0001140361-13-018954.txt : 20130506 0001140361-13-018954.hdr.sgml : 20130506 20130506160108 ACCESSION NUMBER: 0001140361-13-018954 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20130330 FILED AS OF DATE: 20130506 DATE AS OF CHANGE: 20130506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANADIGICS INC CENTRAL INDEX KEY: 0000940332 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 222582106 STATE OF INCORPORATION: DE FISCAL YEAR END: 0122 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25662 FILM NUMBER: 13816144 BUSINESS ADDRESS: STREET 1: 141 MT. BETHEL ROAD CITY: WARREN STATE: NJ ZIP: 07059 BUSINESS PHONE: 9086685000 MAIL ADDRESS: STREET 1: 141 MT. BETHEL ROAD CITY: WARREN STATE: NJ ZIP: 07059 10-Q 1 form10q.htm ANADIGICS INC 10-Q 3-30-2013 form10q.htm


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2013.
 
or
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
 
Commission File No. 0-25662

ANADIGICS, Inc.
(Exact name of registrant as specified in its charter)
   
Delaware
22-2582106
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
141 Mt. Bethel Road, Warren, New Jersey
07059
(Address of principal executive offices)
(Zip Code)
   
(908) 668-5000
(Registrant's telephone number, including area code)
 
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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer o Accelerated filer x Non-accelerated filer (Do not check if a smaller reporting company) o
Smaller reporting company o      
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The number of shares outstanding of the Registrant’s common stock as of March 30, 2013 was 82,289,541 (excluding 114,574 shares held in treasury).
 


 
 

 
 

ANADIGICS, Inc.

PART I
Financial Information
 
     
Item 1.
3
     
  3
     
  4
     
  5
     
  6
     
Item 2.
14
     
Item 3.
17
     
Item 4.
17
     
PART II.
Other Information
 
     
Item 1.
18
     
Item 1A.
18
     
Item 4.
18
     
Item 5.
18
     
Item 6.
18
     
  19
 
 
2


PART I - FINANCIAL INFORMATION


ANADIGICS, Inc.


(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

   
March 30, 2013
   
December 31, 2012
 
   
(Unaudited)
   
(Note 1)
 
ASSETS
           
             
Current assets:
           
Cash and cash equivalents
  $ 35,082     $ 24,949  
Short-term marketable securities
    8,906       17,750  
Accounts receivable, net
    12,679       12,233  
Inventories
    20,313       18,840  
Prepaid expenses and other current assets
    4,419       3,031  
Total current assets
    81,399       76,803  
                 
Marketable securities
    6,939       8,811  
Plant and equipment:
               
Equipment and furniture
    201,688       200,873  
Leasehold improvements
    46,810       46,810  
Projects in process
    2,572       1,964  
      251,070       249,647  
Less accumulated depreciation and amortization
    212,337       208,599  
      38,733       41,048  
Other assets
    219       219  
                 
Total assets
  $ 127,290     $ 126,881  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
                 
Current liabilities:
               
Accounts payable
  $ 11,323     $ 14,099  
Accrued liabilities
    5,260       4,345  
Accrued restructuring costs
    778       395  
Total current liabilities
    17,361       18,839  
                 
Other long-term liabilities
    1,914       2,017  
                 
Commitments and contingencies
               
Stockholders’ equity:
               
Common stock, $0.01 par value, 144,000 shares authorized, 82,404 issued at March 30, 2013, 144,000 shares authorized and 71,853 issued at December 31, 2012
    824       719  
Additional paid-in capital
    631,094       611,279  
Accumulated deficit
    (527,985 )     (508,966 )
Accumulated other comprehensive income
    4,341       3,252  
Treasury stock at cost: 115 shares
    (259 )     (259 )
Total stockholders’ equity
    108,015       106,025  
                 
Total liabilities and stockholders’ equity
  $ 127,290     $ 126,881  

See accompanying notes.
 
 
3


ANADIGICS, Inc.


(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
   
(unaudited)
   
(unaudited)
 
             
Net sales
  $ 26,380     $ 28,426  
Cost of sales
    27,101       26,747  
Gross (loss) profit
    (721 )     1,679  
Research and development expenses
    10,280       11,614  
Selling and administrative expenses
    6,242       6,855  
Restructuring charge
    1,915       494  
                 
Operating loss
    (19,158 )     (17,284 )
Interest income
    93       150  
Other income, net
    46       1,314  
                 
Net loss
  $ (19,019 )   $ (15,820 )
                 
Basic and diluted loss per share
  $ (0.26 )   $ (0.23 )
                 
Weighted average common shares outstanding used in computing loss per share
               
Basic and diluted
    73,158       69,669  
 

(AMOUNTS IN THOUSANDS)
 
   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
   
(unaudited)
   
(unaudited)
 
             
Net loss
  $ (19,019 )   $ (15,820 )
                 
Other comprehensive income
               
Unrealized gain on marketable securities
    1,118       1,673  
Foreign currency translation adjustment
    -       5  
                 
Reclassification adjustment:
               
Net recognized gain on marketable securities previously included in Accumulated other comprehensive income
    (29 )     (1,306 )
Comprehensive loss
  $ (17,930 )   $ (15,448 )

See accompanying notes.
 
 
4

 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(AMOUNTS IN THOUSANDS)
 
   
Three months ended
 
   
March 30,2013
   
March 31, 2012
 
   
(unaudited)
   
(unaudited)
 
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
  $ (19,019 )   $ (15,820 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation
    3,827       4,299  
Stock based compensation
    1,501       1,775  
Amortization of premium on marketable securities
    21       166  
Marketable securities recovery and accretion
    (29 )     (1,306 )
Gain on disposal of equipment
    (46 )     (22 )
Changes in operating assets and liabilities:
               
Accounts receivable
    (446 )     761  
Inventories
    (1,473 )     1,378  
Prepaid expenses and other assets
    (1,388 )     (1,500 )
Accounts payable
    (2,776 )     244  
Accrued liabilities and other liabilities
    1,195       (950 )
                 
Net cash used in operating activities
    (18,633 )     (10,975 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES
               
Purchases of plant and equipment
    (1,466 )     (1,410 )
Proceeds from sale of equipment
    -       22  
Purchases of marketable securities
    (5,911 )     (19,989 )
Proceeds from sale of marketable securities
    17,724       23,217  
                 
Net cash provided by investing activities
    10,347       1,840  
                 
CASH FLOWS FROM FINANCING ACTIVITIES
               
Issuance of common stock
    18,419       1,286  
                 
Net cash provided by financing activities
    18,419       1,286  
                 
Net increase (decrease) in cash and cash equivalents
    10,133       (7,849 )
Cash and cash equivalents at beginning of period
    24,949       32,695  
                 
Cash and cash equivalents at end of period
  $ 35,082     $ 24,846  

See accompanying notes.
 
 
5

 
ANADIGICS, Inc.


(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
BASIS OF PRESENTATION

The terms “we,” “our,” “ours,” “us” and “Company” refer to ANADIGICS Inc. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals and adjustments) considered necessary for a fair presentation have been included.  Operating results for the three month period ended March 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The condensed consolidated balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company has evaluated subsequent events and determined that, other than matters outlined in Note 9, there were no subsequent events to recognize or disclose in these unaudited interim condensed consolidated financial statements.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Changes to accounting principles generally accepted in the United States of America are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates to the FASB’s Accounting Standards Codification.

In February 2013, the FASB amended its disclosure requirements for those amounts reclassified out of accumulated other comprehensive income.  Entities are required to separately disclose each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income, and other amounts of current-period other comprehensive income.  Additional information is required about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income.  These additional disclosure requirements are required for reporting periods beginning after December 31, 2012. Adoption of this guidance during the first quarter of 2013 resulted in the Company making the required disclosures in the Notes to its condensed consolidated financial statements.

In December 2011, the FASB and International Accounting Standards Board (IASB) issued joint requirements related to balance sheet disclosures related to offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (IFRS). Disclosures are required to be retrospective for all comparative periods presented. Adoption of this standard was required in the first quarter of 2013 and did not have a material impact on the Company’s condensed consolidated financial statements.
 
INCOME TAXES

The Company maintains a full valuation allowance on its deferred tax assets.  Accordingly, the Company has not recorded a benefit or provision for income taxes. The Company recognizes interest and penalties related to the underpayment of income taxes in income tax expense. No unrecognized tax benefits, interest or penalties were accrued at March 30, 2013. The Company’s U.S. federal net operating losses have occurred since 1998 and as such, tax years subject to potential tax examination could apply from that date because carrying-back net operating loss opens the relevant year to audit.
 
 
6

 
WARRANTY

Based on the examination of historical returns and other information it deems critical, the Company estimates that a current charge to income will need to be provided in order to cover future warranty obligations for products sold during the year. The accrued liability for warranty costs is included in Accrued liabilities in the condensed consolidated balance sheets. Changes in the Company’s product warranty reserve are as follows:

   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
             
Beginning balance
  $ 770     $ 430  
Additions charged to costs and expenses
    277       420  
Adjustment
    (169 )     -  
Claims processed
    (482 )     (426 )
Ending balance
  $ 396     $ 424  
 
RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the current presentation.
 
2. 
RESTRUCTURING

In February 2013, the Company implemented a workforce reduction that eliminated approximately 25 positions throughout the Company which resulted in the Company recording a restructuring charge of $1,915 during the first quarter of 2013 for severance, related benefits and other costs. The unpaid balance at March 30, 2013 was $778 and was recorded within Accrued restructuring costs.

During 2012, the Company implemented workforce reductions that eliminated approximately 40 positions throughout the Company, resulting in restructuring charges of $2,338 for severance, related benefits and other costs, of which $494 relates to five positions eliminated in the first quarter of 2012.

