falseP60Y0000097210FYMAMAIncludes $13.2 million, $10.0 million and $8.4 million in 2021, 2020 and 2019, respectively, for leases of Teradyne’s systems recognized outside of ASC 606: “Revenue from Contracts with Customers.”During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of Mobile Industrial Robots (“MiR”).During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenues and earnings before interest and taxes. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 million primarily due to a decrease in forecasted revenues.During the year ended December 31, 2021, the fair value of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide was reduced to zero, which resulted in a benefit of $7.2 million, primarily due to a decrease in forecasted revenues and earnings before interest and taxes. As of December 31, 2021, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $100.2 million. The remaining earn-out period ends on December 31, 2022. The sellers of AutoGuide have filed an arbitration claim against Teradyne related to allegations of non-compliance with its earn-out obligations. The ultimate amount of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide may be affected by the outcome of the arbitration (see Note M: “Commitments and Contingencies”).The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion features.Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $39.55, multiplied by 14.6 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period.Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and the conversion price of $31.52, multiplied by 4.4 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.Included in Corporate and Other are: loss on convertible debt conversions, contingent consideration adjustments, investment impairment, interest income, interest expense, pension and postretirement plan actuarial gains (losses), severance charges, net foreign exchange gains (losses), intercompany eliminations and acquisition related: (a) charges; (b) legal fees; (c) compensation.Included in income (loss) before taxes are charges and credits related to restructuring and other, loss on convertible debt conversions and inventory charges.Total assets are attributable to each segment. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets. 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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-06462
TERADYNE, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
MASSACHUSETTS
 
04-2272148
(State or Other Jurisdiction of
Incorporation or Organization)
  
(I.R.S. Employer
Identification Number)
 
600 RIVERPARK DRIVE
NORTH READING, MASSACHUSETTS
  
01864
(Address of Principal Executive Offices)
  
(Zip Code)
Registrant’s telephone number, including area code: (978) 370-2700
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
  
Trading Symbol(s)
  
Name of each exchange on which registered
Common Stock, par value $0.125 per share   TER   Nasdaq Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes  ☐    No  ☒
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  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File to be submitted 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 such files).    Yes  ☒    No  ☐
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” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer ☒    Accelerated filer ☐    Non-accelerated filer ☐    Smaller reporting company ☐     Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
 
by the registered public accounting firm that prepared or issued its audit report.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant as of July 2, 2021, was approximately $16.9 billion based upon the closing price of the registrant’s Common Stock on the Nasdaq Stock Market on that date.
The number of shares outstanding of the registrant’s only class of Common Stock as of February 16, 2022, was 162,417,046 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s proxy statement in connection with its 2022 annual meeting of shareholders are incorporated by reference into Part III of this Form
10-K.
 
 
 
Table of Contents
TERADYNE, INC.
INDEX
 
 
  
 
  
Page No.
 
 
Item 1.
  
  
 
1
 
Item 1A.
  
  
 
13
 
Item 1B.
  
  
 
25
 
Item 2.
  
  
 
25
 
Item 3.
  
  
 
26
 
Item 4.
  
  
 
26
 
 
Item 5.
  
  
 
27
 
Item 6.
  
  
 
27
 
Item 7.
  
  
 
27
 
Item 7A.
  
  
 
42
 
Item 8.
  
  
 
44
 
Item 9.
  
  
 
103
 
Item 9A.
  
  
 
103
 
Item 9B.
  
  
 
103
 
Item 9C.
  
  
 
103
 
 
Item 10.
  
  
 
104
 
Item 11.
  
  
 
104
 
Item 12.
  
  
 
104
 
Item 13.
  
  
 
104
 
Item 14.
  
  
 
104
 
 
Item 15.
  
  
 
105
 
Item 16.
  
  
 
106
 
  
  
 
112
 
Table of Contents
TERADYNE, INC.
FORM
10-K
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form
10-K
contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. When used herein, the words “will,” “would,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “project,” “intend,” “may,” “see,” “target” and other words and terms of similar meaning are intended to identify forward-looking statements although not all forward-looking statements contain these identifying words. Forward-looking statements involve risks and uncertainties, including, but not limited to, those discussed in the section entitled “Risk Factors” of this annual report on Form
10-K
and elsewhere, and in other reports we file with the Securities and Exchange Commission (“SEC”). Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management’s analysis only as of the date hereof and are subject to risks and uncertainties that could cause actual results to differ materially from those stated or implied. Teradyne assumes no obligation to update these forward-looking statements for any reason, except as may be required by law.
PART I
 
Item 1:
Business
Teradyne, Inc. (“Teradyne”) was founded in 1960 and is a leading global supplier of automation equipment for test and industrial applications.
We design, develop, manufacture and sell automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robotic arms, autonomous mobile robots (“AMRs”) and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and industrial automation products and services include:
 
  •  
semiconductor test (“Semiconductor Test”) systems;
 
  •  
storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);
 
  •  
wireless test (“Wireless Test”) systems; and
 
  •  
industrial automation (“Industrial Automation”) products.
The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our products both through direct sales and sales to the customer’s supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future.
In 2021, revenue in our test businesses exceeded our plan as a result of increased Semiconductor Test demand and broad-based growth in our Wireless Test and Storage Test businesses. In 2022, we expect lower demand in our Semiconductor Test business due to a slower technology transition in one of our largest
end-markets.
We expect this demand to accelerate in 2023 as a result of the expected ramp in volume production of semiconductor devices using 3 nanometer manufacturing technology.
 
1
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Our Industrial Automation segment consists of Universal Robots A/S (“UR”), a leading supplier of collaborative robotic arms, Mobile Industrial Robots A/S (“MiR”), a leading maker of AMRs for industrial automation and AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs. The market for our Industrial Automation segment products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (“SMEs”) throughout the world.
In 2021, our Industrial Automation segment returned to growth following the global industrial downturn as well as the impact of the
COVID-19
pandemic in 2020. We expect our UR and MiR businesses to continue to grow in 2022, while our AutoGuide business will focus on continuing to invest to scale and integrate high payload AMR solutions.
Our corporate strategy continues to focus on profitably gaining market share in our test businesses through the introduction of differentiated products that target expanding segments and accelerating growth through continued investment in our Industrial Automation businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through stock repurchases and dividends and using capital for opportunistic acquisitions.
Investor Information
We are a Massachusetts corporation incorporated on September 23, 1960. We are subject to the informational requirements of the Securities Exchange Act of 1934 (“Exchange Act”). We file periodic reports, proxy statements and other information with the SEC. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file documents electronically.
You can access financial and other information, including the charters of our Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, our Corporate Governance Guidelines and Code of Conduct, by clicking the Investors link on our web site at www.teradyne.com. We make available, free of charge, copies of our filings with the SEC, including our annual reports on Form
10-K,
quarterly reports on Form
10-Q,
current reports on Form
8-K
and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act through our web site as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC.
Products
Semiconductor Test
We design, manufacture, sell and support Semiconductor Test products and services on a worldwide basis. The test systems we provide are used both for wafer level and device package testing. These chips are used in automotive, industrial, communications, consumer, smartphones, cloud, computer and electronic game applications, among others. Semiconductor devices span a broad range of functionality, from very simple
low-cost
devices such as appliance microcontrollers, operational amplifiers or voltage regulators to complex digital signal processors, Artificial Intelligence/Machine Learning (“AI/ML”) training, high performance computing and microprocessors as well as memory devices. Semiconductor Test products and services are sold to integrated device manufacturers (“IDMs”) that integrate the fabrication of silicon wafers into their business, “Fabless” companies that outsource the manufacturing of silicon wafers, “Foundries” that cater to the processing and manufacturing of silicon wafers, and semiconductor assembly and test providers (“OSATs”) that provide test and assembly services for the final packaged devices to both Fabless companies and IDMs. Fabless companies perform the design of integrated circuits without manufacturing capabilities and use Foundries for wafer manufacturing and OSATs for test and assembly. These customers obtain the overall benefit of comprehensively testing devices and reducing the total costs associated with testing by using our Semiconductor Test systems to:
 
  •  
improve and control product quality;
 
  •  
measure and improve product performance;
 
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  •  
reduce time to market; and
 
  •  
increase production yields.
Our FLEX Test Platform architecture advances our core technologies to produce test equipment that is designed for high efficiency multi-site testing. Multi-site testing involves the simultaneous testing of many devices in parallel. Leading semiconductor manufacturers are using multi-site testing to significantly improve their “Cost of Test” economics. The FLEX Test Platform architecture addresses customer requirements through the following key capabilities:
 
  •  
A high efficiency multi-site architecture that reduces tester overhead such as instrument setup, synchronization and data movement, and signal processing;
 
  •  
The
IG-XL
™
software operating system which provides fast program development, including instant conversion from single to multi-site test; and
 
  •  
Broad technology coverage by instruments designed to cover the range of test parameters, coupled with a universal slot test head design that allows easy test system reconfiguration to address changing test needs.
FLEX Test Platform purchases are made by IDMs, OSATs, Foundries and Fabless customers. The FLEX Test Platform has become a widely used test solution at OSATs by providing versatile testers that can handle the widest range of devices, allowing OSATs to leverage their capital investments. The broad consumer, automotive and broadband markets have historically driven most of the device volume growth in the semiconductor industry. These markets include smartphones, cell phones, tablets, set top boxes, HDTVs, game controllers, computer graphics, and automotive controllers to name a few. These end use markets continue to be drivers for the FLEX Test Platform family of products because they require a wide range of technologies and instrument coverage. In 2019, we introduced our next generation UltraFLEX
Plus
tester, the newest member of the UltraFLEX family, UltraFLEX
Plus
uses the new PACE
TM
architecture to deliver superior economics and fast time to market for complex digital devices.
Our J750
™
test system shares the
IG-XL
software environment with the family of FLEX Test Platform systems. The J750 is designed to address the highest volume semiconductor devices, such as microcontrollers, that are central to the functionality of almost every consumer electronics product, from small appliances to automobiles. J750 test systems combine compact packaging, high throughput and ease of production test. We extended the J750 platform technology to create the IP750 Image Sensor
™
test system. The IP750 is focused on testing image sensor devices used in smartphones, automobiles and other imaging products. We have continued to invest in the J750 platform with new instrument releases that bring new capabilities to existing market segments and expand the J750 platform to new devices that include high end microcontrollers and the latest generation of cameras.
Our Magnum platform addresses the requirements of mass production test of memory devices for flash and DRAM memory. Flash and DRAM memory are widely used core building blocks in modern electronic products finding wide application in consumer, industrial, and computing equipment. Magnum 7, the newest member of the family introduced at the end of 2021, is a next generation memory test solution designed for parallel memory test in the flash, DRAM and multi-chip package markets. In 2019, we introduced a high-speed DRAM test version of our Magnum platform called Magnum EPIC giving us full product coverage of the memory test market.
Our ETS platform is used by semiconductor manufacturers and assembly and test subcontractors, primarily in the analog/mixed signal markets that cover more cost sensitive applications. Our proprietary SmartPin
™
technology enables high efficiency multi-site testing, on an individual test system, permitting greater test throughput. Semiconductors tested by ETS platform systems are incorporated into a wide range of products in historically high-growth markets, including mobile devices, video/multimedia products, automotive electronics, computer peripherals, and notebook and desktop computers. The newest products from the platform include the
 
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ETS-88,
a high performance multi-site production test system designed to test a wide variety of high volume commodity and precision devices, and the
ETS-800,
a high performance multi-site production test system to test high complexity power devices in automotive, industrial and consumer applications.
System Test
Our System Test segment is comprised of three business units: Storage Test, Defense/Aerospace, and Production Board Test.
Storage Test
The Storage Test business unit addresses the high throughput, automated manufacturing test requirements of hard disk drive (“HDD”) and semiconductor manufacturers. Our HDD products address the client and enterprise storage markets. The client market is driven by the needs of desktop, laptop, and external HDD storage products. The enterprise market is driven by the needs of data centers and cloud storage. Our system level test product for the semiconductor production market is used to test devices following wafer and package test. The business unit’s products lead in addressing customer requirements related to factory density, throughput and thermal performance.
Defense/Aerospace
We are a leading provider of high performance test systems, subsystems, instruments and service for the defense and aerospace markets. Our test products are used to ensure the readiness of military and commercial aerospace electronics systems. New programs, such as tactical aircraft and missile systems, as well as upgrade programs, continue to fuel the demand for high performance test systems in this market. Our test products are well-suited to the demands of defense/aerospace electronics manufacturers and repair depots worldwide. Our leadership in this market is underscored by our success with major Department of Defense programs across all U.S. military service branches and many allied defense services worldwide.
Production Board Test
Our test systems are used by electronics manufacturers worldwide to perform
In-Circuit-Test
(“ICT”) and device programming of printed circuit board assemblies. Fast, accurate and cost-effective test capabilities are hallmark features of our Test Station and Spectrum ICT product families. We offer the Test Station in
off-line
and automated
in-line
configurations. The automated
in-line
configurations address the growing requirements for automating production lines for high volume applications, such as automotive electronics.
Wireless Test
Our Wireless Test business operates under the LitePoint brand name and provides test solutions utilized in the development and manufacturing of wireless devices and modules. The world’s leading makers of smartphones, tablets, notebooks, laptops, peripherals, and
Internet-of-Things
(“IoT”) devices rely on LitePoint technology to ensure their products get into consumer hands with high quality and high efficiency.
LitePoint hardware and software wireless test solutions are used in test insertions that span design verification to high volume manufacturing and are deployed across the entire production
eco-system
from the wireless chipset suppliers to the consumer brands. Wireless devices are often tested at multiple points along the manufacturing process that include insertions at component,
system-in-package
(“SiP”), module, PCB, SMT and finished product stages.
Design verification is an important step in the development process for evaluating product performance prior to starting production. As end market unit volumes have increased, the quantity of units and the amount of data that must be analyzed for a successful product launch continues to grow. LitePoint products provide easy to use, domain specific tools for rapid analysis of product performance. This helps to speed time to market.
 
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In high volume manufacturing, wireless test enables the calibration of each individual product’s wireless performance to improve range, data throughput and battery life. Testing also verifies product specifications for product quality control. As markets become increasingly competitive, product performance and quality provide brand differentiation.
Wireless standards can be thought of in three categories: connectivity, cellular and location. Connectivity covers many standards such as
Wi-Fi
and Bluetooth. LitePoint’s IQxel products cover emerging
Wi-Fi
standards such as WiFi 6E and WiFi 7 which makes use of the newly allocated
6-7GHz
spectrum. Connectivity also includes a variety of other standards such as Bluetooth Classic, Bluetooth 5.0 and Bluetooth low energy, Zigbee,
Z-Wave,
NFC, LoRa and others.
The IQxel product family’s high performance wireless and multi-device testing economics are aligned with the needs of networking equipment, Internet gateways, IoT products and embedded modules used in smartphones, tablets, and PCs. In 2021, LitePoint introduced the
IQxel-MX
testing solution for the testing of
Wi-Fi
devices. Another connectivity product, the IQnfc, addresses the use of NFC technology for payments with mobile devices.
Cellular standards include 2G, 3G, 4G and the new 5G mobile phone technologies. LitePoint’s IQxstream is a multi-device production test optimized solution for high speed testing of GSM, EDGE, CDMA2000,
TD-SCDMA,
WCDMA, HSPA+, LTE and 5G technologies. It is used for calibration and verification of smartphones, tablets, small cell radio units and embedded cellular modules. The IQcell, is a multi-device cellular signaling test solution which enables user experience testing of LTE and 5G cellular devices
over-the-air.
The IQgig family provides test solutions at the intermediate and millimeter wave frequencies for 5G, proximity radar and 802.11ad.
Location technologies have traditionally been satellite-based wireless signals such as GPS and GLONASS, which are tested on LitePoint’s connectivity and cellular equipment. A new technology called Ultra-WideBand is being adopted in IoT, automotive and mobile phones. Ultra-WideBand provides finer location capability and is tested on LitePoint’s
IQgig-UWB
equipment.
To complement the test systems, LitePoint offers turnkey test software for over 350 of the most popular wireless chipsets. These optimized solutions provide rapid development of high volume manufacturing solutions with a minimum of engineering effort by customers.
Industrial Automation
Our Industrial Automation segment is comprised of three business units: Universal Robots, Mobile Industrial Robots and AutoGuide.
Universal Robots
Universal Robots is a leading supplier of collaborative robots, which are
low-cost,
easy-to-deploy
and
simple-to-program
robots that work side by side with production workers to improve quality, increase manufacturing efficiency and decrease manufacturing costs. Collaborative robots are designed to mimic the motion of a human arm and can be fitted with task specific grippers or end effectors to support a wide range of applications. Universal Robots offers a variety of collaborative robot models, including the UR3, UR5, UR10 and UR16, each with different weight carrying capacity and arm reach. All models are easily integrated into existing production environments. Universal Robots’ products are differentiated by their:
 
  •  
easy programming using a graphical interface which allows users to program the collaborative robot in a few hours;
 
  •  
flexibility and ease of use in allowing customers to change the task the collaborative robot is performing as their production demands dictate;
 
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  •  
safe operations as collaborative robots can assist workers in
side-by-side
production environments requiring no special safety enclosures or shielding to protect workers; and 
 
  •  
short payback period, on average less than 12 months.
In 2018, Universal Robots introduced its
e-Series
collaborative robots which include technology advances that enable faster development of applications, greater precision and improved safety. Universal Robots offers four
e-Series
collaborative robot models UR3e, UR5e, UR10e and UR16e. In 2021, Universal Robots introduced the upgraded version of its UR10e with 25% more payload to address market demand.
Cumulatively, Universal Robots has sold over 60,000 collaborative robots in diverse production environments and applications.
Mobile Industrial Robots
MiR is a leading supplier of AMRs, which are
low-cost,
easy-to-deploy
and
simple-to-program
mobile robots that increase manufacturing and warehouse efficiency and decrease costs. Collaborative autonomous mobile robots are designed to move material from point to point via autonomous navigation rather than the need for traditional mobile robot guidance infrastructure such as painted or magnetic strips and are designed to navigate safely around obstacles and people. MiR offers seven collaborative autonomous mobile robot models, MiR100, MiR200, MiR250, MiR500, MiR600, MiR1000 and MiR1350, each with different payload carrying capacity. MiR 600 and MiR1350 were launched in the fall 2021. All models are easily integrated into existing production environments. MiR’s products are differentiated by their:
 
  •  
easy programming using a graphical interface which allows users to program the collaborative robot in a few hours;
 
  •  
ease of use, speed of deployment and flexibility in allowing customers to change the task as their demands dictate;
 
  •  
reliable autonomous navigation over large manufacturing and warehouse areas; and
 
  •  
short payback period, on average 12–18 months.
Cumulatively, MiR has sold over 6,000 collaborative autonomous mobile robots in diverse production and warehouse environments and applications.
AutoGuide
AutoGuide is a maker of high payload AMRs, an emerging and fast-growing segment of the global forklift market. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products.
Sales and Distribution
In 2021 and 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of our Semiconductor Test segment, accounted for 12% and 15%, respectively, of our consolidated revenues. In 2019, no single direct customer accounted for more than 10% of our consolidated revenues. In each of the years, 2021, 2020 and 2019, our five largest direct customers in aggregate accounted for 33%, 36% and 27% of our consolidated revenues, respectively.
OSAT customers, such as Taiwan Semiconductor Manufacturing Company Ltd., often purchase our test systems based upon recommendations from OEMs, IDMs and Fabless companies. In all cases when an OSAT customer purchases a test system from us, we consider the OSAT as the customer since credit risk, title and risk of loss, among other things, are between Teradyne and the OSAT. We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include
 
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Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately 19%, 25% and 10% of our consolidated revenues in 2021, 2020 and 2019, respectively. The loss of, or significant decrease in demand from this OEM customer or any of our five largest direct customers, could have a material adverse effect on our business, results of operations and financial condition. We estimate consolidated revenues driven by Huawei Technologies Co. Ltd. (“Huawei”), combining direct sales to Huawei with sales to Huawei’s OSATs, accounted for approximately 0%, 3% and 11% of our consolidated revenues in 2021, 2020 and 2019, respectively.
We have sales and service offices located throughout North America, Central America, Asia and Europe. We sell in these areas predominantly through a direct sales force, except for Industrial Automation products, which are sold principally through distributors. Our manufacturing activities for our test businesses are primarily conducted through subcontractors and outsourced contract manufacturers with significant operations in China and Malaysia. The manufacturing activities for our Industrial Automation businesses are done primarily in our production facilities in Denmark and the U.S.
Sales to customers outside the United States were 89%, 90%, and 85%, respectively, of our consolidated revenues in 2021, 2020 and 2019. Sales are attributed to geographic areas based on the location of the customer site.
See also “Item 1A: Risk Factors” and Note T: “Operating Segment, Geographic and Significant Customer Information” in Notes to Consolidated Financial Statements.
Competition
We face significant competition throughout the world in each of our reportable segments. Competitors in the Semiconductor Test segment include, among others, Advantest Corporation and Cohu, Inc.
Competitors in the System Test segment include, among others, Keysight Technologies, Inc., Advantest Corporation, Test Research, Inc. and SPEA S.p.A.
Competitors in our Wireless Test segment include, among others, Rohde & Schwarz GmbH & Co. KG, Anritsu Company, Keysight Technologies, Inc., National Instruments Corporation, Welzek and iTest.
Competitors in our Industrial Automation segment include manufacturers of traditional industrial robots such as KUKA Robotics Corporation, ABB, FANUC and Yaskawa Electric Corporation, companies with emerging collaborative robot offerings such as Techman, Doosan, and AUBO Robotics, and manufacturers of autonomous mobile robots such as Omron, Fetch, OTTO Motors, Vecna, Seegrid and Balyo.
Some of our competitors have substantially greater financial and other resources to pursue engineering, manufacturing, marketing, and distribution of their products. We also face competition from emerging Asian companies and from internal suppliers at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics which may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. See also “Item 1A: Risk Factors.”
Backlog
At December 31, 2021 and 2020, our backlog of unfilled orders in our four reportable segments was as follows:
 
    
2021
     
2020
  
    
(in millions)
  
Semiconductor Test
    $ 824.1      $ 567.4  
System Test
      375.4        290.6  
Wireless Test
      56.8        41.6  
Industrial Automation
      49.7        30.0  
  
 
 
     
 
 
  
   $ 1,306.0      $ 929.6  
  
 
 
     
 
 
  
 
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Customers may delay delivery of products or cancel orders suddenly and without advanced notice, subject to possible cancellation penalties. Due to possible customer changes in delivery schedules and cancellation of orders, our backlog at any particular date is not necessarily indicative of the actual sales for any succeeding period. Delays in delivery schedules or cancellations of backlog during any particular period could have a material adverse effect on our business, financial condition or results of operations.
Raw Materials
Our products contain electronic and mechanical components that are provided by a wide range of suppliers. Some of these components are standard products, while others are manufactured to our specifications. We have experienced delays in obtaining timely delivery of certain components. These delays have impacted and may continue to impact the manufacturing of certain products and the timing of delivery of those products to our customers. While the majority of our components are available from multiple suppliers, certain items are obtained from sole sources. We may experience a temporary adverse impact if any of our sole source suppliers delay or cease to deliver products.
Intellectual Property and Licenses
The development of our products, both hardware and software, is based in significant part on proprietary information, our brands and technology. We protect our rights in proprietary information, brands and technology through various methods, such as:
 
  •  
patents;
 
  •  
copyrights;
 
  •  
trademarks;
 
  •  
trade secrets;
 
  •  
standards of business conduct and related business practices; and
 
  •  
technology license agreements, software license agreements,
non-disclosure
agreements, employment agreements, and other agreements.
However, these protections might not be effective in all circumstances. Competitors might independently develop similar technology or exploit our proprietary information and our brands in countries where we lack enforceable intellectual property rights or where enforcement of such rights through the legal system provides an insufficient deterrent. Also, intellectual property protections can lapse or be invalidated through appropriate legal processes. We do not believe that any single piece of intellectual property or proprietary rights is essential to our business.
Human Capital Resources
We believe that our future success depends upon our continued ability to attract, develop, and retain a high-performance workforce, comprised of people with shared values. As of December 31, 2021, we employed approximately 5,900 employees, of whom approximately 2,000 were employed in the United States and approximately 3,900 were employed outside of the United States. Our largest
non-US
employee populations are in the Philippines (16%), China (11%), Denmark (11%), Costa Rica (6%), and Taiwan (6%). We also leverage contractors to provide flexibility for our business and manufacturing needs. As of December 31, 2021, we worked with approximately 400 contractors globally. Since the inception of our business, we have experienced no work stoppages or other labor disturbances.
Corporate Culture
Our core values are conducting business with honesty and integrity, collaborating with our colleagues as a company without doors, and partnering with our customers every step of the way, because customers count on us.
 
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We strive to foster a positive work environment that helps employees thrive. It is a priority for us to ensure that our people feel inspired, supported, safe and able to achieve their personal best. We are committed to equality through nondiscrimination, harassment prevention and pay equity policies. We value a diverse, inclusive and respectful work environment where all employees enjoy challenging assignments, development opportunities and a safe, positive culture.
We are committed to conducting business in a responsible manner, with strategic operational policies, procedures and values that support transparency, sustainability and legal compliance. We ensure ethical operations and business commitments through robust governance of the company’s code of conduct and environmental, health and safety programs.
Competitive Pay and Benefits
The primary objective of our compensation program is to provide a compensation and benefits package that will continue to attract, retain, motivate and reward high performing employees who operate in a highly competitive and technologically challenging environment. We seek to achieve this objective by linking a significant portion of compensation to company and business unit performance. We enable employees to share in the success of the company through various programs including a stock purchase program, equity compensation, profit sharing and bonus plans. We seek competitiveness and fairness in total compensation with reference to peer comparisons and internal equity.
In addition to providing our employees with competitive compensation packages, we offer benefits designed to meet the needs of employees and their families, including paid time off, parental leave, bereavement leave, health insurance coverage, flexible work arrangements, contributions to retirement savings, and access to employee assistance and work-life programs.
Employee Development and Training
We believe that employee development and training is a key factor in attracting, motivating, improving and retaining a strong, competitive workforce. We provide continual development to our employees focused on developing their job skills and competencies. Examples include new manager competencies like giving feedback and coaching, and training in software development tools and project management. Our employees also receive annual performance reviews. Employees and managers look back on the previous year, review career development plans and create goals for the next year.
We are committed to recruiting and developing talent at the collegiate level to help advance STEM education for the future generation. For example, our paid internships and entry-level positions offer real-world experience, and our
co-op
program offers higher education students a unique learning opportunity as students alternate one semester in a work assignment and one semester in the classroom. Additionally, we pay $5,250 per year for educational courses related to an employee’s work or as part of a degree program, including tuition, lab fees and books. We also offer a scholarship program for employees with
college-age
children and grandchildren.
Employee Engagement
We conduct regular employee surveys to check in with our global workforce and obtain input on a number of topics. The feedback we receive from these surveys helps us assess employee sentiment, identify areas of improvement and guides our decision-making as it relates to people management. In addition, CEO Mark Jagiela and other executives meet with employees on a frequent basis through exchange meetings and quarterly webcasts. The exchange meetings allow the executives to directly interact with a small group of employees, while the global webcasts enable all employees to engage with senior leaders and ask questions in an open Q&A session.
We also offer employees an opportunity to network and connect with colleagues who share similar interests. This includes groups such as New Employees to Teradyne, Woman’s Affinity Group, Blue and Green (for team members that are committed to the environment), Runner’s affinity group and LGBTQ+ advocates.
 
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Diversity and Inclusion
We believe in fostering a diverse workforce and equitable and inclusive culture in order to build a stronger and more resilient company for our customers, our employees and our communities. To support this effort, we have a Diversity and Inclusion Charter which was developed by our Diversity, Equity and Inclusion (“DEI”) executive
sub-committee
and designed to ensure that we build diversity across our workforce. In addition, in 2021, we have hired our first DEI program manager. We have established programs for recruiting and hiring candidates from various backgrounds and experiences. We have implemented policies regarding gender pay equity and have conducted audits in the United States which have not identified any pay equity issues in the employee populations tested. We conduct mandatory
DEI-related
training program for our employees and offer a wide variety of optional
DEI-related
training courses as well. In 2021, managers participated in McKinsey Academy’s “Unlocking the Potential of Women” course. We are an equal opportunity and affirmative action employer committed to making employment decisions without regard to race, religion, ethnicity or national origin, gender, sexual orientation, gender identity or expression, age, disability, protected veteran status or any other characteristics protected by law.
We have a tradition of amplifying the charitable actions of our employees and responding to the needs of the communities where we work. To support positive change in society, we have donated to organizations fighting for social justice and racial equality. We also sponsor the Massachusetts Conference for Women and the California Conference for Women offering opportunities for business networking, professional development and personal growth.
Additionally, advancing education for future generations is a primary initiative at Teradyne. We support Science, Technology, Engineering and Mathematics (STEM) programs at the middle, high school and collegiate level ranging from middle and high school robotics competitions to college scholarships, to underwriting university programs to increase the diversity of STEM graduates. We also donate test equipment and robots to colleges, universities, and vocational programs.
Health and Safety
The health and safety of our employees is our highest priority. We are committed to complying with all applicable regulatory health and safety requirements wherever we operate. We conduct internal audits, regular reviews and monitoring of regulations to ensure compliance with laws and regulations at the local, state, province and country levels. We ensure workers are provided with the knowledge to perform their jobs safely by deploying mandatory environmental, health and safety training. We also require contractors to complete safety training prior to working at any Teradyne site. We monitor, track and report common safety metrics such as accidents, near misses and illness. Our injury and illness rate is below the industry average. We also provide our employees with a flexible and adjustable workspace, which includes reviewing ergonomics issues in the workplace, educating employees to self-identify risks and ensuring they have the work environment they need to do their jobs safely and effectively.
Throughout the
COVID-19
pandemic, we have focused on ensuring the health and safety of our employees. At the onset of the pandemic, we made the decision to close our offices and implement work from home policies for most employees. During this time, we have also provided resources to enable employees to effectively manage remote work, such as web conferencing and project collaboration solutions and furniture and equipment for
at-home
offices. To protect those employees where offices have opened or whose work requires them to be
on-site,
we’ve implemented cleaning processes, access to personal protection equipment and other protocols to ensure their safety. We have encouraged our workforce to become fully vaccinated. We have implemented a
vaccine-or-test
policy for U.S. employees who work on site and recommend a similar policy for our
non-U.S.
sites, subject to local regulations and the availability of vaccines and test kits. We have also supported our global workforce by sending regular
all-employee
communications, providing development opportunities for managers and employees to support effectively working virtually, establishing emergency response teams to empower local decision-making, conducting surveys to check in with employees, sharing regular video updates from our leadership team, and establishing a well-defined return to work process.
 
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Regulatory Environment
We are subject to various federal, state, and local government laws and regulations relating to international trade, business conduct, the protection of employee health and safety and the environment.
We accrue for all known environmental liabilities when it becomes probable that we will incur cleanup costs and those costs can reasonably be estimated. Estimated environmental costs are not expected to materially affect the financial position or results of our operations in future periods. However, estimates of future costs are subject to change due to protracted cleanup periods and changing environmental remediation laws and regulations.
We are subject to U.S. laws and regulations that limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons. In certain circumstances, export control and economic sanctions regulations prohibit the export of certain products, services, and technologies, and in other circumstances we are required to obtain an export license before exporting the controlled item. For example, we must comply with current U.S. Department of Commerce export control regulations restricting transactions with certain customers in China. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. Compliance with these laws has limited our sales and likely will continue to limit sales to certain customers in the future. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to drop, which could have a material adverse effect on our business, financial condition or results of operations.
 
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INFORMATION ABOUT OUR EXECUTIVE OFFICERS
Pursuant to General Instruction G (3) of Form
10-K,
the following table is included in Part I of this Annual Report on Form
10-K
in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders. The table sets forth the names of all of our executive officers and certain other information relating to their positions held with Teradyne and other business experience. Our executive officers do not have a specific term of office but rather serve at the discretion of the Board of Directors.
 
Executive Officer
   
Age
     
Position
   
Business Experience for The Past 5 Years
Mark E. Jagiela
      61      Chief Executive Officer and President    Chief Executive Officer since February 2014; President of Teradyne since January 2013; President of Semiconductor Test from 2003 to February 2016; Vice President of Teradyne from 2001 to 2013.
Sanjay Mehta
      53      Vice President, Chief Financial Officer and Treasurer    Vice President, Chief Financial Officer and Treasurer of Teradyne since April 2019; Senior Vice President and General Manager of Compute and XR Products at Qualcomm Technologies, Inc. (“Qualcomm”) from June 2018 to March 2019; President of Qualcomm’s semiconductor segment (“QCT”) China from March 2016 to June 2018; Senior Vice President Business Operations of QCT at Qualcomm from November 2015 to March 2016; Chief Financial Officer and Senior Vice President, Sales Operations, of QCT at Qualcomm from October 2010 to November 2015.
Charles J. Gray
      60      Vice President, General Counsel and Secretary    Vice President, General Counsel and Secretary of Teradyne since April 2009.
Bradford B. Robbins
      63      President of Wireless Test    President of Wireless Test since August 2014; Chief Operating Officer of LitePoint Corporation from 2012 to 2014; Vice President of Teradyne since 2001.
Gregory S. Smith
      58      President of Industrial Automation    President of Industrial Automation since October 2020; President of Semiconductor Test from February 2016 to September 2020; Vice President, SOC Business Group and Marketing Manager for Semiconductor Test Group from January 2014 to February 2016; Business Unit Manager, Complex SOC Business Unit from 2009 to January 2014.
Richard J Burns
      59      President of Semiconductor Test    President of Semiconductor Test since October 2020; Vice President, Semiconductor Test Engineering from February 2016 to September 2020.
Walter G. Vahey
      57      Executive Vice President, Business Development    Executive Vice President, Business Development since December 2017; President of System Test from July 2012 to December 2017; Vice President of Teradyne since 2008; General Manager of Storage Test from 2008 to December 2017; General Manager of Production Board Test from April 2013 to December 2017.
 
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Item 1A:
Risk Factors
The risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Risks Related to the
COVID-19
Pandemic
The novel coronavirus
(COVID-19)
pandemic has impacted our business and could materially adversely affect our results of operations, financial condition, liquidity or cash flows.
The global pandemic of the novel strain of the coronavirus
(COVID-19)
has resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines,
shelter-in-place
orders, vaccination and testing mandates, and business limitations and shutdowns. These measures have impacted our
day-to-day
operations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. In the U.S., we have implemented a
vaccine-or-test
policy which will require costs to implement testing protocols and increases the risk of employee attrition. The
COVID-19
pandemic, and the numerous measures implemented by authorities in response, has adversely impacted our results of operations, including increasing costs company-wide, but we cannot accurately estimate the full extent of the impact to our 2021and 2020 financial results or to our future financial results.
The
COVID-19
pandemic has significantly increased economic and demand uncertainty in our markets. The uncertainty resulted in a decrease in orders for our Industrial Automation products in 2020 and could continue to impact the business for an uncertain period of time. The spread of
COVID-19
has caused us to modify our business practices, including implementing vaccination, testing, masking and social distancing policies, suspending employee travel, requiring most employees to work remotely, canceling physical participation in meetings, events and conferences, and extensively and frequently disinfecting our workspaces, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, contract manufacturers and suppliers.
We are continuing to monitor the rapidly evolving situation regarding the
COVID-19
pandemic. However, we are unable to accurately predict the full impact of
COVID-19,
which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges of the virus or new strains or variants of the virus, the broad availability of effective vaccines, further government actions to contain the virus, and how quickly and to what extent normal economic and operating conditions can resume.
Risks Associated with Teradyne’s Markets
Our business is impacted by global and industry-specific economic cycles, which are difficult to predict, and actions we have taken or may take to offset these cycles may not be sufficient.
Capital equipment providers in the electronics, semiconductor industries and industrial automation, such as Teradyne, have, in the past, been negatively impacted by both sudden slowdowns in the global economies and recurring cyclicality within those industries. These cycles have resulted in periods of over-supply; a trend we believe will continue to occur. Our business and results of operations depend, in significant part, upon capital expenditures of manufacturers of semiconductors electronics and other industrial products, which in turn depend upon the current and anticipated market demand for those products. Disruption or deterioration in economic conditions may reduce customer purchases of our products, thereby reducing our revenues and earnings. In addition, such adverse changes in economic conditions, and resulting slowdowns in the market for our products, may, among other things, result in increased price competition for our products, increased risk of excess and obsolete inventories, increased risk in the collectability of our accounts receivable from our customers, potential reserves for doubtful accounts and write-offs of accounts receivable, increased risk of restructuring charges, and higher operating costs as a percentage of revenues, which, in each case and together, adversely affect our
 
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operating results. We are unable to predict the likely duration, frequency and severity of disruptions in financial markets, credit availability, and adverse economic conditions throughout the world, and we cannot ensure that the level of revenues or new orders for a fiscal quarter will be sustained in subsequent quarters. We have taken actions to address the effects of general economic variability and recurring industry cyclicality, including implementing cost control and reduction measures. We cannot predict whether these measures will be sufficient to offset global or market-specific disruptions that might affect our businesses and we may need to take additional or different measures in the future.
We are subject to intense competition.
We face significant competition throughout the world in each of our reportable segments. Some of our competitors have substantial financial and other resources to pursue engineering, manufacturing, marketing and distribution of their products. We also face competition from emerging Asian companies and internal development at several of our customers. Some of our competitors have introduced or announced new products with certain performance characteristics that may be considered equal or superior to those we currently offer. We expect our competitors to continue to improve the performance of their current products and to introduce new products or new technologies that provide improved cost of ownership and performance characteristics. New product introductions by competitors could cause a decline in revenues or loss of market acceptance of our products.
The market for our products is concentrated, and our business depends, in part, on obtaining orders from a few significant customers.
The market for our products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. In each of the years, 2021, 2020 and 2019, our five largest direct customers in aggregate accounted for 33%, 36% and 27% of consolidated revenues, respectively.
We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately 19%, 25% and 10% of our consolidated revenues in 2021, 2020 and 2019, respectively. We estimate consolidated revenues driven by Huawei, combining direct sales to Huawei with sales to Huawei’s OSATs accounted for approximately 0%, 3% and 11% of our consolidated revenues in 2021, 2020 and 2019, respectively. In any one reporting period, a single customer or several customers may contribute even a larger percentage of our consolidated revenues. In addition, our ability to increase sales will depend, in part, on our ability to obtain orders from current or new significant customers. The opportunities to obtain orders from these customers may be limited, which may impair our ability to grow revenues. We expect that sales of our products will continue to be concentrated with a limited number of significant customers for the foreseeable future. The loss of a significant customer or any reduction in orders by these customers, including reductions due to market or competitive conditions, would likely have a material adverse effect on our business, financial conditions or results of operations.
If we fail to develop new technologies to adapt to our customers’ needs and if our customers fail to accept our new products, our revenues will be adversely affected.
We believe that our technological position depends primarily on the technical competence and creative ability of our engineers. In a rapidly evolving market, such as ours, the development or acquisition of new technologies, commercialization of those technologies into products and market acceptance and customer demand for those products are critical to our success. Successful product development or acquisition, introduction and acceptance depend upon a number of factors, including:
 
  •  
new product selection;
 
  •  
ability to meet customer requirements including with respect to safety and cyber security;
 
  •  
development of competitive products by competitors;
 
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  •  
timely and efficient completion of product design;
 
  •  
timely and efficient implementation of manufacturing and manufacturing processes;
 
  •  
timely remediation of product performance issues, if any, identified during testing;
 
  •  
assembly processes and product performance at customer locations;
 
  •  
differentiation of our products from our competitors’ products;
 
  •  
management of customer expectations concerning product capabilities and product life cycles;
 
  •  
transition of customers to new product platforms;
 
  •  
compliance with product safety regulations;
 
  •  
ability to protect products from cyber attacks when used by our customers;
 
  •  
ability to attract and retain technical talent; and
 
  •  
innovation that does not infringe on the intellectual property rights of third parties.
Risks Associated with Operating a Global Business
We are subject to risks of operating internationally.
A significant portion of our total revenues is derived from customers outside the United States. Our international sales and operations are subject to significant risks and difficulties, including:
 
  •  
unexpected changes in legal and regulatory requirements affecting international markets;
 
  •  
cost increases due to inflation
 
  •  
changes in tariffs and exchange rates;
 
  •  
social, political and economic instability, acts of terrorism and international conflicts;
 
  •  
disruption caused by health pandemics, such as the coronavirus;
 
  •  
difficulties in protecting intellectual property;
 
  •  
difficulties in accounts receivable collection;
 
  •  
cultural differences in the conduct of business;
 
  •  
difficulties in staffing and managing international operations;
 
  •  
compliance with anti-corruption laws;
 
  •  
compliance with data privacy regulations;
 
  •  
compliance with customs and trade regulations; and
 
  •  
compliance with international tax laws and regulations.
In addition, an increasing portion of our products and the products we purchase from our suppliers are sourced or manufactured in foreign locations, including China, Malaysia and Denmark, and a large portion of the devices our products test are fabricated and tested by foundries and subcontractors in Taiwan, China, Korea and other parts of Asia. As a result, we are subject to a number of economic and other risks, particularly during times of political, health or financial instability in these regions. Disruption of manufacturing or supply sources in these international locations could materially adversely impact our ability to fill customer orders and potentially result in lost business.
Risks Related to Teradyne’s Finances
We may not fully realize the benefits of our acquisitions or strategic alliances.
In June 2015, we acquired Universal Robots, in 2018, we acquired Energid and MiR and, in 2019, we acquired Lemsys and AutoGuide. We may not be able to realize the benefits of acquiring or successfully growing
 
