Form 10-Q
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to______________
___________________________
COMMISSION FILE NUMBER 1-7534
___________________________
STORAGE TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 84-0593263
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2270 South 88th Street, Louisville, Colorado 80028-4309
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (303) 673-5151
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. /X/ YES / / NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common stock ($.10 Par Value) - 53,354,697 shares outstanding at April 23,
1996.
PAGE
<PAGE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
MARCH 29, 1996
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Operations 4
Consolidated Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 23
Item 6 - Exhibits and Reports on Form 8-K 24
PAGE
<PAGE>
FORM 10-Q
PAGE 3
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands of Dollars)
03/29/96
(Unaudited) 12/29/95
--------------------------
ASSETS
Current assets:
Cash, including cash equivalents $ 432,895 $ 264,502
Accounts receivable, net 423,160 396,499
Notes and installment receivables (Note 4) 2,985 10,766
Net investment in sales-type leases (Note 4) 9,386 88,668
Inventories (Note 2) 238,549 214,553
--------- ---------
Total current assets 1,106,975 974,988
Notes and installment receivables (Note 4) 1,938 10,113
Net investment in sales-type leases (Note 4) 4,963 150,751
Equipment held for sale or lease, at cost (net) 136,640 139,629
Spare parts for field service, at cost (net) 32,521 29,468
Property, plant and equipment, at cost (net) 326,612 333,021
Deferred income tax assets, net 88,842 74,902
Other assets 163,536 175,757
--------- ---------
$1,862,027 $1,888,629
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Nonrecourse borrowings secured by lease
commitments (Note 4) $ 19,415
Current portion of other long-term
debt (Note 4) $ 7,170 65,844
Accounts payable and accrued liabilities 457,193 454,415
Income taxes payable 33,221 9,963
--------- ---------
Total current liabilities 497,584 549,637
7% Convertible subordinated debentures 171,139 171,205
8% Convertible subordinated debentures 145,645 145,645
Nonrecourse borrowings secured by lease
commitments (Note 4) 20,980
Other long-term debt 27,559 26,133
Deferred income tax liabilities 18,680 12,196
--------- ---------
Total liabilities 860,607 925,796
--------- ---------
Commitments and contingencies (Note 3)
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, 150,000,000
shares authorized;53,387,457 shares issued
at March 29, 1996, and 53,352,087shares
issued at December 29, 1995 5,339 5,335
Capital in excess of par value 1,415,293 1,414,551
Accumulated deficit (410,637) (445,761)
Treasury stock of 43,773 shares at March 29,
1996 and December 29, 1995 (777) (777)
Unearned compensation (5,663) (6,427)
Notes receivable from stockholders (2,135) (4,088)
--------- ---------
Total stockholders' equity 1,001,420 962,833
--------- ---------
$1,862,027 $1,888,629
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE
<PAGE>
FORM 10-Q
PAGE 4
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Quarter Ended
---------------------
03/29/96 03/31/95
---------------------
Sales $317,298 $305,092
Service and rental revenue 136,183 145,094
------- -------
Total revenue 453,481 450,186
------- -------
Cost of sales 187,046 191,548
Cost of service and rental revenue 72,521 96,541
------- -------
Total cost of revenue 259,567 288,089
------- -------
Gross profit 193,914 162,097
Research and product development costs 49,622 48,176
Marketing, general, administrative and
other income and expense, net 108,114 109,057
Merger expenses 14,352
------- -------
Operating profit (loss) 36,178 (9,488)
Interest income 8,240 12,349
Interest expense (9,429) (10,775)
------- -------
Income (loss) before income taxes and
extraordinary item 34,989 (7,914)
Provision for income taxes (9,400) (1,000)
------- -------
Income (loss) before extraordinary item 25,589 (8,914)
Extraordinary gain on sale of lease assets,
net of income taxes of $8,200 (Note 4) 9,535
------- -------
Net income (loss) 35,124 (8,914)
Preferred dividend requirement (3,019)
------- -------
Income (loss) applicable to common shares $ 35,124 $(11,933)
======= =======
EARNINGS (LOSS) PER COMMON SHARE AND
COMMON EQUIVALENTS (Note 6)
Primary:
Income (loss) before extraordinary item $ 0.48 $ (0.23)
Extraordinary gain, net 0.18
------- -------
$ 0.66 $ (0.23)
======= =======
Fully Diluted:
Income (loss) before extraordinary item $ 0.47
Extraordinary gain, net 0.15
-------
$ 0.62 N/A
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE
<PAGE>
FORM 10-Q
PAGE 5
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(In Thousands of Dollars)
Quarter Ended
---------------------
03/29/96 03/31/95
---------------------
OPERATING ACTIVITIES
Cash received from customers (Note 4) $ 674,178 $ 490,407
Cash paid to suppliers and employees (411,685) (438,911)
Interest received 8,240 21,594
Interest paid (7,646) (7,502)
Income taxes (paid) refunded, net (1,617) 3,302
-------- --------
Net cash from operating activities 261,470 68,890
-------- --------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (6,628) (23,154)
Merger expenses (5,788)
Other assets, net (1,701) (11,998)
-------- --------
Net cash used in investing activities (8,329) (40,940)
-------- --------
FINANCING ACTIVITIES
Proceeds from nonrecourse borrowings 22,670
Repayments of nonrecourse borrowings (Note 4) (33,533) (39,182)
Repayments of other debt (Note 4) (60,652) (10,178)
Proceeds from employee stock plans 2,976 295
Preferred stock dividend payments (3,019)
-------- --------
Net cash used in financing activities (91,209) (29,414)
-------- --------
Effect of exchange rate changes on cash 6,461 (2,052)
-------- --------
Increase (decrease) in cash and cash
equivalents 168,393 (3,516)
Cash and cash equivalents - beginning
of the period 264,502 228,081
-------- --------
Cash and cash equivalents - end of the period $ 432,895 $ 224,565
======== ========
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
FROM OPERATING ACTIVITIES
Net income (loss) $ 35,124 $ (8,914)
Depreciation and amortization expense 36,210 54,963
Translation (gain) loss 167 (3,582)
Other adjustments to income 5,590 18,991
(Increase) decrease in accounts receivable (30,861) 42,844
(Increase) decrease in notes receivable and
sales-type leases (Note 4) 234,593 (1,829)
(Increase) decrease in inventories (23,996) 13,361
Increase in equipment held for sale or lease, net (13,533) (26,530)
Increase in spare parts, net (2,747) (3,330)
(Increase) decrease in net deferred income
tax asset (7,526) 862
Increase (decrease) in accounts payable and
accrued liabilities 4,940 (21,386)
Increase in income taxes payable 23,509 3,440
-------- --------
Net cash from operating activities $ 261,470 $ 68,890
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
PAGE
<PAGE>
FORM 10-Q
PAGE 6
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PREPARATION
- -----------------------------
The accompanying consolidated financial statements of Storage Technology
Corporation and its subsidiaries (StorageTek or the Company) have been
prepared in accordance with the Securities and Exchange Commission
requirements for Form 10-Q. In the opinion of management, these statements
reflect all adjustments necessary for the fair presentation of results for
the periods presented, and such adjustments are of a normal, recurring
nature. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 29, 1995.
NOTE 2 - INVENTORIES
- --------------------
Inventories consist of the following (in thousands of dollars):
03/29/96 12/29/95
------------------------
Raw Materials $ 91,951 $ 75,673
Work-In-Process 93,784 92,487
Finished Goods 52,814 46,393
------- -------
$238,549 $214,553
======= =======
NOTE 3 - LITIGATION
- -------------------
On June 10, 1993, the Company filed suit against EMC Corp. in U.S. District
Court for the District of Colorado. The suit alleged infringement by EMC
Corp. of a patent pertaining to the Company's disk storage technology. The
complaint asked the court to impose injunctive relief, treble damages in an
unspecified amount, and an award of attorney fees and costs. EMC Corp.
filed an answer and counterclaim on July 20, 1993, alleging, among other
things, patent misuse by StorageTek and seeking the invalidation of the
Company's patents, damages in an unspecified amount and an award of attorney
fees, costs and interest.
On September 23, 1994, EMC Corp. filed suit in U.S. District Court in
Wilmington, Delaware, alleging infringement of a patent pertaining to disk
storage technology. The complaint asked the court to impose injunctive
relief, treble damages in an unspecified amount and an award of attorney
fees and costs. On December 22, 1994, the Company filed a counterclaim for
infringement of one of its patents and, in November 1995, added a second
patent to its counterclaim.
On April 16, 1996, the Company and EMC Corp. settled the above suits filed
on June 10, 1993 and September 23, 1994, and each of the related
counterclaims. The settlement includes a cross-licensing agreement limited
to patents covering rotating and solid-state direct access storage device
technologies.
PAGE
<PAGE>
FORM 10-Q
PAGE 7
In January 1994, Stuff Technology Partners II, a Colorado Limited
Partnership (Stuff), filed suit in Boulder County, Colorado, District Court
against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties. The suit sought injunctive relief and
damages in the amount of $2,400,000,000. On December 28, 1995 the court
dismissed the complaint. Stuff has appealed the dismissal to the Colorado
Court of Appeals. In April 1996, the trial court stayed discovery on the
Company's counterclaim for breach of the covenant not to sue pending
resolution of the appeal.
On February 15, 1994, the Company filed suit in Boulder County, Colorado,
District Court against Array Technology Corporation (Array) and Tandem
Computers Incorporated (Tandem). The suit asked that the court order Array
and Tandem to either support certain disk drives purchased from them or
provide the Company with technical data necessary for StorageTek to provide
such customer support. In March 1994, Array and Tandem filed their answer
and also filed counterclaims against the Company alleging breach of contract
and claiming damages. On June 10, 1994, the court ordered Array and Tandem
to continue to provide support for these products and to maintain, in an
independent escrow account, the materials necessary to enable the Company to
support the products in the event Array and Tandem failed to provide such
services. On May 30, 1995, the Company filed an amended complaint seeking
damages. The case is in the discovery phase. A trial date has been set for
November 1996.
On June 29, 1995, Odetics, Inc. filed a patent infringement suit in the U.S.
District Court for the Eastern District of Virginia against the Company and
two of its customers alleging that the "pass-through" port in certain of the
Company's tape library products infringed U.S. Patent No. 4,779,151 (the
"151 Patent"). The complaint asked the court to impose injunctive relief,
treble damages in an unspecified amount, and an award of attorneys fees and
costs. On February 1, 1996, a jury found that the Company's products did
not infringe the 151 Patent. A notice of appeal to the U.S. Court of
Appeals for the Federal Circuit was filed by Odetics, Inc. on March 8, 1996.
On December 8, 1995, Odetics, Inc. filed a second patent infringement suit
in the U.S. District Court for the Eastern District of Virginia against the
Company. The complaint alleges that the "cartridge access port" in certain
of the Company's tape library products also infringe the 151 Patent. The
complaint seeks injunctive relief, treble damages in an unspecified amount,
and an award of attorneys fees and costs. This case has been stayed pending
the outcome of any appeal to the U.S. Court of Appeals for the Federal
Circuit with respect to the case filed by Odetics, Inc. on June 29, 1995.
In addition, the Company is involved in various other less significant legal
proceedings. The Company believes it has adequate legal defenses with
respect to each of the suits cited above and intends to vigorously defend
against these actions. However, it is reasonably possible that these cases
could result in outcomes unfavorable to the Company. While the Company
currently believes that the amount of the ultimate potential loss would not
be material to the Company's financial position, the outcome of litigation
is inherently difficult to predict. In the event of an adverse outcome, the
ultimate potential loss could have a material effect on the Company's
financial position or reported results of operations in a particular
quarter. An adverse decision, particularly in patent litigation, could
require material changes in production processes and products or result in
the Company's inability to ship products or components found to have
violated third-party patent rights.
PAGE
<PAGE>
FORM 10-Q
PAGE 8
NOTE 4 - SALE OF LEASE ASSETS
- -----------------------------
In March 1996, StorageTek sold all of the issued and outstanding stock of
its wholly owned lease financing subsidiary, StorageTek Financial Services
Corporation (SFSC), as well as the lease assets of certain of the Company's
foreign subsidiaries to Leasetec Corp. (Leasetec). These transactions
resulted in the sale of substantially all of the Company's net investment in
sales-type leases, installment receivables, and equipment held subject to
operating leases. Leasetec assumed approximately $6,000,000 of associated
nonrecourse borrowings and the Company used a portion of the cash proceeds
to retire its remaining nonrecourse borrowings and 9.53% Senior Secured
Notes. The transactions resulted in an extraordinary gain of $9,535,000,
net of applicable taxes of $8,200,000, in the first quarter of 1996. The
increase in net cash from operating activities on the Consolidated Statement
of Cash Flows during the first quarter of 1996, as compared to the first
quarter of 1995, is a result of cash received from the sale of lease assets.
In connection with the transaction, StorageTek and Leasetec formed a
worldwide lease financing alliance to provide lease financing for StorageTek
products. The first customer lease financing transactions with Leasetec
were completed in March 1996.
NOTE 5 - BANKING AND OTHER FINANCING ARRANGEMENTS
- -------------------------------------------------
On March 28, 1996, the Company entered into a new $150,000,000 secured
credit agreement (the Revolver) which expires in May 1998. The interest
rates available under the Revolver depend on the type of advance selected.
The current primary advance rate is the agent bank's prime lending rate plus
0.125% (8.375% as of March 29, 1996). Under the Revolver, the Company is
required to comply with certain financial and other covenants, including
restrictions on the payment of cash dividends on its common stock. As of
March 29, 1996, the Company had no outstanding advances under the Revolver.
On January 29, 1996, the Company entered into a one-year financing agreement
with a bank which provides for the sale of certain U.S. and foreign based
accounts receivable on a recourse basis. This agreement allows for
receivable sales of up to $40,000,000 at any one time and StorageTek's
obligations under the agreement are secured by a letter of credit for the
amount of the receivables sold. The selling price of the receivables is
partially determined based upon foreign currency exchange rates and any
gains or losses on the sales are recognized within marketing, general,
administrative and other income and expense, net, in the Consolidated
Statement of Operations at the time the receivables are sold. As of March
29, 1996, the Company had committed to future cumulative sales of
approximately $206,000,000. Gains and losses associated with the receivable
sales are not expected to have a material effect on the Company's reported
financial results after taking into consideration other transactions
associated with the Company's international operations. Based upon the
Company's past credit and collection experience with respect to the
receivables that it expects to sell, the Company believes that no material
credit risk exists under the recourse provisions of the agreement.
NOTE 6 - EARNINGS PER COMMON SHARE
- ----------------------------------
Fully diluted earnings per common share for the first quarter of 1996
reflects the assumed conversion of the Company's 7% Convertible Subordinated
Debentures and the 8% Convertible Subordinated Debentures, whereas these
convertible securities were either not outstanding or were not dilutive in
the first quarter of 1995.
PAGE
<PAGE>
FORM 10-Q
PAGE 9
NOTE 7 - RESTRUCTURING
- ----------------------
During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and networking businesses. The
restructuring was adopted in an effort to establish a more competitive cost
structure in response to slower revenue growth and increasing price
competition. In connection with the restructuring, the Company is focusing
on its core businesses, outsourcing non-strategic activities, rearchitecting
its distribution processes and accelerating the integration of Network
Systems Corporation (Network Systems).
The following table summarizes the activity associated with the Company's
restructuring reserves during the first quarter of 1996 (in thousands of
dollars):
Employee Lease Other
Severance Abandonments Exit Costs Total
--------------------------------------------------
Balances,
December 29, 1995 $ 42,688 $18,538 $10,172 $ 71,398
Cash payments (13,439) (373) (1,974) (15,786)
Reclassifications 301 (154) 1,222 1,369
------- ------ ------ -------
Balances,
March 29, 1996 $ 29,550 $18,011 $ 9,420 $ 56,981
======= ====== ====== =======
Cash payments during the first quarter of 1996 are primarily the result of a
reduction in the number of employees of approximately 1,300 people.
Reclassifications consist principally of reclassifying a restructuring
accrual as other exit costs of approximately $1,400,000, which was previously
recorded as a direct write-off of a fixed asset. The reclassifications had
no affect on the Company's reported results within the Consolidated
Statement of Operations during the first quarter of 1996. While the
majority of these remaining accruals are expected to result in future cash
outflows, these outflows are not expected to have a material effect on the
Company's liquidity.
PAGE
<PAGE>
FORM 10-Q
PAGE 10
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 29, 1996
CERTAIN STATEMENTS IN THE FOLLOWING DISCUSSIONS REGARDING THE COMPANY'S
FUTURE PRODUCTS AND BUSINESS PLANS, FINANCIAL RESULTS, PERFORMANCE AND
EVENTS ARE FORWARD-LOOKING STATEMENTS AND ARE BASED ON CURRENT EXPECTATIONS.
ACTUAL RESULTS MAY DIFFER MATERIALLY DUE TO A NUMBER OF RISKS AND
UNCERTAINTIES, INCLUDING THE RISKS DETAILED BELOW IN "RISK FACTORS THAT MAY
AFFECT FUTURE RESULTS."
GENERAL
- -------
Storage Technology Corporation (StorageTek or the Company) reported net
income for the first quarter ended March 29, 1996, of $35.1 million on
revenue of $453.5 million, compared to a net loss for the first quarter
ended March 31, 1995, of $8.9 million on revenue of $450.2 million. The
Company's reported net income for the first quarter of 1996 includes an
extraordinary gain of $9.5 million, net of taxes, associated with the sale
of substantially all of the Company's lease assets.
Revenue was largely unchanged during the first quarter of 1996 as compared
to the same period in 1995; however, revenue for the first quarter of 1995
included revenue of approximately $28 million associated with the Company's
midrange business which was sold during 1995. During the first quarter of
1996, the Company received increased revenue and operating profit
contributions from the TimberLine 9490 (TimberLine(R)), a 36-track tape
cartridge subsystem; the PowderHorn 9310 (PowderHorn(R)), an ACS Library; and
the RedWood SD-3 (RedWood(TM)), a high-capacity cartridge subsystem. As
anticipated, revenue from older generation Nearline(R) products, including the
4480 18-track tape cartridge subsystem and 4410 automated cartridge system
(ACS) library, decreased during the quarter. The total storage capacity of
Iceberg 9200 Virtual Storage Facility (Iceberg(R)) subsystems sold by the
Company increased during the quarter, as compared to the same period in
1995. However, revenue from Iceberg decreased slightly during the first
quarter of 1996 due to continued price competition in the online
marketplace. Gross margin from Iceberg increased slightly during the first
quarter of 1996 due to cost savings achieved in connection with the
manufacture of Iceberg. Revenue contribution from networking products also
decreased during the first quarter of 1996, compared to the same period in
1995; however, progress in the Company's restructuring activities resulted
in the realization of cost savings associated with the manufacture of this
product line during the first quarter of 1996.
Improvements in revenue and operating results during the remainder of 1996
are significantly dependent upon increasing market penetration for Iceberg
and achieving market acceptance for the Kodiak 9890 Scaleable Storage
Facility (Kodiak(TM)); as well as achieving ongoing cost savings associated with
the manufacture of these products to offset anticipated price erosion in the
online marketplace. Future results are also dependent upon continued market
penetration of TimberLine, gaining market acceptance for RedWood,
successfully addressing development and distribution issues associated with
the Company's networking products, introducing planned technological
improvements to the Company's online products, and the effective
implementation of significant business restructuring activities initiated
during the
PAGE
<PAGE>
FORM 10-Q
PAGE 11
fourth quarter of 1995. For discussion of these factors and other risk
factors, see "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS," below.
The Company's cash balances increased $168.4 million during the first
quarter of 1996 primarily as a result of net cash proceeds generated from
the sale of substantially all of the Company's lease assets. See
"EXTRAORDINARY GAIN," below, for further discussion of the lease asset sale.
The following table, stated as a percentage of total revenue, presents
Consolidated Statement of Operations information and revenue by product line
which includes product sales, service and rental, and software revenue.
Quarter Ended
---------------------
03/29/96 03/31/95
---------------------
Revenue:
Nearline products 65.3% 56.5%
Online products 18.5 21.1
Networking products 10.5 11.4
Other products 5.7 11.0
----- -----
Total revenue 100.0 100.0
Cost of revenue 57.2 64.0
----- -----
Gross profit 42.8 36.0
Research and product development costs 11.0 10.7
Marketing, general, administrative and
other income and expense, net 23.8 24.2
Merger expenses 3.2
----- -----
Operating profit (loss) 8.0 (2.1)
Interest income (expense) , net (0.3) 0.3
----- -----
Income (loss) before income taxes
and extraordinary item 7.7 (1.8)
Provision for income taxes (2.1) (0.2)
----- -----
Income (loss) before extraordinary item 5.6 (2.0)
Extraordinary gain on sale of lease assets,
net of income taxes 2.1
----- -----
Net income (loss) 7.7% (2.0)%
===== =====
REVENUE
- -------
NEARLINE PRODUCTS
Revenue from Nearline products increased 16% in the first quarter of 1996
compared to the same period in 1995, primarily due to a significant increase
in revenue from TimberLine; PowderHorn; and RedWood, which was introduced in
the first quarter of 1995. As anticipated, revenue from earlier generation
Nearline products, such as the 4480 18-track cartridge subsystem and the
4400 ACS library declined in the first quarter of 1996, compared to the
first quarter of 1995. Revenue from the Silverton 4490 36-track cartridge
subsystem was largely unchanged as compared to the first quarter of 1995.
PAGE
<PAGE>
FORM 10-Q
PAGE 12
Future results of the Nearline product line are significantly dependent upon
the continued success of TimberLine and PowderHorn, and gaining market
acceptance for RedWood and other new Nearline products, including products
targeted for open-systems markets. Sales of these products are expected to
offset anticipated further declines in revenue from earlier generation
Nearline products. There can be no assurance that RedWood or other new
Nearline products will gain market acceptance in the future.
ONLINE PRODUCTS
Revenue from online products decreased 12% in the first quarter of 1996
compared to the same period in 1995. During the first quarter of 1996, the
Company sold more storage capacity of Iceberg subsystems compared to the
same period in 1995; however, revenue contribution from Iceberg declined
slightly due to rapid price erosion in the online marketplace. The decline
in revenue contribution from online products during the first quarter also
reflects declining service revenue contribution from older online products.
The Company announced the commencement of initial shipments of Kodiak in the
third quarter of 1995; however, Kodiak is not generally available as the
Company continues development efforts associated with the product. As such,
the Company has received no significant revenue contribution from Kodiak
through the first quarter of 1996. There can be no assurance that Kodiak
will be successfully introduced into the marketplace or that it will
generate any significant future revenue.
Future revenue contribution from online products is significantly dependent
upon continued market penetration of Iceberg, achieving market acceptance of
Kodiak, the timely and successful introduction of additional functions and
features for Iceberg and Kodiak, and achieving ongoing cost savings
associated with the manufacture of these products to offset anticipated
price erosion in the online marketplace. While the Company believes the
introduction schedules for additional functions and features are achievable;
there can be no assurances that the schedules will be met, or that these
functions and features will result in additional market acceptance for
Iceberg or Kodiak.
NETWORKING PRODUCTS
Revenue from networking products decreased 7% in the first quarter of 1996
compared to the same period in 1995; however, progress in the Company's
restructuring activities resulted in the realization of cost savings
associated with the manufacture of this product line during the first
quarter of 1996. The decrease in revenue is primarily a result of the
continuation of declines in revenue from older mainframe channel extension
networking products.
Future revenue and operating results from the Company's networking products
are significantly dependent upon successfully expanding the networking
product line, developing new market distribution channels and reducing
operating expenses. The Company is currently in discussions with Northern
Telecom, Inc. concerning the future development direction for the Company's
Enterprise Routing Switch product. There can be no assurance the Company's
networking products will generate any significant profits in the future or
that new products will be successfully and timely developed or gain market
acceptance.
OTHER PRODUCTS
Revenue from other products decreased 47% in the first quarter of 1996 as
compared to the same period in 1995. This decline is primarily the result
of the Company's sale of its net
PAGE
<PAGE>
FORM 10-Q
PAGE 13
investment in sales-type leases associated with its midrange business during
the second quarter of 1995 and the sale of substantially all of the midrange
service business during the third quarter of 1995.
GROSS PROFIT
- ------------
Overall gross profit increased to 43% in the first quarter of 1996, compared
to 36% for the first quarter of 1995, due to an increase in both product
sales margins and service margins.
Gross profit on product sales increased to 41% in the first quarter of 1996,
compared to 37% in the first quarter of 1995. This increase is principally
a result of cost savings achieved in connection with the Company's 1995
restructuring, cost savings associated with increased manufacturing volumes,
incremental profit margin contribution associated with customer lease
financing transactions in March 1996 under the Company's worldwide lease
financing alliance with Leasetec Corp. (Leasetec), and favorable product cost
variances for online and Nearline products during the first quarter of 1996.
Product sales margins also benefited from reduced sales revenue contribution
from lower-margin midrange products as a result of the sale of the midrange
lease assets during the second quarter of 1995. While the continuation of
price declines in the online marketplace resulted in reduced revenue
contribution from Iceberg during the first quarter of 1996, product sales
margins from Iceberg increased as progress was made in reducing product
manufacturing costs.
Gross profit on service and rental revenue increased to 47% for the first
quarter of 1996 compared to 33% for the first quarter of 1995 primarily due
to cost savings associated with the 1995 restructuring and reduced service
revenue contribution from lower-margin midrange service as a result of the
sale of the midrange service business in the third quarter of 1995. In
addition to costs savings associated with the restructuring, certain
organizational functions were realigned within the Company as a result of
the restructuring. This realignment resulted in costs and expenses of
approximately $2.0 million and $1.4 million previously associated with
customer service activities being reported during the first quarter of 1996
as research and product development costs and marketing, general,
administrative and other income and expense, respectively.
The Company's ability to sustain or improve product sales margins during the
remainder of 1996 is significantly dependent upon the rate of price erosion
in the online marketplace, achieving satisfactory volumes associated with
networking products, and achieving further cost savings associated with the
manufacture of its online and networking products. Product sales margins
also may be adversely affected by inventory writedowns resulting from rapid
technological changes and delays in gaining market acceptance for new
products. Service margins also may be affected in the future due to
increased price competition.
RESEARCH AND PRODUCT DEVELOPMENT
- --------------------------------
Research and product development expenditures increased 3% in the first
quarter of 1996, compared to the same period of 1995, and increased as a
percentage of revenue from 10.7% for the first quarter of 1995, to 11% for
the first quarter of 1996. This increase is due primarily to an increase of
approximately $2.0 million as a result of the realignment of certain
organizational functions under the research and development organization
which were previously associated with customer service activities, as well
as a lower level of capitalized
PAGE
<PAGE>
FORM 10-Q
PAGE 14
software development costs as products and enhancements progress through the
development cycle. These increases more than offset cost savings resulting
from the 1995 restructuring.
MARKETING, GENERAL, ADMINISTRATIVE AND OTHER
- --------------------------------------------
Marketing, general, administrative and other income and expense (MG&A and
Other) was largely unchanged in the first quarter of 1996, compared to the
first quarter of 1995, as cost savings associated with the 1995
restructuring were offset by an increase of approximately $1.4 million as a
result of the realignment of certain organizational functions under the
marketing organization which were previously associated with customer
service activities.
INTEREST INCOME AND EXPENSE
- ---------------------------
Interest income decreased 33% in the first quarter of 1996, as compared to
the same period of 1995, due primarily to a reduction in the Company's net
investment in sales-type lease balances. Interest expense decreased 12% in
the first quarter of 1996, as compared to the same period of 1995, due
primarily to a reduction in nonrecourse borrowings and other long-term debt.
These decreases were partially offset by incremental interest expense
associated with the exchange of the Company's 7% Convertible Subordinated
Debentures for its $3.50 Convertible Exchangeable Preferred Stock in the
fourth quarter of 1995.
The reductions in the balances of net investment in sales-type leases and
nonrecourse borrowings noted above, were primarily a result of the sale of
the Company's midrange lease assets and the repayment of the associated
lease borrowings during the second quarter of 1995. It is anticipated that
future levels of both interest income and expense will be further reduced in
future periods as a result of the sale of substantially all of the Company's
net investment in sales-type leases and repayment of its remaining
nonrecourse borrowings and 9.53% Senior Secured Notes in March 1996. These
decreases in interest income and expense are expected to be largely
offsetting and, accordingly, are not expected to materially affect the
Company's profitability.
INCOME TAXES
- ------------
Statement of Financial Accounting Standards (SFAS) No. 109 requires that
deferred income tax assets be recognized to the extent realization of such
assets is more likely than not. The Company evaluates a variety of factors
in determining the amount of the deferred income tax assets to be recognized
pursuant to SFAS No. 109, including the number of years the Company's
operating loss and tax credits can be carried forward, the existence of
taxable temporary differences, the Company's earnings history, the Company's
near-term earnings expectations and possible reductions in the Company's net
operating loss carryforwards as a result of proposed adjustments by the
Internal Revenue Service to the Company's previously filed federal income
tax returns. Based on the currently available information, management has
determined that the Company will more likely than not realize $88.8 million
of deferred income tax assets as of March 29, 1996.
PAGE
<PAGE>
FORM 10-Q
PAGE 15
The Company's provision for income taxes relates primarily to taxes
associated with its operations in Puerto Rico and certain foreign countries,
as well as U.S. state income taxes. The Company's effective tax rate can be
subject to significant fluctuations due to dynamics associated with the mix
of its U.S. and international taxable earnings.
EXTRAORDINARY GAIN
- ------------------
As more fully discussed in Note 4 to the consolidated financial statements,
in March 1996, StorageTek sold substantially all of the Company's net
investment in sales-type leases, installment receivables, and equipment held
subject to operating leases. The sale was a result of the Company's efforts
to focus on the core businesses and outsource its capital intensive lease
financing business. Leasetec assumed approximately $6.0 million of
associated nonrecourse borrowings and the Company used a portion of the cash
proceeds to retire its remaining nonrecourse borrowings and 9.53% Senior
Secured Notes. The transactions resulted in an extraordinary gain of $9.5
million, net of applicable taxes of $8.2 million, in the first quarter of
1996.
RESTRUCTURINGS
- --------------
During the fourth quarter of 1995, the Company adopted a formal action plan
for restructuring its enterprise and networking businesses. The
restructuring was adopted in an effort to establish a more competitive cost
structure in response to slower revenue growth and increasing price
competition. In connection with the restructuring, the Company is focusing
on core businesses and outsourcing non-strategic activities, rearchitecting
its distribution processes and accelerating the integration of Network
Systems.
