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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
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FOR THE FISCAL YEAR ENDED MARCH 31, 1999 COMMISSION FILE NUMBER 0-26092
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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 (I.R.S. Employer
incorporation or organization) Identification No.)
78 CHERRY HILL DRIVE
BEVERLY, MA 01915
(Address of principal executive offices) (Zip Code)
(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. _X_
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of June 10, 1999, was $10,923,034.
The number of shares of the Registrant's Common Stock, par value $.01 per
share, outstanding as of June 10, 1999, was 9,459,630.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1999 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
PART I PAGE
1. Business 1
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Securityholders 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 13
6. Selected Financial Data 14
Management's Discussion and Analysis of Financial Condition and Results of
7. Operations 15
7a. Quantitative and Qualitative Information about Market Risk 21
8. Financial Statements and Supplementary Data 21
Changes in and Disagreements with Accountants on Accounting and Financial
9. Disclosure 21
PART III
10. Directors and Executive Officers of the Registrant 22
11. Executive Compensation 22
12. Security Ownership of Certain Beneficial Owners and Management 22
13. Certain Relationships and Related Transactions 22
PART IV
14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 23
(a) Financial Statement Schedule
(b) Reports on Form 8-K
(c) Exhibit Index
15. Signatures 60
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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 10 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.
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 48% and 45% of the
Company's net sales in fiscal 1999 and 1998, respectively.
C.P. Clare focuses on providing solutions for the telecommunications and
data communications industries due to its significant use of analog
semiconductor components and growing demand for highly integrated semiconductor
packages. The Company's customers include leading global OEMs such as Motorola,
Compaq, 3Com, ABB, Alcatel, Diamond Multimedia, LM Ericsson, GVC, Lucent
Technologies, Nokia, Samsung, Dialogic, Psion, and Daewoo.
C.P. Clare, 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 and changed its name to C.P. Clare Corporation. This
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 and
miniaturization and broader functionality have resulted in significant growth in
mobile communications and 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 data communications 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
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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 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
electromechanical, electromagnetic and semiconductor technologies have been
developed to meet these isolation and switching requirements. C.P. Clare
designs, manufactures and sells electromagnetic and analog semiconductor
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.
DEVELOPMENTS IN FISCAL 1999
On July 6, 1998, the Company acquired Micronix Integrated Systems, Inc.
("Micronix"), a designer and manufacturer of analog and mixed-signal application
specific integrated circuits, located in Aliso Viejo, California. The Company
paid $16.0 million for the acquisition and direct cost, net of cash acquired.
See "Note 9 to Notes To Consolidated Financial Statements."
In fiscal 1999, the Company announced a restructuring of its operations, and
recorded a non-recurring pretax charge of $3.7 million. The non-recurring charge
included severance-related costs associated with a workforce reduction of
approximately 60 persons on a worldwide basis, half of whom were in
manufacturing and the remainder in sales, general and administrative. The
balance of this charge includes a write-down of assets associated with the
closure of the Company's Wakefield, MA production facility, which was completed
in the fourth quarter of 1999.
STRATEGY
CP Clare's strategy for the past 5 years has been to become the preferred
supplier of unique mixed-signal interface integrated circuits to the
communications industry. As well as operating on the "network's edge" with
analog front ends for analog, ADSL, cable, HomePNA, and other solutions, the
Company is committed to the telecommunications voice, data and video interface
markets in central office or gateway applications. The Company's primary focus
is on the communications industry where the Company has good name recognition
and customer contacts worldwide. In addition, the Company will also endeavor to
supply mixed signal interface chips to other related market niches for
high-profit applications that will dominate and keep the technology breadth
alive. These complementary technical applications will provide
counter-cyclicality, but more importantly will enable the Company to pursue a
number of markets simultaneously creating strong growth.
C.P. Clare's product strategy is straightforward. First, the Company will
continue to develop and expand the solid state relay (SSR) business supplying
SSR's to the datacommunications market at falling commodity prices but with a
cost advantage over competition. At the same time, the Company will attempt to
expand SSR offerings into profitable niches in the instrumentation, industrial
controls, telecommunications and power markets. Second, the Company will
continue to invest in and grow the Application Specific Integrated Circuit
(ASIC) business. Third, from the ASIC business the Company will look to develop
standard products (also called ASSP's or Application Specific Standard Products)
for communications/networking applications as well as clearly defined and
isolated market niches that can be dominated with identical technologies. The
Company's extremely unique semiconductor fabrication facility will sell foundry
services for high margins and to acquire new processes. Finally, the reed switch
business will focus on the high growth portable phone hook switch and antenna
switch markets.
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The Company's focus is on the continuing shift in technology. The ability to
receive and transmit large amounts of information--data, voice or video--is
becoming more critical than the ability to process that information. The power
of individual PC's is now adequate for most needs so that the bottleneck is in
the pipes that carry data between PC's and other devices. Pipes using a variety
of technologies but all growing dramatically through the ubiquitous reach of the
Internet. As the Internet has emerged in its third generation as a powerful,
all-reaching fabric for communications, it has become the heart and soul of the
end-to-end broadband network. Many companies are focused on these pipes. C.P.
Clare is unique in that we have technology, expertise and facilities to address
the interfaces of these pipes to the real world.
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 5-inch wafer
fabrication 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 1999, the
Company introduced several new products, including, LiteLink-TM-, Cybergate-TM-,
and Digilite-TM-.
FOCUS ON COMMUNICATIONS INDUSTRY. The Company has focused primarily on
developing solutions for the computer telephony, data communications and
telecommunications industries due to their significant use of analog
semiconductor discrete components, electromagnetic switches and relays, and the
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 analog semiconductor
integrated packages and components into fewer circuits. Company sponsored
research and development expenses were $9.7 million (or 6.7% of total revenues)
and $8.9 million (or 5.7% of total revenues), for fiscal years 1999 and 1998,
respectively. The Company's core competencies in semiconductor design, multi
chip packaging, coil winding and ceramic to metal sealing have allowed it to
introduce new products to existing and prospective customers. During fiscal year
1999, in spite of workforce reductions, the Company continued to expand the
number of its analog engineers with the acquisition of Micronix.
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 and attention. The Company intends to further leverage its customer
relationships by offering complementary and new products to its existing
customer base and by pursuing new market opportunities. The Company is
capitalizing on its worldwide brand recognition to expand into new geographic
markets and new industries. The Company is seeking to
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increase local as well as re-export sales to Japan, China, India and Southeast
Asia, where significant opportunities exist, in spite of the slow-down in Asia,
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.
Like the purchase of Micronix, such acquisitions may include fabless design
organizations, which provide additional engineering resources to accelerate
exiting projects for 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 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 product supplier. Sales to customers outside the United States
comprised 44%, 42%, and 38%, of the Company's net sales for the fiscal years
1999, 1998, and 1997 respectively. For fiscal years ended March 31, 1999, 1998
and 1997, net sales to Motorola represented 13%, 14%, and 17%, of net sales,
respectively.
PRODUCT APPLICATIONS
The Company's products are used in a wide variety of applications, including
telephone network interfaces caller identification, high current MOSFET
switching, integrated package testers, high frequency communications, scanners,
and RF 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 data communications, which interface with telephone networks
applications. In certain DAA products such as the Cybergate -TM-2000 and 2100,
the complete DAA function is designed for both European markets and U.S. 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.
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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.
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. If
the relay does not function properly, false readings and equipment damage may
result. Thus, a high degree of reliability is required in these applications.
AUTOMATIC TEST EQUIPMENT
ELECTRICAL TESTERS. Semiconductor and printed circuit board testers require
precise measurement of smaller, complex products such as integrated circuits,
silicon wafers and printed circuit board assemblies. In each of these pieces of
equipment, placing a dry reed relay on each electrical path creates test points.
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 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 and mixed signal semiconductor products,
which include application specific integrated circuits (ASIC) relays,
optocouplers, modem isolation transformers and integrated packages; and
electromagnetic products, which include reed relays, switches, magnetic
components 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 automotive.
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 data communications applications where multiple discrete components
are typically used.
The Clare--Micronix Division specializes in the design and manufacture of
analog and mixed signal ASICs and ASSPs, utilizing CMOS, BiCMOS, and Bipolar
semiconductor technologies. Micronix
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sells into the data and wireless communications, medical, industrial and
automated test equipment marketplaces.
ELECTROMAGNETIC AND SURGE PROTECTION 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, caller identification, 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 automotive. The
electromagnetic switch consists of two flat metal blades, 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.
DRY REED. The Company's dry reed switch, the DYAD-Registered Trademark-,
has electrical contacts, which have an extremely hard refractory metal applied
to the contacts. The DYAD-Registered Trademark- 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-Registered Trademark- 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 wattmeter 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 and 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.
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PRODUCT DEVELOPMENT
The Company intends to build upon its history of innovation in both the
semiconductor and the switching and sensors portion of the electromagnetic
markets. 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 analog integrated circuits, designed to
be smaller and less expensive than other semiconductor relay chips and designed
to replace the electromechanical relay in certain applications. These new
products are targeted to data communications and portable telephone
applications. Also under development are products for certain 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-Registered Trademark- 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 12% of the Company's overall sales in
fiscal 1999. 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 small 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 reporting method includes only those purchase orders
scheduled for shipment within 6 months following the order date. As of March 31,
1999, six-month order backlog was approximately $29.3 million compared with
six-month backlog of $34.3 million as of March 31, 1998. 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
All the Company's Beverly, Guadalajara and St. Louis manufacturing and
assembly 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. During fiscal 1999, the
Company shifted production of its solid state relay products (SSR's) from its
Wakefield facility to the Beverly facility. As a result there were minor changes
in the characteristics of some of these SSR's produced in Beverly that caused
problems in the products in which they were incorporated. As a result the
Company lost
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business. It has addressed these quality problems and hopes to recapture a
substantial portion of the lost market share.
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 sale 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 this 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 it's 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, 1999, the Company had 1,476 total employees including 1,264
in manufacturing, 79 in sales and marketing, 67 in research and development and
66 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 its employees are generally good.
PROPRIETARY RIGHTS
The Company holds 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
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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.
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.
9
<PAGE>
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 in 1992, by the Company on
its West Pratt Avenue facility in Chicago, Illinois ("Site"), reported evidence
of contamination at the Facility. 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 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. On July 2, 1998 the Company
executed a purchase and sale agreement, as subsequently amended, to sell the
Site to Concord Development Corporation of Illinois ("Concord") for residential
development, contingent on Concord's obtaining certain permits and approvals for
such redevelopment. The Company anticipates closing on the sale of the Site in
the second quarter of fiscal year 2000. Concord intends to further clean up the
Site to residential standards at Concord's sole cost, and to release the Company
from any claims relating to known contamination at the Site. The Company agreed
to indemnify Concord with respect to contamination that migrated from the Site
onto adjacent properties. Pursuant to an agreement with Concord, the Company
agreed to acquire environmental insurance protecting Concord and the Company
from future environmental liability at 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 is working with those parties and
their environmental consultants to establish the procedures and costs for
remediating these properties. 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 work done by the
Company.
The Company and General Instrument are continuing to address contamination
that has been found on adjacent sites. Management continues to analyze the
estimated environmental remediation liability and has recorded 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 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
10
<PAGE>
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 computer-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 1999, the Company's ten largest customers
accounted for 42% of total net sales as compared to 35% in fiscal 1998. 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.
COMPLETION 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. The new facility
must be effectively and fully utilized in order for the Company's projected
efficiencies to be fully realized. The lack of 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 completing the implementation
of an Oracle Enterprise Resource Planning system for all applications and
locations. The vendor has informed the Company that this new system is compliant
with year 2000 issues and internal testing of year 2000 compliance is nearing
completion. As a result of the systems transition, the Company may experience
disruptions, which may have material, adverse impact on the Company's results of
operations.
ACQUISITION. On July 6, 1998, the Company acquired Micronix Integrated
Systems, Inc., a designer and manufacturer of analog and mixed-signal
application specific integrated circuits, located in Aliso Viejo, California,
for approximately $16 million, excluding acquisition costs and assumed
liabilities. The Company has limited experience in integrating acquired
companies or technologies into its operations.
11
<PAGE>
Therefore, there can be no assurance the Company will operate the acquired
business effectively and that the resulting profitability will be at anticipated
levels. Also, there can be no assurance that the Company will be able to retain
key personnel, the loss of which could have a material adverse effect on the
Company's 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 a large part on its
ability to manage these changes and effectively manage 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
St. Louis, Missouri (1).................. 20,000 Leased Dry Reed Products and Surge Arresters
Guadalajara, Mexico (1).................. 193,000 Leased All products except Semiconductor
Aliso Viejo, California.................. 27,000 Leased ASIC design and manufacture
</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 is not in use and is under agreement to be sold. 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.
12
<PAGE>
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
System (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>
PERIOD OR 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
April 1, 1998--June 30, 1998............ $ 14 1/2 $ 8 5/8
July 1, 1998--September 30, 1998........ 9 1/2 5 3/16
October 1, 1998--December 31, 1998...... 7 3/4 3 7/8
January 1, 1999--March 31, 1999......... 7 3/4 3 5/8
</TABLE>
On June 10, 1999, the last reported sale price of the Common Stock on the
Nasdaq was $3.75 per share. On June 10, 1999, there were 163 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.
13
<PAGE>
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, 1999. 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>
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................. $ 95,992 $ 127,928 $ 128,161 $ 156,271 $ 143,913
Cost of sales............................................. 69,546 86,464 85,603 107,427 102,876
--------- --------- --------- --------- ---------
Gross profit............................................ 26,446 41,464 42,558 48,844 41,037
Operating expenses:
Selling, general and administrative..................... 17,143 23,857 28,330 28,157 28,191
Research and development (R&D).......................... 3,532 4,447 6,543 8,869 9,678
In-process R&D write-off(1)............................. -- -- -- -- 5,000
Restructuring costs (2)................................. 727 -- 14,250 -- 3,700
--------- --------- --------- --------- ---------
Operating income (loss)................................. 5,044 13,160 (6,565) 11,818 (5,532)
Interest income......................................... -- 1,052 1,578 1,454 571
Interest expense........................................ (2,841) (1,300) (452) (215) (232)
Other income (expense), net............................. 476 (20) (8) 135 390
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes and
extraordinary gain.................................... 2,679 12,892 (5,447) 13,192 (5,583)
Provision for income taxes.............................. 1,342 5,158 1,464 4,880 --
--------- --------- --------- --------- ---------
Income (loss) before extraordinary gain................. 1,337 7,734 (6,911) 8,312 (5,583)
Extraordinary gain on early retirement of debt............ 1,742 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)................................... $ 3,079 $ 7,734 $ (6,911) $ 8,312 $ (5,583)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted earnings (loss) per share
Basic earnings (loss) per share:
Income (loss) before extraordinary gain................. $ 0.45 $ 1.22 $ (0.77) $ 0.90 $ (0.59)
Extraordinary gain...................................... 0.59 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................................... $ 1.04 $ 1.22 $ (0.77) $ 0.90 $ (0.59)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share
Income (loss) before extraordinary gain................. $ 0.26 $ 0.95 $ (0.77) $ 0.83 $ (0.59)
Extraordinary gain...................................... 0.35 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)....................................... $ 0.61 $ 0.95 $ (0.77) $ 0.83 $ (0.59)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average number of common shares outstanding:
Basic..................................................... 2,948 6,316 8,992 9,280 9,398
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................... 5,081 8,176 8,992 9,967 9,398
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
CONSOLIDATED BALANCE SHEET DATA:
Total assets.............................................. $ 55,271 $ 115,208 $ 111,170 $ 114,186 $ 109,215
Long-term debt and capital lese obligations, net of
current portion......................................... 15,969 4,034 550 -- 282
</TABLE>
- ------------------------
(1) See Note 9 of the Notes to Consolidated Financial Statements for information
on the in-process R&D write-off in fiscal 1999.
(2) See Note 10 of the Notes to Consolidated Financial Statements for more
information on restructuring costs.
14
<PAGE>
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 and mixed-signal
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 that certain income
and expense items bear to net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
----------------------------------
1997 1998 1999
----- ----------------- -----
<S> <C> <C> <C>
Net sales.......................... 100.0% 100.0% 100.0%
Cost of sales...................... 66.8 68.7 71.5
----- ----- -----
Gross profit................... 33.2 31.3 28.5
Operating expenses:
Selling, general and
administrative................. 22.1 18.0 19.6
Research and development......... 5.1 5.7 6.7
In-process research and
development.................... -- -- 3.5
Restructuring costs.............. 11.1 -- 2.5
----- ----- -----
Operating income (loss)............ (5.1) 7.6 (3.8)
Interest income.................... 1.2 0.9 0.4
Interest expense................... (0.4) (0.1) (0.2)
Other income (expense), net........ -- -- (0.3)
----- ----- -----
Income (loss) before provision for
income taxes..................... (4.3) 8.4 (3.9)
Provision for income taxes......... 1.1 3.1 --
----- ----- -----
Net (loss) income.............. (5.4)% 5.3% (3.9)%
</TABLE>
FISCAL YEAR 1999 COMPARED WITH FISCAL YEAR 1998
NET SALES. In fiscal 1999, net sales totaled $143.9 million compared with
$156.3 million in fiscal 1998, a decrease of 8%. Sales of semiconductor products
were essentially flat, while electromagnetic and other products decreased 14%.
The Company's semiconductor products are primarily used in data
communication applications such as modems. The overall downturn in the
electronic components market significantly impacted fiscal 1999 demand for solid
state relays; however, sales of application specific integrated circuits by
Clare-Micronix offset these shortfalls.
The Company's electromagnetic products are primarily used in
telecommunication applications such as telephone switching gear and cellular
phones. Demand for both dry reed and wetted reed relays was significantly lower
in fiscal 1999 versus the prior year and accounted for the majority of the
variance. Sales of application specific design and manufacturing services for
magnetic components were also lower in the year.
15
<PAGE>
Net sales by segment were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
(IN MILLIONS)
Semiconductor products....................................................... $ 69.7 $ 69.4
Electromagnetic and other products........................................... 86.6 74.5
</TABLE>
Net sales to customers located outside the United States (primarily Europe
and Asia) decreased 3% in fiscal 1999 to $64.7 million from $66.4 million in
fiscal 1998, with decreased demand in all regions except Japan. The Company
expects that foreign sales in the current year 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 28.5% in fiscal 1999 from 31.3% in fiscal 1998. The decrease in
gross profit was primarily due to competitive pricing pressures and
under-utilization of semiconductor wafer fabrication and sensor assembly
facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A). SG&A expenses of $28.2
million in fiscal 1999 were flat compared with fiscal 1998, and represented
19.6% and 18.0% of sales in fiscal years 1999 and 1998, respectively. The
Company anticipates that as a result of the cost reduction program and
restructuring initiated in the second quarter of fiscal 1999, SG&A expenses will
remain flat or lower in fiscal 2000, despite the addition of Clare-Micronix.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
increased in fiscal 1999 to $9.7 million from $8.9 million in fiscal 1998 and
increased as a percentage of net sales to 6.7% in fiscal 1999 from 5.7% in
fiscal 1998. Higher year over year spending was principally attributable to
Clare-Micronix. The Company expects to maintain its current rate of research and
development spending as current R&D programs are continued, especially at
Clare-Micronix and the Company's semiconductor facility in Beverly,
Massachusetts.
IN-PROCESS RESEARCH AND DEVELOPMENT. In fiscal 1999, the Company acquired
Micronix Integrated Systems, Inc., a designer and manufacturer of analog and
mixed-signal application specific integrated circuits. $5.0 million of the
acquisition cost was allocated as in-process research and development. This
represents the appraised fair value of projects that did not have future
alternative uses.
RESTRUCTURING COSTS. In fiscal 1999, the Company recorded a restructuring
charge of $3.7 million, or $0.24 per share after income taxes, as a result of a
worldwide reduction in personnel and the closing of the wafer fabrication
facility in Wakefield, Massachussetts. See Note 10 of Notes to Consolidated
Financial Statements.
INTEREST INCOME. Interest income decreased in fiscal 1999 to $0.6 million
from $1.5 million in fiscal 1998 on lower cash balances, primarily as the result
of the acquisition of Clare-Micronix. 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 of $0.2 million in fiscal 1999 was flat
as compared to fiscal 1998.
16
<PAGE>
OTHER INCOME (EXPENSE), NET. Other income in fiscal 1999 was primarily
comprised of net foreign currency exchange transaction gains offset by other
expenses. In fiscal 1998, other expense was primarily comprised of net foreign
currency exchange transaction losses offset by other income.
INCOME TAXES. The Company recorded no provision for income taxes due to the
net operating loss position, partially offset by non-deductible in-process
research and development and goodwill amortization associated with the
acquisition of Clare-Micronix. The provision for income taxes in fiscal 1998
totaled, $4.9 million, a 37% effective rate. The Company's effective income tax
rate in 1998 is 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. See Note 13 of Notes to Consolidated Financial
Statements.
At March 31, 1999, the Company had net operating loss carryforwards in the
United States and Taiwan of approximately $4.0 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 losses. Accordingly, the Company has not benefited all of its net
operating and capital loss carryforwards. See Note 13 of Notes to Consolidated
Financial Statements.
FISCAL YEAR 1998 COMPARED WITH FISCAL YEAR 1997
NET SALES. In fiscal 1998, net sales increased to $156.3 million compared
to $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 and cellular
phones. 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 the
electromagnetic products have been in the C.P. Clare Remtech Division which
provides application specific design and manufacturing services for magnetic
components to various industries.
Net sales by segment were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
(IN MILLIONS)
Semiconductor products....................................................... $ 60.0 $ 69.7
Electromagnetic and other products........................................... 68.2 86.6
</TABLE>
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
17
<PAGE>
compared to 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 to the prior year.
The Company expects that foreign sales in the current year 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 $28.3
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 $28.3 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. Restructuring costs
include costs associated with the sale of the Tongeren Manufacturing Company
(TMC), workforce reductions and worldwide facilities realignments. 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 included other Company costs associated with transfer of the
facility. Workforce reduction costs include severance costs related to
involuntary terminations. See Note 10 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.
18
<PAGE>
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 less than the
combined federal, state and foreign tax rates due primarily to utilization of
state tax credit 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. See Note 13 of Notes to Consolidated
Financial Statements.
At March 31, 1998, the Company had net operating loss carry forwards in the
United States and Taiwan of approximately $9.2 million. The Company also had
capital loss carry forwards of approximately $25.0 million in the United States.
The Company's ability to use its United States net operating loss carry forwards
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
carry forwards is subject to its ability to generate future capital gains to
offset these losses. Accordingly, the Company has not benefited all of its net
operating and capital loss carry forwards. See Note 12 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1999, as well as fiscal 1998, 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, 1999, the Company's cash, cash equivalents
and investments decreased by $18.6 million, as a result of costs generated from
the acquisition of Clare-Micronix ($16.0 million) and capital expenditures
($10.8 million), operations of $8.8 million. Financing activities used $0.5
million of cash during this period, primarily through employee purchases of
stock and proceeds from exercise of options and warrants, offset by $0.8 million
of payments of long-term debt and capital lease obligations.
The Company maintains a $15.0 million unsecured committed revolving credit
facility. Interest on loans is based on either the bank's base rate or the
London Interbank Offered Rate (LIBOR) plus a spread ranging from 0.50% to 1.50%,
based on Company performance. Although the Company has had no borrowings under
this credit facility, the interest rate on borrowings would have been 5.94% at
March 31, 1999.
The Company also maintains a $10.0 million operating lease line, to be used
primarily for the financing of production and MIS equipment. As of March 31,
1999, outstanding lease obligations against this line totaled $3.0 million.
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 hedges as needed. There
can be no assurance that this policy will eliminate all currency exposure.
During the year ended March 31, 1999 and 1998, the Company entered into several
forward contracts to cover its exposure under 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.
19
<PAGE>
CURRENT EVENT
The Company has retained Needham & Company, Inc. as its investment bankers
to explore a potential sale of its Electromagnetic Group operations, principally
located in Mexico. The Company recently executed an exclusivity agreement with
one party interested in a potential purchase of such operations.
EFFECT OF INFLATION
The Company does not believe that inflation has had any material effect on
the Company's business over the past three years.
YEAR 2000 ISSUE
COMPANY'S INTERNAL SYSTEMS: The Company began an internal assessment of its
operations, from information and financial systems to each aspect of its
manufacturing processes and facilities, in order to determine the extent to
which the Company may be adversely affected by Year 2000 issues. The Company
completed this activity at its FY1999 fiscal year end.
The Company has implemented an Oracle Enterprise Resource Planning ("ERP")
system, Version 10.7 Smart Client, for many applications and sites, including
order entry, manufacturing and financial systems. The software vendor has
informed the Company that the new system is Year 2000 compliant. To date,
approximately 2,500 hours of employee time has been devoted to, and
approximately $3.0 million has been expended on systems upgrades directly
relating to the implementation. Worldwide Customer Service (order entry,
shipping and finished goods inventory), financials (accounts payable and general
ledger), and circuits manufacturing (planning, purchasing and inventory) have
been transitioned to the new system.
In addition, the Company's other facilities, including Guadalajara and St.
Louis have other manufacturing and financial systems software. These systems are
being evaluated to assess compliance. The final steps of C.P. Clare's ERP
projects are the transition of the manufacturing planning systems in its Mexican
facilities to the Manufacturing Information System's MISys applications and
Computer Associate's CA-Accpac product. The Company presently believes that with
modification to existing software and conversion to the new ERP system, the Year
2000 problem will not pose significant operational problems. However, the
Company is conducting further testing and may conduct an external audit
following the conclusion of its internal assessment. Additionally, the Company's
own Y2K testing of the ERP system will be completed by July 1, 1999.
THIRD PARTY RELATIONSHIPS: The Company's potential exposure extends beyond
financial applications to include suppliers, customers, facilities,
manufacturing equipment and other communication equipment. The Company has
established a cross-functional team, which is in the process of reviewing these
issues and developing effective strategies to minimize risk. The Company has
taken several steps in this review, including: evaluating all systems and
equipment by site; sending letters to all major vendors assessing their Year
2000 compliance status; and is in the process of making upgrades to systems or
equipment, where applicable. The Company is continuing this effort across all
Company locations. To date, the Company has received written assurances from
over 80% of our significant vendors that they are Year 2000 compliant.
COMPANY PRODUCTS. The Company's products will not be impacted by the Year
2000 problem, since they are not date-sensitive devices. Further, the Company
has begun to confer with significant customers to assure that various systems
used for data and information exchanges between them will be compatible
following December 31, 1999.
Based on its initial assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 issues in internal
manufacturing processes, information processing,
20
<PAGE>
interface with key customers, or with processing orders and billing. However,
further assessments could find certain critical third party providers, such as
those supplying electricity, water, telephone service, and certain raw materials
or services may experience difficulties resulting in disruption of service or
supplies to the Company. The Company believes the most reasonably likely worst
case scenario would occur if a shutdown of the Company's operations at
individual facilities occurred for the duration of the disruption. At present,
the Company has not developed complete contingency plans but intends to
determine whether to develop any such plan early in fiscal year 2000. There can
be no assurance that Year 2000 issues will not have a material adverse effect on
the Company's business, results of operation and financial condition. C.P. Clare
supports the exchange of information regarding the Year 2000 matters and
designates the foregoing as Year 2000 readiness disclosures within the meaning
of the Year 2000 Information and Readiness Disclosure Act of 1998.
NEW ACCOUNTING STANDARDS
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
will not have a material impact on the Company's consolidated financial position
or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized in
earnings currently, unless specific hedge accounting criteria are met. Special
accounting or qualifying hedges allows derivative gains and losses to offset
related results on the hedged item in the income statement, and require that a
company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS No. 133 is effective for the fiscal years beginning after June 15,
1999. A Company may also implement the SFAS No. 133 as of the beginning of any
fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998
and thereafter). SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must
be applied to (a) derivative instruments and certain derivative instruments
embedded in hybrid contracts that were issued, acquired or substantially
modified after December 31, 1997 (and, at the Company's election, before January
1, 1998). The Company believes that the adoption of SFAS No. 133 will not have a
material effect on its financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PRIMARY MARKET RISK EXPOSURES. The Company's primary market risk exposures
are in the areas of interest rate risk and foreign currency exchange rate risk.
The Company's primary interest rate risk would be related to borrowings under
its Revolving Credit Agreement. The interest rate on those borrowings fluctuates
with changes in short-term borrowing rates. There were no borrowings from the
Company's Revolving Credit Facility during FY99 and the line is currently
unused.
The Company is also exposed to currency exchange rate fluctuations as they
pertain to its operations in Europe. Operations in Europe were denominated in
Belgium Francs through March 31, 1999. The Company hedged its currency exposure
by entering in forward exchange contracts. The Company has denominated its
Europe operations in Euro, effective April 1, 1999. The exchange rate between
the U.S. dollar and Euro has fluctuated since the Euro's inception January 1,
1999. The Company has not engaged in currency hedging activities since April 1,
1999 and attempts to minimize exchange risk by converting excess Euro funds to
U.S. dollars as often as practicable.