Activity and liability balances related to the restructurings were as follows:

   
Accrued
Restructuring
Costs
 
December 31, 2011 balance
  $ -  
Restructuring expense
    2,338  
Payments
    (1,943 )
December 31, 2012 balance
  $ 395  
Restructuring expense
    1,915  
Payments
    (1,532 )
March 30, 2013 balance
  $ 778  
 
3. 
FAIR VALUE AND MARKETABLE SECURITIES

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:

Level 1
Unadjusted quoted prices in active markets for identical assets or liabilities

Level 2
Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability

Level 3
Unobservable inputs for the asset or liability

The Company endeavors to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table presents a summary of fair value information for available-for-sale securities as at December 31, 2012 and March 30, 2013:
 
 
7

 
               
Fair Value Measurements at Reporting Date Using
 
Security Type
 
Amortized
Cost Basis
(1)
   
Fair
Value
   
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Fixed Income Securities (2)
  $ 10,235     $ 10,240     $ -     $ 10,240     $ -  
U.S. Government Agency debt security (2)
    7,508       7,510       7,510       -       -  
Former-auction corporate debt security (3)
    1,740       3,078       -       3,078       -  
Auction Rate Securities
                                       
Preferred Equity
    2,404       4,081       -       2,513       1,568  
State and Municipal Debt (3)
    1,394       1,652       -       1,652       -  
Total at December 31, 2012
  $ 23,281     $ 26,561     $ 7,510     $ 17,483     $ 1,568  
                                         
Fixed Income Securities (2)
  $ 5,911     $ 5,906     $ -     $ 5,906     $ -  
Former-auction corporate debt security (3)
    1,755       3,202       -       3,202       -  
Auction Rate Securities
                                       
Preferred Equity
    2,404       5,045       -       3,000       2,045  
State and Municipal Debt (3)
    1,406       1,692       -       1,692       -  
Total at March 30, 2013
  $ 11,476     $ 15,845     $ -     $ 13,800     $ 2,045  

 
(1)
Difference between amortized cost basis and fair value represents gross unrealized gain or loss.
 
(2)
Available for sale debt securities with contractual maturities of one year or less.
 
(3)
Available for sale debt securities with contractual maturities in excess of 10 years.

The fair value of each of the following instruments approximates their carrying value because of the short maturity of these instruments: cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities.

Interest income of $27 and $31 was recognized to accrete the amortized cost basis of the Company’s existing and former-auction debt securities during the three month period ended March 30, 2013 and March 31, 2012, respectively.
 
AUCTION RATE SECURITIES AND FORMER-AUCTION CORPORATE DEBT SECURITY

Auction rate securities (ARS) were a short-term cash management instrument used by the market and the Company prior to 2008.  The instruments used a monthly Dutch auction process to provide liquidity on long-term financial instruments that reset the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value.  During 2007 and early 2008, ARS failed to auction due to sell orders exceeding buy orders and trading continues to be constrained. The funds associated with the failed auctions will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security. The Company considers it more likely than not that it will sell their marketable debt securities prior to a recovery in valuation.

At March 30, 2013, certain ARS market information was insufficient to determine the fair value of the Company’s investments in ARS resulting in Level 3 valuations. Given the complexity of ARS investments, the Company obtained the assistance of an independent valuation firm to assist management in assessing the fair value of its ARS portfolio. The third party valuations developed to estimate the ARS fair value were determined using a combination of two calculations (1) a discounted cash flow (DCF) model, where the expected cash flows of the ARS are discounted to the present using a yield that incorporates compensation for illiquidity, and (2) a market comparables (MC) method, where the ARS are valued based on indications, from the secondary market, of what discounts buyers demand when purchasing similar ARS. The valuations include numerous assumptions such as assessments of the underlying structure of each security, expected cash flows, discount rates, credit ratings, workout periods, and overall capital market liquidity.  For one of the ARS, a non-binding offer by the issuer to repurchase the ARS was used as an input to the calculated fair values.

For the three months ended March 30, 2013, the table below provides a reconciliation of the beginning and ending balances for the securities valued using a Level 3 valuation.
 
 
8

 
($ in 000’s)
 
 
Fair Value
Measurements Using
Significant
Unobservable
Inputs (Level 3)
Three months ended
March 30, 2013
 
   
Preferred Equity
Securities (a)
 
Balance at January 1, 2013
  $ 1,568  
Total gains or losses realized/unrealized
       
Included in earnings (loss)
    -  
Included in other comprehensive income(loss)
    477  
Purchases, redemptions, and settlements
    -  
Transfers in and/or out of Level 3
    -  
Balance at March 30, 2013
  $ 2,045  
         
Amount of total gains or losses for the period included in earnings(loss) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date
          -  
Securities held at March 30, 2013:
       
Face value
  $ 3,125  
Financial ratings
 
A2 & NR
 
Weighted average interest rate (*)
    1.9 %
Maturity date
    N/A  

* The interest rate is based on a premium to one month LIBOR.
(a) Preferred securities issued by subsidiaries of two publicly-held debt default insurers. For one security, a non-binding offer by the issuer to repurchase the security uses a 5% discount.  For the second security, the DCF model discount rate and the MC model discount are 34% and 81%, respectively.

For the three month period ended March 31, 2012, the table below provides a reconciliation of the beginning and ending balances for each type of security valued using a Level 3 valuation.

($ in 000’s)
 
Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)
Three months ended March 31, 2012
 
   
Corporate
Debt
Security (a)
   
Preferred
Equity
Securities
(b)
   
Total
 
Balance at January 1, 2012
  $ 1,215     $ 628     $ 1,843  
Total gains or losses realized/unrealized
                       
Included in earnings (loss)
    1,250       -       1,250  
Included in other comprehensive income(loss)
    (452 )     795       343  
Purchases, redemptions, and settlements:
                       
Purchases
    -       -       -  
Redemptions
    (2,013 )     -       (2,013 )
Settlements
    -       -       -  
Transfers in and/or out of Level 3
    -       -       -  
Balance at March 31, 2012
  $ -     $ 1,423     $ 1,423  
                         
Amount of total gains or losses for the period included in earnings(loss) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date
    -       -       -  
Securities held at March 31, 2012:
                       
Face value
  $ -     $ 3,125     $ 3,125  
Financial ratings
         
A2 to NR
         
Weighted average interest rate (*)
            1.9 %     1.9 %
Maturity date
            N/A          

* The interest rate is based on a premium to one month LIBOR.
(a) Security issued by a publicly-held insurance company trust, which holds investments in U.S. Government obligations, highly rated commercial paper and money market funds and other investments approved by two credit rating agencies. The $2,500 face value security was redeemed by the issuer at a discount in the first quarter of 2012 for $2,013, resulting in a gain over its amortized cost basis of $1,250.
(b) Preferred securities issued by subsidiaries of two publicly-held debt default insurers.  One of the debt default insurers ceased paying interest in 2009 and the security was written to zero.
 
 
9

 
4. 
INVENTORIES

Inventories are stated at the lower of cost (first-in, first-out method) or market.  Inventories consist of the following:

   
March 30, 2013
   
December 31, 2012
 
             
Raw materials
  $ 5,099     $ 5,108  
Work in process
    10,086       9,781  
Finished goods
    5,128       3,951  
Total
  $ 20,313     $ 18,840  
 
5.
STOCKHOLDERS’ EQUITY

In March 2013, the Company completed an underwritten public offering (the March 2013 Offering) of 10,000 shares of common stock at a price of $2.00 per share, generating net proceeds to the Company of $18,374.

6. 
STOCK BASED COMPENSATION

Equity Compensation Plans

The Company had 4 equity compensation plans under which equity securities are authorized for issuance to employees and/or directors:
§
The 1995 Long-Term Incentive and Share Award Plan for Officers and Directors (terminated February 28, 2005)  (1995 Plan);
§
The 1997 Long Term Incentive and Share Award Plan (terminated February 28, 2005) (1997 Plan);
§
The 2005 Long Term Incentive and Share Award Plan (2005 Plan, collectively with the 1995 Plan and the 1997 Plan, the Plans); and
§
The Employee Stock Purchase Plan (ESP Plan).

Employees and outside directors have been granted restricted stock shares or units (collectively, restricted stock) and options to purchase shares of common stock under stock option plans adopted in 1995, 1997 and 2005. An aggregate of 4,913, 5,100 and 16,050 shares of common stock were reserved for issuance under the 1995 Plan, the 1997 Plan and the 2005 Plan, respectively. The Plans provide for the granting of stock options, stock appreciation rights, restricted stock and other share based awards to eligible employees and directors, as defined in the Plans. Option grants have terms of ten years and become exercisable in varying amounts over periods of up to three years. To date, no stock appreciation rights have been granted under the Plans.

In 1995, the Company adopted the ESP Plan under Section 423 of the Internal Revenue Code. All full-time employees of ANADIGICS, Inc. and part-time employees, as defined in the ESP Plan, are eligible to participate in the ESP Plan. An aggregate of 6,694 shares of common stock were reserved for offering under the ESP Plan. Offerings are made at the commencement of each calendar year and must be purchased by the end of that calendar year. Pursuant to the terms of the ESP Plan, shares purchased and the applicable per share price were 407 and $2.04, respectively for the year ended December 31, 2012.

The table below summarizes stock based compensation by source and by financial statement line item for the three month periods:
 
   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
             
Amortization of restricted stock
  $ 1,230     $ 1,422  
Amortization of ESP Plan
    150       135  
Amortization of stock option awards
    121       218  
Total stock based compensation
  $ 1,501     $ 1,775  
                 
By Financial Statement line item
               
Cost of sales
  $ 179     $ 217  
Research and development expenses
    345       412  
Selling and administrative expenses
    1,048       1,097  
Restructuring charge
    (71 )     49  
 
No tax benefits have been recorded due to the Company’s full valuation allowance position.

