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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1998 COMMISSION FILE NUMBER 0-26092
C.P. CLARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MASSACHUSETTS 04-2561471
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
78 CHERRY HILL DRIVE 01915
BEVERLY, MA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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(978) 524-6700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF EACH CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of June 5, 1998, was $104,357,750
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of June 5, 1998, was 9,383,340
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Proxy Statement for the Registrant's Annual Meeting of
Stockholders, to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K, are incorporated by
reference in Part III, Items 10, 11, 12 and 13, of this Form 10-K.
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TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business.................................................... 1
2. Properties.................................................. 10
3. Legal Proceedings........................................... 10
4. Submission of Matters to a Vote of Security Holders......... 10
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
6. Selected Financial Data..................................... 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
7a. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
8. Financial Statements and Supplementary Data................. 18
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 18
PART III
10. Directors and Executive Officers of the Registrant.......... 19
11. Executive Compensation...................................... 19
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 19
13. Certain Relationships and Related Transactions.............. 19
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 20
(a) Financial Statements and Financial Statement Schedule
(b) Reports on Form 8-K
(c) Exhibits
15. Signatures.................................................. 50
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This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1993, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference are discussed in the section
entitled "Certain Factors Affecting Future Operating Results" on page 9 of this
Form 10-K.
PART I
ITEM 1. BUSINESS
C.P. Clare Corporation (the "Company" or "C.P. Clare"), is a leading
provider of high voltage analog semiconductor integrated packages and discrete
components, electromagnetic relays and switches, surge protection devices,
transformers and specialized electronic components to the world's foremost
manufacturers of electronic communications equipment. The Company's products
supply the interface between electrical power sources and electronic components
by providing the basic isolation and switching functions required by electronic
communications applications. The Company's recently introduced semiconductor
products have achieved rapid acceptance and have replaced older technologies or
functions in some established applications.
C.P. Clare is a technology leader in the semiconductor segment of the small
signal relay market. C.P. Clare's semiconductor products are capable of
integrating a number of functions previously provided by discrete components
into one package and have contributed to the development of a number of new
product applications such as 56K PC card modems, modem interfaces to the
Internet, cable set top boxes, and other computer telephony uses such as voice
mail systems. Semiconductor products represent the core of the Company's growth
strategy for communication applications and accounted for 45% and 47% of the
Company's net sales in fiscal years 1998 and 1997, respectively.
C.P. Clare focuses on providing solutions for the telecommunications and
datacommunications industries due to their significant utilization of analog
semiconductor components and growing demand for highly integrated semiconductor
packages. The Company's customers include leading global OEMs such as Motorola,
3Com, Alcatel, GVC, Lucent Technologies, ABB, Samsung, Compaq, Nokia, LM
Ericsson, Dialogic, Diamond Multimedia, Psion, and Daewoo.
C.P. Clare was founded in 1937 to design, manufacture and sell
electromagnetic products, was sold to General Instrument Corporation in 1967 and
operated as a division thereof. Theta-J Corporation, founded in 1975, to design,
manufacture and market semiconductor based electronic components, purchased the
North American, Taiwanese and European operations of the Clare Division of
General Instrument in 1989 (the "1989 Transaction") and changed its name to C.P.
Clare Corporation. The 1989 Transaction resulted in the formation of the Company
in substantially its present form. The Company is incorporated under the laws of
Massachusetts and its principal offices are located at 78 Cherry Hill Drive,
Beverly, Massachusetts, 01915.
BACKGROUND
The growth in the worldwide telecommunications and datacommunications
markets is being fueled by the convergence of several technological and market
trends which are leading to a broad and increasing array of communications,
networking, computer telephony and computing products. Advances in computer
hardware and software have accelerated the technological shift to distributed
processing over communications networks. Trends toward portability,
miniaturization and broader functionality have resulted in significant growth in
mobile communications, portable computing and network access products.
Analog semiconductor integrated packages and circuits and discrete
components provide the interface between voltages and currents for a broad range
of products in the telecommunications and datacommunications markets, as well as
for products in a wide array of other applications such as telemetering and
remote access, consumer electronics, appliances, computer peripherals, gaming
equipment, automotive, aerospace, automatic test equipment, industrial controls
and instrumentation. The Company's analog semiconductor integrated packages and
discrete components provide two basic functions required by virtually all
electronic
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and electrical products: isolation and switching. Isolation separates the low
current communication signal circuit from the higher power circuit, while the
switching function controls the flow of current.
Various types of integrated packages and components based on semiconductor,
electromechanical and electromagnetic technologies have been developed to meet
these isolation and switching requirements. C.P. Clare designs, manufactures and
sells analog semiconductor and electromagnetic products for voltage, circuit and
other applications such as surge protection and AC power conditioning. These
technologies and resulting products are utilized for various communications
applications based on a number of factors, including performance, sensitivity,
resistance, size, speed and cost.
STRATEGY
C.P. Clare's strategy is to expand its technological leadership and
worldwide customer relationships in order to profitably expand its market share
for its semiconductor, electromagnetic, surge protection and specialized
electronic component products in existing and new communications and industrial
applications. Key elements of this strategy are:
Capitalize on Semiconductor Opportunities. C.P. Clare is a leader in
semiconductor relay technology, offering a broad line of semiconductor products
in a wide variety of package types and specifications. The Company seeks to
significantly expand the application of its semiconductor technology into
existing and new markets such as communications and instrumentation through the
integration of more functions using fewer chips. From its new 5" wafer
fabrication facility ("Facility") in Beverly, Massachusetts, C.P. Clare is
developing new process technologies in order to engineer high voltage analog
integrated circuits. The Company anticipates that new products and additional
capacity from the Facility will better position it for increased product demand
resulting from technology advances in the communications market. During fiscal
year 1998, the Company introduced several new products while maintaining the
startup schedule of the Facility.
Focus on Communications Industry. The Company has focused primarily on
developing solutions for the computer telephony, datacommunications and
telecommunications industries due to their significant utilization of analog
semiconductor discrete components and electromagnetic switches and relays; and
their increased need for analog semiconductor integrated packages and circuits.
The Company's semiconductor products are an enabling technology in certain
applications such as modems, computer telephony, and communication interfaces.
C.P. Clare's electromagnetic products are integral components in other
applications such as cellular telephones and accessories. During the year,
product sales to the communications industry represented a significant portion
of the Company's total sales. The Company is qualifying processes and designs
which can capitalize on its core competencies of optical isolation, high voltage
analog semiconductor processes, experience with bonded wafer technology and
multi chip packaging for integrated circuits.
New Product Development and Additional Analog Engineers. The Company has
increased and intends to continue to increase its investment in new product
development and strengthen the functionality of existing products in an effort
to enter new markets and gain share in existing markets. Product development
also includes further integration of new and existing high voltage analog
semiconductor integrated packages and components into fewer circuits. Company
sponsored research and development expenses were $8.9 million (or 5.7% of total
revenues) and $6.5 million (or 5.1% of total revenues), for fiscal years 1998
and 1997, respectively. The Company's core competencies in semiconductor design,
multi chip packaging, and coil winding have allowed it to introduce new products
to existing and prospective customers. During fiscal year 1998, the Company
added several analog engineers to complete its first stage of building a core of
engineers to accelerate new product development and technologies. This is an
integral part of the Company's strategy going forward.
Leverage Customer Relationships and Pursue New Market Opportunities. The
Company has established long standing customer relationships due to its strong
worldwide brand recognition, broad product offerings, and quality customer
service. The Company intends to further leverage its customer relationships by
offering complementary new products to its existing customer base and by
pursuing new market opportunities.
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The Company is capitalizing on its worldwide brand recognition to expand into
new geographic markets and new industries. The Company is seeking to increase
sales to Japan, China, India and Southeast Asia, where significant opportunities
exist for sales of both semiconductor and electromagnetic products.
Acquisitions. The Company's strategy includes external growth in its
engineering resources and revenue from strategic partnerships and acquisitions.
Such acquisitions may include fabless design organizations, which provide
additional engineering resources to accelerate existing projects and the
development of new products in the high voltage analog semiconductor
application.
CUSTOMERS
C.P. Clare has established a broad base of approximately 700 customers
representing a wide range of industries and applications. The communications
industry represents the Company's largest customers due to the industry's
pervasive use of analog semiconductor integrated packages and the need for more
highly integrated high voltage analog circuits. The Company seeks to sell
multiple product solutions to its customers in order to allow C.P. Clare to
become more of a strategic communications products supplier. Sales to customers
outside the United States comprised 42.4%, 38.0%, and 42.6%, of the Company's
net sales for the fiscal years 1998, 1997, and 1996 respectively. For fiscal
years 1998, 1997 and 1996, net sales to Motorola represented 14 %, 17%, and 16%
of net sales, respectively.
PRODUCT APPLICATIONS
The Company's products are used in a wide variety of applications,
including telephone network interfaces caller identification uses, high current
MOSFET switching, integrated package testers, high frequency communications,
scanners, and radio frequency equipment. Set forth below is a representative
sample of applications for the Company's semiconductor and electromagnetic
products.
Communications
Telephone Network Interfaces. The Company develops products for and sells
into interface and network applications for the communications industry. C.P.
Clare was the first to introduce semiconductor products in thin, small flat-pack
packages that integrate the functionality previously provided by a number of
discrete components including relays, surge protection devices and modem
isolation transformers. These products are referred to as the Data Access
Arrangement (DAA). The DAA is an arrangement of discrete components principally
used in analog datacommunications which interface with telephone network
applications. In certain DAA products such as the Cybergate(TM) 2000 and 2100,
the complete DAA function is designed for both US and European markets. This
manufacturing capability has allowed C.P. Clare to become a leading worldwide
supplier of semiconductor analog integrated packages and components to the major
manufacturers of communication products such as PCMCIA card modems. PCMCIA cards
are thin, credit card size modems which insert into a designated slot in mobile
computer equipment, allowing the portable computer to transmit data over
telephone lines and function as a facsimile machine.
Cellular Phones. Cellular telephones and accessories, which are becoming
commonplace, require a high degree of durability and reliability. The Company's
electromagnetic dry reed switches, an enabling component of the flip phone, are
surface-mountable switches which maintain switch orientation and provide cost-
effective, reliable and automated assembly in small package sizes for wireless,
modem and video switching requirements.
Automated Process Control/Instrumentation and Metering
Metering and Remote Access. Water, gas, electricity meter reading systems
as well as vending machines and gas pumps have been developed to allow the
remote reading of such systems. Semiconductor relays have been incorporated into
these systems and provide a high speed interface between low level power signals
and the high power output signals required to enhance metering functionality.
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Control Instrumentation. Operations such as power plants require multiple
processes to be monitored and controlled under a broad range of environmental
conditions. The Company's electromagnetic wetted reed relay, semiconductor and
surge protection products are used to provide isolation and surge protection.
Automatic Test Equipment
Electrical Testers. Semiconductor and printed circuit board testers
require precise measurement of small, complex products such as integrated
circuits, silicon wafers and printed circuit board assemblies. In each of these
pieces of equipment, test points are created by placing a dry reed relay on each
electrical path. If the test path is functioning correctly, the dry reed relay
is activated. C.P. Clare's dry reed relays feature low capacitance, a critical
feature for this application which requires sensitivity and precision; and are
offered in small surface mount, high frequency signals up to 1 GigaHertz
("GHz").
Security. The security industry requires low cost, high reliability relay
and switch products for use in proximity sensors, infrared detectors, smoke
detectors, carbon dioxide sensors and supervisory control panels. The Company's
electromagnetic dry reed switches provide a low cost, rugged and reliable switch
for use in proximity sensors which cause the switch to be activated by use of an
external magnet when a door or window is opened.
PRODUCTS
The Company manufactures several hundred standard products and also
develops and manufactures products for specific customer applications. The
Company has two major product families: analog semiconductor products, which
include relays, optocouplers and integrated packages; and electromagnetic
products, which include reed relays, switches, magnetic components, modem
isolation transformers and surge protection products which are often
complementary to the Company's semiconductor products. Each product line builds
on one or more of the Company's core competencies in the areas of semiconductor
technology design and processing, multi chip packaging, coil winding,
ceramic-to-metal sealing and materials processing.
SEMICONDUCTOR PRODUCTS
The Company manufactures a wide variety of semiconductor products
consisting primarily of high voltage analog components, optocouplers and
integrated packages which are sold in a broad line of over 270 configurations.
The Company's semiconductor products are sold primarily to communications
customers and are also utilized in a number of applications in other industries
such as automated process control, data acquisition, aerospace and
transportation. Semiconductor products achieve the required isolation and
switching functions with no moving parts, eliminating the mechanical wear
typically associated with other types of electromagnetic relays, thus improving
reliability with low distortion. The Company has integrated several additional
functions into one small package, thereby further reducing board size
requirements and providing the user with lower component and assembly costs. The
Cybergate(TM) 2000 data access arrangement series allows the Company to sell
more of its components into those analog datacommunications applications where
multiple discrete components are typically used.
ELECTROMAGNETIC PRODUCTS
The Company manufactures a broad range of electromagnetic products
consisting of dry reed switches and relays and magnetic components, used in
applications such as modems, sensors and transformers. The Company's
electromagnetic products are sold primarily to the communications industry and
are also sold to other industries such as industrial and automated process
control, transportation, home security, aerospace and transportation. The
electromagnetic switch consists of two flat metal blades, or reeds, which are
encapsulated in a glass tube and hermetically sealed in an inert atmosphere.
Switches are opened or closed by use of an external magnetic field. The switch
is the basic component of the electromagnetic relay which is formed by winding a
wire coil around the switch. When an electrical signal is applied to the coil,
it creates an electromagnetic field which causes the switch to open or close.
The Company has succeeded in offering a miniaturized, surface mount, high
frequency products to its customers.
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Dry Reed. The Company's dry reed switch, the DYAD(R), has electrical
contacts which have an extremely hard refractory metal applied to the contacts.
The DYAD(R) was the first commercially available switch to have surface mount
capabilities which maintain orientation between the pads and the switch. Surface
mounting allows for the automated placement of the switch onto circuit boards,
thus lowering manufacturing costs. The Company's DYAD(R) switch has a rugged
design which may increase product life and has lower bounce, which provides less
electronic noise and is particularly important for applications with a high
degree of sensitivity. Dry reed products, which can be manufactured in high
volumes at low cost, can function through millions of operations and have low
resistance, which causes less heat generation and power consumption.
The communications industry, with products such as cellular phones, modems
and facsimile machines, represents the largest market for dry reed switches and
relays. Dry reed switches are also widely used in automatic test equipment
applications, due to their high sensitivity and low resistance, and alarm
sensors for residential and commercial security applications.
Wetted Reed. The Company sources its wetted reed switches from a dedicated
supplier. The wetted reed high performance switch uses a liquid mercury film
which is applied or wetted to the electrical contacts. This mercury-to-mercury
connection when the switch is closed provides the lowest contact resistance and
the least distortion of all switch technologies. Wetted reed products provide
advantages similar to those of dry reed products but are able to offer higher
performance characteristics. The Company's wetted reed products are primarily
used in telecommunications applications such as central office equipment,
telephone switching gear, telephone test systems and PBXs. Wetted reed products
are also used in process control applications and the instrumentation market in
precision measuring and watt meter applications.
Magnetic Components. The Company provides application-specific
engineering, design and manufacturing subcontracting services for magnetic
components and power conditioning, ranging from small coil windings that may be
attached to printed circuit boards, to magnetic subassemblies, such as
solenoids, used by customers in the computer, automotive, power supply and
lighting markets. The Company has developed a standard telecommunications
transformer designed to replace isolation transformers currently used in large
volumes in communications applications, and offers a modem isolation transformer
in the semiconductor DAA product. In fiscal year 1998, the Company renamed its
magnetic components division to C.P. Clare Remtech Division.
SURGE PROTECTION PRODUCTS
The Company manufactures gas tube surge arresters which utilize the
ionization characteristics of certain gases to provide continual protection from
damaging electrical surges caused by events such as lightning strikes or heavy
equipment start ups. In addition, the Company produces small quantities of
special purpose, larger capacity, high energy surge arresters. The Company's
surge protection products have high insulation resistance, low capacitance and
high current handling capability, and are used for circuit protection in
telecommunications, data transmission lines, AC power lines, cable TV systems
and power supplies.
PRODUCT DEVELOPMENT
The Company intends to build upon its capability of innovation in both the
semiconductor and electromagnetic market segments. The Company's product
development strategy is driven by two objectives: meeting customer application
requirements and extending the Company's technical capabilities. The Company has
focused on utilizing its relationships with key OEMs and its applications
engineering capability to enhance existing products and develop new products.
Semiconductor Products. The Company has developed new semiconductor
integrated products which offer increased, integrated functionality in one
package. The Company is also developing high voltage analog integrated circuits,
designed to be smaller, more functional and less expensive than other
semiconductor relay chips and designed to replace the electromechanical relay in
certain applications. These new products are targeted to the mixed signal
interface of datacommunications products. Also under development are products
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for certain telephone line card access, data acquisition, medical electronics
and automated process control applications.
Electromagnetic Products. The Company is engaged in a number of product
development projects for both dry reed switches and relays. Dry reed switch
product development is focusing on further miniaturizing the product with a
design similar to that of the DYAD(R) in order to address the market trend
toward smaller products, especially in certain applications in the security and
automatic test equipment markets, as well as for higher frequency switching
applications.
SALES AND DISTRIBUTION
C.P. Clare sells its products to its worldwide customers through a network
of direct salespeople, contract sales representatives and distributors in North
America, Europe, Japan and the Far East.
Sales through distributors represented 16% of the Company's overall sales
in fiscal year 1998. In general, sales representatives and distributors have
entered into agreements that allow for termination by either party upon 30 days
notice and return by distributors of some of the Company's products. These
agreements generally allow representatives and distributors to market and sell
products competitively with those of the Company and generally permit
representatives and distributors to return a portion of products purchased by
them during the term of such agreements and to return all products (other than
obsolete products) purchased by them upon termination of such agreements.
BACKLOG
The Company's backlog method includes only those purchase orders scheduled
for shipment within 6 months following the order date. As of March 31, 1998, six
month order backlog was approximately $34.3 million compared with six month
backlog of $32.6 million as of March 31, 1997. Although the Company's contract
terms may vary from customer to customer, purchasers of standard products may
generally cancel or reschedule orders without significant penalty. Since backlog
can be canceled or rescheduled, the Company's backlog at any time is not
necessarily indicative of future revenue.
MANUFACTURING
The Company's Beverly, Guadalajara and St. Louis manufacturing facilities
are ISO 9001 certified. ISO 9001 certification is an international certification
for quality control systems, the receipt of which emphasizes the Company's
commitment to quality control and assists the Company in becoming a qualified
supplier for certain customers.
Semiconductor Products. The manufacturing of semiconductor products
involves two general phases of production: the wafer fabrication (chip
manufacturing) process, and the assembly (chip packaging) process. The Company's
Massachusetts wafer fabrication facilities design, manufacture and test chips.
All fabricated chips are shipped for assembly to a subcontractor in the
Philippines. Certain assembled relays are returned to Massachusetts for testing,
packaging, and shipment to the customer.
Electromagnetic Products. The Company manufactures dry reed switches in
St. Louis, Missouri and assembles relays in Guadalajara, Mexico. In January,
1997, the Company sold the Tongeren Manufacturing Company ("TMC") to Gunther,
GmbH. This allowed the exit from a high cost wetted reed manufacturing
environment, while maintaining a strong European sales and marketing presence.
Wetted reed switches are purchased from the new owners of TMC in Tongeren,
Belgium under a long-term supply agreement. In March, 1998 the Company closed
its dry reed relay assembly operation in Chitu, Taiwan and shifted production to
Guadalajara, Mexico. Magnetic components are designed and assembled in
Guadalajara, Mexico.
The Company's Mexican facilities perform assembly operations for all non
semiconductor business units and account for a significant portion of the
Company's overall manufacturing output. These facilities were established and
are operated under the Maquiladora program. In general, a company that operates
under the
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program is required to export at least 80% of its production from Mexico and is
afforded certain duty and tax preferences and incentives on products brought
back into the United States.
COMPETITION
The markets in which the Company operates are highly competitive, and the
Company faces competition from a number of different manufacturers in each of
its product areas and geographic markets. The principal competitive factors
affecting the market for the Company's products include performance,
functionality, price, brand recognition, product size, customer service and
support and reliability.
Many of the Company's competitors have substantially greater financial,
marketing, technical, manufacturing and distribution resources than those of the
Company. While the Company believes that its broad product offerings, worldwide
sales coverage, customer service and brand recognition enable the Company to
compete effectively, there can be no assurance that the Company will be able to
continue to do so.
EMPLOYEES
As of March 31, 1998, the Company had 1,719 total employees including 1,517
in manufacturing, 88 in sales and marketing, 52 in research and development and
62 in administration. While none of the Company's United States employees are
unionized, the Company's employees in Mexico and Taiwan are represented by
government mandated collective bargaining agreements. The Company believes that
its relations with employees are generally good.
PROPRIETARY RIGHTS
At March 31, 1998, the Company held a number of United States and foreign
patents and trademarks. The Company has additional U.S. and foreign patent and
trademark applications pending. The Company intends to continue to seek patents
on its products, as appropriate. The Company believes, that although these
patents may have value, given the rapidly changing nature of the industries in
which the Company competes, the Company depends primarily on the technical
competence and creativity of its technical work force and its ability to
continue to introduce product improvements rapidly. The Company does not believe
that the success of its business is materially dependent on the existence,
validity or duration of any patent, license or trademark.
The Company attempts to protect its trade secrets and other proprietary
rights through formal agreements with employees, customers, suppliers and
consultants. Each employee of the Company is required to sign an agreement
regarding ownership of proprietary rights and trade secrets. Although the
Company intends to protect its intellectual property rights vigorously, there
can be no assurance that these and other security arrangements will be
successful. The process of seeking patent protection can be long and expensive,
and there can be no assurance that existing patents or any new patents that may
be issued will be of sufficient scope or strength to provide meaningful
protection or any commercial advantage to the Company. The Company may be
subject to or may initiate interference proceedings in the patent office, which
can demand significant financial and management resources. The Company has from
time to time received, and may in the future receive, communications from third
parties asserting patents on certain of the Company's products and technologies.
Although the Company has not been a party to any material intellectual property
litigation other than that described herein, in the event any third party were
to make a valid claim and a license were not available on commercially
reasonable terms, the Company's operating results could be materially and
adversely affected. Litigation, which could result in substantial cost to and
diversion of resources of the Company, may also be necessary to enforce patents
or other intellectual property rights of the Company or to defend the Company
against claimed infringement of the rights of others. The failure to obtain
necessary licenses or the occurrence of litigation relating to patent
infringement or other intellectual property matters could have a material
adverse affect on the Company's business and operating results.
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ENVIRONMENTAL
The Company's facilities are regulated pursuant to foreign, state and
federal statutes, including those addressing hazardous waste, clean water and
clean air. The Comprehensive Environmental Response, Compensation and
Liabilities Act of 1980, as amended (the "Superfund Act"), imposes retroactive,
strict and, in certain cases, joint and several liability upon certain persons
in connection with the cleanup of sites at which there has been a release or
threatened release of hazardous substances into the environment. The Superfund
Act provides for immediate response and removal actions coordinated by the
Environmental Protection Agency to releases of hazardous substances into the
environment, and authorizes the government to respond to the release or
threatened release of hazardous substances or to order persons responsible for
any such release to perform any necessary cleanup. The statute imposes liability
for these responses and other related costs, including the cost of damages to
natural resources, to the parties involved in the generation, transportation and
disposal of such hazardous substances and to those who currently own or operate
or who previously owned or operated the property upon which such releases
occurred. Under the statute, and given the manufacturing processes used by the
Company, the Company may be deemed liable as a generator or transporter of a
hazardous substance which is released into the environment, or as the current or
former owner or operator of a facility from which there is a release of a
hazardous substance into the environment. The Company has not to date had any
action brought against it under the Superfund Act, but there can be no assurance
that there will be no action brought against the Company in the future. Local
sewer discharge requirements are applicable to certain of the Company's
facilities. The Company's facilities are subject to local siting, zoning and
land use restrictions. The Company believes it is in compliance with all
foreign, federal, state and local laws regulating its business. The Company,
however, has not undertaken a comprehensive review of its properties to
determine whether or not hazardous materials have been discharged at any time in
the past, whether by the Company or a previous occupant of the facility. Any
failure by the Company to control the use of, or to restrict adequately the
discharge of, hazardous materials under present or future regulations could
subject the Company to fines or substantial liability. In addition, the Company
could be held financially responsible for remedial measures if its properties
were found to be contaminated whether or not the Company was responsible for
such contamination.
An environmental site investigation commissioned by the Company in 1992, on
its West Pratt Avenue facility in Chicago, Illinois ("Site"), reported evidence
of contamination at the Site. The Company voluntarily reported the discovery to
the Illinois Environmental Protection Agency ("IEPA"), and has since been
involved in discussions with IEPA and the U.S. Environmental Protection Agency
regarding the implications of the investigation and the need for further
investigation and remedial work. The Company and General Instrument, the former
Site owner, have agreed to share the costs of implementing the proposed cleanup
plan at both the Site and the adjacent properties. Pursuant to that agreement,
General Instrument will pay for 75% of the costs of the soil remediation and
related environmental cleanup costs, and the Company will bear 25% of such costs
and the complete cost of removing asbestos from the building structure and
building demolition. The agreement is subject to a reservation of both parties'
rights to reallocate these costs or litigate concerning final liability at the
Site. If a final accounting acceptable to C.P. Clare cannot be attained, C.P.
Clare may commence litigation against General Instrument to recover its fair
share of such costs.
During fiscal 1997 and fiscal 1998, the Company completed remediation of
the Site to industrial/commercial standards. The Company has received a
no-further-remediation letter from the IEPA and is in discussions regarding the
sale of the Site. See Note 8 of Notes to Consolidated Financial Statements.
Further testing has confirmed that some of the contamination has migrated
onto two adjacent properties. The Company and General Instrument are continuing
to address contamination that has been found on adjacent sites. The Company has
completed the remediation agreed to by the parties on one of the adjacent sites
and expects that such site will receive a no further remediation letter with
respect to the remediation completed by the Company.
Management continues to analyze the estimated environmental remediation
liability and has accrued additional amounts when known events have required
revised estimates. However, given the current stage of the remediation process
and the magnitude of contamination found at the Site and adjacent sites, the
ultimate
8
<PAGE> 11
disposition of this environmental matter could have a significant negative
impact on the Company's consolidated financial results for a future reporting
period.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The information contained in and incorporated by reference in this Form
10-K contains forward-looking statements with the meaning of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company's actual results could differ materially
from those set forth in the forward looking statements. Factors that may affect
future operating results include:
Development of New Products. The markets for the Company's products are
characterized by technological change and new product introductions. In
particular, the Company is dependent on the communications industry which is
characterized by intense competition and rapid technological change. The Company
expects sales to the communications industry to continue to represent a
significant portion of its sales for the foreseeable future. A decline in demand
for communications related equipment such as facsimile machines, modems and
cellular telephones would cause a significant decline in demand for the
Company's products. The Company has invested heavily over the past several years
in the capital expenditures necessary to develop its new products. Slower than
expected acceptance of these new products will have the effect of adversely
affecting the Company's operating results. To remain competitive, the Company
must continue to develop new process and manufacturing capabilities to meet
customer needs and introduce new products that reduce size and increase
performance. If the Company is unable to develop such new capabilities or is
unable to design, develop and introduce competitive new products, its operating
results would be adversely affected.
Customer Concentration. In fiscal year 1998, the Company's ten largest
customers accounted for 35% of total net sales as compared to 37% in fiscal year
1997. The Company is highly reliant upon continued revenues from its largest
customers and any material delay, cancellation or reduction of orders from these
customers could have a material, adverse effect on the Company's future results.
International Operations. The Company's international operations are
subject to several risks including, but not limited to, fluctuations in the
value of foreign currencies, changes to import and export duties or regulations,
greater difficulty in collecting accounts receivable and labor unrest. While to
date these factors have not had a material impact on the Company's results,
there can be no assurance that there will not be such an impact in the future.
Competition. C.P. Clare competes with various companies across the world.
Certain of the Company's competitors may have greater manufacturing, engineering
or financial resources than the Company. There can be no assurance for the
Company's performance under competitive market conditions.
Full Operation of the New Wafer Fabrication Facility. The Company recently
completed construction of a larger, more advanced semiconductor facility in
Beverly, Massachusetts to address current capacity constraints and operating
efficiencies in the production of its semiconductor products. Delays in the
delivery of equipment or the full qualification of the new facility could delay
the full operation of the new facility. Any such delay would have a material,
adverse effect on the Company's future operating results. The new facility must
be effectively and fully utilized in order for the Company's projected
efficiencies to be fully realized. Delays in full and effective utilization will
have a material, adverse effect on the Company's future operating results.
Reliance on Key Suppliers. The Company relies on certain suppliers of raw
materials and services for sole source supply of critical items. There can be no
assurance that in the future the Company's suppliers will be able to meet the
Company's needs effectively and on a timely basis and any such disruption could
have a material, adverse impact on future results.
New Systems. The Company is in the process of implementing an Oracle
Enterprise Resource Planning ("ERP") system for all applications and locations.
The Company has been informed by the vendor that this new system is compliant
with year 2000 issues. This effort is consuming significant resources of the
Company and implementation of various applications is scheduled throughout
fiscal year 1999. As a result of the systems
9
<PAGE> 12
transition, the Company may experience business disruptions or year 2000
compliance issues which may have material, adverse impact on the Company's
results of operations.
Fluctuations in Operating Results. The Company has experienced fluctuation
in its operating results in the past and its operating results may fluctuate in
the future. The Company has increased the scope and geographic area of its
operations. This expansion has resulted in new and increased responsibilities
for management personnel and has placed pressures on the Company's operating
systems. These operating systems are in the process of being updated and
centralized, while the existing operating systems are phased out. The Company's
future success will depend to a large part on its ability to manage these
changes and manage effectively its remote offices and facilities.
ITEM 2. PROPERTIES
C.P. Clare, headquartered in Beverly, Massachusetts, operates the following
manufacturing facilities worldwide:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE INTEREST PRODUCTS MANUFACTURED
- -------- -------------- -------- -------------------------------------
<S> <C> <C> <C>
Beverly, Massachusetts......... 83,000 Leased Corporate Headquarters
Semiconductor Products
Wakefield, Massachusetts....... 25,000 Leased Semiconductor Products
St. Louis, Missouri(1)......... 20,000 Leased Dry Reed Products and Surge Arresters
Guadalajara, Mexico(1)......... 193,000 Leased All products except Semiconductor
</TABLE>
- ---------------
(1) Multiple locations.
The Company also leases additional sales offices in Illinois, Florida and
California in the United States, and also in Belgium, Canada, France, Germany,
Japan, and Taiwan. The Company believes its office facilities are adequate for
its current needs.
The Company also has a site located at 3101 West Pratt Avenue, Chicago,
Illinois which the Company does not use and is being marketed to a commercial
buyer. See "Business -- Environmental."
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to routine litigation incident to the conduct of its
business. None of such proceedings is considered material to the business or
financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock began trading on The Nasdaq National Market (the
"Nasdaq") on June 21, 1995, under the symbol "CPCL". The following table sets
forth the quarterly high and low closing sales prices per share reported on the
Nasdaq.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ----
<S> <C> <C> <C> <C>
April 1, 1997 -- June 30, 1997..................................... $15 3/4 $8 1/8
July 1, 1997 -- September 30, 1997................................ 19 7/8 13 1/2
October 1, 1997 -- December 31, 1997................................. 20 12 3/8
January 1, 1998 -- March 31, 1998.................................... 16 5/8 12 1/8
</TABLE>
On June 5, 1998, the last reported sale price of the Common Stock on the
Nasdaq was $12.50. On June 5, 1998, there were 153 holders of record of the
Company's Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain earnings to finance the growth and development of
its business and does not anticipate paying cash dividends in the foreseeable
future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements and earnings of the Company, as well
as other factors the Board of Directors may deem relevant. In addition, the
Company is currently restricted under the terms of certain credit agreements
from paying dividends in certain circumstances to stockholders.
