<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 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 0-22366
CREDENCE SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-2878499
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
215 Fourier Avenue, Fremont, California 94539
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 657-7400
42808 Christy Street, Fremont, California 94539
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 31, 1996, there were 21,626,789 shares of the Registrant's common
stock, $0.001 par value per share outstanding.
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<PAGE>
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements..................................... 3
Condensed Consolidated Balance Sheets.................... 3
Condensed Consolidated Income Statements................. 4
Condensed Consolidated Statements of Cash Flows.......... 5
Notes to Condensed Consolidated Financial Statements..... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................ 18
Item 2. Changes in Securities.................................... 18
Item 3. Defaults Upon Senior Securities.......................... 18
Item 4. Submission of Matters to a Vote of Securityholders....... 19
Item 5. Other Information........................................ 19
Item 6. Exhibits and Reports on Form 8-K......................... 19
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
<TABLE>
<CAPTION>
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
July 31, October 31,
1996 1995
-------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 54,475 $ 54,534
Short-term investments...................... 35,901 29,045
Accounts receivable, net.................... 51,198 44,049
Inventories................................. 36,148 25,887
Other current assets........................ 7,286 9,187
-------- -------
Total current assets....................... 185,008 162,702
Long-term investments........................ 3,086 --
Property and equipment, net.................. 32,214 17,770
Other assets................................. 8,459 6,121
-------- -------
Total assets............................... $228,767 $186,593
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 14,884 $ 11,271
Accrued liabilities......................... 21,845 19,681
Income taxes payable........................ 6,724 4,700
Current obligations under capital leases.... 29 655
-------- --------
Total current liabilities.................. 43,482 36,307
Stockholders' equity......................... 185,285 150,286
-------- --------
Total liabilities and stockholders' equity. $228,767 $186,593
======== ========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share amounts)
(unaudited)
Three Months Ended Nine Months Ended
July 31, July 31,
------------------ -------------------
1996 1995 1996 1995
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................... $67,200 $46,072 $194,586 $123,236
Costs of goods sold......................................... 27,088 18,380 77,992 48,836
------- ------- -------- -------
Gross margin................................................ 40,112 27,692 116,594 74,400
Operating expenses:
Research and development.................................. 9,588 6,448 27,318 17,370
Selling, general and administrative....................... 13,700 9,724 40,596 26,914
------- ------ ------ ------
Total operating expenses................................ 23,288 16,172 67,914 44,284
------- ------ ------ ------
Operating income............................................ 16,824 11,520 48,680 30,116
Interest income, net........................................ 989 740 3,090 1,800
------- ------ ------ ------
Income before income taxes.................................. 17,813 12,260 51,770 31,916
Income taxes................................................ 6,271 4,291 18,355 11,171
------- ------ ------ ------
Net income.................................................. $11,542 $ 7,969 $33,415 $20,745
======= ======= ======= =======
Net income per share........................................ $0.53 $0.38 $1.52 $1.00
======= ======= ======= =======
Number of shares used in computing per share amount......... 21,295 21,169 21,930 20,642
======= ======= ======= =======
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
<CAPTION>
CREDENCE SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(in thousands)
(unaudited)
NINE MONTHS ENDED JULY 31,
--------------------------
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................... $ 33,415 $ 20,745
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization...................................................... 7,245 4,505
EPRO fiscal year conversion........................................................ -- (632)
Deferred taxes..................................................................... -- 449
(Gain) loss on disposal of property and equipment.................................. 48 (253)
Changes in operating assets and liabilities:
Accounts receivable, inventories and other current assets....................... (16,847) (30,402)
Accounts payable, accrued liabilities and income taxes payable.................. 7,859 14,198
------- -------
Net cash provided by operating activities..................................... 31,720 8,610
Cash flows from investing activities:
Purchases of available-for-sale securities......................................... (59,577) (33,585)
Maturities of available-for-sale securities........................................ 38,114 10,765
Maturities of held-to-maturity securities.......................................... 11,521 --
Acquisition of property and equipment.............................................. (18,992) (6,623)
Other assets....................................................................... (3,745) (2,533)
Proceeds from sale of property and equipment....................................... -- 600
------- -------
Net cash used in investing activities......................................... (32,679) (31,376)
Cash flows from financing activities:
Principal payments under capital lease obligations................................ (626) (893)
Issuance of common stock, net of payment on notes receivable...................... 1,526 39,432
-------- --------
Net cash provided by financing activities..................................... 900 38,539
-------- --------
Net increase (decrease) in cash and cash equivalents............................. (59) 15,773
Cash and cash equivalents at beginning of period................................. 54,534 39,497
-------- -------
Cash and cash equivalents at end of period....................................... $54,475 $ 55,270
======== ========
Supplemental disclosures of cash flow information:
Interest paid.................................................................... $ 36 $ 105
Income taxes paid................................................................ $16,261 $ 8,494
Noncash investing activities:
Net transfers of inventory to property and equipment............................. $ 1,338 $ 326
Noncash financing activities:
Income tax benefit from stock option exercises................................... 70 $ 986
</TABLE>
See accompanying notes.
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. QUARTERLY FINANCIAL STATEMENTS
The condensed consolidated financial statements and related notes for
the three months and nine months ended July 31, 1996 and 1995 are unaudited but
include all adjustments (consisting solely of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
financial position and results of operations of the Company for the interim
periods. The results of operations for the three months and nine months ended
July 31, 1996 and 1995 are not necessarily indicative of the operating results
to be expected for the full fiscal year. The information included in this report
should be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the fiscal year ended October 31, 1995 included
in the Annual Report on Form 10-K, the financial and other information set forth
in the Company's Quarterly Report on Form 10-Q for the period ended April 30,
1996 and the additional risk factors, including, without limitation, risks
relating to fluctuations in operating results, limited system sales, backlog,
cyclicality of semiconductor industry, expansion of operations, management of
growth, sole or limited sources of supply, reliance on subcontractors, highly
competitive industry, rapid technological change, importance of timely product
introduction, risks of delays, dependence on key customers, lengthy sales cycle,
dependence on key personnel, management changes, international sales,
proprietary rights, acquisitions, future capital needs and volatility of stock
price, as set forth in this Report. Any party interested in reviewing these
publicly available documents should write to the SEC or the Chief Financial
Officer of the Company.
USE OF ESTIMATES - The preparation of the accompanying unaudited
consolidated condensed financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates.
2. INVESTMENTS CLASSIFICATIONS
The fair market value of cash and cash equivalents, short-term
investments and long-term investments is substantially equal to the carrying
value. The following is a summary of available-for-sale securities as of July
31, 1996 (in thousands):
<TABLE>
<CAPTION>
Available-for-sale
securities
------------------
<S> <C>
Short-term investments:
Commercial paper $ 11,367
Treasury notes 14,495
Certificates of deposit 10,039
---------
Short-term investments $ 35,901
---------
Long-term investments:
Certificates of deposit $ 1,593
Treasury notes 1,493
--------
Long-term investments 3,086
--------
Total $ 38,987
========
</TABLE>
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<PAGE>
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
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<S> <C> <C>
Raw materials............. $23,181 $11,855
Work-in-progress.......... 9,212 9,043
Finished goods............ 3,755 4,989
-------- -------
$36,148 $25,887
======== =======
</TABLE>
4. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalent shares from the
exercise of stock options and warrants (using the treasury stock method).
5. CONTINGENCIES
The Company filed suit against Micro Component Technology, Inc.
("MCT") in the United States District Court for the Northern District of
California on July 6, 1994. The complaint alleges that MCT is infringing United
States Patent No. 4,724,378 owned by the Company for a "Calibrated Automatic
Test System" (the "Credence Patent"). The Company seeks both injunctive relief
and monetary damages. On January 4, 1995, MCT answered the complaint, denying
infringement and alleging as a defense that the Credence Patent is invalid and
unenforceable. MCT further alleged that it had sold all of its rights to the
allegedly infringing product to Megatest Corporation ("Megatest"). Accordingly,
on January 30, 1995, the Company filed a motion to amend its complaint to add
Megatest as a defendant, seeking injunctive relief and monetary damages. On
March 22, 1995, the Court granted the Company's motion to amend its complaint.
Megatest answered the amended complaint on April 24, 1995, denying the claim of
infringement and asserting a counterclaim for declaratory judgment, declaring
that it has not infringed and that the Credence Patent is invalid and
unenforceable. On May 25, 1995, Credence and MCT executed a settlement agreement
pursuant to which MCT paid a royalty for past sales and agreed to the entry of
an injunction against it regarding the Credence Patent. On February 21, 1996,
the Company filed a motion to enforce the terms of a negotiated settlement
between the Company and Megatest, which motion was denied by the Court after a
hearing on April 12, 1996. The Company thereafter sought and obtained leave of
Court to amend its complaint against Megatest to add claims for Megatest's
alleged breach of the settlement agreement which the Company contends the
parties entered into in the Fall of 1995.
On June 11, 1996, a lawsuit was commenced against the Company by
Megatest in the United States District Court for the Northern District of
California, Civil Action No. C-96-20472. The complaint alleges that the Company
has, in connection with its sales of the Vista and Duo Series Testers, infringed
United States Letters Patent Number 4,806,852 (the "'852 Patent"), issued on
February 21, 1989, which patent is directed to an "Automatic Test System With
Enhanced Performance Of Timing Generators." The complaint includes a claim for
injunctive relief, as well as claims for an accounting, lost profits and
damages, an assessment of interest and costs, and an award of attorneys' fees
pursuant to 35 U.S.C. (S)285. The Company answered the complaint on July 3,
1996, denying the claim of infringement, and asserting a counterclaim for a
declaratory judgment that it has not infringed the '852 Patent and that the '852
Patent is invalid and unenforceable. The Company is vigorously pursuing its
counterclaims.
On June 11, 1996, a lawsuit was commenced against the Company by
Teradyne in the United States District Court for the Central District of
California, Civil Action No. C-96-4121(Ex). The complaint alleges that the
Company has, in connection with its sales of the Vista and Duo Series Testers,
infringed United States Letters Patent Number 4,231,104 (the "'104 Patent"),
issued on October 28, 1980, which patent is directed to "Generating Timing
Signals." The complaint includes a claim for injunctive relief, as well as
claims for an accounting, lost profits and damages, an assessment of interest
and costs, and an award of attorneys' fees pursuant to 35 U.S.C. (S)285. The
Company answered the complaint on July 9, 1996, denying the claim of
infringement, and asserting a counterclaim for a declaratory judgment that it
has not infringed the '104 Patent and that the '104 Patent is invalid and
unenforceable. The Company is vigorously pursuing its counterclaims.
The Company is involved in various claims arising in the ordinary
course of business, none of which, including the above Megatest and Teradyne
litigations, in the opinion of management, if determined adversely against the
Company, will have a material adverse effect on the Company's business,
financial condition or results of operations.
-7-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion may contain predictions, estimates and other
forward-looking statements that may involve a number of risks and uncertainties.
While this discussion represents the Company's current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance suggested or implied
herein. Factors that could cause actual results to differ are identified
throughout the discussion below, as well as the section entitled "Future
Operating Results" and "Risk Factors" below. The Company undertakes no
obligation to publicly release the result of any revisions to any forward-
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
The following table sets forth items from the Condensed Consolidated
Income Statements as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------ -----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................................... 40.3 39.9 40.1 39.6
------ ------ ------ ------
Gross margin............................................ 59.7 60.1 59.9 60.4
Operating expenses
Research and development.............................. 14.3 14.0 14.0 14.1
Selling, general, and administrative.................. 20.4 21.1 20.9 21.9
------ ------ ------ ------
Operating expenses.................................. 34.7 35.1 34.9 36.0
------ ------ ------ ------
Operating income........................................ 25.0 25.0 25.0 24.4
Interest income, net.................................... 1.5 1.6 1.6 1.5
------- ------ ------- ------
Income before income taxes............................ 26.5 26.6 26.6 25.9
Income taxes............................................ 9.3 9.3 9.4 9.1
----- ------ ------- ------
Net income.............................................. 17.2% 17.3% 17.2% 16.8%
====== ====== ======= ======
</TABLE>
RESULTS OF OPERATIONS
NET SALES
Net sales consist of revenues from systems and upgrades sales, spare parts
sales and maintenance contracts. Net sales were $67.2 million for the third
quarter and $194.6 million for the first nine months of fiscal 1996,
representing increases of 45.9% and 57.9%, respectively, over the comparable
periods of fiscal 1995. These increases were due primarily to an increase in
system unit sales. The Company does not believe such rates of growth will
continue and the Company believes such growth rates will decrease in the fourth
quarter of fiscal 1996 and thereafter. International shipments accounted for
approximately 61.2% and 65.1% of the total net sales for the third quarter and
first nine months of fiscal 1996, respectively, compared to approximately 56.1%
and 57.2% for the comparable periods a year ago. The Company's international
sales of its products and spare parts and its service revenues are primarily
denominated in United States dollars.
GROSS MARGIN
The Company's gross margin has been and is expected to continue to be
affected by a variety of factors, including manufacturing efficiencies, pricing
by competitors or suppliers, product sales mix, production volume, customization
and reconfiguration of systems, international and domestic sales mix and field
service costs. Gross margin was 59.7% for the third quarter and 59.9% for the
first nine months of fiscal 1996, compared with 60.1% for the third quarter and
60.4% for the first nine months of fiscal 1995. The slightly lower gross margin
for the third quarter and for the first nine months of fiscal 1996 reflected
primarily additional manufacturing facilities costs partially offset by
continuing production efficiencies. There can be no assurance that the Company's
gross margin will remain at recent levels.
-8-
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses were $9.6 million in the third quarter
and $27.3 million in the first nine months of fiscal 1996, an increase of $3.1
million or 48.7% and $9.9 million or 57.3%, respectively, over the same periods
of fiscal 1995. These increases were due primarily to increased outside
contractor costs and increased employee compensation and expenses related to
additional personnel and, to a lesser extent, increased amortization expense
relating to software and purchased technology. As a percentage of net sales,
these expenses were 14.3% for the third quarter and 14.0% for the first nine
months of fiscal 1996, compared with 14.0% for the third quarter and 14.1% for
the first nine months of fiscal 1995. The Company currently intends to continue
to invest significant resources in the development of new products and
enhancements for the foreseeable future. Accordingly, the Company expects these
expenses to increase significantly in absolute dollars for the remainder of
fiscal 1996 as compared to fiscal 1995. There can be no assurance, however, that
the Company will make such investments or that any such new products and
enhancements will be successfully developed and marketed. If such expenses
increase without the same or an increase in net sales, the Company's business,
financial condition and results of operations would be adversely affected.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $13.7 million in the
third quarter and $40.6 million for the first nine months of fiscal 1996,
representing increases of $4.0 million or 40.9% and $13.7 million or 50.8%,
respectively, over the comparable periods of fiscal 1995. These increases were
due primarily to increased employee compensation and expenses related to
additional personnel, increased sales commissions related to increased product
sales and, to a lesser extent, increased facility costs. As a percentage of net
sales, these expenses were 20.4% for the third quarter and 20.9% for the first
nine months of fiscal 1996, compared with 21.1% and 21.8%, respectively, for the
corresponding periods in fiscal 1995. The decline of these expenses as a
percentage of net sales is attributable primarily to the increase in net sales
in the third quarter and the first nine months of fiscal 1996 as compared with
the comparable periods of fiscal 1995. The Company expects selling, general and
administrative expenses for the rest of fiscal 1996 to increase in absolute
dollars as compared to fiscal 1995. If such expenses increase without the same
or an increase in net sales, the Company's business, financial condition and
results of operations would be adversely affected.
INTEREST INCOME, NET
The Company generated net interest income of $989,000 for the third quarter
and $3.1 million for the first nine months of fiscal 1996, compared to $740,000
and $1.8 million, respectively, for the corresponding periods in fiscal 1995.
These increases were due primarily to interest earned on higher average cash and
cash equivalents and short-term investments balances during the periods and, to
a lesser extent, lower average debt outstanding during such periods. The higher
cash and cash equivalents and short-term investments balances reflected cash
provided by operations.