21
<PAGE>
The Company's does operate a maquiladora in Guadalajara, Mexico. Some of the
expenses of this facility are denominated in Mexican pesos. Expenses denominated
in Mexican pesos include local salaries, rents, utilities and some operating
supplies. The Company has not engaged in currency hedging activities related to
the Mexican peso and attempts to minimize exchange risk by funding the
operational expenses on a weekly basis.
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.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF 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 22, 1999.
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 22, 1999.
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 22, 1999.
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 22, 1999.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statement 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
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
2.1 Certificate of Ownership and Merger merging Clare Overseas Europe I, Inc. into C.P. Clare Corporation
(7)
2.2 Certificate of Ownership and Merger merging Clare Overseas Europe II, Inc. into C.P. Clare
Corporation (7)
2.3 Certificate of Ownership and Merger merging Clare Overseas Europe III, Inc. into C.P. Clare
Corporation (7)
2.4 Certificate of Ownership and Merger merging Clare Overseas America, Inc. into C.P. Clare Corporation
(7).
2.5 Agreement and Plan of Merger by and among C.P. Clare Corporation, Clare Micronix Integrated Systems,
Inc., Micronix Integrated Systems, Inc., Dennis Cocco and the Principal Stockholders of the Company
(as such term is defined therein) dated as of July 6, 1998(9).
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 (7)
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)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
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*
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)
10.19 Agreement between the Registrant and American Telephone & Telegraph Company dated November 1, 1994(1)
10.20 Amendment and Reaffirmation of Subordination Agreement by and among AT&T Microelectronics, the
Registrant and C.P. Clare International N.V. dated September 5, 1995(2)
10.23 Supply Agreement between the Registrant and M/A-COM, Inc. dated March 1, 1994 as amended by Amendment
dated February 3, 1995(1)
10.24 Agreement between the Registrant and Sumitomo Sitix Silicon, Inc. effective April 1, 1995(1)
10.25 Purchase Order between the Registrant and Buckbee Mears dated December 21, 1994(1)
10.26 Purchase Order between the Registrant and Engelhard Corporation dated October 12, 1994(1)
10.27 Purchase Order dated February 23, 1995, Purchase Requisition dated February 16, 1995 and Purchase
Order Addenda dated January 16, 1995 and February 16, 1995 all between the Registrant and Products
Engineering Corporation(1)
10.28 Purchase Order, Requisition Order and Addendum between the Registrant and A Square Systems, Inc. all
dated June 16, 1995(1)
10.29 Purchase Orders between the Registrant and TKC Corporation dated January 31, 1995 and May 19, 1995
with Supplemental Brochure Requisitions or Addenda(1)
10.30 Supply Agreement between the Registrant and Sipex Corporation dated December 21, 1992(1)
10.31 Purchase Order between the Registrant and Becton-Dickinson & Co. dated October 21, 1994(1)
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
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)
10.37 Lease between the Registrant and the Trustees of Elandzee Trust for 430 Bedford Street, Lexington, MA
dated December 1, 1994(1)
10.37.1 First Amendment to Lease between the Registrant and the Trustees of Elandzee Trust for 430 Bedford
Street, Lexington, MA dated July 18, 1995 (2)
10.38 Subordination, Nondisturbance and Attornment Agreement between the Registrant, Mortimer B. Zuckerman
and Edward H. Linde, Trustees of the Elandzee Trust and The Sakura Bank, Limited, New York Branch
dated December 1, 1994(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)
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(6)
10.56 Amended and Restated Employment Agreement between the Company and Harsh Koppula dated as of January
31, 1997(6)
10.58 Termination Agreement between the Registrant and Andrew S. Kariotis dated April 26, 1995(1)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
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)
10.62 Amended and Restated Registration Agreement dated April 21, 1995(1) 10.63The 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(7)
10.65 Form of Letter Agreement by and between the Registrant and James Shiring dated October 25, 1995
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(6)
10.68 Employment Agreement between the Company and William Reed dated as of August 26, 1996(6)
10.69 Stock Purchase Agreement dated as of December 19, 1996, among the Company, Gunther GmbH, Tongeren
Manufacturing Company, and W. Gunther, GmbH**(6)
10.70 Supply Agreement dated as of January 17, 1997 among the Company, Gunther GmbH, W. Gunther GmbH, and
Robert Romano**(6)
10.71 Amended and Restated Employment Agreement between the Company and Thomas B. Sager, dated September
16, 1997(8).
10.71.1 Employment Agreement between the Company and Dennis Cocco dated July 6, 1998(9).
10.72 Non-Competition Agreement between the Company and Dennis Cocco dated July 6, 1998(9).
10.73 C.P. Clare Non-Qualified Stock Option Plan, pursuant to which options were granted to Dennis Cocco,
dated July 6, 1998(9).
10.74 Employment Agreement between the Company and Dave Adams dated July 6, 1998(9).
10.75 Non-Competition Agreement between the Company and Dave Adams dated July 6, 1998(9).
10.76 First Amendment to Amended and Restated Employment Agreement between the Company and Thomas B. Sager
dated November 23, 1998.*
10.77 First Amendment to Employment Agreement between the Company and Richard Morgan dated November 23,
1998.*
10.78 Employment Agreement between the Company and Harry Andersen dated December 22, 1998.*
10.79 Loan Agreement between the Company and Bank Boston, N.A dated March 1, 1999.*
10.80 Form of Revolving Credit Note, Principal Amount $15,000,000 by the Company to Bank Boston, N.A. dated
March 1, 1999.*
10.81 Pledge Agreement between the Company and Bank Boston, N.A. dated March 1, 1999.*
21 Subsidiaries of the Registrant*
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
23 Consent of Arthur Andersen LLP.*
27 Financial Data Schedule (Edgar)*
</TABLE>
- ------------------------
* Filed herewith
** Confidential treatment requested for portions of these 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 Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 29, 1996 and incorporated herein by
reference thereto.
(6) 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.
(7) Filed as an exhibit to the Registrants Annual Report on Form 10-K for the
year ended March 31, 1997 and incorporated 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.
(9) Filed as an exhibit to the Registrant's Report on Form 8-K filed with the
Commission on July 16, 1998 and incorporated by reference thereto.
27
<PAGE>
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.............................................................. 29
Consolidated Balance Sheets--March 31, 1998 and 1999.................................................. 30
Consolidated Statements of Operations for the years ended March 31, 1997, 1998 and 1999............... 31
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1997, 1998 and 1999..... 32
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1998 and 1999............... 33
Notes to Consolidated Financial Statements............................................................ 34
Report of Independent Public Accountants on Schedule II............................................... 58
Schedule II--Valuation and Qualifying Accounts........................................................ 59
</TABLE>
28
<PAGE>
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, 1998
and 1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1999. 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, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 29, 1999
29
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash, cash equivalents and investments..................................................... $ 26,364 $ 7,796
Accounts receivable, less allowance of $1,177 and $1,365, respectively..................... 21,383 18,672
Inventories................................................................................ 22,083 23,842
Other current assets....................................................................... 422 2,932
Deferred income taxes...................................................................... 2,700 4,036
--------- ---------
Total current assets..................................................................... 72,952 57,278
Property, plant and equipment, net........................................................... 38,777 40,275
Other assets:
Intangibles, net of accumulated amortization of $517 and $1,526, respectively.............. 128 11,244
Deferred income taxes...................................................................... 869 --
Other...................................................................................... 1,460 418
--------- ---------
$ 114,186 $ 109,215
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capital lease obligations............................ $ 666 $ 248
Accounts payable........................................................................... 12,464 11,805
Accrued liabilities........................................................................ 9,899 10,175
--------- ---------
Total current liabilities................................................................ 23,029 22,228
Long-term capital lease obligations, net of current portion.................................. -- 282
Deferred income taxes........................................................................ -- 510
--------- ---------
Total liabilities........................................................................ 23,029 23,020
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: 9,356,452 shares and 9,454,339 shares, respectively.............. 94 95
Additional paid-in capital................................................................. 95,653 96,228
Deferred compensation...................................................................... (154) (62)
Accumulated deficit........................................................................ (3,390) (8,973)
Accumulated other comprehensive income (loss).............................................. (1,046) (1,093)
--------- ---------
Total stockholders' equity............................................................... 91,157 86,195
--------- ---------
$ 114,186 $ 109,215
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
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,
----------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... $ 128,161 $ 156,271 $ 143,913
Cost of sales........................................................... 85,603 107,427 102,876
------------ ------------ ------------
Gross profit.......................................................... 42,558 48,844 41,037
Operating expenses:
Selling, general and administrative................................... 28,330 28,157 28,191
Research and development.............................................. 6,543 8,869 9,678
In-Process research & development..................................... -- -- 5,000
Restructuring costs................................................... 14,250 -- 3,700
------------ ------------ ------------
Operating (loss) income................................................. (6,565) 11,818 (5,532)
Interest income......................................................... 1,578 1,454 571
Interest expense........................................................ (452) (215) (232)
Other (expense) income, net............................................. (8) 135 (390)
------------ ------------ ------------
(Loss) income before provision for income taxes......................... (5,447) 13,192 (5,583)
Provision for income taxes.............................................. 1,464 4,880 --
------------ ------------ ------------
Net (loss) income..................................................... $ (6,911) $ 8,312 $ (5,583)
------------ ------------ ------------
------------ ------------ ------------
Basic (loss) earnings per share......................................... $ (0.77) $ 0.90 $ (0.59)
------------ ------------ ------------
------------ ------------ ------------
Diluted (loss) earnings per share....................................... $ (0.77) $ 0.83 $ (0.59)
------------ ------------ ------------
------------ ------------ ------------
Weighted average number of common shares outstanding:
------------ ------------ ------------
------------ ------------ ------------
Basic................................................................... 8,991,520 9,280,424 9,398,144
------------ ------------ ------------
------------ ------------ ------------
Diluted................................................................. 8,991,520 9,967,366 9,398,144
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1998, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------
NUMBER $.01 ADDITIONAL
OF PAR PAID-IN DEFERRED ACCUMULATED
SHARES VALUE CAPITAL COMPENSATION DEFICIT
--------- ----- ---------- ------------ -----------
Balance, March 31, 1996.......................................... 8,707,399 87 91,540 (607) (4,791)
<S> <C> <C> <C> <C> <C>
Exercise of stock options........................................ 369,829 4 1,336 -- --
Issuance of common stock under the Employee Stock Purchase
Plan........................................................... 32,276 -- 468 -- --
Exercise of warrants............................................. 67,153 1 44 -- --
Tax benefit of disqualifying disposition of incentive stock
options........................................................ -- -- 727 -- --
Net loss......................................................... -- -- -- -- (6,911)
Translation adjustment........................................... -- -- -- -- --
Amortization of deferred compensation............................ -- -- -- 198 --
Comprehensive net loss...........................................
--------- ----- ---------- --- -----------
Balance, March 31, 1997.......................................... 9,176,657 92 94,115 (409) (11,702)
Exercise of stock options........................................ 132,599 2 904 -- --
Common stock issued for services rendered........................ 2,000 -- 50 -- --
Issuance of common stock under the Employee Stock Purchase
Plan........................................................... 30,837 -- 290 -- --
Exercise of warrants............................................. 14,359 -- 27 -- --
Tax benefit of disqualifying disposition of incentive stock
options........................................................ -- -- 267 -- --
Net income....................................................... -- -- -- -- 8,312
Translation adjustment........................................... -- -- -- -- --
Amortization of deferred compensation............................ -- -- -- 255 --
Comprehensive net income.........................................
--------- ----- ---------- --- -----------
Balance, March 31, 1998.......................................... 9,356,452 94 95,653 (154) (3,390)
Exercise of stock options........................................ 27,250 129 -- --
Common stock issued for services rendered........................ 28,214 -- 207 -- --
Issuance of common stock under the Employee Stock Purchase
Plan........................................................... 41,123 1 226 -- --
Exercise of warrants............................................. 1,300 -- 2 -- --
Tax benefit of disqualifying disposition of incentive stock
options........................................................ -- -- 11 -- --
Net loss......................................................... -- -- -- -- (5,583)
Translation adjustment........................................... -- -- -- -- --
Amortization of deferred compensation............................ -- -- -- 92 --
Comprehensive net loss...........................................
--------- ----- ---------- --- -----------
Balance, March 31, 1999.......................................... 9,454,339 $95 $96,228 $(62) $(8,973)
--------- ----- ---------- --- -----------
--------- ----- ---------- --- -----------
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
INCOME STOCKHOLDERS' COMPREHENSIVE
(LOSS) EQUITY INCOME (LOSS)
---------- ------------- -------------
Balance, March 31, 1996.......................................... 383 86,612
<S> <C> <C> <C>
Exercise of stock options........................................ -- 1,340
Issuance of common stock under the Employee Stock Purchase
Plan........................................................... -- 468
Exercise of warrants............................................. -- 45
Tax benefit of disqualifying disposition of incentive stock
options........................................................ -- 727
Net loss......................................................... -- (6,911) (6,911)
Translation adjustment........................................... (1,213) (1,213) (1,213)
Amortization of deferred compensation............................ -- 198
------
Comprehensive net loss........................................... (8,124)
---------- ------------- ------
Balance, March 31, 1997.......................................... (830) 81,266
Exercise of stock options........................................ -- 906
Common stock issued for services rendered........................ -- 50
Issuance of common stock under the Employee Stock Purchase
Plan........................................................... -- 290
Exercise of warrants............................................. -- 27
Tax benefit of disqualifying disposition of incentive stock
options........................................................ -- 267
Net income....................................................... -- 8,312 8,312
Translation adjustment........................................... (216) (216) (216)
Amortization of deferred compensation............................ -- 255
------
Comprehensive net income......................................... 8,096
---------- ------------- ------
Balance, March 31, 1998.......................................... (1,046) 91,157
Exercise of stock options........................................ -- 129
Common stock issued for services rendered........................ -- 207
Issuance of common stock under the Employee Stock Purchase
Plan........................................................... -- 227
Exercise of warrants............................................. -- 2
Tax benefit of disqualifying disposition of incentive stock
options........................................................ -- 11
Net loss......................................................... -- (5,583) (5,583)
Translation adjustment........................................... (47) (47) (47)
Amortization of deferred compensation............................ -- 92
------
Comprehensive net loss........................................... (5,630)
---------- ------------- ------
Balance, March 31, 1999.......................................... $(1,093) $86,195
---------- -------------
---------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income................................................................... $ (6,911) $ 8,312 $ (5,583)
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Loss on sale of European manufacturing operation.................................. 5,069 -- --
Depreciation and amortization..................................................... 4,805 5,341 9,488
Non-cash portion of restructuring charge.......................................... -- -- 1,015
Write-off of acquired in-process R&D.............................................. -- -- 5,000
(Benefit) provision for deferred income taxes..................................... (1,587) 356 (915)
Compensation expense associated with stock options................................ 198 255 92
Common stock issued for services rendered......................................... -- 50 207
Provision for environmental costs................................................. 2,050 925 --
Writedown of property, plant and equipment........................................ -- -- 400
Changes in assets and liabilities, net of effect from acquisition in 1999 and
disposition in 1997:
Accounts receivable............................................................. 2,059 (4,239) 1,829
Inventories..................................................................... (4,872) (2,083) (1,702)
Other current assets............................................................ 750 1,373 (835)
Accounts payable................................................................ 5,617 10 (661)
Accrued expenses and income taxes payable....................................... (3,150) (7,505) 440
--------- --------- ---------
Net cash provided by operating activities..................................... 4,028 2,795 8,775
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment........................................... (15,047) (15,262) (10,837)
Purchase of Micronix, net of cash acquired.......................................... -- -- (16,012)
--------- --------- ---------
Net cash used in investing activities......................................... (15,047) (15,262) (26,849)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on lines of credit..................................................... (1,199) -- --
Net proceeds from issuance of common stock.......................................... 468 290 227
Proceeds from exercise of options and warrants...................................... 1,385 933 131
Payments of principal on long-term debt............................................. (2,040) (371) (666)
Payments on capital lease obligations............................................... -- -- (154)
Tax benefit of disqualifying disposition of incentive stock options................. 727 267 11
--------- --------- ---------
Net cash (used in) provided by financing activities........................... (659) 1,119 (451)
EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS AND INVESTMENTS.................. 26 282 (43)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS AND INVESTMENTS........................... (11,652) (11,066) (18,568)
Cash, cash equivalents and investments, beginning of year........................... 49,082 37,430 26,364
--------- --------- ---------
Cash, cash equivalents and investments, end of year................................. $ 37,430 $ 26,364 $ 7,796
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS RELATED TO ACQUISITIONS:
During fiscal 1999, the Company acquired Micronix Integrated Systems, Inc. as
described in Note 9. This acquisition is summarized as follows:
Fair value of assets acquired, excluding cash....................................... $ -- $ -- $ 20,825
Payments in connection with the acquisition, net of cash acquired................... -- -- (16,012)
--------- --------- ---------
Liabilities assumed................................................................. $ -- $ -- $ 4,813
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
33
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 1. SUMMARY OF OPERATIONS
C.P. Clare (the "Company") is a leading provider of high voltage
mixed-signal and 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 1997, 1998 and 1999
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, 1998 and 1999 principally consist
of overnight demand notes 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, 1998 and 1999 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
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 reflect the potential dilution of stock options and warrants
that could share in the earnings of the Company.
34
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The reconciliation of amounts used in the computation of basic and diluted
earnings (loss) per share consist of the following at March 31, 1997, 1998 and
1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Basic weighted average shares outstanding................... 8,991,520 9,280,424 9,398,144
Weighted average common equivalent shares................... -- 686,942 --
--------- --------- ---------
Diluted weighted average shares outstanding................. 8,991,520 9,967,366 9,398,144
--------- --------- ---------
--------- --------- ---------
</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,
1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Options and warrants to purchase common stock................. 1,777,626 434,750 2,468,511
--------- --------- ---------
--------- --------- ---------
</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 ($49), ($139) and ($10) recognized in fiscal years 1997, 1998 and 1999,
respectively, have been included in the accompanying consolidated statements of
operations and, accordingly, are classified as other income (expense) (see Note
14). 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, 1999, the
Company had one outstanding Belgian franc ("BF") forward contract amounting to
23,000 BF or $625 with a gross deferred loss of $4 from the rollover of such
contracts to the planned settlement date. At March 31, 1998, the Company had
thirteen outstanding 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 contract had no deferred gain or loss.
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 SFAS No. 107
approximated their carrying values at March 31, 1998 and 1999. Fair values have
been determined through information obtained from market sources and management
estimates.
35
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
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 account receivable.
During fiscal years 1997, 1998 and 1999, one customer accounted for 17%, 14% and
13%, respectively, of the Company's net sales. During fiscal years 1998 and
1999, one customer accounted for 10% and 17%, respectively, of the Company's
accounts receivable.
(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, 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 11).
(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 STANDARDS
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) COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, requires disclosure of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. Comprehensive income
consists entirely of the net loss plus the Company's translation adjustment
accounts and is disclosed in the accompanying statements of stockholders'
equity.
In June 1998, the FASB issued SFAS No. 133, "Accounting For Derivative
Instruments and Hedging Activities". The statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
36
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
recorded in the balance sheet as either an asset or liability measured at fair
value. The statement requires that changes in the derivative's fair value be
recognized in earnings currently, unless specific hedge accounting criteria are
met. Special accounting or qualifying hedges allows derivative gains and losses
to offset related results on the hedged item in the income statement, and
require that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal quarters of fiscal years beginning
after June 15, 2000; the Financial Accounting Standards Board is currently
contemplating postponement of the implementation date by one year. A Company may
also implement the SFAS No. 133 as of the beginning of any fiscal quarter after
issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). SFAS
No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a)
derivative instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired or substantially modified after December
31, 1997 (and, at the Company's election, before January 1, 1998). The Company
believes that the adoption of SFAS No. 133 will not have a material effect on
its financial statements.
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, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Raw materials............................................................... $ 9,568 $ 10,259
Work in process............................................................. 4,835 8,227
Finished goods.............................................................. 7,680 5,356
--------- ---------
$ 22,083 $ 23,842
--------- ---------
--------- ---------
</TABLE>
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and consist of the
following at March 31, 1998 and 1999:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
DESCRIPTION 1998 1999 LIFE
- ------------------------------------------------------ --------- --------- --------------------
<S> <C> <C> <C>
Machinery and equipment............................... $ 35,800 $ 50,698 3 to 7 years
Furniture and fixtures................................ 3,000 2,820 5 to 10 years
Leasehold improvements................................ 13,271 13,951 Life of lease
Projects in process................................... 10,829 4,978
Property held for sale (Note 8)....................... 1,500 1,348
--------- ---------
64,400 73,795
Less: Accumulated depreciation and amortization....... 25,623 33,520
--------- ---------
$ 38,777 $ 40,275
--------- ---------
--------- ---------
</TABLE>
37
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 4. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
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 and other
long-lived assets in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Intangible assets consist of goodwill acquired in connection with the
acquisition of the Clare Division from General Instrument Corporation in 1989,
as well as goodwill and existing technology relating to the acquisition of
Micronix in 1998. Goodwill and existing technology are amortized on a
straight-line basis over periods ranging from 4 to 30 years.
Other assets consist of the following at March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Existing Technology--Micronix Acquisition................................ $ -- $ 2,456
Goodwill--Micronix Acquisition........................................... -- 10,308
Less: Accumulated Amortization -- (1,520)
Other.................................................................... 1,588 418
--------- ---------
$ 1,588 $ 11,662
--------- ---------
--------- ---------
</TABLE>
NOTE 6. ACCRUED EXPENSES
Accrued expenses consist of the following at March 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
Payroll and benefits..................................................... $ 5,793 $ 3,881
Restructuring (Note 10).................................................. -- 2,152
Environmental remediation (Note 8)....................................... 1,172 922
Other.................................................................... 2,934 3,220
--------- ---------
$ 9,899 $ 10,175
--------- ---------
--------- ---------
</TABLE>
NOTE 7. BORROWINGS AND CREDIT FACILITIES
(a) CREDIT FACILITY
The Company has a $15.0 million unsecured committed revolving credit
facility (the "Credit Facility"). Interest on 30 day loans is based on either
LIBOR plus a spread ranging from 0.50% to 1.50%, based on Company performance
(5.94% at March 31, 1999); or the higher of the latest Federal Funds rate plus
0.50% or the bank's reference rate (7.75% at March 31, 1999). There have been no
borrowings since the inception of the Credit Facility in March 1999.
38
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 7. BORROWINGS AND CREDIT FACILITIES (CONTINUED)
The Credit Facility contains certain financial covenants that require the
Company to maintain minimum tangible net worth and working capital, maintain an
interest coverage ratio, maintain a ratio of total funded debt to Earnings
before Interest, Taxes, Depreciation and Amortization, 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, 1999.
(b) LONG-TERM OBLIGATIONS
During fiscal year 1999 all obligations were repaid. At March 31, 1998,
long-term obligations consisted of the following:
<TABLE>
<CAPTION>
1998
---------
<S> <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%............................................................. $ 626
Other................................................................................. 40
---------
666
Less: Current portion................................................................. 666
---------
$ --
---------
---------
</TABLE>
(c) CAPITAL LEASES
The Company leases certain equipment under capital leases. Future minimum
lease payments under these leases as March 31, 1999 are as follows:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2000................................................................................. $ 302
2001................................................................................. 171
2002................................................................................. 115
2003................................................................................. 45
2004................................................................................. 1
-----
Total Minimum lease payments......................................................... 634
Less: Amount representing interest................................................... 104
-----
Capital Lease Obligation............................................................. 530
Less: Current portion of capital lease obligations................................... 248
-----
Total................................................................................ $ 282
-----
-----
</TABLE>
39
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8. COMMITMENTS AND CONTINGENCIES
(a) OPERATING LEASES
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, 1999:
<TABLE>
<CAPTION>
MARCH 31, AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
2000............................................................................... $ 4,059
2001............................................................................... 3,060
2002............................................................................... 2,629
2003............................................................................... 1,132
2004............................................................................... 940
Thereafter......................................................................... 6,121
---------
Total.............................................................................. $ 17,941
---------
---------
</TABLE>
Total rent expense for fiscal years 1997, 1998 and 1999 was $3,401, $4,663
and $5,514, 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 remediation 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 Environmental 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
40
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
During the year ended March 31, 1999, the Company incurred $544 of
remediation costs including an additional write-down of the facility by $400.
This resulted in a net realizable value of the facility of $939.
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 recorded 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 Tongeren
Manufacturing Company ("TMC"). Upon the sale of TMC, the Company agreed to
indemnify Gunther GmbH (the "buyer") for up to $350 for established
environmental remediation costs, subject to certain condition and limitations.
The Company recorded this environmental remediation indemnification during
fiscal 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.
41
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9. ACQUISITION
On July 6, 1998, the Company acquired Micronix Integrated Systems, Inc.
("Clare-Micronix"), a designer and manufacturer of analog and mixed-signal
application specific integrated circuits. The Company paid $16,012 for the
acquisition and direct costs, net of cash acquired and assumed liabilities of
$4,813 for a total purchase price of $20,825. The acquisition was accounted for
as a purchase in accordance with Accounting Principles Board ("APB") Opinion No.
16 "Business Combinations", and accordingly, Clare-Micronix's operating results
since the date of acquisition are included in the accompanying consolidated
condensed financial statements. In accordance with APB Opinion No. 16, the
Company allocated the aggregate purchase price to the assets acquired based on
their fair values. An independent appraisal, using proven valuation procedures
and techniques, was used to determine the fair value of the purchased intangible
assets.
Acquired intangible assets include existing technologies and goodwill. These
intangible assets are being amortized over their estimated useful lives of 4 to
8 years. The purchase price allocation is as follows:
<TABLE>
<S> <C>
Current assets.................................................. $ 1,268
Property, plant and equipment................................... 1,118
Existing technology............................................. 2,456
Other assets.................................................... 644
Goodwill........................................................ 10,339
In-process R&D.................................................. 5,000
Liabilities assumed............................................. (4,813)
---------
$ 16,012
---------
---------
</TABLE>
The $5,000 allocated to purchased in-process research and development
("in-process R&D") represents the appraised fair value of projects that did not
have future alternative uses. This allocation represents the estimated fair
value based on risk-adjusted cash flows related to the in-process research and
development projects. The development of these projects had not yet reached
technological feasibility, and the research and development in-process had no
alternative uses. Accordingly, these costs were expensed as of the acquisition
date.
In-process research and development value is comprised of 6 primary research
and development programs. These programs include the introduction of certain new
technologies. At the acquisition date, these programs ranged in completion from
10% to 85%. The research and development investment in the Micronix technology
made by the Company from the date of acquisition through March 31, 1999 was
$873. The Company believes it will incur additional funding to complete each
acquired program. There is no assurance that each project will meet with either
technological or commercial success. The substantial delay or outright failure
of the in-process research and development would materially impact the Company's
financial condition.
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development is based on
estimates of relevant
42
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 9. ACQUISITION (CONTINUED)
market sizes and growth factors, expected trends in technology and the nature
and expected timing of new products. The rates utilized to discount the net cash
flows to their present value are based on the weighted average cost of capital
for Clare-Micronix. This discount rate is commensurate with Clare-Micronix's
corporate maturity and the uncertainties in the economic estimates described
above.
The forecasts used by the Company in valuing in process research and
development were based upon assumptions the Company believes to be reasonable
but which are inherently uncertain and unpredictable. The Company's assumptions
may be incomplete or inaccurate, and unanticipated events and circumstances are
likely to occur. For these reasons, actual results may vary significantly from
the projected results.
The Company has not included pro forma information, as the results of
Micronix operations are not material to the Company.
NOTE 10. RESTRUCTURING
In fiscal 1997, the Company announced a restructuring of its operations (the
1997 restructuring), primarily in the Company's reed relay business, and
recorded a restructuring charge of $14,250. The 1997 restructuring met the
criteria set forth in Emerging Issues Task Force (EITF) Issue No. 94-3
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs in a Restructuring)". The 1997
restructuring charge included costs associated with the sale of the TMC,
workforce reductions and worldwide facilities realignments. The components of
the 1997 restructuring 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 other Company costs associated with the 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.
In fiscal 1999, the Company announced another restructuring of its
operations, and recorded a pretax charge of $3,700 in accordance with the
criteria set forth in EITF 94-3. The 1999 restructuring charge includes
severance-related costs associated with workforce reduction of approximately 60
persons on a worldwide basis, half of which are in manufacturing and the
remainder in sales, general and administrative. The balance of the 1999
restructuring includes a write-down of assets associated
43
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 10. RESTRUCTURING (CONTINUED)
with the closure of the Company's Wakefield, MA production facility, which was
substantially completed in the fourth quarter of 1999. The Company expects all
1999 restructuring expenses to be paid by September 1999.