11
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other
information on a consolidated historical basis for the Company and its
subsidiaries as of and for each of the years in the five-year period ended March
31, 1998. This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the Notes thereto included elsewhere in
this Form 10-K.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................ $75,970 $95,992 $127,928 $128,161 $156,271
Cost of sales........................ 58,425 69,546 86,464 85,603 107,427
------- ------- -------- -------- --------
Gross profit...................... 17,545 26,446 41,464 42,558 48,844
Operating expenses:
Selling, general and
administrative.................. 12,155 17,143 23,857 28,330 28,157
Research and development.......... 2,489 3,532 4,447 6,543 8,869
Restructuring costs(1)............ 730 727 -- 14,250 --
------- ------- -------- -------- --------
Operating income (loss).............. 2,171 5,044 13,160 (6,565) 11,818
Interest income...................... -- -- 1,052 1,578 1,454
Interest expense..................... (2,942) (2,841) (1,300) (452) (215)
Other income (expense), net.......... 190 476 (20) (8) 135
------- ------- -------- -------- --------
Income (loss) before provision for
income taxes and extraordinary
gain.............................. (581) 2,679 12,892 (5,447) 13,192
Provision for income taxes........... 44 1,342 5,158 1,464 4,880
------- ------- -------- -------- --------
Income (loss) before extraordinary
gain.............................. (625) 1,337 7,734 (6,911) 8,312
Extraordinary gain on early
retirement of debt................ 1,340 1,742 -- -- --
------- ------- -------- -------- --------
Net income (loss)................. $ 715 $ 3,079 $ 7,734 $ (6,911) $ 8,312
======= ======= ======== ======== ========
Basic and diluted earning (loss) per
share(2)
Basic earnings (loss) per share:
Income (loss) before extraordinary
gain............................ $ (0.21) $ 0.45 $ 1.22 $ (0.77) $ 0.90
Extraordinary gain................ 0.45 0.59 -- -- --
------- ------- -------- -------- --------
Net income (loss)................. 0.24 1.04 1.22 (0.77) $ 0.90
======= ======= ======== ======== ========
Diluted earnings (loss) per share
Income (loss) before extraordinary
gain............................ $ (0.18) $ 0.26 $ 0.95 $ (0.77) $ 0.83
Extraordinary gain................ 0.39 0.35 -- -- --
------- ------- -------- -------- --------
Net income (loss)................. 0.21 0.61 0.95 (0.77) 0.83
======= ======= ======== ======== ========
Weighted average number of common
shares outstanding:
Basic............................. 2,924 2,948 6,316 8,992 9,280
======= ======= ======== ======== ========
Diluted........................... 3,472 5,081 8,176 8,992 9,967
======= ======= ======== ======== ========
CONSOLIDATED BALANCE SHEET DATA:
Total Assets......................... $42,883 $55,271 $115,208 $111,170 $114,186
Long-term debt, net of current
portion........................... 16,682 15,969 4,034 550 --
</TABLE>
- ---------------
(1) See Note 9 of the Notes to Consolidated Financial Statements for more
information about the fiscal year 1997 restructuring costs.
(2) See Note 2(e) of the Notes to Consolidated Financial Statements.
12
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
C.P. Clare is a leading provider of high voltage analog semiconductor
integrated packages and discrete components, electromagnetic relays and
switches, surge protection devices, transformers and specialized electronic
components to the world's foremost manufacturers of electronic communications
equipment.
RESULTS OF OPERATIONS
The following table sets forth the relative percentages of certain income
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 67.6 66.8 68.7
----- ----- -----
Gross profit.............................................. 32.4 33.2 31.3
Operating expenses:
Selling, general and administrative....................... 18.6 22.1 18.0
Research and development.................................. 3.5 5.1 5.7
Restructuring costs....................................... -- 11.1 --
----- ----- -----
Operating income (loss)..................................... 10.3 (5.1) 7.6
Interest income............................................. 0.8 1.2 0.9
Interest expense............................................ (1.0) (0.4) (0.1)
----- ----- -----
Income (loss) before provision for income taxes............. 10.1 (4.3) 8.4
Provision for income taxes.................................. 4.1 1.1 3.1
----- ----- -----
Net income (loss)......................................... 6.0% (5.4)% 5.3%
===== ===== =====
</TABLE>
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
Net Sales. In fiscal 1998, net sales increased to $156.3 million compared
with $128.2 million in fiscal 1997, an increase of 21.9%. Sales volume of the
Company's semiconductor products increased by 16.2%. Electromagnetic and other
products increased 27%.
The Company's semiconductor products are primarily used in data
communication applications such as modems and sales have grown significantly
over the last few years as Internet usage has expanded. The Company believes
that the delay in adoption of a standard for 56 Kbps modem technology by the
International Telecommunications Union has slowed the potential growth of the
modem market place as customers postponed buying decisions awaiting a
finalization of the standard.
The Company's electromagnetic products are primarily used in
telecommunication applications such as telephone switching gear, cellular phones
and accessories. The continued increased usage of cellular phones has been a
growth driver for the Company's dry reed switch business and the Company is
currently expanding capacity in this operation. Another area of growth in
electromagnetic products has been in the C.P. Clare Remtech Division, which
provides application specific design and manufacturing of magnetic components
for various uses.
Net sales by major product category were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
------------------
1997 1998
------- -------
(IN MILLIONS)
<S> <C> <C>
Semiconductor products...................................... $60.0 $69.7
Electromagnetic and other products.......................... 68.2 86.6
</TABLE>
13
<PAGE> 16
Net sales to customers located outside the United States (primarily Europe
and Asia) increased 36.3% in fiscal 1998 to $66.4 million from $48.7 million in
fiscal 1997, primarily due to increased demand in the Far East and Europe. Net
sales to customers in Europe represented 29.6% of the Company's net sales for
fiscal 1998 and increased 46.7% in local currencies and 28.1% in U.S. dollars
compared with the prior year and was impacted by a significant shifting of
production by a key customer from the U.S. to Europe. Net sales to customers in
Asia represented 12.8% of the Company's net sales for fiscal 1998 and increased
39.8% in local currencies and 61.5% in U.S. dollars compared with the prior
year.
The Company expects that foreign sales will continue to account for a
substantial portion of product sales. Continued economic and currency related
uncertainties in a number of foreign countries, especially in Asia, could reduce
the Company's sales to these markets. The Company will continue to focus on new
markets and expansion of certain existing international markets.
Gross Profit. The Company's gross profit as a percentage of net sales
decreased to 31.3% in fiscal 1998 from 33.2% in fiscal 1997. The decrease in
gross profit was primarily due to start up costs related to the new
semiconductor wafer fabrication facility and the impact of the strengthening
U.S. dollar on the Company's international sales, mostly in Europe.
Selling, General and Administrative Expense (SG&A). SG&A expenses of $28.2
million in fiscal 1998 were flat as compared to fiscal 1997, and decreased as a
percentage of net sales to 18% in fiscal 1998 from 22.1% in fiscal 1997. The
largest single component of the fiscal 1997 expense was a non-recurring,
environmental charge of $2.1 million. Excluding this non-recurring charge, SG&A
expense would have increased to $28.2 million in fiscal 1998 from $26.2 million,
and decreased as a percentage of net sales to 18% in fiscal 1998 from 20.4% in
fiscal 1997. After excluding this charge, the dollar increase in SG&A spending
of $2.1 million in fiscal 1998 primarily relates to increase selling and
marketing costs associated with increased sales volume.
Research and Development Expense. Research and development expense
increased in fiscal 1998 to $8.9 million from $6.5 million in fiscal 1997 and
increased as a percentage of net sales to 5.7% in fiscal 1998 from 5.1% in
fiscal 1997, as a result of increased investments in new product development
programs, primarily for semiconductor products. The Company expects to maintain
its current rate of research and development spending as current R&D programs
are continued, especially at the Company's new semiconductor facility in
Beverly, Massachusetts.
Restructuring Costs. In fiscal 1997, the Company recorded a restructuring
charge of $14.3 million, or $1.42 per share after income taxes, to restructure
operations primarily in the Company's reed relay business. The restructuring
charge included costs associated with the sale of the Tongeren Manufacturing
Company ("TMC"), workforce reductions and worldwide facilities realignment. The
sale of TMC was consummated in January, 1997. The costs associated with the sale
of TMC were primarily the write-down of the Company's investment in its foreign
subsidiary and other Company costs associated with transfer of the facility.
Workforce reduction costs include severance costs related to involuntary
terminations. See Note 9 of Notes to Consolidated Financial Statements.
Interest Income. Interest income decreased in fiscal 1998 to $1.5 million
from $1.6 million in fiscal 1997 due to a lower cash balance. Interest income
was derived from the short-term investment of the Company's cash in both
commercial paper and tax exempt variable rate municipal bonds.
Interest Expense. Interest expense decreased in fiscal 1998 to $0.2
million from $0.5 million in fiscal 1997. This decrease was primarily the result
of the Company's further paydown of its remaining long term debt during fiscal
1998.
Other Income (Expense), net. Other income in fiscal 1998 was primarily
comprised of net foreign currency exchange transaction gains offset by other
expenses. In fiscal 1997, other expense was primarily comprised of net foreign
currency exchange transaction losses offset by other income.
Income Taxes. Income tax expense increased to $4.9 million in fiscal 1998,
a 37% effective tax rate, from $1.5 million in fiscal 1997, a 26.9% effective
tax rate. The Company's effective income tax rate in 1998 is
14
<PAGE> 17
less than the combined federal, state and foreign tax rates due primarily to
utilization of state tax credits and investment income derived from tax exempt
securities. In fiscal 1997, the Company incurred a net operating loss before
income taxes. However, the Company did not record a benefit for income taxes in
fiscal 1997 because the Company anticipated it would not be able to fully
utilize the losses associated with the restructuring, effectively increasing the
Company's tax rate to 26.9%. See Note 12 of Notes to Consolidated Financial
Statements.
At March 31, 1998, the Company had net operating loss carryforwards in the
United States and Taiwan of approximately $9.2 million. The Company also had
capital loss carryforwards of approximately $25.0 million in the United States.
The Company's ability to use its United States net operating loss carryforwards
against taxable income is subject to limitations under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code"), due to the change in
ownership of the Company in 1989. The Company's ability to use its capital loss
carryforwards is subject to its ability to generate future capital gains to
offset these capital losses. Accordingly, the Company has not benefited from all
its net operating and capital loss carryforwards. See Note 12 of Notes to
Consolidated Financial Statements.
FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996
Net Sales. In fiscal 1997, net sales remained consistent at $128.2 million
compared with $127.9 million in fiscal 1996. Sales volume of the Company's
semiconductor products increased by 28% which increase was offset by
significantly lower sales volume of reed relay and surge protection products. In
fiscal 1997, the Company's electromagnetic and other products sales decreased to
$68.2 from $81.0 or 15.8%, primarily due to lower demand of the Company's reed
relays and surge arrester products. The lower demand for wetted reed relays led
the Company to announce a restructuring of its operations, in order to gain
efficiencies in this declining market. See Note 9 of Notes to Consolidated
Financial Statements.
Net sales by major product category were as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
------------------
1996 1997
------- -------
(IN MILLIONS)
<S> <C> <C>
Semiconductor products...................................... $46.9 $60.0
Electromagnetic and other products.......................... 81.0 68.2
</TABLE>
Net sales to customers located outside the United States (primarily Europe
and Asia) decreased 10.6% in fiscal 1997 to $48.7 million from $54.5 million in
fiscal 1996, primarily due to decreased sales volume in Europe as a result of
decreased demand for the Company's wetted reed switches and relays and
unfavorable foreign exchange translation, which were partially offset by
increased sales in Asia.
Gross Profit. The Company's gross profit as a percentage of net sales
improved to 33.2% in fiscal 1997 from 32.4% in fiscal 1996. The increase in
gross profit was primarily attributable to a more favorable product mix, which
included increased sales of the Company's higher margin semiconductor products,
which was partially offset by the growth in sales of the Company's lower margin
advanced magnetics products.
Selling, General and Administrative Expense (SG&A). SG&A expense increased
in fiscal 1997 to $28.3 million from $23.9 million in fiscal 1996, and increased
as a percentage of net sales to 22.1% in fiscal 1997 from 18.6% in fiscal 1996.
The largest single component of the dollar and percentage increase was the
result of a $2.1 million non-recurring environmental charge. See Note 8 of Notes
to Consolidated Financial Statements. Excluding this non-recurring environmental
charge, SG&A expense would have increased in fiscal 1997 to $26.2 million from
$23.9 million in fiscal 1996, and increased as a percentage of net sales to
20.4% in fiscal 1997 from 18.6% in fiscal 1996. The increase in SG&A expenses
primarily relates to increased marketing expenditures, additional sales office
locations and increased communication costs compared to fiscal 1996.
Research and Development Expense. Research and development expense
increased in fiscal 1997 to $6.5 million from $4.4 million in fiscal 1996 and
increased as a percentage of net sales to 5.1% in fiscal 1997
15
<PAGE> 18
from 3.5% in fiscal 1996, as a result of increased investments in new product
development programs, primarily for semiconductor products.
Restructuring Costs. In fiscal 1997, the Company recorded a restructuring
charge of $14.3 million, or $1.42 per share after income taxes, to restructure
operations primarily in the Company's reed relay business. The restructuring
charge includes costs associated with the sale of the Tongeren Manufacturing
Company ("TMC"), workforce reductions and worldwide facilities realignment. The
sale of TMC was consummated in January, 1997. The costs associated with the sale
of TMC were primarily the write-down of the Company's investment in its foreign
subsidiary and other Company costs associated with transfer of the facility.
Workforce reduction costs include severance costs related to involuntary
terminations. See Note 9 of Notes to Consolidated Financial Statements.
Interest Income. Interest income increased in fiscal 1997 to $1.6 million
from $1.1 million in fiscal 1996. Interest income was related to the short-term
investment of the Company's cash in both commercial paper and tax exempt
variable rate municipal bonds. In fiscal 1997, the increase in interest income
was caused by the full year of investment of excess cash versus fiscal 1996.
Interest Expense. Interest expense decreased in fiscal 1997 to $0.5
million from $1.3 million in fiscal 1996. This decrease was primarily the result
of the Company's reduced debt load following the repayment of the $7.5 million
in subordinated notes and the pay down of the Company's domestic lines of credit
during the first quarter of fiscal 1996. Also, in the fourth quarter of fiscal
1997, the Company's European credit facilities were assumed by the buyer of TMC.
Other Income (Expense), net. Other income (expense) in fiscal 1997 was
primarily comprised of net foreign currency exchange transaction losses. In
fiscal 1996, other income (expense) was primarily comprised of a foreign
currency exchange transaction loss which was partially offset by a gain on the
sale of certain equipment.
Income Taxes. Income tax expense decreased to $1.5 million in fiscal 1997
from $5.2 million in fiscal 1996. While the Company incurred a loss before
income taxes in 1997, the Company did not record a benefit for income taxes
because the Company anticipates it will not be able to fully utilize the losses
associated with the restructuring. See Note 12 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1998, as well as fiscal 1997, the Company funded its operations
from cash flows generated from operations, and from the use of cash, cash
equivalents and investments.
During the year ended March 31, 1998, the Company's cash, cash equivalents
and investments decreased by $11.1 million. Operations provided $2.8 million of
cash during this period. The Company made capital expenditures of $15.3 million
during the year ended March 31, 1998, predominantly for capacity expansion in
semiconductor products, dry reed switches and magnetic components. Financing
activities contributed $1.1 million of cash during this period, primarily
through proceeds from the exercise of options and warrants.
At March 31, 1998, the Company had $0.7 million of outstanding debt which
consisted of subordinated notes outstanding which are due in January, 1999 and
bear an implicit annual interest rate of 12%. In fiscal 1998, the Company
established a new $40 million unsecured, committed revolving multicurrency
credit facility (the "Credit Facility"). Interest on loans is based on either
the London Interbank Offered Rate (LIBOR) plus a spread ranging from 0.25% to
1.25%, based on Company performance; or the higher at the latest Federal Funds
rate plus 0.50% or the bank's reference rate. Although the Company has had no
borrowings under this Credit Facility to date, the interest rate on borrowings
would have been 6.44% or 8.50%, respectively at March 31, 1998.
In fiscal 1998, the Company obtained a $10.0 million operating lease line,
to be used primarily for the financing of production and MIS equipment. As of
March 31, 1998, the line was unused.
The Company manages its foreign exchange exposure by monitoring its net
monetary position using natural hedges of its assets and liabilities denominated
in local currencies and entering into forward contract
16
<PAGE> 19
hedges as needed. There can be no assurance that this policy will eliminate all
currency exposure. During the years ended March 31, 1998 and 1997, the Company
entered into several forward contracts to cover its exposure from trade
transactions.
The Company believes that cash generated from operations, cash, cash
equivalents and investments and amounts available under its credit agreement and
operating lease facility will be sufficient to satisfy its working capital needs
and planned capital expenditures for the foreseeable future. However, there can
be no assurance that events in the future will not require the Company to seek
additional capital sooner or, if so required, that adequate capital will be
available on terms acceptable to the Company.
EFFECT OF INFLATION
The Company does not believe that domestic inflation has had any material
effect on the Company's business over the past three years.
YEAR 2000 ISSUE
The Company has conducted a review of its computer systems to identify
those areas that could be affected by the Year 2000 issue. The Company is in the
process of implementing an Oracle Enterprise Resource Planning ("ERP") system
for all applications and locations. The Company has been informed by the vendor
that the new system is compliant with Year 2000 issues. The Company presently
believes, with modification to existing software and conversion to the new ERP
system, the Year 2000 problem will not pose significant operational problems.
Costs to complete this process and install the new ERP system are significant
but are not expected to have a material adverse effect on the Company's
financial position or results of operations in any year. The Company's potential
exposure extends beyond financial applications to include suppliers, customers
and other communication and manufacturing equipment. The Company has established
cross functional teams to review these issues and develop effective strategies
to minimize risk.
NEW ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130
"Reporting Comprehensive Income," was issued, which establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. The adoption of SFAS No. 130 is
not expected to have a material effect on the Company's consolidated results of
operations, financial position and cash flows.
In June 1997, SFAS No. 131 "Disclosure about Segments of an Enterprise and
Related Information," was issued, which establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company is in the process of evaluating
the disclosure requirements. The adoption of SFAS No. 131 is not expected to
have a material effect on the Company's results of operations, financial
position or cash flows.
In February 1998, SFAS No. 132 "Employers' Disclosures about Pension and
Other Postretirement Benefits," was issued, which standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes on the benefit
obligations for the fair market values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when SFAS No. 87 "Employers' Accounting for Pensions," SFAS
No. 88, "Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," were
issued. SFAS No. 132 suggests combined formats for presentation of pension and
other postretirement benefit disclosures. This statement is effective for the
fiscal years beginning after December 15,
17
<PAGE> 20
1997 and is not expected to have a material effect on the Company's results of
operations, financial position and cash flows.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires all costs associated with the
pre-opening, pre-operating and organization activities to be expensed as
incurred. The Company will adopt SOP 98-5 beginning April 1, 2000. Adoption of
the Statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth at the end of this Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission within 120
days after the end of the year covered by this Form 10-K with respect to its
Annual Meeting of Stockholders to be held on September 24, 1998.
19
<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedule
The combined financial statements and financial statement schedule of the
Company and its subsidiaries are set forth at the end of this Form 10-K.
(b) Reports on Form 8-K
None.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
2.1 Certificate of Ownership and Merger merging Clare Overseas
Europe I, Inc. into C.P. Clare Corporation(5)
2.2 Certificate of Ownership and Merger merging Clare Overseas
Europe II, Inc. into C.P. Clare Corporation(5)
2.3 Certificate of Ownership and Merger merging Clare Overseas
Europe III, Inc. into C.P. Clare Corporation(5)
2.4 Certificate of Ownership and Merger merging Clare Overseas
America, Inc. into C.P. Clare Corporation(5)
3.1 Amended and Restated Articles of Organization of the
Registrant(2)
3.2 Certificate of Vote of Directors Establishing a Series of A
Class of Stock(5)
3.3 Amended and Restated By-laws of the Registrant(1)
4.1 Specimen Certificate for shares of Common Stock, $.01 par
value, of the Registrant(1)
4.2 Shareholder Rights Agreement, dated April 29, 1996, between
C.P. Clare Corporation and State Street Bank and Trust
Company, as Rights Agent(3)
10.1 Termination Agreement dated April 1, 1995(1)
10.2 Amended and Restated Multicurrency Credit Agreement by and
among the Registrant, C.P. Clare N.V., Bank of America
National Trust and Savings Association, as Agent and the
Other Financial Institutions Party thereto dated March 6,
1998*
10.3 Revolving Note in the amount of $20,000,000 made by the
Registrant and C.P. Clare N.V. in favor of the Bank of
America National Trust and Savings Association dated March
6, 1998 pursuant to that certain Amended and Restated
Multicurrency Credit Agreement of even date*
10.4 Revolving Note in the amount of $20,000,000 made by the
Registrant and C.P. Clare N.V. in favor BankBoston, N.A.
dated March 6, 1998 pursuant to that certain Amended and
Restated Multicurrency Credit Agreement of even date*
10.6 Negative Pledge Agreement by certain subsidiaries to Bank of
America National Trust and Savings Association dated
September 11, 1995 pursuant to that certain Multicurrency
Credit Agreement of even date(2)
10.7 Reaffirmation of guaranties and Negative Pledge Agreements
by certain subsidiaries to Bank of America National Trust
and Savings Association dated March 6, 1998, pursuant to
that certain Amended and Restated Multicurrency Credit
Agreement of even date*
</TABLE>
20
<PAGE> 23
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
10.8 C.P. Clare Corporation Voluntary Deferred Compensation Plan
for Key Employees effective as of April 1, 1998*
10.12 Lease Agreement by and between Fleet Credit Corporation and
Registrant dated July 18, 1995, as amended October 10,
1995(2)
10.13 Distributor Agreement between the Registrant and Bell
Industries, Inc. dated July 17, 1978(1)
10.14 Authorized Distributor Agreement between the Registrant and
Future Electronics, Inc. dated October 6, 1989(1)
10.15 Authorized Distributor Agreement between the Registrant and
Marshall Industries dated September 15, 1989(1)
10.16 Authorized Distributor Agreement between the Registrant and
Newark Electronics dated July 14, 1989(1)
10.17 Authorized Distributor Agreement between the Registrant and
Pioneer Technologies Group dated November 16, 1989(1)
10.18 Authorized Distributor Agreement between the Registrant and
Powell Electronics, Inc. dated June 28, 1989(1)
10.32 Technology and Equipment Transfer and Supply Agreement
between the Registrant, Clare Europe, N.V. and American
Telephone and Telegraph Company dated January 23, 1989 as
supplemented by Supplemental Agreement effective June 1,
1990, Second Supplemental Agreement effective January 23,
1991, Technical Assistance Agreement effective January 23,
1989, Supply Contract between the Registrant and AT&T
Technologies, Inc. effective June 1, 1989, as amended by
revised Attachment A dated March 1, 1993, and Subordination
Agreement between the Registrant, American Telephone and
Telegraph Company, Continental Bank N.A., Massachusetts
Mutual Life Insurance Company, MassMutual Corporate
Investors and MassMutual Participation Investors effective
May 26, 1989(1)
10.32.1 Letter of Assignment and Promissory Note dated as of January
17, 1997 with respect to that certain Technology and
Equipment Transfer and Supply Agreement between the
Registrant, Clare Europe, N.V. and American Telephone and
Telegraph Company dated January 23, 1989(6)
10.34 Asset Purchase Agreement between C.P. Clare International
N.V. and Hamlin, Incorporated dated November 14, 1994(1)
10.35 Commercial Lease between the Registrant and Rosner and
Associates for 45 Progress Parkway, St. Louis, Missouri
dated September 23, 1991, as amended November 25, 1992(1)
10.36 Standard Industrial Lease between General Instrument
Corporation and Davis Properties for 48 Progress Parkway,
St. Louis, Missouri dated December 15, 1987(1)
10.40 Office Lease between the Registrant and Great Lakes REIT,
Inc. for 601 Campus Drive, Suite B, Arlington Heights,
Illinois dated December 27, 1993(1)
10.41 First Amendment to Lease Agreement between the Registrant
and Great Lakes REIT, Inc. for 601 Campus Drive, Suite B,
Arlington Heights, Illinois dated August 3, 1995(2)
10.42 Lease Agreement between C.P. Clare Mexicana S.A. de C.V. and
Jose Maria Gonzalez Martin for 1610 Tlaquepaque Boulevard,
Guadalajara, Mexico dated August 25, 1990 (in Spanish with
English summary)(1)
10.47 Cleanup Agreement between the Registrant and General
Instrument Corporation dated May 1, 1995(1)
</TABLE>
21
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<S> <C>
10.49 Employment Agreement between the Registrant and Arthur R.
Buckland dated September 15, 1993, as amended by Amendment
dated March 20, 1995(1)
10.54 Amended and Restated Employment Agreement between the
Company and Michael J. Ferrantino dated as of January 31,
1997(7)
10.56 Amended and Restated Employment Agreement between the
Company and Harsh Koppula dated as of January 31, 1997(7)
10.58 Termination Agreement between the Registrant and Andrew S.
Kariotis dated April 26, 1995(1)
10.59 1995 Stock Option and Incentive Plan, as amended and
restated as of September 29, 1996(2)
10.60 1995 Employee Stock Purchase Plan, as amended and restated
as of October 23, 1995(2)
10.61 C.P. Clare Corporation Key Employee Incentive Plan effective
April 1, 1995, as amended and restated as of October 2,
1995(2)
10.63 The C.P. Clare Corporation Savings Plan(1)
10.64 Lease Agreement between C.P. Clare Mexicana S.A. de C.V. and
Sra. Ma. Teresa Aranguren dated November, 1995(5)
10.66 Lease Agreement dated as of October 31, 1995, by and between
Thomas J. Flatley, d/b/a The Flatley Company and C.P. Clare
Corporation(4)
10.67 Employment Agreement between the Company and Richard Morgan
dated as of April 8, 1996(7)
10.68 Employment Agreement between the Company and William Reed
dated as of August 26, 1996(7)
10.69 Stock Purchase Agreement dated as of December 19, 1996,
among the Company, Gunther GmbH, Tongeren Manufacturing
Company, and W. Gunther, GmbH**(7)
10.70 Supply Agreement dated as of January 17, 1997 among the
Company, Gunther GmbH, W. Gunther GmbH, and Robert
Romano**(7)
10.71 Amended and Restated Employment Agreement between the
Company and Thomas B. Sager, dated September 16, 1997(8).
21 Subsidiaries of the Registrant*
23.2 Consent of Arthur Andersen LLP*
27.0 Financial Data Schedule (Edgar)*
</TABLE>
- ---------------
* Filed herewith
** Confidential treatment requested for portions of this documents
(1) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(File No. 33-91972) and incorporated herein by reference thereto.
(2) Filed as an exhibit to the Registrant's Registration Statement on Form S-1
(File No. 33-98646) and incorporated herein by reference thereto.
(3) Incorporated by reference to Current Report on Form 8-K filed with the
Commission on April 30, 1996.
(4) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended December 31, 1995 and incorporated herein by
reference thereto.
(5) Filed as an exhibit to the Registrants Annual Report on Form 10-K for the
year ended March 31, 1996 and incorporated herein by reference thereto.
22
<PAGE> 25
(6) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 29, 1996 and incorporated herein by
reference thereto.
(7) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended December 29, 1996 and incorporated herein by
reference thereto.
(8) Filed as an exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 28, 1997 and incorporated herein by
reference thereto.
23
<PAGE> 26
C.P. CLARE CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULE
<TABLE>
<CAPTION>
FORM 10-K
PAGE NO.
---------
<S> <C>
Report of Independent Public Accountants.................... 25
Consolidated Balance Sheets -- March 31, 1997 and 1998...... 26
Consolidated Statements of Operations for the years ended
March 31, 1996, 1997 and 1998............................. 27
Consolidated Statements of Stockholders' Equity for the
years ended March 31, 1996, 1997 and 1998................. 28
Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1997 and 1998............................. 29
Notes to Consolidated Financial Statements.................. 30
Report of Independent Public Accountants on Schedule II..... 48
Schedule II -- Valuation and Qualifying Accounts............ 49
</TABLE>
24
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To C.P. Clare Corporation:
We have audited the accompanying consolidated balance sheets of C.P. Clare
Corporation (a Massachusetts corporation) and subsidiaries as of March 31, 1997
and 1998, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of C.P. Clare Corporation and
subsidiaries as of March 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 29, 1998
25
<PAGE> 28
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and investments.................... $ 37,430 $ 26,364
Accounts receivable, less allowance of $675 and $1,177,
respectively........................................... 17,412 21,383
Inventories............................................... 20,116 22,083
Other current assets...................................... 697 422
Deferred income taxes..................................... 3,135 2,700
-------- --------
Total current assets.............................. 78,790 72,952
Property, plant and equipment, net.......................... 28,976 38,777
Other assets:
Intangibles, net of accumulated amortization of $495 and
$517, respectively..................................... 150 128
Deferred income taxes..................................... 945 869
Other..................................................... 2,309 1,460
-------- --------
$111,170 $114,186
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 511 $ 666
Accounts payable.......................................... 12,620 12,464
Income taxes payable...................................... 758 138
Accrued expenses.......................................... 13,676 9,761
-------- --------
Total current liabilities......................... 27,565 23,029
Long-term debt, net of current portion...................... 550 --
Pension liability, net of current portion................... 1,789 --
-------- --------
Total liabilities................................. 29,904 23,029
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, $ .01 par value, Authorized: 2,500,000
shares issued and outstanding: None.................... -- --
Common stock, $ .01 par value, Authorized: 40,000,000
shares issued and outstanding: 9,176,657 shares and
9,356,452 shares, respectively......................... 92 94
Additional paid-in capital................................ 94,115 95,653
Deferred compensation..................................... (409) (154)
Accumulated deficit....................................... (11,702) (3,390)
Cumulative translation adjustment......................... (830) (1,046)
-------- --------
Total stockholders' equity........................ 81,266 91,157
-------- --------
$111,170 $114,186
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE> 29
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Net sales................................................. $127,928 $128,161 $156,271
Cost of sales............................................. 86,464 85,603 107,427
--------- --------- ---------
Gross profit............................................ 41,464 42,558 48,844
Operating expenses:
Selling, general and administrative..................... 23,857 28,330 28,157
Research and development................................ 4,447 6,543 8,869
Restructuring costs..................................... -- 14,250 --
--------- --------- ---------
Operating income (loss)................................... 13,160 (6,565) 11,818
Interest income........................................... 1,052 1,578 1,454
Interest expense.......................................... (1,300) (452) (215)
Other (expense) income, net............................... (20) (8) 135
--------- --------- ---------
Income (loss) before provision for income taxes........... 12,892 (5,447) 13,192
Provision for income taxes................................ 5,158 1,464 4,880
--------- --------- ---------
Net income (loss)....................................... $ 7,734 $ (6,911) $ 8,312
========= ========= =========
Basic earnings (loss) per share........................... $1.22 $(0.77) $0.90
========= ========= =========
Diluted earnings (loss) per share......................... $0.95 $(0.77) $0.83
========= ========= =========
Weighted average number of common shares outstanding:
Basic..................................................... 6,316,144 8,991,520 9,280,424
========= ========= =========
Diluted................................................... 8,175,667 8,991,520 9,967,366
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 30
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1997, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NUMBER $.01 ADDITIONAL CUMULATIVE TOTAL
OF PAR PAID-IN DEFERRED ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL WARRANTS COMPENSATION DEFICIT ADJUSTMENT EQUITY
--------- ----- ---------- -------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1995.................. 2,949,427 $29 $14,613 $378 $(277) $(12,525) $ 734 $ 2,952
Exercise of stock
options............... 985,155 10 605 -- -- -- -- 615
Issuance of stock
options............... -- -- 651 -- (651) -- -- --
Issuance of common stock
under the Employee
Stock Purchase Plan... 9,085 -- 127 -- -- -- -- 127
Issuance of common
stock, net of issuance
costs of $2,146....... 4,292,070 43 76,208 -- -- -- -- 76,251
Exercise of warrants.... 471,662 5 750 -- -- -- -- 755
Repurchase of
warrants.............. -- -- (3,547) (378) -- -- -- (3,925)
Tax benefit of
disqualifying
disposition of
incentive stock
options............... -- -- 2,133 -- -- -- -- 2,133
Net income.............. -- -- -- -- -- 7,734 -- 7,734
Translation
adjustment............ -- -- -- -- -- -- (351) (351)
Amortization of deferred
compensation.......... -- -- -- -- 321 -- -- 321
--------- --- ------- ---- ----- -------- ------- -------
Balance, March 31,
1996.................. 8,707,399 87 91,540 -- (607) (4,791) 383 86,612
Exercise of stock
options............... 369,829 4 1,336 -- -- -- -- 1,340
Issuance of common stock
under the Employee
Stock Purchase Plan... 32,276 -- 468 -- -- -- -- 468
Exercise of warrants.... 67,153 1 44 -- -- -- -- 45
Tax benefit of
disqualifying
disposition of
incentive stock
options............... -- -- 727 -- -- -- -- 727
Net loss................ -- -- -- -- -- (6,911) -- (6,911)
Translation
adjustment............ -- -- -- -- -- -- (1,213) (1,213)
Amortization of deferred
compensation.......... -- -- -- -- 198 -- -- 198
--------- --- ------- ---- ----- -------- ------- -------
Balance, March 31,
1997.................. 9,176,657 92 94,115 -- (409) (11,702) (830) 81,266
Exercise of stock
options............... 132,599 2 904 -- -- -- -- 906
Common stock issued for
services rendered..... 2,000 -- 50 -- -- -- -- 50
Issuance of common stock
under the Employee
Stock Purchase Plan... 30,837 -- 290 -- -- -- -- 290
Exercise of warrants.... 14,359 -- 27 -- -- -- -- 27
Tax benefit of
disqualifying
disposition of
incentive stock
options............... -- -- 267 -- -- -- -- 267
Net income.............. -- -- -- -- -- 8,312 -- 8,312
Translation
adjustment............ -- -- -- -- -- -- (216) (216)
Amortization of deferred
compensation.......... -- -- -- -- 255 -- -- 255
--------- --- ------- ---- ----- -------- ------- -------
Balance, March 31,
1998.................. 9,356,452 $94 $95,653 $ -- $(154) $ (3,390) $(1,046) $91,157
========= === ======= ==== ===== ======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 31
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 7,734 $ (6,911) $ 8,312
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Loss on sale of European manufacturing operation......... -- 5,069 --
Depreciation and amortization............................ 4,349 4,805 5,341
Gain on sale of property, plant and equipment............ (55) -- --
(Benefit) provision for deferred income taxes............ (1,376) (1,587) 356
Compensation expense associated with stock options....... 321 198 255
Common stock issued for services rendered................ -- -- 50
Provision for environmental remediation costs............ -- 2,050 925
Changes in assets and liabilities, net of effect from
disposition:
Accounts receivable................................... (4,358) 2,059 (4,239)
Inventories........................................... (5,403) (4,872) (2,083)
Other current assets.................................. 288 750 1,373
Accounts payable...................................... (1,031) 5,617 10
Accrued expenses and income taxes payable............. (784) (3,150) (7,505)
-------- -------- --------
Net cash (used in) provided by operating
activities..................................... (315) 4,028 2,795
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.................. (9,135) (15,047) (15,262)
Proceeds from sale of property, plant and equipment........ 55 -- --
-------- -------- --------
Net cash used in investing activities............ (9,080) (15,047) (15,262)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit............................ (7,065) (1,199) --
Net proceeds from issuance of common stock................. 76,378 468 290
Proceeds from exercise of options and warrants............. 1,370 1,385 933
Repurchase of warrants..................................... (3,925) -- --
Payments of principal on long-term debt.................... (11,627) (2,040) (371)
Tax benefit of disqualifying disposition of incentive stock
options.................................................. 2,133 727 267
-------- -------- --------
Net cash provided by (used in) financing
activities..................................... 57,264 (659) 1,119
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS...... 32 26 282
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 47,901 (11,652) (11,066)
Cash, cash equivalents and investments, beginning of
year..................................................... 1,181 49,082 37,430
-------- -------- --------
Cash, cash equivalents and investments, end of year........ $ 49,082 $ 37,430 $ 26,364
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 32
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF OPERATIONS
C.P. Clare is a leading provider of high voltage analog semiconductor
integrated packages and discrete components, electromagnetic relays and
switches, surge protection devices, transformers and specialized electronic
components to the world's foremost manufacturers of electronic communications
equipment.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements reflect the application
of the following significant accounting policies:
(a) Fiscal Periods
The Company's fiscal year is comprised of either 52 or 53 weeks and ends on
the Sunday closest to March 31st each year. Fiscal years 1996, 1997 and 1998
were each 52 weeks. For convenience, the Company's fiscal year end has been
presented as March 31.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(c) Cash, Cash Equivalents and Investments
The Company considers all highly liquid investment instruments with
maturities of three months or less to be cash equivalents. Short-term
investments are instruments with maturities less than one year. The Company
carries its investments in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Investments at March 31, 1997 and 1998 principally consist
of overnight and short-term tax exempt commercial paper and tax exempt variable
rate municipal bonds. The Company has the option to require the issuers of the
tax exempt variable rate municipal bonds to purchase these investments upon 7
day's notice. The Company has deemed these investments to be available-for-sale
at both March 31, 1997 and 1998 and they are carried at cost, which approximates
market value.