INCOME TAXES
The Company's provision for income taxes for the third quarter and for the
first nine months of fiscal 1996 of 35.2% and 35.5% is computed based on the
projected annualized effective tax rate. The effective tax rate for the third
quarter and for the first nine months of fiscal 1995 of 35.0% was lower than the
statutory rate due primarily to the benefit of the Company's foreign sales
corporation. The projected effective tax rate for fiscal 1996 is expected to be
less than the combined federal and state statutory rate of 41% due primarily to
the projected benefit of the Company's foreign sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $31.7 million and $8.6
million for the nine months ended July 31, 1996 and 1995, respectively. Net cash
flows provided by operating activities were primarily attributable to
profitability and adjustments for increasing levels of depreciation and
amortization, accounts payable, accrued
-9-
<PAGE>
liabilities and income taxes payable and a decrease in prepaid and other current
assets offset in part by significant increases in accounts receivable and
inventories. Investing activities used net cash of $32.7 million and $31.4
million for the nine months ended July 31, 1996 and 1995, respectively. In the
first nine months of fiscal 1996, the Company purchased $19.0 million of
property and equipment and invested a net $9.9 million in short-term and long-
term security investments.
As of July 31, 1996, the Company had working capital of approximately
$141.5 million, including cash and short-term investments of $90.4 million,
$51.2 million of accounts receivable and $36.1 million of inventories. The
Company expects accounts receivable to continue to represent a significant
portion of working capital. The Company believes that because of the relatively
long manufacturing cycles of many of its testers, investments in inventories
will also continue to represent a significant portion of working capital.
Significant investments in accounts receivable and inventories may subject the
Company to increased risks which could materially adversely affect the Company's
business, financial condition or results of operations. Total liabilities of
$36.3 million as of October 31, 1995 increased to $43.5 million as of July 31,
1996. The $7.2 million increase was due primarily to increases in accounts
payable by $3.6 million, accrued liabilities by $2.2 million and income taxes
payable by $2.0 million offset in part by a decrease in current obligations
under capital leases.
The Company's principal sources of liquidity as of July 31, 1996 consisted
of approximately $54.5 million of cash and cash equivalents, short-term
investments of $35.9 million and $20.0 million available under the Company's
unsecured working capital line of credit expiring in July 1997. As of July 31,
1996, approximately $2.6 million was outstanding under two operating equipment
leaselines and no amounts were outstanding under the unsecured line of credit.
FUTURE OPERATING RESULTS
The Company's short term outlook has weakened significantly as it has in
general for the other companies in the semiconductor equipment industry.
Softness and delays, deferrals and cancellations in orders for the Company's
products in the third quarter resulted in a significant decrease in backlog as
of July 31, 1996. Consequently, the Company anticipates it will experience
reduced shipment levels in the coming months and lower sequential revenues in
the short term. The Company is currently attempting to align its spending to the
anticipated lower shipment levels. The Company's operating results have in the
past fluctuated significantly and will in the future fluctuate significantly
depending upon a variety of factors, including the timing of new product
announcements and releases by the Company or its competitors; cyclicality or
overcapacity in the semiconductor industry; market acceptance of new products
and enhanced versions of the Company's products; manufacturing inefficiencies
associated with the start up of new product introductions; changes in pricing by
the Company, its competitors, customers or suppliers; manufacturing capacity;
customer demand based on end-user demand; the ability to volume produce systems
and meet customer requirements; inventory obsolescence; patterns of capital
spending by customers; delays, cancellations or rescheduling of orders due to
customer financial difficulties or otherwise; changes in overhead absorption
levels due to changes in the number of systems manufactured; the timing and
shipment of orders; availability of components, subassemblies and services;
expenses associated with acquisitions and alliances; product discounts;
customization and reconfiguration of systems; the proportion of direct sales and
sales through third parties, including distributors and original equipment
manufacturers; the increased concentration of sales to test and assembly
subcontractors, which the Company believes have a greater volatility in their
demand; the mix of products sold; the length of manufacturing and sales cycles
as the Company is currently experiencing; cyclicality or downturns in the
semiconductor market and the markets served by the Company's customers; natural
disasters; political and economic instability; regulatory changes; and outbreaks
of hostilities. While the Company's gross margin on system sales has been
relatively consistent during the last three years, it may vary in the future
based on a variety of factors, including manufacturing efficiencies, pricing by
competitors or suppliers, product sales mix, production volume, customization
and reconfiguration of systems, international and domestic sales mix and field
service margins. In addition, new and enhanced products typically have lower
gross margin in the early stages of commercial introduction and production.
While the Company has recorded and continues to record allowances for estimated
sales returns and uncollectible accounts, there can be no assurance that such
estimates regarding allowances will be adequate. If they are not adequate, the
Company's business, financial condition and results of operations would be
materially adversely affected.
-10-
<PAGE>
RISK FACTORS
Limited System Sales; Backlog
- -----------------------------
The Company derives a substantial portion of its net sales from the
sale of a relatively small number of systems that typically range in price from
$300,000 to $2.0 million, excluding the EPRO products which price range is
typically below $100,000. As a result, the timing of recognition of revenue from
a single transaction could have a significant impact on the Company's net sales
and operating results for a particular period. The Company's net sales and
operating results for a particular period could be materially adversely affected
if an anticipated order for even one system is not received in time to permit
shipment during that period. The Company's backlog at the beginning of a quarter
typically does not include all tester orders needed to achieve the Company's
sales objectives for that quarter. In addition, orders in backlog are subject to
cancellation, delay, deferral or rescheduling by a customer with limited or no
penalties. Consequently, the Company's net sales and operating results for a
quarter have in the past and will in the future depend upon the Company
obtaining orders for systems to be shipped in the same quarter that the order is
received. Furthermore, products generating most of the Company's net sales
continue to be shipped near the end of each quarter. Accordingly, the failure to
receive an anticipated order or a delay or rescheduling in a shipment near the
end of a particular period, due, for example, to an order cancellation, a delay
by a customer, manufacturing, technical reliability or other difficulties,
including difficulties relating to customization and reconfiguration of systems,
a delay in the supply of components, subassemblies or services or a delay due to
competitive or economic factors, may cause net sales in a particular period to
fall significantly below the Company's expectations, which would have a material
adverse effect upon the Company's business, financial condition or results of
operations. The relatively long manufacturing cycle of many of its testers,
including the Vista Logic100 and Vista DUO testers introduced in 1994, has
caused and could continue to cause shipments of such products to be delayed from
one quarter to the next, which could materially adversely affect the Company's
business, financial condition or results of operations. Furthermore,
announcements by the Company or its competitors of new products and technologies
could cause customers to defer or cancel purchases of the Company's existing
systems, which could also have a material adverse effect on the Company's
business, financial condition or results of operations. The impact of these and
other factors on the Company's sales and operating results in any future period
cannot be forecasted with certainty. In addition, the need for continued
significant expenditures for research and development, capital equipment
purchases and worldwide training and customer service and support, among other
factors, will make it difficult for the Company to reduce significantly its
fixed expenses in a particular period if the Company's net sales goals for such
period are not met. The Company has significantly increased its expense levels
to support its recent growth, and the Company does not currently believe it will
maintain or exceed its current level of net sales or rate of growth for any
period in the future. Accordingly, there can be no assurance that the Company
will be able to remain profitable or that it will not sustain losses in future
periods. Due to all of the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's common
stock would likely be materially adversely affected.
Cyclicality of Semiconductor Industry
- -------------------------------------
The Company's business and results of operations depend in significant
part upon the capital expenditures of manufacturers of semiconductors, including
manufacturers that are opening new or expanding existing fabrication facilities,
which in turn depend upon the current and anticipated market demand for
semiconductors and products incorporating semiconductors. Historically, the
semiconductor industry has been highly cyclical with recurring periods of
oversupply, which often have had a severe effect on the semiconductor industry's
demand for test equipment, including the systems manufactured and marketed by
the Company. The Company believes that the markets for newer generations of
semiconductors will also be subject to similar fluctuations. In recent years,
the semiconductor industry has experienced significant growth which, in turn,
has caused significant growth in the capital equipment industry most notably in
the past three years. The industry is currently in a downturn. The Company
cannot predict when the downturn will change. There can be no assurance that
such growth can be sustained and the Company currently believes that such growth
in the short-term will not be sustained. The Company anticipates that a
significant portion of new orders may depend upon demand from semiconductor
device manufacturers building or expanding large fabrication facilities and
there can be no assurance that such demand will exist or materialize. In
addition, any factor adversely affecting the semiconductor industry or
particular segments
-11-
<PAGE>
within the semiconductor industry may adversely affect the Company's business,
financial condition or results of operations. Therefore, there can be no
assurance that the Company's operating results will not be materially adversely
affected if downturns or slowdowns in the semiconductor industry continue or
occur again in the future.
Expansion of Operations; Management of Growth
- ---------------------------------------------
The Company has recently experienced a period of rapid growth. Since
1993, the Company has significantly increased the scale of its operations to
support increased sales levels and has expanded its operations to address
critical infrastructure and other requirements, including the hiring of
additional personnel, significant investments in research and development to
support product development, the March 1995 acquisition of EPRO and the
Company's establishment of relationships in Asia. In this regard, the Company
relocated its principal office in Fremont, California and EPRO's operations in
Santa Clara, California to a larger facility in Fremont, California. There can
be no assurance that the relocation will not disrupt the Company's operations.
The Company's expansion has resulted in significantly higher operating expenses,
and the Company expects that its operating expenses, including research and
development expenses with respect to new products and enhancements and expenses
relating to facilities expansion, will continue to increase significantly. If
the Company is unable to achieve significantly increased sales or its sales fall
below expectations, the Company's business, financial condition or results of
operations may be materially adversely affected. Moreover, there can be no
assurance that the Company's net sales or rate of growth will increase or remain
at or above recent levels and the Company currently believes that its recent
level of net sales and rate growth will not be maintained or exceeded.
The recent growth in the Company's sales and expansion in the scope of
its operations has placed a considerable strain on its management, financial,
manufacturing and other resources and has required the Company to implement and
improve a variety of operating, financial and other systems, procedures and
controls. There can be no assurance that any existing or new systems, procedures
or controls will be adequate to support the Company's operations or that its
systems, procedures and controls will be designed, implemented or improved in a
cost effective and timely manner. Any failure to implement, improve and expand
such systems, procedures and controls in an efficient manner at a pace
consistent with the Company's business could have a material adverse effect on
the Company's business, financial condition or results of operations.
Sole or Limited Sources of Supply; Reliance on Subcontractors
- -------------------------------------------------------------
Certain components, subassemblies and services necessary for the
manufacture of the Company's testers are obtained from a sole supplier or a
limited group of suppliers. In particular, the Company's Vista series testers
have two critical components that are currently available from a sole supplier.
In addition, one critical component in the Company's model SC 212 tester is
currently supplied by the same sole supplier. In addition, the Company purchases
certain components that are available solely from Tektronix for use in the Vista
series testers. The Company does not maintain any long-term supply agreements
with any of its vendors and purchases its components and subassemblies through
individual purchase orders. The manufacture of certain of the Company's
components and subassemblies is an extremely complex process. The Company also
relies increasingly on outside vendors to manufacture certain components and
subassemblies and to provide certain services. The Company has recently
experienced and continues to experience significant reliability, quality and
timeliness problems with several critical components supplied by one of its
vendors. In addition, the Company and certain of its subcontractors are
currently experiencing significant shortages and delays in delivery of various
components and subassemblies. There can be no assurance that these or other
problems will not continue to occur in the future with these or the Company's
other suppliers or outside subcontractors. The Company's reliance on sole or a
limited group of suppliers, and the Company's increasing reliance on outside
subcontractors involves several risks, including an inability to obtain an
adequate supply of required components, subassemblies and services and reduced
control over the price, timely delivery, reliability and quality of components,
subassemblies and services. Shortages, delays, disruptions or terminations of
the sources for these components and subassemblies has delayed and could
continue to delay shipments of the Company's systems and could have a material
adverse effect on the Company's business, financial condition or results of
operations. Any continuing inability to obtain adequate yields or timely
deliveries or any other circumstance that would require the Company to seek
alternative sources of supply or to manufacture such components internally,
could have a material adverse effect on the Company's business, financial
condition or results of operations. Such delays, shortages and disruptions would
also damage relationships with current and
-12-
<PAGE>
prospective customers and could allow competitors to penetrate such customer
accounts. There can be no assurance that the Company's internal manufacturing
capacity and that of its suppliers and subcontractors will be sufficient to meet
customer requirements.
Highly Competitive Industry
- ---------------------------
The automatic test equipment ("ATE") industry is intensely
competitive. Because of the substantial investment required to develop test
application software and interfaces, the Company believes that once a
semiconductor manufacturer has selected a particular ATE vendor's tester, the
semiconductor manufacturer is likely to use that tester for a majority of its
testing requirements for the market life of that semiconductor and, to the
extent possible, subsequent generations of similar products. As a result, once
an ATE customer chooses a system for the testing of a particular device, it is
difficult for competing vendors to achieve significant ATE sales to such
customer for similar use. The inability of the Company to achieve significant
sales to each ATE customers could have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company faces substantial competition throughout the world,
primarily from ATE manufacturers located in the United States, Europe and Japan,
as well as several of the Company's customers. Many of the Company's competitors
have substantially greater financial and other resources with which to pursue
engineering, manufacturing, marketing and distribution of their products.
Certain of the Company's competitors have introduced or announced new products
with certain performance or price characteristics equal or superior to certain
products currently offered by the Company. The Company believes that if the ATE
industry continues to consolidate through strategic alliances or acquisitions,
as evidenced by acquisitions in recent years of Versatest Corporation by Hewlett
- -Packard Company, of a tester product line of Micro Component Technology, Inc.
by Megatest Corporation ("Megatest") and of Megatest by Teradyne, the Company
will face significant additional competition from larger competitors that may
offer more complete product lines and services than the Company. The Company
also expects its competitors to continue to improve the performance of their
current products and to introduce new products, enhancements and new
technologies that provide improved cost of ownership and performance
characteristics. New product introductions 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 materially adversely affect the Company's
business, financial condition or results of operations. The Company has
experienced and continues to experience significant price competition in the
sale of all of its testers. In addition, at the end of a product life cycle and
as competitors introduce more technologically advanced products, pricing
pressures typically become more intense. The Company believes that to be
competitive, it will continue to require significant financial resources in
order to, among other items, invest in new product development and enhancements
and to maintain customer service and support centers worldwide. There can be no
assurance that the Company will be able to compete successfully in the future.
Rapid Technological Change, Importance of Timely Product Introduction
- ---------------------------------------------------------------------
The ATE market is subject to rapid technological change and new
product introductions and enhancements and related software tools. The Company's
ability to be competitive in this market will depend in significant part upon
its ability to successfully develop and introduce new products and enhancements
and related software tools on a timely and cost-effective basis, including the
products and products under development acquired in the EPRO merger. The
Company's customers require testers with additional features and higher
performance and other capabilities. The Company is therefore required to enhance
the performance and other capabilities of its existing systems and related
software tools. Any success by the Company in developing new and enhanced
systems and related software tools and new features to its existing systems
depends upon a variety of factors, including product selection, development of
competitive products by competitors, timely and efficient completion of product
design, timely and efficient implementation of manufacturing and assembly
processes, product performance in the field and effective sales and marketing.
Because new product development commitments must be made well in advance of
sales, new product decisions must anticipate both future demand and the
availability of technology to satisfy that demand. There can be no assurance
that the Company will be successful in selecting, developing, manufacturing or
marketing new products or enhancements and related software tools. The inability
of the Company to introduce new products and related software tools that
contribute significantly to net sales, gross margin and net income would have a
material adverse effect on the Company's business, financial condition or
results of operations. In addition,
-13-
<PAGE>
new product or technology introductions by the Company's competitors could cause
a decline in sales or loss of market acceptance of the Company's existing
products.