The components of the 1999 restructuring expenses are as follows:
<TABLE>
<S> <C>
Employee severance, benefits and related costs.................. $ 2,084
Write-off and write-down of assets to be disposed............... 1,034
Lease termination and relocation costs.......................... 420
Other........................................................... 162
---------
Total......................................................... $ 3,700
---------
---------
</TABLE>
NOTE 11. STOCKHOLDERS' EQUITY
(a) SHARES RESERVED
As of March 31, 1999, shares of common stock reserved for issuance were as
follows:
<TABLE>
<S> <C>
Exercise of stock options....................................... 3,136,953
Employee Stock Purchase Plan.................................... 186,679
---------
3,323,632
---------
---------
</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 4,680,000
shares of the Company's common stock. 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 1997, 1998 and 1999, the Company recognized
$198, $255, and $92 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 June 20, 1995 was granted a
non-qualified stock option to purchase 10,000 shares of
44
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED)
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, 1999.
The Company issued options to purchase 20,000 shares of common stock through
the 1995 Stock Plan and recognized compensation expense of $197,650.
As of March 31, 1999, there are 668,442 shares available for future grant under
the 1995 plan.
The following table summarizes incentive and non-qualified stock option
activity under the 1995 Plan for the fiscal years ended March 31, 1997, 1998 and
1999:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE PRICE PRICE PER
OPTIONS PER SHARE SHARE
---------- --------------- -----------
<S> <C> <C> <C>
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
Granted............................................. 1,089,714 4.38--13.19 7.73
Exercised........................................... (55,464) 0.50--13.19 6.05
Canceled............................................ (409,938) 0.50--17.25 9.13
---------- --------------- -----------
Outstanding at March 31, 1999....................... 2,468,511 $ 0.50--$24.63 $ 9.34
---------- --------------- -----------
---------- --------------- -----------
Exercisable at March 31, 1999....................... 603,001 $ 0.50--$24.63 $ 10.07
---------- --------------- -----------
---------- --------------- -----------
</TABLE>
45
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at March 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------
WEIGHTED OPTIONS EXERCISABLE
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................................................. 116,221 4.60 $ 0.50 109,821 $ 0.50
$ 4.38--$ 6.25......................................... 485,500 9.63 $ 6.20 -- --
$ 6.87--$10.25......................................... 1,338,840 8.09 $ 8.82 262,630 8.66
$10.50--$15.50......................................... 288,450 8.16 $ 13.32 82,850 12.67
$15.88--$19.00......................................... 229,500 7.39 $ 17.81 137,700 17.77
$24.63................................................. 10,000 6.30 $ 24.63 10,000 $ 24.63
---------- -----------
2,468,511 603,001
---------- -----------
---------- -----------
</TABLE>
Options granted in 1997, 1998 and 1999 have been valued using the
Black-Scholes option-pricing model prescribed by SFAS No. 123. The
weighted-average assumptions used for fiscal years 1997, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Risk free interest rate..................... 6.2% 6.0% 5.0%
Expected dividend yield..................... -- -- --
Expected lives.............................. 6 years 6 years 6 years
Expected volatility......................... 80% 80% 80%
Weighted average grant-date fair value per
share of options granted at fair market
value during the period................... $ 4.75 $ 9.14 $ 9.27
Weighted average exercise price of options
granted at fair market value during the
Period.................................... $ 9.94 $ 15.38 $ 7.73
Weighted average remaining contractual life
of options outstanding.................... 8.2 years 7.6 years 8.2 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.
46
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net (loss) income and pro forma net (loss) income per common share
outstanding on a basic and diluted basis for fiscal years 1997, 1998 and 1999
would have been as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss):
As Reported.................................................. $ (6,911) $ 8,312 $ (5,583)
--------- --------- ---------
--------- --------- ---------
Pro Forma.................................................... $ (8,169) $ 6,491 $ (8,556)
--------- --------- ---------
--------- --------- ---------
Basic earnings (loss) per share:
As Reported.................................................. $ (0.77) $ 0.90 $ (0.59)
--------- --------- ---------
--------- --------- ---------
Pro Forma.................................................... $ (0.91) $ 0.70 $ (0.91)
--------- --------- ---------
--------- --------- ---------
Diluted earnings (loss) per share:
As Reported.................................................. $ (0.77) $ 0.83 $ (0.59)
--------- --------- ---------
--------- --------- ---------
Pro Forma.................................................... $ (0.91) $ 0.65 $ (0.91)
--------- --------- ---------
--------- --------- ---------
</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. All
warrants had been exercised or expired as of December 31, 1998.
(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, 1999, 113,321 shares have been issued under this
Purchase Plan, and rights to purchase 186,679 shares are available for purchase.
(e) SHAREHOLDER RIGHTS PLAN
On April 29, 1996, the 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
47
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 11. STOCKHOLDERS' EQUITY (CONTINUED)
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 12. 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 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 1997, 1998 and 1999, the Company
contributed $262, $245, and $329, 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. This liability remains $260
as of March 31, 1999.
48
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12. EMPLOYEE BENEFIT PLANS (CONTINUED)
(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 1997, 1998 and
1999, the Company contributed $219, $129, and $88, 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 1997, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ---------
<S> <C> <C> <C>
Service cost--benefit earned during the period.............. $ 84 $ 78 $ 23
Interest cost on projected benefit obligation............... 153 140 29
Expected return on assets................................... (20) (19) (21)
--------- ---------- ---------
Net periodic pension cost................................... $ 217 $ 199 $ 31
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The funded status of the plan at March 31, 1997, 1998 and 1999 was as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ---------
<S> <C> <C> <C>
Actuarial present value of accumulated plan benefits:
Vested.................................................... $ -- $ 109 $ 109
Non-vested................................................ 1,212 61 61
--------- ---------- ---------
1,212 170 170
Additional amounts related to projected salary increases.... 968 239 239
--------- ---------- ---------
Actuarial present value of projected benefit obligation..... 2,180 409 409
Plan assets at fair value................................... 290 287 287
--------- ---------- ---------
Projected benefit obligation in excess of plan assets....... $ 1,890 $ 122 $ 122
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ---------
<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% 7% 7%
Direct labor.............................................. 4% -- --
</TABLE>
49
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 12. EMPLOYEE BENEFIT PLANS (CONTINUED)
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. The number of participants remains
at 12 through fiscal 1999.
(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 1997, 1998 and 1999, the Company incurred $310, $1,629
and $80, respectively, related to the Bonus Plan.
NOTE 13. 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, 1997, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ---------
<S> <C> <C> <C>
Domestic.................................................... $ (5,991) $ 9,214 $ (6,907)
Foreign..................................................... 544 3,978 1,324
--------- ---------- ---------
--------- ---------- ---------
$ (5,447) $ 13,192 $ (5,583)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The components of current and deferred provision for income taxes for fiscal
years ended March 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal................................................... $ 2,131 $ 2,631 $ (444)
State..................................................... 383 522 (41)
Foreign................................................... 322 1,371 1,400
--------- ---------- ---------
Total current........................................... 2,836 4,524 915
--------- ---------- ---------
Deferred:
Federal................................................... (1,074) 801 (510)
State..................................................... (222) (370) (341)
Foreign................................................... (76) (75) (64)
--------- ---------- ---------
Total deferred.......................................... (1,372) 356 (915)
--------- ---------- ---------
--------- ---------- ---------
Provision for Income Taxes.................................. $ 1,464 $ 4,880 $ --
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
50
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13. INCOME TAXES (CONTINUED)
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, 1997, 1998 and 1999, as follows:
<TABLE>
<CAPTION>
1997 1998 1999
--------- ---------- ---------
<S> <C> <C> <C>
Federal statutory tax rate.................................. (34.0)% 34.0% (34.0)%
State income taxes, net of federal income tax benefit....... 4.6 0.2 (3.8)
Tax exempt interest......................................... (8.3) (2.4) (1.3)
Foreign Sales Corporation benefits.......................... (1.4) (0.5) --
Non-deductible in-process research and development.......... -- -- 30.4
Non-deductible goodwill amortization........................ -- -- 6.4
Capital loss carryforward valuation allowance............... 62.8 -- --
Non-deductible foreign expenses............................. -- 4.4 --
Difference in foreign provision versus statutory U.S.
rate...................................................... 1.1 (0.5) 5.3
Decrease in valuation allowance relating to net
operating loss carryforwards.............................. (1.9) (0.8) (1.9)
Deemed repatriation of foreign earnings..................... 2.3 -- --
Other....................................................... 1.7 2.6 (1.1)
--------- ---------- ---------
--------- ---------- ---------
26.9% 37.0% 0.0%
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
Significant components of deferred income tax assets and liabilities at
March 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Current deferred income tax assets:
Net operating loss carryforwards.................................... $ 106 $ 106
Inventory reserves.................................................. 1,013 1,293
Accrued environmental remediation costs............................. 265 223
Accrued restructuring............................................... -- 839
Accrued payroll related costs....................................... 1,611 1,801
Other temporary differences......................................... 275 597
Less: Valuation allowance........................................... (570) (823)
---------- ----------
Net current deferred income tax assets............................ $ 2,700 $ 4,036
---------- ----------
---------- ----------
Long-term deferred income tax assets:
Net operating loss carryforwards.................................... $ 2,725 $ 2,336
Net capital loss carryforwards...................................... 9,581 9,581
State tax credits................................................... 310 486
Less: Valuation allowance........................................... (11,690) (11,066)
---------- ----------
Net long-term deferred income tax assets.......................... 926 1,337
---------- ----------
Long-term deferred income tax liabilities:
Depreciation........................................................ (57) (1,068)
Acquired Intangible Assets.......................................... -- (779)
---------- ----------
---------- ----------
Net long-term income tax liabilities.............................. (57) (1,847)
---------- ----------
Long-term deferred income tax asset (liability), net.................. $ 869 $ (510)
---------- ----------
---------- ----------
</TABLE>
51
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 13. INCOME TAXES (CONTINUED)
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 $7,492. 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 carryforwards of $1,575 at March 31,
1999, 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
$25.0 million, 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 be able to utilize such a carryforward.
The remainder of the valuation allowance relates to the limited use of
certain net operating loss carryforwards. Taxes have not been provided on
foreign subsidiaries' undistributed earnings of $1,308 at March 31, 1999, which
are deemed indefinitely invested.
NOTE 14. OTHER INCOME (EXPENSE)
Other income (expense) consists of the following for fiscal years 1997, 1998
and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net gain (loss) from foreign currency exchange............ $ (40) $ 378 $ (227)
Other..................................................... 32 (243) (163)
---------- ---------- ----------
$ (8) $ 135 $ (390)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 15. CASH FLOWS
(a) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information consists of the following
for fiscal years 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Interest paid............................................. $ 224 $ 143 $ 98
Income taxes paid......................................... $ 2,160 $ 5,283 $ 2,479
</TABLE>
52
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 16. SUMMARY OF QUARTERLY INFORMATION (UNAUDITED)
Quarterly financial information for the fiscal years 1998 and 1999 is as
follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1998
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>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
--------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1999
Net sales................................................. $ 36,694 $ 33,887 $ 37,248 $ 36,084 $ 143,913
Gross profit.............................................. 11,180 9,174 10,074 10,609 41,037
Net income (loss)......................................... 1,693 (7,693) 91 326 (5,583)
Basic earnings (loss) per share........................... 0.18 (0.82) 0.01 0.03 (0.59)
Diluted earnings (loss) per share......................... $ 0.17 $ (0.82) $ 0.01 $ 0.03 $ (0.59)
</TABLE>
NOTE 17. FINANCIAL INFORMATION BY SEGMENT
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the fourth quarter of 1999. SFAS No.
131 established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is composed of the Chief Executive
Officer, members of Senior Management and the Board of Directors.
The Company's reportable operating segments are Semiconductor and
Electromechanical products.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on gross profit. Revenues are attributed to geographic areas
based on where the customer is located. The Company does not measure transfers
of sales between Company segments. Segment information for the years March 31,
1997, 1998 and 1999 is as follows.
53
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
ELECTRO-
SEMICONDUCTOR MECHANICAL CORPORATE TOTAL
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
1997
Net product sales from external customers..................... 59,952 68,209 -- 128,161
Intersegment net sales........................................ -- -- -- --
Total net revenue....................................... 59,952 68,209 -- 128,161
Gross Profit.................................................. 22,137 20,421 -- 42,558
Depreciation and amortization................................. 1,530 3,275 -- 4,805
Interest income
External.................................................... -- -- 1,578 1,578
Intersegment................................................ -- -- -- --
Total interest income................................... -- -- 1,578 1,578
Interest expense (external)
External.................................................... -- -- 452 452
Intersegment................................................ -- -- -- --
Total interest expense.................................. -- -- 452 452
Other items
Charge for in-process research and development.............. -- -- -- --
Restructuring............................................... -- -- 14,250 14,250
Income taxes.................................................. -- -- 1,464 1,464
Property, plant and equipment................................. 9,272 19,704 -- 28,976
1998
Net product sales from external customers..................... 69,676 86,595 -- 156,271
Intersegment net sales........................................ -- -- -- --
Total net revenue....................................... 69,676 86,595 -- 156,271
Gross Profit.................................................. 24,783 24,061 -- 48,844
Depreciation and amortization................................. 1,701 3,640 -- 5,341
Interest income
External.................................................... -- -- 1,454 1,454
Intersegment................................................ -- -- -- --
Total interest income................................... -- -- 1,454 1,454
Interest expense (external)
External.................................................... -- -- 215 215
Intersegment................................................ -- -- -- --
Total interest expense.................................. -- -- 215 215
Other items
Charge for in-process research and development.............. -- -- -- --
Restructuring............................................... -- -- -- --
Income taxes.................................................. -- -- 4,880 4,880
Property, plant and equipment................................. 12,409 26,368 -- 38,777
</TABLE>
54
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
ELECTRO-
SEMICONDUCTOR MECHANICAL CORPORATE TOTAL
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
1999
Net product sales from external customers..................... $ 69,365 $ 74,548 $ -- $ 143,913
Intersegment net sales........................................ -- -- -- --
Total net revenue....................................... 69,365 74,548 -- 143,913
Gross Profit.................................................. 25,935 15,102 -- 41,037
Depreciation and amortization................................. 4,926 4,562 -- 9,488
Interest Income
External.................................................... -- -- 571 571
Intersegment................................................ -- -- -- --
Total interest income................................... -- -- 571 571
Interest expense (external)
External.................................................... -- -- 232 232
Intersegment................................................ -- -- -- --
Total interest expense.................................. -- -- 232 232
Other items
Charge for in-process research and development.............. 5,000 -- -- 5,000
Restructuring............................................... -- -- 3,700 3,700
Income taxes.................................................. -- -- -- --
Property, plant and equipment................................. 20,943 19,332 -- 40,275
</TABLE>
Interest income and expense, restructuring, and income taxes are considered
corporate level activities and are therefore, not allocated to segments.
Management believes transfers between geographic areas are accounted for on an
arms' length basis.
55
<PAGE>
C.P. CLARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE 17. FINANCIAL INFORMATION BY SEGMENT (CONTINUED)
Long-lived tangible assets by geographic area were as follows:
<TABLE>
<CAPTION>
LONG-LIVED TANGIBLE
ASSETS
--------------------
GEOGRAPHIC AREA 1998 1999
- ------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
United States........................................................... $ 25,982 $ 26,100
Belgium................................................................. 397 296
France.................................................................. 9 8
Germany................................................................. 9 14
Mexico.................................................................. 12,380 13,857
--------- ---------
$ 38,777 $ 40,275
--------- ---------
--------- ---------
</TABLE>
Revenues by geographic area for the years ended March 31, 1997, 1998 and
1999 were as follows:
<TABLE>
<CAPTION>
REVENUE
----------------------------------
GEOGRAPHIC AREA 1997 1998 1999
- --------------------------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
United States............................................ $ 73,718 $ 93,369 $ 86,059
France................................................... 4,850 7,910 6,164
Germany.................................................. 5,692 5,804 6,708
Ireland.................................................. 252 5,664 2,003
Italy.................................................... 2,541 2,394 2,683
Netherlands.............................................. 2,413 1,968 1,429
Sweden................................................... 1,722 2,635 3,673
United Kingdom........................................... 4,928 10,921 12,412
Other.................................................... 32,045 25,606 22,782
---------- ---------- ----------
$ 128,161 $ 156,271 $ 143,913
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
56
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II
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,
1999. 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, 1999
58
<PAGE>
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, 1999....................... $ 1,177 $ 461 -- $ 273 $ 1,365
Year Ended March 31, 1998....................... 675 579 66 143 1,177
Year Ended March 31, 1997....................... 535 273 -- 133 675
</TABLE>
<TABLE>
<CAPTION>
BALANCE AS OF BALANCE AT
BEGINNING END OF
RESTRUCTURING RESERVE OF PERIOD PROVISION CASH PAID PERIOD
- -------------------------------------------------------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Year Ended March 31, 1999..................................... $ -- $ 2,684 $ (532) $ 2,152
Year Ended March 31, 1998..................................... 5,082 -- (5,082) --
Year Ended March 31, 1997..................................... -- 7,499 (2,417) 5,082
</TABLE>
59
<PAGE>
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.
SIGNATURES TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ ARTHUR R. BUCKLAND President, Chief Executive
- ------------------------------ Officer and Chairman June 24, 1998
Arthur R. Buckland
/s/ HARRY ANDERSEN Senior Vice President and
- ------------------------------ Chief Financial Officer June 24, 1998
Harry Andersen
/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
60
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.76 First Amendment to Amended and Restated Employment Agreement between the Company and Thomas B. Sager
dated November 23, 1998.
10.77 First Amendment to Employment Agreement between the Company and Richard Morgan dated November 23,
1998.
10.78 Employment Agreement between the Company and Harry Andersen dated December 22, 1998.
10.79 Loan Agreement between the Company and Bank Boston, N.A. dated March 1, 1999.
10.80 Form of Revolving Credit Note, Principal Amount $15,000,000 by the Company to Bank Boston, N.A. dated
March 1, 1999.
10.81 Pledge Agreement between the Company and Bank Boston, N.A. dated March 1, 1999.
21 Subsidiaries of the Registrant
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
</TABLE>
<PAGE>
Exhibit 10.76
FIRST AMENDMENT TO AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
("Amendment"), dated as of the 23rd day of November 1998 between Thomas B. Sager
of 8 Blackthorne Circle, Hopkinton, Massachusetts 01748 (the "Employee") and
C.P. CLARE CORPORATION, a Massachusetts corporation with its principal office at
78 Cherry Hill Drive, Beverly, Massachusetts 01915 (the "Company"). Unless the
context otherwise requires, the term "Company" shall include all subsidiary
corporations of the Company.
WHEREAS, the Company and Employee entered into an Amended and Restated
Employment Agreement as of September 16, 1997 ("Employment Agreement"); and
WHEREAS, the parties agree to amend and restate certain provisions of
the Employment Agreement in accordance with Paragraph 16 thereof;
NOW, THEREFORE, the Company and the Employee, each intending to be
legally bound hereby, do mutually covenant and agree as follows:
A. Paragraph 1 of the Employment Agreement is hereby amended and restated
in its entirety as follows:
1. TERM OF EMPLOYMENT. The Company hereby employs the Employee, and
the Employee hereby accepts employment by the Company, for the period
commencing on the Effective Date and ending on March 31, 1999, subject
to earlier termination in accordance with Section 7 below (the "Term").
The Employee hereby resigns from his employment and all offices he may
hold with the Company or its affiliates effective March 31, 1999,
subject to the right of the parties to terminate the employment earlier
in accordance with Paragraph 7 (the "Termination Date").
B. Subparagraphs (a) and (b) of Paragraph 7 of the Employment Agreement
are hereby amended and restated in their entirety as follows:
(a) TERMINATION WITHOUT CAUSE. The Company expressly reserves the
right to terminate the employment of the Employee prior to the
Termination Date, other than for cause, as provided in subparagraph
(b), and other than as provided in subparagraphs (c) and (d), of this
Paragraph 7. The Company agrees that it will keep the Employee
appraised of the progress it is making in the search for a new Chief
Finacial Officer and will give the Employee at least four (4) weeks
prior notice of termination without cause as set forth in this
subparagraph (a).
(b) VOLUNTARY TERMINATION AND TERMINATION FOR CAUSE. The
Employee's employment may be voluntarily terminated by him prior to the
Termination Date; provided, however, that Employee shall not terminate
his employment prior to the Termination Date until the Company has
hired a new Chief Financial Officer and in such case, the Employee
will give the Company not less than four (4) weeks' prior
<PAGE>
written notice ("Notice"). In the event that the Employee voluntarily
terminates his employment prior to such time, he shall not be elegible
for any Severance Benefits, as defined herein.
Additionally, the Employee's employment may be terminated at any
time for cause (as hereinafter defined) effective upon the giving of
written notice of such termination for cause by the Company to the
Employee. If at any time during the Term the Company shall have
terminated the employment of the Employee for cause (as hereinafter
defined) the Employee shall be entitled to receive only his base salary
as provided in Paragraph 4(a) hereof to the date of such termination
and no other benefits, including without limitation, those provided for
under Paragraphs 4(b) and 5 of this Agreement (except those that cannot
be divested pursuant to the Employee Retirement Income Security Act of
1974, as amended or other applicable law), under this Agreement.
For purposes of this Agreement the term "cause" shall mean (i)
conviction of the Employee of any criminal offense involving dishonesty
or breach of trust or any felony or crime of moral turpitude, (ii)
willful misconduct in the performance of his duties, (iii) the willful
continuous neglect of the duties and responsibilities of his office
(other than failure to perform his duties and fulfill his
responsibilities resulting from the Employee's incapacity due to a
physical or mental illness), (iv) the Employee's failure to perform any
term, covenant or condition required to be performed by the Employee
pursuant to this Agreement, all to be finally determined in the sole
discretion of the Board of Directors of the Company, or (v) the
Employee's willful failure during the Term to cooperate in
transitioning his duties and responsibilities to such other individuals
as may be designated by the Chief Executive Officer of the Company.
C. Subparagraph (g) hereby is added to Paragraph 7 of the Employment
Agreement as follows:
(g) SEVERANCE BENEFITS.
(i) BASE SEVERANCE. Subject to the provisions of subparagraph (e)
of this Paragraph 7, in the event that the Employee's employment shall
have been terminated by the Company other than for cause as set forth
in subparagraph (a) of this Paragraph 7 or upon expiration of the Term
in accordance with Paragraph 1, the Employee shall be entitled to
receive for the period of six (6) months following such termination
("Severance Period"), (A) his base salary as provided for in Paragraph
4(a) hereof at the rate in effect on the date of such termination of
employment, payable in equal installments in the same amounts and in
the same periodic intervals as his base salary was paid immediately
prior to such termination, (B) the continuation of the health plan
benefits, provided for in subparagraph (a) of Paragraph 5 hereof and
(C) the continuation of a monthly car allownace of $650. Additionally,
the Company will maintain directors and officers liability insurance
with usual and customary terms and
<PAGE>
conditions that provides insurance coverage for events occurring while
the Employee was an officer of the Company.
(ii) CONDITION PRECEDENT TO PAYMENT OF SEVERANCE. Payments of
salary continuation and benefit continuation set forth in subparagraph
(g)(i) of this Paragraph 7 are conditioned upon the Employee first
delivering to the Company an executed Release in the form of Exhibit A
hereto on or after the Termination Date but, in any event, not later
than 45 days following the Termination Date. Salary and benefit
continuation shall not commence until the executed Release is delivered
and becomes irrevocable in accordance with its terms. Any installments
of salary continuation that have been deferred in the interim will be
made with the first salary continuation payment next following the date
on which the executed and delivered Release has become irrevocable.
(iii) MISCELLANEOUS. The Employee may retain the Company's
personal computer currently used for office use.
D. The first paragraph of subparagraph (e) of Section 7 is hereby amended
and restated as follows:
(e) TERMINATION FOR GOOD REASON FOLLOWING A CHANGE OF CONTROL.
The Employee's employment may be terminated by him by written notice of
a Good Reason (as hereinafter defined), effective upon the giving of
such notice, at any time within one hundred eighty (180) days following
a Change of Control (as hereinafter defined), in which event,
notwithstanding the provisions of Paragraph 7(b) hereof, the Employee
shall be entitled to receive for a period one (1) year following such
termination his base salary as provided for in Paragraph 4(a) hereof at
the rate in effect on the date of such termination of employment,
payable in equal installments in the same amounts and in the same
periodic intervals as his base salary was paid immediately prior to
such termination.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
C.P. CLARE CORPORATION
By:
-----------------------------
Its:
THOMAS B. SAGER
------------------------------------
<PAGE>
Exhibit 10.77
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment"), dated as of the
23rd day of November 1998 between Richard Morgan of 1 Bancroft Way, Hamilton,
Massachusetts 01936 (the "Employee") and C.P. CLARE CORPORATION, a Massachusetts
corporation with its principal office at 78 Cherry Hill Drive, Beverly,
Massachusetts 01915 (the "Company"). Unless the context otherwise requires, the
term "Company" shall include all subsidiary corporations of the Company.
WHEREAS, the Company and Employee entered into an Employment Agreement as
of April 8, 1996; and
WHEREAS, the parties agree to amend and restate certain provisions of the
Employment Agreement in accordance with Paragraph 16 thereof;
NOW, THEREFORE, the Company and the Employee, each intending to be legally
bound hereby, do mutually covenant and agree as follows:
A. Paragraph 1 of the Employment Agreement is hereby amended and restated
in its entirety as follows:
1. TERM OF EMPLOYMENT. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, for the period
commencing on the Effective Date and ending on the earlier to occur of the
following (i) April 30, 1999, or (ii) the accomplishment of the Performance
Goals (as defined herein), subject to earlier termination in accordance
with Paragraph 7 below (the "Term"). The Employee hereby resigns, effective
as of the Termination Date, from his employment and all offices he may hold
with the Company or its affiliates effective April 30, 199, or such earlier
termination date, as the case may be, subject to the right of the parties
to terminate the employment earlier in accordance with Paragraph 7 (the
"Termination Date").
B. Paragraph 2 of the Employment Agreement is hereby amended and restated in
its entirety as follows:
2. CAPACITY.
(a) During the Term, the Employee shall continue to serve as Vice
President of Human Resources and shall perform such duties and functions
with respect to such position as are assigned from time to time by the
Board of Directors or by the Chief Executive Officer of the Company.
(b) During the Term the Employee additionally shall (i) recruit and
assist in hiring a new Chief Financial Officer, two analog design
engineers, a manager of HVIC marketing and an attorney, all upon parameters
to be determined by the CEO, and (ii) provide support to the Company in
connection
<PAGE>
with the divestiture of its Remtech and Surge businesses and its
restructuring (collectively, the "Performance Goals").
C. Subparagraphs 7(a) and 7(b) of the Employment Agreement are hereby amended
and restated in the entirety as follows:
(a) TERMINATION WITHOUT CAUSE. The Company expressly reserves the
right to terminate the employment of the Employee prior to the Termination
Date, other than for cause, as provided in subparagraph (b), and other than
as provided in subparagraphs (c) and (d), of this Paragraph 7.
(b) VOLUNTARY TERMINATION AND TERMINATION FOR CAUSE. The Employee's
employment may be voluntarily terminated by him at any time by giving the
Company not less than two (2) weeks prior written.
Additionally, the Employee's employment may be terminated at any time
for cause (as hereinafter defined) effective upon the giving of written
notice of such termination for cause by the Company to the Employee. If at
any time during the Term (i) the Employee shall have voluntarily terminated
his employment with the Company (other than as contemplated by subparagraph
(e) of this Paragraph 7) prior to the Termination Date, or (ii) the Company
shall have terminated the employment of the Employee for cause (as
hereinafter defined) the Employee shall be entitled to receive only his
base salary as provided in Paragraph 4(a) hereof to the date of such
termination and no other benefits, including without limitation, those
provided for under Paragraphs 4(b) and 5 of this Agreement (except those
that cannot be divested pursuant to the Employee Retirement Income Security
Act of 1974, as amended or other applicable law), under this Agreement.
For purposes of this Agreement the term "cause" shall mean (i)
conviction of the Employee of any criminal offense involving dishonesty or
breach of trust or any felony or crime of moral turpitude, (ii) willful
misconduct in the performance of his duties, (iii) the willful continuous
neglect of the duties and responsibilities of his office (other than
failure to perform his duties and fulfill his responsibilities resulting
from the Employee's incapacity due to a physical or mental illness), or
(iv) the Employee's failure to perform any term, covenant or condition
required to be performed by the Employee pursuant to this Agreement, all to
be finally determined in the sole discretion of the Board of Directors of
the Company.