(d) Revenue Recognition
Revenues from product sales are recognized when the products are shipped.
Certain shipments to distributors are subject to limited right-of-return
provisions. The Company provides for estimated returns when material.
(e) Earnings (Loss) Per Common and Common Share Equivalent
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," replaces the calculation of primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share is
calculated by dividing net income (loss) by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of stock options and warrants that could share in the
earnings of the Company.
30
<PAGE> 33
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of amounts used in the computation of basic and diluted
earnings (loss) per share consist of the following at March 31, 1996, 1997 and
1998:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss).............................. $ 7,734 $ (6,911) $ 8,312
========== ========== ==========
Basic weighted average shares outstanding...... 6,316,144 8,991,520 9,280,424
Weighted average common equivalent shares...... 1,859,523 -- 686,942
---------- ---------- ----------
Diluted weighted average shares outstanding.... 8,175,667 8,991,520 9,967,366
========== ========== ==========
Basic earnings per share....................... $ 1.22 $ (0.77) $ 0.90
========== ========== ==========
Diluted earnings per share..................... $ 0.95 $ (0.77) $ 0.83
========== ========== ==========
</TABLE>
Securities that were not included in computing diluted earnings per share
because their effect would be antidilutive consist of the following at March 31,
1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------- --------- -------
<S> <C> <C> <C>
Options to purchase common stock..................... 135,500 1,777,626 434,750
======= ========= =======
</TABLE>
(f) Foreign Currency Translation and Transactions
The Company translates the assets and liabilities of its foreign
subsidiaries at the exchange rates in effect at fiscal year-end in accordance
with SFAS No. 52, "Foreign Currency Translation." Revenues and expenses are
translated using exchange rates in effect during each period. Because Mexico and
Taiwan are considered extensions of domestic operations, the translation losses
of ($104), ($49) and ($139) recognized in fiscal years 1996, 1997 and 1998,
respectively, have been included in the accompanying consolidated statements of
operations and, accordingly, are classified as other income (expense). See Note
13. The cumulative translation adjustment component of stockholders' equity
relates primarily to the Company's European operations.
(g) Research and Development Expense
Expenditures for research and development of products and manufacturing
processes are expensed as incurred.
(h) Derivative Financial Instruments and Fair Value of Financial Instruments
SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments," requires disclosure of any significant
derivative or other financial instruments. The Company hedges its net
intercompany trade balance (Belgian francs) which relates to trade sales to
third party customers in the ordinary course of business. At March 31, 1998, the
Company had thirteen outstanding Belgian franc ("BF") forward contracts
amounting to 215,740 BF or $5,908 with a gross deferred loss of $163 from the
rollover of such contracts to the planned settlement date. At March 31, 1998,
the Company also had one outstanding Mexican peso ("MXP") forward contract
amounting to 2,160 MXP or $255. The Mexican peso forward contracts had no
deferred gain or loss. At March 31, 1997, the Company had five outstanding
forward contracts amounting to 170,000 BF or $4,923 with a gross deferred loss
of $28 from the rollover of such contracts to the planned settlement date.
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of an estimate of the fair value of certain financial
instruments. The fair value of financial instruments pursuant to
31
<PAGE> 34
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SFAS No. 107 approximated their carrying values at March 31, 1997 and 1998. Fair
values have been determined through information obtained from market sources and
management estimates.
(i) Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations
of credit risk consist primarily of cash and cash equivalents, short term
investments and trade accounts receivable. The Company places its temporary cash
investments in financial institutions. The Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in any specific industry or by geographic area. Due to these factors,
no additional credit risk beyond amounts provided for collection losses is
believed by management to be inherent in the Company's accounts receivable.
During fiscal years 1996, 1997 and 1998, one customer accounted for 16%, 17% and
14%, respectively, of the Company's net sales. One customer accounted for 10% of
the Company's accounts receivables at March 31, 1998.
(j) Stock-Based Compensation
The Company accounts for its stock-based compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees." SFAS No. 123, effective in fiscal 1997, establishes a fair value
method of accounting for stock-based compensation plans. The Company has adopted
the disclosure only alternative under SFAS No. 123, which requires disclosures
of the pro forma effects on earnings and earnings per share as if SFAS No. 123
had been adopted as well as certain other information. See Note 10.
(k) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(l) New Accounting Standard
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
The adoption of SFAS No. 130 is not expected to have a material effect on the
Company's consolidated results of operations, financial position and cash flows.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information," was issued, which establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company is in the process of evaluating
the disclosure requirements and estimates. The adoption of SFAS No. 131 is not
expected to have a material effect on the Company's results of operations,
financial position or cash flows.
In February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits," was issued, which standardizes the disclosure
requirements for pensions and other postretirement
32
<PAGE> 35
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
benefits to the extent practicable, requires additional information on changes
of the benefit obligations for the fair market values of plan assets that will
facilitate financial analysis, and eliminates certain disclosures that are no
longer as useful as they were when SFAS No. 87, "Employers' Accounting for
Pensions," SFAS No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
were issued. SFAS No. 132 suggests combined formats for presentation of pension
and other postretirement benefit disclosures. This statement is effective for
the fiscal years beginning after December 15, 1997 and is not expected to have a
material effect on the Company's results of operations, financial position and
cash flows.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" (SOP 98-5). SOP 98-5 requires all costs associated with the
pre-opening, pre-operating and organization activities to be expensed as
incurred. The Company will adopt SOP 98-5 beginning April 1, 2000. Adoption of
the statement is not expected to have a material impact on the Company's
consolidated financial position or results of operations.
(m) Reclassification
Certain amounts in the prior years' financial statements have been
reclassified to conform with the current year's presentation.
NOTE 3. INVENTORIES
Inventories include materials, labor and manufacturing overhead, and are
stated at the lower of cost (first-in, first-out) or market and consist of the
following at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- -------
<S> <C> <C>
Raw materials............................................... $ 8,905 $ 9,568
Work in process............................................. 6,117 4,835
Finished goods.............................................. 5,094 7,680
------- -------
$20,116 $22,083
======= =======
</TABLE>
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
DESCRIPTION 1997 1998 ESTIMATED USEFUL LIFE
- ----------- ------- ------- ---------------------
<S> <C> <C> <C>
Machinery and equipment...................... $29,544 $35,800 3 to 7 years
Furniture and fixtures....................... 2,212 3,000 5 to 10 years
Leasehold improvements....................... 3,165 13,271 Life of lease
Projects in process.......................... 14,533 10,829
Property held for sale (Note 8).............. 1,500 1,500
------- -------
50,954 64,400
Less: Accumulated depreciation and
amortization............................... 21,978 25,623
------- -------
$28,976 $38,777
======= =======
</TABLE>
The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the cost
of property, plant and equipment over their estimated useful lives as noted
above.
NOTE 5. OTHER ASSETS
The Company assesses the realizability of its intangible assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of."
33
<PAGE> 36
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets consists primarily of goodwill acquired in connection
with the acquisition of the Clare Division from General Instrument Corporation
in 1989. Goodwill is amortized on a straight-line basis over 30 years. In fiscal
1997, approximately $1,500 of the unamortized balance of goodwill costs were
charged to the Company's restructuring reserve as part of the disposition of
Tongeren Manufacturing Company ("TMC") and the restructuring of operations,
primarily in the Company's reed relay business.
Other assets consist of the following at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Long-term equipment deposit................................. $ 750 $ --
Long-term receivable........................................ 946 --
Other....................................................... 613 1,460
------ ------
$2,309 $1,460
====== ======
</TABLE>
The Company's long-term equipment deposit in fiscal 1997 relates to reed
relay equipment purchased from Gunther Belgium N.V. and installed in fiscal
1998.
The long-term receivable in fiscal 1997 relates to the initial payment
under an asset purchase agreement with another party, which was completed during
the first quarter of fiscal 1998 upon receipt of equipment.
NOTE 6. ACCRUED EXPENSES
Accrued expenses consist of the following at March 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------- ------
<S> <C> <C>
Payroll and benefits........................................ $ 3,768 $5,793
Restructuring (Note 9)...................................... 5,884 --
Environmental remediation (Note 8).......................... 1,017 1,172
Other....................................................... 3,007 2,796
------- ------
$13,676 $9,761
======= ======
</TABLE>
NOTE 7. BORROWINGS AND CREDIT FACILITIES
(a) Multicurrency Credit Facility
The Company has a $40,000 unsecured, committed revolving multicurrency
credit facility (the "Credit Facility"). Interest on 30 day loans is based on
either LIBOR plus a spread ranging from 0.25% to 1.25%, based on Company
performance (6.44% at March 31, 1998); or the higher of the latest Federal Funds
rate plus 0.50% or the bank's reference rate (8.50% at March 31, 1998). There
have been no borrowings since the inception of the Credit Facility in September
1995.
The Credit Facility contains certain financial covenants that require the
Company to maintain minimum tangible net worth, maintain an interest coverage
ratio, maintain a ratio of total funded debt to EBITDA and limit the payment of
cash dividends. The Credit Facility also contains certain non-financial
covenants. The Credit Facility expires on June 30, 2001. The Company is in
compliance with all covenants as of March 31, 1998.
34
<PAGE> 37
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(b) Long-term Debt
At March 31, 1997 and 1998, long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1998
------ ----
<S> <C> <C>
Non--interest bearing note payable due to Lucent
Technologies in annual principal and interest payments of
$480 through 1998 and a final payment of $720 in 1999 with
interest imputed at 12%................................... $ 976 $626
Other....................................................... 85 40
------ ----
1,061 666
Less Current portion........................................ 511 666
------ ----
$ 550 $ --
====== ====
</TABLE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company leases certain office and production facilities and various
equipment under operating leases expiring at various dates through September
2011.
Future minimum rent payments under these leases are as follows as of March
31, 1998:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
--------- -------
<S> <C>
1999........................................................ $ 4,358
2000........................................................ 3,644
2001........................................................ 2,681
2002........................................................ 2,382
2003........................................................ 951
Thereafter.................................................. 5,606
-------
Total....................................................... $19,622
=======
</TABLE>
Total rent expense for fiscal years 1996, 1997 and 1998 was $2,194, $3,401
and $4,663, respectively.
(b) Environmental Matters
The Company accrues for estimated costs associated with known environmental
matters when such costs are probable and can be reasonably estimated. The actual
costs to be incurred for environmental remediations may vary from estimates,
given the inherent uncertainties in evaluating and estimating environmental
liabilities, including the possible effects of changing laws and regulations,
the stage of the remediation process and the magnitude of contamination found as
the remediation progresses. Management believes the ultimate disposition of
known environmental matters will not have a material adverse effect upon the
liquidity, capital resources, business or consolidated financial position of the
Company. However, one or more environmental matters could have a significant
negative impact on the Company's consolidated financial results for a particular
reporting period.
(i) United States
In connection with the acquisition of the Clare Division of General
Instrument Corporation in 1989, the Company purchased a manufacturing facility
located in Chicago. From the acquisition date until January, 1994, the Company
used this facility primarily as office space. During fiscal 1993, the Company
discovered environmental contamination at this facility and voluntarily reported
this discovery to the Illinois Environmen-
35
<PAGE> 38
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tal Protection Agency ("IEPA") and has since been involved in discussions with
the IEPA and the U.S. Environmental Protection Agency regarding the need for
remediation. The Company believes that any environmental contamination predates
the Company's acquisition of the facility from General Instrument. The Company
and General Instrument jointly retained an independent environmental consulting
firm to assess the remediation requirements and develop a plan to voluntarily
remediate this property in accordance with federal and state law such that the
property could be used for residential purposes. Prior to commencing such
voluntary remediation, the Company and General Instrument entered into a
cost-sharing agreement; however, both parties have reserved their rights to
litigate concerning the final cost-sharing arrangement.
During fiscal 1997, the Company and General Instrument began the
remediation at the site. The approved clean-up method produced conditions that
were not acceptable to the community. As a result, the Company determined the
most likely scenario was to remediate the property to make it useable as
industrial/commercial, rather than residential property, as originally assessed.
During the year ended March 31, 1997, the Company incurred $2,567 of
remediation costs and related expenses including a write-down of the facility to
net realizable value of $1,500, which is included on the accompanying balance
sheet as property held for sale.
During the year ended March 31, 1998, the Company incurred $301 of
remediation costs. By the end of the fiscal 1998 year, the Company completed its
industrial/commercial remediation for the Chicago facility and has subsequently
received a no further remediation letter from the IEPA.
The Company and General Instrument continue to address contamination that
has been found on adjacent sites. Management continues to analyze the estimated
environmental remediation liability and has accrued additional amounts when
known events require.
(ii) Belgium
During fiscal 1997, the Company retained an independent environmental
consulting firm to assess the environmental condition of its facility located in
Tongeren, Belgium. The scope of their work was to assess potential contamination
in light of newly adopted Belgium legal requirements and develop a plan to
remediate the property if necessary. Preliminary results show certain
groundwater contamination that may have resulted from the Company's past
operations or from neighboring manufacturing companies.
In January 1997, the Company completed the sale of the TMC. Upon the sale
of TMC, the Company agreed to indemnify Gunther for up to $350 for established
environmental remediation costs, subject to certain condition and limitations.
The Company has accrued this environmental remediation indemnification as of
March 31, 1998.
(c) Legal Proceedings
In the ordinary course of business, the Company is party to various types
of litigation. The Company believes it has meritorious defenses to all claims,
and in its opinion, all litigation currently pending or threatened will not have
a material effect on the Company's financial position or results of operations.
NOTE 9. RESTRUCTURING
In fiscal 1997, the Company announced a restructuring of its operations,
primarily in the Company's reed relay business, and recorded a restructuring
charge of $14,250. This restructuring met the criteria set forth in Emerging
Issues Task Force 94-3. Restructuring charge included costs associated with the
sale of the TMC,
36
<PAGE> 39
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
workforce reductions and worldwide facilities realignments. The components of
the restructuring costs are as follows:
<TABLE>
<S> <C>
Loss on disposition of assets, including TMC................ $ 7,600
Severance benefits and associated legal costs............... 4,550
Lease termination and relocation costs...................... 1,100
Other....................................................... 1,000
-------
Total............................................. $14,250
=======
</TABLE>
The sale of TMC was consummated in January 1997. The Company sold for
nominal value all of the stock of TMC. Pro forma information reflecting the sale
of TMC has not been presented as TMC was not material. The costs associated with
the sale of TMC were primarily the write-down of the Company's investment in its
foreign subsidiary and included other Company costs associated with transfer of
the facility. As part of the sale, the Company entered into a long-term supply
agreement with the newly formed Gunther Belgium N.V. Workforce reduction costs
include severance costs related to involuntary terminations of approximately 75
persons on a worldwide basis, primarily in manufacturing. The Company completed
its restructuring as of March 31, 1998.
NOTE 10. STOCKHOLDERS' EQUITY
(a) Shares Reserved
As of March 31, 1998, the shares of common stock reserved for issuance were
as follows:
<TABLE>
<S> <C>
Exercise of stock options................................... 2,192,417
Exercise of warrants........................................ 66,485
Employee Stock Purchase Plan................................ 227,802
---------
2,486,704
=========
</TABLE>
(b) Stock Options
The Company maintains an equity incentive plan, the C. P. Clare Corporation
Amended and Restated 1995 Stock Option and Incentive Plan (the "1995 Plan"). The
1995 Plan provides for the issuance of options to purchase up to 3,680,000
shares of the Company's common stock. The number of shares available for future
grants as of March 31, 1998 was 348,218. The 1995 Plan permits the issuance of
both incentive stock options and non-qualified stock options. All options,
grants, pricing, expiration periods and vesting periods are determined by the
Board of Directors, or pursuant to delegated authority, by the President of the
Company, and options must be granted at a price not less than 100% of the fair
market value at the date of grant in the case of incentive stock options or at
85% of the fair market value in the case of non-qualified stock options. The
Company recognizes the difference, if any, between the fair market value of the
Company's stock on the date of grant and the exercise price of the options, as
deferred compensation and recognizes any compensation expense over the
applicable vesting periods.
In fiscal 1996, the Company recorded $651 of deferred compensation related
to the issuance of 605,600 options during the period. The Company is amortizing
the deferred compensation over the vesting period of the related options of one
to five years. During fiscal years 1996, 1997 and 1998, the Company recognized
$321, $198, and $255 respectively, of compensation expense in the consolidated
statements of operations related to the grant of these options.
The 1995 Plan also provides for an automatic grant of non-qualified stock
options to purchase 10,000 shares of common stock to each independent director
as of June 20, 1995. Each new director elected after
37
<PAGE> 40
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 20, 1995 was granted a non-qualified stock option to purchase 10,000 shares
of common stock. Currently, each independent director serving as a Director five
days after the Company's annual stockholders meeting shall automatically be
granted a non-qualified stock option to purchase 5,000 shares of common stock.
The 1995 Plan also provides for stock appreciation awards, stock awards,
performance share awards and dividend equivalent rights. The stock appreciation
rights may be granted in tandem with or independent of stock options. The
Company has not granted any stock appreciation rights or dividend equivalent
rights as of March 31, 1998.
The following table summarizes incentive and non-qualified stock option
activity under the 1995 Plan for the fiscal years ended March 31, 1996, 1997 and
1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE PRICE PER
OPTIONS PER SHARE SHARE
--------- -------------- ---------
<S> <C> <C> <C>
Outstanding at March 31, 1995.................. 1,552,626 $0.25 - $ 1.87 $ 0.63
Granted........................................ 970,400 8.97 - 25.88 13.27
Exercised...................................... (985,155) 0.25 - 8.97 0.62
Canceled....................................... (36,000) 0.50 - 8.97 3.32
--------- -------------- ------
Outstanding at March 31, 1996.................. 1,501,871 0.50 - 25.88 8.74
Granted........................................ 1,065,100 8.13 - 24.75 9.94
Exercised...................................... (369,829) 0.50 - 8.97 2.48
Canceled....................................... (500,360) 0.50 - 25.88 14.81
--------- -------------- ------
Outstanding at March 31, 1997.................. 1,696,782 0.50 - 24.63 9.06
Granted........................................ 337,144 8.12 - 19.00 15.38
Exercised...................................... (132,599) 0.50 - 13.62 7.03
Canceled....................................... (57,128) 0.50 - 24.63 8.47
--------- -------------- ------
Outstanding at March 31, 1998.................. 1,844,199 $0.50 - $24.63 $10.36
========= ============== ======
Exercisable at March 31, 1998.................. 392,929 $0.50 - $24.63 $ 8.29
========= ============== ======
Exercisable at March 31, 1997.................. 202,441 $0.50 - $24.63 $10.72
========= ============== ======
Exercisable at March 31, 1996.................. 146,229 $0.50 - $ 8.97 $ 1.58
========= ============== ======
</TABLE>
The following table summarizes information about stock options outstanding
and exercisable at March 31, 1998:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
---------------------------------- ---------------------
WEIGHTED
AVERAGE
YEARS WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACT EXERCISE NUMBER OF EXERCISE
EXERCISE PRICE RANGE OPTIONS LIFE PRICE OPTIONS PRICE
- -------------------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$ 0.50...................... 134,021 5.71 $ 0.50 108,821 $ 0.50
8.12 - $ 8.97............. 713,728 7.71 8.56 177,008 8.69
9.12 - 13.37............. 556,000 6.95 9.80 40,100 10.01
$13.50 - $24.63............. 440,450 8.90 $16.98 67,000 $18.89
--------- -------
1,844,199 392,929
========= =======
</TABLE>
38
<PAGE> 41
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options granted in 1996, 1997 and 1998 have been valued using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The
weighted-average assumptions used for fiscal years 1996, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Risk free interest rate......................... 6.4% 6.2% 6.0%
Expected dividend yield......................... -- -- --
Expected lives.................................. 6 years 6 years 6 years
Expected volatility............................. 80% 80% 80%
Weighted average grant-date fair value of
options granted at fair market value during
the period.................................... $ 14.05 $ 4.75 $ 9.14
Weighted average grant-date fair value of
options granted at below fair market value
during the period............................. $ 6.88 -- --
Weighted average exercise price of options
granted at fair market value during the
period........................................ $ 22.29 $ 9.94 $ 15.38
Weighted average exercise price of options
granted below fair market value during the
period........................................ $ 9.19 -- --
Weighted average remaining contractual life of
options outstanding........................... 8.4 years 8.2 years 7.6 years
</TABLE>
The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option-pricing models require the input of
highly subjective assumptions, including expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net income (loss) and pro forma net income (loss) per common share
outstanding on a basic and diluted basis for fiscal years 1996, 1997 and 1998
would have been as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------- ------
<S> <C> <C> <C>
Net income (loss):
As Reported........................................... $7,734 $(6,911) $8,312
====== ======= ======
Pro Forma............................................. $6,851 $(8,169) $6,491
====== ======= ======
Basic earnings (loss) per share:
As Reported........................................... $ 1.22 $ (0.77) $ 0.90
====== ======= ======
Pro Forma............................................. $ 1.08 $ (0.91) $ 0.70
====== ======= ======
Diluted earnings (loss) per share:
As Reported........................................... $ 0.95 $ (0.77) $ 0.83
====== ======= ======
Pro Forma............................................. $ 0.84 $ (0.91) $ 0.65
====== ======= ======
</TABLE>
(c) Warrants
In fiscal 1989 and fiscal 1991, the Company issued warrants to employees
and others to purchase up to 626,617 shares of common stock at $1.87 per share.
As of March 31, 1998, 66,485 warrants are exercisable and expire on December 31,
1998. The warrants are subject to certain provisions as described in the
39
<PAGE> 42
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stockholders' agreement that grants certain rights to the Company and certain
other stockholders to repurchase warrants for $0.05 upon the occurrence of
certain events. Certain of these warrants enable the warrantholder to exercise
the warrant by surrendering shares of common stock also held by the
warrantholder for over six months.
(d) Employee Stock Purchase Plan
Under the C.P. Clare Corporation 1995 Employee Stock Purchase Plan (the
"Purchase Plan"), all U.S., Belgian and Mexican employees (including officers)
of the Company, as defined, are eligible to purchase the Company's common stock
at an exercise price equal to 85% of the fair market value of the common stock.
The Purchase Plan provides for up to 300,000 shares for issuance under the
Purchase Plan. As of March 31, 1998, 72,198 shares have been issued under this
Purchase Plan, and rights to purchase 227,802 shares are available for purchase.
(e) Shareholder Rights Plan
On April 29, 1996, the Board of Directors of the Company adopted a
Shareholder Rights Agreement (the "Rights Agreement"). Pursuant to the terms of
the Rights Agreement, the Board of Directors declared a dividend distribution of
one Preferred Stock Purchase Right (a "Right") for each outstanding share of
common stock of the Company to stockholders of record as of the close of
business on May 15, 1996 (the "Record Date"). In addition, one Right will
automatically attach to each share of common stock issued subsequent to the
Record Date, until April 29, 2006. Each Right entitles the registered holder to
purchase from the Company, upon the occurrence of certain events, a unit
consisting of one one-thousandth of a share (a "Unit") of Series A Junior
Participating Cumulative Preferred Stock, par value $0.01 per share (the
"Preferred Stock"), at a cash exercise price of $100 per Unit (the "Exercise
Price"), subject to adjustment. The Company has reserved 150,000 shares of the
Preferred Stock for issuance upon exercise of the Rights.
The Rights currently are not exercisable and are attached to and trade with
the outstanding shares of common stock. Under the Rights Agreement, the Rights
become exercisable (i) if a person as defined in the rights plan becomes an
"acquiring person" by acquiring 15% or more of the outstanding shares of common
stock (ii) if a person who owns 10% or more of the common stock is determined to
be an "adverse person" by the Board of Directors, or (iii) if a person commences
a tender offer that would result in that person owning 15% or more of the common
stock. Upon the occurrence of any one of these events, each holder of a Right
(other than the acquiring person or the adverse person) would be entitled to
acquire such number of shares of the Company's preferred stock which are
equivalent to such number of shares of common stock having a value of twice the
then current exercise price of the Right. If the Company is acquired in a merger
or other business combination transaction after any such event, each holder of a
Right would then be entitled to purchase, at the then current exercise price,
shares of the acquiring company's common stock having a value of twice the
exercise price of the Right.
Until a Right is exercised, the holder will have no rights as a stockholder
of the Company (beyond those as an existing stockholder), including the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to stockholders or to the Company, stockholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for Units, other securities of the Company, other consideration or
for common stock of an acquiring company.
NOTE 11. EMPLOYEE BENEFIT PLANS
(a) 401(k) Benefit Plan
U.S. employees of the Company may participate in a supplemental retirement
program (the "401(k) Plan") established under Section 401(k) of the Internal
Revenue Code of 1986, as amended. The Company
40
<PAGE> 43
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
matches 75% of individual contributions, up to 3% of base pay, as defined.
Employee contributions vest immediately, while Company matching contributions
fully vest after two years of service, as defined. For fiscal years 1996, 1997
and 1998, the Company contributed $230, $262, and $245, respectively, under the
401(k) Plan.
(b) Postretirement Health Care Benefits
The Company provides certain employees with postretirement health benefits,
accounted for under SFAS 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Subsequent to March 31, 1995, the Company curtailed the
plan and initially recorded a liability of $463. This represented the
unrecognized prior service costs associated with the remaining eligible plan
participants. At March 31, 1997, the Company's liability was $460. During fiscal
1998, the plan was remeasured. Based on a decrease in the number of plan
participants and a change in medical carriers, the liability was reduced by $200
resulting in a liability of $260 at March 31, 1998.
(c) Foreign Retirement Insurance Benefits
The Company also provides certain defined retirement annuity payments on
behalf of its employees in Europe and Mexico. For fiscal years 1996, 1997 and
1998, the Company contributed $184, $219, and $129, respectively, for the
annuity premium payments.
(d) Defined Benefit Plan
All employees of the Company located in Taiwan are entitled to retirement
benefits under regulatory requirements. The actuarial present value of these
benefits has been recorded in the accompanying consolidated financial statements
in accordance with SFAS No. 87, "Employers' Accounting for Pensions."
The components of the net periodic pension cost for fiscal years 1996, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Service cost -- benefit earned during the period............ $ 87 $ 84 $ 78
Interest cost on projected benefit obligation............... 150 153 140
Expected return on assets................................... (19) (20) (19)
==== ==== ====
Net periodic pension cost................................... $218 $217 $199
==== ==== ====
</TABLE>
The funded status of the plan at March 31, 1996, 1997 and 1998 was as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ----
<S> <C> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested................................................... $ -- $ -- $109
Non-vested............................................... 1,123 1,212 61
------ ------ ----
1,123 1,212 170
Additional amounts related to projected salary increases... 978 968 239
------ ------ ----
Actuarial present value of projected benefit obligation.... 2,101 2,180 409
Plan assets at fair value.................................. 246 290 287
====== ====== ====
Projected benefit obligation in excess of plan assets...... $1,855 $1,890 $122
====== ====== ====
</TABLE>
41
<PAGE> 44
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ----
<S> <C> <C> <C>
Assumptions:
Rate of return on plan assets.............................. 7% 7% 7%
Discount rate for projected benefit obligations............ 7% 7% 7%
Rate of increase in future compensation levels
Indirect labor........................................... 6% 6% 7%
Direct labor............................................. 4% 4% --
</TABLE>
The Company closed the manufacturing operations located in Taiwan and the
number of participants in the pension plan was reduced from the 156 employees in
fiscal 1997 to 12 employees in fiscal 1998. In future years, the net periodic
pension costs will be reduced.
(e) Bonus Plan
Under the 1995 Key Employee Incentive Plan (the "Bonus Plan"), the Company
has the discretion to determine certain employees of the Company who are
eligible for a bonus if certain milestones established for the Company and each
individual are achieved, as defined. Participants may elect to defer payment of
their bonus to a later date and will be entitled to interest on deferred
amounts. The Company also has the discretion to pay the bonus in cash, or
partially or fully in stock, options or discount options under the 1995 Stock
Plan. During fiscal years 1996, 1997 and 1998, the Company incurred $640, $310
and $1,629, respectively, related to the Bonus Plan.
NOTE 12. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." The statement requires that deferred income tax
accounts reflect the tax consequences on future years of differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts for income tax purposes. In addition, SFAS No. 109 requires the
recognition of future tax benefits, such as net operating loss carryforwards
("NOL"), to the extent that realization of such benefits is more likely than
not.