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these businesses. We may continue to acquire additional businesses, form strategic alliances, or create joint ventures with third parties that we believe will complement or augment our existing businesses. We may not be able to realize the expected synergies and cost savings from the integration with our existing operations of other businesses or technologies that we may acquire. In addition, the integration process for our acquisitions may be complex, costly and time consuming and include unanticipated issues, expenses, and liabilities. We may have difficulty in developing, manufacturing, and marketing the products of a newly acquired company in a manner that enhances the performance of our combined businesses or product lines and allows us to realize value from expected synergies. Following an acquisition, we may not achieve the revenue or net income levels that justify the acquisition. Acquisitions may also result in
one-time
charges (such as acquisition-related expenses, write-offs or restructuring charges) or in the future, impairment of goodwill or acquired intangible assets, or adjustments to contingent consideration liabilities that adversely affect our operating results. Additionally, we may fund acquisitions of new businesses, strategic alliances, or joint ventures by utilizing our cash, incurring debt, issuing shares of our common stock, or by other means.
We may incur higher tax rates than we expect and may have exposure to additional international tax liabilities and costs.
We are subject to paying income taxes in the United States and various other countries where we operate. Our effective tax rate is dependent on where our earnings are generated and the tax regulations and the interpretation and judgment of administrative tax or revenue authorities in the United States and other countries. We have pursued a global tax strategy that could be adversely affected by the mix of earnings and tax rates in the countries where we operate, changes to tax laws, tax regulations or an adverse tax ruling by administrative authorities. We are also subject to tax audits in the countries where we operate. Any material change in our tax liability resulting from changes in tax laws, tax regulations, administrative ruling or from an audit from an administrative tax or revenue authority could negatively affect our financial results.
As a multinational corporation, we are subject to income taxes as well as
non-income-based
taxes, in both the United States and various foreign jurisdictions. In certain foreign jurisdictions, we qualify for tax incentives and tax holidays based on our ability to meet, on a continuing basis, various tests relating to our employment levels, research and development expenditures and other qualification requirements in a particular foreign jurisdiction. While we intend to operate in such a manner to maintain and maximize our tax incentives and tax holidays, no assurance can be given that we have so qualified or that we will so qualify for any particular year or jurisdiction. If we fail to qualify or fail to remain qualified for certain foreign tax incentives and tax holidays, we may be subject to further taxation or an increase in our effective tax rate which would adversely impact our financial results. In December 2015, we entered into an agreement with the Singapore Economic Development Board which extended, until December 31, 2020, our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2015. In November 2020, we entered into an agreement with the Singapore Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025.
The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2021, 2020 and 2019 were $33.3 million or $0.18 per diluted share, $29.9 million or $0.16 per diluted share and $15.1 million or $0.08 per diluted share, respectively. These tax savings may not be achievable in subsequent years due to changes in Singapore’s tax laws or the expiration of the tax holiday.
In addition, we may incur additional costs, including headcount expenses, in order to maintain or obtain a foreign tax incentive or tax holiday in a particular foreign jurisdiction.
We have significant guarantees, indemnification, and customer confidentiality obligations.
From time to time, we make guarantees to customers regarding the delivery, price and performance of our products and guarantee certain indebtedness, performance obligations or lease commitments of our subsidiary
 
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and affiliate companies. We also have agreed to provide indemnification to our officers, directors, employees and agents, to the extent permitted by law, arising from certain events or occurrences, while the officer, director, employee or agent, is or was serving at our request in such capacity. Additionally, we have confidentiality obligations to certain customers and if breached would require the payment of significant penalties. If we become liable under any of these obligations, it could materially and adversely affect our business, financial condition or operating results. For additional information see Note M: “Commitments and Contingencies—Guarantees and Indemnification Obligations” in Notes to Consolidated Financial Statements.
We may discontinue or reduce our quarterly cash dividend or share repurchase program.
In January 2014, our Board of Directors initiated a quarterly cash dividend. Since 2014, the Board of Directors has increased our quarterly cash dividend from $0.06 per share to $0.11 per share. Holders of our common stock are only entitled to receive dividends when and if they are declared by our Board of Directors.
In January 2015, our Board of Directors approved a share repurchase program. From January 2015 to April 2020, we repurchased $2.1 billion of common stock. Due to the uncertainty regarding the duration, severity and business impact of the
COVID-19
pandemic, we suspended the stock repurchase program as of April 1, 2020. In January 2021, our Board of Directors approved a new $2.0 billion share repurchase program. In 2021, we repurchased $600.0 million of common stock. Under the share repurchase program, we may repurchase outstanding shares of our common stock from time to time in the open market and through privately negotiated transactions. Unless terminated earlier by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program.
Future cash dividends and share repurchases are subject to the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition. While we have declared a quarterly cash dividend on our common stock and authorized a share repurchase program, we are not required to do either and may reduce or eliminate our cash dividend or share repurchase program in the future. The reduction or elimination of our cash dividend or our share repurchase program could adversely affect the market price of our common stock.
We have incurred indebtedness and may incur additional indebtedness.
On December 12, 2016, we completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost, after being partially offset by proceeds from the sale of the warrants, of the convertible note hedge transactions and $50.1 million of which was used to repurchase 2.0 million shares of our common stock. Holders of the Notes may require us to repurchase the Notes upon the occurrence of certain fundamental changes involving us or the holders may elect to convert into shares of our common stock. As of February 23, 2022, eighty three holders had converted $362.6 million worth of notes.
On May 1, 2020, we entered into a three-year, senior secured revolving credit facility of up to $400.0 million. On December 10, 2021, the credit agreement was amended to extend maturity date of the credit facility to December 10, 2026. The amended credit agreement provides that, subject to customary conditions, we may seek to obtain from existing or new lenders the available incremental amount under the credit facility, not to exceed the greater of $200.0 million or 15% of consolidated EBIDTA. We could borrow funds under this credit facility at any time for general corporate purposes and working capital. As of February 23, 2022, we have not borrowed any funds under this credit facility.
The issuance of the Notes and any additional indebtedness, among other things, could:
 
  •  
make it difficult to make payments on this indebtedness and our other obligations;
 
  •  
make it difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;
 
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  •  
require the dedication of a substantial portion of any cash flows from operations to service for indebtedness, thereby reducing the amount of cash flows available for other purposes, including capital expenditures; and
 
  •  
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we compete.
Restrictive covenants in the agreement governing our senior secured revolving credit facility may restrict our ability to pursue business strategies.
The agreement governing our senior secured revolving credit facility limits our ability, among other things, to incur additional secured indebtedness; sell, transfer, license or dispose of assets; consolidate or merge; enter into transactions with our affiliates; and incur liens. In addition, our senior secured revolving credit facility contains financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interest, such as, subject to permitted exceptions, making capital expenditures in excess of certain thresholds, making investments, loans and other advances, and prepaying any additional indebtedness while our indebtedness under our senior secured revolving credit facility is outstanding. Our failure to comply with financial and other restrictive covenants could result in an event of default, which if not cured or waived, could result in the lenders requiring immediate payment of all outstanding borrowings or foreclosing on collateral pledged to them to secure the indebtedness.
Our convertible note hedge and warrant transactions could impact the value of our stock.
Concurrent with the offering of the Notes, we entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $31.52. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately 4.4 million shares of our common stock. On November 4, 2021, we made an irrevocable election under the indenture to require the principal portion of the remaining Notes to be settled in cash.
Separately and concurrent with the pricing of the Notes, we entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which we sold
net-share-settled
(or, at our election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of our common stock. The strike price of the warrants is $39.55 per share. The Warrant Transactions could have a dilutive effect to our common stock to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Note Hedge Transactions are expected to reduce the potential dilution to our common stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the warrants. The net cost of the Note Hedge Transactions, after being partially offset by the proceeds from the sale of the warrants, was approximately $33.0 million.
In connection with establishing their initial hedge of these convertible note hedge and warrant transactions, the Option Counterparties have entered into various derivative transactions with respect to our common stock and/or purchase shares of our common stock or other securities, including the Notes, concurrent with, or shortly after, the pricing of the Notes. In addition, the Option Counterparties may modify their hedge positions by entering into or unwinding various derivative transactions with respect to our common stock or by selling our common stock or other securities, including the Notes, in secondary market transactions (and may do so during any observation period related to the conversion of the Notes). These activities could adversely impact the value of our common stock and the Notes.
 
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We may not be able to pay our debt and other obligations.
If our cash flows are inadequate to meet our obligations, we could face substantial liquidity problems. If we are unable to generate sufficient cash flows or otherwise obtain funds necessary to make required payments on the Notes or certain of our other obligations, we would be in default under the terms thereof, which would permit the holders of those obligations to accelerate their maturity and also could cause defaults under future indebtedness we may incur. Any such default could have a material adverse effect on our business, prospects, financial position and operating results. In addition, we cannot be certain that we would be able to repay amounts due on the Notes if those obligations were to be accelerated following the occurrence of any other event of default as defined in the instruments creating those obligations, or if the holders of the Notes require us to repurchase the Notes upon the occurrence of a fundamental change involving us. Moreover, we cannot be certain that we will have sufficient funds or will be able to arrange for financing to pay the principal amount due on the Notes at maturity.
Risks Related to Operations
Our operating results are likely to fluctuate significantly.
Our operating results are affected by a wide variety of factors that could materially adversely affect revenues or profitability. The following factors could impact future operations:
 
  •  
a worldwide economic slowdown or disruption in the global financial or industrial markets;
 
  •  
cost increases from inflation on materials, employee wages, third party labor, and contract manufacturing;
 
  •  
competitive pressures on selling prices;
 
  •  
our ability to introduce, and the market acceptance of, new products;
 
  •  
changes in product revenues mix resulting from changes in customer demand;
 
  •  
the level of orders received which can be shipped in a quarter because of the tendency of customers to wait until late in a quarter to commit to purchase due to capital expenditure approvals and constraints occurring at the end of a quarter, or the hope of obtaining more favorable pricing from a competitor seeking the business;
 
  •  
engineering and development investments relating to new product introductions, and the expansion of manufacturing, outsourcing and engineering operations in Asia;
 
  •  
provisions for excess and obsolete inventory relating to the lack of demand for and the discontinuance of products;
 
  •  
impairment charges for certain long-lived and intangible assets, and goodwill;
 
  •  
an increase in the leasing of our products to customers;
 
  •  
disruption caused by health pandemics, such as the coronavirus;
 
  •  
our ability to expand our global distribution channel for our collaborative and mobile robots;
 
  •  
parallel or multi-site testing which could lead to a decrease in the ultimate size of the market for our semiconductor and electronic test products; and
 
  •  
the ability of our suppliers and subcontractors to meet product quality or delivery requirements needed to satisfy customer orders for our products, especially if consolidated revenues increase.
As a result of the foregoing and other factors, we have experienced and may continue to experience material fluctuations in future operating results on a quarterly or annual basis which could materially and adversely affect our business, financial condition, operating results or stock price.
 
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If our suppliers do not meet product or delivery requirements, we could have reduced revenues and earnings.
If any of our suppliers were to cancel contracts or commitments or fail to meet the quality or delivery requirements needed to satisfy customer orders for our products, we could lose time-sensitive customer orders, have significantly decreased revenues and earnings and be subject to contractual penalties, which would have a material adverse effect on our business, results of operations and financial condition. In addition, we rely on contract manufacturers for certain of our products, and our ability to meet customer orders for those products depends upon the timeliness and quality of the work performed by these subcontractors, over whom we do not exercise any control.
To a certain extent, we are dependent upon the ability of our suppliers and contract manufacturers to help meet increased product or delivery requirements. It may be difficult for certain suppliers to meet delivery requirements in a period of rapid growth, therefore impacting our ability to meet our customers’ demands.
Our suppliers are subject to trade regulations, including tariffs and export restrictions imposed by the United States Government and by the governments of other countries. These regulations could impact our suppliers’ ability to provide us with components for our products or could increase the price of those components.
We rely on the financial strength of our suppliers. There can be no assurance that the loss of suppliers either as a result of financial viability, bankruptcy or otherwise will not have a material adverse effect on our business, results of operations or financial condition.
Our operations may be adversely impacted if our outsourced contract manufacturers or service providers fail to perform.
We depend on Flex Ltd. (“Flex”) to manufacture and test our FLEX and J750 family of products from its facilities in China and, starting in 2022, also Malaysia; Plexus Corp. (“Plexus”) to manufacture and test our Magnum products from its facilities in Malaysia and, starting in 2022, also Thailand and ETS family of products from its facility in Malaysia; SAM Meerkat to manufacture and test our storage test family of products from its facilities in Malaysia and Thailand and on other contract manufacturers to manufacture other products. If for any reason these contract manufacturers cannot provide us with these products in a timely fashion, or at all, we may not be able to sell these products to our customers until we enter a similar arrangement with an alternative contract manufacturer. The Flex facility located in China may be impacted by the ongoing trade dispute between the United States and China, by regulations implemented by the United States or China, or disruption caused by health pandemics, such as the coronavirus.
If we experience a problem with our supply of products from Flex, Plexus, SAM Meerkat, or our other contract manufacturers, it may take us significant time to either manufacture the product or find an alternate contract manufacturer, which could result in substantial expense and disruption to our business.
We have also outsourced certain general and administrative functions to reputable service providers, many of which are in foreign countries, sometimes impacting communication with them because of language and time differences. Their presence in foreign countries also increases the risk they could be exposed to political risk. Additionally, there may be difficulties encountered in coordinating the outsourced operations with existing functions and operations. If we fail in successfully coordinating and managing the outsourced service providers, it may cause an adverse effect on our operations which could have a material adverse effect on our business, results of operations or financial condition.
Our business may suffer if we are unable to attract and retain key employees.
Competition for employees with skills we require is intense in the high technology industry. We expect intense competition for employees to continue in 2022. Our success will depend on our ability to attract and
 
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retain key technical employees. The loss of one or more key or other employees, a decrease in our ability to attract additional qualified employees, or the delay in hiring key personnel could each have a material adverse effect on our business, results of operations or financial condition.
Our operations, and the operations of our customers and suppliers, are subject to risks of natural catastrophic events, severe weather, widespread health epidemics, acts of war, terrorist attacks and the threat of domestic and international terrorist attacks, any one of which could result in cancellation of orders, delays in deliveries or other business activities, or loss of customers and could negatively affect our business and results of operations.
Our business is international in nature, with our sales, service and administrative personnel and our customers and suppliers located in numerous countries throughout the world. Our operations, and those of our customers and suppliers, are subject to disruption for a variety of reasons, including work stoppages, acts of war, terrorism, health epidemics, fires, earthquakes, hurricanes, typhoons, volcanic eruptions, energy shortages, telecommunication failures, tsunamis, flooding or other natural disasters. Such disruption could materially increase our costs and expenses as well as cause delays in, among other things, shipments of products to our customers, our ability to perform services requested by our customers, or the installation and acceptance of our products at customer sites. Any of these conditions could have a material adverse effect on our business, financial condition or results of operations.
Global climate change can result in natural disasters occurring more frequently, with greater intensity and with less predictability. For example, in December 2021, our operations in Cebu, Philippines experienced a devastating typhoon. Our employees in Cebu succeeded in restoring most of our operations within days despite the severity of the damage in the region. We have offered support services to many of our employees impacted by the typhoon and have incurred additional costs to maintain our operations following the disaster. The long-term effects of climate change on the global economy and the semiconductor industry in particular are unclear but could be severe.
The global supply shortage of electrical components may impact our ability to meet customer demand.
There is currently a global supply shortage of electrical components, including semiconductor chips. As a result, we have experienced increases in our lead times and costs for certain components for certain products and delays in the delivery of some orders placed by our customers. At this time, these supply chain challenges have not had a material impact on our business, results of operations or financial condition. However, if we are unable to secure manufacturing capacities from our current suppliers and contract manufacturers, our ability to deliver our products to our customers may be negatively impacted. Also, our suppliers and contract manufacturers may increase their prices, which would result in an increase in our manufacturing costs, which we may not be fully able to pass to our customers, which could have a negative impact on our results of operations and financial condition.
Risks Related to Intellectual Property (“IP”) and Cybersecurity
Third parties may claim we are infringing their intellectual property and we could suffer significant litigation costs, licensing expenses or be prevented from selling our products.
We have been sued for patent infringement and receive notifications from time to time that we may be in violation of patents held by others. An assertion of patent infringement against us, if successful, could have a material adverse effect on our ability to sell our products or it could force us to seek a license to the intellectual property rights of others or alter such products so that they no longer infringe the intellectual property rights of others. A license could be very expensive to obtain or may not be available at all. Similarly, changing our
 
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products or processes to avoid infringing the rights of others may be costly or impractical. Additionally, patent litigation could require a significant use of management resources and involve a lengthy and expensive defense, even if we eventually prevail. If we do not prevail, we might be forced to pay significant damages, obtain licenses, modify our products, or stop making our products; each of which could have a material adverse effect on our financial condition, operating results or cash flows.
If we are unable to protect our IP, we may lose a valuable asset or may incur costly litigation to protect our rights.
We protect the technology that is incorporated in our products in several ways, including through patent, copyright, trademark and trade secret protection and by contractual agreement. However, even with these protections, our IP may still be challenged, invalidated or subject to other infringement actions. While we believe that our IP has value in the aggregate, no single element of our IP is in itself essential. If a significant portion of our IP is invalidated or ineffective, our business could be materially adversely affected.
A breach of our operational or security systems could negatively affect our business and results of operations.
We rely on various information technology networks and systems to process, transmit and store electronic information, including proprietary and confidential data, and to carry out and support a variety of business activities, including manufacturing, research and development, supply chain management, sales and accounting. We have experienced several attempted cyber-attacks of our network. None of the attempted attacks has caused a disruption to our operations or had a material adverse effect on our business or financial results. As a result of the attempts, we have taken further preventive security measures to protect our systems. Despite these preventative security measures we have implemented, we may continue to be vulnerable to attempts by third parties to gain unauthorized access to our networks or sabotage our systems. These attempts, which might be related to criminal hackers, industrial espionage or state-sponsored intrusions, include trying to covertly introduce malware to our computers, networks and systems and impersonating authorized users. In addition, third party suppliers and service providers that we rely on to manage our networks and systems and process and store our proprietary and confidential data may also be subject to similar attacks. Such attempts could result in the misappropriation, theft, misuse, disclosure or loss or destruction of the intellectual property, or the proprietary, confidential or personal information, of Teradyne or our employees, customers, suppliers or other third parties, as well as damage to or disruptions in our information technology networks and systems. These threats are constantly evolving, thereby increasing the difficulty of defending against them or implementing adequate preventative measures. While we seek to detect and investigate all security incidents and to prevent their recurrence, attempts to gain unauthorized access to our information technology networks and systems may be successful, and in some cases, we might be unaware of an incident or its magnitude and effects. A failure in or a breach of our operational or security systems or infrastructure, or those of our suppliers and other service providers, including as a result of cyber-attacks, could have a material adverse effect on our business or financial results, disrupt our business, result in the disclosure or misuse of proprietary or confidential information, damage our reputation, cause losses and increase our costs. We expect to continue to devote significant resources to the security of our information technology networks and systems.
A breach of the security of our products could negatively affect our business and results of operations.
We may be subject to security breaches of certain of our products caused by viruses, illegal
break-ins
or hacking, sabotage, or acts of vandalism by third parties or our employees or contractors. A breach of our product security systems could have a material adverse effect on our business or financial results, disrupt our business, result in the disclosure or misuse of proprietary or confidential information, damage our reputation, cause losses, and increase our costs. We expect to continue to devote significant resources to the security of our products.
Risks Related to Legal and Regulatory Compliance
The implementation of tariffs on our products may have a material impact on our business.
Our business operations and supply chain are global and may be disrupted by the implementation of tariffs.
 
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In 2018, the United States Trade Representative imposed a 25% tariff on many lists of products, including certain Teradyne products that are made in China and imported into the United States. We have implemented operational changes that mitigate the impact of the 25% tariff on the import of our impacted products into the United States. As a result, the existing tariff has not had a material adverse effect on our business, financial condition or results of operations. The implementation of additional tariffs by the United States could have a material adverse effect on our business, financial condition or results of operations.
In addition to the actions taken by the United States, China has implemented retaliatory tariffs on products made in the United States and imported into China, including certain Teradyne products. We have implemented, if appropriate, operational changes that would mitigate the impact of the retaliatory tariffs. However, notwithstanding our efforts, the retaliatory tariffs or other trade restrictions implemented by China could disrupt our business operations, sales and supply chain and, therefore, have a material adverse effect on our business, financial condition or results of operations.
Trade regulations and restrictions impact our ability to sell products to and support certain customers, which may materially adversely affect our sales and results of operations.
We are subject to U.S. laws and regulations that limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons. In certain circumstances, export control and economic sanctions regulations prohibit the export of certain products, services and technologies, and in other circumstances are required to obtain an export license before exporting the controlled item. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. We maintain an export compliance program but there are risks that the compliance controls could be circumvented, exposing us to legal liabilities. Compliance with these laws has not significantly limited our sales but could significantly limit them in the future. Changes in, and responses to, U.S. trade policy could reduce the competitiveness of our products and cause our sales to drop, which could have a material adverse effect on our business, financial condition or results of operations.
In 2018, the United States Department of Commerce announced that it has commenced a review of new export controls focusing on emerging and foundational technologies. The new export controls could cover technologies used in one or more Teradyne products and therefore could impact the sales of certain Teradyne products.
The U.S. government from time to time has issued export restrictions that prohibit U.S. companies from exporting U.S. manufactured products, foreign manufactured products with more than 25% controlled U.S. content, as well as U.S. origin technology. For example, the U.S. Department of Commerce has restricted the access of U.S. origin technologies to certain Chinese companies by adding those companies to the Entity List under U.S. Export Administration Regulations (“EAR”).
On May 16, 2019, Huawei and 68 of its affiliates, including HiSilicon, were added to the U.S. Department of Commerce Entity List under the EAR. This action by the U.S. Department of Commerce imposes new export licensing requirements on exports,
re-exports,
and
in-country
transfers of all U.S. regulated products, software and technology to the designated Huawei entities. On August 17, 2020, the U.S. Department of Commerce published final regulations expanding the scope of the U.S. EAR to include additional products that would become subject to export restrictions relating to Huawei entities including HiSilicon. These new regulations restrict the sale to Huawei and the designated Huawei entities of certain
non-U.S.
made items, such as semiconductor devices, manufactured for or sold to Huawei entities including HiSilicon under specific, detailed conditions set forth in the new regulations. These new regulations have impacted our sales to Huawei, HiSilicon and their suppliers. We are taking appropriate actions, including filing license applications and obtaining licenses from the U.S. Department of Commerce. However, we do not expect these actions will mitigate the impact of the regulations on our sales to Huawei, HiSilicon and other suppliers. As a result, the regulations will continue to
 
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have an adverse impact on our business and financial results. It is uncertain the extent these new regulations and any additional regulations that may be implemented by the U.S. Department of Commerce or other government agency may have on our business with other customers or potential customers. Also, our controls related to Entity List compliance could be circumvented, exposing us to legal liabilities.
On April 28, 2020, the U.S. Department of Commerce published new export control regulations for certain U.S. products and technology sold to military end users or for military
end-use
in China, Russia and Venezuela. The definition of military end user is broad. The regulations went into effect on June 29, 2020. In December 2020, the U.S. Department of Commerce issued a list of companies in China and other countries that it considered to be military end users. We expect that compliance with the new export controls will impact our ability to sell products to certain customers in China. In addition, the new export controls could disrupt our supply chain, increase our compliance costs and impact the demand for our products in China and, thus, have a material adverse impact on our business, financial condition or results of operations. While we maintain an export compliance program, our compliance controls could be circumvented, exposing us to legal liabilities. We will continue to assess the impact of the new export controls on our business and operations and take appropriate actions, including filing for licenses with the U.S. Department of Commerce, to minimize any disruption. However, we cannot be certain that the actions we take will mitigate all the risks associated with the new export controls that may impact our business.
In response to the regulations issued by the U.S. Department of Commerce, the Chinese government has passed new laws, including blocking legislation, which may impact our business activities in China. The Company is assessing the potential impact of these new Chinese laws and monitoring relevant laws and regulations issued by the Chinese government. The impact of these new Chinese laws on our business activities in China remains uncertain at this time.
We may be subject to product recalls and warranty and product liability claims.
We invest significant resources in the design, manufacturing and testing of our products. However, from time to time, we discover design or manufacturing defects in our products after they have been shipped and, as a result, we have incurred development and remediation costs and settled warranty and product liability claims. In addition, when our products contain defects or have reliability, quality or safety issues, we have conducted a product recall which resulted in significant repair or replacement costs and substantial delays in product shipments and may damage our reputation which could make it more difficult to sell our products. We could continue to have warranty and product liability claims or product recalls in the future. Any of these results could have a material adverse effect on our business, results of operations or financial condition.
We may incur significant costs of complying with present and future environmental regulations and may incur significant liabilities if we fail to comply with such environmental regulations.
We are subject to both domestic and international environmental regulations and statutory strict liability relating to the use, storage, discharge, site cleanup and disposal of hazardous chemicals used in our manufacturing processes. In addition, future regulations in response to global climate change may affect us, our suppliers, and our customers. Such regulations could cause us to incur additional direct costs for compliance, as well as increased indirect costs resulting from our customers, suppliers, or both incurring additional compliance costs that are passed on to us. Future climate change regulations could result in decreased demand for our products. If we fail to comply with present and future regulations, or are required to perform site remediation, we could be subject to future liabilities or cost, including penalties or the suspension of production. Present and future regulations may also:
 
  •  
restrict our ability to expand facilities;
 
  •  
restrict our ability to ship certain products;
 
  •  
require us to modify our operations logistics;
 
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  •  
require us to acquire costly equipment; or
 
  •  
require us to incur other significant costs and expenses.
Pursuant to present regulations and agreements, we are conducting groundwater and subsurface assessment and monitoring and are implementing remediation and corrective action plans for facilities located in Massachusetts and New Hampshire which are no longer conducting manufacturing operations. As of December 31, 2021, we have not incurred material costs as a result of the monitoring and remediation steps taken at the Massachusetts and New Hampshire sites.
The directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the “RoHS Directive”) and the directive on Waste Electrical and Electronic Equipment (the “WEEE Directive”) altered the form and manner in which electronic equipment is imported, sold and handled in the European Union. Other jurisdictions, such as China, have followed the European Union’s lead in enacting legislation with respect to hazardous substances and waste removal. Ensuring compliance with the RoHS Directive, the WEEE Directive and similar legislation in other jurisdictions, and integrating compliance activities with our suppliers and customers could result in additional costs and disruption to operations and logistics and thus, could have a negative impact on our business, operations or financial condition.
We currently are, and in the future may be, subject to litigation or regulatory proceedings that could have an adverse effect on our business.
From time to time, we may be subject to litigation or other administrative, regulatory or governmental proceedings, including tax audits and resulting claims that could require significant management time and resources and cause us to incur expenses and, in the event of an adverse decision, pay damages or incur costs in an amount that could have a material adverse effect on our financial position or results of operations.
We may face risks associated with shareholder activism.
We may become subject to campaigns by shareholders advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or divestitures. Such activities could interfere with our ability to execute our business plans, be costly and time-consuming, disrupt our operations, divert the attention of management, or result in our initiating borrowing or increasing our share repurchase plan or dividend, any of which could have an adverse effect on our business or stock price.
Provisions of our charter and
by-laws
and Massachusetts law may make a takeover of Teradyne more difficult.
There are provisions in our basic corporate documents and under Massachusetts law that could discourage, delay or prevent a change in control, even if a change in control may be regarded as beneficial to some or all of our stockholders.
 
Item 1B:
Unresolved Staff Comments
None.
 
Item 2:
Properties
We conduct manufacturing, engineering, sales and marketing, service, corporate administration and other operations in various leased and owned facilities throughout the world. We own approximately 720,000 square feet of office space and lease over 1,500,000 square feet of office space. Our corporate headquarters is in North Reading, Massachusetts, in buildings that we own consisting of approximately 422,000 square feet. We believe our existing facilities and planned expansions noted below are adequate to meet our current and reasonably foreseeable requirements. We regularly evaluate our expected facility needs and periodically make adjustments based on these evaluations. In 2019, we purchased land in Denmark and plan to build a new building over the next two years for our Industrial Automation operations.
 
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Item 3:
Legal Proceedings
We are subject to legal proceedings, claims and investigations that arise in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. We believe that we have meritorious defenses against all pending claims and intend to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, we believe the potential losses associated with all these actions are unlikely to have a material adverse effect on our results of operations, financial condition or cash flows.
On March 8, 2021, Industrial Automation LLC submitted a demand for arbitration against Teradyne and AutoGuide in Wilmington, Delaware alleging that Teradyne and AutoGuide breached certain provisions of the Membership Interests Purchase Agreement (the “Purchase Agreement”), dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide. The arbitration demand seeks full acceleration of the maximum earnout amount payable under the Purchase Agreement, or $106.9 million, for the alleged breach of the earnout provisions of the Purchase Agreement. On March 26, 2021, Teradyne and AutoGuide filed an answer denying that Teradyne and AutoGuide breached any provision of the Purchase Agreement. The arbitration hearing is scheduled for March 21, 2022. While it is not possible to predict the outcome of the arbitration, 
a material loss is reasonably possible, but not estimable. 
Teradyne and AutoGuide intend to vigorously defend against the Industrial Automation LLC claims.
 
Item 4:
Mine Safety Disclosure
Not Applicable.
 
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PART II
 
Item 5:
Market for Registrant
’
s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the Nasdaq Global Select Market under the trading symbol “TER.” As of February 16, 2022, there were approximately 1,252 holders of record of shares of our common stock.
See “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for information on the frequency and amounts of our quarterly cash dividends, equity compensation plans and performance graph.
The following table includes information with respect to repurchases we made of our common stock during the three months ended December 31, 2021 (in thousands except per share price):
 
Period
  
(a) Total

Number of

Shares

(or Units)

Purchased
    
(b) Average

Price Paid per

Share (or Unit)
    
(c) Total Number of

Shares (or Units)

Purchased as Part of

Publicly Announced

Plans or Programs
    
(d) Maximum Number

(or Approximate Dollar

Value) of Shares (or

Units) that may Yet Be

Purchased Under the

Plans or Programs (2)
  
October 4, 2021 – October 31, 2021
     727     $ 111.94       726     $ 1,512,522  
November 1, 2021 – November 28, 2021
     435       144.51       434       1,449,823  
November 29, 2021 – December 31, 2021
     324       153.96       324       1,400,000  
   
 
 
    
 
 
    
 
 
          
      1,486 (1)    $ 130.63 (1)      1,484          
   
 
 
    
 
 
    
 
 
          
 
(1)
Includes approximately three thousand shares at an average price of $126.08 withheld from employees for the payment of taxes.
(2)
In January 2021, the Board of Directors authorized the repurchase of up to $2.0 billion of common stock. Unless terminated by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program
We satisfy U.S. federal and state minimum withholding tax obligations due upon the vesting and the conversion of restricted stock units into shares of our common stock, by automatically withholding from the shares being issued, a number of shares with an aggregate fair market value on the date of such vesting and conversion that would satisfy the minimum withholding amount due.
 
Item 6:
(Reserved)
 
Item 7:
Management
’
s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leading global supplier of automation equipment for test and industrial applications. We design, develop, manufacture and sell automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Our industrial automation products include collaborative robotic arms, autonomous mobile robots (“AMRs”) and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Our automatic test equipment and industrial automation products and services include:
 
  •  
semiconductor test (“Semiconductor Test”) systems;
 
  •  
storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);
 
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  •  
wireless test (“Wireless Test”) systems; and
 
  •  
industrial automation (“Industrial Automation”) products.
The market for our test products is concentrated with a limited number of significant customers accounting for a substantial portion of the purchases of test equipment. A few customers drive significant demand for our test products both through direct sales and sales to the customers’ supply partners. We expect that sales of our test products will continue to be concentrated with a limited number of significant customers for the foreseeable future.
In 2021, revenue in our test businesses exceeded our plan as a result of increased Semiconductor Test demand and broad-based growth in our Wireless Test and Storage Test businesses. In 2022, we expect lower demand in our Semiconductor Test business due to a slower technology transition in one of our largest
end-markets.
We expect this demand to accelerate in 2023 as a result of the expected ramp in 3 nanometer volume production.
Our Industrial Automation segment consists of Universal Robots A/S (“UR”), a leading supplier of collaborative robotic arms, Mobile Industrial Robots A/S (“MiR”), a leading maker of AMRs for industrial automation and AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs. The market for our Industrial Automation segment products is dependent on the adoption of new automation technologies by large manufacturers as well as small and medium enterprises (SMEs) throughout the world.
In 2021, our Industrial Automation segment returned to growth following the global industrial downturn as well as the impact of the
COVID-19
pandemic in 2020. We expect our UR and MiR businesses to continue to grow in 2022, while our AutoGuide business will focus on continuing to invest to scale and integrate high payload AMR solutions.
Our corporate strategy continues to focus on profitably gaining market share in our test businesses through the introduction of differentiated products that target expanding segments and accelerating growth through continued investment in our Industrial Automation businesses. We plan to execute on our strategy while balancing capital allocations between returning capital to our shareholders through stock repurchases and dividends and using capital for opportunistic acquisitions.
Impact of the
COVID-19
Pandemic on our Business
The novel coronavirus
(COVID-19)
pandemic resulted in government authorities implementing numerous measures in an effort to contain the spread of the virus, such as travel bans and restrictions, limitations on gatherings or social distancing requirements, quarantines,
shelter-in-place
orders, vaccination and testing mandates, and business limitations and shutdowns. These measures have impacted our
day-to-day
operations and disrupted our business, workforce and operations, as well as the operations of our customers, contract manufacturers and suppliers. We are continuing to monitor the rapidly evolving situation regarding the
COVID-19
pandemic and the availability and impact of vaccinations globally. However, we are unable to accurately predict the full impact of
COVID-19,
which will depend on future developments that are highly uncertain and cannot be predicted with accuracy, including, but not limited to, any new surges or new strains or variants of the virus in areas where we do business, the availability and use of vaccinations, any further government actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
Health and Safety
In response to the
COVID-19
pandemic, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, contract manufacturers and suppliers and we have complied with all government orders around the globe. The spread of
COVID-19
has caused us to modify our business practices,
 
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including implementing social distancing protocols, suspending employee travel, requiring most employees to work remotely, cancelling physical participation in meetings, and extensively and frequently disinfecting our workspaces. Around the world, the majority of our employees are working from home. However, some of our engineering, operations, supply line and customer support teams must be
on-site
at our or our customers’ facilities. We are providing those
on-site
employees with the necessary protective resources and procedures to minimize their exposure risk. We may take further actions as may be required or recommended by government authorities or that we determine are in the best interests of our employees, customers, contract manufacturers and suppliers.
Operations
We believe the
COVID-19
pandemic, and the numerous measures implemented by authorities in response, has adversely impacted our results of operations, including by increasing costs and, in 2020, decreasing demand in our Industrial Automation businesses, but we cannot accurately estimate the amount of the impact to our 2021 and 2020 financial results or to our future financial results. In addition, the pandemic has disrupted our contract manufacturers and suppliers, and has resulted in some instances in short-term cost increases to meet customer demand. While the duration and severity of the pandemic may further impact our workforce and operations, as well as those of our customers, contract manufacturers and suppliers, we expect that our manufacturing facilities will remain operational, at sufficient capacity to support production demand. We are monitoring our operations closely in an effort to avoid any potential productivity loss caused by responses to the
COVID-19
pandemic.
Supply
We have experienced interruptions to our supply chain as a result of the
COVID-19
pandemic. Our suppliers have faced and may continue to face difficulties maintaining operations in light of
COVID-19
disruptions and government-ordered restrictions. Our supply chain team, and our suppliers, continue to manage numerous supply, production, and logistics obstacles caused by the pandemic. There is no assurance that these efforts will be successful. The
COVID-19
pandemic may continue to disrupt our ability to obtain components required to manufacture our products, adversely affecting our operations and in some instances resulting in higher costs and delays, both for obtaining components and shipping finished goods to customers.
Demand
The
COVID-19
pandemic has significantly increased economic uncertainty in our markets. Demand for our Test products was strong throughout 2020 and 2021. Our Industrial Automation business, however, experienced a significant decline in demand through the first half of 2020 due to
COVID-19
related shutdowns affecting global manufacturing but demand recovered in the second half of 2020 from the low point in the second quarter and continued to recover in 2021. The
COVID-19
pandemic could cause further global economic disruption that could cause demand for our products to decline, which would adversely affect our business.
Liquidity
Although there is continued uncertainty related to the impact of the
COVID-19
pandemic on our future results, we believe our business model and our current cash reserves leave us well-positioned to manage our business through this crisis. We have a strong balance sheet as well as an operating model that we believe is capable of flexing up and down with extreme demand swings while still remaining profitable. Based on our analysis, we believe our existing balances of cash and cash equivalents and our currently anticipated operating cash flows will be sufficient to meet our working capital needs and other capital and liquidity requirements for the next twelve months. However, due to the uncertainty related to the future impact of the
COVID-19
pandemic, in order to bolster our liquidity position, on May 1, 2020 we entered into a credit agreement providing for a three-year, senior secured revolving credit facility of $400 million. On December 10, 2021, we amended the credit agreement to extend its maturity to December 10, 2026 as further described in Note J: “Debt.” As of February 23, 2022, we have not borrowed any funds under the credit facility.
 
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We are continuing to monitor the evolving situation regarding the
COVID-19
pandemic, the availability of vaccinations where we do business and guidance from government authorities around the world. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As a result, given the uncertain nature of this situation, we are not able to accurately predict the full extent of the impact of
COVID-19
on our business, financial condition, results of operations, liquidity, or cash flows in the future. In addition, see Part II—Item 1A, “Risk Factors,” included herein for updates to our risk factors regarding risks associated with the
COVID-19
pandemic.
Critical Accounting Policies and Estimates
We have identified the policies and estimates discussed below as critical to understanding our business and our results of operations and financial condition. The impact and any associated risks related to these estimates on our business operations is discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations where such policies affect our reported and expected financial results. For a full description of our accounting policies related to the below items refer to Note B. Accounting Policies, included in the Notes to Consolidated Financial Statements in this Annual Report.
Due to
the COVID-19
pandemic, there has been uncertainty and disruption in the global economy and our markets. We are not aware of any specific event or circumstance that would require an update to our estimates or judgments or a revision of the carrying value of our assets or liabilities as of the date of issuance of this Annual Report on
Form 10-K.
Critical accounting estimates are complex and may require significant judgment by management. Changes to the underlying assumptions may have a material impact on our financial condition and results of operations. These estimates may change, as new events occur, and additional information is obtained. Actual results could differ significantly from these estimates under different assumptions or conditions.
Revenue Recognition
In accordance with ASC 606, “
Revenue from Contracts with Customers” (“ASC 606”)
, we recognize revenues, when or as control is transferred to a customer. Our determination of revenue requires judgment in the determination of performance obligations and allocation of the transaction price to performance obligations. We often sell bundled orders that include both product and services or multiple different products within the same order. We evaluate each of the deliverables to determine if it meets the definition of a performance obligation, which requires that it is capable of being distinct and distinct within the context of the contract. This determination is based on an assessment of contractual rights of the contract and the ability of the performance obligation to perform on its own or with readily available resources. In bundled transactions we estimate the standalone selling price of each identified performance obligation and use that estimate to allocate the transaction price among said performance obligations. The estimated standalone selling price is determined using all information reasonably available to us, including standalone transactions, market information and other observable inputs.
Inventories
Inventories are stated at the lower of cost using a standard costing system which approximates cost based on a
first-in,
first-out
basis or net realizable value. On a quarterly basis, we evaluate all inventories for net realizable value. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed within the forecasted demand window, is written down to estimated net realizable value. Forecasted demand information is obtained from the sales and marketing groups and incorporates factors such as backlog and future consolidated revenues. The demand forecast is based on assumptions around the product life and customer and market forecasts.
 
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Retirement and Postretirement Plans
We recognize net actuarial gains and losses and the change in the fair value of the plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans. Discount rate and expected return on assets are two assumptions which are important elements of pension plan expense and asset/liability measurement. We evaluate our discount rate and expected rate of return on assets assumptions annually on a plan and country specific basis. We evaluate other assumptions related to demographic factors, such as retirement age, mortality and turnover periodically, and update them to reflect our experience and expectations for the future.
In developing the expected return on U.S. Plan assets assumption, we evaluated input from our investment manager and pension consultants, including their forecast of asset class return expectations. We believe that 2.4% was an appropriate rate of return on assets to use for 2021. The December 31, 2021 asset allocation for our U.S. Plan was 94% invested in fixed income securities, 5% invested in equity securities, and 1% invested in other securities. Our investment manager regularly reviews the actual asset allocation and periodically rebalances the portfolio to ensure alignment with our target allocations.
The discount rate that we utilized for determining future pension obligations for the U.S. Plan is based on the FTSE Pension Index adjusted for the U.S. Plan’s expected cash flows and was 2.65% at December 31, 2021, up from 2.3% at December 31, 2020. We estimate that in 2022 we will recognize approximately $1.8 million of pension expense for the U.S. Plan. The U.S. Plan pension expense estimate for 2022 is based on a 2.65% discount rate and a 2.0% return on assets. Future pension expense or income will depend on future investment performance, changes in future discount rates and various other factors related to the employee population participating in our pension plans.
Goodwill, Intangible and Long-Lived Assets
We assess goodwill for impairment at least annually in the fourth quarter, as of December 31, on a reporting unit basis, or more frequently, when events and circumstances occur indicating that the recorded goodwill may be impaired. We review intangible and long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Goodwill impairment will be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. Impairment of intangible and long-lived assets would result in the asset being written down to its estimated fair value. The calculated fair value of a reporting unit or intangible or long-lived asset is dependent upon discounted cash flow (“DCF”) models, discount rates, and market multiples. DCF models rely on our forecasted
mid-term
plans which are subjective based on customer or market conditions and can change materially. We utilize third party specialists when determining discount rates and selected market multiples. A change in any of these key assumptions could result in a reporting unit, intangible asset, or long-lived asset being impaired in a future period.
Convertible Debt
Our convertible debt is subject to conversion, under certain circumstances, upon notification from our Note Holders. At the time of conversion, we recognize a gain or loss equal to the difference between the calculated fair value of the debt immediately prior to its conversion and the carrying amount of the debt component, including any unamortized debt discount or issuance costs. The key estimate in determining the calculated fair value is the borrowing rate which requires judgment using market data for
non-convertible
debt instruments with similar tenor to the remaining life of our debt.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the
 
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differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Evaluating the positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740, “
Accounting for Income Taxes
” is a key judgment in the valuation of income taxes. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and
tax-planning
strategies. Although realization is not assured, based on our assessment, we concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized.
Results of Operations
Information pertaining to fiscal year 2019 results of operations, including a
year-to-year
comparison against fiscal year 2020, was included in our Annual Report on Form
10-K
for the year ended December 31, 2020 under Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” which was filed with the SEC on February 22, 2021. This information is incorporated by reference herein.
The following table sets forth the percentage of total net revenues included in our consolidated statements of operations:
 
    
Years Ended December 31,
  
    
      2021      
    
      2020      
  
Percentage of revenues:
     
Revenues:
     
Products
      86.3 %      86.2 % 
Services
      13.7       13.8  
  
 
 
    
 
 
  
Total revenues
      100.0       100.0  
Cost of revenues:
     
Cost of products
      35.1       37.1  
Cost of services
      5.3       5.7  
  
 
 
    
 
 
  
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
      40.4       42.8  
  
 
 
    
 
 
  
Gross profit
      59.6       57.2  
Operating expenses:
     
Selling and administrative
      14.8       14.9  
Engineering and development
      11.5       12.0  
Acquired intangible assets amortization
      0.6       1.0  
Restructuring and other
      0.3       (0.4 ) 
  
 
 
    
 
 
  
Total operating expenses
      27.2       27.5  
  
 
 
    
 
 
  
Income from operations
      32.4       29.7  
Non-operating
(income) expenses:
     
Interest income
      (0.1 )      (0.2 ) 
Interest expense
      0.5       0.8  
Other (income) expense, net
      0.7       0.3  
  
 
 
    
 
 
  
Income before income taxes
      31.4       28.9  
Income tax provision
      4.0       3.7  
  
 
 
    
 
 
  
Net income
      27.4 %      25.1 % 
  
 
 
    
 
 
  
 
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Revenues
Revenues for our reportable segments were as follows:
 
    
2021
     
2020
    
2020-2021

Dollar

Change
  
    
(in millions)
  
Semiconductor Test
    $ 2,642.3      $ 2,259.6     $ 382.7  
System Test
      467.7        409.7       58.0  
Industrial Automation
      375.9        279.7       96.2  
Wireless Test
      216.9        173.0       43.9  
Corporate and Other
      —          (0.6 )      0.6  
  
 
 
     
 
 
    
 
 
  
   $ 3,702.9      $ 3,121.5     $ 581.4  
  
 
 
     
 
 
    
 
 
  
The increase in Semiconductor Test revenues of $382.7 million, or 16.9%, was primarily due to greater tester sales driven by testing high performance compute processors and industrial and automotive devices, partially offset by lower tester sales for mobile application processors. The rise in System Test revenues of $58.0 million, or 14.2%, was driven primarily by elevated sales in Storage Test for system level test demand, and greater sales in Production Board Test. The increase in Industrial Automation revenues of $96.2 million, or 34.4%, was driven by demand for collaborative robotic arms and collaborative autonomous mobile robots. The rise in Wireless Test revenues of $43.9 million, or 25.4%, was primarily due to an increase in WiFi tester sales and higher demand in ultra-wide band wireless test.
Our reportable segments accounted for the following percentages of consolidated revenues:
 
    
2021
    
2020
  
Semiconductor Test
      71 %      72 % 
System Test
      13       13  
Industrial Automation
      10       9  
Wireless Test
      6       6  
  
 
 
    
 
 
  
     100 %      100 % 
  
 
 
    
 
 
  
Revenues by country as a percentage of total revenues were as follows (1):
 
    
2021
    
2020
  
Taiwan
      30 %      38 % 
China
      17       15  
Korea
      14       13  
United States
      11       10  
Europe
      7       7  
Philippines
      5       2  
Japan
      4       5  
Thailand
      4       4  
Malaysia
      4       2  
Singapore
      3       2  
Rest of the World
      1       2  
  
 
 
    
 
 
  
     100 %      100 % 
  
 
 
    
 
 
  
 
(1)
Revenues attributable to a country are based on the location of the customer site.
 
