
properties, to review reports, files, and other records and to make and take
away copies, to conduct tests or investigations, and to discuss any of its
affairs, conditions, and finances with its other creditors, directors, officers,
employees, or representatives from time to time, during reasonable business
hours.
9.5 TAXES. Each Company shall promptly pay when due any and all Taxes
-----
except Taxes that are being contested in good faith by lawful proceedings
diligently conducted, against which reserve or other provision required by GAAP
has been made, and in respect of which levy and execution of any Lien sufficient
to be enforced has been and continues to be stayed.
9.6 PAYMENT OF OBLIGATIONS. Each Company shall promptly pay (or renew and
----------------------
extend) all of its material obligations as they become due (unless the
obligations are being properly contested in good faith).
9.7 EXPENSES. Within five Business Days after demand accompanied by an
--------
invoice describing the costs, fees, and expenses in reasonable detail, Borrowers
shall, subject to the last sentence in this section, pay (a) all costs, fees,
and expenses paid or incurred by either Agent incident to any Loan Document
(including, without limitation, the reasonable fees and expenses of either
Agent's counsel in connection with the negotiation, preparation, delivery, and
execution of the Loan Documents and any related amendment, waiver, or consent)
and (b) all reasonable costs and expenses incurred by either Agent or any Lender
in connection with the enforcement of the obligations of any Company under the
Loan Documents or the exercise of any Rights under the Loan Documents, all of
which are part of both the US Obligation and the UK Obligation, bearing
interest, (if not paid within five Business Days after demand accompanied by an
invoice describing the costs, fees, and expenses in reasonable detail) at the
Default Rate until paid. UK Borrowers' obligations under this section are joint
and several in respect of each
Credit Agreement
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<PAGE>
other but do not apply to costs, fees, expenses, and interest described in this
section as they relate to the US Facility, US Obligation, US Collateral, or
direct obligations of any Domestic Company.
9.8 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall
----------------------------------------------
(a) except in connection with dispositions permitted under SECTIONS 11.1 or 12.1
and mergers, consolidations, and dissolutions permitted under SECTIONS 11.3 or
12.3, maintain its corporate existence and good standing in its jurisdiction of
incorporation, and (b) except where not a Material-Adverse Event (i) maintain
its authority to transact business and good standing in all other states, (ii)
maintain all licenses, permits, and franchises (including, without limitation,
Environmental Permits) necessary for its business, and (iii) keep all of its
material assets that are useful in and necessary to its business in good working
order and condition (ordinary wear and tear excepted) and make all necessary
repairs and replacements.
9.9 INSURANCE. Each Company shall, at its cost and expense, maintain with
---------
financially sound, responsible, and reputable insurance companies or
associations (or, as to workers' compensation or similar insurance, with an
insurance fund or by self-insurance authorized by the jurisdictions in which it
operates) insurance concerning its properties and businesses against casualties
and contingencies and of types and in amounts (and with co-insurance and
deductibles) as is customary in the case of similar businesses.
9.10 ENVIRONMENTAL MATTERS. Each Company shall (a) operate and manage its
---------------------
businesses and otherwise conduct its affairs in compliance with all
Environmental Laws and Environmental Permits except to the extent noncompliance
does not constitute a Material-Adverse Event, (b) promptly deliver to
Administrative Agent a copy of any notice received from any Governmental
Authority alleging that any Company is not in compliance with any Environmental
Law or Environmental Permit if the allegation (if determined adversely) would
constitute a Material-Adverse Event, and (c) promptly deliver to Administrative
Agent a copy of any notice received from any Governmental Authority alleging
that any Company has any potential Environmental Liability if the allegation (if
determined adversely) would constitute a Material-Adverse Event.
9.11 SUBSIDIARIES. Borrowers shall cause each of their respective present
------------
and future Subsidiaries (whether as a result of acquisition, creation, or
otherwise) to promptly and fully comply with the applicable provisions of
SECTION 6 and its capital stock or other equity securities to become subject to
Lender Liens as required by SECTION 6.
9.12 INDEMNIFICATION.
---------------
(a) AS USED IN THIS SECTION: (I) "INDEMNITOR" MEANS (SUBJECT TO
----------
CLAUSE (C) BELOW) BORROWERS; (II) "INDEMNITEE" MEANS EACH AGENT, EACH
---------- ----------
LENDER, EACH PRESENT AND FUTURE AFFILIATE OF EITHER AGENT OR ANY LENDER,
EACH PRESENT AND FUTURE REPRESENTATIVE OF EITHER AGENT, ANY LENDER, OR ANY
OF THOSE AFFILIATES, AND EACH PRESENT AND FUTURE SUCCESSOR AND ASSIGN OF
EITHER AGENT, ANY LENDER, OR ANY OF THOSE AFFILIATES OR REPRESENTATIVES;
AND (III) "INDEMNIFIED LIABILITIES" MEANS ALL PRESENT AND FUTURE, KNOWN AND
-----------------------
UNKNOWN, FIXED AND CONTINGENT, ADMINISTRATIVE, INVESTIGATIVE, JUDICIAL, AND
OTHER CLAIMS, DEMANDS, ACTIONS, CAUSES OF ACTION, INVESTIGATIONS, SUITS,
PROCEEDINGS, AMOUNTS PAID IN SETTLEMENT, DAMAGES, JUDGMENTS, PENALTIES,
COURT COSTS, LIABILITIES, AND OBLIGATIONS -- AND ALL PRESENT AND FUTURE
COSTS, EXPENSES, AND DISBURSEMENTS (INCLUDING, WITHOUT LIMITATION, ALL
REASONABLE ATTORNEYS' FEES AND EXPENSES WHETHER OR NOT SUIT OR OTHER
PROCEEDING EXISTS OR ANY INDEMNITEE IS PARTY TO ANY SUIT OR OTHER
PROCEEDING) IN ANY WAY RELATED TO ANY OF THE FOREGOING -- THAT MAY AT ANY
TIME BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ANY INDEMNITEE AND IN
ANY WAY RELATING TO OR ARISING OUT OF ANY (A) LOAN
Credit Agreement
----------------
51
<PAGE>
DOCUMENT, TRANSACTION CONTEMPLATED BY ANY LOAN DOCUMENT, COLLATERAL UNDER
ANY LOAN DOCUMENT, OR REAL PROPERTY, (B) ENVIRONMENTAL LIABILITY IN ANY WAY
RELATED TO ANY COMPANY, PREDECESSOR, COLLATERAL UNDER ANY LOAN DOCUMENT,
REAL PROPERTY, OR ACT, OMISSION, STATUS, OWNERSHIP, OR OTHER RELATIONSHIP,
CONDITION, OR CIRCUMSTANCE CONTEMPLATED BY, CREATED UNDER, OR ARISING
PURSUANT TO OR IN CONNECTION WITH ANY LOAN DOCUMENT, OR (C) INDEMNITEE'S
SOLE OR CONCURRENT ORDINARY NEGLIGENCE.
(b) EACH INDEMNITOR SHALL INDEMNIFY EACH INDEMNITEE FROM AND AGAINST,
PROTECT AND DEFEND EACH INDEMNITEE FROM AND AGAINST, HOLD EACH INDEMNITEE
HARMLESS FROM AND AGAINST, AND ON DEMAND PAY OR REIMBURSE EACH INDEMNITEE
FOR, ALL INDEMNIFIED LIABILITIES.
(c) UK BORROWERS' OBLIGATIONS AS INDEMNITORS UNDER THIS SECTION ARE
JOINT AND SEVERAL IN RESPECT OF EACH OTHER BUT DO NOT APPLY TO ANY
INDEMNIFIED LIABILITIES DESCRIBED IN THIS SECTION AS THEY RELATE TO THE US
FACILITY, US OBLIGATION, US COLLATERAL, OR DIRECT OBLIGATIONS OF ANY
DOMESTIC COMPANY.
(d) THE FOREGOING PROVISIONS (i) ARE NOT LIMITED IN AMOUNT EVEN IF
THAT AMOUNT EXCEEDS THE US OBLIGATION AND THE UK OBLIGATION, (ii) INCLUDE,
WITHOUT LIMITATION, REASONABLE FEES AND EXPENSES OF ATTORNEYS AND OTHER
COSTS AND EXPENSES OF LITIGATION OR PREPARING FOR LITIGATION AND DAMAGES OR
INJURY TO PERSONS, PROPERTY, OR NATURAL RESOURCES ARISING UNDER ANY
STATUTORY OR COMMON LAW, PUNITIVE DAMAGES, FINES, AND OTHER PENALTIES, AND
(iii) ARE NOT AFFECTED BY THE SOURCE OR ORIGIN OF ANY HAZARDOUS SUBSTANCE,
AND (iv) ARE NOT AFFECTED BY ANY INDEMNITEE'S INVESTIGATION, ACTUAL OR
CONSTRUCTIVE KNOWLEDGE, COURSE OF DEALING, OR WAIVER.
(e) HOWEVER, NO INDEMNITEE IS ENTITLED TO BE INDEMNIFIED UNDER THE
LOAN DOCUMENTS FOR ITS OWN FRAUD, GROSS NEGLIGENCE, OR WILFUL MISCONDUCT.
(f) THE PROVISIONS OF AND INDEMNIFICATION AND OTHER UNDERTAKINGS
UNDER THIS SECTION SURVIVE THE FORECLOSURE OF ANY LENDER LIEN OR ANY
TRANSFER IN LIEU OF THAT FORECLOSURE, THE SALE OR OTHER TRANSFER OF ANY
COLLATERAL UNDER ANY LOAN DOCUMENT OR REAL PROPERTY TO ANY PERSON, THE
SATISFACTION OF THE US OBLIGATION AND THE UK OBLIGATION, THE TERMINATION OF
THE LOAN DOCUMENTS, AND THE RELEASE OF ANY OR ALL LENDER LIENS.
SECTION 10 NEGATIVE COVENANTS FOR COMPANIES. For so long as any Lender is
- -------------------------------------------
committed to lend or issue LCs or BGs under this agreement and until the US
Obligation and the UK Obligation have been fully paid and performed, UK
Borrowers (jointly and severally and only in respect of UK Borrowers and all
other Foreign Companies) and US Borrower (in respect of US Borrower and all
other Companies) covenant and agree with Agents and Lenders that, without first
obtaining Required Lenders' consent to the contrary, the Companies designated in
the following sections of this SECTION 10 may not directly or indirectly do any
of the following or commit (other than a commitment that is not binding on it
until any prior written consent of Agents or Lenders required under the Loan
Documents is first obtained) to do any of the following:
Credit Agreement
----------------
52
<PAGE>
10.1 PAYROLL TAXES. No Company may use any proceeds of any Borrowing to
-------------
pay the wages of employees unless a timely payment to or deposit with the United
States of America of all amounts of Tax required to be deducted and withheld
with respect to such wages is also made.
10.2 DEBT. No Company may have any Debt except the following ("PERMITTED
----
DEBT"):
(a) The existing Debt that is described on SCHEDULE 8.16 (to the
extent that such schedule does not indicate that it is to be paid as a
condition precedent to extensions of credit under this agreement) and all
renewals, extensions, amendments, modifications, and refinancings of (but
not any principal increases after the date of this agreement to) any of
that Debt.
(b) The US Obligation and the UK Obligation and any guaranties of
them delivered under this agreement.
(c) Subordinated Debt.
(d) Debt of any Company to another Company, the creation of which
constitutes a Permitted Investment.
(e) Debt and Capital Lease obligations incurred by any Company to
acquire, construct, or improve assets that never exceed the Dollar
Equivalent of $3,000,000 total-principal amount outstanding for all of the
Companies (inclusive of and not in addition to the outstanding commitment
by Silicon Valley Bank, if any, described on SCHEDULE 8.16) together with
renewals, extensions, amendments, modifications, and refinancings of that
Debt and those obligations subject to the foregoing limitations of this
CLAUSE (E).
(f) Hedging Agreements; trade payables, accrued taxes, and other
liabilities that do not constitute Funded Debt; and endorsements of
negotiable instruments in the ordinary course of business.
(g) Other Debt that is not Funded Debt and that does not collectively
ever exceed a principal amount equal to the Dollar Equivalent of $1,000,000
for all of the Companies.
10.3 PREPAYMENTS. No Company may prepay or cause to be prepaid any
-----------
principal of, or any interest on, any of its Funded Debt (including, without
limitation, any optional redemption of any Subordinated Note or any "Designated
Event Payment" under the Subordinated-Note Indenture) except (a) the US
Obligation or the UK Obligation, (b) any of its other Senior Debt if no Event of
Default or Potential Default exists, (c) conversions of Subordinated Debt to
equity of US Borrower that is not mandatorily redeemable, (d) exchanges of
Subordinated Debt for Subordinated Debt, and (e) prepayment of Subordinated Debt
with the proceeds of the issuance of additional Subordinated Debt or common
stock issued by US Borrower.
10.4 SUBORDINATED DEBT. No Company may amend or modify the terms of any
-----------------
Subordinated Debt to any extent that (a) any of the applicable subordination,
payment blockage, or standstill provisions are less favorable to Lenders than
exists for the Subordinated Notes on the date of this agreement, (b) the
applicable representations, covenants, events of default, and other provisions
are significantly more onerous to the obligor than exists for the Subordinated
Debt on the date of this agreement, or (c) scheduled or mandatory principal or
sinking fund payment obligations before December 31, 1999, are made applicable
to any Subordinated Debt.
Credit Agreement
----------------
53
<PAGE>
10.5 CAPITAL EXPENDITURES. No Company may make expenditures for the
--------------------
acquisition, construction, improvement, or replacement of land, buildings,
equipment, or other fixed or capital assets or leaseholds (excluding
expenditures properly chargeable to repairs or maintenance) except such
expenditures that do not, for all the Companies during any fiscal year of the
Companies, exceed the applicable limitations in the following table, with each
reference to revenue being the revenue of the Companies during the corresponding
fiscal year:
<TABLE>
<CAPTION>
==========================================================
FISCAL YEAR PERMITTED
==========================================================
<S> <C>
1996 Lesser of 13.5% of revenue or $17,000,000
- ----------------------------------------------------------
1997 Lesser of 12.0% of revenue or $20,000,000
- ----------------------------------------------------------
1998 Lesser of 10.0% of revenue or $21,000,000
- ----------------------------------------------------------
1999 Lesser of 10.0% of revenue or $22,000,000
==========================================================
</TABLE>
For purposes of the foregoing, the calculation of revenue for any period before
the date of this agreement shall be made on the basis of the combined
Financials, before the date of this agreement, of US Borrower and of UK
Borrowers and their Subsidiaries to the extent acquired by US Borrower in the
Electrotech Acquisition.
10.6 INVESTMENTS. No Company may make any Investments except Permitted
-----------
Investments.
10.7 EMPLOYEE PLANS. Except as disclosed on SCHEDULE 7.12 or where not a
--------------
Material-Adverse Event, no Company may permit any of the events or circumstances
described in SECTION 7.12 to exist or occur.
10.8 TRANSACTIONS WITH AFFILIATES. No Company may enter into any material
----------------------------
transaction with any of its Affiliates except (a) those described on SCHEDULE
7.15, and (b) transactions in the ordinary course of business and upon fair and
reasonable terms not materially less favorable than it could obtain or could
become entitled to in an arm's-length transaction with a Person that was not its
Affiliate.
10.9 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS AND DOCUMENTS. No Company
-------------------------------------------------------
may (a) violate the provisions of any Governmental Requirements (including,
without limitation, OSHA and Environmental Laws) applicable to it or of any
material agreement to which it is a party if that violation alone, or when
aggregated with all other violations, would be a Material-Adverse Event, (b)
violate in any material respect any provision of its Organizational Documents,
or (c) repeal, replace, or amend any provision of its Organizational Documents
if that action would be a Material-Adverse Event.
10.10 DISTRIBUTIONS. No Company may declare, make, or pay any Distribution
-------------
except (i) Distributions paid in the form of additional equity that is not
mandatorily redeemable, (ii) Distributions by any Company to US Borrower, (iii)
Distributions by any Domestic Company (other than US Borrower) to any other
Domestic Company, to the extent that such Domestic Company is in compliance with
SECTIONS 6 and 9.11, (iv) Distributions by any Foreign Company to its parent
company to the extent that such parent company is in compliance with SECTIONS 6
and 9.11, (v) payment of expenses to directors, officers, and employees the
Companies in the ordinary course of business, and (vi) loans and advances to
directors, officers, and employees of the Companies to the extent that they
constitute Permitted Investments.
10.11 ASSIGNMENT. No Company may assign or transfer any of its Rights,
----------
duties, or obligations under any of the Loan Documents.
Credit Agreement
----------------
54
<PAGE>
10.12 FISCAL YEAR AND ACCOUNTING METHODS. No Company may change its fiscal
----------------------------------
year for accounting purposes or any material aspect of its method of accounting
except to conform any new Subsidiary's accounting methods to US Borrower's
accounting methods.
10.13 NEW BUSINESSES. No Company may engage in any business except the
--------------
businesses in which it is presently engaged and any other reasonably related
business.
10.14 GOVERNMENT REGULATIONS. No Company may conduct its business in a way
----------------------
that it becomes regulated under the Investment Company Act of 1940 or the
Public Utility Holding Company Act of 1935.
10.15 STRICT COMPLIANCE. No Company may indirectly do anything that it may
-----------------
not directly do under any covenant in any Loan Document.
SECTION 11 NEGATIVE COVENANTS FOR DOMESTIC COMPANIES. For so long as any Lender
- ---------------------------------------------------
is committed to lend or issue LCs or BGs under this agreement and until the US
Obligation and UK Obligation have been fully paid and performed, US Borrower
covenants and agrees with Agents and Lenders that, without first obtaining
Required Lenders' consent to the contrary, the Companies designated in the
following sections of this SECTION 11 may not directly or indirectly do any of
the following or commit (other than a commitment that is not binding on it until
any prior written consent of Agents or Lenders required under the Loan Documents
is first obtained) to do any of the following:
11.1 DISPOSITION OF ASSETS. No Domestic Company may sell, assign, lease,
---------------------
transfer, or otherwise dispose of any of its assets (including, without
limitation, equity interests in any other Company) except (a) sales and
dispositions in the ordinary course of business for a fair and adequate
consideration (and Required Lenders' consent in connection with proposed
licensing arrangements not in the ordinary course of business shall not be
unreasonably withheld or delayed), (b) sales of assets which are obsolete or are
no longer in use and which are not significant to the continuation of its
respective business, (c) dispositions of assets where substantially similar
assets have been or are being acquired, and (d) sales of assets by any Domestic
Company (other than US Borrower) to another Domestic Company to the extent that
the latter Domestic Company is in compliance with SECTIONS 6 and 9.11.
11.2 LIENS. No Domestic Company may (a) create, incur, or suffer or permit
-----
to be created or incurred or to exist any Lien upon any of its assets except
Permitted Liens or (b) enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits it or any of its Subsidiaries
from creating or incurring any Lien on any of their respective assets except (i)
the Loan Documents, (ii) any lease that places a Lien prohibition on only the
property subject to that lease, and (iii) arrangements and agreements that apply
only to property subject to Permitted Liens.
11.3 MERGERS, CONSOLIDATIONS, AND DISSOLUTIONS. Except as otherwise
-----------------------------------------
provided in the first sentence of SECTION 9.8, no Domestic Company may merge or
consolidate with any other Person or dissolve except, if no Event of Default or
Potential Default exists or will exist as a result of it (a) any merger or
consolidation between Domestic Companies so long as US Borrower is the survivor
if it is involved and (b) dissolution of any Domestic Subsidiary of US Borrower
if substantially all of its assets have been conveyed to any other Domestic
Company to the extent that such Domestic Company is in compliance with SECTIONS
6 and 9.11.
SECTION 12 NEGATIVE COVENANTS FOR FOREIGN COMPANIES. For so long as any Lender
- ---------------------------------------------------
is committed to lend or issue LCs or BGs under the UK Facility and until the UK
Obligation has been fully paid and performed, UK Borrowers jointly and severally
covenant and agree with Agents and
Credit Agreement
----------------
55
<PAGE>
Lenders that, without first obtaining Required Lenders' consent to the contrary
the Companies designated in the following sections of this SECTION 12 may not
directly or indirectly do any of the following or commit (other than a
commitment that is not binding on it until any prior written consent of Agents
or Lenders required under the Loan Documents is first obtained) to do any of the
following:
12.1 DISPOSITION OF ASSETS. No Foreign Company may sell, assign, lease,
---------------------
transfer, or otherwise dispose of any of its assets (including, without
limitation, equity interests in any other Company) except (a) sales and
dispositions of inventory in the ordinary course of business for a fair and
adequate consideration (and Required Lenders' consent in connection with
proposed licensing arrangements not in the ordinary course of business shall not
be unreasonably withheld or delayed), (b) sales of assets which are obsolete or
are no longer in use and which are not significant to the continuation of its
respective business, and (c) sales of assets by any Foreign Company (other than
either UK Borrower) to another Foreign Company to the extent that the latter
Foreign Company is in compliance with SECTIONS 6 and 9.11.
12.2 LIENS. No Foreign Company may (a) create, incur, or suffer or permit
-----
to be created or incurred or to exist any Lien upon any of its assets except
Permitted Liens or (b) enter into or permit to exist any arrangement or
agreement that directly or indirectly prohibits it or any of its Subsidiaries
from creating or incurring any Lien on any of their respective assets except (i)
the Loan Documents, (ii) any lease that places a Lien prohibition on only the
property subject to that lease, and (iii) arrangements and agreements that apply
only to property subject to Permitted Liens.
12.3 MERGERS, CONSOLIDATIONS, AND DISSOLUTIONS. Except as otherwise
-----------------------------------------
provided in the first sentence of SECTION 9.8, no Foreign Company may merge or
consolidate with any other Person or dissolve except, if no Event of Default or
Potential Default exists or will exist as a result of it (a) any merger or
consolidation between Foreign Companies so long as a UK Borrower is the survivor
if it is involved or one of them is the survivor if they are both involved, and
(b) dissolution of any Subsidiary of a UK Borrower if substantially all of its
assets have been conveyed to any other Foreign Company to the extent that such
Foreign Company is in compliance with SECTIONS 6 and 9.11.
SECTION 13 FINANCIAL COVENANTS. For so long as any Lender is committed to lend
- ------------------------------
or issue LCs or BGs under this agreement and until the US Obligation and UK
Obligation have been fully paid and performed, Borrowers jointly and severally
covenant and agree with Agents and Lenders that, without first obtaining
Required Lenders' consent to the contrary, they must not directly or indirectly
permit any of the following to occur or exist, as measured on a fiscal-quarterly
basis. Any of the following calculations involving periods before the date of
this agreement shall be made on the basis of the combined Financials, before the
date of this agreement, of US Borrower and of UK Borrowers and their
Subsidiaries to the extent acquired by US Borrower in the Electrotech
Acquisition.
13.1 TANGIBLE-NET WORTH. The Companies' Tangible-Net Worth ever to be less
------------------
than the sum of (a) $7,500,000, plus (b) 75% of the Companies' cumulative net
income (without deduction for losses) after September 30, 1996, plus (c) 75% of
the net (i.e., gross less usual and customary underwriting, placement, and other
related costs and expenses) proceeds of the issuance of any equity securities by
US Borrower after the date of this agreement.
13.2 CURRENT RATIO. The ratio of the Companies' current assets to the sum
-------------
of the Companies' current liabilities plus the US-Facility-Commitment Usage and
the UK-Facility-Commitment Usage ever to be less than 1.65 to 1.00.
Credit Agreement
----------------
56
<PAGE>
13.3 EBITDA. The Companies' EBITDA to ever be less than the amount for the
------
corresponding period described in the table below:
<TABLE>
<CAPTION>
==============================================
PERIOD EBITDA
==============================================
<S> <C>
Quarter ended 12/31/96 $ 1
- ----------------------------------------------
Quarter ended 3/31/97 $ 1
- ----------------------------------------------
Quarter ended 6/3097 $ 1
- ----------------------------------------------
Quarter ended 9/30/97 $ 1
- ----------------------------------------------
Four quarters ended 12/31/97 $20,000,000
- ----------------------------------------------
Four quarters ended 3/31/98 $22,500,000
- ----------------------------------------------
Four quarters ended 6/30/98 $25,000,000
- ----------------------------------------------
Four quarters ended 9/30/98 $27,500,000
- ----------------------------------------------
Four quarters ended 12/31/98 $30,000,000
- ----------------------------------------------
Four quarters ended 3/31/99 $32,500,000
- ----------------------------------------------
Four quarters ended 6/30/99 $35,000,000
- ----------------------------------------------
Four quarters ended 9/30/99 $37,500,000
=============================================
</TABLE>
13.4 SENIOR DEBT/EBITDA. The ratio of the Companies' Senior Debt as of the
------------------
last day of each fiscal quarter (commencing with the quarter ending December 31,
1996) to the Companies' EBITDA for the 12-month period ending on that last day
to exceed 1.0 to 1.0.
13.5 INTEREST COVERAGE. Commencing with the four quarters ended December
-----------------
31, 1996, the ratio of the Companies' EBITDA to the Companies' Interest Expense
ever to be less than:
<TABLE>
<CAPTION>
===================================================
ANY FOUR-QUARTER PERIOD ENDED IN RATIO
===================================================
<S> <C>
1996 2.3 to 1.00
--------------------------------------------------
1997 2.3 to 1.00
--------------------------------------------------
1998 3.5 to 1.00
- ---------------------------------------------------
1999 3.5 to 1.00
===================================================
</TABLE>
13.6 PROJECTIONS. Borrowers acknowledge and agree that the Projections
-----------
were prepared for the purpose of tailoring the covenants in this SECTION 13 to
the most conservative reasonable estimates of Borrowers' future performance, and
less than substantial deviation from the Projections may cause non-compliance
with any or all of the covenants in this SECTION 13. Notwithstanding anything
in this SECTION 13.6 to the contrary, no deviation from the Projections, in and
of itself, shall be an Event of Default unless (a) that deviation causes actual
non-compliance with any or all of the covenants in this SECTION 13, or (b) that
deviation is due to the representation under SECTION 8.7 having been materially
incorrect when made.
Credit Agreement
----------------
57
<PAGE>
SECTION 14 EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" means the occurrence
- ----------------------------
of any one or more of the following:
14.1 PAYMENTS. Any Borrower's failure or refusal to pay (a) on the date
--------
due, any Principal Debt or reimbursement obligation for which it is obligated
under the Loan Documents or (b) within five days after the date due, any other
portion of the US Obligation or UK Obligation, as the case may be, for which it
is obligated under the Loan Documents.
14.2 COVENANTS. Any Company's failure or refusal to punctually and
---------
properly perform, observe, and comply with any covenant (other than as described
in SECTION 14.1) applicable to it in:
(a) SECTIONS 2.3(G), 3.4(G), 9.2, 9.7, 9.8(A), 10.1, 10.3, 10.4,
10.10 (in respect of Distributions declared, made, or paid by US Borrower),
11.1, 11.3, 12.1, 12.3, 13.1, 13.2, 13.3, or 13.4;
(b) SECTIONS 6.1, 6.2, 6.3, 9.11, 10.2, 10.5, 10.6, 10.8, 10.10
(other than Distributions declared, made, or paid by US Borrower), 11.2, or
12.2, if that failure or refusal was inadvertent, is not a Material-Adverse
Event, is susceptible of cure, and is cured within ten days after the
earlier of either any Company knows of it or any Company is notified of it
by either Agent or any Lender; or
(c) Any other provision of any Loan Document, if that failure or
refusal continues for 30 days after the earlier of either any Company knows
of it or any Company is notified of it by either Agent or any Lender; or
14.3 DEBTOR RELIEF. Any Company (a) is not Solvent, (b) fails to pay its
-------------
Debts generally as they become due, (c) voluntarily seeks, consents to, or
acquiesces in the benefit of any Debtor Law, or (d) becomes a party to or is
made the subject of any proceeding provided for by any Debtor Law (except as a
creditor or claimant) that could suspend or otherwise adversely affect the
Rights of either Agent or any Lender granted in the Loan Documents (unless, if
the proceeding is involuntary, the applicable petition is dismissed within 60
days after its filing).
14.4 JUDGMENTS AND ATTACHMENTS. To the extent that any matter involves an
-------------------------
amount in controversy or judgment in excess of $100,000 or all such matters
collectively involve amounts in controversy and judgments in excess of $500,000,
any Company fails to pay or have discharged any judgement, order for the payment
of money, or attachment, sequestration, or similar proceedings before (a) any
enforcement proceedings have been commenced against it or any of its assets or
(b) the expiration of 60 consecutive days during which stay of enforcement is
not in effect because of pending appeal or otherwise.
14.5 GOVERNMENT ACTION. A final non-appealable order is issued by any
-----------------
Governmental Authority (including, but not limited to, the United States Justice
Department) seeking to cause any Company to divest a significant portion of its
assets under any antitrust, restraint of trade, unfair competition, industry
regulation, or similar Governmental Requirements, or any Governmental Authority
condemns, seizes, or otherwise appropriates, or takes custody or control of all
or any substantial portion of any Company's assets.
14.6 MISREPRESENTATION. Any representation or warranty made by any Company
-----------------
in any Loan Document at any time proves to have been materially incorrect when
made.
Credit Agreement
----------------
58
<PAGE>
14.7 CHANGE OF CONTROL. Either (a) any Person or Persons acting together
-----------------
that would constitute a group under the 1934 Act (other than such group
existing as of the close of business on the date of this agreement or any group
consisting of management of US Borrower existing as of the date of this
agreement) and their respective Affiliates, beneficially own (as defined in Rule
13d-3 of the SEC under the 1934 Act) at least 35% of the aggregate voting power
of all classes of stock of the US Borrower entitled to vote generally in the
election of its directors, or (b) the individuals who, as of the date of this
agreement, constitute the members of US Borrower's board of directors (for
purposes of this section, the "INCUMBENT BOARD") do not constitute or cease for
any reason to constitute at least 51% of: (i) US Borrower's board of directors;
(ii) the surviving corporation's board of directors in the event of any merger
or consolidation (if permitted by SECTION 11.3) involving US Borrower, or (iii)
the controlling entity's board of directors, the comparable body if there is no
board of directors, or voting control if there is no comparable body, in the
event that the surviving corporation under CLAUSE (II) above is directly or
indirectly controlled by that entity. For purposes of this section, any
individual who becomes a member of the board of directors or comparable body or
who obtains a voting interest, as applicable under CLAUSES (I), (II), or (III)
above, after the date of this agreement and whose appointment to the board, or
nomination for election, was approved or ratified by a vote of the individuals
comprising at least 51% of the incumbent board shall be deemed to be a member of
the incumbent board.
14.8 OTHER FUNDED DEBT. In respect of any Funded Debt (other than the US
-----------------
Obligation or the UK Obligation) (a) any Company fails to make any payment when
due, or (b) any default or other event or condition occurs or exists beyond the
applicable grace or cure period, the effect of which is to cause or to permit
any holder of that Funded Debt to cause (whether or not it elects to cause) any
of that Funded Debt to become due before its stated maturity or regularly
scheduled payment dates, or (c) any of that Funded Debt is declared to be due
and payable or required to be prepaid by any Company before its stated maturity.
14.9 VALIDITY AND ENFORCEABILITY. Once executed, any Loan Document ceases
---------------------------
to be in full force and effect in any material respect or is declared to be null
and void or its validity or enforceability is contested in writing by any
Company party to it or any Company party to it denies in writing that it has any
further liability or obligations under it except in accordance with that
document's express provisions or as the appropriate parties under SECTION 17.9
may otherwise agree in writing.
14.10 BGS OR LCS. Either Issuer is served with, or becomes subject to, a
----------
court order, injunction, or other process or decree restraining or seeking to
restrain it from paying any amount under any BG or LC and either (a) a drawing
has occurred under the BG or LC, and the obligated Borrower has refused to
reimburse the Issuer for payment, or (b) the expiration date of the BG or LC has
occurred, but the Right of the beneficiary to draw under the BG or LC has been
extended past the Stated-Termination Date in connection with the pendency of the
related court action or proceeding, and the obligated Borrower has failed to
deposit cash collateral in an amount equal to the Issuer's maximum exposure
under the BG or LC.
SECTION 15 RIGHTS AND REMEDIES.
- ------------------------------
15.1 REMEDIES.
--------
(a) DEBTOR RELIEF. If an Event of Default exists under SECTION 14.3,
-------------
all commitments to extend credit and issue LCs and BGs under this agreement
automatically terminate and the entire unpaid balance of the US Obligation
and the UK Obligation automatically become due and payable without any
action of any kind whatsoever.
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(b) OTHER EVENTS OF DEFAULT. If any Event of Default exists, subject to
-----------------------
the terms of SECTION 16.5(B), Administrative Agent may (with the consent
of, and must, upon the request of, Required Lenders), do any one or more of
the following: (i) If the maturity of the US Obligation and the UK
Obligation have not already been accelerated under SECTION 15.1(A), declare
the entire unpaid balance of all or any part of the US Obligation and the
UK Obligation immediately due and payable, whereupon it is due and payable;
(ii) terminate the commitments of Lenders to extend credit under this
agreement; (iii) reduce any claim to judgment; (iv) demand payment of an
amount equal to the LC Exposure and the BG/LC Exposure then existing and
retain as collateral for the LC Exposure and the BG/LC Exposure any amounts
received from any Company, from any property of any Company, through
offset, or otherwise; and (v) exercise any and all other legal or equitable
Rights afforded by the Loan Documents, by law, or in equity.
(c) OFFSET. If an Event of Default has occurred and is then continuing
------
unwaived, to the extent lawful, each Lender may exercise the Rights of
offset and banker's lien against each and every account and other property,
or any interest therein, which any Borrower may now or hereafter have with,
or which is now or hereafter in the possession of, that Lender to the
extent of the full amount of the US Obligation and the UK Obligation owed
to that Lender.