D. Subparagraph (g) hereby is added to Paragraph 7 of the Employment Agreement
as follows:
(g) SEVERANCE BENEFITS.
(i) BASE SEVERANCE. Subject to the provisions of subparagraph (e) of
this Paragraph 7, in the event that the Employee's employment shall have
been
<PAGE>
terminated by the Company other than for cause as set forth in
subparagraph (a) of this Paragraph 7 or upon expiration of the Term in
accordance with Paragraph 1, the Employee shall be entitled to receive for
the period until April 30, 1999 and for twelve (12) months following such
date ("Severance Period") his base salary as provided for in Paragraph 4(a)
hereof at the rate in effect on the date of such termination of employment,
payable in equal installments in the same amounts and in the same periodic
intervals as his base salary was paid immediately prior to such
termination, plus the continuation of the health plan benefits, provided
for in subparagraph (a) of Paragraph 5 hereof for the Severance Period.
Additionally, the Company will maintain directors and officers liability
insurance with usual and customary terms and conditions that provides
insurance coverage for event occurring while the Employee was an officer of
the Company.
(ii) ADDITIONAL SEVERANCE. In the event that the Employee's employment
shall have been terminated by the Company other than for cause or upon
expiration of the Term in accordance with Paragraph 1, the Company at its
option will either (A) continue the Severance Period for an additional
three (3) months, resulting in a total Severance Period of fifteen (15)
months from and after April 30, 1999, or (B) engage the Employee as
consultant for a period of three (3) consecutive months on terms to be
mutually agreed by the parties, but which will include work by the Employee
as a consultant three (3) full days per week at a rate of $1,000 per day.
The Company will promptly notify the Employee of which option it has chosen
following the end of the Term.
(iii) CONDITION PRECEDENT TO PAYMENT OF SEVERANCE AND ADDITIONAL
SEVERANCE. Payments of salary continuation and benefit continuation set
forth in subparagraphs (g)(i) and (g)(ii) of this Paragraph 7 are
conditioned upon the Employee first delivering to the Company an executed
Release in the form of Exhibit A hereto on or after the Termination Date
but, in any event, not later than 45 days following the Termination Date.
Salary and benefit continuation shall not commence until the executed
Release is delivered and becomes irrevocable in accordance with its terms.
Any installments of salary continuation that have been deferred in the
interim will be made with the first salary continuation payment next
following the date on which the executed and delivered Release has become
irrevocable.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
C.P. CLARE CORPORATION
By:
------------------------------
Its:
RICHARD MORGAN
<PAGE>
Exhibit 10.78
EMPLOYMENT AGREEMENT
Employment Agreement, dated as of December 22, 1998 between HARRY
ANDERSEN of 16 Goodwins Court, Marblehead, Massachusetts 01945 ("the Employee")
and C.P. CLARE CORPORATION, a Massachusetts Corporation with its principal
office at 78 Cherry Hill Drive, Beverly, Massachusetts 01915 (the "Company").
Unless the context otherwise requires, the term "Company" shall include all
subsidiary corporations of the Company.
In consideration of the terms and mutual covenants herein contained,
the Employee and the Company agree as follows:
1. TERM OF EMPLOYMENT.
(a) EMPLOYMENT. The Company hereby employs the Employee, and the
Employee hereby accepts employment by the Company, for the period commencing on
the date hereof and ending on December 21, 1999 (the "Initial Term"), subject to
extension in accordance with the provisions of subparagraph (b), below, unless
terminated earlier in accordance with the terms hereof (the "Employment
Period").
(b) EXTENSION OF TERM. In the event that on or before the date of
expiration of the Initial Term, the employment of the Employee shall not have
been terminated pursuant to the provisions of Paragraph 7 hereof, the term of
the employment of the Employee under this Agreement shall be automatically
renewed for successive one year terms thereafter until such time as the
employment of the Employee shall be terminated pursuant to the provisions of
Paragraph 7 hereof.
2. CAPACITY. The Employee shall serve as Senior Vice President and
Chief Financial Officer of the Company and shall perform such duties and
functions with respect to such position as are assigned from time to time by the
Board of Directors or by the Chief Executive Officer of the Company.
3. FULL-TIME EMPLOYMENT. The Employee shall devote his entire business
and professional time, attention and energies to the performance of his duties
to the Company and of any of its subsidiaries by which he may be employed and
shall not, directly or indirectly, actively engage in or concern himself with
any other activities or commitments which interfere with the performance of his
duties hereunder or which, even if non-interfering, may be inimical or contrary
to the best interests of the Company. Notwithstanding the foregoing, the
Employee may at all times during the Employment Period (i) subject in each case
to the approval of the Chief Executive Officer of the Company, serve as an
officer, director, trustee, or committee member of any religious, professional,
civic, charitable or educational organization, or as a director of any
corporation whose business is not competitive with that of the Company; and (ii)
engage in, and devote time and effort to, any and all personal investments or
business ventures unrelated to the business or affairs of the Company, in each
case so long as such activities do not materially interfere with his obligations
set forth in this Paragraph 3 and provided that such activities are permitted
under Paragraph 12 of this Agreement.
<PAGE>
4. COMPENSATION AND BENEFITS. For all services rendered by the Employee
to the Company, the Company shall pay to the Employee during the Employment
Period the following compensation:
(a) BASE SALARY. The Employee shall be entitled to an annual base
salary of One Hundred Sixty Thousand Dollars ($160,000) from the date of this
Agreement until the expiration of the Employment Period. The base salary may be
increased (but may not be reduced) by the Board of Directors of the Company for
any fiscal year of the Company during the Employment Period. To that end, the
Employee shall receive a performance review at least once a year, in connection
with which he shall be eligible for such merit increases and other salary
adjustments as the Board of Directors of the Company shall approve.
(b) ANNUAL BONUS. In addition to his regular salary, the Employee shall
be eligible (subject to the provisions of Paragraph 7(f) hereof) to receive a
bonus of up to 40% of your base salary with respect to each fiscal year or
portion thereof during the Employment Period, pursuant to any corporate bonus
program as may be in effect from time to time.
(c) PAYMENT OF SALARY. The Employee's base salary under subparagraph
(a) of this Paragraph 4 shall be payable in substantially equal installments in
accordance with the Company's existing payroll practices for its executives.
(d) EQUITY COMPENSATION ARRANGEMENTS. The Employee shall also be
eligible to participate during the term of his employment under this Agreement
in such equity compensation arrangements as are provided by the Company for its
executives. In that regard, the Employee will be granted incentive stock options
under the Company's Amended and Restated 1995 Stock Option and Incentive Plan
(the "Plan") which shall entitle the Employee to acquire up to 50,000 shares of
the Company's common stock for a purchase price equal to the fair market value
of such shares on the date of grant of such options as determined pursuant to
such plan, such options to vest ratably over a period of five (5) years;
provided that the vesting of the right to exercise all such options granted to
the Employee shall be accelerated in the event that there shall be a Change of
Control of the Company (as hereafter defined).
(e) WITHHOLDING TAXES. The Employee agrees that the Company shall
withhold from any and all payments required to be made to the Employee pursuant
to this Agreement all federal, state, local and/or other taxes which the Company
determines are required to be withheld in accordance with applicable statutes
and/or regulations from time to time in effect.
5. FRINGE BENEFITS; VACATIONS.
(a) EMPLOYEE BENEFIT PLANS. The Employee shall be eligible to
participate during the Employment Period in such of the employee benefit and
health plans and other fringe benefit programs as the Company shall establish or
maintain for its employees from time to time (commensurate with the Employee's
position and compensation).
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<PAGE>
(b) LIFE AND DISABILITY INSURANCE. The Company shall provide to the
Employee at the expense of the Company and keep in force during the Employment
Period a split dollar policy of term life insurance with a death benefit in the
amount of $500,000. Additionally, the Employee shall be entitled to participate
in the Company's group disability insurance program during the Employment
Period.
(c) CAR ALLOWANCE. The Employee shall be entitled to a car allowance of
$650 per month during the Employment Period.
(d) VACATIONS. The Employee shall be entitled to vacation time in each
year consistent with the Company's vacation policy for its senior executives as
in effect from time to time, but in any event not less than three weeks of paid
vacation per year. The Employee shall also be entitled to all paid holidays and
personal days given by the Company to its executives.
6. REIMBURSEMENT. The Company shall promptly reimburse the Employee for
all reasonable business expenses incurred by him in connection with his
performance of his duties to the Company, upon substantiation of such expenses
in accordance with the policies of the Company in effect from time to time
during the Employment Period.
7. TERMINATION OF EMPLOYMENT.
(a) TERMINATION WITHOUT CAUSE. The Company expressly reserves the right
to terminate the employment of the Employee hereunder other than for cause as
provided in subparagraph (b), and other than as provided in subparagraphs (c)
and (d), of this Paragraph 7. In the event that the Employee's employment shall
have been so terminated by the Company other than for cause, upon execution of a
release and settlement agreement the Employee shall be entitled to receive for
the period of one (1) year following such termination his base salary as
provided for in Paragraph 4(a) hereof at the rate in effect on the date of such
termination of employment, payable in equal installments in the same amounts and
in the same periodic intervals as his base salary was paid immediately prior to
such termination.
(b) VOLUNTARY TERMINATION AND TERMINATION FOR CAUSE. The Employee's
employment may be voluntarily terminated by him at any time by giving not less
than two (2) weeks' written notice thereof to the Company. Additionally, the
Employee's employment may be terminated at any time for cause (as hereinafter
defined) effective upon the giving of written notice of such termination for
cause by the Company to the Employee. If at any time during the term of this
Agreement (i) the Employee shall have voluntarily terminated his employment with
the Company (other than as contemplated by subparagraph (e) of this Paragraph
7), or (ii) the Company shall have terminated the employment of the Employee for
cause (as hereinafter defined) the Employee shall be entitled to receive only
his base salary as provided in Paragraph 4(a) hereof to the date of such
termination and no other benefits, including, without limitation, those provided
for under Paragraphs 4(b) and 5 of this Agreement (except those that cannot be
divested pursuant to the Employee Retirement Income Security Act of 1974, as
amended or other applicable law), under this Agreement.
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<PAGE>
For purposes of this Agreement, the term "cause" shall mean (i)
conviction of the Employee of any criminal offense involving dishonesty or
breach of trust or any felony or crime of moral turpitude, (ii) willful
misconduct in the performance of his duties, (iii) the willful continuous
neglect of the duties and responsibilities of his office (other than failure to
perform his duties and fulfill his responsibilities resulting from the
Employee's incapacity due to a physical or mental illness), or (iv) the
Employee's failure to perform any term, covenant or condition required to be
performed by the Employee pursuant to this Agreement, all to be finally
determined in the sole discretion of the Board of Directors of the Company.
(c) DISABILITY. In the event that the Employee shall sustain a
disability and be unable to perform his duties and responsibilities during the
term of this Agreement, as shall have been certified by at least two (2) duly
licensed and qualified physicians approved by the Board of Directors of the
Company (the "Examining Physicians"), the Company shall continue to pay to the
Employee while such disability continues the full amount of his base salary as
set forth in Paragraph 4(a) hereof for a period following the date upon which
such disability shall have been so certified equal to the lesser of (i) six
months or (ii) the period ending upon the date of inception of the payment of
benefits under any disability insurance to which the Employee may become
entitled pursuant to Paragraph 5(b) hereof. Thereafter, if the Employee's
disability shall continue (as evidenced by the continued absence of the Employee
from his duties), the employment of the Employee under this Agreement shall
terminate and all obligations of the Employee shall cease and the Employee shall
be entitled to receive only the benefits, if any, as may be provided by any
insurance to which he may have become entitled pursuant to Paragraph 5(b) hereof
and the payment of any amounts of the Employee's base salary then remaining to
be paid under Paragraph 4(a) hereof through the date of the termination of the
Employee's employment. "Disability" means the complete disability of the
Employee resulting from injury, sickness, disease, or infirmity due to age,
whereby the Employee is unable to perform his usual services for the Company;
the "Date of Disability" shall be deemed to be the date on which the Board of
Directors of the Company receives written notice from the Examining Physicians
stating that the Employee is suffering a Disability as defined herein.
(d) DEATH. In the event of the Employee's death during the term of this
Agreement, the Employee's employment hereunder shall immediately terminate and,
in such event, the Employee's estate shall be entitled to receive the Employee's
base salary as provided in Paragraph 4(a) hereof to the last day of the month
during which the Employee's death shall have occurred and such additional
benefits, if any, as may be provided by any insurance to which the Employee may
have become entitled pursuant to Paragraph 5(b) hereof.
(e) TERMINATION FOR GOOD REASON FOLLOWING CHANGE OF CONTROL. The
Employee's employment may be terminated by him by written notice for a Good
Reason (as hereinafter defined), effective upon the giving of such notice, at
any time within one hundred eighty (180) days following a Change of Control (as
hereinafter defined), in which event, notwithstanding the provisions of
Paragraph 7(b) hereof, the Employee shall be entitled to receive the severance
payments provided for in Paragraph 7(a) hereof to the same extent as if the
employment of the Employee had been terminated by the Company without cause
pursuant to said Paragraph 7(a).
4
<PAGE>
For purposes of this Agreement, the term "Good Reason" means any of the
following:
(i) A material dimunition by the Company in the Employee's
authority, functions, duties or responsibilities in the capacity specified in
Paragraph 2 hereof; provided that such material dimunition is not in connection
with a termination of the Employee's employment hereunder by the Company in
accordance with Paragraph 7(a); or
(ii) A failure by the Company to comply with any material
provision of this Agreement which has not been cured within thirty (30) days
after notice of such noncompliance has been given by the Employee to the
Company.
For purposes of this Agreement, a "Change of Control" means that any of
the following events has occurred:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, (the "Act") (other
than the Company, any of its Subsidiaries (as hereinafter defined), 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
vote in an election of the Company's Board of Directors ("Voting Securities") or
(B) the then outstanding shares of Stock (as hereinafter defined) 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 the Effective Date, 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 the
Effective Date 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;
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<PAGE>
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
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).
For purposes of the foregoing definition of "Change of Control":
(A) the term "Stock" means the Common Stock, par value $.01
per share, of the Company, subject to adjustment or change as a result of any
merger, consolidation, sale of all or substantially all of the assets of the
Company, or any reorganization, recapitalization, reclassification, stock
dividend, stock split, reverse stock split or similar transaction; and
(B) the term "Subsidiary" means any corporation or other
entity (other than the Company) in any unbroken chain of corporations or
entities, beginning with the Company if each of the corporations or entities
(other than the last corporation or entity in the unbroken chain) owns stock or
other interests possessing 50% or more of the economic interest or the total
combined voting power of all classes of stock or other interests in one of the
other corporations or entities in the chain.
(f) TREATMENT OF ANNUAL BONUS ON TERMINATION.
(i) CURRENT YEAR'S BONUS. In the event of the termination of
the employment of the Employee for any reason, the Employee shall not be
entitled to receive any annual bonus payment pursuant to Paragraph 4(b) hereof
in respect of the fiscal year of the Company in which the termination shall take
place.
(ii) PREVIOUS YEAR'S BONUS. In the event that at the time of
his termination, the Employee is due, but has not yet received, payment of an
annual bonus in respect of the preceding fiscal year of the Company, such bonus
shall be paid to the Employee at the time it is paid to the other employees of
the Company, except that, notwithstanding the foregoing, if the Employee shall
have been terminated for cause as provided in subparagraph (b) of this Paragraph
7, the Employee shall forfeit and shall not be entitled to receive payment of
any such annual bonus in respect of the preceding fiscal year which the Employee
shall not have received on or before the date of such termination for cause.
8. INVENTIONS AND PATENTS.
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<PAGE>
(a) DISCLOSURE OF DEVELOPMENTS. The Employee will promptly and fully
disclose to the Company any and all inventions, discoveries, trade secrets and
improvements, whether or not patentable and whether or not they are made,
conceived or reduced to practice during working hours or using the Company's
data or facilities, which the Employee develops, makes, conceives or reduces to
practice during his employment by the Company, either solely or jointly with
others (collectively, "Developments"). All such Developments shall be the sole
property of the Company, and the Employee hereby assigns to the Company, without
further compensation, all his right, title and interest in and to such
Developments and any and all related patents, patent applications, copyrights,
copyright applications, trademarks and trade names in the United States and
elsewhere.
(b) MAINTENANCE OF RECORDS. The Employee will keep and maintain
adequate and current written records of all Developments (in the form of notes,
sketches, drawings and as may be specified by the Company), which records shall
be available to and remain the sole property of the Company at all times.
(c) ASSISTANCE IN OBTAINING PATENTS. The Employee will assist the
Company in obtaining and enforcing patent, copyright and other forms of legal
protection for the Developments in any country. Upon request, the Employee will
sign all applications, assignments, instruments and papers and perform all acts
necessary or desired by the Company to assign all such Developments fully and
completely to the Company and to enable the Company, its successors, assigns and
nominees, to secure and enjoy the full and exclusive benefits and advantages
thereof. During his employment, the Employee will perform his obligations under
this subparagraph (c) without further compensation, except for reimbursement of
expenses incurred at the request of the Company. If the Employee is not employed
by the Company as an Employee at the time he is requested to perform any
obligations under this subparagraph, he shall receive for such performance a
reasonable per diem fee, as well as reimbursement of any expenses incurred at
the request of the Company.
9. PROPRIETARY INFORMATION.
(a) OBLIGATION TO KEEP CONFIDENTIAL. The Employee recognizes that his
relationship with the Company is one of high trust and confidence by reason of
his access to and contact with the trade secrets and confidential and
proprietary information of the Company. The Employee will not at any time,
either during his employment with the Company or thereafter, disclose to others,
or use for his own benefit or the benefit of others, any confidential or
proprietary information, and all other knowledge, information, documents or
materials, owned, developed or possessed by the Company, whether in tangible or
intangible form, the confidentiality of which the Company takes reasonable
measures to protect, and which pertains, in any manner, to subjects which
include, but are not limited to, the Company's research operations, customers
(including identities of customers and prospective customers, identities of
individual contacts at business entities which are customers or prospective
customers, preferences, businesses or habits), business relationships, products
(including prices, costs, sales or content), financial information or
measurements, business methods, future business plans, data bases, computer
programs,
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<PAGE>
marketing plans, forecasts, licenses, pricing information and other
information owned, developed or possessed by the Company ("Proprietary
Information").
(b) EXCEPTIONS. The Employee's undertakings and obligations under the
Paragraph 9 will not apply to any Proprietary Information which: (a) is or
becomes generally known to the public through no action on the part of the
Employee, (b) is generally disclosed to third parties by the Company without
restriction on such third parties, (c) is approved for release by written
authorization of the Board of Directors of the Company, or (d) is the subject
matter of a lawful request or subpoena by and within the authority of a court or
governmental agency or other body.
(c) RETURN OF PROPRIETARY INFORMATION. Upon termination of the
employment of the Employee with the Company or at any other time upon request,
the Employee will promptly deliver to the Company all notes, memoranda,
notebooks, drawings, records, reports, files and other documents (and all copies
of reproductions of such materials) in his possession or under his control,
whether prepared by him or others, which contain Proprietary Information. The
Employee acknowledges that the material is the sole property of the Company.
10. ABSENCE OF RESTRICTIONS UPON DISCLOSURE AND COMPETITION. The
Employee represents that his performance of all the terms of this Agreement does
not and will not breach any agreement to keep in confidence proprietary
information, knowledge or data acquired by him in confidence or in trust prior
to the date of this Agreement, and he will not disclose to the Company or induce
the Company to use any confidential or proprietary information or material
belonging to any previous Company or others.
11. OTHER OBLIGATIONS REGARDING PROPRIETARY INFORMATION. The Employee
acknowledges that the Company from time to time may have agreements with other
persons or with the U.S. Government, or agencies thereof, which impose
obligations or restrictions on the Company regarding inventions made during the
course of work under such agreements or regarding the confidential nature of
such work. The Employee agrees to be bound by all such obligations and
restrictions which are made known to him and to take all action necessary to
discharge the obligations of the Company under such agreements.
12. NONCOMPETITION.
(a) During the Employment Period, the Employee agrees not to compete in
any manner, either directly or indirectly, with the Company, or to assist any
other person or entity to compete with the Company. Further, while an employee
of the Company, the Employee agrees not to engage in any other employment or
business enterprise without the written permission of the Chief Executive
Officer of the Company.
(b) After the termination, for any reason, of his employment with the
Company, the Employee agrees that for a period of one (1) year following such
termination, the Employee will not compete with the Company by developing,
marketing, or assisting others to develop or market a product or service which
is competitive with the products or services of the Company then existing or
planned for the future, which the Employee learns of or develops while an the
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<PAGE>
Employee of the Company. The Employee further agrees that for the same period
following such termination, for any reason, the Employee will not accept
employment from or have any other professional relationship with any entity
which is competitive with the products or services of the Company then existing
or which were known by the Employee to be planned for the future. The foregoing
restrictions shall apply in all geographical areas where the Employee performed
services for the Company prior to such termination, and at all other places
where the Company does business and/or did business during the term of his
employment, and at all places where, during his employment with the Company, the
Company had plans or reasonable expectations to do business in the future.
(c) During the Employment Period and for one (1) year following the
termination, for any reason, of his employment, the Employee agrees either on
his behalf or on behalf of any other person or entity, directly or indirectly,
not (i) to hire, solicit, or encourage to leave the employ of the Company any
person who is then an the Employee of the Company, or (ii) to solicit, entice
away or divert any person or entity who is then a client of the Company and who
was a client of the Company at the time of employment. The Employee agrees that
customer or client lists, business contracts and related items are the property
of the Company. The restrictions described herein shall apply to the activities
of the Employee in any state or other jurisdiction in which the Company engaged
in business during the term of employment.
Furthermore, for one (1) year following the termination, for any
reason, of his employment (except following termination of the employment of the
Employee pursuant to the Company's termination of business and liquidation of
assets), the Employee agrees that he will not (i) solicit or accept work or
provide services which is direct follow-up to work or services under contract
performed or being performed by the Company or being actively solicited by the
Company at the time of termination of the employment of the Employee, or (ii)
directly or indirectly recruit the employees of the Company (or any successor
thereto).
The restrictions against competition set forth in this Paragraph 12 are
considered by the parties to be reasonable for the purposes of protecting the
business of the Company. However, if any such restriction is found by any court
of competent jurisdiction to be unenforceable because it extends for too long a
period of time or over too great a range of activities or in too broad a
geographic area, it shall be interpreted to extend only over the maximum period
of time, range of activities or geographic area as to which it may be
enforceable.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns. This
Agreement and the rights and obligations of the parties hereunder are personal
to the Company and the Employee and are not assignable or transferable to any
other person, firm or corporation without the consent of the other party,
provided, however, that the Company may assign its rights and obligations
hereunder to any person or entity who or which succeeds to all or substantially
all of the Company's business and assets. This Agreement is intended to take
effect as a sealed instrument.
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14. NOTICES. All notices required or permitted hereunder shall be in
writing and deemed effectively given upon personal delivery or upon deposit in
the United States mails, by registered or certified mail, postage prepaid,
addressed to the other party hereto at the address set forth in the introductory
paragraph of this Agreement, or at such other address or addresses as either
party shall designate to the other in accordance with this Paragraph 14.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties, and supersedes all prior agreements and understandings,
relating to the subject matter of this Agreement.
16. AMENDMENT. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
17. HEADINGS. The Paragraph and subparagraph headings used in this
Agreement are for convenience only and shall not be deemed to be a party of this
Agreement.
18. SEVERABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
19. GOVERNING LAW. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of The Commonwealth of Massachusetts
applicable to agreements made to be performed entirely within such state,
without giving effect to the conflicts of laws principles thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
C.P. CLARE CORPORATION
By:
--------------------
its
EMPLOYEE:
-----------------------
HARRY ANDERSEN
10
<PAGE>
Exhibit 10.79
- -------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of March 1, 1999
BETWEEN
C.P. CLARE CORPORATION
AND
BANKBOSTON, N.A.
- -------------------------------------------------------------------------------
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT is made as of March 1, 1999, between C.P. CLARE
CORPORATION, a Massachusetts corporation having its principal place of business
and chief executive office at 78 Cherry Hill Drive, Beverly, Massachusetts
01915-1048 (the "Borrower"), and BANKBOSTON, N.A. (the "Lender"), a national
banking association with its head office at 100 Federal Street, Boston,
Massachusetts 02110.
SECTION 1. DEFINITIONS.
1.1 DEFINITIONS. As used herein, the following terms shall 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.
"Affiliate" means, with reference to any person, (i) any director,
officer or employee of that person, (ii) any other person controlling,
controlled by or under direct or indirect common control of that person, (iii)
any other person directly or indirectly holding 10% or more of any class of the
capital stock or other equity interests (including options, warrants,
convertible securities and similar rights) of that person and (iv) any other
person 10% or more of any class of whose capital stock or other equity interests
(including options, warrants, convertible securities and similar rights) is held
directly or indirectly by that person. For purposes of Section 5.1(viii) hereof,
"Affiliate" means, within the meaning of Section 414 of the Code, (i) any member
of a controlled group of corporations which includes the Borrower, (ii) any
trade or business, whether or not incorporated, under common control with the
Borrower, (iii) any member of an affiliated service group which includes the
Borrower, and (iv) any member of a group treated as a single employer by
regulation.
"Agreement" means this Loan Agreement, including the schedules and
exhibits hereto, as originally executed, or if this Agreement is amended, varied
or supplemented from time to time, as so amended, varied or supplemented.
"Applicable Commitment Multiplier" means (i) one-quarter of one percent
(0.25%) if the Average Unused Commitment during the relevant time period is
greater than or equal to fifty percent (50%) of the Maximum Amount and (ii)
one-eighth of one
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percent (0.125%) if the Average Unused Commitment during the relevant time
period is less than fifty percent (50%) of the Maximum Amount.
"Applicable Margin" means, for any day, with respect to any Revolving
Loan payable hereunder bearing interest based upon the LIBOR Rate, the
applicable rate PER ANNUM set forth below under the caption "Applicable Margin",
based upon the Liabilities to EBITDA Ratio as of the most recent determination
date:
<TABLE>
<CAPTION>
------------------------------ -------------------------
Liabilities to EBITDA Ratio Applicable Margin
<S> <C>
------------------------------ -------------------------
------------------------------ -------------------------
CATEGORY 1
Less than 1.00x 0.50%
------------------------------ -------------------------
------------------------------ -------------------------
CATEGORY 2
1.00x to Less than equal 1.50x 0.75%
------------------------------ -------------------------
------------------------------ -------------------------
CATEGORY 3
greater than 1.50x to
less than 2.00x 1.00%
------------------------------ -------------------------
------------------------------ -------------------------
CATEGORY 4
greater than 2.00x to
less than equal 2.50x 1.25%
------------------------------ -------------------------
------------------------------ -------------------------
CATEGORY 5
greater than 2.50x 1.50%
------------------------------ -------------------------
</TABLE>
For purposes of the foregoing, (x) the Liabilities to EBITDA Ratio shall be
determined, on a consolidated basis, as of the end of each fiscal quarter of the
Borrower's fiscal year based upon the Borrower's financial statements delivered
pursuant to Section 5.1(i) or (iii), and (y) each change in the Applicable
Margin resulting from a change in the Liabilities to EBITDA Ratio shall be
effective during the period commencing on and including the date 3 Business Days
after delivery to the Lender of such financial statements indicating such change
and ending on the date immediately preceding the effective date of the next such
change; PROVIDED THAT, until such time as Borrower first submits financial
statements to Lender pursuant to Section 5.1(i) or (ii), the Liabilities to
EBITDA Ratio shall be based upon the Initial Financial Statement.
Notwithstanding anything stated herein to the contrary, the Liabilities to
EBITDA Ratio shall be deemed to be in Category 5 (a) at any time that an Event
of Default has occurred and is continuing and (b) if the Borrower fails to
deliver the financial statements required to be delivered by it pursuant to
Section 5.1(i) or (ii), during the period from the expiration of the time for
delivery thereof until 3 Business Days after such financial statements are
delivered.
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<PAGE>
"Average Unused Commitment" for any period of time means the average
daily difference between the Maximum Amount and the sum of the principal amount
of Revolving Loans actually outstanding hereunder during such period.
"Base Rate" means the greater of (i) the rate of interest announced
from time to time by the Lender at its head office as its "base rate" and (ii)
the Federal Funds Effective Rate plus 1/2 of 1% PER ANNUM (rounded upwards, if
necessary, to the next 1/8 of 1%).