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The breakout of product and service revenues was as follows:
 
    
2021
     
2020
     
2020-2021

Dollar

Change
  
    
(in millions)
  
Product revenues
    $ 3,196.6      $ 2,690.9      $ 505.7  
Service revenues
      506.3        430.6        75.7  
  
 
 
     
 
 
     
 
 
  
   $ 3,702.9      $ 3,121.5      $ 581.4  
  
 
 
     
 
 
     
 
 
  
Our product revenues increased $505.7 million, or 18.8%, primarily due to greater tester sales in Semiconductor Test driven by testing high performance compute processors and industrial and automotive devices, partially offset by lower tester sales for mobile application processors, the rise in System Test revenues primarily due to elevated sales in Storage Test for system level test demand, and greater sales in Production Board Test, increase in Industrial Automation revenues driven by demand for collaborative robotic arms and collaborative autonomous mobile robots, the rise in Wireless Test revenues due to an increase in WiFi tester sales and higher demand in ultra-wide band wireless test.
In 2021 and 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of our Semiconductor Test segment, accounted for 12% and 15%, respectively, of our consolidated revenues. In 2021 and 2020, our five largest direct customers in aggregate accounted for 33% and 36% of our consolidated revenues, respectively.
We estimate consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately 19% and 25% of our consolidated revenues in 2021 and 2020, respectively.
Gross Profit
 
    
2021
    
2020
    
2020-2021

Dollar /

Point

Change
  
    
(in millions)
  
Gross profit
    $ 2,206.7     $ 1,785.7     $ 421.0  
Percent of total revenues
      59.6 %      57.2 %      2.4  
Gross profit as a percent of total revenues increased by 2.4 points, primarily due to product mix of higher margin products in Semiconductor Test, increase in service margins and operating leverage due to higher revenues.
The breakout of product and service gross profit was as follows:
 
    
2021
    
2020
    
2020-2021

Dollar /

Point

Change
  
    
(in millions)
  
Product gross profit
    $ 1,896.5     $ 1,533.4     $ 363.1  
Percent of product revenues
      59.3 %      57.0 %      2.3  
Service gross profit
    $ 310.2     $ 252.3     $ 57.9  
Percent of service revenues
      61.3 %      58.6 %      2.7  
 
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We assess the carrying value of our inventory on a quarterly basis by estimating future demand and comparing that demand against
on-hand
and
on-order
inventory positions. Forecasted revenues information is obtained from the sales and marketing groups and incorporates factors such as backlog and future consolidated revenues. This quarterly process identifies obsolete and excess inventory. Obsolete inventory, which represents items for which there is no demand, is fully reserved. Excess inventory, which represents inventory items that are not expected to be consumed within the forecasted demand window, is written down to estimated net realizable value.
During the year ended December 31, 2021, we recorded an inventory provision of $15.5 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $15.5 million of total excess and obsolete provisions, $6.7 million was related to Semiconductor Test, $6.4 million was related to Industrial Automation, $1.8 million was related to Wireless Test, and $0.6 million was related to System Test.
During the year ended December 31, 2020, we recorded an inventory provision of $17.5 million included in cost of revenues, primarily due to downward revisions to previously forecasted demand levels for certain products. Of the $17.5 million of total excess and obsolete provisions, $11.0 million was related to Semiconductor Test, $4.8 million was related to Wireless Test, $0.9 million was related to System Test, and $0.8 million was related to Industrial Automation.
During the years ended December 31, 2021 and 2020, we scrapped $10.9 million and $7.7 million of inventory, respectively, and sold $2.5 million and $2.3 million of previously written-down or
written-off
inventory, respectively. As of December 31, 2021, we had inventory related reserves for amounts which had been written-down or
written-off
totaling $114.1 million. We have no
pre-determined
timeline to scrap the remaining inventory.
Selling and Administrative
Selling and administrative expenses were as follows:
 
    
2021
    
2020
    
2020-2021

Change
  
    
(in millions)
  
Selling and administrative
    $ 547.6     $ 464.8     $ 82.8  
Percent of total revenues
      14.8 %      14.9 %   
The increase of $82.8 million in selling and administrative expenses was primarily due to higher variable compensation and greater selling and administrative spending across all segments.
Engineering and Development
Engineering and development expenses were as follows:
 
    
2021
    
2020
    
2020-2021

Change
  
    
(in millions)
  
Engineering and development
    $ 427.6     $ 375.0     $ 52.6  
Percent of total revenues
      11.5 %      12.0 %   
The increase of $52.6 million in engineering and development expenses was primarily due to higher spending in Semiconductor Test, System Test and Industrial Automation segments and higher variable compensation.
 
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Restructuring and Other
During the year ended December 31, 2021, we recorded $1.5 million of severance charges primarily in Industrial Automation, $0.5 million of acquisition related compensation and expenses and $14.5 million for other expenses, offset by a $7.2 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability.
During the year ended December 31, 2020, we recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses.
Interest and Other
 
    
2021
    
2020
    
2020-2021

Change
  
    
(in millions)
  
Interest income
    $ (2.6 )    $ (6.0 )    $ 3.4  
Interest expense
      17.8       24.2       (6.4 ) 
Other (income) expense, net
      24.6       9.2       15.4  
Interest income decreased by $3.4 million primarily due to lower interest rates and a lower marketable securities balance in 2021 compared to 2020. Interest expense decreased by $6.4 million primarily due to lower convertible debt interest expense due to early conversions in 2021. Other (income) expense, net increased by $15.4 million primarily due to $28.8 million of losses on convertible debt conversions in 2021, partially offset by the change in pension actuarial gains/losses, from a $10.3 million loss in 2020 to a $2.2 million gain in 2021.
Income (Loss) Before Income Taxes
 
    
2021
    
2020
    
2020-2021

Change
  
    
(in millions)
  
Semiconductor Test
    $ 977.0     $ 739.7     $ 237.3  
System Test
      163.1       152.1       11.0  
Wireless Test
      83.5       42.0       41.5  
Industrial Automation
      (8.2 )      (24.0 )      15.8  
Corporate and Other (1)
      (54.5 )      (8.7 )      (45.8 ) 
  
 
 
    
 
 
    
 
 
  
   $ 1,161.0     $ 901.0     $ 260.0  
  
 
 
    
 
 
    
 
 
  
 
(1)
Included in Corporate and Other are loss on convertible debt conversions, contingent consideration adjustments, interest income, interest expense, net foreign exchange gains (losses), pension and postretirement plan actuarial gains (losses), intercompany eliminations, and acquisition related charges, legal fees and compensation.
The increase in income before income taxes in Semiconductor Test was primarily due to greater tester sales driven by testing high performance compute processors and industrial and automotive devices, partially offset by lower tester sales for mobile application processors. The decrease in loss before income taxes in Industrial Automation was primarily due to demand for collaborative robotic arms and collaborative autonomous mobile robots and lower intangible assets amortization expense. The increase in income before income taxes in System Test was driven primarily by elevated sales in Storage Test for system level test demand, and greater sales in
 
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Production Board Test. The increase in income before income taxes in Wireless Test was primarily due to an increase in WiFi tester sales and higher demand in ultra-wide band wireless test. The loss before income taxes in Corporate and Other was primarily due to losses on convertible debt conversions in 2021.
Income Taxes
Income tax expense for 2021and 2020, totaled $146.4 million and $116.9 million, respectively. The effective tax rate for 2021 and 2020 was 12.6% and 13.0%, respectively.
The decrease in the effective tax rate from 2020 to 2021 is primarily attributable to a decrease in the expense from U.S. global
low-taxed
income partially offset by a decrease in the benefit from foreign tax credits and a shift in the geographic distribution of income, which increased the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions.
We qualify for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2021and 2020 were $33.3 million or $0.18 per diluted share and $29.9 million or $0.16 per diluted share, respectively. In November 2020, we entered into an agreement with the Singapore Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025.
Capital Resources and Material Cash Requirements
Our cash, cash equivalents and marketable securities balance decreased by $54 million in 2021 to $1,500 million. Cash decreased due to stock repurchases in the amount of $600 million, payments of convertible debt principal in the amount of $343 million, quarterly cash dividend payments in the amount of $66 million offset by cash generated by our global operations.
Operating activities during 2021 provided cash of $1,098.4 million. Changes in operating assets and liabilities used cash of $98.8 million. This was due to a $227.1 million increase in operating assets and a $128.4 million increase in operating liabilities.
The increase in operating assets was due to a $175.8 million increase in prepayments and other assets due to prepayments to our contract manufacturers, a $57.8 million increase in accounts receivable due to greater sales, partially offset by a $6.5 million decrease in inventories.
The increase in operating liabilities was due to a $63.5 million increase in other accrued liabilities, a $35.1 million increase in accrued employee compensation, a $22.9 million increase in accounts payable, and a $9.9 million increase in deferred revenue and customer advance payments, partially offset by a $5.6 million decrease in income taxes, and $5.4 million of retirement plan contributions.
Investing activities during 2021 provided cash of $120.4 million, due to $660.1 million and $266.5 million in proceeds from maturities and sales of marketable securities, respectively, partially offset by $661.8 million used for purchases of marketable securities, $132.5 million used for purchases of property, plant and equipment, and $12.0 million used for an investment in MachineMetrics, Inc. (“MachineMetrics”).
Financing activities during 2021 used cash of $1,008.6 million, due to $600.0 million used for the repurchase of 4.8 million shares of common stock at an average price of $125.74 per share, $343.0 million used for the payments of convertible debt principal, $66.0 million used for dividend payments, and $32.3 million used for payments related to net settlement of employee stock compensation awards, partially offset by $32.7 million from the issuance of common stock under employee stock purchase and stock option plans.
 
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Operating activities during 2020 provided cash of $868.9 million. Changes in operating assets and liabilities used cash of $69.4 million. This was due to a $202.3 million increase in operating assets and a $132.9 million increase in operating liabilities.
The increase in operating assets was due to a $129.5 million increase in accounts receivable due to increased sales, an $8.4 million increase in inventories, and a $64.4 million increase in prepayments and other assets.
The increase in operating liabilities was due to a $54.7 million increase in accrued employee compensation, a $40.0 million increase in deferred revenue and customer advance payments, a $25.2 million increase in income taxes, a $12.8 million increase in other accrued liabilities, and a $5.7 million increase in accounts payable, partially offset by $5.4 million of retirement plan contributions.
Investing activities during 2020 used cash of $569.8 million, due to $900.2 million used for purchases of marketable securities, and $185.0 million used for purchases of property, plant and equipment, partially offset by $480.0 million and $35.0 million in proceeds from maturities and sales of marketable securities, respectively, and proceeds from life insurance of $0.5 million related to the cash surrender value from the cancellation of Teradyne owned life insurance policy.
Financing activities during 2020 used cash of $158.3 million, due to $88.5 million used for the repurchase of 1.5 million shares of common stock at an average price of $58.33 per share, $66.5 million used for dividend payments, $23.0 million used for payments related to net settlement of employee stock compensation awards, and $8.9 million used for payment related to MiR acquisition contingent consideration, partially offset by $28.5 million from the issuance of common stock under employee stock purchase and stock option plans.
In January 2021, May 2021, August 2021 and November 2021, our Board of Directors declared a quarterly cash dividend of $0.10 per share. Total dividend payments in 2021 were $66.0 million.
In January 2020, May 2020, August 2020 and November 2020, our Board of Directors declared a quarterly cash dividend of $0.10 per share. Total dividend payments in 2020 were $66.5 million.
In January 2020, our Board of Directors cancelled the January 2018 stock repurchase program and approved a new stock repurchase program for up to $1.0 billion in common stock. On April 1, 2020, we suspended the share repurchase program. In 2020, we repurchased 1.5 million shares of common stock for $88.5 million at an average price per share of $58.33.
In January 2021, our Board of Directors approved a new repurchase program for up to $2.0 billion of common stock. Unless terminated by resolution of our Board of Directors, the repurchase program will expire when we have repurchased all shares authorized for repurchase under the share repurchase program. In 2021, we repurchased 4.8 million shares of common stock for $600.0 million at an average price of $125.74 per share. We intend to repurchase a minimum of $750.0 million in 2022.
While we declared a quarterly cash dividend and authorized a share repurchase program, we may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of our Board of Directors, which will consider, among other things, our earnings, capital requirements and financial condition.
On May 1, 2020, we entered into a credit agreement providing a three-year, senior secured revolving credit facility of $400 million. On December 10, 2021, the credit agreement was amended to extend the senior secured revolving credit facility to December 10, 2026. As of February 23, 2022, we have not borrowed any funds under the credit facility.
We expect operations to continue to be the primary source of cash to operate the business and meet material cash commitments, including any payments of convertible debt principal, our stock repurchase program, our
 
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quarterly dividends, our office lease obligations, contractual obligations related to inventory purchases and the construction of new facilities. We believe our cash, cash equivalents and marketable securities balance will be sufficient to pay our quarterly dividend and meet our working capital and expenditure needs for at least the next twelve months. Inflation has not had a significant long-term impact on earnings. At this time, the
COVID-19
pandemic has not had an impact on our liquidity, but there is no assurance that continued impacts resulting from the pandemic will not have an adverse effect in the future.
At December 31, 2021, our future contractual obligations were related to debt, leases, retirement plan liabilities, deferred tax benefits, and purchase obligations. See Note J. “Debt”, Note I. “Leases”, Note P. “Retirement Plans”, and Note S. “Income Taxes” of Notes to Consolidated Financial Statements in this Annual Report for information about those obligations, which Notes are incorporated by reference into this section. Our purchase obligations were approximately $884.3 million, with $839.2 million expected to be paid within 12 months.
Retirement Plans
ASC
715-20,
“
Compensation—Retirement Benefits—Defined Benefit Plans,
” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC
715-20.
The pension asset or liability represents the difference between the fair value of the pension plans’ assets and the projected benefit obligation as of December 31. For other postretirement benefit plans, the liability is the difference between the fair value of the plan’s assets and the accumulated postretirement benefit obligation as of December 31.
For the year ended December 31, 2021, our pension expense, which includes the U.S. Qualified Pension Plan (“U.S. Plan”), certain qualified plans for
non-U.S.
subsidiaries, and a U.S. Supplemental Executive Defined Benefit Plan, was approximately $1.8 million. Pension expense is calculated based upon a number of actuarial assumptions. Discount rate and expected return on assets are two assumptions which are important elements of pension plan expense and asset/liability measurement. We evaluate our discount rate and expected rate of return on assets assumptions annually on a plan and country specific basis. We evaluate other assumptions related to demographic factors, such as retirement age, mortality and turnover periodically, and update them to reflect our experience and expectations for the future.
In developing the expected return on U.S. Plan assets assumption, we evaluated input from our investment manager and pension consultants, including their forecast of asset class return expectations. We believe that 2.4% was an appropriate rate of return on assets to use for 2021. The December 31, 2021 asset allocation for our U.S. Plan was 94% invested in fixed income securities, 5% invested in equity securities, and 1% invested in other securities. Our investment manager regularly reviews the actual asset allocation and periodically rebalances the portfolio to ensure alignment with our target allocations.
We recognize net actuarial gains and losses and the change in the fair value of plan assets in our operating results in the year in which they occur or upon any interim remeasurement of the plans. We calculate the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.
The discount rate that we utilized for determining future pension obligations for the U.S. Plan is based on the FTSE Pension Index adjusted for the U.S. Plan’s expected cash flows and was 2.65% at December 31, 2021, up from 2.3% at December 31, 2020. We estimate that in 2022 we will recognize approximately $1.8 million of pension expense for the U.S. Plan. The U.S. Plan pension expense estimate for 2022 is based on a 2.65% discount rate and a 2.0% return on assets. Future pension expense or income will depend on future investment performance, changes in future discount rates and various other factors related to the employee population participating in our pension plans.
 
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As of December 31, 2021, our pension plans had no unrecognized pension prior service cost.
The assets of the U.S. Plan consist substantially of fixed income securities. U.S. Plan assets have decreased from $158.9 million at December 31, 2020 to $149.6 million at December 31, 2021, while the U.S. Plan’s liability decreased from $141.4 million at December 31, 2020 to $134.5 million at December 31, 2021. In 2021, the decrease in plan assets and plan liability was due to an increase in interest rates. In 2020, the accrued pension obligations for approximately 115 retiree participants were transferred to an insurance company and resulted in a $24.4 million reduction in the pension benefit obligation and pension assets. We recorded $2.2 million of pension actuarial loss and a settlement loss of $0.5 million related to the retiree group annuity transaction.
Our funding policy is to make contributions to our pension plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2021, we made contributions of $3.3 million to the U.S. supplemental executive defined benefit pension plan, and $1.0 million to certain qualified plans for
non-U.S.
subsidiaries. In 2022, we expect to contribute approximately $3.3 million to the U.S. supplemental executive defined benefit pension plan. Contributions to be made in 2022 to certain qualified plans for
non-U.S.
subsidiaries are based on local statutory requirements and are estimated at approximately $1.0 million.
Equity Compensation Plans
In addition to our 1996 Employee Stock Purchase Plan discussed in Note Q: “Stock-Based Compensation” in Notes to Consolidated Financial Statements, we have a 2006 Equity and Cash Compensation Incentive Plan (the “2006 Equity Plan”) under which equity securities are authorized for issuance. The 2006 Equity Plan was initially approved by stockholders on May 25, 2006.
At our annual meeting of stockholders held May 21, 2013, our stockholders approved an amendment to the 2006 Equity Plan to increase the number of shares issuable thereunder by 10.0 million, for an aggregate of 32.0 million shares issuable thereunder, and our stockholders also approved an amendment to our 1996 Employee Stock Purchase Plan to increase the number of shares issuable thereunder by 5.0 million, for an aggregate of 30.4 million shares issuable thereunder. At our annual meeting of stockholders held May 12, 2015, our stockholders approved an amendment to the 2006 Equity Plan to extend its term until May 12, 2025. At our annual meeting of stockholders held May 7, 2021, our stockholders approved an amendment to our 1996 Employee Stock Purchase Plan to increase the number of shares issuable thereunder by 3.0 million, for an aggregate of 33.4 million shares issuable thereunder.
The following table presents information about these plans as of December 31, 2021 (share numbers in thousands):
 
Plan category
   
Number of securities

to be issued upon

exercise of

outstanding options,

warrants and rights
    
Weighted-average

exercise price of

outstanding options,

warrants and rights
     
Number of securities remaining

available for future issuance

under equity compensation

plans (excluding securities

reflected in column one)
  
Equity plans approved by shareholders
      1,588 (1)    $ 62.13        9,878 (2) 
 
(1)
Includes 1,417,251 shares of restricted stock units that are not included in the calculation of the weighted average exercise price.
(2)
Consists of 5,711,709 securities available for issuance under the 2006 Equity Plan and 4,166,494 of securities available for issuance under the Employee Stock Purchase Plan.
The purpose of the 2006 Equity Plan is to motivate employees, officers and directors by providing equity ownership and compensation opportunities in Teradyne. The aggregate number of shares available under the 2006 Equity Plan as of December 31, 2021 was 5,711,709 shares of our common stock. The 2006 Equity Plan authorizes the grant of stock-based awards in the form of
(1) non-qualified
and incentive stock options, (2) stock
 
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appreciation rights, (3) restricted stock awards and restricted stock unit awards, (4) phantom stock, and (5) other stock-based awards. Awards may be tied to time-based vesting schedules and/or performance-based vesting measured by reference to performance criteria chosen by the Compensation Committee of the Board of Directors, which administers the 2006 Equity Plan. Awards may be made to any employee, officer, consultant and advisor of Teradyne and our subsidiaries, as well as, to our directors. The maximum number of shares of stock-based awards that may be granted to one participant during any one fiscal year is 2,000,000 shares of common stock.
As of December 31, 2021, total unrecognized compensation expense related to
non-vested
restricted stock units and options was $50.6 million and is expected to be recognized over a weighted average period of 2.4 years.
Performance Graph
The following graph compares the change in our cumulative total shareholder return in our common stock with (i) the Standard & Poor’s 500 Index and (ii) the Morningstar Global Semiconductor Equipment & Materials GR USD Industry Group. The comparison assumes $100.00 was invested on December 31, 2016 in our common stock and in each of the foregoing indices and assumes reinvestment of dividends, if any. Historic stock price performance is not necessarily indicative of future price performance.
 

Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU
2020-06
– “Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,” which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. This ASU requires an entity to use the
if-converted
method in the diluted earnings per share calculation for convertible instruments. This ASU permits the use of either the modified retrospective or fully retrospective method of transition.
 
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On November 4, 2021, we made an irrevocable election under the indenture to require the principal portion of the remaining Notes to be settled in cash. Upon adoption of ASU
2020-06
only the amounts settled in excess of the principal will be considered in diluted earnings per share under the
if-converted
method. We have adopted the standard effective January 1, 2022 using the modified retrospective method of transition. As a result of adoption, we expect to record an entry to increase current debt, debt, and retained earnings by $1.5 million, $6.5 million, and $92.8 million, respectively. Mezzanine equity and additional
paid-in
capital are expected to be reduced by $100.8 million combined. The adoption of ASU
2020-06
will have an immaterial impact on our results of operations, statement of cash flows, and earnings per share (“EPS”).
 
Item 7A:
Quantitative and Qualitative Disclosures about Market Risks
Concentration of Credit Risk
Financial instruments which potentially subject us to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Our cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Our fixed income
available-for-sale
marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. We place forward currency contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. We perform ongoing credit evaluations of our customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable. There were no customers who accounted for more than 10% of our accounts receivable balance as of December 31, 2021. As of December 31, 2020, JA Mitsui Leasing, Ltd. accounted for 25% of our accounts receivable balance. The balance was paid in full as of February 22, 2021.
In addition to market risks described in our Annual Report on Form
10-K,
we have an equity price risk related to the fair value of our convertible senior unsecured notes issued in December 2016. In December 2016, Teradyne issued $460 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023. As of December 31, 2021, $117.0 million of principal remained outstanding and the Notes had a fair value of $604.6 million. The table below provides a sensitivity analysis of hypothetical 10% changes of Teradyne’s stock price as of the end of the last quarter of 2021 and the estimated impact on the fair value of the Notes. The selected scenarios are not predictions of future events, but rather are intended to illustrate the effect such event may have on the fair value of the Notes. The fair value of the Notes is subject to equity price risk due to the convertible feature. The fair value of the Notes will generally increase as Teradyne’s common stock price increases and will generally decrease as the common stock price declines in value. The change in stock price affects the fair value of the Notes, but does not impact Teradyne’s financial position, cash flows or results of operations due to the fixed nature of the debt obligation. Additionally, we carry the Notes at face value less unamortized discount on our balance sheet, and we present the fair value for required disclosure purposes only. In connection with the offering of the Notes we also sold warrants to the option counterparties. These transactions have been accounted for as an adjustment to our shareholders’ equity. The convertible note hedge transactions are expected to reduce the potential equity dilution upon conversion of the Notes. The warrants along with any shares issuable upon conversion of the Notes will have a dilutive effect on our earnings per share to the extent that the average market price of our common stock for a given reporting period exceeds the applicable strike price or conversion price of the warrants or Notes, respectively.
 
Hypothetical Change in Teradyne Stock Price
   
Fair Value
     
Estimated
change in fair
value
    
Hypothetical percentage
increase (decrease) in
fair value
  
10% Increase
    $ 667,534      $ 62,886       10.4 % 
No Change
      604,648        —         —    
10% Decrease
      546,172        (58,476 )      (9.7 ) 
See Note J: “Debt” for further information.
 
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Exchange Rate Risk Management
We regularly enter into foreign currency forward contracts to hedge the value of our monetary assets and liabilities in Japanese Yen, British Pound, Korean Won, Taiwan Dollar, Singapore Dollar, Euro, Philippine Peso, Chinese Yuan, and Danish Krone. These foreign currency forward contracts have maturities of approximately one month. These contracts are used to minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities. We do not engage in currency speculation.
We performed a sensitivity analysis assuming a hypothetical 10% fluctuation in foreign exchange rates to the hedging contracts and the underlying exposures described above. As of December 31, 2021 and 2020, the analysis indicated that these hypothetical market movements would not have a material effect on our consolidated financial position, results of operations or cash flows.
Interest Rate Risk Management
We are exposed to potential losses due to changes in interest rates. Our interest rate exposure is primarily related to short-term and long-term marketable securities.
In order to estimate the potential loss due to interest rate risk, a fluctuation in interest rates of 25 basis points was assumed. Market risk for the short and long-term marketable securities was estimated as the potential change in the fair value resulting from a hypothetical change in interest rates for securities contained in the investment portfolio. The potential change in the fair value from changes in interest rates is immaterial as of December 31, 2021 and 2020.
 
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Table of Contents
Item 8:
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Teradyne, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Teradyne, Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income, convertible common shares and shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing under Item 15(c) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control - Integrated Framework
(2013) issued by the COSO.
Changes in Accounting Principles
As discussed in Note B to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
 
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audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, 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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Conversions of Senior Unsecured Notes
As described in Notes B and J to the consolidated financial statements, during 2021, sixty four holders of the Company’s convertible senior unsecured notes, originally issued on December 12, 2016, converted $343.0 million of the senior unsecured notes, resulting in a loss of $28.8 million recorded to other (income) expense on the consolidated statement of operations. The Company may satisfy its conversion obligation by paying cash for the principal amount of the senior unsecured notes and paying or delivering cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at management’s election for the amount in excess of principal. Management determined the conversion value of the conversion transactions by calculating the fair value of debt immediately prior to conversion using an updated remaining expected life of the debt instrument and an updated borrowing rate for a similar debt instrument that does not have an associated convertible feature.
The principal considerations for our determination that performing procedures relating to the conversions of senior unsecured notes is a critical audit matter are (i) the high degree of audit effort in performing procedures and evaluating management’s determination of the conversion values of the conversion transactions and the related settlement calculations and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness
 
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of controls relating to management’s review of conversion transactions related to the Company’s senior unsecured notes, which included controls related to the conversion values and related settlement calculations. These procedures also included, among others, on a test basis (i) evaluating the appropriateness of the conversion and settlement accounting; (ii) testing management’s process for determining the conversion values; (iii) testing the completeness and accuracy of inputs used in determining the conversion values; and (iv) recalculating the settlement amounts. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the conversion and settlement accounting.
/s/
 
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2
3
, 2022
We have served as the Company’s auditor since 1968.
 
46
TERADYNE, INC.
CONSOLIDATED BALANCE SHEETS
 
    
December 31,
  
    
2021
    
2020
  
    
 
 
    
 
 
  
    
(in thousands, except per
share amount)
  
ASSETS
             
Current assets:
                 
Cash and cash equivalents
    $ 1,122,199     $ 914,121  
Marketable securities
      244,231       522,280  
Accounts receivable, less allowance for credit losses of $2,012 and $2,034 in 2021 and 2020, respectively
      550,749       497,506  
Inventories, net
      243,330       222,189  
Prepayments
 
 
406,266
 
 
 
250,092
 
Other
current assets
      9,452       9,246  
    
 
 
    
 
 
  
Total current assets
      2,576,227       2,415,434  
Property, plant and equipment, net
      387,240       394,800  
Operating lease right-of-use assets, net
      68,807       54,569  
Marketable securities
      133,858       117,980  
Deferred tax assets
      102,428       87,913  
Retirement plans assets
      15,110       17,468  
Other assets
      24,096       9,384  
Acquired intangible assets, net
      75,635       100,939  
Goodwill
      426,024       453,859  
    
 
 
    
 
 
  
Total assets
    $ 3,809,425     $ 3,652,346  
    
 
 
    
 
 
  
LIABILITIES
             
Current liabilities:
                 
Accounts payable
    $ 153,133     $ 133,663  
Accrued employees’ compensation and withholdings
      253,667       220,321  
Deferred revenue and customer advances
      146,185       134,662  
Other accrued liabilities
      124,187       77,581  
Operating lease liabilities
      19,977       20,573  
Income taxes payable
      88,789       80,728  
Current debt
      19,182       33,343  
    
 
 
    
 
 
  
Total current liabilities
      805,120       700,871  
Retirement plans liabilities
      151,141       151,140  
Long-term deferred revenue and customer advances
      54,921       58,359  
Long-term contingent consideration
      —         7,227  
Deferred tax liabilities
      6,327       10,821  
Long-term other accrued liabilities
      15,497       19,352  
Long-term operating lease liabilities
      56,178       42,073  
Long-term income taxes payable
      67,041       74,930  
Debt
      89,244       376,768  
    
 
 
    
 
 
  
Total liabilities
      1,245,469       1,441,541  
    
 
 
    
 
 
  
Commitments and contingencies (note M)
 
 
 
 
 
 
Mezzanine equity:
                 
Convertible common shares
      1,512       3,787  
SHAREHOLDERS’ EQUITY
             
Common stock, $0.125 par value, 1,000,000 shares authorized, 162,251 and 166,123 shares issued and outstanding at December 31, 2021 and 2020, respectively
      20,281       20,765  
Additional paid-in capital
      1,811,545       1,765,323  
Accumulated other comprehensive (loss) income
      (5,948 )      33,516  
Retained earnings
      736,566       387,414  
    
 
 
    
 
 
  
Total shareholders’ equity
      2,562,444       2,207,018  
    
 
 
    
 
 
  
Total liabilities, convertible common shares and shareholders’ equity
    $ 3,809,425     $ 3,652,346  
    
 
 
    
 
 
  
The accompanying notes are an integral part of the consolidated financial statements.
 
47
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
    
Years Ended December 31,
  
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands, except per share amount)
  
Revenues:
                         
Products
    $ 3,196,575     $ 2,690,906     $ 1,887,674  
Services
      506,306       430,563       407,291  
    
 
 
    
 
 
    
 
 
  
Total revenues
      3,702,881       3,121,469       2,294,965  
Cost of revenues:
                         
Cost of products
      1,300,106       1,157,476       782,047  
Cost of services
      196,119       178,252       173,089  
    
 
 
    
 
 
    
 
 
  
Total cost of revenues (exclusive of acquired intangible assets amortization shown separately below)
      1,496,225       1,335,728       955,136  
    
 
 
    
 
 
    
 
 
  
Gross profit
      2,206,656       1,785,741       1,339,829  
Operating expenses:
                         
Selling and administrative
      547,559       464,769       437,084  
Engineering and development
      427,609       374,964       322,824  
Acquired intangible assets amortization
      21,456       30,803       40,147  
Restructuring and other
      9,312       (13,202 )      (13,880 ) 
    
 
 
    
 
 
    
 
 
  
Total operating expenses
      1,005,936       857,334       786,175  
    
 
 
    
 
 
    
 
 
  
Income from operations
      1,200,720       928,407       553,654  
Non-operating (income) expenses:
                         
Interest income
      (2,627 )      (5,982 )      (16,990 ) 
Interest expense
      17,820       24,182       22,224  
Other (income) expense, net
      24,572       9,192       22,648  
    
 
 
    
 
 
    
 
 
  
Income before income taxes
      1,160,955       901,015       525,772  
Income tax provision
      146,366       116,868       58,304  
    
 
 
    
 
 
    
 
 
  
Net income
    $ 1,014,589     $ 784,147     $ 467,468  
    
 
 
    
 
 
    
 
 
  
Net income per common share:
                         
Basic
    $ 6.15     $ 4.72     $ 2.74  
    
 
 
    
 
 
    
 
 
  
Diluted
    $ 5.53     $ 4.28     $ 2.60  
    
 
 
    
 
 
    
 
 
  
Weighted average common shares—basic
      164,960       166,120       170,425  
    
 
 
    
 
 
    
 
 
  
Weighted average common shares—diluted
      183,625       183,042       179,459  
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the consolidated financial statements.
 
48
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
    
Years Ended December 31,
  
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands)
  
Net income
    $ 1,014,589     $ 784,147     $ 467,468  
Other comprehensive income, net of tax:
                         
Foreign currency translation adjustment, net of tax of $0, respectively
      (36,207 )      48,903       (10,991 ) 
Available-for-sale marketable securities:
                         
Unrealized (losses) gains on marketable securities arising during period, net of tax of $(578), $1,629, $1,659, respectively
      (2,255 )      5,839       6,015  
Less: Reclassification adjustment for gains included in net income, net of tax of $(277), $(665), $(192), respectively
      (995 )      (2,365 )      (690 ) 
    
 
 
    
 
 
    
 
 
  
       (3,250 )      3,474       5,325  
Defined benefit post-retirement plan:
                         
Amortization of prior service credit, net of tax $(2), $(2), $(43), respectively
      (7 )      (7 )      (148 ) 
    
 
 
    
 
 
    
 
 
  
Other comprehensive (loss) income
      (39,464 )      52,370       (5,814 ) 
    
 
 
    
 
 
    
 
 
  
Comprehensive income
    $ 975,125     $ 836,517     $ 461,654  
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the consolidated financial statements.
 
49
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CONVERTIBLE COMMON SHARES

AND SHAREHOLDERS’ EQUITY
 
         
Shareholders’ Equity
  
   
Convertible
Common
Shares
Value
    
Common
Stock
Shares
    
Common
Stock
Par
Value
    
Additional
Paid-in
Capital
    
Accumulated
Other
Comprehensive
(Loss) Income
    
(Accumulated
Deficit)
Retained
Earnings
    
Total
Shareholders’
Equity
  
 
 
(in thousands)
 
Year Ended December 31, 2018
   $ —         175,522     $ 21,940     $ 1,671,645     $ (13,040 )    $ (158,191 )    $ 1,522,354  
Net issuance of common stock under stock-based plans
             1,784       223       10,399                       10,622  
Stock-based compensation expense
                             38,085                       38,085  
Repurchase of common stock
             (10,896 )      (1,362 )                      (489,840 )      (491,202 ) 
Cash dividends ($0.36 per share)
                                             (61,355 )      (61,355 ) 
Net income
                                             467,468       467,468  
Other comprehensive loss
                                     (5,814 )              (5,814 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Year Ended December 31, 2019
     —         166,410       20,801       1,720,129       (18,854 )      (241,918 )      1,480,158  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net issuance of common stock under stock-based plans
             1,230       154       4,696                       4,850  
Stock-based compensation expense
                             44,285                       44,285  
Repurchase of common stock
             (1,517 )      (190 )                      (88,275 )      (88,465 ) 
Cash dividends ($0.40 per share)
                                             (66,540 )      (66,540 ) 
Convertible common shares
     3,787                       (3,787 )                      (3,787 ) 
Net income
                                             784,147       784,147  
Other comprehensive income
                                     52,370               52,370  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Year Ended December 31, 2020
     3,787       166,123       20,765       1,765,323       33,516       387,414       2,207,018  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net issuance of common stock under stock-based plans
             899       113       (225 )                      (112 ) 
Stock-based compensation expense
                             45,632                       45,632  
Repurchase of common stock
             (4,771 )      (597 )                      (599,403 )      (600,000 ) 
Cash dividends ($0.40 per share)
                                             (66,034 )      (66,034 ) 
Settlements of convertible notes
            
8,148
       1,018       984,622                       985,640  
Exercise of convertible notes hedge call options
            
(8,148
)
     (1,018 )      (986,082 )                      (987,100 ) 
Convertible common shares
     (2,275 )
 
                     2,275                       2,275  
Net income
                                             1,014,589       1,014,589  
Other comprehensive loss
                                     (39,464 )              (39,464 ) 
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Year Ended December 31, 2021
   $ 1,512       162,251     $ 20,281     $ 1,811,545     $ (5,948 )    $ 736,566     $ 2,562,444  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
The accompanying notes are an integral part of the consolidated financial statements.
 
50
TERADYNE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    
Years Ended December 31,
  
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands)
  
Cash flows from operating activities:
                         
Net income
    $ 1,014,589     $ 784,147     $ 467,468  
Adjustments to reconcile net income from operations to net cash provided by operating activities:
                         
Depreciation
      91,073       80,119       70,834  
Stock-based compensation
      45,643       44,906       37,897  
Amortization
      34,412       46,624       49,821  
Loss on convertible debt conversion
      28,828       —         —    
Provision for excess and obsolete inventory
      15,475       17,534       15,244  
Deferred taxes
      (17,305 )      (15,688 )      (9,456 ) 
Contingent consideration fair value adjustment
      (7,227 )      (23,271 )      (19,257 ) 
Gains on investments
      (6,410 )      (7,898 )      (6,033 ) 
Retirement plans actuarial (gains) losses
      (2,217 )      10,284       8,176  
Investment impairment
      —         —         15,000  
Other
      271       1,557       766  
Changes in operating assets and liabilities, net of businesses acquired:
                         
Accounts receivable
      (57,778 )      (129,451 )      (70,440 ) 
Inventories
      6,495       (8,438 )      (27,408 ) 
Prepayments and other assets
      (175,846 )      (64,418 )      (23,784 ) 
Accounts payable and other accrued expenses
      129,499       73,167       49,279  
Deferred revenue and customer advances
      9,873       39,974       39,313  
Retirement plan contributions
      (5,405 )      (5,382 )      (5,086 ) 
Income taxes
      (5,604 )      25,169       (13,584 ) 
    
 
 
    
 
 
    
 
 
  
Net cash provided by operating activities
      1,098,366       868,935       578,750  
    
 
 
    
 
 
    
 
 
  
Cash flows from investing activities:
                         
Purchases of property, plant and equipment
      (132,472 )      (184,977 )      (134,642 ) 
Purchases of marketable securities
      (661,781 )      (900,196 )      (662,701 ) 
Proceeds from maturities of marketable securities
      660,148       479,678       611,927  
Proceeds from sales of marketable securities
      266,466       35,006       105,586  
Purchase of investment and acquisition of business
      (12,000 )      149       (79,742 ) 
Proceeds from insurance
      —         546       2,912  
    
 
 
    
 
 
    
 
 
  
Net cash provided by (used for) investing activities
      120,361       (569,794 )      (156,660 ) 
    
 
 
    
 
 
    
 
 
  
Cash flows from financing activities:
                         
Repurchase of common stock
      (600,000 )      (88,465 )      (500,000 ) 
Payments of convertible debt principal
      (342,990 )      —         —    
Dividend payments
      (65,977 )      (66,482 )      (61,305 ) 
Payments related to net settlement of employee stock compensation awards
      (32,303 )      (23,014 )      (14,741 ) 
Issuance of common stock under stock purchase and stock option plans
      32,686       28,527       29,312  
Payments of contingent consideration
      —         (8,852 )      (27,615 ) 
    
 
 
    
 
 
    
 
 
  
Net cash used for financing activities
      (1,008,584 )      (158,286 )      (574,349 ) 
    
 
 
    
 
 
    
 
 
  
Effects of exchange rate changes on cash and cash equivalents
      (2,065 )      (658 )      (569 ) 
Increase (decrease) in cash and cash equivalents
      208,078       140,197       (152,828 ) 
Cash and cash equivalents at beginning of year
      914,121       773,924       926,752  
    
 
 
    
 
 
    
 
 
  
Cash and cash equivalents at end of year
    $ 1,122,199     $ 914,121     $ 773,924  
    
 
 
    
 
 
    
 
 
  
Supplementary disclosure of cash flow information:
                         
Cash paid for:
                         
Interest
    $ 4,236     $ 6,435     $ 5,996  
Income taxes
    $ 172,134     $ 106,577     $ 81,410  
Non-cash investing activities:
                         
Capital expenditures incurred but not yet paid:
    $ 1,973     $ 3,666     $ 4,068  
The accompanying notes are an integral part of the consolidated financial statements.
 
51
TERADYNE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A.    THE COMPANY
Teradyne, Inc. (“Teradyne”) is a leading global supplier of automation equipment for test and industrial applications. Teradyne designs, develops, manufactures and sells automatic test systems used to test semiconductors, wireless products, data storage and complex electronics systems in many industries including consumer electronics, wireless, automotive, industrial, computing, communications, and aerospace and defense industries. Teradyne’s industrial automation products include collaborative robotic arms, autonomous mobile robots, and advanced robotic control software used by global manufacturing, logistics and light industrial customers to improve quality, increase manufacturing and material handling efficiency and decrease manufacturing and logistics costs. Teradyne’s automatic test equipment and industrial automation products and services include:
 
  •  
semiconductor test (“Semiconductor Test”) systems;
 
  •  
storage and system level test (“Storage Test”) systems, defense/aerospace (“Defense/Aerospace”) test instrumentation and systems, and circuit-board test and inspection (“Production Board Test”) systems (collectively these products represent “System Test”);
 
  •  
wireless test (“Wireless Test”) systems; and
 
  •  
industrial automation (“Industrial Automation”) products.
On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification of vehicles, solar and wind power, and industrial applications. Lemsys is included in Teradyne’s Semiconductor Test segment.
On June 3, 2019, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to zero as of December 31, 2019.
On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high payload AMRs, an emerging and fast-growing segment of the global forklift market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2021, the maximum contingent consideration that could be paid is $87.7 million. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement MiR’s lower payload products. AutoGuide is included in our Industrial Automation segment.
On June 1, 2021, Teradyne invested $12.0 million in MachineMetrics, Inc. (“MachineMetrics”), a private company that develops and sells products to improve manufacturing performance through automated machine data collection, alerting, and analytics. Teradyne’s investment in MachineMetrics aligns with its strategy of providing and investing in leading edge products for automating industrial production processes in growing markets. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. At December 31, 2021, the value of the investment was $12.0 million, and there was no change during the year ended December 31, 2021.
 