15.2 JUDGMENT CURRENCY. If, for the purpose of obtaining judgment in any
-----------------
court, it is necessary to convert an amount due under any Loan Document from a
currency (the "ORIGINAL CURRENCY") into another currency (the "OTHER CURRENCY"),
then the rate of exchange used shall be that at which Administrative Agent (in
accordance with normal banking procedures) could purchase the Original Currency
with the Other Currency at its principal office in Dallas, Texas, two Business
Days before the day on which final judgment is given.
(a) Any Borrower's obligation for any amount due in the Original
Currency from it to either Agent or to any Lender under any Loan Document
shall (notwithstanding any judgment in any Other Currency) be discharged
only if and to the extent that -- on the Business Day following the day on
which that Agent or that Lender receives any amount adjudged to be so due
in the Other Currency -- that Agent or Lender is able (in accordance with
normal banking procedures) to purchase the same amount of the Original
Currency with the Other Currency as the amount that Administrative Agent
could have purchased two Business Days before the day on which the final
judgment referred to above is given.
(b) If the amount of the Original Currency so purchased under CLAUSE
(A) above by that Agent or that Lender is less than the amount of the
Original Currency that Administrative Agent could have so purchased, then
that Borrower shall (as a separate obligation and notwithstanding any such
judgment) remit the deficiency to that Agent or that Lender.
(c) If the amount of the Original Currency so purchased under CLAUSE
(A) above exceeds the amount of the Original Currency that Administrative
Agent could have so purchased, then that Agent or that Lender shall remit
that excess to that Borrower.
15.3 COMPANY WAIVERS. The Companies waive presentment and demand for
---------------
payment, protest, notice of intention to accelerate, notice of acceleration, and
notice of protest and nonpayment, and agree that their respective liability with
respect to all or any part of the US Obligation and the UK Obligation is not
affected by any renewal or extension in the time of payment of all or any part
of the US Obligation and the UK Obligation, by any indulgence, or by any release
or change in any security for the payment of all or any part of the US
Obligation and the UK Obligation.
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15.4 PERFORMANCE BY ADMINISTRATIVE AGENT. If any Company's covenant, duty,
-----------------------------------
or agreement is not performed in accordance with the terms of the Loan
Documents, Administrative Agent may, while an Event of Default exists, at its
option (but subject to the approval of Required Lenders), perform or attempt to
perform that covenant, duty, or agreement on behalf of that Company (and any
amount expended by Administrative Agent in its performance or attempted
performance is payable by the Companies, jointly and severally, to
Administrative Agent on demand, becomes part of the US Obligation and the UK
Obligation, and bears interest at the Default Rate from the date of
Administrative Agent's expenditure until paid). However, Administrative Agent
does not assume and shall never have, except by its express written consent, any
liability or responsibility for the performance of any Company's covenants,
duties, or agreements.
15.5 NOT IN CONTROL. Nothing in any Loan Documents gives or may be deemed
--------------
to give to either Agent or any Lender the Right to exercise control over any
Company's Real Property, other assets, affairs, or management or to preclude or
interfere with any Company's compliance with any Governmental Requirement or
require any act or omission by any Company that may be harmful to Persons or
property. Any "Material-Adverse Event" or other materiality or substantiality
qualifier of any representation, warranty, covenant, agreement, or other
provision of any Loan Document is included for credit documentation purposes
only and does not imply or be deemed to mean that either Agent or any Lender
acquiesces in any non-compliance by any Company with any Governmental
Requirement, document, or otherwise or does not expect the Companies to
promptly, diligently, and continuously carry out all appropriate removal,
remediation, compliance, closure, or other activities required or appropriate in
accordance with all Environmental Laws. Agents' and Lenders' power is limited
to the Rights provided in the Loan Documents. All of those Rights exist solely
(and may be exercised in manner calculated by Agents or Lenders in their
respective good faith business judgment) to preserve and protect the Collateral
and to assure payment and performance of the US Obligation and the UK
Obligation.
15.6 COURSE OF DEALING. The acceptance by Agents or Lenders of any partial
-----------------
payment on the US Obligation or the UK Obligation is not a waiver of any Event
of Default then existing. No waiver by either Agent, Required Lenders, or
Lenders of any Event of Default is a waiver of any other then-existing or
subsequent Event of Default. No delay or omission by either Agent, Required
Lenders, or Lenders in exercising any Right under the Loan Documents impairs
that Right or is a waiver thereof or any acquiescence therein, nor will any
single or partial exercise of any Right preclude other or further exercise
thereof or the exercise of any other Right under the Loan Documents or
otherwise.
15.7 CUMULATIVE RIGHTS. All Rights available to Agents, Required Lenders,
-----------------
and Lenders under the Loan Documents are cumulative of and in addition to all
other Rights granted to Agents, Required Lenders, and Lenders at law or in
equity, whether or not the US Obligation or the UK Obligation are due and
payable and whether or not Agents, Required Lenders, or Lenders have instituted
any suit for collection, foreclosure, or other action in connection with the
Loan Documents.
15.8 APPLICATION OF PROCEEDS. Any and all proceeds ever received by Agents
-----------------------
or Lenders from the exercise of any Rights pertaining to the US Obligation or
the UK Obligation shall be applied to the US Obligation or the UK Obligation
according to SECTION 4.
15.9 CERTAIN PROCEEDINGS. Borrowers shall promptly execute and deliver, or
-------------------
cause the execution and delivery of, all applications, certificates,
instruments, registration statements, and all other documents and papers
Administrative Agent or Required Lenders reasonably request in connection with
the obtaining of any consent, approval, registration (other than securities law
registrations), qualification, permit, license, or authorization of any
Governmental Authority or other Person necessary or appropriate for the
effective exercise of any Rights under the Loan Documents. Because Borrowers
agree that
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Administrative Agent's and Required Lenders' remedies at law for failure of
Borrowers to comply with the provisions of this section would be inadequate and
that failure would not be adequately compensable in damages, Borrowers agree
that the covenants of this section may be specifically enforced.
15.10 EXPENDITURES BY LENDERS. Any sums spent by either Agent or any Lender
-----------------------
in the exercise of any Right under any Loan Document is payable by the Companies
to Administrative Agent within five Business Days after demand, becomes part of
the US Obligation and the UK Obligation, and bears interest at the Default Rate
from the date spent until the date repaid.
15.11 DIMINUTION IN VALUE OF COLLATERAL. Neither Agent nor any Lender has
---------------------------------
any liability or responsibility whatsoever for any diminution in or loss of
value of any collateral now or in the future securing payment or performance of
any of the US Obligation or the UK Obligation (other than diminution in or loss
of value caused by its own gross negligence or willful misconduct).
15.12 UK BORROWERS' OBLIGATIONS. Nothing in this SECTION 15 shall be
-------------------------
construed to make the UK Borrowers obligated in any way with respect to any of
the US Obligation or its enforcement.
SECTION 16 AGENTS AND LENDERS.
- ---------- ------------------
16.1 AGENTS.
------
(a) ADMINISTRATIVE AGENT. Except as provided in CLAUSE (B) below,
--------------------
each Lender appoints Administrative Agent (including, without limitation,
each successor Administrative Agent in accordance with this SECTION 16) as
its nominee and agent to act in its name and on its behalf (and
Administrative Agent and each such successor accepts that appointment):
(i) To act as its nominee and on its behalf in and under all Loan
Documents; (ii) to arrange the means whereby Borrowings are to be made
available to Borrowers (except under the Overdraft Subfacility) under the
Loan Documents; (iii) to take any action that it properly requests under
the Loan Documents (subject to the concurrence of other Lenders as may be
required under the Loan Documents); (iv) to receive all documents and items
to be furnished to it under the Loan Documents; (v) to be the secured
party, mortgagee, beneficiary, recipient, and similar party in respect of
any collateral for the benefit of Lenders except when the UK-Collateral
Agent is serving in that function; (vi) to promptly distribute to it all
material information, requests, documents, and items received from any
Borrower under the Loan Documents; (vii) to promptly distribute to it its
ratable part of each payment or prepayment (whether voluntary, as proceeds
of collateral upon or after foreclosure, as proceeds of insurance thereon,
or otherwise) in accordance with the terms of the Loan Documents; and
(viii) to deliver to the appropriate Persons requests, demands, approvals,
and consents received from it. However, Administrative Agent may not be
required to take any action that exposes it to personal liability or that
is contrary to any Loan Document or applicable Governmental Requirements.
(b) UK-COLLATERAL AGENT. Each Lender under the UK Facility appoints
-------------------
that UK-Collateral Agent (including, without limitation, each successor UK-
Collateral Agent in accordance with this SECTION 16) as its nominee and
agent to act in its name and on its behalf (and that UK-Collateral Agent
and each such successor accepts that appointment): (i) To be the secured
party, mortgagee, beneficiary, recipient, and similar party in respect of
any collateral as may be appropriate in connection with the UK Facility for
the benefit of the Lenders under the UK Facility; (ii) to take any action
that it properly requests under the Loan Documents (subject to the
concurrence of other Lenders under the UK Facility as may be required under
the Loan Documents); (iii) to promptly distribute to it all material
information, requests, documents, and
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<PAGE>
items received from any Borrower under the Loan Documents; (iv) to promptly
distribute to it its ratable part of each payment or prepayment (whether
voluntary, as proceeds of collateral upon or after foreclosure, as proceeds
of insurance thereon, or otherwise) in accordance with the terms of the
Loan Documents; and (v) to deliver to the appropriate Persons requests,
demands, approvals, and consents received from it. However, UK-Collateral
Agent may not be required to take any action that exposes it to personal
liability or that is contrary to any Loan Document or applicable
Governmental Requirements.
(c) SUCCESSOR. Either Agent may assign all of its Rights and
---------
obligations as an Agent under the Loan Documents to any of its Affiliates,
which Affiliate shall then be the successor to that Agent under the Loan
Documents. Either Agent may also voluntarily resign and shall resign upon
the request of Required Lenders for cause (i.e., its continuing to fail to
perform its responsibilities as an Agent under the Loan Documents). If any
such successor ever ceases to be a party to this agreement or if the
initial or any such successor ever resigns (whether voluntarily or at the
request of Required Lenders), then Required Lenders shall appoint the
successor from among Lenders (other than the resigning Agent). If Required
Lenders fail to appoint a successor within 30 days after the resigning
Agent has given notice of resignation or Required Lenders have removed the
resigning Agent, then the resigning Agent may, on behalf of Lenders,
appoint a successor, which must be a commercial bank having a combined
capital and surplus of at least the Dollar Equivalent of $1,000,000,000 (as
shown on its most recently published statement of condition). Upon its
acceptance of appointment as successor, the successor succeeds to and
becomes vested with all of the Rights of the former Agent, and the former
Agent is discharged from its duties and obligations as an Agent under the
Loan Documents, and each Lender shall execute the documents that any
Lender, the resigning or removed Agent, or the successor Agent reasonably
request to reflect the change. After any Agent's resignation or removal as
an Agent under the Loan Documents, the provisions of this section inure to
its benefit as to any actions taken or not taken by it while it was an
Agent under the Loan Documents.
(d) RIGHTS AS LENDER. Each Agent, in its capacity as a Lender, has
----------------
the same Rights under the Loan Documents as any other Lender and may
exercise those Rights as if it were not acting as an Agent. The term
"Lender", unless the context otherwise indicates, includes each Agent. An
Agent's resignation or removal does not impair or otherwise affect any
Rights that it has or may have in its capacity as an individual Lender.
Each Lender and each Borrower agree that neither Agent is a fiduciary for
Lenders or Borrowers but is simply acting in the capacity described in this
agreement to alleviate administrative burdens for Borrowers and Lenders,
that neither Agent has any duties or responsibilities to Lenders or
Borrowers except those expressly set forth in the Loan Documents, and that
each Agent in its capacity as a Lender has the same Rights as any other
Lender.
(e) OTHER ACTIVITIES. Subject to SECTIONS 10.2, 11.2, and 12.2, each
----------------
Agent or any Lender may now or in the future be engaged in one or more
loan, letter of credit, leasing, or other financing transactions with any
Borrower, act as trustee or depositary for any Borrower, or otherwise be
engaged in other transactions with any Borrower (collectively, the "OTHER
ACTIVITIES") not the subject of the Loan Documents. Without limiting the
Rights of Lenders specifically set forth in the Loan Documents, neither
Agent nor any Lender is responsible to account to the other Agent or
Lenders for those other activities, and no Lender shall have any interest
in any other Lender's activities, any present or future guaranties by or
for the account of any Borrower that are not contemplated by or included in
the Loan Documents, any present or future offset exercised by either Agent
or any Lender in respect of those other activities, any present or future
property taken as security for any of those other activities, or any
property now or hereafter in either
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Agent's or any Lender's possession or control that may be or become
security for the obligations of any Borrower arising under the Loan
Documents by reason of the general description of indebtedness secured or
of property contained in any other agreements, documents, or instruments
related to any of those other activities (but, if any payments in respect
of those guaranties or that property or the proceeds thereof is applied by
that Agent or Lender to reduce the US Obligation or the UK Obligation, then
each Lender is entitled to share ratably in the application to the extent
so provided in the Loan Documents).
16.2 EXPENSES. Each Lender shall pay, according to its Commitment
--------
Percentage of the US Facility and the UK Facility combined, its part of any
reasonable expenses (including, without limitation, court costs, reasonable
attorneys' fees and other costs of collection) incurred by either Agent or
Issuer (while acting in such capacity) in connection with any of the Loan
Documents if that Agent or Issuer is not reimbursed from other sources within 30
days after incurrence. Each Lender is entitled to receive, according to its
Commitment Percentage of the US Facility and the UK Facility combined, part of
any reimbursement that it makes to either Agent or Issuer if they are
subsequently reimbursed from other sources.
16.3 PROPORTIONATE ABSORPTION OF LOSSES. Except as otherwise provided in
----------------------------------
the Loan Documents nothing in the Loan Documents (a) gives any Lender under the
US Facility any advantage over any other Lender under the US Facility insofar as
the US Obligation is concerned or relieves any such Lender from ratably
absorbing any losses sustained with respect to the US Obligation (except to the
extent unilateral actions or inactions by any Lender result in US Borrower or
any other obligor on the US Obligation having any credit, allowance, set off,
defense, or counterclaim solely with respect to all or any part of that Lender's
part of the US Obligation), determined according to that Lender's Commitment
Percentage of the US Facility, or (b) gives any Lender under the UK Facility any
advantage over any other Lender under the UK Facility insofar as the UK
Obligation is concerned or relieves any such Lender from ratably absorbing any
losses sustained with respect to the UK Obligation (except to the extent
unilateral actions or inactions by any Lender result in UK Borrowers or any
other obligor on the UK Obligation having any credit, allowance, set off,
defense, or counterclaim solely with respect to all or any part of that Lender's
part of the UK Obligation), determined according to that Lender's Commitment
Percentage of the UK Facility.
16.4 DELEGATION OF DUTIES; RELIANCE. Lenders may perform any of their
------------------------------
duties or exercise any of their Rights under the Loan Documents by or through
the appropriate Agent, and Lenders and Agents may perform any of their duties or
exercise any of their Rights under the Loan Documents by or through their
respective Affiliates and Representatives. Each Agent and each Lender (and each
of their respective Representatives) (a) is entitled to rely upon (and shall be
protected in relying upon) any written or oral statement believed by it or them
to be genuine and correct and to have been signed or made by the proper Person
and, with respect to legal matters, upon opinion of counsel it has selected, (b)
is entitled to deem and treat each Lender as the owner and holder of its portion
of the US Obligation or the UK Obligation, as the case may be, for all purposes
until, written notice of the assignment or transfer is given to and received by
it (and any request, authorization, consent, or approval of any Lender is
conclusive and binding on each subsequent holder, assignee, or transferee of or
Participant in that Lender's portion of the US Obligation or the UK Obligation,
as the case may be, until that notice is given and received), (c) is not deemed
to have notice of the occurrence of an Event of Default unless a responsible
officer of that Agent or that Lender, as the case may be, who handles matters
associated with the Loan Documents and transactions thereunder, has actual
knowledge or has been notified by either Agent, a Lender, or a Borrower, and (d)
is entitled to consult with legal counsel (including counsel for any Borrower),
independent accountants, and other experts it has selected and is not liable for
any action taken or not taken in good faith by it in accordance with the advice
of counsel, accountants, or experts.
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16.5 LIMITATION OF AGENTS' LIABILITY.
-------------------------------
(a) EXCULPATION. Neither Agent nor any of its Affiliates or
-----------
Representatives will be liable for any action taken or omitted to be taken
by it or them under the Loan Documents in good faith and believed by it or
them to be within the discretion or power conferred upon it or them by the
Loan Documents or be responsible for the consequences of any error of
judgment (except for fraud, gross negligence, or willful misconduct), and
neither Agent nor any of its Affiliates or Representatives has a fiduciary
relationship with the other Agent or any Lender by virtue of the Loan
Documents (but nothing in this agreement negates the obligation of each
Agent to account for funds received by it for the account of any Lender).
(b) INDEMNITY. Unless indemnified to its satisfaction against loss,
---------
cost, liability, and expense, neither Agent may be compelled to do any act
under the Loan Documents or to take any action toward the execution or
enforcement of the powers thereby created or to prosecute or defend any
suit in respect of the Loan Documents. If an Agent requests instructions
from Lenders, or Required Lenders, as the case may be, with respect to any
act or action in connection with any Loan Document, that Agent is entitled
to refrain (without incurring any liability to any Person by so refraining)
from that act or action unless and until it has received instructions. In
no event, however, may an Agent or any of its Representatives be required
to take any action that it or they determine could incur for it or them
criminal or onerous civil liability. Without limiting the generality of
the foregoing, no Lender has any right of action against either Agent as a
result of an Agent's acting or refraining from acting under this agreement
in accordance with instructions of Required Lenders.
(c) RELIANCE. Neither Agent is responsible to any Lender or any
--------
Participant for, and each Lender represents and warrants that it has not
relied upon either Agent in respect of, (i) the creditworthiness of any
Company and the risks involved to that Lender, (ii) the effectiveness,
enforceability, genuineness, validity, or the due execution of any Loan
Document, (iii) any representation, warranty, document, certificate,
report, or statement made therein or furnished thereunder or in connection
therewith, (iv) the adequacy of any collateral now or hereafter securing
the Obligation or the existence, priority, or perfection of any Lien now or
hereafter granted or purported to be granted on the collateral under any
Loan Document, or (v) observation of or compliance with any of the terms,
covenants, or conditions of any Loan Document on the part of any Company.
EACH LENDER AGREES TO INDEMNIFY EACH AGENT AND ITS REPRESENTATIVES AND HOLD
THEM HARMLESS FROM AND AGAINST (BUT LIMITED TO SUCH LENDER'S COMMITMENT
PERCENTAGE OF THE US FACILITY AND THE UK FACILITY COMBINED) ANY AND ALL
LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
SUITS, COSTS, REASONABLE EXPENSES, AND REASONABLE DISBURSEMENTS OF ANY KIND
OR NATURE WHATSOEVER THAT MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED
BY THEM IN ANY WAY RELATING TO OR ARISING OUT OF THE LOAN DOCUMENTS OR ANY
ACTION TAKEN OR OMITTED BY THEM UNDER THE LOAN DOCUMENTS IF AGENT AND ITS
REPRESENTATIVES ARE NOT REIMBURSED FOR SUCH AMOUNTS BY ANY COMPANY.
ALTHOUGH EACH AGENT AND ITS REPRESENTATIVES HAVE THE RIGHT TO BE
INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN ORDINARY NEGLIGENCE,
NEITHER AGENT NOR ITS REPRESENTATIVES DO NOT HAVE THE RIGHT TO BE
INDEMNIFIED UNDER THIS AGREEMENT FOR ITS OR THEIR OWN FRAUD, GROSS
NEGLIGENCE, OR WILLFUL MISCONDUCT. Only as between Lenders (and not
Borrowers or any other Persons), their respective US-Facility Commitments
and UK-Facility Commitments are, for purposes of the calculations and
determinations required to be made under his agreement and in particular
for he purposes of the indemnity under this CLAUSE (C), deemed to have
survived any termination or cancellation under Section 15.
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16.6 EVENT OF DEFAULT. While an Event of Default exists, Lenders agree to
----------------
promptly confer in order that Required Lenders or Lenders, as the case may be,
may agree upon a course of action for the enforcement of the Rights of Lenders.
Each Agent is entitled to act or refrain from taking any action (without
incurring any liability to any Person for so acting or refraining) unless and
until it has received instructions from Required Lenders. In actions with
respect to any Company's property, each Agent is acting for the ratable benefit
of each Lender.
16.7 COLLATERAL MATTERS.
------------------
(a) Each Lender authorizes and directs each Agent to enter into the
Loan Documents for the Lender Liens and agrees that any action taken by an
Agent concerning any collateral (with the consent or at the request of
Required Lenders) in accordance with any Loan Document, that Agent's
exercise (with the consent or at the request of Required Lenders) of powers
concerning the collateral in any Loan Document, and that all other
reasonably incidental powers are authorized and binding upon all Lenders.
(b) Each Agent is authorized on behalf of all Lenders, without the
necessity of any notice to or further consent from any Lender, from time to
time before an Event of Default or Potential Default, to take any action
with respect to any collateral or Loan Documents related to collateral that
may be necessary to perfect and maintain perfected the Lender Liens upon
the collateral.
(c) Except to use the same standard of care that it ordinarily uses
for collateral for its sole benefit, neither Agent has any obligation
whatsoever to any Lender or to any other Person to assure that the
Collateral exists or is owned by any Company or is cared for, protected, or
insured or has been encumbered or that the Lender Liens have been properly
or sufficiently or lawfully created, perfected, protected, or enforced or
are entitled to any particular priority.
(d) Each Agent shall exercise the same care and prudent judgment with
respect to the collateral and the Loan Documents as it normally and
customarily exercises in respect of similar collateral and security
documents.
(e) Lenders irrevocably authorize each Agent, at its option and in
its discretion, to release any Lender Lien upon any collateral (i) in
accordance with SECTION 6.5, (ii) constituting property being disposed of
as permitted under any Loan Document, (iii) constituting property in which
no Company owned any interest at the time the Lender Lien was granted or at
any time after that, (iv) constituting property leased to any Company under
a lease that has expired or been terminated in a transaction permitted
under the Loan Documents or is about to expire and that has not been, and
is not intended by that Company to be, renewed, (v) consisting of an
instrument evidencing Debt pledged to that Agent (for the benefit of
Lenders), if the underlying Debt has been paid in full, or (vi) if
approved, authorized, or ratified in writing by Lenders. Upon request by
either Agent at any time, Lenders shall confirm in writing Administrative
Agent's authority to release particular types or items of collateral under
this CLAUSE (E).
16.8 LIMITATION OF LIABILITY. No Lender or any Participant will incur any
-----------------------
liability to any other Lender or Participant except for acts or omissions in bad
faith, and neither of the Agents nor any Lender or Participant will incur any
liability to any other Person for any act or omission of any other Lender or any
Participant.
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16.9 RELATIONSHIP OF LENDERS. The Loan Documents do not create a
-----------------------
partnership or joint venture between Agents and Lenders or any of them.
16.10 BENEFITS OF AGREEMENT. None of the provisions of this section inure
---------------------
to the benefit of any Company or any other Person except Agents and Lenders.
Therefore, no Company or any other Person is responsible or liable for, entitled
to rely upon, or entitled to raise as a defense -- in any manner whatsoever --
the failure of Agents or any Lender to comply with these provisions.
SECTION 17 MISCELLANEOUS.
- ------------------------
17.1 NONBUSINESS DAYS. Any payment or action that is due under any Loan
----------------
Document on a non-Business Day may be delayed until the next-succeeding Business
Day (but interest shall continue to accrue on any applicable payment until
payment is in fact made) unless the payment concerns a Euro-Rate Borrowing, in
which case if the next-succeeding Business Day is in the next calendar month,
then such payment shall be made on the next-preceding Business Day.
17.2 COMMUNICATIONS. Unless otherwise specifically provided, whenever any
--------------
Loan Document requires or permits any consent, approval, notice, request, or
demand from one party to another, com munication must be in writing (which may
be by telex or fax) to be effective and shall be deemed to have been given (a)
if by telex, when transmitted to the appropriate telex number and the
appropriate answer back is received, (b) if by fax, when transmitted to the
appropriate fax number (and all communications sent by fax must be confirmed
promptly thereafter by telephone; but any requirement in this parenthetical
shall not affect the date when the fax shall be deemed to have been delivered),
(c) if by mail, on the fifth Business Day after it is enclosed in an envelope
and properly addressed, stamped, sealed, and deposited in the appropriate
official postal service, or (d) if by any other means, when actually delivered.
Until changed by notice pursuant to this agreement, the address (and fax number)
for each Borrower and each Agent is stated beside their respective signatures to
this agreement (or to the amendment to this agreement entered into pursuant to
SECTION 7.2) and for each Lender is stated beside its name on SCHEDULE 1.
17.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
----------------------------
counterparts of each writing to be furnished under this agreement must be
satisfactory to Agents and their special counsel in the United States of America
and the United Kingdom.
17.4 EXCEPTIONS TO COVENANTS. No Company may take or fail to take any
-----------------------
action that is permitted as an exception to any of the covenants contained in
any Loan Document if that action or omission would result in the breach of any
other covenant contained in any Loan Document.
17.5 SURVIVAL. All covenants, agreements, undertakings, representations,
--------
and warranties made in any of the Loan Documents survive all closings under the
Loan Documents and, except as otherwise indicated, are not affected by any
investigation made by any party.
17.6 GOVERNING LAW. Unless otherwise stated in any Loan Document, the laws
-------------
of the State of Texas and of the United States of America govern the Rights and
duties of the parties to the Loan Documents and the validity, construction,
enforcement, and interpretation of the Loan Documents.
17.7 INVALID PROVISIONS. Any provision in any Loan Document held to be
------------------
illegal, invalid, or unenforceable is fully severable; the appropriate Loan
Document shall be construed and enforced as if that provision had never been
included; and the remaining provisions shall remain in full force and effect and
shall not be affected by the severed provision. Agents, Lenders, and each
Company party to the affected
Credit Agreement
----------------
67
<PAGE>
Loan Document agree to negotiate, in good faith, the terms of a replacement
provision as similar to the severed provision as may be possible and be legal,
valid, and enforceable.
17.8 CERTAIN REINSTATEMENT. If any payment or prepayment under any Loan
---------------------
Document is ever rescinded or must be restored or returned for any reason, then
all Rights and obligations under the Loan Documents in respect of that payment
or prepayment are automatically reinstated as though the payment or prepayment
had not been made when due.
17.9 AMENDMENTS, WAIVERS, CONSENTS, SUPPLEMENTS, AND CONFLICTS.
---------------------------------------------------------
(a) REQUIRED LENDERS. Unless otherwise specifically provided (i) the
----------------
provisions of this agreement may be amended and waivers and consents under
it may be given in writing executed by those Borrowers that are then party
to this agreement, Administrative Agent, and Required Lenders and
supplemented only by documents delivered or to be delivered in accordance
with the express terms of this agreement, and (ii) the other Loan Documents
may only be amended or waived and consents under them may be given if in
writing executed by the parties to that Loan Document that is also executed
or approved by Required Lenders.
(b) AGENTS, ISSUERS, AND OVERDRAFT LENDER. Any amendment, waiver, or
-------------------------------------
consent that increases either Agent's, either Issuer's, or Overdraft
Lender's obligations beyond its commitments under any Loan Document or
increases, reduces, or waives the late payment or non-payment of any fees
payable solely to it under SECTION 5.4 or 5.5 must be in writing executed
by it, Administrative Agent, and US Borrower in respect of the US Facility
or UK Borrowers in respect of the UK Facility.
(c) BGS AND LCS. Any LC may be renewed, extended, amended, replaced,
-----------
or canceled consistent with the terms of this agreement by writing executed
by the Issuer and the obligated Borrower if that writing is first approved
in writing by Administrative Agent.
(d) ALL LENDERS. Any amendment to or waiver or consent under this
-----------
agreement or any Loan Document that purports to accomplish any of the
following must be by an instrument in writing executed by those Borrowers
that are then party to it and by Agents and executed (or approved, as the
case may be) by each Lender: (i) Extends the due date, decreases the amount
of, or waives the late or non-payment of any scheduled payment or
amortization of principal or interest of any of the US Obligation or UK
Obligation or any fees payable ratably to Lenders under SECTIONS 5.2, 5.3,
or 5.4; (ii) decreases any rate or amount of interest under this agreement,
fees payable ratably to Lenders under SECTIONS 5.2, 5.3, or 5.4, or --
except as described in CLAUSE (B) above -- other sums payable to Lenders
under this agreement (except such adjustments or reductions as are
contemplated by this agreement); (iii) changes the definition of "UK-
FACILITY COMMITMENT," "US-FACILITY COMMITMENT," "COMMITMENT PERCENTAGE,"
"REQUIRED LENDERS," "UK-REVOLVING-COMMITMENT PERCENTAGE," or the
percentages in the definition of "BORROWING BASE;" (iv) increases any
Lender's UK-Facility Commitment or US-Facility Commitment; (v) waives
compliance with, amends, or fully or partially releases -- except as
expressly provided by SECTION 6.5 or any other Loan Documents or for when a
Company merges into another Person or dissolves when specifically permitted
in the Loan Documents -- any guaranty or collateral; or (vi) changes this
CLAUSE (D) or any other matter specifically requiring the consent of all
Lenders under this agreement.
(e) WAIVERS. No course of dealing or any failure or delay by either
-------
Agent, any Lender, or any of their respective Representatives with respect
to exercising any Right of either
Credit Agreement
----------------
68
<PAGE>
Agent or any Lender under any Loan Document operates as a waiver thereof.
A waiver must be in writing and signed by the parties otherwise indicated
in this SECTION 17.9 to be effective and will be effective only in the
specific instance and for the specific purpose for which it is given.
(f) CONFLICTS. Any conflict or ambiguity between the terms and
---------
provisions of this agreement and terms and provisions in any other Loan
Document is controlled by the terms and provisions of this agreement.
17.10 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in a number
---------------------
of identical counterparts (including, at Administrative Agent's discretion,
counterparts or signature pages executed and transmitted by fax) with the same
effect as if all signatories had signed the same document. All counterparts
must be construed together to constitute one and the same instrument.
17.11 PARTIES.
-------
(a) PARTIES BOUND. Each Loan Document binds and inures to the
-------------
parties to it, any intended beneficiary of it, and each of their respective
successors and permitted assigns. No Company may assign or transfer any
Rights or obligations under any Loan Document without first obtaining all
Lenders' consent, and any purported assignment or transfer without Lenders'
consent is void. No Lender may transfer, pledge, assign, sell any
participation in, or otherwise encumber its portion of the US Obligation or
the UK Obligation except as permitted by CLAUSES (b) or (c) below.
(b) PARTICIPATIONS. Any Lender may (subject to the provisions of
--------------
this section, in accordance with applicable Governmental Requirement, in
the ordinary course of its business, and at any time) sell to one or more
Persons (each a "PARTICIPANT") participating interests in its portion of
the US Obligation or the UK Obligation. The selling Lender remains a
"Lender" under the Loan Documents, the Participant does not become a
"Lender" under the Loan Documents, and the selling Lender's obligations
under the Loan Documents remain unchanged. The selling Lender remains
solely responsible for the performance of its obligations and remains the
holder of its share of the Principal Debt for all purposes under the Loan
Documents. Borrowers and Agents shall continue to deal solely and directly
with the selling Lender in connection with that Lender's Rights and
obligations under the Loan Documents, and each Lender must retain the sole
right and responsibility to enforce due obligations of the Companies.
Participants have no Rights under the Loan Documents except as provided
below. Subject to the following, each Lender may obtain (on behalf of its
Participants) the benefits of SECTION 4 with respect to all participations
in its part of the US Obligation or the UK Obligation outstanding from time
to time so long as no Borrower is obligated to pay any amount in excess of
the amount that would be due to that Lender under SECTION 4 calculated as
though no participations have been made. No Lender may sell any
participating interest under which the Participant has any Rights to
approve any amendment, modification, or waiver of any Loan Document except
as to matters in SECTION 17.9(D)(i) and (ii).