"Business Day" means (i) for all purposes other than as covered by
clause (ii) below, any day other than a Saturday, Sunday or legal holiday on
which banks in Boston, Massachusetts are open for the conduct of a substantial
part of their commercial banking business; and (ii) with respect to all notices
and determinations in connection with, and payments of principal and interest
on, Revolving Loans bearing interest by reference to the Libor Rate, any day
that is a Business Day described in clause (i) and that is also a day for
trading by and between banks in United States dollar deposits in the London
interbank market.
"Capital Expenditures" means the amount of any expenditure for fixed
assets, computer software, leasehold improvements, capital leases under GAAP,
installment purchases of machinery and equipment, acquisitions of real estate,
expenditures in any construction in progress account of the Borrower and other
similar expenditures which are required to be capitalized on a balance sheet
pursuant to GAAP.
"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 banker's acceptances,
having in each case a tenor of not more than six months, issued by the Lender,
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 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 any issuer rated at least A by Standard &
Poor's Corporation or P-1 by Moody's Investor 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
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(e) variable rate municipal bonds that are backed by letters of credit
issued by the Lender, 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 Section 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 the Borrower that represent
twenty-five percent (25%) or more of the combined voting power of the Borrower's
then outstanding securities or (ii) during any period of twelve consecutive
calendar months, individuals who at the beginning of such period constituted the
Borrower's board of directors (together with any new directors whose election by
the Borrower's board of directors or whose nomination for election by the
Borrower'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.
"Closing Date" means the first date on which all of the conditions set
forth in Section 4 have been satisfied and any Revolving Loans are to be made
hereunder.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Current Assets" means the aggregate amount of assets of
the Borrower and its Subsidiaries which are classified as current assets on a
consolidated balance sheet for the Borrower and its Subsidiaries prepared in
accordance with GAAP.
"Consolidated Current Liabilities" means the aggregate amount of
liabilities of the Borrower and its Subsidiaries which are classified as current
liabilities on a consolidated balance sheet for the Borrower and its
Subsidiaries prepared in accordance with GAAP.
"Consolidated Tangible Net Worth" means the consolidated net worth of
the Borrower and its Subsidiaries less the net book value of all assets of the
Borrower and its Subsidiaries, on a consolidated basis, which would be treated
as intangibles under GAAP, including, without limitation, deferred charges,
franchise rights, non-compete agreements, research and development costs,
goodwill, unamortized debt discounts, patents, patent applications, trademarks,
trade names, copyrights, and licenses.
"Consolidated Working Capital" means the difference obtained by
subtracting from the Consolidated Current Assets the Consolidated Current
Liabilities.
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<PAGE>
"Contingent Obligations" 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 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.
"Credit Note" shall have the meaning set forth in Section 2.1.1.
"Default" means an event or condition that, but for the requirement
that time elapse or notice be given, or both, would constitute an Event of
Default.
"Divestiture" means shall have the meaning set forth in Section 5.9.
"Domestic Corporation" means any Subsidiary incorporated under the laws
of the United States or any State or Territory thereof.
"EBIT" means for any period, for the Borrower and its Subsidiaries on a
consolidated basis, determined in accordance with GAAP, the sum of (a) the Net
Income
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<PAGE>
(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 of 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.
"EBITDA" means, for any period, for the Borrower 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.
"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 any 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, as
amended, and the rules and regulations thereunder.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"Federal Funds Effective Rate" means, for any day, a fluctuating
interest rate PER ANNUM equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published for such day (or, if such day is not a
Business Day, for the next preceding Business Day) by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day that is a Business
Day, the average of the quotations for such day on such transactions received by
the Lender from 3 Federal funds brokers of recognized standing selected by the
Lender.
"Financial Services Agreement" means trade finance, foreign exchange,
risk management service agreements or agreements for other services provided by
the Lender, if any, whether verbal or written, entered into between the Lender
and the Borrower, each
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<PAGE>
such agreement being in form and substance satisfactory to the Lender in its
sole discretion.
"Foreign Corporation" means any Subsidiary that is not a Domestic
Corporation.
"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 the Borrower 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 Federal Reserve Board.
"Funded Debt" means, as of any date of determination, on a consolidated
basis, the sum of (i) the aggregate amount of Revolving Loans outstanding on
such date, plus (ii) all principal obligations arising under capital leases in
effect on such date required to be capitalized in accordance with GAAP, plus
(iii) all other guarantees and Indebtedness for borrowed money outstanding on
such date.
"Funded Debt Ratio" means, as of the end of any fiscal quarter of the
Borrower, the ratio of (i) Funded Debt as of the end of such fiscal quarter to
(ii) EBITDA for the four consecutive fiscal quarters ending on the last day of
such fiscal quarter.
"GAAP" means generally accepted accounting principles, consistently
applied.
"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.
"Indebtedness" means, without duplication, all obligations,
contingent or otherwise, that should be classified as liabilities in
accordance with GAAP, including without limitation (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 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
(excluding foreign exchange hedge contracts entered into in the normal course
of business); (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 Borrower; (g) all obligations with respect to
capital leases; (h) all indebtedness
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<PAGE>
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 the Borrower, even though the Borrower 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.
"Initial Financial Statement" shall have the meaning set forth in
Section 3.5.
"Insolvent" or "Insolvency" means that there shall have occurred one or
more of the following events with respect to a person: death; dissolution;
liquidation; termination of existence; "insolvent" or "insolvency" within the
meaning of the United States Bankruptcy Code or other applicable statute; such
person's inability to pay its debts as they come due or failure to have adequate
capital to conduct its business; such person's failure to have assets having a
fair saleable value net of any cost to dispose of such assets in excess of the
amount required to pay the probable liability on its then existing debts
(including unmatured, unliquidated and contingent debts); appointment of a
receiver of any part of the property of, execution of a trust mortgage or an
assignment for the benefit of creditors by, or the filing of a petition in
bankruptcy or the commencement of any proceedings under any bankruptcy or
insolvency laws or any laws relating to the relief of debtors, readjustment of
indebtedness or reorganization of debtors by or against such person, or the
offering of a plan to creditors or such person for composition or extension,
except for an involuntary proceeding commenced against such person which is
dismissed within 30 days after the commencement thereof without the entry of an
order for relief or the appointment of a trustee.
"Interest Coverage Ratio" means, as of any date of determination, the
ratio of (a) the consolidated EBIT of the Borrower and its Subsidiaries for the
fiscal quarter ending on such determination date plus the aggregate amount of
all operating lease payments made or required to be made by the Borrower or any
of its Subsidiaries for such period; to (b) Interest Expense for such period
plus the aggregate amount of all operating lease payments made or required to be
made by the Borrower or any of its Subsidiaries for such period.
"Interest Expense" means, for any period, with respect to the Borrower
and its Subsidiaries, on a consolidated basis without duplication, all interest
and all amortization of debt discount and expense on any particular Indebtedness
for which such calculations are being made of the Borrower and its Subsidiaries,
plus (a) the portion of upfront costs and expenses for Swap Contracts and option
contracts to manage risk fairly allocated to such Swap Contracts and option
contracts as expenses for such period, plus (b) fees payable pursuant to the
Loan Documents during such period, plus (c) the portion of any payments made in
respect of capital leases allocated to interest expense during such period; all
as determined in accordance with GAAP. Computations of Interest Charges on a PRO
FORMA basis for Indebtedness having a variable interest rate shall be calculated
at the rate in effect on the date of any determination.
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"Interest Period" means, as to any Libor Rate Amount, the period, the
commencement and duration of which shall be determined in accordance with
Section 2.4, PROVIDED THAT if any such Interest Period would otherwise end on a
day which is not a Business Day, such Interest Period shall end on the Business
Day next preceding or next succeeding such day as determined by the Lender in
accordance with its usual practices and notified to the Borrower at the
beginning of such Interest Period.
"IRS" means the Internal Revenue Service of the United States
Department of the Treasury.
"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 the
Borrower or any of its Subsidiaries with another Person in order to conduct a
common venture or enterprise with such Person.
"Leases" means any agreement, whether written or oral, granting a
person the right to occupy space in a structure or real estate for any period of
time or any capital lease or other lease of or agreement to use personal
property.
"Liabilities to EBITDA Ratio" means, as of the end of any fiscal
quarter of the Borrower, the ratio of (i) the Consolidated Current Liabilities
as of the end of such fiscal quarter to (b) EBITDA for the four consecutive
fiscal quarters ending on the last day of such fiscal quarter.
"Libor Rate" means, with respect to any Interest Period, in the case of
any Libor Rate Amount, the annual rate of interest determined by the Lender, at
or before 11:00 a.m. (London time) (or as soon thereafter as practicable) on the
second Business Day prior to the first day of such Interest Period, to be the
annual rate of interest at which deposits of U.S. dollars are offered to major
commercial banks by prime banks in the London interbank market, at or about the
time of determination and in accordance with the usual practice in such market
for delivery on the first day of such Interest Period in immediately available
funds and having a maturity equal to such Interest Period in an amount equal (as
nearly as may be) to such Libor Rate Amount. Each such rate determination by the
Lender shall be conclusive.
"Libor Rate Amount" means, in relation to any Interest Period, any
portions of the principal amount of any Revolving Loans on which the Borrower
elects pursuant to Section 2.4 to pay interest at a rate determined by reference
to the Libor Rate.
"Liens" shall have the meaning set forth in Section 5.6.
"Loan Documents" means, collectively, this Agreement (including,
without limitation, the agreements and other instruments listed or described in
the Closing
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Checklist attached hereto as EXHIBIT E), the Credit Note, the Subsidiary
Guaranties, and any other agreements, instruments or documents referred to
herein or therein and/or delivered in connection herewith, and all schedules,
exhibits and annexes thereto.
"Maturity Date" means June 30, 2001.
"Maximum Amount" shall be $15,000,000.
"Net Income" means the gross revenues of the Borrower for the period in
question, less all expenses and other proper charges (including taxes on
income), all determined in accordance with GAAP but in any event, excluding from
Net Income (without duplication): (i) any gain or loss, amortization or
deduction arising from any write-up of assets, except to the extent inclusion
thereof shall be approved in writing by the Lender; (ii) earnings of any
Subsidiary accrued prior to the date it became a Subsidiary; (iii) the net
earnings of any business entity (other than a Subsidiary) in which the Borrower
has an ownership interest, except to the extent such net earnings shall have
actually been received by the Borrower in the form of cash distributions; (iv)
any gains or losses on the sale or other disposition of investments or fixed or
capital assets; (v) the proceeds of any life insurance policy; (vi) any deferred
or other credit representing any excess of the equity of any Subsidiary at the
date of acquisition thereof over the amount invested in such Subsidiary; and
(vii) any reversal of any contingency reserve, except to the extent that
provision for such contingency reserve shall be made from income arising during
such period.
"Obligations" means, collectively, any and all advances, debts,
liabilities, obligations, covenants and duties arising under any Loan Document
owing by the Borrower to the Lender, whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising.
"Organization Documents" means, for any corporation, the certificate or
articles of incorporation, the by-laws, 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.
"Participant" shall have the meaning set forth in Section 7.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Acquisition" shall have the meaning set forth in
Section 5.7.
"Permitted Contingent Obligation(s)" shall have the meaning set
forth in Section 5.16.
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"Permitted Disposition(s)" shall have the meaning set forth in Section
5.9.
"Permitted Foreign Receivables Purchase Facility" shall mean any
agreement of the Borrower 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 Borrower and its Subsidiaries shall not exceed Five Million
Dollars ($5,000,000) in any fiscal year of the Borrower.
"Permitted Indebtedness" shall have the meaning set forth in Section
5.5.
"Permitted Investments" shall have the meaning set forth in Section
5.8.
"Permitted Leases" shall have the meaning set forth in Section 5.18.
"Permitted Liens" shall have the meaning set forth in Section 5.6.
"Permitted Swap Obligations" means the Financial Services Agreements
which constitute Swap Contracts and all other obligations (contingent or
otherwise) of the Borrower 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 Borrower
and its Subsidiaries (to be determined by the Lender) 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 Borrower and its Subsidiaries (as mutually agreed upon
by the Lender and Borrower) under Swap Contracts entered into for the purpose of
mitigating risks associated with exchange rate fluctuations does not exceed Two
Million Dollars ($2,000,000) and the aggregate notional amount of all such Swap
Contracts does not exceed Twenty Million Dollars ($20,000,000), (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
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party, or (ii) any provision creating or permitting the declaration of an event
of default, termination event or similar event upon the occurrence of an Event
of Default hereunder.
"Person" or "person" means any individual, corporation, limited
liability company, partnership, trust, trade, business and governmental agency
and instrumentality.
"Plans" shall mean, collectively, each "employee pension benefit plan"
and each "employee welfare benefit plan" (each as defined in ERISA) maintained
by any Borrower.
"Pledge Agreement" means a Pledge Agreement, in form and substance
satisfactory to the Lender, executed by the Borrower in favor of the Lender
pursuant to which the Borrower pledges to the Lender, as to each Foreign
Corporation, stock of such Foreign Corporation representing 65% of the total
combined voting power of all classes of capital stock of such Foreign
Corporation.
"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.
"Reserve Charge" means, for each day on which any Libor Rate Amount is
outstanding, a reserve charge in an amount equal to the product of:
(i) the outstanding principal amount of the Libor Rate Amount,
multiplied by
(ii) (a) the Libor Rate (expressed as a decimal) divided
by one minus the Reserve Rate, minus (b) the Libor
Rate (expressed as a decimal),
multiplied by
(iii) 1/360.
"Reserve Rate" means the rate in effect from time to time, expressed as
a decimal, at which the Lender would be required to maintain reserves under
Regulation D of the Board of Governors of the Federal Reserve System (or any
successor or similar regulation relating to such reserve requirements) against
"Eurocurrency Liabilities" (as such term is used in such Regulation D) if such
liabilities were outstanding.
"Revolving Loan" shall have the meaning set forth in Section 2.1.1.
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"Revolving Loan Account" means the account on the books of the Lender
in which will be recorded Revolving Loans made by the Lender to the Borrower
pursuant to this Agreement, payments made on such Revolving Loans and other
appropriate debits and credits as provided by this Agreement.
"SEC" means the Securities and Exchange Commission.
"Second Tier 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 one or more of the
Wholly-Owned Subsidiaries.
"Subsidiary" means any corporation, association, joint stock company,
business trust or other similar organization of which 50% or more of the
ordinary voting power for the election of a majority of the members of the board
of directors or other governing body of such entity is held or controlled by the
Borrower or a Subsidiary of the Borrower; or any other such organization the
management of which is directly or indirectly controlled by the Borrower or a
Subsidiary of the Borrower through the exercise of voting power or otherwise; or
any joint venture, whether incorporated or not, in which the Borrower has a 50%
ownership interest or any other entity which would be consolidated with the
Borrower in presenting its financial statements in accordance with GAAP. The
Borrower's Subsidiaries include without limitation the following entities (the
parenthetical after each reflecting the such entity's jurisdiction of
incorporation: (1) Clare Capital, Inc. (New York); (2) Clare Capital, Inc.
(Delaware); (3) Clare Components, Inc. (New York); (4) Clare Components, Inc.
(Delaware); (5) Clare Electronics, Inc. (New York); (6) Clare Electronics, Inc.
(Delaware); (7) Clare Instruments, Inc. (New York); (8) Clare Instruments, Inc.
(Delaware); (9) Clare Services, Inc. (New York); (10) Clare Services, Inc.
(Delaware); (11) Clare Systems, Inc. (New York); (12) Clare Systems, Inc.
(Delaware); (13) Clare Technologies, Inc. (New York); (14) Clare Technologies,
Inc. (Delaware); (15) Clare Canada, Ltd. (Ontario, Canada); (16) Clare France
S.A.R.L. (France); (17) C.P. Clare Electronics, GmbH (Germany); (18) C.P. Clare
Foreign Sales Corporation (U.S. Virgin Islands); (19) C.P. Clare N.V.
(Belgium);(20) Clare Engineering N.V. (Belgium); (21) C.P. Clare Mexicana S.A.
de C.V. (Mexico); (22) Clare Technologies (Taiwan), Inc. (Taiwan); and (23)
Clare-Micronics Integrated Systems, Inc. (CA).
"Subsidiary Guaranty" means a Guaranty Agreement, in form and substance
satisfactory to the Lender, executed by each Subsidiary in favor of the Lender
pursuant to which each such Subsidiary guarantees the payment and performance of
the Obligations.
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"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,
bond, note, forward foreign exchange transaction, currency swap, cross-currency
rate swap, swaption, or any other, similar transaction 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 the Lender).
"Taxes" means, any and all taxes (including, without limitation,
income, receipts, franchise, ad valorem or excise taxes, transfer or gains taxes
or fees, use taxes, withholding, payroll or minimum taxes) imposed on, or
otherwise payable by, or for which responsibility for payment, withholding or
collection lies with, the Borrower by any governmental authority, federal, state
or otherwise, including any taxes imposed on any of the Borrower's Subsidiaries
or other Affiliates for which the Borrower may be liable under applicable law or
by agreement to which the Borrower is a party or by which it is bound or subject
to, and including, but not limited to, any interest, penalties or additions to
tax with respect thereto.
"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 Plan pursuant to Section 412 of the Code for the applicable plan year
"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 the Borrower, or by one or
more of the other Wholly-Owned Subsidiaries, or both.
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"Year 2000 Problem" means any significant risk that computer hardware
or software used in the Borrower's business or operations will not, in the case
of dates or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to January
1, 2000.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP consistent with those applied
in the preparation of the financial statements referred to in Section 5.1, and
all financial data submitted pursuant to this Agreement shall be prepared in
accordance with such principles.
SECTION 2. REVOLVING LOANS.
2.1 REVOLVING LOANS.
2.1.1 Upon the terms and subject to the conditions of this
Agreement, and in reliance upon the representations, warranties and covenants of
the Borrower made herein, the Lender agrees to make loans ("Revolving Loans") to
the Borrower at the Borrower's request from time to time, from and after the
date hereof and prior to the Maturity Date, PROVIDED THAT the principal amount
of Revolving Loans outstanding at any time shall not exceed the Maximum Amount
at such time, and PROVIDED, FURTHER, that at the time the Borrower requests a
Revolving Loan and after giving effect to the making thereof there has not
occurred and is not continuing any Default or Event of Default. The Borrower
agrees that it shall be an Event of Default if at any time the debit balance of
the Revolving Loan Account shall exceed the Maximum Amount at such time, unless
the Borrower shall, upon notice of such excess from the Lender, promptly pay
cash to the Lender to be credited to the Revolving Loan Account in such amount
as shall be necessary to eliminate the excess. All requests for Revolving Loans
shall be in such form and shall be made in such manner as shall be agreed
between the Borrower and the Lender, except that each Revolving Loan shall be in
a minimum amount of $250,000 and shall be in an integral multiple of $100,000
or, if less, the remaining unused Maximum Amount. The Revolving Loans shall be
evidenced by a Revolving Credit Note (the "Credit Note") in the form of EXHIBIT
A hereto.
2.1.2 Subject to the provisions of Section 2.3, the Borrower may prepay
outstanding Revolving Loans and the Credit Note in whole or in part at any time
without premium or penalty. Amounts so paid in respect of the Revolving Loans
and the Credit Note and other amounts may be borrowed and reborrowed from time
to time as provided in Section 2.1.1. On the Maturity Date, the Borrower shall
repay all outstanding Revolving Loans and the Credit Note, together with all
unpaid interest thereon and all fees and other amounts due hereunder.
2.2 INTEREST AND FEES.
2.2.1 Subject to the provisions of Section 2.3, Revolving
Loans shall bear interest at a rate PER ANNUM equal to the Base Rate in effect
from time; PROVIDED THAT if an
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Event of Default shall occur, then at the option of the Lender the unpaid
balance of Revolving Loans shall bear interest, to the extent permitted by law,
at an annual interest rate equal to 3% above the rate of interest then
applicable hereunder to Revolving Loans bearing interest with reference to the
Base Rate, until such Event of Default is cured or waived. Subject to the
provisions of Section 2.3, interest on Revolving Loans (not at the time overdue)
shall be payable quarterly in arrears on the last Business Day of each fiscal
quarter of the Borrower, commencing March 31, 1999. Any change in the Base Rate
shall result in a change on the same day in the rate of interest to accrue from
and after such day on the unpaid balance of principal of the Revolving Loans.
2.2.2 The Borrower shall pay to the Lender a commitment fee,
payable quarterly in arrears on the last Business Day of each quarter, equal to
the Applicable Commitment Multiplier then in effect multiplied by the Average
Unused Commitment during the preceding quarter.
2.2.3 The Borrower shall pay to the Lender, on the Closing
Date, or promptly upon request by the Lender thereafter, all reasonable fees and
expenses incurred by the Lender in connection with the preparation and execution
of the loan facility represented by the Loan Documents, including without
limitation, legal and other direct out-of-pocket expenses.
2.2.4 The Borrower authorizes the Lender to charge to the
Revolving Loan Account or to any deposit account which the Borrower may maintain
with the Lender the interest, fees, charges, taxes and expenses provided for in
this Agreement or any other document executed or delivered in connection
herewith.
2.2.5 If, after the date hereof, the Lender shall have
determined that the adoption of any applicable law, rule, regulation, guideline,
directive or request (whether or not having the force of law) regarding capital
requirements for banks or bank holding companies, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any of the foregoing
imposes or increases a requirement by the Lender to allocate capital resources
to the Lender's commitment to make Revolving Loans hereunder which has or would
have the effect of reducing the return on the Lender's capital to a level below
that which the Lender could have achieved (taking into consideration the
Lender's then existing policies with respect to capital adequacy and assuming
full utilization of the Lender's capital) but for such adoption, change or
compliance by any amount deemed by the Lender to be material, then: (i) the
Lender shall promptly after its determination of such occurrence give notice
thereof to the Borrower; and (ii) to the extent that the costs of such increased
capital requirements are not reflected in the Base Rate (or in the Libor Rate
plus the Applicable Margin in the case of loans bearing interest by reference to
the Libor Rate), the Borrower and the Lender shall thereafter attempt to
negotiate in good faith, within 30 days following the date the Borrower receives
such notice, an adjustment payable hereunder that will adequately compensate the
Lender in light of the
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circumstances. If the Lender and the Borrower are unable to agree to such
adjustment within 30 days following the date upon which the Borrower receives
such notice, then commencing on the date of such notice (but no earlier than the
effective date of any such increased capital requirement), the fees payable
hereunder shall increase by an amount that will, in the Lender's reasonable
determination, provide adequate compensation. The provisions of this Section
2.2.5 shall be applied to the Borrower so as not to discriminate against the
Borrower vis-a-vis other customers of the Lender.
2.2.6 Anything hereinbefore to the contrary notwithstanding,
if any present or future applicable law (which expression, as used in this
Agreement, includes statutes and rules and regulations thereunder and
interpretations thereof by any competent court or by any governmental or other
regulatory body or official charged with the administration or the
interpretation thereof and requests, directives, instructions and notices at any
time or from time to time heretofore or hereafter made upon or otherwise issued
to the Lender by any central bank or other fiscal, monetary or other authority,
whether or not having the force of law) shall (i) subject the Lender to any tax,
levy, impost, duty, charge, fee, deduction or withholding of any nature with
respect to this Agreement, the maximum amount of the Revolving Loans, or the
payment to the Lender of any amounts due to it hereunder, or (ii) materially
change the basis of taxation of payments to the Lender of the principal or the
interest on or any other amounts payable to the Lender hereunder, or (iii)
impose or increase or render applicable any special or supplemental special
deposit or reserve or similar requirements or assessment against assets held by,
or deposits in or for the account of, or any liabilities of, or loans by an
office of the Lender in respect of the transactions contemplated herein, or (iv)
impose on the Lender any other conditions or requirements with respect to this
Agreement, the Maximum Amount or any Revolving Loan, and the result of any of
the foregoing is (A) to increase the cost to the Lender of making, funding or
maintaining all or any part of the Revolving Loans, or (B) to reduce the amount
of principal, interest or other amounts payable to the Lender hereunder, or (C)
to require the Lender to make any payment or to forego any interest or other sum
payable hereunder, the amount of which payment or foregoing interest or other
sum is calculated by reference to the gross amount of any sum receivable or
deemed received by the Lender from the Borrower hereunder, then, and in each
such case not otherwise provided for hereunder, the Borrower will, upon demand
made by the Lender accompanied by calculations thereof in reasonable detail, pay
to the Lender such additional amounts as will be sufficient to compensate the
Lender for such additional cost, reduction, payment or foregoing interest or
other sum, PROVIDED THAT the foregoing provisions of this sentence shall not
apply in the case of any additional cost, reduction, payment or foregoing
interest or other sum resulting from any taxes charged upon or by reference to
the overall net income, profits or gains of the Lender.
2.3 LIBOR INTEREST RATE OPTION.
2.3.1 At the option of the Borrower, so long as no Default or
Event of Default has occurred and is then continuing, the Borrower may elect
from time to time prior to the Maturity Date to have all or a portion of the
unpaid principal amount of any
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Revolving Loan bear interest during any particular Interest Period by reference
to the Libor Rate; PROVIDED THAT any such portion of any Revolving Loan shall be
in an amount not less than $250,000 or some greater integral multiple of
$100,000 with respect to any single Interest Period, and PROVIDED FURTHER, than
no more than 5 Revolving Loans bearing interest by reference to the Libor Rate
may be outstanding at any one time. Any election by the Borrower to have
interest calculated by reference to the Libor Rate shall be made by notice
(which shall be irrevocable) to the Lender at least 3 Business Days prior to the
first day of the proposed Interest Period, specifying the Libor Rate Amount and
the duration of the proposed Interest Period (which must be for one, two, three
or six months). Any such election of a Libor Rate shall lapse at the end of the
expiring Interest Period unless extended by a further election notice as
hereinbefore provided. Except as otherwise provided herein, each Libor Rate
Amount shall bear interest during each Interest Period relating thereto at an
annual rate equal to the Libor Rate plus the Applicable Margin then in effect,
it being agreed by the Borrower that it shall notify the Lender in writing of
any change in the Applicable Margin when it submits the financial statements
upon which such change in the Applicable Margin is based. Interest on each Libor
Rate Amount shall be payable on (a) the last day of each Interest Period
relating thereto, or (b) if any Interest Period is longer than 3 months, on the
last day of each 3-month period following the commencement of such 3-month
period and on the last day of such Interest Period.
Notwithstanding the foregoing, the Borrower may not select an
Interest Period which extends beyond the Maturity Date.
2.3.2 The Borrower shall pay to the Lender the Reserve Charge,
if any, with respect to Libor Rate Amounts of the Revolving Loans outstanding
from time to time on the dates interest is payable on such Libor Rate Amounts.
2.3.3 The Lender shall forthwith upon determining any Libor
Rate provide notice thereof to the Borrower. Each such notice shall be
conclusive and binding upon the Borrower.
2.3.4 If, with respect to any Interest Period, (i) the Lender
is unable to determine the Libor Rate relating thereto, (ii) adverse or unusual
conditions in or changes in applicable law relating to the applicable London
interbank market (a) make it illegal or, in the reasonable judgment of the
Lender, impracticable, to fund therein the Libor Rate Amount or (b) make the
projected Libor Rate unreflective of the actual costs of funds therefor to the
Lender, or (iii) if it shall become unlawful for the Lender to charge interest
on the Revolving Loans on a Libor Rate basis, then in any such event the Lender
shall so notify the Borrower and interest will be calculated and payable in
respect of such projected Interest Period (and thereafter for so long as the
conditions referred to in this sentence shall continue) by reference to the Base
Rate in accordance with Section 2.2.1.
2.3.5 If any Interest Period would otherwise end on a day
which is not a Business Day for Libor Rate purposes, that Interest Period shall
end on the Business Day
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next preceding or next succeeding such day as determined by the Lender in
accordance with its usual practices and notified to the Borrower at the
beginning of such Interest Period.
2.3.6 If for any reason any payment or prepayment of principal
of a Libor Rate Amount is made on any day other than the last day of an Interest
Period, then the Borrower shall reimburse the Lender for the loss, if any,
computed pursuant to the following formula:
L = (R-T) X P X D + RC
-------------------
360
L = amount of loss to be reimbursed to the Lender.
R = the Libor Rate plus the Applicable Margin at the
time of the payment.
T = effective interest rate in which United States
Treasury bills maturing on the last day of the
then current Interest Period and in the same amount
as the unpaid principal amount of the Revolving Loan
can be purchased by the Lender on the day of such
payment of principal.
D = the number of days remaining in the Interest Period
as of the date of such payment.
P = the amount of principal paid.
RC = the Reserve Charge due through the date of such
payment.