The following table summarizes the activity associated with the Company's
restructuring reserves during the first quarter of 1996 (in thousands of
dollars):
Employee Lease Other
Severance Abandonments Exit Costs Total
--------------------------------------------------
Balances,
December 29, 1995 $ 42,688 $18,538 $10,172 $ 71,398
Cash payments (13,439) (373) (1,974) (15,786)
Reclassifications 301 (154) 1,222 1,369
------- ------ ------ -------
Balances,
March 29, 1996 $ 29,550 $18,011 $ 9,420 $ 56,981
======= ====== ====== =======
Cash payments during the first quarter of 1996 are primarily the result of a
reduction in the number of employees of approximately 1,300 people.
Reclassifications consist principally of reclassifying a restructuring
accrual as other exit costs of approximately $1.4 million, which was
previously recorded as a direct write-off of a fixed asset. The
reclassifications had no affect on the Company's reported results within the
Consolidated Statement of Operations during the first quarter of 1996.
While the majority of these remaining accruals are expected to result in
future cash outflows, these outflows are not expected to have a material
effect on the Company's liquidity.
PAGE
<PAGE>
FORM 10-Q
PAGE 16
The restructuring is expected to yield expense reductions on an annual basis
through the elimination of recurring costs of approximately $125 million.
The Company does not expect to realize the full benefit of the expense
reductions until the second half of 1997 when all associated restructuring
activities are expected to be completed. While the Company is evaluating
various outsourcing and automation projects in order to gain further
improvements in operating efficiencies, the Company does not anticipate that
any material incremental costs have been or will be incurred as part of the
restructuring which would offset the anticipated expense reductions.
The Company believes that its restructuring programs have eliminated certain
non-essential functions and excess costs. Based on current short- and long-
term forecasts, the Company believes that such cost reductions will benefit
future operations. While the Company does not currently foresee any
significant additional restructuring charges in the near future, the
successful implementation of the action plans associated with the Company's
restructuring during 1996 and 1997 is critical to achieving improved
operating results in future periods. There can be no assurance that the
anticipated expense reductions will be achieved, or that the Company's
restructuring activities will otherwise be successful or sufficient to allow
the Company to generate improved operating results in future periods. It is
possible that changes in the Company's business or in its industry may
necessitate future restructuring charges, which may be significant.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
The Company's cash balances increased $168.4 million from December 29, 1995,
to March 29, 1996. The increase in cash during the first quarter of 1996
primarily resulted from cash generated from operations of $261.5 million
which was partially offset by net repayments of nonrecourse borrowings and
other debt of $94.2 million. The increase in net cash from operating
activities during the first quarter of 1996, as compared to the first
quarter of 1995, is a result of cash received from the sale of lease assets,
partially offset by cash payments associated with the 1995 restructuring.
In connection with the sale of lease assets, the Company used a portion of
the cash proceeds to retire its remaining nonrecourse borrowings and its
9.53% Senior Secured Notes. Net cash from operating activities of $68.9
million during the first quarter of 1995 included collections of income tax
refunds and associated interest by Network Systems from the Internal Revenue
Service of $18.9 million.
The current ratio increased to 2.2 as of March 29, 1996, from 1.8 as of
December 29, 1995. Accounts receivable increased from $396.5 million as of
December 29, 1995, to $423.2 million as of March 29, 1996, due primarily to
a receivable from Leasetec of $47 million associated with customer lease
financing transactions which was subsequently collected in April 1996.
Inventories increased from $214.6 million as of December 29, 1995, to $238.5
million as of March 29, 1996.
AVAILABLE FINANCING LINES
On March 28, 1996, the Company entered into a new $150 million secured
credit agreement (the Revolver) which expires in May 1998. The interest
rates available under the Revolver depend on the type of advance selected.
The current primary advance rate is the agent bank's prime lending rate plus
0.125% (8.375% as of March 29, 1996). Under the Revolver, the Company is
required to comply with certain financial and other covenants, including
PAGE
<PAGE>
FORM 10-Q
PAGE 17
restrictions on the payment of cash dividends on its common stock. As of
March 29, 1996, the Company had no outstanding advances under the Revolver.
On January 29, 1996, the Company entered into a one-year agreement with a
bank which provides for the sale of certain U.S. and foreign based accounts
receivable on a recourse basis. This agreement allows for receivable sales
of up to $40 million at any one time and StorageTek's obligations under the
agreement are secured by a letter of credit for the amount of the
receivables sold. The selling price of the receivables is partially
determined based upon foreign currency exchange rates and any gains or
losses on the sales are recognized within MG&A and Other in the Consolidated
Statement of Operations at the time the receivables are sold. As of March
29, 1996, the Company had committed to future cumulative sales of
approximately $206 million. Gains and losses associated with the receivable
sales are not expected to have a material effect on the Company's reported
financial results after taking into consideration other transactions
associated with the Company's international operations.
After consideration of the factors noted above which potentially affect the
Company's future liquidity, the Company believes it has adequate working
capital and financing capabilities to meet its anticipated operating and
capital requirements for the next 12 months. Over the longer term, the
Company intends to continue to commit substantial amounts of its resources
to research and development projects and may, from time to time, as market
and business conditions warrant, invest in or acquire complementary
businesses, products or technologies. The Company may seek to fund these
activities or possible transactions through the issuance of additional
equity or debt. The issuance of equity or convertible debt securities could
result in dilution to the Company's stockholders. There can be no assurance
that such additional financing, if required, can be completed on terms
acceptable to the Company.
TOTAL DEBT-TO-CAPITALIZATION
The Company's debt-to-capitalization ratio decreased from 32% as of December
29, 1995, to 26% as of March 29, 1996. The decrease resulted from the
repayment of nonrecourse borrowings and certain other debt associated with
the sale of lease assets to Leasetec.
REPAYMENT OBLIGATIONS AND CONVERSION FEATURES
Pursuant to the indenture related to the Company's 8% Convertible
Subordinated Debentures due 2015 (8% Convertible Debentures), the Company is
required to make semiannual interest payments on the $145.6 million
principal amount of the 8% Convertible Debentures outstanding. The 8%
Convertible Debentures are unsecured, subordinated obligations of the
Company and are currently convertible at the option of the holder into
common stock at a price of $35.25 per share. The 8% Convertible Debentures
are currently redeemable at the option of the Company at a premium of 4.0%,
and are redeemable at decreasing premiums through May 30, 2000. The Company
is required to make annual principal payments of $8 million, plus accrued
interest, into a sinking fund beginning May 31, 2000, to provide for the
retirement of 75% of the 8% Convertible Debentures prior to their maturity
on May 31, 2015. 8% Convertible Debentures purchased by the Company in the
open market and 8% Convertible Debentures converted to common stock may be
applied to the sinking fund requirements. As of March 29, 1996, the Company
held 8% Convertible Debentures in the principal amount of $14.4 million
available for sinking fund payments.
PAGE
<PAGE>
FORM 10-Q
PAGE 18
Pursuant to the indenture related to the Company's 7% Convertible
Subordinated Debentures due 2008 (7% Convertible Debentures), the Company is
required to make semiannual interest payments on the $171.1 million
principal amount of the 7% Convertible Debentures outstanding. The 7%
Convertible Debentures are unsecured, subordinated obligations of the
Company and are currently convertible at the option of the holder into
common stock at a price of $23.50 per share. The 7% Convertible Debentures
are pari parsu with the Company's 8% Convertible Debentures. The 7%
Convertible Debentures are currently redeemable, in whole or in part, at the
option of the Company at a premium of 4.9%, and are redeemable at decreasing
premiums through March 15, 2003. The Company is required to make annual
payments into a sinking fund beginning March 15, 2003, in the amount of
$17.1 million to provide for the retirement of 50% of the 7% Convertible
Debentures prior to their maturity on March 15, 2008. 7% Convertible
Debentures purchased by the Company in the open market and 7% Convertible
Debentures converted to common stock may be applied to the sinking fund
requirements. As of March 29, 1996, the Company held no 7% Convertible
Debentures available for sinking fund payments.
INTERNATIONAL OPERATIONS AND HEDGING ACTIVITIES
- -----------------------------------------------
In 1995, approximately 41% of the Company's revenue was generated by its
international operations. The majority of the Company's international
operations involve transactions denominated in the local currencies of
countries within Western Europe, principally Germany, France and the United
Kingdom; Japan; Canada and Australia. An increase in the exchange value of
the U.S. dollar reduces the value of revenue and profits generated by the
Company's international operations. As a result, the Company's operations
and financial results can be materially affected by changes in foreign
currency exchange rates.
In an attempt to mitigate the impact of foreign currency fluctuations, the
Company employs a hedging program which takes into account operating and
financing activities to reduce exposures and utilizes foreign currency
options and forward exchange contracts. The Company utilizes foreign
currency options, generally with maturities of less than one year, to hedge
a portion of its exposure to exchange-rate fluctuations in connection with
anticipated revenue from its international operations. Gains and losses on
the options are deferred and recognized as an adjustment to the hedged
revenue. The Company also utilizes forward exchange contracts, generally
with maturities of less than two months, to hedge its exposure to exchange-
rate fluctuations in connection with net monetary assets held in foreign
currencies. The forward contracts are marked-to-market each month with any
gains or losses recognized within MG&A and Other as an adjustment to the
foreign exchange gains and losses on the translation of net monetary assets.
See "RISK FACTORS THAT MAY AFFECT FUTURE RESULTS - INTERNATIONAL SALES AND
OPERATIONS," below, for further discussion of other factors which may affect
the Company's international operations.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
- -------------------------------------------
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The successful and timely development of new products, software applications
and enhancements play a key role in determining the Company's results of
operations and competitive strength. During the past several years, the
Company has introduced many key products including TimberLine, RedWood,
PowderHorn, and Iceberg. The Company plans to introduce new products
PAGE
<PAGE>
FORM 10-Q
PAGE 19
and enhancements in the future that it believes will be key to its financial
strength and competitiveness. In the past, the Company has encountered
defects which have delayed the introduction of key new products and
enhancements, and the manufacture of existing products. These delays have,
from time to time, adversely affected the Company's financial results and
competitive position in the market. There can be no assurances that the
Company will not encounter product delays or that despite intensive testing
by the Company, flaws in design or production will not occur in the future.
Delays and design flaws could result in the Company experiencing a rate of
failure in its products that delay the shipment or sale of its products,
trigger substantial repair or replacement costs, excessive warranty claims
and damage to the Company's reputation and have a material adverse effect
upon the Company's financial results.
The market for the Company's products is characterized by rapid
technological advances and changes in customer demand which necessitate
frequent product introductions and enhancements. These factors can result
in unpredictable product transitions, shortened product life cycles, and can
render existing products obsolete or unmarketable. The Company must make
significant investments in research and product development and successfully
introduce competitive new products and enhancements on a timely basis. In
the past, delays associated with the development and introduction of new
products have resulted in the Company incurring significant accounting
charges to reflect the impaired values of associated business acquisitions,
inventory, and other product-line specific assets. There can be no
assurance that new products developed by the Company will be accepted in the
marketplace. Moreover, certain components of the Company's products operate
near the present limits of electronic and physical performance capabilities
and are designed and manufactured with relatively small tolerances.
DEPENDENCE ON IBM SYSTEMS
Many of the Company's products are designed to be compatible with certain
IBM operating systems and many of its products function like IBM equipment
due to the significance of the IBM computer operating environments. Future
revenue from products and services is therefore dependent on the
marketplace's continued widespread acceptance of and IBM's continued support
of these products. While the Company believes that customers will continue
to use, and IBM will continue to support, these operating systems and
products, there can be no assurances of such continued use and support. A
significant shift away from the mainframe environment or modifications in
the design or configuration of IBM computers may have a material adverse
effect on the Company's business.
INTENSE COMPETITION; PRICING PRESSURES
The Company competes with a number of large multinational companies that
have substantially greater resources than the Company's, including IBM,
Fujitsu Ltd., and Hitachi, Ltd., as well as similarly sized companies,
including Amdahl Corp. and EMC Corp. In addition, competition could be
affected by cooperative alliances and relationships with competitors and
prospective customers that may emerge and rapidly acquire market share.
Increased competition may result in price reductions, reduced margins and
declining market share, which may have a material adverse effect on the
Company's business and financial results. Industry estimates currently show
that while demand for online storage capacity in the enterprise marketplace
is expected to increase in 1996, price erosion is expected to more than
offset this growth in demand.
In the networking marketplace, the Company competes with a number of
companies that have a greater market presence, including 3Com Corp., Cisco
Systems, Inc., Cabletron Systems, Inc. and Bay Networks, Inc. In 1995, the
operating results of the Company's networking product line did not
PAGE
<PAGE>
FORM 10-Q
PAGE 20
meet its expectations due to difficulties encountered with the integration
of Network Systems, and delays in the development of new products. Future
revenue and operating results from networking products are significantly
dependent upon successfully expanding the networking product line,
developing new market distribution channels and reducing operating expenses.
There can be no assurance that the Company's networking product line will
generate any significant future profits. The Company's inability to
successfully and timely develop and introduce new network products and
product enhancements, expand its market penetration, and improve the margins
on its network products through effective cost controls could have a
material adverse effect on the Company's future business and financial
results.
The Company is adapting its product offerings for, and intensifying its
activities in, the client-server arena in response to the migration toward
shared data storage. The Company's ability to compete in the client-server
systems market depends on a number of factors within and outside its
control, including the timely introduction, performance, marketing and
distribution of new and adapted products for the client-server market
introduced by the Company and its competitors. There can be no assurance
that the Company will be successful in timely developing and marketing
products for the expanding client-server marketplace.
INTELLECTUAL PROPERTY
The Company's competitive strength is affected by its ability to protect its
proprietary information. StorageTek protects its intellectual property
rights through a combination of patents, trademarks, copyrights,
confidentiality procedures, trade secret laws and licensing arrangements.
The Company's policy is to apply for patents, or other appropriate
proprietary or statutory protection when it develops new or improved
technology that is important to its business. Such protection, however, may
not preclude competitors from developing products similar to the Company's
products. In addition, competitors may attempt to restrict the Company's
ability to compete by advancing various intellectual property law theories
which could, if enforced by the courts, restrict the Company's ability to
develop and manufacture interoperable products. Also, the laws of certain
foreign countries do not protect the Company's intellectual property rights
to the same extent as the laws of the United States. The Company also
relies on certain technology that is licensed from others. The Company is
unable to predict whether these license arrangements can be renewed on terms
acceptable to the Company. The Company's intellectual property rights are
material to the Company's business. The failure to successfully protect its
intellectual property rights or obtain licenses from others as needed could
have a material adverse effect on the Company's business and financial
results.
The high technology industry is characterized by vigorous pursuit and
protection of intellectual property rights or positions, which in some
instances has resulted in significant litigation that is often protracted
and expensive. Litigation by or against the Company could result in
significant expense and divert the efforts of the Company's technical and
management personnel, whether or not such litigation results in any
determination unfavorable to the Company. In the event of an adverse result
in any such litigation, the Company could be required to pay substantial
damages, cease the manufacture, use and sale of infringing products, expend
significant resources to develop non-infringing technology, discontinue the
use of certain processes, enter into royalty arrangements, or obtain
licenses to the infringing technology. There can be no assurances that the
Company would be successful in such development or that such license or
royalty arrangements would be available on reasonable terms, or at all, and
any such development or license could require expenditures by the Company of
substantial time and other resources. The Company has, from time to time,
commenced actions against other companies to protect or enforce its
intellectual property rights.
PAGE
<PAGE>
FORM 10-Q
PAGE 21
Similarly, the Company has, from time to time, been notified that it may be
infringing certain patent or other intellectual property rights of others.
In early 1996, the Company settled certain legal proceedings with one of its
competitors in the online market and entered into a cross-licensing
agreement covering its online products. The Company is currently involved
in several other proceedings relating to its intellectual property. See
Note 3 of notes to consolidated financial statements for additional
information with respect to the Company's legal proceedings.
INTERNATIONAL REVENUE AND OPERATIONS
During 1995, approximately 41% of the Company's revenue was derived from
sales and service in markets outside the United States, primarily in Europe.
The Company expects that international revenue will continue to account for
a significant portion of its revenue for the foreseeable future. During
1995, the Company commenced manufacturing operations in Toulouse, France and
is expanding the volume of its production at this facility. The Company's
international business may be affected by changes in demand resulting from
localized economic and market conditions. For example, in the past, the
Company's business has been adversely affected by recessions in Europe. In
addition, the Company is subject to the risks of conducting business outside
the United States, including fluctuations in foreign currency exchange
rates, changes in or impositions of legislative or regulatory requirements,
tariffs, quotas, difficulty in obtaining export licenses, potentially
adverse taxes, the burdens of complying with a variety of foreign laws and
other factors outside the Company's control. In addition, the laws of
certain foreign countries in which the Company's products are or may be
manufactured or sold may not protect the Company's intellectual property
rights to the same extent as the laws of the United States. To date, the
Company has not experienced any material adverse effects on its operations
as a result of the foregoing factors. There can be no assurances, however,
that one or more of the foregoing factors will not have a material adverse
effect on the Company's business or financial results in the future.
MANUFACTURING RISKS; DEPENDENCE ON SUPPLIERS
The Company generally uses standard parts and components for its products
and believes that, in most cases, there are a number of alternative,
competent vendors for most of those parts and components. However, the
Company purchases certain important components and products from single
suppliers that the Company believes are currently the only manufacturers of
the particular components that meet the Company's qualification requirements
and other specifications. In addition, the Company manufactures some key
components, or its products include components, for which alternative
sources of supply are not readily available. In the past, certain of the
Company's suppliers have experienced occasional technical, financial or
other problems that have delayed deliveries, without significant effect on
the Company. An unanticipated failure of any sole source supplier to meet
the Company's requirements for an extended period, or an interruption of the
Company's ability to secure comparable components, could have a material
adverse effect on its revenue and results of operations. In the event a
sole source supplier was unable or unwilling to continue to supply
components, the Company would have to identify and qualify other acceptable
suppliers. This process could take an extended period and no assurance can
be given that any additional source would become available or would be able
to satisfy the Company's production requirements on a timely basis.
RESTRUCTURING PLAN
During the fourth quarter of 1995, the Company adopted a formal plan for
restructuring its enterprise and networking businesses. This restructuring
was adopted in an effort to establish a
PAGE
<PAGE>
FORM 10-Q
PAGE 22
more competitive cost structure in response to slower revenue growth and
increasing price competition in the marketplace. In connection with the
restructuring, the Company is focusing on core businesses and outsourcing
non-strategic activities, rearchitecting its distribution processes and the
integration of Network Systems. There can be no assurance that the Company
will achieve anticipated expense reductions, or that the Company's
restructuring activities will otherwise be successful or sufficient to allow
the Company to generate improved operating results in future periods. It is
possible that changes in the Company's business or in its industry may
necessitate future restructuring charges, which may be significant. See
"RESTRUCTURINGS," above, and Note 7 of notes to the consolidated financial
statements for additional information regarding the Company's restructuring
plan.
EARNINGS FLUCTUATIONS
The Company's reported earnings have fluctuated significantly and may
continue to fluctuate significantly from quarter to quarter due to a variety
of factors including, among others, the effects of (i) customers' historical
tendencies to make purchase decisions near the end of the calendar year,
(ii) the timing of the announcement and availability of products and product
enhancements by the Company and its competitors, (iii) fluctuating foreign
currency exchange rates, (iv) changes in the mix of products sold, and (v)
variations in customer acceptance periods for the Company's products.
VOLATILITY OF STOCK PRICE
The trading price of the Company's common stock has fluctuated and in the
future may fluctuate substantially in response to reported earnings,
industry conditions, new product or product development announcements by the
Company or its competitors, announced acquisitions and joint ventures by the
Company or its competitors, general market and economic conditions,
international currency fluctuations and other events or factors. Further,
the volatility of the stock markets in recent years has caused wide
fluctuations in trading prices of stocks of high technology companies
independent of their individual operating results. In the future, the
Company's reported earnings may be below the expectations of stock market
analysts and investors, and in such events, there could be an immediate and
significant adverse effect on the trading price of the Company's common
stock.
PAGE
<PAGE>
FORM 10-Q
PAGE 23
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------
See Part I, Item 3 - Legal Proceedings, of the Company's Form 10-K for the
year ended December 29, 1995, electronically filed with the Commission on
March 11, 1996.
On June 10, 1993, the Company filed suit against EMC Corp. in U.S. District
Court for the District of Colorado. The suit alleged infringement by EMC
Corp. of a patent pertaining to the Company's disk storage technology. The
complaint asked the court to impose injunctive relief, treble damages in an
unspecified amount, and an award of attorney fees and costs. EMC Corp.
filed an answer and counterclaim on July 20, 1993, alleging, among other
things, patent misuse by StorageTek and seeking the invalidation of the
Company's patents, damages in an unspecified amount and an award of attorney
fees, costs and interest.
On September 23, 1994, EMC Corp. filed suit in U.S. District Court in
Wilmington, Delaware, alleging infringement of a patent pertaining to disk
storage technology. The complaint asked the court to impose injunctive
relief, treble damages in an unspecified amount and an award of attorney
fees and costs. On December 22, 1994, the Company filed a counterclaim for
infringement of one of its patents and, in November 1995, added a second
patent to its counterclaim.
On April 16, 1996, the Company and EMC Corp. settled the above suits filed
on June 10, 1993 and September 23, 1994, and each of the related
counterclaims. The settlement includes a cross-licensing agreement limited
to patents covering rotating and solid-state direct access storage device
technologies.
In January 1994, Stuff Technology Partners II, a Colorado Limited
Partnership (Stuff), filed suit in Boulder County, Colorado, District Court
against the Company and certain subsidiaries. The suit alleged that the
Company breached a 1990 settlement agreement that had resolved earlier
litigation between the parties. The suit sought injunctive relief and
damages in the amount of $2,400,000,000. On December 28, 1995, the court
dismissed the complaint. Stuff has appealed the dismissal to the Colorado
Court of Appeals. In April 1996, the trial court stayed discovery on the
Company's counterclaim for breach of the covenant not to sue pending
resolution of the appeal.
Information concerning certain of these legal proceedings is also contained
in Note 3 to the consolidated financial statements identified in Part I of
this Form 10-Q.
In addition, the Company is involved in various other less significant legal
proceedings. The Company believes it has adequate legal defenses with
respect to each of the suits cited above and intends to vigorously defend
against these actions. However, it is reasonably possible that these cases
could result in outcomes unfavorable to the Company. While the Company
currently believes that the amount of the ultimate potential loss would not
be material to the Company's financial position, the outcome of litigation
is inherently difficult to predict. In the event of an adverse outcome, the
ultimate potential loss could have a material effect on the Company's
financial position or reported results of operations in a particular
quarter. An adverse decision, particularly in patent litigation, could
require material changes in production processes and products or result in
the Company's inability to ship products or components found to have
violated third-party patent rights.
PAGE
<PAGE>
FORM 10-Q
PAGE 24
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
*10.1 Second Amendment and Restated Credit Agreement dated as of
March 28, 1996, among the Registrant, Storage Technology de
Puerto Rico, Inc., Bank of America National Trust and
Savings Association and the other financial institutional
parties thereto.
*11.0 Computation of Earnings (Loss) Per Common Share
*27.0 Financial Data Schedule
(b) Reports on Form 8-K
On January 29, 1996, the Company filed a Current Report on
Form 8-K dated January 25, 1996, pursuant to Item 5, concerning
its 1995 financial results as reported in a press release dated
January 25, 1996.
On April 15, 1996, the Company filed a Current Report on Form 8-K
dated March 29, 1996, pursuant to Item 2, concerning the Company's
disposition of certain assets. In March 1996, the Company sold its
lease financing subsidiary, StorageTek Financial Services
Corporation, and certain lease assets held by a number of its
foreign subsidiaries, to Leasetec Corp. In connection with the
Form 8-K, the Company filed historical unaudited pro forma
consolidated financial information, including a balance sheet and
statement of operations, giving effect to the sale of these assets
and the retirement of the associated debt, as if the sale had
occurred on December 29, 1995, for balance sheet purposes and as of
the beginning of the year ended December 29, 1995, for statement of
operations purposes.
- -----------------------------
* Indicates Exhibits filed with this Quarterly Report on Form 10-Q.
PAGE
<PAGE>
FORM 10-Q
PAGE 25
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STORAGE TECHNOLOGY CORPORATION
(Registrant)
May 10, 1996 /s/ DAVID E. WEISS
------------ -----------------------------------
(Date) David E. Weiss
Executive Vice President
and Chief Operating Officer
(Principal Operating Officer)
May 10, 1996 /s/ DAVID E. LACEY
------------ -----------------------------------
(Date) David E. Lacey
Corporate Vice President
and Interim Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
______________________________________________________________________________
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of March 28, 1996
among
STORAGE TECHNOLOGY CORPORATION,
STORAGE TECHNOLOGY DE PUERTO RICO, INC.,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent, Swingline Bank, and
Letter of Credit Issuing Bank and
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
Arranged by
BA SECURITIES, INC.
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS 1
1.1 Certain Defined Terms 1
1.2 Other Interpretive Provisions 21
1.3 Accounting Principles 23
1.4 Effect of this Agreement 23
ARTICLE II
THE CREDITS 23
2.1 Amounts and Terms of Commitment 23
2.2 Loan Accounts 24
2.3 Procedure for Borrowing 24
2.4 Conversion and Continuation Elections 25
2.5 Voluntary Termination or Reduction of Commitments 27
(a) Termination or Reduction of Commitments 27
(b) Automatic Reduction of Swingline Commitment 27
2.6 Optional Prepayments 27
2.7 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions 28
2.8 Repayment 28
2.9 Interest 28
2.10 Swingline Loans 30
2.11 Fees 32
(a) Commitment Fees 32
(b) Upfront Fees 33
2.12 Computation of Fees and Interest 33
2.13 Payments by the Companies 33
2.14 Payments by the Banks to the Agent 34
2.15 Sharing of Payments, Etc. 35
2.16 Security 35
ARTICLE III
THE LETTERS OF CREDIT 36
3.1 The Letter of Credit Subfacility. 36
3.2 Issuance, Amendment and Renewal of Letters of Credit 37
3.3 Existing BofA Letters of Credit; Risk Participations,
Drawings and Reimbursements 39
3.4 Repayment of Participations 41
3.5 Role of the Issuing Bank 42
3.6 Obligations Absolute 43
3.7 Cash Collateral Pledge 44
3.8 Letter of Credit Fees 44
3.9 Uniform Customs and Practice 45
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY 46
4.1 Taxes. 46
4.2 Illegality 47
4.3 Increased Costs and Reduction of Return 48
4.4 Funding Losses 49
4.5 Inability to Determine Rates 49
4.6 Survival 50
4.7 Notice of Claims 50
ARTICLE V
CONDITIONS PRECEDENT 50
5.1 Conditions of Initial Credit Extensions 50
(a) Credit Agreement and Notes 50
(b) Resolutions; Incumbency 50
(c) Organization Documents; Good Standing 50
(d) Legal Opinions 51
(e) Payment of Fees 51
(f) Certificate 51
(g) Collateral Documents 51
(h) Guaranties 52
(i) SFSC Sale 52
(j) Other Documents 52
5.2 Conditions to All Credit Extensions 52
(a) Notice, Application 52
(b) Continuation of Representations and Warranties 52
(c) No Existing Default 52
ARTICLE VI
REPRESENTATIONS AND WARRANTIES 53
6.1 Corporate Existence and Power 53
6.2 Corporate Authorization; No Contravention 53
6.3 Governmental Authorization 54
6.4 Binding Effect 54
6.5 Litigation 54
6.6 No Default 54
6.7 ERISA Compliance 55
6.8 Use of Proceeds; Margin Regulations 55
6.9 Title to Properties 55
6.10 Taxes 56
6.11 Financial Condition 56
6.12 Environmental Matters 56
6.13 Regulated Entities 56
6.14 Copyrights, Patents, Trademarks and Licenses, Etc. 57
6.15 Subsidiaries 57
6.16 Insurance 57
6.17 Full Disclosure 57
6.18 Projections 58
ARTICLE VII
AFFIRMATIVE COVENANTS 58
7.1 Financial Statements 58
7.2 Certificates; Other Information 59
7.3 Notices 59
7.4 Preservation of Corporate Existence, Etc. 60
7.5 Maintenance of Property 60
7.6 Insurance 60
7.7 Payment of Obligations 60
7.8 Compliance with Laws 61
7.9 Compliance with ERISA 61
7.10 Inspection of Property and Books and Records 61
7.11 Use of Proceeds 61
7.12 Disclosure; Further Assurances 61
7.13 Financial Covenants 62
(a) Maintenance of Consolidated Tangible Net Worth 62
(b) Maintenance of Quick Ratio 62
(c) Consolidated Net Income 62
(d) Total Leverage Ratio 63
7.14 Sale of SFSC 63
ARTICLE VIII
NEGATIVE COVENANTS 63
8.1 Limitation on Liens 63
8.2 Disposition of Assets 65
8.3 Consolidations and Mergers 66
8.4 Loans and Investments 67
8.5 Limitation on Subordinated Indebtedness 68
8.6 Transactions with Affiliates 68
8.7 Use of Proceeds 68
8.8 Contingent Obligations 68
8.9 Joint Ventures 69
8.10 Restricted Payments 69
8.11 Subordinated Indebtedness 70
8.13 Change in Business 71
8.14 Accounting Changes 71
ARTICLE IX
EVENTS OF DEFAULT 71
9.1 Event of Default 71
(a) Non-Payment 71
(b) Representation or Warranty 71
(c) Specific Defaults 71
(d) Other Defaults 71
(e) Cross-Default 72
(f) Insolvency; Voluntary Proceedings 72
(g) Involuntary Proceedings 72
(h) ERISA 73
(i) Monetary Judgments 73
(j) Non-Monetary Judgments 73
(k) Change of Control 73
(l) Adverse Change 73
(m) Collateral 73
(n) Guarantor Defaults 74
(o) Invalidity of Subordination Provisions 74
9.2 Remedies 74
9.3 Rights Not Exclusive 75
9.4 Certain Financial Covenant Defaults 75
ARTICLE X
THE AGENT 75
10.1 Appointment and Authorization; "Agent" 75
10.2 Delegation of Duties 76
10.3 Liability of Agent 76
10.4 Reliance by Agent 77
10.5 Notice of Default 77
10.6 Credit Decision 77
10.7 Indemnification of Agent 78
10.8 Agent in Individual Capacity 79
10.9 Successor Agent 79
10.10 Withholding Tax 79
10.11 Collateral Matters 81
ARTICLE XI
MISCELLANEOUS 82
11.1 Amendments and Waivers 82
11.2 Notices 83
11.3 No Waiver; Cumulative Remedies 84
11.4 Costs and Expenses 84
11.5 Company Indemnification 85
11.6 Marshalling; Payments Set Aside 85
11.7 Successors and Assigns 85
11.8 Assignments, Participations, Etc. 86
11.9 Confidentiality 87
11.10 Set-off 88
11.11 Automatic Debits of Fees 88
11.12 Notification of Addresses, Lending Offices, Etc. 89
11.13 Counterparts 89
11.14 Severability 89
11.15 No Third Parties Benefited 89
11.16 Governing Law and Jurisdiction 89
11.17 Waiver of Jury Trial 89
11.18 Joint and Several Obligations; Obligations Absolute 90
11.19 Entire Agreement 92
<PAGE>
SCHEDULES
Schedule 2.1 Commitments and Pro Rata Shares
Schedule 2.11(c) Upfront Fees
Schedule 3.3(a) Existing BofA Letters of Credit
Schedule 6.5 Litigation
Schedule 6.11 Permitted Liabilities
Schedule 6.12 Environmental Matters
Schedule 6.15 Subsidiaries and Minority Interests
Schedule 6.16 Insurance Matters
Schedule 8.1(i) Permitted Liens
Schedule 8.2 Permitted Dispositions
Schedule 8.4(f) Permitted Investments
Schedule 8.8(e) Contingent Obligations
Schedule 11.2 Offshore and Domestic Lending Offices,
Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Legal Opinion of Shearman & Sterling
Exhibit D-2 Form of Legal Opinion of Internal Company
Counsel
Exhibit D-3 Form of Legal Opinion of McConnell Valdes
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
Exhibit G Form of STK Security Agreement
Exhibit H-1 Form of STK Guaranty
Exhibit H-2 Form of STPR Guaranty
Exhibit I Form of Factors Lien Contract
Exhibit J Form of Assignment of Accounts Receivable
Contract
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is entered into
as of March 28, 1996, among Storage Technology Corporation, a Delaware
corporation ("STK"), Storage Technology de Puerto Rico, Inc., a
Delaware corporation ("STPR"), (each a "Company" and collectively the
"Companies"), the several financial institutions from time to time
party to this Agreement (collectively, the "Banks"; individually, a
"Bank"), and Bank of America National Trust and Savings Association,
as swingline bank, letter of credit issuing bank and as agent for the
Banks.
