<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 OCTOBER 3, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-21374
THE DII GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1224426
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6273 Monarch Park Place
Niwot, Colorado 80503
(Address and zip code of principal executive offices)
(303) 652-2221
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS NOVEMBER 12, 1999
----- -----------------
<S> <C>
Common Stock, Par Value $0.01 36,771,546
</TABLE>
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------------------- --------------------------------------
OCTOBER 3, 1999 SEPTEMBER 27, 1998 OCTOBER 3, 1999 SEPTEMBER 27, 1998
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
Net sales:
Systems assembly and distribution $ 260,405 131,016 592,723 424,147
Printed wiring boards 85,063 43,964 236,948 140,795
Other 19,621 30,937 62,979 98,287
--------------- --------------- --------------- ---------------
Total net sales 365,089 205,917 892,650 663,229
Cost of sales:
Cost of sales 317,165 173,895 764,485 564,623
Unusual charges -- -- -- 49,314
--------------- --------------- --------------- ---------------
Total cost of sales 317,165 173,895 764,485 613,937
--------------- --------------- --------------- ---------------
Gross profit 47,924 32,022 128,165 49,292
Selling, general and administrative 23,068 18,972 63,864 59,066
expenses
Unusual charges -- -- -- 1,844
Interest expense 5,803 4,910 17,656 14,298
Interest income (594) (613) (1,344) (2,217)
Amortization of intangibles 1,274 1,168 3,876 3,383
Other, net 4,162 (173) 4,962 (172)
--------------- --------------- --------------- ---------------
Income (loss) before income taxes 14,211 7,758 39,151 (26,910)
Income tax expense (benefit) (2,040) 2,168 1,677 (7,522)
--------------- --------------- --------------- ---------------
Net income (loss) $ 16,251 5,590 37,474 (19,388)
=============== =============== =============== ===============
Earnings (loss) per common share:
Basic $ 0.55 0.23 1.30 (0.78)
Diluted $ 0.52 0.21 1.23 (0.78)
Weighted average number of common
shares and equivalents outstanding:
Basic 29,623 24,775 28,813 25,004
Diluted 31,202 29,948 30,904 25,004
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
THE DII GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value data)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,141 55,972
Accounts receivable, net 179,171 153,861
Inventories 112,845 66,745
Prepaid expenses 16,217 11,570
Other 12,856 7,249
------------ ------------
Total current assets 348,230 295,397
Property, plant and equipment, net 411,068 326,226
Goodwill, net 127,004 97,475
Debt issue costs, net 7,690 9,319
Investments in minority owned entities 20,698 --
Other 18,002 18,892
------------ ------------
$ 932,692 747,309
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 195,063 122,536
Accrued expenses 37,942 32,414
Accrued compensation and benefits 17,427 11,720
Accrued interest payable 1,933 6,769
Current portion of capital lease obligations 225 5,617
Current portion of long-term debt 37,831 29,031
------------ ------------
Total current liabilities 290,421 208,087
Capital lease obligations, net of current portion 1,363 1,820
Long-term debt, net of current portion 328,525 271,864
Convertible subordinated notes payable -- 86,235
Other 4,977 3,582
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
none issued -- --
Common stock, $0.01 par value; 90,000,000 shares
authorized; 31,295,559 and 26,169,344 shares issued
and 29,648,559 and 24,522,344 shares outstanding 313 262
Additional paid-in capital 216,332 124,410
Retained earnings 130,545 93,071
Treasury stock, at cost; 1,647,000 shares (28,544) (28,544)
Accumulated other comprehensive loss (4,976) (4,139)
Deferred compensation (6,264) (9,339)
------------ ------------
Total stockholders' equity 307,406 175,721
------------ ------------
$ 932,692 747,309
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
THE D I I GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
---------------------------------------
OCTOBER 3, 1999 SEPTEMBER 27, 1998
--------------- ------------------
<S> <C> <C>
Net cash provided by operating activities $ 40,477 47,220
--------------- ------------------
Cash flows from investing activities:
Additions to property, plant and equipment (117,315) (49,399)
Proceeds from sales of property, plant and
equipment 9,128 3,362
Proceeds from business divestitures 35,871 --
Payments for business acquisitions, net of cash
acquired (26,095) (45,609)
Investments in minority owned entities (20,507) --
--------------- ------------------
Net cash used by investing activities (118,918) (91,646)
--------------- ------------------
Cash flows from financing activities:
Payments to acquire treasury stock -- (21,081)
Repayments of capital lease obligations (5,849) (6,541)
Repayments of long-term debt (12,996) --
Long-term debt borrowings 64,644 45,861
Debt issuance costs (886) --
Proceeds from stock issued under stock plans 5,187 4,481
Other (97) --
--------------- ------------------
Net cash provided by financing activities 50,003 22,720
--------------- ------------------
Effect of exchange rate changes on cash (393) (91)
--------------- ------------------
Net decrease in cash and cash equivalents (28,831) (21,797)
Cash and cash equivalents at beginning of period 55,972 85,067
--------------- ------------------
Cash and cash equivalents at end of period $ 27,141 63,270
=============== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
THE DII GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Financial information as of January 3, 1999 has been derived
from the audited consolidated financial statements of The DII Group, Inc. and
subsidiaries (the "Company").
The condensed consolidated financial statements do not include all information
and notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there has been no
material change in the information disclosed in the notes to the consolidated
financial statements as of and for the year ended January 3, 1999 included in
the annual report on Forms 10-K and 10-K/A previously filed and amended with the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included in the accompanying condensed consolidated
financial statements. Operating results for the nine month period ended October
3, 1999 are not necessarily indicative of the results that may be expected for
the year ending January 2, 2000.
The Company's fiscal year consists of either a 52-week or 53-week period ending
on the Sunday nearest to December 31. Fiscal 1998 comprised 53 weeks and ended
on January 3, 1999 and fiscal 1999 will comprise 52 weeks and will end on
January 2, 2000. The accompanying condensed consolidated financial statements
are therefore presented as of and for the quarters ended October 3, 1999 and
September 27, 1998, both of which are 13-week periods.
(2) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
--------------- ---------------
<S> <C> <C>
Raw materials $ 73,782 44,669
Work in process 41,766 24,922
Finished goods 6,072 6,622
--------------- ---------------
121,620 76,213
Less allowance 8,775 9,468
--------------- ---------------
$ 112,845 66,745
=============== ===============
</TABLE>
The Company made provisions to the allowance for inventory impairment (including
unusual charges, see Note 7) of $990 and $7,322 during the nine month periods
ended October 3, 1999 and September 27, 1998, respectively.
(3) BUSINESS COMBINATIONS, ASSET PURCHASES AND STRATEGIC INVESTMENTS
Business Acquisitions:
In September 1999, the Company acquired a printed wiring board fabricator with
operations in Brazil. This business combination is immaterial to the Company's
results from operations and financial position. The cash purchase price, net of
cash acquired, amounted to $26,095. This acquisition was accounted for as a
purchase with the results of operations from the acquired business included in
the Company's results of operations from the acquisition date forward. Pro forma
results of operations would not be materially different from the historical
results reported. The cost of this acquisition was allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed. The fair value
of the assets acquired, excluding cash acquired, amounted to $14,772 and
liabilities assumed were $6,403, including estimated acquisition costs. The cost
in excess of net assets acquired amounted to $17,736.
In August 1998, the Company acquired a printed wiring board fabricator and
contract electronics manufacturer with operations in the People's Republic of
China. As of September 27, 1998, the cash purchase price, net of cash acquired,
amounted to $43,409. This
5
<PAGE> 6
acquisition was accounted for as a purchase with the results of operations from
the acquired business included in the Company's results of operations from the
acquisition date forward. Pro forma results of operations would not be
materially different from the historical results reported. The cost of this
acquisition was allocated on the basis of the estimated fair value of assets
acquired and liabilities assumed. The fair value of the assets acquired,
excluding cash acquired, amounted to $55,699 and liabilities assumed were
$21,801, including estimated acquisition costs. The cost in excess of net assets
acquired amounted to $17,897.
In July 1998, the Company completed a business combination that is immaterial to
the Company's results from operations and financial position. The cash purchase
price, net of cash acquired, for the acquisition amounted to $2,200. The fair
value of the assets acquired and liabilities assumed from this acquisition is
immaterial.
Goodwill associated with the Brazilian acquisition, as well as previous
acquisitions, is subject to future adjustments from contingent purchase price
adjustments for varying periods, all of which end no later than September 2005.
The Company increased goodwill and notes payable to sellers of businesses
acquired in the amount of $33,838 for contingent purchase price adjustments
during the nine months ended October 3, 1999. There were no contingent purchase
price adjustments during the nine months ended September 27, 1998.
Asset Purchases:
On August 31, 1999, the Company acquired Ericsson Austria AG's electronics
manufacturing and distribution facility located in Kindberg, Austria, and its
related production equipment for approximately $12,765. The purchase price was
allocated to the assets acquired based on the relative fair values of the assets
at the date of acquisition.
In October 1998, the Company acquired Hewlett-Packard Company's ("HP") printed
wiring board fabrication facility located in Boeblingen, Germany, and its
related production equipment, inventory and other assets for a purchase price of
approximately $89,900. The purchase price was allocated to the assets acquired
based on the relative fair values of the assets at the date of acquisition.
Strategic Investments:
During the first quarter of fiscal 1999, the Company made two strategic minority
investments amounting to $20,507. First, the Company entered into a joint
venture with Virtual IP Group ("VIP"), a complex integrated circuit design
company with locations in Hyderabad, India and Sunnyvale, California. The
Company acquired a 49% interest in VIP for approximately $5,007. The Company
accounts for its investment in VIP under the equity method.
In March 1999, the Company acquired 15,000 non-voting preferred shares of DVB
(Group) Limited ("DVB"), an affiliate of Capetronic International Holdings
Limited (Capetronic) for a purchase price of $15,500. The preferred stock
accrues a 5% annual dividend and can be converted into common stock of
Capetronic after 15 months and at a price of HK$4.80 per share. Additionally, at
anytime after 15 months, Capetronic can force conversion if the market price is
at least HK$10.00 per share. At a conversion price of HK$4.80 per share (based
on an agreed exchange rate of US$1.00 equals HK$7.50) the Company would hold
approximately 24,219 common shares of Capetronic, which currently would
represent approximately 13% of the issued common stock of Capetronic after
giving effect to the conversion, excluding the effect of other dilutive
instruments which are currently in existence that, if converted, would reduce
the Company's ultimate ownership percentage. However, under the terms of the
agreement, the Company cannot hold more than 10% of the outstanding common stock
of Capetronic. If, upon conversion, the Company holds in excess of 10% of the
outstanding common stock of Capetronic, the Company would be required to divest
of shares to reduce its holdings to 10% or less.
The Company currently accounts for its investment in Capetronic under the cost
method. Once the criteria for conversion are reached, the Company will account
for this investment as an available-for-sale marketable equity security in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Through this strategic investment and a related manufacturing agreement, the
Company has obtained the rights to manufacture a majority of DVB's requirements
for set-top boxes to be used for the delivery of video entertainment, data and
educational materials in China.
(4) DIVESTITURES
In fiscal 1998, the Company had undertaken an initiative to divest of its
non-core business unit known as Process Technologies International ("PTI"). PTI
is a group of manufacturing companies that produce equipment and tooling used in
the printed circuit board
6
<PAGE> 7
assembly process. The Company divested of this non-core business unit during the
nine months ended October 3, 1999, in order to sharpen its focus on the
Company's core businesses of design and semiconductor services, fabrication of
printed wiring boards, and systems assembly and distribution. The Company
received cash proceeds from these sales during the nine months ended October 3,
1999, amounting to $35,871, net of divestiture costs, and recognized a pre-tax
loss on the divestiture of approximately $51.
(5) LONG-TERM DEBT
Long-term debt was comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 3, JANUARY 3,
1999 1999
------------ ------------
<S> <C> <C>
Senior subordinated notes $ 150,000 150,000
Bank term loan 113,000 100,000
Outstanding under line-of-credit 83,500 37,500
Notes payable to sellers of businesses acquired 14,086 11,550
Other 5,770 1,845
------------ ------------
Total long-term debt 366,356 300,895
Less current portion 37,831 29,031
------------ ------------
Long-term debt, net of current portion $ 328,525 271,864
============ ============
</TABLE>
(6) CONVERTIBLE SUBORDINATED DEBT
As of February 18, 1999, substantially all of the Company's convertible
subordinated notes were converted into approximately 4,600,000 shares of common
stock and the unconverted portion was redeemed for $101. Stockholders' equity
was increased by the full amount of the convertible subordinated notes less the
unamortized issuance costs. The conversion was a non-cash addition to
stockholders' equity during the first quarter of fiscal 1999.
(7) UNUSUAL CHARGES
During fiscal 1998, the Company recognized unusual pre-tax charges of $72,794,
substantially all of which related to the operations of the Company's wholly
owned subsidiary, Orbit Semiconductor. The Company decided to sell Orbit's
6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a fabless
manufacturing strategy to complement Orbit's design and engineering services.
The charges were primarily due to the impaired recoverability of inventory,
intangible assets and fixed assets, and other costs associated with the exit of
semiconductor manufacturing. The manufacturing facility was sold in January
1999, and the Company has successfully adopted a fabless manufacturing strategy.
The Company recorded $51,158 and $21,636 of the charges in the first and fourth
quarters of fiscal 1998, respectively. As discussed below, $49,314 of the
unusual pre-tax charges had been classified as a component of cost of sales in
the first quarter 1998.
The components of the unusual charge recorded in fiscal 1998 are as follows:
<TABLE>
<CAPTION>
FIRST FOURTH FISCAL NATURE OF
QUARTER QUARTER 1998 CHARGE
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Severance.................................................. $ 498 $ 900 $ 1,398 cash
Long-lived asset impairment................................ 38,257 15,083 53,340 non-cash
Losses on sales contracts.................................. 2,658 3,100 5,758 non-cash
Incremental uncollectible accounts
receivable............................................... 900 -- 900 non-cash
Incremental sales returns and allowances................... 1,500 500 2,000 non-cash
Inventory write-downs...................................... 5,500 250 5,750 non-cash
Other exit costs........................................... 1,845 1,803 3,648 cash
------------ --------- ----------
Total unusual pre-tax charges............................ $ 51,158 $ 21,636 $ 72,794
============ ========= ==========
</TABLE>
7
<PAGE> 8
The following table summarizes the activity related to the charges taken in
connection with the 1998 unusual charges:
<TABLE>
<CAPTION>
LONG-LIVED LOSSES UNCOLLECTIBLE
ASSET ON SALES ACCOUNTS
SEVERANCE IMPAIRMENT CONTRACTS RECEIVABLE
--------- ---------- --------- -------------
<S> <C> <C> <C> <C>
Balance at December 28,
1997........................ $ -- $ -- $ -- $ --
Activities during the
year:
1998 provision ............. 1,398 53,340 5,758 900
Cash charges ............... (498) -- -- --
Non-cash charges ........... -- (53,340) (4,658) (767)
--------- ---------- --------- -------------
Balance at January 3,
1999........................ 900 -- 1,100 133
Activities during the
period:
Cash charges ............... (900) -- -- --
Non-cash charges ........... -- -- (1,100) (133)
--------- ---------- --------- -------------
Balance at April 4,
1999........................ -- -- -- --
Activities during the
period:
Cash charges ............... -- -- -- --
Non-cash charges ........... -- -- -- --
--------- ---------- --------- -------------
Balance at July 4, 1999 ...... -- -- -- --
Activities during the
period:
Cash charges ............... -- -- -- --
Non-cash charges ........... -- -- -- --
--------- ---------- --------- -------------
Balance at October 3, 1999 ... $ -- $ -- $ -- $ --
========= ========== ========= =============
<CAPTION>
SALES RETURNS INVENTORY
AND WRITE- OTHER
ALLOWANCES DOWNS EXIT COSTS TOTAL
------------- --------- ---------- --------
Balance at December 28,
1997........................ $ -- $ -- $ -- $ --
Activities during the
year:
1998 provision ............. 2,000 5,750 3,648 72,794
Cash charges ............... -- -- (465) (963)
Non-cash charges ........... (1,500) (5,500) (643) (66,408)
------------- --------- ---------- --------
Balance at January 3,
1999........................ 500 250 2,540 5,423
Activities during the
period:
Cash charges ............... -- -- (601) (1,501)
Non-cash charges ........... -- (250) -- (1,483)
------------- --------- ---------- --------
Balance at April 4,
1999........................ 500 -- 1,939 2,439
Activities during the
period:
Cash charges ............... -- -- (584) (584)
Non-cash charges ........... (500) -- -- (500)
------------- --------- ---------- --------
Balance at July 4, 1999 ...... -- -- 1,355 1,355
Activities during the
period:
Cash charges ............... -- -- (685) (685)
Non-cash charges ........... -- -- -- --
------------- --------- ---------- --------
Balance at October 3, 1999 ... $ -- $ -- $ 670 $ 670
============= ========= ========== ========
</TABLE>
The unusual pre-tax charges include $53,340 for the write-down of long-lived
assets to fair value. This amount has been classified as a component of cost of
sales. Included in the long-lived asset impairment are charges of $50,739, which
relate to the Fab which was written down to its net realizable value based on
its sales price. The Company kept the Fab in service until the sale date in
January 1999. In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," the Company
discontinued depreciation expense on the Fab when it determined that it would be
disposed of and its net realizable value was known. The impaired long-lived
assets consisted primarily of machinery and equipment of $52,418, which were
written down by $43,418 to a carrying value of $9,000 and building and
improvements of $7,321, which were written down to a carrying value of zero. The
long-lived asset impairment also includes the write-off of the remaining
goodwill related to Orbit of $601. The remaining $2,000 of asset impairment
relates to the write-down to net realizable value of a facility the Company
exited during 1998.
The Company purchased Orbit in August of 1996, and supported Orbit's previously
made decision to replace its wafer fabrication facility ("fab") with a higher
technology fab. The transition to the 6-inch fab was originally scheduled for
completion during the summer of 1997, but the changeover took longer than
expected and was finally completed in January 1998.
The missed plan for the changeover and running both fabs simultaneously put
pressure on the work force, with resulting quality problems. Compounding these
problems, the semiconductor industry was characterized by excess capacity, which
led larger competitors to invade Orbit's niche market. Further, many of Orbit's
customers migrated faster than expected to a technology in excess of Orbit's
fabrication capabilities, requiring Orbit to outsource more of its manufacturing
requirements than originally expected. Based upon these continued conditions and
the future outlook, the Company took this first quarter 1998 charge to correctly
size Orbit's asset base to allow its recoverability based upon its then current
business size.
The first quarter 1998 unusual charge included $38,257 for the write-down of
long-lived assets to fair value. The fair value of these assets was based on
estimated market value at the date of the charge. Fair market value was
determined in accordance with SFAS No. 121, and included the use of an
independent valuation. The impairment charge consists of $37,656 related to
property, plant and equipment and $601 related to goodwill. This amount was
classified as a component of cost of sales.
Additionally, the first quarter 1998 unusual charge included $5,058 for losses
on sales contracts, incremental amounts of uncollectible accounts receivable,
and estimated incremental sales returns and allowances, primarily resulting from
the fab changeover quality issues. This amount was classified as a component of
cost of sales.
The Company entered into certain non-cancelable sales contracts to provide
semiconductors to customers at fixed prices. Because the Company was obligated
to fulfill the terms of the agreements at selling prices which were not
sufficient to cover the cost to produce or acquire such products, a liability
for losses on sales contracts was recorded for the estimated future amount of
such losses.
The first quarter 1998 unusual pre-tax charge also included $7,843 primarily
associated with inventory write-downs, severance and other costs. This
write-down primarily resulted from excess inventory created by deciding to
downsize operations.
As previously stated, the Company subsequently decided to sell the manufacturing
facility (which occurred in January 1999). This decision resulted in additional
unusual pre-tax charges in the fourth quarter of 1998 of $21,636.
8
<PAGE> 9
The exit plan is expected to be completed in fiscal 1999. As of October 3, 1999,
the total remaining cash expenditures expected to be incurred are $670 of other
exit costs, including legal settlement costs and environmental clean-up costs.
These expenditures will continue to be funded through operating cash flows of
the Company which are expected to be sufficient to fund these expenditures.
These amounts were recorded in accrued expenses at October 3, 1999.
(8) COMPREHENSIVE INCOME
The components of comprehensive income were as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
-------------------------------- --------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 16,251 5,590 $ 37,474 (19,388)
Other comprehensive income (loss)
Foreign currency translation adjustments (730) 6 (837) (47)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ 15,521 5,596 $ 36,637 (19,435)
============= ============= ============= =============
</TABLE>
The foreign currency translation adjustments are not currently adjusted for
income taxes since they relate to investments that are permanent in nature.
(9) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share ("EPS") data were computed as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED ENDED
------------------------------ -------------------------------
OCTOBER 3, SEPTEMBER 27, OCTOBER 3, SEPTEMBER 27,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
BASIC EPS:
Net income (loss) $ 16,251 5,590 $ 37,474 (19,388)
============= ============= ============= =============
Weighted-average common shares outstanding 29,623 24,775 28,813 25,004
============= ============= ============= =============
Basic EPS $ 0.55 0.23 $ 1.30 (0.78)
============= ============= ============= =============
DILUTED EPS:
Net income (loss) $ 16,251 5,590 $ 37,474 (19,388)
Plus income impact of assumed conversions:
Interest expense (net of tax) on convertible
subordinated notes -- 776 400 --
Amortization (net of tax) of debt issuance cost
on convertible subordinated notes -- 65 33 --
------------- ------------- ------------- -------------
Net income (loss) available to common stockholders $ 16,251 6,431 $ 37,907 (19,388)
============= ============= ============= =============
Shares used in computation:
Weighted-average common shares outstanding 29,623 24,775 28,813 25,004
Shares applicable to exercise of dilutive options 1,302 558 1,220 --
Shares applicable to deferred stock compensation 277 18 267 --
Shares applicable to convertible subordinated notes -- 4,597 604 --
------------- ------------- ------------- -------------
Shares applicable to diluted earnings 31,202 29,948 30,904 25,004
============= ============= ============= =============
Diluted EPS $ 0.52 0.21 $ 1.23 (0.78)
============= ============= ============= =============
</TABLE>
The common equivalent shares from common stock options, deferred stock
compensation and convertible subordinated notes were antidilutive for the nine
month period ended September 27, 1998, and therefore not assumed to be converted
for diluted earnings per share computations.
9
<PAGE> 10
(10) COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS
In 1997, two related complaints, as amended, were filed in the District Court of
Boulder, Colorado and the U.S. District Court for the District of Colorado
against the Company and certain of its officers. In July 1999, the federal court
action was dismissed with prejudice. The state court action purports to be
brought on behalf of a class of persons who purchased the Company's common stock
during the period from April 1, 1996, through September 8, 1996, and claims
violations of Colorado and federal laws based on allegedly false and misleading
statements made in connection with the offer, sale or purchase of the Company's
common stock at allegedly artificially inflated prices, including statements
made prior to the Company's acquisition of Orbit. The complaint seeks
compensatory and other damages, as well as equitable relief. The Company has
filed an answer denying that it misled the securities market. A May 2000 trial
date has been set and discovery has commenced. The Company believes that the
claims asserted in the action are without merit and intends to defend vigorously
against such claims.
In addition, the Company is involved in certain litigation and environmental
matters arising in the ordinary course of business. Although management is of
the opinion that these matters and the matters discussed above will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company, the ultimate outcome of the litigation and
environmental matters cannot, at this time, be predicted in light of the
uncertainties inherent in these matters. Based upon the facts and circumstances
currently known, management cannot estimate the most likely loss or the maximum
loss for these matters. The Company has accrued the minimum estimated costs,
which amounts are immaterial, associated with these matters in the accompanying
condensed consolidated financial statements.
The Company determines the amount of its accruals for environmental matters by
analyzing and estimating the range of possible costs in light of information
currently available. The imposition of more stringent standards or requirements
under environmental laws or regulations, the results of future testing and
analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can be
given that actual costs will not exceed amounts accrued or that costs will not
be incurred with respect to sites as to which no problem is currently known.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
The Company has approximately $17,205 of capital commitments as of October 3,
1999.
The Company has a $210,000 credit agreement with a syndicate of domestic and
foreign banks. The agreement provides for a $100,000 five year term loan and a
$110,000 revolving credit facility. The revolving line-of-credit expires on
November 1, 2003. On September 1, 1999, the Company amended its credit agreement
to increase both the term loan and revolving facility by $25,000. The Company
borrowed $25,000 under the term facility to repay $25,000 of borrowings under
the revolving credit facility. As of October 3, 1999, there were $83,500 in
borrowings outstanding under the revolving line-of-credit facility (See Note 13
included herein). This credit facility requires compliance with certain
financial covenants and is secured by substantially all of the Company's assets.
As of October 3, 1999, the Company was in compliance with all loan covenants.
On October 5, 1999, the Company completed an equity offering of 6,900,000 shares
of its Common Stock (including 900,000 shares that were issued to cover the
underwriters' over-allotments) at a price of $33.00 per share. The net proceeds
to the Company were approximately $216,500 and were used to repay $25,000 of the
term debt and the entire revolving debt under the Company's credit facilities,
to fund capital expenditures and for general corporate purposes. Upon this
repayment, our revolving commitment was reduced back to $110,000.
On November 3, 1999, the Company announced that it has signed a memorandum of
understanding with HP to purchase its manufacturing facility and related assets
located in Greeley, Colorado. Subject to concluding this transaction, the
Company will enter into a long-term supply agreement with HP to provide printed
circuit board assembly and final systems assembly, order fulfillment and
distribution activities. The transaction is expected to be completed during the
Company's first fiscal quarter of 2000. Completion of the transaction is subject
to applicable government approvals and various conditions of closing. The
transaction will be accounted for as a purchase of assets. Subject to final
negotiations, due diligence and working capital levels at the time of closing,
the estimated purchase price will be in the range of $50,000 to $60,000.
(11) INCOME TAXES
The Company's estimated effective income tax rate differs from the U.S.
statutory rate due to domestic income tax credits, lower effective income tax
rates on foreign earnings considered permanently invested abroad and other
permanent differences. The effective tax rate for a particular year will vary
depending on the mix of foreign and domestic earnings, income tax credits and
10
<PAGE> 11
changes in previously established valuation allowances for deferred tax assets
based upon management's current analysis of the realizability of these deferred
tax assets. As foreign earnings considered permanently invested abroad increase
as a percentage of consolidated earnings, the overall consolidated effective
income tax rate will usually decrease because the foreign earnings are generally
taxed at a lower rate than domestic earnings. The mix of foreign and domestic
income from operations before income taxes, the recognition of income tax loss
and tax credit carryforwards, management's current assessment of the required
valuation allowance and the implementation of several tax planning initiatives
resulted in an estimated effective income tax rate of 15% for the three and nine
month periods ended October 3, 1999, excluding a tax benefit of $4,680
associated with the pre-tax loss on business divestitures of $51 described in
Note 4 herein. The actual effective rate for the three and nine month periods
ended October 3, 1999, including the effect of the divestitures, was (14) % and
4%, respectively.
(12) BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company's businesses are organized, managed, and internally reported as
three reportable segments. These segments, which are based on differences in
products, technologies, and services are Systems Assembly and Distribution,
Printed Wiring Boards, and Other (which includes Dii Semiconductor and PTI).
These segments offer products and services across most sectors of the
electronics industry in order to reduce exposure to downturn in any particular
sector.
Transactions between segments are recorded at cost. The Company's businesses are
operated on an integrated basis and are characterized by substantial
intersegment cooperation, cost allocations, and marketing efforts. Substantially
all interest expense is incurred at Corporate. Therefore, management does not
represent that these segments, if operated independently, would report the
operating income and other financial information shown.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
--------------------------------------- ---------------------------------------
OCTOBER 3, 1999 SEPTEMBER 27, 1998 OCTOBER 3, 1999 SEPTEMBER 27, 1998
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
NET SALES:
Systems assembly and distribution $ 260,405 $ 131,016 $ 592,723 $ 424,147
Printed wiring boards 85,063 43,964 236,948 140,795
Other 19,621 30,937 62,979 98,287
--------------- ------------------ --------------- ------------------
$ 365,089 $ 205,917 $ 892,650 $ 663,229
=============== ================== =============== ==================
INCOME (LOSS) BEFORE INCOME TAXES*:
Systems assembly and distribution $ 12,348 $ 8,311 $ 28,685 $ 22,466
Printed wiring boards 9,431 6,860 26,983 20,327
Other (608) (169) 7,658 2,365
Unallocated general corporate (6,960) (7,244) (24,175) (20,910)
--------------- ------------------ --------------- ------------------
$ 14,211 $ 7,758 $ 39,151 $ 24,248
=============== ================== =============== ==================
DEPRECIATION AND AMORTIZATION:
Systems assembly and distribution $ 4,335 $ 2,542 $ 11,109 $ 7,981
Printed wiring boards 6,140 3,445 16,595 8,759
Other 799 2,248 2,617 8,310
Unallocated general corporate 285 293 878 873
--------------- ------------------ --------------- ------------------
$ 11,559 $ 8,528 $ 31,199 $ 25,923
=============== ================== =============== ==================
CAPITAL EXPENDITURES:
Systems assembly and distribution $ 50,547 $ 2,792 $ 71,960 $ 17,193
Printed wiring boards 16,848 7,033 40,872 19,655
Other 857 4,408 2,786 10,876
Unallocated general corporate 772 1,594 1,697 1,675
--------------- ------------------ --------------- ------------------
$ 69,024 $ 15,827 $ 117,315 $ 49,399
=============== ================== =============== ==================
</TABLE>
<TABLE>
<CAPTION>
IDENTIFIABLE ASSETS AT THE END OCTOBER 3, JANUARY 3,
OF EACH PERIOD: 1999 1999
- ------------------------------- --------------- ------------------
<S> <C> <C>
Systems assembly and distribution $ 345,879 $ 238,027
Printed wiring boards 498,817 390,194
Other 32,387 79,453
Unallocated general corporate 54,508 39,635
--------------- ------------------
$ 931,591 $ 747,309
=============== ==================
</TABLE>
* Excludes unusual charges of $51,158 for the nine months ended September 27,
1998, which related primarily to Other Services. See Note 7 for additional
information regarding the unusual charges.
11
<PAGE> 12
The following summarizes financial information by geographic areas:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
-------------------------- -------------------------
OCTOBER 3, 1999 SEPTEMBER 27, 1998 OCTOBER 3, 1999 SEPTEMBER 27, 1998
--------------- ------------------ --------------- ------------------
<S> <C> <C> <C> <C>
NET SALES:
Americas $ 179,574 $ 145,898 $ 476,706 $ 477,663
Europe 88,416 37,908 198,408 119,731
Asia 97,099 22,111 217,536 65,835
--------------- ------------------ --------------- ------------------
$ 365,089 $ 205,917 $ 892,650 $ 663,229
=============== ================== =============== ==================
INCOME (LOSS) BEFORE INCOME TAXES*:
Americas $ 6,359 $ 7,472 $ 24,982 $ 25,759
Europe 7,495 4,489 16,523 14,026
Asia 7,317 3,041 21,821 5,373
Unallocated general corporate (6,960) (7,244) (24,175) (20,910)
--------------- ------------------ --------------- ------------------
$ 14,211 $ 7,758 $ 39,151 $ 24,248
=============== ================== =============== ==================
</TABLE>
<TABLE>
<CAPTION>
LONG-LIVED ASSETS AT THE END OCTOBER 3, JANUARY 3,
OF EACH PERIOD: 1999 1999
---------------------------- --------------- ------------------
<S> <C> <C>
Americas $ 253,620 $ 232,134
Europe 133,093 110,296
Asia 127,823 80,635
Unallocated general corporate 10,618 9,955
--------------- ------------------
$ 525,154 $ 433,020
=============== ==================
</TABLE>
* Excludes unusual charges of $51,158 for the nine months ended September 27,
1998, which related to businesses operated in North America. See Note 7 for
additional information regarding the unusual charges.
12
<PAGE> 13
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
(Dollars in thousands)
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Words such as "expects," "anticipates,"
"forecasts," "intends," "plans," "believes," "projects," and "estimates" and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements include, but are not limited to,
statements regarding prospective sales growth, new customers, integration of
acquired businesses, contingencies, Year 2000 readiness, environmental matters
and liquidity under "Part I, Financial Information - Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere herein. These statements are not guarantees of future performance and
involve risks and uncertainties and are based on a number of assumptions that
could ultimately prove to be wrong. Actual results and outcomes may vary
materially from what is expressed or forecast in such statements. Among the
factors that could cause actual results to differ materially are: general
economic and business conditions; the Company's dependence on the electronics
industry; changes in demand for the Company's products and services or the
products of the Company's customers; the risk of delays or cancellations of
customer orders; fixed asset utilization; the timing of orders and product mix;
availability of components; competition; the risk of technological changes and
of the Company's competitors developing more competitive technologies; the
Company's dependence on certain important customers; the Company's ability to
integrate acquired businesses; the Company's ability to manage growth; risks
associated with international operations; the availability and terms of needed
capital; risks of loss from environmental liabilities; and other risks detailed
in this report. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
A. OVERVIEW
The Company is a leading provider of electronics design and manufacturing
services, which operates through a global network of independent business units
in North America, Brazil, Europe, and Asia. These business units are uniquely
linked to provide the following related core products and services to original
equipment manufacturers ("OEMs"): custom semiconductor design; design and
manufacture of printed wiring boards; assembly of printed circuit boards; final
systems assembly ("box build"); and distribution. By offering comprehensive and
integrated design and manufacturing services, the Company believes that it is
better able to differentiate its product and service offerings from those of its
competitors, develop long-term relationships with its customers and enhance its
profitability.
The Company provides the following related products and services to customers in
the global electronics manufacturing industry:
Design and Semiconductor Services
Through Dii Technologies, the Company provides printed circuit board and
backpanel design services, as well as design for manufacturability and test
and total life cycle planning.
Through Dii Semiconductor (formerly known as Orbit Semiconductor), Dii
Technologies provides the following application specific integrated circuit
("ASIC") design services to its OEM customers:
o Conversion services from field programmable gate arrays ("FPGAs") to
ASICs. These services focus on designs that utilize primarily
digital signals, with only a small amount of analog signals.
o Design services for mixed-signal ASICs. These services focus on
designs that utilize primarily analog signals, with only a small
amount of digital signals.
o Silicon integration design services. These services utilize silicon
design modules that are used to accelerate complex ASIC designs,
including system-on-a-chip.
13
<PAGE> 14
Dii Semiconductor utilizes external foundry suppliers for its customers'
silicon manufacturing requirements, thereby using a "fabless" manufacturing
approach.
By integrating the combined capabilities of design and semiconductor
services, the Company can compress the time from product concept to market
introduction and minimize product development costs. The Company believes
that its semiconductor design expertise provides it with a competitive
advantage by enabling the Company to offer its customers reduced costs
through the consolidation of components onto silicon chips.
Printed Wiring Boards
The Company manufactures high density, complex multilayer printed wiring
boards and back panels through Multek.
Systems Assembly and Distribution
The Company assembles complex electronic circuits and provides final system
assembly and distribution services through Dovatron International
("Dovatron").
With the above core competencies, the Company has the ability to provide
customers with total design and manufacturing outsourcing solutions. The
Company's ability to offer fully integrated solutions with value-added front-
and back-end product and process development capabilities, coupled with global
volume assembly capabilities, provides customers with significant
speed-to-market and product cost improvements.
In fiscal 1998, the Company had undertaken an initiative to divest of its
non-core business unit known as Process Technologies International ("PTI"). PTI
is a group of manufacturing companies that produce equipment and tooling used in
the printed circuit board assembly process. The Company divested of this
non-core business unit in order to sharpen its focus on the Company's core
businesses of design and semiconductor services, fabrication of printed wiring
boards, and systems assembly and distribution.
Operating results may be affected by a number of factors including the economic
conditions in the markets the Company serves; price and product competition; the
level of volume and the timing of orders; product mix; the amount of automation
employed on specific manufacturing projects; efficiencies achieved by inventory
management; fixed asset utilization; the level of experience in manufacturing a
particular product; customer product delivery requirements; shortages of
components or experienced labor; the integration of acquired businesses;
start-up costs associated with adding new geographical locations; expenditures
required for research and development; and failure to introduce, or lack of
market acceptance of, new processes, services, technologies and products on a
timely basis. Each of these factors has had in the past, and may have in the
future, an adverse effect on the Company's operating results.
For many of our customers, the Company is responsible for procuring materials
and electronic components used in the manufacturing of their products. As a
result of providing this service, the Company bears the risk of price increases
for these components if it is unable to purchase them at pricing favorable to
the terms of the customer contracts. At various times, there have been shortages
of components, and some suppliers have lacked sufficient capacity to meet the
demand for such components. In recent months, component shortages have become
more prevalent in the industry. In some cases, the supply shortages could
curtail production of assemblies using a particular component and could result
in manufacturing and shipping delays.
A majority of the Company's sales are to customers in the electronics industry,
which is subject to rapid technological change, product obsolescence and price
competition. The factors affecting the electronics industry in general, or any
of the Company's major customers, in particular, could have a material adverse
affect on the Company's operating results. The electronics industry has
historically been cyclical and subject to economic downturns at various times,
which have been characterized by diminished product demand, accelerated erosion
of average selling prices and overcapacity. The Company's customers also are
subject to short product life cycles and pricing and margin pressures, which
risks are borne by the Company. The Company seeks a well-balanced customer
profile across most sectors of the electronics industry in order to reduce
exposure to a downturn in any particular sector. The primary sectors within the
electronics industry served by the Company are office automation, mainframes and
mass storage, data communications, computer and peripherals, telecommunications,
industrial, instrumentation, and medical.
The Company offers manufacturing capabilities in three major electronics markets
of the world (North America, Europe and Asia). The Company's European and Asian
operations, combined, generated approximately 47% and 28% of total net sales for
the nine months ended October 3, 1999 and September 27, 1998, respectively. The
Company's international operations subject the Company to
14
<PAGE> 15
the risks of doing business abroad, including currency fluctuations, export
duties, import controls and trade barriers, restrictions on the transfer of
funds, greater difficulty in accounts receivable collection, burdens of
complying with a wide variety of foreign laws and, in certain parts of the
world, political and economic instability.
