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 fiscal quarter ended: June 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to ________________
Commission file number: 0-25426
NATIONAL INSTRUMENTS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1871327
- ---------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11500 North MoPac Expressway
Austin, Texas 78759
- ---------------------------------------- -----------------------------------
(address of principal executive (zip code)
offices)
Registrant's telephone number, including area code: (512) 338-9119
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 12, 1998
Common Stock - $0.01 par value 32,841,699
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NATIONAL INSTRUMENTS CORPORATION
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheets
June 30, 1998 (unaudited) and December 31, 1997 3
Consolidated Statements of Income (unaudited)
Three months and six months ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 2 Change in Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 19
Item 6 Exhibits and Reports on Form 8-K 19
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
1998 1997
-------------- --------------
Assets (unaudited)
Current assets:
Cash and cash equivalents.................. $ 31,678 $ 31,943
Short-term investments..................... 46,886 51,067
Accounts receivable, net................... 41,070 37,411
Inventories................................ 16,725 15,505
Prepaid expenses and other current assets.. 7,455 5,387
Deferred income tax, net................... 7,892 7,900
-------------- --------------
Total current assets.................... 151,706 149,213
Property and equipment, net................... 66,830 46,805
Intangibles and other assets.................. 6,624 8,472
-------------- --------------
Total assets............................ $ 225,160 $ 204,490
============== ==============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt.......... $ 848 $ 851
Accounts payable........................... 16,738 16,946
Accrued compensation....................... 8,100 8,219
Accrued expenses and other liabilities..... 3,056 2,455
Income taxes payable....................... 6,523 4,871
Other taxes payable........................ 3,149 3,729
-------------- --------------
Total current liabilities............... 38,414 37,071
Long-term debt, net of current portion........ 4,773 5,151
Deferred income taxes......................... 514 514
-------------- --------------
Total liabilities....................... 43,701 42,736
-------------- --------------
Commitments and contingencies -- --
Stockholders' equity:
Common Stock: par value $.01; 180,000,000
shares authorized; 32,828,074 and
32,656,473 shares issued and outstanding,
respectively............................... 328 326
Additional paid-in capital.................... 49,164 47,160
Retained earnings............................. 134,244 116,215
Accumulated other comprehensive loss.......... (2,277) (1,947)
-------------- --------------
Total stockholders' equity.............. 181,459 161,754
-------------- --------------
Total liabilities and stockholders' equity. $ 225,160 $ 204,490
============== ==============
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
Net sales........................ $ 67,770 $ 60,092 $ 133,123 $ 114,663
Cost of sales.................... 16,089 14,009 31,658 26,302
---------- ---------- ---------- ----------
Gross profit.................. 51,681 46,083 101,465 88,361
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing........... 24,494 21,481 49,024 41,443
Research and development...... 8,953 7,658 16,703 14,135
General and administrative.... 5,201 4,543 9,921 8,813
---------- ---------- ---------- ----------
Total operating expenses... 38,648 33,682 75,648 64,391
---------- ---------- ---------- ----------
Operating income........... 13,033 12,401 25,817 23,970
Other income (expense):
Interest income, net.......... 762 705 1,432 1,403
Net foreign exchange loss..... (67) (306) (341) (1,270)
---------- ---------- ---------- ----------
Income before income taxes. 13,728 12,800 26,908 24,103
Provision for income taxes....... 4,530 4,219 8,879 7,954
---------- ---------- ---------- ----------
Net income................. $ 9,198 8,581 18,029 16,149
========== ========== ========== ==========
Basic earnings per share......... $ 0.28 0.26 0.55 0.50
========== ========== ========== ==========
Weighted average shares
outstanding-basic................ 32,800 32,552 32,800 32,514
========== ========== ========== ==========
Diluted earnings per share....... $ 0.27 0.26 0.53 0.48
========== ========== ========== ==========
Weighted average shares
outstanding-diluted.............. 34,200 33,435 34,200 33,435
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSTRUMENTS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
June 30,
--------------------------
1998 1997
------------ ------------
Cash flow from operating activities:
Net income...................................... $ 18,029 $ 16,149
Adjustments to reconcile net income to cash
provided by operating activities
Charges to income not requiring cash outlays:
Depreciation and amortization.............. 4,689 4,102
Changes in operating assets and liabilities:
Increase in accounts receivable............ (3,728) (4,749)
Increase in inventory...................... (1,361) (1,859)
Decrease in prepaid expense and other assets 430 187
Increase in current liabilities............ 1,343 582
------------ ------------
Net cash provided by operating activities.... 19,402 14,412
------------ ------------
Cash flow from investing activities:
Capital expenditures............................ (23,803) (5,562)
Additions to intangibles ....................... (1,432) (582)
Purchases of short-term investments............. (20,398) (26,719)
Sales of short-term investments................. 24,578 24,117
------------ ------------
Net cash used in investing activities........ (21,055) (8,746)
------------ ------------
Cash flow from financing activities:
Repayments of debt............................. (431) (4,187)
Net proceeds from issuance of common stock...... 1,936 1,261
------------ ------------
Net cash provided by (used in) financing
activities................................... 1,505 (2,926)
------------ ------------
Effect of translation rate changes on cash......... (117) (241)
------------ ------------
Net (decrease) increase in cash and cash equivalents (265) 2,499
Cash and cash equivalents at beginning of period... 31,943 30,211
------------ ------------
Cash and cash equivalents at end of period......... $ 31,678 $ 32,710
============ ============
The accompanying notes are an integral part of these financial statements.
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NATIONAL INSTRUMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for the year ended
December 31, 1997, included in the Company's annual report on Form 10-K, filed
with the Securities and Exchange Commission. In the opinion of management, the
accompanying consolidated financial statements reflect all adjustments
(consisting only of normal recurring items) considered necessary to present
fairly the financial position of National Instruments Corporation and its
consolidated subsidiaries at June 30, 1998 and December 31, 1997, and the
results of operations for the three-month and six-month periods ended June 30,
1998 and 1997, and the cash flows for the six-month periods ended June 30, 1998
and 1997. Operating results for the three-month and six-month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998.
NOTE 2 - Earnings Per Share
Basic earnings per share (EPS) is computed by dividing net income by the
weighted average number of common shares outstanding during each period. Diluted
EPS is computed by dividing net income by the weighted average number of common
shares and common share equivalents outstanding (if dilutive) during each
period. Common share equivalents include stock options. The number of common
share equivalents outstanding relating to stock options is computed using the
treasury stock method.
The reconciliation of the denominators used to calculate the basic EPS and
diluted EPS for the three-month and six-month periods ended June 30, 1998 and
1997 respectively are as follows (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
1998 1997 1998 1997
-------- -------- -------- --------
Weighted average shares
outstanding-basic................... 32,800 32,552 32,800 32,514
Plus: Common share equivalents......
Stock options.................... 1,400 883 1,400 921
======== ======== ======== ========
Weighted average shares
outstanding-diluted................. 34,200 33,435 34,200 33,435
======== ======== ======== ========
Stock options to acquire 907,000 and 1.1 million shares for the quarters ended
June 30, 1998 and 1997, respectively, and 549,000 and 3,000 shares for the six
months ended June 30, 1998 and 1997, respectively, were not included in the
computations of diluted earnings per share because the effect of including the
stock options would have been anti-dilutive.
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NOTE 3 - Inventories
Inventories consist of the following (in thousands):
June 30, December 31,
1998 1997
(unaudited)
------------- ---------------
Raw materials $ 8,084 $ 6,985
Work-in-process 794 1,315
Finished goods 7,847 7,205
------------- ---------------
$ 16,725 $ 15,505
============= ===============
NOTE 4 - Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income." The new standard, which is effective
for financial statements issued for periods ending after December 15, 1997,
established standards for reporting, in addition to net income, comprehensive
income and its components including, as applicable, foreign currency items,
minimum pension liability adjustments and unrealized gains and losses on certain
investments in debt and equity services. Upon adoption the Company is also
required to reclassify financial statements for earlier periods provided for
comparative purposes. The Company adopted this standard in the first quarter of
1998. Total comprehensive income for the quarters ended June 30, 1998 and 1997
is $9.0 million and $8.8 million, respectively. For the first six months of 1998
and 1997, comprehensive income is $17.7 million and $15.5 million, respectively.
Reconciliation of accumulated other comprehensive loss (in thousands):
Cumulative Unrealized Accumulated
Foreign Currency Gain (Loss) Other
Translation on Comprehensive
Adjustment Securities Loss
------------------ ------------- -----------------
Balance at December 31, $ (2,052) $ 105 $ (1,947)
1997
Current-period change (260) (70) (330)
================== ============= =================
Balance at June 30, 1998 $ (2,312) $ 35 $ (2,277)
================== ============= =================
NOTE 5 - Recently Adopted Accounting Requirements
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which the Company adopted in the first
quarter of 1998. The statement establishes standards for reporting information
about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Under SFAS No. 131,
operating segments are to be determined consistent with the way that management
organizes and evaluates financial information internally for making operating
decisions and assessing performance. The adoption of this new accounting
standard is not expected to have a material impact on the consolidated balance
sheet or statement of income.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts, by requiring that an entity recognize those items as assets or
liabilities in the statement of financial position and measure them at fair
value. This statement is effective for all quarters of fiscal years beginning
after June 15, 1999. As of June 30, 1998, the Company is reviewing the effect
this standard will have on the Company's consolidated financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of important factors. For a discussion of important factors that could affect
the Company's results, please refer to the Issues and Outlook section and
financial statement line item discussions below. Readers are also encouraged to
refer to the Company's Annual Report on Form 10-K for further discussion of the
Company's business and the risks and opportunities attendant thereto.
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's
consolidated statements of income:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
Net sales:
North America 58.8% 60.4% 57.9% 58.5%
Europe 30.5 27.5 29.8 27.5
Asia Pacific 10.7 12.1 12.3 14.0
-------- -------- -------- --------
Consolidated net sales 100.0 100.0 100.0 100.0
Cost of sales 23.7 23.3 23.8 23.0
-------- -------- -------- --------
Gross profit 76.3 76.7 76.2 77.0
-------- -------- -------- --------
Operating expenses:
Sales and marketing 36.1 35.8 36.8 36.1
Research and development 13.2 12.7 12.6 12.3
General and administrative 7.7 7.6 7.5 7.7
-------- -------- -------- --------
Total operating expenses 57.0 56.1 56.9 56.1
-------- -------- -------- --------
Operating income 19.3 20.6 19.3 20.9
Other income (expense):
Interest income, net 1.1 1.2 1.2 1.2
Net foreign exchange loss (0.1) (0.5) (0.3) (1.1)
-------- -------- -------- -------
Income before income taxes 20.3 21.3 20.2 21.0
Provision for income taxes 6.7 7.0 6.7 6.9
-------- -------- -------- --------
Net income 13.6% 14.3% 13.5% 14.1%
======== ======== ======== ========
Net Sales. Consolidated net sales increased by $7.7 million or 12.8% for
the three months ended June 30, 1998 to $67.8 million from $60.1 million for the
three months ended June 30, 1997, and increased $18.4 million or 16.1% to $133.1
million for the six months ended June 30, 1998 from $114.7 million for the
comparable period in the prior year. The increase in sales is primarily
attributable to the introduction of new and upgraded products and increased
sales and marketing efforts. North American sales in the second quarter of 1998
increased by 9.8% over the second quarter of 1997 and North American sales for
the six months ended June 30, 1998 increased 15.0% from the six months ended
June 30, 1997. The Company believes its growth rate for North American sales,
9.8% in the second quarter compared to 21.0% for the first quarter of 1998, is
attributable to the effect of economic difficulties in Asia on the Company's
North American customers, particularly in the automated test equipment and
semiconductor sectors, and the fact that the number of sales engineers in the
field actually decreased during the first half of the year. Historically the
Company has found a high correlation between revenue and the number of sales
engineers in the field. The Company had 45 engineers in the field as of June 30,
1998 and plans to approach the desired level of 60 by the end of the year.
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International sales as a percentage of consolidated sales for the quarter
and six months ended June 30, 1998 increased to 41.2% from 39.6% and to 42.1%
from 41.5%, respectively, over the comparable 1997 periods as a result of strong
European sales. Compared to 1997, the Company's European sales increased by
25.1% to $20.6 million for the quarter ended June 30, 1998 and by 26.1% to $39.7
million for the six months ended June 30, 1998. Sales in Asia Pacific remained
constant at $7.3 million for the quarter ended June 30, 1998 compared to 1997
and increased 1.8% to $16.3 million from $16.0 million for the six months ended
June 30, 1998 compared to the same period in 1997. The low sales growth rate in
Asia Pacific was impacted by the economic difficulties occurring in the region.
The Company expects sales outside of North America to continue to represent a
significant portion of its revenue. International sales are subject to inherent
risks, including fluctuations in local economies, difficulties in staffing and
managing foreign operations, greater difficulty in accounts receivable
collection, costs and risks of localizing products for foreign countries,
unexpected changes in regulatory requirements, tariffs and other trade barriers,
difficulties in the repatriation of earnings and the burdens of complying with a
wide variety of foreign laws.