The Borrower shall pay to the Lender the amount of loss, computed in
accordance with the foregoing formula, upon presentation by the Lender of a
statement setting forth the Lender's calculation of the amount of such loss,
which notice shall be conclusive and binding upon the Borrower in the absence of
manifest error.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents, warrants and covenants as follows:
3.1 ORGANIZATION AND QUALIFICATION. The Borrower and each of its
Subsidiaries (i) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation; (ii) has all
requisite corporate power and authority to own its property and conduct its
business as now conducted and as presently contemplated, and to execute, deliver
and perform its Obligations under the Loan
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Documents; and (iii) is duly qualified and in good standing in each jurisdiction
(which jurisdictions are listed on EXHIBIT B hereto) where the nature of its
properties or its business (present or proposed) requires such qualification,
except where the failure to be so qualified would not have a material adverse
effect on the business, condition (financial or otherwise), results of
operations, prospects or assets of the Borrower or such Subsidiary. Since the
date of the Initial Financial Statement, the Borrower and each Subsidiary has
continued to engage in substantially the same business as that in which it was
then engaged and is engaged in no unrelated business.
3.2 CORPORATE AUTHORITY; VALID OBLIGATIONS; APPROVALS. The execution,
delivery and performance of the Loan Documents to which the Borrower and/or any
Subsidiary is a party, and the transactions and other documents contemplated
hereby and thereby, are within the corporate authority of the Borrower and each
such Subsidiary, have been authorized by all necessary corporate proceedings on
the part of the Borrower and each such Subsidiary, and do not and will not
contravene any provision of law, its charter document or its by-laws, or
contravene any provisions of, or constitute a Default or Event of Default
hereunder or a default under any other agreement, instrument, judgment, order,
decree, permit, license or undertaking binding upon or applicable to the
Borrower or such Subsidiary or any of its properties, or result in the creation,
other than in favor of the Lender, of any mortgage, pledge, security interest,
lien, encumbrance or charge upon any of the properties or assets of the Borrower
or such Subsidiary. The Loan Documents to which the Borrower and/or any
Subsidiary is a party have been duly executed and delivered and constitute the
legal, valid and binding obligations of the Borrower and each such Subsidiary
enforceable in accordance with their terms. The execution, delivery and
performance of the Loan Documents to which the Borrower and/or any Subsidiary is
a party and the transactions and other documents contemplated hereby and
thereby, do not require any approval or consent of, or filing or registration
with, any Person or Governmental Authority.
3.3 TITLE TO PROPERTIES; ABSENCE OF LIENS. The Borrower and each of its
Subsidiaries has good and marketable title to all of its properties, assets and
rights of every name and nature now purported to be owned by it, which
properties, assets and rights include all those necessary to permit Borrower and
each such Subsidiary to conduct its business as such business was conducted on
the date of the Initial Financial Statement, free from all liens, charges and
encumbrances whatsoever except for insubstantial and immaterial defects in title
and liens, charges or encumbrances permitted under Section 5.6.
3.4 COMPLIANCE. The Borrower and each of its Subsidiaries (i) has all
necessary permits, approvals, authorizations, consents, licenses, franchises,
registrations and other rights and privileges to allow it to own and operate its
business without any violation of law or the rights of others, (ii) is duly
authorized, qualified and licensed under and in compliance with all applicable
laws, regulations, authorizations and orders of public authorities (including,
without limitation, laws relating to hazardous materials, hazardous waste, oil,
and protection of the environment and laws relating to ERISA or to employee
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benefit plans generally), and (iii) has performed all obligations required to be
performed by it under, and is not in default under or in violation of, its
certificate of incorporation, articles of organization, by-laws or other
constitutive documents, or any agreement, lease, mortgage, note, bond,
indenture, license or other instrument or undertaking to which it is a party or
by which any of it or any of its properties are bound, except for any such
violations or failures to comply under subsections (i) through (iii) above
which, individually or in the aggregate, would not have a material adverse
effect on the business, condition (financial or otherwise), results of
operations, prospects or assets of the Borrower and/or such Subsidiary, and
neither the Borrower nor any of its Subsidiaries has received any notice by any
governmental authority or third party with respect to the generation, storage,
or disposal or release or threat of release of hazardous substances, hazardous
materials, or oil, or with respect to any violation of any federal, state or
local environmental, health or safety statute or regulation.
3.5 FINANCIAL STATEMENTS. The Borrower has furnished to the Lender (i)
the audited consolidated balance sheet of the Borrower and its Subsidiaries as
of March 31, 1998, and the related statements of earnings and retained earnings
for the fiscal year then ended, and related footnotes, prepared in accordance
with GAAP, together with the Report of Arthur Andersen LLP dated April 29, 1998
and (ii) the unaudited consolidated balance sheets of the Borrower and its
Subsidiaries as of June 30, 1998, September 30, 1998 and December 31, 1998, and
the related statements of earnings and retained earnings for the fiscal quarters
then ended, and related footnotes, prepared in accordance with GAAP and
certified by the chief financial officer of the Borrower (such December 31, 1998
financial statements being referred to herein as the "Initial Financial
Statement"). The Initial Financial Statement fairly presents the financial
position of the Borrower and its Subsidiaries as of the close of business on
such dates and the results of its operations for the fiscal year and quarters
then ended. In addition, the Borrower has furnished to the Lender PRO FORMA
projections for the 2 fiscal years ending March 31, 2001 (including, without
limitation, a PRO FORMA balance sheet of the Borrower, dated the Closing Date,
prepared in accordance with GAAP). Such projections were made in good faith and
based on assumptions which the Borrower believes were reasonable when made. At
the date hereof, the Borrower has no material Indebtedness or other liabilities,
whether accrued, absolute, contingent or otherwise, and whether due or to become
due, that are not set forth on EXHIBIT B hereto. Since the Initial Financial
Statement there have been no material adverse changes, individually or in the
aggregate, in the assets, liabilities, financial condition, prospects or
business of the Borrower and/or any of its Subsidiaries, except as set forth on
EXHIBIT B hereto.
3.6 EVENTS OF DEFAULT; SOLVENCY. As of the date of this Agreement, no
Default or Event of Default exists, or will exist upon consummation of the
transactions contemplated by the Loan Documents, and neither the Borrower nor
any of its Subsidiaries is, nor immediately after consummation of the
transactions contemplated by the Loan Documents will be, Insolvent.
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3.7 TAXES. The Borrower and each of its Subsidiaries has filed all
federal, state and other tax returns required to be filed for all Taxes, and has
paid (or has established adequate reserves in accordance with GAAP for the
payment of) all Taxes, assessments and other such governmental charges due from
such Borrower have been fully paid. Neither the Borrower nor any of its
Subsidiaries has executed any waiver that would have the effect of extending the
applicable statute of limitations in respect of any Tax.
3.8 LABOR RELATIONS; LITIGATION. Neither the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice and, except as set forth on
EXHIBIT B attached hereto, there is no litigation, proceeding, governmental
investigation (administrative or judicial) or labor dispute, pending or, to the
best knowledge of the Borrower, threatened against the Borrower, which, if
decided adversely to the Borrower, could have a materially adverse effect on the
business, properties, prospects or condition (financial or otherwise) of the
Borrower or any of its Subsidiaries, or on the ability of the Borrower or any of
its Subsidiaries to perform its obligations under the Loan Documents or under
any other agreement or document contemplated hereby or thereby, nor is any
substantial basis for any such litigation or labor dispute known to exist.
3.9 [Intentionally Omitted.]
3.10 CONTRACTS WITH AFFILIATES, ETC. Except as disclosed on EXHIBIT B
attached hereto, and except for agreements or transactions (in each case) in the
ordinary course of business and on an arm's-length basis, neither the Borrower
nor any of its Subsidiaries is a party to or otherwise bound by any agreements,
instruments or contracts (whether written or oral) with any Affiliate.
3.11 DISCLOSURE. No representations and warranties made by the Borrower
or any of its Subsidiaries in this Agreement, any other Loan Document, or in any
other agreement, instrument, document, certificate, statement or letter
furnished to the Lender by or on behalf of the Borrower or any of its
Subsidiaries, and no other factual information heretofore or contemporaneously
furnished by or on behalf of the Borrower or any of its Subsidiaries to the
Lender in connection with any of the transactions contemplated by any of the
Loan Documents contains (as of the date given) any untrue statement of fact or
omits to state a fact necessary in order to make the statements contained
therein not misleading in any material respect in light of the circumstances in
which they are made. Except as disclosed herein, there is no fact known to the
Borrower or any of its Subsidiaries which materially adversely affects, or which
would in the future materially adversely affect, the business, condition
(financial or otherwise), results of operations, prospects or assets of the
Borrower or any of its Subsidiaries.
3.12 ENVIRONMENTAL MATTERS. The Borrower conducts in the ordinary
course of business a review of the effect of existing Environmental Laws and
Environmental Claims on the business, operations and properties of the Borrower
and its Subsidiaries, and as a result thereof, the Borrower has reasonably
concluded that, except as specifically disclosed in EXHIBIT B, such
Environmental Laws and Environmental Claims could not,
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individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise), results of
operations, prospects or assets of the Borrower or any of its Subsidiaries.
3.13 REGULATED ENTITIES. Neither the Borrower, any Person controlling
the Borrower, nor any Subsidiary is an "Investment Company" within the meaning
of the Investment Company Act of 1940. The Borrower is not 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 the ability of the Borrower to incur
Indebtedness.
3.14 NO BURDENSOME RESTRICTIONS. Neither the Borrower nor any of its
Subsidiaries is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organizational Document, or any Requirement of Law, which
could reasonably be expected to have a material adverse effect on the business,
condition (financial or otherwise), results of operations, prospects or assets
of the Borrower or any such Subsidiary.
3.15 COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. The Borrower
and each of 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 the Borrower, no
slogan or other advertising device, product, process, method, substance, part or
other material now employed, or now contemplated to be employed, by the Borrower
or any of its Subsidiaries infringes upon any rights held by any other Person,
which infringement could reasonably be expected to have a material adverse
effect on the business, condition (financial or otherwise), results of
operations, prospects or assets of the Borrower or any such Subsidiary. Except
as specifically disclosed in EXHIBIT B, no claim or litigation regarding any of
the foregoing is pending or threatened, and no patent or any statue, law, rule,
regulation, standard or code is pending or, to the knowledge of the Borrower, is
proposed, which, in either case, could reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise), results of
operations, prospects or assets of the Borrower or any such Subsidiary.
3.16 SUBSIDIARIES. The Borrower has no Subsidiaries other than those
specifically disclosed in part (a) of paragraph 3.6 of EXHIBIT B, and neither
the Borrower, nor any of its Subsidiaries, has equity investments in any other
corporation or entity other than those specifically disclosed in part (b) of
paragraph 3.6 of EXHIBIT B.
3.17 INSURANCE. Except as specifically disclosed on EXHIBIT B, the
properties of the Borrower and its Subsidiaries are insured with financially
sound and reputable insurance companies not Affiliates of the Borrower or any
Subsidiary, in such amounts, with such deductibles and covering such risks as
are customarily carried by companies
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engaged in similar businesses and owning similar properties in localities where
the Borrower or any its Subsidiary operate. The Borrower and its Subsidiaries
presently maintain the insurance coverage set forth in SCHEDULE 3.17 hereto.
3.18 SWAP OBLIGATIONS. Neither the Borrower nor any of its Subsidiaries
has incurred any outstanding obligations under any Swap Contracts, other than
Permitted Swap Obligations. The Borrower 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.
3.19 LEASES. Neither the Borrower nor any of its Subsidiaries has
incurred any obligations for the payment of rent or lease payments under any
lease or agreement to lease other than as specifically disclosed on EXHIBIT B or
as may be permitted pursuant to Section 5.18.
3.20 CONTINUING NATURE OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties made by the Borrower or any
Subsidiary in the Loan Documents shall be a continuing representation and/or
warranty, and the Borrower and each Subsidiary shall take (or refrain from
taking) such actions as are necessary 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 Lender.
3.21 REPRESENTATIONS CONCERNING CERTAIN SUBSIDIARIES.
The following Subsidiaries, all incorporated in the State of New York,
possess no material assets and are currently in the process of being dissolved
by the Borrower: (1) Clare Capital, Inc.; (2) Clare Components, Inc.; (3) Clare
Electronics, Inc.; (4) Clare Instruments, Inc.; (5) Clare Services, Inc.; (6)
Clare Systems, Inc.; and (7) Clare Technologies, Inc.
SECTION 4. CONDITIONS OF LOANS.
4.1 CONDITIONS TO INITIAL REVOLVING LOAN. The obligation of the Lender
to make the initial Revolving Loan is subject to the fulfillment to the
satisfaction of the Lender on the date hereof of the following conditions
precedent:
4.1.1 Receipt by the Lender of all of the agreements,
documents, instruments, certificates and opinions listed or described on the
Closing Checklist attached hereto as EXHIBIT E, in form and substance
satisfactory to the Lender, and duly
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executed and delivered by the parties thereto, along with such additional
instruments, certificates, opinions and other documents as the Lender shall
reasonably request.
4.1.2 The representations and warranties contained herein, or
otherwise made in writing by or on behalf of the Borrower pursuant hereto or in
connection with the transactions contemplated hereby, shall be true and accurate
on and as of the date hereof and as of the date of the initial Revolving Loan,
the Borrower shall have performed and complied with all covenants and conditions
required herein to be performed or complied with by it prior to the making of
such Revolving Loan, and no Default or Event of Default shall be continuing or
result from the making of the initial Revolving Loan or the transactions
contemplated hereby.
4.2 CONDITIONS TO ALL REVOLVING LOANS. The obligation of the Lender to
make any Revolving Loan is subject to the fulfillment to the satisfaction of the
Lender immediately prior to or contemporaneously with each such Revolving Loan
of each of the following conditions: (i) the representations and warranties
contained herein or otherwise made in writing by or on behalf of the Borrower
pursuant hereto or in connection with the transactions contemplated hereby shall
be true and correct in all material respects at the time of each such Revolving
Loan (except for representations and warranties limited as to time or with
respect to a specific event) with and without giving effect to the Revolving
Loans to be made at such time and the application of the proceeds thereof, (ii)
no Default or Event of Default shall be continuing or result from such Revolving
Loan, (iii) no material adverse change in the condition (financial or
otherwise), business or properties of the Borrower shall have occurred since the
date of the Initial Financial Statement, and (iv) no change in applicable law or
regulation shall have occurred as a consequence of which it shall have become
and continue to be unlawful for the Lender or the Borrower or any Subsidiary to
perform any of their respective agreements or obligations under any Loan
Document to which it is a party.
SECTION 5. COVENANTS.
During the term of this Agreement and so long as any Obligations of the
Borrower under any Loan Document remain outstanding:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTING REQUIREMENTS. The Borrower
shall furnish to the Lender in the same form and with the same detail as
included in its financial reports filed with the SEC:
(i) as soon as available to the Borrower, but in any event
within 100 days after each fiscal year-end, the audited consolidated
balance sheet of the Borrower and its Subsidiaries as of the end of,
and related consolidated statements of income, retained earnings and
cash flow for, such year prepared in accordance with GAAP and certified
by Arthur Andersen LLP (or such other "Big Four" independent public
accounting firm satisfactory to the Lender) that such
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statements present fairly the consolidated financial position of the
Borrower and its Subsidiaries prepared in accordance with GAAP applied
in a manner consistent with the Borrower's past practices;
(ii) as soon as available to the Borrower, but in any event
within 50 days after the end of each of the first 3 fiscal quarters of
each fiscal year of the Borrower, the consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of, and related
consolidated statements of income, retained earnings and cash flow for,
the portion of the year then ended and for the quarter then ended,
prepared in accordance with GAAP applied in a manner consistent with
the audited financial statements required by subsection (i) above
(subject to normal year-end audit adjustments, none of which shall be
materially adverse) and certified pursuant to the report to be
delivered to the Lender under subsection (v) of this Section 5.1;
(iii) [intentionally omitted];
(iv) promptly upon the request of the Lender, a copy of any
final report (including, in any event, any so-called management
letters) submitted to the Borrower by Arthur Andersen LLP (or such
other "Big Four" independent public accounting firm acceptable to the
Lender) in connection with each annual audit of the books of the
Borrower and its Subsidiaries by such accountants or in connection with
any interim audit thereof pertaining to any phase of the business of
the Borrower; and within 30 days following each fiscal year-end of the
Borrower, without the need for any request by the Lender, annual PRO
FORMA projections and budgets for the Borrower's next fiscal year,
prepared by the management of the Borrower and in the form published in
Borrower's Form 10-K;
(v) concurrently with each delivery of financial statements
pursuant to subsections (i) and (ii) of this Section 5.1 (commencing
with the fiscal quarter ending March 31, 1999), a chief financial
officer's report in substantially the form of EXHIBIT C hereto, and
including, without limitation, computations in reasonable detail
evidencing compliance with the covenants contained in Sections 5.21
through 5.25, inclusive;
(vi) immediately upon their completion, copies of all
financial statements and reports that the Borrower or any Subsidiary
sends to its shareholders, and copies of all financial statements and
regular, periodical or special reports (including Forms 10-K, 10-Q and
8-K) that the Borrower or any subsidiary may make or be required to
make to, or file with, the SEC;
(vii) promptly after obtaining knowledge of the existence
thereof, notice of (a) the occurrence of any event which constitutes a
Default or Event of Default, (b) the occurrence of any condition or
event with respect to the Borrower or any
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Affiliate which could be expected to constitute a material adverse
change in or to have a material adverse effect on the business,
properties, prospects or condition (financial or otherwise) of the
Borrower, (c) any litigation or any investigative proceedings of a
governmental agency or authority commenced or threatened against the
Borrower, any Subsidiary, any Affiliate or any Plan, or any development
in any such litigation or proceeding, which could be expected to have a
material adverse effect on the business, properties, prospects or
condition (financial or otherwise) of the Borrower, or the issuance of
any judgment, award, decree, order or other determination in or
relating to any such litigation or proceedings, (d) the occurrence of a
reportable event (as defined in ERISA) or any communications to, or
receipt of communications from, the PBGC, the United States Department
of Labor or the IRS by the Borrower, any Subsidiary or any Affiliate
relating to any Plan, along with copies of all such communications, (e)
the adoption by the Borrower of any stock option or executive
compensation plan, whether or not subject to ERISA, and any Plan
subject to ERISA, or the substantial modification of any such plan,
along with the vesting and funding schedules and other principal
provisions thereof, (f) a material increase in the Unfunded Pension
Liability of any Plan, (g) any material change in accounting policies
or financial reporting practices by the Borrower or any of its
Subsidiaries, except for changes disclosed in the financial reports of
the Borrower filed with the SEC and changes in GAAP; (h) after the
occurrence of a Default or an Event of Default, upon the request of the
Lender, 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 the Borrower or any of its
Subsidiaries is a party, and (i) any communications given or received
by the Borrower in any way relating to compliance with, any violation
or potential violation of, or any potential liability under, any
environmental law or regulation (including those relating to pollution
control, hazardous materials and hazardous wastes), along with copies
of all such communications; and
(viii) from time to time, such other financial data and other
information about the Borrower and/or any of its Subsidiaries as the
Lender may reasonably request.
5.2 CONDUCT OF BUSINESS. The Borrower will, and will cause each of its
Subsidiaries to, maintain its corporate existence and good standing under the
laws of the state or jurisdiction of its incorporation and remain or engage in
substantially the same business as that in which it is now engaged, and will
duly observe and comply with all applicable laws and all requirements of any
governmental authorities relative to it, its assets or to the conduct of its
business, including laws relating to the environment, pollution control,
hazardous materials and hazardous waste, and will maintain and keep in full
force and effect all licenses, permits, patents, trademarks, trade names and
service marks necessary to the proper conduct of its business.
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5.3 MAINTENANCE AND INSURANCE. The Borrower will, and will cause each
of its Subsidiaries to, maintain and keep its properties in good repair, working
order and condition (ordinary wear and tear excepted) so that its business may
be properly and advantageously conducted at all times, and will comply with the
provisions of all Leases to which it is a party or under which it occupies
property so as to prevent any material loss or forfeiture thereof or thereunder.
The Borrower at all times will maintain insurance with such insurance companies,
in such amounts against such hazards and liabilities and for such purposes as is
customary in the industry for companies of established reputation engaged in the
same or similar businesses and owning or operating similar properties. If the
Borrower fails to provide such insurance resulting in an Event of Default
hereunder, the Lender, in its sole discretion, may provide such insurance and
charge the cost (plus applicable interest) to the Revolving Loan Account or to
the Borrower's deposit accounts with the Lender. Upon request of the Lender from
time to time, the Borrower shall furnish to the Lender certificates or other
evidence satisfactory to the Lender of compliance with the foregoing insurance
provisions.
5.4 TAXES. The Borrower will pay or cause to be paid, and will cause
each of the Subsidiaries to pay or cause to be paid, all taxes, assessments or
governmental charges on or against it or its properties prior to such taxes
becoming delinquent, except for any tax, assessment or charge which is being
contested in good faith by proper legal proceedings and with respect to which
adequate reserves have been established in accordance with GAAP and are being
maintained, PROVIDED THAT no enforcement action to enforce a lien has been
commenced against the Borrower or any of its Subsidiaries with respect to any
such tax, assessment or charge which is material in amount.
5.5 LIMITATION OF INDEBTEDNESS. The Borrower will not, nor will the
Borrower suffer or permit any of its Subsidiaries to, create, incur, assume or
suffer to exist, or in any manner become or be liable directly or indirectly
with respect to, any Indebtedness except for the following ("Permitted
Indebtedness"):
(i) the Obligations;
(ii) Indebtedness consisting of Permitted Contingent
Obligations;
(iii) Indebtedness existing on the Closing Date and set forth
in EXHIBIT B;
(iv) Indebtedness secured by those Permitted Liens described
in subsections (viii) and (ix) of Section 5.6 hereof in an aggregate
amount outstanding not to exceed Three Million Dollars ($3,000,000);
(v) Indebtedness incurred in connection with Permitted
Leases;
(vi) foreign exchange forward contracts entered into in the
ordinary course of business, PROVIDED THAT (i) the aggregate exposure
to the Borrower and
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its Subsidiaries under such foreign exchange forward contracts do not
exceed Six Million Dollars ($6,000,000) in any calendar month or Twenty
Million Dollars ($20,000,000) at any one time and (ii) no foreign
exchange forward contract exceeds twelve (12) months in length;
(vii) insurance premium financing for casualty, property and
director's and officer's insurance premiums up to a maximum amount of
Two Million Dollars ($2,000,000); and
(viii) unsecured Indebtedness entered into the ordinary course
of business, PROVIDED THAT (a) the aggregate principal amount of such
unsecured indebtedness incurred by the Borrower and its Subsidiaries
does not exceed Two Million Five Hundred Thousand Dollars ($2,500,000)
and (b) such unsecured indebtedness is repaid within one hundred and
eighty (180) days of the date incurred.
5.6 RESTRICTIONS ON LIENS. The Borrower will not, nor shall it suffer
or permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or suffer to exist, any mortgage, deed of trust, pledge, security
interest, lien, hypothecation, assignment, "lockbox" or similar deposit
arrangement, or other arrangement preferential to any creditor(s), or other
charge or encumbrance, including the lien or retained security title of a
conditional vendor (collectively, "Liens"), upon or with respect to any property
or assets, real or personal, of the Borrower or any of its Subsidiaries, or
assign or otherwise convey any right to receive income, except for the following
("Permitted Liens"):
(i) any Lien existing on property of the Borrower or any of
its Subsidiaries on the Closing Date and set forth in EXHIBIT B
securing Indebtedness outstanding on such date;
(ii) any Lien created under any Loan Document in favor of the
Lender;
(iii) 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 5.4;
PROVIDED THAT no notice of lien has been filed or recorded under the
Code;
(iv) 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;
(v) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in
connection with
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workers' compensation, unemployment insurance and other social
security legislation;
(vi) 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 Borrower and its Subsidiaries do not exceed Two Million Dollars
($2,000,000);
(vii) 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 thereto or
interfere with the ordinary conduct of the business of the Borrower or
any of its Subsidiaries;
(viii) purchase money security interests on any property
acquired or held by the Borrower or any of 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 (a) any such Lien attaches to such
property concurrently with or within twenty (20) days after the
acquisition thereof, (b) such Lien attaches solely to the property so
acquired in such transaction, (c) the principal amount of the debt
secured thereby does not exceed one hundred percent (100%) of the cost
of such property, and (d) 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);
(ix) Liens securing obligations in respect of capital leases
on assets subject to such leases, PROVIDED THAT such capital leases are
otherwise permitted hereunder;
(x) 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 credit depository institution; PROVIDED THAT (a) 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 business of the Borrower or the Subsidiary, (b)
other than as set forth in clause (a) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions
against access by the Borrower or the Subsidiary in excess of those set
forth by regulations promulgated by the FRB, and such deposit account
is not intended by the Borrower or the Subsidiary to provide collateral
to the depository institution; and
(xi) Liens consisting of pledges of cash collateral or
government securities to secure on a mark-to-market basis Permitted
Swap Obligations only, PROVIDED THAT (a) the counterparty to any Swap
Contract relating to such Permitted Swap Obligations is under a similar
requirement to deliver similar collateral from
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time to time to the Borrower or the Subsidiary party thereto on a
mark-to-market basis; and (b) the aggregate value of such collateral so
pledged by the Borrower and its Subsidiaries together in favor of all
counterparties does not at any time exceed Two Million Dollars
($2,000,000) in the aggregate.
5.7 CONSOLIDATIONS AND MERGERS. The Borrower shall not, nor shall it
suffer or permit any of its Subsidiaries 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:
(i) any Subsidiary may merge with the Borrower, PROVIDED THAT
the Borrower 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
(ii) any Subsidiary may sell all or substantially all of its
assets (upon voluntary liquidation or otherwise), to the Borrower or a
Wholly-Owned Subsidiary.
5.8 LOANS AND INVESTMENTS.
The Borrower shall not, nor shall it suffer or permit any of its
Subsidiaries 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 the
Borrower (together, "INVESTMENTS"), except for the following ("Permitted
Investments"):
(i) Investments held by the Borrower or a Subsidiary in the
form of Cash Equivalents;
(ii) 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;
(iii) extensions of credit by the Borrower to any of its
Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to
another of its Wholly-Owned Subsidiaries;
(iv) extensions of credit by any Subsidiary to the Borrower;
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(v) Investments incurred in order to consummate
Acquisitions or Joint Ventures otherwise permitted herein, PROVIDED
THAT no portion of any Revolving Loan shall be used in connection
with such Acquisition or Joint Venture and, PROVIDED FURTHER, that
(a) in the case of Acquisitions, the Person to be acquired shall be
engaged in the same general line of business as that of the
Borrower, (b) any such Acquisition or Joint Venture is undertaken in
compliance with all applicable Requirements of Law, and (c) the
Borrower shall provide to the Lender consolidated PRO FORMA
financial statements, in form and substance satisfactory to the
Lender in its sole discretion, for the year commencing one year
prior to such Acquisition or Joint Venture and continuing through
the year of the Maturity Date, which demonstrate in the opinion of
the Lender in its sole discretion that, assuming such Acquisition or
Joint Venture had occurred one year earlier and after giving effect
to such Acquisition or Joint Venture, the Borrower is, 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; and
(vi) Investments constituting Permitted Swap Obligations or
payments or advances under Swap Contracts relating to Permitted Swap
Obligations.
5.9 DISPOSITION OF ASSETS. The Borrower shall not, nor shall it suffer
or permit any of its Subsidiaries 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 the Borrower
or any of its Subsidiaries) or enter into any agreement to do any of the
foregoing, except for the following ("Permitted Dispositions"):
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(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 5.8(v); and
(e) divestiture of a business unit by the Borrower (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 5 of this Agreement, the calculation of EBITDA
shall exclude the EBIT of the business unit being divested
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and (ii) the Borrower has provided to the Lender consolidated PRO FORMA
financial statements, in form and substance satisfactory to the Lender
in its sole discretion, for the twelve (12) month period commencing
with the date of the Divestiture, which demonstrate in the opinion of
the Lender in its sole discretion that, after giving effect to such
Divestiture, the Borrower will continue to be in compliance with the
covenants set forth in the Loan Documents.
5.10 RESTRICTED PAYMENTS. The Borrower shall not, nor shall it suffer
or permit any of its Subsidiaries 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) the Borrower may declare and make dividend payments or other
distributions payable solely in its common stock;
(b) the Borrower 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 Borrower;
(d) a Second Tier Subsidiary may declare and make dividend
payments or other distributions payable solely to one or more of the
Wholly-Owned Subsidiaries having an ownership interest in such Second
Tier Subsidiary; and
(e) the Borrower may declare and make cash dividend payments;
PROVIDED THAT (i) such payment has been approved and authorized by the
Borrower's Board of Directors, (ii) such payment is made solely out of
ten percent (10%) of the consolidated Net Income of the Borrower and
its Subsidiaries 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.