Substantially all of the Company's business outside the United States is
conducted in U.S. dollar-denominated transactions. Some transactions of the
Company and its subsidiaries are made in currencies different from their
functional currencies. In order to minimize foreign exchange transaction risk,
the Company selectively hedges certain of its foreign exchange exposures through
forward exchange contracts, principally relating to non-functional currency
monetary assets and liabilities. The strategy of selective hedging can reduce
the Company's vulnerability to certain of its foreign currency exposures, and
the Company expects to continue this practice in the future. Gains and losses on
these foreign currency hedges are generally offset by corresponding losses and
gains on the underlying transaction. To date, the Company's hedging activity has
been immaterial, and there were no open foreign exchange contracts as of the
balance sheet dates included in the accompanying condensed consolidated
financial statements. As of October 3, 1999, the Company had the following
unhedged net foreign currency monetary asset (liability) positions:
<TABLE>
<CAPTION>
NET NET
FOREIGN U.S. DOLLAR
CURRENCY EQUIVALENT
ASSETS ASSETS
(LIABILITIES) (LIABILITIES)
--------------- ---------------
<S> <C> <C>
British Pound Sterling (233) (384)
Chinese Renminbi (4,451) (543)
Czech Krown (798) (24)
Euro 11,234 12,045
Hong Kong Dollar (2,823) (363)
Malaysian Ringgit (1,994) (525)
Mexican Peso (213) (23)
</TABLE>
At any given time, certain customers may account for significant portions of the
Company's business. Hewlett-Packard Company ("HP") accounted for approximately
20% of net sales during the nine months ended October 3, 1999. HP and IBM
accounted for 10% and 11% of net sales during the nine months ended September
27, 1998, respectively. No other customer accounted for more than 10% of net
sales during the nine months ended October 3, 1999 or September 27, 1998.
The Company's top ten customers accounted for approximately 57% and 49% of net
sales for the nine months ended October 3, 1999 and September 27, 1998,
respectively. The percentage of the Company's sales to its major customers may
fluctuate from period to period. Significant reductions in sales to any of these
customers would have a material adverse effect on the Company's operating
results.
Although management believes the Company has a broad diversification of
customers and markets, the Company has few material firm long-term commitments
or volume guarantees from its customers. In addition, customer orders can be
canceled and volume levels can be changed or delayed. From time to time, some of
the Company's customers have terminated their manufacturing arrangements with
the Company, and other customers have reduced or delayed the volume of design
and manufacturing services performed by the Company. The timely replacement of
canceled, delayed or reduced contracts with new business cannot be assured, and
termination of a manufacturing relationship or change, reduction or delay in
orders could have a material adverse effect on the Company's operating results.
Changes in customer orders have had in the past, and may in the future, a
significant adverse impact on the Company's results of operations due to
corresponding changes in the level of overhead absorption.
The Company has actively pursued acquisitions in furtherance of its strategy to
be the fastest and most comprehensive provider of custom electronics design and
manufacturing services, ranging from microelectronics design through the
fabrication, final assembly, and distribution of printed circuits and finished
products for customers. The Company's acquisitions have enabled it to provide
more integrated outsourcing technology solutions with time-to-market and lower
cost advantages. OEM divestitures and acquisitions have also played an important
part in expanding the Company's presence in the global electronics marketplace.
OEM divestitures and acquisitions involve numerous risks including difficulties
in assimilating the operations, technologies, and products and services 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 where competitors in such markets have stronger
market positions, and the potential loss of key employees of the acquired
company. There can be no assurance that the Company will be able to successfully
integrate newly acquired businesses. Such failures could have a material adverse
effect on the Company's business, financial condition and results of operations.
The integration of certain operations following an acquisition will require the
dedication of management resources that may distract attention from the
day-to-day business of the Company. The Company also
15
<PAGE> 16
continues to experience rapid internal growth and expansion, and with continued
expansion, it may become more difficult for the Company's management to manage
geographically dispersed operations. The Company's failure to effectively manage
growth could have a material adverse effect on the Company's results of
operations.
B. RESULTS OF OPERATIONS
Total net sales for the quarter ended October 3, 1999 increased 77% or $159,172
to $365,089 from $205,917 for the comparable period in 1998. Total net sales for
the nine months ended October 3, 1999 increased 35% or $229,421 to $892,650 from
$663,229 for the comparable period in 1998. The sales growth was principally due
to the significant increase in sales volume from both existing and new customers
worldwide, as well as, from the business acquisitions and purchases of
manufacturing facilities as described in Note 3 of the condensed consolidated
financial statements.
Net sales from systems assembly and distribution, which represented 71% of net
sales for the quarter ended October 3, 1999, increased $129,389 (99%) to
$260,405, from $131,016 (64% of net sales) for the corresponding period in 1998.
Net sales from systems assembly and distribution, which represented 66% of net
sales for the nine months ended October 3, 1999, increased $168,576 (40%) to
$592,723 from $424,147 (64% of net sales) for the corresponding period in 1998.
These increases are primarily the result of the Company's ability to continue to
expand sales to new customers worldwide, and to a lesser extent, expanding sales
to its existing customer base.
Net sales from printed wiring board manufacturing operations, which represented
23% of net sales for the quarter ended October 3, 1999, increased $41,099 (93%)
to $85,063 from $43,964 (21% of net sales) for the comparable period in 1998.
Net sales from printed wiring board manufacturing operations, which represented
27% of net sales for the nine months ended October 3, 1999, increased $96,153
(68%) to $236,948 from $140,795 (21% of net sales) for the comparable period in
1998. These increases are attributable to the September 1999 Brazilian
acquisition, the August 1998 Greatsino acquisition and the October 1998 purchase
of the HP printed wiring board fabrication facility located in Boeblingen,
Germany.
Net sales for the Company's other products and services, which represented 5% of
net sales for the quarter ended October 3, 1999, decreased $11,316 (37%) to
$19,621 from $30,937 (15% of net sales) for the comparable period in 1998. Net
sales for the Company's other products and services, which represented 7% of net
sales for the nine months ended October 3, 1999, decreased $35,308 (36%) to
$62,979 from $98,287 (15% of net sales) for the comparable period in 1998.
Approximately $11,715 of the decrease for the quarter and $35,685 of the
decrease for the nine month period is attributable to the previously described
sale of the PTI business units, slightly offset by improved performance at Dii
Semiconductor.
Gross profit for the quarter ended October 3, 1999 increased $15,902 to $47,924
from $32,022 in the comparable period in 1998. Gross profit for the nine months
ended October 3, 1999 increased $78,873 to $128,165 from $49,292 in the
comparable period in 1998. Gross margin decreased to 13.1% in the quarter ended
October 3, 1999 from 15.6% in the comparable period in 1998. The gross margin
decline was primarily attributable to the increased concentration of sales in
the Company's systems assembly and distribution, which generate lower margins
than the Company's other products and service offerings. Gross margin increased
to 14.4% in the nine months ended October 3, 1999 from 7.4% in the comparable
period in 1998. The increase in gross margin is primarily attributable to
$49,314 of unusual pre-tax charges during the first quarter of 1998 associated
with the exit from wafer fabrication at Orbit. Excluding unusual charges, gross
profit for the nine months ended October 3, 1999 increased $29,559 to $128,165
from $98,606 for the comparable period in 1998. Excluding unusual charges, gross
margin decreased to 14.4% for the nine months ended October 3, 1999 from 14.9%
for the nine months ended September 27,1998. Gross profit margin decrease was
primarily the result of: (i) the change in sales mix resulting from an increase
in systems assembly and distribution, which generate lower margins than the
Company's other products and service offerings; (ii) the continued shift toward
final systems assembly projects, which typically have lower margins than printed
circuit board assembly projects; (iii) offset by significantly improved margin
performance from Dii Semiconductor resulting from a more focused and efficient
business model since divesting of its Fab.
Selling, general and administrative ("SG&A") expense increased $4,096 to $23,068
for the quarter ended October 3, 1999 from $18,972 for the comparable period in
1998. The percentage of SG&A expense to net sales decreased to 6.3% for the
quarter ended October 3, 1999 from 9.2% in the comparable period in 1998. The
increase in absolute dollars was primarily attributable to $3,101 of incremental
SG&A expense associated with the addition of Multek's September 1999 Brazilian
acquisition, August 1998 Greatsino acquisition and October 1998 purchase of the
HP printed wiring board fabrication facility located in Boeblingen, Germany.
Additionally, the increases are related to increased incentive-based stock
compensation in the amount of $660, the recognition of which is based upon
expected achievement of certain earnings per share targets established by the
Compensation Committee of the
16
<PAGE> 17
Board of Directors, combined with the continued investment in the Company's
sales and marketing, finance, and other general and administrative
infrastructure necessary to support the Company's business expansion; offset by
a reduction in expenses of approximately $3,137 from the divestiture of PTI.
SG&A expense increased $4,798 to $63,864 for the nine months ended October 3,
1999 from $59,066 for the comparable period in 1998. The percentage of SG&A
expense to net sales decreased to 7.2% for the nine months ended October 3, 1999
from 8.9% in the comparable period in 1998. The increase in absolute dollars was
primarily attributable to $7,563 of incremental SG&A expense associated with the
addition of Multek's September 1999 Brazilian acquisition, August 1998 Greatsino
acquisition and the October 1998 purchase of the HP printed wiring board
fabrication facility located in Boeblingen, Germany. The increase also relates
to increased incentive-based stock compensation in the amount of $1,398, the
recognition of which is based upon expected achievement of certain earnings per
share targets established by the Compensation Committee of the Board of
Directors, combined with the continued investment in the Company's sales and
marketing, finance, and other general and administrative infrastructure
necessary to support the Company's business expansion; offset by a reduction in
expenses of approximately $8,546 from the divestiture of PTI. The Company
expects SG&A expenses will continue to increase in terms of absolute dollars in
the future as it continues to build the infrastructure necessary to support our
current and prospective business. However, to the extent that net sales continue
to grow faster than SG&A expenses, SG&A expenses will decline as a percentage of
sales.
During fiscal 1998, the Company recognized unusual pre-tax charges of $72,794,
substantially all of which related to the operations of the Company's wholly
owned subsidiary, Orbit Semiconductor. The Company decided to sell Orbit's
6-inch, 0.6 micron wafer fabrication facility ("Fab") and adopt a fabless
manufacturing strategy to complement Orbit's design and engineering services.
The charges were primarily due to the impaired recoverability of inventory,
intangible assets and fixed assets, and other costs associated with the exit of
semiconductor manufacturing. The manufacturing facility was sold in January
1999, and the Company has successfully adopted a fabless manufacturing strategy.
The Company recorded $51,158 and $21,636 of the charges in the first and fourth
quarters of fiscal 1998, respectively. As discussed below, $49,314 of the
unusual pre-tax charges had been classified as a component of costs of sales in
the first quarter 1998.
The components of the unusual charge recorded in fiscal 1998 are as follows:
<TABLE>
<CAPTION>
FIRST FOURTH FISCAL NATURE OF
QUARTER QUARTER 1998 CHARGE
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Severance.................................. $ 498 $ 900 $ 1,398 cash
Long-lived asset impairment................ 38,257 15,083 53,340 non-cash
Losses on sales contracts.................. 2,658 3,100 5,758 non-cash
Incremental uncollectible accounts
receivable............................... 900 -- 900 non-cash
Incremental sales returns and allowances... 1,500 500 2,000 non-cash
Inventory write-downs...................... 5,500 250 5,750 non-cash
Other exit costs........................... 1,845 1,803 3,648 cash
---------- ---------- ----------
Total unusual pre-tax charges......... $ 51,158 $ 21,636 $ 72,794
========== ========== ==========
</TABLE>
The following table summarizes the activity related to the charges taken in
connection with the 1998 unusual charges:
<TABLE>
<CAPTION>
LONG- LOSSES
LIVED ON UNCOLLECTIBLE
ASSET SALES ACCOUNTS
SEVERANCE IMPAIRMENT CONTRACTS RECEIVABLE
--------- ---------- --------- ---------------
<S> <C> <C> <C> <C>
Balance at December 28,
1997 ............................ $ -- $ -- $ -- $ --
Activities during the year:
1998 provision .................. 1,398 53,340 5,758 900
Cash charges .................... (498) -- -- --
Non-cash charges ................ -- (53,340) (4,658) (767)
--------- ---------- --------- ---------------
Balance at January 3, 1999 ........ 900 -- 1,100 133
Activities during the period:
Cash charges .................... (900) -- -- --
Non-cash charges ................ -- -- (1,100) (133)
--------- ---------- --------- ---------------
Balance at April 4, 1999 ......... -- -- -- --
Activities during the period:
Cash charges .................... -- -- -- --
Non-cash charges ................ -- -- -- --
--------- ---------- --------- ---------------
Balance at July 4, 1999 ........... -- -- -- --
Activities during the period:
Cash charges .................... -- -- -- --
Non-cash charges ................ -- -- -- --
--------- ---------- --------- ---------------
Balance at October 3, 1999 ........ $ -- $ -- $ -- $ --
========= ========== ========= ===============
<CAPTION>
SALES
RETURNS INVENTORY OTHER
AND WRITE- EXIT
ALLOWANCES DOWNS COSTS TOTAL
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Balance at December 28,
1997 ............................ $ -- $ -- $ -- $ --
Activities during the year:
1998 provision .................. 2,000 5,750 3,648 72,794
Cash charges .................... -- -- (465) (963)
Non-cash charges ................ (1,500) (5,500) (643) (66,408)
---------- --------- -------- --------
Balance at January 3, 1999 ........ 500 250 2,540 5,423
Activities during the period:
Cash charges .................... -- -- (601) (1,501)
Non-cash charges ................ -- (250) -- (1,483)
---------- --------- -------- --------
Balance at April 4, 1999 ......... 500 -- 1,939 2,439
Activities during the period:
Cash charges .................... -- -- (584) (584)
Non-cash charges ................ (500) -- -- (500)
---------- --------- -------- --------
Balance at July 4, 1999 ........... -- -- 1,355 1,355
Activities during the period:
Cash charges .................... -- -- (685) (685)
Non-cash charges ................ -- -- -- --
---------- --------- -------- --------
Balance at October 3, 1999 ........ $ -- $ -- $ 670 $ 670
========== ========= ======== ========
</TABLE>
17
<PAGE> 18
The unusual pre-tax charges include $53,340 for the write-down of long-lived
assets to fair value. This amount has been classified as a component of cost of
sales. Included in the long-lived asset impairment are charges of $50,739, which
relate to the Fab which was written down to its net realizable value based on
its sales price. The Company kept the Fab in service until the sale date in
January 1999. In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," the Company
discontinued depreciation expense on the Fab when it determined that it would be
disposed of and its net realizable value was known. The impaired long-lived
assets consisted primarily of machinery and equipment of $52,418, which were
written down by $43,418 to a carrying value of $9,000 and building and
improvements of $7,321, which were written down to a carrying value of zero. The
long-lived asset impairment also includes the write-off of the remaining
goodwill related to Orbit of $601. The remaining $2,000 of asset impairment
relates to the write-down to net realizable value of a facility the Company
exited during 1998.
The Company purchased Orbit in August of 1996, and supported Orbit's previously
made decision to replace its wafer fabrication facility ("fab") with a higher
technology fab. The transition to the 6-inch fab was originally scheduled for
completion during the summer of 1997, but the changeover took longer than
expected and was finally completed in January 1998.
The missed plan for the changeover and running both fabs simultaneously put
pressure on the work force, with resulting quality problems. Compounding these
problems, the semiconductor industry was characterized by excess capacity, which
led larger competitors to invade Orbit's niche market. Further, many of Orbit's
customers migrated faster than expected to a technology in excess of Orbit's
fabrication capabilities, requiring Orbit to outsource more of its manufacturing
requirements than originally expected. Based upon these continued conditions and
the future outlook, the Company took this first quarter 1998 charge to correctly
size Orbit's asset base to allow its recoverability based upon its then current
business size.
The first quarter 1998 unusual charge included $38,257 for the write-down of
long-lived assets to fair value. The fair value of these assets was based on
estimated market value at the date of the charge. Fair market value was
determined in accordance with SFAS No. 121, and included the use of an
independent valuation. The impairment charge consists of $37,656 related to
property, plant and equipment and $601 related to goodwill. This amount was
classified as a component of cost of sales.
Additionally, the first quarter 1998 unusual charge included $5,058 for losses
on sales contracts, incremental amounts of uncollectible accounts receivable,
and estimated incremental sales returns and allowances, primarily resulting from
the fab changeover quality issues. This amount was classified as a component of
cost of sales.
The Company entered into certain non-cancelable sales contracts to provide
semiconductors to customers at fixed prices. Because the Company was obligated
to fulfill the terms of the agreements at selling prices which were not
sufficient to cover the cost to produce or acquire such products, a liability
for losses on sales contracts was recorded for the estimated future amount of
such losses.
The first quarter 1998 unusual pre-tax charge also included $7,843 primarily
associated with inventory write-downs, severance and other costs. This
write-down primarily resulted from excess inventory created by deciding to
downsize operations.
As previously stated, the Company subsequently decided to sell the manufacturing
facility (which occurred in January 1999). This decision resulted in additional
unusual pre-tax charges in the fourth quarter of 1998 of $21,636.
The exit plan is expected to be completed in fiscal 1999. As of October 3, 1999,
the total remaining cash expenditures expected to be incurred are $670 of other
exit costs, including legal settlement costs and environmental clean-up costs.
These expenditures will continue to be funded through operating cash flows of
the Company which are expected to be sufficient to fund these expenditures.
These amounts were recorded in accrued expenses at October 3, 1999.
Interest expense increased $893 to $5,803 for the quarter ended October 3, 1999
from $4,910 for the comparable period in 1998. Interest expense increased $3,358
to $17,656 for the nine months ended October 3, 1999 from $14,298 for the
comparable period in 1998. These increases are primarily associated with the
increased borrowings used to fund the business acquisitions and purchases of
manufacturing facilities and strategic investments as described in Note 3 of the
condensed consolidated financial statements. In February 1999, substantially all
of the Company's convertible subordinated notes were converted into
approximately 4,600,000 shares of common stock and the unconverted portion was
redeemed for $101.
Interest income decreased $19 to $594 for the quarter ended October 3, 1999 from
$613 for the comparable period in 1998. Interest income decreased $873 to $1,344
for the nine months ended October 3, 1999 from $2,217 for the comparable period
in 1998. These
18
<PAGE> 19
decreases are attributable to the decreased earnings generated on the lower
average balances of invested cash and cash equivalents.
Amortization expense increased $106 to $1,274 for the quarter ended October 3,
1999 from $1,168 for the comparable period in 1998. Amortization expense
increased $493 to $3,876 for the nine months ended October 3, 1999 from $3,383
for the comparable period in 1998. This increase is attributable to the
amortization of debt issue costs associated with the increased borrowings as
well as amortization of goodwill associated with acquisitions.
Other expense (net) increased $4,335 and $5,134 for the three and nine month
periods ended October 3, 1999, respectively. The increase for the three month
period ended October 3, 1999, is primarily associated with the $3,390 loss on
divestiture of Cencorp Automation Systems and increased provisions for doubtful
accounts. The increase for the nine month period ended October 3, 1999 is
primarily the result of decreased net gains realized on foreign currency
transactions combined with increased provisions for doubtful accounts.
The Company's estimated effective income tax rate differs from the U.S.
statutory rate due to domestic income tax credits, lower effective income tax
rates on foreign earnings considered permanently invested abroad and other
permanent differences. The effective tax rate for a particular year will vary
depending on the mix of foreign and domestic earnings, income tax credits and
changes in previously established valuation allowances for deferred tax assets
based upon management's current analysis of the realizability of these deferred
tax assets. As foreign earnings considered permanently invested abroad increase
as a percentage of consolidated earnings, the overall consolidated effective
income tax rate will usually decrease because the foreign earnings are generally
taxed at a lower rate than domestic earnings. The mix of foreign and domestic
income from operations before income taxes, the recognition of income tax loss
and tax credit carryforwards, management's current assessment of the required
valuation allowance and the implementation of several tax planning initiatives
resulted in an estimated effective income tax rate of 15% for the three and nine
month periods ended October 3, 1999, excluding a tax benefit of $4,680
associated with the pre-tax loss on business divestitures of $51 described in
Note 4 herein. The actual effective rate for the three and nine month periods
ended October 3, 1999, including the effect of the divestitures, was (14) % and
4%, respectively.
C. BUSINESS COMBINATIONS, ASSET PURCHASES AND STRATEGIC INVESTMENTS
Business Acquisitions:
In September 1999, the Company acquired a printed wiring board fabricator with
operations in Brazil. This business combination is immaterial to the Company's
results from operations and financial position. The cash purchase price, net of
cash acquired, amounted to $26,095. This acquisition was accounted for as a
purchase with the results of operations from the acquired business included in
the Company's results of operations from the acquisition date forward. Pro forma
results of operations would not be materially different from the historical
results reported. The cost of this acquisition was allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed. The fair value
of the assets acquired, excluding cash acquired, amounted to $14,772 and
liabilities assumed were $6,403, including estimated acquisition costs. The cost
in excess of net assets acquired amounted to $17,736.
In August 1998, the Company acquired a printed wiring board fabricator and
contract electronics manufacturer with operations in the People's Republic of
China. As of September 27, 1998, the cash purchase price, net of cash acquired,
amounted to $43,409. This acquisition was accounted for as a purchase with the
results of operations from the acquired business included in the Company's
results of operations from the acquisition date forward. Pro forma results of
operations would not be materially different from the historical results
reported. The cost of this acquisition was allocated on the basis of the
estimated fair value of assets acquired and liabilities assumed. The fair value
of the assets acquired, excluding cash acquired, amounted to $55,699 and
liabilities assumed were $21,801, including estimated acquisition costs. The
cost in excess of net assets acquired amounted to $17,897.
In July 1998, the Company completed a business combination that is immaterial to
the Company's results from operations and financial position. The cash purchase
price, net of cash acquired, for the acquisition amounted to $2,200. The fair
value of the assets acquired and liabilities assumed from this acquisition is
immaterial.
Goodwill associated with the Brazilian acquisition, as well as previous
acquisitions, is subject to future adjustments from contingent purchase price
adjustments for varying periods, all of which end no later than September 2005.
The Company increased goodwill and notes payable to sellers of businesses
acquired in the amount of $33,838 for contingent purchase price adjustments
during the nine months ended October 3, 1999. There were no contingent purchase
price adjustments during the nine months ended September 27, 1998.
19
<PAGE> 20
Asset Purchases:
On August 31, 1999, the Company acquired Ericsson Austria AG's electronics
manufacturing and distribution facility located in Kindberg, Austria, and its
related production equipment for approximately $12,765. The purchase price was
allocated to the assets acquired based on the relative fair values of the assets
at the date of acquisition.
In October 1998, the Company acquired HP's printed wiring board fabrication
facility located in Boeblingen, Germany, and its related production equipment,
inventory and other assets for a purchase price of approximately $89,900. The
purchase price was allocated to the assets acquired based on the relative fair
values of the assets at the date of acquisition.
Strategic Investments:
During the first quarter of fiscal 1999, the Company made two strategic minority
investments amounting to $20,507. First, the Company entered into a joint
venture with Virtual IP Group ("VIP"), a complex integrated circuit design
company with locations in Hyderabad, India and Sunnyvale, California. The
Company acquired a 49% interest in VIP for approximately $5,007. The Company
accounts for its investment in VIP under the equity method.
In March 1999, the Company acquired 15,000 non-voting preferred shares of DVB
(Group) Limited ("DVB"), an affiliate of Capetronic International Holdings
Limited (Capetronic) for a purchase price of $15,500. The preferred stock
accrues a 5% annual dividend and can be converted into common stock of
Capetronic after 15 months and at a price of HK$4.80 per share. Additionally, at
anytime after 15 months, Capetronic can force conversion if the market price is
at least HK$10.00 per share. At a conversion price of HK$4.80 per share (based
on an agreed exchange rate of US$1.00 equals HK$7.50) the Company would hold
approximately 24,219 common shares of Capetronic, which currently would
represent approximately 13% of the issued common stock of Capetronic after
giving effect to the conversion, excluding the effect of other dilutive
instruments which are currently in existence that, if converted, would reduce
the Company's ultimate ownership percentage. However, under the terms of the
agreement, the Company cannot hold more than 10% of the outstanding common stock
of Capetronic. If, upon conversion, the Company holds in excess of 10% of the
outstanding common stock of Capetronic, the Company would be required to divest
of shares to reduce its holdings to 10% or less.
The Company currently accounts for its investment in Capetronic under the cost
method. Once the criteria for conversion are reached, the Company will account
for this investment as an available-for-sale marketable equity security in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Through this strategic investment and a related manufacturing agreement, the
Company has obtained the rights to manufacture a majority of DVB's requirements
for set-top boxes to be used for the delivery of video entertainment, data and
educational materials in China.
D. LIQUIDITY, CAPITAL RESOURCES AND COMMITMENTS
At October 3, 1999, the Company had working capital of $57,809 and a current
ratio of 1.2x compared with working capital of $87,310 and a current ratio of
1.4x at January 3, 1999. Cash and cash equivalents at October 3, 1999 were
$27,141, a decrease of $28,831 from $55,972 at January 3, 1999. This decrease
resulted primarily from cash used by investing activities of $118,918, offset by
cash provided by operating and financing activities of $40,477 and $50,003,
respectively.
Cash provided by operating activities amounted to $40,477 and $47,220 for the
nine month periods ended October 3, 1999 and September 27, 1998, respectively.
For the nine months ended October 3, 1999, cash provided by operating activities
reflects net income of $37,474 and depreciation and amortization of $31,199
versus a net loss of $19,388, non-cash unusual charges of $48,815 and
depreciation and amortization of $25,923 in the nine months ended September 27,
1998. The increase in depreciation and amortization of $5,276 is due mainly to
the Company's acquisitions. Cash provided by operating activities for the nine
month period ended October 3, 1999 also reflects an increase in accounts payable
of $72,379, offset by increases of $49,868 and $52,613 in accounts receivable
and inventory, respectively. For the nine months ended September 27, 1998, cash
provided by operating activities also reflected decreases in accounts receivable
of $12,410 and inventory of $2,539, offset by a decrease of $18,691 in accrued
expenses.
The Company's net cash flows used by investing activities amounted to $118,918
and $91,646 for the nine month periods ended October 3, 1999 and September 27,
1998, respectively. Capital expenditures amounted to $117,315 and $49,399 for
the quarters ended
20
<PAGE> 21
October 3, 1999 and September 27, 1998, respectively. The capital expenditures
represent the Company's continued investment in state-of-the-art,
high-technology equipment, which enables the Company to accept increasingly
complex and higher-volume orders and to meet current and expected production
levels, as well as to replace or upgrade older equipment. Included on the
capital expenditures for the nine months ended October 3, 1999, is approximately
$8,170 related to the purchase of Ericsson Austria AG's electronics
manufacturing and distribution facility. The Company received proceeds of $9,128
and $3,362 from the sale of property, plant and equipment during the nine month
periods ended October 3, 1999 and September 27, 1998, respectively. A
significant portion of the proceeds in the nine months ended October 3, 1999 was
related to the sale of Dii Semiconductor's wafer fabrication facility in January
1999.
During the nine months ended October 3, 1999, the Company completed the
divestiture of PTI. The Company received cash proceeds amounting to $35,871, net
of divestiture costs.
As discussed in C above, during the nine months ended October 3, 1999, the
Company made two strategic minority investments amounting to $20,507.
The Company's net cash flows provided by financing activities amounted to
$50,003 and $22,720 for the nine month periods ended October 3, 1999 and
September 27, 1998, respectively. The Company repaid $5,849 and $6,541 in
capital lease obligations in the nine months ended October 3, 1999 and September
27, 1998, respectively. The Company also repaid $12,996 in long-term debt in the
nine months ended October 3, 1999. The Company received $5,187 and $4,481 in
proceeds from stock issued under its stock plans in the nine months ended
October 3, 1999 and September 27, 1998, respectively. Additionally, during the
nine months ended September 27, 1998, the Company repurchased 1,181,500 shares
of its common stock for $21,081.
The Company has a $210,000 credit agreement with a syndicate of domestic and
foreign banks. The agreement provides for a $100,000 five year term loan and a
$110,000 revolving credit facility. The revolving line-of-credit expires on
November 1, 2003. On September 1, 1999, the Company amended its credit agreement
to increase both the term loan and revolving facility by $25,000. The Company
borrowed $25,000 under the term facility to repay $25,000 of borrowings under
the revolving credit facility.
During the first nine months of 1999, the Company borrowed an additional $46,000
under its revolving line-of-credit facility. As of October 3, 1999, there was
$83,500 in borrowings outstanding under the Company's revolving line-of-credit
facility. This credit facility requires compliance with certain financial
covenants and is secured by substantially all of the Company's assets. As of
October 3, 1999, the Company was in compliance with all loan covenants.
On October 5, 1999, the Company completed an equity offering of 6,900,000 shares
of it Common Stock (including 900,000 shares that were issued to cover the
underwriters' over-allotments) at a price of $33.00 per share. The net proceeds
to the Company were approximately $216,500 and were used to repay $25,000 of the
term debt and the entire revolving debt under the Company's credit facilities,
to fund capital expenditures and for general corporate purposes. Upon this
repayment, our revolving commitment was reduced back to $110,000.
As of February 18, 1999, substantially all of the Company's convertible
subordinated notes were converted into approximately 4,600,000 shares of common
stock and the unconverted portion was redeemed for $101.
On November 3, 1999, the Company announced that it has signed a memorandum of
understanding with HP to purchase its manufacturing facility and related assets
located in Greeley, Colorado. Subject to concluding this transaction, the
Company will enter into a long-term supply agreement with HP to provide printed
circuit board assembly and final systems assembly, order fulfillment and
distribution activities. The transaction is expected to be completed during the
Company's first fiscal quarter of 2000. Completion of the transaction is subject
to applicable government approvals and various conditions of closing. The
transaction will be accounted for as a purchase of assets. Subject to final
negotiations, due diligence and working capital levels at the time of closing,
the estimated purchase price will be in the range of $50,000 to $60,000.
The Company anticipates that its working capital requirements will increase in
order to support anticipated growth in its businesses. Additionally, the Company
anticipates incurring significant capital expenditures in order to support its
anticipated growth in its business as well as expansion plans for its
facilities. Management believes that its current level of working capital,
together with cash generated from operations, existing cash reserves, leasing
capabilities, and line-of-credit availability will be adequate to fund the
Company's current capital expenditure plan for the next twelve months. The
Company intends to continue its acquisition strategy and it is possible that
future acquisitions may be significant. If available resources are not
sufficient to finance the Company's acquisitions, the Company would be required
to seek additional equity or debt financing. There can be no assurance that such
funds, if needed, will be available on terms acceptable to the Company or at
all.
21
<PAGE> 22
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to the use, storage, discharge and disposal of
hazardous chemicals used during its manufacturing processes. The Company
believes that it is currently operating in compliance with applicable
regulations and does not believe that costs of compliance with these laws and
regulations will have a material effect upon its capital expenditures, results
from operations or competitive position.
The Company determines the amount of its accruals for environmental matters by
analyzing and estimating the range of possible costs in light of information
currently available. The imposition of more stringent standards or requirements
under environmental laws or regulations, the results of future testing and
analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can be
given that actual costs will not exceed amounts accrued or that costs will not
be incurred with respect to sites as to which no problem is currently known.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
See Note 10 of the condensed consolidated financial statements for a description
of commitments, contingencies and environmental matters.
E. YEAR 2000 ISSUE
The Year 2000 date conversion issue is the result of computer programs being
written using two digits rather than four to define the applicable year. This
issue affects computer systems that have time-sensitive programs that may not
properly recognize the Year 2000. This could result in major system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in normal business activities.
Management has implemented a company-wide program to prepare its financial,
manufacturing, and other critical systems and applications for the Year 2000.
This comprehensive program was developed to ensure the Company's information
technology assets, including embedded microprocessors ("IT assets") and non-IT
assets are Year 2000 ready. The Company has formed a Year 2000 project team of
approximately 75 employees, overseen by a corporate officer, which team is
responsible for monitoring the progress of the program and ensuring timely
completion. The team has a detailed project plan in place with tasks,
milestones, critical paths, and dates identified.
The Company's comprehensive program covers the following six phases: (i)
inventory of all IT and non-IT assets; (ii) assessment of repair requirements;
(iii) repair of IT and non-IT assets; (iv) testing of individual IT and non-IT
assets to determine the correct manipulation of dates and date-related data; (v)
communication with the Company's significant suppliers and customers to
determine the extent to which the Company is vulnerable to any failures by them
to address the Year 2000 issue; and (vi) creation of contingency plans in the
event of Year 2000 failures.
The program is near completion with most of the operating entities having
completed the inventory through testing phases. Each operating company has
identified those software programs and related hardware that are non-compliant.
The Company has also completed most of the testing of its various
mission-critical software and hardware, running programs with dates including
and after the Year 2000. During these tests, the Company exposed minor problems
processing data or effecting transactions that have since been corrected, and to
date, management has not identified any IT assets that present a material risk
of not being Year 2000-ready, or for which a suitable alternative cannot be
implemented. However, one of the Company's operating entities has not yet
completed the installation of Year 2000 compliant systems in all portions of its
operations. Installation is anticipated to be completed by the end of fiscal
1999. There can be no assurance, however, that installation will be completed by
January 1, 2000. If installation is not completed by that date, the operating
entities could experience disruptions in its operations. It is possible that
such a disruption could have a material adverse effect on financial condition
and results of operations.
The Company is continually contacting suppliers who provide both critical IT
assets and non-information technology related goods and services (e.g.
transportation, packaging, production materials, production supplies, etc.). The
Company mailed surveys to its suppliers in order to (i) evaluate the suppliers'
Year 2000 compliance plans and state of readiness and (ii) determine whether a
Year 2000-related event will impede the ability of such suppliers to continue to
provide such goods and services as the Year 2000 is approached and reached. For
a vast majority of those suppliers of IT assets that have responded, the Company
has received assurances that these assets will correctly manipulate dates and
date-related data as the Year 2000 is approached and reached. The Company is in
the process of reviewing responses for accuracy and adequacy, and sending
follow-up surveys or contacting suppliers directly via
22
<PAGE> 23
phone for those non-responsive suppliers. To date the Company has received
responses from approximately 90% of its suppliers. The Company will continue its
attempts to contact non-responsive suppliers throughout the end of fiscal 1999.
The Company also relies, both domestically and internationally, upon government
agencies, utility companies, telecommunications services, and other service
providers outside of the Company's control. There is no assurance that such
suppliers, governmental agencies, or other third parties will not suffer a Year
2000 business disruption. Such failures could have a material adverse affect on
the Company's financial condition and results of operations.
Further, the Company has initiated formal communications with its significant
suppliers, customers and critical business partners to determine the extent to
which the Company may be vulnerable in the event those parties fail to properly
remediate their own Year 2000 issues. The Company will develop appropriate
contingency plans in the event that a significant exposure is identified
relative to the dependencies on third-party systems. While the Company is not
presently aware of any such significant exposure, there can be no guarantee that
the systems of third parties on which the Company relies will be converted in a
timely manner, or that a failure to properly convert by another company would
not have a material adverse effect on the Company.
The program calls for the development of contingency plans for the Company's
at-risk business functions. The Company is finalizing its Year 2000 contingency
plans for all of its business critical systems worldwide. These plans will
address any business critical failure, both internal and external dependencies,
including but not limited to transportation, banking, telecommunications,
suppliers, manufacturing, accounting and payroll. The Company will develop such
plans if the results of testing mission-critical systems identify a business
function risk. In addition, as a normal course of business, the Company
maintains and deploys contingency plans to address various other potential
business interruptions. These plans may be applicable to address the
interruption of support provided by third parties resulting from their failure
to be Year 2000-ready.
To date, the Company estimates that it has spent approximately $6,500 on
implementation of the program, with the majority of the work being performed by
Company employees. Less than $7,000 has been allocated to address the Year 2000
issue. The Company's aggregate cost estimate includes certain internal recurring
costs, but does not include time and costs that may be incurred by the Company
as a result of the failure of any third parties, including suppliers, to become
Year 2000-compliant or costs to implement any contingency plans. The Company is
expensing as incurred all costs related to the assessment and remediation of the
Year 2000 issue. These costs are being funded through operating cash flows.
Certain inventory and manufacturing software-related projects were accelerated
to ensure Year 2000 compliance. However, such acceleration did not increase the
anticipated costs of the projects. The Company has not deferred any specific
information technology project as a result of the implementation of the program.
The Company is committed to achieving Year 2000 compliance; however, because a
significant portion of the problem is external to the Company and therefore
outside its direct control, there can be no assurances that the Company will be
fully Year 2000 compliant. If the modifications and conversions required to make
the Company Year 2000-ready are not made, or are not completed on a timely
basis, the resulting problems could have a material impact on the operations of
the Company. This impact could, in turn, have a material adverse effect on the
Company's results of operations and financial condition.
F. NEW ACCOUNTING STANDARDS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"). This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in its statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative (that is, gains and losses) are recognized in earnings or in other
comprehensive income each reporting period, depending on the intended use of the
derivative and the resulting designation. Generally, changes in the fair value
of derivatives not designated as a hedge, as well as changes in fair value of
fair-value designated hedges (and the item being hedged), are required to be
reported in earnings. Changes in fair value of other types of designated hedges
are generally reported in other comprehensive income. The ineffective portion of
a designated hedge, as defined, is reported in earnings immediately. The Company
will be required to adopt SFAS 133 as of January 2, 2001. The Company has not
completed the process of evaluating the impact, if any, that will result from
adopting SFAS 133.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposures are in the areas of interest-rate
risk and foreign currency exchange rate risk. To manage the volatility relating
to these exposures, the Company may enter into various derivative transactions
to hedge the exposures. The Company does not hold or issue any derivative
financial instruments for trading or speculative purposes.
23
<PAGE> 24
The Company incurs interest expense on loans made under its Credit Agreement at
interest rates that are fixed for a maximum of nine months. Borrowings under the
Credit Agreement bear interest, at the Company's option, at either: (i) the
Applicable Base Rate ("ABR") (as defined in the Credit Agreement) plus the
Applicable Margin for ABR Loans ranging between 0.00% and 0.75%, based on
certain financial ratios of the Company, or (ii) the Eurodollar Rate (as defined
in the Credit Agreement) plus the Applicable Margin for Eurodollar Loans ranging
between 1.00% and 2.25%, based on certain financial ratios of the Company. The
Eurodollar Rate is subject to market risks and will fluctuate. There has been no
material change in the Eurodollar Rate and the fair value of the Company's fixed
rate debt since January 3, 1999. The Company had no open interest rate hedge
positions to reduce its exposure to changes in interest rates at October 3,
1999.