WHEREAS, the Companies, Storagetek Financial Services Corporation
("SFSC"), XL/Datacomp, Inc. ("XL/DC"), the Agent and certain financial
institutions (the "Original Banks") were parties to that certain
Amended and Restated Multicurrency Credit Agreement dated as of
September 28, 1994 (as amended, the "Prior Credit Agreement");
WHEREAS, the Companies have requested that the Banks agree to
amend and restate the Prior Credit Agreement, such that, among other
things, (a) XL/DC and SFSC will not be parties to the amended and
restated agreement, (b) certain new financial institutions (which are
among the "Banks" referred to above) will replace certain of the
Original Banks, and (c) and to provide as otherwise set forth herein;
WHEREAS, the Banks are willing to extend certain credit
facilities to the Companies and to amend and restate the Prior Credit
Agreement as provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties agree as
follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. The following terms have the
following meanings:
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or
indirectly, in (a) the acquisition of all or substantially all of
the assets of a Person, or of any business or division of a
Person, (b) the acquisition of in excess of 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 its Subsidiary is the
surviving entity.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is
under common control with, such Person. A Person shall be deemed
to control another Person if the controlling Person possesses,
directly or indirectly, the power to direct or cause the
direction of the management and policies of the other Person,
whether through the ownership of voting securities, membership
interests, by contract, or otherwise.
"Agent" means BofA in its capacity as agent for the Banks
hereunder, and any successor agent arising under Section 10.9.
"Agent-Related Persons" means BofA and any successor agent
arising under Section 10.9 and any successor letter of credit
issuing bank hereunder, together with their respective Affiliates
(including, in the case of BofA, the Arranger), and the officers,
directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
"Agent's Payment Office" means the address for payments set
forth on Schedule 11.2 or such other address as the Agent may
from time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" has the meaning specified in
Section 2.9(a).
"Arranger" means BA Securities, Inc., a Delaware
corporation.
"Assignee" has the meaning specified in subsection 11.8(a).
"Attorney Costs" means and includes all fees and
disbursements of any law firm or other external counsel, the
allocated cost of internal legal services and all disbursements
of internal counsel.
"Bank" has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include BofA, including
in its capacity as Issuing Bank and Swingline Bank; for purposes
of clarification only, to the extent that BofA may have any
rights or obligations in addition to those of the Banks due to
its status as Issuing Bank and Swingline Bank, its status as such
will be specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50%
per annum above the latest Federal Funds Rate; and (b) the rate
of interest in effect for such day as publicly announced from
time to time by BofA in San Francisco, California, as its
"reference rate." (The "reference rate" is a rate set by BofA
based upon various factors including BofA's costs and desired
return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.)
Any change in the reference rate announced by BofA shall
take effect at the opening of business on the day specified in
the public announcement of such change.
"Base Rate Loan" means a Revolving Loan, a Swingline Loan or
an L/C Advance, that bears interest based on the Base Rate.
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans of the same Type made to any Company on the same
day by the Banks under Article II, or Swingline Loans of the same
Type made to any Company on the same day by the Swingline Bank
under Article II and, in each case, other than for Base Rate
Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs
under Section 2.3.
"Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks in New York City or San
Francisco are authorized or required by law to close and, if the
applicable Business Day relates to any Offshore Rate Loan, means
such a day on which dealings are carried on in the applicable
offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request
or directive of any central bank or other Governmental Authority,
or any other law, rule or regulation, whether or not having the
force of law, in each case, regarding capital adequacy of any
bank or of any corporation controlling a bank.
"Cash Collateralize" means to pledge and deposit with or
deliver to the Agent, for the benefit of the Agent, the Issuing
Bank, the Swingline Bank and the Banks, as additional collateral
for the Obligations, cash or deposit account balances pursuant to
documentation in form and substance satisfactory to the Agent,
the Swingline Bank and the Issuing Bank (which documents are
hereby consented to by the Banks). Derivatives of such term
shall have corresponding meanings. Each Company hereby grants
the Agent, for the benefit of the Agent, the Issuing Bank, the
Swingline Bank and the Banks, a security interest in all such
cash and deposit account balances. Cash collateral shall be
maintained in blocked, non-interest bearing deposit accounts at
BofA.
"CEP Stock" means convertible exchangeable preferred stock
issued by STK on or about March 4, 1993 which was subsequently
exchanged for 7% Convertible Subordinated Debentures of STK on
December 15, 1995 (the "New Convertible Subordinated
Debentures").
"Change of Control" means the occurrence, after the date of
this Agreement, of any of the following: (a) any Person or two or
more Persons acting in concert acquiring beneficial ownership
(within the meaning of Rule 13d-3 of the SEC under the Exchange
Act), directly or indirectly, of securities of STK (or other
securities convertible into such securities) representing 30% or
more of the combined voting power of all securities of STK
entitled to vote in the election of directors; or (b) during any
period of up to 12 consecutive months, commencing after the
Closing Date, individuals who at the beginning of such 12-month
period were directors of STK ceasing for any reason to constitute
a majority of the Board of Directors of STK unless the Persons
replacing such individuals were nominated by the Board of
Directors of STK; or (c) any Person or two or more Persons acting
in concert acquiring by contract or otherwise, or entering into a
contract or arrangement which upon consummation will result in
its or their acquisition of, or control over, securities of STK
(or other securities convertible into such securities)
representing 30% or more of the combined voting power of all
securities of STK entitled to vote in the election of directors.
"Closing Date" means the date on which all conditions
precedent set forth in Section 5.1 are satisfied or waived by all
Banks (or, in the case of subsection 5.1(e), waived by the Person
entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"Collateral" means all property and interests in property
and proceeds thereof now owned or hereafter acquired by the
Companies in or upon which a Lien now or hereafter exists in
favor of the Banks, the Issuing Bank, the Swingline Bank or the
Agent on behalf of the Banks, the Issuing Bank or the Swingline
Bank to secure the Obligations (other than Permitted Swap
Obligations), whether under this Agreement or under any other
documents executed by any such Person and delivered to the Agent
or the Banks in connection herewith.
"Collateral Documents" means, collectively, (a) the Security
Agreements and all other security agreements, patent and
trademark assignments, and other similar agreements between any
Company and the Banks or the Agents for the benefit of the Banks
to secure the Obligations now or hereafter delivered to the Banks
or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable
documents now or hereafter filed in accordance with the Uniform
Commercial Code or comparable law) against any Company as debtor
in favor of the Banks or the Agent for the benefit of the Banks
as secured party to secure the Obligations, and (b) any
amendments, supplements, modifications, renewals, replacements,
consolidations, substitutions and extensions of any of the
foregoing.
"Commitment", as to each Bank, has the meaning specified in
Section 2.1.
"Compliance Certificate" means a certificate substantially
in the form of Exhibit C.
"Consolidated" and any derivative thereof each means, with
reference to the accounts or financial reports of any Person, the
consolidated accounts or financial reports of such Person and
each Subsidiary of such Person determined in accordance with
GAAP.
"Contingent Obligation" means, as to any Person, any direct
or indirect liability of that Person, whether or not contingent,
with or without recourse, (a) with respect to any Indebtedness,
lease, dividend, letter of credit or other obligation (the
"primary obligations") of another Person (the "primary obligor"),
including any obligation of that Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any
security therefor, (ii) to advance or provide funds for the
payment or discharge of any such primary obligation, or to
maintain working capital or equity capital of the primary obligor
or otherwise to maintain the net worth or solvency or any balance
sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make
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 primary purpose of the
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, shall be equal to the
maximum reasonably anticipated liability in respect thereof.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any
agreement, undertaking, contract, indenture, mortgage, deed of
trust or other instrument, document or agreement to which such
Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which,
under Section 2.4, any Company (a) converts Loans of one Type to
another Type, or (b) continues as Loans of the same Type, but
with a new Interest Period, Loans having Interest Periods
expiring on such date.
"Convertible Subordinated Debentures" means the $160,000,000
8% Convertible Subordinated Debentures issued by STK pursuant to
the Indenture dated as of May 31, 1990, between STK and Chemical
Trust Company of California, as trustee, as such Indenture may be
amended from time to time.
"Credit Extension" means and includes (a) the making of any
Revolving Loans or Swingline Loans hereunder, and (b) the
Issuance of any Letters of Credit hereunder (including the
Existing BofA Letters of Credit).
"Current Liabilities" of any Person means, as of any date of
determination, all liabilities (including estimated accrued
taxes) of such Person (including, in the case of the Companies,
100% of any Indebtedness (other than contingent Guaranty
Obligations) consisting of Loans or Swingline Loans made under
this Agreement and 50% of the face amount of all Letters of
Credit outstanding under this Agreement) which in accordance with
GAAP should be classified as current liabilities of a company
conducting a business which is the same as, or is similar to,
that of such Person, including the amount of any redeemable
preferred stock of such Person that is redeemable at the option
of the holder thereof or that is mandatorily redeemable by such
Person within one year of such date of determination, valued at
the applicable redemption price, plus accrued and unpaid
dividends payable in respect of such redeemable preferred stock.
"Current Liquid Assets" of any Person means, as of any date
of determination, all cash, short-term investments, accounts
receivable, and the current portion of notes and installment
receivables, in each case as shown on the most recent balance
sheet of such Person and determined in accordance with GAAP.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured
or otherwise remedied during such time) constitute an Event of
Default.
"Dollars," "dollars" and "$" each mean lawful money of the
United States.
"Domestic Subsidiaries" means those Subsidiaries of any
Company which are incorporated under the laws of any State of the
United States or Puerto Rico and which are engaged in business
primarily in the United States or Puerto Rico.
"Effective Amount" means (a) with respect to any Revolving
Loans or Swingline Loans, as the case may be, on any date, the
aggregate outstanding principal amount thereof after giving
effect to any Borrowings and prepayments or repayments of
Revolving Loans or Swingline Loans occurring on such date; and
(b) with respect to any outstanding L/C Obligations on any date,
the amount of such L/C Obligations on such date after giving
effect to any Issuances of Letters of Credit occurring on such
date and any other changes in the aggregate amount of the L/C
Obligations as of such date, including as a result of any
reimbursements of outstanding unpaid drawings under any Letters
of Credit or any reductions in the maximum amount available for
drawing under Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and
having a combined capital and surplus of at least $200,000,000;
(b) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political
subdivision of any such country, and having a combined capital
and surplus of at least $200,000,000, provided that such bank is
acting through a branch or agency located in the United States;
and (c) a Person that is primarily engaged in the business of
commercial banking and that is (i) a Subsidiary of a Bank, (ii) a
Subsidiary of a Person of which a Bank is a Subsidiary, or
(iii) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted,
by any Governmental Authority or other Person alleging potential
liability or responsibility for violation of any Environmental
Law, or for release or injury to the environment.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and
codes, together with all administrative orders, directed duties,
requests, licenses, authorizations and permits of, and agreements
with, any Governmental Authorities, in each case relating to
environmental, health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or
not incorporated) under common control with any Company within
the meaning of Section 414(b) or (c) of the Code (and Sections
414(m) and (o) of the Code for purposes of provisions relating to
Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by any Company or any ERISA
Affiliate from a Pension Plan subject to Section 4063 of ERISA
during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of
operations which is treated as such a withdrawal under
Section 4062(e) of ERISA; (c) a complete or partial withdrawal by
any Company or any ERISA Affiliate from a Multiemployer Plan or
notification that a Multiemployer Plan is in reorganization; (d)
the filing of a notice of intent to terminate, the treatment of a
Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to
terminate a Pension Plan or Multiemployer Plan; (e) an event or
condition which might reasonably be expected to constitute
grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon any Company or any
ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in
the definition of "Offshore Rate."
"Event of Default" means any of the events or circumstances
specified in Section 9.1.
"Exchange Act" means the Securities Exchange Act of 1934,
and regulations promulgated thereunder.
"Existing BofA Letters of Credit" means the letters of
credit described in Schedule 3.3(a).
"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal
functions.
"Federal Funds Rate" means, for any day, the rate set forth
in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of
New York (including any such successor, "H.15(519)") on the
preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the
rates for the last transaction in overnight Federal funds
arranged prior to 9:00 a.m. (New York City time) on that day by
each of three leading brokers of Federal funds transactions in
New York City selected by the Agent.
"Foreign Subsidiaries" means those Subsidiaries of any
Company which are not Domestic Subsidiaries.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its
principal functions.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the
circumstances as of the date of determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank
(or similar monetary or regulatory authority) thereof, any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government, and any
corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranties" means the STK Guaranty and the STPR Guaranty.
"Guarantor" means each of the Companies in their capacities
as guarantors.
"Guaranty Obligation" has the meaning specified in the
definition of "Contingent Obligation."
"Honor Date" means each date that any amount is paid by the
Issuing Bank under any Letter of Credit.
"Indebtedness" of any Person means, without duplication,
(a) all indebtedness for borrowed money; (b) all obligations
issued, undertaken or assumed as the deferred purchase price of
property or services (other than trade payables entered into in
the ordinary course of business on ordinary terms); (c) all non-
contingent reimbursement or payment obligations with respect to
Surety Instruments; (d) all obligations evidenced by notes,
bonds, debentures or similar instruments, including obligations
so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or
arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect
to property acquired by the Person (even though the rights and
remedies of the seller or bank under such agreement in the event
of default are limited to repossession or sale of such property);
(f) all obligations with respect to capital leases; (g) all
indebtedness referred to in clauses (a) through (f) above secured
by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon
or in property (including accounts and contracts rights) owned by
such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness; and (h) all Guaranty
Obligations in respect of indebtedness or obligations of others
of the kinds referred to in clauses (a) through (g) above.
Provided, Indebtedness shall not include sales of Permitted
Receivables (and books, records and software relating to the
Permitted Receivables) sold pursuant to the Permitted Receivables
Purchase Facility and recourse or repurchase obligations
thereunder. For all purposes of this Agreement, the Indebtedness
of any Person shall include all recourse Indebtedness of any
partnership or joint venture or limited liability company in
which such Person is a general partner or a joint venturer or a
member.
"Indemnified Liabilities" has the meaning specified in
Section 11.5.
"Indemnified Person" has the meaning specified in
Section 11.5.
"Independent Auditor" has the meaning specified in
subsection 7.1(a).
"Insolvency Proceeding" means, with respect to any Person,
(a) any case, action or proceeding with respect to such Person
before any court or other Governmental Authority relating to
bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief of debtors, or
(b) any general assignment for the benefit of creditors,
composition, marshalling of assets for creditors, or other,
similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; in each case undertaken
under U.S. Federal, state or foreign law, including the
Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a
Base Rate Loan, the last day of each Interest Period applicable
to such Loan, as to any Base Rate Loan other than a Swingline
Loan, the last Business Day of each calendar quarter and each
date such Loan is converted into another Type, and as to any Base
Rate Loans which are Swingline Loans, the Business Day agreed
upon by the Company which has made the Borrowing and the
Swingline Bank which shall not be later than the seventh Business
Day following the Borrowing Date thereof; provided, however, that
if any Interest Period for an Offshore Rate Loan exceeds three
months, the date that falls three months after the beginning of
such Interest Period and after each Interest Payment Date
thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into
or continued as an Offshore Rate Loan, and ending on the date
one, two, three or six months thereafter as selected by any
Company in its Notice of Borrowing or Notice of Conversion/
Continuation;
provided that:
(a) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
(b) any Interest Period that begins on the last Business
Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the
end of such Interest Period) shall end on the last Business
Day of the calendar month at the end of such Interest
Period; and
(c) no Interest Period for any Loan shall extend beyond the
Revolving Termination Date.
"IRS" means the Internal Revenue Service, and any
Governmental Authority succeeding to any of its principal
functions under the Code.
"Issuance Date" has the meaning specified in subsection
3.1(a).
"Issue" means, with respect to any Letter of Credit, to
incorporate the Existing BofA Letters of Credit into this
Agreement, or to issue or to extend the expiry of, or to renew or
increase the amount of, such Letter of Credit; and the terms
"Issued," "Issuing" and "Issuance" have corresponding meanings.
"Issuing Bank" means BofA in its capacity as issuer of one
or more Letters of Credit hereunder, together with any
replacement letter of credit issuer arising under subsection
10.1(b) or Section 10.9.
"Joint Venture" means a single-purpose corporation,
partnership, limited liability company, joint venture or other
similar legal arrangement (whether created by contract or
conducted through a separate legal entity) now or hereafter
formed by any Company or any of its Subsidiaries with another
Person in order to conduct a common venture or enterprise with
such Person.
"L/C Advance" means each Bank's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C Amendment Application" means an application for
amendment of outstanding standby or commercial documentary
letters of credit, in the form as shall at any time be in use at
the Issuing Bank, as the Issuing Bank shall reasonably request.
"L/C Application" means an application for issuances of
standby or commercial documentary letters of credit, in the form
as shall at any time be in use at the Issuing Bank, as the
Issuing Bank shall reasonably request.
"L/C Borrowing" means an extension of credit resulting from
a drawing under any Letter of Credit which shall not have been
reimbursed on the date when made nor converted into a Borrowing
of Revolving Loans under subsection 3.3(c).
"L/C Commitment" means the commitment of the Issuing Bank to
Issue, and the commitment of the Banks severally to participate
in, Letters of Credit (including the Existing BofA Letters of
Credit) from time to time Issued or outstanding under
Article III, in an aggregate amount not to exceed on any date the
amount of $70,000,000, as the same shall be reduced as a result
of a reduction in the L/C Commitment pursuant to Section 2.5;
provided that the L/C Commitment is a part of the combined
Commitments, rather than a separate, independent commitment.
"L/C Obligations" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then
outstanding, plus (b) the amount of all unreimbursed drawings
under all Letters of Credit, including all outstanding L/C
Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other
document relating to any Letter of Credit, including any of the
Issuing Bank's standard form documents for letter of credit
issuances.
"Leasetec" has the meaning specified in Section 8.8(i).
"Lending Office" means, as to any Bank, the office or
offices of such Bank specified as its "Lending Office" or
"Domestic Lending Office" or "Offshore Lending Office," as the
case may be, on Schedule 11.2, or such other office or offices as
such Bank may from time to time notify the Companies and the
Agent.
<PAGE>
"Letters of Credit" means the Existing BofA Letters of
Credit and any letters of credit (whether standby letters of
credit or commercial documentary letters of credit) Issued by the
Issuing Bank pursuant to Article III.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement,
encumbrance, lien (statutory or other) or preferential
arrangement of any kind or nature whatsoever in respect of any
property (including those created by, arising under or evidenced
by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease
having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the
owner of the asset to which such lien relates as debtor, under
the Uniform Commercial Code or any comparable law) and any
contingent or other agreement to provide any of the foregoing,
but not including the interest of a lessor under an operating
lease.
"Loan" means an extension of credit by a Bank or the
Swingline Bank to the Companies under Article II or Article III
in the form of a Revolving Loan, Swingline Loan or L/C Advance.
"Loan Documents" means this Agreement, any Notes, the
Collateral Documents, the Guaranties, the L/C-Related Documents,
and all other documents delivered to the Agent or any Bank in
connection herewith.
"Margin Stock" means "margin stock" as such term is defined
in Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse
change in, or a material adverse effect upon, the operations,
business, properties, condition (financial or otherwise) or
prospects of any Company or of STK and its Subsidiaries taken as
a whole; (b) a material impairment of the ability of any Company
to perform under any Loan Document and to avoid any Event of
Default; or (c)(i) a material adverse effect upon the legality,
validity, binding effect or enforceability against any Company of
any Loan Document or (ii) the perfection or priority of any Lien
granted for the benefit of the Agent and the Banks under any of
the Collateral Documents.
"Material Subsidiary" means any Subsidiary that at any time
either (a) owns or holds title to 5% or more of the Consolidated
assets of STK and its Consolidated Subsidiaries or (b) accounts
for 5% or more of the Consolidated revenue of STK and its
Consolidated Subsidiaries, in each case as determined in
accordance with GAAP.
"Multiemployer Plan" means a "multiemployer plan", within
the meaning of Section 4001(a)(3) of ERISA, to which any Company
or any ERISA Affiliate makes, is making, or is obligated to make
contributions or, during the preceding three calendar years, has
made, or been obligated to make, contributions.
"Net Income" means, with respect to any Person for any
period, net income of such Person, as determined by such Person
in accordance with GAAP.
"Net Loss" means, with respect to any Person for any period,
negative Net Income of such Person, as determined by such Person
in accordance with GAAP.
"New Convertible Subordinated Debentures" has the meaning
specified in the definition of "CEP Stock".
"Note" means a promissory note executed by any Company in
favor of a Bank pursuant to subsection 2.2(b), in substantially
the form of Exhibit F.
"Notice of Borrowing" means a notice in substantially the
form of Exhibit A.
"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" means all advances, debts, liabilities,
obligations, covenants and duties arising under any Loan Document
owing by any Company to any Bank, the Issuing Bank, the Swingline
Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter
arising.
"Offshore Rate" means, for any Interest Period, with respect
to Offshore Rate Loans comprising part of the same Borrowing, the
rate of interest per annum (rounded upward to the next 1/16th of
1%) determined by the Agent as follows:
Offshore Rate = LIBOR
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for
any Interest Period the maximum reserve percentage
(expressed as a decimal, rounded upward to the next 1/100th
of 1%) in effect on such day (whether or not applicable to
any Bank) under regulations issued from time to time by the
FRB for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum
determined by the Agent to be the arithmetic mean (rounded
upward to the next 1/16th of 1%) of the rates of interest
per annum notified to the Agent by BofA as the rate of
interest at which dollar deposits in the approximate amount
of the amount of the Loan to be made or continued as, or
converted into, an Offshore Rate Loan by BofA and having a
maturity comparable to such Interest Period would be offered
to major banks in the London interbank market at their
request at approximately 11:00 a.m. (London time) two
Business Days prior to the commencement of such Interest
Period.
The Offshore Rate shall be adjusted automatically as
to all Offshore Rate Loans then outstanding as of the
effective date of any change in the Eurodollar Reserve
Percentage.
"Offshore Rate Loan" means a Loan that bears interest based
on the Offshore Rate.
"Operating Loss" of any Person means, as of the date of
determination, operating losses as calculated in accordance with
GAAP.
"Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any
certificate of determination or instrument relating to the rights
of preferred shareholders of such corporation, any shareholder
rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"Original Banks" has the meaning specified in the recitals
hereto.
"Other Companies' Obligations" has the meaning set forth in
Section 11.18.
"Participant" has the meaning specified in subsection
11.8(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or
any Governmental Authority succeeding to any of its principal
functions under ERISA.
"Pension Plan" means a pension plan (as defined in
Section 3(2) of ERISA) subject to Title IV of ERISA which any
Company sponsors, maintains, or to which it makes, is making, or
is obligated to make contributions, or in the case of a multiple
employer plan (as described in Section 4064(a) of ERISA) has made
contributions at any time during the immediately preceding five
(5) plan years.
"Permitted Liens" has the meaning specified in Section 8.1.
"Permitted Receivable" shall mean at any time a Receivable
which constitutes an "account" or a "general intangible" and any
"proceeds" thereof (each as defined in the UCC) and collections
thereon, which has been sold by any Company to BofA or any of its
Affiliates pursuant to the Permitted Receivables Purchase
Facility with or without recourse.
"Permitted Receivables Purchase Facility" shall mean that
certain Multicurrency Receivables Transfer Agreement dated
January 29, 1996 between STK and BofA pursuant to which Permitted
Receivables may be sold by any Company to BofA or any Affiliate
of BofA, provided, that the aggregate purchase price paid
therefor shall not exceed $40,000,000 (with the aggregate face
value thereof not to exceed at any time outstanding $50,000,000),
and provided further, that such Permitted Receivables sold shall
no longer constitute Collateral except to the extent the
purchaser thereof elects to draw on any Letter of Credit provided
for the account of the applicable Company by the Issuing Bank in
connection with any such sale in lieu of seeking recourse to the
applicable Company in which case such Permitted Receivables shall
be reassigned by the purchaser to the Agent for the benefit of
the Banks and, upon such reassignment, such Permitted Receivables
shall be deemed (without further action by the Agent or the
Banks) to become Collateral subject again to the Security
Agreements of the applicable Company.
"Permitted Swap Obligations" means all obligations
(contingent or otherwise) of any Company or any Subsidiary
existing or arising under Swap Contracts, provided that such
obligations are (or were) entered into in connection with a bona
fide hedging operation that provides offsetting benefits to such
Person.
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture or Governmental
Authority.
"Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) which any Company sponsors or maintains or
to which any Company makes, is making, or is obligated to make
contributions and includes any Pension Plan.
"Preceding Quarter" has the meaning specified in Section
2.9(e).
"Prior Credit Agreement" has the meaning specified in the
recitals hereto.
"Prior Loan Documents" means the Prior Credit Agreement and
all instruments, agreements and documents executed and delivered
(or, as the case may be, ratified and reaffirmed) in connection
therewith or pursuant thereto.
"Pro Rata Share" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the
ninth decimal place) at such time of such Bank's Commitment
divided by the combined Commitments of all Banks.
"Quick Ratio" means, for any Person for any period, the
ratio that (i) Current Liquid Assets of such Person bears to
(ii) Current Liabilities of such Person.
"Receivable" means any right to payment from an account
receivable obligor, arising from the sale of goods or services or
the licensing of intellectual property rights by any Company in
the ordinary course of its business.
"Reportable Event" means, any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other
than any such event for which the 30-day notice requirement under
ERISA has been waived in regulations issued by the PBGC.
"Required Banks" means at any time Banks then holding at
least 66-2/3% of the aggregate amount of the Commitments or, if
no Commitments are outstanding, Banks then having at least
66-2/3% of the then aggregate unpaid principal amount of the
Loans (including the Swingline Loans).
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or
determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its
property or to which the Person or any of its property is
subject.
"Responsible Officer" means, with respect to either Company,
the chief executive officer, the president, any vice president,
the treasurer, chief operating officer or chief financial
officer, or the secretary of such Company, or any other officer
having substantially the same authority and responsibility; or,
with respect to compliance with financial covenants, the chief
financial officer or the treasurer of a Company, or any other
officer having substantially the same authority and
responsibility.
"Revolving Loan" has the meaning specified in Section 2.1,
and may be a Base Rate Loan or an Offshore Rate Loan (each, a
"Type" of Revolving Loan).
"Revolving Termination Date" means the earlier to occur of:
(a) May 31, 1998; and
(b) the date on which the Commitments terminate in
accordance with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal
functions.
"Security Agreements" means the STK Security Agreement and
the STPR Security Agreements.
"SFSC" has the meaning specified in the recitals hereto.
"SFSC Sale" means the sale of the capital stock and/or
assets of SFSC in one or more transactions.
"STK" has the meaning specified in the introductory
paragraph hereof.
"STK Guaranty" means the STK Guaranty executed by STK in
substantially the form of Exhibit H-1.
"STK Security Agreement" means the Security Agreement
between STK and the Agent in substantially the form of Exhibit G.
"STPR" has the meaning specified in the introductory
paragraph hereof.
"STPR Guaranty" means the STPR Guaranty executed by STPR in
substantially the form of Exhibit H-2.
"STPR Security Agreements" means, with respect to Collateral
pledged by STPR, a factor's lien contract and an assignment of
accounts receivable agreement between STPR and the Agent, in
substantially the forms of Exhibit I and Exhibit J, respectively.
"Subordinated Indebtedness" means (a) Indebtedness under the
Convertible Subordinated Debentures, (b) Indebtedness under the
New Convertible Subordinated Debentures, and (c) Indebtedness
which is expressly subordinated to the Obligations on terms
consented to by the Required Banks.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other
business entity of which more than 50% of the voting stock,
membership interests or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly
or indirectly by the Person, or one or more of the Subsidiaries
of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of each Company.
