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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-20470
INTEGRATED PROCESS EQUIPMENT CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0296222
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
911 BERN COURT, SAN JOSE, CA 95112
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (408) 436-2170
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate 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 the 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 voting stock of the issuer held by
non-affiliates of the issuer on June 28, 1996 was approximately $291.5 million,
based upon the closing price of such stock on June 28, 1996.
As of September 11, 1996, 14,238,645 shares of Common Stock and 521,650
shares of Class A Common Stock of the registrant were outstanding. The Common
Stock and Class A Common Stock are essentially identical, except that the Class
A Common Stock has four votes per share and the Common Stock has one vote per
share. See Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters."
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PART I
ITEM 1. BUSINESS
THE COMPANY
Integrated Process Equipment Corp. ("IPEC" or the "Company") is the
leading supplier of chemical mechanical planarization ("CMP") systems used in
the manufacturing of semiconductors. The CMP process is deployed to uniformly
planarize the surface of a silicon wafer which enables semiconductor
manufacturers to improve yields when making advanced semiconductors designed
with multiple metal layers and line widths (or "geometries") at or below 0.5
micron. IPEC's CMP systems are used for volume manufacturing of advanced
microprocessors, such as Intel's Pentium, Digital Equipment's Alpha, and the
IBM/Motorola Power PC, as well as advanced memory products, such as Dynamic
Random Access Memory ("DRAMs") produced by Siemens, IBM and Micron.
Strategic acquisitions have played an important role in the development
of IPEC's integrated CMP solution. In 1985, Westech Systems, Inc. ("Westech" or
"IPEC Planar Phoenix"), together with a major semiconductor manufacturer,
pioneered the use of CMP during wafer processing. IPEC acquired Westech in the
first half of fiscal 1994. In November 1994 the Company acquired Athens Corp
("Athens" or "IPEC Clean"), which provides systems that precisely mix and
dispense chemicals used in the semiconductor manufacturing process, proprietary
acid reprocessing systems, stand alone post-CMP cleaning systems, and deionized
("DI") water reclaim systems. In October 1995 IPEC acquired GAARD Automation
Inc. ("GAARD" or "IPEC Planar Portland"), which offers an advanced high
throughput CMP system. In December 1995 the Company acquired the Precision
Materials Operation of Hughes Danbury Optical Systems, Inc. ("HDOS" or "IPEC
Precision"), which designs, manufactures and sells metrology systems that will
be used for on-line CMP measurement in IPEC's CMP processing bays and for other
applications. IPEC Precision also designs, manufactures and sells equipment
based on proprietary plasma-assisted chemical etching used in producing
semiconductor wafers.
The Company has reorganized its business into three divisions. IPEC
Planar, the Company's CMP division, consists of the Company's IPEC Planar
Phoenix subsidiary and its IPEC Planar Portland subsidiary, IPEC Clean consists
of the subsidiary previously named Athens, and IPEC Precision consists of the
Precision Materials Operation acquired from HDOS.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, which are subject to the "safe harbor" created
by that section. These forward-looking statements include, but are not limited
to, statements concerning the size of the CMP polisher market; product
introduction and development; consolidation of subsidiary operating functions;
industry acceptance of products; dependence on major customers; competition;
relocation of operations; strategy; future revenue; operating margins, expenses
and income; dividends; accounting standards; and access to equity or debt
financing. The Company's actual future results could differ materially from
those projected in the forward-looking statements. Some factors which could
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements are described in
"Risk Factors."
INDUSTRY BACKGROUND
The growth of the CMP market is driven by end-users' demand for
continually more complex, higher performance integrated circuits ("ICs") at
reduced cost per function. CMP enables semiconductor manufacturers to develop
advanced semiconductor designs with more layers of metal and finer
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geometries. At the same time, CMP reduces the cost to manufacture these more
advanced ICs by increasing yields. CMP helps facilitate the migration from four
and six inch diameter semiconductor wafers to eight inch wafers, which
significantly improves yields. CMP enables the development of smaller ICs on
larger wafer sizes which increases the value of each wafer to a semiconductor
manufacturer.
The average of estimates by Dataquest and VLSI Research indicate that
the CMP polisher market will be approximately $266 million in 1996. These
estimates exclude related segments such as cleaners, slurry delivery and
reprocessing systems, DI water reprocessing systems and metrology. According to
Dataquest and VLSI Research, the CMP polisher market is projected to generate
approximately $1 billion of revenue in 2001, representing a compound annual
growth rate of approximately 30% per year.
Demand for semiconductors continues to experience rapid growth, driven
largely by the growth of existing computer and communications markets and the
emergence of new segments in these markets, such as multimedia, portable
computing and wireless communications. The increase in semiconductor demand has
been fueled by the industry's ability to supply more complex, higher performance
ICs, while continuing to reduce cost per function. The production of these more
complex and higher performance ICs requires more advanced and expensive wafer
fabrication equipment. Today's advanced wafer fabrication facility ("wafer fab")
costs in excess of $1 billion to construct, with more than two-thirds of this
cost allocated to equipment. According to VLSI Research, as of June 1996 there
were approximately 90 wafer fabrication facilities under construction or
expansion.
In order to meet the demand for increasingly sophisticated devices,
semiconductor manufacturers have capitalized on advances in semiconductor
equipment technology to produce increasingly complex ICs at lower cost.
Semiconductor manufacturers use circuit designs with more layers of metal and
finer line width (or "geometry") to produce ICs, which can provide more
functionality, operate at higher speeds, occupy less space and consume less
power. For example, in 1989, the Intel 386 microprocessor was produced with two
layers of metal and 0.8 micron line widths, and 4-megabit DRAMs were produced
using two metal layers and line widths of 1.0 micron. Today's Pentium
microprocessor is produced with four metal layers at 0.5 micron line widths, and
64-megabit DRAMs will be produced at 0.35 micron geometries using three metal
layers. In addition, over the past five years, manufacturers of ICs have
migrated from semiconductor wafers of four to six inches in diameter to eight
inch wafers to increase the number of integrated circuits per wafer.
Improvements in IC design and increased wafer sizes have increased the value of
each wafer to a semiconductor manufacturer, which has resulted in greater
emphasis on wafer processing equipment that reduces risk of damage to each
wafer. The Company believes that mainstream semiconductor production for high
performance microprocessors and memory devices will require three or more layers
of metal, line widths at or below 0.35 micron, and wafer diameters of eight
inches or more.
The production of advanced semiconductor wafers typically includes
alternating steps of deposition, etching and cleaning, where multiple layers of
highly complex circuit designs are built on the wafer substrate. These steps are
repeated numerous times in order to layer different materials and imprint
various features on the wafer. Deposition and etching processes create an uneven
topography on the wafer surface. At line widths at or below 0.5 micron,
topographical variations can prevent precise resolution during photolithography,
which leads to wafer defects and reduced yields. In addition, for complex
devices with multiple layers of metal, the etching process typically leaves
metal residues that can produce short circuits when other metal layers are
deposited. A technique called planarization creates a flat surface before the
deposition of the next layer by removing excess insulating (or dielectric)
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material and metal residues. As complex ICs are produced with multiple layers of
metal and at line widths at or below 0.5 micron, manufacturers now find that
planarization is increasingly necessary after each deposition or etching step to
achieve adequate yields and revenue per wafer.
Traditional planarization techniques deposit additional dielectric
material to fill gaps and etch the dielectric layer to remove bumps, or apply a
glass-like material to fill gaps. These two methods achieve a relatively smooth
surface for only a small area of the wafer. However, these traditional
techniques have not proven effective for achieving adequate planarity across an
entire wafer to allow consistent imaging of devices with geometries at or below
0.5 micron.
IPEC is the leading supplier of CMP systems, which produce uniformly
flat wafers in order to enable semiconductor manufacturers to improve yields
when making advanced semiconductors designed with multiple metal layers and
geometries at or below 0.5 micron. CMP polishes a wafer with a moving pad
containing an abrasive chemical slurry. IPEC's CMP equipment precisely regulates
not only the pad's position, motion and pressure, but also the chemical
composition of the slurry, and increases the precision with which
photolithography can imprint the next layer of circuit diagrams and reduces
defects due to metal residues projecting from one layer into the next. IPEC's
CMP systems are used for volume manufacturing of advanced microprocessors, such
as Intel's Pentium, Digital Equipment's Alpha, and the IBM/Motorola Power PC, as
well as advanced memory products, such as DRAMs produced by IBM, Micron and
Siemens.
PRODUCTS
The Company believes that semiconductor manufacturers will increasingly
seek integrated CMP solutions to achieve operating efficiencies and lower the
cost of CMP. IPEC expects to deliver in fiscal 1997 complete CMP processing
bays, which include systems for wafer polishing and cleaning; slurry and
chemical distribution; and DI water reclaim and slurry recycling, along with
on-line metrology.
CMP Polishing Systems
IPEC's CMP techniques derive from the Company's expertise over the past
twenty years in manufacturing wafer polishing equipment. CMP was originally used
to polish optical lenses and was later adapted by semiconductor manufacturers to
polish raw silicon wafers prior to wafer processing. In 1985, IPEC Planar
Phoenix, together with a major semiconductor manufacturer, pioneered the use of
CMP for a planarization step during wafer processing. The Company's core CMP
technologies include precise mechanical controls for wafer and pad positioning,
movement and pressure; wet chemistry and fluid dynamics related to slurry
composition, particle size, temperature and flow; pad reconditioning; electrical
design in a wet chemistry environment; and control software with a graphical
user interface.
The Company's current CMP systems are automated tools for uniformly
planarizing oxide and metal wafers from four to eight inches in diameter. The
systems are designed to perform planarizing applications requiring process
flexibility with repeatable results. IPEC's CMP products feature automatic
cassette loading and unloading, two-step planarizing and temperature, pressure
and surface speed control. Planarization in the Company's CMP systems is
achieved by pressure and three relative wafer motions: the wafer chuck rotates
about its center, the arm supporting the wafer chuck oscillates and the
polishing plate (which has a polishing pad laminated to its surface) rotates.
This combination of pressure and motion ensures uniform material removal and
flatness across the entire wafer surface and from wafer to wafer.
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Wafer carrier and platen rotation speeds are programmable to allow
control of wafer rotation speed during the planarizing operation. The rotation
speeds work in tandem with programmable arm oscillation and chemical slurry
supply. System operation is controlled from a centrally located programmable
control panel. A number of process programs can be stored in memory to allow
quick selection of stored process parameters for different wafer sizes,
materials or processes. While the system normally operates automatically, with
the computer program controlling all operating variables, the system also allows
for manual control.
The Company currently manufactures three families of wafer planarization
systems, the Avanti 372M, the Avanti 472 and the AvantGaard 676. The Company is
developing its next generation Avanti 672 system. The Company's CMP systems are
configured to match varying customer requirements and offer different throughput
levels and ease of use. IPEC's CMP systems range in price from $475,000 to
$1,800,000 depending on configuration and options. Through June 30, 1996, the
Company had sold 569 CMP systems. In fiscal 1995 and 1996, sales of the
Company's CMP stand alone polishing systems accounted for approximately 69% and
67%, respectively, of the Company's total revenue.
The Avanti 372M Automatic Wafer Planarization System, introduced in
1992, is a fully automated, single side, single wafer planarization system for
polishing oxide and metal layers on silicon wafers from four to eight inches in
diameter. In addition to the planarization of oxide layers, the system polishes
layers of metal interconnects including tungsten, aluminum, and copper.
The Avanti 472 Automatic Wafer Planarization System, introduced in March
1994, offers higher throughput and improved ergonomics over the 372M, as well as
an improved pad conditioner system. These improvements, together with increased
reliability, resulted in a lower processing cost per wafer compared to the 372M.
The Avanti 672 Automatic Wafer Planarization System, to be introduced in
the second half of calendar 1996 is designed to integrate wafer CMP and
cleaning, significantly increase wafer throughput, and occupy significantly less
clean room space than standalone CMP equipment and post-CMP cleaners. The Avanti
672 planarizes wafers up to 12 inches in diameter. See "Risk Factors--Product
Concentration; Dependence on New Products and Technologies."
The AvantGaard 676 Wafer Planarization System was acquired in October
1995 through the acquisition of GAARD at which time the tool was being sold to
only one customer. IPEC introduced the AvantGaard 676 to the open market in
April 1996. The AvantGaard 676 is a four head, one wafer at a time, metal
planarization system that uses an orbital polishing motion. This is a high
throughput system capable of processing up to 40 wafers per hour, and it offers
the industry's smallest footprint.
Clustered CMP Polisher/Cleaner System
The Company offers the Avanti 4100, 4720 and 4721 clustered CMP
polisher/cleaner system series designed so that a cassette of wafers can be
placed on the planarizer load station and picked up from the cleaner unload
station after processing is completed. The system includes an in-line
water-driven track for wafer transport between the two units. The planarization
and cleaning modules can be matched to minimize clean room space requirements.
The integrated cluster can also be contained in a mini-environment. In fiscal
1995 and 1996 sales of the clustered CMP polisher/cleaner systems represented
approximately 7% and 1%, respectively, of the Company's revenue.
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Stand Alone CMP Cleaners
The Company offers several cleaning products which serve a variety of
integrated circuit fabrication needs. The Avanti 3800 automatic, double sided
wafer cleaner is capable of processing wafers from 6 to 8 inches in diameter,
utilizing two brushes and two cleaning stations after which the wafer passes
into a spin rinse dryer, all within a closed dust free environment. The Avanti
6000 and 8000 systems utilize wet cleaning processes for photoresist removal and
related cleaning in the pre- and post-metal application stages of fabrication.
The Company also offers a post-CMP cleaner brush, the Avanti 9000, which is
designed to scrub wafers and then clean them using a proprietary megasonic
process to remove particles and ionic contaminants. In fiscal 1995 and 1996
sales of the Company's CMP cleaning products represented approximately 0% and
1%, respectively, of the Company's revenue.
Exxflow CMP Water Recovery System
The Company offers a post-CMP water recovery system which reduces the
amount of waste water generated by a semiconductor fabrication facility. This
system recovers up to 95% of the water used in CMP and other applications and
enables manufacturers to reprocess the water for further use in the
manufacturing cycle. The Company acted as distributor for this equipment during
fiscal 1996, but has subsequently entered into an exclusive agreement to
manufacture and sell these systems starting in fiscal 1997. Revenue from the
sale of the Exxflow CMP Water Recovery System represented approximately 0% and
2% in fiscal years 1995 and 1996, respectively, of the Company's revenue.
Chemical Distribution Systems
The Company's chemical distribution and dispensing systems consist of
separate modules which may be assembled and configured in a variety of ways into
a system designed to satisfy a customer's specific requirements in a
cost-effective manner. A typical system may contain storage, pumping, mixing,
testing, distribution and dispensing modules. The primary systems currently
available include a bulk chemical distribution system; an automated mixing
system, which mixes chemicals to create a homogeneous solution and accurately
dispenses the mixture at the point of use; and an acid pumping system. In fiscal
1995 and 1996, chemical distribution systems represented approximately 2% and
4%, respectively, of the Company's revenue.
Wet Chemical Reprocessors
The Company designs, manufactures and sells a full line of systems
designed to re-use and purify wet chemicals used to etch and clean semiconductor
wafers. The Company's current product line consists primarily of sulfuric acid
reprocessors and precision distribution and dispensing systems which transport
reprocessed ultra-pure chemicals throughout the semiconductor manufacturing
process. The Company added this product to its product line in the November 1994
acquisition of Athens. In fiscal 1995 and 1996, sales of the Company's wet
chemical reprocessing systems represented 7% and 11%, respectively, of the
Company's revenue.
SOI-200 Wafer Thinning System
The Company's proprietary wafer thinning system, acquired in December
1995 through the acquisition of the Precision Materials Operation of HDOS, is
used to etch thin-bonded silicon on insulator ("SOI") wafers to high levels of
precision and uniformity. This system uses a noncontact, low energy etch
technique and incorporated thin film mapper to attain SOI dimensions which the
Company
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believes cannot be achieved economically with conventional etching technologies.
In fiscal 1995 and 1996 sales of the SOI-200 Wafer Thinning System represented
approximately 0% and 2%, respectively, of the Company's revenue. The system has
been sold to date to only two customers.
CUSTOMERS
The Company sells its products to leading semiconductor manufacturers
located throughout the United States, Asia and Europe. The Company shipped
products during fiscal 1996 to the following representative customers: AMD,
Cypress Semiconductor, Fujitsu, IBM, Intel, LSI Logic, Micron, Motorola, NEC,
Samsung, Siemens, Texas Instruments, and TSMC. Intel and IBM represented 17% and
45%, respectively, of the Company's fiscal 1994 revenue. Intel, IBM and Motorola
represented 18%, 20% and 14%, respectively, of the Company's fiscal 1995
revenue. Intel represented 29% of the Company's fiscal 1996 revenue. The loss of
a major customer or any reduction in orders by such a customer would have a
material adverse effect on the Company. The Company's future success depends in
part upon its ability to obtain orders from new customers and increase orders
from existing customers. See "Risk Factors--Dependence on Major Customers."
MARKETING, SALES AND SUPPORT
IPEC Planar Phoenix, IPEC Planar Portland, IPEC Clean and IPEC Precision
market products in the United States through independent sales forces. At July
31, 1996, IPEC Planar Phoenix employed 23, IPEC Planar Portland employed one,
IPEC Clean employed 19 and IPEC Precision employed eight direct sales and
support personnel. Each subsidiary's direct sales force develops orders,
coordinates distribution, demonstrates equipment and provides applications
support. The Company is in the process of consolidating the marketing, sales and
support functions of IPEC Planar Portland, IPEC Planar Phoenix and IPEC Clean.
The Company markets its products internationally through independent
distributors in Europe, Israel and Asia. In Japan, Tokyo Electron Limited, sells
and distributes some of the Company's CMP products pursuant to a marketing
agreement. Sumitomo Corporation holds the right to manufacture and market
certain acid reprocessing products in Japan. The Company's primary distributor
in Europe is Teltec. The Company also has several nonexclusive distributors in
Europe. Sales outside the United States during fiscal 1995 and 1996 represented
approximately 24% and 34%, respectively, of the Company's revenue. See "Risk
Factors--International Sales."
MANUFACTURING
IPEC manufactures CMP polishing systems in Phoenix, Arizona; cleaning
and acid and deionized water and chemical distribution reprocessing products in
Oceanside, California. Management intends to move bulk chemical distribution and
cleaning systems operations to its Phoenix location in fiscal 1997. The Company
manufactures a majority of the more complex plastic and metal components of its
CMP products using both numerically controlled and manually operated plastic and
metal fabrication equipment. IPEC purchases other components from third parties,
and assembles and tests products configured by customers for particular orders.
The Company's manufacturing strategy emphasizes increased outsourcing of
components and subassemblies. The standard warranty for the Company's products
is one year for parts and labor.
The Company relies on a limited number of independent manufacturers to
provide certain components in assemblies made to the Company's specifications
and use in the Company's products. In
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the event that the Company's subcontractors were to experience financial,
operational, production or quality assurance difficulties that resulted in the
reduction or interruption of supply to the Company, the Company's business,
financial condition and results of operations would be materially adversely
affected. In addition, the Company purchases certain key components from sole or
single source vendors for which alternative sources are not currently available.
The inability to develop alternative sources for these single or sole source
components or to obtain sufficient quantities of these components can result in
delays or reductions in product shipments, which could adversely affect the
Company's business, financial condition and result of operations. Any prolonged
inability to obtain adequate amounts of fully functional components or any other
circumstances that would require the Company to seek alternative sources of
supply would have a material adverse effect on the Company's business, financial
condition and results of operations and could damage the Company's relationship
with its customers.
The Company's manufacturing operations produce limited amounts of
hazardous wastes and require environmental operating permits. The Company is
also subject to governmental regulations related to the discharge or disposal of
toxic or otherwise hazardous chemicals used in the manufacturing process.
Failure to obtain required permits or to comply with environmental regulations
could result in fines or cessation of operations. Future environmental
regulations could require the Company to acquire equipment or to incur other
expenses. See "Risk Factors--Product Liability and Environmental Regulations."
RESEARCH AND DEVELOPMENT
The semiconductor capital equipment market generally, and in particular
the CMP market in which the Company competes, is characterized by rapid
technological development and product innovation. The Company's ongoing research
and development efforts are currently focused on product and process
development, automation, improved reliability, machine control software, safety,
man-machine interfaces, maintainability and metrology. Current product
development efforts include the Avanti 672 CMP system as well as slurry
reprocessing, plasma assisted chemical etch and thin film thickness measurement
systems. In order to respond to developing technologies in the semiconductor
manufacturing industry, the Company intends to maintain its internal development
efforts and to seek cooperative research and product development relationships
with other technology companies and government agencies. The Company has entered
into joint process technology development programs with Lam Research Corporation
and Tokyo Electron Limited to develop integrated process solutions for
next-generation production applications. As of July 31, 1996, the Company had
approximately 212 full-time employees dedicating their efforts to equipment
design engineering, process support and research and development. Research and
development expenditures for fiscal 1995 and 1996 were $7.3 million and $19.9
million, respectively.
INTELLECTUAL PROPERTY RIGHTS
The Company holds a number of United States and foreign patents or
patent applications covering various aspects of its products. The two initial
patents relating to the Company's planarization systems products expire in 1997.
In 1993, the technology covered by these patents currently forming the basis of
the CMP process and used in the Company's primary products was acquired from,
and licensed on a royalty-free basis to a competitor pursuant to a settlement
arrangement in which the Company also incurred settlement obligations
aggregating $1.4 million, of which $175,000 was outstanding at June 30, 1996.
The Company has a policy of seeking patents on inventions governing new products
and processes developed as part of its ongoing research, engineering and
manufacturing activities. However, patents do not necessarily provide protection
against competitors since competitors may be able to design around or
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successfully challenge Company patents. While the Company believes its patents
are of value, the Company believes its success will depend more upon
engineering, marketing, service and manufacturing skills than on patents. In
addition, other companies and inventors may receive patents that contain claims
applicable to the Company's products and processes. The sale of the Company's
products covered by such patents could require licenses that may not be
available on acceptable terms. From time to time the Company has been notified
that it may be in violation of certain patents and the Company has in at least
one instance agreed to pay the patent holder royalties to settle claims of
infringement. Other patent infringement claims may be asserted, and licenses may
not be available on reasonable terms or at all. The Company may negotiate
licenses or purchase of the patents where it is considered appropriate.
In the future the Company may receive notice of claims of infringement
of other parties' proprietary rights, and there can be no assurance that a claim
for infringement, invalidity or indemnification will not be asserted against the
Company or that any such assertions will not have a material adverse effect on
the Company's business, financial condition and results of operations. If any
Company equipment is found to infringe a patent, a court may grant an injunction
to prevent making, selling or using the equipment in the applicable country.
Irrespective of the validity or success of such claims, the Company could incur
significant costs with respect to the defense thereof, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If infringement claims are asserted against the Company,
the Company may seek to obtain a license of such third party's intellectual
property rights, which may not be available under reasonable terms or at all.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of proprietary rights of others. The Company also relies on trade
secrets and proprietary technology that it seeks to protect, in part, through
confidentiality agreements with employees and other parties. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by others.
The Company also relies on trade secrets to protect its proprietary
technology. There can be no assurance that information will be kept
confidential, that contractual secrecy obligations will be honored, or that
others will not independently develop similar or superior technology. To the
extent that consultants, employees or third parties apply technological
information independently developed by them or by others, disputes may arise as
to the proprietary rights to such information, which disputes may be resolved
against the Company.
The Company manufactures the AvantGaard 676 under a license from a
volume manufacturer of advanced microprocessors. The Company has escrowed
technical data sufficient to permit such manufacturer to manufacture the
Company's AvantGaard 676, for release if the Company does not meet certain
criteria regarding product or spare part delivery schedules to the manufacturer.
If the data is released from escrow, the manufacturer could manufacture the
AvantGaard 676 or have the AvantGaard 676 manufactured by others for its use.
The escrow terminates in October 1998.
In July 1990 the Company and MTC Co. Ltd. ("MTC"), a Japanese
manufacturer and seller of semiconductor equipment, agreed to joint development
and commercialization of a single wafer wet processing system for wafer
fabrication. The Company obtained the right to resulting technology. The Company
has the right to manufacture the system developed with MTC in North America and
Europe in exchange for a 6% royalty on stand alone wet modules and on that
portion of integrated systems which incorporate wet modules.
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The Company has licensed Sumitomo Corporation to manufacture and sell in
Japan certain of the Company's acid reprocessor products.
COMPETITION
The semiconductor equipment industry is an intensely competitive market.
In particular, the Company believes that domestic and international competition
in the markets for CMP equipment, clustered CMP/cleaner systems and chemical
reprocessing systems will increase in the future. The principal competitive
factors in the semiconductor equipment industry are the equipment's performance,
reliability, repeatability and cost of ownership, and the supplier's customer
service and support, size and financial resources and relationships with
suppliers and customers. To date, the Company has encountered limited
competition in the CMP system market. The Company expects capital equipment
manufacturers not currently involved in the development of CMP systems to
develop products for this market. Applied Materials Inc. has recently begun to
offer a CMP system that competes directly with the Company's CMP product
offerings. Applied Materials Inc. and other current and potential competitors
have substantially greater financial resources and name recognition and more
extensive engineering, manufacturing, marketing and customer service and support
capabilities than the Company. The Company is aware of a number of companies in
Asia attempting to market acid reprocessing systems similar to those sold by the
Company. The Company expects its current competitors to continue to improve the
design and performance of their existing products and processes, and to
introduce new products and processes with improved price and performance
characteristics. New product introductions or product announcements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. The Company believes that to
remain competitive, it will require significant financial resources to improve
its products, maintain customer service and support centers and invest in
product and process research and development. No assurances can be given that
the Company will continue to compete successfully at present or even reduced
levels in the United States or worldwide.
The Asian market for semiconductor equipment, particularly in Japan,
represents a substantial percentage of the worldwide market, is technologically
advanced and has been historically difficult for foreign enterprises to enter.
In recent years Japanese semiconductor manufacturers have begun to build
fabrication facilities and license their technology outside of Japan. A licensee
outside Japan operating a wafer fabrication facility under license from a
Japanese corporation may have an incentive to acquire semiconductor
manufacturing equipment from the licensor or its affiliate. Japanese
corporations are attempting to develop new processes and modify existing
techniques such as spin-on glass as alternatives to CMP. These technologies, if
developed, may represent additional competition for the Company's products,
particularly in Asia. The Company believes it must continue to invest
substantial resources to develop Asian markets. The Company distributes its CMP
products through distributors in Asia and has limited experience in selling its
products directly in these countries. See "Risk Factors--Asian Market."
BACKLOG
The Company includes in its backlog only those customer orders for
systems for which it has accepted purchase orders and assigned shipment dates
within the following twelve months. Industry practice allows the customer to
cancel or reschedule orders prior to shipment without penalties. Accordingly,
the Company's backlog at a particular date may not necessarily be representative
of actual sales for any succeeding period due to orders received for product to
be shipped in the same quarter, possible changes in system delivery schedules,
cancellation of orders and potential delays in system shipments. As of June 30,
1996 the Company's order backlog was approximately $49.6 million
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<PAGE> 11
compared to $53.7 million at June 30, 1995.
EMPLOYEES
At July 31, 1996, the Company had approximately 1,042 employees, of whom
120 were in administrative positions, 212 were in engineering and research and
development, 53 in marketing and sales, 191 in field service and support, and
most of the remaining employees were involved in direct manufacturing and
manufacturing support activities. The Company also utilizes contract employees
to supplement key work centers during peak loads. No employee of the Company is
currently represented by a labor union. Management considers its employee
relations to be good. The Company believes that the future success of the
Company is dependent to a significant degree on its being able to continue to
attract and retain skilled personnel.
ITEM 2. PROPERTIES
The Company purchased a 110,000 square foot shell building in Phoenix,
Arizona for $7.1 million in the first quarter of fiscal 1996. Improvements were
made to this building including the addition of a 40,000 square foot mezzanine
at a cost of approximately $11 million. The building also has a state of the art
Class 10 / Class 100 clean room that it uses mainly for process development. The
production and administrative functions were moved to this location in the third
quarter of fiscal 1996. The Company also owns another building in Phoenix,
Arizona totaling approximately 25,000 square feet and leases an additional
14,000 square feet in Phoenix that it uses primarily for storage. The Company
leases additional facilities in various parts of the country. They consist of a
46,000 square foot facility in Tempe, Arizona that is used for subassembly
manufacturing, a 28,000 square foot facility, including a 1,000 square foot
Class 10,000 clean room in Tempe, Arizona that it uses for engineering and
research and development, a 27,500 square foot facility in Oceanside, California
that it uses primarily for manufacturing and research and development, a 22,000
square foot facility in Oceanside, California that it uses for manufacturing, a
7,000 square foot facility in Oceanside, California including a 600 square foot
clean room that it uses for research and development, a 37,500 square foot
facility in Bethel, Connecticut that it uses for manufacturing and research and
development and a 20,000 square foot facility in Portland, Oregon that it also
uses for manufacturing and research and development. The company also leases
facilities in Burlington Vermont, Austin, Texas and Garland, Texas. The Company
is attempting to raise additional cash amounting to approximately $8 million by
entering into a sale/leaseback transaction for its Phoenix facility. It is not
certain at this time whether this transaction will occur.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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<PAGE> 12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market
System under the symbol IPEC. The following table sets forth for the periods
indicated the high and low sale price for the Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
FISCAL YEAR 1996
4th Quarter .......................... $ 35 $17 3/4
3rd Quarter .......................... 27 3/4 16 3/4
2nd Quarter .......................... 40 1/4 23
1st Quarter .......................... 56 1/2 31 1/2
FISCAL YEAR 1995
4th Quarter .......................... $ 38 1/4 $ 20
3rd Quarter .......................... 22 1/2 13 5/8
2nd Quarter .......................... 18 7/8 13 1/4
1st Quarter .......................... 15 8 1/8
FISCAL YEAR 1994
4th Quarter .......................... $ 11 1/2 $ 7
3rd Quarter .......................... 10 3/4 8 1/2
2nd Quarter .......................... 13 1/2 8 3/4
1st Quarter .......................... 12 1/4 7 1/2
</TABLE>
As of September 11, 1996, there were 230 holders of record of Common
Stock and 3 holders of record of Class A Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since
its inception and does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The terms of the Series B Preferred Stock prevent the
Company from paying dividends on the Common Stock unless the Company has paid
all dividends due to the holders of the Series B Preferred Stock. In fiscal 1994
the Company paid cash dividends on its Series A Preferred Stock in the amount of
$41,000. In fiscal 1995, the Company recorded dividends on its Series B
Preferred Stock in the amount of $377,000 and paid dividends on its Series B
Preferred Stock in the amount of $79,000. In fiscal 1996, the Company recorded
dividends on its Series B Preferred Stock in the amount of $579,000 and paid
dividends on its Series B Preferred Stock in the amount of $439,000. The
Preferred Stock was issued in conjunction with the Westech acquisition.
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<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial data have been derived from
the Financial Statements of the Company, which have been audited by KPMG Peat
Marwick LLP and Richard A. Eisner & Company, LLP, whose reports appear elsewhere
herein. The information presented below should be read in conjunction with the
Company's Consolidated Financial Statements, Notes to the Consolidated Financial
Statements and discussions of the historical financial data included elsewhere
in this Form 10-K. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------- --------- --------- --------- ---------
1992 1993 1994(1) 1995(2) 1996(3)
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C>
Revenue ....................................... $ 259 $ 1,438 $ 31,158 $ 88,385 $ 184,500
Cost of goods sold ............................ -- 943 22,738 50,776 109,719
--------- --------- --------- --------- ---------
Gross margin .................................. $ 259 $ 495 $ 8,420 $ 37,609 $ 74,781
Operating expenses:
Research and development ...................... 527 1,446 2,453 7,330 19,871
Purchased research and development ............ -- -- 1,107 8,485 36,961
Selling, general and administrative ........... 726 1,381 9,403 20,458 35,436
--------- --------- --------- --------- ---------
Total operating expenses ...................... 1,253 2,827 12,963 36,273 92,268
--------- --------- --------- --------- ---------
Operating income (loss) ....................... (994) (2,332) (4,543) 1,336 (17,487)
Interest income and other income, net ......... 10 57 10 398 2,200
Interest expense .............................. (17) (324) (5,197) (1,059) (2,149)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ............. (1,001) (2,599) (9,730) 675 (17,436)
Income tax (expense) benefit .................. -- -- 830 (76) 6,779
--------- --------- --------- --------- ---------
Net income (loss) ............................. (1,001) (2,599) (8,900) 599 (10,657)
Cumulative dividend on Preferred Stock ........ (38) (38) (118) (377) (579)
--------- --------- --------- --------- ---------
Net income (loss) attributable to Common
Stockholders ................................ $ (1,039) $ (2,637) $ (9,018) $ 222 $ (11,236)
--------- --------- --------- --------- ---------
Net income (loss) per share of Common Stock ... $ (1.96) $ (2.12) $ (3.26) $ 0.02 $ (0.78)
--------- --------- --------- --------- ---------
Shares used in per share calculation .......... 530 1,243 2,763 9,865 14,434(4)
OTHER DATA:
Income (loss) before income taxes and purchased
research and development .................... $ (1,001) $ (2,599) $ (8,623) $ 9,160 $ 19,525
</TABLE>
-13-
<PAGE> 14
<TABLE>
<CAPTION>
JUNE 30,
-----------------------------------------------------------------
1992 1993 1994(1) 1995(2) 1996(3)
---- ---- ------- ------- -------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents .......... $ 587 $ 1,108 $ 979 $ 66,007 $ 11,681
Working capital .................... (816) 1,406 15,707 98,144 53,700
Total assets ....................... 1,678 1,981 41,466 157,977 191,684
Current portion of long-term debt .. -- -- 979 4,772 2,124
Long-term debt, less current
portion.......................... -- -- 9,249 1,748 22,841
Total stockholders' equity ......... (608) 1,616 19,575 130,120 128,337
</TABLE>
- ----------
(1) Includes results of operations of Westech after its acquisition by the
Company in September 1993.
(2) Includes results of operations of Athens after its acquisition by the
Company in November 1994.
(3) Includes results of operations of GAARD and HDOS after their acquisition by
the Company in October 1995 and December 1995, respectively.
(4) Excludes 819,687 shares of Common Stock issuable upon the conversion of
outstanding Series B Preferred Stock, 613,740 shares of Common Stock
issuable upon the exercise of warrants and 3,087,699 shares of Common Stock
issuable upon the exercise of options.
-14-
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
IPEC is a Delaware corporation organized in December 1991 and is the
successor by merger to a California corporation of the same name that was
incorporated in October 1989. The Company is primarily engaged in designing,
manufacturing, marketing and servicing equipment for the semiconductor
manufacturing industry.
In September 1993, IPEC completed its acquisition of Westech and in
November 1994, the Company acquired approximately 94% of the outstanding common
stock of Athens. The Company acquired the remaining outstanding common stock of
Athens in the first quarter of fiscal 1996. The Company consummated two
significant acquisitions during its second quarter of fiscal 1996. On October
30, 1995, the Company acquired all of the stock of GAARD for approximately $31.5
million. On December 29, 1995, the Company's newly formed subsidiary, IPEC
Precision, Inc., acquired the Precision Materials Operation of HDOS for
approximately $22.6 million. All of the aforementioned acquisitions have been
accounted for as purchases.
In connection with the acquisitions in the second quarter of fiscal
1996, the Company reorganized its business into three divisions. IPEC Planar,
the Company's CMP division, consists of the Company's IPEC Planar Phoenix
operation, formerly named Westech and the IPEC Planar Portland operation,
formerly named GAARD. IPEC Clean consists of the former Athens operation and
produces on site wet ultra high purity chemical reprocessing systems, chemical
distribution systems and cleaning systems that can be marketed as stand alone
products or clustered with Planar's CMP systems. Management intends to move bulk
chemical distribution and cleaning systems operations to its Phoenix location in
fiscal 1997. IPEC Precision consists of the Precision Materials Operation
acquired from HDOS and is engaged in manufacturing of advanced plasma assisted
chemical etching equipment and metrology equipment for use primarily in
manufacturing of silicon wafers and semiconductor devices.
The Company's revenue is derived from the sale of products, related
spare parts and service. In accordance with generally accepted accounting
principles, the Company recognizes revenue when a product is shipped. Revenue
from spare part sales or service is recognized when shipped or upon completion
of service.
The Company's gross margins may vary due to many factors, and are
especially dependent on direct versus indirect sales, product mix and domestic
versus international sales. The Company sells directly in the United States and
such sales have higher gross margins than indirect international sales. Thus,
gross margins in any period may not be indicative of margins for future periods.
See "Risk Factors."
IPEC incurred a net loss of $10.7 million in fiscal 1996 compared to net
income of $0.6 million in fiscal 1995 and a net loss amounting to $8.9 million
in fiscal 1994. Purchased research and development charges related to
acquisitions have amounted to approximately $37.0 million, $8.5 million and $1.1
million in fiscal 1996, 1995 and 1994, respectively. Additionally, the Company
incurred a charge amounting to approximately $4.3 million in fiscal 1994 for
debt discount and deferred financing fees attributable to warrants issued in
connection with a $5 million bridge loan which was repaid from the proceeds of a
public offering. Due to a number of factors discussed below which affect
operating performance, results in any one period are not necessarily indicative
of future results.
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<PAGE> 16
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
items of the Company's consolidated statements of operations expressed as a
percentage of total revenue:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Revenue ............................. 100% 100% 100%
Cost of goods sold .................. 73 57 59
Gross margin ........................ 27 43 41
Operating expenses:
Research and development .......... 8 8 11
Purchased research and
development...................... 4 10 20
Selling, general and
administrative................... 30 23 19
Total operating expenses .......... 42 41 50
Operating income (loss) ............. (15) 2 (9)
Interest income and other income,
net.............................. 0 .5 1
Interest expense .................... (17) (1) (1)
Income (loss) before income taxes ... (31) .8 (9)
Income tax (expense) benefit ........ 3 (.1) 4
Net income (loss) ................... (29) .7 (6)
</TABLE>
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Revenue for the year ended June 30, 1996 was $184.5 million compared to
$88.4 million for the year ended June 30, 1995. This increase is primarily
attributable to the increased sales of CMP equipment and the addition, from
November 1, 1995, of revenue derived from sales by IPEC Planar Portland of $28.4
million. In addition, the Company recorded increased levels of revenue from IPEC
Clean. Revenue from foreign sales represented approximately 34% and 24% of total
revenue in fiscal 1996 and 1995, respectively. Due to the industry wide
slowdown, the Company believes that its revenue for the first quarter of fiscal
1997 will be approximately 25% below the fourth quarter fiscal 1996 revenue of
$48 million.
Cost of goods sold as a percentage of revenue amounted to 59% and 57% in
fiscal 1996 and 1995, respectively. The cost of goods sold was higher as a
percentage of revenue in fiscal 1996 due in part to the increased level of
international sales, where the Company typically sells indirectly through
distributors. Also, during fiscal 1996, volume purchase agreement sales from
IPEC Planar Portland and IPEC Precision's initial sales to customers contributed
to lower margins. Since IPEC Precision is commencing operations and its customer
base is new, it is expected that its gross margin percentage will continue to be
lower than margins attained for the Company's CMP tools. In addition, IPEC
Clean's increased installation and warranty costs and under utilized capacity
resulted in lower than anticipated gross margins. Although the Company has
margin improvement plans in place, margins are affected by a number of factors,
such as product mix, material cost and the level of international sales. During
the Company's planned transition to direct field service, distributor discounts
are expected to negatively impact gross margins. Due to these factors, there is
no assurance that margins will improve in the near future.
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<PAGE> 17
Research and development expense increased from $7.3 million in fiscal
1995 to $19.9 million in fiscal 1996. Research and development expense as a
percentage of total revenue increased from 8% in fiscal 1995 to 11% in fiscal
1996. Increased research and development costs resulted primarily from costs
incurred to develop the Company's Avanti 672 and Avant GAARD 676 CMP tools.
Additional costs were also incurred at IPEC Precision, which resulted from the
development of plasma assisted chemical etching and metrology technologies. The
Company incurred one-time purchased research and development charges amounting
to $37 million in fiscal 1996 related to acquisitions of IPEC Planar Portland
and IPEC Precision and $8.5 million in fiscal 1995 related to the acquisition of
IPEC Clean. Quarterly research and development expense in fiscal 1997 is
expected to remain consistent with fourth quarter 1996 levels of approximately
$6.0 million on an absolute dollar basis.
Selling, general and administrative expenses increased to $35.4 million,
or 19% of revenue, in fiscal 1996 from $20.5 million, or 23% of revenue, in
fiscal 1995. The absolute dollar increase is primarily due to the addition of
personnel, sales commissions and additional depreciation and amortization
resulting from recent acquisitions and the Company's new Planar Phoenix
facility. The percentage decrease is primarily due to greater levels of revenue.
Quarterly selling, general and administrative expense in fiscal 1997 is expected
to remain consistent with fourth quarter 1996 levels of approximately $9.3
million on an absolute dollar basis.
The operating loss for fiscal 1996 totaled $17.5 million compared to
operating income of $1.3 million in fiscal 1995. The loss in fiscal 1996 was
principally attributable to $37.0 million of purchased research and development
charges related to the acquisitions of IPEC Planar Portland and IPEC Precision
and increased research and development expenditures. Charges related to the IPEC
Clean acquisition in fiscal 1995 totaled $8.5 million. Excluding acquisition
charges, operating income would have been $19.5 million and $9.8 million in
fiscal 1996 and 1995, respectively.
Interest expense increased from $1.1 million in fiscal 1995 to $2.1
million in fiscal 1996 as a result of higher borrowing levels. Debt financing
occurred during fiscal 1996 to acquire IPEC Precision and for the construction
of a new manufacturing facility in Phoenix. A substantial portion of the
Company's financing was consolidated with a $10 million term loan and a $30
million revolving loan facility agreement with a bank in the fourth quarter of
fiscal 1996. Interest income increased from $0.4 million in fiscal 1995 to $1.8
million in fiscal 1996 as a result of higher levels of invested cash,
particularly in the first and second quarters of fiscal 1996. Higher cash
balances in fiscal 1996 resulted from the exercise of the Company's Class B
warrants in late fiscal 1995 resulting in net proceeds of $63.2 million.
As a result of the above factors, the Company's loss before income taxes
amounted to $17.4 million in fiscal 1996 compared to net income of $0.7 million
in fiscal 1995. Due to the Company's ability to utilize net operating loss
carryforwards in fiscal 1995, the effective tax expense rate was 11%. Since
these net operating loss carryforwards were fully utilized in fiscal 1995, the
Company's effective tax benefit rate was 39% in fiscal 1996.
The holders of the Series B Preferred Stock are entitled to an annual
cumulative dividend of $5.59 per share accruing from September 3, 1993, payable
on each December 31 and June 30, beginning on June 30, 1994, June 30, 1995 and
June 30, 1996 for the Series B-1, B-2 and B-3 Preferred Stock, respectively. The
Company recorded dividends payable amounting to $579,000 and $377,000 in fiscal
1996 and 1995, respectively.
Net loss per share was $0.78 in fiscal 1996 compared to net income per
share of $0.02 in fiscal 1995. The weighted average number of common shares
outstanding has increased to 14.4 million shares
-17-
<PAGE> 18
in fiscal 1996 compared to 9.9 million shares in fiscal 1995. This increase
results primarily from warrant calls during fiscal 1995 and shares issued in
connection with the Athens acquisition. Since the Class B warrant call occurred
in the fourth quarter of fiscal 1995, the weighted average number of shares of
common stock outstanding was not fully affected until fiscal 1996.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
Revenue for the year ended June 30, 1995 was $88.4 million compared to
$31.2 million for the year ended June 30, 1994. This increase is primarily
attributable to the inclusion of Athens' revenue for a portion of fiscal 1995,
inclusion of a full year of revenue in fiscal 1995 from Westech, which was
acquired in the first quarter of fiscal 1994, and increased sales of CMP
systems. Athens was acquired in the second quarter of fiscal 1995 and represents
$13.2 million of the Company's $88.4 million of fiscal 1995 revenue. Revenue
from foreign sales represented 24% of total fiscal 1995 sales.
The Company has restated cost of goods sold for fiscal 1994 and 1995 in
accordance with industry accounting practices, which moved some engineering
expenses from cost of goods sold to research and development and selling,
general and administrative expenses. After this restatement, cost of goods sold
as a percentage of sales was 57% in fiscal 1995 compared to 73.0% in fiscal
1994. The percentage decrease of 16% represents improvement in operating
efficiencies in both sub-assembly manufacturing and final product assembly, a
reduction in labor hours, improved material procurement practices and increased
product reliability. The 183% increase in revenue over fiscal 1994 also had a
significant impact on operating efficiencies. The acquisition of Westech
occurred in fiscal 1994 and resulted in operating inefficiencies inherent in the
transitional phases of merging IPEC and Westech. Additionally, during fiscal
1994 there was a $1.3 million inventory write-off.
Research and development increased 192% in fiscal 1995, from $2.5
million in fiscal 1994 to $7.3 million in fiscal 1995, primarily due to the
development of new products and processes, both by Westech and Athens. Research
and development represented 8% of sales in fiscal 1995. In addition, the Company
purchased $8.5 million of research and development in the Athens acquisition,
which represents 10% of sales in fiscal 1995.
Selling, general and administrative expenses increased to $20.5 million
in fiscal 1995, compared to $9.4 million in fiscal 1994. This increase is due to
the addition of senior level personnel, the legal, accounting and consulting
expenses of financing activities, and sales commissions.
Operating income in fiscal 1995 totaled $1.3 million compared to a loss
of $4.5 million in fiscal 1994. During fiscal 1994, the Company experienced
substantially higher labor, material and engineering and manufacturing support
costs as part of its start-up and initial production of the Avanti 472 product
line. While these costs were also high in fiscal 1995, such costs had decreased
as a percentage of revenue in fiscal 1995. However, the $8.5 million of research
and development purchased in the Athens acquisition reduced the Company's
operating income in fiscal 1995.
Debt discount and deferred financing fees of $4.3 million are included
in interest expense in fiscal 1994. These fees were attributable to a $5 million
bridge loan and a $2 million credit line, which were repaid in fiscal 1994.
Income before taxes was $675,000 in fiscal 1995, compared to a loss
before taxes of $9.7 million in fiscal 1994. After recognizing tax benefits
attributable to the reversal of the valuation allowance for deferred tax assets,
recognizing tax benefits attributable to the exercise of stock options,
utilization of
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<PAGE> 19
federal and state research and development credits and the non-deductible
expenses related to intangible assets acquired in the Athens acquisition, the
Company recognized a tax provision for fiscal 1995 of $76,000 compared to a tax
benefit of $830,000 in fiscal 1994. The net income in fiscal 1995 was $599,000
compared to a net loss of $8.9 million in fiscal 1994 as a result of the factors
discussed herein.
Due to the Company's ability to utilize net operating losses, its
effective tax rates have been 11% and (9)% in fiscal 1995 and 1994,
respectively.
The holders of the Series B Preferred Stock are entitled to an annual
cumulative dividend of $5.59 per share accruing from September 3, 1993, payable
on each December 31 and June 30, beginning on June 30, 1994, June 30, 1995 and
June 30, 1996 for the Series B-1, B-2 and B-3 Preferred, respectively. The
Company recorded dividends payable of $377,000 in fiscal 1995 to the Series B
Preferred stockholders.
Net income per share was $0.02 in fiscal 1995 compared to a net loss of
$3.26 per share in fiscal 1994. The weighted average number of shares of common
stock outstanding has increased to 9.9 million at June 30, 1995 compared to 2.8
million at June 30, 1994. This increase is the result of several factors
including new option grants, earn outs based on revenue growth and the Class A
and Class B Warrant calls. Because the majority of these factors occurred in the
fourth quarter of fiscal 1995, the weighted average number of shares of common
stock outstanding in fiscal 1995 does not reflect the full impact of these
factors.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1996, cash and cash equivalents decreased by $54.3 million,
The Company generated $12.9 million of cash from operating activities in fiscal
1996. The Company used $62.0 million of cash for investing activities in fiscal
1996. Investments for the acquisition of IPEC Planar Portland and IPEC Precision
used $12.0 million and $11.5 million of cash, respectively. Purchases of
property and equipment amounted to $38.3 million. A significant amount of the
Company's capital expenditures resulted from the construction of a new
manufacturing facility in Phoenix, Arizona.
The Company entered into a loan agreement with a bank in April 1996.
Under the terms of the agreement, the Company received a $10 million term loan
and a $30 million revolving loan facility to provide working capital and for
general corporate purposes. Proceeds from the loan agreement were utilized to
pay $16 million of debt incurred in connection with the acquisition of IPEC
Precision. Issuance of common stock during fiscal 1996 also provided $5.4
million of cash in conjunction with the exercise of warrants and options.
The Company's principal sources of liquidity include cash and cash
equivalents amounting to $11.7 million at June 30, 1996. At June 30, 1996, $9.8
million was outstanding under the revolving loan facility. It is estimated that
an additional $12.3 million was available under the revolving loan facility for
borrowings at June 30, 1996 based on eligible accounts receivable which can be
used to collateralize such borrowings. In addition, the Company is attempting to
raise additional cash amounting to approximately $8 million by entering into a
sale/leaseback transaction for its Phoenix facility. It is not certain at this
time whether this transaction will occur.
The Company believes that its cash and cash equivalents will need to be
supplemented by additional equity or debt financing to fund anticipated or
additional expansion and to finance the Company's operations and capital
investment needs through fiscal 1997. The timing or amount of such
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<PAGE> 20
capital requirements cannot be precisely determined and will depend on a number
of factors, including demand for the Company's products, product mix, changes in
semiconductor industry conditions and competitive factors. There can be no
assurance that such additional financing will be available when needed or if
available, will be on satisfactory terms. The Company's ability to finance its
operations at the current level and to fund working capital requirements will be
adversely impacted if it is unable to complete an equity or debt financing
during the first half of fiscal 1997. Furthermore, the failure to obtain
additional financing when needed on satisfactory terms would hinder the
Company's ability to make continued capital investments, which could materially
adversely affect the Company's results of operations. See "Risk Factors--Future
Capital Needs."
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt SFAS No. 121 in the first quarter of the fiscal year ended
June 30, 1997 and, based on current circumstances, does not believe the effect
of adoption will be material to the consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective
for transactions entered into in fiscal years beginning after December 15, 1995.
The Company will not be adopting the recognition and measurement criteria of
SFAS No. 123 and thus, the impact of SFAS No. 123 on the Company's consolidated
financial statements will not be material.
RISK FACTORS
Investors in the Company should be aware of the following risks and
uncertainties that could materially and adversely affect the Company and the
market for the Company's securities.
History of Losses. Prior to the Company's acquisition of Westech in
fiscal 1994, the Company did not have significant revenue. The Company had a net
loss in fiscal 1994 and fiscal 1996 and at June 30, 1996 had an accumulated
deficit of $23.5 million. For the year ended June 30, 1996, the Company had a
net loss of $10.7 million on revenue of $184.5 million. During fiscal 1996 the
Company produced net income only in the first, third and fourth fiscal quarters.
Operating results for future periods are subject to numerous uncertainties, and
there can be no assurance that the Company will be profitable in fiscal 1997 or
sustain profitability on a quarterly basis. See "MD&A--Results of Operations."
Fluctuations in Operating Results. The Company's operating results are
subject to quarterly fluctuations due to a variety of factors, including
industry-wide changes in the demand for semiconductors or for semiconductor
production equipment; delayed or postponed orders; acceptance of the Company's
products; the gain or loss of significant customers; competitive pressures;
availability and costs of components from the Company's suppliers; the timing of
product announcements and introductions by the Company, its customers or its
competitors; the timing and structure of acquisitions; changes in the mix of
products sold; the level of international sales, which have lower margins than
domestic sales; delayed or canceled construction of wafer fabrication facilities
by customers; research and development expenses associated with new product
introductions; market acceptance of new or
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<PAGE> 21
enhanced versions of the Company's and its customers' products; and the timing
of significant shipments. For example, the Company's results of operations for
the fiscal quarter ended March 31, 1994 were adversely impacted as a result of a
delay in product shipments caused by the engineering redesign of its 372M CMP
product. In the second quarter of fiscal 1995, the Company had a loss due to the
write-offs associated with the Athens acquisition. In the second quarter of
fiscal 1996, the Company had a loss due to nonrecurring charges associated with
the GAARD and HDOS acquisitions. Due to the industry-wide slowdown, the Company
believes that its revenue for the first quarter of fiscal 1997 will be
approximately 25% below the fourth quarter of fiscal 1996. The Company cannot
assure that it will be able to anticipate or respond timely to changes in any of
the factors listed above, which could adversely affect operating results in one
or more fiscal quarters.
The Company derives most of its revenue from the sale of products in a
price range from $100,000 to $1,300,000 per unit, and a clustered system of its
products can be priced as high as $2,500,000. As a result, the timing of
individual shipments can have a significant impact on the Company's results of
operations for a particular period. The Company has previously experienced order
and delivery delays and cancellations which caused the Company to miss its
quarterly revenue and profit projections and there can be no assurance that the
Company can avoid such order and delivery delays in the future. IPEC Clean does
not have significant backlog, and bookings in any quarter may vary. Significant
shipments by IPEC Precision are not expected before the third quarter of fiscal
1997. A significant portion of the Company's operating expenses are relatively
fixed in nature and planned expenditures are based in part on anticipated
orders. Ongoing expenditures for product development and engineering make it
difficult to reduce expenses in a particular quarter if the Company's sales
goals for the quarter are not met. Any inability to adjust spending quickly
enough to compensate for any revenue shortfall would magnify the adverse impact
of the revenue shortfall on the Company's results of operations. Results of
operations in any period should not be considered indicative of the results to
be expected for future periods. There can be no assurance that the Company will
be profitable in any future period. Fluctuations in operating results may also
result in fluctuations in the price of the Company's Common Stock. See
"MD&A--Results of Operations."
Recent Acquisitions. The growth in the Company's revenue is attributable
to the acquisition of IPEC Planar Phoenix during fiscal 1994 and its subsequent
growth in fiscal 1995 and the acquisition of IPEC Clean during fiscal 1995 as
well as growth in IPEC Planar Phoenix's business during fiscal 1995 and 1996.
The Company acquired both IPEC Planar Portland and IPEC Precision in the second
fiscal quarter of 1996. IPEC Planar Phoenix's earnings fluctuated substantially
prior to its acquisition by the Company, and IPEC Clean was not profitable for
any fiscal year prior to its acquisition by the Company. IPEC Clean was
unprofitable for the portion of fiscal year 1995 that is included in the
Company's results of operations and for fiscal 1996. IPEC Precision has not
operated profitably prior or subsequent to its acquisition by the Company and
there can be no assurance that IPEC Precision or IPEC Clean will operate
profitably in the future.
Each of these acquisitions represented the addition of new products to
the Company, which has caused changes in the allocation of management resources,
marketing strategies and production systems. The Company's expansion through
acquisitions has resulted in significantly higher operating expenses,
particularly because the Company's strategy has been to initially operate each
acquired business independently, resulting in separate marketing, customer
support and administrative functions. The Company is currently in the process of
consolidating these functions at IPEC Clean, IPEC Planar Phoenix and IPEC Planar
Portland. The Company's ability to manage its acquired businesses effectively
will depend on its ability to hire additional management and technical personnel
and to continue to improve the operating, financial and management systems and
controls in each of its operating units.
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<PAGE> 22
There can be no assurance that the Company will be able to continue to improve
the revenue or operating results of these acquired businesses or other companies
which the Company may acquire in the future.
The IPEC Planar Portland and IPEC Precision acquisitions in the second
quarter of fiscal 1996 increased expenses, including interest expense in the
second half of fiscal 1996, and are expected to increase research and
development and selling general and administrative expenses by significant
amounts in fiscal 1997.
Future Capital Needs. In order to remain competitive, the Company must
continue to make ongoing significant investments in capital equipment, as well
as research and development. The Company believes that its cash and cash
equivalents must be supplemented by cash generated by additional equity or debt
financing during the first half of fiscal 1997 to finance the Company's
operations and capital investment needs through fiscal 1997. The timing or
amount of such capital requirements cannot be precisely determined and will
depend on a number of factors, including demand for the Company's products,
product mix, changes in semiconductor industry conditions and competitive
factors. There can be no assurance that such additional financing will be
available when needed or if available, will be on satisfactory terms. If the
Company raises capital through the issuance of debt, the Company's overall
leverage will increase substantially. This increased leverage could adversely
affect the Company's future operations. A significant portion of the Company's
cash flow from operations could be required for the payment of interest on, and
principal of, its indebtedness, and the Company's ability to obtain additional
financing for working capital, acquisitions or other purposes may be impaired.
An increase in leverage could increase the Company's vulnerability to industry
downturns and competitive pressures and make it more difficult for the Company
to take advantage of business opportunities that may arise in the future. The
issuance of convertible debt or of equity would dilute the ownership interests
of current stockholders. Debt would, and equity could, represent a senior claim
on the Company's assets relative to the Common Stock, may also bear other
economic benefits (such as dividend rights and anti-dilution protection) which
the Common Stock does not have, and may have voting rights which the Common
Stock does not have and which could restrict the Company's flexibility in
effecting certain transactions. The Company's ability to finance its current
level of operations, including working capital requirements, will be adversely
impacted if it is unable to obtain new equity or debt financing. Furthermore,
the failure to obtain additional financing when needed on satisfactory terms
would hinder the Company's ability to make continued capital investments, which
could materially adversely affect the Company's results of operations.
Industry Acceptance of Products. The CMP process is in an early stage of
implementation and has not yet been broadly adopted by semiconductor
manufacturers for volume production. Most major semiconductor manufacturers are
beginning to introduce the CMP process only for pilot line production of
integrated circuits with three or more metal layers and line widths at or less
than 0.5 micron. Only a limited number of semiconductor manufacturers are
producing commercial quantities of integrated circuits with these
characteristics using CMP machines. To date, the Company's products have been
used primarily in the manufacture of advanced semiconductor logic and memory
devices. There can be no assurance that the CMP process will be broadly adopted
or that alternative processes will not be used to achieve planarity in the
manufacture of advanced semiconductor devices. If the CMP process is not
accepted in the market, or if alternatives to the CMP process emerge, or if
other planarization technologies improve to serve the industry's planarity
requirements, then the Company's business, financial condition and results of
operations would be materially adversely affected.