Significant delays can occur between a system's introduction and the
commencement by the Company of volume production of such system. The Company has
been and is experiencing significant delays in the introduction, volume
production and sales of its systems and related enhancements in the newer
product lines due to technical, manufacturing, parts shortages, component
reliability and other difficulties and may continue to experience similar delays
in the future. As a result, certain of the Company's significant customers have
been and are experiencing significant delays in receiving and using certain of
the Company's testers in production. There can be no assurance that these or
additional difficulties will not continue to arise in the future with respect to
the Company's systems and that such delays will not materially adversely affect
customer relationships and future sales. Moreover, there can be no assurance
that the Company will not encounter these or other difficulties that could delay
future introductions or volume production or sales of its systems or
enhancements and related software tools. The Company has incurred and may
continue to incur substantial unanticipated costs to ensure the functionality
and reliability of its testers. If the Company's systems continue to have
reliability, quality or other problems, reduced orders, higher manufacturing
costs, delays in collecting accounts receivable and higher service, support and
warranty expenses, among other items could result. The Company's failure to have
a competitive tester and related software tools available when required by a
semiconductor manufacturer could make it substantially more difficult for the
Company to sell testers to that manufacturer for a number of years. The Company
believes that the continued acceptance, volume production, timely delivery and
customer satisfaction of the newer product lines are of critical importance to
its future financial results. As a result, an inability to correct any
technical, reliability, parts shortages or other difficulties associated with
the Company's systems or to manufacture and ship the Company's systems on a
timely basis to meet customer requirements could damage relationships with
current and prospective customers and would materially adversely affect the
Company's business, financial condition or results of operations.
Customer Concentration; Lengthy Sales Cycle
- -------------------------------------------
During the nine months ended July 31, 1996, sales to Philips and
Siliconware accounted for 12% and 11%, respectively, of the Company's net sales.
In fiscal 1995, sales to Philips. and Cirrus Logic, Inc. each accounted for 11%
of the Company's net sales. In fiscal 1994, sales to Philips and Motorola
accounted for 14% and 10%, respectively, of the Company's net sales. Certain key
customers have been experiencing significant delays in receiving and using
certain of the Company's testers in production due to technical, manufacturing,
parts shortages, reliability and other difficulties relating to such testers.
The loss of or any reduction in orders by a significant customer, including
losses or reductions due to continuing or other technical, manufacturing,
reliability or other difficulties associated with the Company's products or
market, economic or competitive conditions in the semiconductor industry or in
other industries that manufacture products utilizing semiconductors could
materially adversely affect the Company's business, financial condition or
results of operations. The Company's ability to maintain or increase its sales
levels in the future will depend in significant part upon its ability to obtain
orders from existing and new customers and to manufacture systems on a timely
and cost-effective basis, the financial condition and success of its customers,
general economic conditions, and the Company's ability to meet increasingly
stringent customer performance and other requirements and shipment delivery
dates. There can be no assurance that the Company will be able to maintain or
continue to increase the level of its net sales in the future or that the
Company will be able to retain existing customers or attract new ones.
Sales of the Company's systems depend in significant part upon the
decision of a semiconductor manufacturer to develop and manufacture new
semiconductor devices or to increase manufacturing capacity. As a result, sales
of the Company's testers are subject to a variety of factors outside of the
Company's control. In addition, the decision to purchase a tester generally
involves a significant commitment of capital, with the attendant delays
frequently associated with significant capital expenditures. For these and other
reasons, the Company's systems have lengthy sales cycles during which the
Company may expend substantial funds and management effort to secure a sale and
subject the Company to a number of significant risks.
-14-
<PAGE>
Dependence on Key Personnel; Management Changes
- -----------------------------------------------
The Company's future operating results depend in significant part upon
the continued service of its key personnel, none of whom are bound by an
employment or noncompetition agreement. The Company's future operating results
also depend in significant part upon its ability to attract and retain qualified
management, manufacturing, technical, engineering and marketing and sales and
support personnel. Competition for such personnel is intense, and there can be
no assurance that the Company will be successful in attracting or retaining such
personnel. There may be only a limited number of persons with the requisite
skills to serve in these positions and it may be increasingly difficult for the
Company to hire such personnel over time. The loss of any key employee, the
failure of any key employee to perform in his or her current position or the
Company's inability to attract and retain skilled employees, as needed, could
materially adversely affect the Company's business, financial condition or
results of operations. The Company's future operating results will depend in
significant part on its ability to attract, hire and retain skilled employees
and on the ability of its officers and key employees to expand, train and manage
its employee base. If the Company is unable to attract and retain the required
personnel, it could have a material adverse effect on the Company's results of
operations.
International Sales
- -------------------
International sales accounted for approximately 52%, 55% and 65% of
total net sales in fiscal years 1994, 1995 and for the first nine months of
fiscal 1996, respectively. The Company anticipates that international sales will
continue to account for a significant portion of total net sales in the
foreseeable future. As a result, these sales will continue to be subject to
certain risks, including changes in regulatory requirements, tariffs and other
barriers, political and economic instability, an outbreak of hostilities,
integration of foreign operations of acquired businesses, foreign currency
exchange rate fluctuations, difficulties with distributors, original equipment
manufacturers, foreign subsidiaries and branch operations, potentially adverse
tax consequences and the possibility of difficulty in accounts receivable
collection. The Company is also subject to the risks associated with the
imposition of legislation and regulations relating to the import or export of
semiconductor equipment. The Company cannot predict whether quotas, duties,
taxes or other charges or restrictions will be implemented by the United States
or any other country upon the importation or exportation of the Company's
products in the future. Any of these factors or the adoption of restrictive
policies could have a material adverse effect on the Company's business,
financial condition or results of operations.
Proprietary Rights
- ------------------
The Company attempts to protect its intellectual property rights
through patents, trade secrets and other measures, including confidentiality
agreements. There can be no assurance that others will not independently develop
substantially equivalent proprietary information and techniques or otherwise
gain access to the Company's trade secrets and other intellectual property
rights or disclose such technology or that the Company can meaningfully protect
its trade secrets or other intellectual property rights. In connection with the
Company's patent infringement litigation against Megatest, Megatest has
challenged the validity and enforceability of one of the Company's patents not
relating to its CMOS stabilization methods. There can be no assurance that this
or any other patents owned by the Company will not be invalidated, deemed
unenforceable, circumvented or challenged, that the rights granted thereunder
will provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with the scope of the
claims sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop similar products, duplicate the Company's products
or design around the patents owned by the Company. In addition, there can be no
assurance that foreign intellectual property laws or the Company's agreements
will protect the Company's intellectual property rights. Failure to protect the
Company's intellectual property rights could have a material adverse effect upon
the Company's business, financial condition or results of operations.
The European patent application for one of the inventions relating to
CMOS stabilization methods owned by the Company was abandoned by the prior owner
after the European patent examiner cited prior art. This prior art was not
referenced in the corresponding United States patent application. Based upon its
review to date of the cited prior art and the European examiner's objections,
and in part upon the advice of Smith-Hill and Bedell, P.C., general
-15-
<PAGE>
patent counsel to the Company ("SHB"), the Company believes that such prior art
is unlikely to affect the validity or scope of the claims of the United States
issued patent.
This prior art may, however, render invalid or significantly narrow
the scope of certain claims set forth in the United States patent covering the
Company's other patented CMOS stabilization method. The European examiner
referred to this prior art in the corresponding European patent application. The
European application was approved, but with significantly narrower claims than
the United States patent. This prior art was not referenced in the corresponding
United States patent. Based in part upon the advice of SHB, and on the Company's
review of its current products, the Company believes that this patent will
continue to be valuable to the Company in preventing imitation of the Company's
products covered by this patent. Additionally, in mid-1992, a third party
suggested that certain claims set forth in this patent might be invalid as a
result of other alleged prior art. The Company believes that, based in part upon
the advice of SHB, the prior art alleged by the third party is less relevant
than the prior art referenced by the European examiner. The corresponding
Japanese application has been rejected by the examiner and the Company has
appealed to reverse the examiner's rejection. However, there can be no assurance
that any of the aforementioned prior art or other prior art will not be
successfully asserted and used to invalidate or narrow the scope of any claim of
the United States patents or the corresponding Japanese patent applications or
any other patents or other patent applications of the Company.
In addition to those patent infringement suits discussed in Part II,
item 1, hereof, the Company has been involved in extensive, expensive and time
consuming review of patent infringement claims. In addition, the Company has at
times been notified of other claims that it may be infringing intellectual
property rights possessed by third parties. Certain of the Company's customers
have received notices of infringement from Jerome Lemelson alleging that the
manufacture of semiconductor products and/or the equipment used to manufacture
semiconductor products infringes certain patents issued to such person. The
Company was notified by a customer in 1990 and a different customer in late 1994
that the Company may be obligated to defend or settle claims that the Company's
products infringe such person's patents, and, in the event it is subsequently
determined that the customer infringes such person's patents, such customer
intends to seek reimbursement from the Company for damages and other related
expenses. There can be no assurance that the Company will be successful in
defending current or future patent infringement claims or claims for
indemnification resulting from infringement claims. An award of damages,
injunctive relief or expenditures by the Company of significant amounts in
defending any such action could materially adversely affect the Company's
business, financial condition or results of operations, regardless of the
outcome of any litigation. With respect to any claims, the Company may seek to
obtain a license under the third party's intellectual property rights. There can
be no assurance, however, that a license will be available on reasonable terms
or at all. The Company could decide, in the alternative, could continue to
resort to litigation to challenge such claims. Such challenge has been and could
continue to be extremely expensive and time consuming, and could materially
adversely affect the Company's business, financial condition or results of
operations, regardless of the outcome of any litigation.
Acquisitions
- ------------
The Company has developed in significant part through mergers and
acquisitions. The Company may in the future pursue acquisitions of complementary
product lines, technologies or businesses. Future acquisitions by the Company
could result in potentially dilutive issuances of equity securities, the
incurrence of debt and contingent liabilities, expenditures and reserves, and
amortization expenses related to goodwill and other intangible assets, which
could materially adversely affect any Company profitability. In addition,
acquisitions involve numerous risks, including difficulties in the assimilation
of the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns, risks of
entering markets in which the Company has no or limited direct prior experience,
and the potential loss of key employees of the acquired company. From time to
time, the Company has engaged in and may continue to engage in discussions with
third parties concerning potential acquisitions of product lines, technologies
and businesses; however, there are currently no commitments or agreements with
respect to any such acquisition. In the event that such an acquisition does
occur, however, there can be no assurance as to the effect thereof on the
Company's business, financial condition or results of operations.
-16-
<PAGE>
Future Capital Needs
- --------------------
The development and manufacture of new ATE systems and enhancements
are highly capital intensive. In order to be competitive, the Company must make
significant investments in capital equipment, expansion of operations, systems,
procedures and controls, research and development and worldwide training,
customer service and support, among many items. The Company expects that cash on
hand, short-term investments, its bank line of credit, anticipated cash flow
from operations and equipment lease arrangements will satisfy its financing
requirements for at least the next 12 months.
Volatility of Stock Price
- -------------------------
The Company believes that factors such as announcements of
developments related to the Company's business, fluctuations in the Company's
financial results, general conditions or developments in the semiconductor and
capital equipment industry and the general economy, sales of the Company's
Common Stock into the marketplace, an outbreak of hostilities, natural
disasters, announcements of technological innovations or new products or
enhancements by the Company or its competitors, developments in patents or other
intellectual property rights, developments in the Company's relationships with
its customers and suppliers, or a shortfall or changes in revenue, gross margin
or earnings or other financial results from analysts' expectations could cause
the price of the Company's Common Stock to fluctuate, perhaps substantially. In
recent years the stock market in general, and the market for shares of small
capitalization stocks in particular, including the Company, have experienced
extreme price fluctuations, which have often been unrelated to the operating
performance of affected companies. There can be no assurance that the market
price of the Company's common stock will not continue to experience significant
fluctuations in the future, including fluctuations that are unrelated to the
Company's performance.
-17-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company filed suit against Micro Component Technology, Inc.
("MCT") in the United States District Court for the Northern District of
California on July 6, 1994. The complaint alleges that MCT is infringing United
States Patent No. 4,724,378 owned by the Company for a "Calibrated Automatic
Test System" (the "Credence Patent"). The Company seeks both injunctive relief
and monetary damages. On January 4, 1995, MCT answered the complaint, denying
infringement and alleging as a defense that the Credence Patent is invalid and
unenforceable. MCT further alleged that it had sold all of its rights to the
allegedly infringing product to Megatest Corporation ("Megatest"). Accordingly,
on January 30, 1995, the Company filed a motion to amend its complaint to add
Megatest as a defendant, seeking injunctive relief and monetary damages. On
March 22, 1995, the Court granted the Company's motion to amend its complaint.
Megatest answered the amended complaint on April 24, 1995, denying the claim of
infringement and asserting a counterclaim for declaratory judgment, declaring
that it has not infringed and that the Credence Patent is invalid and
unenforceable. On May 25, 1995, Credence and MCT executed a settlement agreement
pursuant to which MCT paid a royalty for past sales and agreed to the entry of
an injunction against it regarding the Credence Patent. On February 21, 1996,
the Company filed a motion to enforce the terms of a negotiated settlement
between the Company and Megatest, which motion was denied by the Court after a
hearing on April 12, 1996. The Company thereafter sought and obtained leave of
Court to amend its complaint against Megatest to add claims for Megatest's
alleged breach of the settlement agreement which the Company contends the
parties entered into in the Fall of 1995.
On June 11, 1996, a lawsuit was commenced against the Company by
Megatest in the United States District Court for the Northern District of
California, Civil Action No. C-96-20472. The complaint alleges that the Company
has, in connection with its sales of the Vista and Duo Series Testers, infringed
United States Letters Patent Number 4,806,852 (the "'852 Patent"), issued on
February 21, 1989, which patent is directed to an "Automatic Test System With
Enhanced Performance Of Timing Generators." The complaint includes a claim for
injunctive relief, as well as claims for an accounting, lost profits and
damages, an assessment of interest and costs, and an award of attorneys' fees
pursuant to 35 U.S.C. (S)285. The Company answered the complaint on July 3,
1996, denying the claim of infringement, and asserting a counterclaim for a
declaratory judgment that it has not infringed the '852 Patent and that the '852
Patent is invalid and unenforceable. The Company is vigorously pursuing its
counterclaims.
On June 11, 1996, a lawsuit was commenced against the Company by
Teradyne in the United States District Court for the Central District of
California, Civil Action No. C-96-4121(Ex). The complaint alleges that the
Company has, in connection with its sales of the Vista and Duo Series Testers,
infringed United States Letters Patent Number 4,231,104 (the "'104 Patent"),
issued on October 28, 1980, which patent is directed to "Generating Timing
Signals." The complaint includes a claim for injunctive relief, as well as
claims for an accounting, lost profits and damages, an assessment of interest
and costs, and an award of attorneys' fees pursuant to 35 U.S.C. (S)285. The
Company answered the complaint on July 9, 1996, denying the claim of
infringement, and asserting a counterclaim for a declaratory judgment that it
has not infringed the '104 Patent and that the '104 Patent is invalid and
unenforceable. The Company is vigorously pursuing its counterclaims.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
-18-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
None
ITEM 5. OTHER INFORMATION
On June 26, 1996, Dr. Wilmer R. Bottoms, Chairman of the Company's Board
of Directors, was appointed Chief Executive Officer and will continue to serve
as Chairman of the Board of Directors. James T. Healy, formerly President, Chief
Executive Officer and a member of the Board of Directors, will remain as
President and also continue his position as a member of the Board of Directors.
Dr. Bottoms served as Senior Vice President of Patricof & Co. Ventures,
Inc., a venture capital firm, from 1984 through June 1996. Prior to his tenure
at Patricof & Co. Ventures, Inc., Dr. Bottoms previously served as the first
President of the Semiconductor Equipment Group at Varian Associates.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index on page 21.
(b) No reports on Form 8-K have been filed during the quarter ended
July 31, 1996.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, as
amended, the registrant duly caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
CREDENCE SYSTEMS CORPORATION
----------------------------------
(Registrant)
September 9, 1996 RICHARD Y. OKUMOTO
- ------------------------------------- ----------------------------------
Date Richard Y. Okumoto
Senior Vice President, Chief
Financial Officer and Secretary
(on behalf of the registrant and
as principal financial officer)
-20-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER PAGE
- ------- ----
10.1 Loan Agreement among Silicon Valley Bank,
Bank of Hawaii and the Company....................