Restricted Stock and Stock Option Awards
 
 
10



    The value of restricted stock grants are fixed upon the date of grant and amortized over the related vesting period, primarily ranging up to three years.  Restricted stock is subject to forfeiture if employment terminates prior to vesting.  The Company estimates that approximately 2.5% of its restricted stock and stock option awards are forfeited annually (exclusive of LTI’s, as described below).  The restricted stock shares carry voting and certain forfeitable dividend rights commencing upon grant, whereas restricted stock units do not. Neither restricted stock shares nor restricted stock units may be traded or transferred prior to vesting.  Grant, vest and forfeit activity and related weighted average (WA) price per share for restricted stock and for stock options during the period from January 1, 2012 to March 30, 2013 is presented in tabular form below:

   
Restricted Stock Units
   
Stock Options
 
   
Units
   
WA
price/
unit
   
Issuable
upon
exercise
   
WA
exercise
price
 
                         
Outstanding at January 1, 2012
    1,970     $ 5.52       4,275     $ 4.32  
Granted
    661       2.32       13       1.97  
Shares vested/options exercised
    (1,102 )     4.69       (950 )     2.02  
Forfeited/expired (1)
    (99 )     6.21       (843 )     5.21  
Balance at December 31, 2012
    1,430     $ 4.63       2,495     $ 4.89  
Granted
    763       2.10       6       2.43  
Shares vested/options exercised
    (528 )     5.25       (23 )     1.93  
Forfeited/expired
    (38 )     6.01       (41 )     3.31  
Balance at March 30, 2013
    1,627     $ 3.21       2,437     $ 4.94  
 
 
(1)
Year 2012 stock options forfeited include 83 performance stock option shares

In June 2011, the Company’s Chief Executive Officer was awarded a base grant of 250 long-term incentive stock options (LTI stock options) contingent upon the Company’s shareholder return performance against the performance of the Philadelphia Semiconductor Index component companies.  The award and performance will be evaluated annually in one-third increments measuring Company shareholder returns during the one, two and three year periods following the award. Depending upon performance, the number of shares issuable pursuant to the LTI stock options can range from 50% to 150% of the base option shares.  Company performance below the 25th-percentile in a measurement period would result in no vesting for that period.  The LTI stock options have an exercise price of $3.24, a ten year term to expiration, and an average fair value of $2.62.  The fair value estimate was calculated with the assistance of a valuation consultant using a Monte Carlo Simulation model.  In the second quarter of 2012, 83 shares were canceled for non-achievement of performance goals at the end of the first annual requisite service period.

On February 16, 2012, subject to stockholder approval of additional 2005 Long-Term Incentive and Share Award Plan shares at the Company’s 2013 Annual Stockholder Meeting, the Company awarded 260 restricted stock units to two of its officers.  50% of the restricted stock units will have time-based vesting conditions (time-based) and 50% will have performance-based vesting conditions (performance-based).  The time-based restricted stock units will vest 1/3rd on May 20, 2013, 1/3rd on February 18, 2014 and 1/3rd on February 18, 2015.  The performance-based restricted stock units will vest based on absolute total stockholder return for one-year, two-year and three-year periods starting from the baseline date of December 31, 2011, compared to total stockholder return targets for each of the respective periods.  As of December 31, 2012, the performance metrics for the first one-year period was not met on the performance-based officer awards. In May 2012, subject to stockholder approval at the Company’s 2013 Annual Stockholder Meeting, an additional 608 time-based and 105 performance-based restricted stock units were awarded to employees of the Company.  These restricted stock units will vest consistent with the aforementioned officer awards.  Due to the uncertainty of the 2013 shareholder approval vote, neither compensation expense nor inclusion in disclosure tables for these awards is reported herein.

   
As of March 30, 2013
 
       
Unrecognized stock based compensation cost
     
Option plans
  $ 442  
Restricted stock
  $ 3,664  
Weighted average remaining recognition period
       
Option plans
 
1.3 Years
 
Restricted stock
 
1.1 Years
 
 
 
11

 
Stock options outstanding at March 30, 2013 are summarized as follows:

Range of exercise prices
 
 
 
 
   
Outstanding
Options at
March 30, 2013
 
 
   
Weighted
average
remaining
contractual
life
   
Weighted
average
exercise
price
 
   
Exercisable
at March 30,
2013
 
 
   
Weighted
average
exercise
price
 
 
                                 
$ 1.23 - $1.93       718       4.9     $ 1.92       708     $ 1.93  
$ 2.10 - $3.24       635       7.3     $ 3.18       210     $ 3.08  
$ 3.30 - $8.79       533       2.0     $ 6.50       524     $ 6.51  
$ 8.84 - $18.98       551       3.2     $ 9.39       551     $ 9.39  

Valuation Method for ESP Plan and Stock Option Awards

The fair value of these equity awards was estimated at the date of grant using a Black-Scholes option pricing model. The weighted average assumptions and fair values for stock based compensation grants used for the three month periods ended March 30, 2013 and March 31, 2012 were:

   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
Stock option awards:
           
Risk-free interest rate
    0.8 %     1.0 %
Expected volatility
    72 %     70 %
Average expected term (in years)
    5.0       5.0  
Expected dividend yield
    0.0 %     0.0 %
Weighted average fair value of options granted
  $ 1.53     $ 1.53  
                 
ESP Plan:
               
Risk-free interest rate
    0.1 %     0.2 %
Expected volatility
    66 %     65 %
Average expected term (in years)
    1.0       1.0  
Expected dividend yield
    0.0 %     0.0 %
Weighted average fair value of purchase option
  $ 0.72     $ 0.80  

For equity awards with an expected term of one year or less, the assumption for expected volatility is solely based on the Company’s historical volatility, whereas for equity awards with expected terms of greater than one year, the assumption is based on a combination of implied and historical volatility.

7. 
LOSS PER SHARE

The reconciliation of shares used to calculate basic and diluted loss per share consists of the following:

   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
Weighted average common shares for basic loss per share
    73,158       69,669  
                 
Effect of dilutive securities:
               
Stock options (*)
    -       -  
Unvested restricted shares (*)
    -       -  
                 
Adjusted weighted average shares for diluted loss per share
    73,158       69,669  

*
Incremental shares from restricted shares and stock options are computed using the treasury stock method.

For the three months ended March 30, 2013 and March 31, 2012, potential additional dilution arising from any of the Company's outstanding stock options or unvested restricted stock (shares or units) is detailed below. Such potential dilution was excluded as their effect was anti-dilutive.

   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
             
Stock options
    2,437       3,571  
Unvested restricted shares and units
    1,627       1,899  
 
 
12

 
8.
ACCUMULATED OTHER COMPREHENSIVE INCOME

The changes in accumulated other comprehensive income are as follows (in thousands):

   
Net Unrealized
Gain (Loss) on
Marketable
Securities
   
Foreign
Currency
Translation
   
Total
 
Balance at January 1, 2013
  $ 3,255     $ (3 )   $ 3,252  
Other comprehensive income before reclassifications
    1,118       -       1,118  
Amounts reclassified from accumulated other comprehensive income *
    (29 )     -       (29 )
Net current period other comprehensive income
    1,089       -       1,089  
Balance at March 30, 2013
  $ 4,344     $ (3 )   $ 4,341  

* Amounts reclassified are recorded within Other income, net in the Condensed Consolidated Statements of Operations.
 
9.
SUBSEQUENT EVENTS

EQUITY OFFERING

Subsequent to the Company’s March 2013 Offering, the underwriters exercised a portion of an overallotment option and purchased an additional 704 shares in April 2013, generating net proceeds to the Company of approximately $1,300.

LINE OF CREDIT

On April 30, 2013, the Company entered into a Revolving Credit and Security Agreement (“the Agreement”) with PNC Bank, N.A. The Agreement provides the Company with a three-year revolving credit facility of $11,000 expiring on April 30, 2016, secured by certain cash balances with borrowing availability based upon Accounts Receivable and compliance with covenants, including minimum EBITDA (as defined in the Agreement) and certain capital expenditure limits. The Company may elect to borrow at rates approximating LIBOR plus 3.25%. The Agreement contains a fee for any unused portion of the facility.

MARKETABLE SECURITIES REDEMPTION

In April 2013, a Level 2 preferred equity ARS was redeemed at $3,000 par value, resulting in a $974 realized gain to be recorded to Other income in the second quarter of 2013.

10.
LEGAL PROCEEDINGS

The following amends the disclosure in Note 13 – Legal Proceedings to the Consolidated Financial Statements of our Form 10-K for the year ended December 31, 2012: In connection with the Third Circuit dismissal with prejudice of the Attias and Kuznetz class actions, the plaintiffs did not seek further appellate review.
 
 
13

 
ANADIGICS, Inc.


OVERVIEW

ANADIGICS, Inc. (we or the Company) is a global leader in the design and manufacture of radio frequency semiconductor solutions for cellular wireless, WiFi, and infrastructure applications.  Our product portfolio includes power amplifiers, FEICs, FEMs, and line amplifiers.  Our cellular wireless power amplifiers and FEMs enable mobile handsets, smartphones, tablets, notebooks, datacards, automotive, M2M, and industrial devices to access 3G and 4G wireless networks utilizing international standards, such as LTE, HSPA, WCDMA, EVDO, CDMA, and WiMAX.  Our WiFi FEICs and power amplifiers enable wireless LAN connectivity for mobile and fixed-point devices, such as smartphones, tablets, notebooks, and base stations, optimizing the latest WiFi standards, including 802.11ac and 802.11n.  Our infrastructure solutions include both wireless infrastructure and CATV products.  Our wireless infrastructure power amplifiers enable 3G and 4G small-cell base stations.  Our CATV line amplifiers and other RF products provide the critical link in CATV infrastructure network devices, as well as set-top boxes and cable modems.  We believe that our solutions are well positioned to address these market dynamics and will enable us to outpace the overall end product unit growth in the cellular wireless, WiFi, and infrastructure communications markets.

Our business strategy is focused on enabling anytime, anywhere connectivity with solutions that offer greater performance and integration to enhance the consumer’s experience.  We are a customer-centric organization that works closely with leading equipment manufacturers, such as OEMs and ODMs.  We also partner with industry-leading chipset providers where our functionality enhances their reference designs.  These relationships enable us to provide targeted applications expertise that helps reduce time-to-market and design new products that target emerging trends in the market.

