0000912057-95-006928.txt : 19950828 0000912057-95-006928.hdr.sgml : 19950828 ACCESSION NUMBER: 0000912057-95-006928 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950825 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL RECTIFIER CORP /DE/ CENTRAL INDEX KEY: 0000316793 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 951528961 STATE OF INCORPORATION: DE FISCAL YEAR END: 0629 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-07935 FILM NUMBER: 95567133 BUSINESS ADDRESS: STREET 1: 233 KANSAS ST CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3103223331 10-K405 1 10-K405 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended June 30, 1995 or / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ____________ to ____________ Commission file number 1-7935 ------------------------ INTERNATIONAL RECTIFIER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-1528961 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 233 KANSAS STREET EL SEGUNDO, CA 90245 (Address of principal executive offices, zip code) Registrant's telephone number, including area code: (310) 322-3331 ------------------------ Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED ---------------------------------------- -------------------------------------- Common Stock, par value $1 New York Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None ------------------------ 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 report (s)), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ The aggregate market value of the registrant's voting Common Stock held by non-affiliates of the registrant was approximately $925,670,509 (computed using the closing price of a share of Common Stock on August 24, 1995 reported by New York Stock Exchange). Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ There were 25,222,645 shares of the registrant's Common Stock, par value $1.00 per share, outstanding on August 24, 1995. Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders scheduled to be held on November 20, 1995, which Proxy Statement will be filed no later than 120 days after the close of the registrant's fiscal year ended June 30, 1995, are incorporated by reference in Part III of this Annual Report on Form 10-K. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- TABLE OF CONTENTS PART I
ITEM PAGE ------ ---- 1. Business............................................................. 1 2. Properties........................................................... 8 3. Legal Proceedings.................................................... 8 4. Submission of Matters to a Vote of the Security Holders.............. 9 Additional Item. Directors and Executive Officers of the Registrant........................................................... 10 PART II 5. Market for the Registrants' Common Equity and Related Stockholders' Matters.............................................................. 11 6. Selected Financial Data.............................................. 12 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 13 8. Financial Statements and Supplementary Data.......................... 16 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................................. 34 PART III 10. Directors and Executive Officers of the Registrant................... 34 11. Executive Compensation............................................... 34 12. Security Ownership of Certain Beneficial Owners and Management....... 34 13. Certain Relationships and Related Transactions....................... 34 PART IV 14. Exhibits, Financial Statement Schedule, and Reports.................. 34
PART I ITEM 1. BUSINESS INTRODUCTION International Rectifier Corporation ("IR" or the "Company") is a major worldwide supplier of power semiconductors. Power semiconductors switch or condition electricity at relatively high voltage and current levels in products such as computers/peripherals, automobiles, portable phones, and electronic lights. The Company designs, manufactures and markets power semiconductors which are used for power conversion. In the same way that oil is refined to produce gasoline to power a car, electrical power is converted to operate equipment. This process of power conversion can be viewed in four stages: input rectification, control, switching, and output rectification. Input rectification conditions off-line electricity, typically rectifying alternating-current to direct-current. The control function measures incoming electricity and sends a signal to the switch. The switch chops the energy into small elements. Output rectification re-configures the elements into a form usable by electrically operated equipment. IR supplies products that perform each of the four basic functions in power conversion, and many circuits use more than one type of IR product. This allows IR to develop products that work together to optimize overall circuit performance, and enables the Company to capitalize more broadly on market- leading products. IR's products are used in all major market sectors. Applications for power semiconductors in automobiles include anti-lock braking and fuel injection systems, power accessories, and air bags. Computer/peripheral applications include power supplies, disk drives, and printers. Office equipment applications include copiers and facsimile machines. Consumer electronics and lighting applications include home entertainment, household appliances and electronic lighting ballasts. Communications applications include portable phones, telephone networks and modems. Power semiconductors are also used widely in industrial applications such as motor-driven production lines, machine tools, fork lifts, and welders. Based on statistics published by the Semiconductor Industry Association (the "SIA"), the Company believes it is the leader in the power MOSFET (Metal Oxide Semiconductor Field Effect Transistor) segment with its trademarked HEXFET-Registered Trademark- power MOSFETs and IGBTs (Insulated Gate Bipolar Transistors). SIA data indicates that industry-wide sales of power MOSFETs were $1.5 billion in calendar 1994, an increase of 38% over 1993 levels, and that, over the past five years, power MOSFET sales have grown at an average rate of 28% per year. The Company's major customers include industry leaders such as AT&T Technologies Inc., Conner Peripherals, Inc., General Motors Corp., Hewlett Packard Co., International Business Machines Corp., Matsushita Electronics Corporation, Sanken Electric Company, Ltd., Sony Corporation, Sporele and Siemens AG. In fiscal year 1995 the Company's sales by region were approximately 46% from North America, 28% from Europe, and 26% from Asia. IR has manufacturing facilities in North America, Europe, and Asia, and uses subcontract assembly in Asia. IR was founded as a California corporation in 1947 and reincorporated in Delaware in 1979. Its executive offices are located at 233 Kansas Street, El Segundo, California 90245 and its telephone number is (310) 322-3331. POWER SEMICONDUCTOR INDUSTRY Semiconductors are silicon-based chips that conduct and block electricity. The semiconductor industry consists of integrated circuits ("ICs") and power semiconductors. ICs operate at low power levels and perform multiple functions to process and convey information in electronic signal form. IC capability is largely defined by circuit density, which increases as its features are miniaturized. The 1 applications for ICs are generally concentrated in the computer industry and have been subject to frequent redesign, short product life cycles and rapid obsolescence. As a result, the demand for ICs has been highly cyclical. In contrast to ICs, power semiconductors operate at higher power levels and perform a single function: they condition and control electricity to operate a power supply, control a motor, or light a lamp. Their capability is largely defined by the level of power that they can handle and their efficiency in converting raw electric current into a more useful form. The amount of electric current handled and the heat it generates limit the rate at which power semiconductors can be miniaturized. Advances in power semiconductor performance and cost-per-function have been achieved through the use of MOS technology. MOS power transistors (power MOSFETs and IGBTs) have gained an increasing share of the power transistor market at the expense of bipolar transistors that also serve the switch function. MOS power transistors offer significant benefits over bipolar power transistors. They provide much greater switching speed, which allows the design of higher frequency, more compact circuits. They are activated by voltage rather than current, so they require less external circuitry. MOS transistors are more compatible with microprocessor controls. They offer more reliable long-term performance and are more rugged, so they can better withstand adverse operating conditions. Power MOSFETs and IGBTs compare favorably to bipolar power transistors on a price/performance basis. APPLICATIONS Power semiconductors are used in a broad spectrum of commercial and industrial applications, including many products with long life cycles. Because of their more gradual rate of technological change and the diversity of applications, the demand for power semiconductors is less cyclical than for ICs. Power semiconductor demand is driven by conversion to new technologies, the proliferation of new end-product applications, and growth in the end markets. The Company believes that markets driving future demand for power semiconductors include: PORTABLE ELECTRONICS. Advances in power semiconductors help extend battery life and reduce product size and weight in a variety of battery-operated products such as lap-top and notebook computers, personal digital organizers, cellular telephones, household appliances and hand tools. AUTOMOTIVE ELECTRONIC SYSTEMS. The concentration of solid state electronics in recent model year automobiles has increased rapidly, as safety and comfort features increase demands on the battery. Applications include anti-lock braking systems, air-bags, fuel injection systems, electric windows and adjustable mirrors and seats. Adoption of battery operated electric vehicles to reduce emissions would dramatically increase consumption of MOS transistors. ELECTRONIC LIGHTING BALLASTS. Electronic lighting ballasts, which incorporate power MOSFETs and Power Integrated Circuits, significantly reduce the amount of energy consumed in lighting. Conversion to electronic ballasts has been driven by lower end-user operating costs and incentives from electric utilities to encourage energy efficiency. VARIABLE SPEED MOTORS. Variable-speed solid-state controls increase energy efficiency and performance in a broad range of industrial and appliance motors. In addition, clean air legislation is driving the conversion from traditional chlorofluorocarbons ("CFCs") to less toxic refrigerants which are also less efficient. Manufacturers of refrigerators and air conditioners can compensate for these less efficient chemicals by using more efficient variable-speed motors. PRODUCTS The Company's products convert electrical power to make it more useable and efficient in performing work such as operating power supplies, controlling motors, and lighting lamps. The products' ability to minimize energy lost at each point in the power conversion process is central to 2 their value. Important growth applications include such energy-sensitive products as electronic fluorescent lights, more energy efficient refrigeration and air conditioning equipment, and electric vehicles. The Company's HEXFET power MOSFET products comprised about 66% of fiscal 1995 sales. IR also supplies IGBT transistors, High Voltage Control Integrated Circuits, high-performance diodes, and high power rectifiers and thyristors. The Company believes that this complete line of power conversion products represents a competitive advantage, enabling IR to provide customers with integrated solutions to their power conversion needs. SWITCHING PRODUCTS MOS TRANSISTORS. MOS transistors (power MOSFETs and IGBTs) serve the switch function in power conversion to provide an even, usable flow of power for electronic equipment. POWER MOSFETS. Through its HEXFET product line, the Company is the world leader in power MOSFETs. The breadth and diversity of the market for these products help to stabilize demand. Applications for MOSFETs in automobiles include anti-lock braking and fuel injection systems, power accessories and air bags. Computer/peripheral applications include power supplies, disk drives, and printers. Office equipment applications include copiers and facsimile machines. Consumer electronics applications include home entertainment, videocameras, household appliances, and power tools. Lighting applications include electronic lighting ballasts and compact fluorescent bulbs. Industrial applications include instrumentation and test equipment. Communications applications include telephone networks and modems. Government and aerospace applications include commercial and military satellites, communications equipment, command-and-control systems, and missiles. Market acceptance and brand recognition of HEXFETs have benefited from the Company's emphasis on quality control and reliability, and the Company believes its standards to be among the most stringent in the industry. Cumulative and current data on long and short term product reliability is made available to customers quarterly. The Company fabricates the large majority of its power MOSFET wafers at HEXFET America. Die from these wafers are assembled into packaged devices at HEXFET America, IR's facilities in England and Mexico, and subcontract facilities in Asia. See "-- Manufacturing." IGBTS. IGBTs typically serve the switch function in power conversion applications that require higher current and voltage than power MOSFETs handle efficiently. IGBTs combine the ease of voltage-driven power MOSFET technology with the conduction efficiency of bipolar transistor technology. The performance and ruggedness of these devices enable them to replace bipolar transistors and thyristors in many high-voltage, high-current motor control and power conditioning applications. Energy-efficient, variable-speed motor controls are an emerging application, and the Company believes electric vehicles will require large quantities of IGBTs for each vehicle. The Company's IGBT technology is closely related to its HEXFET technology, and the Company views them as complementary products. The Company believes that its patents on fundamental MOSFET technology also apply to IGBTs, and it is seeking further patent protection on its IGBT technology. CONTROL PRODUCTS HIGH VOLTAGE CONTROL ICS. These devices serve the control function of power conversion. They perform the functions of several discrete components. This integration allows IR's customers to simplify circuit design and assembly, improve reliability and reduce overall system size and cost. In sensing and responding to adverse operating conditions, High Voltage Control IC performance is superior to that of discrete components in a safety or diagnostic circuit. IR's High Voltage Control ICs draw on the Company's MOSFET technology and are designed to optimize the performance of both power MOSFETs and IGBTs. The Company believes that its power MOSFET patents also apply to a broad range of High Voltage Control ICs. 3 High Voltage Control ICs are used in a wide variety of power supply, motor and lighting control applications. These include industrial motor controls, home appliance motor controls, solenoid drivers, welding equipment, telecom switchers, computer/peripherals, instrumentation and test equipment, electronic lighting ballasts, and compact fluorescent light bulbs. INPUT RECTIFICATION PRODUCTS The Company also manufactures a broad line of rectifiers, diodes and thyristors that serve the input rectification function of power conversion. These products condition power to make it more efficient and useable, principally in industrial end products that require power-handling capability from one amp to 5000 amps and from 20 volts to 5000 volts. Applications include motor and lighting controls, welding equipment, fork lifts, machine tools, induction heating, locomotives, motor-driven production lines, smelting equipment, and power supplies. OUTPUT RECTIFICATION PRODUCTS The Company's Schottky diodes and Fast-Recovery diodes serve the output rectification function of power conversion. Output rectification reconfigures the elements into a form usable by electrically operated equipment. Schottky diodes are used with power MOSFETs in high-frequency applications such as computer/peripherals. The Company's trademarked HEXFRED-Registered Trademark- Fast-Recovery diodes are used with IGBTs in higher-current, lower-frequency applications such as motor controls. MANUFACTURING Semiconductor manufacturing involves two phases of production: wafer fabrication and assembly (or packaging). Wafer fabrication is a sequence of process steps that expose silicon wafers to chemicals that change their electrical properties. The chemicals are applied in patterns that define cells or circuits within numerous individual devices (often termed "die" or "chips") on each wafer. Packaging or assembly is the sequence of production steps that divide the wafer into individual chips and enclose the chips in external structures (termed packages) that make them useable in a circuit. Power semiconductors generally use the process technology and equipment already proven in ICs manufacturing. The Company has production facilities in California, England, Italy, Mexico and India. In addition, the Company has equipment at, or manufacturing supply agreements with, subcontractors located in the Philippines, Japan, Taiwan, Malaysia, and the United States. IR fabricates substantially all of its power MOSFET wafers at HEXFET America in Temecula, California. A wafer fabrication facility for IGBTs and other MOSFET devices as well as assembly operations for government and other advanced products are located in El Segundo, California. Facilities that assemble HEXFETs and other products are located in the United States and overseas, in Company-owned and subcontract facilities, in order to take advantage of low assembly costs and provide maximum customer service. In Tijuana, Mexico, the Company assembles MOSFET products, IGBTs and other modules. The Company's Oxted, England facility, which qualifies as a duty-free facility, assembles MOSFETs, IGBTs, Schottky and diodes. Since April 1, 1994 the Company has manufactured substantially all its high power rectifiers and thyristors at its Turin, Italy facility. The Company also has arrangements with third parties for product assembly in the Philippines, Malaysia, Taiwan, Japan and Mexico. In a duty-free zone in India, the Company has an assembly facility for rectifiers and thyristors. To meet rising demand for power MOSFETs, the Company is expanding wafer fabrication at HEXFET America. The Company believes that the estimated $75 million expansion will increase its power MOSFET fabrication capacity by about 75% and is expected to support about $185 million in additional product shipments at full utilization. The expansion will position IR to aggressively address the fastest growing segments of the power transistor market, high density MOSFETs and IGBTs. Next-generation devices designed for production in the new fabrication facility incorporate design and process advancements in the Company's proprietary HEXFET and IGBT technologies. A core process with shared elements for both products 4 will enable the facility to combine flexibility with efficient high-volume manufacturing techniques. The fabrication will be performed on six-inch wafers and will use a continuous-flow layout similar to the one already in use at HEXFET America. The expansion is on schedule and within budget at this time. The Company has completed substantially all equipment installation and has begun internal qualification and operator and technician training. Customer qualifications are expected to begin in September, and manufacturing is scheduled to begin to ramp up by the end of the calendar year. Shortly after the close of the fiscal year, IR announced plans to transfer assembly lines from HEXFET America to its assembly facility in Tijuana, Mexico and to independent subcontractors. Designed to allow the California plant to focus on expansion of its benchmark wafer fabrication capability and to reduce the cost of assembling the Company's HEXFET-Registered Trademark- power MOSFET chips into finished devices, the move will affect only the assembly phase of manufacturing. The Company's 75 percent expansion of wafer fabrication capacity is unaffected by the move. The assembly lines will be moved out of the California plant over a 12 to 18 month period. MARKETING, SALES AND DISTRIBUTION The Company markets its products through sales personnel, representatives, or distributors. The Company believes its ability to offer products that serve each of the four functions of power conversion enhances its competitive position in the overall power semiconductor market. In fiscal year 1995 the Company's sales by region were approximately 46% from North America, 28% from Europe, and 26% from Asia. The Company's domestic direct sales force is organized in four sales zones. In Western Europe, the Company's products are sold through its own sales force as well as through sales agents and distributors. The Company's European sales and representative offices are in England, Italy, Sweden, France, Germany, Finland, Denmark, Russia, Poland, the Czech Republic, and Hungary. In Asia IR has sales and representative liaison offices in India, Japan, Singapore, China, Hong Kong, and Korea. Because many applications require products from several product groups, the Company has organized its marketing efforts by market sector, rather than product type. These business management groups focus on several key commercial sectors and on government and aerospace business. In addition, the Company's staff of applications engineers provides customers with technical advice and support regarding the use of IR's products. CUSTOMERS In most cases, the Company's devices are incorporated in larger systems manufactured by end product manufacturers. The Company's customers in the automotive segment include General Motors Corp., Ford, Delco, Siemens AG and Bosch. International Business Machines Corp., Hewlett Packard Co., Apple Computer Inc. and Compaq purchase the Company's products in the computer segment. Consumer electronics customers include Philips and Sony. Customers in the telecommunications segment include AT&T Technologies, Inc. and Nokia. The Company also sells its products to distributors including Arrow Electronics, Future Electronics, and Pioneer Electronics/Pioneer Technology. BACKLOG As of June 30, 1995, the Company's backlog of orders was $210.8 million compared to $121.8 million as of June 30, 1994. Backlog represents purchase orders which have been released for shipment and are scheduled to be shipped within the following 12 months. In accordance with industry practice, IR may in certain circumstances release customers from purchase orders without penalty. Increasingly, major customers are operating their businesses with shorter lead times and are placing orders on a periodic rather than an annual basis. Orders are cancelable and backlog is not necessarily indicative of sales for any future period. RESEARCH AND DEVELOPMENT The Company is involved in ongoing research and development directed toward new processes, devices and packages as well as continued improvement of quality and reliability in existing products. 5 In fiscal years 1995, 1994 and 1993, the Company spent approximately $20.1 million, $16.4 million and $14.1 million, respectively, on research and development activities. In fiscal 1994, the Company introduced a variety of products designed to address growth opportunities identified by market sector: high-density, high-efficiency HEXFETs and surface-mount packages for portable electronics; High Voltage Control ICs for lighting and motor control applications; and IGBT devices for motor controls. IR's research and development program is focused on advancing and diversifying the HEXFET product line, expanding the related IGBT products, and developing High Voltage Control ICs and other power products that work in combination with HEXFETs and IGBTs to improve system performance. IR's research and development staff also works with the marketing staff to develop new products that address specific customer needs. Efforts are directed towards developing new processes that enable the Company to produce smaller, more efficient devices. Efforts are also directed at reducing assembly costs and developing new package designs and assembly processes. INTELLECTUAL PROPERTY The Company has made significant investments in developing and protecting its intellectual property. Through successful enforcement of its patents, the Company has entered into a number of license agreements, generated royalty income and received substantial payments in settlement of litigation. The Company currently has 64 unexpired U.S. patents and 45 U.S. patents pending. Those patents fundamental to the Company's products expire between 2000 and 2010. In addition, the Company has 60 foreign patents and 73 foreign patents pending in a number of countries. The Company is also licensed to use certain patents owned by others. Under the terms of an agreement with Unitrode Corporation that terminates in March 2000, the Company pays Unitrode Corporation approximately 12% of the Company's net patent royalty income. The Company has several registered trademarks in the United States and abroad including trademarks for HEXFET. The Company believes that its proprietary technology and intellectual property contribute to its competitive advantage. Since the Company believes that its power MOSFET patents are broadly applicable, it is committed to enforcing its rights under those patents and is pursuing additional license agreements. The Company presently has royalty-bearing license agreements with 13 companies: CP Clare Corporation, Harris Corporation; Hitachi, Ltd.; Matsushita Electronics Corporation; Mitsubishi Electric Corporation; National Semiconductor Corporation; NEC Corporation; Nihon Inter Electronics Corporation; Sanken Electric Company, Ltd.; SGS-Thomson Microelectronics, Inc.; Siliconix incorporated; Toshiba Corporation; and Unitrode Corporation. In fiscal 1995, $9,743,000 of revenues were derived from such royalty-bearing license agreements. Certain of the company's fundamental power MOSFET patents have been subjected, and continue to be subjected, to reexamination in the United States Patent and Trademark Office ("PTO"). The patents subject to reexamination are fundamental to the Company's MOS transistors and their loss would allow competitors to use currently patented features of the Company's MOS transistor technology without liability for infringement of those patents. On the following dates, the PTO granted requests for reexamination of the following patents of the Company: November 13, 1992 and September 12, 1994 on patent 4,642,666; September 12, 1994 on patent 4,959,699; September 23, 1994 and June 28, 1995 on patent 5,008,725; January 17, 1995 on patent 5,130,767; June 5, 1995 on patent 5,191,396; and June 14,1995 on patent 4,593,302. On February 14, 1995, the PTO issued a reexamination certificate, confirming the patentability of the Company's U.S. patent 4,705,759. Although no assurance can be given as to the ultimate outcome of the Company's patent enforcement efforts, the PTO reexamination proceedings, or the success of the Company's patent licensing program, the Company believes that its patent portfolio will be the source of continuing royalty income. COMPETITION The Company encounters differing degrees of competition for its various products, depending upon the nature of the product and the particular market served. Generally, the semiconductor industry is highly competitive, and many of the Company's competitors are larger companies with 6 greater financial resources than IR. The Company believes that its breadth of product line and its ability to combine products that serve the different functions into one package distinguish it from its competitors. IR's products compete with products manufactured by others based on breadth of product line, quality, price, reliability, over-all performance of the products, delivery time to the customer, and service (including technical advice and support). The Company's competitors include Eupec, Harris Corporation, Hitachi Ltd., Motorola, Inc., NEC Corporation, Philips International B.V., Powerex, Inc., Samsung Semiconductor Inc., SGS-Thomson Microelectronics, Siemens AG, Siliconix incorporated, Toshiba Corporation and Westcode Semiconductors Ltd. ENVIRONMENTAL MATTERS Federal, state and local laws and regulations impose various restrictions and controls on the discharge of certain materials, chemicals and gases used in semiconductor processing. The Company does not believe that compliance with such laws and regulations will have a material adverse effect on its financial position. The Company and Rachelle Laboratories, Inc. ("Rachelle"), its former pharmaceutical subsidiary which discontinued operations in 1986, have been named among several hundred entities as potentially responsible parties ("PRPs") under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), in connection with the United States Environmental Protection Agency's ("EPA") investigation of the disposal of allegedly hazardous substances at a major superfund site in Monterey Park, California (the "OII Site"). Certain PRPs who settled certain claims with the EPA under consent decrees filed suit in Federal Court in May 1992 against a number of other PRPs, including the Company, for cost recovery and contribution under CERCLA. The lawsuit against the Company, relating to the first and second consent decrees, was settled in August 1993 for the sum of $40,000 to avoid protracted and expensive litigation. In June 1995, the Company was named among others as a party defendant in Federal Court apparently in connection with a third consent decree with respect to the OII Site. The Company recently received a letter (dated July 25, 1995) from the U.S. Department of Justice offering to settle claims against Rachelle relating to the first three elements of cleanup work at the OII Site for the sum of $4,953,148. (The final remedy assessment has not yet been made). The letter stated that if the offer is not accepted by September 1, 1995, enforcement action will follow. The Department of Justice letter is being evaluated. Claims have been made with the Company's insurers with respect to the OII Site matter; however, there can be no assurance that insurance coverage attaches to these claims. The Company does not believe that either it or Rachelle is responsible for the disposal at the OII Site of any material constituting hazardous substances under CERCLA. Although the ultimate resolution of this matter is unknown, the Company believes that it will not have a material adverse impact on its financial position. In May 1993, the Company purchased property from its Employee Profit Sharing and Retirement Plan. It was determined that the property required clean-up of seepage from a storage tank, at an estimated additional cost of $525,000. The Company commenced the clean-up in fiscal year 1994, and through June 30, 1995 approximately $450,000 in clean-up costs have been incurred which will be capitalized as additional costs of the property. On July 18, 1994, the Company received a letter from the State of Washington Department of Ecology (the "Department") notifying the Company of a proposed finding that the Company is a potentially liable person ("PLP") for alleged PCE contamination (also knows as perchloroethylene, tetrachloroethylene, and other names) of real property and groundwater in Yakima County, Washington. The letter alleges that the Company arranged for disposal or treatment of the PCE or arranged with a transporter for the disposal or treatment of the PCE in Yakima County. The Company replied by a letter dated August 11, 1994, stating that it has not contributed to PCE or other solvent contamination at the Yakima County site (resulting from sending carbon canisters for regeneration to a facility in the county) and that it should not be designated a PLP. On October 11, 1994, the Company received a letter from the Department notifying the Company of its finding that the Company is a PLP in the above matter. Initial information indicates that less than one percent of all contaminated carbon sent to the site by PLPs was contributed by the Company. What amount, if any, the Company may be asked to contribute to solve the groundwater problem is unknown. 7 The Company received a letter dated September 9, 1994, from the State of California Department of Toxic Substances Control stating that the Company may be a PRP for the deposit of hazardous substances at a facility in Whittier, California. The Company, in June 1995, agreed to join a group of other PRPs to remove contamination from the site. Although the final outcome is not known and depends on final clean-up costs and the allocation scheme, the group currently estimates a total clean-up cost of about $1.8 million to $2.5 million, of which about $6,000 to $9,000 might be requested to be borne by the Company. EMPLOYEES As of June 30, 1995, the Company employed approximately 3,310 people, of whom approximately 2,190 are employed in North America, 1,070 in Western Europe and 50 in Asia. The Company is not a party to any collective bargaining agreements. The Company considers its relations with its employees to be good. ITEM 2. PROPERTIES The Company's operations occupy a total of approximately 889,000 square feet, of which approximately 502,000 square feet are located within the United States. Of the worldwide total, approximately 268,000 square feet are leased and the balance is owned by the Company. IR's leases expire between 1995 and 2012. If the Company is unable to renew these leases upon expiration, it believes that it could find other suitable premises without any material adverse impact on its operations. The Company's major facilities are in the following locations:
TOTAL SQUARE FEET --------------- FACILITY OWNED LEASED EXPIRATION OF LEASE --------------------------------------- ------- ------ ------------------------------ Temecula, California................... 287,000 -- -- El Segundo, California................. 93,000 115,000 March 31, 1996 - July 31, 2004 Tijuana, Mexico........................ -- 89,000 (1) Oxted, England......................... 50,000 15,000 March 27, 2012 Turin, Italy........................... 110,000 6,000 August 31, 1995 ------------------------ (1) In May 1995 the Company purchased land in Tijuana, Mexico on which it intends to construct a new assembly facility. Since the Company's lease on its current assembly facility in Mexico expired, it has rented the same space on a month to month basis. The Company has identified comparable space available for lease on comparable terms if such assembly facility needs to be moved prior to completion of the new facility.
The Company believes that these facilities are adequate for its current and anticipated near term operating needs. IR estimates that it currently utilizes approximately 81.4% of its worldwide manufacturing capacity. To meet rising demand for power MOSFETs, the Company is expanding wafer fabrication at HEXFET America. Planned to be in production by the end of calendar 1995, the Company believes that the estimated $75 million expansion will increase the Company's wafer capacity in power MOSFETs by about 75%. The Company has nine sales offices located throughout the United States, and other sales and technical support offices in Canada, France, Germany, Finland, Scandinavia, Russia, Czech Republic, Hungary, Hong Kong, Japan, China, Korea, Singapore, and India which operate in leased facilities. ITEM 3. LEGAL PROCEEDINGS The Company and SGS-Thomson Microelectronics, Inc. ("SGS") are engaged in various legal proceedings relating to their respective power MOSFET patents. SGS filed suit against the Company in June 1991 in Federal District Court in Texas, charging infringement of U.S. patent 4,553,314. On motion by the Company, the suit was transferred to the Federal District Court in Los Angeles, California, and thereafter SGS amended its complaint to charge infringement of U.S. patents 8 4,495,513 and 4,712,127. SGS alleges, in substance, that the Company's power MOSFET, power IC and IGBT products infringe the '314 patent, that the Company's IGBT products infringe the '513 patent and that certain packages for the Company's products (including certain power MOSFET packages) infringe the '127 patent. The complaint, as amended, seeks unspecified actual damages (but no less than an unspecified reasonable royalty) and an injunction restraining further sales of such products. On February 1, 1993, the District Court dismissed SGS's claims for infringement of the '127 and '513 patents for lack of standing and on March 15, 1993, ruled that the SGS '314 patent is unenforceable due to inequitable conduct. SGS appealed these rulings, as well as the order transferring the case to California, to the Court of Appeals for the Federal Circuit. The Company cross-appealed a separate ruling by the District Court denying the Company's motion for summary judgment that the '314 patent is invalid. In July 1994, the Federal Circuit vacated the District Court's grants of summary judgment as to the '513, '127 and '314 patents and affirmed the District Court's denial of the Company's motion for summary judgment of invalidity of the '314 patent. The Federal Circuit ordered, however, that the case should proceed in California. A trial date of November 14, 1995 has been set for the '513 patent, but proceedings on the '314 and '127 patents are essentially stayed pending completion of reexamination of these patents in the PTO. In separate proceedings before the same California District Court, the Company sought enforcement of a prior license agreement between the Company and SGS. The Court in July 1994, granted the Company's motions to enforce the license agreement with SGS, requiring SGS to pay additional past and prospective royalties under the Company's U.S. patents 4,959,699 and 4,642,666 on SGS's sales of power MOSFET, IGBT and power IC products. SGS appealed this decision to the Federal Circuit, which on May 10, 1995 affirmed the decision in favor of the Company. SGS subsequently made the required past royalty payment. The Company has also filed a separate action in the same District Court against SGS and its Italian affiliate, SGS-Thomson Microelectronics, S.r.l., seeking an injunction against infringement of the Company's U.S. patents 5,008,725 and 5,130,767. This action has been essentially stayed pending completion of reexamination of these patents by the PTO. The Company, its directors and certain officers have been named as defendants in three class action lawsuits filed in Federal Court in California. These suits seek unspecified but substantial compensatory and punitive damages for alleged intentional and negligent misrepresentations and violations of the federal securities laws. The complaints generally allege that the Company and the other defendants made materially false statements or omitted to state material facts in connection with the public offering of the Company's common stock completed in April 1991 and the redemption and conversion in June 1991 of the Company's 9% Convertible Subordinated Debentures Due 2010. They also allege that the Company's projections for growth in fiscal 1992 were materially misleading. Although the Company believes that the claims alleged in the suits are without merit, the ultimate outcome cannot be presently determined. A substantial judgment or settlement, if any, could have a material adverse effect on the Company's financial condition and results of operations. Two of these suits also name Kidder, Peabody & Co. Incorporated and Montgomery Securities as defendants. The Court has scheduled trial to begin in December 1995. No provision for any liability that may result upon adjudication of these matters has been made in the consolidated financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS Not applicable. 9 ADDITIONAL ITEM. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers and directors of IR are: Eric Lidow 82 Chairman of the Board Alexander Lidow 40 Chief Executive Officer; Director Derek B. Lidow 42 Chief Executive Officer; Director Robert J. Mueller 66 Executive Vice President -- External Affairs and Business Development; Director Michael P. McGee 36 Vice President -- Chief Financial Officer George Krsek 74 Director Jack O. Vance 70 Director Rochus E. Vogt 65 Director Donald S. Burns 70 Director James D. Plummer 50 Director
Eric Lidow is a founder of the Company, has been a director of the Company since its inception in 1947 and was Chief Executive Officer until March 6, 1995. Mr. Lidow continues as Chairman of the Board and also serves as Chairman of the Company's Executive Committee. Alexander Lidow, Ph.D., has been employed by the Company since 1977. He served as the Semiconductor Division's Vice President -- Research and Development since July 1979, was promoted to Semiconductor Division Executive Vice President -- Manufacturing and Technology in March 1985, and became the President of the Electronic Products Division in July 1989. In August 1992, Dr. Lidow was elected Executive Vice President of Operations. He was elected a director in September 1994 and Chief Executive Officer on March 6, 1995. Dr. Lidow is a son of Eric Lidow. Derek B. Lidow, Ph.D., has been employed by the Company since 1976. He served as the Semiconductor Division's Vice President -- Operations since March 1980, was promoted to Semiconductor Division Executive Vice President -- Marketing and Administration in March 1985, and became President of the Power Products Division in July 1989. In August 1992, Dr. Lidow was elected Executive Vice President and in July 1993 assumed responsibilities for worldwide sales and marketing. He was elected a director in September 1994 and Chief Executive Officer on March 6, 1995. Dr. Lidow is a son of Eric Lidow. Robert J. Mueller has been employed by the Company since November 1961. He served as Vice President of Marketing for the U.S. Semiconductor Division from 1963 until October 1969 when he was promoted to Corporate Vice President -- Foreign Operations. Mr. Mueller became Executive Vice President -- World Marketing and Foreign Operations in April 1978, Corporate Executive Vice President -- External Affairs and Worldwide Sales in July 1989, and in July 1993 became Executive Vice President -- External Affairs and Business Development. He was elected a director in 1990. Michael P. McGee has been employed by the Company since 1990. He joined the Company in July 1990 as Director of Corporate Accounting and was promoted to Corporate Controller in December 1990. Mr. McGee became Vice President, Controller and Principal Accounting Officer in 1991, and in 1993, became Vice President -- Chief Financial Officer. From 1985 to the time he joined the Company, Mr. McGee was a senior manager and audit manager at Ernst and Young. George Krsek, Ph.D., was President of Houba, Inc. a pharmaceutical firm from 1975 to July 1994, and is currently President of Konec L.L.C., a management consulting company. He has been a director of the Company since 1979, and serves as Chairman of the Company's Audit Committee. Jack O. Vance became the Managing Director of Management Research, a management consulting firm in November 1990. From 1960 through 1989 he was a director of McKinsey & Co., Inc., a management consulting firm. During the years 1973 through 1989 he was also the Managing Director of the firm's Los Angeles office. He has been a director of the Company since 1988 and also serves as 10 Chairman of the Company's Compensation and Stock Option Committee. He is also a director of Hillhaven Corporation, International Technology Corporation, Escorp, The Olson Company, University Restaurant Group, and FCG Enterprises, Inc. Rochus E. Vogt, Ph.D., is the R. Stanton Avery Distinguished Service Professor and a Professor of Physics, California Institute of Technology, and acted as Provost from 1983 through 1987. He has been a director of the Company since 1984. Donald S. Burns has been Chairman, President and Chief Executive Officer of Prestige Holdings, Ltd., a property management and business consulting firm since 1978. Mr. Burns was elected a director of the Company in 1993. He is also a director of ESI Corporation, Hillhaven Corporation and International Technology Corporation. James D. Plummer, Ph.D., has been the John M. Fluke Professor of Electrical Engineering, Stanford University since 1988 and Director of Stanford's Integrated Circuits Laboratory since 1984. Dr. Plummer was elected a director of the Company in September 1994. PART II ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDERS' MATTERS PRICE RANGE OF COMMON STOCK (IN DOLLARS)
SECOND QUARTER THIRD QUARTER FOURTH QUARTER FIRST QUARTER ------------------ ------------------ ------------------ ------------------ STOCKHOLDERS FISCAL YEAR HIGH LOW HIGH LOW HIGH LOW HIGH LOW AT YEAR END ------------ ------- ------- ------- ------- ------- ------- ------- ------- ------------- 1995........ 22 1/4 15 1/8 24 1/4 19 1/4 26 1/4 22 5/8 33 3/8 23 1/4 1,771 1994........ 13 1/8 10 1/4 14 7/8 10 1/4 19 13 7/8 17 1/8 13 1/2 1,787
The Company's Common Stock is traded on the New York Stock Exchange under the symbol "IRF". No dividends have been recently declared or paid. The Company does not intend to pay cash dividends in the foreseeable future as all funds will be used to expand operations. Furthermore, under certain credit agreements, the Company is not permitted to pay any cash dividends. 11 ITEM 6. SELECTED FINANCIAL DATA The selected consolidated financial data as of June 30, 1995 and 1994 and for the fiscal years ended June 30, 1995, 1994 and 1993 are derived from the audited consolidated financial statements of the Company and should be read in conjunction with the audited consolidated financial statements and notes with respect thereto included herein. The selected consolidated financial data as of June 30, 1993, 1992 and 1991, and for the fiscal years ended June 30, 1992 and 1991 are derived from audited consolidated financial statements of the Company which are not included herein.
