-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WtVvKOfKbiRPjCU84vyQEms5BdVtDLqRhd+Uh7n3fmXOgCanwPSdpYi8EfatmxNc SXjMPsPwNDrcEwTwXM5FwQ== /in/edgar/work/20000601/0000891618-00-003130/0000891618-00-003130.txt : 20000919 0000891618-00-003130.hdr.sgml : 20000919 ACCESSION NUMBER: 0000891618-00-003130 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000601 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLANTRONICS INC /CA/ CENTRAL INDEX KEY: 0000914025 STANDARD INDUSTRIAL CLASSIFICATION: [3661 ] IRS NUMBER: 770207692 STATE OF INCORPORATION: DE FISCAL YEAR END: 0327 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12696 FILM NUMBER: 647990 BUSINESS ADDRESS: STREET 1: 345 ENCINAL STREET STREET 2: PO BOX 1802 CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 BUSINESS PHONE: 8314265858 MAIL ADDRESS: STREET 1: 345 ENCINAL STREET STREET 2: PO BOX 1802 CITY: SANTA CRUZ STATE: CA ZIP: 95061-1802 FORMER COMPANY: FORMER CONFORMED NAME: PI PARENT CORP DATE OF NAME CHANGE: 19931025 10-K405 1 0001.txt FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K ------------------------ (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED APRIL 1, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________ COMMISSION FILE NUMBER 1-12696 PLANTRONICS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 77-0207692 (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NO.) 345 ENCINAL STREET, P.O. BOX 1802 95061-1802 SANTA CRUZ, CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (831) 426-5858 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON STOCK, $.01 PAR VALUE NEW YORK STOCK EXCHANGE
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of $90.3125 for shares of the Registrant's Common Stock on May 19, 2000 as reported by the New York Stock Exchange, was approximately $722,764,525. In calculating such aggregate market value, shares of Common Stock owned of record or beneficially by officers, directors, and persons known to the Registrant to own more than five percent of the Registrant's voting securities (other than such persons of whom the Registrant became aware only through the filing of a Schedule 13G filed with the Securities and Exchange Commission) were excluded because such persons may be deemed to be affiliates. The Registrant disclaims the existence of control or any admission thereof for any other purpose. Number of shares of Common Stock outstanding as of May 19, 2000: 16,365,757. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference in Parts I, II, III and IV of this Annual Report on Form 10-K: (1) portions of Registrant's annual report to security holders for the fiscal year ended April 1, 2000 (Parts I, II and IV) and (2) portions of Registrant's proxy statement for its annual meeting of stockholders to be held on June 29, 2000 (Part III). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PLANTRONICS, INC. 2000 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS
PAGE ---- PART I Item 1. Business.................................................... 3 Item 2. Properties.................................................. 16 Item 3. Legal Proceedings........................................... 17 Item 4. Submission of Matters to a Vote of Security-Holders......... 17 PART II Item 5. Market for Registrant's Common Stock and Related Stockholder Matters..................................................... 17 Item 6. Selected Financial Data..................................... 17 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 17 Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................................................ 25 Item 8. Financial Statements and Supplementary Data................. 25 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................................... 26 PART III Item 10. Directors and Executive Officers of the Registrant.......... 26 Item 11. Executive Compensation...................................... 26 Item 12. Security Ownership of Certain Beneficial Owners and Management.................................................. 26 Item 13. Certain Relationships and Related Transactions.............. 26 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 27
------------------------ Plantronics, the logo design, Plantronics and the logo design together, Clarity, Encore, FreeHand, Mirage, PLX, SoundGuard, StarBase, StarSet, Supra and TriStar are registered United States trademarks of Plantronics, Inc. DuoSet, Headset Switcher, Practica, QuickAdjust, SoundGuard Plus, the clear color and the curvature of the Plantronics voice tube, Vista and Walker are trademarks of Plantronics, Inc. Certain of the foregoing trademarks are registered trademarks in certain foreign countries. This report also includes trademarks of companies other than Plantronics. 2 3 PART I This Annual Report on Form 10-K is filed with respect to our fiscal year 2000. Each of our fiscal years ends on the Saturday closest to the last day of March. Our fiscal 2000 ended on April 1, 2000. For purposes of consistent presentation, we have indicated in this report that each fiscal year ended "March 31" of the given year, even though the actual fiscal year end may have been on a different date. CERTAIN FORWARD-LOOKING INFORMATION This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In addition, we may from time to time make oral forward-looking statements. These statements may generally be identified by the use of such words as "expect," "anticipate," "believe," "intend," "plan," "will," or "shall," and include, but are not necessarily limited to, all of the statements marked below with an asterisk ("*"). Such forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. For a discussion of such factors, this Annual Report on Form 10-K should be read in conjunction with certain portions of our Annual Report to security holders for fiscal 2000, consisting of the condensed consolidated financial statements and related notes and the section titled Management's Discussion and Analysis of Financial Condition and Results of Operation and reference should be made to the portion of this Report captioned "Risk Factors Affecting Future Operating Results," commencing on page 18 of this of this Annual Report on Form 10-K. ITEM 1. BUSINESS GENERAL Plantronics, Inc. ("we," "our," "us" or the "Registrant") is a leading designer, manufacturer and marketer of lightweight communications headsets and headset accessories and services. In addition, we manufacture and market specialty telephone products, such as amplified telephone handsets and specialty telephones for hearing-impaired users, and noise-canceling handsets for use in high-noise environments. Our business is not seasonal. Our headsets, which can be worn over the head, in the ear or on the ear, are recognized in the industry for their safety, quality and reliability. Our headset products are used worldwide by call center users, such as telemarketing personnel, reservation agents, telephone operators and air traffic controllers, whose occupations involve the constant use of a telephone or communications console. In North America and Europe, the number of call center users has grown significantly over the last 10 years. The use of headsets by call center users has become an industry standard. While we believe that the number of call center users in these geographic markets will continue to grow, we expect that the primary source of future sales in this market will result from repeat sales to existing customers, including the replacement of products presently in use with new and improved products.* Our broad range of communications products are sold and supported through a worldwide network of authorized Plantronics resellers. We have well-developed distribution channels to serve the call center market in North America and Europe, where growth of telemarketing activities and deregulation of the telephone companies have led to more widespread use of telephone headsets. Our headsets are also becoming more widely used in call centers in the Middle East, Africa, Australia, the Far East and Latin America, where we also have established distribution channels. The potential for growth in foreign markets is the result of such developments as the rapid expansion of the telecommunications infrastructure and increasing worldwide use of telemarketing techniques. We also sell headsets to business and home office users, which we have identified as an area of long-term growth potential. Users in these markets consist of business executives, agents, brokers, lawyers, accountants, home office business people and other professionals whose occupations may require intensive (but not constant) use of a telephone. The business and home office market can be divided into users who attach their 3 4 headsets to telephones, cellular telephones or to computers. The use of headsets for mobile communications and as computer peripherals is a significant growth area for headset sales.* Headsets in these markets are proving to be a key communications tool, providing freedom to move around, freedom from dial pads and freedom from keyboards. Applications in this market include mobile communications, voice recognition, personal computer conferencing, computer telephony integration ("CTI"), and multimedia applications. Our headsets are purchased by a broad and diverse group of business customers worldwide, including telephone operating companies worldwide, operators of private telephone networks, and governmental agencies. Our headset products are also purchased directly by end-users for use in the office, homeoffice and home. We distribute our products through large electronics wholesalers, specialized headset distributors, directly to original equipment manufacturers ("OEMs"), and through retail channels, such as office supply and consumer electronics stores, mail order catalogs, warehouse clubs and office supply distributors. We also sell directly to certain large enduser organizations, such as telephone operating companies and certain government agencies. INDUSTRY BACKGROUND Headsets are used in call centers, offices, cars and homes. Telephone headsets are used with various terminal devices such as traditional telephones, call center automatic call distribution systems, mobile (i.e. cellular) telephones and cordless telephones. Headsets are also used with computers and with other devices that take voice input. Headsets enhance the communications experience through: - hands-free benefits, allowing people to have both hands free to use a computer, take notes, and organize files; - improved mobility, allowing people to drive more safely while talking on a cellular phone or handling other tasks while using a cordless phone; - better sound quality for telephone users by reducing background noise; - ergonomic relief from the repetitive stress and discomfort associated with placing a telephone handset between the shoulder and neck; - enabling emerging PC applications, including speech recognition, Internet telephony and computer games with premium audio quality; and - providing greater privacy than speakerphones. MARKETS Call Center. The largest group of headset users are call center agents who are on the telephone throughout their work day. The number of call center agents has grown as companies have sought to focus on customer service to provide a competitive advantage, reduce costs through the use of real-time centralized information exchange and customer interaction, and make greater use of cost-effective direct distribution models. These benefits are becoming more widely recognized and are leading to the establishment of call centers by smaller organizations and firms outside of the U.S.* Agent productivity in call centers is important in minimizing costs and reducing customer wait time, and, therefore, the ability to effectively and simultaneously use a telephone and keyboard is critical. As the call center market has grown, the benefits of headsets have become widely recognized as an essential component of a productive and safe workplace. Office. The office market, both corporate and small office/home office ("SOHO"), has become an increasingly important market for headsets over the last five years. The increasing and simultaneous use of telephones and computers by office workers and a growing awareness of the benefits of headsets have contributed to the growth of this market. Professionals who spend significant time on the telephone have been early adopters of headset products. These professionals include securities brokers, insurance agents, sales 4 5 executives, credit controllers, and purchasing agents. We believe that the penetration of headsets in the office is low, providing a long-term opportunity to increase headset sales to office workers.* Mobile. Mobile use of headsets is undergoing rapid growth worldwide. The use of cellular telephones is escalating -- consumers throughout the world are turning to mobile telephones not only as a communications tool while away from the home or office but, increasingly, as a complete replacement for the traditional corded telephone. Headset usage with mobile phones is expanding as people embrace the hands-free comfort, convenience, safety and improved sound quality of headsets. In the residential market, consumers are turning to headsets in order to accomplish multiple tasks with the phone or FRS (Family Radio Systems) unit in their pocket or clipped to their belt rather than occupying their hands. We believe that headset adoption is still very low in the mobile market, presenting both an immediate and a long-term growth opportunity.* Computer. Continued growth in the PC headset market is being driven by emerging applications such as: - speech recognition programs which allow hands-free and faster operation and input to the computer; - internet telephony which permits long-distance communications at a lower cost; - voice activated computer games which enhance the experience through voice command and the ability to chat with fellow players; and - music applications which allow the computer to perform as a high-fidelity stereo system. Headsets enhance all of these computer applications with better sound fidelity than the alternative microphones and greater privacy than loudspeakers. We believe that the continued growth in computer audio applications will continue to increase headset demand.* INDUSTRY SEGMENTS AND FOREIGN OPERATIONS We operate in one industry segment. Financial information about foreign and domestic operations and export sales, included in Note 2 to our Consolidated Financial Statements, appearing at page 25 of our 2000 Annual Report to Stockholders, is incorporated herein by this reference. In each of fiscal years 1999 and 1998, approximately 30.5% of our net sales were derived from sales to foreign customers. In fiscal year 2000, that percentage rose to approximately 33.5% of our total net sales. Sales to foreign customers are generally subject to such risks as fluctuations in exchange rates, increased tariffs and the imposition of other trade barriers. We do not currently engage in any hedging activities to mitigate exchange rate risks and to date have not been adversely affected by fluctuating currencies. To the extent that we are successful in increasing our sales to foreign customers, or to the extent that we increase our transactions in foreign currencies, our results of operations could be adversely affected by exchange rate fluctuations. PRODUCTS AND TECHNOLOGY In fiscal year 2000, Plantronics introduced more new products than at any time in our history, with new offerings for the call center, office, mobile and computer markets. Our product line consists of lightweight communications headsets, headset accessories and services, and specialty telephone products. Our headsets incorporate unique features that we believe offer compelling performance advantages: Comfort. We believe our focus on ergonomics has been critical to our success. We maintain what we believe is the industry's most extensive database for the design of headsets. Our database includes measurements from over 800 physical molds taken of different ear types. The measurements are digitized and stored in a CAD/CAM database along with critical head contour measurements. In addition, we study weight drag to determine optimum weight distribution on the ear. Sound Quality. In designing our products, we have conducted headset sound quality (e.g. preference and intelligibility) research on substantially all telephone systems in both listening and speaking modes. We believe we have achieved the industry's best signal-to-noise ratios, the most powerful noise-canceling performance (to block out background sounds in unusually loud environments) and the only design that does 5 6 not require the microphone boom to be positioned precisely for proper functioning -- the Plantronics Voice Tube. The trademarked clear, curved design of the Plantronics Voice Tube is ideal for most office and call center environments, with the additional benefits of an attractive appearance, easy hygienic replacement, and lighter weight. Durability. We have nearly forty years of experience understanding headset durability and have successfully incorporated this knowledge into our product designs which we believe generally last longer than the best comparable competitive products. In addition to a complete line of industry-leading headsets, headset systems and amplifiers, we also provide headset accessories which include replacement voice tubes, ear cushions, eartips, in-use indicators, and background noise suppressors. These products allow end users to revitalize their headset to maintain maximum performance and comfort. We also provide exceptional customer service and support. We believe our customer support and service program provides our end users and customers with easier access to Plantronics and is an important competitive advantage. Headsets. Headsets for use with corded telephones generally consist of two distinct units. The "top," which is the portion that the user wears and which is comprised of the receiver capsule and voice tube, and the "base," or amplifier adapter which interfaces with the telephone or other equipment. Both units are currently required in most standard telephone applications. In some circumstances, however, the interface is built into the corded telephone with which the headset is being used, allowing use of the "top" alone. Many mobile and cordless telephones (both cellular and portable units) come with a dedicated headset port, permitting the headset to be plugged directly into the telephone handset. On those mobile telephones that do not have a headset port, we often sell an adapter that plugs into the telephone and permits attachment of the headset. Computers and other electronic equipment generally do not require a separate adapter and our headsets are designed to plug directly to the equipment. As the adoption of headsets increases, we expect that more corded telephones, mobile telephones and other equipment will be equipped with headset interfaces. There are four basic headset "top" styles: - Over-the-head headsets with ear cushions. The Supra(R) headset, still our most popular model, is an over-the-head model available with sound reception in one or both ears, and the unit's dual ear cushions help block out background noise. The Encore(R) headset features all of the qualities of the Supra headset, plus user-controllable tone adjustment. The DuoSet(TM) headset has a comfortable and adjustable headband and the flexibility to convert quickly to the behind-the-ear style discussed below. Most of our present models of headsets for use with computers, the SR1, LS1 and HS1 models, are over-the-head style. Several of our headsets for use with mobile telephones, the M110, M114, M170 and M175 models, are also over-the-head headsets (with the M170 and M175 models readily converting to the behind-the-ear style). - Behind-the-ear headsets with a receiver that rests on the ear. The Mirage(R) telephone headset uses a miniaturized behind-the-ear capsule. Attached to it is a small disc-shaped receiver that rotates to fit against either ear. The receiver rests gently on the ear, not in it. The M120, M124, M130 and M135 mobile headsets are also designed with the receiver resting on the ear with a comfortable ear-hook that holds the headset in place. As noted above, the mobile headset models M170 and M175 and the DuoSet telephone headset convert from over-the-head to the behind-the-ear style. - Behind-the-ear headsets with an ear tip. The TriStar(R) headset, the industry's lightest commercial telephone headset, features maximum user adjustments for excellent stability, comfort and sound quality. Sound is delivered to the ear by an acoustic ear tip that attaches to the comfortable stabilizer of the headset. The StarSet(R) headset is the distinctive Plantronics headset that uses a small capsule that fits behind and in the outer portion of the ear. The headset is extremely lightweight, requiring no headband, and the ear tip's acoustic coupling provides exceptional sound quality. - Headsets that rest in the outer portion of the ear. The FreeHand(R) headset offers a functional and lightweight design that allows it to be easily and quickly placed on or removed from its position in the outer portion of the ear with one hand. Its adjustable microphone boom may be rotated for optimum 6 7 transmit performance. Our M140 and M145 models are versions of the FreeHand headset designed for use with mobile telephones. The CAT132 is a version of the FreeHand headset optimized for use with computer applications. We manufacture a broad line of headset top styles, which can be worn over the head, in the ear or on the ear. Most of our headsets offer either the proprietary Plantronics Voice Tube (our most popular solution, suitable for the majority of environments) or a noise-canceling microphone (appropriate for users in very loud environments). All telephone-based headset tops, in conjunction with their associated bases, are designed for use with substantially all of the different telephone systems currently available. Basic models include features such as user volume control, a mute switch and quick-disconnect, which allows users to leave the phone without removing their headsets or disconnecting their call. We sell a full range of amplifiers or "bases" designed to work with substantially all telephone systems. We also sell telephone headset systems that plug directly to the phone line and adapters to allow headsets to connect to mobile telephones. 7 8 Our principal headset tops, headset amplifiers and telephones are as follows:
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- - --------------------------------------------------------------------------------------------------- OFFICE AND CALL CENTER - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Headsets - --------------------------------------------------------------------------------------------------- SUPRA HEADSET Our most popular headset, ideal for Engineered for sound quality and phone-intensive jobs and call center durability. Sound reception in one or environments. both ears. ENCORE HEADSET Also used in call centers; designed User-controllable tone adjustment and for near-universal fit and all-day powerful noise canceling performance. comfort. MIRAGE HEADSET Uses a miniaturized behind-the-ear Rests gently on the ear, not in the capsule with an adjustable receiver. ear. STARSET HEADSET Has an acoustic eartip that fits Ultra-lightweight, with an acoustic gently in the outer portion of the seal to block out unwanted background ear. noise. TRISTAR HEADSET Stylish design for phone intensive Feather-weight ( 1/2 ounce), with jobs and call center environments. maximum user adjustments designed for stability, comfort and sound quality. FREEHAND HEADSET Designed for business professionals, Small and unobtrusive, easy to put on this headset features a small earbud and take off. which rests comfortably in the ear. DUOSET HEADSET Appropriate for business Easily convertible from over-the-head professionals who want a headband for to over-the-ear for greater longer calls as well as an versatility. over-the-ear headset for intermittent phone use. - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- Telephone Headset Amplifiers - --------------------------------------------------------------------------------------------------- VISTA AMPLIFIER Universal modular Unique SoundGuard(R)Plus(TM) and Call amplifier -- compatible with single Clarity(TM) technology provide or multi-line telephones. improved sound quality while delivering automatic audio comfort by reducing the sound received to comfortable levels. E-10 AMPLIFIER In-Line amplifier -- designed for use So small and lightweight that it is directly on the telephone line. worn on the body instead of taking up valuable desktop space, yet offers full desktop adapter functionality. A20 AMPLIFIER Telephone headset amplifier and Includes an under-the-telephone accessory deck. Professional headset accessory deck, with top of the line amplifier system with easy amplifier, cord management, an configuration and universal on-line indicator and headset stand. compatibility is ideal for business professionals and executives. PLUG PRONG AMPLIFIER Perfect for the call center Designed for automatic call environment and, in specialized distribution systems. situations, for air traffic control and other environments. CA-10 AMPLIFIER Wireless amplifier -- 900 MHz Built to permit call center and cordless amplifier that connects to office users up to 150 feet of single-line or multi-line corded mobility. telephones. CS-10 AMPLIFIER Cordless headset system -- identical Provides a turn-key easy-to-install to the CA-10 model and comes bundled cordless headset for use in the with a comfortable and convenient office environment. convertible headset. - ---------------------------------------------------------------------------------------------------
8 9
PRODUCT DESCRIPTION FEATURES ------- ----------- -------- - ----------------------------------------------------------------------------------------------- COMPUTER - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Headsets - ----------------------------------------------------------------------------------------------- SR1 HEADSET Speech recognition headset for use Monaural headset with noise with speech recognition canceling microphone in a applications and general use with lightweight over-the- head form. the computer. LS1 HEADSET Multimedia stereo headset for use Lightweight stereo headset with with speech recognition noise canceling microphone and an applications and multimedia inline control module for speaker applications. volume and microphone mute. HS1 HEADSET Headset for use with all multimedia High fidelity speakers with dynamic applications and computer games, as bass response and a noise canceling well as voice recognition and voice microphone that swings out of the command applications. way when not needed. Complete with an inline control module for speaker volume and microphone mute. CAT132 HEADSET Convenient, portable PC headset Miniature wide-band receiver, ideal for use with laptop noise- canceling microphone with computers. adjustable boom for optimal fit in a compact and extremely lightweight (less than 1/3 of an ounce) form factor. - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Multimedia Amplifier - ----------------------------------------------------------------------------------------------- HEADSET SWITCHER A multimedia amplifier -- allows High performance telephone headset AMPLIFIER for use of a single headset with a amplifier with the additional telephone or computer by simply capability to connect to most flipping a switch. computer soundcards and other audio devices. - -----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------- MOBILE - ----------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------- Headsets - ----------------------------------------------------------------------------------------------- M110/M114 HEADSET A low priced headset for use with Comfortable adjustable headband and mobile telephones. noise-canceling microphone. The M114 model comes with a convenient in-line volume control. M120/M124 HEADSET Sleek over-the-ear headset for use Quick and easy to put on with one with cellular and mobile hand, leaving both hands free to telephones. drive or perform other tasks. Both models come with a noise-canceling microphone; the M124 model has a convenient in-line volume control. M130/M135 HEADSET A stylish behind-the-ear telephone Lightweight, comfortable design. headset with a comfortable Both models come with a adjustable stabilizer. noise-canceling microphone; the M135 model has a convenient in-line volume control. M140/M145 HEADSET This headset features a small Lightweight, comfortable design. earbud that rests comfortably in Both models come with a the ear with an optional stabilizer noise-canceling microphone; the to hold the headset securely in M145 model has a convenient in-line place. volume control. M170/M175 HEADSET Headset converts from over the head The ultimate in comfort and choice. to over the ear style to give the Both models come with a noise- maximum freedom of choice to the canceling microphone; the M175 mobile user. model has a convenient in-line volume control. - -----------------------------------------------------------------------------------------------
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PRODUCT DESCRIPTION FEATURES ------- ----------- -------- - ----------------------------------------------------------------------------------------------- Adapters - ----------------------------------------------------------------------------------------------- MOBILE PHONE Designed for use with mobile Available for most of the commonly ADAPTERS telephones lacking built-in headset used mobile telephones not equipped ports. with a headset port. - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------- RESIDENTIAL AND SMALL OFFICE - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Cordless Headset Telephone - -------------------------------------------------------------------------------------------------- CT-901 CORDLESS HEADSET 900 MHz cordless headset telephone. Provides extended cordless mobility TELEPHONE with hands-free convenience. CT-10 CORDLESS HEADSET This is the all-new replacement Designed for home and small office TELEPHONE model for the CT-901 cordless applications, the CT-10 Telephone headset telephone. The CT-10 model offers the ideal combination of is a 900 MHz cordless headset size, mobility and convenience. telephone in a stylish compact form so small it fits in a pocket. - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Headset Telephone Amplifier - -------------------------------------------------------------------------------------------------- SP AND PLX SERIES Designed specially for the SOHO Offers comfort and ease of use. AMPLIFIER user; sold with an adapter or telephone. PRACTICA SERIES Designed for low to medium Offers good sound quality and AMPLIFIER intensive phone users who require a durability at an attractive retail less expensive headset; sold with price. an adapter or telephone. - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Headset Telephone - -------------------------------------------------------------------------------------------------- S10 TELEPHONE HEADSET Full featured amplifier works with Headset stand and full tone SYSTEM virtually any phone and includes control, mute switch and transmit the convertible headset. and receive volume control. T10 HEADSET TELEPHONE Complete single-line telephone with Automatic noise-canceling headset with convertible headset. technology, adjustable volume and tone control, redial flash and mute buttons as well as built-in online indicator and headset stand. T20 HEADSET TELEPHONE Complete dual-line telephone with All the features of the T10 headset. telephone plus a hold button with three-way conference calling. - --------------------------------------------------------------------------------------------------
Headset Accessories and Services. Headset spares and accessories include replacement voice tubes, training cords, ear cushions, eartips, in-use indicators, theft protection devices and background noise suppressors. These products allow end users to revitalize their headset tops to maintain maximum performance and comfort. 10 11 We have developed and sell the HL-1 Handset Lifter, an accessory product for use with our CA-10 and CS-10 wireless amplifier systems. The HL-1 Lifter rings the remote unit of the wireless amplifier and, at the touch of a button on the remote, lifts the telephone handset, allowing remote call answering. We support our product offering with a technical assistance center to assist our customers with technical questions. Our service center operations provide a quick response to warranty support and out-of-warranty service needs. Specialty Products. Our specialty products operation provides headsets and other equipment for special applications that are not served by our standard headset product lines. Our Walker Equipment Division sells special amplified and noise-canceling handsets for high-noise environments, and a full line of replacement and original equipment handsets for entry and elevator phones and for use in telephone booths and information kiosks. Through our Walker Equipment Division we also manufacture and sell specialty telephone products including amplified telephone handsets and telephone amplifier accessories for the hearing-impaired and line test equipment. Our Walker Equipment Division also sells the Clarity telephone, a full-featured, single line telephone designed for hearing-impaired users. It features volume control circuitry, oversized buttons, a ringer volume control and a light that flashes when the telephone rings. The Walker Equipment Division launched the Cordless Clarity telephone in fiscal 2000, a 900 MHz version of our popular Clarity telephone -- giving greater mobility with clarity of hearing to those with hearing impairment. In Europe we developed the StarBase headset telephone, which is a full-featured single-line telephone to which nearly all of our headsets may be attached. This product enables many more businesses to use headsets for non-operator functions. CUSTOMERS, SALES AND MARKETING Our customers are primarily distributors, original equipment manufacturer or OEM partners and telephony service providers who primarily sell our products in the call center and office markets. Additionally, we sell into retail channels primarily for the office market. We sell products to over 500 customers in more than 70 countries. Commercial Distributors. Our largest channel of distribution is through commercial distributors which is composed of specialized headset distributors and electronics wholesalers. Specialized headset distributors are the larger group of the two in terms of the sales of our products. Specialized headset distributors generally sell on a national basis, and the bulk of their revenues are from headset sales. Electronics wholesalers typically offer a wide variety of products from multiple vendors to both resellers and end users. In fiscal 2000, we were successful in substantially reducing our order lead times. This reduction, while beneficial to us and our customers, led many of our commercial distributors to reduce their inventories -- resulting in an adverse impact on our revenues in fiscal 2000. OEMs. OEMs do not typically manufacture their own headsets and therefore they often distribute Plantronics headsets. Currently most of the OEM bundling is done on a Plantronics-labeled basis, with some bundling done on a private labeled or co-branded basis. OEMs include suppliers of automatic call distribution systems, manufacturers of mobile telephone handsets, wireless carriers operating cellular and PCS networks, manufacturers of computer hardware and software suppliers. In fiscal 2000, our largest OEM customer significantly reduced its inventory levels, adversely impacting our revenues in fiscal 2000. We believe that inventory reductions by this customer are likely to continue in fiscal 2001 but that such reductions will be smaller than the adjustments made in our fiscal year 2000.* Telephony Service Providers. The telephony service provider channel is comprised of former Regional Bell Operating Companies and Post, Telephone and Telegraph companies that purchase headsets from us for use by their own agents. Certain of these service providers also resell headsets to their customers. Retail. The retail channel encompasses office supply and consumer electronics retailers, warehouse clubs, consumer products and office supply distributors, and catalog and mail order companies. Retailers 11 12 primarily sell headsets to small businesses, small offices and home offices. This channel is currently our fastest growing area of distribution. Other. We also make direct sales to certain government agencies, including NASA and the FAA. In addition, certain of our distributors are authorized resellers under a GSA schedule price list and sell our products to government customers under that agreement. We maintain a sales force in the United States and in various overseas countries to provide ongoing customer support and service. We also employ manufacturers' representatives to assist in selling through the retail channel. RESEARCH AND DEVELOPMENT Since we introduced the original lightweight communications headset in 1962, the headset end-user has been the primary focus of our design efforts. We maintain an extensive database of head and ear shapes to assist in the development of our products. Our concern for "human factors" and our efforts to design in comfort and safety have resulted in such product innovations as a behind-the-ear capsule (containing both microphone and receiver) designed to fit all users comfortably and the SoundGuard Plus system, which provides volume control and improved audio comfort and quality. We have a number of product development programs currently underway, including a new generation of headset systems, computer and mobile products, a wireless product family and several programs to both capitalize on and improve our core technology. Some of our recent and future product development initiatives are as follows: - We have developed what we believe is the smallest cordless headset telephone currently in the world for mobile convenience in the home and the home office. - Our Computer Audio Systems Division is working on the next generation of digital headsets. Our Mobile Communications Division is developing a series of mobile telephone headsets to provide additional product choices to the mobile telephone user. - We are working on the development of a series of headsets that will be compliant with the Bluetooth(TM) specification, a global short-range wireless standard. We were one of the first companies (and the first headset manufacturer) to join the Bluetooth consortium as an adopting member. While we believe that the Bluetooth standard holds much promise as a wireless platform in each of our various markets, we believe that the first significant applications for headsets will be in the mobile market.* Most of our research and development is carried out by our in-house engineering staff in the United States, England and Mexico. We supplement our in-house engineering capabilities through selected contracting arrangements. Research, development and engineering expenditures were $17.5 million, $19.5 million and $21.9 million for fiscal years 1998, 1999, and 2000, respectively. We believe that investment in research and development is important for us to maintain our position in the industry and, therefore, intend to increase our spending for research, development and engineering in subsequent fiscal years.* MANUFACTURING The majority of our manufacturing operations consists of assembly and testing, substantially all of which is performed at our facility in Mexico. We have smaller manufacturing operations in California, Georgia and the United Kingdom. In addition, we outsource the manufacture of a limited number of products to third parties. Finished goods are generally manufactured to meet forecasted customer requirements. Special products and large orders submitted with short lead times are manufactured to order. Since most manufacturing occurs prior to the receipt of purchase orders, Plantronics maintains an inventory of finished goods in addition to inventories of raw materials, work in process and subassemblies and components. 12 13 Plantronics purchases components for its headset products, including semi-custom integrated circuits, amplifier boards and other electrical components, from suppliers in the United States, Mexico, Asia and Europe. We have purchasing organizations in California, Georgia, England and The Netherlands and also have a sourcing and quality operation in Taiwan. Although most of the items purchased are obtained, or are reasonably available, from numerous sources, certain products and components are currently procured only from single suppliers in order to obtain volume pricing. COMPETITION We compete in several different markets, specifically the call center, office, mobile, computer and residential markets. There are a number of different competitors in each market in which we compete. We believe the principal competitive factors in each market are product features, comfort and fit; product reliability; customer service and support; reputation; distribution; ability to meet delivery schedules; warranty terms; product life; and price. In the call center user market, we face different competitors depending on the channel of distribution and the geographic location. We anticipate that we may face additional indirect competition in this market from technological advances such as interactive voice response systems which require no human interface for certain applications, such as account balance inquiries or airplane arrival and departure schedules. We believe that this trend will be more than offset by the expansion of telemarketing and catalog sales.* Our market in the office, including both traditional offices and the small or home office, and residential markets, involves the sale of headsets for connection to single line or office telephone systems, cellular telephones and computers. Certain of our competitors in the call center market currently sell headsets for use in the office and residential markets. There are also certain competitors who sell exclusively outside the call center market. Competitors in the mobile market generally come from outside of the call center market. They include the mobile phone manufacturers who typically outsource phone accessories like headsets, and companies that focus primarily on the mobile and/or cordless phone accessories markets. There is indirect competition from hands-free car kits which also allow users to drive with both hands on the wheel. Important competitive factors in the mobile market include product styling, product reliability, product features, competitive pricing, sound quality, comfort and fit, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, and product life. In the computer market, we compete for business in both the retail channel and through OEMs. We face competition principally from established computer peripheral vendors. These vendors have established relationships with their distribution channels enabling them to gain broad and deep global distribution. There is indirect competition from stand-alone microphones and loudspeakers for use with computers. Competition through the retail channel is based upon differentiated retail packaging, superior microphone and speaker performance, price and headset style and color. Competition for OEM business is based upon offering highly accurate microphones optimized to the OEM's software or system, unique styling, competitive pricing, and consistent quality with low defect rates. We believe that the following key factors enable us to maintain our position as a leading supplier of lightweight communications headsets: - brand name recognition; - large, diverse distribution network; - diverse product offering; - ability to design safe and reliable products; - understanding of regulations; and - strong customer service. 13 14 Although we believe we compete successfully with respect to these factors, if we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. ENVIRONMENTAL MATTERS We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although management believes that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and in the future may be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation related to one of our discontinued businesses. While no claims have been asserted against us in connection with this matter, there can be no assurance that such claims will not be asserted in the future or that any resulting liability will not exceed the amount of the reserve. PATENTS AND TRADEMARKS We maintain a program of seeking patent protection for our technology. Significant product features for which we have, or are currently seeking, patent protection include our StarSet II capsule design, SoundGuard receiver gain compression integrated circuit, Mirage headset, Clarity frequency enhancing telephone, battery-powered in-line amplifier with an automatic by-pass feature to provide continuous receive signal when battery power gets low, integrated circuit implementation for an audio amplifier operating at extremely low power with an expander function for noise reduction in telephony applications, headset in-use indicator for notifying passersby when the wearer of the headset is using the headset, headset receiver mechanical-acoustical tone control devices, earbud receiver positioning mechanisms, self-configuring telephone interface units and various other products and features including certain wireless technology and electronic components. As of May 1, 2000, we have thirty-five patents in force, expiring from 2002 to 2018. Our success will depend in part on our ability to obtain patents and preserve other intellectual property rights covering the design and operation of our products. We intend to continue to seek patents on our inventions when appropriate.* The process of seeking patent protection can be lengthy and expensive, and there can be no assurance that patents will issue from currently pending or future applications or that our existing patents or any new patents issued will be of sufficient scope or strength or provide meaningful protection or any commercial advantage to us. We may be subjected to, or may initiate, litigation or patent office interference proceedings, which may require significant financial and management resources. The failure to obtain necessary licenses or other rights or the advent of litigation arising out of any such claims could have a material adverse effect on our operations. We own registered trademarks with respect to our name and logo design and many of our products, including, but not limited to, our Encore, FreeHand, Mirage, StarSet, Supra, and TriStar products and currently have trademark applications pending in connection with certain new products. We have such trademark registrations in place on some or all of those marks in the United States and a number of countries throughout the world. We also claim common law trademark rights in many of our products and/or features. We also attempt to protect our trade secrets and other proprietary information through comprehensive security measures, including agreements with customers and suppliers, and proprietary information agreements with employees and consultants. EMPLOYEES On March 31, 2000, we employed 2,389 people worldwide, with 1,814 of those in our manufacturing facility in Tijuana, Mexico. No employees are currently covered by collective bargaining agreements or are members of any labor organization as far as we are aware. We have not experienced any work stoppages and believe that our employee relations are good. 14 15 EXECUTIVE OFFICERS Set forth below is certain information regarding the executive officers of Plantronics and their ages as of May 1, 2000. Benjamin Brussell 39 Vice President -- Corporate Development Kevin Goodwin 44 Vice President -- Legal, General Counsel and Secretary Donald S. Houston 44 Senior Vice President -- Sales S. Kenneth Kannappan 40 Chief Executive Officer, President and Director Jean-Claude Malraison 53 Managing Director -- Europe, Middle East & Africa H. Craig May 39 President -- Call Center and Office Division Barbara V. Scherer 43 Senior Vice President -- Finance and Administration and Chief Financial Officer