The Company conducts a significant amount of its business and has a number of
operating facilities in countries outside of the United States. Substantially
all of the Company's business outside the United States is conducted in U.S.
dollar-denominated transactions. Some transactions of the Company and its
subsidiaries are made in currencies different from their functional currencies.
In order to minimize foreign exchange transaction risk, the Company selectively
hedges certain of its foreign exchange exposures through forward exchange
contracts, principally relating to non-functional currency monetary assets and
liabilities. The strategy of selective hedging can reduce the Company's
vulnerability to certain of its foreign currency exposures, and the Company
expects to continue this practice in the future. Gains and losses on these
foreign currency hedges are generally offset by corresponding losses and gains
on the underlying transaction. To date, the Company's hedging activity has been
immaterial, and there were no open foreign exchange contracts as of the balance
sheet dates included in the accompanying Consolidated Financial Statements. As
of October 3, 1999, the Company had the following unhedged net foreign currency
monetary asset (liability) positions:
<TABLE>
<CAPTION>
NET NET
FOREIGN U.S. DOLLAR
CURRENCY EQUIVALENT
ASSETS ASSETS
(LIABILITIES) (LIABILITIES)
------------- -------------
<S> <C> <C>
British Pound Sterling (233) (384)
Chinese Renminbi (4,451) (543)
Czech Krown (798) (24)
Euro 11,234 12,045
Hong Kong Dollar (2,823) (363)
Malaysian Ringgit (1,994) (525)
Mexican Peso (213) (23)
</TABLE>
The Company believes that its revenues and operating expenses currently incurred
in foreign currencies are immaterial, and therefore any associated market risk
is unlikely to have a material adverse affect on the Company's business, results
of operations or financial condition.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In 1997, two related complaints, as amended, were filed in the District Court of
Boulder, Colorado and the U.S. District Court for the District of Colorado
against the Company and certain of its officers. In July 1999, the federal court
action was dismissed with prejudice. The state court action purports to be
brought on behalf of a class of persons who purchased the Company's common stock
during the period from April 1, 1996, through September 8, 1996, and claims
violations of Colorado and federal laws based on allegedly false and misleading
statements made in connection with the offer, sale or purchase of the Company's
common stock at allegedly artificially inflated prices, including statements
made prior to the Company's acquisition of Orbit. The complaint seeks
compensatory and other damages, as well as equitable relief. The Company has
filed an answer denying that it misled the securities market. A May 2000 trial
date has been set and discovery has commenced. The Company believes that the
claims asserted in the action are without merit and intends to defend vigorously
against such claims.
In addition to the above matters, the Company is involved in certain other
litigation arising in the ordinary course of business.
Although management is of the opinion that these matters will not have a
material adverse effect on the consolidated financial position or results of
operations of the Company, the ultimate outcome of these matters cannot, at this
time, be predicted in light of the uncertainties inherent in litigation. See
Note 9 of the 1998 Consolidated Financial Statements included in Part II, Item 8
of the Company's Form 10-K Annual Report for the fiscal year ended January 3,
1999 for contingencies and environmental matters.
24
<PAGE> 25
ITEM 6(a). EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
10.1 Amended and restated $230,000 Credit Agreement dated as of
September 1, 1999 among The Dii Group, Inc. and Subsidiary
Borrowers and The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities as Arranger
15 Letter re: Unaudited Interim Financial Information.
23.1 Report of Independent Accountants - Deloitte & Touche LLP.
27 Financial Data Schedule.
ITEM 6(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter for which this report is
filed.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE DII GROUP, INC.
Date: November 17, 1999 By: /s/ Carl R. Vertuca, Jr.
------------------------------------
Carl R. Vertuca, Jr.
Executive Vice President--Finance,
Administration and Corporate
Development
Date: November 17, 1999 By: /s/ Thomas J. Smach
------------------------------------
Thomas J. Smach
Chief Financial Officer
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 Amended and restated $230,000 Credit Agreement dated as of
September 1, 1999 among The Dii Group, Inc. and Subsidiary
Borrowers and The Chase Manhattan Bank, as Administrative
Agent, and Chase Securities as Arranger
15 Letter re: Unaudited Interim Financial Information.
23.1 Report of Independent Accountants - Deloitte & Touche LLP.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.01
EXECUTION COPY
$230,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT
among
THE DII GROUP, INC.
and
THE SUBSIDIARY BORROWERS
FROM TIME TO TIME PARTIES HERETO,
The Several Lenders
from Time to Time Parties Hereto,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
and
CHASE SECURITIES INC.
as Arranger
Dated as of September 1, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS ................................................... 1
1.1 Defined Terms ............................................... 1
1.2 Other Definitional Provisions ............................... 30
SECTION 2. AMOUNT AND TERMS OF U.S. DOLLAR COMMITMENTS ................... 30
2.1 Term Commitments ............................................ 30
2.2 Procedure for Tranche B Term Loan Borrowing ................. 30
2.3 Repayment of Term Loans; Evidence of Debt ................... 31
2.4 Revolving Commitments ....................................... 33
2.5 Procedure for Dollar Revolving Loan Borrowing ............... 33
2.6 Commitment Fees, etc ........................................ 34
2.7 Termination or Reduction of Revolving Commitments ........... 34
2.8 Repayment of Dollar Revolving Loans; Evidence of Debt ....... 35
SECTION 3. AMOUNT AND TERMS OF MULTICURRENCY COMMITMENTS ................. 36
3.1 Multicurrency Commitments ................................... 36
3.2 Procedure for Multicurrency Borrowings ...................... 36
3.3 Repayment of Multicurrency Loans; Evidence of Debt .......... 36
3.4 Redenomination and Alternative Currencies ................... 37
SECTION 4. LETTERS OF CREDIT ............................................. 38
4.1 L/C Commitment .............................................. 38
4.2 Procedure for Issuance of Letter of Credit .................. 38
4.3 Fees and Other Charges ...................................... 38
4.4 L/C Participations .......................................... 39
4.5 Reimbursement Obligation of the Company...................... 40
4.6 Obligations Absolute ........................................ 40
4.7 Letter of Credit Payments ................................... 40
4.8 Applications ................................................ 41
SECTION 5. GENERAL PROVISIONS APPLICABLE TO THE LOANS .................... 41
5.1 Interest Rates and Payment Dates ........................... 41
5.2 Computation of Interest and Fees ........................... 41
5.3 Inability to Determine Interest Rate ....................... 42
5.4 Optional Prepayments ....................................... 43
5.5 Mandatory Prepayments and Commitment Reductions ............ 44
5.6 Conversion and Continuation Options ........................ 45
5.7 Limitations on Tranches .................................... 46
5.8 Pro Rata Treatment and Payments ............................ 46
5.9 Rounding and Other Consequential Changes ................... 49
5.10 Requirements of Law ........................................ 49
5.11 Taxes ...................................................... 50
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
5.12 Indemnity .................................................. 52
5.13 Change of Lending Office ................................... 52
5.14 Subsidiary Borrowers ....................................... 53
5.15 Replacement of Lenders ..................................... 53
5.16 Lending Installations ...................................... 53
SECTION 6. REPRESENTATIONS AND WARRANTIES ................................ 54
6.1 Financial Condition ........................................ 54
6.2 No Change .................................................. 54
6.3 Corporate Existence; Compliance with Law ................... 55
6.4 Corporate Power; Authorization; Enforceable Obligations .... 55
6.5 No Legal Bar ............................................... 55
6.6 Litigation ................................................. 56
6.7 No Default ................................................. 56
6.8 Ownership of Property; Liens ............................... 56
6.9 Intellectual Property ...................................... 56
6.10 Taxes ...................................................... 56
6.11 Federal Regulations ........................................ 56
6.12 Labor Matters .............................................. 57
6.13 ERISA ...................................................... 57
6.14 Investment Company Act; Other Regulations .................. 57
6.15 Subsidiaries ............................................... 57
6.16 Use of Proceeds ............................................ 58
6.17 Environmental Matters ...................................... 58
6.18 Accuracy of Information, etc. .............................. 59
6.19 Security Documents ......................................... 59
6.20 Solvency ................................................... 60
6.21 Year 2000 Matters .......................................... 60
6.22 Certain Documents .......................................... 60
6.23 Immaterial Subsidiaries .................................... 60
SECTION 7. CONDITIONS PRECEDENT .......................................... 61
7.1 Conditions to Initial Extension of Credit ................... 61
7.2 Conditions to Each Extension of Credit ...................... 63
7.3 Each Subsidiary Borrower Credit Event ....................... 63
SECTION 8. AFFIRMATIVE COVENANTS ......................................... 64
8.1 Financial Statements ........................................ 64
8.2 Certificates; Other Information ............................. 65
8.3 Payment of Obligations ...................................... 66
8.4 Maintenance of Existence; Compliance ........................ 66
8.5 Maintenance of Property; Insurance .......................... 66
8.6 Inspection of Property; Books and Records; Discussions ...... 66
8.7 Notices ..................................................... 66
8.8 Environmental Laws .......................................... 67
8.9 Additional Collateral, etc. ................................. 67
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 9. NEGATIVE COVENANTS ............................................ 69
9.1 Financial Condition Covenants .............................. 69
9.2 Indebtedness ............................................... 70
9.3 Liens ...................................................... 71
9.4 Fundamental Changes ........................................ 72
9.5 Disposition of Property .................................... 73
9.6 Restricted Payments ........................................ 73
9.7 Capital Expenditures ....................................... 74
9.8 Investments ................................................ 74
9.9 Optional Payments and Modifications of Certain Debt
Instruments ............................................... 76
9.10 Transactions with Affiliates ............................... 76
9.11 Sales and Leasebacks ....................................... 76
9.12 Changes in Fiscal Periods .................................. 76
9.13 Negative Pledge Clauses .................................... 76
9.14 Clauses Restricting Subsidiary Distributions ............... 77
9.15 Lines of Business .......................................... 77
9.16 Amendments to Acquisition Documents ........................ 77
SECTION 10. EVENTS OF DEFAULT ............................................ 78
SECTION 11. THE ADMINISTRATIVE AGENT ..................................... 81
11.1 Appointment ............................................... 81
11.2 Delegation of Duties ...................................... 81
11.3 Exculpatory Provisions .................................... 81
11.4 Reliance by Administrative Agent .......................... 81
11.5 Notice of Default ......................................... 82
11.6 Non-Reliance on Administrative Agent and Other Lenders .... 82
11.7 Indemnification ........................................... 83
11.8 Administrative Agent in Its Individual Capacity ........... 83
11.9 Successor Administrative Agent ............................ 83
11.10 Authorization to Release Guarantees and Liens ............. 84
SECTION 12. GUARANTEE .................................................... 84
12.1 Guarantee .................................................. 84
12.2 No Subrogation, Contribution, Reimbursement or Indemnity ... 85
12.3 Amendments, etc. with respect to the Subsidiary Borrower
Obligations .............................................. 85
12.4 Guarantee Absolute and Unconditional ....................... 86
12.5 Reinstatement .............................................. 86
12.6 Payments ................................................... 87
SECTION 13. MISCELLANEOUS ................................................ 88
13.1 Amendments and Waivers ..................................... 88
13.2 Notices .................................................... 88
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
13.3 No Waiver; Cumulative Remedies ............................ 90
13.4 Survival of Representations and Warranties ................ 90
13.5 Payment of Expenses and Taxes ............................. 90
13.6 Successors and Assigns; Participations and Assignments .... 91
13.7 Adjustments; Set-off ...................................... 93
13.8 Counterparts .............................................. 94
13.9 Severability .............................................. 94
13.10 Integration ............................................... 94
13.11 GOVERNING LAW ............................................. 94
13.12 Submission To Jurisdiction; Waivers ....................... 94
13.13 Acknowledgments ........................................... 95
13.14 Conversion of Currencies .................................. 95
13.15 Confidentiality ........................................... 96
13.16 Authorization to Amend and Restate ........................ 96
13.17 Accounting Changes ........................................ 96
13.18 Collateral Agent as Several Creditor ...................... 97
13.19 WAIVERS OF JURY TRIAL ..................................... 97
</TABLE>
-iv-
<PAGE> 6
ANNEX:
A Pricing Grid
SCHEDULES:
1.1A Commitments
1.1B Qualified Foreign Subsidiaries
1.1C Immaterial Subsidiaries
6.4 Consents, Authorizations, Filings and Notices
6.15 Subsidiaries
6.19 UCC Filing Jurisdictions
7.1(d) Approvals
9.2(d) Existing Indebtedness
9.3(f) Existing Liens
9.5(f) Specified Dispositions
9.8(k) Investments
EXHIBITS:
A Form of Amended and Restated Guarantee and Collateral Agreement
B Form of Borrowing Subsidiary Agreement
C Form of Borrowing Subsidiary Termination
D Form of Compliance Certificate
E Form of Closing Certificate
F Form of Assignment and Acceptance
G-1 Form of Legal Opinion of Curtis, Mallet-Prevost, Colt & Mosle
G-2 Form of Legal Opinion of Counsel to Subsidiary Borrowers
H Form of Exemption Certificate
I Form of Solvency Certificate
J Form of Term Note
K Form of Revolving Note
L Form of Amended and Restated Intercreditor Agreement
M Form of Foreign Acquisition Loan Guarantee
-v-
<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of September 1, 1999,
among THE DII GROUP, INC., a Delaware corporation (the "Company"), the
SUBSIDIARY BORROWERS (as hereinafter defined), the several banks and other
financial institutions or entities from time to time parties to this Agreement
(the "Lenders"), THE CHASE MANHATTAN BANK, as administrative agent and CHASE
SECURITIES INC., as advisor and arranger (in such capacity, the "Arranger").
W I T N E S S E T H:
WHEREAS, the Company and the Subsidiary Borrowers (collectively, the
"Borrowers") are parties to the Credit Agreement, dated as of October 30, 1998
(as heretofore amended or otherwise modified, the "Existing Credit Agreement"),
with the lenders from time to time parties thereto and The Chase Manhattan Bank,
as administrative agent;
WHEREAS, pursuant to the Existing Credit Agreement, the lenders parties
thereto have agreed to make and have made certain loans and other extensions of
credit to or for the account of the Borrowers;
WHEREAS, the Company through its subsidiaries is proposing to acquire
certain assets and liabilities of Micro Eletronica Ltda., a Brazilian limited
liability quota company, and a manufacturing plant located in Kindberg, Austria
(collectively, the "Acquisitions");
WHEREAS, to finance, in part, the cost of the Acquisitions and the
payment of fees and expenses relating thereto and to provide financing for
working capital and general corporate purposes of the Company and its
Subsidiaries and in order to make certain amendments to the Existing Credit
Agreement, the Company has requested that the Existing Credit Agreement be
amended and restated as provided herein; and
WHEREAS, the Lenders and other parties hereto are willing to amend and
restate the Existing Credit Agreement as provided for herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree that on the
Closing Date the Existing Credit Agreement shall be amended and restated in its
entirety as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the terms listed in this
Section 1.1 shall have the respective meanings set forth in this Section 1.1.
"ABR": for any day, a rate per annum (rounded upwards, if necessary, to
the next 1/16 of 1%) equal to the greatest of the Prime Rate in effect on such
day, the Base CD Rate in effect on such day plus 1% and the Federal Funds
Effective Rate in effect on such day
<PAGE> 8
plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of
interest per annum publicly announced from time to time by the Reference Lender
as its prime rate in effect at its principal office in New York City (the Prime
Rate not being intended to be the lowest rate of interest charged by the
Reference Lender in connection with extensions of credit to debtors); "Base CD
Rate" shall mean the sum of (a) the product of the Three-Month Secondary CD Rate
and a fraction, the numerator of which is one and the denominator of which is
one minus the C/D Reserve Percentage and (b) the C/D Assessment Rate; and
"Three-Month Secondary CD Rate" shall mean, for any day, the secondary market
rate for three-month certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next preceding Business
Day) by the Board through the public information telephone line of the Federal
Reserve Bank of New York (which rate will, under the current practices of the
Board, be published in Federal Reserve Statistical Release H.15(519) during the
week following such day), or, if such rate shall not be so reported on such day
or such next preceding Business Day, the average of the secondary market
quotations for three-month certificates of deposit of major money center banks
in New York City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the next preceding
Business Day) by the Reference Lender from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it. Any change
in the ABR due to a change in the Prime Rate, the Three-Month Secondary CD Rate
or the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
upon the ABR.
"Acquisitions": as defined in the Recitals.
"Acquisition Documentation": collectively, the Austrian Acquisition
Agreement and the Brazilian Acquisition Agreement, and, in each case, all
schedules, exhibits and annexes thereto and all side letters and agreements
affecting the terms thereof or entered into in connection therewith, in each
case as amended, supplemented or otherwise modified from time to time in
accordance with Section 9.16.
"Adjustment Date": as defined in the Pricing Grid.
"Administrative Agent": The Chase Manhattan Bank, together with its
affiliates, as the arranger of the Commitments and as the administrative agent
for the Lenders under this Agreement and the other Loan Documents, together with
any of its successors.
"Affiliate": as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, either to vote 10% or more of the securities
having ordinary voting power for the election of directors (or persons
performing similar functions) of such Person or direct or cause the direction of
the management and policies of such Person, whether by contract or otherwise.
2
<PAGE> 9
"Aggregate Available Revolving Commitments": as at any date of
determination with respect to all Revolving Lenders, an amount in U.S. Dollars
equal to the Available Revolving Commitments of all Revolving Lenders on such
date.
"Aggregate Committed Outstandings": as at any date of determination
with respect to any Revolving Lender, an amount in U.S. Dollars equal to the sum
of the Aggregate Revolving Outstandings of such Revolving Lender on such date
and the U.S. Dollar Equivalent of the Aggregate Multicurrency Outstandings of
such Revolving Lender on such date.
"Aggregate Exposure": with respect to any Lender at any time, an amount
equal to until the Closing Date, the aggregate amount of such Lender's
Commitments at such time and thereafter, the sum of the aggregate then unpaid
principal amount of such Lender's Term Loans and the amount of such Lender's
Revolving Commitment then in effect or, if the Revolving Commitments have been
terminated, the amount of such Lender's Aggregate Committed Outstandings then
outstanding.
"Aggregate Exposure Percentage": with respect to any Lender at any
time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.
"Aggregate Multicurrency Outstandings": as at any date of determination
with respect to any Revolving Lender, an amount in the applicable Available
Foreign Currencies equal to the aggregate unpaid principal amount of such
Revolving Lender's Multicurrency Loans.
"Aggregate Revolving Outstandings": as at any date of determination
with respect to any Revolving Lender, an amount equal to the sum of the
aggregate unpaid principal amount of such Lender's Dollar Revolving Loans on
such date and such Lender's Revolving Percentage of the aggregate unpaid
principal amount of all L/C Obligations on such date.
"Agreement": this Amended and Restated Credit Agreement, as amended,
supplemented or otherwise modified from time to time.
"Applicable Margin": for each Type of Loan at any time, as follows:
(i) from the Closing Date until the earlier of (x) the date which is
six months after the Closing Date and (y) the date on which the Tranche B
Term Loans have been fully repaid (other than by prepayment with the
proceeds of Senior Indebtedness), the Applicable Margin for each Eurodollar
and Multicurrency Loan, and ABR Loan shall be 2.00% and 0.50%,
respectively; and
(ii) from the date which is the earlier of (x) the date which is six
months after the Closing Date and (y) the date on which the Tranche B Term
Loans have been fully repaid (other than by prepayment with the proceeds of
Senior Indebtedness), the Applicable
3
<PAGE> 10
Margin for each Loan shall be the rate per annum determined pursuant to the
Pricing Grid.
"Application": an application, in such form as the Issuing Lender may
specify from time to time, requesting the Issuing Lender to open a Letter of
Credit.
"Arranger": Chase Securities Inc., as arranger of the Commitments.
"Asset Sale": any Disposition of property (other than Capital Stock of
the Company) or series of related Dispositions of property (excluding any such
Disposition permitted by clause (a), (b), (c), (d) or (f) of Section 9.5 or
Section 9.11) that yields gross proceeds to the Company or any of its
Subsidiaries (valued at the initial principal amount thereof in the case of
non-cash proceeds consisting of notes or other debt securities and valued at
fair market value in the case of other non-cash proceeds) in excess of
$2,000,000 in any fiscal year; provided, that asset Dispositions permitted by
clause (f) of Section 9.5 shall not be excluded from the definition of "Asset
Sale" to the extent that the gross proceeds therefrom exceed $15,000,000, in the
case of the Disposition described in Item 1 set forth on Schedule 9.5(f).
"Assignee": as defined in Section 13.6(c).
"Assignment and Acceptance": an Assignment and Acceptance,
substantially in the form of Exhibit F.
"Assignor": as defined in Section 13.6(c).
"Austrian Acquisition": the acquisition by the Company through its
subsidiaries of a manufacturing plant located in Kindberg, Austria, pursuant to
the Austrian Acquisition Agreement.
"Austrian Acquisition Agreement": the agreement between Ericsson
Austria AG, an Austrian corporation and Dovatron GmbH, an Austrian corporation
and a Wholly Owned Subsidiary of the Company, pursuant to which Dovatron GmbH
will acquire a manufacturing plant located in Kindberg, Austria from Ericsson
Austria AG.
"Available Foreign Currencies": Deutsche Marks, Pounds Sterling and
euro, and any other available and freely-convertible eurocurrency selected by
the Company and approved by the Administrative Agent and each of the Revolving
Lenders.
"Available Revolving Commitment": as to any Revolving Lender at any
time, an amount equal to the excess, if any, of such Lender's Revolving
Commitment then in effect over such Lender's Aggregate Committed Outstandings on
such date.
"Benefitted Lender": as defined in Section 13.7(a).
4
<PAGE> 11
"Board": the Board of Governors of the Federal Reserve System of the
United States (or any successor).
"Borrowers": the collective reference to the Company and the Subsidiary
Borrowers.
"Borrowing Date": any Business Day specified by a Borrower as a date on
which such Borrower requests the relevant Lenders to make Loans hereunder.
"Borrowing Subsidiary Agreement": a Borrowing Subsidiary Agreement,
substantially in the form of Exhibit B.
"Borrowing Subsidiary Termination": a Borrowing Subsidiary Termination,
substantially in the form of Exhibit C.
"Brazilian Acquisition": the acquisition by the Company through its
subsidiaries of certain assets and liabilities of Micro Eletronica Ltda., a
Brazilian limited liability quota company, pursuant to the Brazilian Acquisition
Agreement.
"Brazilian Acquisition Agreement": the agreement among the Company, ME
Participacoes E Empreendimentos Ltda., Piriapolis Empreendimentos Ltda., Micro
Eletronica Ltda. and certain individuals pursuant to which the Company is
acquiring the business of Micro Eletronica Ltda.
"Business": as defined in Section 6.17(b).
"Business Day": when such term is used in respect of any amount
denominated or to be denominated in any Available Foreign Currency, a London
Banking Day which is also a day other than a Saturday or Sunday on which banks
are open for general banking business in (x) the city which is the principal
financial center of the country of issuance of such Available Foreign Currency
(or, in the case of Pounds Sterling, Paris), (y) in the case of euro only,
Frankfurt am Main, Germany (or such other principal financial center as the
Administrative Agent may from time to time nominate for this purpose) and (z)
New York City and Dollars, a London Banking Day which is also a day other than a
Saturday or Sunday on which banks are open for general banking business in New
York City and when such term is used for the purpose of determining the date on
which the Eurocurrency Base Rate is determined under this Agreement for any Loan
denominated in euro for any Interest Period therefor and for purposes of
determining the first and last day of any such Interest Period, references in
this Agreement to Business Days shall be deemed to be references to Target
Operating Days.
"Capital Expenditures": for any period, with respect to any Person, the
aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) that should be capitalized under GAAP
5
<PAGE> 12
on a consolidated balance sheet of such Person and its Subsidiaries, provided
that the acquisition of Capital Stock shall in no case constitute a Capital
Expenditure.
"Capital Lease Obligations": as to any Person, the obligations of such
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or other
equivalents (however designated) of capital stock of a corporation, any and all
equivalent ownership interests in a Person (other than a corporation) and any
and all warrants, rights or options to purchase any of the foregoing.
"Cash Equivalents": marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition; certificates of
deposit, time deposits, eurodollar time deposits or overnight bank deposits
having maturities of six months or less from the date of acquisition issued by
any Lender or by any commercial bank organized under the laws of the United
States or any state thereof or Hong Kong or any foreign country which is a
member of the OECD having combined capital and surplus of not less than
$200,000,000 (or the foreign currency equivalent thereof); commercial paper of
an issuer rated at least A-1 by Standard & Poor's Ratings Services ("S&P") or
P-1 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent
rating by a nationally recognized rating agency, if both of the two named rating
agencies cease publishing ratings of commercial paper issuers generally, and
maturing within six months from the date of acquisition; repurchase obligations
of any Lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; securities with maturities of six months or less from
the date of acquisition backed by standby letters of credit issued by any Lender
or any commercial bank satisfying the requirements of clause (b) of this
definition; or shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"C/D Assessment Rate": for any day as applied to any ABR Loan, the
annual assessment rate in effect on such day that is payable by a member of the
Bank Insurance Fund maintained by the Federal Deposit Insurance Corporation (the
"FDIC") classified as well-capitalized and within supervisory subgroup "B" (or a
comparable successor assessment risk
6
<PAGE> 13
classification) within the meaning of 12 C.F.R. Section 327.4 (or any successor
provision) to the FDIC (or any successor) for the FDIC's (or such successor's)
insuring time deposits at offices of such institution in the United States.
"C/D Reserve Percentage": for any day as applied to any ABR Loan, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board, for determining the maximum reserve requirement for a
Depositary Institution (as defined in Regulation D of the Board as in effect
from time to time) in respect of new non-personal time deposits in Dollars
having a maturity of 30 days or more.
"Change of Control": any "person" or "group" within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended,
shall become the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of more than 35% of the then
outstanding voting stock of the Company other than in a transaction having the
approval of the board of directors of the Company at least a majority of which
members are Continuing Directors or Continuing Directors shall cease to
constitute at least a majority of the directors constituting the board of
directors of the Company.
"Closing Date": the date on which the conditions precedent set forth in
Section 7.1 shall have been satisfied, which date is September 1, 1999.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral": all property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.
"Collateral Agent": The Chase Manhattan Bank, together with its
affiliates, as collateral agent pursuant to the terms of the Intercreditor
Agreement.
"Commitment": as to any Lender, the sum of the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment and the Revolving Commitment of
such Lender.
"Commitment Fee Rate": at any time, the rate per annum determined
pursuant to the Pricing Grid.
"Commonly Controlled Entity": an entity, whether or not incorporated,
that is under common control with the Company within the meaning of Section 4001
of ERISA or is part of a group that includes the Company and that is treated as
a single employer under Section 414 of the Code.
"Company": as defined in the preamble hereto.
"Company Guaranty: the guarantee contained in Section 12.
7
<PAGE> 14
"Compliance Certificate": a certificate duly executed by a Responsible
Officer substantially in the form of Exhibit D.
"Confidential Information Package": the Confidential Information
Package dated August 1999 and furnished to the Lenders.
"Consolidated EBITDA": for any period, Consolidated Net Income for such
period plus, without duplication and to the extent included as a charge in the
statement of such Consolidated Net Income for such period, the sum of income tax
expense and asset taxes, interest expense, amortization or writeoff of debt
discount and debt issuance costs and commissions, discounts and other fees and
charges associated with Indebtedness (including the Loans), depreciation and
amortization expense, amortization of intangibles (including, but not limited
to, goodwill) and organization costs, any extraordinary, unusual or
non-recurring non-cash expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net Income
for such period, non-cash losses on sales of assets outside of the ordinary
course of business or realized upon the sale of Capital Stock of any Person),
aggregate non-recurring charges taken in fiscal 1998 with respect to Orbit
Semiconductor, Inc. (amounting to approximately $84,000,000) and any other
non-cash charges, and minus, to the extent included in the statement of such
Consolidated Net Income for such period, the sum of (a) interest income, (b) any
extraordinary, unusual or non-recurring income or gains (including, whether or
not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets outside of
the ordinary course of business or realized upon the sale of Capital Stock of
any Person) and (c) any other non-cash income, all as determined on a
consolidated basis.
"Consolidated Interest Coverage Ratio": for any period, the ratio of
Consolidated EBITDA for such period to Consolidated Interest Expense for such
period.
"Consolidated Interest Expense": for any period, total cash interest
expense (including that attributable to Capital Lease Obligations) of the
Company and its Subsidiaries for such period with respect to all outstanding
Indebtedness of the Company and its Subsidiaries (including all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing and net costs under Derivative Agreements in
respect of interest rates to the extent such net costs are allocable to such
period in accordance with GAAP).
"Consolidated Leverage Ratio": as at any day, the ratio of Consolidated
Total Funded Debt on such day to Consolidated EBITDA for the four consecutive
fiscal quarters of the Company most recently ended.
"Consolidated Net Income": for any period, the consolidated net income
(or loss) of the Company and its Subsidiaries, determined on a consolidated
basis in accordance with GAAP; provided that there shall be excluded the income
(or deficit) of any Person accrued prior to the date it becomes a Subsidiary of
the Company or is merged into or consolidated with the Company or any of its
Subsidiaries, the income (or deficit) of any Person (other than a Subsidiary of
the Company) in which the Company or any of its Subsidiaries has an ownership
8
<PAGE> 15
interest, except to the extent that any such income is actually received by the
Company or such Subsidiary in the form of dividends or similar distributions and
the undistributed earnings of any Subsidiary of the Company to the extent that
the declaration or payment of dividends or similar distributions by such
Subsidiary is not at the time permitted by the terms of any Contractual
Obligation (other than under any Loan Document) or Requirement of Law applicable
to such Subsidiary.
"Consolidated Net Worth": at any date, all amounts that would, in
conformity with GAAP, be included on a consolidated balance sheet of the Company
and its Subsidiaries under stockholders' equity at such date (excluding any
foreign currency adjustments); provided, for purposes of determining compliance
with Section 9.1(c), no effect shall be given to non-recurring charges taken in
the fourth quarter of fiscal year 1998 with respect to Orbit Semiconductor, Inc.
in an aggregate amount not to exceed $18,000,000.
"Consolidated Senior Funded Debt": at any date, the aggregate principal
amount of all Senior Indebtedness of the Company and its Subsidiaries at such
date which is Funded Debt, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Total Funded Debt": at any date, the aggregate principal
amount of Funded Debt of the Company and its Subsidiaries at such date,
determined on a consolidated basis in accordance with GAAP.
"Continuing Directors": the directors of the Company on the Closing
Date, and each other director, if, in each case, such other director's election
or appointment by the other directors or nomination for election by the
stockholders to the board of directors of the Company, as the case may be, is
recommended or approved by at least 66-2/3% of the then Continuing Directors.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 10, whether or not
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Derivative Agreements": of any Person at any date, swaps, caps or
collar agreements or similar arrangements to which such Person and any financial
institution, commodities or stock exchange or clearinghouse (a "Derivatives
Counterparty") are parties under which such parties agree to exchange payments
based upon interest rates, exchange rates or market prices or values or changes
therein in respect of debt obligations or equities, currencies or commodities or
indexes in respect of any of the foregoing without delivery of the same
(including, whether or not otherwise included in the foregoing, options granted
or written by such Person in favor of a Derivatives Counterparty intended to be
settled in cash).
9
<PAGE> 16
"Disposition": with respect to any property, any sale, lease, sale and
leaseback, assignment, conveyance, transfer or other disposition thereof. The
terms "Dispose" and "Disposed of" shall have correlative meanings.
"Dollar Revolving Loans": as defined in Section 2.4(a).
"Dollars", "U.S. Dollars" and "$": dollars in lawful currency of the
United States.
"Domestic Subsidiary": any Subsidiary of the Company organized under
the laws of any jurisdiction within the United States.
"Dutch Pledge Agreements": the Deed of Pledge of Registered Shares in a
Limited Partnership dated October 30, 1998 executed by Dovatron Nevada, Inc. and
Dovatron Mexico, Inc. pursuant to which the pledgors thereunder granted a
security interest in an aggregate of 65% of the outstanding limited partnership
interest in DII International Holdings C.V., and the Deed of Pledge of
Registered Shares in a Private Limited Liability Company dated October 30, 1998
executed by Dovatron Nevada, Inc., pursuant to which the pledgor thereunder
granted a security interest in 65% of the share capital of DII Europe B.V.
"EMU": Economic and Monetary Union as contemplated in the Treaty on
European Union.
"EMU Legislation": legislative measures of the European Union for the
introduction of, changeover to or operation of the euro in one or more member
states.
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"euro": the single currency of the European Union as constituted by the
Treaty on European Union and as referred to in EMU Legislation.
"Eurocurrency Base Rate": with respect to each Interest Period
pertaining to a Multicurrency Loan denominated in any currency other than Pounds
Sterling (in the event that Pounds Sterling is an Available Foreign Currency),
the rate per annum determined by the Administrative Agent to be the offered rate
for deposits in such currency with a term comparable to such Interest Period
that appears on the applicable Telerate Page at approximately 11:00 A.M., London
time, two Business Days prior to the beginning of such Interest Period;
provided, however, that if at any time for any reason such offered rate for any
such currency does not appear on a Telerate Page, "Eurocurrency Base Rate" shall
mean, with respect to each day during each Interest Period pertaining to a
Multicurrency Loan denominated in such currency, the rate
10
<PAGE> 17
per annum equal to the average (rounded upward to the nearest 1/16th of 1%) of
the rate notified to the Administrative Agent by the Multicurrency Reference
Lender as the rate at which the Multicurrency Reference Lender is offered
deposits in such currency at or about 11:00 A.M., London time, two Business Days
prior to the beginning of such Interest Period in the London interbank market
for delivery on the first day of such Interest Period for the number of days
comprised therein; and in the event that Pounds Sterling is an Available Foreign
Currency, with respect to each day during each Interest Period pertaining to a
Multicurrency Loan denominated in Pounds Sterling, the rate per annum equal to
the average (rounded upward to the nearest 1/16th of 1%) of the rate notified to
the Administrative Agent by the Multicurrency Reference Lender as the rate at
which the Multicurrency Reference Lender is offered deposits in Pounds Sterling
at or about 11:00 A.M., London time, two Business Days prior to the beginning of
such Interest Period in the Paris interbank market for delivery on the first day
of such Interest Period for the number of days comprised therein.
"Eurocurrency Rate": with respect to each day during each Interest
Period pertaining to a Multicurrency Loan, a rate per annum determined for such
day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
Eurocurrency Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan or a Multicurrency Loan, the aggregate (without duplication) of
the maximum rates (expressed as a decimal fraction) of reserve requirements in
effect on such day (including basic, supplemental, marginal and emergency
reserves under any regulations of the Board or other Governmental Authority
having jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Board) maintained by a member bank of the
Federal Reserve System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, the rate per annum determined on the
basis of the rate for deposits in Dollars for a period equal to such Interest
Period commencing on the first day of such Interest Period appearing on Page
3750 of the Dow Jones Markets screen as of 11:00 A.M., London time, two Business
Days prior to the beginning of such Interest Period. In the event that such rate
does not appear on Page 3750 of the Dow Jones Markets screen (or otherwise on
such screen), the "Eurodollar Base Rate" shall be determined by reference to
such other comparable publicly available service for displaying eurodollar rates
as may be selected by the Administrative Agent or, in the absence of such
availability, by reference to the rate at which the Administrative Agent is
offered Dollar deposits at or about 11:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank eurodollar
market where its eurodollar and foreign currency and exchange operations are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein.
11
<PAGE> 18
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"euro unit": the currency unit of the euro as defined in the EMU
Legislation.
"Event of Default": any of the events specified in Section 10, provided
that any requirement for the giving of notice, the lapse of time, or both, has
been satisfied.
"Exchange Rate": with respect to any currency other than Dollars, the
rate shall be determined by reference to such publicly available service for
displaying exchange rates as may be agreed upon by the Administrative Agent and
the Company or, in the absence of such agreement, such "Exchange Rate" shall
instead be the Administrative Agent's spot rate of exchange in the interbank
market where its foreign currency exchange operations in respect of such
non-Dollar currency are then being conducted, at or about 11:00 A.M., local
time, on such date for the purchase of Dollars with such non-Dollar currency,
for delivery two Business Days later; provided, that if at the time of any such
determination, no such spot rate can reasonably be quoted, the Administrative
Agent may use any reasonable method as it deems applicable to determine such
rate, and such determination shall be conclusive absent manifest error.
"Excluded Foreign Subsidiary": any Foreign Subsidiary in respect of
which either the pledge of all of the Capital Stock of such Subsidiary as
Collateral or the guaranteeing by such Subsidiary of the Obligations, would, in
the good faith judgment of the Company, result in adverse tax, legal or
regulatory consequences to the Company.
"Facility": each of the Tranche A Term Loan Commitments and the Tranche
A Term Loans made thereunder (the "Tranche A Term Loan Facility"), the Tranche B
Term Loan Commitments and the Tranche B Term Loans made thereunder (the "Tranche
B Term Loan Facility") and the Revolving Commitments (including the commitment
to make Multicurrency Loans) and the extensions of credit made thereunder (the
"Revolving Facility").
"Federal Funds Effective Rate": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day that is a Business Day, the average of the
quotations for the day of such transactions received by the Reference Lender
from three federal funds brokers of recognized standing selected by it.
12
<PAGE> 19
"Foreign Acquisition Loan Documentation": as defined in the definition
of Structured Foreign Acquisition Transaction.
"Foreign Acquisition Loan Guarantee": each Guarantee, substantially in
the form of Exhibit M, executed and delivered in connection with any Qualified
Foreign Transaction by the Company and each Foreign Acquisition Subsidiary
Holding Company that holds, directly or indirectly, any Capital Stock of the
Foreign Acquisition Subsidiary to which such Qualified Foreign Transaction
relates.
"Foreign Acquisition Loan Participation": as defined in the definition
of Structured Foreign Acquisition Transaction.
"Foreign Acquisition Loan Participation Agreement": as defined in the
definition of Structured Foreign Acquisition Transaction.
"Foreign Acquisition Loans": as defined in the definition of Structured
Foreign Acquisition Transaction.