FISCAL YEARS ENDED JUNE 30, --------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA (IN THOUSANDS EXCEPT PER SHARE DATA) (1) Revenues........................................ $ 429,026 $ 328,882 $ 281,732 $ 265,495 $ 252,800 Cost of sales................................... 278,202 219,944 202,684 186,437 167,044 ----------- ----------- ----------- ----------- ----------- Gross profit.................................... 150,824 108,938 79,048 79,058 85,756 Selling and administrative expense.............. 82,328 69,008 62,637 58,771 51,544 Research and development expense................ 20,108 16,381 14,083 9,405 7,538 Restructuring charge............................ -- -- -- -- 1,000 ----------- ----------- ----------- ----------- ----------- Operating profit................................ 48,388 23,549 2,328 10,882 25,674 Interest expense, net........................... (377) (3,625) (2,250) (1,436) (13,266) Other income (expense).......................... (544) (1,050) (2,675) 1,066 5,825 ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes and extraordinary item............................. 47,467 18,874 (2,597) 10,512 18,233 Provision for income tax........................ 8,069 3,160 436 1,275 1,086 ----------- ----------- ----------- ----------- ----------- Income (loss) before extraordinary item......... 39,398 15,714 (3,033) 9,237 17,147 Extraordinary item, net......................... -- -- -- -- 726 ----------- ----------- ----------- ----------- ----------- Net income (loss)............................... $ 39,398 $ 15,714 $ (3,033) $ 9,237 $ 16,421 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) per share: Before extraordinary item..................... $ 1.68 $ 0.78 $ (0.15) $ 0.46 $ 1.30 Extraordinary item............................ -- -- -- -- (0.06) ----------- ----------- ----------- ----------- ----------- Net income (loss) per share................... $ 1.68 $ 0.78 $ (0.15) $ 0.46 $ 1.24 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- Average common and common equivalent shares outstanding.................................... 23,510 20,428 20,087 20,107 13,210 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- AT JUNE 30, --------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA (IN THOUSANDS) Working capital................................. $ 127,751 $ 67,165 $ 58,116 $ 67,538 $ 74,900 Total assets.................................... 496,184 330,574 278,448 285,880 250,263 Short-term debt................................. 25,235 33,310 27,539 27,135 15,821 Long-term debt, less current maturities......... 23,881 26,817 11,810 11,535 11,921 Stockholders' equity............................ 345,181 202,943 186,074 191,703 179,535 ------------------------ (1) Certain reclassifications have been made to previously reported amounts to conform with current year presentation.
12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth certain items included in selected financial data as a percentage of revenues.
FISCAL YEARS ENDED JUNE 30, ------------------- 1995 1994 1993 ----- ----- ----- Revenues................................................... 100.0% 100.0% 100.0% Cost of sales.............................................. 64.8 66.9 71.9 ----- ----- ----- Gross profit............................................... 35.2 33.1 28.1 Selling and administrative expense......................... 19.2 21.0 22.2 Research and development expense........................... 4.7 5.0 5.0 ----- ----- ----- Operating profit........................................... 11.3 7.1 0.9 Interest expense, net...................................... (0.1) (1.1) (0.8) Other expense.............................................. (0.1) (0.3) (1.0) ----- ----- ----- Income (loss) before income taxes.......................... 11.1 5.7 (0.9) Provision for income taxes................................. 1.9 0.9 0.2 ----- ----- ----- Net income (loss).......................................... 9.2% 4.8% (1.1)% ----- ----- ----- ----- ----- -----
1995 COMPARED WITH 1994 Revenues for fiscal 1995 increased 30.4% to $429.0 million from $328.9 million in the prior year. The Company's revenue increase reflected continued growing demand for the Company's power MOSFET and related devices which resulted in a 34% increase in revenues from these products. Revenues from the thyristor and rectifier product lines increased 17% from the prior period. Changes in foreign exchange rates positively impacted revenues by approximately $11.1 million. Revenues for fiscal 1995 also included $9.7 million of net patent royalties compared to $9.0 million in the prior period. Gross profit was 35.2% of revenues ($150.8 million) in fiscal 1995 versus 33.1% of revenues ($108.9 million) in fiscal 1994. The increased margin reflected greater manufacturing volume and efficiencies and a greater contribution from new higher margin products. In fiscal 1995, selling and administrative expense was 19.2% of revenues ($82.3 million) versus 21.0% of revenues ($69.0 million) in fiscal 1994. The decreased percentage reflects the Company's continued commitment to reducing operating expenses as a percentage of revenues. In fiscal 1995, the Company's research and development expenditures increased $3.7 million to $20.1 million (4.7% of revenues) from $16.4 million (5.0% of revenues) in the prior period. The Company's research and development program was focused on the advancement and diversification of the HEXFET product line and expansion of the related IGBT products, the development of High Voltage Control ICs and power products that work in combination with HEXFETs and IGBTs to improve system performance. The major components of other expense include a $1.0 million charge for the transfer of assembly operations to the Company's Mexican subsidiary, $0.3 million of severance costs, $0.3 million on the disposal of property, plant and equipment, $0.3 million of local taxes and $0.5 million in legal fees, offset by $0.3 million in foreign currency transaction gains and $1.8 million of net patent royalty revenues related to prior years. In fiscal 1995, net interest expense decreased by $3.2 million from the prior year. The decrease was due to approximately $2.4 million in interest income earned in the current year on funds received 13 from a November 1994 offering of the Company's common stock and an increase of $1.7 million of interest capitalized in the current year, partially offset by increased interest expense in the first half of the year on higher average debt balances over the prior year. 1994 COMPARED WITH 1993 The Company operates on a fiscal calendar under which the twelve months ended July 3, 1994 consisted of 52 weeks compared to 53 weeks in the twelve months ended July 4, 1993. Revenues for fiscal 1994 increased 16.7% to $328.9 million from $281.7 million in the prior year. The Company's revenue increase reflected continued growing demand for the Company's power MOSFET and related devices which resulted in a 23.4% increase in revenues from these products. Offsetting this revenue increase was a 6.2% decrease in revenues from the Company's thyristor and rectifier product lines. This downturn reflected slow starting economies in key European markets in the first half, and the pruning of these mature product lines. Changes in foreign exchange rates negatively impacted revenues by approximately $2.0 million. Revenues for fiscal 1994 also included $9.0 million of net patent royalties compared to $9.5 million in the prior period. Gross profit was 33.1% of revenues ($108.9 million) in fiscal 1994 versus 28.1% of revenues ($79.0 million) in fiscal 1993. The increased margin reflected IR's recovery from production constraints in fiscal 1993. In addition, greater MOSFET manufacturing volume and efficiencies resulted in lower per unit product costs and enabled the Company to balance output to market demand and return to a normal mix of original equipment manufacturers, distribution and higher margin spot market business. In the fourth quarter of fiscal 1993 the Company extended the useful lives of certain assets. This change positively impacted gross profit by approximately $2.6 million (0.8% of revenues) during fiscal 1994. In fiscal 1994, selling and administrative expense was 21.0% of revenues ($69.0 million) versus 22.2% of revenues ($62.6 million) in fiscal 1993. The decreased percentage reflects the Company's continued commitment to reducing operating expenses as a percentage of revenues. In fiscal 1994, the Company's research and development expenditures increased $2.3 million to $16.4 million (5.0% of revenues) from $14.1 million (5.0% of revenues) in the prior period. The Company's research and development program was focused on the advancement and diversification of the HEXFET product line and expansion of the related IGBT products, the development of Control ICs and power products that work in combination with HEXFETs and IGBTs to improve system performance. Included in 1994 research and development expenses are the costs associated with an activity started in fiscal 1994, in Japan, where efforts are directed at reducing assembly costs and developing new assembly processes. The major components of other expense include a $0.9 million charge for the consolidation of the Company's power products operations, $0.4 million of severance costs and $0.3 million on the disposal of property, plant and equipment, offset by $0.4 million in foreign currency transaction gains. SEASONALITY The Company has experienced moderate seasonality in its business in recent years. On average over the past three years, the Company has reported approximately 47% of annual revenues in the first half and 53% in the second half of its fiscal year. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1995, the Company maintained cash and cash equivalent balances of $50.8 million and $3.0 million of short term investments. In addition, the Company had established $78.5 million of domestic and foreign revolving lines of credit, against which $17.3 million had been borrowed. Based on covenant and collateral limitations, the Company had $51.7 million available for borrowing against these lines at June 30, 1995. Additionally, the Company had at its disposal $25.0 million of unused 14 bank term-loan facilities and $23.8 million of unused credit lines for capital equipment financing. At June 30, 1995, the Company had made purchase commitments for capital equipment of approximately $24.9 million. During fiscal 1996 the Company plans to spend approximately $75 million on capital expenditures for the continuing expansion of its global wafer fabrication and assembly capacity. The Company intends to fund these capital expenditure and working capital requirements through cash and cash equivalents on hand, anticipated cash flow from operations, and as needed, from funds available from revolving credit, term loan and equipment financing facilities. The Company may also consider the use of funds from other external sources, including, but not limited to, public or private offerings of debt or equity. Although the Company believes that the class action lawsuits brought against the Company and its Board of Directors (See "Legal Proceedings") are without merit, the ultimate outcome thereof cannot be presently determined. Accordingly, the Company has not made any provision for any liability, if any, that may result upon adjudication of these matters. For the possible effects of environmental matters on liquidity, see "Business -- Environmental Matters". FOREIGN CURRENCY TRANSACTIONS Due to the global nature of its operations, the Company is subject to the effect of international currency fluctuations. In fiscal year 1995, over 50% of the Company's revenues were derived from sales in foreign markets. In the years ended June 30, 1995, 1994 and 1993, foreign currency fluctuations did not significantly impact net income, the Company recognized net foreign currency transactions gains of $347,000, $376,000 and $129,000, respectively. The Company may manage potential foreign currency exposure by entering into forward exchange contracts and options. These contracts are generally not speculative in nature as the resulting gains or losses generally offset any losses or gains on the underlying hedged transactions. Cash in excess of operating requirements is maintained in the United States. INCOME TAXES Due in part to the utilization of net operating loss carryforwards ("NOLs"), the Company's effective income tax rate in fiscal 1995 was approximately 17%. At June 30, 1995, the Company had fully utilized its NOL's for federal income tax purposes. The Company also has approximately $4.9 million of tax credits available to offset future U.S. taxes and approximately $1 million to offset future state taxes. When available tax credits are fully utilized, the Company will be subject to an estimated annual tax rate in the range of 35% to 40%. 15 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
PAGE ---- Report of Independent Accountants................................. 17 Financial Statements Consolidated Statement of Operations for the Fiscal Years Ended June 30, 1995, 1994, and 1993.................................. 18 Consolidated Balance Sheet as of June 30, 1995 and 1994......... 19 Consolidated Statement of Stockholders' Equity for the Fiscal Years Ended June 30, 1995, 1994, and 1993...................... 20 Consolidated Statement of Cash Flows for the Fiscal Years Ended June 30, 1995, 1994, and 1993.................................. 21 Notes to Consolidated Financial Statements...................... 22 Supporting Financial Statement Schedule:
SCHEDULE NO. PAGE ------------------------------------------------------------------ ---- II Valuation and Qualifying Accounts and Reserves for the Fiscal Years Ended June 30, 1995, 1994, and 1993.......... F-1
Schedules other than those listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the consolidated financial statements or related notes. 16 REPORT OF INDEPENDENT ACCOUNTANTS The Stockholders and Board of Directors International Rectifier Corporation We have audited the accompanying consolidated financial statements and the financial statement schedule of International Rectifier Corporation and Subsidiaries as of June 30, 1995 and 1994, and for the fiscal years ended June 30, 1995, 1994 and 1993 as listed on the index on page 16 of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Rectifier Corporation and Subsidiaries at June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for the fiscal years ended June 30, 1995, 1994 and 1993, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Note 10 to the accompanying consolidated financial statements, three class action lawsuits have been filed against the Company and its Board of Directors (certain of whom are also officers). The ultimate outcome thereof cannot presently be determined. Accordingly, no provisions for any liability that may result upon adjudication of these matters has been made in the accompanying consolidated financial statements. COOPERS & LYBRAND L.L.P. Los Angeles, California July 27, 1995 17 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (IN 000'S EXCEPT PER SHARE AMOUNTS)
FISCAL YEARS ENDED JUNE 30, ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Revenues................................................................... $ 429,026 $ 328,882 $ 281,732 Cost of sales.............................................................. 278,202 219,944 202,684 ----------- ----------- ----------- Gross profit............................................................. 150,824 108,938 79,048 Selling and administrative expense......................................... 82,328 69,008 62,637 Research and development expense........................................... 20,108 16,381 14,083 ----------- ----------- ----------- Operating profit......................................................... 48,388 23,549 2,328 Other income (expense): Interest, net............................................................ (377) (3,625) (2,250) Other, net............................................................... (544) (1,050) (2,675) ----------- ----------- ----------- Income (loss) before income taxes.......................................... 47,467 18,874 (2,597) Provision for income taxes (Note 5)........................................ 8,069 3,160 436 ----------- ----------- ----------- Net income (loss).......................................................... $ 39,398 $ 15,714 $ (3,033) ----------- ----------- ----------- ----------- ----------- ----------- Net income (loss) per share................................................ $ 1.68 $ 0.78 $ (0.15) ----------- ----------- ----------- ----------- ----------- ----------- Average common and common equivalent shares outstanding.................... 23,510 20,428 20,087 ----------- ----------- ----------- ----------- ----------- -----------
The accompanying notes are an integral part of this statement. 18 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (IN 000'S EXCEPT SHARE AMOUNTS) ASSETS
JUNE 30, JUNE 30, 1995 1994 -------- -------- Current assets: Cash and cash equivalents..................................................... $ 50,820 $ 13,051 Short-term investments........................................................ 3,000 -- Trade accounts receivable, less allowance for doubtful accounts ($901 in 1995 and $677 in 1994)............................................................ 94,095 67,595 Inventories................................................................... 73,155 73,429 Deferred income taxes (Note 5)................................................ 10,630 -- Prepaid expenses.............................................................. 2,112 2,779 -------- -------- Total current assets........................................................ 233,812 156,854 Property, plant and equipment, at cost, less accumulated depreciation ($130,480 in 1995 and $112,411 in 1994).................................................. 245,218 158,567 Investments and long-term notes receivable...................................... 2,362 2,248 Other assets.................................................................... 14,792 12,905 -------- -------- Total assets................................................................ $496,184 $330,574 -------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Bank loans (Note 2)........................................................... $ 17,250 $ 27,205 Long-term debt, due within one year (Note 2).................................. 7,985 6,105 Accounts payable.............................................................. 53,771 36,965 Accrued salaries, wages and commissions....................................... 11,517 10,264 Other accrued expenses........................................................ 15,538 9,150 -------- -------- Total current liabilities................................................... 106,061 89,689 Long-term debt, less current maturities (Note 2)................................ 23,881 26,817 Deferred income................................................................. 675 1,199 Other long-term liabilities..................................................... 10,311 9,320 Deferred income taxes (Note 5).................................................. 10,075 606 Commitments and contingencies (Notes 7, 8, 9, 10, and 11) Stockholders' equity (Note 3): Common shares, $1 par value, authorized: 30,000,000; issued and outstanding: 25,180,009 shares in 1995 and 20,352,277 shares in 1994...................... 25,180 20,352 Preferred shares, $1 par value, authorized: 1,000,000; issued and outstanding: none in 1995 and 1994........................................................ -- -- Capital contributed in excess of par value of shares.......................... 265,326 168,078 Retained earnings............................................................. 58,898 19,500 Cumulative translation adjustments............................................ (4,223) (4,987) -------- -------- Total stockholders' equity.................................................. 345,181 202,943 -------- -------- Total liabilities and stockholders' equity.................................. $496,184 $330,574 -------- -------- -------- --------
The accompanying notes are an integral part of this statement. 19 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (IN 000'S EXCEPT SHARE AMOUNTS)
CAPITAL CONTRIBUTED IN EXCESS OF CUMULATIVE COMMON PAR VALUE RETAINED TRANSLATION SHARES OF SHARES EARNINGS ADJUSTMENTS TOTAL --------- ----------- --------- ----------- ----------- BALANCE, JUNE 30, 1992............................... $ 19,930 $ 165,567 $ 6,819 $ (613) $ 191,703 Issuance of common shares: 204,640 - exercise of stock options................ 205 992 -- -- 1,197 99,027 - stock purchase plan....................... 99 589 -- -- 688 Net loss for the year ended June 30, 1993............ -- -- (3,033) -- (3,033) Cumulative translation adjustments................... -- -- -- (4,481) (4,481) --------- ----------- --------- ----------- ----------- BALANCE, JUNE 30, 1993............................... 20,234 167,148 3,786 (5,094) 186,074 Issuance of common shares: 49,410 - exercise of stock options................. 49 276 -- -- 325 69,065 - stock purchase plan....................... 69 654 -- -- 723 Net income for the year ended June 30, 1994.......... -- -- 15,714 -- 15,714 Cumulative translation adjustments................... -- -- -- 107 107 --------- ----------- --------- ----------- ----------- BALANCE, JUNE 30, 1994............................... 20,352 168,078 19,500 (4,987) 202,943 Issuance of common shares: 208,700 - exercise of stock options................ 209 1,559 -- -- 1,768 74,032 - stock purchase plan....................... 74 841 -- -- 915 4,545,000 - stock offering......................... 4,545 92,553 -- -- 97,098 Tax benefits from exercise of stock options.......... -- 2,295 -- -- 2,295 Net income for the year ended June 30, 1995.......... -- -- 39,398 -- 39,398 Cumulative translation adjustments................... -- -- -- 764 764 --------- ----------- --------- ----------- ----------- BALANCE, JUNE 30, 1995............................... $ 25,180 $ 265,326 $ 58,898 $ (4,223) $ 345,181 --------- ----------- --------- ----------- ----------- --------- ----------- --------- ----------- -----------
The accompanying notes are an integral part of this statement. 20 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (IN 000'S)
FISCAL YEARS ENDED JUNE 30, ---------------------------------- 1995 1994 1993 ------------ --------- --------- Cash flow from operating activities: Net income (loss).......................................................... $ 39,398 $ 15,714 $ (3,033) Adjustment to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization............................................ 23,444 18,018 16,524 Deferred income.......................................................... (524) (203) (513) Deferred income taxes.................................................... (1,178) 272 (159) Deferred compensation.................................................... 1,471 1,473 1,529 Change in working capital (Note 1)......................................... 3,707 (9,109) 3,943 ------------ --------- --------- Net cash provided by operating activities.................................... 66,318 26,165 18,291 ------------ --------- --------- Cash flow from investing activities: Additions to property, plant and equipment................................. (106,902) (24,686) (16,994) Purchase of short-term investments......................................... (57,581) -- -- Proceeds from sale of short-term investments............................... 54,581 -- -- Investment in other noncurrent assets...................................... (3,615) (4,979) (4,158) ------------ --------- --------- Net cash used in investing activities........................................ (113,517) (29,665) (21,152) ------------ --------- --------- Cash flow from financing activities: Proceeds from issuance of (payments on) short-term bank debt, net.......... (11,542) 2,623 5,333 Proceeds from issuance of long-term debt................................... 9,435 10,326 2,038 Payments on long-term debt and obligations under capital leases............ (11,302) (5,809) (5,268) Net proceeds from issuance of common stock................................. 99,781 1,048 1,885 Other...................................................................... (1,979) (125) (1,201) ------------ --------- --------- Net cash provided by financing activities.................................... 84,393 8,063 2,787 ------------ --------- --------- Effect of exchange rate changes on cash and cash equivalents................. 575 (57) 72 ------------ --------- --------- Net increase (decrease) in cash and cash equivalents......................... 37,769 4,506 (2) Cash and cash equivalents beginning of year.................................. 13,051 8,545 8,547 ------------ --------- --------- Cash and cash equivalents end of year........................................ $ 50,820 $ 13,051 $ 8,545 ------------ --------- --------- ------------ --------- ---------
The accompanying notes are an integral part of this statement. 21 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and all its majority-owned subsidiaries which are located in Europe, Mexico, Canada, the Far East and South East Asia. All material intercompany transactions have been eliminated. FISCAL YEAR Fiscal years 1995 and 1994 consist of 52 weeks ending July 2 and July 3, respectively. Fiscal year 1993 consists of 53 weeks ending July 4. For convenience, all references herein to fiscal years are to fiscal years ended June 30. REVENUE RECOGNITION The Company recognizes revenues from product sales to all customers, including distributors, at the time of shipment. SHORT TERM INVESTMENTS The Company's short term investments consist of investment grade money market instruments and government securities. All of the Company's investments have original maturities of less than one year. In accordance with the criteria established by Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities", all investments have been classified as "available-for-sale". The Company utilizes the specific identification method for determining the cost of the investments. At June 30, 1995 the cost of the investments approximates the market value. INVENTORIES Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories at June 30, 1995 and 1994 were comprised of the following (000's):
1995 1994 --------- --------- Raw materials.......................................................... $ 19,974 $ 15,118 Work-in-process........................................................ 32,967 26,965 Finished goods......................................................... 20,214 31,346 --------- --------- $ 73,155 $ 73,429 --------- --------- --------- ---------
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Upon retirement or other disposal, the asset cost and related accumulated depreciation are removed from the accounts and any gain or loss on disposition is included in income. Depreciation is provided on the straight-line method, based on the estimated useful lives of the assets, or the units of production method based upon the estimated output of 22 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the equipment. Depreciation expense for the fiscal years ended June 30, 1995, 1994, and 1993 was $21,819,000, $15,880,000, and $14,160,000, respectively. Property, plant and equipment at June 30, 1995 and 1994 was comprised of the following (000's):
1995 1994 ------------ ----------- Buildings and improvements......................................... $ 73,027 $ 72,004 Equipment.......................................................... 210,934 169,988 Construction in progress........................................... 84,318 22,525 Less accumulated depreciation...................................... (130,480) (112,411) ------------ ----------- 237,799 152,106 Land............................................................... 7,419 6,461 ------------ ----------- $ 245,218 $ 158,567 ------------ ----------- ------------ -----------
Depreciation of improvements to leased premises is provided on the straight-line method over the shorter of the remaining term of the lease or estimated useful lives of the improvements. Capital leases included in property, plant and equipment at June 30, 1995 and 1994 are as follows (000's):
1995 1994 ---------- ---------- Equipment............................................................ $ 62,751 $ 62,533 Less Accumulated depreciation........................................ (38,980) (35,171) ---------- ---------- $ 23,771 $ 27,362 ---------- ---------- ---------- ----------
Repairs and maintenance costs are charged to expense. In the fiscal years ended June 30, 1995, 1994 and 1993, repairs and maintenance costs were $11,977,000, $8,144,000 and $7,721,000 respectively. FOREIGN CURRENCY TRANSLATION The financial position and results of operations of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Foreign assets and liabilities in the consolidated balance sheet have been translated at the rate of exchange on the balance sheet date. Revenues and expenses are translated at the average exchange rate for the year. Unrealized translation adjustments do not affect the results of operations and are reported as a separate component of stockholders' equity. In fiscal 1995, 1994 and 1993, the Company recognized foreign currency transaction gains of $347,000, $376,000, and $129,000, respectively. RESEARCH AND DEVELOPMENT Research and development costs are expensed as incurred. INCOME TAXES Deferred income taxes are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted rates in effect during the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. U.S. income taxes have not been provided on approximately $18,875,000 of undistributed earnings of foreign subsidiaries since management considers these earnings to be invested indefinitely or substantially offset by foreign tax credits. 23 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) EARNINGS PER SHARE Earnings per share is computed by dividing earnings by the weighted average number of common and common stock equivalents outstanding. Stock options outstanding under stock option plans are considered common stock equivalents. Common stock equivalents for stock options of 243,056 and 112,700 were utilized in the computation of earnings per share in 1995 and 1994, respectively. No common stock equivalents for stock options were used in 1993 as the impact would have been anti-dilutive. INTANGIBLE ASSETS Patent costs are amortized using the straight-line method over the life of the related patent. STATEMENT OF CASH FLOWS The Company invests excess cash from operations in investment grade money market instruments. The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Components in the changes in working capital are comprised of the following (000's):
1995 1994 1993 ---------- ---------- --------- Trade accounts receivable, net............................ $ (23,938) $ (11,701) $ (2,871) Inventories............................................... 613 (10,427) 3,390 Prepaid expenses.......................................... 737 (1,031) (789) Accounts payable.......................................... 16,787 9,123 4,316 Accrued salaries, wages and commissions................... 1,277 918 243 Other accrued expenses.................................... 8,231 4,009 (346) ---------- ---------- --------- $ 3,707 $ (9,109) $ 3,943 ---------- ---------- --------- ---------- ---------- ---------
Supplemental disclosures of cash flow information (000's):
1995 1994 1993 --------- --------- --------- Cash paid during the year for: Interest.................................................... $ 4,578 $ 3,612 $ 3,246 Income taxes................................................ 3,879 802 1,376 Interest capitalized.......................................... 2,164 453 1,357 Non cash financing activity: Assets acquired through capital leases...................... 792 12,675 4,275
Included in assets acquired through capital leases in 1994 is $7.2 million in existing operating leases that were renegotiated to capital leases. CONCENTRATION OF RISK The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of insured limits. The Company performs periodic credit evaluations of its customers' financial condition and generally does not require collateral. Receivables on average are due in 60 days. Credit losses have consistently been within management's expectations. FINANCIAL INSTRUMENTS The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. The Company enters into forward foreign exchange contracts and foreign 24 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) currency options to hedge certain foreign currency denominated receivables and payables from its foreign subsidiaries. The related gains and losses on these contracts are included in "Other income (expense)". The Company does not hold or issue financial instruments for trading purposes. Forward foreign exchange contracts outstanding at June 30, 1995 had maturities of less than six months and were denominated in Japanese Yen and British Pound Sterling. Counterparties to the transactions were large financial institutions. At June 30, 1995, the Company had approximately $11.1 million outstanding in forward foreign exchange contracts and had no outstanding foreign currency options. RECLASSIFICATION Certain reclassifications have been made to previously reported amounts to conform with the current year presentation. 2. LONG-TERM DEBT AND OTHER LOANS In February 1995, the Company modified its existing $25 million unsecured credit facility from Sanwa Bank California ("Sanwa Facility"). The modified facility was increased to $30 million, consisting of a $5 million revolving line of credit and a $25 million term loan facility. In March 1995, the Company increased its existing unsecured revolving line of credit with Wells Fargo Bank, N.A. ("Wells Facility") from $10 million to $25 million. In June 1995, the Company established an additional unsecured revolving line of credit of $10 million with Nationsbank of Texas, N.A. ("Nationsbank Facility"). Interest rates for loans under the Sanwa Facility and Wells Facility are at prime, or the banks cost of funds plus 1.00%, or LIBOR plus 1.00%, while the interest rates for loans under the Nationsbank Facility are at Prime or LIBOR plus 1.00% (at the Company's option). The Wells Facility and Sanwa Facility, which expire on October 31, 1996, and the Nationsbank Facility, which expires on June 14, 1996, contain the same financial covenants and ratios which affect the availability of funds, and prohibit the Company from paying cash dividends. At June 30, 1995, there were no outstanding borrowings under these three facilities. In February 1995, as part of the modified credit facility with Sanwa Bank California, described above, the Company may draw down up to $25 million prior to December 31, 1995 on its $25 million unsecured term loan facility ("Sanwa Term Facility"). Interest rates for such loans are at prime, or LIBOR plus 1.00%, or the bank's fixed rate (at the Company's option). Principal repayments on loans under the Sanwa Term Facility are required to be made in equal quarterly installments from March 31, 1998 through December 31, 2001. This facility contains the same financial covenants and ratios as contained in the three unsecured revolving credit facilities mentioned above. At June 30, 1995, no borrowings were outstanding under this facility. The Company also had an additional $38.5 million of revolving credit facilities at foreign locations. The interest rate on borrowings from these facilities ranged from 2.4% to 11.0% at June 30, 1995. Under the terms of the agreements, the availability of funds is impacted by various financial covenants and collateral requirements. At June 30, 1995, there was $17.3 million outstanding under these foreign credit facilities, and the weighted average interest rate was 5.9%. The weighted average interest rate for short term borrowings during fiscal year 1995 was also 5.9%. Based on covenant and collateral limitations under the above credit facilities, the Company had $51.7 million available for borrowing at June 30, 1995. 25 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. LONG-TERM DEBT AND OTHER LOANS (CONTINUED) The following is a summary of the Company's long-term debt and other loans at June 30, 1995 and 1994 (000's):
1995 1994 --------- --------- Capitalized lease obligations payable in varying monthly installments primarily at rates from 6.0% to 12.6%........................................................................ $ 13,221 $ 16,115 10.55% property mortgage due in equal monthly installments to 2011......................... -- 4,300 Domestic bank loans collateralized by equipment, payable in varying monthly installments at rates from 7.4% to 8.7%, due in 1995 through 2000......................................... 8,337 3,097 Foreign bank loans collateralized by property and/or equipment, payable in varying monthly installments at rates from 8.0% to 10.8%, due in 1997 through 2000........................ 3,894 4,803 Foreign unsecured bank loans payable in varying monthly installments at rates from 3.4% to 8.4%, due in 1998 through 2006............................................................ 6,414 4,607 --------- --------- 31,866 32,922 Less current portion of long-term debt..................................................... (7,985) (6,105) --------- --------- $ 23,881 $ 26,817 --------- --------- --------- ---------
Principal payments on long-term debt are as follows: 1997 $8,216,000; 1998 $7,901,000; 1999 $4,405,000; 2000 $2,220,000; and $1,139,000 thereafter. In accordance with Statement of Financial Accounting Standards No. 107 "Disclosures About Fair Value of Financial Instruments," the fair values of the Company's long-term debt has been estimated based on current rates offered to the Company for debt of the same remaining maturities. The carrying amounts of the Company's loans approximate their fair values. 3. CAPITAL STOCK The Company has an employee stock purchase plan. Under this plan employees are allowed to designate between two and ten percent of their base compensation to purchase shares of the Company's common stock at 85 percent of fair market value. In November 1993, the stock purchase plan was amended to cover an additional 1,000,000 shares. During fiscal 1995 and 1994, 74,032 and 69,065 shares were purchased at an aggregate purchase price of $915,000 and $723,000, respectively. Shares authorized under this plan that remained unissued were 980,971 and 1,055,003 at June 30, 1995 and 1994, respectively. The Company has three stock option plans, the 1979, 1984, and 1992 Plans, as amended. Under these plans, options to purchase shares of the Company's common stock are issued to key employees as well as members of the Company's Board of Directors. Options are issued at 100% of the fair value of the Company's common stock at the date of grant and become exercisable in annual installments of 20%, beginning on the first anniversary date. The 1992 plan provides for the increase in options available for grant under the plan by 1 1/2% of total common stock outstanding on January 1 of each year. On January 1, 1995, 1994 and 1993, 374,211, 304,503 and 300,061 options, respectively, were added to the plan. During fiscal year 1995, 8,150 shares expired under the 1979 and 1984 plans. 26 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. CAPITAL STOCK (CONTINUED) A summary of the status of options under the 1992, 1984, and 1979 plans is as follows:
SHARES PRICE RANGE ---------- -------------------- Outstanding, June 30, 1992...................................................... 662,400 $ 4.00 to $21.62 Options granted............................................................... 73,700 8.00 to 12.50 Options exercised............................................................. (204,640) 4.00 to 10.00 Options expired or canceled................................................... (17,650) 4.00 to 12.75 ---------- Outstanding, June 30, 1993...................................................... 513,810 4.00 to 21.62 Options granted............................................................... 240,000 11.00 to 17.00 Options exercised............................................................. (49,410) 4.00 to 15.38 Options expired or canceled................................................... (23,200) 5.75 to 21.62 ---------- Outstanding, June 30, 1994...................................................... 681,200 4.50 to 21.62 ---------- Options granted............................................................... 338,100 18.62 to 31.87 Options exercised............................................................. (208,700) 4.50 to 21.62 Options expired or canceled................................................... (8,400) 4.50 to 21.62 ---------- Outstanding, June 30, 1995 at an average price of $19.64........................ 802,200 $ 5.87 to $31.87 ---------- ----------
The following table summarizes the options exercisable:
SHARES PRICE RANGE --------- ------------------ June 30, 1995..................................................................... 189,640 $7.50 to $21.62 June 30, 1994..................................................................... 264,120 4.50 to 21.62 June 30, 1993..................................................................... 216,760 4.00 to 21.62
Additional information relating to the 1992, 1984, and 1979 plans is as follows:
FISCAL YEARS ENDED JUNE 30, ----------------------------------- 1995 1994 1993 ----------- ----------- --------- Options available for grant at June 30..................................... 386,575 350,214 262,511 Total reserved common stock shares for stock option plans.................. 1,188,775 1,031,414 776,321
27 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. GEOGRAPHIC SEGMENTS AND FOREIGN OPERATIONS The Company operates in one business segment. Transfers between geographic areas are made at prices reflecting market conditions. Revenues from unaffiliated customers is based on the location of the customer. Geographic segment information including sales and transfers between geographic areas is presented below:
FISCAL YEARS ENDED (000'S) ------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Revenues from Unaffiliated Customers United States............................................................ $ 196,520 $ 154,684 $ 129,597 Europe................................................................... 122,391 87,245 81,702 Other.................................................................... 110,115 86,953 70,433 ----------- ----------- ----------- Total.................................................................. $ 429,026 $ 328,882 $ 281,732 ----------- ----------- ----------- ----------- ----------- ----------- Transfers between Geographic Areas United States............................................................ $ 128,406 $ 97,896 $ 84,753 Europe................................................................... 67,281 48,864 56,119 Other.................................................................... 3,366 1,379 2,602 ----------- ----------- ----------- Total.................................................................. $ 199,053 $ 148,139 $ 143,474 ----------- ----------- ----------- ----------- ----------- ----------- Total Revenues United States............................................................ $ 324,926 $ 252,580 $ 214,350 Europe................................................................... 189,672 136,109 137,821 Other.................................................................... 113,481 88,332 73,035 Intersegment eliminations................................................ (199,053) (148,139) (143,474) ----------- ----------- ----------- Total.................................................................. $ 429,026 $ 328,882 $ 281,732 ----------- ----------- ----------- ----------- ----------- ----------- Operating Profit United States............................................................ $ 38,924 $ 18,173 $ 1,108 Europe................................................................... 7,428 4,710 409 Other.................................................................... 2,036 666 811 ----------- ----------- ----------- Total.................................................................. $ 48,388 $ 23,549 $ 2,328 ----------- ----------- ----------- ----------- ----------- ----------- Identifiable Assets United States (1)........................................................ $ 269,737 $ 189,591 $ 164,485 Europe................................................................... 93,517 74,533 61,364 Other.................................................................... 35,765 28,696 22,506 ----------- ----------- ----------- Total.................................................................. $ 399,019 $ 292,820 $ 248,355 ----------- ----------- ----------- ----------- ----------- ----------- U.S. Export Sales to Unaffiliated Customers by Destination of Sale Europe................................................................... $ 9,231 $ 4,362 $ 3,293 Asia..................................................................... 18,026 20,094 13,319 Other.................................................................... 3,345 4,829 4,057 ----------- ----------- ----------- Total.................................................................. $ 30,602 $ 29,285 $ 20,669 ----------- ----------- ----------- ----------- ----------- ----------- ------------------------ (1) Excluding general corporate assets.