11.1 Computation of Net Income Per Share................
27.1 EDGAR Financial Data Schedule......................
-21-
<PAGE>
EXHIBIT 10.1
================================================================================
CREDENCE SYSTEMS CORPORATION
LOAN AGREEMENT
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. DEFINITIONS AND CONSTRUCTION........................................... 1
1.1 Definitions...................................................... 1
1.2 Accounting Terms................................................. 7
2. LOAN AND TERMS OF PAYMENT.............................................. 7
2.1 Advances......................................................... 7
2.2 Overadvances..................................................... 9
2.3 Interest Rates, Payments, and Calculations....................... 10
2.4 Crediting Payments............................................... 10
2.5 Fees............................................................. 11
2.6 Additional Costs................................................. 11
2.7 Conversion/Continuation of Advances.............................. 11
2.8 Additional Requirements/Provisions Regarding LIBOR Rate
Advances or Optional Currency Rate Advances...................... 12
2.9 Term............................................................. 14
3. CONDITIONS OF LOANS.................................................... 14
3.1 Conditions Precedent to Initial Advance.......................... 14
3.2 Conditions Precedent to all Advances............................. 14
4. REPRESENTATIONS AND WARRANTIES......................................... 15
4.1 Due Organization and Qualification............................... 15
4.2 Due Authorization; No Conflict................................... 15
4.3 No Prior Encumbrances............................................ 15
4.4 Merchantable Inventory........................................... 15
4.5 Litigation....................................................... 15
4.6 No Material Adverse Change in Financial Statements............... 15
4.7 Solvency......................................................... 15
4.8 Regulatory Compliance............................................ 15
4.9 Environmental Condition.......................................... 16
4.10 Taxes............................................................ 16
4.11 Subsidiaries..................................................... 16
4.12 Government Consents.............................................. 16
4.13 Full Disclosure.................................................. 16
5. AFFIRMATIVE COVENANTS.................................................. 16
5.1 Good Standing.................................................... 17
5.2 Government Compliance............................................ 17
5.3 Financial Statements, Reports, Certificates...................... 17
5.4 Inventory; Returns............................................... 17
5.5 Taxes............................................................ 17
5.6 Insurance........................................................ 17
5.7 Quick Ratio...................................................... 18
5.8 Debt-Tangible Net Worth Ratio.................................... 18
5.9 Tangible Net Worth............................................... 18
5.10 Profitability.................................................... 18
5.11 Further Assurances............................................... 18
6. NEGATIVE COVENANTS..................................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
6.1 Dispositions.................................................... 18
6.2 Change in Business or Control................................... 18
6.3 Mergers or Acquisitions......................................... 18
6.4 Indebtedness.................................................... 18
6.5 Encumbrances.................................................... 19
6.6 Distributions................................................... 19
6.7 Investments..................................................... 19
6.8 Transactions with Affiliates.................................... 19
6.9 Subordinated Debt............................................... 19
6.10 Compliance...................................................... 19
7. EVENTS OF DEFAULT..... ............................................... 19
7.1 Payment Default................................................. 19
7.2 Covenant Default... ........................................... 19
7.3 Material Adverse Change......................................... 20
7.4 Attachment...................................................... 20
7.5 Insolvency...................................................... 20
7.6 Other Agreements................................................ 20
7.7 Judgments....................................................... 20
7.8 Misrepresentations.. .......................................... 20
8. BANKS' RIGHTS AND REMEDIES............................................ 20
8.1 Rights and Remedies............................................. 20
8.2 Bank Expenses................................................... 21
8.3 Remedies Cumulative............................................. 21
8.4 Demand; Protest................................................. 21
9. NOTICES............................................................... 21
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER............................ 22
11. INTERCREDITOR PROVISIONS.............................................. 22
11.1 Proportionate Interests......................................... 22
11.2 Designation of Service Agent.................................... 22
11.3 Resignation..................................................... 22
11.4 Servicing Agent as Bank......................................... 23
11.5 No Agency....................................................... 23
11.6 No Reliance..................................................... 23
12. GENERAL PROVISIONS.................................................... 23
12.1 Successors and Assigns.......................................... 23
12.2 Indemnification................................................. 23
12.4 Waivers of Notice............................................... 24
12.5 Subrogation Defenses............................................ 24
12.6 Right to Settle, Release........................................ 24
12.7 Primary Obligation.............................................. 25
12.8 Subordination................................................... 25
12.9 Enforcement of Rights........................................... 25
12.10 Credence as Agent............................................... 25
12.11 Time of Essence................................................. 25
12.12 Severability of Provisions...................................... 25
12.13 Amendments in Writing, Integration.............................. 25
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
12.14 Counterparts................................................. 25
12.15 Survival..................................................... 25
12.16 Confidentiality.............................................. 25
12.17 Optional Currency Rate....................................... 26
</TABLE>
iii
<PAGE>
This LOAN AGREEMENT is entered into as of July 26, 1996 by and among
SILICON VALLEY BANK ("SVB") as Servicing Agent and a Bank and BANK OF HAWAII
("BofH;" SVB and BofH are referred to individually herein as a "Bank," and
collectively as the "Banks") and CREDENCE SYSTEMS CORPORATION, a Delaware
corporation ("Credence"), Credence Korea, a Korean corporation and Credence
Systems K.K., a Japanese corporation (individually a "Borrower" and
collectively, the "Borrowers").
RECITALS
--------
Borrowers wish to obtain credit from time to time from Banks, and Banks
desire to advance credit to Borrowers. This Agreement sets forth the terms on
which Banks will lend to Borrowers, and Borrowers will repay the advances to
Banks.
AGREEMENT
---------
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
----------------------------
1.1 Definitions. As used in this Agreement, the following terms
-----------
shall have the following definitions:
"Advance" or "Advances" means an Advance under the Revolving
Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Bank Expenses" means all: reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and each Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrower's Books" means all of each Borrower's books and
records relating to its property.
"Business Day" means a day of the year (a) that is not a
Saturday, Sunday or other day on which banks in the States of California or
Hawaii or the City of London are authorized or required to close and (b) on
which dealings are carried on in the interbank market in which Bank customarily
participates and, (c) with respect to Advances and payments in an Optional
Currency or any requests or notices related thereto, that is not a day on which
the BofH branch or other banks in the country of such Optional Currency are
authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Committed Line" means Twenty Million Dollars ($20,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
1
<PAGE>
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, excluding
all outstanding Advances made under Section 2.1 hereof, but including all other
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at the
option of Borrower or any Subsidiary to a date more than one year from the date
of determination.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Equipment" means machinery, equipment, tenant improvements,
furniture, fixtures, vehicles, tools, parts and attachments.
"Equivalent Amount" means the equivalent in United States Dollars
of an Optional Currency, calculated at the spot rate for the purchase of such
Optional Currency by BofH.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, extension generally with all or
substantially all creditors, or proceedings seeking general reorganization,
arrangement, or other relief.
"Interest Period" means for each LIBOR Rate Advance, a period of
approximately one, three or six months as Borrower may elect, provided that the
--------
last day of an Interest Period for a LIBOR Rate Advance shall be determined in
accordance with the practices, of the LIBOR interbank market as from time to
time in effect, provided, further, in all cases such period shall expire not
-------- -------
later than the applicable Maturity Date.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including
2
<PAGE>
such inventory as is temporarily out of its custody or possession or in transit
and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Issuing Bank" means the Bank issuing a Letter of Credit pursuant
to Section 2.1.1. SVB shall be the Issuing Bank, except that BofH shall be the
Issuing Bank if (i) SVB is unable to issue a Letter of Credit or (ii) a Letter
of Credit issued by SVB would require confirmation by another bank under
circumstances in which a Letter of Credit issued by BofH would not require
confirmation.
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate
Advance, the rate of interest per annum determined by SVB to be the per annum
rate of interest at which deposits in United States Dollars are offered to SVB
in the London interbank market in which SVB customarily participates at 11:00
A.M. (local time in such interbank market) three (3) Business Days before the
first day of such Interest Period for a period approximately equal to such
Interest Period and in an amount approximately equal to the amount of such
Advance.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate
Advance, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by (ii) 1
minus the Reserve Requirement for such Interest Period.
"LIBOR Rate Advances" means any Advances made or a portion
thereof on which interest is payable based on the LIBOR Rate in accordance with
the terms hereof.
"Lien" means any mortgage, lien, deed of trust, security interest
or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Banks in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or financial condition of Borrower and its Subsidiaries
taken as a whole or (ii) the ability of Borrowers, taken as a whole, to repay
the Obligations .
"Maturity Date" means July 25, 1997.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank Expenses
and other amounts owed to the Banks by Borrower pursuant to this Agreement,
whether absolute or contingent, due or to become due (including any interest
accruing after the commencement of an Insolvency Proceeding and any interest
that would have accrued but for the commencement of an Insolvency Proceeding),
now existing or hereafter arising .
"Operating Loss" means an operating loss under GAAP, specifically
excluding non-cash losses arising from business-combination activities.
3
<PAGE>
"Optional Currency" means the lawful currency of Japan or the
Republic of Korea.
"Optional Currency Rate Advance" means an Advance in an Optional
Currency, made pursuant to and in accordance with Section 2.1(c).
"Optional Currency Rate" means with respect to Advances (i) in
Japanese Yen, the Tokyo Bills Discount Market Rate or (ii) in Korean Won, the
90-day certificate of deposit rate, in each case as quoted by the office of BofH
located in the country of the Optional Currency.
"Optional Currency Rate Instruments" means the promissory notes
and other instruments in substantially the form of Exhibits A-1 and A-2 attached
hereto.
"Percentage Share" means, as to each Bank, the percentage
calculated in accordance with Section 11.1 hereof.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to either
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and such Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Banks arising under
this Agreement or any other Loan Document;
(b) Subordinated Debt;
(c) Capital leases or indebtedness incurred solely to
purchase equipment, which is secured in accordance with clause (c) of "Permitted
Liens" below and is not in excess of the lesser of the purchase price of such
equipment or the fair market value of such equipment on the date of acquisition,
provided the outstanding principal balance of such Indebtedness incurred in any
fiscal year shall not exceed Ten Million Dollars ($10,000,000);
(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
(e) Indebtedness set forth on the Schedule;
(f) Indebtedness of Borrower to any Subsidiary and
Contingent Obligations of any Subsidiary with respect to obligations of Borrower
(provided that the primary obligations are not prohibited hereby), and
Indebtedness of any Subsidiary to any other Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of any other
Subsidiary (provided that the primary obligations are not prohibited hereby),
and Indebtedness consisting of Investments that are "Permitted Investments"
under clause (l) of the definition of Permitted Investments;
(g) Indebtedness secured by Permitted Liens;
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a), (b), (c), (e) and
(g) above, provided that the principal amount thereof is not increased or the
--------
terms thereof are not modified to impose more burdensome terms upon Borrower or
its Subsidiaries, as the case may be.
"Permitted Investment" means:
4
<PAGE>
(a) Investments existing on the Closing Date disclosed on the
Schedule;
(b) Investments made or obtained through either Bank that
consist of (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof, (ii)
commercial paper maturing no more than one (1) year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Corporation or Moody's Investors Service, Inc., (iii) certificates of
deposit maturing no more than one (1) year from the date of investment therein
issued by either Bank or (iv) that are permitted by Borrower's investment
policy, as amended from time to time by its board of directors, provided that
such investment policy (and any such amendment thereto) has been approved by the
Banks, which approval shall not be unreasonably withheld; and
(c) Investments made in connection with the merger or
consolidation with another Person or the acquisition of all or substantially all
of the capital stock or property of another Person where the sole consideration
paid by Borrower or any Subsidiary consists of Borrower's equity securities and
cash and the aggregate amount of cash paid after the date hereof does not exceed
Ten Million Dollars ($10,000,000).
"Permitted Liens" means the following:
(a) Any liens existing as of the date hereof and disclosed on
the Schedule;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, provided the same have no priority over any of Banks'
--------
security interests;
(c) Liens (i) upon or in any equipment acquired by Borrower or
any of its Subsidiaries after the date hereof to secure the purchase price of
such equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property
--------
so acquired and improvements thereon, and the proceeds of such equipment;
(d) Easements, reservations, rights-of-way, restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances affecting real property not constituting a Material Adverse Effect;
(e) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), and (d) above, provided that any extension, renewal or
--------
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, public benefit corporation, firm, joint stock company, estate,
entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by SVB as its "prime rate," or BofH as its "base rate," as
applicable to the Advances made hereunder by each such Bank, whether or not such
announced rate is the lowest rate available from such Bank.
"Prime Rate Advances" means any Advances made or a portion
thereof on which interest is payable based on the Prime Rate in accordance with
the terms hereof.
5
<PAGE>
"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Regulatory Change" means, with respect to Bank, any change on
or after the date of this Agreement in United States federal, state or foreign
laws or regulations, including Regulation D, or the adoption or making on or
after such date of any written interpretations, directives or requests applying
to a class of lenders including Bank of or under any United States federal or
state, or any foreign, laws or regulations (whether or not having the force of
law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reserve Requirement" means, for any Interest Period, the
average maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory Change
against (i) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of "LIBOR
Base Rate" or (ii) any category of extensions of credit or other assets which
include Advances.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Treasurer of Credence.
"Revolving Facility" means the facility under which a
Borrower may request Bank to issue cash advances, as specified in Section 2.1
hereof.
"Schedule" means the schedule of exceptions attached hereto.
"Servicing Agent" means SVB or such entity as may succeed to
such position.
"Subordinated Debt" means any debt incurred by a Borrower
that is subordinated to the Obligations under this Agreement on terms reasonably
acceptable to Banks.
"Subsidiary" means any corporation or partnership in which
(i) any general partnership interest or (ii) more than 50% of the stock of which
by the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, is owned by Borrower, either directly or through an
Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrowers minus,
-----
without duplication, (i) the sum of any amounts attributable to (a) goodwill,
(b) intangible items such as unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, and (c) all reserves not already deducted from
assets, and (ii) Total Liabilities.
---
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of
Borrowers, including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
1.2 Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
6
<PAGE>
2. LOAN AND TERMS OF PAYMENT
-------------------------
2.1 Advances. Subject to the terms and conditions of this Agreement,
--------
each Bank severally will make Advances to Borrowers as set forth herein. BofH
shall make all of the Advances made in an Optional Currency. Each Bank severally
will make its Percentage Share of Advances in United States Dollars such that
the aggregate amount of each Bank's Advances under this Agreement shall not
exceed such Bank's Percentage Share of the Committed Line minus the face amount
of all outstanding Letters of Credit (including undrawn and drawn but
unreimbursed Letters of Credit) and minus the reserve, if any, taken under
Section 2.1.1(d); provided that the aggregate outstanding Advances in an
Optional Currency shall not exceed Two Million Five Hundred Thousand Dollars
($2,500,000). Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time
during the term of this Agreement.
(a) Requests for Advances. Whenever Borrowers desire an
---------------------
Advance, Credence will notify Servicing Agent by facsimile transmission or
telephone no later than 11:00 a.m. California time on the Business Day that a
Prime Rate Advance is to be made, noon California time on the Business Day that
is two (2) Business Days in the country of the Optional Currency prior to the
Business Day on which an Optional Currency Rate Advance is to be made, and noon
California time on the Business Day that is three (3) Business Days prior to the
Business Day on which a LIBOR Rate Advance is to be made. Servicing Agent shall
promptly deliver such notice to the Banks. Each Bank may make Advances under
this Agreement, based upon instructions received by Servicing Agent from a
Responsible Officer, or without instructions if in Servicing Agent's discretion
such Advances are necessary to meet Obligations under this Agreement which have
become due and remain unpaid. Each Bank shall be entitled to rely on any notice
by telephone or otherwise given by a person who Servicing Agent reasonably
believes to be a Responsible Officer, and Borrowers shall indemnify and hold
such Bank harmless for any damages or loss suffered by such Bank as a result of
such reliance. Such Bank will wire or credit, as appropriate, the amount of
Advances in United States Dollars made under this Section 2.1 to a Borrower's
deposit account held by Servicing Agent, as specified by Credence, or, as to an
Advance in an Optional Currency, to a Borrower's deposit account held by BofH in
the respective branch office in the country of the Optional Currency.