Sales made by the Company's direct sales offices in Europe and Asia Pacific
are denominated in local currencies, and accordingly, the US dollar equivalent
of these sales is affected by changes in the value of the US dollar. Between the
second quarter of 1997 and the second quarter of 1998 the weighted average value
of the US dollar increased by 6.7%, causing an equivalent decrease in the US
dollar value of the Company's foreign currency sales and expenses. This weighted
average is calculated as the percentage change in the value of the currency
relative to the US dollar, multiplied by the proportion of international sales
recorded in the particular currency. If the weighted average value of the US
dollar in the second quarter of 1998 had been the same as that in the second
quarter of 1997, the Company's sales for the second quarter of 1998 would have
been $69.5 million, a 16% increase. This effect is 2.6% of consolidated net
sales in the aggregate. European sales for the second quarter of 1998 would have
been $21.4 million, a 29% increase in second quarter 1998 sales over second
quarter 1997. Asia Pacific sales for the second quarter of 1998 would have been
$8.3 million, a 14% increase in second quarter 1998 sales over second quarter
1997 sales. If the weighted average value of the dollar in the six months ended
June 30, 1998 had been the same as that in the six months ended June 30, 1997,
the Company's year-to-date sales would have been $137.1 million, a 20% increase
in year-to-date sales over 1997 sales. Since most of the Company's international
operating expenses are also incurred in local currencies, the change in exchange
rates has the corresponding effect of reducing consolidated operating expenses
by $1.1 million for the six months ended June 30, 1998 and $488,000 for the
second quarter of 1998. If the current trend in the value of the US dollar
continues throughout 1998, it will continue to have the effect of lowering the
US dollar equivalent of international sales and operating expenses.
Gross Profit. As a percentage of net sales, gross profit decreased to 76.3%
for the second quarter of 1998 from 76.7% for the second quarter of 1997 and
decreased to 76.2% for the first six months of 1998 from 77.0% for the
comparable period a year ago. The lower margin for the second quarter ending
June 30, 1998 compared to prior year periods is attributable to increased
spending for the third production line, installed March 1998, the weaker US
dollar and lower sales growth in the Asia region which has historically provided
higher margins. For the six months ended June 30, 1998, the delay in the first
quarter release of the LabVIEW 5.0 and LabWindows CVI products coupled with the
increased production spending and lower Asia sales growth, led to lower margins
than the same time last year. Software margins have historically been higher
than hardware margins. Therefore, any change in sales mix resulting in a lower
proportion of software sales produces a lower consolidated gross margin.
The marketplace for the Company's products dictates that many of the
Company's products be shipped quickly after an order is received. As a result,
the Company is required to maintain significant inventories. Therefore,
inventory obsolescence is a risk for the Company due to frequent engineering
changes, shifting customer demand, the emergence of new industry standards and
rapid technological advances including the introduction by the Company, or its
competitors, of products embodying new technology. While the Company maintains
valuation allowances for excess and obsolete inventory and management continues
to monitor the adequacy of such valuation allowances, there can be no assurance
that such valuation allowances will be sufficient.
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Sales and Marketing. Sales and marketing expenses for the second quarter of
1998 increased to $24.5 million, a 14.0% increase, as compared to the second
quarter of 1997, and increased 18.3% to $49.0 million for the first six months
of 1998 from the comparable 1997 period. As a percentage of net sales, sales and
marketing expenses were 36.1% and 35.8% for the quarters ended June 30, 1998 and
1997, respectively, and 36.8% and 36.1% for the six months ended June 30, 1998
and 1997, respectively. The increase in these expenses in absolute dollar
amounts is primarily attributable to increased advertising, personnel, sales and
marketing seminars, tradeshows, and other marketing activities. Sales and
marketing personnel increased from 460 at June 30, 1997 to 559 at June 30, 1998.
The Company expects sales and marketing expenses in future periods to increase
in absolute dollars, and to fluctuate as a percentage of sales based on new
recruiting, initial and on-going marketing and advertising campaign costs
associated with major new product releases, the opening of new sales offices and
the timing of domestic and international conferences and trade shows.
Research and Development. Research and development expenses increased to
$9.0 million for the quarter ended June 30, 1998, a 16.9% increase, as compared
to $7.7 million for the three months ended June 30, 1997, and increased 18.2% to
$16.7 million for the six months ended June 30, 1998 from the comparable 1997
period. As a percentage of net sales, research and development expenses
represented 13.2% and 12.7% for the second quarters ended June 30, 1998 and
1997, respectively, and 12.6% and 12.3% for the six months ended June 30, 1998
and 1997, respectively. The increase in research and development costs is mainly
due to increases in personnel costs from increased hiring. Research and
development personnel increased from 398 at June 30, 1997 to 493 at June 30,
1998. The Company believes that a significant, on-going investment in research
and development is required to remain competitive.
The Company capitalizes software development costs in accordance with the
SFAS No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed." The Company amortizes such costs over the related
product's estimated economic useful life, generally three years, beginning when
a product becomes available for general release. Amortization expense totaled
$507,000 and $361,000 for the quarters ended June 30, 1998 and 1997,
respectively, and $922,000 and $737,000 during the six months ended June 30,
1998 and 1997, respectively. Software development costs capitalized were
$349,000 and $88,000 for the quarters ended June 30, 1998 and 1997,
respectively, and $1.1 million and $406,000 for the first six months of 1998 and
1997, respectively. The amounts capitalized in the second quarter and first six
months of 1998 include LabVIEW 5.0, LabWindows/CVI 5.0 and NI DAQ 6.1.
General and Administrative. General and administrative expenses for the
second quarter ended June 30, 1998 increased 14.5% to $5.2 million from $4.5
million for the comparable prior year period. For the first six months of 1998,
general and administrative expenses increased 12.6% to $9.9 million from $8.8
million for the first six months of 1997. As a percentage of net sales, general
and administrative expenses increased to 7.7% for the quarter ended June 30,
1998 from 7.6% for the second quarter of 1997. During the first six months of
1998, general and administrative expenses decreased as a percentage of sales to
7.5% from 7.7% for the comparable prior year period. The decrease in general and
administrative expenses as a percent of sales is due to operational efficiencies
achieved as a result of increased systems integration during the past two years.
The Company's general and administrative expense increased in absolute dollars
mainly due to additional personnel. The Company expects that general and
administrative expense in future periods will increase in absolute amounts and
will fluctuate as a percentage of net sales.
Interest Income, Net. Net interest income in the second quarter of 1998
increased to $762,000 from $705,000 in the second quarter of 1997 and remained
constant at $1.4 million for the first six months of 1998 and 1997. Net interest
income has represented approximately one percent or less of net sales and has
fluctuated as a result of investment balances, bank borrowings and interest
terms thereon.
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Net Foreign Exchange Loss. Net foreign exchange losses recognized in the
second quarter of 1998 were $67,000 compared to $306,000 recognized in the
second quarter of 1997. Net foreign exchange losses of $341,000 were recognized
for the first six months of 1998 compared to $1.3 million for the first six
months of 1997. Foreign exchange gains and losses are attributable to movements
between the US dollar and the local currencies in countries in which the
Company's sales subsidiaries are located. The decrease in net foreign exchange
losses recognized in the first half of 1998 is mainly due lower currency
fluctuations in the first half of 1998 compared to the first half of 1997. The
Company recognizes the local currency as the functional currency of its
international subsidiaries.
The Company utilizes foreign currency forward exchange contracts against a
majority of its foreign currency-denominated receivables in order to reduce its
exposure to significant foreign currency fluctuations. The Company typically
limits the duration of its forward contracts to 90 days and does not invest in
contracts for speculative purposes. The Company's hedging strategy has reduced
the foreign exchange losses recorded by $363,000 during the six-month period
ended June 30, 1998.
In December 1997, the Company expanded its foreign currency hedging program
to also include foreign currency option contracts in order to reduce its
exposure related to forecasted net foreign currency cash flows. The Company's
policy allows for the purchase of 5% "out-of-the-money" foreign currency put
option contracts with a duration of up to 12 months for up to 80% of the
specific country's forecasted net foreign currency risk. In June 1998, the
Company expanded its policy to allow for the purchase of similar foreign
currency put option contracts extending from 12 months to 24 months. The second
quarter 1998 Japanese Yen option contract was exercised at expiration. The gain
from the sale of this contract had a net effect on operating income of $97,000.
The Company's hedging activities only partially address its risks in foreign
currency transactions, and there can be no assurance that this strategy will be
successful. If the US dollar continues to strengthen, the Company could
experience significant foreign exchange losses due to the foreign exchange risks
that are not addressed by the Company's hedging strategy. The Company does not
invest in contracts for speculative purposes.
Provision for Income Taxes. The provision for income taxes reflects an
effective tax rate of 33% for both the three months and six months ended June
30, 1998 and 1997. As of June 30, 1998, eleven of the Company's subsidiaries had
available, for income tax purposes, foreign net operating loss carryforwards of
approximately $2.6 million, of which $1,907,000 expire between 2000 and 2008.
The remaining $674,000 of loss carryforwards may be carried forward indefinitely
to offset future taxable income in the related tax jurisdictions.
Liquidity and Capital Resources
The Company is currently financing its operations and capital resources
through cash flow from operations. Historically, the Company also financed its
capital expenditures, such as the manufacturing facility constructed in 1995,
through borrowings from financial institutions. At June 30, 1998, the Company
had working capital of approximately $113.3 million compared to $112.1 million
at December 31, 1997.
Accounts receivable increased to $41.1 million at June 30, 1998 from $37.4
million at December 31, 1997, as a result of higher sales levels. Days sales
outstanding decreased to 55 at June 30, 1998 compared to 57 at December 31,
1997. Inventory levels increased to $16.7 million from $15.5 million at June 30,
1998 and December 31, 1997, respectively. Inventory turns decreased to 3.8 at
June 30, 1998 compared to turns of 3.9 at December 31, 1997.
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Cash used in the first six months of 1998 for the purchase of property and
equipment totaled $23.8 million and for the capitalization of software
development costs totaled $1.1 million. The Company completed construction of an
office building next to its manufacturing facility in June 1998 which will serve
as the Company's new headquarters. The Company has paid approximately $26
million in construction costs as of June 30, 1998 and approximately $6 million
will be paid during the third quarter of 1998 resulting in a total cost of $32
million for the new building including furniture, fixtures and equipment. These
costs will be paid out of the Company's existing working capital and future cash
flows. The Company anticipates the new corporate headquarters building will
result in additional quarterly operating expenses in future quarters of
approximately $1.0 million.
The Company currently expects to fund expenditures for capital requirements
as well as liquidity needs created by changes in working capital from a
combination of available cash and short-term investment balances, internally
generated funds, and financing arrangements with its current financial
institutions. The Company has a $28.5 million credit agreement with NationsBank
of Texas, N.A. which consists of (i) an $20.0 million revolving line of credit
renegotiated June 30, 1998, and (ii) an $8.5 million manufacturing facility
loan. As of June 30, 1998, the Company had no outstanding balance on the
revolving line of credit and a balance of $5.6 million on the manufacturing
facility loan. The revolving line of credit expires December 31, 1999. The
Company's credit agreements contain certain financial covenants and restrictions
as to various matters. Borrowings under the line of credit are secured by the
Company's campus, which includes the land and buildings of the manufacturing and
corporate headquarter site.
The Company believes that its cash flow from operations, if any, existing
cash balances, short-term investments and available credit under the Company's
existing credit facilities, will be sufficient to meet its cash requirements for
at least the next twelve months.
Issues and Outlook
Fluctuations in Quarterly Results. The Company's quarterly operating
results have fluctuated in the past and may fluctuate significantly in the
future due to a number of factors, including: changes in the mix of products
sold; the availability and pricing of components from third parties (especially
sole sources); the timing of orders; level of pricing of international sales;
fluctuations in foreign currency exchange rates like the recent devaluation in
certain Asian currencies; the difficulty in maintaining margins, including the
higher margins traditionally achieved in international sales; and changes in
pricing policies by the Company, its competitors or suppliers. Specifically, if
the Asian currencies continue to weaken against the US dollar, and if the local
sales prices cannot be raised, the Company will experience a deterioration of
its Asian profit margin. In addition, the recent economic turmoil in Asia could
continue to have an adverse effect on the Company's performance as we have seen
in the second quarter of 1998 with zero sales growth in Asia. Also, the Company
believes the moderate sales growth rate in North America for the second quarter
is partially caused by the effect of economic difficulties in Asia on North
American customers. This effect could result in an increased adverse reaction in
North America in future quarters and could potentially impact Europe as well. In
addition, decisions made by OEMs to adjust their inventory levels could
adversely effect revenues.
As has occurred in the past and as may be expected to occur in the future,
new software products of the Company or new operating systems of third parties
on which the Company's products are based, often contain bugs or errors that can
result in reduced sales and/or cause the Company's support costs to increase,
either of which could have a material adverse impact on the Company's operating
results. Furthermore, the Company serves a number of industries such as
automated test equipment, semiconductors, telecommunications, aerospace, defense
and automotive which are cyclical in nature. Downturns in these industries could
have a material adverse effect on the Company's operating results.
Page 12
<PAGE>
In recent years, the Company's revenues have been characterized by
seasonality, with revenues typically being relatively constant in the first,
second and third quarters, growing in the fourth quarter and being relatively
flat or declining from the fourth quarter of the year to the first quarter of
the following year. The Company's results of operations in the third quarter of
1998 may be adversely affected by lower sales levels in Europe which typically
occur during the summer months. The Company believes the seasonality of its
revenue results from the international mix of its revenue and the variability of
the budgeting and purchasing cycles of its customers throughout each
international region. In addition, total operating expenses have in the past
tended to be higher in the second and third quarters of each year, due to
college recruiting and increased intern personnel expenses. In addition, third
quarter of 1998 will be impacted by the new corporate headquarters building,
which will result in additional quarterly operating expenses of approximately
$1.0 million.
New Product Introductions and Market Acceptance. The market for the
Company's products is characterized by rapid technological change, evolving
industry standards, changes in customer needs and frequent new product
introductions, and is therefore highly dependent upon timely product innovation.
The Company's success is dependent in part on its ability to successfully
develop and introduce new and enhanced products on a timely basis to replace
declining revenues from older products, and on increasing penetration in
international markets. In the past, the Company has experienced significant
delays between the announcement and the commercial availability of new products.