IPEC Clean's revenue prior to its acquisition primarily consisted of
chemical reprocessing systems and related products which were sold to a small
number of leading semiconductor manufacturers. IPEC
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<PAGE> 23
Clean's future results depend largely upon broader acceptance of its chemical
reprocessing systems, upon acceptance of the Company as a provider of chemical
distribution systems, and upon successful integration of IPEC Clean's cleaners
with the Company's CMP products. Similarly, IPEC Precision's products are based
on technologies which have not been adopted by the semiconductor manufacturing
industry, and there can be no assurance that customers will accept these
products, or that these products can be sold profitably or in volume. The
failure of the semiconductor industry to accept the Company's systems and
products would have a material adverse effect on the Company's business,
financial condition and results of operations.
Product Concentration; Dependence on New Products and Technologies. In
fiscal 1996, the Company derived approximately 67% of its revenue from its
planarization systems and 11% of its revenue from its chemical reprocessors. A
decline in sales of either of these products would adversely affect IPEC if the
Company has not created other products which at that time are producing
significant revenue. Semiconductor manufacturing equipment and processes are
subject to rapid technological changes and product obsolescence. The Company's
strategy depends in part on developing and introducing products which lower the
semiconductor manufacturer's cost of ownership, which involves a number of
factors, including product acquisition and operating expenses, throughput,
reliability, footprint and wafer yields. The Company believes that its future
success will depend in part upon its ability to develop and enhance its existing
products and develop new products to meet such anticipated technological
changes. The Company's future results are highly dependent on timely completion
and market acceptance of the Company's Avanti 672, which is designed to
integrate CMP processing and wafer cleaning in a single piece of equipment.
Additionally, the Company's future results may be dependent on the market
acceptance of the Company's AvantGaard 676, which is designed to be a
high-throughput metal CMP tool. Semiconductor equipment companies often
experience delays in completing advanced products, particularly those which
integrate functions previously performed by separate equipment in the wafer
fabrication facility, and the Company cannot assure that the Avanti 672 will be
completed as scheduled for delivery in the second half of calendar 1996. In
addition, the Company cannot assure that semiconductor manufacturers will
purchase the Avanti 672 or AvantGaard 676, or any other product developed by the
Company. To the extent products developed by the Company are based upon
anticipated changes in semiconductor production technologies, sales for such
products may be adversely affected if other technology becomes accepted in the
industry. If the Company does not successfully introduce new products or
enhanced versions of its current products in a timely manner, the Company's
sales would decline. There can be no assurance that the Company will be able to
develop and introduce enhanced or new products that satisfy customer needs and
achieve market acceptance.
Dependence on Major Customers. A small number of customers account for a
significant percentage of the Company's sales volume and revenue. In fiscal
1994, Intel and IBM represented 17% and 45%, respectively, of the Company's
revenue. In fiscal 1995, Intel, IBM and Motorola represented 18%, 20% and 14%,
respectively, of the Company's revenue. In fiscal 1996, Intel represented 29% of
the Company's revenue. The Company anticipates that its revenue will continue to
depend on major customers, although the companies considered major customers and
the percentage of the Company's revenue represented by each major customer may
vary from quarter to quarter. The loss of a major customer or any material
reduction in orders by such customers, including reductions due to market or
competitive conditions, would have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's future
success depends in part upon its ability to obtain orders from new customers, as
well as the financial condition of its customers and the general economy. Sales
of certain of the Company's products generally depend on new facility
construction projects and facility upgrades and there can be no assurance that
the Company's current customers will make significant purchases of the Company's
products in the future.
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<PAGE> 24
Cyclicality of Semiconductor Industry. The Company's business depends
upon capital expenditures by manufacturers of semiconductor devices, primarily
for the opening of new or expansion of existing fabrication facilities which, in
turn, depends upon the current and anticipated market demand for semiconductor
devices and products utilizing such devices. The semiconductor industry is
highly cyclical and historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment. Although the
semiconductor industry has experienced significant growth in recent years, which
has resulted in growth in the semiconductor capital equipment industry, there
can be no assurance that past growth in the semiconductor and semiconductor
capital equipment industries, or the resulting growth in the Company's business,
can be sustained in the future or that the recent downturn in the market will
not continue. The Company's planned operations assume that a significant portion
of new orders will result from demand from semiconductor manufacturers building
or expanding fabrication facilities for advanced multi-level semiconductor
devices with design requirements of 0.5 micron and below, and there can be no
assurance that such demand will exist. The Company's business, financial
condition and results of operations would be materially adversely affected if
semiconductor manufacturers do not increase their capacity to produce these
advanced semiconductor devices, or if there is a slowing of growth or a decline
in production by the semiconductor industry.
Competition. The semiconductor equipment industry is an intensely
competitive market. The Company believes that domestic and international
competition in CMP polisher systems, clustered CMP polisher and cleaning
systems, and chemical reprocessing systems is likely to increase substantially.
The Company is aware of a number of companies currently marketing CMP systems
that directly compete with the Company's systems. In addition, Applied
Materials, Inc. has recently begun to offer a CMP system which competes directly
with the Company's CMP product offerings. Other capital equipment manufacturers
not currently involved in the development of CMP systems may also attempt to
enter and develop products for this market or to develop alternative
technologies which reduce the need for the Company's products. The Company is
aware of several companies that market chemical reprocessing systems similar to
those sold by the Company. The trend towards consolidation in the semiconductor
equipment industry has made it increasingly important to have the financial
resources necessary to compete effectively across a broad range of product
offerings, to fund customer service and support on a world-wide basis and to
invest in both product and process research and development. Applied Materials,
Inc. and other current and potential competitors have substantially greater
financial resources, name recognition and more extensive engineering,
manufacturing, marketing and customer service and support capabilities than the
Company. The Company expects its current competitors to continue to improve the
design and performance of their existing products and processes, and to
introduce new products and processes with improved price and performance
characteristics. New product introductions or product announcements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Moreover, increased competitive
pressure could lead to intensified price based competition, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.
International Sales. International sales accounted for approximately 24%
and 34% of the Company's revenue in fiscal 1995 and 1996, respectively.
International sales carry lower gross margins than domestic sales. The Company
expects that international sales will continue to account for a significant
portion of its revenue in future periods, and international sales at IPEC Planar
in the first quarter of fiscal 1997 are expected to be at levels lower than the
fourth quarter of fiscal 1996 on a percentage of revenue basis. International
sales are subject to certain inherent risks including tariffs, embargoes and
other trade barriers, staffing and operating foreign sales and service
operations, managing distributors and collecting accounts receivable. The
Company is also subject to risks associated with
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<PAGE> 25
regulations relating to the import and export of high technology products. The
export of the Company's products to certain countries is limited by law. The
Company cannot predict whether quotas, duties, taxes or other charges or
restrictions upon the importation or exportation of the Company's products in
the future will be implemented by the United States or any other country.
Fluctuations in currency exchange rates could cause the Company's products to
become relatively more expensive to customers in a particular country, leading
to a reduction in sales or profitability in that country. While the Company's
sales are currently denominated only in U.S. dollars, future international
activity may result in foreign currency denominated sales. Gains and losses on
the conversion to U.S. dollars of accounts receivable and accounts payable
arising from international operations may contribute to fluctuations in the
Company's results of operations. There can be no assurance that any of these
factors will not have a material adverse effect on the Company's business,
financial condition and results of operations.
Asian Market. The Company believes that its future success will depend
in part upon continued acceptance of its products by Asian semiconductor
manufacturers. This market segment is large, represents a substantial percentage
of the worldwide semiconductor manufacturing capacity, and is difficult for
foreign companies to penetrate. Asian manufacturers may develop alternative
techniques, or may enhance existing techniques such as spin-on glass and
deposited glass, to achieve acceptable yields for DRAMs and other integrated
circuits involving three or more metal layers and line widths at or below 0.5
micron. The Company believes that increased penetration of the Asian markets is
critical to its financial results and intends to continue to invest significant
resources in such markets in order to meet this objective. The Company currently
sells its products in Asian countries through distributors and not directly. If
the Company determines to develop a direct presence in these markets,
particularly Japan, such decision would require the allocation of substantial
management and financial resources, may adversely affect the Company's
relationship with its current distributors, and increases a number of risks
related to international sales as described above. There can be no assurance
that the Company will achieve acceptance of its products in this market.
Dependence on Third Party Manufacturers and on Single Source Suppliers.
The Company relies on a limited number of independent manufacturers to provide
certain components in assemblies made to the Company's specifications and use in
the Company's products. In the event that the Company's subcontractors were to
experience financial, operational, production or quality assurance difficulties
that resulted in the reduction or interruption of supply to the Company, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the Company purchases certain key
components from sole or single source vendors for which alternative sources are
not currently available. For example, IPEC Clean requires high quality quartz
crystal, which the Company previously has had difficulties obtaining and is
currently in short supply. A shortage of quartz could have a material adverse
impact on the Company's business, financial condition or results of operations.
The inability to develop alternative sources for these single or sole source
components or to obtain sufficient quantities of these components can result in
delays or reductions in product shipments, which could adversely affect the
Company's business, financial condition and result of operations. Any prolonged
inability to obtain adequate amounts of fully functional components or any other
circumstances that would require the Company to seek alternative sources of
supply would have a material adverse effect on the Company's business, financial
condition and results of operations and could damage the Company's relationship
with its customers.
Intellectual Property. The Company's success depends in significant part
on the proprietary nature of its technology. There can be no assurance that the
patents issued to the Company will provide the Company with meaningful
advantages, or that any patent issued to the Company will not be challenged. The
two initial patents relating to the Company's single wafer planarization system
products
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<PAGE> 26
are scheduled to expire in 1997. In 1993, the technology covered by these
patents currently forming the basis of the CMP process and used in the Company's
primary products was licensed on a royalty-free basis to a competitor pursuant
to a settlement arrangement in which the Company also incurred settlement
obligations aggregating $1.4 million, of which $175,000 was outstanding at June
30, 1996. The Company currently has no patents with respect to its acid
reprocessing technology outside the United States. To the extent that a
competitor of the Company is able to reproduce or otherwise capitalize on the
Company's technology prior to the issuance of a patent, it may be difficult or
impossible for the Company to obtain necessary intellectual property protection
in the United States or other countries where such competitor conducts its
operations. Moreover, the laws of foreign countries may not protect the
Company's intellectual property to the same extent as do the laws of the United
States. There can be no assurance that the steps taken by the Company to protect
its proprietary technology will be adequate or that its competitors will not be
able to develop similar or functionally equivalent technology. There has been
substantial litigation regarding patent and other intellectual property rights
in semiconductor related industries.
In the future the Company may receive notice of claims of infringement
of other parties' proprietary rights, and there can be no assurance that a claim
for infringement, invalidity or indemnification will not be asserted against the
Company or that any such assertions will not have a material adverse effect on
the Company's business, financial condition and results of operations. If any
Company equipment is found to infringe a patent, a court may grant an injunction
to prevent making, selling or using the equipment in the applicable country.
Irrespective of the validity or success of such claims, the Company could incur
significant costs with respect to the defense thereof, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If infringement claims are asserted against the Company,
the Company may seek to obtain a license of such third party's intellectual
property rights, which may not be available under reasonable terms or at all.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of proprietary rights of others. The Company also relies on trade
secrets and proprietary technology that it seeks to protect, in part, through
confidentiality agreements with employees and other parties. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by others. The Company also
has entered into significant agreements that provide for the escrow, licensing
and royalty payment of the Company's technology to various third parties.
The Company also relies on trade secrets to protect its proprietary
technology. There can be no assurance that information will be kept
confidential, that contractual secrecy obligations will be honored, or that
others will not independently develop similar or superior technology. To the
extent that consultants, employees or third parties apply technological
information independently developed by them or by others, disputes may arise as
to the proprietary rights to such information, which disputes may be resolved
against the Company.
The Company manufactures the AvantGaard 676 under a license from a
volume manufacturer of advanced microprocessors. The Company has escrowed
technical data sufficient to permit such manufacturer to manufacture the
Company's AvantGaard 676, for release if the Company does not meet certain
criteria regarding product or spare part delivery schedules to the manufacturer.
If the data is released from escrow, the manufacturer could manufacture the
AvantGaard 676 or have the AvantGaard 676 manufactured by others for its use.
The escrow terminates in October 1998.
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<PAGE> 27
Future Acquisitions. The Company's strategy is to obtain additional
wafer fabrication technologies and may involve, in part, acquisitions of
products, technologies or businesses from third parties. In addition, the
Company may make additional acquisitions to obtain additional distribution
capacity in specified geographic markets. Identifying and negotiating these
acquisitions may divert substantial management time. An acquisition could absorb
substantial cash resources, require the Company to incur or assume debt
obligations, or involve the issuance of additional Common Stock which could
dilute the Company's outstanding Common Stock. An acquisition which is accounted
for as a purchase, like the acquisitions of Westech, Athens, GAARD or HDOS,
could involve significant one-time non-cash write-offs, or could involve the
amortization of goodwill over a number of years, which would adversely affect
earnings in those years. Acquisitions outside the CMP area may be viewed by
outside market analysts as a diversion of the Company's focus on CMP. For these
and other reasons, the market for the Company's stock may react positively or
negatively to the announcement of any acquisition. An acquisition will continue
to require attention from the Company's management to integrate the acquired
entity into the Company's operations, may require the Company to develop
expertise in a semiconductor process equipment field outside CMP or other
existing businesses and may result in departures of management of the acquired
entity. An acquired entity may have unknown liabilities, and its business may
not achieve the results anticipated at the time of the acquisition. Any
acquisitions that adversely affect the operations of the Company may have an
adverse impact on the Company's stock price.
Product Liability and Environmental Regulations. The nature of the
Company's business exposes it to product liability claims, as well as the risk
that harmful substances will escape into the workplace and the environment and
cause damage or injuries. For example, in June 1995 and again in July 1996, an
acid reprocessor malfunctioned and caused sulfuric acid to escape from its
quartz cylinder container. In these instances no acid escaped from the
compartment containing the quartz cylinder and no damage to the manufacturing
facility resulted; however, there can be no assurance that the Company's
products will not malfunction in the future or that damage to a customer's
facilities will not result. The Company and its customers are subject to
stringent federal, state and local regulations governing the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals used
in their manufacturing operations. Current or future regulations could require
the Company or its customers to make substantial expenditures for preventive or
remedial action, reduction of chemical exposure or waste treatment or disposal.
To the extent that the Company's strategy to provide integrated on-site wet
chemical management services to its customers is successful, the Company faces
increased risks with respect to environmental and occupational health and safety
liabilities.
Effect of Certain Anti-Takeover Provisions. The Company's Certificate
of Incorporation authorizes the Company's Board of Directors to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of preferred
stock and to fix the number of shares constituting any series and the
designation of such series, without further vote or action by its stockholders.
The voting power held by the Company's officers and directors may give those
individuals substantial influence over any corporate action submitted to the
Company's shareholders. Pursuant to Delaware corporate law, the approval of the
outstanding Preferred Stock may be required for certain corporate actions. Any
series of Preferred Stock which the Company may issue in the future would
participate in these class voting rights and may have additional independent
rights to approve certain actions. The Company is subject to Section 203 of the
Delaware General Corporate Law. The voting power held by officers and directors,
outstanding rights to elect members of the Company's Board of Directors, the
voting rights of outstanding Preferred Stock and Preferred Stock which may be
issued in the future and the application of Delaware General Corporate Law
Section 203 could discourage certain types of transactions involving an actual
or potential change in
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<PAGE> 28
control of the Company, including transactions in which the holders of Common
Stock who are not officers and directors might otherwise receive a premium for
their shares over then current prices, and may limit the ability of such
stockholders to cause or approve transactions which they may deem to be in their
best interests.
Dependence on Key Personnel. The Company's future success is dependent
upon its ability to attract and retain qualified management, technical, sales
and support personnel. The competition for such personnel is intense. The loss
of certain key people or the Company's inability to attract and retain new key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.
Volatility of Stock Price. The Company's Common Stock has experienced
substantial price volatility and such volatility may occur in the future,
particularly as a result of quarter to quarter variations in the actual or
anticipated financial results of the Company or of other companies in the
semiconductor industry, or in the markets served by the Company, or
announcements by the Company or its competitors regarding new product
introductions. In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies' stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies. These factors
may adversely affect the market price of the Common Stock.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See Index to IPEC Financial Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During fiscal 1996, the Company reviewed its relationship with its
independent accountants. Following that review, the Company and its Audit
Committee decided to change its independent accountants. On March 26, 1996, the
Company engaged KPMG Peat Marwick LLP ("KPMG") to serve as the Company's
independent accountants, replacing Richard A. Eisner & Company, LLP, who had
previously served in that capacity. Richard A. Eisner & Company, LLP has
reported on the Company's financial statements for the two fiscal years ended
June 30, 1995 and KPMG has reported on the Company's financial statements for
the fiscal year ended June 30, 1996. Neither of the reports by either firm
contained either an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope or accounting principles. There were
no disagreements on any matters of accounting principle or practices, financial
statement disclosures, or auditing scope or procedure with Richard A. Eisner &
Company, LLP in connection with that firm's audits of fiscal 1994 and 1995 or
through March 26, 1996, or with KPMG in connection with that firm's audit of the
fiscal year ended June 30, 1996, which disagreements, if not resolved to the
auditing firm's satisfaction, would have caused them to make reference in such
firm's report on the subject matter of such disagreement.
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<PAGE> 29
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT
Information about the Company's directors required by this item will be
contained in the Company's Notice of 1996 Annual Meeting of Stockholders and
Proxy Statement, pursuant to Regulation 14A, to be filed with the Securities and
Exchange Commission within 120 days after June 30, 1996. Such information is
incorporated herein by reference. The following table sets forth certain
information concerning the Company's executive officers as of June 30, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Sanjeev R. Chitre...... 41 Chairman of Board of Directors and Chief Executive Officer
John S. Hodgson........ 45 Vice President, Chief Financial Officer, Treasurer and Secretary
Thomas C. McKee........ 48 President and Chief Operating Officer
</TABLE>
SANJEEV R. CHITRE founded the Company and has been the Chairman of the
Board and Chief Executive Officer since its organization in October 1989. Mr.
Chitre was a Vice President of marketing and sales of Superwave Technology,
Inc., a manufacturer of automated in-line systems for the semiconductor
industry, from 1984 through 1989.
JOHN S. HODGSON has been Vice President, Chief Financial Officer,
Treasurer and Secretary of the Company since July 1994. From 1985 to 1993, he
served in senior financial capacities for Dover Technologies, the electronics
subsidiary of Dover Corporation ("Dover"). In 1993, Mr. Hodgson was Vice
President of Finance of Dovatron International, Inc., a contract electronics
manufacturer that was spun out into a separate public company by Dover.
THOMAS C. MCKEE has been IPEC's President and Chief Operating Officer
since October 1995 and was Westech's Chief Operating Officer from April 1994 to
October 1995. From November 1993 to April 1994 he was Executive Vice President
of Westech. Prior to joining IPEC, from 1991 to 1993 Mr. McKee was Vice
President of Sales of Nexxus Products Company, a manufacturer of hair and skin
care products. Mr. McKee has also served in various management and consulting
positions within the semiconductor capital equipment industry and was the
founder of Semiconductor Systems, Inc., a manufacturer of photolithography track
equipment that was sold to General Signal in 1983.
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<PAGE> 30
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item will be contained in the Company's
Notice of 1996 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after June 30, 1996 and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item will be contained in the Company's
Notice of 1996 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after June 30, 1996 and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item will be contained in the Company's
Notice of 1996 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after June 30, 1996 and is incorporated herein by reference.
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<PAGE> 31
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
1. Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page(s) in
Form 10-K
----------
<S> <C>
Independent Auditors' Report, KPMG Peat Marwick LLP 32
Independent Auditors' Report, Richard A. Eisner & Company, LLP 33
Consolidated Balance Sheets as of June 30, 1996 and 1995 34
Consolidated Statements of Operations for the years ended
June 30, 1996 1995 and 1994 35
Consolidated Statements of Changes in Stockholders' Equity
for the years ended June 30, 1996, 1995 and 1994 36
Consolidated Statements of Cash Flows for the years ended
June 30, 1996 1995 and 1994 38
Notes to Consolidated Financial Statements 40
</TABLE>
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<PAGE> 32
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Integrated Process Equipment Corp.:
We have audited the accompanying consolidated balance sheet of Integrated
Process Equipment Corp. and subsidiaries as of June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Process
Equipment Corp. and subsidiaries as of June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Phoenix, Arizona
August 2, 1996
32
<PAGE> 33
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Integrated Process Equipment Corp.
We have audited the accompanying consolidated balance sheet of
Integrated Process Equipment Corp. and subsidiaries as of June 30, 1995 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the two-year period then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 enumerated above present
fairly, in all material respects, the financial position of Integrated Process
Equipment Corp. and subsidiaries at June 30, 1995 and the consolidated results
of their operations and cash flows for each of the years in the two-year period
then ended, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
August 18, 1995
33
<PAGE> 34
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
June 30, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,681 $ 66,007
Accounts receivable (note 16) 44,079 30,622
Inventories (notes 3 and 16) 31,681 22,882
Prepaid expenses 1,590 1,419
Deferred income taxes (note 12) 5,175 2,204
---------------- ----------------
Total current assets 94,206 123,134
---------------- ----------------
Property, plant and equipment, net (note 4) 52,655 11,701
Intangible assets, net (note 5) 28,046 21,504
Deferred income taxes (note 12) 13,175 --
Other assets 3,602 1,638
---------------- ----------------
$ 191,684 $ 157,977
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 7) $ 2,056 $ --
Current portion of long-term debt (note 8) 2,124 4,772
Accounts payable 15,176 9,627
Accrued liabilities (note 6) 21,150 10,591
---------------- ----------------
Total current liabilities 40,506 24,990
Long-term debt, less current portion (note 8) 22,841 1,748
Deferred income taxes (note 12) -- 1,119
---------------- ----------------
Total liabilities 63,347 27,857
---------------- ----------------
Stockholders' equity (note 9):
Preferred stock, $.01 par value per share.
Nonvoting authorized, 2,000,000 shares:
Series B-1 cumulative preferred stock. Authorized
21,478 shares, issued and outstanding 20,941
shares. Liquidation preference of $1,950. -- --
Series B-2 cumulative preferred stock.
Authorized 21,478 shares, issued and outstanding
20,941 shares. Liquidation preference of $1,950. -- --
Series B-3 cumulative preferred stock. Authorized 21,478
shares, issued and outstanding 21,210 shares in 1996.
Liquidation preference of $1,975. -- --
Common stock, $.01 par value per share. Authorized
50,000,000 shares in 1996, 30,000,000 shares in 1995;
one vote per share; issued and outstanding 14,238,406
shares in 1996 and 13,501,756 shares in 1995. 142 135
Class A common stock, $.01 par value per share. Authorized
3,500,000 shares, four votes per share; issued and
outstanding 521,650 shares in 1996 and 521,704
shares in 1995. 5 5
Additional paid-in capital 151,730 142,422
Accumulated deficit (23,546) (12,450)
Foreign currency translation adjustment 6 8
---------------- ----------------
Total stockholders' equity 128,337 130,120
Commitments and contingencies (note 13)
---------------- ----------------
$ 191,684 $ 157,977
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
Years ended June 30, 1996 , 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenue $ 184,500 $ 88,385 $ 31,158
Cost of goods sold 109,719 50,776 22,738
------------------ ------------------ ------------------
Gross margin 74,781 37,609 8,420
Operating expenses:
Research and development 19,871 7,330 2,453
Purchased research and development 36,961 8,485 1,107
Selling, general and administrative 35,436 20,458 9,403
------------------ ------------------ ------------------
Total operating expenses 92,268 36,273 12,963
------------------ ------------------ ------------------
Operating income (loss) (17,487) 1,336 (4,543)
Other income (expense):
Interest income 1,754 383 22
Interest expense (note 8) (2,149) (1,059) (5,197)
Other, net 446 15 (12)
------------------ ------------------ ------------------
Total other income (expense) 51 (661) (5,187)
------------------ ------------------ ------------------
Income (loss) before income taxes (17,436) 675 (9,730)
Income tax expense (benefit) (note 12) (6,779) 76 (830)
------------------ ------------------ ------------------
Net income (loss) (10,657) 599 (8,900)
Cumulative dividend on preferred stock (579) (377) (118)
------------------ ------------------ ------------------
Net income (loss) attributable to
common stockholders $ (11,236) $ 222 $ (9,018)
================== ================== ==================
Net income (loss) per share $ (.78) $ .02 $ (3.26)
================== ================== ==================
Shares used in per share calculation 14,434 9,865 2,763
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 36
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(in thousands, except share amounts)
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- ------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 305,398 $ 425 -- $-- 1,006,250 $ 10
Conversion of Series A preferred
stock to common stock (305,398) (425) -- -- 152,698 2
Acquisition of Westech Systems,
Inc. -- -- 21,478 -- 429,530 4
Director stock sale -- -- -- -- 72,928 --
Exercise of stock options -- -- -- -- 10,000 --
Proceeds from public offering, net
of offering costs of $1,538 -- -- -- -- 2,561,000 26
Issuance of Class A warrants -- -- -- -- -- --
Issuance of Class D warrants -- -- -- -- -- --
Net loss -- -- -- -- -- --
Preferred stock dividends paid -- -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- --
-------- ------ ------- -- --------- -----
Balance at June 30, 1994 -- -- 21,478 -- 4,232,406 42
Issuance of Series B-2 preferred
stock -- -- 21,478 -- -- --
Conversion of Series B preferred
stock to common stock -- -- (1,074) -- 12,860 --
Conversion of Class A common
stock to common stock -- -- -- -- 505,678 6
Exercise of warrants -- -- -- -- 7,350,410 74
Exercise of unit purchase options -- -- -- -- 64,540 --
Acquisition of Athens Corp -- -- -- -- 1,095,695 11
Exercise of stock options -- -- -- -- 217,731 2
Employee stock purchase plan -- -- -- -- 22,436 --
Tax benefit attributable to
exercise of stock options -- -- -- -- -- --
Issuance of Class E warrants -- -- -- -- -- --
Option compensation charges -- -- -- -- -- --
Net income -- -- -- -- -- --
Preferred stock dividends paid -- -- -- -- -- --
-------- ------ ------- -- --------- -----
Balance at June 30, 1995 -- -- 41,882 -- 13,501,756 135
CLASS A FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------ PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
------ ------ ------- ------- ----------
Balance at June 30, 1993 1,100,310 $ 11 $ 5,192 $ (4,029) $ 7
Conversion of Series A preferred
stock to common stock -- -- 423 -- --
Acquisition of Westech Systems,
Inc. -- -- 5,996 -- --
Director stock sale (72,928) -- -- -- --
Exercise of stock options -- -- 77 -- --
Proceeds from public offering, net
of offering costs of $1,538 -- -- 17,207 -- --
Issuance of Class A warrants -- -- 3,516 -- --
Issuance of Class D warrants -- -- 73 -- --
Net loss -- -- -- (8,900) --
Preferred stock dividends paid -- -- -- (41) --
Foreign currency translation
adjustment -- -- -- -- 1
--------- ---- --------- -------- -----
Balance at June 30, 1994 1,027,382 11 32,484 (12,970) 8
Issuance of Series B-2 preferred
stock -- -- 2,000 -- --
Conversion of Series B preferred
stock to common stock -- -- -- -- --
Conversion of Class A common
stock to common stock (505,678) (6) -- -- --
Exercise of warrants -- -- 83,346 -- --
Exercise of unit purchase options -- -- 541 -- --
Acquisition of Athens Corp -- -- 20,998 -- --
Exercise of stock options -- -- 1,670 -- --
Employee stock purchase plan -- -- 212 -- --
Tax benefit attributable to
exercise of stock options -- -- 988 -- --
Issuance of Class E warrants -- -- 144 -- --
Option compensation charges -- -- 39 -- --
Net income -- -- -- 599 --
Preferred stock dividends paid -- -- -- (79) --
--------- ---- --------- -------- -----
Balance at June 30, 1995 521,704 5 142,422 (12,450) 8
</TABLE>
36
<PAGE> 37
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity, Continued
(in thousands, except share amounts)
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- ------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 -- $-- 41,882 $-- 13,501,756 $ 135
Issuance of Series B-3 preferred
stock -- -- 21,478 -- -- --
Conversion of Series B preferred
stock to common stock -- -- (268) -- 4,020 --
Reclassification of shares -- -- -- -- 54 --
Exercise of warrants -- -- -- -- 156,250 2
Acquisition of remaining 6%
interest of Athens Corp. -- -- -- -- 211,670 2
Exercise of unit purchase options -- -- -- -- 68,880 1
Conversion of convertible
debenture -- -- -- -- 50,000 --
Exercise of stock options -- -- -- -- 179,868 2
Employee stock purchase plan -- -- -- -- 65,908 --
Tax benefit attributable to
exercise of stock options -- -- -- -- -- --
Issuance of warrants -- -- -- -- -- --
Net loss -- -- -- -- -- --
Preferred stock dividends paid -- -- -- -- -- --
Foreign currency translation
adjustment -- -- -- -- -- --
-- -- ------ -- ---------- ---
Balance at June 30, 1996 -- $-- 63,092 $-- 14,238,406 $ 142
== == ====== == ========== ===
CLASS A FOREIGN
COMMON STOCK ADDITIONAL CURRENCY
------------ PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
------ ------ ------- ------- ----------
Balance at June 30, 1995 521,704 $ 5 $ 142,422 $ (12,450) $ 8
Issuance of Series B-3 preferred
stock -- -- 2,000 -- --
Conversion of Series B preferred
stock to common stock -- -- -- -- --
Reclassification of shares (54) -- -- -- --
Exercise of warrants -- -- 1,413 -- --
Acquisition of remaining 6%
interest of Athens Corp. -- -- 204 -- --
Exercise of unit purchase options -- -- 926 -- --
Conversion of convertible
debenture -- -- 110 -- --
Exercise of stock options -- -- 1,950 -- --
Employee stock purchase plan -- -- 1,044 -- --
Tax benefit attributable to
exercise of stock options -- -- 1,561 -- --
Issuance of warrants -- -- 100 -- --
Net loss -- -- -- (10,657) --
Preferred stock dividends paid -- -- -- (439) --
Foreign currency translation
adjustment -- -- -- -- (2)
------- --- ------- ------- ---
Balance at June 30, 1996 521,650 $ 5 $ 151,730 $ (23,546) $ 6
======= === ======= ======= ===
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE> 38
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Years ended June 30, 1996 , 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (10,657) $ 599 $ (8,900)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 8,040 3,620 5,829
(Gain) loss on sale of property, plant and
equipment (123) -- 12
Purchased research and development 36,961 8,485 1,107
Deferred tax benefit (15,855) (1,199) (830)
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Increase in accounts receivable (11,130) (17,444) (4,401)
Increase in inventories (3,748) (2,481) (6,078)
Increase in prepaid expenses and other
assets (1,081) (910) (183)
Increase in accounts payable 3,191 360 43
Increase in accrued liabilities 7,348 1,317 682
------------------ ------------------ ------------------
Net cash provided by (used in)
operating activities 12,946 (7,653) (12,719)
------------------ ------------------ ------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (38,304) (5,761) (951)
Acquisition costs -- -- 134
Proceeds from sale of property, plant and
equipment 900 -- 3
Proceeds from (issuance of) notes receivable
- officers (941) -- 31
Purchase of subsidiaries, net of cash acquired (23,641) (929) (1,111)
------------------ ------------------ ------------------
Net cash used in investing activities (61,986) (6,690) (1,894)
------------------ ------------------ ------------------
Cash flows from financing activities:
Proceeds from long-term debt 35,787 338 --
Repayment of notes payable (24,000) (4,000) --
Proceeds from issuance of common stock and
warrants 5,544 85,845 17,310
Payment of preferred stock dividends (439) (79) (41)
Repayment of long-term debt and capital leases (22,176) (963) (1,604)
Repayment of related party notes payable -- (6,970) (515)
Borrowing from related parties -- 5,200 --
Deferred financing fees -- -- (667)
------------------ ------------------ ------------------
Net cash provided by (used in) financing
activities (5,284) 79,371 14,483
------------------ ------------------ ------------------
Effect of exchange rate changes on cash (2) -- 1
------------------ ------------------ ------------------
Net increase (decrease) in cash and cash
equivalents (54,326) 65,028 (129)
Cash and cash equivalents, beginning of year 66,007 979 1,108
------------------ ------------------ ------------------
Cash and cash equivalents, end of year $ 11,681 $ 66,007 $ 979
================== ================== ==================
</TABLE>
38
<PAGE> 39
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(in thousands)
Years ended June 30, 1996 , 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------------ ------------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest $ 2,023 $ 837 $ 905
================== ================== ==================
Income taxes $ 3,317 $ 576 $ --
================== ================== ==================
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING ACTIVITIES:
The Company made acquisitions for $23,641,
$929 and $1,111 of cash in the years ended
June 30, 1996, 1995 and 1994, respectively.
The purchase prices were allocated to the
assets acquired and liabilities assumed
based on their fair value as indicated in
notes to the consolidated financial state-
ments. A summary of cash paid for the
acquisitions follows:
Purchase price $ 54,395 $ 21,747 $ 11,198
Less cash acquired (1,269) (18) (87)
Common stock issued (206) (20,800) (4,000)
Notes payable (26,056) -- --
Long-term debt (3,223) -- --
Preferred stock issued -- -- (6,000)
----------------- ----------------- -----------------
$ 23,641 $ 929 $ 1,111
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
39
<PAGE> 40
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(in thousands, except percentages, shares and per share amounts)
(1) ORGANIZATION
Integrated Process Equipment Corp. (IPEC) and subsidiaries (the
Company) designs, manufactures, markets and services capital equipment
used by the semiconductor industry.
ACQUISITIONS
WESTECH SYSTEMS, INC.
On September 3, 1993, IPEC acquired Westech Systems, Inc. (Westech) for
$4,900. The purchase price consisted of cash amounting to $900 and
429,530 shares of IPEC's common stock valued at $4,000. In addition,
IPEC agreed to issue up to $6,000 of its Series B 6% cumulative
convertible preferred stock, contingent upon achievement of revenue
targets in 1993, 1994 and 1995. Since the revenue targets for each
calendar year were met, $6,000 of preferred stock has been issued and
included in the purchase price with a corresponding increase in
goodwill.
After giving consideration to the issuance of preferred stock, the
adjusted purchase price has been allocated to the assets acquired,
including cash of $87 and liabilities assumed based on their fair
values as follows:
<TABLE>
<S> <C>
Purchase price:
Cash $ 900
Common stock 4,000
Preferred stock 6,000
Costs of acquisition 298
------------
Total $ 11,198
============
Assets acquired and liabilities assumed:
Current assets $ 16,317
Property, plant and equipment 4,557
Other assets 49
Patents 5,176
Purchased research and development 1,107
Goodwill 6,910
Current liabilities (20,135)
Noncurrent liabilities (1,953)
Deferred income taxes (830)
------------
Total $ 11,198
============
</TABLE>
The purchased research and development has been charged to operations
upon acquisition. The acquisition has been accounted for as a purchase
and, accordingly, the accompanying consolidated financial statements
include the accounts of Westech from the date of acquisition. The name
of Westech has been subsequently changed to IPEC Planar Phoenix, Inc.
40
<PAGE> 41
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
ATHENS CORP
On November 22, 1994, the Company acquired approximately 94% of the
outstanding common stock of Athens Corp (Athens), a privately owned
company engaged in manufacturing wet process reprocessing systems for
the semiconductor industry. The purchase price consisted of 1,095,695
shares of the Company's common stock. The Company subsequently acquired
the remaining 6% of the common stock of Athens in fiscal 1996 in
exchange for 211,670 shares of common stock.
The purchase price has been allocated to the assets acquired, including
cash of $18 and liabilities assumed based on their fair values as
follows:
<TABLE>
<S> <C>
Purchase price:
Common stock $ 21,215
Costs of acquisition 995
------------
Total $ 22,210
============
Assets acquired and liabilities assumed:
Current assets $ 6,711
Property, plant and equipment 1,207
Other assets 753
Purchased research and development 8,485
Developed technology 13,592
Assembled workforce 881
Goodwill 577
Current liabilities (9,186)
Noncurrent liabilities (696)
Deferred income taxes (114)
------------
Total $ 22,210
============
</TABLE>
The purchased research and development has been charged to operations
upon acquisition. The acquisition has been accounted for as a purchase
and, accordingly, the accompanying consolidated financial statements
include the accounts of Athens from the date of acquisition. The name
of Athens has been subsequently changed to IPEC Clean, Inc.
GAARD AUTOMATION, INC.
On October 30, 1995, the Company acquired all of the outstanding common
stock of GAARD Automation, Inc. (GAARD), a privately owned company that
develops and sells an advanced high throughput chemical mechanical
planarization (CMP) system for metal planarization. GAARD also designs
and manufactures custom flexible automation systems used outside the
semiconductor industry. The purchase price consisted of cash of $12,000
and notes payable and long-term debt of $18,923. Notes payable of
$15,000 were subsequently repaid in 1996.
41
<PAGE> 42
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The purchase price has been allocated to the assets acquired (including
cash of $1,269) and liabilities assumed based on their fair values as
follows:
<TABLE>
<S> <C>
Purchase price:
Cash $ 12,000
Notes payable 15,700
Long-term debt 3,223
Costs of acquisition 620
------------
Total $ 31,543
============
Assets acquired and liabilities assumed:
Current assets $ 7,958
Property, plant and equipment 128
Deferred income taxes 1,010
Purchased research and development 28,793
Current liabilities (6,346)
------------
Total $ 31,543
============
</TABLE>
The purchased research and development has been charged to operations
upon acquisition. The name of GAARD has subsequently been changed to
IPEC Planar Portland, Inc. The acquisition has been accounted for as a
purchase, and accordingly, the accompanying consolidated financial
statements include the results of GAARD from the date of acquisition.
PRECISION MATERIALS
On December 29, 1995, the Company's subsidiary IPEC Precision, Inc.
acquired substantially all of the assets constituting the Precision
Materials Operation of Hughes Danbury Optical Systems, Inc. (HDOS).
IPEC Precision (formerly HDOS) is engaged in the design, manufacture,
and sale of precision equipment, based on proprietary plasma assisted
chemical etching and metrology technologies, for use in the production
of advanced semiconductor wafers and devices, and provides wafer
processing services that use such proprietary technology and equipment.
The purchase price consisted of cash of $11,517 and notes payable of
$10,356.
42
<PAGE> 43
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The purchase price has been allocated to the assets acquired and
liabilities assumed based on their fair values as follows:
<TABLE>
<S> <C>
Purchase price:
Cash $ 11,517
Notes payable 10,356
Costs of acquisition 725
------------
Total $ 22,598
============
Assets acquired and liabilities assumed:
Current assets $ 879
Property, plant and equipment 6,190
Deferred income taxes 400
Patents 6,222
Assembled workforce 1,622
Purchased research and development 8,168
Current liabilities (883)
------------
Total $ 22,598
============
</TABLE>
The purchased research and development has been charged to operations
upon acquisition. The acquisition has been accounted for as a purchase
and, accordingly, the accompanying consolidated financial statements
include the results of IPEC Precision from the date of acquisition. A
$9,000 note payable to HDOS relating to the acquisition bearing
interest at the rate of 11% per annum was repaid on February 27, 1996.
The Company also financed $10,000 of the $11,517 paid to HDOS through
borrowing from a stockholder, which was also repaid in April 1996.
PRO FORMA
Pro forma unaudited consolidated operations data (excluding
nonrecurring charges for purchased research and development), assuming
all acquisitions had taken place on July 1, 1993 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
----------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenue $ 192,649 $ 111,640 $ 60,781
========== ========== ==========
Net income (loss) $ 11,712 $ 7,054 $ (6,977)
========== ========== ==========
Net income (loss) per share $ .73 $ .72 $ (2.53)
========== ========== ==========
</TABLE>
43
<PAGE> 44
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of IPEC and
its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid securities with original maturities of three months
or less at the date of purchase are considered to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
The Company sells products and services to customers, primarily
semiconductor manufacturers, and extends credit based on an evaluation
of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables is principally dependent
on each customer's financial condition. The Company monitors its
exposure for credit losses and maintains allowances for anticipated
losses.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated on
the straight-line method over the estimated useful lives of the assets
which range from three to forty years. Equipment recorded under capital
leases is stated at the lower of fair market value or the present value
of minimum lease payments at the inception of the lease. Equipment
recorded under capital leases and leasehold improvements are amortized
using the straight-line method over the shorter of the lease term or
the estimated useful lives of the related assets.
44
<PAGE> 45
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
INTANGIBLE ASSETS
Intangible assets have been allocated among various categories based on
their estimated fair value upon acquisition as determined by management
or by independent appraisal. Intangible assets are periodically
reviewed for impairment based on an assessment of future operations to
ensure that they are appropriately valued. Goodwill represents the
excess cost over the fair value of tangible and intangible assets
acquired and is amortized over 10 years using the straight-line method.
Patents are amortized over 5 to 10 years using the straight-line
method. Developed technology represents patented machine control
software and sulfuric acid reprocessing technology on which several
generations of products will be based and is being amortized over 15
years using the straight-line method. Assembled workforce represents
the avoided cost to interview and train employees and is being
amortized over 5 years using the straight-line method.
WARRANTY EXPENSE
The Company warrants its products for a period of one year or longer
upon sale. Future estimated warranty costs are charged to operations at
the time of sale.
REVENUE RECOGNITION
The Company recognizes revenue from sales when a product is shipped.
Revenue from spare part sales or service revenue is recognized when
shipped or upon completion of service.
RESEARCH AND DEVELOPMENT
Expenditures for research and development are charged to operations as
incurred.
INCOME TAXES
The Company utilizes the method of accounting for income taxes
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109). Pursuant to SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered
or settled.
INCOME (LOSS) PER SHARE OF COMMON STOCK
Net income (loss) per common share is computed by dividing net income
(loss) less dividends on convertible preferred stock by the weighted
average number of common shares outstanding during the period, plus,
when their effect is dilutive, common stock equivalents consisting of
certain shares subject to stock options and warrants.
45
<PAGE> 46
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
FOREIGN CURRENCY TRANSLATION
The functional currency for the Company's foreign operations is their
local currency. Assets and liabilities of foreign operations are
translated into U.S. dollars using current exchange rates at the
balance sheet date, and revenue and expenses are translated into U.S.
dollars using average exchange rates for the year. The effects of
foreign currency translation adjustments are included as a separate
component of stockholders' equity. Transaction gains and losses are
included in operations and were not significant for the years ended
June 30, 1996, 1995 and 1994.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", which requires impairment losses
to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to
be generated by those assets are less than the assets' carrying amount.
SFAS No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The Company will adopt SFAS No. 121 in
the first quarter of the fiscal year ended June 30, 1997 and, based on
current circumstances, does not believe the effect of adoption will be
material to the consolidated financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 is
effective for transactions entered into in fiscal years beginning after
December 15, 1995. The Company will not be adopting the recognition and
measurement criteria of SFAS No. 123 and thus, the impact of SFAS No.
123 on the Company's consolidated financial statements will not be
material.
RECLASSIFICATIONS
Certain 1995 and 1994 balances have been reclassified to conform to the
1996 presentation.
(3) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Raw materials $ 20,781 $ 16,864
Work in process 10,559 6,598
Finished goods 2,302 477
----------- -----------
33,642 23,939
Less: inventory obsolescence reserve (1,961) (1,057)
----------- -----------
$ 31,681 $ 22,882
=========== ===========
</TABLE>
46
<PAGE> 47
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------------
1996 1995
-------- --------
<S> <C> <C>
Land $ 1,642 $ 251
Buildings 15,414 1,219
Machinery and equipment 35,940 9,529
Building and leasehold improvements 2,221 772
Office furniture and fixtures 1,262 704
Vehicles 106 125
Equipment recorded under capital leases 2,362 843
-------- --------
Total 58,947 13,443
Less accumulated depreciation and amortization (6,292) (1,742)
-------- --------
$ 52,655 $ 11,701
======== ========
</TABLE>
(5) INTANGIBLE ASSETS
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------------
1996 1995
-------- --------
<S> <C> <C>
Goodwill $ 7,072 $ 5,024
Patents 11,398 5,177
Developed technology 13,592 13,592
Assembled workforce 2,503 881
-------- --------
Total 34,565 24,674
Less accumulated amortization (6,519) (3,170)
-------- --------
$ 28,046 $ 21,504
======== ========
</TABLE>
47
<PAGE> 48
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) ACCRUED LIABILITIES
Accrued liabilities are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued warranties $ 7,043 $ 2,899
Accrued income taxes 3,190 --
Accrued payroll and benefits 1,786 960
Accrued vacation 1,178 673
Accrued commissions 1,154 1,780
Other accrued liabilities 6,799 4,279
-------- --------
$ 21,150 $ 10,591
======== ========
</TABLE>
(7) NOTES PAYABLE
At June 30, 1996 notes payable amounted to $2,056. Notes payable
amounting to $13,000 and $2,700 were issued in connection with the
acquisition of GAARD. The $13,000 note was paid in April 1996 and $2,000
of the $2,700 note was paid in January 1996. The $2,700 note is
non-interest bearing, and is due in fiscal 1997.
A note payable to HDOS amounting to $1,356 was also outstanding at June
30, 1996. The note is due in equal installments on July 1, 1996 and
September 30, 1996. The note bears interest at 8.5%.
48
<PAGE> 49
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JUNE 30
-----------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Notes payable, bank (a) $ 19,786 $ --
Notes payable, other, interest ranging from prime plus 1% to
12%; due in 1997; collateralized by various assets 500 2,038
Note payable, interest at prime; matures in January 1998;
collateralized by patents and guaranteed by a stockholder 175 275
Notes payable to stockholder, bearing interest at
prime plus 2%(b) -- 3,000
Note payable, GAARD acquisition (c) 2,620 --
Capital lease obligations, interest at rates
ranging from 7.3% to 11.3% (d) 1,884 636
Other -- 571
-------------- --------------
24,965 6,520
Less current portion 2,124 4,772
-------------- --------------
Long-term debt, net $ 22,841 $ 1,748
============== ==============
</TABLE>
(a) The Company entered into a loan agreement in April 1996 with a bank.
Under the terms of the agreement, the Company received a $10,000 term
loan and a $30,000 revolving loan facility to provide working capital
and for general corporate purposes. The borrowing base for the
revolving loan facility consists of 80% of eligible accounts
receivable as defined by the agreement. At June 30, 1996, the
borrowing base was $22,104. The unused credit available under this
facility at June 30, 1996 was $12,318.
The outstanding balance of the term loan was $10,000 at June 30,
1996. It bears interest at a rate of 9.52% and matures in October
1997. The outstanding balance on the revolving loan facility was
$9,786 at June 30, 1996. It bears interest at the Company's option at
the prime rate or LIBOR plus 2.75%. The weighted average interest
rate at June 30, 1996 on the outstanding balance was 8.24%. The
commitments made under the revolving credit facility expire in April
1997, but may be extended annually for two one-year periods with the
consent of the bank. If the revolving credit facility expires, the
Company is obligated to repay the outstanding balance in eight equal
quarterly payments of principal plus interest. The term loan and
revolving loan facility are secured by a blanket lien on the assets
of the Company and its subsidiaries.
49
<PAGE> 50
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The terms of the loan agreement include various covenants, which,
among other things include maintenance of certain financial ratios,
limit the amount of dividends that can be paid to common
stockholders and acquisitions of treasury stock. The Company was in
compliance with these covenants as of June 30, 1996.
(b) IPEC, Westech Systems, Inc. (now known as IPEC Planar Phoenix,
Inc.) and an individual stockholder entered into a two-year $10,000
revolving credit facility in September 1994. In December 1995 in
connection with the IPEC Precision acquisition, this facility was
converted to a term loan due on September 30, 1997. The loan bears
interest at a floating rate equal to the prime rate in effect from
time to time plus 2% and is secured by a first lien on the assets
of IPEC and Westech and a pledge of the stock of IPEC's
subsidiaries. The loan was repaid in full in April 1996.
As consideration for making the loan available, IPEC and Westech
agreed to pay the stockholder administrative fees of $300 in the
aggregate ($100 of which has been paid and the balance of which is
payable by September 8, 1996). IPEC also issued to the stockholder
three-year warrants to purchase 50,000 shares of IPEC common stock
at a purchase price of $10 per share and a 10-year debenture in the
principal amount of $500 bearing interest at the prime rate. The
debenture was converted into 50,000 shares of IPEC common stock in
the third quarter of fiscal 1996. The warrants were exercised in
the fourth quarter of fiscal 1996.
(c) The Company entered into a $3,223 promissory note with the former
owner of GAARD. The note bears interest at 5.58% per year, payable
monthly. The note matures in September 1998 and is unsecured.
(d) The Company entered into lease financing arrangements for certain
equipment and leasehold improvements. These leases expire at
various dates through June 2001.
In September 1993, the Company obtained a bridge loan in the amount of
$5,000 which was discounted by the value of warrants issued to the
lenders. Upon completion of the public offering in January 1994, the
Company repaid the loan and wrote off the debt discount and expenses of
the loan aggregating $4,256, which is included in interest expense.
Interest expense to related parties was $561, $304 and $164 for the years
ended June 30, 1996, 1995 and 1994, respectively. Interest expense
includes debt discount and deferred financing fees of $213 for the year
ended June 30, 1995.
50
<PAGE> 51
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The future maturities of long-term debt as of June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30:
<S> <C>
1997 $ 2,124
1998 16,650
1999 5,556
2000 395
2001 240
-----------
Total $ 24,965
===========
</TABLE>
(9) STOCKHOLDERS' EQUITY
PREFERRED STOCK
Approximately 305,000 shares of Series A preferred stock were converted
into approximately 153,000 shares of common stock in fiscal 1994.
The holders of Series B preferred stock are entitled to an annual
cumulative dividend amounting to $5.59 per share, payable semiannually on
December 31 and June 30, commencing June 30, 1994. The Series B preferred
stock was issued to the former stockholders of Westech upon achievement
of revenue targets in calendar 1993, 1994 and 1995. Each share of the
Series B-1 preferred stock, Series B-2 preferred stock and Series B-3
preferred stock is convertible into 12.54, 11.41 and 15.00 shares of
common stock, respectively. During fiscal 1995, 1,074 shares of Series
B-1 and B-2 preferred stock were converted into 12,860 shares of common
stock, and in fiscal 1996, 268 shares of Series B-3 preferred stock were
converted into 4,020 shares of common stock.
CLASS A COMMON STOCK
Each share of Class A common stock is entitled to four votes and can be
converted into one share of the Company's common stock. Each share of
common stock is entitled to one vote. In connection with the Company's
initial public offering, all of the holders of the Company's Class A
common stock placed into escrow on a pro rata basis, an aggregate of
733,550 shares of Class A common stock. Since the market price of the
Company's common stock attained specific levels in fiscal 1995, the
shares of Class A common stock placed in escrow were released to the
respective shareholders.
OPTIONS AND WARRANTS
Concurrent with the Company's initial public offering in August 1994, the
Company issued options to the underwriter to purchase 87,500 units at an
exercise price of $44.20 per unit. Each unit consists of one share of
common stock, one Class A warrant and one Class B warrant. The options
expire in 1997. At June 30, 1996, approximately 23,000 of these options
were outstanding.
51
<PAGE> 52
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Concurrent with the Company's secondary offering in February 1995, the
Company issued options to the underwriter for the purchase of 1,800 units
at an exercise price of $1,650 per unit. Each unit consists of 130 shares
of common stock and 78 Class B warrants which expire in 1999. At June 30,
1996, all of these options were outstanding.
Upon the exercise of each Class A warrant, the holder received one share
of common stock and one Class B warrant. The Class A warrants were called
for redemption in August 1994.
Upon the exercise of each Class B warrant, the holder received one share
of common stock. These warrants were called for redemption in May 1995.
Class D warrants were issued in connection with lines of credit extended
by a stockholder and have been assigned a value of $73. Additional
warrants were issued in connection with services provided during the
acquisition of GAARD and have been assigned a value of $100.
WARRANTS
The following table summarizes warrant activity:
<TABLE>
<CAPTION>
COMMON CLASS A CLASS B CLASS C CLASS D CLASS E OTHER
(d) (a) (b) (d) (c) (e) (f) TOTAL
------------ ----------- ----------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Exercise $ 4.00 8.90 13.45 2.62 8.90 10.00 29.25 --
price
Expiration 8/13/95 8/13/97 8/13/99 8/28/97 8/13/97 12/31/97 12/26/00 --
Issued
with
public
offerings -- 1,006,250 2,620,850 -- 100,000 -- -- 3,727,100
Issued
with bridge
financing 25,000 1,250,000 -- -- -- -- -- 1,275,000
Issued in
connection
with line
of credit -- -- -- 275,000 -- 50,000 -- 325,000
Issued in
connection
with
exercise
of A
warrants -- -- 2,291,380 -- -- -- -- 2,291,380
Issued in
connection
with
acquisition
services -- -- -- -- -- -- 10,000 10,000
Issued
with unit
purchase
options -- 64,540 64,540 -- -- -- -- 129,080
Exercised (25,000) (2,291,380) (4,971,660) (137,500) (100,000) (50,000) -- (7,575,540)
Redeemed -- (29,410) (5,110) -- -- -- -- (34,520)
------------ ----------- ----------- ------------ ----------- ----------- ------------ ------------
Outstanding
June 30, 1996 $ -- -- -- 137,500 -- -- 10,000 147,500
============ =========== =========== ============ =========== =========== ============ ============
</TABLE>
52
<PAGE> 53
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(a) Upon exercise of each Class A warrant, the holder received one
share of common stock and one Class B warrant. In August 1994, the
Class A warrants were called by the Company for redemption. As a
result, warrants for 2,226,840 shares were exercised providing net
proceeds of approximately $19,025 to the Company.
(b) Upon exercise of each Class B warrant, the holder received one
share of common stock. In May 1995, these warrants were called by
the Company for redemption. As a result warrants for 4,902,780
shares were exercised providing net proceeds of $63,273 to the
Company.
(c) These warrants were issued in connection with a line of credit
extended by a stockholder and assigned a value of $73.
(d) Upon exercise, the holder will receive one share of common stock
for each warrant exercised.
(e) These warrants were issued in connection with a line of credit
extended by a stockholder and assigned a value of $144.
(f) These warrants were issued in connection with services provided
during the acquisition of GAARD and were assigned a value of $100.
(10) EMPLOYEE BENEFITS
Effective August 1993, the Company established a defined contribution
plan under Section 401(k) of the Internal Revenue Code that covers all
eligible employees. Participants may contribute up to 15% of their
salary. Participants vest immediately in their own contributions and over
a five-year period in the Company's matching contributions. The Company
made matching contributions of $189 in fiscal 1996.
The Company acquired defined contribution plans under Section 401(k) of
the Internal Revenue Code in connection with the acquisitions of Athens
and GAARD. The Athens plan was merged into the Company's plan on July 1,
1995. The GAARD plan is expected to be merged into the Company's plan on
January 1, 1997. Participants in the GAARD plan may also contribute up to
15% of their salary.
In connection with the acquisition of IPEC Precision, employees of IPEC
Precision became eligible for participation in the Company's 401(k) plan.
In 1994, the Company adopted the 1994 Employee Stock Purchase Plan to
provide employees with a more convenient means to acquire an equity
interest in the Company. Eligible employees of the Company can purchase
common stock through payroll deductions at 85% of the fair market value
of the stock. Payroll deductions for the purchase of stock may not exceed
10% of an employee's base compensation or $25. As of June 30, 1996,
88,344 shares have been purchased under this plan. The maximum number of
shares that may be issued under this plan is 1,000,000.
53
<PAGE> 54
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The Company's 1992 Stock Option Plan provides for the issuance of
incentive stock options, nonqualified stock options and stock
appreciation rights to purchase up to 4,050,000 shares of common stock to
employees, directors and consultants. The grants vest over periods
ranging up to five years. Under the Stock Option Plan, options may be
granted to purchase shares of the Company's common stock at not less than
fair market value at the date of grant, and are exercisable for a period
not exceeding ten years from that date.
The following table summarizes the activity under this plan:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE EXERCISABLE
------------ --------------- ----------------
<S> <C> <C> <C>
Outstanding, July 1, 1993 -- $ --
Granted 314,000 7.75 - 10.00
Exercised (10,000) 7.75
----------
Outstanding, June 30, 1994 304,000 7.75 - 10.00 164,000
==========
Granted 2,860,000 9.00 - 28.75
Exercised (196,000) 7.75 - 9.00
Forfeitures (111,000) 7.75 - 9.00
----------
Outstanding, June 30, 1995 2,857,000 7.75 - 28.75 655,000
==========
Granted 649,000 17.875 - 31.00
Exercised (180,000) 7.75 - 20.75
Forfeitures (238,000) 9.00 - 31.00
----------
Outstanding, June 30, 1996 3,088,000 7.75 - 31.00 1,103,000
========== ==========
</TABLE>
On April 3, 1996, the Board of Directors of the Company approved a
repricing of options granted after April 20, 1995. Employees, excluding
officers and directors who were issued stock options subsequent to April
20, 1995 and who were active employees on April 3, 1996, could elect to
keep their options to buy common stock at the original grant price or
reprice their options to $17.875 per share, the fair market value of the
common stock on April 2, 1996. If the employee elected to reprice their
options to $17.875 per share, the vesting commencement date was extended
by periods ranging from four months to one year.
Common stock received through the exercise of non-qualified stock options
result in a tax deduction for the Company equivalent to the taxable
income recognized by the optionee at time of exercise. For financial
reporting purposes, the tax effect of this deduction is accounted for as
a credit to additional paid-in capital rather than as a reduction of
income tax expense. Such optionee exercise of options resulted in a tax
benefit to the Company of $1,561 and $988 for the years ended June 30,
1996 and 1995, respectively.
(11) MAJOR CUSTOMERS
One customer accounted for 29%, 18% and 17% of revenue for the fiscal
years ended June 30, 1996, 1995 and 1994, respectively. Another customer
accounted for 20% and 45% of revenue
54
<PAGE> 55
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
for the fiscal years ended June 30, 1995 and 1994, respectively. A third
customer accounted for 14% of revenue for the fiscal year ended June 30,
1995.