Each such notice shall specify:
(i) the date such Advance is to be made, which shall
be a Business Day;
(ii) the amount of such Advance;
(iii) whether such Advance is to be a Prime Rate
Advance, an Optional Currency Rate Advance, or a LIBOR Rate Advance;
(iv) if the Advance is to be a LIBOR Rate Advance, the
Interest Period for such Advance; and
(v) if the Advance is to be in an Optional Currency,
the type of currency.
Each written request for an Advance, and each confirmation of a telephone
request for such an Advance, shall be in the form of a Borrowing Certificate in
the form of Exhibit B executed by Credence on behalf of Borrowers.
---------
(b) Prime Rate Advances. Each Prime Rate Advance shall be in
-------------------
an amount not less than Twenty Five Thousand Dollars ($25,000). The outstanding
principal balance of each Prime Rate Advance shall bear interest until principal
is due (computed daily on the basis of a 360 day year and actual days elapsed),
at a rate per annum equal to the Prime Rate. Borrower shall pay the entire
outstanding principal amount of each Prime Rate Advance on the Maturity Date.
7
<PAGE>
(c) Optional Currency Rate Advances. Each Optional Currency Rate
-------------------------------
Advance shall be in an Equivalent Amount of not less than Fifty Thousand Dollars
($50,000). The outstanding principal balance of each Optional Currency Rate
Advance shall bear interest until principal is due (computed daily on the basis
of a 360 day year and actual days elapsed or, where required by any law or is
customary in the country of the Optional Currency, a 365 day year) at a rate per
annum equal to the Optional Currency Rate plus 225 basis points for such
Optional Currency Rate Advance. The Optional Currency Rate Advances shall be
evidenced by this Agreement and by the Optional Currency Rate Instruments.
(d) LIBOR Rate Advances. Each LIBOR Rate Advance shall be in an
-------------------
amount or an Equivalent Amount of not less than Five Hundred Thousand Dollars
($500,000). The outstanding principal balance of each LIBOR Rate Advance shall
bear interest until principal is due (computed daily on the basis of a 360 day
year and actual days elapsed) at a rate per annum equal to the LIBOR Rate plus
225 basis points for such LIBOR Rate Advance. The entire outstanding principal
amount of each LIBOR Rate Advance shall be due and payable on the last day of
the LIBOR Rate Interest Period for such LIBOR Rate Advance.
(e) Prepayment of the Advances. Borrowers may at any time prepay
--------------------------
any Prime Rate Advance, any Optional Currency Rate Advance, or any LIBOR Rate
Advance, in full or in part. Each partial prepayment for a LIBOR Rate Advance
shall be in an amount not less than Two Hundred Fifty Thousand Dollars
($250,000). Each prepayment shall be made upon the irrevocable written or
telephone notice of Borrowers received by Servicing Agent not later than 10:00
a.m. California time on the date of the prepayment of a Prime Rate Advance, not
less than two Business Days in the country of the Optional Currency prior to the
date of the prepayment of an Optional Currency Rate Advance, and not less than
three (3) Business Days prior to the date of the prepayment of a LIBOR Rate
Advance. The notice of prepayment shall specify the date of the prepayment, the
amount of the prepayment, and the Advance or Advances to be prepaid. Each
prepayment of an Optional Currency Rate Advance for which the term and interest
rate have been fixed or LIBOR Rate Advance shall be accompanied by the payment
of accrued interest on the amount prepaid and any amount required by Section
2.8.
The Revolving Facility shall terminate on the Maturity Date, at which time
all Advances under this Section 2.1 and other amounts due under this Agreement
shall be immediately due and payable.
2.1.1 Letters of Credit.
-----------------
(a) At a Borrower's written request, Issuing Bank shall
issue Letters of Credit for Borrowers' account. Each Bank severally agrees to
participate in Letters of Credit, in accordance with such Bank's Percentage
Share.
(b) Issuing Bank shall issue the Letter of Credit upon
receipt of a Borrower's written request and Issuing Bank's standard form of
application, stating (a) the date such Borrower wishes to receive the Letter of
Credit (which shall be a Business Day); (b) the requested amount of such Letter
of Credit; (c) the aggregate amount of all Advances and Letters of Credit then
outstanding; (d) if appropriate, the conditions requested by Borrower under
which the Letter of Credit may be drawn upon; and (e) any other information
Issuing Bank might need to issue the Letter of Credit. Issuing Bank shall
promptly notify all of the Banks upon receipt of a request for a Letter of
Credit.
(c) The maximum aggregate obligation at any one time for
undrawn and drawn but unreimbursed Letters of Credit shall be Seventeen Million
Five Hundred Thousand Dollars ($17,500,000). Each Letter of Credit shall be
issued pursuant to the terms and conditions of this Agreement and of the Issuing
Bank's standard form of application and security agreement for letters of
credit. Each Letter of Credit shall (a) expire no later than the Maturity Date;
and (b) be otherwise in form and substance satisfactory to Issuing Bank. Upon
issuing a Letter of Credit, the Issuing Bank shall immediately notify the other
Bank of such issuance and shall, on a continuing basis, keep the other Bank
informed of the drawn and undrawn but unreimbursed amount of each Letter of
Credit for so long as such Letter of Credit is outstanding. With respect to
standby Letters of
8
<PAGE>
Credit, Borrowers shall pay to Issuing Bank a nonrefundable issuance fee equal
to one and one-half percent (1 1/2%) of the face amount of the Letter of Credit
at the time Borrower requests the Letter of Credit. The Issuing Bank shall
retain a fee equal to one-eighth of one percent (0.125%) of the face amount of
the Letter of Credit, and shall share the balance of such issuance fee equally
with the other Bank. With respect to commercial Letters of Credit, Borrower
shall pay to Issuing Bank a nonrefundable issuance fee equal to one-eighth of
one percent (0.125%) of the face amount of the Letter of Credit at the time
Borrower requests the Letter of Credit and a negotiation fee equal to one-eighth
of one percent (0.125%) of the face amount of the Letter of Credit at the time a
draw is made on the Letter of Credit. The Issuing Bank shall retain an issuance
fee of One Hundred Dollars ($100) and a negotiation fee of One Hundred Dollar
($100), and shall share the balance of such issuing fee and negotiation fee
equally with the other Bank. On the day on which Issuing Bank honors any
drawing made by the beneficiary of a Letter of Credit, Borrowers shall pay to
Issuing Bank the full amount of the drawing so honored, or at Borrower's option,
shall treat the amount of such drawing as an Advance under Section 2.1. The
obligation to reimburse Issuing Bank for the amount of such drawing is absolute,
unconditional, and irrevocable.
(d) Borrowers may request that Issuing Bank issue a
Letter of Credit payable in a currency other than United States Dollars. If a
demand for payment is made under any such Letter of Credit, Issuing Bank shall
treat such demand as an advance to Borrowers of the Equivalent Amount thereof.
Upon the issuance of any Letter of Credit payable in a currency other than
United States Dollars, Banks shall create a reserve under the Committed Line for
letters of credit against fluctuations in currency exchange rates, in an amount
equal to twenty percent (20%) of the face amount of such Letter of Credit. The
amount of such reserve may be amended by Banks from time to time to account for
fluctuations in the exchange rate. The availability of funds under the Committed
Line shall be reduced by the amount of such reserve for so long as such Letter
of Credit remains outstanding.
2.2 Overadvances. If, at any time or for any reason, the sum of (i)
------------
Advances owed by Borrowers to Banks pursuant to Section 2.1 of this Agreement
plus (ii) the face amount of Letters of Credit issued under Section 2.1.1
(including undrawn and drawn but unreimbursed Letters of Credit) plus (iii) the
reserve, if any, taken under Section 2.1.1(d) is greater than the Committed
Line, Borrowers shall immediately pay to each Bank, in cash, the amount of such
excess, for payment to the Banks according to their respective Percentage
Shares. If, at any time or for any reason, the Equivalent Amount of Outstanding
Optional Currency Advances exceeds Two Million Five Hundred Thousand Dollars
($2,500,000), Borrowers shall immediately pay to BofH the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
------------------------------------------
(a) Interest Rate. Except as set forth in Section 2.3(b), any
-------------
Advances of each Bank shall bear interest, on the average Daily Balance, at the
rates specified in Sections 2.1(b), 2.1(c) and 2.1(d), respectively.
(b) Default Rate. All Obligations shall bear interest, from
------------
and after the occurrence of an Event of Default, at a rate equal to the lesser
of (i) three (3) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default or (ii) the maximum
rate permitted by law including, to the extent applicable to Optional Currency
Advances, the law of the country of such Optional Currency.
(c) Payments. Accrued interest shall be due and payable in
--------
arrears upon the earlier of (i) the end of the Interest Period or (ii) any
payment of principal or (iii) on the twenty-fifth day of each calendar month.
With respect to repayments of Prime Rate Advances and LIBOR Rate Advances,
Servicing Agent shall, at the option of each Bank, charge such interest, all
Bank Expenses, and all Periodic Payments against a Borrower's deposit account
held at SVB or against the Committed Line, in which case those amounts shall
thereafter accrue interest at the rate then applicable hereunder. With respect
to repayments of Optional Currency Advances, the branch of BofH in the country
of the Optional Currency shall, at the option of each Bank, charge such interest
and
9
<PAGE>
all periodic payments against a Borrower's deposit account in such country or
against the Committed Line, in which case those amounts shall thereafter accrue
interest at the rate then applicable hereunder. Any interest not paid when due
shall be compounded by becoming a part of the Obligations, and such interest
shall thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from
-----------
time time hereafter, the applicable rate of interest hereunder shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed, except that
interest chargeable on account of Optional Rate Currency Advances shall be
computed on the basis of a three hundred sixty five (365) day year where such
computation is required by any law or is customary in the country of the
Optional Currency.
2.4 Crediting Payments. Prior to the occurrence of an Event of
------------------
Default, each Bank shall credit a wire transfer of funds, check, or other item
of payment to such deposit account held at such Bank or Obligation as a Borrower
specifies; provided that payments in an Optional Currency shall be made only at
the branch of BofH in the country of such Optional Currency. After the
occurrence and during the continuation of an Event of Default, the receipt by a
Bank of any wire transfer of funds, check, or other item of payment shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment on account unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by a Bank after noon California
time (or, as to a payment in an Optional Currency, noon at the BofH branch
office in the country of the Optional Currency) shall be deemed to have been
received by such Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to a Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable for
the period of such extension.
2.5 Fees. Borrowers shall pay to Banks the following:
----
(a) Facility Fee. An annual Facility Fee equal to Fifty
------------
Thousand Dollars ($50,000), which fee shall be shared equally by Banks, shall be
due upon the date of this Agreement and shall be fully earned and nonrefundable;
provided the Facility Fee shall be waived for the first year of this Agreement;
- --------
provided this section shall not be construed as a commitment to extend the term
of this Agreement beyond the Maturity Date.
(b) Financial Examination and Appraisal Fees. Each Bank's
----------------------------------------
customary fees and out-of-pocket expenses for such Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by such Bank or its agents;
and
(c) Bank Expenses. Upon the date hereof, all Bank Expenses
-------------
incurred through the date hereof, including reasonable attorneys' fees and
expenses, and, within thirty (30) days of demand, other Bank Expenses as they
become due from time to time hereunder.
2.6 Additional Costs. In case any law, regulation, treaty or official
----------------
directive or the written interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects any Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of such Bank imposed by the United States of America
or any political subdivision thereof);
10
<PAGE>
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, any Bank; or
(c) imposes upon any Bank any other material condition with
respect to its performance under this Agreement and the result of any of the
foregoing is to increase the cost to such Bank, reduce the income receivable by
such Bank or impose any expense upon such Bank with respect to any loans, such
Bank shall notify Borrowers thereof in writing. Borrowers shall pay to such Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by such Bank of a statement of the amount and setting forth such
Bank's calculation thereof, all in reasonable detail, which statement shall be
deemed true and correct absent manifest error; provided, however, that Borrowers
-------- -------
shall not be liable for any such amount attributable to any period prior to 180
days prior to the date of such certificate.
2.7 Conversion/Continuation of Advances.
-----------------------------------
(a) Borrowers may from time to time submit in writing a
request that Prime Rate Advances be converted to LIBOR Rate Advances or that any
existing LIBOR Rate Advances continue for an additional Interest Period. Such
request shall specify the amount of the Prime Rate Advances which will
constitute LIBOR Rate Advances (subject to the limits set forth below) and the
Interest Period to be applicable to such LIBOR Rate Advances. Each written
request for a conversion to a LIBOR Rate Advance or a continuation of a LIBOR
Rate Advance shall be substantially in the form of an Optional Currency Rate or
LIBOR Rate Conversion/Continuation Certificate as set forth on Exhibit B, which
shall be duly executed by a Responsible Officer. Subject to the terms and
conditions contained herein, three (3) Business Days after Servicing Agent's
receipt of such a request from Borrowers, such Prime Rate Advances shall be
converted to LIBOR Rate Advances or such LIBOR Rate Advances or an Optional
Currency Rate Advance shall continue, as the case may be provided that:
(i) no Event of Default or event which with notice or
passage of time or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of
termination of the Agreement;
(iii) Borrowers shall have complied with such customary
procedures as Banks have established from time to time for Borrowers' requests
for Optional Currency Rate Advances or LIBOR Rate Advances;
(iv) the amount of a Prime Rate Advance shall be $25,000
or more, the amount of an Optional Currency Rate Advance shall be $50,000 or
more, and the amount of a LIBOR Rate Advance shall be $500,000 or such greater
amount which is an integral multiple of $50,000; and
(v) Servicing Agent shall have determined that the
Interest Period or LIBOR Rate or Optional Currency Rate is available to Banks as
of the date of the request for such LIBOR Rate Advance or Optional Currency Rate
Advance.
Any request by Borrowers to convert Prime Rate Advances to LIBOR Rate
Advances or continue any existing LIBOR Rate Advances shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Banks shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances,
but the provisions hereof shall be deemed to apply as if Banks had purchased
such deposits to fund the LIBOR Rate Advances.
11
<PAGE>
(b) Any LIBOR Rate Advances shall automatically convert to Prime
Rate Advances upon the last day of the applicable Interest Period, unless Banks
have received and approved a complete and proper request to continue such LIBOR
Rate Advance at least three (3) Business Days prior to such last day in
accordance with the terms hereof. Any LIBOR Rate Advances or Optional Currency
Rate Advances shall, at Banks' option, convert to Prime Rate Advances in the
event that an Event of Default shall exist. Borrowers shall pay to Banks, upon
demand by Banks (or Servicing Agent may, at its option, charge a Borrower's
deposit account) any amounts required to compensate Banks for any loss
(including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of LIBOR Rate Advances or Optional
Currency Rate Advances to Prime Rate Advances pursuant to any of the foregoing.
2.8 Additional Requirements/Provisions Regarding LIBOR Rate Advances
----------------------------------------------------------------
or Optional Currency Rate Advances.
- -----------------------------------
(a) If for any reason (including voluntary or mandatory prepayment
or acceleration), Banks receive all or part of the principal amount of a LIBOR
Rate Advance prior to the last day of the Interest Period for such LIBOR Rate
Advance or the proposed term of any Optional Currency Rate Advance for which the
term and the interest rate have been fixed, Borrowers shall on demand by
Servicing Agent, pay Servicing Agent the amount (if any) by which (i) the
additional interest which would have been payable on the amount so received had
it not been received until the last day of such Interest Period or term exceeds
(ii) the interest which would have been recoverable by Banks by placing the
amount so received on deposit in the certificate of deposit markets or the
offshore currency interbank markets or United States Treasury investment
products, as the case may be, for a period starting on the date on which it was
so received and ending on the last day of such Interest Period or term at the
interest rate determined by Servicing Agent in its reasonable discretion.