52
B.    ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Teradyne and its wholly owned subsidiaries. All significant intercompany balances and transactions are eliminated. Certain prior years’ amounts were reclassified to conform to the current year presentation.
Preparation of Financial Statements and Use of Estimates
The preparation of consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates its estimates, including those related to inventories, investments, goodwill, intangible and other long-lived assets, accounts receivable, income taxes, deferred tax assets and liabilities, pensions, warranties, contingent consideration liabilities, and loss contingencies. Management bases its estimates on historical experience and on appropriate and customary assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Due to the COVID-19 pandemic, there has been uncertainty and disruption in the global economy and our markets. Management is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a revision of the carrying value of its assets or liabilities as of the date of issuance of this Annual Report on Form 10-K. These estimates may change, as new events occur and additional information is obtained. Actual results may differ significantly from these estimates under different assumptions or conditions.
Revenue Recognition
Revenue from Contracts with Customers
In accordance with ASC 606, Teradyne recognizes revenues, when or as control is transferred to a customer. Teradyne’s determination of revenue is dependent upon a five-step process outlined below.
 
  •  
Teradyne accounts for a contract with a customer when there is written approval, the contract is committed, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.
 
  •  
Teradyne periodically enters into contracts with customers in which a customer may purchase a combination of goods and services, such as products with extended warranty obligations. Teradyne determines performance obligations by assessing whether the products or services are distinct from the other elements of the contract. In order to be distinct, the product or service must perform either on its own or with readily available resources and must be separate within the context of the contract.
 
  •  
Teradyne determines the transaction price to be the amount of consideration to which 
Teradyne expects
to be entitled to.
 
  •  
Transaction price is allocated to each individual performance obligation based on the standalone selling price of that performance obligation. Teradyne uses standalone transactions when available to value each performance obligation. If standalone transactions are not available, Teradyne will estimate the standalone selling price through market assessments or cost plus a reasonable margin analysis. Any discounts from standalone selling price are spread proportionally to each performance obligation.
 
  •  
In order to determine the appropriate timing for revenue recognition, Teradyne first determines if the transaction meets any of three criteria for over time recognition. If the transaction meets the criteria for over time recognition, Teradyne recognizes revenue as the good or service is delivered. Teradyne uses input variables such as hours or months utilized or costs incurred to determine the amount of revenue to recognize in a given period. Input variables are used as they best align consumption with benefit to the customer. For transactions that do not meet the criteria for over time recognition, Teradyne will
 recognize revenue at a point in time based on an assessment of the five criteria for transfer of control.
 
53
 
 
Teradyne has concluded that revenue should be recognized when shipped or delivered based on contractual terms. Typically, acceptance of Teradyne’s products and services is a formality as Teradyne delivers similar systems, instruments and robots to standard specifications. In cases where acceptance is not deemed a formality, Teradyne will defer revenue recognition until customer acceptance. 
Performance Obligations

Products
Teradyne products consist primarily of semiconductor test systems and instruments, defense/aerospace test instrumentation and systems, storage test systems and instruments, circuit-board test and inspection systems and instruments, wireless test systems and industrial automation products. Teradyne’s hardware is recognized at a point in time upon transfer of control to the customer.
Services
Teradyne services consist of extended warranties, training and application support, service agreements, post contract customer support (“PCS”) and replacement parts. Each service is recognized based on relative standalone selling price. Extended warranty, training and support, service agreements and PCS are recognized over time based on the period of service. Replacement parts are recognized at a point in time upon transfer of control to the customer.
Teradyne does not allow customer returns or provide refunds to customers for any products or services. Teradyne products include a standard 12-month warranty. This warranty is not considered a distinct performance obligation because it does not obligate Teradyne to provide a separate service to the customer and it cannot be purchased separately. Cost related to
warranties
are included in cost of revenues when product revenues are recognized.
As of December 31, 2021 and 2020, deferred revenue and customer advances consisted of the following and are included in the short and long-term deferred revenue and customer advances:
 
    
2021
     
2020
  
    
 
 
     
 
 
  
    
(in thousands)
  
Maintenance, service and training
    $ 81,826      $ 77,654  
Extended warranty
      64,168        51,929  
Customer advances, undelivered elements and other
      55,112        63,438  
    
 
 
     
 
 
  
Total deferred revenue and customer advances
    $ 201,106      $ 193,021  
    
 
 
     
 
 
  
 
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Product Warranty
Teradyne generally provides a one-year warranty on its products, commencing upon installation, acceptance or shipment. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based on historical experience. Related costs are charged to the warranty accrual as incurred. The balance below is included in other accrued liabilities:
 
    
Amount
  
    
(in thousands)
  
Balance at December 31, 2018
    $ 7,909  
Acquisition
      14  
Accruals for warranties issued during the period
      14,106  
Accruals related to pre-existing warranties
      4,026  
Settlements made during the period
      (17,059 ) 
    
 
 
  
Balance at December 31, 2019
      8,996  
Accruals for warranties issued during the period
      28,490  
Accruals related to pre-existing warranties
      821  
Settlements made during the period
      (21,674 ) 
    
 
 
  
Balance at December 31, 2020
      16,633  
Accruals for warranties issued during the period
      35,727  
Accruals related to pre-existing warranties
      (6,846 ) 
Settlements made during the period
      (20,937 ) 
    
 
 
  
Balance at December 31, 2021
    $ 24,577  
    
 
 
  
When Teradyne receives revenue for extended warranties, beyond one year, it is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. The balance below is included in short and long-term deferred revenue and customer advances:
 
    
Amount
  
    
(in thousands)
  
Balance at December 31, 2018
    $ 27,422  
Deferral of new extended warranty revenue
      23,271  
Recognition of extended warranty deferred revenue
      (20,016 ) 
    
 
 
  
Balance at December 31, 2019
      30,677  
Deferral of new extended warranty revenue
      41,694  
Recognition of extended warranty deferred revenue
      (20,442 ) 
    
 
 
  
Balance at December 31, 2020
      51,929  
Deferral of new extended warranty revenue
      43,597  
Recognition of extended warranty deferred revenue
      (31,358 ) 
    
 
 
  
Balance at December 31, 2021
    $ 64,168  
    
 
 
  
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Teradyne maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Estimated allowances for doubtful accounts are reviewed periodically taking into account the customer’s recent payment history, the customer’s current financial statements and other information regarding the customer’s credit worthiness. Account balances are written off against the allowance when it is determined the receivable will not be recovered.
 
55
Teradyne sells certain trade accounts receivables on a non-recourse basis to third-party financial institutions pursuant to factoring agreements. Teradyne accounts for these transactions as sales of receivables and presents cash proceeds as a cash provided by operating activities in the consolidated statements of cash flows. Total trade accounts receivable sold under the factoring agreements were $111.3 million and $131.1 million during 2021 and 2020, respectively. Factoring fees for the sales of receivables are recorded in interest expense and are not material.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. On a quarterly basis, Teradyne uses consistent methodologies to evaluate all inventories for net realizable value. Teradyne records a provision for both excess and obsolete inventory when such write-downs or write-offs are identified through the quarterly review process. The inventory valuation is based upon assumptions about future demand, product mix and possible alternative uses.
Investments
Teradyne accounts for its investments in debt and equity securities in accordance with the provisions of ASC 320-10, “
Investments—Debt and Equity Securities
.” ASC 320-10 requires that certain debt and equity securities be classified into one of three categories; trading, available-for-sale or held-to-maturity securities. On a quarterly basis, Teradyne reviews its investments to identify and evaluate those that have an indication of a potential other-than-temporary impairment. Factors considered in determining whether a loss is other-than-temporary include:
 
  •  
The length of time and the extent to which the market value has been less than cost;
 
  •  
The financial condition and near-term prospects of the issuer; and
 
  •  
The intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value.
Teradyne uses the market and income approach techniques to value its financial instruments and there were no changes in valuation techniques during the twelve months ended December 31, 2021 and 2020.
Teradyne measures its debt and equity investments at fair value, in accordance with ASC 820-10 , “
Fair Value Measurements and Disclosures.
” ASC 820-10 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets as of the reporting date;
Level 2: Inputs other than Level 1, that are observable either directly or indirectly as of the reporting date. For example, a common approach for valuing fixed income securities is the use of matrix pricing. Matrix pricing is a mathematical technique used to value securities by relying on the securities’ relationship to other benchmark quoted prices, and is considered a Level 2 input; or
Level 3: Unobservable inputs that are not supported by market data. Unobservable inputs are developed based on the best information available, which might include Teradyne’s own data.
Teradyne’s debt investments are classified as Level 2, and equity investments are classified as Level 1. Acquisition-related contingent consideration is classified as Level 3. Teradyne determines the fair value of acquisition-related contingent consideration using a Monte Carlo simulation model. Assumptions utilized in the model include forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate.
 
56
Financial Assets and Financial Liabilities
Teradyne records changes in fair value of equity securities directly in earnings and realized gains and losses in other (income) expense, net, in accordance with ASU 2016-01, “
Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
.”
Prepayments
Prepayments consist of the following:
 
    
2021
     
2020
  
    
 
 
     
 
 
  
    
(in thousands)
  
Contract manufacturer and supplier prepayments
    $ 364,478      $ 212,286  
Prepaid taxes
      15,090        9,361  
Prepaid maintenance and other services
      13,660        13,116  
Other prepayments
      13,038        15,329  
    
 
 
     
 
 
  
Total prepayments
    $ 406,266      $ 250,092  
    
 
 
     
 
 
  
Retirement and Postretirement Plans
Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.
Teradyne reports net periodic pension cost and net periodic postretirement benefit costs in accordance with ASU 2017-07, “
Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
.” The service cost component of net benefit costs is reported in the same line item in the consolidated statement of operations as other employee compensation costs. The non-service components of net benefit costs such as interest cost, expected return on assets, amortization of prior service cost, and actuarial gains or losses, are reported within other (income) expense, net.
Goodwill, Intangible and Long-Lived Assets
Teradyne accounts for goodwill and intangible assets in accordance with ASC 350-10, “
Intangibles-Goodwill and Other.
” Intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment at least annually in the fourth quarter, as of December 31, on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired.
In accordance with ASC 350-10, Teradyne has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, a quantitative goodwill impairment test is not required.
In accordance with ASC 360-10, “
Impairment or Disposal of Long-Lived Assets,
” Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the
 
recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flows analysis. The cash flows estimates used to determine the impairment, if any, contain management’s best estimates using appropriate assumptions and projections at that time.
 
57
Business Combination
Teradyne recognizes the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The fair value of identifiable intangible assets is based on detailed cash flows valuations that use information and assumptions provided by management. Teradyne estimates the fair value of contingent consideration at the time of the acquisition using all pertinent information known to us at the time to assess the probability of payment of contingent amounts or through the use of a Monte Carlo simulation model. Teradyne allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed to goodwill. The assumptions used in the valuations for our acquisitions may differ materially from actual results depending on performance of the acquired businesses and other factors. While Teradyne believes the assumptions used were appropriate, different assumptions in the valuation of assets acquired and liabilities assumed could have a material impact on the timing and extent of impact on our statements of operations. Goodwill is assigned to reporting units as of the date of the related acquisition.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets. Leasehold improvements and major renewals are capitalized and included in property, plant and equipment accounts, while expenditures for maintenance and repairs and minor renewals are charged to expense. When assets are retired, the assets and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the consolidated statements of operations.
Teradyne provides for depreciation of its assets principally on the straight-line method with the cost of the assets being charged to expense over their useful lives as follows:
 
Buildings
    40 years
Building improvements
    5 to 10 years
Leasehold improvements
    Lesser of lease term or 10 years
Furniture and fixtures
    10 years
Test systems manufactured internally
    6 years
Machinery, equipment and software
    3 to 5 years
Test systems manufactured internally are used by Teradyne for customer evaluations and manufacturing and support of its customers. Teradyne depreciates the test systems manufactured internally over a six-year life to cost of revenues, engineering and development, and selling and administrative expenses. Teradyne often sells internally manufactured test equipment to customers. Upon the sale of an internally manufactured test system, the net book value of the system is transferred to inventory and expensed as cost of revenues. The net book value of internally manufactured test systems sold in the years ended December 31, 2021, 2020, and 2019 was $16.6 million, $7.3 million, and $5.0 million, respectively.
Convertible Debt
In accordance with ASC
815-40,
“Derivatives and Hedging—Contracts in Entity’s Own Equity,” the convertible note hedge is classified in stockholders’ equity in the statements of financial position because it is indexed to Teradyne’s stock. The criteria as set forth in ASC
815-40
were evaluated by Teradyne. In reviewing the criteria, Teradyne noted the following: (1) the convertible note hedge does not require Teradyne to issue shares; (2) there is no requirement to net cash settle the convertible note hedge for failure to make timely filings with the SEC; (3) in the case of termination, the convertible note hedge is settled in the same consideration as the holders of the underlying stock; (4) the counterparty does not have rights that rank higher than those of a shareholder of the stock underlying the convertible note hedge; and (5) there is no requirement to post collateral. Based on its analysis of those criteria, Teradyne concluded that the convertible note hedge should be recorded in equity and no further adjustment should be made in future periods to adjust the value of the convertible note hedge.
 
58
Teradyne analyzed the Warrant Transactions under ASC
815-40,
“Derivatives and Hedging—Contracts in Entity’s Own Equity,” and other relevant literature, and determined that it met the criteria for classification as an equity transaction and is considered indexed to Teradyne’s stock. As a result, Teradyne recorded the proceeds from the warrants as an increase to additional
paid-in
capital. Teradyne does not recognize subsequent changes in fair value of the warrants in its financial statements.
The provisions
 
of ASC 470-20, “Debt with Conversion and Other Options,” are applicable to the Notes. ASC 470-20 requires Teradyne to separately account for the liability (debt) and equity (conversion feature) components of the Notes in a manner that reflects Teradyne’s nonconvertible debt borrowing rate at the date of issuance when interest cost is recognized in subsequent periods. Teradyne allocated $
100.8
 million of the initial $
460.0
 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be amortized to interest expense using the effective interest method through December 2023.
In accounting for the conversions of the Notes pursuant to the terms of the original December 12, 2016 agreement, Teradyne calculated gain or loss on extinguishment equal to the difference between the calculated fair value of the debt immediately prior to its conversion and the carrying amount of the debt component including any unamortized debt discount or issuance costs. The calculated gain or loss is recorded in the consolidated statement of operations. Teradyne determined the conversion value of the conversion transactions by calculating the fair value of debt immediately prior to conversion using an updated remaining expected life of the debt instrument and an updated borrowing rate for a similar debt instrument that does not have an associated convertible feature.
In accounting for the conversions of the Notes pursuant to the terms of the original December 12, 2016 agreement, Teradyne calculated gain or loss on extinguishment equal to the difference between the calculated fair value of the debt immediately prior to its conversion and the carrying amount of the debt component including any unamortized debt discount or issuance costs. The calculated gain or loss is recorded in the consolidated statement of operations. Teradyne determined the conversion value of the conversion transactions by calculating the fair value of debt immediately prior to conversion using an updated remaining expected life of the debt instrument and an updated borrowing rate for a similar debt instrument that does not have an associated convertible feature.
Leases
Teradyne adopted Accounting Standards Update (“ASU”) 2016-02, “
Leases (Topic 842)
” (“Topic 842”) and the related amendments (collectively “ASC 842”) on January 1, 2019 and utilized the modified retrospective approach provided by ASU 2018-11, “
Leases (Topic 842): Targeted Improvements
,” that allowed for a cumulative effect adjustment in the period of adoption.
Under ASC 842, a contract is or contains a lease when Teradyne has the right to control the use of an identified asset. Teradyne determines if an arrangement is a lease at inception of the contract, which is the date on which the terms of the contract are agreed to and the agreement creates enforceable rights and obligations. The commencement date of the lease is the date that the lessor makes an underlying asset available for use by Teradyne. As of December 31, 2021, Teradyne does not have material leases that have not yet commenced.
Teradyne determines if the lease is an operating or finance lease at the lease commencement date based upon the terms of the lease and the nature of the asset. The lease term used to calculate the lease liability includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.
For leases commencing after January 1, 2019, the lease liability is measured at the present value of future lease payments, discounted using the discount rate for the lease at the commencement date. As Teradyne is typically unable to determine the implicit rate, Teradyne uses an incremental borrowing rate based on the lease term and economic environment at commencement date. Teradyne initially measures payments based on an index by using the applicable rate at lease commencement. Variable payments that do not depend on an index are
 
59
not included in the lease liability and are recognized as they are incurred. The ROU asset is initially measured as the amount of lease liability, adjusted for any initial lease costs, prepaid lease payments, and reduced by any lease incentives.
Teradyne’s contracts often include
non-lease
components such as common area maintenance. Teradyne elected the practical expedient to account for the lease and
non-lease
components as a single lease component. For leases with a term of one year or less, Teradyne has elected not to record the lease asset or liability. The lease payments are recognized in the consolidated statement of earnings on a straight-line basis over the lease term. Teradyne includes lease costs within cost of revenues and operating expenses. See Note I: “Leases.”
Engineering and Development Costs
Teradyne’s products are highly technical in nature and require a large and continuing engineering and development effort. Software development costs incurred prior to the establishment of technological feasibility are charged to expense. Software development costs incurred subsequent to the establishment of technological feasibility are capitalized until the product is available for release to customers. To date, the period between achieving technological feasibility and general availability of the product has been short and software development costs eligible for capitalization have not been material. Engineering and development costs are expensed as incurred and consist primarily of salaries, contractor fees including non-recurring engineering charges related to product design, allocated facility costs, depreciation, and tooling costs.
Stock Compensation Plans and Employee Stock Purchase Plan
Stock-based compensation expense is based on the grant-date fair value estimated in accordance with the provisions of ASC 718-10, “
Compensation-Stock Compensation
.” Teradyne elects to account for forfeitures by applying an estimated forfeiture rate and recognizes compensation costs only for those stock-based compensation awards expected to vest. Under its stock compensation plans, Teradyne has granted stock options, restricted stock units and performance-based restricted stock units, and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).
Excess tax benefits or tax deficiencies are recognized as a discrete tax benefit or discrete tax expense to the current income tax provision in Teradyne’s consolidated statements of operations, all excess tax benefits related to share-based payments are reported as cash flows from operating activities, and all cash payments made to taxing authorities on the employees’ behalf for withheld shares are presented as financing activities on the statement of cash flows.

Income Taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The measurement of deferred tax assets is reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized. Teradyne performed the required assessment of positive and negative evidence regarding the realization of the net deferred tax assets in accordance with ASC 740,
“Accounting for Income Taxes.”
This assessment included the evaluation of scheduled reversals of deferred tax liabilities, estimates of projected future taxable income and tax-planning strategies. Although realization is not assured, based on its assessment, Teradyne concluded that it is more likely than not that such assets, net of the existing valuation allowance, will be realized.
Advertising Costs
Teradyne expenses all advertising costs as incurred. Advertising costs were $13.4 million, $12.8 million and $16.6 million in 2021, 2020 and 2019, respectively.

 
60
Translation of
Non-U.S.
Currencies
The functional currency for all
non-U.S.
subsidiaries is the U.S. dollar, except for Universal Robots, MiR and Lemsys for which the local currency is its functional currency. All foreign currency denominated monetary assets and liabilities are remeasured on a monthly basis into the functional currency using exchange rates in effect at the end of the period. All foreign currency denominated
non-monetary
assets and liabilities are remeasured into the functional currency using historical exchange rates. Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For Universal Robots, MiR and Lemsys, assets and liabilities are translated into U.S. dollars using exchange rates in effect at the end of the period. Revenues and expense amounts are translated using an average of exchange rates in effect during the period. Translation adjustments are recorded within accumulated other comprehensive income (loss) on the balance sheet.
Net foreign exchange gains and losses resulting from remeasurement are included in other (income) expense, net. For the years ended December 31, 2021, 2020 and 2019, (gains) losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies were $(2.1) million, $2.6 million, and $(1.6) million, respectively.
These amounts do not reflect the corresponding (gains) losses from foreign exchange contracts. See Note H: “Financial Instruments” regarding foreign exchange contracts.
Net Income per Common Share
Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Except where the result would be anti-dilutive, diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares plus common stock equivalents, if applicable.
With respect to its convertible debt issued in 2016, Teradyne is required to settle the principal of the convertible debt in cash; accordingly, the principal amount is excluded from the determination of diluted earnings per share. As a result, Teradyne is accounting for the conversion spread using the treasury stock method.
Comprehensive Income
Comprehensive income includes net income, unrealized pension and postretirement prior service costs and benefits, unrealized gains and losses on investments in debt marketable securities and foreign currency translation adjustment.
C.    RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06
– “Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity’s Own Equity,” which simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. This ASU requires a convertible debt instrument to be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives, and it requires an entity to use the
if-converted
method in the diluted earnings per share calculation for convertible instruments. This ASU permits the use of either the modified retrospective or fully retrospective method of transition.
On November 4, 2021, Teradyne made an irrevocable election under the indenture entered into between Teradyne and Wilmington Trust, National Association, as trustee (the “Indenture”) for the issuance of the 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 to require the principal portion of the


61
remaining Notes to be settled in cash. Upon adoption of ASU 2020-06, only the amounts settled in excess of the principal will be considered in diluted earnings per share under the if-converted method. Teradyne has adopted the standard effective January 1, 2022 using the modified retrospective method of transition. As a result of adoption Teradyne expects to record an entry to increase current debt, debt, and retained earnings by 
$1.5 million, $6.5 million, and $92.8 
million, respectively. Mezzanine equity and additional paid-in capital are expected to be reduced by 
$100.8 
million combined. The adoption of ASU 2020-06 will have an immaterial impact on our results of operations, statement of cash flows, and earnings per share. 
D.    ACQUISITIONS AND INVESTMENT
S
IN OTHER COMPANY
Acquisitions
AutoGuide LLC
On November 13, 2019, Teradyne acquired 100% of the membership interests of AutoGuide, LLC (“AutoGuide”), a maker of high-payload AMRs, based in Chelmsford, MA, an emerging and fast growing segment of the global forklift market. The total purchase price was approximately $81.6 million, which included cash paid of approximately $57.6 million and $24.0 million in fair value of contingent consideration payable upon achievement of certain performance targets, extending potentially through 2022. At December 31, 2021, the maximum contingent consideration that could be paid is $87.7 million.
The contingent consideration is payable upon achievement of certain thresholds and targets for revenue and earnings before interest and taxes for periods from January 1, 2019 to December 31, 2020, January 1, 2019 to December 31, 2021, and January 1, 2019 to December 31, 2022.
The valuation of the contingent consideration is dependent on the following assumptions: forecasted revenues, revenue volatility, earnings before interest and taxes, and discount rate. These assumptions were estimated based on a review of the historical and projected results.
The AutoGuide acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s consolidated results of operations from the date of acquisition. AutoGuide’s AMRs are used for material transport of payloads up to 4,500 kg in manufacturing, warehouse and logistics applications. These products complement Mobile Industrial Robots A/S (“MiR”) lower payload products and expand the Industrial Automation segment, which is a key component of Teradyne’s growth strategy
.
 
AutoGuide’s results have been included in Teradyne’s Industrial Automation segment from the date of acquisition.

For the period from November 13,
2019
to December 31, 2019, AutoGuide contributed $1.4 million of revenues and had a $(0.9) million loss before income taxes.
Pro Forma Information
The following unaudited pro forma information gives effect to the acquisition of AutoGuide as if the acquisition occurred on January 1, 2018. The unaudited pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the periods presented:
 
 
  
December 31,

2019
 
 
  
(in thousands, except
per share amount)
 
Revenues
    $ 2,303,737  
Net income
    $ 464,602  
Net income per common share:
         
Basic
    $ 2.73  
    
 
 
  
Diluted
    $ 2.59  
    
 
 
  
 

62
Pro forma results for the year ended December 31, 2019 were adjusted to exclude $1.2 million of AutoGuide acquisition related costs and
$0.1 million of AutoGuide non-recurring expense related to fair value adjustment to acquisition-date inventory.
Lemsys SA
On January 30, 2019, Teradyne acquired all of the issued and outstanding shares of Lemsys SA (“Lemsys”) for a total purchase price of approximately $9.1 million. Lemsys strengthens Teradyne’s position in the electrification trends of vehicles, solar and wind power, and industrial applications. The Lemsys acquisition was accounted for as a business combination and, accordingly, the results have been included in Teradyne’s Semiconductor Test segment from the date of acquisition. Teradyne’s final allocation of the purchase price was goodwill of $1.4 million, which is not deductible for tax purposes, acquired intangible assets of $4.6 million with an average estimated useful life of 5.2 years, and $3.1 million of net tangible assets. The acquisition was not material to Teradyne’s consolidated financial statements.
Investment
s
in Other Company
On June 1, 2021, Teradyne invested $12.0 million in MachineMetrics, Inc.
 
(“MachineMetrics”), a private company that develops and sells products to improve manufacturing performance through automated machine data collection, alerting, and analytics. Teradyne’s investment in MachineMetrics aligns with its strategy of providing and investing in leading edge products for automating industrial production processes in growing markets. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. At December 31
, 2021
, the value of the investment was $12.0 million, and there was no change during the year ended December 31
, 2021
.
On June 3,
2019
, Teradyne invested $15.0 million in RealWear, Inc. (“RealWear”). RealWear, a private company, develops and sells advanced wearable technology including industrial, hands-free, head-mounted augmented reality devices that make the workplace safer and more productive. The investment was recorded at cost and is evaluated for impairment or an indication of changes in fair value resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer on a quarterly basis. On February 28, 2020, RealWear’s debt holder demanded repayment of its $25.0 million loan to RealWear. As a result, in the fourth quarter of 2019, Teradyne recorded an impairment charge of $15.0 million to reduce its investment in RealWear to zero as of December 31, 2019.

63
E.    REVENUE
Disaggregation of Revenue
The following table provides information about disaggregated revenue by timing of revenue recognition, primary geographical market, and major product lines.
 
   
Semiconductor Test
          
Industrial Automation
    
Wireless
Test
    
Corporate
and
Other
    
Total
  
   
System-
on-a-chip
    
Memory
    
System
Test
    
Universal
Robots
    
Mobile
Industrial
Robots
    
AutoGuide
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
(in thousands)
  
For the Year Ended December 31, 2021 (1)
 
Timing of Revenue Recognition
 
Point in Time
   $ 1,989,979     $ 365,441     $ 409,383     $ 305,512     $ 60,778     $ 106     $ 204,247     $ —       $ 3,335,446  
Over Time
     256,751       30,171       58,356       5,670       2,766       1,073       12,648       —         367,435  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   $ 2,246,730     $ 395,612     $ 467,739     $ 311,182     $ 63,544     $ 1,179     $ 216,895     $ —       $ 3,702,881  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Geographical Market
 
Asia Pacific
   $ 2,076,647     $ 381,444     $ 306,812     $ 81,456     $ 12,919     $ —       $ 172,103     $ —       $ 3,031,381  
Americas
     102,702       10,665       135,230       94,897       24,890       1,179       36,173       —         405,736  
Europe, Middle East and Africa
     67,381       3,503       25,697       134,829       25,735       —         8,619       —         265,764  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   $ 2,246,730     $ 395,612     $ 467,739     $ 311,182     $ 63,544     $ 1,179     $ 216,895     $ —       $ 3,702,881  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
For the Year Ended December 31, 2020 (1)
 
Timing of Revenue Recognition
 
Point in Time
   $ 1,659,414     $ 363,324     $ 348,454     $ 214,212     $ 44,622     $ 10,911     $ 163,834     $ (604 )    $ 2,804,167  
Over Time
     217,975       18,884       61,275       7,269       211       2,506       9,182       —         317,302  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   $ 1,877,389     $ 382,208     $ 409,729     $ 221,481     $ 44,833     $ 13,417     $ 173,016     $ (604 )    $ 3,121,469  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Geographical Market
 
Asia Pacific
   $ 1,744,593     $ 364,000     $ 258,521     $ 60,277     $ 6,471     $ —       $ 143,969     $ —       $ 2,577,831  
Americas
     77,671       12,999       128,482       64,164       16,769       13,417       22,544       (604 )      335,442  
Europe, Middle East and Africa
     55,125       5,209       22,726       97,040       21,593       —         6,503       —         208,196  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   $ 1,877,389     $ 382,208     $ 409,729     $ 221,481     $ 44,833     $ 13,417     $ 173,016     $ (604 )    $ 3,121,469  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
For the Year Ended December 31, 2019 (1)
 
Timing of Revenue Recognition
 
Point in Time
   $ 1,070,375     $ 247,221     $ 237,686     $ 244,515     $ 44,329     $ 1,144     $ 148,322     $ (515 )    $ 1,993,077  
Over Time
     216,065       18,910       49,769       7,843       74       234       8,993       —         301,888  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   $ 1,286,440     $ 266,131     $ 287,455     $ 252,358     $ 44,403     $ 1,378     $ 157,315     $ (515 )    $ 2,294,965  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Geographical Market
 
Asia Pacific
   $ 1,152,881     $ 238,714     $ 132,826     $ 68,027     $ 9,513     $ —       $ 126,549     $ —       $ 1,728,510  
Americas
     73,257       23,826       129,840       71,926       14,438       1,378       24,234       (515 )      338,384  
Europe, Middle East and Africa
     60,302       3,591       24,789       112,405       20,452       —         6,532       —         228,071  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total
   $ 1,286,440     $ 266,131     $ 287,455     $ 252,358     $ 44,403     $ 1,378     $ 157,315     $ (515 )    $ 2,294,965  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
(1)
Includes $13.2 million, $10.0 million and $8.4 million in 2021, 2020 and 2019, respectively, for leases of Teradyne’s systems recognized outside of ASC 606:
“Revenue from Contracts with Customers.”
Contract Balances
For the years ended December 31, 2021, 2020 and 2019, Teradyne recognized $102.5 million, $91.0 million and $65.6 million, respectively, that was included within the deferred revenue and customer advances balances at the beginning of the period. This revenue primarily relates to undelivered hardware, extended warranties, training, application support, and post contract support. Each of these represents a distinct performance


64
obligation. As of December 31,
2021
, Teradyne has $1,306.0 million of unsatisfied performance obligations. Teradyne expects to recognize 92% of the remaining performance obligation in the next 12 months, 8% in 1-3 years, and the remainder thereafter
.
F.    INVENTORIES
Inventories, net consisted of the following at December 31, 2021 and 2020:
 
    
2021
     
2020
  
    
 
 
     
 
 
  
    
(in thousands)
  
Raw material
s
    $ 155,641      $ 114,133  
Work-in-process
      37,740        25,408  
Finished goods
      49,949        82,648  
    
 
 
     
 
 
  
     $ 243,330      $ 222,189  
    
 
 
     
 
 
  
Inventory reserves for the years ended December 31, 2021 and 2020 were $114.1 million and $110.6 million, respectively.
G.    PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consisted of the following at December 31, 2021 and 2020:
 
    
2021
     
2020
  
    
 
 
     
 
 
  
    
(in thousands)
  
Land
    $ 17,207      $ 17,207  
Buildings
      126,468        108,221  
Machinery, equipment and software
      994,828        956,035  
Furniture and fixtures
      28,743        28,487  
Leasehold improvements
      64,110        61,276  
Construction in progress
      8,105        13,098  
    
 
 
     
 
 
  
       1,239,461        1,184,324  
Less: accumulated depreciation
      852,221        789,524  
    
 
 
     
 
 
  
     $ 387,240      $ 394,800  
    
 
 
     
 
 
  
Depreciation of property, plant and equipment for the years ended December 31, 2021, 2020, and 2019 was $91.1 million, $80.1 million, and $70.8 million, respectively. As of December 31, 2021 and 2020, the gross book value included in machinery and equipment for internally manufactured test systems being leased by customers was $13.4 million and $23.4 million, respectively. As of December 31, 2021 and 2020, the accumulated depreciation on these test systems was $8.7 million and $7.5 million, respectively.
H.    FINANCIAL INSTRUMENTS
Cash Equivalents
Teradyne considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents.
Marketable Securities
Teradyne recognizes the changes in fair value of equity securities directly in earnings. Teradyne’s
available-for-sale
debt securities are classified as Level 2, and equity and debt mutual funds are classified as Level 1. Contingent consideration is classified as Level 3. The vast majority of Level 2 securities are fixed
 
65
income securities priced by third party pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available, use other observable inputs like market transactions involving identical or comparable securities.
During the years ended December 31, 2021 and 2020, there were no transfers in or out of Level 1, Level 2, or Level 3 financial instruments.
Realized gains recorded in 2021, 2020, and 2019 were $3.1 million, $4.6 million, and $1.3 million, respectively. No realized losses were recorded in 2021. Realized losses recorded in 2020 and 2019 were $0.3 million and $0.2 million, respectively. Realized gains and losses are included in other (income) expense, net.
Unrealized gains on equity securities recorded during the years ended December 31, 2021 and 2020 were $5.1 million and $9.6 million, respectively. Unrealized losses on equity securities recorded during the years ended December 31, 2021 and 2020 were $1.8 million and $6.0 million, respectively. Unrealized gains and losses on equity securities are included in other (income) expense, net. Unrealized gains and losses on
available-for-sale debt securities are included in accumulated other comprehensive income (loss) on the balance sheet.
The cost of securities sold is based on average cost.
The following table sets forth by fair value hierarchy Teradyne’s financial assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2021 and 2020:
 
 
  
December 31, 2021
 
 
  
Quoted Prices

in Active

Markets for

Identical

Instruments

(Level 1)
 
  
Significant

Other

Observable

Inputs

(
Level
2)
 
  
Significant

Unobservable

Inputs

(Level 3)
 
  
Total
 
 
  
(in thousands)
 
Assets
  
      
  
      
  
      
  
      
Cash
    $ 628,740      $ —        $ —        $ 628,740  
Cash equivalents
      412,212        81,247        —          493,459  
Available for sale securities:
                                    
Commercial paper
      —          189,620        —          189,620  
U.S. Treasury securities
      —          77,789        —          77,789  
Corporate debt securities
      —          56,901        —          56,901  
Debt mutual funds
      7,971        —          —          7,971  
U.S. government agency securities
      —          4,610        —          4,610  
Certificates of deposit and time deposits
      —          1,356        —          1,356  
Non-U.S. government securities
      —          589        —          589  
Equity securities:
                                    
Mutual funds
      39,253        —          —          39,253  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 1,088,176      $ 412,112      $ —        $ 1,500,288  
Derivative assets
      —          92        —          92  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 1,088,176      $ 412,204      $ —        $ 1,500,380  
    
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities
                                    
Derivative liabilities
      —          118        —          118  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ —        $ 118      $ —        $ 118  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
66
Reported as follows:
 
 
  
(Level 1)
 
  
(Level
2
)
 
  
(Level 3)
 
  
Total
 
 
  
(in thousands)
 
Assets
  
      
  
      
  
      
  
      
Cash and cash equivalents
    $ 1,040,952      $ 81,247      $ —        $ 1,122,199  
Marketable securities
      —          244,231        —          244,231  
Long-term marketable securities
      47,224        86,634        —          133,858  
Prepayments
      —          92        —          92  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 1,088,176      $ 412,204      $ —        $ 1,500,380  
    
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities
                                    
Other current liabilities
    $ —        $ 118      $ —        $ 118  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ —        $ 118      $ —        $ 118  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
 
  
December 31, 2020
 
 
  
Quoted Prices

in Active

Markets for

Identical

Instruments

(Level 1)
 
  
Significant

Other

Observable

Inputs

(Level 2)
 
  
Significant

Unobservable

Inputs

(Level 3)
 
  
Total
 
 
  
(in thousands)
 
Assets
  
      
  
      
  
      
  
      
Cash
    $ 443,166      $ —        $ —        $ 443,166  
Cash equivalents
      347,768        123,187        —          470,955  
Available for sale securities:
                                    
U.S. Treasury securities
      —          258,304        —          258,304  
Commercial paper
      —          254,413        —          254,413  
Corporate debt securities
      —          83,615        —          83,615  
Debt mutual funds
      8,565        —          —          8,565  
U.S. government agency securities
      —          4,339        —          4,339  
Certificates of deposit and time deposits
      —          979        —          979  
Non-U.S. government securities
      —          625        —          625  
Equity securities:
                                    
Mutual funds
      29,420        —          —          29,420  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 828,919      $ 725,462      $ —        $ 1,554,381  
Derivative assets
      —          95        —          95  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 828,919      $ 725,557      $ —        $ 1,554,476  
    
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities
                                    
Contingent consideration
    $ —        $ —        $ 7,227      $ 7,227  
Derivative liabilities
      —          504        —          504  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ —        $ 504      $ 7,227      $ 7,731  
    
 
 
     
 
 
     
 
 
     
 
 
  
 
67
Reported as follows:
 
 
  
(Level 1)
 
  
(Level 2)
 
  
(Level 3)
 
  
Total
 
 
  
(in thousands)
 
Assets
  
      
  
      
  
      
  
      
Cash and cash equivalents
    $ 790,934      $ 123,187      $ —        $ 914,121  
Marketable securities
      —          522,280        —          522,280  
Long-term marketable securities
      37,985        79,995        —          117,980  
Prepayments
      —          95        —          95  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 828,919      $ 725,557      $ —        $ 1,554,476  
    
 
 
     
 
 
     
 
 
     
 
 
  
Liabilities
                                    
Other current liabilities
    $ —        $ 504      $ —        $ 504  
Long-term contingent consideration
      —          —          7,227        7,227  
    
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ —        $ 504      $ 7,227      $ 7,731  
    
 
 
     
 
 
     
 
 
     
 
 
  
Changes in the fair value of Level 3 contingent consideration for the years ended December 31, 2021 and 2020 were as follows:
 
    
Contingent Consideration
  
    
(in thousands)
  
Balance at December 31, 2019
    $ 39,705  
Foreign currency impact
      (355 ) 
Payments (1)
      (8,852 ) 
Fair value adjustment (2)
      (23,271 ) 
    
 
 
  
Balance at December 31, 2020
      7,227  
Foreign currency impact
      —    
Payments
      —    
Fair value adjustment (3)
      (7,227 ) 
    
 
 
  
Balance at December 31, 2021
    $ —    
    
 
 
  
 
(1)
During the year ended December 31, 2020, Teradyne paid $8.9 million of contingent consideration for the earn-out in connection with the acquisition of Mobile Industrial Robots (“MiR”).
(2)
During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of AutoGuide was decreased by $19.7 million primarily due to a decrease in forecasted revenues and earnings before interest and taxes. During the year ended December 31, 2020, the fair value of contingent consideration for the earn-out in connection with the acquisition of MiR was decreased by $3.5 million primarily due to a decrease in forecasted revenues.
(3)
During the year ended December 31, 2021, the fair value of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide was reduced to zero, which resulted in a benefit of $7.2 million, 
primarily due to a decrease in forecasted revenues and earnings before interest and taxes. As of December 31, 2021, the maximum amount of contingent consideration that could be paid in connection with the acquisition of AutoGuide is $87.7 million. The remaining earn-out period ends on December 31, 2022. The sellers of AutoGuide have filed an arbitration claim against Teradyne related to allegations of non-compliance with the earn-out obligations.
 
68
The carrying amounts and fair values of Teradyne’s financial instruments at December 31, 2021 and 2020 were as follows:
 
    
December 31, 2021
     
December 31, 2020
  
    
Carrying Value
     
Fair Value
     
Carrying Value
     
Fair Value
  
    
 
 
     
 
 
     
 
 
     
 
 
  
    
(in thousands)
  
Assets
                                    
Cash and cash equivalents
    $ 1,122,199      $ 1,122,199      $ 914,121      $ 914,121  
Marketable securities
      378,089        378,089        640,260        640,260  
Derivative assets
      92        92        95        95  
Liabilities
                                    
Contingent consideration
      —          —          7,227        7,227  
Derivative liabilities
      118        118        504        504  
Convertible debt (1)
      108,426        604,648        410,111        1,739,553  
 
(1)
The carrying value represents the bifurcated debt component only, while the fair value is based on quoted market prices for the convertible note which includes the equity conversion features.
The fair values of accounts receivable, net and accounts payable approximate the carrying amount due to the short-term nature of these instruments.
The following tables summarize the composition of
available-for-sale
marketable securities at December 31, 2021 and 2020:
 
 
  
December 31, 2021
 
 
  
Available-for-Sale
 
  
 
 
 
  
Cost
 
  
Unrealized

Gain
 
  
Unrealized

(Loss)
 
 
Fair
Market

Value
 
  
Fair Market

Value of Investments

with Unrealized Losses
 
 
  
(in thousands)
 
Commercial paper
    $ 189,614      $ 15      $ (9 )    $ 189,620      $ 22,784  
U.S. Treasury securities
      77,707        551        (470 )      77,789        46,435  
Corporate debt securities
      52,266        4,863        (227 )      56,901        19,422  
Debt mutual funds
      7,928        43        —         7,971        —    
U.S. government agency securities
      4,617        5        (12 )      4,610        3,296  
Certificates of deposit and time deposits
      1,356        —          —         1,356        —    
Non-U.S. government securities
      589        —          —         589        —    
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
     $ 334,077      $ 5,477      $ (718 )    $ 338,836      $ 91,937  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
Reported as follows:
 
 
  
Cost
 
  
Unrealized

Gain
 
  
Unrealized

(Loss)
 
 
Fair Market

Value
 
  
Fair Market

Value of Investments

with Unrealized Losses
 
 
  
(in thousands)
 
Marketable securities
    $ 244,213      $ 64      $ (46 )    $ 244,231      $ 54,798  
Long-term marketable securities
      89,864        5,413        (672 )      94,605        37,139  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
     $ 334,077      $ 5,477      $ (718 )    $ 338,836      $ 91,937  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
 
69
    
December 31, 2020
  
    
Available-for-Sale
         
    
Cost
     
Unrealized
Gain
     
Unrealized
(Loss)
    
Fair
Market
Value
     
Fair Market
Value of Investments
with Unrealized Losses
  
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
    
(in thousands)
  
U.S. Treasury securities
    $ 257,132      $ 1,330      $ (158 )    $ 258,304      $ 17,243  
Commercial paper
      254,404        10        (1 )      254,413        12,173  
Corporate debt securities
      76,129        7,539        (53 )      83,615        39,896  
Debt mutual funds
      8,413        152        —         8,565        —    
U.S. government agency securities
      4,294        46        (1 )      4,339        1,106  
Certificates of deposit and time deposits
      979        —          —         979        —    
Non-U.S. government securities
      625        —          —         625        —    
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
     $ 601,976      $ 9,077      $ (213 )    $ 610,840      $ 70,418  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
Reported as follows:
 
    
Cost
     
Unrealized
Gain
     
Unrealized
(Loss)
    
Fair Market
Value
     
Fair Market
Value of Investments
with Unrealized Losses
  
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
    
(in thousands)
  
Marketable securities
    $ 522,228      $ 92      $ (40 )    $ 522,280      $ 61,806  
Long-term marketable securities
      79,748        8,985        (173 )      88,560        8,612  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
     $ 601,976      $ 9,077      $ (213 )    $ 610,840      $ 70,418  
    
 
 
     
 
 
     
 
 
    
 
 
     
 
 
  
As of December 31, 2021, the fair market value of investments with unrealized losses less than one year and greater than one year totaled $85.4 million and $6.5 million, respectively.
As of December 31, 2020, the fair market value of investments with unrealized losses less than one year totaled $70.4 million.
Teradyne reviews its investments to identify and evaluate investments that have an indication of possible impairment. Based on this review, Teradyne determined that the unrealized losses related to these investments at December 31, 2021 and 2020, were not other than temporary.
The contractual maturities of investments in available-for-sale marketable securities held at December 31, 2021 were as follows:
 
    
Cost
     
Fair Value
  
 
  
 
 
 
  
 
 
 
    
(in thousands)
  
Due within one year
    $ 244,213      $ 244,231  
Due after 1 year through 5 years
      41,459        41,377  
Due after 5 years through 10 years
      6,085        6,434  
Due after 10 years
      34,392        38,823  
    
 
 
     
 
 
  
Total
    $ 326,149      $ 330,865  
    
 
 
     
 
 
  
Contractual maturities of investments in available-for-sale marketable securities held at December 31, 2021 exclude debt mutual funds with the fair market value of $8.0 million as they do not have a contractual maturity date.
 