Total export sales by geographic region are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------------------------------------
1996 1995 1994
---------------- ---------------- ---------------
<S> <C> <C> <C>
Far East $ 44,410 $ 13,032 $ 7,195
================ ================ ===============
Europe $ 17,685 $ 8,432 $ 4,956
================ ================ ===============
Other $ 81 $ 36 $ 6
================ ================ ===============
</TABLE>
(12) INCOME TAXES
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
---------------------------------------------------------
1996 1995 1994
---------------- ---------------- ---------------
<S> <C> <C> <C>
Current:
Federal $ 7,827 $ 1,052 $ --
State 1,249 192 --
Foreign -- 31 --
---------------- ---------------- ---------------
9,076 1,275 --
---------------- ---------------- ---------------
Deferred:
Federal (13,474) (992) (700)
State (2,381) (207) (130)
---------------- ---------------- ---------------
(15,855) (1,199) (830)
---------------- ---------------- ---------------
Income tax
expense (benefit) $ (6,779) $ 76 $ (830)
================ ================ ===============
</TABLE>
55
<PAGE> 56
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
DEFERRED INCOME TAXES
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets, liabilities and the valuation
allowance are as follows:
<TABLE>
<CAPTION>
JUNE 30
---------------------------------------
1996 1995
--------------- ------------------
<S> <C> <C>
Deferred tax assets:
Warranty reserve $ 2,934 $ 1,160
Inventory reserve 1,698 961
Vacation accrual 463 269
Research and development credits 158 1,090
Net operating loss and alternative
minimum tax credit carryforwards 6,763 7,115
Technology asset 14,784 --
Other 227 225
-------------- -----------------
27,027 10,820
Valuation allowance (1,707) (1,951)
-------------- -----------------
25,320 8,869
-------------- -----------------
Deferred tax liabilities:
Differences between the tax basis and fair
value of intangibles and fixed
assets acquired 5,707 6,894
Depreciation differences 881 540
Other 382 350
-------------- -----------------
6,970 7,784
-------------- -----------------
Net deferred tax asset $ 18,350 $ 1,085
============== =================
</TABLE>
In December 1994, the Company acquired IPEC Clean, Inc. IPEC Clean, Inc.
had net operating loss carryovers (NOLs) of approximately $19,000 at the
date of acquisition which expire between the years 2000 to 2005. These
NOLs may only be used to offset future earnings of IPEC Clean, Inc.
The valuation allowance has been reduced by approximately $244 and $2,704
during the years ended June 30, 1996 and 1995, respectively. The entire
valuation allowance relates to deferred tax assets attributable to the
acquisition of IPEC Clean, Inc. Management believes that it is more
likely than not that the results of future operations will generate
sufficient taxable income to realize the net deferred tax assets.
56
<PAGE> 57
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
RATE RECONCILIATION
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
------------------------------------------------------
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Federal income taxes at
statutory rate (34.0)% 34.0% (34.0)%
State and local taxes (4.3) 61.0 --
Research and development
tax credits (4.0) (161.5) --
Nondeductible expenses,
including acquired
research and development
and amortization of
goodwill 6.7 460.0 --
Reversal of valuation
allowance for deferred tax
assets (1.4) (383.3) 25.5
Other (1.9) 1.1 --
----------- ------------ ------------
Effective income
tax rate (38.9)% 11.3% (8.5)%
=========== ============ ============
</TABLE>
(13) COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits and other claims arising in the
ordinary course of business. In the opinion of management, based on
consultation with legal counsel, the effect of such matters will not have
a material adverse effect on the Company's financial position or results
of operations.
57
<PAGE> 58
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The following is a schedule by year of the approximate future minimum
lease payments under noncancelable operating leases with terms in excess
of one year for the succeeding five years as of June 30, 1996:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
<S> <C>
1997 $ 1,425
1998 1,267
1999 957
2000 797
2001 445
-----------
$ 4,891
===========
</TABLE>
Total rent expense under all operating leases for the years ended June
30, 1996, 1995 and 1994 was $1,647, $636 and $473, respectively.
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for its financial instruments. The following
summary presents a description of the methodologies and assumptions used
to determine such amounts.
LIMITATIONS
Fair value estimates are made at a specific point in time and are based
on relevant market information and information about the financial
instrument; they are subjective in nature and involve uncertainties,
matters of judgment and, therefore, cannot be determined with precision.
These estimates do not reflect any premium or discount that could result
from offering for sale, at one time, the Company's entire holdings of a
particular instrument. Changes in assumptions could significantly affect
these estimates.
Since the fair value is estimated as of June 30, 1996, the amounts that
will actually be realized or paid at settlement or maturity of the
instruments could be significantly different.
ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The carrying amount is assumed to be the fair value because of the
short-term maturity of these instruments.
NOTES PAYABLE AND LONG-TERM DEBT
The fair value of the Company's notes payable and long-term debt
approximate the terms in the marketplace at which they could be replaced.
Therefore, the fair value approximates the carrying value of these
financial instruments.
(15) RELATED PARTY TRANSACTIONS
The Company had purchases of raw materials and services of approximately
$8,814, $3,455 and $5,136 from companies owned by stockholders of the
Company during the years ended June 30, 1996, 1995 and 1994,
respectively. The Company has payables related to these purchases of $934
and $359 at June 30, 1996 and 1995, respectively.
58
<PAGE> 59
INTEGRATED PROCESS EQUIPMENT CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
On December 29, 1995, the Company loaned $900 to the Chairman of the
Company. The loan bears interest at the prime rate and is due on the
earliest to occur of (i) 90 days after the Chairman's ability to sell
Company stock without restriction under Section 16 of the Securities
Exchange Act or a lockup agreement, (ii) immediately on voluntary
termination of employment, (iii) 90 days after involuntary termination of
employment for "cause," or (iv) immediately on the sale of a personal
residence. The loan is secured by all of the executive's options to
purchase the Company's common stock and shares of common stock. Included
in other assets is a receivable of $969 related to this loan at June 30,
1996.
(16) SUPPLEMENTAL FINANCIAL INFORMATION
A summary of additions and deductions related to the allowance for
accounts receivable and inventory obsolescence for the years ended
June 30, 1996, 1995 and 1994 follows:
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING END OF
OF YEAR ADDITIONS DEDUCTIONS YEAR
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended June 30, 1996 $ 50 $ 50 $ -- $ 100
========= ========= ======== ==========
Year ended June 30, 1995 $ 50 $ -- $ -- $ 50
========= ========= ======== ==========
Year ended June 30, 1994 $ -- 50 $ -- $ 50
========= ========= ======== ==========
Allowances for inventory
obsolescence:
Year ended June 30, 1996 $ 1,057 $ 1,059 $ (155) $ 1,961
========= ========= ======== ==========
Year ended June 30, 1995 $ 738 $ 319 $ -- $ 1,057
========= ========= ======== ==========
Year ended June 30, 1994 $ -- 1,289 $ (551) $ 738
========= ========= ======== ==========
</TABLE>
59
<PAGE> 60
2. Exhibits
The following exhibits are filed as part of, or incorporated by
reference into, this report:
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement among Integrated Process Equipment
Corp. ("IPEC"), William Reiersgaard and GAARD Automation Inc.
("GAARD"), dated effective October 30, 1995. Incorporated by
reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K for reporting date October 30, 1995 and filed
November 14, 1995 (File No. 0-20470) ("GAARD 8-K").
2.2 Asset Purchase Agreement between IPEC and Hughes Danbury
Optical Systems, Inc. ("HDOS"), dated effective December 29,
1995. Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K for reporting date
December 29, 1995 and filed January 13, 1996 (File No.
0-20470) ("HDOS 8-K").
3.1 Certificate of Incorporation, as amended. Incorporated by
reference to Exhibit 3.1 to the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1993 (File No.
0-20470) (the "1993 Form 10-KSB").
3.2 Amendment of Certificate of Incorporation, effective December
16, 1993. Incorporated by reference to Exhibit 3.2 to
Amendment No. 1, filed on December 30, 1993 ("SB-2 Amendment
No. 1") to the Registrant's Registration Statement on Form
SB-2 (Registration No. 33-70962) (the "SB-2 Registration
Statement").
3.3 By-Laws, as amended. Incorporated by reference to Exhibit
3.3 to SB-2 Amendment No. 1.
3.4 Certificate of Amendment of the Certificate of
Incorporation of the Company, filed with the State of
Delaware on January 31, 1996, previously filed as
Exhibit 3(i).1 to the Company's Quarterly Report on
Form 10-Q for the third quarter ended March 31, 1996,
incorporated herein by reference.
4.1 Form of Class C Warrant issued by the Company. Incorporated
by reference to Exhibit 10.13 to IPO Amendment No. 1.
4.2 Warrant Agreement dated June 29, 1992 among the Company,
American Stock Transfer & Trust Company (the "Warrant Agent")
and D.H. Blair Investment
</TABLE>
60
<PAGE> 61
<TABLE>
<S> <C>
Banking Corp. ("Blair"). Incorporated by reference to
Exhibit 10.14 to IPO Amendment No. 1.
4.3 Form of Warrant Agreement, dated as of August 13, 1992,
between the Company, the Warrant Agent and Blair, including
the form of warrants. Incorporated by reference to
Exhibit 4.1 to IPO Amendment No. 1.
4.4 Form of Warrant Agreement, dated as of July 23, 1993,
between the Company, the Warrant Agent and Blair.
Incorporated by reference to Exhibit 10.16 to the
1993 Form 10-KSB.
4.5 Form of Warrant Agreement, dated as of January 26,
1994, between the Company, the Warrant Agent and
Blair, including the form of Warrants. Incorporated
by reference to Exhibit 4.1 to Amendment No. 2 to the
SB-2 Registration Statement, filed on January 18,
1994 ("SB-2 Amendment No. 2").
4.6 Form of Initial Public Offering Unit Purchase Option between
the Company and Blair. Incorporated by reference to
Exhibit 1.2 to Amendment No. 2 to the IPO Registration
Statement, filed August 5, 1993 ("IPO Amendment No. 2").
4.7 Registration Agreement, dated as of November 22, 1994, by and
among the Company and the Exchanging Shareholders.
Incorporated by reference to Exhibit 10.2 to the
1994 Form 8-K.
4.8 Registration Rights Agreement, dated as of September
9, 1994, between the Company and Kassner.
Incorporated by reference to Exhibit 4.12 to the 1995
Form 10-K.
4.9 Stockholders' Agreement, dated as of August 31, 1993 among
the Company, Harold C. Baldauf ("HCB") and Janet A. Baldauf
("JAB"). Incorporated by reference to Exhibit 10.22 to the
1993 Form 10-KSB.
10.1 Licensing and Manufacturing Agreement, dated July 18, 1990,
between the Registrant and MTC. Incorporated by reference to
Exhibit 10.4 to the IPO Registration Statement.
10.2 Form of Escrow Agreement, dated as of August 13,
1992, among the Company, all holders of Class A
Common Stock, and American Stock Transfer & Trust
Company as
</TABLE>
61
<PAGE> 62
<TABLE>
<S> <C>
Escrow Agent. Incorporated by reference to Exhibit
10.9 to IPO Amendment No. 2.
10.3 Form of 1994 Public Offering Unit Purchase Option
between the Company and Blair. Incorporated by
reference to Exhibit 1.2 to Amendment No. 3 to the
SB-2 Registration Statement, filed January 25, 1994
("SB-2 Amendment No. 3").
10.4 Consulting Agreement dated as of August 31, 1993 by and among
the Company, HCB, Harold Baldauf, Jr. and David Baldauf.
Incorporated by reference to Exhibit 10.24 to the 1993 Form
10-KSB.
10.5 Settlement Agreement, dated January 23, 1993, between Westech
and Speedfam Corporation. Incorporated by reference to
Exhibit 10.34 to the 1993 Form 10-KSB.
10.6 Indenture of Lease, dated July 30, 1993, relating to
facilities leased for Westech's subassembly
manufacturing facility. Incorporated by reference to
Exhibit 10.38 to SB-2 Amendment No. 2.
10.7 Lease, dated July 20, 1994, relating to Westech's
facility in Phoenix, Arizona. Incorporated by
reference to Exhibit 10.35 to the Company's
Registration Statement on Form S-3 (Registration No.
33-9038) filed on May 12, 1995 (the "May 1995 Form
S-3").
10.8 Lease, dated November 1, 1994, relating to Tempe,
Arizona research and development facility.
Incorporated by reference to Exhibit 10.36 to the May
1995 Form S-3.
10.9 Lease, dated October 15, 1985, as amended (together
with related Subordination, Non-Disturbance and
Estoppel Agreement dated July 1, 1986), relating to
Athens' facility in Oceanside, California.
Incorporated by reference to Exhibit 10.37 to the May
1995 Form S-3.
10.10 Lease, dated March 23, 1988, as amended (together
with related Subordination, Nondisturbance and
Attornment Agreement dated January 17, 1995),
relating to Athens' larger facility in Oceanside,
California. Incorporated by reference to Exhibit
10.38 to the May 1995 Form S-3.
10.11 License Agreement, dated as of April 17, 1991,
between Athens and Sumitomo Corporation, together
with amendment Agreement dated December 29, 1993.
</TABLE>
62
<PAGE> 63
<TABLE>
<S> <C>
Incorporated by reference to Exhibit 10.41 to the May
1995 Form S-3.
10.12 Promissory note and security agreement between
Integrated Process Equipment Corp. and Don M.
Jackson, Jr., dated August 31, 1995; and related
Commercial Guaranty issued by the Company to Second
National Bank of Saginaw, previously filed as Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q
for the first quarter ended September 30, 1995,
incorporated herein by reference.
10.13 IPEC 1992 Stock Option Plan (as amended December 12,
1995), previously filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the
second quarter ended December 31, 1995, incorporated
herein by reference.
10.14 Promissory Note (First Note) from IPEC to William
Reiersgaard dated October 30, 1995. Incorporated by
reference to Exhibit 2.4 to the GAARD 8-K.
10.15 Promissory Note (Second Note) from IPEC to William
Reiersgaard dated October 30, 1995. Incorporated by
reference to Exhibit 2.4 to the GAARD 8-K.
10.16 Promissory Note from IPEC/Precision, a subsidiary of
IPEC, to HDOS dated December 29, 1995. Incorporated
by reference to Exhibit 2.5 to the HDOS 8-K.
10.17 Security and Pledge Agreement dated December 29, 1995
between IPEC/Precision and IPEC in favor of HDOS.
Incorporated by reference to Exhibit 2.5 to the HDOS
8-K.
10.18 Form of Promissory Note and Security Agreement dated
December 1995 from Sanjeev Chitre to IPEC, previously
filed as Exhibit 10.6 to the Company's Quarterly
Report on Form 10-Q for the second quarter ended
December 31, 1995, incorporated herein by reference.
10.19 Lease Agreement, dated March 8, 1996, relating to Precision's
facility in Bethel, Connecticut.
10.20 Loan Agreement dated April 24, 1996, between the
Company and First Interstate Bank of Arizona, N.A.
("Credit Facility Agreement"), with related Side
Letter Concerning Liens dated April 24, 1996, Letter
</TABLE>
63
<PAGE> 64
<TABLE>
<S> <C>
Agreement dated May 31, 1996, Revolving Credit Note
dated April 24, 1996, Term Note dated April 24, 1996
and Security Agreement dated April 24, 1996.
The following additional schedules to the Credit
Facility Agreement have been omitted and the Company
agrees to furnish supplementally a copy of any
omitted schedule to the SEC upon request: Officer's
Certificate of Parent dated April 24, 1996, Borrowing
Base Certificate dated April 25, 1996, Compliance
Certificate dated April 24, 1996, Notice of Negative
Pledge dated April 24, 1996, and Patent Mortgage,
Trademark Security Agreements, Patent Security
Agreements and Copyright Security Agreements for the
Company and its subsidiaries, each dated April 24,
1996.
11.1 Statement regarding computation of per share earnings.
22.1 Subsidiaries of Company.
24.1 Consent of KPMG Peat Marwick LLP
24.2 Consent of Richard A. Eisner & Company, LLP.
25.1 Powers of Attorney (see page 39).
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
64
<PAGE> 65
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:
INTEGRATED PROCESS EQUIPMENT CORP.
a Delaware Corporation
By: /s/ SANJEEV R. CHITRE
-------------------------------------------
Sanjeev R. Chitre
Chairman of the Board of Directors and Chief
Executive Officer
Date: September 13, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Sanjeev R. Chitre and John S. Hodgson,
jointly and severally his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed 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/ SANJEEV R. CHITRE Chairman of the Board and Chief September 13, 1996
- -------------------------------- Executive Officer (Principal Executive
Sanjeev R. Chitre Officer)
/s/ JOHN S. HODGSON Vice President, Chief Financial Officer September 13, 1996
- -------------------------------- Treasurer and Secretary (Principal
John S. Hodgson Financial and Accounting Officer)
/s/ WILLIAM J. FRESCHI Director September 13, 1996
- --------------------------------
William J. Freschi
/s/ HAROLD C. BALDAUF Director September 13, 1996
- --------------------------------
Harold C. Baldauf
/s/ KENNETH LEVY Director September 13, 1996
- --------------------------------
Kenneth Levy
Director September , 1996
- --------------------------------
Roger D. Emerick
Director September , 1996
- --------------------------------
Roger D. McDaniel
</TABLE>
65
<PAGE> 1
LEASE
Between
BERKSHIRE INDUSTRIAL CORPORATION
Landlord
and
IPEC PRECISION, INC.
Tenant
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Premises ................................................................ 1
Term .................................................................... 2
Basic Rental ............................................................ 2
Completion and Occupancy ................................................ 3
Use ..................................................................... 4
Definitions for Additional Rental ....................................... 4
Payment of Additional Rental ............................................ 9
Security ................................................................ 11
Utilities ............................................................... 11
Repairs and Maintenance ................................................. 12
Parking Facilities and Common Areas ..................................... 13
Fixtures and Alterations ................................................ 14
Signs ................................................................... 15
Outside Appearance and Displays ......................................... 15
Changes or Alterations by Landlord ...................................... 16
Covenants by Tenant ..................................................... 16
Liability and Indemnity ................................................. 17
Bankruptcy or Insolvency ................................................ 18
Litigation .............................................................. 18
Arbitration ............................................................. 19
Attorney's Fees ......................................................... 19
Hazardous Substances .................................................... 20
Assignment, Mortgaging and Sublease ..................................... 23
Subordination; Tenant's Notice of Intent to Cancel ...................... 25
Sale by Landlord ........................................................ 26
Fire Insurance .......................................................... 26
Damage .................................................................. 27
Eminent Domain .......................................................... 28
Quiet Enjoyment ......................................................... 29
Default by Tenant ....................................................... 29
Waivers ................................................................. 30
Abandonment ............................................................. 30
Holdover ................................................................ 30
Grace Period ............................................................ 31
Notices ................................................................. 31
Real Estate Brokers ..................................................... 31
Tenant's Option to Cancel ............................................... 31
Right of First Negotiation .............................................. 32
Effect .................................................................. 32
Execution ............................................................... 33
Acknowledgments ......................................................... 34
</TABLE>
<PAGE> 3
LEASE
This lease dated this 8 day of March, 1996 between BERKSHIRE INDUSTRIAL
CORPORATION, hereinafter referred to as Landlord, a Connecticut corporation with
offices located at 2 Parklawn Drive, Bethel, CT 06801, and IPEC PRECISION, INC.
a Delaware corporation with an office and principal place of business located at
3 Berkshire Boulevard, Bethel, CT 06801, hereinafter referred to as Tenant.
PREFACE
Landlord is the owner of certain real property as described below known
as Berkshire Corporate Park (the "Park") as set forth below. The Premises
defined in this Lease and the Park are subject to a certain "Master Development
Agreement and Plan" (the "MDA"), which MDA is on file in the Land Records of the
Town of Bethel, County of Fairfield and State of Connecticut at Volume 568, Page
385. This Lease shall at all times be subject to said MDA in all respects as the
MDA may be amended or revised from time to time, subject to the provisions of
Paragraph 5.3 herein. In the event there are any terms or conditions of this
Lease which may be contradictory or inconsistent with or repetitious of the MDA,
the MDA shall supersede and control this Lease. Whenever used in this Lease, the
term "MDA Property" shall mean the Park, as defined in Paragraph 1. 1 below, the
"Bethel Health Care Site" as that property is defined in Paragraph 4. 1 of the
MDA and the "Duracell Site" as that property is defined in Paragraph 4. 10 of
the MDA.
1: PREMISES
1.1 Landlord is the owner of certain real property located in the Town
of Bethel, Town of Brookfield and City of Danbury, all in the State of
Connecticut, known as Berkshire Corporate Park and described on Exhibit A
attached hereto and made a part hereof. All references in this Lease to the
"Park" shall mean the entire area owned by Landlord and any subsidiaries or
affiliates of Landlord as described in Exhibit A, as the same may, from time to
time, be increased or decreased by the addition of other contiguous lands, and
the entire development on said area, including any and all structures, parking
facilities and common facilities built thereon from time to time, or as the same
may, from time to time, be reduced by eminent domain takings or dedications to
public authorities.
1.2 Landlord hereby leases to Tenant and Tenant hereby rents from
Landlord, subject to all of the terms, covenants, conditions and provisions of
this Lease, the following space located in the Park: floor space which
constitutes the entire area of Building Number I of the Park shown as Exhibit
B-1 attached hereto having the address of 3 Berkshire Boulevard, Bethel, CT
06801, which floor space is shown on Exhibit B-2 attached hereto and is
hereinafter referred to as the "Premises". Said Building Number 1 is located on
a certain piece or parcel of land located in the Town of Bethel, County of
Fairfield, State of Connecticut, shown and described as Lots 8 and 9 on a
certain map consisting of two sheets, "Sheet 1 of 2" and "Sheet 2 of 2", both
sheets being
1
<PAGE> 4
entitled "Final Subdivision Showing Berkshire Industrial Park Bethel,
Connecticut Scale: 1"= 100', Total Area: 117.273 AC., Zone: LP, Date: Mar. 29,
1985" which map is on file in the Bethel Town Clerk's office as Map 60 in File
19 (Sheet 1 of 2) and Map 60-A in File 19 (Sheet 2 of 2). Landlord and Tenant
hereby acknowledge and agree that for the purposes of this Lease and the
calculation(s) of Basic Rental and all Additional Rental (as hereinafter
defined) payable hereunder, the Premises shall be deemed to contain Thirty Seven
Thousand Five Hundred (37,500) rentable square feet. Landlord makes no
representations concerning the specific area of the Premises, and Tenant
acknowledges that it has inspected the Premises and is satisfied in all respects
therewith, and, subject to the terms hereof, accepts the Premises in "AS IS"
condition.
1.3 Landlord specifically reserves to itself and excepts from the
demise of this Lease the use of the exterior walls of the building, the roof and
the right to install, alter, maintain, use, repair and replace pipes, ducts,
conduits and wires leading through the Premises in locations which will not
materially interfere with Tenant's use thereof. Tenant, its agents, servants,
employees and invitees shall not enter upon the roof of the building at any
time. It is specifically agreed by the parties hereto that this lease does not
grant a continuance of light and air over any property adjoining the Premises.
2: TERM
2.1 The term of this lease shall be for the period of Ten (10) years
and days, commencing on the Commencement Date, as hereinafter defined, and
terminating on June 30, 2006. The Commencement Date shall be the date this Lease
is fully executed by both Landlord and Tenant. If the Commencement Date shall
occur on any day which is not the first day of a calendar month, the monthly
Basic Rental and Additional Rental to be paid under this Lease for that month
shall be apportioned on a per diem basis based upon the actual number of days in
that month, and shall be paid on the Commencement Date. Landlord and Tenant
shall execute a Lease Certificate in the form attached hereto as Exhibit C
setting forth the Commencement Date as soon as the actual Commencement Date has
been determined.
2.2 This lease shall terminate on the Termination Date as set forth in
the Lease Certificate attached as Exhibit C, without the necessity of any notice
from either Landlord or Tenant to terminate the same. Tenant hereby waives any
notice to vacate or quit the Premises, and agrees that Landlord shall be
entitled to the benefit of all provisions of law respecting the summary recovery
of possession of the Premises from a Tenant holding over to the same extent as
if statutory notice had been given.
3: BASIC RENTAL
3.1 Beginning at the Commencement Date, as rent for the Premises Tenant
agrees to pay Landlord the total rental sum of Three Million Six Hundred Forty
Eight Thousand Nine Hundred Thirty Three and 34/100 ($3,648,933.34) DOLLARS for
the full term of this Lease, payable in monthly installments on the first day of
each month in advance, as follows: (1) no Basic Rental
2
<PAGE> 5
from the Commencement Date through April 30, 1996; (2) for the months of May and
June, 1996, $9,466.67 per month; (3) from July 1, 1996 throughout the term of
this Lease $30,250.00 commencing on the Commencement Date. Said rent is
hereinafter referred to as "Basic Rental", and shall be payable without demand,
deduction, set-off or abatement of any kind, except as expressly provided
herein. If the Landlord does not receive the monthly Basic Rental due by the
tenth (10th) day of the calendar month in which it is due, Tenant shall be
liable to pay Landlord an additional sum equal to five percent (5.00%) of the
overdue monthly for each calendar month that said payment is not paid. The Basic
Rental shall never be less than set forth in this Paragraph 3.1.
4: COMPLETION AND OCCUPANCY
4.1 Landlord shall cause to be performed the work set forth under the
terms of Exhibit D hereof, if any. If Landlord is not responsible to perform any
work on the Premises, there is no Exhibit D attached to this Lease. In such
case, the parties hereto signify their agreement that Landlord is to perform no
work by initialing this page in the space set forth in the lower right hand
comer of this page of this Lease. Tenant shall be responsible for all other
interior finish work which is not the responsibility of the Landlord. If
Landlord is to perform no work on the Premises as indicated by the initials on
the previous page, Landlord offers the Premises for lease to Tenant in "AS IS"
condition and, subject to the terms hereof, Tenant accepts the Premises as such.
4.2 Landlord shall not be subject to any liability for failure to give
possession of the Premises to Tenant on the specific date hereinbefore
designated for the Commencement Date. No part of the Premises shall be deemed
unavailable for occupancy by Tenant if due to the noncompletion of details of
construction, decoration or mechanical adjustments which are minor in character
and the noncompletion of which does not materially interfere with Tenant's use
of such part of the Premises. In the event there is a delay in the availability
of the Premises for occupancy by Tenant which shall solely be due to any act or
omission of a material nature by Tenant which is a breach of Tenant's
obligations under this Lease, Tenant shall be liable for the payment of one (1)
day's rent for each day of such delay.
4.3 Tenant, by entering into occupancy of any part of the Premises,
shall be conclusively deemed to have agreed that Landlord, up to the time of
such occupancy, had performed all of its obligations hereunder with respect to
such part and that such part, except for latent defects and the minor details of
construction, decoration and mechanical adjustments hereinbefore referred to,
was in satisfactory condition as of the date of such occupancy, unless within
ten (10) days after such date tenant shall give written notice to Landlord
specifying the respects in which the same was not in such condition.
LL /s/
-------------------
T /s/
-------------------
3
<PAGE> 6
4.4 If, by reason of any provision of this Lease, the Basic Rental
shall commence on any day other than the first day of a calendar month, the
Basic Rental for such calendar month shall be prorated.
5: USE
5.1 Tenant shall use and occupy the Premises solely for offices, light
manufacturing, packaging, assembly, warehousing and research and development,
consistent with a first class business use, only as permitted by applicable laws
and regulations and the MDA and for no other purposes without Landlord's prior
written consent, which consent may be granted or withheld in Landlord's sole and
absolute discretion. Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, for any purpose other than
the use hereinbefore specifically mentioned.
5.2 Tenant covenants and agrees that it shall not do anything which
shall, in any way, impair or interfere with any of the Building's services to be
supplied by Landlord or the proper and economical heating, cleaning, air
conditioning or other service of the Building or Premises or impair or interfere
with the use of the Building or Premises by, or occasion discomfort,
inconvenience or annoyance to either Landlord or any other occupants of the
Building or of the Park.
5.3 In addition to the foregoing, Tenant agrees that its use and
occupancy of the Premises, the Building and the Park shall not, at any time, be
violative of or in contradiction to the terms and provisions of the MDA, and
Tenant shall defend and save Landlord harmless from any and all claims made
against Landlord thereunder, founded upon alleged action or inaction of Tenant
on, or in the Premises, the Building or the Park. In the event the MDA is
amended or modified subsequent to the date of the execution of this Lease,
Tenant shall be permitted to use and occupy the Premises as set forth in this
Lease and any such amendment or modification of the MDA shall not be effective
as to Tenant for the balance of the Initial Term of this Lease for the use and
occupancy permitted under this Lease.
5.4 Tenant shall abide by all Rules and Regulations promulgated by
Landlord for the Park, as they may be amended or altered from time to time.
6: DEFINITIONS FOR ADDITIONAL RENTAL
6. 1.1 As used in this Lease, the term "Building Proportionate Share"
shall mean a percentage, the numerator of which shall be the number of rentable
square feet of floor area of the Premises as set forth in Paragraph 1.2 above
(37,500) and the denominator of which shall be the number of rentable square
feet of floor area of Building Number 1 of which the Premises are a part as it
may be expanded or contracted from time to time, computed from the center line
of all interior partition walls and from the exterior face of all exterior
walls. At the time of the execution of this Lease that denominator number is
37,500 for Building Number 1
4
<PAGE> 7
6.1.2 "Taxes" shall mean (1) all real and personal property taxes,
assessments (including, but not limited to, assessments for public works,
improvements or benefits, whether or not begun or completed prior to the
commencement of this lease and whether or not completed within said term) and
other governmental charges or levies of every kind, character and description
whatsoever, which at any time have been or may be assessed, levied or imposed by
any governmental authority upon or in respect of, or which may become a lien on
the lot on which the Building is located, any portion thereof, the Building or
any buildings, improvements or structures thereon, the parking facilities and
other common areas and facilities on the lot on which the Building is located,
or upon any property of Landlord, real or personal, located within or on the lot
on which the Building is located which is used in connection with the operation
of the lot on which the Building is located; (2) any taxes which may be
assessed, levied or imposed by any governmental authority in addition to or in
lieu of all or any part of such real or personal property taxes, assessments,
charges or levies; (3) all business license, use or other taxes which may be
assessed, levied or imposed upon the developed portion of the lot on which the
Building is located, the parking facilities and other common areas and
facilities or the personal property of the Landlord on account of the leasing or
use of the developed portions on the lot on which the Building is located; (4)
all charges made by state or local governments for any services performed on or
for the developed portion of the on the lot on which the Building is located ,
the parking facilities and other common areas and facilities which are not
included in "Operating Costs" as defined hereafter; and (5) any and all sales,
excise and other taxes levied, imposed or assessed by federal, state or local
governments upon any rental payable under this Lease. However, notwithstanding
the foregoing, Taxes shall not include municipal, county, state or federal
income or franchise taxes of Landlord. In case a tax is imposed in lieu of or as
a substitute, in whole or in part, for the real property tax on the lot on which
the Building is located, any portion thereof, the Building or any buildings,
improvements or structures thereon, the parking facilities and other common
areas and facilities on the lot on which the Building is located, or in case a
tax is levied on rentals, the Tenant shall pay Tenant's Building Proportionate
Share of the amount of such substitute as of the Commencement Date.
6.1.3 "Insurance" shall mean the aggregate of all costs and expenses of
every kind or nature paid or incurred by Landlord directly or indirectly in
maintaining all insurance for the Premises, the building of which the Premises
is a part, the lot on which the Building is located, the parking facilities and
other common areas and facilities and the buildings and improvements within, on
or under the lot on which the Building is located as they may collectively or
individually be increased or reduced from time to time. Insurance shall mean,
but not be limited to, premiums for fire, theft and other casualty insurance,
including extended coverage, and including rental value coverage for one year
for minimum rent and for payment of Taxes and Landlord's Building Operating
Costs; premiums for public liability and property damage insurance; and all
risks property and casualty insurance.
6.1.4 "Building Operating Costs" shall mean the aggregate of all costs
and expenses of every kind or nature paid or incurred by Landlord directly or
indirectly in operating, maintaining, I managing, equipping, policing, securing,
lighting, cleaning, painting, striping, signing, and
5
<PAGE> 8
repairing the Building, the lot on which the Building is located, the parking
facilities and other common areas and facilities and the buildings and
improvements within, on or under the lot on which the Building is located as
they may collectively or individually be increased or reduced from time to time.
Building Operating Costs shall include, but not be limited to, the repair and
maintenance of buildings and other improvements on the lot on which the Building
is located; the cost of equipment and supplies used in the maintenance and
operation of the lot on which the Budding is located (including seasonal
decorations); the cost of equipment maintenance contracts; costs and expenses of
repair or replacement of paving, curbs, walkways, drainage, pipes, ducts,
conduits and similar items, and plate glass, lighting facilities and the roof of
the Building and/or the lot on which the Building is located; resurfacing
driveways and parking areas on the lot on which the Building is located;
restriping driveways and parking areas on the lot on which the Building is
located; pedestrian and automobile traffic and directional signs and equipment
on the lot on which the Building is located; electrical, water, heating or other
utility charges for parking facilities and other common areas and facilities on
the lot on which the Building is located; installing, repairing, maintaining and
replacing utility systems, including, but not limited to, water, sanitary sewer
and storm water lines and other utility lines, pipes, conduits and similar
facilities on the lot on which the Building is located; sewer use charges for
the lot on which the Building is located; pest control on the lot on which the
Building is located; cleaning costs for the Building exterior and/or the lot on
which the Building is located; refuse removal for the Building exterior and/or
the lot on which the Building is located; snow removal for the lot on which the
Building is located; grass cutting on the lot on which the Building is located;
costs and expenses of planting, replanting, maintaining and replacing flowers,
shrubbery, planters and trees on the lot on which the Building is located;
landscape maintenance on the lot on which the Building is located; fire
protection, including, but not limited to, installation, maintenance, repair,
testing and replacement of sprinkler systems, alarm systems and/or other fire
protection systems and their components for the Building and/or on the lot on
which the Building is located; reasonable management, administration, legal,
accounting and engineering fees for the Building and/or the lot on which the
Building is located; costs of building alterations, modifications or equipment
for the Building and/or the lot on which the Building is located which are
required by governmental or regulatory authorities or which are made primarily
for the purpose of reducing Building Operating Costs; all compensation and
related costs (including overtime, holiday and premium pay) actually paid or
incurred to persons engaged in the general operation and management of the
Building and/or the lot on which the Building is located, up to the level of a
building manager's salary, and specifically excluding any executive salaries,
including the cost of social security, unemployment and other payroll taxes,
worker's compensation insurance and employee benefits such as, but not limited
to, vacations, pensions, group insurance and other fringe benefits. In
Landlord's operating, maintaining, managing, equipping, policing, securing,
lighting, cleaning, painting, striping, signing, and repairing the Building and
other facilities as set forth herein, Landlord's performance of same shall not
be defined, determined or used in a manner so as to eliminate new design, new
materials, new systems, methods of construction or colors, provided that in all
cases the overall quality and appearance of same shall not be lower than the
overall quality and appearance as originally created. Landlord shall be liable
to Tenant for damages sustained by Tenant as a result of any act, default or
negligence of the Landlord, its agents,
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servants, employees, licensees or contractors to the extent Tenant is not
insured for any such damages. Landlord hereby agrees that it shall not charge
back to Tenant for any such damages payable by Landlord through Building
Operating Costs or otherwise.
6.2.1 The term "Proportionate Share of Limited Common Facilities
Maintenance Costs" shall mean a percentage, the numerator of which shall be the
total number of rentable square feet of floor area of the Premises as set forth
in Paragraph 1.2 above (37,500) and the denominator of which shall be the number
of rentable square feet of floor area actually constructed in the Park as it may
be expanded or contracted from time to time, computed from the center line of
all interior partition walls and from the exterior face of all exterior walls.
At the time of the execution of this Lease, the denominator number is 322,016.
6.2.2 "Limited Common Facilities Maintenance Costs" shall mean the
aggregate of all costs and expenses of every kind or nature paid or incurred by
Landlord directly or indirectly in operating, maintaining, managing, equipping,
policing, securing, lighting, cleaning, painting, striping, signing, and
repairing the common parking facilities and other common areas, facilities,
buildings, improvements, parks, trails, open space, recreational facilities,
and/or a helipad within, on or under the Park as they may collectively or
individually be increased or reduced from time to time. Limited Common
Facilities Maintenance Costs shall include, but not be limited to, the repair
and maintenance of common areas, facilities, buildings and improvements of the
Park; the cost of equipment and supplies used in the maintenance and operation
of the common areas, facilities, buildings and improvements in the Park
(including seasonal decorations); the cost of equipment maintenance contracts;
costs and expenses of repair or replacement of paving, curbs, walkways,
drainage, pipes, ducts, conduits and similar items, and plate glass, lighting
facilities and the roof(s) of the common facilities, buildings and improvements
of the Park; resurfacing common driveways and parking areas of the Park;
restriping common driveways and parking areas of the Park; pedestrian and
automobile traffic and directional signs and equipment; electrical, water,
heating or other utility charges for common areas, facilities, buildings and
improvements of the Park; installing, repairing, maintaining and replacing
utility systems, including, but not limited to, water, sanitary sewer and storm
water lines and other utility lines, pipes, conduits and similar facilities for
the Park; costs to connect the Park and/or the common parking facilities and
other common areas and facilities of the Park to the public sewer system; sewer
use charges for the Park; pest control; cleaning costs; refuse removal; snow
removal; grass cutting; costs and expenses of planting, replanting, maintaining
and replacing flowers, shrubbery, planters and trees; landscape maintenance;
fire protection, including, but not limited to, installation, maintenance,
repair, testing and replacement of sprinkler systems for common areas,
facilities, buildings and improvements; reasonable management, administration,
legal, accounting and engineering fees for common areas, facilities, buildings
and improvements; costs of building alterations, modifications or equipment for
common areas, facilities, buildings and improvements which are required by
governmental or regulatory authorities or which are made primarily for the
purpose of reducing Limited Common Facilities Maintenance Costs; all
compensation and related costs (including overtime, holiday and premium pay)
actually paid or incurred to persons engaged in the general operation and
management of the Park, up to the level of building manager's salary,
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and specifically excluding any executive salaries, including the cost of social
security, unemployment and other payroll taxes, worker's compensation insurance
and employee benefits such as, but not limited to, vacations, pensions, group
insurance and other fringe benefits. in Landlord's operating, maintaining,
managing, equipping, policing, securing, lighting, cleaning, painting, striping,
signing, and repairing the private streets and roads within the Park as they may
exist from time to time, the common parking facilities and other common areas,
facilities, buildings and improvements within, on or under the Park as set forth
herein, Landlord's performance of same shall not be defined, determined or used
in a manner so as to eliminate new design, new materials, new systems, methods
of construction or colors, provided that in all cases the overall quality and
appearance of same shall not be lower than the overall quality and appearance as
originally created.
6.3.1 The term "Road and Park Proportionate Share" shall mean a
percentage, the numerator of which shall be the number of rentable square feet
of floor area of the Premises as set forth in Paragraph 1.2 above (37,500) and
the denominator of which shall be the number of total floor area actually
constructed on the MDA property as that number may be expanded or contracted
from time to time. At the time of the execution of this Lease that denominator
number is 683,241.
6.3.2 "Road and Park Operating Costs" shall mean the aggregate of all
costs and expenses of every kind or nature paid or incurred by Landlord directly
or indirectly in operating, maintaining, managing, equipping, policing,
securing, lighting, cleaning, painting, striping, signing, paving and repairing
the developed portions of all private and public streets and roads that may
exist from time to time within the MDA Property. Road and Park Operating Costs
shall include, but not be limited to, the repair and maintenance of roads and
improvements, which shall include restriping and traffic and directional signs
and equipment, electrical or other utility charges for such common roads and for
the common signage on the MDA Property , maintaining utility lines, drains and
similar facilities, removal of exterior litter and debris, sweeping and sand
removal, snow and ice removal, grounds maintenance and grass cutting, tree and
landscape maintenance, reasonable, necessary and customary premium payments for
fire, liability, property damage and other casualty insurance, real estate or
other taxes if applicable, reasonable, necessary and customary administration,
management, legal, accounting and engineering fees, and costs of alterations,
modifications or equipment that are required by governmental or regulatory
authorities but not treated as capital items under proper accounting practices.
Road and Park Operating Costs shall include a reasonable allocation of all
compensation and related costs (including overtime, holiday and premium pay)
actually paid or incurred to persons engaged in the general operation and
management of the roads and streets in the developed portions of the MDA
Property, up to the level of building manager's salary, and specifically
excluding any executive salaries, including the cost of social security,
unemployment and other payroll taxes, worker's compensation insurance, and
employee benefits such as, but not limited to, vacations, pensions, group
insurance and other fringe benefits. It is understood and agreed that Road and
Park Operating Costs shall include both reasonable, necessary and customary
costs directly incurred by Landlord and reasonable, necessary and customary
costs incurred under outside contracts.
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7: PAYMENT OF ADDITIONAL RENTAL
7.1 Commencing on the second anniversary of the Commencement Date and
on each second anniversary of the Commencement Date thereafter (said anniversary
dates hereinafter referred to as "computation dates"), the Tenant shall pay to
Landlord as Additional Rental a sum calculated based upon the cost of living as
reflected in the "Consumers Price Index, New York-New Jersey Area-All Items"
(hereinafter called the "CPI") published in the Monthly Labor Review of the
Bureau of Labor Statistics of the United States Department of Labor. Said
Additional Rental sum shall be in effect commencing from the computation date
until the next computation date or the end of the term. The amount of said
Additional Rental shall be arrived at by multiplying the monthly Basic Rental
($30,250.00) as set forth in Paragraph 3.1 above by a fraction, the numerator of
which shall be the CH number for March preceding such computation date, and the
denominator of which shall be the CPI number for March, 1996. The sum of the
Additional Rental thereby obtained shall be payable on the first day of each
calendar month until the next computation date. If there be no CPI number or
comparable successor thereto, then the sum of Additional Rental contemplated
herein shall be established by arbitration in accordance with the rules of the
American Arbitration Association.
7.2 As Additional Rental under this Lease Tenant shall pay to Landlord
Tenant's Building Proportionate Share of Taxes, Insurance, and Building
Operating Costs; Proportionate Share of Limited Common Facilities Maintenance
Costs, and; Road and Park Proportionate Share of Road and Park Operating Costs .
7.3 Tenant shall pay to Landlord its Building Proportionate Share of
Taxes, Insurance and Building Operating Costs; Proportionate Share of Limited
Common Facilities Maintenance Costs, and; Road and Park Proportionate Share of
Road and Park Operating Costs as Additional Rental under this Lease during each
year of the term of this Lease an amount equal to the product obtained by
multiplying Tenant's Building Proportionate Share by the total of Taxes, the
total of Insurance, and the total of Building Operating Costs; Tenant's
Proportionate Share of Limited Common Facilities Maintenance Costs by the total
of Limited Common Facilities Maintenance Costs and; Tenant's Road and Park
Proportionate Share of Road and Park Operating Costs for such year. The Tenant
shall pay on the first day of each month, in advance, 1/12 of the amount
reasonably estimated by the Landlord, on the basis of the most current
information concerning Taxes, Insurance, Building Operating Costs, Limited
Common Facilities Maintenance Costs and Road and Park Operating Costs available
to Landlord, to be Tenant's Building Proportionate Share of the Taxes, Insurance
and Building Operating Costs; Proportionate Share of Limited Common Facilities
Maintenance Costs of Limited Common Facilities Maintenance Costs and; Road and
Park Proportionate Share of Road and Park Operating Costs. Landlord shall have
the right to amend its estimate of Taxes, Insurance and Building Operating
Costs; Limited Common Facilities Maintenance Costs and; Road and Park Operating
Costs at any time based upon current information and to adjust Tenant's
Additional Rental payable under this paragraph by written notice to Tenant. Upon
such adjustment and notice to Tenant, Tenant shall thereafter pay as Additional
Rental 1/12 of the adjusted amount of Tenant's Building and/or Park and/or Road
and
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Park Proportionate Share (as the case may be) commencing with the first day of
the first calendar month after such written notice. Within ninety (90) days
after the end of Landlord's fiscal year, Landlord shall furnish Tenant a
statement in reasonable detail of Taxes, Insurance, Building Operating Costs,
Limited Common Facilities Maintenance Costs and Road and Park Operating Costs
for the calendar year just ended and the Landlord and Tenant shall make an
adjustment, with payment to Landlord or credit to Tenant so that the Landlord
shall receive the entire amount of Tenant's Building Proportionate Share of
Taxes, Insurance, and Building Operating Costs; Proportionate Share of Limited
Common Facilities Maintenance Costs of Limited Common Facilities Maintenance
Costs and; Road and Park Proportionate Share of Road and Park Operating Costs
and no more. A pro-rata adjustment of Tenant's Building and/or Park and/or Road
and Park Proportionate Share (as the case may be) payable as Additional Rental
shall be made for the beginning and end of this Lease term, provided the Lease
term has terminated by lapse of time.
7.4 In the event said Tenant, or Tenant's use and occupancy of the
Premises, causes, for any reason whatsoever, any additional charge or increase
in the rate of fire insurance on the building of which the Premises are a part,
the Tenant shall, from time to time immediately upon receipt of notice, do
whatever is deemed necessary, and follow whatever recommendations may be made,
by the Landlord or its Agents, or any other duly constituted authorized body, in
order that such additional charge or increase in rate of fire insurance on the
building so caused by such tenancy, use or occupancy of the Premises, by the
Tenant may be removed, or, in the event conditions are such that nothing can be
done, by way of improvements or otherwise, to remove such extra and additional
charge or increase of rate of fire insurance on the building, or the expense
involved is excessive, then the Tenant shall pay the Landlord as Additional
Rental the increased or additional cost of such fire insurance on the building.
7.5 It is the intention of the Landlord and Tenant that the Basic
Rental shall be completely "net" to Landlord such that all Taxes, Insurance,
Building Operating Costs, Limited Common Facilities Maintenance Costs and Road
and Park Operating Costs which are applicable to the Building and/or the Park
and/or the Roads (as the case may be) shall either be paid directly by the
various tenants of the Building and/or the Park (as the case may be) or paid by
the Landlord and allocated among such tenants.
7.6 Tenant shall have the right, at Tenant's sole cost and expense,
upon reasonable advance notice to Landlord and subject to Landlord's ability to
accommodate Tenant at the time requested, at any time during regular business
hours, to audit, review and photocopy Landlord's records pertaining to Taxes,
Insurance, Building Operating Costs, Limited Common Facilities Maintenance Costs
and Road and Park Operating Costs as they relate to the Building of which the
Premises are a part only. Landlord shall maintain its books and records in
accordance with generally recognized and accepted accounting principles and
practices. Tenant shall not, at any time or for any purpose or reason, disclose
any of such non public information or documentation to any person, firm or
corporation except employees, financial advisors, auditors and legal advisors of
Tenant necessary to conduct such review for Tenant's purposes, or as may be
required
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by law. Disclosure of such information except as explicitly authorized herein
shall be a default under this Lease.
8: SECURITY
8.1 Landlord acknowledges receipt of the sum of Thirty Thousand Two
Hundred Fifty and 00/100 ($30,250.00) Dollars, which sum is equivalent to one
(1) month of Basic Rental, at the time of the execution of this Lease. On July
1, 1996, Tenant shall pay Landlord an additional sum of Thirty Thousand Two
Hundred Fifty and 00/100 ($30,250.00) Dollars, representing an additional month
of Basic Rental and which sums together shall be held by Landlord as a security
for the full and faithful of Tenant to so perform under the conditions and terms
of this Lease. Landlord shall have the right to require Tenant to increase the
amount of said security deposit to reflect the then current Basic Rental by
written notice to Tenant. Upon such written notice to Tenant, Tenant shall pay
such additional security deposit within Thirty (30) days. Landlord may apply
security deposit, or so much thereof, or so much thereof as may be necessary,
towards the remedying of any condition which an inspection shall disclose.
Nothing hereinabove contained shall, in any way, limit the right of Landlord to
recover against Tenant for any damage or other condition arising out of the
failure of Tenant to so perform. In no event shall Tenant have the right to
cause or direct Landlord to apply the security deposit against any monthly
rental installment, including the last month's rental installment.
9: UTILITIES
9.1 The Tenant shall pay directly or reimburse the Landlord as
Additional Rental for all utility charges or services, including, but not
limited to, electric, water, fuel oil, gas, sewer and telephone charges,
furnished to or used by Tenant in the use of the Premises. Landlord shall not be
under any responsibility or liability in any way whatsoever for the quality,
impairment, interruption, stoppage, or other interference with service involving
water, gas, electric current for light and power, telephone, or any other
service by any utility. If the Premises are rendered untenantable for Tenant's
normal use thereof as a result of or arising out of an interruption in the
supply of electric, water, gas and/or sewer service(s) or for any other reason
not resulting from any negligence or breach of this Lease by Tenant, and such
condition continues for more than ten consecutive days, then commencing upon the
eleventh day of such condition and continuing until Tenant's normal use of the
Premises is restored, all Basic Rental and Additional Rental under this Lease
shall be abated. If such condition continues for 30 consecutive days, Tenant
shall have the option of terminating this Lease upon written notice to Landlord.
Tenant's remedies under this Section shall be in addition to and not in lieu of
any other remedies that may be available to Tenant. Landlord shall have the
option, but not the obligation, to provide such service(s) to Tenant by
alternate means. If Landlord elects to provide said service(s) by alternate
means, the calculation of the time periods set forth above shall be suspended
for such time as Landlord provides such service(s) by such alternate means. If
Landlord elects and does provide such service(s) by such alternate means, Tenant
shall pay to Landlord as Additional Rental under this Lease the reasonable
cost(s) incurred by Landlord in providing such service(s) by alternate means.
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If Tenant elects to terminate this Lease for continuation of the condition for
30 consecutive days as set forth above, the cancellation fee as set forth in
Paragraph 37 hereof shall not be applicable or payable by Tenant.
9.2 As to water usage, Tenant shall restrict its water usage to no more
than Ten Thousand (10,000) gallons per day for the Premises.
10: REPAIRS AND MAINTENANCE
10:1 The Landlord shall repair and maintain in good order and condition
throughout the term of this Lease, the exterior and structure of the Premises
and the building containing the Premises, all common areas and improvements in
the Park, the plumbing and electrical lines and systems serving the Premises,
and all parts of the heating, plumbing, sprinkler, electrical and air
conditioning systems within or serving the Premises, and the Landlord shall make
any repairs necessary to make all exterior doors and windows air and water tight
and in a safe condition.
10.2 Throughout the term of this Lease the Tenant shall repair and
maintain in good order and condition the entire interior of the Premises
including all glass in windows, doors or skylights, all parts of the plumbing
and electrical systems within or on the Premises, and the lighting fixtures
within the Premises. Tenant, at Tenant's expense, shall purchase and install all
lamps (including, but not limited to, incandescent and fluorescent) and ballasts
used in the Premises, except that Landlord shall furnish and install the
ballasts initially used in the Premises and Landlord shall furnish the labor for
installing the initial lamps (including, but not limited to, incandescent and
fluorescent) used in the Premises. The Tenant agrees to keep both sides of all
outside glass areas in a neat and clean condition, and to store all trash and
garbage within the Premises or in "dumpsters" or other receptacles located
outside the Premises in a location designated by Landlord which dumpsters and
other receptacles shall be provided at Tenant's expense as set forth in
Paragraph 14.1 below. It is understood and agreed that the existing heating and
air conditioning units located on and/or serving the Premises shall be repaired
and maintained by the Landlord. Tenant hereby acknowledges that said heating and
air conditioning units and systems serve only the Premises and no other premises
in the Park. Therefore, Tenant hereby agrees to pay as Additional Rental to
Landlord upon demand any and all bills, invoices or other reasonable costs and
expenses incurred by Landlord for the maintenance, repair of said heating and
air conditioning units and systems.
10.3 Notwithstanding the foregoing, each party hereto shall make any
repairs of any kind necessitated by its own act, default or negligence, or that
of its agents, servants, employees, licensees or contractors. In the event such
repairs are necessitated by the act, default or negligence of Tenant, or that of
its agents, servants, employees, licensees or contractors, Landlord may make or
cause the same to be made, but shall not be obligated to do so, and Tenant
agrees to pay the Landlord promptly upon Landlord's demand, as Additional
Rental, the full cost of such repairs, if made. In the event Landlord elects not
to make such repairs caused by the act, default or negligence of Tenant, or that
of its agents, servants, employees, licensees or contractors,
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Landlord may require Tenant to promptly make such repairs at Tenant's
sole cost and expense.
11: PARKING FACILITIES AND COMMON AREAS
11.1 Landlord hereby grants to Tenant, its agents, servants, employees,
visitors, licensees, customers and contractors a non-exclusive license to use
the parking facilities and other common areas and facilities of the Park in
common with others during the term of this Lease, subject to the exclusive
control and management thereof by Landlord and subject, further, to the rights
of the Landlord to make changes, additions to, subtractions from, rearrangements
of, alterations of, modifications of and/or supplements to the parking
facilities and other common areas and facilities, the Park or the real property
of which it is a part.
11.2 Landlord will, or will cause others to, operate, maintain, manage,
equip, police, light, repair, clean, plow, shovel and repave the parking
facilities and other common areas and facilities in a manner deemed by Landlord
to be reasonable and appropriate and in the best interests of the Park. Landlord
shall have the right (1) to establish, modify and enforce reasonable rules and
regulations with respect to the Park and parking facilities and other common
areas and facilities; (2) to enter into, modify and terminate easement and other
agreements pertaining to the use and maintenance of the Park and parking
facilities and other common areas and facilities; (3) to close temporarily any
or all portions of the Park and parking facilities and other common areas and
facilities; and (4) to do and perform such other acts in and to the Park and
parking facilities and other common areas and facilities and improvements as, in
the reasonable business judgment of the Landlord, is advisable. Tenant shall
conform to all reasonable and uniform rules and regulations which the Landlord
way make in the management and use of the parking facilities and other common
areas and facilities.
11.3 Tenant and its employees shall not park cars except in areas which
shall be designated by Landlord for Tenant parking as shown in Exhibit B-2
attached hereto. All loading and unloading of goods shall be made at the rear
entrance or truck dock. Tenant agrees that upon written notice from Landlord, it
will, within five (5) days, furnish Landlord with the state automobile license
numbers assigned to the cars of all its employees. Landlord may require Tenant
to cause its employees to identify their vehicles by way of stickers issued by
Landlord or other means of identification evidencing authority to use the MDA
property. Landlord reserves the right to require Tenant to remove "junk" and/or
unregistered motor vehicles from the parking area if, in Landlord's judgment,
said vehicle make the parking area unsightly or if said vehicles interfere with
free ingress and egress. No portion of any parking area shall be used for the
repair or storage of vehicles or equipment (other than on an emergency or
day-to-day transient basis by Tenant, its agents, servants, employees, visitors,
licensees, customers and contractors). The foregoing shall not prohibit Tenant
from parking a normal and customary fleet of company cars in the parking area,
provided that no vehicle maintenance (which term includes, but is not limited
to, gasoline pumping and automobile repair) may be performed.
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12: FIXTURES AND ALTERATIONS
12.1 The Tenant, may, at its expense install any interior lighting
fixtures or other trade fixtures or equipment at its expense, and may at its
expense repair, renovate, alter, improve or redecorate the Premises. Tenant may
make interior partition wall changes in the Premises with the prior approval of
the Landlord in writing, after submission of such plans to Landlord. As to any
such renovations, alterations, improvements and/or interior partition wall
changes done as a part of Tenant's initial fit up of the Premises, any
materials, equipment or improvements in place on the Premises prior to Tenant's
occupancy which Tenant will not use for said fit up shall, at the option of the
Landlord, remain the property of the Landlord and Tenant shall notify Landlord
of the location of same so that Landlord may remove and salvage same from the
Premises. Prior to the commencement of any work approved by Landlord, Tenant
shall provide Landlord with a copy of a Building Permit for the approved work
issued by the appropriate authority. Upon completion of the approved work,
Tenant shall provide Landlord with a copy of the Certificate of Occupancy for
the approved work issued by the appropriate authority. All of such work
conducted by Tenant or at its direction shall be done in a workmanlike manner,
shall at all times comply with all applicable laws, rules, ordinances and
regulations and in no way harm the structure of the Premises or the building of
which the Premises are a part, provided that at the expiration of this Lease, or
any extension thereof, Tenant, at its expense, restores the within Premises to
its original condition and repairs any damage to the Premises resulting from the
installation or removal of such partitions, fixtures, or equipment as may have
been installed by Tenant, or repairs and restores the Premises to the condition
it was in during the term of this Lease, if requested to do so by Landlord.
Landlord reserves the right, before approving any such changes, additions or
alterations, to require the Tenant to furnish it a good and sufficient bond,
conditioned that it will save Landlord harmless from the payments of any claims
either by way of damages or liens. All of such changes, additions or alterations
shall be made solely at the expense of the Tenant; and the Tenant agrees to
protect, indemnify and save harmless the Landlord on account of any injury to
third persons or property, by reason of any such changes, additions, or
alterations, and to protect, indemnify and save harmless the Landlord from the
payment of any claim of any kind or character on account of bills for labor or
material in connection therewith. Before Tenant may do any work at the Premises
pursuant to this paragraph, tenant must provide Landlord with a Certificate of
Insurance in an amount reasonably satisfactory to Landlord, which insurance must
provide the coverage required under this paragraph. All of such work conducted
by Tenant or at its direction shall be performed by duly licensed (where
appropriate and/or required) and/or professional contractors. Before any of such
alterations may be performed, Landlord shall have the reasonable right to
approve said contractors, based upon Landlord's reasonable commercial judgment.
The Tenant shall make no structural changes, roof penetrations, exterior wall
penetrations or alterations in the Premises, unless prior approval from the
Landlord is obtained in writing, which approval may be granted or withheld in
Landlord's sole discretion. As to any structural changes, Landlord shall have
the absolute right, in Landlord's sole discretion, to designate the
contractor(s) which may perform said work.
12.2 Notwithstanding anything in Paragraph 12.1 to the contrary, and so
long as Tenant
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is not in default under this Lease, all trade fixtures, signs, equipment,
furniture or other personal property, which have not otherwise been made
fixtures to the Building or the Premises, shall not become the property of the
Landlord and may be removed by Tenant at any time and from time to time during
the entire term of this Lease. Upon the request of Tenant or its assignees or
any subtenant, Landlord shall execute and deliver any commercially reasonable
real estate consent or waiver forms submitted by any vendors, lessors, chattel
mortgagees or holders or owners of any trade fixtures, signs, equipment,
furniture or other personal property kept or installed on the Premises, which
have not otherwise been made fixtures to the Building or the Premises, setting
forth that the Landlord waives, in favor of the vendors, lessors, chattel
mortgagees or holders or owners and superior lien, claim, interest or other
right therein. Landlord shall further acknowledge that the property covered by
the consent or waiver forms, which have not otherwise been made fixtures to the
Building or the Premises, is personal property, and such property may be removed
from the Premises, provided Tenant has not defaulted under this Lease, by the
vendors, lessors, chattel mortgagees, holder or owner at any time upon default
in the terms of the chattel mortgage or other similar documents and clear of any
lien of the Landlord so long as said vendors, lessors, chattel mortgagees,
holders or owners agrees to be bound by and perform Tenant's obligations to
restore and/or repair the Premises upon such removal, if necessary, as set forth
in Paragraph 12.1 above.