MR. BRUSSELL joined Plantronics in March 1998 as Vice President -- Corporate Development and reports directly to the President and Chief Executive Officer. Prior to joining us, Mr. Brussell was Vice President, Corporate Development at Storage Technology Corporation, a leading provider of enterprise and network information storage systems, from March 1992 to March 1998. From June 1990 until March 1992, Mr. Brussell acted as a consultant to Storage Technology Corporation and other technology and health care industry companies. From January 1985 to June 1990, Mr. Brussell held various positions with Salomon Brothers, the last of which was Vice President, Corporate Finance, Technology Group. Mr. Brussell has a Bachelor of Arts degree in Math/Economics from Wesleyan University and a Masters Degree in Management from M.I.T. Sloan School of Management. Mr. Brussell is a director of Box Hill Systems Corporation, a manufacturer of high performance data storage systems. MR. GOODWIN has served as Vice President -- Legal, General Counsel and Secretary since July 1999. He joined Plantronics in July 1996 as a full-time contract counsel and in November 1997 became an employee and General Counsel. In July 1998 Mr. Goodwin was appointed Assistant Secretary of Plantronics. Prior to joining Plantronics, Mr. Goodwin was in private practice with several law firms with offices in Silicon Valley, including Carr & Ferrell (from 1995 to 1996) and Pettit & Martin (from 1989 to 1995). Mr. Goodwin received his law degree from Columbia University and a Bachelor of Arts degree in Economics and Philosophy from Claremont Men's College. MR. HOUSTON joined Plantronics in November 1996 as Vice President -- Sales and was promoted to Senior Vice President -- Sales in March 1998. From February 1995 through November 1996, Mr. Houston served as Vice President -- Worldwide Sales for Proxima Corporation, a designer, developer, manufacturer and marketer of multimedia projection products. From 1985 until January of 1995, Mr. Houston held a number of positions at Calcomp, Inc., which is engaged in the business of manufacturing computer peripherals for the CAD and graphic market, including Regional Sales Manager and most recently Vice President of Sales, Service and Marketing. Prior to 1985, Mr. Houston held various sales and marketing management positions with IBM Corporation. Mr. Houston is a graduate of the University of Arizona with a Bachelor of Science degree in Business/Marketing. He reports directly to the President and Chief Executive Officer. MR. KANNAPPAN joined Plantronics in February 1995 as Vice President -- Sales, responsible for OEM Sales and International Markets for Plantronics, Inc. He was promoted to Vice President -- Sales, responsible for all U.S., Asian and Latin American Sales in September 1995. He was promoted to Managing Director -- Plantronics Limited in England in March 1996. In March 1997, Mr. Kannappan returned from England and was promoted to Senior Vice President responsible for Plantronics' Worldwide Operations, Mobile Division, Walker Division and Plantronics Limited. In March 1998, Mr. Kannappan was promoted to President and Chief Operating Officer and in January 1999, Mr. Kannappan was promoted to Chief Executive Officer and was appointed to the Board of Directors. Prior to joining Plantronics, Mr. Kannappan was Senior Vice President of Investment Banking for Kidder, Peabody & Co. Incorporated from August 1985 through January 1995. Mr. Kannappan has a Bachelor of Arts degree in Economics from Yale University and a Masters of Business Administration from Stanford University. Mr. Kannappan also serves on the Board of Directors of Mattson Technology, Inc., a supplier of advanced process equipment for the semiconductor industry. 15 16 MR. MALRAISON joined Plantronics in July 1999 as the Managing Director -- Europe, Middle East & Africa. Mr. Malraison is resident in the Swindon, England and Hoofddorp, the Netherlands, offices of Plantronics and is responsible for our European, Middle East and African sales and operations. He received his Engineering degree at the Institut Supereur D'Electronic Du Nord in France. Prior to joining Plantronics, Mr. Malraison spent 28 years with IBM in a number of roles, most recently as Vice-President, Business Partners, EMEA. MR. MAY joined Plantronics in May 1998 as Senior Vice President -- Marketing and reports directly to the President and Chief Executive Officer. Mr. May was most recently with Siemens Business Communication Systems, Inc., as Director of Product Management, Desktops and Mobility, from October 1993 to May 1998. Prior to that position, Mr. May served on special assignment to the President of Siemens Business Communications Systems, Inc. from July 1993 to October 1993. From June 1992 to July 1993, Mr. May was ROLM Executive Delegate for Siemens AG, Private Networks Group, Desktop Products, Munich, Germany. Mr. May held a number of positions with ROLM from July 1987 to June 1992, such as Director of Systems Planning, Manager of New Product Planning and Senior Product Manager. From 1981 to June 1987 Mr. May worked for ROLM, an IBM company, and Shell Oil Company in various product manager and engineering positions of increasing authority. Mr. May has a Bachelor of Science degree in Electrical Engineering from the University of Houston. MS. SCHERER joined Plantronics in March 1997, and in April 1997 was named Vice President -- Finance & Administration and Chief Financial Officer. In March 1998, Ms. Scherer was promoted to Senior Vice President -- Finance & Administration and Chief Financial Officer. Prior to joining us, Ms. Scherer was Senior Vice President and Chief Financial Officer at StreamLogic Corporation, a developer of video delivery, digital media storage, networking RAID and data management products, from October 1996 until March 1997; before that she was Senior Vice President of Operations from April 1996 until October 1996. Prior to that she held various positions spanning a nine year career with Micropolis Corporation, a disk drive manufacturer, including, from 1995 until April 1996, Vice President Finance, Chief Financial Officer and Treasurer, and from 1993 until 1994, Vice President, Treasurer and Video Systems Division Controller. Ms. Scherer is a graduate of the University of California at Santa Barbara and received her Masters from Yale School of Organization and Management. She reports directly to the President and Chief Executive Officer. Executive officers serve at the discretion of the Board of Directors. There are no family relationships between any of the directors and executive officers of Plantronics. ITEM 2. PROPERTIES Our principal executive offices are located in Santa Cruz, California. As of June 1, 2000, we owned or leased a total of approximately 370,000 square feet of manufacturing, administrative, engineering and office facilities, including: (i) approximately 178,300 square feet of manufacturing, warehouse and administrative facilities in Santa Cruz, California, approximately 54,600 square feet of which are leased to third parties as office and warehouse space; (ii) approximately 6,500 square feet of office and warehouse space in Los Gatos, California, all of which is subleased to a third party; (iii) 11,600 square feet of manufacturing and administrative facilities related to operations in Ringgold, Georgia under a lease expiring in 2000; (iv) approximately 127,600 square feet for assembly and related operations in Tijuana, Mexico, under a lease expiring in 2002; (v) approximately 38,400 square feet for assembly operations, sales and administration in Wootton Bassett, England under leases expiring in 2015; (vi) approximately 4,000 square feet for administrative facilities in Hoofddorp, The Netherlands, under a lease expiring in 2002; and (vii) smaller leased or rented facilities in Singapore, Japan, Hong Kong, France, Germany, Italy, Spain, Brazil, Australia, Taiwan, Colorado and New Jersey. We believe that our existing properties are generally suitable and adequate for our business. We believe that our premises have sufficient capacity available for expansion over the next few years.* However, we are currently engaging in a long-term space planning process with respect to our Santa Cruz, California headquarters facilities and our Tijuana, Mexico manufacturing plant. We believe that these facilities are unlikely to support all of our requirements for capacity over a mid to longer term planning horizon and are, therefore, evaluating our alternatives. 16 17 ITEM 3. LEGAL PROCEEDINGS Neither Plantronics, nor any of our subsidiaries, is a party to any litigation, other than non-material litigation incidental to our business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS No matters were submitted to a vote of the security holders of Plantronics during the fourth quarter of the fiscal year ended March 31, 2000. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our Common Stock is publicly traded on the New York Stock Exchange. Information included in the Corporate Directory appearing on the inside back cover of our 2000 Annual Report to Stockholders concerning the market price of and cash dividends declared on our Common Stock for each quarterly period within the two most recent fiscal years is incorporated herein by reference. As of May 19, 2000 there were 422 holders of record of our Common Stock, including 332 individual participants in our Employee Stock Purchase Plan. ITEM 6. SELECTED FINANCIAL DATA The information appearing under the caption "Selected Financial Data" appearing at page 36 of our 2000 Annual Report to Stockholders is incorporated herein by this reference. ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information appearing under the caption "Management's Discussion and Analysis" appearing at pages 17 through 19 of our 2000 Annual Report to Stockholders is incorporated herein by this reference. 17 18 RISK FACTORS AFFECTING FUTURE OPERATING RESULTS Investors or potential investors in the stock of Plantronics should carefully consider the risks described below. Our stockholders may be subject to the risks inherent in our business. The performance of Plantronics shares of stock will reflect the performance of our business relative to, among other things, our competition, general economic and market conditions and industry conditions. You should carefully consider the following factors in connection with any investment in Plantronics stock. Our business, financial condition and results of operations could be materially adversely affected if any of the risks occur. If the risks occur, the trading price of Plantronics stock could decline and an investor could lose all or part of his or her investment. A SUBSTANTIAL PORTION OF OUR SALES COME FROM THE CALL CENTER MARKET AND A DECREASE OF DEMAND IN THAT MARKET COULD MATERIALLY AFFECT OUR RESULTS. We have historically derived, and continue to derive, a substantial portion of our net sales from the call center market. This market has grown significantly in recent years as new call centers have proliferated and existing call centers have expanded. While we believe this market is continuing to grow,* in the future this growth could slow or revenues from this market could decline due to various factors. For example, technological advances such as automated interactive voice response systems could reduce or eliminate the need for call center agents in certain applications. In addition, consumer resistance to telemarketing could adversely affect growth in the call center market. Due to our reliance on the call center market, we will be affected more by changes in the rate of call center establishment and expansion and the communications products that call center agents use than would a company serving a broader market. Any decrease in the demand for call centers and related headset products could cause a decrease in the demand for our products, which would materially adversely affect our business, financial condition and results of operations. WE ARE COUNTING ON THE OFFICE, MOBILE, COMPUTER AND RESIDENTIAL MARKETS TO DEVELOP AND WE COULD BE ADVERSELY AFFECTED IF THEY DO NOT DEVELOP AS WE EXPECT. While the call center market is still a substantial portion of our business, we believe that our future prospects will depend in large part on the growth in demand for headsets in the office, mobile, computer and residential markets.* These communications headset markets are relatively new and undeveloped. Moreover, we do not have extensive experience in selling headset products to customers in these markets. If the demand for headsets in these markets fails to develop, or develops more slowly than we currently anticipate, or if we are unable to effectively market our products to customers in these markets, it would have a material adverse effect on the potential demand for our products and on our business, financial condition and results of operations. OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO A NUMBER OF CAUSES OUTSIDE OUR CONTROL. Our quarterly results of operations may vary significantly in the future for a variety of reasons, including the following: - changes in demand for our products; - timing and size of orders from customers; - cancellations or delays of deliveries of components and subassemblies by our suppliers; - variances in the timing and amount of engineering and operating expenses; - distribution channel volume variations; - delays in shipments of our products; - product returns and customer credits; - new product introductions by us or our competitors; - entrance of new competitors; 18 19 - increases in the costs of our components and subassemblies; - price erosion; - changes in the mix of products sold by us; - seasonal fluctuations in demand; and - general economic conditions. Each of the above factors is difficult to forecast and thus could have a material adverse effect on our business, financial condition and results of operations. We generally ship most orders during the quarter in which they are received, and, consequently, we do not have a significant backlog of orders. As a result, quarterly net sales and operating results depend primarily on the volume and timing of orders received during the quarter. It is difficult to forecast orders for a given quarter. Since a large portion of our operating expenses, including rent, salaries and certain manufacturing expenses, are fixed and difficult to reduce or modify, if net sales do not meet our expectations, our business, financial condition and results of operations could be materially adversely affected. Our operating results can also vary substantially in any period depending on the mix of products sold and the distribution channels through which they are sold. In the event that sales of lower margin products or sales through lower margin distribution channels in any period represent a disproportionate share of total sales during such period, our operating results would be materially adversely affected. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indicative of future operating results. In addition, our operating results in a future quarter or quarters may fall below the expectations of securities analysts or investors, and, as a result, the price of our common stock might fall. IF WE DO NOT MATCH PRODUCTION TO DEMAND WE WILL BE AT RISK OF LOSING BUSINESS OR OUR GROSS MARGINS COULD BE ADVERSELY AFFECTED. Historically, we have seen steady increases in customer demand for our products and have generally been able to increase production to meet that demand. However, the demand for our products is dependent on many factors and such demand is inherently difficult to forecast. Significant unanticipated fluctuations in demand could cause the following operating problems, among others: - If demand increases beyond that forecasted, we would have to rapidly increase production. We depend on suppliers to provide additional volumes of components and subassemblies, and, therefore, might not be able to increase production rapidly enough to meet unexpected demand. This could cause us to fail to meet customer expectations. There could be short-term losses of sales while we are trying to increase production. If customers turn to competitive sources of supply to meet their needs, there could be a long-term impact on our revenues. - Rapid increases in production levels to meet unanticipated demand could result in higher costs for components and subassemblies, increased expenditures for freight to expedite delivery of required materials, and higher overtime costs and other expenses. These higher expenditures could lower our profit margins. Further, if production is increased rapidly, there may be decreased manufacturing yields, which may also lower our margins. - If forecasted demand does not develop, we could have excess production or excess capacity. Excess production could result in higher inventories of finished products, components and subassemblies. If we were unable to sell these inventories, we would have to write off some or all of our inventories of obsolete products and unusable components and subassemblies. Excess manufacturing capacity could lead to higher production costs and lower margins. Any of the foregoing problems could materially adversely affect our business, financial condition and results of operations. 19 20 WE DEPEND ON OUR SUPPLIERS AND FAILURE OF OUR SUPPLIERS TO PROVIDE QUALITY COMPONENTS OR SERVICES IN A TIMELY MANNER COULD ADVERSELY AFFECT OUR RESULTS. We buy components and subassemblies from a variety of suppliers and assemble them into finished products. The cost, quality, and availability of such components are essential to the successful production and sale of our products. Obtaining components and subassemblies entails various risks, including the following: - Prices of components and subassemblies may rise. If this occurs and we are not able to pass these increases on to our customers or to achieve operating efficiencies that would offset the increases, it would have a material adverse effect on our business, financial condition and results of operations. - We obtain certain subassemblies and components from single suppliers, and alternate sources for these items are not readily available. To date, we have experienced only minor interruptions in the supply of these components and subassemblies, none of which has significantly affected our results of operations. However, an interruption in supply from any of our single source suppliers in the future would materially adversely affect our business, financial condition and results of operations. - Most of our suppliers are not obligated to continue to provide us with components and subassemblies. Rather, we buy most components and subassemblies on a purchase order basis. If our suppliers experience increased demand or shortages, it could affect deliveries to us. In turn, this would affect our ability to manufacture and sell products that are dependent on those components and subassemblies. This would materially adversely affect our business, financial condition and results of operations. WE SELL OUR PRODUCTS THROUGH VARIOUS CHANNELS OF DISTRIBUTION AND A FAILURE OF THOSE CHANNELS TO OPERATE AS WE EXPECT COULD DECREASE OUR REVENUES. We sell substantially all of our products through distributors, OEMs, retailers and telephony service providers. Our existing relationships with these parties are nonexclusive and can be terminated by either party without cause. Our channel partners also sell or can potentially sell products offered by our competitors. To the extent that our competitors offer our channel partners more favorable terms, such partners may decline to carry, de-emphasize or discontinue carrying our products. In the future, we may not be able to retain or attract a sufficient number of qualified channel partners. Further, such partners may not recommend, or continue to recommend, our products. The inability to establish or maintain successful relationships with distributors, OEMs, retailers and telephony service providers or to expand our distribution channels could materially adversely affect our business, financial condition or results of operations. Our distribution channels generally hold inventories of our products, determined in their own business judgment to be sufficient to meet their customer's delivery requirements. Such inventory levels are subject to market conditions, business judgment by the reseller and our ability to meet their time-to-ship needs. Rapid reductions by our distributors, OEMs, retailers and other customers in the levels of inventories held in our products could materially adversely affect our business, financial condition or results of operations. WE HAVE STRONG COMPETITORS AND WILL LIKELY FACE ADDITIONAL COMPETITION IN THE FUTURE. The markets for our products are highly competitive. We compete with a variety of companies in the various markets for communications headsets. Our single largest competitor is GN Netcom, a subsidiary of GN Great Nordic Ltd., a Danish telecommunications conglomerate with revenues of 5.4 billion Danish Krone (approximately $700 million) in calendar 1999. On May 21, 2000, GN Netcom announced that it had signed an agreement to acquire Jabra Corporation, a supplier of headsets in the mobile phone market. It is not clear how this merger will affect us but the merged entity will have a broader product offering and greater marketing presence than either of the two entities had separately. We anticipate that we will face additional competition from companies that currently do not offer communications headsets. This is particularly true in the office, mobile, computer and residential markets. As these markets mature, we will face increased competition from consumer electronics companies and other companies that currently manufacture and sell mobile phones or computer peripheral equipment. These new competitors are likely to be larger, offer broader product lines, bundle or integrate with other products 20 21 communications headset tops and bases manufactured by them or others, offer products containing bases that are incompatible with our headset tops and have substantially greater financial, marketing and other resources than we do. We believe that important competitive factors for us are product reliability, product features, customer service and support, reputation, distribution, ability to meet delivery schedules, warranty terms, product life and price. If we do not compete successfully with respect to any of these or other factors it could materially adversely affect our business, financial condition and results of operations. If we do not successfully develop and market products that compete successfully with those of our competitors it would materially adversely affect our business, financial condition and results of operations. NEW PRODUCT DEVELOPMENT IS RISKY AND WE WILL BE ADVERSELY AFFECTED IF WE DO NOT RESPOND TO CHANGING CUSTOMER REQUIREMENTS AND NEW TECHNOLOGIES. Our product development efforts historically have been directed toward enhancement of existing products and development of new products that capitalize on our core capabilities. The success of new product introductions is dependent on a number of factors, including the proper selection of new product features, timely completion and introduction of new product designs, cost-effective manufacture of such products, quality of new products and market acceptance. To be successful in the future, we must develop new products, qualify these new products, successfully introduce these products to the market on a timely basis, and commence and sustain low-cost, volume production to meet customers' demands. Although we attempt to determine the specific needs of headset users in our target markets, because almost all of our sales are indirect, we may not always be able to timely and accurately predict end-user requirements. As a result, our products may not be timely developed, designed to address current or future end-user requirements, offered at competitive prices or accepted, which could materially adversely affect our business, financial condition and results of operations. Moreover, we generally incur substantial research and development costs before the technical feasibility and commercial viability of a new product can be ascertained. Accordingly, revenues from new products may not be sufficient to recover the associated development costs. Historically, the technology used in lightweight communications headsets has evolved slowly. New products have primarily offered stylistic changes and quality improvements, rather than significant new technologies. We anticipate that the technology used in hands-free communications devices, including our products, will begin to evolve more rapidly in the future. We believe that this is particularly true of the office, mobile and residential markets, which may require us to develop new headset technologies to support cordless and wireless operation and to interface with new communications and computing devices. As a result, our success depends upon our ability to enhance existing products, to respond to changing market requirements, and to develop and introduce in a timely manner new products that keep pace with technological developments. If we are unable to develop and introduce enhanced products or new products in a timely manner in response to changing market conditions or customer requirements, it will materially and adversely affect our business, financial condition and results of operations. Due to the historically slow evolvement of our products, we have generally been able to phase out obsolete products without significant impact to our operating margins. However, as we develop new generations of products more quickly, we expect that the pace of product obsolescence will increase concurrently. The disposition of inventories of obsolete products may result in reductions to our operating margins and affect our earnings and results of operations. CHANGES IN REGULATORY REQUIREMENTS MAY ADVERSELY IMPACT OUR GROSS MARGINS AS WE COMPLY WITH SUCH CHANGES OR REDUCE OUR ABILITY TO GENERATE REVENUES IF WE ARE UNABLE TO COMPLY. Our products must meet the requirements set by regulatory authorities in the numerous jurisdictions in which we sell them. As regulations and local laws change, we must modify our products to address those changes. Regulatory restrictions may increase the costs to design and manufacture our products, resulting in a decrease in demand for our products if the costs are passed along or a decrease in our margins. Compliance with regulatory restrictions may impact the technical quality and capabilities of our products, reducing their 21 22 marketability. We are currently facing a substantial change in the regulations applicable to our products in the European Union and there is no certainty that we can meet those regulatory requirements in a timely and cost-effective manner. Failure to conform our products to these new European regulatory requirements would result in our inability to sell such products in Europe, resulting in a material adverse impact to our financial condition and results of operations. WE HAVE SIGNIFICANT FOREIGN OPERATIONS AND THERE ARE INHERENT RISKS IN OPERATING ABROAD. Approximately 33.5% of our net sales in fiscal 2000 were derived from customers outside the United States, compared with approximately 30.5% of our net sales in fiscal 1999. In addition, we conduct substantially all of our headset assembly operations in our manufacturing facility located in Mexico, and we obtain most of the components and subassemblies used in our products from various foreign suppliers. The inherent risks of international operations, particularly in Mexico, could materially adversely affect our business, financial condition and results of operations. The types of risks faced in connection with international operations and sales include: - cultural differences in the conduct of business; - greater difficulty in accounts receivable collection; - unexpected changes in regulatory requirements; - tariffs and other trade barriers; - economic and political conditions in each country; - management and operation of an enterprise spread over various countries; and - burden of complying with a wide variety of foreign laws. In calendar 2000, the value of major European currencies has dropped against the U.S. dollar. To date, we have not reflected that change in currency value in our selling prices. In order to maintain a competitive price for our products in Europe, we expect that we will have to effectively reduce our current prices, resulting in a lower margin on products sold in Europe. Continued change in the values of European currencies or changes in the values of other foreign currencies could have a material adverse effect on our business, financial condition and results of operations. OUR FOREIGN OPERATIONS PUT US AT RISK OF LOSS IF THERE ARE MATERIAL CHANGES IN CURRENCY VALUES AS COMPARED TO THE U.S. DOLLAR. A significant portion of our business is conducted in currencies other than the U.S. dollar. As a result, fluctuations in exchange rates create risk to us in both the sale of our products and our purchase of supplies. Fluctuations in the value of the currencies in which we conduct our business relative to the U.S. dollar have caused and will continue to cause currency transaction gains and losses. Although we do not currently engage in any hedging activities to mitigate exchange rate risks, we continually evaluate programs to reduce our foreign currency exposure. However, there can be no assurance that we will not continue to experience currency losses in the future, nor can we predict the effects of future exchange rate fluctuations on future operating results. To the extent that sales to our foreign customers increase or transactions in foreign currencies increase, our business, financial condition and results of operations could be materially adversely affected by exchange rate fluctuations. In addition, we cannot predict the potential consequences to our business of the adoption of the Euro as a common currency in Europe. WE MAY BE EXPERIENCING A NON-SUSTAINABLE INCREASE IN SALES AS A RESULT OF PENT-UP DEMAND FROM Y2K CONCERNS. Our results for the first part of calendar year 2000 may not be indicative of longer-term market conditions. We currently may be enjoying a non-sustainable rebound from purchases by call center and office 22 23 customers who delayed investment in new call centers or information technologies due to concerns over the effects of Y2K. IF THERE ARE PROBLEMS THAT AFFECT OUR PRINCIPAL MANUFACTURING FACILITY IN MEXICO, WE COULD FACE LOSSES IN REVENUES OR MATERIAL INCREASES IN COSTS OF OUR OPERATIONS. Substantially all of our manufacturing operations are currently performed in a single facility in Tijuana, Mexico. A fire, flood or earthquake, political unrest or other disaster or condition affecting our facility could have a material adverse effect on our business, financial condition and results of operations. While we have developed a disaster recovery plan and believe we are adequately insured with respect to this facility, we may not be able to implement the plan effectively or on a timely basis or recover under applicable insurance policies. WE HAVE INTELLECTUAL PROPERTY RIGHTS THAT COULD BE INFRINGED BY OTHERS AND WE ARE POTENTIALLY AT RISK OF INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS. Our success will depend in part on our ability to protect our proprietary technology. We rely primarily on a combination of nondisclosure agreements and other contractual provisions as well as patent, trademark, trade secret, and copyright laws to protect our proprietary rights. We currently hold 35 United States patents and additional foreign patents and intend to continue to seek patents on our inventions when we believe it to be appropriate. The process of seeking patent protection can be lengthy and expensive. Patents may not be issued in response to our applications, and patents that are issued may be invalidated, circumvented or challenged by others. If we are required to enforce our patents or other proprietary rights through litigation, the costs and diversion of management's attention could be substantial. In addition, the rights granted under any patents may not provide us competitive advantages or be adequate to safeguard and maintain our proprietary rights. Moreover, the laws of certain countries do not protect our proprietary rights to the same extent as do the laws of the United States. If we do not enforce and protect our intellectual property rights, it could materially adversely affect our business, financial condition and results of operations. From time to time, third parties, including our competitors, may assert patent, copyright and other intellectual property rights against us. Such claims, if they are asserted, could result in costly litigation and diversion of management's attention. In addition, we may not ultimately prevail in any such litigation or be able to license any valid and infringed patents from such third parties on commercially reasonable terms, if at all. Any infringement claim or other litigation against us could materially adversely affect our business, financial condition and results of operations. WE ARE EXPOSED TO POTENTIAL LAWSUITS ALLEGING DEFECTS IN OUR PRODUCTS. The use of our products exposes us to the risk of product liability claims. Product liability claims have in the past been, and are currently being, asserted against us. None of the previously resolved claims have materially affected our business, financial condition or results of operations, nor do we believe that any of the pending claims will have such an effect. Although we maintain product liability insurance, the coverage provided under our policies could be unavailable or insufficient to cover the full amount of any such claim. Therefore, successful product liability claims brought against us could have a material adverse effect upon our business, financial condition and results of operations. Our mobile headsets are used with mobile telephones. There has been continuing public controversy over whether the radio frequency emissions from mobile telephones are harmful to users of mobile phones. We believe that there is no conclusive proof of any health hazard from the use of mobile telephones but that research in this area is incomplete. If research was to establish a health hazard from the use of mobile telephones or public controversy grows even in the absence of conclusive research findings, there could be an adverse impact on the demand for our mobile headsets. 23 24 WHILE WE BELIEVE WE COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, WE ARE STILL EXPOSED TO POTENTIAL RISKS FROM ENVIRONMENTAL MATTERS. We are subject to various federal, state, local and foreign environmental laws and regulations, including those governing the use, discharge and disposal of hazardous substances in the ordinary course of our manufacturing process. Although we believe that our current manufacturing operations comply in all material respects with applicable environmental laws and regulations, environmental legislation has been enacted and may in the future be enacted or interpreted to create environmental liability with respect to our facilities or operations. We have included in our financial statements a reserve of $1.5 million for possible environmental remediation of the site of one of our previous businesses. While no claims have been asserted against us in connection with this matter, such claims could be asserted in the future and any liability that might result could exceed the amount of the reserve. OUR BUSINESS COULD BE ADVERSELY AFFECTED IF WE LOSE THE BENEFIT OF THE SERVICES OF KEN KANNAPPAN OR OTHER KEY PERSONNEL. Our success depends to a significant extent upon the services of a limited number of executive officers and other key employees. The unanticipated loss of the services of our president and chief executive officer, Mr. Kannappan, or one or more of our other executive officers or key employees could have a material adverse effect upon our business, financial condition and results of operations. We also believe that our future success will depend in large part upon our ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel is intense. We may not be successful in attracting and retaining such personnel, and our failure to do so could have a material adverse effect on our business, operating results or financial condition. OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN PLANTRONICS STOCK COULD BE LOST. The market price for our common stock may be affected by a number of factors, including the announcement of new products or product enhancements by us or our competitors, the loss of services of one or more of our executive officers or other key employees, quarterly variations in our or our competitors' results of operations, changes in earnings estimates or recommendations by securities analysts, developments in our industry, sales of substantial numbers of shares of our common stock in the public market, general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors. In addition, stock prices for many companies in the technology sector have experienced wide fluctuations that have often been unrelated to the operating performances of such companies. Such factors and fluctuations, as well as general economic, political and market conditions, such as recessions, may materially adversely affect the market price of our common stock. ANTI-TAKEOVER PROVISIONS IN OUR CURRENT BY-LAWS OR WHICH COULD BE PUT INTO PLACE BY OUR BOARD OF DIRECTORS COULD AFFECT MARKET PRICES OF OUR STOCK. Our board of directors has the authority to issue preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of those shares without any further vote or action by the stockholders. The issuance of our preferred stock could have the effect of making it more difficult for a third party to acquire us. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which could also have the effect of delaying or preventing our acquisition by a third party. Further, certain provisions of our Certificate of Incorporation and bylaws could delay or make more difficult a merger, tender offer or proxy contest, which could adversely affect the market price of our common stock. CITICORP VENTURE CAPITAL HAS SIGNIFICANT CONTROL OVER OUR BUSINESS. Our largest stockholder, Citicorp Venture Capital, Ltd. ("CVC"), beneficially owns 4,509,168 shares of our common stock (excluding any shares that may be owned by employees of CVC or its affiliates), which represents approximately 27.6% of our outstanding common stock as of May 1, 2000. We also have an 24 25 agreement with CVC under which it is entitled to have up to three of its designees serve on our Board of Directors, depending on the level of CVC's continuing stock ownership. Messrs. Robert F. B. Logan, M. Saleem Muqaddam and John Mowbray O'Mara are currently serving as CVC's designees under that agreement. After completion of the proposed offering, CVC will have the right to have up to two of its designees supported by Management. Accordingly, CVC has the ability to exert substantial influence on the full Board of Directors, which currently consists of seven members. In addition, our bylaws contain provisions that require a two-thirds (66 2/3%) supermajority vote of the Board of Directors to approve certain transactions, including amendments of our Certificate of Incorporation, certain provisions of our bylaws, mergers and sales of substantial assets, acquisitions of other companies and sales of capital stock. These provisions may have the effect of giving a small number of directors the ability to block such transactions. WE HAVE SEVERAL SIGNIFICANT STOCKHOLDERS AND, GIVEN THE LOW TRADING VOLUME OF OUR STOCK, IF THEY SELL THEIR SHARES IN A SHORT PERIOD OF TIME, WE COULD SEE AN ADVERSE AFFECT ON THE MARKET PRICES OF OUR STOCK. As of May 19, 2000, we had 16,365,757 shares of common stock outstanding. All of these shares are freely tradable except for approximately 4,900,000 shares held by affiliates of Plantronics (including CVC and the directors and officers of Plantronics). These approximately 4,900,000 shares may only be sold in reliance on Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an effective registration statement filed with the Securities and Exchange Commission. Some of our current stockholders, including CVC, Citigroup Foundation and certain of our officers, directors and key employees, also have certain contractual rights to require Plantronics to register their shares for public sale. Approximately 2,600,000 additional shares are subject to outstanding stock options as of May 19, 2000. Ms. Louise Cecil, the widow of our former CEO and Chairman, Robert S. Cecil, holds options on 222,196 shares of our common stock, transferred to her by Mr. Cecil during his life. She has registered those shares for resale and can sell any or all of those shares at any time. Plantronics stock is not heavily traded. Our average daily trading volume in fiscal year 2000 was 71,630 shares per day with a median volume in that period of 51,000 shares per day. Sales of a substantial number of shares of common stock in the public market by CVC or any of our officers, directors or other stockholders could adversely affect the prevailing market price of the common stock and impair our ability to raise capital through the sale of equity securities. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following information appearing in our 2000 Annual Report to Stockholders is incorporated herein by this reference: Consolidated Balance Sheets -- March 31, 2000 and March 31, 1999. Consolidated Financial Statements for fiscal years ended March 31, 2000, March 31, 1999, and March 31, 1998: Consolidated Statements of Operations; Consolidated Statements of Cash Flows; and Consolidated Statements of Stockholders' Equity (Deficit). Notes to Consolidated Financial Statements. Market price and dividend information set forth on the inside back cover. Report of Independent Accountants, dated April 24, 2000. 25 26 With the exception of the information mentioned in Items 5, 6, 7 and 8, our 2000 Annual Report to Stockholders is not to be deemed filed as part of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with accountants on any matter of accounting principles and practices or financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding the identification and business experience of our directors under the caption "Nominees" under the main caption "Proposal One -- Election of Directors" in our definitive 2000 Proxy Statement for the annual meeting of stockholders to be held on June 29, 2000, as filed with the Securities and Exchange Commission on or about May 26, 2000, is incorporated herein by this reference. For information regarding the identification and business experience of our executive officers, see "Executive Officers" at the end of Item 1 in Part I of this Annual Report on Form 10-K. Information concerning filing requirements applicable to our executive officers and directors under the caption "Compliance With Section 16(a) of the Exchange Act" in our 2000 Proxy Statement is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The information under the captions "Executive Compensation" and "Compensation of Directors" in our 2000 Proxy Statement is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership of Principal Stockholders and Management" under the main caption "Additional Information" in the 2000 Proxy Statement is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information under the caption "Certain Transactions" in the 2000 Proxy Statement is incorporated herein by this reference. With the exception of the information specifically incorporated by reference from the 2000 Proxy Statement in Part III of this Annual Report on Form 10-K, the 2000 Proxy Statement shall not be deemed to be filed as part of this Report. Without limiting the foregoing, the information under the captions "Report of the Compensation Committee of the Board of Directors" and "Company's Stock Performance" under the main caption "Additional Information" in the 2000 Proxy Statement is not incorporated by reference in this Annual Report on Form 10-K. 26 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Incorporation by Reference. The following documents are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: (1) Financial Statements. The consolidated financial statements of Plantronics (including the notes thereto) are incorporated by reference from our 2000 Annual Report to Stockholders as indicated in Item 8 of this report. (2) Financial Statement Schedules. All financial statement schedules have been omitted because the required information is not applicable or not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or the notes thereto. (3) Exhibits. The exhibits listed under Item 14(c) hereof are filed with, or incorporated by reference into, this Annual Report on Form 10-K. (b) Reports on Form 8-K. No reports on Form 8-K were filed by Registrant during the fourth quarter of the fiscal year ended March 31, 2000. (c) Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this Annual Report on Form 10-K: 3.1 Amended and Restated By-Laws of the Registrant (incorporated herein by reference to Exhibit (3.4) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 3.2 Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on January 19, 1994 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended December 25, 1993, filed on March 4, 1994). Certificate of Retirement and Elimination of Preferred Stock and Common Stock of the Registrant filed with the Secretary of State of Delaware on January 11, 1996 (incorporated herein by reference to Exhibit (3.3) of the Registrant's Annual Report on Form 10-K, SEC File Number 1-12696, for the fiscal year ended March 30, 1996, filed on June 27, 1996). Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on August 7, 1997 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended June 28, 1997, filed on August 8, 1997). 10.1 Quarterly Profit Sharing Plan (as amended) (incorporated herein by reference to Exhibit (10.2) to Registrant's predecessor, Plantronics, Inc.'s Report on Form 10-K, SEC File Number 1-6642, for the fiscal year ended May 29, 1982, filed on August 27, 1982). 10.3 Form of Indemnification Agreement between the Registrant and certain directors and executives and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.1) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.4 Form of Employment Agreement, Addendum to Employment Agreement and Second Addendum to Employment Agreement between the Registrant and certain executives; and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.2) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.5 Executive Bonus Plan (incorporated herein by reference to Exhibit (10.4) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.6 Board Designation Agreement dated as of October 22, 1993 between the Registrant and Citicorp Venture Capital, Ltd. (incorporated herein by reference to Exhibit (10.21) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed October 20, 1993).