The components of domestic and foreign income (loss) before the provision
for income taxes for fiscal years ended March 31, 1996, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Domestic.............................................. $11,949 $(5,991) $ 9,214
Foreign............................................... 943 544 3,978
======= ======= =======
$12,892 $(5,447) $13,192
======= ======= =======
</TABLE>
42
<PAGE> 45
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of current and deferred provision for income taxes for
fiscal years ended March 31, 1996, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 4,761 $ 2,131 $2,631
State................................................ 1,285 383 522
Foreign.............................................. 488 322 1,371
------- ------- ------
Total current..................................... 6,534 2,836 4,524
------- ------- ------
Deferred:
Federal.............................................. (354) (1,074) 801
State................................................ (51) (222) (370)
Foreign.............................................. (971) (76) (75)
------- ------- ------
Total deferred.................................... (1,376) (1,372) 356
======= ======= ======
Provision for Income Taxes............................. $ 5,158 $ 1,464 $4,880
======= ======= ======
</TABLE>
The income tax provision is different from that which would be computed by
applying the U.S. federal income tax rate to income before taxes for fiscal
years ended March 31, 1996, 1997 and 1998, as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Federal statutory tax rate............................... 35.0% (34.0)% 34.0%
State income taxes, net of federal income tax benefit.... 5.7 4.6 0.2
Tax exempt interest...................................... (1.3) (8.3) (2.4)
Foreign Sales Corporation benefits....................... (1.0) (1.4) (0.5)
Capital loss carryforward valuation allowance............ -- 62.8 --
Non-deductible foreign expenses.......................... -- -- 4.4
Difference in foreign provision versus statutory U.S.
rate................................................... 3.2 1.1 (0.5)
Decrease in valuation allowance relating to net operating
loss carryforwards..................................... (8.6) (1.9) (0.8)
Deemed repatriation of foreign earnings.................. 7.0 2.3 --
Other -- 1.7 2.6
====== ====== ======
40.0% 26.9% 37.0%
====== ====== ======
</TABLE>
43
<PAGE> 46
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of deferred income tax assets and liabilities at
March 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Current deferred income tax assets:
Net operating loss carryforwards.......................... $ 106 $ 106
Inventory reserves........................................ 762 1,013
Accrued environmental remediation costs................... 35 265
Accrued restructuring..................................... 1,140 --
Accrued payroll related costs............................. 1,095 1,611
Other temporary differences............................... 721 275
Less: Valuation allowance................................. (724) (570)
-------- --------
Net current deferred income tax assets................. $ 3,135 $ 2,700
======== ========
Long-term deferred income tax assets:
Net operating loss carryforwards.......................... $ 3,293 $ 2,725
Net capital loss carryforwards............................ 9,424 9,581
State tax credits......................................... -- 310
Less: Valuation allowance................................. (11,744) (11,690)
-------- --------
Net long-term deferred income tax assets............... 973 926
-------- --------
Long-term deferred income tax liabilities:
Depreciation.............................................. (28) (57)
-------- --------
Long-term deferred income tax asset, net.................... $ 945 $ 869
======== ========
</TABLE>
The Internal Revenue Code (the "Code") limits the amount of net operating
loss and tax credit carryforwards that companies may utilize in any one year in
the event of cumulative changes in ownership over a three-year period in excess
of 50%. In connection with the acquisition of the Clare Division of General
Instrument in 1989 and the simultaneous issuance of common stock and warrants,
the Company incurred a cumulative change in ownership in excess of 50% as
defined in the Code. This change in ownership has limited the Company's ability
to utilize, in any one year, the net operating loss and credit carryforwards
incurred prior to this change in ownership. The Company estimates that the total
NOL through January 1989 subject to this limitation is $7,803. The use of the
available NOL is limited to $311 in each year subsequent to this change in
ownership. In Taiwan, the Company has NOL and tax credit carryforwards of $1,668
at March 31, 1998, which begin to expire in fiscal 1999.
In January 1997, the Company completed the sale of TMC to Gunther GmbH. As
a result of this transaction, the Company incurred a capital loss of
approximately $25,000, which the Company may carry forward for a period of five
(5) years. The Company's ability to utilize this capital loss carryforward is
limited to the amount of capital gains that the Company generates in the
carryforward period. The Company has provided a full valuation allowance against
the capital loss carryforward as the Company believes that it is more likely
than not that the Company will not be able to utilize such a carryforward.
The remainder of the valuation allowance relates to the limited use of
certain net operating loss carryforwards. The valuation allowance decreased by
$208 due to the utilization of the NOL during fiscal 1998, partially offset by
net capital loss carryforwards generated in fiscal 1998. Taxes have not been
provided on foreign subsidiaries' undistributed earnings of $10,757 at March 31,
1998, which are deemed indefinitely invested.
44
<PAGE> 47
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following for fiscal years 1996,
1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
----- ---- -----
<S> <C> <C> <C>
Net gain (loss) from foreign currency exchange.............. $(243) $(40) $ 378
Other....................................................... 223 32 (243)
----- ---- -----
$ (20) $ (8) $ 135
===== ==== =====
</TABLE>
NOTE 14. CASH FLOWS
(a) Supplemental Disclosure of Cash Flow Information
Supplemental disclosure of cash flow information consists of the following
for fiscal years 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Interest paid............................................ $1,097 $ 224 $ 143
====== ====== ======
Income taxes paid........................................ $3,125 $2,160 $5,283
====== ====== ======
</TABLE>
(b) Summary Information on Sale of European Manufacturing Operation
During fiscal 1997, the Company sold the following assets and the purchaser
assumed the following obligations in connection with the Company's disposition
of TMC:
<TABLE>
<S> <C>
Fair value of assets sold:
Cash...................................................... $ 743
Intercompany and other receivable......................... 1,479
Inventory, net............................................ 1,395
Other current assets...................................... 26
Property, plant and equipment............................. 4,890
Other non-current assets.................................. 1,466
-------
Total fair value of assets sold................... 9,999
-------
Liabilities assumed by purchaser:
Accounts payable.......................................... (529)
Accrued expenses.......................................... (1,447)
Income taxes payable...................................... (429)
Long-term debt, net of current portion.................... (1,515)
Deferred income taxes..................................... (938)
Other non-current liabilities............................. (72)
-------
Total liabilities assumed by purchaser............ (4,930)
-------
Loss on disposition of TMC.................................. $ 5,069
=======
</TABLE>
(c) Supplemental Disclosure of Noncash Transactions for fiscal years 1996,
1997 and 1998:
Supplemental disclosures of noncash transactions consists of the following
for fiscal years 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Deferred compensation associated with the issuance of stock
options................................................... $651 $-- $--
==== == ==
</TABLE>
45
<PAGE> 48
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15. GEOGRAPHIC INFORMATION
Geographic information is as follows for fiscal years 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
Geographic Sales by Destination: ---- ---- ----
<S> <C> <C> <C>
United States............................................. 58% 62% 57%
Europe.................................................... 34 28 30
Far East.................................................. 8 10 13
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Sales, operating income and identifiable assets for the Company's United
States and foreign operations are summarized as follows for fiscal years 1996,
1997 and 1998:
<TABLE>
<CAPTION>
UNITED TOTAL
STATES EUROPE FAR EAST ELIMINATION COMPANY
-------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
1996
Sales to unaffiliated customers....... $ 73,562 $43,585 $10,781 $ -- $127,928
Transfers between geographic areas.... 26,038 10,805 -- (36,843) --
-------- ------- ------- -------- --------
Total sales...................... 99,600 54,390 10,781 (36,843) 127,928
======== ======= ======= ======== ========
Operating income (loss)............... 11,645 1,723 (208) -- 13,160
======== ======= ======= ======== ========
Identifiable assets................... 103,521 16,014 2,082 (6,409) 115,208
======== ======= ======= ======== ========
1997
Sales to unaffiliated customers....... 79,652 36,141 12,368 -- 128,161
Transfers between geographic areas.... 24,508 5,205 -- (29,713) --
-------- ------- ------- -------- --------
Total sales...................... 104,160 41,346 12,368 (29,713) 128,161
======== ======= ======= ======== ========
Operating income (loss)............... (7,797) 930 302 -- (6,565)
======== ======= ======= ======== ========
Identifiable assets................... 106,874 3,077 1,909 (690) 111,170
======== ======= ======= ======== ========
1998
Sales to unaffiliated customers....... 89,951 46,300 20,020 -- 156,271
Transfers between geographic areas.... 33,627 1,280 -- (34,907) --
-------- ------- ------- -------- --------
Total sales...................... 123,578 47,580 20,020 (34,907) 156,271
======== ======= ======= ======== ========
Operating income...................... 8,352 2,040 1,426 -- 11,818
======== ======= ======= ======== ========
Identifiable assets................... $110,352 $ 3,760 $ 593 $ (519) $114,186
======== ======= ======= ======== ========
</TABLE>
Management believes transfers between geographic areas are accounted for on
an arms' length basis.
46
<PAGE> 49
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16. SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for the fiscal years 1997 and 1998 is as
follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
1997 ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $34,038 $ 30,019 $31,374 $32,730 $128,161
Gross profit........................... 11,624 10,223 10,147 10,564 42,558
Net income (loss)...................... 2,791 (12,439)(1) 1,193 1,544 (6,911)
Basic earnings (loss) per share........ 0.32 (1.39) 0.13 0.17 (0.77)
Diluted earnings (loss) per share...... $ 0.29 $ (1.39) $ 0.13 $ 0.16 $ (0.77)
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
1998 ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $34,667 $ 39,204 $40,683 $41,717 $156,271
Gross profit........................... 11,157 12,181 12,613 12,893 48,844
Net income............................. 1,652 2,141 2,228 2,291 8,312
Basic earnings per share............... 0.18 0.23 0.24 0.25 0.90
Diluted earnings per share............. $ 0.17 $ 0.21 $ 0.22 $ 0.23 $ 0.83
</TABLE>
- ---------------
(1) See Note 9 for more information on the fiscal 1997 restructuring costs.
47
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To C.P. Clare Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of C.P. Clare Corporation and subsidiaries
included in this Form 10-K and have issued our report thereon dated April 29,
1998. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 29, 1998
48
<PAGE> 51
SCHEDULE II
C.P. CLARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECOVERIES
BALANCE AS OF FOR ACCOUNTS UNCOLLECTIBLE BALANCE AT
ACCOUNTS RECEIVABLE BEGINNING PREVIOUSLY ACCOUNTS END OF
ALLOWANCE OF PERIOD PROVISION WRITTEN OFF WRITTEN OFF PERIOD
- ------------------- ------------- --------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1998........ $675 $579 $66 $143 $1,177
Year Ended March 31, 1997........ 535 273 -- 133 675
Year Ended March 31, 1996........ 617 199 19 300 535
</TABLE>
49
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, C.P. Clare Corporation certifies that it has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized, in Beverly, Massachusetts on June 24, 1998.
C.P. Clare Corporation
Date: June 24, 1998 By:
/s/ ARTHUR R. BUCKLAND
------------------------------------
Arthur R. Buckland, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ ARTHUR R. BUCKLAND President, Chief Executive June 24, 1998
- ------------------------------------------------ Officer and Chairman
Arthur R. Buckland
/s/ THOMAS B. SAGER Vice President of Finance and June 24, 1998
- ------------------------------------------------ Chief Financial Officer
Thomas B. Sager
/s/ WINSTON R. HINDLE, JR. Director June 24, 1998
- ------------------------------------------------
Winston R. Hindle, Jr.
/s/ CLEMENTE C. TIAMPO Director June 24, 1998
- ------------------------------------------------
Clemente C. Tiampo
/s/ JOHN G. TURNER Director June 24, 1998
- ------------------------------------------------
John G. Turner
/s/ JAMES K. SIMS Director June 24, 1998
- ------------------------------------------------
James K. Sims
</TABLE>
50
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----
<C> <S>
10.2 Amended and Restated Multicurrency Credit Agreement dated
March 6, 1998 among C.P. Clare Corporation and C.P. Clare
N.V.
10.3 Revolving Note Dated March 6, 1998
10.4 Revolving Note Dated March 6, 1998
10.7 Reaffirmation of Guaranty and Negative Pledge Agreement
10.8 Voluntary Deferred Compensation Plan for Key Employees
21. Subsidiaries of the Registrant
23.2 Consent of Arthur Andersen LLP
</TABLE>
51
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
MULTICURRENCY CREDIT AGREEMENT
DATED AS OF MARCH 6, 1998
AMONG
C.P. CLARE CORPORATION
AND
C.P. CLARE N.V.
AND
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
<PAGE> 2
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS....................................................... 1
Section 1.1. Certain Defined Terms................................. 1
Section 1.2. Other Interpretive Provisions......................... 19
Section 1.3. Accounting Principles................................. 20
Section 1.4. Currency Equivalents Generally........................ 20
ARTICLE II THE CREDITS...................................................... 20
Section 2.1. Amounts and Terms of Commitments...................... 20
Section 2.2. Loan Accounts......................................... 21
Section 2.3. Procedure for Borrowing............................... 22
Section 2.4. Conversion and Continuation Elections................. 23
Section 2.5. Utilization of Commitments in Offshore Currencies..... 24
Section 2.6. Voluntary Termination or Reduction of Commitments..... 26
Section 2.7. Optional Repayments................................... 26
Section 2.8. Currency Exchange Fluctuations........................ 27
Section 2.9. Repayment............................................. 27
Section 2.10. Interest............................................. 27
Section 2.11. Fees................................................. 28
Section 2.12. Computation of Fees and Interest..................... 28
Section 2.13. Payments by a Company................................ 29
Section 2.14. Payments by the Banks to the Agent................... 30
Section 2.15. Sharing of Payments, Etc............................. 30
Section 2.16. Financial Services................................... 31
Section 2.17. Effect of Amendment and Restatement.................. 31
ARTICLE III TAXES, YIELD PROTECTION AND ILLEGALITY.......................... 31
Section 3.1. Taxes................................................. 31
Section 3.2. Illegality............................................ 33
Section 3.3. Increased Costs and Reduction of Return............... 33
Section 3.4. Funding Losses........................................ 34
Section 3.5. Inability to Determine Rates.......................... 35
Section 3.6. Reserves on Offshore Rate Loans....................... 35
Section 3.7. Certificates of Banks................................. 35
Section 3.8. Substitution of Banks for Increased Costs............. 36
Section 3.9. Survival.............................................. 36
ARTICLE IV CONDITIONS PRECEDENT............................................. 36
Section 4.1. Conditions of Initial Loans........................... 36
Section 4.2. Conditions to All Borrowings.......................... 38
ARTICLE V REPRESENTATIONS AND WARRANTIES.................................... 38
-i-
<PAGE> 3
Section 5.1. Corporate Existence and Power. Each Company and
each of its Subsidiaries:................................... 39
Section 5.2. Corporate Authorization; No Contravention............. 39
Section 5.3. Governmental Authorization............................ 39
Section 5.4. Binding Effect........................................ 40
Section 5.5. Litigation............................................ 40
Section 5.6. No Default............................................ 40
Section 5.7. ERISA Compliance...................................... 40
Section 5.8. Use of Proceeds; Margin Regulations................... 41
Section 5.9. Title to Properties................................... 41
Section 5.10. Taxes................................................ 41
Section 5.11. Financial Condition.................................. 42
Section 5.12. Environmental Matters................................ 42
Section 5.13. Regulated Entities................................... 42
Section 5.14. No Burdensome Restrictions........................... 43
Section 5.15. Copyrights, Patents, Trademarks and Licenses, etc.... 43
Section 5.16. Subsidiaries......................................... 43
Section 5.17. Insurance............................................ 43
Section 5.18. Swap Obligations..................................... 43
Section 5.19. Leases............................................... 44
ARTICLE VI AFFIRMATIVE COVENANTS............................................ 44
Section 6.1. Financial Statements.................................. 44
Section 6.2. Certificates; Other Information....................... 45
Section 6.3. Notices............................................... 45
Section 6.4. Preservation of Corporate Existence, Etc.............. 46
Section 6.5. Maintenance of Property............................... 46
Section 6.6. Insurance............................................. 47
Section 6.7. Payment of Obligations................................ 47
Section 6.8. Compliance with Laws.................................. 47
Section 6.9. Compliance with ERISA................................. 48
Section 6.10. Inspection of Property and Books and Records......... 48
Section 6.11. Environmental Laws................................... 48
Section 6.12. Use of Proceeds...................................... 48
Section 6.13. Additional Subsidiary Guarantors..................... 48
Section 6.14. Continuing Nature of Representations and Warranties.. 49
ARTICLE VII NEGATIVE COVENANTS.............................................. 49
Section 7.1. Limitation on Liens................................... 49
Section 7.2. Disposition of Assets................................. 51
Section 7.3. Consolidations and Mergers............................ 51
Section 7.4. Loans and Investments................................. 52
Section 7.5. Limitation on Indebtedness............................ 53
Section 7.6. Transactions with Affiliates.......................... 54
Section 7.7. Use of Proceeds....................................... 54
-ii-
<PAGE> 4
Section 7.8. Contingent Obligations................................ 54
Section 7.9. Joint Ventures........................................ 55
Section 7.10. Lease Obligations.................................... 55
Section 7.11. Restricted Payments.................................. 55
Section 7.12. ERISA................................................ 56
Section 7.13. Change in Business................................... 56
Section 7.14. Accounting Changes................................... 56
Section 7.15. Consolidated Tangible Net Worth...................... 56
Section 7.16. Total Funded Debt to EBITDA.......................... 56
Section 7.17. Interest Coverage Ratio.............................. 57
Section 7.18. Obligations under Financial Services Agreements...... 57
Section 7.19. Subsidiaries......................................... 57
ARTICLE VIII EVENTS OF DEFAULT.............................................. 57
Section 8.1. Event of Default...................................... 57
Section 8.2. Remedies.............................................. 60
Section 8.3. Rights Not Exclusive.................................. 60
ARTICLE IX THE AGENT........................................................ 61
Section 9.1. Appointment and Authorization; "Agent"................ 61
Section 9.2. Delegation of Duties.................................. 61
Section 9.3. Liability of Agent.................................... 61
Section 9.4. Reliance by Agent..................................... 62
Section 9.5. Notice of Default..................................... 62
Section 9.6. Credit and Legal Decision............................. 63
Section 9.7. Indemnification of Agent.............................. 63
Section 9.8. Agent in Individual Capacity.......................... 64
Section 9.9. Successor Agent....................................... 64
Section 9.10. Withholding Tax...................................... 64
ARTICLE X MISCELLANEOUS..................................................... 66
Section 10.1. Amendments and Waivers............................... 66
Section 10.2. Notices.............................................. 67
Section 10.3. No Waiver; Cumulative Remedies....................... 67
Section 10.4. Costs and Expenses................................... 68
Section 10.5. Company Indemnification.............................. 68
Section 10.6. Marshalling; Payments Set Aside...................... 69
Section 10.7. Successors and Assigns............................... 69
Section 10.8. Assignments, Participations, etc..................... 69
Section 10.9. Substitution of Banks for Bank Acquisition........... 71
Section 10.10. Confidentiality..................................... 71
Section 10.11. Set-off............................................. 72
Section 10.12. Debits of Fees...................................... 72
Section 10.13. Notification of Addresses, Lending Offices, Etc..... 72
Section 10.14. Counterparts........................................ 72
Section 10.15. Severability........................................ 73
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<PAGE> 5
Section 10.16. No Third Parties Benefited.......................... 73
Section 10.17. Governing Law and Jurisdiction...................... 73
Section 10.18. Waiver of Jury Trial................................ 73
Section 10.19. Judgment............................................ 74
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<PAGE> 6
AMENDED AND RESTATED
MULTICURRENCY CREDIT AGREEMENT
This AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT is entered
into as of March 6, 1998, among C.P. Clare Corporation, a Massachusetts
corporation ("Clare"), C.P. Clare N.V., a Belgian corporation ("C.P. Clare
N.V."), the several financial institutions from time to time party to this
Agreement (collectively, the "Banks"; individually, a "Bank"), and Bank of
America National Trust and Savings Association, as agent for the Banks.
WHEREAS, Clare, C.P. Clare N.V. and the Banks were parties to a
Multicurrency Credit Agreement dated as of September 11, 1995 (as amended,
supplemented or otherwise modified to the date hereof, the "Original Credit
Agreement"), pursuant to which the Banks extended a revolving multicurrency
credit facility to Clare and C.P. Clare N.V.;
WHEREAS, Clare and C.P. Clare N.V. desire that the Banks amend and
restate the Original Credit Agreement to, among other things, increase the
Commitment of the Banks;
WHEREAS, the Banks have agreed to make available to the Companies a
revolving multicurrency credit facility upon the terms and conditions set forth
in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Certain Defined Terms.
The following terms have the following meanings:
"Acquisition" means any transaction or series of related transactions
for the purpose of or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of fifty percent (50%) of
the capital stock, partnership interests, membership interests or equity of any
Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger
or consolidation or any other combination with another Person (other than a
Person that is a Subsidiary) provided that a Company or a Subsidiary is the
surviving entity.
"Affected Bank" means any Bank that (a) has made a request for
compensation from a Company pursuant to Section 3.3 or (b) is subject to a Bank
Acquisition.
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<PAGE> 7
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"Agent" means BofA in its capacity as agent for the Banks hereunder,
and any successor agent arising under Section 9.9.
"Agent-Related Persons" means BofA and any successor agent arising
under Section 9.9, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means (i) in respect of payments in Dollars,
the address for payments set forth on Schedule 10.2 or such other address as the
Agent may from time to time specify in accordance with Section 10.2, and, (ii)
in the case of payments in any Offshore Currency, the address for payments set
forth on Schedule 10.2 or such other address as the Agent may from time to time
specify in accordance with Section 10.2.
"Agreed Alternative Currency" has the meaning specified in subsection
2.5(e).
"Agreement" means this Multicurrency Credit Agreement.
"Applicable Currency" means, as to any particular payment or Loan,
Dollars or the Offshore Currency in which it is denominated or is payable.
"Applicable Margin" means, at any time, with respect to the unpaid
principal amount of each Offshore Rate Loan, the applicable percentage set forth
below in the column entitled "Applicable Margin for Offshore Rate Loans"
opposite the Margin Ratio in effect at such time.
<TABLE>
<CAPTION>
Applicable Margin For
Margin Ratio Offshore Rate Loans
------------ -------------------
<S> <C>
Less than 0.5:1.0 .25%
Equal to or greater than 0.5:1.0 but .50%
less than 1.0:1.0
Equal to or greater than 1.0:1.0 but .75%
less than 1.5:1.0
Equal to or greater than 1.5:1.0 but 1.00%
less than 2.0:1.0
Equal to or greater than 2.0:1.0 1.25%
</TABLE>
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<PAGE> 8
The initial Applicable Margin for Offshore Rate Loans shall be one
percent (1%) and shall remain in effect until the delivery of a Compliance
Certificate with respect to the fiscal quarter ending March 31, 1998.
Thereafter, the Applicable Margin shall be based on the Margin Ratio in effect
as set forth in the Compliance Certificate most recently delivered by Clare to
the Agent. Changes in the Applicable Margin resulting from a change in the
Margin Ratio shall become effective on the first day following the month after
delivery by Clare to Agent of a Compliance Certificate, regardless of whether or
not such certificate is delivered on time. If Clare shall fail to deliver a
Compliance Certificate by the date required pursuant to subsection 6.2(b), the
Applicable Margin from and including the 45th day after the end of such fiscal
quarter to but not including the date Clare delivers to the Agent a Compliance
Certificate shall conclusively be presumed to equal the highest Applicable
Margin specified in the above chart. Notwithstanding the foregoing, no reduction
in the Applicable Margin shall be effected if a Default shall have occurred and
be continuing on the date when such change would otherwise occur. "Margin Ratio"
means, the ratio of Consolidated Liabilities to EBITDA for any twelve-month
period ending on the last day of the fiscal quarter of Clare, as shown in the
most recent Compliance Certificate.
"Assignee" has the meaning specified in subsection 10.8(a).
"Attorney Costs" means and includes all disbursements and reasonable
fees of any law firm or other external counsel, the allocated cost of internal
legal services and all disbursements of internal counsel relating to the Loans,
this Agreement or the other Loan Documents, which services and disbursements
shall be documented to the Companies.
"Bank" has the meaning specified in the introductory clause hereto.
"Bank Acquisition" means the acquisition, whether by purchase, merger
or any other means, of a controlling interest in any Bank by any Person not an
Affiliate of such Bank.
"Banking Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Chicago, Illinois or San Francisco, California are
authorized or required by law to close and (i) with respect to disbursements and
payments in Dollars, a day on which dealings are carried on in the applicable
offshore Dollar interbank market, and (ii) with respect to any disbursements and
payments in and calculations pertaining to any Offshore Currency Loan, a day on
which commercial banks are open for foreign exchange business in London,
England, and on which dealings in the relevant Offshore Currency are carried on
in the applicable offshore foreign exchange interbank market in which
disbursement of or payment in such Offshore Currency will be made or received
hereunder.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. Section 101, et seq.).
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<PAGE> 9
"Base Rate" means, for any day, the higher of:
(a) one half of one percent (0.50%) per annum above the latest
Federal Funds Rate; and (b) the rate of interest in effect for such day as
publicly announced from time to time by BofA in San Francisco, California, as
its "reference rate." (The "reference rate" is a rate set by BofA based upon
various factors including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.)
Any change in the reference rate announced by BofA shall take effect at
the opening of business on the day specified in the public announcement of such
change.
"Base Rate Loan" means a Loan that bears interest based on the Base
Rate.
"BofA" means Bank of America National Trust and Savings Association, a
national banking association, formerly known as Bank of America Illinois, an
Illinois banking corporation.
"Borrowing" means a borrowing hereunder consisting of Loans of the same
Type and in the same Applicable Currency made to a Company on the same day by
the Banks under Article II (but excluding Section 2.1(b)), and, other than in
the case of Base Rate Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
Section 2.3.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Chicago, Illinois or San Francisco, California are
authorized or required by law to close and, if the applicable Business Day
relates to any Offshore Rate Loan, means a Banking Day.
"C.P. Clare N.V." has the meaning specified in the introductory clause
hereto.
"Capital Adequacy Regulation" means any guideline, request or directive
of any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means, for any period and with respect to any
Person, the aggregate of all expenditures by such Person and its Subsidiaries
for the acquisition or leasing of fixed or capital assets (excluding operating
leases) or additions to equipment (including replacements, capitalized repairs
and improvements during such period) which should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
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<PAGE> 10
"Cash Equivalents" means:
(a) securities issued or fully guaranteed or insured by the United
States Government or any agency thereof and backed by the full faith and credit
of the United States having maturities of not more than six months from the date
of acquisition;
(b) certificates of deposit, time deposits, eurodollar time
deposits, repurchase agreements, reverse repurchase agreements, or bankers'
acceptances, having in each case a tenor of not more than six months, issued by
any Bank, or by any U.S. commercial bank or any branch or agency of a non-U.S.
bank licensed to conduct business in the U.S. having combined capital and
surplus of not less than One Hundred Million Dollars ($100,000,000) whose short
term securities are rated at least A-1 by Standard & Poor's Corporation and P-1
by Moody's Investors Service, Inc., and not subject to any right of setoff by
such issuer;
(c) commercial paper of an issuer rated at least A-1 by Standard &
Poor's Corporation or P-1 by Moody's Investors Service Inc. and in either case
having a tenor of not more than six months;
(d) investments with foreign banks similar to the investments set
forth in clauses (a), (b) and (c) above, so long as such foreign bank has
combined capital and surplus in excess of One Hundred Million Dollars
($100,000,000); and
(e) variable rate municipal bonds that are backed by letters of
credit issued by any Bank, or by any U.S. commercial bank or any branch or
agency of a non-U.S. bank licensed to conduct business in the U.S. having
combined capital and surplus of not less than One Hundred Million Dollars
($100,000,000) whose short term securities are rated at least A-1 by Standard &
Poor's Corporation and P-1 by Moody's Investors Service, Inc.
"Change of Control" means either of the following (i) if any "person"
as such term is used in Sections 13(d) and 14(d) of the Exchange Act, is or
becomes directly or indirectly, the "beneficial owners," as defined in Rule
13d-3 under the Exchange Act, of securities of Clare that represent twenty-five
percent (25%) or more of the combined voting power of Clare's then outstanding
securities or (ii) during any period of twelve consecutive calendar months,
individuals who at the beginning of such period constituted Clare's board of
directors (together with any new directors whose election by Clare's board of
directors or whose nomination for election by Clare's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reasons other
than death or disability to constitute a majority of the directors then in
office.
"Clare" has the meaning specified in the introductory clause hereto.
"Closing Date" means the date on which all conditions precedent set
forth in Section 4.1 are satisfied or waived by all Banks.
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<PAGE> 11
"Code" means the Internal Revenue Code of 1986, and regulations
promulgated thereunder.
"Commitment", as to each Bank, has the meaning specified in Section
2.1(a).
"Company" means Clare or C.P. Clare N.V., and "Companies" means,
collectively, Clare and C.P. Clare N.V.
"Compliance Certificate" means a certificate substantially in the form
of Exhibit C.
"Computation Date" has the meaning specified in subsection 2.5(a).
"Consolidated Interest Expense" means, for any period, net consolidated
interest expense for the period for Clare and its Subsidiaries, plus (a) the
portion of the upfront costs and expenses for Swap Contracts (to the extent not
included in net consolidated interest expense) fairly allocated to such Swap
Contracts as expenses for such period, plus (b) fees payable pursuant to the
Loan Documents (to the extent not included in net consolidated interest expense)
during such period, plus (c) the portion of any payments made in respect of
capital leases allocated to interest expense (to the extent not included in net
consolidated interest expense) during such period; all as determined in
accordance with GAAP.
"Consolidated Liabilities" means, as of any date of determination, all
amounts which would, in accordance with GAAP, be included under liabilities on a
consolidated balance sheet of Clare and its Subsidiaries.
"Consolidated Net Worth" means shareholders' equity (excluding treasury
stock) of Clare and its Subsidiaries, on a consolidated basis, as determined in
accordance with GAAP.
"Consolidated Tangible Net Worth" means the Consolidated Net Worth of
Clare and its Subsidiaries less the net book value of all assets of the
Companies and their Subsidiaries, on a consolidated basis, which would be
treated as intangibles under GAAP, including, without limitation, deferred
charges (excluding deferred taxes), franchise rights, non-compete agreements,
research and development costs, goodwill, unamortized debt discounts, patents,
patent applications, trademarks, trade names, copyrights and licenses.
"Contingent Obligation" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make
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<PAGE> 12
payment of such primary obligation, or (iv) otherwise to assure or hold harmless
the holder of any such primary obligation against loss in respect thereof (each,
a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials, supplies
or other property from, or to obtain the services of, another Person if the
relevant contract or other related document or obligation requires that payment
for such materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered, or (d) in respect of any Swap Contract. The amount of any Contingent
Obligation shall, in the case of Guaranty Obligations, be deemed equal to the
stated or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and in the case of other
Contingent Obligations other than in respect of Swap Contracts, shall be equal
to the maximum reasonably anticipated liability in respect thereof and, in the
case of Contingent Obligations in respect of Swap Contracts, shall be equal to
the Swap Termination Value.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
guaranty, indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its property
is bound.
"Conversion/Continuation Date" means any date on which, under Section
2.4, a Company (a) converts Loans of one Type to another Type, or (b) continues
Loans having Interest Periods expiring on such date as Loans of the same Type,
but with a new Interest Period.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Dollar Equivalent" means, at any time, (a) as to any amount
denominated in Dollars, the amount thereof at such time, and (b) as to any
amount denominated in an Offshore Currency, the equivalent amount in Dollars as
determined by the Agent at such time on the basis of the Spot Rate for the
purchase of Dollars with such Offshore Currency on the most recent Computation
Date provided for in subsection 2.5(a).
"Dollars", "dollars" and "$" each mean lawful money of the United
States.
"EBIT" means for any period, for Clare and its Subsidiaries on a
consolidated basis, determined in accordance with GAAP, the sum of (a) the net
income (or net loss) for such period plus (b) Consolidated Interest Expense to
the extent included in the determination of such net income (or loss), plus (c)
provision for taxes to the extent included in the determination of such net
income (or loss); provided, however, that net income (or loss) shall be computed
for these purposes without giving effect to extraordinary losses or
extraordinary gains, determined in accordance with GAAP.
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"EBITDA" mean, for any period, for Clare and its Subsidiaries on a
consolidated basis, determined in accordance with GAAP, the EBIT for such
period, plus all amounts treated as expenses for depreciation and amortization
of intangibles of any kind to the extent such amounts are included in the
determination of net income (or loss) for such period; provided, however, that
such amounts shall be excluded from the calculation of EBITDA to the extent such
amounts were included in the calculation of Consolidated Interest Expense.
"Eligible Assignee" means (a) a commercial bank organized under the
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least One Hundred Million Dollars ($100,000,000); (b) a
commercial bank organized under the laws of any other country which is a member
of the Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital and
surplus of at least One Hundred Million Dollars ($100,000,000), provided that
such bank is acting through a branch or agency located in the United States; and
(c) a Person that is primarily engaged in the business of commercial banking and
that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a
Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with a Company within the meaning of Section
414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes
of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by a Company or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by a Company or any ERISA Affiliate
from a Multiemployer Plan or notification that a Multiemployer Plan is in
reorganization; (d) the filing of a notice of intent to terminate, the treatment
of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or
the commencement of proceedings by the PBGC to terminate a Pension Plan or
Multiemployer Plan; (e) an event or condition which might reasonably be expected
to constitute grounds under Section 4042 of
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<PAGE> 14
ERISA for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under Section
4007 of ERISA, upon a Company or any ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the
definition of "Offshore Rate".
"Event of Default" means any of the events or circumstances specified
in Section 8.1.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.11(a).
"Financial Services Agreements" means trade finance, foreign exchange,
risk management service agreements or other services provided by a Bank, if any,
whether verbal or written, entered into between a Company and a Bank, each such
agreement being in form and substance satisfactory to such Bank in its sole
discretion.
"Foreign Permitted Receivables" shall mean all obligations of any
obligor located outside of the United States (whether now existing or hereafter
arising) under a contract for sale of goods or services by a Company or any
Subsidiary, which shall include any obligation of such obligor (whether now
existing or hereafter arising) to pay interest, finance charges or amounts with
respect thereto.
"FRB" means the Board of Governors of the Federal Reserve System, and
any Governmental Authority succeeding to any of its principal functions.
"Further Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation, franchise taxes), and all liabilities with
respect thereto, imposed by any jurisdiction on account of amounts payable or
paid pursuant to Section 3.1, excluding, in the case of each Bank and the
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<PAGE> 15
Agent, respectively, taxes imposed on or measured by its net income by the
United States, any state thereof or any other jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as the case
may be, is organized or maintains a lending office.
"FX Trading Office" means the Foreign Exchange Trading Center, Chicago,
Illinois, of BofA, or such other of BofA's offices as BofA may designate from
time to time.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guarantor" means each Subsidiary of a Company.