Servicing Agent's determination as to such amount shall be conclusive absent
manifest error.
(b) Borrowers shall pay to a Bank, upon demand by a Bank, from
time to time such amounts as such Bank may reasonably determine to be necessary
to compensate it for any costs incurred by such Bank that such Bank determines
are attributable to its making or maintaining of any amount receivable by such
Bank hereunder in respect of any Advances relating thereto (such increases in
costs and reductions in amounts receivable being herein called "Additional
Costs"), in each case resulting from any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Bank under this Agreement in respect of any Advances (other than changes
which affect taxes measured by or imposed on the overall net income of such Bank
by the jurisdiction in which such Bank has its principal office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements relating to any extensions of credit or other assets of, or
any deposits with or other liabilities of such Bank (including any Advances or
any deposits referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other material condition affecting
this Agreement (or any of such extensions of credit or liabilities).
Such Bank will notify Borrowers of any event occurring after the date of the
Agreement which will entitle such Bank to compensation pursuant to this section
as promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Such Bank will furnish Borrower with a statement
setting forth the basis and amount of each request by such Bank for compensation
under this Section 2.8. Determinations and allocations by a Bank for purposes
of this Section 2.8 of the effect of any Regulatory Change on its costs of
maintaining its obligations to make Advances or of making or maintaining
Advances or on amounts receivable by it in respect of Advances, and of the
additional amounts required to compensate such Bank in respect of any Additional
Costs, shall be conclusive absent manifest error.
12
<PAGE>
(c) Borrowers shall pay to a Bank, upon the request of such
Bank, such amount or amounts as shall be sufficient (in the sole good faith
opinion of such Bank) to compensate it for any reasonable loss, costs or expense
incurred by it as a result of any failure by Borrower to borrow a LIBOR Rate
Advance on the date for such borrowing specified in the relevant notice of
borrowing hereunder.
(d) If a Bank shall determine that the adoption or
implementation of any applicable law, rule, regulation or treaty regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by Bank (or its applicable lending office) with any respect or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on capital of such Bank or any person or entity
controlling Bank (a "Parent") as a consequence of its obligations hereunder to a
level below that which Bank (or its Parent) could have achieved but for such
adoption, change or compliance (taking into consideration its policies with
respect to capital adequacy) by an amount deemed by Bank to be material, then
from time to time, within 15 days after demand by such Bank, Borrowers shall pay
to Bank such additional amount or amounts as will compensate such Bank for such
reduction. A statement of such Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive absent manifest error.
(e) If at any time a Bank, in its sole and absolute
discretion, determines that: (i) the amount of the LIBOR Rate Advances or
Optional Currency Rate Advances for periods equal to the corresponding Interest
Periods or any other period are not available to such Bank in the offshore
currency interbank markets, or (ii) the LIBOR Rate or Optional Currency Rate
does not accurately reflect the cost to Bank of lending the LIBOR Rate Advance
or Optional Currency Rate Advance, then such Bank shall promptly give notice
thereof to Borrowers, and upon the giving of such notice such Bank's obligation
to make the LIBOR Rate Advances or Optional Currency Rate Advances shall
terminate, unless Banks and Borrowers agree in writing to a different interest
rate applicable to LIBOR Rate Advances or Optional Currency Rate Advances. If it
shall become unlawful for a Bank to continue to fund or maintain any Advances,
or to perform its obligations hereunder, upon demand by such Bank, Borrower
shall prepay the Advances in full with accrued interest thereon and all other
amounts payable by Borrower hereunder (including, without limitation, any amount
payable in connection with such prepayment pursuant to Section 2.8(a)).
2.9 Term. This Agreement shall become effective upon the date hereof
----
and shall continue in full force and effect for a term ending on the Maturity
Date. Notwithstanding the foregoing, Banks shall have the right to terminate any
obligation to make Advances under this Agreement immediately and without notice
upon the earlier of (i) the occurrence and during the continuance of an Event of
Default or (ii) the Maturity Date. On the date of termination, all Obligations
shall become immediately due and payable in cash or by wire transfer.
3. CONDITIONS OF LOANS
-------------------
3.1 Conditions Precedent to Initial Advance. The obligation of either
---------------------------------------
Bank to make the initial Advance is subject to the condition precedent that such
Bank shall have received, in form and substance satisfactory to such Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of each Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) the Optional Currency Rate Instruments (with respect to
Optional Currency Rate Advances only);
(d) a guaranty of Credence;
13
<PAGE>
(e) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof, provided reasonably detailed invoices are received; and
(f) such other documents, and completion of such other matters, as
Banks may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of any
------------------------------------
Bank to make each Advance, including the initial Advance, is further subject to
the following conditions:
(a) timely receipt by Servicing Agent of the Loan Payment/Advance
Form as provided in Section 2.1;
(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such Loan
Payment/Advance Form and on the effective date of each Advance as though made at
and as of each such date (except to the extent they relate specifically to an
earlier date, in which case such representations and warranties shall continue
to have been true and accurate as of such date), and no Event of Default shall
have occurred and be continuing, or would result from such Advance; and
(c) as to each Optional Currency Rate Advance, all of the terms and
conditions contained in the applicable Optional Currency Rate Instruments have
been satisfied.
The making of each Advance shall be deemed to be a representation and
warranty by each Borrower on the date of such Advance as to the accuracy of the
facts referred to in this Section 3.2(b).
4. REPRESENTATIONS AND WARRANTIES
------------------------------
Each Borrower represents and warrants as follows:
4.1 Due Organization and Qualification. Each Borrower is a
----------------------------------
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified except for states as to which any
failure so to qualify would not have a Material Adverse Effect.
4.2 Due Authorization; No Conflict. The execution, delivery, and
------------------------------
performance of the Loan Documents are within each Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in such Borrower's Articles or Certificate of Incorporation
or Bylaws, nor will they constitute an event of default under any material
agreement to which such Borrower is a party or by which such Borrower is bound.
No Borrower is in default under any agreement to which it is a party or by which
it is bound, which default is reasonably likely to have a Material Adverse
Effect.
4.3 No Prior Encumbrances. Each Borrower has good and indefeasible
---------------------
title to the Collateral, free and clear of Liens, except for Permitted Liens.
4.4 Merchantable Inventory. All Inventory is in all material respect
----------------------
of good and marketable quality, free from all material defects.
4.5 Litigation. There are no actions or proceedings pending by or
----------
against any Borrower before any court or administrative agency in which an
adverse decision is reasonably likely to have a Material Adverse Effect. No
Borrower has knowledge of any such pending or threatened actions or proceedings.
14
<PAGE>
4.6 No Material Adverse Change in Financial Statements. All
--------------------------------------------------
consolidated financial statements related to Borrowers that have been delivered
to Banks fairly present in all material respects the consolidated financial
condition as of the date thereof of each such entity and consolidated results of
operations for the period then ended of each such entity. There has not been a
material adverse change in the consolidated financial condition of a Borrower
since the date of the most recent of such financial statements submitted to
Banks.
4.7 Solvency. Each Borrower is solvent and able to pay its debts
--------
(including trade debts) as they mature.
4.8 Regulatory Compliance. Each Borrower has met the minimum
---------------------
funding requirements of ERISA with respect to any employee benefit plans subject
to ERISA. No Borrower has withdrawn from, and no termination or partial
termination has occurred with respect to, any deferred compensation plan, and no
Borrower has withdrawn from any multi-employer plan under ERISA. No event has
occurred resulting from a Borrower's failure to comply with ERISA that is
reasonably likely to result in such Borrower's incurring any liability that is
reasonably likely to have a Material Adverse Effect. No Borrower is an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. No Borrower is engaged
principally, or as one of the important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of the Advances will be used to
purchase or carry any margin stock or for any purpose that would violate any of
Regulations G, T and U. Each Borrower has complied with all the provisions of
the Federal Fair Labor Standards Act. Each Borrower has complied with all laws
and regulations to which it is subject, noncompliance with which is reasonably
likely to have a Material Adverse Effect.
4.9 Environmental Condition. None of any Borrower's properties or
-----------------------
assets has ever been used by Borrower or any Subsidiary or, to each Borrower's
knowledge, without any independent investigation, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by a Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal or state governmental
agency concerning any action or omission by a Borrower or any Subsidiary
resulting in the releasing, or otherwise disposing of hazardous waste or
hazardous substances into the environment.
4.10 Taxes. Each Borrower and each Subsidiary have filed or caused
-----
to be filed all material tax returns required to be filed, and has paid, or have
made adequate provision for the payment of, all taxes reflected therein.
4.11 Subsidiaries. No Borrower owns any stock, partnership interest
------------
or other equity securities of any Person, except for Permitted Investments.
4.12 Government Consents. Each Borrower has obtained all consents,
-------------------
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all governmental authorities that are necessary for the
continued operation of their respective businesses as currently conducted.
4.13 Full Disclosure. The representations, warranties and other
---------------
statements included in the documents, certificates and written statements
furnished by each Borrower to either Bank prior to or as of the date of this
Agreement for use in connection with the transactions contemplated by this
Agreement, taken as a whole, do not contain any untrue statement of a material
fact or omit to state a material fact (known to a Borrower, in the case
15
<PAGE>
of any document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading (it being recognized by Banks that
the projections and forecasts provided by Borrowers are not to be viewed as
facts and that actual results during the period or periods covered by any such
projections and forecasts may differ from the projected or forecasted results).
5. AFFIRMATIVE COVENANTS
---------------------
Each Borrower covenants and agrees that, from and after the Closing
Date until payment in full of all outstanding Obligations, and for so long as
any Bank may have any commitment to make an Advance hereunder, such Borrower
shall do all of the following:
5.1 Good Standing. Maintain its and cause to be maintained each of
-------------
its Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify is reasonably likely to have a Material Adverse Effect.
Borrower shall maintain, and shall cause each of its Subsidiaries to maintain in
force all licenses, approvals and agreements, the loss of which would have a
Material Adverse Effect.
5.2 Government Compliance. Meet, and shall cause each Subsidiary to
---------------------
meet the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. Borrower shall comply, and shall cause each
Subsidiary to comply, with all statutes, laws, ordinances and government rules
and regulations to which it is subject, noncompliance with which could have a
Material Adverse Effect or a material adverse effect on the Collateral or the
priority of Banks' Lien on the Collateral.
5.3 Financial Statements, Reports, Certificates. Credence shall
-------------------------------------------
deliver to Banks: (a) within five (5) days upon becoming available, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K and 10-Q filed with the Securities and Exchange Commission; (b)
promptly upon receipt of notice thereof, a report of any legal actions pending
or threatened against Borrower or any Subsidiary that is reasonably likely to
result in damages or costs to Borrower or any Subsidiary of Five Hundred
Thousand Dollars ($500,000) or which could have a Material Adverse Effect; and
(c) such budgets, sales projections, operating plans or other financial
information as Bank may reasonably request from time to time.
Credence shall deliver to Banks with the quarterly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of Exhibit C hereto.
---------
Any Bank shall have a right from time to time hereafter to audit Borrower's
Accounts, provided that such audits will be conducted at Borrower's expense no
more often than annually, unless an Event of Default has occurred and is
continuing, with the auditing Bank to conduct all other audits at its own
expense.
5.4 Inventory; Returns. Keep all Inventory in good and marketable
------------------
condition, free from all material defects. Returns and allowances, if any, as
between a Borrower and its account debtors shall be on the same basis and in
accordance with the usual customary practices of Borrower, as they exist at the
time of the execution and delivery of this Agreement. Borrower shall promptly
notify Bank when any particular return, recovery, dispute or claim causes the
aggregate returns for any fiscal month to exceed Ten Percent (10%) of the gross
sales for such month.
5.5 Taxes. Make, and shall cause each Subsidiary to make, due and
-----
timely payment or deposit of all material federal, state, and local taxes,
assessments, or contributions required of it by law, and will execute and
deliver to Banks, on demand, appropriate certificates attesting to the payment
or deposit thereof; and Borrower will make, and will cause each Subsidiary to
make, timely payment or deposit of all material tax payments and withholding
taxes required of it by applicable laws, including, but not limited to, those
laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, and will, upon request,
16
<PAGE>
furnish each Bank with proof satisfactory to such Bank indicating that Borrower
or a Subsidiary has made such payments or deposits; provided that Borrower or a
Subsidiary need not make any payment if the amount or validity of such payment
is contested in good faith by appropriate proceedings and is reserved against
(to the extent required by GAAP) by Borrower.
5.6 Insurance. At its expense, maintain liability and other
---------
insurance relating to the operation of its business, and keep its property
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where such
Borrower's business is conducted on the date hereof. All such policies of
insurance shall be in such form, with such companies, and in such amounts as
reasonably satisfactory to Banks .
5.7 Quick Ratio. Maintain, on a consolidated basis, as of the last
-----------
day of each fiscal quarter, a ratio of Quick Assets to Current Liabilities of at
least 2.0 to 1.0.
5.8 Debt- Tangible Net Worth Ratio. Maintain, on a consolidated
------------------------------
basis, as of the last day of each fiscal quarter, a ratio of Total Liabilities
to Tangible Net Worth of not more than 1.0 to 1.0.
5.9 Tangible Net Worth. Maintain, on a consolidated basis, as of
------------------
the last day of each fiscal quarter, a Tangible Net Worth of not less than One
Hundred Fifty Million Dollars ($150,000,000).
5.10 Profitability. On a consolidated basis, have a minimum net
-------------
profit of One Dollar ($1.00) for each fiscal year, on a consolidated basis,
Borrowers may suffer a loss in not more than two (2) consecutive fiscal
quarters, provided that in only one (1) of such quarters may Borrowers suffer an
Operating Loss.
5.11 Further Assurances. At any time and from time to time Borrower
------------------
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by any Bank to effect the purposes of this
Agreement.
6. NEGATIVE COVENANTS
------------------
Each Borrower covenants and agrees that, from and after the Closing
Date, so long as any credit hereunder shall be available and until payment in
full of the outstanding Obligations or for so long as any Bank may have any
commitment to make any Advances, such Borrower will not do any of the following:
6.1 Dispositions. Without the Banks' consent, which shall not be
------------
unreasonably withheld, convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than: (i) Transfers in the
ordinary course of business; (ii) Transfers of non-exclusive licenses and
similar arrangements for the use of the property of Borrower or its
Subsidiaries; (iii) Transfers of worn-out or obsolete Equipment; or (iv)
Transfers which constitute liquidation of Investments permitted under Section
6.7.
6.2 Change in Business or Control. Engage in any business, or
-----------------------------
permit any of its Subsidiaries to engage in any business, other than the
businesses currently engaged in by Borrower and any business substantially
similar or related thereto (or incidental thereto).
6.3 Mergers or Acquisitions. Except in the ordinary course of
-----------------------
Borrower's business, merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with or into any other business organization, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person; provided that this Section 6.3
shall not apply to Permitted Investments or to transactions among a Borrower and
its Subsidiaries in which such Borrower is the surviving entity or among its
Subsidiaries.
17
<PAGE>
6.4 Indebtedness. Create, incur, assume or be or remain liable with
------------
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
6.5 Encumbrances. Create, incur, assume or suffer to exist any Lien
------------
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
6.6 Distributions. Pay any dividends or make any other distribution
-------------
or payment on account of or in redemption, retirement or purchase of any capital
stock, except for so long as an Event of Default has not occurred and is not
continuing (and would not exist immediately after such payment), a Borrower may
repurchase its stock from former employees of such Borrower in accordance with
the terms of repurchase or similar agreements between such Borrower and such
employees.
6.7 Investments. Directly or indirectly acquire or own, or make any
-----------
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments and except as made in the ordinary course of
Borrower's business.
6.8 Transactions with Affiliates. Directly or indirectly enter into
----------------------------
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person, and
except for transactions with a Subsidiary that are upon fair and reasonable
terms and transactions constituting Permitted Investments.
6.9 Subordinated Debt. Make any payment in respect of any
-----------------
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Banks' prior written consent.