"Foreign Acquisition Loan Security Documents": in respect of any
Foreign Acquisition Loans, any security documents creating, in favor of the
Lenders or affiliates thereof making such Foreign Acquisition Loans, or in favor
of an agent on behalf of such Lenders, as security for such Foreign Acquisition
Loans, a security interest in Capital Stock and/or assets of the Foreign
Acquisition Subsidiary that is the borrower under such Foreign Acquisition Loans
and any relevant Foreign Acquisition Subsidiary Holding Company, which security
documents shall be satisfactory to the Administrative Agent in its reasonable
discretion.
"Foreign Acquisition Subsidiary": as defined in the definition of
Structured Foreign Acquisition Transaction.
"Foreign Acquisition Subsidiary Holding Company": as defined in the
definition of Structured Foreign Acquisition Transaction.
"Foreign Subsidiary": any Subsidiary of the Company that is not a
Domestic Subsidiary.
"Funded Debt": as to any Person, all Indebtedness of such Person of the
types described in clauses (a) through (e) of the definition of Indebtedness in
this Section 1.1, and all Guarantee Obligations of such Person in respect of
such Indebtedness.
"Funding Office": the office of the Administrative Agent specified in
Section 13.2 or such other office as may be specified from time to time by the
Administrative Agent as its funding office by written notice to the Company and
the Lenders.
"GAAP": generally accepted accounting principles in the United States
as in effect from time to time, except that for purposes of Section 9.1, GAAP
shall be determined on
13
<PAGE> 20
the basis of such principles in effect on the date hereof and consistent with
those used in the preparation of the most recent audited financial statements
delivered pursuant to Section 6.1(b).
"Governmental Authority": any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).
"Greatsino Acquisition": the acquisition by the Company of all the
outstanding capital stock of Greatsino Electric Technology, which is a printed
circuit board fabricator and contract electronics manufacturer with operations
in the People's Republic of China.
"Guarantee and Collateral Agreement": the Amended and Restated
Guarantee and Collateral Agreement to be executed and delivered by the Company
and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the
same may be amended, supplemented or otherwise modified from time to time.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of the guaranteeing person or another Person (including any bank
under any letter of credit) to induce the creation of which the guaranteeing
person has issued a reimbursement, counterindemnity or similar obligation, in
either case guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends or other obligations (the "primary obligations") of any other third
Person (the "primary obligor") in any manner, whether directly or indirectly,
including any obligation of the guaranteeing person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor (other than pursuant to a contractual right to
indemnity (other than in respect of Indebtedness) in connection with
acquisitions or Dispositions in accordance with past practice), (ii) to advance
or supply funds (1) for the purchase or payment of any such primary obligation
or (2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Company in good faith.
14
<PAGE> 21
"HP Acquisition": the acquisition of Hewlett-Packard GmbH's printed
circuit board manufacturing operation located in Boeblingen, Germany, pursuant
to the Master Asset Purchase Agreement, dated as of October 30, 1998, among the
Company, MTKG and Hewlett-Packard GmbH, a German company.
"Immaterial Subsidiary": any Subsidiary set forth on Schedule 1.1C or
any new Subsidiary created or acquired after the Closing Date and designated by
the Company by notice to the Administrative Agent as an Immaterial Subsidiary;
provided, that at any time, the aggregate book value of the assets of each
Immaterial Subsidiary shall not exceed 5% of the aggregate book value of all
assets of the Company and its Subsidiaries taken as a whole and the revenues of
each Immaterial Subsidiary as of the fiscal year most recently ended do not
exceed 5% of the revenues of the Company and its Subsidiaries taken as a whole
in such fiscal year, the aggregate book value of the assets of all such
Immaterial Subsidiaries, taken together shall not exceed 10% of the aggregate
book value of the assets of the Company and its Subsidiaries taken as a whole
and the aggregate revenues of all Immaterial Subsidiaries in such fiscal year
shall not exceed 10% of the aggregate revenues of the Company and its
Subsidiaries taken as a whole in such fiscal year; provided that the foregoing
clauses (iii) and (iv) shall apply only to Immaterial Subsidiaries created or
acquired after the Closing Date. The Company shall redesignate any Immaterial
Subsidiary as a Material Subsidiary by written notice to the Administrative
Agent delivered not later than the date of delivery of the Company's audited
financial statements for any fiscal year which would demonstrate that one or
more Immaterial Subsidiaries must be redesignated as Material Subsidiaries in
order to comply with the requirements set forth in the preceding sentence.
"Indebtedness": of any Person at any date, without duplication, all
indebtedness of such Person for borrowed money, all obligations of such Person
for the deferred purchase price of property or services (other than current
trade payables incurred in the ordinary course of such Person's business), all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, all indebtedness created or arising under any conditional
sale or other title retention agreement with respect to property acquired by
such Person (even though the rights and remedies of the seller or lender under
such agreement in the event of default are limited to repossession or sale of
such property), all Capital Lease Obligations of such Person, all obligations of
such Person, contingent or otherwise, as an account party under acceptance,
letter of credit or similar facilities, the liquidation value of all redeemable
preferred Capital Stock of such Person, all Guarantee Obligations of such Person
in respect of obligations of the kind referred to in clauses (a) through (g)
above, all obligations of the kind referred to in clauses (a) through (h) above
secured by (or for which the holder of such obligation has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including
accounts and contract rights) owned by such Person, whether or not such Person
has assumed or become liable for the payment of such obligation, and for the
purposes of Sections 9.2 and 10(e) only, all obligations of such Person in
respect of Derivative Agreements.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
15
<PAGE> 22
"Insolvent": pertaining to a condition of Insolvency.
"Intellectual Property": the collective reference to all rights,
priorities and privileges relating to intellectual property, whether arising
under United States, multinational or foreign laws or otherwise, including
copyrights, copyright licenses, patents, patent licenses, trademarks, trademark
licenses, technology, know-how and processes, and all rights to sue at law or in
equity for any infringement or other impairment thereof, including the right to
receive all proceeds and damages therefrom.
"Intercreditor Agreement": the Amended and Restated Collateral Agency
and Intercreditor Agreement to be entered into by The Chase Manhattan Bank, as
collateral agent, each of the Lenders and each Lender under the MTKG Credit
Agreement, substantially in the form of Exhibit L, as the same may be amended,
supplemented or otherwise modified from time to time.
"Interest Payment Date": as to any ABR Loan, the last day of each
March, June, September and December to occur while such Loan is outstanding and
the final maturity date of such Loan, as to any Eurodollar Loan or Multicurrency
Loan having an Interest Period of three months or less, the last day of such
Interest Period, as to any Eurodollar Loan or Multicurrency Loan having an
Interest Period longer than three months, each day that is three months, or a
whole multiple thereof, after the first day of such Interest Period and the last
day of such Interest Period and as to any Loan (other than any Revolving Loan
that is an ABR Loan), the date of any repayment or prepayment made in respect
thereof.
"Interest Period": with respect to any Eurodollar Loan or Multicurrency
Loan:
initially, the period commencing on the borrowing or conversion date,
as the case may be, with respect to such Eurodollar Loan or Multicurrency Loan
and ending one, two, three or six months thereafter, as selected by the relevant
Borrower in its notice of borrowing or notice of conversion, as the case may be,
given with respect thereto; and
thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan or Multicurrency
Loan and ending one, two, three or six months thereafter, as selected by the
relevant Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
if any Interest Period pertaining to a Eurodollar Loan or Multicurrency
Loan would otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless the result
of such extension would be to carry such Interest Period into another calendar
month in which event such Interest Period shall end on the immediately preceding
Business Day;
16
<PAGE> 23
any Interest Period applicable to a Eurodollar Loan or Multicurrency
Loan that would otherwise extend beyond the Scheduled Revolving Termination Date
shall end on the Scheduled Revolving Termination Date;
any Interest Period pertaining to a Eurodollar Loan or Multicurrency
Loan that begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall end on the last Business Day of a calendar month;
and
each Borrower shall select Interest Periods so as not to require a
payment or prepayment of any Eurodollar Loan or Multicurrency Loan during an
Interest Period for such Eurodollar Loan or Multicurrency Loan.
"Investments": as defined in Section 9.8.
"Issuing Lender": The Chase Manhattan Bank, in its capacity as issuer
of any Letter of Credit.
"Judgement Currency": as defined in Section 13.14.
"L/C Commitment": $25,000,000.
"L/C Fee Payment Date": the last day of each March, June, September and
December and the last day of the Revolving Commitment Period.
"L/C Obligations": at any time, an amount equal to the sum of the
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and the aggregate amount of drawings under Letters of Credit that have
not then been reimbursed pursuant to Section 4.5.
"L/C Participants": the collective reference to all the Revolving
Lenders other than the Issuing Lender.
"Lending Installation": with respect to a Lender or the Administrative
Agent, the office, branch, subsidiary or Affiliate of such Lender or the
Administrative Agent listed on the signature pages hereof or otherwise selected
by such Lender or the Administrative Agent pursuant to Section 5.15.
"Lenders": as defined in the preamble hereto.
"Letters of Credit": as defined in Section 4.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever
17
<PAGE> 24
(including any conditional sale or other title retention agreement and any
capital lease having substantially the same economic effect as any of the
foregoing).
"LMS": DII Management Company, a Delaware corporation.
"LMS Class B Stockholders": the holders of Class B Participating
Preferred Stock of the LMS.
"LMS Stockholders' Agreement": the Stockholders' Agreement, dated as of
May 14, 1999, between the Borrower and the LMS.
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Security Documents, each
Borrowing Subsidiary Agreement, each Borrowing Subsidiary Termination, the
Intercreditor Agreement and the Notes.
"Loan Parties": the Company, each Subsidiary Borrower and each other
Subsidiary of the Company that is a party to a Loan Document.
"London Banking Day": any day on which banks in London are open for
general banking business, including dealings in foreign currency and exchange.
"Majority Facility Lenders": with respect to any Facility, the holders
of more than 50% of the aggregate unpaid principal amount of the Term Loans or
the Aggregate Committed Outstandings, as the case may be, outstanding under such
Facility (or, in the case of the Revolving Facility, prior to any termination of
the Revolving Commitments, the holders of more than 50% of the Total Revolving
Commitments).
"Majority Revolving Facility Lenders": the Majority Facility Lenders in
respect of the Revolving Facility.
"Make-Well Agreement": the agreement by the holders of the Class A
common stock of the LMS to be subject to assessments for capital calls upon the
occurrence of specified events pursuant to the LMS Stockholders' Agreement.
"Material Adverse Effect": a material adverse effect on the
Acquisitions, the business, property, operations, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries taken as a whole or
the validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Administrative Agent or the Lenders
hereunder or thereunder.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances,
18
<PAGE> 25
materials or wastes, defined or regulated as such in or under any Environmental
Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde
insulation.
"Material Subsidiary": any Subsidiary other than an Immaterial
Subsidiary.
"MTKG": Multilayer Technology and Co. KG, a German limited partnership
and indirect subsidiary of the Company.
"MTKG Credit Agreement": the $90,000,000 Credit Agreement, dated as of
October 30, 1998, among MTKG, The Chase Manhattan Bank, as administrative agent,
and the several lenders from time to time parties thereto, as the same may be
amended, supplemented or otherwise modified from time to time.
"Multicurrency Loans": as defined in Section 3.1.
"Multicurrency Reference Lender": The Chase Manhattan Bank.
"Multiemployer Plan": a Plan that is a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"National Currency Unit": the unit of currency (other than a euro unit)
of a Participating Member State.
"Net Cash Proceeds": in connection with any Asset Sale or any Recovery
Event, the proceeds thereof in the form of cash and Cash Equivalents (including
any such proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or purchase price adjustment receivable or
otherwise, but only as and when received) of such Asset Sale or Recovery Event,
net of attorneys' fees, accountants' fees, investment banking fees, amounts
required to be applied to the repayment of Indebtedness secured by a Lien
expressly permitted hereunder on any asset that is the subject of such Asset
Sale or Recovery Event (other than any Lien pursuant to a Security Document) and
other customary fees and expenses actually incurred in connection therewith and
net of taxes paid or reasonably estimated to be payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements) and in connection with any issuance or sale of equity
securities or debt securities or instruments or the incurrence of loans, the
cash proceeds received from such issuance or incurrence, net of attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Non-Excluded Taxes": as defined in Section 5.10(a).
"Non-Guarantor Subsidiary": any Subsidiary that is not a Wholly Owned
Subsidiary Guarantor.
"Non-U.S. Lender": as defined in Section 5.10(d).
19
<PAGE> 26
"Notes": the collective reference to any promissory note evidencing
Loans.
"Obligations": the unpaid principal of and interest on (including
interest accruing after the maturity of the Loans and Reimbursement Obligations
and interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Company or any Subsidiary Borrower, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding) the Loans and all other
obligations and liabilities of each Borrower to the Administrative Agent or to
any Lender (or, in the case of Derivative Agreements, any affiliate of any
Lender), whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out of, or in
connection with, this Agreement (including, without limitation, the obligations
of the Company under Section 12), any other Loan Document, the Letters of
Credit, any Derivative Agreement entered into with any Lender or any affiliate
of any Lender or any other document made, delivered or given in connection
herewith or therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including all fees, charges and
disbursements of counsel to the Administrative Agent or to any Lender that are
required to be paid by any Borrower pursuant hereto) or otherwise.
"Other Taxes": any and all present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies arising from
any payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement or any other Loan Document.
"Participating Member State": any member state of EMU which has the
euro as its lawful currency.
"Participant": as defined in Section 13.6(b).
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA (or any successor).
"Periodic Dividends": the annual dividends in the amount of eight
percent (8%) of the $100 per share price of the Class B Participating Preferred
Stock of the LMS, to be paid to the LMS Class B Stockholders.
"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture, Governmental Authority or other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan that is covered
by ERISA and in respect of which the Company or a Commonly Controlled Entity is
(or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pricing Grid": the pricing grid attached hereto as Annex A.
20
<PAGE> 27
"Pro Forma Balance Sheet": as defined in Section 6.1(a).
"Projections": as defined in Section 8.2(b).
"Properties": as defined in Section 6.17(a).
"Qualified Foreign Subsidiary": any Foreign Subsidiary listed on
Schedule 1.1B and any other Foreign Subsidiary the designation of which as a
Subsidiary Borrower is accompanied by any amendments, supplements or other
modifications to the Security Documents deemed necessary or appropriate by the
Administrative Agent in connection with such designation, provided that no
Subsidiary Borrower shall be required to create a security interest in its
assets to secure any Loan except pursuant to a Structured Foreign Acquisition
Transaction or Structured Foreign Transaction.
"Qualified Foreign Transaction": any Structured Foreign Acquisition
Transaction or any Structured Foreign Transaction if either the aggregate amount
of the Investment of the Borrower and its Subsidiaries (including the amount of
the Foreign Acquisition Loan Participation relating thereto) is not in excess of
$90,000,000, the aggregate amount of Investments by the Borrower and its
Subsidiaries (including the amount of Foreign Acquisition Loan Participations)
in all Structured Foreign Acquisition Transactions (other than the Acquisitions)
and Structured Foreign Transactions consummated pursuant to this clause (a)
since the Closing Date is not in excess of $225,000,000, the aggregate principal
amount of Foreign Acquisition Loans in respect of such Structured Foreign
Acquisition Transaction or Structured Foreign Transaction, as the case may be
(less the principal amount of related Foreign Acquisition Loan Participations),
is not in excess of $30,000,000, the aggregate principal amount of Foreign
Acquisition Loans in all Structured Foreign Acquisition Transactions and all
Structured Foreign Transactions (other than Acquisitions) consummated pursuant
to this clause (a) since the Closing Date, (less the principal amount of related
Foreign Acquisition Loan Participations), is not in excess of $75,000,000 and
such Structured Foreign Acquisition Transaction or Structured Foreign
Transaction (including, in each case, all documentation relating thereto), as
the case may be, shall have been approved by the Administrative Agent as
provided in paragraph (c) of the definition of "Structured Foreign Acquisition
Transaction", or such Structured Foreign Acquisition Transaction or such
Structured Foreign Transaction (including, in each case, all documentation
relating thereto), as the case may be, shall have been approved by the
Administrative Agent and the Required Lenders.
"Recovery Event": any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Company or any of its Subsidiaries.
"Reference Lender": The Chase Manhattan Bank.
"Register": as defined in Section 13.6(d).
"Regulation U": Regulation U of the Board as in effect from time to
time.
21
<PAGE> 28
"Reimbursement Obligation": the obligation of the Company to reimburse
the Issuing Lender pursuant to Section 4.5 for amounts drawn under Letters of
Credit.
"Reinvestment Deferred Amount": with respect to any Reinvestment Event,
the aggregate Net Cash Proceeds received by the Company or any of its
Subsidiaries in connection therewith that are not applied to prepay the Term
Loans pursuant to Section 5.5(c) as a result of the delivery of a Reinvestment
Notice.
"Reinvestment Event": any Asset Sale or Recovery Event in respect of
which the Company has delivered a Reinvestment Notice or entered into a written
agreement to use all or a specified portion of the Net Cash Proceeds of such
Asset Sale or Recovery Event to acquire assets similar to those giving rise to
the relevant Asset Sale or Recovery Event, as the case may be or any issuance or
sale of equity securities in respect of which the Company has delivered a
Reinvestment Notice or entered into a written agreement to use all or a
specified portion of 50% of the Net Cash Proceeds of such issuance or sale to
make Capital Expenditures or Investments as permitted herein.
"Reinvestment Notice": a written notice executed by a Responsible
Officer stating that no Event of Default has occurred and is continuing and that
the Company (directly or indirectly through a Subsidiary) intends and expects
(i) to use all or a specified portion of the Net Cash Proceeds of an Asset Sale
or Recovery Event to acquire assets similar to those giving rise to the relevant
Asset Sale or Recovery Event, as the case may be or (ii) to invest all or a
specified portion of 50% of the Net Cash Proceeds of an issuance or sale of
equity securities in the existing business of the Company as of the date of such
issuance or sale, including without limitation, to make Capital Expenditures and
to make Investments in Subsidiaries in order to effect such expenditures.
"Reinvestment Prepayment Amount": with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date pursuant to the
relevant Reinvestment Notice, as the case may be.
"Reinvestment Prepayment Date": with respect to any Reinvestment Event,
the earlier of the date occurring 12 months after such Reinvestment Event and
the date on which the Company shall have determined not to utilize all or any
portion of the relevant Reinvestment Deferred Amount pursuant to the relevant
Reinvestment Notice.
"Reorganization": with respect to any Multiemployer Plan, the condition
that such plan is in reorganization within the meaning of Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg.
Section 4043.
22
<PAGE> 29
"Required Lenders": at any time, the holders of more than 50% of until
the Closing Date, the Commitments then in effect and thereafter, the sum of the
aggregate unpaid principal amount of the Term Loans then outstanding and the
Total Revolving Commitments then in effect or, if the Revolving Commitments have
been terminated, the Aggregate Committed Outstandings then outstanding.
"Required Prepayment Lenders": the Majority Facility Lenders in respect
of each Facility.
"Requirement of Law": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer": the chief executive officer, president, chief
financial officer or the executive vice president of finance of the Company, but
in any event, with respect to financial matters, the chief financial officer or
the executive vice president of finance of the Company.
"Restricted Payments": as defined in Section 9.6.
"Revolving Commitment": as to any Lender, the obligation of such
Lender, if any, to make Revolving Loans and participate in Letters of Credit in
an aggregate principal and/or face amount (in U.S. Dollars or the Dollar
Equivalent thereof) not to exceed the amount set forth under the heading
"Revolving Commitment" opposite such Lender's name on Schedule 1.1A or in the
Assignment and Acceptance pursuant to which such Lender became a party hereto,
as the same may be changed from time to time pursuant to the terms hereof. The
original amount of the Total Revolving Commitments is $135,000,000.
"Revolving Commitment Period": the period from and including the
Closing Date to the Scheduled Revolving Termination Date, or such earlier date
on which the Revolving Loans shall terminate as provided herein.
"Revolving Lender": each Lender that has a Revolving Commitment or that
holds Revolving Loans.
"Revolving Loans": the collective reference to Dollar Revolving Loans
and Multicurrency Loans.
"Revolving Percentage": as to any Revolving Lender at any time, the
percentage which such Lender's Revolving Commitment then constitutes of the
Total Revolving Commitments (or, at any time after the Revolving Commitments
shall have expired or terminated, the percentage which the sum of (i) aggregate
principal amount of such Lender's Dollar Revolving Loans then outstanding and
(ii) the U.S. Dollar Equivalent of such Lender's
23
<PAGE> 30
Multicurrency Loans then outstanding, constitutes of the aggregate principal
amount of the Dollar Revolving Loans and the U.S. Dollar Equivalent of the
Multicurrency Loans then outstanding).
"Revolving Termination Date": the earlier of the Scheduled Revolving
Termination Date and the date on which the Revolving Commitments are terminated
pursuant to the terms hereof.
"Scheduled Revolving Termination Date": November 1, 2003.
"SEC": the Securities and Exchange Commission, any successor thereto
and any analogous Governmental Authority.
"Security Documents": the collective reference to the Guarantee and
Collateral Agreement, the Dutch Pledge Agreements and all other security
documents hereafter delivered to the Administrative Agent granting a Lien on any
property of any Person to secure the obligations and liabilities of any Loan
Party under any Loan Document.
"Senior Indebtedness": at any date, all Indebtedness of the Company and
its Subsidiaries at such date other than Subordinated Indebtedness.
"Single Employer Plan": any Plan that is covered by Title IV of ERISA,
but that is not a Multiemployer Plan.
"Solvent": when used with respect to any Person, means that, as of any
date of determination, the amount of the "present fair saleable value" of the
assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, the present fair saleable
value of the assets of such Person will, as of such date, be greater than the
amount that will be required to pay the liability of such Person on its debts as
such debts become absolute and matured, such Person will not have, as of such
date, an unreasonably small amount of capital with which to conduct its
business, and such Person will be able to pay its debts as they mature. For
purposes of this definition, "debt" means liability on a "claim", and "claim"
means any (x) right to payment, whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a right
to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured
or unsecured.
"Structured Foreign Acquisition Transaction": (i) any acquisition made
on or after the Closing Date by the Borrower directly, or indirectly through one
or more Wholly Owned Subsidiaries, of the assets or Capital Stock of an entity
organized under the laws of a jurisdiction other than a state of the United
States, or (ii) the refinancing of the Indebtedness associated with such
acquisition, in each case, in a transaction having the following
characteristics:
24
<PAGE> 31
the assets acquired in each such acquisition shall be held by a Foreign
Subsidiary of the Borrower, or such acquisition shall be an acquisition by the
Borrower or a Subsidiary of the Capital Stock of an entity that, upon such
acquisition, becomes a Foreign Subsidiary of the Borrower (any such Foreign
Subsidiary described in the foregoing clause (i) or any such Foreign Subsidiary
acquired as described in clause (ii), a "Foreign Acquisition Subsidiary");
each such acquisition shall be structured in a manner determined by the
Administrative Agent in its reasonable discretion to be substantially similar in
effect to the structure of the financing of the HP Acquisition as reflected in
the MTKG Credit Agreement and the Loan Documents referred to therein;
the cash portion of the purchase price paid in connection with each
such acquisition shall be financed or refinanced, in whole or in part, with the
proceeds of loans ("Foreign Acquisition Loans") made by one or more Lenders or
affiliates thereof to the Foreign Acquisition Subsidiary Holding Company or
Foreign Acquisition Subsidiary, as the case may be, that is making such
acquisition or that is acquired in such acquisition, and any portion of the cash
portion of such purchase price that is not financed or refinanced with the
proceeds of Foreign Acquisition Loans shall be financed with Investments by the
Borrower and its Subsidiaries, directly or indirectly, in such Foreign
Acquisition Subsidiary Holding Company or Foreign Acquisition Subsidiary;
the Foreign Acquisition Loans incurred in connection with any such
acquisition shall have the following characteristics:
except as set forth in this definition, the terms and conditions of
such Foreign Acquisition Loans shall be as agreed upon by the relevant Lenders
(or affiliates thereof), the Borrower and the relevant Foreign Acquisition
Subsidiary and Foreign Acquisition Subsidiary Holding Company, if any;
such Foreign Acquisition Loans shall be secured, pursuant to Foreign
Acquisition Loan Security Documents, to the extent practicable and permissible
by applicable law (all as determined by the Administrative Agent in its
reasonable discretion), by the material assets of the relevant Foreign
Acquisition Subsidiary and by the Capital Stock of such Foreign Acquisition
Subsidiary and of any Foreign Subsidiary of the Borrower that, directly or
indirectly, holds Capital Stock of such Foreign Acquisition Subsidiary (each
such Subsidiary holding such Capital Stock, a "Foreign Acquisition Subsidiary
Holding Company");
such Foreign Acquisition Loans shall be guaranteed, pursuant to a
Foreign Acquisition Loan Guarantee, by the Borrower and each relevant Foreign
Acquisition Subsidiary Holding Company, if any;
the loan agreement and other documentation governing such Foreign
Acquisition Loan ("Foreign Acquisition Loan Documentation") shall be determined
by the Administrative Agent in its reasonable discretion to contain
representations and warranties, covenants and events
25
<PAGE> 32
of default that are substantially equivalent, taken as a whole (with such
modifications as shall be appropriate to reflect the laws, regulations and
business conditions applicable to the relevant Foreign Acquisition Subsidiary),
to the representations and warranties, covenants and events of default contained
in the MTKG Credit Agreement;
the Borrower or a Subsidiary of the Borrower shall acquire a
participating interest (a "Foreign Acquisition Loan Participation") in such
Foreign Acquisition Loans under terms and conditions similar to those reflected
in the Participation Agreement executed by the Borrower and the Lenders parties
to the MTKG Credit Agreement (each agreement pursuant to which such
participating interest is sold and purchased, a "Foreign Acquisition Loan
Participation Agreement"); and
the Borrower shall have caused to be delivered to the Administrative
Agent such legal opinions and other documents in respect of such acquisition and
the related Foreign Acquisition Loans and Foreign Acquisition Loan Participation
as the Administrative Agent shall reasonably request; and
Each Lender or affiliate thereof making Foreign Acquisition Loans in
connection with such acquisition shall have become a party to the Intercreditor
Agreement in the manner specified in subsection 8.12 of the Intercreditor
Agreement.
"Structured Foreign Transaction": the financing or refinancing of any
Capital Expenditure made on or after the Closing Date by the Borrower, directly
or indirectly, through one or more Wholly Owned Subsidiaries in a wholly owned
Foreign Subsidiary, in a transaction having the following characteristics:
the financing or refinancing of such Capital Expenditure shall be
structured in a manner determined by the Administrative Agent in its reasonable
discretion to be substantially similar in effect to the financing of the HP
Acquisition as reflected in the MTKG Credit Agreement and the Loan Documents
referred to therein;
the cash portion of the Capital Expenditure shall be financed or
refinanced, in whole or in part, with the proceeds of Foreign Acquisition Loans
made by one or more Lenders or affiliates thereof to the related Foreign
Subsidiary, and any portion of such Capital Expenditure that is not financed or
refinanced with the proceeds of a Foreign Acquisition Loan shall be financed
with Investments by the Borrower and its Subsidiaries, directly or indirectly,
in such Foreign Subsidiary;
the Foreign Acquisition Loan incurred with the financing or refinancing
of any such Capital Expenditure shall have the characteristics described in
clause (d) of the definition of "Structured Foreign Acquisition Transaction";
and
Each Lender or affiliate thereof making Foreign Acquisition Loans in
connection with such Capital Expenditure shall have become a party to the
Intercreditor Agreement in the manner specified in subsection 8.12 of the
Intercreditor Agreement.
26
<PAGE> 33
"Subordinated Notes": the 8.50% Senior Subordinated Notes of the
Company due 2007.
"Subordinated Indebtedness": Indebtedness of the Company in respect of
the Subordinated Notes and other Indebtedness of the Company which by its terms
is subordinated to the Obligations in a manner and to an extent satisfactory to
the Administrative Agent.
"Subsequent Participant": any member state of EMU that becomes a
Participating Member State after the date hereof.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock or other ownership
interests having ordinary voting power (other than stock or such other ownership
interests having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Company.
"Subsidiary Borrower": at any time, any Qualified Foreign Subsidiary of
the Company designated as a Subsidiary Borrower by the Company pursuant to
Section 5.13 that has not ceased to be a Subsidiary Borrower pursuant to such
Section.
"Subsidiary Borrower Obligations": the unpaid principal of and interest
on (including, without limitation, interest accruing after the maturity of the
Loans and Reimbursement Obligations and interest accruing after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the relevant Borrower, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans to and all other obligations and liabilities of any
Subsidiary Borrower to the Administrative Agent or to any Lender (or, in the
case of any Derivative Agreements, any affiliate of any Lender), whether direct
or indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Derivative
Agreement entered into with any Lender or any affiliate of any Lender or any
other document made, delivered or given in connection herewith or therewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including, without limitation, all fees, charges
and disbursements of counsel to the Administrative Agent or to any Lender that
are required to be paid by any Subsidiary Borrower pursuant hereto) or
otherwise.
"Subsidiary Guarantor": each Subsidiary of the Company other than any
Immaterial Subsidiary or Excluded Foreign Subsidiary.
27
<PAGE> 34
"Target Operating Day": any day that is not a Saturday or Sunday,
Christmas Day or New Year's Day or any other day on which the Trans-European
Real-time Gross Settlement Operating System (or any successor settlement system)
is not operating (as determined by the Administrative Agent).
"Term Commitments": the collective reference to the Tranche A Term Loan
Commitments and the Tranche B Term Loan Commitments.
"Term Loan Lenders": the collective reference to the Tranche A Term
Loan Lenders and the Tranche B Term Loan Lenders.
"Term Loans": the collective reference to Tranche A Term Loans and
Tranche B Term Loans.
"Total Aggregate Committed Outstandings": at any time, the aggregate
amount of the Aggregate Committed Outstandings of the Revolving Lenders
outstanding at such time.
"Total Revolving Commitments": at any time, the aggregate amount of the
Revolving Commitments of the Revolving Lenders then in effect.
"Tranche": the collective reference to Eurodollar Loans or
Multicurrency Loans of any Facility the then current Interest Periods with
respect to all of which begin on the same date and end on the same later date
(whether or not such Loans shall originally have been made on the same day).
"Tranche A Term Loan": as defined in Section 2.1.
"Tranche A Term Loan Commitment": as to any Lender, the obligation of
such Lender, if any, to make a Tranche A Term Loan to the Company hereunder in a
principal amount not to exceed the amount set forth under the heading "Tranche A
Term Commitment" opposite such Lender's name on Schedule 1.1A. The original
aggregate amount of the Tranche A Term Loan Commitments is $70,000,000.
"Tranche A Term Loan Lender": each Lender that has a Tranche A Term
Loan Commitment or is the holder of a Tranche A Term Loan.
"Tranche A Term Loan Percentage": as to any Tranche A Term Loan Lender
at any time, the percentage which such Lender's Tranche A Term Loan Commitment
then constitutes of the aggregate Tranche A Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal amount
of such Lender's Tranche A Term Loans then outstanding constitutes of the
aggregate principal amount of the Tranche A Term Loans then outstanding).
"Tranche B Term Loan": as defined in Section 2.1.
28
<PAGE> 35
"Tranche B Term Loan Commitment": as to any Lender, the obligation of
such Lender, if any, to make a Tranche B Term Loan to the Company hereunder in a
principal amount not to exceed the amount set forth under the heading "Tranche B
Term Commitment" opposite such Lender's name on Schedule 1.1A. The original
aggregate amount of the Tranche B Term Loan Commitments is $25,000,000.
"Tranche B Term Loan Lender": each Lender that has a Tranche B Term
Loan Commitment or is the holder of a Tranche B Term Loan.
"Tranche B Term Loan Percentage": as to any Tranche B Term Loan Lender
at any time, the percentage which such Lender's Tranche B Term Loan Commitment
then constitutes of the aggregate Tranche B Term Loan Commitments (or, at any
time after the Closing Date, the percentage which the aggregate principal amount
of such Lender's Tranche B Term Loans then outstanding constitutes of the
aggregate principal amount of the Tranche B Term Loans then outstanding).
"Treaty on European Union": the Treaty of Rome of March 25, 1957, as
amended by the Single European Act 1986 and the Maastricht Treaty (which was
signed at Maastricht on February 7, 1992, and came into force on November 1,
1993), as amended from time to time.
"Transferee": any Assignee or Participant.
"Type": as to any Term Loan or Dollar Revolving Loan, its nature as an
ABR Loan, a Eurodollar Loan or a Multicurrency Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500,
as the same may be amended from time to time.
"United States": the United States of America.
"U.S. Dollar Equivalent": with respect to an amount denominated in any
currency other than U.S. Dollars, the equivalent in U.S. Dollars of such amount
determined at the Exchange Rate on the date of determination of such equivalent.
In making any determination of the U.S. Dollar Equivalent for purposes of
calculating the amount of Loans to be borrowed from the respective Lenders on
any Borrowing Date, the Administrative Agent shall use the relevant Exchange
Rate in effect on the date on which the interest rate for such Loans is
determined pursuant to the provisions of this Agreement and the other Loan
Documents.
"Wholly Owned Subsidiary": as to any Person, any other Person all of
the Capital Stock of which (other than directors' qualifying shares required by
law) is owned by such Person directly and/or through other Wholly Owned
Subsidiaries.
29
<PAGE> 36
"Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a
Wholly Owned Subsidiary of the Company.
1.2 Other Definitional Provisions. Unless otherwise specified therein, all terms
defined in this Agreement shall have the defined meanings when used in the other
Loan Documents or any certificate or other document made or delivered pursuant
hereto or thereto.
As used herein and in the other Loan Documents, and any certificate or
other document made or delivered pursuant hereto or thereto, accounting terms
relating to the Company and its Subsidiaries not defined in Section 1.1 and
accounting terms partly defined in Section 1.1, to the extent not defined, shall
have the respective meanings given to them under GAAP, the words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation", the word "incur" shall be construed to mean incur, create, issue,
assume, become liable in respect of or suffer to exist (and the words "incurred"
and "incurrence" shall have correlative meanings), and the words "asset" and
"property" shall be construed to have the same meaning and effect and to refer
to any and all tangible and intangible assets and properties, including cash,
Capital Stock, securities, revenues, accounts, leasehold interests and contract
rights.
The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF U.S. DOLLAR COMMITMENTS
2.1 Term Commitments. Pursuant to the Existing Credit Agreement, each Tranche A
Term Loan Lender made a term loan (a "Tranche A Term Loan") in U.S. Dollars to
the Company, and the Tranche A Term Loans will continue to be outstanding
hereunder from and after the Closing Date. Subject to the terms and conditions
hereof, each Tranche B Term Loan Lender severally agrees to make a term loan (a
"Tranche B Term Loan") in U.S. Dollars to the Company on the Closing Date in an
amount not to exceed the amount of the Tranche B Term Loan Commitment of such
Lender. The Term Loans may from time to time be Eurodollar Loans or ABR Loans,
as determined by the Company and notified to the Administrative Agent in
accordance with Sections 2.2 and 5.6.
2.2 Procedure for Tranche B Term Loan Borrowing. The Company shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., New York City time, one Business Day
prior to the anticipated Closing Date) requesting that the Tranche B Term Loan
Lenders make the Tranche B Term Loans on the Closing Date and specifying the
amount to be borrowed. The Tranche B Term Loans made on the Closing Date shall
initially be ABR Loans. Upon receipt of such notice
30
<PAGE> 37
the Administrative Agent shall promptly notify each Tranche B Term Loan Lender
thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each
Tranche B Term Loan Lender shall make available to the Administrative Agent at
the Funding Office an amount in immediately available funds equal to the Tranche
B Term Loan to be made by such Lender. The Administrative Agent shall credit the
account of the Company on the books of such office of the Administrative Agent
with the aggregate of the amounts made available to the Administrative Agent by
the Tranche B Term Loan Lenders in immediately available funds.
2.3 Repayment of Term Loans; Evidence of Debt. The Tranche A Term Loan of each
Tranche A Term Loan Lender shall mature in 20 consecutive quarterly
installments, commencing on February 1, 1999, each of which shall be in an
amount equal to such Lender's Tranche A Term Loan Percentage multiplied by the
amount set forth below opposite such installment (the first three of which
installments were paid prior to the Closing Date):
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
February 1, 1999 $2,500,000
May 1, 1999 $2,500,000
August 1, 1999 $2,500,000
November 1, 1999 $2,500,000
February 1, 2000 $3,000,000
May 1, 2000 $3,000,000
August 1, 2000 $3,000,000
November 1, 2000 $3,000,000
February 1, 2001 $3,500,000
May 1, 2001 $3,500,000
August 1, 2001 $3,500,000
November 1, 2001 $3,500,000
February 1, 2002 $4,000,000
May 1, 2002 $4,000,000
August 1, 2002 $4,000,000
November 1, 2002 $4,000,000
February 1, 2003 $4,500,000
May 1, 2003 $4,500,000
August 1, 2003 $4,500,000
November 1, 2003 $4,500,000
</TABLE>
The Tranche B Term Loan of each Tranche B Term Loan Lender shall mature
in 16 consecutive quarterly installments, commencing on March 1, 2000, each of
which shall be in an amount equal to such Lender's Tranche B Term Loan
Percentage multiplied by the amount set forth below opposite such installment:
31
<PAGE> 38
<TABLE>
<CAPTION>
Installment Principal Amount
----------- ----------------
<S> <C>
March 1, 2000 $1,250,000
June 1, 2000 $1,250,000
September 1, 2000 $1,250,000
December 1, 2001 $1,250,000
March 1, 2001 $1,500,000
June 1, 2001 $1,500,000
September 1, 2001 $1,500,000
December 1, 2002 $1,500,000
March 1, 2002 $1,750,000
June 1, 2002 $1,750,000
September 1, 2002 $1,750,000
December 1, 2003 $1,750,000
March 1, 2003 $1,750,000
June 1, 2003 $1,750,000
September 1, 2003 $1,750,000
November 1, 2003 $1,750,000
</TABLE>
The Company hereby unconditionally promises to pay to the
Administrative Agent for the account of the appropriate Term Loan Lender the
principal amount of each Term Loan of such Term Loan Lender in installments
according to the amortization schedule set forth in paragraphs (a) and (b) above
(or on such earlier date on which the Loans become due and payable pursuant to
Section 10). The Company hereby further agrees to pay interest on the unpaid
principal amount of the Term Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in Section 5.1.
Each Term Loan Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Company to such
Term Loan Lender resulting from each Term Loan of such Term Loan Lender from
time to time, including the amounts of principal and interest payable and paid
to such Term Loan Lender from time to time in respect of such Term Loans under
this Agreement.