(c) ASSIGNMENTS. Each Lender may make assignments to the Federal
-----------
Reserve Bank. Each Lender may also assign to one or more assignees (each
an "ASSIGNEE") all or any part of its Rights and obligations under the Loan
Documents so long as (i) the assignor Lender and Assignee execute and
deliver to Administrative Agent and US Borrower in respect of the US
Obligation or UK Borrowers in respect of the UK Obligation for their
consent and acceptance (that may not be unreasonably withheld in any
instance and is not required if the Assignee is an Affiliate of the
assigning Lender) an assignment and assumption agreement in substantially
the form of EXHIBIT F (an "ASSIGNMENT") and pay to Administrative Agent a
processing fee of $3,500, (ii) the
Credit Agreement
----------------
69
<PAGE>
assignment must be for a minimum total amount of the Dollar Equivalent of
$5,000,000 (or less amount if acceptable to Administrative Agent) and, if
the assigning Lender retains any commitment in the facility in which the
Assignment was made, it must be a minimum commitment of the Dollar
Equivalent of $5,000,000 (or less amount if acceptable to Administrative
Agent), and (iii) the conditions for that assignment set forth in the
applicable Assignment are satisfied. The Effective Date in each Assignment
must (unless a shorter period is agreeable to US Borrower in respect of the
US Obligation or UK Borrowers in respect of the UK Obligation and
Administrative Agent) be at least five Business Days after it is executed
and delivered by the assignor Lender and the Assignee to Administrative
Agent and US Borrower in respect of the US Obligation or UK Borrowers in
respect of the UK Obligation for acceptance. Once that Assignment is
accepted by Administrative Agent and US Borrower in respect of the US
Obligation or UK Borrowers in respect of the UK Obligation, and subject to
all of the following occurring, then, on and after the Effective Date
stated in it (i) the Assignee automatically becomes a party to this
agreement and, to the extent provided in that Assignment, has the Rights
and obligations of a Lender under the Loan Documents, (ii) the assignor
Lender, to the extent provided in that Assignment, is released from its
obligations to fund Borrowings under this agreement for the facility the
subject of the assignment and its reimbursement obligations under this
agreement for that facility and, in the case of an Assignment covering all
of the remaining portion of the assignor Lender's Rights and obligations
under the Loan Documents, that Lender ceases to be a party to the Loan
Documents, (iii) the appropriate Borrower shall execute and deliver to the
assignor Lender and the Assignee the appropriate Notes in accordance with
this agreement following the transfer, (iv) upon delivery of the Notes
under CLAUSE (III) preceding, the assignor Lender shall return to the
appropriate Borrower all Notes previously delivered to that Lender under
this agreement for that facility, and (v) SCHEDULE 1 is automatically
deemed to be amended to reflect the name, address, telecopy number, UK-
Facility Commitment, and US-Facility Commitment of the Assignee and the
remaining UK-Facility Commitment and US-Facility Commitment (if any) of the
assignor Lender, and Administrative Agent shall prepare and circulate to
Borrowers and Lenders an amended SCHEDULE 1 reflecting those changes.
Notwithstanding the foregoing, no Assignee may be recognized as a party to
the Loan Documents (and the assigning Lender shall continue to be treated
for all purposes as the party to the Loan Documents) with respect to the
Rights and obligations assigned to that Assignee until the actions
described in CLAUSES (III) and (IV) have occurred. The US Obligation is
registered on the books of US Borrower as to both principal and any stated
interest, and transfers of (as opposed to participations in) principal and
interest of the US Obligation may only be made in accordance with this
SECTION 17.11. The UK Obligation is registered on the books of UK
Borrowers as to both principal and any stated interest, and transfers of
(as opposed to participations in) principal and interest of the UK
Obligation may only be made in accordance with this SECTION 17.11.
17.12 VENUE, SERVICE OF PROCESS, AND JURY TRIAL. BORROWERS, IN EACH CASE
-----------------------------------------
FOR THEMSELVES AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS, IRREVOCABLY (A)
SUBMIT TO THE NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN
TEXAS, (B) WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE GOVERNMENTAL
REQUIREMENTS, ANY OBJECTION THAT IT MAY NOW OR IN THE FUTURE HAVE TO THE LAYING
OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH ANY LOAN
DOCUMENT AND THE US OBLIGATION OR THE UK OBLIGATION BROUGHT IN THE DISTRICT
COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (C) WAIVE ANY CLAIMS THAT ANY
LITIGATION BROUGHT IN ANY OF THE FOREGOING COURTS HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM, (D) CONSENT TO THE SERVICE OF PROCESS OF ANY OF THOSE COURTS
IN ANY LITIGATION BY THE MAILING OF COPIES OF THAT PROCESS BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, POSTAGE PREPAID, BY HAND DELIVERY, OR BY DELIVERY BY A
NATIONALLY-RECOGNIZED COURIER SERVICE, AND
Credit Agreement
----------------
70
<PAGE>
SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL PROCESS AT ITS
ADDRESS FOR PURPOSES OF THIS AGREEMENT, (E) AGREE THAT ANY LEGAL PROCEEDING
AGAINST ANY PARTY TO ANY LOAN DOCUMENT ARISING OUT OF OR IN CONNECTION WITH THE
LOAN DOCUMENTS OR THE US OBLIGATION OR THE UK OBLIGATION MAY BE BROUGHT IN ONE
OF THE FOREGOING COURTS, AND (F) WAIVE TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE GOVERNMENTAL REQUIREMENTS, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT.
The scope of each of the foregoing waivers is intended to be all encompassing of
any and all disputes that may be filed in any court and that relate to the
subject matter of this transaction, including, without limitation, contract
claims, tort claims, breach of duty claims, and all other common law and
statutory claims. BORROWERS ACKNOWLEDGE THAT THESE WAIVERS ARE A MATERIAL
INDUCEMENT TO ADMINISTRATIVE AGENT'S AND EACH LENDER'S AGREEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT ADMINISTRATIVE AGENT AND EACH LENDER HAS ALREADY
RELIED ON THESE WAIVERS IN ENTERING INTO THIS AGREEMENT, AND THAT ADMINISTRATIVE
AGENT AND EACH LENDER WILL CONTINUE TO RELY ON EACH OF THESE WAIVERS IN RELATED
FUTURE DEALINGS. BORROWERS FURTHER WARRANT AND REPRESENT THAT THEY HAVE
REVIEWED THESE WAIVERS WITH THEIR LEGAL COUNSEL, AND THAT THEY KNOWINGLY AND
VOLUNTARILY AGREE TO EACH WAIVER FOLLOWING CONSULTATION WITH LEGAL COUNSEL. The
waivers in this section are irrevocable, meaning that they may not be modified
either orally or in writing, and these waivers apply to any future renewals,
extensions, amendments, modifications, or replacements in respect of the
applicable Loan Document. In connection with any Litigation, this agreement may
be filed as a written consent to a trial by the court.
17.13 INFORMATION REGARDING BORROWERS. Borrowers hereby acknowledge and
-------------------------------
agree that Lenders may discuss the financial condition and other information
regarding any Borrowers' business affairs with each other, any Assignee, any
Participant, or any prospective Assignee or Participant.
17.14 ENTIRETY. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
--------
BORROWERS, LENDERS, AND ADMINISTRATIVE AGENT AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGES FOLLOW.
Credit Agreement
----------------
71
<PAGE>
EXECUTED as of the date first stated above.
Plasma & Materials Technologies, Inc.
9255 Deering Avenue
Chatsworth, CA 91311
Attn: John W. LaValle, Vice President,
Chief Financial Officer, and
Secretary
Tel: 818/886-8000
Fax: 818/886-8756
Electrotech Limited
Thornbury Laboratories
Littleton-Upon-Severn
Thornbury, Bristol BS12-INP
United Kingdom
Attn: Jeremy Linnert,
Treasurer
Tel: 011 44 163 341 4000
Fax: 011 44 163 341 4040
Electrotech Equipments Limited
Thornbury Laboratories
Littleton-Upon-Severn
Thornbury, Bristol BS12-INP
United Kingdom
Attn: Jeremy Linnert,
Treasurer
Tel: 011 44 163 341 4000
Fax: 011 44 163 341 4040
PLASMA & MATERIALS
TECHNOLOGIES, INC., as US Borrower
By /s/ John W. LaValle
----------------------------------
John W. LaValle, Vice President
ELECTROTECH LIMITED, as a
UK Borrower
By /s/
----------------------------------
Name:
---------------------------
Title:
---------------------------
ELECTROTECH EQUIPMENTS
LIMITED, as a UK Borrower
By /s/
----------------------------------
Name:
---------------------------
Title:
---------------------------
Page One of Two Signature Pages to Credit Agreement
<PAGE>
NationsBank of Texas, N.A.
67th Floor, NationsBank Plaza
901 Main Street
Dallas, Texas. 75202
Attn: Stan W. Reynolds, Vice
President
Tel: 214/508-3399
Fax: 214/508-9880
LLOYDS BANK PLC, as UK-Collateral
Agent and a Lender
By /s/
----------------------------------
Name:
---------------------------
Title:
---------------------------
NATIONSBANK OF TEXAS, N.A., as
Administrative Agent and a Lender
By /s/ Stan W. Reynolds
----------------------------------
Stan W. Reynolds, Vice President
SILICON VALLEY BANK, as a Lender
By /s/ Doug Rosenthal
-------------------------------------
Doug Rosenthal, Senior Vice President
Page Two of Two Signature Pages to Credit Agreement
<PAGE>
SECURITY AGREEMENT
------------------
THIS AGREEMENT is executed as of November 15, 1996, by PLASMA & MATERIALS
TECHNOLOGIES, INC., a California corporation ("DEBTOR"), for the benefit of
NATIONSBANK OF TEXAS, N.A., a national banking association (in its capacity as
Administrative Agent for the Lenders now or in the future party to the Credit
Agreement described below, "SECURED PARTY").
Plasma & Materials Technologies, Inc., Electrotech Limited, Electrotech
Equipments Limited, Lenders, Lloyds Bank Plc, as "UK-Collateral Agent" for the
Lenders, and Secured Party have executed the Credit Agreement (as renewed,
extended, amended, or restated, the "CREDIT AGREEMENT") dated as of November 15,
1996, and certain other Loan Documents. The execution and delivery of this
agreement is a requirement to Secured Party's and Lenders' execution of the
Credit Agreement and other Loan Documents, is integral to the transactions
contemplated by the Loan Documents, and is a condition precedent to Lenders'
obligations to extend credit under the Credit Agreement.
ACCORDINGLY, for adequate and sufficient consideration, Debtor agrees with
Secured Party for the benefit of Lenders as follows:
1. DEFINITIONS. Terms defined in the Credit Agreement or the UCC have
-----------
the same meanings when used -- unless otherwise defined --in this agreement. If
the definition given a term in the Credit Agreement conflicts with the
definition given that term in the UCC, then the Credit Agreement definition
controls to the extent lawful. If the definition given a term in Chapter 9 of
the UCC conflicts with the definition given that term in any other chapter of
the UCC, then the Chapter 9 definition controls. Furthermore, as used in this
agreement:
"ACCOUNTS" means all of Debtor's accounts, instruments, receivables,
accounts receivable, chattel paper, documents, and book debts arising from its
sale or lease of goods or rendition of services, including, without limitation,
all (a) amounts due to it from a factor, (b) returned, reclaimed, refused, or
repossessed goods, and (c) books and records pertaining to, and security and
guaranties for, any of the foregoing.
"CHATTEL PAPER" means any "chattel paper," as that term is defined in
Chapter 9 of the UCC.
"COLLATERAL" is defined in PARAGRAPH 4 below.
"CREDIT AGREEMENT" is defined in the recitals to this agreement.
"DEBTOR" is defined in the preamble to this agreement and includes, without
limitation, Debtor, Debtor as a debtor-in-possession, and any receiver, trustee,
liquidator, conservator, custodian, or similar party appointed for Debtor or for
all or substantially all of Debtor's assets under any Debtor Law.
"DOCUMENT" means any "document," as that term is defined in Chapter 9 of
the UCC, including, without limitation, all documents of title and warehouse
receipts of Debtor.
"EQUIPMENT" means any "equipment," as that term is defined in Chapter 9 of
the UCC, and, in any event, includes, without limitation, all machinery,
equipment, furnishings, and fixtures and any and all additions, substitutions,
and replacements of any of the foregoing, wherever located, together with all
attachments, components, parts, equipment, and accessories installed thereon or
affixed thereto.
<PAGE>
"FINANCING STATEMENT" means a financing statement executed by Debtor and
Secured Party for filing in the jurisdictions listed in SCHEDULE 7.1 to the
Credit Agreement, and in substantially the form of EXHIBIT C-3 to the Credit
Agreement.
"GENERAL INTANGIBLES" means any "general intangibles," as that term is
defined in Chapter 9 of the UCC, and, in any event, includes, without
limitation, each of the following: (a) All of Debtor's patents, patent
applications, patent rights, service marks, trademarks, trade names, trade
secrets, intellectual property, registrations, goodwill, copyrights, franchises,
licenses, permits, proprietary information, customer lists, designs, and
inventions; (b) all of Debtor's books, records, data, plans, manuals, computer
software, and computer programs; (c) all of Debtor's contract rights,
partnership interests and joint venture interests (but only to the extent not
otherwise pledged to the Administrative Agent pursuant to a separate pledge or
security agreement), deposit accounts, investment accounts, and certificates of
deposit; (d) all rights of Debtor to payment under letters of credit and similar
agreements; (e) all tax refunds and tax refund claims of Debtor; (f) all choices
in action and causes of action of Debtor (whether arising in contract, tort, or
otherwise and whether or not currently in litigation) and all judgments in favor
of Debtor; (g) all rights and claims of Debtor under warranties and indemnities;
and (h) all rights of Debtor under any insurance, surety, or similar contract or
arrangement.
"INSTRUMENT" means any "instrument," as that term is defined in Chapter 9
of the UCC.
"INVENTORY" means all of Debtor's inventory, including, without limitation,
all present and future (a) materials, goods and work-in-process, finished goods,
and other tangible property held for sale or lease or being processed for sale
or lease in its present or future business, whether to be furnished under
contracts or used or consumed in Debtor's business, (b) documents (including
documents of title) covering any of the foregoing, and (c) such property the
sale or other disposition of which has given rise to accounts and which has not
been returned to or repossessed or stopped in transit by Debtor.
"INVESTMENT PROPERTY" means "investment property," as that term is defined
in Section 9.115(a)(6) of the UCC.
"OBLIGOR" means any Person obligated with respect to any of the Collateral,
whether as a party to a contract, an account debtor, issuer of any securities,
or otherwise.
"PLEDGED SECURITIES" means 100% of all capital stock now or in the future
issued by each present and future Domestic Subsidiary of Debtor and 65% of all
present and future capital stock now or in the future issued by each present and
future Foreign Company that is a direct Subsidiary of any Debtor.
"SECURED OBLIGATION" means the "US Obligation," the "UK Obligation" (as
each is defined in the Credit Agreement), and Debtor's guarantee of the UK
Obligation, including, without limitation, all present and future indebtedness,
liabilities, and obligations of Debtor arising under this agreement, and all
present and future costs, attorneys' fees, and expenses reasonably incurred by
Secured Party or any Lender to enforce Debtor's or any other obligor's payment
of any of the US Obligation or the UK Obligation, including, without limitation
(to the extent lawful), all present and future amounts that would become due but
for the operation of (S)(S) 502 or 506 or any other provision of Title 11 of the
United States Code and all present and future accrued and unpaid interest
(including, without limitation, all post-petition interest if Debtor voluntarily
or involuntarily becomes subject to Debtor Law).
"SECURED PARTY" is defined in the preamble to this agreement and includes
its successor appointed under SECTION 16 of the Credit Agreement and acting as
Administrative Agent for Lenders under the Loan Documents.
2
<PAGE>
"SECURITY INTEREST" means the security interests granted and the transfers,
pledges, and assignments made under PARAGRAPH 2 below, which is a "Lender Lien,"
as defined in the Credit Agreement.
"UCC" means the Uniform Commercial Code as adopted in Texas or any other
applicable jurisdiction.
2. SECURITY INTEREST. To secure the prompt, unconditional, and complete
-----------------
payment and performance of the Secured Obligation when due, Debtor grants to
Secured Party a security interest in the Collateral pledges and collaterally
transfers and assigns that Collateral to Secured Party, all upon and subject to
the terms and conditions of this agreement. If the grant, pledge, or collateral
transfer or assignment of any specific item of the Collateral is expressly
prohibited by any contract, then the Security Interest nonetheless remains
effective to the extent allowed by UCC (S) 9.318 or other applicable
Governmental Requirements but is otherwise limited by that prohibition.
3. NO ASSUMPTION OR MODIFICATION. The Security Interest is given as
-----------------------------
security only in order to secure the prompt, unconditional, and complete payment
and performance of the Secured Obligation when due. Neither Secured Party nor
any Lender assumes or may become liable for Debtor's liabilities, duties, or
obligations under or in connection with the Collateral. Neither Secured Party's
acceptance of this agreement nor its taking any action in carrying out this
agreement, constitutes Secured Party's approval of the Collateral or Secured
Party's assumption of any obligation under or in connection with the Collateral.
This agreement does not affect or modify Debtor's obligations with respect to
any Collateral.
4. COLLATERAL. The term "COLLATERAL" means the following items and types of
----------
property --wherever located and now or in the future acquired or existing:
. All of Debtor's Accounts, Chattel Paper, Documents, Equipment, General
Intangibles, Instruments, Investment Property, Inventory, and Pledged
Securities; and
. All cash and noncash proceeds of any other Collateral, including,
without limitation, all cash, accounts, general intangibles, documents,
instruments, chattel paper, goods, and any other property received upon the
sale or disposition of any other Collateral and all insurance proceeds of
any kind paid at any time in connection with any other Collateral.
5. FRAUDULENT CONVEYANCE. Notwithstanding any contrary provision,
---------------------
Debtor agrees that, if -- but for the application of this paragraph -- any of
the Secured Obligation or the Security Interest would constitute a preferential
transfer under 11 U.S.C. (S) 547, a fraudulent conveyance under 11 U.S.C. (S)
548, or a fraudulent conveyance or transfer under any state fraudulent
conveyance, fraudulent transfer, or similar Governmental Requirement in effect
from time to time (each a "FRAUDULENT CONVEYANCE"), then the Secured Obligation
and Security Interest remains enforceable to the maximum extent possible without
causing any of the Secured Obligation or the Security Interest to be a
fraudulent conveyance, and this agreement is automatically amended to carry out
the intent of this paragraph.
6. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
------------------------------
Secured Party on behalf of Lenders that:
(a) Borrowing Base. Any item of Collateral submitted or represented
--------------
to Secured Party as being eligible under the Credit Agreement to be included in
the Borrowing Base fully meets the requirements for eligibility provided in the
Credit Agreement.
3
<PAGE>
(b) Binding Obligation. This agreement creates a legal, valid, and
------------------
binding Lender Lien in and to the Collateral (subject to delivery to Secured
Party of the stock certificates for the Pledged Securities) in favor of Secured
Party and enforceable against Debtor. For Collateral in which the Security
Interest may be perfected by the filing of Financing Statements, once those
Financing Statements have been properly filed in the jurisdictions described on
SCHEDULE 7.1 to the Credit Agreement, the Security Interest in that Collateral
will be fully perfected. For the Pledged Securities, the taking by Secured
Party of physical possession in Texas of Documents, Instruments, Chattel Paper,
and the stock certificates representing the Pledged Securities will perfect the
Security Interest in that Collateral. Once perfected, the Security Interest
will constitute a first-priority Lender Lien on the Collateral, subject only to
Permitted Liens. The creation of the Security Interest does not require the
consent of any Person that has not been obtained.
(c) Locations. The attached ANNEX 1 accurately describes (i) the
---------
location of Debtor's principal place of business and chief executive office,
(ii) if different from CLAUSE (I), the one or more locations of its books and
records concerning its Accounts, (iii) the locations where any of its Inventory
and Equipment (except when temporarily in the hands of a third-party contractor
for processing and until sold in the ordinary course of business) is currently
and will -- subject to PARAGRAPH 7(A) below -- in the future be maintained.
Except as stated in CLAUSE (III) above, Debtor's Inventory is currently and will
be in its possession. All Instruments and Chattel Paper have been delivered to
Secured Party.
(d) Accounts. Debtor's Accounts (i) arise from its sales or rendition
--------
of services, (ii) are due to Debtor, and (iii) are not, if represented to be
eligible for inclusion in the Borrowing Base, subject to any material setoff,
counterclaim, defense, allowance, adjustment (other than discounts for prompt
payment shown on the invoice), or material dispute, objection, or complaint by
any Obligor.
(e) Securities. All Pledged Securities are duly authorized, validly
----------
issued, fully paid, and non-assessable, and the transfer of them is not subject
to any restrictions other than restrictions imposed by applicable Governmental
Requirements.
(f) Additional Collateral. The foregoing representations and
---------------------
warranties will be true and correct in all respects with respect to any
additional Collateral or additional specific descriptions of certain Collateral
delivered to Secured Party in the future by Debtor.
The failure of any of these representations or warranties to be accurate and
complete does not impair the Security Interest in any Collateral.
7. COVENANTS. While any Lender is committed to lend or extend credit
---------
under the Credit Agreement and until the Secured Obligation is fully paid and
performed, Debtor covenants and agrees with Secured Party on behalf of Lenders
that, without first obtaining Secured Party's written notice of Required
Lenders' consent to the contrary:
(a) Certain Relocations and Changes. Debtor shall give Secured Party
-------------------------------
30-days-written notice before any proposed (i) relocation of its principal place
of business or chief executive office, (ii) change of its name, (iii) relocation
of the place where its books and records concerning its Accounts are kept, and
(iv) relocation of any Collateral (other than delivery of Inventory in the
ordinary course of business to third-party contractors for processing and sales
of Inventory in the ordinary course of business or as permitted by the Credit
Agreement) to a location not described on the attached ANNEX 1.
4
<PAGE>
(b) Estoppel and Other Agreements and Matters. Debtor shall:
-----------------------------------------
(i) With respect to any of its Inventory that is Eligible
Demonstration Systems and is in the possession of any customer of Debtor
solely for demonstration purposes, deliver to Secured Party a bailee and
estoppel agreement in substantially the form of EXHIBIT C-5 to the Credit
Agreement providing that such customer or potential customer holds that
Inventory as Secured Party's bailee, claims no ownership interest in that
Inventory, will release that Inventory only to Debtor or Secured Party, and
acknowledges that such Inventory is not and shall not become fixtures, and
is not and shall not become subject to any Lien imposed by that customer,
which agreement must otherwise be in form and substance reasonably
acceptable to Secured Party and its special counsel; and
(ii) Either (A) cause the landlord or lessor for each location
where any of its Inventory is maintained to execute and deliver to Secured
Party an estoppel and subordination agreement in substantially the form of
EXHIBIT C-4 to the Credit Agreement or such other form as may be reasonably
acceptable to Secured Party and its special counsel, or (B) deliver to
Secured Party a legal opinion or other evidence (in each case that is
reasonably satisfactory to Secured Party and it special counsel) that
neither the applicable lease nor the Governmental Requirements of the
jurisdiction in which that location is situated provide for contractual,
common law, or statutory landlord's Liens that is senior to the Security
Interest.
(c) Other Notices and Actions. Debtor shall promptly notify Secured
-------------------------
Party of (i) any change in any material fact or circumstance represented or
warranted by Debtor with respect to any of the Collateral, and (ii) any claim,
action, or proceeding challenging the Security Interest or affecting title to
all or any material portion of the Collateral or the Security Interest (and, at
Secured Party's request, Debtor shall appear in and defend any such action or
proceeding at Debtor's expense). In case of any default or event of default by
any other party under or in connection with any material portion (individually
or collectively) of the Collateral, Debtor shall immediately use reasonable
efforts to remedy the same or immediately demand that the same be remedied),
(d) Record of Collateral. Debtor shall maintain at its chief executive
--------------------
office a current record of where all of its Collateral is located and permit
Secured Party or its representatives to inspect and make copies from those
records pursuant to the Credit Agreement and furnish to Secured Party upon
request, from time to time, such documents, lists, descriptions, certificates,
and other information necessary or helpful to keep Secured Party informed with
respect to the identity, location, status, condition, terms of, parties to, and
value of the Collateral.
(e) Collateral In Trust. While an Event of Default or Potential
-------------------
Default exists, Debtor shall upon request of Secured Party (unless prevented by
operation of applicable Governmental Requirements from making that request, in
which event Debtor shall) (i) hold in trust (and not commingle with its other
assets) for Secured Party all of its Collateral that is chattel paper,
instruments, or documents of title at any time received by it, (ii) promptly
deliver that Collateral to Secured Party unless Secured Party at its option
gives Debtor written permission to retain any of it, and (iii) cause each
chattel paper, instrument, or document of title so retained to be marked to
state that it is assigned to Secured Party and each instrument to be endorsed to
the order of Secured Party (but failure to be so marked or endorsed may not
impair the Security Interest in any such Collateral).
(f) Perform Obligation. Debtor shall perform all of its material
------------------
obligations under or in connection with all of its Collateral in accordance with
customary business practices.
5
<PAGE>
(g) Impairment of Collateral. Debtor shall not do or permit any act
that is reasonably likely to adversely impair the value or usefulness any
material portion of any Collateral.
8. REMEDIES UPON DEFAULT. While an Event of Default exists, Secured
---------------------
Party is, subject to Credit Agreement, entitled to exercise any one or more of
the following Rights.
(a) Rights. Secured Party may exercise any and all Rights available
------
to a secured party under the UCC, in addition to any and all other Rights
afforded by this agreement and the other Loan Documents, at law, in equity, or
otherwise, including, without limitation (i) requiring Debtor to assemble
Collateral and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to Debtor and Secured Party, (ii)
applying by appropriate judicial proceedings for appointment of a receiver for
Collateral, (iii) applying to the Secured Obligation any cash held by Secured
Party under this agreement, (iv) reducing any claim to judgment, (v) exercising
the Rights of offset or banker's Lien against the interest of Debtor in and to
every account and other property of Debtor in Secured Party's possession to the
extent of the full amount of the Secured Obligation, (vi) foreclosing the
Security Interest and any other Liens Secured Party may have or otherwise
realize upon any and all of the Rights Secured Party may have in and to
Collateral, and (vii) bringing suit or other proceedings before any Governmental
Authority either for specific performance of any covenant or condition contained
in any of the Loan Documents or in aid of the exercise of any Right granted to
Secured Party in any Loan Document.
(b) Notice. If any Collateral threatens to decline speedily in value
------
or is of the type customarily sold on a recognized market, Secured Party may
sell or otherwise dispose of that Collateral without notification,
advertisement, or other notice of any kind. Otherwise, reasonable notice of the
time and place of any public sale of the Collateral -- or reasonable
notification of the time after which any private sale or other intended
disposition of the Collateral is to be made -- shall be sent to Debtor and to
any other Person entitled to notice under the UCC. Notice sent or given not
less than ten calendar days prior to the taking of the action to which the
notice relates is reasonable notice. It is not necessary that the Collateral be
at the location of the sale.
(c) Sales of Securities. In connection with the sale of any
-------------------
Collateral that is securities, Secured Party is authorized, but not obligated,
to limit prospective purchasers to the extent deemed necessary or desirable by
Secured Party to render that sale exempt from the registration and similar
requirements under applicable Governmental Requirements, and no sale so made in
good faith by Secured Party may be deemed not to be "commercially reasonable"
because so made.
(d) Other Sales. Secured Party's sale of less than all Collateral
-----------
does not exhaust Secured Party's Rights under this agreement and Secured Party
is specifically empowered to make successive sales until all Collateral is sold.
If the proceeds of a sale of less than all Collateral is less than the Secured
Obligation, then this agreement and the Security Interest remain in full force
and effect as to the unsold portion of the Collateral just as though no sale had
been made. In the event any sale under this agreement is not completed or is,
in Secured Party's opinion, defective, that sale does not exhaust Secured
Party's Rights under this agreement, and Secured Party is entitled to cause a
subsequent sale or sales to be made. All statements of fact or other recitals
made in any bill of sale or assignment or other instrument evidencing any
foreclosure sale under this agreement -- whether about nonpayment of the Secured
Obligation, the occurrence of any Event of Default, Secured Party's having
declared all of the Secured Obligation to be due and payable, notice of time,
place, and terms of sale and the properties to be sold having been duly given,
or any other act or thing having been duly done by Secured Party -- shall be
taken as prima facie evidence of the truth of the facts so stated and recited.
Secured Party may appoint or delegate any one or more Persons as agent to
perform any act or acts necessary or incident to any sale
6
<PAGE>
held by Secured Party, including the sending of notices and the conduct of sale,
but such acts must be done in the name and on behalf of Secured Party.
(e) Obligors. While an Event of Default exists, Secured Party may
--------
notify or require each Obligor to make payment directly to Secured Party, and
Secured Party may take control of the proceeds paid to Secured Party. Until
Secured Party elects to exercise these Rights, Debtor is authorized to collect
and enforce the Collateral and to retain and expend all payments made on
Collateral. While Secured Party is entitled to and elects to exercise these
Rights, Secured Party has the Right in its own name or in the name of Debtor to
(i) compromise or extend time of payment with respect to Collateral for such
amounts and upon such terms as Secured Party may reasonably determine, (ii)
demand, collect, receive, receipt for, sue for, compound, and give acquittance
for any and all amounts due or to become due with respect to Collateral, (iii)
take control of cash and other proceeds of any Collateral, (iv) endorse Debtor's
name on any notes, acceptances, checks, drafts, money orders, or other evidences
of payment on Collateral that may come into Secured Party's possession, (v) sign
Debtor's name on any invoice or bill of lading relating to any Collateral, on
any drafts against Obligors or other Persons making payment with respect to
Collateral, on assignments and verifications of accounts or other Collateral,
and on notices to Obligors making payment with respect to Collateral, (vi) send
requests for verification of obligations to any Obligor, and (vii) do all other
acts and things reasonably necessary to carry out the intent of this agreement.
If any Obligor fails to make payment on any Collateral when due while an Event
of Default exists, Secured Party is authorized, in its sole discretion, either
in its own name or in Debtor's name, to take such action as Secured Party
reasonably shall deem appropriate for the collection of any amounts owed with
respect to Collateral or upon which a delinquency exists. However, Secured
Party is neither (x) liable for its failure to collect, or for its failure to
exercise diligence in the collection of, any amounts owed with respect to
Collateral (except for its own fraud, gross negligence, willful misconduct, or
violation of any applicable Governmental Requirement), nor (y) under any duty
whatever to anyone except Debtor and Lenders to account for funds that it shall
actually receive under this agreement. A receipt given by Secured Party to any
Obligor is a full and complete release, discharge, and acquittance to that
Obligor, to the extent of any amount so paid to Secured Party. While an Event
of Default exists, Secured Party may apply or set off amounts paid and the
deposits against any liability of Debtor to Secured Party. Regarding the
existence of any Event of Default for purposes of this agreement, Debtor agrees
that the Obligors on any Collateral may rely upon written certification from
Secured Party that an Event of Default exists.
(f) Power-of-Attorney. Secured Party is deemed to be irrevocably
-----------------
appointed as Debtor's agent and attorney-in-fact with all Right to enforce all
of Debtor's Rights under or in connection with the Collateral effective and
operable at all times while an Event of Default exists. All reasonable costs,
expenses, and liabilities incurred and all payments made by Secured Party as
Debtor's agent and attorney-in-fact (including, without limitation, reasonable
attorney's fees and expenses) are considered a loan by Secured Party to Debtor
that is repayable on demand, accrues interest at the Default Rate until paid,
and is part of the Secured Obligation.
(g) Application of Proceeds. While an Event of Default exists,
-----------------------
Secured Party shall apply the proceeds of any sale or other disposition of
Collateral in the following order: (i) Payment of all its reasonable expenses
incurred in retaking, holding, and preparing any Collateral for disposition, in
arranging for such disposition, and in actually disposing of the same (all of
which are part of the Secured Obligation); (ii) repayment of amounts reasonably
expended by Secured Party under PARAGRAPH 9 below; (iii) payment of the balance
of the Secured Obligation in the order and manner specified in the Credit
Agreement; and (iv) delivery either (A) to Debtor for its account or (B) as a
court of competent jurisdiction may direct.
7
<PAGE>
9. OTHER RIGHTS.
------------
(a) Performance. If Debtor fails to preserve the priority (subject to
-----------
Permitted Liens) of the Security Interest in any Collateral or otherwise fails
to perform any of its obligations under any Loan Document with respect to any
Collateral, then Secured Party may, at its option, but without being required to
do so, after five Business Days or earlier, if Secured Party in its reasonable
judgment deems it necessary, prosecute or defend any suits in relation to the
Collateral or take any other action that Debtor is required -- but has failed --
to take. Any amount that is reasonably expended or paid by Secured Party in
connection with the foregoing (including, without limitation, court costs and
reasonable attorneys' fees and expenses) bears interest at the Default Rate from
the date spent or incurred until repaid and is payable (with that interest) by
Debtor to Secured Party upon demand and is part of the Secured Obligation.
(b) Collateral in Secured Party's Possession. If, while an Event of
----------------------------------------
Default exists, any Collateral comes into Secured Party's possession, Secured
Party may use that Collateral for the purpose of preserving it or its value
pursuant to the order of a court of appropriate jurisdiction or in accordance
with any other Rights held by Secured Party in respect of that Collateral.
Debtor covenants to promptly reimburse and pay to Secured Party, at Secured
Party's request, the amount of all reasonable expenses, costs, Taxes, and other
charges incurred by Secured Party in connection with its custody and
preservation of that Collateral, all of which bear interest at the Default Rate
from the date spent or incurred until repaid and are (with that interest)
payable by Debtor to Secured Party upon demand and are part of the Secured
Obligation. Except for Secured Party's own fraud, gross negligence, or willful
misconduct (i) the risk of accidental loss or damage to, or diminution in value
of, any Collateral is on Debtor, (ii) Secured Party has no liability for
failure to obtain or maintain insurance or to determine whether any insurance in
effect is adequate as to amount or risks insured, (iii) Secured Party has no
duty to fix or preserve Rights against any Obligors in respect of any Collateral
and is never liable for any failure to use diligence to collect any amount
payable in respect of any Collateral (other than to account to Debtor and
Lenders for what Secured Party may actually collect or receive).
(c) Record Ownership of Securities. While an Event of Default exists,
------------------------------
Secured Party may have any Collateral that is securities and that is in the
possession of Secured Party, or its nominee or nominees, registered in its name,
or in the name of its nominee or nominees, as pledgee.
(d) Voting of Securities. As long as no Event of Default exists,
--------------------
Debtor may exercise all voting Rights pertaining to any Collateral that is
securities. While an Event of Default exists, the Right to vote any Collateral
that is securities is vested exclusively in Secured Party. Accordingly, Debtor
irrevocably constitutes and appoints Secured Party as Debtor's proxy and
attorney-in-fact -- effective only after notice to Debtor while an Event of
Default exists but with full power of substitution -- to vote, and to act with
respect to, any Collateral that is securities standing in the name of Debtor or
with respect to which Debtor is entitled to vote and act. That proxy is coupled
with an interest, is irrevocable, and continues until the Secured Obligation is
fully paid and performed.