70
Derivatives
Teradyne conducts business in a number of foreign countries, with certain transactions denominated in local currencies. The purpose of Teradyne’s foreign currency management is to minimize the effect of exchange rate fluctuations on certain foreign currency denominated monetary assets and liabilities. Teradyne does not use derivative financial instruments for trading or speculative purposes.
To minimize the effect of exchange rate fluctuations associated with the remeasurement of monetary assets and liabilities denominated in foreign currencies, Teradyne enters into foreign currency forward contracts. The change in fair value of these derivatives is recorded directly in earnings and is used to offset the change in value of the monetary assets and liabilities denominated in foreign currencies.
At December 31, 2021 and 2020, Teradyne had the following contracts to buy and sell non-U.S. currencies for U.S. dollars and other non-U.S. currencies with the following notional amounts:
 
    
December 31, 2021
    
December 31, 2020
  
    
Buy
Position
    
Sell
Position
     
Net
Total
    
Buy
Position
    
Sell
Position
     
Net
Total
  
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
    
(in millions)
  
Japanese Yen
    $ (31.4 )    $ —        $ (31.4 )    $ (14.1 )    $ —        $ (14.1 ) 
Taiwan Dollar
      (35.1 )      —          (35.1 )      (27.9 )      —          (27.9 ) 
Korean Won
      (4.2 )      —          (4.2 )      (5.3 )      —          (5.3 ) 
British Pound Sterling
      (1.8 )      —          (1.8 )      (1.0 )      —          (1.0 ) 
Singapore Dollar
      —         61.9        61.9       —         52.3        52.3  
Euro
      —         44.9        44.9       —         43.9        43.9  
Philippine Peso
      —         3.9        3.9       —         5.0        5.0  
Chinese Yuan
      —         2.8        2.8       —         3.4        3.4  
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
     
 
 
  
Total
    $ (72.5 )    $ 113.5      $ 41.0     $ (48.3 )    $ 104.6      $ 56.3  
    
 
 
    
 
 
     
 
 
    
 
 
    
 
 
     
 
 
  
The fair value of the outstanding contracts was a loss of $0.1 million and $0.4 million, respectively, at December 31, 2021 and 2020.
Gains and losses on foreign currency forward contracts and foreign currency remeasurement gains and losses on monetary assets and liabilities are included in other (income) expense, net.
The following table summarizes the fair value of derivative instruments as of December 31, 2021 and 2020:
 
 
  
Balance Sheet Location
 
  
December 31,

2021
 
 
December 31,

2020
 
 
  
 
 
  
(in thousands)
 
Derivatives not designated as hedging instruments:
  
  
 
Foreign exchange contracts
   
 
 Prepayments   
 
 $ 92     $ 95  
Foreign exchange contracts
   
 
 Other current liabilities   
 
   (118 )      (504 ) 
    
 
     
 
 
 
    
 
 
  
Total derivatives
   
 
     
 
 $ (26 )    $ (409 ) 
    
 
     
 
 
 
    
 
 
  
 
71
The following table summarizes the effect of derivative instruments in the statements of operations recognized for the years ended December 31, 2021, 2020, and 2019.
 
 
 
Location of Losses
Recognized in Statement
of Operations
 
December 31,

2021
 
 
December 31,

2020
 
 
December 31,

2019
 
 
 
 
 
(in thousands)
 
Derivatives not designated as hedging instruments:
 
  
 
      
 
      
 
      
Foreign exchange contracts
    Other (income) expense, net    $ 6,488      $ 3,515      $ 5,960  
 
(1)
The table does not reflect the corresponding gains and losses from the remeasurement of the monetary assets and liabilities denominated in foreign currencies.
(2)
For the year ended December 31, 2021 net gains from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.1 million.
(3)
For the year ended December 31, 2020, net losses from remeasurement of monetary assets and liabilities denominated in foreign currencies were $2.6 million.
(4)
For the year ended December 31, 2019 net gains from the remeasurement of monetary assets and liabilities denominated in foreign currencies were $1.6 million.
See Note J: “Debt” regarding derivatives related to the convertible senior notes.
Concentration of Credit Risk
Financial instruments which potentially subject Teradyne to concentrations of credit risk consist principally of cash equivalents, marketable securities, forward currency contracts and accounts receivable. Teradyne’s cash equivalents consist primarily of money market funds invested in U.S. Treasuries and government agencies. Teradyne’s fixed income available-for-sale marketable securities have a minimum rating of AA by one or more of the major credit rating agencies. Teradyne places foreign currency forward contracts with high credit-quality financial institutions in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. Teradyne performs ongoing credit evaluations of its customers’ financial condition and from time to time may require customers to provide a letter of credit from a bank to secure accounts receivable.
There were no customers who accounted for more than 10% of our accounts receivable balance as of December 31, 2021.
 
As of December 31, 2020, a customer of our Semiconductor Test segment, JA Mitsui Leasing, LTD, accounted for
25
% of our accounts receivable balance. The balance was paid in full as of February 22, 2021.
I.    LEASES
Teradyne has facility and auto leases, which are accounted for as operating leases. Teradyne’s facility leases are primarily used for administrative functions, research and development, manufacturing, and storage and distribution. Remaining lease terms range from less than one year to twelve years.
Total lease expense for the year ended December 31, 2021 was $39.2 million and included $12.6 million of variable lease costs and $1.8 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets.
Total lease expense for the year ended December 31, 2020 was $38.5 million and included $12.1 million of variable lease costs and $3.4 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets.
Total lease expense for the year ended December 31, 2019 was $35.6 million and included $11.1 million of variable lease costs and $2.6 million of costs related to short-term leases, which are not recorded on the consolidated balance sheets.
 
72
At December
 31, 2021, the weighted average remaining lease term and weighted average discount rate for operating leases was 5.3 years and 4.1%, respectively. At December 31, 2020, the weighted average remaining lease term and weighted average discount rate for operating leases was 4.2 years and 4.8%, respectively.
Supplemental cash flows information related to leases was as follows:
 
 
  
For the Years Ended
 
 
  
December 31,
2021
 
  
December 31,
2020
 
  
December 31,
2019
 
 
  
 
 
  
(in thousands)
 
  
 
 
Cash paid for amounts included in the measurement of lease liabilities included in operating cash flows
  
$
24,593
 
  
$
24,136
 
  
$
19,400
 
Right-of-use assets obtained in exchange for new lease obligations
  
 
34,246
 
  
 
14,801
 
  
 
26,739
 
Maturities of lease liabilities as of December 31, 2021 were as follows:
 
    
Operating Lease
  
    
(in thousands)
  
2022
    $ 22,525  
2023
      16,187  
2024
      13,675  
2025
      10,717  
2026
      8,553  
Thereafter
      11,188  
    
 
 
  
Total lease payments
      82,845  
Less imputed interest
      (6,690 ) 
    
 
 
  
Total lease liabilities
    $ 76,155  
    
 
 
  
J.    DEBT
Convertible Senior Notes
On December 12, 2016, Teradyne completed a private offering of $460.0 million aggregate principal amount of 1.25% convertible senior unsecured notes (the “Notes”) due December 15, 2023 and received net proceeds, after issuance costs, of approximately $450.8 million, $33.0 million of which was used to pay the net cost of the convertible note hedge transactions and $50.1 million of which was used to repurchase 2.0 million shares of Teradyne’s common stock under its existing stock repurchase program from purchasers of the Notes in privately negotiated transactions effected through one of the initial purchasers or its affiliates conducted concurrently with the pricing of the Note offering. The Notes will mature on December 15, 2023, unless earlier repurchased or converted. The Notes bear interest at a rate of 1.25% per year payable semiannually in arrears on
June 15 and December 15 of each year. The Notes will be convertible at the option of the noteholders at any time prior to the close of business on the business day immediately preceding
September 15, 2023
, only under the following circumstances: (1) during any calendar quarter beginning after March 31, 2017 (and only during such calendar quarter), if the closing sale
price
of Teradyne’s common stock, for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the closing sale price of the Teradyne’s common stock and the conversion rate on each such trading day; and (3) upon the occurrence of specified corporate events. On or after September 15, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time, regardless of the
foregoing
 
73
circumstances. Teradyne may satisfy its future conversion obligation by paying cash for the principal amount of the Notes and paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock, at Teradyne’s election for the amount in excess of principal. As of December 31, 2021, the conversion price was approximately
$31.52
 
per share of Teradyne’s common stock. The conversion rate is subject to adjustment under certain circumstances.
During 2021 sixty
four
holders converted $
343.0 
million resulting in a loss of $
28.8 
million recorded to other (income) expense on the consolidated statement of operations. The amount of the loss was determined using the conversion value of the conversion transactions based on the fair value of debt immediately prior to conversion using an updated remaining expected life of the debt instrument and an updated borrowing rate for a similar debt instrument that does not have an associated convertible feature.
As of February 
23
, 2022,
eighty three holders had exercised the option to convert 
$362.6 million worth of notes. On November 4, 2021, Teradyne made an irrevocable election under the Indenture to require the principal portion of the remaining Notes to be settled in cash.
Concurrent with the offering of the Notes,
 
Teradyne entered into convertible note hedge transactions (the “Note Hedge Transactions”) with the initial purchasers or their affiliates (the “Option Counterparties”). The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the common stock that underlie the Notes, with a strike price equal to the conversion price of the Notes of $
31.52
. The Note Hedge Transactions cover, subject to customary anti-dilution adjustments, approximately
4.4
 million shares of Teradyne’s common stock.
Separately and concurrent with the pricing of the Notes, Teradyne entered into warrant transactions with the Option Counterparties (the “Warrant Transactions”) in which it sold net-share-settled (or, at its election subject to certain conditions, cash-settled) warrants to the Option Counterparties. The Warrant Transactions cover, subject to customary anti-dilution adjustments, approximately 14.6 million shares of common stock. As of December 31, 2021, the strike price of the warrants was approximately $39.55 per share. The strike price is subject to adjustment under certain circumstances. The Warrant Transactions could have a dilutive effect to Teradyne’s common stock to the extent that the market price per share of Teradyne’s common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.
The Note Hedge Transactions are expected to reduce the potential dilution to Teradyne’s common stock upon any conversion of the Notes. However, the Warrant Transactions could separately have a dilutive effect to the extent that the market value per share of Teradyne’s common stock exceeds the applicable strike price of the warrant. The net cost of the Note Hedge Transactions, after being partially offset by the proceeds from the sale of the warrants, was approximately $33.0 million.
In connection with establishing their initial hedge of these convertible note hedge and warrant transactions, the Option Counterparties have entered into various derivative transactions with respect to Teradyne’s common stock and/or purchased shares of Teradyne’s common stock or other securities, including the Notes, concurrent with, or shortly after, the pricing of the Notes. In addition, the Option Counterparties may modify their hedge positions by entering into or unwinding various derivative transactions with respect to Teradyne’s common stock or by selling Teradyne’s common stock or other securities, including the Notes, in secondary market transactions (and may do so during any observation period related to the conversion of the Notes). These activities could adversely affect the value of Teradyne’s common stock and the Notes.

Teradyne allocated $100.8 million of the $460.0 million principal amount of the Notes to the equity component, which represents a discount to the debt and will be amortized to interest expense using the effective interest method through December 2023. Accordingly, Teradyne’s effective annual interest rate on the Notes will be approximately 5.0%. The Notes are classified as long-term debt on the balance sheet based on
their
December 15, 2023 maturity date. Debt issuance costs of approximately $7.2 million are being
amortized to
 
74
interest expense using the effective
interest method over the seven-year term of the Notes. As of December 31, 2021, debt issuance costs were approximately $0.6 million.
The below tables represent the key components of Teradyne’s convertible senior notes:
 
 
  
December 31,
2021
 
  
December 31,
2020
 
 
  
(in thousands)
 
Debt principal
    $ 116,980      $ 459,971  
Unamortized discount
      8,554        49,860  
    
 
 
     
 
 
  
Net carrying amount of convertible debt
    $ 108,426      $ 410,111  
    
 
 
     
 
 
  
Reported as follows:
 
 
  
December 31,
2021
 
  
December 31,
2020
 
 
  
(in thousands)
 
Current debt
    $ 19,182      $ 33,343  
Long-term debt
      89,244        376,768  
    
 
 
     
 
 
  
Net carrying amount of convertible debt
    $ 108,426      $ 410,111  
    
 
 
     
 
 
  
 
    
For the year
s
ended
  
    
December 31,
2021
     
December 31,
2020
  
 
  
 
 
 
  
 
 
 
    
(in thousands)
  
Contractual interest expense on the coupon
    $ 3,009      $ 5,750  
Amortization of the discount component and debt issue fees recognized as interest expense
      11,019        15,454  
    
 
 
     
 
 
  
Total interest expense on the convertible debt
    $ 14,028      $ 21,204  
    
 
 
     
 
 
  
As of December 31, 2021, the unamortized discount was $8.6 million, which will be amortized over two years using the effective interest rate method
,
 t
he carrying amount of the equity component was $100.8
 million,
 the conversion price was approximately $31.52 per share and if converted the value of the notes was $606.9 million.
Additional conversions of approximately $20.7 million of debt principal will occur in the first quarter of 2022.

Teradyne expects to make principal interest payments of $1.5 million in the next 12 months and $1.5 million thereafter.
The liability component is included in current debt and the equity component is included in convertible common shares.
Revolving Credit Facility
On June 27, 2019, Teradyne terminated its credit agreement, which Teradyne entered into with Barclays Bank PLC on April 27, 2015. The terminated credit agreement, which was undrawn at termination, provided for a five-year, senior secured revolving credit facility of up to $350 million.
On May 1, 2020, Teradyne entered into a credit agreement (the “Credit Agreement”) with Truist Bank, as administrative agent and collateral agent, and the lenders party thereto. The Credit Agreement provides for a three-year, senior secured revolving credit facility of $400.0 million (the “Credit Facility”).

 

75
On December 10, 2021, the
Credit Agreement
was amended to extend maturity date of the Credit Facility to December 10, 2026. The amended Credit Agreement
provides that, subject to customary conditions, Teradyne may seek to obtain from existing or new lenders
the available
incremental
amount
under the Credit Facility
,
 not
 to exceed
 the greater of
$200.0 million
 
or 15% of consolidated EBIDTA.
 
The interest rate applicable to loans under the Credit Facility are, at Teradyne’s option, equal to either a base rate plus a margin ranging from
0.00
% to
0.75
% per annum or LIBOR 
plus a margin ranging from
1.00
% to
1.75
% per annum, based on the consolidated leverage ratio of Teradyne. In addition, Teradyne will pay a commitment fee on the unused portion of the commitments under the Credit Facility ranging from
0.15
% to
0.25
% per annum, based on the then applicable consolidated leverage ratio.
Teradyne is not required to repay any loans under the Credit Facility prior to maturity, subject to certain customary exceptions. Teradyne is permitted to prepay all or any portion of the loans under the Credit Facility prior to maturity without premium or penalty, other than customary LIBOR breakage costs.
The Credit Agreement contains customary events of default, representations, warranties and affirmative and negative covenants that, among other things, limit Teradyne’s ability to sell assets, grant liens on assets, incur other secured indebtedness and make certain investments and restricted payments, all subject to exceptions set forth in the Credit
Agreement
. The Credit Agreement also requires Teradyne to satisfy two financial ratios measured as of the end of each fiscal quarter; a consolidated leverage ratio and an interest coverage ratio.
The Credit Facility is guaranteed by certain of Teradyne’s domestic subsidiaries and collateralized by assets of Teradyne and such subsidiaries, including a pledge of 65% of the capital stock of certain foreign subsidiaries.
As of December 31, 2021,
 the Credit Agreement was undrawn and
Teradyne was in compliance with all covenants under the Credit Agreement.

 

76
K.    ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Changes in accumulated other comprehensive (loss) income, which is presented net of tax, consist of the following:
 
    
Foreign
Currency
Translation
Adjustment
    
Unrealized
Gains
(Losses) on
Marketable
Securities
     
Retirement
Plans Prior
Service
Credit
     
Total
  
 
  
 
 
 
 
 
 
 
  
 
 
 
  
 
 
 
    
(in thousands)
  
Balance at December 31, 2019, net of tax of $0, $946, $(1,124), respectively
    $ (23,514 )    $ 3,480      $ 1,180      $ (18,854 ) 
    
 
 
    
 
 
     
 
 
     
 
 
  
Other comprehensive income before reclassifications, net of tax of $0, $1,629, $0, respectively
      48,903       5,839        —          54,742  
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(665), $(2), respectively
      —         (2,365 )      (7 )      (2,372 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net current period other comprehensive income (loss), net of tax of $0, $964, $(2), respectively
      48,903       3,474       (7 )      52,370  
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at December 31, 2020, net of tax of $0, $1,910, $(1,126), respectively
    $ 25,389     $ 6,954     $ 1,173     $ 33,516  
    
 
 
    
 
 
    
 
 
    
 
 
  
Other comprehensive loss before reclassifications, net of tax of $0, $(578), $0, respectively
      (36,207 )      (2,255 )      —         (38,462 ) 
Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(277), $(2), respectively
      —         (995 )      (7 )      (1,002 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net current period other comprehensive loss, net of tax of $0, $(855), $(2), respectively
      (36,207 )      (3,250 )      (7 )      (39,464 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at December 31, 2021, net of tax of $0, $1,055, $(1,128), respectively
    $ (10,818 )    $ 3,704     $ 1,166     $ (5,948 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Reclassifications out of accumulated other comprehensive (loss) inco
m
e to the statements of op
e
rations for the years ended December 31, 2021, 2020, and 2019, were as follows:
 
Details about Accumulated
Other Comprehensive (Loss) Income
Components
   
For the year
s
ended
     
Affected Line Item

in the Statements

of Operations
  
    
December 31,
2021
     
December 31,
2020
     
December 31,
2019
         
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
    
(in thousands)
         
Available-for-sale marketable securities
                                    
Unrealized gains, net of tax of $277, $665, $192, respectively
    $ 995      $ 2,365      $ 690        Interest income  
Defined benefit pension and postretirement plans:
                                    
Amortization of prior service benefit, net of tax of $2, $2, $43, respectively
      7        7        148        (a)  
    
 
 
     
 
 
     
 
 
           
Total reclassifications, net of tax of $279, $667, $235, respectively
    $ 1,002      $ 2,372      $ 838        Net income  
    
 
 
     
 
 
     
 
 
           
 
(a)
The amortization of prior service credit is included in the computation of net periodic pension cost and postretirement benefit; see Note P: “Retirement Plans.”
 

77
L.    GOODWILL AND INTANGIBLE ASSETS
Goodwill
Teradyne performs its annual goodwill impairment test as required under the provisions of ASC 350-10, “
Intangibles—Goodwill and Other,
” on December 31 of each fiscal year unless interim indicators of impairment exist. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value.
Teradyne has the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If Teradyne determines this is the case, Teradyne is required to perform a quantitative goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. If Teradyne determines that it is more likely than not that the fair value of the reporting unit is greater than its carrying amounts, the quantitative goodwill impairment test is not required. In performing the quantitative goodwill impairment test, Teradyne determines the fair value of a reporting unit using the results derived from an income approach and a market approach, weighting the fair value determined under each approach to determine an estimated fair value for a reporting unit. The income approach is estimated through the discounted cash flows (“DCF”) analysis. Determining fair value requires the exercise of significant judgment, including judgments about appropriate discount rates, perpetual growth rates, and the amount and timing of expected future cash flows. Discount rates are based on a weighted average cost of capital (“WACC”), which represents the average rate a business must pay its providers of debt and equity, plus a risk premium. The WACC used to test goodwill is derived from a group of comparable companies. The cash flows employed in the DCF analysis are derived from internal forecasts and external market forecasts. The market approach estimates the fair value of the reporting unit by utilizing the market comparable method which is based on revenue and earnings multiples from comparable companies. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. If the carrying amount of a reporting unit exceeds its estimated fair value, then the goodwill is written down by the amount that carrying value exceeds the fair value of the reporting unit, but not below zero.
On September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the appointment of Gregory Smith, the Industrial Automation reportable segment, which includes UR, MiR and AutoGuide, is considered one operating segment and one reporting unit. Teradyne performed a goodwill impairment test at the time of the change in operating segments, which indicated the fair value of Teradyne’s reporting units exceeded their carrying values.
In the fourth quarter of 2021, Teradyne performed the annual goodwill impairment test, completing a quantitative assessment for the Wireless Test, and System Test reporting units and qualitative assessment for the Industrial Automation reporting unit. There was no impairment as a result of the annual test performed in the fourth quarter of 2021. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.
In the fourth quarter of 2020, Teradyne performed the annual goodwill impairment test, completing a qualitative assessment for the Wireless Test, System Test, and Industrial Automation reporting units. There was no impairment as a result of the annual test performed in the fourth quarter of 2020. Key assumptions in the goodwill valuation model are forecasted revenues, discount rate, earnings before interest and taxes, and revenue multiples from comparable companies. A change in any of these key assumptions could result in the reporting unit being impaired in a future period.

 
78
The changes in the carrying amount of goodwill by reportable segments for the years ended D
e
cember 31, 2021 and 2020 are as follows:
 
    
Industrial
Automation
    
Wireless
Test
    
Semiconductor
Test
    
System
Test
    
Total
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Balance at December 31, 2019:
                                         
Goodwill
    $ 396,483     $ 361,819     $ 261,996     $ 158,699     $ 1,178,997  
Accumulated impairment losses
      —         (353,843 )      (260,540 )      (148,183 )      (762,566 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
       396,483       7,976       1,456       10,516       416,431  
AutoGuide acquisition
      (149 )      —         —         —         (149 ) 
Foreign currency translation adjustment
      37,418       —         159       —         37,577  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at December 31, 2020:
                                         
Goodwill
      433,752       361,819       262,155       158,699       1,216,425  
Accumulated impairment losses
      —         (353,843 )      (260,540 )      (148,183 )      (762,566 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
       433,752       7,976       1,615       10,516       453,859  
Foreign currency translation adjustment
      (27,781 )      —         (54 )      —         (27,835 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Balance at December 31, 2021:
                                         
Goodwill
      405,971       361,819       262,101       158,699       1,188,590  
Accumulated impairment losse
s
      —         (353,843 )      (260,540 )      (148,183 )      (762,566 ) 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
     $ 405,971     $ 7,976     $ 1,561     $ 10,516     $ 426,024  
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Intangible Assets
Teradyne reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate.
There were no events or circumstances indicating that the carrying value of intangible and long-lived assets may not be recoverable in 2021, 2020 and 2019.
Amortizable intangible assets consist of the following and are included in intangible assets, net on the balance sheets:
 
 
  
December 31, 2021
 
 
  
Gross

Carrying

Amount (1)
 
  
Accumulated

Amortization (1)
 
 
Foreign
Currency
Translation
Adjustment
 
 
Net

Carrying

Amount
 
 
  
(in thousands)
 
Developed technology
    $ 272,547      $ (223,413 )    $ (4,093 )    $ 45,041  
Customer relationships
      57,739        (48,921 )      209       9,027  
Tradenames and trademarks
      59,387        (37,237 )      (583 )      21,567  
    
 
 
     
 
 
    
 
 
    
 
 
  
Total intangible assets
    $ 389,673      $ (309,571 )    $ (4,467 )    $ 75,635  
    
 
 
     
 
 
    
 
 
    
 
 
  
 
79
    
December 31, 2020
  
    
Gross
Carrying
Amount
     
Accumulated
Amortization
    
Foreign
Currency
Translation
Adjustment
    
Net
Carrying
Amount
  
 
  
 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Developed technology
    $ 272,547      $ (210,479 )    $ (1,610 )    $ 60,458  
Customer relationships
      66,239        (54,524 )      305       12,020  
Tradenames and trademarks
      70,120        (42,344 )      685       28,461  
    
 
 
     
 
 
    
 
 
    
 
 
  
Total intangible assets
    $ 408,906      $ (307,347 )    $ (620 )    $ 100,939  
    
 
 
     
 
 
    
 
 
    
 
 
  
 
(1)
In 2021, $19.2
million of amortizable intangible assets became fully amortized and have been eliminated from the gross carrying amount and accumulated amortization.
Aggregate intangible assets amortization expense for the years ended December 31, 2021, 2020, and 2019, was $21.5 million, $30.8 million, and $40.1 million, respectively. Estimated intangible assets amortization expense for each of the five succeeding fiscal years is as follows:
 
Year
   
Amortization Expense
  
    
(in thousands)
  
2022
    $ 20,081  
2023
      19,592  
2024
      19,283  
2025
      11,546  
2026
      2,423  
Thereafter
      2,710  
M.    COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of December 31, 2021, Teradyne had entered into non-cancelable purchase commitments for certain components and materials. The purchase commitments covered by the agreements aggregate to approximately $884.3 million, of which $839.2 million is for less than one year.
Legal Claims
Teradyne is subject to various legal proceedings and claims which have arisen in the ordinary course of business such as, but not limited to, patent, employment, commercial and environmental matters. Teradyne believes that it has meritorious defenses against all pending claims and intends to vigorously contest them. While it is not possible to predict or determine the outcomes of any pending claims or to provide possible ranges of losses that may arise, Teradyne believes the potential losses associated with all of these actions are unlikely to have a material adverse effect on its business, financial position or results of operations.
On March 8, 2021, Industrial Automation LLC submitted a demand for arbitration against Teradyne and AutoGuide in Wilmington, Delaware alleging that Teradyne and AutoGuide breached certain provisions of the Membership Interests Purchase Agreement (the “Purchase Agreement”), dated as of October 18, 2019, among Industrial Automation LLC, Teradyne and AutoGuide. The arbitration demand seeks full acceleration of the maximum earnout amount payable under the Purchase Agreement, or $106.9 million,
 for the alleged breach of the earnout provisions of the Purchase Agreement. On March 26, 2021, Teradyne and AutoGuide filed an answer denying that Teradyne and AutoGuide breached any provisions of the Purchase Agreement. The arbitration hearing is scheduled for March 21, 2022. While it is not possible at this stage to predict the outcome of the arbitration,
 
a material loss is reasonably possible, but not estimab
le.
 
Teradyn
e and AutoGuide intend to vigorously defend against the Industrial Automation LLC claims. The ultimate amount of contingent consideration for the earn-outs in connection with the acquisition of AutoGuide may be affected by the outcome of the arbitration.
 
80
Guarantees and Indemnification Obligations
Teradyne provides indemnification, to the extent permitted by law, to its officers, directors, employees and agents for liabilities arising from certain events or occurrences, while the officer, director, employee, or agent, is or was serving, at Teradyne’s request in such capacity. Teradyne may enter into indemnification agreements with certain of its officers and directors. With respect to acquisitions, Teradyne provides indemnifications to or assumes indemnification obligations for the current and former directors, officers and employees of the acquired companies in accordance with the acquired companies’ by-laws and charter. As a matter of practice, Teradyne has maintained directors’ and officers’ liability insurance coverage including coverage for directors and officers of acquired companies.
Teradyne enters into agreements in the ordinary course of business with customers, resellers, distributors, integrators and suppliers. Most of these agreements require Teradyne to defend and/or indemnify the other party against intellectual property infringement claims brought by a third party with respect to Teradyne’s products. From time to time, Teradyne also indemnifies customers and business partners for damages, losses and liabilities they may suffer or incur relating to personal injury, personal property damage, product liability, breach of confidentiality obligations and environmental claims relating to the use of Teradyne’s products and services or resulting from the acts or omissions of Teradyne, its employees, authorized agents or subcontractors. On occasion, Teradyne has also provided guarantees to customers regarding the delivery and performance of its products in addition to the warranty described below.
As a matter of ordinary course of business, Teradyne warrants that its products will substantially perform in accordance with its standard published specifications in effect at the time of delivery. Most warranties have a one-year duration commencing from installation. A provision is recorded upon revenue recognition to cost of revenues for estimated warranty expense based upon historical experience. When Teradyne receives revenue for extended warranties beyond the standard duration, the revenue is deferred and recognized on a straight-line basis over the contract period. Related costs are expensed as incurred. As of December 31, 2021, and 2020, Teradyne had a product warranty accrual of $24.6 million and $16.6 million, respectively, included in other accrued liabilities, and revenue deferrals related to extended warranties of $64.2 million and $51.9 million, respectively, included in short and long-term deferred revenue and customer advances.
In addition, in the ordinary course of business, Teradyne provides minimum purchase guarantees to certain vendors to ensure continuity of supply against the market demand. Although some of these guarantees provide penalties for cancellations and/or modifications to the purchase commitments as the market demand decreases, most of the guarantees do not. Therefore, as the market demand decreases, Teradyne re-evaluates these guarantees and determines what charges, if any, should be recorded.
With respect to its agreements covering product, business or entity divestitures and acquisitions, Teradyne provides certain representations, warranties and covenants to purchasers and agrees to indemnify and hold such purchasers harmless against breaches of such representations, warranties and covenants. Many of the indemnification claims have a definite expiration date while some remain in force indefinitely. With respect to its acquisitions, Teradyne may, from time to time, assume the liability for certain events or occurrences that took place prior to the date of acquisition.
As a matter of ordinary course of business, Teradyne occasionally guarantees certain indebtedness obligations of its subsidiary companies, limited to the borrowings from financial institutions, purchase commitments to certain vendors, and lease commitments to landlords.
Based on historical experience and information known as of December 31, 2021, and 2020, except for product warranty, Teradyne has not recorded any liabilities for these guarantees and obligations because the amount would be immaterial.
 
81
N.    NET INCOME PER COMMON SHARE
The following table sets forth the computation of basic and diluted net income per common share:
 
 
  
2021
 
  
2020
 
  
2019
 
 
  
(in thousands, except per share amounts)
 
Net income for basic and diluted net income per share
    $ 1,014,589      $ 784,147      $ 467,468  
    
 
 
     
 
 
     
 
 
  
Weighted average common shares-basic
      164,960        166,120        170,425  
Effect of dilutive potential common shares:
                           
Convertible note hedge warrant shares (1)
      9,956        6,989        2,698  
Incremental shares from assumed conversion of convertible notes (2)
      7,435        8,528        4,909  
Restricted stock units
      1,180        1,264        1,236  
Stock options
      86        131        178  
Employee stock purchase rights
      8        10        13  
    
 
 
     
 
 
     
 
 
  
Dilutive potential common shares
      18,665        16,922        9,034  
    
 
 
     
 
 
     
 
 
  
Weighted average common shares-diluted
      183,625        183,042        179,459  
    
 
 
     
 
 
     
 
 
  
Net income per common share-basic
    $ 6.15      $ 4.72      $ 2.74  
    
 
 
     
 
 
     
 
 
  
Net income per common share-diluted
    $ 5.53      $ 4.28      $ 2.60  
    
 
 
     
 
 
     
 
 
  
 
(1)
Convertible notes hedge warrant shares were calculated using the difference between the average Teradyne stock price for the period and the warrant price of $39.55, multiplied by 14.6 million shares. The result of this calculation, representing the total intrinsic value of the warrant, was divided by the average Teradyne stock price for the period.
(2)
Incremental shares from the assumed conversion of the convertible notes was calculated using the difference between the average Teradyne stock price for the period and the conversion price of $31.52, multiplied by 4.4 million shares. The result of this calculation, representing the total intrinsic value of the convertible debt, was divided by the average Teradyne stock price for the period.
The computation of diluted net income per common share for 2021 and 2020 excludes the effect of the potential exercise of stock options to purchase approximately 0.1 million shares and restricted stock units to purchase approximately 0.1 million shares because the effect would have been anti-dilutive.
O.    RESTRUCTURING AND OTHER
During the year ended December 31, 2021, Teradyne recorded $1.5 million of severance charges primarily in Industrial Automation, $0.5 million of acquisition related compensation and expenses and $14.5
 
m
illion for other expenses, offset by a $7.2 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability.
During the year ended December 31, 2020, Teradyne recorded a $19.7 million gain for the decrease in the fair value of the AutoGuide contingent consideration liability, and a $3.5 million gain for the decrease in the fair value of the MiR contingent consideration liability, partially offset by a
$4.0 million contract termination settlement charge, $2.5 million of acquisition related compensation and expenses, $2.3 million of severance charges primarily in Industrial Automation, and $1.2 million of other expenses.
During the year ended December 31, 2019, Teradyne recorded a gain of $22.2 million from the decrease in the fair value of the MiR contingent consideration liability, partially offset by a $3.0 million increase in the fair value of the AutoGuide contingent consideration, $2.9 million of severance charges related to headcount reductions primarily in Semiconductor Test and Industrial Automation, and $2.5 million for acquisition related expenses and compensation
 
82
P.    RETIREMENT PLANS
ASC 715
,
“
Compensation—Retirement Benefits,
” requires an employer with defined benefit plans or other postretirement benefit plans to recognize an asset or a liability on its balance sheet for the overfunded or underfunded status of the plans as defined by ASC 715. The pension asset or liability represents a difference between the fair value of the pension plan’s assets and the projected benefit obligation at December 31. Teradyne uses a December 31 measurement date for all of its plans.

Defined Benefit Pension Plans
Teradyne has defined benefit pension plans covering a portion of domestic employees and employees of certain non-U.S. subsidiaries. Benefits under these plans are based on employees’ years of service and compensation. Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. The assets of these plans consist primarily of fixed income and equity securities. In addition, Teradyne has an unfunded supplemental executive defined benefit plan in the United States to provide retirement benefits in excess of levels allowed by the Employment Retirement Income Security Act (“ERISA”) and the Internal Revenue Code (the “IRC”), as well as unfunded qualified foreign plans.
In 2021, Teradyne’s projected benefit obligations decreased primarily due to actuarial gains of approximately $8.7 million across all pension plans from increases in discount rates, and approximately $3.3 million gain from foreign exchange effects for
foreign plans.
In 2020, Teradyne’s projected benefit obligations increased primarily due to actuarial losses of approximately $27.6 million across all pension plans from decreases in discount rates, and approximately $4.0 million from unfavorable foreign exchange effects for the German plan, partially offset by a transfer of obligations for approximately 115 retiree participants to an insurance company which resulted in a $24.4 million reduction in the projected benefit obligations and pension assets. We also recorded a settlement loss of $0.5 million related to the retiree group annuity transaction.
The December 31 balances of these defined benefit pension plans assets and obligations are shown below:
 
    
2021
    
2020
  
    
United States
    
Foreign
    
United States
    
Foreign
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Assets and Obligations
                                 
Change in benefit obligation:
                                 
Projected benefit obligation:
                                 
Beginning of year
    $ 202,233     $ 50,988     $ 203,791     $ 43,952  
Service cost
      1,784       941       1,773       907  
Interest cost
      4,427       337       5,770       516  
Actuarial (gain) loss
      (6,432 )      (2,257 )      24,671       2,951  
Benefits paid
      (9,337 )      (925 )      (9,844 )      (1,299 ) 
Retiree annuity purchase
      —         —         (24,379 )      —    
Liability (gain) loss due to settlement
      (204 )      —         451       —    
Non-U.S. currency movement
      —         (3,310 )      —         3,961  
    
 
 
    
 
 
    
 
 
    
 
 
  
End of year
      192,472       45,774       202,233       50,988  
    
 
 
    
 
 
    
 
 
    
 
 
  
Change in plan assets:
                                 
Fair value of plan assets:
                                 
Beginning of year
      158,855       1,856       166,932       1,586  
Actual return on plan assets
      (3,217 )      33       23,048       67  
Company contributions
      3,276       1,022       3,098       1,079  
Benefits paid
      (9,337 )      (925 )      (9,844 )      (988 ) 
Retiree annuity purchase
      —         —         (24,379 )      —    
Non-U.S. currency movement
      —         31       —         112  
    
 
 
    
 
 
    
 
 
    
 
 
  
End of year
      149,578       2,017       158,855       1,856  
    
 
 
    
 
 
    
 
 
    
 
 
  
Funded status
    $ (42,894 )    $ (43,757 )    $ (43,378 )    $ (49,132 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
83
The following table provides amounts recorded within the account line items of the statements of financial position as of December 31:
 
    
2021
    
2020
  
    
United States
    
Foreign
    
United States
    
Foreign
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Retirement plans assets
    $ 15,110     $ —       $ 17,468     $ —    
Accrued employees’ compensation and withholdings
      (3,288 )      (936 )      (3,273 )      (1,019 ) 
Retirement plans liabilities
      (54,716 )      (42,821 )      (57,573 )      (48,113 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
Funded status
    $ (42,894 )    $ (43,757 )    $ (43,378 )    $ (49,132 ) 
    
 
 
    
 
 
    
 
 
    
 
 
  
The accumulated benefit obligation for the United States defined benefit pension plans was $187.5 million and $196.7 million at December 31, 2021 and 2020, respectively. The accumulated benefit obligation for foreign defined benefit pension plans was $42.5 million and $46.5 million at December 31, 2021 and 2020, respectively.
Information for pension plans with an accumulated benefit obligation in excess of plan assets as of December 31:
 
    
2021
     
2020
  
    
United States
     
Foreign
     
United States
     
Foreign
  
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
    
(in millions)
  
Projected benefit obligatio
n
    $ 58.0      $ 45.8      $ 60.8      $ 51.0  
Accumulated benefit obligation
      55.7        42.5        58.5        46.5  
Fair value of plan assets
      —          2.0        —          1.9  
Expense
For the years ended December 31, 2021, 2020, and 2019, Teradyne’s net periodic pension cost (income) was comprised of the following:
 
 
 
2021
 
 
2020
 
 
2019
 
 
 
United
States
 
 
Foreign
 
 
United
States
 
 
Foreign
 
 
United
States
 
 
Foreign
 
 
 
(in thousands)
 
Components of Net Periodic Pension Cost (Income):
 
 
 
 
 
 
Service cost
   $ 1,784     $ 941     $ 1,773     $ 907     $ 1,608     $ 751  
Interest cost
     4,427       337       5,770       516       7,189       691  
Expected return on plan assets
     (3,858 )      (67 )      (4,840 )      (65 )      (6,042 )      (29 ) 
Net actuarial loss (gain)
     643       (2,223 )      6,463       2,949       2,973       4,485  
Settlement (gain) loss
     (204 )      —         451       —         —         —    
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Total net periodic pension cost (income)
   $ 2,792     $ (1,012 )    $ 9,617     $ 4,307     $ 5,728     $ 5,898  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Weighted Average Assumptions to Determine Net Periodic Pension Cost at January 1:
 
    
2021
    
2020
    
2019
  
    
United States
    
Foreign
    
United States
    
Foreign
    
United States
    
Foreign
  
Discount rate
      2.2 %      0.7 %      2.8 %      1.1 %      4.1 %      1.8 % 
Expected return on plan assets
      2.4       3.5       3.0       3.8       4.3       2.0  
Salary progression rate
      2.4       2.3       2.6       2.5       2.3       2.5  
 
84
Weighted Average Assumptions to Determine Pension Obligations at December 31:
 
    
2021
    
2020
  
    
United States
    
Foreign
    
United States
    
Foreign
  
Discount rate
      2.6 %      1.1 %      2.2 %      0.7 % 
Salary progression rate
      2.4       2.2       2.4       2.3  
In developing the expected return on plan assets assumption, Teradyne evaluates input from its investment manager and pension consultants, including their forecast of asset class return expectations. Teradyne believes that 2.4% was an appropriate rate to use for fiscal year 2021 for the U.S. Qualified Pension Plan (“U.S. Plan”).
Teradyne recognizes net actuarial gains and losses and the change in the fair value of the plan assets in its operating results in the year in which they occur or upon any interim remeasurement of the plans. Teradyne calculates the expected return on plan assets using the fair value of the plan assets. Actuarial gains and losses are generally measured annually as of December 31 and, accordingly, recorded during the fourth quarter of each year or upon any interim remeasurement of the plans.
The discount rate utilized to determine future pension obligations for the U.S. Plan is based on FTSE Pension Index adjusted for the plan’s expected cash flows and was 2.65% at December 31, 2021, up from 2.3% at December 31, 2020.
Plan Assets
As of December 31, 2021, the fair value of Teradyne’s pension plans’ assets totaled $151.6 million, of which $149.6 million was related to the U.S. Plan and $2.0 million was related to the Taiwan defined benefit pension plan. Substantially all of Teradyne’s pension plans’ assets are held in individual trusts, which were established for the investment of assets of Teradyne’s sponsored retirement plans.
The following table provides weighted average pension asset allocation by asset category at December 31, 2021 and 2020:
 
    
2021
    
2020
  
    
United States
    
Foreign
    
United States
    
Foreign
  
Fixed income securities
      94.0 %      —   %      94.0 %      —   % 
Equity securities
      5.0       —         5.0       —    
Other
      1.0       100.0       1.0       100.0  
    
 
 
    
 
 
    
 
 
    
 
 
  
       100.0 %      100.0 %      100.0 %      100.0 % 
    
 
 
    
 
 
    
 
 
    
 
 
  
The assets of the U.S. Plan are overseen by the Teradyne Fiduciary Committee which is comprised of members of senior management drawn from appropriate diversified levels of the management team. The Fiduciary Committee is responsible for setting the policy that provides the framework for management of the U.S. Plan assets. In accordance with its responsibilities, the Fiduciary Committee meets on a regular basis to review the performance of the U.S. Plan assets and compliance with the investment policy. The policy sets forth an investment structure for managing U.S. Plan assets, including setting the asset allocation ranges, which are expected to provide an appropriate level of overall diversification required to maximize the long-term return on plan assets for a prudent and reasonable level of risk given prevailing market conditions, total investment return over the long term, and preservation of capital, while maintaining sufficient liquidity to pay the benefits of the U.S. Plan. The investment portfolio will not, at any time, have a direct investment in Teradyne stock. It may have indirect investment in Teradyne stock, if one of the funds selected by the investment manager invests in Teradyne stock. In developing the asset allocation ranges, third party asset allocation studies are periodically performed that consider the current and expected positions of the plan assets and funded status. Based on this
 
85
study and other appropriate information, the Fiduciary Committee establishes asset allocation ranges taking into account acceptable risk targets and associated returns. The investment return objectives are to avoid excessive volatility and produce a rate of return that at least matches the Policy Index identified below. The manager’s investment performance is reviewed at least annually. Results for the total portfolio and for each major category of assets are evaluated in comparison with appropriate market indices and the Policy Index.
The target asset allocation and the index for each asset category for the U.S. Plan, per the investment policy, are as follows:
 
Asset Category:
   
Policy Index:
   
Target

Allocation
  
U.S. corporate fixed income    Barclays U.S. Corporate A or Better Index      75 % 
Global equity    MSCI World Minimum Volatility Index      5  
U.S. government fixed income    Barclays U.S. Long Government Bond Index      14  
High yield fixed income    Barclays U.S. Corporate High Yield 2% Issuer Cap Index      5  
Cash    Citigroup Three Month U.S. Treasury Bill Index      1  
Teradyne’s U.S. Plan invests primarily in common trust funds. Units held in the common trust funds are valued at the unit price as reported by the investment manager based on the asset value of the underlying investments; underlying investments in equity securities are valued at the last reported sales price, and underlying investments in fixed-income securities are generally valued using methods based upon market transactions for comparable securities.
During the years ended December 31, 2021 and December 31, 2020, there were no transfers of pension assets in or out of Level 1, Level 2, and Level 3.
The fair value of pension plan assets by asset category and by level at December 31, 2021 and December 31, 2020 were as follows:
 
    
December 31, 2021
  
    
United States
     
Foreign
  
    
Level 1
     
Level 2
     
Level 3
     
Total
     
Level 1
     
Level 2
     
Level 3
     
Total
  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
    
(in thousands)
  
Fixed income securities:
                                                                        
Corporate debt securities
    $ —        $ 119,805      $ —        $ 119,805      $ —        $ —        $ —        $ —    
U.S. government securities
      —          20,847        —          20,847        —          —          —          —    
Global equity
      —          7,426        —          7,426        —          —          —          —    
Other
      —          —          —          —          —          2,017        —          2,017  
Cash and cash equivalents
      1,500        —          —          1,500        —          —          —          —    
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 1,500      $ 148,078      $ —        $ 149,578      $ —        $ 2,017      $ —        $ 2,017  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
 
 
  
December 31, 2020
 
 
  
United States
 
  
Foreign
 
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
  
Level 1
 
  
Level 2
 
  
Level 3
 
  
Total
 
 
  
(in thousands)
 
Fixed income securities:
  
      
  
      
  
      
  
      
  
      
  
      
  
      
  
      
Corporate debt securities
    $ —        $ 127,098      $ —        $ 127,098      $ —        $ —        $ —        $ —    
U.S. government securities
      —          22,250        —          22,250        —          —          —          —    
Global equity
      —          7,925        —          7,925        —          —          —          —    
Other
      —          —          —          —          —          1,856        —          1,856  
Cash and cash equivalents
      1,582        —          —          1,582        —          —          —          —    
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  
Total
    $ 1,582      $ 157,273      $ —        $ 158,855      $ —        $ 1,856      $ —        $ 1,856  
    
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
     
 
 
  

86
Contributions

Teradyne’s funding policy is to make contributions to the plans in accordance with local laws and to the extent that such contributions are tax deductible. During 2021, Teradyne contributed $3.3 million to the U.S. supplemental executive defined benefit pension plan and $1.0 million to certain qualified plans for non-U.S. subsidiaries. During 2020, Teradyne contributed $3.1 million to the U.S. supplemental executive defined benefit pension plan and $1.1 million to certain qualified plans for non-U.S. subsidiaries. In 2022, contributions to the U.S. supplemental executive defined benefit pension plan and certain qualified plans from non-U.S. subsidiaries will be approximately $3.3 million and $1.0 million, respectively.
Contributions to the U.S. supplemental executive defined benefit pension plan and certain non-U.S. subsidiaries qualified plans will be approximately $6.7
 
million and $2.5 million, respectively, in 1 to 3 years, $7.2
 
million and $2.3 million, respectively, in 3 to 5 years and $18.3
 
million and $6.9 million, respectively, thereafter
.