"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,<PAGE>
basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap or option, bond, note or bill
option, interest rate option, forward foreign exchange
transaction, cap, collar or floor transaction, currency swap,
cross-currency rate swap, swaption, currency option or any other,
similar transaction (including any option to enter into any of
the foregoing) or any combination of the foregoing, and, unless
the context otherwise clearly requires, any master agreement
relating to or governing any or all of the foregoing.
"Swingline Bank" means BofA.
"Swingline Commitment" has the meaning specified in
Section 2.10.
"Swingline Loan" has the meaning specified in Section 2.10.
"Tangible Net Worth" means, with respect to any Person as of
any date of determination, Total Assets of such Person as of such
date minus Total Liabilities of such Person as of such date and
minus the carrying value of (a) goodwill, organizational
expenses, patents, patent applications, trademarks, trademark
applications, trade names, service marks, service mark
applications, copyrights, designs and other intellectual property
and licenses therefor and rights therein, and other similar
intangibles, (b) all amortizing debt issuance expenses carried as
an asset, (c) all reserves carried and not deducted from assets
or not reflected as a liability, and (d) cash held in a sinking
or other analogous fund established for the purpose of
redemption, retirement or prepayment of any capital stock or any
Indebtedness or Contingent Obligation, if no offsetting liability
exists with respect to such Indebtedness or Contingent Obligation
on the balance sheet of such Person.
"Taxes" means any and all present or future taxes (including
any taxes on any additional amounts required to be paid to the
Agent or the Banks), levies, assessments, imposts, duties,
deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each
Bank and the Agent, respectively, (a) taxes imposed on its income
by the United States and taxes imposed on its income, and
franchise taxes imposed on it, by the jurisdiction under the laws
of which such Bank or the Agent (as the case may be) is organized
or any political subdivision thereof, and (b) taxes imposed on
its income, and franchise taxes imposed on it, by the
jurisdiction of such Bank's Lending Office, or any political
subdivision thereof.
"Total Assets" of any Person means all property, whether
real, personal, tangible, intangible or otherwise, which, in
accordance with GAAP, should be included in determining total
assets as shown on the assets portion of a balance sheet of such
Person.
"Total Capital" of any Person means the sum of the Tangible
Net Worth of such Person and Subordinated Indebtedness of such
Person.
"Total Leverage Ratio" means, with respect to any Person,
the ratio that (i) Total Liabilities of such Person bears to (ii)
Total Capital of such Person.
"Total Liabilities" of any Person means all obligations,
including, without limitation, all Indebtedness (other than
contingent Guaranty Obligations) of such Person, which, in
accordance with GAAP, should be included in determining total
liabilities as shown on the liabilities portion of a balance
sheet of such Person less Subordinated Indebtedness.
"Type" has the meaning specified in the definition of
"Revolving Loan."
"UCC" means the Uniform Commercial Code as in effect in the
State of California.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the
current value of that Plan's assets, determined in accordance
with the assumptions used for funding the Pension Plan pursuant
to Section 412 of the Code for the applicable plan year.
"United States" and "U.S." each means the United States of
America.
"Wholly Owned Subsidiary" means any corporation in which
(other than directors' qualifying shares required by law) 100% of
the capital stock of each class having ordinary voting power, and
100% of the capital stock of every other class, in each case, at
the time as of which any determination is being made, is owned,
beneficially and of record, by a Company, or by one or more of
the other Wholly Owned Subsidiaries, or both.
"XL/DC" has the meaning specified in the recitals hereto.
1.2 Other Interpretive Provisions.
(a) The meanings of defined terms are equally applicable to
the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any
particular provision of this Agreement; and subsection, Section,
Schedule and Exhibit references are to this Agreement unless
otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures,
notices and other writings, however evidenced.
(ii) The term "including" is not limiting and means
"including without limitation."
(iii)In the computation of periods of time from a
specified date to a later specified date, the word "from" means
"from and including"; the words "to" and "until" each mean "to
but excluding", and the word "through" means "to and including."
(iv) The term "property" includes any kind of property
or asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other
contractual instruments shall be deemed to include all subsequent
amendments and other modifications thereto, but only to the
extent such amendments and other modifications are not prohibited
by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the
interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use
several different limitations, tests or measurements to regulate
the same or similar matters. All such limitations, tests and
measurements are cumulative and shall each be performed in
accordance with their terms. Unless otherwise expressly
provided, any reference to any action of the Agent, the Issuing
Bank, the Swingline Bank or the Banks by way of consent, approval
or waiver shall be deemed modified by the phrase "in its/their
sole discretion."
(g) This Agreement and the other Loan Documents are the
result of negotiations among and have been reviewed by counsel to
the Agent, the Issuing Bank, the Swingline Bank, the Companies
and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Banks, the
Issuing Bank, the Swingline Bank or the Agent merely because of
the Agent's or Banks' involvement in their preparation.
1.3 Accounting Principles.
(a) Unless the context otherwise clearly requires, all
accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement
shall be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal
quarter" refer to such fiscal periods of STK.
1.4 Effect of this Agreement. This Agreement amends, restates
and supersedes the Prior Credit Agreement in its entirety. All
references in any UCC financing statements to the Prior Credit
Agreement, regardless of how such term is defined in any such UCC
financing statements, shall be deemed to refer to this Agreement.
Nothing in this Agreement or any of the other Loan Documents is
intended to impair the priorities, liens or rights of the Agent or the
Banks with respect to any Collateral granted to the Agent or the Banks
under the Prior Loan Documents, which Collateral is also Collateral
under the Loan Documents, except to the extent set forth expressly
herein.
ARTICLE II
THE CREDITS
2.1 Amounts and Terms of Commitment. Each Bank severally
agrees, on the terms and conditions set forth herein, to make loans to
the Companies (each such loan, a "Revolving Loan") from time to time
on any Business Day during the period from the Closing Date to the
Revolving Termination Date, in an aggregate amount for the Companies
not to exceed at any time outstanding the amount set forth on
Schedule 2.1 under the heading "Commitment" (such amount, inclusive of
such Bank's L/C Commitment and, in the case of BofA, its Swingline
Commitment, as the same may be reduced under Section 2.5 and
Section 2.7 or as a result of one or more assignments under
Section 10.8, the Bank's "Commitment"); provided, however, that, after
giving effect to any Borrowing of Revolving Loans, the Effective
Amount of all outstanding Revolving Loans for the Companies, the
Effective Amount of all Swingline Loans for the Companies and the
Effective Amount of all L/C Obligations for the Companies, shall not
at any time exceed the combined Commitments; and provided further,
that the Effective Amount of the Revolving Loans for the Companies,
the Effective Amount of all Swingline Loans for the Companies of any
Bank plus the participation of such Bank in the Effective Amount of
all L/C Obligations for the Companies shall not at any time exceed
such Bank's Commitment (except for BofA, but solely with respect to
its Swingline Commitment). Within the limits of each Bank's
Commitment, and subject to the other terms and conditions hereof, each
Company may borrow under this Section 2.1, prepay under Section 2.6
and reborrow under this Section 2.1.
2.2 Loan Accounts.
(a) The Loans made by each Bank (including the Swingline
Bank) and the Letters of Credit Issued by the Issuing Bank shall be
evidenced by one or more accounts or records maintained by such Bank
or Issuing Bank, as the case may be, in the ordinary course of
business. The accounts or records maintained by the Agent, the
Issuing Bank and each Bank (including the Swingline Bank) shall be
conclusive absent manifest error of the amount of the Loans made by
the Banks (including the Swingline Bank) to each Company and the
Letters of Credit Issued for the account of each Company, and the
interest and payments thereon. Any failure so to record or any error
in doing so shall not, however, limit or otherwise affect the
obligation of any Company hereunder to pay any amount owing with
respect to the Loans or any Letter of Credit.
(b) Upon the request of any Bank made through the Agent,
the Loans made by such Bank may be evidenced by one or more Notes,
instead of or in addition to loan accounts. Each such Bank shall
endorse on the schedules annexed to its Notes the date, amount and
maturity of each Loan made by it and the amount of each payment of
principal made by any Company with respect thereto. Each such Bank is
irrevocably authorized by each Company to endorse its Notes and each
Bank's record shall be conclusive absent manifest error; provided,
however, that the failure of a Bank to make, or an error in making, a
notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of any Company hereunder or under any such Note
to such Bank.
2.3 Procedure for Borrowing. (a) Each Borrowing of Revolving
Loans shall be made upon a Company's irrevocable written notice
delivered to the Agent in the form of a Notice of Borrowing (which
notice must be received by the Agent prior to 9:00 a.m. San Francisco
time) (i) three Business Days prior to the requested Borrowing Date,
in the case of Offshore Rate Loans; and (ii) on the Business Day prior
to the requested Borrowing Date, in the case of Base Rate Loans,
specifying:
(A) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $10,000,000 or any multiple of
$1,000,000 in excess thereof;
(B) the requested Borrowing Date, which shall be a
Business Day;
(C) the Type of Loans comprising the Borrowing; and
(D) the duration of the Interest Period applicable to
such Loans included in such notice. If the Notice of
Borrowing fails to specify the duration of the Interest
Period for any Borrowing comprised of Offshore Rate Loans,
such Interest Period shall be one month.
provided, however, that with respect to the Borrowing to be made on
the Closing Date, the Notice of Borrowing shall be delivered to the
Agent not later than 9:00 a.m. (San Francisco time) one Business Day
before the Closing Date and such Borrowing will consist of Base Rate
Loans only.
(b) The Agent will promptly notify each Bank of its
receipt of any Notice of Borrowing and of the amount of such Bank's
Pro Rata Share of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share
of each Borrowing available to the Agent for the account of such
Company at the Agent's Payment Office by 11:00 a.m. (San Francisco
time) on the Borrowing Date requested by such Company in funds
immediately available to the Agent. The proceeds of all such Loans
will then be made available to such Company by the Agent by (i) wire
transfer of immediately available funds to such Company at, if to STK,
Harris Trust, ABA No. 071 000 288, Account No. 4191706, for credit to
Storage Technology Corporation or such other account as STK shall
specify to the Agent or, if to STPR, such account as STPR shall
specify to the Agent or (ii) at the option of such Company, by
crediting the account of such Company on the books of BofA with the
aggregate of the amounts made available to the Agent by the Banks and,
in each case, in like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent
shall otherwise consent, there may not be more than five different
Interest Periods in effect.
(e) Any Notice of Borrowing received after the time noted
in subsection 2.3(a) but prior to 5:00 p.m. (San Francisco time) on
any Business Day, shall be deemed to have been received prior to
9:00 a.m. (San Francisco time) on the next Business Day.
2.4 Conversion and Continuation Elections. (a) Each Company may
with respect to its Loans, upon irrevocable written notice to the
Agent in accordance with subsection 2.4(b):
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of any other Type of Revolving Loans, to
convert any such Revolving Loans (or any part thereof in an
amount not less than $10,000,000, or that is in an integral
multiple of $1,000,000 in excess thereof) into Revolving Loans of
any other Type; or
(ii) elect as of the last day of the applicable
Interest Period, to continue any Revolving Loans having Interest
Periods expiring on such day (or any part thereof in an amount
not less than $10,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of Offshore Rate
Loans in respect of any Borrowing is reduced, by payment, prepayment,
or conversion of part thereof to be less than $10,000,000, such
Offshore Rate Loans shall automatically convert into Base Rate Loans,
and on and after such date the right of a Company to continue such
Revolving Loans as, and convert such Loans into, Offshore Rate Loans
shall terminate.
(b) Each Company shall deliver a Notice of Conversion/
Continuation to be received by the Agent not later than 9:00 a.m. (San
Francisco time) with respect to its Revolving Loans at least (i) three
Business Days in advance of the Conversion/Continuation Date, if the
Revolving Loans of such Company are to be converted into or continued
as Offshore Rate Loans; and (ii) one Business Day in advance of the
Conversion/Continuation Date, if the Revolving Loans of such Company
are to be converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Revolving Loans to be
converted or continued;
(C) the Type of Revolving Loans resulting from the
proposed conversion or continuation; and
(D) other than in the case of conversions into Base
Rate Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period
applicable to Offshore Rate Loans of a Company, such Company has
failed to select timely a new Interest Period to be applicable to such
Offshore Rate Loans or if any Default or Event of Default then exists,
such Company shall be deemed to have elected to convert such Offshore
Rate Loans into Base Rate Loans effective as of the expiration date of
such Interest Period.
(d) The Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation, or, if no timely
notice is provided by the applicable Company, the Agent will promptly
notify each Bank of the details of any automatic conversion. All
conversions and continuations shall be made ratably according to the
respective outstanding principal amounts of the Revolving Loans with
respect to which the notice was given held by each Bank.
(e) Unless the Required Banks otherwise consent, during
the existence of a Default or Event of Default, the Companies may not
elect to have Loans converted into or continued as an Offshore Rate
Loans.
(f) After giving effect to any conversion or continuation
of Revolving Loans, unless the Agent shall otherwise consent, there
may not be more than five different Interest Periods for all Loans in
effect.
<PAGE>
2.5 Voluntary Termination or Reduction of Commitments.
(a) Termination or Reduction of Commitments. The
Companies may, upon not less than five Business Days' prior notice to
the Agent, terminate the Commitments, or permanently reduce the
Commitments by an aggregate minimum amount of $10,000,000 or any
multiple of $1,000,000 in excess thereof; unless, after giving effect
thereto and to any prepayments of Loans made on the effective date
thereof, (a) the Effective Amount of all Revolving Loans, Swingline
Loans and L/C Obligations together would exceed the amount of the
combined Commitments then in effect, or (b) the Effective Amount of
all L/C Obligations then outstanding would exceed the L/C Commitment.
Once reduced in accordance with this Section, the Commitments may not
be increased. Any reduction of the Commitments shall be applied to
each Bank according to its Pro Rata Share. If and to the extent
specified by the Companies in the notice to the Agent, some or all of
the reduction in the combined Commitments shall be applied to reduce
the L/C Commitment. All accrued commitment and letter of credit fees
to, but not including, the effective date of any termination of
Commitments shall be paid on the effective date of such termination.
(b) Automatic Reduction of Swingline Commitment. At no
time shall the Swingline Commitment exceed the combined amount of all
Commitments, and any reduction of the combined amount of all
Commitments which reduces the combined amount of all Commitments below
the then current amount of the Swingline Commitment shall result in an
automatic corresponding reduction of the Swingline Commitment to the
amount of the combined Commitments, as so reduced, without any action
on the part of the Swingline Bank.
2.6 Optional Prepayments. Subject to Section 4.4, any Company
may, at any time or from time to time, upon not less than three
Business Days irrevocable notice to the Agent in the case of Offshore
Rate Loans, one Business Day's irrevocable notice to the Agent in the
case of Base Rate Loans which are also Revolving Loans, and the same
days irrevocable notice to the Agent in the case of Base Rate Loans
which are also Swingline Loans, (a) ratably prepay Revolving Loans in
whole or in part, in minimum amounts of $10,000,000 or any multiple of
$1,000,000 in excess thereof, and (b) prepay in whole or in part
Swingline Loans, in amounts of $1,000,000 or any multiple of $100,000
in excess thereof, or in other amounts with the consent of the
Swingline Bank. Any notice of prepayment received after 9:00 a.m.
(San Francisco time) on a Business Day but prior to 5:00 p.m. (San
Francisco time) on such Business Day shall be deemed to have been
given prior to 9:00 a.m. (San Francisco time) on the next Business
Day. Any such notice of prepayment shall specify the date and amount
of such prepayment and the Type(s) of Loans to be prepaid. The Agent
will promptly notify each Bank of its receipt of any such notice, and
of such Bank's Pro Rata Share of such prepayment other than for
prepayments of Swingline Loans. If any such notice is given by a
Company, such Company shall make such prepayment and the payment
amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such date on
the amount prepaid and any amounts required pursuant to Section 4.4.
2.7 Mandatory Prepayments of Loans; Mandatory Commitment
Reductions. If on any date the Effective Amount of L/C Obligations
exceeds the L/C Commitment, the Companies shall Cash Collateralize on
such date the outstanding Letters of Credit in an amount equal to the
excess of the maximum amount then available to be drawn under the
Letters of Credit over the Aggregate L/C Commitment. Subject to
Section 4.4, if on any date after giving effect to any Cash
Collateralization made on such date pursuant to the preceding
sentence, the Effective Amount of all Revolving Loans and Swingline
Loans then outstanding plus the Effective Amount of all L/C
Obligations exceeds the combined Commitments, the Companies shall
immediately, and without notice or demand, prepay the outstanding
principal amount of the Revolving Loans, L/C Advances and Swingline
Loans (as necessary) by an amount equal to the applicable excess.
Additionally, to the extent any Company receives any payments under
the Permitted Receivables Purchase Facility from BofA or any
Affiliate, such payments shall be immediately used, without demand or
notice from any Person, by each such Company to prepay the amount of
Revolving Loans, L/C Advances and Swingline Loans (as necessary) by
the amounts of any such payments.
2.8 Repayment. Each Company agrees to repay to the Banks on the
Revolving Termination Date the aggregate principal amount of its Loans
outstanding on such date. Additionally, with respect to Swingline
Loans, each Company agrees to repay to the Swingline Bank the
principal amount of each Swingline Loan on the seventh Business Day
after the date each such Swingline Loan was made.
2.9 Interest. (a) Each Revolving Loan and Swingline Loan shall
bear interest on the outstanding principal amount thereof from the
applicable Borrowing Date at a rate per annum equal to the Offshore
Rate or the Base Rate, as the case may be (and subject to each
Company's right to convert to other Types of Revolving Loans under
Section 2.4), plus the Applicable Margin, which (i) for the period
from the Closing Date through the Business Day when the Agent receives
the Companies' Compliance Certificate for the period ending
December 31, 1996, shall be .125% for Base Rate Loans and 1.125% for
Offshore Rate Loans, and (ii) thereafter, shall be as determined in
accordance with the provisions of subsection 2.9(e)(each such amount
added to each Loan is referred to as the "Applicable Margin").
(b) Interest on each Revolving Loan and Swingline Loan of
a Company shall be paid by such Company in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any
prepayment of Loans under Section 2.6 or 2.7 for the portion of the
Loans so prepaid and upon payment (including prepayment) in full
thereof and, during the existence of any Event of Default, interest
shall be paid on demand of the Agent at the request or with the
consent of the Required Banks.
(c) Notwithstanding subsection (a) of this Section, while
any Event of Default exists or after acceleration, the Companies shall
pay interest (after as well as before entry of judgment thereon to the
extent permitted by law) on the principal amount of all outstanding
Obligations, at a rate per annum which is determined by adding 2% per
annum to the Applicable Margin then in effect for such Loans and, in
the case of Obligations not subject to an Applicable Margin, at a rate
per annum equal to the Base Rate plus 2%; provided, however, that, on
and after the expiration of any Interest Period applicable to any
Offshore Rate Loan outstanding on the date of occurrence of such Event
of Default or acceleration, the principal amount of such Loan shall,
during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate
plus 2%.
(d) Anything herein to the contrary notwithstanding, the
obligations of the Companies to any Bank hereunder shall be subject to
the limitation that payments of interest shall not be required for any
period for which interest is computed hereunder, to the extent (but
only to the extent) that contracting for or receiving such payment by
such Bank would be contrary to the provisions of any law applicable to
such Bank limiting the highest rate of interest that may be lawfully
contracted for, charged or received by such Bank, and in such event
the Companies shall pay such Bank interest at the highest rate
permitted by applicable law.
(e) Subject to the effect of subsection 2.9(a), the
Applicable Margin will be determined by the Agent from time to time in
accordance with the table set forth below based on the most recent
Compliance Certificate of the Companies delivered by the Companies
pursuant hereto. Such determination shall be based on the
calculations (made on a rolling four-quarter basis) of Consolidated
Net Income set forth in such Compliance Certificate of the Companies
and shall apply from the first Business Day after the Agent receives
such Compliance Certificate until and through the Business Day when
the Agent receives the applicable Compliance Certificate for the next
fiscal quarter.
Applicable Margin
Offshore Base
Consolidated Net Income Rate Rate
Less than or equal to $50,000,000 +1.375% +0.375%
More than $50,000,000 but less than +1.125% +0.125%
or equal to $90,000,000
More than $90,000,000 but less than +1.000% +0%
or equal to $150,000,000
More than $150,000,000 +0.750% +0%
2.10 Swingline Loans.
(a) Subject to the terms and conditions hereof, the
Swingline Bank severally agrees to make a portion of the combined
Commitments available to the Companies by making swingline loans
(individually, a "Swingline Loan"; collectively, the "Swingline
Loans") to any Company on any Business Day during the period from the
Closing Date to the Revolving Termination Date in accordance with the
procedures set forth in this Section in an aggregate principal amount
at any one time outstanding not to exceed $10,000,000 for the
Companies together, notwithstanding the fact that such Swingline
Loans, when aggregated with the Swingline Bank's outstanding Revolving
Loans, may exceed the Swingline Bank's Commitment (the amount of such
commitment of the Swingline Bank to make Swingline Loans to any
Company pursuant to this subsection 2.10(a), as the same shall be
reduced pursuant to subsection 2.5(b) and Section 2.7 or as a result
of any assignment pursuant to Section 11.8, the Swingline Bank's
"Swingline Commitment"); provided, that at no time shall (i) the sum
of the Effective Amount of all Swingline Loans plus the Effective
Amount of all Revolving Loans plus the Effective Amount of all L/C
Obligations exceed the total of all Commitments, or (ii) the Effective
Amount of all Swingline Loans exceed the Swingline Commitment.
Additionally, no more than an aggregate of three Swingline Loans for
the Companies may be outstanding at any one time, and all Swingline
Loans shall at all times be Base Rate Loans unless otherwise agreed to
by the Swingline Bank in its sole discretion. Within the foregoing
limits, and subject to the other terms and conditions hereof, any
Company may borrow under this subsection 2.10(a), prepay pursuant to
Section 2.6 and reborrow pursuant to this subsection 2.10(a).
(b) Each Company desiring to obtain a Swingline Loan shall
provide the Agent (with a copy to the Swingline Bank) irrevocable
written notice in the form of a Notice of Borrowing of any Swingline
Loan requested hereunder (which notice must be received by the
Swingline Bank and the Agent prior to 9:00 a.m. (San Francisco time)
on the requested Borrowing date; any notice received by the Swingline
Bank after 9:00 a.m. (San Francisco time) on a Business Day but before
5:00 p.m. (San Francisco time) on such Business Day shall be deemed to
be received by 9:00 a.m. (San Francisco time) on the next Business
Day) specifying (i) the amount to be borrowed, and (ii) the requested
Borrowing date, which must be a Business Day. Upon receipt of the
Notice of Borrowing, the Swingline Bank will immediately confirm with
the Agent (by telephone or in writing) that the Agent has received a
copy of the Notice of Borrowing from such Company and, if not, the
Swingline Bank will provide the Agent with a copy thereof. Unless the
Swingline Bank has received notice prior to 11:30 a.m. on such
Borrowing date from the Agent or any Bank (A) directing the Swingline
Bank not to make the requested Swingline Loan as a result of the
limitations set forth in the proviso set forth in the first sentence
of subsection 2.10(a); or (B) that one or more conditions specified in
Article V are not then satisfied; then, subject to the terms and
conditions hereof, the Swingline Bank will, not later than 12:30 p.m.
(San Francisco time) on the Borrowing date specified in such Notice,
make the amount of its Swingline Loan available to the Agent for the
account of such Company at the Agent's Payment Office in funds
immediately available to the Agent. The proceeds of such Swingline
Loan will then be made available to such Company by (i) wire transfer
of immediately available funds to such Company at, if to STK, Harris
Trust, ABA No. 071 000 288, Account No. 4191706, for credit to Storage
Technology Corporation or such other account as STK shall specify to
the Agent or, if to STPR, such account as STPR shall specify to the
Agent or (ii) at the option of such Company, by the Agent crediting
the account of such Company on the books of BofA with the aggregate of
the amounts made available to the Agent by the Swingline Bank and in
like funds as received by the Agent. Each Borrowing pursuant to this
Section shall be in an aggregate principal amount equal to $1,000,000
or a multiple of $100,000 in excess thereof, unless otherwise agreed
by the Swingline Bank.
(c) Each Company receiving a Swingline Loan severally
agrees to repay such Swingline Loan to the Swingline Bank when
required by Section 2.8.
(d) If any Swingline Loans shall remain outstanding during
the existence of a Default or Event of Default and the Swingline Bank
shall in its sole discretion notify the Agent that the Swingline Bank
desires that such Swingline Loans be converted into Revolving Loans,
then the Agent shall be deemed to have received a Notice of Borrowing
from such Company pursuant to Section 2.3 requesting that Base Rate
Loans be made pursuant to Section 2.1 on the first Business Day
subsequent to the date of such notice from the Swingline Bank in an
amount equal to the aggregate amount of such Swingline Loans, and the
procedures set forth in subsections 2.3(b) and 2.3(c) shall be
followed in making such Base Rate Loans; provided, that such Base Rate
Loans shall be made notwithstanding such Company's failure to comply
with subsections 5.2(b) and 5.2(c); and provided, further, that if a
Borrowing of Revolving Loans becomes legally impracticable and if so
required by the Swingline Bank at the time such Revolving Loans are
required to be made by the Banks in accordance with this
subsection 2.10(d), each Bank agrees that in lieu of making Revolving
Loans as described in this subsection 2.10(d), such Bank shall
purchase a participation from the Swingline Bank in the applicable
Swingline Loans in an amount equal to such Bank's Pro Rata Share of
such Swingline Loans, and the procedures set forth in subsections
2.3(b) and 2.3(c) shall be followed in connection with the purchases
of such participations. Upon such purchases of participations the
prepayment requirements of subsection 2.10(d) shall be deemed waived
with respect to such Swingline Loans. The proceeds of such Base Rate
Loans, or participations purchased, shall be applied to repay such
Swingline Loans. A copy of each notice given by the Agent to the
Banks pursuant to this subsection 2.10(d) with respect to the making
of Revolving Loans, or the purchases of participations, shall be
promptly delivered by the Agent to such Company. Each Bank's
obligation in accordance with this Agreement to make the Revolving
Loans, or purchase the participations, as contemplated by this
subsection 2.10(d), shall be absolute and unconditional and shall not
be affected by any circumstance, including (1) any set-off,
counterclaim, recoupment, defense or other right which such Bank may
have against the Swingline Bank, any Company or any other Person for
any reason whatsoever; (2) the occurrence or continuance of a Default,
an Event of Default or a Material Adverse Effect; or (3) any other
circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing.
2.11 Fees. In addition to certain fees described in Section 3.8:
(a) Commitment Fees. The Companies jointly and severally
agree to pay to the Agent for the account of each Bank a commitment
fee on the average daily unused portion of such Bank's Commitment,
computed on a quarterly basis in arrears on the last Business Day of
each calendar quarter based upon the daily utilization for that
quarter as calculated by the Agent, equal to the amount set forth in
the next paragraph. For purposes of calculation of such unused
portion of a Bank's Commitment, (i) the making of any Swingline Loans
shall not be considered a use of a portion of the Swingline Bank's
Commitment, and (ii) each Bank's Commitment shall be considered used
on any date to the extent of its participation on such date in any
Letter of Credit and any L/C Advance made by it (exclusive of any
Swingline Loans). Such commitment fee shall accrue from the Closing
Date to the Revolving Termination Date and shall be due and payable
quarterly in arrears on (A) the last Business Day of the period ending
on June 28, 1996, (B) on the last Business Day of each calendar
quarter commencing after June 28, 1996 and (C) on the Revolving
Termination Date; provided that, in connection with any termination of
Commitments under Section 2.5 or Section 2.7, the accrued commitment
fee calculated for the period ending on such date shall also be paid
on the date of such termination. The commitment fees provided in this
subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more
conditions in Article V are not met.
For the period from the Closing Date through the Business
Day when the Agent receives the Companies' Compliance Certificate for
the period ending December 31, 1996, the applicable fee will be .350%.
Thereafter, the applicable fees will be determined by the Agent from
time to time in accordance with the table set forth below based on the
most recent Compliance Certificate of the Companies delivered by the
Companies pursuant hereto. Such determination shall be based on the
calculations of Consolidated Net Income set forth in such Compliance
Certificate of the Companies and shall apply from the first Business
Day after the Agent receives such Compliance Certificate until and
through the Business Day when the Agent receives the applicable
Compliance Certificate for the next fiscal quarter as provided herein.
Consolidated Net Income Commitment Fee
Less than or equal to $50,000,000 0.400%
More than $50,000,000 but less 0.350%
than or equal to $90,000,000
More than $90,000,000 but less 0.300%
than or equal to $150,000,000
More than $150,000,000 0.250%
(b) Upfront Fees. The Companies jointly and severally
agree to pay to the Banks the upfront fees set forth on
Schedule 2.11(c).
2.12 Computation of Fees and Interest. (a) All computations of
interest for Base Rate Loans when the Base Rate is determined by
BofA's "reference rate" shall be made on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed. All other
computations of fees and interest shall be made on the basis of a 360-
day year and actual days elapsed (which results in more interest being
paid than if computed on the basis of a 365-day year). Interest and
fees shall accrue during each period during which interest or such
fees are computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on the Companies and the Banks in the
absence of manifest error.
2.13 Payments by the Companies. (a) All payments to be made by
the Companies shall be made without set-off, recoupment or
counterclaim. Except as otherwise expressly provided herein, all
payments by the Companies shall be made to the Agent for the account
of the Banks at the Agent's Payment Office, and shall be made in
dollars and in immediately available funds, no later than 10:30 a.m.
(San Francisco time) on the date specified herein. The Agent will
promptly distribute to each Bank its Pro Rata Share (or other
applicable share as expressly provided herein) of such payment in like
funds as received. Any payment received by the Agent later than
10:30 a.m. (San Francisco time) shall be deemed to have been received
on the following Business Day and any applicable interest or fee shall
continue to accrue.
(b) Subject to the provisions set forth in the definition
of "Interest Period" herein, whenever any payment is due on a day
other than a Business Day, such payment shall be made on the following
Business Day, and such extension of time shall in such case be
included in the computation of interest or fees, as the case may be.