We are focused on the design and manufacture of differentiated RF solutions.  Many of our products leverage our patented InGaP-Plus™ and proven MESFET technologies.  InGaP-Plus provides greater flexibility to our engineers and product designers.  This technology enables them to develop unique architectures that combine HBT amplifying structures and pHEMT RF switches on the same die.  We believe that our products cost-effectively enhance communications devices by improving RF performance, reliability, and integration, while reducing the size, weight and cost of these products.

Our six-inch diameter GaAs fab located at our corporate headquarters in Warren, New Jersey, has been operational since 1999.  In addition, we have a strategic foundry agreement with WIN Semiconductors of Taiwan to supplement our existing wafer fabrication capability and allow for additional and flexible capacity without the requisite capital investment.

During the first quarter of 2013, we implemented a workforce reduction that eliminated approximately 25 positions throughout the Company, resulting in a restructuring charge of approximately $1.9 million.  The workforce reduction, along with other cost reduction actions, were initiated with a view to achieving annualized savings of approximately $5.2 million.
 
In March 2013, the Company completed an underwritten public offering (the March 2013 Offering) of 10.0 million shares of common stock at a price of $2.00 per share, generating net proceeds to the Company of approximately $18.4 million. Subsequent to the Company’s March 2013 Offering, the underwriters exercised a portion of an overallotment option and purchased an additional 0.7 million shares in April 2013, generating net proceeds to the Company of approximately $1.3 million.

We believe our markets are, and will continue to remain, competitive which could result in continued quarterly volatility in our net sales. This competition has resulted in, and is expected over the long-term to continue to result in competitive or declining average selling prices for our products and increased challenges in maintaining or increasing market share.

We were incorporated in Delaware in 1984. Our corporate headquarters are located at 141 Mt. Bethel Road, Warren, New Jersey 07059, and our telephone number at that address is 908-668-5000.
 
 
14

 
RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statements of operations data as a percent of net sales for the periods presented:

   
Three months ended
 
   
March 30, 2013
   
March 31, 2012
 
             
Net sales
    100.0 %     100.0 %
Cost of sales
    102.7 %     94.1 %
                 
Gross margin
    (2.7 )%     5.9 %
Research and development expenses
    39.0 %     40.9 %
Selling and administrative expenses
    23.7 %     24.1 %
Restructuring charges
    7.3 %     1.7 %
                 
Operating loss
    (72.7 )%     (60.8 )%
Interest income
    0.4 %     0.5 %
Other income, net
    0.2 %     4.6 %
                 
Net loss
    (72.1 )%     (55.7 )%
 
FIRST QUARTER 2013 (ENDED MARCH 30, 2013) COMPARED TO FIRST QUARTER 2012 (ENDED MARCH 31, 2012)

NET SALES. Net sales decreased 7.2% during the first quarter of 2013 to $26.4 million from $28.4 million in the first quarter of 2012. The net sales decrease primarily resulted from a decrease in market demand in the cellular wireless device market.

Sales of cellular wireless products decreased 22.4% during the first quarter of 2013 to $16.3 million from $21.0 million in the first quarter of 2012.  The decrease in sales was primarily due to decreased demand in the WCDMA cellular device market and demand from our former largest customer due to certain products reaching end of life and their change in chipset providers that do not utilize our power amplifiers.

Sales of infrastructure products decreased 13.5% during the first quarter of 2013 to $5.3 million from $6.1 million in the first quarter of 2012. The decrease in sales was primarily due to decreased demand for set-top box applications.

Sales of WiFi products increased 272.3% during the first quarter of 2013 to $4.8 million from $1.3 million in the first quarter of 2012.  The increase in sales was primarily due to increased market demand for our latest generation front-end modules.

GROSS MARGIN. Gross margin during the first quarter of 2013 decreased to (2.7)% of net sales from 5.9% of net sales in the first quarter of 2012.  The decrease in gross margin in the first quarter of 2013 resulted primarily due to production ramp costs in combination with changes in revenue mix, principally lower Infrastructure sales and higher sales of certain cellular products.

RESEARCH AND DEVELOPMENT. Company-sponsored research and development expenses decreased 11.5% during the first quarter of 2013 to $10.3 million from $11.6 million during the first quarter of 2012. The decrease was primarily due to cost savings achieved from restructuring and improved controls over our key projects.

SELLING AND ADMINISTRATIVE. Selling and administrative expenses decreased 8.9% to $6.2 million during the first quarter of 2013 from $6.9 million during the first quarter of 2012. The decrease was primarily due to savings achieved from our ongoing cost reduction actions and restructuring during 2012.

RESTRUCTURING CHARGE. During the first quarter of 2013, we implemented a workforce reduction that eliminated approximately 25 positions throughout the Company which resulted in the Company recording a restructuring charge of approximately $1.9 million for severance, related benefits and other costs. During the first quarter of 2012, we implemented a workforce reduction at a sales support office, which eliminated five positions and resulted in a restructuring charge of $494 for severance, related benefits and other costs.

OTHER INCOME, NET. During the first quarter of 2012, other income of $1.3 million was primarily from redemption proceeds received on one of our auction rate securities (ARS) which was in excess of our amortized cost basis.

LIQUIDITY AND CAPITAL RESOURCES

As of March 30, 2013, we had $35.1 million in cash and cash equivalents and $15.8 million in marketable securities.
 
 
15

 
Operating activities used $18.6 million in cash during the three month period ended March 30, 2013, primarily as a result of our operating results adjusted for non-cash expenses, along with $4.9 million of cash used to fund working capital. Investing activities provided $10.3 million of cash during the three month period ended March 30, 2013 consisting principally of net sales of marketable securities of $11.8 million, partly offset by purchases of fixed assets of $1.5 million. Financing activities provided $18.4 million of cash proceeds received from the issuance of stock in the March 2013 Offering.

    We had unconditional purchase obligations at March 30, 2013 of approximately $4.0 million.

    Within our $15.8 million in marketable securities at March 30, 2013, we held a total of $5.9 million of fixed income securities, $6.7 million of ARS and $3.2 million as a former auction corporate debt security originally purchased as an ARS prior to its exchange for the underlying 30 year notes due 2037. The ARS instruments used a monthly Dutch auction process to provide liquidity on long-term financial instruments by resetting the applicable interest rate and through the reset, allowed existing investors to rollover or liquidate their holdings at par value.  During 2007 and early 2008, ARS failed to auction due to sell orders exceeding buy orders and trading continues to be constrained. The funds associated with the failed auctions will not be accessible until a successful auction occurs, a suitable buyer is found outside of the auction process or an issuer redeems its security. If the credit ratings of the security issuers deteriorate and any decline in market value below our amortized cost basis is determined to be other-than-temporary, we would be required to adjust the carrying value of the investment through an additional impairment charge.

We anticipate selling the existing and former-auction corporate debt securities prior to a recovery in valuation. We will continue to monitor and evaluate these investments for impairment and for short term classification purposes. We may not be able to access cash by selling the aforementioned debt or preferred securities without the loss of principal until a buyer is located, a future auction for these investments is successful, they are redeemed by their issuers or they mature. If we are unable to sell these securities in the market or they are not redeemed, then we may be required to hold them to maturity or in perpetuity for the preferred ARS. Based on our ability to access our cash, our expected operating cash flows, and our other sources of cash, we do not anticipate that the potential illiquidity of these investments will affect our ability to execute our current business plan.

We believe that our existing sources of capital, including our existing cash and marketable securities, will be adequate to satisfy operational needs and anticipated capital needs for at least the next twelve months. We may elect to finance all or part of our future capital requirements through additional equity or debt financing.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

Changes to accounting principles generally accepted in the United States of America are established by the Financial Accounting Standards Board (FASB) in the form of Accounting Standards Updates (ASU’s) to the FASB’s Accounting Standards Codification.

In February 2013, the FASB amended its disclosure requirements for those amounts reclassified out of accumulated other comprehensive income.  Entities are required to separately disclose each component of other comprehensive income, current period reclassifications out of accumulated other comprehensive income, and other amounts of current-period other comprehensive income.  Additional information is required about the effects on net income of significant amounts reclassified out of each component of accumulated other comprehensive income.  These additional disclosure requirements are required for reporting periods beginning after December 31, 2012. Adoption of this guidance during the first quarter of 2013 resulted in the Company making the required disclosures in the Notes to its condensed consolidated financial statements.

In December 2011, the FASB and International Accounting Standards Board (IASB) issued joint requirements related to balance sheet disclosures related to offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards (IFRS). Disclosures are required to be retrospective for all comparative periods presented. Adoption of this standard was required in the first quarter of 2013 and did not have a material impact on the Company’s condensed consolidated financial statements.
 
 
16

 
FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains projections and other forward-looking statements (as that term is defined in the Securities Exchange Act of 1934, as amended).  These projections and forward-looking statements reflect the Company’s current views with respect to future events and financial performance and can generally be identified as such because the context of the statement will include words such as “believe”, “anticipate”, “expect”, or words of similar import. Similarly, statements that describe our future plans, objectives, estimates or goals are forward-looking statements.  No assurances can be given, however, that these events will occur or that these projections will be achieved, and actual results and developments could differ materially from those projected as a result of certain factors. Such factors include, but are not limited to, those risk factors listed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and in this quarterly report on Form 10-Q. The Company undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.


The Company's market risk has not changed significantly from the risks disclosed in Item 7A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

 
 We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed with the Securities and Exchange Commission, or SEC, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, as appropriate, to allow timely decisions regarding required disclosure.  As of March 30, 2013, an evaluation was performed under the supervision and with the participation of our Management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the U.S. Securities Exchange Act of 1934).  Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective as of March 30, 2013.

There was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Because of their inherent limitations, disclosure controls and procedures and internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 
17


ANADIGICS, Inc.

PART II - OTHER INFORMATION

 
The following amends the disclosure in Note 13 – Legal Proceedings to the Consolidated Financial Statements of our Form 10-K for the year ended December 31, 2012: In connection with the Third Circuit dismissal with prejudice of the Attias and Kuznetz class actions, the plaintiffs did not seek further appellate review.