Any significant delay in releasing new products could have a material adverse
effect on the ultimate success of a product and other related products and could
impede continued sales of predecessor products, any of which could have a
material adverse effect on the Company's operating results. There can be no
assurance that the Company will be able to introduce new products in accordance
with announced release dates, that new products will achieve market acceptance
or that any such acceptance will be sustained for any significant period. There
can be no assurance that the Company's international sales will continue at
existing levels or grow in accordance with the Company's efforts to increase
foreign market penetration.
Operation in Intensely Competitive Markets. The markets in which the
Company operates are characterized by intense competition from numerous
competitors, and the Company expects to face further competition from new market
entrants in the future. A key competitor is Hewlett-Packard Company ("HP"),
which has been the leading supplier of traditional instrumentation solutions for
decades. Although HP offers its own line of proprietary instrument controllers,
HP also offers hardware and software add-on products for third-party desktop
computers and workstations that provide solutions that directly compete with the
Company's virtual instrumentation products. HP is aggressively advertising and
marketing products that are competitive with the Company's products. Because of
HP's strong position in the instrumentation business, changes in its marketing
strategy or product offerings could have a material adverse effect on the
Company operating results.
The Company believes its ability to compete successfully depends on a
number of factors both within and outside its control, including: new product
introductions by competitors; product pricing; quality and performance; success
in developing new products; adequate manufacturing capacity and supply of
components and materials; efficiency of manufacturing operations; effectiveness
of sales and marketing resources and strategies; strategic relationships with
other suppliers; timing of new product introductions by the Company; protection
of the Company's products by effective use of intellectual property laws;
general market and economic conditions; and government actions throughout the
world. There can be no assurance that the Company will be able to compete
successfully in the future.
Management Information Systems. The Company relies on three primary
regional centers for its management information systems. It is possible that one
or more of the Company's three regional information systems could experience a
complete or partial shutdown. If this shutdown occurred near the end of a
quarter it could impact the Company's product shipments and revenues as product
distribution is heavily dependent on the integrated management information
systems in each region. Accordingly, operating results in that quarter would be
adversely impacted due to the shipments which would not occur until the
following period.
Page 13
<PAGE>
Impact of Year 2000. Many computer systems experience problems handling
dates beyond the year 1999. Therefore, some computer hardware and software will
need to be modified prior to the year 2000 in order to remain functional.
The Company is updating its recent assessment of Year 2000 compliance in
its current product versions. No assurances can be made that problems will not
arise, such as customer problems with software programs, operating systems or
hardware that disrupt their use of the Company's products. There can be no
assurances that such disruption would not negatively impact costs and revenues
in future years.
The Company has been assured by Oracle Corporation that all of the
Company's Oracle-based management information systems, which include the
manufacturing, distribution, finance, and order entry systems, are Year 2000
compliant with the exception of the management information system in Japan. The
Company expects to upgrade the Japanese system during the fourth quarter of
1998. The Company is in the process of internal Year 2000 testing of the major
management information systems as well as assessing additional Year 2000 issues
in its worldwide systems. The Company is aware that its current customer
marketing database and customer support software are not Year 2000 compliant.
However, the Company expects to upgrade both systems prior to Year 2000 as part
of on-going system upgrades.
The Company recently initiated formal communications with all of its
significant suppliers and vendors to determine the extent to which the Company
is vulnerable to a third party failure to correct Year 2000 issues. There can be
no guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company,
or a conversion that is incompatible with the Company's systems would not have a
material adverse effect on the Company.
The Company presently believes that with modifications to existing software
and conversions to new software, the Year 2000 issue can be mitigated. It is not
anticipated that there will be a significant increase in costs as much of the
Year 2000 activities will be a continuation of the on-going process to improve
all of the Company's systems. The Company plans to complete the Year 2000
project by mid 1999. However, if such modifications and conversions are not
made, or are not completed timely, the Year 2000 issue could have a material
impact on the operations of the Company. Specific factors that might cause a
material impact include, but are not limited to, availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, failure by third parties to timely convert their systems, and
similar uncertainties.
Dependence on Key Suppliers. The Company's manufacturing processes use
large volumes of high-quality components and subassemblies supplied by outside
sources. Several of these components are available through sole or limited
sources. Sole-source components purchased by the Company include custom
application-specific integrated circuits ("ASICs") and other components. The
Company has in the past experienced delays and quality problems in connection
with sole-source components, and there can be no assurance that these problems
will not recur in the future. Accordingly, the failure to receive sole-source
components from suppliers could result in a material adverse effect on revenues
and results of operations.
Proprietary Rights and Intellectual Property Litigation. The Company's
success depends in part on its ability to obtain and maintain patents and other
proprietary rights relative to the technologies used in its principal products.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may have in the past infringed or violated certain of the Company's
intellectual property rights. As is typical in the industry, the Company from
time to time may be notified that it is infringing certain patent or
intellectual property rights of others. There can be no assurance that patent
litigation will not cause significant litigation expense, liability and a
diversion of management's attention which may have a material adverse affect on
results of operations.
Page 14
<PAGE>
Dependence on Key Management and Technical Personnel. The Company's success
depends to a significant degree upon the continued contributions of its key
management, marketing, research and development and operational personnel. The
Company has no agreements providing for the employment of any of its key
employees for any fixed term and the Company's key employees may voluntarily
terminate their employment with the Company at any time. The loss of the
services of one or more of the Company's key employees in the future could have
a material adverse affect on operating results. The Company also believes its
future success will depend in large part upon its ability to attract and retain
additional highly skilled management, technical, marketing, research and
development, product development and operational personnel with experience in
managing large and rapidly changing companies as well as training, motivating
and supervising the employees. In addition, the recruiting environment for
engineering and other technical professionals is very competitive. Competition
for qualified software engineers is particularly intense. The Company also
recruits and employs foreign nationals to achieve its hiring goals primarily for
entry-level engineering and software positions. There can be no guarantee that
the Company will continue to be able to recruit foreign nationals to the current
degree if government requirements for temporary and permanent residence become
increasingly restrictive. These factors further intensify competition for key
personnel, and there can be no assurance that the Company will be successful in
retaining its existing key personnel or attracting and retaining additional key
personnel. Failure to attract and retain a sufficient number of technical
personnel could have a material adverse effect on the results of operations.
Page 15
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGE IN SECURITIES
The stockholders of the Company approved an amendment to the Company's
Certificate of Incorporation to increase the authorized number of shares of
common stock by 120,000,000 shares to 180,000,000 shares. The amendment
became effective on June 19, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held on May 12, 1998.
(b) The following directors were elected at the meeting to serve a term
of three years:
Dr. James J. Truchard
William C. Nowlin, Jr.
The following directors are continuing to serve their terms:
Jeffrey L. Kodosky
Dr. Ben G. Streetman
L. Wayne Ashby
Dr. Donald M. Carlton
(c) The matters voted upon at the meeting and results of the voting
with respect to those matters were as follows:
For Instructed Withheld
---------- ---------- --------
(1) Election of directors: 30,185,179 99 111,504
Dr. James Truchard
William C. Nowlin, Jr.
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Vote
---------- --------- ------- --------
<S> <C> <C> <C> <C>
(2) Proposal to approve the 25,963,423 4,313,123 20,236 0
amendment to the
Company's Certificate of
Incorporation to increase
the authorized number of
shares of common stock by
120,000,000 shares to
180,000,000 shares.
Broker
For Against Abstain Non-Vote
---------- ------- ------- --------
(3) Ratification of Price 30,223,294 66,366 7,122 0
Waterhouse LLP as the
Company's independent
public accountants for
the fiscal year ending
December 31, 1998.
</TABLE>
The foregoing matters are described in detail in the Company's definitive
proxy statement dated April 3, 1998, for the Annual Meeting of Stockholders
held on May 12, 1998.
Page 16
<PAGE>
ITEM 5. OTHER INFORMATION
Pursuant to the Company's Bylaws, stockholders who wish to bring matters or
propose nominees for director at the Company's 1999 annual meeting of
stockholders must provide specified information in writing to the secretary
of the Company not less than the thirty (30) days nor more than sixty (60)
days prior to the first anniversary of the 1998 annual meeting (May 11,
1999).
Stockholders who wish to bring matters or propose nominees for director at
the Company's 1999 annual meeting of stockholders must provide specified
information in writing to the secretary of the Company no later than
December 4, 1998, in order to be included in the proxy statement and form
of proxy for that meeting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(10.1) Credit Agreement between National Instruments Corporation
and NationsBank of Texas, N.A.
(11.1) Computation of Earnings Per Share
(27.1) Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1998.
Page 17
<PAGE>
SIGNATURE
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.
NATIONAL INSTRUMENTS CORPORATION
Registrant
BY: /s/ Alex Davern
Alex Davern
Chief Financial Officer and
Treasurer (principal financial
and accounting officer)
Dated: August 14, 1998
Page 18
<PAGE>
NATIONAL INSTRUMENTS CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description Page
10.1 Credit Agreement between National 22
Instruments Corporation and
NationsBank of Texas, N.A.
11.1 Statement Regarding Computation 55
of Earnings per Share
27.1 Financial Data Schedule 56
Page 19
LOAN AGREEMENT
This Loan Agreement (this "Agreement") dated as of June 30, 1998, by and
between NationsBank, N.A., a national banking association ("Bank") and National
Instruments Corporation, a Delaware corporation ("Borrower").
In consideration of the Loans described below and the mutual covenants and
agreements contained herein, and intending to be legally bound hereby, Bank and
Borrower agree as follows:
1. Definitions and Reference Terms. In addition to any other terms defined
herein, the following terms shall have the meaning set forth with respect
thereto:
A. "Advance" means an advance of the proceeds of the Line of Credit
(as defined below) or a portion of the unpaid principal balance of the Term
Note, as applicable, subject to the terms, conditions, and requirements of
this Agreement and the Loans.
B. "Applicable Margin" means the interest margin over the LIBOR Rate,
for Advances, which is based on the Senior Debt to EBITDA Ratio as of and
for the most recent four (4) quarter period ending on or before the date of
determination, such Applicable Margin being set forth opposite such ratio
below:
Senior Debt to EBITDA Ratio Applicable Margin
--------------------------- -----------------
Less than 0.35 to 1.0 0.5% [50 basis points]
Greater than or equal to 0.65% [65 basis points]
0.35 to 1.0 but less than or
equal to 0.75 to 1.0
Greater than 0.75 to 1.0 but .75% [75 basis points]
less than 1.0 to 1.0
Greater than or equal to 0.95% [95 basis points]
1.0 to 1.0 but less than
or equal to 1.25 to 1.0
Greater than 1.25 to 1 1.15% [115 basis points]
The Senior Debt to EBITDA Ratio shall be determined from the then most current
quarterly or annual financial statements of Borrower and related compliance
certificate delivered by Borrower to Bank pursuant to Section 5.B.(iv) of this
Agreement. The adjustment, if any, to the Applicable Margin shall be effective
commencing on the fifth (5th) Business Day after delivery of such financial
statements (and related compliance certificate). If Borrower fails at any time
to furnish to Bank such financial statements and related compliance certificate
and such failure continues for more than thirty (30) days after written notice
of such failure, then the maximum Applicable Margin shall apply until such time
as such financial statements (and related compliance certificates) are so
delivered.
C. "Alternate Rate" means the sum of a LIBOR Rate plus the Applicable
Margin per annum.
D. "Business Day" shall mean a day on which Bank is open for the
conduct of substantially all of its banking business at its principal
office in Austin, Texas and a day on which dealings are carried on in the
London interbank market.
E. "Continue", "Continuation", and "Continued" refer to the
continuation pursuant to Section 3.C. below of a LIBOR Advance from one
LIBOR Interest Period to the next LIBOR Interest Period.
F. "Conversion" and "Converted" refer to a conversion pursuant to
Section 1(e) below of one type of an Advance to another type of Advance
(i.e.., from an Advance bearing interest at the Prime Rate to a LIBOR
Advance, or vice versa).
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<PAGE>
G. "Dollars" and "$" means U.S. Dollars, the lawful money of the
United States of America.
H. "EBITDA" means for any period: (i) Borrower's consolidated net
income of such period, determined after deduction of any minority interest
income, plus (ii) all amounts deducted therefrom during such period, all in
conformity with GAAP, for interest, taxes, depreciation and amortization.
I. "Eurodollar Reserve Percentage" shall mean, for each term of an
Advance, the maximum reserve requirement including any supplemental and
emergency reserves (expressed as a percentage) applicable during such term
to member banks of the Federal Reserve System in respect of "Eurocurrency
liabilities" under Regulation D of the Board of Governors of the Federal
Reserve System, or such substituted or amended reserve requirement as may
be hereafter applicable to member banks of the Federal Reserve System in
respect of such Eurocurrency liabilities or other foreign currency
liabilities of the nature contemplated by this Agreement.
J. "Foreign Currency Advance" shall mean an advance under the Line of
Credit which is in a foreign currency (that is, not in Dollars).
K. "Foreign Currency Rate" shall mean, in relation to the term of each
Foreign Currency Advance, a fixed per annum rate for such term equal to the
quotient produced by dividing (a) the sum of (i) the percentage rate of
interest determined by Bank at or about 10:00 a.m. Austin, Texas time on
the second Business Day preceding the anticipated date of advance, to be
the per annum rate at which deposits of the type of foreign currency
denominated during such term are offered to Bank by prime banks in the
London foreign currency deposits market, at the time of determination and
in accordance with the usual practice in such market, for delivery on the
first day of such term and for the number of days comprised therein, in
amounts of such currency equal (as nearly as may be) to the principal
amount of the advance, and (ii) an additional percentage rate of interest
not to exceed one-half of one percent (1/2 of 1%) per annum to compensate
Bank for making advances having a Dollar Equivalent of less than
$1,000,000.00 each, by (b) the remainder produced by subtracting the
Eurodollar Reserve Percentage (expressed as a decimal in one hundredths
[e.g., 100% = 1.0; 1.0% = .01; etc.]) from 1.0.