Expected Future Pension Benefit Payments
Future benefit payments are expected to be paid as follows:
 
    
United States
     
Foreign
  
    
 
 
     
 
 
  
    
(in thousands)
  
2022
    $ 9,784      $ 982  
2023
      9,386        1,268  
2024
      9,771        1,119  
2025
      10,333        1,074  
2026
      10,594        1,192  
2027-2030
      54,616        8,123  
Postretirement Benefit Plans
In addition to receiving pension benefits, U.S. Teradyne employees who meet early retirement eligibility requirements as of their termination dates may participate in Teradyne’s Welfare Plan, which includes medical and dental benefits up to age 65. Death benefits provide a fixed sum to retirees’ survivors and are available to all retirees. Substantially all of Teradyne’s current U.S. employees could become eligible for these benefits, and the existing benefit obligation relates primarily to those employees.

The December 31 balances of the postretirement assets and obligations are shown below:
 
    
2021
    
2020
  
    
 
 
    
 
 
  
    
(in thousands)
  
Assets and Obligations
                 
Change in benefit obligation:
                 
Projected benefit obligation:
                 
Beginning of year
    $ 8,515     $ 9,003  
Service cost
      64       57  
Interest cost
      170       240  
Actuarial (gain) loss
      (433 )      421  
Benefits paid
      (1,107 )      (1,205 ) 
    
 
 
    
 
 
  
End of year
      7,210       8,515  
    
 
 
    
 
 
  
Change in plan assets:
                 
Fair value of plan assets:
                 
Beginning of year
      —         —    
Company contributions
      1,107       1,205  
Benefits paid
      (1,107 )      (1,205 ) 
    
 
 
    
 
 
  
End of year
      —         —    
    
 
 
    
 
 
  
Funded status
    $ (7,210 )    $ (8,515 ) 
    
 
 
    
 
 
  
 

87
The following table provides amounts recorded within the account line items of financial position as of December 31:
 
    
2021
    
2020
  
 
  
 
 
 
 
 
 
 
    
(in thousands)
  
Accrued employees’ compensation and withholdings
    $ (930 )    $ (1,161 ) 
Retirement plans liability
      (6,280 )      (7,354 ) 
    
 
 
    
 
 
  
Funded status
    $ (7,210 )    $ (8,515 ) 
    
 
 
    
 
 
  
The following table provides amounts recognized in accumulated other comprehensive income (loss) as of December 31:
 
    
2021
    
2020
  
 
  
 
 
 
 
 
 
 
    
(in thousands)
  
Prior service credit, before tax
    $ (40 )    $ (49 ) 
Deferred taxes
      (1,688 )      (1,686 ) 
    
 
 
    
 
 
  
Total recognized in other comprehensive income 
(loss),
net of tax
    $ (1,728 )    $ (1,735 ) 
    
 
 
    
 
 
  
Expense
For the years ended December 31, 2021, 2020, and 2019, Teradyne’s net periodic postretirement benefit (income) cost was comprised of the following:
 
    
2021
    
2020
    
2019
  
 
  
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Components of Net Periodic Postretirement Benefit (Income) Cost:
                         
Service cost
    $ 64     $ 57     $ 41  
Interest cost
      170       240       347  
Amortization of prior service credit
      (9 )      (9 )      (191 ) 
Net actuarial (gain) loss
      (433 )      421       717  
    
 
 
    
 
 
    
 
 
  
Total net periodic postretirement benefit (income) cost
      (208 )      709       914  
    
 
 
    
 
 
    
 
 
  
Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income:
                         
Reversal of amortization items:
                         
Prior service credit
      9       9       191  
    
 
 
    
 
 
    
 
 
  
Total recognized in net periodic postretirement (income) cost and other comprehensive income
    $ (199 )    $ 718     $ 1,105  
    
 
 
    
 
 
    
 
 
  
Weighted Average Assumptions to Determine Net Periodic Postretirement Benefit Income as of January 1:
 
    
2021
    
2020
    
2019
  
Discount rate
      2.2 %      3.0 %      4.0 % 
Initial health care cost trend rate
      7.3       7.1       7.5  
Ultimate health care cost trend rate
      4.5       4.5       4.5  
Year in which ultimate health care cost trend rate is reached
      2029       2026       2026  
 

88
Weighted Average Assumptions to Determine Postretirement Benefit Obligation as of December 31:
 
    
2021
    
2020
    
2019
  
Discount rate
      2.6 %      2.2 %      3.0 % 
Initial medical trend
      7.3       7.3       7.1  
Ultimate health care trend
      4.5       4.5       4.5  
Medical cost trend rate decrease to ultimate rate in year
      2029       2029       2026  
Contributions
Contributions to the U.S. postretirement benefit plan will be approximately $0.9 million in 2022, $1.4 million in 1 to 3 years, $0.9 million in 3 to 5 years and $1.4 million, thereafter.
Expected Future Benefit Payments
Future benefit payments are expected to be paid as follows:
 
    
Benefit Payments
  
    
(in thousands)
  
2022
    $ 930  
2023
      774  
2024
      641  
2025
      528  
2026
      419  
2027-2030
      1,408  
Q.    STOCK-BASED COMPENSATION
Stock Compensation Plans
Under Teradyne’s stock compensation plans, Teradyne grants time-based restricted stock units, performance-based restricted stock units, stock options and employees are eligible to purchase Teradyne’s common stock through its Employee Stock Purchase Plan (“ESPP”).

Service-based restricted stock unit awards granted to employees vest in equal annual installments over four years. Restricted stock unit awards granted to non-employee directors vest after a
one
-year period, with 100% of the award vesting on the earlier of (a) the first anniversary of the grant date or (b) the date of the following year’s Annual Meeting of Shareholders. Teradyne expenses the cost of the restricted stock unit awards subject to time-based vesting, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which the restrictions lapse.
Performance-based restricted stock units (“PRSUs”) granted to Teradyne’s executive officers may have a performance metric based on relative total shareholder return (“TSR”). Teradyne’s three-year TSR performance is measured against the New York Stock Exchange (“NYSE”) Composite Index. The final number of TSR PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The TSR PRSUs will vest upon the three-year anniversary of the grant date. The TSR PRSUs are valued using a Monte Carlo simulation model. The number of units expected to be earned, based upon the achievement of the TSR market condition, is factored into the grant date Monte Carlo valuation. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the grant. Compensation expense is recognized regardless of the eventual number of units that are earned based upon the market condition, provided the executive officer remains an employee at the end of the three-year period. Compensation expense is reversed if at any time during the three-year service period the executive officer is no longer an employee, subject to the retirement and termination eligibility provisions noted below.


89
PRSUs granted to Teradyne’s executive officers may also have a performance metric based on three-year cumulative non-GAAP profit before interest and tax (“PBIT”) as a percent of Teradyne’s revenue. Non-GAAP PBIT is a financial measure equal to GAAP
income
from operations less restructuring and other, net; amortization of acquired intangible assets; acquisition and divestiture related charges or credits; pension actuarial gains and losses; non-cash convertible debt interest expense; and other non-recurring gains and charges. The final number of PBIT PRSUs that vest will vary based upon the level of performance achieved from 0% to 200% of the target shares. The PBIT PRSUs will vest upon the three-year anniversary of the grant date. Compensation expense is recognized on a straight-line basis over the shorter of the three-year service period or the period from the grant date to the date described in the retirement provisions below. Compensation expense for executive officers meeting the retirement provisions prior to the grant date is recognized during the year following the
 
grant. Compensation expense is recognized based on the number of units that are earned based upon the three-year Teradyne PBIT as a percent of Teradyne’s revenue, provided the executive officer remains an employee at the end of the three-year period subject to the retirement and
termination
eligibility provisions noted below.

If a PRSU recipient’s employment ends prior to the determination of the performance percentage due to (1) permanent disability or death or (2) retirement or termination other than for cause, after attaining both at least age sixty and at least ten years of service, then all or a portion of the recipient’s PRSUs (based on the actual performance percentage achieved on the determination date) will vest on the date the performance percentage is determined. Except as set forth in the preceding sentence, no PRSUs will vest if the executive officer is no longer an employee at the end of the three-year period. Stock options to purchase Teradyne’s common stock at 100% of the fair market value on the grant date vest in equal annual installments over four years from the grant date and have a maximum term of seven years.
During 2021, 2020 and 2019, Teradyne granted 0.3 million, 0.4 million and 0.8 million of service-based restricted stock unit awards to employees at a weighted average grant date fair value of $114.16, $71.31, and $37.65, respectively.
During 2021, 2020 and 2019, Teradyne granted 0.1 million of service-based restricted stock unit awards to non-employee directors at a weighted average grant date fair value of $128.70, $66.56, and $48.03, respectively.
During 2021, 2020 and 2019, Teradyne granted 0.1 million of PBIT PRSUs with a grant date fair value of $113.65, $70.94 and $36.88, respectively.
During 2021, 2020 and 2019, Teradyne granted 0.1 million TSR PRSUs, with a grant date fair value of $125.02, $89.93, and $51.51, respectively. The fair value was estimated using the Monte Carlo simulation model with the following assumptions:
 
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
Risk-free interest rate
      0.2 %      1.5 %      2.6 % 
Teradyne volatility-historical
      43.9 %      34.9 %      31.9 % 
NYSE Composite Index volatility-historical
      22.9 %      11.4 %      11.9 % 
Dividend yield
      0.4 %      0.6 %      1.0 % 
Expected volatility was based on the historical volatility of Teradyne’s stock and the NYSE Composite Index for each of the 2021, 2020 and 2019 grants over the most recent three-year period. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of each of the grants. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share for 2021, $0.40 per share for 2020 and $0.36 per share for 2019, divided by Teradyne’s stock price on the grant date of $113.48 for the 2021 grants, $72.10 for the 2020 grants and $37.95 for the 2019 grants.
During 2021, 2020 and 2019, Teradyne granted 0.1 million of service-based stock options to executive officers at a weighted average grant date fair value of $36.60, $20.93, and $10.64, respectively.
 

90
The fair value of stock options was estimated using the Black-Scholes option-pricing model with the following assumptions:
 
    
2021
    
2020
    
2019
  
 
  
 
 
 
 
 
 
 
 
 
 
 
Expected life (years)
      5.0       5.0       5.0  
Risk-free interest rate
      0.4 %      1.5 %      2.5 % 
Volatility-historical
      37.8 %      32.0 %      30.1 % 
Dividend yield
      0.4 %      0.5 %      1.0 % 

Teradyne determined the stock options’ expected life based upon historical exercise data for executive officers, the age of the executive officers and the terms of the stock option grant. Volatility was determined using historical volatility for a period equal to the expected life. The risk-free interest rate was determined using the U.S. Treasury yield curve in effect at the time of grant. Dividend yield was based upon an estimated annual dividend amount of $0.40 per share divided by Teradyne’s stock price on the grant date of $113.48 for the 2021 grants, $72.61 for the 2020 grants and $37.95 for the 2019 grants.
Stock compensation plan activity for the years 2021, 2020, and 2019, is as follows:
 
    
2021
    
2020
    
2019
  
 
  
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Restricted Stock Units:
                         
Non-vested at January 1
      1,789       2,269       2,454  
Awarded
      447       616       1,139  
Vested
      (749 )      (1,028 )      (1,237 ) 
Forfeited
      (70 )      (68 )      (87 ) 
    
 
 
    
 
 
    
 
 
  
Non-vested at December 31
      1,417       1,789       2,269  
    
 
 
    
 
 
    
 
 
  
Stock Options:
                         
Outstanding at January 1
      216       319       506  
Granted
      34       56       102  
Exercised
      (78 )      (159 )      (280 ) 
Forfeited
      (1 )      —         (7 ) 
Expired
      —         —         (2 ) 
    
 
 
    
 
 
    
 
 
  
Outstanding at December 31
      171       216       319  
    
 
 
    
 
 
    
 
 
  
Vested and expected to vest at December 31
      171       216       319  
    
 
 
    
 
 
    
 
 
  
Exercisable at December 31
      30       27       85  
    
 
 
    
 
 
    
 
 
  
Total shares available for the years 2021, 2020, and 2019:
 
    
2021
    
2020
    
2019
  
 
  
 
 
 
 
 
 
 
 
 
 
 
    
(in thousands)
  
Shares available:
                         
Available for grant at January 1
      6,123       6,727       7,874  
Options granted
      (34 )      (56 )      (102 ) 
Options forfeited
      1       —         7  
Restricted stock units awarded
      (447 )      (616 )      (1,139 ) 
Restricted stock units forfeited
      70       68       87  
    
 
 
    
 
 
    
 
 
  
Available for grant at December 31
      5,713       6,123       6,727  
    
 
 
    
 
 
    
 
 
  
 

91
Weighted average restricted stock unit award date fair value information for the years 2021, 2020, and 2019, is as follows:
 
    
2021
     
2020
     
2019
  
    
 
 
     
 
 
     
 
 
  
Non-vested at January 1
    $ 47.84      $ 35.58      $ 29.22  
Awarded
      115.51        72.76        39.08  
Vested
      43.99        31.53        23.59  
Forfeited
      65.52        45.36        35.60  
Non-vested at December 31
    $ 67.97      $ 47.84      $ 35.58  
Restricted stock unit awards aggregate intrinsic value information at December 31 for the years 2021, 2020, and 2019 is as follows:
 
 
  
2021
 
  
2020
 
  
2019
 
 
  
(in thousands)
 
Vested
    $ 101,679      $ 71,582      $ 46,110  
Outstanding
      231,763        214,509        154,752  
Expected to vest
      231,246        210,301        152,374  
Restricted stock units weighted average remaining contractual terms (in years) information at December 31 for the years 2021, 2020, and 2019 is as follows:
 
    
2021
     
2020
     
2019
  
    
 
 
     
 
 
     
 
 
  
Outstanding
      0.89        0.96        1.02  
Expected to vest
      0.89        0.96        1.02  
Weighted average stock options exercise price information for the year ended December 31, 2021 is as follows:
 
    
2021
  
    
 
 
  
Outstanding at January 1
    $ 45.59  
Options granted
      113.48  
Options exercised
      39.68  
Options forfeited
      —    
Options cancelled
      2.67  
Outstanding at December 31
      62.13  
Exercisable at December 31
      34.65  
The total cash received from employees as a result of employee stock options exercised during the years ended December 31, 2021, 2020, and 2019, was $3.1 million, $3.8 million, and $3.7 million, respectively. In connection with these exercises, the tax benefit realized by Teradyne for the years ended December 31, 2021, 2020, and 2019, was $0.4 million, $1.5 million, and $2.0 million, respectively.
Stock option aggregate intrinsic value information for the years ended December 31, 2021, 2020, and 2019 is as follows:
 
    
2021
     
2020
     
2019
  
    
 
 
     
 
 
     
 
 
  
    
(in thousands)
  
Exercised
    $ 6,345      $ 9,682      $ 9,232  
Outstanding
      17,356        16,083        12,218  
Vested and expected to vest
      13,500        13,499        7,701  
Exercisable
      3,856        2,584        4,517  
 

92
Stock options weighted average remaining contractual terms (in years) information at December 31, for the years 2021, 2020, and 2019 is as follows:
 
    
2021
     
2020
     
2019
  
Outstanding
      4.4        4.6        4.2  
Vested and expected to vest
      4.8        4.9        5.0  
Exercisable
      2.5        2.5        2.1  
As of December 31, 2021, total unrecognized expense related to non-vested restricted stock unit awards and stock options was $50.6 million and is expected to be recognized over a weighted average period of 2.4 years.
In 2021, 2020 and 2019, Teradyne recognized a discrete tax benefit of $14.7 million, $9.6 million and $4.9 million, respectively, related to net excess tax benefit.
On July 17, 2019 (the “Retirement Date”), former Chief Financial Officer Gregory Beecher retired as Vice President and Senior Advisor of Teradyne, and Teradyne entered into an agreement (the “Retirement Agreement”) with Mr. Beecher. Under the Retirement Agreement, Mr. Beecher’s unvested time-based restricted stock units and stock options granted prior to 2019 were modified to allow continued vesting; unvested time-based restricted stock units and stock options granted in 2019 were modified to allow continued vesting through January 31, 2023 (the
“Non-Competition
Period”) in a
pro-rated
amount based on the number of days that Mr. Beecher was employed during 2019; unvested, performance-based restricted stock units awarded in 2019 will vest on the date the amount of shares underlying the performance-based restricted stock units are determined in a
pro-rated
amount of shares based on the number of days that Mr. Beecher was empl
o
yed during 2019; vested options or options that vest during the
Non-Competition
Period may be exercised for the remainder of the applicable option ter
m. During 2019, Teradyne recorded a stock-based compensation expense of $2.1 million related to the Retirement Agreement.
Employee Stock Purchase Plan
Under the ESPP, eligible employees may purchase shares of common stock through regular payroll deductions of up to 10% of their compensation, to a maximum of shares with a fair market value of $25,000 per calendar year, not to exceed 6,000 shares. Under the plan, the price paid for the common stock is equal to 85% of the stock price on the last business day of the six-month purchase period.
In July 2021, 0.1 million shares of common stock were issued to employees who participated in the plan during the first half of 2021 at the price of $113.87 per share. In January 2022, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2021 at the price of $139.00 per share.
In July 2020, 0.2 million shares of common stock were issued to employees who participated in the plan during the first half of 2020 at the price of $71.83 per share. In January 2021, Teradyne issued 0.1 million shares of common stock to employees who participated in the plan during the second half of 2020 at the price of $101.91 per share.
In July 2019, 0.3 million shares of common stock were issued to employees who participated in the plan during the first half of 2019 at the price of $40.72 per share. In January 2020, Teradyne issued 0.2 million shares of common stock to employees who participated in the plan during the second half of 2019 at the price of $57.96 per share.
As of December 31, 2021, there were 4.2 million shares available for grant under the ESPP.

 

93
The following table provides the effect to income from operations for recording stock-based compensation for the years ended December 31, 2021, 2020, and 2019:
 
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands)
  
Cost of revenues
    $ 4,196     $ 4,227     $ 3,480  
Engineering and development
      9,783       12,039       9,913  
Selling and administrativ
e
      31,664       28,640       24,504  
    
 
 
    
 
 
    
 
 
  
Stock-based compensation
      45,643       44,906       37,897  
Income tax benefit
      (14,389 )      (13,060 )      (8,360 ) 
    
 
 
    
 
 
    
 
 
  
Total stock-based compensation expense after income taxes
    $ 31,254     $ 31,846     $ 29,537  
    
 
 
    
 
 
    
 
 
  
R.    SAVINGS PLAN
Teradyne sponsors a defined contribution employee retirement savings plan (“Savings Plan”) covering substantially all U.S. employees. Under the Savings Plan, employees may contribute up to 20% of their compensation (subject to Internal Revenue Service limitations). The Savings Plan provides for a discretionary employer match that is determined each year. In 2021, 2020 and 2019, Teradyne matched 100% of eligible employee contributions up to 4% of their compensation for employees not accruing benefits in the U.S. Qualified Pension Plan. There was no match for employees still actively accruing benefits in the U.S. Qualified Pension Plan. Teradyne’s contributions vest 25% per year for the first four years of employment, and contributions for those employees with four years of service vest immediately.
In addition, Teradyne sponsors an unfunded U.S. Supplemental Savings Plan to provide savings benefits in excess of those allowed by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The provisions of this plan are the same as the Savings Plan. The liability for the U.S. Supplemental Savings Plan at December 31, 2021 and 2020, was $47.2 million and $38.0 million, respectively, and is included in retirement plan liabilities. Teradyne contributes to defined contributions savings plans for its foreign employees. Under Teradyne’s savings plans, amounts charged to the statements of operations for the years ended December 31, 2021, 2020, and 2019 were $26.9 million, $21.7 million, and $20.9 million,
respectively.
 
94
S.    INCOME TAXES
The components of income before income taxes and the provision (benefit) for income taxes as shown in the consolidated statements of operations were as follows:
 
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands)
  
Income before income taxes:
                         
U.S.
    $ 403,451     $ 312,153     $ 192,442  
Non-U.S.
      757,504       588,862       333,330  
    
 
 
    
 
 
    
 
 
  
     $ 1,160,955     $ 901,015     $ 525,772  
    
 
 
    
 
 
    
 
 
  
Provision (benefit) for income taxes:
                         
Current:
                         
U.S. Federal
    $ 58,218     $ 58,678     $ 19,297  
Non-U.S.
      105,153       75,193       52,810  
State
      300       (1,315 )      (4,347 ) 
    
 
 
    
 
 
    
 
 
  
       163,671       132,556       67,760  
    
 
 
    
 
 
    
 
 
  
Deferred:
                         
U.S. Federal
      (15,106 )      (12,604 )      (4,522 ) 
Non-U.S.
      (4,300 )      (5,127 )      (8,007 ) 
State
      2,101       2,043       3,073  
    
 
 
    
 
 
    
 
 
  
       (17,305 )      (15,688 )      (9,456 ) 
    
 
 
    
 
 
    
 
 
  
Total provision for income taxes:
    $ 146,366     $ 116,868     $ 58,304  
    
 
 
    
 
 
    
 
 
  
Income tax
expense for 2021, 2020 and 2019 totaled $146.4 million, $116.9 million, and $58.3 million, respectively. The effective tax rate for 2021, 2020 and 2019 was 12.6%, 13.0% and 11.1%, respectively.
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Reform Act”), making significant changes to the Internal Revenue Code. The Tax Reform Act has significant direct and indirect implications for accounting for income taxes under ASC 740, “Accounting for Income Taxes” some of which could not be calculated with precision until further clarification and guidance was made available from tax authorities, regulatory bodies or the FASB. In light of this uncertainty, on December 22, 2017 the SEC issued Staff Accounting Bulletin (“SAB”) No. 118, “Income Tax Accounting Implications of the Tax Cuts and Jobs Act,” to address uncertainty in the application of U.S. GAAP when the registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Reform Act. In accordance with SAB 118, Teradyne recorded $186.0 million of additional income tax expense in the fourth quarter of 2017 which represented Teradyne’s best estimate of the impact of the Tax Reform Act in accordance with Teradyne’s understanding of the Tax Reform Act and available guidance as of that date. The $186.0 million was primarily composed of expense of $161.0 million related to the one-time transition tax on the mandatory deemed repatriation of foreign earnings, $33.6 million of expense related to the remeasurement of certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, and a benefit of $10.3 million associated with the impact of correlative adjustments on uncertain tax positions. In accordance with the requirements of SAB 118, in the fourth quarter of 2018, Teradyne completed its analysis of the effect of the Tax Reform Act based on the application of the most recently available guidance as of December 31, 2018 and
recorded $49.5 million of net income tax benefit. The net benefit consisted of $51.7 million of benefit resulting from a reduction in the estimate of the one-time transition tax on the mandatory deemed repatriation of foreign earnings and an expense of $2.2 million associated with the impact of correlative adjustments on uncertain tax positions. Teradyne will pay approximately $7.9 million related to the transition tax in 2022, $22.7 million in 1 to 3 years, and $44.3 million in 3 to 5
years.
 
95
Teradyne has
made an accounting policy election to account for global intangible
low-taxed
income (“GILTI”) as a component of tax expense in the period in which Teradyne is subject to the rules and therefore did not provide any deferred tax impacts of GILTI in its consolidated financial statements.
On July 27, 2015, in Altera Corp. (“Altera”) v. Commissioner, the U.S. Tax Court issued an opinion invalidating the regulations relating to the treatment of stock-based compensation expense in an intercompany cost-sharing arrangement. A final decision was issued by the Tax Court in December 2015. The IRS appealed the decision in June 2016. On July 24, 2018, the U.S. Court of Appeals for the Ninth Circuit (“Ninth Circuit”) issued a decision that was subsequently withdrawn and a reconstituted panel conferred on the appeal. On June 7, 2019, the Ninth Circuit upheld the cost-sharing regulations. On November 12, 2019 the Ninth Circuit denied Altera’s petition for rehearing of its case. Altera’s application for certiorari to the Supreme Court was declined on June 22, 2020. In the fourth quarter of 2020 and 2021, Teradyne recognized approximately $2.3 million of tax expense and $2.5 million of tax benefit in 2020 and 2021, respectively, related to the inclusion of stock-based compensation in its intercompany cost-sharing arrangement.
The decrease in the effective tax rate from 2020 to 2021 is primarily attributable to a decrease in the expense from U.S. global
low-taxed
income partially offset by a decrease in the benefit from foreign tax credits and a shift in the geographic distribution of income, which increased the income subject to taxation in higher tax rate jurisdictions relative to lower tax rate jurisdictions.
The increase in the effective tax rate from 2019 to 2020 is primarily attributable to a reduction in the benefit from releases of reserves for uncertain tax positions, a reduction in benefit from foreign tax credits and an increase in the expense from U.S. global
low-taxed
income. These increases in expense were partially offset by a decrease in the transition tax on the mandatory deemed repatriation of foreign earnings and shift in the geographic distribution of income, which increases the income subject to taxation in lower tax rate jurisdictions relative to higher tax rate jurisdictions.

A reconciliation
of the effective tax rate for the years 2021, 2020 and 2019 is as follows:
 
    
2021
    
2020
    
2019
  
U.S. statutory federal tax rate
      21.0 %      21.0 %      21.0 % 
U.S. global intangible low-taxed income
      0.6       2.1       1.8  
State income taxes, net of federal tax benefit
      0.2       0.3       0.5  
Foreign taxes
      (4.5 )      (5.6 )      (4.0 ) 
U.S. foreign derived intangible income
      (2.3 )      (2.2 )      (2.6 ) 
U.S. research and development credit
      (1.4 )      (1.3 )      (1.8 ) 
Equity compensation
      (0.9 )      (0.6 )      (0.7 ) 
Foreign tax credits
 
 
(0.5
)
 
 
(1.2
)
 
 
(1.6
)
Uncertain tax positions
      (0.4 )      (0.1 )      (4.3 ) 
U.S. transition tax
      —         —         1.9  
Other, net
      0.8       0.6       0.9  
    
 
 
    
 
 
    
 
 
  
       12.6 %      13.0 %      11.1 % 
    
 
 
    
 
 
    
 
 
  
 
96
Teradyne
qualifies for a tax holiday in Singapore by fulfilling the requirements of an agreement with the Singapore Economic Development Board under which certain headcount and spending requirements must be met. The tax savings attributable to the Singapore tax holiday for the years ended December 31, 2021, 2020 and 2019 were $33.3 million or $0.18 per diluted share, $29.9 million or $0.16 per diluted share and $15.1 million or $0.08 per diluted share, respectively. In November 2020, Teradyne entered into an agreement with the Singapore
 
Economic Development Board which extended our Singapore tax holiday under substantially similar terms to the agreement which expired on December 31, 2020. The new tax holiday is scheduled to expire on December 31, 2025
.
Significant components of Teradyne’s deferred tax assets (liabilities) as of December 31, 2021 and
2020
were as follows:
 
    
2021
    
2020
  
 
  
 
 
 
 
 
 
 
    
(in thousands)
  
Deferred tax assets:
                 
Tax credits
    $ 98,378     $ 87,595  
Accruals
      41,459       33,156  
Pension liabilities
      28,722       28,348  
Inventory valuations
      20,991       18,427  
Lease liability
      16,484       12,627  
Deferred revenue
      11,164       9,235  
Equity compensation
      6,630       6,543  
Vacation accrual
      6,050       5,890  
Investment impairment
      3,292       3,292  
Net operating loss carryforwards
      1,721       1,823  
Other
      774       626  
    
 
 
    
 
 
  
Gross deferred tax assets
      235,665       207,562  
Less: valuation allowance
      (97,170 )      (84,962 ) 
    
 
 
    
 
 
  
Total deferred tax assets
    $ 138,495     $ 122,600  
    
 
 
    
 
 
  
Deferred tax liabilities:
                 
Right of use assets
    $ (14,738 )    $ (10,688 ) 
Depreciation
      (10,691 )      (14,525 ) 
Intangible assets
      (8,531 )      (12,726 ) 
Contingent consideration
      (5,214 )      (3,515 ) 
Marketable securities
      (3,220 )      (3,344 ) 
Other
      —         (710 ) 
    
 
 
    
 
 
  
Total deferred tax liabilities
    $ (42,394 )    $ (45,508 ) 
    
 
 
    
 
 
  
Net deferred assets
    $ 96,101     $ 77,092  
    
 
 
    
 
 
  
As of
December 31, 2021 and 2020, Teradyne evaluated the likelihood that it would realize deferred income taxes to offset future taxable income and concluded that it is more likely than not that a substantial majority of its deferred tax assets will be realized through consideration of both the positive and negative evidence. At December 31, 2021 and 2020, Teradyne maintained a valuation allowance for certain deferred tax assets of $
97.0 
million and $
85
.0 million, respectively, primarily related to state net operating losses and state tax credit carryforwards, due to the uncertainty regarding their realization. Adjustments could be required in the future if Teradyne estimates that the amount of deferred tax assets to be realized is more or less than the net amount
recorded.
 
97
At December 
31, 2021, Teradyne had tax effected operating loss carryforwards that expire in the following years:
 
 
  
State

Operating Loss

Carryforwards
 
  
Foreign

Operating Loss

Carryforwards
 
 
  
(in thousands)
 
2022
    $ 144      $ 53  
2023
      208        —    
2024
      51        —    
2025
      4        —    
2026
      —        —    
2027-2031
      361        173  
2032-2036
      58        13  
Beyond 2036
      22        —    
Non-expiring
      13        621  
    
 
 
     
 
 
  
Total
    $ 861      $ 860  
    
 
 
     
 
 
  
Teradyne has approximately $128.9 million of tax credit carryforwards including federal business tax credits of approximately $1.9 million which expire in 2028 through 2031, and state tax credits of $127.1 million, of which $68.7 million do not expire and the remainder expires in the years 2022 through 2041.
Teradyne’s gross unrecognize
d
 tax benefits for the years ended December 31, 2021, 2020 and 2019 were as follows:
 
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands)
  
Beginning balance as of January 1
    $ 17,903     $ 21,180     $ 43,395  
Additions:
                         
Tax positions for current year
      1,417       1,082       1,322  
Tax positions for prior years
      30       66       8,043  
Reductions:
                         
Tax positions for prior years
      (1,639 )      (2,989 )      (31,397 ) 
Expiration of statutes
      (3,246 )      (1,436 )      (183 ) 
    
 
 
    
 
 
    
 
 
  
Ending balance as of December 31
    $ 14,465     $ 17,903     $ 21,180  
    
 
 
    
 
 
    
 
 
  
Current year additions relate to federal and state research credits. Prior year additions relate to state research credits. Prior year reductions are composed of federal reserves related to transfer pricing and research credits which resulted from the expiration of statute for 2017 U.S. federal tax return in the fourth quarter of 2021 and state research credits.
Of the $14.5 million of unrecognized tax benefits as of December 31, 2021, $9.5 million would impact the consolidated income tax rate if ultimately recognized. The remaining $4.9 million would impact deferred taxes if recognized.

As of December 
31, 2021, Teradyne estimates that it is reasonably possible that the balance of unrecognized tax benefits may decrease approximately $3.0 million in the next twelve months as a result of a lapse of statutes of limitation. The estimated decrease relates to loss carryforwards, research credits and U.S. manufacturing activities deductions.
Teradyne records all interest and penalties related to income taxes as a component of income tax expense. Accrued interest and penalties related to income tax items at December 31, 2021 and 2020 amounted to
 
98
$0.3 million and $1.2 million, respectively. For the years ended December 31, 2021, 2020 and 2019, benefit of $0.9 million, expense of $0.2 million and benefit of $1.1 million, respectively, was recorded for interest and penalties related to income tax items.
Teradyne is subject to U.S. federal income tax, as well as income tax in multiple state, local and foreign jurisdictions. As of December 31, 2021, all material state and local income tax matters have been concluded through 2016, all material federal income tax matters have been concluded through 2017 and all material foreign income tax matters have been concluded through 2013. However, in some jurisdictions, including the United States, operating losses and tax credits may be subject to adjustment until such time as they are utilized and the year of utilization is closed to adjustment.
As of December 31, 2021, Teradyne is not permanently reinvested with respect to the unremitted earnings of non-U.S. subsidiaries to the extent that those earnings exceed local statutory and operational requirements. Remittance of those earnings is not expected to result in material income tax.
T.    OPERATING SEGMENT, GEOGRAPHIC AND SIGNIFICANT CUSTOMER INFORMATION
Teradyne has four reportable segments (Semiconductor Test, System Test, Wireless Test and Industrial Automation). Each of the reportable segment represents an individual operating segment. On September 15, 2020, Teradyne announced the appointment of Gregory Smith as President of Teradyne’s Industrial Automation reportable segment effective October 1, 2020. With the appointment of Gregory Smith, the Industrial Automation reportable segment is considered one operating segment and one reporting unit. The Semiconductor Test segment includes operations related to the design, manufacturing and marketing of semiconductor test products and services. The System Test segment includes operations related to the design, manufacturing and marketing of products and services for storage and system level test, defense/aerospace instrumentation test, and circuit-board test. The Wireless Test segment includes operations related to the design, manufacturing and marketing of wireless test products and services. The Industrial Automation segment includes operations related to the design, manufacturing and marketing of collaborative robotic arms, autonomous mobile robots and advanced robotic control software.
Teradyne evaluates performance based on several factors, of which the primary financial measure is business segment income (loss) before income taxes. The accounting policies of the business segments are the same as those described in Note B: “Accounting Policies.”

 

99
Segment information for the years ended December 31, 2021, 2020, and 2019 is as follows:
 
   
Semiconductor
Test
    
System
Test
    
Industrial
Automation
    
Wireless
Test
    
Corporate
and Other
    
Consolidated
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
   
(in thousands)
  
2021
                                                
Revenues
   $ 2,642,342     $ 467,739     $ 375,905     $ 216,895     $ —       $ 3,702,881  
Income (loss) before taxes (1)(2)
     976,988       163,064       (8,167 )      83,543       (54,473 )      1,160,955  
Total assets (3)
     1,245,596       170,954       701,196       107,513       1,584,166       3,809,425  
Property additions
     115,618       3,905       9,821       3,128       —         132,472  
Depreciation and amortization expense
     75,982       3,156       27,336       6,055       12,956       125,485  
2020
                                                
Revenues
   $ 2,259,597     $ 409,729     $ 279,731     $ 173,016     $ (604 )    $ 3,121,469  
Income (loss) before taxes (1)(2)
     739,695       152,092       (24,019 )      41,950       (8,703 )      901,015  
Total assets (3)
     1,070,378       138,295       712,936       106,273       1,624,464       3,652,346  
Property additions
     168,055       3,092       8,899       4,931       —         184,977  
Depreciation and amortization expense
     64,998       3,426       36,242       6,258       15,819       126,743  
2019
 
      
 
      
 
      
 
      
 
      
 
      
Revenues
 
$
1,552,571
 
 
$
287,455
 
 
$
298,139
 
 
$
157,315
 
 
$
(515
) 
 
$
2,294,965
 
Income (loss) before taxes (1)(2)
 
 
416,973
 
 
 
93,543
 
 
 
(5,916
) 
 
 
35,585
 
 
 
(14,413
) 
 
 
525,772
 
Total assets (3)
 
 
784,808
 
 
 
131,428
 
 
 
671,559
 
 
 
97,299
 
 
 
1,101,920
 
 
 
2,787,014
 
Property additions
 
 
112,145
 
 
 
3,059
 
 
 
9,076
 
 
 
10,362
 
 
 
—  
 
 
 
134,642
 
Depreciation and amortization expense
 
 
59,197
 
 
 
5,518
 
 
 
40,904
 
 
 
5,365
 
 
 
9,671
 
 
 
120,655
 
 
(1)
Included in Corporate and Other are: loss on convertible debt conversions, contingent consideration adjustments, investment impairment, interest income, interest expense, pension and postretirement plan actuarial gains (losses), severance charges, net foreign exchange gains (losses), intercompany eliminations and acquisition related: (a) charges; (b) legal fees; (c) compensation.
(2)
Included in income (loss) before taxes are charges and credits related to restructuring and other, loss on convertible debt conversions and inventory charges.
(3)
Total assets are attributable to each segment. Corporate assets consist of cash and cash equivalents, marketable securities and certain other assets.
 

100
Included in each segment are charges and credits in the following line items in the statements of operations:
 
    
For the Year
s
Ended December 31,
  
    
2021
    
2020
    
2019
  
    
 
 
    
 
 
    
 
 
  
    
(in thousands)
  
Semiconductor Test:
                         
Cost of revenues—inventory charge
    $ 6,661     $ 11,013     $ 8,731  
Contract termination settlement fe
e
      —         4,000       —    
Restructuring and other—employee severance
      —         —         1,277  
System Test:
                         
Cost of revenues—inventory charge
    $ 641     $ 887     $ 2,000  
Industrial Automation:
                         
Cost of revenues—inventory charge
    $ 6,403     $ 834     $ 508  
Restructuring and other—employee severance
      1,210       1,584       796  
Restructuring and other—acquisition related expenses and compensation
      1,000       985       741  
Wireless:
                         
Cost of revenues—inventory charge
    $ 1,770     $ 4,800     $ 4,005  
Corporate and Other:
                         
Other (income) expense, net—loss on convertible debt conversion
    $ 28,828     $ —       $ —    
Restructuring and other—other
      13,971       —         —    
Restructuring and other—AutoGuide contingent consideration adjustment
      (7,227 )      (19,724 )      2,976  
Restructuring and other—acquisition related expenses and compensation
      (513 )      1,728       1,765  
Restructuring and other—MiR contingent consideration adjustment
      —         (3,546 )      (22,199 ) 
Other (income) expense, net—investment impairment charge
      —         —         15,000  
Selling and administrative—equity modification charge
      —         766       2,108  
 
Information as to Teradyne’s revenues by country is as follows:
 
    
2021
     
2020
     
2019
  
    
 
 
     
 
 
     
 
 
  
    
(in thousands)
  
Revenues from customers (1):
                           
Taiwan
    $ 1,117,874      $ 1,178,068      $ 485,681  
China
      631,963        465,722        514,327  
Korea
      502,167        391,571        239,504  
United States
      392,626        321,674        333,059  
Europe
      259,954        205,587        219,015  
Philippines
      166,838        68,887        54,560  
Japan
      166,231        143,983        175,322  
Thailand
      138,812        138,787        87,503  
Malaysia
      136,774        56,096        58,200  
Singapore
      121,582        76,460        84,111  
Rest of the World
      68,060        74,634        43,683  
    
 
 
     
 
 
     
 
 
  
     $ 3,702,881      $ 3,121,469      $ 2,294,965  
    
 
 
     
 
 
     
 
 
  
 
(1)
Revenues attributable to a country are based on location of customer site.
In 2021 and 2020, revenues from Taiwan Semiconductor Manufacturing Company Ltd., a customer of Teradyne’s Semiconductor Test segment, accounted for 12% and 15%, respectively, of Teradyne’s consolidated revenues. In 2019, no single direct customer accounted for more than 10% of Teradyne’s consolidated revenues. Teradyne estimates consolidated revenues driven by one OEM customer, combining direct sales to that customer with sales to the customer’s OSATs (which include Taiwan Semiconductor Manufacturing Company Ltd.), accounted for approximately 19%, 25% and 10% of its consolidated revenues in 2021, 2020 and 2019,

 

101
respectively.
 