13: SIGNS
13.1 The Tenant shall not display any sign, picture, advertisement,
awning, merchandise or notice on the outside of the building of which the
Premises are a part, nor on the outside or inside of the Premises, except as
shall conform to the requirements of the Landlord and any governmental agencies
having jurisdiction thereof. Having been granted authority to erect and maintain
a sign or signs, Tenant shall maintain said sign(s) in a first class condition
and state of repair. Missing, broken, blocked or malfunctioning letters or other
elements of signage shall be replaced or repaired by Tenant at Tenant's sole
cost and expense within 30 days of such condition occurring. If, after such 30
day period, such repair or replacement has not been accomplished by Tenant as
required hereunder, Tenant shall, upon notice from Landlord, cover such sign in
its entirety with brown or black opaque material until the repair or replacement
has been accomplished. If Tenant fails or refuses to make such repair or
replacement or cause the sign to be covered as required, Landlord may, but shall
not be obligated to, cause such repair or replacement to be done and Tenant
shall pay to Landlord on demand, as Additional Rental, any costs or expenses
incurred or paid by Landlord making such repair or replacement in accordance
with the provisions of this Paragraph.
14: OUTSIDE APPEARANCE AND DISPLAYS
14.1 Tenant shall maintain the Premises in a neat and clean condition,
shall keep sidewalks adjoining the Premises clean and free from rubbish, and
shall store all trash and garbage within the Premises or in such place as
Landlord may designate, and shall arrange for the regular pick up of trash and
garbage. Tenant shall not bum any trash of any kind in and about
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the building, shall not permit rubbish, refuse or garbage to accumulate or fire
hazards to exist about the Premises.
14.2 The Tenant shall not display any merchandise or show cases or
other obstructions on the outside of the building, or the Premises, or in any
lobby or passageway adjoining the same which shall extend beyond the border line
of the Premises.
15. CHANGES OR ALTERATIONS BY LANDLORD
15.1 Without liability or allowance to Tenant on the part of Landlord,
Landlord reserves the right to make such changes, alterations, additions,
improvements, repairs or replacements in or to the Building (including the
Premises) and the fixtures and equipment thereof, and to erect, maintain and use
pipes, ducts and conduits in and through the Premises. Landlord agrees, except
in case of emergency, to give Tenant prior reasonable notice before proceeding
with any changes or alterations and to proceed with due diligence so as to
minimize interference with Tenant's business. In addition, Landlord agrees not
to unreasonably interfere with the use of the Premises and covenants that all
changes shall be consistent with high quality office/ business use Buildings and
that Tenant's access or permitted use of the Premises will not be adversely
affected. Landlord agrees that Tenant's floor space shall not be reduced except
on a de minimus basis, or as necessary to comply with applicable laws, codes or
regulations.
15.2 Landlord reserves the right to name or renumber the Building and
to change the name or address of the Building at any time and from time to time,
and to so indicate on any interior or exterior surface of the Building.
15.3 There shall be no allowance to Tenant for a diminution of rental
value and no liability on the part of Landlord by reason of inconvenience,
annoyance or injury to business arising from Landlord, Tenant or others making
any changes, alterations, additional, improvements, repairs or replacements in
or to any portion of the Building or the Premises, or in or to the fixtures,
appurtenances or equipment thereof, and no liability upon Landlord for failure
of Landlord or others to make any changes, alterations, additions, improvements,
repairs or replacements in or to any portion of the Building or the Premises, or
in or to the fixtures, appurtenances or equipment thereof; however, Landlord
agrees to use due diligence when making any changes, alterations, additions,
improvements, repairs or replacements so as to attempt to cause minimum
inconvenience to Tenant's business operation.
16: COVENANTS BY TENANT
16.1 Tenant shall pay promptly when due all Basic Rental, Additional
Rental and other charges under this Lease at the time and in the manner set
forth in this Lease.
16.2 Tenant shall procure and maintain in effect at all times any
licenses and permits required for any use made of the Premises by Tenant. Upon
the expiration or termination of this
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Lease, to remove its goods and effects and those of all persons claiming under
it, and. to yield up peaceable to Landlord the Premises in the condition
required by this Lease, damage by fire, taking, casualty, structural defects
(other than those caused by Tenant, its agents, servants, employees, invitees
and/or contractors) and reasonable wear and tear only excepted.
16.3 Tenant shall not make any use of the Premises which is improper,
offensive or contrary to any law, ordinance or regulation, nor permit any act or
thing to be done on the Premises which shall constitute a nuisance or which may
make void or voidable any insurance on said Premises, the building of which they
are a part, the Park, or the parking facilities or other common areas or
facilities against fire, and to pay any increased or extra premium payable for
any such insurance resulting from any act done by Tenant, its agents, servants,
employees, invitees and/or contractors.
16.4 Tenant shall pay promptly when due the entire cost of any work to
the Premises undertaken by Tenant so that the Premises, the building of which
they are a part, the Park, and the parking areas and other common areas and
facilities, shall at all times be free of liens for labor and materials; to
procure all necessary permits before undertaking such work; to do all of such
work in a good and workmanlike manner, employing materials of good quality and
complying with all government requirements; and to save Landlord harmless and
indemnified from all injury, loss, claims or damage (including, but not limited
to, Landlord's costs of defense and reasonable attorney's fees) to any person or
property occasioned by or growing out of such work.
16.5 To keep the Premises open for the conduct of business on such days
during such hours as are deemed regular business hours.
16.6 Tenant shall give to Landlord prompt written notice of any damage
to, or defective condition in, any part of the Building's plumbing, electrical,
heating, air conditioning or other systems serving, located in, or passing
through the Premises. Such condition shall be remedied by Landlord and, if the
same was caused by Tenant, the cost of remedy thereof shall be paid by Tenant.
In no event shall Tenant be entitled to claim any damages arising out of or from
such damage or defective condition. Nothing, however, in this paragraph is
intended to relieve Landlord from its negligence.
17: LIABILITY AND INDEMNITY
17.1 The Tenant shall save the Landlord harmless and indemnified from
all injuries, loss, claims or damage (including, but not limited to, Landlord's
costs of defense and reasonable attorney's fees) to any person or property while
within or on the Premises unless caused by the act, negligence or default of the
Landlord, its agents, servants, employees, invitees and/or contractors, and from
and against all injury, loss, claims or damage (including, but not limited to,
Landlord's costs of defense and reasonable attorney's fees) to any person or
property anywhere occasioned by any act, neglect or default of Tenant. Tenant
shall furnish liability insurance naming Landlord as a co-insured, in the amount
of $3,000,000.00, combined single limit policy
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for bodily injury and property damage. Landlord shall have the right to require
Tenant to increase the amount of Tenant's insurance coverage set forth above
based upon Landlord's reasonable commercial judgment. The Tenant shall furnish
to Landlord a certified copy of such policy of insurance which will provide by
suitable endorsements (a) that the contractual liability of Tenant is covered
thereby, and (b) that the insurance will not be canceled or substantially
changed without at least ten (10) days prior written notice to Landlord.
17.2 The Landlord shall save the Tenant harmless and indemnified from
all injury, loss, claims or damage to any person or property while on the
parking facilities or other common areas and facilities, or any portion of the
Park premises not within the Tenant's Premises, unless caused by the act,
neglect or default of Tenant, its agents, servants, employees, invitees and/or
contractors. Landlord shall maintain public liability insurance in amounts
Landlord in its reasonable commercial judgment deems necessary and appropriate,
in companies qualified to do business in said state insuring Landlord against
injury to persons or damage to property as herein provided.
17.3 Tenant shall deliver to Landlord certificates of such insurance at
or prior to the commencement of the term of this Lease, and thereafter within
ten (10) days prior to the expiration of such policies.
18: BANKRUPTCY OR INSOLVENCY
18. 1 To more effectually secure the Landlord against loss of the rent
and other payments herein provided to be made by the Tenant, it is agreed as a
further condition of this Lease that the filing of any petition of bankruptcy or
insolvency by or against the Tenant, or the adjudication in Bankruptcy of the
Tenant, or the appointment of a Receiver for Tenant by any court, or Tenant's
assignment of its property for the benefit of creditors shall be deemed to
constitute a breach of this lease, if said petition is not dismissed or Receiver
discharged within thirty (30) days after the filing or appointment, and
thereupon without entry or other action by the Landlord, this Lease shall, at
the option of the Landlord, become and be terminated; and not withstanding any
other provisions of this Lease, the Landlord shall forthwith upon any such
termination be entitled to recover the rent reserved in this Lease for the
residue of the term hereof less the fair rental value of the Premises for the
residue of said term.
19: LITIGATION
19.1 In the event the Landlord or its Agents, without fault on
its/their part, or default under the terms of this Lease, become involved,
through or on account of the occupancy of the Premises by the Tenant, or the
conduct of Tenant's business upon the Premises, in any controversy or
litigation, with any Third Party, the Tenant shall upon notice from Landlord or
its Agent, immediately take all necessary steps, and do whatever may be
necessary to remove said Landlord's connection with, or liability under such
controversy or litigation, and particularly if such controversy or litigation
throws any cloud or encumbrance upon the title of said Landlord
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to its real estate; provided, that if the Tenant believes it has a good and
valid defense, or claim, in such controversy or litigation which Tenant desires
to set up and maintain by and throughout court procedure and litigation, the
Tenant shall have the right to do so, provided it first executes and delivers to
the Landlord an indemnifying bond with surety, and discharges any and all final
judgments, liens, costs, damages, expenses and obligations of Landlord
whatsoever, in or arising out of the controversy or litigation involving the
Landlord or its Agents, including all costs, expenses and reasonable attorney's
fees incurred by Landlord or its agents in protecting their interest or
defending themselves in such controversy or litigation. Except as to litigation
which may affect or create a cloud on Landlord's title to the Premises, the
Building, the lot on which the Building is located or any part of the Park,
Tenant shall have exclusive control over the defense or settlement of such
litigation and Landlord shall render all reasonable assistance to Tenant in the
defense and/or settlement of such litigation. As to litigation which may affect
or create a cloud on Landlord's title to the Premises, the Building, the lot on
which the Building is located or any part of the Park, Landlord shall have
exclusive control over the defense or settlement of such litigation and Tenant
shall render all reasonable assistance to Landlord in the defense and/or
settlement of such litigation.
20: ARBITRATION
20.1 Any and all controversies, disputes or claims arising out of or
related to this Lease, or the breach hereof, shall, so far as the law may allow,
be resolved and settled by Arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (AAA).
20.2 Notice of demand for Arbitration shall be filed in writing with
the other party and with the AAA at its office having jurisdiction over
arbitrations in Hartford, Connecticut. The situs of the Arbitration proceedings
shall be Danbury, Connecticut, or such other location as may be mutually
agreeable to the parties and permitted under the then current AAA rules.
20.3 A demand for Arbitration must be made within two (2) years after
the controversy, dispute or claim has arisen and becomes known to the claimant,
but in no event after the date when institution of legal or equitable
proceedings based on such claim would be barred by the applicable statute of
limitations of the State of Connecticut.
20.4 The number of arbitrators shall be determined in accordance with
the then prevailing rules of the AAA. Arbitrators shall meet the qualifications
for arbitrators as designated by AAA.
20.5 The award rendered by the arbitrators) shall be final and judgment
may be entered upon it in accordance with applicable law in any court of
competent jurisdiction.
21: ATTORNEY'S FEES
21.1 If the Tenant shall at any time be at default hereunder, and if
the Landlord shall
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institute an action, summary proceeding or arbitration against the Tenant based
upon any such default, or if the Landlord shall cure such default or defaults
for the act of Tenant, then the Tenant will reimburse the Landlord for the
expense of attorney's fees and disbursements thereby incurred by the Landlord,
so far as the same are reasonable in amount. Also so long as the Tenant shall be
a Tenant hereunder the amount of such expenses shall be deemed to be "Additional
Rent" hereunder and shall be due from the Tenant to the Landlord on the first
day of the month following the incurring of such respective expenses.
21.2 If the Landlord shall at any time be in default hereunder,
Landlord shall have a right to cure said default within thirty (30) days of
written notice from Tenant of said default. Thereafter, if Landlord fails to
cure said default and if the Tenant shall institute an action, summary
proceeding or arbitration against the Landlord based upon any such default, or
if the Tenant shall cure such default or defaults for the act of Landlord, then
the Landlord will reimburse the Tenant for the expense of attorney's fees and
disbursements thereby incurred by the Tenant, so far as the same are reasonable
in amount. The amount of such expenses shall be due from the Landlord to the
Tenant upon final adjudication of said action, summary proceeding or
arbitration.
22: HAZARDOUS SUBSTANCES
22.1 The term "Hazardous Substance" shall mean any substance, chemical
or waste that is or shall be listed or defined as hazardous, toxic or dangerous
under Applicable Environmental Law and any petroleum products.
22.2 The term "Applicable Environmental Law" shall include, but shall
not be limited to, CERCLA, RCRA, the Federal Water Pollution Control Act, 33
U.S.C. Sections 1251, et. seq., the Clean Air Act, 42 U.S.C. Section 7401, et.
seq., and the regulations thereunder, and any other local, state and/or federal
laws or regulations, whether currently in existence or hereinafter enacted, that
govern:
(i) the existence, cleanup and/or remedy of contamination on
property;
(ii) the protection of the environment from spilled, deposited or
otherwise emplaced contamination;
(iii) the control of hazardous wastes; or
(iv) the use, generation, transport, treatment, removal or recovery of
hazardous substances, including building materials.
22.3 Tenant shall not use, store, generate, treat, transport or dispose
of any hazardous waste or Hazardous Substances on the Premises or the Park
without first obtaining Landlord's written approval. Tenant shall notify
Landlord and seek such approval in writing at least thirty (30) days prior to
bringing any Hazardous Substances, as defined by any Federal, State or local law
or regulation, onto the Premises or the Park. Tenant has provided Landlord with
a written disclosure of the Hazardous Substances Tenant uses and generates in
Tenant's manufacturing processes and Hazardous Substances which are generated as
a by-product of said manufacturing
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processes. Said written disclosure is attached to this Lease and marked as
Exhibit E. As to the Hazardous Substances set forth in Exhibit E hereof only,
Landlord hereby gives its approval as required under this Paragraph. Landlord
may withdraw approval of any such Hazardous Substances at any time, for
reasonable causes related to the threat of contamination, or damage or injury to
persons, property or resources on the Premises, the Building of which the
Premises are a part or the Park. Upon receipt of such disapproval, Tenant shall
remove the Hazardous Substances from the Premises. Landlord's failure to approve
the use of a Hazardous Substance under this paragraph shall not limit or affect
Tenant's obligations under this Lease, including Tenant's duty to remedy or
remove releases or threatened releases; and to comply with all applicable laws,
federal, state and local relating to the use, storage, generation, treatment,
transportation and/or disposal of such hazardous waste and/or Hazardous
Substances.
22.4 For any years in which any Hazardous Substances have been used,
generated, treated, stored, transported or otherwise been present on or in the
Premises or the Park, Tenant shall provide Landlord with a written report (i)
listing the substances which were present on or in the Premises or the Park (and
provide copies of Material Safety Data Sheets [MSDS] with respect to same and
copies of all manifests required by State or Federal laws with regard to
disposal of any Federally-regulated hazardous waste or Connecticut-regulated
waste); (ii) all releases of Hazardous Substances that occurred or were
discovered on the Premises or the Park; (iii) all Hazardous Substance-related
compliance activities, including all contacts with administrative agencies in
any way concerning Hazardous Substances and all requests from third parties for
cleanup or compliance occurring or received; and (iv) all plans relating to the
use of the Premises or the Park, consent agreements or other contracts relating
to Hazardous Substances executed or requested during that time period. The
report shall include copies of all documents and correspondence related to such
activities and written reports of verbal contacts. Tenant shall designate one
individual or position to be responsible to provide information to Landlord with
respect to Hazardous Substances and/or environmental matters.
22.5 In the event Tenant applies for any permits or approvals with
respect to storage, generation, treatment, transportation and/or disposal of
hazardous waste or Hazardous Substances, Tenant shall notify Landlord and
provide copies of said applications prior to submission of same to governmental
authorities for approval.
22.6 Tenant further agrees to promptly contain, remove and mitigate the
effect of any such pollution or contamination or hazardous waste or Hazardous
Substances on the Premises or the Park resulting from the act or omission or
negligence of Tenant, its agents, servants, employees, invitees or contractors,
in compliance with all applicable laws and regulations; and take all such steps
which may be required to satisfy and/or remove any lien placed upon said
Premises or the Park by the Commissioner of the Connecticut Department of
Environmental Protection pursuant to Connecticut statutes or regulations, the
United States Environmental Protection Agency pursuant to Federal statutes or
regulations, the local government or any legal authority, or any agents of any
of said entities, or any other entity or person, be it a public agency or
private, pursuant to any federal, state or local law, ordinance or regulation.
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22.7 Tenant shall permit Landlord and its agents to enter into and upon
the Premises, without notice, at all reasonable times for the purpose of
inspecting the Premises and all activities thereon, including activities
involving environmental matters and/or Hazardous Substances, or for the purposes
of maintaining the Building.
22.8 No spill, deposit, emission, leakage or other release of hazardous
waste or Hazardous Substances in or on the Premises or the Park, soil,
groundwater and/or water shall be deemed to result in wear and tear that would
be normal for the period of Tenant's occupancy.
22.9 Tenant shall surrender the Premises free of any contamination or
other damage caused by such occurrences during the term of this Lease.
22.10 The Tenant hereby irrevocably and unconditionally agrees to
indemnify and hold the Landlord and Owner harmless, at all times, from and
against all liabilities, claims, liens, losses, costs, damages and expenses,
including, but not limited to reasonable attorney's fees and costs of defense
and experts incurred by the Landlord or Owner, claims paid whether as a result
of final judgment or in the settlement of contested claims, which the Landlord
or Owner may incur, sustain or be liable for, directly or indirectly, as the
result of any acts, omissions or negligence by the Tenant, its agents, servants,
employees, invitees or contractors which results in the exercise by the United
States Environmental Protection Agency, the Connecticut Department of
Environmental Protection, the local government or any legal authority, or any
agents of any of said entities, or any other entity or person, be it a public
agency or private, of any legal rights it may now or hereafter be entitled to
exercise with respect to Chapter 445 or 446K of the Connecticut General Statutes
(C. G. S. Section 22a-114, et. seq. and C.G.S. Section 22a-416 et. seq.
respectively and C.G.S. Section 22a-451 et. seq.), the Resource Conservation and
Recovery Act of 1976 (42 U.S. C. Section 6901 et. seq.), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S. C.
Section 9601 et. seq.), the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et. seq.), the Federal Water Pollution Control Act (33 U.S.C.
Section 1251 et. seq.), the Clean Air Act (42 U.S.C. Section 7401 et. seq.), the
Toxic Substances Control Act (15 U.S.C. Section 2601 et. seq.), the Clean Water
Act (33 U.S.C. Section 1251 et. seq.), the Safe Drinking Water Act (42 U.S.C.
Sections 300f through 300j) and the Occupational Safety and Health Act
(29 U.S.C. Section 651 et. seq.) or any amendment, supplement or modification
thereof or regulations or other authority promulgated thereunder, or any other
similar Federal, State or local law, ordinance or regulation and for any other
matter arising directly or indirectly as a result of said laws or regulations
including, but not limited to, the removal of any "Hazardous Waste" as defined
in the Federal laws or regulations or the Connecticut General Statutes or
regulations or Hazardous Substance as defined above, whether or not ordered by
the respective Government agencies referred to above or any Federal, State or
local law or regulation or any other claim at law or in equity. In the event the
Landlord or Owner incurs any of such expenses, or any of the above mentioned
authorities exercises any of the powers or rights set forth above as a result of
the activities of Tenant as set forth above, then the Landlord or Owner may
require the Tenant to post a bond in favor of the Landlord or Owner in an amount
sufficient to indemnify Landlord or Owner under this paragraph, the amount of
said bond to be determined by the Landlord or Owner. Failure of the Tenant to
post said bond
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when required by Landlord or Owner shall be a default under this lease. The
provisions of this paragraph shall be binding on the Tenant, its successors an
assgns and inure to the benefit of the Landlord and Owner, their successors and
assigns.
22.11 Landlord hereby represents to Tenant that, to Landlord's best
knowledge and belief, as of the Commencement Date, there are no hazardous
substances, including, but not limited to asbestos, used, stored, generated or
disposed of or otherwise on the Premises. Landlord's representations set forth
herein do not extend to any work, fit up or activity performed by Tenant, its
agents, servants, employees, invitees or contractors on the Premises or in the
Park. Landlord shall indemnify and hold harmless Tenant from any and all
liabilities, claims, liens, losses, costs, damages and expenses, including, but
not limited to reasonable attorney's fees and costs of defense incurred by
Tenant, claims paid whether as a result of final judgment or in the settlement
of contested claims, which Tenant may incur, sustain or be liable for directly
or indirectly arising as a result of a claim made of the presence of Hazardous
Substances in the Premises. Landlord's indemnification and hold harmless set
forth herein shall not extend to the negligence, acts or omission of Tenant, its
agents, servants, employees, invitees or contractors.
22.12 This Paragraph 22 shall survive the termination or expiration of
this Lease.
23: ASSIGNMENT, MORTGAGING AND SUBLEASE
23.1 Tenant covenants and agrees, for Tenant and its successors,
assigns and legal representatives, that neither this Lease nor the term and
estate hereby granted, nor any part hereof or thereof will be assigned,
mortgaged, pledged, encumbered or otherwise transferred (whether voluntarily,
involuntarily, by operation of law, or otherwise), and that neither the
Premises, nor any part thereof, will be encumbered in any manner by reason of
any act or omission on the part of Tenant, or will be used or occupied, or
permitted to be used or occupied, or utilized for desk space or for mailing
privileges or as a concession, by anyone other than Tenant, or for any purpose
other than as hereinbefore set forth, or will be sublet, or offered or
advertised for subletting, without the prior written consent of Landlord in
every case; provided, however, that if Tenant is a corporation, the assignment
or transfer of this Lease and the term and estate hereby granted, to any
corporation into which the Tenant is merged or with which the Tenant is
consolidated (such corporation being hereinafter, in this Paragraph 23, called
"Assignee") without the prior written consent of Landlord shall not be deemed to
be prohibited hereby if, and upon the express condition that, Assignee shall
have executed, acknowledged and delivered to Landlord an agreement, in form and
substance satisfactory to Landlord, whereby Assignee shall assume and agree to
perform, and to be personally bound by and upon, all the covenants, agreements,
terms, provisions and conditions set forth in this Lease on the part of the
Tenant to be performed, and whereby Assignee shall expressly agree that the
Provisions of this Paragraph 23 shall, notwithstanding such assignment or
transfer, continue to be binding upon it with respect to all future assignments
and transfers.
23.2 Notwithstanding anything hereinbefore contained in this Paragraph
23, in the event
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Tenant desires Landlord's consent to an assignment or subletting of all or any
part of the Premises, Tenant, by notice in writing, shall notify Landlord of the
name of the proposed assignee or subtenant, such information as to proposed
assignee's or subtenant's financial responsibility and standing as Landlord may
reasonably require, and of the covenants, agreements, terms, provisions and
conditions contained in the proposed assignment or sublease.
23.3 Landlord covenants not to unreasonably withhold its consent to
such proposed assignment or subletting by Tenant of such space to the proposed
assignee or subtenant on said covenants, agreements, terms, provisions and
conditions set forth in the notice to Landlord referred to above , provided,
however, that Landlord shall not in any event be obligated to consent to any
such proposed assignment or subletting unless:
(a) in the reasonable judgment of Landlord, the proposed assignee or
subtenant is of a character and engaged in a business such as are
in keeping with the standards of Landlord in those respects for
the building and occupancy;
(b) in the reasonable judgment of Landlord, the purposes for which
the proposed assignee or subtenant intends to use the portion of
the Premises sublet to it are such as are in keeping with the
standards of Landlord in those respects for the Building and its
occupancy;
(c) such subletting will result in there being no more than two
occupants of the Premises, including Tenant and all subtenants;
(d) the space so to be sublet shall be regular in shape with
appropriate means of ingress and egress and suitable for normal
renting purposes;
(e) the proposed assignee or subtenant under such proposed subletting
shall not be a government or any subdivision or agency thereof
nor then be a tenant or subtenant of landlord or an occupant of
any part of the Building;
(f) Tenant shall reimburse landlord for any expenses that may be
incurred by Landlord in connection with the said assignment or
sublease, including, without limitation, the costs of making
investigations as to the acceptability of a proposed assignee or
subtenant and reasonable legal expenses incurred in connection
with the granting of any requested consent to an assignment or
subletting;
(g) the proposed subletting shall be at a rate not less than the
rental rates at which Landlord is offering comparable space in
the Building for a comparable term; and
(h) Tenant shall pay to Landlord, as and for Additional Rental, with
each monthly installment of Basic Rental and Additional Rental
due and payable by Tenant to Landlord, in case of a subletting,
during the term of the sublease between Tenant
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and the subtenant, an amount equal to fifty (50 %) percent of the excess of the
rent received by Tenant from the subtenant with respect to the space covered by
the sublease over the rent payable by Tenant to Landlord for said space for the
same period, and in the case of an assignment, during the remainder of the term
of this Lease, an amount equal to fifty (50%) percent of the excess of the total
rent payable by the assignee under the terms of this Lease over the total
amounts payable by Tenant to Landlord.
23.4 Each subletting to this Paragraph 23 shall be subject to all the
covenants, agreements, terms, provisions and conditions contained in this Lease
and the MDA. Tenant covenants and agrees that, notwithstanding such assignment
or any such subletting to any tenant and/or acceptance of Basic Rental and
Additional Rental by Landlord from any subtenant, Tenant shall and will remain
fully liable for the payment of the Basic Rental and Additional Rental due and
to become due hereunder and for the performance of all the covenants,
agreements, terms, provisions and conditions contained in this Lease on the part
of the Tenant to be performed. Tenant further covenants and agrees that,
notwithstanding any such assignment or subletting, no other and further
assignment, underletting or subletting of the Premises or any portion thereof
shall or will be made except upon compliance with and subject to the provisions
of this Paragraph 23. Tenant shall promptly furnish to Landlord a copy of such
sublease.
23.5 If this Lease be assigned or if the Premises or any part thereof
be subject or occupied by any entity other than Tenant, Landlord may, after
default by Tenant, collect rent from the assignee, subtenant or occupant, and
apply the net amount collected to the rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of any
of Tenant's covenants contained in this Paragraph 23, or the acceptance of the
assignee, subtenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained.
24: SUBORDINATION; TENANT'S NOTICE OF INTENT TO CANCEL
24.1 This Lease shall be subject and subordinate at all times, to the
lien of the mortgages now on the Premises, and to all advances made or hereafter
to be made upon the Premises, and subject and subordinate to any Lease or other
arrangement or right to possession under which Landlord is in control of the
Premises and to the rights of the owner or owners of the Premises and of the
land or buildings of which the Premises are a part, provided, however, that in
the absence of any failure by the Tenant to perform the terms of this Lease,
the Tenant's possession of the Premises on the terms and conditions set forth in
this Lease shall not be disturbed during the term of this Lease and Landlord
will obtain covenants to such effect from the owner or owners of the Premises
and all mortgagees hereinafter acquiring any lien on the Premises Senior to the
lien acquired by Tenant by virtue of this Lease. Tenant will execute and deliver
such further instrument or instruments subordinating this Lem to the lien of any
such mortgage or mortgages as shall be desired by any mortgagee or proposed
mortgagee. If such mortgagee or proposed mortgagee requests Tenant to execute an
estoppel certificate or other similar document, Tenant
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shall execute said estoppel certificate and return same to Landlord within seven
(7) days of Tenant's receipt of same.
24.2 Tenant shall, upon the request of Landlord in writing and at no
charge or expense to Landlord, subordinate this' lease and the lien hereof to
the lien of any present or future mortgage or mortgages upon the Premises or any
property of which the Premises are a part irrespective of the time of execution
or the time of recording of any such mortgage or mortgages, provided that the
holder of any such mortgage shall enter into a written agreement with Tenant to
the effect that in the event of foreclosure or other action taken under the
mortgage by the holder thereof this Lease and the rights of the Tenant hereunder
shall not be disturbed but shall continue in fall force and effect so long as
Tenant shall not be in default hereunder beyond any applicable cure period. The
word "mortgage" as used herein includes mortgages, deeds of trust or other
similar instruments, and modifications, extensions, renewals and replacements
thereof, and any and all advances thereunder.
24.3 Anything to the contrary notwithstanding, the Tenant shall not
elect to exercise any right or option to cancel and terminate this Lease for any
default by the Landlord without having first given any assignee of the rents
hereunder or mortgagee of the Premises or Park prior written notice of its
election to so cancel and terminate, and the assignee and/or mortgagee, their
successors and assigns, shall have thirty (30) days after the receipt of such
notice in which to remedy or have remedied any default of the Landlord and
thereby void Tenant's election to cancel and terminate this Lease. Tenant shall
have no obligation to give any such notice unless the name and address of the
assignee of rents or mortgagee shall have been given to Tenant in writing prior
to the occurrence of the default by Landlord.
25: SALE BY LANDLORD
25.1 If Landlord, or any subsequent owner of the Park, Premises or
Building sells the same, Landlord's liability for the performance of its
agreements in this Lease will end on the date of the sale of the Park, Premises
or Building and Tenant will look solely to the purchaser for the performance of
those agreements. For the purposes of this Paragraph, any holder of a mortgage
or deed of trust that affects the Park, Premises or Building at any time, and
any landlord in any lease to which this Lease is subordinate, at any time, will
be a subsequent owner of the Park, Premises or Building when it succeeds to the
interest of the Landlord or any subsequent owner of the Park, Premises or
Building. Tenant will attorn to any subsequent owners of the Park, Premises or
Building. Any and all security deposits paid by Tenant hereunder shall be held
by such subsequent owner and Tenant shall look only to such subsequent owner for
a return thereof upon the expiration of this Lease.
26: FIRE, INSURANCE
26.1 Landlord shall, from and after the date of the execution of this
Lease, keep the
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Premises, the building of which the Premises are a part, the Park and the
parking facilities and other common areas and facilities, as the case may be,
insured against loss or damage by fire and any casualties included in the
extended coverage or supplementary contract endorsements, in an amount not less
than eighty (80%) percent of the full replacement value thereof, exclusive of
foundation all concrete improvements and utilities. Landlord will not, and shall
not have any obligation to, provide coverage for the personal property, trade
fixtures, Tenant's improvements or equipment of Tenant, as Tenant is required to
provide its own insurance coverage for same as set forth in Paragraph 26.3
below.
26.2 Each of Landlord and Tenant hereby releases the other from any and
all liability or responsibility (to the other or anyone claiming through or
under them by way of subrogation or otherwise) for loss or damage to property
caused by fire or any of the extended coverage or supplementary contract
casualties, even if such fire or other casualty shall have been caused by the
fault or negligence of the other party, or anyone from whom such party may be
responsible, provided, however, that this release shall be applicable and in
force and effect only with respect to loss or damages occurring during such time
as the releasor's policies shall contain a clause or endorsement to the effect
that any such release shall not adversely affect or impair said policies or
prejudice the right of the releasor to recover thereunder. Each of the Landlord
and Tenant agrees that its policies will include such a clause or endorsement so
long as the same shall be obtainable without extra cost, or if extra cost shall
be chargeable therefor, each party shall advise the other thereof and of the
amount of the extra cost, and the other party, at its election, may pay the
same, but shall not be obligated to do so.
26.3 The Tenant shall, at its own cost and expense carry fire and
casualty insurance covering all property of the Tenant and all interior
installations, decorations and equipment installed or made by it in the
Premises, any loss payable under such insurance being payable directly to the
Tenant. Tenant shall provide Landlord with a copy of the certificate for said
insurance, which policy shall provide that it will not be canceled without a
Thirty (30) day written notice to Landlord by the insurer.
27: DAMAGE
27.1 In case of partial or total destruction of the Premises, the
Tenant will give immediate notice thereof to the Landlord. If the Premises shall
have been damaged or destroyed to an extent less than 25 % of the insurable
value thereof, the Landlord will restore the Premises to their former condition
within a reasonable time at its expense. If the Premises shall have been damaged
or destroyed to an extent of 25% or more of the insurable value thereof, the
Landlord may elect to (a) restore the Premises to their former condition with a
reasonable time at its expenses, or (b) terminate this Lease by giving notice of
termination to the Tenant. A just proportion of the Basic Rent, according to the
nature and extent of the damage or destruction, will be abated from the time of
the same until the Premises shall have been restored (as hereinabove provided)
or this Lease terminated, excepting, however, that if the nature of the damages
is such as to render the Premises wholly unsuitable for Tenant's use, then
unless this Lease is terminated by Landlord,
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as hereinbefore provided, all rent shall abate and Tenant's obligations under
this Lease shall be suspended until such time as the Premises shall have been
fully restored by the Landlord. There shall be no obligation upon the part of
the Landlord to repair or rebuild during the last year of the term of this
Lease. Landlord's obligation to repair or rebuild pursuant to this paragraph
shall be limited to the basic building, systems and equipment and replacement of
any interior work which may have been installed at Landlord's cost. Landlord's
obligation to repair or rebuild shall also be limited to the extent of insurance
proceeds made available by any mortgagee having control over disposition of such
proceeds and shall be further limited to not include the restoration, repair or
rebuilding of any portion of the Premises for which Tenant is required to
maintain insurance under Paragraph 26.3 of this Lease. Tenant shall be
responsible to promptly restore, repair or replace any portion of the Premises
for which Tenant is required to maintain insurance under Paragraph 26.3 of this
Lease.
28: EMINENT D0MAIN
28.1 If any person, authority or corporation, public, private or
otherwise, shall at any time during the term of this Lease or any renewal
thereof lawfully condemn or take under power of eminent domain or condemnation
the whole or any part of the Premises, then at the option of the Landlord this
Lease shall immediately cease and terminate upon possession being taken
thereunder of the Premises or any part thereof, and the Basic Rental and
Additional Rental provided for hereunder shall be apportioned and adjusted as of
the time of such termination. The Landlord shall notify the Tenant of any such
proceedings pertaining to or in any way involving the Premises, and the Tenant
shall have the right, at Tenant's sole cost and expense, to interpose and
prosecute in any such proceeding a claim for the value of its leasehold
interests in the Premises or any part thereof and for the value of any fixtures
or improvements installed in or made to the Premises by the Tenant, and all sums
recovered or awarded on the basis of such claims by the Tenant shall belong to
and be payable to the Tenant. If, in the event of a partial taking, the portion
taken leaves the remaining portion of the Premises wholly unsuitable for
Tenant's use, then Tenant, at its election, may terminate this Lease by giving
notice to Landlord of its election and in such event the Basic Rental and
Additional Rental shall be apportioned and adjusted as of the date of
termination. If the term of Us Lease shall not be terminated as aforesaid, then
the term of this Lease shall continue in full force and effect, and Landlord
shall within a reasonable time after possession is physically taken (subject to
delays due to shortage of labor, materials or equipment, labor difficulties,
breakdown of equipment, government restrictions, fires, other casualties or
other causes beyond the reasonable control of Landlord) repair or rebuild what
may remain of the Premises for the occupancy of Tenant; and a just proportion of
the Basic Rental and Additional Rental shall be abated, according to the nature
and extent of the part of the Premises acquired or condemned, for the balance of
the term of the Lease.
28.2 Landlord reserves to itself, and Tenant assigns to Landlord, all
rights to damages accruing on account of any such taking or condemnation except
as hereinafter stated or by reason of any act of any public or quasi public
authority for which damages are payable. Tenant agrees
28
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to execute such instruments of assignment as may be required by Landlord, to
join with Landlord in any petition for the recovery of damages, if requested by
Landlord, and to turn over to Landlord any such damages as way recovered in any
such proceeding. If Tenant shall fail to execute such instruments as may be
required by Landlord, or to undertake such other steps as may be as may
requested as herein stated, then and in any such event, Landlord shall be deemed
the duly authorized irrevocable agent and attorney-in-fact of Tenant to execute
such instruments and undertake such steps as herein stated in and on behalf of
Tenant. It is agreed and understood, however, that Landlord does not reserve to
itself, and Tenant does not assign to Landlord, any damages payable for trade
fixtures installed by Tenant at its own cost and expense and which are not a
part of the realty, and any damages payable to Tenant for moving expenses.
29: QUIET ENJOYMENT
29.1 Landlord covenants and agrees with Tenant that it has good right
to lease said leased premises, and upon Tenant paying all Basic Rental,
Additional Rental and all other charges which may become due under this Lease
and observing and performing all of the terms, covenants and conditions on
Tenant's part to be observed and performed, Tenant may peaceably and quietly
have, hold, occupy and enjoy the Premises and all said common facilities of the
Park without hindrance or disturbance by Landlord or anyone claiming by, through
or under Landlord.
30: DEFAULT BY TENANT
30.1 Upon Tenant's failure to pay any installment of Basic Rental,
Additional Rent or any other payment under this Lease when due, or if Tenant
shall fail to observe and perform any of the other conditions, agreements or
provisions of this Lease, it shall be lawful thereupon, after ten (10) days
written notice as to monetary default and thirty (30) days notice as to any
other default (unless Tenant shall have remedied the failure within said ten
(10) or thirty (30) day period as the case may be or shall have commenced in
good faith within said ten (10) or thirty (30) day period as the case may be to
remedy said failure and diligently continues thereafter until said failure is
remedied) for Landlord to : (1) re-enter and repossess the Premises, to remove
all persons therefrom and to take exclusive possession of and remove all
property therefrom; and/or (2) perform on behalf of and at the expense of
Tenant, any obligation of Tenant under this Lease which Tenant has failed to
perform, provided, however, that Landlord may exercise the remedy described in
this clause without a default by, or notice to Tenant if Landlord, in its good
faith judgment, believes it would suffer material or substantial damage by
failure to take rapid action or if the unperformed obligation of Tenant
constituted an emergency. Upon any occurrence of default by Tenant hereunder,
any and all rights of Tenant as a tenant shall, at the option of Landlord,
immediately cease and terminate. Nothing provided herein shall be deemed to
obligate or require Landlord to take any action or do any thing for or on behalf
of Tenant, or otherwise. The failure on the part of the Landlord to re-enter or
repossess the Premises, or to exercise any of its rights hereunder upon any
default shall not be deemed a waiver of any of the terms and conditions of this
Lease, and shall not preclude said Landlord from the exercise of any of such
rights upon any subsequent occurring default or defaults.
29
<PAGE> 32
30.2 Any reasonable costs or expenses incurred by Landlord (including,
but not limited to, attorney's fees) in enforcing any of its rights or remedies
under this Lease shall be deemed to be Additional Rental and shall be paid to
Landlord by Tenant upon demand.
31: WAIVERS
31.1 The failure of the Landlord to insist, in any one or more
instances, upon a strict performance of any of the covenants of this Lease, or
to exercise any option herein contained, shall not be construed as a waiver or a
relinquishment for the future of such covenant or option, but the same shall
continue and remain in full force and effect. The receipt by Landlord of Basic
Rent and/or Additional Rent with knowledge of the breach of any covenant hereof
shall not be deemed a waiver of such breach and no waiver by the Landlord of any
provision hereof shall be deemed to have been made unless expressed in writing
and signed by the Landlord. Even though the Landlord shall have consented to an
assignment of this Lease, no further assignment shall be made without the
express consent in writing by the Landlord.
32: ABANDONMENT
32.1 If Tenant shall abandon or vacate said Premises before the end of
the term or otherwise default under any other provision of this Lease agreement,
Landlord may take possession of said Premises and relet the same, without such
action being deemed an acceptance of a surrender of this Lease, or in any way
terminating the Tenant's liability hereunder, and the Tenant shall remain liable
for payment of the Basic Rent and Additional Rent herein reserved, less the net
amount realized by the Landlord from reletting, after deduction of any expenses
incident to such repossession and reletting.
33: HOLDOVER
33.1 If the Tenant shall occupy the Premises with the consent of the
Landlord after the expiration of this Lease, and rent is accepted from said
Tenant, such occupancy and payment shall be construed as an extension of this
Lease for the term of one month only from the date of such expiration, and
occupation thereafter shall operate to extend the term of this Lease for but one
month at a time unless other terms of such extension are endorsed hereon in
writing and signed by the parties hereto. In such event if either Landlord or
Tenant desires to terminate said occupancy at the end of any month after the
termination of this Lease, the party so desiring to terminate the same shall
give the other party at least thirty (30) days written notice to that effect.
Failure on the part of the Tenant to give such notice shall obligate it to pay
rent for an additional calendar month, following the month in which the Tenant
has vacated the demised premises. If such occupancy continues without the
consent of the Landlord, Tenant shall pay to Landlord, as liquidated damages,
double the amount of Basic Rent and Additional Rent at the highest rate
specified in this Lease for the time Tenant retains possession of the Premises
or any part thereof after termination of the term by lapse of time or otherwise.
30
<PAGE> 33
34: GRACE PERIOD
34.1 In any case where either party hereto is required to do any act,
the time for performance thereof shall be extended by a period equal to any
delay caused by or resulting from Act of God, war, civil commotion, fire or
other casualty, labor difficulties, shortages of labor, materials or equipment,
government regulations or any other causes beyond such party's reasonable
control, whether such time be designated by a fixed date, a fixed time or a
"reasonable time".
35: NOTICES
35.1 Any notice required to be given hereunder shall be deemed duly
given if mailed in any Post Office by registered or certified mail addressed to
the Landlord at 2 Parklawn Drive, Bethel, Connecticut 06801 and addressed to the
Tenant at 3 Berkshire Boulevard, Bethel, CT 06801, or at such other address as
either party may give to the other in writing.
36: REAL ESTATE BROKERS
36.1 Landlord and Tenant acknowledge that Goodfellow Ashmore, acting as
a licensed real estate broker, was instrumental in the consummation of this
Lease. Landlord agrees to pay any commission that may be due said real estate
broker. Tenant represents and warrants to Landlord that it has not had any
dealing with any other real estate broker or finder with respect to the subject
matter of this Lease, and agrees to hold Landlord harmless from and against any
and all damages, costs and expenses, including, but not limited to, court costs,
costs of defense, costs of settlement and reasonable attorneys fees, resulting
from any claim(s) for a brokerage commission or finder's fee that may be
asserted against Landlord by any other broker or finder with whom Tenant has
dealt.
37: TENANT'S OPTION TO CANCEL
37.1 Tenant shall have the option to cancel this Lease effective on
June 30, 2001. In order to effectively cancel this Lease on such date, Tenant
must notify Landlord in writing no later than December 31, 2000. Failure of
Landlord to actually receive said notice of cancellation on or before December
31, 2000 shall make the attempted cancellation ineffective.
37.2 If Tenant effectively cancels this Lease as set forth in Paragraph
37.1 above, Tenant shall pay Landlord a cancellation fee equal to seven month's
Basic and Additional Rental in effect at the date the termination is effective.
A portion of said cancellation fee equal to four months of Basic and Additional
Rental in effect at the time the notice of cancellation is given shall be due
and payable upon Tenant's provision of the written notice of cancellation to
Landlord. Failure of Tenant to pay the applicable cancellation fee at the time
of giving the written notice provided for above shall make the attempted
cancellation ineffective and shall obligate Tenant to continue under this Lease
until termination. The balance of the cancellation fee shall be payable as of
the
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effective date of the cancellation. Tenant may direct Landlord to retain such
part of the security deposit as may be applicable to the balance of the
cancellation fee only after Tenant has paid all Basic Rental, Additional Rental
and other charges which represent costs incurred for Tenant's direct benefit and
Landlord has determined that said security deposit is not needed to compensate
Landlord for any other obligation of Tenant under this Lease, including, but not
limited to, repair of damage to the Premises caused by Tenant.
38 RIGHT OF FIRST NEGOTIATION
38.1 Tenant has informed Landlord that Tenant may, during the first
five years of this Lease, request to lease an additional 20,000 to 80,000 square
feet of space in the Park from Landlord. If Tenant does request such space,
Landlord has identified at the time of the execution of this Lease two possible
locations in the Park as potentially suitable for Tenant's needs as expressed at
the time of the execution of this Lease. Said locations are Building Number 6
(Two Research Drive) and Building Number 7 (Six Research Drive) as shown on
Exhibit B-2 attached hereto, both of which locations are, at the time of the
execution of this Lease, occupied by another tenant. If and when either or both
of said locations are vacated by the then tenant, and if Landlord is offering
said locations for lease at the time in question, Landlord hereby grants Tenant
a Right of First Negotiation for said locations. Said Right of First Negotiation
is expressly conditioned upon Tenant not having materially defaulted in any way
under this Lease prior to said space becoming available.
38.2 If either or both of said locations are vacated by the current
tenant and becomes available and Landlord intends to offer the available space
for lease, Landlord shall notify Tenant of the availability of such space and
sufficient information concerning said space to allow Tenant to determine
whether Tenant wishes to exercise this Right of First Negotiation for said
available space. If Tenant desires to exercise this Right of First Negotiation,
it shall so notify Landlord in writing within Fifteen (15) days of Landlord's
notification of Tenant of the availability of such space. Thereafter, Landlord
and Tenant may negotiate a possible lease of such space under such terms and
conditions as may be acceptable to both Landlord and Tenant. The term of any
lease that may be negotiated for such space shall terminate at the same time as
this Lease. If Tenant does not exercise this Right of First Negotiation for any
such space as Landlord may notify Tenant, Tenant shall have no further rights as
to any such space thereafter. Nothing in this Paragraph 38 shall obligate either
Landlord or Tenant to enter into any further lease, but only to attempt to
negotiate, if possible, a lease for such space under terms and conditions
acceptable to both parties.
39: EFFECT
39.1 Except as otherwise provided herein, terms and provisions of this
Lease shall be binding on and inure to the benefit of the parties hereto and
their respective heirs, representatives, executors, administrators, successors
and permitted assigns. This Lease constitutes the entire agreement between the
parties and may not be changed except by a writing signed by the party
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or parties against whom enforcement of any waiver, change, modification,
extension, estoppel or discharge is sought. Whenever used, the singular number
shall include the plural, the plural the singular, and the use of any gender
shall be applicable to all genders as the circumstances require. This Lease
shall be construed under the laws of the State of Connecticut. It is agreed that
if any provision of this Lease shall be determined to be void by any Court of
competent jurisdiction, then such determination shall not affect any other
provision of this Lease, all of which other provisions of this Lease shall
remain in full force and effect; and it is the intention of the parties hereto
that if any provision of this Lease is capable of two constructions, one of
which would render the provision valid, then the provision shall have the
meaning which renders it valid.
IN WITNESS WHEREOF, the parties hereto have executed this lease under
seal this 8 day of March, 1996.
/s/ Gregory L. Stein BERKSHIRE INDUSTRIAL CORPORATION
- -------------------------------
/s/ ILLEGIBLE By /s/ Richard E. Stein
- ------------------------------- -----------------------------------
/s/ ILLEGIBLE IPEC PRECISION, INC
- -------------------------------
/s/ ILLEGIBLE By /s/ ILLEGIBLE
- ------------------------------- -----------------------------------
33
<PAGE> 36
State of Connecticut :
: SS. March 8, 1996
County of Fairfield :
Personally appeared Richard Stein of Industrial Corporation, duly authorized,
Signer and Sealer of the foregoing instrument, who acknowledges the foregoing
to be his free act and deed and the free act and deed of said corporation,
before me.
/s/ ILLEGIBLE
----------------------------------
Commissioner of the Superior Court
State of Connecticut :
: SS. March 8, 1996
County of Fairfield :
Personally appeared Peter Mumoca, President of IPEC PRECISION INC., duly
authorized, Signer and Sealer of the foregoing instrument, who acknowledges the
foregoing to be his free act and deed and the free act and deed of said
corporation, before me.
/s/ ILLEGIBLE
----------------------------------
Commissioner of the Superior Court
34
<PAGE> 37
EXHIBIT A Page 1 of 4
Bethel, Connecticut
I. All those certain pieces or parcels of land, together with the buildings
and improvements located thereon, situated in the Town of Bethel, County of
Fairfield and State of Connecticut and shown and designated as:
"1&2 305,973 S.F. 7.024 AC.";
"8&9 294,205 S.F. 6.754 AC.";
"10 322,049 S.F. 7.393 AC.";
"15 241,596 S.F. 5.546 AC.";
"19 81,928 S.F. 1.881 AC.";
"20 80,574 S.F. 1.850 AC.";
"22 81,575 S.F. 1.873 AC.";
"Water Tank Parcel 129,064 S.F. 2.963 AC.";
"23 80,012 S.F. 1.837 AC.";
"Par. 'Z' 22,202 S.F. 0.510 AC.";
"25 85,892 S.F. 1.972 AC.";
"24 96,780 S.F. 2.222 AC.";
"26 136,083 S.F. 3.124 AC."; and
"27 117,758 S.F. 2,703 AC."
on a map, consisting of two sheets, "Sheet 1 of 2" and "Sheet 2 of 2", both
sheets being entitled "Final Subdivision Showing Berkshire Industrial Park
Bethel, Connecticut Scale: 1"=100' Total Area: 117.273 AC. Zone: 1.P. Date: Mar.
29, 1985" which map is a Class A-2 Survey which was prepared and is certified
substantially correct by Paul M. Fagan LS #7756 Surveying Associates and which
map is on file in the Bethel Town Clerk's office as Map 60 in File 19 (Sheet 1
of 2) and Map 60-A in File 19 (Sheet 2 of 2).
II. All those certain pieces or parcels of land, together with the buildings
and improvements, if any, located thereon, situated in the Town of Bethel,
County of Fairfield, and State of Connecticut and shown and designated as
"Parcel 'Y1' 80,000 sf 1.837 Acres" and "Parcel 'Y3' 80,000 sf 1.837 Acres" on a
map entitled "Resubdivision Map Parcel 'Y' Berkshire Industrial Park And Other
Land Of Berkshire Industrial Corporation Bethel, Connecticut Scale 1"=80' Total
Area: 17.515 Acres Zone: 1.P & R-20 Date: March 1, 1991", which map is a Class
A-2 survey which was prepared and is certified as substantially correct by Paul
M. Fagan L.S. #7756 of Surveying Associates, P.C. and which map is on file in
the Bethel Town Clerk's office as Map 33 in File 22.
III. All that certain piece or parcel of land, together with the buildings and
improvements, if any, situated thereon, located in the Town of Bethel, County of
Fairfield, and State of Connecticut, containing 4.7 acres, more or less, and
being bounded and described as follows:
<PAGE> 38
EXHIBIT A Page 2 of 4
Commencing at a point,which point is the most northerly point of the
lot identified as "7 188,554 S.F. 4.329 AC.", and the southwesterly corner of
the lot identified as "8&9 294,205 S.F. 6.754 AC." both as shown on the map
described in Paragraph I above and on file in the Bethel Town Clerk's office as
Map 60 in File 19; then proceeding in a northeasterly direction along land now
or formerly owned by Berkshire Industrial Corporation, being the lots identified
as "8&9" and "10" on the maps on file in the Bethel Town Clerk's office as Maps
60 & 60-A in File 19, N 16 degrees 43' 40" E 490.00 feet, N 19 degrees 39' 30" E
51.96 feet, and N 16 degrees 40' 35" E 280.68 feet to a point, which point marks
the northeasterly corner of the herein described premises and which point is
also identified by a drill hole shown on a map entitled "Independent Resurvey
Prepared For Berkshire Industrial Corporation Bethel, Connecticut Scale: 1"-100'
Total Area: 43.801 Acres Zone: 1P Date: March 14, 1994 Rev. March 15, 1994 Rev.
May 2, 1994" which map is a Class A-2 Survey which was prepared and is certified
substantially correct by Paul M. Fagan R.L.S. #7756 and which map is on file in
the Bethel Land Records (herein "Independent Resurvey"); thence turning and
proceeding westerly along other land now or formerly owned by Berkshire
Industrial Corporation S 85 degrees 21'24" W 109.97 feet to a point marked by an
iron pipe on the Independent Resurvey; thence turning and proceeding south
southwesterly, then southwesterly, and then westerly, still along land now or
formerly owned by the said Berkshire Industrial Corporation the following three
courses and distances: S 16 degrees 43' 40" W 751.86 feet to an iron pipe; S 50
degrees 47' 30" W 136.21 feet to an iron pipe; and S 87 degrees 21' 34" W
211.20 feet to an iron pipe in the Bethel-Danbury Town Line, all three of said
iron pipes being shown on the Independent Resurvey; thence turning and
proceeding in a southerly direction along the Bethel-Danbury Town Line, along
land now or formerly owned by Peter Scalzo, to a point in said Bethel-Danbury
Town Line, which point marks the northwesterly corner of land now or formerly
owned by David F. and Lorraine Karraker; thence turning, and proceeding easterly
along the northerly boundary line of said Karraker land to a point, which point
marks the southwesterly corner of the lot referred to above and identified as "7
188,544 S.F. 4.329 AC." on the map on file as Map 60 in File 19 in the Bethel
Town Clerk's office; thence turning and proceeding in a northerly, then
northeasterly, then northerly again, then northeasterly again direction along
said lot "7", being land owned now or formerly by the Estate of Caroline L.
Steiner, the following courses and distances:
N 3 degrees 30' W 292.81 feet;
N 28 degrees 56' E 305.91 feet;
N 9 degrees 44'20" E 57.81 feet; and
N 50 degrees 47' 30" E 166.84 feet to the point and place of beginning.
<PAGE> 39
EXHIBIT A Page 3 of 4
IV All those certain pieces or parcels of land, together with IV the buildings
and improvements located thereon, situated In the Town of Bethel, County of
Fairfield, and State of Connecticut and shown and designated as "16 102,086 S.F.
2.344 AC.", "17 97,073 S.F. 2.229 AC. ", "18 152,270 S.F. 3.496 AC.", and "21
81,576 S.F. 1. 873 AC." on a map entitled "Sheet 2 of 2 Final Subdivision
Showing Berkshire industrial Park Bethel, Connecticut Scale: 1"=100' Total Area:
117.273 AC. Zone: 1.P. Date: Mar. 29, 1985" which map is a Class A-2 Survey
which was prepared and is certified substantially correct by Paul M. Fagan L.S.
#7756 Surveying Associates, P.C. and which map is on file in the Bethel Town
Clerk's office as Map 60-A in File 19.
V All those certain pieces or parcels of land, together with the buildings and
improvements located thereon, situated in the Town of Bethel, County of
Fairfield, and State of Connecticut and shown and designated as "3R 495,143 S.F.
11.367 AC.", "4 153,026 S.F. 3.513 AC.", "5 81,933 S.F. 1.881 AC." "6 114,286
S.F. 2.624 AC.", and "7 188,554 S.F. 4.329 AC." on a map entitled "Sheet 1 of 2
Final Subdivision Showing Berkshire Industrial Park Bethel, Connecticut Scale:
10"=100' Total Area: 117.273 AC. Zone: IP Date: Mar. 29, 1985" which map is a
Class A-2 Survey prepared and certified substantially correct by Paul M. Fagan
L.S. #7756 Surveying Associates P.C. and which map is on file in the Bethel Town
Clerk's office as Map 60 in File 19.
Danbury, Connecticut
All those certain pieces or parcels of land, together with the
buildings and improvements, if any, located thereon, situated in the City of
Danbury, County of Fairfield and State of Connecticut and shown and designated
as "Parcel 'A' 12.763 Acres", "Parcel 'B' 18.245 Acres", "Parcel 'C' 27.762
Acres", and "Parcel 'D' 14.184 Acres", on a map entitled "Berkshire Corporate
Park Danbury, Connecticut Final Subdivision Map Area: 75.279 Acres Scale:
1"=100' Date: May 17, 1993 Revisions Aug. 31, 1993 Sept. 13, 1993" which map is
a Class A-2 Survey which was prepared and is certified substantially correct by
Paul M. Fagan #7756 Surveying Associates. P.C. and which map is on file in the
Danbury Land Records as Map #9917.
<PAGE> 40
EXHIBIT A Page 4 of 4
Brookfield, Connecticut parcels
SHOWN ON MAP ENTITLED:
"ZONE CHANGE MAP PREPARED FOR BERKSHIRE
INDUSTRIAL CORPORATION BROOKFIELD, CONNECTICUT
SCALE: 1" = 100' TOTAL AREA PROPOSED IL/C-80 SE ZONE:
77.158 ACRES DATE: MARCH 17, 1994."
BEGINNING AT A POINT LYING APPROXIMATELY ON THE BROOKFIELD/DANBURY TOWN LINE,
WHICH POINT MARKS THE SOUTHWESTERLY CORNER OF THE HEREIN DESCRIBED PARCEL AND
WHICH POINT LIES APPROXIMATLY ALONG THE RAILROAD CENTERLINE OF LAND OF
CONSOLIDATED RAIL CORPORATION; THENCE RUNNING THROUGH SAID LAND OF CONSOLIDATED
RAIL CORPORATION ALONG SAID APPROXIMATE RAILROAD CENTERLINE, ALONG THE ARC OF A
CURVE TO THE RIGHT HAVING A RADIUS OF 5,729.65', A DISTANCE OF 1,064.14' TO A
POINT; THENCE CONTINUING THROUGH SAID LAND OF CONSOLIDATED RAIL CORPORATION
ALONG SAID APPROXIMATE RAILROAD CENTERLINE, ALONG THE ARC OF A CURVE TO THE
RIGHT, HAVING A RADIUS OF 1,907.01', A DISTANCE OF 1,257.29' TO A POINT; THENCE
CONTINUING THROUGH SAID LAND OF CONSOLIDATED RAIL CORPORATION, ALONG SAID
APPROXIMATE RAILROAD CENTERLINE ON A COURSE BEARING N86 degrees 52'23"E, A
DISTANCE OF 663.23' TO A POINT, WHICH POINT MARKS THE NORTHEASTERLY CORNER OF
THE HEREIN DESCRIBED PARCEL; THENCE TURNING AND RUNNING THROUGH LAND OF
CONSOLIDATED RAIL CORPORATION, IN PART, THROUGH LAND NOW OR FORMERLY OF
CONNECTICUT LIGHT & POWER COMPANY, IN PART, AND THROUGH LAND OF BERKSHIRE
INDUSTRIAL CORPORATION, IN PART, ON A COURSE BEARING S3 degrees 06'00"E, A
DISTANCE OF 900.94' TO A POINT: THENCE TURNING AND CONTINUING THROUGH LAND OF
BERKSHIRE INDUSTRIAL CORPORATION ON A COURSE BEARING S47 degrees 55'00"W, A
DISTANCE OF 268.00' TO A POINT: THENCE TURNING AND CONTINUING THROUGH LAND OF
BERKSHIRE INDUSTRIAL C0RPORATION, IN PART AND ALONG LAND NOW OR FORMERLY OF THE
ESTATE OF ERNEST STEINER, IN PART, ON A COURSE BEARING S23 degrees 01'35"E, A
DISTANCE OF 481.42' TO A POINT; THENCE TURNING AND CONTINUING ALONG SAID LAND
NOW OR FORMERLY OF THE ESTATE OF ERNEST STEINER ON A COURSE BEARING N66 degrees
52'45"E, A DISTANCE OF 198.52' TO A POINT. WHICH POINT LIES ALONG THE WESTERLY
BOUNDARY LINE OF LAND NOW OR FORMERLY OF PETER P. & WILMA ATANASOFF; THENCE
TURNING AND RUNNING ALONG SAID LAND NOW OR FORMERLY OF ATANASOFF. IN PART, ALONG
LAND NOW OR FORMERLY OF DONALD & HENRIETTE MARTIN, IN PART. ALONG LAND NOW OR
FORMERLY OF LYNETTE COUTO, IN PART AND ALONG LAND NOW OR FORMERLY OF WINDALL C.