L. "Hazardous Materials" means (i) any "hazardous waste" as defined by
the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901
et seq.), as amended from time to time, and regulations promulgated
thereunder; (ii) any "hazardous substance" as defined by the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.
Section 9601 et seq.) ("CERCLA"), as amended from time to time, and
regulations promulgated thereunder; (iii) asbestos; (iv) polychlorinated
biphenyls; (v) any substance the presence of which on any of Borrower's
property is prohibited by any governmental authority; and (vi) any other
substance which by any governmental requirement requires special handling
in its collection, storage, treatment or disposal.
M. "Indebtedness" means the indebtedness and obligations of Borrower
to Bank under the Note, the Term Note, this Agreement, and any other Loan
Documents.
N. "LIBOR Rate" shall mean an interest rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate
Page 3750 (or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of the applicable LIBOR Interest Period for a
term comparable to such LIBOR Interest Period, as adjusted from time to
time in Bank's sole discretion, for the applicable reserve requirements,
deposit insurance assessment rates, and other regulatory costs. If for any
reason such rate is not available, the term "LIBOR Rate" shall mean, for
any LIBOR Advance for any LIBOR Interest Period therefor, the rate per
annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing
on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such LIBOR Interest Period for a term
comparable to such LIBOR Interest Period, as adjusted from time to time in
Bank's sole discretion, for the applicable reserve requirements, deposit
insurance assessment rates, and other regulatory costs, provided, however,
if more than one rate is specified on Reuters Screen LIBO Page, the
applicable rate shall be the arithmetic mean of all such rates.
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<PAGE>
O. "LIBOR Advance" shall mean an Advance that bears interest at the
Alternate Rate.
P. "LIBOR Interest Period" shall mean with respect to any LIBOR
Advance, a certain period established by the proper exercise of a Rate
Option (as defined below). That certain period shall begin on the date
specified in the notice that is given to exercise that Rate Option, and
shall end (a) immediately before the numerically corresponding day in the
first, second, third, sixth, or twelfth calendar month after the month that
includes such commencement day, or (b) if such first, second, third, sixth,
or twelfth calendar month has no such numerically corresponding day, then
at the end of the last day of such month.
Q. "Loan" shall mean and include any loan described in Section 2
hereof and any subsequent loan made by Bank to Borrower which states that
it is subject to this Agreement, and any one or more Loans may be referred
to as the "Loans."
R. "Loan Documents" means this Loan Agreement and any and all
promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed
and/or delivered by Borrower, any guarantor or third party in connection
with any Loan.
S. "Maturity Date" means December 31, 1999.
T. "Maximum Lawful Rate" means the maximum lawful interest rate for
the Loan and Note, as determined under Texas law, and shall be the "weekly
ceiling" (as defined in Chapter 303 of the Texas Finance Code [and/or
Articles 1D.002 and 1D.003 of the Texas Credit Title] and formerly referred
to as the "Indicated (Weekly) Ceiling" in Article 1.04(a)(1) of the Texas
Credit Code [Article 5069-1.04 of VATS]). Further, to the extent that any
other lawful rate ceiling exceeds the rate ceiling so determined then the
higher rate ceiling shall apply.
U. "Senior Debt" means the Indebtedness and any other indebtedness of
Borrower permitted under this Agreement which is not subordinated to the
Indebtedness.
V. "Senior Debt to EBITDA Ratio" means, as of any date, the ratio of
(a) the aggregate amount of Senior Debt of the Borrower, as of such date,
to (b) EBITDA of Borrower, for the four (4) fiscal quarter periods ending
on the date of determination.
W. "Tangible Net Worth" means the amount by which total assets exceed
total liabilities in accordance with GAAP.
X. Accounting Terms. All accounting terms not specifically defined or
specified herein shall have the meanings generally attributed to such terms
under generally accepted accounting principles ("GAAP"), as in effect from
time to time, consistently applied, with respect to the financial
statements referenced in Section 4.H. hereof.
2. Loans.
A. Revolving Line of Credit Loan. Bank hereby agrees to make a
revolving line of credit loan to Borrower in the aggregate principal face
amount of $20,000,000.00 (the "Line of Credit"). The obligation to repay
the Line of Credit and all Advances thereunder is evidenced by the
promissory note in the stated principal amount of $20,000,000.00, dated
June 30, 1998, executed by Borrower, and payable to the order of Bank, (the
promissory note or notes together with any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred to as the
"Note") having a maturity date, repayment terms and interest rate as set
forth in the Note.
i. Revolving Credit Feature. The Loan provides for a revolving
line of credit under which Borrower may from time to time, borrow,
repay and re-borrow funds.
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<PAGE>
ii. Letter of Credit Subfeature. As a subfeature under the Line
of Credit, Bank may from time to time up to and including November 30,
1999, issue letters of credit for the account of Borrower (each, a
"Letter of Credit" and collectively, "Letters of Credit"); provided,
however, that the form and substance of each Letter of Credit shall be
subject to approval by Bank in its sole discretion; and provided
further that the aggregate undrawn amount of all outstanding Letters
of Credit shall not at any time exceed the amount available to
Borrower under the Line of Credit. Each Letter of Credit shall be
issued for a term not to exceed one year, as designated by Borrower,
provided, however, that no Letter of Credit shall have an expiration
date more than ninety days after the Maturity Date, unless agreed to
by Bank (in Bank's sole and absolute discretion) at the time of such
Letter of Credit's issuance. The pricing and fees for any such Letter
of Credit shall be at the Bank's standard rates at the time of the
issuance of any Letter of Credit. The undrawn amount of all Letters of
Credit plus any and all amounts paid by Bank in connection with
drawings under any Letter of Credit for which the Bank has not been
reimbursed shall be reserved under the Line of Credit and shall not be
available for advances thereunder. Each draft paid by Bank under a
Letter of Credit shall be deemed an advance under the Line of Credit
and shall be repaid in accordance with the terms of the Line of
Credit; provided however, that if the Line of Credit is not available
for any reason whatsoever, at the time any draft is paid by Bank, or
if advances are not available under the Line of Credit in such amount
due to any limitation of borrowing set forth herein, then the full
amount of such drafts shall be immediately due and payable, together
with interest thereon, from the date such amount is paid by Bank to
the date such amount is fully repaid by Borrower, at that rate of
interest applicable to advances under the Line of Credit. In such
event, Borrower agrees that Bank, at Bank's sole discretion may debit
Borrower's deposit account with Bank for the amount of such draft.
B. Term Loan. The term loan evidenced by the Real Estate Lien Note in
the original principal amount of $8,480,000.00, dated August 25, 1994,
executed by Borrower, and payable to the order of NationsBank of Texas,
N.A. (the "Term Note") shall also be subject to and governed by the terms
and conditions of this Agreement. Bank is the owner and holder of the Term
Note as successor by merger to NationsBank of Texas, N.A. All collateral,
including without limitation the real property, which secured the
indebtedness evidenced by the Term Note has been or will be released. The
Term Note shall be and hereby is modified to permit Borrower to elect a
Rate Option in the manner and subject to the limitations set forth in
Section 3.A-E. hereof. Except to the extent modified by this Agreement, all
terms of the Term Note continue in full force and effect, without change.
3. Interest Rate Options; Repayment Provisions for Line of Credit. The Note
shall bear interest as provided in this Agreement and the Note. The principal
balance of the Note from time to time remaining unpaid prior to maturity shall
bear interest at a rate per annum (the "Contract Rate") that is equal to either
the "Prime Rate" or the "Alternate Rate", but in any event never greater than
the "Maximum Lawful Rate", as those terms are defined in this Agreement and the
Note, depending on the interest rate option selected by Borrower in accordance
with this Agreement and the Note.
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<PAGE>
A. Interest Rate Options The Contract Rate for each Advance (other
than Foreign Currency Advances) shall be determined in accordance with the
provisions of this Section 3.A., subject to the other terms and conditions
of this Agreement and the Notes. The "Contract Rate" shall mean the
interest rate per annum applicable to an Advance as determined by the
provisions of this Agreement. On any day that is within the LIBOR Interest
Period for a LIBOR Advance, the Contract Rate for that LIBOR Advance shall
equal the lesser of (i) the Alternate Rate for that LIBOR Interest Period,
or (ii) the Maximum Lawful Rate; and, at all times, the Contract Rate for
all unpaid principal indebtedness that is not part of a LIBOR Advance shall
equal the lesser of (i) the Prime Rate, or (ii) the Maximum Lawful Rate. On
any Business Day that is at least two (2) Business Days before the
beginning of a LIBOR Interest Period, Borrower may exercise an option (the
"Rate Option") to designate either (i) the outstanding principal
indebtedness or Advance which is to bear interest at the Prime Rate, or
(ii) the LIBOR Advance to which a LIBOR Interest Period and an Alternate
Rate shall apply. Subject to the provisions of Sections 3.B. and 3.D.
below, Borrower may exercise the Rate Option by either (i) giving written
notice of such exercise to Bank, which notice shall identify the principal
indebtedness, or Advance, affected by the Rate Option, the amount of such
Advance, and, in the case of any LIBOR Advance, the first day of such LIBOR
Interest Period and the length of such LIBOR Interest Period (one month,
two months, three months, six months, or one year), or (ii) giving notice
to Bank in any other manner that is acceptable to Bank. If the Rate Option
is so exercised and Borrower elects an Alternate Rate, then for the LIBOR
Advance identified in such notice, a LIBOR Interest Period of the length
specified in that notice shall begin on the date specified in that notice,
subject to the terms and conditions of the Note.
B. Limitations on Rate Options. Each LIBOR Advance must be in an
amount of $500,000.00 or a greater integral multiple of $100,000.00. Any
notice that is given to exercise a Rate Option with respect to the Note
electing the Alternate Rate shall specify either one month, two months,
three months, six months, or twelve months as the length of the LIBOR
Interest Period established by that exercise. For purposes of the Note and
this Agreement, a LIBOR Advance "matures" on the last day of the LIBOR
Interest Period that is applicable to that LIBOR Advance. Borrower may not
exercise a Rate Option electing the Alternate Rate that would create a
LIBOR Advance that matures after the Maturity Date.
C. Continuations; Conversions.
i. Continuations. Borrower shall have the right to continue LIBOR
Advances by giving Bank written notice specifying: (i) the
Continuation date; (ii) the amount of the LIBOR Advance to be
Continued; and (iii) the duration of the LIBOR Interest Period
applicable thereto, which notice shall be irrevocable and must be
given by Borrower not later than 11:00 a.m. Austin, Texas time on a
Business Day that is at least two (2) Business Days before each such
Continuation. If Borrower shall fail to give Bank the notice as
specified above for a continuation of a LIBOR Advance prior to the end
of the LIBOR Interest Period applicable thereto, such LIBOR Advance
shall be automatically converted to the Prime Rate.
ii. Conversions. Borrower shall have the right to convert an
Advance bearing interest at the Prime Rate at any time to a LIBOR
Advance by giving Bank written notice specifying: (i) the Conversion
Date; (ii) the amount of the Advance to be Converted; and (iii) the
duration of the LIBOR Interest Period applicable thereto, which notice
shall be irrevocable and must be given by Borrower to Bank not later
than 11:00 a.m. Austin, Texas time on a Business Day that is at least
two (2) Business Days before each such Conversion.
After the occurrence and during the continuance of an Event of Default, no
outstanding Advances may be Converted into, or Continued as, a LIBOR Advance.
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D. Special Provisions Regarding the Alternate Rate.
i. Unavailability. If Bank determines (which determination shall
be presumed correct absent evidence of error) on any date for
determining the Alternate Rate for any LIBOR Advance, that by reason
of any one (1) or more changes arising on or after the date of the
Note affecting the interbank eurodollar market, Dollar deposits in an
amount substantially equal to that LIBOR Advance (and/or for a period
substantially equal to the relevant LIBOR Interest Period) are not
generally available in the London interbank market, or adequate and
fair means do not exist for ascertaining the LIBOR Rate on the basis
provided for herein and in this Agreement, then the Alternate Rate
will not be available for that LIBOR Advance and the Contract Rate for
that Advance shall equal the Prime Rate until Bank notifies Borrower
that such circumstances no longer exist.
ii. Increased Cost. At any time, that Bank shall actually incur
increased costs, or reductions in the amounts received or receivable
hereunder, with respect to a LIBOR Advance because of any change on or
after the date of the Note in any applicable law, governmental rule,
regulation, guideline, or order (or in the interpretation or
administration thereof and including the introduction of any new law
or governmental rule, regulation, guideline or order), including,
without limitation, the imposition, modification, or deemed
applicability of any reserve, deposit, or similar requirements as
related to the computation of the LIBOR Rate (such as, for example,
but not limited to, a change in official reserve requirements, but, in
all events, excluding reserves required under Regulation D to the
extent included in the computation of LIBOR Rate); then Borrower shall
pay to Bank, on demand, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or
otherwise as Bank determines in its reasonable discretion) as may be
required to compensate Bank for such increased costs or reductions in
amounts receivable hereunder (written notice as to the additional
amounts owed to Bank, showing the basis for calculation thereof,
shall, absent evidence of error, be binding on all parties hereto).
iii. Illegality. At any time, that the initiation, or continued
use, of the Alternate Rate as the Contract Rate has become unlawful
under Bank's good faith interpretation of any law, governmental rule,
regulation, guideline, or order (or would conflict with any such rule,
regulation, guideline or order not having the force of law), or has
become impractical as a result of a contingency occurring on or after
the date of this Agreement which materially and adversely affects the
interbank eurodollar market, then the Alternate Rate shall no longer
be available as the Contract Rate and any exercise by Borrower of an
option to have the Contract Rate be the Alternate Rate shall be
ineffective.