The Administrative Agent, on behalf of the Company, shall maintain the
Register pursuant to Section 13.6(d), and a subaccount therein for each Term
Loan Lender, in which shall be recorded the amount of each Term Loan made
hereunder and any Note evidencing such Term Loan, the Type thereof and each
Interest Period applicable thereto, the amount of any principal or interest due
and payable or to become due and payable from the Company to each Term Loan
Lender hereunder and both the amount of any sum received by the Administrative
Agent hereunder from the Company and each Term Loan Lender's share thereof.
The entries made in the Register and the accounts of each Term Loan
Lender maintained pursuant to Section 2.3(e) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Company therein
32
<PAGE> 39
recorded; provided, however, that the failure of any Term Loan Lender or the
Administrative Agent to maintain the Register or any such account, or any error
therein, shall not in any manner affect the obligation of the Company to repay
(with applicable interest) the Term Loans by such Term Loan Lender in accordance
with the terms of this Agreement.
The Company agrees that, upon the request to the Administrative Agent
by any Term Loan Lender, the Company will execute and deliver to such Term Loan
Lender a promissory note of the Company evidencing any Term Loans of such
Lender, substantially in the form of Exhibit J, with appropriate insertions as
to date and principal amount.
2.4 Revolving Commitments. Subject to the terms and conditions hereof, each
Revolving Lender severally agrees to make revolving credit loans ("Dollar
Revolving Loans") in U.S. Dollars to the Company from time to time during the
Revolving Commitment Period so long as after giving effect thereto and to any
concurrent repayment or prepayment of Loans the Available Revolving Commitment
of each Revolving Lender is greater than or equal to zero and the Total
Aggregate Committed Outstandings does not exceed the Total Revolving
Commitments. During the Revolving Commitment Period the Company may use the
Revolving Commitments by borrowing, prepaying the Dollar Revolving Loans in
whole or in part, and reborrowing, all in accordance with the terms and
conditions hereof. The Dollar Revolving Loans may from time to time be
Eurodollar Loans or ABR Loans, as determined by the Company and notified to the
Administrative Agent in accordance with Sections 2.5 and 5.6.
The Company shall repay all outstanding Dollar Revolving Loans on the
Revolving Termination Date.
Each Dollar Revolving Loan outstanding under (and as defined in) the
Existing Credit Agreement on the Closing Date shall constitute a Dollar
Revolving Credit Loan hereunder.
2.5 Procedure for Dollar Revolving Loan Borrowing. The Company may borrow Dollar
Revolving Loans under the Revolving Commitments during the Revolving Commitment
Period on any Business Day, provided that the Company shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 12:00 Noon, New York City time, three Business
Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or
one Business Day prior to the requested Borrowing Date, in the case of ABR
Loans), specifying the amount and Type of Dollar Revolving Loans to be borrowed,
the requested Borrowing Date and in the case of Eurodollar Loans, the respective
amounts of each such Type of Loan and the respective lengths of the initial
Interest Period therefor. Any Dollar Revolving Loans made on the Closing Date
shall initially be ABR Loans. Each borrowing of Dollar Revolving Loans under the
Revolving Commitments shall be in an amount equal to (x) in the case of ABR
Loans, $1,000,000 or a whole multiple thereof (or, if the then Aggregate
Available Revolving Commitments are less than $1,000,000, such lesser amount)
and (y) in the case of Eurodollar Loans, $2,500,000 or a whole multiple of
$1,000,000 in excess thereof. Upon receipt of any such notice from the Company,
the Administrative Agent shall promptly notify each Revolving Lender thereof.
Each Revolving
33
<PAGE> 40
Lender will make the amount of its pro rata share of each Dollar Revolving Loan
borrowing available to the Administrative Agent for the account of the Company
at the Funding Office prior to 12:00 Noon, New York City time, on the Borrowing
Date requested by the Company in funds immediately available to the
Administrative Agent. Such borrowing will then be made available to the Company
by the Administrative Agent crediting the account of the Company on the books of
such office with the aggregate of the amounts made available to the
Administrative Agent by the Revolving Lenders and in like funds as received by
the Administrative Agent.
2.6 Commitment Fees, etc. The Company agrees to pay to the Administrative Agent
for the account of each Lender the following commitment fees:
for the period from and including the Closing Date until the earlier of
(x) the date which is six months after the Closing Date and (y) the date on
which the Tranche B Term Loans have been fully repaid (other than prepayment
with the proceeds of Senior Indebtedness), an amount computed at the rate of
0.50% per annum on the average daily amount of the Available Revolving
Commitment of such Lender during the period for which payment is made, payable
quarterly in arrears on the last day of each March, June, September and
December, commencing on the first of such dates to occur after the date hereof;
and
from the date which is the earlier of (x) the date which is six months
after the Closing Date and (y) the date on which the Tranche B Term Loans have
been fully repaid (other than prepayment with the proceeds of Senior
Indebtedness), an amount computed at the Commitment Fee Rate on the average
daily amount of the Available Revolving Commitment of such Lender during the
period for which payment is made, payable quarterly in arrears on the last day
of each March, June, September and December and on the Scheduled Revolving
Termination Date.
If the Tranche B Term Loans have not been fully repaid on or prior to
the date which is six months after the Closing Date, the Company agrees to pay
to the Administrative Agent for the account of each Tranche B Term Loan Lender a
fee in an amount equal to 0.125% of the aggregate then outstanding principal
amount of Tranche B Term Loans of such Lender.
The Company agrees to pay to the Administrative Agent the fees in the
amounts and on the dates previously agreed to in writing by the Company and the
Administrative Agent.
2.7 Termination or Reduction of Revolving Commitments. The Company shall have
the right, upon not less than three Business Days' notice to the Administrative
Agent, to terminate the Revolving Commitments or, from time to time, to reduce
the amount of the Revolving Commitments; provided that no such termination or
reduction of Revolving Commitments shall be permitted if, after giving effect
thereto and to any prepayments of the Revolving Loans made on the effective date
thereof, the Total Aggregate Committed Outstandings would exceed the Total
Revolving Commitments. Any such reduction shall be in
34
<PAGE> 41
an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce
permanently the Revolving Commitments then in effect.
On the date when the Tranche B Term Loans have been fully repaid (other
than by prepayment with the proceeds of Senior Indebtedness), the Total
Revolving Commitment shall be permanently reduced to $110,000,000; provided
that, if after giving effect to such reduction, the Total Aggregate Committed
Outstandings would exceed the Total Revolving Commitments, the Company shall
prepay the Revolving Loans in accordance with Section 5.5(a) so that the
aggregate amount of the then outstanding Total Aggregate Committed Outstandings
is equal to or less than $110,000,000.
2.8 Repayment of Dollar Revolving Loans; Evidence of Debt. The Company hereby
unconditionally promises to pay to the Administrative Agent for the account of
the appropriate Revolving Lender the then unpaid principal amount of the Dollar
Revolving Loans on the Scheduled Revolving Termination Date and on such other
dates and in such other amounts as may be required from time to time pursuant to
this Agreement. The Company hereby further agrees to pay interest on the unpaid
principal amount of the Dollar Revolving Loans from time to time outstanding
until payment thereof in full at the rates per annum, and on the dates, set
forth in Section 5.1.
Each Revolving Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Company resulting
from each Dollar Revolving Loan made by it from time to time, including the
amounts of principal and interest payable thereon and paid from time to time
under this Agreement.
The Administrative Agent shall maintain the Register pursuant to
Section 13.6(d), and a subaccount therein for each Revolving Lender, in which
shall be recorded the date and amount of each Revolving Loan made hereunder, the
date and amount of any principal or interest due and payable or to become due
and payable from the Company hereunder in respect of the Dollars Revolving Loans
and both the date and amount of any sum received by the Administrative Agent
hereunder from the Company in respect of the Dollar Revolving Loans and each
Revolving Lender's share thereof.
The entries made in the Register and the accounts of each Revolving
Lender maintained pursuant to this Section 2.8 shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of the Company therein recorded; provided, however, that the failure
of any Revolving Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Company to repay (with applicable interest) the Dollar
Revolving Loans made to the Company by each Revolving Lender in accordance with
the terms of this Agreement.
35
<PAGE> 42
SECTION 3. AMOUNT AND TERMS OF MULTICURRENCY COMMITMENTS
3.1 Multicurrency Commitments. Subject to the terms and conditions hereof, each
Revolving Lender severally agrees to make revolving credit loans (each, a
"Multicurrency Loan") in U.S. Dollars or any Available Foreign Currency to any
Borrower from time to time during the Revolving Commitment Period so long as
after giving effect thereto and to any concurrent repayment or prepayment of
Loans the Available Revolving Commitment of each Revolving Lender is greater
than or equal to zero, the aggregate outstanding principal amount of
Multicurrency Loans does not exceed an amount of which the U.S. Dollar
Equivalent is $25,000,000 and the Total Aggregate Committed Outstandings does
not exceed the Total Revolving Commitments. During the Revolving Commitment
Period, any Borrower may borrow Multicurrency Loans under the Revolving
Commitments by borrowing, repaying the Multicurrency Loans in whole or in part,
and reborrowing, all in accordance with the terms and conditions hereof.
Each Multicurrency Loan outstanding under (and as defined in) the
Existing Credit Agreement on the Closing Date shall constitute a Multicurrency
Loan hereunder.
3.2 Procedure for Multicurrency Borrowings. Any Borrower may request the
Revolving Lenders to make Multicurrency Loans during the Revolving Commitment
Period on any Business Day provided that such Borrower shall give the
Administrative Agent irrevocable notice (which notice must be received by the
Administrative Agent prior to 10:00 A.M., London time, three Business Days prior
to the requested Borrowing Date), specifying in each case the amount and
currency to be borrowed, the requested Borrowing Date and the length of the
initial Interest Period therefor. Each borrowing of Multicurrency Loans under
the Revolving Commitments shall be in an amount in U.S. Dollars equal to, or an
amount in an Available Foreign Currency of which the U.S. Dollar Equivalent is
equal to, at least $2,500,000 (or, if the then Aggregate Available Revolving
Commitments are less than $2,500,000, such lesser amount). Upon receipt of any
such notice from any Borrower, the Administrative Agent shall promptly notify
each Revolving Lender thereof. Not later than 12:00 P.M. Noon, London time, on
the requested Borrowing Date, each Revolving Lender shall make an amount equal
to its Revolving Percentage of the principal amount of Multicurrency Loans
requested to be made on such Borrowing Date available to the Administrative
Agent at the Administrative Agent's funding office for the applicable currency
specified by the Administrative Agent from time to time by notice to the
Revolving Lenders and in immediately available funds. The amounts made available
by each Revolving Lender will then be made available to the relevant Borrower at
the funding office for the relevant Available Foreign Currency specified from
time to time by the Administrative Agent by notice to the Revolving Lenders and
in like funds as received by the Administrative Agent.
3.3 Repayment of Multicurrency Loans; Evidence of Debt. Each Borrower hereby
unconditionally promises to pay to the Administrative Agent for the account of
each Revolving Lender the then unpaid principal amount of each Multicurrency
Loan of such Revolving Lender to such Borrower on the Revolving Termination Date
and on such other
36
<PAGE> 43
date(s) and in such other amounts as may be required from time to time pursuant
to this Agreement. Each Borrower hereby further agrees to pay interest on the
unpaid principal amount of the Multicurrency Loans advanced to it and from time
to time outstanding until payment thereof in full at the rates per annum, and on
the dates, set forth in Section 5.1.
Each Revolving Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of each Borrower to such
Revolving Lender resulting from each Multicurrency Loan of such Revolving Lender
from time to time, including the amounts of principal and interest payable
thereon and paid to such Revolving Lender from time to time under this
Agreement.
The Administrative Agent shall maintain the Register pursuant to
Section 13.6(d), and a subaccount therein for each Revolving Lender, in which
shall be recorded the amount of each Multicurrency Loan made hereunder, the
amount of any principal or interest due and payable or to become due and payable
from each Borrower to each Revolving Lender hereunder in respect of the
Multicurrency Loans and both the amount of any sum received by the
Administrative Agent hereunder from each Borrower in respect of the
Multicurrency Loans and each Revolving Lender's share thereof.
The entries made in the Register and the accounts of each Revolving
Lender maintained pursuant to Section 3.3(b) shall, to the extent permitted by
applicable law, be prima facie evidence of the existence and amounts of the
obligations of each Borrower therein recorded; provided, however, that the
failure of any Revolving Lender or the Administrative Agent to maintain the
Register or any such account, or any error therein, shall not in any manner
affect the obligation of such Borrower to repay (with applicable interest) the
Multicurrency Loans made to such Borrower by such Revolving Lender in accordance
with the terms of this Agreement.
3.4 Redenomination and Alternative Currencies. Each obligation under this
Agreement of a party to this Agreement which has been denominated in the
National Currency Unit of a Subsequent Participant shall be redenominated into
the euro unit in accordance with EMU legislation immediately upon such
Subsequent Participant becoming a Participating Member State (but otherwise in
accordance with EMU Legislation).
37
<PAGE> 44
SECTION 4. LETTERS OF CREDIT
4.1 L/C Commitment. Subject to the terms and conditions hereof, the Issuing
Lender, in reliance on the agreements of the other Revolving Lenders set forth
in Section 4.4(a), agrees to issue letters of credit ("Letters of Credit") for
the account of the Company on any Business Day during the Revolving Commitment
Period in such form as may be approved from time to time by the Issuing Lender;
provided that the Issuing Lender shall have no obligation to issue any Letter of
Credit if, after giving effect to such issuance, the L/C Obligations would
exceed the L/C Commitment or the aggregate amount of the Available Revolving
Commitments would be less than zero. Each Letter of Credit shall (i) be
denominated in Dollars and (ii) expire no later than the earlier of (x) the
first anniversary of its date of issuance and (y) the date that is five Business
Days prior to the Scheduled Revolving Termination Date, provided that any Letter
of Credit with a one-year term may provide for the renewal thereof for
additional one-year periods (which shall in no event extend beyond the date
referred to in clause (y) above).
Each Letter of Credit shall be subject to the Uniform Customs and, to
the extent not inconsistent therewith, the laws of the State of New York.
The Issuing Lender shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Lender or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
Each Letter of credit issued under (and as defined in) the Existing
Credit Agreement, constitutes a "Letter of Credit" hereunder.
4.2 Procedure for Issuance of Letter of Credit. The Company may from time to
time request that the Issuing Lender issue a Letter of Credit by delivering to
the Issuing Lender at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may request. Upon receipt of any Application, the Issuing Lender will process
such Application and the certificates, documents and other papers and
information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other papers
and information relating thereto) by issuing the original of such Letter of
Credit to the beneficiary thereof or as otherwise may be agreed to by the
Issuing Lender and the Company. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Company promptly following the issuance thereof. The
Issuing Lender shall promptly furnish to the Administrative Agent, which shall
in turn promptly furnish to the Lenders, notice of the issuance of each Letter
of Credit (including the amount thereof).
4.3 Fees and Other Charges. The Company will pay a fee on all outstanding
Letters of Credit at a per annum rate equal to the Applicable Margin then in
effect
38
<PAGE> 45
with respect to Eurodollar Loans under the Revolving Facility, shared ratably
among the Revolving Lenders and payable quarterly in arrears on each L/C Fee
Payment Date after the issuance date. In addition, the Company shall pay to the
Issuing Lender for its own account a fronting fee of 1/8 of 1% per annum on the
undrawn and unexpired amount of each Letter of Credit, payable quarterly in
arrears on each L/C Fee Payment Date after the Issuance Date.
In addition to the foregoing fees, the Company shall pay or reimburse
the Issuing Lender for such normal and customary costs and expenses as are
incurred or charged by the Issuing Lender in issuing, negotiating, effecting
payment under, amending or otherwise administering any Letter of Credit.
4.4 L/C Participations. The Issuing Lender irrevocably agrees to grant and
hereby grants to each L/C Participant, and, to induce the Issuing Lender to
issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to
accept and purchase and hereby accepts and purchases from the Issuing Lender, on
the terms and conditions hereinafter stated, for such L/C Participant's own
account and risk an undivided interest equal to such L/C Participant's Revolving
Percentage in the Issuing Lender's obligations and rights under each Letter of
Credit issued hereunder and the amount of each draft paid by the Issuing Lender
thereunder. Each L/C Participant unconditionally and irrevocably agrees with the
Issuing Lender that, if a draft is paid under any Letter of Credit for which the
Issuing Lender is not reimbursed in full by the Company in accordance with the
terms of this Agreement, such L/C Participant shall pay to the Issuing Lender
upon demand at the Issuing Lender's address for notices specified herein an
amount equal to such L/C Participant's Revolving Percentage of the amount of
such draft, or any part thereof, that is not so reimbursed.
If any amount required to be paid by any L/C Participant to the Issuing
Lender pursuant to Section 4.4(a) in respect of any unreimbursed portion of any
payment made by the Issuing Lender under any Letter of Credit is paid to the
Issuing Lender within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Lender on demand an amount equal
to the product of such amount, times the daily average Federal Funds Effective
Rate during the period from and including the date such payment is required to
the date on which such payment is immediately available to the Issuing Lender,
times a fraction the numerator of which is the number of days that elapse during
such period and the denominator of which is 360. If any such amount required to
be paid by any L/C Participant pursuant to Section 4.4(a) is not made available
to the Issuing Lender by such L/C Participant within three Business Days after
the date such payment is due, the Issuing Lender shall be entitled to recover
from such L/C Participant, on demand, such amount with interest thereon
calculated from such due date at the rate per annum applicable to ABR Loans
under the Revolving Facility. A certificate of the Issuing Lender submitted to
any L/C Participant with respect to any amounts owing under this Section shall
be conclusive in the absence of manifest error.
Whenever, at any time after the Issuing Lender has made payment under
any Letter of Credit and has received from any L/C Participant its pro rata
share of such payment in accordance with Section 4.4(a), the Issuing Lender
receives any payment related to such Letter
39
<PAGE> 46
of Credit (whether directly from the Company or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest on
account thereof, the Issuing Lender will distribute to such L/C Participant its
pro rata share thereof; provided, however, that in the event that any such
payment received by the Issuing Lender shall be required to be returned by the
Issuing Lender, such L/C Participant shall return to the Issuing Lender the
portion thereof previously distributed by the Issuing Lender to it.
4.5 Reimbursement Obligation of the Company. The Company agrees to reimburse the
Issuing Lender within two Business Days of the date on which the Issuing Lender
notifies the Company of the date and amount of a draft presented under any
Letter of Credit and paid by the Issuing Lender for the amount of such draft so
paid and any taxes, fees, charges or other costs or expenses incurred by the
Issuing Lender in connection with such payment. Each such payment shall be made
to the Issuing Lender at its address for notices specified herein in lawful
money of the United States and in immediately available funds. Interest shall be
payable on any and all amounts remaining unpaid by the Company under this
Section from the date such amounts become payable (whether at stated maturity,
by acceleration or otherwise) until payment in full at the rate set forth in
until the second Business Day following the date of notice to the Company of the
applicable drawing, Section 5.1(b) and thereafter, Section 5.1(d).
4.6 Obligations Absolute. The Company's obligations under this Section 4 shall
be absolute and unconditional under any and all circumstances and irrespective
of any setoff, counterclaim or defense to payment that the Company may have or
have had against the Issuing Lender, any beneficiary of a Letter of Credit or
any other Person. The Company also agrees with the Issuing Lender that the
Issuing Lender shall not be responsible for, and the Company's Reimbursement
Obligations under Section 4.5 shall not be affected by, among other things, the
validity or genuineness of documents or of any endorsements thereon, even though
such documents shall in fact prove to be invalid, fraudulent or forged, or any
dispute between or among the Company and any beneficiary of any Letter of Credit
or any other party to which such Letter of Credit may be transferred or any
claims whatsoever of the Company against any beneficiary of such Letter of
Credit or any such transferee. The Issuing Lender shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the gross
negligence or willful misconduct of the Issuing Lender. The Company agrees that
any action taken or omitted by the Issuing Lender under or in connection with
any Letter of Credit or the related drafts or documents, if done in the absence
of gross negligence or willful misconduct and in accordance with the standards
of care specified in the Uniform Commercial Code of the State of New York, shall
be binding on the Company and shall not result in any liability of the Issuing
Lender to the Company.
4.7 Letter of Credit Payments. If any draft shall be presented for payment under
any Letter of Credit, the Issuing Lender shall promptly notify the Company of
the date and amount thereof. The responsibility of the Issuing Lender to the
Company in connection with any draft presented for payment under any Letter of
Credit shall, in addition to any payment obligation expressly provided for in
such Letter of Credit, be limited to determining that the
40
<PAGE> 47
documents (including each draft) delivered under such Letter of Credit in
connection with such presentment are substantially in conformity with such
Letter of Credit.
4.8 Applications. To the extent that any provision of any Application related to
any Letter of Credit is inconsistent with the provisions of this Section 4, the
provisions of this Section 4 shall apply.
SECTION 5. GENERAL PROVISIONS APPLICABLE TO THE LOANS
5.1 Interest Rates and Payment Dates. Each Eurodollar Loan shall bear interest
for each day during each Interest Period with respect thereto at a rate per
annum equal to the Eurodollar Rate determined for such day plus the Applicable
Margin.
Each ABR Loan shall bear interest for each day it is outstanding at a
rate per annum equal to the ABR for such day plus the Applicable Margin.
Each Multicurrency Loan shall bear interest (payable in the Available
Foreign Currency in which such Multicurrency Loan is denominated) for each day
during each Interest Period with respect thereto at a rate per annum equal to
the applicable Eurocurrency Rate determined for such Interest Period plus the
Applicable Margin in effect for such day.
If all or a portion of the principal amount of any Loan or
Reimbursement Obligation shall not be paid when due (whether at the stated
maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement
Obligations (whether or not overdue) shall bear interest at a rate per annum
equal to (x) in the case of the Loans, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section plus 2%
or (y) in the case of Reimbursement Obligations, the rate applicable to ABR
Loans under the Revolving Facility plus 2%, and if all or a portion of any
interest payable on any Loan or Reimbursement Obligation or any commitment fee
or other amount payable hereunder shall not be paid when due (whether at the
stated maturity, by acceleration or otherwise), such overdue amount shall bear
interest at a rate per annum equal to the rate then applicable to ABR Loans
under the relevant Facility plus 2% (or, in the case of any such other amounts
that do not relate to a particular Facility, the rate then applicable to ABR
Loans under the Revolving Facility plus 2%), in each case, with respect to
clauses (i) and (ii) above, from the date of such non-payment until such amount
is paid in full (as well after as before judgment).
Interest shall be payable in arrears on each Interest Payment Date,
provided that interest accruing pursuant to paragraph (d) of this Section shall
be payable from time to time on demand.
5.2 Computation of Interest and Fees. Interest and fees payable pursuant hereto
shall be calculated on the basis of a 360-day year for the actual days elapsed,
except that, with respect to ABR Loans the rate of interest on which is
calculated on the basis of the Prime Rate and Loans denominated in Pounds
Sterling, the interest thereon shall be calculated on the basis of a 365- (or
366-, as the case may be) day year for the actual days elapsed. The
41
<PAGE> 48
Administrative Agent shall as soon as practicable notify the Company and the
relevant Lenders of each determination of a Eurodollar Rate or a Eurocurrency
Rate. Any change in the interest rate on a Loan resulting from a change in the
ABR or the Eurocurrency Reserve Requirements shall become effective as of the
opening of business on the day on which such change becomes effective. The
Administrative Agent shall as soon as practicable notify the Company and the
relevant Lenders of the effective date and the amount of each such change in
interest rate.
Each determination of an interest rate by the Administrative Agent
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrowers and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of a Borrower, deliver to such
Borrower a statement showing the quotations used by the Administrative Agent in
determining any interest rate pursuant to Section 5.1(a).
If the Multicurrency Reference Lender shall for any reason no longer
have a Revolving Commitment or any Multicurrency Loans, the Multicurrency
Reference Lender shall thereupon cease to be the Multicurrency Reference Lender,
and the Administrative Agent (after consultation with the Company and the
Revolving Lenders) shall, by notice to the Company and the Lenders, designate
another Revolving Lender as the Multicurrency Reference Lender.
The Multicurrency Reference Lender shall use its best efforts to
furnish a quotation of rates to the Administrative Agent as contemplated hereby.
If the Multicurrency Reference Lender shall be unable or shall otherwise fail to
supply such rates to the Administrative Agent upon its request, the rate of
interest shall, subject to the provisions of Section 5.3, be determined by the
Administrative Agent in consultation with the Company.
5.3 Inability to Determine Interest Rate. If prior to the first day of any
Interest Period:
the Administrative Agent shall have determined (which determination
shall be conclusive and binding upon the Borrowers) that, by reason of
circumstances affecting the relevant market, adequate and reasonable means do
not exist for ascertaining the Eurodollar Rate or the Eurocurrency Rate with
respect to the currency in which a Loan or a requested Loan is denominated (the
"Affected Currency"), as the case may be, for such Interest Period, or
the Administrative Agent shall have received notice from the Majority
Facility Lenders in respect of the relevant Facility that the Eurodollar Rate or
the Eurocurrency Rate, as the case may be, determined or to be determined with
respect to such Affected Currency for such Interest Period will not adequately
and fairly reflect the cost to such Lenders (as conclusively certified by such
Lenders) of making or maintaining their affected Loans during such Interest
Period,
the Administrative Agent shall give telecopy or telephonic notice thereof to the
Company and the relevant Lenders as soon as practicable thereafter. If such
notice is given (w) any Eurodollar Loans or Multicurrency Loans, as the case may
be, under the relevant Facility requested to be
42
<PAGE> 49
made on the first day of such Interest Period shall be made as ABR Loans in U.S.
Dollars, (x) any Loans under the relevant Facility that were to have been
converted on the first day of such Interest Period to Eurodollar Loans shall be
converted into or continued as ABR Loans, (y) any outstanding Eurodollar Loans
under the relevant Facility shall be converted, on the last day of the
then-current Interest Period, to ABR Loans and (z) any Multicurrency Loans to
which such Interest Period relates shall be repaid on the last day of the then
current Interest Period. Until such notice has been withdrawn by the
Administrative Agent, no further Eurodollar Loans or Multicurrency Loans under
the relevant Facility shall be made or continued as such, nor shall the
Borrowers have the right to convert Loans under the relevant Facility to
Eurodollar Loans, as the case may be, provided that Loans may continue to be
made, converted or continued, as the case may be, in U.S. Dollars or Available
Foreign Currencies other than the Affected Currency.
5.4 Optional Prepayments. The Company may at any time and from time to time
prepay the Dollar Revolving Loans and, subject to Section 5.4(c), the Term
Loans, in whole or in part, without premium or penalty, upon irrevocable notice
delivered to the Administrative Agent at least three Business Days prior thereto
in the case of Eurodollar Loans and at least one Business Day prior thereto in
the case of ABR Loans, which notice shall specify the date and amount of
prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans;
provided, that if a Eurodollar Loan is prepaid on any day other than the last
day of the Interest Period applicable thereto, the Company shall also pay any
amounts owing pursuant to Section 5.11. Upon receipt of any such notice the
Administrative Agent shall promptly notify each relevant Lender thereof. If any
such notice is given, the amount specified in such notice shall be due and
payable on the date specified therein, together with (except in the case of
Dollar Revolving Loans that are ABR Loans) accrued interest to such date on the
amount prepaid. Partial prepayments of Term Loans and Dollar Revolving Loans
shall be in an aggregate principal amount of $1,000,000 or a whole multiple
thereof.
The Borrowers may at any time and from time to time prepay, without
premium or penalty, the Multicurrency Loans, in whole or in part, upon at least
three Business Days' irrevocable notice to the Administrative Agent specifying
the date and amount of prepayment; provided, that if a Multicurrency Loan is
prepaid on any day other than the last day of the Interest Period applicable
thereto, the relevant Borrower shall also pay any amounts owing pursuant to
Section 5.11. Upon the receipt of any such notice, the Administrative Agent
shall promptly notify each Revolving Lender thereof. If any such notice is
given, the amount specified in such notice shall be due and payable on the date
specified therein. Partial prepayments of Multicurrency Loans shall be in an
aggregate principal amount of which the U.S. Dollar Equivalent is at least
$1,000,000.
Any optional prepayment made to the Term Loans under any Facility
pursuant to Section 5.4(a) shall be applied to reduce the then remaining
installments of the Term Loans under such Facility, pro rata based on the then
remaining number of installments thereof, after giving effect to all prior
reductions (i.e., each then remaining installment of the Tranche A Term Loans or
Tranche B Term Loans, as the case may be, shall be reduced by an amount equal to
the aggregate amount to be applied to the Tranche A Term Loans or Tranche B Term
Loans, as the case may be, divided by the number of the then remaining
installments for such Tranche A
43
<PAGE> 50
Term Loans or Tranche B Term Loans); provided, that if the amount to be so
applied to any installment would exceed the then remaining amount of such
installment, then an amount equal to such excess shall be applied to the next
succeeding installment after giving effect to all prior reductions thereto
(including the amount of prepayments theretofore allocated pursuant to the
preceding portion of this sentence).
5.5 Mandatory Prepayments and Commitment Reductions. If, at any time during the
Revolving Commitment Period, for any reason the Aggregate Committed Outstandings
of all Revolving Lenders exceed the Total Revolving Commitments then in effect,
the Company shall, without notice or demand, immediately prepay the Revolving
Loans and/or the Borrowers shall, without notice or demand, immediately prepay
the Multicurrency Loans such that the sum of the aggregate principal amount of
the Revolving Loans so prepaid and the U.S. Dollar Equivalent of the aggregate
principal amount of the Multicurrency Loans so prepaid, equals or exceeds the
amount of such excess.
Unless the Required Prepayment Lenders shall otherwise agree, if any
Capital Stock of the Company shall be sold or issued by the Company (other than
in connection with options exercisable for the purchase of Capital Stock or
compensation-related transactions with officers, employees or directors, to the
extent the aggregate Net Cash Proceeds thereof do not exceed $15,000,000 in any
fiscal year of the Company), the Net Cash Proceeds of such sale or issuance
shall be applied on the date such Net Cash Proceeds are received: to prepay the
then outstanding Tranche B Term Loans until such Loans have been fully repaid,
and an amount equal to 50% of the remaining Net Cash Proceeds thereof shall be
applied on the date of such sale or issuance, unless a Reinvestment Notice shall
be delivered in respect of such sale or issuance, toward the prepayment of the
Tranche A Term Loans and the Revolving Loans as set forth in Section 5.5(e),
provided, that, notwithstanding the foregoing, on each Reinvestment Prepayment
Date, an amount equal to the Reinvestment Prepayment Amount with respect to the
relevant sale or issuance shall be applied toward the prepayment of Tranche A
Term Loans and the Revolving Loans as set forth in Section 5.5(e).
Unless the Required Prepayment Lenders shall otherwise agree, if on any
date, the Company or any of its Subsidiaries shall receive Net Cash Proceeds
from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall
be delivered in respect of such Recovery Event or Asset Sale, such Net Cash
Proceeds shall be applied on such date toward the prepayment of the Term Loans
and the Revolving Loans as set forth in Section 5.5(e); provided, that,
notwithstanding the foregoing, the aggregate Net Cash Proceeds of Recovery
Events that may be excluded from the foregoing requirement pursuant to a
Reinvestment Notice shall not exceed, on any date which this Agreement is in
effect, 20% of the net fixed asset value plus inventory of the Company and its
Subsidiaries, on a consolidated basis, as of the last day of the fiscal year of
the Company most recently ended prior to such date and on each Reinvestment
Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with
respect to the relevant Reinvestment Event shall be applied toward the
prepayment of the Term Loans and the Revolving Loans as set forth in Section
5.5(e).
44
<PAGE> 51
Notwithstanding the foregoing, mandatory prepayments of Revolving Loans
or Multicurrency Loans that would otherwise be required pursuant to this Section
5.5 solely as a result of fluctuations in Exchange Rates from time to time shall
only be required to be made pursuant to this Section 5.5 on the last Business
Day of each month on the basis of the Exchange Rate in effect on such Business
Day.
Subject to Section 5.5(b), amounts to be applied in connection with
prepayments made pursuant to Section 5.5 shall be applied, first, pro rata to
the prepayment of the Term Loans and, second, to the prepayment of the Dollar
Revolving Loans or, if the Borrowers elect, the Multicurrency Loans. The
application of any prepayment of Term Loans or Dollar Revolving Loans pursuant
to this Section 5.5 shall be made, first, to ABR Loans and, second, to
Eurodollar Loans. Each prepayment of the Loans under this Section 5.5 (except in
the case of Dollar Revolving Loans that are ABR Loans) shall be accompanied by
accrued interest to the date of such prepayment on the amount prepaid.
Notwithstanding the foregoing, if (i) (x) the Company fails to
consummate either of the Acquisitions on or prior to October 29, 1999 in
accordance with the Acquisition Documentation delivered to the Administrative
Agent on the Closing Date pursuant to Section 7.1(b), provided that the terms
and conditions of the related Acquisition Documentation may not have been
amended, waived or modified as to price, consideration, conditions, termination
or expiration or in any other material respect without the prior approval of the
Administrative Agent and the Required Lenders or (y) any Governmental Authority
declines to approve an Acquisition as listed on Schedule 7.1(d) and (ii) the
Tranche B Term Loans have not been fully prepaid and the Total Revolving
Commitments have not been reduced to $110,000,000 pursuant to Section 5.5(b),
then (A) in the case of the Brazilian Acquisition, the Company shall immediately
repay $27,000,000 and (B) in the case of the Austrian Acquisition, the Company
shall immediately repay $13,000,000, in each case to be applied pro rata between
the Tranche B Term Loans and the Revolving Loans until the Tranche B Term Loans
have been repaid in full; provided that any such prepayments of the Revolving
Loans shall permanently reduce the Total Revolving Commitments until the Total
Revolving Commitments is equal to $110,000,000.
5.6 Conversion and Continuation Options. The Company may elect from time to time
to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at
least two Business Days' prior irrevocable notice of such election, provided
that any such conversion of Eurodollar Loans may only be made on the last day of
an Interest Period with respect thereto. The Company may elect from time to time
to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at
least three Business Days' prior irrevocable notice of such election (which
notice shall specify the length of the initial Interest Period therefor),
provided that no ABR Loan under a particular Facility may be converted into a
Eurodollar Loan when any Event of Default has occurred and is continuing and the
Administrative Agent or the Majority Facility Lenders in respect of such
Facility have determined in its or their sole discretion not to permit such
conversions. Upon receipt of any such notice the Administrative Agent shall
promptly notify each relevant Lender thereof.
45
<PAGE> 52
Any Eurodollar Loan may be continued as such upon the expiration of the
then current Interest Period with respect thereto by the Company giving
irrevocable notice to the Administrative Agent, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1, of
the length of the next Interest Period to be applicable to such Loans, provided
that no Eurodollar Loan under a particular Facility may be continued as such
when any Event of Default has occurred and is continuing and the Administrative
Agent has or the Majority Facility Lenders in respect of such Facility have
determined in its or their sole discretion not to permit such continuations, and
provided, further, that if the Company shall fail to give any required notice as
described above in this paragraph or if such continuation is not permitted
pursuant to the preceding proviso such Loans shall be automatically converted to
ABR Loans on the last day of such then expiring Interest Period. Upon receipt of
any such notice the Administrative Agent shall promptly notify each relevant
Lender thereof.
Any Multicurrency Loan may be continued as such upon the expiration of
the then current Interest Period with respect thereto by the relevant Borrower
giving the Administrative Agent at least two Business Days' prior irrevocable
notice of such election, provided, that if the relevant Borrower shall fail to
give such notice or if any Default or Event of Default has occurred and is
continuing and the Administrative Agent or the Required Lenders have determined
that such continuation would not be appropriate, such Multicurrency Loans shall
automatically be continued for an Interest Period of one month.
5.7 Limitations on Tranches. All borrowings, conversions and continuations of
Loans hereunder and all selections of Interest Periods hereunder shall be in
such amounts and be made pursuant to such elections so that, immediately after
giving effect thereto, the aggregate principal amount of the Eurodollar Loans
comprising each Tranche shall be equal to $2,500,000 or a whole multiple of
$1,000,000 in excess thereof and the aggregate principal amount of the
Multicurrency Loans comprising each Tranche shall be in an amount which is, or
of which the U.S. Dollar Equivalent is, at least $2,500,000.
5.8 Pro Rata Treatment and Payments. Each borrowing by a Borrower from the
Lenders hereunder, each payment by the Borrowers on account of any commitment
fee and any reduction of the Commitments of the Lenders shall be made pro rata
according to the respective Tranche A Term Loan Percentages, Tranche B Term Loan
Percentages or Revolving Percentages, as the case may be, of the relevant
Lenders.
Each payment (including each prepayment) by the Company on account of
principal of and interest on the Term Loans shall be made pro rata according to
the respective outstanding principal amounts of the Term Loans then held by the
Term Loan Lenders. The amount of each principal prepayment of the Term Loans
shall be applied to reduce the then remaining installments of the Term Loans pro
rata based upon the then remaining principal amount thereof. Amounts prepaid on
account of the Term Loans may not be reborrowed.
Each payment (including each prepayment) by the Borrowers on account of
principal of and interest on the Revolving Loans shall be made pro rata
according to the respective outstanding principal amounts of the Revolving Loans
then held by the Revolving Lenders.
46
<PAGE> 53
All payments (including prepayments) to be made by the Company
hereunder in respect of amounts denominated in Dollars, whether on account of
principal, interest, fees or otherwise, shall be made without setoff or
counterclaim and shall be made prior to 12:00 Noon, New York City time, on the
due date thereof to the Administrative Agent, for the account of the Lenders, at
the Funding Office, in Dollars and in immediately available funds. The
Administrative Agent shall distribute such payments to the Lenders promptly upon
receipt in like funds as received.
All payments (including prepayments) to be made by a Borrower on
account of Multicurrency Loans hereunder, whether on account of principal,
interest, fees or otherwise, shall be made without set-off or counterclaim and
shall be made prior to 12:00 Noon, London time (or, in the case of payments in
euro units, 12:00 Noon, Frankfurt time), on the due date thereof to the
Administrative Agent, for the account of the Revolving Lenders, at the payment
office for the currency of such Multicurrency Loans specified from time to time
by the Administrative Agent by notice to the Revolving Lenders, in the currency
of such Multicurrency Loans and in immediately available funds. The
Administrative Agent shall distribute such payments to the Revolving Lenders
entitled to receive the same promptly upon receipt in like funds as received.