(e) Certain Proceeds. The provisions of this CLAUSE (E) are applicable
----------------
only while an Event of Default exists. Notwithstanding any contrary provision,
all dividends or distributions of property in respect of, and all proceeds of,
any Collateral that is securities -- whether those dividends, distributions, or
proceeds result from a subdivision, combination, or reclassification of the
outstanding capital stock of any issuer or as a result of any merger,
consolidation, acquisition, or other exchange of assets to which any issuer may
be a party, or otherwise -- are part of the Collateral, shall, if received by
Debtor, be held in trust for Secured Party's benefit, and shall immediately be
delivered to Secured Party (accompanied by proper instruments of assignment or
stock or bond powers executed by Debtor in accordance with Secured Party's
instructions) to be held subject to the terms of this agreement. Any cash
proceeds of any
8
<PAGE>
Collateral that come into Secured Party's possession (including, without
limitation, insurance proceeds) may, at Secured Party's option, be applied in
whole or in part to the Secured Obligation (to the extent then due), be fully or
partially released to or under the written instructions of Debtor for any
general or specific purpose, or be fully or partially retained by Secured Party
as additional Collateral. Any cash Collateral in Secured Party's possession may
be invested by Secured Party in certificates of deposit issued by Secured Party,
any Lender, or any other state or national bank having combined capital and
surplus greater than $100,000,000 or in securities issued or guaranteed by the
United States of America or any of its agencies. Secured Party is never
obligated to make any investment and never has any liability to Debtor or any
Lender for any loss that may result from any investment or non-investment. All
interest and other amounts earned from any investment may be dealt with by
Secured Party in the same manner as other cash Collateral.
(f) INDEMNIFICATION. DEBTOR ASSUMES ALL LIABILITY FOR ALL COLLATERAL,
---------------
FOR THE SECURITY INTEREST, AND FOR ANY USE, POSSESSION, MAINTENANCE, AND
MANAGEMENT OF, ALL COLLATERAL (INCLUDING, WITHOUT LIMITATION, ANY TAXES ARISING
AS A RESULT OF, OR IN CONNECTION WITH, THE TRANSACTIONS CONTEMPLATED IN THIS
AGREEMENT) AND AGREES TO ASSUME LIABILITY FOR, AND TO INDEMNIFY AND HOLD SECURED
PARTY, EACH LENDER, AND THEIR RESPECTIVE REPRESENTATIVES (THE "INDEMNIFIED
-----------
PARTIES") HARMLESS FROM AND AGAINST, AND DEFEND EACH INDEMNIFIED PARTY AGAINST,
- -------
ALL CLAIMS, CAUSES OF ACTION, OR LIABILITY, FOR INJURIES TO OR DEATHS OF PERSONS
AND DAMAGE TO PROPERTY HOWSOEVER ARISING FROM OR INCIDENT TO SUCH USE,
POSSESSION, MAINTENANCE, AND MANAGEMENT (WHETHER SUCH PERSONS BE AGENTS OR
EMPLOYEES OF DEBTOR OR OF THIRD PARTIES, OR SUCH DAMAGE BE TO PROPERTY OF DEBTOR
OR OF OTHERS) AND ALL CLAIMS, COSTS, PENALTIES, LIABILITIES, AND EXPENSES,
INCLUDING, WITHOUT LIMITATION, COURT COSTS AND ATTORNEYS' FEES, HOWSOEVER
ARISING OR INCURRED BECAUSE OF, INCIDENT TO, OR WITH RESPECT TO COLLATERAL OR
ANY USE, POSSESSION, MAINTENANCE, OR MANAGEMENT OF IT. (THE "INDEMNIFIED
-----------
LIABILITIES"). HOWEVER, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNITY UNDER THIS
- -----------
PARAGRAPH FOR ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD OR FOR ANY
INDEMNIFIED LIABILITY ARISING FROM ITS ACTIONS AFTER SECURED PARTY HAS
FORECLOSED THE SECURITY INTEREST OR ACCEPTED CONVEYANCE IN LIEU OF FORECLOSURE
OR (EXCEPT FOR THE PLEDGED SECURITIES) TAKEN POSSESSION OF ANY COLLATERAL. The
------
provisions of this paragraph survive the payment and performance of the Secured
Obligation and the release of the Security Interest. The foregoing indemnity
shall be subject to the provisions of Section 9.12 of the Credit Agreement.
(10) MISCELLANEOUS.
-------------
(a) Term. This agreement terminates when no Lender has any commitment
----
to lend or extend credit under the Credit Agreement and the Secured Obligation
is fully paid and performed. No Obligor on any Collateral is obligated to
inquire about the termination of this agreement and is fully protected in making
payments directly to Secured Party if SECTION 8(E) applies, which payments
Secured Party shall pay to Debtor after termination of this agreement.
(b) No Release. Neither the Security Interest, Debtor's obligations,
----------
nor Secured Party's or any Lenders' Rights under this agreement are released,
diminished, impaired, or adversely affected by the occurrence of any one or more
of the following events: (i) The taking or accepting of any other security or
assurance for any Secured Obligation; (ii) any release, surrender, exchange,
subordination, or loss of any security or assurance at any time existing in
connection with any Secured Obligation; (iii) the modification of, amendment to,
or waiver of compliance with any terms of any other Loan Document without the
consent of Debtor except as required in that Loan Document; (iv) any present or
future insolvency, bankruptcy, or lack of corporate or trust power of any party
at any time liable for the payment
9
<PAGE>
of any Secured Obligation; (v) except as specifically required by any other Loan
Document, any renewal, extension, or rearrangement of the payment of any Secured
Obligation (either with or without notice to or consent of Debtor) or any
adjustment, indulgence, forbearance, or compromise that may be granted or given
by Secured Party or any Lender to Debtor; (vi) any neglect, delay, omission,
failure, or refusal of Secured Party or any Lender to take or prosecute any
action in connection with any agreement, document, guaranty, or instrument
evidencing, securing, or assuring the payment of any Secured Obligation; (vii)
any failure of Secured Party or any Lender to notify Debtor of any renewal,
extension, or assignment of any Secured Obligation, or the release of any
security under any other document or instrument, or of any other action taken or
refrained from being taken by Secured Party or any Lender against Debtor, or any
new agreement between Secured Party, any Lender, and Debtor, it being understood
that, except as expressly required by the Credit Agreement, neither Secured
Party nor any Lender is required to give Debtor any notice of any kind under any
circumstances whatsoever with respect to or in connection with the Secured
Obligation, including, without limitation, notice of acceptance of this
agreement or any Collateral ever delivered to or for the account of Secured
Party under this agreement; (viii) the illegality, invalidity, or
unenforceability of any Secured Obligation against any third party obligated
with respect to it by reason of the fact that the Secured Obligation, or the
interest paid or payable with respect to any of it, exceeds the amount permitted
by applicable Governmental Requirements, the act of creating any of it is ultra
vires, or the officers, partners, or trustees creating any of it acted in excess
of their authority, or for any other reason; or (ix) if any payment by any party
obligated with respect to any Secured Obligation is held to constitute a
preference under applicable Laws or for any other reason Secured Party or any
Lender is required to refund any payment on any Secured Obligation or pay the
amount of it to someone else.
(c) Waivers. To the maximum extent lawful, except to the extent
-------
expressly otherwise provided in this agreement or in any other Loan Document,
Debtor waives (i) any Right to require Secured Party or any Lender to proceed
against any other Person, to exhaust Rights in Collateral, or to pursue any
other Right that Secured Party or any Lender may have; (ii) with respect to the
Secured Obligation, presentment and demand for payment, protest, notice of
protest and nonpayment, notice of acceleration, and notice of intent to
accelerate; and (iii) all Rights of marshaling in respect of any Collateral.
(d) Financing Statement. Secured Party may at any time file this
-------------------
agreement (or a carbon, photographic, or other reproduction of this agreement)
as a financing statement, but the failure of Secured Party to do so does not
impair the validity or enforceability of this agreement.
(e) Information. Except as otherwise provided by applicable
-----------
Governmental Requirements, Secured Party's charge for furnishing each statement
of account or each list of Collateral is $10.00.
(f) Loan Document. This agreement is a Loan Document and is subject
-------------
to the applicable provisions of SECTIONS 1 and 17 of the Credit Agreement, all
of which are incorporated in this agreement by reference the same as if set
forth in this agreement verbatim.
(g) Amendments, Etc. No amendment, waiver, or discharge to or under
---------------
this agreement is valid unless it is in writing and is signed by the party
against whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 17.8 of the Credit Agreement.
(h) ENTIRETY. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH
--------
DEBTOR IS PARTY REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
10
<PAGE>
(i) Secured Party and Lenders. Secured Party is the administrative
-------------------------
agent for each Lender under the Credit Agreement. The Security Interest and all
Rights granted to Secured Party under or in connection with this agreement are
for each Lender's ratable benefit. Secured Party may, without the joinder of
any Lender, exercise any Rights in Secured Party's or Lenders' favor under or in
connection with this agreement, including, without limitation, conducting any
foreclosure sales and executing full or partial releases of, amendments or
modifications to, or consents or waivers under this agreement. Secured Party's
and each Lender's Rights and obligations vis-a-vis each other may be subject to
one or more separate agreements between those parties. However, Debtor need not
inquire about any such agreement and is not subject to any terms of it.
Therefore, neither Debtor nor its successors or assigns is entitled to any
benefits or provisions of any such separate agreement or is entitled to rely
upon or raise as a defense any party's failure or refusal to comply with the
provisions of it.
(j) Parties. This agreement benefits Secured Party, Lenders, and
-------
their respective successors and assigns and binds Debtor and its successors and
assigns. Upon appointment of any successor Administrative Agent under the
Credit Agreement, all of the Rights of Secured Party under this agreement
automatically vests in that new Administrative Agent as successor Secured Party
on behalf of Lenders without any further act, deed, conveyance, or other
formality other than that appointment. The Rights of Secured Party and Lenders
under this agreement may be transferred with any assignment of the Secured
Obligation. The Credit Agreement contains provisions governing assignments of
the Secured Obligation and of Rights and obligations under this agreement.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
11
<PAGE>
EXECUTED as of the date first stated above.
PLASMA & MATERIALS TECHNOLOGIES, INC., as Debtor
By /s/ John W. LaValle
---------------------------------------------
John W. LaValle, Vice President
Secured Party executes this agreement in acknowledgment of PARAGRAPH 10(H)
above.
NATIONSBANK OF TEXAS, N.A., as Administrative
Agent for Lenders, as Secured Party
By /s/ Stan W. Reynolds
------------------------------------------------
Stan W. Reynolds, Vice President
12
<PAGE>
ANNEX 1
-------
LOCATIONS
---------
<TABLE>
<CAPTION>
DEBTOR PRINCIPAL PLACE OF LOCATION OF BOOKS LOCATION(S) OF OWNER/MANAGER OF
BUSINESS AND AND RECORDS INVENTORY PREMISES
CHIEF EXECUTIVE CONCERNING WHERE INVENTORY
OFFICE ACCOUNTS LOCATED
STATE COUNTY
(NUMBER OF
SITES)
=========================================
<S> <C> <C> <C> <C> <C>
Plasma & Materials 9255 Deering Ave. 9255 Deering Ave. CA Los Angeles (3) (Landlord as to
Technologies, Inc. Chatsworth, CA Chatsworth, CA main office and
91311 91311 one other
location with
inventory)
Northpark
Industrial
8929 Wilshire
Blvd.,
Beverly Hills,
California 90210
(Landlords as to
one location with
inventory)
Jack W. Maxwell,
S. Alejandra
Aranovich, Warren
C. Bradley, Clara
Bradley, Terry H.
Hill, and Sharon
D. Hill
1096 Coast
Village Road
Santa Barbara,
California 93108
TX Dallas (1) Koll Management
Services, Inc.
12801 N. Central
Expressway
Dallas, Texas
75243
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GUARANTY
--------
THIS GUARANTY is executed as of the date last stated below by each of the
undersigned as a "Guarantor" (whether one or more, "GUARANTORS"), for the
benefit of NATIONSBANK OF TEXAS, N.A., a national banking association (in its
capacity as Administrative Agent for the Lenders now or in the future party to
the Credit Agreement described below, "ADMINISTRATIVE AGENT").
Plasma & Materials Technologies, Inc. ("US BORROWER"), Electrotech Limited
and Electrotech Equipments Limited (collectively, "UK BORROWERS"),
Administrative Agent, Lloyds Bank Plc, as "UK-Collateral Agent," and certain
Lenders have executed the Credit Agreement (as renewed, extended, amended, or
restated, the "CREDIT AGREEMENT") dated as of November 15, 1996. US Borrower
and UK Borrowers are collectively referred to in this guaranty as "BORROWERS."
This guaranty is integral to the transactions contemplated by the Loan Documents
and is a condition precedent to Lenders' obligations to extend or to continue to
extend credit under the Credit Agreement.
ACCORDINGLY, for adequate and sufficient consideration, each Guarantor
jointly and severally guarantees to Administrative Agent and Lenders the prompt
payment of the Guaranteed Debt (defined below) at -- and at all times after --
its maturity (by acceleration or otherwise) as follows:
1. DEFINITIONS. Terms defined in the Credit Agreement have the same
-----------
meanings when used -- unless otherwise defined -- in this guaranty. As used in
this guaranty:
ADMINISTRATIVE AGENT is defined in the preamble to this guaranty and
includes its successor appointed under SECTION 16 of the Credit Agreement and
acting as administrative agent for Lenders under the Loan Documents.
BORROWER means any of the Borrowers described in the recitals to this
guaranty and includes, without limitation, a Borrower as a debtor-in-possession,
and any receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for a Borrower or for all or substantially all of a Borrower's assets
under any Debtor Law.
CREDIT AGREEMENT is defined in the recitals to this guaranty.
GUARANTEED DEBT means the US Obligation and the UK Obligation, as defined
in the Credit Agreement, and all present and future costs, attorneys' fees, and
expenses reasonably incurred by Administrative Agent or any Lender to enforce
any Borrower's, any Guarantor's, or any other obligor's payment of any of the US
Obligation and the UK Obligation, including, without limitation (to the extent
lawful), all present and future amounts that would become due but for the
operation of (S)(S) 502 or 506 or any other provision of Title 11 of the United
States Code and all present and future accrued and unpaid interest (including,
without limitation, all post-petition interest if any Borrower or any Subsidiary
voluntarily or involuntarily becomes subject to any Debtor Law).
GUARANTORS is defined in the preamble to this guaranty.
SUBORDINATED DEBT means all present and future obligations of any Borrower
to any Guarantor, whether those obligations are (a) direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and several, (b)
due or to become due to any Guarantor, (c) held by or are to be held by any
Guarantor, (d) created directly or acquired by assignment or otherwise, or (e)
evidenced in writing.
<PAGE>
2. GUARANTY. This is an absolute, irrevocable, and continuing guaranty,
--------
and the circumstance that at any time or from time to time the Guaranteed Debt
may be paid in full does not affect the obligation of any Guarantor with respect
to the Guaranteed Debt incurred after that. This guaranty remains in effect
until the Guaranteed Debt is fully paid and performed and all commitments to
extend any credit under the Credit Agreement have terminated. No Guarantor may
rescind or revoke its obligations with respect to the Guaranteed Debt.
Notwithstanding any contrary provision in this guaranty, however, each
Guarantor's maximum liability under this guaranty is limited, to the extent, if
any, required so that its liability is not subject to avoidance under any Debtor
Law.
3. CONSIDERATION. Each Guarantor represents and warrants that (a) the
-------------
value of the consideration received and to be received by it is reasonably worth
at least as much as its liability under this guaranty and (b) such liability may
reasonably be expected to directly or indirectly benefit it.
4. CUMULATIVE RIGHTS. If any Guarantor becomes liable for any
-----------------
indebtedness owing by any Borrower to Administrative Agent or any Lender, other
than under this guaranty, that liability may not be in any manner impaired or
affected by this guaranty. The Rights of Administrative Agent or Lenders under
this guaranty are cumulative of any and all other Rights that Administrative
Agent or Lenders may ever have against each Guarantor. The exercise by
Administrative Agent or Lenders of any Right under this guaranty or otherwise
does not preclude the concurrent or subsequent exercise of any other Right.
5. PAYMENT UPON DEMAND. If an Event of Default exists, each Guarantor
-------------------
shall -- on demand and without further notice of dishonor and without any notice
having been given to any Guarantor previous to that demand of either the
acceptance by Administrative Agent or Lenders of this guaranty or the creation
or incurrence of any Guaranteed Debt -- pay the amount of the Guaranteed Debt
then due and payable to Administrative Agent and Lenders. It is not necessary
for Administrative Agent or Lenders, in order to enforce that payment by any
Guarantor, first or contemporaneously to institute suit or exhaust remedies
against any Borrower or others liable on any Guaranteed Debt or to enforce
Rights against any collateral securing any Guaranteed Debt.
6. SUBORDINATION. The Subordinated Debt is expressly subordinated to the
-------------
full and final payment of the Guaranteed Debt. Each Guarantor agrees not to
accept any payment of any Subordinated Debt from any Borrower if an Event of
Default exists. If any Guarantor receives any payment of any Subordinated Debt
in violation of the foregoing, that Guarantor shall hold that payment in trust
for Administrative Agent and Lenders and promptly turn it over to Administrative
Agent, in the form received (with any necessary endorsements), to be applied to
the Guaranteed Debt.
7. SUBROGATION AND CONTRIBUTION. Until no Lender is obligated to lend or
----------------------------
issue BGs or LCs under the Credit Agreement and the Guaranteed Debt has been
fully paid and performed (a) no Guarantor may assert, enforce, or otherwise
exercise any Right of subrogation to any of the Rights or Liens of
Administrative Agent or Lenders or any other beneficiary against Borrower or any
other obligor on the Guaranteed Debt or any collateral or other security or any
Right of recourse, reimbursement, subrogation, contribution, indemnification, or
similar Right against Borrower or any other obligor on any Guaranteed Debt or
any guarantor of it, (b) each Guarantor defers all of the foregoing Rights
(whether they arise in equity, under contract, by statute, under common law, or
otherwise), and (c) each Guarantor defers the benefit of, and any Right to
participate in, any collateral or other security given to Administrative Agent
or Lenders or any other beneficiary to secure payment of any Guaranteed Debt.
8. NO RELEASE. No Guarantor's obligations under this guaranty may be
----------
released, diminished, or affected by the occurrence of any one or more of the
following events: (a) Any taking or accepting of any other security or
assurance for any Guaranteed Debt; (b) any release, surrender, exchange,
2
<PAGE>
subordination, impairment, or loss of any collateral securing any Guaranteed
Debt; (c) any full or partial release of the liability of any other obligor on
the US Obligation or the UK Obligation; (d) the modification of, or waiver of
compliance with, any terms of any other Loan Document; (e) the insolvency,
bankruptcy, or lack of corporate or partnership power of any other obligor at
any time liable for any Guaranteed Debt, whether now existing or occurring in
the future; (f) any renewal, extension, or rearrangement of any Guaranteed Debt
or any adjustment, indulgence, forbearance, or compromise that may be granted or
given by Administrative Agent or any Lender to any other obligor on the US
Obligation or the UK Obligation; (g) any neglect, delay, omission, failure, or
refusal of Administrative Agent or any Lender to take or prosecute any action in
connection with the Guaranteed Debt; (h) any failure of Administrative Agent or
any Lender to notify any Guarantor of any renewal, extension, or assignment of
any Guaranteed Debt, or the release of any security or of any other action taken
or refrained from being taken by Administrative Agent or any Lender against any
Borrower or any new agreement between Administrative Agent, any Lender, and any
Borrower, it being understood that neither Administrative Agent nor any Lender
is required to give any Guarantor any notice of any kind under any circumstances
whatsoever with respect to or in connection with any Guaranteed Debt, other than
any notice required to be given to Guarantors by Law or elsewhere in this
guaranty; (i) the unenforceability of any Guaranteed Debt against any other
obligor because it exceeds the amount permitted by Law, the act of creating it
is ultra vires, the officers creating it exceeded their authority or violated
their fiduciary duties in connection with it, or otherwise; or (j) any payment
of the US Obligation or the UK Obligation to Administrative Agent or Lenders is
held to constitute a preference under any Debtor Law or for any other reason
Administrative Agent or any Lender is required to refund that payment or make
payment to someone else (and in each such instance this guaranty will be
reinstated in an amount equal to that payment).
9. WAIVERS. To the maximum extent lawful, each Guarantor waives all
-------
Rights by which it might be entitled to require suit on an accrued right of
action in respect of any Guaranteed Debt or require suit against any Borrower or
others, whether arising under (S) 34.02 of the Texas Business and Commerce Code,
as amended (regarding its Right to require Administrative Agent or Lenders to
sue any Borrower on accrued right of action following its written notice to
Administrative Agent or Lenders), (S) 17.001 of the Texas Civil Practice and
Remedies Code, as amended (allowing suit against it without suit against a
Borrower, but precluding entry of judgment against it before entry of judgment
against that Borrower), Rule 31 of the Texas Rules of Civil Procedure, as
amended (requiring Administrative Agent or Lenders to join a Borrower in any
suit against it unless judgment has been previously entered against that
Borrower), or otherwise.
10. CREDIT AGREEMENT PROVISIONS. Each Guarantor acknowledges that certain
---------------------------
(a) representations and warranties in the Credit Agreement are applicable to it
and confirms that each such representation and warranty is true and correct, and
(b) covenants and other provisions in the Credit Agreement are applicable to it
or are imposed upon it and agrees to promptly and properly comply with or be
bound by each of them.
11. RELIANCE AND DUTY TO REMAIN INFORMED. Each Guarantor confirms that it
------------------------------------
has executed and delivered this guaranty after reviewing the terms and
conditions of the Loan Documents and such other information as it has deemed
appropriate in order to make its own credit analysis and decision to execute
and deliver this guaranty. Each Guarantor confirms that it has made its own
independent investigation with respect to Borrower's creditworthiness and is not
executing and delivering this guaranty in reliance on any representation or
warranty by Administrative Agent or any Lender as to that creditworthiness.
Each Guarantor expressly assumes all responsibilities to remain informed of the
financial condition of Borrowers and any circumstances affecting Borrowers'
ability to perform under the Loan Documents to which it is a party or any
collateral securing any Guaranteed Debt.
3
<PAGE>
12. NO REDUCTION. The Guaranteed Debt may not be reduced, discharged, or
------------
released because or by reason of any existing or future offset, claim, or
defense (except for the defense of complete and final payment of the Guaranteed
Debt) of any Borrower or any other obligor against Administrative Agent or
Lenders or against payment of the Guaranteed Debt, whether that offset, claim,
or defense arises in connection with the Guaranteed Debt or otherwise. Those
claims and defenses include, without limitation, failure of consideration,
breach of warranty, fraud, bankruptcy, incapacity/infancy, statute of
limitations, lender liability, accord and satisfaction, usury, forged
signatures, mistake, impossibility, frustration of purpose, and
unconscionability.
13. VENUE AND SERVICE OF PROCESS. EACH GUARANTOR (A) IRREVOCABLY SUBMITS
----------------------------
TO THE NONEXCLUSIVE JURISDICTION OF ANY TEXAS STATE OR FEDERAL COURT, (B)
IRREVOCABLY WAIVES -- TO THE FULLEST EXTENT PERMITTED BY LAW -- ANY OBJECTION
THAT IT MAY NOW OR IN THE FUTURE HAVE TO THE LAYING OF VENUE OF ANY LITIGATION
BROUGHT IN CONNECTION WITH ANY LOAN DOCUMENT OR THE GUARANTEED DEBT BROUGHT IN
DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (C) IRREVOCABLY WAIVES ANY
CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THOSE COURTS HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM, (D) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF
ANY OF THOSE COURTS IN ANY LITIGATION BY THE MAILING OF COPIES OF THAT LEGAL
PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, BY HAND-
DELIVERY, OR BY DELIVERY BY A NATIONALLY RECOGNIZED COURIER SERVICE, AND SERVICE
IS DEEMED COMPLETE UPON DELIVERY OF THE LEGAL PROCESS AT ITS ADDRESS AS PROVIDED
IN THIS GUARANTY, AND (E) IRREVOCABLY AGREES THAT ANY LEGAL PROCEEDING AGAINST
ANY PARTY TO ANY LOAN DOCUMENT ARISING OUT OF OR IN CONNECTION WITH THE LOAN
DOCUMENTS OR THE GUARANTEED DEBT MAY BE BROUGHT IN ONE OF THOSE COURTS. The
scope of each of these waivers is intended to be all-encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter of
this transaction --including, without limitation, contract claims, tort claims,
breach of duty claims, and all other common law and statutory claims. These
waivers are a material inducement to the agreement by Administrative Agent and
each Lender to enter into the Loan Documents, and they have each relied -- and
may continue to rely -- on these waivers in its dealings with Guarantors. Each
Guarantor represents and warrants that it has reviewed these waivers with its
legal counsel, and that it knowingly and voluntarily agrees to each waiver
following consultation with legal counsel. These waivers are irrevocable, may
not be modified either orally or in writing, and apply to any renewals,
extensions, amendments, and replacements of any Loan Document.
14. LOAN DOCUMENT. This guaranty is a Loan Document and is subject to the
-------------
applicable provisions of SECTIONS 1 and 17 of the Credit Agreement, all of which
are incorporated into this guaranty by reference the same as if set forth in
this guaranty verbatim.
15. COMMUNICATIONS. For purposes of SECTION 17.2 of the Credit Agreement,
--------------
each Guarantor's address and telecopy number are the same as US Borrower's.
16. AMENDMENTS, ETC. No amendment, waiver, or discharge to or under this
---------------
guaranty is valid unless it is in writing and is signed by the party against
whom it is sought to be enforced and is otherwise in conformity with the
requirements of SECTION 17.9 of the Credit Agreement.
17. ENTIRETY. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS TO WHICH ANY
--------
GUARANTOR IS A PARTY REPRESENT THE FINAL AGREEMENT BETWEEN THAT GUARANTOR,
ADMINISTRATIVE AGENT, AND LENDERS WITH RESPECT TO THE SUBJECT MATTER OF THIS
GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
4
<PAGE>
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
18. ADMINISTRATIVE AGENT AND LENDERS. Administrative Agent is the
--------------------------------
Administrative Agent for each Lender under the Credit Agreement. All Rights
granted to Administrative Agent under or in connection with this guaranty are
for each Lender's ratable benefit. Administrative Agent may, without the
joinder of any Lender, exercise any Rights in Administrative Agent's or Lenders'
favor under or in connection with this guaranty. Administrative Agent's and
each Lender's Rights and obligations vis-a-vis each other may be subject to one
or more separate agreements between those parties. However, no Guarantor is
required to inquire about any such agreement or is subject to any terms of it
unless that Guarantor specifically joins it. Therefore, neither any Guarantor
nor its successors or assigns is entitled to any benefits or provisions of any
such separate agreement or is entitled to rely upon or raise as a defense any
party's failure or refusal to comply with the provisions of it.
19. PARTIES. This guaranty benefits Administrative Agent, Lenders, and
-------
their respective successors and assigns and binds each Guarantor and its
successors and assigns. Upon appointment of any successor Administrative Agent
under the Credit Agreement, all of the Rights of Administrative Agent under this
guaranty automatically vests in that new Administrative Agent as successor
Administrative Agent on behalf of Lenders without any further act, deed,
conveyance, or other formality other than that appointment. The Rights of
Administrative Agent and Lenders under this guaranty may be transferred with any
assignment of the Guaranteed Debt. The Credit Agreement contains provisions
governing assignments of the Guaranteed Debt and of Rights and obligations under
this guaranty.
US BORROWER'S OBLIGATIONS UNDER THIS GUARANTY CONSTITUTE "DESIGNATED SENIOR
DEBT," AS THAT TERM IS DEFINED IN THE INDENTURE (AS RENEWED, EXTENDED, AMENDED,
OR SUPPLEMENTED) DATED AS OF OCTOBER 7, 1996, BETWEEN US BORROWER AND U.S. TRUST
COMPANY OF CALIFORNIA, N.A., PROVIDING FOR THE ISSUANCE OF US BORROWER'S 7-1/8%
CONVERTIBLE SUBORDINATED NOTES DUE 2001.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
<PAGE>
EXECUTED as of _____________________, 199______.
PLASMA & MATERIALS TECHNOLOGIES, INC.,
as Guarantor
By
--------------------------------------
Name:
--------------------------------
Title:
--------------------------------
Administrative Agent executes this guaranty in acknowledgement of PARAGRAPH
17 above.
NATIONSBANK OF TEXAS, N.A.,
as Administrative Agent
By
--------------------------------------
Stan W. Reynolds, Vice President
GUARANTY SIGNATURE PAGE ONE OF ONE
<PAGE>
COLLATERAL ASSIGNMENT OF INTELLECTUAL PROPERTY
----------------------------------------------
THIS AGREEMENT is entered into as of November 15, 1996, between PLASMA &
MATERIALS TECHNOLOGIES, INC., a California corporation having a principal place
of business at 9255 Deering Avenue, Chatsworth, California 91311 ("ASSIGNOR"),
and NATIONSBANK OF TEXAS, N.A., a national banking association having a
principal place of business at 901 Main Street, Dallas, Texas 75202 (in its
capacity as Administrative Agent for the Lenders now or in the future party to
the Credit Agreement described below, "ADMINISTRATIVE AGENT").
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms used in
-------------
this agreement have the meanings assigned in the Credit Agreement (as
hereinafter defined) and the following terms shall have the following
meanings:
"BOOKS AND RECORDS" are defined in SECTION 2(d) hereof.
"BORROWERS" means, collectively, Assignor, Electrotech Limited, a UK
corporation, and Electrotech Equipments Limited, a UK corporation.
"CHATTEL PAPER" shall have the meaning assigned to such term in the Code.
"CODE" shall mean Chapter 9 of the Uniform Commercial Code as in effect
from time to time in the State of Texas as amended (or any successor
statute).
"COLLATERAL" shall have the meaning assigned to such term in SECTION 2
hereof.
"COPYRIGHTS" shall have the meaning assigned to such term in SECTION 2
hereof.
"CREDIT AGREEMENT" shall mean that certain Credit Agreement by and among
Borrowers Administrative Agent, UK-Collateral Agent, and other Lenders
dated as of the date hereof.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in SECTION
6 hereof.
"INSTRUMENTS" shall have the meaning assigned to such term in the Code.
"PATENTS" shall have the meaning assigned to such term in SECTION 2 hereof.
"SECURED OBLIGATION" shall have the meaning assigned to such term in
SECTION 3 hereof.
"TRADEMARKS" shall have the meaning assigned to such term in SECTION 2
hereof.
2. GRANT OF SECURITY INTEREST. For value received and as collateral security
--------------------------
for the Secured Obligation, Assignor hereby grants to Administrative Agent
for the benefit of the Lenders a security interest, lien and mortgage in
and to, and agrees and acknowledges that Administrative Agent has, and
shall continue to have, a security interest, lien and mortgage in and to,
its rights in all those assets and properties of Assignor of the types
described below, wherever located, however arising or created, and whether
now owned or existing or hereafter arising, created or acquired:
(a) All patents, patent applications, and patent rights, together with
(i) all reissues, divisions, substitutions, continuations,
continuations-in-part, renewals and extensions thereof, (ii) all
<PAGE>
income, royalties, damages and payments for past or future infringements
thereof, (iii) the right to sue for past, present and future infringements
thereof, and (iv) all rights corresponding thereto throughout the world
(all of the foregoing patents, patent applications and patent rights are
hereinafter referred to as the "PATENTS"), including but not limited to
those listed on EXHIBIT A attached hereto;
(b) All trademarks and service marks, and all trademark registrations,
service mark registrations, trade names, trade name rights, trademark
applications, service mark applications, trade styles, logos, together with
(i) all renewals thereof, (ii) all income, royalties, damages, and payments
now or hereafter due and payable with respect thereto, including, without
limitation, damages and payments for past or future infringements thereof,
(iii) the right to sue for past, present and future infringements thereof,
and (iv) all rights corresponding thereto throughout the world (all of the
foregoing trademarks, service marks, trademark registrations, service mark
registrations, trade names, trade name rights, trademark applications,
service mark applications, trade styles and logos, are hereinafter referred
to as the "TRADEMARKS"), and the goodwill of Assignor's business connected
with and symbolized by the Trademarks, including but not limited to those
listed on EXHIBIT A attached hereto;
(c) All original works of authorship fixed in any tangible medium of
expression, including but not limited to all musical works, lyrics, sound
recordings, literary works (including without limitation, computer
software), dramatic works, pictorial, graphic and sculptural works,
architectural works, and mask works, all whether published or unpublished,
complete or incomplete, joint or sole works, and whether or not subject to
an existing copyright, including the rights to reproduce them, prepare
derivative works, distribute them, publicly perform or display them,
arrange or contract for the exploitation of all or any part of them, and
make any alterations, additions, deletions or other changes to them, and
all copyrights and copyright registrations and recordings thereof in the
United States or in countries foreign thereto, including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States,
any State thereof, or any foreign country, together with (i) all
extensions, reissues or renewals thereof, (ii) all income, royalties,
damages and payments for past, present or future infringements thereof,
(iii) the right to sue for past, present and future infringements thereof,
and (iv) all rights corresponding thereto throughout the world (all of the
foregoing hereinafter referred to as the "COPYRIGHTS"), including but not
limited to those listed on EXHIBIT A attached hereto;
(d) All books, records, files, computer programs, data processing records,
computer software, documents and other information, property, or general
intangibles, at any time evidencing, describing, or pertaining to, and all
containers and packages for, the property described or referred to in
SUBSECTIONS (a) through (c) above (the "BOOKS AND RECORDS"); and
(d) All products and proceeds (as defined in the Code) of any of the
property described above in any form, and all proceeds of such proceeds,
including, without limitation, all cash and credit balances, all payments
under any indemnity, warranty or guaranty with respect to any of such
property, all awards for taking by eminent domain, all proceeds of fire or
other insurance, including any refunds of unearned premiums in connection
with any cancellation, adjustment, or termination of any insurance policy,
all proceeds obtained as a result of any legal action or proceeding with
respect to any of such property, and claims
2
<PAGE>
by Assignor against third parties for loss or damage to, or destruction of,
any of such property.