27 28 10.7 Lease Agreement dated July 1993 between Inmobiliara Mexhong S.A. de C.V. and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original) (incorporated herein by reference to Exhibit (10.30) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.8 Lease dated December 7, 1990 between Canyge Bicknell Limited and Plantronics Limited, a subsidiary of the Registrant, for premises located in Wootton Bassett, England (incorporated herein by reference to Exhibit (10.32) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.9 1993 Stock Plan (incorporated herein by reference to Exhibit (10.1) to the Registrant's Registration Statement on Form S-1 (as amended), SEC File Number 33-70744, filed on October 20, 1993). Amendment effective as of April 23, 1996 to the 1993 Stock Plan (incorporated herein by reference to Exhibit (4.2) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). Amendment Number Two to the 1993 Stock Plan effective as of July 30, 1998, filed on June 16, 1999, as Exhibit 10.5 to the Registrant's Annual Report on Form 10K, SEC File Number 001-12696. 10.10 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (10.29) to the Registrant's Registration Statement on Form S-1 (as amended), SEC File Number 33-70744, filed on October 20, 1993). Amendment Effective as of April 23, 1996 to the 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.11 1996 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.12 Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan (incorporated herein by reference to Exhibit (4.1) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). Trust Agreement Establishing the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan Trust (incorporated herein by reference to Exhibit (4.3) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). Amendment Number One to the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan (incorporated herein by reference to Exhibit (4.2) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). 10.13 Resolutions of the Board of Directors of Plantronics, Inc. Concerning Executive Stock Purchase Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.14 Plantronics, Inc. Basic Deferred Compensation Plan, as amended August 8, 1996 (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Trust Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation Plan (incorporated herein by reference to Exhibit (4.6) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Plantronics, Inc. Basic Deferred Compensation Plan Participant Election (incorporated herein by reference to Exhibit (4.7) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.15 Employment Agreement dated as of July 4, 1999 between Registrant and Ken Kannappan. 10.16 Credit Agreement dated as of November 29, 1999 between Registrant and Wells Fargo Bank N.A.
28 29 13 Portions of Registrants 2000 Annual Report to Security Holders which have been incorporated by reference in Parts I, II and IV of this Annual Report. 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 27 Financial Data Schedule.
29 30 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. PLANTRONICS, INC. Dated: June 1, 2000 By: /s/ S. KENNETH KANNAPPAN ------------------------------------ S. Kenneth Kannappan Chief Executive Officer 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 date indicated. /s/ S. KENNETH KANNAPPAN President, Chief Executive June 1, 2000 - ----------------------------------------------------- Officer and Director (S. Kenneth Kannappan) (Principal Executive Officer) /s/ BARBARA V. SCHERER Senior Vice President and Chief June 1, 2000 - ----------------------------------------------------- Financial Officer (Principal (Barbara V. Scherer) Financial Officer and Principal Accounting Officer) /s/ MARV TSEU Chairman of the Board and Director June 1, 2000 - ----------------------------------------------------- (Marv Tseu) /s/ ROBERT F.B. LOGAN Director June 1, 2000 - ----------------------------------------------------- (Robert F.B. Logan) /s/ M. SALEEM MUQADDAM Director June 1, 2000 - ----------------------------------------------------- (M. Saleem Muqaddam) /s/ JOHN MOWBRAY O'MARA Director June 1, 2000 - ----------------------------------------------------- (John Mowbray O'Mara) /s/ TRUDE C. TAYLOR Director June 1, 2000 - ----------------------------------------------------- (Trude C. Taylor) /s/ DAVID A. WEGMANN Director June 1, 2000 - ----------------------------------------------------- (David A. Wegmann)
30 31 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Amended and Restated By-Laws of the Registrant (incorporated herein by reference to Exhibit (3.4) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 3.2 Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on January 19, 1994 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended December 25, 1993, filed on March 4, 1994). Certificate of Retirement and Elimination of Preferred Stock and Common Stock of the Registrant filed with the Secretary of State of Delaware on January 11, 1996 (incorporated herein by reference to Exhibit (3.3) of the Registrant's Annual Report on Form 10-K, SEC File Number 1-12696, for the fiscal year ended March 30, 1996, filed on June 27, 1996). Certificate of Amendment of Restated Certificate of Incorporation of the Registrant filed with the Secretary of State of Delaware on August 7, 1997 (incorporated herein by reference to Exhibit (3.1) to the Registrant's Quarterly Report on Form 10-Q, SEC File Number 1-12696, for the fiscal quarter ended June 28, 1997, filed on August 8, 1997). 10.1 Quarterly Profit Sharing Plan (as amended) (incorporated herein by reference to Exhibit (10.2) to Registrant's predecessor, Plantronics, Inc.'s Report on Form 10-K, SEC File Number 1-6642, for the fiscal year ended May 29, 1982, filed on August 27, 1982). 10.3 Form of Indemnification Agreement between the Registrant and certain directors and executives and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.1) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.4 Form of Employment Agreement, Addendum to Employment Agreement and Second Addendum to Employment Agreement between the Registrant and certain executives; and Schedule of Other Documents Omitted (incorporated herein by reference to Exhibit (10.2) to PI Holdings Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1992, SEC File Number 33-26770, filed February 9, 1993). 10.5 Executive Bonus Plan (incorporated herein by reference to Exhibit (10.4) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.6 Board Designation Agreement dated as of October 22, 1993 between the Registrant and Citicorp Venture Capital, Ltd. (incorporated herein by reference to Exhibit (10.21) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed October 20, 1993). 10.7 Lease Agreement dated July 1993 between Inmobiliara Mexhong S.A. de C.V. and Plamex, S.A. de C.V., a subsidiary of the Registrant, for premises located in Tijuana, Mexico (translation from Spanish original) (incorporated herein by reference to Exhibit (10.30) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.8 Lease dated December 7, 1990 between Canyge Bicknell Limited and Plantronics Limited, a subsidiary of the Registrant, for premises located in Wootton Bassett, England (incorporated herein by reference to Exhibit (10.32) to the Registrant's Registration Statement on Form S-1 (as amended), No. 33-70744, filed on October 20, 1993). 10.9 1993 Stock Plan (incorporated herein by reference to Exhibit (10.1) to the Registrant's Registration Statement on Form S-1 (as amended), SEC File Number 33-70744, filed on October 20, 1993). Amendment effective as of April 23, 1996 to the 1993 Stock Plan (incorporated herein by reference to Exhibit (4.2) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). Amendment Number Two to the 1993 Stock Plan effective as of July 30, 1998, filed on June 16, 1999, as Exhibit 10.5 to the Registrant's Annual Report on Form 10K, SEC File Number 001-12696.
31 32
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.10 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (10.29) to the Registrant's Registration Statement on Form S-1 (as amended), SEC File Number 33-70744, filed on October 20, 1993). Amendment Effective as of April 23, 1996 to the 1993 Director Stock Option Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.11 1996 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-14833, filed on October 25, 1996). 10.12 Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan (incorporated herein by reference to Exhibit (4.1) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). Trust Agreement Establishing the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan Trust (incorporated herein by reference to Exhibit (4.3) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). Amendment Number One to the Plantronics, Inc. Annual Profit Sharing/Individual Savings Plan (incorporated herein by reference to Exhibit (4.2) to the Registrant's Registration Statement on Form S-8, SEC File Number 333-19351, filed on January 7, 1997). 10.13 Resolutions of the Board of Directors of Plantronics, Inc. Concerning Executive Stock Purchase Plan (incorporated herein by reference to Exhibit (4.4) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.14 Plantronics, Inc. Basic Deferred Compensation Plan, as amended August 8, 1996 (incorporated herein by reference to Exhibit (4.5) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Trust Agreement Under the Plantronics, Inc. Basic Deferred Stock Compensation Plan (incorporated herein by reference to Exhibit (4.6) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). Plantronics, Inc. Basic Deferred Compensation Plan Participant Election (incorporated herein by reference to Exhibit (4.7) to the Registrant's Registration Statement on Form S-8 (as amended), SEC File Number 333-19351, filed on March 25, 1997). 10.15 Employment Agreement dated as of July 4, 1999 between Registrant and Ken Kannappan. 10.16 Credit Agreement dated as of November 29, 1999 between Registrant and Wells Fargo Bank N.A. 13 Portions of Registrants 2000 Annual Report to Security Holders which have been incorporated by reference in Parts I, II and IV of this Annual Report. 21 Subsidiaries of the Registrant. 23 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 27 Financial Data Schedule.
32 EX-10.15 2 0002.txt EXHIBIT 10.15 1 EXHIBIT 10.15 EMPLOYMENT AGREEMENT This Employment Agreement is entered into as of July 4, 1999 (the "Effective Date") by and between Plantronics, Inc., a Delaware corporation (the "Company") and S. Kenneth Kannappan (the "Executive"). RECITALS A. The Executive is currently employed by the Company. B. The Company and the Executive desire to enter into an agreement that clarifies the rights and obligations of the Company and the Executive in connection with Executive's employment with the Company and in the event that the Executive's employment with the Company terminates under certain circumstances. AGREEMENT NOW, THEREFORE, the parties agree as follows: 1. Employment and Duties. During the Employment Period (defined in paragraph 2 below), the Executive will serve as President and Chief Executive Officer of the Company and such of the Company's other affiliates and subsidiaries as the Board of Directors of the Company (the "Board") may from time to time direct. The duties and responsibilities of the Executive shall include the duties and responsibilities for the Executive's corporate offices and positions as set forth in the Company's bylaws from time to time in effect and such other duties and responsibilities as the Board may from time to time reasonably assign to the Executive, in all cases to be consistent with the Executive's corporate offices and positions. The Executive shall perform faithfully the executive duties assigned to him to the best of his ability. The Executive also serves as a member of the Board, and during the Employment Period agrees to serve in such capacity without additional compensation. If the Executive is elected or appointed as an officer or director of any of the Company's affiliates or subsidiaries during the Employment Period, then he shall also serve in such capacity or capacities but without additional compensation. 2. Employment Period. The employment period (the "Employment Period") shall begin upon the Effective Date and shall continue thereafter for an initial term of one (1) year, unless sooner terminated in accordance with paragraph 10 below. After the initial one (1)-year Employment Period, or any extension term, this Employment Agreement shall be automatically extended for additional one (1)-year terms, unless sooner terminated in accordance with paragraph 10 below or unless either party provides written notice of non-renewal to the other at least 90 days prior to the end of the then current term. 3. Place of Employment. The Executive's services shall be performed at the Company's principal executive offices in Santa Cruz, California. The parties acknowledge, however, that the Executive may be required to travel in connection with the performance of his duties hereunder. 2 4. Base Salary and Profit Sharing. For all services to be rendered by the Executive pursuant to this Agreement, the Company agrees to pay the Executive during the Employment Period (a) a base salary (the "Base Salary") at an annual rate of not less than $375,000 and (b) annual and quarterly profit sharing in accordance with the Company's profit sharing program(s) as in effect from time to time ("Profit Sharing"). The Base Salary and Profit Sharing shall be paid in periodic installments in accordance with the Company's regular payroll practices. The Company agrees to review the Base Salary at least annually as of the payroll payment date nearest each anniversary of the Effective Date (beginning in 2000), and to make such increases therein as the Board may approve. The Company further agrees that if there are changes in the Company's Profit Sharing programs that decrease the profit sharing component of the Executive's total compensation, the Base Salary shall be adjusted upward to ensure that the sum of Base Salary plus Profit Sharing remains substantially the same. 5. Incentive Bonus. Beginning with the Company's current fiscal year and for each fiscal year thereafter during the Employment Period, the Executive will be eligible to receive quarterly Regular and annual Supplemental bonuses (together, the "Incentive Bonus") based upon certain financial criteria set by the Board, including revenue and profitability targets and other organizational milestones. The quarterly Incentive Bonus will provide a maximum annual bonus opportunity of up to 35% of the Executive's Base Salary and the annual Incentive Bonus will provide an annual bonus opportunity of up to an additional 65% of the Executive's Base Salary. The Incentive Bonus payable hereunder shall be payable consistent with the Company's past practices and policies. 6. Expenses. The Executive shall be entitled to prompt reimbursement by the Company for all reasonable ordinary and necessary travel, entertainment and other expenses incurred by the Executive during the Employment Period (in accordance with the policies and procedures established by the Company for its senior executive officers) in the performance of his duties and responsibilities under this Agreement, provided that the Executive shall properly account for such expenses in accordance with Company policies and procedures. 7. Other Benefits. During the Employment Period, the Executive shall be entitled to all of the fringe benefit programs that the Company and its subsidiaries make available to senior officers in accordance with the terms and conditions of such programs. 8. Vacations and Holidays. The Executive shall be entitled to paid vacations and holidays in accordance with the Company's policies in effect from time to time for its senior executive officers. The Executive shall be entitled to accrue into the following year vacation unused in a given year, provided that the total vacation balance at any time shall not be twice the annual vacation allowance. Notwithstanding the foregoing limitation on the total vacation balance, the Executive shall be entitled to retain the additional four (4) weeks of vacation time accrued and unused in the Company's fiscal year 1999 (the "1999 Vacation Balance"). During the term of this Agreement, the Executive may draw against the 1999 Vacation Balance, provided that the Executive may not take more than two (2) weeks of the 1999 Vacation Balance in any single fiscal year. 9. Other Activities. The Executive shall devote substantially all of his working time and efforts during the Company's normal business hours to the business and affairs of the Company and -2- 3 its subsidiaries and to the diligent and faithful performance of the duties and responsibilities duly assigned to him pursuant to this Agreement, except for vacations, holidays and sickness. However, the Executive may devote a reasonable amount of his time to civic, community or charitable activities and, with the prior written approval of the Board, to serve as director of other corporations, provided that such activities do not materially interfere with the Executive's obligations hereunder (except that the Executive shall in any event be permitted to continue serving on the board of directors of Mattson Technology, Inc.) 10. Severance Benefits. (a) Termination. If the Executive's employment terminates as a result of Involuntary Termination (other than for Cause), or if the Executive's employment terminates by reason of the Executive's voluntary resignation on or after July 4, 2002, then the Executive shall, for the period of twenty-four (24) months following the Termination Date (the "Severance Payment Period") be entitled to (i) continued cash compensation payments equal to seventy-five percent (75%) of the average of the cash compensation earned in the four (4) full fiscal quarters immediately preceding the Termination Date and (ii) the continued provision of "Company Benefits," including "Medical Benefits" (as defined in paragraph 11(c)). "Cash compensation" as used in this paragraph shall mean Base Salary, profit sharing, and Incentive Bonus earned in the applicable four fiscal quarters, even if the amounts are paid in subsequent periods. The cash compensation shall be payable at the same time(s) as payable to employees of the Company. (b) Such payments and the provision of Company Benefits shall be discontinued upon a breach by the Executive of his obligations under paragraphs 12 or 13 hereof. If the Executive is terminated for Cause, or if the Executive voluntarily resigns prior to July 4, 2002, then the Executive shall not be entitled to receive severance or other benefits under this Agreement, but will be entitled to receive benefits (if any) as may then be established under the Company's then existing severance and benefits plans and policies at the time of such termination for similar types of terminations. (c) Death/Disability. In the event the Executive's employment with the Company terminates by reason of the Executive's death or Disability, the Company shall be obligated as follows: (i) Death. If the Executive's employment with the Company terminates by reason of the Executive's death, then the Company shall be obligated to pay to the beneficiary or beneficiaries designated by the Executive to the Company in writing or, absent such designation, to the representative of the Executive's estate the amounts set forth in paragraph 10(a), provided, however, that the Company's obligation under paragraph 10(a) to pay Company Benefits shall be reduced to the extent of any life insurance proceeds payable for the Executive's benefit under any Company benefit plan or program. (ii) Disability. If the Executive's employment with the Company terminates by reason of the Executive's Disability, then the Executive shall be entitled to payment of the amounts set forth in paragraph 10(a), provided, however, that the Company's obligation under paragraph 10(a) to pay Company Benefits shall be reduced, during the period of continuation of cash -3- 4 compensation and Company Benefits, to the extent of any disability benefits payable to or for the benefit of the Executive under any Company benefit plan or program. (d) Options. In the event of a Change of Control or termination of the Executive's employment, the unvested stock options held by the Executive shall be affected as follows: (i) Change in Control. In the event of a Change of Control, then the unvested portion of any Company common stock or options to acquire Company common stock held by the Executive on the Termination Date shall automatically be accelerated and the Executive shall become fully vested in such common stock and/or shall have the right to exercise all or any portion of such option to acquire common stock, in addition to any portion of the option exercisable prior to such termination. (ii) Involuntary Termination, Death or Disability. If the Executive's employment terminates as a result of Involuntary Termination (other than for Cause), or terminates under circumstances described in paragraph 10(b), then that portion of any outstanding stock options which would vest had employment continued for the next succeeding eighteen (18) months shall automatically be accelerated and the Executive shall become fully vested in such common stock and/or shall have the right to exercise all or any portion of such option to acquire common stock, in addition to any portion of the option exercisable prior to such termination. (iii) Voluntary Resignation after July 4, 2002. If the Executive's employment terminates by reason of the Executive's voluntary resignation on or after July 4, 2002, then that portion of any outstanding stock options which would vest had employment continued for the next succeeding twelve (12) months shall automatically be accelerated and the Executive shall become fully vested in such common stock and/or shall have the right to exercise all or any portion of such option to acquire common stock, in addition to any portion of the option exercisable prior to such termination. (iv) Termination for Cause. In the event of a termination of the Executive's employment for Cause, all unvested stock options shall terminate upon the Termination Date. 11. Definition of Terms. The following terms referred to in this Agreement shall have the following meanings: (a) Cause. "Cause" shall mean the Executive's (i) conviction of a felony, act of fraud against, or the misappropriation of property belonging to the Company, (ii) willful misconduct that is demonstrably and materially injurious to the Company, or (iii) continued material violations of his obligation under the Employee Agreement (defined in paragraph 12) or under paragraphs 1, 9 or 13 of this Agreement after there has been delivered to the Executive a written demand for performance from the Company that describes such violations. -4- 5 (b) Change of Control. "Change of Control" shall mean the occurrence of any of the following events: (i) Any "person" (as such term is used in Paragraphs 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) other than Citicorp Venture Capital Ltd. and each of its affiliates becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing forty percent (40%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) A change in the composition of the Board occurring within a two (2)-year period as a result of which fewer than a majority of the Directors are Incumbent Directors (as hereinafter defined), except as the result of temporary vacancies caused by an Incumbent Director's voluntary resignation, death or disability. "Incumbent Directors" shall mean directors who (A) are directors of the Company as of July 4, 1999, or (B) are elected, or nominated for election, to the Board to replace a current Director with the affirmative votes of at least fifty percent (50%) of the then Incumbent Directors at the time of such election or nomination (but shall not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iii) A merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy percent (70%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (iv) Upon the occurrence of any of the following events: (A) the Company commences a voluntary case under Title XI of the United States Bankruptcy Code, as amended (the "Bankruptcy Code"); (B) an involuntary case is commenced against the Company under the Bankruptcy Code and relief is ordered against the Company, or the petition is controverted but is not dismissed within sixty (60) days after the commencement of the case; (C) a custodian is appointed for, or takes charge of, all or substantially all of the property of the Company; (D) the Company commences any other judicial, administrative or other governmental proceeding under any reorganization, arrangement, readjustment of debt, relief of debtors, dissolution, insolvency, liquidation or similar law of any jurisdiction (whether now or hereinafter in effect) relating to the Company, or there is commenced by the Company any such proceeding that remains undismissed for a period of sixty (60) days, or the Company is adjudicated insolvent or bankrupt, or the Company fails to controvert in a timely manner any such case of the Bankruptcy Code or any such proceeding, or any order of relief or other order proving any such case or proceeding is entered; (E) the Company by any act or failure to act indicates its consent to, approval of or acquiescence in any such case or proceeding or the appointment of any custodian or for it in any substantial part of its property or suffers any such appointment to continue undischarged or staid for a period of sixty (60) days; or (F) the Company makes a general assignment for the benefit of its creditors. -5- 6 (c) Company Benefits. "Company Benefits" shall mean the Company's Medical Benefits (defined below), its Automobile Expense Reimbursement Program, and its disability, life or other group insurance benefits to the extent the Executive is receiving such benefits immediately prior to the Termination Date, or such comparable alternative benefits or payments as the Company may, in its discretion, determine to be sufficient to satisfy its obligations to the Executive under this Agreement. "Medical Benefits" shall mean the Group Medical/Dental Plan and the Exec-U-Care Medical Reimbursement Insurance Program, as currently in effect (as adjusted for all then current executives), or such comparable alternative benefits or payments as the Company may, in its discretion, determine to be sufficient to satisfy its obligations to the Executive under this Agreement, provided that, for purposes of paragraphs 10(a) and 10(b), the cost associated with the provision of such Medical Benefits in the aggregate shall not exceed $13,000 in any fiscal year plus an annual adjustment (as determined by the Board) to reflect increases in the costs of such benefits starting at the end of fiscal year 2000. (d) Disability. "Disability" shall mean that the Executive has been unable to perform his duties under this Agreement as the result of his incapacity due to physical or mental illness, and such inability, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers. Termination resulting from Disability may only be effected after at least thirty (30) days' written notice by the Company of its intention to terminate the Executive's employment, which notice may not be given until the Company has received the written determination of a physician selected by the Company or its insurers that the inability of Executive to perform his duties is total and permanent. In the event that the Executive resumes the performance of substantially all of his duties hereunder before the termination of his employment becomes effective, the notice of intent to terminate shall automatically be deemed to have been revoked. (e) Involuntary Termination. "Involuntary Termination" shall mean (i) without the Executive's express written consent, the assignment to the Executive of any duties or the reduction of the Executive's duties, either of which results in a significant diminution in the Executive's position or responsibilities with the Company in effect immediately prior to such assignment, or the removal of the Executive from such position and responsibilities; (ii) without the Executive's express written consent, a substantial reduction, without good business reasons, of the facilities and perquisites (including office space and location) available to the Executive immediately prior to such reduction; (iii) a reduction by the Company in the Base Salary of the Executive as in effect immediately prior to such reduction; (iv) a material reduction by the Company in the kind or level of employee benefits to which the Executive is entitled immediately prior to such reduction with the result that the Executive's overall benefits package is significantly reduced; (v) the relocation of the Executive to a facility or a location more than 25 miles from the Executive's then present location, without the Executive's express written consent; (vi) any termination of the Executive's employment by the Company that is not effected for death, Disability or for Cause; (vii) the failure of the Company to obtain the assumption of this Agreement by any successor; (viii) any material breach by the Company of any material provision of this Agreement; (ix) any purported termination of the Executive's employment by the Company that is not effected pursuant to a notice of termination satisfying the requirements of paragraph 19 below, and for purposes of this Agreement, no such purported termination shall be effective; or (x) provision of notice of non-renewal or extension of the Employment Period as provided for in paragraph 2 above. -6- 7 (f) Termination Date. "Termination Date" shall mean (i) if this Agreement is terminated by the Company for Disability, thirty (30) days after notice of termination (pursuant to paragraph 19) is given to the Executive (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30)-day period), (ii) if the Executive's employment is terminated by reason of the Executive's death, the date of death, (iii) if the Agreement is terminated by the Executive, such date as the Executive specifies in his notice of termination (pursuant to paragraph 19) to the Company, (iv) if the Agreement is terminated by either the Executive or the Company in connection with a notice of non-renewal or extension of the Employment Period as provided for in paragraph 2 above, the expiration of such Period, or (v) if the Company terminates the Executive's employment, the date specified by the Company in the notice of termination to the Executive (pursuant to paragraph 19). 12. Proprietary Information. During the Employment Period and thereafter, the Executive agrees to comply with the Employee Patent, Secrecy and Invention Agreement, which the Executive executed as of February 1, 1995 (the "Employee Agreement"), which is incorporated herein by reference. 13. Covenant Not to Compete or Solicit. (a) Non-Competition. The Executive agrees that for a period of thirty-six (36) months following the Executive's termination of employment with the Company for any reason (other than death), the Executive will not directly or indirectly engage in (whether as an employee, consultant, proprietor, partner, director or otherwise), or have any ownership interest in, or participate in the financing, operation, management or control of, any person, firm, corporation or business that engages in or (to the Executive's knowledge, after due inquiry) intends to engage in, a "restricted business" (as defined below). Ownership of (i) no more than one percent (1%) of the outstanding voting stock of a publicly traded corporation, or (ii) any stock owned by the Executive on the Effective Date, shall not constitute a violation of this provision. (b) Non-Solicitation. The Executive agrees that for a period of thirty-six (36) months following the Executive's termination of employment for any reason (other than death), the Executive shall not (i) solicit, encourage or take any other action that is intended to induce any other employee of the Company to terminate his or her employment with the Company, or (ii) interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company. The foregoing shall not prohibit any entity with which the Executive may be affiliated from hiring a former employee of the Company. (c) World-wide. The parties acknowledge that the market for the Company's products is world-wide, and that, in this market, products from any nation compete with products from all other countries. Accordingly, the parties agree that the provisions of this paragraph 13 shall apply to each of the states and counties of the United States, including each county in California, and to each country world-wide. -7- 8 (d) Severability. The parties intend that the covenants contained in the preceding subparagraphs shall be construed as a series of separate covenants, one for each county of California, each state of the Union, and each country. Except for geographic coverage, each such separate covenant shall be deemed identical in terms of the covenant contained in the preceding subparagraphs. If, in any judicial proceeding, a court shall refuse to enforce any of the separate covenants (or any part thereof) deemed included in said subparagraphs, then such unenforceable covenant (or such part) shall be deemed eliminated from this Agreement for the purpose of those proceedings to the extent necessary to permit the remaining separate covenants (or portions thereof) to be enforced. In the event the provisions of this paragraph 13 should ever be deemed to exceed the time of geographic limitations, or the scope of this covenant, permitted by applicable law, then such provisions shall be reformed to the maximum time or geographic limitations, as the case may be, permitted by applicable laws. (e) Restricted Business. For purposes of this Agreement, "restricted business" shall mean any business that is engaged in or (to the Executive's knowledge, after due inquiry) preparing to engage in the design, manufacture, marketing, sale or distribution of communications headsets, communications handsets, or related products, assemblies, subassemblies, components, and the repair or refurbishment of same. 14. Indemnification. In accordance with the Company's current indemnification policies, the Company shall indemnify the Executive if the Executive is or becomes a party or is threatened to be made a party to any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that the Executive is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of the Executive while an officer or director, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by the Executive in connection with such action, suit or proceeding if the Executive acted in good faith and in a manner the Executive reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the Executive's conduct was unlawful. 15. Successors. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption agreement prior to the effectiveness of any such succession shall entitle the Executive to the benefits described in paragraph 10(a) of this Agreement, subject to the terms and conditions therein. 16. Arbitration. (a) Agreement. The Company and the Executive agree that any dispute or controversy arising out of, relating to, or in connection with this Agreement, or the interpretation, validity, construction, performance, breach, or termination thereof shall be settled by binding -8- 9 arbitration, unless otherwise required by law, to be held in Santa Clara County, California, in accordance with the National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association (the "Rules"). The arbitrator may grant injunctions or other relief in such dispute or controversy. The decision of the arbitrator shall be final, conclusive and binding on the parties to the arbitration. Judgment may be entered on the arbitrator's decision in any court having jurisdiction. (b) Governing Law. The arbitrators shall apply California law to the merits of dispute or claim, without reference to rules of conflicts of law. The Executive hereby expressly consents to the personal jurisdiction of the state and federal courts located in California for any action or proceeding arising form or relating to this Agreement or relating to any arbitration in which the parties are participants. (c) Costs and Fees of Arbitration. The Executive shall pay the initial arbitration filing (not to exceed $200.00), and the Company shall pay the remaining costs and expenses of such arbitration (unless the Executive requests that each party pay one-half of the costs and expenses of such arbitration or unless otherwise required by law). The Company and the Executive shall each pay separately its counsel fees and expenses unless otherwise required by law. (d) Equitable Relief. The parties may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction, or other interim or conservatory relief, as necessary, without breach of this arbitration agreement and without abridgment of the powers of the arbitrator. (e) Executive's Representation. THE EXECUTIVE HAS READ AND UNDERSTANDS THIS PARAGRAPH, WHICH DISCUSSES ARBITRATION. THE EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, HE AGREES TO SUBMIT ANY FUTURE CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE OR BREACH OF THIS AGREEMENT, TO BINDING ARBITRATION, UNLESS OTHERWISE REQUIRED BY LAW, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A WAIVER OF HIS RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO THIS AGREEMENT. 17. Absence of Conflict. The Executive represents and warrants that his employment by the Company as described herein shall not conflict with and will not be constrained by any prior employment or consulting agreement or relationship. 18. Assignment. This Agreement and all rights under this Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective personal or legal representatives, executors, administrators. heirs, distributors, devisees, legatees, successors and assigns. This Agreement is personal in nature, and neither of the parties to this Agreement shall, without the written consent of the other, assign or transfer this Agreement or any right or obligation under this Agreement to any other person or entity, except that the Company may assign this Agreement to any of its affiliates or wholly-owned subsidiaries or to any successor by merger, provided that such assignment will not relieve the Company of its obligations hereunder. If -9- 10 the Executive should die while any amounts are still payable to him hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Executive's devisee, legatee, or other designee or, if there be no such designee, to the Executive's estate. 19. Notices. (a) General. For purposes of this Agreement, notices and other communications provided for in this Agreement shall be in writing and shall be delivered personally or sent by United States certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: S. Kenneth Kannappan c/o Plantronics, Inc. 345 Encinal Street Santa Cruz, CA 95060 If to the Company: Plantronics, Inc. 345 Encinal Street Santa Cruz, CA 95060 Attn: General Counsel or to such other address or the attention of such other person as the recipient party has previously furnished to the other party in writing in accordance with this paragraph. Such notices or other communications shall be effective upon delivery or, if earlier, three days after they have been mailed as provided above. (b) Notice of Termination. Any termination by the Company for Disability or Cause, or by the Executive as a result of a voluntary resignation or an Involuntary Termination, shall be communicated by a notice of termination to the other party hereto given in accordance with paragraph 19(a) of this Agreement. Such notice shall indicate the specific termination provision in this Agreement relied upon, shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provision so indicated, and shall specify the termination date in accordance with paragraph 11(f). The failure by the Executive to include in the notice any fact or circumstance that contributes to a showing of Involuntary Termination shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing his rights hereunder. 20. Integration. This Agreement, the Employee Agreement dated March 27, 1997, the Executive's Indemnification Agreement also dated March 27, 1997, and the respective option agreements governing the Executive's Company stock options represent the entire agreement and understanding between the parties as to the subject matter hereof and supersede all prior or contemporaneous agreements whether written or oral. As of the Effective Date, the Employment Agreement between the Company and the Executive dated as of March 27, 1997 only is cancelled. No waiver, alteration or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by duly authorized representatives of the parties hereto. -10- 11 21. Waiver. Failure or delay on the part of either party hereto to enforce any right, power or privilege hereunder shall not be deemed to constitute a waiver thereof. Additionally, a waiver by either party or a breach of any promise hereof by the other party shall not operate as or be construed to constitute a waiver of any subsequent waiver by such other party. 22. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. 23. Headings. The headings of the paragraphs contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement. 24. Applicable Law. This Agreement shall be governed by and construed in accordance with the internal substantive law, and not the choice of law rules, of the State of California. 25. Counterparts. This Agreement may be executed in one or more counterparts, none of which need contain the signature of more than one party hereto, and each of which shall be deemed to be an original, and all of which together shall constitute a single agreement. IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the day and year first above written. PLANTRONICS, INC. By: ------------------------------------- Title: Director EXECUTIVE: ---------------------------------------- S. Kenneth Kannappan -11- EX-10.16 3 0003.txt EXHIBIT 10.16 1 EXHIBIT 10.16 ================================================================================ CREDIT AGREEMENT DATED AS OF NOVEMBER 29, 1999 BETWEEN PLANTRONICS, INC., AS THE COMPANY, AND WELLS FARGO BANK, NATIONAL ASSOCIATION, AS THE BANK ================================================================================ 2 TABLE OF CONTENTS