(c) Unless the Agent receives notice from a Company prior
to the date on which any payment is due to the Banks that such Company
will not make such payment in full as and when required, the Agent may
assume that such Company has made such payment in full to the Agent on
such date in immediately available funds and the Agent may (but shall
not be so required), in reliance upon such assumption, distribute to
each Bank on such due date an amount equal to the amount then due such
Bank. If and to the extent a Company has not made such payment in
full to the Agent, each Bank shall repay to the Agent on demand such
amount distributed to such Bank, together with interest thereon at the
Federal Funds Rate for each day from the date such amount is
distributed to such Bank until the date repaid.
2.14 Payments by the Banks to the Agent. (a) Unless the Agent
receives notice from a Bank on or prior to the Closing Date or, with
respect to any Borrowing after the Closing Date, at least one Business
Day prior to the date of such Borrowing, that such Bank will not make
available as and when required hereunder to the Agent for the account
of a Company the amount of that Bank's Pro Rata Share of the
Borrowing, the Agent may assume that each Bank has made such amount
available to the Agent in immediately available funds on the Borrowing
Date and the Agent may (but shall not be so required), in reliance
upon such assumption, make available to such Company on such date a
corresponding amount. If and to the extent any Bank shall not have
made its full amount available to the Agent in immediately available
funds and the Agent in such circumstances has made available to such
Company such amount, that Bank shall on the Business Day following
such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such
period. A notice of the Agent submitted to any Bank with respect to
amounts owing under this subsection (a) shall be conclusive, absent
manifest error. If such amount is so made available, such payment to
the Agent shall constitute such Bank's Loan on the date of Borrowing
for all purposes of this Agreement. If such amount is not made
available to the Agent on the Business Day following the Borrowing
Date, the Agent will notify such Company of such failure to fund and,
upon demand by the Agent, such Company shall pay such amount to the
Agent for the Agent's account, together with interest thereon for each
day elapsed since the date of such Borrowing, at a rate per annum
equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any
Borrowing Date shall not relieve any other Bank of any obligation
hereunder to make a Loan on such Borrowing Date, but no Bank shall be
responsible for the failure of any other Bank to make the Loan to be
made by such other Bank on any Borrowing Date.
2.15 Sharing of Payments, Etc. If, other than as expressly
provided elsewhere herein, any Bank shall obtain on account of the
Loans made by it any payment (whether voluntary, involuntary, through
the exercise of any right of set-off, or otherwise) in excess of its
ratable share (or other share contemplated hereunder), such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase from
the other Banks such participations in the Loans made by them as shall
be necessary to cause such purchasing Bank to share the excess payment
pro rata with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from the
purchasing Bank, such purchase shall to that extent be rescinded and
each other Bank shall repay to the purchasing Bank the purchase price
paid therefor, together with an amount equal to such paying Bank's
ratable share (according to the proportion of (i) the amount of such
paying Bank's required repayment to (ii) the total amount so recovered
from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so
recovered. Each Company agrees that any Bank so purchasing a
participation from another Bank may, to the fullest extent permitted
by law, exercise all its rights of payment (including the right of
set-off, but subject to Section 11.10) with respect to such
participation as fully as if such Bank were the direct creditor of
each such Company in the amount of such participation. The Agent will
keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased under this Section and
will in each case notify the Banks following any such purchases or
repayments.
2.16 Security. All obligations of the Companies under this
Agreement, the Notes and all other Loan Documents shall be secured in
accordance with the Collateral Documents.
ARTICLE III
THE LETTERS OF CREDIT
3.1 The Letter of Credit Subfacility. (a) On the terms and
conditions set forth herein (i) the Issuing Bank agrees, (A) from time
to time on any Business Day during the period from the Closing Date to
the Revolving Termination Date to issue Letters of Credit for the
account of any Company, and to amend or renew Letters of Credit
previously issued by it, in accordance with subsections 3.2(c) and
3.2(d), and (B) to honor drafts under the Letters of Credit; and (ii)
the Banks severally agree to participate in Letters of Credit Issued
for the account of any Company; provided, that the Issuing Bank shall
not be obligated to Issue, and no Bank shall be obligated to
participate in, any Letter of Credit if as of the date of Issuance of
such Letter of Credit (the "Issuance Date") (1) the Effective Amount
of all L/C Obligations plus the Effective Amount of all Revolving
Loans plus the Effective Amount of all Swingline Loans exceeds the
combined Commitments, (2) the participation of any Bank in the
Effective Amount of all L/C Obligations plus the Effective Amount of
the Revolving Loans plus the Effective Amount of all Swingline Loans
of such Bank exceeds such Bank's Commitment, or (3) the Effective
Amount of L/C Obligations exceeds the L/C Commitment. Within the
foregoing limits, and subject to the other terms and conditions
hereof, each Company's ability to obtain Letters of Credit shall be
fully revolving, and, accordingly, each Company may, during the
foregoing period, obtain Letters of Credit to replace Letters of
Credit which have expired or which have been drawn upon and
reimbursed.
(b) The Issuing Bank is under no obligation to Issue any
Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or
restrain the Issuing Bank from Issuing such Letter of Credit, or
any Requirement of Law applicable to the Issuing Bank or any
request or directive (whether or not having the force of law)
from any Governmental Authority with jurisdiction over the
Issuing Bank shall prohibit, or request that the Issuing Bank
refrain from, the Issuance of letters of credit generally or such
Letter of Credit in particular or shall impose upon the Issuing
Bank with respect to such Letter of Credit any restriction,
reserve or capital requirement (for which the Issuing Bank is not
otherwise compensated hereunder) not in effect on the Closing
Date, or shall otherwise impose upon the Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on
the Closing Date and which the Issuing Bank in good faith deems
material to it;
(ii) the Issuing Bank has received written notice from
any Bank (and the Required Banks concur with the determination of
such Bank) or the Agent, on or prior to the Business Day prior to
the requested date of Issuance of such Letter of Credit, that no
further Letters of Credit are to be issued due to a continuing
failure to meet one or more of the applicable conditions
contained in Article V and such notice has not expired or been
withdrawn by the applicable Bank and/or the Agent;
(iii)the expiry date of any requested Letter of Credit
is more than 360 days after the Revolving Termination Date,
unless all of the Banks have approved such expiry date in
writing;
(iv) any requested Letter of Credit does not provide
for drafts, or is not otherwise in form and substance reasonably
acceptable to the Issuing Bank, or the Issuance of a Letter of
Credit shall violate any applicable policies of the Issuing Bank
for extensions of credit; or
(v) such Letter of Credit is in a face amount less
than $50,000 or to be denominated in a currency other than
Dollars.
3.2 Issuance, Amendment and Renewal of Letters of Credit.
(a) Each Letter of Credit shall be issued upon the irrevocable written
request of any Company received by the Issuing Bank (with a copy sent
by such Company to the Agent) at least three Business Days (or such
shorter time as the Issuing Bank may agree in a particular instance in
its sole discretion) prior to the proposed date of issuance. Each
such request for issuance of a Letter of Credit shall be by facsimile,
confirmed immediately by an original writing in the mail, in the form
of an L/C Application, and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the proposed date of issuance of
the Letter of Credit (which shall be a Business Day); (ii) the face
amount of the Letter of Credit; (iii) the expiry date of the Letter of
Credit; (iv) the name and address of the beneficiary thereof (which
beneficiary may be a Bank or an Affiliate of a Bank); (v) the
documents to be presented by the beneficiary of the Letter of Credit
in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; (vii) if such Letter of Credit will be a standby or
commercial documentary Letter of Credit; and (viii) such other matters
as the Issuing Bank may require.
(b) At least two Business Days prior to the Issuance of
any Letter of Credit, the Issuing Bank will confirm with the Agent (by
telephone or in writing) that the Agent has received a copy of the L/C
Application or L/C Amendment Application from a Company and, if not,
the Issuing Bank will provide the Agent with a copy thereof. Unless
the Issuing Bank has received notice on or before the Business Day
immediately preceding the date the Issuing Bank is to issue a
requested Letter of Credit from the Agent (A) directing the Issuing
Bank not to issue such Letter of Credit because such issuance is not
then permitted under subsection 3.1(a) as a result of the limitations
set forth in clauses (1) through (3) thereof or subsection 3.1(b)(ii);
or (B) that one or more conditions specified in Article V are not then
satisfied; then, subject to the terms and conditions hereof, the
Issuing Bank shall, on the requested date, issue a Letter of Credit
for the account of such Company in accordance with the Issuing Bank's
usual and customary business practices.
(c) From time to time while a Letter of Credit is
outstanding and prior to the Revolving Termination Date, the Issuing
Bank will, upon the written request of any Company received by the
Issuing Bank (with a copy sent by such Company to the Agent) at least
two Business Days (or such shorter time as the Issuing Bank may agree
in a particular instance in its sole discretion) prior to the proposed
date of amendment, amend any Letter of Credit issued by it. Each such
request for amendment of a Letter of Credit shall be made by
facsimile, confirmed immediately in an original writing, made in the
form of an L/C Amendment Application and shall specify in form and
detail satisfactory to the Issuing Bank: (i) the Letter of Credit to
be amended; (ii) the proposed date of amendment of the Letter of
Credit (which shall be a Business Day); (iii) the nature of the
proposed amendment; and (iv) such other matters as the Issuing Bank
may require. The Issuing Bank shall be under no obligation to amend
any Letter of Credit if: (A) the Issuing Bank would have no
obligation at such time to issue such Letter of Credit in its amended
form under the terms of this Agreement; or (B) the beneficiary of any
such Letter of Credit does not accept the proposed amendment to the
Letter of Credit. The Agent will promptly notify the Banks of the
receipt by it of any L/C Application or L/C Amendment Application.
(d) The Issuing Bank and the Banks agree that, while a
Letter of Credit is outstanding and prior to the Revolving Termination
Date, at the option of each Company and upon the written request of
each such Company received by the Issuing Bank (with a copy sent by
each such Company to the Agent) at least two Business Days (or such
shorter time as the Issuing Bank may agree in a particular instance in
its sole discretion) prior to the proposed date of notification of
renewal, the Issuing Bank shall be entitled to authorize the automatic
renewal of any Letter of Credit issued by it. Each such request for
renewal of a Letter of Credit shall be made by facsimile, confirmed
immediately in an original writing, in the form of an L/C Amendment
Application, and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the
proposed date of notification of renewal of the Letter of Credit
(which shall be a Business Day); (iii) the revised expiry date of the
Letter of Credit; and (iv) such other matters as the Issuing Bank may
require. The Issuing Bank shall be under no obligation so to renew
any Letter of Credit if: (A) the Issuing Bank would have no obligation
at such time to issue or amend such Letter of Credit in its renewed
form under the terms of this Agreement; or (B) the beneficiary of any
such Letter of Credit does not accept the proposed renewal of the
Letter of Credit. If any outstanding Letter of Credit for the account
of a Company shall provide that it shall be automatically renewed
unless the beneficiary thereof receives notice from the Issuing Bank
that such Letter of Credit shall not be renewed, and if at the time of
renewal the Issuing Bank would be entitled to authorize the automatic
renewal of such Letter of Credit in accordance with this
subsection 3.2(d) upon the request of such Company but the Issuing
Bank shall not have received any L/C Amendment Application from such
Company with respect to such renewal or other written direction by
such Company with respect thereto, the Issuing Bank shall nonetheless
be permitted to allow such Letter of Credit to renew, and,
notwithstanding anything in this Agreement to the contrary, such
Company and the Banks hereby authorize such renewal, and, accordingly,
the Issuing Bank shall be deemed to have received an L/C Amendment
Application from such Company requesting such renewal; provided,
however, that the aggregate principal amount of all such automatically
renewable Letters of Credit shall not exceed $3,000,000, which amount
shall be a sublimit within the L/C Commitment.
(e) This Agreement shall control in the event of any
conflict with any L/C-Related Document (other than any Letter of
Credit).
(f) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit,
or amendment to or renewal of a Letter of Credit, to an advising bank
or a beneficiary, a true and complete copy of each such Letter of
Credit or amendment to or renewal of a Letter of Credit.
<PAGE>
3.3 Existing BofA Letters of Credit; Risk Participations,
Drawings and Reimbursements. (a) On and after the Closing Date, the
Existing BofA Letters of Credit shall be deemed for all purposes,
including for purposes of the fees to be collected pursuant to
subsections 3.8(a) and 3.8(c), and reimbursement of costs and expenses
to the extent provided herein, Letters of Credit outstanding under
this Agreement and entitled to the benefits of this Agreement and the
other Loan Documents, and shall be governed by the applications and
agreements pertaining thereto and by this Agreement. Each Bank shall
be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Issuing Bank on the Closing Date a participation in
each such Letter of Credit and each drawing thereunder in an amount
equal to the product of (i) such Bank's Pro Rata Share times (ii) the
maximum amount available to be drawn under such Letter of Credit and
the amount of such drawing, respectively. For purposes of Section 2.1
and subsection 2.11(b), the Existing BofA Letters of Credit shall be
deemed to utilize pro rata the Commitment of each Bank.
(b) Immediately upon the Issuance of each Letter of Credit
in addition to those described in subsection 3.3(a), each Bank shall
be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Issuing Bank a participation in such Letter of
Credit and each drawing thereunder in an amount equal to the product
of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount
available to be drawn under such Letter of Credit and the amount of
such drawing, respectively. For purposes of Section 2.1, each
Issuance of a Letter of Credit shall be deemed to utilize the
Commitment of each Bank by an amount equal to the amount of such
participation.
(c) In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the Issuing
Bank will promptly notify the applicable Company. Each Company
requesting a Letter of Credit shall reimburse the Issuing Bank (i) by
no later than 3:30 p.m. (San Francisco time) on each Honor Date if the
Issuing Bank notifies such Company of a request for a drawing prior to
11:00 a.m. (San Francisco time) on such Honor Date and (ii) by no
later than 11:00 a.m. (San Francisco time) on the day immediately
following each Honor Date if the Issuing Bank notifies such Company of
a request for drawing after 11:00 a.m. (San Francisco time) on such
Honor Date, in an amount equal to the amount so paid by the Issuing
Bank. In the event a Company fails to reimburse the Issuing Bank for
the full amount of any drawing under any Letter of Credit by 3:30 p.m.
(San Francisco time) on the Honor Date, the Issuing Bank will promptly
notify the Agent, and such Company shall be deemed to have requested
that Base Rate Loans be made by the Banks to be disbursed on the Honor
Date under such Letter of Credit, subject to the amount of the
unutilized portion of the Revolving Commitment and subject to the
conditions set forth in Section 5.2. In the event that a Company
receives notice from the Issuing Bank after 11:00 a.m. (San Francisco
time) and does not reimburse by 11:00 a.m. (San Francisco time) the
day immediately following, then the Agent shall notify the Banks and
the Banks shall advance their Pro Rata Shares of such Base Rate Loan.
To the extent the Issuing Bank has advanced funds on the Honor Date in
respect of a Base Rate Loan noted in the prior sentence and the other
Banks have not advanced their Pro Rata Shares of such Base Rate Loan
on such Honor Date, the Issuing Bank shall be entitled to all interest
owing on such Base Rate Loan. Any notice given by the Issuing Bank or
the Agent pursuant to this subsection 3.3(c) may be oral if
immediately confirmed in writing (including by facsimile); provided
that the lack of such an immediate confirmation shall not affect the
conclusiveness or binding effect of such notice.
(d) Each Bank shall upon any notice pursuant to subsection
3.3(c) make available to the Agent for the account of the relevant
Issuing Bank an amount in Dollars and in immediately available funds
equal to its Pro Rata Share of the amount of the drawing, whereupon
the participating Banks shall (subject to subsection 3.3(e)) each be
deemed to have made a Revolving Loan consisting of a Base Rate Loan to
the applicable Company in that amount. If any Bank so notified fails
to make available to the Agent for the account of the Issuing Bank the
amount of such Bank's Pro Rata Share of the amount of the drawing by
no later than 12:00 noon (San Francisco time) on the Honor Date, then
interest shall accrue on such Bank's obligation to make such payment,
from the Honor Date to the date such Bank makes such payment, at a
rate per annum equal to the Federal Funds Rate in effect from time to
time during such period. The Agent will promptly give notice of the
occurrence of the Honor Date, but failure of the Agent to give any
such notice on the Honor Date or in sufficient time to enable any Bank
to effect such payment on such date shall not relieve such Bank from
its obligations under this Section 3.3.
(e) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans to a
Company in whole or in part, because of such Company's failure to
satisfy the conditions set forth in Section 5.2 or for any other
reason, such Company shall be deemed to have incurred from the Issuing
Bank an L/C Borrowing in the amount of such drawing, which L/C
Borrowing shall be due and payable on demand (together with interest)
and shall bear interest at a rate per annum equal to the Base Rate
plus 2% per annum, and each Bank's payment to the Issuing Bank
pursuant to subsection 3.3(d) shall be deemed payment in respect of
its participation in such L/C Borrowing and shall constitute an L/C
Advance from such Bank in satisfaction of its participation obligation
under this Section 3.3.
(f) Each Bank's obligation in accordance with this
Agreement to make the Revolving Loans or L/C Advances, as contemplated
by this Section 3.3, as a result of a drawing under a Letter of
Credit, shall be absolute and unconditional and without recourse to
the Issuing Bank and shall not be affected by any circumstance,
including (i) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against the Issuing Bank, any Company
or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse
Effect; or (iii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided,
however, that each Bank's obligation to make Revolving Loans under
this Section 3.3 is subject to the conditions set forth in
Section 5.2.
3.4 Repayment of Participations. (a) Upon (and only upon)
receipt by the Agent for the account of the Issuing Bank of
immediately available funds from a Company (i) in reimbursement of any
payment made by the Issuing Bank under the Letter of Credit with
respect to which any Bank has paid the Agent for the account of the
Issuing Bank for such Bank's participation in the Letter of Credit
pursuant to Section 3.3 or (ii) in payment of interest thereon, the
Agent will pay to each Bank, in the same funds as those received by
the Agent for the account of the Issuing Bank, the amount of such
Bank's Pro Rata Share of such funds, and the Issuing Bank shall
receive the amount of the Pro Rata Share of such funds of any Bank
that did not so pay the Agent for the account of the Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any
time to return to a Company, or to a trustee, receiver, liquidator,
custodian, or any official in any Insolvency Proceeding, any portion
of the payments made by such Company to the Agent for the account of
the Issuing Bank pursuant to subsection 3.4(a) in reimbursement of a
payment made under the Letter of Credit or interest or fee thereon,
each Bank shall, on demand of the Agent, forthwith return to the Agent
or the Issuing Bank the amount of its Pro Rata Share of any amounts so
returned by the Agent or the Issuing Bank plus interest thereon from
the date such demand is made to the date such amounts are returned by
such Bank to the Agent or the Issuing Bank, at a rate per annum equal
to the Federal Funds Rate in effect from time to time.
3.5 Role of the Issuing Bank. (a) Each Bank and each Company
agrees that, in paying any drawing under a Letter of Credit, the
Issuing Bank shall not have any responsibility to obtain any document
(other than any sight draft, certificates or other documents expressly
required by the Letter of Credit) or to ascertain or inquire as to the
validity or accuracy of any such document or the authority of the
Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be
liable to any Bank for: (i) any action taken or omitted in connection
herewith at the request or with the approval of the Banks (including
the Required Banks, as applicable); (ii) any action taken or omitted
in the absence of gross negligence or willful misconduct; or (iii) the
due execution, effectiveness, validity or enforceability of any L/C-
Related Document.
(c) Each Company hereby assumes all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of
any Letter of Credit; provided, however, that this assumption is not
intended to, and shall not, preclude each such Company's pursuing such
rights and remedies as it may have against the beneficiary or
transferee at law or under any other agreement. No Agent-Related
Person, nor any of the respective correspondents, participants or
assignees of the Issuing Bank, shall be liable or responsible for any
of the matters described in clauses (i) through (vii) of Section 3.6;
provided, however, anything in such clauses to the contrary
notwithstanding, that each such Company may have a claim against the
Issuing Bank, and the Issuing Bank may be liable to each such Company,
to the extent, but only to the extent, of any direct, as opposed to
consequential or exemplary, damages suffered by each such Company
which each such Company proves were caused by the Issuing Bank's
willful misconduct or gross negligence or the Issuing Bank's willful
failure to pay under any Letter of Credit after the presentation to it
by the beneficiary of a sight draft and certificate(s) strictly
complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing
Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any
notice or information to the contrary; and (ii) the Issuing Bank shall
not be responsible for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter
of Credit or the rights or benefits thereunder or proceeds thereof, in
whole or in part, which may prove to be invalid or ineffective for any
reason.
3.6 Obligations Absolute. The obligations of each Company under
this Agreement and any L/C-Related Document to reimburse the Issuing
Bank for a drawing under a Letter of Credit, and to repay any L/C
Borrowing and any drawing under a Letter of Credit converted into
Revolving Loans, shall be unconditional and irrevocable, and shall be
paid strictly in accordance with the terms of this Agreement and each
such other L/C-Related Document under all circumstances, including the
following:
(i) any lack of validity or enforceability of this
Agreement or any L/C-Related Document;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the
obligations of such Company in respect of any Letter of Credit or
any other amendment or waiver of or any consent to departure from
all or any of the L/C-Related Documents;
(iii)the existence of any claim, set-off, defense or
other right that such Company may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any
Person for whom any such beneficiary or any such transferee may
be acting), the Issuing Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated
hereby or by the L/C-Related Documents or any unrelated
transaction;
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect; or
any loss or delay in the transmission or otherwise of any
document required in order to make a drawing under any Letter of
Credit;
(v) any payment by the Issuing Bank under any Letter
of Credit against presentation of a draft or certificate that
does not strictly comply with the terms of any Letter of Credit;
or any payment made by the Issuing Bank under any Letter of
Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to
any beneficiary or any transferee of any Letter of Credit,
including any arising in connection with any Insolvency
Proceeding;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent
to departure from any other guarantee, for all or any of the
obligations of such Company in respect of any Letter of Credit;
or
(vii)any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, including any
other circumstance that might otherwise constitute a defense
available to, or a discharge of, such Company or a guarantor;
provided, that, notwithstanding the foregoing, the Issuing Bank shall
not be relieved of any liability it may otherwise have as a result of
its gross negligence or willful misconduct.
3.7 Cash Collateral Pledge. Upon (i) the request of the Agent,
(A) if the Issuing Bank has honored any full or partial drawing
request on any Letter of Credit and such drawing has resulted in an
L/C Borrowing hereunder, or (B) if, as of the Revolving Termination
Date, any Letter of Credit may for any reason remain outstanding and
partially or wholly undrawn, or (ii) the occurrence of the
circumstances described in Section 2.7 requiring a Company to Cash
Collateralize Letters of Credit, then, such Company shall immediately
Cash Collateralize the Obligations in an amount equal to such L/C
Obligations.
3.8 Letter of Credit Fees. (a) The Companies agree to jointly
and severally pay to the Agent for the benefit of the Banks standby
letter of credit fees per annum based on the average daily maximum
amount available to be drawn of the outstanding Letters of Credit,
payable quarterly in arrears on the last Business Day of each calendar
quarter, on the Revolving Termination Date, and on the date when the
last Letter of Credit expires. For the period from the Closing Date
through the Business Day when the Agent receives the Companies'
Compliance Certificate for the period ending December 31, 1996, the
applicable fee will be 1.125% for standby Letters of Credit.
Thereafter, the standby fees for applicable Letters of Credit will be
determined by the Agent from time to time in accordance with the table
set forth below based on the most recent Compliance Certificate of the
Companies delivered by the Companies pursuant hereto. Such
determination shall be based on the calculations (made on a four-
quarter rolling basis) of Consolidated Net Income set forth in such
Compliance Certificate of the Companies and shall apply from the first
Business Day after the Agent receives such Compliance Certificate
until and through the Business Day when the Agent receives the
applicable Compliance Certificate for the next fiscal quarter as
provided herein.
Per Annum Standby
Consolidated Net Income Letter of Credit Fee
Less than or equal to $50,000,000 1.375%
More than $50,000,000 but less
than or equal to $90,000,000 1.125%
More than $90,000,000 but less
than or equal to $150,000,000 1.000%
More than $150,000,000 0.750%
(b) The Companies agree to jointly and severally pay to
the Agent for the benefit of the Banks an issuance fee for each
commercial documentary Letter of Credit Issued hereunder equal to the
greater of (i) $250 and (ii) 0.125% of the face amount of such
commercial documentary Letter of Credit, payable on the date of
Issuance of each such commercial documentary Letter of Credit.
(c) Each Company shall pay to the Issuing Bank quarterly
in arrears on the last Business Day of each calendar quarter, on the
Revolving Termination Date and on the date when the last Letter of
Credit expires, a letter of credit fronting fee for each Letter of
Credit Issued by the Issuing Bank equal to .075% per annum of the face
amount (or increased face amount, as the case may be) of such Letter
of Credit.
(d) Each Company shall pay to the Issuing Bank from time
to time on demand the normal issuance, presentation, amendment and
other processing fees, and other standard costs and charges, of the
Issuing Bank relating to letters of credit as from time to time in
effect.
3.9 Uniform Customs and Practice. The Uniform Customs and
Practice for Documentary Credits as published by the International
Chamber of Commerce most recently at the time of issuance of any
Letter of Credit shall (unless otherwise expressly provided in the
Letters of Credit) apply to the Letters of Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.1 Taxes. (a) Any and all payments by the Companies to each
Bank or the Agent under this Agreement and any other Loan Document
shall be made free and clear of, and without deduction or withholding
for, any Taxes. In addition, the Companies shall pay all Taxes.
(b) If any Company shall be required by law to deduct or
withhold any Taxes from or in respect of any sum payable hereunder to
any Bank or the Agent, then:
(i) the sum payable shall be increased as
necessary so that, after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section), such Bank or the
Agent, as the case may be, receives and retains an amount equal
to the sum it would have received and retained had no such
deductions or withholdings been made;
(ii) such Company shall make such deductions and
withholdings; and
(iii) such Company shall pay the full amount
deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law.
(c) Each Company agrees to indemnify and hold harmless
each Bank for the full amount of Taxes in the amount (without
duplication of other amounts paid pursuant to this Section 4.1) that
the respective Bank specifies as necessary to preserve the after-tax
yield (which after tax yield is intended to compensate each Bank for
Taxes deducted or withheld pursuant to this Section 4.1 and additional
Taxes imposed on amounts payable pursuant to this Section 4.1) the
Bank would have received if such Taxes had not been imposed, and any
liability (including penalties, interest, and expenses) arising
therefrom or with respect thereto, whether or not such Taxes were
correctly or legally asserted. Payment under this indemnification
shall be made within 30 days after the date the Bank or the Agent
makes written demand therefor, which demand shall specify in
reasonable detail the basis for such demand.
(d) Within 30 days after the date of any payment by a
Company of Taxes, such Company shall furnish to such Bank or the Agent
the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the
Agent.
(e) Without affecting its rights under this Section 4.1 or
any provision of this Agreement, the Agent, each Bank, the Swingline
Bank and the Issuing Bank agree that if any Taxes are imposed and
required by law to be paid or to be withheld from any amount payable
to such Bank or its Lending Office, the Swingline Bank or the Issuing
Bank, as the case may be, with respect to which any Company would be
obligated pursuant to this Section 4.1 to increase any amounts payable
to such Bank, the Swingline Bank or the Issuing Bank, as the case may
be, or to pay any such Taxes, such Bank shall use reasonable efforts
to select an alternative Lending Office, the Swingline Bank shall use
reasonable efforts to select an alternative office for purposes of
making and receiving payments in respect of Swingline Advances, and
the Issuing Bank shall use reasonable efforts to select an alternative
office for purposes of issuing and receiving payments in respect of
Letters of Credit, as the case may be, which would not result in the
imposition of such Taxes; provided, however, that none of the Agent,
the Banks, the Swingline Bank or the Issuing Bank shall be obligated
to select any such alternative office if such Bank, the Swingline Bank
or the Issuing Bank, as the case may be, determines that (i) as a
result of such selection it would be in violation of an applicable
law, regulation, or treaty, or would incur additional costs or
expenses or (ii) such selection would be inadvisable for regulatory
reasons or inconsistent with the interests of such Bank, the Swingline
Bank or the Issuing Bank, as the case may be.
(f) So long as no Default or Event of Default shall have
occurred and be continuing, STK may, within the 30 day period
commencing on the day that any Company receives a demand for the
payment of Taxes from any Bank pursuant to this Section 4.1, demand
that the Bank making such demand be replaced with a Person that is an
Eligible Assignee selected by STK and subject to consent by the Agent.
Upon any such demand by STK, if the Agent shall have consented to the
Eligible Assignee selected by STK, the Bank that made a demand
pursuant to this Section 4.1 shall execute and deliver an Assignment
and Acceptance to the Agent pursuant to which such Bank shall assign
all of its rights and obligations under this Agreement and the other
Loan Documents to the Eligible Assignee selected by STK.
4.2 Illegality. (a) If any Bank determines that the
introduction of any Requirement of Law, or any change in any
Requirement of Law, or in the interpretation or administration of any
Requirement of Law, has made it unlawful, or any central bank or other
Governmental Authority has asserted that it is unlawful, for any Bank
or its applicable Lending Office to make Offshore Rate Loans, then, on
notice thereof by such Bank to the Companies through the Agent, any
obligation of that Bank to make Offshore Rate Loans shall be suspended
until the Bank notifies the Agent and the Companies that the
circumstances giving rise to such determination no longer exist. Any
Bank notifying the Companies of such a suspension of its obligation to
make Offshore Rate Loans shall provide to the Companies reasonable
documentation supporting such obligation.
(b) If a Bank determines that it is unlawful to maintain
any Offshore Rate Loan, each Company shall, upon its receipt of notice
of such fact and demand from such Bank (with a copy to the Agent),
prepay in full such Offshore Rate Loans of that Bank then outstanding,
together with interest accrued thereon and amounts required under
Section 4.4, either on the last day of the Interest Period thereof, if
the Bank may lawfully continue to maintain such Offshore Rate Loans to
such day, or immediately, if the Bank may not lawfully continue to
maintain such Offshore Rate Loan. If any Company is required to so
prepay any Offshore Rate Loan, then concurrently with such prepayment,
such Company shall borrow from the affected Bank, in the amount of
such repayment, a Base Rate Loan. Any Bank making such a demand for
prepayment of Offshore Rate Loans shall provide to the Companies
reasonable documentation supporting such demand.