E. Prime Rate. The "Prime Rate" is one of the interest rate options
available to Borrower under the Note. The "Prime Rate" means the rate
established and quoted from time to time by NationsBank, N.A. (or its
successor) as its prime lending rate. If the Prime Rate is no longer
available, Bank, in its sole and absolute discretion, will choose a new
index which is based upon comparable information. Regardless of the term
that may be used from time to time to describe such Prime Rate (such as
"base rate" or "prime rate"), such interest rate does not necessarily mean
the lowest interest rate charged to other borrowers. Borrower acknowledges
that the fluctuations of the Prime Rate may not necessarily correspond with
future increases or decreases in interest rates charged by other lenders or
market interest rates in general. Any change in the Contract Rate resulting
from a change in the level of the Prime Rate shall be effective without
notice to Borrower on the same date as the change in the Prime Rate.
F. Foreign Currency Advances. If Borrower requests and Bank accepts,
Advances under the Line of Credit may be made in a foreign currency
designated by Borrower ("Foreign Currency Advances"). The foreign
currencies in which it is contemplated at this time that Foreign Currency
Advances may feasibly be made include the following: Japanese Yen, French
Francs, British Pounds, Deutsche Marks, Italian Liras, Swiss Francs,
Norwegian Kroners, Swedish Kroners, Australian Dollars, Canadian Dollars,
Dutch Guilders, Spanish Pesetas, Danish Kroners, Belgium Francs, Finnish
Marks, Singapore Dollars, Taiwanese Dollars, Hong Kong Dollars, Israeli
Shekels, Mexican Pesos, Irish Punts, and European Union Euros.
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G. Interest Rate on Foreign Currency Advances. Foreign Currency
Advances shall bear interest at a fixed per annum rate equal to the Foreign
Currency Rate plus two percent (2%) per annum, but never to exceed the
Maximum Lawful Rate.
H. Repayment. Interest on the Note is payable quarter-annually, at the
end of each calendar quarter, and the outstanding principal balance of the
Note is due and payable on the Maturity Date, except as follows:
i. LIBOR Advances. Interest on each LIBOR Advance with a LIBOR
Interest Period of 30 or 60 days is due on the last day of the LIBOR
Interest Period for such LIBOR Advance, without regard to whether such
LIBOR Advance is Continued or Converted, and otherwise accrued and
unpaid interest on any LIBOR Advance is due and payable quarterly on
the last day of each calendar quarter, and accrued and unpaid
interest, and the principal amount of the LIBOR Advance if not
Continued or Converted pursuant to this Agreement, is due and payable
in full on the last day of any LIBOR Interest Period; and
ii. Foreign Currency Advances. Interest on each Foreign Currency
Advance with a term of less than 90 days is due on the last day of the
term of such Foreign Currency Advance, without regard to whether such
term is extended; interest on each Foreign Currency Advance with a
term greater than 90 days shall be due and payable quarterly on the
last day of each calendar quarter during the term of such Foreign
Currency Advance; and accrued and unpaid interest and the principal
amount of each Foreign Currency Advance is due on the last day of the
term of such Foreign Currency Advance unless such term is extended in
accordance with the terms of this Agreement.
Repayment of Advances made in Dollars shall be made at Bank's offices in Austin,
Travis County, Texas or such other address as may be designated by Bank, and
repayment of Foreign Currency Advances shall be made in the foreign currency
advanced at a depository designated by Bank in the country in which such
currency is legal tender during business hours of such designated depository.
I. Special Provisions Regarding Foreign Currency Advances. Each
Foreign Currency Advance requested by Borrower shall be for an amount
having a Dollar Equivalent of at least $50,000.00 and shall be for a
limited term of not less than thirty (30) days and not more than one (1)
year.
Bank may decline to make a requested Foreign Currency Advance for any
reason which Bank in good faith deems sound, in Bank's sole discretion,
including without limitation a determination by Bank that the Currency
requested by Borrower is excessively volatile, or is not freely
transferrable and convertible into Dollars, or that it is impracticable for
Bank to fund such advance or that the advance risks illegality or involves
significant costs not anticipated by Bank. Bank shall not decline to make a
requested Foreign Currency Advance simply because the requested advance
involves incidental or minor inconvenience or expense. If Bank declines to
extend a requested Foreign Currency Advance, Borrower may obtain a
substitute advance in Dollars or, subject to Bank's acceptance, a different
foreign currency.
If Bank shall determine that any adverse changes affecting any foreign
currency deposit market or any applicable law (whether as a result of a
change thereof or otherwise) make it impracticable or unlawful for Bank to
make Foreign Currency Advances generally or to make advances in a
particular foreign currency, then Bank may notify Borrower of such
determination in writing and Borrower shall not request any further Foreign
Currency Advances or advances in the particular foreign currency, as the
case may be, until and unless Borrower is notified in writing of a
determination by Bank that such advances are again feasible.
In the event Borrower fails to repay any Foreign Currency Advance on
the last day of the term of such Foreign Currency Advance, Borrower shall,
upon demand by Bank, pay to Bank, for the account of Bank, all amounts
reasonably determined by Bank to be necessary to compensate Bank for such
failure, including without limitation any losses incurred by Bank in
converting funds to and/or from the foreign currency involved, wiring
costs, loss of interest or additional interest costs incurred. In the event
a Foreign Currency Advance is not repaid on the last day of the term of
such Foreign Currency Advance and Bank pursues collection of the same from
Borrower, Bank may, at its option, either pursue collection of such
delinquent amount denomination in the foreign currency which was the
subject of the advance or the Dollar Equivalent of the same, determined as
of the date on which Borrower repays the indebtedness incurred by Bank in
order to make such Foreign Currency Advance.
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J. Prepayment. Advances bearing interest at the Prime Rate may be
repaid in whole or in part at any time without penalty or premium. No
prepayment of any LIBOR Advance or Foreign Currency Advance shall be
permitted without the prior written consent of Bank, such consent not to be
unreasonably withheld. Notwithstanding such prohibition, if there is a
prepayment of any such LIBOR Advance, whether by consent of Bank, or
because of acceleration or otherwise, Borrower shall, within 15 days of any
request by Bank, pay to Bank any loss or expense which Bank may incur or
sustain as a result of such prepayment. For the purposes of calculating the
amounts owed only, it shall be assumed that Bank actually funded or
committed to fund the loan through the purchase of an underlying deposit in
an amount and for a term comparable to the loan, and such determination by
Bank shall be conclusive, absent a manifest error in computation.
4. Representations and Warranties. Borrower hereby represents and warrants
to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized, validly
existing and in good standing under the laws of Delaware and in good
standing in the State of Texas and has the power and authority to own its
property and to carry on its business in each jurisdiction in which
Borrower does business.
B. Authority and Compliance. Borrower has full power and authority to
execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by
all proper and necessary action of the appropriate governing body of
Borrower. No consent or approval of any public authority or other third
party is required as a condition to the validity of any Loan Document, and
Borrower is in compliance with all laws and regulatory requirements to
which it is subject.
C. Binding Agreement. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving Borrower pending or,
to the knowledge of Borrower, threatened before any court or governmental
authority, agency or arbitration authority that would materially adversely
affect Borrower's financial condition, except as disclosed to Bank in
writing and acknowledged by Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any
existing agreement, mortgage, indenture or contract binding on Borrower or
affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the
other Loan Documents.
F. Ownership of Assets. Borrower has good title to its assets, and its
assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. Taxes. All taxes and assessments due and payable by Borrower have
been paid or are being contested in good faith by appropriate proceedings
and the Borrower has filed all tax returns which it is required to file.
H. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP
applied on a consistent basis throughout the period involved and fairly
present Borrower's financial condition as of the date or dates thereof, and
there has been no material adverse change in Borrower's financial condition
or operations since March 31, 1998. All factual information furnished by
Borrower to Bank in connection with this Agreement and the other Loan
Documents is and will be accurate and complete on the date as of which such
information is delivered to Bank and is not and will not be incomplete by
the omission of any material fact necessary to make such information not
misleading.
I. Chief Executive Office. Borrower's chief executive office and
principal place of business is located 11500 N. Mopac Expressway, Austin,
Travis County, Texas, 78759.
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<PAGE>
J. Environmental. Except for Hazardous Materials, if any, which are
used in Borrower's business and are stored, handled and disposed of in all
respects in compliance with applicable legal requirements, no real property
owned by Borrower (i) is currently being used or is intended to be used for
the storage, transportation, processing or disposal of Hazardous Materials
or, to the knowledge of Borrower, has ever been used for such purposes,
(ii) is currently being used or is intended to be used or, to the knowledge
of Borrower, has ever been used in such a way as to create an environmental
condition that is actionable under applicable laws or regulations, (iii) to
the knowledge of Borrower, contains any Hazardous Materials, or (iv) is
currently being operated, occupied or used in a manner which fails to
comply with all applicable health, safety and environmental laws,
regulations and ordinances.
K. Year 2000. Borrower reasonably believes that Borrower and
Borrower's subsidiaries and affiliates will be Year 2000 compliant (that
is, that computer applications, imbedded microchips, and other systems will
be able to perform date-sensitive functions prior to and after December 31,
1999) for the operations of Borrower and Borrower's subsidiaries and
affiliates on a timely basis except to the extent that a failure to be Year
2000 compliant could not reasonably be expected to have material adverse
effect on Borrower's financial condition. Borrower reasonably believes that
its suppliers and vendors will be Year 2000 compliant except to the extent
that their failure to be Year 2000 compliant could not reasonably be
expected to have a material adverse effect on Borrower's financial
condition.
L. Continuation of Representations and Warranties. All representations
and warranties made under this Agreement shall be deemed to be made at and
as of the date hereof and at and as of the date of any advance under any
Loan.
5. Affirmative Covenants. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any other
Loan Document):
A. Financial Condition. Until payment in full of the Term Note,
maintain Borrower's financial condition as follows, determined in
accordance with GAAP applied on a consistent basis throughout the period
involved except to the extent modified by the following definitions:
i. Maintain Tangible Net Worth of not less than $154,000,000 (the
"TNW Requirement") for each calendar quarter; provided, however,
Borrower's Tangible Net Worth shall be maintained at not less than
$114,000,000, provided that any such decrease in the TNW Requirement
shall be allowed only if the decrease in Borrower's Tangible Net Worth
results from intangible assets acquired, assumed, created, or arising
from Borrower's permitted acquisition of another company or business
operation or the assets thereof.
B. Financial Statements and Other Information. Maintain a system of
accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account
and other records at such reasonable times and as often as Bank may desire,
after reasonable prior notice to Borrower. Borrower shall pay the
reasonable fees and disbursements of any accountants or other agents of
Bank selected by Bank for the foregoing purposes. Unless written notice of
another location is given to Bank, Borrower's books and records will be
located at Borrower's chief executive office set forth above. All financial
statements called for below shall be prepared in form and content
acceptable to Bank and by independent certified public accountants
acceptable to Bank. In addition, Borrower will:
i. Furnish to Bank annual consolidated financial statements of
Borrower for each fiscal year of Borrower, certified by Borrower as
true and correct, within 45 days after Borrower's filing of its Form
10-K with the Securities and Exchange Commission (the "SEC").
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<PAGE>
ii. Furnish to Bank quarterly consolidated financial statements
(including a balance sheet and profit and loss statement) of Borrower
for each quarter of each fiscal year of Borrower, certified by
Borrower as true and correct, within 45 days after Borrower's filing
of its Form 10-Q with the SEC.
iii. Furnish to Bank a copy of each regular, periodic or special
report, registration statement, or prospectus filed by Borrower with
any securities exchange or with the SEC or any successor agency to the
SEC, including without limitation all Forms 10-K, 10-Q, and 8-K and
all other periodic reports required to be filed under the Securities
Exchange Act of 1934 and the rules and regulations promulgated
thereunder.
iv. If at the end of any fiscal quarter there is indebtedness
outstanding under the Line of Credit (or if Borrower has elected a
Rate Option with respect to an Advance under the Term Note), furnish
to Bank a compliance certificate for (and executed by an authorized
representative of) Borrower containing (a) a certification that
Borrower is not in default under the terms of this Agreement, and (b)
computations and conclusions, in such detail as Bank may request, with
respect to compliance with this Agreement, and the other Loan
Documents, including computations of all quantitative covenants.
v. Furnish to Bank promptly such additional information, reports
and statements respecting the business operations and financial
condition of Borrower and Borrower's affiliates and subsidiaries, from
time to time, as Bank may reasonably request.
C. Insurance. Maintain insurance for Borrower and Borrower's
subsidiaries with responsible insurance companies on such of its
properties, in such amounts and against such risks as is customarily
maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as
are satisfactory to Bank and providing for at least 30 days prior notice to
Bank of any cancellation thereof. Satisfactory evidence of such insurance
will be supplied to Bank prior to funding under the Loan(s) and 30 days
prior to each policy renewal.
D. Existence and Compliance. Maintain its existence, good standing and
qualification to do business, where required and comply with all laws,
regulations and governmental requirements including, without limitation,
environmental laws, health and safety laws, and employment laws (including
ERISA) which are applicable to Borrower or to any of its property, business
operations and transactions.
E. Adverse Conditions or Events. Promptly advise Bank in writing of
any condition, event or act which comes to its attention that would or
might materially adversely affect Borrower's financial condition or
operations or Bank's rights under the Loan Documents, including without
limitation (i) any material litigation filed by or against Borrower, (ii)
any material event that has occurred that would constitute an event of
default under any Loan Documents, and (iii) any uninsured or partially
uninsured loss through fire, theft, liability or property damage in excess
of an aggregate of $1,000,000.00.