The property described or referred to in SUBSECTIONS (a) through (e) above is
hereinafter collectively called the "COLLATERAL."
3. INDEBTEDNESS SECURED. The security interest contained herein is granted to
--------------------
secure the payment and performance of:
(a) Any and all loans, advances (including, without limitation, future
advances), indebtedness, obligations and liabilities of any of the
Borrowers to any of the Lenders however evidenced, whether as
principal or guarantor or otherwise, whether now existing or hereafter
arising, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, original, renewed, or extended
(the "INDEBTEDNESS"), including, without limitation, the US Obligation
and the UK Obligation;
(b) All costs and expenses reasonably incurred by Administrative Agent to
obtain, preserve, perfect and enforce the security interest granted
hereby and all other liens and security interests securing payment of
the Indebtedness, to collect the Indebtedness and, to the extent any
guarantors of the Indebtedness or the Borrowers are obligated to pay
such costs and expenses pursuant to the Credit Agreement or any other
Loan Document, to maintain, preserve and collect the Collateral,
including, but not limited to, taxes, assessments, insurance premiums,
repairs, reasonable attorneys' fees and legal expenses, rent, storage
charges, advertising costs, brokerage fees and expenses of sale; and
(c) All renewals, extensions and modifications of the Indebtedness or any
part thereof.
The Indebtedness and costs mentioned in this SECTION 3 are hereinafter
collectively referred to herein as the "SECURED OBLIGATION."
4. ASSIGNOR'S WARRANTIES AND REPRESENTATIONS. Subject to the disclosures set
-----------------------------------------
forth in SCHEDULE 8.20 of the Credit Agreement, Assignor represents and
warrants to Administrative Agent that:
(a) Assignor has the authority to execute, deliver and perform this
agreement; and the execution and performance hereof have been
authorized by all necessary action of Assignor;
(b) Except for Permitted Liens, the Collateral is free and clear of all
liens and subject only to such Permitted Liens, Assignor has good and
indefeasible title to the Collateral;
(c) As to after-acquired Collateral which is material to the operation of
Assignor's business, Assignor will have when such Collateral becomes
subject to this agreement, good and indefeasible fee or leasehold
title to, the Collateral, free and clear of all liens except Permitted
Liens;
(d) The place of business (or chief executive office if Assignor maintains
more than one place of business) of Assignor is at 9255 Deering
Avenue, Chatsworth, California 91311;
3
<PAGE>
(e) Except as disclosed in writing to Administrative Agent, no material
dispute, right of set-off, counterclaim or defenses have been
successfully asserted or are currently being asserted against Assignor
with respect to any part of the Collateral;
(f) The Patents, Trademarks and Copyrights listed on EXHIBIT A constitute
all of the current Patents, registered and material unregistered
Trademarks, and registered and material unregistered Copyrights owned
by Assignor and include all of the current Patents, Trademarks, and
Copyrights material to the operation of Assignor. All of the Patents,
registered Trademarks and registered Copyrights listed on EXHIBIT A
are subsisting and in full force and effect and have not been adjudged
invalid, void or unenforceable in the countries indicated. Further, to
the best of Assignor's knowledge, Assignor may utilize such Patents,
Trademarks, and Copyrights in its business in those countries where
Assignor conducts significant business, where patent, trademark or
copyright applications still are pending (notwithstanding the outcome
of said applications) or where no patents, trademark registrations, or
copyrights registrations exist;
(g) Other than as disclosed in the Credit Agreement, no claim has been
made successfully or is currently being made that the use of any of
the Patents, Trademarks, or Copyrights which are material to the
operation of Assignor's business does or may violate the rights of any
third person (including, without limitation, any demand or request
that Assignor license or acquire any rights from a third party) and
Assignor has no knowledge of any third person infringing on or
misappropriating any of Assignor's rights in the Patents, Trademarks,
and Copyrights which infringement or misappropriation would constitute
a Material-Adverse Event;
(h) All of the representations and warranties made by Assignor in all
instruments and documents evidencing and securing the Secured
Obligation or any part thereof, including, without limitation, this
agreement, were true and correct in all material respects when made;
(i) There have been no claims made successfully and there are no claims
currently being made against Assignor asserting the invalidity, misuse
or unenforceability of any of the Patents, Trademarks, or Copyrights
which are material to the operation of Assignor's business, and to the
best of Assignor's knowledge, there are no valid grounds for same;
(j) To the best of Assignor's knowledge, the conduct of Assignor's
business has not infringed, misappropriated or conflicted with and
does not infringe, misappropriate or conflict with any intellectual
property rights of the type listed in SUBSECTIONS (a) through (c) of
SECTION 2 above of other persons or entities, nor would any future
conduct as presently contemplated infringe, misappropriate or conflict
with any such intellectual property rights of other persons or
entities, subject to any such infringement, misappropriation or
conflict as, in the aggregate, has previously been settled or has not
given rise to and does not give rise to any liability on the part of
Assignor which has caused or may cause a Material-Adverse Event; and
(k) Any errors or inaccuracies contained in applications for registration
or issuance and subsequent prosecution of the Patents, Trademarks, and
Copyrights were inadvertent and made in good faith.
4
<PAGE>
5. ASSIGNOR'S COVENANTS AND AGREEMENTS. Assignor covenants and agrees with
-----------------------------------
Administrative Agent that:
(a) Assignor shall, at its expense, make, procure, execute and deliver
such financing statement or statements, or amendments thereof or
supplements thereto, or other instruments, certificates, assignments,
passbooks and supplemental writings, and do and deliver all acts,
things, writings and assurances as Administrative Agent may from time
to time reasonably require in order to comply with the Code, or any
other applicable law, and to preserve and protect the security
interest hereby granted. In the event, for any reason, that the laws
of any jurisdiction other than the State of Texas becomes or is
applicable to the creation, perfection or continuation of
Administrative Agent's security interest and lien in the
Administrative Agent, or any part thereof, Assignor agrees to execute
and deliver all such instruments and to do all such other things as
may be necessary or appropriate to preserve, protect and enforce the
security interest or lien of Administrative Agent, under the law of
such other jurisdiction, to at least the same extent as such security
interest would be protected under the Code;
(b) Until the termination of this agreement, Assignor will not execute and
there will not be on file in any public office any financing statement
or statements creating or evidencing a Lien covering any of the
Collateral, except as may have been or may hereafter be granted to
Administrative Agent or that may evidence or perfect other Permitted
Liens and Assignor further agrees that it will keep the Collateral
free from any lien, or any other legal or equitable process, or any
encumbrance of any kind or character, except for Permitted Liens;
(c) Administrative Agent and its agents shall have the right to examine,
audit, inspect and copy, as the case may be, the Collateral during all
normal business hours after reasonable notice to Assignor, the
exercise of such right to be conditioned on the entry by
Administrative Agent and its agents into a reasonable nondisclosure
agreement or the adoption of other means reasonably needed to protect
the confidentiality of material examined, audited, inspected, and
copied pursuant to this paragraph.
(d) Upon the occurrence and during the continuance of an Event of Default,
Assignor shall promptly, at its expense, upon the request of
Administrative Agent:
i. Deliver to Administrative Agent, with appropriate endorsement
or assignment, all Instruments, Chattel Paper, monies, checks,
notes, drafts and other evidence of indebtedness, or other
property in the nature of items of payment representing
proceeds of any of the Collateral, or arising from an account,
which are then in, or may thereafter come into, Assignor's
possession; and
ii. To the extent permitted by law, direct all parties obligated on
any of the Collateral to make all payments due or to become due
thereon directly to Administrative Agent or to such other
person or officer as may be specified by Administrative Agent;
(e) Assignor shall perform, at its sole cost and expense, any and all
reasonable steps, and shall pay the amount of all reasonable expenses
necessary to defend and enforce the security interest in, any of the
Collateral and to defend, enforce and collect the Collateral
5
<PAGE>
(other than Collateral that Assignor reasonably deems to be no longer
necessary for the conduct of its business);
(f) All risk and liability for safekeeping of the Collateral shall at all
times, either before or after possession thereof by Administrative
Agent, remain that of Assignor;
(g) Assignor shall give Administrative Agent thirty-days' prior written
notice of any change in its chief executive office;
(h) Except for Patents, Trademarks, or Copyrights that Assignor reasonably
deems not to be or no longer necessary for the conduct of its
business, Assignor shall (i) promptly file applications for all future
Patents, Trademarks, or Copyrights in the United States Copyright
Office and the United States Patent and Trademark Office, and where
deemed appropriate corresponding foreign offices in which Assignor has
or expects to have significant business, (ii) diligently prosecute any
patent, trademark, service mark, or copyright application of the
Patents, Trademarks or Copyrights, now or hereafter pending, for so
long as registration is deemed to be reasonably probable and cost
effective, (iii) file, prosecute, and defend all infringements,
opposition and cancellation proceedings that would have a material
adverse impact on any of the Collateral, except those actions which
would have no reasonable likelihood of success or would not be cost
effective, (iv) preserve, maintain and renew all rights and patents
and patent applications, trademark, service mark or copyright
applications, trademark, service mark or copyright registrations of
the Patents, Trademarks, or Copyrights (any expenses incurred in
connection with such application shall be borne by Assignor), for so
long as the success of such efforts is reasonably probable and such
efforts are cost effective, (v) not abandon any pending patent,
trademark, service mark or copyright application, without the consent
of Administrative Agent, which consent shall not be unreasonably
withheld, and (vi) make reasonable, cost effective, efforts to remedy
and correct all errors and inaccuracies that Assignor becomes aware of
in any applications for registration and subsequent prosecution of the
Trademarks and the Copyrights;
(i) Except as specifically allowed in the Credit Agreement, Assignor shall
not sell or assign its interest in, or grant any license under, the
Patents, Trademarks, or Copyrights without the prior consent of
Administrative Agent, except for (i) licenses to affiliates of
Assignor permitted under the Credit Agreement, (ii) licenses to end-
users of the Assignor's products as limited by the end-users' license
agreements, and (iii) licenses implied as a result of product sales
permitted under the Credit Agreement;
(j) Assignor shall maintain the quality of any and all products or
services in connection with the Patents, Trademarks, or Copyrights,
consistent with the quality of such products or services as of the
date hereof;
(k) Except as specifically allowed in the Credit Agreement, Assignor shall
not, without Administrative Agent's prior written consent, enter into
any agreement, including, but not limited to, any licensing agreement,
that is inconsistent with Assignor's obligations under this agreement
or the Credit Agreement, will not take any action, or permit any
action to be taken, that would affect the validity or enforcement of
the rights transferred to Administrative Agent under this agreement or
which may result in a material change to or abandonment, invalidation,
unenforceability, avoidance or diminution in the value of the Patents,
Trademarks, or Copyrights and shall notify Administrative Agent
immediately
6
<PAGE>
if it knows of any reason or has reason to know that any of the
Patents, Trademarks, or Copyrights may become abandoned, invalidated,
unenforceable, voided or diminuted in value;
(l) If Assignor shall, either itself or through any agent, employee,
licensee or designee, (i) file an application for the registration of
any patents, trademarks, service marks or copyrights with the United
States Patent and Trademark Office or the United States Copyright
Office or any similar office or agency in the United Kingdom or any
other country or any political subdivision thereof or (ii) file any
assignment of any patent, copyright, service mark or trademark, which
Assignor may acquire from a third party, with the United States Patent
and Trademark Office or the United States Copyright Office or any
similar office or agency in the United Kingdom or any other country or
any political subdivision thereof, then Assignor shall, no less often
than the last day of each calendar quarter during the term of this
agreement notify Administrative Agent thereof, and, upon request of
Administrative Agent, execute and deliver any and all assignments,
agreements, instruments, documents and papers as Administrative Agent
may request to evidence the Administrative Agent's interest in such
patent, trademark, service mark or copyright and the goodwill and
general intangibles of Assignor relating thereto or represented
thereby, and Assignor hereby constitutes the Administrative Agent its
attorney-in-fact to execute and file all such writings for the
foregoing purposes; such power being coupled with an interest is
irrevocable until the Secured Obligation is paid in full. If Assignor
shall obtain rights to any new patents, trademarks, service marks, or
copyrights, the provisions of this agreement shall automatically apply
thereto and Assignor shall give to Administrative Agent prompt notice
thereof in writing; Assignor hereby authorizes the Administrative
Agent to modify this agreement by amending EXHIBIT A to include any
future patents, trademarks, service marks, or copyrights, or patent
applications, trademark applications, service mark applications or
copyright applications covered by this agreement; and
(m) Assignor assumes all responsibility and liability arising from the use
of the Trademarks, Patents, and Copyrights, and Assignor hereby
indemnifies and holds Administrative Agent harmless from and against
any claim, suit, loss, damage or expense (including reasonable
attorneys' fees) arising out of any alleged defect in product
manufactured, promoted or sold by Assignor (or any affiliate or
subsidiary thereof) in connection with any Trademark, Patent, or
Copyright or out of the manufacture, promotion, labeling, sale or
advertisement of any such product by Assignor (or any affiliate or
subsidiary thereof). Assignor agrees that Administrative Agent does
not assume, and shall have no responsibility for, the payment of any
sums due or to become due under any agreement or contract included in
the Collateral or the performance or any obligations to be performed
under or with respect to any such agreement or contract by Assignor.
6. EVENTS OF DEFAULT. Assignor shall be in default under this agreement upon
-----------------
the happening of any of the following events or conditions (hereinafter
called an "EVENT OF DEFAULT"):
(a) An Event of Default under the Credit Agreement shall occur and be
continuing;
(b) Except for the transactions allowed by this agreement and the Credit
Agreement, the ownership of the Collateral or any of the Collateral,
or any legal or equitable interest therein, becomes vested in a person
or entity other than Assignor; or
7
<PAGE>
(c) Administrative Agent's liens in any material part of the Collateral
should become unenforceable, or with the exception of Permitted Liens,
cease to be first priority liens.
7. POWER OF ATTORNEY. Assignor hereby irrevocably constitutes and appoints
-----------------
Administrative Agent, with full power of substitution, as its true and
lawful attorney-in-fact, effective upon the occurrence of and during the
continuance of an Event of Default, with full irrevocable power and
authority in its name or in Administrative Agent's own name, to take after
the occurrence and during the continuance of an Event of Default any and
all action and to execute thereafter any and all documents and instruments
which Administrative Agent deems necessary or desirable to accomplish the
purposes of this agreement and, without limiting the generality of the
foregoing, Assignor hereby gives Administrative Agent the power and right
on its behalf and in its own name to do any of the following, without
notice to or the consent of said Assignor, but only after the occurrence
and during the continuance of an Event of Default:
(a) to demand, sue for, collect, or receive in the name of any Assignor or
in its own name or in the name of Administrative Agent, any money or
property at any time payable or receivable on account of or in
exchange for any of the Collateral, and, in connection therewith,
endorse checks, notes, drafts, acceptances, money orders, documents of
title, or any other instruments for the payment of money under the
Collateral;
(b) to pay or discharge taxes, liens, security interests, or other
encumbrances levied or placed on or threatened against the Collateral;
(c) to send requests for verification to parties obligated in respect of
the Collateral;
(d) to direct any parties liable for any payment under any of the
Collateral to make payment of any and all monies due and to become due
thereunder directly to Administrative Agent or as Administrative Agent
shall direct and to receive payment of and receipt for any and all
monies, claims, and other amounts due and to become due at any time in
respect of or arising out of any Collateral;
(e) to commence and prosecute any suit, action, or proceeding at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any part thereof and to enforce any other right in
respect of any Collateral or to settle, compromise, or adjust any
suit, action, or proceeding described above and, in connection
therewith, to give such discharges or releases as Administrative Agent
may deem appropriate;
(f) to add or release any guarantor, endorser, surety, or other party to
any of the Collateral or the Obligation; and
(g) to sell, transfer, pledge, make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though Administrative Agent were the absolute owner thereof for all
purposes, and to do, at Assignors' expense, at any time, or from time
to time, all acts and things which the Administrative Agent deem
reasonably necessary to protect, preserve or realize upon the
Collateral and Administrative Agent's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable. Administrative Agent shall not be under any duty to exercise or
withhold the exercise of any of the rights, powers, privileges, and options
expressly or implicitly granted to Administrative Agent in this agreement,
8
<PAGE>
and shall not be liable for any failure to do so or any delay in doing so.
Administrative Agent shall not be liable for any act or omission or for any
error of judgment or any mistake of fact or law in Administrative Agent's
capacity or in Administrative Agent's capacity as attorney-in-fact except acts
or omissions resulting from their own gross negligence or willful misconduct.
This power of attorney is conferred on Administrative Agent solely to protect,
preserve, and realize upon Lenders' security interest in the Collateral.
Administrative Agent shall not be responsible for any decline in the value of
the Collateral and shall not be required to take any steps to preserve rights
against prior parties or to protect, preserve, or maintain any security interest
or lien given to secure the Collateral.
8. ADMINISTRATIVE AGENT'S RIGHTS AND REMEDIES.
------------------------------------------
(a) In the event of the occurrence and during the continuance of any Event
of Default, in addition to the rights and remedies provided in SECTION
7 hereof and in the Code, without demand, presentment, notice of
intention to accelerate, notice of acceleration or any other notice
(which are fully waived):
i. Administrative Agent may, at its option, take possession and
dispose of all or any portion of the Collateral, to the extent
permitted by law, at public or private sale, as a unit or in
parcels, upon any terms and prices and in any order, free from any
claim or right of any kind including any equity of redemption of
Assignor, ANY SUCH DEMAND, RIGHT OR EQUITY BEING EXPRESSLY WAIVED
AND RELEASED. Any disposition of the Collateral may be made by way
of one or more contracts and at any such disposition it shall not
be necessary to exhibit the Collateral;
ii. Administrative Agent may, at its option, to the extent permitted
by the Code or other applicable law, sell and deliver any
Collateral at public or private sale, for cash, upon credit or
otherwise, at such prices and upon such terms as Administrative
Agent deems advisable, in its sole discretion, and may, if
Administrative Agent deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of
sale or of such postponed or adjourned sale without giving a new
notice of sale;
iii. If any Collateral is sold on terms other than payment in full at
the time of sale, no credit shall be given against the Secured
Obligation until Administrative Agent receives payment, and if the
buyer defaults in payment, then Administrative Agent may resell
the Collateral without further notice to Assignor;
iv. If Administrative Agent seeks to take possession of all or any
portion of the Collateral by judicial process, Assignor
irrevocably waives (A) the posting of any bond, surety or security
with respect thereto that might otherwise be required, (B) any
demand for possession prior to the commencement of any suit or
action to recover the Collateral, and (C) any requirement that
Administrative Agent retain possession and not dispose of any
Collateral until after trial or final judgment;
v. Assignor agrees that Administrative Agent has no obligation to
preserve rights to the Collateral or marshal any Collateral for
the benefit of any person; and
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vi. Administrative Agent is hereby granted a license or other right
(exercisable only during the continuance of an Event of Default)
to use, without charge, Assignor's labels, Patents, Copyrights,
Trademarks, and advertising matter or any similar property, in
completing production of, advertising or selling any Collateral,
and Assignor's rights under all licenses and all franchise
agreements shall inure to the benefit of Administrative Agent.
(b) In addition:
i. Administrative Agent shall not be liable for any act or omission
on the part of Administrative Agent, its officers, agents, or
employees, except for gross negligence or willful misconduct. All
rights and remedies of Administrative Agent hereunder are
cumulative and may be exercised singly or concurrently. The
exercise of any right or remedy will not be a waiver of any other;
ii. The rights, titles, interests, liens and securities of
Administrative Agent hereunder shall be cumulative of all of the
securities, rights, titles, interests or liens which
Administrative Agent may now or at any time hereafter hold
securing the payment of the Secured Obligation, or any part
thereof;
iii. Administrative Agent is hereby expressly authorized after and
during the continuance of an Event of Default to apply by
appropriate judicial proceedings for appointment of a receiver for
the Collateral, or any part thereof; and
iv. After and during the continuance of an Event of Default,
Administrative Agent shall be entitled to apply the proceeds of
any sale or other disposition of the Collateral, and the payments
received by Administrative Agent with respect to any of the
Collateral, first to the payment of all its reasonable expenses,
including attorneys' fees and legal expenses, incurred in holding
and preparing the Collateral, or any part thereof, for sale or
other disposition, in arranging for such sale or other
disposition, and in actually selling the same, and next toward
payment of the balance of the Secured Obligation in such order and
manner as Administrative Agent, as directed by the Required
Lenders, may deem advisable. Administrative Agent shall account to
the Assignor for any surplus. If the proceeds are not sufficient
to pay the Secured Obligation in full, the Assignor shall remain
liable for any deficiency.
9. MISCELLANEOUS.
-------------
(a) This Agreement and the transactions evidenced hereby shall be governed
by, and interpreted and enforced in accordance with, the laws of the
State of Texas, except that no doctrine of choice of law shall be used
to apply the laws of any other state or jurisdiction.
(b) This Agreement is binding upon and shall inure to the benefit of
Assignor, Lenders, Administrative Agent, their respective
representatives, administrators, successors and assigns; provided,
however, that Assignor may not, without the prior written consent of
Required Lenders, assign any rights, powers, duties or obligations
hereunder and each Lender reserves the right to assign any or all of
its rights hereunder in connection with
10
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any assignment under SECTION 17.10 of the Credit Agreement and in
accordance with the terms thereof.
(c) Any notice of sale, disposition or other action by Administrative
Agent required by the Code and sent to Assignor at Assignor's address
shown in the Credit Agreement, or at such other address of Assignor as
may from time to time be shown on the records of Administrative Agent,
at least ten (l0) days prior to such action, shall constitute
reasonable notice to Assignor. Notice shall be deemed given or sent
when mailed postage prepaid to Assignor's address.
(d) No failure to exercise, and no delay in exercising, on the part of
Administrative Agent, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right.
(e) This Agreement shall not be amended in any way except by a written
agreement signed by Administrative Agent, Required Lenders, and
Assignor.
(f) To the extent any provision of this agreement conflicts with the
express terms of the Credit Agreement, then the terms of the Credit
Agreement shall control.
(g) Administrative Agent shall, upon the reasonable request of Assignor,
and upon satisfactory evidence of compliance with the Credit
Agreement, release any portion of the Collateral which is permitted to
be sold or otherwise transferred under this agreement or the Credit
Agreement.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGE FOLLOWS.
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IN WITNESS WHEREOF, the undersigned have duly executed this agreement as of
the date first above written.
PLASMA & MATERIALS TECHNOLOGIES, INC.
By /s/ John W. LaValle
----------------------------------
John W. LaValle, Vice President
NATIONSBANK OF TEXAS, N.A.
By /s/ Stan W. Reynolds
---------------------------------
Stan W. Reynolds, Vice President
SIGNATURE PAGE TO COLLATERAL ASSIGNMENT OF INTELLECTUAL PROPERTY
<PAGE>
EXHIBIT 10.21
NOTE PURCHASE AND LOAN AGREEMENT
This Note Purchase and Loan Agreement (the "Agreement") is entered into as
of this 16th day of December, 1996, by and among Plasma & Materials
Technologies, Inc., a California corporation (the "Company"), and the persons
listed on Schedule 1 attached hereto (collectively, the "Investors").
RECITALS:
The Investors have agreed to lend to the Company up to a maximum aggregate
principal amount of $6,250,000 (the "Loan"), on the terms and conditions set
forth herein and pursuant to subordinated promissory notes in the form attached
hereto as Exhibit A (each individually a "Note" and collectively the "Notes").
AGREEMENT:
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and the Investors agree as follows:
1. THE LOAN
1.1. The Loan. Each of the Investors, in reliance upon the
--------
representations, warranties, covenants and agreements of the Company
contained herein and subject to the terms and conditions of this
Agreement, hereby agree to provide a loan to the Company in the
principal amount set forth opposite such Investor's name on Schedule 1
attached hereto (the "Commitment"), which may be drawn upon by the
Company from time to time prior to January 1, 1998 (the "Commitment
Termination Date"). On and after the Commitment Termination Date, no
further amounts may be borrowed by the Company pursuant to this
Agreement.
1.2. The Notes. The obligation of the Company to repay the Loan shall be
---------
evidenced by the Notes. The Company shall make payments to the
Investors in accordance with the terms of the Notes and this
Agreement. Such payments shall be subordinated in the manner set forth
therein.
1.3. Issuance of Warrants. In consideration of the Commitment and the
--------------------
Loan, the Company has agreed to issue to each of the Investors
warrants to purchase that number of shares of the common stock of the
Company (the "Common Stock") set forth opposite such Investors name on
Schedule 1, on the terms and pursuant to the form of Common Stock
purchase warrant attached hereto as Exhibit B (the "Warrants").
1.4. Procedure for Requesting Advances.
---------------------------------
(a) The Company shall give each of the Investors notice of any
borrowing that it intends to make hereunder in the form of
Exhibit C attached hereto (a "Notice of Borrowing") not less than
10 business days prior to such borrowing, specifying
<PAGE>
(i) the date for which funds are requested (the "Funding Date"),
(ii) the amount to be borrowed from each Investor, which shall be
such Investor's pro rata share of the amount requested, based
upon the ratio of such Investor's Commitment to the maximum
aggregate amount of the Loan ("Pro Rata Basis") and (iii) the
aggregate amount of such borrowing, which shall not exceed the
aggregate unfunded amount of the Loan.
(b) On the Funding Date specified in the Notice of Borrowing, subject
to the conditions set forth in Section 5, each of the Investors
shall make available to the Company the portion of its Commitment
on a Pro Rata Basis of such borrowing by wire transfer to the
account designated by the Company.
1.5. Interest Rate. If, during the time there are any amounts outstanding
-------------
under any of the Notes, the interest rate payable under such Notes
shall be deemed by any competent court of law, governmental agency or
tribunal to exceed the maximum rate of interest permitted by
applicable law, then, for such time as the interest rate would be
deemed excessive, its application shall be suspended and there shall
be charged instead the maximum rate of interest permissible under such
laws. If the rate of interest payable on the Notes is ever reduced as
a result of the preceding sentence and at any time thereafter the
maximum rate permitted by applicable law shall exceed the applicable
rate of interest provided for in the Notes, then the rate of interest
shall be increased to such maximum rate for such period as is required
so that the total amount of interest received by the Investors is the
amount that would have been received but for the operation of the
preceding sentence.
1.6. Subordination. Repayment of the Loan shall be subordinated to certain
-------------
other debts of the Company to the extent provided, and on the terms
and conditions set forth, in the Notes.
1.7. Payments. All payments of principal and interest due under the Notes
--------
shall be paid by the Company in immediately available funds to the
Investors on a Pro Rata Basis by wire transfer to such accounts as the
Investors shall designate, or by such other means as each Investor may
hereafter request.
2. CLOSING
2.1. Closing Date. The execution of this Agreement and the closing of the
------------
transactions contemplated hereby shall take place simultaneously at
the offices of Oppenheimer Wolff & Donnelly, 45 South Seventh Street,
Suite 3400, Minneapolis, Minnesota 55402, at 11 a.m., Minneapolis
time, on or about December 16, 1996, or as soon as practical
thereafter (the "Closing") or at such other place or different time or
day as may be mutually acceptable to the Investors and the Company,
provided that all other conditions to the Closing as provided in this
Agreement have been met to the reasonable satisfaction of, or waived
by, the Investors or the Company, as the case may be. The date and
time on which the Closing occurs is referred to as the "Closing Date."
2.2. Deliveries. At the Closing, the Company will deliver the Notes, the
----------
Warrants, and any other documents required by this Agreement.
2
<PAGE>
3. REPRESENTATIONS AND WARRANTIES BY THE COMPANY
To induce the Investors to enter into this Agreement and to make the
Commitment and the Loan, the Company hereby represents and warrants to the
Investors the following, except as disclosed in the Schedules attached
hereto, which exceptions shall be set forth in reasonable detail:
3.1. Organization, Standing, Etc. The Company is a corporation duly
---------------------------
organized, validly existing and in good standing under the laws of the
State of California and has the requisite corporate power and
authority to own or lease its properties and to carry on its business
as it is now being conducted. The Company has the requisite corporate
power and authority to issue the Notes and the Warrants and the shares
of Common Stock issuable on exercise of the Warrants (the "Warrant
Shares") and to perform its obligations under this Agreement.
3.2. Governing Instruments. The copies of the articles of incorporation
---------------------
and bylaws of the Company, and all amendments thereto (collectively,
the "Charter Documents"), delivered to legal counsel for the Investors
prior to the execution of this Agreement, are true and complete copies
of the duly and legally adopted Charter Documents in effect as of the
date of this Agreement and the Closing Date.
3.3. Subsidiaries, Etc. Except for (i) the Company's wholly-owned
-----------------
subsidiary, Plasma & Materials Technologies (Korea) Co. Ltd. ("PMT
Korea"), (ii) Electrotech Limited and Electrotech Equipment Limited
(collectively, "Electrotech") and the direct and indirect subsidiaries
thereof and (iii) Energy Transfer Systems, Inc., a Delaware
corporation ("ETS"), the Company does not have any direct or indirect
ownership interest in any corporation, partnership, joint venture,
association or other business enterprise. For purposes of this
Section, references to the Company shall include PMT Korea,
Electrotech and ETS.
3.4. Qualification. The Company is duly qualified, licensed or
-------------
domesticated as a foreign corporation in good standing in each
jurisdiction listed on Schedule 3.4. The Company has not failed to
------------
qualify, be licensed or domesticated in any jurisdiction in which the
failure to so qualify, be licensed or domesticated would have a
material adverse effect upon its business, properties or financial
condition ("Material Adverse Effect").
3.5. Financial Statements. The (i) audited financial statements of the
--------------------
Company for the fiscal year ended December 31, 1995, and (ii)
unaudited interim financial statements for the quarterly period ended
September 30, 1996, together with the notes thereto, complete and
correct copies of which are attached hereto as Schedule 3.5
------------
(collectively, the "Financial Statements"), present fairly the
financial position of the Company, as of such dates and the results of
operations for the periods covered thereby (subject, in the case of
such unaudited interim financial statements, to year-end audit
adjustments) and have been prepared in accordance with generally
accepted accounting principles consistently applied. Except as set
forth in the Financial Statements, the Company does not have any
liabilities, contingent or otherwise, other than (i) liabilities
incurred in the ordinary course of business subsequent to the date of
such quarterly Financial Statements; (ii) obligations
3
<PAGE>
under real and personal property leases disclosed pursuant to Section
3.17 and (iii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally
accepted accounting principles to be reflected in the Financial
Statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
Except as disclosed in the Financial Statements, and, except as set
forth in Schedule 3.5, since the date of the quarterly Financial
------------
Statements, (i) there has been no material adverse change in the
business or condition, financial or otherwise, operations or prospects
of the Company; (ii) to the Company's knowledge, neither the business,
condition or operations of the Company nor any of its properties or
assets have been materially adversely affected as the result of any
legislative or regulatory change, any revocation or change in any
franchise, permit, license, or right to do business, or any other
event or occurrence, whether or not insured against; (iii) except for
the closing of the transactions contemplated by the Share Purchase
Agreement, dated as of July 17, 1996, among the Company, Electrotech
and the other parties thereto, as amended to date, which was approved
at a meeting of the shareholders of the Company on October 10, 1996
(the "Share Purchase Agreement"), the Company has not entered into any
material transaction other than in the ordinary course of business,
made any distribution on its capital stock, or redeemed or repurchased
any of its capital stock; and (iv) there has been no lien or
encumbrance placed upon any property of the Company.
3.6. Valid Issuance. The Notes and Warrants, when executed, issued and
--------------
delivered pursuant to the terms of this Agreement, will be duly
authorized, validly issued and enforceable in accordance with their
respective terms and the terms of this Agreement, except as such
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and to judicial limitations on the
enforcement of the remedy of specific performance and other equitable
remedies. The Warrant Shares have been reserved for issuance and,
when issued upon the exercise of the Warrants, will be duly
authorized, validly issued and outstanding, fully paid, nonassessable
and free and clear of all pledges, liens, encumbrances and
restrictions, except as set forth in Section 4 or the Charter
Documents.
3.7. Corporate Acts and Proceedings. This Agreement has been duly
------------------------------
authorized by all necessary corporate action on behalf of the Company,
has been duly executed and delivered by authorized officers of the
Company, is a valid and binding agreement on the part of the Company
and is enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar laws affecting
the enforcement of creditors' rights generally and to judicial
limitations on the enforcement of the remedy of specific performance
and other equitable remedies. All corporate actions necessary to the
authorization, creation, issuance and delivery of the Notes, the
Warrants and the Warrant Shares and reservation of the Warrant Shares
contemplated hereunder have been taken by the Company.