Teradyne estimates consolidated revenues driven by Huawei Technologies Co., Ltd. (“Huawei”), combining direct sales to that customer with sales to the customer’s OSATs, accounted for approximately
0
%,
3
% and
11
% of its consolidated revenues in
2021,
 
2020
and
2019
, respectively.
Long-lived assets by geographic area:
 
    
United States
     
Foreign(1)
     
Total
  
    
 
 
     
 
 
     
 
 
  
    
(in thousands)
  
December 31, 2021
    $ 308,438      $ 147,609      $ 456,047  
December 31, 2020
    $ 291,234      $ 158,135      $ 449,369  
 
(1)
As of December 31, 2021 and 2020, long-lived assets attributable to Singapore were $39.4 million and $62.5 million, respectively.
U.    STOCK REPURCHASE PROGRAM
In January 2021, Teradyne’s Board of Directors cancelled the January 2020 repurchase program and approved a new repurchase program for up to $2.0 billion of common stock. In 2021, Teradyne repurchased 4.8 million shares of common stock for $600.0 million at an average price of $125.74 per share. Teradyne intends to repurchase a minimum of $750.0 million of its common stock in 2022.
In January 2020, Teradyne’s Board of Directors cancelled the January 2018 repurchase program and approved a new stock repurchase program for up to $1.0 billion of common stock. On April 1, 2020, Teradyne suspended its share repurchase program. In 2020, Teradyne repurchased 1.5 million shares of common stock for $88.5 million at an average price of $58.33 per share.
 

In 2019, Teradyne repurchased 10.9 million shares of common stock for $500.0 million at an average price per share of $45.89. The cumulative repurchases as of December 31, 2019, for the 2018 stock repurchase program, totaled 32.5 million shares of common stock for $1,323.0 million at an average price per share of $40.68.
The total price includes commissions and is recorded as a reduction to retained earnings.
V.    SUBSEQUENT EVENTS
In January 2022, Teradyne’s Board of Directors declared a 10% increase in the quarterly cash dividend to $0.11 per share to be paid on March 18, 2022 to shareholders of record as of February 18, 2022.
While Teradyne declared a quarterly cash dividend and authorized a share repurchase program, it may reduce or eliminate the cash dividend or share repurchase program in the future. Future cash dividends and stock repurchases are subject to the discretion of Teradyne’s Board of Directors which will consider, among other things, Teradyne’s earnings, capital requirements and financial condition.
 
102
SUPPLEMENTARY INFORMATION
(Unaudited)
 
Item 9:
Changes in and disagreements with accountants on accounting and financial disclosure
None.
 
Item 9A:
Controls and procedures
Disclosure Controls and Procedures
As of the end of the period covered by this report, our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule
13a-15(b)
promulgated under the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective in ensuring that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such material information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fourth fiscal quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f).
Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Internal Control—Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in
Internal Control—Integrated Framework (2013)
, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report which is included under Item 8 of this Annual Report.
Inherent Limitations on Effectiveness of Controls
Because of its inherent limitations, 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.
 
Item 9B:
Other Information
None.
 
Item 9C:
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
 
103
PART III
 
Item 10:
Directors, Executive Officers and Corporate Governance
Certain information relating to our directors and executive officers, committee information, reports and charters, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 13, 2022. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 1: Business—Our Executive Officers.”
 
Item 11:
Executive Compensation
Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 13, 2022. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein.
 
Item 12:
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held May 13, 2022. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein. Also see “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Equity Compensation Plans.”
 
Item 13:
Certain Relationships and Related Transactions, and Director Independence
Certain information relating to our directors and executive officers, executive compensation, security ownership of certain beneficial owners and management and related stockholder matters, and certain relationships and related transactions is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 13, 2022. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Compensation Committee Report included in such proxy statement is specifically not incorporated herein.
 
Item 14:
Principal Accountant Fees and Services
Certain information relating to audit fees and other of Teradyne’s independent registered public accounting firm is incorporated by reference herein from our definitive proxy statement in connection with our Annual Meeting of Shareholders to be held on May 13, 2022. The proxy statement will be filed with the SEC not later than 120 days after the close of the fiscal year. For this purpose, the Audit Committee Report included in such proxy statement is specifically not incorporated herein.
 
104
PART IV
 
Item 15:
Exhibits and Financial Statement Schedule
.
15(a)(1) Financial Statements
The following consolidated financial statements are included in Item 8:
 
 
  
Page
 
  
 
44
 
  
 
47
 
  
 
48
 
  
 
49
 
  
 
50
 
  
 
51
 
15(a)(2) Financial Statement Schedule
The following consolidated financial statement schedule is included in Item 15(c):
Schedule II—Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted since they are either not required or information is otherwise included.
15(a)(3) Listing of Exhibits
The Exhibits which are filed with this report or which are incorporated by reference herein are set forth in the Exhibit Index.
15(c) Financial Statement Schedules
 
105
TERADYNE, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
 
Column A
  
Column B
    
Column C
    
Column D
    
Column E
    
Column F
  
Description
  
Balance at
Beginning of Period
    
Additions
Charged to
Cost and Expenses
    
Other
    
Deductions
    
Balance at
End of Period
  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
   
(in thousands)
  
Valuation reserve deducted in the balance sheet from the asset to which it applies:
                                        
Accounts receivable:
                                        
2021 Allowance for doubtful account
   $ 2,034     $ 500     $ (27 )    $ 495     $ 2,012  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2020 Allowance for doubtful account
   $ 1,736     $ 356     $ 32     $ 90     $ 2,034  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2019 Allowance for doubtful account
   $ 1,673     $ 87     $ 28     $ 52     $ 1,736  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 

Column A
  
Column B
 
  
Column C
 
  
Column D
 
 
Column E
 
  
Column F
 
Description
  
Balance at

Beginning of Period
 
  
Additions

Charged to

Cost and Expenses
 
  
Other
 
 
Deductions
 
  
Balance at

End of Period
 
 
  
(in thousands)
 
Valuation reserve deducted in the balance sheet from the asset to which it applies:
  
      
  
      
  
      
 
      
  
      
Inventory:
  
      
  
      
  
      
 
      
  
      
2021 Inventory reserve
   $ 110,587     $ 15,475     $ 1,335     $ 13,342     $ 114,055  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2020 Inventory reserve
   $ 103,556     $ 17,534     $ (521 )    $ 9,982     $ 110,587  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2019 Inventory reserve
   $ 100,779     $ 15,244     $ (85 )    $ 12,382     $ 103,556  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 

Column A
  
Column B
 
  
Column C
 
  
Column D
 
  
Column E
 
  
Column F
 
Description
  
Balance at

Beginning of Period
 
  
Additions

Charged to

Cost and Expenses
 
  
Other
 
  
Deductions
 
  
Balance at

End of Period
 
 
  
(in thousands)
 
Valuation reserve deducted in the balance sheet from the asset to which it applies:
  
      
  
      
  
      
  
      
  
      
Deferred taxes:
  
      
  
      
  
      
  
      
  
      
2021 Valuation allowance
   $ 84,962     $ 13,502     $ —       $ 1,294     $ 97,170  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2020 Valuation allowance
   $ 77,177     $ 7,785     $ —       $ —       $ 84,962  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
2019 Valuation allowance
   $ 69,852     $ 7,325     $ —       $ —       $ 77,177  
   
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
Item 16:
Form
10-K
Summary
Not applicable.
 
106
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission and are referred to and incorporated by reference to such filings.
 
Exhibit
No.
  
Description
  
SEC Document Reference
     
3.1
  
Restated Articles of Organization.
  
     
3.2
  
Amended and Restated
By-laws,
as amended.
  
     
4.1
  
Indenture dated as of December 12, 2016, between Teradyne, Inc. and Wilmington Trust, National Association, as trustee.
  
     
4.2
  
First Supplemental Indenture dated as of November 4, 2021 between Teradyne, Inc. and Wilmington Trust, National Association, as trustee.
  
     
4.3
  
Description of Teradyne, Inc. Securities Registered under Section 12 of the Exchange Act.
  
     
10.1†
  
Standard Manufacturing Agreement entered into as of November 24, 2003 by and between Teradyne and Solectron.
  
     
10.2†
  
Second Amendment to Standard Manufacturing Agreement, dated as of August 27, 2007, by and between Teradyne and Solectron.
  
     
10.3†
  
Sixth Amendment to Standard Manufacturing Agreement, dated as of July 27, 2009, by and between Teradyne and Flextronics Corporation.
  
     
10.4
  
Addendum to Standard Manufacturing Agreement (Authorized Purchase Agreement)—Revised July 1, 2010.
  
     
10.5
  
Eighth Amendment to Standard Manufacturing Agreement, dated as of April 13, 2012, by and between Teradyne and Flextronics Sales & Marketing North Asia (L) LTD.
  
     
10.6†
  
Ninth Amendment to Standard Manufacturing Agreement, dated as of September 17, 2012, by and between Teradyne and Flextronics Sales & Marketing North Asia (L) LTD.
  
     
10.7
  
2006 Equity and Cash Compensation Incentive Plan, as amended. *
  
     
10.8
  
Danish
Sub-Plan
to the 2006 Equity and Cash Compensation Incentive Plan.
  
 
107
Exhibit
No.
   
Description
   
SEC Document Reference
10.9   
Form of Performance-Based Restricted Stock Unit Agreement for Executive Officers under 2006 Equity and Cash Compensation Incentive Plan.*
   
10.10   
Form of Time-Based Restricted Stock Unit Agreement for Executive Officers under 2006 Equity and Cash Compensation Incentive Plan.*
   
10.11   
Form of Executive Officer Stock Option Agreement under 2006 Equity and Cash Compensation Incentive Plan, as amended. *
   
10.12   
Form of Restricted Stock Unit Agreement for Directors under 2006 Equity and Cash Compensation Incentive Plan.*
   
10.13   
1996 Employee Stock Purchase Plan, as amended.*
   
10.14   
Danish
Sub-Plan
to the 1996 Employee Stock Purchase Plan.
   
10.15   
Deferral Plan for
Non-Employee
Directors, as amended.*
   
10.16   
Supplemental Savings Plan, as amended and restated.*
   
10.17   
Supplemental Executive Retirement Plan, as restated.*
   
10.18   
Agreement Regarding Termination Benefits dated January 22, 2014 between Teradyne and Mark Jagiela.*
   
10.19   
Employment Agreement dated May 7, 2004 between Teradyne and Mark Jagiela.*
   
10.20   
Executive Officer Retirement Agreement dated July 17, 2019 between Teradyne and Gregory R. Beecher.*
   
10.21   
Executive Officer Change in Control Agreement dated January 22, 2014 between Teradyne and Mark Jagiela, as amended.*
   
10.22   
Amended and Restated Executive Officer Change in Control Agreement dated May 26, 2009 between Teradyne and Charles J. Gray, as amended.*
   
10.23   
Employment Agreement dated July 24, 2009 between Teradyne and Charles J. Gray.*
   
 
108
Table of Contents
Exhibit
No.
   
Description
   
SEC Document Reference
10.24   
Amended and Restated Executive Officer Change in Control Agreement dated June 30, 2012 between Teradyne and Walter G. Vahey, as amended.*
   
10.25   
Employment Agreement dated February 6, 2013 between Teradyne and Walter G. Vahey.*
   
10.26   
Executive Officer Change in Control Agreement dated September 1, 2014 between Teradyne, Inc. and Bradford Robbins.*
   
10.27   
Employment Agreement dated September 1, 2014 between Teradyne, Inc. and Bradford Robbins.*
   
10.28   
Executive Change in Control Agreement dated February 8, 2016 between Teradyne, Inc. and Greg Smith.*
   
10.29   
Employment Agreement dated February 8, 2016 between Teradyne, Inc. and Greg Smith.*
   
10.30   
Teradyne Offer of Employment dated February 8, 2019 for Sanjay Mehta.*
   
10.31   
Executive Officer Change in Control Agreement dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta.*
   
10.32   
Employment Agreement dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta.*
   
10.33   
Agreement Regarding Termination Benefits dated April 25, 2019 between Teradyne, Inc. and Sanjay Mehta.*
   
10.34   
Executive Officer Change in Control Agreement dated October 1, 2020 between Teradyne, Inc. and Richard Burns.*
   
10.35   
Employment Agreement dated October 1, 2020 between Teradyne, Inc. and Richard Burns.*
   
10.36   
Time-Based Restricted Stock Unit Agreement dated May 1, 2019 for Sanjay Mehta under 2006 Equity and Cash Compensation Plan.*
   
10.37   
Form of Indemnification Agreement.*
   
 
109
Table of Contents
Exhibit
No.
   
Description
   
SEC Document Reference
10.38   
LitePoint Corporation 2002 Stock Plan.
   
10.39   
Letter Agreement, dated December 6, 2016, between Barclays Bank PLC and Teradyne, Inc., regarding the Base Warrants.
   
10.40   
Letter Agreement, dated December 6, 2016, between Bank of America, N.A., and Teradyne, Inc. regarding the Base Warrants.
   
10.41   
Letter Agreement, dated December 6, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Base Warrants.
   
10.42   
Letter Agreement, dated December 6, 2016, between Barclays Bank PLC and Teradyne, Inc. regarding the Base Call Option Transaction.
   
10.43   
Letter Agreement, dated December 6, 2016, between Bank of America, N.A. and Teradyne, Inc. regarding the Base Call Option Transaction.
   
10.44   
Letter Agreement, dated December 6, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Base Call Option Transaction.
   
10.45   
Letter Agreement, dated December 9, 2016, between Barclays Bank PLC and Teradyne, Inc., regarding the Additional Warrants
   
10.46   
Letter Agreement, dated December 9, 2016, between Bank of America, N.A., and Teradyne, Inc. regarding the Additional Warrants.
   
10.47   
Letter Agreement, dated December 9, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Additional Warrants.
   
10.48   
Letter Agreement, dated December 9, 2016, between Barclays Bank PLC and Teradyne, Inc. regarding the Additional Call Option Transaction.
   
10.49   
Letter Agreement, dated December 9, 2016, between Bank of America, N.A. and Teradyne, Inc. regarding the Additional Call Option Transaction
   
 
110
Table of Contents
Exhibit
No.
   
Description
   
SEC Document Reference
10.50   
Letter Agreement, dated December 9, 2016, between Wells Fargo Bank, National Association and Teradyne, Inc. regarding the Additional Call Option Transaction.
   
10.51   
Credit Agreement dated May 1, 2020 among Teradyne, Inc., Truist Bank, as the administrative agent, issuing bank and swingline lender, and other lenders party thereto.
   
10.52   
First Amendment to Credit Agreement dated December 10, 2021 among Teradyne, Inc., Truist Bank, as the administrative agent, issuing bank and swingline lender, and other lenders party thereto.
   
21.1   
Subsidiaries of Teradyne.
   
23.1   
Consent of PricewaterhouseCoopers LLP.
   
31.1   
Rule
13a-14(a)
Certification of Principal Executive Officer.
   
31.2   
Rule
13a-14(a)
Certification of Principal Financial Officer.
   
32.1   
Section 1350 Certification of Principal Executive Officer.
   
32.2   
Section 1350 Certification of Principal Financial Officer.
   
101   
The following financial information from Teradyne, Inc.’s Annual Report on Form
10-K
for the fiscal year ended December 31, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019 (iv) Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019, (v) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, and (vi) the Notes to Consolidated Financial Statements.
   
104   
The cover page of the Annual Report on
Form 10-K
formatted in Inline XBRL (included in Exhibit 101).
   
 
†
-Confidential treatment granted.
*
-Management contract or compensatory plan.
 
111
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 23rd day of February 2022.
 
T
ERADYNE
, I
NC
.
By:      
/
S
/    S
ANJAY
M
EHTA    
 
Sanjay Mehta,
 
Vice President, Chief Financial Officer and
Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
   
Title
  
Date
/S/    P
AUL
J. T
UFANO                
Paul J. Tufano
   
Chair of the Board
  
February 23, 2022
/S/    M
ARK
E
. J
AGIELA                
Mark E. Jagiela
   
Chief Executive Officer (Principal Executive Officer) and Director
  
February 23, 2022
/S/    S
ANJAY
M
EHTA                
Sanjay Mehta
   
Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
  
February 23, 2022
/S/    M
ICHAEL
A. B
RADLEY                
Michael A. Bradley
   
Director
  
February 23, 2022
/S/    E
DWIN
J. G
ILLIS                
Edwin J. Gillis
   
Director
  
February 23, 2022
/S/    T
IMOTHY
E. G
UERTIN                
Timothy E. Guertin
   
Director
  
February 23, 2022
/S/    P
ETER
H
ERWECK                
Peter Herweck
   
Director
  
February 23, 2022
/S/    M
ERCEDES
J
OHNSON                
Mercedes Johnson
   
Director
  
February 23, 2022
/S/    M
ARILYN
M
ATZ                
Marilyn Matz
   
Director
  
February 23, 2022
/S/    Fouad Tamer                
Fouad Tamer
   
Director
  
February 23, 2022
 
112

Exhibit 4.3

DESCRIPTION OF COMMON STOCK

As of December 31, 2021, Teradyne, Inc. (“Teradyne” or the “Company”) has its common stock as the only class of securities under Section 12 of the Securities Exchange Act of 1934, as amended.

The following is a description of the material terms and provisions of the Company’s common stock and may not contain all the information that is important to you. Please refer to the Company’s Restated Articles of Organization (the “Articles of Organization”) and Amended and Restated Bylaws (the “Bylaws”) for complete information.

Under the Company’s Articles of Organization, it has authority to issue 1,000,000,000 shares of common stock, par value $0.125 per share. As of December 31, 2021, there were 162,385,302 shares of common stock outstanding.

Common Stock

Holders of Teradyne common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Since holders of Teradyne common stock do not have cumulative voting rights, the holders of more than 50% of Teradyne common stock can elect all the directors if they so choose. Holders of Teradyne common stock are entitled to receive ratably dividends, if any, as may be declared by the Teradyne board of directors out of funds legally available for payment of dividends. Upon the liquidation, dissolution or winding up of Teradyne, holders of Teradyne common stock are entitled to receive ratably the net assets of Teradyne available after the payment of all debts and other liabilities of Teradyne. Holders of Teradyne common stock have no preemptive, subscription, redemption or conversion rights, nor are they entitled to the benefit of any sinking fund. The outstanding shares of common stock are fully paid and non-assessable.

The transfer agent and registrar for the common stock is Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342, Brentwood, NY 11717. The common stock is listed on the Nasdaq Global Select Market under the trading symbol “TER.”

Anti-Takeover Effects of Massachusetts Law and Provisions of our Charter Documents

Certain provisions in the Massachusetts General Laws, the Articles of Organization and the Bylaws may have the effect of delaying, deferring or preventing a change in control of Teradyne, including:

Special Meetings of Stockholders. Special meetings of our stockholders may be called only by the Chief Executive Officer, the President, by the directors or by the Secretary, or in case of the death, absence, incapacity or refusal of the Secretary, by any other officer, upon written application of one or more stockholders who hold at least a majority of the shares of our capital stock entitled to vote at such a meeting (or such lesser percentage in interest as shall be the maximum percentage permitted under Massachusetts law).

Advance Notice Procedures. The Bylaws establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of the Company’s stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at an annual meeting may only consider proposals or nominations specified in the written notice of meeting or brought before the meeting by or at the direction of the board of directors, the Chief Executive Officer or the President or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting, or pursuant to the proxy access nomination procedures in the Bylaws.

Proxy Access Nominations. Under the Bylaws, the Company will include in its proxy statement for an annual meeting the name, together with certain other required information, of any person nominated for the election of to the board of directors in compliance with specified provisions in the Bylaws by a single stockholder that satisfies (or by a group of no more than 20 stockholders that satisfy) various notice and other requirements specified in the Bylaws. Among other requirements in the Bylaws, such stockholder or group of stockholders would need to provide evidence verifying that the stockholder or group owns, and has owned continuously for the preceding three years, at least 3% of the issued and outstanding voting shares of the Company. The Bylaws contain limitations on the maximum number of nominees submitted by stockholders that the Company would be required to include in its proxy statement for an annual meeting.

Removal of Directors and Vacancies. The Bylaws provide that any director may be removed from office only (a) for cause as defined in the Massachusetts General Laws and by the affirmative vote of a majority of our outstanding shares and entitled to vote in the election of directors or (b) for cause by vote of a majority of the directors then in office. Vacancies and newly created directorships,

whether resulting from an increase in the size of the board of directors, from the death, resignation, disqualification or removal of a director or otherwise, shall be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board of directors.

Indemnification of Directors, Officers and Employees. Pursuant to the Articles of Organization and Bylaws, Teradyne shall indemnify, to the full extent authorized by law, any person made or threatened to be made a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he or she is or was a director, officer, employee or agent of Teradyne or is or was serving, at the request of the Teradyne, as a director, officer, employee or agent of another organization. The board of directors may, without stockholder approval, authorize Teradyne to enter into agreements, including any amendments or modifications thereto, with any of its directors, officers, employees or other agents providing for indemnification of such persons to the maximum extent permitted under applicable law and Teradyne’s Articles of Organization and Bylaws.

Business Combinations with Interested Stockholders. The Massachusetts General Laws contain anti-takeover provisions regarding, among other things, business combinations with an affiliated stockholder. In general, the Massachusetts General Laws prevent a publicly held Massachusetts corporation from engaging in a business combination, as defined in the Massachusetts General Laws, with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

 

  •  

before the date on which the person became an interested stockholder, the board of directors of the corporation approved either the business combination or the transaction in which the person became an interested stockholder;

 

  •  

the interested stockholder acquires at least 90% of the outstanding voting stock of the corporation at the time it becomes an interested stockholder; or

 

  •  

the business combination is approved by the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation voting at a meeting, excluding the voting stock owned by the interested stockholder.

An interested stockholder is generally a person owning 5% or more of the outstanding voting stock of the corporation. A business combination includes mergers, consolidations, stock and asset sales and other transactions with the interested stockholder that result in a financial benefit to the interested stockholder.

Control Share Acquisitions. Teradyne has elected to opt out of the control share acquisitions provisions of the Massachusetts General Laws. Teradyne could, however, opt into these control share acquisitions provisions at any time by amending our Bylaws.

In general, the control share acquisitions provisions of the Massachusetts General Laws provide that any person, including his, her or its affiliates, who acquires shares of a corporation that are subject to the control share acquisitions statute and whose shares represent one-fifth or more, one-third or more, or a majority or more of the voting power of the corporation in the election of directors cannot exercise any voting power with respect to those shares, or any shares acquired by the person within 90 days before or after an acquisition of this nature, unless these voting rights are authorized by the stockholders of the corporation.

The authorization of voting rights requires the affirmative vote of the holders of a majority of the outstanding voting shares, excluding shares owned by:

 

  •  

the person making an acquisition of this nature;

 

  •  

any officer of the corporate; and

 

  •  

any employee who is also a director of the corporation.

There are several other types of share acquisitions that are not subject to these provisions of the Massachusetts General Laws, including acquisitions of shares under a tender offer, merger or consolidation which is made in connection with an agreement to which the corporation is a party and acquisitions of shares directly from the corporation or a wholly owned subsidiary of the corporation.

Exhibit 10.52

EXECUTION VERSION

FIRST AMENDMENT TO CREDIT AGREEMENT

This FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of December 10, 2021 (this “First Amendment”), is entered into among TERADYNE, INC., a Massachusetts corporation (the “Borrower”), the Consenting Lenders (as defined below) and Replacement Lenders (as defined below) party hereto, and the Administrative Agent (as defined below), and modifies that certain Credit Agreement, dated as of May 1, 2020 (as amended, restated, amended and restated, supplemented or otherwise modified in writing from time to time and in effect immediately prior to the effectiveness of this First Amendment, the “Existing Credit Agreement” and the Existing Credit Agreement, as amended by this First Amendment, the “Amended Credit Agreement”), among the Borrower, the lenders from time to time party thereto (each a “Lender”, and collectively, the “Lenders”), and TRUIST BANK, as administrative agent for the Lenders (in such capacity, including any successor thereto, the “Administrative Agent”), as Issuing Bank and as Swingline Lender. Capitalized terms used herein and not defined herein shall have the meaning assigned to such terms in the Amended Credit Agreement.

PRELIMINARY STATEMENTS

A. The Borrower has requested that the Administrative Agent and the Lenders under the Existing Credit Agreement agree to amend certain of the terms and provisions of the Existing Credit Agreement as specifically set forth in this First Amendment.

B. Each Lender under the Existing Credit Agreement that executes and delivers a signature page to this First Amendment hereby agrees to the terms and conditions of this First Amendment, including, without limitation, the terms and conditions of the Amended Credit Agreement attached hereto as Annex A (each such existing Lender that has executed and delivered a signature page to this First Amendment, a “Consenting Lender”), and such Consenting Lenders constitute not less than the Required Lenders under the Existing Credit Agreement.

C. Each Lender under the Existing Credit Agreement that does not execute and deliver a signature page to this First Amendment (each, a “Non-Consenting Lender”) shall assign all of its Revolving Commitments and Revolving Loans, and all of its interests, rights and obligations under the Existing Credit Agreement with respect thereto, to a Replacement Lender (as hereinafter defined) pursuant to, and in accordance with, Section 2.25 of the Existing Credit Agreement and Section 2 of this First Amendment.

D. Each Person that executes and delivers a signature page to this First Amendment as a “Replacement Lender” (which Person may also be a Consenting Lender) (each such Person, a “Replacement Lender”) hereby agrees to the terms and conditions of this First Amendment, including, without limitation, the terms and conditions of the Amended Credit Agreement attached hereto as Annex A, and shall assume the interests, rights and obligations assigned to it pursuant to, and in accordance with, Section 2.25 of the Existing Credit Agreement and Section 2 of this First Amendment.

Accordingly, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows:

1. Amendments to the Existing Credit Agreement.

(a) Amended Credit Agreement. The Existing Credit Agreement (excluding the schedules and exhibits thereto, which shall remain in full force and effect, except as specifically amended and restated pursuant to Section 1(b) and (c) of this First Amendment) is hereby amended as set forth in Annex A attached hereto such that all of the newly inserted underlined text (indicated textually in the same manner as the following example: double-underlined text) and any formatting changes attached hereto shall be deemed to be inserted and all stricken text (indicated textually in the same manner as the following example: stricken text) shall be deemed to be deleted therefrom.

(b) Amendments to Schedules to the Existing Credit Agreement. Each of the following schedules to the Existing Credit Agreement is hereby deleted in its entirety and replaced with the corresponding schedules set forth in Annex B-1 attached to this First Amendment:

 

  (i)

Schedule I (Applicable Margin and Applicable Percentage);

 

  (ii)

Schedule II (Commitment Amounts); and

 

  (iii)

Schedule 7.6(j) (Existing Investments).

(c) Amendments to Exhibits to the Existing Credit Agreement. Exhibit F (Form of Notice of Conversion/Continuation) to the Existing Credit Agreement is hereby deleted in its entirety and replaced with the corresponding exhibit set forth in Annex B-2 attached to this First Amendment:

2. Replacement of Non-Consenting Lenders.

(a) On and as of the First Amendment Effective Date, the Revolving Facility shall be allocated among the Lenders under the Amended Credit Agreement, including Replacement Lenders (collectively, the “Continuing Lenders”), such that immediately after giving effect to this First Amendment on the First Amendment Effective Date, each Continuing Lender shall hold Revolving Commitments and Revolving Loans in the amounts set forth opposite such Person’s name on Schedule II to the Amended Credit Agreement, all as previously disclosed to the Non-Consenting Lenders and the Continuing Lenders by the Administrative Agent.

(b) In addition, the Borrower hereby requires, pursuant to (and in accordance with) Section 2.25 of the Existing Credit Agreement, that each Non-Consenting Lender assign its Revolving Commitments and Revolving Loans, and all of its interests, rights and obligations with respect thereto, under the Existing Credit Agreement and the related Loan Documents as of the First Amendment Effective Date (each, a “Non-Consenting Lender Assigned Interest”), to Replacement Lenders as set forth herein. Each of the Administrative Agent, the Issuing Bank and the Swingline Lender, by its signature to this First Amendment, hereby consents to the assignment of each of the Non-Consenting Lender Assigned Interests pursuant to this Section 2. This First Amendment constitutes any notice to the Administrative Agent and/or each Non-Consenting Lender that is required pursuant to Section 2.25 of the Existing Credit Agreement.

(c) As a result of the foregoing, a Continuing Lender’s Pro Rata Share of the Aggregate Revolving Commitments under the Amended Credit Agreement may be (i) greater than such Continuing Lender’s Pro Rata Share of the Aggregate Revolving Commitments under the Existing Credit Agreement (each such Continuing Lender, an “Increasing Lender”) or (ii) less than such Continuing Lender’s Pro Rata Share of the Aggregate Revolving Commitments under the Existing Credit Agreement (each such Continuing Lender, a “Decreasing Lender”).

(d) To effect the foregoing, on and as of the First Amendment Effective Date, (i) each Non-Consenting Lender shall be deemed to have assigned its Non-Consenting Lender Assigned Interest and (ii) each Consenting Lender shall be deemed to have assigned its Revolving Commitments and Revolving Loans, and all or any portion of its interests, rights and obligations with respect thereto, under the Existing Credit Agreement and the related Loan Documents as of the First Amendment Effective Date (each, a “Consenting Lender Assigned Interest” and, together with the Non-Consenting Lender Assigned Interests, collectively, the “Assigned Interests”), in each case for a purchase price at par (the “Purchase Price”), to

 

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Continuing Lenders in such amounts as required by the Administrative Agent in order that, after giving effect to all such assignments pursuant to this Section 2, (i) each Continuing Lender shall hold Revolving Commitments and Revolving Loans in the amounts set forth opposite such Person’s name on Schedule II to the Amended Credit Agreement, and (ii) each Non-Consenting Lender shall hold no Revolving Commitments and no Revolving Loans.

(e) On the First Amendment Effective Date:

(i) To the extent Revolving Loans are outstanding on the First Amendment Effective Date, each Increasing Lender shall remit to the Administrative Agent, in the manner contemplated by Section 2.6 of the Amended Credit Agreement, such amount as may be necessary for such Increasing Lender to hold Revolving Loans in the amounts set forth opposite such Person’s name on Schedule II to the Amended Credit Agreement, which amounts shall, in turn, be used by the Administrative Agent to remit to each Decreasing Lender such amount as may be necessary for such Decreasing Lender to hold Revolving Loans in the amounts set forth opposite such Person’s name on Schedule II to the Amended Credit Agreement.

(ii) The Administrative Agent shall remit (A) to each Consenting Lender and to each Non-Consenting Lender (with amounts received from the Borrower pursuant to Section 3(h) of this First Amendment) such Person’s pro rata share of all unpaid interest, commitment fees, Letter of Credit participation fees and other amounts (including any breakage costs) in respect of the Revolving Loans and Revolving Commitments of the Lenders under the Existing Credit Agreement, in each case that have accrued to but excluding the First Amendment Effective Date and (B) to each Non-Consenting Lender an amount equal to the Purchase Price (net of amounts paid pursuant to clause (A) above) with respect to its Non-Consenting Lender Assigned Interest, whereupon such Non-Consenting Lender shall cease to be a party to the Amended Credit Agreement.

(f) The Administrative Agent hereby waives each processing and recordation fee that would otherwise be due pursuant to Section 10.4 of the Existing Credit Agreement in connection with the assignments contemplated by this Section 2. Further, it is hereby agreed that this First Amendment shall be deemed to be an Assignment and Acceptance with respect to the assignments contemplated by this Section 2.

(g) Each Replacement Lender, if any, that initially becomes a party to the Amended Credit Agreement on the First Amendment Effective Date hereby (i) represents and warrants that (A) it has full power and authority, and has taken all action necessary, to execute and deliver this First Amendment and to consummate the transactions contemplated hereby and to become a Lender under the Amended Credit Agreement, (B) on and as of the First Amendment Effective Date, it shall be bound by the provisions of the Amended Credit Agreement as a Lender thereunder and, to the extent of its Revolving Commitment (or Revolving Loans) and all other related rights and obligations under the Amended Credit Agreement, shall have the obligations of a Lender thereunder, (C) it has received a copy of the Existing Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.1 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this First Amendment and become a Lender under the Amended Credit Agreement, and (D) it has, independently and without reliance upon the Administrative Agent or any existing Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this First Amendment and become a Lender under the Amended Credit Agreement; and (ii) agrees that (A) it will, independently and without reliance on the Administrative Agent or any Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents and (B) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.

 

3

(h) Notwithstanding anything to the contrary herein, in the event that each Lender under the Existing Credit Agreement consents to this First Amendment, this First Amendment shall be adopted in accordance with Section 10.2 of the Existing Credit Agreement, and Section 2.25 of the Existing Credit Agreement shall not be applicable to this First Amendment or the transactions contemplated hereby.

3. Conditions Precedent to First Amendment. This First Amendment shall become effective as of the date first written above (the “First Amendment Effective Date”) upon the satisfaction of each of the following conditions precedent set forth in this Section 3.

(a) First Amendment. The Administrative Agent shall have received this First Amendment, duly executed by (i) the Borrower, (ii)(A) each Consenting Lender (which Persons under this clause (ii)(A) shall constitute at least the Required Lenders under the Existing Credit Agreement) and (B) each Replacement Lender (if any) (which Persons described in this clause (ii) shall constitute all of the Lenders under the Amended Credit Agreement), (iii) the Issuing Bank and (iv) the Swingline Lender, and acknowledged by each Guarantor.

(b) Collateral Matters. The Administrative Agent shall have received (i) copies of favorable UCC, tax, and judgment lien search reports in all necessary or appropriate jurisdictions and under all legal and trade names of the Loan Parties, as requested by the Administrative Agent, indicating that there are no prior Liens on any of the Collateral other than Liens permitted under the Amended Credit Agreement and (ii) evidence of the completion of all other actions, recordings and filings of or with respect to the Guarantee and Collateral Agreement or any other Security Document (or evidence that such actions, recordings or filings will be completed substantially concurrently with the effectiveness of this First Amendment) that the Administrative Agent may deem necessary with respect to the perfection of the Liens granted under the Guarantee and Collateral Agreement or any other Security Document.

(c) Opinions of Counsel. The Administrative Agent shall have received a favorable written opinion of Ropes & Gray LLP, counsel to the Loan Parties, addressed to the Administrative Agent, the Issuing Bank and each of the Lenders, and covering such matters relating to the Loan Parties, the Loan Documents and the transactions contemplated by this First Amendment as the Administrative Agent shall reasonably request.

(d) Secretary’s Certificates; Corporate Authority. The Administrative Agent shall have received a certificate of the Secretary, Assistant Secretary, or other Responsible Officer of each Loan Party, attaching and certifying as to, and as applicable: (i) copies of the articles or certificate of incorporation, certificate of organization or limited partnership, or other registered organizational documents of each Loan Party, certified as of a recent date by the Secretary of State of the jurisdiction of organization of such Loan Party, (ii) copies of its bylaws, partnership agreement, limited liability company agreement, or similar organizational document, (iii) the resolutions of its board of directors or other equivalent governing body, or comparable organizational authorizations, authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (iv) the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party, and (v) certificates of good standing from the Secretary of State of the jurisdiction of organization of such Loan Party.

(e) Officer’s Closing Certificate. The Administrative Agent shall have received a certificate, dated the First Amendment Effective Date and signed by a Responsible Officer of the Borrower, certifying as to the accuracy of the representations and warranties set forth in Section 4(c) and (d) of this First Amendment.

 

4

(f) Solvency Certificate. The Administrative Agent shall have received a certificate, dated the First Amendment Effective Date and signed by a Responsible Officer of the Borrower, confirming that the Borrower and its Subsidiaries on a consolidated basis are Solvent after giving effect to the consummation of the transactions contemplated by this First Amendment to occur on the First Amendment Effective Date.

(g) USA Patriot Act; KYC. The Administrative Agent shall have received at least three (3) days prior to the First Amendment Effective Date, all documentation and other information required by bank regulatory authorities or reasonably requested by the Administrative Agent or any Lender under or in respect of applicable “know your customer” and anti-money laundering Requirements of Law, including the Patriot Act and, if Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to Borrower.

(h) Accrued Interest and Fees. The Borrower shall have paid to the Administrative Agent, for the account of the Lenders under the Existing Credit Agreement, all unpaid interest, commitment fees, Letter of Credit participation fees and other amounts (including any breakage costs) in respect of the Revolving Loans and Revolving Commitments of the Lenders under the Existing Credit Agreement, in each case that have accrued to but excluding the First Amendment Effective Date.

(i) Fees and Expenses. The Administrative Agent (and, as applicable, the Arrangers) shall have received payment of (i) all fees payable on or prior to the First Amendment Effective Date and (ii) to the extent invoiced at least one Business Day prior to the First Amendment Effective Date, reimbursement or payment of all reasonable and documented out-of-pocket expenses of the Administrative Agent (including reasonable fees, charges and disbursements of counsel to the Administrative Agent), in each case, required to be reimbursed or paid by the Borrower under any Loan Document or under any agreement with the Administrative Agent or any Arranger.

Without limiting the generality of the provisions of Section 9.2 of the Amended Credit Agreement, for purposes of determining compliance with the conditions specified in this Section 3, each Lender (including each Replacement Lender) that has signed this First Amendment shall be deemed to have consented to, approved of, accepted or been satisfied with each document or other matter required hereunder to be consented to, approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed First Amendment Effective Date specifying its objection thereto.

4. Representations and Warranties. The Borrower hereby represents and warrants to the Administrative Agent, each Lender and the Issuing Bank as of the First Amendment Effective Date as follows:

(a) Authorization; Enforceability. The Borrower and each other Loan Party has the power and authority, and the legal right, to make, deliver and perform this First Amendment and, in the case of the Borrower, to obtain extensions of credit under the Amended Credit Agreement. The Borrower and each other Loan Party has taken all necessary organizational action to authorize the execution, delivery and performance of this First Amendment and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of the Amended Credit Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the extensions of credit under the Amended Credit Agreement or with the execution, delivery, performance, validity or enforceability of this First Amendment or the Amended Credit Agreement except (i) consents, authorizations, filings and notices have been obtained or made and are in full force and effect, and (ii) filings required under the Exchange Act in respect of the transactions contemplated by this First Amendment. This First Amendment has been duly executed and delivered on behalf of the Borrower each other Loan Party party hereto. Each of this First Amendment and the Amended

 

5

Credit Agreement constitutes a legal, valid and binding obligation of the Borrower each other Loan Party party hereto, enforceable against the Borrower each such other Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

(b) No Legal Bar. The execution, delivery and performance of this First Agreement and the Amended Credit Agreement will not violate any Requirement of Law, any Loan Party’s organizational documents, or any material Contractual Obligation of any Loan Party, except for violations that would not reasonably be expected to have a Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Loan Documents).

(c) Representations and Warranties. The representations and warranties of the Loan Parties contained in each Loan Document are true and correct in all material respects on and as of the First Amendment Effective Date, after giving effect to the First Amendment and the consummation of the transactions contemplated by the First Amendment taking place on or about the First Amendment Effective Date, as though made on and as of such date (except to the extent any such representation or warranty expressly relates to an earlier date, in which case such representation and warranty shall have been true and correct in all material respects as of such earlier date); provided that any representation or warranty that is qualified as to “materiality”, “Material Adverse Effect” or similar language shall be true and correct in all respects on such respective dates.

(d) No Default. No Default or Event of Default exists on and as of the First Amendment Effective Date or, after giving effect to the First Amendment, would result from this First Amendment and the transactions contemplated hereby.

5. Survival. All representations and warranties made by the Borrower (on behalf of itself or the other Loan Parties) in this First Amendment or any other Loan Document and in the certificates, reports, notices or other instruments delivered in connection with or pursuant to this First Amendment shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this First Amendment, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under the Amended Credit Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated.

6. First Amendment as a Loan Document. This First Amendment constitutes a “Loan Document” under the Amended Credit Agreement.

7. Effect on Loan Documents. After giving effect to this First Amendment on the First Amendment Effective Date, the Amended Credit Agreement and the other Loan Documents shall be and remain in full force and effect in accordance with their terms and are hereby ratified and confirmed by the Borrower in all respects. The execution, delivery, and performance of this First Amendment shall not operate as a waiver of any right, power, or remedy of the Administrative Agent or the Lenders under the Existing Credit Agreement or the other Loan Documents. The Borrower hereby acknowledges and agrees that, after giving effect to this First Amendment, all of its obligations and liabilities under the Existing Credit Agreement and the other Loan Documents to which it is a party, as such obligations and liabilities have been amended by this First Amendment, are reaffirmed and remain in full force and effect. All

 

6

references to the Existing Credit Agreement in any Loan Document or other document or instrument delivered in connection therewith shall be deemed to refer to the Amended Credit Agreement. Nothing contained herein shall be construed as a novation of the Obligations outstanding under and as defined in the Existing Credit Agreement, which shall remain in full force and effect, except as modified hereby.

8. Limited Effect. This First Amendment relates only to the specific matters expressly covered herein, shall not be considered to be an amendment or waiver of any rights or remedies that the Administrative Agent or any Lender may have under the Existing Credit Agreement or any other Loan Document (except as expressly set forth herein) or under applicable law, and shall not be considered to create a course of dealing or to otherwise obligate in any respect the Administrative Agent or any Lender to execute similar or other amendments or waivers or grant any amendments or waivers under the same or similar or other circumstances in the future.

9. Governing Law. This First Amendment and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this First Amendment and the transactions contemplated hereby shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of New York.

10. Counterparts; Electronic Signatures. This First Amendment may be executed by one or more of the parties to this First Amendment on any number of separate counterparts, and all of such counterparts taken together shall be deemed to constitute one and the same agreement. Delivery of an executed counterpart of a signature page of this First Amendment by facsimile or other electronic imaging means (e.g., via electronic mail in .pdf form) shall be effective as delivery of a manually executed counterpart of this First Amendment. The words “execution,” “execute,” “signed,” “signature,” and words of like import in or related to this First Amendment or any other document to be signed in connection with this First Amendment and the transactions contemplated hereby shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that, notwithstanding anything contained herein to the contrary, the Administrative Agent is under no obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it.