SECTION PAGE ARTICLE 1....................................................................................1 DEFINITIONS..................................................................................1 1.01 Certain Defined Terms................................................................1 1.02 Other Interpretive Provisions.......................................................18 1.03 Accounting Principles...............................................................19 ARTICLE 2...................................................................................19 THE CREDIT..................................................................................19 2.01 The Revolving Credit................................................................19 2.02 Loan Accounts; Notes................................................................20 2.03 Procedure for Borrowing.............................................................20 2.04 Conversion and Continuation Elections...............................................21 2.05 Voluntary Termination or Reduction of the Commitment................................22 2.06 Optional Prepayments................................................................22 2.07 Cash Collateralization; Mandatory Prepayments.......................................22 2.08 Repayment...........................................................................23 2.09 Interest............................................................................23 2.10 Commitment Fee......................................................................24 2.11 Computation of Fees and Interest....................................................24 2.12 Payments by the Company.............................................................24 ARTICLE 3...................................................................................25 THE LETTERS OF CREDIT.......................................................................25 3.01 The Letter of Credit Subfacility....................................................25 3.02 Issuance, Amendment and Renewal of Letters of Credit................................26 3.03 Drawings and Reimbursements.........................................................27 3.04 Role of the Bank....................................................................27 3.05 Obligations Absolute................................................................28 3.06 Cash Collateralization Obligations..................................................29 3.07 Letter of Credit Fees...............................................................29 3.08 Uniform Customs and Practice........................................................29 ARTICLE 4...................................................................................30 TAXES, YIELD PROTECTION AND ILLEGALITY......................................................30 4.01 Taxes...............................................................................30 4.02 Illegality..........................................................................31 4.03 Increased Costs and Reduction of Return.............................................31 4.04 Funding Losses......................................................................32 4.05 Inability to Determine Rates........................................................32 4.06 Reserves on LIBOR Loans.............................................................32 4.07 Certificates of the Bank............................................................33 4.08 Survival............................................................................33 ARTICLE 5...................................................................................33 CONDITIONS PRECEDENT........................................................................33 5.01 Conditions of Effectiveness of Agreement............................................33 5.02 Conditions to All Credit Extensions.................................................34 ARTICLE 6...................................................................................35 REPRESENTATIONS AND WARRANTIES..............................................................35 6.01 Corporate Existence and Power.......................................................35 6.02 Corporate Authorization; No Contravention...........................................36 6.03 Governmental Authorization..........................................................36 6.04 Binding Effect......................................................................36 6.05 Litigation..........................................................................36
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SECTION PAGE 6.06 ERISA Compliance....................................................................37 6.07 Use of Proceeds; Margin Regulations.................................................37 6.08 Title to Properties.................................................................37 6.09 Taxes...............................................................................37 6.10 Financial Condition.................................................................38 6.11 Environmental Matters...............................................................38 6.12 Regulated Entities..................................................................38 6.13 No Burdensome Restrictions; Labor Relations.........................................38 6.14 Solvency............................................................................39 6.15 Copyrights, Patents, Trademarks and Licenses, etc...................................39 6.16 Subsidiaries........................................................................39 6.17 Insurance...........................................................................39 6.18 Swap Obligations....................................................................39 6.19 Full Disclosure.....................................................................40 6.20 Year 2000 Compliance................................................................40 6.21 Good Standing Certificates..........................................................40 ARTICLE 7...................................................................................41 AFFIRMATIVE COVENANTS.......................................................................41 7.01 Financial Statements................................................................41 7.02 Certificates; Other Information.....................................................41 7.03 Notices.............................................................................42 7.04 Preservation of Existence, Rights, etc..............................................43 7.05 Maintenance of Property.............................................................44 7.06 Insurance...........................................................................44 7.07 Payment of Obligations..............................................................44 7.08 Compliance with Laws................................................................44 7.09 Inspection of Property and Books and Records........................................44 7.10 Environmental Laws..................................................................45 7.11 Use of Proceeds.....................................................................45 7.12 Year 2000 Compliance................................................................45 7.13 Solvency............................................................................45 7.14 Internal Controls...................................................................45 ARTICLE 8...................................................................................46 NEGATIVE COVENANTS..........................................................................46 8.01 Limitation on Liens.................................................................46 8.02 Disposition of Assets...............................................................48 8.03 Consolidations and Mergers..........................................................49 8.04 Loans and Investments...............................................................49 8.05 Limitation on Indebtedness..........................................................51 8.06 Transactions with Affiliates........................................................53 8.07 Use of Proceeds.....................................................................53 8.08 Operating Lease Obligations.........................................................53 8.09 Restricted Payments.................................................................53 8.10 ERISA...............................................................................54 8.11 Net Funded Debt to EBITDA Ratio.....................................................54 8.12 Interest Coverage Ratio.............................................................54 8.13 Change in Business..................................................................55 8.14 Accounting Changes..................................................................55 ARTICLE 9...................................................................................55 EVENTS OF DEFAULT...........................................................................55 9.01 Event of Default....................................................................55 9.02 Remedies............................................................................57 9.03 Rights Not Exclusive................................................................58
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SECTION PAGE ARTICLE 10..................................................................................58 GENERAL PROVISIONS..........................................................................58 10.01 Amendments and Waivers............................................................58 10.02 Notices...........................................................................58 10.03 No Waiver; Cumulative Remedies....................................................59 10.04 Costs and Expenses................................................................59 10.05 Indemnity.........................................................................59 10.06 Payments Set Aside................................................................60 10.07 Successors and Assigns............................................................60 10.08 Assignments, Participations, etc..................................................61 10.09 Confidentiality...................................................................61 10.10 Set-off...........................................................................62 10.11 Counterparts......................................................................62 10.12 Severability......................................................................62 10.13 No Third Parties Benefited........................................................62 10.14 Governing Law; Jurisdiction.......................................................62 10.15 Arbitration.......................................................................63 10.16 Entire Agreement..................................................................65
iii 5 SCHEDULES 2.01 Commitment 3.07 Letter of Credit Fees and Charges 6.05 Certain Litigation Matters 6.06 Certain ERISA Matters 6.10 Certain Permitted Liabilities 6.11 Certain Environmental Matters 6.15 Certain Intellectual Property Matters 6.16 Subsidiaries and Minority Interests 6.17 Certain Insurance Matters 8.01(a) Certain Permitted Liens 8.05(b) Certain Permitted Indebtedness 10.02 Bank's Payment Office/Lending Office; Notice Information EXHIBITS A Form of Compliance Certificate B Form of Note C Form of Notice of Borrowing D Form of Notice of Conversion/Continuation E Form of Legal Opinion of the Company's Counsel iv 6 CREDIT AGREEMENT This CREDIT AGREEMENT (this "Agreement"), dated as of November 29, 1999, is between PLANTRONICS, INC., a Delaware corporation (the "Company"), and WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Bank"). RECITALS The Company has requested the Bank to extend credit to the Company in the form of a revolving credit facility with a letter of credit sub-facility to finance the operations of the Company and its Subsidiaries, to include certain acquisitions, the repurchase of stock, and capital expenditures, and for other general corporate purposes. The Bank has agreed to make available such credit to the Company on the terms and conditions contained herein. Accordingly, the parties agree as follows: ARTICLE 1 DEFINITIONS 1.01 Certain Defined Terms. As used herein: "AAA" has the meaning specified in Section 10.15(b). "Acquired Indebtedness" means Indebtedness of a Person (a) assumed in connection with an Acquisition from such Person or (b) existing at the time such Person becomes a Subsidiary of another Person. "Acquiree" has the meaning specified in Section 8.04(g). "Acquisition" means any transaction, or any series of related transactions, by which any Person, in the transaction or as of the most recent transaction in a series of transactions, directly or indirectly: (a) acquires all or substantially all of the assets of a Person (other than a Person that is a Subsidiary of the Company), or of any business or division of a Person (other than a Person that is a Subsidiary of the Company); (b) acquires in excess of fifty percent (50%) of the capital stock, partnership interests or equity of any Person (other than a Person that is a Subsidiary of the Company) or otherwise causes any such Person to become a Subsidiary of the Company; or (c) merges, consolidates or otherwise combines with another Person (other than a Person that is a Subsidiary of the Company), provided that the Company or the Company's Subsidiary is the surviving entity or the surviving or resulting entity is under the control of, or under common control with, the Company. "Adjusted EBITDA" means, for any period, for the Company and its Subsidiaries on a consolidated basis determined in accordance with GAAP, EBITDA for such period minus Capital Expenditures incurred during such period. 1 7 "Affiliate" means any Person that directly or indirectly controls, or is under common control with, or is controlled by, another Person. As used in this definition, "control" (including, with its correlative meanings, "controlled by" and "under common control with") means the possession, directly or indirectly, of power to direct or cause the direction of the management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person that owns directly or indirectly securities having 5% or more of the voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. Notwithstanding the foregoing, with respect to the Company or any Subsidiary of the Company, the definition of "Affiliate" shall not include (a) any individual solely by reason of his or her being a director, officer or employee of (i) the Company or (ii) any of the Company's Subsidiaries or (b) the Bank. "Agreement" means this Credit Agreement. "Applicable Commitment Fee Percentage" means, on any date, one-tenth of one percent (0.10%) per annum. "Applicable Lending Office" means, for each Type of Loan, the "Lending Office" of the Bank (or of an Affiliate of the Bank) designated for such Type of Loan on Schedule 10.02 or such other office of the Bank (or of an Affiliate of the Bank) as the Bank may from time to time specify to the Company as the office for its Loans of such Type. "Approved Replacement Director" means: (a) any director of the Company who has been approved by two-thirds of the Board of Directors of the Company as constituted at the beginning of any relevant period or by a Permitted Holder; or (b) any director of the Company who has been approved by two-thirds of those members of the Board of Directors of the Company, as constituted at the beginning of any relevant period, entitled pursuant to the Organizational Documents of the Company to vote for such director, together with any directors referred to in the preceding clause (a) or previously approved in accordance with this clause (b) or by a Permitted Holder. "Asset Sale" means any direct or indirect sale, conveyance, transfer, lease or other disposition to any Person other than the Company or a Subsidiary of the Company, in one transaction or a series of related transactions, of: (a) any Capital Stock of any Subsidiary of the Company; or (b) any other Property of the Company or any Subsidiary of the Company other than sales of inventory or other assets in the Ordinary Course of Business and other than isolated transactions which do not exceed $250,000, individually, or $500,000, in the aggregate. For purposes hereof, the term "Asset Sale" shall not include the following: (i) any disposition of the Property of the Company or any Subsidiary of the Company that is governed under and complies with Section 8.03 or any disposition of Investments of the type described in Sections 8.04(b), (c), (e), (f) and (k); or (ii) any issuance by the Company of its Capital Stock. "Assignee" has the meaning specified in Section 10.08(a). "Attorney Costs" means all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" has the meaning specified in the introduction hereto. 2 8 "Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the United States Code. "Bank's Payment Office" means the address of the Bank for payments specified on Schedule 10.02 or such other address therefor as the Bank may from time to time specify in accordance with the terms hereof. "Base LIBOR" has the meaning specified in the definition of "LIBOR" contained herein. "Borrowing" means a borrowing hereunder consisting of Loans of the same Type made to the Company on the same day by the Bank under Article 2, and, other than in the case of Prime Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.03. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York or San Francisco, California are authorized or required by law to close and, if the applicable Business Day relates to any LIBOR Loan, means such a day on which dealings are carried on in the applicable offshore dollar inter-bank market. "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capital Expenditures" means, for any period, the aggregate expenditures (whether paid in cash or accrued as a liability, including the aggregate amount of Capital Lease Obligations incurred during such period, but excluding capitalized interest and items paid in cash that had been accrued and counted as "Capital Expenditures" in a prior period) made by the Company or any of its Subsidiaries to acquire or to construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs in the ordinary course) during such period, determined in accordance with GAAP. "Capital Lease Obligations" means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount of such obligations, determined in accordance with GAAP. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in, or other equivalents (however designated and whether voting or non-voting) of, such Person's capital stock (including any partnership interest), whether outstanding on the Closing Date or issued after the Closing Date, and any and all rights, warrants or options exchangeable for or convertible into such capital stock. "Cash Collateralize" means to pledge and deposit with or deliver to the Bank, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Bank. Derivatives of such term shall have corresponding meaning. 3 9 "Cash Equivalents" means: (a) any evidence of Indebtedness with a maturity of 365 days or less issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof, provided that the full faith and credit of the United States is pledged in support thereof); (b) certificates of deposit or acceptances with a maturity of 365 days or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $100,000,000; (c) commercial paper with a maturity of 365 days or less issued by a corporation (other than an Affiliate of the Company or any of its Subsidiaries) organized under the laws of any State of the United States or the District of Columbia and rated at least A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors Services, Inc.; (d) repurchase agreements and reverse repurchase agreements relating to marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States government, in each case maturing within one year from the date of acquisition, provided that the terms of such agreements comply with the guidelines set forth in the Federal Financial Agreements of Depositary Institutions with Securities and Others, as adopted by the Comptroller of the Currency of the United States; (e) deposit accounts maintained with financial institutions referred to in the preceding clause (b); and (f) investments in mutual funds which invest exclusively in the items described in the preceding clauses (a) through (e). "Cash Interest Expense" means, for any period, on a consolidated basis, total interest expense for the period (including all commissions, discounts, fees and other charges in connection with standby letters of credit and similar instruments) for the Company and its Subsidiaries, less non-cash items included in such interest expense (including any amortization of discount or interest expense not payable in cash). "Change of Control" means the occurrence, after the date of this Agreement, of any of the following: (a) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the Property of the Company and its Subsidiaries, taken as a whole, to any Person or group of Persons acting in concert as a partnership or other group (a "group of Persons"), other than a Permitted Holder; (b) the merger or consolidation of the Company with or into another Person with the effect that a Person or group of Persons (such Person or group of Persons, the "Acquiring Persons"), other than Permitted Holders, has become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the surviving Person of such merger or consolidation or the corporation resulting from such merger or consolidation representing 35% or more of the combined voting power of the then outstanding securities of such surviving or resulting Person, as the case may be, ordinarily (and apart from rights arising under special circumstances) having the right to vote in the election of directors, provided that such a merger or consolidation shall not be a "Change of Control" if, after giving effect to such merger or consolidation, Permitted Holders are then the beneficial owner of securities of such surviving Person 4 10 representing combined voting power in excess of the combined voting power of such securities as to which the Acquiring Persons have become the beneficial owner; (c) a change to the composition of the Board of Directors of the Company over a two-year period such that the directors who constituted such Board of Directors at the beginning of such period, together with all Approved Replacement Directors elected since the beginning of such period, shall cease to constitute a majority of the Board of Directors of the Company; and (d) a Person or group of Persons (such Person or group of Persons, the "Purchasers"), other than Permitted Holders, shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company representing 35% or more of the combined voting power of the then outstanding securities of the Company ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors, provided that such a change of ownership shall not be a "Change of Control" if, after giving effect to such change, Permitted Holders are then the beneficial owner of securities of the Company representing combined voting power in excess of the combined voting power of such securities as to which the Purchasers have become the beneficial owner. "Closing Date" means the date on which all conditions precedent set forth in Section 5.01 are satisfied, made conditions subsequent or waived by the Bank. "Code" means the Internal Revenue Code of 1986 and all regulations promulgated thereunder. "Commitment" has the meaning specified in Section 2.01. "Compliance Certificate" means a certificate substantially in the form of Exhibit A executed and delivered on behalf of the Company by a Responsible Officer. "Consolidated Fixed Charge Coverage Ratio" means, with respect to the Company for any period, the ratio of (a) the aggregate amount of Adjusted EBITDA plus Capital Expenditures incurred in such period for the four full fiscal quarters for which financial information in respect thereof is available immediately preceding the date of the transaction (the "Transaction Date") giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal quarter period being referred to herein as the "Four Quarter Period") to (b) the aggregate amount of Consolidated Fixed Charges for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "Adjusted EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to, without duplication, (i) any incurrences, and permanent repayments out of the proceeds of such incurrences, of Indebtedness of the Company or any of its Subsidiaries occurring during the period commencing on the first day of the Four Quarter Period through the Transaction Date (the "Reference Period"), including the incurrence of the Indebtedness giving rise to the need to make such calculation, as if such incurrence or repayment, as the case may be, occurred on the first day of the Reference Period, but excluding Indebtedness incurred or repaid under any revolving credit or similar facility pursuant to which amounts incurred may be repaid and reborrowed for working capital purposes (it being understood that such incurrences and repayments referred to in this exclusion are included in the calculation of "Consolidated Fixed Charge Coverage Ratio" on an actual basis), unless a permanent reduction in the commitments is effected by such repayment and (ii) any Asset Sales or Acquisitions (including any Acquisition giving rise to the need to make such calculation as a result of the Company or one of its Subsidiaries (including any Person who becomes a Subsidiary as a result of the Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness) occurring during the Reference Period, as if such Asset Sale or Acquisition 5 11 occurred on the first day of the Reference Period. Without limiting the generality of the foregoing, in calculating "Consolidated Interest Expense" and "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of "Consolidated Fixed Charge Coverage Ratio," (A) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; (B) if interest on any Indebtedness actually incurred on the Transaction Date may optionally be determined at an interest rate based upon a factor of a prime or similar rate, a eurocurrency inter-bank offered rate, or other rates, then the interest rate in effect on the Transaction Date will be deemed to have been in effect during the Reference Period; and (C) notwithstanding the immediately preceding clauses (A) and (B), interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by Swap Agreements, shall be deemed to have accrued at the rate per annum resulting after giving effect to such agreements. If the Company or any of its Subsidiaries directly or indirectly enters into a Guaranty Obligation with respect to Indebtedness of a third Person (other than Indebtedness of a consolidated Subsidiary of such Person or, with respect to a consolidated Subsidiary of the Company, other than Indebtedness of the Company), the immediately preceding clause shall give effect to the incurrence of such Guaranty Obligation as if such Person or such Subsidiary had directly incurred or otherwise assumed such Guaranty Obligation. "Consolidated Fixed Charges" means, with respect to the Company for any period, the amounts for such period of (a) Consolidated Interest Expense and (b) the aggregate amount of dividends and other distributions paid or accrued during such period in respect of Disqualified Capital Stock of the Company and its Subsidiaries on a consolidated basis; provided that, if, during such period, the Company or any of its consolidated Subsidiaries shall have made any Asset Sales or Acquisitions, "Consolidated Fixed Charges" for the Company and its consolidated Subsidiaries for such period shall be adjusted to give pro forma effect to the Consolidated Fixed Charges directly attributable to the Properties which are the subject of such Asset Sales or Acquisitions during such period. "Consolidated Interest Expense" means, with respect to the Company for any period, without duplication, the sum of (a) the interest expense of such the Company and its Subsidiaries for such period on a consolidated basis determined in accordance with GAAP, including (i) any amortization of debt discount, (ii) the net cost of obligations under any Swap Agreements (including any amortization of discounts), (iii) the interest portion of any deferred payment obligation, (iv) all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and (v) all accrued interest, (b) the interest component of Capitalized Lease Obligations paid, accrued or scheduled to be paid or accrued by the Company and its Subsidiaries during such period on a consolidated basis determined in accordance with GAAP and (c) one-third of the amount of all lease payments (other than Capitalized Lease Obligations) paid, accrued or scheduled to be paid or accrued by the Company and its Subsidiaries during such period on a consolidated basis determined in accordance with GAAP. "Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for 6 12 the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each of the foregoing, a "Guaranty Obligation"); (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations other than in respect of Swap Contracts, shall be equal to the maximum reasonably anticipated liability in respect thereof and, in the case of Contingent Obligations in respect of Swap Contracts, shall be equal to the Swap Termination Value. "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its Property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.04, the Company does either or both of the following: (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Credit Documents" means this Agreement, any Note, the L/C Related Documents and all other documents delivered to the Bank in connection herewith. "Credit Extension" means the following: (a) the making of any Loans or L/C Advances hereunder; and (b) the Issuance of any Letters of Credit hereunder. "Default" means any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dispute" has the meaning specified in Section 10.15. "Disqualified Capital Stock" means, with respect to any Person, any Capital Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is exchangeable for Indebtedness, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the Revolving Termination Date. "Dollars," "dollars" and "$" each mean lawful money of the United States. "Domestic Subsidiary" means any Subsidiary that is organized under the laws of the United States or any State thereof. 7 13 "EBITDA" means, for any period, for the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP, the sum of: (a) the net income (or net loss) for such period; plus (b) all amounts treated as expenses for such period for depreciation and interest and the amortization of intangibles of any kind, but in each case only to the extent included in the determination of such net income (or net loss); plus all accrued taxes for such period on or measured by income, but in each case only to the extent included in the determination of such net income (or net loss); plus (d) all non-cash expenses or charges for management stock compensation for such period, but in each case only to the extent included in the determination of such net income (or net loss); provided that net income (or net loss) shall be computed for all of the foregoing purposes without giving effect to extraordinary gains or extraordinary losses. "Effective Amount" means: (a) with respect to any Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments occurring on such date; and (b) with respect to any outstanding L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "Eligible Assignee" means any of the following: (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; (c) the central bank of any country which is a member of the OECD, provided that such bank is acting through a branch or agency located in the United States; (d) any (i) a finance company, savings and loan association or other financial institution, mutual fund or other fund (whether a corporation, partnership, trust or other entity), or (ii) insurance company engaged in the business of writing insurance that, in either case, (A) is organized under the laws of the United States (or any state thereof or the District of Columbia), (B) is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets of $500,000,000 or more, and (C) is operationally and procedurally able to meet the obligations of the Bank hereunder to the same degree as a commercial bank that would be an Eligible Assignee, as determined by the Bank; and (e) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of the Bank, (ii) a Subsidiary of a Person of which the Bank is a Subsidiary or (iii) a Person of which the Bank is a Subsidiary. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility of any of the Company or any of its Subsidiaries for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state, local or foreign laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. 8 14 "ERISA" means the Employee Retirement Income Security Act of 1974 and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of subsection 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means any of the following: (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurocurrency Liabilities" has the meaning specified in Regulation D (as amended) of the FRB. "Event of Default" has the meaning specified in Section 9.01. "Exchange Act" means the Securities Exchange Act of 1934 and all regulations promulgated thereunder. "Existing Facility" means the Credit Agreement, dated as of February 19, 1997, as amended, between the Company and Bank of America, N.A. (as successor in interest to Bank of America, National Trust & Savings Association). "Fair Market Value" means, with respect to any Property, the price which could be negotiated in an arm's-length free market transaction, for cash, between a willing seller and a willing buyer, neither of whom is under undue pressure or compulsion to complete the transaction. Fair Market Value shall be determined by the Company acting in good faith; provided that, in the case of any transaction in excess of $500,000, Fair Market Value shall be determined by the Board of Directors of the Company acting in good faith and shall be evidenced by a certified copy of a resolution of such Board of Directors delivered to the Bank. "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Foreign Subsidiary" means, with respect to any Person, any Subsidiary of such Person that is not a Domestic Subsidiary of such Person. "FRB" means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions. 9 15 "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 4.01. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances and consistently applied. "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guaranty Obligation" has the meaning specified in the definition of "Contingent Obligation" contained herein. "Honor Date" has the meaning specified in Section 3.03(c). "Indebtedness" of any Person means (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all obligations of such Person issued, undertaken or assumed as the deferred purchase price of property or services; (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments issued by such Person, including obligations so evidenced incurred in connection with the acquisition of Property or businesses; (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to Property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such Property); (f) all Capital Lease Obligations of such Person; (g) all Contingent Obligations referred to in clause (d) of the definition of "Contingent Obligations" contained herein; (h) all indebtedness referred to in the immediately preceding clauses (a) through (g) secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person (but only to the extent of the lesser of such indebtedness or the fair market value of the Property subject to such Lien, where such Lien secured another Person's indebtedness), even though such Person has not assumed or become liable for the payment of such Indebtedness; (i) all Guaranty Obligations of such Person in respect of the indebtedness or other obligations of others of the kinds referred to in the immediately preceding clauses (a) through (g); and (j) all other Contingent Obligations; provided that, with respect to any Person, "Indebtedness" shall not include trade payables and accrued expenses (including those between the Company and its Subsidiaries), in each case arising in the Ordinary Course of Business; provided further that, for all purposes of this Agreement, "Indebtedness" of any Person shall include all recourse obligations or indebtedness of any partnership or joint venture or limited liability company in which such Person is a general partner or a joint venturer or a member. "Indemnified Liabilities" has the meaning specified in Section 10.05(a). 10 16 "Indemnified Person" has the meaning specified in Section 10.05(a). "Independent Auditor" has the meaning specified in Section 7.01(a). "Insolvency Proceeding" means, with respect to any Person: (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors; or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; in either event undertaken under United States federal, state or foreign law, including the Bankruptcy Code. "Interest Coverage Ratio" means, as of any date of determination, in respect of the Company and its Subsidiaries on a consolidated basis, (a) Adjusted EBITDA divided by (b) Cash Interest Expense, such amounts being calculated on a rolling four-quarter basis (all through the then-most recent quarter end for which the Company has delivered to the Bank a Compliance Certificate). "Interest Payment Date" means, as to any Loan other than a Prime Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Prime Rate Loan, the last Business Day of each calendar month and each date such Loan is converted into another Type of Loan; provided that, if any Interest Period for a LIBOR Loan exceeds one month, then each day during such Interest Period which is a monthly anniversary of the beginning of such Interest Period shall also be an Interest Payment Date. "Interest Period" means, as to any LIBOR Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which a Loan is converted into or continued as a LIBOR Loan, and ending on the date one, two, three or six months thereafter as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (a) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of a LIBOR Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (b) any Interest Period pertaining to a LIBOR Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (c) no Interest Period shall extend beyond the date set forth in clause (a) of the definition of "Revolving Termination Date" contained herein. "Investments" has the meaning specified in Section 8.04. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the Code. 11 17 "Issuance Date" has the meaning specified in Section 3.01(a). "Issue" means, with respect to any Letter of Credit, to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "Joint Venture" means a single-purpose corporation, partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person. "L/C Advance" means an extension of credit resulting from a drawing under any Letter of Credit which is not reimbursed on the date of such drawing nor converted into a Loan. "L/C Amendment Application" means an application form for amendment of outstanding standby or commercial documentary letters of credit as shall at any time be in use at the Bank, as the Bank shall request. "L/C Application" means an application form for issuances of standby or commercial documentary letters of credit as shall at any time be in use at the Bank, as the Bank shall request. "L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which is not reimbursed on the date when made nor converted into a Borrowing under Section 3.03(c). "L/C Commitment" means the obligation of the Bank to issue Letters of Credit pursuant to Article 3 and to make L/C Advances, in an aggregate amount not to exceed on any date the amount equal to $10,000,000 less the Effective Amount of all L/C Obligations outstanding on such date. The L/C Commitment is a part of the Commitment, rather than a separate, independent commitment. "L/C Obligations" means at any time the sum of: (a) the aggregate undrawn amount of all Letters of Credit then outstanding; plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C-Related Documents" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other documents relating to any Letter of Credit, including any of the Bank's standard form documents for letter of credit issuances. "Lending Office" means the office or offices of the Bank specified on Schedule 10.02, or such other office or offices as the Bank may from time to time notify the Company. "Letters of Credit" means all letters of credit (whether standby letters of credit or commercial letters of credit) Issued by the Bank pursuant to Article 3. "LIBOR" means, for any Interest Period, with respect to LIBOR Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the nearest 1/16th of 1%) determined by the Bank as follows: LIBOR = BASE LIBOR 12 18 1.00 - LIBOR Reserve Percentage Where, "Base LIBOR" means the rate per annum for United States dollar deposits quoted by the Bank as the Inter-Bank Market Offered Rate, with the understanding that such rate is quoted by the Bank for the purpose of calculating effective rates of interest for loans making reference thereto, on the first day of an Interest Period for delivery of funds on such date for a period of time approximately equal to the number of days in such Interest Period and in an amount approximately equal to the principal amount to which such Interest Period applies. The understands and agrees that the Bank may base its quotation of the Inter-Bank Market Offered Rate upon such offers or other market indicators of the Inter-Bank Market as the Bank in its sole discretion deems appropriate, including the rate offered for U.S. dollar deposits on the London Inter-Bank Market. "LIBOR Reserve Percentage" means the reserve percentage prescribed by the FRB for Eurocurrency Liabilities, adjusted by the Bank for expected changes in such reserve percentage during the applicable Interest Period. The LIBOR shall be adjusted automatically as to all LIBOR Loans then outstanding as of the effective date of any change in the LIBOR Reserve Percentage. "LIBOR Loan" means a Loan that bears interest based on the LIBOR. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the UCC or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. "Loan" means an extension of credit made (or deemed made) by the Bank to the Company under Article 2, which extension of credit may be a Prime Rate Loan or a LIBOR Loan (each, a "Type" of Loan). "Margin Stock" means "margin stock" as such term is defined in Regulation U of the FRB. "Material Adverse Effect" means any of the following: (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties or condition (financial or otherwise) of the Company and its Subsidiaries, taken as a whole; (b) a material impairment of the ability of the Company to perform its payment obligations under any of the Credit Documents; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability of any Credit Document. "Material Subsidiary" means, with respect to any Person, a Subsidiary of such Person that would, on a pro forma basis after giving effect to any Transfer permitted hereunder, constitute a "significant subsidiary" as such term is defined under Rule 1.02(v) of Regulation S-X of the SEC. 13 19 "Multiemployer Plan" means a "multiple employer plan" or a "multiemployer plan," within the meaning of Sections 4064(a) and 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "Net Funded Debt" means, as of any date of determination, (a) Indebtedness (other than the types described in clause (i) of the definition thereof) and, without duplication, all Guaranty Obligations with respect to any such Indebtedness of another Person less (b) cash and Cash Equivalents, to the extent not subject to any Lien, and to the extent exceeding in aggregate the amount of $5,000,000, in each case determined on a consolidated basis for the Company and its Subsidiaries in accordance with GAAP. "Net Funded Debt to EBITDA Ratio" means, as of any date of determination, the ratio of Net Funded Debt to EBITDA, calculated on a rolling four-quarter basis (through the then-most recent quarter end for which the Company has delivered to the Bank a Compliance Certificate). "Net Proceeds" means, in the case of any sale, lease, conveyance or other disposition of Property (including a sale/leaseback), the gross consideration received in cash, checks or other cash equivalent financial instruments (including Cash Equivalents) as and when received by the Person making the disposition from such disposition (other than liabilities assumed directly or indirectly by the buyer), less: (a) the amount of actual liabilities for taxes reasonably anticipated by the Company to be attributable to such disposition; (b) the amount of any reserves against any liabilities associated with such disposition required to be retained by the Person making such disposition after the disposition in conformity with GAAP (but only for the period required to be retained as a reserve); (c) the amount of Indebtedness required to be repaid or defeased under the terms thereof or under the terms of the disposition in connection with the disposition; and (d) the amount of fees and commissions payable to Persons other than the Person making the disposition and other costs and expenses related to the disposition that are to be paid in cash, in each case only to the extent customarily borne by a seller in an arm's-length transaction; provided that gross consideration shall not include the amount of intercompany indebtedness forgiven in connection with the disposition. "Note" means a promissory note executed by the Company in favor of the Bank pursuant to Section 2.02(b), in substantially the form of Exhibit B. "Notice of Borrowing" means a notice in substantially the form of Exhibit C. "Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit D. "Obligations" means all advances, debts, liabilities, obligations, covenants and duties and other Indebtedness arising under any Credit Document (including all Loans and L/C Borrowings and any obligation to Cash Collateralize) owing by the Company to the Bank or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. "OECD" has the meaning specified in the definition of "Eligible Assignee" contained herein. 14 20 "Ordinary Course of Business" means, in respect of any transaction involving any Person, the ordinary course of such Person's business, as undertaken by such Person in good faith and, with respect to the Company and any Subsidiary of the Company, not for the specific purpose of evading any covenant or restriction contained in any Credit Document. "Organization Documents" means: (a) for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation; (b) for any partnership, the partnership agreement, any other agreements or instruments relating to the rights or the partners of such partnership or limiting or authorizing the activities of such partnership, and all applicable resolutions of such partnership; and (c) for any limited liability company, the articles or certificate of formation, the operating agreement, any other agreements or instruments relating to the rights or the members of such limited liability company or authorizing the activities of such limited liability company, and all applicable resolutions of such limited liability company. "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Credit Documents. "Participant" has the meaning specified in Section 10.08(b). "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "PBV" means Plantronics B.V., a Netherlands corporation, and a Wholly Owned Subsidiary of the Company. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company or any ERISA Affiliate sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. "Permitted Holders" means Citicorp Venture Capital Ltd. and its Affiliates. "Permitted Liens" has the meaning specified in Section 8.01. "Permitted Swap Obligations" means all obligations (contingent or otherwise) of the Company or any of its Subsidiaries existing or arising under Swap Contracts, provided that each of the following criteria is satisfied: (a) such obligations are (or were) entered into by such Person in the Ordinary Course of Business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view"; and (b) such Swap Contracts do not contain (i) any provision (a "walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party, or (ii) any provision creating or permitting the declaration of an event of default, termination event or similar event 15 21 upon the occurrence of an Event of Default hereunder (other than an Event of Default under Section 9.01(a)). "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Plantronics Germany" means Plantronics Gmbh, a German Corporation, and a Wholly Owned Subsidiary of the Company. "Plantronics UK" means Plantronics Limited, a United Kingdom corporation, and a Wholly Owned Subsidiary of the Company. "Prime Rate" means at any time the rate of interest most recently announced within the Bank at its principal office as its "Prime Rate," with the understanding that the Bank's "Prime Rate" is one of the Bank's 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 after its announcement in such internal publication or publications as the Bank may designate. Any change in the Bank's "Prime Rate" as announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change. "Prime Rate Loan" means a Loan or an L/C Advance that bears interest based on the Prime Rate. "Property" means any estate or interest in any kind of property or asset, whether real, personal or mixed, and whether tangible or intangible. "Purchase Money Indebtedness" means any Indebtedness incurred in the Ordinary Course of Business by a Person to finance the cost (including the cost of construction) of an item of Property, the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "Reportable Event" means, any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer, the president, or the chief financial officer (or, if at the relevant time there is no chief financial officer, the General Counsel and Secretary) of the Company, or any other officer having substantially the same authority and responsibility or, with respect to compliance with financial covenants, the chief financial officer (or, if at 16 22 the relevant time there is no chief financial officer, the General Counsel and Secretary) or the treasurer of the Company, or any other officer having substantially the same authority and responsibility. "Revolving Termination Date" means the earlier to occur of: (a) November 27, 2000; and (b) the date on which the Commitment terminates in accordance with the provisions of this Agreement. "Santa Cruz Property" means those certain three buildings containing an aggregate of approximately 160,000 square feet owned by the Company and located in Santa Cruz, California. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Solvent" means, as to any Person at any time, that: (a) the fair value of the Property of such Person is greater than the amount of such Person's liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(31) of the Bankruptcy Code and, in the alternative, for purposes of the California Uniform Fraudulent Transfer Act; (b) the present fair saleable value of the Property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person is able to realize upon its Property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; and (d) such Person is not engaged in business or a transaction for which such Person's property would constitute unreasonably small capital. "Subordinated Indebtedness" means any Indebtedness of the Company which is by its terms subordinated in any manner in right of payment of the Obligations. "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. "Surety Instruments" means all letters of credit (including standby and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swap option, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the 17 23 date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include the Bank). "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by its net income or gross receipts by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office. "Transfers" has the meaning specified in Section 8.02. "Type" has the meaning specified in the definition of "Loan" contained herein. "UCC" means the Uniform Commercial Code as in effect in the State of California. "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "United States" and "U.S." each means the United States of America. "Wholly Owned Domestic Subsidiary" means a Domestic Subsidiary that is a Wholly Owned Subsidiary. "Wholly Owned Subsidiary" means, with respect to any Person, any entity of which (other than directors' qualifying shares required by law) 100% of the Capital Stock of each class having ordinary voting power, and 100% of the Capital Stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by such Person or by one or more of such Person's other Wholly Owned Subsidiaries, or both. "Year 2000 Compliant" means, in regard to any entity, that all software, hardware, firmware, equipment, goods or systems material to the business operations or financial condition of such entity, will properly perform date sensitive functions before, during and after the year 2000. 1.02 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof," "herein," "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced; and the term "including" is not limiting and means "including without limitation." 18 24 (d) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." (e) Unless otherwise expressly provided herein: (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Credit Document; and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (f) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (g) This Agreement and other Credit Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Bank by way of agreement, consent, approval or waiver shall be deemed modified by the phrase "in its sole discretion." (h) This Agreement and the other Credit Documents are the result of negotiations among and have been reviewed by counsel to the Company and the Bank, and are the products of all parties. Accordingly, they shall not be construed against the Bank merely because of the Bank's involvement in their preparation. 1.03 Accounting Principles. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made or determined, in accordance with GAAP consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. ARTICLE 2 THE CREDIT 2.01 The Revolving Credit. The Bank agrees, on the terms and conditions set forth herein, to make loans to the Company from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date in an aggregate amount not to exceed at any time outstanding the amount set forth on Schedule 2.01 (such amount, as the same may be reduced under Section 2.05 or as a result of one or more assignments under Section 10.08, the Bank's "Commitment"); provided that, after giving effect to any Credit Extension, the Effective Amount of all outstanding Loans and L/C Obligations together shall not at any time exceed the Commitment. Within the limits of the Commitment, and subject to the other 19 25 terms and conditions hereof, the Company may borrow under this Section 2.01, prepay under Section 2.06 and reborrow under this Section 2.01. 2.02 Loan Accounts; Notes. (a) The Loans made, and the Letters of Credit Issued, by the Bank shall be evidenced by one or more accounts or records maintained by the Bank in the Ordinary Course of Business. The accounts or records maintained by the Bank shall be prima facie evidence of the amount of the Loans made by the Bank to the Company and the Letters of Credit Issued for the account of the Company, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans or any Letters of Credit. (b) Upon the request of the Bank, the Loans made by the Bank may be evidenced by one or more Notes, instead of or in addition to loan accounts. The Bank shall endorse on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the Company with respect thereto. The Company hereby irrevocably authorizes the Bank to endorse its Note(s) and acknowledges and agrees that the Bank's record shall be prima facie evidence of the amounts so stated; provided that the failure of the Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to the Bank. 2.03 Procedure for Borrowing. (a) Each Borrowing shall be made upon the Company's irrevocable written notice delivered to the Bank in the form of a Notice of Borrowing (which notice must be received by the Bank prior to 9:00 a.m. (San Francisco time) (i) three Business Days prior to the requested Borrowing Date, in the case of LIBOR Loans; and (ii) on the requested Borrowing Date, in the case of Prime Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of $500,000, in the case of LIBOR Loans, or $100,000, in the case of Prime Rate Loans (provided that, if there shall have been a partial assignment to an Assignee pursuant to Section 10.08, the minimum principal amount for any Prime Rate Loan shall be $500,000) or any multiple of $100,000 in excess thereof; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) with respect to LIBOR Loans, the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of LIBOR Loans, such Interest Period shall be three month; provided that, with respect to any Borrowing to be made on the Closing Date, the Notice of Borrowing shall be delivered to the Bank not later than 11:00 a.m. (San Francisco time) at least one Business Day before the Closing Date and such Borrowing will consist solely of Prime Rate Loans. 20 26 (b) The Bank will make the amount of each Borrowing available to the Company at the Bank's Payment Office by 11:00 a.m. (San Francisco time) on the Borrowing Date requested by the Company by crediting the account of the Company on the books of the Bank or, if requested by the Company, by wire transfer in accordance with written instructions provided to the Bank by the Company, less customary fees for such wire transfer. (c) Unless the Bank otherwise consents, after giving effect to any Borrowing, there may not be more than five (5) different Interest Periods in effect. 2.04 Conversion and Continuation Elections. (a) The Company may, upon irrevocable written notice to the Bank in accordance with Section 2.04(b): (i) elect to convert, as of any Business Day, any Prime Rate Loans (or any part thereof in an amount not less than $500,000 or that is in an integral multiple of $100,000 in excess thereof) into LIBOR Loans; (ii) elect to convert, as of the last day of the applicable Interest Period, any LIBOR Loans expiring on such day (or any part thereof in an amount not less than $100,000, or that is in an integral multiple of $100,000 in excess thereof) into Prime Rate Loans; provided that, if there shall have been a partial assignment to an Assignee pursuant to Section 10.08, the minimum principal amount which may be converted into Prime Rate Loans shall be $500,000 or any integral multiple of $100,000 in excess thereof; or (iii) elect to continue, as of the last day of the applicable Interest Period, any LIBOR Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $500,000, or that is in an integral multiple of $100,000 in excess thereof); provided that, if at any time the aggregate amount of LIBOR Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof (but not by partial assignment to an Assignee pursuant to Section 10.08), to be less than $500,000, such LIBOR Loans shall automatically convert into Prime Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, LIBOR Loans shall terminate. (b) The Company shall deliver a Notice of Conversion/Continuation for receipt by the Bank not later than 9:00 a.m. (San Francisco time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as LIBOR Loans; and (ii) on the Conversion/Continuation Date, if the Loans are to be converted into Prime Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation; and 21 27 (D) other than in the case of conversions into Prime Rate Loans, the duration of the requested Interest Period. (c) If, upon the expiration of any Interest Period applicable to LIBOR Loans, the Company has failed to select timely a new Interest Period to be applicable to such LIBOR Loans, as the case may be, or if any Default or Event of Default then exists, then the Company shall be deemed to have elected to convert such LIBOR Loans into Prime Rate Loans effective as of the expiration date of such Interest Period, and all conditions to such conversion shall be deemed to have been satisfied. (d) Unless the Bank otherwise consent, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as a LIBOR Loan. (e) Unless the Bank otherwise consents, after giving effect to any conversion or continuation of Loans, there may not be more than five (5) different Interest Periods in effect. 2.05 Voluntary Termination or Reduction of the Commitment. The Company may, upon five Business Days prior notice to the Bank, terminate the Commitment, or permanently reduce the Commitment by an aggregate minimum amount of $1,000,000 or any multiple of $100,000 in excess thereof (or of the balance of the Commitment, if less); unless, after giving effect thereto and to any prepayments of the Loans made on the effective date thereof, the then Effective Amount of the Loans and the L/C Obligations would exceed the Commitment then in effect. Once reduced in accordance with this Section 2.05, the Commitment (and, to the extent reduced in accordance with the provisions hereof, the L/C Commitment) may not be increased. All accrued commitment fees to the effective date of any reduction or termination of the Commitment shall be paid on the effective date of such reduction or termination. Any notice of a reduction of the Commitment shall specify to what extent if any to which to such reduction shall be applied to reduce the L/C Commitment. Any termination of the entire Commitment shall also terminate the entire L/C Commitment. 2.06 Optional Prepayments. Subject to Section 4.04, the Company may, at any time or from time to time, upon irrevocable notice received by the Bank, in the case of LIBOR Loans, not less than three Business Days prior to the requested prepayment date, and, in the case of Prime Rate Loans, on the Business Day prior to the requested prepayment date, prepay the Loans, in whole or in part, in minimum amounts of (a) $100,000 or any multiple of $100,000 in excess thereof in the case of Prime Rate Loans and (b) $500,000 or any multiple of $100,000 in excess thereof in the case of LIBOR Loans. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. If any such notice is given by the Company, then the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 4.04. 2.07 Cash Collateralization; Mandatory Prepayments. (a) Subject to Section 4.04, if, on any date, the Effective Amount of all Loans and L/C Obligations together exceeds the Commitment, then the Company shall immediately, and without notice or demand, prepay the outstanding principal amount of the Loans or repay all unreimbursed drawings under all Letters of Credit (including L/C Borrowings) in an amount equal to such excess. 22 28 (b) No later than forty-five days after the Bank has received notice of a Change of Control pursuant to Section 7.03 (or upon and at any time after the occurrence of any Change of Control if the Company is in default of its obligation to deliver such a notice), the Bank may by notice to such effect to the Company: (i) declare the Commitment to be terminated, whereupon the Commitment shall automatically terminate; and (ii) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, or demand that the Company Cash Collateralize the L/C Obligations to the extent of outstanding and wholly or partially undrawn Letters of Credit, whereupon the Company shall so Cash Collateralize the L/C Obligations; and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable without presentment, demand or protest, all of which are hereby expressly waived by the Company. (c) Any prepayments pursuant to this Section 2.07 shall be applied first to any Prime Rate Loans then outstanding and then to outstanding LIBOR Loans with the shortest Interest Periods then remaining. All payments of Loans and L/C Borrowings pursuant to this Section 2.07 shall be made together with interest accrued to the date of such payment on the principal amount repaid, together with any amounts payable under Section 4.04; provided that, if any such prepayment would cause the Company to incur Obligations pursuant to Section 4.04 with respect to LIBOR Loans, the Company may Cash Collateralize such LIBOR Loans until the last day of the Interest Period related thereto, at which time such Cash Collateral shall be applied by the Bank to repay such Loans. 2.08 Repayment. The Company shall repay the Bank on the Revolving Termination Date the aggregate principal amount of all Loans outstanding on such date. 2.09 Interest. (a) Subject to the Company's right to convert to other Types of Loans under Section 2.04): (i) each Prime Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to the Prime Rate minus one percent (1.00%) per annum; and (ii) each LIBOR Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date at a rate per annum equal to LIBOR plus five-eighths of one percent (0.625%) per annum. (b) Interest on each Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Bank. (c) Notwithstanding subsection (a) of this Section, while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding two percent (2.00%) per annum to the rate otherwise then in effect for such Loans and, in the case of Obligations not Loans, at a rate per annum equal to the Prime Rate plus 23 29 one percent (1.00%) per annum; provided that, on and after the expiration of any Interest Period applicable to any LIBOR Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Prime Rate plus one percent (1.00%) per annum. All such interest shall be payable upon demand. (d) Notwithstanding anything to the contrary contained herein, the obligations of the Company to the Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the Bank would be contrary to the provisions of any law applicable to the Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by the Bank, and, in such event, the Company shall pay the Bank interest at the highest rate permitted by applicable law. 2.10 Commitment Fee. The Company shall pay to the Bank a commitment fee on the average daily unused portion of the Commitment, computed on a monthly basis in arrears on the last Business Day of each calendar month based upon the daily utilization for that month as calculated by the Bank, equal to such unused portion as so calculated multiplied by the Applicable Commitment Fee Percentage for such period. Such commitment fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable monthly in arrears on the last Business Day of each month commencing on December 31, 1999 through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of the Commitment hereunder, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following monthly payment being calculated on the basis of the period from such reduction or termination date to such monthly payment date. The commitment fees provided in this Section shall accrue at all times after the Closing Date, including at any time during which one or more conditions in Article 5 are not met, and are non-refundable. 2.11 Computation of Fees and Interest. (a) All computations of interest for Prime Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360 day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Bank shall be conclusive and binding on the Company in the absence of manifest error. 2.12 Payments by the Company. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Bank at the Bank's Payment Office, and shall be made in dollars and in immediately available funds, no later than 11:00 a.m. (San Francisco time) on the date specified herein. Any payment 24 30 received by the Bank later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" contained herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. ARTICLE 3 THE LETTERS OF CREDIT 3.01 The Letter of Credit Subfacility. (a) On the terms and conditions set forth herein and from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date, the Bank agrees (i) to issue Letters of Credit for the account of the Company, and to amend or renew Letters of Credit previously issued by it, in accordance with Sections 3.02(c) and 3.02(d) in an aggregate amount not to exceed the L/C Commitment, and (ii) to honor drafts under the Letters of Credit; provided that the Bank shall not be obligated to Issue any Letter of Credit if, as of the date of and after giving effect to the Issuance of such Letter of Credit (the "Issuance Date"), (A) the Effective Amount of all L/C Obligations exceeds (or would exceed) the L/C Commitment or (B) the Effective Amount of all L/C Obligations and Loans together exceeds (or would exceed) the Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Bank shall prohibit, or request that the Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Bank in good faith deems material to it; (ii) the Bank has received written notice from the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article 5 is not then satisfied; (iii) the expiry date of any requested Letter of Credit is (A) more than 360 days after the date of Issuance, or (B) more than 200 days after the Revolving Termination Date, unless the Bank has approved such expiry date in writing; 25 31 (iv) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Bank; or (v) any standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person or for the purpose of supporting any debt for borrowed money. 3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Bank at least three Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be in the form of an L/C Application and shall specify in form and detail satisfactory to the Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Bank may reasonably require. (b) Unless the issuance, amendment or renewal of any Letter of Credit is not then permitted under Section 3.01(a)(ii) as a result of the limitations set forth in clauses (A) or (B) thereof or under Section 3.01(b), or one or more conditions specified in Article 5 are not then satisfied, then, subject to the terms and conditions hereof, the Bank shall, on the requested Issue date, Issue a Letter of Credit for the account of the Company in accordance with the Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Bank will, upon the written request of the Company received by the Bank at least four Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Bank may reasonably require. The Bank shall be under no obligation to amend any Letter of Credit if: (A) the Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. (d) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Bank shall, upon the written request of the Company received by the Bank at least four Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of notification of renewal, be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Bank: (i) the Letter of Credit to be renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as the Bank may require. The Bank shall be under no obligation to renew any Letter of Credit if: (A) the 26 32 Bank would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit provides that it shall be automatically renewed unless the beneficiary thereof receives notice from the Bank that such Letter of Credit will not be renewed, and if at the time of renewal the Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 3.02(d) upon the request of the Company but the Bank shall not have received an L/C Amendment Application from the Company with respect to such renewal or any other written direction by the Company with respect thereto, the Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the Company hereby authorizes such renewal, and, accordingly, the Bank shall be deemed to have received an L/C Amendment Application from the Company requesting such renewal. (e) The Bank may, at its election, deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than 200 days after the Revolving Termination Date. (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). 3.03 Drawings and Reimbursements. (a) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Bank will promptly notify the Company. The Company shall reimburse the Bank prior to 10:00 a.m. (San Francisco time), on each date that any amount is paid by the Bank under any Letter of Credit (each such date, an "Honor Date"), in an amount equal to the amount so paid by the Bank. In the event the Company fails to reimburse the Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the Company will be deemed to have requested that Prime Rate Loans be made by the Bank to be disbursed on the Honor Date in respect of such Letter of Credit, subject to the amount of the unutilized portion of the Commitment and subject to the conditions set forth in Section 5.02. Solely for the purposes of making such Prime Rate Loans, the minimum amount limitations set forth in Section 2.03 shall not be applicable. Any notice given by the Bank pursuant to this Section 3.03(c) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (b) With respect to any unreimbursed drawing that is not converted into Loans consisting of Prime Rate Loans to the Company in whole or in part, because of the Company's failure to satisfy the conditions set forth in Section 5.02 or for any other reason, the Company shall be deemed to have incurred from the Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Prime Rate plus one and one-half percent (1.50%) per annum. 3.04 Role of the Bank. The Bank and the Company agree that, in paying any drawing under a Letter of Credit, the Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. The Company 27 33 hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided that this assumption is not intended to, and shall not, preclude the Company from pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Indemnified Person nor any Indemnified Person's correspondents, participants or assignees, shall be liable or responsible for any of the matters described in subsections (a) through (h) of Section 3.05; provided that the Company may have a claim against the Bank, and the Bank may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Bank's willful misconduct or gross negligence or the Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (a) the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (b) the Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.05 Obligations Absolute. The obligations of the Company under this Agreement and any L/C-Related Document to reimburse the Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (a) any lack of validity or enforceability of this Agreement, any L/C-Related Document or other Credit Document; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (c) the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (d) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (e) any payment by the Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; 28 34 (f) any exchange, release or non perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit; (g) any misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (h) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company. 3.06 Cash Collateralization Obligations. Upon (a) the request of the Bank (i) if the Bank has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder and (ii) if, as of the Revolving Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (b) the occurrence of the circumstances described in Section 2.07 requiring the Company to Cash Collateralize Letters of Credit, then, the Company shall immediately Cash Collateralize or cause to be Cash Collateralized the L/C Obligations in an amount equal to such L/C Obligations. Such amount, when received by the Bank, shall be held by the Bank and maintained in a blocked deposit account or deposit accounts at the Bank, as Cash Collateral for reimbursement obligations of the Company in respect of the L/C Obligations and for the other Obligations. The Company hereby grants to the Bank a security interest in all such cash, deposit accounts and deposit account balances. Amounts held in such account(s) shall be applied by the Bank to the payment and reimbursement of the Bank in full for all L/C Obligations, and the unused portion thereof after all Letters of Credit have expired or been fully drawn upon, if any, shall be applied to repay other Obligations of the Company hereunder. The Company shall execute such further agreements, documents, instruments or financing statements as the Bank reasonably deems necessary in connection with the foregoing. 3.07 Letter of Credit Fees. The Company shall pay to the Bank fees and charges in respect of the Issuance, presentation, amendment, renewal and processing of any Letter of Credit hereunder in the amount(s) and at the time(s) specified on Schedule 3.07(a). All fees and charges payable under this Section 3.07 shall be nonrefundable. 3.08 Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. 29 35 ARTICLE 4 TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 Taxes. (a) Any and all payments by the Company to the Bank under this Agreement and any other Credit Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to the Bank, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), the Bank receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to the Bank, at the time interest is paid, Further Taxes in the amount that the Bank specifies is necessary to preserve the after-tax yield that the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) The Company agrees to indemnify and hold harmless the Bank for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further Taxes in the amount that the Bank specifies is necessary to preserve the after-tax yield that the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank makes written demand therefor. (d) Within thirty days after the date of any payment by the Company of Taxes, Other Taxes or Further Taxes, the Company shall furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank. (e) If the Company is required to pay any amount to the Bank pursuant to subsection (b) or (c) of this Section, then the Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole and absolute judgment of the Bank is not otherwise disadvantageous to the Bank. 30 36 4.02 Illegality. (a) If the Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for the Bank or its Applicable Lending Office to make LIBOR Loans, then, on notice thereof by the Bank to the Company, any obligation of the Bank to make LIBOR Loans shall be suspended until the Bank notifies the Company that the circumstances giving rise to such determination no longer exist. (b) If the Bank determines that it is unlawful to maintain any LIBOR Loan, the Company shall, upon its receipt of notice of such fact and demand from the Bank, prepay in full all LIBOR Loans then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such LIBOR Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such LIBOR Loans. If the Company is required to so prepay any LIBOR Loan, then, concurrently with such prepayment, the Company shall borrow from the Bank, in the amount of such repayment, a Prime Rate Loan. (c) If the obligation of the Bank to make or maintain LIBOR Loans has been so terminated or suspended, the Company may elect, by giving notice to the Bank that all Loans which would otherwise be made by the Bank as LIBOR Loans shall be instead Prime Rate Loans. 