4.3 Increased Costs and Reduction of Return. (a) If any Bank
determines that, due to either (i) the introduction of or any change
in or in the interpretation of any law or regulation by any
Governmental Authority having jurisdiction over the Banks or (ii) the
compliance by any Bank with any guideline or request from any central
bank or other Governmental Authority (whether or not having the force
of law), there shall be any increase in the cost to such Bank of
agreeing to make or making, funding or maintaining any Offshore Rate
Loans or participating in Letters of Credit, or, in the case of the
Issuing Bank, any increase in the cost to the Issuing Bank of agreeing
to issue, issuing or maintaining any Letter of Credit or of agreeing
to make or making, funding or maintaining any unpaid drawing under any
Letter of Credit, then each Company shall be liable for, and shall
from time to time, upon demand (with a copy of such demand to be sent
to the Agent), promptly (and in any event within 30 days) pay to the
Agent for the account of such Bank, additional amounts as are
sufficient to compensate such Bank for such increased costs. Any Bank
making such a demand for payment shall provide to the Companies
reasonable documentation supporting such demand.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in
any Capital Adequacy Regulation, (iii) any change in the
interpretation or administration of any Capital Adequacy Regulation by
any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the
Bank (or its Lending Office) or any corporation controlling the Bank
with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or
any corporation controlling the Bank and (taking into consideration
such Bank's or such corporation's policies with respect to capital
adequacy) determines that the amount of such capital is increased as a
consequence of its Commitments, loans, credits or obligations under
this Agreement, then, upon demand of such Bank to any Company through
the Agent, such Company shall promptly (and in any event within 30
days) pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for such
increase. Any Bank making such a demand for payment shall provide to
the Companies reasonable documentation supporting such demand.
4.4 Funding Losses. Each Company shall reimburse each Bank and
hold each Bank harmless from any loss or expense which the Bank
sustains or incurs as a consequence of:
(a) the failure of such Company to make on a timely basis
any payment of principal of any Offshore Rate Loan;
(b) the failure of such Company to borrow, continue or
convert a Loan after such Company has given (or is deemed to have
given) a Notice of Borrowing or a Notice of Conversion/ Continuation;
(c) the failure of such Company to make any prepayment in
accordance with any notice delivered under Section 2.6;
(d) the prepayment (including pursuant to Section 2.7) or
other payment (including after acceleration thereof) of an Offshore
Rate Loan on a day that is not the last day of the relevant Interest
Period; or
(e) the automatic conversion under Section 2.4 of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the last
day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its Offshore Rate
Loans or from fees payable to terminate the deposits from which such
funds were obtained.
4.5 Inability to Determine Rates. If the Agent determines that
for any reason adequate and reasonable means do not exist for
determining the Offshore Rate for any requested Interest Period with
respect to a proposed Offshore Rate Loan, or that the Offshore Rate
applicable pursuant to Section 2.9 for any requested Interest Period
with respect to a proposed Offshore Rate Loan does not adequately and
fairly reflect the cost to the Agent or any Bank funding such Loan,
the Agent will promptly so notify each affected Company and each Bank
and will provide such Persons with reasonable documentation supporting
such determination. Thereafter, the obligation of the Banks to make
or maintain Offshore Rate Loans hereunder shall be suspended until the
Agent shall notify the Companies and the Banks that the circumstances
causing such suspension no longer exist. Upon receipt of such notice,
each affected Company may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If any such affected
Company does not revoke such Notice, the Banks shall make, convert or
continue the Loans, as proposed by each such affected Company, in the
amount specified in the applicable notice submitted by each such
affected Company, respectively, but such Loans shall be made,
converted or continued as Base Rate Loans instead of Offshore Rate
Loans.
4.6 Survival. The agreements and obligations of the Companies
in this Article IV shall survive the payment of all other Obligations.
4.7 Notice of Claims. The Agent or the appropriate Bank will
notify the Companies in writing of its claims under Article IV within
180 days after any officer of the Agent or such Bank having principal
responsibility for monitoring the Companies' performance of its
obligations under the Loan Documents has actual knowledge of facts
giving rise to a claim under Article IV.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions of Initial Credit Extensions. The obligation of
each Bank to make its initial Credit Extension hereunder is subject to
the condition that the Agent shall have received on or before the
Closing Date all of the following, in form and substance satisfactory
to the Agent and each Bank, and in sufficient copies for each Bank
(other than the Notes to be delivered pursuant to Section 5.1(a)):
(a) Credit Agreement and Notes. This Agreement and the
Notes executed by each party thereto;
(b) Resolutions; Incumbency.
(A)Copies of the resolutions of the board of
directors of each Company authorizing the transactions
contemplated hereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary of each such Company; and
(B)A certificate of the Secretary or Assistant
Secretary of each Company certifying the names and true
signatures of the officers of each such Company authorized to
execute, deliver and perform, as applicable, this Agreement, and
all other Loan Documents to be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation
and the bylaws of each Company as in effect on the Closing Date,
certified by the Secretary or Assistant Secretary of each such
Company as of the Closing Date; and
(ii) a good standing and tax good standing
certificate for each Company from the Secretary of State (or
similar, applicable Governmental Authority) of its state of
incorporation and (A) in the case of STK, from the State of
Colorado, and (B) in the case of STPR, from Puerto Rico;
(d) Legal Opinions. Opinions of Shearman & Sterling,
internal counsel to the Companies and McConnell Valdes addressed to
the Agent and the Banks, substantially in the forms of Exhibit D-1,
Exhibit D-2 and Exhibit D-3, respectively.
(e) Payment of Fees. Evidence of payment by the Companies
of all accrued and unpaid fees, costs and expenses to the extent then
due and payable on the Closing Date, including any such costs, fees
and expenses arising under or referenced in Sections 2.11 and 11.4 and
any fronting fees for the Existing BofA Letters of Credit, provided
that the Companies shall have been given reasonably detailed bills for
such fees and services;
(f) Certificate. A certificate signed by a Responsible
Officer of each Company, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article VI are true and correct on and as of such date, as
though made on and as of such date;
(ii) no Default or Event of Default exists or would
result from the Credit Extension; and
(iii) there has occurred since December 31, 1995, no
event or circumstance that has resulted or could reasonably be
expected to result in a Material Adverse Effect; and
(g) Collateral Documents. The Collateral Documents,
executed by the Companies, in appropriate form for recording, where
necessary, together with:
(i) written advice relating to Lien and judgment
searches as the Agent shall have reasonably requested, and any
termination statements or other documents as may be reasonably
necessary to confirm that the Collateral is subject to no other
Liens in favor of any Persons (other than Permitted Liens);
(ii) evidence that all other actions reasonably
necessary or, in the opinion of the Agent or the Banks,
reasonably desirable to perfect and protect the first priority
Lien (subject to Permitted Liens) created by the Collateral
Documents have been taken; and
(h) Guaranties. The Guaranties executed by each
Guarantor, as appropriate;
(i) SFSC Sale. If the SFSC Sale shall have been
consummated prior to the Closing Date, evidence of such consummation;
and
(j) Other Documents. Such other approvals, opinions,
documents or materials as the Agent or any Bank may reasonably
request.
5.2 Conditions to All Credit Extensions. The obligation of each
Bank to make any Revolving Loan to be made by it (including its
initial Revolving Loan) or to continue or convert any Revolving Loan
under Section 2.4 and the obligation of the Issuing Bank to Issue any
Letter of Credit (including the initial Letter of Credit) is subject
to the satisfaction of the following conditions precedent on the
relevant Borrowing Date, Conversion/Continuation Date or Issuance
Date:
(a) Notice, Application. The Agent shall have received
(with, in the case of the initial Revolving Loan only, a copy for each
Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as
applicable or in the case of any Issuance of any Letter of Credit, the
Issuing Bank and the Agent shall have received an L/C Application or
L/C Amendment Application, as required under Section 3.2;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct
on and as of such Borrowing Date or Conversion/Continuation Date or
Issuance Date with the same effect as if made on and as of such
Borrowing Date or Conversion/Continuation Date or Issuance Date; and
(c) No Existing Default. No Default or Event of Default
shall exist or shall result from such Borrowing or continuation or
conversion or Issuance.
Each Notice of Borrowing, Notice of Conversion/Continuation and L/C
Application or L/C Amendment Application submitted by a Company
hereunder shall constitute a representation and warranty by such
Company hereunder, as of the date of each such notice and as of each
Borrowing Date, Conversion/Continuation Date, or Issuance Date, as
applicable, that the conditions in this Section 5.2 are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Each Company represents and warrants to the Agent and each Bank
that:
6.1 Corporate Existence and Power. Each Company and each of its
Material Subsidiaries:
(a) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation;
(b) has the power and authority and all governmental
licenses, authorizations, consents and approvals to own its assets,
carry on its business and to execute, deliver, and perform its
obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is
licensed and in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of
its business requires such qualification or license; and
(d) is in compliance with all Requirements of Law; except,
in each case referred to in clause (c) or clause (d), to the extent
that the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
6.2 Corporate Authorization; No Contravention. The execution,
delivery and performance by each Company of this Agreement and each
other Loan Document to which such Company is party, have been duly
authorized by all necessary corporate action, and do not:
(a) contravene the terms of any of such Company's
Organization Documents;
(b) conflict with or result in any breach or contravention
of any document evidencing any Contractual Obligation to which any
such Company is a party or any order, injunction, writ or decree of
any Governmental Authority to which any such Company or its property
is subject, except where such conflict, breach or contravention would
not cause a Material Adverse Effect or render any Loan Document
unenforceable against such Company or any other Person;
(c) violate any Requirement of Law except, in each case,
where any such contravention, conflict, breach, or violation would not
cause a Material Adverse Effect or render any Loan Document
unenforceable against such Company or any other Person; or
(d) result in the creation of any Lien (other than a Lien
created under the Loan Documents).
6.3 Governmental Authorization. No approval, consent,
exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority (except for recordings or filings in
connection with the Liens granted to the Agent under the Collateral
Documents) is necessary or required in connection with the execution,
delivery or performance by, or current enforcement against, any
Company or any of its Subsidiaries of the Agreement or any other Loan
Document.
6.4 Binding Effect. This Agreement and each other Loan Document
to which any Company is a party constitute (or, when duly executed and
delivered, shall constitute) the legal, valid and binding obligations
of each such Company, enforceable against each such Company in
accordance with their respective terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors' rights generally or by
equitable principles relating to enforceability.
6.5 Litigation. Except as specifically disclosed in
Schedule 6.5, there are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of such Company, threatened
or contemplated, at law, in equity, in arbitration or before any
Governmental Authority, against such Company, or its Subsidiaries or
any of their respective properties which:
(a) relates to this Agreement or any other Loan Document,
or any of the transactions contemplated hereby or thereby; and
(b) if determined adversely to such Company or its
Subsidiaries, would reasonably be expected to have a Material Adverse
Effect. No injunction, writ, temporary restraining order or any order
of any nature has been issued by any court or other Governmental
Authority purporting to enjoin or restrain the execution, delivery or
performance of this Agreement or any other Loan Document, or directing
that the transactions provided for herein or therein not be
consummated as herein or therein provided.
6.6 No Default. No Default or Event of Default exists or would
result from the incurring of any Obligations by the Companies or from
the grant of perfection of the Liens of the Agent and the Banks on the
Collateral. As of the Closing Date, neither Company nor any
Subsidiary is in default under or with respect to any Contractual
Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse
Effect, or that would, if such default had occurred after the Closing
Date, create an Event of Default under subsection 9.1(e).
<PAGE>
6.7 ERISA Compliance.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or
state law. Each Plan which is intended to qualify under
Section 401(a) of the Code has received a favorable determination
letter from the IRS and to the best knowledge of each Company, nothing
has occurred which would cause the loss of such qualification. Each
Company and each ERISA Affiliate has made all required contributions
to any Plan subject to Section 412 of the Code, and no application for
a funding waiver or an extension of any amortization period pursuant
to Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of each
Company, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan which has resulted or
could reasonably be expected to result in a Material Adverse Effect.
There has been no prohibited transaction or violation of the fiduciary
responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension
Liability; (iii) neither Company nor any ERISA Affiliate has incurred,
or reasonably expects to incur, any liability under Title IV of ERISA
with respect to any Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (iv) neither Company nor any
ERISA Affiliate has incurred, or reasonably expects to incur, any
liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under
Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan;
and (v) neither Company nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
6.8 Use of Proceeds; Margin Regulations. The proceeds of the
Loans are to be used solely for the purposes set forth in and
permitted by Section 7.11 and Section 8.7. Neither Company nor any
Subsidiary is generally engaged in the business of purchasing or
selling Margin Stock or extending credit for the purpose of purchasing
or carrying Margin Stock.
6.9 Title to Properties. Each Company and each Subsidiary have
good record and marketable title in fee simple to, or valid leasehold
interests in, all real property necessary or used in the ordinary
conduct of their respective businesses, except for such defects in
title as would not, individually or in the aggregate, have a Material
Adverse Effect. As of the Closing Date, the property of each Company
and its Subsidiaries is subject to no Liens, other than Permitted
Liens.
6.10 Taxes. Each Company and its Subsidiaries have filed or
caused to be filed all federal and other material tax returns and
reports required to be filed, and have paid or caused to be paid all
federal and other material taxes, assessments, fees and other
governmental charges levied or imposed upon them or their properties,
income or assets otherwise due and payable, except (i) those which are
being contested in good faith by appropriate proceedings and for which
adequate reserves have been provided in accordance with GAAP and
(ii) those for which the failure to pay would not have a Material
Adverse Effect or would not result in any Lien upon any of the
Collateral that is, or will, with the giving of notice or passage of
time or both, become, prior to any Lien under the Collateral
Documents. To the Companies' knowledge, there is no proposed tax
assessment against any Company or any Subsidiary that would, if made,
have a Material Adverse Effect.
6.11 Financial Condition. (a) The audited Consolidated financial
statements of STK and its Subsidiaries dated December 29, 1995, and
the related Consolidated statements of income or operations,
shareholders' equity and cash flows for the fiscal year ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby,
except as otherwise expressly noted therein;
(ii) fairly present the financial condition of STK
and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
(iii) except as specifically disclosed in Schedule
6.11, show all material indebtedness and other liabilities,
direct or contingent, of STK and its Consolidated Subsidiaries as
of the date thereof, including liabilities for taxes, material
commitments and Contingent Obligations.
(b) Since December 29, 1995, there has been no Material
Adverse Effect.
6.12 Environmental Matters. Each Company conducts in the
ordinary course of business a review of the effect of existing
Environmental Laws and existing Environmental Claims on its business,
operations and properties, and as a result thereof each Company has
reasonably concluded that, except as specifically disclosed in
Schedule 6.12, such Environmental Laws and Environmental Claims could
not, individually or in the aggregate, reasonably be expected to have
a Material Adverse Effect.
6.13 Regulated Entities. Neither Company, nor any Person
controlling either Company, nor any Subsidiary, is an "Investment
Company" within the meaning of the Investment Company Act of 1940.
Neither Company is subject to regulation under the Public Utility
Holding Company Act of 1935, the federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other federal or
state statute or regulation limiting its ability to incur
Indebtedness.
6.14 Copyrights, Patents, Trademarks and Licenses, Etc. Each
Company or its Subsidiaries own or are licensed or otherwise have 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 material businesses, without conflict with the rights of
any other Person. To the best knowledge of each Company, no slogan or
other advertising device, product, process, method, substance, part or
other material now employed, or now contemplated to be employed, by
each Company or any Subsidiary infringes upon any rights held by any
other Person. Except as specifically disclosed in Schedule 6.5, no
claim or litigation regarding any of the foregoing is pending or, to
the best knowledge of the Companies, threatened, and no patent,
invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the
Companies, proposed, which, in either case, could reasonably be
expected to have a Material Adverse Effect.
6.15 Subsidiaries. Each Company (a) has no Subsidiaries other
than those specifically disclosed in part (a) of Schedule 6.15 hereto
as of the Closing Date and (b) has no equity investments in any other
corporation or entity other than those specifically disclosed in
part (b) of Schedule 6.15 except, in each case, for Subsidiaries
created and equity investments made after the Closing Date and
otherwise permitted by this Agreement.
6.16 Insurance. Except as specifically disclosed in
Schedule 6.16, the properties of each Company and its Subsidiaries are
insured with, to the best knowledge of the Companies, financially
sound and reputable insurance companies not Affiliates of the
Companies, in such amounts, with such deductibles and covering such
risks as are customarily carried by companies engaged in similar
businesses and owning similar properties in localities where each
Company or such Subsidiary operates.
6.17 Full Disclosure. None of the representations or warranties
made by any Company or any Subsidiary in the Loan Documents as of the
date such representations and warranties are made or deemed made, and
none of the statements contained in any written exhibit, report,
statement or certificate furnished by or on behalf of any Company or
any Subsidiary in connection with the Loan Documents (including the
offering and disclosure materials delivered by or on behalf of any
Company to the Banks prior to the Closing Date), contains any untrue
statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in
light of the circumstances under which they are made, not misleading
as of the time when made or delivered; provided that nothing in this
Section 6.17 shall apply to any projections, forward-looking
information or other similar or related information furnished by or on
behalf of any Company or any Subsidiary in connection with the Loan
Documents.
6.18 Projections. All projections, forward-looking information
or other similar or related information furnished by or on behalf of
any Company or any Subsidiary in connection with the Loan Documents
were prepared in good faith on the basis of the assumptions stated
therein, which assumptions were fair in the light of conditions
existing at the time of delivery of such forecasts, and represented,
at the time of delivery, such Company or such Subsidiary's best
estimate of its future financial performance.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any
Loan or other Obligation shall remain unpaid or unsatisfied, or any
Letter of Credit shall remain outstanding, unless the Required Banks
waive compliance in writing:
7.1 Financial Statements. STK shall deliver to the Agent, in
form and detail satisfactory to the Agent and the Required Banks, with
sufficient copies for each Bank:
(a) as soon as available, but not later than 120 days
after the end of each fiscal year, a copy of the audited Consolidated
balance sheet of STK and its Subsidiaries as at the end of such year
and the related Consolidated statements of income or operations,
shareholders' equity and cash flows for such year, setting forth in
each case in comparative form the figures for the previous fiscal
year, and accompanied by the opinion of Price Waterhouse or another
nationally-recognized independent public accounting firm ("Independent
Auditor") which report shall state that such Consolidated financial
statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with
prior years. Such opinion shall not be qualified or limited because
of a restricted or limited examination by the Independent Auditor of
any material portion of any Company's or any Subsidiary's records;
(b) as soon as available, but not later than 55 days after
the end of each of the first three fiscal quarters of each fiscal
year, a copy of the unaudited Consolidated balance sheet of STK and
its Subsidiaries as of the end of such quarter and the related
Consolidated statements of income, shareholders' equity and cash flows
for the period commencing on the first day and ending on the last day
of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith
year-end audit adjustments), the financial position and the results of
operations of STK and the Subsidiaries.
7.2 Certificates; Other Information. Each Company shall furnish
to the Agent, with sufficient copies for each Bank:
(a) promptly after any sale of Collateral pursuant to the
Permitted Receivables Purchase Facility, a report detailing the
Collateral sold;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) and (b), a Compliance
Certificate executed by a Responsible Officer;
(c) promptly, copies of all financial statements and
reports that any such Company 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 such Company or any
Subsidiary may make to, or file with, the SEC; and
(d) promptly, such additional information regarding the
business, financial or corporate affairs of such Company or any
Subsidiary as the Agent, at the request of any Bank, may from time to
time reasonably request.
7.3 Notices. Each Company shall promptly notify the Agent and
each Bank:
(a) after a Responsible Officer of any Company knows or
has reason to know of the occurrence of any Default or Event of
Default, and of the occurrence or existence of any event or
circumstance for which it is reasonably forseeable that such event or
circumstance will become a Default or Event of Default;
(b) of the occurrence of the SFSC Sale;
(c) after a Responsible Officer of any Company or any
ERISA Affiliate knows or has reason to know that any material ERISA
Event has occurred, with a statement of a Responsible Officer of the
applicable Company describing such ERISA Event and the action, if any,
that such applicable Company or such ERISA Affiliate proposes to take
with respect thereto; and
(d) of any material change in accounting policies or
financial reporting practices by any Company or any of its
Consolidated Subsidiaries.
Each notice under this Section shall be accompanied by a
written statement by a Responsible Officer setting forth details of
the occurrence referred to therein, and stating what action each
Company or any affected Subsidiary proposes to take with respect
thereto and at what time. Each notice under subsection 7.3(a) shall
describe with particularity any and all clauses or provisions of this
Agreement or other Loan Document that have been (or foreseeably will
be) breached or violated.
7.4 Preservation of Corporate Existence, Etc. Each Company
shall, and shall cause each Material Subsidiary to preserve and
maintain in full force and effect its corporate existence and good
standing under the laws of its state or jurisdiction of incorporation
and preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises
necessary or desirable in the normal conduct of its business except
(a) if in the reasonable business judgment of such Company or such
Material Subsidiary, it is in its best economic interest not to
preserve or maintain such rights, privileges, qualification, permits,
licenses or franchises and (b) unless no Material Adverse Effect could
result; provided, that nothing in this Section 7.4 shall prohibit or
in any way restrict the SFSC Sale, if such shall not have been
consummated prior to or on the Closing Date.
7.5 Maintenance of Property. Each Company shall maintain, and
shall cause each Material Subsidiary to maintain, and preserve all its
material properties which are used or useful in its business in good
working order and condition, ordinary wear and tear excepted and make
all necessary repairs thereto and renewals and replacements thereof
except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect. Each Company and each Material
Subsidiary shall use the standard of care typical in the industry in
the operation and maintenance of its facilities.
7.6 Insurance. In addition to insurance requirements set forth
in the Collateral Documents, each Company shall maintain, and shall
cause each Material Subsidiary to maintain, with financially sound and
reputable independent insurers, insurance against loss or damage of
the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are
customarily carried under similar circumstances by such other Persons.
7.7 Payment of Obligations. Each Company shall, and shall cause
each Material Subsidiary to, pay and discharge before the same shall
become delinquent:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same
are being contested in good faith by appropriate proceedings and
adequate reserves in accordance with GAAP are being maintained by a
Company or such Material Subsidiary; and
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property.
7.8 Compliance with Laws. Each Company shall comply, and shall
cause each Subsidiary to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction
over it or its business (including Environmental laws and the federal
Fair Labor Standards Act), except such as may be contested in good
faith or as to which a bona fide dispute may exist.
7.9 Compliance with ERISA. Each Company shall, and shall cause
each of its ERISA Affiliates to: (a) maintain each Plan in compliance
in all material respects with the applicable provisions of ERISA, the
Code and other federal or state law; (b) cause each Plan which is
qualified under Section 401(a) of the Code to maintain such
qualification; and (c) make all required contributions to any Plan
subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. Each Company
shall maintain and shall cause each Material Subsidiary to maintain
proper books of record and account, in which full, true and correct
entries in conformity with GAAP consistently applied shall be made of
all financial transactions and the assets and business of each Company
and such Material Subsidiary. During the continuance of any Event of
Default, each Company shall permit, and shall cause each Subsidiary to
permit, representatives and independent contractors of the Agent or
any Bank to visit and inspect any of their respective properties, to
examine their respective corporate, financial and operating records,
and make copies thereof or abstracts therefrom, and to discuss their
respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the
expense of each such Company and at such reasonable times during
normal business hours and as often as may be reasonably desired, upon
reasonable advance notice to each such Company.
7.11 Use of Proceeds. Each Company shall use the proceeds of the
Loans for working capital and other general corporate purposes not in
contravention of any Requirement of Law or of any Loan Document.
7.12 Disclosure; Further Assurances.
(a) The Companies shall ensure that all written
information, exhibits and reports furnished to the Agent or the Banks
by or on behalf of any Company do not and will not contain any untrue
statement of a material fact and do not and will not omit to state any
material fact or any fact necessary to make the statements contained
therein not misleading in light of the circumstances in which made,
and will promptly disclose to the Agent and the Banks and correct any
material defect or error that may be discovered therein or in any Loan
Document or in the execution, acknowledgement or recordation thereof;
provided that nothing in this Section 7.12(a) shall apply to any
projections, forward-looking information or other similar or related
information furnished by or on behalf of any Company or any Subsidiary
in connection with the Loan Documents.
(b) The Companies shall ensure that all projections,
forward-looking information or other similar or related information
furnished by or on behalf of such Company in connection with the Loan
Documents are prepared in good faith on the basis of the assumptions
stated therein, which assumptions are fair in the light of conditions
existing at the time of delivery of such forecasts, and represent, at
the time of delivery, such Company or such Subsidiary's best estimate
of its future financial performance.
(c) The Companies shall provide such other documentation
and cooperation as the Agent or the Required Banks reasonably request
in connection with the exercise by the Agent and the Banks of their
rights and remedies under the Loan Documents.
7.13 Financial Covenants. STK will, unless the Required Banks
shall otherwise consent in writing:
(a) Maintenance of Consolidated Tangible Net Worth.
Maintain as at the end of each fiscal quarter a Consolidated Tangible
Net Worth of STK and its Subsidiaries of not less than at any time the
amount that is, (i)(A) $760,000,000, plus (B) the sum of 75% of
Consolidated Net Income (excluding any Consolidated Net Loss) of STK
and its Subsidiaries earned in each fiscal quarter after the Closing
Date, plus (C) 75% of the amount of all proceeds (net of costs and
expenses) received pursuant to the issuance of any equity securities
issued by STK after the Closing Date, plus (D) 100% of the face amount
of any Subordinated Indebtedness that is converted into stock of STK
after the Closing Date, less (ii) 100% of the amount of stock
repurchased to offset dilution from conversions of such Subordinated
Indebtedness to the extent such amounts repurchased (A) do not exceed
the face value of such converted Subordinated Indebtedness, (B) total
no more than $175,000,000 and (C) are actually repurchased within
180 days from the date of any announced conversion and in any event
not later than August 28, 1997.
(b) Maintenance of Quick Ratio. Maintain as at the end of
each fiscal quarter a Consolidated Quick Ratio of STK and its
Subsidiaries of not less than 1.25:1.00.
(c) Consolidated Net Income. Not permit (i) any
Consolidated Net Loss or Consolidated Operating Loss of STK and its
Subsidiaries to occur for each of any two consecutive fiscal quarters
(calculated as of the last day of each such fiscal quarter); or (ii)
Consolidated Net Loss or Consolidated Operating Loss of STK and its
Subsidiaries for any fiscal quarter to be greater than $25,000,000.
(d) Total Leverage Ratio Achieve as at each fiscal
quarter end a Consolidated Total Leverage Ratio of STK and its
Subsidiaries of not greater than 0.75:1.00.
7.14 Sale of SFSC. If the SFSC Sale shall not have been
consummated within 60 days after the Closing Date, STK shall cause
SFSC to execute and deliver to the Agent (i) a guaranty in
substantially the form of the Guaranties, (ii) a security agreement in
substantially the form of the Security Agreements and (iii) such other
documentation as the Agent or the Banks may reasonably require.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any
Loan or other Obligation shall remain unpaid or unsatisfied, or any
Letter of Credit shall remain outstanding, unless the Required Banks
waive compliance in writing:
8.1 Limitation on Liens. Each Company shall not, and shall not
suffer or permit any Material Subsidiary to, directly or indirectly,
make, create, incur, assume or suffer to exist any Lien upon or with
respect to any part of its property, whether now owned or hereafter
acquired, other than the following ("Permitted Liens"):
(a) Liens for taxes, assessments or governmental charges
or levies, and to the extent not past due or to the extent contested,
in good faith, by appropriate proceedings and for which adequate
reserves have been established in accordance with GAAP;
(b) Liens imposed by law, such as materialman's,
mechanic's, carrier's, workman's, and repairman's Liens and other
similar Liens arising in the ordinary course of business which relate
to obligations which are not overdue for a period of more than 45 days
or which are being contested in good faith, by appropriate proceedings
and for which adequate reserves have been established in accordance
with GAAP;
(c) pledges or deposits (other than of any of the
Collateral) in the ordinary course of business to secure nondelinquent
obligations under workman's compensation or unemployment laws or
similar legislation or to secure the performance of leases or trade
contracts entered into in the ordinary course of business or of public
or nondelinquent statutory obligations, bids, or appeal bonds;
(d) Liens upon or in any property acquired or held by the
Companies or any of their respective Subsidiaries to secure the
purchase price or construction costs (and, to the extent financed,
sales and excise taxes, delivery and installation costs and other
related expenses) of such property or to secure indebtedness incurred
solely for the purpose of financing or refinancing the acquisition or
construction of any such property to be subject to such Liens, or
Liens existing on any such property at the time of acquisition, or
extensions, renewals or replacements of any of the foregoing for the
same or a lesser principal amount, provided that no such Lien shall
extend to or cover any property other than the property being acquired
and no such extension, renewal or replacement shall extend to or cover
any property not theretofore subject to the Lien being extended,
renewed or replaced;
(e) Liens consisting of the interest of a lessor upon any
assets subject to a Capital Lease and securing payment of the
obligations arising under such Capital Lease;
(f) zoning restrictions, easements, licenses, landlord's
Liens or restrictions on the use of any real property occupied by the
Companies or their respective Subsidiaries, which do not materially
impair the use of such property in the operation of the business of
the Companies or any of their respective Subsidiaries or the value of
such property for the purpose of such business;
(g) Liens associated with judgments and awards to the
extent such judgments and awards do not create an Event of Default
under subsection 9.1(i) hereof, provided, that such Liens are not, to
any extent, prior to the Lien of the Agent under the Collateral
Documents;
(h) Liens in favor of the issuer of a documentary
commercial letter of credit, provided, that such Liens are limited
exclusively to the goods covered by such letter of credit;
(i) Liens listed on Schedule 8.1(i) securing Indebtedness
outstanding on the Closing Date;
(j) Liens consisting of the interest of a lessor under
Operating Leases made in the ordinary course of business, or existing
on property leased by STK or its Subsidiaries under an Operating Lease
in the ordinary course of business; and
(k) Liens in connection with the Permitted Receivables
Purchase Facility (including liens on software, books and records
related to the Permitted Receivables);
(l) Liens securing borrowings by STK against life
insurance policies under which it is the beneficiary in an aggregate
amount not to exceed $30,000,000;
(m) Liens in connection with STK's credit card processing
facility with Harris Trust in an aggregate amount not to exceed
$5,000,000; and
(n) Consensual Liens not described in subclauses (a)
through (m) above that do not encumber Collateral and that relate to
liabilities other than borrowed money debt (including Liens incurred
in connection with sales and leasebacks of the Companies' assets) and
securing obligations not in excess of $20,000,000 in the aggregate at
any time for all such Liens for STK and its Subsidiaries together.