& MARY L. WHITE. IN PART, ON A COURSE BEARING S23 degrees 07'15"E, A DISTANCE OF
664.87' TO A POINT, WHICH POINT MARKS THE SOUTHEASTERLY CORNER OF THE HEREIN
DESCRIBED PARCEL AND WHICH POINT LIES APPROXIMATELY ALONG THE BROOKFIELD/BETHEL
T0WN LINE; THENCE TURNING AND RUNNING APFROXIMATELY ALONG SAID
BROOKFIELD/BETHEL. TOWN LINE. ALONG OTHER LAND OF BERKSHIRE INDUSTRIAL
CORPORATION, IN PART. ALONG OTHER LAND OF RICHARD E. STEINER & THOMAS J. DOLAN,
TRUSTEES, IN PART. AGAIN ALONG OTHER LAND OF BERKSHIRE INDUSTRIAL CORPORATION,
IN PART. AGAIN ALONG OTHER LAND OF RICHARD E. STEINER AND THOMAS J. DOLAN,
TRUSTEES, IN PART AND AGAIN ALONG OTHER LAND OF BERKSHIRE INDUSTRIAL
CORPORATION, ON A COURSE BEARING N75 degrees 23'39"W. A DISTANCE OF 2,460.8O' TO
A POINT, WHICH POINT MARKS THE APPROXIMATE INTERSECTION OF THE BROOKFIELD/BETHEL
TOWN LINE WITH THE BROOKFIELD/DANBURY TOWN LINE; THENCE RUNNING APPROXIMATELY
ALONG SAID BROOKFIELD/DANBURY TOWN LINE, ALONG OTER LAND OF BERKSHIRE INDUSTRIAL
CORPORATION, IN PART AND THROUGH LAND OF CONSOLIDATED RAIL CORPORATION, IN PART.
ON A COURSE BEARING N75 degrees 19'13"W, A DISTANCE OF 664.42' TO THE POINT OF
BEGINNING.
THE ABOVE DESCRIPTION INCLUDES AN AREA OF 77.158 ACRES.
<PAGE> 41
Exhibit C
LEASE CERTIFICATE
This Exhibit C to a certain Lease between Berkshire Industrial
Corporation as Landlord and IPEC Precision, Inc. as Tenant for space known as 3
Berkshire Boulevard and 9 Berkshire Boulevard, Bethel, CT owned by Landlord is
executed pursuant to Paragraph 2 of said Lease in order to set forth the
Commencement Date and Termination Date of the Lease as defined therein. Pursuant
to the Lease, the Landlord and Tenant, by their respective signatures below,
hereby agree that the Commencement Date and Termination Date of the Lease is as
follows:
COMMENCEMENT DATE TERMINATION DATE
MARCH 8, 1996 June 30, 2006
Berkshire Industrial Corporation IPEC Precision, Inc.
By /s/ ILLEGIBLE By /s/ ILLEGIBLE
Its VICE PRESIDENT Its PRESIDENT
Date of execution of this Lease Certificate: 3/8/96
35
<PAGE> 1
LOAN AGREEMENT
by and among
INTEGRATED PROCESS EQUIPMENT CORP.,
IPEC PLANAR PORTLAND, INC.,
IPEC PLANAR PHOENIX, INC.,
IPEC CLEAN, INC.,
IPEC PRECISION, INC.
("Borrowers"),
FIRST INTERSTATE BANK OF ARIZONA, NA., as Agent
("Agent"),
and
the Banks named on the Signature Pages hereof
("Banks")
Dated as of
APRIL 24, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
RECITALS ................................................................. 1
ARTICLE 1
DEFINITIONS AND MISCELLANEOUS PROVISIONS ................................. 1
1.1 Definitions .. ............................................... 1
1.2 Other Definitional Provisions ................................. 15
1.3 Pricing Matrix ................................................ 15
ARTICLE 2
THE LOAN FACILITIES ...................................................... 16
2.1 RCF Commitment ............................................. 16
2.2 Term Loan Commitment ....................................... 17
2.3 Fees ....................................................... 17
ARTICLE 3
PROVISIONS AFFECTING ALL LOANS ........................................... 17
3.1 Interest Rates ............................................. 17
3.2 Interest Rate Options and Applicable Margin ................ 18
3.3 Procedure for RCF Borrowings; Conversions and Continuations. 19
3.4 Procedure for Term Loan Borrowing .......................... 20
3.5 Computation ................................................ 21
3.6 LIBOR Advance Provisions ................................... 21
ARTICLE 4
NOTES AND NOTE PAYMENTS .................................................. 22
4.1 The Revolving Credit Note .................................. 22
4.2 The Term Note .............................................. 22
4.3 Required Payment of Principal and Interest on the Loans .... 23
4.4 Permitted Principal Prepayments ............................ 24
4.5 Payments on Business Days Only ............................. 24
4.6 Manner and Application of Payments ......................... 24
4.7 Funding Loss Indemnification ............................... 24
ARTICLE 5
LETTERS OF CREDIT ........................................................ 25
5.1 Letters of Credit .......................................... 25
5.2 Letter of Credit Issuance Fees ............................. 25
<PAGE> 3
Page
----
ARTICLE 6
CONDITIONS PRECEDENT TO LOANS ............................................ 25
6.1 Conditions Precedent to Initial Advance Under All Loans ... 25
6.2 All Advances .............................................. 27
ARTICLE 7
REPRESENTATIONS AND WARRANTIES ........................................... 28
7.1 Organization and Standing ................................. 28
7.2 Authorization and Power ................................... 28
7.3 No Conflicts or Consents .................................. 29
7.4 Enforceable Obligations ................................... 29
7.5 Financial Condition ....................................... 29
7.7 No Default ................................................ 30
7.8 No Litigation ............................................. 30
7.9 Use of Proceeds; Margin Stock ............................. 30
7.10 Taxes ..................................................... 30
7.11 Compliance with Law ....................................... 30
7.12 Subsidiaries .............................................. 30
7.13 Principal Office, Etc. .................................... 30
7.14 Environmental Compliance .................................. 30
7.15 Patents, Trademarks, Etc. ................................. 31
7.16 Burdensome Restrictions ................................... 31
7.17 Investment Company Act .................................... 31
7.18 Retirement Benefits ....................................... 31
7.19 Full Disclosure ........................................... 31
7.20 Survival of Representations, Etc. ......................... 31
ARTICLE 8
AFFIRMATIVE COVENANTS .................................................... 32
8.1 Financial Statements, Reports and Documents ............... 32
8.2 Payment of Taxes and Other Indebtedness ................... 34
8.3 Maintenance of Existence and Rights; Conduct of Business .. 34
8.4 Other Notices ............................................. 34
8.5 Compliance with Loan Documents ............................ 34
8.6 Maintenance of Properties ................................. 35
8.7 Notice of Litigation ...................................... 35
8.8 ERISA ..................................................... 35
8.9 Books and Records; Access ................................. 35
8.10 Compliance with Law ....................................... 35
8.11 Insurance ................................................. 35
8.12 Inspection ................................................ 36
8.13 Further Assurances ........................................ 36
ii
<PAGE> 4
Page
----
ARTICLE 9
NEGATIVE COVENANTS ....................................................... 36
9.1 Liquidation, Mergers, Consolidations and Dispositions
of Substantial Assets ................................... 36
9.2 Negative Pledges; Subsidiary Restrictions ............... 37
9.3 Transactions with Affiliates ............................ 37
9.4 Accounting Changes ...................................... 37
9.5 Investments ............................................. 37
9.6 [Intentionally omitted] ................................. 37
9.7 Liens ................................................... 37
9.8 Contingent Obligations .................................. 38
9.9 Operating Income ........................................ 38
9.10 No Amendments ........................................... 38
9.11 Leverage Ratio .......................................... 38
9.12 Quick Ratio ............................................. 38
9.13 Debt Service Coverage Ratio ............................. 38
9.14 Tangible Net Worth ...................................... 38
9.16 Margin Stock ............................................ 38
9.17 No Fundamental Change ................................... 38
9.18 Continuity of Certain Senior Managers ................... 38
ARTICLE 10
EVENTS OF DEFAULT ...................................................... 39
10.1 Events of Default .......................................... 39
10.2 Remedies Upon Event of Default ............................. 41
10.3 Performance by Banks ....................................... 41
ARTICLE 11
THE AGENT .............................................................. 42
11.1 Appointment and Authorization ........................... 42
11.2 Note Holders ............................................ 42
11.3 Consultation With Counsel ............................... 42
11.4 Documents ............................................... 42
11.5 Agent and Affiliates .................................... 42
11.6 Action by Agent ......................................... 42
11.7 Credit Analysis ......................................... 43
11.8 Notices of Event of Default etc. ........................ 43
11.9 Indemnification ......................................... 43
11.10 Payments ................................................ 43
11.11 Sharing of Payments ..................................... 44
11.12 Forwarding of Information to Banks ...................... 44
11.13 Successor Agent ......................................... 44
iii
<PAGE> 5
Page
ARTICLE 12 ----
MISCELLANEOUS .......................................................... 45
12.1 Survival of Loan Documents ............................. 45
12.2 Modification ........................................... 45
12.3 Waiver ................................................. 46
12.4 Payment of Expenses .................................... 46
12.5 Notices ................................................ 46
12.6 Assignments and Participation; Transferees ............. 47
12.7 Arbitration ............................................ 48
12.8 Governing Law .......................................... 49
12.9 Invalid Provisions ..................................... 49
12.10 Offset ................................................. 50
12.11 Binding Effect ......................................... 50
12.12 Entirety ............................................... 50
12.13 Headings ............................................... 50
12.14 Participation .......................................... 50
12.15 No Third Party Beneficiary ............................. 50
12.16 Pricing Matrix, Schedules and Exhibits Incorporated .... 50
12.17 Counterparts ........................................... 51
12.18 Choice of Forum; Consent to Service of Process;
Jurisdiction; Waiver of Jury Trial ..................... 51
12.19 Confidentiality ........................................ 51
12.20 No Agency .............................................. 51
iv
<PAGE> 6
TABLE OF ANNEXES, EXHIBITS AND SCHEDULES
Annexes:
Annex 1 Commitment Amounts of the Banks
Annex 2 Pricing Matrix
Exhibits:
Exhibit "A" Form of Borrowing Base Certificate
Exhibit "B" Form of Revolving Credit Note
Exhibit "C" Form of Term Note
Exhibit "D" Form of Security Agreement
Exhibit "E" Form of Patent Mortgage
Exhibit "F" Form of Negative Pledge Instrument
Exhibit "G" Disclosure Statement
Exhibit "H" Form of Compliance Certificate
Schedules:
Schedule 1.1 Approved Foreign Accounts
Schedule 1.2 Approved Concentration Accounts
Schedule 1-3(a) Permitted Indebtedness.
Schedule 1.3(b) Liens Existing on the date of the Loan Agreement.
Schedule 6.1(f) Financing Statements to be Terminated by Borrowers
Schedule 7.14 List of Patents, Trademarks, Etc.
v
<PAGE> 7
LOAN AGREEMENT
BY THIS LOAN AGREEMENT (this "Loan Agreement" or "Agreement"), made and
entered into as of April 24, 1996, by and among INTEGRATED PROCESS EQUIPMENT
CORP., a Delaware corporation ("Parent"), the other "Borrowers" so defined
below, FIRST INTERSTATE BANK OF ARIZONA, N.A. ("First Interstate") (First
Interstate and any other lender who becomes a party hereto under subsection
12.6 being herein referred to collectively as the "Banks" and individually as
a "Bank"), and FIRST INTERSTATE BANK OF ARIZONA, N.A., as agent for the Banks
(in such capacity, together with any successor agent appointed hereunder, the
"Agent"), in consideration of the mutual promises herein contained the parties
hereto do hereby confirm as follows:
RECITALS
A. Business. Parent is a holding company presently engaged through its
subsidiaries in the business of producing chemical mechanical polishing
equipment and ancillary businesses. The undersigned Borrowers, other than
Parent, are wholly owned Subsidiaries.
B. Credit Accommodations. Borrowers have applied to the Banks for the
following joint and several credit facilities:
(i) a $30,000,000 revolving loan facility, to provide working
capital for general corporate purposes of the Borrowers; and
(ii) a $10,000,000 term loan, the proceeds of which shall be
used to satisfy some or all of outstanding loans of the Borrowers to
Fred Kassner and to provide working capital for general corporate
purposes of the Borrowers.
C. Borrowers' Relationships. Each Borrower is intended to be a
co-obligor with respect to all Loans (such term and other capitalized terms
being used herein with the meaning attributed thereto in Article 1 hereof)
extended by the Banks hereunder to any Borrower. The board of directors of each
Borrower has specifically determined that it is in such Borrower's best interest
to borrow jointly and severally and to grant Liens in such Borrower's property
and assets to secure the joint and several obligations of Borrowers contemplated
under this Agreement, and have mutually designated by appropriate corporate
action the Chief Financial Officer of Parent and one or more other officers of
Borrowers to act on behalf of all Borrowers with respect to the credit
accommodations contemplated by this Agreement.
ARTICLE 1
DEFINITIONS AND MISCELLANEOUS PROVISIONS
1.1 Definitions. As used in this Agreement the following terms shall
have the following respective meanings (and such meanings be equally applicable
to both the singular and plural form of the terms defined, as the context may
require):
<PAGE> 8
"Accounts": All "accounts" (as defined in the UCC) of Borrowers now
owned or hereafter created or acquired and includes all accounts receivable,
contract rights and general intangibles relating thereto, notes, drafts and
other forms of obligations owed to or owned arising or resulting from the sale
of goods or the rendering of services, a proceeds thereof, all guaranties and
security therefor, and all goods and rights represented thereby or arising
therefrom including the right of stoppage in transit, replevin and reclamation.
"Advance": An advance of the proceeds of the RCF or, if the context so
requires, an outstanding portion of the RCF that bears interest at a particular
interest rate.
"Affiliate": Of any Person shall mean any Person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"Agent": See the Preamble hereto.
"Applicable Margin": At any date of determination, with respect to any
Available Interest Rate, the relevant percent, if any, set forth under any one
of the pricing levels set forth in the Pricing Matrix.
"Approved Concentration Accounts": Those Accounts listed on Schedule
1.2 hereto, in an amount set forth on Schedule 1.2.
"Approved Foreign Accounts": Those Accounts identified on Schedule 1.1
hereto.
"Authorized Person": John S. Hodgson, Parent"s Vice President and Chief
Financial Officer, and any other individual duly serving as an officer of Parent
from time to time and designated in writing to Agent by Parent.
"Available Interest Rate": With respect to the Revolving Credit Loans
and the Take-Out Term Loan, the LIBOR Rate and the Prime Rate, plus the
Applicable Margin (if any); and with respect to the Term Loan, the Prime Rate
and the Treasuries Rate, plus the Applicable Margin.
"Banks": See the Preamble hereto.
"Borrowers": Each of the following entities:
(i) Parent;
(ii) IPEC Planar Portland, Inc., an Oregon corporation;
(iii) IPEC Planar Phoenix, Inc., a Delaware corporation;
(iv) IPEC Clean, Inc., a California corporation; and
2
<PAGE> 9
(v) IPEC Precision, Inc., a Delaware corporation.
"Borrowing Base": As of any date of determination, an amount equal to
eighty percent (80%) of the net face amount of Eligible Accounts.
"Borrowing Base Certificate": A certificate and assignment schedule
duly executed by an Authorized Person appropriately completed and in
substantially the form of Exhibit "A".
"Break Funding Costs": In the event that the Term Loan shall bear
interest at the Treasuries Rate, an amount equal to the difference between (i)
the principal balance outstanding under the Term Loan at the time of a
prepayment and (ii) the present value of the remaining scheduled payments of
principal and interest on the Term Loan through the scheduled Term Loan
Repayment Date, discounted at the market rate at the time of prepayment. For
purposes hereof, the market rate shall be the rate of interest equal to the
yield to maturity of United States Treasury Notes having a comparable maturity
date as the Term Loan, as determined by the Agent in its sole discretion, from
quotations in the Wall Street Journal, or other reliable quotation source
selected by the Agent. If the market rate is greater than the rate of interest
on the Term Loan at the time of prepayment, the Break Funding Costs shall be
zero.
"Business Day": A day upon which business is transacted by national
banks in Phoenix, Arizona.
"Capitalized Lease": Any lease of property, real or personal, which
would be capitalized on a balance sheet of the lessee prepared as of such date
in accordance with GAAP.
"Cash Equivalents": Any of the following: (a) marketable direct
obligations issued or unconditionally guarantied by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the
United States, in each case maturing within nine months from the date of
acquisition thereof; (b) commercial paper maturing no more than nine months from
the date issued and, at the time of acquisition, having a rating of at least A-1
from Standard & Poor"s Rating Group or at least P-1 from Moody"s Investors
Service, Inc.; (c) certificates of deposit or bankers" acceptances maturing
within six months from the date of issuance thereof issued by, or overnight
reverse repurchase agreements from, any commercial bank (I) organized under the
laws of the United States of America, any state thereof or the District of
Columbia, or any foreign bank, having combined capital and surplus of not less
than $100,000,000, and (II) which has a credit rating with respect to its
unsecured indebtedness from a nationally recognized rating service that is
satisfactory to the Agent, and either (i) not subject to setoff rights in favor
of such bank or (ii) no indebtedness for borrowed money is owed to such bank;
(d) money market programs that are acceptable to the Agent; and (e) other
investment programs that are acceptable to the Agent.
"Code": The Internal Revenue Code of 1986, as amended.
"Collateral Examination Fee": See Section 2.3(c).
"Commitment Fees": See Section 2.3(a).
3
<PAGE> 10
"Consequential Loss": With respect to Borrowers" payment (other than
any payment of a Principal Shortfall Amount) of all or any portion of the
then-outstanding principal amount of any Loan bearing interest at the LIBOR Rate
on a day other than the last day of the related Interest Period, shall mean any
loss, cost or expense actually incurred by any Bank as a result of the timing of
such payment or in redepositing such principal amount.
"Contingent Obligation": With respect to any Person at any time of
determination, without duplication, any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other Person or in any manner providing for
the payment, purchase, or acquisition of any Indebtedness or other obligation of
any other Person or otherwise protecting the holder of Indebtedness of any other
Person against loss, provided that the term "Contingent Obligation" shall not
include endorsements for collection or deposit, in each case in the ordinary
course of business.
"Controlled Group": Severally and collectively, the members of the
group controlling, controlled by and/or in common control of Borrower, within
the meaning of Section 4001(b) of ERISA.
"Conversion Date": See Section 3.3(c).
"Debt Service Coverage Ratio": The result of the following calculation,
expressed as a percentage, at the end of any period comprising four consecutive
fiscal quarters of Parent:
(i) The sum of Parent"s consolidated net income, depreciation
expense, amortization expense, interest expense, operating lease
expense, and non-cash expense, including purchased research and
development, less the sum of noncash income and extraordinary gains,
in each case determined in accordance with GAAP, as measured over the
preceding four fiscal quarters of Parent; divided by
(ii) The sum of consolidated operating lease expense and
interest expense, as measured over such preceding four fiscal quarters
of Parent, plus the current portion of Parent"s consolidated long-term
debt (excluding, however, any current portion of the Term Loan, but
including any current maturities under the Take-Out Term Loan) and the
current portion of Capitalized Leases which existed as of the end of
the fiscal quarter for which the calculation is done.
"Disclosure Statement": The disclosure statement of Borrowers attached
as Exhibit G this Loan Agreement.
"Dollars and $": Lawful currency of the United States of America.
"Effective Date": Such date as all conditions stated in Article 6.1 of
this Loan Agreement have been satisfied, which date shall occur, if at all,
prior to May 18, 1996.
"Eligible Accounts": As at any date of determination, the aggregate of
all Accounts that Agent, in its reasonable judgment, deems to be eligible for
borrowing purposes.
4
<PAGE> 11
Without limiting the generality of the foregoing, the following Accounts are not
Eligible Accounts:
(i) Accounts which, at the date of issuance of the
respective invoice therefor, were payable more than 90 days after the
date of issuance of such invoice;
(ii) Accounts which remain unpaid for more than 90 days
after invoice date;
(iii) The portion of any Account which a Borrower
customarily and currently classifies as a holdback, being that portion
with respect to which the customer's obligation to pay is conditional
or subject to a repurchase obligation or right to return the goods
giving rise to such obligation to pay or with respect to which the
goods or services giving rise to such Account have not been delivered
(or performed, as applicable) and accepted by such account debtor in
each case, including progress billings, bill and hold sales, guarantied
sales, sale or return transactions, sales on approval or consignment
sales;
(iv) Accounts due from a customer (other than Approved
Concentration Accounts identified on Schedule 1.2) to the extent that
such Accounts exceed in the aggregate an amount equal to 10% of the
aggregate of all Accounts at said date (it being confirmed that only
the excess over such 10% shall be deemed ineligible);
(v) Accounts (other than Approved Foreign Accounts
identified on Schedule 1.1) due from a customer whose principal place
of business is located outside the United States of America or Canada
unless such Account is either (a) guaranteed or insured by the
Export-Import Bank of the United States or (b) backed by a letter of
credit, in form and substance acceptable to the Agent, in its
reasonable discretion, and issued or confirmed by a bank that is
organized under the laws of the United States of America or a State
thereof, that has capital and surplus in excess of $250,000,000 and
that is acceptable to the Agent, in its sole discretion; provided that,
if the Agent so requires, such letter of credit or evidence of such
guarantee or such insurance has been delivered to the Agent as
additional collateral for the benefit of the Banks;
(vi) Accounts due from a customer (other than
SGS-Thompson) if more than twenty-five percent (25%) of the aggregate
amount of Accounts of such customer have at the time remained unpaid
for more than 90 days after invoice date;
(vii) Accounts due from a customer which the Agent has
notified (which notice shall be given by Agent in a reasonably timely
manner) Borrower does not have a satisfactory credit standing (as
determined in the reasonable discretion of the Agent);
(viii) Accounts with respect to which the customer is
the United States of America, any state or any municipality, or any
department, agency or
5
<PAGE> 12
instrumentality of any thereof, unless Borrowers have, with respect to
such Accounts, complied with the Federal Assignment of Claims Act (31
U.S.C. Section 3727) or any applicable statute or municipal ordinance
of similar purpose and effect;
(ix) Accounts with respect to which the customer is an
Affiliate of any Borrower or a director, officer, agent, stockholder or
employee of Borrower or any of their respective Affiliates;
(x) Accounts with respect to which there is any
unresolved dispute with the respective customer (but only to the extent
of such dispute);
(xi) Accounts evidenced by an "instrument" or "chattel
paper" (as defined in the UCC) not in the possession of the Agent for
the benefit of the Banks;
(xii) Accounts with respect to which the Agent does not
have a valid, first priority and fully perfected security interest for
the benefit of the Banks;
(xiii) Accounts subject to any Lien except Liens in
favor of the Agent for the benefit of the Banks;
(xiv) Accounts with respect to which the customer is the
subject of any bankruptcy or other insolvency proceeding;
(xv) Amy Account with respect to which the customer is a
creditor of any Borrower, provided, however that any such Account shall
only be ineligible as to that portion of such Account which is less
than or equal to the amount owed by all Borrowers to such Person.
"Environmental Laws": Any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal or
the protection of human health or safety, plant life or animal life, natural
resources or the environment.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, together with all final and permanent regulations issued pursuant
thereto. References herein to sections and subsections of ERISA shall be deemed
to refer to any successor or substitute provisions therefor.
"ERISA Affiliate": Any trade or business (whether or not
incorporated) that is a member of a group of which Borrower is a member and
which is treated as a single employer under Section 414 of the Code.
"Eurodollar Reserve Requirement": For any LIBOR Advance for any
Interest Period, the daily average of the stated maximum rate (expressed as a
decimal) at which reserves (including without limitation, basic, supplemental,
marginal and emergency reserves) are required to be maintained during such
Interest Period under Regulation D by the Banks against "Eurocurrency
Liabilities" (as such term is used in Regulation D) but without benefit
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<PAGE> 13
of credit or proration, exemptions or offsets that might otherwise be available
to such Bank from time to time under Regulation D.
"Event of Default": See Article 10.
"Facility Fee": See Section 2.3(a).
"Funded Debt": The sum of all debt on which interest charges
customarily are paid or accrue plus all Capitalized Leases which would appear as
a liabilities on a consolidated balance sheet of the Parent.
"GAAP": Those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public Accountants acting through its Accounting Principles Board ("APB") or by
the Financial Accounting Standards Board ("FASB") or through other appropriate
boards or committees thereof and which are consistently applied for all periods
after the date hereof so as to properly reflect the financial condition, and the
results of operations and changes in financial position, of Borrowers, except
that any accounting principle or practice required to be changed by the APB or
FASB (or other appropriate board or committee of the said Boards) in order to
continue as a generally accepted accounting principle or practice shall be
subject to the provisions of Section 1.2(b) of this Loan Agreement.
"Governmental Authority": Any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or a Subsidiary or any
of its or their business, operations or properties.
"Hazardous Material": All or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity or "EP toxicity"; (b) oil, petroleum or petroleum derived
substances, natural gas, natural gas liquids or synthetic gas and drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources; (c)
any flammable substances or explosives or any radioactive materials; and (d)
asbestos in any form or electrical equipment which contains any oil or
dielectric fluid containing levels of polychlorinated biphenyls, in excess of
fifty parts per million.
"Indebtedness": With respect to any Person, at the time of any
determination, without 'duplication, all obligations contingent or otherwise, of
such Person which in accordance with GAAP should be classified upon the balance
sheet of such Person as liabilities, but in any event including: (1) all
obligations of such Person for borrowed money; (2) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (3)
all obligations of such Person upon which interest charges are customarily paid
or accrued; (4) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person; (5)
all obligations of such person issued or assumed as the deferred purchase price
of property or services, (6) all obligations of others secured by any Lien on
property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed; (7) all Capitalized Lease obligations of such
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<PAGE> 14
Person; (8) all obligations of any partnership or joint venture as to which such
Person may become personally liable; and (9) all Contingent Obligations of such
Person.
"Intangible Assets": Of any Person shall mean those assets of
such Person which are patents, copyrights, trademarks, trade names, developed
technologies, assembled work forces, franchises and goodwill and shall include
any amounts due from related Persons of any Borrower (i.e., officers, directors
and shareholders), and any other assets that would be classified as intangible
assets in accordance with GAAP.
"Interbank Offered Rate": Applicable to any Interest Period for a
LIBOR Advance means the prevailing rate of interest per annum (rounded upward,
if necessary, to the next .01 of 1%) at which deposits in immediately available
funds in Dollars are offered at approximately 11:00 o'clock A.M., London time,
two Business Days prior to the first day of such Interest Period by major
financial institutions active in the London interbank eurodollar market to first
class banks in the London interbank eurodollar market for delivery on the first
day of the Interest Period, such deposits being for a period of time equal or
comparable to the Interest Period and in an amount equal to or comparable to the
principal amount of the LIBOR Advance to which the Interest Period relates, as
such prevailing rate of interest is determined by Agent from time to time from
the Bloomberg News Service, page DG15a Index G P G X, the Telerate screen, page
3750, or the Reuters screen, LEBO page, or a similar service customarily used by
the Agent.
"Interest Period": With respect to a LIBOR Advance, the period
commencing on the date of such LIBOR Advance or the date of Conversion into such
LIBOR Advance, and ending on the last day duly selected by Borrower pursuant to
the provisions hereof and, thereafter, each subsequent period commencing on the
last day of the immediately preceding Interest Period and ending on the last day
of the period duly selected by Borrower. The duration of each Interest Period
shall be 30, 60, 90, or 180 days, as Borrower may, upon notice received by Agent
no later than 11:00 A.M. (Phoenix time) on the third Business Day prior to the
first day of such Interest Period. In the event that Borrower shall duly
exercise its option to convert the principal balance of the RCF to the Take-Out
Term Loan, the foregoing provisions of this definition shall be equally
applicable thereto, except that no Interest Period shall extend beyond the
Take-Out Term Loan Repayment Date.
"Interest Rate Options": The interest rates per annum for the
specified Loan that is an Available Interest Rate for such Loan and which is
identified as such in the Pricing Matrix.
"Investment": The acquisition, purchase, making or holding of any
stock or other security, any loan, advance, contribution to capital, extension
of credit (except for trade and customer accounts receivable for inventory sold
or services rendered in the ordinary course of business and payable in
accordance with customary trade terms) and any purchase or commitment or option
to purchase stock or other debt or equity securities of or any interest in
another Person or any integral part of any business or the assets comprising
such business or part thereof.
"Letter of Credit": Any letter of credit, whether a commercial
letter of credit or a Stand-By Letter of Credit, issued by First Interstate at
the request of any Borrower.
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"Leverage Ratio": Shall mean, at any time of determination, the
ratio of Funded Debt to Tangible Net Worth, expressed as a decimal number.
"LIBOR Advance": Any outstanding Advance under the RCF or the
Take-Out Term Loan with respect to which the interest rate is calculated by
reference to the LIBOR Rate for a particular Interest Period.
"LIBOR Rate": With respect to each Interest Period applicable to
a LIBOR Advance, the rate per annum (rounded upward, if necessary, to the next
.01 of 1%) determined by the Agent to be equal to the sum of (1) the quotient of
(a) the Interbank Offered Rate divided by (b) the remainder of 1.00 minus the
Eurodollar Reserve Requirement for such Interest Period, plus (2) the Applicable
Margin.
"Lien": With respect to any Person, any lien, mortgage, security
interest, pledge, encumbrance, conditional sale or title retention arrangement,
or any other interest in property designed to secure the repayment of
Indebtedness or performance under any guarantee, whether arising by agreement or
under any statute or law, or otherwise.
"Loan Agreement": See the Preamble hereto.
"Loan Documents": This Loan Agreement, the Notes (including any
renewals, extensions and refundings thereof), each of the Security Documents,
and any written agreements, certificates or documents (and with respect to this
Loan Agreement and such other written agreements and documents, any amendments
or supplements thereto or modifications thereof) executed or delivered by any
Borrower pursuant to the terms of this Loan Agreement or any other Loan
Document.
"Loans": The credit accommodations described in Sections 2.1 and
2.2 of this Loan Agreement.
"Material Adverse Effect": Any circumstance or event which (i)
has any material adverse effect upon the validity or enforceability of any Loan
Document, (ii) materially impairs the ability of the Borrowers or any Borrower
to fulfill their or its obligations under the Loan Documents, or (iii) causes an
Event of Default or a Potential Default.
"Negative Pledge Instrument": The Negative Pledge Instrument in
the form of Exhibit "F".
"Notes": The Revolving Credit Note and the Term Note, each
executed by Borrowers and delivered pursuant to the terms of this Loan
Agreement, together with any renewals, extensions or modifications thereof.
"Obligation": All Indebtedness and other obligations of every
kind and character of Borrowers or any Borrower to the Agent or the Banks
hereunder and under the other Loan Documents, whether direct or indirect,
whether requiring payment or performance, whether now existing or hereafter
arising or acquired, and whether such obligations are from time to time reduced
and thereafter increased, or entirely extinguished and thereafter reincurred,
including (without limitation) payment of the Loans in accordance with the terms
thereof and
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<PAGE> 16
performance and observance of every term, provision and condition of this
Agreement, the Notes and the other Loan Documents.
"Operating Income": For any period of determination, net
operating income of Parent on a consolidated basis, plus the sum of Parent
consolidated non-cash expense related to purchased research and development plus
the consolidated non-cash debt discount expenses, all determined in accordance
with GAAP.
"Parent": See the Preamble hereto.
"Past Due Rate": The interest rate per annum that is three
percent (3%) above the Prime Rate.
"Patent Mortgage": The Security Agreement and
Mortgage-Trademarks, Patents and Copyrights of each Borrower in the form of
Exhibit E hereto.
"Payment Amount": See Section 4.3(b).
"PBGC": The Pension Benefit Guaranty Corporation, and any
successor to all or substantially all of the Pension Benefit Guaranty
Corporation's functions under ERISA.
"Permitted Indebtedness": Any Indebtedness identified on Schedule
1.3(a) hereto, any Indebtedness not so identified but which does not exceed
$100,000 in aggregate principal amount on the date of the Loan Agreement, and
any Capitalized Leases in effect on the date of the Loan Agreement (which
respect to equipment subject to such capitalized leases on such date).
"Permitted Liens": (1) Liens in favor of the Agent for the
benefit of the Banks; (2) Liens identified on Schedule 1.3(b) hereto existing on
the Effective Date; (3) purchase money Liens on assets acquired by any Borrower,
including Liens on equipment or other personal property under a Capitalized
Lease, up to a maximum amount of $5,000,000 (determined by original purchase
price or cost) during any fiscal year of the Parent; (4) Liens on the property
or assets of a Person which becomes a Subsidiary after the date hereof; provided
that (i) such Liens existed at the time such Person become a Subsidiary and were
not created in anticipation thereof, (ii) any such Lien is not spread to cover
any property or assets of such Person after the time such Person becomes a
Subsidiary, and (iii) the amount of Indebtedness secured thereby is not
increased; (5) pledges or deposits made to secure payment of workers'
compensation (or to participate in any fund in connection with workers'
compensation insurance), unemployment insurance, pensions or social security
programs; (6) Liens imposed by mandatory provisions of law such as for
materialmen's, mechanics', warehousemen's and other like Liens arising in the
ordinary course of business, securing Indebtedness or other liabilities whose
payment is not yet due; (7) Liens for taxes, assessments and governmental
charges or levies not yet due; (8) Liens arising from good faith deposits in
connection with tenders, leases, real estate bids or contracts (other than
contracts involving the borrowing of money), pledges or deposits to secure
public or statutory obligations, deposits to secure (or in lieu of) surety,
stay, appeal or customs bonds and deposits to secure the payment of taxes,
assessments, customs duties or other similar charges; (9) encumbrances
consisting of zoning restrictions, easements, or other restrictions on the use
of real property, provided that such (I) are in existence on the date of this
Agreement, or (II) do not impair the
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use of such property for the uses intended, and none of which is violated by
existing or proposed structures or land use; or (10) Liens (not otherwise
permitted under the Loan Agreement) which secure obligations of any Borrower not
exceeding (as to all Borrowers) $100,000 in aggregate amount at any time
outstanding.
"Person": Shall include an individual, a corporation, a joint
venture, a partnership, a trust, an unincorporated organization or a government
or any agency or political subdivision thereof.
"Plan": An employee benefit plan which is covered by ERISA and in
respect of which Parent or any Subsidiary is an "employer" as defined in Section
3(5) of ERISA.
"Potential Default": An event or occurrence that, with the giving
of due notice or the passage of time, or both, constitutes an Event of Default.
"Pricing Matrix": The Pricing Matrix attached as Annex 2 hereto.
"Prime Advance" Any outstanding Advance under the RCF or the
Take-Out Term Loan with respect to which the interest rate is calculated by
reference to the Prime Rate.
"Prime Rate": The rate of interest designated by the Agent as its
"Prime Rate," as publicly announced by Agent from time to time. Borrowers
acknowledges that the Agent and the Banks, from time to time, may extend credit
to other borrowers at rates of interest varying from, and having no relationship
to, such general reference rate. Each change in the Prime Rate shall become
effective without prior notice to Borrowers automatically as of the opening of
business on the effective date specified in such public announcement of a change
in the Prime Rate.
"Pro Rata Share": With respect to each Bank, in each case
expressed as a percentage:
(i) as such term pertains to such Bank's obligation
to make Revolving Credit Loans, the fraction which its RCF
Commitment Amount is of the aggregate of all RCF Commitment Amounts,
(ii) as such term pertains to such Bank's right to
receive payment of interest on its outstanding Revolving Credit
Loans (or its portion of the Take-Out Term Loan, if the Revolving
Credit Loans have been converted to the Take-Out Term Loan), the
fraction which the outstanding amount of interest owed on or with
respect to the outstanding principal balance of such Bank's
Revolving Credit Loans (or its portion of the Take-Out Term Loan, as
aforesaid) is of the aggregate outstanding amount of interest owed
on or with respect to the aggregate unpaid principal balance of all
Revolving Credit Loans or the Take-Out Term Loan, as the case may
be,
(iii) as such term pertains to such Bank's right to
receive payment of principal of its outstanding Revolving Credit
Loans (or its portion of the Take-Out Term Loan, if the Revolving
Credit Loans have been converted to the Take-Out Term Loan), the
fraction which the amount of the unpaid
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principal balance of its Revolving Credit Loans (or its portion of
the Take-Out Term Loan, as aforesaid) is of the aggregate unpaid
principal balance of all Revolving Credit Loans or the Take-Out Term
Loan, as the case may be,
(iv) as such term pertains to such Bank's right to
receive commitment fees under Section 2.3(b) of the Loan Agreement
with respect to the RCF Commitment, the fraction which such Bank's
RCF Commitment Amount is of the sum of a RCF Commitment Amounts,
(v) as such term pertains to such Bank's obligations
under subsection 11.9 of the Loan Agreement, and for all other
purposes, the fraction which the sum of (1) such Bank's Term Loan
Commitment or, if its Term Loan Commitment has terminated, the
unpaid principal balance of its Term Loan Advance, and (2) such
Bank's RCF Commitment Amount or, if its RCF Commitment has
terminated, the unpaid principal balance of its Revolving Credit
Loans (or of its portion of the Take-Out Term Loan, if the Revolving
Credit Loans have been converted to the Take-Out Term Loan) is to
the sum of (A) the sum of the Term Loan Commitment Amounts or, if
the Term Loan Commitments have terminated, the unpaid principal
balance of the Term Loan Advance, and (B) the sum of the RCF
Commitments or, if the RCF Commitments have terminated, the unpaid
principal balance of all of the Revolving Credit Loans (or of its
portion of the Take-Out Term Loan, as aforesaid). For purposes of
this clause (v), if such Bank's RCF Commitment has terminated, the
maximum drawable amount under outstanding Letters of Credit issued
pursuant to Article 5 hereof shall be added to the unpaid principal
balance of such Bank's Revolving Credit Loans (or of its Take-Out
Term Loan, if the Revolving Credit Loans have been converted to the
Take-Out Term Loan).
"Quick Ratio": As of any date of determination, the ratio of
Parent's consolidated cash, Cash Equivalents, and accounts receivable to its
consolidated current liabilities, determined in accordance with GAAP; provided,
however, that the outstanding principal balance of the RCF or Take-Out Term Loan
shall be included, and the outstanding principal balance of the Term Loan shall
be excluded, from such current liabilities for purposes of this definition.
"RCF": See Section 2.1.
"RCF Commitment": As to any Bank, the obligation of such Bank to
make Revolving Credit Loans pursuant to Section 2.1.
"RCF Commitment Amount": As to any Bank, the amount set forth
opposite such Bank's name as its "RCF Commitment Amount" on Annex 1 to this Loan
Agreement (as the same may be changed as a result of an assignment pursuant to
Section 12.6).
"RCF Repayment Date": April 23, 1997, or such later date as may
from time to time be determined pursuant to Section 2.1(b) or (c) of this Loan
Agreement.
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"Regulation D" : Regulation D of the Board of Governors of the
Federal Reserve System from time to time in effect and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Regulation U": Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior Regulation U
and having substantially the same function.
"Reportable Event": Any "reportable event" as described in
Section 4043(b) of ERISA with respect to which the thirty (30) day notice
requirement has not been waived by the PBGC.
"Request For Borrowing": See Section 3.3(a).
"Requested Amount": See Section 2.1(a).
"Required Banks": At any date of determination, Banks whose Pro
Rata Shares (as defined under clause (e) of the definition of such term)
aggregate at least 66.67%.
"Restricted Payment": Any of the following: (a) any dividend or
other distribution, direct or indirect, on account of any shares of any class of
stock of any Borrower or any subsidiary thereof now or hereafter outstanding,
except (i) a stock dividend or a stock option, (ii) payments by the Parent to
holders of shares of its preferred stock in an amount not exceeding $600,000 in
any fiscal year, or (iii) cash dividends or other distributions by a Borrower to
the Parent; (b) any payment or prepayment of principal of, premium, if any, or
interest on, or any redemption, conversion, exchange, retirement, defeasance,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any subordinated debt or any shares of any class of stock of any
Borrower or any subsidiary thereof now or hereafter outstanding; (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any class of stock of any Borrower or any
subsidiary thereof now or hereafter outstanding; and (d) any payment by any
Borrower or any subsidiary thereof of any management fees or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise (but
specifically excluding compensation and bonuses).
"Revolving Credit Loans": See Section 2.1.
"Revolving Credit Note": See Section 4.1.
"Revolving Credit Period": See Section 2.1.
"Security Agreements": A Security Agreement of each Borrower in
the form of Exhibit D as the same may be supplemented, amended or otherwise
modified and in effect from time to time.
"Security Documents": The Security Agreements, the Patent
Mortgages and all other agreements, documents and instruments delivered
hereunder or thereunder or in connection herewith or therewith creating,
perfecting or otherwise providing for any Lien to
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secure the Obligations, in each case as amended, supplemented, restated or
otherwise modified and in effect from time to time.
"Significant Debt Agreement": Any agreement or instrument
evidencing or relating to Indebtedness under which the direct or contingent
payment obligation of any Borrower exceeds $1,000,000.
"Stand-By L/C Issuance Fee Rate": The rate so identified on the
Pricing Matrix.
"Stand-By Letter of Credit": A documentary letter of credit
issued by First Interstate for the account of any Borrower pursuant to First
Interstate's standard form of application and agreement for standby letter of
credit, as completed in accordance with First Interstate's requirements for such
credits in effect as of the date of issuance.
"Subsidiary": Any corporation or other entity of which
securities or other ownership interests having ordinary voting power for the
election of a majority of the board of directors or other Persons performing
similar functions are owned by Parent either directly or through one or more
Subsidiaries.
"Take-Out Term Loan": See Section 2.1(c).
"Take-Out Term Loan Repayment Date": The date that is the second
annual anniversary of the date of the RCF Repayment Date on which the RCF is
converted to the Take-Out Term Loan.
"Tangible Net Worth": At any date, the total stockholder's
equity (including capital stock, additional paid in capital and retained
earnings after deducting treasury stock) which would appear on a consolidated
balance sheet of Parent prepared as of such date in accordance with GAAP, less
the aggregate book value of Intangible Assets shown on such balance sheet.
"Term Loan": See Section 2.2.
"Term Loan Commitment": The obligation of First Interstate to
make the Term Loan pursuant to Section 2.2.
"Term Loan Commitment Amount": The amount set forth opposite
First Interstate's name as its "Term Loan Commitment Amount" on Annex 1 to this
Loan Agreement.
"Term Loan Repayment Date": The date which is 18 months after
the date on which proceeds of the Term Loan are advanced.
"Termination Date": The earliest of the following: (a) with
respect to the RCF, the RCF Repayment Date; with respect to the Take-Out Term
Loan, the Take-Out Term Loan Repayment Date; and with respect to the Term Loan,
the Term Loan Repayment Date; (b) the date that Agent exercises its option to
declare the Loans fully due and payable after the occurrence of an Event of
Default; or (c) such other date as may be agreed upon in writing by Borrowers
and the Agent.
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"Treasuries Advance": An Advance under the Term Loan under which the
interest rate is calculated by reference to the U.S. Treasuries Rate.
"Treasuries Rate": The yield on United States Treasury Securities
issued by the United States Government for a term approximating 18 months, as
determined by a straight-line interpolation of Treasury constant maturities of
one and two years, as most recently published by the Federal Reserve Board in
its Federal Reserve Statistical Release H.15, or other customary source
determined by the Agent on the date of the Advance of the Term Loan.
"Type": Refers to the distinction between Advances under the RCF or
Take-Out Term Loan bearing interest at the Prime Rate and Advances under the RCF
or Take-Out Term Loan bearing interest at the LIBOR Rate.
"Transferees": See Section 12.6.
"Transferred Interest": See Section 12.6.
"UCC": The Uniform Commercial Code as in effect in the State of
Arizona, presently codified as Title 47 of the Arizona Revised Statutes.
"Unused Commitment Fee Rate": The rate per annum identified as such in
the Pricing Matrix.
"Unused RCF Commitment": For any period of measurement, the amount by
which the RCF Commitment exceeds the average daily outstanding principal amount
of the Revolving Credit Loans.
1.2 Other Definitional Provisions.
(a) The words this "Loan Agreement," this "Agreement,"
"hereof," "herein," "hereunder" and similar terms when used in this Loan
Agreement shall refer to this Loan Agreement as a whole and not to any
particular provision of this Loan Agreement, unless the context otherwise
requires.
(b) All accounting terms not specifically defined in this
Loan Agreement shall be construed in accordance with GAAP. To the extent any
change in GAAP affects any computation or determination required to be made
pursuant to Loan Agreement, such computation or determination shall be made as
if such change in GAAP had not occurred unless Borrowers and the Banks agree in
writing on an adjustment to such computation or determination to account for
such change in GAAP.
1.3 Pricing Matrix. Certain material provisions of this Loan
Agreement are defined by reference to the Pricing Matrix, which is an integral
part of this Loan Agreement.
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ARTICLE 2
THE LOAN FACILITIES
2.1 RCF Commitment. Borrowers have applied to the Banks for
financial accommodations in the nature of a revolving credit facility (the
"RCF") to support their general business operations. Each Bank agrees, severally
but not jointly, on the terms and conditions of this Loan Agreement, to make
loans (the "Revolving Credit Loans") to Borrowers for such purpose, during the
period from the date of this Loan Agreement to but excluding the RCF Repayment
Date (the "Revolving Credit Period"); provided, that the aggregate outstanding
principal balance of Advances under the RCF plus the face amount of all Letters
of Credit at any time outstanding plus the aggregate amount of draws under
Letters of Credit which have not been repaid shall not exceed the lesser of (1)
the RCF Commitment Amounts, or (2) the Borrowing Base. Within the limits of this
Section 2.1, during the Revolving Credit Period, Borrower may borrow, repay and
reborrow under this Section 2.1.
(a) Bank's Pro Rata Share of Revolving Credit Loans. No
Bank shall be obligated under any circumstances to fund an Advance of a
Revolving Credit Loan (i) in excess of that Bank's Pro Rata Share of the amount
of such Advance requested (the "Requested Amount") by the Borrowers or (ii) that
would cause the aggregate of that Bank's Advances under the RCF to exceed that
Bank's RCF Commitment Amount. The failure of any one or more of the Banks to
make an Advance of a Revolving Credit Loan in accordance with its RCF Commitment
shall not relieve the other Banks of their several obligations hereunder, but no
Bank shall be liable with respect to the obligation of any other Bank hereunder
or be obligated in any event to make any Advance that would cause the
outstanding principal amount of its Advances under the RCF to exceed its
Revolving Credit Commitment Amount.
(b) Extension of RCF Termination Date. On or before the
90th day preceding the then-scheduled RCF Termination Date, the Agent shall
notify Borrowers that Borrowers may by written notice to the Banks request that
the term of the RCF be extended for a period of 364 days beyond such Termination
Date. Borrowers request must be received by the Agent at least 60 days prior to
the then-scheduled RCF Termination Date. Each Bank may, in its sole discretion,
agree or not agree to any such request for extension with respect to such Bank's
RCF Commitment. In no event shall the Agent or any Bank have any liability to
any Borrower should the Agent fail to timely give the aforesaid notice.
(c) Conversion to Take-Out Term Loan. Unless an Event of
Default or a Potential Default shall have occurred and be continuing, Borrowers
on the RCF Repayment Date shall have the option, upon three Business Days' prior
written notice to the Agent, to convert the outstanding principal balance of the
Revolving Credit Loans to a term loan (such term loan being herein called the
"Take-Out Term Loan"). Certain provisions of this Loan Agreement applicable to
the RCF (including, without limitation, provisions relating to Interest Rate
Options, Interest Periods, and mandatory prepayments) shall be equally
applicable to the Take-Out Term Loan during any period in which any portion of
the Take-Out Term Loan is outstanding. The Banks shall have no obligation to
advance additional funds from and after the date of the conversion of the
Revolving Credit Loans to the Take-Out Term Loan, and the Borrowers shall have
no right to reborrow any amounts repaid under the Take-Out Term Loan.
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2.2 Term Loan Commitment. Borrowers have applied to First
Interstate for a term credit facility and First Interstate has agreed, on the
terms and conditions of this Loan Agreement, to make a loan (the "Term Loan") to
Borrowers, on or within 14 days after the Effective Date, in one advance not to
exceed the Term Loan Commitment Amount. The proceeds of the Term Loan shall be
used to repay or reduce Borrowers' (or any Borrower's) outstanding Indebtedness
to Fred Kassner and to provide working capital for general corporate purposes of
the Borrower.
2.3 Fees.
(a) Facility Fee, Etc. Borrower shall pay to First
Interstate on the Effective Date of this Agreement an RCF facility fee in the
amount equal to $90,000 (Borrowers heretofore having paid $15,000 of such amount
to First Interstate), a Term Loan facility fee in the amount of $50,000
(collectively, such amounts are herein referred to as the "Facilities Fees"),
and a collateral examination fee in the amount of $1,000.
(b) Unused Commitment Fees. Borrowers shall pay to each
Bank a fee (the "Unused Commitment Fee") on the Unused RCF Commitment. The
Unused Commitment Fee shall accrue at the Unused Commitment Fee Rate per annum
computed on the basis of the actual number of days elapsed over a year of 360
days. The Unused Commitment Fee shall accrue from and including the date of this
Loan Agreement to the RCF Repayment Date. The Unused Commitment Fee is payable
quarterly in arrears on the tenth day of the following quarter and on the RCF
Termination Date.
(c) Collateral Examination Fees. In the event that the
Agent shall inspect or audit the collateral in which the Agent may from time to
time have a Lien for the benefit of the Banks under any of the Security
Documents, the Borrowers shall promptly on demand of the Agent pay to the Agent
its reasonable costs and expenses incurred in connection with any such
inspection or audit (including the costs incurred under any contract or
agreement with any Person engaged by the Agent to perform any such inspection or
audit on its behalf), it being agreed that the Agent may, or may cause a third
Person, to inspect such collateral up to twice per year. Unless an Event of
Default has occurred and is continuing, the amount payable hereunder shall not
exceed $2,000 per Borrower for each inspection or audit or $10,000 in the
aggregate in any fiscal year.
(d) Agent's Fees. From and after the date that there is
more than one Bank a party to this Loan Agreement, Borrowers shall pay to the
Agent an agency fee in the amount mutually agreed by the Borrowers and the Agent
and set forth in an agency fee letter to be entered into by the Agent and the
Borrowers on or before the date any such Bank become a party hereto.
ARTICLE 3
PROVISIONS AFFECTING ALL LOANS
3.1 Interest Rates. Interest shall accrue daily on the full
outstanding principal balance of the Revolving Credit Loans, at the Interest
Rate Option duly selected by Borrower for an Interest Period and in effect from
time to time with respect to each Advance under the
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RCF. Borrowers may, on the terms and conditions of this Loan Agreement, select
an Interest Rate Option to be applicable to each such Advance; provided, that if
an available Interest Rate Option is not duly selected for an Advance under the
RCF, interest shall accrue at the Prime Rate. Interest under the Term Loan shall
accrue daily on the full outstanding balance of the Term Loan at either the
Prime Rate or the Treasuries Rate, as selected by the Borrowers pursuant to
Section 3.4 hereof.
Any Advance of a Revolving Credit Loan and any amount outstanding under
the Take-Out Term Loan or the Term Loan not paid when due, whether at the date
scheduled therefor or earlier upon acceleration, shall bear interest until paid
in full (a) during the balance of any Interest Period applicable to any LIBOR
Advance, at a rate per annum equal to the sum of the rate applicable to such
Advance plus 3%, and (b) otherwise at the Past Due Rate.
3.2 Interest Rate Options and Applicable Margin. Except as
otherwise provided in this Loan Agreement, Interest Rate Options for the Types
of Loans shall be as follows: (a) with respect to Revolving Credit Loans, the
LIBOR Rate and the Prime Rate, plus, in each case, the Applicable Margin; and
(b) with respect to the Term Loan, the Prime Rate and the Treasuries Rate, plus,
in each case, the Applicable Margin. The outstanding principal amount of each
Prime Advance under the RCF shall bear interest until paid at the Prime Rate
plus the Applicable Margin (if any) in effect from day to day. The outstanding
principal amount of each LIBOR Advance under the RCF shall bear interest at the
LIBOR Rate in effect for the Interest Period therefor until paid or converted,
plus the Applicable Margin. The outstanding principal amount of the Term Loan
shall bear interest at the Prime Rate or the Treasuries Rate (whichever is
selected by Borrowers pursuant to Section 3.4(a)), plus the Applicable Margin,
until paid (unless the Past Due Rate is applicable).
Notwithstanding the foregoing, the Applicable Margin in effect from
time to time with respect to the Prime Rate and the LIBOR Rate shall be
determined quarterly, based upon Parent and the Subsidiaries on a consolidated
basis meeting, on the last day of a fiscal quarter, all of the ratios applicable
to one of the three loan pricing levels set forth in the Pricing Matrix. The
Applicable Margins set forth under pricing level 3 on the Pricing Matrix shall
be in effect, unless the Parent and the Subsidiaries on a consolidated basis
meet all of the ratios set forth under pricing level 2 (but not all of the
ratios set forth under pricing level 1) set forth on the Pricing Matrix (in
which case the Applicable Margins set forth under pricing level 2 shall be in
effect), unless the Parent and the Subsidiaries on a consolidated basis meet all
of the ratios set forth under pricing level 1 set forth on the Pricing Matrix
(in which case the Applicable Margins set forth under pricing level 1 shall be
in effect). For purposes of all determinations of the Applicable Margin in
effect at any date, whether all of the conditions applicable to a particular
pricing level set forth in the Pricing Matrix have been satisfied shall be
determined by the Agent as of the end of each fiscal quarter of Parent based
upon the financial information duly provided by Parent pursuant to Section 8.1
herein, and the Applicable Margin(s) so determined shall be applicable
throughout the fiscal quarter with respect to which the determination is made.
The Applicable Margin, once determined, shall be effective retroactively with
respect to all Advances made or outstanding, and with respect to the principal
balance of the Term Loan outstanding, during any portion of the relevant fiscal
quarter, and the Banks shall credit to Borrowers, or Borrowers shall pay the
Banks upon demand, all amounts resulting from any recalculation of interest
rates based upon such determination.
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The Banks and Borrowers agree that, as of the date of this Loan
Agreement, pricing level 2 set forth in the Pricing Matrix would have been
applicable for determining the Applicable Margin during the fiscal quarter ended
December 31, 1995, based upon the financial ratios then determined.
3.3 Procedure for RCF Borrowings; Conversions and Continuations.
(a) Request For Borrowing. Each request to the Agent for
an RCF Advance (a "Request For Borrowing") shall specify (i) the aggregate
amount of such requested Advance, (ii) the requested date of such Advance, (iii)
the Type of Advance (i.e., whether a LIBOR Advance or a Prime Advance), and (iv)
the Interest Period which shall be applicable if the requested Advance will be a
LIBOR Advance. Parent shall furnish to the Agent a Request For Borrowing before
11:00 A.M. (Phoenix time) at least three Business Days before the requested
Advance date if the requested Advance is a LIBOR Advance and at least one
Business Day if the requested Advance is a Prime Advance. A requested Advance
date must be a Business Day. Each Request For Borrowing shall be made by an
Authorized Person and may be in writing (including telex and telecopy) or oral,
provided that any oral Request For Borrowing shall be promptly confirmed by a
written Request For Borrowing. Each Request For Borrowing shall be irrevocable
and binding on Borrowers.
(b) (i) Funding. After receiving a Request For Borrowing
under RCF in the manner provided herein, the Agent shall promptly notify each
Bank by telephone (confirmed promptly in writing), telefacsimile or cable of the
terms of such notice and such Bank's Pro Rata Share of the Requested Amount.
Each Bank shall, before 1:00 p.m. (Phoenix, Arizona time) on the date an Advance
under the RCF is requested as specified in a Request For Borrowing, deposit with
the Agent such Bank's Pro Rata Share of the Requested Amount in immediately
available funds. Upon fulfillment of all applicable conditions set forth herein
and after receipt by the Agent of such funds, the Agent shall pay or deliver all
funds so received to the order of Borrowers (or the Borrower specified in the
Request For Borrowing) at the principal office of the Agent. The failure of any
Bank to make any Advance of Revolving Credit Loans required to be made by it
hereunder shall not relieve any other Bank of its obligation to make its Advance
of under the RCF hereunder. If any Bank fails to provide its Pro Rata Share of
the Requested Amount and if all conditions to such Advance of Revolving Credit
Loans have apparently been satisfied, the Agent will make available to Borrower
the funds received by it from the other Banks. Neither the Agent nor any Bank
shall be responsible for the performance by any other Bank of its obligations
hereunder.