28 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES Effective July 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" which requires recognition of deferred tax assets and liabilities for temporary differences and net operating loss ("NOL") and tax credit carryforwards. Under SFAS No. 109, deferred income taxes are established based on enacted tax rates expected to be in effect when temporary differences are scheduled to reverse and NOL and tax credit carryforwards are expected to be utilized. Adoption of SFAS No. 109 did not have a material impact on the Company's financial position or results from operations. Prior year's financial statements have not been restated. The major components of the net deferred tax asset (liability) as of June 30, 1995 and June 30, 1994 are as follows (000's):
JUNE 30, 1995 JUNE 30, 1994 ------------- ------------- Deferred tax liability: Depreciation............................................................ $ (10,948) $ (9,215) Deferred tax assets: Reserves for books, not deducted........................................ 5,431 3,380 Net operating loss carryovers........................................... -- 9,815 Credit carryovers....................................................... 5,894 5,417 Other................................................................... 178 593 ------------- ------------- Total deferred tax assets............................................... 11,503 19,205 Valuation allowance..................................................... -- (10,596) ------------- ------------- Net deferred tax asset (liability)...................................... $ 555 $ (606) ------------- ------------- ------------- -------------
Income (loss) before income taxes is as follows (000's):
FISCAL YEARS ENDED ------------------------------- 1995 1994 1993 --------- --------- --------- Operations: Domestic........................................................... $ 39,719 $ 15,626 $ (1,590) Foreign............................................................ 7,748 3,248 (1,007) --------- --------- --------- $ 47,467 $ 18,874 $ (2,597) --------- --------- --------- --------- --------- ---------
The provision (benefit) for income taxes consists of (000's):
FISCAL YEARS ENDED ------------------------------- 1995 1994 1993 --------- --------- --------- Current income taxes: Domestic............................................................... $ 6,356 $ 1,539 $ (122) Foreign................................................................ 2,874 1,331 788 --------- --------- --------- 9,230 2,870 666 --------- --------- --------- Deferred income taxes: Domestic............................................................... (1,458) -- (160) Foreign................................................................ 297 290 (70) --------- --------- --------- (1,161) 290 (230) --------- --------- --------- Total provision.......................................................... $ 8,069 $ 3,160 $ 436 --------- --------- --------- --------- --------- ---------
29 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) Deferred taxes result primarily from temporary differences relating to depreciation, financial statement reserves, and state taxes. The Company's effective tax rate on pretax income (loss) differs from the U.S. Federal Statutory tax rate as follows:
FISCAL YEARS ENDED ------------------------------- 1995 1994 1993 --------- --------- --------- Statutory tax rate (benefit)................................................ 35.0% 35.0% (34.0)% Change in valuation allowance............................................... (21.7) (24.8) -- Foreign tax differential.................................................... 1.8 2.6 40.9 Domestic loss producing no current tax benefit.............................. -- -- 16.6 State taxes, net of federal tax benefit..................................... 1.0 1.5 (7.5) Tax credits................................................................. (3.0) -- -- Other, net.................................................................. 3.9 2.4 0.8 --------- --------- --------- 17.0% 16.7% 16.8% --------- --------- --------- --------- --------- ---------
During fiscal 1995, the Company fully utilized its $27.3 million of U.S. federal income tax net operating loss carryovers. The estimated tax benefit during fiscal 1995 from utilization of the net operating loss carryover was $9.7 million of which $2.3 million increased capital contributed in excess of par value of shares due to the exercise of stock options. At June 30, 1995, the Company has approximately $2.0 million, $1.7 million, and $0.2 million, respectively, of investment, research and development, and foreign tax credit carryforwards available to reduce income taxes otherwise payable, which expire from 1996 to 2010. In addition, the Company has approximately $1.0 million of alternative minimum tax credits, which can be carried over indefinitely to offset regular tax liabilities to the extent of the alternative minimum tax, and a $1.0 million state tax credit which expires in 2002. 6. PROFIT SHARING AND RETIREMENT PLANS The Company has established defined contribution plans for all eligible employees. The Profit Sharing and Retirement Plan provides for contributions by the Company in such amounts as the Board of Directors may annually determine. The Company has also established a voluntary Retirement Savings Plan (401K) to which the Company makes an annual contribution of up to $600 for each participating employee. Combined plan contributions totaled $1,027,000, $841,000, and $511,000 for fiscal years 1995, 1994, and 1993, respectively. 7. ENVIRONMENTAL MATTERS Federal, state and local laws and regulations impose various restrictions and controls on the discharge of certain materials, chemicals and gases used in semiconductor processing. The Company does not believe that compliance with such laws and regulations will have a material adverse effect on its financial position. The Company and Rachelle Laboratories, Inc. ("Rachelle"), its former pharmaceutical subsidiary which discontinued operations in 1986, have been named among several hundred entities as potentially responsible parties ("PRPs") under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), in connection with the United States Environmental Protection Agency's ("EPA") investigation of the disposal of allegedly hazardous substances at a major superfund site in Monterey Park, California (the "OII Site"). Certain PRPs who settled certain claims with the EPA under consent decrees filed suit in Federal Court in May 1992 30 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. ENVIRONMENTAL MATTERS (CONTINUED) against a number of other PRPs, including the Company, for cost recovery and contribution under CERCLA. The lawsuit against the Company, relating to the first and second consent decrees, was settled in August 1993 for the sum of $40,000 to avoid protracted and expensive litigation. In June 1995, the Company was named among others as a party defendant in Federal Court apparently in connection with a third consent decree with respect to the OII Site. The Company recently received a letter (dated July 25, 1995) from the U.S. Department of Justice offering to settle claims against Rachelle relating to the first three elements of cleanup work at the OII Site for the sum of $4,953,148. (The final remedy assessment has not yet been made). The letter stated that if the offer is not accepted by September 1, 1995, enforcement action will follow. The Department of Justice letter is being evaluated. Claims have been made with the Company's insurers with respect to the OII Site matter; however, there can be no assurance that insurance coverage attaches to these claims. The Company does not believe that either it or Rachelle is responsible for the disposal at the OII Site of any material constituting hazardous substances under CERCLA. Although the ultimate resolution of this matter is unknown, the Company believes that it will not have a material adverse impact on its financial position. In May 1993, the Company purchased property from its Employee Profit Sharing and Retirement Plan. It was determined that the property required clean-up of seepage from a storage tank, at an estimated additional cost of $525,000. The Company commenced the clean-up in fiscal year 1994 and through June 30, 1995 approximately $450,000 in clean-up costs have been incurred which will be capitalized as additional costs of the property. On July 18, 1994, the Company received a letter from the State of Washington Department of Ecology (the "Department") notifying the Company of a proposed finding that the Company is a potentially liable person ("PLP") for alleged PCE contamination (also knows as perchloroethylene, tetrachloroethylene, and other names) of real property and groundwater in Yakima County, Washington. The letter alleges that the Company arranged for disposal or treatment of the PCE or arranged with a transporter for the disposal or treatment of the PCE in Yakima County. The Company replied by a letter dated August 11, 1994, stating that it has not contributed to PCE or other solvent contamination at the Yakima County site (resulting from sending carbon canisters for regeneration to a facility in the county) and that it should not be designated a PLP. On October 11, 1994, the Company received a letter from the Department notifying the Company of its finding that the Company is a PLP in the above matter. Initial information indicates that less than one percent of all contaminated carbon sent to the site by PLPs was contributed by the Company. What amount, if any, the Company may be asked to contribute to solve the groundwater problem is unknown. The Company received a letter dated September 9, 1994, from the State of California Department of Toxic Substances Control stating that the Company may be a PRP for the deposit of hazardous substances at a facility in Whittier, California. The Company, in June 1995, agreed to join a group of other PRPs to remove contamination from the site. Although the final outcome is not known and depends on final clean-up costs and the allocation scheme, the group currently estimates a total clean-up cost of about $1.8 million to $2.5 million, of which about $6,000 to $9,000 might be requested to be borne by the Company. 31 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. COMMITMENTS The future minimum lease commitments under non-cancelable capital and operating leases of equipment and real property at June 30, 1995 are as follows (000's):
FISCAL CAPITAL OPERATING TOTAL YEARS LEASES LEASES COMMITMENTS -------------------------------------------------------- --------- --------- ------------- 1996.................................................... $ 5,191 $ 6,140 $ 11,331 1997.................................................... 4,934 5,209 10,143 1998.................................................... 4,165 2,055 6,220 1999.................................................... 1,103 659 1,762 2000.................................................... 2 338 340 Later years............................................. -- 1,452 1,452 Less imputed interest................................... (2,174) -- (2,174) --------- --------- ------------- Total minimum lease payment............................. $ 13,221 $ 15,853 $ 29,074 --------- --------- ------------- --------- --------- -------------
Total rental expense on all operating leases charged to income was $7,965,000, $6,723,000, and $5,591,000 in fiscal years 1995, 1994 and 1993, respectively. 9. INTELLECTUAL PROPERTY RIGHTS Certain of the Company's fundamental power MOSFET patents have been subjected, and continue to be subjected, to reexamination in the United States Patent and Trademark Office ("PTO"). The patents subject to reexamination are fundamental to the Company's MOS transistors and their loss would allow competitors to use currently patented features of the Company's MOS transistor technology without liability for infringement of those patents. On the following dates, the PTO granted requests for reexamination of the following patents of the Company: November 13, 1992 and September 12, 1994 on patent 4,642,666; September 12, 1994 on patent 4,959,699; September 23, 1994 and June 28, 1995 on patent 5,008,725; January 17, 1995 on patent 5,130,767; June 5, 1995 on patent 5,191,396; and June 14, 1995 on patent 4,593,302. On February 14, 1995, the PTO issued a reexamination certificate, confirming the patentability of the Company's U.S. patent 4,705,759. 10. LITIGATION The Company and SGS-Thomson Microelectronics, Inc. ("SGS") are engaged in various legal proceedings relating to their respective power MOSFET patents. SGS filed suit against the Company in June 1991 in Federal District Court in Texas, charging infringement of U.S. patent 4,553,314. On motion by the Company, the suit was transferred to the Federal District Court in Los Angeles, California, and thereafter SGS amended its complaint to charge infringement of U.S. patents 4,495,513 and 4,712,127. SGS alleges, in substance, that the Company's power MOSFET, power IC and IGBT products infringe the '314 patent, that the Company's IGBT products infringe the '513 patent and that certain packages for the Company's products (including certain power MOSFET packages) infringe the '127 patent. The complaint, as amended, seeks unspecified actual damages (but no less than an unspecified reasonable royalty) and an injunction restraining further sales of such products. On February 1, 1993, the District Court dismissed SGS's claims for infringement of the '127 and '513 patents for lack of standing and on March 15, 1993, ruled that the SGS '314 patent is unenforceable due to inequitable conduct. SGS appealed these rulings, as well as the order transferring the case to California, to the Court of Appeals for the Federal Circuit. The Company cross-appealed a separate ruling by the District Court denying the Company's motion for summary judgment that the '314 patent is invalid. In July 1994, the Federal Circuit vacated the District Court's grants of summary judgment as to the '513, '127 and '314 patents and affirmed the District Court's denial of the Company's motion for summary judgment of invalidity of the '314 patent. The Federal 32 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. LITIGATION (CONTINUED) Circuit ordered, however, that the case should proceed in California. A trial date of November 14, 1995 has been set for the '513 patent, but proceedings on the '314 and '127 patents are essentially stayed pending completion of reexamination of these patents in the PTO. In separate proceedings before the same California District Court, the Company sought enforcement of a prior license agreement between the Company and SGS. The Court in July 1994, granted the Company's motions to enforce the license agreement with SGS, requiring SGS to pay additional past and prospective royalties under the Company's U.S. patents 4,959,699 and 4,642,666 on SGS's sales of power MOSFET, IGBT and power IC products. SGS appealed this decision to the Federal Circuit, which on May 10, 1995 affirmed the decision in favor of the Company. SGS subsequently made the required past royalty payment. The Company has also filed a separate action in the same District Court against SGS and its Italian affiliate, SGS-Thomson Microelectronics, S.r.l., seeking an injunction against infringement of the Company's U.S. patents 5,008,725 and 5,130,767. This action has been essentially stayed pending completion of reexamination of these patents by the PTO. The Company, its directors and certain officers have been named as defendants in three class action lawsuits filed in Federal Court in California. These suits seek unspecified but substantial compensatory and punitive damages for alleged intentional and negligent misrepresentations and violations of the federal securities laws. The complaints generally allege that the Company and the other defendants made materially false statements or omitted to state material facts in connection with the public offering of the company's common stock completed in April 1991 and the redemption and conversion in June 1991 of the Company's 9% Convertible Subordinated Debentures Due 2010. They also allege that the Company's projections for growth in fiscal 1992 were materially misleading. Although the Company believes that the claims alleged in the suits are without merit, the ultimate outcome cannot be presently determined. A substantial judgment or settlement, if any, could have a material adverse effect on the Company's financial condition and results of operations. Two of these suits also name Kidder, Peabody & Co. Incorporated and Montgomery Securities as defendants. The Court has scheduled trial to begin in December 1995. No provision for any liability that may result upon adjudication of these matters has been made in the consolidated financial statements. The Company is currently involved in litigation arising in the normal course of business. Management does not believe that the ultimate resolution of this litigation will have a material adverse impact on the financial position of the Company (also see Notes 7 and 9). 11. EXECUTIVE AGREEMENT The Company entered into an executive agreement with Eric Lidow dated May 15, 1991 providing for his continued employment with the Company for a six year period as Chief Executive Officer and President or in such other position as the Board of Directors may determine. Mr. Lidow's salary at fiscal year end under this agreement was $632,500. Upon Mr. Lidow's retirement from the Company (or a change in control) he will receive annual payments (Founder's Pension) of 90% of his then current salary. The agreement was amended on April 12, 1995 to provide that upon retirement Mr. Lidow's pension would be based, in addition to his salary, on the average of the prior three years' cash bonuses, if any. The pension would further be adjusted annually to account for any increase in the Consumer Price Index. Upon Mr. Lidow's death, payments will be continued to his wife, if she survives 33 INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. EXECUTIVE AGREEMENT (CONTINUED) him, in an amount equal to two-thirds of his retirement benefits for the remainder of her life. Under the terms of the Founder's Pension, $1,068,000, $572,000, and $572,000, have been expensed in fiscal years 1995, 1994, and 1993, respectively. 12. QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is as follows (000's except per share data):
NET GROSS NET INCOME REVENUES PROFIT INCOME PER SHARE ----------- --------- --------- ----------- 1995 1st Quarter....................................................... $ 92,253 $ 31,514 $ 6,498 $ 0.32 2nd Quarter....................................................... 102,814 35,792 8,368 0.37 3rd Quarter....................................................... 111,867 39,506 10,752 0.43 4th Quarter....................................................... 122,092 44,012 13,780 0.54 1994 1st Quarter....................................................... $ 73,094 $ 23,420 $ 1,976 $ 0.10 2nd Quarter....................................................... 79,104 25,613 3,070 0.15 3rd Quarter....................................................... 84,252 28,110 4,206 0.21 4th Quarter....................................................... 92,432 31,795 6,462 0.32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III For information called for by Items 10, 11, 12 and 13, reference is made to the Registrant's definitive proxy statement for its Annual Meeting of Stockholders, to be held November 20, 1995, which will be filed with the Securities and Exchange Commission within 120 days after June 30, 1995, and which is incorporated herein by reference. Certain information concerning the Directors and Executive Officers of the Company is included in Part I. See "Additional Item" page 10. PART IV ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE a. Financial Statements and Financial Statement Schedule being filed as part of this report are listed in the index on page 16. b. Exhibits filed as part of this report are listed on the Exhibit Index on page 35. 34 EXHIBIT INDEX INCORPORATED BY REFERENCE:
EXHIBIT NO. ITEM DOCUMENT ---------- -------------------------------------------------- -------------------------------------------------- 3(a) Certificate of Incorporation of the Company, as Report on Form 10-Q for the quarterly period ended amended to date December 31, 1990, as amended by Form 8 dated March 6 and March 12, 1991 as filed with the Securities and Exchange Commission, File No. 1-7935 (Exhibit 3(a)) 3(b) Amended and restated Form 10-Q -- for the quarterly period ended March By-Laws of the Company 31, 1995 as filed with the Securities and Exchange Commission, File No. 1-7935 10(a) Technical Assistance Agreement dated March 30, Registration Statement on Form S-2 as filed with 1983 between the Company and Unitrode Corporation the Securities and Exchange Commission, Registration No. 2-89410 (Exhibit 10.8) 10(b) Amended and Restated License Agreement between Form 10-K -- Annual Report Pursuant to Section 13 International Rectifier Corporation and Siliconix or 15(d) of the Securities Exchange Act of 1934 incorporated dated April 10, 1990 for Fiscal Year Ended June 30, 1990, Commission File No. 1-7935 10(c) Amended and Restated Settlement Agreement between Form 10-K -- Annual Report Pursuant to Section 13 International Rectifier Corporation and Siliconix or 15(d) of the Securities Exchange Act of 1934 incorporated dated July 27, 1990 for Fiscal Year Ended June 30, 1990, Commission File No. 1-7935 10(d) Amendment to Technical Assistance Agreement, Report on Form 10-Q for the quarterly period ended effective as of August 27, 1987, by and between December 31, 1990 as amended by Form 8 dated April the Company and Unitrode Corporation 15, 1991, Commission File No. 1-7935 (Exhibit 10(l)) 10(e) International Rectifier Corporation Stock Option Registration Statement on Form S-8 as filed with Plan of 1984 (Second Amendment) the Securities and Exchange Commission, Registration No. 33-40208. 10(f) Executive Employment Agreement dated May 15, 1991 Form 10-K -- Annual Report Pursuant to Section 13 between International Rectifier Corporation and or 15(d) of the Securities Exchange Act of 1934 Eric Lidow for Fiscal Year Ended June 30, 1991, Commission File No. 1-7935 10(g) International Rectifier Corporation Stock Option Registration Statement on Form S-8 as filed with Plan of 1992 the Securities and Exchange Commission, Registration No. 33-63958 (Exhibit 8)
35
INCORPORATED BY REFERENCE: -- CONTINUED EXHIBIT NO. ITEM DOCUMENT ---------- -------------------------------------------------- -------------------------------------------------- 10(h) Line of Credit Agreement between International Form 10-K -- Annual Report Pursuant to Section 13 Rectifier Corporation and Sanwa Bank California or 15(d) of the Securities Exchange Act of 1934 dated as of June 30, 1993 and amended as of August for Fiscal Year Ended June 30, 1993, Commission 24, 1993 File No. 1-7935 10(i) Amendment to International Rectifier Corporation Registration Statement on Form S-8 as filed with 1984 Stock Participation Plan the Securities and Exchange Commission, Registration No. 33-53589 (Exhibit 4.1) 10(j) Amendments to Line of Credit Agreement between Form 10-K -- Annual Report Pursuant to Section 13 International Rectifier Corporation and Sanwa Bank or 15(d) of the Securities Exchange Act of 1934 California dated as of November 22, 1993 and July for Fiscal Year Ended June 30, 1994, Commission 1, 1994 File No. 1-7935 10(k) Security Agreement between International Rectifier Form 10-K -- Annual Report Pursuant to Section 13 Corporation and Nationsbanc Leasing Corporation of or 15(d) of the Securities Exchange Act of 1934 North Carolina dated as of July 1, 1994 for Fiscal Year Ended June 30, 1994, Commission File No. 1-7935 10(l) Revolving Credit Agreement between International Form 10-K -- Annual Report Pursuant to Section 13 Rectifier Corporation and Wells Fargo Bank, N.A. or 15(d) of the Securities Exchange Act of 1934 dated as of July 1, 1994 for Fiscal Year Ended June 30, 1994, Commission File No. 1-7935 10(m) Loan and Security Agreement between Sanwa General Form 10-K -- Annual Report Pursuant to Section 13 Equipment Leasing, a Division of Sanwa Business or 15(d) of the Securities Exchange Act of 1934 Credit Corporation and International Rectifier for Fiscal Year Ended June 30, 1994, Commission Corporation dated as of July 1, 1994 File No. 1-7935
36 SUBMITTED HEREWITH: See page 16 for an index of Financial Statements and Schedules being filed as part of this report.
EXHIBIT NO. ITEM DOCUMENT ---------- -------------------------------------------------- -------------------------------------------------- 10(n) Amendments to Line of Credit Agreement between International Rectifier Corporation and Sanwa Bank California dated as of December 30, 1994 and February 28, 1995 10(o) Amendments to Revolving Credit Agreement between International Rectifier Corporation and Wells Fargo Bank, N.A. dated as of December 30, 1994 and March 31, 1995 10(p) Amendments to Security Agreement between International Rectifier Corporation and Nationsbanc Leasing Corporation of North Carolina dated as of August 15, 1994, November 3, 1994 and March 8, 1995 10(q) Revolving Credit Agreement between International Rectifier Corporation and Nationsbank of Texas, N.A. dated June 15, 1995 10(r) Amendment to Executive Employment Agreement dated April 12, 1995 between International Rectifier Corporation and Eric Lidow 21 List of Subsidiaries 23 Consent of Independent Accountants
37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. INTERNATIONAL RECTIFIER CORPORATION (Registrant) By MICHAEL P. MCGEE Date: 8/24/95 ------------------------------ ------------------------------ Michael P. McGee VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER Each person whose signature appears below hereby authorizes Michael P. McGee, as attorney-in-fact and agent, with full powers of substitution, to sign on his behalf, individually and in the capacities stated below, and to file any and all amendments to this Form 10-K, and other documents in connection therewith, with the Securities and Exchange Commission, granting to said attorney-in-fact and agent full power and authority to perform any other act on behalf of the undersigned required to be done in the premises. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURES TITLE DATE ------------------------------ ---------------------------------- ------------ ERIC LIDOW 8/24/95 ------------------------------ Chairman of the Board ------------ Eric Lidow ALEXANDER LIDOW 8/24/95 ------------------------------ Director, Chief Executive Officer ------------ Alexander Lidow DEREK B. LIDOW 8/24/95 ------------------------------ Director, Chief Executive Officer ------------ Derek B. Lidow ROBERT J. MUELLER 8/24/95 ------------------------------ Director, Executive Vice President ------------ Robert J. Mueller GEORGE KRSEK 8/24/95 ------------------------------ Director ------------ George Krsek JACK O. VANCE 8/24/95 ------------------------------ Director ------------ Jack O. Vance (Signatures continued on next page) SIGNATURES (CONTINUED) SIGNATURES TITLE DATE ------------------------------ ---------------------------------- ------------ ROCHUS E. VOGT 8/24/95 ------------------------------ Director ------------ Rochus E. Vogt DONALD S. BURNS 8/24/95 ------------------------------ Director ------------ Donald S. Burns JAMES D. PLUMMER 8/24/95 ------------------------------ Director ------------ James D. Plummer INTERNATIONAL RECTIFIER CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE FISCAL YEARS ENDED JUNE 30, 1995, 1994 AND 1993 (IN 000'S)
ADDITIONS ----------------------- BALANCE AT CHARGED TO BALANCE BEGINNING COST AND CHARGED TO DEDUCTIONS AT END OF DESCRIPTION OF PERIOD EXPENSES OTHER (A) PERIOD ---------------------------------------------------- ----------- ----------- ---------- ----------- --------- 1995 Allowance for doubtful accounts..................... $ 677 $ 703 $ -- $ (479 ) $ 901 ----------- ----------- ---------- ----------- --------- Deferred tax valuation allowance.................... $ 10,596 $ -- $ (10,596) $ -- $ 0 ----------- ----------- ---------- ----------- --------- Inventory valuation reserve......................... $ 2,798 $ 4,420 $ -- $ (2,189 ) $ 5,029 ----------- ----------- ---------- ----------- --------- 1994 Allowance for doubtful accounts..................... $ 607 $ 577 $ -- $ (507 ) $ 677 ----------- ----------- ---------- ----------- --------- Deferred tax valuation allowance (B)................ $ 15,546 $ -- $ (4,950) $ -- $ 10,596 ----------- ----------- ---------- ----------- --------- Inventory valuation reserve......................... $ 2,052 $ 1,997 $ -- $ (1,251 ) $ 2,798 ----------- ----------- ---------- ----------- --------- 1993 Allowance for doubtful accounts..................... $ 1,413 $ (78 ) $ -- $ (728 ) $ 607 ----------- ----------- ---------- ----------- --------- Inventory valuation reserve......................... $ 2,742 $ 485 $ -- $ (1,175 ) $ 2,052 ----------- ----------- ---------- ----------- --------- ------------------------ (A) Deductions include the write-off of uncollectible amounts with respect to trade accounts receivable, obsolete and scrap inventory, and the effects of Statement of Financial Accounting Standards ("SFAS") No. 52. (B) Effective July 1, 1993, the Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes" which requires recognition of deferred tax assets and liabilities for temporary differences and net operating loss ("NOL") and tax credit carryforwards. Under SFAS No. 109, deferred income taxes are established based on enacted tax rates expected to be in effect when temporary differences are scheduled to reverse and NOL and tax credit carryforwards are expected to be utilized. Adoption of SFAS No. 109 had no material impact on the Company's financial position or results from operations. Prior year's financial statements have not been restated.