Additionally, each Company will not, and will not permit any of
its Subsidiaries to, enter into any agreement (other than this
Agreement, any other Loan Document) prohibiting the creation or
assumption of any Lien upon any of its properties, revenues or assets,
whether now owned or hereafter acquired.
8.2 Disposition of Assets. Each Company shall not, and shall
not suffer or permit any Subsidiary to, directly or indirectly, sell,
assign, lease, convey, transfer or otherwise dispose of (whether in
one or a series of transactions) any property (including accounts and
notes receivable, with or without recourse) or enter into any
agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out, obsolete
or surplus equipment or other assets not practically usable in the
business of such Company, all in the ordinary course of business;
(b) dispositions of leases of Foreign Subsidiaries of the
Companies (including Subsidiaries of Subsidiaries) provided that the
aggregate value of such leases does not exceed $100,000,000 and such
dispositions occur prior to December 31, 1996;
(c) 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; and
(d) dispositions of assets in the ordinary course of
business (other than Collateral) by a Company or any of its
Subsidiaries to the other Company or any of its Subsidiaries pursuant
to reasonable business requirements;
(e) dispositions of Permitted Receivables (including
software, books and records related to Permitted Receivables) pursuant
to the Permitted Receivables Purchase Facility;
(f) dispositions in connection with a sale/leaseback
transaction involving real or personal property of the Companies or
their respective Subsidiaries; provided, that any such sale/leaseback
transaction is otherwise permitted under this Agreement; and
(g) dispositions not otherwise permitted hereunder which
are made for fair market value; provided, that (i) at the time of any
disposition, no Event of Default shall exist or shall result from such
disposition, and (ii) the aggregate value of all assets so sold by the
Companies and their Subsidiaries, together, shall not exceed in any
fiscal year $50,000,000; and
(h) dispositions listed on Schedule 8.2.
8.3 Consolidations and Mergers. Each Company shall not, and
shall not suffer or permit any Subsidiary to, merge, consolidate with
or into, or convey, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter
acquired) to or acquire all or substantially all of the assets of, any
Person, except:
(a) any Subsidiary may merge with a Company, provided that
such Company shall be the continuing or surviving corporation, or with
any one or more Subsidiaries, provided that if any transaction shall
be between a Subsidiary and a Wholly-Owned Subsidiary, the
Wholly-Owned Subsidiary shall be the continuing or surviving
corporation; and
(b) any Subsidiary may sell all or substantially all of
its assets (upon voluntary liquidation or otherwise), to a Company or
another Wholly-Owned Subsidiary.
Nothing in this Section 8.3 shall prevent any of the Companies or
any of their respective Subsidiaries from merging with, or acquiring
all or substantially all of the assets of any Person if (i) with
respect to a merger, any such Company or such Subsidiary party to such
merger is the surviving entity of such merger, (ii) the total assets
(including securities and all other assets) so acquired, together with
the total assets for all such transactions occurring after the Closing
Date (in each case as measured on the effective date of such merger or
acquisition), do not exceed an amount greater than 17.5% of the
Consolidated Tangible Net Worth of STK and its Subsidiaries as such
Consolidated Tangible Net Worth is determined as of the last day of
the fiscal quarter ending immediately prior to the closing of such
merger or acquisition, (iii) the merger or acquisition involves an
entity engaged in a similar business to that of STK; and (iv) no
Default or Event of Default has occurred or would occur from such
merger or acquisition.
If any Acquisition or Investment is hostile, no proceeds of any
Loan or Letter of Credit may be used, directly or indirectly, therefor
("hostile" for purposes of this sentence meaning the prior effective
written consent of the board of directors or equivalent governing body
of the acquiree is not obtained).
<PAGE>
8.4 Loans and Investments. Each Company shall not purchase or
acquire, or suffer or permit any Subsidiary to purchase or acquire, or
make any commitment therefor, any capital stock, equity interest, or
any obligations or other securities of, or any interest in, any
Person, or make or commit to make any advance, loan, extension of
credit or capital contribution to or any other investment in, any
Person including any Affiliate of a Company (together, but excluding
Acquisitions, "Investments"), except for:
(a) Investments held by a Company or Subsidiary in the
form of cash equivalents;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods
or services in the ordinary course of business;
(c) extensions of credit by a Company to any of its
Subsidiaries or by any of its Subsidiaries to another of its
Subsidiaries;
(d) (i) Investments in any distributor of STK products or
any supplier of raw materials or services useful to the business of
such Company and its Subsidiaries (other than the acquisition of such
Person by any Company or its Subsidiaries), or in any partnership or
corporation with others, (ii) Joint-Ventures and (iii) other
Investments, provided, that (A) the book value (as to the respective
Company) of any such Investment or Joint-Venture, together with such
value of all prior Investments or Joint-Ventures described in clauses
(i) through (iii) of this Section 8.4(d) undertaken by any Company and
its Subsidiaries after the Closing Date, shall not exceed at the time
of such Investment or Joint Venture, 10% of Consolidated Tangible Net
Worth as calculated as of the most recent fiscal quarter prior to such
Investment or Joint-Venture and (B) such Investments and Joint-
Ventures are undertaken in accordance with all applicable Requirements
of Law;
(e) Investments constituting Permitted Swap Obligations or
payments or advances under Swap Contracts relating to Permitted Swap
Obligations;
(f) Investments complying with the investment policy for
the Companies and their Subsidiaries described on Schedule 8.4(f), as
such schedule may be amended from time to time with the prior written
consent of the Required Banks, which consent shall not be unreasonably
withheld;
(g) contributions, loans or advances to, or guarantees of,
any Company or any Subsidiary in connection with the Permitted
Receivables Purchase Facility; and
(h) loans to employees of STK or any of its Subsidiaries
not to exceed $20,000,000 (valued without regard to any write-down due
to uncollectability) at any one time outstanding for all such loans to
all employees of STK and its Subsidiaries in the aggregate.
8.5 Limitation on Subordinated Indebtedness. Each Company shall
not, and shall not suffer or permit any Subsidiary to, create, incur,
assume, suffer to exist, or otherwise become or remain directly or
indirectly liable with respect to, any subordinated indebtedness,
except for Subordinated Indebtedness existing on the date hereof.
8.6 Transactions with Affiliates. Each Company shall not, and
shall not suffer or permit any Subsidiary to, enter into any
transaction with any Affiliate of each such Company, except
(i) upon fair and reasonable terms no less favorable to each such
Company or such Subsidiary than it would obtain in a comparable
arm's-length transaction with a Person not an Affiliate of such
Company or such Subsidiary and (ii) transactions between Subsidiaries
of the Companies and transactions between the Companies and their
Subsidiaries on terms fair and reasonable to all interested parties
and undertaken by all such parties in good faith and in the ordinary
course of business.
8.7 Use of Proceeds. Each Company shall not, and shall not
suffer or permit any Subsidiary to, use any portion of the Loan
proceeds or any Letter of Credit, directly or indirectly, (i) to
purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of any such Company or others incurred to purchase or
carry Margin Stock, (iii) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the
Exchange Act.
8.8 Contingent Obligations. Each Company shall not, and shall
not suffer or permit any Subsidiary to, create, incur, assume or
suffer to exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary
course of business;
(b) Permitted Swap Obligations;
(c) L/C Obligations in favor of BofA or any Affiliate of
BofA in connection with the Permitted Receivables Purchase Facility;
(d) Contingent Obligations in favor of BofA or any
Affiliate of BofA including, without limitation, in the form of
recourse to the Companies or guaranties by the Companies in connection
with the Permitted Receivables Purchase Facility;
(e) Contingent Obligations of each such Company and its
Subsidiaries existing as of the Closing Date and listed in
Schedule 8.8(e) and any renewals, extensions or modifications thereof
so long as the aggregate amount of such Contingent Obligations does
not increase from the amount existing on the Closing Date;
(f) Contingent Obligations with respect to Surety
Instruments incurred in the ordinary course of business and not
exceeding at any time $30,000,000 in the aggregate in respect of each
such Company and its Subsidiaries together;
(g) Contingent Obligations arising under the Loan
Documents;
(h) Contingent Obligations arising in connection with
Indebtedness of any Subsidiary of the Companies, provided, that such
Indebtedness is otherwise permitted by the Credit Agreement;
(i) Contingent Obligations arising in connection with the
SFSC Sale limited to Contingent Obligations under that certain
Guaranty, dated March 20, 1996, by STK in favor of Leasetec
Corporation ("Leasetec"); and
(j) Contingent Obligations of STK pursuant to guaranties
in favor of Leasetec or any of its Subsidiaries so long as the
aggregate amount thereof does not exceed at any time $25,000,000.
8.9 Joint Ventures. The Companies shall not, and shall not
suffer or permit any of their Subsidiaries to enter into any Joint
Venture, other than in the ordinary course of business, or as
permitted pursuant to Section 8.4.
8.10 Restricted Payments. So long as there is no Default or
Event of Default, each Company shall not, and shall not suffer or
permit any Subsidiary to, declare or make any dividend payment or
other distribution of assets, properties, cash, rights, obligations or
securities on account of any shares of any class of its capital stock,
or purchase, redeem or otherwise acquire for value any shares of its
capital stock or any warrants, rights or options to acquire such
shares, now or hereafter outstanding; except that each Company may:
(a) declare and make dividend payments or other
distributions payable solely in its common stock;
(b) 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) (i) purchase, redeem or otherwise acquire shares of
its common stock or (ii) declare and make dividend payments in cash,
so long as in the aggregate amount of cash used by the Companies
pursuant to this clause (c) does not exceed $50,000,000; and
(d) purchase, redeem or acquire shares of its common stock
to offset dilution from Convertible Subordinated Debentures and New
Convertible Subordinated Debentures previously converted into common
stock of such Company so long as (i) such purchase, redemption or
acquisition occurs within 180 days of the date of conversion and, in
any event, by no later than August 28, 1997 and (ii) the amount of any
such purchase, redemption or acquisition that exceeds the face value
of such Indebtedness converted shall not, when aggregated with
purchases, redemptions or acquisitions pursuant to clause (c) above,
exceed $50,000,000.
8.11 Subordinated Indebtedness. Each Company shall not prepay,
redeem, defease (whether actually or in substance) or purchase in any
manner (or deposit or set aside funds or securities for the purpose of
the foregoing), or make any payment (other than for scheduled payments
of interest due on the date of payment thereof, if such payment is
permitted to be made pursuant to the terms of the documents evidencing
or governing the applicable Subordinated Indebtedness) in respect of,
or establish any sinking fund, reserve or like set aside of funds or
other property for the redemption, retirement or repayment of, any
Subordinated Indebtedness, or transfer any property in payment of or
as security for the payment of, or violate the subordination terms of,
any Subordinated Indebtedness, or amend, modify or change in any
manner the terms of any Subordinated Indebtedness or any instrument,
indenture or other document evidencing, governing or affecting the
terms of any Subordinated Indebtedness, if any such amendment,
modification or change has or would have an adverse effect on the
Agent's, any Bank's, the Swingline Bank's or the Issuing Bank's rights
or remedies under any of the Loan Documents, or cause or permit any of
its Subsidiaries to do any of the foregoing; provided, however, that
nothing in this Section 8.11 shall prevent STK, so long as there
exists no Default or Event of Default, and none would arise therefrom,
from declaring a redemption of Convertible Subordinated Debentures and
New Convertible Subordinated Debentures with a book value of up to
$175,000,000 until December 31, 1996 so long as the actual redemption
date occurs no later than February 28, 1997; and, provided, further,
that so long as no Event of Default or Default has occurred and is
continuing, the Companies and their Subsidiaries may redeem any
Subordinated Indebtedness that is convertible into equity of a Company
if and to the extent such redemption is fully underwritten by a
nationally recognized financial institution or investment bank
acceptable to the Agent and the Required Banks in their sole
discretion.
8.12 ERISA. Each Company shall not, and shall not suffer or
permit any of its ERISA Affiliates to: (a) engage in a prohibited
transaction or violation of the fiduciary responsibility rules with
respect to any Plan which has resulted or could reasonably expected to
result in liabilities of the Companies in an aggregate amount in
excess of $10,000,000; or (b) engage in a transaction that could be
subject to Section 4069 or 4212(c) of ERISA.
8.13 Change in Business. Each Company shall not, make any
material change in the nature of such Company's business as conducted
on the Closing Date.
8.14 Accounting Changes. Each Company shall not, and shall not
suffer or permit any Material Subsidiary to, make any significant
change in accounting treatment or reporting practices, except as
required by GAAP, or change the fiscal year of each such Company or
any Material Subsidiary.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Event of Default. Any of the following events shall
constitute an "Event of Default":
(a) Non-Payment. Any Company fails to pay, (i) when and
as required to be paid herein, any amount of principal of any Loan or
of any L/C Obligation, or (ii) within two Business Days after the same
becomes due, any interest, fee or any other amount payable hereunder
or under any other Loan Document; or
(b) Representation or Warranty. Any representation or
warranty by any Company made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or
financial or other statement by any Company, or any Responsible
Officer, furnished at any time under this Agreement, or in or under
any other Loan Document, is incorrect in any material respect on or as
of the date made or deemed made; or
(c) Specific Defaults. Any Company (i) fails to perform
or observe any term, covenant or agreement contained in Sections 7.3,
7.4, 7.11 or 7.13 or in Article VIII; or (ii) fails to perform or
observe any term, covenant or agreement contained in Sections 7.1, 7.2
or 7.9 and such failure shall continue for five Business Days; or
(d) Other Defaults. Any Company or any Subsidiary party
thereto fails to perform or observe any other term or covenant
contained in this Agreement or any other Loan Document, and such
default shall continue unremedied for a period of 30 days after the
earlier of (i) the date upon which a Responsible Officer knew or
reasonably should have known of such failure or (ii) the date upon
which written notice thereof is given to any Company by the Agent or
any Bank; or
(e) Cross-Default. Any Company or any Subsidiary
(i) fails to make any payment in respect of any Indebtedness or
Contingent Obligation (other than Indebtedness or Contingent
Obligations hereunder), 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 $10,000,000 when due (whether by scheduled
maturity, required prepayment, acceleration, demand, or otherwise) and
such failure shall continue for five Business Days; or (ii) 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 such Indebtedness or Contingent Obligation, if the
effect of such failure, event or condition is to cause, or to permit
the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of
such holder or holders or beneficiary or beneficiaries) to cause such
Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded; or
(f) Insolvency; Voluntary Proceedings. Any Company or any
Material Subsidiary (i) ceases or fails to be solvent, or generally
fails to pay, or admits in writing its inability to pay, its debts as
they become due, subject to applicable grace periods, if any, whether
at stated maturity or otherwise; (ii) voluntarily ceases to conduct
its business in the ordinary course; (iii) commences any Insolvency
Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary
Insolvency Proceeding is commenced or filed against any Company or any
Material Subsidiary, or any writ, judgment, warrant of attachment,
execution or similar process, is issued or levied against a
substantial part of any Company's or any Material Subsidiary's
properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or
similar process shall not be released, vacated or fully bonded within
60 days after commencement, filing or levy; (ii) any Company or any
Material Subsidiary admits the material allegations of a petition
against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency
Proceeding; or (iii) any Company or any Material Subsidiary acquiesces
in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other
similar Person for itself or a substantial portion of its property or
business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to
a Pension Plan or Multiemployer Plan which has resulted or could
reasonably be expected to result in liability of any Company under
Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC
in an aggregate amount in excess of $10,000,000; (ii) the aggregate
amount of Unfunded Pension Liability among all Pension Plans at any
time exceeds $10,000,000; or (iii) any Company or any ERISA Affiliate
shall fail to pay when due, after the expiration of any applicable
grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an
aggregate amount in excess of $10,000,000; or
(i) Monetary Judgments. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is
entered against any Company or any Subsidiary involving in the
aggregate a liability (to the extent not covered by independent third-
party insurance as to which the insurer does not dispute coverage) as
to any single or related series of transactions, incidents or
conditions, of $10,000,000 or more, and the same shall remain
unvacated and unstayed pending appeal for a period of 10 days after
the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment,
order or decree is entered against any Company or any Subsidiary which
does or would reasonably be expected to have a Material Adverse
Effect, and there shall be any period of 30 consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(k) Change of Control. There occurs any Change of
Control; or
(l) Adverse Change. There occurs a Material Adverse
Effect; or
(m) Collateral.
(i)any material provision (determined in the sole
discretion of the Agent and the Required Banks) of any Collateral
Document shall for any reason cease to be valid and binding on or
enforceable against any Company or any Subsidiary party thereto
or STK or any Subsidiary of STK shall so state in writing or
bring an action to limit its obligations or liabilities
thereunder; or
(A)any Collateral Document shall for any reason
(other than pursuant to the terms thereof) cease to create a
valid security interest in the Collateral purported to be covered
thereby having a fair market or book value in excess of
$1,000,000 in the aggregate or such security interest shall for
any reason cease to be a perfected and first priority security
interest subject only to Permitted Liens; or
(n) Guarantor Defaults. Any Guarantor fails in any
material respect to perform or observe any material term, covenant or
agreement in its Guaranty (determined in the sole discretion of the
Agent and the Required Banks); or any 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 any Guarantor or any other Person authorized by any
Guarantor contests in any manner the validity or enforceability
thereof or denies that it has any further liability or obligation
thereunder; or
(o) Invalidity of Subordination Provisions. The
Convertible Subordinated Debentures or the subordination provisions
governing the New Convertible Subordinated Debentures or any agreement
or instrument governing any other Subordinated Indebtedness is for any
reason revoked or invalidated, or otherwise ceases to be in full force
and effect, any Person party thereto contests in any manner the
validity or enforceability thereof or denies that it has any further
liability or obligation thereunder, or the Indebtedness hereunder is
for any reason subordinated or does not have the priority contemplated
by this Agreement or such other subordination provisions.
9.2 Remedies. If any Event of Default occurs and is continuing,
the Agent shall, at the request of, or may, with the consent of, the
Required Banks,
(a) declare the commitment of each Bank to make Loans and
the commitment of the Swingline Bank to make Swingline Loans, and any
obligation of the Issuing Bank to Issue Letters of Credit to be
terminated, whereupon such commitments and obligation shall be
terminated;
(b) declare an amount equal to the maximum aggregate
amount that is or at any time thereafter may become available for
drawing under any outstanding Letters of Credit (whether or not any
beneficiary shall have presented, or shall be entitled at such time to
present, the drafts or other documents required to draw under such
Letters of Credit) to be immediately due and payable, and declare the
unpaid principal amount of all outstanding Loans, all interest accrued
and unpaid thereon, and all other amounts owing or payable hereunder
or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all
of which are hereby expressly waived by each Company; and
(c) exercise on behalf of itself and the Banks all rights
and remedies available to it and the Banks under the Loan Documents or
applicable law;
provided, however, that upon the occurrence of any event specified in
subsection (f) or (g) of Section 9.1 (in the case of clause (i) of
subsection (g) upon the expiration of the 60-day period mentioned
therein), the obligation of each Bank to make Loans and any obligation
of the Issuing Bank to Issue Letters of Credit shall automatically
terminate and the unpaid principal amount of all outstanding Loans and
all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, the Issuing Bank or
any Bank.
9.3 Rights Not Exclusive. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not
exclusive of any other rights, powers, privileges or remedies provided
by law or in equity, or under any other instrument, document or
agreement now existing or hereafter arising.
9.4 Certain Financial Covenant Defaults. In the event that,
after taking into account any extraordinary charge to earnings taken
or to be taken as of the end of any fiscal period of any Company (a
"Charge"), and if solely by virtue of such Charge, there would exist
an Event of Default due to the breach of any of Section 7.13 as of
such fiscal period end date, such Event of Default shall be deemed to
arise upon the earlier of (a) the date after such fiscal period end
date on which such Company announces publicly it will take, is taking
or has taken such Charge (including an announcement in the form of a
statement in a report filed with the SEC) or, if such announcement is
made prior to such fiscal period end date, the date that is such
fiscal period end date, and (b) the date such Company delivers to the
Agent its audited annual or unaudited quarterly financial statements
in respect of such fiscal period reflecting such Charge as taken.
ARTICLE X
THE AGENT
10.1 Appointment and Authorization; "Agent". (a) Each Bank
hereby irrevocably (subject to Section 10.9) appoints, designates and
authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan
Document, together with such powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly
set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any other Loan Document or otherwise
exist against the Agent. Without limiting the generality of the
foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or
other implied (or express) obligations arising under agency doctrine
of any applicable law. Instead, such term is used merely as a matter
of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with
respect to any Letters of Credit Issued by it and the documents
associated therewith until such time and except for so long as the
Agent may agree at the request of the Required Banks to act for such
Issuing Bank with respect thereto; provided, however, that the Issuing
Bank shall have all of the benefits and immunities (i) provided to the
Agent in this Article X with respect to any acts taken or omissions
suffered by the Issuing Bank in connection with Letters of Credit
Issued by it or proposed to be Issued by it and the application and
agreements for letters of credit pertaining to the Letters of Credit
as fully as if the term "Agent", as used in this Article X, included
the Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to the Issuing
Bank.
10.2 Delegation of Duties. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice
of counsel concerning all matters pertaining to such duties. The
Agent shall not be responsible for the negligence or misconduct of any
agent or attorney-in-fact that it selects with reasonable care.
10.3 Liability of Agent. None of the Agent-Related Persons shall
(i) be liable for any action taken or omitted to be taken by any of
them under or in connection with this Agreement or any other Loan
Document or the transactions contemplated hereby (except for its own
gross negligence or willful misconduct), or (ii) be responsible in any
manner to any of the Banks for any recital, statement, representation
or warranty made by any Company or any Subsidiary or Affiliate of any
Company, or any officer thereof, contained in this Agreement or in any
other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent
under or in connection with, this Agreement or any other Loan
Document, for the value of or title to any Collateral, or the
validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other Loan Document, or for any failure of any
Company or any other party to any Loan Document to perform its
obligations hereunder or thereunder. No Agent-Related Person shall be
under any obligation to any Bank to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to
inspect the properties, books or records of any Company or any of such
Company's Subsidiaries or Affiliates.
10.4 Reliance by Agent. (a) The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, telegram, facsimile,
telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been
signed, sent or made by the proper Person or Persons, and upon advice
and statements of legal counsel (including counsel to any Company),
independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Required Banks as it
deems appropriate and, if it so requests, it shall first be
indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking
or continuing to take any such action. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or
consent of the Required Banks and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the
Banks.
(b) For purposes of determining compliance with the
conditions specified in Section 5.1, each Bank that has executed this
Agreement shall be deemed to have consented to, approved or accepted
or to be satisfied with, each document or other matter either sent by
the Agent to such Bank for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by
or acceptable or satisfactory to the Bank.
10.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal,
interest and fees required to be paid to the Agent for the account of
the Banks, unless the Agent shall have received written notice from a
Bank or a Company referring to this Agreement, describing such Default
or Event of Default and stating that such notice is a "notice of
default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default
or Event of Default as may be requested by the Required Banks in
accordance with Article IX; provided, however, that unless and until
the Agent has received any such request, the Agent may (but shall not
be obligated to) take such action, or refrain from taking such action,
with respect to such Default or Event of Default as it shall deem
advisable or in the best interest of the Banks.
10.6 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it,
and that no act by the Agent hereinafter taken, including any review
of the affairs of any Company and its Subsidiaries, shall be deemed to
constitute any representation or warranty by any Agent-Related Person
to any Bank. Each Bank represents to the Agent that it has,
independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business,
prospects, operations, property, financial and other condition and
creditworthiness of each Company and its Subsidiaries, the value of
and title to any Collateral, and all applicable bank regulatory laws
relating to the transactions contemplated hereby, and made its own
decision to enter into this Agreement and to extend credit to each
Company hereunder. Each Bank also represents that it will,
independently and without reliance upon any Agent-Related Person and
based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and
decisions in taking or not taking action under this Agreement and the
other Loan Documents, and to make such investigations as it deems
necessary to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of each
Company. Except for notices, reports and other documents expressly
herein required to be furnished to the Banks by the Agent, the Agent
shall not have any duty or responsibility to provide any Bank with any
credit or other information concerning the business, prospects,
operations, property, financial and other condition or
creditworthiness of any Company which may come into the possession of
any of the Agent-Related Persons.
10.7 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon
demand the Agent-Related Persons (to the extent not reimbursed by or
on behalf of any Company and without limiting the obligation of each
Company to do so), pro rata, from and against any and all Indemnified
Liabilities; provided, however, that no Bank shall be liable for the
payment to the Agent-Related Persons of any portion of such
Indemnified Liabilities resulting solely from such Person's gross
negligence or willful misconduct. Without limitation of the
foregoing, each Bank shall reimburse the Agent upon demand for its
ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that
the Agent is not reimbursed for such expenses by or on behalf of the
Companies. The undertaking in this Section shall survive the payment
of all Obligations hereunder and the resignation or replacement of the
Agent.
10.8 Agent in Individual Capacity. BofA and its Affiliates may
make loans to, issue letters of credit for the account of, accept
deposits from, acquire equity interests in and generally engage in any
kind of banking, trust, financial advisory, underwriting or other
business with any Company and its Subsidiaries and Affiliates as
though BofA were not the Agent or the Issuing Bank hereunder and
without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, BofA or its Affiliates may receive
information regarding any Company or its Affiliates (including
information that may be subject to confidentiality obligations in
favor of such Company or such Subsidiary) and acknowledge that the
Agent shall be under no obligation to provide such information to
them. With respect to its Loans, BofA shall have the same rights and
powers under this Agreement as any other Bank and may exercise the
same as though it were not the Agent or the Issuing Bank.
10.9 Successor Agent. The Agent may, and at the request of the
Required Banks shall, resign as Agent upon 30 days' notice to the
Banks. If the Agent resigns under this Agreement, the Required Banks
shall appoint from among the Banks a successor agent for the Banks.
If no successor agent is appointed prior to the effective date of the
resignation of the Agent, the Agent may appoint, after consulting with
the Banks and each Company, a successor agent from among the Banks.
Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's appointment, powers and
duties as Agent shall be terminated. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article X and
Sections 11.4 and 11.5 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by
the date which is 30 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless
thereupon become effective and the Banks shall perform all of the
duties of the Agent hereunder until such time, if any, as the Required
Banks appoint a successor agent as provided for above.
Notwithstanding the foregoing, however, BofA may not be removed as the
Agent at the request of the Required Banks unless BofA shall also
simultaneously be replaced as "Issuing Bank" and "Swingline Bank"
hereunder pursuant to documentation in form and substance reasonably
satisfactory to BofA.
10.10 Withholding Tax. (a) If any Bank is a "foreign
corporation, partnership or trust" within the meaning of the Code and
such Bank claims exemption from, or a reduction of, U.S. withholding
tax under Sections 1441 or 1442 of the Code, such Bank agrees to
deliver to the Agent and each Company:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty,
two properly completed and executed copies of IRS Form 1001
before the payment of any interest in the first calendar year and
before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this
Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or
business of such Bank, two properly completed and executed copies
of IRS Form 4224 before the payment of any interest is due in the
first taxable year of such Bank and in each succeeding taxable
year of such Bank during which interest may be paid under this
Agreement; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition
to exemption from, or reduction of, United States withholding
tax.
Such Bank agrees to promptly notify the Agent and each Company of any
change in circumstances which would modify or render invalid any
claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form
1001 and such Bank sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of any Company to
such Bank, such Bank agrees to notify the Agent and each Company of
the percentage amount in which it is no longer the beneficial owner of
Obligations of any such Company to such Bank. To the extent of such
percentage amount, the Agent and each Company will treat such Bank's
IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent and each
Company sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of any Company to such Bank,
such Bank agrees to undertake sole responsibility for complying with
the withholding tax requirements imposed by Sections 1441 and 1442 of
the Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Company (or if not withheld by the
Company the Agent) may withhold from any interest payment to such
Bank, or to the Agent on behalf of such Bank, an amount equivalent to
the applicable withholding tax after taking into account such
reduction. However, if the forms or other documentation required by
subsection (a) of this Section are not delivered to the Agent and each
Company, then the Companies (or the Agent, if not withheld by the
Companies) may withhold from any interest payment to such Bank, or to
the Agent on behalf of such Bank, not providing such forms or other
documentation an amount equivalent to the applicable withholding tax
imposed by Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Companies
or the Agent did not properly withhold tax from amounts paid to or for
the account of any Bank (because the appropriate form was not
delivered or was not properly executed, or because such Bank failed to
notify the Companies or the Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax
ineffective, or for any other reason) such Bank shall indemnify the
Companies or the Agent fully for all amounts paid, directly or
indirectly, by the Companies or the Agent as tax or otherwise,
including penalties and interest, and including any taxes imposed by
any jurisdiction on the amounts payable to the Companies or the Agent
under this Section, together with all costs and expenses (including
Attorney Costs). The obligation of the Banks under this subsection
shall survive the payment of all Obligations and the resignation or
replacement of the Agent.
<PAGE>
10.11 Collateral Matters. (a) The Agent is authorized on
behalf of all the Banks, without the necessity of any notice to or
further consent from the Banks, from time to time to take any action
with respect to any Collateral or the Collateral Documents which may
be necessary to perfect and maintain perfected the security interest
in and Liens upon the Collateral granted pursuant to the Collateral
Documents.
(b) The Banks irrevocably authorize the Agent, at its
option and in its discretion, to release any Lien granted to or held
by the Agent upon any Collateral (i) upon termination of the
Commitments and payment in full of all Loans and all other Obligations
known to the Agent and payable under this Agreement or any other Loan
Document; (ii) constituting property sold or to be sold or disposed of
as part of or in connection with any disposition permitted hereunder;
(iii) constituting property in which any Company or any Subsidiary
owned no interest at the time the Lien was granted or at any time
thereafter; (iv) constituting property leased to any Company or any
Subsidiary under a lease which has expired or been terminated in a
transaction permitted under this Agreement or is about to expire and
which has not been, and is not intended by such Company or such
Subsidiary to be, renewed or extended; (v) consisting of an instrument
evidencing Indebtedness or other debt instrument, if the indebtedness
evidenced thereby has been paid in full; (vi) Collateral with an
aggregate value (determined by book value) during the term of this
Agreement of $10,000,000, or (vii) if approved, authorized or ratified
in writing by the Required Banks or all the Banks, as the case may be,
as provided in subsection 11.1(f). Upon request by the Agent at any
time, the Banks will confirm in writing the Agent's authority to
release particular types or items of Collateral pursuant to this
subsection 10.11(b), provided that the absence of any such
confirmation for whatever reason shall not affect the Agent's rights
under this Section 10.11.