(ii) Unless the Agent shall have received notice
from a Bank prior to the date of any Advance under the RCF that such Bank will
not make available to the Agent such Bank's Pro Rata Share of the Requested
Amount, the Agent may assume that such Bank has made such amount available to
the Agent on the date of such Advance in accordance with this subsection 3.3 and
the Agent may, in reliance upon such assumption, make available a corresponding
amount to or on behalf of Borrowers on such date. If and to the extent any Bank
shall not have so made its Pro Rata Share of the Requested Amount available to
the Agent (the "Principal Shortfall Amount"), Borrowers jointly and severally
agree to repay the Principal Shortfall Amount to the Agent forthwith on demand,
together with interest thereon for each day from (and including) the date such
amount is made available to or on behalf of Borrower to (but excluding) the date
such amount is repaid to the Agent, at the rate per annum equal to the rate
otherwise applicable to the Advance in question.
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(c) Conversions and Continuations. Prior to the RCF
Termination Date (and thereafter, if the Revolving Credit Loans are duly
converted to the Take-Out Term Loan, prior to the Take-Out Term Loan Termination
Date), Borrowers may elect from time to time to convert all or a part of one
Advance into another Type of Advance or to continue all or part of an Advance by
giving the Agent notice not later than 11:00 A.M. (Phoenix time) on the day that
is at least three Business Days, if the Advance is to be converted to or
continued as a LIBOR Advance, or at least one Business Day, if the Advance is to
be converted to a Prime Advance, before the conversion or the continuation as
the case may be, specifying (1) the conversion date or continuation date (the
"Conversion Date"), (2) the amount of the Advance to be converted or continued,
(3) in the case of conversions, the Type of Advance to be converted into, and
(4) in the case of continuations of or a conversion into a LIBOR Advance, the
duration of the Interest Period applicable thereto, provided that (i) the
minimum principal amount of each Advance outstanding shall be $500,000 and (ii)
LIBOR Advances can be converted only on the last day of the Interest Period for
such Advance. If Borrowers fail to give the Agent the notice as specified above
for the continuation or conversion of a LIBOR Advance prior to the end of the
Interest Period with respect thereto, or if an Event of Default has occurred and
is continuing on the Conversion Date, the LIBOR Advance shall automatically be
converted into a Prime Advance on the last day of the Interest Period therefor.
Each notice of a conversion or continuation shall be irrevocable and effective
upon receipt thereof by the Agent. LIBOR Advances unpaid as of the Termination
Date (other than LIBOR Advances outstanding on the date the Revolving Credit
Loan is duly converted to the Take-Out Term Loan) shall automatically become a
Prime Advance on the Termination Date.
3.4 Procedure for Term Loan Borrowing.
(a) Term Loan Proceeds. Parent may deliver to the Agent
at any time prior to 11:00 a.m. on the fourteenth day after the date of this
Loan Agreement a request for a single advance of the proceeds of Term Loan, in
an amount not to exceed the Term Loan Commitment Amount, specifying (i) the
requested original principal amount of the Term Loan, (ii) the requested date of
the advance of the original principal amount of the Term Loan, and (iii) whether
the Interest Rate Option for the Term Loan shall be the Prime Rate or the
Treasuries Rate. Parent shall furnish such request to the Agent before 11:00
A.M. (Phoenix time) at least one Business Day before the requested Advance date
(which must be a Business Day). Such request shall be made by an Authorized
Person and may be in writing (including telex and telecopy) or oral, provided
that any oral request shall be promptly confirmed by a written request. Such
request shall be irrevocable and binding on Borrowers. If no Interest Rate
Option is specified in the request, interest shall accrue at the Prime Rate plus
the Applicable Margin; provided that Borrowers shall have the right, by written
notice received by the Agent prior to 1:00 p.m. (Phoenix time) on the fourteenth
day following the date on which the proceeds of the Term Loan are made available
to Borrowers pursuant to Section 3.4(b), to specify that the applicable interest
rate for the Term Loan shall be the Treasuries Rate, plus the Applicable Margin,
and such specification shall be effective from and after the date received by
the Agent.
(b) Funding. After receiving a request for the advance
under the Term Loan pursuant to Section 3.4(a), the Agent shall promptly notify
First Interstate and First Interstate shall, before 1:00 p.m. (Phoenix, Arizona
time) on the date the funding of the Term Loan is requested to be made as
specified in such request, deposit with the Agent the full amount of the
original principal amount of the Term Loan in immediately available funds. Upon
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fulfillment of all applicable conditions set forth herein and after receipt by
the Agent of such funds, the Agent shall pay or deliver all funds so received to
the order of Borrowers (or the Borrower specified in such request) at the
principal office of the Agent.
3.5 Computation. Unused Commitment Fees and interest on the Loans
shall be computed on the basis of actual days elapsed and a year of 360 days.
3.6 LIBOR Advance Provisions. Notwithstanding any other provision
of this Agreement to the contrary, the following provisions shall govern with
respect to LIBOR Advances as to the matters covered:
(a) Inability to Determine Applicable Interest Rate. In
the event that any Bank shall have reasonably determined (which determination
shall be final and conclusive and binding), on any date on which LIBOR is to be
determined, with respect to any LIBOR Advance, that by reason of circumstances
arising after the date of this Agreement affecting the London interbank market,
adequate and fair means do not exist for ascertaining the interest rate
applicable to such LIBOR Advance on the basis provided for in the definition of
LIBOR, such Bank shall on such date give notice (by telecopy or by telephone
confirmed in writing) to the Borrowers of such determination, whereupon (i) no
Loans by such Bank may be made as, or converted to, LIBOR Advances, until such
time as such Bank notifies the Borrowers that the circumstances giving rise to
such notice no longer exist, and (ii) any Request For Borrowing or notice of
conversion of a Prime Advance to a LIBOR Advance by the Borrower with respect to
the Loans by such Bank in respect of which such determination was made shall be
deemed to be rescinded by the Borrowers.
(b) Illegality or Impracticability of LIBOR Advances. In
the event that on any date any Bank shall have reasonably determined (which
determination shall be final and conclusive and binding upon all parties hereto)
that the making, maintaining or continuation of its LIBOR Advances (i) has
become unlawful as a result of compliance by the Bank in good faith with any
law, treaty, governmental rule, regulation, guideline or order (or would
conflict with any such treaty, governmental rule, regulation, guideline or order
not having the force of law even though the failure to comply therewith would
not be unlawful) or (ii) has become impracticable, or would cause the Bank
material hardship, as a result of contingencies occurring after the date of this
Agreement which materially and adversely affect the London interbank market,
then, such Bank shall promptly give notice (by telecopy or by telephone
confirmed in writing) to Borrowers of such determination. Thereafter (a) the
obligation of the Bank to make Advances as, or to convert Advances to, LIBOR
Advances, shall be suspended until such notice shall be withdrawn by the Agent,
(b) to the extent such determination by the Bank relates to a LIBOR Advance then
being requested by Borrowers pursuant to a Request For Borrowing or a notice of
conversion of a Prime Advance to a LIBOR Advance or a notice of continuation of
a LIBOR Advance, the Bank shall make such Advance as (or convert such Advance
to, as the case may be) a Prime Advance, (c) the Bank's obligation to maintain
its outstanding LIBOR Advances, as the case may be (the "Affected LIBOR
Advances"), shall be terminated at the earlier to occur of the expiration of the
Interest Period then in effect with respect to the Affected LIBOR Advances or
when required by law, and (d) the Affected LIBOR Advances shall automatically
convert into Prime Advances on the date of such termination.
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(c) Booking of LIBOR Advances. Any Bank may make, carry
or transfer LIBOR Advances at, to, or for the account of any of its branch
offices or the office of an Affiliate of such Bank.
ARTICLE 4
NOTES AND NOTE PAYMENTS
4.1 The Revolving Credit Note. The Revolving Credit Loans made by
each Bank shall be evidenced by a joint and several promissory note (the
"Revolving Credit Note") of Borrowers, which Revolving Credit Note shall (i) be
dated the date hereof, (ii) be in the amount of such Bank's RCF Commitment,
(iii) be payable to the order of such Bank at the Main Office of Agent, (iv)
bear interest in accordance with Sections 3.1 and 3.2 hereof and (v) be in the
form of Exhibit "B" attached hereto with blanks appropriately completed in
conformity herewith. The aggregate amount of the Advances made by a Bank under
its Revolving Credit Note less all repayments of principal thereof shall be the
principal amount owing and unpaid on such Revolving Credit Note and the Bank's
Revolving Credit Loan. The principal amount of the Revolving Credit Loan made by
a Bank and all principal payments and prepayments thereof may be noted by such
Bank on a schedule attached to its Revolving Credit Note and shall be entered by
such Bank on its ledgers and computer records; provided, that the failure of any
Bank to make such notations or entries shall not affect the principal amount
owing and unpaid on its Revolving Credit Note. The entries made by a Bank on its
ledgers and computer records and any notations made by such Bank on any such
schedule annexed to its Revolving Credit Note shall be presumed to be accurate
until the contrary is established. Subject to the provisions of Section 2.1(c)
hereof, the principal amount of each Revolving Credit Note shall be due and
payable in full on the RCF Repayment Date. In addition, the principal amount of
each LIBOR Advance shall be due and payable in full at the end of each
respective Interest Period thereof, subject to Borrowers' right to continue or
convert such LMOR Advance pursuant to Section 3.3(c) hereof.
In the event the Borrowers shall duly elect to convert the Revolving
Credit Loans to the Take-Out Term Loan, the Revolving Credit Note(s) shall
thereupon evidence the Take-Out Term Loan. The Take-Out Term Loan shall bear
interest as aforesaid in accordance with Sections 3.1 and 3.2 hereof.
4.2 The Term Note. The Term Loan shall be evidenced by Borrowers'
joint and several promissory note in the form of Exhibit "C", which shall be
made payable to the order of First Interstate in an amount equal to the original
principal amount of the Term Loan advanced, shall be dated the date on which
such original principal amount is advanced and shall mature on the Term Loan
Repayment Date. The original principal amount of the Term Loan less all
repayments of principal thereof shall be the principal amount owing and unpaid
on the Term Note from time to time. The principal amount of the Term Loan and
all principal payments and prepayments thereof may be noted by First Interstate
on a schedule attached to the Term Note, and shall be entered by First
Interstate on its ledgers and computer records; provided, that First
Interstate's failure to make such notations on entries shall not affect the
principal amount owing and unpaid on the Term Note. The entries made by First
Interstate on its ledgers and computer records and any notations made by it on
any such schedule annexed to the Term Note shall be presumed accurate until the
contrary is established.
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4.3 Required Payment of Principal and Interest on the Loans.
(a) Revolving Credit Loans. Subject to the provisions of
Section 2.1(c)hereof, the outstanding principal balance of the Revolving Credit
Loans shall be due and payable on the RCF Termination Date. During the Revolving
Credit Period, the principal amount of each LIBOR Advance under the RCF shall be
due and payable on the last day of the Interest Period therefor, subject to
Borrowers' right to convert or continue such Advance pursuant to Section 3.3(c).
Interest accrued on Prime Rate Advances under the RCF during a calendar month
shall be due and payable on the tenth (10th) day of the immediately following
calendar month. Interest accrued on each LIBOR Advance under the RCF shall be
due and payable on the last day of the Interest Period for such LIBOR Advance;
provided, that, in the case of each LIBOR Advance with an Interest Period of 180
day duration, accrued interest thereon shall be due and payable on the 90th day
and the 180th day of such Interest Period. All accrued and unpaid interest on
the Revolving Credit Loans shall be due and payable on the RCF Termination Date
(including the date, if any, on which the Revolving Credit Loans is converted
into the Take-Out Term Loan).
(b) Take-Out Term Loan. The original principal amount of
the Take-Out Term Loan (which in no event shall be less than $5,000,000) shall
be divided into eight equal amounts (each, a "Payment Amount") and the unpaid
principal balance shall be paid in consecutive quarterly installments, each in
an amount equal to the Payment Amount plus accrued but unpaid interest. The
first such installment shall be due and payable on the 90th day after the RCF
Termination Date, and each subsequent installment shall be due and payable on
the corresponding date which is three months later; provided, that the last
installment shall in all events be in an amount necessary to repay the full
unpaid principal amount of the Take-Out Term Loan. Borrowers may apportion the
outstanding principal balance of the Take-Out Term Loan such that difference
portions bear interest at difference Available Interest Rates, provided, that no
such portion shall be in an amount less than $500,000. Interest accrued on
portions of the Take-Out Term Loan which bear interest at the Prime Rate during
a calendar month shall be due and payable on the tenth (10th) day of the
immediately following calendar month. Interest accrued on portions of the
Take-Out Term Loan which bear interest at the LIBOR Rate shall be due and
payable on the last day of the Interest Period therefor; provided, that, in the
case of each portion bearing interest at the LIBOR Rate with an Interest Period
of 180 days duration, accrued interest thereon shall be due and payable on the
90th day and the 180th day of such Interest Period. Notwithstanding the
foregoing, from and after the earlier of (i) the last day of any Interest Period
in effect on that date immediately preceding the RCF Termination Date, and (ii)
the 90th day following the RCF Termination Date, not more than two portions of
the Take-Out Term Loan shall bear interest at the LIBOR Rate. All accrued and
unpaid interest on the Take-Out Term Loan shall be due and payable on the
Take-Out Term Loan Termination Date. Amounts repaid under the Take-Out Term Loan
may not be reborrowed.
(c) Mandatory RCF and Take-Out Term Loan Prepayments.
There shall be due and payable, and Borrowers hereby agree, jointly and
severally, to immediately repay Agent upon demand, any amount by which the
outstanding principal balance of the RCF or the Take-Out Term Loan, as the case
may be, plus the face amount of all Letters of Credit outstanding exceeds at any
time the lesser of the (i) RCF Commitment and (ii) the Borrowing Base.
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(d) Term Loan. The entire principal amount of the Term
Loan shall be due and payable on the Term Loan Termination Date. Interest
accrued on the Term Loan during a calendar month shall be due and payable on the
tenth (10th) day of the immediately following calendar month, and all accrued
and unpaid interest on the Term Loan shall be due and payable on the Term Loan
Termination Date.
4.4 Permitted Principal Prepayments. Borrowers may, without
premium or penalty, upon notice to the Agent not later than 12:00 noon (Phoenix
time) on the day of payment, prepay the principal of any Revolving Credit Note,
in whole or in part, together with accrued interest to the date of such
prepayment on the amount prepaid; provided, however, that (i) each repayment of
less than the full outstanding principal balance of any such Note shall be in an
amount equal to $100,000 or integral multiples thereof, and (ii) with respect to
any repayment (including any repayment pursuant to Section 4.3(c)) of any LIBOR
Advance on any date other than the last day of the Interest Period applicable
thereto, Borrower shall pay Agent all Consequential Loss within 30 days after
demand therefor.
Borrowers may prepay upon notice to the Agent not later than 12:00 noon
(Phoenix time) on the third Business Day preceding the date of payment (or on
the date of prepayment if interest on the Term Loan is determined by reference
to the Prime Rate) all or any portion of the Term Note, together with accrued
interest to the date of such repayment on the amount prepaid, and Break Funding
Costs, if any; provided, however, that each repayment of less than the full
outstanding principal balance of the Term Note shall be in an amount equal to
$100,000 or integral multiples thereof
4.5 Payments on Business-Days Only. Should the principal of any
Note, or any installment of the principal or interest on any Note, or any fee or
charge payable in connection with the Loans, any Note, Loan Agreement or any
other Loan Document, become due and payable on a day other than a Business Day,
the date for payment thereof, and the computation of interest accrued with
respect thereto, shall be extended to the next succeeding Business Day. Any
amount not paid when due shall accrue interest at the Past Due Rate from the due
date until the date such amount is paid in full.
4.6 Manner and Application of Payments. All payments of principal
of, and interest on, the Notes to or for the account of the Bank shall be made
by Borrowers to the Agent before 2:00 p.m. (Phoenix time), in immediately
available funds at the Agent Main Office in Phoenix. All payments made on a Note
shall be credited, to the extent of the amount thereof, in the following manner:
(i) first, to the payment of costs, charges and fees due and payable by
Borrowers under the terms hereof, (ii) second, against the amount of interest
due and payable, but unpaid, on such Note as of the date of such payment; and
(iii) third, against all principal (if any) due and owing on such Note as of the
date of such payment; (iv) fourth, as a repayment of the remaining principal
amount outstanding under the Note, as Borrower shall direct.
4.7 Funding Loss Indemnification. Borrowers shall pay to each
Bank, upon the request of the Bank, Consequential Loss to compensate such Bank
for any loss, cost, or expense incurred as a result of any payment of principal
with respect to any Loan bearing interest at the LIBOR Rate on any day other
than the last day of the Interest Period therefor, including, but not limited
to, payment due to acceleration of the Loans pursuant to Section 10.2.
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A certificate of a Bank setting forth the basis for the determination of
the amount of Consequential Loss shall be delivered to Borrowers. The conversion
of a LIBOR Advance to a Prime Advance on any day other than the last day of the
applicable Interest Period shall be deemed a payment for purposes of this
Section.
ARTICLE 5
LETTERS OF CREDIT
5.1 Letters of Credit. Borrowers have applied to First Interstate for
additional financial accommodations to facilitate the issuance of one or more
First Interstate Letters of Credit. Subject to the terms and conditions set
forth in this Agreement, First Interstate agrees to issue from time to time at
the request of any Borrower one or more Letters of Credit. Notwithstanding
anything to the contrary herein, the sum of (i) outstanding undrawn amounts of
all Letters of Credit issued by First Interstate, plus (ii) the aggregate of
draws under Letters of Credit which have not been repaid, plus (iii) all amounts
outstanding under the RCF (or, when the Take-Out Term Loan is outstanding, all
amounts outstanding under the Take-Out Term Loan), shall not exceed the lesser
of the RCF Commitment and the Borrowing Base.
5.2 Letter of Credit Issuance Fees. Prior to the Termination Date of the
RCF, First Interstate shall issue one or more Letters of Credit upon Borrowers'
application, subject to First Interstate's standard forms and procedures in
effect as of the date of issuance, and Borrowers' payment of First Interstate's
then quoted issuance fee, with respect to commercial letters of credit, or, with
respect to Stand-By Letters of Credit, payment of the Stand-By L/C Issuance Fee
set forth in the Pricing Matrix which is in effect at the time of issuance, and
an additional Stand-By L/C Issuance Fee computed and determined at the time of
any renewal or extension, which additional fee shall be due and payable upon the
effective date of any such renewal or extension. Each Letter of Credit shall
contain an expiry date not later than 30 days prior to the Take-Out Term Loan
Repayment Date. No Letter of Credit shall be issued hereunder that would cause
the sum of (a) the outstanding undrawn amounts of a Letters of Credit plus (b)
the aggregate of draws under Letters of Credit which have not been repaid to
exceed $7,500,000.
ARTICLE 6
CONDITIONS PRECEDENT TO LOANS
6.1 Conditions Precedent to Initial Advance Under All Loans. In addition
to the due execution and delivery of this Loan Agreement by the parties named on
the signature pages hereto, the obligation of each Bank to make the initial
Advance hereunder with respect to the RCF and First Interstate to make the
Advance of the Term Loan, is subject to the Agent having received the following,
each in form and substance satisfactory to the Banks:
(a) The Notes. The Revolving Credit Note(s) and the Term Note,
each duly executed with all blanks filled in.
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(b) Security Agreements. A Security Agreement of each of the
Borrowers, duly executed.
(c) Patent Mortgages. A Patent Mortgage of each of the Borrowers,
duly executed.
(d) Negative Pledge Instrument. A Negative Pledge Instrument,
duly executed by the Parent.
(e) Financing Statements. Filing in the appropriate offices of
UCC-1 financing statements of each of the Borrowers as contemplated by the
Security Agreements.
(f) Termination of Certain Financing Statements. Evidence that
each of the financing statements listed on Schedule 6.1(f) has been terminated,
or a termination statement therefore, in due form for filing in the appropriate
filing office, or a payoff letter from the secured creditor therefore,
committing to terminate such financing statement.
(g) Opinion of Borrowers' Counsel. A favorable opinion of counsel
for Borrowers, in form and substance satisfactory to the Banks.
(h) Officers' Certificate. A certificate signed by a duly
authorized officer of Parent, stating that (to the best knowledge and belief of
such officer, after reasonable and due investigation and review of matters
pertinent to the subject matter of such certificate): (i) all of the
representations and warranties contained in Article 7 hereof, and the other Loan
Documents to which Parent is a party, are true and correct as of the Effective
Date (other than those of such representations which by their express terms
speak to a date prior to such date, which representations are true and correct
as of such respective dates); (ii) no event has occurred and is continuing, or
would result from the advance of such funds hereunder, which would constitute an
Event of Default or Potential Default, and (iii) no change or changes having a
Material Adverse Effect have occurred in the business or financial condition of
Parent and its Subsidiaries, taken as a whole, since December 31, 1995.
(i) Resolutions. Resolutions of each Borrower authorizing and
directing each Authorized Person to act for and on behalf of such Borrower with
respect to the transactions contemplated hereby, and approving the execution,
delivery and performance of this Loan Agreement, the Notes, the Security
Agreement to which it is or will be a signatory, and the other Loan Documents to
which it is or will be a party, and the transactions contemplated herein and
therein, duly adopted by such Borrower's board of directors and accompanied by a
certificate of the its Secretary, dated the Effective Date, stating that such
resolutions are true and correct, have not been altered or repealed and are in
full force and effect.
(j) Incumbency Certificates. A signed certificate of the
Secretary of the Parent which shall certify the names of the Authorized Persons
authorized to sign each of the Loan Documents and the other documents or
certificates to be delivered pursuant to the Loan Documents by Parent, together
with the true signatures of each such officers. The Agent and the Banks may
conclusively rely on each such certificate until it shall receive a further
certificate of the Secretary of Parent, cancelling or amending the prior
certificate and submitting the signatures of the officers named in such further
certificate.
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(k) Certificates of Incorporation. Certificates of incorporation
(including all amendments thereto) and good standing (or similar instruments)
for each Borrower, issued by the Secretary of State of the jurisdiction of each
such entity's organization, and certificates of qualification and good standing
(or other similar instruments) for such issued by the Secretary of each state
wherein each Borrower is qualified to do business as a foreign corporation, each
dated within thirty days of the Effective Date.
(1) Bylaws. A copy of the bylaws of each Borrower, and all
amendments thereto, certified by the Secretary of such Borrower as being true,
correct and complete as of the Effective Date.
(m) Borrowing Base Certificate. The initial Borrowing Base
Certificate, duly completed and executed.
(n) Compliance Certificate. A certificate signed by an Authorized
Person setting forth computations in reasonable detail demonstrating compliance
with each of the financial covenants set forth in this Loan Agreement as of the
last fiscal quarter of the Parent for which such statements are available.
(o) Payment of Fees. Payment of the Facilities Fee and the
collateral examination fee described in Section 2.3(a).
(p) Collateral Examination. The Agent shall have completed its
review and examination of the collateral described in the Security Documents,
and the results of such review and examination shall be satisfactory to the
Agent in its sole discretion.
6.2 All Advances. The obligation of each Bank to make each Advance under
any Loan (including the initial Advance under the RCF and First Interstate's
Advance of the Term Loan) and the right of Borrowers to convert or continue any
Advance shall be subject to the further conditions precedent that:
(a) Current Borrowing Base Certificate. As of the date of such
Advance, Borrowers shall have furnished the Agent a Borrowing Base Certificate
meeting the requirements of Section 8.1(j) hereof; provided, however , that if
the aggregate principal amount of all Advances under the RCF (together with all
amounts then requested under any Request For Advance) shall exceed $15 million,
Borrowers shall have delivered to the Agent a Borrowing Base Certificate setting
forth the Borrowing as of a date not earlier than the fifth Business Day
preceding the date of the requested Advance.
(b) No Defaults. As of the date of the making of such Advance or
conversion or continuation, no Event of Default or Potential Default known to
any Borrower shall have occurred and be continuing or result from the making of
such Advance, conversion or continuation.
(c) Compliance with Loan Documents. Borrowers shall have
performed and complied with all agreements and conditions contained herein and
in the other Loan Documents which are required to be performed or complied with
by them before or at the date of such Advance, conversion or continuation.
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(d) No Material Adverse Effect. As of the date of such making of
such Advance, conversion or continuation, no Material Adverse Effect shall have
occurred since the date of the most recent financial statements provided to the
Banks by or on behalf of Borrowers.
(e) Representations and Warranties. The representations and
warranties contained in Article 7 hereof shall be true and correct in all
respects on the date of this Loan Agreement and on the date of making of such
Advance, conversion or continuation, with the same force and effect as though
made on and as of that date (other than those of such representations which by
their express terms speak to a date prior to that date, which representations
shall be true and correct as of such respective date).
(f) Financial Statements. The most recent financial statements
duly delivered to the Banks pursuant to Section 8.1 hereof (or until so
delivered, those delivered on or prior to the Effective Agreement) shall be true
and correct, fairly present the consolidated financial condition of Parent and
the Subsidiaries and have been prepared in accordance with GAAP; to the best of
any Borrower's knowledge, there are no obligations, liabilities or Indebtedness
(including contingent and indirect liabilities and obligations or unusual or
long-term commitments) of Parent or any Subsidiary which in the aggregate are
material and are not reflected in such financial statements, except as set forth
in the Disclosure Statement.
(g) Bankruptcy Proceedings. No proceeding or case under the
United States Bankruptcy Code shall have been commenced by or against Parent or
any Borrower.
(h) Notices and Requests. The Agent shall have received the
Parent's request for such Advance, conversion or continuation as required under
Section 3.3 or Section 3.4, as the case may be.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Loan Agreement and to make each of
the Loans, Borrowers represent and warrant that:
7.1 Organization and Standing. Each Borrower is a corporation duly
organized and existing in good standing under the laws of the state of its
incorporation and is duly qualified as a foreign corporation and in good
standing in all states in which the nature of its business and property makes
such qualifications necessary or appropriate, except those states, if any, where
failure to so qualify will not result in a Material Adverse Effect. Each
Borrower has the requisite corporate power and authority to own its properties
and assets and to transact the business in which it is engaged and is or will be
qualified in those states wherein the nature of its proposed business and
property will make such qualifications necessary or appropriate in the future,
except those states, if any, where failure to so qualify will not result in a
Material Adverse Effect.
7.2 Authorization and Power. Each Borrower has the requisite corporate
power and authority to execute, deliver and perform this Loan Agreement, each of
the Notes, the Security
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Agreement and the other Loan Documents to be executed by it; is duly authorized
to, and has taken all corporate action necessary to authorize it to, execute,
deliver and perform this Loan Agreement, the Notes, the Security Agreement and
the other Loan Documents to be executed by it, and is and will continue to be
duly authorized to perform this Loan Agreement, the Notes, the Security
Agreement and the other Loan Documents executed or to be executed by it.
7.3 No Conflicts or Consents. Neither the execution and delivery of this
Loan Agreement, any Note and Security Documents or the other Loan Documents, nor
the consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, (a) will contravene or materially conflict with: (i) any provision of
law, statute or regulation to which any Borrower is subject, (ii) any judgment,
license, order or permit applicable to any Borrower, (iii) any indenture, loan
agreement, mortgage, deed of trust, or other agreement or instrument to
which any Borrower is a party or by which it may be bound, or to which any
Borrower may be subject, except any such agreement or instrument that will
terminate as of the Effective Date, or (b) will violate any provision of the
articles of incorporation or bylaws of any Borrower. No consent, approval,
authorization or order of any court or governmental authority or third party is
required in connection with the execution and delivery by any Borrower of the
Loan Documents or to consummate the transactions contemplated hereby or thereby.
7.4 Enforceable Obligations. This Loan Agreement, each Note, the Security
Agreement and the other Loan Documents to which it is a party are or, when
executed and delivered, will be the legal and binding obligations of each
Borrower enforceable against it in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles, and by the fact
that certain waivers, procedures, remedies, and other provisions of the Loan
Documents may be unenforceable under or limited by the laws of the State of
Arizona (however, such laws do not substantially prevent the practical
realization of the benefits intended by the Loan Documents).
7.5 Financial Condition. Parent has delivered to the Banks copies of the
consolidated balance sheet of Parent and its Subsidiaries as of the fiscal year
end of each of 1993, 1994 and 1995 and as of December 31, 1995, and the related
consolidated statements of income, stockholders' equity and changes in financial
position for the fiscal year (or, with respect to the last statement listed, the
six month period) ended on such date, each (excluding only the quarterly
statements) certified by independent certified public accountants. All such
financial statements fairly present the financial condition of Parent and its
Subsidiaries as of the respective dates and have been prepared in accordance
with GAAP. Since the date thereof, Parent has not discovered any obligations,
liabilities or Indebtedness (including contingent and indirect liabilities and
obligations or unusual forward or long-term commitments) of Parent or any
Subsidiary which in the aggregate are material that should have been but were
not reflected in such financial statements. No changes having a Material Adverse
Effect have occurred in the financial condition or business of Parent or any
Subsidiary since December 31, 1995.
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7.6 Significant Debt Agreements. The Disclosure Statement contains a list
of all Significant Debt Agreements. No Borrower is in default in any material
respect under any Significant Debt Agreement.
7.7 No Default. No event or condition has occurred and is continuing that
constitutes an Event of Default or which, with the lapse of time or giving of
notice, or both, would constitute an Event of Default.
7.8 No Litigation. Except as described on the Disclosure Statement, there
are no actions, suits or legal, equitable, arbitration or administrative
proceedings pending, or, to the knowledge of any Borrower, threatened against
Parent or any Subsidiary that would, if adversely determined, have a Material
Adverse Effect.
7.9 Use of Proceeds: Margin Stock. The proceeds of the Loans will be used
by Borrowers solely for the purposes specified herein and will not be used
directly or indirectly to purchase "margin stock", as that term in quotations is
defined in Regulation U. No Borrower in the ordinary course of its business
extends credit for the purpose of purchasing or carrying "margin stock" as
defined in Regulation U.
7.10 Taxes. Parent and the Subsidiaries have filed or caused to be filed
all returns and reports which are required to be filed by any jurisdiction, and
have paid or made provision for the payment of all taxes, assessments, fees or
other governmental charges imposed upon their properties, income or franchises,
except such assessments or taxes, if any, which are being contested in good
faith by appropriate proceedings.
7.11 Compliance with Law. Each Borrower is in substantial compliance with
all material laws, rules, regulations, orders and decrees that are applicable to
it or its properties.
7.12 Subsidiaries. Each Borrower, other than Parent, is a wholly owned
Subsidiary of Parent. Set forth in the Disclosure Statement is a complete and
accurate list of each other direct and indirect Subsidiary of Parent, showing
the jurisdiction of incorporation of each, the percentage of the Parent's
ownership of the outstanding capital stock of each such Subsidiary, and the
principal office of each (being the office at which such Subsidiary maintains
its principal records and books). All of the outstanding capital stock of each
Subsidiary (including the capital stock of each Borrower, other than the Parent)
has been validly issued, is fully paid and is nonassessable, and is owned by
Parent free and clear of all Liens.
7.13 Principal Office, Etc. Each Borrower maintains its principal records
and books at its principal office, which is located at the address set forth in
the Disclosure Statement.
7.14 Environmental Compliance. Each Borrower has been and is currently in
compliance with all applicable Environmental Laws, including obtaining and
maintaining in effect all permits, licenses or other authorizations required by
applicable Environmental Laws. There are no claims, liabilities, investigations,
litigation, administrative proceedings, whether pending or overtly threatened,
or judgments or orders relating to any Hazardous Materials asserted or
threatened against any Borrower or relating to any real property currently or
formerly owned, leased or operated by any Borrower.
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7.15 Patents, Trademarks. Etc. Each Borrower possesses or has the right
to use all of the patents, trademarks, trade names, service marks and
copyrights, and applications therefor, and all technology, know-how, processes,
methods and designs used in or necessary for the conduct of its business,
without known conflict with the rights of others. Set forth on Schedule 7.15 is
a complete and accurate list of all patents, trademarks, trade names, service
marks and copyrights, and applications therefor, owned by each Borrower.
7.16 Burdensome Restrictions. No Borrower is a party to or otherwise
bound by any indenture, loan or credit agreement or any lease or other agreement
or instrument or subject to any charter or corporate restriction which
reasonably would have a foreseeably material adverse effect on the business,
properties, assets, operations or condition (financial or otherwise) of Parent
and the Subsidiaries taken as a whole or on the ability of any Borrower to carry
out its obligations under any Loan Document.
7.17 Investment Company Act. Neither Parent nor any of its Subsidiaries
is an "investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended.
7.18 Retirement Benefits. Except as required under Section 4980B of the
Code, Section 601 of ERISA, or applicable state law, neither Parent nor any of
its Subsidiaries is obligated to provide post-retirement medical or insurance
benefits with respect to employees or former employees.
7.19 Full Disclosure. There is no material fact that Borrowers have not
disclosed to the Banks that would have a Material Adverse Effect. No certificate
or statement delivered herewith or heretofore by any Borrower to the Banks or
the Agent in connection with negotiations of this Loan Agreement, contains any
untrue statement of a material fact or omits to state any material fact
necessary to keep the statements contained herein or therein from being
misleading.
7.20 Survival of Representations, Etc. Each request by Borrowers for an
Advance of funds hereunder, and each request for a continuation or conversion of
an Advance hereunder, shall constitute an affirmation on the part of Borrowers
that the representations and warranties hereof are true and correct with respect
to any financial statements submitted by Parent to the Banks between the date of
this Loan Agreement and the date of such request, that the representations and
warranties of this Article 7 are true and correct as of the time of such
request, and that the conditions precedent set forth herein are fully satisfied.
(Any exceptions to such affirmation will be noted in writing and accompany such
request.) All representations and warranties by Borrowers herein shall survive
the making of the Loans and the execution and delivery of the Notes. Any
investigation at any time made by or on behalf of Agent or any Bank shall not
diminish the Banks' right to rely on the representations and warranties by
Borrowers herein.
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ARTICLE 8
AFFIRMATIVE COVENANTS
Until payment in full of the Notes and the complete performance of the
Obligation, Borrowers agree that:
8.1 Financial Statements, Reports and Documents. Parent shall deliver to
Agent each of the following:
(a) Quarterly Statements. As soon as available, and in any event
within 45 days after the end of each quarterly fiscal period (except the last)
of each fiscal year of Parent, copies of the consolidating and consolidated
balance sheet of Parent and the Subsidiaries as of the end of such fiscal
period, the consolidating and consolidated statements of income and retained
earnings of Parent and the Subsidiaries and a consolidated cash flow(s)
statement of Parent and the Subsidiaries for that quarterly fiscal period and
for the portion of the fiscal year ending with such period, prepared in
accordance with GAAP consistently applied and certified by an officer of Parent
(subject to year-end adjustments and without footnotes unless footnotes are
required by GAAP);
(b) Annual Statements. As soon as available and in any event
within 90 days after the end of each fiscal year of Parent, the consolidating
and consolidated balance sheet of Parent and the Subsidiaries as of the close of
such fiscal year and consolidated statements of income and retained earnings and
changes in financial position of Parent and the Subsidiaries for such fiscal
year, all in reasonable detail and accompanied by an opinion thereon (which
shall not be qualified by reason of any limitation imposed by any Borrower) of
independent public accountants of recognized national standing (selected by
Parent and reasonably acceptable to the Banks) to the effect that such financial
statements have been prepared in accordance with GAAP consistently maintained
and applied (except for changes in which such accountants concur) and that the
examination of such accounts in connection with such financial statements has
been made in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances, together
with (i) any management letters, management reports or other supplementary
comments or reports to Parent or its board of directors (or any committee
thereof) furnished by such accounts, and (ii) a letter from such accountants
addressed to the Banks acknowledging that the Banks are extending credit in
reliance on such financial statements and authorizing such reliance;
(c) Accountant's Statement. Together with the audited statements
required under Section 8.1(b), a statement by the accounting firm performing
such audit to the effect that it has reviewed this Agreement and that in
performing its examination nothing came to its attention that caused it to
believe that any Potential Default or Event of Default exists with respect to
the financial covenants set forth in Article 9 hereof, or, if such Potential
Default or Event of Default exists, describing its nature.
(d) Compliance Certificate. Within 45 days after the end of each
fiscal quarter (except the last) and within 90 days after the end of each fiscal
year of Parent hereafter, a certificate in the form of Exhibit H hereto executed
by an officer of Parent with knowledge of the facts stated, stating that (i) a
review of the activities of Borrowers during
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such fiscal quarter or year has been made under his supervision, that Borrowers
have observed, performed and fulfilled each and every obligation and covenant
(setting forth a calculation in reasonable detail demonstrating Borrowers'
compliance with each of the financial covenants of Borrowers herein) contained
herein (including, without limitation, compliance with Section 9.5) and is not
in default under any of the same or, if any such default shall have occurred,
specifying the nature and status thereof, (ii) with respect to each of the first
three fiscal quarters of Parent's fiscal year, a review, has been made under his
supervision during such fiscal quarter or year and that as a result of such
review the Parent is not required pursuant to GAAP to disclose and establish any
reserves for any environmental liability (or if any such liability is required
to be reserved against, identifying the nature and amount of such reserve), and
(iii) all financial statements of Parent delivered to Agent during the
respective period pursuant to subsection 8.1(a) and 8.1(b) hereof are fairly
stated and have been prepared in accordance with GAAP (subject to year end
adjustments, if applicable);
(e) Financial Forecasts. As soon as practicable and in any event
not later than 31 days prior to Parent's fiscal year end (commencing with the
fiscal year ending June 30, 1996), consolidating statements of financial
projections of income and cash flow for the Parent and the Subsidiaries for each
quarter in such fiscal year and a forecasted consolidated balance sheet of
Parent and the Subsidiaries, together with supporting assumptions, as at the end
of each fiscal quarter of the next fiscal year, and at the end of such fiscal
year, all in reasonable detail and reasonably acceptable to Agent.
(f) SEC Filings. Promptly upon, but in no event more than 15 days
after, the mailing or filing thereof, copies of all financial statements,
reports, mailed to Parent's shareholders, and copies of all registration
statements, periodic reports and other documents filed with the Securities and
Exchange Commission (or any successor thereto) or any national securities
exchange or The Nasdaq Stock Market.
(g) Notice of Default. Immediately after any Authorized Person
having actual knowledge of any Potential Default or Event of Default, a notice
describing the nature thereof and what action Borrowers propose to take with
respect thereto.
(h) Capitalized Lease/Purchase Money Lien Report. Within 45 days
after the end of each of the first three fiscal quarters, and 90 days after the
end of each fiscal year of Parent, a report which (i) identifies all of the
Capitalized Leases entered into and purchase money Lien transactions entered
into during such fiscal quarter by any Borrower, (ii) sets forth in reasonable
detail the capitalized amount of each such Capitalized Lease and the book value
of assets acquired in purchase money transactions, (iii) sets forth the
aggregate capitalized amount of all Capitalized Leases entered into and the
aggregate net book value of assets acquired in purchase money transactions of
the Borrowers since the beginning of the fiscal year to which the report
relates, and (iv) sets forth the remaining amount of Capitalized Leases and
purchase money transactions which Borrowers could enter during such fiscal year.
(i) Aging Schedules. Within 15 days after the last day of each
month, an accounts receivable aging schedule, by customer, showing the age of
all Accounts from the date of invoice, and Eligible Account listings which shall
include billing detail by customer's name, and an accounts payable aging
schedule by creditor.
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(j) Borrowing Base Certificate. Within 15 days after the last day
of each month, a Borrowing Base Certificate, duly completed, as of the last
Business Day of the month immediately preceding the date of delivery of such
Borrowing Base Certificate, certified as true, complete and correct by an
Authorized Person. The identification of Accounts that are not Eligible Accounts
pursuant to clause (ii) of the definition of "Eligible Accounts" shall be
determined in all instances by reference to the date of the applicable invoice,
and not by reference to the payment due date set forth on an invoice under
standard or other payment terms.
(k) Other Information. From time to time, such other information
regarding the business, operation and financial condition of Parent and the
Subsidiaries as the Banks may reasonably request, including, without limitation,
copies of monthly financial statements setting for the information required to
be set forth in quarterly financial statements pursuant to Section 8.1(a)
hereof.
8.2 Payment of Taxes and Other Indebtedness. Parent shall file and cause
each of its Subsidiaries to file, all tax returns and reports which are required
by law to be filed by it and will, and will cause each of its Subsidiaries to,
pay and discharge (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or profits, or upon any property belonging to
it, before delinquent, (ii) all lawful claims (including claims for labor,
materials and supplies), which, if unpaid, might become a Lien upon any of its
property, and (iii) all of its Indebtedness, except as prohibited hereunder;
provided, however, that Parent and its Subsidiaries shall not be required to pay
any such tax, assessment, charge, levy, claims or Indebtedness if and so long as
the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate actions and appropriate accruals and reserves therefor
have been established in accordance with GAAP.
8.3 Maintenance of Existence and Rights; Conduct of Business. Parent
will, and, except for mergers, consolidations and transfers of assets permitted
by Section 9.1 hereof, will cause each Subsidiary to, preserve and maintain its
corporate existence and all of its rights, privileges and franchises necessary
or desirable in the normal conduct of its business, and conduct its business in
an orderly and efficient manner consistent with good business practices and in
accordance with all valid regulations and orders of any Governmental Authority.
8.4 Other Notices. Borrowers will promptly notify the Banks and the Agent
of (a) any Material Adverse Effect, (b) any waiver, release or default under any
Significant Debt Agreement, (c) any claim not covered by insurance against or
affecting Parent or any Subsidiary or any of their respective properties which
would have a Material Adverse Effect, and (d) any notice or other communication
to Borrowers or any Subsidiary which is not a Borrower from any Governmental
Authority concerning environmental matters, except such notices and
communications as are usual and customary in Borrowers' experience, or which
Borrowers reasonably believes not to be related to an inquiry or investigation
by a Governmental Authority directed specifically at Borrowers or any such
Subsidiary, or their respective properties or activities.
8.5 Compliance with Loan Documents. Borrowers will comply with any and
all covenants and provisions of this Loan Agreement, each Note and each of the
other Loan Documents.
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8.6 Maintenance of Properties. Each Borrower will maintain its
properties used or useful in the conduct of its business in good condition,
repair and working order, and supplied with all necessary equipment, and make
all necessary repairs, renewals, replacements, betterments and improvements
thereto, as may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
8.7 Notice of Litigation. Borrowers will give prompt written notice to
the Agent of the commencement of any action, suit or proceeding before any court
or arbitrator or any governmental department, board, agency or other
instrumentality affecting any Borrower or any Subsidiary which is not a Borrower
or any property of Borrower or any such Subsidiary or to which any Borrower or
any such Subsidiary is a party in which an adverse determination or result could
have a material adverse effect on the business, operations, property or
condition (financial or otherwise) of Parent and the Subsidiaries taken as a
whole or on the ability of any Borrower to perform their respective obligations
under the Loan Documents, stating the nature and status of such action, suit or
preceding.
8.8 ERISA. Parent will maintain, and cause each Subsidiary to
maintain, each Plan in compliance with all material applicable requirements of
ERISA and of the Code and with all applicable rulings and regulations issued
under the provisions of ERISA and of the Code and will not and not permit any of
the ERISA Affiliates to (a) engage in any transaction in connection with which
Parent or any of the ERISA Affiliates would be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code, in either case in an amount exceeding $250,000, (b) fail to make full
payment when due of all amounts which, under the provisions of any Plan, Parent
or any ERISA Affiliate is required to pay as contributions thereto, or permit to
exist any accumulated funding deficiency (as such term is defined in Section 302
of ERISA and Section 412 of the Code), whether or not waived, with respect to
any Plan in an aggregate amount exceeding $250,000 to any Multiemployer Plan
that Parent or any of the ERISA Affiliates may be required to make under any
agreement relating to such Multiemployer Plan or any law pertaining thereto.
8.9 Books and Records, Access. Upon reasonable prior notice by the
Agent, Borrowers will give any authorized representative of the Agent access
during normal business hours to, and permit such representative to examine, copy
or make excerpts from, any and all books, records and documents in the
possession of any Borrower and reasonably relating to the Loans, and to inspect
any of the properties of Borrowers, including, without limitation, inspection of
Borrowers' properties in connection with any inspection of Borrowers'
environmental practices and policies. The Agent shall not have any duty to make
any such inspection or incur any liability or obligation by reason of making or
not making any such inspection. Parent will, and will cause each Subsidiary to,
maintain books and records of its transactions in accordance with GAAP.
8.10 Compliance with Law. Borrowers will, and will cause each
Subsidiary to, comply with all applicable laws, rules, regulations, and all
final, nonappealable orders of any Governmental Authority applicable to it or
any of its property, business operations or transactions, a breach of which
could result in a Material Adverse Effect.
8.11 Insurance. Borrowers will, and will cause each Subsidiary to,
maintain workmen's compensation insurance, liability insurance and insurance on
its properties, assets and business, now owned or hereafter acquired, against
such casualties, risks and
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contingencies, and in such types and amounts, as are consistent with customary
practices and standards of companies engaged in similar businesses.
8.12 Inspection. Subject to the provisions of Section 12.19 hereof,
Borrowers shall permit any Person designated by the Banks to visit and inspect
any of the properties, corporate books and financial records of Borrowers to
examine and to make copies of the books of accounts and other financial records
of Borrowers, and to discuss the affairs, finances and accounts of Borrowers
with, and to be advised as to the same by, its respective officers at such
reasonable times and intervals as the Banks may designate. So long as no Event
of Default exists, the expenses of the Banks for such visits, inspections and
examinations shall be at the expense of the Banks but any such visits,
inspections and examinations made while any Event of Default is continuing shall
be at the expense of Borrowers.
8.13 Further Assurances. Borrowers will promptly correct any material
defect or error that may be discovered in any Loan Document or in the execution,
acknowledgment or recordation thereof. Promptly upon request by the Agent,
Borrowers also will do, execute, acknowledge, deliver, record, re-record, file,
re-file, register and re-register, any and all assignments, estoppel
certificates, financing statements and continuations thereof, notices of
assignment, transfers, certificates, assurances and other instruments as the
Agent may reasonably require from time to time in order: (a) to carry out more
effectively the purposes of the Loan Documents; (b) to perfect and maintain the
validity, effectiveness and priority of any Liens intended to be created by the
Loan Documents; and (c) to better assure, convey, grant, assign, transfer,
preserve, protect and confirm unto the Agent and the Banks the rights granted
now or hereafter intended to be granted to the Agent and the Banks under any
Loan Document or under any other instrument executed in connection with any Loan
Document or that any Borrower may be or become bound to convey, mortgage or
assign to the Agent for the benefit of the Banks in order to carry out the
intention or facilitate the performance of the provisions of any Loan Document.
Borrowers will furnish to the Banks evidence satisfactory to the Banks of every
such recording, filing or registration.
ARTICLE 9
NEGATIVE COVENANTS
Until payment in full of the Notes and the performance of the
Obligation, Borrowers agree that (unless the Required Banks shall otherwise
consent in writing):
9.1 Liquidation, Mergers, Consolidations and Dispositions of
Substantial Assets. Parent will not, and will not permit any Subsidiary to,
dissolve or liquidate, or become a party to any merger or consolidation, or
sell, transfer, lease or otherwise dispose of all or substantially all of its
property or assets or business, except that (a) any Subsidiary of Parent may
merge into or transfer assets to any Borrower, (b) any wholly owned Subsidiary
may merge into, consolidate with or transfer assets to any other Subsidiary (if
such wholly owned Subsidiary is both a Borrower hereunder and the surviving
corporation), (c) Borrowers (or any Borrower, as applicable) may sell, transfer,
lease or otherwise dispose of real property and associated fixtures and other
personal property associated with such real property (i) with respect to the
real property identified in the Negative Pledge Instrument, upon the full
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satisfaction of all amounts owing with respect to the Term Loan and (ii) with
respect to other real property, without prepayment of any portion of any of the
Loans.
9.2 Negative Pledges; Subsidiary Restrictions. Parent will not, and
will not permit any Subsidiary to, enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Agent which
would (a) prohibit Parent or such Subsidiary from granting, or otherwise limit
the ability of Parent or such Subsidiary to grant, to the Agent for the benefit
of the Banks any Lien on any assets or properties of Parent or such Subsidiary,
except in connection with Permitted Liens (provided, in the case of Liens
described in clauses (2), (3), (4) and (10) of the definition of "Permitted
Liens", that such prohibition does not extend to collateral other than the
assets or properties acquired in connection with the extension of the related
Liens and the proceeds thereof) and or (b) require Parent or such Subsidiary to
grant a Lien to any other Person if Parent or such Subsidiary grants any Lien to
the Agent. Parent will not permit any Subsidiary to place or allow any
restriction, directly or indirectly, on the ability of such Subsidiary to (i)
pay dividends or any distributions on or with respect to such Subsidiary's
capital stock or (ii) make loans or other cash payments to Parent.
9.3 Transactions with Affiliates. Borrowers will not, and will not
permit any Subsidiary which is not a Borrower to, enter into any transaction
with any Affiliate of the Borrowers, except upon fair and reasonable terms no
less favorable to the Borrowers or such Subsidiary than would obtain in a
comparable arm's-length transaction with a Person not an Affiliate.
9.4 Accounting Changes. Parent will not, and will not permit
Subsidiary to, make any significant change in accounting treatment or reporting
practices, except as required by GAAP, or change its fiscal year or the fiscal
year of any Subsidiary.
9.5 Investments. Borrowers will not, and will not permit any
Subsidiary which is not a Borrower to, acquire for value, make, have or hold any
Investments, except:
(a) Investments existing on the date of this Agreement.
(b) Permitted Indebtedness.
(c) Travel and relocation advances to management personnel and
employees in the ordinary course of business.
(d) Investments by any Borrower in Cash Equivalents.
(e) Other Investments consisting of the acquisition of all or
substantially all of the capital stock of, or assets of, any Person in an
aggregate amount not in excess of $5,000,000 during any fiscal year of Parent.
9.6 [Intentionally omitted)
9.7 Liens. Borrowers will not, and will not permit any Subsidiary which
is not a Borrower to, create, incur, assume or suffer to exist any Lien, or
enter into, or make any commitment to enter into, any arrangement for the
acquisition of any property through
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conditional sale, lease-purchase or other title retention agreements, with
respect to any property now owned or hereafter acquired by a Borrower or such a
Subsidiary, except Permitted Liens.
9.8 Contingent Obligations. Borrowers will not, and will not permit any
Subsidiary to, be or become liable on any Contingent Obligations, other than
Contingent Obligations existing on the date hereof which are identified in the
Disclosure Schedule.
9.9 Operating Income. Borrowers shall not fail to have had Operating
Income greater than zero (a) as at the end of any fiscal year (beginning with
the fiscal year ending June 30, 1996), or (b) during any period of three
consecutive fiscal quarters.
9.10 No Amendments. Borrowers will not, and will not permit any
Subsidiary to, amend its certificate of incorporation or bylaws if the result
thereof would create a Material Adverse Effect.
9.11 Leverage Ratio. The Leverage Ratio shall not be more than 0.75 to
1.0 as of the last day of any fiscal quarter of Parent.
9.12 Quick Ratio. The Quick Ratio shall not be less than 1.0 to 1.0 as
of the last day of any fiscal quarter of Parent.
9.13 Debt Service Coverage Ratio. The Debt Service Coverage Ratio shall
not be less than 1.5 to 1.0 as of the last day of any fiscal quarter of Parent,
measured on a rolling four-quarter basis.
9.14 Tangible Net Worth. Tangible Net Worth, as of the last day of any
fiscal quarter of Parent, shall not be less than the sum of (i) $85,000,000 plus
100% of the aggregate amount of equity contributions made to Parent after
December 31, 1995, plus 75% of Parent's consolidated positive net income for
each fiscal quarter commencing with the fiscal quarter ended March 31, 1996.
9.15 Restricted Payments. Parent shall not make or permit any
Subsidiary to make any Restricted Payment.
9.16 Margin Stock. Borrowers will not use or permit the use of any of
the proceeds of the Loans, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying "margin stock", as
that term in quotations is defined in Regulation U.
9.17 No Fundamental Change. Parent will not substantially change the
nature of its business and the business of the Subsidiaries, taken as a whole.
9.18 Continuity of Certain Senior Managers. There shall be no change
after the date of this Agreement in the individuals serving as Parent's Chairman
of the Board, its President and its Chief Financial Officer.
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ARTICLE 10
EVENTS OF DEFAULT
10.1 Events of Default. An "Event of Default" shall exist if any one or
more of the following events (herein collectively called "Events of Default")
shall occur and be continuing.
(a) Borrowers shall fail to pay when due any principal of, or
interest on, any Note or shall fail to pay when due and after written notice
thereof any fee, expense or other payment required hereunder, and such failure
shall continue for 15 days after such due date or written notice thereof, if
applicable;
(b) Any representation or warranty made under this Loan Agreement,
or any of the other Loan Documents, or in any certificate or statement furnished
or made to the Banks pursuant hereto or in connection herewith or with the
Loans, shall prove to have been untrue, inaccurate, misleading or incomplete in
any material respect as of the date made or deemed made;
(c) Any failure or neglect to perform or observe any of the
covenants or agreements of Borrowers or Borrower contained herein or in any of
the other Loan Documents, and such failure or neglect either cannot be remedied
or, if it can be remedied, such remedy is not promptly commenced and diligently
and in good faith prosecuted to completion within 30 days after notice thereof
to Borrowers;
(d) Any failure to pay when due any Indebtedness (other than that
to which subsection 10.1(a) hereof is applicable) of Parent or any Subsidiary
owed to any Bank in any amount, if such failure or default shall continue for
more than the period of grace, if any, specified in the related agreements;
(e) The maturity of any material Indebtedness of any Borrower
(other than Indebtedness under this Agreement) or a Subsidiary which is not a
Borrower shall be accelerated, or any Borrower or such a Subsidiary shall fail
to pay any such material Indebtedness when due (after the lapse of any
applicable grace period) or, in the case of such Indebtedness payable on demand,
when demanded (after the lapse of any applicable grace period), or any event
shall occur or condition shall exist and shall continue for more than the period
of grace, if any, applicable thereto and shall have the effect of causing, or
permitting the holder of any such Indebtedness or any trustee or other Person
acting on behalf of such holder to cause, such material Indebtedness to become
due prior to its stated maturity or to realize upon any collateral given as
security therefor. For purposes of this Section, Indebtedness of a Borrower or
such a Subsidiary shall be deemed "material" if its exceeds $1,000,000 as to any
item of Indebtedness or in the aggregate for all items of Indebtedness with
respect to which any of the events described in this Section 10.1(e) has
occurred.
(f) Any one or more of the Loan Documents shall cease to be legal,
valid, binding agreements enforceable against any party executing the same in
accordance with the respective terms thereof, or shall in any way be terminated
or become or be declared ineffective or inoperative, so as to deny the Banks the
substantial benefits contemplated by such Loan Document or Loan Documents;
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(g) Parent or any Subsidiary shall (i) apply for or consent to the
appointment of a receiver, trustee, custodian, intervenor or liquidator of
itself or of all or a substantial part of its assets, (ii) file a voluntary
petition in bankruptcy or admit in writing that it is unable to pay its debts as
they become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, (v) file an
answer admitting the material allegations of, or consent to, or default in
answering, a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or (vi) take corporate action for the purpose of
effecting any of the foregoing;
(h) An involuntary petition or complaint shall be filed against
Parent or any Subsidiary seeking bankruptcy or reorganization of Parent or such
Subsidiary or the appointment of a receiver, custodian, trustee, intervenor or
liquidator of Parent or any Subsidiary, or all or substantially all of its
assets, and such petition or complaint shall not have been dismissed within 120
days of the filing thereof; or an order, order for relief, judgment or decree
shall be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of Parent or
any Subsidiary or appointing a receiver, custodian, trustee, intervenor or
liquidator of Parent or any Subsidiary, or of all or substantially all of its
assets, and such order, judgment or decree shall continue unstayed and in effect
for a period of 60 days;
(i) Any final judgments) (excluding those the enforcement of which
is suspended pending appeal) for the payment of money in excess of the sum of
$250,000 in the aggregate (other than any judgment covered by insurance where
coverage has been acknowledged by the insurer) shall be rendered against any
Borrower or any Subsidiary which is not a Borrower and such judgment or
judgments shall not be satisfied or discharged at least 10 days prior to the
date on which any of its assets could be lawfully sold to satisfy such judgment;
(j) Either (i) proceedings shall have been instituted to
terminate, or a notice of termination shall have been filed with respect to, any
Plans (other than a Multi-Employer Pension Plan as that term is defined in
Section 4001(a)(3) of ERISA) by Parent, any Subsidiary, any member of the
Controlled Group, PBGC or any representative of any thereof, or any such Plan
shall be terminated, in each case under Section 4041 or 4042 of ERISA, and such
termination shall give rise to a liability of Parent or the Controlled Group to
the PBGC or the Plan under ERISA in excess of $250,000 or (ii) a Reportable
Event, the occurrence of which would cause the imposition of a lien in excess of
$250,000 under Section 4062 of ERISA, shall have occurred with respect to any
Plan (other than a Multi-Employer Pension Plan as that term is defined in
Section 4001(a)(3) of ERISA) and be continuing for a period of 60 days;
(k) Any of the following events shall occur with respect to any
Multi-Employer Pension Plan (as that term is defined in Section 4001(a)(3) of
ERISA) to which Parent or any Subsidiary contributes or contributed on behalf of
its employees and the Banks determines in good faith that the aggregate
liability likely to be incurred by Parent or any Subsidiary, as a result of any
of the events specified in clauses (i), (ii) and (iii) below, in excess of
$250,000: (i) Parent or any such Subsidiary incurs a withdrawal liability under
Section 4201 of ERISA; (ii) any such plan is "in reorganization" as that term is
defined in Section 4241 of ERISA; or (iii) any such Plan is terminated under
Section 4041A of ERISA;
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(l) Any levy or execution upon, or judicial seizure of, any
property of any Borrower or any Subsidiary which is not a Borrower that has a
fair market value in excess of $250,000 that is not bonded or released within 30
days; or
(m) Any Security Document shall, at any time, cease to be in full
force and effect or shall be judicially declared null and void, or the validity
or enforceability thereof shall be contested by any Borrower or any Subsidiary
which is not a Borrower, or the Agent for the benefit of the Banks shall cease
to have a valid and perfected security interest having the priority contemplated
thereunder in all of the collateral described therein, other than by action or
inaction of the Agent or any Bank if (i) the aggregate value of the collateral
affected by any of the foregoing exceeds $250,000, and (ii) any of the foregoing
shall remain unremedied for ten days or more after receipt of notice thereof by
the Borrowers from the Agent.