ITEM 1A.

There have been no material changes from the risks as previously disclosed in the “Risk Factors” section in our Annual Report on Form 10-K for the year ended December 31, 2012.


Not applicable.
 

On April 30, 2013, the Company entered into a Revolving Credit and Security Agreement (“the Agreement”) with PNC Bank, N.A. The Agreement provides the Company with a three-year revolving credit facility of $11 million expiring on April 30, 2016, secured by certain cash balances with borrowing availability based upon Accounts Receivable and compliance with covenants, including minimum EBITDA (as defined in the Agreement) and certain capital expenditure limits. The Company may elect to borrow at rates approximating LIBOR plus 3.25%. The Agreement contains a fee for any unused portion of the facility.  A copy of the Agreement is filed in this Form 10-Q as Exhibit 10.11.

ITEM 6.

10.11 Revolving Credit and Security Agreement between the Company and PNC Bank, N.A., dated as of April 30, 2013.

31.1 Rule 13a-14(a)/15d-14(a) Certification of Ronald Michels, Chairman, President and Chief Executive Officer of ANADIGICS, Inc.

31.2 Rule 13a-14(a)/15d-14(a) Certification of Terrence G. Gallagher, Vice President and Chief Financial Officer of ANADIGICS, Inc.

32.1 Section 1350 Certification of Ronald Michels, Chairman, President and Chief Executive Officer of ANADIGICS, Inc.
 
32.2 Section 1350 Certification of Terrence G. Gallagher, Vice President and Chief Financial Officer of ANADIGICS, Inc.
 
 
18

 
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
ANADIGICS, INC.
 
       
 
By:
/s/ Terrence G. Gallagher
 
   
Terrence G. Gallagher
 
   
Vice President and Chief Financial Officer
 
 
Dated: May 6, 2013
 
 
19

EX-10.11 2 ex10_11.htm EXHIBIT 10.11 ex10_11.htm
Exhibit 10.11
EXECUTION ORIGINAL
REVOLVING CREDIT AND SECURITY AGREEMENT

PNC BANK, NATIONAL ASSOCIATION
(AS LENDER AND AS AGENT)
 
WITH
 
ANADIGICS, INC.
 
(BORROWER)
 
April 30, 2013
 
 
 

 
 
TABLE OF CONTENTS
 
    Page 
     
I.
DEFINITIONS.
1
       
 
1.1.
Accounting Terms.
1
 
1.2.
General Terms.
1
 
1.3.
Uniform Commercial Code Terms.
25
 
1.4.
Certain Matters of Construction.
25
       
II.
ADVANCES, PAYMENTS.
26
       
 
2.1.
Revolving Advances.
26
 
2.2.
Procedures for Requesting Revolving Advances; Procedures for Selection of Applicable Interest Rates for All Advances.
27
 
2.3.
Disbursement of Advance Proceeds
29
 
2.4.
Making and Settlement of Advances.
29
 
2.5.
Maximum Advances
31
 
2.6.
Manner and Repayment of Advances.
31
 
2.7.
Repayment of Excess Advances
32
 
2.8.
Statement of Account
32
 
2.9.
Letters of Credit
32
 
2.10.
Issuance of Letters of Credit.
33
 
2.11.
Requirements For Issuance of Letters of Credit.
33
 
2.12.
Disbursements, Reimbursement.
34
 
2.13.
Repayment of Participation Advances.
35
 
2.14.
Documentation
36
 
2.15.
Determination to Honor Drawing Request
36
 
2.16.
Nature of Participation and Reimbursement Obligations
36
 
2.17.
Liability for Acts and Omissions.
38
 
2.18.
Mandatory Prepayments.
39
 
2.19.
Use of Proceeds.
39
 
2.20.
Defaulting Lender.
40
 
2.21.
Payment of Obligations
42
       
III.
INTEREST AND FEES.
42
       
 
3.1.
Interest
43
 
3.2.
Letter of Credit Fees.
43
 
3.3.
Closing Fee and Facility Fee.
44
 
3.4.
Collateral Monitoring Fee and Collateral Evaluation Fee.
45
 
3.5.
Computation of Interest and Fees
45
 
3.6.
Maximum Charges
45
 
3.7.
Increased Costs
46
 
3.8.
Basis For Determining Interest Rate Inadequate or Unfair
46
 
3.9.
Capital Adequacy.
47
 
3.10.
Taxes.
48
 
3.11.
Replacement of Lenders
50
 
 
i

 
 
IV.
COLLATERAL:  GENERAL TERMS
50
       
 
4.1.
Security Interest in the Collateral
51
 
4.2.
Perfection of Security Interest
51
 
4.3.
Preservation of Collateral
52
 
4.4.
Ownership and Location of Collateral.
52
 
4.5.
Defense of Agent’s and Lenders’ Interests
52
 
4.6.
Inspection of Premises
53
 
4.7.
Receivables; Deposit Accounts and Securities Accounts.
53
 
4.8.
Inventory
56
 
4.9.
Maintenance of Equipment
56
 
4.10.
Exculpation of Liability
56
 
4.11.
Financing Statements
56
       
V.
REPRESENTATIONS AND WARRANTIES.
56
       
 
5.1.
Authority
56
 
5.2.
Formation and Qualification.
57
 
5.3.
Survival of Representations and Warranties
57
 
5.4.
Tax Returns
57
 
5.5.
Financial Statements
57
 
5.6.
Entity Names
58
 
5.7.
O.S.H.A. Environmental Compliance and Flood Insurance.
58
 
5.8.
Solvency; No Litigation, Violation, Indebtedness or Default; ERISA Compliance.
59
 
5.9.
Patents, Trademarks, Copyrights and Licenses
60
 
5.10.
Licenses and Permits
60
 
5.11.
Default of Indebtedness
61
 
5.12.
No Default
61
 
5.13.
No Burdensome Restrictions
61
 
5.14.
No Labor Disputes
61
 
5.15.
Margin Regulations
61
 
5.16.
Investment Company Act
61
 
5.17.
Disclosure
61
 
5.18.
Swaps
61
 
5.19.
Business and Property of Borrowers
62
 
5.20.
Ineligible Securities
62
 
5.21.
Equity Interests
62
 
5.22.
Commercial Tort Claims
62
 
5.23.
Letter of Credit Rights
62
 
5.24.
Customer and Supplier Contracts
62
       
VI.
AFFIRMATIVE COVENANTS.
62
       
 
6.1.
Compliance with Laws
62
 
6.2.
Conduct of Business and Maintenance of Existence and Assets
63
 
6.3.
Books and Records
63
 
6.4.
Payment of Taxes
63
 
6.5.
Financial Covenants.
63
 
 
ii

 
 
 
6.6.
Insurance.
64
 
6.7.
Payment of Indebtedness and Leasehold Obligations
65
 
6.8.
Environmental Matters.
65
 
6.9.
Standards of Financial Statements
65
 
6.10.
Execution of Supplemental Instruments
66
 
6.11.
Government Receivables
66
       
VII.
NEGATIVE COVENANTS.
66
       
 
7.1.
Merger, Consolidation, Acquisition and Sale of Assets
66
 
7.2.
Creation of Liens
66
 
7.3.
Guarantees
66
 
7.4.
Investments
66
 
7.5.
Loans
66
 
7.6.
Capital Expenditures
67
 
7.7.
Dividends
67
 
7.8.
Indebtedness
67
 
7.9.
Nature of Business
67
 
7.10.
Transactions with Affiliates
67
 
7.11.
Subsidiaries.
67
 
7.12.
Fiscal Year and Accounting Changes
67
 
7.13.
Pledge of Credit
68
 
7.14.
Amendment of Organizational Documents
68
 
7.15.
Compliance with ERISA
68
 
7.16.
Prepayment of Indebtedness
68
 
7.17.
Membership / Partnership Interests
68
       
VIII.
CONDITIONS PRECEDENT.
69
       
 
8.1.
Conditions to Initial Advances
69
 
8.2.
Conditions to Each Advance
72
       
IX.
INFORMATION AS TO BORROWERS.
73
       
 
9.1.
Disclosure of Material Matters
73
 
9.2.
Schedules
73
 
9.3.
Environmental Reports.
74
 
9.4.
Litigation
74
 
9.5.
Material Occurrences
75
 
9.6.
Government Receivables
75
 
9.7.
Annual Financial Statements
75
 
9.8.
Quarterly Financial Statements
75
 
9.9.
Monthly Financial Statements
76
 
9.10.
Other Reports
76
 
9.11.
Additional Information
76
 
9.12.
Projected Operating Budget
76
 
9.13.
Variances From Operating Budget
76
 
9.14.
Notice of Suits, Adverse Events
77
 
9.15.
ERISA Notices and Requests
77
 
9.16.
Additional Documents
77
 
 
iii

 
 
 
9.17.
Updates to Certain Schedules
77
 
9.18.
Financial Disclosure
78
       
X.
EVENTS OF DEFAULT.
78
       
 
10.1.
Nonpayment
78
 
10.2.
Breach of Representation
78
 
10.3.
Financial Information
78
 
10.4.
Judicial Actions
78
 
10.5.
Noncompliance
78
 
10.6.
Judgments
79
 
10.7.
Bankruptcy
79
 
10.8.
Material Adverse Effect
79
 
10.9.
Lien Priority
79
 
10.10.
Cross Default
79
 
10.11.
Breach of Guaranty or Pledge Agreement
80
 
10.12.
Change of Control
80
 
10.13.
Invalidity
80
 
10.14.
Seizures
80
 
10.15.
Operations
80
 
10.16.
Pension Plans
80
 
10.17.
Reportable Compliance Event
80
       
XI.
LENDERS’ RIGHTS AND REMEDIES AFTER DEFAULT.
80
       
 
11.1.
Rights and Remedies.
81
 
11.2.
Agent’s Discretion
82
 
11.3.
Setoff
82
 
11.4.
Rights and Remedies not Exclusive
82
 
11.5.
Allocation of Payments After Event of Default
83
       
XII.
WAIVERS AND JUDICIAL PROCEEDINGS.
84
       
 
12.1.
Waiver of Notice
84
 
12.2.
Delay
84
 
12.3.
Jury Waiver
84
       
XIII.
EFFECTIVE DATE AND TERMINATION.
84
       
 
13.1.
Term
84
 
13.2.
Termination
85
       
XIV.
REGARDING AGENT.
85
       
 
14.1.
Appointment
85
 
14.2.
Nature of Duties
86
 
14.3.
Lack of Reliance on Agent
86
 
14.4.
Resignation of Agent; Successor Agent
86
 
14.5.
Certain Rights of Agent
87
 
14.6.
Reliance
87
 
14.7.
Notice of Default
87
 
14.8.
Indemnification
88
 
 
iv

 
 