F. Taxes and Other Obligations. Pay all of its taxes, assessments and
other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and
payable, except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.
G. Maintenance. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and
preserve and maintain all licenses, trademarks, privileges, permits,
franchises, certificates and the like necessary for the operation of its
business.
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H. Environmental. Defend, indemnify and hold harmless Lender from any
and all liabilities (including strict liability) actions, demands,
penalties, losses, costs or expenses (including without limitation
reasonable attorneys' fees and remedial costs), suits, costs of any
settlement or judgment and claims of any and every kind whatsoever which
may now or in the future be paid, incurred or suffered by or asserted
against Lender by any person or entity or governmental agency for, with
respect to, or as a direct or indirect result of, the placement on or
under, or the escape, seepage, leakage, spillage, discharge, emission,
release from any property of Borrower of any Hazardous Materials, or arise
out of or result from the environmental condition of any of such properties
or the applicability of any governmental requirement relating to Hazardous
Materials (including, without limitation, CERCLA or any so-called federal,
state or local "Superfund" or "Superlien" law, statute, ordinance, code,
rule, regulation order or decree).
I. Year 2000. Borrower will promptly notify Bank in the event Borrower
determines that any computer application which is material to the
operations of Borrower and its subsidiaries will not be Year 2000 compliant
on a timely basis, except to the extent that non- compliance could not
reasonably be expected to have a material adverse effect on Borrower's
financial condition.
6. Negative Covenants. Until full payment and performance of all
obligations of Borrower under the Note, Borrower will not, without the prior
written consent of Bank (and without limiting any requirement of any other Loan
Documents):
A. Transfer of Assets or Control. (i) Sell, transfer, or lease all or
substantially all of the assets of Borrower, or (ii) enter into any merger
or consolidation in which Borrower is not the surviving entity upon
completion of such merger or consolidation.
B. Liens. Grant, suffer or permit any contractual or noncontractual
lien on or security interest in its 65.250 acre tract of land, more or
less, out the James Rogers Headright Survey No. 19, in Travis County,
Texas, including improvements thereon, except in favor of Bank.
C. Extensions of Credit. Make or permit any subsidiary to make, any
loan or advance to any person or entity in excess of $10,000,000.00 in the
aggregate.
D. Investments. Make investments except for "Permitted Investment
Securities." "Permitted Investment Securities" shall mean investments in
cash, money market funds, Government and Government Agency Securities,
including: (1) taxable investments in (i) U.S. Government and U.S.
Government Obligations, (ii) Repurchase Agreements, (iii) Domestic
Certificates of Deposit, Bankers Acceptances and Time Deposits, (iv)
Eurodollar Certificates of Deposit and Time Deposits, (v) Corporate
Obligations, Medium Term Notes and Deposit Notes, (vi) Commercial Paper and
(vii) Auction Rate Preferreds; (2) tax-exempt investments in the form of
(i) Variable Rate Demand Notes, (ii) Puttable Bonds, (iii) Commercial
Paper, (iv) General Obligation & Revenue Bonds and (v) Auction Rate
Securities; and (3) foreign currency forward contracts and purchased option
contracts specifically undertaken for the purpose of hedging foreign
currency receivable exposure. In order to qualify as Permitted Investment
Securities, Commercial Paper must be a2/P2 or better; taxable instruments
must be Aa/AA or better; Municipal Notes must be Mig2/A-2 or better; and
Municipal Obligations must be AA or better. This Section shall in no way
restrict Borrower's ability to make any acquisition.
E. Borrowings. Create, incur, assume or become liable in any manner
for any indebtedness (for borrowed money, deferred payment for the purchase
of assets, lease payments, as surety or guarantor for the debt for another,
or otherwise) other than to Bank in excess of $20,000,000 in the aggregate,
except for normal trade debts incurred in the ordinary course of Borrower's
business, and except for existing indebtedness disclosed to Bank in writing
and acknowledged by Bank prior to the date of this Agreement.
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F. Character of Business. Change the general character of business as
conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
7. Default. Borrower shall be in default under this Agreement and under
each of the other Loan Documents, and an "Event of Default" shall exist, if:
A. Borrower shall fail to pay any amounts due and owing under the Loan
or any other Indebtedness within five (5) business days following the date
on which the same is due;
B. Borrower should fail to timely and properly observe, keep, or
perform any term, covenant, agreement, or condition in any Loan Document,
other than a failure to comply with the financial covenants set forth in
Section 5.A.i.;
C. Any representation or warranty herein contained or any financial
statement, certificate, report, or opinion submitted to Bank in connection
with the Loans, or pursuant to the requirements of the Loan Documents,
shall prove to have been incorrect or misleading in any material respect
when made;
D. Borrower fails to be in compliance with the financial covenant
contained in Section 5 A. i., as of the end of two (2) consecutive
quarter-annual accounting periods;
E. Any material judgment against Borrower with respect to a claim
remains unpaid, not superseded on appeal or unstayed on appeal by agreement
with the judgment creditor, undischarged, not bonded or not dismissed for a
period of thirty (30) days;
F. Borrower makes an assignment for the benefit of creditors, becomes
insolvent, fails generally to pay its debts as they become due, petitions
or applies to any tribunal for the appointment of a trustee, custodian,
receiver, (or similar official) of, or for, Borrower or of all or any
substantial part of the assets of Borrower or commences a voluntary case or
any other proceedings relating to Borrower under any bankruptcy,
reorganization, compromise arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law (herein called the "bankruptcy
law") of any jurisdiction;
G. Any petition or application is filed, or any such proceeding are
commenced against Borrower under the bankrupt law of any jurisdiction, and
Borrower by any act or omission indicates its approval, consent or
acquiescence, or an order for relief is entered in an involuntary case
under the federal bankruptcy laws as now or hereafter constituted, or an
order, judgment or decree is entered appointing any trustee, custodian,
receiver, liquidator or similar official for Borrower or any substantial
part of its assets or adjudicating Borrower bankrupt or insolvent, or
approving the petition in any such proceedings, and such order, judgment or
decree remains in effect for sixty (60) days; or
H. Borrower conceals, removes or permits to be concealed or removed
any part of its property, with intent to hinder, delay or defraud its
creditors, or any of them, or makes or suffers a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent
conveyance or similar law; or shall have made any transfer of its property
to or for the benefit of a creditor oat a time when other creditors
similarly situated have not been paid.
8. Remedies upon Default. If an Event of Default shall occur, Bank shall
have all rights, powers and remedies available under each of the Loan Documents
as well as all rights and remedies available at law or in equity.
A. Notice and Opportunity to Cure. Prior to acceleration of the
maturity of the Note, Bank shall give Borrower written notice of certain
Events of Default and provide Borrower with the opportunity to cure such
Event of Default as set forth in this Section 8.A.
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i. If the Event of Default is Borrower's breach of subsection
7.A. above, then Bank shall give Borrower notice of such Event of
Default. If Borrower fails to cure such Event of Default within ten
(10) days after the day on which notice is actually given, then Bank
may accelerate the maturity of the Note and declare the Note
immediately due and payable in full.
ii. If the Event of Default is Borrower's breach of subsection
7.B., 7.C., 7.F., or 7.I above, then Bank shall give Borrower notice
of such Event of Default. If Borrower fails to cure such Event of
Default within thirty (30) days after the day on which notice is
actually given, then Bank may accelerate the maturity of the
Indebtedness and declare the Note and all other Indebtedness
immediately due and payable in full.
iv. As to any other Event of Default (that is, a breach of
subsection 7.D., 7.E., 7.G., or 7.H.), then Bank may, without notice
to Borrower or any other party now or hereafter obligated to pay the
Indebtedness or any part thereof, accelerate the maturity of the
Indebtedness and declare the Note and all other Indebtedness
immediately due and payable in full.
Bank's failure to give notice of default upon the occurrence of an Event of
Default shall not constitute a waiver of the Event of Default.
B. Cessation of Advances. Notwithstanding any other provision herein,
upon the occurrence of an Event of Default, Bank's obligations to make
further advances under the Note and this Agreement shall immediately
terminate without notice of any kind. Bank shall not be obligated to resume
making advances under the Note and under this Agreement until such time as
any such Event of Default is cured.
9. Notices. All notices, requests or demands which any party is required or
may desire to give to any other party under any provision of this Agreement must
be in writing delivered to the other party at the following address:
Borrower: National Instruments Corporation
11500 N. Mopac Expressway, Bldg. B
Austin, Texas 78759
Attn: Alex Davern
Fax. No. 512.683.6931
With copy to: Graves, Dougherty, Hearon & Moody
Post Office Box 98
Austin, Texas 78767
Attn: Clarke Heidrick, Esq.
Fax: 512.478.1976
Bank: NationsBank, N.A.
501 Congress Avenue (78701)
Post Office Box 908
Austin, Texas 78781
Attn: Mr. Eric Kosmin
Fax No.: 512.397.2052
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows: (a) if sent by mail, upon the earlier of the date of receipt or five
(5) days after deposit in the U.S. Mail, first class postage prepaid; or (b) if
sent by any other means, upon delivery.
10. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees for any outside counsel), actually incurred by Bank
in connection with (a) negotiation and preparation of this Agreement and each of
the Loan Documents executed concurrently with this Agreement, not to exceed
$2,500.00, and (b) all other costs and attorneys' fees incurred by Bank for
which Borrower is obligated to reimburse Bank in accordance with the terms of
the Loan Documents.
11. Miscellaneous. Borrower and Bank further covenant and agree as follows,
without limiting any requirement of any other Loan Document:
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A. Cumulative Rights and No Waiver. Each and every right granted to
Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised in addition to any and all
other rights of Bank, and no delay in exercising any right shall operate as
a waiver thereof, nor shall any single or partial exercise by Bank of any
right preclude any other or future exercise thereof or the exercise of any
other right. Borrower expressly waives any presentment, demand, protest or
other notice of any kind, including but not limited to notice of intent to
accelerate and notice of acceleration. No notice to or demand on Borrower
in any case shall, of itself, entitle Borrower to any other or future
notice or demand in similar or other circumstances.
B. Applicable Law. This Loan Agreement and the Rights and Obligations
of the Parties Hereunder Shall Be Deemed to Have Been Made in the State of
Texas at Bank's Address Indicated at the Beginning of this Agreement and
Shall Be Governed By, and Construed in Accordance With, the Laws of the
State of Texas, and Is Performable in the City and County of Texas at the
Bank's Address Indicated at the Beginning of this Agreement.
C. Amendment. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower
therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the
specified instance and for the purpose for which given. This Agreement is
binding upon Borrower, its successors and assigns, and inures to the
benefit of Bank, its successors and assigns; however, no assignment or
other transfer of Borrower's rights or obligations hereunder shall be made
or be effective without Bank's prior written consent, nor shall it relieve
Borrower of any obligations hereunder. There is no third party beneficiary
of this Agreement.
D. Documents. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity
of any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not
affect the enforceability or validity of such provision as it may apply to
other persons or circumstances.
F. Indemnification. Notwithstanding anything to the contrary contained
in Section 11(G), Borrower shall indemnify, defend and hold Bank and its
successors and assigns harmless from and against any and all claims,
demands, suits, losses, damages, assessments, fines, penalties, costs or
other expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions contemplated
hereby, including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous
Materials, arising from Borrower's business operations, any other property
owned by Borrower or in the surface or ground water arising from Borrower's
business operations, or gaseous emissions arising from Borrower's business
operations or any other condition existing or arising from Borrower's
business operations resulting from the use or existence of Hazardous
Materials, whether such claim proves to be true or false. Borrower further
agrees that its indemnity obligations shall include, but are not limited
to, liability for damages resulting from the personal injury or death of an
employee of the Borrower, regardless of whether the Borrower has paid the
employee under the workmen' s compensation laws of any state or other
similar federal or state legislation for the protection of employees. The
term "property damage" as used in this paragraph includes, but is not
limited to, damage to any real or personal property of the Borrower, the
Bank, and of any third parties. The Borrower's obligations under this
paragraph shall survive the repayment of the Loan and any deed in lieu of
foreclosure or foreclosure of any Deed to Secure Debt, Deed of Trust,
Security Agreement or Mortgage securing the Loan.
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<PAGE>
G. Survivability. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the
making of the Loan and shall continue in full force and effect so long as
the Loan is outstanding or the obligation of the Bank to make any advances
under the Line shall not have expired.
H. Amendment, Restatement, and Replacement. This Agreement amends,
restates, and replaces the Amended and Restated Loan Agreement dated June
27, 1996, executed by Borrower and NationsBank of Texas, N.A.
12. NOTICE OF FINAL AGREEMENT. This Written Loan Agreement and the Other
Loan Documents Represent the Final Agreement Between the Parties and May Not Be
Contradicted by Evidence of Prior, Contemporaneous or Subsequent Oral Agreements
of the Parties. There Are No Unwritten Oral Agreements Between the Parties.
In Witness Whereof, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives as of the date first
above written.
Borrower:
National Instruments Corporation
[Corporate Seal]
By: /s/ Alex Davern
Alex Davern, Chief Financial Officer
Attest: /s/ David Hugley
David Hugley, Secretary
Bank:
NationsBank, N.A.