10.2 Remedies Upon Event of Default. If an Event of Default shall have
occurred and be continuing, then the Required Banks may, at their sole option,
exercise any one or more of the following rights and remedies, and any other
remedies provided in any of the Loan Documents, as they in their sole discretion
may deem necessary or appropriate, all of which remedies shall be deemed
cumulative, and not alternative: (i) terminate the Banks' commitment to lend
hereunder, (ii) declare the principal of, and all interest then accrued on, the
Notes and any other liabilities hereunder to be forthwith due and payable,
whereupon the same shall become immediately due and payable without presentment,
demand, protest, notice of default, notice of acceleration or of intention to
accelerate or other notice of any kind all of which each Borrower hereby
expressly waives, anything contained herein or in any Note to the contrary
notwithstanding, (iii) reduce any claim to judgment, and/or (iv) without notice
of default or demand, direct the Agent to pursue and enforce any of the Agent's
rights and remedies under the Loan Documents, or otherwise provided under or
pursuant to any applicable law or agreement; provided, however that if any Event
of Default specified in subsection 10.1(g) or 10.1(h) shall occur, the principal
of, and all interest on, the Notes and other liabilities hereunder shall
thereupon become due and payable concurrently therewith, and each Bank's
obligations to lend shall immediately terminate hereunder, without any further
action by any Bank or the Agent and without presentment, demand, protest, notice
of default, notice of acceleration or of intention to accelerate or other notice
of any kind, all of which each Borrower hereby expressly waives.
10.3 Performance by Banks. Should any Borrower fail to perform any
covenant, duty or agreement contained herein or in any of the Loan Documents
within the period provided herein, if any, for correction of such failure, Agent
may, at its option, perform or attempt to perform such covenant, duty or
agreement on behalf of such Borrower. In such event, Borrowers shall, at the
request of Agent, promptly pay any amount expended by Agent in such performance
or attempted performance to the Agent at its Main Office, together with interest
thereon at the Past Due Rate, from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly understood that neither any Bank
nor the Agent assumes any liability or responsibility for the performance of any
duties of Borrowers or any Borrower hereunder or under any of the Loan Documents
or other control over the management and affairs of any Borrower.
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ARTICLE 11
THE AGENT
11.1 Appointment and Authorization. Each Bank appoints and authorizes
the Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement and the other Loan Documents as are delegated to the Agent
by the terms thereof, together with such powers as are reasonably incidental
thereto. Neither the Agent nor any of its directors, officers, employees or
Affiliates shall be liable for any action taken or omitted to be taken by it or
them under or in connection with this Agreement or the other Loan Documents,
except for its or their own gross negligence or willful misconduct; provided,
however, that the Agent shall be protected in acting or refraining from acting
upon the instruction of the Required Banks; and provided, further, that the
Agent shall not be required to take any action that exposes it to personal
liability or is contrary to any Loan Document, other agreement or applicable
law. The Agent shall act as an independent contractor in performing its
obligations as Agent hereunder and under the other Loan Documents and nothing
herein contained shall be deemed to create a fiduciary relationship among or
between the Agent, the Borrowers or the Banks.
11.2 Note Holders. The Agent may treat the payee of any Note as the
holder thereof until written notice of transfer shall have been filed with it
signed by such payee and in form satisfactory to the Agent.
11.3 Consultation With Counsel. The Agent may consult with legal
counsel selected by it and shall not be liable to the Banks for any action taken
or suffered in good faith by it in accordance with the advice of such counsel.
11.4 Documents. The Agent shall not be under a duty to examine into or
pass upon the validity, effectiveness, genuineness or value of the Notes, the
other Loan Documents or any other instrument or document furnished pursuant
thereto or thereunder, makes no representation or warranty to any Bank and shall
not be responsible for any representations, warranties or statements made in
connection with this Agreement or any other Loan Document, and shall be entitled
to assume that this Agreement and the other Loan Documents are valid, effective
and genuine and what they purport to be.
11.5 Agent and Affiliates. With respect to its RCF Commitment and Term
Loan Commitment and the Loans made by it in its capacity as a Bank, First
Interstate shall have the same rights and powers under this Agreement and the
other Loan Documents as any other Bank and may exercise the same as though it
were not the Agent, and First Interstate and its affiliates may accept deposits
from, lend money to and generally engage in any kind of business with any
Borrower or any Subsidiary which is not a Borrower hereunder as if it were not
the Agent.
11.6 Action by Agent. The Agent shall be entitled to use its discretion
with respect to exercising or refraining from exercising any rights which may be
vested in it by, or with respect to taking or refraining from taking any action
or actions which it may be able to take under or in respect of, this Agreement
and the Loan Documents. The Agent shall incur no liability to the Banks under or
in respect of this Agreement or any of the Loan Documents by acting upon any
notice, consent, certificate, warranty or other paper or instrument believed
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by it to be genuine or authentic or to be signed by the proper party or parties,
or with respect to anything which it may do or refrain from doing in the
reasonable exercise of its judgment, or which may seem to it to be necessary or
desirable in the premises.
11.7 Credit Analysis. Each Bank has made, and shall continue to make,
its own independent investigation or evaluation of the operations, business,
property and condition, financial and otherwise, of the Borrowers, in connection
with the making of its respective RCF Commitment and, in the case of First
Interstate, its Term Loan Commitment, and each has made its own appraisal of the
creditworthiness of the Borrowers. Except as explicitly provided herein, the
Agent has no duty or responsibility, either initially or on a continuing basis,
to provide any Bank with any credit or other information with respect to such
operations, business, property, condition or creditworthiness, whether such
information comes into its possession on or before the first Event of Default or
at any time thereafter.
11.8 Notices of Event of Default etc. In the event that any Bank shall
have acquired actual knowledge of any Potential Default or Event of Default,
such Bank shall promptly give notice thereof to the Agent. The Agent shall,
promptly upon receipt of any such notice provide a copy thereof to the other
Banks. Upon receipt from any Bank of a request that the Agent give notice to the
Borrowers of the occurrence of a Potential Default or Event of Default under
subsection 10.2, the Agent shall promptly forward such request to the other
Banks and will take such action and assert such rights under this Agreement and
the other Loan Documents as the Required Banks shall direct in writing.
11.9 Indemnification. Each Bank agrees to indemnity the Agent (to the
extent not reimbursed by the Borrowers), ratably according to its Pro Rata
Share, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of this Agreement or the
Loan Documents or any action taken or omitted by the Agent under this Agreement
or the Loan Documents; provided, that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each Bank
agrees to reimburse the Agent promptly upon demand for its Pro Rata Share
(determined under clause (v) of the definition thereof) of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and the other Loan Documents, to the extent that the Agent is not reimbursed for
such expenses by the Borrowers; provided, that no Bank shall be liable for any
portion of any such expenses resulting from the Agent's gross negligence or
willful misconduct.
11.10 Payments.
(a) Except as provided in subsection (b) immediately below, all
payments made by Borrowers, or any Borrower, with respect to the Obligation
shall be applied to the payment of fees and interest due and payable on the
Loans, and shall be applied to the payment or prepayment of principal
outstanding on the Loans, in each case as Borrowers shall direct in accordance
with the provisions of this Agreement, provided that all payments of
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principal or interest made with respect to the Revolving Credit Loans or the
Term Loan shall be applied to the payment of interest and principal outstanding
under such Loans in accordance with each Bank's respective Pro Rata Share of
either the Revolving Credit Loans or the Term Loan, as applicable. The Agent
shall forthwith distribute to each Bank that Bank's Pro Rata Share of interest
or principal paid by Borrowers on or before the Termination Date with respect to
the Loans.
(b) After the Termination Date, if any unpaid balance of principal
remains on the Revolving Credit Loans, the outstanding principal amount of the
Term Loan shall be deemed to be consolidated with the outstanding principal
balance of First Interstate's Revolving Credit Loan for the sole purpose of
calculating each Bank's composite Pro Rata Share of the outstanding principal
amounts of the Loans, and all payments received by Agent with respect to the
Obligation shall be distributed forthwith by Agent in accordance with each
Bank's Pro Rata Share of the aggregate outstanding principal amount of the Loans
(except that payments under Sections 3.6 and 4.7 herein shall be distributed
exclusively to the respective Bank).
(c) All distributions made by Agent to any Bank shall be made in
the currency and funds received by Agent and shall be made on the date actually
received if received prior to 2:00 p.m., otherwise on the next Business Day.
11.11 Sharing of Payments. If any Bank shall receive and retain any
payment on or after the Termination Date, whether by setoff, application of
deposit balance or security, or otherwise, in respect of the Obligation in
excess of such Bank's Pro Rata Share of all payments of the Obligations
occurring on or after the Termination Date, then such Bank shall purchase from
the other Banks (for cash and at face value and without recourse) such
participation in the Obligation held by them as shall be necessary to cause such
excess payment to be shared ratably as aforesaid with each of them; provided,
that if such excess payment or part thereof is thereafter recovered from such
purchasing Bank, the related purchases from the other Banks shall be rescinded
ratably and the purchase price restored as to the portion of such excess payment
so recovered, but without interest. Each Bank agrees to exercise any and all
rights of setoff, counterclaim or bankers' lien first fully against the
Obligations and participation therein held by such Bank, and only then to any
other indebtedness of the Borrower to such Bank. The treatment of payments under
this subsection 11.11 shall not apply to any agency fees payable to the Agent
under the agency fee letter contemplated by subsection 2.3(d).
11.12 Forwarding of Information to Banks. The Agent shall forward to
the Banks copies of all notices, financial reports and other communications
received from any Borrower hereunder.
11.13 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Borrowers. The Required Banks may
remove the Agent at any time with or without cause by notifying the Agent and
the Borrowers. In addition, Banks with an aggregate Pro Rata Share exceeding 50%
may, following the occurrence and during the continuance of an Event of Default,
remove the Agent. Upon any such resignation or removal, the Required Banks or,
in the case of a removal pursuant to the preceding sentence, the removing Banks
shall have the right to appoint a successor Agent reasonably acceptable to the
Borrowers. If no successor Agent shall have been so appointed and shall have
accepted such appointment within 30 days after the retiring Agent's giving of
notice of its resignation or the
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removal of the Agent, then the retiring Agent may, on behalf of the Banks,
appoint an Agent, which shall be a Bank or a commercial bank organized under the
laws of the United States of America or of any state thereof and having a
combined capital and surplus of at least $100,000,000 and which shall be
reasonably acceptable to the Borrowers. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under this Agreement. With respect to the Banks, but not
to the Borrowers, after any retiring Agent's resignation or removal hereunder as
Agent, the provisions of this subsection 11.13 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was acting as Agent
under this Agreement and any other Loan Document.
ARTICLE 12
MISCELLANEOUS
12.1 Survival of Loan Documents. This Agreement and Agent's rights
under the Loan Documents shall survive the making of the Loans and shall
continue so long as any part of the Loans, or any extension or renewal thereof,
remains outstanding.
12.2 Modification. Neither this Agreement, any Note, any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
modified except in accordance with the provisions of this subsection. The
Required Banks may, or, with the written consent of the Required Banks, the
Agent may, from time to time, (a) enter into with the Borrowers written
amendments, supplements or modifications hereto and to the Notes and the other
Loan Documents for the purpose of adding any provisions to this Agreement or the
Notes or the other Loan Documents or changing in any manner the rights of the
Banks or of the Borrowers hereunder or thereunder or (b) waive, on such terms
and conditions as the Required Banks or the Agent, as the case may be, may
specify in such instrument, any of the requirements of this Agreement or the
Notes or the other Loan Documents or any Potential Default or Event of Default
and its consequences; provided, however that no such waiver and no such
amendment, supplement or modification shall (i) reduce the amount or extend the
scheduled date of maturity of any Note or of any installment thereof, or reduce
the stated rate of any interest or fee payable hereunder or extend the scheduled
date of any payment thereof or increase the aggregate amount or extend the
expiration date of any Bank's commitments to make Loans, in each case without
the consent of each Bank affected thereby, or (ii) amend, modify or waive any
provision of this subsection or reduce the percentage specified in the
definition of Required Banks, or consent to the assignment or transfer by any
Borrower of any of its rights and obligations under this Agreement and the other
Loan Documents, in each case without the written consent of all the Banks, or
(iii) amend, modify or waive any provision of Section 11 without the written
consent of the then Agent. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Banks and shall be binding upon
the Borrowers, the Banks, the Agent and all future holders of the Notes. In the
case of any waiver, Borrowers, the Banks and the Agent shall be restored to
their former position and rights hereunder and under the outstanding Notes and
any other Loan Documents, and any Potential Default or Event of Default waived
shall be deemed to be cured and not continuing; but no such waiver shall extend
to any subsequent or other Potential Default or Event of Default, or impair any
right consequent thereon. No amendment, supplement or other
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modification of this Agreement or any other Loan Document not executed by a
Borrower shall be enforceable against such Borrower.
12.3 Waiver. No failure to exercise, and no delay in exercising, on the
part of Agent, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other further exercise
thereof or the exercise of any other right. The rights of Agent hereunder and
under the Loan Documents shall be in addition to all other rights provided by
law. No modification or waiver of any provision of this Loan Agreement, any Note
or any Loan Documents, nor consent to departure therefrom, shall be effective
unless in writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other instances without such notice or demand.
12.4 Payment of Expenses. Borrowers shall pay all reasonable costs and
expenses of Agent (including, without limitation, the reasonable attorneys' fees
of Agent's legal counsel) incurred by Agent in connection with the preservation
and enforcement of Agent's rights under this Loan Agreement, any Note, and/or
the other Loan Documents; provided, however, that notwithstanding the aforesaid,
with respect to any legal action between the parties hereto that is pursued to
judgment the prevailing party only shall be reimbursed by the other party for
all costs and expenses (including, without limitation, reasonable attorneys'
fees and costs and expert witness fees) incurred in connection with the
preservation and enforcement of its rights under this Loan Agreement, any Note
and/or other Loan Documents.
12.5 Notices. Except for telephonic notices permitted herein, any
notices or other communications ("Notices") required or permitted to be given by
this Loan Agreement or any other documents and instruments referred to herein
must be (i) given in writing and personally delivered or mailed by prepaid
certified or registered mail, or (ii) made by telefacsimile delivered or
transmitted, to the party to whom such notice or communication is directed, to
the address of such party as follows:
Borrowers or any
Borrower: Integrated Process Equipment Corp.
4717 East Hilton Avenue
Phoenix, Arizona 85034
Attention: Mr. John S. Hodgson
(Vice-President & Chief Financial Officer)
Telefacsimile: (602) 517-6016
Agent: First Interstate Bank of Arizona, NA.
Post Office Box 29742
Phoenix, Arizona 85038-9742
Attention: Kevin C. Halloran
Commercial Lending Division #813
Telefacsimile: (602) 229-4409
Banks: To the address set forth below their names on the
signature pages hereof.
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Any notice to be personally delivered may be delivered to the principal offices
(determined as of the date of such delivery) of the party to whom such notice is
directed. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is personally delivered
as aforesaid; or, if mailed, on the third day after it is mailed as aforesaid;
or, if transmitted by telefacsimile, on the day that such notice is transmitted
as aforesaid. Any party may change its address for purposes of this Loan
Agreement by giving notice hereunder of such change to the other parties.
12.6 Assignments and Participation; Transferees. This Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no Borrower may assign its rights
or obligations hereunder, under any Note or under any other Loan Document
without the prior written consent of all of the Banks. Each Bank may at any time
grant participation in any portion of its Notes or its RCF Commitment, and each
Bank may at any time sell, assign, transfer or otherwise dispose of any portion
of its RCF Commitment (each such grant of a participation or interest so sold,
assigned, transferred or disposed of being herein called a "Transferred
Interest") to (a) banks chartered under the laws of the United States or any
State thereof or (b) other lenders or mutual funds, in the case of either clause
(a) or (b) reasonably acceptable to Borrowers ("Transferees"), provided that,
with regard to any such sale, assignment, transfer or other disposition, the
aggregate amount of the RCF Commitment being sold, assigned, transferred or
disposed of shall in no event be less than $5,000,000, and provided that,
following such sale, assignment, transfer or disposition, the transferring Bank
shall continue to be obligated under its RCF Commitment in an aggregate amount
of not less than $5,000,000. In addition, each Bank may pledge any portion of
its Notes for security purposes to any Federal Reserve Bank. If any Bank makes
any assignment to a Transferee, then upon notice to the Agent such Transferee,
to the extent of such assignment (unless otherwise provided therein), shall
become a "Bank" hereunder and shall have all the rights and obligations of such
Bank hereunder, and the transferring Bank shall be released from its duties and
obligations under this Agreement to the extent of such assignment. Borrowers
agree to issue new Notes to the transferring Bank and/or Transferee following
any such transfer that has the effect of making the Transferee a "Bank" under
this Agreement, to reflect the transfer of the Transferred Interest to the
Transferee. Without in any way limiting the rights of Transferees hereunder,
Borrowers agree that each Transferee shall be entitled to the benefits of
subsections 3.6 and 4.7 to the extent of its Transferred Interest as if it were
the "Bank" holding Loans in an aggregate amount equal to such Transferred
Interest, and that each Transferee may exercise any and all rights of banker's
lien, setoff and counterclaim available pursuant to law with respect to its
Transferred Interest as fully as if such Transferee were a direct lender to the
Borrowers. Notwithstanding the sale by any Bank of any participation hereunder,
(i) no participant shall be deemed to be or have the rights and obligations of
a Bank hereunder except as provided in the preceding sentence and (ii) such Bank
shall not in connection with selling any such participation condition such
Bank's rights in connection with consenting to amendments or granting waivers
concerning any matter under any Loan Document upon obtaining the consent of such
participant other than on matters relating to (A) any reduction in the amount of
any principal of, or the amount of or rate of interest on, any Note or Loan in
which such participation is sold, (B) any postponement of the date fixed for any
payment or principal of or interest on any Note or Loan, or the termination of
any RCF Commitment in which such participation is sold, or (C) the release or
subordination of any material portion of any collateral other than pursuant to
the terms of any Loan Document. Each such participant shall enter into an
agreement with
47
<PAGE> 54
the transferring Bank under which such Transferee agrees to benefit under the
Security Documents.
12.7 Arbitration.
(a) Binding Arbitration. Upon the demand of Borrowers or Required
Banks, whether made before the institution of any judicial proceeding or not
more than 60 days after service of a complaint, third party complaint,
cross-claim or counterclaim or any answer thereto or any amendment to any of the
above, any Dispute (as defined below) shall be resolved by binding arbitration
in accordance with the terms of this arbitration clause. A "Dispute" shall
include any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now existing
or hereafter occurring between the parties arising out of, pertaining to or in
connection with this Agreement or any Loan Document. The parties understand that
by this Agreement they have decided that the Disputes may be submitted to
arbitration rather than being decided through litigation in court before a judge
or jury and that once decided by an arbitrator the claims involved cannot be
brought, filed or pursued in court.
(b) Governing Rules. Arbitrations conducted pursuant to this Agreement,
including selection of arbitrators, shall be administered by the American
Arbitration Association ("Administrator") pursuant to the Commercial Arbitration
rules of the Administrator. Arbitrations conducted pursuant to the terms hereof
shall be governed by the provisions of the Federal Arbitration Act (Title 9 of
the United States Code), and to the extent the foregoing are inapplicable,
unenforceable or invalid, the laws of the State of Arizona. Judgment upon any
award rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be a waiver
by any party that is a Bank of the protections afforded to it under 12 U.S.C.
Section 91 or similar governing state law. Any party who fails to submit to
binding arbitration following a lawful demand by the opposing party shall bear
all costs and expenses, including reasonable attorney's fees, incurred by the
opposing party in compelling arbitration of any Dispute.
(c) No Waiver, Preservation of Remedies, Multiple Parties. No provision
of, nor the exercise of any rights under, this arbitration clause shall limit
the right of any party to (1) foreclose against any real or personal property
collateral or other security, (2) exercise self-help remedies (including
repossession and setoff rights) or (3) obtain provisional or ancillary remedies
such as injunctive relief, sequestration, attachment, replevin, garnishment, or
the appointment of a receiver from a court having jurisdiction. Such rights can
be exercised at any time except to the extent such action is contrary to a final
award or decision in any arbitration proceeding. The institution and maintenance
of an action as described above shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the Dispute to arbitration, nor
render inapplicable the compulsory arbitration provisions hereof. Any claim or
Dispute related to exercise of any self-help, auxiliary or other exercise of
rights under this section (c) shall be a Dispute hereunder.
(d) Arbitrator Powers and Qualifications; Awards. Arbitrator(s) shall
resolve all Disputes in accordance with the applicable substantive law.
Arbitrator(s) may make an award of attorneys' fees and expenses if permitted by
law or the agreement of the parties. All statutes of limitation applicable to
any Dispute shall apply to any proceeding in accordance with this arbitration
clause. Any arbitrator selected to act as the only arbitrator in a Dispute
48
<PAGE> 55
shall be required to be a practicing attorney with not less than 10 years
practice in commercial law in the State of Arizona. With respect to a Dispute in
which the claims or amounts in controversy do not exceed five hundred thousand
dollars ($500,000), a single arbitrator shall be chosen and shall resolve the
Dispute. In such case the arbitrator shall have authority to render an award up
to but not to exceed five hundred thousand dollars ($500,000) including all
damages of any kind whatsoever, costs, fees and expenses. Submission to a single
arbitrator shall be a waiver of all parties' claims to recover more than five
hundred thousand dollars ($500,000). A Dispute involving claims or amounts in
controversy exceeding five hundred thousand dollars ($500,000) shall be decided
by a majority vote of a panel of three arbitrators ("Arbitration Panel"). An
Arbitration Panel shall be composed of one arbitrator who would be qualified to
sit as a single arbitrator in a Dispute decided by one arbitrator, another who
has at least ten years experience in commercial lending and another who has at
least ten years experience in the semiconductor industry. Arbitrator(s) may, in
the exercise of their discretion, at the written request of a party in any
Dispute, (1) consolidate in a single proceeding any multiple party claims that
are substantially identical and all claims arising out of a single loan or
series of loans including claims by or against borrowers, guarantors, sureties
and or owners of collateral if different from the Borrowers, and (2) administer
multiple arbitration claims as class actions in accordance with Rule 23 of the
Federal Rules of Civil Procedure. The arbitrator(s) shall be empowered to
resolve any dispute regarding the terms of this Agreement or the arbitrability
of any Dispute or any claim that all or any part (including this provision) is
void or voidable but shall have no power to change or alter the terms of this
Agreement. The award of the arbitrator(s) shall be in writing and shall specify
the factual and legal basis for the award.
(e) Miscellaneous. To the maximum extent practicable, the
Administrator, the arbitrator(s) and the parties shall take any action necessary
to require that an arbitration proceeding hereunder be concluded within 180 days
of the filing of the Dispute with the Administrator. The arbitrator(s) shall be
empowered to impose sanctions for any party's failure to proceed within the
times established herein. Arbitration proceedings hereunder shall be conducted
in Arizona at a location determined by the Administrator. In any such proceeding
a party shall state as a counterclaim any claim which arises out of the
transaction or occurrence or is in any way related to the Documents which does
not require the presence of a third party which could not be joined as a party
in the proceeding. The provisions of this arbitration clause shall survive any
termination, amendment, or expiration of the Loan Documents and repayment in
full of sums owed to Banks by Borrower unless the parties otherwise expressly
agree in writing. Each party agrees to keep all Disputes and arbitration
proceedings strictly confidential, except for disclosures of information
required in the ordinary course of business of the parties or as required by
applicable law or regulation.
12.8 Governing Law. This Loan Agreement has been prepared, is being
executed and delivered, and is intended to be performed in the State of Arizona.
The substantive laws of the State of Arizona and the applicable federal laws of
the United States of America shall govern the validity, construction,
enforcement and interpretation of this Loan Agreement and all of the other Loan
Documents, without regard to Arizona conflicts of law rules.
12.9 Invalid Provisions. If any provision of any Loan Document is held
to be illegal, invalid or unenforceable under present or future laws during the
term of this Loan Agreement, such provision shall be fully severable; such Loan
Document shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of such Loan
49
<PAGE> 56
Document; and the remaining provisions of such Loan Document shall remain in
full force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from such Loan Document.
Furthermore, in lieu of each such illegal, invalid or unenforceable provision
there shall be added as part of such Loan Document a provision mutually
agreeable to Borrower and Agent as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
12.10 Offset. Each Borrower hereby grants to Agent the right of offset,
to secure repayment of the Notes, upon any and all its moneys, securities or
other property and the proceeds therefrom, now or hereafter held or received by
or in transit to Agent or its agents, from or for the account of any Borrower,
whether for safe keeping, custody, pledge, transmission, collection or
otherwise, and also upon any and all deposits (general or special) and credits
of any Borrower, and any and all claims of any Borrower against Agent at any
time existing.
12.11 Binding Effect. The Loan Documents shall be binding upon and
inure to the benefit of the parties, and their respective successors, assigns
and legal representatives; provided, however, that no Borrower may, without the
prior written consent of Agent, assign any rights, powers, duties or obligations
thereunder, and Agent may not, without the prior written consent of Borrower,
assign any rights, powers, duties or obligations thereunder to other than an
Authorized Participant.
12.12 Entirety. The Loan Documents embody the entire agreement between
the parties and supersede all prior agreements and understandings relating to
the subject matter hereof and thereof.
12.13 Headings. Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Loan Agreement.
12.14 Participation. Agent shall have the right to enter into a
participation agreement with any Authorized Participant with respect to the
Notes or any Note, but such participation shall not affect the rights and duties
of Agent hereunder vis-a-vis Borrower.
12.15 No Third Party Beneficiary. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this Agreement
be construed to make or render Agent liable to any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by any
Borrower, or for debts or claims accruing to any such persons against any
Borrower. Notwithstanding anything contained herein or in the Notes, or in any
other Loan Document, or any conduct or course of conduct by any or all of the
parties hereto, before or after signing this Agreement or any of the other Loan
Documents, neither this Agreement nor any other Loan Document shall be construed
as creating any right, claim or cause of action against Agent, or any of its
officers, directors, agents or employees, in favor of any materialman, supplier,
contractor, subcontractor, purchaser or lessee of any property owned by any
Borrower, nor to any other person or entity other than Borrowers.
12.16 Pricing Matrix, Schedules and Exhibits Incorporated. The Pricing
Matrix, all schedules and all exhibits attached hereto are hereby incorporated
into this Loan Agreement by each reference thereto as if fully set forth at each
such reference.
50
<PAGE> 57
12.17 Counterparts. This Loan Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
12.18 Choice of Forum; Consent to Service of Process; Jurisdiction;
Waiver of Jury Trial. Any suit, action or proceeding against Borrowers with
respect to this Loan Agreement, the Revolving Credit Notes, the Term Note or any
judgment entered by any court in respect thereof, may be brought in any of the
courts of the State of Arizona in Maricopa County, or in the United States
courts located in the State of Arizona as the Agent in its sole discretion may
elect, and each Borrower hereby submits to the nonexclusive jurisdiction of such
courts for the purpose of any such suit, action or proceeding. Each Borrower
hereby irrevocably waives any objections which it may now or hereafter have to
the laying of venue of any suit, action or proceeding arising out of or
relating to this Loan Agreement, the Notes or any other Loan Document brought in
any of the courts located in Maricopa County in the State of Arizona. BORROWERS,
AGENT AND BANKS HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING, OR COUNTER-CLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTONS CONTEMPLATED HEREBY OR THEREBY.
12.19 Confidentiality. The Agent and the Banks shall hold all nonpublic
information obtained pursuant to the requirements hereof in accordance with the
Agent's or the applicable Bank's customary procedures for handling confidential
information of this nature and in accordance with safe and sound business
practices and in any event may make disclosure reasonably required by a bona
fide offeree or assignee (or participant), or as required or requested by any
governmental authority or representative thereof, or pursuant to legal process,
or to its accountants, lawyers and other advisors, and shall require any such
offeree or assignee (or participant) to agree (and require any of its offerees,
assignees or participants to agree) to comply with this Section 12.19. In no
event shall the Agent or any Bank be obligated or required to return any
materials furnished by the Parent or any other Borrower; provided, however, each
offeree shall be required to agree that if it does not become an assignee (or
participant) it shall return all materials furnished to it by any Borrower in
connection herewith.
12.20 No Agency. It is understood by and agreed to by all of the
parties to this Loan Agreement that First Interstate is the sole Bank, and that,
notwithstanding any conflicting provisions of this Loan Agreement or any other
Loan Document to the contrary, (A) the Borrowers may for all purposes treat the
Agent as the Bank, and the Bank as the Agent, and (B) no other Bank may become a
party to this Loan Agreement without the express written consent of the
Borrowers. Without in any way limiting the foregoing, and in furtherance
thereof, the parties further agree:
(a) In the event any terms or conditions of this Section 12.20 conflict
with any other provisions of this Loan Agreement or of any other Loan Document,
this Section 12.20 shall control.
(b) First Interstate may not alter the terms and conditions of this
Section 12.20 without first obtaining the written consent of all the Borrowers.
51
<PAGE> 58
(c) Section 12.6 shall be deemed to read as follows:
12.6 Assignments. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that neither any Borrower, the Agent nor any Bank may assign its rights
or obligations hereunder, under any Note or under any other Loan Document,
without the prior written consent of all of the other parties hereto; provided,
however First Interstate may pledge any portion of its Notes for security
purposes to any Federal Reserve Bank.
(d) Section 2.3(d) shall be deemed deleted and of no effect.
(e) Section 11.13 shall be deemed deleted.
(f) Section 3.3(b)(ii) shall be deemed deleted and of no effect.
52
<PAGE> 59
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement
as of the day and year first above written.
"BORROWERS":
INTEGRATED PROCESS EQUIPMENT CORP.
By John S. Hodgson
--------------------------------------
Its Vice President, CFO and Secretary
---------------------------------
IPEC PLANAR PORTLAND, INC.
By John S. Hodgson
--------------------------------------
Its Vice President, CFO and Secretary
----------------------------------
IPEC PLANAR PHOENIX, INC.
By John S. Hodgson
--------------------------------------
Its Vice President, CFO and Secretary
----------------------------------
IPEC CLEAN, INC.
By John S. Hodgson
--------------------------------------
Its Vice President, CFO and Secretary
----------------------------------
IPEC PRECISION, INC.
By John S. Hodgson
--------------------------------------
Its Vice President, CFO and Secretary
----------------------------------
LOAN AGREEMENT
SIGNATURE PAGE-1
<PAGE> 60
"AGENT":
FIRST INTERSTATE BANK OF ARIZONA. N.A.,
as Agent
By Signature Illegible
--------------------------------------
Its Vice President
---------------------------------
"BANKS":
FIRST INTERSTATE BANK OF ARIZONA, N.A.
By Signature Illegible
--------------------------------------
Its Vice President
---------------------------------
Address for Notices:
First Interstate Bank of Arizona, N.A.
Post Office Box 29742
Phoenix, Arizona 85038-9742
Attention: Kevin C. Halloran
Commercial Lending Division #813
Telefacsimile: (602) 229-4409
LOAN AGREEMENT
SIGNATURE PAGE-2
<PAGE> 61
ANNEX 1
to
LOAN AGREEMENT
COMMITMENT AMOUNTS OF THE BANKS
I. RCF Commitments:
RCF Commitment Amount
---------------------
FIRST INTERSTATE BANK OF ARIZONA, NA. $30,000,000
Total RCF Commitments: $30,000,000
II. Term Loan Commitments:
---------------------
Term Loan
Commitment Amount
-----------------
FIRST INTERSTATE BANK OF ARIZONA, NA. $10,000,000
Total Term Loan Commitments: $10,000,000
<PAGE> 62
ANNEX 2
to
LOAN AGREEMENT
PRICING MATRIX
The Applicable Margin with respect to an Interest Rate Option, the
Unused Commitment Fee, and the Stand-By L/C Issuance Fee in effect from time to
time shall be determined quarterly as more fully described in Section 3.2 of the
Loan Agreement, based upon the following ratios as of a determination date:
<TABLE>
<CAPTION>
Pricinng Level 1 Pricing Level 2 Pricing Level 3
---------------- --------------- ---------------
<S> <C> <C> <C>
RATIOS
Quick Ratio greater than 1.50 to 1 greater than 1.25 to 1 greater than 1.00 to 1
Leverage Ratio less than 0.35 to 1 less than 0.55 to 1 less than 0.75 to 1
Debt Service Coverage Ratio greater than 2.50 to 1 greater than 2.00 to 1 greater than 1.50 to 1
APPLICABLE MARGIN
For RCF Advances (and
Take-Out Term Loan):
LIBOR Advances 2.25% 2.75% 3.00%
Prime Advances 0% 0% .25%
For Term Loan (regardless of
ratio):
Prime Advance 1.25% 1.25% 1.25%
Treasuries Advance 3.75% 3.75% 3.75%
UNUSED COMMITMENT FEE 25.00 b.p.* 31.25 b.p. 43.75 b.p.
RATE
STAND-BY L/C ISSUANCE FEE 100 b.p. 125 b.p. 150 b.p.
</TABLE>
* "b.p." means basis points.
<PAGE> 63
EXHIBIT A
TO
LOAN AGREEMENT
First Interstate Bank
of Arizona, N.A., as Agent
Commercial Lending Division #813
Post Office Box 29742
Phoenix, Arizona 85038-9742
Attention: Kevin Halloran
Borrowing Base Certificate
Ladies and Gentlemen:
We submit this Borrowing Base Certificate to you in accordance with the
terms of Section 8.1(j) of the Loan Agreement dated April 24, 1996, among First
Interstate Bank of Arizona, N.A., as a Bank and as Agent, and the Borrowers, and
as the same may be further amended, modified, supplemented or restated from time
to time. Each capitalized term used herein has the same meaning ascribed to such
term in that Loan Agreement.
The undersigned hereby certifies the following as of the close of
business on _________________________, 199_:
1. Borrowing Base Calculation.
<TABLE>
<CAPTION>
IPEC IPEC
Planar Planar IPEC IPEC
Phoenix, Portland, Clean, Precision,
Description Inc. Inc. Inc. Inc Parent Total
<S> <C> <C> <C> <C> <C> <C>
A Total of Borrowers' Accounts
Less:
B Accounts with original terms greater than 90
days (i)
C Accounts with total
balance unpaid after 90
days part invoice date
(ii)
D Holdbacks (iii)
E Total of Accounts due from customers with
more than 25% of customer accounts unpaid
90 days after invoice (vi)
F Accounts due from
customers which Agent has
informed Borrower does
not have satisfactory
credit rating (vii)
G Ineligible government accounts (viii)
H Affiliate or related party accounts (ix)
I Accounts evidenced by "Chattel Paper" (xi)
</TABLE>
<PAGE> 64
2
<TABLE>
<CAPTION>
IPEC IPEC
Planar Planar IPEC IPEC
Phoenix, Portland, Clean, Precision,
Description Inc. Inc. Inc. Inc. Parent Total
<S> <C> <C> <C> <C> <C> <C>
J Accounts in which Agent does not have a
perfected first security interest (xii)
K Accounts subject to liens by others (xiii)
L Accounts from customers subject to
bankruptcy or insolvency (xiv)
M Equals Sub-Total I
N Sum of that portion of accounts individually
greater than 10% of all Accounts
0 Less: Amounts included under "N" permitted
per Schedule 1.2
P Equals Sub-Total 2(iv)
Q Sum of Foreign accounts
R Less Foreign accounts permitted per
Schedule 1.1 or backed EXIM insurance or
acceptable L/C's
S Equals Sub-Total 3(v)
T Total of Accounts with unresolved customer
disputes
U Sum of that amount of Accounts in dispute
V Equals Sub-Total 4(x)
CALCULATION
A Total of Borrowers' Accounts
M Less: Sub-Total 1
P Less: Sub-Total 2
S Less: Sub-Total 3
V Less: Sub-Total 4
W Equals Eligible Accounts
X W multiplied by .80
Y Aggregate RCF Commitment Amount
Z The of X and Y is the Borrowing Base
</TABLE>
<PAGE> 65
3
2. Information Respecting Approved Concentration Accounts.
A. Book value of aggregate Approved
Concentration Accounts
B. Account balances of the following account debtors,
including such Accounts as a percentage of Borrowers' total
Accounts:
<TABLE>
<CAPTION>
As of Percentage
Book Value of total Accounts
<S> <C> <C>
Intel Corporation $ %
Tokyo Electron Limited $ %
Teltec Semiconductor $ %
IBM $ %
Motorola, Inc. $ %
SGS-Thompson $ %
</TABLE>
3. The undersigned is the duly elected chief financial officer of the
Parent, duly authorized to execute and deliver this Certificate for
and on behalf of each of the Borrowers.
DATED:_____________________ 199_.
INTEGRATED PROCESS EQUIPMENT CORP.
IPEC PLANAR PHOENIX, INC.
IPEC PLANAR PORTLAND, INC.
IPEC CLEAN, INC.
IPEC PRECISION, INC,
By________________________________
Name and Title:________________
<PAGE> 66
EXHIBIT B
TO
LOAN AGREEMENT
REVOLVING CREDIT NOTE
$30,000,000.00 April 24, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned (each a "Maker" and, collectively,
the "Makers"), hereby promise, jointly and severally, to pay to the order of
First Interstate Bank of Arizona, N.A. (the "Bank") at the main office of the
Agent (as such term and each other capitalized term used without definition
herein is defined in the Loan Agreement hereinafter referred to) at 100 West
Washington, Phoenix, Arizona 85003 (Attention: Commercial Banking Division,
#813), in Dollars in immediately available funds, the principal sum of THIRTY
MILLION DOLLARS ($30,000,000.00) or the aggregate unpaid principal amount of all
Advances made by the Bank pursuant to the Loan Agreement, whichever is less, and
to pay interest in like funds from the date hereof on the unpaid balance thereof
at the rates of interest per annum and at the times specified in the Loan
Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Loan Agreement.
This note is a Revolving Credit Note referred to in that certain Loan
Agreement dated April 24, 1996 among Makers, the Banks and the Agent (as the
same may be amended, modified or restated from time to time, the "Loan
Agreement"). All of the terms, conditions and covenants of the Loan Agreement
are expressly made a part of this Note by reference in the same manner and with
the same effect as if set forth herein at length and any holder of this Note is
entitled to the benefits of and remedies provided in the Loan Agreement.
Reference is made to the Loan Agreement for the maturity, payment, prepayment
and acceleration of the indebtedness evidenced hereby. This Note is secured by
certain collateral referred to in the Security Documents.
As provided by the Loan Agreement, Makers have the option, subject to
the terms and conditions set forth in the Loan Agreement, to convert the
principal balance of this Note into a Take-Out Term Loan. In the event such
option is duly and timely exercised, this Note shall thereafter evidence such
balance of the Take-Out Term Loan.
After maturity, including maturity upon acceleration, all unpaid
amounts of this Note shall bear interest at the Past Due Rate. Maker, jointly
and severally, agree to pay all collection expenses, including reasonable
attorneys' fees and court costs, incurred in the collection or enforcement of
all or any part of this Note in which the holder hereof is the prevailing party.
In the event of any court proceedings, court costs and attorneys' fees shall be
set by the court and not by jury and shall be included in any judgment obtained
by the holder hereof.
<PAGE> 67
2
Failure of the holder to exercise any option hereunder shall not
constitute a waiver of the right to exercise same in the event of any subsequent
default, or in the event of continuance of any existing default after demand for
strict performance hereof.
This Note shall be binding upon the Makers and their respective
successors and assigns and shall inure to the benefit of the payee hereof, and
any subsequent holders of this Note, and their successors and assigns.
This Note shall be governed by and construed according to the laws of
the State of Arizona.
IN WITNESS WHEREOF, Makers have caused this Note to be executed by
their duly authorized corporate agent as of the day and year first above
written.
INTEGRATED PROCESS EQUIPMENT CORP.,
a Delaware corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
77-0257507
IPEC PLANAR PHOENIX, INC.,
a Delaware corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
86-0282167
<PAGE> 68
3
IPEC PLANAR PORTLAND, INC.
an Oregon corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
93-0817789
IPEC CLEAN, INC.,
a California corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
68-0110411
IPEC PRECISION, INC.,
a Delaware corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
061-443634
<PAGE> 69
EXHIBIT C
TO
LOAN AGREEMENT
TERM NOTE
$10,000,000.00 April 24, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned (each a "Maker" and, collectively,
the "Makers"), hereby promise, jointly and severally, to pay to the order of
First Interstate Bank of Arizona, N.A. (the "Bank") at the main office of the
Agent (as such term and each other capitalized term used without definition
herein is defined in the Loan Agreement hereinafter referred to) at 100 West
Washington, Phoenix, Arizona 85003 (Attention: Commercial Banking Division,
#813), in Dollars in immediately available funds, the principal sum of TEN
MILLION DOLLARS ($10,000,000.00) and to pay interest in like funds from the date
hereof on the unpaid balance thereof at the rates of interest per annum and at
the times specified in the Loan Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Loan Agreement.
This note is the Term Note referred to in that certain Loan Agreement
dated April 24, 1996 among Makers, the Banks and the Agent (as the same may be
amended, modified or restated from time to time, the "Loan Agreement"). All of
the terms, conditions and covenants of the Loan Agreement are expressly made a
part of this Note by reference in the same manner and with the same effect as if
set forth herein at length and any holder of this Note is entitled to the
benefits of and remedies provided in the Loan Agreement. Reference is made to
the Loan Agreement for the maturity, payment, prepayment and acceleration of the
indebtedness evidenced hereby. This Note is secured by certain collateral
referred to in the Security Documents.
After maturity, including maturity upon acceleration, all unpaid
amounts of this Note shall bear interest at the Past Due Rate. Maker, jointly
and severally, agree to pay all collection expenses, including reasonable
attorneys' fees and court costs, incurred in the collection or enforcement of
all or any part of this Note in which the holder hereof is the prevailing party.
In the event of any court proceedings, court costs and attorneys' fees shall be
set by the court and not by jury and shall be included in any judgment obtained
by the holder hereof.
Failure of the holder to exercise any option hereunder shall not
constitute a waiver of the right to exercise same in the event of an subsequent
default, or in the event of continuance of any existing default after demand for
strict performance hereof.
This Note shall be binding upon the Makers and their respective
successors and assigns and shall inure to the benefit of the payee hereof, and
any subsequent holders of this Note, and their successors and assigns.
<PAGE> 70
2
This Note shall be governed by and construed according to the laws of
the State of Arizona.
IN WITNESS WHEREOF, Makers have caused this Note to be executed by
their duly authorized corporate agent as of the day and year first above
written.
INTEGRATED PROCESS EQUIPMENT CORP.,
a Delaware corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
77-0257507
IPEC PLANAR PHOENIX, INC.,
a Delaware corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
86-0282167
IPEC PLANAR PORTLAND, INC.
an Oregon corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
93-0817789
<PAGE> 71
3
IPEC CLEAN, INC.,
a California corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
68-0110411
IPEC PRECISION, INC.,
a Delaware corporation
By________________________________
Its______________________________
Maker's Tax Identification Number:
061-443634
<PAGE> 72
EXHIBIT G
TO
LOAN AGREEMENT
DISCLOSURE STATEMENT
Section 6.2(f) disclosures: NONE,
Section 7.6 disclosures (Significant Debt Agreements):
See the agreements listed on Schedule 1.3(a) to this Loan Agreement.
Section 7.8 disclosures (Litigation): NONE
Section 7.12 disclosures (Subsidiaries):
<TABLE>
<CAPTION>
Percentage
of Parent's
ownership
Legal name State of of Subsidiary's
of Subsidiary Incorporation capital stock Principal Office
- ------------- ------------- ------------- ----------------
<S> <C> <C> <C>
IPEC Planar Delaware 100% 4717 E. Hilton Ave.
Phoenix, Inc. Phoenix, AZ 85034
Maricopa County, AZ
IPEC Planar Oregon 100% 725 SE Lincoln St.
Portland, Inc. Portland, OR 97214
Multinomah County, OR
IPEC Clean, Inc. California 100% 1922 Avenida del Oro
Oceanside, CA 92056
San Diego County, CA
IPEC Precision, Inc. Delaware 100% 3 Berkshire Boulevard
Bethel, CT 06801
Fairfield County, DE
IPEC International Delaware 100% 4717 E. Hilton Ave.
Services, Inc. Phoenix, AZ 85034
Maricopa County, AZ
</TABLE>
<PAGE> 73
2
<TABLE>
<CAPTION>
Percentage
of Parent's
ownership
Legal name State of of Subsidiary's
of Subsidiary Incorporation capital stock Principal Office
- ------------- ------------- --------------- -----------------
<S> <C> <C> <C>
IPEC Japan, Inc. Delaware 100% 911 Bern Court
San Jose, CA 95112
Santa Clara County, CA
</TABLE>
Section 7.13 disclosures (Principal Offices): See Section 7.12 disclosures,
above.
<PAGE> 74
EXHIBIT H
TO
LOAN AGREEMENT
First Interstate Bank
of Arizona, N.A., as Agent
Commercial Lending Division #813
Post Office Box 29742
Phoenix, Arizona 85038-9742
Attention: Kevin Halloran
Compliance Certificate
Ladies and Gentlemen:
We submit this Compliance Certificate to you in accordance with the
terms of Section 8.1(d) of the Loan Agreement dated April 24, 1996, among First
Interstate Rank of Arizona, N.A., as a Bank and as Agent, and the Borrowers, and
as the same may be further amended, modified, supplemented or restated from time
to time. Each capitalized term used herein has the same meaning ascribed to such
term in that Loan Agreement.
The undersigned hereby certifies the following as of the close of
business on December 31, 1995:
<TABLE>
<S> <C> <C>
1. Capitalized Lease Requirements of Section 9.6.
(a) Original capitalized amount of
Capitalized Leases entered into
since April 24, 1996 [date of
the Loan Agreement] $ -0-
(b) Maximum permitted original capitalized
amount of Capitalized Leases entered into
on or after the date set forth in (a) $5,000,000
2. Leverage Ratio Requirement of Section 9.11.
(a) Maximum Leverage Ratio permitted
by Section 9.11 0.75 to 1.0
(b) Amount of Funded Debt $41,559,000
(c) Tangible Net Worth $90,725,000
(d) Ratio of (b) to (c) .46 to 1
</TABLE>
<PAGE> 75
2
<TABLE>
<S> <C> <C>
3. Quick Ratio Requirement of Section 9.12.
(a) Minimum Quick Ratio permitted
by Section 9.12 1.0 to 1.0
(b) Consolidated cash, Cash Equivalents
and accounts receivable $77,148,000
(c) Consolidated current liabilities
(including outstanding principal
balance of the RCF or Take-Out
Term Loan, as the case may be,
but excluding the outstanding
balance of the Term Loan) $60,778,000
(d) Ratio of (b) to (c) 127 to 1
</TABLE>
4. Debt Service Coverage Ratio Requirement of Section 9.13.
<TABLE>
<CAPTION>
[In 000's]
<S> <C>
(a) Minimum Permitted Debt Service
Coverage Ratio 1.5
(b) Consolidated Net Income $(7,301)
(c) Plus: Depreciation 4,673
(d) Amortization
(e) Interest Expense 752
(f) Purchased Research & Development 36,961
(g) Other Non-Cash Expenses 263
(h) Operating Lease Expense 710
(i) Less: Non-Cash Income 13,296
Extraordinary Gains -0-
-------
(k) Equals Numerator $22,762
=======
(l) Operating Lease Expense (h above) $ 710
(m) Plus: Interest Expense (e above) 752
(n) Current Portion of Long Term Debt 5,450
(including any current
maturities under the Take-Out
Term Loan)
(o) Current Portion of Capital Leases 336
------
(p) Equals Denominator $7,248
======
(q) (k) divided by (o) equals Debt Service Ratio $3.14 to 1
</TABLE>
<PAGE> 76
6
<TABLE>
<S> <C>
(1) Notes Payable - All Current 12/95Q [In 000's] $25,790
Less: Riersgaard 13,000
Hughes 9,000
-------
Remaining N/P to be included above 3,790
Current portion L/T Debt per 12/95Q 1,660
-------
Total Current Portion L/T Debt 5,450
=======
(2) Operating Lease Expense: [In 000's]
6/95 annual report [1/95 to 6/95 expense] 636,000/2 318
6/96 annual report [7/95 to 12/95 expense] 784,000/2 392
-------
Total Estimated Operating Lease Expense 710
=======
</TABLE>
<PAGE> 77
4
5. Tangible Net Worth Requirement of Section 9.14.
<TABLE>
<S> <C>
(a) Minimum Tangible Net Worth
required by Section 9.14 (12/31/95) $85,000,000
(b) Tangible Net Worth at the
end of the most recently
concluded fiscal quarter $90,725,000
</TABLE>
6. The undersigned has reviewed the terms of the Loan Agreement and has made, or
has caused to be made under the supervision of the undersigned, a detailed
review of transactions and conditions of the Borrowers during the accounting
period covered by this Certificate.
7. All financial statements of Parent delivered to the Agent, pursuant to
Section 8.1(a) of the Loan Agreement, with respect to the fiscal quarter ended
December 31, 1995, are fairly stated and have been prepared in accordance with
GAAP.
8. Since the date of the most recent Compliance Certificate delivered to the
Agent, the Borrowers have observed, performed and fulfilled each and every
obligation and covenant contained in the Loan Agreement. On the date hereof, no
Potential Default or Event of Default known to the undersigned, has occurred and
is continuing, except such Potential Defaults or Events of Default as may be
described on a separate sheet attached hereto.
9. The undersigned is the duly elected chief financial officer of Parent, duly
authorized to execute and deliver this certificate for and on behalf of each of
the Borrowers.
DATED: April 24,1996.
INTEGRATED PROCESS EQUIPMENT CORP.
IPEC PLANAR PHOENIX, INC.
IPEC PLANAR PORTLAND, INC.
IPEC CLEAN, INC.
IPEC PRECISION, INC.
By /s/ John S. Hodgson
--------------------------------
John S. Hodgson
Vice President and CFO
<PAGE> 78
SCHEDULE 1.1
to
LOAN AGREEMENT
Approved Foreign Accounts
Accounts in respect of which the Account debtor is a Person listed
below shall not be subject to the provisions of clause (v) of the definition of
"Eligible Accounts":
Robert Bosch GmBH
DeHaviland Canada
Hyundai Electronics
LG Electronics, Inc. (formerly Goldstar Electronics)
Lucky-Goldstar International
Mosel Vitelic Inc.
NEC Semiconductor
Samsung Electronics
SGS-Thompson
Siemens-Plch
Silicon Systems
Taisil Electronic Mat.
Taiwan Semiconductor
Teltec Semiconductor
Tokyo Electron Ltd.
Wacker Silicones
<PAGE> 79
SCHEDULE 1.2
to
LOAN AGREEMENT
Approved Concentration Accounts
Accounts in respect of which the Account debtor is a Person listed
below shall be subject to the provisions of clause (iv) of the definition of
"Eligible Accounts" only to the extent that the Accounts of such Account debtor
exceed as of any date of determination, the percentage of Borrowers' aggregate
total Eligible Accounts set forth opposite such Account debtor's name, as
follows:
<TABLE>
<CAPTION>
Maximum Percentage
Account Debtor of Total Accounts
-------------- -----------------
<S> <C>
Intel Corporation 40%
Tokyo Electron Limited 25%
Teltec Semiconductor 20%
IBM 20%
Motorola, Inc. 20%
SGS-Thompson 15%
</TABLE>
<PAGE> 80
SCHEDULE 1.3(a)
to
LOAN AGREEMENT
Permitted Indebtedness
1. An amount of $1,090,000 owed to Hughes Danbury Optical Systems, Inc.
("Hughes") in connection with Asset Purchase Agreement between Hughes and
Parent, dated as of December 29, 1995.
2. Royalty payments in the maximum amount of $6,055,000 owed to Hughes
in connection with the Assignment of Intellectual Property Rights and Security
Agreement, dated as of December 29, 1995 between Hughes Aircraft Company, Hughes
and IPEC Precision.
3. An amount of $2,300,000 owed to William Reiersgaard pursuant to two
separate Promissory Notes, each dated October 30, 1995, issued in connection
with the Stock Purchase Agreement, effective October 30, 1995, among Parent,
Reiersgaard and Gaard Automatic, Inc.
4. An amount of $700,000 owed to Reiersgaard in connection with the
Agreement as to Certain Tax Matters, dated December 29, 1995.
5. An amount of $13,000,000 owed to Reiersgaard in connection with the
acquisition of Gaard Automation, Inc., which amount shall be included within the
definition of Permitted Indebtedness until April 30, 1996, unless earlier paid
in full and, thereafter through May 16, 1996, the amount of $13,000,000 which
will be owed to Second National Bank, Saginaw, Michigan, upon its payment on
behalf of Parent of the foregoing Indebtedness to Reiersgaard.
<PAGE> 81
SCHEDULE 1.3(b)
to
LOAN AGREEMENT
Permitted Liens Existing on the Effective Date
In addition to Liens permitted by clauses (1), and (3) through (9) of
the definition of "Permitted Liens" in the Loan Agreement and in effect on the
date of the Loan Agreement, the Liens described in the following financing
statements:
JURISDICTION: ARIZONA SECRETARY OF STATE
DEBTOR. INTEGRATED PROCESS EQUIPMENT CORPORATION
<TABLE>
<CAPTION>
File Date Filing No. Secured Party Collateral Action
--------- ---------- ------------- ---------- ------
<S> <C> <C> <C> <C>
11-30-95 856102 Williams Tele- Telecommunications
communications Systems and all
Systems, Inc. related equipment.
03-04-96 868649 USL Capital Office Furniture
Corporation from Goodman's,
Inc. (This may be a
lease)
02-22-94 776353 The CIT Equipment
Group/Equipment
Financing, Inc.
02-22-94 776354 The CIT Equipment
Group/Equipment
Financing, Inc.
12-14-94 812390 IBM Credit Corp. IBM Equipment
12-14-94 812391 IBM Credit Corp. IBM Equipment
12-27-94 813803 American Business 8 Canon Copiers
Credit (This is a lease)
Corporation
01-20-95 816821 IBM Credit IBM Equipment
Corporation, (This is a lease)
Lessor
01-20-95 816823 IBM Credit IBM Equipment
Corporation, (This is a lease)
Lessor
</TABLE>
<PAGE> 82
2
<TABLE>
<CAPTION>
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
<S> <C> <C> <C> <C>
04-01-96 891397 Bank One, Drexel Swingmast
Arizona, N.A. Electric Forklift and
related batteries &
charger
DEBTOR: WESTECH SYSTEMS, INC.
03-22-90 614692 Chase Manhattan Forklift
Leasing Company
(Michigan, Inc.)
02-05-91 652806 Eaton Financial, Canon Copier
Inc.
01-13-92 691145 Foothill Bank Telephone and voice
mail system lease
#24579.1
08-24-92 715853 General Electric Computer equipment
Capital and software
Corporation equipment
02-01-93 732378 Travis County Equipment: Verteg
Research and 1600-5M Superclean
Development (This may be a lease)
Authority
by its
agent
Sematech,
Inc.
02-_-93 732930 IBM Credit IBM Equipment
Corporation
05-21-93 745005 Sematech, Inc. Various items of
equipment
05-21-93 745006 Travis County Equipment lease.
Research and
Development
Authority,
by its
agent
Sematech,
Inc.
12-13-94 812163 Canon Financial Canon Copiers
Services, Inc. (Lease #23531.02)
DEBTOR: IPEC WESTECH
06-05-95 833626 American Business Lease of Canon
Credit Copier
Corporation
</TABLE>
<PAGE> 83
3
<TABLE>
<CAPTION>
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
<S> <C> <C> <C> <C>
06-19-95 835416 American Business Lease of Canon
Credit Copier
Corporation
08-03-95 841446 American Business Lease of Canon
Credit Copier
Corporation
JURISDICTION: MARICOPA COUNTY RECORDER
DEBTOR: WESTECH SYSTEMS, INC.
11-26-91 91-0553724 Ionics Pure Lease of water
Solutions purification system.
11-26-91 91-0553725 Ionics Pure Lease of equipment.
Solutions
DEBTOR: IPEC WESTECH
12-13-94 94-0868093 Tailored Systems, Equipment.
Inc., Vibrodyne
Division
DEBTOR: INTEGRATED PROCESS EQUIPMENT CORPORATION
None
JURISDICTION: CALIFORNIA SECRETARY OF STATE
DEBTOR: ATHENS CORPORATION
12-31-92 92276454 Colonial Pacific Lease of Xerox
Leasing Corp. Copier.
07-06-93 93135127 Ally Capital Lease of Equipment
Corporation under Master Lease
Agreement dated
6-10-93.
07-06-93 93135128 Ally Capital Equipment under Need Partial
Corporation Lease. Release
07-26-93 93148628 Ally Capital Equipment under
Corporation Lease.
08-30-93 93174791 Ally Capital Equipment under
Corporation Lease.
</TABLE>
<PAGE> 84
4
<TABLE>
<CAPTION>
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
<S> <C> <C> <C> <C>
10-01-93 93200124 Ally Capital Equipment under
Corporation Lease.
11-09-93 93227861 Colonial Pacific Lease of Equipment.
Leasing
12-15-93 93252039 Ally Capital Equipment Lease.
Corporation
02-04-94 94023161 Eaton Financial Equipment Lease-
Corporation Computers.
03-15-94 94050658 AVCO Leasing Lease of Equipment.
07-25-94 94151250 Comdisco, Inc. Specific Items of
Inventory consisting
of 3 Sulfuric Acid
Concentrator &
Reprocessor
Machines.
</TABLE>
Debtor: Integrated Process Equipment Corp.
None
Jurisdiction: - SAN DIEGO COUNTY, CALIFORNIA
Debtor: Athens Corp.
None
Jurisdiction: OREGON SECRETARY OF STATE
Debtor: Gaard Automation. Inc.
08-25-93 R70207 Advanta Leasing Lease of Equipment.
Corp.
01-04-90 N70207 First Interstate AR accounts,
Bank of Oregon, general
NA intangibles,
inventory, and
equipment.
11-29-94 Continuation First Interstate
of N70207 Bank of Oregon,
NA
<PAGE> 85
5
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
06-07-93 R58388 Advanta Leasing Lease of Computer
Corp. Equipment
Jurisdiction: CONNECTICUT SECRETARY OF STATE
Debtor: Hughes Danbury Optical Systems, Inc.
02-04-91 911947 General Electric Office Furniture.