 
14.9.
Agent in its Individual Capacity
88
 
14.10.
Delivery of Documents
88
 
14.11.
Borrowers’ Undertaking to Agent
88
 
14.12.
No Reliance on Agent’s Customer Identification Program
88
 
14.13.
Other Agreements
89
       
XV.
BORROWING AGENCY.
89
       
 
15.1.
Borrowing Agency Provisions.
89
 
15.2.
Waiver of Subrogation
90
       
XVI.
MISCELLANEOUS.
90
       
 
16.1.
Governing Law
90
 
16.2.
Entire Understanding.
91
 
16.3.
Successors and Assigns; Participations; New Lenders.
93
 
16.4.
Application of Payments
96
 
16.5.
Indemnity
96
 
16.6.
Notice
97
 
16.7.
Survival
99
 
16.8.
Severability
99
 
16.9.
Expenses
99
 
16.10.
Injunctive Relief
100
 
16.11.
Consequential Damages
100
 
16.12.
Captions
100
 
16.13.
Counterparts; Facsimile Signatures
100
 
16.14.
Construction
100
 
16.15.
Confidentiality; Sharing Information
100
 
16.16.
Publicity
101
 
16.17.
Certifications From Banks and Participants; USA PATRIOT Act.
101
 
16.18.
Anti-Money Laundering/International Trade Law Compliance
102
 
 
v

 
 
LIST OF EXHIBITS AND SCHEDULES
 
Exhibits
 
   
Exhibit 1.2
Borrowing Base Certificate
Exhibit 1.2(a)
Compliance Certificate
Exhibit 2.1(a)
Revolving Credit Note
Exhibit 8.1(g)
Financial Condition Certificate
Exhibit 16.3
Commitment Transfer Supplement
   
   
SchedulesU
 
   
Schedule 1.2
Permitted Encumbrances
Schedule 4.4
Equipment and Inventory Locations; Place of Business, Chief Executive Office, Real Property
Schedule 4.8(h)
Deposit and Investment Accounts
Schedule 5.1
Consents
Schedule 5.2(a)
States of Qualification and Good Standing
Schedule 5.2(b)
Subsidiaries
Schedule 5.4
Federal Tax Identification Number
Schedule 5.6
Prior Names
Schedule 5.7
Environmental
Schedule 5.8(b)(i)
Litigation
Schedule 5.8(b)(ii)
Indebtedness
Schedule 5.8(d)
Plans
Schedule 5.9
Intellectual Property, Source Code Escrow Agreements
Schedule 5.10
Licenses and Permits
Schedule 5.14
Labor Disputes
Schedule 5.24
Equity Interests
Schedule 5.25
Commercial Tort Claims
Schedule 5.26
Letter of Credit Rights
Schedule 5.27
Customer and Supplier Contracts
Schedule 7.3
Guarantees
 
 
vi

 
 
REVOLVING CREDIT AND SECURITY AGREEMENT
 
This Revolving Credit and Security Agreement dated April 30, 2013 among ANADIGICS, INC., a corporation organized under the laws of the State of Delaware (“Anadigics”), each Person joined hereto as a borrower from time to time (collectively, with Anadigics, the “Borrowers”, and each a “Borrower”), the financial institutions which are now or which hereafter become a party hereto (collectively, the “Lenders” and each individually a “Lender”) and PNC BANK, NATIONAL ASSOCIATION (“PNC”), as agent for Lenders (PNC, in such capacity, the “Agent”).
 
IN CONSIDERATION of the mutual covenants and undertakings herein contained, Borrowers, Lenders and Agent hereby agree as follows:
 
I.             DEFINITIONS.
 
1.1.           Accounting Terms.  As used in this Agreement, the Other Documents or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined in Section 1.2 or elsewhere in this Agreement and accounting terms partly defined in Section 1.2 to the extent not defined shall have the respective meanings given to them under GAAP; provided, however that, whenever such accounting terms are used for the purposes of determining compliance with financial covenants in this Agreement, such accounting terms shall be defined in accordance with GAAP as applied in preparation of the audited financial statements of Borrowers for the fiscal year ended December 31, 2012.  If there occurs after the Closing Date any change in GAAP that affects in any respect the calculation of any covenant contained in this Agreement or the definition of any term defined under GAAP used in such calculations, Agent, Lenders and Borrowers shall negotiate in good faith to amend the provisions of this Agreement that relate to the calculation of such covenants with the intent of having the respective positions of Agent, Lenders and Borrowers after such change in GAAP conform as nearly as possible to their respective positions as of the Closing Date, provided, that, until any such amendments have been agreed upon, the covenants in this Agreement shall be calculated as if no such change in GAAP had occurred and Borrowers shall provide additional financial statements or supplements thereto, attachments to Compliance Certificates and/or calculations regarding financial covenants as Agent may reasonably require in order to provide the appropriate financial information required hereunder with respect to Borrowers both reflecting any applicable changes in GAAP and as necessary to demonstrate compliance with the financial covenants before giving effect to the applicable changes in GAAP.
 
1.2.           General Terms.  For purposes of this Agreement the following terms shall have the following meanings:
 
Accountants” shall have the meaning set forth in Section 9.7 hereof.
 
Advance Rates” shall have the meaning set forth in Section 2.1(a)(y) hereof.
 
Advances” shall mean and include the Revolving Advances and Letters of Credit.
 
Affected Lender” shall have the meaning set forth in Section 3.11 hereof.
 
 
 

 
 
Affiliate” of any Person shall mean (a) any Person which, directly or indirectly, is in control of, is controlled by, or is under common control with such Person, or (b) any Person who is a director, manager, member, managing member, general partner or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of any Person described in clause (a) above.  For purposes of this definition, control of a Person shall mean the power, direct or indirect, (x) to vote 50% or more of the Equity Interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for any such Person, or (y) to direct or cause the direction of the management and policies of such Person whether by ownership of Equity Interests, contract or otherwise.
 
Agent” shall have the meaning set forth in the preamble to this Agreement and shall include its successors and assigns.
 
Agreement” shall mean this Revolving Credit and Security Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.
 
Alternate Base Rate” shall mean, for any day, a rate per annum equal to the highest of (a) the Base Rate in effect on such day, (b) the sum of the Federal Funds Open Rate in effect on such day plus one half of one percent (0.5%), and (c) the sum of the Daily LIBOR Rate in effect on such day plus one percent (1.0%), so long as a Daily LIBOR Rate is offered, ascertainable and not unlawful.
 
Anti-Terrorism Laws” shall mean any Laws relating to terrorism, trade sanctions programs and embargoes, import/export licensing, money laundering or bribery, all as amended, supplemented or replaced from time to time.
 
Applicable Law” shall mean all laws, rules and regulations applicable to the Person, conduct, transaction, covenant, Other Document or contract in question, including all applicable common law and equitable principles, all provisions of all applicable state, federal and foreign constitutions, statutes, rules, regulations, treaties, directives and orders of any Governmental Body, and all orders, judgments and decrees of all courts and arbitrators.
 
Application Date” shall have the meaning set forth in Section 2.6(b) hereof.
 
Approvals” shall have the meaning set forth in Section 5.7(b) hereof.
 
Approved Electronic Communication” shall mean each notice, demand, communication, information, document and other material transmitted, posted or otherwise made or communicated by e-mail, E-Fax, the StuckyNet System©, or any other equivalent electronic service agreed to by Agent, whether owned, operated or hosted by Agent, any Lender, any of their Affiliates or any other Person, that any party is obligated to, or otherwise chooses to, provide to the Agent pursuant to this Agreement or any Other Document, including any financial statement, financial and other report, notice, request, certificate and other information material; provided that Approved Electronic Communications shall not include any notice, demand, communication, information, document or other material that the Agent specifically instructs a Person to deliver in physical form.
 
 
2

 
 
Base Rate” shall mean the base commercial lending rate of PNC as publicly announced to be in effect from time to time, such rate to be adjusted automatically, without notice, on the effective date of any change in such rate.  This rate of interest is determined from time to time by PNC as a means of pricing some loans to its customers and is neither tied to any external rate of interest or index nor does it necessarily reflect the lowest rate of interest actually charged by PNC to any particular class or category of customers of PNC.
 
Benefited Lender” shall have the meaning set forth in Section 2.4(d) hereof.
 
Blocked Account Bank” shall have the meaning set forth in Section 4.8(h) hereof.
 
Blocked Accounts” shall have the meaning set forth in Section 4.8(h) hereof.
 
Borrower” or “Borrowers” shall have the meaning set forth in the preamble to this Agreement and shall extend to all permitted successors and assigns of such Persons.
 
Borrowers on a Consolidated Basis” shall mean the consolidation in accordance with GAAP of the accounts or other items of the Borrowers and their respective Subsidiaries.
 
Borrowers’ Account” shall have the meaning set forth in Section 2.8 hereof.
 
Borrowing Agent” shall mean Anadigics.
 
Borrowing Base Certificate” shall mean a certificate in substantially the form of Exhibit 1.2 hereto duly executed by the President, Vice President or Treasurer of the Borrowing Agent and delivered to the Agent, appropriately completed, by which such officer shall certify to Agent the Formula Amount and calculation thereof as of the date of such certificate.
 