F-1
EX-10.N 2 EXHIBIT 10.N AMENDMENT TO LINE OF CREDIT AGREEMENT This Fourth Amendment to Line of Credit Agreement (the "Amendment") is made and entered into this 30th day of December, 1994, by and between SANWA BANK CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Line of Credit Agreement dated as of June 30, 1993, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. MODIFICATION OF LOANS. Section 7.10 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "7.10 LOANS: Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, employees, affiliated entities and subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted, provided however, that Borrower may make loans or advances or extend credit to employees of Borrower in an aggregate amount not to exceed $750,000.00 in any one fiscal year and provided further, that Borrower may make loans or advances or extend credit to affiliated entities and subsidiaries of Borrower in an aggregate amount not to exceed $15,000,000.00 in the aggregate". 2. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION By:/s/ Janice Upton By: /s/ Michael P. McGee --------------------------- --------------------------------------- Janice Upton Michael P. McGee Vice President Vice President, Chief Financial Officer ------------------------------ ------------------------------------------ (Name/Title) (Name/Title) By: ------------------------------------- ----------------------------------------- (Name/Title) AMENDMENT TO LINE OF CREDIT AGREEMENT This Fifth Amendment to Line of Credit Agreement (the "Amendment") is made and entered into this 28th day of February, 1995, by and between SANWA BANK CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") with respect to the following: This Amendment shall be deemed to be a part of and subject to that certain Line of Credit Agreement dated as of June 30, 1993, as it may be amended from time to time, and any and all addenda and riders thereto (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. WHEREAS, the Borrower and the Bank mutually desire to extend and/or modify the Agreement. NOW THEREFORE, for value received and hereby acknowledged, the Borrower and the Bank agree as follows: 1. MODIFICATION OF LINE OF CREDIT. The Line of Credit provided for in Section 2.01 of the Agreement is reduced to $5,000,000.00. 2. CHANGE IN INTEREST RATE. Section 2.04 (b) and (c) of the Agreement are deleted in their entirety and the following is substituted in lieu thereof: "(b) EUROCURRENCY ADVANCES: For Advances denominated in Dollars or in Alternate Currency, a fixed rate quoted by the Bank for one, three, six, nine or twelve months or for such other period of time that the Bank may quote and offer (provided that any such period of time does not extend beyond the Expiration Date) [the "Eurocurrency Interest Period"] for Advances in the minimum amount of $500,000 and in $100,000 increments thereafter. Such interest rate shall be a percentage, rounded upward to the nearest one-hundredth of one percent, equivalent to 1% in excess of the Bank's Eurocurrency Rate for Dollars or such Alternate Currency which is that rate determined by the Bank's Treasury Desk as being the approximate rate at which the Bank could purchase Dollars or Alternate Currency deposits in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Eurocurrency Interest Period (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the purchase by the Bank of such Alternate Currency deposits [the "Eurocurrency Rate"]. An Advance which bears interest at the Eurocurrency Rate is hereinafter referred to as the "Eurocurrency Advance". (c) COST OF FUNDS ADVANCES. For Advances denominated in Dollars, the Bank hereby agrees to make advances to the Borrower, at Borrower's election, at a fixed rate for such period of time that the Bank may quote and offer, provided that any such period of time shall be for at least 30 days and provided further that any such period of time does not extend beyond the Expiration Date (the "Cost of Funds Interest Period") for Advances in the minimum amount $500,000 and in $100,000 increments thereafter. Such interest rate shall be a percentage, rounded upward to the nearest one-hundredth of one percent, equivalent to 1% per annum in excess of the rate which the Bank determines in its sole and absolute discretion to be equal to the Bank's cost of acquiring funds (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the borrowing or purchase by the Bank of such funds) in an amount approximately equal to the amount of the relevant Advance and for a period of time approximately equal to the relevant Cost of Funds Interest Period (the "Cost of Funds Rate"). Advances based upon the Fixed Rate are hereinafter referred to as "Cost of Funds Advances". -1- 3. MODIFICATION OF ACQUISITIONS. Section 7.01 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "7.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS: Maintain and preserve its existence and all rights and privileges now enjoyed; not liquidate or dissolve, merge or consolidate with or into, any other business organization, provided however, that Borrower may acquire any other businesses for up to $100,000,000 in the aggregate; and conduct its business and operations in accordance with all applicable laws, rules and regulations". 4. MODIFICATION OF REPORTING REQUIREMENTS. Section 7.06 (a) of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "(a) Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual audited financial report and Securities Exchange Commission Form 10-K of the Borrower for such year, all certified to as having been prepared in accordance with generally accepted accounting principles consistently applied by a firm of certified public accountants acceptable to Bank, together with the consolidating balance sheets and income statements for the Borrower and its subsidiaries for such year". 5. CHANGE IN INDEBTEDNESS. Section 7.09 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "7.09 ADDITIONAL DOMESTIC INDEBTEDNESS: Not, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness nor make any fixed capital expenditure or any commitment therefor, for uses which would be, in accordance with generally accepted accounting principles, reported as Domestic capital leases ("Capital Expenditures") other than (i) Indebtedness or Capital Expenditures owed or to be owed to the Bank or (ii) Indebtedness or Capital Expenditures to trade creditors incurred in the ordinary course of the Borrower's business or (iii) any Indebtedness for Capital Expenditures in the aggregate greater than $75,000,000.00 in any one fiscal year or (iv) Indebtedness owed to other financial institutions under revolving lines of credit or (v) Indebtedness of up to $75,000,000 in connection with any acquisitions". 6. CHANGE IN LOANS. Section 7.10 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "7.10 LOANS: Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, employees, affiliated entities and subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted, provided however, that Borrower may make loans or advances or extend credit to employees of Borrower in an aggregate amount not to exceed $1,000,000.00 in any one fiscal year and provided further, that Borrower may make loans or advances or extend credit to affiliated entities and subsidiaries of Borrower in an aggregate amount not to exceed $15,000,000.00 in the aggregate". 7. CHANGE IN LIENS. Section 7.11 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: "7.11 LIENS AND ENCUMBRANCES: Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust, or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's Domestic properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except for (i) Permitted Domestic Liens or as otherwise provided in this Agreement, (ii) purchase money security interests or capital leases of up to $75,000,000 for equipment including mortgage financing for the Borrower's Temecula, California property in any one fiscal year". 8. MODIFICATION OF FINANCIAL CONDITION. Section 7.14 of the Agreement is deleted in its entirety and the following is substituted in lieu thereof: -2- "7.14 FINANCIAL CONDITION: Maintain at all times: (a) A minimum consolidated Effective Tangible Net Worth of at least $175,000,000.00 plus, in each case, 50% of annual net income, the proceeds of any equity issuance, conversion of debt into equity and any grant of rights to subscribe for shares of the Borrower, commencing with the fiscal year-end June 30, 1994. (b) A ratio of consolidated Debt to consolidated Effective Tangible Net Worth of not more than 0.90 to 1. (c) A ratio of consolidated current assets to consolidated current liabilities of not less than 1.75 to 1. For the purposes hereof, outstanding Advances under the Line of Credit and under any other revolving lines of credit (whether with Bank or a third party) shall be included in consolidated current liabilities. (d) A ratio of the sum of net income, plus depreciation expense, plus amortization expense, plus net interest expense, each for the immediately preceding 4 fiscal quarters to the sum of the current portion of long- term Debt then due for the fourth preceding fiscal quarter, plus net interest expense for the immediately preceding 4 fiscal quarters of not less than 1.5 to 1. 9. CONFIRMATION OF OTHER TERMS AND CONDITIONS OF THE AGREEMENT. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement unaffected by this Amendment shall remain unchanged and shall continue in full force and effect and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION By: /s/ Janice Upton By: /s/ Michael P. McGee ------------------------------------- -------------------------------- Janice Upton, Vice President Vice President & CFO ---------------------------------------- ----------------------------------- (Name/Title) (Name/Title) By: -------------------------------- ----------------------------------- (Name/Title) -3- TERM LOAN AGREEMENT This Term Loan Agreement (the "Agreement") is made and entered into as of this 28th day of February, 1995, by and between SANWA BANK CALIFORNIA (the "Bank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower"), on the terms and conditions that follow: SECTION I DEFINITIONS 1.01 CERTAIN DEFINED TERMS: Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): (a) "BUSINESS DAY": shall mean a day other than a Saturday or Sunday on which commercial banks are open for business in California, USA. (b) "CONSOLIDATED OPERATING LOSS": shall mean a loss from operations before other income and expenses, income taxes and extraordinary items as set forth on the Borrower's consolidated statement of income. (c) "DEBT": shall mean all liabilities of the Borrower as set forth on its balance sheet less Subordinated Debt. (d) "DOMESTIC": shall mean the consolidated United States and Mexican maquiladora operations of the Borrower. (e) "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's stated net worth plus Subordinated Debt but less all intangible assets of the Borrower (i.e., goodwill, trademarks, patents, copyrights, organization expense, loans and advances to employees, and similar intangible items), but excluding any cumulative translation adjustments to equity for the value of foreign assets based upon changes in foreign exchange rates and excluding redemption of employee stock options. (f) "ERISA": shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. (g) "EVENT OF DEFAULT": shall have the meaning set forth in Section 6. (h) "INDEBTEDNESS": shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money and (ii) for the deferred purchase price of property or services due more than 45 days from the date of payment specified on the invoice for such obligation in respect of which the Borrower is primarily liable as obligor and (iii) obligations under leases which shall have been or should be, in accordance with generally accepted accounting principles, reported as capital leases in respect of which the Borrower is primarily liable. (i) "OBLIGATIONS": shall mean all amounts owing by the Borrower to the Bank pursuant to this Agreement. (j) "PERMITTED DOMESTIC LIENS": shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to the Bank; (ii) liens for taxes, assessments or similar charges either not more than 45 days past due or being contested in good faith; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the ordinary course of business and securing obligations which are not more than 45 days past due or being contested in good faith; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure Indebtedness outstanding on the date hereof or permitted to be incurred under Section 5.09 hereof; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by the Bank in writing; (vi) liens in connection with workers' compensation, unemployment insurance and such other types of insurance; (vii) liens to secure performance bonds and bid bonds and other similar obligations; (viii) liens resulting from zoning restrictions, easements and such other similar restrictions on the use of real property; and (ix) liens arising from judgments and attachments that would not constitute an Event of Default hereunder. -1- (k) "SUBORDINATED DEBT": shall mean such liabilities of the Borrower which have been subordinated to those owed to the Bank in a manner acceptable to the Bank. 1.02 ACCOUNTING TERMS: All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with generally accepted accounting principles consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.03 OTHER TERMS: Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code. SECTION 2 THE TERM LOAN 2.01 TERM LOAN. The Bank agrees to lend to the Borrower in up to 5 drawings in the minimum amount of $1,000,000 upon the Borrower's request made prior to December 31, 1995, (the "Drawdown Period") up to the maximum amount of $25,000,000 (the "Term Loan"). A. PURPOSE. Proceeds from the Term Loan shall be used to finance acquisition of assets. B. TERM LOAN ACCOUNT. The Bank shall maintain on its books a record of account in which the Bank shall make entries setting forth all payments made, the application of such payments to interest and principal, accrued and unpaid interest (if any) and the outstanding principal balance under the Term Loan (the "Term Loan Account"). The Bank shall provide the Borrower with a monthly statement of the Borrower's Term Loan Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect. C. INTEREST. Interest shall accrue on the outstanding principal balance or any portion of the outstanding principal balance of the Term Loan at one of the following rates as elected by Borrower: (a) VARIABLE RATE BALANCES. The outstanding principal balance of the Term Loan ("Term Balance") shall bear interest at a rate equal to Bank's Reference Rate per annum, as it may change from time to time ("Variable Rate"). The rate of interest shall be adjusted concurrently with any change in Bank's Reference Rate. The Term Balance bearing interest at the Variable Rate is hereinafter referred to as "Variable Rate Balances". (b) FIXED RATE BALANCES. A fixed rate for such period of time that the Bank may quote and offer in its sole discretion from time to time (the "Fixed Rate"), provided that any such period of time shall be for at least 7 days and provided further that any such period of time does not extend beyond the maturity date of the Term Loan (the "Fixed Rate Interest Period") The Bank shall provide the Borrower with a statement of the Borrower's Fixed Rate, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies the Bank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect. The Term Balance bearing interest at the Fixed Rate is hereinafter referred to as "Fixed Rate Balances". (c) EURODOLLAR BALANCES. A fixed rate quoted by the Bank for a minimum of 30 days or for such other period of time that the Bank may quote and offer [the "Eurodollar Interest Period"] for Term Balances in the minimum amount of $100,000.00. Such interest rate shall be a percentage equivalent to 1.00% per annum in excess of the Bank's Eurodollar Rate which is that rate determined by the Bank's Treasury Desk as being the approximate rate at which the Bank could purchase offshore U.S. dollar deposits in an amount approximately equal to the amount of the relevant Term Balance and for a period of time approximately equal to the relevant Eurodollar Interest Period (adjusted for any and all assessments, surcharges and reserve requirements pertaining to the purchase by the Bank of such U.S. dollar deposits) [the "Eurodollar Rate"]. Term Balances based upon the Eurodollar Rate is hereinafter referred to as the "Eurodollar Balances". Borrower hereby promises and agrees to pay interest on any Variable Rate Balances monthly in arrears on the first calendar day of each month. -2- Interest on any Eurodollar Balance or any Fixed Rate Balance with a Eurodollar Interest Period or a Fixed Rate Interest Period (hereinafter referred to as an "Interest Period") of 93 or less days shall be paid on the last day of the relevant Eurodollar Interest Period or Fixed Rate Interest Period pertaining to such Eurodollar Balance or Fixed Rate Balance. Interest on any Eurodollar Balance or Fixed Rate Balance with an Eurodollar Interest Period or Fixed Rate Interest Period in excess of 93 days shall be paid quarterly (i.e., on the last day of each 3 month period occurring in such Interest Period) and on the last day of the relevant Eurodollar Interest Period or Fixed Rate Interest Period pertaining to such Eurodollar Balance or Fixed Rate Balance. Interest shall be calculated on a year of 360 days for actual days elapsed. (d) NOTICE OF ELECTION TO ADJUST INTEREST RATE. Upon telephonic notice which shall be received by the Bank at or before 2:00 p.m. (California time) on a business day, the Borrower may elect: (1) The interest on a Variable Rate Balance shall be adjusted to accrue at the Fixed Rate or the Eurodollar Rate; provided, however, that such notice shall be received by the Bank no later than two business days prior to the day (which shall be a business day) on which Borrower requests that interest be adjusted to accrue at the Fixed Rate or Eurodollar Rate. (2) That interest on a Fixed Rate Balance or Eurodollar Balance shall continue to accrue at a newly quoted Fixed Rate or Eurodollar Rate as the case may be or shall be adjusted to commence to accrue at the Variable Rate; provided, however that such notice shall be received by the Bank no later than two business days prior to the last day of the Interest Period or Eurodollar Interest Period pertaining to such Fixed Rate Balance or Eurodollar Balance. If the Bank shall not have received notice as prescribed herein of Borrower's election that interest on any Fixed Rate Balance or Eurodollar Balance shall continue to accrue at the Fixed Rate or Eurodollar Rate as the case may be, Borrower shall be deemed to have elected that interest thereon shall be adjusted to accrue at the Variable Rate upon the expiration of the Interest Period pertaining to such Term Balance. (e) PREPAYMENT. Notwithstanding anything to the contrary in the Agreement, no prepayment shall be made on any Fixed Rate Balance or Eurodollar Balance except on a day which is the last day of the relevant Interest Period or Eurodollar Interest Period pertaining thereto. If the whole or any part of any Fixed Rate Balance or Eurodollar Balance is prepaid by reason of acceleration or otherwise, the Borrower shall upon the Bank's request, promptly pay to and indemnify the Bank for all costs and any loss (including interest) actually incurred by the Bank and any loss (excluding loss of profit resulting from the re-employment of funds) sustained by the Bank as a consequence of such prepayment. Any prepayment shall first be applied to pay accrued interest, then be applied to reduce the principal balance payable on the date set forth in numbered paragraph 3 hereinbelow, and the remaining portion (if any) of such prepayment shall then be applied to pay the principal installment(s) of latest maturity under this Term Loan. (f) INDEMNIFICATION FOR FIXED RATE AND EURODOLLAR RATE COSTS. During any period of time in which interest on any Term Balance is accruing on the basis of the Fixed Rate or Eurodollar Rate, the Borrower shall, upon the Bank's written request, which request shall explain in reasonable detail the reason for such costs or payments, promptly pay to and reimburse the Bank for all costs incurred and payments made by the Bank by reason of any future assessment, reserve, deposit or similar requirements or any surcharge, tax or fee imposed upon the Bank or as a result of the Bank's compliance with any directive or requirement of any regulatory authority pertaining or relating to funds used by the Bank in quoting and determining the Fixed Rate or Eurodollar Rate. (g) CONVERSION FROM FIXED RATE OR EURODOLLAR RATE TO VARIABLE RATE. In the event that the Bank shall at any time determine that the accrual of interest on the basis of the Fixed Rate or Eurodollar Rate (i) is infeasible because the Bank is unable to determine the Fixed Rate or Eurodollar Rate due to the unavailability of U.S. dollar deposits, contracts or certificates of deposit in an amount approximately equal to the amount of the relevant Balance and for a period of time approximately equal to the relevant Interest Period; or (ii) is or has become unlawful or infeasible by reason of the Bank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then the Bank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event any Fixed Rate Balance or Eurodollar Balance shall be deemed to be a Variable Rate Balance and interest shall thereupon immediately accrue at the Variable Rate. -3- D. PRINCIPAL. The Borrower hereby promises and agrees to pay the outstanding principal of the Term Loan as of December 31, 1995, in 15 equal installments of 1/16th of the outstanding principal balance of the Term Loan as of December 31, 1995, commencing on March 31, 1998, and continuing on the last day of each calendar quarter thereafter up to and including September 30, 2001. On December 31, 2001, the Borrower hereby promises and agrees to pay to the Bank the entire unpaid principal balance, together with accrued and unpaid interest. Each payment received by the Bank shall be applied to pay interest then due and unpaid and the remainder thereof (if any) shall be applied to pay principal. E. ACCOUNT DEBIT. Upon prior notice to the Borrower from the Bank, the Borrower hereby authorizes the Bank, if and to the extent payment owed to the Bank under the Term Loan is not made when due, after giving effect to any grace period, to charge, from time to time, against any or all of the Borrower's deposit accounts with the Bank any amount so due. F. COMMITMENT FEE. Borrower agrees to pay to Bank a commitment fee during the Drawdown Period of .25% per annum on the undrawn portion of the Term Loan, payable quarterly in arrears and computed on a year of 360 days for actual days elapsed. 2.02 LIMITATIONS. (a) Notwithstanding anything to the contrary herein, the Borrower shall not be required to make any payment to the Bank with respect to any indemnity required pursuant to Sections 2.01 C.(f) ("Affected Section") unless Bank shall have given notice to Borrower promptly upon the Rosemead Commercial Banking Center of Bank, or its equivalent successor, becoming aware of any circumstance requiring the Borrower to make any payment under an Affected Section; (b) The Borrower shall not be responsible for payment of any amounts payable under any Affected Section to the extent determined to be as a result of the Bank's gross negligence or willful misconduct. (c) The Bank shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to take any action if the taking of such action would avoid the need for, or reduce the amount of, any additional amounts payable under any Affected Section or not require the prepayment of a Fixed Rate Advance and would not, in the reasonable judgment of the Bank, be otherwise disadvantageous to the Bank. SECTION 3 CONDITIONS OF LENDING 3.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE: The obligation of the Bank to make the first extension of credit to or on account of the Borrower hereunder is subject to the conditions precedent that the Bank shall have received before the date of such first extension of credit all of the following, in form and substance satisfactory to the Bank: (a) Evidence that the execution, delivery and performance by the Borrower of this Agreement and any document, instrument or agreement required hereunder have been duly authorized. (b) A flat fee of $62,500.00 which shall include all of Bank's out-of-pocket expenses. (c) Such other evidence as the Bank may reasonably request to establish the consummation of the transaction contemplated hereunder and compliance with the conditions of this Agreement. -4- SECTION 4 REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to the Bank, which representations and warranties are continuing: 4.01 STATUS: The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied in all material respects with the fictitious name statute, of every jurisdiction in which the Borrower is doing business. 4.02 AUTHORITY: The execution, delivery and performance by the Borrower of this Agreement and any instrument, document or agreement required hereunder have been duly authorized and do not and will not: (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by- laws. 4.03 LEGAL EFFECT: This Agreement constitutes, and any instrument, document or agreement required hereunder when delivered hereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms except as the same may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or limiting creditor' rights generally and subject to the availability of equitable remedies. 4.04 FINANCIAL STATEMENTS: All financial statements, financial information and other financial data which may have been or which may hereafter be submitted by the Borrower to the Bank are and have been or will be prepared in accordance with generally accepted accounting principles consistently applied and fairly present in all material respects, as of the date of such statements, information or data, the financial condition or, as applicable, the other information disclosed therein. Since the most recent submission of such financial information or data to the Bank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operations has occurred which has not been fully disclosed to the Bank in writing. 4.05 LITIGATION: Except as have been disclosed to the Bank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or the Borrower's properties before any court or administrative agency which could reasonably be expected, if determined adversely to the Borrower, to have a material adverse effect on the Borrower's financial condition or operations. 4.06 TITLE TO ASSETS: The Borrower has good and marketable title to all of its assets. The Domestic assets are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Domestic Liens. 4.07 ERISA: If the Borrower has a pension, profit sharing or retirement plan subject to ERISA, such plan has been and will continue to be funded in accordance with its terms and otherwise complies with and continues to comply with the requirements of ERISA, except as disclosed in writing to the Bank prior to the date of this Agreement. 4.08 TAXES: The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 4.09 REGULATION U: The proceeds of the Advances will not be used to purchase or carry margin stock. 4.10 ENVIRONMENTAL COMPLIANCE: The Borrower has implemented and complied in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or environmental conditions. Except as previously disclosed to the Bank in writing, there are no suits, proceedings, claims or disputes pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or its property claiming violations of and federal, state or local law, ordinance, statute or regulation relating to hazardous or toxic wastes, substances or related materials. -5- SECTION 5 COVENANTS The Borrower covenants and agrees that, during the term of this Agreement, and so long thereafter as the Borrower is indebted to the Bank under this Agreement, the Borrower will, unless the Bank shall otherwise consent in writing: 5.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS: Maintain and preserve its existence and all rights and privileges now enjoyed; not liquidate or dissolve, merge or consolidate with or into, any other business organization, provided however, that Borrower may acquire any other businesses for up to $100,000,0000 in the aggregate; and conduct its business and operations in accordance with all applicable laws, rules and regulations. 5.02 MAINTENANCE OF INSURANCE: Maintain insurance in such amounts and covering such risks as is usually and prudently carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower operates. 5.03 MAINTENANCE OF PROPERTIES: The Borrower shall also maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 5.04 PAYMENT OF OBLIGATIONS AND TAXES: Make timely payment of all assessments and taxes and all of its liabilities and obligations unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency, provided however that Borrower may make payment of trade payables in accordance with its customary business practices. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 5.05 INSPECTION RIGHTS: At any reasonable time and from time to time, permit the Bank or any representative thereof to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower with any designated representative thereof. If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such records) in the possession of a third party, the Borrower hereby agrees to notify such third party to permit the Bank free access to such records at all reasonable times and to provide the Bank with copies of any records which it may reasonably request, all at the Borrower's expense, the amount of which shall be payable within 30 days following demand. 5.06 REPORTING AND CERTIFICATION REQUIREMENTS: Deliver or cause to be delivered to the Bank in form and detail satisfactory to the Bank: (a) Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual audited financial report and Securities Exchange Commission Form 10-K of the Borrower for such year, all certified to as having been prepared in accordance with generally accepted accounting principles consistently applied by a firm of certified public accountants acceptable to Bank, together with the consolidating balance sheets and income statements for the Borrower and its subsidiaries for such year. (b) Not later than 60 days after the end of each fiscal quarter, the Borrower's Securities Exchange Commission Form 10-Q, together with the consolidating balance sheets and income statements for the Borrower and its subsidiaries, each as of the end of such period. (c) Promptly upon the Bank's request, such other information pertaining to the Borrower as the Bank may reasonably request. 5.07 PAYMENT OF DIVIDENDS: Not declare or pay any dividends on any class of stock now or hereafter outstanding except dividends payable solely in the Borrower's capital stock. 5.08 REDEMPTION OR REPURCHASE OF STOCK: Not redeem or repurchase any class of the Borrower's stock now or hereafter outstanding, provided however, Borrower may redeem or repurchase any class of the Borrower's stock in an amount not to exceed $l,000,000.00 in any one fiscal year . -6- 5.09 ADDITIONAL DOMESTIC INDEBTEDNESS: Not, after the date hereof, create, incur or assume, directly or indirectly, any additional Indebtedness nor make any fixed capital expenditure or any commitment therefor, for uses which would be, in accordance with generally accepted accounting principles, reported as Domestic capital leases ("Capital Expenditures") other than (i) Indebtedness or Capital Expenditures owed or to be owed to the Bank or (ii) Indebtedness or Capital Expenditures to trade creditors incurred in the ordinary course of the Borrower's business or (iii) any Indebtedness for Capital Expenditures in the aggregate greater than $75,000,000.00 in any one fiscal year or (iv) Indebtedness owed to other financial institutions under revolving lines of credit or (v) Indebtedness of up to $75,000,000 in connection with any acquisitions. 5.10 LOANS: Not make any loans or advances or extend credit to any third person, including, but not limited to, directors, officers, shareholders, employees, affiliated entities and subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted, provided however, that Borrower may make loans or advances or extend credit to employees of Borrower in an aggregate amount not to exceed $1,000,000.00 in any one fiscal year and provided further, that Borrower may make loans or advances or extend credit to affiliated entities and subsidiaries of Borrower in an aggregate amount not to exceed $15,000,000.00 in the aggregate. 5.11 LIENS AND ENCUMBRANCES: Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust, or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's Domestic properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except for (i) Permitted Domestic Liens or as otherwise provided in this Agreement, (ii) purchase money security interests or capital leases of up to $75,000,000 for equipment including mortgage financing for the Borrower's Temecula, California property in any one fiscal year. 5.12 TRANSFER ASSETS: Not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets except in the ordinary course of business as presently conducted by the Borrower, which ordinary course of business includes, but is not limited to, sale-leasebacks of equipment and, then, only at then prevailing market rates for such assets. 5.13 CHANGE IN NATURE OF BUSINESS: Not make any material change in the fundamental nature of its business as existing or conducted as of the date hereof. 5.14 FINANCIAL CONDITION: Maintain at all times: (a) A minimum consolidated Effective Tangible Net Worth of at least $175,000,000.00 plus, in each case, 50% of annual net income, the proceeds of any equity issuance, conversion of debt into equity and any grant of rights to subscribe for shares of the Borrower, commencing with the fiscal year-end June 30, 1994. (b) A ratio of consolidated Debt to consolidated Effective Tangible Net Worth of not more than 0.90 to 1. (c) A ratio of consolidated current assets to consolidated current liabilities of not less than 1.75 to 1. For the purposes hereof, outstanding Advances under the Line of Credit and under any other revolving lines of credit (whether with Bank or a third party) shall be included in consolidated current liabilities. (d) A ratio of the sum of net income, plus depreciation expense, plus amortization expense, plus net interest expense, each for the immediately preceding 4 fiscal quarters to the sum of the current portion of long-term Debt then due for the fourth preceding fiscal quarter, plus net interest expense for the immediately preceding 4 fiscal quarters of not less than 1.5 to 1. 5.15 COMPENSATION OF EMPLOYEES: Compensate its employees for services rendered at an hourly rate at least equal to the minimum hourly rate prescribed by any applicable federal or state law or regulation. 5.16 NOTICE: Give the Bank prompt written notice of any and all (i) Events of Default; (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds $1,000,000; and (iii) other matters, other than matters of a general economic nature (other than those matters relating primarily to the Borrower or the industries in which the Borrower conducts its businesses) which have resulted in, or could reasonably be expected to, result in a material adverse change in the financial condition or business operations of the Borrower. 5.17 CONSOLIDATED OPERATING LOSS: Not incur for any two consecutive quarters a cumulative Consolidated Operating Loss in excess of $10,000,000.00. -7- 5.18 Environmental Compliance. The Borrower shall: (a) Implement and comply in all material respects with all applicable federal, state and local laws, ordinances, statutes and regulations with respect to hazardous or toxic wastes, substances or related materials, industrial hygiene or to environmental conditions. (b) Own, use, generate, manufacture, store, handle, treat, release or dispose of any hazardous or toxic wastes, substances or related materials, only if such ownership or use would not result in a material adverse change in the Borrower's financial condition, operations or assets. (c) Give prompt written notice of any discovery of or suit, proceeding, claim, dispute, threat, inquiry or filing respecting hazardous or toxic wastes, substances or related materials. (d) At all times indemnify and hold harmless Bank from and against any and all liability arising out of the use, generation, manufacture, storage, handling, treatment, disposal or presence of hazardous or toxic wastes, substances or related materials, other than liability arising out of the Bank's gross negligence or willful misconduct. SECTION 6 EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement: 6.01 NON-PAYMENT: The Borrower shall fail to pay any Obligations within 10 days of when due. 6.02 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS: The Borrower shall fail in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any document, instrument or agreement evidencing or relating to any Indebtedness of the Borrower, other than immaterial Indebtedness described in clause (ii) of Section 1.01(h) (whether such Indebtedness is owed to the Bank or to third persons if such failure would permit such third persons to accelerate the Indebtedness), and any such failure (exclusive of the payment of money to the Bank under this Agreement or under any other instrument, document or agreement, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due, but after giving effect to any grace period therefore) shall continue for more than 30 days after written notice from the Bank to the Borrower of the existence and character of such Event of Default. 6.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS: Any representation or warranty made by the Borrower under or in connection with this Agreement or any financial statement given by the Borrower or any guarantor shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 6.04 INSOLVENCY: The Borrower shall: (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit of creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) any receiver, custodian or trustee shall have been appointed for all or substantial part of its properties, assets or businesses and shall not be discharged within 60 days after the date of such appointment. 6.05 EXECUTION: Any writ of execution or attachment or any judgment lien which individually exceeds $2,000,000 or which, in the aggregate, exceeds $5,000,000.00 shall be issued against any property of the Borrower and shall not be discharged or bonded against or released within 60 days after the issuance or attachment of such writ or lien. 6.06 SUSPENSION: The Borrower shall voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body materially necessary to conduct the Borrower's business as now conducted. -8- 6.07 CHANGE IN OWNERSHIP: There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary to), or an agreement shall be entered into to do so with, any Person or group of Persons (as such terms are defined pursuant to Federal securities laws) with respect to more than 20% of the issued and outstanding capital stock of the Borrower and, as a result thereof, such Person or group of Persons has the ability to direct or cause the direction of the management and policies of the Borrower. SECTION 7 REMEDIES ON DEFAULT Upon the occurrence and during the continuation of any Event of Default, the Bank may, at its sole and absolute election, without demand and only upon such notice as may be required by law: 7.01 ACCELERATION: Declare any or all of the Borrower's Indebtedness owing to the Bank, whether under this Agreement or any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 7.02 CEASE EXTENDING CREDIT: Cease extending credit to or for the account of the Borrower under this Agreement or under any other agreement now existing or hereafter entered into between the Borrower and the Bank. 7.03 TERMINATION: Terminate this Agreement as to any future obligation of the Bank without affecting the Borrower's Obligations to the Bank or the Bank's rights and remedies under this Agreement or under any other document, instrument or agreement. 