If any payment hereunder (other than payments on the Eurodollar Loans
or Multicurrency Loans) becomes due and payable on a day other than a Business
Day, such payment shall be extended to the next succeeding Business Day. If any
payment on a Eurodollar Loan or a Multicurrency Loan becomes due and payable on
a day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day unless the result of such extension would be to
extend such payment into another calendar month, in which event such payment
shall be made on the immediately preceding Business Day. In the case of any
extension of any payment of principal pursuant to the preceding two sentences,
interest thereon shall be payable at the then applicable rate during such
extension.
A payment shall be deemed to have been made by the Administrative Agent
on the date on which it is required to be made under this Agreement if the
Administrative Agent has, on or before that date, taken all relevant steps to
make that payment. With respect to the payment of any amount denominated in
euro, the Administrative Agent shall not be liable to any Borrower or any of the
Lenders in any way whatsoever for any delay, or the consequences of any delay,
in the crediting to any account of any amount required by this Agreement to be
paid by the Administrative Agent if the Administrative Agent shall have taken
all relevant steps to achieve, on the date required by this Agreement, the
payment of such amount in immediately available, freely transferable, cleared
funds in the euro unit to the account with the bank in the principal financial
center in the Participating Member State which the relevant Borrower or, as the
case may be, any Lender shall have specified for such purpose. In this paragraph
(g), "all relevant steps" means all such steps as may be prescribed from time to
time by the regulations or operating procedures of such clearing or settlement
system as the Administrative Agent may from time to time determine for the
purpose of clearing or settling payments of euro.
47
<PAGE> 54
Unless the Administrative Agent shall have been notified in writing by
any Lender prior to a borrowing that such Lender will not make the amount that
would constitute its share of such borrowing available to the Administrative
Agent, the Administrative Agent may assume that such Lender is making such
amount available to the Administrative Agent, and the Administrative Agent may,
in reliance upon such assumption, make available to the Borrower a corresponding
amount. If such amount is not made available to the Administrative Agent by the
required time on the Borrowing Date therefor, such Lender shall pay to the
Administrative Agent, on demand, such amount with interest thereon at a rate
equal to the daily average Federal Funds Effective Rate (in the case of a
borrowing of Dollar Revolving Loans or Term Loans) and the Administrative
Agent's reasonable estimate of its average daily cost of funds (in the case of a
borrowing of Multicurrency Loans), in each case for the period until such Lender
makes such amount immediately available to the Administrative Agent. A
certificate of the Administrative Agent submitted to any Lender with respect to
any amounts owing under this paragraph shall be conclusive in the absence of
manifest error. If such Lender's share of such borrowing is not made available
to the Administrative Agent by such Lender within three Business Days of such
Borrowing Date, the Administrative Agent shall also be entitled to recover such
amount (together with interest thereon from the date such amount was made
available to such Borrower (i) at the rate per annum applicable to ABR Loans
hereunder (in the case of a borrowing of Dollar Revolving Loans or Term Loans)
or (ii) the Administrative Agent's reasonable estimate of its average daily cost
of funds plus the Applicable Margin applicable to Multicurrency Loans (in the
case of a borrowing of Multicurrency Loans)), on demand, from the applicable
Borrower.
Unless the Administrative Agent shall have been notified in writing by
the applicable Borrower prior to the date of any payment being made hereunder
that such Borrower will not make such payment to the Administrative Agent, the
Administrative Agent may assume that such Borrower is making such payment, and
the Administrative Agent may, but shall not be required to, in reliance upon
such assumption, make available to the Lenders their respective pro rata shares
of a corresponding amount. If such payment is not made to the Administrative
Agent by such Borrower within three Business Days of such required date, the
Administrative Agent shall be entitled to recover, on demand, from each Lender
to which any amount which was made available pursuant to the preceding sentence,
such amount with interest thereon at the rate per annum equal to the daily
average Federal Funds Effective Rate. Nothing herein shall be deemed to limit
the rights of the Administrative Agent or any Lender against any Borrower.
Any amount payable by the Administrative Agent to the Lenders under
this Agreement in the currency of a Participating Member State shall be paid in
the euro unit.
If, in relation to the currency of any Subsequent Participant, the
basis of accrual of interest or fees expressed in this Agreement with respect to
such currency shall be inconsistent with any convention or practice in the
London Interbank Market or, as the case may be, the Paris Interbank Market for
the basis of accrual of interest or fees in respect of the euro, such convention
or practice shall replace such expressed basis effective as of and from the date
on which such Subsequent Participant becomes a Participating Member State;
provided, that if any Loan in the currency of such Subsequent Participant is
outstanding immediately prior to such
48
<PAGE> 55
date, such replacement shall take effect, with respect to such Loan, at the end
of the then current Interest Period.
5.9 Rounding and Other Consequential Changes. Without prejudice and in addition
to any method of conversion or rounding prescribed by any EMU legislation and
without prejudice to the respective liabilities for indebtedness of the
Borrowers to the Lenders and the Lenders to the Borrowers under or pursuant to
this Agreement and without increasing the Revolving Commitment of any Lender:
the Multicurrency Loans and each reference in this Agreement to a
minimum amount (or an integral multiple thereof) in a national currency
denomination of a Subsequent Participant to be paid to or by the Administrative
Agent shall, immediately upon such Subsequent Participant becoming a
Participating Member State, be replaced by a reference to such reasonably
comparable and convenient amount (or an integral multiple thereof) in the euro
unit as the Administrative Agent may from time to time specify; and
except as expressly provided in this Section 5.8, each provision of
this Agreement shall be subject to such reasonable changes of construction as
the Administrative Agent may from time to time specify to be necessary or
appropriate to reflect the adoption of the euro in any Participating Member
State and any relevant market conventions or practices relating to the euro.
5.10 Requirements of Law. If the adoption of or any change in any Requirement of
Law or in the interpretation or application thereof or compliance by any Lender
with any request or directive (whether or not having the force of law) from any
central bank or other Governmental Authority made subsequent to the date hereof:
shall subject any Lender to any tax of any kind whatsoever with respect
to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan
or Multicurrency Loan made by it, or change the basis of taxation of payments to
such Lender in respect thereof (except for Excluded Taxes and Non-Excluded Taxes
covered by Section 5.10 and changes in the rate of tax on the overall net income
of such Lender);
shall impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances, loans or other extensions of
credit by, or any other acquisition of funds by, any office of such Lender that
is not otherwise included in the determination of the Eurodollar Rate or the
Eurocurrency Rate hereunder, including, without limitation, the imposition of
any reserves with respect to Eurocurrency Liabilities under Regulation D of the
Board; or
shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount that such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or Multicurrency Loans or issuing or
participating in Letters of Credit, or to
49
<PAGE> 56
reduce any amount receivable hereunder in respect thereof, then, in any such
case, the applicable Borrower shall promptly pay such Lender, upon its demand,
any additional amounts necessary to compensate such Lender for such increased
cost or reduced amount receivable, provided that such Lender shall have given
notice to the Company within 180 days after it becomes aware or, in the exercise
of reasonable care, should have been aware of the event giving rise to such
payment obligation. If any Lender becomes entitled to claim any additional
amounts pursuant to this paragraph, it shall promptly notify the Company (with a
copy to the Administrative Agent) of the event by reason of which it has become
so entitled.
If any Lender shall have determined that the adoption of or any change
in any Requirement of Law regarding capital adequacy or in the interpretation or
application thereof or compliance by such Lender or any corporation controlling
such Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on such
Lender's or such corporation's capital as a consequence of its obligations
hereunder or under or in respect of any Letter of Credit to a level below that
which such Lender or such corporation could have achieved but for such adoption,
change or compliance (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy) by an amount deemed by
such Lender to be material, then from time to time, after submission by such
Lender to the Company (with a copy to the Administrative Agent) of a written
request therefor, the Company shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such reduction, provided that such
Lender shall have given notice to the Company within 180 days after it becomes
aware or, in the exercise of reasonable care, should have been aware of the
event giving rise to such payment obligation.
A certificate as to any additional amounts payable pursuant to this
Section submitted by any Lender to the Company (with a copy to the
Administrative Agent) shall be conclusive in the absence of manifest error. The
obligations of the Borrowers pursuant to this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.
5.11 Taxes. All payments made by the Borrowers under this Agreement shall be
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority, excluding net
income taxes and franchise taxes (imposed in lieu of net income taxes)
("Excluded Taxes") imposed on the Administrative Agent or any Lender as a result
of a present or former connection between the Administrative Agent or such
Lender and the jurisdiction of the Governmental Authority imposing such tax or
any political subdivision or taxing authority thereof or therein (other than any
such connection arising solely from the Administrative Agent or such Lender
having executed, delivered or performed its obligations or received a payment
under, or enforced, this Agreement or any other Loan Document). If any such
non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Non-Excluded Taxes") or Other Taxes are required to be withheld
from any amounts payable to the Administrative Agent or any Lender hereunder,
the amounts so payable to the
50
<PAGE> 57
Administrative Agent or such Lender shall be increased to the extent necessary
to yield to the Administrative Agent or such Lender (after payment of all
Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement, provided,
however, that the Borrowers shall not be required to increase any such amounts
payable to any Lender with respect to any Non-Excluded Taxes that are
attributable to such Lender's failure to comply with the requirements of
paragraph (d) or (e) of this Section or that are United States withholding taxes
imposed on amounts payable to such Lender at the time the Lender becomes a party
to this Agreement, except, in each case, to the extent that such Lender's
assignor (if any) was entitled, at the time of assignment, to receive additional
amounts from the applicable Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph.
In addition, the Borrowers shall pay any Other Taxes to the relevant
Governmental Authority in accordance with applicable law.
Whenever any Non-Excluded Taxes or Other Taxes are payable by any
Borrower, as promptly as possible thereafter such Borrower shall send to the
Administrative Agent for its own account or for the account of the relevant
Lender, as the case may be, a certified copy of an original official receipt
received by such Borrower showing payment thereof. If a Borrower fails to pay
any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing
authority or fails to remit to the Administrative Agent the required receipts or
other required documentary evidence, such Borrower shall indemnify the
Administrative Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Administrative Agent or any Lender as a
result of any such failure.
Each Lender (or Transferee) that is not a United States person as
defined in Section 7701(a)(30) of the Code (a "Non-U.S. Lender") shall deliver
to the Company and the Administrative Agent (or, in the case of a Participant,
to the Lender from which the related participation shall have been purchased)
two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or,
in the case of a Non-U.S. Lender claiming exemption from U.S. federal
withholding tax under Section 871(h) or 881(c) of the Code with respect to
payments of "portfolio interest", a statement substantially in the form of
Exhibit H and a Form W-8, or any subsequent versions thereof or successors
thereto, properly completed and duly executed by such Non-U.S. Lender claiming
complete exemption from, or a reduced rate of, U.S. federal withholding tax on
all payments by the Company under this Agreement and the other Loan Documents.
Such forms shall be delivered by each Non-U.S. Lender on or before the date it
becomes a party to this Agreement (or, in the case of any Participant, on or
before the date such Participant purchases the related participation). In
addition, each Non-U.S. Lender shall deliver such forms promptly upon the
obsolescence or invalidity of any form previously delivered by such Non-U.S.
Lender. Each Non-U.S. Lender shall promptly notify the Company at any time it
determines that it is no longer in a position to provide any previously
delivered certificate to the Company (or any other form of certification adopted
by the U.S. taxing authorities for such purpose). Notwithstanding any other
provision of this paragraph, a Non-U.S. Lender shall not be required to deliver
any form pursuant to this paragraph that such Non-U.S. Lender is not legally
able to deliver.
51
<PAGE> 58
A Lender that is entitled to an exemption from or reduction of non-U.S.
withholding tax under the law of the jurisdiction in which a Borrower is
located, or any treaty to which such jurisdiction is a party, with respect to
payments under this Agreement shall deliver to such Borrower (with a copy to the
Administrative Agent), at the time or times prescribed by applicable law or
reasonably requested by such Borrower, such properly completed and executed
documentation prescribed by applicable law as will permit such payments to be
made without withholding or at a reduced rate, provided that such Lender is
legally entitled to complete, execute and deliver such documentation and in such
Lender's judgment such completion, execution or submission would not materially
prejudice the legal position of such Lender.
The agreements in this Section shall survive the termination of this
Agreement and the payment of the Loans and all other amounts payable hereunder.
5.12 Indemnity. Each of the Borrowers agrees to indemnify each Lender and to
hold each Lender harmless from any loss or expense that such Lender may sustain
or incur as a consequence of default by such Borrower in making a borrowing of,
conversion into or continuation of Eurodollar Loans or Multicurrency Loans after
the Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, default by such Borrower in making any prepayment
of or conversion from Eurodollar Loans or Multicurrency Loans after the Borrower
has given a notice thereof in accordance with the provisions of this Agreement
or the making of a prepayment of Eurodollar Loans or Multicurrency Loans on a
day that is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of the amount
of interest that would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
over the amount of interest (as reasonably determined by such Lender) that would
have accrued to such Lender on such amount by placing such amount on deposit for
a comparable period with leading banks in the interbank eurodollar market. A
certificate as to any amounts payable pursuant to this Section submitted to the
Company by any Lender shall be conclusive in the absence of manifest error. This
covenant shall survive the termination of this Agreement and the payment of the
Loans and all other amounts payable hereunder.
5.13 Change of Lending Office. Each Lender agrees that, upon the occurrence of
any event giving rise to the operation of Section 5.9 or 5.10(a) with respect to
such Lender, it will, if requested by the Company, use reasonable efforts
(subject to overall policy considerations of such Lender) to designate another
lending office for any Loans affected by such event with the object of avoiding
the consequences of such event; provided, that such designation is made on terms
that, in the sole judgment of such Lender, cause such Lender and its lending
office(s) to suffer no economic, legal or regulatory disadvantage, and provided,
further, that nothing in this Section shall affect or postpone any of the
obligations of any Borrower or the rights of any Lender pursuant to Section 5.9
or 5.10(a).
52
<PAGE> 59
5.14 Subsidiary Borrowers. The Company may designate any Qualified Foreign
Subsidiary of the Company as a Subsidiary Borrower by delivery to the
Administrative Agent of a Borrowing Subsidiary Agreement executed by such
Subsidiary and the Company and upon such delivery such Subsidiary shall for all
purposes of this Agreement be a Subsidiary Borrower and a party to this
Agreement until the Company shall have executed and delivered to the
Administrative Agent a Borrowing Subsidiary Termination with respect to such
Subsidiary, whereupon such Subsidiary shall cease to be a Subsidiary Borrower
and a party to this Agreement. Notwithstanding the preceding sentence, no
Borrowing Subsidiary Termination will become effective as to any Subsidiary
Borrower at a time when any principal of or interest on any Loan to such
Subsidiary Borrower shall be outstanding hereunder, provided that such Borrowing
Subsidiary Termination shall be effective to terminate such Subsidiary
Borrower's right to make further borrowings under this Agreement. It is
understood that the Borrowing Subsidiary Agreement of DII International Holdings
C.V. dated as of October 30, 1998 shall remain in effect.
5.15 Replacement of Lenders. The Company shall be permitted to replace any
Lender that requests reimbursement for amounts owing pursuant to Section 5.9 or
5.10(a) or defaults in its obligation to make Loans hereunder, with a
replacement financial institution; provided that such replacement does not
conflict with any Requirement of Law, no Event of Default shall have occurred
and be continuing at the time of such replacement, prior to any such
replacement, such Lender shall have taken no action under Section 5.12 so as to
eliminate the continued need for payment of amounts owing pursuant to Section
5.9 or 5.10(a), the replacement financial institution shall purchase, at par,
all Loans and other amounts owing to such replaced Lender on or prior to the
date of replacement, the Company shall be liable to such replaced Lender under
Section 5.11 if any Eurodollar Loan owing to such replaced Lender shall be
purchased other than on the last day of the Interest Period relating thereto,
the replacement financial institution, if not already a Lender, shall be
reasonably satisfactory to the Administrative Agent, the replaced Lender shall
be obligated to make such replacement in accordance with the provisions of
Section 13.6 (provided that the Company shall be obligated to pay the
registration and processing fee referred to therein), until such time as such
replacement shall be consummated, the Borrowers shall pay all additional amounts
(if any) required pursuant to Section 5.9 or 5.10(a), as the case may be, and
any such replacement shall not be deemed to be a waiver of any rights that any
Borrower, the Administrative Agent or any other Lender shall have against the
replaced Lender.
5.16 Lending Installations. Each Lender may book its Loans at any Lending
Installation selected by such Lender and may change Lending Installation from
time to time; provided that such Lender shall be solely responsible with respect
to any Loans so booked, and the Borrowers and the Administrative Agent shall be
entitled to deal solely with the Lender with respect to such Loans. All terms of
this Agreement shall apply to any such Lending Installation and the Loans and
any Notes issued hereunder shall be deemed held by each Lender for the benefit
of any such Lending Installation. Each Lender may, by written notice to the
Administrative Agent and the Borrower in accordance with Section 13.2, designate
53
<PAGE> 60
replacement or additional Lending Installations through which Loans will be made
by it and for whose account Loan payments are to be made.
SECTION 6. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and issue or participate in the Letters of
Credit, each of the Company and each Subsidiary Borrower (to the extent such
representation relates to such Subsidiary Borrower) hereby represents and
warrants to the Administrative Agent and each Lender that:
6.1 Financial Condition. The unaudited pro forma consolidated balance sheet of
the Company and its consolidated Subsidiaries as at July 31, 1999 (the "Pro
Forma Balance Sheet"), copies of which have heretofore been furnished to each
Lender, has been prepared giving effect (as if such events had occurred on such
date) to the consummation of the Acquisitions, the Loans to be made on the
Closing Date and the use of proceeds thereof and the payment of fees and
expenses in connection with the foregoing. The Pro Forma Balance Sheet has been
prepared based on the best information available to the Company as of the date
of delivery thereof, and presents fairly on a pro forma basis the estimated
financial position of the Company and its consolidated Subsidiaries as at July
31, 1999, assuming that the events specified in the preceding sentence had
actually occurred at such date.
The audited consolidated balance sheets of the Company as at January 3,
1999 and December 28, 1997, and the related consolidated statements of income
and of cash flows for the fiscal years ended on such dates, reported on by and
accompanied by an unqualified report from Deloitte & Touche LLP, present fairly
the consolidated financial condition of the Company as at such dates, and the
consolidated results of its operations and its consolidated cash flows for the
respective fiscal years then ended. The unaudited consolidated balance sheet of
the Company as at July 4, 1999, and April 4, 1999, and the related unaudited
consolidated statements of income and cash flows for each of the thirteen-week
periods ended on such dates, present fairly the consolidated financial condition
of the Company as at such dates, and the consolidated results of its operations
and its consolidated cash flows for the thirteen-week periods then ended
(subject to normal year-end audit adjustments). All such financial statements,
including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied consistently throughout the periods involved
(except as approved by the aforementioned firm of accountants and disclosed
therein). The Company and its Subsidiaries, taken as a whole, do not have any
material Guarantee Obligations, contingent liabilities and liabilities for
taxes, or any long-term leases or unusual forward or long-term commitments,
including any interest rate or foreign currency swap or exchange transaction or
other obligation in respect of derivatives, that are not reflected in the most
recent financial statements referred to in this paragraph. During the period
from January 3, 1999 to and including the date hereof there has been no
Disposition by the Company of any material part of its business or property.
6.2 No Change. Since January 3, 1999 there has been no development or event that
has had or could reasonably be expected to have a Material Adverse Effect,
except as
54
<PAGE> 61
disclosed in the Confidential Information Package (or incorporated by reference
therein), a copy of which has been delivered to each Lender.
6.3 Corporate Existence; Compliance with Law. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, has the corporate power and
authority, and the legal right, to own and operate its property, to lease the
property it operates as lessee and to conduct the business in which it is
currently engaged, is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
and is in compliance with all Requirements of Law, except to the extent that the
failure to comply with any of the foregoing clauses (c) or (d) could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
6.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has
the corporate power and authority, and the legal right, to make, deliver and
perform the Loan Documents and Acquisition Documentation to which it is a party
and, in the case of the Borrowers, to borrow hereunder and, in the case of each
Loan Party which is a party to the Austrian Acquisition Agreement, to consummate
the Austrian Acquisition and, in the case of each Loan Party which is a party to
the Brazilian Acquisition Agreement to consummate the Brazilian Acquisition.
Each Loan Party has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Documents to which it is a party
and, in the case of the Borrowers, to authorize the borrowings on the terms and
conditions of this Agreement. No consent or authorization of, filing with,
notice to or other act by or in respect of, any Governmental Authority or any
other Person is required in connection with the Acquisitions and the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except consents,
authorizations, filings and notices described in Schedule 6.4, which consents
(except as otherwise disclosed in Schedule 6.4), authorizations, filings and
notices have been obtained or made and are in full force and effect and the
filings referred to in Section 6.19. Each Loan Document has been duly executed
and delivered on behalf of each Loan Party party thereto. This Agreement
constitutes, and each other Loan Document upon execution will constitute, a
legal, valid and binding obligation of each Loan Party party thereto,
enforceable against each such Loan Party in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
6.5 No Legal Bar. The execution, delivery and performance of this Agreement and
the other Loan Documents, the issuance of Letters of Credit, the borrowings
hereunder, the use of the proceeds thereof and the consummation of the
Acquisitions will not violate any Requirement of Law or any Contractual
Obligation of the Company or any of its Subsidiaries and will not result in, or
require, the creation or imposition of any Lien on any of their respective
properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No
55
<PAGE> 62
Requirement of Law or Contractual Obligation applicable to the Company or any of
its Subsidiaries could reasonably be expected to have a Material Adverse Effect.
6.6 Litigation. No litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of the
Company, threatened by or against the Company or any of its Subsidiaries or
against any of their respective properties or revenues with respect to any of
the Loan Documents or any of the transactions contemplated hereby or thereby or
the Acquisitions, or that could reasonably be expected to have a Material
Adverse Effect.
6.7 No Default. Neither the Company nor any of its Subsidiaries is in default
under or with respect to any of its Contractual Obligations in any respect that
could reasonably be expected to have a Material Adverse Effect. No Default or
Event of Default has occurred and is continuing.
6.8 Ownership of Property; Liens. Each of the Company and its Subsidiaries has
title in fee simple to, or a valid leasehold interest in, all its real property,
and good title to, or a valid leasehold interest in, all its other property, and
none of such property is subject to any Lien except as permitted by Section 9.3.
6.9 Intellectual Property. The Company and each of its Subsidiaries owns, or is
licensed to use, all Intellectual Property necessary for the conduct of its
business as currently conducted. No material claim has been asserted and is
pending by any Person challenging or questioning the use of any Intellectual
Property or the validity or effectiveness of any Intellectual Property, nor does
the Company know of any valid basis for any such material claim. The use of
Intellectual Property by the Company and its Subsidiaries does not infringe on
the rights of any Person in any material respect.
6.10 Taxes. Each of the Company and each of its Subsidiaries has filed or caused
to be filed all Federal, state and other material tax returns that are required
to be filed and has paid all taxes shown to be due and payable on said returns
or on any assessments made against it or any of its property and all other
taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Company or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of such Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.
6.11 Federal Regulations. No part of the proceeds of any Loans will be used for
"buying" or "carrying" any "margin stock" within the respective meanings of each
of the quoted terms under Regulation U as now and from time to time hereafter in
effect or for any purpose that violates the provisions of the Regulations of the
Board. If requested by any Lender or the Administrative Agent, the Company will
furnish to the Administrative Agent and each Lender a statement to the foregoing
effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as
applicable, referred to in Regulation U.
56
<PAGE> 63
6.12 Labor Matters. Except as, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect: there are no strikes or other labor
disputes against the Company or any of its Subsidiaries pending or, to the
knowledge of such party, threatened; hours worked by and payment made to
employees of the Company and its Subsidiaries have not been in violation of the
Fair Labor Standards Act or any other applicable Requirement of Law dealing with
such matters; and all payments due from the Company or any of its Subsidiaries
on account of employee health and welfare insurance have been paid or accrued as
a liability on the books of the Company or the relevant Subsidiary.
6.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency"
(within the meaning of Section 412 of the Code or Section 302 of ERISA) has
occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and except as,
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect, each Plan has complied in all respects with the applicable provisions of
ERISA and the Code. No termination of a Single Employer Plan has occurred, and
no Lien in favor of the PBGC or a Plan has arisen, during such five-year period.
The present value of all accrued benefits under each Single Employer Plan (based
on those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits by a material amount. Neither the Company nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan that
has resulted or could reasonably be expected to result in a material liability
under ERISA, and neither the Company nor any Commonly Controlled Entity would
become subject to any material liability under ERISA if the Company or any such
Commonly Controlled Entity were to withdraw completely from all Multiemployer
Plans as of the valuation date most closely preceding the date on which this
representation is made or deemed made. No such Multiemployer Plan is in
Reorganization or Insolvent.
6.14 Investment Company Act; Other Regulations. No Loan Party is an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended. No Loan Party is
subject to regulation under any Requirement of Law (other than Regulation X of
the Board) that limits its ability to incur Indebtedness.
6.15 Subsidiaries. Except as disclosed to the Administrative Agent by the
Company in writing from time to time after the Closing Date, Schedule 6.15 sets
forth the name and jurisdiction of incorporation of each Subsidiary and, as to
each such Subsidiary, the percentage of each class of Capital Stock owned by any
Loan Party and there are no outstanding subscriptions, options, warrants, calls,
rights or other agreements or commitments (other than stock options and other
rights under the Company's 1994 Stock Incentive Plan, 1994 Employee Stock
Purchase Plan and Non-Employee Directors Stock Compensation Plan granted to
employees or directors and directors' qualifying shares and the Amended and
Restated Certificate of Incorporation of the LMS, as in effect on the date
hereof) of any nature relating to any Capital Stock of the Company or any
Subsidiary, except as created by the Loan Documents.
57
<PAGE> 64
6.16 Use of Proceeds. The proceeds of the Tranche A Term Loans were used to make
an equity contribution to DII International Holdings C.V., a wholly owned Dutch
subsidiary of the Company (which used such proceeds to fund the purchase price
of the HP Acquisition), and to pay fees and expenses related to the HP
Acquisition.
The Tranche B Term Loans will be used to finance the Acquisitions and
to pay related fees and expenses.
The proceeds of the Revolving Loans made, and the Letters of Credit
issued, after the Closing Date will be used to finance the Acquisitions and to
pay related fees and expenses, to finance the Borrower's purchase of Foreign
Acquisition Loan Participations and other Investments of the Borrower and its
Subsidiaries in connection with Qualified Foreign Transactions and for general
corporate purposes in the ordinary course of business.
6.17 Environmental Matters. Except as, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect:
the facilities and properties owned, leased or operated by the Company
or any of its Subsidiaries (the "Properties") do not contain, and have not
previously contained, any Materials of Environmental Concern in amounts or
concentrations or under circumstances that constitute or constituted a violation
of, or could give rise to liability under, any Environmental Law;
neither the Company nor any of its Subsidiaries has received or is
aware of any notice of violation, alleged violation, non-compliance, liability
or potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Properties or the business operated
by the Company or any of its Subsidiaries (the "Business"), nor does such party
have knowledge or reason to believe that any such notice will be received or is
being threatened;
Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
that could give rise to liability under, any Environmental Law, nor have any
Materials of Environmental Concern been generated, treated, stored or disposed
of at, on or under any of the Properties in violation of, or in a manner that
could give rise to liability under, any applicable Environmental Law;
no judicial proceeding or governmental or administrative action is
pending or, to the knowledge of such party, threatened, under any Environmental
Law to which the Company or any Subsidiary is or will be named as a party with
respect to the Properties or the Business, nor are there any consent decrees or
other decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law
with respect to the Properties or the Business;
58
<PAGE> 65
there has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Company or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or in
amounts or in a manner that could give rise to liability under Environmental
Laws;
the Properties and all operations at the Properties are in compliance,
and have in the last five years been in compliance, with all applicable
Environmental Laws, and there is no contamination at, under or about the
Properties or violation of any Environmental Law with respect to the Properties
or the Business; and
neither the Company nor any of its Subsidiaries has assumed any
liability of any other Person under Environmental Laws.
6.18 Accuracy of Information, etc. Other than the projections and pro forma
financial information referred to in the next sentence, the statements and
information contained in this Agreement, the other Loan Documents, the
Confidential Information Package and all other documents, certificates and
written statements (as the same may have been updated or supplemented, provided
such update or supplement has been furnished to the Administrative Agent and the
Lenders prior to the date of this Agreement) furnished by or on behalf of the
Loan Parties to the Administrative Agent and the Lenders for use in connection
with the transactions contemplated by this Agreement and the other Loan
Documents, do not contain, as of the date of this Agreement, any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The projections and pro forma financial information
contained in the materials referenced above are based upon good faith estimates
and assumptions believed by management of the Company to be reasonable at the
time made, it being recognized by the Lenders that such financial information as
it relates to future events is not to be viewed as fact and that actual results
during the period or periods covered by such financial information may differ
from the projected results set forth therein by a material amount. As of the
date hereof, the representations and warranties contained in the Acquisition
Documentation are true and correct in all material respects; provided, that the
respective representations and warranties of Micro Eletronica Ltda. and Ericsson
Austria AG contained therein are understood to be true and correct in all
material respects to the best of the Company's knowledge. There is no fact known
to any Loan Party that could reasonably be expected to have a Material Adverse
Effect that has not been expressly disclosed herein, in the other Loan
Documents, in the Confidential Information Package or in any other documents,
certificates and statements furnished to the Administrative Agent and the
Lenders for use in connection with the transactions contemplated hereby and by
the other Loan Documents. It is understood that, to the best of the Company's
knowledge, any information with respect to each target of the Acquisitions that
has been or will be made available by the Company to the Administrative Agent
and the Arranger is, or will be when furnished, complete and correct in all
material respects.
6.19 Security Documents. The Guarantee and Collateral Agreement is effective to
create in favor of the Administrative Agent, for the benefit of the Lenders, a
legal, valid and enforceable security interest in the Collateral described
therein and proceeds thereof.
59
<PAGE> 66
In the case of certificated Pledged Stock described in the Guarantee and
Collateral Agreement, when stock certificates representing such Pledged Stock
are delivered to the Administrative Agent, and in the case of the other
Collateral described in the Guarantee and Collateral Agreement, when financing
statements and other filings specified on Schedule 6.19 in appropriate form are
filed in the offices specified on Schedule 6.19, the Guarantee and Collateral
Agreement shall constitute a fully perfected (to the extent perfection is
permitted or provided for under any applicable foreign law) Lien on, and
security interest in, all right, title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in the Guarantee and Collateral Agreement), in each case prior and superior in
right to any other Person (except, in the case of Collateral other than Pledged
Stock, Liens permitted by Section 9.3).
6.20 Solvency. Each Loan Party is, and after giving effect to the Acquisitions
and the incurrence of all Indebtedness and obligations being incurred in
connection herewith and therewith will be and will continue to be, Solvent.
6.21 Year 2000 Matters. Any reprogramming required to permit the proper
functioning (but only to the extent that such proper functioning would otherwise
be impaired by the occurrence of the year 2000) in and following the year 2000
of computer systems and other equipment containing embedded microchips material
to the conduct of business, in either case owned or operated by the Company or
any of its Subsidiaries or used or relied upon in the conduct of their business
(including any such systems and other equipment supplied by others or with which
the computer systems of the Company or any of its Subsidiaries interface), and
the testing of all such systems and other equipment as so reprogrammed, will be
completed in all material respects by November 1, 1999. The costs to the Company
and its Subsidiaries that have not been incurred as of the date hereof for such
reprogramming and testing and for the other reasonably foreseeable consequences
to them of any improper functioning of other computer systems and equipment
containing embedded microchips due to the occurrence of the year 2000 could not
reasonably be expected to result in a Default or Event of Default or to have a
Material Adverse Effect. Except for any reprogramming referred to above, the
computer systems of the Company and its Subsidiaries are and, with ordinary
course upgrading and maintenance, will continue for the term of this Agreement
to be, sufficient for the conduct of their business as currently conducted.
6.22 Certain Documents. The Company has delivered to the Administrative Agent
(with a copy for each Lender) a complete and correct copy of the Acquisition
Documentation in form and effect on the date hereof, including any amendments,
supplements or modifications with respect to any of the foregoing.
6.23 Immaterial Subsidiaries. The aggregate book value of the assets of each
Immaterial Subsidiary set forth on Schedule 1.1C does not exceed, for any such
Immaterial Subsidiary, 5% of the aggregate book value of the assets of the
Company and its Subsidiaries taken as a whole and the aggregate book value of
the assets of all such Immaterial Subsidiaries taken together does not exceed
10% of the aggregate book value of the assets of the Company and its
Subsidiaries taken as a whole.
60
<PAGE> 67
The revenues of each Immaterial Subsidiary set forth on Schedule 1.1C
in any fiscal year shall not exceed, for any such Immaterial Subsidiary, 5% of
the revenues of the Company and its Subsidiaries taken as a whole for such
fiscal year and the revenues all such Immaterial Subsidiaries taken together
shall not exceed, for any fiscal year, 10% of the revenues of the Company and
its Subsidiaries taken as a whole for such fiscal year.
Notwithstanding the foregoing, the Company shall not be deemed to have
made an untrue representation under this Section 6.23 if the Company shall
redesignate any Immaterial Subsidiary as a Material Subsidiary by notice to the
Administrative Agent delivered at the time of delivery of the Company's audited
financial statements for any fiscal year demonstrating that such redesignation
is required in order to comply with the foregoing provisions of this Section
6.23.
SECTION 7. CONDITIONS PRECEDENT
7.1 Conditions to Initial Extension of Credit. The agreement of each Lender to
make the initial extension of credit requested to be made by it is subject to
the satisfaction, prior to or concurrently with the making of such extension of
credit on the Closing Date (but in any event no later than September 30, 1999),
of the following conditions precedent:
Loan Documents. The Administrative Agent shall have received this
Agreement, executed and delivered by the Administrative Agent, the Company and
each Person listed on Schedule 1.1A, the Guarantee and Collateral Agreement,
executed and delivered by the Company and each Subsidiary Guarantor, an
Acknowledgment and Consent in the form attached to the Guarantee and Collateral
Agreement, executed and delivered by each Issuer (as defined therein), if any,
that is not a Loan Party and the Intercreditor Agreement, executed and delivered
by a duly authorized officer of the parties thereto.
Acquisition Documents. The Administrative Agent shall have received
certified true copies of the Acquisition Documentation, in each case, in form
and effect on the Closing Date.
Pro Forma Balance Sheet. The Lenders shall have received the Pro Forma
Balance Sheet.
Approvals. All governmental and third party approvals necessary in
connection with the Acquisitions, the continuing operations of the Company and
its Subsidiaries and the transactions contemplated hereby shall have been
obtained and be in full force and effect, and all applicable waiting periods
shall have expired without any action being taken or threatened by any competent
authority that would restrain, prevent or otherwise impose adverse conditions on
the Acquisitions or the financing contemplated hereby, other than those
approvals listed on Schedule 7.1(d).
61
<PAGE> 68
Business Plan. The Lenders shall have received a business plan for the
Company and its Subsidiaries for the four fiscal years ending December 31, 2003
for the period from the Closing Date through the final maturity of the Term
Loans.
Fees. The Lenders, the Administrative Agent and the Arranger shall have
received all fees required to be paid, and all expenses for which invoices have
been presented (including the reasonable fees and expenses of legal counsel), on
or before the Closing Date. All such amounts will be paid with proceeds of Loans
made on the Closing Date and will be reflected in the funding instructions given
by the Company to the Administrative Agent on or before the Closing Date.
Closing Certificate. The Administrative Agent shall have received, with
a counterpart for each Lender, a certificate of each Loan Party, dated the
Closing Date, substantially in the form of Exhibit E, with appropriate
insertions and attachments.
Legal Opinion. The Administrative Agent shall have received the
executed legal opinion of Curtis, Mallet-Prevost, Colt & Mosle counsel to the
Company and its Subsidiaries, substantially in the form of Exhibit G-1.
The legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Administrative Agent may
reasonably require.
Pledged Stock; Stock Powers; Pledged Notes. The Collateral Agent shall
have received the certificates representing the shares of Capital Stock that are
certificated pledged pursuant to the Guarantee and Collateral Agreement,
together with an undated stock power for each such certificate executed in blank
by a duly authorized officer of the pledgor thereof and each promissory note (if
any) pledged to the Collateral Agent pursuant to the Guarantee and Collateral
Agreement endorsed (without recourse) in blank (or accompanied by an executed
transfer form in blank) by the pledgor thereof.
Filings, Registrations and Recordings. Each document (including any
Uniform Commercial Code financing statement) required by the Security Documents
or under law or reasonably requested by the Collateral Agent to be filed,
registered or recorded in order to create in favor of the Collateral Agent, for
the benefit of the Lenders, a perfected (to the extent perfection is permitted
or provided for under any applicable foreign law) Lien on the Collateral
described therein, prior and superior in right to any other Person (other than
with respect to Liens expressly permitted by Section 9.3), shall be in proper
form for filing, registration or recordation.
Solvency Certificate. The Administrative Agent shall have received a
solvency certificate substantially in the form of Exhibit I hereto, from the
Chief Financial Officer of the Company.
Insurance. The Administrative Agent shall have received insurance
certificates satisfying the requirements of Section 5.2(b) of the Guarantee and
Collateral Agreement.
62
<PAGE> 69
7.2 Conditions to Each Extension of Credit. The agreement of each Lender to make
any extension of credit requested to be made by it on any date (including its
initial extension of credit) is subject to the satisfaction of the following
conditions precedent:
Representations and Warranties. Each of the representations and
warranties made by any Loan Party in or pursuant to the Loan Documents shall be
true and correct in all material respects on and as of such date as if made on
and as of such date (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required to
be true and correct in all material respects only as of such specified date).
No Default. No Default or Event of Default shall have occurred and be
continuing on such date or after giving effect to the extensions of credit
requested to be made on such date.
Each borrowing by and issuance of a Letter of Credit on behalf of any Borrower
hereunder shall constitute a representation and warranty by the Company as of
the date of such extension of credit that the conditions contained in this
Section 7.2 have been satisfied. In addition, each borrowing by a Subsidiary
Borrower hereunder shall constitute a representation and warranty by such
Subsidiary Borrower (insofar as such conditions relate to representations and
warranties or covenants or agreements of such Subsidiary Borrower) as of the
date thereof that the conditions contained in this Section 7.2 have been
satisfied.