3.8. Tax Returns and Audits. The Company has prepared and timely filed all
----------------------
federal, state and other tax returns required by law to be filed, has
paid or made provision for the payment of all taxes shown to be due
and all additional assessments, and adequate
4
<PAGE>
provisions have been made and are reflected in the Financial
Statements to the extent required by generally accepted accounting
principles for all current taxes and other charges to which the
Company is subject and which are not currently due and payable. None
of the income tax returns of the Company have been audited by the
Internal Revenue Service or the state taxing authority in such a
manner to bring such audit to the attention of the Company. The
Company does not know of any additional assessments or adjustments
pending or threatened against the Company or its assets for any
period, nor of any basis for any such assessment or adjustment, which
would have a Material Adverse Effect.
3.9. Title to Properties and Encumbrances. Except with respect to real
------------------------------------
and personal property leased pursuant to lease agreements disclosed in
the manner set forth in Section 3.17, the Company has good and
marketable title to all of its properties and assets, including all
properties and assets used in the conduct of its business, except for
property disposed of in the ordinary course of business since the date
of the quarterly Financial Statements, which properties and assets are
not subject to any mortgage, pledge, lease, lien, charge, security
interest, encumbrance or restriction, except (i) those which are shown
and described in the Financial Statements or disclosed in Schedule 3.5
or (ii) liens for taxes and assessments or governmental charges or
levies not at this time due or in respect of which the validity
thereof shall currently be contested in good faith by appropriate
proceedings.
3.10. Condition of Properties. The plant, offices, equipment, inventory
-----------------------
and other assets of the Company have been kept in good condition and
repair in the ordinary course of business, and are reasonably fit and
suitable for the purposes for which they are being used and conform in
all material respects with applicable ordinances, regulations and
laws.
3.11. Litigation; Governmental Proceedings. There are no legal actions,
------------------------------------
suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the
Company, threatened against the Company, or its properties or business
or any executive officer or director of the Company, and neither the
Company nor any executive officer or director of the Company is aware
of any facts which are probable to result in or form the reasonable
basis for any such action, suit or other proceeding. The Company is
not in default with respect to any judgment, order or decree of any
court or any governmental agency or instrumentality. To the best of
its knowledge, the Company has not been threatened with any action or
proceeding under any business or zoning ordinance, law or regulation.
3.12. Compliance with Applicable Laws and Other Instruments. The
-----------------------------------------------------
properties, business and operations of the Company have been and are
being conducted in all material respects in accordance with all
applicable laws, rules and regulations of all governmental
authorities. Neither the execution nor delivery of, nor the
performance of or compliance with this Agreement, the Notes or the
Warrants, nor the consummation of the transactions contemplated hereby
or thereby will, with or without the giving of notice or passage of
time, result in any breach of, or constitute a default under, or
result in the imposition of any lien or encumbrance upon any asset or
property of the Company pursuant to, any agreement or other instrument
to which the Company is a party or by which it or any of
5
<PAGE>
its properties, assets or rights is bound or affected, and will not
violate the Charter Documents. The Company is not in violation of its
Charter Documents nor in violation of, or in default under, any lien,
indenture, loan or credit agreement, mortgage, lease, agreement,
instrument, commitment or arrangement in any material respect. Except
for the subordination provisions contained in the Notes, the Company
is not subject to any restriction which would prohibit it from
entering into, enforcing its rights, including requesting any
borrowing, or performing its obligations under this Agreement.
3.13. Environmental and Safety Laws. The Company is not, in any material
-----------------------------
respect, in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and no
material expenditures are or are reasonably anticipated to be required
in order to comply with any such existing statute, law or regulation.
3.14. Securities Laws. Based in part upon the representations of the
---------------
Investors in Section 4, no consent, authorization, approval, permit or
order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the
execution and delivery of this Agreement or the offer, issuance, sale
or delivery of the Notes and the Warrants, other than the filing of a
Form D pursuant to Regulation D under the Securities Act of 1933, as
amended (the "Securities Act"), and the qualification thereof, if
required, under applicable state securities laws which qualification
has been or will be effected as a condition of this sale. Under the
circumstances contemplated by this Agreement, the offer, issuance,
sale and delivery of the Notes and the Warrants will not, under
current laws and regulations, require compliance with the prospectus
delivery or registration requirements of the Securities Act.
3.15. Patents and Other Intangible Rights. Except as set forth in
-----------------------------------
Schedule 3.15, the Company (i) owns or has the right to use, free
-------------
and clear of all liens, claims and restrictions, all patents, patent
applications, trademarks, service marks, trade names, copyrights,
trade secrets, licenses and similar rights with respect to the
foregoing, necessary for and used in the conduct of its business as
now conducted and as proposed to be conducted, to the Company's
knowledge, without infringing upon or otherwise acting adversely to
the right or claimed right of any person under or with respect to any
of the foregoing; (ii) is not contractually or, to the Company's
knowledge, otherwise obligated to make any material payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other
claimant to, any patent, trademark, service mark, trade name,
copyright, trade secret or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business or
otherwise; (iii) has not received any notice of conflict with the
asserted rights of others with respect to such matters; (iv) to the
Company's knowledge, owns or has the unrestricted right to use all
trade secrets, including know-how, customer lists, inventions,
designs, processes, computer programs and technical data used by the
Company in the development, operation and sale of all products and
services sold by it, free and clear of any rights, liens or claims of
others; and (v) to the Company's knowledge, is not using any
confidential information or trade secrets of others.
6
<PAGE>
3.16. Capital Stock.
-------------
(a) The authorized capital stock of the Company as of the date
hereof is correctly set forth in the Financial Statements. All
of the outstanding shares of the Company were duly authorized and
validly issued and are fully paid and nonassessable.
(b) There are no outstanding subscriptions, options, warrants, calls,
contracts, demands, commitments, convertible securities or other
agreements or arrangements of any character or nature whatever,
other than this Agreement, the Warrants, the Share Purchase
Agreement or the Indenture for the 7 1/8% convertible
subordinated notes due 2001 in the original principal amount of
$86,250,000 (the "Indenture") under which the Company is
obligated to issue any securities of any kind representing an
ownership interest in the Company or as set forth in Schedule
--------
3.16. Neither the offer nor the issuance or sale of the Notes
----
and Warrants constitutes an event under any anti-dilution
provisions of any securities issued (or issuable pursuant to
outstanding rights, warrants or options) by the Company or any
agreements with respect to the issuance of securities by the
Company, which will either increase the number of shares issuable
pursuant to such provisions or decrease the consideration per
share to be received by the Company pursuant to such provisions.
(c) No holder of any securities of the Company is entitled to any
preemptive or similar rights to purchase any securities of the
Company from the Company.
3.17. Assets and Contracts.
--------------------
(a) The Company has filed with its registration statement pursuant to
the Securities Act or pursuant to its periodic filing
requirements under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), all material agreements and
contracts, has provided a true and complete list of such
agreements and contracts to legal counsel for the Investors and
has not entered into any material agreements since the date of
its most recent filing.
(b) The Company has in all material respects substantially performed
its obligations required to be performed by it to date and is not
in default in any material respect under any contracts,
agreements, leases, documents, commitments or other arrangements
to which it is a party or by which it is otherwise bound. There
is not under any of such agreements, any existing material
default or event of default or event which, with notice or lapse
of time or both, would constitute an event of default by the
Company thereunder.
3.18. Outstanding Debt. The Company does not have any indebtedness
----------------
incurred as the result of a direct borrowing of money, including, but
not limited to, indebtedness with respect to trade accounts, except as
set forth in the Financial Statements or pursuant to the Credit
Agreement and the Indenture, other than indebtedness incurred in the
ordinary course of business. The Company is not in default in the
payment of the principal of or interest or premium on any such
indebtedness, and no event has occurred or is continuing under the
provisions of any instrument, document or agreement evidencing or
7
<PAGE>
relating to any such indebtedness which with the lapse of time or the
giving of notice, or both, would constitute an event of default by the
Company thereunder. The Company is not committed or obligated to make
any loan or advance to any person or entity, nor does the Company own
any capital stock, securities or other equity, except for the stock of
its subsidiaries described in Section 3.3.
3.19. Accounts Receivable. To the extent that they exceed the reserves
-------------------
for doubtful accounts set forth in the Financial Statements, the
accounts receivable reflected therein and all accounts receivable of
the Company that have arisen since the September 30, 1996 (except such
accounts receivable as have been collected since such date) are valid
and enforceable claims, and the goods and services sold and delivered
which gave rise to such accounts were sold and delivered in conformity
with the applicable purchase orders, agreements and specifications. To
the Company's knowledge, such accounts receivable are subject to no
valid defense or offsets except routine customer complaints or
warranty demands of an immaterial nature.
3.20. Insurance Coverage. The Company has in full force policies of
------------------
insurance issued by insurers of recognized responsibility insuring the
Company and its properties and business against such losses and risks,
and in such amounts, as in the Company's judgment, are acceptable for
the nature and extent of such business and its resources. The Company
is not in default with respect to any material provision contained in
any insurance policy, and has not failed to give any notice or present
any material existing claims it has under its insurance policies in a
timely fashion.
3.21. Licenses. The Company possesses from the appropriate agency,
--------
commission, board and government body and authority, whether state,
local or federal, all licenses, permits, authorizations, approvals,
franchises and rights which (i) are necessary for it to engage in the
business currently conducted by it, and (ii) if not possessed by the
Company, would have a Material Adverse Effect.
3.22. Employees. To the Company's knowledge, except as set forth in
---------
Schedule 3.22, no officer of the Company or employee of the Company
-------------
(whose annual compensation is in excess of $80,000) has any present
plans to terminate his or her employment with the Company. Each
officer and other employee of the Company having access to the
confidential and proprietary information of the Company has executed
an agreement with the Company regarding confidentiality and
proprietary information.
3.23. Absence of Restrictive Agreements. To the Company's knowledge, no
---------------------------------
employee of the Company is subject to any secrecy or noncompetition
agreement or any agreement or restriction of any kind that would
impede in any way the ability of such employee to carry out fully all
activities of such employee in furtherance of the business of the
Company. To the Company's knowledge, no former employer of any
employee of the Company has any claim of any kind whatsoever in
respect of any of the patents or other intangible rights of the
Company described in Section 3.15 of this Agreement.
3.24. No Brokers or Finders. No person, firm or corporation has or will
---------------------
have, as a result of any contractual undertaking by the Company, any
right, interest or valid claim against
8
<PAGE>
the Company or the Investors for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in
connection with the transaction contemplated by this Agreement. The
Company will indemnify and hold the each of the Investors harmless
against any and all liability with respect to any such commission, fee
or other compensation which may be payable or determined to be
payable.
3.25. Full Disclosure. The Company has not knowingly withheld from the
---------------
Investors any material facts relating to the assets, business,
operations, financial condition or prospects of the Company. No
representation or warranty in this Agreement or in any written
certificate, schedule, statement or other document prepared by or on
behalf of the Company and furnished by the Company to any Investor
pursuant hereto or filed by the Company pursuant to the periodic
reporting requirements of the Exchange Act, as of the date furnished
to the Investor or filed under the Exchange Act, as the case may be,
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated herein or therein necessary to
make the statements herein or therein not misleading.
4. REPRESENTATIONS OF THE INVESTORS
Each of the Investors hereby severally represents and warrants to the Company
that:
4.1. Investment Intent. The Investor is purchasing the Note and Warrant
-----------------
for investment for such Investor's own account and not with the view
to, or for resale in connection with, any distribution or public
offering thereof. The Investor has no current plan or intention to
engage in a sale, exchange, transfer, distribution, redemption,
reduction in any way of the Investor's risk of ownership by short sale
or otherwise, or other disposition, directly or indirectly of the Note
or Warrant pursuant to this Agreement.
4.2. Knowledge and Experience. The Investor has substantial experience
------------------------
in evaluating and investing in private placement transactions of
securities in companies similar to the Company and has the knowledge
and experience in financial and business matters such that the
Investor is capable of evaluating the merits and risks of his
investment in the Company and has the capacity to protect his own
interests.
4.3. Location of Principal Office, Qualification as an Accredited
------------------------------------------------------------
Investor, Etc. The state of domicile of the Investor is the state
-------------
set forth in the Investor's address on Schedule 1. The Investor, by
execution of this Agreement, hereby represents that such Investor
qualifies as an "accredited investor" for purposes of Regulation D
promulgated under the Securities Act. The Investor can bear the loss
of the entire investment in the Note without any material adverse
effect on such Investor's assets, net worth, business, operations or
prospects.
4.4. Acts and Proceedings. This Agreement has been duly authorized by
--------------------
all necessary action on the part of the Investor, has been duly
executed and delivered by the Investor, and is a valid and binding
agreement of the Investor and enforceable against the Investor in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement
9
<PAGE>
of creditor's rights generally and to judicial limitations on the
remedy of specific enforcement and other equitable remedies.
4.5. Disclosure of Information. The Investor acknowledges that the
-------------------------
Company has made available to the Investor at a reasonable time prior
to the execution of this Agreement the opportunity to ask questions
and receive answers concerning the terms and conditions of the
offering of the Note and Warrant and to obtain any additional
information (which the Company possesses or can acquire without
unreasonable effort or expense) as may be necessary to verify the
accuracy of information furnished to the Investor. The foregoing,
however, does not limit or modify the representations and warranties
of the Company in this Agreement or the right of the Investor to rely
thereon. The Investor acknowledges that in making the decision to
invest in the Company, Investor is not relying on any person, firm or
company, other than the Company and its officers, employees and/or
directors.
4.6. No Brokers or Finders. No person, firm or corporation has or will
---------------------
have, as a result of any contractual undertaking by the Investor, any
right, interest or valid claim against the Investor for any
commission, fee or other compensation as a finder or broker, or in any
similar capacity, in connection with the transactions contemplated by
this Agreement. The Investor will indemnify and hold the Company
harmless against any and all liability with respect to any such
commission, fee or other compensation which may be payable or
determined to be payable.
4.7. Restrictions on Resale; Rule 144. The Investor understands that (i)
--------------------------------
none of the Note, the Warrant, nor the Warrant Shares have been
registered under the Securities Act or any state securities laws
because they are being issued in transactions exempt from such
registration requirements, pursuant to Section 4(2) of the Securities
Act and applicable state securities laws, and (ii) that the reliance
of the Company and others upon these exemptions is predicated in part
upon this representation by the Investor. The Investor acknowledges
that the Note, the Warrant and the Warrant Shares must be held
indefinitely unless subsequently registered under the Securities Act
and any applicable state securities act or unless exemptions from such
registration are available. The Investor understands that none of the
Note, the Warrant nor the Warrant Shares may be transferred or resold
without (i) registration under the Securities Act and any applicable
state securities laws, or (ii) an exemption from the requirements of
the Securities Act and applicable state securities laws. The Investor
understands that an exemption from such registration is not presently
available pursuant to Rule 144 promulgated under the Securities Act by
the Securities and Exchange Commission (the "Commission") and that the
Investor may not sell any securities acquired hereunder in full
compliance with Rule 144.
4.8. Public Market. The Investor understands that no public market now
-------------
exists for the Note or the Warrant.
10
<PAGE>
4.9. Legend; Stop Transfer. The Notes and Warrants shall bear the
---------------------
following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER EITHER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE BLUE SKY LAWS, AND
IS SUBJECT TO CERTAIN INVESTMENT REPRESENTATIONS. THESE SECURITIES
MAY NOT BE SOLD, OFFERED FOR SALE OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER THE ACT, AND SUCH APPLICABLE BLUE SKY
LAWS OR AN EXEMPTION THEREFROM.
The Warrant Shares, if and when issued, shall bear a similar legend.
In addition, the Company shall make a notation regarding the
restrictions on transfer of the Notes, the Warrants and Warrant Shares
in its books and the Notes, Warrants and Warrant Shares shall be
transferred on the books of the Company only if transferred or sold
pursuant to an effective registration statement under the Securities
Act covering the securities to be transferred or an opinion of counsel
satisfactory to the Company that such registration is not required.
5. CONDITIONS OF THE INVESTORS' OBLIGATIONS.
The obligations of the Investors hereunder are subject to the fulfillment
or waiver by the Investors prior to or on the Closing Date and each Funding
Date of the conditions set forth in this Section.
5.1. Representations and Warranties. The representations and warranties
------------------------------
of the Company under this Agreement shall be true in all material
respects as of the Closing Date and each Funding Date with the same
effect as though made on and as of such date.
5.2. Compliance with Agreement. The Company shall have performed and
-------------------------
complied with all covenants, agreements or conditions required by this
Agreement to be performed and complied with by it prior to or as of
the Closing Date and each Funding Date.
5.3. Certificate of Officers. The Company shall have delivered to the
-----------------------
Investors a certificate, dated as of the Closing Date or the Funding
Date, executed by the President and Chief Financial Officer of the
Company, certifying to the satisfaction of the conditions specified in
Sections 5.1 and 5.2.
5.4. Supporting Documents. Legal counsel for the Investors shall have
--------------------
received the following:
(a) as of the Closing Date only, a copy of resolutions of the Board
of Directors authorizing and approving the Notes and Warrants and
authorizing and approving the execution, delivery and performance
of this Agreement, all such resolutions to be certified by the
Secretary of the Company;
(b) a Certificate of Incumbency, dated as of the Closing Date or
Funding Date and executed by the Secretary of the Company
certifying the names, titles and
11
<PAGE>
signatures of the officers authorized to execute this Agreement,
the Notes and the Warrants and certifying the Charter Documents
of the Company;
(c) as of the Closing Date only, a legal opinion of Company's
counsel, dated the Closing Date and covering such matters typical
in transactions of this type as may be reasonably requested by
legal counsel for the Investors; and
(d) such additional supporting documentation and other information as
the Investors or legal counsel for the Investors may reasonably
request.
5.5. Qualification under State Securities Laws. As of the Closing Date,
-----------------------------------------
all registrations, qualifications, permits and approvals required
under applicable state securities laws for the lawful execution and
delivery of this Agreement and the offer, sale, issuance and delivery
of the securities to the Investors at the closing shall have been
obtained or will be obtained in compliance with such laws.
6. CONDITIONS OF THE COMPANY'S OBLIGATION
The obligations of the Company to the Investors under this Agreement are
subject to the fulfillment on or before the Closing Date of each of the
following conditions:
6.1. Representations and Warranties. The representations and warranties
------------------------------
of the Investors contained in Section 4 shall be true and correct on
and as of the Closing with the same force and effect as if such
representations and warranties had been made on and as of the Closing;
and
6.2. Qualification under State Securities Laws. All registrations,
-----------------------------------------
qualifications, permits and approvals required under applicable state
securities laws for the lawful execution and delivery of this
Agreement and the offer, sale, issuance and delivery of the securities
to the Investors at the closing shall have been obtained or will be
obtained in compliance with such laws.
7. AFFIRMATIVE COVENANTS OF THE COMPANY
Until the later to occur of the maturity of the Loan and the repayment in
full of all amounts due to the Investors under the Notes, the Company covenants
and agrees to:
7.1. Indenture Covenants. Comply with the obligations and covenants of the
-------------------
Company set forth in the Indenture, which obligations and covenants
are incorporated in this Agreement by this reference; and
7.2. Financial Statements. Deliver to the Investors:
--------------------
(a) promptly upon transmission thereof, copies of all publicly
available reports, proxy statements, registration statements and
notifications filed by the Company with the Securities and
Exchange Commission or furnished to stockholders of the Company
or to any securities exchange, including, without limitation,
filings on Form 10-Q and Form 10-K, and any amendments thereto;
12
<PAGE>
(b) concurrently with the delivery of the financial statements
referred to in Section 7.2(a) above, a certificate of the Chief
Executive Officer of the Company stating that the Company has
performed and observed each and every covenant contained in this
Agreement and the Notes to be performed by it and that no event
has occurred and no condition then exists which constitutes an
Event of Default, under this Agreement or any other loan
agreement or credit agreement of the Company, or would constitute
such an Event of Default upon the lapse of time or upon the
giving of notice and the lapse of time; or, if any such event has
occurred or any such condition exits, specifying the nature
thereof; and
(c) promptly provide to the other Investors copies of any notice of a
breach received from an Investor pursuant to Section 9.1 or
notice of acceleration under Section 10.1.
8. REGISTRATION RIGHTS
8.1. Incidental Registration. Each time the Company shall determine to
-----------------------
proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed
offer and sale for money by the Company of any of its securities by it
or any of its security holders (other than a registration statement on
Form S-4, S-8 or other limited purpose form), the Company will give
written notice of its determination to all record holders of Warrants
and Warrant Shares. Upon the written request of a record holder of any
Warrants or Warrant Shares given within 30 days after receipt of any
such notice from the Company, the Company will, except as herein
provided, cause all Warrant Shares, the record holders of which have
so requested registration thereof, to be included in such registration
statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Warrant Shares
to be so registered; provided, however, that nothing herein shall
prevent the Company from, at any time, abandoning or delaying any
registration; provided further, however, that if the Company
determines not to proceed with a registration after the registration
statement has been filed with the Commission and the Company's
decision not to proceed is primarily based upon the anticipated public
offering price of the securities to be sold by the Company, the
Company shall promptly complete the registration for the benefit of
those selling security holders who wish to proceed with a public
offering of their securities and who bear all expenses incurred by the
Company as the result of such registration after the Company has
decided not to proceed. If any registration pursuant to this Section
shall be underwritten in whole or in part, the Company may require
that the Warrant Shares requested for inclusion pursuant to this
Section be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the managing
underwriter of such public offering the inclusion of all of the
Warrant Shares originally covered by a request for registration would
reduce the number of shares to be offered by the Company or interfere
with the successful marketing of the shares of stock offered by the
Company, the number of Warrant Shares to be included in the
underwritten public offering may be reduced pro rata among the holders
thereof requesting inclusion in such registration. Those Warrant
Shares which are thus excluded from the underwritten public offering
shall be withheld from the market by the holders
13
<PAGE>
thereof for a period, not to exceed 180 days, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten public offering, provided that the executive officers and
directors of the Company shall have agreed to be bound by
substantially the same terms and conditions and the restriction shall
not apply to a registration relating solely to employee benefit plans
on Form S-1 or Form S-8 (or similar forms promulgated after the date
hereof) or a registration relating solely to a transaction pursuant
Rule 145 promulgated under the Securities Act on Form S-14 or Form S-
15 (or similar forms promulgated after the date hereof).
8.2. Registration Procedures. If and whenever the Company is required to
-----------------------
effect the registration of Warrant Shares under the Securities Act,
the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities, and use its best efforts to
cause such registration statement to become and remain effective
for such period as may be reasonably necessary to effect the sale
of such securities, not to exceed six months;
(b) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed
three months;
(c) furnish to the security holders participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus and such
other documents as such underwriters may reasonably request in
order to facilitate the public offering of such securities;
(d) use its best efforts to register or qualify the securities
covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such
participating holders may reasonably request within 20 days
following the original filing of such registration statement,
except that the Company shall not for any purpose be required to
execute a general consent to service of process or to qualify to
do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(e) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when
such registration statement has become effective or a supplement
to any prospectus forming a part of such registration statement
has been filed;
(f) notify such holders promptly of any request by the Commission for
the amending or supplementing of such registration statement or
prospectus or for additional information;
(g) prepare and file with the Commission, promptly upon the request
of any such holders, any amendments or supplements to such
registration statement or
14
<PAGE>
prospectus which, in the opinion of counsel for such holders (and
concurred in by counsel for the Company), is required under the
Securities Act or the rules and regulations thereunder in
connection with the distribution of the Warrant Shares by such
holder;
(h) prepare and promptly file with the Commission and promptly notify
such holders of the filing of such amendment or supplement to
such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be
delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of
a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances in
which they were made, not misleading;
(i) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by
the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for
that purpose and promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such
stop order should be issued; and
(j) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such
holders shall have reasonably objected on the grounds that such
amendment or supplement does not comply in all material respects
with the requirements of the Securities Act or the rules and
regulations thereunder, after having been furnished with a copy
thereof at least two business days prior to the filing thereof,
unless in the opinion of counsel for the Company the filing of
such amendment or supplement is reasonably necessary to protect
the Company form any liabilities under any applicable federal or
state law and such filing will not violate applicable law.
8.3. Expenses. With respect to each inclusion of Warrant Shares in a
--------
registration statement pursuant to Section 8.1, the Company shall bear
the following fees, costs and expenses: all registration, filing and
NASD fees, printing expenses, fees and disbursements of counsel and
accountants for the Company and all legal fees and disbursements and
other expenses of complying with state securities or blue sky laws of
any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and
accountants for the selling security holders, underwriting discounts
and commissions and transfer taxes for selling security holders and
any other expenses incurred by the selling security holders not
expressly included above shall be borne by the selling security
holders.
8.4. Indemnification.
---------------
(a) The Company will indemnify and hold harmless each holder of
Warrant Shares which are included in a registration statement
pursuant to the provisions of this
15
<PAGE>
Section and any underwriter (as defined in the Securities Act)
for such holder and each person, if any, who controls such holder
or such underwriter within the meaning of the Securities Act,
from and against any and all loss, damage, liability, cost and
expense to which such holder or any such underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses are caused by any untrue statement or alleged untrue
statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made,
not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage,
liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished
by such holder, such underwriter or such controlling person in
writing specifically for use in the preparation thereof.
(b) Each holder of Warrant Shares which are included in a
registration pursuant to the provisions of this Section severally
will indemnity and hold harmless the Company, any controlling
person and any underwriter from and against any and all loss,
damage, liability, cost or expense to which the Company or any
controlling person and/or any underwriter may become subject
under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses are caused by any untrue
or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein or
any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which
they were made, not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished
by such holder specifically for use in the preparation thereof
and only to the extent of proceeds from the sale of Warrant
Shares.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section of notice of
the commencement of any action involving the subject matter of
the foregoing indemnity provisions, such indemnified party will,
if a claim thereof is to be made against the indemnifying party
pursuant to the provisions of said paragraph (a) or (b), promptly
notify the indemnifying party of the commencement thereof; but
the omission to so notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party
otherwise than hereunder. In case such action is brought against
any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have the
right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party
16
<PAGE>
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, if the
defendants in any action include both the indemnified party and
the indemnifying party and there is a conflict of interest which
would prevent counsel for the indemnifying party from also
representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to
participate in the defense of such action on behalf of such
indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to
such indemnified party pursuant to the provisions of said
paragraph (a) or (b) for any legal or other expense subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation, unless (i)
the indemnified party shall have employed counsel in accordance
with the proviso of the preceding sentence, (ii) the indemnifying
party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the
action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of
the indemnifying party.
9. EVENTS OF DEFAULT
An "Event of Default" shall occur upon the occurrence of any of the
following events:
9.1. Representations and Warranties. Any representation or warranty made
------------------------------
by the Company herein shall prove to have been incorrect in any
material respect on or as of the date made and remains unremedied for
a period of thirty (30) days after an Investor provides the Company
with written notice of such breach; provided, however that in the
event such breach has not been remedied at the end of such 30-day
period, but the Company is diligently working to remedy it, the
Company shall have an additional thirty (30) days to remedy such
breach;
9.2. Covenants. The Company shall default in the observance or
---------
performance of any material covenant or agreement contained in this
Agreement and such default shall continue unremedied for a period of
the earlier of thirty (30) days from the date an executive officer of
the Company has actual knowledge of such default or thirty (30) days
after an Investor has provided the Company with written notice of such
default; provided, however that in the event such default has not been
remedied at the end of such 30-day period, but the Company is
diligently working to remedy it, the Company shall have an additional
thirty (30) days to remedy such default; or
9.3. Notes. An event of default shall occur under the Notes; or
-----
9.4. Indenture. An event of default shall occur under the Indenture.
---------
10. REMEDIES UPON AN EVENT OF DEFAULT.
Upon the occurrence of an Event of Default, unless such Event of Default
shall have been waived or cured prior to the exercise of the remedies set
forth in this Section:
17
<PAGE>
10.1. Acceleration. Upon the occurrence of an Event of Default, each
------------
Investor shall have the option to declare the principal amount of
such Investor's Note, and all accrued but unpaid interest thereon, to
be immediately due and payable upon written notice to the Company;
provided, however, that payment of such amount shall be subject to
the subordination provisions in the Note.
10.2. Other Remedies. Each Investor shall have all other remedies at law
--------------
or in equity, afforded to holders of debt or otherwise provided for
by this Agreement.
11. MISCELLANEOUS
11.1. Changes, Waivers, Etc. Neither this Agreement nor any provision
---------------------
hereof may be changed, waived, discharged or terminated orally, but
only by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is
sought.
11.2. Notices. All notices, requests, consents and other communications
-------
required or permitted hereunder shall be in writing and shall be
delivered, or mailed first-class postage prepaid, registered or
certified mail, as follows:
(a) if to the Investors, to the addresses listed on Schedule 1; and
(b) if to the Company, to:
Plasma Materials & Technologies, Inc.
9255 Deering Avenue
Chatsworth, California 91311
Attention: Chief Financial Officer
and such notices and other communications shall for all purposes of
this Agreement be treated as being effective or having been given if
delivered personally, or, if sent by mail, when received. Any party
may change its address for such communications by giving notice
thereof to the other parties in conformity with this Section.
11.3. Survival of Representations, Warranties, Agreements, Etc. All
--------------------------------------------------------
representations, warranties, covenants and agreements contained
herein or in any certificate delivered pursuant to this Agreement
shall survive the execution and delivery of this Agreement or such
certificate, as the case may be, any investigation at any time made
by the Investors or on their behalf, and the closing of the
transactions contemplated by this Agreement. All statements
contained in any certificate, instrument or other writing prepared by
or on behalf of the Company and delivered by the Company pursuant to
this Agreement or in connection with or in contemplation of the
transactions herein contemplated shall constitute representations and
warranties by the Company hereunder.
11.4. Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon and be enforceable
by the successors and assigns of the
18
<PAGE>
parties hereto, including the holder or holders from time to time of
any of the Notes, Warrants or Warrant Shares.
11.5. Entire Agreement. This Agreement, the schedules hereto, the
----------------
documents referenced herein and the exhibits thereto, constitute the
entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and thereof and supersede all
prior and contemporaneous agreements or understandings, inducements
or conditions, express or implied, written or oral, between the
parties with respect hereto and thereto. The express terms hereof
control and supersede any course of performance or usage of the
trade inconsistent with any of the terms hereof.
11.6. Other Remedies. Any and all remedies herein expressly conferred
--------------
upon a party shall be deemed cumulative with, and not exclusive of,
any other remedy conferred hereby or by law on such party, and the
exercise of any one remedy shall not preclude the exercise of any
other.
11.7. Delays or Omissions. Except as expressly provided herein, no delay
-------------------
or omission to exercise any right, power or remedy accruing to any
party under this Agreement shall impair any such right, power or
remedy of such party nor shall it be construed to be a waiver of any
such breach or default, or an acquiescence thereto, or of a similar
breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any
party hereto of any breach of default under the Agreement, or any
waiver on the part of any party of any provisions or conditions of
this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing.
11.8. Attorneys' Fees. Should suit be brought to enforce any provision
---------------
of this Agreement, the prevailing party shall be entitled to
recover, as an element of the costs of suit and not as damages,
reasonable attorneys' fees to be fixed by the court (including,
without limitation, costs, expenses and fees on any appeal). The
prevailing party shall be the party entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to
recover attorneys' fees. No sum for attorneys' fees shall be
counted in calculating the amount of a judgment for purposes of
determining if a party is entitled to recover costs or attorneys'
fees.
11.9. Payment of Fees and Expenses of the Investors. The Company agrees
---------------------------------------------
to reimburse the Investors for reasonable legal expenses incurred
for one special legal counsel to the Investors, Oppenheimer, Wolff &
Donnelly. in connection with the transactions contemplated by this
Agreement.
11.10. Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language
hereof shall not be construed for or against any party. A reference
in this Agreement to any section shall include a reference to every
section the number of which begins with the number of the section to
which reference is specifically made (e.g. a reference to Section 11
shall include a reference to
19
<PAGE>
Section 11.1 through 11.13 inclusive). The titles and headings
herein are for reference purposes only and shall not in any manner
limit the construction of this Agreement which shall be considered
as a whole. A reference to a section means a section of this
Agreement, unless the context expressly otherwise requires.
11.11. Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California.
11.12. Counterparts. This Agreement may be executed concurrently in two
------------
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
11.13. Severability. Should any one or more of the provisions of this
------------
Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement and of each other agreement entered
into pursuant to this Agreement, shall be given effect separately
from the provision or provisions determined to be illegal or
unenforceable and shall not be affected thereby.
IN WITNESS WHEREOF, the Company and each of the Investors has caused this
Agreement to be executed by its duly authorized representatives in counterpart.
COMPANY: PLASMA & MATERIALS TECHNOLOGIES, INC.
By: /s/ John W. LaValle
-------------------------------------------
Its: VP, CFO, Corp. Secretary
----------------------------------------
INVESTORS: ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By: /s/ Brian D. Jacobs
-------------------------------------------
Its Authorized Representative
-----------------------------------------
BRENTWOOD ASSOCIATES V, L.P.
By: Brentwood V Ventures, L.P.