7.04 NON-EXCLUSIVITY OF REMEDIES: Exercise one or more of the Bank's rights set forth herein or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and the Bank, or otherwise. SECTION 8 MISCELLANEOUS 8.01 DEFAULT INTEREST RATE: The Borrower shall pay the Bank interest on any indebtedness or amount payable under this Agreement, from the date that such indebtedness or amount became due or was demanded to be due until paid in full, at a rate which is 3% in excess of the Variable Rate otherwise provided under this Agreement. 8.02 RELIANCE: Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Bank regardless of any investigation made or information possessed by the Bank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to the Bank in writing, other than those implied hereunder. 8.03 ATTORNEYS' FEES: In the event of any action in relation to this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the Obligations, the prevailing party, in addition to all other sums to which it may be entitled, shall be entitled to reasonable attorneys' fees. -9- 8.04 NOTICES: All notices, payments, requests, information and demands which either party hereto may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, postage prepaid, or by telecopier addressed as set forth below or to such other address as may be specified from time to time in writing by either party to the other. TO THE BORROWER: TO THE BANK: INTERNATIONAL RECTIFIER CORPORATION SANWA BANK CALIFORNIA 233 Kansas Street 9000 East Valley Blvd. El Segundo, CA 90245 Rosemead, CA 91770 Attn: Treasury Department Attn: David Carr Vice President Telecopier No. (310) 640-6575 Telecopier No. (818) 312-5751 8.05 WAIVER. Neither the failure nor delay by the Bank in exercising any right hereunder or under any document, instrument or agreement mentioned herein shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder or under any other document, instrument or agreement mentioned herein preclude other or further exercise thereof or the exercise of any other right; nor shall any waiver of any right or default hereunder, or under any other document, instrument or agreement mentioned herein, constitute a waiver of any other right or default or constitute a waiver of any other default of the same or any other term or provision. 8.06 CONFLICTING PROVISIONS: To the extent the provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 8.07 BINDING EFFECT; ASSIGNMENT: This Agreement shall be binding upon and inure to the benefit of the Borrower and the Bank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may sell, assign or grant participations in amounts of $5,000,000 or greater, in all or any portion of its rights and benefits hereunder, provided, however, that Bank will not make any assignment without the Borrower's prior written consent that would be (i) not to any Federal Reserve Bank as collateral (ii) to more than one bank or a syndication of banks, or (iii) to any assignee in the semi-conductor industry. The Borrower agrees that, in connection with any such sale, grant or assignment, the Bank may deliver to the prospective buyer, participant or assignee financial statements and other relevant information relating to the Borrower if such third party agrees in writing to abide by the confidentiality provisions of Section 8.12 hereof. 8.08 JURISDICTION: This Agreement, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 8.09 WAIVER OF JURY TRIAL. THE BORROWER AND THE BANK 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 PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE BANK 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. 8.10 HEADINGS: The headings herein set forth are solely for the purpose of identification and have no legal significance. -10- 8.11 ENTIRE AGREEMENT: This Agreement and all documents, instruments and agreements mentioned herein constitute the entire and complete understanding of the parties with respect to the transactions contemplated hereunder. All previous conversations, memoranda and writings between the parties pertaining to the transactions contemplated hereunder not incorporated or referenced in this Agreement or in such documents, instruments and agreements are superseded hereby. 8.12 CONFIDENTIALITY: The Bank shall, and shall cause its officers, employees, directors, agents, legal counsel and other professional advisors to, hold all non-public information obtained pursuant to this Agreement in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices. The Bank shall use its best efforts to notify the Borrower prior to any disclosure of any such non-public information, unless prohibited by applicable law, rule, regulation or order. 8.13 IMMATERIALITY: Notwithstanding anything herein to the contrary, any breach of any representations and warranties contained in Section 4 hereof or the covenants in Sections 5.01, 5.03, 5.04, 5.11, 5.12 or 5.18 shall not be deemed to be an Event of Default or prohibit any extension of credit hereunder if, in the aggregate, such defaults could not reasonably be expected to have a material adverse effect on the Borrower's financial condition, operations or assets. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first hereinabove written. BANK: BORROWER: SANWA BANK CALIFORNIA INTERNATIONAL RECTIFIER CORPORATION By: /s/ David Carr /s/ Janice Upton By: /s/ Michael P. McGee ------------------------------------- ----------------------------- Name: David Carr Janice Upton Name: Michael P. McGee ----------------------------------- --------------------------- Title: Vice President Vice President Title: Vice President & CFO ---------------------------------- ------------------------ ATTEST: By:___________________________ Name:_________________________ Title:________________________ -11- EX-10.O 3 EXHIBIT 10.O FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT This FIRST AMENDMENT dated December 30, 1994 (the "First Amendment") to the Revolving Credit Agreement dated as of July 1, 1994 (the "Agreement") between INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") and WELLS FARGO BANK, N.A. ("Wells Fargo") WITNESSES the following: WHEREAS the Borrower has requested that Wells Fargo permit the Borrower to obtain Cost of Funds Advances for Interest Periods of up to 29 days as well as periods of 1, 3, 6, 9, 12 and 18 months; and WHEREAS Wells Fargo is willing to make Cost of Funds Advances to the Borrower for periods of up to 29 days as well as periods of 1, 3, 6, 9, 12 and 18 months; and WHEREAS the Borrower has requested that Wells Fargo permit the Borrower to make loans or advances or extensions of credit to its Subsidiaries and to other corporations, associations and business entities of which the Borrower owns directly or indirectly more than ten percent (10%) of their voting securities in an aggregate amount not to exceed $15,000,000 at any one time outstanding for all such Subsidiaries together with all such other related corporations, associations and business entities; and WHEREAS Wells Fargo is willing to allow the Borrower to make loans and advances and extensions of credit to its Subsidiaries and to other such corporations, associations and business entities so long as such loans, advances and extensions of credit do not in the aggregate for all such Subsidiaries together with all such other related corporations, associations and business entities exceed $15,000,000 at any one time outstanding; NOW, THEREFORE, Wells Fargo and the Borrower agree as follows: 1. USE OF CERTAIN TERMS. Terms defined in the Agreement and not defined in this First Amendment are used in this First Amendment with their defined meanings in the Agreement. 2. COST OF FUNDS INTEREST PERIODS. Wells Fargo and the Borrower agree that starting on December 30, 1994 the Cost of Funds Interest Periods will be periods of any number of days up to 29 days or periods of 1, 3, 6, 9, 12 and 18 months as designated by the Borrower. To that end the definition of "Cost of Funds Interest Period" in Section 1.01 (h) of the Agreement and the wording of Section 2.04 of the Agreement are hereby amended to read in their entirety as follows: "(h) "COST OF FUNDS INTEREST PERIOD" shall mean, for each Cost of Funds Advance, a period of any number of days up to 29 days or a period of one (1), three (3), six (6), nine (9), twelve (12) or eighteen (18) months, as designated by the Borrower, during which all or a portion of the Advances under the Revolving Credit Facility bear interest determined in relation to the Cost of Funds Rate; provided, however, that (a) if a Cost of Funds Interest Period of one month or more commences on a date for which there is no corresponding date in the month in which such Cost of Funds Interest Period is to end, such Cost of Funds Interest Period shall end on the last Business Day of such month; (b) if the last day of any Cost of Funds Interest Period occurs on a day which is not a Business Day, such Cost of Funds Interest Period shall be extended to expire on the next succeeding Business Day; and (c) no Cost of Funds Interest Period may extend beyond the Maturity Date." "2.04 INTEREST ON ADVANCES. Interest shall accrue from the date of each Advance at one of the following rates, as quoted by Wells Fargo and as elected by the Borrower pursuant to this Section 2.04 or Section 2.05 of this Agreement: (A) PRIME RATE ADVANCES. For Advances designated as Prime Rate Advances, a fluctuating rate per annum equal to the Prime Rate in effect from time to time. Interest shall be adjusted concurrently with any change in the Prime Rate. (B) LIBO RATE ADVANCES. For Advances designated as LIBO Rate Advances, a fixed rate per annum determined by Wells Fargo to be one and one-quarter percent (1.25%) above the LIBO Rate in effect on the first day of the LIBO Rate Interest Period for the Advance. (C) COST OF FUNDS ADVANCES. For Advances designated as Cost of Funds Advances, a fixed rate per annum determined by Wells Fargo to be one and one-quarter percent (1.25%) above the Cost of Funds Rate in effect on the first day of the Cost of Funds Interest Period for the Advance. All interest on Advances shall be computed on the basis of a 360 day year, actual days elapsed. Interest on Prime Rate Advances and Cost of Funds Advances shall be paid in Dollars in arrears in monthly installments commencing on the first day of the month following the date of the first such Advance and continuing on the first day of each month thereafter; provided, however, that if a Cost of Funds Advance is for 29 days or less interest will be paid in the last day of the Cost of Funds Interest Period for such Advance. Interest on any LIBO Rate Advance shall be paid in arrears on the last day of the LIBO Rate Interest Period pertaining to such LIBO Rate Advance and, if such Interest Period is greater than three months, on that date falling three months (if the LIBO Rate Interest Period is six months), three months and six months (if the LIBO Rate Interest Period is nine months) and three months, six months and nine months (if the LIBO Rate Interest Period is twelve months) after the first day of such Interest Period." 3. LOANS TO SUBSIDIARIES AND OTHER RELATED CORPORATIONS, ASSOCIATIONS AND BUSINESS ENTITIES. Wells Fargo and the Borrower agree that starting on December 30, 1994 the Borrower may, despite the prohibition against loans or advances or credit extensions to third persons in Section 6.10 of the Agreement, make loans or advances or extensions of credit to its Subsidiaries and to other corporations, associations and business entities of which the Borrower owns directly or indirectly more than ten percent (10%) of their voting securities in an aggregate amount not to exceed $15,000,000 for all its Subsidiaries together with all such other related corporations, associations and business entities. To that end, Section 6.10 of the Agreement is hereby amended to read in its entirety as follows: -2- "6.10 LOANS. Not make any loans or advances or extensions of credit to any third person, including, but not limited to, directors, officers, shareholders, employees, affiliated entities and Subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted; provided, however, that the Borrower may make loans or advances or extensions of credit to (i) employees of the Borrower in an aggregate amount not to exceed $750,000.00 in any one fiscal year for all such employees, and (ii) Subsidiaries and other corporations, associations and business entities of which the Borrower owns directly or indirectly more than ten percent (10%) of their voting securities in an aggregate amount not to exceed $15,000,000.00 at any one time outstanding for all such Subsidiaries together with all such other related corporations, associations and business entities." 4. EFFECTIVE DATE. This First Amendment shall be effective on December 30, 1994. 5. REPRESENTATIONS AND WARRANTIES. In order to induce Wells Fargo to enter into this First Amendment and to amend the Agreement in the manner provided in this First Amendment, the Borrower hereby warrants that (i) the representations and warranties contained in Section 5 of the Agreement are true and correct on the date of this First Amendment, and (ii) no Event of Default, as specified in Section 7 of the Agreement, and no event which with notice or lapse of time or both would become such an Event of Default, has occurred and is continuing on the date of this First Amendment. 6. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this First Amendment, the Agreement shall continue to be and shall remain in full force and effect. IN WITNESS WHEREOF, Wells Fargo and the Borrower by their respective duly authorized officers or representatives have caused this First Amendment to be duly executed as of the day and year first written above. INTERNATIONAL RECTIFIER CORPORATION By: /s/ Michael P. McGee ------------------------------------ Michael P. McGee Title: Vice President, Chief Financial Officer ---------------------------------------- WELLS FARGO BANK, N.A. By: /s/ Daniel S. Silmore ------------------------------------ Title: Assistant Vice President ------------------------------- -3- SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT This SECOND AMENDMENT dated as of March 31, 1995 ("Second Amendment") to the Revolving Credit Agreement dated as of July 1, 1994 as amended by the First Amendment dated December 30, 1994 (collectively, "Agreement") between INTERNATIONAL RECTIFIER CORPORATION ("Borrower") and WELLS FARGO BANK, N.A. ("Wells Fargo") WITNESSES the following: WHEREAS, Borrower has requested that Wells Fargo amend the Agreement to, among other things, increase the Commitment to Twenty-Five Million Dollars ($25,000,000) and to increase the Letter of Credit Commitment and the Letter of Credit Sub-Facility to Twelve Million Five Hundred Thousand Dollars ($12,500,000); and WHEREAS, Wells Fargo is willing to increase the Commitment to Twenty-Five Million Dollars ($25,000,000), to increase the Letter of Credit Commitment and the Letter of Credit Sub-Facility to Twelve Million Five Hundred Thousand Dollars ($12,500,000), and to amend the Agreement in other respects; NOW THEREFORE, Wells Fargo and Borrower agree as follows: 1. USE OF CERTAIN TERMS. Terms defined in the Agreement and not defined in this Second Amendment are used in this Second Amendment with their defined meanings in the Agreement. 2. COMMITMENT. Wells Fargo and Borrower agree that the Commitment shall be increased from Ten Million Dollars ($10,000,000) to Twenty-Five Million Dollars ($25,000,000). To that end, the Agreement shall be amended to delete "Ten Million Dollars ($10,000,000)" from the definition of "Commitment" in Section 1.01(e) of the Agreement and from the definition of "Revolving Credit Facility" in Section 1.01(pp) and Section 2.01 of the Agreement, and "Twenty- Five Million ($25,000,000)" shall be inserted in lieu thereof. 3. LETTER OF CREDIT COMMITMENT. Wells Fargo and Borrower agree that the Letter of Credit Commitment shall be increased from Five Million Dollars ($5,000,000) to Twelve Million Five Hundred Dollars ($12,500,000). To that end, the Agreement shall be amended to delete "Five Million Dollars ($5,000,000)" from the definition of "Letter of Credit Commitment" in Section 1.01(w) of the Agreement, from the definition of "Letter of Credit Sub-Facility" in Section 1.01(x) of the Agreement and from the last line of Section 3.01 of the Agreement, and "Twelve Million Five Hundred Thousand ($12,500,000)" shall be inserted in lieu thereof. 4. NOTE. In order to effectuate the increase in the Commitment, Borrower agrees to execute a new revolving credit facility note ("New Note") the form of which is attached hereto as Exhibit A. Upon the execution of the New Note by Borrower, all references in the Agreement to the "Revolving Credit Facility Note" or the "Note" shall mean the New Note. The New Note shall supersede and replace the Note. 5. DEFINITION OF DOMESTIC INDEBTEDNESS. The following definition shall be added to Section 1.1 of the Agreement: "Domestic Indebtedness" shall mean all Indebtedness incurred by Borrower in connection with Borrower's Domestic operations." 6. ADDITIONAL DOMESTIC INDEBTEDNESS. The Borrower and Wells Fargo agree that Section 6.09 of the Agreement shall be amended. To that end, Section 6.09 is hereby deleted in its entirety and a new Section 6.09 is hereby added to the Agreement as follows: "6.09 ADDITIONAL DOMESTIC INDEBTEDNESS. Not, after the date hereof, create, incur or assume, directly or indirectly any additional Domestic Indebtedness other than (i) indebtedness owed or to be owed to Wells Fargo or Sanwa Bank California, or (ii) Indebtedness to trade creditors incurred in the ordinary course of the Borrower's business, or (iii) Indebtedness in an aggregate amount not exceeding $75,000,000.00 in any one of the Borrower's fiscal years for new equipment financing, capital leases, and financing for the Temecula Facility, (iv) Indebtedness owed to other financial institutions under revolving lines of credit, and (v) Indebtedness of up to $75,000,000.00 incurred in connection with business acquisitions made by the Borrower." 7. LOANS. Borrower and Wells Fargo agree that Section 6.10 of the Agreement shall be amended. To that end, Section 6.10 of the Agreement shall be deleted in its entirety and a new Section 6.10 shall be added to the Agreement as follows: "6.10 LOANS. Not make any loans or advances or extend credit to any third person including, but not limited to, directors, officers, shareholders, employees, affiliated entities and Subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted; provided, however, that the Borrower may make loans or advances or extend credit to employees of the Borrower in an aggregate amount not to exceed $1,000,000.00 in any one fiscal year for all such employees; and provided further that the Borrower may make loans or advances or extend credit to Subsidiaries and affiliated entities of the Borrower in an aggregate amount not to exceed $15,000,000.00 in any one fiscal year for all such affiliated entities and Subsidiaries." 8. LIENS AND ENCUMBRANCES. Borrower and Wells Fargo agree that Section 6.11 shall be amended. To that end, Section 6.11 (ii) shall be amended to delete "$55,000,000.00" and to insert "$75,000,000.00" in lieu thereof. - 2 - 9. FINANCIAL CONDITION. Borrower and Wells Fargo agree that 6.18 of the Agreement shall be amended. To that end, Section 6.18 of the Agreement shall be deleted in its entirety and a new Section 6.18 shall be added to the Agreement as follows: "6.18 FINANCIAL CONDITION. Maintain at all times: (a) A minimum consolidated Effective Tangible Net Worth of at least $175,000,000.00, plus 50% of annual net income, 100% of the proceeds of any equity issuance, 100% of the conversion of debt into equity, and 100% of any grant of rights to subscribe for shares of the Borrower, commencing with the fiscal year-end June 30, 1994. (b) A ratio of consolidated Debt to consolidated Effective Tangible Net Worth of not more than .90 to 1. (c) A ratio of consolidated current assets to consolidated current liabilities (including, but not limited to, amounts outstanding under this Agreement and all amounts outstanding under other revolving lines of credit, whether with another bank or a third party), of not less than 1.75 to 1." (d) A ratio of the sum of net income, plus depreciation expense, plus amortization expense, plus net interest expense, each for the immediately preceding four fiscal quarters to the sum of the current portion of long-term Debt then due for the fourth preceding fiscal quarter, plus net interest expense for the immediately preceding four fiscal quarters of not less than 1.5 to 1." 10. LIBO RATE ADVANCES. Wells Fargo and Borrower agree that the interest rate on LIBO Rate Advances shall be decreased. To that end, Section 2.04(b) shall be modified to delete "one-quarter percent (1.25%)" and to insert "one percent (1.00%)" in lieu thereof. 11. COSTS OF FUNDS ADVANCES. Borrower and Wells Fargo agree that the interest rate on Cost of Funds Advances shall be decreased. To that end, Section 2.04(c) shall be amended to delete "one and one-quarter percent (1.25%)" and to insert in lieu thereof "one percent (1.00%)" in lieu thereof. 12. ACQUISITIONS. Borrower and Wells Fargo agree that Section 6 of the Agreement shall be amended to add a new covenant regarding acquisitions by Borrower. To that end, a new Section 6.20 shall be added to the Agreement as follows: "6.20. Acquisitions. Borrower may acquire any other businesses for an amount equal to or less than $100,000,000.00 in the aggregate." 13. CONDITIONS PRECEDENT. This Second Amendment shall become effective as of the date ("Second Amendment Effective Date") that each of the conditions precedent set - 3 - forth below shall have been fulfilled to the satisfaction of Wells Fargo, PROVIDED that the Second Amendment Effective Date shall not occur later than March 31, 1995: (a) AMENDMENT. Wells Fargo shall have received counterparts of this Second Amendment, duly executed by the Borrower and Wells Fargo. (b) NO DEFAULT OR EVENT OF DEFAULT. No Event of Default, as specified in Section 7 of the Agreement, and no event which with notice or lapse of time or both would become such an Event of Default, has occurred and is continuing on the date of this Second Amendment. (c) REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Borrower in this Second Amendment and in Section 5 of the Agreement after giving effect to this Second Amendment shall be true and correct in all material respects on and as of the Second Amendment Effective Date as if made on such date except where such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date. (d) Wells Fargo shall have received the New Note duly executed by the Borrower. 14. AGREEMENT OTHERWISE UNALTERED. Except as expressly modified by this Second Amendment, the Agreement shall continue to be and shall remain in full force and effect. IN WITNESS WHEREOF, Wells Fargo and Borrower by their respective duly authorized officers or representatives have caused this Second Amendment to be duly executed as of the day and year first written above. INTERNATIONAL RECTIFIER CORPORATION By: /s/ Michael P. McGee ---------------------------------------- Title: VICE PRESIDENT & CFO ------------------------------------- WELLS FARGO BANK NATIONAL ASSOCIATION By: /s/ Brian McDonald ---------------------------------------- Title: Assistant Vice President ------------------------------------ - 4 - REVOLVING CREDIT FACILITY NOTE $25,000,000 El Segundo, California March 31 , 1995 FOR VALUE RECEIVED, the undersigned, INTERNATIONAL RECTIFIER CORPORATION ("Borrower"), promises to pay to the order of WELLS FARGO BANK, N.A. ("Wells Fargo") at Wells Fargo's 'office at 420 Montgomery Street, San Francisco, California, or at such other place in the State of California as Wells Fargo may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Twenty-Five Million Dollars ($25,000,000), or so much thereof as may be advanced and be outstanding. Borrower further agrees to pay interest (whether before or after any breach of this Note) at said office, in like funds and currency, on the unpaid principal amount owing hereunder from time to time from the date hereof until such amount shall have become due and payable (whether at the stated maturity, by acceleration or otherwise) at either (a) a fluctuating rate per annum at all times equal to the Prime Rate in effect from time to time, (b) a fixed rate per annum determined by Wells Fargo to be one and percent (1.00%) above the LIBO Rate in effect on the first day of any LIBO Rate Interest Period for a LIBO Rate Advance, or (c) a fixed rate per annum determined by Wells Fargo to be one percent (1.00%) above the Cost of Funds Rate in effect on the first day of any Cost of Funds Interest Period for a Cost of Funds Advance. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within Wells Fargo. Interest shall also be payable on any overdue payment of principal and (to the extent permitted by law) interest as set forth in the Credit Agreement (as defined below). With respect to each interest rate selection by Borrower, the date, principal amount, rate of interest, term of the applicable Interest Period for a LIBO Rate Advance and a Cost of Funds Advance, and any payments applicable thereto, shall be set forth by Wells Fargo on the reverse of this Note or on such schedules as Wells Fargo shall maintain for such purposes. Absent manifest error, such notations on this Note or on such schedules, and all endorsements by Wells Fargo thereon, shall be conclusive evidence of all such items. This Note is the Revolving Credit Facility Note defined in and made pursuant to that certain Revolving Credit Agreement dated as of July 1, 1994, between Borrower and Wells Fargo, as amended from time to time, ("Credit Agreement"). All terms defined in the Credit Agreement shall have the same meanings when used in this Note, and the rate of interest applicable under this Note shall change from time to time in accordance with the terms of the Credit Agreement. This Note supercedes and replaces that certain Revolving Credit Facility Note dated July 1, 1994, in the principal amount of Ten Million Dollars ($10,000,000)and executed by Borrower pursuant to the Credit Agreement. The unpaid principal balance of this obligation at any time shall be the total of all amounts advanced under this Note by the holder of this Note less the amount of all principal payments made on this Note by or for Borrower, which balance may be endorsed on this Note from time to time by Wells Fargo. Notwithstanding anything in this Note to the contrary, the outstanding principal balance of this Note, together with the aggregate amount of all outstanding Letters of Credit (as defined in the Credit Agreement), shall not at any time exceed the maximum principal amount set forth above, or such lesser amount as is then available under this Note if the maximum principal amount of this Note is reduced pursuant to the provisions of the Credit Agreement. Interest accrued on this Note shall be due and payable as provided in the Credit Agreement. The outstanding principal balance of this Note, together with all accrued and unpaid interest thereon, shall also be due and payable on the Maturity Date (as defined in the Credit Agreement). Borrower may prepay principal on this Note solely in accordance with the terms of the Credit Agreement. Each payment of principal on this Note shall be credited to the portions of this Note which bear interest determined in relation to the Prime Rate, the LIBO Rate and the Cost of Funds Rate in accordance with the application of payment provisions of the Credit Agreement. Advances under this Note, to the total amount of the principal sum stated above and in accordance with the provisions of the Credit Agreement, may be made by the holder at the oral or written request of Darryl T, Mikuni, Rose M. Marcario, Michael P. McGee or Deidre J. Samuels, any one acting alone, who are authorized to request Advances and direct the disposition of any such Advances until written notice of the revocation of such authority or the substitution of new named people with such authority is received by the holder of this Note. Upon the occurrence of any Event of Default (as defined in the Credit Agreement) Wells Fargo, at Wells Fargo's option, may declare all sums of principal and interest outstanding under this Note to be immediately due and payable, without presentment, demand, protest or notice of dishonor, all of which are expressly waived by Borrower, and Wells Fargo shall have all rights, powers and remedies set forth in the Credit Agreement. Borrower agrees to pay, immediately upon demand, the full amount of all costs and expenses, including reasonable attorneys' fees (including, but not limited to, allocated costs for in-house legal services), incurred by Wells Fargo in connection with the enforcement of any rights of Wells Fargo and/or the collection of any amounts which become due to Wells Fargo under this Note, and the prosecution or defense of any action in any way related to this Note, including, but not limited to, any action for declaratory relief. -2- This Note shall be governed by and be construed in accordance with the laws of the State of California. INTERNATIONAL RECTIFIER CORPORATION By: /s/ M. McGee --------------------------------------- Name: M. McGee --------------------------------- Title: Vice President & CFO --------------------------- -3- EX-10.P 4 EXHIBIT 10.P SECURITY AGREEMENT AMENDMENT NO. 1 THIS SECURITY AGREEMENT AMENDMENT NO. 1, dated as of August 15, 1994, (the "Security Agreement Amendment No. 1") is by and between INTERNATIONAL RECTIFIER CORPORATION, a Delaware corporation with its principal place of business located in El Segundo, California (the "Debtor"); and NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation with its principal place of business located in Charlotte, North Carolina (the "Secured Party"). RECITALS A. The Debtor and Secured Party entered into a Security Agreement dated as of July 1, 1994 (the "Security Agreement"). B. The Debtor and Secured Party desire to amend certain provisions of the Security Agreement as more specifically set forth hereinafter. NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS: Section 19 of the Security Agreement is hereby amended to read in its entirety as follows: "SECTION 19 EARLY TERMINATION Except as hereinafter set forth Debtor may not prepay the Term Loans in whole or in part. So long as no Event of Default (or event which with notice or lapse of time or both would constitute an Event of Default) shall have occurred and be continuing, Debtor may, upon thirty (30) days prior written notice to Secured Party that Debtor desires to prepay the entire amount of a Term Loan with respect to the Equipment subject to a specific Security Agreement Schedule, prepay the entire amount of such Term Loan on the date specified in such notice (the "Early Termination Date"). On such Early Termination Date, Debtor shall pay to Secured Party an amount equal to the sum of: (a) all Amortization Payments for such Equipment due and unpaid, together with Amortization Payments accrued through such Early Termination Date; (b) the Termination Value of the Equipment as of the Early Termination Date; (c) all costs and expenses incurred or sustained by Secured Party in connection with such early termination and all amounts such Debtor shall be required to pay Secured Party pursuant to any indemnity provision contained in this Security Agreement; and (d) interest on each of the foregoing and on all amounts not paid when due under any provision contained in the Security Agreement at the rate of the lesser of (i) the Prime Rate plus two percent (2%) per annum (computed on the basis of the actual number of days elapsed over a 360 day year or (ii) the highest rate Debtor may lawfully contract for, be charged and pay. For purposes of this Section 19, Amortization Payments shall be prorated daily and the Termination Values set forth in the applicable Security Agreement Schedule shall be prorated daily by interpolation on a straight line basis to the date of payment. The Termination Values set forth in the Security Agreement Schedules will include the following prepayment premiums: Type of Equipment Year of Prepayment Premium (%) ----------------- ------------------ ----------- Three year Equipment: 1 2 2 2 3 0 Five year Equipment: 1 3 2 3 3 2 4 0 5 0 Seven year Equipment: 1 3 2 3 3 3 4 2 5 2 6 0 7 0" IN WITNESS WHEREOF, the parties hereto, as of the day and year above written, have caused this Security Agreement Amendment No. 1 to be executed in their respective corporate names by their duly authorized officials. DEBTOR: INTERNATIONAL RECTIFIER CORPORATION By: /s/ Michael P. McGee ------------------------------- Title: Vice President, Chief Financial ------------------------------- Officer ------------------------------- SECURED PARTY: NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA By: /s/ M. Randall Ross ------------------------------- Title: Senior Vice President ---------------------------- -2- SECURITY AGREEMENT AMENDMENT NO. 2 THIS SECURITY AGREEMENT AMENDMENT NO. 2, dated as of November 3, 1994, (the "Security Agreement Amendment No. 2") is by and between INTERNATIONAL RECTIFIER CORPORATION, a Delaware corporation with its principal place of business located in El Segundo, California (the "Debtor"); and NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation with its principal place of business located in Charlotte, North Carolina (the "Secured Party"). RECITALS A. The Debtor and Secured Party entered into a Security Agreement dated as of July 1, 1994, as amended (the "Security Agreement"). B. The Debtor and Secured Party desire to amend certain provisions of the Security Agreement as more specifically set forth hereinafter. NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS: 1. Section 1.2 of the Security Agreement, second to last sentence is hereby amended to read in its entirety: "No Term Loan shall exceed the Cost of Equipment securing such Term Loan and the aggregate Term Loans plus the total outstanding Progress Payment Loans shall not exceed $25,000,000 (the "Total Commitment"), of which no more than $3,000,000 shall be computer equipment." 2. Section 4.2 of the Security Agreement is amended by adding the following sentences to the end thereof: "Amortization Payments on Term Loans with fixed interest rates shall be determined as set forth in the Summary of Terms between Secured Party and Debtor dated February 25, 1994 (the "Summary of Terms"). Amortization Payments on Term Loans that are Floating Rate Loans shall be determined as follows: The principal portion of each quarterly Amortization Payment for a Floating Rate Loan shall be established by mutual agreement as set forth in the Security Agreement Schedule relating to the Floating Rate Loan. The interest portion of each Amortization Payment for a Floating Rate Loan shall be determined in accordance with Section 4.6 below." 3. Section 4.3 of the Security Agreement is amended to read in its entirety as follows: "4.3. NON-UTILIZATION FEE. Debtor agrees to pay Secured Party, on the Final Commencement Date, a non-utilization fee equal to one-half of one percent (1/2%) of the amount, if any, by which ninety percent (90%) of $15,000,000.00 exceeds the Total Secured Party's Cost of Equipment subject to this Security Agreement on the Final Commencement Date." 4. Section 4.5 shall be added to the Security Agreement and shall read in its entirety as follows: "4.5. INTEREST RATES. Interest rates on Term Loans shall be either fixed in accordance with the Summary of Terms or shall be based on the LIBOR Rate in accordance with Section 4.6 below." 