5.11 ERISA COMPLIANCE. None of the Borrower, any of its Subsidiaries,
any Plan or any fiduciary thereof shall (i) engage in any "prohibited
transaction" or incur, whether or not waived, any "accumulated funding
deficiency" (both as defined in ERISA and the Code), (ii) fail to satisfy any
additional funding requirements set forth in Section 412 of the Code and Section
302 of ERISA, or (iii) terminate or withdraw from participation in any Plan in a
manner which could result in the imposition of a lien on any property of, or
impose a substantial withdrawal liability on, the Borrower or any of its
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Subsidiaries. The Borrower, each of its Subsidiaries, and each Plan shall comply
in all material respects with ERISA.
5.12 INSPECTION BY THE LENDER; BOOKS AND RECORDS. The Borrower will
permit the Lender or its designees, at any reasonable time and from time to time
(and, prior to the occurrence of a Default or an Event of Default, upon
reasonable advance notice), to visit and inspect the properties of the Borrower,
to examine and make copies of the books and records of the Borrower and to
discuss the affairs, finances and accounts of the Borrower with appropriate
officers. The Borrower will keep adequate books and records of account in which
true and complete entries will be made reflecting all of its business and
financial transactions, and such entries will be made in accordance with GAAP
and applicable law.
5.13 USE OF PROCEEDS. The Borrower will use the proceeds of the
Revolving Loans solely for its working capital needs. No portion of any
Revolving Loans shall be used, directly or indirectly, for the purpose of
purchasing or carrying any "margin security" or "margin stock" as such terms are
used in Regulations U or X of the Board of Governors of the Federal Reserve
System.
5.14 TRANSACTIONS WITH AFFILIATES. The Borrower will not, nor shall it
suffer any of its Subsidiaries to, directly or indirectly, enter into any
transaction with any Affiliate of the Borrower or any of its Subsidiaries except
in the ordinary course of business on terms that are no less favorable to the
Borrower or such Subsidiary than those which might be obtained at the time in a
comparable arm's-length transaction with any Person who is not an Affiliate.
5.15 NO AMENDMENTS TO CERTAIN DOCUMENTS. The Borrower will not at any
time cause or permit any of the charter or other incorporation documents, or the
by-laws of the Borrower to be modified, amended or supplemented in any respect
whatever, without (in each case) the express prior written agreement, consent or
approval of the Lender, except for immaterial changes which could not adversely
affect the Lender or its rights hereunder.
5.16 CONTINGENT OBLIGATIONS. The Borrower shall not, nor shall it
suffer or permit any of its Subsidiaries to, create, incur, assume or suffer to
exist any Contingent Obligations except for the following ("Permitted Contingent
Obligations"):
(a) endorsements for collection or deposit in the ordinary course
of business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Borrower and/or its
Subsidiaries existing as of the Closing Date and listed in EXHIBIT B;
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(d) Contingent Obligations with respect to Surety Instruments
issued by the Lender 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 Borrower and its Subsidiaries; and
(e) Contingent Obligations incurred by the Subsidiaries pursuant
to their guaranty of the Obligations.
5.17 JOINT VENTURES. The Borrower shall not, nor shall it suffer or
permit any of its Subsidiaries to, enter into any Joint Venture, except as
permitted in subsection (v) of Section 5.8 hereof and so long as each of the
following conditions is satisfied for each permitted Joint Venture (i) the
Borrower's or Subsidiary's liability with respect to each Joint Venture is
limited to the percentage of ownership of the Borrower or the Subsidiary in the
Joint Venture, to the extent such limitation is permitted by applicable law,
(ii) the liabilities of the Borrower and its Subsidiaries with respect to Joint
Ventures in the aggregate does not exceed Ten Million Dollars ($10,000,000) and
(iii) the Borrower shall, and shall require its Subsidiaries to, require that
the Joint Venture execute a negative pledge agreement, in form and substance
satisfactory to the Lender, with respect to its assets then owned and thereafter
acquired to the extent of the Borrower's and the Subsidiary's percentage
ownership of the Joint Venture.
5.18 LEASE OBLIGATIONS. The Borrower shall not, nor shall it suffer or
permit any of its Subsidiaries 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 the following ("Permitted
Leases"): operating leases entered into by the Borrower or a Subsidiary in the
ordinary course of business and capital leases entered in to by the Borrower or
a Subsidiary after the Closing Date to finance the acquisition of equipment;
PROVIDED THAT the aggregate annual, rental and lease payments, as applicable,
for the Borrower and its Subsidiaries for all such operating and capital leases
shall not exceed the lesser of (i) Ten Million Dollars ($10,000,000) in any
fiscal year and (ii) the amount which allows the Borrower to be in compliance
with the covenants set forth in this Agreement.
5.19 SUBSIDIARIES. The Borrower will give the Lender written notice of
the formation after the date hereof of any Subsidiary, and agrees that it shall
cause any such Subsidiary to engage in the business of conducting branches or
divisions of the business now conducted by the Borrower or holding any of the
property of the Borrower. The Borrower will, at the direction of the Lender,
cause such Subsidiary to become a party to such of the Loan Documents as the
Lender shall require.
5.20 FISCAL YEAR. The Borrower shall have a fiscal year ending on March
31 of each year or shall notify the Lender of any change in such fiscal year
(whereupon the Lender shall have the right to modify the timing of the financial
covenants hereunder accordingly in order to correspond to any such change in the
fiscal year of the Borrower).
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5.21 FUNDED DEBT RATIO. The Borrower will not permit the Funded Debt
Ratio as of any fiscal quarter-end during any period specified below to be more
than the ratio identified below as applicable to such period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
For any fiscal quarter ending on or before
June 30, 1999 2.50 to 1.00
For the fiscal quarters ending September 30, 1999
and December 31, 1999 2.25 to 1.00
For any fiscal quarter ending after
December 31, 1999 2.00 to 1.00
</TABLE>
5.22 INTEREST COVERAGE. The Borrower will not permit the Interest
Coverage Ratio as of any fiscal quarter-end during any period specified below to
be less than the ratio specified below opposite such period:
<TABLE>
<CAPTION>
Period Maximum Ratio
------ -------------
<S> <C>
For the fiscal quarters ending on March 31, 1999
and June 30, 1999 1.25 to 1.00
For the fiscal quarters ending on September 30, 1999
and December 31, 1999 2.00 to 1.00
For any fiscal quarter ending on or after March 31, 1999 2.50 to 1.00
</TABLE>
5.23 CONSOLIDATED TANGIBLE NET WORTH. The Borrower will not permit its
Consolidated Tangible Net Worth for any fiscal quarter to be less than an amount
equal to Seventy-Three Million Dollars ($73,000,000) plus fifty percent (50%) of
any positive Net Income for such fiscal quarter.
5.24 PROFITABILITY. The Borrower will not permit the consolidated Net
Income of the Borrower and its Subsidiaries for any two consecutive fiscal
quarters to be less than One Dollar ($1.00).
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5.25 MINIMUM CONSOLIDATED WORKING CAPITAL. The Borrower will not
permit, as of the end of any fiscal quarter, Consolidated Working Capital to be
less than Twenty-Seven Million Dollars ($27,000,000).
5.26 OPERATING ACCOUNTS. The Borrower will maintain its primary
checking and operating accounts with the Lender.
5.27 YEAR 2000. The Borrower will take all action necessary to assure
that its computer based systems are able to effectively process data, including
dates, on and after January 1, 2000. The Borrower will promptly notify the
Lender in writing of any Year 2000 Problem and, at the request of the Lender,
the Borrower will provide the Lender with assurance reasonably acceptable to the
Lender of the Borrower's year 2000 capability.
5.28 CHANGE OF TAX LAW; FOREIGN SUBSIDIARY GUARANTIES
(a) It is the intent of the parties that each Foreign Corporation
execute a Subsidiary Guaranty unless the execution of a Subsidiary
Guaranty would cause the undistributed income of such Foreign
Corporation, as determined for Federal income tax purposes, to be
treated as a so-called "deemed dividend" to the Borrower. The Borrower
has determined that under the Code as currently in effect the execution
of Subsidiary Guaranties by the Foreign Corporations would result in
undistributed income of the Foreign Corporations being treated as a
deemed dividend to the Borrower. Accordingly, in lieu of the execution
of a Subsidiary Guaranty by each Foreign Corporation, the Lender has
permitted the Borrower to execute a Pledge Agreement, pursuant to which
the Borrower has pledged to the Lender of a portion of the stock in
each Foreign Corporation. In the event of a change in the Code which,
in the Lender's judgment, could reasonably be viewed as eliminating the
deemed dividend tax treatment referenced above in this subsection, the
provisions of subsection (b) shall apply.
(b) In the circumstances specified in the final sentence of
subsection (a), by written notice to the Borrower (the "Request for
Evidence") the Lender may request that the Borrower produce evidence
(which shall include, without limitation, an opinion of legal counsel
to the Borrower reasonably acceptable to the Lender) that the execution
of a Subsidiary Guaranty by one or more of the Foreign Corporations
could reasonably be expected to result in a deemed dividend being
attributed to the Borrower under the Code. Such evidence shall be
produced to the Lender within 30 days following the Borrower's receipt
of the Request for Evidence. If the requested evidence is not produced
within such time period, each Foreign Corporation as to which such
evidence was requested and not produced shall execute a Subsidiary
Guaranty and deliver same to the Lender within 50 days following the
Borrower's receipt of the Request for Evidence together with evidence
in form and substance satisfactory to the Lender establishing that the
execution of each such Subsidiary Guaranty was duly authorized in
accordance with such Foreign Corporation's organizational documents.
Upon the Lender's receipt of the Subsidiary Guaranty and documentation
referenced in the immediately preceding sentence relating to
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a Foreign Corporation, the Lender will release the Borrower from its
obligations under the Pledge Agreement with respect to such Foreign
Corporation and return to the Borrower the stock certificates and any
other materials delivered to the Lender with respect to the pledge of
the stock of such Foreign Corporation.
5.29. DISSOLUTION OF CERTAIN SUBSIDIARIES.
The Borrower will cause the following Subsidiaries, all incorporated in
the State of New York, to be dissolved by the Borrower within one year following
the date of this Agreement: (1) Clare Capital, Inc.; (2) Clare Components, Inc.;
(3) Clare Electronics, Inc.; (4) Clare Instruments, Inc.; (5) Clare Services,
Inc.; (6) Clare Systems, Inc.; and (7) Clare Technologies, Inc.
SECTION 6. EVENTS OF DEFAULT; ACCELERATION.
6.1 The following shall constitute events of default (individually, an
"Event of Default"):
(i) default in the payment, when due or payable, (x) of any
Obligation for the payment of principal; or (y) within 5 days after
the due date therefor, of any other Obligation for the payment of
money; or
(ii) default in the performance or observance of or compliance
with (x) any of the provisions of Sections 2 (other than the payment
of principal and interest), 5.1, 5.2, 5.3 (other than with respect
to the first sentence thereof, which shall be covered by subsection
(iii) below), 5.5 through 5.10, inclusive, 5.12 through 5.29,
inclusive, of this Agreement, or (y) any term or condition of the
Credit Note (other than the payment of principal and interest); or
(iii) default in the performance or observance of or compliance
with any other covenant or condition of this Agreement or any Other
Obligation not listed in subsections (i) or (ii) above, and such
default continues for more than 30 days; or
(iv) any representation or warranty at any time made by or on
behalf of the Borrower in this Agreement, any other Loan Document,
or in connection with the transactions contemplated by the Loan
Documents, shall prove to have been false in any material respect
upon the date when made or deemed to have been made; or
(v) the occurrence of any of the following events: (a) the
Borrower or any Subsidiary (1) fails to make any payment in respect
of any Indebtedness or Contingent Obligation (other than in respect
of Swap Contacts) having an aggregate principal amount (including
undrawn committed or available 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
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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 (2) 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 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 if the effect of such failure, event or
condition is to cause, or 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; or (b) there occurs under any Swap
Contract an Early Termination Date (as defined in such Swap
Contract) resulting from (A) any event of default under such Swap
Contract as to which the Borrower or any Subsidiary is the
Defaulting Party (as defined in such Swap Contract) or (B) any
Termination Event (as defined in such Swap Contract) as to which the
Borrower or any Subsidiary is an Affected Party (as defined in such
Swap Contract), and, in either event, the Swap Termination Value
owed by the Borrower or such Subsidiary as a result thereof is
greater than Two Million Five Hundred Thousand Dollars ($2,500,000);
or
(vi) issuance of an injunction which might have a material
adverse effect on the condition (financial or otherwise),
properties, business or results of operations of the Borrower, or
attachment which in the aggregate exceeds $1,000,000 in value,
against the Borrower, any property of the Borrower or any endorser,
guarantor or surety for any Obligation which is not dismissed or
bonded, to the satisfaction of the Lender, within 10 days after its
issuance; or
(vii) calling of a meeting of creditors, formation or
appointment of a committee of creditors or liquidating agents or
offering of a composition or extension to creditors by, for or with
the consent or acquiescence of the Borrower or any endorser,
guarantor or surety for any Obligation; or
(viii) Insolvency of the Borrower or any endorser, guarantor or
surety for any Obligation (including without limitation any
Subsidiary); or
(ix) any money judgment or judgments aggregating in excess of
$1,000,000 are entered against the Borrower or any endorser,
guarantor or surety for any Obligation (except to the extent fully
covered by insurance and the insurance carrier has not reserved the
right to disallow such claim), and shall continue unsatisfied and in
effect for a period
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of 10 days, PROVIDED THAT the total cost of any bond applied in
order to procure a stay of execution in any such litigation shall
not exceed $100,000; or
(x) any Loan Document (other than a Subsidiary Guaranty),
or any covenant, agreement or obligation contained therein or
evidenced thereby, shall cease to be legal, valid, binding or
enforceable in accordance with its terms, or shall be canceled,
terminated, revoked or rescinded; or
(xi) a Subsidiary fails in any material respect to perform
or observe and term, covenant or agreement in its Subsidiary
Guaranty; or a Subsidiary 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 Subsidiary contests in any manner the validity or enforceability
of its Subsidiary Guaranty or denies that it has any further
liability or obligation thereunder;
(xii) any action at law, suit in equity or other legal
proceeding to cancel, revoke or rescind any Loan Document shall be
commenced by or on behalf of the Borrower or any other person bound
thereby, or by any court or any other governmental or regulatory
authority or agency of competent jurisdiction; or any court or any
other governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or shall issue a
judgment, order, decree or ruling to the effect that, any one or
more of the Loan Documents, or any one or more of the obligations of
the Borrower or any other person under any one or more of the Loan
Documents, are illegal, invalid or unenforceable in accordance with
the terms thereof; or
(xiii) there occurs any Change of Control; or
(xiv) any event occurs which could reasonably be expected
to have a material adverse effect on the condition (financial or
otherwise), properties, business or results of operations of the
Borrower.
6.2 If an Event of Default shall occur and be continuing, the Lender
may, at its option, (i) declare any or all of the Obligations of the Borrower to
the Lender to be immediately due and payable without further notice or demand,
whereupon the same shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower, (ii) limit, suspend or terminate the Borrower's right to borrow
hereunder, and (iii) exercise any rights and remedies under the Loan Documents
and at law or in equity; PROVIDED THAT in the event of any Event of Default
specified in subsections (vii) or (viii) of Section 6.1 hereof, all Obligations
shall become immediately due and payable automatically and without any
requirement of notice from the Lender or action by the Lender.
SECTION 7. SET OFF; PARTICIPATIONS.
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Any deposits or other sums at any time credited by or due from the
Lender to the Borrower may, without notice (any such notice being expressly
waived hereby) and to the fullest extent permitted by law and without regard to
any source of payment whatsoever, at any time during the continuance of an Event
of Default, be applied to or set off against the Obligations.
The Borrower invites any financing institution which may consider
investing or participating in the Revolving Loans (each such financing
institution being referred to in this Section as a "Participant") to rely upon
all of the representations, warranties, covenants and other provisions of this
Agreement, the Credit Note, and the other agreements, instruments and documents
referred to herein or contemplated hereby in making such investment or
participation and agrees that its becoming a Participant in the Revolving Loans
shall constitute an acceptance of such offer and shall make the Participant a
creditor of the Borrower. Any Participant may exercise the rights of set-off
given to the Lender in this Section 7 with respect to any outstanding
indebtedness of the Borrower to such Participant hereunder.
SECTION 8. GENERAL.
8.1 WRITTEN NOTICES. Any notices, expressly required by this Agreement
to be in writing, to any party hereto shall be deemed to have been given when
delivered by hand, when sent by telecopier, when delivered to any overnight
delivery service freight pre-paid or 3 days after deposit in the mails, postage
prepaid, and addressed to such party at its address given at the beginning of
this Agreement or at any other address specified in writing. Written notices to
the Borrower shall be sent to the attention of Arthur R. Buckland, President,
with a copy to Stuart Cable, Esq., Goodwin, Procter & Hoar LLP, Exchange Place,
Boston, Massachusetts 02109, and written notices to the Lender shall be sent to
the attention of Peter McCarthy, Vice President, with a copy to Philip A.
Herman, Esq., Goulston & Storrs, P.C., 400 Atlantic Avenue, Boston,
Massachusetts 02110-3333. Any notice, unless otherwise specified, may be given
orally or in writing.
8.2 NO WAIVERS. No failure or delay by the Lender in exercising any
right, power or privilege hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies otherwise provided by law.
8.3 FURTHER ASSURANCES. The Borrower shall do, make, execute and
deliver all such additional and further acts, things, assurances, and
instruments as the Lender may reasonably require more completely to vest in and
assure to the Lender its rights hereunder and under the Credit Note, and to
carry into effect the provisions and intent of this Agreement and the Credit
Note.
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8.4 GOVERNING LAW. This Agreement and the Credit Note shall be deemed
to be contracts made under seal and shall be construed in accordance with and
governed by the laws of the Commonwealth of Massachusetts (without regard to
conflicts of laws rules). Any legal action or proceeding arising out of or
relating to this Agreement or any Obligation may be instituted in the courts of
the Commonwealth of Massachusetts or of the United States of America for the
District of Massachusetts, and the Borrower hereby irrevocably submits to the
jurisdiction of each such court in any such action or proceeding; PROVIDED,
HOWEVER, that the foregoing shall not limit the Lender's rights to bring any
legal action or proceeding in any other appropriate jurisdiction.
8.5 EXPENSES, TAXES AND INDEMNIFICATION.
(a) The Borrower will pay and indemnify and hold the
Lender harmless against all taxes (other than taxes on the income of
the Lender), charges and expenses of every kind or description,
including without limitation attorneys' fees and expenses and the
costs and expenses of field audits and commercial finance exams
(PROVIDED THAT, prior to the occurrence of an Event of Default, the
Borrower shall not be required to pay for more than 2 field audits
and commercial finance examinations in any fiscal year, and
PROVIDED, FURTHER, that unless the Lender determines that there
exists a material problem with the financial reporting to the Lender
or the Borrower's internal financial systems, the cost of each such
audit or field examination shall not exceed $5,000), reasonably
incurred or expended by the Lender in connection with or in any way
related to the Lender's relationship with the Borrower, whether
hereunder or otherwise, including, without limitation, those
incurred or expended in connection with the preparation, execution,
delivery, interpretation or amendment of this Agreement or any
related agreement, instrument or document, the making of the
Revolving Loans, and the protection or enforcement of the Lender's
rights hereunder or under any of the other Loan Documents.
(b) The Borrower shall absolutely and unconditionally
indemnify and hold the Lender harmless against any and all claims,
demands, suits, actions, causes of action, damages, losses,
settlement payments, obligations, costs, expenses and all other
liabilities whatsoever which shall at any time or times be incurred
or sustained by the Lender or by any of its shareholders, directors,
officers, employees, subsidiaries, affiliates or agents (except any
of the foregoing incurred or sustained as a result of the gross
negligence or willful misconduct of the Lender) on account of, or in
relation to, or in any way in connection with, associated with or
ancillary to this Agreement, and the other documents executed or
delivered in connection herewith, and the arrangements or
transactions contemplated therein, whether or not all or any of the
transactions contemplated by, associated with or ancillary to this
Agreement or any of such documents are ultimately consummated.
Without prejudice to the survival of any other covenant of the
Borrower hereunder, the covenants of this Section 8.5(b) shall
survive the termination of this Agreement and the payment or
satisfaction of payment of amounts owing with respect to the Credit
Note or any other Loan Document.
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8.6 AMENDMENTS, WAIVERS, ETC. This Agreement, any of the other Loan
Documents, the Credit Note, and any provision hereof or thereof, may be waived,
discharged or terminated only by an instrument in writing signed by the Lender
and may be amended only by an instrument in writing signed by the Borrower and
the Lender.
8.7 BINDING EFFECT OF AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Lender and their respective
successors and assigns. The Lender may sell, assign or otherwise transfer all or
any portion of its right, title and interest in, and its obligations under, this
Agreement, the Revolving Loans made and to be made hereunder, or grant
participations in its right, title and interest herein and therein. The Borrower
may not assign or transfer its rights or obligations hereunder.
8.8 COMPUTATION OF INTEREST AND FEES, ETC. Interest, fees and charges
shall be computed daily on the basis of a year of 360 days and paid for the
actual number of days for which due. If the due date for any payment of
principal is extended by operation of law, interest shall be payable for such
extended time. If any payment required by this Agreement becomes due on a day on
which banks in Boston, Massachusetts are required or permitted by law or an
appropriate authority to remain closed, such payment may be made on the next
succeeding day on which such banks are open, and such extension shall be
included in computing interest in connection with such payment. All payments
required of the Borrower hereunder or under the Credit Note shall be made in
lawful money of the United States of America in federal or other funds
immediately available to the recipient thereof at the prescribed place of
payment.
8.9 ENTIRE AGREEMENT; MISCELLANEOUS. This Agreement, including the
exhibits and schedules hereto, sets forth the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein, and
supersedes all prior or contemporaneous agreements, promises, covenants,
arrangements, communications, representations, warranties, whether oral or
written, by any officer, employee or representative of any party hereto. The
captions for the sections of this Agreement are for ease of reference only and
are not an integral part of this Agreement. This Agreement may be signed in any
number of counterparts with the same effect as if the signatures hereto and
thereto were upon the same instrument. The provisions of this Agreement are
severable, and if any of these provisions shall be held by any court of
competent jurisdiction to be unenforceable, such holdings shall not affect or
impair any other provision hereof.
8.10 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH HEREBY
IRREVOCABLY WAIVES TRIAL BY JURY IN ANY JURISDICTION AND IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE
OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO,
OR ANY CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE BORROWER AND THE LENDER.
THIS WAIVER SHALL BE EFFECTIVE FOR EACH DOCUMENT EXECUTED BY THE BORROWER OR THE
LENDER
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AND DELIVERED TO THE LENDER OR THE BORROWER, AS THE CASE MAY BE, WHETHER OR NOT
SUCH DOCUMENT SHALL CONTAIN A WAIVER OF JURY TRIAL. THE BORROWER FURTHER
ACKNOWLEDGES THAT ALL DOCUMENTS DELIVERED BY THE LENDER OR THE BORROWER ARE
SUBJECT TO THIS WAIVER OF JURY TRIAL AS TO ANY ACTION THAT MAY BE BROUGHT AS TO
ANY OF SUCH DOCUMENTS, AND CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND
FREELY MADE.
(Signatures on next page)
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WITNESS the execution hereof under seal on the day and year first above
written.
C.P. CLARE CORPORATION
By:
-------------------------------
Name: Harry Andersen
Title: Senior Vice President and
Chief Financial Officer
BANKBOSTON, N.A.
By:
---------------------------------
Name: Peter McCarthy
Title: Vice President
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EXHIBIT A
[FORM OF] REVOLVING CREDIT NOTE
$15,000,000.00 Boston, Massachusetts
February __, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to BANKBOSTON, N.A. (the "Lender"), or order,
the principal amount of Fifteen Million Dollars ($15,000,000.00) or, if less,
the aggregate unpaid principal amount of all Revolving Loans (as defined in the
Agreement referred to below) made by the Lender to the Borrower pursuant to the
Agreement and noted on the records of the Lender, such payment to be made as
hereinafter provided, together with interest (computed on the basis of the
actual number of days elapsed over a 360-day year) on the unpaid principal
amount hereof until paid in full.
The entire unpaid principal (not at the time overdue) of this Note
shall bear interest at the rate or rates from time to time in effect under the
Agreement, as defined below. Accrued interest on the unpaid principal under this
Note shall be payable on the dates specified in the Agreement.
The Borrower absolutely and unconditionally agrees to repay so much of
the Revolving Loans as may be necessary so that the aggregate outstanding
principal amount of the Revolving Loans will not exceed the Maximum Amount. On
June 30, 2001, the date of the final maturity of this Note, there shall become
absolutely due and payable by the Borrower hereunder, and the Borrower hereby
promises to pay to the holder hereof, the balance (if any) of the principal
hereof then remaining unpaid, all of the unpaid interest accrued hereon and all
(if any) other amounts payable on or in respect of this Note or the indebtedness
evidenced hereby.
All payments under this Note shall be made at the head office of the
Lender at 100 Federal Street, Boston, Massachusetts 02110 (or at such other
place as the Lender may designate from time to time in writing) in lawful money
of the United States of America in federal or other immediately available funds.
Subject to the provisions of Section 2.4 of the Agreement, the Borrower may
prepay this Note in whole or in part at any time without premium or penalty.
Amounts so paid and other amounts may be borrowed and reborrowed by the Borrower
hereunder from time to time as provided in the Agreement referred to below.
This Note is issued pursuant to, is entitled to the benefits of, and is
subject to the provisions of a certain Loan Agreement of even date herewith by
and between the undersigned and the Lender (herein, as the same may from time to
time be amended or extended, referred to as the "Agreement"), but neither this
reference to the Agreement nor
A-1
<PAGE>
any provision thereof shall affect or impair the absolute and unconditional
obligation of the undersigned maker of this Note to pay the principal of and
interest on this Note as herein provided.
Upon an Event of Default, as defined in the Agreement, the aggregate
unpaid balance of principal plus accrued interest may become or may be declared
to be due and payable in the manner and with the effect provided in the
Agreement.
The maker of this Note hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
WITNESS the execution of this Note under seal on the date written
above.
C.P. CLARE CORPORATION
WITNESS:
By:
---------------------------------
- ---------------------------- Title: President
A-2
<PAGE>
EXHIBIT B
DISCLOSURE
PARAGRAPH 3.1 (ORGANIZATION AND QUALIFICATION)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Name Organized Foreign Qualification
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Borrower Massachusetts California
Florida
Illinois (in process of
reinstatement)
Missouri
- ---------------------------------------------------------------------------------------------------
Clare Canada, Ltd. Ontario
- ---------------------------------------------------------------------------------------------------
Clare Mexicana S.A. de C.V. Mexico
- ---------------------------------------------------------------------------------------------------
Clare Engineering N.V. Belgium
- ---------------------------------------------------------------------------------------------------
C.P. Clare Foreign Sales Corporation U.S. Virgin Islands
- ---------------------------------------------------------------------------------------------------
Clare Technologies, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
Clare Components, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
Clare Systems, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
Clare Electronics, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
Clare Instruments, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
Clare Services, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
Clare Capital, Inc. Delaware
- ---------------------------------------------------------------------------------------------------
C.P. Clare Electronics GmbH Germany
- ---------------------------------------------------------------------------------------------------
Clare France S.A.R.L. France
- ---------------------------------------------------------------------------------------------------
Clare Technologies (Taiwan), Inc. Taiwan
- ---------------------------------------------------------------------------------------------------
Clare Micronics Integrated Systems, Inc. California
- ---------------------------------------------------------------------------------------------------
C.P. Clare N.V. Belgium (in process of
dissolution
- ---------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Clare Technologies, Inc. New York (all in the
Clare Components, Inc. process of dissolution)
Clare Systems, Inc.
Clare Electronics, Inc.
Clare Instruments, Inc.
Clare Services, Inc.
Clare Capital, Inc.
- ---------------------------------------------------------------------------------------------------
</TABLE>
PARAGRAPH 3.5 (FINANCIAL STATEMENTS)
SEE attached.
PARAGRAPH 3.8 (LABOR RELATIONS; LITIGATION)
None, other than as may be set forth in the Borrower's Form 10-K for
the fiscal year ended March 31, 1998 filed with the Securities and Exchange
Commission.
PARAGRAPH 3.10 (CONTRACTS WITH AFFILIATES, ETC.)
None.
PARAGRAPH 3.12 (ENVIRONMENTAL MATTERS)
None.
PARAGRAPH 3.15 (COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC.)
None.
PARAGRAPH 3.16 (SUBSIDIARIES)
PART (a)
SEE list incorporated herein as part of disclosure for Paragraph 3.1.
SEE ALSO attached Corporate Structure chart.
PART (b)
None.
PARAGRAPH 3.17 (INSURANCE)
None.