"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all net obligations with respect to Swap Contracts; (e) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses; (f) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person (even
though the rights and remedies of the seller or bank under such agreement in the
event of default are limited to repossession or sale of such property); (g) all
obligations with respect to capital leases; (h) all indebtedness referred to in
clauses (a) through (g) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contracts rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (i) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (h) above.
For all purposes of this Agreement, the Indebtedness of any Person
shall include all recourse Indebtedness of any partnership or joint venture or
limited liability company in which such Person is a general partner or a joint
venturer or a member.
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<PAGE> 16
"Indemnified Liabilities" has the meaning specified in Section 10.5.
"Indemnified Person" has the meaning specified in Section 10.5.
"Independent Auditor" has the meaning specified in subsection 6.1(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any
case, action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors, or (b)
any general assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of its creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code.
"Interest Coverage Ratio" means, for any period, the ratio of (a) EBIT
for such period plus the aggregate amount of all operating lease payments made
or required to be made by Clare or any of its Subsidiaries for such period; to
(b) Consolidated Interest Expense for such period plus the aggregate amount of
all operating lease payments made or required to be made by Clare or any of its
Subsidiaries for such period.
"Interest Payment Date" means, as to any Loan other than a Base Rate
Loan, the last day of each Interest Period applicable to such Loan and, as to
any Base Rate Loan, the last Business Day of each calendar month; provided,
however, that if any Interest Period for an Offshore Rate Loan exceeds three
months, the date that falls three months after the beginning of such Interest
Period and after each Interest Payment Date thereafter is also an Interest
Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as an Offshore Rate Loan,
and ending on the date one, two, three or six months thereafter (and any other
period that is less than one month and is consented to by the Required Banks in
the given instance) as selected by a Company in its Notice of Borrowing or
Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the following
Business Day unless, in the case of an Offshore Rate Loan, the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
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<PAGE> 17
(iii) no Interest Period for any Loan shall extend beyond the
Termination Date.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Joint Venture" means a corporation, partnership, limited liability
company, joint venture or other legal arrangement (whether created by contract
or conducted through a separate legal entity) now or hereafter formed by a
Company or any of its Subsidiaries with another Person in order to conduct a
common venture or enterprise with such Person.
"Lending Office" means, as to any Bank, the office or offices of such
Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore
Lending Office", as the case may be, on Schedule 10.2, or such other office or
offices as such Bank may from time to time notify the Companies and the Agent.
"LIBOR" has the meaning specified in the definition of "Offshore Rate".
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing, but not including
the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to a Company under
Article II (but excluding Section 2.1(b)), and may be a Base Rate Loan or an
Offshore Rate Loan (each a "Type" of Loan).
"Loan Documents" means this Agreement, any Notes, the Fee Letter, the
Financial Services Agreements and all other documents delivered to the Agent or
any Bank in connection herewith.
"Margin Ratio" has the meaning specified in the definition of
"Applicable Margin".
"Margin Stock" means "margin stock" as such term is defined in
Regulations G, T, U or X of the FRB.
"Material Adverse Effect" means a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of a Company or the Companies and their
Subsidiaries taken as a whole.
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"Minimum Tranche" means, in respect of Loans comprising part of the
same Borrowing, or to be converted or continued under Section 2.4, (a) in the
case of Base Rate Loans, Two Hundred Fifty Thousand Dollars ($250,000) or any
multiple of Two Hundred Fifty Thousand Dollars ($250,000) in excess thereof, and
(b) in the case of Offshore Rate Loans, the Dollar Equivalent amount of One
Million Dollars ($1,000,000) or any multiple of Five Hundred Thousand Dollars
($500,000) in excess thereof or such other smaller amount as Required Banks may
otherwise agree in their sole discretion.
"Multiemployer Plan" means a "multiemployer plan", within the meaning
of Section 4001(a)(3) of ERISA, to which a Company or any ERISA Affiliate makes,
is making, or is obligated to make contributions or, during the preceding three
calendar years, has made, or been obligated to make, contributions.
"Note" means a promissory note executed by a Company in favor of a Bank
pursuant to subsection 2.2(b), in substantially the form of Exhibit F.
"Notice of Borrowing" means a notice in substantially the form of
Exhibit A.
"Notice of Conversion/Continuation" means a notice in substantially the
form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by a Company to any
Bank, the Agent, or any Indemnified Person, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising, and all Obligations shall be the
joint and several Obligations of the Companies.
"Offshore Currency" means at any time Belgian francs and any Agreed
Alternative Currency.
"Offshore Currency Loan" means any Offshore Rate Loan denominated in an
Offshore Currency.
"Offshore Currency Loan Sublimit" means, as to all Offshore Currencies
in the aggregate, Fifteen Million Dollars ($15,000,000), and, as to any single
Offshore Currency, Fifteen Million Dollars ($15,000,000).
"Offshore Rate" means, for any Interest Period, with respect to
Offshore Rate Loans comprising part of the same Borrowing, the rate of interest
per annum (rounded upward to the next 1/16th of 1%) determined by the Agent as
follows:
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
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<PAGE> 19
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal,
rounded upward to the next 1/100th of 1%) in effect on such day
(whether or not applicable to any Bank) under regulations issued from
time to time by the FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve
requirement) with respect to Eurocurrency funding (currently referred
to as "Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined by the
Agent to be the arithmetic mean (rounded upward to the next 1/16th of
1%) of the rates of interest per annum notified to the Agent by each
Reference Bank as the rate of interest at which deposits in the
Applicable Currency in the approximate amount of the amount of the Loan
to be made or continued as, or converted into, an Offshore Rate Loan by
such Reference Bank and having a maturity comparable to such Interest
Period would be offered to major banks in the London interbank market
at their request at approximately 11:00 a.m. (London time) two (2)
Business Days prior to the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any
change in the Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the
Offshore Rate, and may be an Offshore Currency Loan or a Loan denominated in
Dollars.
"Organization Documents" means, for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
any shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"Original Credit Agreement" has the meaning specified in the
introductory clause hereto.
"Other Taxes" means any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery,
performance, enforcement or registration of, or otherwise with respect to, this
Agreement or any other Loan Documents.
"Overnight Rate" means, for any day, the rate of interest per annum at
which overnight deposits in the Applicable Currency, in an amount approximately
equal to the amount with respect to which such rate is being determined, would
be offered for such day by BofA's London branch to major banks in the London or
other applicable offshore interbank market.
"Participant" has the meaning specified in subsection 10.8(d).
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<PAGE> 20
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which a Company sponsors, maintains, or to
which it makes, is making, or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five (5) plan years.
"Permitted Liens" has the meaning specified in Section 7.1.
"Permitted Foreign Receivables Purchase Facility" shall mean any
agreement of a Company or any of its Subsidiaries providing for sales, transfers
or conveyances of Foreign Permitted Receivables purporting to be sales (and
considered sales under GAAP) that do not provide, directly or indirectly, for
recourse against the seller of such Foreign Permitted Receivables (or against
any of such seller's Affiliates) by way of a guaranty or any other support
arrangement, with respect to the amount of such Foreign Permitted Receivables
(based on the financial condition or circumstances of the obligor thereunder),
other than such limited recourse as is reasonable given market standards for
transactions of a similar type, taking into account such factors as historical
bad debt loss experience and obligor concentration levels; provided that the
aggregate amount of all Foreign Permitted Receivables permitted to be sold
pursuant to all Permitted Foreign Receivables Purchase Facilities for the
combined Companies and their Subsidiaries shall not exceed Five Million Dollars
($5,000,000) in any fiscal year of Clare.
"Permitted Swap Obligations" means the Financial Services Agreements
which constitute Swap Contracts and all other obligations (contingent or
otherwise) of a Company or any Subsidiary existing or arising under Swap
Contracts; provided that each of the following criteria is satisfied: (a) such
obligations are (or were) entered into by such Person in the ordinary course of
business for the purpose of directly mitigating risks associated with (i)
interest rate fluctuations, provided that the aggregate exposure of the
Companies and their Subsidiaries (to be determined by BofA) under Swap Contracts
entered into for the purpose of mitigating risks associated with interest rate
fluctuations does not exceed One Million Dollars ($1,000,000) and the aggregate
notional amount of all such Swap Contracts does not exceed Twenty Million
Dollars ($20,000,000) or (ii) exchange rate fluctuations, provided that the
aggregate exposure of the Companies and their Subsidiaries (to be determined by
BofA) under Swap Contracts entered into for the purpose of mitigating risks
associated with exchange rate fluctuations does not exceed Four Million Dollars
($4,000,000) and the aggregate notional amount of all such Swap Contracts does
not exceed Forty Million Dollars ($40,000,000), (b) such obligations are (or
were) entered into by such Person in the ordinary course of business for the
purpose of directly mitigating risks associated with liabilities, commitments or
assets held by such Person; and (c) such Swap Contracts do not contain (i) any
provision ("walk-away" provision) exonerating the non-defaulting party from its
obligation to make payments on outstanding transactions to the defaulting party,
or (ii) any provision creating or permitting the
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<PAGE> 21
declaration of an event of default, termination event or similar event upon the
occurrence of an Event of Default hereunder.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which a Company sponsors or maintains or to which a Company makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks.
"Reference Banks" means BofA and such other financial institutions as
are acceptable to Agent.
"Replacement Bank" means any bank or financial institution reasonably
satisfactory to the Company which acquires and assumes all or a ratable part of
all of an Affected Banks Loans and Commitments.
"Reportable Event" means, any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the thirty (30) day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Required Banks" means at any time Banks then holding at least 66.667%
of the then aggregate unpaid principal amount of the Loans, or, if no amounts
are outstanding, Banks then having at least 66.667% of the aggregate amount of
the Commitments; provided that "Required Banks" shall at all times include BofA.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the
president of a Company, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the chief financial officer or the treasurer of a Company, or any
other officer having substantially the same authority and responsibility.
"Same Day Funds" means (i) with respect to disbursements and payments
in Dollars, immediately available funds, and (ii) with respect to disbursements
and payments in an Offshore Currency, same day or other funds as may be
determined by the Agent to be customary in the place of disbursement or payment
for the settlement of international banking transactions in the relevant
Offshore Currency.
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<PAGE> 22
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Spot Rate" for a currency means the rate quoted by BofA as the spot
rate for the purchase by BofA of such currency with another currency through its
FX Trading Office at approximately 10:30 a.m. (Chicago time) on the date two (2)
Banking Days prior to the date as of which the foreign exchange computation is
made.
"Subordinated Debt" means that portion of any liabilities, obligations
or Indebtedness of either Company or any Subsidiary that is subordinated to the
Obligations in a manner satisfactory to Banks.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50%) of the voting stock, membership interests
or other equity interests (in the case of Persons other than corporations), is
owned or controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
direct or indirect Subsidiary of a Company and includes, without limitation, all
Persons listed on the organizational chart attached as Schedule 1.1.
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"Swap Contract" means any agreement, whether or not in writing,
relating to any transaction that is a rate swap, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap or
option, bond, note or bill option, interest rate option, forward foreign
exchange transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other, similar
transaction (including any option to enter into any of the foregoing) or any
combination of the foregoing, and, unless the context otherwise clearly
requires, any master agreement relating to or governing any or all of the
foregoing.
"Swap Termination Value" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one or
more mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include any Bank.)
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, respectively, taxes imposed on or measured
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by its net income by the United States, any state thereof or any other
jurisdiction (or any political subdivision thereof) under the laws of which such
Bank or the Agent, as the case may be, is organized or maintains a lending
office.
"Termination Date" means the earlier to occur of:
(a) June 30, 2001; and
(b) the date on which the Commitments terminate in accordance with
the provisions of this Agreement.
"Total Funded Debt" means at any time, the aggregate outstanding amount
of all interest-bearing Indebtedness at such time determined for the Companies
and their Subsidiaries on a consolidated basis in accordance with GAAP,
including without limitation, the Loans.
"Type" has the meaning specified in the definition of "Loan."
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"United States" and "U.S." each means the United States of America.
"Wholly-Owned Subsidiary" means any Subsidiary in which (other than
directors' qualifying shares required by law) one hundred percent (100%) of the
capital stock, or memberships or other equity interests in the case of
Subsidiaries that are not corporations, of each class having ordinary voting
power, and one hundred percent (100%) of the capital stock, or memberships or
other equity interests in the case of Subsidiaries that are not corporations, of
every other class, in each case, at the time as of which any determination is
being made, is owned, beneficially and of record, by a Company, or by one or
more of the other Wholly-Owned Subsidiaries, or both.
Section 1.2. Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
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(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent or the Banks by way of
consent, approval or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Companies
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
Section 1.3. Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made, in accordance with
GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer
to such fiscal periods of a Company.
Section 1.4. Currency Equivalents Generally.
For all purposes of this Agreement (but not for purposes of the
preparation of any financial statements delivered pursuant hereto), the
equivalent in any Offshore Currency or other currency of an amount in Dollars,
and the equivalent in Dollars of an amount in any Offshore Currency or other
currency, shall be determined at the Spot Rate.
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ARTICLE II
THE CREDITS
Section 2.1. Amounts and Terms of Commitments.
(a) The Revolving Credit. Each Bank severally agrees, on the terms
and conditions set forth herein, to make Loans to the Companies from time to
time on any Business Day for the period from the Closing Date to the Termination
Date, in an aggregate principal Dollar Equivalent amount for the combined
Companies not to exceed at any time outstanding the amount set forth opposite
the Bank's name in Schedule 2.1 under the heading "Commitment" (such amount as
the same may be reduced pursuant to Section 2.6 or as a result of one or more
assignments pursuant to Section 10.8, the Bank's "Commitment"); provided,
however, that after giving effect to any Borrowing of Loans, the aggregate
principal Dollar Equivalent amount of all outstanding Loans shall not exceed the
combined Commitments of all Banks; and provided further, that after giving
effect to any Borrowing of Offshore Currency Loans, the aggregate principal
Dollar Equivalent amount of all outstanding Offshore Currency Loans shall not
exceed the Offshore Currency Loan Sublimit. Within the limits of each Bank's
Commitment, and subject to the other terms and conditions hereof, the Companies
may borrow under this subsection 2.1(a), repay such Borrowings pursuant to
Section 2.7 and reborrow pursuant to this subsection 2.1(a).
(b) Financial Services. Each Bank severally agrees, from time to
time on any Business Day during any period determined by each Bank in its sole
discretion, to provide the financial services to each Company set forth in the
Financial Services Agreements between Bank and such Company; provided that the
aggregate Dollar Equivalent amount of exposure of such Bank under the Financial
Services Agreements to which it is a party, as determined by such Bank in its
sole discretion, does not at any time exceed the amount set forth opposite the
Bank's name in Schedule 2.1 under the heading "Financial Services (Excluding
Loans)".
Section 2.2. Loan Accounts.
(a) The Loans made by each Bank shall be evidenced by one or more
loan accounts or records maintained by such Bank in the ordinary course of
business. The loan accounts or records maintained by the Agent and each Bank
shall be conclusive absent manifest error of the amount of the Loans made by the
Banks to a Company and the interest and payments thereon. Any failure so to
record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Companies hereunder to pay any amount actually owing with
respect to the Loans.
(b) The Loans made by such Bank shall be evidenced by one or more
Notes, in addition to the loan accounts. Each such Bank shall endorse on the
schedules annexed to its Note(s) the date, amount and maturity of each Loan made
by it and the amount and Applicable Currency of each payment of principal made
by a Company with respect thereto. Each such Bank is irrevocably authorized by
each Company to endorse its Note(s) and each Bank's record shall be conclusive
absent manifest error; provided, however, that the failure of a Bank to make, or
an error in making, a notation thereon with respect to any Loan shall not limit
or
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<PAGE> 26
otherwise affect the obligations of the Companies hereunder or under any such
Note to such Bank.
Section 2.3. Procedure for Borrowing
(a) Subject to subsection 2.3(e) each Borrowing shall be made upon
a Company's irrevocable written notice delivered to the Agent in the form of a
Notice of Borrowing (which notice must be received by the Agent prior to 10:00
a.m. (Chicago time) (i) four (4) Business Days prior to the requested Borrowing
Date, in the case of Offshore Currency Loans; (ii) three (3) Business Days prior
to the requested Borrowing Date, in the case of Offshore Rate Loans denominated
in Dollars; and (iii) on the requested Borrowing Date, in the case of Base Rate
Loans, specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate amount not less than the Minimum Tranche;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the name of the Company proposing to borrow and the
Type of Loans comprising the Borrowing;
(D) the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of Borrowing fails to
specify the duration of the Interest Period for any Borrowing comprised
of Offshore Rate Loans, such Interest Period shall be three months; and
(E) in the case of a Borrowing comprised of Offshore
Currency Loans, the Applicable Currency.
(b) The Dollar Equivalent amount of any Borrowing in an Offshore
Currency will be determined by the Agent for such Borrowing on the Computation
Date therefor in accordance with subsection 2.5(a). Upon receipt of the Notice
of Borrowing, the Agent will promptly notify each Bank thereof and of the amount
of such Bank's Pro Rata Share of the Borrowing. In the case of a Borrowing
comprised of Offshore Currency Loans, such notice will provide the amount of
each Bank's Pro Rata Share of the Borrowing, and the Agent will, upon the
determination of Dollar Equivalent amount of the Borrowing as specified in the
Notice of Borrowing, promptly notify each Bank of the exact amount of such
Bank's Pro Rata Share of the Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company requesting such
Borrowing at the Agent's Payment Office by 12:00 noon (Chicago time) on the
Borrowing Date requested by such Company in Same Day Funds and in the requested
currency (i) in the case of a Borrowing comprised of Loans in Dollars, by 12:00
noon (Chicago time), (ii) in the case of a Borrowing in Offshore Currency, by
such time as the Agent may specify. The proceeds of all such Loans
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<PAGE> 27
will then be made available to such Company by the Agent by wire transfer in
accordance with written instructions provided to the Agent by such Company of
like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than five (5) different Interest
Periods in effect.
(e) During the existence of a Default or Event of Default a
Company may not elect a Loan to be an Offshore Rate Loan.
Section 2.4. Conversion and Continuation Elections.
(a) Subject to subsection 2.4(e) a Company may, upon irrevocable
written notice to the Agent in accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of Base
Rate Loans, or as of the last day of the applicable Interest Period, in
the case of any other Type of Loans denominated in Dollars, to convert
any such Loans (or any part thereof in an amount not less than the
Minimum Tranche) into Loans in Dollars of any other Type; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any Loans having Interest Periods expiring on such
day (or any part thereof in an amount not less than the Minimum
Tranche);
provided, that if at any time the aggregate amount of Offshore Rate Loans
denominated in Dollars in respect of any Borrowing is reduced, by payment,
prepayment, or conversion of part thereof to be less than One Million Dollars
($1,000,000), such Offshore Rate Loans shall automatically convert into Base
Rate Loans, and on and after such date the right of such Company to continue
such Loans as, and convert such Loans into, Offshore Rate Loans shall terminate.
(b) A Company shall deliver a Notice of Conversion/Continuation to
be received by the Agent not later than 10:00 a.m. (Chicago time) at least (i)
three (3) Business Days in advance of the Conversion/Continuation Date, if the
Loans are to be converted into or continued as Offshore Rate Loans denominated
in Dollars; (ii) four (4) Business Days in advance of the continuation date, if
the Loans are to be continued as Offshore Currency Loans; and (iii) on the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
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(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into Base Rate
Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans in Dollars, a Company has failed to select timely a new
Interest Period to be applicable to such Offshore Rate Loans, or if any Default
or Event of Default then exists, such Company shall be deemed to have elected to
convert such Offshore Rate Loans into Base Rate Loans effective as of the
expiration date of such Interest Period. If a Company has failed to select a new
Interest Period to be applicable to Offshore Currency Loans prior to the fourth
Business Day in advance of the expiration date of the current Interest Period
applicable thereto as provided in subsection 2.4(b), or if any Default or Event
of Default shall then exist, subject to the provisions of subsection 2.5(d),
such Company shall be deemed to have elected to continue such Offshore Currency
Loans on the basis of a one-month Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by a
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
(e) During the existence of a Default or Event of Default, a
Company may not elect to have a Loan in Dollars converted into or continued as
an Offshore Rate Loan in Dollars or elect to have an Offshore Currency Loan
continued on the basis of an Interest period exceeding one month.
(f) After giving effect to any conversion or continuation of
Loans, unless the Agent shall otherwise consent, there may not be more than five
(5) different Interest Periods in effect.
Section 2.5. Utilization of Commitments in Offshore Currencies.
(a) The Agent will determine the Dollar Equivalent amount with
respect to any (i) Borrowing comprised of Offshore Currency Loans as of the
requested Borrowing Date, (ii) outstanding Offshore Currency Loans as of the
last Banking Day of each month, and (iii) outstanding Offshore Currency Loans as
of any redenomination date pursuant to this Section 2.5 or Section 3.5 (each
such date under clauses (i) through (iii) a "Computation Date").
(b) In the case of a proposed Borrowing comprised of Offshore
Currency Loans, the Banks shall be under no obligation to make Offshore Currency
Loans in the requested Offshore Currency as part of such Borrowing if the Agent
has received notice from any of the Banks by 5:00 p.m. (Chicago time) four (4)
Business Days prior to the day of such Borrowing that such Bank cannot provide
Loans in the requested Offshore Currency, in which event the Agent will give
notice to such Company no later than 9:00 a.m. (Chicago time) on the
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third Business Day prior to the requested date of such Borrowing that the
Borrowing in the requested Offshore Currency is not then available, and notice
thereof also will be given promptly by the Agent to the Banks. If the Agent
shall have so notified such Company that any such Borrowing in a requested
Offshore Currency is not then available, such Company may, by notice to the
Agent not later than 5:00 p.m. (Chicago time) three (3) Business Days prior to
the requested date of such Borrowing, withdraw the Notice of Borrowing relating
to such requested Borrowing. If such Company does so withdraw such Notice of
Borrowing, the Borrowing requested therein shall not occur and the Agent will
promptly so notify each Bank. If such Company does not so withdraw such Notice
of Borrowing, the Agent will promptly so notify each Bank and such Notice of
Borrowing shall be deemed to be a Notice of Borrowing that requests a Borrowing
comprised of Base Rate Loans in an aggregate amount equal to the amount of the
originally requested Borrowing as expressed in the Dollar Equivalent of the
amount specified in the Notice of Borrowing; and in such notice by the Agent to
each Bank the Agent will state such aggregate amount of such Borrowing in
Dollars and such Bank's Pro Rata Share thereof.
(c) In the case of a proposed continuation of Offshore Currency
Loans for an additional Interest Period pursuant to Section 2.4, the Banks shall
be under no obligation to continue such Offshore Currency Loans if the Agent has
received notice from any of the Banks by 5:00 p.m. (Chicago time) four (4)
Business Days prior to the day of such continuation that such Bank cannot
continue to provide Loans in the relevant Offshore Currency, in which event the
Agent will give notice to such Company not later than 9:00 a.m. (Chicago time)
on the third Business Day prior to the requested date of such continuation that
the continuation of such Offshore Currency Loans in the relevant Offshore
Currency is not then available, and notice thereof also will be given promptly
by the Agent to the Banks. If the Agent shall have so notified such Company that
any such continuation of Offshore Currency Loans is not then available, any
Notice of Continuation/Conversion with respect thereto shall be deemed withdrawn
and such Offshore Currency Loans shall be redenominated into Base Rate Loans in
Dollars with effect from the last day of the Interest Period with respect to any
such Offshore Currency Loans. The Agent will promptly notify such Company and
the Banks of any such redenomination and in such notice by the Agent to each
Bank the Agent will state the aggregate Dollar Equivalent amount of the
redenominated Offshore Currency Loans as of the Computation Date with respect
thereto and such Bank's Pro Rata Share thereof.
(d) Notwithstanding anything herein to the contrary, during the
existence of a Default or an Event of Default, upon the request of the Required
Banks, all or any part of any outstanding Offshore Currency Loans shall be
redenominated and converted into Base Rate Loans in Dollars on the last day of
the Interest Period with respect to any such Offshore Currency Loans. The Agent
will promptly notify such Company of any such redenomination and conversion
request.
(e) A Company shall be entitled to request that Loans hereunder
also be permitted to be made in any other lawful currency constituting a
eurocurrency (other than Dollars), in addition to the eurocurrencies specified
in the definition of "Offshore Currency" herein, that in the opinion of all the
Banks is at such time freely traded in the offshore interbank
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foreign exchange markets and is freely transferable and freely convertible into
Dollars (an "Agreed Alternative Currency"). A Company shall deliver to the Agent
any request for designation of an Agreed Alternative Currency in accordance with
Section 10.2, to be received by the Agent not later than 10:00 a.m. (Chicago
time) at least seven (7) Business Days in advance of the date of any Borrowing
hereunder proposed to be made in such Agreed Alternative Currency. Upon receipt
of any such request the Agent will promptly notify the Banks thereof. Each Bank
may grant or accept such request in its sole discretion. The Agent will promptly
notify such Company of the acceptance or rejection of any such request.
Section 2.6. Voluntary Termination or Reduction of Commitments.
A Company may, upon not less than five (5) Business Days' prior notice
to the Agent, terminate the Commitments, or permanently reduce the Commitments
by an aggregate minimum Dollar Equivalent amount of One Million Dollars
($1,000,000) or any Dollar Equivalent multiple of One Million Dollars
($1,000,000) in excess thereof; unless, after giving effect thereto and to any
payments of Loans made on the effective date thereof, the then-outstanding
principal Dollar Equivalent amount of the Loans would exceed the amount of the
combined Commitments then in effect. Once reduced in accordance with this
Section, the Commitments may not be increased. Any reduction of the Commitments
shall be applied to each Bank according to its Pro Rata Share. All accrued
commitment fees to, but not including the effective date of any reduction or
termination of Commitments, shall be paid on the effective date of such
reduction or termination.
Section 2.7. Optional Repayments.
Subject to Section 3.4, a Company may, at any time or from time to
time, upon irrevocable notice to the Agent delivered in accordance with Section
10.2 and the notice provisions below, ratably repay Loans in whole or in part,
in minimum Dollar Equivalent amounts of Two Hundred Thousand Dollars ($200,000)
or any Dollar Equivalent multiple of One Hundred Thousand Dollars ($100,000) in
excess thereof. The repaying Company shall deliver a notice of repayment to be
received by the Agent not later than 10:00 a.m. (Chicago time) (i) at least
three (3) Business Days in advance of the repayment date if the Loans to be
repaid are Offshore Currency Loans, (ii) at least three (3) Business Days in
advance of the repayment date if the Loans to be repaid are Offshore Rate Loans
in Dollars, and (iii) on the repayment date if the Loans to be repaid are Base
Rate Loans. Such notice of repayment shall specify the date and amount of such
repayment and whether such repayment is of Base Rate Loans, Offshore Rate Loans,
or any combination thereof, and the Applicable Currency. Such notice shall not
thereafter be revocable by such Company and the Agent will promptly notify each
Bank thereof and of such Bank's Pro Rata Share of such repayment. The payment
amount specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount repaid
and any amounts required pursuant to Section 3.4.
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Section 2.8. Currency Exchange Fluctuations.
Subject to Section 3.4, if on any Computation Date the Agent shall have
determined that the aggregate Dollar Equivalent principal amount of all Loans
then outstanding exceeds the combined Commitments of the Banks due to a change
in applicable rates of exchange between Dollars and Offshore Currencies, then
the Agent shall give notice to a Company that a repayment is required under this
Section, and such Company agrees thereupon to make immediate repayments of Loans
such that, after giving effect to such repayment the aggregate Dollar Equivalent
amount of all Loans does not exceed the combined Commitments.
Section 2.9. Repayment.
The Companies, jointly and severally, shall repay to the Banks on the
Termination Date the aggregate principal amount of Loans and all other
Obligations outstanding on such date.
Section 2.10. Interest.
(a) Each Loan shall bear interest on the outstanding principal
amount thereof from the applicable Borrowing Date at a rate per annum equal to
the Offshore Rate plus the Applicable Margin or the Base Rate, as the case may
be (and subject to a Company's right to convert to other Types of Loans under
Section 2.4).
(b) Interest on each Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under Section 2.6 or repayment of Offshore Rate Loans under Sections
2.7 or 2.8 for the portion of the Loans so prepaid or repaid, and upon payment
(including prepayment) in full thereof and, during the existence of any Event of
Default, interest shall be paid on demand of the Agent at the request or with
the consent of the Required Banks.
(c) Notwithstanding subsection (a) of this Section, while any
Event of Default exists or after acceleration, each Company shall pay interest
(after as well as before entry of judgment thereon to the extent permitted by
law) on the principal amount of all outstanding Obligations, at a rate per annum
which is determined by adding two percent (2.0%) per annum to the Applicable
Margin then in effect for such Loans and, in the case of Obligations not subject
to an Applicable Margin, at a rate per annum equal to the interest rate then in
effect for such Obligations (or if no such interest rate exists, the Base Rate)
plus two percent (2.0%); provided, however, that on and after the expiration of
any Interest Period applicable to any Offshore Rate Loan outstanding on the date
of occurrence of such Event of Default or acceleration, the principal amount of
such Loan shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate plus two
percent (2.0%).
(d) Anything herein to the contrary notwithstanding, the
obligations of a Company to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder, to the extent (but
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only to the extent) that contracting for or receiving such payment by such Bank
would be contrary to the provisions of any law applicable to such Bank limiting
the highest rate of interest that may be lawfully contracted for, charged or
received by such Bank, and in such event such Company shall pay such Bank
interest at the highest rate permitted by applicable law.
Section 2.11. Fees.
(a) Arrangement, Agency Fees. The Companies shall jointly and
severally be obligated to pay a fee to BofA as required by the letter agreement
("Fee Letter") between the Companies and BofA, which fee shall be due and
payable and fully earned on the Closing Date.
(b) Commitment Fees. The Companies shall jointly and severally,
pay to the Agent for the account of each Bank a commitment fee on the average
daily unused portion of such Bank's Commitment, computed on a monthly basis in
arrears on the last Business Day of each calendar month based upon the daily
utilization for that month as calculated by the Agent, equal to (i) one quarter
of one percent (0.25%) per annum if such average daily unused portion is greater
than fifty percent (50%) of such Bank's Commitment or (ii) one-eighth of one
percent (0.125%) per annum if such average daily unused portion is less than or
equal to fifty percent (50%) of such Bank's Commitment. Such commitment fee
shall accrue from the Closing Date to the Termination Date and shall be due and
payable monthly in arrears on the last Business Day of each month commencing on
March 27, 1998 through the Termination Date, with the final payment to be made
on the Termination Date; provided that, in connection with any reduction or
termination of Commitments under Section 2.6, the accrued commitment fee
calculated for the period ending on such date shall also be paid on the date of
such reduction or termination, with the following monthly payment being
calculated on the basis of the period from such reduction or termination date to
such monthly payment date. The commitment fees provided in this subsection shall
accrue at all times after the above-mentioned commencement date, including at
any time during which one or more conditions in Article IV are not met.
Section 2.12. Computation of Fees and Interest.
(a) All computations of interest for Loans shall be made on the
basis of a year of 360 days and actual days elapsed. Interest and fees shall
accrue during each period during which interest or such fees are computed from
the first day thereof to the last day thereof.
(b) For purposes of determining utilization of each Bank's
Commitment in order to calculate the commitment fee due under Section 2.11(b),
the amount of any outstanding Offshore Currency Loan on any date shall be
determined based upon the Dollar Equivalent amount as of the most recent
Computation Date with respect to such Offshore Currency Loan.
(c) Each determination of an interest rate or a Dollar Equivalent
amount by the Agent shall be conclusive and binding on the Companies and the
Banks in the absence of manifest error. The Agent will, at the request of a
Company or any Bank, deliver to such
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Company or such Bank, as the case may be, a statement showing the quotations
used by the Agent in determining any interest rate or Dollar Equivalent amount.
Section 2.13. Payments by a Company.
(a) All payments to be made by a Company shall be made without
set-off, recoupment or counterclaim and free and clear of and without reduction
by reason of all present and future taxes, levies, imposts, duties or other
charges. Except as otherwise expressly provided herein, all payments by a
Company shall be made to the Agent for the account of the Banks at the Agent's
Payment Office, and, with respect to principal of, interest on, and any other
amounts relating to, any Offshore Currency Loan, shall be made in the Offshore
Currency in which such Loan is denominated or payable, and, with respect to all
other amounts payable hereunder, shall be made in Dollars. Such payments shall
be made in Same Day Funds, and (i) in the case of Offshore Currency payments, no
later than such time on the dates specified herein as may be determined by the
Agent to be necessary for such payment to be credited on such date in accordance
with normal banking procedures in the place of payment, and (ii) in the case of
any Dollar payments, no later than 1:30 p.m. (Chicago time) on the date
specified herein. The Agent will promptly distribute to each Bank its Pro Rata
Share (or other applicable share as expressly provided herein) of such
principal, interest, fees or other amounts, in like funds as received. Any
payment which is received by the Agent later than 1:30 p.m. (Chicago time), or
later than the time specified by the Agent as provided in clause (i) above (in
the case of Offshore Currency payments), shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall continue
to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from a Company prior to the
date on which any payment is due to the Banks that such Company will not make
such payment in full as and when required, the Agent may assume that such
Company has made such payment in full to the Agent on such date in Same Day
Funds and the Agent may (but shall not be required to), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent such Company has not made such
payment in full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the Federal
Funds Rate or, in the case of a payment in an Offshore Currency, the Overnight
Rate, for each day from the date such amount is distributed to such Bank until
the date repaid.