5. Section 4.6 shall be added to the Security Agreement and shall read in its entirety as follows: "4.6. FLOATING RATE LOANS. Floating Rate Loans shall be made in accordance with the following provisions: (a) DEFINITIONS. (1) "BUSINESS DAY" means a day when banks are open for business in Charlotte, North Carolina. (2) "CLOSING DATE" means the date on which a Floating Rate Loan is made. (3) "EURODOLLAR RESERVE REQUIREMENT" means for each Interest Period, the percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including eurocurrency liabilities, as such term is defined in Regulation D (or with respect to any other category of liabilities which includes deposits by reference to which the interest rate on the Floating Rate Loan is determined) having a term equal to the Interest Period for which such Eurodollar Reserve Requirement is determined. (4) "FLOATING RATE LOAN" means a Term Loan based on the LIBOR Rate; (5) "LIBOR RATE" means for each Interest Period, a per annum interest rate equal to the per annum rate published in - 2 - the Eastern edition of The Wall Street Journal in the Money Rates Section, on each particular day two (2) Business Days prior to the first day of each successive Interest Period as the appropriate London Interbank Offered Rate (LIBOR) for a term of three (3) months, or if The Wall Street Journal is not published on any such date, then as published therein for the immediately preceding Business Day, provided, however, that in the event that The Wall Street Journal is not published, or does not report the London Interbank Offered Rate, for three consecutive Business Days, then the LIBOR Rate for each applicable Interest Period will be a per annum interest rate equal to the per annum rate obtained by dividing (a) the rate of interest determined by NationsBank of Georgia, N.A. to be the average (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) of the per annum rates at which deposits in U.S. dollars are offered to NationsBank of Georgia, N.A. in the London interbank Eurodollar market at 11:00 A.M. (Atlanta, Georgia time) (or as soon thereafter as is practicable), in each case two Business Days before the first day of such Interest Period in an amount substantially equal to the then current outstanding principal balance of the Lease and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Reserve Requirement for such Interest Period. (6) "INTEREST PERIOD," as to any Floating Rate Loan, means the period commencing on the Closing Date of such Floating Rate Loan and ending on but excluding the corresponding day in the third succeeding calendar month; PROVIDED, that each subsequent Interest Period shall commence on the last day of the previous one; (7) "INTEREST PAYMENT DATE" as to any Floating Rate Loan, means the last day of the Interest Period. If any Interest Payment Date falls on a date which is not a Business Day, such Interest Payment Date shall be deemed to be the next succeeding Business Day; (8) "PRIME LOAN" means a loan based on the Prime Rate; (9) "PRIME RATE" means the rate of interest publicly announced by NationsBank of North Carolina, N.A. in Charlotte, North Carolina from time to time as its "Prime Rate." The Prime Rate is not necessarily the best or lowest rate of interest offered by NationsBank of North Carolina, N.A. - 3 - (b) NOTICE. As to each Floating Rate Loan, the Debtor shall give Secured Party prior written, telegraphic or telephonic notice (i) not later than 11:00 a.m. (Charlotte, North Carolina time) at least three Business Days prior to the date of the requested Floating Rate Loan. Such notice shall be irrevocable. (c) INTEREST RATE OPTIONS. Floating Rate Loans shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the LIBOR Rate plus 1.60% for three and five year loans and the LIBOR Rate plus 1.95% for seven year loans. Interest shall be payable on each Interest Payment Date. Secured Party shall determine the applicable LIBOR Rate on the date when such determination is to be made in respect of such Interest Period (or as soon thereafter as practicable) and shall notify the Debtor of the rate so determined. Such determination shall be conclusive absent manifest error. (d) MINIMUM AMOUNT. The minimum amount of each Floating Rate Loan shall be $250,000. (e) PREPAYMENTS. As set forth in Section 19 below, the Debtor shall have the right at any time and from time to time to prepay any Floating Rate Loan, on the last day of the then current Interest Period for such Floating Rate Loan upon at least (30) days prior written notice to Secured Party. If prepayment occurs during the first year of the loan, a prepayment premium of 1% of the outstanding principal balance will be due and payable. (f) CONVERSION. Upon the occurrence of any of the events listed in sections (g), (h) and (i) below, the Debtor, on such notice as provided in Section (b), or the Secured Party shall have the right to convert any Floating Rate Loan into a Prime Loan, subject to the following: (1) No Event of Default shall have occurred and be continuing, and the representations and warranties set out in Section 18 shall be true and correct (except to the extent such representations and warranties expressly relate to an earlier date); (2) Each conversion shall be effected by applying the proceeds of the new Prime Loan to the Floating Rate Loan being converted, and accrued interest on any Floating Rate Loan being converted shall be paid by the Debtor at the time of conversion; (3) No Floating Rate Loan may be converted to a Prime Loan except on the last day of an Interest Period; (g) LIBOR RATE UNASCERTAINABLE. In the event that the Secured Party shall determine that dollar deposits in the principal amount of any requested - 4 - Floating Rate Loans are not generally available in the London Interbank Market, or that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to the Bank or the Secured Party of making or maintaining a Floating Rate Loan, or that reasonable means do not exist for ascertaining the LIBOR Rate, the Secured Party shall promptly give notice to the Debtor of such determination, and any request by the Debtor for a Floating Rate Loan shall be deemed to be a request for a Prime Loan. Until the circumstances giving rise to such notice no longer exist, each request for a Floating Rate Loan shall be deemed to be a request for a Prime Loan. All then existing Floating Rate Loans shall be converted to Prime Rate Loans in accordance with Section (f) hereof. Each determination by the Secured Party hereunder shall be conclusive absent manifest error. (h) ADDITIONAL COSTS. (1) The Debtor shall pay directly to the Secured Party from time to time such amounts as the Secured Party may determine to be necessary to compensate it for any costs incurred by the Secured Party or the Bank which the Secured Party determines are attributable to its making or maintaining of any Floating Rate Loans hereunder or its obligation to make any of such Floating Rate Loans hereunder, or any reduction in any amount receivable by the Secured Party or the Bank hereunder in respect of any of such Floating Rate Loans or such obligation; or resulting from any Regulatory Change (such increase in costs and reductions in amounts receivable being herein called "Additional Costs") which: (i) changes the basis of taxation of any amounts payable to the Secured Party under this Security Agreement or the Term Loan Note in respect of any of such Floating Rate Loans (other than taxes imposed on the overall net income of the Secured Party for any of such Floating Rate Loans); or (ii) imposes or modifies any reserve, special deposit or similar requirements relating to any extensions of credit or other assets of, or any deposits with or liabilities of, the Secured Party or the Bank (including any Floating Rate Loans or any deposits included in the definition of "LIBOR Rate" herein); or (iii) imposes any other condition affecting this Security Agreement (or any such extensions of credit or liabilities). The Secured Party will notify the Debtor of any event occurring after the date of this Security Agreement which will entitle the Secured Party to compensation pursuant to this Section as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. The Secured Party will furnish the Debtor with a certificate setting forth the basis and amount of each request by the Secured Party for compensation under this Section. If the Secured Party requests compensation from the Debtor under this Section, the Debtor may, by notice to the Secured Party, request that such Floating Rate - 5 - Loans of the type with respect to which such compensation is requested be converted into Prime Loans in accordance with Section (f) hereof. (2) Without limiting the effect of the foregoing provisions of this Section, in the event that, by reason of any Regulatory Change, the Secured Party or the Bank either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of the Secured Party or the Bank which includes deposits by reference to which the interest rate on Floating Rate Loans is determined as provided in this Security Agreement or a category of extensions of credit or other assets of the Secured Party or the Bank which includes Floating Rate Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if the Secured Party so elects by notice to the Debtor, the obligation of the Secured Party to make Floating Rate Loans shall be suspended until the date such Regulatory Change ceases to be in effect (and all Floating Rate Loans held by such Secured Party then outstanding shall be converted into Prime Loans in accordance with Section (f) hereof). (3) Determinations by the Secured Party for purposes of this Section of the effect of any Regulatory Change on its costs of making or maintaining Floating Rate Loans or on amounts receivable by it in respect of Floating Rate Loans, and of the additional amounts required to compensate such Secured Party in respect of any Additional Costs, shall be conclusive, provided that such determinations are made on a reasonable basis; provided, however, that if such Regulatory Change or other condition is determined to be invalid or inapplicable the Secured Party will promptly refund any amount erroneously billed to the Debtor together with interest thereon at the instrument rate. (i) ILLEGALITY. Notwithstanding any other provision of this Security Agreement, in the event that it becomes unlawful for the Secured Party to (i) honor its obligation to make Floating Rate Loans hereunder, or (ii) maintain Floating Rate Loans hereunder, then the Secured Party shall promptly notify the Debtor thereof and the Secured Party's obligation to make Floating Rate Loans shall be suspended until such time as the Secured Party may again make and maintain Floating Rate Loans and such Secured Party's outstanding Floating Rate Loans shall be converted into Prime Rate Loans in accordance with Section (f) hereof. (j) CERTAIN CONVERSIONS OF LOANS. If the Floating Rate Loans of a particular type (Floating Rate Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type") are to - 6 - be converted pursuant to Sections (g), (h) and (i) hereof, the Secured Party's Affected Loans shall be automatically converted into Prime Loans on the last day(s) of the then current Interest Period(s) for the Affected Loans (or, in the case of a conversion required by Section (h) or (i) hereof, on such earlier date as the Secured Party may specify to the Debtor) and, unless and until such Secured Party gives notice as provided below that the circumstances specified which give rise to such conversion no longer exist: (1) to the extent that the Affected Loans have been so converted, all payments and prepayments of principal which would otherwise be applied to the Affected Loans shall be applied instead to Prime Loans; (2) all Floating Rate Loans which would otherwise be made as Floating Rate Loans of the Affected Type shall be made instead as Prime Loans. (k) COMPENSATION. The Debtor shall pay to the Secured Party, upon request, such amount or amounts as shall be sufficient (in the reasonable opinion of the Secured Party) to compensate it for any loss, cost or expense incurred by it as a result of: (1) any payment, prepayment or conversion of a Floating Rate Loan made by the Secured Party on a date other than the last day of an Interest Period for such loan; or (2) any failure by the Debtor to borrow a Floating Rate Loan to be made on the date for such borrowing specified in the relevant notice of borrowing made by the Debtor under Section (b) hereof; such compensation to include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepaying or conversion or failure to borrow on the last day of the then current Interest Period for such Floating Rate Loan (or, in the case of a failure to borrow, the Interest Period for such Floating Rate Loan which would have commenced on the date of such failure to borrow) at the applicable rate of interest for such Floating Rate Loan provided for herein over (ii) any lesser amount that would be realized by the Secured Party in reemploying funds received in payment, prepayment or conversion (or available in connection with a failure to borrow a requested loan) by making a loan of the same type in the principal amount paid, prepaid or not borrowed during the period from the date of such payment, prepayment conversion or failure to borrow to the end of the Interest Period for the loan that was paid, prepaid, converted or not borrowed." 6. Section 19 of the Security Agreement is amended to read in its entirety as follows: - 7 - "SECTION 19 EARLY TERMINATION Except as hereinafter set forth Debtor may not prepay the Term Loans in whole or in part. So long as no Event of Default (or event which with notice or lapse of time or both would constitute an Event of Default) shall have occurred and be continuing, Debtor may, upon thirty (30) days prior written notice to Secured Party that Debtor desires to prepay the entire amount of a Term Loan with respect to the Equipment subject to a specific Security Agreement Schedule, prepay the entire amount of such Term Loan on the date specified in such notice (the "Early Termination Date"). Floating Rate Loans may only be prepaid on the last day of an Interest Period. On such Early Termination Date, Debtor shall pay to Secured Party an amount equal to the sum of: (a) all Amortization Payments for such Equipment due and unpaid, together with Amortization Payments accrued through such Early Termination Date; (b) the Termination Value of the Equipment as of the Early Termination Date; (c) all costs, expenses, losses and damages incurred or sustained by Secured Party in connection with such early termination and all amounts such Debtor shall be required to pay Secured Party pursuant to any indemnity provision contained in this Security Agreement; and (d) interest on each of the foregoing and on all amounts not paid when due under any provision contained in the Security Agreement at the rate of the lesser of (i) the Prime Rate plus two percent (2%) per annum (computed on the basis of the actual number of days elapsed over a 360 day year or (ii) the highest rate Debtor may lawfully contract for, be charged and pay. For purposes of this Section 19, Amortization Payments shall be prorated daily and the Termination Values set forth in the applicable Security Agreement Schedule shall be prorated daily by interpolation on a straight line basis to the date of payment. The Termination Values set forth in the Security Agreement Schedules for Term Loans other than Floating Rate Loans will include the following prepayment premiums: - 8 - Type of Equipment Year of Prepayment Premium (%) ----------------- ------------------ ----------- Three year Equipment 1 2 2 2 3 0 Five year Equipment 1 3 2 3 3 2 4 0 5 0 Seven year Equipment 1 3 2 3 3 3 4 2 5 2 6 0 7 0 The Termination Values set forth in the Security Agreement Schedule for Floating Rate Loans will include a prepayment premium of one percent (1%) for prepayments during the first year." 7. Exhibit B to the Security Agreement is amended to read as set forth in Exhibit B hereto. 8. Exhibit D to the Security Agreement is amended to read as set forth in Exhibit D hereto. - 9 - IN WITNESS WHEREOF, the parties hereto, as of the day and year above written, have caused this Security Agreement Amendment No. 2 to be executed in their respective corporate names by their duly authorized officials. DEBTOR: INTERNATIONAL RECTIFIER CORPORATION By: /s/ Eric Lidew ------------------------------- Title: President and Chairman ------------------------------ SECURED PARTY: NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA By: /s/ M. Randall Ross -------------------------------- Title: Senior Vice President ----------------------------- - 10 - EXHIBIT B SECURITY AGREEMENT SCHEDULE NUMBER ____ This Security Agreement Schedule Number____ is dated_______________, 1994, and is executed by INTERNATIONAL RECTIFIER CORPORATION ("Debtor") and NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA ("Secured Party") as a schedule to Security Agreement as amended between Secured Party and Debtor dated July 1, 1994 and hereby incorporates by reference all of the terms, conditions and provisions thereof. 1. EQUIPMENT FINANCED: 2. EQUIPMENT LOCATION: 3. COST OF EQUIPMENT: a. Cost: b. Sales Tax: Total Cost of Equipment: 4. TERM LOAN: Term Loan Amount: Term Loan Commencement Date: Term Loan Maturity Date: The "Term Loan Term" shall be__________________________, beginning on the Term Loan Commencement Date and ending on the Term Loan Maturity Date, both dates inclusive. 5. AMORTIZATION PAYMENTS: Amortization Payment Amount: [* $_________________] [** A Principal Component as set forth in Annex A and an interest component determined as set forth in Section 4.6 of the Security Agreement] Frequency of Amortization Payments: Quarterly in arrears Number of Consecutive Amortization Payments: Interest Rate: [* _____%] [** To be determined as set forth in Section 4.6 of the Security Agreement] Amortization Payment Dates: First Amortization Payment Date: Last Amortization Payment Date: 6. FINAL PAYMENT AMOUNT: 7. UNAMORTIZED PRINCIPAL BALANCES: See Annex A attached hereto and made a part hereof. 8. TERMINATION VALUES: See Annex A attached hereto and made a part hereof. Debtor acknowledges and certifies solely to Secured Party that all of the Equipment described hereinabove has been: (i) delivered to Debtor at the Equipment Location specified above; (ii) thoroughly examined and inspected to the complete satisfaction of Debtor; (iii) unconditionally accepted by Debtor, in the condition received, for all purposes of the Security Agreement; (iv) found by Debtor to be in good operating order, repair and condition; (v) found to be of the size, design, quality, type and manufacturer selected by Debtor; and (vi) found to be and is wholly suitable for Debtor's purposes. Debtor further acknowledges and certifies that Secured Party has made no warranty, express or implied, with respect to the Equipment or its delivery, and that the insurance coverage required by Section 9 of the Security Agreement is in full force and effect with respect to the Equipment, and that the insurance policies or certificates evidencing such coverage have been delivered to Secured Party. Debtor further acknowledges, certifies and agrees that the Equipment is subject to the security interest granted by the Security Agreement, that such security interest in favor of Secured Party is a first priority security interest and that the Equipment is free of all liens, encumbrances or security interests other than the security interest in favor of Secured Party. The official signing this Security Agreement Schedule for Debtor certifies to Secured Party that (a) no default or Event of Default has occurred and is continuing, (b) no material adverse change has occurred in the business, condition or operations of Debtor (financial or otherwise) since the date of the last financial statements of Debtor, (c) no event has occurred or exists which would impair the ability of Debtor to pay and perform its obligations under the Security Agreement and (d) the representations and warranties of Debtor in the Security Agreement are true and correct as of the date hereof. IN WITNESS WHEREOF, the parties hereto, as of the day and year first above written, have caused this Security Agreement Schedule Number ___ to be executed in their respective corporate names by their duly authorized officials. NATIONSBANC LEASING CORPORATION INTERNATIONAL RECTIFIER OF NORTH CAROLINA CORPORATION (Secured Party) (Debtor) By: By: -------------------------------- --------------------------------- Title: Title: ----------------------------- ------------------------------ * - TERM LOAN OTHER THAN FLOATING RATE LOAN ** - FLOATING RATE LOAN ANNEX A TO SECURITY AGREEMENT SCHEDULE NUMBER ___ Dated as of_____________, 1994 between INTERNATIONAL RECTIFIER CORPORATION, as Debtor NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, as Secured Party Unamortized Amortization Interest Principal Amortization Principal Termination Payment Date Component Component Payment Balance Value ------------ --------- --------- ------------ ----------- ----------- [** See 1 below] [** See 2 below] [** See 3 below] [** 1. To be determined as set forth in Section 4.6 of the Security Agreement. 2. The total of the Interest Component determined as set forth in Section 4.6 of the Security Agreement and the Principal Component. 3. The Unamortized Principal Balance.] EXHIBIT D TERM LOAN NOTE $_______________ _____, 1994 FOR VALUE RECEIVED, the undersigned INTERNATIONAL RECTIFIER CORPORATION, a Delaware corporation ("Debtor") HEREBY PROMISES TO PAY to the order of NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation ("Secured Party"), the principal sum of___________________________ and__/100 Dollars ($___________) [*in (__) consecutive quarterly installments of principal and interest; each in the amount of ($__________) commencing on__________ and ending on____________ (each such date, an "Amortization Payment Date"); and with an additional installment of principal in the amount of________________ Dollars (__________) on__________; PROVIDED, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount hereof.] [**under the terms and conditions of the Security Agreement dated as of July 1, 1994, as amended, by and between the Debtor and the Secured Party (the "Security Agreement").] [**The principal amount of this Term Loan Note shall be payable in_______ (__) consecutive quarterly payments, such installments being in the amounts and being due as provided in the Security Agreement. This Term Loan Note shall bear interest on the outstanding balance from time to time at the rates as provided in Section 4.6(c) of the Security Agreement until such principal and interest have been paid in full. Installments of interest on the outstanding balance shall be due and payable in arrears on Interest Payment Dates as provided in Security Agreement.] All payments shall be payable, in lawful money of the United States and in immediately available funds without setoff or counterclaim, to Secured Party at its office at NationsBank Corporate Center, 100 North Tryon Street, NCl-007-12- 01, Charlotte, North Carolina 28255, or such other location as the holder thereof shall notify Debtor in writing. [*The Debtor promises to pay interest on the principal amount remaining unpaid hereunder from the date hereof until said principal amount becomes due, payable on each of the above-listed Amortization Payment Dates, at the rate of ___________ (__%) per annum (computed on the basis of the actual number of days elapsed over a year of 360 days).] Any amount of principal hereof which is not paid when due, whether at stated maturity, by acceleration or otherwise, shall bear interest from the day when due until said principal amount is paid in full, payable on demand at the rate equal to the lower of (i) Prime Rate plus two percent (2%) per annum or (ii) the highest rate Debtor may lawfully contract for, be charged and pay (the "Overdue Rate"). "Prime Rate" is defined as the interest rate announced publicly in Charlotte, North Carolina by NationsBank of North Carolina, N.A., which is not necessarily the lowest or best rate offered by NationsBank of North Carolina, N.A. - 1 - Each payment made under this Note shall be applied first to the payment of all accrued and unpaid interest and then to the payment of unpaid principal. This Note is a Term Loan Note referred to in, and is entitled to the benefits of the Security Agreement. All terms and provisions of the Security Agreement are deemed to be a part of this Note [*dated as of July 1, 1994, as amended, (the "Security Agreement") between Debtor and Secured Party] as though they were reproduced herein. Capitalized terms used herein and not otherwise defined herein are used herein as defined in the Security Agreement. The Security Agreement contains provisions, among others, for the acceleration of the maturity hereof upon the happening of certain stated events. This Note may be prepaid only as permitted by the Security Agreement or if Secured Party, at its sole discretion, shall allow such prepayment any prepayment shall include additional amounts required by the Security Agreement. The references made herein to the Security Agreement shall neither affect nor impair the absolute and unconditional obligation of Debtor to make payments when due. Debtor, and each endorser or accommodation party hereto, or guarantor hereof, jointly and severally waive presentment, demand, notice of intention to accelerate, notice that acceleration has occurred, protect and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. Should any of the indebtedness represented by this Note be collected in any proceeding, or this Note be placed in the hands of attorneys for collection after default, Debtor agrees to pay, in addition to the principal and interest due and payable hereon, all costs of collecting this Note, including reasonable attorneys' fees and expenses. Notwithstanding any provision to the contrary contained herein, Debtor (i) shall be fully liable for the payment of all indebtedness outstanding hereunder or under the Security Agreement; and (ii) nothing contained herein shall relieve Debtor from liability resulting from its breach of any representation, covenant or warranty contained in the Security Agreement. - 2 - THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA. INTERNATIONAL RECTIFIER CORPORATION By: _________________________________________ Name (Printed):______________________________ Title:_______________________________________ ATTEST: By:________________________________ Title:_____________________________ (Corporate Seal) * - TERM LOAN OTHER THAN FLOATING RATE LOAN ** - FLOATING RATE LOAN -3- SECURITY AGREEMENT AMENDMENT NO. 3 THIS SECURITY AGREEMENT AMENDMENT NO. 3, dated as of March 8, 1995, (the "Security Agreement Amendment No. 3") is by and between INTERNATIONAL RECTIFIER CORPORATION, a Delaware corporation with its principal place of business located in El Segundo, California (the "Debtor"); and NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a North Carolina corporation with its principal place of business located in Charlotte, North Carolina (the "Secured Party"). RECITALS A. The Debtor and Secured Party entered into a Security Agreement dated as of July 1, 1994, as amended (the "Security Agreement"). B. The Debtor and Secured Party desire to amend certain provisions of the Security Agreement as more specifically set forth hereinafter. NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS: 1. The last sentence of Section 1.2 of the Security Agreement is amended to read as follows: "No Term Loan Commencement Date shall occur after December 29, 1995 (the "Final Commencement Date")". 2. Section 4.2 of the Security Agreement is amended to read as follows: "4.2. TERM LOAN: AMORTIZATION PAYMENTS. (a) TERM LOANS. The term of the loan for each item of Equipment shall be set forth as the "Term Loan Term" in the Security Agreement Schedule pertaining to such item of Equipment. The Term Loan Term to be set forth in the Security Agreement Schedule shall not exceed the following: computer equipment: three (3) years; electronic test production equipment: three (3) years, five (5) years or seven (7) years. The Debtor shall pay the amortization payments ("Amortization Payments") set forth in the applicable Security Agreement Schedule in successive payments in arrears from the Term Loan Commencement Date set forth in the Security Agreement Schedule. Amortization Payments shall consist of a principal component and an interest component as set forth in the Security Agreement Schedule. (b) FIXED RATE TERM LOANS. Amortization Payments on Term Loans with fixed interest rates shall be determined as follows: Debtor shall pay Secured Party successive quarterly payments in arrears from the Term Loan Commencement Date(s). The payments shall be fixed on each Term Loan Commencement Date based upon the interest rate determined by the sum of (i) the applicable generic U.S. Treasury yield as quoted by the Dow Jones/Telerate Inc. system at the opening of business in Charlotte, North Carolina five (5) Business Days prior to the Term Loan Commencement Date (the "Index") and (ii) the applicable margin as follows:
Term Loan Term Index Margin -------------- ----- ------ three (3) years two (2) year U.S. Treasury 1.28% five (5) years three (3) year U.S. Treasury 1.28% seven (7) years four (4) year U.S. Treasury 1.50%
(c) FLOATING RATE LOANS. Amortization Payments on Term Loans that are Floating Rate Loans shall be determined as follows: The principal portion of each quarterly Amortization Payment for a Floating Rate Loan shall be established by mutual agreement as set forth in the Security Agreement Schedule relating to the Floating Rate Loan. The interest portion of each Amortization Payment for a Floating Rate Loan shall be determined in accordance with Section 4.6 below." 3. Section 4.3 of the Security Agreement is amended to read as follows: "4.3. NON-UTILIZATION FEE. Debtor agrees to pay Secured Party, on the Final Commencement Date, a non-utilization fee equal to thirty-five one hundredths of one percent (.35%) of the amount, if any, by which ninety percent (90%) of $25,000,000.00 exceeds the Total Secured Party's Cost of Equipment subject to this Security Agreement on the Final Commencement Date." 4. Section 4.5 shall be added to the Security Agreement and shall read in its entirety as follows: "4.5. INTEREST RATES. Interest rates on Term Loans shall be either fixed in accordance with Section 4.2(b) above or shall be based on the LIBOR Rate in accordance with Section 4.6 below. 5. The first sentence of paragraph (c) of Section 4.6 is amended to read as follows: "(c) INTEREST RATE OPTIONS. Floating Rate Loans shall bear interest at a rate per annum (computed on the basis of a month of thirty days over a year of 360 days) equal to the LIBOR Rate plus 1.15% for three and five year loans and the LIBOR Rate plus 1.35% for seven year loans." - 2 - IN WITNESS WHEREOF, the parties hereto, as of the day and year above written, have caused this Security Agreement Amendment No. 3 to be executed in their respective corporate names by their duly authorized officials. DEBTOR: INTERNATIONAL RECTIFIER CORPORATION By: /s/ Michael P. McGee ------------------------------- Title: VICE PRESIDENT & CHIEF FINANCIAL OFFICER ------------------------------------------ SECURED PARTY: NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA By: /s/ M. Randall Ross ________________________________ Title: Senior Vice President _____________________________ - 3 -
EX-10.Q 5 EXHIBIT 10.Q REVOLVING CREDIT AGREEMENT This Revolving Credit Agreement (the "Agreement") is made and entered into as of June 15, 1995, by and between NATIONSBANK OF TEXAS, N.A. ("NationsBank") and INTERNATIONAL RECTIFIER CORPORATION (the "Borrower") on the terms and conditions set forth below: SECTION I DEFINITIONS 1.01 CERTAIN DEFINED TERMS. Unless elsewhere defined in this Agreement, the following terms shall have the following meanings (such meanings to be generally applicable to the singular and plural forms of the terms defined): (a) "ADVANCE" shall mean an advance to the Borrower under the Revolving Credit Facility. (b) "AFFILIATE" shall mean, as to any Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. (c) "APPLICATIONS" shall mean NationsBank's form "Application" (in the case of standby Letter of Credit) and form "Application" (in the case of a commercial Letter of Credit) which are Exhibits A and B respectively to NationsBank's form "Master Agreement for Letters of Credit" attached to this Agreement as Exhibit B. (d) "BANKRUPTCY CODE" shall mean the Bankruptcy Reform Act, Title 11 of the United States code, as amended or recodified from time to time. (e) "BUSINESS DAY" shall mean a day other than a Saturday or Sunday on which commercial banks are open for business in the State of Texas, and, with respect to LIBO Rate Advances, on which dealings are carried on in the London interbank market and banks are open for business in London. (f) "COMMITMENT" shall mean the obligation of NationsBank, in accordance with the terms of this Agreement, to make the Advances to the Borrower and to issue Letters of Credit for the account of the Borrower in a combined aggregate principal amount at any one time outstanding of Ten Million Dollars ($10,000,000.00). (g) "CONSOLIDATED OPERATING LOSS" shall mean a loss from operations before other income and expenses, income taxes and extraordinary items as set forth on the Borrower's consolidated statement of income. (h) "DEBT" shall mean all Indebtedness and other liabilities of the Borrower or any Subsidiary and/or the Borrower and all the Subsidiaries, as the case may be, as set forth on the Borrower's and/or such Subsidiary's balance sheet. (i) "DOLLARS" and "$" shall mean lawful money of the United States. (j) "DOMESTIC" shall mean the consolidated United States and Mexican maquiladora operations of the Borrower. (k) "DOMESTIC INDEBTEDNESS" shall mean all Indebtedness incurred by Borrower in connection with Borrower's Domestic operations. (l) "EFFECTIVE TANGIBLE NET WORTH" shall mean the Borrower's stated net worth, but less all intangible assets of the Borrower (that is, goodwill, trademarks, patents, copyrights, organization expense, loans and advances to employees, and similar intangible items), but excluding any cumulative translation adjustments to equity for the value of foreign assets based upon changes in foreign exchange rates. (m) "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended or recodified from time to time, including (unless the context otherwise requires) any rules or regulations promulgated thereunder. (n) "EVENT OF DEFAULT" shall have the meaning set forth in Section 7 of this Agreement. (o) "FIXED RATE ADVANCES" shall mean the LIBO Rate Advances. (p) "GAAP" shall mean generally accepted accounting principles in the United States as in effect from time to time. (q) "GOVERNMENTAL AUTHORITY" shall mean any domestic or foreign national, state or local government, any political subdivision thereof, any department, agency, authority or bureau of any of the foregoing, or any other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, but not limited to, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Comptroller of the Currency, any central bank or any comparable authority. (r) "INDEBTEDNESS" shall mean, with respect to the Borrower, (i) all indebtedness for borrowed money, and (ii) all indebtedness for the deferred purchase price of property or services due more than 45 days from the date of payment specified on the invoice for such obligation in respect of which the Borrower is primarily liable as obligor, and (iii) obligations under leases which -2- shall have been or should be, in accordance with GAAP, reported as capital leases in respect of which the Borrower is primarily liable. (s) "INTEREST PERIOD" shall mean a LIBO Rate Interest Period. (t) "LETTER OF CREDIT" shall mean a commercial and/or standby letter of credit issued by NationsBank pursuant to the Revolving Credit Facility subfeature for letters of credit, as described more fully in Section 3 of this Agreement. (u) "LETTER OF CREDIT AGREEMENTS" shall mean NationsBank's standard "Master Agreement for Letters of Credit", substantially in the form of Exhibit B attached hereto, and all related documents required in connection therewith. (v) "LETTER OF CREDIT COMMITMENT" shall mean the obligation of NationsBank, in accordance with the terms of this Agreement, to issue Letters of Credit for the account of the Borrower in an aggregate face amount at any one time outstanding, less any partial drawings paid by NationsBank under Letters of Credit and not reimbursed by the Borrower, of Five Million Dollars ($5,000,000.00). (w) "LETTER OF CREDIT SUB-FACILITY" shall mean the letter of credit sub-facility described in Section 3 of this Agreement of the Revolving Credit Facility, under which NationsBank agrees to issue commercial and standby letters of credit for the account of the Borrower up to an amount of Five Million Dollars ($5,000,000.00) at any one time outstanding. (x) "LIBO RATE" shall mean, for each LIBO Rate Interest Period, a rate per annum (rounded upward if necessary to the nearest 1/8th of 1 %) equal to the quotient of (a) the rate per annum at which Dollar deposits are offered to NationsBank in the London interbank eurodollar currency market on the second Business Day prior to the commencement of such LIBO Rate Interest Period at or about 11:00 a.m. London time (for delivery on the first day of such LIBO Rate Interest Period) for a term comparable to such LIBO Rate Interest Period and in an amount approximately equal to the amount of the LIBO Rate Advance to be outstanding during such LIBO Rate Interest Period divided by (b) one minus the Reserve Requirement for such LIBO Rate Advance in effect from time to time. The LIBO Rate applicable to LIBO Rate Advances during each LIBO Rate Interest Period shall be determined two Business Days prior to the first day of such LIBO Rate Interest Period and will not be adjusted during such LIBO Rate Interest Period to reflect any change in the applicable Reserve Requirement occurring during such LIBO Rate Interest Period. Each change in the applicable Reserve Requirement will affect the LIBO Rate applicable during LIBO Rate Interest Periods commencing on or after the date of such change. -3- (y) "LIBO RATE ADVANCE" shall mean an Advance in a minimum amount of $500,000 and in $100,000 increments thereafter for which interest is based on the LIBO Rate. (z) "LIBO RATE INTEREST PERIOD" shall mean, for each LIBO Rate Advance, a period of one (1) month, two (2) months, three (3) months, six (6) months (if available), nine (9) months (if available) or twelve (12) months (if available), as designated by the Borrower, during which all or a portion of the Advances under the Revolving Credit Facility bear interest determined in relation to the LIBO Rate; provided, however, that (a) if a LIBO Rate Interest Period commences on a date for which there is no corresponding date in the month in which such LIBO Rate Interest Period is to end, such LIBO Rate Interest Period shall end on the last Business Day of such month, (b) if the last day of any LIBO Rate Interest Period occurs on a day which is not a Business Day, such LIBO Rate Interest Period shall be extended to expire on the next succeeding Business Day; provided further, however, that if such extension would cause the last day of any LIBO Rate Interest Period to occur in the next following calendar month, such LIBO Rate Interest Period shall expire on the next preceding Business Day, and (c) no LIBO Rate Interest Period may extend beyond the Maturity Date. (aa) "LIQUID ASSETS" shall mean all Domestic cash and cash equivalents plus all Domestic accounts receivable, less any inter-company accounts receivable. (bb) "LOAN DOCUMENTS" shall mean this Agreement, the Note, the Letter of Credit Agreements, and any foreign exchange agreements or contracts or documents signed by the Borrower in favor of NationsBank which indicate on their face or in their text that they are Loan Documents, and each other contract, instrument and document required by or executed in connection with this Agreement, the Note, the Letter of Credit Agreements, or any such foreign exchange agreements or contracts or documents. (cc) "MATURITY DATE" shall mean June 14, 1996 or the date of termination of the Commitment pursuant to Section 7 of this Agreement, whichever shall occur first. (dd) "NOTE" shall mean the Revolving Credit Facility Note, substantially in the form of Exhibit A attached hereto. (ee) "OBLIGATIONS" shall mean all amounts owing by the Borrower to NationsBank pursuant to this Agreement and the Loan Documents, including, but not limited to, the unpaid principal amount of the Advances. (ff) "OTHER TAXES" shall have the meaning assigned to it in Section 2.15(b) of this Agreement. -4- (gg) "PERMITTED DOMESTIC LIENS" shall mean: (i) liens and security interests securing indebtedness owed by the Borrower to NationsBank; (ii) liens for taxes, assessments or similar charges either not more than 45 days past due or being contested in good faith; (iii) liens of materialmen, mechanics, warehousemen, or carriers or other like liens arising in the ordinary course of business and securing obligations which are not more than 45 days past due or being contested in good faith; (iv) purchase money liens or purchase money security interests upon or in any property acquired or held by the Borrower in the ordinary course of business to secure Indebtedness outstanding on the date hereof or permitted to be incurred under Section 6.09 of this Agreement; (v) liens and security interests which, as of the date hereof, have been disclosed to and approved by NationsBank in writing; (vi) liens in connection with workers' compensation, unemployment insurance and such other types of insurance; (vii) liens to secure performance bonds and bid bonds and other similar obligations; (viii) liens resulting from zoning restrictions, easements and such other similar restrictions on the use of real property; and (ix) liens arising from judgments and attachments that would not constitute an Event of Default hereunder. (hh) "PERSON" shall mean any individual, corporation, partnership, joint venture or other organization or entity. (ii) "PLAN" shall mean any defined employee pension benefit plan maintained or contributed to by Borrower and insured by the Pension Benefit Guaranty Corporation under title IV of ERISA. (jj) "POTENTIAL EVENT OF DEFAULT" shall mean any condition, occurrence or event which, after notice or the passage of time or both, would constitute an Event of Default. (kk) "PRIME RATE" shall mean, at any time, the rate of interest most recently announced within NationsBank at its principal office in Dallas as its Prime Rate, with the understanding that NationsBank's Prime Rate is one of its base rates and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto, and is evidenced by the recording thereof in such internal publication or publications as NationsBank may designate. (ll) "PRIME RATE ADVANCE" shall mean an Advance for which interest is based on the Prime Rate. (mm) "RESERVE REQUIREMENT" shall mean, with respect to any day in a LIBO Rate Interest Period, the aggregate of the reserve requirement rates (expressed as a decimal) in effect on such day for eurocurrency funding (currently referred to as "Eurocurrency liabilities in Regulation D of the Board of Governors of the Federal Reserve System) maintained by a member bank of the Federal Reserve System. As used herein, the term "Reserve Requirement" shall include, but not be -5- limited to, any basic, supplemental or emergency reserve requirements imposed on any bank by any Governmental Authority. (nn) "REVOLVING CREDIT ACCOUNT" shall mean the account in which NationsBank makes entries for each Advance and such other debits and credits as shall be appropriate in connection with the Revolving Credit Facility. (oo) "REVOLVING CREDIT FACILITY" shall mean the credit facility described in Section 2 of this Agreement under which all NationsBank offers Borrower a revolving credit accommodation in the maximum total principal amount of Ten Million Dollars ($10,000,000.00). (pp) "SUBORDINATED DEBT" shall mean such liabilities of the Borrower which have been subordinated to those owed to NationsBank in a manner acceptable to NationsBank. (qq) "SUBSIDIARY" shall mean any corporation, association or other business entity of which Borrower owns directly or indirectly more than fifty percent (50%) of the voting securities thereof or in which Borrower otherwise owns a controlling interest. (rr) "TAXES" shall have the meaning assigned to it in Section 2.15(a) of this Agreement. (ss) "TEMECULA FACILITY" shall mean the Borrower's wafer fabrication and assembly plant existing on the date of this Agreement on the property owned by the Borrower in Temecula, California, and the addition to such plant to be built in the future. 