4.03 Increased Costs and Reduction of Return. (a) If the Bank shall determine that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the LIBOR) in or in the interpretation of any law or regulation after the Closing Date or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority after the Closing Date (whether or not having the force of law), there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining any LIBOR Loans, then the Company shall be liable for, and shall from time to time, not later than thirty days following demand therefor by the Bank, pay to the Bank such additional amounts as are sufficient to compensate the Bank for such increased costs. (b) If the Bank shall have reasonably determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration the Bank's or such corporation's policies with respect to capital adequacy and the Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of the Commitment, loans, credits or obligations under this Agreement, then, upon demand of the Bank to the Company, the Company shall immediately pay to the Bank, not later than thirty days following demand therefor, additional amounts sufficient to compensate the Bank for such increase. 31 37 4.04 Funding Losses. The Company shall reimburse the Bank and hold the Bank harmless from any actual loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any LIBOR Loan (including after any acceleration thereof); (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.06; (d) the prepayment (including pursuant to Section 2.07) or other payment (including after acceleration thereof) of any LIBOR Loan on a day that is not the last day of the relevant Interest Period; or (e) the conversion of any LIBOR Loan to a Prime Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its LIBOR Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained. For purposes of calculating amounts payable by the Company to the Bank under this Section and under Section 4.03(a), each LIBOR Loan made by the Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the Base LIBOR used in determining the LIBOR for such LIBOR Loan by a matching deposit or other borrowing in the inter-bank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Loan is in fact so funded. 4.05 Inability to Determine Rates. If the Bank determines that for any reason adequate and reasonable means do not exist for determining the LIBOR for any requested Interest Period with respect to a proposed LIBOR Loan, or that the LIBOR applicable pursuant to Section 2.09(a) for any requested Interest Period with respect to a proposed LIBOR Loan does not adequately and fairly reflect the cost to the Bank of funding such Loan, then the Bank will promptly so notify the Company. Thereafter, the obligation of the Bank to make or maintain LIBOR Loans hereunder shall be suspended until the Bank revokes such notice in writing. Upon receipt of such notice, the Company may revoke without further obligation or penalty any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Bank shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Prime Rate Loans instead of LIBOR Loans. 4.06 Reserves on LIBOR Loans. The Company shall pay to the Bank, as long as the Bank shall be required under regulations of the FRB to maintain reserves with respect to liabilities or assets consisting of or including eurocurrency funds or deposits (currently known as Eurocurrency Liabilities), additional costs on the unpaid principal 32 38 amount of each LIBOR Loan equal to the actual costs of such reserves allocated to such Loan by the Bank (as determined by the Bank in good faith, which determination shall be prima facie evidence of such amounts), payable on each date on which interest is payable on such Loan, provided that the Company shall have received at least fifteen days prior written notice of such additional costs from the Bank. If the Bank fails to give notice fifteen days prior to the relevant Interest Payment Date, such additional interest shall be payable fifteen days from receipt of such notice. 4.07 Certificates of the Bank. If the Bank claims reimbursement or compensation under this Article 4, it shall deliver to the Company a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be prima facie evidence of the amounts stated therein. 4.08 Survival. The agreements and obligations of the Company in this Article 4 shall survive the payment of all other Obligations. ARTICLE 5 CONDITIONS PRECEDENT 5.01 Conditions of Effectiveness of Agreement. The effectiveness of this Agreement is subject to satisfaction or waiver of the condition that the Bank shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Bank and its counsel: (a) Credit Agreement; Notes. This Agreement and, if requested by the Bank, the Notes, each executed by each party thereto; (b) Resolutions; Incumbency. (i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Company's Secretary or an Assistant Secretary; and (ii) A certificate of the Secretary or Assistant Secretary of the Company, certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform this Agreement and all other Credit Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following documents: (i) the certificate of incorporation and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and 33 39 (ii) a good standing certificate from the Secretary of State (or similar, applicable Governmental Authority) as of a recent date, and, if requested by the Bank, a bring-down certificate by facsimile dated on or about the Closing Date and tax good standing certificate, for the Company, of the State of California; (d) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in Article 6 are true and correct on and as of such date, as though made on and as of such date; (ii) no Default or Event of Default exists or would result from the initial Credit Extension; and (iii) since September 30, 1999, there has occurred no event or circumstance that has resulted or could reasonably be expected to result in a Material Adverse Effect; and (e) Termination of Existing Facility. Evidence satisfactory to the Bank confirming that, if any principal, interest, fees, costs or other amounts are outstanding under the Existing Facility, all such amounts have been paid in full by the Closing Date or that the Loans borrowed by the Company on the Closing Date will be used to repay such outstanding amounts, and that the Existing Facility and the commitments of the "Bank" thereunder shall thereby terminate on the Closing Date; (f) Payment of Fees. The Company shall have paid all costs (including Attorney Costs subject to Section 10.04(a)), accrued and unpaid fees and expenses incurred by the Bank prior to the Closing Date; and (g) Other Documents. Such other approvals, opinions, documents or materials as the Bank may reasonably request; provided that neither this Agreement nor any of the other Credit Documents shall become effective or be binding on any party hereto unless each of the foregoing conditions is satisfied on or before December 31, 1999. The Bank shall promptly notify the Company of the Closing Date, and such notice shall be conclusive and binding on the parties hereto. 5.02 Conditions to All Credit Extensions. The obligation of the Bank to make any Credit Extension (including its initial Credit Extension) or to continue/convert any Loan is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date: (a) Documentation. The Bank shall have received, in respect of any Borrowing, a completed and duly executed Notice of Borrowing or Notice of Conversion/Continuation (as applicable) and, in respect of any Issuance of any Letter of Credit, a completed and duly executed L/C Application or L/C Amendment Application (as applicable); in addition, in connection with the Bank's initial Credit Extension, the Bank shall have received, on or before December 3, 1999, the opinion of Wilson Sonsini Goodrich & Rosati, counsel to the Company, and the opinion of the General Counsel of the Company, each addressed to the Bank, together containing opinions substantially in the form of Exhibit E; 34 40 (b) Continuation of Representations and Warranties. The representations and warranties in Article 6 shall be true and correct on and as of such Borrowing Date, Conversion/Continuation Date or Issuance Date with the same effect as if made on and as of such Borrowing Date, Conversion/Continuation Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); (c) No Existing Default. No Default or Event of Default shall exist or shall result from such Credit Extension or continuation or conversion; and (d) No Material Adverse Effect. There shall not have occurred a Material Adverse Effect. Each Notice of Borrowing, Notice of Conversion/Continuation, L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice, L/C Application or L/C Amendment (as applicable) and as of each Borrowing Date, Conversion/Continuation Date or Issuance Date (as applicable) that the conditions contained in this Section 5.02 are satisfied. ARTICLE 6 REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Bank that: 6.01 Corporate Existence and Power. The Company and each of its Material Subsidiaries: (a) is a corporation or partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to (i) own its assets and carry on its business as presently conducted except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect and (ii) to execute, deliver, and perform its obligations under the Credit Documents to which each is a party; (c) is duly qualified as a foreign corporation, partnership or limited liability company and is licensed and in good standing, under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification or license, except to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (d) is in compliance with all Requirements of Law except to the extent to which the failure to comply could not reasonably be expected to have a Material Adverse Effect. 35 41 6.02 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company of this Agreement and each other Credit Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of the Company's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its Property is subject; or (c) violate any Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company of the Agreement or any other Credit Document to which the Company is a party. 6.04 Binding Effect. This Agreement and each other Credit Document to which the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.05 Litigation. Except as specifically disclosed in Schedule 6.05, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, any of its Subsidiaries or any of their respective Properties which: (a) purport to affect or pertain to this Agreement or any other Credit Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Company or any of its Subsidiaries, could reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Credit Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 36 42 6.06 ERISA Compliance. Except as specifically disclosed on Schedule 6.06: (a) As of the Closing Date, each Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state law except to the extent to which the failure to so comply could not reasonably be expected to have a Material Adverse Effect. Each Plan which is intended to qualify under subsection 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. As of the Closing Date, the Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) As of the Closing Date: (i) there are no pending or, to the best knowledge of the Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect; and (ii) there has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) As of the Closing Date, (i) no ERISA Event has occurred or is reasonably expected to occur; and (ii) no event or circumstance has occurred or exists that, if such event or circumstance had occurred or arisen after the Closing Date, would create an Event of Default under Section 9.01(h). 6.07 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 7.11 and Section 8.07. Neither the Company nor any of its Subsidiaries is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 6.08 Title to Properties. The Company and each of its Subsidiaries have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the Ordinary Course of Business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. As of the Closing Date, the Properties of the Company and its Subsidiaries are subject to no Liens other than Permitted Liens. 6.09 Taxes. The Company and each of its Subsidiaries have filed all federal and other material tax returns and reports required to be filed, and have paid all federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company or any of its Subsidiaries that would, if made, have a Material Adverse Effect. 37 43 6.10 Financial Condition. (a) The audited consolidated financial statements of the Company and its Subsidiaries dated March 31, 1999, and the related consolidated statements of income or operations, shareholders' equity and cash flows, for the fiscal year ended on March 27, 1999: (i) were prepared in accordance with GAAP; (ii) fairly present the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) except as specifically disclosed in Schedule 6.10, show all material indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date hereof, including liabilities for taxes, material commitments and Contingent Obligations required to be disclosed in accordance with GAAP. (b) Since September 30, 1999 (assuming that this Agreement were in effect on such date and thereafter), there has been no Material Adverse Effect. 6.11 Environmental Matters. The Company conducts in the Ordinary Course of Business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties and the business, operations and properties of its Subsidiaries, and, as a result thereof, the Company has reasonably concluded that, except as specifically disclosed in Schedule 6.11, such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. In that regard, the on-going operations of the Company and each of its Subsidiaries comply in all respects with all Environmental Laws, except to the extent that the failure to so comply could not reasonably be expected to have a Material Adverse Effect. 6.12 Regulated Entities. None of the Company, any Person controlling the Company, or any Subsidiary of the Company is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other federal or state statute or regulation limiting its ability to incur Indebtedness. 6.13 No Burdensome Restrictions; Labor Relations. (a) Neither the Company nor any of its Subsidiaries is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. (b) There are no strikes, lockouts or other labor disputes against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, and no significant unfair labor practice complaint is pending against the Company or any of its Subsidiaries or, to the best knowledge of the Company, threatened against any of 38 44 them before any Governmental Authority which, in the case of any of the foregoing, could reasonably be expected to have a Material Adverse Effect. 6.14 Solvency. The Company is Solvent and as of the Closing Date: (a) the Company does not intend to, and does not believe that it will, incur debts beyond the Company's ability to pay as such debts mature, and (b) the Company is not about to engage in a transaction, after giving effect to which the Company's remaining property would constitute unreasonably small capital for the business conducted or transactions engaged by the Company. 6.15 Copyrights, Patents, Trademarks and Licenses, etc. Except as specifically disclosed on Schedule 6.15, the Company and each of its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person, except where such conflict could not reasonably be expected to have a Material Adverse Effect. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary of the Company infringes upon any rights held by any other Person, except where such infringement could not reasonably be expected to have a Material Adverse Effect. Except as specifically disclosed in Schedule 6.05, no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the best knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 6.16 Subsidiaries. As of the Closing Date, the Company does not have any Subsidiaries other than those specifically disclosed in part (a) of Schedule 6.16 hereto, which shows the form of organization and ownership of each such Person and has no equity investments in any other Person constituting in excess of 5% of the outstanding equity of such Person other than those specifically disclosed in part (b) of Schedule 6.16. As of the Closing Date, the Material Subsidiaries of the Company are as listed in part (c) of Schedule 6.16. 6.17 Insurance. Except as specifically disclosed in Schedule 6.17, the respective Properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company or any of its Subsidiaries, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or any of its Subsidiaries operates. 6.18 Swap Obligations. Neither the Company nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company and each of its Subsidiaries has voluntarily entered into each Swap Contract to which each such Person is a party based upon each 39 45 such Person's own independent assessment of its consolidated assets, liabilities and commitments, in each case as an appropriate means of mitigating and managing risks associated with such matters, and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any such Swap Contract. 6.19 Full Disclosure. To the best knowledge after due inquiry of any Responsible Officer, none of the representations or warranties made by the Company or any of its Subsidiaries in the Credit Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any of its Subsidiaries in connection with the Credit Documents (including any offering or disclosure materials delivered by or on behalf of the Company to the Bank prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. It is recognized by the Bank that projections and forecasts provided by or on behalf of the Company, although reflecting the Company's good faith projections and forecasts based on methods and data which the Company believes to be reasonable and accurate, are not to be viewed as facts and that actual results during the period or periods covered by any such projections and forecasts may (and are likely to) differ from the projected or forecasted results. 6.20 Year 2000 Compliance. (a) The Company and each of its Subsidiaries have: (i) undertaken a detailed inventory, review and assessment of all areas within their respective businesses and operations that could be adversely affected by their respective failure to be Year 2000 Compliant on a timely basis; and (ii) developed and are implementing a detailed plan and timetable which reasonably assures that the Company and each of its Subsidiaries will be Year 2000 Compliant by December 31, 1999. The products of the Company and its Subsidiaries do not address or utilize dates in their operation and, accordingly, should not fail due to the year 2000 problem. (b) The Company and each of its Subsidiaries have made inquiry of their respective key suppliers and vendors as to whether such Persons will be Year 2000 Compliant by December 31, 1999 and, on the basis of such inquiry, reasonably believe that (i) all such Persons will be so compliant or (ii) if any of such Persons will not be so compliant, any such Person's failure to be Year 2000 Compliant could not reasonably be expected to have a Material Adverse Effect. 6.21 Good Standing Certificates. On or before the date that is five Business Days following the date of this Agreement, the Company shall provide to the Bank a good standing certificate and tax good standing certificate for the Company as of a recent date from the Secretary of State (or similar, applicable Governmental Authority) of the States of Delaware, Georgia, Maryland, Minnesota, New Jersey, Pennsylvania, Ohio and Texas. 40 46 ARTICLE 7 AFFIRMATIVE COVENANTS So long as any of the Obligations shall remain unpaid or unsatisfied, any Letter of Credit (other than a Letter of Credit that has been fully Cash Collateralized) shall remain outstanding or the Bank shall have any Commitment, the Company agrees as follows: 7.01 Financial Statements. The Company shall deliver to the Bank: (a) as soon as available, but not later than ninety days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of a nationally recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years, and together with SEC Form 10K for the Company. The Independent Auditor's opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any of its Subsidiaries' records; and (b) as soon as available, but not later than forty-five days after the end of each fiscal quarter of each year (other than the last fiscal quarter of each fiscal year), a copy for the immediately preceding fiscal quarter of the unaudited consolidated and consolidating balance sheets of the Company and its Subsidiaries as of the end of such quarter and the related consolidated and consolidating statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Company and its Subsidiaries, together with SEC Form 10Q for the Company. 7.02 Certificates; Other Information. The Company shall furnish to the Bank: (a) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a Compliance Certificate; (b) except for SEC Forms 10K and 10Q to be delivered pursuant to Sections 7.01(a), promptly, and in any event no later than 10 days after the same is made available to the Company's shareholders or is filed with the SEC, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodical or special reports that the Company or any Subsidiary of the Company may make to, or file with, the SEC; (c) upon the request from time to time of the Bank, the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Swap Contracts to which the Company or any of its Subsidiaries is party; and 41 47 (d) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary of the Company as the Bank may from time to time reasonably request. 7.03 Notices. (a) The Company shall promptly notify the Bank, promptly after any Responsible Officer becomes aware, of: (i) (A) the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (B) the commencement of, or any material adverse development in, any litigation or proceeding affecting the Company or any Subsidiary of the Company in which the amount of damages claimed and not covered by insurance is $2,000,000 or more (or its equivalent in another currency or currencies); (C) the commencement of, or any material adverse development in, any litigation or proceeding affecting the Company or any Subsidiary of the Company which the Company would be required to report to the SEC pursuant to the Exchange Act, and in any event within ten days after reporting the same to the SEC, provided that the notice requirement with respect to this clause shall be satisfied if the Company furnishes the Bank with a copy of any such report made to the SEC; (D) any labor controversy resulting in or threatening to result in any strike, work stoppage, boycott, shutdown or other labor disruption against or involving the Company or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect; (E) if the Company or any of its Subsidiaries shall at any time or from time to time execute an agreement for an Asset Sale where the aggregate amount of consideration to be paid has a value equal to or greater than $5,000,000, of such proposed Asset Sale (including the amount of the estimated Net Proceeds to be received by the Company or such Subsidiary in respect thereof); (ii) any matter that has resulted or could reasonably result in a Material Adverse Effect, including: (A) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any of its Subsidiaries; (B) any dispute, litigation, investigation, proceeding or suspension between the Company or any of its Subsidiaries and any Governmental Authority; (C) the commencement of, or any material development in, any litigation or proceeding affecting the Company or any of its Subsidiaries, including any of the foregoing involving any applicable Environmental Laws or Environmental Claims; or (D) the imposition of any fine or penalty by any Governmental Authority against or with respect to any facility or plants of the Company or any of its Subsidiaries; (iii) the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (A) an ERISA Event; (B) an increase in the Unfunded Pension Liability of any Pension Plan, including as a result of the adoption of any amendment to a Plan subject to 42 48 Section 412 of the Code, that could reasonably be likely to cause or result in an Event of Default under Section 9.01(h); or (C) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company or any ERISA Affiliate other than any such Plan in effect and receiving contributions as of the Closing Date. (iv) any Acquisition, or incurring any Contractual Obligations with respect to any Acquisition, by the Company or any Subsidiary of the Company, if the aggregate cash and noncash consideration (including assumption of liabilities and including all Contingent Obligations) in connection with such Acquisition is (or could reasonably be expected to become) $10,000,000 or more; and (v) any Change in Control or any event or circumstance that is reasonably likely to result in any Change in Control. (b) The Company shall promptly notify the Bank, not later than delivery of the next consolidated financial statements of the Company pursuant to Section 7.01 after the date of any such change, of any change in the accounting policies or financial reporting practices by the Company or any of its Subsidiaries, provided that this notice requirement shall be satisfied if the next consolidated financial statements of the Company delivered to the Bank following any such change (or the Compliance Certificate delivered pursuant to Section 7.02) describes any such change in reasonable detail. (c) Each notice under this Section 7.03 shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any of its affected Subsidiaries proposes to take with respect thereto and at what time. Each notice under Section 7.03(a)(i) shall describe with particularity any and all Sections, subsections, clauses or provisions of this Agreement or any other Credit Document that have been (or foreseeably will be) breached or violated. 7.04 Preservation of Existence, Rights, etc. Except as otherwise permitted by Section 8.02, 8.03 or 8.05, the Company shall, and shall cause each of its Material Subsidiaries to: (a) preserve and maintain in full force and effect its corporate, partnership or limited liability company existence, as the case may be, and good standing under the laws of its state or jurisdiction of incorporation or organization; (b) use commercially reasonable efforts to preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business, the non-preservation of which could reasonably be expected to have a Material Adverse Effect; and (c) use commercially reasonable efforts to preserve or renew and maintain all of its registered patents, trademarks, trade names and service marks and other intellectual property assets, the non-preservation or non-maintenance of which could reasonably be expected to have a Material Adverse Effect. 43 49 7.05 Maintenance of Property. The Company shall, and shall cause each of its Subsidiaries to, maintain and preserve all its Property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. In connection with the foregoing, the Company shall, and shall cause each of its Subsidiaries to, use a standard of care not less than that typical in the industry in the operation and maintenance of their respective facilities. 7.06 Insurance. The Company shall, and shall cause each of its Subsidiaries to, maintain, with financially sound and reputable independent insurers, insurance with respect to its Property and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 7.07 Payment of Obligations. The Company shall, and shall cause each of its Subsidiaries to, pay and discharge as the same shall become due and payable: (a) all material tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful material claims which, if unpaid, would by law become a Lien upon its Property, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary. 7.08 Compliance with Laws. The Company shall, and shall cause each of its Subsidiaries to, comply in all respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business or properties (including the Federal Fair Labor Standards Act), unless such noncompliance is being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary with respect thereto, or such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.09 Inspection of Property and Books and Records. The Company shall, and shall cause each of its Subsidiaries to, maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall, and shall cause each of its Subsidiaries to, permit representatives and independent contractors of the Bank to visit and inspect any of their respective Properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss 44 50 their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided that, when an Event of Default exists, the Bank may do any of the foregoing at the expense of the Company at any time during normal business hours and without advance notice; provided further that the Company and it Subsidiaries will not be required to disclose, permit the inspection, examination, copying or making of extracts of, or discuss, any document, any portion thereof, or any information in respect of which and to the extent that disclosure to the Bank is then prohibited by law or by an agreement binding on the Company or any of its Subsidiaries entered into by such Person in good faith and not for the specific purpose of evading the provisions of this Section or any other provision of this Agreement. 7.10 Environmental Laws. Except as otherwise specifically disclosed to the Bank in writing prior to the Closing Date, the Company shall, and shall cause each of its Subsidiaries to, conduct its operations and keep and maintain its Property in compliance with all Environmental Laws, except where such noncompliance, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 7.11 Use of Proceeds. The Company shall use the proceeds of the Loans for working capital and other general corporate purposes, in each case not in contravention of any Requirement of Law or of any Credit Document; provided that the Company shall not directly or indirectly use the proceeds of the Loans for any Acquisition of any Person if such Acquisition has not been approved by the board of directors (or other body exercising similar authority) of such Person. 7.12 Year 2000 Compliance. The Company shall, and shall cause each of its Subsidiaries to, perform all acts reasonably necessary to ensure that: (a) the Company and each of its Subsidiaries, and any business in which they may hold a substantial interest, and (b) all customers, suppliers and vendors that are material to the Company and each such Subsidiary's business, become Year 2000 Compliant in a timely manner. Such acts shall include performing a comprehensive review and assessment of all of the Company's and each such Subsidiary's systems and adopting a detailed plan, with itemized budget, for the remediation, monitoring and testing of such systems. The Company shall, immediately upon request, provide to the Bank such certifications or other evidence of the Company's and each of its Subsidiaries' compliance with the terms hereof as the Bank may from time to time require. 7.13 Solvency. The Company shall at all times be Solvent. 7.14 Internal Controls. The Company will maintain reasonable internal controls and reporting systems designed to insure that a Responsible Officer will be promptly informed of all material financial, operational and compliance matters relevant to compliance with the provisions of the Credit Documents to which the Company is a party. 45 51 ARTICLE 8 NEGATIVE COVENANTS So long as any of the Obligations shall remain unpaid or unsatisfied, any Letter of Credit (other than a Letter of Credit that has been fully Cash Collateralized) shall remain outstanding or the Bank shall have any Commitment, the Company agrees as follows: 8.01 Limitation on Liens. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): (a) any Lien existing on Property of the Company or any of its Subsidiaries on the Closing Date and set forth on Schedule 8.01(a); (b) any Lien created under any Credit Document; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 7.07, provided that no notice of lien has been filed or recorded under the Code; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the Ordinary Course of Business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the Property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the Ordinary Course of Business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens on the Property of the Company or any of its Subsidiaries securing (i) the nondelinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other nondelinquent obligations of a like nature; in each case, incurred in the Ordinary Course of Business; provided that all such Liens in the aggregate could not reasonably be expected to have a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $1,000,000; (h) easements, rights-of-way, restrictions and other similar encumbrances or title defects affecting real Property incurred in the Ordinary Course of Business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the Ordinary Course of Business of the Company and its Subsidiaries, taken as a whole; 46 52 (i) Liens on Property of a Subsidiary of the Company existing at the time such Property (or such Subsidiary) was acquired by the Company or such Subsidiary of the Company and not incurred as a result of (or in connection with or in anticipation of) such acquisition; provided that such Liens do not extend to or cover any Property of the Company or any of its Subsidiaries other than the Property so acquired or the Property of such Subsidiary so acquired; (j) purchase money security interests on any Property acquired or held by the Company or any of its Subsidiaries in the Ordinary Course of Business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such Property; provided that (i) any such Lien attaches to such Property concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the Property so acquired in such transaction, (iii) the principal amount of the Indebtedness secured thereby does not exceed 100% of the cost of such Property plus reasonable fees and expenses incurred in connection therewith, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed, together with Indebtedness permitted under Section 8.05(c), $5,000,000; (k) Liens securing Capital Lease Obligations in respect of capital leases on assets subject to such leases, provided that such capital leases are otherwise permitted hereunder; (l) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Company or any of its Subsidiaries to provide collateral to the depository institution; and (m) leases and subleases and licenses and sublicenses of Property of the Company and its Subsidiaries where the Company or a Subsidiary of the Company is the lessor or licensor (or sublessor or sublicensor) which, in the aggregate, do not materially interfere with the ordinary conduct of the business of the Company and its Subsidiaries, taken as a whole, but excluding any sale-lease transaction; (n) Liens securing or constituting Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under this Section 8.01 and which is permitted to be refinanced under Section 8.05; provided that such Liens do not extend to or cover any Property of the Company or any of its Subsidiaries not so refinanced; (o) Liens on insurance policies and the proceeds thereof securing the financing of premiums owing by the Company or any of its Subsidiaries with respect thereto, not to exceed $250,000 in the aggregate principal amount outstanding at any time; (p) Liens in favor of customs and revenue authorities arising as a matter of law to secure any payment obligations of the Company and its Subsidiaries in respect of customs duties in connection with the importation of goods; 47 53 (q) Liens securing the obligations of the Company or any of its Subsidiaries under documentary letters of credit permitted to be incurred under Section 8.05; provided that such Liens shall attach only to the goods covered by such letters of credit, the corresponding documents and the proceeds thereof; (r) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of good entered into by the Company or any of its Subsidiaries in the Ordinary Course of Business; provided that all such Liens in the aggregate could not reasonably be expected to have a Material Adverse Effect; (s) Liens incurred or deposits made in the Ordinary Course of Business to secure the performance of tenders, statutory obligations, surety, appeal, reclamation, performance or other similar bonds, leases (including Landlord's Liens), contracts and other similar bonds incurred in the Ordinary Course of Business (exclusive of obligations in respect of the payment of or for borrowed money); provided that all such Liens in the aggregate could not reasonably be expected to have a Material Adverse Effect; (t) Liens securing Indebtedness and Contingent Obligations of a Subsidiary of the Company incurred pursuant to and in compliance with clause (i) or (ii) of Section 8.05(g); and (u) Liens on funds and other Property of employees of the Company or any of its Subsidiaries which funds and Property are held and invested by the Company for the benefit of such employees for the purpose of deferred compensation. 8.02 Disposition of Assets. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any Property or enter into any agreement (other than an agreement expressly contingent on obtaining the consent of the Bank thereto) (collectively, "Transfers") to do any of the foregoing, except: (a) Transfers of inventory, or used, worn-out or surplus equipment, all in the Ordinary Course of Business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; and (c) Transfers of Property for Fair Market Value where the Net Proceeds thereof do not exceed $1,000,000 in the aggregate on a cumulative basis in each case in any fiscal year; (d)(i) Transfers from any Subsidiary of the Company to the Company, (ii) Transfers from any Subsidiary of the Company to any other Subsidiary of the Company and (iii) Transfers constituting Investments permitted by Sections 8.04(j), (m), (n), (o) or (p); (e) Transfers of equipment to Plamex, S.A., where the net book value of such equipment does not exceed $5,000,000 in the aggregate on a cumulative basis for any one fiscal year; (f) Transfers of existing raw materials, work in process and finished goods inventory from the Company to PBV; and (g) non-exclusive licensing (but exclusive as to region) of technology by the Company to PBV in connection with the research and development of related technology or the manufacture of inventory by PBV for sale to the Company and for sale to non-U.S. customers. 48 54 8.03 Consolidations and Mergers. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, merge, consolidate with or into any Person, except: (a) any Subsidiary of the Company may merge with (i) the Company, provided that the Company shall be the continuing or surviving entity, or (ii) any one or more Subsidiaries of the Company, provided that, if any such transaction shall be between a Subsidiary and a Wholly Owned Subsidiary of the Company, the Wholly Owned Subsidiary of the Company shall be the continuing or surviving corporation; and (b) mergers pursuant to Acquisitions permitted by Section 8.04. 8.04 Loans and Investments. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, purchase or acquire, or make any commitment therefor, any Capital Stock or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, or Joint Venture with, any Person, including any Affiliate of the Company or any of its Subsidiaries (together, "Investments"), except for (without duplication): (a) Investments existing on the Closing Date and listed on Schedule 8.04(a); (b) Investments in cash and Cash Equivalents and Investments in operating deposit accounts maintained in the Ordinary Course of Business for operating fund purposes; (c) Investments arising from transactions by the Company or any of its Subsidiaries with customers or suppliers in the Ordinary Course of Business, including Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers and suppliers and in settlement of delinquent obligations of, and other disputes with, customer or suppliers arising in the Ordinary Course of Business; (d) Investments accepted in connection with a Transfer permitted by and in accordance with the terms of Sections 8.02(c); (e) Investments consisting of (i) travel advances, employee relocation loans and other employee loans and advances in the Ordinary Course of Business, (ii) loans to employees, officers or directors relating to their purchase of equity securities of the Company or its Subsidiaries or (iii) other loans to officers and employees approved by the Board of Directors of the Company, provided that all of the foregoing do not exceed $5,000,000 in the aggregate at any one time outstanding; (f) notes receivable of, or prepaid royalties and other credit extensions to, customers and suppliers in the Ordinary Course of Business so long as such notes, prepaid royalties or other credit extensions are due within one year of the date of the acquisition thereof or cover no more than one year of obligations to such customers or suppliers (as applicable); 49 55 (g) any Acquisition so long as: (i) such Acquisition is undertaken in accordance with all material applicable Requirements of Law; (ii) if any Person or business so acquired (the "Acquiree") is subject to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act, the prior, effective written consent of the board of directors or equivalent governing body of the Acquiree is obtained and delivered to the Bank; (iii) immediately after giving effect to any such Acquisition, there shall exist no Default or Event of Default; and (iv) in connection with any Acquisition of Hello Direct, Inc. or Clear Vox Communications, Inc., such Acquisition is on substantially the terms disclosed to the Bank in writing on or before November 19, 1999; (h) Investments constituting Permitted Swap Obligations or payments or advances under Swap Contracts relating to Permitted Swap Obligations; (i) Investments by Foreign Subsidiaries of the Company in the Ordinary Course of Business or required by local law or regulation; (j) Investments by the Company in Subsidiaries of the Company in an aggregate amount for all such Investments not to exceed $15,000,000 at any time outstanding; provided that, for purposes of calculating such amount (i) the aggregate amount of (A) all repayments of advances to, dividends paid to, and Investments made in, and the Fair Market Value of all Property that has been transferred to, pursuant to a Transfer permitted under Section 8.02, the Company by all such Subsidiaries and (B) mergers of Subsidiaries with the Company permitted under Section 8.03(a), shall be subtracted from the amount of such Investments to the extent the foregoing amounts have not been previously netted against such Investments and (ii) the aggregate amount of Guaranty Obligations made pursuant to Section 8.05(m) shall be added to the amount of such Investments; (k) Investments made by the Company for the benefit of employees of the Company or its Subsidiaries for the purposes of deferred compensation; (l) Investments by the Company in PBV in the form of prepayments to PBV for inventory to be purchased from PBV in an aggregate cumulative amount not to exceed $20,000,000; (m) Investments in the Company by Plantronics UK and Plantronics Germany, in each case in the form of intercompany loans from such Subsidiaries to the Company, in an aggregate cumulative amount not to exceed $11,000,000; (n) Investments by the Company or the Company's Wholly Owned Subsidiaries in Plantronics UK and Plantronics Germany, in each case in the form of intercompany loans or capital contributions from the Company or such Wholly Owned Subsidiaries, as the case may be, in an aggregate cumulative amount not to exceed $8,000,000; (o) Investments by the Company in PBV in the form of deferred payment obligations by PBV for the transfer of title by the Company to PBV of existing raw materials, work in process and finished goods inventory of the Company; (p) Joint Ventures in the Ordinary Course of Business (which shall include joint development agreements for the development of technology or products); and (q) other Investments (excluding Acquisitions) not otherwise permitted under this Section 8.04 not exceeding an amount equal to $5,000,000 plus 15% times consolidated cumulative net 50 56 income of the Company for the period from and after December 31, 1996 (provided that, if such cumulative net income is negative in respect of such cumulative period, such net income shall be deemed to be zero), outstanding at any one time; provided that, at the time of any such Investment and at the time that the Company or any of its Subsidiaries incurs any Contractual Obligation with respect to any such Investment, no Default or Event of Default shall have occurred and be continuing or result therefrom. 8.05 Limitation on Indebtedness. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except (and without duplication): (a) Indebtedness incurred pursuant to the Credit Documents; (b) Indebtedness existing on the Closing Date and set forth on Schedule 8.05(b); (c) Indebtedness of Foreign Subsidiaries of the Company incurred for working capital purposes; provided that the aggregate outstanding principal amount of Indebtedness incurred under this subsection (c) at the time of the incurrence thereof shall not at any time exceed the lesser of (i) $5,000,000 or (ii) the sum of (A) 85% of the net book value of the accounts receivable of the Foreign Subsidiaries of the Company and (B) 50% of the net book value of the inventory of the Foreign Subsidiaries of the Company, in both cases calculated in accordance with GAAP at the time of each incurrence; (d) Indebtedness of the Company and its Subsidiaries if, at the time of and after giving pro forma effect to the incurrence of such Indebtedness (including the application of the proceeds thereof), the Consolidated Fixed Charge Coverage Ratio is equal to or greater than 3:00 to 1:00; provided that (i) in no event may the aggregate principal amount of Indebtedness incurred under this subsection (e) by Subsidiaries of the Company exceed $2,500,000 at any time outstanding and (ii) Indebtedness incurred by the Company under this subsection (e) shall not provide for any scheduled principal payment, mandatory redemption or amortization or sinking fund requirement prior to November 30, 2000; (e)(i) Purchase Money Indebtedness of the Company and its Subsidiaries and (ii) Indebtedness of the Company represented by trade letters of credit incurred in the Ordinary Course of Business, which are to be repaid in full not more than one year after which such Indebtedness is originally incurred, to finance the purchase of goods by the Company or a Subsidiary of the Company such that the aggregate principal amount at any time outstanding under this subsection (f) does not exceed $5,000,000; (f) Capital Lease Obligations of the Company and its Subsidiaries in an aggregate principal amount (determined in accordance with GAAP) not to exceed $2,500,00 at any time outstanding under this subsection (g); (g)(i) Indebtedness of a Domestic Subsidiary of the Company owed to the Company or any of its Wholly Owned Domestic Subsidiaries so long as, in the case of Indebtedness owed by a Subsidiary of the Company to the Company, such Indebtedness or Contingent Obligation is not subordinated in right of payment to any other Indebtedness of such Subsidiary, (ii) Indebtedness of a Subsidiary of the Company owed to the Company or a Subsidiary of the Company (other than 51 57 Indebtedness governed by the immediately preceding clause (i) incurred pursuant to and in compliance with Section 8.04, and (iii) Subordinated Indebtedness owed to a Subsidiary of the Company; provided that in the case of the sale or disposition of the Capital Stock of any Subsidiary of the Company that is owed Indebtedness of the Company or another Subsidiary of the Company referred to in this subsection (h) such that is ceases to be a Subsidiary of the Company, such Indebtedness shall be deemed to have been incurred again and subject to this Section 8.05; (h) any replacements, renewals, refinancing and extensions of outstanding Indebtedness permitted by subsections (b), (c), (d) or (e) of this Section 8.05, provided that (i) any such replacement, renewal, refinancing or extension of Indebtedness shall not be incurred by a Subsidiary of the Company (except in the case of a replacement, renewal, refinancing or extension of Indebtedness of a Subsidiary of the Company referred to in subsection (c) of this Section 8.05) and (ii) any such replacement, renewal, refinancing or extension (A) shall not provide for any mandatory redemption, amortization or sinking fund requirement in an amount greater than or at a time prior to the amounts and times specified in the Indebtedness being replaced, renewed, refinanced or extended and (B) shall not exceed the sum of (1) the principal amount (plus accrued interest and an amount equal to the required prepayment premium, if any) of the Indebtedness being replaced, renewed, refinanced or extended and (2) the reasonable fees and expenses of the Company or its Subsidiaries, as the case may be, incurred in connection with such replacement, renewal, refinancing or extension; (i) Permitted Swap Obligations of the Company or any Subsidiary of the Company; provided that (i) any Indebtedness to which the underlying Swap Contract relates bears interest at fluctuating interest rate and is otherwise permitted by this Section 8.05, (ii) the notional principal amount of any such underlying Swap Contract does not exceed the principal amount of the Indebtedness to which such underlying Swap Contract relates and (iii) the underlying Swap Contracts do not increase the Indebtedness of the Company and its Subsidiaries in the aggregate other than as a result of fluctuations in foreign currency exchange rates; (j) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the Ordinary Course of Business, provided that such Indebtedness is extinguished within three Business Days of its incurrence; (k)(i) Guaranty Obligations of the Company with respect to Indebtedness of Foreign Subsidiaries of the Company permitted under Section 8.05(c) and (ii) Guaranty Obligations of any Subsidiary of the Company with respect to Indebtedness of the Company permitted under this Section 8.05; (l) endorsements for collection or deposit in the Ordinary Course of Business; (m) Guaranty Obligations of the Company with respect to Indebtedness of any Subsidiary of the Company to the extent permitted by Section 8.04(j); (n) Indebtedness of PBV to the Company incurred in connection with Investments permitted under Section 8.04(l) or 8.04(o); (o) Indebtedness of (i) the Company to Plantronics UK and Plantronics Germany incurred in connection with Investments permitted under Section 8.04(m), (ii) Plantronics UK in 52 58 connection with Investments permitted under Section 8.04(n) and (iii) Plantronics Germany in connection with Investments permitted under Section 8.04(n); and (p) in addition to the items referred to in subsections (a) through (p) of this Section 8.05, Indebtedness of the Company and its Subsidiaries in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding; provided that in no event shall the aggregate amount of Indebtedness and Contingent Obligations incurred by Subsidiaries under this subsection (q) exceed $2,000,000 at any one time outstanding. 8.06 Transactions with Affiliates. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, enter into any transaction with any Affiliate of the Company or any of its Subsidiaries, except upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm's-length transaction with a Person not an Affiliate of the Company or such Subsidiary. 8.07 Use of Proceeds. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, use any portion of the proceeds of any Loan or Letter of Credit, directly or indirectly, (a) to purchase or carry Margin Stock, (b) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (c) to extend credit for the purpose of purchasing or carrying any Margin Stock or (d) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act. 8.08 Operating Lease Obligations. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, create or suffer to exist any obligations under any operating leases, except for (and without duplication): (a) operating leases of the Company and its Subsidiaries in existence on the Closing Date and any renewal, extension or refinancing thereof; (b) operating leases entered into by the Company or any of its Subsidiaries after the Closing Date; provided that, immediately prior to giving effect to any such operating lease, the Property the subject of such operating lease was sold by the Company or any such Subsidiary to the lessor pursuant to a transaction otherwise permitted under Section 8.02; and (c) other operating leases entered into by the Company or any of its Subsidiaries after the Closing Date in the Ordinary Course of Business; provided that the aggregate annual rental payments for all such operating leases shall not exceed $3,000,000 for any fiscal year. 8.09 Restricted Payments. The Company shall not, and shall not suffer or permit any of its Subsidiaries (other than its Wholly Owned Subsidiaries) to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities (other than to the Company or to any Wholly Owned Subsidiary of the Company) on account of any shares of any class of its Capital Stock, or purchase, redeem or otherwise acquire for value any shares of its Capital Stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that the Company may: 53 59 (a) declare and make dividend payments or other distributions payable solely in its common stock; (b) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; and (c)(i) declare or pay cash dividends to its common stock shareholders or repurchase or redeem its common stock in an aggregate amount not to exceed, as of any date of declaration, payment, repurchase or redemption, 50% of the amount of the cumulative consolidated net income of the Company and its Subsidiaries (net of cumulative losses) for the period from December 31, 1996 through such date of declaration, payment, repurchase or redemption; and (ii) in addition to any repurchases or redemptions permitted pursuant to the immediately preceding clause (i), repurchase or redeem its common stock following the Closing Date in an aggregate amount not to exceed, as of any date of repurchase or redemption, $70,000,000; (d) purchase, redeem or otherwise acquire shares of its common stock pursuant to any agreement entered into between it, or any Subsidiary of the Company, and any officer, director employee or consultant to the Company or any of its Subsidiaries, entered into in the Ordinary Course of Business, in which the Company is obligated or has the option to repurchase from such officer, director, employee or consultant shares of common stock of the Company upon such Person's termination of employment or services with the Company or any such Subsidiary, not in excess of $250,000 in the aggregate; and (e) repay, convert, exchange or redeem any Indebtedness permitted under Section 8.05 which by its terms is convertible or exchangeable, or constitutes the right to purchase any shares of any class of Capital Stock. 8.10 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan; (b) cause or permit any Plan which is qualified under subsection 401(a) of the Code to lose such qualification; or (c) fail to make all required contributions to any Plan subject to subsection 412 of the Code; but only to the extent that any such act or failure to act, separately or together with all other such acts or failures to act, in any of the foregoing subsections (a), (b) or (c) has resulted or could reasonably expected to result in liability of the Company in an aggregate amount in excess of $1,000,000; or (d) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 8.11 Net Funded Debt to EBITDA Ratio. The Company shall not permit as of the last day of any fiscal quarter the Net Funded Debt to EBITDA Ratio to be greater than 2:00 to 1:00. 8.12 Interest Coverage Ratio. The Company shall not permit the Interest Coverage Ratio as of the last day of any fiscal quarter to be less than 3:00 to 1:00. 54 60 8.13 Change in Business. The Company shall not, and shall not suffer or permit any of its subsidiaries to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof, except businesses contemplated by it has have been disclosed to the Bank in writing prior to the date hereof. 8.14 Accounting Changes. The Company shall not, and shall not suffer or permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP, or change the fiscal year of the Company or any of its consolidated Subsidiaries, provided that the Company may change its fiscal year and the fiscal year of its consolidated Subsidiaries to a calendar year so long as it obtains any required consents of Governmental Authorities in connection therewith. Subsidiaries. ARTICLE 9 EVENTS OF DEFAULT 9.01 Event of Default. Any of the following shall constitute an event of default hereunder ("Event of Default"): (a) Non-Payment. The Company fails to pay: (i) when and as required to be paid herein, any amount of principal of any Loan or any L/C Advance; (ii) within three days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Credit Document; or (iii) any other amount payable hereunder or pursuant to any other Company Document after the same shall become due within thirty days of notice by the Bank to such effect; or (b) Representation or Warranty. Any representation or warranty by the Company or any of its Subsidiaries made or deemed made herein or in any other Credit Document, or which is contained in any certificate, document or financial or other statement by the Company or any of its Subsidiaries, or any Responsible Officer, furnished at any time under this Agreement or in or under any other Credit Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company fails to perform or observe any term, covenant or agreement contained in Sections 7.01, 7.02, 7.03, 7.11, 7.12 or 7.13 or in Article 8; or (d) Other Defaults. The Company fails to perform or observe any other term or covenant contained in this Agreement or any other Credit Document and such default shall continue unremedied for a period of thirty days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Bank; or (e) Cross-Default. The Company or any of its Subsidiaries (i) fails to make any payment in respect of any Indebtedness, having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or 55 61 syndicated credit arrangement) of more than $5,000,000, when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise); or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity (or Indebtedness consisting of any Contingent Obligation to become payable or cash collateral in respect thereof to be demanded), and such failure shall not have been cured to the satisfaction of the Bank for a period of fifteen days after the earlier of (A) the date on which a Responsible Officer know of such default or (B) the date upon which written notice thereof is given to the Company by the Bank; or (iii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled prepayment) or cash collateralized, prior to the stated maturity thereof; or (f) Insolvency: Voluntary Proceedings. The Company or any of its Material Subsidiaries (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any formal action through its Board of Directors or through a Responsible Officer or comparable officer of such Material Subsidiary to effectuate or authorize any of the foregoing; or (g) Insolvency: Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Material Subsidiary of the Company, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any of its Material Subsidiaries' Properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within sixty days after commencement, filing or levy; (ii) the Company or any of its Material Subsidiaries admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any of its Material Subsidiaries acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC; (ii) any Unfunded Pension Liability with respect to any or all Pension Plans shall exist; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan; but only to the extent that any of the foregoing, separately or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect; or (i) Monetary Judgments. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any of its Material Subsidiaries involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or 56 62 conditions, of $1,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of thirty consecutive days after the entry thereof; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any of its Material Subsidiaries which does or could reasonably be expected to have a Material Adverse Effect, and there shall be any period of thirty consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Invalidity of Credit Documents. Any of the Credit Documents after delivery thereof shall for any reason by revoked or invalidated or otherwise case to be in full force and effect, or the Company shall contest in any manner the validity or enforceability thereof, or the Company shall deny that it has any further liability or obligation thereunder; or (l) Material Adverse Effect. There occurs a Material Adverse Effect. 9.02 Remedies. If any Event of Default occurs, the Bank may: (a) declare the Commitment to be terminated, whereupon the Commitment shall automatically be terminated; (b) declare the unpaid principal amount of all outstanding Loans and L/C Advances, all interest accrued and unpaid thereon and all other Obligations to be immediately due and payable, whereupon such amount with respect to the Loans and the L/C Advances, all such accrued interest and all such other Obligations shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company; (c) demand that the Company Cash Collateralize the L/C Obligations to the extent of the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit); and (d)(i) notwithstanding anything to the contrary contained herein, without the consent of the Company, revoke all rights otherwise granted to the Company under Article 8 and (ii) exercise on behalf of itself and any Indemnified Person all rights and remedies available under the Credit Documents or applicable law; provided that, upon the occurrence of any event specified in subsection (f) or (g) of Section 9.01 (in the case of clause (i) of subsection (g) upon the expiration of the sixty day period mentioned therein), the Commitment, and the obligation of the Bank to make Loans or L/C Advances and to Issue, amend or renew Letters of Credit, shall automatically terminate and the unpaid principal amount of all outstanding Loans and L/C Advances, all interest accrued and unpaid thereon and all other Obligations shall become and be immediately due and payable without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Company. 57 63 9.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Credit Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE 10 GENERAL PROVISIONS 10.01 Amendments and Waivers. Subject to Section 9.02, no amendment or waiver of any provision of this Agreement or any other Credit Document, and no consent with respect to any departure by the Company or any of its Subsidiaries therefrom, shall be effective unless the same shall be in writing and signed by the Bank and the Company, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The Bank and the Borrower hereby agree that: (a) following the Closing Date, the Bank and the Borrower will negotiate in good faith to make adjustments to the terms and provisions contained herein in order to reflect the financial condition of the Borrower as of the Closing Date and to reflect the increase of the dollar amount of the credit facility provided under the Existing Facility to the dollar amount of the Commitment as in effect on the Closing Date; and (b) any such adjustments shall be (i) in form and substance (including pursuant to documentation) mutually acceptable to the Bank and the Borrower and (ii) entered into as soon as is reasonably practicable following the Closing Date. 10.02 Notices. (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company to the Bank by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 10.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 10.02; or, as directed to the Company or the Bank, to such other address as shall be designated by such party in a written notice to the other. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices to the Bank pursuant to Article 2 shall not be effective until actually received by the Bank. (c) Any agreement of the Bank herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Bank shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Bank shall not have any liability to the Company or any other Person on account of any action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Obligations shall not be affected in any way or to any extent by any failure by the Bank to receive written confirmation of any telephonic or facsimile notice or the 58 64 receipt by the Bank of a confirmation which is at variance with the terms understood by the Bank to be contained in the telephonic or facsimile notice. 10.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 10.04 Costs and Expenses. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse the Bank within five Business Days after demand for all costs and expenses incurred by the Bank in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Credit Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by the Bank with respect thereto; provided that, if the Closing Date occurs as provided in Section 5.01, then the actual Attorney Costs to be paid by the Company in connection with the development, preparation, execution and delivery of this Agreement and the other Credit Documents to be executed on or before the Closing Date shall be limited to $5,000; and (b) pay or reimburse the Bank within five Business Days after demand for all costs and expenses (including Attorney Costs) incurred by it in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Credit Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 10.05 Indemnity. (a) General Indemnity. Whether or not the transactions contemplated hereby are consummated, the Company agrees to indemnify, defend and hold the Bank and each of its officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or 59 65 willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. (b) Environmental Indemnity. (i) The Company hereby agrees to indemnify, defend and hold harmless each Indemnified Person, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses or disbursements (including Attorney Costs and the allocated cost of internal environmental audit or review services), which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any pending or threatened investigation, litigation or proceeding, or any action taken by any Person, with respect to any Environmental Claim arising out of or related to any Property of the Company or any of its Subsidiaries. No action taken by legal counsel chosen by the Bank in defending against any such investigation, litigation or proceeding or requested remedial, removal or response action shall vitiate or any way impair the Company's obligation and duty hereunder to indemnify and hold harmless all Indemnified Persons. (ii) In no event shall any site visit, observation, or testing by the Bank be deemed a representation or warranty that Hazardous Materials are or are not present in, on, or under the site, or that there has been or shall be compliance with any Environmental Law. Neither the Company nor any other Person is entitled to rely on any site visit, observation, or testing by the Bank. The Bank does not owe any duty of care to protect the Company or any other Person against, or to inform the Company or any other Person of, any Hazardous Materials or any other adverse condition affecting any site or Property. The Bank shall not be obligated to disclose to the Company or any other Person any report or findings made as a result of, or in connection with, any site visit, observation, or testing by the Bank. (c) Survival; Defense. The obligations in this Section 10.05 shall survive payment of all other Obligations. At the election of any Indemnified Person, the Company shall defend such Indemnified Person using legal counsel satisfactory to such Indemnified Person in such Person's sole discretion, at the sole cost and expense of the Company. 10.06 Payments Set Aside. To the extent that the Company makes a payment to the Bank, or the Bank exercises its right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement agreed to by the Bank in its sole discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred. 10.07 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Bank (which consent may be withheld for any reason). 60 66 10.08 Assignments, Participations, etc. (a) The Bank may at any time assign and delegate to one or more Eligible Assignees (each an "Assignee") all or any part of the Loans, the L/C Obligations, the Commitment and the other rights and obligations of the Bank hereunder, in a minimum amount of $5,000,000; provided that the Company may continue to deal solely and directly with the Bank in connection with the interest so assigned to an Assignee until written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company by the Bank and the Assignee. (b) The Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company or any of its Subsidiaries (a "Participant") participating interests in any Loans, L/C Obligations, the Commitment of the Bank and the other interests of the Bank hereunder and under the other Credit Documents; provided that the Bank shall not transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Credit Document, except to the extent such amendment, consent or waiver would (i) increase or extend the Commitment or subject to the Bank to any additional obligations; (ii) postpone or delay any date fixed for any payment of principal, interest, fees or other amounts due under any Credit Document; (iii) reduce the principal of, or the rate of interest specified herein on any Loan or L/C Advance or of any fees or other amounts payable under any Credit Document. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other Credit Documents, and all amounts payable by the Company hereunder shall be determined as if the Bank had not sold such participation, except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as the Bank under this Agreement. The Company shall not be required to incur any expense in connection with any such participation. (c) Notwithstanding any other provision in this Agreement, the Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement and the Note held by it in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 10.09 Confidentiality. The Bank agrees, and agrees to cause its Affiliates to, take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any of its Subsidiaries under this Agreement or any other Credit Document, and neither the Bank nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Credit Documents or in connection with other business now or hereafter existing or contemplated with the Company or any of its Subsidiaries; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company or its Subsidiaries, so long as such source is not bound by a confidentiality agreement with the Company or any of its Subsidiaries known to the Bank; provided that the Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an 61 67 examination of the Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Bank or any of its Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Credit Document; (F) to the Bank's independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Bank hereunder; (H) as to the Bank or any of its Affiliates, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any of its Subsidiaries is a party or is deemed a party with the Bank or the Bank's Affiliates; and (I) to the Bank's Affiliates. 10.10 Set-off. In addition to any rights and remedies of the Bank provided hereunder or at law, if an Event of Default exists or the Obligations have been accelerated, the Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, the Bank to or for the credit or the account of the Company against any and all Obligations now or hereafter existing, irrespective of whether or not the Bank shall have made demand under this Agreement or any Credit Document and although such Obligations may be contingent or unmatured. The Bank agrees to notify promptly the Company after any such set-off and application made by the Bank, provided that the failure to give such notice shall not affect the validity of such set-off and application. 10.11 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 10.12 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 10.13 No Third Parties Benefited. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Bank and the Indemnified Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Credit Documents. 10.14 Governing Law; Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW OF THE STATE OF CALIFORNIA, PROVIDED THAT THE BANK SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. 62 68 (b) SUBJECT TO SECTION 10.15: (i) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT SOLELY IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND, BY EXECUTION AND DELIVERY HEREOF, EACH OF THE COMPANY AND THE BANK CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THOSE COURTS; (ii) EACH OF THE COMPANY AND THE BANK IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE COMPANY AND THE BANK WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 10.15 Arbitration. (a) Upon the demand of any party, any Dispute shall be resolved by binding arbitration (except as set forth in (e) below) in accordance with the terms of this Agreement. A "Dispute" means any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, now existing or hereafter arising under or in connection with, or in any way pertaining to, any of the Credit Documents, or any past, present or future extensions of credit and other activities, transactions or obligations of any kind related directly or indirectly to any of the Credit Documents, including any of the foregoing arising in connection with the exercise of any self-help, ancillary or other remedies pursuant to any of the Credit Documents. Any party may by summary proceedings bring an action in court to compel arbitration of a Dispute. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration of any Dispute. (b) Arbitration proceedings shall be administered by the American Arbitration Association ("AAA") or such other administrator as the parties shall mutually agree upon in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to arbitration shall be resolved in accordance with the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision in any of the Credit Documents. The arbitration shall be conducted at a location in California selected by the AAA or other administrator. If there is any inconsistency between the terms hereof and any such rules, the terms and procedures set forth herein shall control. All statutes of limitation applicable to any Dispute shall apply to any arbitration proceeding. All discovery activities shall be expressly limited to matters directly relevant to the Dispute being arbitrated. Judgment upon any award rendered in an arbitration may be entered in any court having jurisdiction; provided that nothing contained herein shall be deemed to be a waiver by any party that is a bank of the protections afforded to it under 12 U.S.C. Section 91 or any similar applicable state law. (c) No provision hereof shall limit the right of any party to exercise self-help remedies such as setoff, foreclosure against or sale of any real or personal property collateral or security, or to obtain provisional or ancillary remedies, including injunctive relief, sequestration, attachment, garnishment or the appointment of a receiver, from a court of competent jurisdiction before, after or during the pendency of any arbitration or other proceeding. The exercise of any such remedy shall not waive the right of any party to compel arbitration or reference hereunder. 63 69 (d) Arbitrators must be active members of the California State Bar or retired judges of the state or federal judiciary of California, with expertise in the substantive laws applicable to the subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by summary rulings in response to motions filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in accordance with the substantive law of the state of California, (ii) may grant any remedy or relief that a court of the state of California could order or grant within the scope hereof and such ancillary relief as is necessary to make effective any award, and (iii) shall have the power to award recovery of all costs and fees, to impose sanctions and to take such other actions as they deem necessary to the same extent a judge could pursuant to the Federal Rules of Civil Procedure, the California Rules of Civil Procedure or other applicable law. Any Dispute in which the amount in controversy is $5,000,000 or less shall be decided by a single arbitrator who shall not render an award of greater than $5,000,000 (including damages, costs, fees and expenses). By submission to a single arbitrator, each party expressly waives any right or claim to recover more than $5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000 shall be decided by majority vote of a panel of three arbitrators; provided that all three arbitrators must actively participate in all hearings and deliberations. (e) Notwithstanding anything to the contrary contained herein, in any arbitration in which the amount in controversy exceeds $25,000,000, the arbitrators shall be required to make specific, written findings of fact and conclusions of law. In such arbitrations (i) the arbitrators shall not have the power to make any award which is not supported by substantial evidence or which is based on legal error, (ii) an award shall not be binding upon the parties unless the findings of fact are supported by substantial evidence and the conclusions of law are not erroneous under the substantive law of the state of California, and (iii) the parties shall have in addition to the grounds referred to in the Federal Arbitration Act for vacating, modifying or correcting an award the right to judicial review of (A) whether the findings of fact rendered by the arbitrators are supported by substantial evidence, and (B) whether the conclusions of law are erroneous under the substantive law of the state of California. Judgment confirming an award in such a proceeding may be entered only if a court determines the award is supported by substantial evidence and not based on legal error under the substantive law of the state of California. (f) Notwithstanding anything to the contrary contained herein, no Dispute shall be submitted to arbitration if the Dispute concerns indebtedness secured directly or indirectly, in whole or in part, by any real property unless (i) the holder of the mortgage, lien or security interest specifically elects in writing to proceed with the arbitration, or (ii) all parties to the arbitration waive any rights or benefits that might accrue to them by virtue of the single action rule statute of California, thereby agreeing that all indebtedness and obligations of the parties, and all mortgages, liens and security interests securing such indebtedness and obligations, shall remain fully valid and enforceable. If any such Dispute is not submitted to arbitration, the Dispute shall be referred to a referee in accordance with California Code of Civil Procedure Section 638 et seq., and this general reference agreement is intended to be specifically enforceable in accordance with said Section 638. A referee with the qualifications required herein for arbitrators shall be selected pursuant to the AAA's selection procedures. Judgment upon the decision rendered by a referee shall be entered in the court in which such proceeding was commenced in accordance with California Code of Civil Procedure Sections 644 and 645. (g) To the maximum extent practicable, the AAA, the arbitrators and the parties shall take all action required to conclude any arbitration proceeding within 180 days of the filing of the Dispute with the AAA. No arbitrator or other party to an arbitration proceeding may disclose the existence, content or results thereof, except for disclosures of information by a party required in the ordinary course of its business, by applicable law or regulation, or to the extent necessary to exercise any 64 70 judicial review rights set forth herein. If more than one agreement for arbitration by or between the parties potentially applies to a Dispute, the arbitration provision most directly related to the Credit Documents or the subject matter of the Dispute shall control. This arbitration provision shall survive termination, amendment or expiration of any of the Credit Documents or any relationship between the parties. 10.16 Entire Agreement. This Agreement, together with the other Credit Documents, embodies the entire agreement and understanding among the Company and the Bank and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 65 71 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in San Francisco, California by their proper and duly authorized officers as of the day and year first written above. The Company: PLANTRONICS, INC., a Delaware corporation By: -------------------------------- Name: -------------------------------- Title: -------------------------------- By: -------------------------------- Name: -------------------------------- Title: -------------------------------- The Bank: WELLS FARGO BANK, NATIONAL ASSOCIATION By: -------------------------------- Name: -------------------------------- Title: -------------------------------- EX-13 4 0004.txt EXHIBIT 13 1 EXHIBIT 13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY: Plantronics, Inc. ("Plantronics", "we" or "our"), introduced the first lightweight communications headset in 1962. Since that time, we have become the world leading designer, manufacturer and marketer of lightweight communications headset products. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: MANAGEMENT'S USE OF ESTIMATES AND ASSUMPTIONS The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Plantronics and its subsidiary companies. Intercompany transactions and balances have been eliminated in consolidation. FISCAL YEAR Our fiscal year end is the Saturday closest to March 31. For purposes of presentation, we have indicated our accounting year ending on March 31. Results of operations for fiscal years 1998 and 1999 each included 52 weeks, while fiscal year 2000 included 53 weeks. CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES We consider all highly liquid investments with a maturity of ninety days or less at the date of purchase to be cash equivalents. Investments maturing between three and twelve months from the date of purchase are classified as marketable securities. Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates that designation as of each balance sheet date. As of March 31, 2000, debt securities were classified as held-to-maturity, as we both intended to, and had the ability to, hold these securities to maturity. Held-to-maturity securities are stated at amortized cost, which approximates fair market value. The estimated fair values of cash equivalents and marketable securities are based on quoted market prices. As of March 31, 2000, we had $5 million in marketable securities. Our cash and cash equivalents consist of the following:
MARCH 31, ------------------------- 1999 2000 ------- ------- (in thousands) Cash $ 7,427 $ 5,705 Cash equivalents 35,572 34,566 ------- ------- Cash and cash equivalents $42,999 $40,271 ======= =======
INVENTORY Inventory is stated at the lower of cost, determined on the first-in, first-out method, or market. 1 2 DEPRECIATION AND AMORTIZATION Depreciation and amortization of property, plant and equipment are principally calculated using the straight-line method over the estimated useful lives of the respective assets. In connection with the acquisition of ClearVox Communications, goodwill is amortized over ten years and intangible assets are amortized over three to five years. DEFERRED DEBT ISSUANCE COSTS Debt issuance costs are assigned to the various debt instruments and amortized over the shorter of the terms of the respective debt agreements or the estimated period the debt will be outstanding. REVENUE RECOGNITION Revenue is recognized when products are shipped. We provide for estimated potential customer returns and warranty costs at the time of shipment. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject Plantronics to concentrations of credit risk consist principally of cash equivalents, marketable securities and trade receivables. Our cash investment policies limit investments to those that are short-term and low risk. Cash equivalents have an original maturity of ninety days or less; marketable securities have an original maturity of greater than ninety days, but less than one year. Concentrations of credit risk with respect to trade receivables are generally limited due to the large number of customers that comprise our customer base, and their dispersion across different geographic areas. We perform ongoing credit evaluations of our customers' financial condition and generally require no collateral from our customers. We maintain an allowance for uncollectible accounts receivable based upon expected collectibility of all accounts receivable. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of our financial instruments, including cash, cash equivalents, marketable securities, accounts receivable, accrued expenses and liabilities, approximate fair value due to their short maturities. INCOME TAXES We account for income taxes under the liability method, which recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial statement reported amounts. We account for tax credits as a reduction of tax expense in the year in which the credits reduce taxes payable. FOREIGN OPERATIONS AND CURRENCY TRANSLATION We have foreign assembly and manufacturing operations in Mexico, light assembly, research and development, sales and marketing operations in the United Kingdom, an international finance, customer service and logistics headquarters in the Netherlands, an international procurement office in Taiwan, and sales offices in Canada, Asia, Europe, Australia and South America. For fiscal 1998, 1999 and 2000, the functional currency of all foreign operations was the U.S. dollar. Accordingly, gains or losses arising from the translation of foreign currency statements and transactions are included in determining consolidated results of operations. Aggregate exchange losses for fiscal 1998, 1999 and 2000 were $0.2 million, $0.2 million and $0.8 million, respectively. EARNINGS PER SHARE Basic Earnings Per Share ("EPS") is computed by dividing net income available to common stockholders (numerator - computed as net income before and after extraordinary item) by the weighted average number of common shares outstanding (denominator) during the period. Basic EPS excludes the dilutive effect of stock options. Diluted EPS gives effect to all dilutive potential common shares outstanding during a period. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from exercise of stock options. 2 3 Following is a reconciliation of the numerators and denominators of the basic and diluted EPS:
FISCAL YEAR ENDED MARCH 31, ------------------------------------ 1998 1999 2000 -------- -------- -------- (in thousands) Net income before extraordinary item $ 39,189 $ 55,253 $ 64,517 ======== ======== ======== Net income after extraordinary item $ 39,189 $ 54,204 $ 64,517 ======== ======== ======== Weighted average shares - basic 16,481 16,574 16,505 Effect of dilutive securities - employee stock options 1,742 1,708 1,168 -------- -------- -------- Weighted average shares - diluted 18,223 18,282 17,673 ======== ======== ======== Net earnings per common share - basic Before extraordinary item $ 2.38 $ 3.33 $ 3.91 ======== ======== ======== After extraordinary item $ 2.38 $ 3.27 $ 3.91 ======== ======== ======== Net earnings per common share - diluted Before extraordinary item $ 2.15 $ 3.02 $ 3.65 ======== ======== ======== After extraordinary item $ 2.15 $ 2.96 $ 3.65 ======== ======== ========
COMPREHENSIVE INCOME Comprehensive income includes charges or credits to equity that are not the result of transactions with owners. Total comprehensive income was the same as net income for all periods presented. SEGMENT REPORTING Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), requires that we report certain information about operating segments in our annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers (see note 9). STOCK BASED COMPENSATION Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. We have elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations, and to provide additional disclosures with respect to the pro forma effects of adoption had we recorded compensation expense as provided in SFAS 123 (see note 10). RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. In July 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date of SFAS 133 until fiscal years beginning after June 15, 2000. Should we determine that such activities are economically beneficial to Plantronics, then we will adopt SFAS 133 during our year ended March 31, 2002. We did not engage in any derivative or hedging activities during the fiscal year ended March 31, 2000. 3 4 NOTE 3 - DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS:
MARCH 31, ----------------------- 1999 2000 -------- -------- (in thousands) Accounts receivable: Accounts receivable from customers $ 49,133 $ 50,625 Allowance for doubtful accounts (2,326) (2,144) -------- -------- $ 46,807 $ 48,481 ======== ======== Inventory: Finished goods $ 9,425 $ 17,887 Work in process 1,461 1,540 Purchased parts 8,003 14,325 -------- -------- $ 18,889 $ 33,752 ======== ======== Property, plant and equipment: Land $ 4,693 $ 4,693 Buildings and improvements (useful life 10-30 years) 9,923 11,296 Machinery and equipment (useful life 2-8 years) 32,853 38,341 -------- -------- 47,469 54,330 Less accumulated depreciation (27,146) (30,753) -------- -------- $ 20,323 $ 23,577 ======== ======== Accruals: Employee benefits 15,209 15,934 Other 18,266 18,396 -------- -------- $ 33,475 $ 34,330 ======== ========
NOTE 4 - DEBT: During 1999, we retired $65.1 million of 10% subordinated debentures due in 2001. We paid a premium to the holders of such debentures, and the transaction resulted in an extraordinary loss of $1.0 million ($0.06 per diluted share), net of income tax benefit of $0.7 million. The transaction was paid out of available cash. Effective November 29, 1999, we obtained a revolving credit facility with a major bank for $100 million, including a $10 million letter-of-credit subfacility. Both mature in November 27, 2000. Principal outstanding bears interest at our choice of prime rate minus 1% or LIBOR plus 0.625%, depending on the rate choice and performance level ratios. There were no borrowings outstanding under the facility at March 31, 2000. However, at that date $0.8 million associated with inventory purchases and other matters was committed under the letter-of-credit subfacility. The revolving credit facility includes certain covenants that materially limit our ability to incur debt and pay dividends, among other matters. We were in compliance with the terms of the covenants as of March 31, 2000. NOTE 5 - COMMON AND TREASURY STOCK: On January 8, 1999, we filed with the Securities Exchange Commission a Registration Statement on Form S-3 for the sale by certain stockholders in an underwritten offering of 1,250,000 shares of Common Stock. Plantronics did not receive any proceeds from this offering, other than approximately $0.8 million (net of offering expenses) received upon the exercise of options to purchase 443,548 shares of Common Stock by two of the stockholders selling in the offering. The offering increased outstanding shares by 443,548. In July 1999, our stockholders approved an increase in the authorized shares of Common Stock of Plantronics, Inc., to 100,000,000. 4 5 During fiscal 1999, the Board of Directors authorized Plantronics to repurchase an additional 1,000,000 shares of Common Stock. During fiscal 1999, we repurchased 735,593 shares of Common Stock in the open market at a total cost of $46.4 million, and through our employee benefit plans, we reissued 29,301 shares for proceeds of $1.3 million.. During fiscal 2000, the Board of Directors authorized Plantronics to repurchase an additional 1,000,000 shares of Common Stock. During fiscal 2000, we repurchased 1,267,500 shares of our Common Stock in the open market at a total cost of $72.6 million, and through our employee benefit plans, we reissued 41,097 shares for proceeds of $2.1 million. As of March 31, 2000, there were 184,907 remaining shares authorized for repurchase under all repurchase plans. Shares repurchased in fiscal year 2000 that exceeded the additional 1,000,000 shares pertained to authorizations from prior years. NOTE 6 - INCOME TAXES: Income tax expense for fiscal 1998, 1999 and 2000 consisted of the following:
FISCAL YEAR ENDED MARCH 31, -------------------------------------------- 1998 1999 2000 -------- -------- -------- (in thousands) Federal Current $ 10,109 $ 18,127 $ 29,130 Deferred 4,746 3,344 (6,493) State 1,472 1,943 2,419 Foreign 2,116 2,587 5,305 -------- -------- -------- $ 18,443 $ 26,001 $ 30,361 ======== ======== ========
Pre-tax earnings of the foreign subsidiaries were $15.7 million, $24.5 million and $28.1 million for fiscal years 1998, 1999 and 2000, respectively. Cumulative earnings of foreign subsidiaries that have been permanently reinvested as of March 31, 2000 totaled $45.3 million. The following is a reconciliation between statutory federal income taxes and the total provision for taxes on pre-tax income:
FISCAL YEAR ENDED MARCH 31, -------------------------------------- 1998 1999 2000 -------- -------- -------- (in thousands) Tax expense at statutory rate $ 20,171 $ 27,847 $ 33,208 Foreign operations taxed at different rates (4,364) (3,609) (4,422) State taxes, net of federal benefit 1,476 1,263 1,572 Other, net 1,160 500 3 -------- -------- -------- $ 18,443 $ 26,001 $ 30,361 ======== ======== ========
Deferred tax liabilities (assets) represent the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of our deferred tax liabilities and assets are as follows:
MARCH 31, ------------------------ 1999 2000 -------- -------- (in thousands) Deferred gains on sales of properties $ 2,413 $ 2,350 Deferred state tax 793 Unremitted earnings of certain subsidiaries 7,249 3,357 Other deferred tax liabilities 1,200 1,773 -------- -------- Gross deferred tax liabilities 11,655 7,480 -------- -------- Accruals and other reserves (4,122) (6,182)
5 6 Deferred state tax (386) Other deferred tax assets (667) (539) -------- -------- Gross deferred tax assets (4,789) (7,107) -------- -------- Total net deferred tax liabilities $ 6,866 $ 373 ======== ========
NOTE 7 - EMPLOYEE BENEFIT PLANS: Subject to eligibility requirements, substantially all domestic employees participated in our qualified profit sharing and 401(k) plan. Under the plan, participating employees received quarterly cash, annual cash and annual deferred profit sharing payments. All other employees, with the exception of direct labor in Mexico, participated in quarterly cash profit sharing plans. Domestic employees also had the option of participating in a salary deferral component of the plan, qualified under Section 401(k) of the Internal Revenue Code. The profit sharing benefits were based on Plantronics' results of operations before interest and taxes, adjusted for other items. The percentage of profit distributed to employees varied by location. The profit sharing was paid in four quarterly installments, and for qualified associates, one annual cash payment and an annual deferred payment. Profit sharing payments were allocated to employees based on each participating employee's base salary as a percent of all participants' base salaries. The annual profit sharing distributions were made up of a cash distribution and a tax deferred distribution made to individual accounts of participants held in trust. The deferred portion was subject to a two year vesting schedule based on an employee's date of hire. Total annual and quarterly profit sharing contributions were $6.9 million, $9.4 million and $10.2 million for fiscal 1998, 1999 and 2000, respectively. Effective March 26, 2000, we amended our qualified profit sharing and 401(k) plan. In the past, this plan compensated associates through one annual cash payment, four quarterly cash payments and one deferred payment - in fiscal 2000, the total of these payments equaled approximately 47% of each participating employee's base salary. For fiscal 2001 and thereafter, Plantronics will now offer two separate compensation programs: quarterly cash profit sharing equal to 5% of quarterly profit for distribution to qualified associates, and deferred compensation using the 3% "safe harbor" contribution under the Internal Revenue Code Sections 401(k)(12) and 401(m)(11). We have also increased the employer matching contribution from 25% under the prior qualified 401(k) plan to 50% of the first 6% of pay contributed to the salary deferral plan. With this amendment, the annual cash profit sharing payment was eliminated and replaced by a 20% increase to our associates base pay. NOTE 8 - COMMITMENTS AND CONTINGENCIES: MINIMUM FUTURE RENTAL PAYMENTS We lease certain equipment and facilities under operating leases expiring in various years through and after 2005. Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year as of March 31, 2000:
FISCAL YEAR ENDING MARCH 31, AMOUNT - -------------------------------------------------------------------------------- (in thousands) 2001 $1,226 2002 506 2003 408 2004 408 2005 408 Thereafter $3,871 ------ Total minimum future rental payments $6,827 ======
Rent expense for operating leases was approximately $1.0 million in fiscal 1998, $1.1 million in fiscal 1999 and $1.1 million in fiscal 2000. EXISTENCE OF RENEWAL OPTIONS 6 7 Certain operating leases provide for renewal options for periods from one to three years. In the normal course of business, operating leases are generally renewed or replaced by other leases. CLAIMS AND LITIGATION In the ordinary course of business we are subject to certain litigation, contingent liabilities and/or claims. Management is not aware of any such litigation, contingent liabilities or claims against Plantronics that would materially impact our consolidated financial condition or results of operations. NOTE 9 - SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION: OPERATING SEGMENT We organize the reporting segments based on geographic areas. The nature of our products (telecommunications equipment), development, manufacturing, marketing and servicing are similar in each geographic area. We evaluate segment performance based on profit or loss from operations before interest expense, foreign exchange gains and losses and income taxes. No one customer accounted for 10% or more of total revenue from consolidated sales for fiscal year 1998, 1999 or 2000. GEOGRAPHIC SEGMENTS In geographical reporting, revenues are attributed to the geographical location of the sales and service organizations. Costs directly and indirectly incurred in generating revenues are similarly assigned.
FISCAL YEAR ENDED MARCH 31, ------------------------------------ 1998 1999 2000 -------- -------- -------- (in thousands) Net revenues from unaffiliated customers: United States $164,074 $198,910 $209,557 International 72,038 87,351 105,455 -------- -------- -------- $236,112 $286,261 $315,012 ======== ======== ======== Intersegment revenues $ 80,421 $ 92,141 $ 98,749 ======== ======== ======== Operating profit: United States $ 44,831 $ 62,942 $ 61,079 International 17,542 20,572 32,226 -------- -------- -------- $ 62,373 $ 83,514 $ 93,305 ======== ======== ======== Long lived assets: United States $ 18,301 $ 17,791 $ 15,371 International 2,954 2,532 8,206 -------- -------- -------- -------- -------- -------- $ 21,255 $ 20,323 $ 23,577 ======== ======== ========
The geographical reporting classification reflects the international restructuring completed in fiscal 1997. The establishment of Plantronics B.V. changed the ownership of inventory and the methodology of intersegment revenues. Intersegment revenues are from Plantronics B.V. to the U.S., and are at arms-length prices sufficient to recover a reasonable profit. NOTE 10 - STOCK OPTION PLANS AND STOCK PURCHASE PLANS: 7 8 STOCK OPTION PLAN In September 1993, the Board of Directors approved the PI Parent Corporation 1993 Stock Plan (the "1993 Stock Plan"). Under the 1993 Stock Plan, 5,459,242 shares of Common Stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) are reserved cumulatively since inception for issuance to employees and consultants of Plantronics, as approved by the Compensation Committee of the Board of Directors and the Stock Plan Committee (comprised of the CEO and a representative of Finance, Human Resources, and Legal). The reserved shares include 1,300,000 shares, which were authorized by the Board of Directors and approved by the stockholders for issuance in fiscal year 1999. The 1993 Stock Plan, which has a term of ten years, provides for incentive stock options as well as nonqualified stock options to purchase shares of Common Stock. The Board of Directors may terminate the 1993 Stock Plan at any time at its discretion. Incentive stock options may not be granted at less than 100% of the estimated fair market value of our Common Stock at the date of grant, as determined by the Board of Directors, and the option term may not exceed 10 years. For holders of 10% or more of the total combined voting power of all classes of our stock, incentive stock options may not be granted at less than 110% of the estimated fair market value of the Common Stock at the date of grant and the option term may not exceed five years. Nonqualified stock options may be granted at less than fair market value. Options granted prior to June 1999 generally vest over a four year period and those options granted subsequent to June 1999 vest over a five year period. In July 1999, the Stock Plan Committee was authorized to make option grants pursuant to guidelines approved by the Compensation Committee and subject to quarterly reporting to the Compensation Committee. DIRECTORS' STOCK OPTION PLAN In September 1993, the Board of Directors adopted a Directors' Stock Option Plan (the "Directors' Option Plan") and reserved 40,000 shares of Common Stock for issuance to non-employee directors of Plantronics. The Directors' Option Plan provides that each non-employee director shall be granted an option to purchase 4,000 shares of Common Stock on the later of the effective date of Plantronics' initial public offering or the date on which the person becomes a new director. Annually thereafter, each continuing non-employee director shall be automatically granted an option to purchase 1,000 shares of Common Stock. At the end of fiscal year 2000, options for 51,000 shares of Common Stock were outstanding under the Directors' Option Plan. All options were granted at fair market value and generally vest over a four year period. Stock option activity under the 1993 Stock Plan and the Directors' Stock Option Plan are as follows:
OPTIONS OUTSTANDING ----------------------------- SHARES WEIGHTED AVAILABLE AVERAGE FOR GRANT SHARES PRICE ---------- ---------- -------- Balance at March 31, 1997 538,318 3,019,380 $ 7.46 Options Granted (654,500) 654,500 $ 27.37 Options Exercised (348,958) $ 3.49 Options Cancelled 233,010 (233,010) $ 18.53 ---------- ---------- -------- Balance at March 31, 116,828 3,091,912 $ 11.29 1998 Options Authorized 1,300,000 Options Granted (666,000) 666,000 $ 55.75 Options Exercised (1,056,093) $ 4.91 Options Cancelled 184,445 (184,445) $ 18.55 ---------- ---------- -------- Balance at March 31, 1999 935,273 2,517,374 $ 25.19 Options Granted (878,125) 878,125 $ 64.66 Options Exercised (726,831) $ 9.46 Options Cancelled 35,675 (35,675) $ 46.19 ---------- ---------- -------- Balance at March 31, 2000 92,823 2,632,993 $ 41.64 ========== ========== ======== Exercisable at March 31, 2000 1,065,457 ==========
8 9 Significant option groups outstanding at March 31, 2000 and related weighted average prices and lives are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - -------------------------------------------------------------------------------------------------------------- Number Weighted Number Outstanding Average Weighted Exercisable Weighted As of Remaining Average As of Average Range of March 31, Contractual Exercise March 31, Exercise Exercise Price 2000 Life Price 2000 Price - -------------------------------------------------------------------------------------------------------------- $0.90 - $2.74s 282,289 3.77 $ 2.53 282,289 $ 2.53 3.13 - 18.44s 440,889 5.73 15.23 392,389 14.83 18.63 - 26.78s 257,096 6.99 21.46 162,413 21.38 34.50 - 60.00s 691,057 8.44 47.03 171,219 39.67 61.13 - 92.63s 961,662 9.17 66.76 57,147 61.57 --------- --------- $0.90 - $92.63s 2,632,993 7.61 $ 41.64 1,065,457 $ 19.07 ========= =========
FAIR VALUE DISCLOSURES All options in fiscal 1998, 1999 and 2000 were granted at an exercise price equal to the fair market value of Plantronics' Common Stock at the date of grant. The fair value of options at date of grant was estimated using the Black-Scholes model. The following assumptions were used for 1998: dividend yield of 0%, an expected life of 5 years, expected volatility of 28% and risk free interest rate of 5.6%. For 1999 the assumptions were: dividend yield of 0%, an expected life of 5.6 years, expected volatility of 39% and risk free interest rate of 5.3%. For 2000 the assumptions were: dividend yield of 0%, an expected life of 6 years, expected volatility of 42% and a weighted average risk free interest rate of 5.9%. Based upon those assumptions, the weighted average fair value at date of grant for options granted during 1998, 1999 and 2000 were $9.79, $25.25 and $32.66 per share, respectively. Volatility is a measure of the amount by which a price has fluctuated over an historical period. The higher the volatility, the more the returns on the stock can be expected to vary. The risk free interest rate is the rate on a U.S. Treasury bill or bond that approximates the expected life of the option. Had compensation expense for Plantronics' stock-based compensation plans been determined based on the methods prescribed by SFAS 123, our net income and net income per share would have been as follows:
FISCAL YEAR ENDED MARCH 31, ---------------------------------------- 1998 1999 2000 ---------- ---------- ---------- (in thousands, except per share amounts) Net income: As reported $ 39,189 $ 54,204 $ 64,517 Pro forma $ 37,381 $ 51,771 $ 56,879 Net income per share: As reported $ 2.15 $ 2.96 $ 3.65
9 10 Pro forma $ 2.05 $ 2.83 $ 3.22
EMPLOYEE STOCK PURCHASE PLAN On April 23, 1996, the Board of Directors of Plantronics approved the 1996 Employee Stock Purchase Plan (the "ESPP"), which was approved by the stockholders on August 6, 1996, to provide certain employees with an opportunity to purchase Common Stock through payroll deductions. The plan is a qualified plan under applicable IRS guidelines and certain highly compensated employees are excluded from participation. Under the ESPP plan effective through August 1999, the purchase price of the Common Stock was equal to 95% of the market price of the Common Stock immediately before the beginning of the applicable participation period and there was a six month holding period requirement for stock purchased. Under the ESPP plan effective beginning September 1999, the purchase price of the Common Stock will be equal to 85% of the market price of the Common Stock immediately before the beginning of the applicable participation period and there is no required holding period. Each participation period is six months long. During fiscal 1998, 2,021 shares were issued under the plan. The fair value of the employee's purchase rights was estimated using the Black-Scholes model with the following assumptions: dividend yield of 0%, an expected life of six months, expected volatility of 28%, and risk free interest rates of 5.6%. The weighted-average fair value of these purchase rights granted in fiscal 1998 was $4.85. During fiscal 1999, 2,531 shares were issued under the plan. The fair value of the employee's purchase rights was estimated using the Black-Scholes model with the following assumptions: dividend yield of 0%, an expected life of six months, expected volatility of 39%, and risk free interest rate of 4.6%. The weighted-average fair value of these purchase rights granted in fiscal 1999 was $5.92. During fiscal 2000, 12,731 shares were issued under the plan. The fair value of the employee's purchase rights was estimated using the Black-Scholes model with the following assumptions: dividend yield of 0%, an expected life of six months, expected volatility of 42%, and risk free interest rate of 6.1%. The weighted-average fair value of these purchase rights granted in fiscal 2000 was $11.39. SENIOR EXECUTIVE STOCK OWNERSHIP PLAN In November 1996, the Board of Directors approved a Senior Executive Stock Purchase Plan, effective January 1, 1997, to encourage ownership of our Common Stock by senior executives. This is a voluntary plan in which executives are encouraged to participate and achieve a target ownership over a five year period in annual increments of 20% of target or more. The target ownership is equal to two times the Chief Executive Officer's base salary and one times the individual Vice Presidents' base salary. To encourage participation, we will sell our Treasury Stock to executives under this voluntary purchase program. The price will be equal to the greater of: 95% of the price set by the Board of Directors on an annual basis or 85% of the fair market value of the stock on the date of transaction. The various vehicles that are available to executives to obtain ownership of Plantronics' stock are as follows: 401(k) Plan contributions, personal IRA account purchases, Deferred Compensation Plan contributions, outright purchase of stock or exercising and holding vested stock options. The discounted price is not applicable to exercising and holding of vested stock options. 10 11 PLANTRONICS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CERTAIN FORWARD-LOOKING INFORMATION: This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements include, without limitation, the statements that (i) we expect interest expense in the next twelve months to be minimal discussed in the last sentence of the paragraph below titled "Interest Expense" under Annual Results of Operations; (ii) cash from operations and available borrowings will be sufficient to fund operations for the next twelve months discussed in the final paragraph of the section titled "Liquidity" under Financial Condition; and (iii) we believe that our future costs associated with Year 2000 compliance will not be material as stated in the section below titled "Y2K". In addition, we may from time to time make oral forward-looking statements. These forward-looking statements are based on current expectations and entail various risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those under "Risk Factors Affecting Future Operating Results" set forth in our most recent Annual Report on Form 10-K as filed with the Securities Exchange Commission. The following discussions titled "Results of Operations" and "Financial Condition" should be read in conjunction with those risk factors, the consolidated financial statements and related notes included elsewhere herein, and the discussion and additional disclosures in our Annual Report on Form 10-K. ANNUAL RESULTS OF OPERATIONS Net Sales. Net sales in fiscal 2000 increased 10.0% to $315.0 million compared to $286.3 million in fiscal 1999, which in turn increased 21.2% compared to fiscal 1998 net sales of $236.1 million. Our fiscal year ended March 31, 2000 contained 53 weeks vs. 52 weeks for fiscal years 1999 and 1998. The 10% increase in revenue in fiscal 2000 was driven by strong growth internationally and strong U.S. retail revenues, offset by flat U.S. distribution sales and a decline in sales to our largest OEM. International sales in fiscal 2000 increased 20.7% to $105.5 million compared to $87.4 million in fiscal 1999, which in turn increased 21.3% compared to the prior year. The growth in fiscal 2000 was experienced in each of the Europe, Asia Pacific/Latin America and Canada regions and reflects our investment in the international sales force as well as marketing programs. International sales have accounted for approximately 33.5% of total net sales in fiscal 2000, up from 30.5% of total net sales in both 1999 and 1998. Domestic sales increased 5.4% to $209.6 million in fiscal 2000, compared to an increase of 21.2% to $198.9 million in fiscal 1999 compared to the prior year. U.S. retail sales grew strongly, reflecting both a broadening retail distribution with several major new consumer electronics accounts added during the year and an increase in demand for headsets for office applications. Retail revenue also grew due to an increase in demand for headsets used in conjunction with mobile, cellular and cordless phones and for computer applications. Gross Profit. Gross profit in fiscal 2000 increased 15.5% to $185.5 million (58.9% of net sales), compared to $160.6 million (56.1% of net sales) in fiscal 1999. Gross profit in fiscal 1999 increased 25.8% compared to gross profit of $127.6 million (54.0% of net sales) in fiscal 1998. The increases in gross profit as a percent of net sales mainly reflect reductions in product costs through design and manufacturing efficiencies and by obtaining lower costs from our suppliers. Research, Development and Engineering. Research, development and engineering expenses in fiscal 2000 increased 12.0% to $21.9 million (6.9% of net sales), compared to $19.5 million (6.8% of net sales) in fiscal 1999. Research, development and engineering expenses in fiscal 1999 increased 11.3% compared to $17.5 million (7.4% of net sales) in fiscal 1998. The increase in these expenses reflects continued investment in new product development and technologies. Selling, General and Administrative. Selling, general and administrative expenses in fiscal 2000 increased 22.2% to $70.3 million (22.3% of net sales), compared to $57.5 million (20.1% of net sales) in 11 12 fiscal 1999. Selling, general and administrative expenses in fiscal 1999 increased 20.6% compared to $47.7 million (20.2% of net sales) in fiscal 1998. Retail variable selling expenses increased due to incremental retail revenue. Marketing expenses increased substantially due to increased activities including advertising campaigns, new product launches, international marketing and programs for our mobile and computer divisions. Operating Income. Operating income in fiscal 2000 increased 11.7% to $93.3 million (29.6% of net sales), compared to $83.5 million (29.2% of net sales) in fiscal 1999. Operating income in fiscal 1999 increased 33.9% compared to $62.4 million (26.4% of net sales) in fiscal 1998. The increase in operating income over the past two fiscal years was primarily due to higher net sales and the increase in gross margin. Interest Expense. Interest expense in fiscal 2000 decreased 98.5% to $.1 million, compared to $5.8 million in fiscal 1999, which in turn decreased 17.2% from $7.0 million in fiscal 1998. Interest expense for 1999 and 1998 principally represents interest payable on our 10% Senior Notes Due 2001 (Senior Notes), which were redeemed on January 15, 1999. The early redemption of these Senior Notes was the reason for the decrease in interest expense in fiscal 2000, and management expects interest expense to be minimal in future periods. In November 1999, we entered into a credit agreement to borrow up to $100 million with a major bank. We currently have no borrowings under this agreement. Interest and Other Income. Interest and other income in fiscal 2000 decreased 52.9% to $1.7 million compared to $3.5 million in fiscal 1999, which in turn increased 57.2% compared to $2.2 million in fiscal 1998. The decrease in interest income in fiscal 2000 was primarily attributable to lower cash and cash equivalents balances as a result of the January 15, 1999 redemption of $65 million in Senior Notes. Income Tax Expense. In fiscal 2000, fiscal 1999 and fiscal 1998, income tax expense was $30.4 million, $26.0 million and $18.4 million, respectively, representing effective tax rates of 32% in all fiscal years. FINANCIAL CONDITION: Liquidity. As of March 31, 2000, we had working capital of $78.3 million, including $45.3 million of cash and cash equivalents and marketable securities, compared with working capital of $76.3 million, including $43.0 million of cash and cash equivalents, as of March 31, 1999. During the fiscal year ended March 31, 2000, we generated $81.1 million of cash from operating activities, due primarily to $64.5 million in net income, an increase of $11.3 million in income taxes payable, and an income tax benefit of $15.1 million associated with the exercise of options, offset by a $14.9 million increase in inventory. In comparison, we generated $86.9 million in cash from operating activities for the fiscal year ended March 31, 1999, due mainly to $54.2 million in net income, decreases of $10.9 million in inventory and $6.8 million in accrued liabilities, and an income tax benefit of $21.7 million associated with the exercise of options. We have a $100 million revolving credit facility, including a $10 million letter-of-credit subfacility, with a major bank, both of which expire in November 2000. As of March 31, 2000, we had no cash borrowings under the revolving credit facility and $0.8 million outstanding under the letter-of-credit subfacility. The amounts outstanding under the letter-of-credit subfacility were principally associated with purchases of inventory. The terms of the credit facility contain covenants that materially limit our ability to incur debt, make capital expenditures and pay dividends, among other matters. These covenants may adversely affect our financial position to the extent we cannot comply with them. We are currently in compliance with the covenants under this agreement. We believe that our current cash balance and cash to be provided by operations, together with available borrowing capacity under our revolving credit facility and letter of credit subfacility, will be sufficient to fund operations for at least the next 12 months. Investing Activities. During fiscal 2000, we purchased marketable securities of $8.8 million and received proceeds from maturities of marketable securities of $3.8 million. Expenditures for capital and other assets of $15.2 million in the fiscal year ended March 31, 2000 were incurred principally in tooling 12 13 for new products and to expand manufacturing capacity, investments in computer and telephone equipment, and the acquisition of ClearVox. Financing Activities. In the fiscal year ended March 31, 2000, we sold 41,097 shares of our treasury stock for approximately $2.1 million and repurchased 1,267,500 shares of our Common Stock for approximately $72.6 million. As of March 31, 2000, we remained authorized to repurchase approximately 184,907 shares under all repurchase plans. We received $6.9 million in proceeds from the exercise of stock options during the fiscal year ended March 31, 2000. Effective January 15, 1999, we repurchased all of our Senior Notes. The transaction resulted in a net extraordinary charge of approximately $1.0 million, or approximately $0.06 per diluted share, in the fourth quarter of fiscal 1999. Y2K: During the fiscal year ended March 31, 2000 Plantronics incurred approximately $1 million in costs associated with Year 2000 compliance. Since year-end, we have not incurred any material additional costs nor have we experienced any disruption with vendors or operations. Furthermore, we believe that any future costs associated with Year 2000 compliance efforts will not be material. 13 EX-21 5 0005.txt EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF PLANTRONICS, INC. Emtel, S.A. Mexico Frederick Electronics Corporation Maryland Pacific Plantronics, Inc. California Plamex, S.A. de C.V. Mexico Plantronics, A.G. Switzerland Plantronics Acoustics Italia, S.r.l. Italy Plantronics B.V. Netherlands Plantronics Canada Limited Canada Plantronics e-Commerce, Inc. Minnesota Plantronics France S.A.R.L. France Plantronics Futurecomms, Inc. California Plantronics GmbH Germany Plantronics Holdings Limited Canada Plantronics International do Brasil, Ltda. Brazil Plantronics Japan Ltd. Japan Plantronics Limited United Kingdom Plantronics Pty. Ltd. Australia EX-23 6 0006.txt EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 033-81980, 333-14833, 333-19351 and 333-61003) and Form S-3 (No. 333-77631) of Plantronics, Inc. of our report dated April 24, 2000 relating to the financial statements, which appears in the Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP - ------------------------------------ /s/ PricewaterhouseCoopers LLP San Jose, California June 1, 2000 EX-27 7 0007.txt EXHIBIT 27
5 1,000 12-MOS APR-01-2000 MAR-28-1999 APR-01-2000 40,271 5,038 50,625 2,144 33,752 135,866 54,330 30,753 170,030 57,560 0 0 0 192 105,184 170,030 315,012 315,012 129,513 129,513 92,194 0 86 94,878 30,361 64,517 0 0 0 64,517 3.91 3.65
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