Section 2.14. Payments by the Banks to the Agent.
(a) Unless the Agent receives notice from a Bank on or prior to
the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one (1) Business Day prior to the date of such Borrowing, that such Bank
will not make available as and when required hereunder to the Agent for the
account of the borrowing Company the amount of that
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Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has
made such amount available to the Agent in Same Day Funds on the Borrowing Date
and the Agent may (but shall not be required to), in reliance upon such
assumption, make available to such Company on such date a corresponding amount.
If and to the extent any Bank shall not have made its full amount available to
the Agent in Same Day Funds and the Agent in such circumstances has made
available to such Company such amount, that Bank shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate or, in the case of any Borrowing
consisting of Offshore Currency Loans, the Overnight Rate, for each day during
such period. A notice of the Agent submitted to any Bank with respect to amounts
owing under this subsection 2.14(a) shall be conclusive, absent manifest error.
If such amount is so made available, such payment to the Agent shall constitute
such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to the Agent on the Business Day following the
Borrowing Date, the Agent will notify the Companies of such failure to fund and,
upon demand by the Agent, the Companies shall be jointly and severally obligated
to immediately pay such amount to the Agent for the Agent's account, together
with interest thereon for each day elapsed since the date of such Borrowing, at
a rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
Section 2.15. Sharing of Payments, Etc.
If, other than as expressly provided elsewhere herein, any Bank shall
obtain on account of the Loans made by it any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) in
excess of its ratable share (or other share contemplated hereunder), such Bank
shall immediately (a) notify the Agent of such fact, and (b) purchase from the
other Banks such participations in the Loans made by them as shall be necessary
to cause such purchasing Bank to share the excess payment pro rata with each of
them; provided, however, that if all or any portion of such excess payment is
thereafter recovered from the purchasing Bank, such purchase shall to that
extent be rescinded and each other Bank shall repay to the purchasing Bank the
purchase price paid therefor, together with an amount equal to such paying
Bank's ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered from the
purchasing Bank) of any interest or other amount paid or payable by the
purchasing Bank in respect of the total amount so recovered. Each Company agrees
that any Bank so purchasing a participation from another Bank may, to the
fullest extent permitted by law, exercise all its rights of payment (including
the right of set-off, but subject to Section 10.11) with respect to such
participation as fully as if such Bank were the direct creditor of a Company in
the amount of such participation. The Agent will keep records (which shall be
conclusive and binding in the absence of manifest error) of participations
purchased under this Section and will in each case notify the Banks following
any such purchases or repayments.
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Section 2.16. Financial Services.
(a) Any liability, whether contingent or otherwise, incurred by a Bank
as a result of financial services provided by such Bank to a Company pursuant to
Section 2.1(b) are solely the liability of such Bank, however, such liabilities
shall constitute a part of the Obligations and consequently shall be entitled to
the benefit of the representations, warranties and covenants set forth herein.
(b) The Agent may, with the consent or upon the request of the Required
Banks, pay to a Bank all or part of the amounts owed by a Company to such Bank
pursuant to the Financial Services Agreements. The amount so paid shall
constitute a Base Rate Loan advanced pursuant to Section 2.1(a) and the Banks
shall account for such payment pursuant to the provisions of Section 2.15.
Section 2.17. Effect of Amendment and Restatement.
Upon the execution and delivery of this Agreement, the liabilities of
the Companies previously governed by the Original Credit Agreement shall
continue in full force and effect, but shall be governed by the terms and
conditions set forth in this Agreement. The execution and delivery of this
agreement shall not constitute a novation or repayment of the indebtedness
outstanding under the Original Credit Agreement.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
Section 3.1. Taxes.
(a) Any and all payments by a Company to each Bank or the Agent under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for, any Taxes. In addition, the Companies
shall be jointly and severally obligated to promptly pay all Other Taxes.
(b) If a Company shall be required by law to deduct or withhold any
Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including
deductions and withholdings applicable to additional sums payable under
this Section), such Bank or the Agent, as the case may be, receives and
retains an amount equal to the sum it would have received and retained
had no such deductions or withholdings been made;
(ii) such Company shall make such deductions and withholdings;
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(iii) such Company shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) the Companies shall also be jointly and severally
obligated to promptly pay to each Bank or the Agent for the account of
such Bank, at the time interest is paid, Further Taxes in the amount
that the respective Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such Taxes, Other Taxes
or Further Taxes had not been imposed.
(c) The Companies jointly and severally agree to indemnify and hold
harmless each Bank and the Agent for the full amount of i) Taxes, ii) Other
Taxes, and iii) Further Taxes in the amount that the respective Bank specifies
as necessary to preserve the after-tax yield the Bank would have received if
such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability
(including penalties, interest, additions to tax and expenses, unless incurred
solely by reason of such Bank's gross negligence or willful misconduct) arising
therefrom or with respect thereto, whether or not such Taxes, Other Taxes or
Further Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within thirty (30) days after the date the Bank or
the Agent makes written demand therefor.
(d) Within thirty (30) days after the date of any payment by a Company
of Taxes, Other Taxes or Further Taxes, such Company shall furnish to each Bank
or the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the Agent.
(e) If a Company is required to pay any amount to any Bank or the Agent
pursuant to subsection (b) or (c) of this Section, then such Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by such Company which may thereafter accrue, if such change in the sole
judgment of such Bank is not otherwise disadvantageous to such Bank.
Section 3.2. Illegality.
(a) If any Bank determines that the introduction of any Requirement of
Law, or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make Offshore Rate Loans
(including Offshore Rate Loans in any Applicable Currency), then, on notice
thereof by the Bank to the Companies through the Agent, any obligation of that
Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the
Agent and the Companies that the circumstances giving rise to such determination
no longer exist.
(b) If a Bank determines that it is unlawful to maintain any Offshore
Rate Loan, the Companies shall each, upon their receipt of notice of such fact
and demand from such
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Bank (with a copy to the Agent), repay in full such Offshore Rate Loans of that
Bank then outstanding, together with interest accrued thereon and amounts
required under Section 3.4, either on the last day of the Interest Period
thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans
to such day, or immediately, if the Bank may not lawfully continue to maintain
such Offshore Rate Loan. If the Companies are required to so repay any Offshore
Rate Loan, then concurrently with such repayment, the Companies shall borrow
from the affected Bank, in the amount of such repayment, a Base Rate Loan.
Section 3.3. Increased Costs and Reduction of Return.
(a) If any Bank determines that, due to either (i) the introduction of
or any change (other than any change by way of imposition of or increase in
reserve requirements included in the calculation of the Offshore Rate) in or in
the interpretation of any law or regulation or (ii) the compliance by that Bank
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to such Bank of agreeing to make or making, funding or maintaining
any Offshore Rate Loans then the Companies shall be jointly and severally liable
for, and shall from time to time, upon demand (with a copy of such demand to be
sent to the Agent), pay to the Agent for the account of such Bank, additional
amounts as are sufficient to compensate such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation, affects or would affect the amount of capital required or
expected to be maintained by the Bank or any corporation controlling the Bank
and (taking into consideration such Bank's or such corporation's policies with
respect to capital adequacy and such Bank's desired return on capital)
determines that the amount of such capital is increased as a consequence of its
Commitments, loans, credits or obligations under this Agreement, then, upon
demand of such Bank to the Companies through the Agent, the Companies shall
jointly and severally be obligated to promptly pay to the Bank, from time to
time as specified by the Bank, additional amounts sufficient to compensate the
Bank for such increase.
Section 3.4. Funding Losses.
The Companies shall jointly and severally reimburse each Bank and hold
each Bank harmless from any loss or expense which the Bank may sustain or incur
as a consequence of:
(a) the failure of a Company to make on a timely basis any payment of
principal of any Offshore Rate Loan;
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(b) the failure of a Company to borrow, continue or convert a Loan
after such Company has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
(c) the failure of a Company to make any repayment in accordance with
any notice delivered under Section 2.7;
(d) the repayment (including pursuant to Sections 2.7 or 2.8),
prepayment (including pursuant to Section 2.6) or other payment (including after
acceleration thereof) of an Offshore Rate Loan on a day that is not the last day
of the relevant Interest Period; or
(e) the automatic conversion under Section 2.4 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its Offshore Rate Loans or from fees payable
to terminate the deposits from which such funds were obtained or from charges
relating to any Offshore Currency Loans. For purposes of calculating amounts
payable by the Company to the Banks under this Section and under subsection
3.3(a), each Offshore Rate Loan made by a Bank (and each related reserve,
special deposit or similar requirement) shall be conclusively deemed to have
been funded at the LIBOR used in determining the Offshore Rate for such Offshore
Rate Loan by a matching deposit or other borrowing in the interbank eurodollar
market for a comparable amount and for a comparable period, whether or not such
Offshore Rate Loan is in fact so funded.
Section 3.5. Inability to Determine Rates.
If the Agent or the Required Banks determine that for any reason
adequate and reasonable means do not exist for determining the Offshore Rate for
any requested Interest Period with respect to a proposed Offshore Rate Loan, or
that the Offshore Rate applicable pursuant to subsection 2.10(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to such Banks of funding such Loan, the
Agent will promptly so notify the Company requesting such Loan and each Bank.
Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans
hereunder shall be suspended until the Agent revokes such notice in writing.
Upon receipt of such notice, a Company may revoke any Notice of Borrowing or
Notice of Conversion/Continuation then submitted by it. If a Company does not
revoke such Notice, the Banks shall make, convert or continue the Loans, as
proposed by such Company, in the amount specified in the applicable notice
submitted by such Company, but such Loans shall be made, converted or continued
as Base Rate Loans instead of Offshore Rate Loans. In the case of any Offshore
Currency Loans, the Borrowing or continuation shall be in an aggregate amount
equal to the Dollar Equivalent amount of the originally requested Borrowing or
continuation in the Offshore Currency, and to that end any outstanding Offshore
Currency Loans which are the subject of any continuation shall be redenominated
and converted into Base Rate Loans in
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Dollars with effect from the last day of the Interest Period with respect to any
such Offshore Currency Loans.
Section 3.6. Reserves on Offshore Rate Loans.
The Companies shall jointly and severally pay to each Bank, as long as
such Bank shall be required under regulations of the FRB to maintain reserves
with respect to liabilities or assets consisting of or including Eurocurrency
funds or deposits (currently known as "Eurocurrency liabilities"), and, in
respect of any Offshore Currency Loans, under any applicable regulations of the
central bank or other relevant Governmental Authority in the country in which
the Offshore Currency of such Offshore Rate Loan circulates, additional costs on
the unpaid principal amount of each Offshore Rate Loan equal to the actual costs
of such reserves allocated to such Loan by the Bank (as determined by the Bank
in good faith, which determination shall be conclusive), payable on each date on
which interest is payable on such Loan, provided the Companies shall have
received at least fifteen (15) days' prior written notice (with a copy to the
Agent) of such additional interest from the Bank. If a Bank fails to give notice
fifteen (15) days prior to the relevant Interest Payment Date, such additional
interest shall be payable fifteen (15) days from receipt of such notice.
Section 3.7. Certificates of Banks.
Any Bank claiming reimbursement or compensation under this Article III
shall deliver to the Companies (with a copy to the Agent) a certificate setting
forth in reasonable detail the amount payable to the Bank hereunder. The
Companies shall have ten (10) days to review such certificate and if no
objections are made in writing by the Companies to the applicable Bank within
such period of time, such certificate shall be conclusive and binding on the
Companies in the absence of manifest error.
Section 3.8. Substitution of Banks for Increased Costs.
Upon the receipt by a Company from an Affected Bank of a claim for
compensation under Section 3.3, such Company may: (i) request the Affected Bank
to use its best efforts to obtain a Replacement Bank; (ii) request one more of
the other Banks to acquire and assume all or part of such Affected Bank's Loans
and Commitment; or (iii) designate a Replacement Bank. Any such designation of a
Replacement Bank under clause (i) or (iii) shall be subject to the prior written
consent of the Agent (which consent shall not be unreasonably withheld);
provided that this Section 3.8 shall not relieve the Company from its obligation
to pay to the Affected Bank amounts due under Section 3.3 and arising prior to
substitution of the Replacement Bank or the acquisition by another Bank of the
Affected Bank's Loans and Commitment. The Affected Bank shall not be required to
make any representation or warranty to the Replacement Bank.
Section 3.9. Survival.
The agreements and obligations of the Companies in this Article III
shall survive the payment of all other Obligations.
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ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1. Conditions of Initial Loans.
The obligation of each Bank to make its initial Loan hereunder is
subject to the condition that the Agent shall have received on or before the
Closing Date all of the following, in form and substance satisfactory to the
Agent and each Bank, and in sufficient copies for each Bank:
(a) Credit Agreement and Notes. This Agreement and the Notes executed
by each party thereto;
(b) Reaffirmation of Guaranties and Negative Pledge Agreements. A duly
executed Reaffirmation of Guaranty and Negative Pledge Agreement from each
Guarantor of all Obligations hereunder.
(c) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of directors of the
Companies and each Subsidiary authorizing the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or an
Assistant Secretary of such Person; and
(ii) A certificate of the Secretary, Assistant Secretary or
equivalent officer of the Companies and each Subsidiary certifying the
names and true signatures of the officers of such Company or such
Subsidiary authorized to execute, deliver and perform, as applicable,
this Agreement, and all other Loan Documents to be delivered by it
hereunder;
(d) Organization Documents; Good Standing. Each of the following
documents:
(i) the articles or certificate of incorporation and the
bylaws of the Companies as in effect on the Closing Date, certified by
the Secretary or Assistant Secretary of such Company as of the Closing
Date, or equivalent foreign documentation, as applicable; and
(ii) a good standing certificate for the Companies from the
Secretary of State (or similar applicable Governmental Authority) of
its state of incorporation and each state where such Company is
qualified to do business as a foreign corporation as of a recent date,
or the equivalent foreign documentation, as applicable;
(e) Legal Opinions.
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(i) an opinion of Lori Henderson, Esq., counsel to Clare and
addressed to the Agent and the Banks, substantially in the form of
Exhibit D-1; and
(ii) an opinion of Stibbe, Simont, Monahan and Duhot, counsel
to C.P. Clare N.V. and addressed to the Agent and the Banks,
substantially in the form of Exhibit D-2.
(f) Payment of Fees. Evidence of payment by the Companies of all
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, plus such additional amounts of Attorney Costs
as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to
be incurred by it through the closing proceedings (provided that such estimate
shall not thereafter preclude final settling of accounts between the Companies
and BofA); including any such costs, fees and expenses arising under or
referenced in Sections 2.11 and 10.4;
(g) Certificate. A certificate signed by a Responsible Officer, dated
as of the Closing Date, stating that:
(i) the representations and warranties contained in Article V
are true and correct on and as of such date, as though made on and as
of such date;
(ii) no Default or Event of Default exists; and
(iii) there has not occurred since December 28, 1997, any
event or circumstance that has resulted or could reasonably be expected
to result in a Material Adverse Effect; and
(h) Other Documents. Such other approvals, opinions, documents or
materials as the Agent or any Bank may reasonably request.
Section 4.2. Conditions to All Borrowings.
The obligation of each Bank to make any Loan to be made by it or to
continue or convert any Loan under Section 2.4 is subject to the satisfaction of
the following conditions precedent on the relevant Borrowing Date or
Conversion/Continuation Date:
(a) Notice of Borrowing or Conversion/Continuation. The Agent shall
have received a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable;
(b) Continuation of Representations and Warranties. The representations
and warranties in Article V shall be true and correct on and as of such
Borrowing Date or Conversion/Continuation Date with the same effect as if made
on and as of such Borrowing Date or Conversion/Continuation Date (except to the
extent such representations and warranties
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expressly refer to an earlier date, in which case they shall be true and correct
as of such earlier date); and
(c) No Existing Default. No Default or Event of Default shall exist or
shall result from such Borrowing, or continuation or conversion.
Each Notice of Borrowing and Notice of Conversion/Continuation submitted by a
Company hereunder shall constitute a representation and warranty by the
Companies hereunder, as of the date of each such notice and as of each Borrowing
Date or Conversion/Continuation Date, as applicable, that the conditions in
Section 4.2 are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each Company represents and warrants to the Agent and each Bank that:
Section 5.1. Corporate Existence and Power. Each Company and each of
its Subsidiaries:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license, other than jurisdictions in which the failure to qualify, be
licensed or in good standing could reasonably be expected to have a Material
Adverse Effect; and
(d) is in compliance with all Requirements of Law, the noncompliance
with which could reasonably be expected to have Material Adverse Effect.
Section 5.2. Corporate Authorization; No Contravention.
The execution, delivery and performance by each Company and each of
their Subsidiaries of this Agreement and each other Loan Document to which such
Person is party, have been duly authorized by all necessary corporate action,
and do not and will not:
(a) contravene the terms of any of that Person's Organization
Documents;
(b) conflict with or result in any breach or contravention of any
document evidencing any Contractual Obligation to which such Person is a party
in excess of Five Hundred Thousand Dollars ($500,000) in the aggregate;
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(c) conflict with or result in any breach or contravention of any
order, injunction, writ or decree of any Governmental Authority to which such
Person or its property is subject and which could reasonably be expected to have
a Material Adverse Effect;
(d) create any Lien that is not a Permitted Lien; or
(e) violate any Requirement of Law that could reasonably be expected to
have a Material Adverse Effect.
Section 5.3. Governmental Authorization.
No approval, consent, exemption, authorization, or other action by, or
notice to, or filing with, any Governmental Authority is necessary or required
in connection with the execution, delivery or performance by, or enforcement
against, the Companies or any of their Subsidiaries of the Agreement or any
other Loan Document.
Section 5.4. Binding Effect.
This Agreement and each other Loan Document to which the Companies or
any of their Subsidiaries are a party constitute the legal, valid and binding
obligations of such Person, enforceable against such Person in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of creditors'
rights generally or by equitable principles relating to enforceability.
Section 5.5. Litigation.
Except as specifically disclosed in Schedule 5.5, there are no actions,
suits, proceedings, claims or disputes pending, or to the best knowledge of the
Companies, threatened or contemplated, at law, in equity, in arbitration or
before any Governmental Authority, against a Company, or its Subsidiaries or any
of their respective properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to a Company or its Subsidiaries, could
reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
Section 5.6. No Default.
No Default or Event of Default exists or would result from the
incurring of any Obligations by a Company. As of the Closing Date, neither
Company nor a Subsidiary of a
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Company is in default under or with respect to any Contractual Obligation in any
respect which, individually or together with all such defaults, could reasonably
be expected to have a Material Adverse Effect, or that would, if such default
had occurred after the Closing Date, create an Event of Default under subsection
8.1(e).
Section 5.7. ERISA Compliance.
Except as specifically disclosed in Schedule 5.7:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Companies, nothing has occurred which would cause the loss of such
qualification. Each Company and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of a Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to occur;
(ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Company
nor any ERISA Affiliate has incurred, or reasonably expects to incur, any
liability under Title IV of ERISA with respect to any Pension Plan (other than
premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Company nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Section 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Company nor
any ERISA Affiliate has engaged in a transaction that could be subject to
Section 4069 or 4212(c) of ERISA.
Section 5.8. Use of Proceeds; Margin Regulations.
The proceeds of the Loans are to be used solely for the purposes set
forth in and permitted by Section 6.12 and Section 7.7. Neither Company nor any
Subsidiary is generally engaged in the business of purchasing or selling Margin
Stock or extending credit for the purpose of purchasing or carrying Margin
Stock.
Section 5.9. Title to Properties.
Each Company and each Subsidiary has good record and marketable title
in fee simple to, or valid leasehold interests in, all real property necessary
to or used in the ordinary
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conduct of their respective businesses, except for such defects in title as
could not, individually or in the aggregate, have a Material Adverse Effect. As
of the Closing Date, the property of each Company and its Subsidiaries is
subject to no Liens, other than Permitted Liens.
Section 5.10. Taxes.
Each Company and its Subsidiaries have filed all Federal and other
material tax returns and reports required to be filed, and have paid all Federal
and other taxes, assessments, fees and other governmental charges levied or
imposed upon them or their properties, income or assets otherwise due and
payable, except those which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been provided in accordance
with GAAP. There is no proposed tax assessment against a Company or any
Subsidiary that would, if made, have a Material Adverse Effect.
Section 5.11. Financial Condition.
(a) audited consolidated financial statements of Clare and its
Subsidiaries dated March 31, 1997, and the unaudited consolidated financial
statements of Clare and its Subsidiaries dated December 28, 1997, and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for the fiscal year and quarter, respectively, ended on such
dates:
(i) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly
noted therein, and, except as noted therein, consistently with prior
periods, and solely with respect to the unaudited financial statements
dated December 28, 1997, were subject to ordinary, good faith year end
audit adjustments;
(ii) fairly present the financial condition of the Companies and
their Subsidiaries on a consolidated basis as of the date thereof and
results of operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule 5.11, show all
material indebtedness and other liabilities, direct or contingent, of
the Companies and their consolidated Subsidiaries as of the date
thereof, including liabilities for taxes, material commitments and
Contingent Obligations.
(b) Since December 31, 1997, there has been no Material Adverse
Effect.
Section 5.12. Environmental Matters.
Each Company conducts in the ordinary course of business a review of
the effect of existing Environmental Laws and existing Environmental Claims on
its business, operations and properties, and as a result thereof each Company
has reasonably concluded that, except as specifically disclosed in Schedule
5.12, such Environmental Laws and Environmental Claims
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could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Section 5.13. Regulated Entities.
Neither Company, nor any Person controlling a Company, nor any
Subsidiary, is an "Investment Company" within the meaning of the Investment
Company Act of 1940. Neither Company is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
Section 5.14. No Burdensome Restrictions.
Neither Company nor any Subsidiary is a party to or bound by any
Contractual Obligation, or subject to any restriction in any Organization
Document, or any Requirement of Law, which could reasonably be expected to have
a Material Adverse Effect.
Section 5.15. Copyrights, Patents, Trademarks and Licenses, etc.
Each Company or its Subsidiaries owns or is licensed or otherwise has
the right to use all of the patents, trademarks, service marks, trade names,
copyrights, contractual franchises, authorizations and other rights that are
reasonably necessary for the operation of their respective businesses, without
conflict with the rights of any other Person. To the best knowledge of each
Company, no slogan or other advertising device, product, process, method,
substance, part or other material now employed, or now contemplated to be
employed, by each Company or any Subsidiary infringes upon any rights held by
any other Person, which infringement could reasonably be expected to have a
Material Adverse Effect. Except as specifically disclosed in Schedule 5.5, no
claim or litigation regarding any of the foregoing is pending or threatened, and
no patent or any statute, law, rule, regulation, standard or code is pending or,
to the knowledge of each Company, proposed, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
Section 5.16. Subsidiaries.
Neither Company has any Subsidiaries other than those specifically
disclosed in part (a) of Schedule 5.16 and neither Company, nor any of its
Subsidiaries, has equity investments in any other corporation or entity other
than those specifically disclosed in part (b) of Schedule 5.16.
Section 5.17. Insurance.
Except as specifically disclosed in Schedule 5.17, the properties of
each Company and its Subsidiaries are insured with financially sound and
reputable insurance companies not Affiliates of a Company, in such amounts, with
such deductibles and covering such risks as are customarily carried by companies
engaged in similar businesses and owning similar properties in localities where
each Company or Subsidiary operates.
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Section 5.18. Swap Obligations.
Neither Company nor any of its Subsidiaries has incurred any
outstanding obligations under any Swap Contracts, other than Permitted Swap
Obligations. Clare has undertaken its own independent assessment of its
consolidated assets, liabilities and commitments and has considered appropriate
means of mitigating and managing risks associated with such matters and has not
relied on any swap counterparty or any Affiliate of any swap counterparty in
determining whether to enter into any Swap Contract.
Section 5.19. Leases.
Neither Company nor any Subsidiary is a party to any obligations for
the payment of rent or lease payments under any lease or agreement to lease
other than as listed on Schedule 5.19 or as may be permitted pursuant to Section
7.10.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Required Banks
waive compliance in writing:
Section 6.1. Financial Statements.
Clare shall deliver to the Agent, in the same form and with the same
detail as included in its financial reports filed with the SEC, with sufficient
copies for each Bank:
(a) as soon as available, but not later than one hundred (100) days
after the end of each fiscal year (commencing with the fiscal year ended March
31, 1998), a copy of the audited consolidated balance sheet of Clare and its
Subsidiaries as at the end of such year and the related consolidated statements
of income or operations, shareholders' equity and cash flows for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of a nationally-recognized "Big Six"
independent public accounting firm ("Independent Auditor") which report shall
state that such consolidated financial statements present fairly the financial
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years. Such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent Auditor of any
material portion of the Companies' or any Subsidiary's records;
(b) as soon as available, but not later than fifty (50) days after
the end of each of the first three fiscal quarters of each fiscal year
(commencing with the fiscal quarter ended December 31, 1997), a copy of the
unaudited consolidated balance sheet of Clare and its Subsidiaries as of the end
of such quarter and the related consolidated statements of income, shareholders'
equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, and certified by a Responsible Officer of Clare as
fairly presenting,
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in accordance with GAAP (subject to ordinary, good faith year-end audit
adjustments), the financial position and the results of operations of Clare and
its Subsidiaries;
Section 6.2. Certificates; Other Information.
Each Company shall furnish to the Agent, with sufficient copies for
each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsections 6.1(a) and (b), a Compliance Certificate executed by
a Responsible Officer of Clare;
(b) promptly, copies of all financial statements and reports that a
Company or any Subsidiary sends to its shareholders, and copies of all financial
statements and regular, periodical or special reports (including Forms 10K, 10Q
and 8K) that a Company or any Subsidiary may make or be required to make to, or
file with, the SEC; and
(c) promptly, when completed or available by such Company, such
additional information regarding the business, financial or corporate affairs of
Clare or any of its Subsidiaries on a consolidated and segment reporting basis
as the Agent, at the reasonable request of any Bank, may from time to time
request, provided, that (i) delivery of such information will not violate the
applicable federal securities laws and (ii) the information requested is
generated or available in the ordinary course of such Company's business.
Section 6.3. Notices.
Each Company shall promptly notify the Agent and each Bank:
(a) of the occurrence of any Default or Event of Default;
(b) of any matter that has resulted or may result in a Material
Adverse Effect, including (i) breach or non-performance of, or any default
under, a Contractual Obligation of a Company or any Subsidiary; (ii) any
dispute, litigation, investigation, proceeding or suspension between a Company
or any Subsidiary and any Governmental Authority; or (iii) the commencement of,
or any material development in, any litigation or proceeding affecting a Company
or any Subsidiary, including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any of the following events affecting a
Company or any ERISA Affiliate (but in no event more than ten (10) days after
such event), and deliver to the Agent and each Bank a copy of any notice with
respect to such event that is filed with a Governmental Authority and any notice
delivered by a Governmental Authority to such Company or any ERISA Affiliate
with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of any
Pension Plan;
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(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by a Company or any ERISA
Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability.
(d) of any material change in accounting policies or financial
reporting practices by a Company or any of its consolidated Subsidiaries, except
for changes disclosed in the financial reports of the Companies filed with the
SEC and changes in GAAP;
(e) after the occurrence of a Default or Event of Default, upon the
request of BofA, the Swap Termination Values, together with a description of the
method by which such values were determined, relating to any then-outstanding
Swap Contracts to which a Company or any of its Subsidiaries is party.
Each notice under this Section shall include details of the occurrence
referred to therein, and if appropriate, a brief statement of what action the
affected Company or Subsidiary proposes to take with respect thereto.
Section 6.4. Preservation of Corporate Existence, Etc.
Each Company shall, and shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
in the normal conduct of its business except in connection with transactions
permitted by Section 7.3 and sales of assets permitted by Section 7.2;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
Section 6.5. Maintenance of Property.
Each Company shall maintain, and shall cause each Subsidiary to
maintain, and preserve all its property which is used or useful in its business
in good working order and condition, ordinary wear and tear excepted, except as
permitted by Section 7.2. Each Company and each Subsidiary shall use the
standard of care typical in the industry in the operation and maintenance of its
facilities.
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Section 6.6. Insurance.
Each Company shall maintain, and shall cause each Subsidiary to
maintain, with financially sound and reputable independent insurers, insurance
with respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business,
of such types and in such amounts as are customarily carried under similar
circumstances by such other Persons; provided that the Companies and their
Subsidiaries may self-insure their properties and business on terms and
conditions reasonably satisfactory to Banks.
Section 6.7. Payment of Obligations.
Each Company shall, and shall cause each Subsidiary to, pay and
discharge as the same shall become due and payable, all their respective
obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the affected Company or Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property;
(c) all indebtedness (other than trade payables), as and when due and
payable, but subject to any subordination provisions contained in any instrument
or agreement evidencing such Indebtedness; and
(d) all indebtedness comprised of trade payables, payable in the
ordinary course of such Company's or Subsidiary's business.
Section 6.8. Compliance with Laws.
Each Company shall comply, and shall cause each Subsidiary to comply,
in all material respects with all Requirements of Law of any Governmental
Authority having jurisdiction over it or its business (including the Federal
Fair Labor Standards Act), except, to the extent such Requirements of Law may be
contested in good faith or as to which a bona fide dispute may exist provided
that non-compliance during the pending of such contest or dispute will not have
a Material Adverse Effect.
Section 6.9. Compliance with ERISA.
Each Company shall, and shall cause each of its ERISA Affiliates to:
(a) maintain each Plan in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law; (b)
cause each Plan which is qualified under
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Section 401(a) of the Code to maintain such qualification; and (c) make all
required contributions to any Plan subject to Section 412 of the Code.
Section 6.10. Inspection of Property and Books and Records.
Each Company shall maintain and shall cause each Subsidiary to maintain
proper books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all financial
transactions and matters involving the assets and business of such Company and
such Subsidiary, except that Clare N.V. and each Subsidiary organized in a
foreign jurisdiction shall not be required to maintain their books of record and
account in conformity with GAAP. Each Company shall permit, and shall cause each
Subsidiary to permit, representatives and independent contractors of the Agent
or any Bank to visit and inspect any of their respective properties, to examine
their respective corporate, financial and operating records, and make copies
thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, all at the expense of such Company and at any time during
normal business hours and without advance notice. Prior to the occurrence of a
Default or an Event of Default (i) each Company shall not be responsible for the
expense of more than one (1) inspection per fiscal year, (ii) the expense of
such inspection payable pursuant to the preceding clause will not exceed Five
Thousand Dollars ($5,000), and (iii) such inspection shall be performed upon
reasonable advance notice to such Company.
Section 6.11. Environmental Laws.
Each Company shall, and shall cause each Subsidiary to, conduct its
operations and keep and maintain its property in material compliance with all
Environmental Laws.
Section 6.12. Use of Proceeds.
Each Company shall use the proceeds of the Loans for working capital
and other general corporate purposes not in contravention of any Requirement of
Law or of any Loan Document.
Section 6.13. Additional Subsidiary Guarantors.
In the event the Required Banks consent to the formation of a
Subsidiary or the Companies form a Foreign Sales Corporation established in
accordance with Section 922 of The Internal Revenue Code of 1986, as amended,
the Companies shall, upon the request of Agent or Required Banks, cause such
Subsidiary to become a party to a guaranty and negative pledge agreement in
substantially the same form as those signed by the Guarantors.
Section 6.14. Continuing Nature of Representations and Warranties.
The representations and warranties made by either Company or any
Subsidiary in the Loan Documents shall be a continuing representation and/or
warranty, and each Company and each Subsidiary shall take (or refrain from
taking) such actions as are necessary
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to take (or refrain from taking) to insure that all such representations and
warranties remain true, accurate and complete at all times during the term of
this Agreement except as otherwise provided in this Agreement or consented to in
writing by the Required Banks.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless the Required Banks
waive compliance in writing:
Section 7.1. Limitation on Liens.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
directly or indirectly, make, create, incur, assume or suffer to exist any Lien
upon or with respect to any part of its property, whether now owned or hereafter
acquired, other than the following ("Permitted Liens"):
(a) any Lien existing on property of such Company or any Subsidiary
on the Closing Date and set forth in Schedule 7.1 securing Indebtedness
outstanding on such date;
(b) any Lien created under any Loan Document in favor of a Bank or
Agent;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 6.7; provided that no notice of
lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Companies and their
Subsidiaries do not exceed Two Million Dollars ($2,000,000);
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject
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thereto or interfere with the ordinary conduct of the businesses of a Company
and its Subsidiaries;
(h) purchase money security interests on any property acquired or
held by a Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property; provided that (i) any such Lien
attaches to such property concurrently with or within twenty (20) days after the
acquisition thereof, (ii) such Lien attaches solely to the property so acquired
in such transaction, (iii) the principal amount of the debt secured thereby does
not exceed one hundred percent (100%) of the cost of such property, and (iv) the
principal amount of the Indebtedness secured by any and all such purchase money
security interests shall not at any time exceed One Million Dollars
($1,000,000);
(i) Liens securing obligations in respect of capital leases on assets
subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(j) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) no more than an aggregate of One
Million Dollars ($1,000,000) of such deposit accounts are solely dedicated cash
collateral accounts established in the ordinary course of the Companies'
business, (ii) other than as set forth in clause (i), such deposit account is
not a dedicated cash collateral account and is not subject to restrictions
against access by a Company in excess of those set forth by regulations
promulgated by the FRB, and (ii) such deposit account is not intended by a
Company or any Subsidiary to provide collateral to the depository institution;
and
(k) Liens consisting of pledges of cash collateral or government
securities to secure on a mark-to-market basis Permitted Swap Obligations only,
provided that (i) the counterparty to any Swap Contract relating to such
Permitted Swap Obligations is under a similar requirement to deliver similar
collateral from time to time to the Company or the Subsidiary party thereto on a
mark-to-market basis; and (ii) the aggregate value of such collateral so pledged
by Company and the Subsidiaries together in favor of all counterparties does not
at any time exceed Two Million Dollars ($2,000,000) in the aggregate.