1.02 ACCOUNTING TERMS. All references to financial statements, assets, liabilities, and similar accounting items not specifically defined herein shall mean such financial statements or such items prepared or determined in accordance with GAAP consistently applied and, except where otherwise specified, all financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP. 1.03 OTHER TERMS. Other terms not otherwise defined shall have the meanings attributed to such terms in the California Uniform Commercial Code. SECTION 2 REVOLVING CREDIT FACILITY 2.01 REVOLVING CREDIT FACILITY. On the terms and conditions as set forth herein, NationsBank agrees to make Advances in Dollars to the Borrower from time to time from the date hereof to the Maturity Date; provided, however, that the aggregate amount of such Advances outstanding at any one time may not exceed -6- $10,000,000.00 ("Revolving Credit Facility"). Within the foregoing limits, the Borrower may borrow, partially or wholly prepay, and reborrow under this Section 2. 2.02 MAKING ADVANCES. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of the Borrower when made upon telephonic or facsimile request received from the Borrower, with a confirmation in writing sent within two Business Days, and (i) when credited to any deposit account of the Borrower maintained with NationsBank, or (ii) when paid in accordance with the Borrower's written instructions. Each request for an Advance must be received not later than 11:30 a.m. (Dallas, Texas time) on the Business Day specified for a Prime Rate Advance and 11:30 a.m. (Dallas, Texas time) two Business Days prior to the date specified for a LIBO Rate Advance, each of which dates shall be a Business Day. The rates for a LIBO Rate Advance shall be set on the next succeeding Business Day if the request is received by 11:30 a.m. Any request for an Advance received after the above-specified deadline may, at NationsBank's option, be deemed to be a request for an Advance to be made on the next succeeding Business Day for a Prime Rate Advance and the third succeeding Business Day for a LIBO Rate Advance. NationsBank shall not incur any liability to the Borrower in acting upon any telephonic notice referred to above given by someone who identifies himself or herself as a person named on a list of persons authorized to borrow money for the Borrower given to NationsBank from time to time by the Borrower's chief financial officer, and upon the making of the Advance by NationsBank in accordance with any such telephonic notice, the Borrower shall have effected an Advance hereunder. 2.03 MANDATORY REPAYMENT. On the Maturity Date, the Borrower hereby promises and agrees to pay to NationsBank in full the aggregate unpaid principal amount of all Advances then outstanding, together with all accrued and unpaid interest thereon. 2.04 INTEREST ON ADVANCES. Interest shall accrue from the date of each Advance at one of the following rates, as quoted by NationsBank and as elected by the Borrower pursuant to this Section 2.04 or Section 2.05 of this Agreement: (a) PRIME RATE ADVANCES. For Advances designated as Prime Rate Advances, a fluctuating rate per annum equal to the Prime Rate in effect from time to time. Interest shall be adjusted concurrently with any change in the Prime Rate. (b) LIBO RATE ADVANCES. For Advances designated as LIBO Rate Advances, a fixed rate per annum determined by NationsBank to be one percent (1.00%) above the LIBO Rate in effect on the first day of the LIBO Rate Interest Period for the Advance. -7- All interest on Advances shall be computed on the basis of a 360 day year, actual days elapsed. Interest on Prime Rate Advances shall be paid in Dollars in arrears in monthly installments commencing on the first day of the month following the date of the first such Advance and continuing on the first day of each month thereafter. Interest on any LIBO Rate Advance shall be paid in arrears on the last day of the LIBO Rate Interest Period pertaining to such LIBO Rate Advance and, if such Interest Period is greater than three months, on that date falling three months (if the LIBO Rate Interest Period is six months), three months and six months (if the LIBO Rate Interest Period is nine months) and three months, six months and nine months (if the LIBO Rate Interest Period is twelve months) after the first day of such Interest Period. 2.05 INTEREST ON OVERDUE PAYMENTS. Overdue payments of principal (and of interest and fees to the extent permitted by law) on the Advances, and all amounts payable on demand in accordance with the terms of this Agreement which are not paid on demand, shall bear interest at a fluctuating rate per annum equal to the Prime Rate plus three percent (3%) until such unpaid amount has been paid in full (whether before or after judgment); provided, however, that such rate of interest shall in no event be less than the interest rate in effect at the time such payment was due. All interest provided for in this Section 2.05 shall be compounded monthly, based on a year of 360 days for actual days elapsed, and be payable on demand. Except as provided in this Section 2.05, the Advances will bear interest (whether before or after any breach of this Agreement) at the rate of interest specified in Section 2.04 of this Agreement. 2.06 PROMISSORY NOTE. The Borrower's obligation to repay Advances under the Revolving Credit Facility shall be evidenced by the Note, all the terms of which are incorporated in this Agreement by this reference. 2.07 REDUCTION OF COMMITMENT. The Borrower may reduce the amount of the Commitment at any time (with any such reduction to be in a minimum amount of $100,000 and in integral multiples of $100,000) by giving NationsBank written notice of the amount to which the Commitment is to be reduced, with such reduction to be effective as of the close of business on the date specified in said notice, which date must be a Business Day and must be at least two Business Days after such notice is actually received by NationsBank; provided, however, that (a) no such reduction may reduce the Commitment to an amount less than (i) the total principal amount of all the Advances outstanding at such time, plus (ii) the total undrawn amount of all Letters of Credit outstanding at such time, plus (iii) all amounts paid by NationsBank under Letters of Credit and not yet reimbursed by the Borrowers, (b) after giving NationsBank a notice of reduction of the Commitment, the Borrower may not subsequently increase the amount of the Commitment, and (c) any such reduction which reduces the Commitment below Five Million Dollars ($5,000,000.00) shall also reduce the amount of the Letter of Credit Commitment to the amount of the reduced Commitment. -8- 2.08 NOTICE OF ELECTION TO ADJUST INTEREST RATE. Before the end of any LIBO Rate Interest Period, the Borrower may elect that interest on the LIBO Rate Advance outstanding during such Interest Period shall continue to accrue after the end of such Interest Period at a new LIBO Rate quoted by NationsBank for an additional Interest Period of the same duration or any other duration permitted under this Agreement; provided, however, that such election shall specify the duration of the next Interest Period and be received by NationsBank no later than 11:30 a.m. two Business Days prior to the last day of the LIBO Rate Interest Period for a LIBO Rate Advance. Before the end of any LIBO Rate Interest Period, the Borrower may elect that interest on the LIBO Rate Advance outstanding during such Interest Period shall accrue at the Prime Rate after the end of such Interest Period; provided, however, that such election shall be received by NationsBank no later than the last day of such Interest Period. The elections referred to above may be made by telephone if they are immediately confirmed in writing by telecopy, with the original of such writing deposited in the United States mail or with an air courier on the same day addressed to NationsBank. NationsBank shall not incur any liability to the Borrower in acting upon any telephonic notice referred to above given by someone who identifies himself or herself as a person named on a list of persons authorized to borrow money for the Borrower given to NationsBank from time to time by the Borrower's Chief Financial Officer, and upon the continuation of any Advance by NationsBank in accordance with any such telephonic notice, the Borrower shall have effected the continuation of an Advance hereunder. If NationsBank shall not have received notice as required by this Section 2.08 of Borrower's election that interest on any Fixed Rate Advance shall continue to accrue at a LIBO Rate or Prime Rate quoted by NationsBank, as the case may be, and the Borrower does not repay the Advance in full, the Borrower shall be deemed to have elected that interest on the Advance after the end of the current Interest Period shall be adjusted to accrue at the Prime Rate then in effect. 2.09 PREPAYMENT. (a) The Borrower may prepay any Advance in whole or in part, at any time and without penalty; provided, however, that (i) any partial prepayment shall first be applied, at NationsBank's option, to accrued and unpaid interest and next to the outstanding principal balance; and (ii) during any period of time in which interest is accruing on any Advance on the basis of the LIBO Rate, no prepayment shall be made except on a day which is the last day of the Interest Period pertaining thereto; provided, however, if the whole or any part of any Fixed Rate Advance is prepaid by reason of acceleration or otherwise, the Borrower shall, upon NationsBank's request, promptly pay to and indemnify NationsBank for all costs and losses actually incurred by NationsBank as a consequence of such prepayment, and provided further, that any prepayment under this Agreement shall not be deemed to be an Event of Default. (b) If, on the last day of any Interest Period, the aggregate principal amount of all LIBO Rate Advances then outstanding, when combined with the -9- aggregate principal amount of all Prime Rate Advances then outstanding and the aggregate amount of all Letters of Credit then outstanding and (without duplication) the aggregate amount of all drawings paid by NationsBank under Letters of Credit and not then reimbursed by the Borrower, exceeds the Commitment, the Borrower shall on such last day prepay to NationsBank an aggregate principal amount of such Advances at least equal to such excess together with accrued interest on the principal amount prepaid to the date of such prepayment. 2.10 APPLICATION OF PREPAYMENTS. Unless otherwise directed by Borrower, NationsBank shall apply all prepayments not designated by Borrower to apply to any Advance or Advances first to all the Prime Rate Advances outstanding at the time of such prepayment and second to any outstanding LIBO Rate Advances in the chronological order of the respective maturities of such LIBO Rate Advances. 2.11 INTEREST PERIOD BREAKAGE COSTS. If any Fixed Rate Advance shall become due and payable prior to the last day of its Interest Period by acceleration or otherwise, or if the Borrower shall fail to borrow a Fixed Rate Advance on the date specified by the Borrower for such Advance (other than as a result of NationsBank's failure to make funds available for such Advance), the Borrower shall, with respect to any prepayment of all or any portion of a Fixed Rate Advance or the failure to borrow all or any portion of a Fixed Rate Advance, on the date specified for such Advance, pay to NationsBank immediately upon demand a fee which is the sum of the discounted monthly differences for each month from the month in which the prepayment or failure to borrow occurs through the month in which the final day of the Interest Period for such prepaid or non-borrowed Fixed Rate Advance occurs, with the discounted monthly differences being calculated as follows: (a) DETERMINE the amount of interest which would have accrued each month on the amount prepaid or not borrowed at the LIBO Rate, in the case of a LIBO Rate Advance, applicable to such amount had it remained outstanding or been borrowed and outstanding until the last day of the applicable Interest Period. (b) SUBTRACT from the amount determined in subsection (a) above the amount of interest which would accrue for the same month on the amount prepaid or not borrowed for the remaining term of the Interest Period in which such prepayment occurs or such borrowing was to be made at the LIBO Rate, in the case of a LIBO Rate Advance, as determined by NationsBank in its sole discretion, in effect on the date of prepayment for new Fixed Rate Advances of the type prepaid or not borrowed made for such term and in a principal amount equal to the amount prepaid or not borrowed. (c) If the result obtained in (b) for any month is greater than zero, discount that difference by the LIBO Rate used in (b) above. -10- The Borrower acknowledges that prepayments of LIBO Rate Advances before the end of their Interest Periods and failure to borrow a Fixed Rate Advance after it is requested Will result in NationsBank incurring additional costs, expenses and/or liabilities, and that it is extremely difficult to ascertain the full extent of such costs, expenses and/or liabilities. NationsBank will send the Borrower in writing NationsBank's calculation of the above-described tee, and the Borrower agrees that the amount of such fee determined by such calculation represents a reasonable estimate of the prepayment and non-borrowing costs, expenses and/or liabilities of NationsBank, and that the Borrower will pay such fee as so calculated absent manifest error. If the Borrower fails to pay any fee for any prepayment or failure to borrow when due, the amount of such fee shall thereafter bear interest until paid at a fluctuating rate per annum equal to the Prime Rate in effect from time to time (computed on the basis of a 360-day year, actual days elapsed) plus three percent (3%). 2.12 INDEMNIFICATION FOR LIBO RATE COSTS. Notwithstanding anything provided in the definition of LIBO Rate in Section 1.01 of this Agreement, during any period of time after the date of this Agreement in which interest on any Advance is accruing on the basis of the LIBO Rate, the Borrower shall, upon NationsBank's written request, which request shall explain in reasonable detail the reason for such costs or payments and shall be conclusive and binding on the Borrower absent manifest error, promptly pay to, and reimburse NationsBank for, any increase in the cost to NationsBank of, or any reduction in the amount of any sum receivable by NationsBank in respect of, making, continuing or maintaining (or of NationsBank's obligation to make, continue or maintain) any Advance as, or of converting (or of NationsBank's obligation to convert) any Advance into, Fixed Rate Advances (including, but not limited to, any imposition or effectiveness of reserve requirements, assessments, deposits or similar requirements) that arise after the date of this Agreement in connection with any change in, or the introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law, regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority. 2.13 INABILITY TO DETERMINE THE LIBO RATE. In the event that NationsBank shall at any time decide that the accrual of interest on the basis of the LIBO Rate (i) cannot be determined at the time of any borrowing or the continuation of any borrowing because Dollar deposits, contracts or time deposits in an amount approximately equal to the amount of the relevant Fixed Rate Advance and for a period of time approximately equal to relevant Interest Period are not available, or (ii) is or has become unlawful or impossible by reason of NationsBank's compliance with any new law, rule, regulation, guideline or order, or any new interpretation of any present law, rule, regulation, guideline or order, then NationsBank shall give telephonic notice thereof (confirmed in writing) to the Borrower, in which event such Fixed Rate Advance shall not be made or, at the election of the Borrower, be made as a Prime Rate Advance or, if already made, -11- shall be immediately prepaid, but then may be converted into a Prime Rate Advance at the election of the Borrower. In the event that NationsBank shall at any time decide that the accrual of interest on the basis of the LIBO Rate for a LIBO Rate Advance does not accurately reflect the cost to NationsBank of making or continuing such Fixed Rate Advance, then NationsBank shall give telephonic notice thereof (confirmed in writing) to the Borrower and such Fixed Rate Advance shall not be made or, at the election of the Borrower, be made as a Prime Rate Advance, if such Fixed Rate Advance has not been made without the Borrower paying any interest breakage costs referred to in Section 2.11 of this Agreement, or, if such Fixed Rate Advance has already been made, such Fixed Rate Advance will be paid on the last day of the Interest Period in which the Borrower receives such notice. 2.14 PAYMENTS. Payment of all sums due from the Borrower under this Agreement with respect to Advances and reimbursement of Letter of Credit payments made by NationsBank shall be made by the Borrower to NationsBank in immediately available funds. Each such payment by the Borrower shall be made without setoff or counterclaim on the day such payment is due. All sums received after such time shall be deemed received on the next Business Day. Whenever any payment under this Agreement shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest; provided, however, if such extension would cause payment of interest on, or principal of, LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the immediately preceding Business Day. 2.15 TAXES. (a) Any and all payments by the Borrower shall be made hereunder free and clear of, and without deduction for, any and all taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, existing on or arising after the date of this Agreement, excluding taxes imposed on NationsBank's income, and franchise taxes imposed on it by the jurisdiction under the laws of which NationsBank is organized or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.15) NationsBank receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. -12- (b) In addition, Borrower agrees to pay any stamp or documentary taxes, or any other excise or property taxes, charges or similar levies, existing on or arising after the date of this Agreement, which arise from any payment or registration of, or otherwise with respect to, this Agreement (hereinafter referred to as "Other Taxes"). (c) Borrower will indemnify NationsBank for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.15) paid by NationsBank and any liability (including, without limitation, penalties, interest and expenses) arising therefrom or with respect thereto, except to the extent that such liabilities arise directly from NationsBank's gross negligence or willful misconduct, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within 30 days from the date NationsBank makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes. the Borrower will furnish to NationsBank at its address referred to in Section 9.03 of this Agreement. the original or a certified copy of a receipt evidencing payment thereof. If no taxes are payable in respect of any payment hereunder, Borrower will furnish to NationsBank at such address a certificate from each appropriate taxing authority, or an opinion of counsel acceptable to NationsBank, in either case stating that such payment is exempt from, or not subject to, Taxes. (e) To the extent that any Taxes were not lawfully payable, any recovery ultimately received by NationsBank in respect of any such Taxes shall be refunded to the Borrower to the extent of the Borrower's applicable indemnification payment. (f) NationsBank agrees that, upon receiving written notice from the Borrower, NationsBank shall take all such actions as are reasonably necessary to enable the Borrower to pay all Taxes in a timely manner and to claim such exemptions as NationsBank may be entitled to claim in respect of all or any portion of any Taxes which are otherwise required to be paid or deducted or withheld pursuant to this Section 2.15 in respect of any payments under this Agreement. (g) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.15 shall survive the payment in full of principal and interest hereunder. 2.16 REVOLVING CREDIT ACCOUNT. (a) NationsBank shall maintain on its books a record of account in which NationsBank shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the Revolving Credit Facility (the -13- "Revolving Credit Account"). NationsBank shall provide the Borrower with a monthly statement of the Borrower's Revolving Credit Account, which statement shall be considered to be correct and conclusively binding on the Borrower unless the Borrower notifies NationsBank to the contrary within 30 days after the Borrower's receipt of any such statement which it deems to be incorrect. (b) The Borrower hereby authorizes NationsBank, if and to the extent any payment owed to NationsBank under this Agreement is not made when due, after giving effect to any grace period, to charge, from time to time, against any or all of the Borrower's deposit accounts with NationsBank any amount so due. 2.17 FACILITY FEE. The Borrower shall pay to NationsBank on the date of this Agreement a facility fee in the amount of One Dollar ($1.00). 2.18 LIMITATIONS. (a) Notwithstanding anything to the contrary in this Agreement, the Borrower shall not be required to make any payment or indemnification to NationsBank pursuant to Sections 2.11, 2.12, 2.15 or 3.06 of this Agreement or Section 10 of the Letter of Credit Agreement unless NationsBank shall have given the Borrower notice of the occurrence of the circumstances which may or will require such payment within thirty (30) calendar days after NationsBank becomes aware of the occurrence of such circumstances. (b) The Borrower shall not be responsible for any payment or indemnification required pursuant to Sections 2.11, 2.12, 2.15 or 3.06 of this Agreement or Section 10 of the Letter of Credit Agreement to the extent the loss, liability or payment of NationsBank giving rise to the payment or indemnity obligation of the Borrower directly results from NationsBank's gross negligence or willful misconduct. (c) NationsBank shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to take reasonable actions which would avoid the need for, or reduce the amount of. any additional amounts payable under Sections 2.11, 2.12, 2.15 or 3.06 of this Agreement or Section 10 of the Letter of Credit Agreement, or would avoid the prepayment of a Fixed Rate Advance, if such action would not, in the reasonable judgment of NationsBank, be otherwise disadvantageous to NationsBank. SECTION 3 LETTERS OF CREDIT In addition to making Advances under the Revolving Credit Facility described hereinabove, NationsBank hereby agrees to make the following credit accommodation available to the Borrower on the following terms and conditions: -14- 3.01 LETTER OF CREDIT SUB-FACILITY. Nationsbank agrees to issue commercial and standby letters of credit (each a "Letter of Credit") on behalf of the Borrower ("Letter of Credit Sub-Facility") subject to the terms and conditions of the Letter of Credit Agreements; provided, however, at no time shall the total face amount of all Letters of Credit outstanding, less any partial draws paid by NationsBank under Letters of Credit and not reimbursed by the Borrower, exceed the sum of Five Million Dollars ($5,000,000.00). 3 02 LETTER OF CREDIT FEES. Upon NationsBank's request, the Borrower shall promptly pay to NationsBank quarterly in advance an issuance fee of 1% per annum of the face amount of each Letter of Credit and such negotiation fees, other fees, commissions, costs and any out-of-pocket expenses charged or incurred by NationsBank with respect to any Letter of Credit. 3.03 TERMINATION OF LETTER OF CREDIT COMMITMENT. The Letter of Credit Commitment shall, unless terminated earlier in accordance with the terms of the Agreement automatically terminate on the Maturity Date, and no Letter of Credit shall expire on a date which is later than ninety (90) calendar days after the Maturity Date. 3.04 FORM OF LETTERS OF CREDIT. Each Letter of Credit shall provide only for drafts or demands payable at sight, and shall be in form and substance and in favor of beneficiaries satisfactory to NationsBank; provided, however, that NationsBank may refuse to issue a Letter of Credit due to the nature of the transaction or its terms or in connection with any transaction where NationsBank, due to the beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation or order from issuing such Letter of Credit. 3.05 APPLICATIONS. Prior to the issuance of each Letter of Credit, but in no event later than 4:30 p.m. (Dallas, Texas time) on the Business Day immediately preceding the day such Letter of Credit is to be issued (which shall be a Business Day), the Borrower shall deliver to NationsBank a duly executed Application for the type of Letter of Credit to be issued, with proper insertions. 3.06 INCREASED COSTS. The Borrower shall, upon NationsBank's request. which request shall explain in reasonable detail the reason for such costs or payments and shall be conclusive and binding on the Borrower absent manifest error, promptly pay to and reimburse NationsBank for any increase in the cost to NationsBank of, or any reduction in the amount of any sum receivable by NationsBank in respect of, making, continuing or maintaining (or NationBank's obligation to make, continue or maintain) any Letter of Credit (including, but not limited to, any imposition or effectiveness of reserve requirements, assessments, deposits or similar requirements) that arise after the date of this Agreement in connection with any change in, or the introduction, adoption, effectiveness, -15- interpretation, reinterpretation or phase-in of, any law, regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority. 3.07 AUTOMATIC PAYMENT. Borrower agrees to pay each drawing under a Letter of Credit to NationsBank on the same day the drawing occurs by direct payment to NationsBank on demand or, at NationsBank's option, by NationsBank debiting the depository account or accounts maintained by the Borrower with NationsBank for the amount of such drawing. NationsBank will notify the Borrower of each such debit on the date the debit occurs. In the event that the Borrower fails to pay the amount of any drawing under any Letter of Credit on the same day as the drawing occurs or in the event that the balances in the depository account or accounts maintained by the Borrower with NationsBank are not sufficient to pay any drawing when it occurs. NationsBank shall, and Borrower hereby instructs NationsBank to, create an Advance under this Agreement bearing interest at the Prime Rate to pay the relevant drawing. SECTION 4 CONDITIONS OF LENDING 4.01 CONDITIONS PRECEDENT TO THE INITIAL ADVANCE. The obligation of NationsBank to make the initial Advance or issue the first Letter of Credit, whichever first occurs, is subject to the conditions precedent that NationsBank shall have received before the date of such initial Advance or the issuance of such first Letter of Credit all of the following in form and substance satisfactory to NationsBank: (a) A counterpart of this Agreement duly executed by the Borrower. (b) A Note payable to the order of NationsBank, conforming to the requirements hereof, duly executed by the Borrower. (c) Evidence that the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents have been duly authorized, including, but not limited to, (i) a copy of a resolution or resolutions passed by the Board of Directors of Borrower, certified by the Secretary or an Assistant Secretary of Borrower, authorizing the borrowings provided for in this Agreement and the execution, delivery and performance of each of the Loan Documents, and (ii) a certificate, signed by the Secretary or an Assistant Secretary of the Borrower, as to the incumbency of, and containing the specimen signature or signatures of, the person or persons authorized to execute and deliver each of the Loan Documents on behalf of the Borrower. (d) A certificate, signed by the chief executive officer or the chief financial officer of Borrower and dated the date of such Advance or issuance, -16- stating that (i) since June 30, 1994, there has been no adverse change in Borrower's financial condition sufficient to impair Borrower's ability to pay the Advances and reimburse the amounts paid by NationsBank under the Letters of Credit or any other of its obligations hereunder, and (B) the representations and warranties contained in Section 5 of this Agreement are then true and accurate in all respects as though made on and as of the date of the certificate. (e) A written opinion of outside counsel for Borrower with respect to the matters set forth in Sections 5.01, 5.02, 5.03, 5.04 and 5.06 of this Agreement. (f) All reasonable attorneys' fees and all out-of-pocket expenses of NationsBank in connection with the preparation, negotiation and execution of this Agreement. (g) A copy of each of the loan or credit agreements existing on the date of such Advance or issuance under which the Borrower has incurred or may incur Domestic Debt from another bank or financial institution. (h) Such other evidence as NationsBank may reasonably request to establish the consummation of the transaction contemplated under the Loan Documents and compliance with the conditions of the Loan Documents. 4.02 CONDITIONS PRECEDENT TO EACH ADVANCE. The obligation of NationsBank to make each Advance and to issue each Letter of Credit (including the initial Advance and the first Letter of Credit) shall be subject to the further conditions precedent that, on the date of each Advance or the issuance of each Letter of Credit and after making such Advance or issuing such Letter of Credit: (a) NationsBank shall have received such approvals, opinions or documents of a legal or financial nature supplemental to the documents delivered by the Borrower to NationsBank pursuant to Section 4.01 as NationsBank may reasonably request. (b) The representations contained in Section 5 and in any other Loan Document are correct. (c) No event has occurred and is continuing which constitutes, or, with the lapse of time or giving of notice or both, would constitute an Event of Default. The Borrower's acceptance of the proceeds of any Advance or the issuance of any Letter of Credit shall be deemed to constitute the Borrower's representation and warranty that all of the above statements are true and correct. -17- SECTION 5 REPRESENTATIONS AND WARRANTIES The Borrower hereby makes the following representations and warranties to NationsBank, which representations and warranties shall continue in full force and effect until the full and final payment, and satisfaction and discharge, of all obligations of the Borrower to NationsBank under this Agreement. 5.01 STATUS. The Borrower is a corporation duly organized and validly existing under the laws of the State of Delaware and is properly licensed and is qualified to do business and in good standing in, and, where necessary to maintain the Borrower's rights and privileges, has complied in all material respects with the fictitious name statute of, every jurisdiction in which the Borrower is doing business. Each Subsidiary is duly organized and existing under the laws of the jurisdiction of its formation, and is properly licensed and in good standing in, and where necessary to maintain its rights and privileges has complied with the fictitious name statutes of, every jurisdiction in which it is doing business where failure to qualify would have a material adverse effect on the business operations or financial condition of the Borrower and all the Subsidiaries taken as a whole. 5.02 AUTHORITY. The execution, delivery and performance by the Borrower of this Agreement and each of the other Loan Documents have been duly authorized, and do not and will not (i) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award presently in effect having application to the Borrower; (ii) result in a breach of or constitute a default under any material indenture or loan or credit agreement or other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (iii) require any consent or approval of its stockholders or violate any provision of its articles of incorporation or by-laws. 5.03 LEGAL EFFECT. This Agreement and the other Loan Documents constitute, and any instrument, document or agreement required hereunder or thereunder when delivered hereunder or thereunder will constitute, legal, valid and binding obligations of the Borrower enforceable against the Borrower in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or limiting creditors' rights generally, and subject to the availability of equitable remedies. 5.04 APPROVALS; CONSENTS. No approval, consent, exemption or other action by, or notice to or filing with, any governmental authority is necessary in connection with the execution, delivery, performance or enforcement of this Agreement or any of the other Loan Documents, except as may have been obtained by Borrower and delivered (duly certified) to NationsBank. -18- 5.05 FINANCIAL STATEMENTS. All financial statements, financial information and other financial data which may have been or which may hereafter be submitted by the Borrower to NationsBank are and have been or will be prepared in accordance with GAAP consistently applied and fairly present in all material respects, as of the date of such statements, information or data, the financial condition of the Borrower and the Subsidiaries or, as applicable, the other information disclosed therein. The Borrower has no contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate and are required to be disclosed pursuant to this Agreement, except as disclosed in such statements, information and data or in any written notice to NationsBank. Since the most recent submission of such financial information or data to NationsBank, the Borrower represents and warrants that no material adverse change in the Borrower's financial condition or operation has occurred which has not been fully disclosed to NationsBank in writing. 5.06 LITIGATION. Except as have been disclosed to NationsBank in writing, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened against or affecting the Borrower or any Subsidiary or the Borrower's or any Subsidiary's properties before any court or administrative agency which could reasonably be expected, if determined adversely to the Borrower or any Subsidiary, to have a material adverse effect on the business operations or financial condition of the Borrower and all the Subsidiaries taken as a whole. 5.07 TITLE TO DOMESTIC ASSETS. The Borrower has good and marketable title to all of its Domestic assets. The Domestic assets are not subject to any security interest, encumbrance, lien or claim of any third person except for Permitted Domestic Liens. 5.08 ERISA. Borrower is in compliance in all material respects with all applicable provisions of ERISA, and no Reportable Event under Section 4043(b)(5), (6) or (9) or ERISA has occurred and/or is continuing with respect to any Plan of the Borrower, and any such Plan has been and will continue to be funded in accordance with its terms, and otherwise complies with and continues to comply with the requirements of ERISA, except as disclosed in writing to NationsBank prior to the date of the Agreement. 5.09 TAXES. The Borrower has filed all tax returns required to be filed and paid all taxes shown thereon to be due, including interest and penalties, other than such taxes which are currently payable without penalty or interest or those which are being duly contested in good faith. 5.10 REGULATION U. The proceeds of the Advances will not be used to purchase or carry margin stock. -19- SECTION 6 COVENANTS The Borrower covenants and agrees that, during the term of this Agreement and the other Loan Documents, and so long thereafter as the Borrower is obligated to NationsBank under this Agreement or the other Loan Documents, the Borrower will, unless NationsBank shall otherwise consent in writing: 6.01 PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS. Maintain and preserve its existence and all rights and privileges it now enjoys; not liquidate or dissolve, change the nature of its business, sell (whether in any one transaction or a series of transactions) all or substantially all of its assets, or enter into any merger, consolidation, reorganization or recapitalization; and conduct its business and operations in accordance with all applicable laws, rules and regulations (including, but not limited to, ERISA with respect to each of its Plans), orders of any Governmental Authority and all material agreements to which it is a party. 6.02 MAINTENANCE OF INSURANCE. Maintain insurance in such amounts and covering such risks as is usually and prudently carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower operates, including, but not limited to, fire, public liability, property damage and worker's compensation. 6.03 MAINTENANCE OF PROPERTIES. Maintain and preserve all its properties in good working order and condition in accordance with the general practice of other businesses of similar character and size, ordinary wear and tear excepted. 