(c) Upon the request of any Company, the Agent agrees to
release any Lien granted to or held by the Agent upon any Collateral
as authorized pursuant to paragraph (b) above and as otherwise
permitted hereunder; provided, that, for any release pursuant to
subclause (vi) of paragraph (b) above, the request of such Company
shall set forth the book value and type of Collateral to be releases
and the aggregate book value of Collateral previously released
pursuant to such subclause (vi).
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent
with respect to any departure by any Company or any applicable
Subsidiary therefrom, shall be effective unless the same shall be in
writing and signed by the Required Banks (or by the Agent at the
written request of the Required Banks) and any such Company and
acknowledged by the Agent, and then any such waiver or consent shall
be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver,
amendment, or consent shall, unless in writing and signed by all the
Banks and the Companies and acknowledged by the Agent, do any of the
following:
(a) increase or extend the Commitment of any Bank or the
Swingline Commitment of the Swingline Bank;
(b) postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal, interest, fees
or other amounts due to the Banks (or any of them) hereunder or under
any other Loan Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or (subject to clause (iii) below) any
fees or other amounts payable hereunder or under any other Loan
Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for
the Banks or any of them to take any action hereunder;
(e) amend this Section, or Section 2.14, or any provision
herein providing for consent or other action by all Banks; or
(f) release Collateral except as otherwise may be provided
herein or in any Collateral Document or except where the consent of
the Required Banks only is specifically provided for (provided, that,
notwithstanding anything to the contrary herein, the Agent may release
Collateral pursuant to Section 10.11(b) without the consent of any
other Person);
and, provided, further, that (i) no amendment, waiver or consent
shall, unless in writing and signed by the Issuing Bank in addition to
the Required Banks or all the Banks, as the case may be, affect the
rights or duties of the Issuing Bank under this Agreement or any L/C-
Related Document relating to any Letter of Credit Issued or to be
Issued by it, and (ii) no amendment, waiver or consent shall, unless
in writing and signed by the Agent in addition to the Required Banks
or all the Banks, as the case may be, affect the rights or duties of
the Agent under this Agreement or any other Loan Document.
11.2 Notices. (a) All notices, requests, consents, approvals,
waivers and other communications shall be in writing (including,
unless the context expressly otherwise provides, by facsimile
transmission, provided that any matter transmitted by each Company by
facsimile (i) shall be immediately confirmed by a telephone call to
the recipient at the number specified on Schedule 11.2, and (ii) shall
be followed promptly by delivery of a hard copy original thereof) and
mailed, faxed or delivered, to the address or facsimile number
specified for notices on Schedule 11.2; or, as directed to each
Company or the Agent, to such other address as shall be designated by
such party in a written notice to the other parties, and as directed
to any other party, at such other address as shall be designated by
such party in a written notice to each Company and the Agent. All
notices to STK and STPR shall be sent to Storage Technology
Corporation, 2270 South 88th Street, Louisville, CO 80028-4309,
Attention: Assistant Treasurer, Telecopy No.: (303) 673-2837.
(b) All such notices, requests and communications shall,
when transmitted by overnight delivery, or faxed, be effective when
delivered for overnight (next-day) delivery, or transmitted in legible
form by facsimile machine, respectively, or if mailed, upon the third
Business Day after the date deposited into the U.S. mail, or if
delivered, upon delivery; except that notices pursuant to Article II,
III or X to the Agent shall not be effective until actually received
by the Agent, and notices pursuant to Article III to the Issuing Bank
shall not be effective until actually received by the Issuing Bank at
the address specified for the "Issuing Bank" on the applicable
signature page hereof.
(c) Any agreement of the Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the
convenience and at the request of each Company. The Agent and the
Banks shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by each Company to give such
notice and the Agent and the Banks shall not have any liability to any
Company or other Person on account of any action taken or not taken by
the Agent or the Banks in reliance upon such telephonic or facsimile
notice. The obligation of each Company to repay the Loans and L/C
Obligations shall not be affected in any way or to any extent by any
failure by the Agent and the Banks to receive written confirmation of
any telephonic or facsimile notice or the receipt by the Agent and the
Banks of a confirmation which is at variance with the terms understood
by the Agent and the Banks to be contained in the telephonic or
facsimile notice.
11.3 No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of the Agent or any Bank, any
right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, power or
privilege.
11.4 Costs and Expenses. Each Company shall:
(a) whether or not the transactions contemplated hereby
are consummated, pay or reimburse the Agent within five Business Days
after demand (subject to subsection 5.1(e)) for all costs and expenses
incurred by the Agent in connection with the development, preparation,
delivery, administration and execution of, and any amendment,
supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other
documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby,
including reasonable Attorney Costs and search and filing fees and
expenses incurred by the Agent with respect thereto;
(b) pay or reimburse the Agent and the Arranger and each
Bank within five Business Days after demand (subject to subsection
5.1(e)) for all costs and expenses (including reasonable Attorney
Costs and search and filing fees and expenses provided that the
Companies shall have been given statements containing reasonably
detailed bills for such fees and expenses) incurred by them in
connection with the enforcement or preservation of any rights or
remedies under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the Loans
(including in connection with any "workout" or restructuring regarding
the Loans, and including in any Insolvency Proceeding or appellate
proceeding); and
(c) during the continuance of any Event of Default, pay or
reimburse the Agent within five Business Days after demand for all
appraisal (including the allocated cost of internal appraisal
services), audit, environmental inspection and review (including the
allocated cost of such internal services), incurred or sustained by
the Agent in connection with the matters referred to under subsections
(a) and (b) of this Section.
11.5 Company Indemnification. Whether or not the transactions
contemplated hereby are consummated, each Company shall indemnify,
defend and hold the Agent-Related Persons, and each Bank and each of
its respective officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "Indemnified Person") harmless from and
against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including Attorney Costs) of any kind or nature
whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and
the termination, resignation or replacement of the Agent or
replacement of any Bank) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this
Agreement or any document contemplated by or referred to herein, or
the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related
to or arising out of this Agreement or the Loans or Letters of Credit
or the use of the proceeds thereof, whether or not any Indemnified
Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that each Company shall have no
obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this
Section shall survive payment of all other Obligations.
11.6 Marshalling; Payments Set Aside. Neither the Agent nor the
Banks shall be under any obligation to marshall any assets in favor of
the Companies or any other Person or against or in payment of any or
all of the Obligations. To the extent that any Company makes a
payment to the Agent or the Banks, or the Agent or the Banks exercise
their right of set-off, and such payment or the proceeds of such set-
off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant
to any settlement entered into by the Agent or such Bank in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any Insolvency Proceeding or otherwise, then (a) to
the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such set-off had
not occurred, and (b) each Bank severally agrees to pay to the Agent
upon demand its pro rata share of any amount so recovered from or
repaid by the Agent.
11.7 Successors and Assigns. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Companies
may not assign or transfer any of their rights or obligations under
this Agreement without the prior written consent of the Agent and each
Bank.
11.8 Assignments, Participations, Etc. (a) Any Bank may, with
the written consent of the Companies at all times other than during
the existence of an Event of Default and the Agent and the Issuing
Bank, which consents shall not be unreasonably withheld, at any time
assign and delegate to one or more Eligible Assignees (provided that
no written consent of the Companies, the Agent or the Issuing Bank
shall be required in connection with any assignment and delegation by
a Bank to an Eligible Assignee that is an Affiliate of such Bank or
that is a Bank then holding a Commitment hereunder) (each an
"Assignee") all, or any ratable part of all, of the Loans, the
Commitments, the L/C Obligations and the other rights and obligations
of such Bank hereunder, provided, that any such assigning Bank retains
a Commitment of at least $15,000,000; provided, however, that the
Companies and the Agent may continue to deal solely and directly with
such Bank in connection with the interest so assigned to an Assignee
until (i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the
Assignee, shall have been given to the Companies and the Agent by such
Bank and the Assignee; (ii) such Bank and its Assignee shall have
delivered to the Companies and the Agent an Assignment and Acceptance
in the form of Exhibit E ("Assignment and Acceptance") together with
any Note or Notes subject to such assignment and (iii) the assignor
Bank or Assignee has paid to the Agent a processing fee in the amount
of $3,500. No Assignee shall be entitled to higher recoveries or
greater rights under Sections 4.1, 4.2 and 4.3 than its assignor.
(b) From and after the date that the Agent notifies the
assignor Bank that it has received (and provided its consent with
respect to) an executed Assignment and Acceptance and payment of the
above-referenced processing fee, (i) the Assignee thereunder shall be
a party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment and
Acceptance, shall have the rights and obligations of a Bank under the
Loan Documents, and (ii) the assignor Bank shall, to the extent that
rights and obligations hereunder and under the other Loan Documents
have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under the
Loan Documents.
(c) Within five Business Days after its receipt of notice
by the Agent that it has received an executed Assignment and
Acceptance and payment of the processing fee, (and provided that it
consents to such assignment in accordance with subsection 11.8(a)),
each Company shall execute and deliver to the Agent, new Notes
evidencing such Assignee's assigned Loans and Commitment and, if the
assignor Bank has retained a portion of its Loans and its Commitment,
replacement Notes in the principal amount of the Revolving Loans
retained by the assignor Bank (such Notes to be in exchange for, but
not in payment of, the Notes held by such Bank). Immediately upon
each Assignee's making its processing fee payment under the Assignment
and Acceptance, this Agreement shall be deemed to be amended to the
extent, but only to the extent, necessary to reflect the addition of
the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
(d) Any Bank may at any time sell to one or more
commercial banks or other Persons not Affiliates of the Companies (a
"Participant") participating interests in any Loans, the Commitment of
that Bank and the other interests of that Bank (the "originating
Bank") hereunder and under the other Loan Documents; provided,
however, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall
remain solely responsible for the performance of such obligations,
(iii) the Companies, the Issuing Bank and the Agent shall continue to
deal solely and directly with the originating Bank in connection with
the originating Bank's rights and obligations under this Agreement and
the other Loan Documents, and (iv) no Bank shall transfer or grant any
participating interest under which the Participant has rights to
approve any amendment to, or any consent or waiver with respect to,
this Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of the
Banks as described in the first proviso to Section 11.1. In the case
of any such participation, the Participant shall be entitled to the
benefit of Sections 4.1, 4.3 and 11.5 as though it were also a Bank
hereunder, and not otherwise have any rights under this Agreement, or
any of the other Loan Documents, and all amounts payable by the
Companies hereunder shall be determined as if such Bank had not sold
such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall
have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of set-off
in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement,
any Bank may at any time create a security interest in, or pledge, all
or any portion of its rights under and interest in this Agreement and
the Note held by it in favor of any Federal Reserve Bank in accordance
with Regulation A of the FRB or U.S. Treasury Regulation 31
CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or
security interest in any manner permitted under applicable law.
11.9 Confidentiality. Each Bank and the Agent agrees that it
will not disclose to any third party any written information marked
"Confidential," "Secret," "Top Security," "Protected" or words of
similar import, provided to it by any Company or any Subsidiary or any
oral information which is stated to be confidential and which is
confirmed as such in writing within seven days; provided, however,
that the foregoing will not (i) restrict the ability of the Agent, the
Banks and any loan participants from freely exchanging such
information among themselves (and their respective employees,
attorneys, auditors and other professional advisors), (ii) restrict
the ability to disclose such information to a prospective Eligible
Assignee or participants, provided, that such Eligible Assignee or
participants execute a confidentiality agreement with the selling Bank
agreeing to be bound by the terms hereof prior to disclosure of such
information to such Eligible Assignee or participant, or
(iii) prohibit the disclosure of such information to the extent such
information (A) becomes publicly available other than through a breach
of this Section 11.9, (B) becomes available through a Person not a
Company or Subsidiary of any Company, (C) is required to be disclosed
pursuant to court order, subpoena, other legal process, regulatory
request or otherwise by law or (D) is disclosed in litigation with any
Company or any Subsidiary of any Company or in connection with the
enforcement of remedies by the Agent or Banks after acceleration of
the Loans or after the Termination Date.
11.10 Set-off. In addition to any rights and remedies of
the Banks provided by law, if an Event of Default exists or the Loans
have been accelerated, each Bank is authorized at any time and from
time to time, without prior notice to the Companies, any such notice
being waived by the Companies to the fullest extent permitted by law,
to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Bank to or for the credit or
the account of the Companies against any and all Obligations owing to
such Bank, now or hereafter existing, irrespective of whether or not
the Agent or such Bank shall have made demand under this Agreement or
any Loan Document and although such Obligations may be contingent or
unmatured. Each Bank agrees promptly to notify each affected Company
and the Agent after any such set-off and application made by such
Bank; provided, however, that the failure to give such notice shall
not affect the validity of such set-off and application.
11.11 Automatic Debits of Fees. With respect to any
commitment fee, upfront fee, arrangement fee, letter of credit fee or
other fee, or any other cost or expense (including Attorney Costs) due
and payable to the Agent, the Issuing Bank, BofA or the Arranger under
the Loan Documents, the Companies hereby irrevocably authorize BofA to
debit any deposit account of the Companies with BofA in an amount such
that the aggregate amount debited from all such deposit accounts does
not exceed such fee or other cost or expense. If there are
insufficient funds in such deposit accounts to cover the amount of the
fee or other cost or expense then due, such debits will be reversed
(in whole or in part, in BofA's sole discretion) and such amount not
debited shall be deemed to be unpaid. No such debit under this
Section shall be deemed a set-off.
11.12 Notification of Addresses, Lending Offices, Etc. Each
Bank shall notify the Agent in writing of any changes in the address
to which notices to the Bank should be directed, of addresses of any
Lending Office, of payment instructions in respect of all payments to
be made to it hereunder and of such other administrative information
as the Agent shall reasonably request.
11.13 Counterparts. This Agreement may be executed in any
number of separate counterparts, each of which, when so executed,
shall be deemed an original, and all of said counterparts taken
together shall be deemed to constitute but one and the same
instrument.
11.14 Severability. The illegality or unenforceability of
any provision of this Agreement or any instrument or agreement
required hereunder shall not in any way affect or impair the legality
or enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.
11.15 No Third Parties Benefited. This Agreement is made
and entered into for the sole protection and legal benefit of the
Companies, the Banks, the Agent and the Agent-Related Persons, and
their permitted successors and assigns, and no other Person shall be a
direct or indirect legal beneficiary of, or have any direct or
indirect cause of action or claim in connection with, this Agreement
or any of the other Loan Documents.
11.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT
AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE
BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN
DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE COMPANIES, THE AGENT AND THE BANKS CONSENTS,
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANIES, THE AGENT AND
THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS,
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY
DOCUMENT RELATED HERETO. THE COMPANIES, THE AGENT AND THE BANKS EACH
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
11.17 Waiver of Jury Trial. THE COMPANIES, THE BANKS AND
THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
COMPANIES, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR
CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH
SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.18 Joint and Several Obligations; Obligations Absolute.
(a) Each Company hereby agrees that all of the Obligations set forth
herein are the joint and several obligations of all of the Companies
and acknowledges that each Loan to, and each Letter of Credit Issued
for the account of, any Company will benefit each of the Companies.
Each Company hereby further agrees and unconditionally guarantees to
the Banks, the Swingline Bank, the Issuing Bank and the Agent that the
obligations of all of the other Companies other than such Company
under this Agreement, to the extent such obligations are the joint and
several obligations of all Companies in accordance with the preceding
sentence (such obligations of the other Companies being referred to
herein, with respect to each Company, as the "Other Companies'
Obligations") will be paid strictly in accordance with the terms of
this Agreement, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or
the rights of the Banks, the Swingline Bank, the Issuing Bank or the
Agent with respect thereto. The liability of each Company for the
Other Companies' Obligations shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of this
Agreement, the other Loan Documents or any other agreement or
instrument relating hereto or thereto;
(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the Other
Companies' Obligations, or any other amendment or waiver of or
any consent to departure from this Agreement or the other Loan
Documents;
(iii) any exchange, release or non-perfection of any
Collateral, or any release or amendment or waiver of or consent
to departure from any guaranty, for all or any of the Other
Companies' Obligations; or
(iv) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, any Company
other than such Company or a guarantor.
Each Company's obligations under this Agreement shall continue to be
effective or be reinstated, as the case may be, if at any time any
payment of any of the Other Companies' Obligations is rescinded or
must otherwise be returned by the Banks, the Swingline Bank, the
Issuing Bank or the Agent upon the insolvency, bankruptcy or
reorganization of any Company or otherwise, all as though such payment
had not been made.
(b) Each Company hereby waives, to the extent permitted by
applicable law, with respect to the Other Companies' Obligations:
(i) any requirement that the Agent, any Bank, the
Swingline Bank or the Issuing Bank secure or insure any security
interest or lien on any property subject thereto or exhaust any
right or take any action against any Company or any other Person
or any Collateral;
(ii) any defense arising by reason of any claim or
defense based upon an election of remedies by the Agent, any
Bank, the Swingline Bank or the Issuing Bank (including, without
limitation, an election to nonjudicially foreclose on any real or
personal property collateral) which in any manner impairs,
reduces, releases or otherwise adversely affects its subrogation,
reimbursement or contribution rights or other rights to proceed
against any Company or any other Person or any Collateral;
(iii) any defense arising by reason of the failure
of any Company or any of its Subsidiaries to properly execute any
Loan Document or otherwise comply with applicable legal
formalities;
(iv) any defense or benefits that may be derived
from California Civil Code Sections 2808, 2809, 2810, 2819, 2845 or
2850, or California Code of Civil Procedure Sections 580a, 580d or
726, or comparable provisions of the laws of any other jurisdiction
and all other suretyship defenses it would otherwise have under
the laws of California or any other jurisdiction;
(v) any duty on the part of the Agent, any Bank,
the Swingline Bank or the Issuing Bank to disclose to such
Company any matter, fact or thing relating to the business,
operation or condition of any of the other Companies and their
respective assets now known or hereafter known by the Agent, any
Bank, the Swingline Bank or the Issuing Bank;
(vi) all benefits of any statute of limitations
affecting such Company's liability in respect of the Other
Companies' Obligations;
(vii) all setoffs and counterclaims;
(viii) promptness, diligence, presentment, demand for
performance and protest;
(ix) notice of nonperformance, default,
acceleration, protest or dishonor;
(x) except for any notice otherwise required by
applicable laws that may not be effectively waived by such
Company, notice of sale or other disposition of any Collateral;
and
(A)notice of the existence, creation or incurring
of any Other Companies' Obligations.
11.19 Entire Agreement. This Agreement, together with the
other Loan Documents, embodies the entire agreement and understanding
among the Companies, the Banks and the Agent, and supersedes all prior
or contemporaneous agreements and understandings of such Persons,
verbal or written, relating to the subject matter hereof and thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered in San Francisco by their proper and
duly authorized officers as of the day and year first above written.
STORAGE TECHNOLOGY CORPORATION
By: /s/ DAVID E. LACEY
------------------------------------
Title: Corporate Vice President and
Interim Chief Financial Officer
STORAGE TECHNOLOGY DE PUERTO RICO, INC.
By: /s/ MARK D. MCGREGOR
------------------------------------
Title: Vice President and Treasurer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: /s/ WENDY M. YOUNG
------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Issuing Bank and as Swingline Bank
By: /s/ KEVIN MCMAHON
------------------------------------
Title: Vice President
Commitment: $36,000,000 BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: /s/ KEVIN MCMAHON
------------------------------------
Title: Vice President
Commitment: $28,000,000 BANK OF MONTREAL
By: /s/ ROBERT K. STRONG
------------------------------------
Title: Managing Director
Commitment: $28,000,000 NBD BANK
By: /s/ TIMOTHY P. O'NEIL
------------------------------------
Title: Authorized Agent
Commitment: $20,000,000 THE FIRST NATIONAL BANK OF BOSTON
By: /s/ DANIEL F. WHEELER
------------------------------------
Title: Division Executive
Commitment: $28,000,000 ROYAL BANK OF CANADA
By: /s/ STEVEN HUGHES
------------------------------------
Title: Senior Manager
Commitment: $10,000,000 SUMITOMO BANK
By: /s/ HIROSHI AMANO
------------------------------------
Title: Genral Manager
<PAGE>
SCHEDULE 2.1
COMMITMENTS
AND PRO RATA SHARES
Bank Commitment Pro Rata Share
- ----------------------------- -------------- -------------
Bank of Amercia National Trust
and Savings Association $36,000,000.00 24.000000000%
Bank of Montreal $28,000,000.00 18.666666667%
NBD Bank $28,000,000.00 18.666666667%
The First National Bank of
Boston $20,000,000.00 13.333333333%
Royal Bank of Canada $28,000,000.00 18.666666667%
Sumitomo Bank $10,000,000.00 6.666666666%
-------------- -------------
TOTAL $150,000,000.00 100.00%
<PAGE>
SCHEDULE 2.11(c)
UPFRONT FEES
Bank Commitment Pro Rata Share Upfront Fee
- --------------------------------------------------------------------------
Bank of America National Trust
and Savings Association $36,000,000.00 24.000000000% $45,000.00
Bank of Montreal $28,000,000.00 18.666666667% 35,000.00
NBD Bank $28,000,000.00 18.666666667% 35,000.00
The First National Bank
of Boston $20,000,000.00 13.333333333% 20,000.00
Royal Bank of Canada $28,000,000.00 18.666666667% 35,000.00
Sumitomo Bank $10,000,000.00 6.666666666% 7,500.00
---------------------------------------------
TOTAL $150,000,000.00 100% $177,500.00
<PAGE>
SCHEDULE 11.2
OFFSHORE AND DOMESTIC LENDING OFFICES,
ADDRESSES FOR NOTICES
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
Address for Notices:
Bank of America National Trust
and Savings Association
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Agency Management Services #5596
Telephone: (415) 436-3420
Facsimile: (415) 436-2700
With a copy to:
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
AGENT'S PAYMENT OFFICE:
Bank of America National Trust
and Savings Association
(ABA 121-000-358)
Attention: Agency Management Services #5596
1850 Gateway Boulevard
Concord, CA 94520
For credit to account:
No. 12334-15395
Ref: Storage Technology Corporation
<PAGE>
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
as Swingline Bank
Domestic and Offshore Lending Office and
Office for Borrowing Notices and Notices of
Conversion/Continuation:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard
Concord, CA 94520
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Bank of America National Trust
and Savings Association
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Agency Management Services #5596
Facsimile: (415) 436-2700
with a copy to:
Bank of America National Trust
and Savings Association
555 California Street, 41st Street
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Bank
Domestic and Offshore Lending Office and
Office for Borrowing Notices and Notices of
Conversion/Continuation:
1850 Gateway Boulevard, Fourth Floor
Concord, California 94520
Notices (other than Borrowing Notices and Notices of
Conversion/Continuation):
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Issuing Bank
Notices:
Bank of America National Trust
and Savings Association
1850 Gateway Boulevard
Concord, CA 94520
Attention: Account Administrator
Global Payment Operations
Account Administration #5693
Facsimile: (510) 675-7531
with copies to:
Bank of America National Trust
and Savings Association
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Agency Management Services #5596
Facsimile: (415) 622-4894
and to:
Bank of America National Trust
and Savings Association
555 California Street, 41st Floor
San Francisco, CA 94104
Attention: Credit Products
High Technology-SF #3697
Kevin McMahon
Telephone: (415) 622-8088
Facsimile: (415) 622-2514
<PAGE>
BANK OF MONTREAL
Domestic and Offshore Lending Office and
Office for Borrowing Notices and Notices of
Conversion/Continuation:
Bank of Montreal
U.S. Corporate Banking
115 South LaSalle Street, 12th Floor
Chicago, IL 60603
Attention: Nancy Grabowski
Telephone: (312) 750-3750
Facsimile: (312) 750-3798
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Bank of Montreal
Suite 4900
601 South Figueroa Street
Los Angeles, CA 90017
Attention: Bradley S. Fox
Telephone: (213) 239-0608
Facsimile: (213) 239-0680
<PAGE>
NBD BANK
Domestic Lending Office and Office for
Borrowing Notices and Notices of
Conversion/Continuation:
NBD Bank
National Banking Division
611 Woodward Avenue
Detroit, MI 48226
Attention: Marilyn Stocker
Telephone: (313) 225-1572
Facsimile: (313) 225-2649/1586
Telex: 164177
Offshore Lending Office and Office for
Borrowing Notices and Notices of
Conversion/Continuation:
NBD Bank
(London Branch)
28 Finsbury Circus
London EC2M7AU
England
Attention: Mark Hospers
Telephone: 011-44-71-920-0921
Facsimile: 011-44-71-638-0093
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
NBD Bank
National Banking Division
611 Woodward Avenue
Detroit, MI 48226
Attention: Kathryn A. Pothier
Telephone: (313) 225-1465
Facsimile: (313) 225-2649/1586
<PAGE>
THE FIRST NATIONAL BANK OF BOSTON
Domestic and Offshore Lending Office and
Office for Borrowing Notices and Notices of
Conversion/Continuation:
The First National Bank of Boston
435 Tasso Street
Palo Alto, CA 94301
Attention: Michelle Arellano
Telephone: (415) 853-0960
Facsimile: (415) 853-1425
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
The First National Bank of Boston
435 Tasso Street
Palo Alto, CA 94301
Attention: Chris McCabe
Telephone: (415) 853-0350
Facsimile: (415) 853-1425
ROYAL BANK OF CANADA
Domestic and Offshore Lending Office and
Office for Borrowing Notices and Notices of
Conversion/Continuation:
Royal Bank of Canada
Loans Administration
Financial Square, 23rd Floor
New York, NY 10005-3531
Attention: Linda Crum
Telephone: (212) 428-6323
Facsimile: (212) 428-2372
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Royal Bank of Canada
600 Wilshire Boulevard, Suite 800
Los Angeles, CA 90017
Attention: Stephen Hughes
Telephone: (213) 955-5320
Facsimile: (213) 955-5350
SUMITOMO BANK
Domestic and Offshore Lending Office and
Office for Borrowing Notices and Notices of
Conversion/Continuation:
Sumitomo Bank
777 South Figueroa Street
Suite 2600
Los Angeles, CA 90017-3138
Attention: Lisanne Rawson
Telephone: (213) 955-3933
Facsimile: (213) 623-6832
Notices (other than Borrowing Notices and
Notices of Conversion/Continuation):
Sumitomo Bank
777 South Figueroa Street
Suite 2600
Los Angeles, CA 90017-3138
Attention: Josephine A. Frigillana
Telephone: (213) 955-0886
Facsimile: (213) 623-6832
EXHIBIT 11
<TABLE>
STORAGE TECHNOLOGY CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(In thousands, except per share amounts)
<CAPTION>
March 29, March 31,
1996 1995
------------ ------------
<S> <C> <C>
PRIMARY (a)
Earnings (loss)
Income (loss) before extraordinary item $25,589 ($8,914)
Extraordinary gain on sale of lease assets,
net of income taxes of $8,200 9,535
------------ ------------
Net income (loss) 35,124 (8,914)
Preferred dividend requirement (3,019)
------------ ------------
Income (loss) applicable to common shares $35,124 ($11,933)
============ ============
Shares
Weighted average common shares outstanding 53,314 52,493
Dilutive effect of outstanding options
and warrants (as determined under
the treasury stock method) 226
------------ ------------
Weighted average common shares
and equivalents 53,540 52,493
============ ============
Earnings (loss) per common share:
Income (loss) before extraordinary item $0.48 ($0.23)
Extraordinary gain, net 0.18
------------ ------------
$0.66 ($0.23)
============ ============
FULLY DILUTED
Earnings (loss)
Income (loss) before extraordinary item $25,589 ($8,914)
Adjustment for interest and amortization
of debt issue costs on 7% Convertible
Debentures, net of estimated tax effects 2,604
Adjustment for interest and amortization
of debt issue costs on 8% Convertible
Debentures, net of estimated tax effects 2,465 2,480
------------ ------------
Income (loss) before extraordinary item 30,658 (6,434)
Extraordinary gain on sale of lease assets,
net of income taxes of $8,200 9,535
------------ ------------
Net income (loss), as adjusted $40,193 ($6,434)
============ ============
Shares
Weighted average common shares outstanding 53,314 52,493
Dilutive effect of outstanding options
and warrants (as determined under
the treasury stock method) 226 170
Adjustment for shares issuable upon assumed
conversion of 7% Convertible Debentures 7,284
Adjustment for shares issuable upon assumed
conversion of 8% Convertible Debentures 4,132 4,132
Adjustment for shares issuable upon assumed
conversion of $3.50 Convertible
Exchangeable Preferred Stock 7,340
------------ ------------
Weighted average common shares
and equivalents, as adjusted 64,956 64,135
============ ============
Earnings (loss) per common share:
Income (loss) before extraordinary item $0.47 ($0.10)
Extraordinary gain, net 0.15
------------ ------------
$0.62 (a) ($0.10)(b)
============ ============
(a) These figures agree with the related amounts in the Consolidated Statement
of Operations.
(b) This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11) although it is contary to paragraph 40 of APB Opinion No. 15,
because it produces an anti-dilutive result.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S FORM 10-Q DATED MARCH 29, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000094673
<NAME> STORAGE TECHNOLOGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> MAR-29-1996
<CASH> 432,895
<SECURITIES> 0
<RECEIVABLES> 428,083 <F1>
<ALLOWANCES> 0
<INVENTORY> 238,549
<CURRENT-ASSETS> 1,106,975
<PP&E> 326,612 <F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,862,027
<CURRENT-LIABILITIES> 497,584
<BONDS> 344,343
0
0
<COMMON> 5,339
<OTHER-SE> 996,081
<TOTAL-LIABILITY-AND-EQUITY> 1,862,027
<SALES> 317,298
<TOTAL-REVENUES> 453,481
<CGS> 187,046
<TOTAL-COSTS> 259,567
<OTHER-EXPENSES> 49,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,429
<INCOME-PRETAX> 34,989
<INCOME-TAX> 9,400
<INCOME-CONTINUING> 25,589
<DISCONTINUED> 0
<EXTRAORDINARY> 9,535
<CHANGES> 0
<NET-INCOME> 35,124
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.62
<FN>
<F1> Asset values for the interim period represent
net amounts.
</FN>
</TABLE>