Section 7.2. Disposition of Assets.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
directly or indirectly, sell, assign, lease, convey, transfer or otherwise
dispose of (whether in one or a series of transactions) any property (including
accounts and notes receivable, with or without recourse) to any other Person
(including without limitation any Company or any Subsidiary) or enter into any
agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus equipment,
all in the ordinary course of business;
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(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions of Foreign Permitted Receivables pursuant to
Permitted Foreign Receivables Purchase Facilities;
(d) the contribution of property to a Joint Venture as part of the
purchase thereof to the extent permitted under Section 7.4(e); and
(e) divestiture of a business unit by a Company (a "Divestiture") so
long as (i) no Event of Default is in existence at the time of the Divestiture
or would be caused thereby; provided that for purposes of determining compliance
with the financial covenants contained in Section 7 of this Agreement, the
calculation of EBITDA shall exclude the EBIT of the business unit being divested
and (ii) Clare has provided to Agent consolidated pro forma financial
statements, in form and substance satisfactory to Required Banks in their sole
discretion, for the twelve (12) month period commencing with the date of the
Divestiture, which demonstrate in the opinion of Required Banks in their sole
discretion that after giving effect to such Divestiture, the Companies will
continue to be in compliance with the covenants set forth in the Loan Documents.
Section 7.3. Consolidations and Mergers.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
merge, consolidate with or into, or convey, transfer, lease or otherwise dispose
of (whether in one transaction or in a series of transactions all or
substantially all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person, except:
(a) any Subsidiary may merge with a Company, provided that such
Company shall be the continuing or surviving corporation, or may merge with any
one or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation; and
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to a Company or another Wholly-Owned
Subsidiary.
Section 7.4. Loans and Investments.
Neither Company shall purchase or acquire, nor shall it suffer or
permit any Subsidiary to purchase or acquire, or make any commitment therefor,
any capital stock, equity interest, or any obligations or other securities of,
or any interest in, any Person, or make or commit to make any Acquisitions, or
make or commit to make any advance, loan, extension of credit or capital
contribution to or any other investment in, any Person including any Affiliate
of a Company (together, "Investments"), except for:
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(a) Investments held by a Company or Subsidiary in the form of Cash
Equivalents;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business;
(c) extensions of credit by a Company to any of its Wholly-Owned
Subsidiaries or by any of its Wholly-Owned Subsidiaries to another of its
Wholly-Owned Subsidiaries;
(d) extensions of credit by any Subsidiary to either Company;
(e) Investments incurred in order to consummate Acquisitions or Joint
Ventures otherwise permitted herein, provided that (i) in the case of
Acquisitions or Joint Ventures with a purchase price of less than Twenty-Five
Million Dollars ($25,000,000) individually and less than Twenty-Five Million
Dollars ($25,000,000) in the aggregate in any fiscal year where the Person to be
acquired is engaged in the same general line of business as that of the
Companies, (A) Clare has provided to Agent consolidated pro forma financial
statements, in form and substance satisfactory to Required Banks in their sole
discretion, for the year commencing with the date of the Acquisition or Joint
Venture, as the case may be, and continuing through the year of the Termination
Date, which demonstrate in the opinion of Required Banks in their sole
discretion that after giving effect to such Acquisition or Joint Venture, as the
case may be, the Companies have been, are, and will continue to be in compliance
with the covenants set forth in the Loan Documents and no Default or Event of
Default will exist, except that if the Acquisition is consummated without Loan
proceeds, the Companies shall not be required to demonstrate compliance with the
covenants set forth in the Loan Documents on a historical basis, (B) after
giving effect to such Acquisition or Joint Venture, the aggregate Commitments of
the Banks exceed the aggregate amount of Loans (with the amount of all Loans
denominated in Offshore Currency converted to the Dollar Equivalent amount) by
at least fifteen percent (15%) of the aggregate Commitments of the Banks, (C)
the Companies may not use, individually or jointly, more than Thirty-Four
Million U.S. Dollars (U.S. $34,000,000) of Loans in connection with such
Acquisition or Joint Venture, (D) such Acquisition or Joint Venture is
undertaken in compliance with all applicable Requirements of Law, and (E) the
prior, effective written consent or approval to such Acquisition or Joint
Venture by the board of directors or equivalent governing body of the acquiree
is obtained or a consent of the acquiree is obtained that is satisfactory to
Agent in its reasonable discretion and, (ii) in the case of Acquisitions or
Joint Ventures with a purchase price of more than Twenty-Five Million Dollars
($25,000,000) individually, more than Twenty-Five Million Dollars ($25,000,000)
in the aggregate in any fiscal year and where the Person to be acquired is
engaged in the same general line of business as the Companies, (1) Clare has
satisfied all of the above conditions in clauses (A) through (E) above, and (2)
Clare has provided to Agent consolidated pro forma financial statements, in form
and substance satisfactory to Required Banks in their sole discretion, for the
year commencing one year prior to such Acquisition or Joint Venture and
continuing through the year of the Termination Date, which demonstrate in the
opinion of Required Banks in their sole discretion that assuming such
Acquisition or Joint
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Venture had occurred one year earlier and after giving effect to such
Acquisition or Joint Venture, the Companies have been, are, and will continue to
be in compliance with the covenants set forth in the Loan Documents and no
Default or Event of Default will exist, except that if the Acquisition is
consummated without Loan proceeds, the Companies shall not be required to
demonstrate compliance with the covenants set forth in the Loan Documents on a
historical basis; and
(f) Investments constituting Permitted Swap Obligations or payments
or advances under Swap Contracts relating to Permitted Swap Obligations.
Section 7.5. Limitation on Indebtedness.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
create, incur, assume, suffer to exist, or otherwise become or remain directly
or indirectly liable with respect to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 7.8;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 7.5;
(d) Indebtedness secured by Liens permitted by subsection 7.1(h) and
(k) in an aggregate amount outstanding not to exceed Three Million Dollars
($3,000,000);
(e) Indebtedness incurred in connection with leases permitted
pursuant to Section 7.10;
(f) Foreign exchange forward contracts entered into in the ordinary
course of business, provided that (i) the aggregate exposure to the Companies
and the Subsidiaries under such foreign exchange forward contracts does not
exceed Six Million Dollars ($6,000,000) in any calendar month or Forty Million
Dollars ($40,000,000) at any one time and (ii) no foreign exchange forward
contract exceeds twelve (12) months in length;
(g) Insurance premium financing for Casualty, Property and D&O
Insurance premiums up to a maximum amount of Two Million Dollars ($2,000,000);
and
(h) Unsecured indebtedness entered into in the ordinary course of
business, provided, that (i) the aggregate principal amount of such unsecured
indebtedness incurred by the Companies and the Subsidiaries does not exceed Two
Million Five Hundred Thousand Dollars ($2,500,000) and (ii) such unsecured
indebtedness is repaid within one hundred and eighty (180) days of the date
incurred.
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Section 7.6. Transactions with Affiliates.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
enter into any transaction with any Affiliate of a Company or a Subsidiary,
except upon fair and reasonable terms no less favorable to such Company or such
Subsidiary than would obtain in a comparable arm's-length transaction with a
Person not an Affiliate of such Company or such Subsidiary.
Section 7.7. Use of Proceeds.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
use any portion of the Loan proceeds, directly or indirectly, (i) to purchase or
carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of a
Company or others incurred to purchase or carry Margin Stock, (iii) to extend
credit for the purpose of purchasing or carrying any Margin Stock, or (iv) to
acquire any security in any transaction that is subject to Section 13 or 14 of
the Exchange Act.
Section 7.8. Contingent Obligations.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
create, incur, assume or suffer to exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of a Company and its Subsidiaries existing
as of the Closing Date and listed in Schedule 7.8;
(d) Contingent Obligations with respect to Surety Instruments issued
by a Bank or other Surety Instruments incurred in the ordinary course of
business and not exceeding Two Million Five Hundred Thousand Dollars
($2,500,000) in the aggregate at any time in respect of the Companies and their
Subsidiaries; and
(e) Contingent Obligation incurred by the Guarantors pursuant to
their guaranty of the Obligations.
Section 7.9. Joint Ventures.
Neither Company shall, nor shall it suffer or permit any Subsidiary to
enter into any Joint Venture, except as permitted in subsection 7.4(e) and so
long as each of the following conditions are satisfied for each permitted Joint
Venture (i) the applicable Company's liability with respect to each Joint
Venture is limited to the percentage of ownership of such Company in the Joint
Venture, to the extent such limitation is permitted by applicable law, (ii) the
Companies' liabilities with respect to Joint Ventures in the aggregate does not
exceed Ten Million Dollars ($10,000,000) and (iii) the applicable Company shall
have the Joint Venture
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execute a Negative Pledge Agreement with respect to its assets then owned and
thereafter acquired to the extent of such Company's percentage ownership of the
Joint Venture.
Section 7.10. Lease Obligations.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
create or suffer to exist any obligations for the payment of rent for any
property under lease or agreement to lease or industrial revenue bond financing,
except for operating leases entered into by a Company or any Subsidiary in the
ordinary course of business and capital leases entered into by a Company or any
Subsidiary after the Closing Date to finance the acquisition of equipment;
provided that the aggregate annual, rental and lease payments, as applicable,
for the Companies and their Subsidiaries for all such operating and capital
leases shall not exceed the lesser of (i) Nine Million Dollars ($9,000,000) in
fiscal year 1998 and Ten Million Dollars ($10,000,000) in each fiscal year
thereafter and (ii) the amount which allows the Companies to be in compliance
with the covenants set forth in this Article VII.
Section 7.11. Restricted Payments.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
declare or make any dividend payment or other distribution of assets,
properties, cash, rights, obligations or securities on account of any shares of
any class of its capital stock, or purchase, redeem or otherwise acquire for
value any shares of its capital stock or any warrants, rights or options to
acquire such shares, now or hereafter outstanding; except that;
(a) a Company may declare and make dividend payments or other
distributions payable solely in its common stock;
(b) a Company may purchase, redeem or otherwise acquire shares of its
common stock or warrants or options to acquire any such shares with the proceeds
received from the substantially concurrent issue of new shares of its common
stock;
(c) a Subsidiary may declare and make dividend payments or other
distributions payable solely to the Companies; and
(d) after June 30, 1996, a Company may declare and make cash dividend
payments; provided, that (i) such payment has been approved and authorized by
such Company's Board of Directors, (ii) such payment is made solely out of ten
percent (10%) of such Company's consolidated net income for such fiscal year and
(iii) no Event of Default is in existence at the time of such declaration and
payment or would be caused thereby.
(e) a Company may make any payment of any part or all of any
Subordinated Debt or take or omit to take any other action with respect of any
Subordinated Debt, in accordance with the terms of the subordination agreement
relative thereto and approved by the Required Banks in their sole discretion.
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Section 7.12. ERISA.
Neither Company shall, nor shall it suffer or permit any of its ERISA
Affiliates to, engage in a prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or could
reasonably be expected to result in liability of the Companies and their
Subsidiaries in an aggregate amount in excess of One Million Dollars
($1,000,000).
Section 7.13 Change in Business.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
engage in any material line of business substantially different from those lines
of business carried on by such Company and its Subsidiaries on the date hereof.
Section 7.14. Accounting Changes.
Neither Company shall, nor shall it suffer or permit any Subsidiary to,
make any significant change in accounting treatment or reporting practices,
except as required by GAAP, or change the fiscal year of such Company or of any
Subsidiary.
Section 7.15. Consolidated Tangible Net Worth.
Consolidated Tangible Net Worth for the quarter ending December 31,
1997 will be no less than Seventy-Five Million Dollars ($75,000,000) and
Consolidated Tangible Net Worth for each fiscal quarter thereafter will be no
less than the minimum Consolidated Tangible Net Worth required for the
immediately preceding fiscal quarter plus fifty percent (50%) of the positive
net income of Clare and its Subsidiaries.
Section 7.16. Total Funded Debt to EBITDA.
The ratio of Total Funded Debt to EBITDA shall not exceed 2.0:1.0 at
the end of any fiscal quarter.
Section 7.17. Interest Coverage Ratio.
The Interest Coverage Ratio for the twelve-month period ending on
December 31, 1997 and any twelve-month period ending on the last day of each
fiscal quarter of Clare thereafter shall be at least 2.50:1.00.
Section 7.18. Obligations under Financial Services Agreements.
The Companies obligations (including Contingent Obligations) owed to a
Bank under the Financial Services Agreements shall not at any time exceed the
amount set forth opposite such Bank's name in Schedule 2.1 under the heading
"Financial Services (Excluding Loans)".
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Section 7.19. Subsidiaries.
Neither Company shall, nor shall it permit any Subsidiary to create,
establish or acquire any Subsidiaries other than those existing on the date of
this Agreement; except for a Foreign Sales Corporation established in accordance
with Section 922 of The Internal Revenue Code of 1986, as amended or a newly
formed Subsidiary, so long as in each case the Companies shall cause such
Subsidiary to become a party to a guaranty and negative pledge agreement in
substantially the same form as those signed by Guarantors.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.1. Event of Default.
Any of the following shall constitute an "Event of Default":
(a) Non-Payment. A Company fails to pay, (i) when and as required to
be paid herein, any amount of principal or interest of any Loan, or (ii) within
five (5) days after the same becomes due, any fee or any other amount payable
hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by a
Company or any Subsidiary made herein or in any other Loan Document is at any
time on or after the date made incorrect in any material respect, or any
representation or warranty which is contained in any certificate, document or
financial or other statement by a Company, any Subsidiary, or any Responsible
Officer, furnished at any time under this Agreement, or in or under any other
Loan Document, is incorrect in any material respect on or as of the date made or
remade; or
(c) Specific Defaults. A Company fails to perform or observe any
term, covenant or agreement contained in any of Section 6.1, 6.2, 6.3 or 6.10 or
in Article VII; or
(d) Other Defaults. A Company or any Subsidiary party thereto fails
to perform or observe (i) any term or covenant contained in either Section 6.4
or 6.9 and such default shall continue unremedied for a period of five (5) days
after the earlier of (A) the date upon which a Responsible Officer knew or
reasonably should have known of such failure or (B) the date upon which written
notice thereof is given to a Company by the Agent or any Bank and (ii) any other
term or covenant contained in this Agreement or any other Loan Document, and
such default shall continue unremedied for a period of twenty (20) days after
the earlier of (A) the date upon which a Responsible Officer knew or reasonably
should have known of such failure or (B) the date upon which written notice
thereof is given to a Company by the Agent or any Bank; or
(e) Cross-Default. (i) A Company or any Subsidiary (A) fails to make
any payment in respect of any Indebtedness or Contingent Obligation (other than
in respect of Swap Contracts), having an aggregate principal amount (including
undrawn committed or available
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amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more than Two Million Five Hundred Thousand
Dollars ($2,500,000) when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) and such failure continues after
the applicable grace or notice period, if any, specified in the relevant
document on the date of such failure; or (B) fails to perform or observe any
other condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any Indebtedness or Contingent
Obligation (other than in respect of Swap Contracts), having an aggregate
principal amount (including undrawn committed or available amounts and including
amounts owing to all creditors under any combined or syndicated credit
agreement) of more than $2,500,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise), and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure if the effect of such failure,
event or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries) to
cause such Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash collateral in
respect thereof to be demanded; (ii) there occurs under any Swap Contract an
Early Termination Date (as defined in such Swap Contract) resulting from (1) any
event of default under such Swap Contract as to which a Company or any
Subsidiary is the Defaulting Party (as defined in such Swap Contract) or (2) any
Termination Event (as defined in such Swap contract) as to which a Company or
any Subsidiary is an Affected Party (as defined in such Swap Contract), and, in
either event, the Swap Termination Value owed by a Company or such Subsidiary as
a result thereof is greater than Two Million Five Hundred Thousand Dollars
($2,500,000); or
(f) Insolvency; Voluntary Proceedings. A Company or any Subsidiary
(i) ceases or fails to be solvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against a Company or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of a Company's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within sixty (60) days after commencement,
filing or levy; (ii) a Company or any Subsidiary admits the material allegations
of a petition against it in any Insolvency Proceeding, or an order for relief
(or similar order under non-U.S. law) is ordered in any Insolvency Proceeding;
or (iii) a Company or any Subsidiary acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
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(h) Monetary Judgments. One or more non-interlocutory judgments,
non-interlocutory orders, decrees or arbitration awards is entered against a
Company or any Subsidiary involving in the aggregate a liability (to the extent
not covered by independent third-party insurance as to which the insurer does
not dispute coverage) as to any single or related series of transactions,
incidents or conditions, of One Million Dollars ($1,000,000) or more, and the
same shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of ten (10) days after the entry thereof; or
(i) Non-Monetary Judgments. Any non-monetary judgment, order or decree
is entered against a Company or any Subsidiary which does or would reasonably be
expected to have a Material Adverse Effect, and there shall be any period of ten
(10) consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; or
(j) Change of Control. There occurs any Change of Control; or
(k) Unenforceability. Any part of this Agreement or any Loan Document
(other than the Guaranties executed by each Guarantor) is declared unenforceable
or a Company, any Subsidiary or any Guarantor challenges or contests in any
action, suit or proceeding the validity or enforceability of all or any part of
this Agreement or any of the Loan Documents.
(l) Adverse Change. An event occurs which could reasonably be expected
to have a Material Adverse Effect; or
(m) Guarantor Defaults. A Guarantor fails in any material respect to
perform or observe any term, covenant or agreement in its Guaranty; or a
Guaranty is for any reason partially (including with respect to future advances)
or wholly revoked or invalidated, or otherwise ceases to be in full force and
effect, or a Guarantor contests in any manner the validity or enforceability
thereof or denies that it has any further liability or obligation thereunder, or
any event described at subsections (f) or (g) of this Section occurs with
respect to a Guarantor; or
(n) Invalidity of Subordination Provisions. Any agreement or instrument
governing any Subordinated Debt is for any reason revoked or invalidated, or
otherwise cease to be in full force and effect, any Person contests in any
manner the validity or enforceability thereof or denies that it has any further
liability or obligation thereunder, or the Indebtedness hereunder is for any
reason subordinated or does not have the priority contemplated by this
Agreement.
Section 8.2. Remedies.
If any Event of Default occurs, the Agent shall, at the request of, or
may, with the consent of, the Required Banks:
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(a) declare the commitment of each Bank to make Loans to be terminated,
whereupon such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by each Company; and
(c) exercise on behalf of itself and the Banks all rights and remedies
available to it and the Banks under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
(f) or (g) of Section 8.1 (in the case of clause (i) of subsection (g) upon the
expiration of the sixty (60) day period mentioned therein), the obligation of
each Bank to make Loans shall automatically terminate and the unpaid principal
amount of all outstanding Loans and all interest and other amounts as aforesaid
shall automatically become due and payable without further act of the Agent or
any Bank.
Section 8.3. Rights Not Exclusive.
The rights provided for in this Agreement and the other Loan Documents
are cumulative and are not exclusive of any other rights, powers, privileges or
remedies provided by law or in equity, or under any other instrument, document
or agreement now existing or hereafter arising.
ARTICLE IX
THE AGENT
Section 9.1. Appointment and Authorization; "Agent".
Each Bank hereby irrevocably (subject to Section 9.9) appoints,
designates and authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to exercise such
powers and perform such duties as are expressly delegated to it by the terms of
this Agreement or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Bank, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent. Without limiting the generality
of the foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties.
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Section 9.2. Delegation of Duties.
The Agent may execute any of its duties under this Agreement or any
other Loan Document by or through agents, employees or attorneys-in-fact and
shall be entitled to advice of counsel concerning all matters pertaining to such
duties. The Agent shall not be responsible for the negligence or misconduct of
any agent or attorney-in-fact that it selects with reasonable care.
Section 9.3. Liability of Agent.
None of the Agent-Related Persons shall (i) be liable for any action
taken or omitted to be taken by any of them under or in connection with this
Agreement or any other Loan Document or the transactions contemplated hereby
(except for its own gross negligence or willful misconduct), or (ii) be
responsible in any manner to any of the Banks for any recital, statement,
representation or warranty made by a Company or any Subsidiary or Affiliate of a
Company, or any officer thereof, contained in this Agreement or in any other
Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by the Agent under or in connection
with, this Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of a Company or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent-Related
Person shall be under any obligation to any Bank to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of a Company or any of such Company's Subsidiaries
or Affiliates.
Section 9.4. Reliance by Agent.
(a) The Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, telegram, facsimile, telex or telephone message, statement or
other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to a Company), independent
accountants and other experts selected by the Agent. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Required Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Required
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 4.1, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the
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Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Bank.
Section 9.5. Notice of Default.
The Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default, except with respect to defaults
in the payment of principal, interest and fees required to be paid to the Agent
for the account of the Banks, unless the Agent shall have received written
notice from a Bank or a Company referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". The Agent will notify the Banks promptly of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Required Banks in accordance with Article
VIII; provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
Section 9.6. Credit and Legal Decision.
Each Bank acknowledges that none of the Agent-Related Persons has made
any representation or warranty to it, and that no act by the Agent hereinafter
taken, including any review of the affairs of a Company and its Subsidiaries,
shall be deemed to constitute any representation or warranty by any
Agent-Related Person to any Bank. Each Bank represents and warrants that it has
made its own legal review of the Companies and Subsidiaries and of the Loan
Documents, without reliance on any Agent-Related Person (including, without
limitation, counsel to the Agent). Each Bank represents to the Agent that it
has, independently and without reliance upon any Agent-Related Person and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of a Company and
its Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Companies hereunder. Each Bank also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of each Company. Except for notices,
reports and other documents expressly herein required to be furnished to the
Banks by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of a Company which may come into the possession of any of the
Agent-Related Persons.
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Section 9.7. Indemnification of Agent.
Whether or not the transactions contemplated hereby are consummated,
the Banks shall indemnify upon demand the Agent-Related Persons (to the extent
not reimbursed by or on behalf of a Company and without limiting the obligation
of the Companies to do so), pro rata, from and against any and all Indemnified
Liabilities; provided, however, that no Bank shall be liable for the payment to
the Agent-Related Persons of any portion of such Indemnified Liabilities
resulting from such Person's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank shall reimburse the Agent upon demand for
its ratable share of any costs or out-of-pocket expenses (including Attorney
Costs) incurred by the Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that the Agent is not reimbursed for such expenses by or on behalf of the
Companies. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.
Section 9.8. Agent in Individual Capacity.
BofA and its Affiliates may make loans to, issue letters of credit for
the account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting or other
business with any Company and its Subsidiaries and Affiliates as though BofA
were not the Agent hereunder and without notice to or consent of the Banks. The
Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may
receive information regarding a Company or its Affiliates (including information
that may be subject to confidentiality obligations in favor of such Company or
such Subsidiary) and acknowledge that the Agent shall be under no obligation to
provide such information to them. With respect to its Loans, BofA shall have the
same rights and powers under this Agreement as any other Bank and may exercise
the same as though it were not the Agent, and the terms "Bank" and "Banks"
include BofA in its individual capacity.
Section 9.9. Successor Agent.
The Agent may, and at the request of the Required Banks shall, resign
as Agent upon thirty (30) days' notice to the Banks. If the Agent resigns under
this Agreement, the Required Banks shall appoint from among the Banks a
successor agent for the Banks. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and the Companies, a successor agent from among the
Banks. Upon the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article IX and Sections 10.4 and 10.5 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no
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successor agent has accepted appointment as Agent by the date which is thirty
(30) days following a retiring Agent's notice of resignation, the retiring
Agent's resignation shall nevertheless thereupon become effective and the Banks
shall perform all of the duties of the Agent hereunder until such time, if any,
as the Required Banks appoint a successor agent as provided for above.
Section 9.10. Withholding Tax.
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly
completed and executed copies of IRS Form 1001 before the payment of
any interest in the first calendar year and before the payment of any
interest in each third succeeding calendar year during which interest
may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two
properly completed and executed copies of IRS Form 4224 before the
payment of any interest is due in the first taxable year of such Bank
and in each succeeding taxable year of such Bank during which interest
may be paid under this Agreement; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Each such Bank agrees to promptly notify the Agent of any change in
circumstances which would modify or render invalid any claimed exemption or
reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of a Company to such Bank, such Bank agrees to notify the Agent
of the percentage amount in which it is no longer the beneficial owner of
Obligations of such Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of a Company to such
Bank, such Bank agrees to
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undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent, then the Agent
may withhold from any interest payment to such Bank not providing such forms or
other documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United States
or other jurisdiction asserts a claim that the Agent did not properly withhold
tax from amounts paid to or for the account of any Bank (because the exemption
claimed was not available to such Bank, because the appropriate form was not
delivered or was not properly executed, or because such Bank failed to notify
the Agent of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Bank
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax or otherwise, including penalties and interest, and including
any taxes imposed by any jurisdiction on the amounts payable to the Agent under
this Section, together with all costs and expenses (including Attorney Costs).
The obligation of the Banks under this subsection shall survive the payment of
all Obligations and the resignation or replacement of the Agent.
ARTICLE X
MISCELLANEOUS
Section 10.1. Amendments and Waivers.
No amendment or waiver of any provision of this Agreement or any other
Loan Document (excluding the Financial Services Agreements), and no consent with
respect to any departure by a Company therefrom, shall be effective unless the
same shall be in writing and signed by the Required Banks (or by the Agent at
the written request of the Required Banks) and the Companies and acknowledged by
the Agent, and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing and
signed by all the Banks and the Companies and acknowledged by the Agent, do any
of the following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.2);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document (excluding the Financial Services Agreements) for any payment of
principal, interest, fees or other amounts due to the Banks (or any of them)
hereunder or under any other Loan Document (excluding the Financial Services
Agreements);
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(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document (excluding the Financial Services
Agreements);
(d) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Banks or any of them to
take any action hereunder; or
(e) amend this Section, or Section 2.14, or any provision herein
providing for consent or other action by all Banks; and, provided further, that
no amendment, waiver or consent shall, unless in writing and signed by the Agent
in addition to the Required Banks or all the Banks, as the case may be, affect
the rights or duties of the Agent under this Agreement or any other Loan
Document.
Amendments and waivers with respect to the Financial Services
Agreements will be made in accordance with the respective terms thereof. The Fee
Letter may be amended, or rights or privileges thereunder waived, in a writing
executed by the parties thereto.
Section 10.2. Notices.
(a) All notices, requests, consents, approvals, waivers and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by a Company by facsimile (i) shall be immediately confirmed by a
telephone call to the recipient at the number specified on Schedule 10.2, and
(ii) shall be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number specified for
notices on Schedule 10.2; or, as directed to a Company or the Agent, to such
other address as shall be designated by such party in a written notice to the
other parties, and as directed to any other party, at such other address as
shall be designated by such party in a written notice to a Company and the
Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or IX to the Agent shall not be effective until
actually received by the Agent.
(c) Any agreement of the Agent and the Banks herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Companies. The Agent and the Banks shall be entitled to rely on
the authority of any Person purporting to be a Person authorized by a Company to
give such notice and the Agent and the Banks shall not have any liability to a
Company or other Person on account of any action taken or not taken by the Agent
or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of the Companies to repay the Loans shall not be affected in any way
or to any extent by any failure by the Agent and the Banks to receive written
confirmation of any
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telephonic or facsimile notice or the receipt by the Agent and the Banks of a
confirmation which is at variance with the terms understood by the Agent and the
Banks to be contained in the telephonic or facsimile notice.
Section 10.3. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the
Agent or any Bank, any right, remedy, power or privilege hereunder, shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or privilege.
Section 10.4. Costs and Expenses.
The Companies, jointly and severally, agree that they shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent) within
five (5) Business Days after demand (subject to subsection 4.1(g)) for all costs
and expenses incurred by BofA (including in its capacity as Agent) in connection
with the development, preparation, delivery, administration and execution of,
and any amendment, supplement, waiver or modification to (in each case, whether
or not consummated), this Agreement, any Loan Document and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including reasonable Attorney
Costs incurred by BofA (including in its capacity as Agent) with respect
thereto; and
(b) pay or reimburse the Agent, and each Bank within five (5) Business
Days after demand (subject to subsection 4.1(g)) for all costs and expenses
(including Attorney Costs) incurred by them in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Agreement or any other Loan Document during the existence of an Event of Default
or after acceleration of the Loans (including in connection with any "workout"
or restructuring regarding the Loans, and including in any Insolvency Proceeding
or appellate proceeding).
Section 10.5. Company Indemnification.
Whether or not the transactions contemplated hereby are consummated,
the Companies, jointly and severally shall indemnify, defend and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or asserted against
any such Person in any way relating to or arising out of the obligations of the
Companies under this Agreement or any document contemplated by or referred to
herein, or
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the transactions contemplated hereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or the use of the proceeds thereof, or related to any Offshore
Currency transactions entered into in connection herewith, whether or not any
Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that (a) a Company shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person and (b) the Companies shall have no obligation to pay
any of the Attorney Costs of BankBoston, N.A., formerly known as The First
National Bank of Boston in connection with the original documentation and
negotiation of this Agreement or any Loan Document. The agreements in this
Section shall survive payment of all other Obligations.
Section 10.6. Marshalling; Payments Set Aside.
Neither the Agent nor the Banks shall be under any obligation to
marshall any assets in favor of a Company or any other Person or in payment of
any or all of the Obligations. To the extent that a Company makes a payment to
the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its pro rata share of
any amount so recovered from or repaid by the Agent.
Section 10.7. Successors and Assigns.
The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns,
except that neither Company may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of the Agent
and each Bank.
Section 10.8. Assignments, Participations, etc.
(a) Any Bank may, with the written consent of the Agent, which consent
shall not be unreasonably withheld, and thirty (30) days prior written notice to
the Companies, at any time assign and delegate to one or more Eligible Assignees
(provided that no written consent of the Agent shall be required in connection
with any assignment and delegation by a Bank to an Eligible Assignee that is an
Affiliate of such Bank) (each an "Assignee") all, or any ratable part of all, of
the Loans, the Commitments and the other rights and obligations of such Bank
hereunder, in a minimum amount of Ten Million Dollars ($10,000,000) so long as
the assigning Bank maintains a minimum amount of Ten Million Dollars
($10,000,000) of the
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Loans and Commitments; provided, however, that the Companies and the Agent may
continue to deal solely and directly with such Bank in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to the Companies and the Agent by
such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered
to the Companies and the Agent an Assignment and Acceptance in the form of
Exhibit E ("Assignment and Acceptance") together with any Note or Notes subject
to such assignment and (iii) the assignor Bank or Assignee has paid to the Agent
a processing fee in the amount of Three Thousand Dollars ($3,000).
(b) From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights
and obligations hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.
(c) Within five (5) Business Days after its receipt of notice by the
Agent that it has received an executed Assignment and Acceptance and payment of
the processing fee, the Companies shall execute and deliver to the Agent, new
Notes evidencing such Assignee's assigned Loans and Commitment and, if the
assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Loans retained by the assignor
Bank (such Notes to be in exchange for, but not in payment of, the Notes held by
such Bank). Immediately upon each Assignee's making its processing fee payment
under the Assignment and Acceptance, this Agreement shall be deemed to be
amended to the extent, but only to the extent, necessary to reflect the addition
of the Assignee and the resulting adjustment of the Commitments arising
therefrom.
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of a Company (a "Participant") participating
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Companies and the
Agent shall continue to deal solely and directly with the originating Bank in
connection with the originating Bank's rights and obligations under this
Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant
any participating interest under which the Participant has rights to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or waiver
would require unanimous consent of the Banks as described in the first proviso
to Section 10.1. In the case of any such participation, the Participant shall be
entitled to the benefit of Sections 3.1, 3.3 and 10.5 as though it were also a
Bank hereunder, but shall not have
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any other rights under this Agreement, or any of the other Loan Documents, and
all amounts payable by a Company hereunder shall be determined as if such Bank
had not sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Bank under
this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank may
at any time create a security interest in, or pledge, all or any portion of its
rights under and interest in this Agreement and the Note held by it in favor of
any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S.
Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
Section 10.9. Substitution of Banks for Bank Acquisition.