7.3 Each Subsidiary Borrower Credit Event. The agreement of each Revolving
Lender to make the initial extension of credit requested to be made by it to any
Subsidiary Borrower on any date is subject to the satisfaction of the following
conditions precedent:
Borrowing Subsidiary Agreement. The Administrative Agent shall have
received the Borrowing Subsidiary Agreement for such Subsidiary Borrower
executed and delivered by the Company and such Subsidiary Borrower.
Opinions. The Administrative Agent shall have received a satisfactory
written opinion of reputable counsel for such Subsidiary Borrower, substantially
in the form of Exhibit G-2, and covering such other matters relating to such
Subsidiary Borrower or its Borrowing Subsidiary Agreement as the Administrative
Agent shall reasonably request.
Other Documents. The Administrative Agent shall have received a Closing
Certificate in the form of Exhibit E hereto, with appropriate insertions and
attachments, and such other documents and certificates as the Administrative
Agent or its counsel may reasonably request relating to the organization,
existence and good standing of such Subsidiary Borrower, the authorization of
the transactions contemplated hereby relating to such Subsidiary Borrower and
any other legal matters relating to such Subsidiary Borrower, its Borrowing
Subsidiary Agreement or such transactions, all in form and substance
satisfactory to the Administrative Agent.
63
<PAGE> 70
SECTION 8. AFFIRMATIVE COVENANTS
The Company agrees, and each Subsidiary Borrower agrees (to the extent
specifically applicable to such Subsidiary Borrower), that, so long as the
Commitments remain in effect, any Letter of Credit remains outstanding or any
Loan or other amount is owing to any Lender or the Administrative Agent
hereunder, each such party shall and shall cause each of its Subsidiaries to:
8.1 Financial Statements. Furnish to the Administrative Agent and each Lender:
as soon as available, but in any event within 90 days after the end of
each fiscal year of the Company, a copy of the audited consolidated balance
sheet of the Company and its consolidated Subsidiaries as at the end of such
year and the related audited consolidated statements of income and of cash flows
for such year, setting forth in each case in comparative form the figures for
the previous year, reported on without a "going concern" or like qualification
or exception, or qualification arising out of the scope of the audit, by
Deloitte & Touche LLP or other independent certified public accountants of
nationally recognized standing; and
as soon as available, but in any event not later than 45 days after the
end of each of the first three quarterly periods of each fiscal year of the
Company, the unaudited condensed consolidated balance sheet of the Company and
its consolidated Subsidiaries as at the end of such quarter and the related
unaudited condensed consolidated statements of income and of cash flows for such
quarter and the portion of the fiscal year through the end of such quarter,
setting forth in each case in comparative form the figures for the previous
year, certified by a Responsible Officer as being fairly stated in all material
respects (subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
64
<PAGE> 71
8.2 Certificates; Other Information. Furnish to the Administrative Agent and
each Lender (or, in the case of clause (f), to the relevant Lender):
concurrently with the delivery of any financial statements pursuant to
Section 8.1, a certificate of a Responsible Officer stating that, to the best of
such Responsible Officer's knowledge, each Loan Party during such period has
observed or performed in all material respects all of its covenants and other
agreements, and satisfied in all material respects every condition, contained in
this Agreement and the other Loan Documents to which it is a party to be
observed, performed or satisfied by it, and that such Responsible Officer has
obtained no knowledge of any Default or Event of Default except as specified in
such certificate and in the case of quarterly or annual financial statements,
(x) a Compliance Certificate containing all information and calculations
necessary for determining compliance by the Company and its Subsidiaries with
the provisions of this Agreement referred to therein as of the last day of the
fiscal quarter or fiscal year of the Company, as the case may be, and (y) to the
extent not previously disclosed to the Administrative Agent, a listing of any
county or state within the United States where any Loan Party keeps inventory or
equipment acquired by any Loan Party since the date of the most recent list
delivered pursuant to this clause (y) (or, in the case of the first such list so
delivered, since the Closing Date), together with evidence satisfactory to the
Administrative Agent that all actions required to perfect the security interest
(if required under this Agreement or any other Loan Document) of the Lenders in
such property have been taken;
as soon as available, and in any event no later than 45 days after the
end of each fiscal year of the Company, a detailed consolidated budget for the
following fiscal year (including a projected consolidated balance sheet of the
Company and its Subsidiaries as of the end of the following fiscal year, the
related consolidated statements of projected cash flow, projected changes in
financial position and projected income and a description of the underlying
assumptions applicable thereto), and, as soon as available, significant
revisions, if any, of such budget and projections with respect to such fiscal
year (collectively, the "Projections"), which Projections shall in each case be
accompanied by a certificate of a Responsible Officer stating that such
Projections are based on reasonable estimates, information and assumptions and
that such Responsible Officer has no reason to believe that such Projections are
incorrect or misleading in any material respect;
within 45 days after the end of each fiscal quarter of the Company, a
narrative discussion and analysis of the financial condition and results of
operations of the Company and its Subsidiaries for such fiscal quarter and for
the period from the beginning of the then current fiscal year to the end of such
fiscal quarter, as compared to the comparable periods of the previous year;
no later than 5 Business Days prior to the effectiveness thereof,
copies of substantially final drafts of any proposed material amendment,
supplement, waiver or other modification with respect to the Acquisition
Documentation;
within five days after the same are sent, copies of all financial
statements and reports that the Company sends to the holders of any class of its
debt securities or public equity
65
<PAGE> 72
securities and, within five days after the same are filed, copies of all
financial statements and reports that the Company may make to, or file with, the
SEC; and
promptly, such additional financial and other information as any Lender
may from time to time reasonably request.
8.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, all its material
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Company or its Subsidiaries, as the case may be.
8.4 Maintenance of Existence; Compliance. Preserve, renew and keep in full force
and effect its corporate existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or desirable in the normal
conduct of its business, except, in each case, as otherwise permitted by Section
9.4 and except, in the case of clause (ii) above, to the extent that failure to
do so could not reasonably be expected to have a Material Adverse Effect; and
comply with all Contractual Obligations and Requirements of Law except to the
extent that failure to comply therewith could not, in the aggregate, reasonably
be expected to have a Material Adverse Effect.
8.5 Maintenance of Property; Insurance. Keep all property useful and necessary
in its business in good working order and condition, ordinary wear and tear
excepted and maintain with financially sound and reputable insurance companies
insurance on all its property in at least such amounts and against at least such
risks (but including in any event public liability, product liability and
business interruption) as are usually insured against in the same general area
by companies engaged in the same or a similar business.
8.6 Inspection of Property; Books and Records; Discussions. Keep proper books of
records and account in which full, true and correct entries in conformity with
GAAP and all Requirements of Law shall be made of all dealings and transactions
in relation to its business and activities and permit representatives of any
Lender to visit and inspect any of its properties and examine and make abstracts
from any of its books and records at any reasonable times on any Business Day
and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Company and its
Subsidiaries with officers and employees of the Company and its Subsidiaries and
with its independent certified public accountants, with prior notice to the
Company or its Subsidiaries and subject to reasonable security and
confidentiality procedures.
8.7 Notices. Promptly give notice to the Administrative Agent and each Lender
of:
the occurrence of any Default or Event of Default;
66
<PAGE> 73
any default or event of default under any Contractual Obligation of the
Company or any of its Subsidiaries or litigation, investigation or proceeding
that may exist at any time between the Company or any of its Subsidiaries and
any Governmental Authority, that in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a Material
Adverse Effect;
any litigation or proceeding affecting the Company or any of its
Subsidiaries in which the amount involved is $5,000,000 or more and not covered
by insurance or in which injunctive or similar relief is sought;
the following events, as soon as possible and in any event within 30
days after the Company knows or has reason to know thereof: the occurrence of
any Reportable Event with respect to any Plan, a failure to make any required
contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan
or any withdrawal from, or the termination, Reorganization or Insolvency of, any
Multiemployer Plan or the institution of proceedings or the taking of any other
action by the PBGC or the Company or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the termination,
Reorganization or Insolvency of, any Plan; and
any development or event that has had or could reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this Section 8.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company or the relevant Subsidiary proposes
to take with respect thereto.
8.8 Environmental Laws. Comply in all material respects with, and ensure
compliance in all material respects by all tenants and subtenants, if any, with,
all applicable Environmental Laws, and obtain and comply in all material
respects with and maintain, and ensure that all tenants and subtenants obtain
and comply in all material respects with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
Environmental Laws.
Conduct and complete all investigations, studies, sampling and testing,
and all remedial, removal and other actions required under Environmental Laws
and promptly comply in all material respects with all lawful orders and
directives of all Governmental Authorities regarding Environmental Laws.
8.9 Additional Collateral, etc. With respect to any property acquired after the
Closing Date by the Company or any of its Subsidiaries (other than (x) any
property described in paragraph (b) or (c) below, (y) any property subject to a
Lien expressly permitted by Section 9.3(g) and (z) property acquired by any
Excluded Foreign Subsidiary or Immaterial Subsidiary) as to which the Collateral
Agent, for the benefit of the Lenders, does not have a perfected (to the extent
perfection is permitted or provided for under any applicable foreign law) Lien,
promptly execute and deliver to the Collateral Agent such amendments to the
Guarantee and Collateral Agreement or such other documents as the Collateral
Agent deems necessary or
67
<PAGE> 74
advisable to grant to the Collateral Agent, for the benefit of the Lenders, a
security interest in such property and take all actions necessary or advisable
to grant to the Collateral Agent, for the benefit of the Lenders, a perfected
(to the extent perfection is permitted or provided for under any applicable
foreign law) first priority security interest in such property, including the
filing of Uniform Commercial Code financing statements in such jurisdictions as
may be required by the Guarantee and Collateral Agreement or by law or as may be
requested by the Collateral Agent.
With respect to any new Subsidiary (other than an Excluded Foreign
Subsidiary or an Immaterial Subsidiary) created or acquired after the Closing
Date by the Company (which, for the purposes of this paragraph (b), shall
include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary
or an Immaterial Subsidiary), the Company or any of its Subsidiaries, promptly
execute and deliver to the Collateral Agent such amendments to the Guarantee and
Collateral Agreement as the Collateral Agent deems necessary or advisable to
grant to the Collateral Agent, for the benefit of the Lenders, a perfected (to
the extent perfection is permitted or provided for under any applicable foreign
law) first priority security interest in the Capital Stock of such new
Subsidiary that is owned by the Company or any of its Subsidiaries, deliver to
the Collateral Agent the certificates representing such Capital Stock, together
with undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Company or such Subsidiary, as the case may be, cause such new
Subsidiary to become a party to the Guarantee and Collateral Agreement, to take
such actions necessary or advisable to grant to the Collateral Agent for the
benefit of the Lenders a perfected first priority security interest in the
Collateral described in the Guarantee and Collateral Agreement with respect to
such new Subsidiary, including the filing of Uniform Commercial Code financing
statements in such jurisdictions as may be required by the Guarantee and
Collateral Agreement or by law or as may be requested by the Collateral Agent
and to deliver to the Collateral Agent a certificate of such Subsidiary,
substantially in the form of Exhibit E, with appropriate insertions and
attachments, and if requested by the Collateral Agent, deliver to the Collateral
Agent legal opinions relating to the matters described above, which opinions
shall be in form and substance, and from counsel, reasonably satisfactory to the
Collateral Agent.
With respect to any new Excluded Foreign Subsidiary (other than an
Immaterial Subsidiary) created or acquired after the Closing Date by the Company
or any of its Domestic Subsidiaries, promptly execute and deliver to the
Collateral Agent such amendments to the Guarantee and Collateral Agreement as
the Collateral Agent deems necessary or advisable to grant to the Collateral
Agent, for the benefit of the Lenders, a perfected (to the extent perfection is
permitted or provided for under any applicable foreign law) first priority
security interest in the Capital Stock of such new Subsidiary that is owned by
the Company or any of its Domestic Subsidiaries (provided that in no event shall
more than 65% of the total outstanding Capital Stock of any such new Subsidiary
be required to be so pledged), deliver to the Collateral Agent the certificates
representing such Capital Stock (if such Capital Stock is certificated),
together with undated stock powers, in blank, executed and delivered by a duly
authorized officer of the Company or such Domestic Subsidiary, as the case may
be, and take such other action as may be necessary or, in the opinion of the
Collateral Agent, desirable to perfect (to the extent perfection is permitted or
provided for under any applicable foreign law) the Collateral Agent's security
interest therein, and if requested by the Collateral Agent, deliver to the
Collateral Agent
68
<PAGE> 75
legal opinions relating to the matters described above, which opinions shall be
in form and substance, and from counsel, reasonably satisfactory to the
Collateral Agent.
SECTION 9. NEGATIVE COVENANTS
The Company agrees and each Subsidiary Borrower agrees (to the extent
specifically applicable to such Subsidiary Borrower) that, so long as the
Commitments remain in effect, any Letter of Credit remains outstanding or any
Loan or other amount is owing to any Lender or the Administrative Agent
hereunder, each such party shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly:
9.1 Financial Condition Covenants.
Consolidated Leverage Ratio. Permit the Consolidated Leverage Ratio of
the Company as at any day during the periods set forth below to exceed the ratio
set forth below opposite such period (it being understood that, notwithstanding
the dates set forth below, any step-down in the Consolidated Leverage Ratio
shall occur on the last day of the fiscal quarter concluding closest to any date
set forth below):
<TABLE>
<CAPTION>
Consolidated
Period Leverage Ratio
------ --------------
<S> <C>
Closing Date - January 2, 2000 4.25
January 3, 2000 - December 31, 2000 3.75
January 1, 2001 - December 30, 2001 3.50
December 31, 2001 - December 29, 2002 3.25
December 30, 2002 and thereafter 3.00
</TABLE>
Consolidated Interest Coverage Ratio. Permit the Consolidated Interest
Coverage Ratio for any period of four consecutive fiscal quarters of the Company
(or, if less, the number of full fiscal quarters subsequent to the Closing Date)
ending with the fiscal quarter concluding closest to any date set forth below to
be less than the ratio set forth below opposite such date:
<TABLE>
<CAPTION>
Consolidated Interest
Fiscal Quarter Coverage Ratio
-------------- ---------------------
<S> <C>
September 30, 1999 3.00
December 31, 1999 3.25
March 31, 2000 3.25
June 30, 2000 3.25
September 30, 2000 3.25
December 31, 2000 and thereafter 3.50
</TABLE>
Consolidated Net Worth. Permit Consolidated Net Worth at any time to be
less than the sum of $175,000,000 and 50% of cumulative Consolidated Net Income
for each fiscal quarter of the Company (beginning with the fiscal quarter ending
January 3, 1999) for
69
<PAGE> 76
which Consolidated Net Income is positive less the aggregate purchase price of
shares of the Company's common stock repurchased by the Company of up to
$25,000,000.
9.2 Indebtedness. Create, issue, incur, assume, become liable in respect of or
suffer to exist any Indebtedness, except:
Indebtedness of any Loan Party pursuant to any Loan Document;
Indebtedness of the Company to any Subsidiary and of any Wholly Owned
Subsidiary to the Company or any other Subsidiary so long as, if applicable, the
provisions of Section 9.8(h) are complied with or Indebtedness of any
Non-Guarantor Subsidiary to any other Non-Guarantor Subsidiary;
Guarantee Obligations by the Company or any of its Subsidiaries of
obligations of any Wholly Owned Subsidiary;
Indebtedness outstanding on the date hereof and listed on Schedule
9.2(d) and any refinancings, refundings, renewals or extensions thereof (without
increasing, or shortening the maturity of, the principal amount thereof);
Indebtedness (including, without limitation, Capital Lease Obligations)
secured by Liens permitted by Section 9.3(g) in an aggregate principal amount
not to exceed $30,000,000 at any one time outstanding;
Indebtedness of MTKG in respect of the MTKG Credit Agreement and
Guarantee Obligations of the Company and DII International Holdings C.V., a
wholly-owned foreign subsidiary of the Company, in respect of such Indebtedness;
additional Indebtedness of the Company or any of its Subsidiaries in an
aggregate principal amount (for the Company and all Subsidiaries) not to exceed
$25,000,000 at any one time outstanding;
subordinated Indebtedness that requires no principal repayment prior to
the date which is six months following the Scheduled Revolving Termination Date,
has subordination terms reasonably acceptable to the Administrative Agent and
bears interest at an annual rate of not more than the three month Eurodollar
Rate plus 10%;
Indebtedness under Derivative Agreements entered into by the Company or
any of its Subsidiaries to protect against changes in interest rates or currency
exchange rates or commodity prices or similar risks and not for speculative
purposes (but in any event excluding any Derivative Agreements under which the
Company or any of its Subsidiaries may become obligated to make any payments
resulting from changes in market values of the Subordinated Notes or any Capital
Stock of the Company);
70
<PAGE> 77
Indebtedness in connection with one or more standby or trade letters of
credit or performance, surety or appeal bonds issued in the ordinary course of
business or pursuant to self-insurance obligations and not in connection with
the borrowing of money or the obtaining of advances or credit in an aggregate
amount not to exceed $25,000,000 at any one time outstanding;
Indebtedness of any Foreign Subsidiary or any Foreign Acquisition
Subsidiary in respect of Foreign Acquisition Loans in connection with any
Qualified Foreign Transaction or Guarantee Obligations of the Borrower, any
Foreign Acquisition Subsidiary Holding Borrower and any Domestic Subsidiary that
holds Capital Stock of any Foreign Subsidiary or any Foreign Acquisition
Subsidiary Holding Borrower pursuant to a Foreign Acquisition Loan Guarantee;
and
Indebtedness of the Company to the LMS pursuant to the Make-Well
Agreement.
9.3 Liens. Create, incur, assume or suffer to exist any Lien upon any of its
property, whether now owned or hereafter acquired, except for:
Liens for taxes, assessments or governmental charges or levies not yet
delinquent or that are being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on the books
of the Company or its Subsidiaries, as the case may be, in conformity with GAAP;
carriers', warehousemen's, mechanics', materialmen's, repairmen's or
other like Liens arising in the ordinary course of business that are not overdue
for a period of more than 60 days or that are being contested in good faith by
appropriate proceedings;
pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation;
deposits to secure the performance of bids, trade contracts (other than
for borrowed money), leases, statutory obligations, surety and appeal bonds,
performance bonds and other obligations of a like nature incurred in the
ordinary course of business;
easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business that, in the aggregate, are not
substantial in amount and that do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or any of its Subsidiaries;
Liens in existence on the date hereof listed on Schedule 9.3(f),
securing Indebtedness permitted by Section 9.2(d), provided that no such Lien is
spread to cover any additional property after the Closing Date and that the
amount of Indebtedness secured thereby is not increased;
71
<PAGE> 78
(I) Liens securing Indebtedness of the Company or any other Subsidiary
incurred pursuant to Section 9.2(e) to finance the acquisition of fixed or
capital assets, provided that such Liens shall be created substantially
simultaneously with the acquisition of such fixed or capital assets, such Liens
do not at any time encumber any property other than the property financed by
such Indebtedness and the amount of Indebtedness secured thereby is not
increased and does not exceed the acquisition cost of such fixed or capital
assets and (II) Liens on any assets acquired by the Company or any Subsidiary,
which Liens were not created in contemplation of such acquisition, provided that
such Liens do not at any time encumber any property other than the assets so
acquired;
Liens created pursuant to the Security Documents;
any interest or title of a lessor under any lease entered into by the
Company or any other Subsidiary in the ordinary course of its business and
covering only the assets so leased;
Liens created pursuant to the Security Documents under the MTKG Credit
Agreement;
Liens not otherwise permitted by this Section so long as neither the
aggregate outstanding principal amount of the obligations secured thereby nor
the aggregate fair market value (determined as of the date such Lien is
incurred) of the assets subject thereto exceeds (as to the Company and all
Subsidiaries) $5,000,000 at any one time; and
Liens created pursuant to any Foreign Acquisition Loan Security
Documents in connection with any Qualified Foreign Transaction.
9.4 Fundamental Changes. Enter into any merger, consolidation or amalgamation,
or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or Dispose of, all or substantially all of its property or
business (except as permitted by Section 9.5), except that:
any Subsidiary of the Company may be merged or consolidated with or
into the Company (provided that the Company shall be the continuing or surviving
corporation) or with or into any Wholly Owned Subsidiary Guarantor (provided
that the Wholly Owned Subsidiary Guarantor shall be the continuing or surviving
corporation);
any Subsidiary of the Company may be merged or consolidated with or
into any Person (provided that the continuing or surviving entity of such merger
or consolidation shall be a Subsidiary and the Company shall comply with the
provisions of Section 8.9 with respect thereto) to the extent the acquisition of
such Person is an Investment permitted under Section 9.8;
any Non-Guarantor Subsidiary may merge or consolidate with or into any
other Non Guarantor Subsidiary;
72
<PAGE> 79
any Non-Guarantor Subsidiary may Dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to any other Subsidiary; and
any Subsidiary of the Company may Dispose of any or all of its assets
(upon voluntary liquidation or otherwise) to the Company or any Wholly Owned
Subsidiary Guarantor.
9.5 Disposition of Property. Dispose of any of its property, whether now owned
or hereafter acquired, or, in the case of any Subsidiary, issue or sell any
shares of such Subsidiary's Capital Stock to any Person, except:
the Disposition of obsolete or worn out property in the ordinary course
of business;
the sale of inventory in the ordinary course of business;
Dispositions permitted by Section 9.4(d) or (e);
the sale or issuance of any Subsidiary's Capital Stock to the Company
or any Wholly Owned Subsidiary Guarantor or the sale or issuance of the Capital
Stock of any Non-Guarantor Subsidiary to any Non-Guarantor Subsidiary;
Dispositions of other property having a fair market value, in the
aggregate on any date while this Agreement is in effect, not to exceed 10% in
respect of fiscal year 1998, 20% in respect of fiscal year 1999 or 25%
thereafter of the net fixed asset value of the Company and its Subsidiaries, on
a consolidated basis, as determined on the last day of the fiscal year of the
Company most recently ended prior to such date;
Dispositions described on Schedule 9.5(f); and
Dispositions permitted by Section 9.11
9.6 Restricted Payments. Declare or pay any dividend (other than dividends
payable solely in common stock of the Person making such dividend) on, or make
any payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any Subordinated Notes or Capital Stock of the Company or any Subsidiary,
whether now or hereafter outstanding, or make any other distribution in respect
thereof, either directly or indirectly, whether in cash or property or in
obligations of the Company or any Subsidiary or enter into derivatives or other
transaction (other than the sale of puts with respect to the Company's Capital
Stock to the extent the Company would be permitted to repurchase such Capital
Stock under this Agreement) with any financial institution, commodities or stock
exchange or clearinghouse (a "Derivatives Counterparty") obligating it to make
payments to such Derivatives Counterparty as a result of any change in market
value of any such Capital Stock (collectively, "Restricted Payments"), except
that:
any Subsidiary may make Restricted Payments to the Company or any
Wholly Owned Subsidiary Guarantor;
73
<PAGE> 80
any Non-Guarantor Subsidiary may make Restricted Payments to any other
Subsidiary;
the LMS may pay the Periodic Dividends to the LMS Class B Stockholders,
the Company may make Restricted Payments in connection with the Make-Well
Agreement and (iii) in the event of (x) a liquidation of the LMS, (y) the
redemption of the Class B Participating Preferred Stock of the LMS by the LMS or
(z) the exercise of a put option by the LMS Class B Stockholders, the LMS may
make payments to consummate such event pursuant to Section IV of the Amended and
Restated Certificate of Incorporation of the LMS in an aggregate amount up to
$375,000 (excluding the amounts of any accrued and unpaid Periodic Dividends),
provided that immediately prior to and after giving effect to the payment
described in clause (iii), the Company shall be in compliance with each of the
covenants contained in Sections 8 and 9 of this Agreement; and
so long as no Default or Event of Default shall have occurred and be
continuing, the Company may repurchase shares of its common stock; provided,
that the aggregate amount of such repurchases shall not exceed $25,000,000
during the term of this Agreement.
9.7 Capital Expenditures. Make or commit to make any Capital Expenditure, except
Capital Expenditures of the Company and its Subsidiaries in the ordinary course
of business not exceeding 10% of the Company's revenues for the four consecutive
fiscal quarters most recently ended less the amount of the aggregate Capital
Expenditures made by the Company and its Subsidiaries for the current fiscal
quarter and the three fiscal quarters most recently ended, excluding all Capital
Expenditures made or committed related to the HP Acquisition, the Greatsino
Acquisition and the Austrian Acquisition; provided, that up to $25,000,000 of
any such amount referred to above, if not so expended in the fiscal year for
which it is permitted, may be carried over for expenditure in the next
succeeding fiscal year and Capital Expenditures made with the proceeds of any
Reinvestment Deferred Amount.
9.8 Investments. Make any advance, loan, extension of credit (by way of guaranty
or otherwise) or capital contribution to, or purchase any Capital Stock, bonds,
notes, debentures or other debt securities of, or make any other Investment in,
any Person (all of the foregoing, "Investments"), except:
extensions of trade credit in the ordinary course of business;
investments in Cash Equivalents;
Guarantee Obligations permitted by Section 9.2;
loans and advances to any individual employee of the Company or any
Subsidiary of the Company in the ordinary course of business (including for
travel, entertainment
74
<PAGE> 81
and relocation expenses) in an aggregate amount for the Company or any
Subsidiary of the Company not to exceed $5,000,000 at any one time outstanding;
the Acquisitions;
repurchases of the Company's Capital Stock by the Company pursuant to
Section 9.6(d);
Investments by the Company in DII International Holdings C.V., a Dutch
subsidiary of the Company ("Holdings"), and by Holdings in MTKG (in the form of
capital contribution, direct or indirect guarantees of Indebtedness or
participations in Indebtedness), the proceeds of which shall be used to fund the
purchase price of the Acquisition and costs and expenses in connection
therewith;
Investments by the Company or any of its Subsidiaries in the Company or
any Person that, prior to or as a result of such Investment, is or becomes a
Wholly Owned Subsidiary; provided that if any such Investment or series of
Investments exceeds $500,000 and is made by the Company or any Subsidiary
Guarantor in a Wholly Owned Subsidiary which is not or does not become a
Subsidiary Guarantor, either such Investment is evidenced by a promissory note
pledged in favor of the Administrative Agent for the benefit of the Lenders and
such Investment constitutes Indebtedness of the primary obligor that is not
subordinate to any other Indebtedness of such obligor or unless otherwise
permitted by Section 9.8(i), the aggregate amount of such Investments made after
the Closing Date may not at any time exceed in the aggregate the sum of 50% of
the Net Cash Proceeds received by the Borrower after the Closing Date in
connection with the issuance or sale of common stock of the Borrower plus 15% of
Consolidated Net Worth at such time (excluding the effects of any sales or
issuances of common stock on or after the Closing Date);
Investments by the Company and its Domestic Subsidiaries in any Foreign
Subsidiary or any Foreign Acquisition Subsidiary and, without duplication, any
Foreign Acquisition Subsidiary Holding Borrower, in connection with any
Qualified Foreign Transaction entered into pursuant to clause (a) of the
definition of Qualified Foreign Transaction in Section 1.1, subject to the
amount limitations set forth in such clause and Investments by the Company and
its Domestic Subsidiaries in any Foreign Subsidiary or any Foreign Acquisition
Subsidiary and, without duplication, any Foreign Acquisition Subsidiary Holding
Borrower, in connection with any Qualified Foreign Transaction entered into
pursuant to clause (b) of the definition of Qualified Foreign Transaction in
Section 1.1, subject to the amount limitations approved by the Administrative
Agent and the Required Lenders at the time such transaction is approved pursuant
to such clause;
Investments in minority interests, other than Investments listed on
Schedule 9.8(k), not exceeding $25,000,000 in the aggregate; and
Investments described on Schedule 9.8(k).
75
<PAGE> 82
9.9 Optional Payments and Modifications of Certain Debt Instruments. Except as
permitted by Section 9.6(c), make any optional or voluntary payment, prepayment,
repurchase or redemption of or otherwise optionally or voluntarily defease or
segregate funds with respect to any Subordinated Indebtedness or enter into any
derivative or other transaction with any Derivatives Counterparty obligating it
to make payments to such Derivatives Counterparty as a result of any change in
market value of Subordinated Indebtedness, amend, modify, waive or otherwise
change, or consent or agree to any amendment, modification, waiver or other
change to, any of the terms of Subordinated Indebtedness (other than any such
amendment, modification, waiver or other change that would extend the maturity
or reduce the amount of any payment of principal thereof or reduce the rate or
extend any date for payment of interest thereon and does not involve the payment
of a consent fee) or designate any Indebtedness (other than obligations of the
Loan Parties pursuant to the Loan Documents) as "Designated Senior Indebtedness"
for the purposes of any indenture pursuant to which Subordinated Indebtedness is
issued.
9.10 Transactions with Affiliates. Enter into any transaction, including any
purchase, sale, lease or exchange of property, the rendering of any service or
the payment of any management, advisory or similar fees, with any Affiliate
unless such transaction is otherwise permitted under this Agreement and upon
fair and reasonable terms no less favorable to the Company or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person that is not an Affiliate, or in the ordinary course of
business of the Company or such Subsidiary, as the case may be, and upon fair
and reasonable terms no less favorable to the Company or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's length transaction with
a Person that is not an Affiliate; provided, that the foregoing shall not apply
to transactions between Non-Guarantor Subsidiaries, transactions between the
Borrower and Wholly Owned Subsidiary Guarantors, or between Wholly Owned
Subsidiary Guarantors, Qualified Foreign Transactions or the Make-Well
Agreement.
9.11 Sales and Leasebacks. Enter into any arrangement with any Person providing
for the leasing by the Company or any Subsidiary of real or personal property
that has been or is to be sold or transferred by the Company or such Subsidiary
to such Person or to any other Person to whom funds have been or are to be
advanced by such Person on the security of such property or rental obligations
of the Company or such Subsidiary (a "Sale Leaseback Transaction") other than
Sale Leaseback Transactions yielding proceeds not to exceed in the aggregate 25%
of Capital Expenditures for the four consecutive fiscal quarters most recently
ended; provided that any amount referred to above, if not so used in the period
for which it is permitted, may be carried over to a subsequent period not later
than the four quarters after the fiscal quarter in which it became available;
provided further that the aggregate amount of all Sale Leaseback Transactions
shall not exceed $50,000,000.
9.12 Changes in Fiscal Periods. Permit the fiscal year of the Company to end on
a day other than the Sunday closest to December 31 or change the Company's
method of determining fiscal quarters.
9.13 Negative Pledge Clauses. Enter into or suffer to exist or become effective
any agreement that prohibits or limits the ability of the Company or any of its
76
<PAGE> 83
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property or revenues, whether now owned or hereafter acquired, other than
this Agreement and the other Loan Documents, the MTKG Credit Agreement and any
Foreign Acquisition Loan Documents, the indenture governing the Company's 8.50%
Senior Subordinated Notes due 2007 and any agreements governing any purchase
money Liens or Capital Lease Obligations otherwise permitted hereby (in which
case, any prohibition or limitation shall only be effective against the assets
financed thereby).
9.14 Clauses Restricting Subsidiary Distributions. Enter into or suffer to exist
or become effective any consensual encumbrance or restriction on the ability of
any Subsidiary of the Company to make Restricted Payments in respect of any
Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the
Company or any other Subsidiary of the Company, make loans or advances to, or
other Investments in, the Company or any other Subsidiary of the Company or
transfer any of its assets to the Company or any other Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of any restrictions existing under the Loan Documents, the MTKG Credit
Agreement and any Foreign Acquisition Loan Documents, any restrictions with
respect to a Subsidiary imposed pursuant to an agreement that has been entered
into in connection with the Disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary and restrictions with respect to
property which is subject to a Lien permitted by Sections 9.3(g) and 9.3(k).
9.15 Lines of Business. Enter into any business, either directly or through any
Subsidiary, except for those businesses in which the Company and its
Subsidiaries are engaged on the date of this Agreement (after giving effect to
the Acquisitions) or that are reasonably related thereto.
9.16 Amendments to Acquisition Documents. Amend, supplement or otherwise modify
(pursuant to a waiver or otherwise) the terms and conditions of the indemnities
and licenses furnished to the Company or any of its Subsidiaries pursuant to the
Acquisition Documentation or any other document delivered by the respective
sellers or any of their affiliates in connection therewith such that after
giving effect thereto such indemnities or licenses shall be materially less
favorable to the interests of the Loan Parties or the Lenders with respect
thereto or otherwise amend, supplement or otherwise modify the terms and
conditions of the Acquisition Documentation or any such other documents except
for any such amendment, supplement or modification that becomes effective after
the Closing Date and could not reasonably be expected to have a Material Adverse
Effect.
77
<PAGE> 84
SECTION 10. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
any Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or any
Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation,
or any other amount payable hereunder or under any other Loan Document, within
five days after any such interest or other amount becomes due in accordance with
the terms hereof; or
any representation or warranty made or deemed made by any Loan Party
herein or in any other Loan Document or that is contained in any certificate,
document or financial or other statement furnished by it at any time under or in
connection with this Agreement or any such other Loan Document shall prove to
have been inaccurate in any material respect on or as of the date made or deemed
made; or
any Loan Party shall default in the observance or performance of any
agreement contained in clause (i) or (ii) of Section 8.4(a) (with respect to the
Company only), Section 8.7(a) or Section 9 of this Agreement or Sections 5.5 and
5.7(b) of the Guarantee and Collateral Agreement; or
any Loan Party shall default in the observance or performance of any
other agreement contained in this Agreement or any other Loan Document (other
than as provided in paragraphs (a) through (c) of this Section), and such
default shall continue unremedied for a period of 30 days; or
the Company or any of its Subsidiaries shall default in making any
payment of any principal of any Indebtedness (including any Guarantee
Obligation, but excluding the Loans) on the scheduled or original due date with
respect thereto; or default in making any payment of any interest on any such
Indebtedness beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created; or default in the
observance or performance of any other agreement or condition relating to any
such Indebtedness or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition exist,
the effect of which default or other event or condition is to cause, or to
permit the holder or beneficiary of such Indebtedness (or a trustee or agent on
behalf of such holder or beneficiary) to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity or (in
the case of any such Indebtedness constituting a Guarantee Obligation) to become
payable; provided, that a default, event or condition described in clause (i),
(ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of
Default unless, at such time, one or more defaults, events or conditions of the
type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have
occurred and be continuing with respect to Indebtedness the outstanding
principal amount of which exceeds in the aggregate $5,000,000; or
78
<PAGE> 85
the Company or any of its Subsidiaries shall commence any case,
proceeding or other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or seeking
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets, or the Company
or any of its Subsidiaries shall make a general assignment for the benefit of
its creditors; or there shall be commenced against the Company or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above that (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or there shall be commenced against the
Company or any of its Subsidiaries any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets that results in the entry of
an order for any such relief that shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or the
Company or any of its Subsidiaries shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its
Subsidiaries shall generally not, or shall be unable to, or shall admit in
writing its inability to, pay its debts as they become due; or
any Person shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan, any
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived, shall exist with respect to any Plan or any Lien in favor of the
PBGC or a Plan shall arise on the assets of the Company or any Commonly
Controlled Entity, a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Required Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, any Single Employer
Plan shall terminate for purposes of Title IV of ERISA, the Company or any
Commonly Controlled Entity shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a withdrawal from,
or the Insolvency or Reorganization of, a Multiemployer Plan or any other event
or condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or condition, together with all other
such events or conditions, if any, could, in the sole judgment of the Required
Lenders, reasonably be expected to have a Material Adverse Effect; or
one or more judgments or decrees shall be entered against the Company
or any of its Subsidiaries involving in the aggregate a liability (not paid or
fully covered by insurance as to which the relevant insurance company has
acknowledged coverage) of $5,000,000 or more, and all such judgments or decrees
shall not have been vacated, discharged, stayed or bonded pending appeal within
60 days from the entry thereof; or
79
<PAGE> 86
any of the Security Documents shall cease, for any reason, to be in
full force and effect, or any Loan Party or any Affiliate of any Loan Party
shall so assert, or any Lien created by any of the Security Documents shall
cease to be enforceable and of the same effect and priority purported to be
created thereby; or
the guarantee contained in Section 2 of the Guarantee and Collateral
Agreement shall cease, for any reason, to be in full force and effect or any
Loan Party or any Affiliate of any Loan Party shall so assert; or
a Change of Control shall occur;
then, and in any such event, if such event is an Event of Default specified in
clause (i) or (ii) of paragraph (f) above with respect to the Company,
automatically the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement and the other Loan Documents (including all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and if such event is any other Event of Default, either
or both of the following actions may be taken: (i) with the consent of the
Majority Revolving Facility Lenders, the Administrative Agent may, or upon the
request of the Majority Revolving Facility Lenders, the Administrative Agent
shall, by notice to the Company declare the Revolving Commitments to be
terminated forthwith, whereupon the Revolving Commitments shall immediately
terminate; and (ii) with the consent of the Required Lenders, the Administrative
Agent may, or upon the request of the Required Lenders, the Administrative Agent
shall, by notice to the Company, declare the Loans hereunder (with accrued
interest thereon) and all other amounts owing under this Agreement and the other
Loan Documents (including all amounts of L/C Obligations, whether or not the
beneficiaries of the then outstanding Letters of Credit shall have presented the
documents required thereunder) to be due and payable forthwith, whereupon the
same shall immediately become due and payable. With respect to all Letters of
Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Company shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be applied
by the Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Borrowers hereunder and under the other Loan Documents. After
all such Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations of
the Borrowers hereunder and under the other Loan Documents shall have been paid
in full, the balance, if any, in such cash collateral account shall be returned
to the Company (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment, demand, protest
and all other notices of any kind are hereby expressly waived by each of the
Borrowers.
80
<PAGE> 87
SECTION 11. THE ADMINISTRATIVE AGENT
11.1 Appointment. Each Lender hereby irrevocably designates and appoints the
Administrative Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes the
Administrative Agent, in such capacity, to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and to exercise
such powers and perform such duties as are expressly delegated to the
Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with such other powers as are reasonably incidental thereto.
Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Administrative Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Administrative Agent.
11.2 Delegation of Duties. The Administrative Agent may execute any of its
duties under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys in-fact
selected by it with reasonable care.