6.10 Compliance. Become an "investment company" controlled by an
----------
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, permit any
condition to exist that would entitle any Person to obtain a decree adjudicating
that any Plan under ERISA must be terminated, fail to comply with the Federal
Fair Labor Standards Act or violate any law or regulation, which violation could
have a Material Adverse Effect or a material adverse effect on the Collateral or
the priority of Banks' Lien on the Collateral, or permit any of its Subsidiaries
to do any of the foregoing.
7. EVENTS OF DEFAULT
-----------------
Any one or more of the following events shall constitute an Event of
Default by Borrowers under this Agreement:
7.1 Payment Default. If a Borrower fails to pay the principal of, or
---------------
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Bank Expenses, within thirty (30) days of receipt by such
Borrower of a reasonably detailed invoice on account of such other Obligations;
7.2 Covenant Default. If a Borrower fails to perform any obligation
----------------
under Article 5 or violates any of the covenants contained in Article 6 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between a Borrower and any Bank and as to
18
<PAGE>
any default under such other term, provision, condition, covenant or agreement
that can be cured, has failed to cure such default within twenty (20) days after
a Borrower receives notice thereof or any Responsible Officer becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the twenty (20) day period or cannot after diligent attempts by such
Borrower be cured within such twenty (20) day period, and such default is likely
to be cured within a reasonable time, then Borrowers shall have an additional
reasonable period (which shall not in any case exceed thirty (30) days) to
attempt to cure such default, and within such reasonable time period the failure
to have cured such default shall not be deemed an Event of Default (provided
that no Advances will be required to be made during such cure period);
7.3 Material Adverse Change. If there occurs a material adverse
-----------------------
change in the business or financial condition of Borrowers, taken as a whole, or
if there is a material impairment of the prospect of repayment of any portion of
the Obligations;
7.4 Attachment. If any material portion of a Borrower's assets is
----------
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within thirty (30) days, or if a Borrower
is enjoined, restrained, or in any way prevented by court order from continuing
to conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of a
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of a Borrower's assets by the United States
Government, or any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, and the same is not paid
within thirty (30) days after a Borrower receives notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith contest
by such Borrower (provided that no Advances will be required to be made during
such cure period);
7.5 Insolvency. If a Borrower becomes insolvent, or if an Insolvency
----------
Proceeding is commenced by a Borrower, or if an Insolvency Proceeding is
commenced against a Borrower and is not dismissed or stayed within forty-five
(45) days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
7.6 Other Agreements. If there is a default in any agreement to
----------------
which a Borrower is a party with a third party or parties resulting in a right
by such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of Five Hundred Thousand
Dollars ($500,000) or which would have a Material Adverse Effect;
7.7 Judgments. If a judgment or judgments for the payment of money
---------
in an amount, individually or in the aggregate, of at least Five Hundred
Thousand Dollars ($500,000) shall be rendered against a Borrower and shall
remain unsatisfied and unstayed for a period of thirty (30) days (provided that
no Advances will be made prior to the satisfaction or stay of such judgment); or
7.8 Misrepresentations. If any material misrepresentation or
------------------
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to any Bank by any Responsible
Officer pursuant to this Agreement or to induce Bank to enter into this
Agreement or any other Loan Document.
8. BANKS' RIGHTS AND REMEDIES
--------------------------
8.1 Rights and Remedies. Upon the occurrence and during the
-------------------
continuance of an Event of Default, any Bank may, at its election, do any one or
more of the following, all of which are authorized by Borrowers:
19
<PAGE>
(a) Declare all Obligations owing to such Bank, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 7.5 all Obligations shall become immediately due and
payable without any action by any Bank);
(b) Cease advancing money or extending credit to or for the benefit of
Borrowers under this Agreement or under any other agreement between a Borrower
and any Bank; and
(c) Set off and apply to the Obligations any and all (i) balances,
deposits and investments of any Borrower held by such Bank, or (ii) indebtedness
at any time owing to or for the credit or the account of a Borrower held by such
Bank;
8.2 Bank Expenses. After the occurrence of an Event of Default, if a
-------------
Borrower fails to pay any amounts or furnish any required proof of payment due
to third persons or entities, as required under the terms of this Agreement,
then Banks may do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves under the Committed Line as Banks
deem necessary to protect Banks from the exposure created by such failure; or
(c) obtain and maintain insurance policies of the type discussed in Section 6.6
of this Agreement, and take any action with respect to such policies as Banks
reasonably deem prudent. Any amounts so paid or deposited by Banks shall
constitute Bank Expenses, shall be immediately due and payable, and shall bear
interest at the then applicable rate hereinabove provided. Any payments made by
any Bank shall not constitute an agreement by such Bank to make similar payments
in the future or a waiver by Bank of any Event of Default under this Agreement.
8.3 Remedies Cumulative. Banks' rights and remedies under this
-------------------
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Banks shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by any Bank of one
right or remedy shall be deemed an election. No waiver by any Bank of any Event
of Default on a Borrower's part shall be effective unless also waived in writing
by any other Bank. No waiver shall be deemed a continuing waiver. No delay by
any Bank shall constitute a waiver, election, or acquiescence by it.
8.4 Demand; Protest. Subject to Section 7.2, each Borrower waives
---------------
protest, notice of protest, notice of dishonor, notice of payment and
nonpayment, notice of any nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by any Bank on which Borrower may in any
way be liable.
9. NOTICES
-------
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by certified mail, postage
prepaid, return receipt requested, or by prepaid telefacsimile to Borrowers or
to each Bank, as the case may be, at its addresses set forth below:
If to Borrowers: Credence Systems Corporation
215 Fourier Avenue
Fremont, CA 94539
Attn: Jerry Bruce
FAX: (510) 623-2522
If to Banks: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
20
<PAGE>
Attn: Diane Thompson
FAX: (408) 748-9478
Bank of Hawaii
130 Merchant Street, 20th Floor
P.O. Box 2900
Honolulu, HI 96846
Attn: Bruce Helberg
FAX: (808) 537-8301
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other. NOTICES TO ONE BANK SHALL NOT BE DEEMED NOTICE TO THE OTHER BANK.
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
------------------------------------------
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Borrowers and Banks hereby submit to the exclusive
jurisdiction of the state and Federal courts located in the County of Santa
Clara, State of California. BORROWERS AND BANKS HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
11. INTERCREDITOR PROVISIONS
------------------------
11.1 Proportionate Interests. Except for Optional Currency Advances,
-----------------------
which shall be the sole responsibility of BofH, and except as otherwise provided
in this Agreement, the rights, interests, and obligations of each Bank under
this Agreement and the Loan Documents at any time shall be shared in the ratio
of (a) the maximum amount the Bank has committed to advance as set forth on the
signature page signed by the Bank to (b) the Committed Line. Any reference in
this Agreement or the Loan Documents to an allocation between or sharing by the
Banks of any right, interest, or duty "ratably," "proportionally," "pro rata,"
or in similar terms shall refer to this ratio. No Bank is obligated to advance
any funds in lieu of or for the account of the other Bank if the latter Bank
fails to make such Advance.
11.2 Designation of Service Agent. To facilitate the administration
----------------------------
of this Agreement, SVB shall act as "Servicing Agent" for itself and BofH.
Servicing Agent shall have only such duties as are expressly set forth in this
Agreement, or as otherwise agreed in writing by the Banks. Servicing Agent shall
be deemed to act on behalf of both Banks whenever Servicing Agent acts under
this Agreement.
11.3 Resignation. Servicing Agent may resign as Servicing Agent,
-----------
upon thirty (30) day's written notice to the other Banks and to Borrower and
appointment of a successor Servicing Agent. Upon receipt of notice of
resignation, the Banks shall appoint a successor Servicing Agent. The resigning
Servicing Agent shall cooperate fully in delivering to the successor Servicing
Agent the Loan Documents and copies of all records relating to the Advances and
payments made hereunder that the successor Servicing Agent reasonably requests.
21
<PAGE>
11.4 Servicing Agent as Bank. Servicing Agent shall have the same
-----------------------
rights and powers under this Agreement as any other Bank and may exercise the
same as though it were not Servicing Agent. The term "Banks" includes Servicing
Agent in Servicing Agent's individual capacity. Servicing Agent and its
Subsidiaries and Affiliates may accept deposits from, lend money to, act as
agent or trustee for other lenders to, and generally engage in any kind of
banking, trust, or other business with, any Borrower or any Subsidiary or
Affiliates as if Servicing Agent were not Servicing Agent.
11.5 No Agency. EXCEPT AS SPECIFIED HEREIN, NEITHER BANK IS AN AGENT
---------
OF THE OTHER. NEITHER BANK HAS ANY AUTHORITY TO ACT OR FAIL TO ACT FOR THE
OTHER. THE OBLIGATIONS OF EACH BANK HEREUNDER ARE SEVERAL. NO BANK SHALL BE
LIABLE FOR THE FAILURE OF ANY OTHER BANK TO PERFORM ITS OBLIGATIONS HEREUNDER.
11.6 No Reliance. The provisions of this Article 11 are solely for
-----------
the benefit of Banks in specifying their rights and obligations with respect to
each other, and not for the benefit of any Borrower or its assigns or
successors.
12. GENERAL PROVISIONS
------------------
12.1 Successors and Assigns. This Agreement shall bind and inure to
----------------------
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
-------- -------
may be assigned by any Borrower without each Bank's prior written consent, which
consent may be granted or withheld in each Bank's sole discretion. Subject to
the terms of any agreement between Banks, each Bank shall have the right with
the consent (which shall not be unreasonably withheld) of Borrower to sell,
transfer, negotiate, or grant participations in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder; provided no Bank
will sell, transfer, negotiate or grant participations in any part of, or any
interest in, such obligations, rights and benefits in a principal amount of less
than Five Million Dollars ($5,000,000).
12.2 Indemnification. Borrowers shall defend, indemnify and hold
---------------
harmless each Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement (except
with regard to a dispute between the Banks); and (b) all losses or Bank Expenses
in any way suffered, incurred, or paid by such Bank as a result of or in any way
arising out of, following, or consequential to transactions between such Bank
and Borrowers whether under this Agreement, or otherwise (including without
limitation reasonable attorneys fees and expenses), except for losses caused by
such Bank's gross negligence or willful misconduct and except with regard to a
dispute between the Banks.
12.3 Subrogation and Similar Rights. Notwithstanding any other
------------------------------
provision of this Agreement or any other Loan Document, until all amounts that
Borrowers owe to Banks have been paid in full, each Borrower irrevocably waives
all rights that it may have at law or in equity (including, without limitation,
any law subrogating such Borrower to the rights of Bank under the Loan
Documents) to seek contribution, indemnification, or any other form of
reimbursement from any other Borrower, or any other Person now or hereafter
primarily or secondarily liable for any of the Obligations, for any payment made
by such Borrower with respect to the Obligations in connection with the Loan
Documents or otherwise and all rights that it might have to benefit from, or to
participate in, any security for the Obligations as a result of any payment made
by such Borrower with respect to the Obligations in connection with the Loan
Documents or otherwise. Until all amounts that Borrowers owe to Banks have been
paid in full, any agreement providing for indemnification, reimbursement or any
other arrangement prohibited under this Section 12.3 shall be null and void. If
any payment is made to a Borrower in contravention of this Section 12.3, such
Borrower shall hold such payment in trust for Bank and such payment shall be
promptly delivered to Bank for application to the Obligations, whether matured
or unmatured.
12.4 Waivers of Notice. Subject in any case to Section 7.2, each
-----------------
Borrower waives notice of acceptance hereof; notice of the existence, creation
or acquisition of any of the Obligations; notice of an Event of
22
<PAGE>
Default; notice of the amount of the Obligations outstanding at any time; notice
of intent to accelerate; notice of acceleration; notice of any adverse change in
the financial condition of any other Borrower or of any other fact that might
increase the Borrower's risk; presentment for payment; demand; protest and
notice thereof as to any instrument; default; and all other notices and demands
to which the Borrower would otherwise be entitled. Each Borrower waives any
defense arising from any defense of any other Borrower, or by reason of the
cessation from any cause whatsoever of the liability of any other Borrower.
Bank's failure at any time to require strict performance by any Borrower of any
provision of the Loan Documents shall not waive, alter or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Nothing
contained herein shall prevent Bank from foreclosing on the Lien of any deed of
trust, mortgage or other security instrument, or exercising any rights available
thereunder, and the exercise of any such rights shall not constitute a legal or
equitable discharge of any Borrower. Each Borrower also waives any defense
arising from any act or omission of Bank that changes the scope of the
Borrower's risks hereunder. Each Borrower hereby waives any right to assert
against Bank any defense (legal or equitable), setoff, counterclaim, or claims
that such Borrower individually may now or hereafter have against another
Borrower or any other Person liable to Bank with respect to the Obligations in
any manner or whatsoever.
12.5 Subrogation Defenses. Until all amounts that Borrowers owe to Banks
--------------------
have been paid in full, each Borrower hereby waives any defense based on
impairment or destruction of its subrogation or other rights against any other
Borrower and waives all benefits which might otherwise be available to it under
California Civil Code Sections 2809, 2810, 2819, 2839, 2845, 2848, 2849, 2850,
2899, and 3433 and California Code of Civil Procedure Sections 580a, 580b, 580d
and 726, as those statutory provisions are now in effect and hereafter amended,
and under any other similar statutes now and hereafter in effect.
12.6 Right to Settle, Release.
------------------------
(a) The liability of Borrowers hereunder shall not be diminished by
(i) any agreement, understanding or representation that any of the Obligations
is or was to be guaranteed by another Person or secured by other property, or
(ii) any release or unenforceability, whether partial or total, of rights, if
any, that Bank may now or hereafter have against any other Person, including
another Borrower, or property with respect to any of the Obligations.
(i) Without notice to any Borrower and without affecting the
liability of any Borrower hereunder, Banks may (i) compromise, settle, renew,
extend the time for payment, change the manner or terms of payment, discharge
the performance of, decline to enforce, or release all or any of the Obligations
with respect to a Borrower, (ii) grant other indulgences to a Borrower in
respect of the Obligations, (iii) modify in any manner any documents relating to
the Obligations with respect to a Borrower, (iv) release, surrender or exchange
any deposits or other property securing the Obligations, whether pledged by a
Borrower or any other Person, or (v) compromise, settle, renew, or extend the
time for payment, discharge the performance of, decline to enforce, or release
all or any obligations of any guarantor, endorser or other Person who is now or
may hereafter be liable with respect to any of the Obligations.
12.7 Primary Obligation. This Agreement is a primary and original
------------------
obligation of each Borrower and shall remain in effect notwithstanding future
changes in conditions, including any change of law or any invalidity or
irregularity in the creation or acquisition of any Obligations or in the
execution or delivery of any agreement between Bank and any Borrower. Each
Borrower shall be liable for existing and future Obligations as fully as if all
of the Loan were advanced to the Borrower. Bank may rely on any certificate or
representation made by any Borrower as made on behalf of, and binding on, all
Borrowers, including without limitation Borrowing Certificates, Borrowing Base
Certificates and Compliance Certificates.
12.8 Subordination. All indebtedness of a Borrower now or hereafter
-------------
arising held by another Borrower is subordinated to the Obligations and the
Borrower holding the indebtedness shall take all actions reasonably requested by
Bank to effect, to enforce and to give notice of such subordination.
23
<PAGE>
12.9 Enforcement of Rights. Borrowers are jointly and severally liable for
---------------------
the Obligations and Bank may proceed against one or more of the Borrowers to
enforce the Obligations without waiving its right to proceed against any of the
other Borrowers.
12.10 Credence as Agent. Each of the Borrowers irrevocably appoints
-----------------
Credence as its agent to accept and deliver all notices, certificates and other
documents under this Agreement on behalf of all of the Borrowers, and to
request, accept and disburse all Advances, and to make payments hereunder.
12.11 Time of Essence. Time is of the essence for the performance of
---------------
all obligations set forth in this Agreement.