Business Day” shall mean any day other than Saturday or Sunday or a legal holiday on which commercial banks are authorized or required by law to be closed for business in East Brunswick, New Jersey and, if the applicable Business Day relates to any LIBOR Rate Loans, such day must also be a day on which dealings are carried on in the London interbank market.
 
Capital Expenditures” shall mean expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements (or of any replacements or substitutions thereof or additions thereto) which have a useful life of more than one year and which, in accordance with GAAP, would be classified as capital expenditures.  Capital Expenditures shall include the total principal portion of Capitalized Lease Obligations.
 
Capitalized Lease Obligation” shall mean any Indebtedness of any Borrower represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
 
Cash Management Products and Services” shall mean agreements or other arrangements under which Agent or any Lender or any Affiliate of Agent or a Lender provides any of the following products or services to any of the Borrowers:  (a) credit cards; (b) credit card processing services; (c) debit cards and stored value cards; (d) purchase cards; (e) ACH transactions; (f) cash management and treasury management services and products, including controlled disbursement accounts or services, lockboxes, automated clearinghouse transactions, overdrafts, interstate depository network services; or (g) foreign currency exchange and foreign currency swaps and hedges.  The indebtedness, obligations and liabilities of any Borrower to the provider of any Cash Management Products and Services (including all obligations and liabilities owing to such provider in respect of any returned items deposited with such provider) (the “Cash Management Liabilities”) shall be “Obligations” hereunder and otherwise treated as Obligations for purposes of each of the Other Documents (other than any Lender-Provided Interest Rate Hedge).  The Liens securing the Cash Management Products and Services shall be pari passu with the Liens securing the all other Obligations under this Agreement and the Other Documents, subject to the express provisions of Section 11.5.
 
 
3

 
 
Cash Management Liabilities” shall have the meaning provided in the definition of “Cash Management Products and Services.”
 
CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. §§9601 et seq.
 
Change in Law” shall mean the occurrence, after the Closing Date, of any of the following: (a) the adoption or taking effect of any Applicable Law; (b) any change in any Applicable Law or in the administration, implementation, interpretation or application thereof by any Governmental Body; or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Body; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, guidelines, interpretations or directives thereunder or issued in connection therewith (whether or not having the force of Applicable Law) and (y) all requests, rules, regulations, guidelines, interpretations or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of law), in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law regardless of the date enacted, adopted, issued, promulgated or implemented.
 
Change of Control” shall mean: (a) the occurrence of any event (whether in one or more transactions) which results in a transfer of control of or the power to vote more than fifty percent (50%) of the Equity Interests (on a fully diluted basis) of any Borrower that is not a Subsidiary of another Borrower on the Closing Date to a Person who is not one of the Original Owners, (b) the occurrence of any event (whether in one or more transactions) which results in a transfer of control of or the power to vote any of the Equity Interests of any Borrower that is a Subsidiary of another Borrower on the Closing Date to a Person who is not a Borrower; (c) without the prior written consent of the Agent, any merger, consolidation or sale of substantially all of the property or assets of any Borrower.  For purposes of this definition, “control of Borrower” shall mean the power, direct or indirect (x) to vote more than 50% of the Equity Interests having ordinary voting power for the election of directors (or the individuals performing similar functions) of any Borrower or (y) to direct or cause the direction of the management and policies of any Borrower by contract or otherwise.
 
 
4

 
 
Charges” shall mean all taxes, charges, fees, imposts, levies or other assessments, including all net income, gross income, gross receipts, sales, use, ad valorem, value added, transfer, franchise, profits, inventory, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation and property taxes, custom duties, fees, assessments, liens, claims and charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts, imposed by any taxing or other authority, domestic or foreign (including the Pension Benefit Guaranty Corporation or any environmental agency or superfund), upon the Collateral, any Borrower or any of its Affiliates.
 
CIP Regulations” shall have the meaning set forth in Section 14.12 hereof.
 
Closing Date” shall mean April 30, 2013 or such other date as may be agreed to in writing by the parties hereto.
 
Code” shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.
 
Collateral” shall mean and include all right, title and interest of each Borrower in all of the following property and assets of such Borrower, in each case whether now existing or hereafter arising or created and whether now owned or hereafter acquired and wherever located:
 
(a)           all Receivables and all supporting obligations relating thereto;
 
(b)           all general intangibles (including all payment intangibles and all software) and all supporting obligations related thereto;
 
(c)           all contract rights, rights of payment which have been earned under a contract rights, chattel paper (including electronic chattel paper and tangible chattel paper), commercial tort claims (whether now existing or hereafter arising); documents (including all warehouse receipts and bills of lading), deposit accounts with the Agent, instruments (including promissory notes), letters of credit (whether or not the respective letter of credit is evidenced by a writing) and letter-of-credit rights, cash and all supporting obligations;
 
(d)           all ledger sheets, ledger cards, files, correspondence, records, books of account, business papers, computers, computer software (owned by any Borrower or in which it has an interest), computer programs, tapes, disks and documents, including all of such property relating to the property described in clauses (a) through (c) of this definition; and
 
(e)           all proceeds and products of the property described in clauses (a) through (d) of this definition, in whatever form.  It is the intention of the parties that if Agent shall fail to have a perfected Lien in any particular property or assets of any Borrower for any reason whatsoever, but the provisions of this Agreement and/or of the Other Documents, together with all financing statements and other public filings relating to Liens filed or recorded by Agent against Borrowers, would be sufficient to create a perfected Lien in any property or assets that such Borrower may receive upon the sale, lease, license, exchange, transfer or disposition of such particular property or assets, then all such “proceeds” of such particular property or assets shall be included in the Collateral as original collateral that is the subject of a direct and original grant of a security interest as provided for herein and in the Other Documents (and not merely as proceeds (as defined in Article 9 of the Uniform Commercial Code) in which a security interest is created or arises solely pursuant to Section 9-315 of the Uniform Commercial Code).
 
 
5

 
 
Notwithstanding the forgoing, Collateral shall not include any Excluded Property.
 
Collateral Assignment of Account” shall mean that certain Collateral Assignment of Account executed by Anadigics in favor of Agent dated as of the Closing Date and any other assignments and/or pledge agreements executed subsequent to the Closing Date by any other Person to secure the Obligations.
 
Compliance Authority” shall mean each and all of the (a) U.S. Treasury Department/Office of Foreign Assets Control, (b) U.S. Treasury Department/Financial Crimes Enforcement Network, (c) U.S. State Department/Directorate of Defense Trade Controls, (d) U.S. Commerce Department/Bureau of Industry and Security, (e) the U.S. Internal Revenue Service, (f) the U.S. Justice Department, and (g) the U.S. Securities and Exchange Commission.
 
Commitment Transfer Supplement” shall mean a document in the form of Exhibit 16.3 hereto, properly completed and otherwise in form and substance satisfactory to Agent by which the Purchasing Lender purchases and assumes a portion of the obligation of Lenders to make Advances under this Agreement.
 
Compliance Certificate” shall mean a compliance certificate substantially in the form of Exhibit 1.2(a) hereto to be signed by the Chief Financial Officer or Controller of Borrowing Agent.
 
Consents” shall mean all filings and all licenses, permits, consents, approvals, authorizations, qualifications and orders of Governmental Bodies and other third parties, domestic or foreign, necessary to carry on any Borrower’s business or necessary (including to avoid a conflict or breach under any agreement, instrument, other document, license, permit or other authorization) for the execution, delivery or performance of this Agreement, the Other Documents, including any Consents required under all applicable federal, state or other Applicable Law.
 
Consigned Inventory” shall mean Inventory of any Borrower that is in the possession of another Person on a consignment, sale or return, or other basis that does not constitute a final sale and acceptance of such Inventory.
 
Contract Rate” shall have the meaning set forth in Section 3.1 hereof.
 
Controlled Group” shall mean, at any time, each Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with any Borrower, are treated as a single employer under Section 414 of the Code.
 
Covered Entity” shall mean each Borrower, each Borrower’s Affiliates and Subsidiaries, all Guarantors, pledgors of Collateral, all owners of the foregoing, and all brokers or other agents of any Borrower acting in any capacity in connection with the Obligations.
 
 
6

 
 
Customer” shall mean and include the account debtor with respect to any Receivable and/or the prospective purchaser of goods, services or both with respect to any contract or contract right, and/or any party who enters into or proposes to enter into any contract or other arrangement with any Borrower, pursuant to which such Borrower is to deliver any personal property or perform any services.
 
Customs” shall have the meaning set forth in Section 2.11(b) hereof.
 
Daily  LIBOR  Rate”  shall  mean,  for  any  day, the rate per annum determined  by  the Agent by dividing (x) the Published Rate by (y) a number equal to 1.00 minus the Reserve Percentage.
 
Debt Payments” shall mean for any period, in each case, all cash actually expended by any Borrower to make: (a) interest payments on any Advances hereunder, plus (b) payments for all fees, commissions and charges set forth herein, plus (e) payments on Capitalized Lease Obligations, plus (f) payments with respect to any other Indebtedness for borrowed money.
 
Default” shall mean an event, circumstance or condition which, with the giving of notice or passage of time or both, would constitute an Event of Default.
 
Default Rate” shall have the meaning set forth in Section 3.1 hereof.
 
Defaulting Lender” shall mean any Lender that: (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Revolving Commitment Percentage of Advances, (ii) if applicable, fund any portion of its Participation Commitment in Letters of Credit or (iii) pay over to the Agent, the Issuer or any Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Agent in writing that such failure is the result of such Lender’s good faith determination that a condition precedent to funding (specifically identified and including a particular Default or Event of Default, if any) has not been satisfied; (b) has notified the Borrowers or the Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender’s good faith determination that a condition precedent (specifically identified and including a particular Default or Event of Default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit; (c) has failed, within two Business Days after request by the Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Advances and, if applicable, participations in then outstanding Letters of Credit under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon the Agent’s receipt of such certification in form and substance satisfactory to the Agent; (d) has become the subject of an Insolvency Event; or (e) has failed at any time to comply with the provisions of Section 2.4(d) with respect to purchasing participations from the other Lenders, whereby such Lender’s share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Lenders.
 