(a national banking association)
By: /s/ Eric Kosmin
Eric Kosmin, Vice President
Page 34
<PAGE>
PROMISSORY NOTE
Date: June 30, 1998 New
Amount: $20,000,000.00 Maturity Date: December 31, 1999
Bank: Borrower:
NationsBank, N.A. National Instruments Corporation
Banking Center: Austin 11500 N. Mopac Expressway
11th Floor, NationsBank Tower Austin, Texas 75759
515 Congress Avenue (Travis County)
Austin, Texas 78701
(Travis County)
(Name and street address,
(Street address including county) including county)
========================================= ======================================
For Value Received, the undersigned Borrower unconditionally (and jointly
and severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without setoff, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of Twenty Million and 00/100 Dollars ($20,000,000.00), or so
much thereof as may be advanced from time to time in immediately available
funds, together with interest computed daily on the outstanding principal
balance hereunder, at an annual interest rate, and in accordance with the
payment schedule, indicated below.
This Note is executed pursuant to and shall be governed by the Loan
Agreement dated June 30, 1998, executed by Borrower and Bank (as the same may be
modified, amended, and restated from time to time, the "Loan Agreement").
Defined terms used in this Note and otherwise not defined herein shall have the
meaning given such terms in the Loan Agreement. The Loan Agreement sets forth
certain rights and obligations of the parties and certain provisions concerning
this Note, such as (without limitation) events of default, notice of default and
opportunity to cure default. To the extent, if any, that the Loan Agreement is
inconsistent with this Note, the Loan Agreement shall control.
1. Rate. This Note and all Advances under this Note and the Loan Agreement
shall bear interest at one or more rates per annum, as set forth in the Loan
Agreement, reference to which is hereby made for all purposes. Each Dollar
Advance shall bear interest at the applicable Contract Rate for such Advance as
determined by a properly exercised Rate Option. Each Foreign Currency Advance
shall bear interest at the applicable Foreign Currency Rate for such Foreign
Currency Advance.
Notwithstanding any provision of this Note or the Loan Agreement, Bank does
not intend to charge and Borrower shall not be required to pay any amount of
interest or other charges in excess of the maximum permitted by applicable law
(the "Maximum Lawful Rate"). Borrower agrees that during the full term hereof,
the maximum lawful interest rate for this Note as determined under Texas law
shall be the "Weekly Ceiling" (as defined in Chapter 303 of the Texas Finance
Code [and/or Articles 1D.002 and 1D.003 of the Texas Credit Title] and formerly
referred to as the "Indicated (Weekly) Ceiling" in Article 1.04(a)(1) of the
Texas Credit Code [Article 5069-1.04 of VATS]). Further, to the extent that any
other lawful rate ceiling exceeds the rate ceiling so determined then the higher
rate ceiling shall apply. Any payment in excess of such maximum shall be
refunded to Borrower or credited against principal, at the option of Bank.
2. Accrual Method. Unless otherwise indicated, interest at the Rate set
forth above and in the Loan Agreement will be calculated by the 365/360 day
method (a daily amount of interest is computed for a hypothetical year of 360
days; that amount is multiplied by the actual number of days for which any
principal is outstanding hereunder). Provided, however, interest at the Maximum
Lawful Rate shall be calculated based on the actual number of days in the year
(365 or 366, as the case may be).
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<PAGE>
3. Rate Change Date. Any Rate based on a fluctuating index or base rate
will change, unless otherwise provided, each time and as of the date that the
index or base rate changes. In the event any index is discontinued, Bank shall
substitute an index determined by Bank to be comparable, in its sole discretion.
4. Payment Schedule. All payments received hereunder shall be applied first
to the payment of any expense or charges payable hereunder or under any other
loan documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
(a) Interest shall be due and payable quarterly as it accrues, on the
last day of each calendar quarter, beginning September 30, 1998, and
continuing on the last calendar day of each December, March, June, and
September of each year during the term of this Note, through and including
September 30, 1999.
(b) The outstanding principal balance and all accrued and unpaid
interest shall be due and payable in full on December 31, 1999.
The foregoing notwithstanding, all LIBOR Advances and Foreign Currency Advances
shall be due and payable as set forth in the Loan Agreement.
5. Revolving Feature. Borrower may borrow, repay and reborrow hereunder at
any time, up to a maximum aggregate amount outstanding at any one time equal to
the principal amount of this Note, provided that Borrower is not in default
under any provision of this Note, any other documents executed in connection
with this Note, or any other note or other loan documents now or hereafter
executed in connection with any other obligation of Borrower to Bank, and
provided that the borrowings hereunder do not exceed any borrowing base or other
limitation on borrowings by Borrower. Bank shall incur no liability for its
refusal to advance funds based upon its determination that any conditions of
such further advances have not been met. Bank records of the amounts borrowed
from time to time and kept in the ordinary course of business shall be
conclusive proof thereof.
6. Waivers, Consents and Covenants. Except as provided in the Loan
Agreement, Borrower, any indorser or guarantor hereof, or any other party hereto
(individually an "Obligor" and collectively "Obligors") and each of them jointly
and severally: (a) waive all notices, demands for payment, presentations for
payment, notices of intention to accelerate the maturity, notice of maturity,
protest and notice of protest, as to this Note and as to each, every and all
installments hereof; (b) consent to all delays, extensions, renewals or other
modifications of this Note or the Loan Documents, or waivers of any term hereof
or of the Loan Documents, or release or discharge by Bank of any of Obligors, or
release, substitution or exchange of any security for the payment hereof, or the
failure to act on the part of Bank, or any indulgence shown by Bank (without
notice to or further assent from any of Obligors), and agree that no such
action, failure to act or failure to exercise any right or remedy by Bank shall
in any way affect or impair the obligations of any Obligors or be construed as a
waiver by Bank of, or otherwise affect, any of Bank's rights under this Note,
under any indorsement or guaranty of this Note or under any of the Loan
Documents; and (c) agree to pay, on demand, all costs and expenses of collection
or defense of this Note or of any indorsement or guaranty hereof and/or the
enforcement or defense of Bank's rights with respect to, or the administration,
supervision, preservation, or protection of, or realization upon, any property
securing payment hereof, including, without limitation, reasonable attorney's
fees, including fees related to any suit, mediation or arbitration proceeding,
out of court payment agreement, trial, appeal, bankruptcy proceedings or other
proceeding, in such amount as may be determined reasonable by any arbitrator or
court, whichever is applicable.
7. Prepayments. Prepayments may only be made subject to the terms of the
Loan Agreement. All prepayments of principal shall be applied in the inverse
order of maturity, or in such other order as Bank shall determine in its sole
discretion.
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<PAGE>
8. Remedies upon Default. Whenever there is an Event of Default under this
Note, subject to the provisions for notice and cure in the Loan Agreement, (a)
Bank shall have all rights and remedies available under each of the Loan
Documents, as well as all rights and remedies available at law or in equity,
and/or (b) to the extent permitted by law, the Rate of interest on the unpaid
principal shall be increased at Bank's discretion up to the Maximum Lawful Rate,
or if none, 25% per annum (the "Default Rate"). The provisions herein for a
Default Rate shall not be deemed to extend the time for any payment hereunder or
to constitute a "grace period" giving Obligors a right to cure any default if
the same is not provided under the Loan Agreement. At Bank's option, any accrued
and unpaid interest, fees or charges may, for purposes of computing and accruing
interest on a daily basis after the due date of the Note or any installment
thereof, be deemed to be a part of the principal balance, and interest shall
accrue on a daily compounded basis after such date at the Default Rate provided
in this Note until the entire outstanding balance of principal and interest is
paid in full. Upon a default under this Note, Bank is hereby authorized at any
time, at its option and without notice or demand, to set off and charge against
any deposit accounts of any Obligor (as well as any money, instruments,
securities, documents, chattel paper, credits, claims, demands, income and any
other property, rights and interests of any Obligor), which at any time shall
come into the possession or custody or under the control of Bank or any of its
agents, affiliates or correspondents, any and all obligations due hereunder.
9. Non-Waiver. The failure at any time of Bank to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof, nor
shall it be a bar to the exercise of any of its options or rights at a later
date. All rights and remedies of Bank shall be cumulative and may be pursued
singly, successively or together, at the option of Bank. The acceptance by Bank
of any partial payment shall not constitute a waiver of any default or of any of
Bank's rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
10. Applicable Law, Venue and Jurisdiction. Borrower Agrees That this Note
Shall Be Deemed to Have Been Made in the State of Texas at Bank's Address
Indicated at the Beginning of this Note and Shall Be Governed By, and Construed
in Accordance With, the Laws of the State of Texas and Is Performable in the
City and County of Texas Indicated at the Beginning of this Note. In any
litigation in connection with or to enforce this Note or any indorsement or
guaranty of this Note or any Loan Documents, Obligors, and each of them,
irrevocably consent to and confer personal jurisdiction on the courts of the
State of Texas or the United States courts located within the State of Texas.
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available under applicable
law.
11. Partial Invalidity. The unenforceability or invalidity of any provision
of this Note shall not affect the enforceability or validity of any other
provision herein and the invalidity or unenforceability of any provision of this
Note or of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
12. Binding Effect. This Note shall be binding upon and inure to the
benefit of Borrower, Obligors and Bank and their respective successors, assigns,
heirs and personal representatives, provided, however, that no obligations of
Borrower or Obligors hereunder can be assigned without prior written consent of
Bank.
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<PAGE>
Borrower represents to Bank that the proceeds of this loan are to be used
primarily for business, commercial or agricultural purposes. Borrower
acknowledges having read and understood, and agrees to be bound by, all terms
and conditions of this Note.
NOTICE OF FINAL AGREEMENT: This Written Promissory Note Represents the Final
Agreement Between the Parties, and May Not Be Contradicted by Evidence of Prior,
Contemporaneous, or Subsequent Oral Agreements of the Parties. There Are No
Unwritten Oral Agreements Between the Parties.
Borrower:
National Instruments Corporation
(a Delaware corporation)
By: /s/ Alex Davern
Alex Davern, Chief Financial Officer
Bank:
NationsBank, N.A.
By: /s/ Eric Kosmin
Eric Kosmin, Vice President
Page 38
<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement (this "Agreement") dated June 30, 1998, by
and between NationsBank, N.A. (the "Bank") and National Instruments Corporation,
a Delaware corporation (the "Borrower");
Whereas, Borrower desires to obtain a loan (together with all extensions
and renewals thereof hereafter referred to as the "Loan") in the amount of
$20,000,000.00 from Bank, which Loan shall be governed by the terms and
conditions of the Loan Agreement of even date herewith, executed by Borrower and
Bank (as the same may be modified, amended, and/or restated from time to time,
the "Loan Agreement"); and
Whereas, Bank is willing to grant the Loan provided Borrower agrees not to
encumber certain real property owned by Borrower;
Now, Therefore, for and in consideration of the Loan made or to be made by
Bank to Borrower, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by both Borrower and Bank, the
parties hereto do agree as follows:
1. Property Borrower hereby agrees that, for so long as any part of the
Loan (as defined in the Loan Agreement) remains outstanding and/or Bank has any
obligation to make advances under the Loan, that it will not, without first
obtaining the prior written consent of Bank, grant, suffer, or permit any
contractual or noncontractual lien on or security interest in the real property
owned by Borrower and described as follows: 65.250 acres of land, more or less,
out of the James Rogers Headright Survey No. 19, in Travis County, Texas, and
being a portion of those two certain tracts of land conveyed to International
Business Machines Corporation by deeds recorded in Volume 3235, Page 386, and in
Volume 3235, Page 393, of the Deed Records of Travis County, Texas; said 65.250
acre tract being more particularly described by metes and bounds in Exhibit "A"
attached hereto and incorporated herein (the "Real Property"), including any
improvements constructed thereon, except in favor of Bank.
2. Recording. Bank is hereby authorized and permitted to cause this
instrument (or a copy hereof) to be recorded at such times and at such places as
Bank, at its option, may elect.
3. Termination. This Agreement shall remain in full force and effect until
the Loan described above shall have been paid in full and Bank shall have no
further commitment to lend thereunder.
4. Conflicting Provisions. To the extent, if any, that the Loan Agreement
is inconsistent with this Agreement, the Loan Agreement shall control.
5. Miscellaneous. This Agreement shall be binding upon and inure to the
benefit of Borrower and Bank and their respective successors and permitted
assigns. This Agreement is not intended to confer on any person other than Bank
and Borrower and their successors and permitted assigns any rights, obligations,
remedies, or liabilities. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas and the laws of the United States
of America applicable to transactions in Texas. In case any of the provisions of
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable, such invalidity, illegality, or unenforceability shall not affect
any other provision hereof, and this Agreement shall be construed as if such
invalid, illegal, or unenforceable provision had never been contained herein.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which taken together shall constitute
one and the same instrument.
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<PAGE>
Notice of Final Agreement: this Written Negative Pledge Agreement Represents the
Final Agreement Between the Parties and May Not Be Contradicted by Evidence of
Prior, Contemporaneous or Subsequent Oral Agreements of the Parties. There Are
No Unwritten Oral Agreements Between the Parties.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
Borrower:
National Instruments Corporation
(a Delaware corporation)
By: /s/ Alex Davern
Alex Davern, Chief Financial Officer
Bank:
NationsBank, N.A.
(a national banking association)
By: /s/ Eric Kosmin
Eric Kosmin, Vice President
STATE OF TEXAS
COUNTY OF TRAVIS
This instrument was acknowledged before me this 23rd day of July, 1998, by
Alex Davern, Chief Financial Officer of National Instruments Corporation, a
Delaware corporation, on behalf of said corporation.
/s/ Debra L. Kirchner
Notary Public - State of Texas
Page 40
<PAGE>
STATE OF TEXAS
COUNTY OF TRAVIS
This instrument was acknowledged before me this 23rd day of July, 1998, by
Eric Kosmin, Vice President of NationsBank, N.A., a national banking
association, on behalf of said association.
/s/ Rose Marie Story
Notary Public - State of Texas
- --------------------------------------------------------------------------------
This Agreement is to be recorded in the Real Property Records of Travis
County, Texas.