Capital
Corporation
02-16-93 0998337 Lease Pro, Inc. Items of Computer
Equipment under
Lease.
07-22-93 1021632 The Manifest Lease of Kodak
Group Printer & a Scanner.
09-09-93 1027379 Siemens Credit Lease of Equip.-
Corporation Siemens Nixdorf
2030-1 LED Printer.
08-04-93 1023123 Digital Equipment Lease of Computer
Corporation System.
09-02-93 1026673 Siemens Credit Equip. Lease-
Corp. Printer.
03-02-94 104777 Siemens Credit Equip. Lease-
Corp. Printer.
11-25-94 1588812 LINC Anthem Waiting for original
Corp. (Assignee filing to determine
from Forrest collateral.
Financial Corp.)
08-15-95 0001638905 LINC Anthem Waiting for original
Corp. (Assignee filing to determine
from Forrest collateral.
Financial Corp.)
Debtor: IPEC Precision, Inc.
01-04-96 1666574 Hughes Danbury All Assets Acquired
Optical Systems, Pursuant To
Inc. Security Agreement
Dated 12-29-95.
<PAGE> 86
SCHEDULE 6.1(F)
to
LOAN AGREEMENT
Financing Statements to be Terminated by Borrowers
Jurisdiction: ARIZONA SECRETARY OF STATE
Debtor. Integrated Process Equipment Corporation
File Date Filing No. Secured Party Collateral Action
--------- ---------- ------------- ---------- ------
03-02-95 829838 Fred Kassner Accounts
Receivables
12-28-95 860491 Fred Kassner All personal
property,
equipment,
inventory, accounts,
leases, licenses,
permits, trade
names, intellectual
property, and all
proceeds.
Debtor: Westech Systems, Inc.
05-03-95 829837 Fred Kassner All accounts
receivable.
12-28-95 860492 Fred Kassner All personal
property,
equipment
inventory, accounts,
leases, licenses,
permits, trade
names, intellectual
property, and all
proceeds of above.
Debtor: IPEC Westech
None
<PAGE> 87
2
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
Jurisdiction: MARICOPA COUNTY RECORDER
Debtor: Westech Systems, Inc.
12-29-95 95-0806298 Fred Kassner All personal
(Deed of Trust property on Real
and Security Property of Lot 15
Agreement) El Dorado
Industrial Plaza
Unit 3; Lot 27
Cholla Industrial
Park; Lot 14 and
East 20 feet of Lot
13, Cholla
Industrial Park.
12-29-95 95-0806299 Fred Kassner All personal
(UCC) property on Real
Property of Lot 15
El Dorado
Industrial Plaza
Unit 3; Lot 27
Cholla Industrial
Park, Lot 14 and
East 20 feet of Lot
13, Cholla
Industrial Park.
Debtor: IPEC Westech
None
Debtor: Integrated Process Equipment Corporation
12-29-95 95-0806297 Fred Kassner Deed of Trust on
Deed of Trust Lots 6, 7, 8 and
(Secures part of Lot 9, Rio
$10,000,000 note) Salado Gateway
Center.
12-29-95 95-0806300 Fred Kassner (UCC Fixture
Filing) All
property on real
property on Lots 6,
7, 8 and part of Lot
9, Rio Salado
Gateway Center.
<PAGE> 88
3
<TABLE>
<CAPTION>
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
<S> <C> <C> <C> <C>
Jurisdiction: CALIFORNIA SECRETARY OF STATE
Debtor: Athens Corporation
09-30-94 9428860395 Integrated Process Blanket filing on all
Equipment assets.
Corporation
07-06-93 93135128 Ally Capital All equipment, Need Partial
Corporation inventory, general Release as to
intangibles. equipment
not subject
to Lease, and
release of
inventory
and
intangibles.
Debtor: Integrated Process Eguipment Corp.
04-11-95 9510260391 Fred Kassner All accounts,
receivables,
including location
at 911 Bern Court,
San Jose, CA
95112.
12-29-95 9600260358 Fred Kassner AB personal
property, leases,
equipment,
inventory, accounts,
trade names,
patents, general
intangibles, all
proceeds.
Jurisdiction: SAN DIEGO COUNTY, CALIFORNIA
Debtor: Athens Corp.
09-30-94 1994-0581095 Integrated Process Blanket Filing On
Equipment Corp. AU Assets.
Jurisdiction: OREGON SECRETARY OF STATE
Debtor: Gaard Automation, Inc.
None
</TABLE>
<PAGE> 89
4
File Date Filing No. Secured Party Collateral Action
- --------- ---------- ------------- ---------- ------
Jurisdiction: CONNECTICUT SECRETARY OF STATE
Debtor: Hughes Danbury Optical System, Inc.
None
Debtor: IPEC Precision, Inc.
None
<PAGE> 90
SCHEDULE 7.14
to
LOAN AGREEMENT
List of Patents, Trademarks, Etc.
SEE ATTACHED PAGES:
LISTING OF PATENTS
[Intentionally omitted from closing book]
<PAGE> 91
[WELLS FARGO BANK LETTERHEAD]
Commercial Banking
100 West Washington
P.0. Box 53456
Phoenix, AZ 85072-3456
(602) 528-6000
Outside Phoenix Metro Area 1 (800) 288-2288
April 24, 1996
Integrated Process Equipment Corp.
4717 East Hilton Avenue
Phoenix, Arizona 85034
Attention: Mr. John S. Hodgson
Vice President and Chief Financial Officer
Re: Closing Undertakings
Ladies and Gentlemen:
We refer to the Loan Agreement dated April 24, 1996 (the "Loan Agreement")
by and among Integrated Process Equipment Corp., the other Borrowers named
therein, and First Interstate Bank of Arizona, N.A., as the Bank and the Agent.
Capitalized terms used without definition herein shall have the meanings
attributed to such terms in the Loan Agreement. Wells Fargo Bank is the
successor to First Interstate Bank of Arizona, N.A.
In connection with the closing under the Loan Agreement, the Agent, the
Bank and the Borrowers desire to set forth their mutual understanding and
agreement regarding certain matters relating to or arising under the Loan
Agreement and the other Loan Documents, as follows:
1. The Agent has provided to the Parent a copy of an amended title
commitment report of First American Title Insurance Company relating to the real
property located at 4717 East Hilton Avenue, Phoenix, Arizona. At page 5 of such
commitment, the report indicates that certain taxes for the first half of 1995
are currently delinquent. The Parent hereby undertakes to pay such taxes, plus
interest and any other charges thereon, not later than April 30, 1996 or contest
the taxes in accordance with the terms of the Loan Agreement, and to promptly
furnish evidence of such payment to the Agent.
2. The Borrowers will, as soon as practicable, cause Ally Capital
Corp. to amend the UCC financing statement filed with the California Secretary
of State (file number 93135128) so that
<PAGE> 92
Integrated Process
Equipment Corp. -2- April 24, 1996
the said financing statement does not purport to cover any collateral that is
not subject to the Master Lease Agreement identified on that financing
statement, and shall specifically delete any reference to inventory and general
intangibles.
3. The Borrowers acknowledge that the Agent and the Banks desire to
file notice of the Agent's security interest in the patents, trademarks and
similar intellectual property of the Borrowers. Borrowers agree to instruct
their patent counsel to promptly coordinate with the Agent's counsel, Brown &
Bain, P.A., to effect security filings in the U.S. Patent and Trademark Office,
and acknowledge that the said filing and related costs and expenses (including
reasonable attorney's fees) shall be the responsibility of the Borrowers, and
not the Agent or the Bank.
4. The Bank agrees to cause First Interstate Bank of Oregon, N.A. to
release the UCC financing statement bearing filing number N70207 filed with the
Oregon Secretary of State.
Please evidence your agreement with the foregoing by your
signature below.
Very truly yours,
FIRST INTERSTATE BANK OF ARIZONA, N.A.
By: /s/ Signature Illegible
------------------------------------
Title:
---------------------------------
AGREED to this
24th day of April, 1996
INTEGRATED PROCESS EQUIPMENT CORP.
IPEC PLANAR PHOENIX, INC.
IPEC PLANAR PORTLAND, INC.
IPEC CLEAN, INC.
IPEC PRECISION, INC.
By: /s/ John S. Hodgson
----------------------------------
Name: John S. Hodgson
Vice President
and Chief Financial Officer
<PAGE> 93
[WELLS FARGO BANK LETTERHEAD]
Commercial Banking
100 West Washington
P.O. Box 53456
Phoenix, AZ 85072-3456
(602) 528-6000
Outside Phoenix Metro Area 1 (800) 288-2288
May 31, 1996
Integrated Process Equipment Corp.
4717 East Hilton Avenue
Phoenix, Arizona 85034
Attention: Mr. John S. Hodgson
Vice President and
Chief Financial Officer
Re: Limited Waiver of Covenant
(Loan Agreement Section 8.1(e))
Ladies and Gentlemen:
We refer to the Loan Agreement dated April 24, 1996 (the "Loan
Agreement") by and among Integrated Process Equipment Corp., the other
Borrowers named therein, and First Interstate Bank of Arizona, N.A., as the Bank
and the Agent. Capitalized terms used without definition herein shall have the
meanings attributed to such terms in the Loan Agreement. Wells Fargo Bank is the
successor to First Interstate Bank of Arizona, N.A.
The Borrowers have asked the Bank to modify Section 8.1(e) of the Loan
Agreement and to waive the requirement therein that Parent deliver to the Agent
not later than 31 days prior to Parent's fiscal year end (commencing with the
fiscal year ending June 30, 1996), consolidating statements of financial
projections of income and cash flow for the Parent and the Subsidiaries for each
quarter in such fiscal year and a forecasted consolidated balance sheet of
Parent and the Subsidiaries, together with supporting assumptions, as at the end
of each fiscal quarter of the next fiscal year, and at the end of such fiscal
year (collectively, herein referred to as the "Forecasts"). The Bank hereby
agrees to waive compliance with Section 8.1 (e) of the Loan Agreement until
1:00 p.m., Phoenix time, on June 29, 1996. This waiver shall affect only the
Forecasts due with respect to the Parent's fiscal year ending June 30, 1997, and
not any fiscal year thereafter.
Except as expressly set forth herein respecting the limited waiver of
Section 8.1(e) of the Loan Agreement, the terms and conditions of the Loan
Agreement shall remain in full force and effect in all respects.
<PAGE> 94
Integrated Process
Equipment Corp. -2- May 31, 1996
Please evidence by your signature below that the foregoing is an
accurate and complete statement of our agreement respecting the matters stated
in this letter.
Very truly yours,
FIRST INTERSTATE BANK OF ARIZONA, N.A.,
as Bank and as Agent
By: /s/ Signature Illegible
--------------------------------
Title: Vice President
--------------------------------
ACCEPTED AND AGREED to this
31st day of May, 1996
INTEGRATED PROCESS EQUIPMENT CORP.
IPEC PLANAR PHOENIX, INC.
IPEC PLANAR PORTLAND, INC.
IPEC CLEAN, INC.
IPEC PRECISION, INC.
By: /s/ John S. Hodgson
-----------------------------------
Name: John S. Hodgson
Vice President
and Chief Financial Officer
<PAGE> 95
REVOLVING CREDIT NOTE
$30,000,000.00 April 24, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned (each a "Maker" and, collectively,
the "Makers"), hereby promise, jointly and severally, to pay to the order of
First Interstate Bank of Arizona, N.A. (the "Bank") at the main office of the
Agent (as such term and each other capitalized term used without definition
herein is defined in the Loan Agreement hereinafter referred to) at 100 West
Washington, Phoenix, Arizona 85003 (Attention: Commercial Banking Division,
#813), in Dollars in immediately available funds, the principal sum of THIRTY
MILLION DOLLARS ($30,000,000.00) or the aggregate unpaid principal amount of all
Advances made by the Bank pursuant to the Loan Agreement, whichever is less, and
to pay interest in like funds from the date hereof on the unpaid balance thereof
at the rates of interest per annum and at the times specified in the Loan
Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Loan Agreement.
This note is a Revolving Credit Note referred to in that certain Loan
Agreement dated April 24, 1996 among Makers, the Banks and the Agent (as the
same may be amended, modified or restated from time to time, the "Loan
Agreement"). All of the terms, conditions and covenants of the Loan Agreement
are expressly made a part of this Note by reference in the same manner and with
the same effect as if set forth herein at length and any holder of this Note is
entitled to the benefits of and remedies provided in the Loan Agreement.
Reference is made to the Loan Agreement for the maturity, payment, prepayment
and acceleration of the indebtedness evidenced hereby. This Note is secured by
certain collateral referred to in the Security Documents.
As provided by the Loan Agreement, Makers have the option, subject to
the terms and conditions set forth in the Loan Agreement, to convert the
principal balance of this Note into a Take-Out Term Loan. In the event such
option is duly and timely exercised, this Note shall thereafter evidence such
balance of the Take-Out Term Loan.
After maturity, including maturity upon acceleration, all unpaid
amounts of this Note shall bear interest at the Past Due Rate. Maker, jointly
and severally, agree to pay all collection expenses, including reasonable
attorneys' fees and court costs, incurred in the collection or enforcement of
all or any part of this Note in which the holder hereof is the prevailing party.
In the event of any court proceedings, court costs and attorneys' fees shall be
set by the court and not by jury and shall be included in any judgment obtained
by the holder hereof.
<PAGE> 96
2
Failure of the holder to exercise any option hereunder shall not
constitute a waiver of the right to exercise same in the event of any subsequent
default, or in the event of continuance of any existing default after demand for
strict performance hereof.
This Note shall be binding upon the Makers and their respective
successors and assigns and shall inure to the benefit of the payee hereof, and
any subsequent holders of this Note, and their successors and assigns.
This Note shall be governed by and construed according to the laws of
the State of Arizona.
IN WITNESS WHEREOF, Makers have caused this Note to be executed by
their duly authorized corporate agent as of the day and year first above
written.
INTEGRATED PROCESS EQUIPMENT CORP.,
a Delaware corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
77-0257507
IPEC PLANAR PHOENIX, INC.,
a Delaware corporation
By /s/ John S. Hodgson
---------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
86-0282167
<PAGE> 97
3
IPEC PLANAR PORTLAND, INC.
an Oregon corporation
By /s/ John S. Hodgson
---------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
93-0817789
IPEC CLEAN, INC.,
a California corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
68-0110411
IPEC PRECISION, INC.,
a Delaware corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
061-443634
<PAGE> 98
TERM NOTE
$10,000,000.00 April 24, 1996
Phoenix, Arizona
FOR VALUE RECEIVED, the undersigned (each a "Maker" and, collectively,
the "Makers"), hereby promise, jointly and severally, to pay to the order of
First Interstate Bank of Arizona, N.A. (the "Bank") at the main office of the
Agent (as such term and each other capitalized term used without definition
herein is defined in the Loan Agreement hereinafter referred to) at 100 West
Washington, Phoenix, Arizona 85003 (Attention: Commercial Banking Division,
#813), in Dollars in immediately available funds, the principal sum of TEN
MILLION DOLLARS ($10,000,000.00) and to pay interest in like funds from the date
hereof on the unpaid balance thereof at the rates of interest per annum and at
the times specified in the Loan Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Loan Agreement.
This note is the Term Note referred to in that certain Loan Agreement
dated April 24, 1996 among Makers, the Banks and the Agent (as the same may be
amended, modified or restated from time to time, the "Loan Agreement"). All of
the terms, conditions and covenants of the Loan Agreement are expressly made a
part of this Note by reference in the same manner and with the same effect as if
set forth herein at length and any holder of this Note is entitled to the
benefits of and remedies provided in the Loan Agreement. Reference is made to
the Loan Agreement for the maturity, payment, prepayment and acceleration of the
indebtedness evidenced hereby. This Note is secured by certain collateral
referred to in the Security Documents.
After maturity, including maturity upon acceleration, all unpaid
amounts of this Note shall bear interest at the Past Due Rate. Maker, jointly
and severally, agree to pay all collection expenses, including reasonable
attorneys' fees and court costs, incurred in the collection or enforcement of
all or any part of this Note in which the holder hereof is the prevailing party.
In the event of any court proceedings, court costs and attorneys' fees shall be
set by the court and not by jury and shall be included in any judgment obtained
by the holder hereof.
Failure of the holder to exercise any option hereunder shall not
constitute a waiver of the right to exercise same in the event of any subsequent
default, or in the event of continuance of any existing default after demand for
strict performance hereof.
This Note shall be binding upon the Makers and their respective
successors and assigns and shall inure to the benefit of the payee hereof, and
any subsequent holders of this Note, and their successors and assigns.
<PAGE> 99
2
This Note shall be governed by and construed according to the laws of
the State of Arizona.
IN WITNESS WHEREOF, Makers have caused this Note to be executed by
their duly authorized corporate agent as of the day and year first above
written.
INTEGRATED PROCESS EQUIPMENT CORP.,
a Delaware corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
77-0257507
IPEC PLANAR PHOENIX, INC.,
a Delaware corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
86-0282167
IPEC PLANAR PORTLAND, INC.
an Oregon corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
93-0817789
<PAGE> 100
3
IPEC CLEAN, INC.,
a California corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
68-0110411
IPEC PRECISION, INC.,
a Delaware corporation
By /s/ John S. Hodgson
----------------------------------------
Its Vice President, and CFO and Secretary
-------------------------------------
Maker's Tax Identification Number:
061-443634
<PAGE> 101
SECURITY AGREEMENT
This SECURITY AGREEMENT is made and delivered as of this 24th day of
April, 1996, by and between INTEGRATED PROCESS EQUIPMENT CORP., a Delaware
corporation ("GRANTOR"), and FIRST INTERSTATE BANK OF ARIZONA, NA., as agent
("AGENT") for the Banks that are parties to the Loan Agreement (as defined
below).
RECITALS
WHEREAS, Integrated Process Equipment Corporation ("IPEC"), other
Borrowers, the Agent and the Banks have entered into a Loan Agreement dated as
of April 24, 1996 (as the same may hereafter be amended, restated, or otherwise
modified from time to time, the "LOAN AGREEMENT") pursuant to which the Banks
have agreed to extend to IPEC certain loans.
WHEREAS, it is a condition precedent to the obligation of the Banks to
extend loans to the Borrowers pursuant to the terms of the Loan Agreement that
this Agreement be executed and delivered by the Grantor.
WHEREAS, the Grantor is a wholly owned subsidiary of IPEC, and a
Borrower under the Loan Agreement.
WHEREAS, the Grantor expects to derive benefits from the extension of
credit accommodations by the Banks pursuant to the Loan Agreement and finds it
advantageous, desirable and in its best interests to execute and deliver this
Security Agreement to the Agent.
NOW, THEREFORE, in consideration of the premises set forth in the Loan
Agreement and to induce the Banks to make loans under the Loan Agreement,
Grantor hereby agrees with Agent, for the benefit of the Banks, as follows:
1. DEFINED TERMS. As used in this Security Agreement, unless the
context otherwise requires:
"Accounts" shall have the meaning set forth in Schedule A attached
hereto.
"Code" shall mean the Uniform Commercial Code enacted in the State of
Arizona as of the date hereof and as it may be amended hereafter.
"Collateral" shall have the meaning set forth in Schedule A attached
hereto.
"Contracts" shall have meaning set forth in Schedule A attached hereto.
"Event of Default" shall have the meaning set forth in Section 5.
"General Intangibles" shall have meaning set forth in Schedule A
attached hereto.
"Intellectual Property" shall have the meaning set forth in Schedule A
attached hereto.
<PAGE> 102
2
"Permitted Liens" shall mean Liens granted to Agent pursuant to this
Security Agreement and other Liens permitted pursuant to the Loan Agreement.
"Requirement of Law" shall mean as to any person, the articles of
incorporation and bylaws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such person or any of its property as to which such person or
any of its property is subject.
All other capitalized terms used in this Security Agreement without
definition shall have the meanings provided in the Loan Agreement.
2. GRANT OF SECURITY. To secure prompt and complete payment and
performance when due of the "OBLIGATION," Grantor hereby grants a first priority
security interest to Agent, for the benefit of the Banks, in all of the
Grantor's right, title and interest in and to all of the Collateral.
Notwithstanding anything contained herein to the contrary, (i) the
Grantor shall remain liable under the Contracts and other items included in the
Collateral to the extent set forth herein to perform all of its duties and
obligations thereunder to the same extent as if this Security Agreement had not
been executed, (ii) the exercise by the Agent of any of the rights hereunder
shall not release the Grantor from any of its duties or obligations under the
Contracts and other items included in the Collateral, and (iii) the Agent shall
have no obligation or liability under the Contracts and other items included in
the Collateral by reason of this Security Agreement, nor shall the Agent be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
3. GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:
(a) Grantor has the authority and has obtained all approvals and
consents necessary to incur the Obligation and to enter into this Security
Agreement, and there is no legal restriction or agreement affecting Grantor's
right to grant a security interest in the Collateral;
(b) Grantor has and, as to Collateral acquired after the date hereof
will have, good and marketable title to or valid leasehold interests in the
Collateral, free and clear of all Liens, encumbrances and claims whatsoever,
except for the Permitted Liens;
(c) None of the Collateral located on the premises of a third party
is subject to any tolling, processing or consignment agreement or arrangement;
(d) All Accounts, Contracts or General Intangibles comprising
Collateral are genuine, as appearing on their face, enforceable according to
their terms, and to Grantor's knowledge are free of disputes, set-offs,
counterclaims and defenses, and represent indebtedness, obligations, interests
or property justly owing to and owned by Grantor as therein provided;
<PAGE> 103
3
(e) No financing statement, security agreement or other public
notice covering the Collateral is or will be on file or on record in any public
office, except such as may have been filed in favor of the Agent, for the
benefit of the Banks, pursuant to this Security Agreement, or as may evidence a
Permitted Lien, or as otherwise allowed by the Loan Documents;
(f) This Security Agreement, when duly executed and delivered, will
be a legal, valid and binding obligation of Grantor, enforceable in accordance
with its terms;
(g) Agent will, upon the making by Grantor of appropriate patent,
trademark, copyright and UCC-1 security filings, have a valid and perfected
first priority security interest in the Collateral;
(h) No claim has been made that the use of the Intellectual Property
by Grantor does or may violate the asserted rights of any third party;
(i) The Grantor does business solely under its own name and the
trade names and styles, if any, set forth on Schedule B attached hereto. Except
as noted on said Schedule, no such trade names or styles owned by the Grantor
are registered with any governmental unit; and
(j) The chief place of business and chief executive office and the
office where it keeps its books and records concerning the Collateral is located
at its address set forth on the signature page hereof.
The foregoing representations and warranties shall be deemed to have been made
by the Grantor on each date on which the Banks shall make an Advance, or on
which an Advance is converted or continued, under the Loan Agreement, as though
made hereunder as and as of such date.
4. GRANTOR'S COVENANTS. Grantor covenants and agrees that until the
Obligation is paid in full, unless the Agent shall otherwise give its prior
written consent:
(a) The Grantor will not sell, transfer, lease or otherwise dispose
of or discount or factor with or without recourse, any of the Collateral, or
attempt, offer or contract to do so except for (x) sales of Inventory in the
ordinary course of its business and (y) so long as no Default or Event of
Default has occurred and is continuing, the disposition in the ordinary course
of business of items of Equipment which have become worn out or obsolete;
(b) The Grantor will not create, incur or permit to exist, will
defend the Collateral against, and will take such other action as is necessary
to remove, any Lien or claim on or to the Collateral, other than the Permitted
Liens, and will defend the right, title and interest of the Agent, for the
benefit of the Banks, in and to any of the Collateral against the claims and
demands of all persons whomsoever, other than claims or demands of or through
holders of Permitted Liens with respect to such Permitted Liens;
(c) The Grantor shall, at its own expense, take all necessary action
to collect, as and when due, all amounts due with respect to amounts payable
under or with respect to
<PAGE> 104
4
the Accounts, Contracts and General Intangibles, including the taking of such
action with respect to collection as the Grantor may deem advisable;
(d) The Grantor will not (i) amend, modify, terminate or waive
any provision of any Contract in any manner which could reasonably be expected
to materially adversely affect the value of such Contracts as Collateral, or
(ii) fail to exercise promptly and diligently each and every material right
which it may have under each Contract (other than any right of termination);
(e) The Grantor will not change its name or the location of its
chief place of business and chief executive office unless the Agent has been
given at least 30 days prior written notice thereof and the Grantor has executed
and delivered to the Agent such financing statements and other instruments
required or appropriate to continue the perfection of the Lien granted to Agent,
for the benefit of the Banks, pursuant to this Security Agreement;
(f) The Grantor will promptly pay all taxes and other
governmental charges levied or assessed upon or against any Collateral or upon
or against the creation, perfection or continuance of the Lien granted to Agent,
for the benefit of the Banks, pursuant to this Security Agreement, as well as
all other claims of any kind (including claims for labor, material and supplies)
against or with respect to the Collateral, except to the extent (i) such taxes,
charges or claims are being contested in good faith by appropriate proceedings,
(ii) such proceedings do not involve any material danger of the sale, forfeiture
or loss of any of the Collateral or any interest therein and (iii) such taxes,
charges or claims are adequately reserved against on the Grantor's books in
accordance with generally accepted accounting principles;
(g) The Grantor will maintain, with financially sound and
reputable companies, insurance policies (i) insuring the Inventory and Equipment
against loss by fire, explosion, theft and such other casualties as may be
reasonably satisfactory to the Agent and (ii) insuring the Grantor, the Agent
and the Banks against liability for personal injury and property damage relating
to such Inventory and Equipment, such policies to be in such form and amounts
and having such coverage as may be reasonably satisfactory to the Agent, with
losses payable to the Grantor and the Agent as their respective interests may
appear. All such insurance shall (i) contain a breach of warranty clause in
favor of the Agent, (ii) provide that no cancellation, material reduction in
amount or material change in coverage thereof shall be effective until at least
ten (10) days after receipt by the Agent of written notice thereof, (iii) name
the Agent as an insured and (iv) be reasonably satisfactory in all other
respects to the Agent;
(h) The Grantor will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral, including a record
of all payments received and credits granted with respect to all Accounts,
Contracts and General Intangibles;
(i) The Grantor will promptly notify the Agent of any loss of or
material damage to any material item of Collateral or of any substantial adverse
change, known to Grantor, in any material item of Collateral or the prospect of
payment or performance thereof;
(j) The Grantor will comply in all material respects with all
Requirements of Law applicable to the Collateral or any part thereof or to the
operation of the Grantor's
<PAGE> 105
5
business; provided, however, that the Grantor may contest any Requirement of Law
in any reasonable manner which shall not, in the sole opinion of the Agent,
adversely affect the Agent's rights or the priority of its Liens on the
Collateral;
(k) The Grantor will immediately notify the Agent of any
additional state in which any item of Collateral is hereafter located. The
Grantor will from time to time at the request of the Agent provide the Agent
with current lists as to the locations of the Collateral. The Grantor will not
permit any Collateral or any records pertaining to collateral to be located in
any state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Lien granted to Agent pursuant to this Security
Agreement;
(l) The Grantor will at all reasonable times permit the Agent or
its representatives to examine or inspect any Collateral, any evidence of
Collateral and the Grantor's books and records concerning the Collateral,
wherever located. The Grantor will furnish to the Agent a report on its
Accounts, Contracts and General Intangibles naming the Account debtors or other
obligors thereon, the amount due and the aging thereof in accordance with the
Loan Agreement. Following an Event of Default that is continuing, the Agent or
its designee is authorized to contact Account debtors from time to time and
other Persons obligated on any such Collateral to verify the existence, amount
and/or terms of such Collateral;
(m) The Grantor agrees that from time to time, at its expense, it
will promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary or that the Agent may reasonably
request, in order to perfect and protect the Lien granted by this Security
Agreement or to enable the Agent to exercise and enforce its rights and remedies
hereunder with respect to any Collateral (but any failure to request or assure
that the Grantor execute and deliver such instrument or documents or to take
such action shall not affect or impair the validity, sufficiency or
enforceability of this Security Agreement and the Lien granted to Agent pursuant
to this Security Agreement, regardless of whether any such item was or was not
executed and delivered or action taken in a similar context or on a prior
occasion);
(n) The Grantor will pay, and save the Agent harmless from, any
and all liabilities, costs and expenses (including, without limitation, legal
fees and expenses) (i) with respect to, or resulting from, any delay in paying,
any and all excise, sales or other taxes which may be payable or determined to
be payable with respect to any of the Collateral, or (ii) with respect to, or
resulting from, any delay in complying with any Requirement of Law applicable to
any of the Collateral. In any suit, proceeding or action brought by the Agent
under any Account or Contract for any sum owing thereunder, or to enforce any
provisions of any Account or Contract, the Grantor will save, indemnify and keep
the Agent harmless from and against all expense, loss or damage suffered by
reason of any defense, setoff, counterclaim, recoupment or reduction or
liability whatsoever of the account debtor or obligor thereunder, arising out of
a breach by the Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor of such
account debtor or obligor or its successors from the Grantor; and
<PAGE> 106
6
(o) Grantor shall not sell, assign, transfer or otherwise convey
any of its rights or delegate any of its obligations or duties under this
Agreement, and any attempted sale, assignment, transfer, conveyance or
delegation shall be void, and an Event of Default under Section 10.1 of the Loan
Agreement.
5. EVENTS OF DEFAULT. An "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(a) If an "Event of Default" as described in Section 10.1 of the
Loan Agreement exists.
(b) Any representation or warranty made under this Security
Agreement, or in any certificate or statement furnished or made to Agent
pursuant hereto or in connection herewith, shall prove to have been untrue,
inaccurate, misleading or incomplete in any material respect as of the date made
or deemed made.
(c) Any failure or neglect to perform or observe any of the
covenants or agreements of Grantor herein, and such failure or neglect either
cannot be remedied or, if it can be remedied. such remedy is not promptly
commenced and diligently and in good faith prosecuted to completion within 30
days after notice thereof to Grantor.
6. AGENT'S AUTHORITY.
(a) Grantor authorizes Agent to do the following from time to
time, without notice or demand to Grantor, and without affecting Grantor's
liability hereunder or on the Obligation:
(i) Take and hold security, other than the Collateral, for
the payment of the Obligation or any part thereof;
(ii) Assign or negotiate any of the Obligations as permitted
under and pursuant to the Loan Agreement and, in the case of such transfer,
deliver the whole or any part of the Collateral to the transferee who shall
succeed to all the powers and rights of Agent in respect thereof; and
(iii) Delay exercising or not exercise any right or remedy
under this or any other agreement, without waiving that or any other past,
present or future right or remedy.
In addition, if an Event of Default exists, Grantor also authorizes Agent to do
the following:
(i) Notify any obligor or account debtor on an instrument or
Account that is part of the Collateral to make payment to Agent for the benefit
of the Banks;
(ii) Demand, sue for, collect, or make any compromise or
settlement with reference to the Collateral, and any interest, dividends,
principal payments, benefits and other sums payable on account of the
Collateral, as Agent in its sole discretion chooses;
<PAGE> 107
7
(iii) Insure, process and preserve all or any part of the
Collateral;
(iv) Collect by legal proceedings or otherwise, and endorse,
receive and receipt for all dividends, interest, payments, proceeds and other
sums and property now or hereafter payable with respect to or on account of the
Collateral;
(v) Make any payment and perform any agreement undertaken by
Grantor, and expend such sums and incur such expense, including reasonable
attorney's fees and legal expenses, as Agent deems advisable;
(vi) Transfer the Collateral into its own name or into the
name of one of its nominees;
(vii) Apply the Collateral or other security, and direct the
order or manner of sale thereof as Agent in its discretion may determine;
(viii) Receive premiums and proceeds of insurance covering
the Collateral, and Grantor hereby directs insurers to pay any return or
unearned premium becoming due on any such insurance to Agent, and irrevocably
appoints Agent by any of its officers as Grantor's attorney-in-fact, upon ten
(10) business days written notice to Grantor, to cancel such insurance and to
endorse and sign any instrument payable to Grantor or required to obtain such
insurance premium or proceeds; and
(ix) Take any action it deems advisable, and exercise all the
rights, powers and remedies of an owner with respect to all or any part of the
Collateral.
7. LIMITATIONS ON AGENT'S DUTIES. Agent makes no express or implied
warranties, including warranties of merchantability or fitness, for any of the
Collateral delivered or released to Grantor. Agent's duty with respect to the
Collateral shall be solely to use reasonable care in the custody and
preservation of Collateral in its possession, which shall not include any steps
necessary to preserve rights against prior parties nor the duty to send notices,
perform services or take any action in connection with the management of the
Collateral. Such care as Agent gives to the safekeeping of its own property of
like kind shall constitute reasonable care of the Collateral when in Agent's
possession. As appropriate, commercially reasonable preparation or processing of
the Collateral includes completing or continuing any operation necessary to the
sale or other disposition of the Collateral.
Neither Agent nor its correspondents or agents shall have any
responsibility or liability for:
(a) The form, sufficiency, correctness, genuineness or legal
effect of any instrument or document constituting a part of or in any way
relating to the Collateral, or any signature thereon;
(b) Making any presentment, demand or protest, or giving notice,
in connection with any obligation or evidence of indebtedness held by it as part
of the Collateral or in connection with the Obligation;
<PAGE> 108
8
(c) The description or misdescription, quantity, weight, quality,
condition, packing, delivery or value of property or goods represented, or
purported to be represented, by documents or instruments;
(d) The performance or nonperformance of any contract or
obligation of carriage, storage, insurance or otherwise, relating thereto;
(e) The consequences arising out of any error, interruption,
delay, mutilation or loss in transit of cables, telegrams, letters, instruments
or documents, including errors in translation or interpretations;
(f) Obligations imposed by foreign laws, customs or regulations;
or
(g) Consequences arising out of acts or decisions of public
authorities, strikes, lockouts, riots, wars, acts of God or other causes beyond
the control of Agent, its correspondents or agents.
8. AGENT'S REMEDIES. Upon the occurrence of one or more Events of
Default, and anytime thereafter, without demand or notice of any kind (all of
which are hereby expressly waived), Agent (and its agents) shall have the rights
and remedies of a secured creditor, and Grantor shall have the rights and duties
of a debtor, provided to them under the Code, and Agent may, at its election and
in addition to all other rights, powers and privileges and notwithstanding any
cessation of Grantor's liability or any bar of any statute of limitations (which
Grantor hereby waives to the fullest extent permitted by law):
(a) Exercise all rights, privileges or remedies available to
Agent hereunder or under the Loan Agreement or as may be provided by applicable
law or in equity;
(b) Terminate any agreement for financial accommodation;
(c) As appropriate, take immediate possession of the Collateral,
without notice and with or without resort to legal process, and for such purpose
Agent may enter upon any premises on which the Collateral or any part thereof
may be situated and remove it therefrom or render the Collateral unusable, and
upon Agent's demand, Grantor shall assemble the Collateral and make it available
at a reasonably convenient place designated by Agent;
(d) Remove any and all Collateral from the state or country in
which it may be held to any other state or country, and there be dealt with by
Agent as provided in this Security Agreement;
(e) Transfer any part of the Collateral or any voting securities
constituting all or any part of the Collateral into the name of Agent for the
purpose of exercising its rights with respect to such Collateral or voting said
securities as Agent may determine in its sole discretion, provided, however,
that such transfer shall not be deemed a retention of such securities in
satisfaction of the obligations secured hereunder unless written notice to that
effect is given by Agent to Grantor;
<PAGE> 109
9
(f) Lease or license all or any part of the Collateral, or sell,
assign and deliver all or any part of the Collateral at public or private sale
(regardless whether the Collateral is present at the place of sale), and at any
sale or disposition of the Collateral, Agent (and the Banks) may bid and become
a purchaser at any public sale, and may accept a trade of property for all or a
portion of the sale price;
(g) Make or have made any repairs deemed necessary or desirable,
the cost of which is to be charged to the Grantor;
(h) Realize upon insurance policies with respect to the
Collateral with a cash surrender value, securities, instruments or documents
that will be redeemed by the issuer upon surrender, with notice to Grantor; and
(i) Apply the Collateral, or the proceeds of any disposition of
Collateral, towards the satisfaction of the Obligation in any manner and in any
order that Agent, in its sole discretion, chooses including, without limitation,
retaining the Collateral in satisfaction of the Obligation in accordance with
Section 47-9505(b) of the Code by sending written notice of such election to
Grantor (but unless such written notice is sent, retention of the Collateral
shall not be in satisfaction of any of the Obligation).
Upon a failure by Grantor in so doing, Agent may obtain physical damage/loss
insurance (protecting Agent only if it chooses), pay taxes, assessments, Liens,
fees, charges or encumbrances, and order and pay for repairs or spend any
amounts necessary to maintain the Collateral in Grantor's exclusive possession
and in good condition and repair, and all amounts so expended shall, with
interest thereon at the rate applicable upon default as provided in the Loan
Agreement, constitute part of the Obligation and shall be immediately due and
payable. No such act or expenditure by Agent shall relieve Grantor from the
consequences of such default. The making of any such payment or the performance
of any obligation on behalf of Grantor shall constitute prima facie evidence of
the necessity and the reasonableness therefor.
If notice to Grantor is required, Agent shall give written notice to
Grantor not less than thirty (30) days prior to the date of public sale of the
Collateral or prior to the date after which private sale of the Collateral will
be made by mailing such notice to Grantor at the address designated with
Grantor's signature below (and Grantor acknowledges and agrees that such notice
is reasonable under Section 9-504 of the UCC). Any excess proceeds of Collateral
remaining after satisfaction of Obligation shall be applied and distributed as
provided in the Loan Agreement, but Grantor shall continue to be liable for any
deficiency remaining after application of the Collateral or proceeds thereof to
the Obligation, together with interest thereon at the Past Due Rate.
9. WAIVERS. Grantor waives:
(a) Any right to require Agent to proceed against any person,
exhaust any Collateral, or pursue any other remedy in Agent's power;
(b) Any requirement that any guarantor be required to be joined
in any action brought to enforce the Obligation by this agreement, and any
requirement that Grantor be joined in any action to enforce the liability of a
guarantor;
<PAGE> 110
10
(c) Any defense arising by reason of any disability or other
defense of Grantor, or any other person, or by reason of cessation from any
cause whatsoever of the liability of Grantor or any other person;
(d) Any right to enforce or compel the enforcement of any remedy
which Agent now has or may hereafter have against Grantor or against any other
person; and
(e) Any benefit of and any right to participate in the Collateral
or other security whatsoever now or hereafter held by Agent or any Bank. Until
all of the Obligation shall have been satisfied and paid in full, Grantor shall
not have any right of subrogation.
10. SECURITY INTEREST ABSOLUTE. All rights of the Agent and security
interests hereunder, and all of the obligations of the Grantor hereunder, shall
be absolute and unconditional, irrespective of:
(a) Any lack of validity or enforceability of any of the Loan
Documents or any other agreement relating thereto;
(b) Any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligation or any other amendment or waiver
of or any consent to any departure from any of the Loan Documents;
(c) Any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to departure
from any guaranty, for all or any of the Obligation; or
(d) Any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Grantor or a third party grantor of
a security interest or lien.
11. CONTINUING SECURITY INTEREST. This Security Agreement shall create a
continuing security interest in the Collateral and shall
(a) Remain in full force and effect until the later to occur of
(i) payment in full in cash or in another manner acceptable to Agent and
termination of the Obligation, and (ii) the expiration or termination of the
Loan Agreement,
(b) Be binding upon and inure to the benefit of, and be
enforceable by, the Grantor, its successors and assigns, and
(c) Be binding upon and inure to the benefit of, and be
enforceable by, the Agent and its successors, transferees and assigns. Upon (i)
the payment in full in cash or in another manner acceptable to Agent and
termination of the Obligation then outstanding, and (ii) the expiration or
termination of the Loan Agreement, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Grantor. Upon any
such termination, the Agent will, at the Grantor's expense, execute and deliver
to the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
<PAGE> 111
11
12. GOVERNING LAW. This agreement shall be deemed to have been made in
the State of Arizona and the validity of this agreement and the construction,
interpretation, and enforcement hereof, and the rights of the parties hereto
shall be determined under, governed by, and construed in accordance with the
laws of the State of Arizona, without regard to principles of conflicts of law,
except to the extent that the validity or perfection of the security interest
hereunder, or remedies hereunder, in respect of any particular collateral are
governed by the laws of a jurisdiction other than the State of Arizona.
13. CHOICE OF FORUM; CONSENT TO SERVICE OF PROCESS; JURISDICTION; WAIVER
OF JURY TRIAL. Any suit, action or proceeding against Grantor with respect to,
or arising in any way from, this Security Agreement, the Collateral or any other
Loan Document, or any judgment entered by any court in respect thereof, may be
brought in any of the courts of the State of Arizona in Maricopa County, or in
the United States courts located in the State of Arizona as the Agent in its
sole discretion may elect, and Grantor hereby submits to the nonexclusive
jurisdiction of such courts for the purpose of any such suit, action or
proceeding. Grantor hereby irrevocably waives any objections which is may now or
hereafter have to the laying of venue of any suit, action or proceeding arising
out of or relating to this Security Agreement, the Collateral or any other Loan
Document brought in any of the courts located in Maricopa County in the State of
Arizona. GRANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING, OR COUNTER-CLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE COLLATERAL OR ANY
OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE
GRANTOR AGREES THAT THIS PARAGRAPH 13 IS A SPECIFIC AND MATERIAL ASPECT OF THIS
SECURITY AGREEMENT AND ACKNOWLEDGES THAT THE BANKS WOULD NOT EXTEND TO THE
GRANTOR ANY FINANCIAL ACCOMMODATIONS UNDER THE LOAN AGREEMENT IF THIS
PARAGRAPH 13 WERE NOT PART OF THIS SECURITY AGREEMENT.
14. TERMS OF AGREEMENT. GRANTOR UNDERSTANDS AND EXPRESSLY AGREES THAT
THIS SECURITY AGREEMENT HAS BEEN FREELY AND VOLUNTARILY ENTERED INTO, AND THAT
NO ORAL OR WRITTEN REPRESENTATIONS OR PROMISES OF ANY KIND, UNLESS SPECIFICALLY
CONTAINED IN THIS SECURITY AGREEMENT, HAS BEEN MADE BY AGENT OR ANY BANK TO
INDUCE OR OTHERWISE INFLUENCE GRANTOR TO ENTER INTO THIS AGREEMENT. GRANTOR
EXPRESSLY AGREES THAT THIS AGREEMENT IS NOT EXECUTED PURSUANT TO ANY DURESS, AND
IS EXECUTED IN MUTUAL GOOD FAITH BETWEEN THE PARTIES AND IS NOT GIVEN OR
INTENDED TO HINDER, DELAY OR DEFRAUD ANY CREDITOR, OR TO CONTRAVENE ANY OF THE
BANKRUPTCY LAWS OF THE UNITED STATES PERTAINING TO FRAUDULENT CONVEYANCES OR ANY
OTHER APPLICABLE LAWS.
15. MISCELLANEOUS AGREEMENTS. Grantor and Agent agree to the following:
(a) Notices shall be given in accordance with the Loan Agreement;
(b) Acceptance by Agent of any performance which does not comply
strictly with the terms hereof shall not be deemed to be a waiver or bar of any
right of Agent, nor a release of any of the Obligation;
<PAGE> 112
12
(c) The waiver of any breach or Event of Default by Grantor under
any of the terms of this Security Agreement shall not be deemed to be a waiver
of any subsequent breach or Event of Default on the part of Grantor under this
Security Agreement.
(d) If Collateral is made available to Grantor, and if items of
Collateral are goods in possession of a bailee (subject to a non-negotiable
document) or are documents representing goods (subject to a negotiable
document), such entrustment shall be deemed for the sole purpose of ultimate
sale or exchange, or for the purpose of loading, unloading, storing, shipping,
transshipping, manufacturing, processing or otherwise dealing with it in a
manner preliminary to its sale or exchange, or if instruments, is for the
purpose of ultimate sale or exchange or of presentation, collection, renewal or
registration of transfer;
(e) No agency, fiduciary, representative or partnership
relationship exists between the Grantor on the one hand, and Agent or any Bank
on the other hand;
(f) Inapplicability or unenforceability of any provision of this
Security Agreement shall not limit or impair the operation or validity of any
other provision of this Security Agreement;
(g) This Security Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof;
(h) This Security Agreement is intended to represent the mutual
intent of the parties thereto and no rule of strict construction shall be
applied against any party;
(i) TIME IS OF THE ESSENCE HEREOF;
(j) Grantor agrees that the Loan Documents shall be deemed to
include this Security Agreement, and in the event of a conflict between any of
the provisions of this Security Agreement and any provisions of the other Loan
Documents, the provisions of the Loan Agreement shall control in the absence of
manifest error;
(k) In the event that any time after the Effective Date, Agent or
any Bank is for any reason compelled to surrender to any Person all or any
portion of any of the Collateral or any payments received by them as
contemplated by this Security Agreement, because the same (or any portion
thereof) is determined to be void or voidable as a fraudulent transfer, a
preference, or a diversion of trust funds or for any other reason, then, to the
extent any of such Collateral or any of such payments are compelled to be
surrendered, any Obligation, deemed to have been satisfied and discharged, the
Loan Documents, and any promissory notes which have been cancelled, as the case
may be, will be reinstated with the same force and effect as though they had
continued in full force and effect notwithstanding the receipt of any of such
Collateral or any of such payments, and any action taken by Agent in reliance
upon or by reason of any of the receipt of any of such Collateral or any of such
payment or payments shall be without prejudice to Agent's rights under the Loan
Documents, or any Note, as the case may be, and such action shall be deemed to
have been conditioned upon the receipt of all of such Collateral or any of such
payment or payments to Agent and the Banks having become final and irrevocable;
<PAGE> 113
13
(l) No provision of this Security Agreement shall be amended,
waived, or modified except by an instrument in writing signed by the Grantor and
Agent;
(m) No delay or omission on the part of Agent in exercising any
right shall operate as a waiver of such right or any other right; and a waiver
on any one occasion shall not be construed as a bar to the exercise of any right
on any future occasion;
(n) The rights of Agent under this Agreement are assignable in
part or in whole, as provided in the Loan Agreement, and any assignee of Agent
shall succeed to and be possessed of the rights of Agent hereunder to the extent
of the assignment made; and
(o) This Security Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall together constitute one and the same
agreement.
(p) The captions of the various sections and paragraphs of this
Security Agreement have been inserted only for the purposes of convenience; such
captions are not a part of this Security Agreement and shall not be deemed in
any manner to modify, explain, enlarge or restrict any of the provisions of this
Security Agreement.
<PAGE> 114
14
IN WITNESS WHEREOF, Grantor and Agent have each executed this Security
Agreement as of April 24, 1996.
INTEGRATED PROCESS EQUIPMENT CORP.,
a Delaware corporation
By /s/John S. Hodgson
------------------------------------------------
Name: John S. Hodgson
Title: Vice President and
Chief Financial Officer
Grantor's Address:
4717 East Hilton Avenue
Phoenix, Arizona 85034
Attention: John S. Hodgson
Vice President & Chief Financial Officer
Telephone: (602) 517-7200
Telefacsimile: (602) 517-6016
FIRST INTERSTATE BANK OF ARIZONA, N.A.,
as Agent
By /s/Kevin C. Halloran
------------------------------------------------
Name: Kevin C. Halloran
Title: Vice President
Agent's Address:
Post Office Box 29742
Phoenix, Arizona 85038-9742
Attention: Kevin C. Halloran
Commercial Banking Division #813
Telephone: (602) 528-6630
Telefacsimile: (602) 229-4409
<PAGE> 115
15
SCHEDULE A
to Security Agreement between
INTEGRATED PROCESS EQUIPMENT CORP. ("GRANTOR")
and FIRST INTERSTATE BANK OF ARIZONA, N.A. As Agent for the Banks ("AGENT")
COLLATERAL
All of the property described below in, to or under which GRANTOR now has
or hereafter acquires any right, title or interest, whether present, future or
contingent and in GRANTOR's expectancy to acquire such property (all of the
property described on this schedule is herein called the "COLLATERAL"):
(a) all accounts. instruments, chattel paper and general intangibles
(as such terms are defined in the Arizona Uniform Commercial
Code), arising directly or indirectly from the sale, lease,
license or rental of goods or the sale or provision of services
by GRANTOR, together with all proceeds, collections, guaranties
and other security therefor, all right, title and interest of
GRANTOR in the goods that gave rise thereto, including the right
to stoppage in transit, all returned, rejected, rerouted or
repossessed goods, the sale or lease of which shall have given
rise to any, account or any such instrument or chattel paper and
all proceeds thereof and all of GRANTOR's books and records
relating thereto ("ACCOUNTS");
(b) all inventory, goods, merchandise, materials, raw materials,
goods in process, finished goods. packaging and shipping
materials and other tangible personal property whether now or
hereafter in existence ("INVENTORY"), and held for sale or lease,
or to be or actually furnished under contracts for service or
consumed in GRANTOR's business, whether or not such inventory be
in the constructive or actual possession or custody of GRANTOR,
whether or not GRANTOR holds legal title thereto, and whether any
such inventory is represented by warehouse receipts or bills of
lading or has been or may be placed in transit or delivered to a
public warehouse, together with any and all proceeds resulting
from the sale or other disposition thereof, and all books and
records pertaining thereto;
(c) all equipment, accessories, appliances, apparatuses, spare parts,
supplies, materials, blueprints, specifications and maintenance
records related thereto, wherever situated, together with all
goods appertaining or attached, or kept or used or intended for
use in connection therewith, and all property substituted or
exchanged for any and all of the foregoing, including, without
limitation, all computer and other electronic data processing
hardware, integrated computer systems, central processing units,
memory units, display terminals, printers, features, computer
elements, card readers, tape drives, hard, soft and optical disk
drives, cables, electrical supply hardware, generators, power
equalizers, accessories and all peripheral devices and other
related computer hardware, together with all firmware associated
with such property, all documentation (including manuals, guides
and specifications) with respect to such property, and all rights
with respect to all of the foregoing, including without
limitation, any and all copyrights, licenses, options,
warranties, service contracts, program services, test rights,
<PAGE> 116
16
maintenance rights, support rights, improvement rights, renewal
rights, indemnifications and model conversions of any of the
foregoing, all furniture and fixtures; and all improvements to,
replacements of, and additions to any and all of the foregoing
("EQUIPMENT").
(d) all Intellectual Property, including without limitation, (i) all
registered and unregistered patents, patent rights, trademarks,
service marks, trade names, brand names, fictitious names,
certification marks, slogans, names, letters, marks, logos and
symbols, and all applications for registration or renewal of
registration of any of the foregoing, used, owned or claimed by
or licensed to Grantor; (ii) all copyright registrations,
copyright applications and material unregistered copyrights; and
(iii) all inventions, processes, designs, formulae, techniques,
trade secrets, know-how, confidential information and other
proprietary rights, together with all manufacturing prototypes,
blueprints, specifications, drawings, photomasters, documasters,
engineering data, procedures, tests and standards and all
recorded knowledge evidencing the same necessary for or material
to the conduct of the business of Grantor ("INTELLECTUAL
PROPERTY");
(e) all of GRANTOR's Deposits (whether or not evidenced by a
certificate with Agent) and all of GRANTOR's personal property
coming into the hands of or under the control of Agent in any
manner, including securities held by, deposited with, assigned or
pledged to Agent, and all interest, dividends, stock rights,
stock dividends, benefits and other property or rights to which
GRANTOR may become entitled by virtue of the ownership thereof;
(f) all rights under and interests in any lease, license or rental
agreement pertaining to inventory, equipment or Intellectual
Property that are retained or reserved to GRANTOR, and all
reversion or similar interests in property that is subject to
lease, license or rental agreement;
(g) any and all agreements to which the Grantor is a party, now
existing or hereafter entered into, as the same may from time to
time be amended, supplemented or otherwise modified (including
(a) all rights of the Grantor to receive moneys due and to become
due to it thereunder or in connection therewith, (b) all rights
of the Grantor to damages arising out of, or for, breach or
default in respect thereof and (c) all rights of the Grantor to
perform and to exercise all remedies thereunder)("CONTRACTS");
(h) all rights as unpaid seller or lienor that arise in connection
with any of the Collateral, including the rights of replevin,
reclamation and stoppage in transit, and the right to sue or file
mechanics' or materialmen's liens in the name of GRANTOR or
otherwise for the unpaid balances due thereunder,
(i) all tax refund claims, all policies or certificates of insurance
covering any of the Collateral, all contracts, agreements or
rights of indemnification, guaranty or surety relating to any of
the Collateral, and all claims, awards, loss payments, proceeds
and premium refunds that may become payable with respect to any
such policies, certificates, contracts, agreements or rights;
<PAGE> 117
17
(j) all ledger cards, invoices, delivery receipts, worksheets, books
of accounts, statements, correspondence, customer lists, files,
journals, ledgers and records in any form, written or otherwise,
related to any of the Collateral;
(k) all claims for loss or damage to or in connection with any of the
Collateral, all other claims in any form for the payment of
money, including tort claims, and all rights with respect to such
claims and all proceeds thereof;
(1) all accessions to any of the Collateral;
(m) all real property of the Grantor whether owned or leased.
(n) all general intangibles arising by virtue of the foregoing owned
or held by or in the name of GRANTOR ("GENERAL INTANGIBLES");
(o) all property substituted or exchanged for the foregoing; and
(p) all proceeds of the foregoing, in any form, including all
proceeds received, due or to become due from any sale, exchange
or other disposition of any of the Collateral, whether such
proceeds are cash or noncash in nature or are represented by
checks, drafts, notes or other instruments for the payment of
money.
"GRANTOR's Deposits" shall include: (i) depository and other accounts of
GRANTOR; (ii) any successor and/or replacement account(s), and any and all
securities (including, without limitation, treasury notes, treasury bills,
stocks, bonds, options, futures, and investment contracts of every kind and
nature, whether similar or dissimilar to the foregoing), money, instruments,
documents, goods, chattel paper, accounts, general intangibles, deposit accounts
and other property and rights of any nature now or hereafter held in or in
connection with or constituting part of such account(s), (iii) all certificates
and instruments issued with respect to any property of GRANTOR referred to in
subsection (ii); (iv) all replacements, substitutions, interest, cash and stock
dividends, warrants, options, or other rights and amounts paid, accrued,
received, receivable or distributed with respect to any property of GRANTOR
referred to in subsection (ii) or (iii) from time to time; and (v) with respect
to the foregoing, all proceeds thereof, including without limitation insurance
proceeds and payments under the Securities Investor Protection Act of 1970, as
amended.
<PAGE> 118
18
Schedule B
[Trade Names and Styles]
Trade Name Registered With Registration Number
or Style (if applicable) (if applicable)
- -------- --------------- ---------------
<PAGE> 1
Exhibit 11.1
INTEGRATED PROCESS EQUIPMENT CORP.
COMPUTATION OF NET INCOME (LOSS) PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) ($10,657,000) $ 599,000 ($ 8,900,000)
Deduct dividends on preferred stock (579,000) (377,000) (118,000)
------------ ------------ ------------
INCOME (LOSS) ATTRIBUTABLE
TO COMMON STOCK ($11,236,000) $ 222,000 ($ 9,018,000)
============ ============ ============
Shares:
Weighted average number of
common shares outstanding
(including options and warrants
exercised from beginning of
period) 14,434,000 8,922,000 2,763,000
Number of shares obtainable
from exercise of outstanding
options and warrants 1,702,000
Number of shares assumed to
be purchased with the proceeds
from exercise of options and
warrants (using the average
market price during the year) (759,000)
------------ ------------ ------------
Shares used in per share
calculation 14,434,000 9,865,000 2,763,000
============ ============ ============
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK ($ 0.78) $ 0.02 ($ 3.26)
============ ============ ============
</TABLE>
<PAGE> 1
Exhibit 22.1
INTEGRATED PROCESS EQUIPMENT CORP.
LIST OF SUBSIDIARIES
Subsidiaries of
Integrated Process Equipment Corp.
1. IPEC Planar Phoenix, Inc., organized under the laws of Delaware, doing
business only under its official name.
2. IPEC Clean, Inc., organized under the laws of California, doing business only
under its official name.
3. IPEC Planar Portland, Inc., organized under the laws of Oregon, doing
business only under its official name.
4. IPEC Precision, Inc., organized under the laws of Delaware, doing business
only under its official name.
5. IPEC International Services, Inc., organized under the laws of Delaware,
doing business only under its official name.
6. Athens Research and Development Corporation, organized under the laws of
California, doing business only under its official name.
<PAGE> 1
EXHIBIT 24.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Integrated Process Equipment Corp.
We consent to incorporation by reference in the Registration Statement (No.
333-1808) on Form S-8 of Integrated Process Equipment Corp. of our report dated
August 2, 1996, relating to the consolidated balance sheet of Integrated Process
Equipment Corp. and subsidiaries as of June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended, which report appears in the June 30, 1996 Annual Report on
Form 10-K of Integrated Process Equipment Corp.
KPMG Peat Marwick LLP
Phoenix, Arizona
September 12, 1996
<PAGE> 1
EXHIBIT 24.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement of Integrated Process Equipment Corp. (the "Company") on Form S-8
(Registration No. 33-79178) filed with the Securities and Exchange Commission
(the "Commission") on May 20, 1994, the Company's Registration Statement on Form
S-8 (Registration No. 33-80936) filed with the Commission on June 28, 1994 and
the Company's Registration Statement on Form S-3 Amendment No. 3 (Registration
No. 3 (Registration No. 33-90384) filed with the Commission on May 12, 1995 of
our report dated August 18, 1995, on our audits of the consolidated financial
statements of the Company as of June 30, 1995 and for each of the years in the
two-year period then ended, which report is included in this Annual Report on
Form 10-K.
Richard A. Eisner & Company, LLP
New York, New York
September 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 11,681
<SECURITIES> 0
<RECEIVABLES> 44,179
<ALLOWANCES> 100
<INVENTORY> 31,681
<CURRENT-ASSETS> 94,206
<PP&E> 58,947
<DEPRECIATION> 6,292
<TOTAL-ASSETS> 191,684
<CURRENT-LIABILITIES> 40,506
<BONDS> 27,021
0
5,875
<COMMON> 147
<OTHER-SE> 122,315
<TOTAL-LIABILITY-AND-EQUITY> 191,684
<SALES> 184,500
<TOTAL-REVENUES> 184,500
<CGS> 109,719
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 92,268
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,149
<INCOME-PRETAX> (17,436)
<INCOME-TAX> (6,779)
<INCOME-CONTINUING> (10,657)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,657)
<EPS-PRIMARY> (.78)
<EPS-DILUTED> (.78)
</TABLE>