 
7

 
 
Depository Accounts” shall have the meaning set forth in Section 4.8(h) hereof.
 
Designated Lender” shall have the meaning set forth in Section 16.2(d) hereof.
 
Document” shall have the meaning given to the term “document” in the Uniform Commercial Code.
 
Dollar” and the sign “$” shall mean lawful money of the United States of America.
 
Domestic Rate Loan” shall mean any Advance that bears interest based upon the Alternate Base Rate.
 
Drawing Date” shall have the meaning set forth in Section 2.12(b) hereof.
 
Early Termination Date” shall have the meaning set forth in Section 13.1 hereof.
 
EBITDA” shall mean for any period with respect to Borrowers on a Consolidated Basis, earnings before interest, taxes, depreciation, amortization and excluding non-cash equity compensation charges and other extraordinary and non-recurring items.
 
Eligible Receivables” shall mean and include, each Receivable of a Borrower arising in the Ordinary Course of Business and which Agent, in its sole credit judgment, shall deem to be an Eligible Receivable, based on such considerations as Agent may from time to time deem appropriate.  A Receivable shall not be deemed eligible unless such Receivable is subject to Agent’s first priority perfected security interest and no other Lien (other than Permitted Encumbrances), and is evidenced by an invoice or other documentary evidence satisfactory to Agent.  In addition, no Receivable shall be an Eligible Receivable if:
 
(a)           it arises out of a sale made by any Borrower to an Affiliate of any Borrower or to a Person controlled by an Affiliate of any Borrower;
 
(b)           it is due or unpaid more than sixty (60) days after the original due date or ninety (90) days after the original invoice date;
 
(c)           fifty percent (50%) or more of the Receivables from such Customer are not deemed Eligible Receivables hereunder.
 
(d)           any covenant, representation or warranty contained in this Agreement with respect to such Receivable has been breached;
 
(e)           an Insolvency Event shall have occurred with respect to such Customer;
 
(f)           the sale to the Customer is on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or is evidenced by chattel paper;
 
(g)           the Customer is the United States of America, any state or any department, agency or instrumentality of any of them, unless the applicable Borrower assigns its right to payment of such Receivable to Agent pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise complied with other applicable statutes or ordinances;
 
 
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(h)           the goods giving rise to such Receivable have not been delivered to and accepted by the Customer or the services giving rise to such Receivable have not been performed by the applicable Borrower and accepted by the Customer or the Receivable otherwise does not represent a final sale;
 
(i)            the Receivable is subject to any offset, deduction, defense, dispute, credits or counterclaim (but such Receivable shall only be ineligible to the extent of such offset, deduction, defense or counterclaim), the Customer is also a creditor or supplier of a Borrower or the Receivable is contingent in any respect or for any reason;
 
(j)            the applicable Borrower has made any agreement with any Customer for any deduction therefrom, except for discounts or allowances made in the Ordinary Course of Business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto;
 
(k)           any return, rejection or repossession of the merchandise has occurred or the rendition of services has been disputed;
 
(l)            such Receivable is not payable to a Borrower; or
 
(m)          such Receivable is not otherwise satisfactory to Agent as determined in good faith by Agent in the exercise of its discretion in a reasonable manner.
 
Environmental Complaint” shall have the meaning set forth in Section 9.3(b) hereof.
 
Environmental Laws” shall mean all federal, state and local environmental, land use, zoning, health, chemical use, safety and sanitation laws, statutes, ordinances and codes as well as common laws, relating to the protection of the environment, human health and/or governing the use, storage, treatment, generation, transportation, processing, handling, production or disposal of Hazardous Materials and the rules, regulations, policies, guidelines, interpretations, decisions, orders and directives of federal, state, international and local governmental agencies and authorities with respect thereto.
 
Equity Interests” shall mean, with respect to any Person, any and all shares, rights to purchase, options, warrants, general, limited or limited liability partnership interests, member interests, participation or other equivalents of or interest in (regardless of how designated) equity of such Person, whether voting or nonvoting, including common stock, preferred stock, convertible securities or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act), including in each case all of the following rights relating to such Equity Interests, whether arising under the Organizational Documents of the Person issuing such Equity Interests (the “issuer”) or under the applicable laws of such issuer’s jurisdiction of organization relating to the formation, existence and governance of corporations, limited liability companies or partnerships or business trusts or other legal entities, as the case may be: (i) all economic rights (including all rights to receive dividends and distributions) relating to such Equity Interests; (ii) all voting rights and rights to consent to any particular action(s) by the applicable issuer; (iii) all management rights with respect to such issuer; (iv) in the case of any Equity Interests consisting of a general partner interest in a partnership, all powers and rights as a general partner with respect to the management, operations and control of the business and affairs of the applicable issuer; (v) in the case of any Equity Interests consisting of the membership/limited liability company interests of a managing member in a limited liability company, all powers and rights as a managing member with respect to the management, operations and control of the business and affairs of the applicable issuer; (vi) all rights to designate or appoint or vote for or remove any officers, directors, manager(s), general partner(s) or managing member(s) of such issuer and/or any members of any board of members/managers/partners/directors that may at any time have any rights to manage and direct the business and affairs of the applicable issuer under its Organizational Documents as in effect from time to time or under Applicable Law; (vii) all rights to amend the Organizational Documents of such issuer, (viii) in the case of any Equity Interests in a partnership or limited liability company, the status of the holder of such Equity Interests as a “partner”, general or limited, or “member” (as applicable) under the applicable Organizational Documents and/or Applicable Law; and (ix) all certificates evidencing such Equity Interests.
 
 
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ERISA” shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time and the rules and regulations promulgated thereunder.
 
Event of Default” shall have the meaning set forth in Article X hereof.
 
Excluded Property” shall mean any non-material lease, license, contract or agreement to which any Borrower is a party, and any of its rights or interests thereunder, if and to the extent that a security interest therein is prohibited by or in violation of (x) any Applicable Law, or (y) a term, provision or condition of any such lease, license, contract or agreement (unless in each case, such Applicable Law, term, provision or condition would be rendered ineffective with respect to the creation of such security interest pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the Uniform Commercial Code (or any successor provision or provisions) of any relevant jurisdiction or any other Applicable Law or principles of equity), provided, however, that the foregoing shall cease to be treated as “Excluded Property” (and shall constitute Collateral) immediately at such time as the contractual or legal prohibition shall no longer be applicable and to the extent severable, such security interest shall attach immediately to any portion of such lease, license, contract or agreement not subject to the prohibitions specified in (x) or (y) above, provided, further that Excluded Property shall (i) include neither any proceeds of any such lease, license, contract or agreement or any goodwill of the Borrowers’ business associated therewith or attributable thereto, and (ii) include all cash other than the cash assigned in favor of the Agent pursuant to the Collateral Assignment of Account and any and all cash maintained in any of the Borrowers’ collection and operating accounts maintained with the Agent.
 
Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
 
Excluded Taxes” shall mean, with respect to the Agent, any Lender, Participant or any other recipient of any payment to be made by or on account of any Obligations, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, Participant or Issuer, in which its applicable lending office is located, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Borrower is located, (c) in the case of a Foreign Lender, any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.10(e), except to the extent that such Foreign Lender or Participant (or its assignor or seller of a participation, if any) was entitled, at the time of designation of a new lending office (or assignment or sale of a participation), to receive additional amounts from the Borrowers with respect to such withholding tax pursuant to Section 3.10(a), or (d) any Taxes imposed on any “withholding payment” payable to such recipient as a result of the failure of such recipient to satisfy the requirements set forth in the FATCA after December 31, 2012.
 
 
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FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof.
 
Federal Funds Effective Rate” shall mean for any day the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the “Federal Funds Effective Rate” as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the “Federal Funds Effective Rate” for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.
 
Federal Funds Open Rate” shall mean for any day the rate per annum (based on a year of 360 days and actual days elapsed) which is the daily federal funds open rate as quoted by ICAP North America, Inc. (or any successor) as set forth on the Bloomberg Screen BTMM for that day opposite the caption “OPEN” (or on such other substitute Bloomberg Screen that displays such rate), or as set forth on such other recognized electronic source used for the purpose of displaying such rate as selected by PNC (an “Alternate Source”) (or if such rate for such day does not appear on the Bloomberg Screen BTMM (or any substitute screen) or on any Alternate Source, or if there shall at any time, for any reason, no longer exist a Bloomberg Screen BTMM (or any substitute screen) or any Alternate Source, a comparable replacement rate determined by PNC at such time (which determination shall be conclusive absent manifest error); provided however, that if such day is not a Business Day, the Federal Funds Open Rate for such day shall be the “open” rate on the immediately preceding Business Day.  If and when the Federal Funds Open Rate changes, the rate of interest with respect to any advance to which the Federal Funds Open Rate applies will change automatically without notice to the Borrowers, effective on the date of any such change.
 
 
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Foreign Lender” shall mean any Lender that is organized under the laws of a jurisdiction other than that in which the Borrowers are resident for tax purposes.  For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
 
Foreign Subsidiary” shall mean any Subsidiary of any Person that is not organized or incorporated in the United States, any State or territory thereof or the District of Columbia.
 
Formula Amount” shall have the meaning set forth in Section 2.1(a) hereof.
 
GAAP” shall mean generally accepted accounting principles in the United States of America in effect from time to time.
 
Governmental Acts” shall mean any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Governmental Body.
 
Governmental Body” shall mean any nation or government, any state or other political subdivision thereof or any entity, authority, agency, division or department exercising the executive, legislative, judicial, taxing, regulatory or administrative powers or  functions of or pertaining to a government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).
 
Guarantor” shall mean any Person who may hereafter guarantee payment or pe