12.12 Severability of Provisions. Each provision of this Agreement shall
--------------------------
be severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.13 Amendments in Writing, Integration. This Agreement cannot be changed
----------------------------------
or terminated orally. No amendment shall be effective without the consent of all
the parties hereto, except the provisions of Article 11 may be amended by Banks
without Borrower's approval. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.14 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.15 Survival. All covenants, representations and warranties made in this
--------
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.16 Confidentiality. In handling any confidential information each Bank
---------------
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of such Bank in connection with their present or prospective
business relations with Borrower, (ii) to prospective transferees or purchasers
of any interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Bank, and (v) as may be
appropriate in the exercise of any remedies hereunder. Confidential information
hereunder shall not include information that either: (a) is in the public domain
or in the knowledge or possession of Bank when disclosed to Bank, or becomes
part of the public domain after disclosure to Bank through no fault of Bank; or
(b) is disclosed to the Bank by a third party, provided the Bank does not have
actual knowledge that such third party is prohibited from disclosing such
information.
12.17 Optional Currency Rate. To the extent the terms of any Optional
----------------------
Currency Rate Instrument differ from the terms of this Agreement then the terms
of such Optional Currency Rate Instrument shall govern the rights and
obligations of the parties thereto.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CREDENCE SYSTEMS CORPORATION
By:_____________________________________
Title:__________________________________
CREDENCE KOREA
By:_____________________________________
Title:__________________________________
CREDENCE SYSTEMS K.K.
By:_____________________________________
Title:__________________________________
SILICON VALLEY BANK
By:_____________________________________
Title:__________________________________
Maximum Commitment Amount: $10,000,000
(50%)
BANK OF HAWAII
By:_____________________________________
Title:__________________________________
Maximum Commitment Amount: $10,000,000
(50%)
25
<PAGE>
EXHIBITS A-1, A-2, A-3
[BofH to supply forms of Notes for Optional Currency Rate Advances]
26
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS NOON, P.S.T.
TO: SILICON VALLEY BANK, as Servicing Agent
FAX#: (408) 432-3249 TIME:______________________
________________________________________________________________________________
FROM:___________________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY:___________________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:___________________________________________________________
PHONE NUMBER:___________________________________________________________________
FROM ACCOUNT # ____________ TO ACCOUNT #____________________________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $_________________________________
PRINCIPAL PAYMENT (ONLY) $_________________________________
INTEREST PAYMENT (ONLY) $_________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________________________
OTHER INSTRUCTIONS:_____________________________________________________________
________________________________________________________________________________
All representations and warranties of Borrower stated in the Loan Agreement
are true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Borrowing Certificate;
provided, however, that those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.
________________________________________________________________________________
27
<PAGE>
- -------------------------------------------------------------------------------
BANK USE ONLY
TELEPHONE REQUEST:
- -----------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- --------------------------------------- -------------------------------------
Authorized Requester Phone #
- --------------------------------------- -------------------------------------
Received By (Bank) Phone #
----------------------------------------------
Authorized Signature (Bank)
- --------------------------------------------------------------------------------
28
<PAGE>
EXHIBIT B-1
-----------
ADVANCE REQUEST FORM
The undersigned hereby certifies as follows:
I, ____________________________, am the duly elected and acting
____________________________ of Credence Systems Corporation.
This certificate is delivered on behalf of Borrowers to Silicon Valley
Bank, as Servicing Agent, pursuant to Section 2 of that certain Loan by and
between Borrower and Banks (the "Agreement"). The terms used in this Borrowing
Certificate which are defined in the Agreement have the same meaning herein as
ascribed to them therein.
Borrowers hereby request on ______, 19__ an Advance (the "Advance") as
follows:
(a) The date on which the Advance is to be made is __________, 19__.
(b) The amount of the Advance is to be ____________________________
($______________), in the form of a Prime Rate Advance of $______________; a
LIBOR Rate Advance for an Interest Period of ______________ months; an Optional
Currency Rate Advance of an Equivalent Amount of $______________ in [currency
type] for an Interest Period of ______________ months.
All representations and warranties of Borrowers stated in the Agreement are
true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
IN WITNESS WHEREOF, this Advance Request Form is executed by the
undersigned as of this ______________ day of ____________________________,
19____.
CREDENCE SYSTEMS CORPORATION, for itself and
as agent for the Borrowers
By:_____________________________________________
Title:__________________________________________
FOR INTERNAL BANK USE ONLY
===============================================================================
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
- -------------------------------------------------------------------------------
___%
================================================================================
Optional Currency Optional Optional Currency Maturity Date
Pricing Date Currency Rate Rate Variance
- --------------------------------------------------------------------------------
___%
================================================================================
29
<PAGE>
EXHIBIT B-2
-----------
Optional Currency/LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ____________________________, am the duly elected and acting
____________________________ of Credence Systems Corporation ("Borrower").
This certificate is delivered on behalf of Borrowers to Silicon Valley
Bank, as Servicing Agent, pursuant to Section 2 of that certain Loan Agreement
by and Banks (the "Agreement"). The terms used in this Optional Currency/LIBOR
Rate Conversion/Continuation Certificate which are defined in the Agreement have
the same meaning herein as ascribed to them therein.
Borrower hereby requests on _______, 19__ a LIBOR Rate Advance (the
"Advance") as follows:
(a) ___ (i) A rate conversion of an existing Prime Rate Advance
from a Prime Rate Advance to a LIBOR Rate Advance; or
___ (ii) A continuation of an existing LIBOR Rate Advance as a
LIBOR Rate Advance; or
___ (iii) A continuation of an existing Optional Currency
Rate Advance an Optional Rate Advance.
[Check (i), (ii) or (iii) above]
(b) The date on which the Advance is to be made is ________, 19__.
(c) The amount or the Equivalent Amount of the Advance is to be
_________ ($______________), for an Interest Period of
______________ month(s).
All representations and warranties of Borrower stated in the Agreement are
true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.
IN WITNESS WHEREOF, this Optional Currency/LIBOR Rate
Conversion/Continuation Certificate is executed by the undersigned as of this
______________ day of ____________________________, 19____.
CREDENCE SYSTEMS CORPORATION, for itself and
as agent for the Borrowers
By:_________________________________________
Title:______________________________________
FOR INTERNAL BANK USE ONLY
===============================================================================
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
_______________________________________________________________________________
___%
================================================================================
================================================================================
Optional Currency Optional Optional Currency Maturity Date
Pricing Date Currency Rate Rate Variance
________________________________________________________________________________
___%
================================================================================
30
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
BANK OF HAWAII
FROM: CREDENCE SYSTEMS CORPORATION
The undersigned authorized officer of Credence Systems Corporation hereby
certifies, on behalf of itself and the Borrowers, that in accordance with the
terms and conditions of the Loan and Security Agreement between Borrowers and
Banks (the "Agreement"), (i) Borrowers are in complete compliance for the period
ending ______________ with all required covenants except as noted below and (ii)
all representations and warranties of Borrowers stated in the Agreement are true
and correct in all material respects as of the date hereof. Attached herewith
are the required documents supporting the above certification. The Officer
further certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistently applied from one period to the
next except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- ------------------ -------- --------
<S> <C> <C>
Form 10-K Annually within 5 days Yes No
Form 10-Q Quarterly within 5 days Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- ------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Minimum Quick Ratio 2.0:1. _____:1.0 Yes No
Minimum Tangible Net Worth $150,000,000 $________ Yes No
Maximum Debt-Tangible Net Worth 1.0:1.0 _____:1.0 Yes No
Profitability
Quarterly * $________ Yes No
Annually $1.00 $________ Yes No
</TABLE>
*2 loss quarters permitted, 1 of which may be operating loss.
BANK USE ONLY
COMMENTS REGARDING EXCEPTIONS: See Attached.
Received by:
---------------------
AUTHORIZED SIGNER
Sincerely,
Date:
- -------------------------------- -----------------------------
SIGNATURE
Verified:
-------------------------
- -------------------------------- AUTHORIZED SIGNER
TITLE
Date:
-----------------------------
- --------------------------------
DATE Compliance Status: Yes No
31
<PAGE>
DISBURSEMENT REQUEST AND AUTHORIZATION
Borrower: Credence Systems Corporation and Subsidiaries
- --------------------------------------------------------------------------------
LOAN TYPE. This is a Variable Rate, Revolving Line of Credit of a principal
amount up to $20,000,000.
PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for business.
SPECIFIC PURPOSE. The specific purpose of this loan is: Short Term Working
Capital.
DISBURSEMENT INSTRUCTIONS. Borrowers understand that no loan proceeds will be
disbursed until all of Banks' conditions for making the loan have been
satisfied. Please disburse the loan proceeds as follows:
Revolving Line
--------------
Amount paid to Borrowers directly: $________
Undisbursed Funds $________
Principal $20,000,000
CHARGES PAID IN CASH. Borrowers have paid or will pay in cash as agreed the
following charges:
Prepaid Finance Charges Paid in Cash:
$0 Loan Fee
$________ UCC Search Fees
$________ Outside Counsel Fees and Expenses (Estimate)
Total Charges Paid in Cash $_________
AUTOMATIC PAYMENTS. Borrowers hereby authorize Banks to automatically deduct
the amount of any loan payment from each Borrower's accounts set forth on the
attached Schedule, as revised from time to time. If the funds in the accounts
are insufficient to cover any payment, Banks shall not be obligated to advance
funds to cover the payment. At any time and for any reason, Borrowers or Banks
may voluntarily terminate Automatic Payments.
FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWERS REPRESENT AND
WARRANT TO BANKS THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO ADVERSE CHANGE IN ANY BORROWER'S FINANCIAL CONDITION AS
DISCLOSED IN SUCH BORROWER'S MOST RECENT FINANCIAL STATEMENT TO BANKS. THIS
AUTHORIZATION IS DATED AS OF ____________________, 1996.
BORROWER:
CREDENCE SYSTEMS CORPORATION, for itself
and as agent for the Borrowers
- ----------------------------------------
Authorized Officer
- --------------------------------------------------------------------------------
32
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
BORROWER: Credence Systems Corporation
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of Credence Systems
Corporation (the "Corporation"), HEREBY CERTIFY that the Corporation is
organized and existing under and by virtue of the laws of the State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
-----------------------------------------------------------
- --------------------- ------------------ -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank of Hawaii and Silicon
Valley Bank ("Banks"), on such terms as may be agreed upon between the officers,
employees, or agents and Bank, such sum or sums of money as in their judgment
should be borrowed, without limitation, including such sums as are specified in
that certain Loan and Security Agreement dated as of July 26, 1996 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Banks the promissory note or
notes of the Corporation, on each Bank's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Banks, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Banks in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Banks all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Banks, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit application and other
related documents pertaining to SVB's issuance of letters of credit.
1
<PAGE>
FOREIGN EXCHANGE CONTRACTS. To request any Bank to enter into foreign
exchange contracts on its behalf.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Banks may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand on ______________________,
19____ and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
================================================================================
------------------------
2
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
BORROWER: __________________________________
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of
______________________________ (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----------------------------------------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank of Hawaii and Silicon
Valley Bank ("Banks"), on such terms as may be agreed upon between the officers,
employees, or agents and Bank, such sum or sums of money as in their judgment
should be borrowed, without limitation, including such sums as are specified in
that certain Loan and Security Agreement dated as of July 26, 1996 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Banks the promissory note or
notes of the Corporation, on each Bank's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Banks, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Banks in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Banks all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Banks, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit application and other
related documents pertaining to SVB's issuance of letters of credit.
1
<PAGE>
FOREIGN EXCHANGE CONTRACTS. To request any Bank to enter into foreign
exchange contracts on its behalf.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Banks may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand on ______________________,
19____ and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
- --------------------------------------------------------------------------------
---------------------------------------------
2
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- --------------------------------------------------------------------------------
BORROWER: __________________________________
- --------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of
_____________________________ (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----------------------------------------------------------
- ---------------------- ----------------- --------------------------------
- ---------------------- ----------------- --------------------------------
- ---------------------- ----------------- --------------------------------
- ---------------------- ---------------- --------------------------------
- ---------------------- ---------------- --------------------------------
- ---------------------- ---------------- --------------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank of Hawaii and Silicon
Valley Bank ("Banks"), on such terms as may be agreed upon between the officers,
employees, or agents and Bank, such sum or sums of money as in their judgment
should be borrowed, without limitation, including such sums as are specified in
that certain Loan and Security Agreement dated as of July 26, 1996 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Banks the promissory note or
notes of the Corporation, on each Bank's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Banks, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Banks in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Banks all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Banks, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit application and other
related documents pertaining to SVB's issuance of letters of credit.
1
<PAGE>
FOREIGN EXCHANGE CONTRACTS. To request any Bank to enter into foreign
exchange contracts on its behalf.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Banks may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand on ______________________,
19____ and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
________________________________________________________________________________
________________________________
<PAGE>
CORPORATE RESOLUTIONS TO BORROW
- -------------------------------------------------------------------------------
BORROWER:_______________________________
- -------------------------------------------------------------------------------
I, the undersigned Secretary or Assistant Secretary of
______________________________ (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of the
State of Delaware.
I FURTHER CERTIFY that at a meeting of the Directors of the Corporation (or
by other duly authorized corporate action in lieu of a meeting), duly called and
held, at which a quorum was present and voting, the following resolutions were
adopted.
BE IT RESOLVED, that ANY ONE (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures are shown
below:
NAMES POSITIONS ACTUAL SIGNATURES
----------------------------------------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
- --------------------- ----------------- -----------------------------
acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:
BORROW MONEY. To borrow from time to time from Bank of Hawaii and Silicon
Valley Bank ("Banks"), on such terms as may be agreed upon between the officers,
employees, or agents and Bank, such sum or sums of money as in their judgment
should be borrowed, without limitation, including such sums as are specified in
that certain Loan and Security Agreement dated as of July 26, 1996 (the "Loan
Agreement").
EXECUTE NOTES. To execute and deliver to Banks the promissory note or
notes of the Corporation, on each Bank's forms, at such rates of interest and on
such terms as may be agreed upon, evidencing the sums of money so borrowed or
any indebtedness of the Corporation to Banks, and also to execute and deliver to
Lender one or more renewals, extensions, modifications, refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the notes.
GRANT SECURITY. To grant a security interest to Banks in the Collateral
described in the Loan Agreement, which security interest shall secure all of the
Corporation's Obligations, as described in the Loan Agreement.
NEGOTIATE ITEMS. To draw, endorse, and discount with Banks all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness payable
to or belonging to the Corporation or in which the Corporation may have an
interest, and either to receive cash for the same or to cause such proceeds to
be credited to the account of the Corporation with Banks, or to cause such other
disposition of the proceeds derived therefrom as they may deem advisable.
LETTERS OF CREDIT. To execute letter of credit application and other
related documents pertaining to SVB's issuance of letters of credit.
1
<PAGE>
FOREIGN EXCHANGE CONTRACTS. To request any Bank to enter into foreign
exchange contracts on its behalf.
FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs, and to execute and deliver such other documents and agreements as
they may in their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Banks may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.
I FURTHER CERTIFY that the officers, employees, and agents named above are
duly elected, appointed, or employed by or for the Corporation, as the case may
be, and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand on ______________________,
19____ and attest that the signatures set opposite the names listed above are
their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
X
- --------------------------------------------------------------------------------
-----------------------------------------
2
<PAGE>
EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------- ------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding........................ 21,551 20,427 21,498 19,917
Common equivalent shares from stock options................ 374 742 432 725
------ ------ ------ ------
Number of shares used in computing per share amounts....... 21,925 21,169 21,930 20,642
====== ====== ====== ======
Net income................................................. $11,542 $21,169 $33,415 $20,745
====== ====== ====== ======
Net income per share....................................... $ 0.53 $ 0.38 $ 1.52 $ 1.00
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 54,475
<SECURITIES> 35,901
<RECEIVABLES> 51,198
<ALLOWANCES> 0
<INVENTORY> 36,148
<CURRENT-ASSETS> 185,008
<PP&E> 32,214
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,767
<CURRENT-LIABILITIES> 43,482
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 228,767
<SALES> 0
<TOTAL-REVENUES> 194,586
<CGS> 77,992
<TOTAL-COSTS> 145,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,090)
<INCOME-PRETAX> 51,770
<INCOME-TAX> 18,355
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,415
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