Its: General Partner
By: /s/ G. Bradford Jones
-------------------------------------------
Its General Partner
20
<PAGE>
SBIC PARTNERS, L.P.,
a Texas limited partnership
By: Forrest Binkley & Brown L.P.,
a Texas limited partnership
By: Forrest Binkley & Brown Venture Co.,
a Texas corporation
General Partner
By: /s/ Jeffrey J. Brown
---------------------------------
Jeffrey J. Brown
Office of the President
By: SL-SBIC Partners, L.P.,
a Texas limited partnership
By: FW-SBIC, Inc.,
a Texas corporation
General Partner
By: /s/ Peter Sterling
---------------------------------
Peter Sterling
Chairman
/s/ Bruce Hendry
----------------------------------------------
BRUCE HENDRY
TONKAWA N.G. PARTNERS
By /s/ John P. Nagel
--------------------------------------------
John P. Nagel
General Partner
21
<PAGE>
SCHEDULE 1
NAMES AND ADDRESSES OF INVESTORS
<TABLE>
<CAPTION>
==============================================================================================
Maximum Principal Number of
Name and Address of Investor Amount of Note Warrant Shares
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
St. Paul Fire and Marine Insurance Company $1,250,000 49,020
c/o St. Paul Venture Capital
8500 Normandale Lake Boulevard
Suite 1940
Bloomington, Minnesota 55437
Attention: Brian Jacobs
- ----------------------------------------------------------------------------------------------
SBIC Partners, L.P. $1,250,000 49,020
201 Main Street
Suite 2302
Fort Worth, Texas 76102
- ----------------------------------------------------------------------------------------------
Brentwood Associates V, L.P. $1,250,000 49,020
c/o Brentwood Associates
11150 Santa Monica Boulevard
Suite 1200
Los Angeles, California 90025
Attention: Brad Jones
- ----------------------------------------------------------------------------------------------
Bruce Hendry $1,250,000 49,020
Summit Investment Corp.
900 Second Avenue South
Suite 500
Minneapolis, Minnesota 55402
- ----------------------------------------------------------------------------------------------
Tonkawa N.G. Partners $1,250,000 49,020
c/o Carlson Investment Group
P.O. Box 59159
Minneapolis, Minnesota 55459
Attention: John Nagel
- ----------------------------------------------------------------------------------------------
TOTAL: $6,250,000 245,100
==============================================================================================
</TABLE>
<PAGE>
EXHIBIT A
FORM OF SUBORDINATED PROMISSORY NOTE
Filed herewith as Exhibit 4.5 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
<PAGE>
EXHIBIT B
FORM OF WARRANT
Filed herewith as Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
<PAGE>
EXHIBIT C
NOTICE OF BORROWING
[Investors]
[Addresses]
Ladies and Gentlemen:
This Notice of Borrowing is delivered to you pursuant to Section 1.4 of the
Note Purchase and Loan Agreement, dated as of December __, 1996 (together will
all amendments, if any, from time to time made thereto, the "Note Agreement"),
among you and the undersigned. Capitalized terms used without definition herein
have the meanings specified in the Note Agreement.
The undersigned hereby requests that an amount of the Loan equal to
$_______ in the aggregate ($_____ from each of the Investors) be made to the
undersigned on _________, 199__ ("Funding Date").
The undersigned hereby represents and warrants to the Investors that as of
the date hereof:
(a) no Event of Default has occurred and is continuing;
(b) the representations and warranties of the undersigned set forth in the
Note Agreement are true and correct in all material respects as if
made on and as of the date hereof, except to the extent such
representations and warranties relate solely to an earlier date, in
which case such representations and warranties were true and correct
as of such date; and
(c) the undersigned has complied with each covenant and other agreement
set forth in the Note Agreement.
The undersigned agrees that if prior to the Funding Date any matter
certified herein will not be true and correct as of the Funding Date, the
undersigned will immediately so notify the Investors. Each matter certified
herein shall be deemed to be certified as true and correct on the Funding Date.
Please deliver the proceeds of the Loan requested in this Notice of
Borrowing by wire transfer in accordance with the following instructions:
__________________________________
__________________________________
__________________________________
The undersigned has caused this Notice of Borrowing to be executed and
delivered by its duly authorized officer as of this ___ day of ___________,
199__.
PLASMA MATERIALS & TECHNOLOGIES, INC.
By:___________________________________________
Its:_______________________________________
<PAGE>
EXHIBIT 10.22
THIS LEASE is made the Fifth day of July. One thousand nine hundred and
----------
eighty five BETWEEN the person whose name and address appears in Part 1 of the
-------
First Schedule (hereinafter called "the Landlord") of the first part and the
person whose name and address appears in Part 2 of the First Schedule
(hereinafter called "the Tenant") of the second part and the person whose name
and address appears in Part 3 of the First Schedule (hereinafter called "the
Surety") of the third part
NOW THIS DEED WITNESSETH as follows:-
- ------------------------
1. IN this Lease and the Schedules thereto unless the context otherwise
--
requires the following shall have the following meanings:-
1.1 "the Specified Period": the period of eighty years from the date
--------------------
of this Lease which shall be the perpetuity period applicable to these Presents
1.2 "the Term": the term of years created hereby specified in Part 5
--------
of the First Schedule and which shall include any continuation or extension
thereof whether by agreement between the parties hereto or pursuant to any
Statute for the time being in force and which shall be deemed to commence for
all purposes on the date specified in Part 5 of the First Schedule
1.3 "Determination of the Term": the determination of the term whether
-------------------------
by effluxion of time re-entry notice surrender or any other means or cause
whatsoever
1.4 "the Landlord": the person or persons or firm or company or
------------
corporate body or any combination thereof for the time being entitled to the
reversion immediately expectant upon the Determination of the Term
1.5 "the Tenant": without prejudice to the operation of Section 79 of
----------
the Law of Property Act 1925 the person or persons or firm or company or
corporate body or, any combination thereof in whom the term is from time to time
vested whether by assignment devolution in law or otherwise
1.6 "the Surety": shall include the Surety's successors in title and
----------
(in the case of any subsequent surety) personal representatives
1.7 "the Plan": means the plan annexed hereto upon which all
--------
delineations are for identification only
1.8 "the Premises": the property specified in Part 4 of the First
------------
Schedule hereto including as well as the whole any part or parts thereof as
appropriate Together with all buildings and the foundations thereof now or at
any time hereafter erected
<PAGE>
thereon and all or any alteration reconstruction or rebuilding thereof whether
wholly or partially and any alterations additions add improvements thereto and
the rights hereby granted but subject to the exceptions and reservations
hereinafter mentioned and all Landlord's fixtures and fittings in the Premises
whether now or hereafter affixed including (whether or not a fact) the items,
set forth in the inventory attached
1.9 "the Planning Acts": the Town and Country Planning Acts 1971 and
-----------------
1972 the Town and Country Planning (Amendment) Act 1977 and the Town and Country
Amenities Act 1974
1.10 "these Presents": this Lease and the Schedules hereto any license
--------------
granted pursuant hereto any deed of variation of the provisions hereof and any
instrument made supplemental hereto
1.11 "Insured Risks": the risks from time to time covered by the policy
-------------
or policies of insurance effected by the Landlord pursuant to his covenant
hereinafter contained against loss or damage by fire storm tempest flood
earthquake lightning explosion aircraft (other than hostile aircraft) and other
aerial devices and articles dropped therefrom riot and civil commotion and
malicious damage bursting or overflowing of water tanks apparatus or pipes and
impact and any other usual comprehensive risks as the Landlord shall in its
reasonable discretion from time to time desire to insure
1.12 "Prescribed Rate": interest, at an annual rate of 3 per cent above
---------------
the base lending rate of Midland Bank PLC applicable from time to time during
any period during which any payment of interest, accrues due under these
Presents whether before or after judgement
1.13 "the Initial Rent": the amount of the Reserved Rent specified in
----------------
Part 5 of the First Schedule payable in respect of the period expiring on the
Review Date first occurring during the Term
1.14 "the Reserved Rent": the yearly rent from time to time payable in
-----------------
accordance with the terms of Part 5 of the First Schedule and Part 1 of the
Fifth Schedule
1.15.1 "Review Date": the date of expiration of the fifth year of the
-----------
Term and the date of expiration of each successive period of five years
thereafter during the Term (but subject to the provisions of Paragraph 8 of Part
I of the Fifth Schedule) and the expression "Relevant Review Date" shall be
construed accordingly
2.
<PAGE>
1.15.2 "Review Period": the period between a Review Date and the next
-------------
succeeding Review Date and the expression "Relevant Review Period" shall be
construed accordingly
1.16 "Open Market Rent": the best yearly rent at which the Notional
----------------
Premises might reasonably be expected to be let at the Relevant Review Date or
other date upon which such assessment falls to be made by a willing landlord to
a willing tenant in the open market with vacant possession and without fine or
premium for a term equal to the greater of (1) the then unexpired residue of the
Term and (2) ten years assuming if not the fact that the notional buildings
comprised in the Notional Premises are in existence and that covenants and
conditions similar to the covenants and conditions on the part of the Tenant
contained in these Presents have been duly observed and performed in respect of
the Notional Premises and by a lease demising only the Notional Premises and
otherwise containing the same terms and provisions in all respects as these
Presents (but including normal provisions for open market upward only rent
reviews at five year intervals in substitution for the rent review provisions
contained in these Presents and excluding the amount of the Reserved Rent) there
being disregarded
(a) those matters set-out in paragraphs (a) and (b) of S.34(1) of the
Landlord and Tenant Act 1954 (including any such matters which may be
attributable to any undertenant of the Premises or any part thereof)
(b) any effect upon rent of any improvement carried out by the Tenant
or any undertenant during the Term otherwise than in pursuance of an obligation
under these Presents
(c) any use of or works carried out by the Tenant or any sub-tenant or
occupier which may in any way diminish the rental value of the Premises and
(d) any effect on rent of the Rent Restrictions or any law for the
time being in force which imposes restraint upon increase in the rent payable in
respect of the Premises or recovery of such increase
1.17 "Surveyor": an independent Chartered Surveyor appointed from time
--------
to time to determine the Open Market Rent
1.18 "Rent Restrictions": restrictions imposed by any Statute for the
-----------------
time being in force and any regulations or orders made thereunder which operate
to impose any limitation on whether in time or amount on the review of the
Reserved Rent and/or the collection of any increase in the Reserved Rent or any
part thereof
3.
<PAGE>
1.19 "usual quarter days": 25th March, 24th June, 29th September and
------------------
25th December
1.20 "Notional Premises": the Premises (excluding the matters to be
-----------------
disregarded pursuant to clause 116 paragraphs (a) to (d) inclusive) on the
assumption that the principal building therein comprised is (or at the Relevant
Review Date shall be) a building in all material respects (so far as reasonably
possible) of the same age, design, construction and layout and with similar
ancillary facilities and with the same proportionate distribution of internal
floor space between the several uses carried on or intended to be carried on
therein as (in all such respects) the actual principal building for the time
being comprised in the Premises but has (or shall have) a gross internal floor
area of 25,000 square feet
1.21 "Comparable Premises": premises situated in the County of Avon
-------------------
which:-
(i) Are suitable for use and occupation for the purposes permitted by
these Presents without unusually onerous restrictions but so that no other use
thereof is permitted and
(ii) Are similar in size and specification to the Notional Premises
and
(iii) Are (or are assumed to be) in good repair and condition and of
about the same age as the principal building from time to time comprised in the
Premises and
(iv) Are let to an occupational tenant
(a) at an exclusive rack rent without fine or premium and
(b) for a term which for this purpose is assumed to be
substantially similar to the notional term to be assumed at the Relevant Review
Date for the purpose of calculating the "Open Market Rent" pursuant to clause
1.16 and
(c) with normal open market upward only rent reviews at five
year intervals and
(d) otherwise on standard full repairing and insuring terms
1.22 "Comparable Rent": the average clear yearly rent per square foot
---------------
at which the Comparable Premises are let at the Relevant Review Date
4.
<PAGE>
1.23 "Multiplier": the aggregate (expressed as a percentage) of (a) one
----------
hundred and (b) four fifths of the percentage increase in the Comparable Rent
between the Review Date immediately preceding the Relevant Review Date and the
Relevant Review Date (or in the case of the first Review Date between the date
of commencement of the Term and the Relevant Review Date)
1.24 These Presents shall unless the context otherwise requires be
construed on the basis that:-
1.24.1 ANY reference to any Act or any section of any Act shall be
---
deed to include any amendment modification or reenactment thereof and any
statutory instrument bye-law rule directive order or regulation made thereunder
for the time being in force
1.24.2 ANY covenant by the Tenant not to do any act or thing shall be
---
deemed to include a covenant not to suffer or permit the doing of that act or
thing
1.24.3 ANY reference to the doing or permitting of any act or thing
---
by the Landlord shall be deemed to include the doing or permitting of that act
or thing by the agents workmen servants or other employee or agent of or any
contractor engaged by the Landlord (with or without plant materials and
equipment)
1.24.4 WHERE more than one person is included in the expressions "the
-----
Landlord" and "the Tenant" and "the Surety" covenants and obligations at any
time expressed to be made or assumed by such party are made and are to be
construed as made by all such persons jointly and each of them severally
1.24.5 COVENANTS and obligations made or assumed by any party shall
---------
be binding and enforceable against his personal representatives
1.24.6 THE clause headings in these Presents are for ease of
---
reference only and shall not affect the construction thereof
2. THE Landlord HEREBY DEMISES the Premises unto the Tenant TO HOLD the same
--- -------------- -------
for the Term and paying the Reserved Rent
3. THE Premises are demised TOGETHER with the rights set out in Part 1 and
--- --------
EXCEPT AND RESERVED to the Landlord and those authorised by the Landlord as set
- -------------------
out in Part 2 respectively of the Second Schedule
4. THE Tenant covenants with the Landlord in the manner set out in Part 1 of
---
the Third Schedule
5.
<PAGE>
5. THE Landlord covenants with the Tenant in the manner set out in Part 2 of
---
the Third Schedule
6. THE demise hereby made is subject to the proviso for forfeiture set out in
---
the Fourth Schedule
7. THE matters and things set out in the Fifth Schedule are agreed and
---
declared between and by the Landlord and the Tenant
8. THE Surety covenants with the Landlord in the manner set out in the Sixth
---
Schedule
IN WITNESS whereof this deed has been executed by the parties hereto the
----------
day and year first before written.
THE FIRST SCHEDULE
------------------
PART 1 - THE LANDLORD
---------------------
BOTANY INVESTMENTS LIMITED of Botany Avenue Mansfield Nottinghamshire
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NG18 5NF
PART 2 - THE TENANT
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INMOS LIMITED of Whitefriars Lewins Mead Bristol BS1 2NP
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PART 3 - THE SURETY
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INMOS INTERNATIONAL plc of Whitefriars Lewins Mead Bristol BS1 2NP
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PART 4 - THE PREMISES
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ALL THAT property situate at Coed Rhedyn Newport in the County of Gwent
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as the same is more particularly shown edged red on the Plan
PART 5 - TERM AND RENT
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THE TERM Twenty Five years from the 25th day of March One thousand nine
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hundred and eighty-five
THE RESERVED RENT:
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Until the Review Date the sum of Two hundred and thirty thousand four
hundred and ninety pounds per annum ((Pounds)230,490) and so proportionately for
any part of a year
6.
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PART 6 - THE PERMITTED USE
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Class III of the Town and Country Planning (Use Classes) Order 1972
including (but not to the exclusion of other uses within the said Class III) the
manufacturing and service industry uses in the development assembly research and
administration of high technology processes and products together with ancillary
office storage and other facilities
THE SECOND SCHEDULE
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PART 1
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(Rights included in the demise)
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THE right for the Tenant in common with the Landlord and all other
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persons now or hereafter authorised or entitled thereto of free and
uninterrupted passage and running of water and soil gas electricity and other
services to and from the Premises upon through over or under sewers gutters
drains pipes and watercourses wires cables ducts conduits and other media which
serve the Premises in respect of which the Landlord may be entitled to such
rights for himself or those deriving title under him so far as such right is
necessary for the enjoyment of the premises but not for any other purpose
PART 2
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(Exceptions and Reservations)
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SUCH rights of access to and entry upon the Premises as are necessary or
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desirable for the proper and practical observance and performance of the
Landlord's covenants conditions agreements and obligations hereunder
THE THIRD SCHEDULE
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PART 1
(Covenants by the Tenant)
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To pay rent
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1.1 TO pay the Reserved Rent by equal quarterly payments in advance on
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the usual quarter days in each year without any deduction
7.
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To pay interest
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1.2 TO pay any interest for which the Tenant becomes liable pursuant to
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the provisions of Paragraph 1 of Part 2 of the Fifth Schedule
To pay outgoings
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1.3 TO pay and discharge all rates taxes assessments impositions duties
--
charges and outgoings whatsoever whether parliamentary local or otherwise
including without prejudice to the generality of the foregoing any payments of a
capital or recurring or non-recurring nature which are now or may hereafter
become payable in respect of the Premises whether by the owner or occupier
thereof (save such as shall be occasioned by any disposition of or dealing with
(in either case otherwise than by the Tenant) or the ownership of any estate or
interest expectant in reversion of the Term)
To pay proportion of expenses
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1.4 TO pay or to repay (as the case may be) forthwith upon demand a
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fair proportion (to be certified by the Landlord's Surveyor) of the reasonable
expenses from time to time properly payable for supporting repairing rebuilding
maintaining cleansing laying and renewing all walls fences drains gutters pipes
sewers drains pavements roads and any other easements structures or things the
use of which is common to the Premises and other property adjoining or near
thereto and to keep the Landlord indemnified against the same
To pay cost of insurance
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1.5 TO repay forthwith upon demand by the Landlord the premiums
--
incurred by the Landlord (including but without prejudice to the generality
thereof the reasonable and proper costs of periodic insurance valuations not
more frequently than once every three years) in carrying out his obligations
relating to insurance contained in Paragraph 1 of Part 2 of this Schedule
including any additional or increased premium that may be payable in relation to
the Premises as a result of any trade occupation or use of the Premises by the
Tenant or act or omission of the Tenant
To pay costs on consents etc.
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1.6 TO pay all reasonable Solicitors' Surveyors' and other charges
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properly incurred by the Landlord in or in connection with any application to
the Landlord for any consent pursuant to the covenants herein and in or in
connection with any notice or proceedings under Sections 146 and 147 of the Law
of
8.
<PAGE>
Property Act 1925 notwithstanding that forfeiture shall be avoided otherwise
than by relief granted by the Court and in or in connection with the preparation
and service of any schedule of dilapidations served after the Determination of
the Term
To pay Value Added Tax
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1.7 TO indemnify the Landlord or any other person in respect of the
--
amount of any Value Added Tax or any other imposition of like nature chargeable
or payable in respect of all sums payable by the Tenant under any provisions of
these Presents whether to the Landlord or such other person save insofar as any
such payment is recoverable by the Landlord or other such person as an input for
Value Added Tax purposes
To repair
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2.1 TO cleanse and keep clean and to put and keep in good and
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substantial repair and condition and in whole or in part rebuild or renew as
necessary the Premises (including the exterior and structure) and insofar as
they exist in or at the Premises the water ventilation sanitary apparatus
heating and/or air conditioning apparatus and the walls fences roads sewers
drains plant and machinery and appurtenances thereof with all necessary
reparations and cleansing and rebuildings works and amendments whatsoever
including any which nay be rendered necessary by any latent or inherent defects
in the Premises and to replace from time to time all Landlord's fixtures and
fittings and appurtenances in the Premises which may be or become beyond repair
at any time during the Term or at the Determination of the Term (damage by the
Insured Risks excepted save where clause 5 of this Part of the Schedule takes
effect)
To Paint
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2.2 Without prejudice to the generality of the next preceding sub-
clause to the reasonable satisfaction of the Landlord's Surveyor in every sixth
year of the Term (to run from the commencement of the Term) and also in the year
preceding the Determination of the Term to paint in a proper and workmanlike
manner all the inside wood iron and other parts of the Premises heretofore or
usually painted with a sufficient number of coats of good quality paint and to
paper with paper of suitable quality such parts thereof as are usually papered
and so that such internal painting and papering in the last year of the Term
shall be of a tint or colour previously approved in writing by the Landlord such
approval not to be unreasonably withheld and also with every such internal
painting to clean wash whitewash colourwash grain varnish or paper stop whiten
distemper and otherwise decorate and treat in a proper and workmanlike manner
all such internal parts of the Premises that have been or ought
9.
<PAGE>
properly to be so treated and as often as may be necessary but not less than
once in every fourth year of the Term (to run from the commencement of the Term)
and also in the year preceding the Determination of the Term to paint in a
proper and workmanlike manner all the external parts heretofore or usually
painted and all additions thereto with a sufficient number of coats of good
quality paint and to clean and treat in a suitable manner for its maintenance in
good condition all the outside wood and metal work and polished stone not
required to be painted or polished or distempered and to clean and wash down all
tiles cladding glazed bricks or polished stone or similar washable surfaces and
repoint all brickwork as and when reasonably required and so that the tints and
colours of all such works of external decoration in the last year of the Term
shall be previously approved by the Landlord in writing (such approval not to be
unreasonably withheld)
To maintain open areas
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2.3 AT all times to keep and maintain to the reasonable satisfaction of
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the Landlord any areas not covered by buildings clear of rubbish and weeds and
properly maintained neat tidy and landscaped as appropriate and whenever
reasonably necessary or appropriate to replace any trees shrubs plants or other
items
To maintain equipment
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2.4 WITHOUT prejudice to the generality of the foregoing to procure
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that all electrical and mechanical installations and equipment within the
premises be properly and regularly serviced and maintained by qualified persons
To yield up
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3. TO yield up the Premises to the Landlord at the Determination of
--
the Term so repaired maintained rebuilt cleansed painted treated and kept as
aforesaid and fully cleared of any furniture fittings papers and refuse and in
accordance with these Presents and prior to the Determination of the Term
3.1 If so required by notice in writing from the landlord to remove
from the Premises all tenant's and trade fixtures and fittings including any
sign notice or fascia board showing the name and business of the Tenant provided
that if the Tenant shall leave any such fixture or other items after the
Determination of the Term they shall be deemed abandoned and the cost of the
removal and distribution thereof shall be payable by the Tenant to the Landlord
on demand
3.2 To make good all damage caused to the Premises by such removal
10.
<PAGE>
Not to use for immoral purposes
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4.1 NOT to do anything at the Premises which may be immoral or illegal
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or a nuisance annoyance danger or an unreasonable disturbance to the Landlord or
any of his tenants or the neighbourhood
To use only for permitted use
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4.2 NOT without the Landlord's prior written consent (which shall not
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be unreasonably withheld) to use the Premises for any other purpose than that
specified in Part 6 of the First Schedule and not to use or allow the premises
to be used for public or private auctions nor for residential purposes
Not to vitiate insurance
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5.1 NOT to do or omit in or on the Premises anything whereby the
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insurance of the Premises against the Insured Risks may be vitiated or
prejudiced nor without the consent of the Landlord (which shall not be
unreasonably withheld) do anything whereby any additional premium may become
payable for the insurance of the Premises and in the event of any Landlords
insurance policy for the Premises or any part thereof being vitiated in
consequence of any act action or omission of the Tenant fully and effectually to
indemnify the Landlord against all costs claims proceedings or losses resulting
from any damage or injury to the Premises or any part thereof in respect of
which compensation is not forthcoming from the Landlord's insurers
5.2 To notify the Landlord forthwith of any damage to or destruction of
the Premises or any part thereof occasioned by the occurrence of any of the
Insured Risks
5.3 In the event of the Premises or any part thereof being damaged or
destroyed by any of the Insured Risks at any time during the Term and the
insurance money under any insurance effected thereon by the Landlord being
wholly or partially irrecoverable by reason of any act or default of the Tenant
then and in every such case the Tenant will forthwith (in addition to the said
rents) pay to the Landlord the whole (or as the case may require) a fair
proportion of the cost of rebuilding and reinstating the same any dispute as to
the proportion to be so contributed by the Tenant or otherwise in respect of or
arising out of this provision to be referred to arbitration in accordance with
the provisions of the Arbitration Acts 1950 and 1979
5.4 Not at any time without prior written consent of the Landlord to
effect any insurance of the Premises (other than plate glass insurance) in
respect of the Insured Risks but if at any time the Tenant is entitled to the
benefit of any other
11.
<PAGE>
insurance on the Premises then to apply all moneys received by virtue of such
other insurance towards the reinstatement by the Landlord in accordance with the
covenant on its part hereinafter contained of the loss or damage in respect of
which the same shall have been received
5.5 At all times to comply with and observe the requirements of the
relevant authorities having power to deal with means of escape from buildings in
the event of fire so far as such requirements affect the Premises or the
fixtures fittings or furniture therein
5.6 To keep the Premises sufficiently supplied and equipped with fire
fighting and extinguishing apparatus and appliances which shall be open to the
inspection and maintained to the satisfaction of the local fire authority and
also not to obstruct the access to or means of working of such apparatus and
appliances
5.7 Not to store nor permit the storage of any goods or materials upon
any access ways or landscaped or car parking areas comprised within the Premises
Not to display advertisements
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6. NOT without the prior written consent of the Landlord (which shall not be
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unreasonably withheld) to display any sign or advertisement on the Premises
Not to leave rubbish
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7. NOT to leave any rubbish or waste in any open part or outside the Premises
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except in a suitable dustbin or other covered receptacle
Prevention of damage by effluent etc. discharge
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8.1 Not to permit but to take such measures as may be necessary to
ensure that any effluent discharged from the Premises into the drains or sewers
which belong to or are used for the Premises whether or not in common with other
premises will not be corrosive or in any way harmful to the said drains or
sewers or cause any obstruction or deposit therein and to keep all pipes
watercourses gullies and drains belonging to and used exclusively by the
Premises properly flushed cleansed and free from obstruction and if any such
obstruction shall occur forthwith to remove the same and make good any damage
caused thereby whether to the structure of the Premises or otherwise and to
indemnify the Landlord against any claims arising from damage caused by such
obstruction to adjoining or neighbouring premises
12.
<PAGE>
8.2 To take at all times throughout the Term all such steps as are
necessary and proper to prevent the emanation from the Premises of excessive
noise fumes heat or vibration
To comply with statutes
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9. TO comply with and do and execute at the expense of the Tenant all such
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works and all such things as under or by virtue of any Act or Acts of Parliament
now or hereafter to be passed are or shall be directed or necessary to be done
or executed upon or in respect of the Premises or in respect of the Tenant's
user thereof by the owner lessee tenant or occupier thereof and in particular
but without prejudice to the generality hereof to comply with all obligations
imposed upon the owner lessee tenant or occupier under or by virtue of the
Offices Shops and Railway Premises Act 1963 the Defective Premises Act 1972 and
the Planning Acts and at all times to keep indemnified the Landlord against all
claims demands expenses and liability in respect thereof
Assignment and underletting
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10.1 Save as hereinafter expressly provided not to agree to nor assign
transfer underlet or part with or share the possession or occupation of the
whole of the Premises or any part or parts thereof nor to charge any part or,
parts thereof
10.2 Not to assign or charge the Premises (here meaning the whole
thereof) without the previous consent in writing of the Landlord which consent
shall not be unreasonably withheld or delayed in the case of a respectable and
responsible Assignee of satisfactory financial standing subject to such Assignee
if the Landlord so requires first entering into a direct covenant with the
Landlord to observe and perform the covenants on the part of the Tenant herein
contained during the residue of the Term and to pay the rents hereby reserved
and not further to assign or underlet or part with or share the possession or
occupation of the Premises or any part thereof except on the said terms as are
herein contained and also subject if the Landlord shall so reasonably require in
the case of any Assignee who shall be a corporate body to a Guarantor (of a
responsible and respectable and financial status reasonably acceptable to the
Landlord) entering into a direct covenant with the Landlord for guaranteeing the
observance and performance of the covenants on the part of the Tenant herein
contained in such form of guarantee as the Landlord may reasonably require
10.3 Not without the Landlord's prior written consent to underlet the
whole or any part or parts of the demised premises except on terms consistent
with those herein contained at a full market rent (all commutations premiums and
fines being hereby
13.
<PAGE>
expressly prohibited) which shall be subject to review at such intervals as
shall be normal in the market for similar property at the time of the grant
thereof (but in any event at least as often as required by these Presents and
simultaneous therewith) the rent and underlessee and the terms and form of the
underlease being subject to the prior written consent of the Landlord (such
consent not to be unreasonably withheld) PROVIDED ALWAYS that
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(i) there shall not be more than four occupational tenancies of
the Premises at any one time each comprising not less than
15,000 square feet gross internal floor area and
(ii) the Landlord may require a direct covenant from any
underlessee whether mediate or immediate) to observe and
perform the covenants and conditions on the part of such
underlessee contained in any such underlease
10.4 Any underlease granted under this sub-clause shall contain
(i) An unqualified covenant on the part of the Underlessee not to
assign transfer charge or underlet or part with possession or
occupation of the Premises thereby demised otherwise than in a
manner consistent with the foregoing provisions of this clause
(ii) A covenant on the part of the Underlessee that the Underlessee
will not assign the whole of the Premises or underlet the
whole or any part or parts thereof without obtaining the
previous written consent of the Landlord under these Presents
(such consent not to be unreasonably withheld) and of the
Tenant under these Present and to provide in such Underlease
that any sub-underleases granted out of such Underlease
whether immediate or mediate shall contain provisions
consistent with those contained in this clause 10
10.5 Within one month of every permitted assignment transfer underlease
(whether mediate immediate or derivative) parting with possession or occupation
of these presents or of the Premises or of any charge or mortgage thereof to
give notice thereof in writing with particulars thereof to the Landlord's
Solicitors and produce to them a certified copy of such instrument (free of
expense to the Landlord) for retention by the Landlord and to pay to them a
reasonable registration fee of not less than Fifteen Pounds ((Pounds)15.00) in
respect of each registration
14.
<PAGE>
10.6 Upon every application for consent required by this clause 10 to
disclose to the Landlord such information as to the terms proposed by the Tenant
as the Landlord may reasonably require and whenever required by the Landlord to
provide in writing full details of the actual occupation of the Premises
10.7 In the event of a breach non-performance or non-observance of any
of the covenants conditions agreements and provisions contained or referred to
in these Presents by any underlessee or other person holding the Premises as
underlessee (whether immediate or not) forthwith upon discovering the same to
take and institute at the Tenant's own expense all necessary steps and
proceedings to remedy such breach non-performance or non-observance.
10.8 Nothing contained in this Clause 10 shall prevent the Tenant from
sharing occupation of the whole or any part or parts of the Premises with any
company (herein called "The Group Company") which is for the time being a
subsidiary of the Tenant or the holding company of the Tenant or which is
another subsidiary of the holding company of the Tenant (in each case within the
meaning of Section 154 of the Companies Act 1948 and in any case whether mediate
or immediate) subject to the following conditions:-
(i) No relationship of landlord and tenant shall be created or
deemed to exist between the Tenant and the Group Company
(ii) The Group Company shall not be given exclusive occupation of
the whole or any part of the Premises
(iii) The right of any company to occupy the Premises or any part
thereof shall determine upon such company ceasing to be a
Group Company
(iv) The Tenant shall notify the Landlord of the identity of any
such Group Company occupying or ceasing to occupy the
Premises as aforesaid
Alterations
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11.1 Not at any time to make any addition to or alteration in the
structural frame of any building situated on the Premises
11.2 Not at any time without the prior written consent of the Landlord
(which (subject to the following provisions) shall not be unreasonably withheld)
to make any addition to or
15.
<PAGE>
alteration in the external appearance of the Premises PROVIDED THAT:-
(i) Any such addition or alteration shall be of a design
consistent with and of comparable quality to the remainder
of the Premises
(ii) Any such addition or alteration shall incorporate good
quality materials of a standard comparable to those used in
the remainder of the exterior of the Premises
(iii) At the determination of the Term the Tenant shall at the
written request of the Landlord made prior to the
determination of the Term dismantle and remove such as the
Landlord may specify of any alterations and additions made
to the Premises during the Term and shall reinstate the
Premises and make good forthwith any damage caused
Not to apply for planning permission
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11.3 NOT without the previous consent in writing of the Landlord to
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apply for any planning permission relating to the Premises or to any part
thereof or to the use thereof or of any part thereof and in the event of the
Landlord attaching any conditions to such consent not to apply for any planning
permission save in accordance with those conditions and in particular but
without prejudice to the generality of the aforesaid the Landlord shall be
entitled to refuse any such consent if the giving of the same will or may render
the Landlord liable to the payment of development land tax or any future tax or
levy based upon the realisation of the development value in land unless the
Tenant shall give to the Landlord a full and effectual indemnity in respect of
any such tax or levy (but so that the amount of any such indemnity shall not
exceed the amount of any such tax or levy for which the Landlord would otherwise
have been liable but for this indemnity) PROVIDED THAT the Landlord shall not
unreasonably withhold its consent to an application by the Tenant for planning
permission in respect of a change of use or alteration of or addition to the
Premises to which the Landlord shall have consented pursuant to the foregoing
provisions of these Presents
To apply for determination
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11.4 IF the Landlord reasonably so directs to make application to the
--
relevant planning authority for a determination whether any alteration or change
of use proposed by the Tenant requires permission under the Planning Acts and to
give notice in writing to the Landlord of the decision of the
16.
<PAGE>
relevant planning authority upon any such application and (where applicable) of
the decision of the Secretary of State for the Environment upon appeal therefrom
within seven days thereof
To obtain other approvals
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11.5 TO obtain all approvals of plans permissions and other things
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necessary for the execution of the erections or alterations and to comply with
the regulations bye-laws conditions and other matters prescribed by any relevant
planning authority either generally or in respect of the specific works
undertaken in such erections or alterations
To produce documents
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11.6 UPON request by the Landlord to produce to him or his authorised
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agent all such notices permissions consents licenses approvals covenants
receipts and other written documents in any way relating to the said erections
and alterations and to allow the Landlord or his agent (but at the expense of
the Landlord) to make a copy thereof
To provide security for removal of works
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11.7 IN any case where planning permission has been granted subject to
--
conditions as to the discontinuance of any permitted use or to removal of any
works carried out pursuant to such permission the Landlord shall be entitled
reasonably to require the Tenant to provide security for compliance with such
conditions and no works shall be commenced or change of use instituted until
such security shall have been provided to the reasonable satisfaction of the
Landlord
To remove unauthorised works
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11.8 TO remove any erection or alteration made without such previous
--
consent in writing by the landlord or in respect of which the permission of the
relevant planning authority is withdrawn or lapses and to comply with every
order of such authority requiring the removal or demolition of or other work in
connection with such erections or alterations and in all such cases to make good
all damage caused by such removal demolition or other work and to restore all
parts of the Premises affected thereby to a condition consistent with the
covenants in these Presents as to repair and decoration
Complete Developments within Term
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11.9 UNLESS the Landlord shall otherwise direct to carry out before the
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Determination of the Term any works (the carrying out of which is otherwise
permitted hereunder) required to be
17.