11.3 Exculpatory Provisions. Neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
liable for any action lawfully taken or omitted to be taken by it or such Person
under or in connection with this Agreement or any other Loan Document (except to
the extent that any of the foregoing are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from its or such
Person's own gross negligence or willful misconduct) or responsible in any
manner to any of the Lenders for any recitals, statements, representations or
warranties made by any Loan Party or any officer thereof contained in this
Agreement or any other Loan Document or in any certificate, report, statement or
other document referred to or provided for in, or received by the Administrative
Agent under or in connection with, this Agreement or any other Loan Document or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of this Agreement or any other Loan Document or for any failure of
any Loan Party a party thereto to perform its obligations hereunder or
thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of any Loan Party.
11.4 Reliance by Administrative Agent. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any instrument,
writing, resolution, notice, consent, certificate, affidavit, letter, telecopy,
telex or teletype message, statement, order or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person or Persons and upon advice and statements of legal counsel
(including counsel to the Borrowers), independent accountants and other experts
selected
81
<PAGE> 88
by the Administrative Agent. The Administrative Agent may deem and treat the
payee of any Note as the owner thereof for all purposes unless a written notice
of assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent. The Administrative Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Lenders (or, if so specified by this Agreement, all Lenders) as it
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense that may be incurred by it by
reason of taking or continuing to take any such action. The Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
under this Agreement and the other Loan Documents in accordance with a request
of the Required Lenders (or, if so specified by this Agreement, all Lenders),
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all the Lenders and all future holders of the Loans.
11.5 Notice of Default. The Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender, the
Company referring to this Agreement, describing such Default or Event of Default
and stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
notice thereof to the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Required Lenders (or, if so specified by this Agreement, all Lenders);
provided that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.
11.6 Non-Reliance on Administrative Agent and Other Lenders. Each Lender
expressly acknowledges that neither the Administrative Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates have
made any representations or warranties to it and that no act by any Agent
hereinafter taken, including any review of the affairs of a Loan Party or any
affiliate of a Loan Party, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Loan Parties and their affiliates and made
its own decision to make its Loans hereunder and enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement and the other Loan Documents, and to make such investigation as
it deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Loan Parties and their
affiliates. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Administrative Agent hereunder, the
Administrative Agent shall not have any duty or
82
<PAGE> 89
responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of any Loan Party or any affiliate of
a Loan Party that may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
11.7 Indemnification. The Lenders agree to indemnify the Administrative Agent in
its capacity as such (to the extent not reimbursed by the Borrowers and without
limiting the obligation of the Borrowers to do so), ratably according to their
respective Aggregate Exposure Percentages in effect on the date on which
indemnification is sought under this Section (or, if indemnification is sought
after the date upon which the Commitments shall have terminated and the Loans
shall have been paid in full, ratably in accordance with such Aggregate Exposure
Percentages immediately prior to such date), from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind whatsoever that may at any time
(whether before or after the payment of the Loans) be imposed on, incurred by or
asserted against the Administrative Agent in any way relating to or arising out
of, the Commitments, this Agreement, any of the other Loan Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the
Administrative Agent under or in connection with any of the foregoing; provided
that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements that are found by a final and nonappealable
decision of a court of competent jurisdiction to have resulted from the
Administrative Agent's gross negligence or willful misconduct. The agreements in
this Section shall survive the payment of the Loans and all other amounts
payable hereunder.
11.8 Administrative Agent in Its Individual Capacity. The Administrative Agent
and its affiliates may make loans to, accept deposits from and generally engage
in any kind of business with any Loan Party as though the Administrative Agent
was not the Administrative Agent. With respect to its Loans made or renewed by
it and with respect to any Letter of Credit issued or participated in by it, the
Administrative Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall
include the Administrative Agent in its individual capacity.
11.9 Successor Administrative Agent. The Administrative Agent may resign as
Administrative Agent upon 10 days' notice to the Lenders and the Company. If the
Administrative Agent shall resign as Administrative Agent under this Agreement
and the other Loan Documents, then the Required Lenders shall appoint from among
the Lenders a successor agent for the Lenders, which successor agent shall
(unless an Event of Default under Section 10(a) or Section 10(f) with respect to
the Company shall have occurred and be continuing) be subject to approval by the
Company (which approval shall not be unreasonably withheld or delayed),
whereupon such successor agent shall succeed to the rights, powers and duties of
the Administrative Agent, and the term "Administrative Agent" shall mean such
successor agent effective upon such appointment and approval, and the former
Administrative
83
<PAGE> 90
Agent's rights, powers and duties as Administrative Agent shall be terminated,
without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement or any holders of
the Loans. If no successor agent has accepted appointment as Administrative
Agent by the date that is 10 days following a retiring Administrative Agent's
notice of resignation, the retiring Administrative Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall assume and perform
all of the duties of the Administrative Agent hereunder until such time, if any,
as the Required Lenders appoint a successor agent as provided for above. After
any retiring Administrative Agent's resignation as Administrative Agent, the
provisions of this Section 11 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement and the other Loan Documents.
11.10 Authorization to Release Guarantees and Liens. Notwithstanding anything to
the contrary contained herein or in any other Loan Document, the Administrative
Agent is hereby irrevocably authorized by each of the Lenders (without
requirement of notice to or consent of any Lender except as expressly required
by Section 13.1) to take any action requested by the Company having the effect
of releasing any Collateral or guarantee obligations to the extent necessary to
permit consummation of any transaction not prohibited by any Loan Document or
that has been consented to in accordance with Section 13.1.
SECTION 12. GUARANTEE
12.1 Guarantee. In order to induce the Administrative Agent and the Lenders to
execute and deliver this Agreement and to make or maintain the Loans to the
Subsidiary Borrowers hereunder, and in consideration thereof, the Company hereby
unconditionally and irrevocably guarantees to the Administrative Agent, for the
ratable benefit of the Lenders, the prompt and complete payment and performance
by the Subsidiary Borrowers when due (whether at stated maturity, by
acceleration or otherwise) of the Subsidiary Borrower Obligations, and the
Company further agrees to pay any and all expenses (including, without
limitation, all reasonable fees, charges and disbursements of counsel) which may
be paid or incurred by the Administrative Agent or by the Lenders in enforcing,
or obtaining advice of counsel in respect of, any of their rights under the
guarantee contained in this Section 12. The guarantee contained in this Section
12, subject to Section 12.5, shall remain in full force and effect until the
Subsidiary Borrower Obligations are paid in full, the Commitments are terminated
and no Letters of Credit are outstanding, notwithstanding that from time to time
prior thereto the Subsidiary Borrowers may be free from any Obligations.
The Company agrees that whenever, at any time, or from time to time, it
shall make any payment to the Administrative Agent or any Lender on account of
its liability under this Section 12, it will notify the Administrative Agent and
such Lender in writing that such payment is made under the guarantee contained
in this Section 12 for such purpose. No payment or payments made by the
Subsidiary Borrowers or any other Person or received or collected by the
Administrative Agent or any Lender from the Subsidiary Borrowers or any other
Person by virtue of any action or proceeding or any setoff or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Subsidiary Borrower Obligations shall be
84
<PAGE> 91
deemed to modify, reduce, release or otherwise affect the liability of the
Company under this Section 12 which, notwithstanding any such payment or
payments, shall remain liable for the Subsidiary Borrower Obligations until,
subject to Section 12.5, the Obligations are paid in full, the Commitments are
terminated and no Letters of Credit are outstanding.
12.2 No Subrogation, Contribution, Reimbursement or Indemnity. Notwithstanding
anything to the contrary in this Section 12, the Company hereby irrevocably
waives all rights which may have arisen in connection with the guarantee
contained in this Section 12 to be subrogated to any of the rights (whether
contractual, under the United States Bankruptcy Code (or similar action under
any successor law or under any comparable law), including Section 509 thereof,
under common law or otherwise) of the Administrative Agent or any Lender against
the Subsidiary Borrowers or against the Administrative Agent or any Lender for
the payment of the Subsidiary Borrower Obligations, until all such Obligations
shall have been paid in full, no Letters of Credit shall be outstanding and the
Commitments shall have been terminated. The Company hereby further irrevocably
waives all contractual, common law, statutory and other rights of reimbursement,
contribution, exoneration or indemnity (or any similar right) from or against
the Subsidiary Borrowers or any other Person which may have arisen in connection
with the guarantee contained in this Section 12, until the Subsidiary Borrower
Obligations shall have been paid in full, no Letters of Credit shall be
outstanding and the Commitments shall have been terminated. So long as the
Subsidiary Borrower Obligations remain outstanding, if any amount shall be paid
by or on behalf of the Subsidiary Borrowers to the Company on account of any of
the rights waived in this Section 12.2, such amount shall be held by the Company
in trust, segregated from other funds of the Company, and shall, forthwith upon
receipt by the Company, be turned over to the Administrative Agent in the exact
form received by the Company (duly indorsed by the Company to the Administrative
Agent, if required), to be applied against the Subsidiary Borrower Obligations,
whether matured or unmatured, in such order as the Administrative Agent may
determine. The provisions of this Section 12.2 shall survive the term of the
guarantee contained in this Section 12 and the payment in full of the Subsidiary
Borrower Obligations and the termination of the Commitments.
12.3 Amendments, etc. with respect to the Subsidiary Borrower Obligations. The
Company shall remain obligated under this Section 12 notwithstanding that,
without any reservation of rights against the Company, and without notice to or
further assent by the Company, any demand for payment of or reduction in the
principal amount of any of the Subsidiary Borrower Obligations made by the
Administrative Agent or any Lender may be rescinded by the Administrative Agent
or such Lender, and any of such Obligations continued, and such Obligations, or
the liability of any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and this Agreement, any other Loan Document, and any other
documents executed and delivered in connection therewith may be amended,
modified, supplemented or terminated, in whole or in part, as the Lenders (or
the Required Lenders, as the case may be) may deem advisable from time to time,
and any collateral security, guarantee or right of offset at any time held by
the Administrative Agent or any Lender for the payment of the Subsidiary
Borrower Obligations may be sold,
85
<PAGE> 92
exchanged, waived, surrendered or released. Neither the Administrative Agent nor
any Lender shall have any obligation to protect, secure, perfect or insure any
Lien at any time held by it as security for the Subsidiary Borrower Obligations
or for the guarantee contained in this Section 12 or any property subject
thereto.
12.4 Guarantee Absolute and Unconditional. The Company waives any and all notice
of the creation, renewal, extension or accrual of any of the Subsidiary Borrower
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon the guarantee contained in this Section 12 or acceptance of the
guarantee contained in this Section 12; the Subsidiary Borrower Obligations, and
any of them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon the
guarantee contained in this Section 12; and all dealings between the Subsidiary
Borrowers or the Company, on the one hand, and the Administrative Agent and the
Lenders, on the other, shall likewise be conclusively presumed to have been had
or consummated in reliance upon the guarantee contained in this Section 12. The
Company waives diligence, presentment, protest, demand for payment and notice of
default or nonpayment to or upon the Subsidiary Borrowers or the Company with
respect to the Subsidiary Borrower Obligations. The guarantee contained in this
Section 12 shall be construed as a continuing, absolute and unconditional
guarantee of payment without regard to the validity or enforceability of this
Agreement or any other Loan Document, any of the Subsidiary Borrower Obligations
or any collateral security therefor or guarantee or right of offset with respect
thereto at any time or from time to time held by the Administrative Agent or any
Lender, any defense, setoff or counterclaim (other than a defense of payment or
performance) which may at any time be available to or be asserted by the
Borrowers against the Administrative Agent or any Lender, or any other
circumstance whatsoever (with or without notice to or knowledge of the
Subsidiary Borrowers or the Company) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Subsidiary Borrowers for the
Subsidiary Borrower Obligations, or of the Company under the guarantee contained
in this Section 12, in bankruptcy or in any other instance. When the
Administrative Agent or any Lender is pursuing its rights and remedies under
this Section 12 against the Company, the Administrative Agent or any Lender may,
but shall be under no obligation to, pursue such rights and remedies as it may
have against the Subsidiary Borrowers or any other Person or against any
collateral security or guarantee for the Subsidiary Borrowers Obligations or any
right of offset with respect thereto, and any failure by the Administrative
Agent or any Lender to pursue such other rights or remedies or to collect any
payments from the Subsidiary Borrowers or any such other Person or to realize
upon any such collateral security or guarantee or to exercise any such right of
offset, or any release of any Subsidiary Borrower or any such other Person or of
any such collateral security, guarantee or right of offset, shall not relieve
the Company of any liability under this Section 12, and shall not impair or
affect the rights and remedies, whether express, implied or available as a
matter of law, of the Administrative Agent and the Lenders against the Company.
12.5 Reinstatement. The guarantee contained in this Section 12 shall continue to
be effective, or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any of the Subsidiary Borrower Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any Lender
upon the insolvency, bankruptcy,
86
<PAGE> 93
dissolution, liquidation or reorganization of any Subsidiary Borrower or upon or
as a result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, any Subsidiary Borrower or any substantial part
of its property, or otherwise, all as though such payments had not been made.
12.6 Payments. The Company hereby agrees that any payments in respect of the
Subsidiary Borrower Obligations pursuant to this Section 12 will be paid to the
Administrative Agent without setoff or counterclaim in Dollars or the relevant
Available Foreign Currency, as applicable, at the office of the Administrative
Agent specified in Section 13.2.
87
<PAGE> 94
SECTION 13. MISCELLANEOUS
13.1 Amendments and Waivers. Neither this Agreement, any other Loan Document,
nor any terms hereof or thereof may be amended, supplemented or modified except
in accordance with the provisions of this Section 13.1. The Required Lenders and
each Loan Party party to the relevant Loan Document may, or, with the written
consent of the Required Lenders, the Administrative Agent and each Loan Party
party to the relevant Loan Document may, from time to time, enter into written
amendments, supplements or modifications hereto and to the other Loan Documents
for the purpose of adding any provisions to this Agreement or the other Loan
Documents or changing in any manner the rights of the Lenders or of the Loan
Parties hereunder or thereunder or waive, on such terms and conditions as the
Required Lenders or the Administrative Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification
shall forgive the principal amount or extend the final scheduled date of
maturity of any Loan, extend the scheduled date of any amortization payment in
respect of any Term Loan, reduce the stated rate of any interest or fee payable
hereunder or extend the scheduled date of any payment thereof, or increase the
amount or extend the expiration date of any Lender's Revolving Commitment, in
each case without the consent of each Lender directly affected thereby; amend,
modify or waive any provision of this Section 13.1 or reduce any percentage
specified in the definition of Required Lenders or Required Prepayment Lenders,
consent to the assignment or transfer by any Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents, release all or
substantially all of the Collateral, release the Company from its obligations
under Section 12 or release all or substantially all of the Subsidiary
Guarantors from their obligations under the Guarantee and Collateral Agreement,
in each case without the written consent of all Lenders; amend, modify or waive
any condition precedent to any extension of credit under the Revolving Facility
set forth in Section 7.2 or 7.3 (including in connection with any waiver of an
existing Default or Event of Default) without the written consent of the
Majority Revolving Facility Lenders; reduce the percentage specified in the
definition of Majority Facility Lenders with respect to any Facility without the
written consent of all Lenders under such Facility; amend, modify or waive any
provision of Section 11 without the written consent of the Administrative Agent;
or amend, modify or waive any provision of Section 4 without the written consent
of the Issuing Lender. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Loan Parties, the Lenders, the Administrative Agent and all future
holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders
and the Administrative Agent shall be restored to their former position and
rights hereunder and under the other Loan Documents, and any Default or Event of
Default waived shall be deemed to be cured and not continuing; but no such
waiver shall extend to any subsequent or other Default or Event of Default, or
impair any right consequent thereon.
13.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered, or
88
<PAGE> 95
three Business Days after being deposited in the mail, postage prepaid, or, in
the case of telecopy notice, when received, addressed as follows in the case of
the Borrowers and the Administrative Agent, and as set forth in an
administrative questionnaire delivered to the Administrative Agent in the case
of the Lenders, or to such other address as may be hereafter notified by the
respective parties hereto:
The Borrowers: The DII Group, Inc.
6273 Monarch Park Place
Suite 200
Niwot, Colorado 80503
Attention: Mr. Thomas J. Smach
Telecopy: 303-652-0416
Telephone: 303-652-2221
The Administrative Agent:
With respect to all matters
other than procedures for
borrowing and repaying
Multicurrency Loans: The Chase Manhattan Bank
One Chase Manhattan Plaza
8th Floor
New York, New York 10081
Attention: Loan and Agency
Services Group
Telecopy: (212) 552-5668
Telephone: (212) 552-7277
With respect to borrowings
and repayments of
Multicurrency Loans: The Chase Manhattan Bank
9 Thomas Moore Street
London El 9YT
England
Attention: Loan and Agency
Services Group
Telecopy: 44-171-777-2360
Telephone: 44-171-777-2353
with a copy to: The Chase Manhattan Bank
2 Court Street, P.O. Box 706
Binghamton, New York 13902
Attention: Michael Brunner
Telecopy: 607-772-9341
Telephone: 607-772-2375
89
<PAGE> 96
provided that any notice, request or demand to or upon the Administrative Agent
or the Lenders shall not be effective until received.
13.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Administrative Agent or any Lender, any right,
remedy, power or privilege hereunder or under the other Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
The rights, remedies, powers and privileges herein provided are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All representations and
warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans and other extensions of credit hereunder.
13.5 Payment of Expenses and Taxes. The Company agrees to pay or reimburse the
Administrative Agent for all of its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including the reasonable fees and disbursements of counsel to the
Administrative Agent and filing and recording fees and expenses, with statements
with respect to the foregoing to be submitted to the Company prior to the
Closing Date (in the case of amounts to be paid on the Closing Date) and from
time to time thereafter on a quarterly basis or such other periodic basis as the
Administrative Agent shall deem appropriate, to pay or reimburse each Lender and
the Administrative Agent for all its costs and expenses incurred in connection
with the enforcement or preservation of any rights under this Agreement, the
other Loan Documents and any such other documents, including the fees and
disbursements of counsel (including the allocated fees and expenses of in-house
counsel) to each Lender and of counsel to the Administrative Agent, to pay,
indemnify, and hold each Lender and the Administrative Agent harmless from, any
and all recording and filing fees and any and all liabilities with respect to,
or resulting from any delay in paying, stamp, excise and other taxes, if any,
that may be payable or determined to be payable in connection with the execution
and delivery of, or consummation or administration of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, this Agreement, the other Loan Documents and
any such other documents, and to pay, indemnify, and hold each Lender and the
Administrative Agent and their respective officers, directors, employees,
affiliates, agents and controlling persons (each, an "Indemnitee") harmless from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of this Agreement, the other Loan Documents and
any such other documents, including any of the foregoing relating to the use of
proceeds of the Loans or the violation of, noncompliance with or liability
under, any Environmental Law applicable to the operations of the Company, any of
its Subsidiaries or any
90
<PAGE> 97
of the Properties and the reasonable fees and expenses of legal counsel in
connection with claims, actions or proceedings by any Indemnitee against any
Loan Party under any Loan Document (all the foregoing in this clause (d),
collectively, the "Indemnified Liabilities"), provided, that the Company shall
have no obligation hereunder to any Indemnitee with respect to Indemnified
Liabilities to the extent such Indemnified Liabilities are found by a final and
nonappealable decision of a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of such Indemnitee. Without
limiting the foregoing, and to the extent permitted by applicable law, each
Borrower agrees not to assert and to cause its Subsidiaries not to assert, and
hereby waives and agrees to cause its Subsidiaries to so waive, all rights for
contribution or any other rights of recovery with respect to all claims,
demands, penalties, fines, liabilities, settlements, damages, costs and expenses
of whatever kind or nature, under or related to Environmental Laws, that any of
them might have by statute or otherwise against any Indemnitee. All amounts due
under this Section 13.5 shall be payable promptly after written demand therefor.
Statements payable by the Company pursuant to this Section 13.5 shall be
submitted to The Chase Manhattan Bank, One Chase Manhattan Plaza, New York, New
York 10081, Attn: Jesus Sang (Telephone No. (212) 552-7916) (Telecopy No. (212)
552-5650), at the address of the Company set forth in Section 13.2, or to such
other Person or address as may be hereafter designated by the Company in a
written notice to the Administrative Agent. The agreements in this Section 13.5
shall survive repayment of the Loans and all other amounts payable hereunder.
13.6 Successors and Assigns; Participations and Assignments. This Agreement
shall be binding upon and inure to the benefit of the Borrowers, the Lenders,
the Administrative Agent, all future holders of the Loans and their respective
successors and assigns, except that no Borrower may assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of each Lender.
Any Lender may, without the consent of the Borrowers, in accordance
with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "Participant") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrowers and the Administrative Agent shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event shall
any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Loans or
any fees payable hereunder, or postpone the date of the final maturity of the
Loans, in each case to the extent subject to such participation. Each Borrower
agrees that if amounts outstanding under this Agreement and the Loans are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of
91
<PAGE> 98
an Event of Default, each Participant shall, to the maximum extent permitted by
applicable law, be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement, provided that, in purchasing such participating
interest, such Participant shall be deemed to have agreed to share with the
Lenders the proceeds thereof as provided in Section 13.7(a) as fully as if it
were a Lender hereunder. Each Borrower also agrees that each Participant shall
be entitled to the benefits of Sections 5.9, 5.10 and 5.12 with respect to its
participation in the Commitments and the Loans outstanding from time to time as
if it was a Lender; provided that, in the case of Section 5.10, such Participant
shall have complied with the requirements of said Section and provided, further,
that no Participant shall be entitled to receive any greater amount pursuant to
any such Section than the transferor Lender would have been entitled to receive
in respect of the amount of the participation transferred by such transferor
Lender to such Participant had no such transfer occurred.
Any Lender (an "Assignor") may, in accordance with applicable law, at
any time and from time to time assign to any Lender or any Affiliate thereof or,
with the consent of the Company and the Administrative Agent (which, in each
case, shall not be unreasonably withheld or delayed), to an additional bank,
financial institution or other entity (an "Assignee") all or any part of its
rights and obligations under this Agreement pursuant to an Assignment and
Acceptance, executed by such Assignee, such Assignor and any other Person whose
consent is required pursuant to this paragraph, and delivered to the
Administrative Agent for its acceptance and recording in the Register; provided
that no such assignment to an Assignee (other than to any Lender or any
affiliate thereof) shall be in an aggregate principal amount of less than
$5,000,000 (other than in the case of an assignment of all of a Lender's
interests under this Agreement) and the assignor shall have commitments and
Loans aggregating at least $5,000,000 (other than in the case of an assignment
of all of a Lender's interests under this Agreement), unless otherwise agreed by
the Company and the Administrative Agent. Any such assignment need not be
ratable as among the Facilities. Upon such execution, delivery, acceptance and
recording, from and after the effective date determined pursuant to such
Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto
and, to the extent provided in such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder with a Commitment and/or Loans as set
forth therein, (y) the Assignor thereunder shall, to the extent provided in such
Assignment and Acceptance, be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all of an Assignor's
rights and obligations under this Agreement, such Assignor shall cease to be a
party hereto) and (z) the Assignee thereunder shall automatically become a party
to the Intercreditor Agreement and become a Secured Party (as defined therein)
thereunder and have the rights and obligations of a Secured Party as set forth
therein. Notwithstanding any provision of this Section 13.6, the consent of the
Company shall not be required for any assignment that occurs when an Event of
Default pursuant to Section 8(f) shall have occurred and be continuing with
respect to the Company.
The Administrative Agent shall, on behalf of the Borrowers, maintain at
its address referred to in Section 13.2 a copy of each Assignment and Acceptance
delivered to it and a register (the "Register") for the recordation of the names
and addresses of the Lenders and
92
<PAGE> 99
the Commitment of, and the principal amount of the Loans owing to, each Lender
from time to time. The entries in the Register shall be conclusive, in the
absence of manifest error, and each Borrower, each other Loan Party, the
Administrative Agent and the Lenders shall treat each Person whose name is
recorded in the Register as the owner of the Loans and any Notes evidencing the
Loans recorded therein for all purposes of this Agreement. Any assignment of any
Loan, whether or not evidenced by a Note, shall be effective only upon
appropriate entries with respect thereto being made in the Register (and each
Note shall expressly so provide). Any assignment or transfer of all or part of a
Loan evidenced by a Note shall be registered on the Register only upon surrender
for registration of assignment or transfer of the Note evidencing such Loan,
accompanied by a duly executed Assignment and Acceptance, and thereupon one or
more new Notes shall be issued to the designated Assignee and the old Note shall
be returned by the Administrative Agent to the Company marked "cancelled".
Upon its receipt of an Assignment and Acceptance executed by an
Assignor, an Assignee and any other Person whose consent is required by Section
13.6(c), together with payment to the Administrative Agent of a registration and
processing fee of $4,000, the Administrative Agent shall promptly accept such
Assignment and Acceptance and record the information contained therein in the
Register on the effective date determined pursuant thereto.
For avoidance of doubt, the parties to this Agreement acknowledge that
the provisions of this Section 13.6 concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including any pledge or assignment by a
Lender of any Loan or Note to any Federal Reserve Bank in accordance with
applicable law.
Each Borrower, upon receipt of written notice from the relevant Lender,
agrees to issue Notes to any Lender requiring Notes to facilitate transactions
of the type described in paragraph (f) above.
13.7 Adjustments; Set-off. Except to the extent that this Agreement expressly
provides for payments to be allocated to a particular Lender or to the Lenders
under a particular Facility, if any Lender (a "Benefitted Lender") shall receive
any payment of all or part of the Obligations owing to it, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 10(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of the Obligations owing to
such other Lender, such Benefitted Lender shall purchase for cash from the other
Lenders a participating interest in such portion of the Obligations owing to
each such other Lender, or shall provide such other Lenders with the benefits of
any such collateral, as shall be necessary to cause such Benefitted Lender to
share the excess payment or benefits of such collateral ratably with each of the
Lenders; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such Benefitted Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery, but without interest.
93
<PAGE> 100
In addition to any rights and remedies of the Lenders provided by law,
each Lender shall have the right, without prior notice to the Borrowers, any
such notice being expressly waived by the Borrowers to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrowers
hereunder (whether at the stated maturity, by acceleration or otherwise), to set
off and appropriate and apply against such amount any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Lender or any branch or agency thereof to or for the
credit or the account of the Borrowers. Each Lender agrees promptly to notify
the Borrowers and the Administrative Agent after any such setoff and application
made by such Lender, provided that the failure to give such notice shall not
affect the validity of such setoff and application.
13.8 Counterparts. This Agreement may be executed by one or more of the parties
to this Agreement on any number of separate counterparts, and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. Delivery of an executed signature page of this Agreement by
facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Company and the Administrative Agent.
13.9 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
13.10 Integration. This Agreement and the other Loan Documents represent the
agreement of the Borrowers, the Administrative Agent and the Lenders with
respect to the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Administrative Agent or any Lender relative
to subject matter hereof not expressly set forth or referred to herein or in the
other Loan Documents.
13.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
13.12 Submission To Jurisdiction; Waivers. Each of the Borrowers hereby
irrevocably and unconditionally:
submits for itself and its property in any legal action or proceeding
relating to this Agreement and the other Loan Documents to which it is a party,
or for recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the State of New York, the
courts of the United States for the Southern District of New York, and appellate
courts from any thereof;
94
<PAGE> 101
consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to the Company at its
address set forth in Section 13.2 or at such other address of which the
Administrative Agent shall have been notified pursuant thereto (and, in the case
of each Subsidiary Borrower, such Subsidiary Borrower hereby irrevocably
appoints the Company to receive and accept any such process on behalf of such
Subsidiary Borrower, and the Company hereby accepts such appointment);
agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and
waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
Section any special, exemplary, punitive or consequential damages.
13.13 Acknowledgments. Each of the Borrowers hereby acknowledges that:
it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to such Borrower arising out of or in connection with
this Agreement or any of the other Loan Documents, and the relationship between
Administrative Agent and Lenders, on one hand, and such Borrower, on the other
hand, in connection herewith or therewith is solely that of debtor and creditor;
and
no joint venture is created hereby or by the other Loan Documents or
otherwise exists by virtue of the transactions contemplated hereby among the
Lenders or among the Borrowers and the Lenders.
13.14 Conversion of Currencies. If, for the purpose of obtaining judgment in any
court, it is necessary to convert a sum owing hereunder in one currency into
another currency, each party hereto (including any Subsidiary Borrower) agrees,
to the fullest extent that it may effectively do so, that the rate of exchange
used shall be that at which in accordance with normal banking procedures in the
relevant jurisdiction the first currency could be purchased with such other
currency on the Business Day immediately preceding the day on which final
judgment is given.
The obligations of each Borrower in respect of any sum due to any party
hereto or any holder of the obligations owing hereunder (the "Applicable
Creditor") shall,
95
<PAGE> 102
notwithstanding any judgment in a currency (the "Judgment Currency") other than
the currency in which such sum is stated to be due hereunder (the "Agreement
Currency"), be discharged only to the extent that, on the Business Day following
receipt by the Applicable Creditor of any sum adjudged to be so due in the
Judgment Currency, the Applicable Creditor may in accordance with normal banking
procedures in the relevant jurisdiction purchase the Agreement Currency with the
Judgment Currency; if the amount of the Agreement Currency so purchased is less
than the sum originally due to the Applicable Creditor in the Agreement
Currency, such Borrower agrees, as a separate obligation and notwithstanding any
such judgment, to indemnify the Applicable Creditor against such loss. The
obligations of the Borrowers contained in this Section 13.14 shall survive the
termination of this Agreement and the payment of all other amounts owing
hereunder.
13.15 Confidentiality. Each of the Administrative Agent and each Lender agrees
to keep confidential all non-public information provided to it by any Loan Party
pursuant to this Agreement that is designated by such Loan Party as
confidential; provided that nothing herein shall prevent the Administrative
Agent or any Lender from disclosing any such information to the Administrative
Agent, any other Lender or any affiliate of any Lender, to any Transferee or
prospective Transferee that agrees to comply with the provisions of this
Section, to its employees, directors, agents, attorneys, accountants and other
professional advisors or those of any of its affiliates, upon the request or
demand of any Governmental Authority, in response to any order of any court or
other Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, if requested or required to do so in connection with any
litigation or similar proceeding, that has been publicly disclosed, to the
National Association of Insurance Commissioners or any similar organization or
any nationally recognized rating agency that requires access to information
about a Lender's investment portfolio in connection with ratings issued with
respect to such Lender, or in connection with the exercise of any remedy
hereunder or under any other Loan Document.
13.16 Authorization to Amend and Restate. The Required Lenders hereby authorize
and direct The Chase Manhattan Bank, in its capacities as Administrative Agent
and Collateral Agent, as applicable, to execute and deliver the Guarantee and
Collateral Agreement, substantially in the form of Exhibit A, and the
Intercreditor Agreement, substantially in the form of Exhibit L.
The Required Lenders, and the Lenders that are parties to this
Amendment and that are also parties to and constitute the Required Lenders under
and as defined in, the MTKG Credit Agreement, hereby authorize and direct The
Chase Manhattan Bank, in its capacities as Administrative Agent and Collateral
Agent, as applicable, to execute and deliver the Guarantee and Collateral
Agreement and the Intercreditor Agreement.
13.17 Accounting Changes. In the event that any "Accounting Change" (as defined
below) shall occur and such change results in a change in the method of
calculation of financial covenants, standards or terms in this Agreement, then
the Company and the Administrative Agent agree to enter into negotiations in
order to amend such provisions of this Agreement so as to equitably reflect such
Accounting Changes with the desired result that the
96
<PAGE> 103
criteria for evaluating the Company's financial condition shall be the same
after such Accounting Changes as if such Accounting Changes had not been made.
Until such time as such an amendment shall have been executed and delivered by
the Company, the Administrative Agent and the Required Lenders, all financial
covenants, standards and terms in this Agreement shall continue to be calculated
or construed as if such Accounting Changes had not occurred. "Accounting
Changes" refers to changes in accounting principles required by the promulgation
of any rule, regulation, pronouncement or opinion by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants or, if
applicable, the SEC.
13.18 Collateral Agent as Several Creditor. Each of the Borrowers and the
Lenders agree that the Collateral Agent shall be the joint and several creditor
together with the relevant Lender of each and every obligation of the Company
and of each and any of the Subsidiary Borrowers toward each of the Lenders under
this Agreement and the other Loan documents pursuant to Section 7.2 of the
Intercreditor Agreement with such rights as set forth in such section.
13.19 WAIVERS OF JURY TRIAL. EACH OF THE BORROWERS, THE ADMINISTRATIVE AGENT AND
THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT
AND FOR ANY COUNTERCLAIM THEREIN.
97
<PAGE> 104
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
THE DII GROUP, INC.
By: /s/ Thomas J. Smach
--------------------------------------------
Title: Chief Financial Officer/Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By: /s/ Michael W. Brunner
--------------------------------------------
Title: Vice President
CHASE SECURITIES INC., as Arranger
By: /s/ John M. McKenna
--------------------------------------------
Title: Vice President
BANK OF AMERICA, N.A.
By: /s/ Michael J. McCutchin
--------------------------------------------
Title: Managing Director
FLEET NATIONAL BANK
By: /s/ William E. Rurode, Jr.
--------------------------------------------
Title: Executive Vice President
<PAGE> 105
FIRST CHICAGO NATIONAL BANK
By: /s/ Betty Francis-Samilton
------------------------------------
Title: Customer Service Officer
THE BANK OF NOVA SCOTIA
By: /s/ Jon Burckin
------------------------------------
Title: Relationship Manager
NORWEST BANK COLORADO, N.A.
By: /s/ Catherine M. Jones
------------------------------------
Title: Vice President
HARRIS TRUST & SAVINGS BANK
By: /s/ James H. Colley
------------------------------------
Title: Vice President
ABN AMRO BANK N.V.
By:
------------------------------------
Name: Lee-Lee Miao
Title: Vice President
By: /s/ Paul S. Faust
------------------------------------
Title: Vice President
<PAGE> 106
BANK BOSTON, N.A.
By: /s/ John B. Desmond
--------------------------------------------
Title: Vice President
US TRUST
By: /s/ D.G. Eastman
--------------------------------------------
Title: Vice President
KEYBANK NATIONAL ASSOCIATION
By: /s/ Mary K. Young
--------------------------------------------
Title: Assistant Vice President
NATIONAL BANK OF CANADA
By: /s/ James Drum
--------------------------------------------
Title: Vice President
By: /s/ Gaetan R. Frosina
--------------------------------------------
Title: Vice President and Manager
<PAGE> 107
Annex A
Pricing Grid
<TABLE>
<CAPTION>
====================================================================================================================
Applicable Margin
for Eurodollar
Loans and Applicable Margin
Multicurrency for ABR Commitment Fee
Consolidated Leverage Ratio Loans Loans Rate
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than or equal to 2.00 1.00% 0% 0.250%
- --------------------------------------------------------------------------------------------------------------------
Greater than 2.00, but less than or equal to 2.50 1.25% 0% 0.250%
- --------------------------------------------------------------------------------------------------------------------
Greater than 2.50, but less than or equal to 3.00 1.50% 0% 0.375%
- --------------------------------------------------------------------------------------------------------------------
Greater than 3.00, but less than or equal to 3.50 1.75% 0.25% 0.375%
- --------------------------------------------------------------------------------------------------------------------
Greater than 3.50, but less than or equal to 4.00 2.00% 0.50% 0.500%
- --------------------------------------------------------------------------------------------------------------------
Greater than 4.00 2.25% 0.75% 0.500%
====================================================================================================================
</TABLE>
Changes in the Applicable Margin Ratio or in the Commitment Fee Rate resulting
from changes in the Consolidated Leverage Ratio shall become effective on the
date (the "Adjustment Date") on which financial statements are received by the
Administrative Agent pursuant to the terms of the Credit Documentation (but in
any event not later than the 45th day after the end of each of the first three
quarterly periods of each fiscal year or the 90th day after the end of each
fiscal year, as the case may be) and shall remain in effect until the next
change to be effected pursuant to this paragraph. If any financial statements
referred to above are not delivered within the time periods specified above,
then, until such financial statements are delivered, the Consolidated Leverage
Ratio as at the end of the fiscal period that would have been covered thereby
shall for the purposes of this definition be deemed to be greater than 4.00.
Each determination of the Consolidated Leverage Ratio pursuant to this
definition shall be made with respect to the period of four consecutive fiscal
quarters of the Company ending at the end of the period covered by the relevant
financial statements.
<PAGE> 1
EXHIBIT 15
November 12, 1999
The DII Group, Inc.
6273 Monarch Park Place
Niwot, Colorado
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim financial
information of The DII Group, Inc. and subsidiaries for the periods ended
October 3, 1999 and September 27, 1998, as indicated in our report dated
November 12, 1999; because we did not perform an audit, we expressed no opinion
on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended October 3, 1999, is
incorporated by reference in Registration Statement Nos. 33-73556, 33-90572,
33-79940, 333-10999, 333-11001, 333-11005 and 333-11007 on Forms S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors
The DII Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of The
DII Group, Inc. and subsidiaries (the "Company") as of October 3, 1999, and the
related condensed consolidated statements of operations and cash flows for the
thirteen weeks and thirty-nine weeks ended October 3, 1999 and September 27,
1998. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The DII Group, Inc. and
subsidiaries as of January 3, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the 53 weeks then ended
(not presented herein); and in our report dated January 28, 1999 (February 18,
1999 as to the redemption of convertible notes described in Note 6 and September
8, 1999 as to Note 15), we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of January 3, 1999 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Denver, Colorado
November 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> OCT-03-1999
<CASH> 27,141
<SECURITIES> 0
<RECEIVABLES> 188,397
<ALLOWANCES> 9,226
<INVENTORY> 112,845
<CURRENT-ASSETS> 348,230
<PP&E> 510,182
<DEPRECIATION> 99,114
<TOTAL-ASSETS> 932,692
<CURRENT-LIABILITIES> 290,421
<BONDS> 0
0
0
<COMMON> 313
<OTHER-SE> 307,093
<TOTAL-LIABILITY-AND-EQUITY> 932,692
<SALES> 892,650
<TOTAL-REVENUES> 892,650
<CGS> 764,485
<TOTAL-COSTS> 828,349
<OTHER-EXPENSES> 2,659
<LOSS-PROVISION> 4,835
<INTEREST-EXPENSE> 17,656
<INCOME-PRETAX> 39,151
<INCOME-TAX> 1,677
<INCOME-CONTINUING> 37,474
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,474
<EPS-BASIC> 1.30
<EPS-DILUTED> 1.23
</TABLE>