Grantor: National Instruments Corporation Grantee: NationsBank, N.A.
Address: 11500 N. Mopac Expressway Address: P.O. Box 908
Austin, Texas 78759 Austin, Texas 78781
- --------------------------------------------------------------------------------
This Agreement is to be recorded with the Texas Secretary of State and in
the UCC Records of Travis County, Texas
Debtor: National Instruments Corporation Secured Party: NationsBank, N.A.
Address: 11500 N. Mopac Expressway Address: P.O. Box 908
Austin, Texas 78759 Austin, Texas 78781
- --------------------------------------------------------------------------------
After Recording, Please Return To:
Timothy C. Taylor, Esq.
Small, Craig & Werkenthin, P.C.
100 Congress Avenue, Suite 1100
Austin, Texas 78701-4099
Page 41
<PAGE>
Officer's Certificate
This Officer's Certificate (this "Certificate") is executed by David
Hugley, Secretary of National Instruments Corporation, a Delaware corporation
(the "Corporation"), for the benefit of NationsBank, N.A., a national banking
association ("Lender").
I, David Hugley, Secretary of the Corporation, do hereby certify to Lender
the following:
1. The Corporation is a Delaware corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware. The
Corporation has paid when due all franchise and all other taxes required to
maintain its corporate existence and no such taxes are delinquent. There are no
proceedings pending for the forfeiture of the Corporation's Certificate of
Incorporation or for the Corporation's dissolution, voluntarily or
involuntarily. The Corporation is duly qualified to do business in the State of
Texas and is in good standing in the State of Texas. The Corporation is duly
qualified as a foreign corporation and in good standing in other all states in
which it is doing business and in which it is required to be qualified.
2. All tax returns required to be filed by the Corporation in any
jurisdiction have been filed and all taxes, assessments, fees, and other
governmental charges upon the Corporation or upon any of its property have been
paid prior to the time that such taxes could give rise to a lien on any such
property. There is no tax assessment against the Corporation and there is no
basis for any such assessment. There are no actions, suits, or legal, equitable,
arbitration, or administrative proceedings pending, or to the best knowledge of
the Corporation and the undersigned threatened, against the Corporation which,
if adversely determined, would have a material adverse effect on the validity or
enforceability of any obligation of the Corporation to Lender or the financial
condition or business operations of the Corporation or could otherwise impair
the ability of the Corporation to perform its obligations to Lender in
connection with the Loan.
3. The Corporation has the power and authority to conduct its business as
it is now conducted and to own all of its property. All documents and agreements
executed or to be executed by the Corporation in connection with the Loan (a)
are within its corporate powers, (b) have been duly authorized by all necessary
corporate action, (c) do not and will not contravene its charter, bylaws, or any
other law or governmental regulation, and (d) do not and will not contravene any
contractual restriction binding on or affecting the Corporation or any of its
property. To the best knowledge and belief of the undersigned, all documents and
agreements executed or to be executed by the Corporation in connection with the
Loan are, or will be when executed and delivered, legal, valid, and binding
obligations of the Corporation, enforceable against the Corporation in
accordance with their terms (except to the extent enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws
or equitable principles from time to time in effect which generally affect the
enforcement of creditors' rights and remedies).
4. The Secretary is the keeper of the records and minutes of the
proceedings of the Board of Directors of the Corporation. There is no provision
of the Articles of Incorporation or Bylaws of the Corporation limiting the power
of the Board of Directors to pass the resolutions set forth below and the same
are in conformity with the provisions of such Articles of Incorporation or
Bylaws.
5. The following is a true and correct copy of the resolutions adopted
either (a) at a meeting of the Corporation's Board of Directors, which meeting
was duly called and held in accordance with the law and the Corporation's
Bylaws, and at which meeting the Board duly and legally passed and adopted the
following resolutions, or (b) by a unanimous consent in writing of all
Directors, which unanimous written consent was and is in the form required by
and in conformity with the Bylaws of the Corporation and the law. The following
resolutions have never been modified, rescinded, or repealed and are now in full
force and effect:
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<PAGE>
Resolved, that the Corporation execute and deliver all agreements and
documents requested by NationsBank, N.A. ("Lender"), in connection with
Lender's making of one or more loans (the "Loans") to the Corporation in an
aggregate principal amount not to exceed $28,480,000.00, specifically
including, without limitation, a revolving line of credit facility in the
maximum amount of $20,000,000.00 and modification of the terms of the
existing $8,840,000.00 note payable to Lender and signed by the
Corporation, at such rates of interest and upon such other terms and
conditions as the Corporation's Chief Financial Officer shall agree to
(subject to approval by the Corporation's corporate counsel); that the
Corporation can reasonably expect to derive certain benefits, directly or
indirectly, from entering into such relationships with Lender; and that the
Corporation enter into the Loans and all transactions contemplated by said
agreements and documents pertaining to the Loans, including without
limitation, renewal and extension of said agreements upon such terms and
conditions as the Corporation's Chief Financial Officer shall agree to
(subject to approval by the Corporation's corporate counsel), and perform
its obligations under said agreements; and
Resolved Further, that the President, Chief Financial Officer, and
Controller, or any one of them, are hereby authorized and directed to take
all actions, including without limitation the making and executing on
behalf of the Corporation of any and all notes, loan agreements, negative
pledge agreements, interest rate exchange agreements, advance requests,
certifications, and other agreements and/or documents requested by Lender
and deemed appropriate by them, or any one of them, pertaining to the
Loans, upon such terms and conditions as the Corporation, acting by and
through any one or more of said officers, shall agree to; and that all such
instruments which may be executed by any of said officers, executed in the
accomplishment of any action or actions so authorized, be and they shall be
considered as being the act of the Corporation, irrespective of whether or
not there is affixed to such instrument the attestation of the
Corporation's Secretary or the Corporation's seal;
Resolved Further, that advance requests and the exercise of interest rate
options shall be made in accordance with the terms of the Loan Agreement to
be executed by the Corporation and Lender (and such may be made by
telephone, provided that all such advances under the line of credit loan
shall be deposited into the Corporation's demand deposit account held with
Lender), and the above-named persons are authorized to make such advance
requests and to exercise such interest rate options and in otherwise acting
in the name of and on behalf of the Corporation in connection with any
matters authorized under these Resolutions;
Resolved Further, that Lender is authorized and directed, without
limitation or inquiry, irrespective of the circumstances, to honor and
carry out all orders, directions, or instructions of the above named
persons as to the disposition of any amounts borrowed or credit obtained on
behalf of the Corporation hereunder, and Lender shall be under no
obligation or liability for the use or disposition of any amounts borrowed
or credit obtained, and further that the Corporation shall indemnify and
hold harmless Lender from any claim, loss, cost, damage, liability, or
expense arising out of Lender acting in reliance upon these Resolutions;
Resolved Further, that all acts, transactions, and/or agreements undertaken
prior to the adoption of these Resolutions by any officers or
representatives of the Corporation in its name and for its accounts with
Lender in connection with the foregoing matters are hereby ratified,
confirmed, and adopted by the Corporation;
Resolved Further, that the Secretary of the Corporation is hereby
authorized and directed to certify these Resolutions to Lender; and
Resolved Further, that Lender be promptly notified in writing by the
Secretary or any other officer of the Corporation of any change in these
Resolutions, and until Lender has actually received such notice in writing,
Lender is authorized to act in reliance on these Resolutions.
Page 43
<PAGE>
6. The officers of the Corporation as set forth below have been duly
elected and qualified and as of the date hereof hold the offices with the
Corporation specified below. The signatures set forth beside each such person's
name is the true signature of such person.
Title Typed Name Signature
======================== =========================== ===========================
President James Truchard /s/ James Truchard
Chief Financial Officer Alex Davern /s/ Alex Davern
Controller John Roiko /s/ John Roiko
Secretary David Hugley /s/ David Hugley
7. The undersigned, David Hugley, is also General Counsel of the
Corporation. The undersigned certifies that the approvals of the Corporation's
corporate legal counsel required by the above resolutions have been obtained.
8. Attached hereto as Exhibit "A" is a true and correct copy of the
Corporation's Articles of Incorporation. Attached hereto as Exhibit "B" is a
true and correct copy of the Corporation's Bylaws.
EXECUTED this 31 day of July, 1998, by David Hugley, Secretary of the
Corporation.
/s/ David Hugley
David Hugley, Secretary of National Instruments
Corporation
Subscribed To and Sworn before me, the undersigned authority, this 31 day
of July, 1998, by David Hugley, Secretary of National Instruments Corporation.
/s/ Melanie J. Clevenger
Notary Public - State of Texas
Page 44
<PAGE>
June 30, 1998
Date of Notice
N O T I C E O F F I N A L A G R E E M E N T
TO: Borrower and All Other Obligors with Respect to the Loan Which is Identified
Below.
1. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
2. As used in this Notice:
"Borrower" means National Instruments Corporation, a Delaware corporation.
"Lender" means NationsBank, N.A., a national banking association.
"Other Obligor" means any entity or individual who (i) is obligated to pay
the Loan, or (ii) otherwise is or becomes obligated to pay the Loan (for
example, as cosigner or guarantor), or (iii) has pledged property as
security for the Loan.
"Loan" means the loan by Lender which is to be evidenced by the promissory
notes, loan agreement, or other evidence of indebtedness dated June 30,
1998, executed by Borrower, payable to the order of Lender, in the maximum
principal amount of $20,000,000.00.
"Loan Agreement" means one or more promises, promissory notes, agreements,
undertakings, security agreements, deeds of trust or other documents, or
commitments, or any combination of those actions or documents, relating to
the Loan.
3. This Notice is given by Lender with respect to the Loan, pursuant to
Section 26.02 of the Texas Business and Commerce Code. Borrower and each
other obligor with respect to the Loan who signs below acknowledges,
represents, and warrants to Lender that Lender has given and such party has
received and retained a copy of this Notice.
Lender: Borrower:
NationsBank, N.A. National Instruments Corporation
(a national banking association) (a Delaware corporation)
By: /s/ Eric Kosmin By: /s/ Alex Davern
Eric Kosmin, Vice President Alex Davern, Chief Financial Officer
Page 45
<PAGE>
NOTICE BY LENDER'S ATTORNEY TO BORROWER
Date: June 30, 1998
Borrower: National Instruments Corporation, a Delaware corporation
Lender: NationsBank, N.A., a national banking association
Loan: Loan evidenced by a promissory note of even date herewith in the maximum
principal amount of $20,000,000.00, executed by Borrower, payable to Lender
This notice discloses the relationship between the law firm of Small, Craig &
Werkenthin, P.C. ("scw"), Borrower, and Lender.
1. Lender has engaged scw to prepare the note, loan agreement, security
agreements, and other documents relating to the Loan.
2. scw represents only Lender and no other party involved in this
transaction, although scw's legal fees may be paid by Borrower.
3. scw's legal fees in this transaction are based on the hourly rate of the
lawyer(s) and paralegal(s) working on this matter. The sums to be paid to scw
may also include reimbursement to scw for expenses incurred in connection with
scw's representation of Lender, including without limitation as photocopy
charges, long distance telephone, UCC searches, obtaining certificates and
documents from public authorities, and local and overnight courier charges.
4. Borrower has the right to be represented by its own attorney and to have
its attorney review the loan documents and closing documents and be present at
the closing of the loan.
5. If any documents to be used are prepared by someone other than scw, then
Lender reserves the right to have scw review and approve the documents so
prepared in order to ensure they properly protect the interests of Lender.
Please sign below to indicate that you have been notified of and understand your
right to independent legal counsel and that the firm of scw represents only the
interests of Lender, and not those of any other party.
Borrower:
National Instruments Corporation
(a Delaware corporation)
By: /s/ Alex Davern
Alex Davern, Chief Financial Officer
Page 46
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
======== ======== ======== ========
<S> <C> <C> <C>
Net Income................................. $ 9,198 $ 8,581 $ 18,029 $ 16,149
======== ======== ======== ========
Basic earnings per share................... $ 0.28 $ 0.26 $ 0.55 $ 0.50
======== ======== ======== ========
Weighted average shares outstanding-basic.. 32,800 32,552 32,800 32,514
======== ======== ======== ========
Diluted earnings per share................. $ 0.27 $ 0.26 $ 0.53 $ 0.48
======== ======== ======== ========
Weighted average shares outstanding-diluted 34,200 33,435 34,200 33,435
======== ======== ======== ========
Calculation of Weighted Average Shares:
Weighted Average Common Stock
Outstanding-basic...................... 32,800 32,552 32,800 32,514
======== ======== ======== ========
Weighted Average Common Stock Options,
utilizing the treasury stock method.... 1,400 883 1,400 921
-------- -------- -------- --------
Weighted average shares outstanding-diluted 34,200 33,435 34,200 33,435
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(This schedule contains summary financial information extracted from the
Consolidated Balance Sheet and Statements of Income filed as part of the June
30, 1998 Form 10-Q and is qualified in its entirety by reference to such report)
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 31678
<SECURITIES> 46886
<RECEIVABLES> 41070
<ALLOWANCES> 0
<INVENTORY> 16725
<CURRENT-ASSETS> 151706
<PP&E> 66830
<DEPRECIATION> 0
<TOTAL-ASSETS> 225160
<CURRENT-LIABILITIES> 38414
<BONDS> 0
0
0
<COMMON> 328
<OTHER-SE> 181131
<TOTAL-LIABILITY-AND-EQUITY> 225160
<SALES> 133123
<TOTAL-REVENUES> 133123
<CGS> 31658
<TOTAL-COSTS> 31658
<OTHER-EXPENSES> 75648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26908
<INCOME-TAX> 8879
<INCOME-CONTINUING> 18029
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18029
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53
</TABLE>