<PAGE>
carried out in or on the Premises by a date subsequent to the Determination as a
condition of any planning permission which may have been granted to and
implemented by the Tenant during the Term
To pay cost of works
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11.10 ALL the above provisions of this clause 11 unless otherwise agreed
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when permission is granted by the Landlord for the execution of such erections
or alterations shall be complied with at the cost and expense of the Tenant
Purchase Notice
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11.11 NOT to serve any purchase notice under the Planning Acts requiring
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any local authority to purchase the Tenant's interest in the Premises or any
part thereof
Compensation
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11.12 IF the Tenant shall receive any compensation because of any
--
restriction placed upon the user of the Premises or any part thereof under or by
virtue of the Planning Acts then if and when its interest hereunder shall be
determined under the power of re-entry herein contained or otherwise forthwith
to make such provision as is just and equitable for the Landlord to receive its
due benefit from such compensation unless the compensation authority shall
otherwise order
Not to overload
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12. NOT to overload the Premises or the supplies and services thereto
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Not to alter services
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13. NOT to alter the electrical installation or other services serving the
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Premises save in accordance with the relevant codes of practice
Copies of Notices
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14.1 Within seven days of the receipt by the Tenant of the same to
supply a copy to the Landlord of any notice or order or proposal for a notice or
order or license consent permission or direction given or made under any Act and
relating to the Premises and to permit the Landlord at all reasonable times upon
prior notice given by the Landlord to enter upon the Premises to inspect the
same for any purpose in connection with any such notice order proposal license
consent permission or direction PROVIDED THAT the Landlord shall comply with the
Tenant's
18.
<PAGE>
reasonable requirements and regulations relating to the conduct and timing of
the Tenant's operation and business
To comply with notices
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14.2 TO comply at the Tenant's own expense with any statutory notice
--
proposal for a notice order or other requirement lawfully served by any
competent authority upon either the Landlord or the Tenant concerning the
Premises (save such as shall properly relate to any disposition of or dealing
with or the ownership of any estate or interest in the Premises expectant in
reversion of the Term)
To join in Landlord's representations
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14.3 AT the request of the Landlord to make or join with the Landlord in
--
making such reasonable objections or representations against or in respect of
any such notice order or requirement as aforesaid as the Landlord shall
reasonably deem expedient
To permit entry
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15.1 TO permit the Landlord at all reasonable times at a convenient hour
--
and upon reasonable notice (except in emergency) to enter the Premises to view
the Premises to ensure that nothing has been done or omitted therein
constituting a breach of any of the covenants herein and also to examine the
condition of the Premises and take inventories of the Landlord's fixtures and
fittings thereon PROVIDED THAT the Landlord shall comply with the Tenant's
reasonable requirements and regulations relating to the conduct and timing of
the Tenant's operation and business
To remedy defects
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15.2 WITHIN one month (or sooner if reasonably appropriate) to commence
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and thereafter diligently to proceed to remedy repair and make good all breaches
and defects of which notice shall be given by the Landlord to the Tenant for
which the Tenant is liable under these Presents and in case of default by the
Tenant in remedying repairing or making good any such breaches within such
period (without prejudice to any other rights or remedies of the Landlord) to
enter the Premises to remedy such default and breaches and to repay on demand to
the Landlord the cost thereof and all expenses incurred in connection therewith
and to indemnify the Landlord in respect of any loss or injury caused to third
parties by the default of the Tenant PROVIDED THAT (except in the case of any
emergency repair or remedy which may be required) the Landlord shall give to the
Tenant prior notice of his intention so to enter the Premises and (in any event)
the Landlord shall so far as reasonably possible
19.
<PAGE>
comply with the Tenant's reasonable requirements and regulations relating to the
conduct and timing of the Tenant's operation and business
To permit Landlord's notices
----------------------------
16. TO permit the Landlord to exhibit on the Premises a notice that the
--
reversionary interest in the same is to be sold or (but only during the last
twelve months of the Term) that the same are to be let and to permit by
appointment inspection by intending tenants or purchasers of the Premises
subject to compliance by such persons with the Tenant's reasonable requirements
and regulations relating to the conduct and timing of the Tenant's operation and
business
Not to permit encroachments
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17. NOT to permit any encroachment upon the Premises or the acquisition of any
---
new right to light passage drainage or other easement on over or under the
Premises and to give notice to the Landlord of any threat of such encroachment
or acquisition and at the Landlord's reasonable request to take such proper
action as may be reasonably appropriate to prevent such encroachment or
acquisition PROVIDED THAT if the Tenant shall not take such proper action the
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Landlord may do the same and any expense incurred in so doing shall immediately
be repaid to the Landlord by the Tenant on demand
Costs of Licenses
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18.1 To pay the reasonable and proper legal charges and surveyors fees
of the Landlord including the Stamp Duty on the licenses and counterparts
resulting from all applications by the Tenant for any consent or approval or
permission of the Landlord required by this Lease and also the reasonable and
proper legal charges and surveyors fees incurred by the Landlord in cases where
consent or approval or permission is refused or the application is withdrawn
Legal Charges
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18.2 To pay to the Landlords solicitors their reasonable and proper
charges for the preparation of this Lease and the Counterpart thereof and the
Stamp Duties thereon
Indemnity
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19.1 To indemnify and keep indemnified the Landlord from liability in
respect of any injury to or the death of any person damage to any property
movable or immovable the infringement disturbance or destruction of any right
easement or privilege or
20.
<PAGE>
otherwise by reason of or arising directly or indirectly out of the non-
compliance by the Tenant with any of its obligations under this Lease and from
all proceedings costs claims and demands of whatsoever nature in respect of any
such liability or alleged liability
19.2 To be responsible for and to indemnify the Landlord against all
damage occasioned to the Premises or any adjacent or neighbouring premises or to
any person caused by any act default or negligence of the Tenant or the servants
agents licensees or invitees of the Tenant
PART 2
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(Covenants by the Landlord)
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To insure
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1. Subject to compliance by the Tenant with the provisions of sub clause 5.1
of Part 1 of this Schedule to keep the Premises insured in an insurance office
of good repute or at Lloyds (subject to acceptance of such risks by insurers) in
the joint names of the Landlord and the Tenant against
1.1 loss or damage arising from the Insured Risks in such an amount as
the Landlord shall from time to time reasonably deem to be adequate to cover the
cost of completely rebuilding or replacing the Premises in the event of total
destruction thereof (including reasonable provision for escalation of such cost
between the date of destruction or damage and the date of rebuilding or
reinstating the Premises) and
1.2 professional fees on such amount (including architects' surveyors'
engineers' solicitors' and any other relevant professional fees) the cost of
demolition of the Premises and of site clearance and removal of debris and
shoring up and the total rent reserved in respect of the Premises for a period
of three years at the rate payable for the time being and prospectively to
become payable from any Relevant Review Date (as herein defined)
1.3 in the event of the premises being destroyed or damaged by any of
the Insured Risks (subject to the provisions of clause 5.1 of Part 1 of this
Schedule) with all reasonable speed (subject to previously obtaining any
planning or other permission therefor) to repair or reinstate the Premises
1.4 it is hereby agreed and declared that if the rebuilding repairing
or reinstating of the Premises shall be frustrated or become incapable of
performance the whole of the
21.
<PAGE>
insurance monies shall as between the Landlord and the Tenant belong to the
Landlord
Quiet Enjoyment
---------------
2. THAT the Tenant upon paying the Reserved Rent and observing and performing
----
the Tenant's covenants contained in these Presents shall and may peaceably hold
and enjoy the Premises during the Term without any interruption or disturbance
from or by the Landlord or any person lawfully claiming by through under or in
trust for him
FOURTH SCHEDULE
---------------
(Proviso for Forfeiture)
------------------------
If the Reserved Rent or any part thereof shall remain unpaid for twenty-one
days after becoming payable (whether formally demanded or not) or if any
covenant or stipulation by the Tenant contained in these Presents shall not be
performed or observed or if the Tenant or the Surety (or any one party included
within the definition of the Tenant or the Surety) being a company shall enter
into liquidation (whether compulsory or voluntary) save for the purpose of
amalgamation or reconstruction or shall have a manager or receiver appointed or
if the Tenant or the Surety (or any one individual included within the
definition of the Tenant or the Surety) being an individual shall enter into a
composition with his creditors or commit an act of bankruptcy or have a
receiving or adjudication order made against him or suffer any of his effects to
be taken in execution then and in any of the said cases it shall be lawful for
the Landlord at any time thereafter to re-enter upon the Premises or any part
thereof in the name of the whole and thereupon this demise shall absolutely
determine but without prejudice to the right of action of any party in respect
of any arrears of rent or any antecedent breach of covenant by any other party
FIFTH SCHEDULE
--------------
PART I
------
Provisions for Rent Review
--------------------------
1. The Reserved Rent shall be reviewed as at and (if appropriate) increased as
from each Review Date during the Term as hereinafter provided
2. The Reserved Rent in respect of each Review Period shall be the highest
of:-
22.
<PAGE>
(i) The product of the formula (P / Q x R) where P is the Open Market Rent
and Q is 25,000 and R is the gross internal area measured in square feet of the
actual principal building comprised in the Premises and
(ii) The amount of the Reserved Rent payable for the period immediately
preceding the Relevant Review Date and
(iii) The product of the formula (E x F) where E is the amount of the
Reserved Rent payable for the period immediately preceding the Relevant Review
Date and F is the Multiplier prevailing at the Relevant Review Date
3. The Landlord and the Tenant shall endeavour to agree the Comparable
Premises and the Comparable Rent and the Open Market Rent at each Relevant
Review Date and any such agreement shall be in writing signed by or on behalf of
the Landlord and the Tenant
4. If the Comparable Premises and the Comparable Rent and the Open Market Rent
shall not have been agreed between the Landlord and the Tenant three months
before the Relevant Review Date for whatever reason and the Landlord shall not
have previously given to the Tenant notice in writing that there will be no
increase in the Reserved Rent for the Relevant Review Period either party may at
any time (whether before or after the Relevant Review Date) by notice in writing
to the other party require the Comparable Premises and the Comparable Rent and
the Open Market Rent (or whichever of them shall not have been agreed between
the Landlord and the Tenant as aforesaid) to be determined by the Surveyor who
shall be jointly appointed by agreement between the Landlord and the Tenant
Provided that such surveyor must have substantial experience of the relevant
areas and of properties of a similar nature to the Premises and the Comparable
Premises and of the matters in dispute
5. In default of agreement between the Landlord and the Tenant on the joint
appointment of the Surveyor the Surveyor whose appointment shall be subject to
the proviso to paragraph 4 of this part of the Fifth Schedule shall be appointed
by the President (or other the Chief Officer or acting Chief Officer) for the
time being of the Royal Institution of Chartered Surveyors on the written
application of the Landlord or the Tenant who shall be at liberty to make such
application at any time after giving the notice last referred to in accordance
with paragraph 4 of this Part of the Schedule
6. The Surveyor shall act as an arbitrator in accordance with the provisions
of the Arbitration Acts 1950 and 1979
7. If any of the Comparable Premises and the Comparable Rent and the Open
Market Rent has not been ascertained by any Relevant
23.
<PAGE>
Review Date in accordance with the provisions hereof the Tenant shall pay to the
Landlord for any interval between such Relevant Review Date and the date when
the last of the Comparable Premises and the Comparable Rent and the Open Market
Rent has been ascertained as aforesaid the Reserved Rent at the yearly rate
payable immediately preceding such Relevant Review Date and upon the amount of
the Reserved Rent payable from such Relevant Review Date being ascertained any
additional amount payable for the period commencing on the Relevant Review Date
and ending on the quarter day immediately following such ascertainment shall be
forthwith paid by the Tenant to the Landlord together with interest thereon at
three per cent below the Prescribed Rate for the period from the Relevant Review
Date to the date of actual payment that interest to be recoverable as if it were
part of the Reserved Rent PROVIDED THAT if the Landlord shall not have
endeavoured to agree the Comparable Premises and the Comparable Rent and the
Open Market Rent pursuant to paragraph 3 of this part of this Schedule and shall
not have applied for the appointment of the Surveyor pursuant to paragraph 5 in
either case on or before the Relevant Review Date then the Tenant shall only be
obliged to pay any such interest as aforesaid with effect from the earlier of
the dates on which the Landlord shall first endeavour to agree the Comparable
Premises and the Comparable Rent and the Open Market Rent or shall apply for the
appointment of the Surveyor
8. On each and every occasion during the Term that the Rent Restrictions shall
prevent or prohibit either wholly or partially:-
8.1 the operation of the above provisions for review of the Reserved
Rent and/or
8.2 the collection of the Reserved Rent or any instalment or part
thereof by the Landlord or the retention thereof at any time after collection
then and in any such case:-
8.3 any Relevant Review Date shall be postponed to take effect on the
first date or dates thereafter upon which such review may occur and if there
shall be a partial relaxation of the Rent Restrictions there shall be a further
review of the Reserved Rent on the first date thereafter as aforesaid
notwithstanding that the Reserved Rent may have been increased in part on or
since the original Relevant Review Date PROVIDED THAT any such postponed review
or reviews shall be determined and assessed as at the original Relevant Review
Date and not at the Postponed Review Date and/or
24.
<PAGE>
8.4 the collection of any increase in the Reserved Rent shall be
Postponed to take effect on the first date thereafter that such increase may be
collected and/or retained in whole or in part and on as many occasions as shall
be required to ensure the collection of the whole increase
AND until the Rent Restrictions shall be relaxed either partially or wholly
the Reserved Rent shall be the maximum sum from time to time Permitted by the
Rent Restrictions
9. On each occasion that the Reserved Rent is reviewed pursuant to the
provisions of this part of this Schedule the Landlord and the Tenant shall cause
a memorandum of the amount thereof payable for the Relevant Review Period to be
prepared and a counterpart thereof and for such memoranda to be signed
respectively by or on behalf of the Landlord and Tenant
PART 2
------
1. IF the Tenant shall fail to pay within seven days of the due date the
--
Reserved Rent or any other monies payable by the Tenant pursuant to any of the
obligations herein he shall (save where he is already liable to pay interest
thereafter in accordance with paragraph 7 of Part I of this Schedule and without
prejudice to any other remedy or right of entry of the Landlord) pay interest
thereon at the Prescribed Rate (whether before or after judgement) calculated
from the date when such rent or monies as aforesaid become payable until the
date of actual payment thereof by the Tenant and the amount owing together with
such interest may be recovered by the Landlord by action or distress and as if
(in the case of monies other than rent) the same formed part of the Reserved
Rent or as liquidated damages
2. IF the Premises shall at any time be destroyed or damaged by any of the
--
Insured Risks so as to be unfit for occupation or use then and in any such case
(unless the insurance of the Premises shall have been vitiated by the act
neglect default or omission of the Tenant) the Reserved Rent or a fair and just
proportion thereof according to the nature and extent of the damage sustained
(the amount of such proportion in the event of dispute to be referred to a
single arbitrator under the provisions of the Arbitration Acts 1950 and 1979)
shall cease to be payable until the Premises shall have been reinstated or until
the expiration of the period of three years from the date of such destruction or
damage whichever shall first occur
3. Section 196 of the Law of Property Act 1925 shall apply to any notice
required to be served by these Presents
25.
<PAGE>
4. ANY approval license or consent or notice or request by the Landlord for
---
any of the purposes of these Presents shall be in writing and shall be
sufficient if it purports to be signed by a duly authorized officer of the
Landlord
5. SUBJECT to the provisions of sub-section 2 of Section 38 of the Landlord
-------
and Tenant Act 1954 in relation to the Tenant claiming compensation neither the
Tenant nor any assignee or sub-lessee of the Term or the Premises shall be or
become entitled on quitting the Premises or otherwise to any compensation under
Section 37 of the said Act
6. NO warranty is given or to be implied by these Presents by the Landlord or
--
otherwise that the use to which the Tenant proposes now or hereafter to put the
Premises nor any alteration or addition which the Tenant may now or hereafter
desire to carry out will not require planning permission under the Planning Acts
and the Tenant will keep the Landlord indemnified against any costs claims
actions proceedings compensation demands or charges which may arise directly or
indirectly under the Planning Acts in respect of the Premises
THE SIXTH SCHEDULE
------------------
(Surety Clause)
The Surety HEREBY COVENANTS with the Landlord that the Tenant will during
the Term pay the rents hereby reserved or as subsequently increased hereunder
and made payable in manner aforesaid and will perform and observe all the
covenants on the part of the Tenant and the conditions contained in these
Presents and that in case of default in payment of the rents hereby reserved and
made payable or in the performance or observance of such covenants the Surety
will pay during the Term and make good to the Landlord on demand as well after
as before any disclaimer all losses damages costs and expenses thereby arising
or incurred by the Landlord PROVIDED ALWAYS that any neglect indulgence or
forbearance of the Landlord in endeavouring to obtain payment of the rents
hereby reserved and made payable when the same becomes payable or to enforce
performance of the said covenants on the part of the Tenant or the conditions or
any time which may be given to the Tenant by the Landlord or any revision or
variation to this Lease or these Presents made between the Landlord and the
Tenant shall not release or exonerate or in any way affect the liability of the
Surety under this covenant which as between the Landlord and the Surety shall be
deemed to be liability of a principal but PROVIDED FURTHER that the liability of
the Surety under this covenant shall not extend to any matter for which the
original Tenant herein named is not also liable under the covenants and
conditions on the part of the Tenant contained in
26.
<PAGE>
these Presents AND in the event of the original Tenant herein named during the
Term (or if shorter during the period while these Presents remain vested in the
original Tenant herein named) becoming bankrupt or entering into liquidation and
the trustee in such bankruptcy or the liquidator as the case may be disclaiming
these Presents the Surety hereby covenants with the Landlord to accept from the
Landlord a new lease of the Premises for a term equal in duration to the residue
remaining unexpired of the Term at the date of disclaimer such lease to contain
the same terms in all respects (including the proviso for re-entry) as are
contained in these Presents PROVIDED that the Landlord within the period of
three months after such disclaimer shall serve upon the Surety notice so to do
THE COMMON SEAL of BOTANY )
INVESTMENTS LIMITED was )
hereunto affixed in the )
presence of:- )
Director
--------
Secretary
---------
27.
<PAGE>
DATED 26 May 1988
DEED
varying lease of premises at
Coed Rhedyn Newport Gwent
BOTANY INVESTMENTS LIMITED (1)
INMOS LIMITED (2)
INMOS INTERNATIONAL plc (3)
Ref: 3/7543w/ft
28.
<PAGE>
DEED
DATED 26 May 1988
PARTIES
(1) BOTANY INVESTMENTS LIMITED ("the Landlord") having its registered office at
Botany Avenue Mansfield Nottinghamshire NG18 5NF (registered in England
under company number 508154)
(2) INMOS LIMITED ("the Tenant") having its registered office at 1000 Aztec
West Almondsbury Bristol BS12 4SQ (registered in England under company
number 1376187)
(3) INMOS INTERNATIONAL plc ("the Surety") having its registered office at 1000
Aztec West Almondsbury Bristol BS12 4SQ (registered in England under
company number 1355232)
RECITALS
A This deed is supplemental to a lease ("the Lease") dated 5 July 1985 made
between the Landlord (1) the Tenant (2) and the Surety (3) by which premises
("the Premises") situate at Coed Rhedyn Newport Gwent more particularly
described in the Lease were demised for a term of 25 years from 25 March 1985
subject to the payment of the rents reserved by and the observance and
performance of the covenants on the lessees part and the conditions contained in
the Lease
B The reversion immediately expectant upon the determination of the term
granted by the Lease remains vested in the Landlord and the unexpired residue of
the term granted by the Lease remains vested in the Tenant
C The parties hereto have agreed that the Lease should be varied in
accordance with the provisions of this deed
OPERATIVE PROVISIONS
1 The parties hereby agree that:
1.1 The plan annexed to this deed shall be substituted for the plan
annexed to the Lease to the intent that those parts of the land shown coloured
pink on the said plan which were not included in the original demise to the
Tenant hereinbefore recited shall henceforth be included in the said demise to
the Tenant and shall form part of the premises and shall be subject to the
covenants and conditions contained in the Lease
29.
<PAGE>
1.2 The inventory annexed to this deed shall be substituted for the
inventory attached to the Lease
1.3 Paragraph (b) of the definition of "Open Market Rent" contained in
clause 1.16 of the Lease shall be amended to read as follows:
"(b) any effect upon rent of any improvement carried out by the
Tenant or any undertenant during the Term other than such as are carried
out in pursuance of an obligation under these Presents or such as are set
forth in the inventory attached"
1.4 The definition of "Notional Premises" in clause 1.20 of the Lease
shall be amended so as to read as follows:
"1.20 "Notional Premises": the Premises (excluding the matters to
------------------
be disregarded pursuant to paragraphs (b) and (c) of Clause 1.16) on the
assumption that the principal building therein comprised is (or at the
Relevant Review Date shall be) a building in all material respects (so far
as reasonably possible) of the same age design construction and layout and
with similar ancillary facilities and with the same proportionate
distribution of internal floor space between the several uses carried on or
intended to be carried on therein as (in all such respects) the actual
principal building for the time being comprised in the Premises but has (or
shall have) a gross internal floor area of 25,000 square feet"
1.5 The following additional clause shall be added as clause 20 at the
end of Part 1 of the Third Schedule of the Lease:
"Restriction against creation of access way
20 Not to create or allow to be created any access way vehicular or
pedestrian from the land transferred by a Transfer dated 14 February 1986
made between the Secretary of State for Wales (1) and Botany Investments
Limited (2) to the adjoining roads known as the A455 or the M4 or its slip
roads"
2 The parties hereto hereby agree and declare that henceforth the Lease shall
take effect and be read and construed in accordance with the variations
contained in this deed and confirm that the covenants and conditions contained
in the Lease (save as varied by this deed) shall continue in full force and
effect
3 The Landlord agrees that forthwith following completion of this deed it
will procure that a memorandum of this deed in the
30.
<PAGE>
form set out below is endorsed upon the counterpart Lease and the Tenant agrees
that forthwith following completion of this deed it will procure that such a
memorandum is endorsed upon the original Lease:
"By a deed dated 26 May 1988 made between Botany Investments
Limited (1) INMOS Limited (2) and INMOS International plc (3) the
provisions of the within written lease were varied in accordance with the
provisions contained in the said deed"
4 The Landlord and Tenant hereby agree that immediately following execution
of this deed they will lodge at H M Land Registry the land certificates relating
to their respective titles in the Premises to meet applications for registration
of this deed and do hereby jointly apply to the chief land Registrar to make the
necessary entries on the registers of the titles concerned in order to give
effect to the variations contained in this deed
IN WITNESS the parties have duly executed this deed the day and year first
above written
The Common Seal of )
BOTANY INVESTMENTS LIMITED )
was hereunto affixed in the )
presence of )
Director
Secretary
31.
<PAGE>
INVENTORY
SCHEDULE OF WORKS
-----------------
1 SUSPENDED CEILING
16 mm thick compressed fibre glass accolade ceiling panel with vinyl skin
to face laid in exposed T-grid complete with perimeter batten as follows:
(a) Assembly Area: 1200 x 600 mm tiles
(b) Cafeteria and Administration Areas 600 x 600 mm tiles
2 LIGHTING
(a) Assembly Area: Thorn "Clipper" type fluorescent tube system, surface
mounted on flanged deep trunking forming part of the suspended ceiling.
Switched in 16 sections from a main distribution boards (distribution boards
excluded) with cabling run transversely in 2 cross ducts to each run of lighting
trunking. All necessary additional suspensions included.
613 no. twin lamp 5 foot tube surface mounted fittings to give 400
lux lighting level.
(b) Cafeteria and Administration Areas: Thorn "New Format" recessed
lighting fittings size 600 x 1800 mm with prismatic diffusers wired to one main
distribution board (distribution board excluded) through PVC conduit. Fittings
fixed in a modular grid into the suspended ceiling, including all necessary
additional suspension and supports.
182 no. twin lamp 6 foot tube recessed fittings, giving 500 lux
lighting level
3 HIGH PRESSURE WATER MAIN AND SPRINKLER INSTALLATION
200 mm ductile cast iron high pressure water main to BS121 8 to perimeter
of building including all necessary trenching, beds, surrounds, valves and
connections 5 nr fire hydrants with bolted connections to BS750 and BS5306.
Sprinkler system to be in accordance with the rules of the Fire Officer's
Committee for automatic sprinkler systems 29th Edition and BS5306 part 2: 1979
- - Code of Practice for fire extinguishing installations and equipment on
premises - sprinkler systems as follows:
32.
<PAGE>
(a) Assembly Area: ordinary hazard group 3.
(b) Cafeteria and Administration Areas: ordinary hazard.
150 mm ductile cast iron high pressure water main to BS1218 connected to
mains water supply including all necessary trenching, beds, surrounds, valves
and connections. Sprinkler heads to conventional pattern of a make and type
approved by the FOC and listed in the FOC list of approved automatic sprinkler
equipment.
4 FLOOR COVERINGS
Floor coverings provided as follows:
(a) Assembly Area
(i) corridors and ancillary area: 2 mm vinyl tile flooring 23,000
sq. ft.
(ii) production area: Gerland Robust anti-static tile flooring to
assembly areas. No finish (developers power floated concrete slab) to process
area 28,500 sq. ft.
(b) Cafeteria and Administration Areas
(i) cafeteria: 2 mm vinyl tile flooring
(ii) administration area: Heuga contract carpet tiles
33.
<PAGE>
H M LAND REGISTRY
H M LAND REGISTRY LAND REGISTRATION ACTS 1925 TO 1986
RULES 98 OR 115 LAND REGISTRY RULES 1925
County or District: Gwent - Newport
Title Number: WA310195
Property: Land on the east side of the A455 at Coed Rhedyn
Date: 19 day of January 1995
1 In consideration of ten pounds ((Pounds)10.00) inclusive of Value Added Tax
if any the receipt of which is hereby acknowledged NEWPORT WAFER-FAB
LIMITED a company registered in England and Wales under Company
Registration Number 2739765 having its registered office at Cardiff Road
Duffryn Newport Gwent NP9 1YJ ("the Transferor") as beneficial owner hereby
transfers to ELECTROTECH LIMITED a company registered in England and Wales
under Company Registration Number 1373344 having its registered office at
1-5 Old Mixon Trading Estate Weston Super Mare Avon BS24 9AX ("the
Transferee") the land comprised in the title above referred to
2 IT IS HEREBY AGREED AND DECLARED that any covenant which is implied by
Section 24(1)(a) of the Land Registration Act 1925 by reason of the
Transferor transferring and being expressed to transfer as beneficial owner
shall be so modified that it shall not be implied that any obligation on
the part of the tenant contained in the Registered Lease has been performed
or observed which is performed or observed would put the Property into a
state and condition other than that in which it now is
3 With the object and intention of affording to the Transferor a full and
sufficient indemnity but not further or otherwise the Transferee and (as a
separate covenant) ELECTROTECH EQUIPMENTS LIMITED a company registered in
England and Wales under Company Registration Number 939289 having its
registered office at Prince of Wales Industrial Estate Abercarn Newport
Gwent NP1 5AR ("the Guarantor") hereby covenant with the Transferor that
the Transferee and its successors in title shall:-
3.1 henceforth pay the rents reserved by and perform and observe all the
tenant's covenants and the conditions and provisions contained in the
Registered Lease and in any other document which related to the
Property
<PAGE>
3.2 keep the Transferor indemnified against all actions demands losses
costs claims expenses damages and liability whatsoever by reason of
any breach of the above provisions of this clause
4 The Transferee hereby covenants with the Transferor by way of
indemnity only to observe and perform all restrictions covenants
agreements stipulations and other matters contained or referred to in
the Registers of Title under the Title Number and any other matter
relating to the Property in respect of which the Transferor may remain
liable and to indemnify and keep indemnified the Transferor from and
against all actions costs claims demands losses expenses and liability
in respect thereof or in any way relating thereto and the Guarantor
(as a separate covenant) hereby covenants with the Transferor to keep
the Transferor indemnified against all actions claims demands losses
costs expenses damages and liability whatever by reason of any breach
by the Transferee of the above provisions of this clause
EXECUTED AS A DEED BY NEWPORT
WAFER-FAB LIMITED by the signature of:-
Director
Secretary/Director
<PAGE>
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
---------------------------------------------------------------------
<TABLE>
<CAPTION>
TEN MONTHS
ENDED
YEAR ENDED DECEMBER 31 DECEMBER 31,
---------------------------- ------------
1996 1995 1994
------------- ---------- ------------
<S> <C> <C> <C>
Primary:
Average Common shares outstanding 9,420,020 3,661,751 929,386
Preferred Stock converted to Common
shares -- 1,951,645 3,031,279
Stock options and warrants issued
during the periods presented, prior to
the initial public offering using the
treasury method (offer price of $14
per share) -- 677,612 1,052,461
Net effect of dilutive stock options -
based on the treasury stock method
using average market price -- 210,466 --
Net effect of dilutive warrants - based
on the treasury stock method using
average market price -- 91,837 --
------------- ---------- ------------
Total Shares 9,420,020 6,593,311 5,013,126
============= ========== ============
Net income (loss) $(94,474,810) $ 117,885 $(3,739,698)
============= ========== ============
Per share amount $ (10.03) $0.02 $ (0.75)
============= ========== ============
Fully diluted:
Average Common shares outstanding 9,420,020 3,661,751 929,386
Preferred Stock converted to Common
shares -- 1,951,645 3,031,279
Stock options and warrants issued
during the periods presented, prior to
the initial public offering using the
treasury method (offer price of $14
per share) -- 677,612 1,052,461
Net effect of dilutive stock options -
based on the treasury stock method
using average market price -- 210,466 --
Net effect of dilutive warrants - based
on the treasury stock method using
average market price -- 91,837 --
------------- ---------- ------------
Total shares 9,420,020 6,593,311 5,013,126
============= ========== ============
Net income (loss) $(94,474,810) $ 117,885 $(3,739,698)
============= ========== ============
Per share amount $ (10.03) $0.02 $ (0.75)
============= ========== ============
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of the Registrant
PLASMA & MATERIALS TECHNOLOGIES (KOREA) CO., LTD., a Korean corporation
PLASMA & MATERIALS TECHNOLOGIES, JAPAN KK, a Japanese corporation
ELECTROTECH LIMITED, an English corporation
ELECTROTECH EQUIPMENTS LIMITED, an English corporation
ELECTROTECH (ASIA) LIMITED, an English corporation
ELECTROTECH INTERNATIONAL LIMITED, an English corporation
E.T. FABRICATIONS LIMITED, an English corporation
E.T. ELECTROTECH RESEARCH LIMITED, an English corporation
E.T. EQUIPMENTS LIMITED, an English corporation
VACUUM CONTROL SYSTEMS LTD, an English corporation
ELECTROTECH EQUIPMENTS, GmbH, a German limited liability company
ELECTROTECH EQUIPMENTS, SARL, a French limited liability company
<PAGE>
EXHIBIT 23.1 - CONSENT OF INDEPENDENT AUDITORS
----------------------------------------------
We consent to the incorporation by reference, in the Registration Statement
(Form S-8 No. 33-94450) pertaining to the 1991 Stock Option Plan of Plasma &
Materials Technologies, Inc. of our report dated February 26, 1997, with respect
to the consolidated financial statements of Trikon Technologies, Inc. included
in the Annual Report on Form 10-K of Trikon Technologies, Inc. for the year
ended December 31, 1996.
/s/ ERNST & YOUNG
Chartered Accountants
Registered Auditor
Woodland Hills, California
April 11, 1997
<PAGE>
TRIKON TECHNOLOGIES, INC.
EXHIBIT 23.2 - CONSENT OF INDEPENDENT AUDITORS
----------------------------------------------
We consent to the incorporation by reference, in the Registration Statement
(Form S-8 No. 33-04450) pertaining to the 1991 Stock Option Plan of Plasma &
Materials Technologies, Inc., of our report dated August 28, 1996, with respect
to the combined financial statements of Electrotech Equipments Limited and
Electrotech Limited included in the Annual Report on Form 10-K of Trikon
Technologies, Inc. for the year ended December 31, 1996.
/s/ERNST & YOUNG
Chartered Accountants
Registered Auditor
Cardiff, Wales
April 11, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,188
<SECURITIES> 1,464
<RECEIVABLES> 30,632
<ALLOWANCES> (3,402)
<INVENTORY> 53,837
<CURRENT-ASSETS> 107,442
<PP&E> 34,070
<DEPRECIATION> (5,326)
<TOTAL-ASSETS> 183,180
<CURRENT-LIABILITIES> 50,927
<BONDS> 0
0
0
<COMMON> 131,873
<OTHER-SE> (100,625)
<TOTAL-LIABILITY-AND-EQUITY> 183,180
<SALES> 39,386
<TOTAL-REVENUES> 42,227
<CGS> 24,597
<TOTAL-COSTS> 137,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> (95,810)
<INCOME-TAX> (1,336)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,475)
<EPS-PRIMARY> (10.03)
<EPS-DILUTED> (10.03)
</TABLE>