6.04 PAYMENT OF OBLIGATIONS AND TAXES. Make timely payment of all assessments and taxes and all of its liabilities and obligations unless the same are being contested in good faith by appropriate proceedings with the appropriate court or regulatory agency; provided, however, that Borrower may make payment of trade payables in accordance with its customary business practices. For purposes hereof, the Borrower's issuance of a check, draft or similar instrument without delivery to the intended payee shall not constitute payment. 6.05 INSPECTION RIGHTS. Borrower shall, and shall cause each Subsidiary to, maintain adequate books and accounts in accordance with GAAP consistently applied. At any reasonable time and from time to time, permit NationsBank or any representative of NationsBank to examine and make copies of the records and visit the properties of the Borrower and discuss the business and operations of the Borrower and its Subsidiaries with any designated representative of the Borrower, and shall furnish NationsBank with all information relating to the business or finances of the Borrower and the Subsidiaries promptly upon NationsBank's request. If the Borrower shall maintain any records (including, but not limited to, computer generated records or computer programs for the generation of such -20- records) in the possession of a third party, the Borrower thereby agrees to notify such third party to permit NationsBank free access to such records at all reasonable times, and to provide NationsBank with copies of any records which it may reasonably request, all at the Borrower's expense, the amount of which shall be payable within 30 days after demand. 6.06 REPORTING AND CERTIFICATION REQUIREMENTS. Deliver or cause to be delivered to NationsBank in form and detail satisfactory to NationsBank: (a) Not later than 120 days after the end of each of the Borrower's fiscal years, a copy of the annual audited financial report and Securities and Exchange Commission Form 10-K of the Borrower for such year, all certified by public accountants acceptable to NationsBank as having been prepared in accordance with GAAP consistently applied, together with the following: (i) consolidating income statements of the Borrower and the Subsidiaries for such fiscal year, and (ii) consolidating balance sheets of the Borrower and the Subsidiaries as of the end of such fiscal year. (b) Not later than 60 days after the close of each fiscal quarter in each of the Borrower's fiscal years (i) consolidating income statements of the Borrower and the Subsidiaries for such quarterly period, and (ii) consolidating balance sheets of the Borrower and the Subsidiaries as of the end of such quarterly period, all in reasonable detail and subject to year-end audit adjustments. (c) Contemporaneously with each quarterly and year-end financial report required by the foregoing subsections (a) and (b), a certificate of the president or chief financial officer of the Borrower stating that (i) the quarterly financial report required by subsection (b) above was prepared in accordance with GAAP consistently applied, (ii) he or she has individually reviewed the provisions of this Agreement and that a review of the activities of the Borrower and the Subsidiaries during such year or quarterly period, as the case may be, has been made by him or her or under his or her supervision, with a view to determining whether the Borrower has fulfilled all its obligations under this Agreement, and that the Borrower has observed and performed each undertaking contained in this Agreement, including, but not limited to, its quantitative financial covenants set forth in Section 6.18 of this Agreement, and is not in default in the observance or performance of any of the provisions hereof or, if Borrower shall be so in default, specifying all such defaults and events of which he or she may have knowledge. (d) Not later than 60 days after the end of each fiscal quarter, the Borrower's Securities and Exchange Commission Form 1O-Q. (e) Promptly after they are sent, made available or filed, copies of all reports, proxy statements and financial statements that the Borrower sends or makes available to its stockholders and all registration statements and reports that the Borrower files with the Securities and Exchange Commission. -21- (f) Prompt written notice of any and all (i) Events of Default or Potential Events of Default, (ii) litigation, arbitration or administrative proceedings to which the Borrower is a party and in which the claim or liability exceeds One Million Dollars ($1,000,000.00), and (iii) other matters, other than matters of a general economic nature (other than those matters relating primarily to the Borrower or the industries in which the Borrower conducts its business), which have resulted in, or could reasonably be expected to result in, a material adverse change in the financial condition or business operations of the Borrower, together with, in the case of an Event of Default or a Potential Event of Default, a statement of the chief financial officer of the Borrower setting forth details of such Event of Default or Potential Event of Default and the action which the Borrower proposes to take with respect thereto. (g) As soon as possible, and in any event within thirty (30) days after the Borrower knows or should know that any Reportable Event has occurred with respect to any Plan, a statement from the chief financial officer of the Borrower setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event given to the Pension Benefit Guaranty Corporation if a copy of such notice is available to the Borrower. (h) Promptly after the filing thereof with the United States Secretary of Labor or the Pension Benefit Guaranty Corporation, copies of each annual report with respect to each Plan. (i) Promptly after receipt thereof, a copy of any notice the Borrower or any member of the Controlled Group of Corporations (as defined in Section 1563(a) of the Internal Revenue Code of 1954, as amended, determined without regard to Sections 1563(a)(4) and 1563(e)(3)(c) of such Code) of which Borrower is a part may receive from the Pension Benefit Guaranty Corporation or the Internal Revenue Service with respect to any Plan; provided, however, that this Section 6.06(i) shall not apply to notices of general application promulgated by the Department of Labor. (j) When prepared, but not later than ninety (90) calendar days after the start of each of the Borrower's fiscal years, an internally prepared budget showing the total projected capital expenditures of the Borrower for such fiscal year broken down into the total projected Domestic capital expenditures and the total projected foreign capital expenditures of the Borrower for such fiscal year. (k) Promptly after they are signed by the Borrower, a copy of each credit or loan agreement and any other document or agreement evidencing any Domestic extension of credit to the Borrower by Wells Fargo Bank, N.A., Sanwa Bank California or any other bank or financial institution. -22- (l) Promptly upon NationsBank's request, such other information pertaining to the Borrower and any Subsidiary as NationsBank may reasonably request. 6.07 PAYMENT OF DIVIDENDS. Not declare or pay any dividends on any class of stock now or hereafter outstanding, except dividends payable solely in the Borrower's capital stock. 6.08 REDEMPTION OR REPURCHASE OF STOCK. Not redeem or repurchase any class of the Borrower's stock now or hereafter outstanding; provided, however, that the Borrower may redeem or repurchase any class of the Borrower's stock in an amount not to exceed $1,000,000.00 in any one of the Borrower's fiscal years. 6.09 ADDITIONAL DOMESTIC INDEBTEDNESS. Not, after the date hereof, create, incur or assume, directly or indirectly any additional Domestic Indebtedness other than (i) Indebtedness owed or to be owed to NationsBank, Wells Fargo Bank, N.A. or Sanwa Bank California, or (ii) Indebtedness to trade creditors incurred in the ordinary course of the Borrower's business, or (iii) Indebtedness in an aggregate amount not exceeding $75,000,000.00 in any one of the Borrower's fiscal years for new equipment financing, capital leases, and financing for the Temecula Facility, (iv) Indebtedness owed to other financial institutions under revolving lines of credit, and (v) Indebtedness of up to $75,000,000.00 incurred in connection with business acquisitions made by Borrower. 6.10 LOANS. Not make any loans or advances or extend credit to any third person including, but not limited to, directors, officers, shareholders, employees, affiliated entities and Subsidiaries of the Borrower, except for credit extended in the ordinary course of the Borrower's business as presently conducted; provided, however, that the Borrower may make loans or advances or extend credit to employees of the Borrower in an aggregate amount not to exceed $1,000,000.00 in any one fiscal year for all such employees; and provided further that the Borrower may make loans or advances or extend credit to Subsidiaries and affiliated entities of the Borrower in an aggregate amount to exceed $15,000,000.00 in any one fiscal year for all such affiliated entities and Subsidiaries. 6.11 LIENS AND ENCUMBRANCES. Not create, assume or permit to exist any security interest, encumbrance, mortgage, deed of trust or other lien (including, but not limited to, a lien of attachment, judgment or execution) affecting any of the Borrower's Domestic properties, or execute or allow to be filed any financing statement or continuation thereof affecting any of such properties, except (i) for Permitted Domestic Liens, (ii) for purchase money security interests or capital leases of up to $75,000,000.00 in any one of the Borrower's fiscal years for equipment, which amount shall be calculated including any mortgage financing for the Temecula Facility, or (iii) as otherwise provided in this Agreement. -23- 6.12 TRANSFER OF ASSETS. Not, after the date hereof, sell, contract for sale, convey, transfer, assign, lease or sublet, any of its assets except in the ordinary course of business as presently conducted by the Borrower, which ordinary course of business includes, but is not limited to, sale-leasebacks of equipment at then prevailing market rates for such assets. 6.13 CHANGE IN NATURE OF BUSINESS. Not make any material change in the fundamental nature of its business as existing or conducted as of the date hereof. 6.14 MISREPRESENTATIONS. Not furnish NationsBank any certificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. 6.15 REGULATION U. Not directly or indirectly apply any part of the proceeds of the Advances to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Federal Reserve Board or any regulations, interpretations or rulings thereunder. 6.16 SUBSIDIARY OWNERSHIP. Not, unless required with respect to directors' qualifying shares, directly or indirectly sell, assign, pledge or otherwise transfer (except to a Domestic Subsidiary) any Debt of, or claim against, a Domestic Subsidiary or any shares of stock or securities of a Domestic Subsidiary, and not permit a Domestic Subsidiary to sell, assign, pledge or otherwise transfer (except to the Borrower or another Domestic Subsidiary) any Debt of, or claim against, the Borrower or any other Domestic Subsidiary, or any shares of stock or securities of any other Domestic Subsidiary. 6.17 GUARANTEES. Borrower shall not become liable, directly or indirectly, as guarantor or otherwise, for any Indebtedness of any other person or entity, except for a Subsidiary. 6.18 FINANCIAL CONDITION. Maintain at all times: (a) A minimum consolidated Effective Tangible Net Worth of at least $175,000,000.00, plus 50% of annual net income, 100% of the proceeds of any equity issuance, 100% of the conversion of debt into equity, and 100% of any grant of rights to subscribe for shares of the Borrower, commencing with the fiscal year end June 30, 1994. (b) A ratio of consolidated Debt to consolidated Effective Tangible Net Worth of not more than .90 to 1. (c) A ratio of consolidated current assets to consolidated current liabilities (including, but not limited to, amounts outstanding under this Agreement -24- and all amounts outstanding under other revolving lines of credit, whether with another bank or a third party), of not less than 1.75 to 1. (d) A ratio of the sum of net income, plus depreciation expense, plus amortization expense, plus net interest expense, each for the immediately preceding four fiscal quarters to the sum of the current portion of long-term Debt then due for the fourth preceding fiscal quarter, plus net interest expense for the immediately preceding four fiscal quarters of not less than 1.5 to 1. 6.19 CONSOLIDATED OPERATING LOSS. Not incur for any two consecutive quarters a cumulative Consolidated Operating Loss in excess of $5,000,000.00. 6.20 ACQUISITIONS. Borrower may acquire any other businesses for an amount equal to or less than $100,000,000.00 in the aggregate. SECTION 7 EVENTS OF DEFAULT Any one or more of the following described events shall constitute an event of default (an "Event of Default") under this Agreement: 7.01 NON-PAYMENT. The Borrower shall fail to pay the principal of any Advance within one calendar day after it is due or the Borrower shall fail to pay interest on any Advance within five calendar days after it is due, or the Borrower shall fail to reimburse any drawing under a Letter of Credit or pay any other amount owing to NationsBank when due. 7.02 PERFORMANCE UNDER THIS AND OTHER AGREEMENTS. The occurrence and continuance of any Event of Default under the Letter of Credit Agreements or any of the other Loan Documents, or the failure of the Borrower in any material respect to perform or observe any term, covenant or agreement contained in this Agreement or in any other Loan Document or in any document, instrument or agreement evidencing or relating to any Indebtedness of the Borrower, other than immaterial Indebtedness described in clause (ii) of Section 1.01(r) (if such Indebtedness is owed to a third person and such failure would permit such third person to accelerate the Indebtedness), and any such failure (exclusive of the payment of money to NationsBank under this Agreement or under any Loan Document or under any other instrument, document or agreement with NationsBank, which failure shall constitute and be an immediate Event of Default if not paid when due or when demanded to be due, but after giving effect to any grace period therefor) shall continue for more than 30 days after written notice from NationsBank to the Borrower of the existence and character of such Event of Default. -25- 7.03 REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS. Any representation or warranty made by the Borrower under or in connection with this Agreement, the Letter of Credit Agreements or any of the other Loan Documents, or any financial statement given by the Borrower shall prove to have been incorrect in any material respect when made or given or when deemed to have been made or given. 7.04 INSOLVENCY. The Borrower shall (i) become insolvent or be unable to pay its debts as they mature; (ii) make an assignment for the benefit or creditors or to an agent authorized to liquidate any substantial amount of its properties and assets; (iii) file a voluntary petition in bankruptcy or seeking reorganization or to effect a plan or other arrangement with creditors or any other relief under the Bankruptcy Code or under any state or federal law granting relief to debtors, whether now or hereafter in effect; (iv) file an answer admitting the material allegations of an involuntary petition relating to bankruptcy or reorganization or join in any such petition; (v) become or be adjudicated a bankrupt or become subject to an order for relief entered by any court of competent jurisdiction under the Bankruptcy Code or under any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors; (vi) apply for or consent to the appointment of, or consent that an order be made, appointing any receiver, custodian or trustee, for itself or any of its properties, assets or businesses; or (vii) become subject to any involuntary petition or proceeding filed or commenced against the Borrower pursuant to the Bankruptcy Code or any other applicable state or federal law relating to bankruptcy, reorganization or other relief for debtors, and such petition or proceeding is not discharged within 60 days after it is filed or commenced; or (viii) any receiver, custodian or trustee is appointed to take possession, custody or control of all or substantial part of its properties, assets or businesses and such petition or appointment shall not be discharged within 60 days after the date of such appointment. 7.05 ATTACHMENT; JUDGMENT LIEN. Any writ of execution or attachment or any judgment lien which individually exceeds $2,000,000 or which, in the aggregate, exceeds $5,000,000.00 shall be issued against the Borrower or any property of the Borrower and shall not be discharged or bonded against or released within 60 days after the issuance or attachment of such writ or lien. 7.06 DISSOLUTION; LIQUIDATION. The Borrower shall dissolve or liquidate or voluntarily suspend the transaction of business or allow to be suspended, terminated, revoked or expired any permit, license or approval of any governmental body materially necessary to conduct the Borrower's business as now conducted. 7.07 CHANGE IN OWNERSHIP. There shall occur a sale, transfer, disposition or encumbrance (whether voluntary or involuntary to), or an agreement shall be entered into to do so with, any Person or group of Persons (as such terms are defined pursuant to Federal securities laws) with respect to more than 20% of the issued and outstanding capital stock of the Borrower and, as a result thereof, such -26- Person or group of Persons has the ability to direct or cause the direction of the management and policies of the Borrower. 7.08 ERISA. The termination of, or any full or partial withdrawal from, a Plan or Plans shall occur which could result in liability of the Borrower to the Pension Benefit Guaranty Corporation or to the Plan or Plans in the aggregate amount of $1,000,000 or more, or the actuarial present value of unfunded vested benefits under all Plans shall exceed one percent (1%) of Borrower's Effective Tangible Net Worth determined on a consolidated basis. SECTION 8 REMEDIES ON DEFAULT Upon the occurrence and during the continuation of any Event of Default, NationsBank may, at its sole absolute election, without demand and only upon such notice as may be required by law: 8.01 ACCELERATION. Declare any or all of the Borrower's Indebtedness owing to NationsBank, whether under this Agreement or under any other Loan Document or under any other document, instrument or agreement, immediately due and payable, whether or not otherwise due and payable. 8.02 CEASE EXTENDING CREDIT. Cease making Advances or otherwise extending credit to or for the account of the Borrower under this Agreement or under any other Loan Document or under any other agreement now existing or hereafter entered into between the Borrower and NationsBank. 8.03 TERMINATION. Terminate this Agreement as to any future obligation of NationsBank without affecting the Borrower's obligations to NationsBank or NationsBank's rights and remedies under this Agreement or under any other Loan Document or under any other document, instrument or agreement. 8.04 NON-EXCLUSIVITY OF REMEDIES. Exercise one or more of NationsBank's rights set forth in this Agreement or in any other Loan Document or seek such other rights or pursue such other remedies as may be provided by law, in equity or in any other agreement now existing or hereafter entered into between the Borrower and NationsBank, or otherwise. 8.05 LETTERS OF CREDIT. NationsBank may, at its sole and absolute discretion and in addition to any other remedies available to it under this Agreement and the Letter of Credit Agreements, require the Borrower to pay immediately to NationsBank the undrawn principal amount of each outstanding Letter of Credit for prompt application against drawings under any such Letters of Credit. Any such amount so paid to NationsBank which is not promptly applied to -27- satisfy drawings under any such Letters of Credit or to any other obligations of the Borrower to NationsBank shall be repaid to the Borrower without interest. SECTION 9 MISCELLANEOUS 9.01 RELIANCE BY NATIONSBANK. Each warranty, representation, covenant, obligation and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by NationsBank regardless of any investigation made or information possessed by NationsBank and shall be cumulative and in addition to any other warranties, representations, covenants and agreements implied under this Agreement and any other warranties, representations, covenants and agreements which the Borrower now or hereafter shall give, or cause to be given, to NationsBank in writing. 9.02 COSTS, EXPENSES AND ATTORNEYS' FEES. In the event any legal action is taken in relation to this Agreement or any other Loan Document, the prevailing party, in addition to all other sums to which it may be entitled, shall be entitled to its reasonable costs, expenses and attorneys' fees in connection with such action. The Borrower agrees to pay to NationsBank within ten (10) calendar days after demand, the full amount of all costs and expenses, including, but not limited to, reasonable attorneys' fees (including allocated costs for in-house legal services), incurred by NationsBank in connection with any refinancing or restructuring of the Revolving Credit Facility, or any other obligations of Borrower under this Agreement or any other Loan Document, in the nature of a "work-out" or otherwise. 9.03 NOTICES. All notices, payments, requests, information and demands which NationsBank or the Borrower may desire, or may be required to give or make to the other party hereto, shall be given or made to such party by hand delivery or through deposit in the United States mail, first class and postage prepaid, or by telecopier addressed as set forth below or to such other address or telecopy number as may be specified from time to time in writing by either party to the other. Any such notice, payment, request, information or demand sent by mail shall be deemed given or made two days after it is deposited in the U.S. mail. TO THE BORROWER: TO NATIONSBANK: INTERNATIONAL RECTIFIER NATIONSBANK OF TEXAS, N.A. CORPORATION 233 Kansas Street 901 Main Street, 14th Floor El Segundo, CA 90245 Dallas, TX 75202 Attn: Treasury Department Attn: Karen Puente Telecopier No. (310) 640-6575 Telecopier No. (214) 508-0944 -28- 9.04 WAIVERS. Neither any failure nor any delay by NationsBank in exercising any right, power or remedy under this Agreement or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or remedy hereunder or thereunder preclude other or further exercise thereof or the exercise of any other right, power or remedy; nor shall any waiver of any right, power or remedy or Event of Default under this Agreement or any other Loan Document constitute a waiver of any other right, power or remedy or Event of Default or constitute a waiver of any other default of the same, or any other, term or provision. Any waiver, permit, consent or approval of any kind by NationsBank of any breach of, or Event of Default under, this Agreement or any other Loan Document must be in writing and shall be effective only to the extent set forth in such writing. 9.05 CONFLICTING PROVISIONS. To the extent the provisions contained in this Agreement are inconsistent with those contained in any other Loan Document, the terms and provisions contained in this Agreement shall control. If they are not inconsistent, such provisions shall be considered cumulative. 9.06 IMMATERIALITY. Notwithstanding anything in this Agreement to the contrary, any breach of a representation and warranty contained in Sections 5.01, 5.02, 5.04, 5.05, 5.06, 5.07 or 5.09 of this Agreement or any inaccuracy in any such representation and warranty, and any violation of a covenant in Sections 6.01, 6.03, 6.04, 6.11 or 6.12 of this Agreement, shall not be deemed to be an Event of Default or a Potential Event of Default under this Agreement or to prohibit any extension of credit by NationsBank to the Borrower under this Agreement if such breach or inaccuracy or violation when combined with all other breaches, inaccuracies and violations of such sections existing at such time and all other Events of Default and Potential Events of Default existing at such time does not have, or cannot reasonably be expected to have, a material adverse effect on the Borrower's financial condition, business operations or assets. 9.07 BINDING EFFECT; ASSIGNMENT; PARTICIPATIONS. This Agreement shall be binding upon and inure to the benefit of the Borrower and NationsBank and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of NationsBank. NationsBank may sell, assign or grant participations in all or any portion of its rights and benefits under this Agreement and the other Loan Documents; provided, however, that, in the case of any such sale or assignment, (a) the amount of the Commitment being sold or assigned shall not be less than $5,000,000.00, (b) after giving effect thereto, NationsBank's Commitment shall not be less than $5,000,000.00, and (c) the purchaser or assignee shall be a single financial institution that is not in the semi-conductor industry. On or prior to the date any such assignment is to become effective, the Borrower at its own expense shall execute and deliver to NationsBank, in exchange for the surrendered Note of NationsBank, a new Note to the order of the assignee thereunder (with each new Note to be in an amount equal to the Commitment or the Advances assumed by -29- such assignee), and if NationsBank has retained any Commitment or any Advance outstanding under this Agreement, a new Note to the order of NationsBank (with the new Note to be in an amount equal to the Commitment or any Advance retained by NationsBank). Each such new Note shall be dated the date the assignment is to be effective by its terms and otherwise be in the form of the Note it replaces. In the event NationsBank grants a participation in all or part of its rights and benefits under this Agreement and the other Loan Documents, the Borrower agrees that NationsBank shall, notwithstanding any such transfer, be entitled to the full benefits accorded NationsBank under this Agreement and the other Loan Documents as if NationsBank had not made such transfer; and the Borrower hereby authorizes NationsBank and each such participant, in case of default by the Borrower under this Agreement, to proceed directly by right of setoff, banker's lien or otherwise against any assets of the Borrower which may at the time of such default be in the hands of NationsBank or such participant to the same extent, in the case of the participant, as if its participating interest were owing directly to it. The Borrower agrees that, in connection with any such sale, grant, assignment or participation, NationsBank may deliver to the prospective buyer or assignee or participant financial statements and other relevant information relating to the Borrower if such third party agrees in writing to abide by the confidentiality provisions of Section 9.08 of this Agreement. 9.08 CONFIDENTIALITY. NationsBank shall, and shall cause its Affiliates, officers, employees, directors, agents, legal counsel and other professional advisors to, hold all confidential information obtained pursuant to this Agreement and the other Loan Documents in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices; provided, however, that disclosure of such confidential information may be made (a) if such information is or becomes generally available to the public, or (b) if such information is or becomes available to NationsBank on a non-confidential basis from a person or entity, other than the Borrower, who is not prohibited from disclosing the information to any person or entity, or (c) if such disclosure is made (i) to the affiliates of NationsBank, (ii) to prospective transferees or purchasers of an interest in NationsBank's Advances or Commitment or a portion of the outstanding Letters of Credit; provided, however, that such prospective transferee or purchaser has agreed in writing to abide by the confidentiality provisions of this Section 9.08, (iii) as required by law, regulation, rule, order, subpoena, judicial order or similar order, and (iv) as may be required in connection with the examination, audit or similar investigation of NationsBank. NationsBank shall use its best efforts to notify the Borrower prior to any disclosure of any such confidential information unless prohibited by applicable law, rule, regulation or order. 9.09 JURISDICTION. This Agreement and the other Loan Documents shall be governed by and construed according to the laws of the State of Texas, and NationsBank and the Borrower hereby submit to the jurisdiction of the Federal and state courts in California. -30- 9.10 SEVERABILITY OF PROVISIONS. The illegality or unenforceability of any provision of this Agreement or any other Loan Document shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or such other Loan Document or the provisions of any other Loan Document. 9.11 WAIVER OF JURY TRIAL. THE BORROWER AND NATIONSBANK EACH HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. 9.12 HEADINGS. The headings set forth in this Agreement are solely for the purpose of identification and have no legal significance. 9.13 ENTIRE AGREEMENT. This Agreement and the other Loan Documents constitute the entire and complete understanding of the Borrower and NationsBank with respect to the transactions contemplated under this Agreement. All previous conversations, memoranda and writings between the Borrower and NationsBank pertaining to the transactions contemplated under this Agreement or the other Loan Documents which are not incorporated or referenced in this Agreement or in such other Loan Documents are superseded by this Agreement and the other Loan Documents. This Agreement may be amended only in a writing signed by NationsBank and the Borrower. NATIONSBANK OF TEXAS, N.A. INTERNATIONAL RECTIFIER CORPORATION By:/s/ William C. Collins By:/s/ Michael P. McGee ------------------------------------- ---------------------------- Name: William C. Collins Name: Michael P. McGee ----------------------------------- -------------------------- Title: Senior Vice President Title: Vice President & CFO ---------------------------------- ------------------------- -31- REVOLVING CREDIT FACILITY NOTE $10,000,000 Dallas, Texas June 15, 1995 FOR VALUE RECEIVED, the undersigned, INTERNATIONAL RECTIFIER CORPORATION ("Borrower"), promises to pay to the order of NATIONSBANK OF TEXAS, N.A. ("NationsBank") at NationsBank's office at 901 Main Street, Dallas, Texas 75202, or at such other place in the State of Texas as NationsBank may designate, in lawful money of the United States of America and in immediately available funds, the principal sum of Ten Million Dollars ($10,000,000), or so much thereof as may be advanced and be outstanding. Borrower further agrees to pay interest (whether before or after any breach of this Note) at said office, in like funds and currency, on the unpaid principal amount owing hereunder from time to time from the date hereof until such amount shall have become due and payable (whether at the stated maturity, by acceleration or otherwise) at either (a) a fluctuating rate per annum at all times equal to the Prime Rate in effect from time to time, or (b) a fixed rate per annum determined by NationsBank to be one percent (1.00%) above the LIBO Rate in effect on the first day of any LIBO Rate Interest Period for a LIBO Rate Advance. When interest is determined in relation to the Prime Rate, each change in the rate of interest hereunder shall become effective on the date each Prime Rate change is announced within NationsBank. Interest shall also be payable on any overdue payment of principal and (to the extent permitted by law) interest as set forth in the Credit Agreement (as defined below). With respect to each interest rate selection by Borrower, the date, principal amount, rate of interest, term of the applicable Interest Period for a LIBO Rate Advance, and any payments applicable thereto, shall be set forth by NationsBank on the reverse of this Note or on such schedules as NationsBank shall maintain for such purposes. Absent manifest error, such notations on this Note or on such schedules, and all endorsements by NationsBank thereon, shall be conclusive evidence of all such items. This Note is the Revolving Credit Facility Note defined in and made pursuant to that certain Revolving Credit Agreement dated as of June 15, 1995, between Borrower and NationsBank, as amended from time to time, (the "Credit Agreement"). All terms defined in the Credit Agreement shall have the same meanings when used in this Note, and the rate of interest applicable under this Note shall change from time to time in accordance with the terms of the Credit Agreement. The unpaid principal balance of this obligation at any time shall be the total of all amounts advanced under this Note by the holder of this Note less the amount of all principal payments made on this Note by or for Borrower, which balance may be endorsed on this Note from time to time by NationsBank. Notwithstanding anything in this Note to the contrary, the outstanding principal balance of this Note, together with the aggregate amount of all outstanding Letters of Credit (as defined in the Credit Agreement), shall not at any time exceed the maximum principal amount set forth above, or such lesser amount as is then available under this Note if the maximum principal amount of this Note is reduced pursuant to the provisions of the Credit Agreement. Interest accrued on this Note shall be due and payable as provided in the Credit Agreement. The outstanding principal balance of this Note, together with all accrued and unpaid interest thereon, shall also be due and payable on the Maturity Date (as defined in the Credit Agreement). Borrower may prepay principal on this Note solely in accordance with the terms of the Credit Agreement. Each payment of principal on this Note shall be credited to the portions of this Note which bear interest determined in relation to the Prime Rate and the LIBO Rate in accordance with the application of payment provisions of the Credit Agreement. Upon the occurrence of any Event of Default (as defined in the Credit Agreement) NationsBank, at NationsBank's option, may declare all sums of principal and interest outstanding under this Note to be immediately due and payable, without presentment, demand, protest or notice of dishonor, all of which are expressly waived by Borrower, and NationsBank shall have all rights, powers and remedies set forth in the Credit Agreement. Borrower agrees to pay, immediately upon demand, the full amount of all costs and expenses, including reasonable attorneys' fees (including, but not limited to, allocated costs for in-house legal services), incurred by NationsBank in connection with the enforcement of any rights of NationsBank and/or the collection of any amounts which become due to NationsBank under this Note, and the prosecution or defense of any action in any way related to this Note, including, but not limited to, any action for declaratory relief. This Note shall be governed by and be construed in accordance with the laws of the State of California. INTERNATIONAL RECTIFIER CORPORATION By: /s/ Michael P. McGee ---------------------------------------- Name: Michael P. McGee -------------------------------------- Title: Vice President & CFO ------------------------------------- 2 EX-10.R 6 EXHIBIT 10.R EXHIBIT 10(r) April 12, 1995 Mr. Eric Lidow 454 Cuesta Way Los Angeles, CA 90077 Dear Eric: In accordance with the decision of the Compensation and Stock Option Committee of the Board of Directors of International Rectifier Corporation on March 6, 1995, it is proposed to amend the Executive Employment Agreement between you and the Company, dated May 15, 1991, as follows. Paragraph 3(a)(iii) will be rewritten to read, in its entirety, as follows: Upon the Corporation's termination of Executive's employment for any reason whatsoever other than cause, and upon Executive's resignation following a change of control of the Corporation (as cause and change of control are defined in subparagraph (b) below), the Corporation shall pay Executive a founder's retirement pension for the remainder of his life equal to ninety percent (90%) of his then annual salary at the time of such termination, plus the average of the three prior years' cash bonuses, if any, such pension to be adjusted annually by an amount equal to any percentage increase in the Consumer Price Index of the Department of Labor for Urban Wage Earners and Clerical Workers (Los Angeles-Long Beach-Anaheim area), over the prior year's index, or by any equivalent successor index. Following Executive's death (either during or after his period of employment), the Company shall pay survivorship benefits to his wife, if she be then living, for the remainder of her life equal to sixty six and two-thirds percent (66 2/3%) of the pension payable to Executive, payable in the manner prescribed in subparagraph 3(a)(i) above. Except as hereinabove stated, the subject agreement shall remain in full force and effect. If the foregoing is acceptable to you, please so indicate by signing and returning one copy of this letter to me. The Company, its Board of Directors and its Officers are very pleased to provide for your continued services as Chairman of the Board. Sincerely, /s/ MICHAEL P. MCGEE ------------------------ Michael P. McGee Chief Financial Officer Accepted and Agreed to: /s/ ERIC LIDOW ----------------------- Date: April 12, 1995 Eric Lidow EX-21 7 EXHIBIT 21 EXHIBIT 21 LIST OF SUBSIDIARIES As of June 30, 1995 INTERNATIONAL RECTIFIER COMPANY (GREAT BRITAIN) LIMITED Hurst Green Oxted, Surrey RH8 9BB, England INTERNATIONAL RECTIFIER CORPORATION ITALIANA S.P.A. Via Liguria 49, 10071 Borgaro, Turin, Italy INTERNATIONAL RECTIFIER GMBH Saalburgstrasse 157, D-61350 Bad Homburg, Germany INTERNATIONAL RECTIFIER CANADA LIMITED 7321 Victoria Park Avenue, Suite 201 Markham, Ontario, Canada L3R 3Ll RECTIFICADORES INTERNACIONALES, S.A. Durazno No. 30, Centro Industrial, La Mesa, Tijuana, Baja California, Mexico INTERNATIONAL RECTIFIER FAR EAST COMPANY, LTD K&H Building 3, 30-4 Nishi Ikebukuro Toshima-ku, Tokyo, Japan 171 INTERNATIONAL RECTIFIER SOUTHEAST ASIA PRIVATE, LTD 315 Outram Road #10-02 Tan Boon Liat Building Singapore 0316 IR INTERNATIONAL HOLDINGS, INC. 233 Kansas Street El Segundo, California 90245 SEMICONDUCTOR ELECTRONICS LTD. SPF Unit 23, SEEPZ Post Office Anderi East Bombay 400 096 India EX-23 8 EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of International Rectifier Corporation on Form S-8 (File No. 33-40208, File No. 33-63958 and File No. 33-53589) of our report dated July 27, 1995 on our audits of the consolidated financial statements and financial statement schedule of International Rectifier Corporation as of June 30, 1995 and 1994, and for the fiscal years ended June 30, 1995, 1994 and 1993, which report is included in this Annual Report on Form 10-K. /s/ COOPERS & LYBRAND L.L.P. ----------------------- Coopers & Lybrand L.L.P. Los Angeles, California August 24, 1995 EX-27 9 EXHIBIT 27
5 1,000 12-MOS JUN-30-1995 JUL-01-1994 JUN-30-1995 50,820 3,000 94,996 901 73,155 233,812 375,698 130,480 496,184 106,061 0 25,180 0 0 320,001 496,184 429,026 429,026 278,202 278,202 102,436 703 377 47,467 8,069 39,398 0 0 0 39,398 1.68 1.68