No less than ninety (90) days after the occurrence of a Bank
Acquisition, BofA or a Company may, upon thirty (30) days prior notice to the
Affected Bank, designate a Replacement Bank; provided, however, that BofA shall,
for a period of ninety (90) days after such notice, have the option to become
the Replacement Bank. Any such designation of a Replacement Bank by the Company
shall be subject to the prior written consent of the Agent (which consent shall
not be unreasonably withheld) and any exercise by BofA of its option to become
the Replacement Bank or any designation of a Replacement Bank by BofA shall be
subject to the consent of the Companies (which consent shall not be unreasonably
withheld).
Section 10.10. Confidentiality.
Each Bank agrees to take and to cause its Affiliates to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information identified as "confidential" or "secret" by a Company and
provided to it by a Company or any Subsidiary, or by the Agent on a Company's or
such Subsidiary's behalf, under this Agreement or any other Loan Document, and
neither it nor any of its Affiliates shall use any such information other than
in connection with or in enforcement of this Agreement and the other Loan
Documents or in connection with other business now or hereafter existing or
contemplated with a Company or any Subsidiary; except to the extent such
information (i) was or becomes generally available to the public other than as a
result of disclosure by the Bank, or (ii) was or becomes available on a
non-confidential basis from a source other than a Company, provided that such
source is not bound by a confidentiality agreement with a Company known to the
Bank; provided, however, that any Bank may disclose such information (A) at the
request or pursuant to any requirement of any Governmental Authority to which
the Bank is subject or in connection with an examination of such Bank by any
such authority; (B) pursuant to subpoena or other court process; (C) when
required to do so in accordance with the provisions of any applicable
Requirement of Law; (D) to the extent reasonably required in connection with any
litigation or proceeding to which the Agent, any Bank or their respective
Affiliates may be
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party; (E) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (F) to such Bank's
independent auditors and other professional advisors; (G) to any Participant or
Assignee, actual or potential, provided that such Person agrees in writing to
keep such information confidential to the same extent required of the Banks
hereunder; (H) as to any Bank or its Affiliate, as expressly permitted under the
terms of any other document or agreement regarding confidentiality to which a
Company or any Subsidiary is party or is deemed party with such Bank or such
Affiliate; and (I) to its Affiliates.
Section 10.11. Set-off.
In addition to any rights and remedies of the Banks provided by law, if
an Event of Default exists or the Loans have been accelerated, each Bank is
authorized at any time and from time to time, without prior notice to either
Company, any such notice being waived by each Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Bank to or for the credit or the account
of either Company against any and all Obligations owing to such Bank, now or
hereafter existing, irrespective of whether or not the Agent or such Bank shall
have made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. Each Bank agrees promptly to notify
the affected Company and the Agent after any such set-off and application made
by such Bank; provided, however, that the failure to give such notice shall not
affect the validity of such set-off and application.
Section 10.12. Debits of Fees.
With respect to any commitment fee, agency fee, or other fee, or any
other cost or expense (including Attorney Costs) due and payable to the Agent or
BofA under the Loan Documents, each Company shall have the option to authorize
BofA to debit any deposit account of either Company with BofA in an amount such
that the aggregate amount debited from all such deposit accounts does not exceed
such fee or other cost or expense. If there are insufficient funds in such
deposit accounts to cover the amount of the fee or other cost or expense then
due, such debits will be reversed (in whole or in part, in BofA's sole
discretion) and such amount not debited shall be deemed to be unpaid. No such
debit under this Section shall be deemed a set-off.
Section 10.13. Notification of Addresses, Lending Offices, Etc.
Each Bank shall notify the Agent in writing of any changes in the
address to which notices to the Bank should be directed, of addresses of any
Lending Office, of payment instructions in respect of all payments to be made to
it hereunder and of such other administrative information as the Agent shall
reasonably request.
-69-
<PAGE> 75
Section 10.14. Counterparts.
This Agreement may be executed in any number of separate counterparts,
each of which, when so executed, shall be deemed an original, and all of said
counterparts taken together shall be deemed to constitute but one and the same
instrument.
Section 10.15. Severability.
The illegality or unenforceability of any provision of this Agreement
or any instrument or agreement required hereunder shall not in any way affect or
impair the legality or enforceability of the remaining provisions of this
Agreement or any instrument or agreement required hereunder.
Section 10.16. No Third Parties Benefited.
This Agreement is made and entered into for the sole protection and
legal benefit of the Companies, the Banks, the Agent and the Agent-Related
Persons, and their permitted successors and assigns, and no other Person shall
be a direct or indirect legal beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any of the other
Loan Documents; provided, that a Participant may be entitled to the benefits of
this Agreement to the extent set forth in subsection 10.8(d).
Section 10.17. Governing Law and Jurisdiction.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF ILLINOIS; PROVIDED THAT THE AGENT AND
THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS OR
OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF ILLINOIS, AND BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANIES, THE AGENT AND THE BANKS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANIES, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANIES, THE AGENT AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY ILLINOIS LAW.
-70-
<PAGE> 76
Section 10.18. Waiver of Jury Trial.
THE COMPANIES, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANIES, THE BANKS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
Section 10.19. Judgment.
If, for the purposes of obtaining judgment in any court, it is
necessary to convert a sum due hereunder or any other Loan Document in one
currency into another currency, the rate of exchange used shall be that at which
in accordance with normal banking procedures the Agent or with respect to a
Financial Services Agreement the Bank a party thereto, could purchase the first
currency with such other currency on the Business Day preceding that on which
final judgment is given. The obligation of a Company in respect of any such sum
due from it to the Agent or any Bank hereunder or under the other Loan Documents
shall, notwithstanding any judgment in a currency (the "Judgment Currency")
other than that in which such sum is denominated in accordance with the
applicable provisions of this Agreement or the other Loan Documents (the
"Agreement Currency"), be discharged only to the extent that on the Business Day
following receipt by the Agent or such Bank of any sum adjudged to be so due in
the Judgment Currency, the Agent or such Bank may in accordance with normal
banking procedures purchase the Agreement Currency with the Judgment Currency.
If the amount of the Agreement Currency so purchased is less than the sum
originally due to the Agent or such Bank in the Agreement Currency, each Company
agrees, as a separate obligation and notwithstanding any such judgment, to
indemnify the Agent, Bank or the Person to whom such obligation was owing
against such loss. If the amount of the Agreement currency so purchased is
greater than the sum originally due to the Agent or any Bank in such currency,
the Agent or such Bank agrees to return the amount of any excess to such Company
(or to any other Person who may be entitled thereto under applicable law).
-71-
<PAGE> 77
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in Chicago, Illinois by their proper
and duly authorized officers as of the day and year first above written.
C.P. CLARE CORPORATION
By: /s/ Arthur R. Buckland
-------------------------
Title: President
--------------------
C.P. CLARE N.V.
By: /s/ Arthur R. Buckland
-------------------------
Title: Director
------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ Jay McKeown
-------------------------
Title: Assistant Vice President
-------------------------
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
By: /s/ Steven Kessler
-------------------------
Title: Vice President
------------------
BANKBOSTON, N.A., formerly known as
THE FIRST NATIONAL BANK OF BOSTON,
as a Bank
By: /s/ Timothy Clifford
-------------------------
Title: Vice President
--------------------
-72-
<PAGE> 78
SCHEDULES
Schedule 1.1 Organizational Chart
Schedule 2.1 Commitments and Financial Services (Excluding Loans)
Schedule 5.5 Litigation
Schedule 5.7 ERISA
Schedule 5.10 Leases
Schedule 5.11 Permitted Liabilities
Schedule 5.12 Environmental Matters
Schedule 5.16 Subsidiaries and Minority Interests
Schedule 5.17 Insurance Matters
Schedule 7.1 Permitted Liens
Schedule 7.5 Permitted Indebtedness
Schedule 7.8 Contingent Obligations
Schedule 10.2 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Notes
-73-
<PAGE> 79
SCHEDULE 2.1
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Bank Commitment Pro Rata Share
---- ---------- --------------
<S> <C> <C>
Bank of America National Trust $20,000,000 50%
and Savings Association
BankBoston, N.A. $20,000,000 50%
TOTAL $40,000,000 100%
</TABLE>
FINANCIAL SERVICES (EXCLUDING LOANS)
<TABLE>
<CAPTION>
Bank Aggregate Exposure
---- ------------------
<S> <C>
Bank of America National Trust $5,000,000
and Savings Association
BankBoston, N.A. $2,000,000
</TABLE>
<PAGE> 80
SCHEDULE 10.2
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
AS AGENT
Address for Notices:
- --------------------
Bank of America National Trust
and Savings Association
Agency Management Service #33499
231 South LaSalle Street
8th Floor
Chicago, Illinois 60697
Attn: Jay McKeown, Assistant Vice President
Telephone: (312) 828-7299
Facsimile: (312) 974-9102
RE: C. P. Clare Corporation
Address for Payments:
- ---------------------
Bank of America National Trust
and Savings Association
San Francisco, California
ABA No.: 121-000-358
Account No.: 12334-14744
Reference: C.P. Clare Corporation
Domestic and Offshore Lending Office:
231 South LaSalle Street
Chicago, Illinois 60697
<PAGE> 81
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS A BANK
Address for Payments and Notices:
- ---------------------------------
231 South LaSalle Street
Chicago, Illinois 60697
Attention: Midwest Commercial Banking II
Telephone: (312) 828-5658
Facsimile: (312) 974-2108
RE: C. P. Clare Corporation
BANKBOSTON, N.A.,
AS A BANK
Address for Payments and Notices:
- ---------------------------------
100 Rustcraft Road
Mail Stop 74-02-04
Dedham, Massachusetts 02126
Attn: Angela Long
Telephone: (781) 467-2283
Facsimile: (781) 467-2120
RE: C. P. Clare Corporation
<PAGE> 1
EXHIBIT 10.3
REVOLVING NOTE
$20,000,000.00 March 6, 1998
FOR VALUE RECEIVED, each of the undersigned, C.P. Clare
Corporation, a Massachusetts corporation ("Clare") and C.P. Clare N.V., a
Belgian corporation ("C.P. Clare N.V.", and together with Clare, the
"Borrowers"), hereby unconditionally, and jointly and severally, promise to pay
to the order of Bank of America National Trust and Savings Association (the
"Lender") on June 30, 2001 the principal sum of Twenty Million Dollars
($20,000,000) or, if different, the aggregate unpaid principal amount of all
Revolving Loans made by the Lender pursuant to that certain Amended and Restated
Multicurrency Credit Agreement of even date herewith (as the same may be
amended, modified, extended, renewed, restated or supplemented from time to
time, the "Credit Agreement"), among the Borrowers, the various financial
institutions (including the Lender) as are, or may from time to time become,
parties thereto, and Bank of America National Trust and Savings Association, as
agent as provided therein, regardless of whether such principal amount is shown
on the schedule attached hereto (or any continuation thereof).
The Borrowers further unconditionally, and jointly and
severally, promise to pay interest on the unpaid principal amount hereof from
time to time outstanding from the date hereof until maturity (whether by
acceleration or otherwise) and, after maturity and/or judgment, until paid, at
the rate per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in
lawful money of the United States of America in same day or immediately
available funds to the account designated by the agent pursuant to the Credit
Agreement.
This Note is one of the Revolving Notes referred to in, and
evidences Indebtedness incurred under, the Credit Agreement, to which reference
is made for a statement of the terms and conditions on which the Borrowers are
permitted and required to make prepayments and repayments of principal of the
Indebtedness evidenced by this Note and on which such Indebtedness may be
declared to be immediately due and payable. Unless otherwise defined, terms used
herein have the meanings provided in the Credit Agreement.
This Note shall be in substitution for a replacement of that
certain Revolving Note dated September 11,1995 executed by the Borrowers to the
order of Bank of America National Trust and Savings Association, formerly known
as Bank of America Illinois,. in the original principal amount of Ten Million
Dollars ($10,000,000.00) (the "Original Note"). The indebtedness evidenced by
the Original Note is continuing indebtedness and nothing contained herein shall
be deemed to constitute payment, settlement or a novation
<PAGE> 2
of the Original Note or release or otherwise adversely affect any lien or
security interest securing such indebtedness
ALL PARTIES HERETO, WHETHER AS MAKERS, ENDORSERS, OR
OTHERWISE, SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, PROTEST AND NOTICE
OF DISHONOR.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE
OF ILLINOIS.
C.P. CLARE CORPORATION
By: /s/ Arthur R. Buckland
---------------------------------
Title: President
----------------------------
C.P. CLARE N.V.
By: /s/ Arthur R. Buckland
---------------------------------
Title: Director
----------------------------
-2-
<PAGE> 1
EXHIBIT 10.4
REVOLVING NOTE
$20,000,000.00 March 6, 1998
FOR VALUE RECEIVED, each of the undersigned, C.P. Clare Corporation, a
Massachusetts corporation ("Clare") and C.P. Clare N.V., a Belgian corporation
("C.P. Clare N.V.", and together with Clare, the "Borrowers"), hereby
unconditionally, and jointly and severally, promise to pay to the order of
BankBoston, N.A., formerly known as The First National Bank of Boston (the
"Lender") on June 30, 2001 the principal sum of Twenty Million Dollars
($20,000,000) or, if different, the aggregate unpaid principal amount of all
Revolving Loans made by the Lender pursuant to that certain Amended and Restated
Multicurrency Credit Agreement of even date herewith (as the same may be
amended, modified, extended, renewed, restated or supplemented from time to
time, the "Credit Agreement"), among the Borrowers, the various financial
institutions (including the Lender) as are, or may from time to time become,
parties thereto, and Bank of America National Trust and Savings Association, as
agent as provided therein, regardless of whether such principal amount is shown
on the schedule attached hereto (or any continuation thereof).
The Borrowers further unconditionally, and jointly and severally,
promise to pay interest on the unpaid principal amount hereof from time to time
outstanding from the date hereof until maturity (whether by acceleration or
otherwise) and, after maturity and/or judgment, until paid, at the rate per
annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money
of the United States of America in same day or immediately available funds to
the account designated by the agent pursuant to the Credit Agreement.
This Note is one of the Revolving Notes referred to in, and evidences
Indebtedness incurred under, the Credit Agreement, to which reference is made
for a statement of the terms and conditions on which the Borrowers are permitted
and required to make prepayments and repayments of principal of the Indebtedness
evidenced by this Note and on which such Indebtedness may be declared to be
immediately due and payable. Unless otherwise defined, terms used herein have
the meanings provided in the Credit Agreement.
This Note shall be in substitution for a replacement of that certain
Revolving Note dated September 11,1995 executed by the Borrowers to the order of
The First National Bank of Boston, in the original principal amount of Ten
Million Dollars ($10,000,000.00) (the "Original Note"). The indebtedness
evidenced by the Original Note is continuing indebtedness and nothing contained
herein shall be deemed to constitute
<PAGE> 2
payment, settlement or a novation of the Original Note or release or otherwise
adversely affect any lien or security interest securing such indebtedness
ALL PARTIES HERETO, WHETHER AS MAKERS, ENDORSERS, OR OTHERWISE,
SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, PROTEST AND NOTICE OF DISHONOR.
THIS NOTE SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
ILLINOIS.
C.P. CLARE CORPORATION
By: /s/ Arthur R. Buckland
--------------------------------
Title President
-------------------------------
C.P. CLARE N.V.
By: /s/ Arthur R. Buckland
--------------------------------
Title Director
-------------------------------
-2-
<PAGE> 1
EXHIBIT 10.7
REAFFIRMATION OF GUARANTY AND NEGATIVE PLEDGE AGREEMENT
In order to induce Bank of America National Trust and Savings
Association and BankBoston, N.A. (collectively, the "Lenders") to execute and
deliver that certain Amended and Restated Multicurrency Credit Agreement of even
date herewith (the "Amended Credit Agreement"), among the Lenders, Bank of
America National Trust and Savings Association, in its capacity as agent for the
Lenders ("Agent"), C.P. Clare Corporation and C.P. Clare N.V., each of the
undersigned here reaffirms its obligations under (i) the Guaranty executed in
favor of Agent and the Lenders (the "Guaranty") and (ii) the Negative Pledge
Agreement executed in favor of Agent and the Lenders (the "Negative Pledge
Agreement").
Each of the undersigned further agrees that (i) the Guaranty and
Negative Pledge Agreement shall remain in full force and effect following the
execution and delivery of the Amended Credit Agreement and (ii) that all
references in the Guaranty and the Pledge Agreement to the "Credit Agreement"
shall be deemed to refer to the Amended Credit Agreement as otherwise amended,
supplemented or otherwise modified from time to time. Except as set forth in the
immediately preceding sentence, the Guaranty and the Negative Pledge Agreement
shall remain unmodified and in full force and effect. This Reaffirmation of
Guaranty and Negative Pledge Agreement is dated as of March 6, 1998.
Arthur R. Buckland, as Director of the following:
Clare Instruments, Inc. Clare Services, Inc.
Clare Capital, Inc. Clare Mexicana de c.v.
Clare Technologies, Inc. Clare Systems, Inc.
Clare Components, Inc. Clare Electronics, Inc.
Clare Engineering N.V. Clare Canada, Ltd.
C.P. Clare Electronics, GmbH
Clare France S.A.R.L.
C.P. Clare Foreign Sales Corporation
/s/ Arthur R. Buckland
- ----------------------
Thomas B. Sager as Supervisor of the following:
Clare Technologies (Taiwan) Inc.
/s/ Thomas B. Sager
- -------------------
<PAGE> 1
EXHIBIT 10.8
CP CLARE CORPORATION
VOLUNTARY DEFERRED COMPENSATION PLAN
FOR KEY EMPLOYEES
1. Name and Purpose. The name of this plan is the CP Clare
Corporation Voluntary Deferred Compensation Plan for Key Employees (the "Plan").
The purpose of the Plan is to permit each elected corporate officer and each
other key employee of CP Clare Corporation (the "Company") or any subsidiary
thereof (a "Subsidiary") who is designated by the President of the Company (in
either case, a "Participant") to elect to defer all or a portion of his or her
annual bonus from the Company payable with respect to a fiscal year of the
Company ending on March 31 (each, a "Fiscal Year"). The Plan is intended to be
"a plan which is unfunded and is maintained by an employer primarily for the
purpose of providing deferred compensation for a select group of management or
highly compensated employees" within the meaning of Sections 201(2), 301(a)(3)
and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and shall be interpreted and administered to the extent possible in a
manner consistent with that intent.
2. Right to Defer. For each Fiscal Year beginning on or after
April 1, 1998, each Participant may elect to defer payment of up to 100% of such
Participant's bonus otherwise payable with respect to such Fiscal Year
("Bonus").
3. Deferral Elections. A Participant's election to defer his or
her Bonus hereunder (a "Deferral Election") shall be in writing and shall be
deemed to have been made upon receipt and acceptance by the Company. In order to
be effective hereunder, a Deferral Election for any Fiscal Year must be made not
later than March 31 of the preceding Fiscal Year and shall specify the time and
method of payment pursuant to Sections 5(a) and 5(c) below applicable to the
amount(s) deferred thereunder. Notwithstanding the foregoing, a Participant's
Deferral Election with respect to his or her Bonus payable for the Fiscal Year
ending March 31, 1999 shall be made not later than thirty (30) days after April
1, 1998, and a person who becomes a Participant
<PAGE> 2
during a Fiscal Year may make a Deferral Election with respect to his or her
Bonus payable for such Fiscal Year at any time on or before the thirtieth (30th)
day after the date he or she becomes a Participant. A Deferral Election made for
a Fiscal Year may not be revised after the last date on which it could have been
made, except that a Deferral Election may be revoked in its entirety by the
Participant at any time by finding a written notice of revocation with the
Company, but only as to a Bonus which has not yet been paid.
4. Accounts; Crediting Interest.
(a) All amounts deferred by a Participant under this Plan
shall be credited by the Company or Subsidiary, whichever is the employer of the
Participant, to a book account (a "Deferred Compensation Account") in the name
of such Participant as of the dates such amounts would have been paid to the
Participant but for his or her Deferral Election.
(b) As of the last day of each month, the Company or
Subsidiary, whichever is the employer of the Participant, shall credit each
Participant's Deferred Compensation Account with interest on the amount credited
to such Deferred Compensation Account as of the sixteenth (16th) day of such
month. The rate of interest to be used for this purpose during any calendar year
shall be the 30-year U.S. Treasury bond rate in effect as of the January 1 of
such year. The foregoing rate shall be determined by reference to the first
January issue of Barron's
<PAGE> 3
for such calendar year, or such other comparable publication as may be selected
by the Company if Barron's is no longer published or no longer provides such
information. Notwithstanding the foregoing, the Company may change the rate of
interest to be used under the Plan by written notice to each Participant
(including former Participants who then have a Deferred Compensation Account
which would be affected by such change), which notice shall specify the new rate
of interest to be used, the effective date of such change and the Deferred
Compensation Accounts to which such new rate of interest shall apply.
5. Time and Method of Payment.
(a) Amounts standing to the credit of a Participant's
Deferred Compensation Account shall be paid, or commence to be paid, on the
January 15 first following the earlier of (i) the passage of the number of
calendar years (not to exceed 20 and including the year of deferral, which shall
constitute a calendar year) specified by the Participant in his or her Deferral
Election(s) with respect to the amount credited to such Deferred Compensation
Account, or (ii) the calendar year in which the Participant ceases to be an
employee of the Company and its Subsidiaries for any reason whatsoever. The
amount of each such payment shall be determined by the amount credited to such
Deferred Compensation Account as of the preceding December 31.
(b) All amounts credited to the Participant's Deferred
Compensation Account shall be distributed in cash and shall be made by the
Company or the Subsidiary which credited such amounts to the Participant's
Deferred Compensation Account. Each such Deferred Compensation Account shall be
charged with the amount paid therefrom as of the date of payment.
(c) All amounts credited to the Participant's
Deferred Compensation Account shall be paid in either a single lump sum or in
annual installments over a period of five years, as the Participant has
specified in the Deferral Election(s) applicable to such sub-account. In the
case of installment payments, (i) interest on any Deferred Compensation Account
shall continue
<PAGE> 4
to be credited in accordance with Section 3 during the payment period, and (ii)
the amount of each payment shall be equal to the amount credited to the Deferred
Compensation Account as of the preceding December 31 divided by the number of
annual payments remaining to be made, including the current payment.
(d) All amounts credited to a Participant's Deferred
Compensation Account shall be paid as they become due to the Participant if then
living. All amounts credited to a Participant's Deferred Compensation Account at
the time of his or her death shall be paid pursuant to Section 6.
(e) Notwithstanding any provision hereof to the contrary,
if a Participant believes he or she is suffering from an "Unforeseen Emergency,"
an application may be made to the Company for an acceleration of payments from
such Participant's Deferred Compensation Account. "Unforeseen Emergency" for
this purpose shall mean a severe financial hardship to the Participant resulting
from a sudden and unexpected illness or accident of the Participant or a
dependent of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result of events beyond the control of the Participant. If the Company
determines, in its sole discretion, that the Participant is suffering from an
Unforeseen Emergency, the Company may accelerate payment to the Participant of
only such portion of such Participant's Deferred Compensation Account as the
Company may determine is required to alleviate such Unforeseen Emergency, and
such Deferred Compensation Account shall be charged with the amount paid
therefrom as of the date of payment.
(f) Notwithstanding any provision hereof to the contrary,
but subject to the approval of the Company in its sole discretion, a Participant
may request payment of all or a portion of his or her Deferred Compensation
Account in different amounts and/or over a different period or periods of time
than that specified in the applicable Deferral Election. The Participant must
communicate any such request to the Company at least 15 months prior to the
<PAGE> 5
initial date on which the amount credited to such Deferred Compensation Account
would otherwise be paid or commence to be paid. The Company may approve such
request in its sole discretion at any time which is at least 12 months and 15
days prior to such initial payment date. If any such request is so approved by
the Company, the amount credited to such Deferred Compensation Account shall be
paid at the times and in the amounts specified in such request.
6. Payments after Death. Each Participant may designate,
from time to time, a beneficiary or beneficiaries (who may be named contingently
or successively) to whom any amounts which remain credited to the Participant's
Deferred Compensation Account at the time of his or her death shall be paid. All
such amounts shall be paid in a single lump sum in accordance with Section 5(b)
as soon as practicable after such Participant's death. Each such designation
shall revoke all prior designations by the same Participant, except to the
extent otherwise specifically noted, shall be in a form prescribed by the
Company, and shall be effective only when filed by the Participant in writing
with the Company during his or her lifetime. Any amounts which remain credited
to a Participant's Deferred Compensation Account at the time of his or her death
which are not payable to a designated beneficiary shall be paid to the estate of
such Participant in a single lump sum in accordance with Section 5(b) as soon as
practicable after the death of such Participant.
7. No Funding Required.
(a) Nothing in this Plan will be construed to create a trust or to
obligate the Company, any Subsidiary or any other person to segregate a fund,
purchase an insurance contract, or in any other way to fund currently the future
payment of any benefits hereunder, nor will anything herein be construed to give
any Participant or any other person rights to any specific assets of the
Company, any Subsidiary or of any other person. Except as provided in 7(b)
below, any benefits which become payable hereunder shall be paid from the
general assets of the Company or Subsidiary, whichever is applicable, in
accordance with the terms hereof.
<PAGE> 6
(b) The Company in its sole discretion may establish a grantor
trust of which it is treated as the owner under Subpart E of Subchapter J,
Chapter 1 of the Internal Revenue Code of 1986, as amended, to provide for the
payment of benefits hereunder, subject to the claims of the Company's general
creditors in the event of insolvency, and subject to such other terms and
conditions as the Company may deem necessary or advisable to ensure (i) that
benefits are not includible, by reason of the establishment or funding of the
grantor trust, in the income of trust beneficiaries prior to actual distribution
and (ii) that the existence of the grantor trust does not cause the Plan or any
other arrangement to be considered "funded" for purposes of Title I of ERISA.
8. Plan Administration and Interpretation. The Company shall have
complete control over the administration of the Plan and complete control and
authority to determine, in its sole discretion, the rights and benefits and all
claims, demands and actions arising out of the provisions of the Plan of any
Participant, beneficiary, or other person having or claiming to have any
interest under the Plan and the Company's determinations shall be conclusive and
binding on all such parties. The Company shall be deemed to be the Plan
administrator with the responsibility for complying with any reporting and
disclosure requirements of ERISA. The rights of the Company hereunder shall be
exercised by the Compensation Committee of the Board of Directors of the Company
(the "Board"). To the extent that the Compensation Committee is unable or
unwilling to exercise any right hereunder or make any determination hereunder,
however, the Board shall exercise such right or make such determination.
9. Non-Assignable. Amounts payable under this Plan shall not be
subject to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, attachment, garnishment, execution or levy of any kind, and any
attempt to cause any such amount to be so subjected shall be null, void and of
no effect and shall not be recognized by the Company or its Subsidiaries.
<PAGE> 7
10. Termination and Modification.
(a) The Company may terminate this Plan by written notice to each
Participant participating therein. A termination of the Plan shall have no
effect other than to eliminate the right of each Participant to defer further
compensation. Except for such "prospective" termination, neither the Plan nor
any Deferral Election in effect hereunder may be amended, modified, waived,
discharged or terminated, except by mutual consent of the Company and the
Participant or Participants affected thereby, which consent shall be evidenced
by an instrument in writing, signed by the party against which enforcement of
such amendment, modification, waiver, discharge or termination is sought.
Notwithstanding the foregoing, if, on or after April 1, 1998, (i) the Company's
ratio of current assets to current liabilities as reflected on any quarterly or
annual financial statements filed by the Company with the Securities and
Exchange Commission falls below 1.4 to 1 for two consecutive quarters or (ii)
the Company is subject to a "change of control," this Plan shall immediately
terminate and the Company shall, in complete discharge of its obligations
hereunder, distribute to each Participant the full amount then credited to his
or her Deferred Compensation Account, such amount to be payable in a single lump
sum in accordance with Section 5(b).
(b) "Change of Control" shall mean the occurrence of any one of
the following events:
(i) any "person," as such term is used in Sections 13(d)
and 14(d) of the Act (other than the Company, any of its Subsidiaries,
or any trustee, fiduciary or other person or entity holding securities
under any employee benefit plan or trust of the Company or any of its
Subsidiaries), together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Act) of such person, shall
become the "beneficial owner" (as such term is defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Company
representing 50% or more of either (A) the combined voting power of the
Company's then outstanding securities having the right to
<PAGE> 8
vote in an election of the Company's Board of Directors ("Voting
Securities") or (B) the then outstanding shares of Stock of the Company
(in either such case other than as a result of an acquisition of
securities directly from the Company); or
(ii) persons who, as of April 1, 1998, constitute the
Company's Board of Directors (the "Incumbent Directors") cease for any
reason, including, without limitation, as a result of a tender offer,
proxy contest, merger or similar transaction, to constitute at least a
majority of the Board, provided that any person becoming a director of
the Company subsequent to April 1, 1998 whose election or nomination
for election was approved by a vote of at least a majority of the
Incumbent Directors shall, for purposes of this Plan, be considered an
Incumbent Director; or
(iii) the stockholders of the Company shall approve (A) any
consolidation or merger of the Company or any Subsidiary where the
shareholders of the Company, immediately prior to the consolidation or
merger, would not, immediately after the consolidation or merger,
beneficially own (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, shares representing in the aggregate 60% or
more of the voting shares of the corporation issuing cash or securities
in the consolidation or merger (or of its ultimate parent corporation,
if any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "change of control" shall not be
deemed to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing the
number of shares of Stock or other Voting Securities outstanding, increases (x)
the proportionate number of shares of Stock beneficially owned by any person to
50% or more of the shares of Stock then outstanding or (y) the proportionate
voting power represented by the Voting Securities beneficially owned by any
<PAGE> 9
person to 50% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in clause
(x) or (y) of this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "change of control"
shall be deemed to have occurred for purposes of the foregoing clause (i).
11. Parties. The terms of this Plan shall be binding upon the
Company, its Subsidiaries and their successors or assigns and each Participant
participating herein and his or her beneficiaries, heirs, executors and
administrators.
12. Liability of Company. Subject to its obligation to pay the
amount credited to the Participant's Deferred Compensation Account at the time
distribution is called for by the payment option in effect, none of the Company,
its Subsidiaries nor any person acting on behalf of the Company or its
Subsidiaries shall be liable to any Participant or any other person for any act
performed or the failure to perform any act with respect to the Plan.
13. Notices. Notices, elections or designations by a Participant
to the Company hereunder shall be addressed to the Company to the attention of
the Treasurer of the Company. Notices by the Company to a Participant shall be
addressed to the Participant at his or her most recent home address as reflected
in the records of the Company.
14. Unsecured General Creditors. No Participant or his or her
legal representative or any beneficiary designated by him or her shall have any
right, other than the right of an unsecured general creditor, against the
Company or any Subsidiary in respect of the Deferred Compensation Account of
such Participant established hereunder.
15. Effective Date. This Plan shall be effective as of April 1,
1998, and shall continue in existence thereafter until terminated pursuant to
Section 10.
16. Governing Law. This Plan shall be construed and enforced in
accordance with, and governed by, the laws of the Commonwealth of Massachusetts.
<PAGE> 10
IN WITNESS WHEREOF, this Plan has been signed and sealed for and on
behalf of the Company by its duly authorized officer this ________ day of
_________________, 1998.
CP CLARE CORPORATION
By:_____________________________
Title:
<PAGE> 1
EXHIBIT 21
C.P. CLARE CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
SUBSIDIARY PLACE OF INCORPORATION
---------- ----------------------
Clare Capital, Inc. New York
Clare Capital, Inc. Delaware
Clare Components, Inc. New York
Clare Components, Inc. Delaware
Clare Electronics, Inc. New York
Clare Electronics, Inc. Delaware
Clare Instruments, Inc. New York
Clare Instruments, Inc. Delaware
Clare Services, Inc. New York
Clare Services, Inc. Delaware
Clare Systems, Inc. New York
Clare Systems, Inc. Delaware
Clare Technologies, Inc. New York
Clare Technologies, Inc. Delaware
Clare Canada, Ltd. Ontario, Canada
Clare France S. A. R. L. France
C. P. Clare Electronics GmbH Germany
C. P. Clare Foreign Sales Corporation U.S. Virgin Islands
C. P. Clare International N.V. Belgium
C. P. Clare Engineering N.V. Belgium
C. P. Clare Mexicana S.A. de C.V. Mexico
Clare Technologies (Taiwan), Inc. Taiwan
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports, included in this Form 10-K, into C.P. Clare
Corporation's previously filed Registration Statements on Form S-8 (file Nos.
33-94038, 33-94060, and 333-15097).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CP CLARE
CORPORATION CONSOLIDATED STATEMENTS OF OPERATION AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K FOR FISCAL YEAR
ENDING MARCH 31, 1998
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 26,364
<SECURITIES> 0
<RECEIVABLES> 21,383
<ALLOWANCES> 1,177
<INVENTORY> 22,083
<CURRENT-ASSETS> 72,952
<PP&E> 38,777
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,186
<CURRENT-LIABILITIES> 23,029
<BONDS> 0
0
0
<COMMON> 94
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 114,186
<SALES> 156,271
<TOTAL-REVENUES> 0
<CGS> 107,427
<TOTAL-COSTS> 37,026
<OTHER-EXPENSES> (135)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> 13,192
<INCOME-TAX> 4,880
<INCOME-CONTINUING> 8,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,312
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.83
</TABLE>