B-2
<PAGE>
PARAGRAPH 3.19 (LEASES)
SEE attached lists entitled "Leased Real Estate" and "Operating Lease
Equipment."
PARAGRAPH 5.5 (EXISTING INDEBTEDNESS)
SEE attached schedule entitled "Paragraph 5.5 (Existing Indebtedness).
PARAGRAPH 5.6 (EXISTING LIENS)
None.
PARAGRAPH 5.16 (EXISTING CONTINGENT OBLIGATIONS)
None.
B-3
<PAGE>
EXHIBIT C
[FORM OF CERTIFICATE OF CHIEF FINANCIAL OFFICER]
CERTIFICATE OF CHIEF FINANCIAL OFFICER
C.P. Clare Corporation (the "Borrower") HEREBY CERTIFIES THAT:
This Certificate is furnished pursuant to Section 5.1(vii) of the Loan
Agreement dated as of February __, 1999 by and between the Borrower and
BankBoston, N.A. (the "Agreement"). Unless otherwise defined herein, the terms
used in this Certificate and SCHEDULE 1 attached hereto have the meanings
described in the Agreement.
As required by Section 5.1(i) or (ii) of the Agreement, financial
statements of the Borrower for the (year) (quarter) ended _____________, 19__
(the "Financial Statements") prepared in accordance with GAAP (subject, in the
case of quarterly statements, to normal year-end audit adjustments, none of
which are materially adverse) accompany this Certificate. The Financial
Statements present fairly the consolidated financial position of the Borrower
and the Subsidiaries as of the date thereof and the results of operations of the
Borrower and the Subsidiaries for the period covered thereby.
Schedule 1 attached hereto sets forth financial data and computations
evidencing the Borrower's compliance with the covenants of the Agreement set
forth in Sections 5.21 through 5.25, inclusive, all of which data and
computations, to the best of the knowledge and belief of the chief financial
officer (the "Chief Financial Officer") executing and delivering this
Certificate on behalf of the Borrower, are true, complete and correct.
The activities of the Borrower and the Subsidiaries during the period
covered by the Financial Statements have been reviewed by the Chief Financial
Officer and by employees or agents under his immediate supervision. Based on
such review, to the best knowledge and belief of the Chief Financial Officer,
during the period covered by the Financial Statements, and as of the date of
this Certificate, (a) the Borrower has, or has caused to have, kept, observed,
performed and fulfilled each and every covenant and condition of the Agreement
(except to the extent waived by the Lender and noted on Schedule 1 attached
hereto) and the Credit Note, and (b) no Default or Event of Default has occurred
or is occurring.
Witness my hand this ___ day of ____________, 19__.
C.P. CLARE CORPORATION
By:
---------------------------------
Title: Chief Financial Officer
C-1
<PAGE>
EXHIBIT D
FORM OF LEGAL OPINION OF
GOODWIN, PROCTER & HOAR
[To Be Provided by GP&H.]
D-1
<PAGE>
EXHIBIT E
CLOSING AGENDA
A. ITEMS DELIVERED BY, OR PERTAINING TO, BORROWER:
1. Loan Agreement and all Exhibits and Schedules thereto
Exhibit A (Form of Revolving Credit Note)
Exhibit B (Disclosures)
Exhibit C (Form of Certificate of CFO)
Exhibit D (Form of Opinion of GP&H)
Exhibit E (Closing Checklist)
Schedule 3.17 (Updated Insurance Summary)
2. Revolving Credit Note
3. Pledge Agreement
4. Clerk's Certificate regarding articles of organization, by-laws,
board resolutions (covering loan documents) and incumbency of
officers
5. Certified copy of Borrower's Articles of Organization
6. Certificates of good standing and qualification to do business in
the following States listed in Exhibit B:
California
Florida
Illinois
Massachusetts
Missouri
7. Closing Certificate
B. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE CAPITAL, INC.
(DELAWARE):
8. Guaranty
9. Certificate regarding board resolutions and incumbency of officers
and directors
E-1
<PAGE>
C. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE COMPONENTS, INC.
(DELAWARE):
10. Guaranty
11. Certificate regarding board resolutions and incumbency of officers
and directors
D. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE ELECTRONICS,
INC.(DELAWARE):
12. Guaranty
13. Certificate regarding board resolutions and incumbency of officers
and directors
E. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE INSTRUMENTS, INC.
(DELAWARE):
15. Guaranty
16. Certificate regarding board resolutions and incumbency of officers
and directors
F. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE SERVICES, INC.
(DELAWARE):
17. Guaranty
18. Certificate regarding board resolutions and incumbency of officers
and directors
G. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE SYSTEMS, INC.
(DELAWARE):
19. Guaranty
20. Certificate regarding board resolutions and incumbency of officers
and directors
H. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE TECHNOLOGIES, INC.
(DELAWARE):
21. Guaranty
22. Certificate regarding board resolutions and incumbency of officers
and directors
E-2
<PAGE>
I. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE MICRONICS INTEGRATED
SYSTEMS, INC. (CA):
23. Guaranty
24. Certificate regarding board resolutions and incumbency of officers
and directors
J. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE CANADA, LTD. (ONTARIO,
CANADA):
25. Negative Pledge Agreement
26. Certificate regarding board resolutions and incumbency of officers
and directors
K. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE FRANCE S.A.R.L.
(FRANCE):
27. Negative Pledge Agreement
28. Certificate regarding board resolutions and incumbency of officers
and directors
L. ITEMS TO BE DELIVERED BY, OR PERTAINING TO C.P. CLARE ELECTRONICS, GMBH
(GERMANY):
29. Negative Pledge Agreement
30. Certificate regarding board resolutions and incumbency of officers
and directors
M. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CP. CLARE FOREIGN SALES
CORPORATION (U.S. VIRGIN ISLANDS):
31. Negative Pledge Agreement
32. Certificate regarding board resolutions and incumbency of officers
and directors
N. ITEMS TO BE DELIVERED BY, OR PERTAINING TO C.P. CLARE N.V. (BELGIUM):
33. Negative Pledge Agreement
34. Certificate regarding board resolutions and incumbency of officers
and directors
E-3
<PAGE>
O. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE ENGINEERING N.V.
(BELGIUM):
35. Negative Pledge Agreement
36. Certificate regarding board resolutions and incumbency of officers
and directors
P. ITEMS TO BE DELIVERED BY, OR PERTAINING TO C.P. CLARE MEXICANA S.A. DE
C.V. (MEXICO):
37. Negative Pledge Agreement
38. Certificate regarding board resolutions and incumbency of officers
and directors
Q. ITEMS TO BE DELIVERED BY, OR PERTAINING TO CLARE TECHNOLOGIES (TAIWAN),
INC. (TAIWAN):
39. Negative Pledge Agreement
40. Certificate regarding board resolutions and incumbency of officers
and directors
R. OTHER CLOSING ITEMS:
41. Opinion of counsel to Borrower
E-4
<PAGE>
SCHEDULE 3.17 (INSURANCE COVERAGE)
SEE attached schedule.
E-5
<PAGE>
Exhibit 10.80
REVOLVING CREDIT NOTE
$15,000,000.00 Boston, Massachusetts
March 1, 1999
FOR VALUE RECEIVED, the undersigned (the "Borrower") absolutely and
unconditionally promises to pay to BANKBOSTON, N.A. (the "Lender"), or order,
the principal amount of Fifteen Million Dollars ($15,000,000.00) or, if less,
the aggregate unpaid principal amount of all Revolving Loans (as defined in the
Agreement referred to below) made by the Lender to the Borrower pursuant to the
Agreement and noted on the records of the Lender, such payment to be made as
hereinafter provided, together with interest (computed on the basis of the
actual number of days elapsed over a 360-day year) on the unpaid principal
amount hereof until paid in full.
The entire unpaid principal (not at the time overdue) of this Note
shall bear interest at the rate or rates from time to time in effect under the
Agreement, as defined below. Accrued interest on the unpaid principal under this
Note shall be payable on the dates specified in the Agreement.
The Borrower absolutely and unconditionally agrees to repay so much of
the Revolving Loans as may be necessary so that the aggregate outstanding
principal amount of the Revolving Loans will not exceed the Maximum Amount. On
June 30, 2001, the date of the final maturity of this Note, there shall become
absolutely due and payable by the Borrower hereunder, and the Borrower hereby
promises to pay to the holder hereof, the balance (if any) of the principal
hereof then remaining unpaid, all of the unpaid interest accrued hereon and all
(if any) other amounts payable on or in respect of this Note or the indebtedness
evidenced hereby.
All payments under this Note shall be made at the head office of the
Lender at 100 Federal Street, Boston, Massachusetts 02110 (or at such other
place as the Lender may designate from time to time in writing) in lawful money
of the United States of America in federal or other immediately available funds.
Subject to the provisions of Section 2.4 of the Agreement, the Borrower may
prepay this Note in whole or in part at any time without premium or penalty.
Amounts so paid and other amounts may be borrowed and reborrowed by the Borrower
hereunder from time to time as provided in the Agreement referred to below.
This Note is issued pursuant to, is entitled to the benefits of, and is
subject to the provisions of a certain Loan Agreement of even date herewith by
and between the undersigned and the Lender (herein, as the same may from time to
time be amended or extended, referred to as the "Agreement"), but neither this
reference to the Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the undersigned maker of this Note to
pay the principal of and interest on this Note as herein provided.
Upon an Event of Default, as defined in the Agreement, the aggregate
unpaid balance of principal plus accrued interest may become or may be declared
to be due and payable in the manner and with the effect provided in the
Agreement.
The maker of this Note hereby waives presentment, demand, notice of
dishonor, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Note.
<PAGE>
WITNESS the execution of this Note under seal on the date written
above.
C.P. CLARE CORPORATION
WITNESS:
By:
- ----------------------- ----------------------------------
Name: Harry Andersen
Title: Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit 10.81
C.P. CLARE CORPORATION
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of March 1, 1999 by and between C.P. CLARE
CORPORATION, a Massachusetts corporation having its principal place of business
and chief executive offices at 78 Cherry Hill Drive, Beverly, Massachusetts
01915-1048 (the "Pledgor"), and BANKBOSTON, N.A., a national banking association
with its head office at 100 Federal Street, Boston, Massachusetts 02110 ("the
Pledgee").
WHEREAS, Pledgor is the owner of 100% of the issued and outstanding
shares of Stock (as hereinafter defined) of each of the entities listed on
Exhibit A (individually, a "Subsidiary" and collectively, the "Subsidiaries");
and
WHEREAS, in order to induce the Pledgee to make loans and other
extensions of credit under a certain Loan Agreement dated March 1, 1999 by and
between the Pledgee, as lender, and the Pledgor, as borrower (as the same may be
amended from time to time, the "Loan Agreement"), and in consideration thereof,
the Pledgor wishes to pledge all of the Stock to the Pledgee on the terms and
conditions described herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. The following terms shall have the meanings set forth
below. Terms not otherwise defined herein shall have the meanings ascribed to
them in the Loan Agreement or under the Massachusetts Uniform Commercial Code.
1.1 "AGREEMENTS" means the Loan Agreement, the Credit Note, [the
Guaranties] and any documents, instruments or agreements referred to herein or
therein.
1.2 "COLLATERAL" means the Pledged Stock and all proceeds
thereof, dividends, distributions and other income relating thereto (except for
Restricted Payments expressly permitted to be made pursuant to Section 5.10 of
the Loan Agreement) and all other securities financial assets, investment
property and monies owned by the Pledgor and relating to the Pledged Stock
received and held by the Pledgee hereunder or in substitution for any of the
foregoing.
1.3 "DEFAULT" means any Event of Default as defined in the Loan
Agreement.
1.4 "DOMESTIC CORPORATION" means any Subsidiary incorporated
under the laws of the United States or any State or Territory thereof.
<PAGE>
1.5 "FOREIGN CORPORATION" means any Subsidiary that is not a
Domestic Corporation.
1.6 "OBLIGATIONS" shall have the meaning ascribed to such term in
the Loan Agreement.
1.7 "PLEDGED STOCK" means all Stock at any time pledged or
required to be pledged hereunder.
1.8 "STOCK" means (a) with respect to Domestic Corporation, all
of the issued and outstanding capital stock of such Domestic Corporation at any
time owned by the Pledgor and (b) with respect to any Foreign Corporation, all
of the issued and outstanding capital stock of such Foreign Corporation at any
time owned by the Pledgor, PROVIDED THAT, the Pledgor shall not be required to
pledge hereunder stock representing more than 65% of the total combined voting
power of all classes of capital stock of any Foreign Corporation entitled to
vote.
2. PLEDGE; DELIVERY.
2.1 As security for the prompt and unconditional payment and
performance of the Obligations, the Pledgor hereby pledges, assigns and
transfers to the Pledgee and grants the Pledgee a security interest in the Stock
owned by the Pledgor on the date hereof as described in EXHIBIT A attached
hereto and in the Collateral, whether now owned or hereafter acquired. In
furtherance thereof, the Pledgor hereby delivers to the Pledgee certificates for
said Stock accompanied by stock powers duly executed in blank by the Pledgor and
hereby assigns, transfers and sets over to the Pledgee all of the Pledgor's
right, title and interest in and to such certificates to be held by the Pledgee
upon the terms and conditions set forth in this Pledge Agreement. If the Pledgor
shall acquire by purchase, stock dividend or otherwise any additional shares in
the capital stock of a Subsidiary at any time or from time to time after the
date hereof, the Pledgor will forthwith pledge and deposit the same with the
Pledgee hereunder and deliver to the Pledgee certificates therefor, accompanied
by stock powers duly executed in blank by the Pledgor. The Pledgor shall not be
required at any time to pledge hereunder any Stock which represents more than
65% of the total combined voting power of all classes of capital stock of any
Foreign Corporation entitled to vote.
2.2 The Pledgee may, in its sole discretion and at any time or
times, after the occurrence and during the continuance of a Default, cause the
Pledged Stock and any other securities constituting Collateral to be transferred
into its own name or the name or names of its nominee or nominees or successor
in interest on the books of the issuer of such securities, and the Pledgor
hereby constitutes and appoints the Pledgee, its employees, agents, successors
and assigns to be the attorney-in-fact of the Pledgor to effect any such
transfer.
-2-
<PAGE>
2.3 The Pledgee may, in its sole discretion and at any time or
times (whether or not a Default shall have occurred), collect, receive and hold
as additional Collateral all dividends, distributions and other income on the
Pledged Stock and the other Collateral, except for Restricted Payments expressly
permitted to be made pursuant to Section 5.10 of the Loan Agreement.
3. REPRESENTATIONS AND WARRANTIES OF THE PLEDGOR. The Pledgor
represents and warrants to the Pledgee as follows:
3.1 The Pledgor has and has duly exercised all requisite power
and authority to enter into this Pledge Agreement, to pledge the Pledged Stock
for the purposes described in Section 2, and to carry out the transactions
contemplated by this Agreement.
3.2 The Pledgor is the legal and beneficial owner of all of the
Pledged Stock.
3.3 EXHIBIT A attached hereto accurately sets forth as to each
Foreign Corporation (i) the total number of shares of each class of stock of
such Foreign Corporation issued and outstanding and (ii) the total number of
shares of each such class of stock that have been pledged hereunder. With
respect to each Foreign Corporation, the Borrower has pledged stock representing
65% of the total combined voting power of all classes of capital stock of such
Foreign Corporation entitled to vote.
3.4 All of the shares of the Stock have been duly and validly
issued, are fully paid and nonassessable, and are owned by the Pledgor free of
any pledge, mortgage, hypothecation, lien, charge, encumbrance or security
interest in such shares or the proceeds thereof, except for that granted
hereunder.
3.5 Upon delivery of the Pledged Stock to the Pledgee or its
agent, this Pledge Agreement shall create a valid first lien upon and perfected
security interest in the Pledged Stock and the proceeds thereof, subject to no
prior security interest, lien, charge or encumbrance, or to any agreement
purporting to grant to any third party a security interest in the property or
assets of the Pledgor which would include the Pledged Stock.
4. VOTING. Unless an Event of Default shall have occurred and be
continuing, the Pledgor shall be entitled to vote any and all shares of the
Pledged Stock and to give consents, waivers or ratifications in respect thereof,
PROVIDED THAT no vote shall be cast or consent, waiver or ratification given or
action taken which would violate or be inconsistent with any of the terms of
this Pledge Agreement or the other Agreements or which would have the effect of
impairing the position or interests of the Pledgee. Upon the occurrence and
during the continuance of an Event of Default, the Pledgee shall have the right
to vote, and to give consents, waivers and ratifications with respect to, the
Pledged Stock, PROVIDED THAT if the Pledgee elects not to exercise such rights
at any time, the Pledgor may continue to exercise such rights, PROVIDED THAT the
Pledgor shall not take
-3-
<PAGE>
any vote or other action with respect to such Pledged Stock that would have an
adverse effect on the Pledgee.
5. REMEDIES UPON DEFAULT.
5.1 In case a Default shall have occurred and be continuing, the
Pledgee shall be entitled to exercise all of its rights, powers and remedies
(whether vested in it by this Pledge Agreement, the other Agreements or by law)
for the protection and enforcement of its rights in respect of the Collateral,
and the Pledgee shall be entitled, without limitation, to exercise the following
rights (in addition to the rights and remedies of a secured party under the
Uniform Commercial Code of Massachusetts) which Pledgor hereby agrees shall be
commercially reasonable:
(a) to vote all or any part of the Pledged Stock (whether or
not transferred into the name of the Pledgee) and give all consents, waivers and
ratifications in respect of the Collateral and otherwise act with respect
thereto as though it were the outright owner thereof (the Pledgor hereby
irrevocably constituting and appointing the Pledgee, its employees, agents,
successors and assigns the proxy and attorney-in-fact of Pledgor, with full
power of substitution to do so); and
(b) at any time or from time to time to sell, assign and
deliver, or grant options to purchase, all or any part of the Collateral, or any
interest therein, at any public or private sale without demand of performance,
advertisement or notice of intention to sell or of the time or place of sale or
adjournment thereof or to redeem or otherwise, all of which are hereby waived by
the Pledgor, for cash, on credit or for other property, for immediate or future
delivery without any assumption of credit risk, and for such price or prices and
on such terms as the Pledgee in its absolute discretion may determine, PROVIDED
THAT at least ten (10) days prior notice of the time and place of any such sale
shall be given to Pledgor.
5.2 If any of the Collateral is sold by the Pledgee upon credit
or for future delivery, the Pledgee shall not be liable for the failure of the
purchaser to pay for the same and in such event the Pledgee may resell such
Collateral. The Pledgee may buy any part or all of the Collateral at any public
sale and if any part or all of the Collateral is of a type customarily sold in a
recognized market or is of the type which is the subject of widely-distributed
standard price quotations, the Pledgee may buy at a private sale and may make
payment therefor by any means including, without limitation, cancellation of
indebtedness secured thereby.
5.3 The Pledgor recognizes that the Pledgee may be unable to
effect a public sale of the Pledged Stock by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, or in other applicable
laws, regulations, or agreements to which such Stock may be subject but may be
compelled to resort to one or more private sales thereof to a restricted group
of purchasers. The Pledgor agrees that any such private sales may be at prices
and other terms less favorable to the seller than if
-4-
<PAGE>
sold at public sales and that such private sales shall be deemed to have been
made in a "commercially reasonable" manner within the meaning of Section
9-504(3) of the Uniform Commercial Code of the Commonwealth of Massachusetts,
PROVIDED THAT the notice specified in Section 5.1 shall have been given to the
Pledgor. The Pledgee shall be under no obligation to delay a sale of any of the
Pledged Stock for the period of time necessary to permit the issuer of such
securities to register such securities for public sale under the Securities Act
of 1933, as amended, even if the issuer would agree to do so.
5.4 At any sale of Collateral, unless prohibited by applicable
law, the Pledgee or any holder of the Obligations may bid for and purchase all
or any part of the Collateral so sold free from any such right or equity of
redemption.
6. REMEDIES CUMULATIVE. Each right, power and remedy of the Pledgee
or any holder of the Obligations provided for in this Pledge Agreement, the
other Agreements or now or hereafter existing at law or in equity or by statute
shall be cumulative and concurrent and shall be in addition to every other such
right, power or remedy. The exercise or beginning of the exercise by the Pledgee
or any holder of the Obligations of any one or more of such rights, powers or
remedies shall not preclude the simultaneous or later exercise by the Pledgee or
any holder of the Obligations of all such other rights, powers or remedies (or
the later exercise of the same right, power or remedy), and no failure or delay
on the part of the Pledgee or any holder of the Obligations to exercise any such
right, power or remedy shall operate as a waiver thereof.
7. APPLICATION OF MONEYS BY THE PLEDGEE. All moneys collected upon
any sale of the Collateral hereunder, together with all other moneys received by
the Pledgee hereunder, shall be applied as follows: (i) first, to the payment of
all reasonable costs and expenses incurred by the Pledgee in connection with
such sale, the delivery of the Collateral or the collection of any such moneys
(including, without limitation, attorneys' fees and expenses reasonably
incurred); (ii) second, to satisfy the Obligations; and (iii) third, to the
Pledgor to the extent of any surplus proceeds.
8. TRANSFER BY THE PLEDGOR. The Pledgor will not sell or otherwise
dispose of, grant any option with respect to, or mortgage, pledge (except
pursuant to this Pledge Agreement or as otherwise permitted by the Agreements)
or otherwise encumber any of the Collateral, any shares in the capital stock of
any Subsidiary, or any interest therein. The Pledgor will not consent to or
approve the issuance of (i) any additional shares of any class of capital stock
of any Subsidiary; (ii) any securities convertible voluntarily by the holder
thereof or automatically upon the occurrence or nonoccurrence of any event or
condition into, or exchangeable for, any such shares; or (iii) any warrants,
options, rights, or other commitments entitling any person to purchase or
otherwise acquire any such shares.
9. THE PLEDGOR'S OBLIGATIONS ABSOLUTE. The Obligations of the Pledgor
under this Pledge Agreement shall be absolute and unconditional and shall remain
in full force and effect without regard to, and shall not be released,
suspended, discharged,
-5-
<PAGE>
terminated or otherwise affected by any circumstance or occurrence whatsoever,
including, without limitation: (a) any renewal, extension, amendment or
modification of or addition or supplement to or deletion from the other
Agreements, or any assignment or transfer of the other Agreements; (b) any
waiver, consent, extension, indulgence or other action or inaction under or in
respect of the Agreements; (c) any furnishing of any additional security to the
Pledgee or its assignee or any acceptance thereof or any release of any security
by the Pledgee or its assignee; (d) any limitation on any party's liability or
obligations under the Agreements or any invalidity or unenforceablity, in whole
or in part, of the same; or (e) any bankruptcy, insolvency, reorganization,
composition, adjustment, dissolution, liquidation or other like proceeding
relating to the Pledgor, or any Subsidiary or any action taken with respect to
this Pledge Agreement by any trustee or receiver or by any court, in any such
proceeding; whether or not the Pledgor shall have notice or knowledge of any of
the foregoing.
10. FURTHER ASSURANCES. The Pledgor at its expense will execute,
acknowledge and deliver all such instruments and take all such action as the
Pledgee from time to time may reasonably request in order to further effectuate
the purposes of this Pledge Agreement and to carry out the terms hereof.
11. THE PLEDGEE'S EXONERATION. Under no circumstances shall the
Pledgee be deemed to assume any responsibility for or obligation or duty with
respect to any part or all of the Collateral of any nature or kind, or any
matter or proceedings arising out of or relating thereto, but the same shall be
at the Pledgor's sole risk at all times. The Pledgee shall not be required to
take any action of any kind to collect, preserve or protect its or the Pledgor's
rights in the Collateral or against other parties thereto. The Pledgee's prior
recourse to any part or all of the Collateral shall not constitute a condition
of any demand, suit or proceeding for payment or collection of the Obligations.
12. NO WAIVER, ETC. The Pledgee may exercise its rights with respect
to the Collateral without resorting or regard to other collateral or sources of
reimbursement. The Pledgee shall not be deemed to have waived any of its rights
upon or under the Obligations or the Collateral unless such waiver be in writing
and signed by the Pledgee. No delay or omission on the part of the Pledgee in
exercising any right under this Pledge Agreement shall operate as a waiver of
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to or waiver of any right on any future occasion. All rights
and remedies of the Pledgee on the Obligations or the Collateral, whether
evidenced hereby or by any other instrument or papers, shall be cumulative and
may be exercised separately or concurrently.
13. TERMINATION. Unless sooner terminated in accordance with Section
5.28 of the Loan Agreement, when all Obligations have been paid, performed and
determined by the Pledgee to have been indefeasibly discharged in full, and if
at such time the Pledgee is not committed to extend any credit to the Pledgor
under the Loan Agreement or any other Loan Document, this Pledge Agreement shall
terminate and the Pledgee, at the expense of the Pledgor, will duly assign,
transfer and deliver to the Pledgor, or its successors or
-6-
<PAGE>
assigns, as the case may be, such of the Collateral as has not theretofore been
sold or otherwise applied or released pursuant to this Pledge Agreement.
14. MISCELLANEOUS.
14.1 SUCCESSORS AND ASSIGNS. This Pledge Agreement shall inure to
the benefit of and shall be binding upon the parties hereto and their respective
successors and assigns whether or not an express assignment of rights hereunder
is made. No other person shall acquire or have any right under or by virtue of
this Pledge Agreement.
14.2 PROVISIONS TO SURVIVE. All representations, warranties,
covenants and agreements contained in this Pledge Agreement shall survive the
execution and delivery of the Agreements and shall continue until payment in
full of all Obligations.
14.3 SEVERABILITY. If any provision of this Pledge Agreement shall
be held invalid or unenforceable by any court of competent jurisdiction, that
holding shall not invalidate or render unenforceable any other provision hereof.
14.4 AMENDMENTS. This Pledge Agreement may be amended, modified
and supplemented only by written agreement of the parties hereto.
14.5 EXECUTION AND COUNTERPARTS. This Pledge Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute one and the same instrument.
14.6 CAPTIONS. Captions and headings in this Pledge Agreement are
for convenience only and in no way define, limit or describe the scope or intent
of the provisions hereof.
14.7 NOTICES. All notices, certificates or other communications
hereunder shall be in writing and shall be sufficiently given and shall be
deemed given when hand delivered or mailed by registered or certified mail,
postage prepaid, addressed to a party at its address set forth at the beginning
of this Pledge Agreement or to such other address as a party shall furnish by
notice to the other parties.
14.8 GOVERNING LAW. This Pledge Agreement shall be governed by,
and construed in accordance with, the laws of the Commonwealth of Massachusetts
without regard to principles of conflicts of laws.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Pledge Agreement to be
duly executed and sealed by their duly authorized officers or representatives,
all as of the date first above written.
C.P. CLARE CORPORATION
By:
--------------------------------
Name: Harry Andersen
Title: Senior Vice President and
Chief Financial Officer
BANKBOSTON, N.A.
By:
--------------------------------
Name: Peter McCarthy
Title: Vice President
-8-
<PAGE>
EXHIBIT A TO
PLEDGE AGREEMENT
OF
C.P. CLARE CORPORATION
<TABLE>
<CAPTION>
Name/address Jurisdiction No. of Shares No. of Shares
of Subsidiary of Incorporation Class of Stock Outstanding Pledged
------------- ---------------- -------------- ----------- -------
<S> <C> <C> <C> <C>
</TABLE>
-9-
<PAGE>
EXHIBIT 21
C.P. CLARE CORPORATION AND SUBSIDIARIES
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARY PLACE OF INCORPORATION
---------- ----------------------
<S> <C>
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 Mexicana S.A. de C.V. Mexico
Clare Technologies (Taiwan), Inc. Taiwan
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we herby 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, 333-15097, and 333-61077, 333-65997).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 7,796
<SECURITIES> 0
<RECEIVABLES> 18,672
<ALLOWANCES> 0
<INVENTORY> 23,842
<CURRENT-ASSETS> 57,278
<PP&E> 40,275
<DEPRECIATION> 0
<TOTAL-ASSETS> 109,215
<CURRENT-LIABILITIES> 22,228
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 86,100
<TOTAL-LIABILITY-AND-EQUITY> 109,215
<SALES> 143,913
<TOTAL-REVENUES> 143,913
<CGS> 102,876
<TOTAL-COSTS> 102,876
<OTHER-EXPENSES> 46,388
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (232)
<INCOME-PRETAX> (5,583)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,583)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,583)
<EPS-BASIC> (0.59)<F1>
<EPS-DILUTED> (0.59)<F1>
<FN>
<F1>BASIC AND DILUTED EARNINGS PER SHARE SUBSTITUTED FOR PRIMARY AND DILUTED
EARNINGS PER SHARE IN ACCORDANCE WITH STATEMENT OF FINANCIAL ACCOUNTING
STANDARDS NO. 128, "EARNINGS PER SHARE".
</FN>
</TABLE>