[Signature Pages Follow]

 

7

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to the Credit Agreement to be executed and delivered as of the date first above written.

 

TERADYNE, INC.

By:   /s Charles J Gray

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

TRUIST BANK, as Administrative Agent, as the Issuing Bank, as the Swingline Lender and as a Lender
By:   /s Alfonso Brigham

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

CITIZENS BANK, NATIONAL ASSOCIATION,

as a Lender

By:   /s William Rome

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

HSBC BANK USA, NATIONAL ASSOCIATION,

as a Lender

By:   /s Kyle Patterson

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

BARCLAYS BANK PLC,

as a Lender

By:   /s Sean Duggan

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

SILICON VALLEY BANK,

as a Lender

By:   /s Francis Groccia

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

PNC BANK, NATIONAL ASSOCIATION,

as a Lender

By:   /s Daniel Russell

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

FIFTH THIRD BANK, NATIONAL ASSOCIATION,

as a Lender

By:   /s Valerie Schanzer

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

BANK OF AMERICA, N.A.,

as a Lender

By:   /s Eric Ridgeway

Name:

  

Title:

  

 

[Signature Page to First Amendment to Credit Agreement]

Acknowledgment, Ratification and Reaffirmation of Guarantors

December 10, 2021

Each Guarantor acknowledges that its consent to this First Amendment is not required, but each of the undersigned nevertheless does hereby agree and consent to this First Amendment and to the documents and agreements referred to herein. Each Guarantor agrees and acknowledges that (i) notwithstanding the effectiveness of this First Amendment, such Guarantor’s guarantee of the Obligations pursuant to the Guarantee and Collateral Agreement shall remain in full force and effect without modification thereto and (ii) nothing herein shall in any way limit any of the terms or provisions of such Guarantor’s guarantee of the Obligations pursuant to the Guarantee and Collateral Agreement or any Guarantor’s obligations under any other Loan Document to which it is a party (as the same may be amended from time to time), all of which are hereby ratified, confirmed and affirmed in all respects. Each Guarantor hereby further acknowledges that the Borrower, the Administrative Agent and the Lenders may from time to time enter into any further amendments, amendments and restatements, modifications, terminations and/or amendments of the Amended Credit Agreement and any other Loan Document without notice to or consent from such Guarantor and without affecting the validity or enforceability of such Guarantor’s guarantee of the Obligations pursuant to the Guarantee and Collateral Agreement or giving rise to any reduction, limitation, impairment, discharge or termination of such Guarantor’s guarantee of the Obligations pursuant to the Guarantee and Collateral Agreement.

Each Guarantor hereby reaffirms its grant to the Administrative Agent, for the benefit of the Secured Parties, of a continuing security interest in and Lien upon the Collateral of such Guarantor, whether now owned or hereafter acquired or arising, and wherever located, all as provided in the Guarantee and Collateral Agreement and in the other Security Documents, and each Guarantor hereby reaffirms that the Obligations are and shall continue to be secured by the continuing security interest and Lien granted by such Guarantor to the Administrative Agent, for the benefit of the Secured Parties, pursuant to the Guarantee and Collateral Agreement and in the other Security Documents.

This acknowledgement may be executed in counterparts and via electronic signatures as described in Section 10 of the First Amendment.

[Signature Pages Follow]

The undersigned Guarantors are signatories to this Acknowledgment, Ratification and Reaffirmation in their capacities as Guarantors.

 

EAGLE TEST SYSTEMS, INC.
By:   /s Charles J. Gray
Name:  
Title:  
NEXTEST SYSTEMS CORPORATION
By:   /s Charles J. Gray
Name:  
Title:  
LITEPOINT CORPORATION
By:   /s Charles J. Gray
Name:  
Title:  
MOBILE INDUSTRIAL ROBOTS INC.
By:   /s Charles J. Gray
Name:  
Title:  
By:   /s Claus Larsen
Name:  
Title:  
UNIVERSAL ROBOTS USA, INC.
By:   /s Charles J. Gray
Name:  
Title:  
AUTOGUIDE, LLC
By:   /s Charles J. Gray
Name:  
Title:  

 

[Signature Page to Acknowledgment to First Amendment to Credit Agreement]

ENERGID TECHNOLOGIES CORPORATION

By:   /s Charles J. Gray

Name:

  

Title:

  

TERADYNE PHILIPPINES LIMITED

By:   /s Charles J. Gray

Name:

  

Title:

  

TERADYNE THAILAND LIMITED

By:   /s Charles J. Gray

Name:

  

Title:

  

 

[Signature Page to Acknowledgment to First Amendment to Credit Agreement]

ANNEX A

AMENDED CREDIT AGREEMENT

[Please See Attached]

ANNEX B-1

AMENDED SCHEDULES

[Please See Attached]

ANNEX B-2

AMENDED EXHIBITS

[Please See Attached]

ANNEX A

Published CUSIP: 88077LAE6

Revolving Loan CUSIP: 88077LAF3

CREDIT AGREEMENT

dated as of May 1, 2020,

as amended as of December 10, 2021,

among

TERADYNE, INC.,

as Borrower,

THE LENDERS FROM TIME TO TIME PARTY HERETO,

and

TRUIST BANK,

as Administrative Agent

 

 

 

TRUIST SECURITIES, INC.,

as a Lead Arranger

CITIZENS BANK, NATIONAL ASSOCIATION,

as a Lead Arranger and a Syndication Agent

HSBC BANK USA, NATIONAL ASSOCIATION,

as a Lead Arranger and a Syndication Agent

BARCLAYS BANK PLC,

as a Co-Documentation Agent

SILICON VALLEY BANK,

as a Co-Documentation Agent

TABLE OF CONTENTS

 

          Page  
Article I. DEFINITIONS; CONSTRUCTION      1  

Section 1.1

   

Definitions

      1  

Section 1.2

   

Classifications of Loans and Borrowings

      37  

Section 1.3

   

Accounting Terms and Determination

      37  

Section 1.4

   

Terms Generally

      38  

Section 1.5

   

Divisions

      38  

Section 1.6

   

Benchmark Rates

      38  

Section 1.7

   

Leverage Calculations

      39  
Article II. AMOUNT AND TERMS OF THE COMMITMENTS      39  

Section 2.1

   

General Description of Facilities

      39  

Section 2.2

   

Revolving Loans

      39  

Section 2.3

   

Procedure for Revolving Borrowings

      40  

Section 2.4

   

Swingline Commitment

      40  

Section 2.5

   

[Reserved.]

      41  

Section 2.6

   

Funding of Borrowings

      41  

Section 2.7

   

Interest Elections

      42  

Section 2.8

   

Optional Reduction and Termination of Commitments

      43  

Section 2.9

   

Repayment of Loans

      43  

Section 2.10

   

Evidence of Indebtedness

      43  

Section 2.11

   

Optional Prepayments

      44  

Section 2.12

   

Mandatory Prepayments

      44  

Section 2.13

   

Interest on Loans

      45  

Section 2.14

   

Fees

      45  

Section 2.15

   

Computation of Interest and Fees

      46  

Section 2.16

   

Inability to Determine Interest Rates

      46  

Section 2.17

   

Illegality

      48  

Section 2.18

   

Increased Costs

      49  

Section 2.19

   

Funding Indemnity

      50  

Section 2.20

   

Taxes

      50  

Section 2.21

   

Payments Generally; Pro Rata Treatment; Sharing of Set-offs

      54  

Section 2.22

   

Letters of Credit

      55  

Section 2.23

   

Incremental Facility.

      60  

Section 2.24

   

Mitigation of Obligations

      61  

Section 2.25

   

Replacement of Lenders

      62  

Section 2.26

   

Defaulting Lenders

      62  

Section 2.27

   

Extension Offers

      65  

Section 2.28

   

Judgment Currency

      66  
Article III. CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT      67  

Section 3.1

   

Conditions to Effectiveness

      67  

Section 3.2

   

Conditions to Each Credit Event

      69  

Section 3.3

   

Delivery of Documents

      69  
Article IV. REPRESENTATIONS AND WARRANTIES      69  

Section 4.1

   

No Change

      69  

 

- i -

Section 4.2

   

Existence; Compliance With Law

      69  

Section 4.3

   

Power; Authorization; Enforceable Obligations

      70  

Section 4.4

   

No Legal Bar

      70  

Section 4.5

   

Litigation

      70  

Section 4.6

   

No Default

      70  

Section 4.7

   

Ownership of Property; Liens

      70  

Section 4.8

   

Intellectual Property

      71  

Section 4.9

   

Taxes

      71  

Section 4.10

   

Margin Regulations

      71  

Section 4.11

   

Labor Matters

      71  

Section 4.12

   

ERISA

      71  

Section 4.13

   

Investment Company Act

      71  

Section 4.14

   

Subsidiaries

      72  

Section 4.15

   

Use of Proceeds

      72  

Section 4.16

   

Environmental Matters

      72  

Section 4.17

   

Accuracy of Information, Etc

      73  

Section 4.18

   

Financial Statements

      73  

Section 4.19

   

Insurance

      73  

Section 4.20

   

Security Documents

      73  

Section 4.21

   

Solvency

      74  

Section 4.22

   

Sanctions and Anti-Corruption Laws

      74  

Section 4.23

   

Affected Financial Institutions

      74  
Article V. AFFIRMATIVE COVENANTS      74  

Section 5.1

   

Financial Statements

      75  

Section 5.2

   

Certificates; Other Information

      76  

Section 5.3

   

Payment of Obligations

      77  

Section 5.4

   

Maintenance of Existence; Compliance with Laws

      77  

Section 5.5

   

Maintenance of Property; Insurance

      78  

Section 5.6

   

Inspection of Property; Books and Records; Discussions

      78  

Section 5.7

   

Notices

      78  

Section 5.8

   

Environmental Laws

      79  

Section 5.9

   

Additional Collateral, etc

      79  

Section 5.10

   

Designation of Subsidiaries

      81  

Section 5.11

   

Anti-Corruption Laws and Sanctions

      81  

Section 5.12

   

Margin Regulations

      82  

Section 5.13

   

Post-Closing Obligations.

      82  
Article VI. FINANCIAL COVENANTS      82  

Section 6.1

   

Consolidated Leverage Ratio

      82  

Section 6.2

   

Interest Coverage Ratio

      82  
Article VII. NEGATIVE COVENANTS      82  

Section 7.1

   

Indebtedness

      83  

Section 7.2

   

Liens

      85  

Section 7.3

   

Fundamental Changes

      88  

Section 7.4

   

Disposition of Property

      88  

Section 7.5

   

Restricted Payments

      89  

Section 7.6

   

Investments

      90  

Section 7.7

   

Transactions with Affiliates

      92  

Section 7.8

   

Swap Agreements

      92  

 

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Section 7.9

   

Accounting Changes

      92  

Section 7.10

   

Negative Pledge Clauses

      92  

Section 7.11

   

Clauses Restricting Subsidiary Distributions

      93  

Section 7.12

   

Lines of Business

      93  

Section 7.13

   

Use of Proceeds

      94  
Article VIII. EVENTS OF DEFAULT      94  

Section 8.1

   

Events of Default

      94  

Section 8.2

   

Application of Proceeds from Collateral

      96  
Article IX. THE ADMINISTRATIVE AGENT      97  

Section 9.1

   

Appointment of the Administrative Agent

      97  

Section 9.2

   

Nature of Duties of the Administrative Agent

      98  

Section 9.3

   

Lack of Reliance on the Administrative Agent

      98  

Section 9.4

   

Certain Rights of the Administrative Agent

      99  

Section 9.5

   

Reliance by the Administrative Agent

      99  

Section 9.6

   

The Administrative Agent in its Individual Capacity

      99  

Section 9.7

   

Successor Administrative Agent

      100  

Section 9.8

   

Withholding Tax

      100  

Section 9.9

   

The Administrative Agent May File Proofs of Claim

      101  

Section 9.10

   

Authorization to Execute Other Loan Documents

      101  

Section 9.11

   

Collateral and Guaranty Matters

      101  

Section 9.12

   

Co-Documentation Agents; Co-Syndication Agents

      102  

Section 9.13

   

Right to Realize on Collateral and Enforce Guarantee

      102  

Section 9.14

   

Secured Bank Product Obligations and Hedging Obligations

      102  

Section 9.15

   

Erroneous Payments.

      103  
Article X. MISCELLANEOUS      105  

Section 10.1

   

Notices

      105  

Section 10.2

   

Waiver; Amendments

      109  

Section 10.3

   

Expenses; Indemnification

      112  

Section 10.4

   

Successors and Assigns

      114  

Section 10.5

   

Governing Law; Jurisdiction; Consent to Service of Process

      118  

Section 10.6

   

WAIVER OF JURY TRIAL

      118  

Section 10.7

   

Right of Set-off

      119  

Section 10.8

   

Counterparts; Integration

      119  

Section 10.9

   

Survival

      119  

Section 10.10

   

Severability

      120  

Section 10.11

   

Confidentiality

      120  

Section 10.12

   

Interest Rate Limitation

      121  

Section 10.13

   

Waiver of Effect of Corporate Seal

      121  

Section 10.14

   

Patriot Act

      121  

Section 10.15

   

No Advisory or Fiduciary Responsibility

      121  

Section 10.16

   

Location of Closing

      122  

Section 10.17

   

Electronic Signatures

      122  

Section 10.18

   

Acknowledgement and Consent to Bail-In of Affected Financial Institutions

      122  

Section 10.19

   

Certain ERISA Matters

      122  

Section 10.20

   

Acknowledgement Regarding Any Supported QFCs

      124  

 

- iii -

Schedules

 

Schedule I    –    Applicable Margin and Applicable Percentage
Schedule II    –    Commitment Amounts
Schedule 1.1(a)    –    Excluded Real Property
Schedule 1.1(b)    –    Immaterial Subsidiaries
Schedule 1.1(c)    –    Unrestricted Subsidiaries
Schedule 4.3    –    Consents, Authorizations, Filings, and Notices
Schedule 4.14    –    Subsidiaries
Schedule 4.20(a)    –    Filing Offices
Schedule 5.13    –    Post-Closing Obligations
Schedule 7.1(d)    –    Existing Indebtedness
Schedule 7.2(f)    –    Existing Liens
Schedule 7.6(j)    –    Existing Investments
Schedule 7.12    –    Lines of Business

Exhibits

 

Exhibit A    –    Form of Assignment and Acceptance
Exhibit B       Form of Compliance Certificate
Exhibit C    –    Form of Guarantee and Collateral Agreement
Exhibit D    –    Form of Notice of Revolving Borrowing
Exhibit E    –    Form of Notice of Swingline Borrowing
Exhibit F    –    Form of Notice of Conversion/Continuation
Exhibits G-1 – G-4    –    Tax Certificates

 

 

- iv -

CREDIT AGREEMENT

THIS CREDIT AGREEMENT (this “Agreement”) is made and entered into as of May 1, 2020, by and among TERADYNE, INC., a Massachusetts corporation (the “Borrower”), the several banks and other financial institutions and lenders from time to time party hereto (the “Lenders”), and TRUIST BANK, in its capacity as administrative agent for the Lenders (the “Administrative Agent”), as issuing bank (the “Issuing Bank”) and as swingline lender (the “Swingline Lender”).

W I T N E S S E T H:

WHEREAS, the Borrower has requested that the Lenders establish a $400,000,000 revolving credit facility in favor of the Borrower; and

WHEREAS, subject to the terms and conditions of this Agreement, the Lenders, the Issuing Bank and the Swingline Lender, to the extent of their respective Commitments as defined herein, are willing severally to establish the requested revolving credit facility, letter of credit subfacility and swingline subfacility in favor of the Borrower.

NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders, the Administrative Agent, the Issuing Bank and the Swingline Lender agree as follows:

ARTICLE I.

DEFINITIONS; CONSTRUCTION

Section 1.1 Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):

“Accepting Lenders” has the meaning specified in Section 2.27(a).

“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or a substantially all of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is already a Subsidiary), the survivor of which is a Subsidiary.

“Additional Lender” has the meaning specified in Section 2.23(b).

“Adjusted LIBO Rate” means, with respect to each Interest Period for a Eurodollar Loan, a rate per annum equal the result of (a) the London interbank offered rate (“LIBOR”) for deposits in U.S. Dollars appearing on Reuters screen page LIBOR 01 (or on any successor or substitute page of such service or any successor to such service, or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m. (London time) two (2) Business Days prior to the first day of such Interest Period, with a maturity comparable to such Interest Period (the “Screen Rate”) (provided that if such Screen Rate is less than zero, such rate shall be deemed to be zero), divided by (b) a percentage equal to 1.00 minus the then stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental,

special or other reserves and without benefit of credits for proration, exceptions or offsets that may be available from time to time) expressed as a decimal (rounded upward to the next 1/100th of 1%) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D); provided that if the rate referred to in clause (a) above is not available at any such time for any reason, then the rate referred to in clause (a) shall instead be the interest rate per annum, as determined by the Administrative Agent, to be the arithmetic average of the rates per annum at which deposits in U.S. Dollars in an amount equal to the amount of such Eurodollar Loan are offered by major banks in the London interbank market to the Administrative Agent at approximately 11:00 A.M. (London time), two (2) Business Days prior to the first day of such Interest Period. For purposes of this Agreement, the Adjusted LIBO Rate shall not be less than zero percent (0%).

“Administrative Agent” means Truist Bank, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

“Administrative Questionnaire” means, with respect to each Lender, an administrative questionnaire in the form provided by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.

“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, the specified Person. For the purposes of this definition, “Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Controlling” and “Controlled” have meanings correlative thereto.

“Aggregate Revolving Commitment Amount” means the aggregate principal amount of the Aggregate Revolving Commitments from time to time. On the First Amendment Effective Date, the Aggregate Revolving Commitment Amount is $400,000,000.

“Aggregate Revolving Commitments” means, collectively, all Revolving Commitments of all Lenders at any time outstanding.

“Alternative Currencies” means (a) Euro, (b) Pounds Sterling, (c) Indian Rupees, (d) Japanese Yen, (e) Czech Koruna, (f) Singapore Dollars, and (g) any other foreign currency (that is not Dollars) acceptable to the Administrative Agent and the Issuing Bank; provided that, for each Alternative Currency, such currency is an Eligible Currency.

“Anti-Corruption Laws” means all laws, rules and regulations of any jurisdiction applicable to the Borrower and/or its Subsidiaries concerning or relating to bribery or corruption.

“Applicable Fiscal Quarter” has the meaning specified in Section 6.1.

“Applicable Lending Office” means, for each Lender and for each Type of Loan, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or such Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.

 

- 2 -

“Applicable Margin” means, as of any date, with respect to interest on all Revolving Loans outstanding on such date or the letter of credit fee, as the case may be, the percentage per annum determined by reference to the applicable Consolidated Leverage Ratio in effect on such date as set forth on Schedule I; provided that a change in the Applicable Margin resulting from a change in the Consolidated Leverage Ratio shall be effective on the second Business Day after which the Borrower delivers each of the financial statements required by Section 5.1(a) and (b) and the Compliance Certificate required by Section 5.2(a) for the most-recent fiscal quarter of the Borrower then ended; provided, further, that if at any time the Borrower shall have failed to deliver such financial statements and such Compliance Certificate when so required, the Applicable Margin shall be at Level I as set forth on Schedule I until such time as such financial statements and Compliance Certificate are delivered, at which time the Applicable Margin shall be determined as provided above. Notwithstanding the foregoing, the Applicable Margin from the First Amendment Effective Date until the date by which the financial statements and Compliance Certificate for the fiscal quarter ending on or around December 31, 2021 are required to be delivered shall be at Level IV as set forth on Schedule I. In the event that any financial statement or Compliance Certificate delivered hereunder is shown to be inaccurate, and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin based upon the pricing grid set forth on Schedule I (the “Accurate Applicable Margin”) for any period that such financial statement or Compliance Certificate covered, then, so long as this Agreement is still in effect when such inaccuracy is discovered: (i) the Borrower shall immediately deliver to the Administrative Agent a correct financial statement or Compliance Certificate, as the case may be, for such period, (ii) the Applicable Margin shall be adjusted such that after giving effect to the corrected financial statement or Compliance Certificate, as the case may be, the Applicable Margin shall be reset to the Accurate Applicable Margin based upon the pricing grid set forth on Schedule I for such period and (iii) the Borrower shall promptly (and in any event within three (3) Business Days) pay to the Administrative Agent, for the account of the Lenders, the accrued additional interest owing as a result of such Accurate Applicable Margin for such period (it being understood that no payment Default shall be deemed to have occurred as a result of any such inaccuracy if such payment is so made). The provisions of this definition shall not limit the rights of the Administrative Agent and the Lenders with respect to Section 2.13(c) or Article VIII. For the avoidance of doubt, Schedule I, as amended on the First Amendment Effective Date, shall be effective with respect to any date from and after the First Amendment Effective Date.

“Applicable Percentage” means, as of any date, with respect to the commitment fee as of such date, the percentage per annum determined by reference to the Consolidated Leverage Ratio in effect on such date as set forth on Schedule I; provided that a change in the Applicable Percentage resulting from a change in the Consolidated Leverage Ratio shall be effective on the second Business Day after which the Borrower delivers each of the financial statements required by Section 5.1(a) and (b) and the Compliance Certificate required by Section 5.2(a) for the most-recent fiscal quarter of the Borrower then ended; provided, further, that if at any time the Borrower shall have failed to deliver such financial statements and such Compliance Certificate when so required, the Applicable Percentage shall be at Level I as set forth on Schedule I until such time as such financial statements and Compliance Certificate are delivered, at which time the Applicable Percentage shall be determined as provided above. Notwithstanding the foregoing, the Applicable Percentage for the commitment fee from the First Amendment Effective Date until the date by which the financial statements and Compliance Certificate for the fiscal quarter ending on or around December 31, 2021 are required to be delivered shall be at Level IV as set forth on Schedule I. In the event that any financial statement or Compliance Certificate delivered hereunder is shown to be inaccurate, and such inaccuracy, if corrected, would have led to the application of a higher Applicable Percentage based upon the pricing grid set forth on Schedule I (the “Accurate Applicable Percentage”) for any period that such financial statement or Compliance Certificate covered, then, so long as this Agreement is still in effect when such inaccuracy is discovered: (i) the Borrower shall immediately deliver to the Administrative Agent a correct financial statement or Compliance Certificate, as the case may be, for such period, (ii) the Applicable Percentage shall be

 

- 3 -

adjusted such that after giving effect to the corrected financial statement or Compliance Certificate, as the case may be, the Applicable Percentage shall be reset to the Accurate Applicable Percentage based upon the pricing grid set forth on Schedule I for such period and (iii) the Borrower shall promptly (and in any event within three (3) Business Days) pay to the Administrative Agent, for the account of the Lenders, the accrued additional commitment fee owing as a result of such Accurate Applicable Percentage for such period (it being understood that no payment Default shall be deemed to have occurred as a result of any such inaccuracy if such payment is so made). The provisions of this definition shall not limit the rights of the Administrative Agent and the Lenders with respect to Section 2.13(c) or Article VIII. For the avoidance of doubt, Schedule I, as amended on the First Amendment Effective Date, shall be effective with respect to any date from and after the First Amendment Effective Date.

“Applicable Time” means, with respect to any payments in any Alternative Currency, the local time in the place of settlement for such Alternative Currency as may be determined by the Issuing Bank to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.

“Approved Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Arrangers” means, collectively, Truist Securities, Inc., Citizens Bank, National Association, and HSBC Bank USA, National Association, each in its capacity as a lead arranger and book runner.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.4(b)) and accepted by the Administrative Agent, in substantially the form of Exhibit A attached hereto or any other form approved by the Administrative Agent.

“Available Incremental Amount” means, as of any date determination, an amount equal to the result of (a) the greater of (i) $200,000,000 or (ii) fifteen percent (15.00%) of Consolidated EBITDA, calculated on a pro forma basis for the period of four consecutive fiscal quarters most recently ended for which financial statements have been delivered hereunder prior to such time, minus (b) the aggregate principal amount of all Incremental Facilities established prior to such date.

“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark, as applicable, that is or may be used for determining the length of an Interest Period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 2.16(f).

“Availability Period” means the period from the Closing Date to but excluding the Maturity Date.

“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.

 

- 4 -

“Bail-In Legislation” means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).

“Bank Product Obligations” mean, collectively, all obligations and other liabilities of any Loan Party to any Bank Product Provider arising with respect to any Bank Products.

“Bank Product Provider” means any Person that, at the time it provides any Bank Product to any Loan Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Bank Product Provider is Truist Bank and its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower of (x) the existence of such Bank Product, (y) the maximum dollar amount of obligations arising thereunder (the “Bank Product Amount”) and (z) the methodology to be used by such parties in determining the obligations under such Bank Product from time to time. In no event shall any Bank Product Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Bank Products except that each reference to the term “Lender” in Article IX and Section 10.3(b) shall be deemed to include such Bank Product Provider and in no event shall the approval of any such person in its capacity as Bank Product Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent. The Bank Product Amount may be changed from time to time upon written notice to the Administrative Agent by the applicable Bank Product Provider.

“Bank Products” means any of the following services: (a) any treasury, depositary or other cash management services, including deposit accounts, automated clearing house (ACH) origination and other funds transfer, depository (including cash vault and check deposit), zero balance accounts and sweeps, return items processing, controlled disbursement accounts, overdrafts, interest depository network services, positive pay, lockboxes and lockbox accounts, account reconciliation and information reporting, payables outsourcing, payroll processing, trade finance services, investment accounts and securities accounts, and (b) card services, including credit cards (including purchasing cards and commercial cards), prepaid cards, including payroll, stored value and gift cards, merchant services processing, and debit card services.

“Base Rate” means for any day a rate per annum equal to the highest of (i) the rate of interest which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time (the “Prime Rate”), (ii) the Federal Funds Rate, as in effect from time to time, plus 0.50%, (iii) the Adjusted LIBO Rate determined on a daily basis for an Interest Period of one (1) month, plus 1.00% (any changes in such rates to be effective as of the date of any change in such rate), and (iv) zero percent (0.00%). The Administrative Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent may make commercial loans or other loans at rates of interest at, above, or below the Administrative Agent’s prime lending rate. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate, or the Adjusted LIBO Rate will be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Rate, or the Adjusted LIBO Rate.

“Benchmark” means, initially, the Adjusted LIBO Rate; provided that if a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have occurred with respect to Adjusted LIBO Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 2.16(b) or (c).

 

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“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:

 

  (1)

the sum of: (a) Term SOFR and (b) the related Benchmark Replacement Adjustment;

 

  (2)

the sum of: (a) Daily Simple SOFR and (b) the related Benchmark Replacement Adjustment;

 

  (3)

the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for U.S. dollar-denominated syndicated credit facilities at such time and (b) the related Benchmark Replacement Adjustment;

provided that, in the case of clause (1), such Unadjusted Benchmark Replacement is displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion; provided further that, notwithstanding anything to the contrary in this Agreement or in any other Loan Document, upon the occurrence of a Term SOFR Transition Event, and the delivery of a Term SOFR Notice, on the applicable Benchmark Replacement Date the “Benchmark Replacement” shall revert to and shall be deemed to be the sum of (a) Term SOFR and (b) the related Benchmark Replacement Adjustment, as set forth in clause (1) of this definition (subject to the first proviso above). If the Benchmark Replacement as determined pursuant to clause (1), (2) or (3) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.

“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:

 

  (1)

for purposes of clauses (1) and (2) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Administrative Agent:

(a) the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that has been selected or recommended by the Relevant Governmental Body for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for the applicable Corresponding Tenor;

(b) the spread adjustment (which may be a positive or negative value or zero) as of the Reference Time such Benchmark Replacement is first set for such Interest Period that would apply to the fallback rate for a derivative transaction referencing the ISDA Definitions to be effective upon an index cessation event with respect to such Benchmark for the applicable Corresponding Tenor; and

 

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  (2)

for purposes of clause (3) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated credit facilities;

provided that, in the case of clause (1) above, such adjustment is displayed on a screen or other information service that publishes such Benchmark Replacement Adjustment from time to time as selected by the Administrative Agent in its reasonable discretion.

“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent, in consultation with the Borrower, decides in its reasonable discretion may be appropriate to reflect the adoption and implementation of such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides, in consultation with the Borrower, is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).

“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:

 

  (1)

in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of:

(a) the date of the public statement or publication of information referenced therein; and

(b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof);

 

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  (2)

in the case of clause (3) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein; or

 

  (3)

in the case of a Term SOFR Transition Event, the date that is thirty (30) days after the date a Term SOFR Notice is provided to the Lenders and the Borrower pursuant to Section 2.16(c); or

 

  (4)

in the case of an Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, so long as the Administrative Agent has not received, by 5:00 p.m. on the fifth (5th) Business Day after the date notice of such Early Opt-in Election is provided to the Lenders, written notice of objection to such Early Opt-in Election from Lenders comprising the Required Lenders.

For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).

“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:

 

  (1)

a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);

 

  (2)

a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or

 

  (3)

a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer representative.

 

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For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).

“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.16(b)-(f) and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 2.16(b)-(f).

“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.

“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.

“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.

“Borrower” has the meaning set forth in the introductory paragraph hereof.

“Borrowing” means a Revolving Borrowing or a Swingline Borrowing, as the context may require.

“Business Day” means any day other than (i) a Saturday, Sunday or other day on which commercial banks in Charlotte, North Carolina or New York are authorized or required by law to close, (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any such day that is also a day on which dealings in Dollar deposits are not conducted by and between banks in the London interbank market, and (iii) if such day relates to any issuance, fundings, disbursements, settlements and payments in respect of any Letter of Credit denominated in an Alternative Currency, means any such day on which banks are not open for foreign exchange business in the principal financial center of the country of such currency.

“Capital Lease Obligations” of any Person shall mean all obligations of such Person to pay rent or other amounts under any Capitalized Lease, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP (subject to the provisions in Section 1.3 hereof).

“Capital Stock” means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act); provided that Capital Stock shall exclude any Indebtedness convertible into or exchangeable for Capital Stock until such time as such Indebtedness is converted into or exchanged for Capital Stock and such Capital Stock has been delivered by the Borrower to converting or exchanging holders.

 

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“Capitalized Lease” means, for any Person, each lease (or other arrangement conveying the right to use) of real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP (subject to the provisions in Section 1.3 hereof).

“Cash Collateralize” means, to pledge and deposit with or deliver to the Administrative Agent, for the benefit of an Issuing Bank or Swingline Lender (as applicable) and the Lenders, as collateral for Obligations in respect of Letters of Credit, Obligations in respect of Swingline Loans, or obligations of Lenders to fund participations in respect of either thereof (as the context may require), cash or deposit account balances or, if the applicable Issuing Bank or Swingline Lender benefitting from such collateral shall agree in its sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to (a) the Administrative Agent and (b) the applicable Issuing Bank or the Swingline Lender (as applicable). “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.

“Cash Equivalents” means (a) securities issued or unconditionally guaranteed or insured by the United States government, any member of the European Union whose sovereign debt is rated at least BBB- with a stable outlook by S&P or at least Baa3 with a stable outlook by Moody’s or any other government approved by the Administrative Agent (which approval shall not be unreasonably withheld, conditioned or delayed), (b) securities issued or unconditionally guaranteed or insured by any state of the United States or any agency or instrumentality thereof having maturities of not more than twelve months from the date of acquisition and having one of the two highest ratings obtainable from either S&P or Moody’s, (c) time deposits, certificates of deposit and bankers’ acceptances having maturities of not more than twelve months from the date of acquisition, in each case with any Lender (or an Affiliate of any thereof), or any Person that was a Lender (or an Affiliate thereof) at the time of acquisition thereof, or with any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any member of the European Union or any U.S. branch of a foreign bank having at the date of acquisition capital and surplus of not less than $100,000,000, (d) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clauses (a), (b) and (c) entered into with any bank meeting the qualifications specified in clause (c) above, (e) commercial paper issued by the parent corporation of any Lender or Person that was a Lender (or an Affiliate thereof) at the time of acquisition thereof, and commercial paper rated, at the time of acquisition, at least “A-1” or the equivalent thereof by S&P or “P-1” or the equivalent thereof by Moody’s and in either case maturing within twelve months after the date of acquisition, (f) deposits maintained with money market funds having total assets in excess of $300,000,000, (g) demand deposit accounts maintained in the ordinary course of business with banks or trust companies, (h) temporary deposits, of amounts received in the ordinary course of business pending disbursement of such amounts, in demand deposit accounts in banks outside the United States, (i) deposits in mutual funds which invest substantially all of their assets in preferred equities issued by U.S. corporations rated at least “AA” (or the equivalent thereof) by S&P or other assets referred to in clauses (a) through (h) above; provided, that notwithstanding the foregoing, Cash Equivalents shall, in any event, include all cash and cash equivalents as set forth in the Borrower’s balance sheet prepared in accordance with GAAP, (j) investments permitted by the Borrower’s cash investment policy delivered to the Administrative Agent prior to the Closing Date and (k) investments generally equivalent to those referred to in clauses (a) through (j) above denominated in foreign currencies (A) customarily used by Persons for cash management purposes in any jurisdiction outside of the United States or (B) with respect to any Foreign Subsidiaries, by reference to such Foreign Subsidiary’s jurisdiction of organization or any jurisdiction(s) where such Foreign Subsidiary is engaged in material operations.

“Change in Control” means the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Exchange Act and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of Capital Stock representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Borrower.

 

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“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (i) the adoption or taking effect of any law, rule, regulation or treaty, (ii) any change in any law, rule, regulation or treaty, or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (iii) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) of any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives in connection therewith and (y) all requests, rules, guidelines 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, 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 or issued.

“Charges” has the meaning specified in Section 10.12.

“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Swingline Loans or Term Loans (if applicable) and when used in reference to any Commitment, refers to whether such Commitment is a Revolving Commitment, a Swingline Commitment, or a commitment to fund Term Loans (if applicable).

“Closing Date” means the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 10.2.

“Code” means the Internal Revenue Code of 1986, as amended and in effect from time to time.

“Collateral” means all property of the Loan Parties (other than Excluded Property), now owned or hereafter acquired upon which a Lien is purported to be created by any Security Document.

“Commitment” means a Revolving Commitment, a Swingline Commitment, or the commitments for any Incremental Facility, or any combination thereof (as the context shall permit or require).

“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended and in effect from time to time, and any successor statute.

“Compliance Certificate” means a certificate from a Responsible Officer of the Borrower in the form of, and containing the certifications set forth in, the certificate attached hereto as Exhibit B.

“Computation Date” means (a) the last Business Day of each calendar quarter, (b) (i) each date of issuance, amendment and/or extension of a Letter of Credit denominated in an Alternative Currency and (ii) each date of any payment by the Issuing Bank under any Letter of Credit denominated in an Alternative Currency, and (c) during the continuation of an Event of Default, any Business Day elected by the Administrative Agent in its discretion or upon instruction by the Required Lenders.

“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.

 

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“Consolidated Assets” means, at a particular date, all amounts which would be included under total assets on a consolidated balance sheet of the Borrower and its Restricted Subsidiaries as at such date, determined in accordance with GAAP.

“Consolidated EBITDA” means, for any period (and calculated without duplication), Consolidated Net Income for such period excluding (a) any extraordinary and non-recurring non-cash expenses, losses, income or gains as determined in accordance with GAAP, (b) charges, premiums, expenses and any gains associated with the issuance, redemption, repurchase, discharge, defeasance or amendments to the terms of Capital Stock or Indebtedness, (c) charges (including actuarial, curtailment or settlement charges or losses) relating to Accounting Standards Codification 715 (Topic 715, “Compensation—Retirement Benefits”) (or any other Accounting Standards Codification having a similar result or effect), (d) any non-cash income included, and any non-cash deductions made, in determining Consolidated Net Income for such period (other than any deductions which represent the accrual of or a reserve for the payment of cash charges in any future period); provided that cash payments made in any subsequent period in respect of any item for which any such non-cash deduction was excluded in a prior period shall be deemed to reduce Consolidated Net Income by such amount in such subsequent period, (e) stock compensation expense and non-cash equity linked expense, (f) deferred financing fees (and any write-offs thereof), debt discount and issuance costs, (g) charges related to GAAP acquisition purchasing accounting adjustments (including inventory step-up amortization and in-process research and development expenses), (h) writeoffs of goodwill, intangible assets or long-lived assets or impairment charges or losses on sale in respect thereof, (i) solely to the extent not otherwise already excluded from Consolidated EBITDA by virtue of another clause of this definition, unusual or infrequent items, restructuring, restructuring-related or other similar charges or expenses (whether or not classified as restructuring charges or expenses under GAAP) and write-downs of excess or obsolete inventory and including the amount of any restructuring, integration, transition, employee severance, facility closing and similar charges accrued during such period, including any charges to establish accruals and reserves or to make payments associated with the reassessment or realignment of the business and operations of the Borrower and its Restricted Subsidiaries, and including the sale or closing of facilities, severance, stay bonuses and curtailments or modifications to pension and post-retirement employee benefit plans, asset write-downs or asset disposals (including leased facilities), write-downs for purchase and lease commitments, start-up costs for new facilities, writedowns of excess, obsolete or unbalanced inventories, relocation costs which are not otherwise capitalized and any related promotional costs of exiting products or product lines; provided that the aggregate cash amount of all such items, charges or expenses (the “Restructuring Addbacks”) together with the aggregate Cost Savings Addbacks (as defined below) in any period of four consecutive fiscal quarters shall not exceed 20% of Consolidated EBITDA for such period (calculated after giving effect to such addbacks and pro forma adjustments), (j) fees, costs, charges, commissions and expenses or other charges incurred during such period in connection with this Agreement or any Permitted Acquisition or debt financing, debt security issuance, equity security issuance or disposition permitted hereunder (in each case, whether or not consummated) or any amendment or waiver of any documentation governing such Permitted Acquisition, debt financing, debt security issuance, equity security issuance or disposition, (k) foreign exchange gains and losses, (l) expenses with respect to casualty events and (m) any state or local taxes, plus, to the extent deducted in determining Consolidated Net Income, the sum of (A) interest expense, (B) any expenses for taxes, (C) depreciation and amortization expense, (D) minority interests in income (or losses) of Restricted Subsidiaries and (E) net equity earnings (and losses) in Affiliates (excluding Subsidiaries). For purposes of calculating the ratios set forth in Article VI (including any pro forma calculation thereof) and any other financial ratio or test (including the Consolidated Leverage Ratio and the Consolidated Secured Leverage Ratio), Consolidated EBITDA for any fiscal period shall in any event (a) include the Consolidated EBITDA for such fiscal period of any entity acquired by the Borrower or any of its Restricted Subsidiaries in an Acquisition during such period (or in the case of any pro forma financial calculation, any Acquisition consummated after such period and prior to the transaction or event in respect of which

 

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such pro forma financial calculation is being made) and (b) give pro forma effect to cost savings, operating expense reductions, other operating improvements and initiatives and synergies related to any Material Transaction that are (A) permitted under Regulation S-X or (B) projected by a Responsible Officer in good faith to be reasonably anticipated to be realizable within 18 months of the date of such Material Transaction (which will be added to Consolidated EBITDA as so projected until fully realized, and calculated on a pro forma basis, as though the full recurring benefit of such cost savings, operating expense reductions, other operating improvements and initiatives and synergies had been realized on the first day of such period), net of the amount of actual benefits realized during such period from such actions; provided that with respect to this clause (B) such cost savings, operating expense reductions, other operating improvements and initiatives or synergies are reasonably identifiable and factually supportable (in the good faith determination of a Responsible Officer of the Borrower); provided further that, the aggregate amount of cost savings, operating expense reductions, other operating improvements and initiatives and synergies related to any Material Transaction added back pursuant to this clause (B) (the “Cost Savings Addbacks”) together with the aggregate Restructuring Addbacks in any period of four consecutive fiscal quarters shall not exceed 20% of Consolidated EBITDA for such period (calculated after giving effect to such addbacks and pro forma adjustments).

“Consolidated Interest Expense” means, for any period, the amount which would, in conformity with GAAP, be set forth opposite the caption “interest expense” (or any like caption) on a consolidated income statement of the Borrower and its Restricted Subsidiaries for such period; provided, that Consolidated Interest Expense for any period shall exclude (i) fees payable in respect of such period under Section 2.14 or analogous provisions under any other debt instruments or documents, (ii) any amortization, expensing or write-off of deferred financing fees, amendment and consent fees or other debt issuance costs and any fees related to acquisitions (or purchases of assets) during such period, (iii) premiums or penalties paid in connection with the discharge of Indebtedness, (iv) any non-cash expense (including any recognized but unrealized losses on equity securities), (v) costs associated with Hedging Transactions and breakage costs in respect of Hedging Transactions related to interest rates, (vi) any expense resulting from the discounting of any indebtedness in connection with the application of recapitalization accounting or, if applicable, purchase accounting in connection with any acquisition (or purchase of assets), (vii) penalties and interest relating to taxes, (viii) any “additional interest” or “liquidated damages” with respect to any securities, (ix) commissions, discounts, yield and other fees and charges (excluding any cash interest expense) related to any securitization financing and (x) any accretion of accrued interest on discounted liabilities (other than Indebtedness except to the extent arising from the application of purchase accounting).

“Consolidated Leverage Ratio” means, as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period.

“Consolidated Net Income” means, for any period, the consolidated net income (or deficit) of the Borrower and its Restricted Subsidiaries for such period (taken as a cumulative whole), determined in accordance with GAAP. In addition, to the extent not already included in Consolidated Net Income of the Borrower and its Restricted Subsidiaries, Consolidated Net Income will include the amount of proceeds received or receivable from business interruption insurance.

“Consolidated Secured Debt” means, at any date, the aggregate principal amount of Consolidated Total Debt as at such date that is then secured by Liens on the property or assets of the Borrower and its Restricted Subsidiaries.

 

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“Consolidated Secured Leverage Ratio” means, as at the last day of any period of four consecutive fiscal quarters, the ratio of (a) Consolidated Secured Debt on such day to (b) Consolidated EBITDA for such period.

“Consolidated Total Debt” means, at any date, (a) the aggregate principal amount of all Indebtedness of the Borrower and its Restricted Subsidiaries of the types described in clauses (a), (c) and (e) of the definition of Indebtedness and, without duplication, of the type described in clause (g) of the definition of Indebtedness (to the extent relating to Indebtedness of the types described in clause (a), (c) and (e) of the definition Indebtedness) at such date (net of unencumbered (other than pursuant to the Loan Documents) domestic cash and Cash Equivalents of the Loan Parties), determined on a consolidated basis, that would be required to be shown as debt on a balance sheet of the Borrower prepared in accordance with GAAP, minus (b) to the extent that neither the Borrower nor any Restricted Subsidiary is liable therefor, the aggregate principal amount of Indebtedness of any Person (other than the Borrower or any Restricted Subsidiary) included in the amount described in clause (a) of this definition.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Copyright Security Agreement” means any Copyright Security Agreement executed by a Loan Party owning registered copyrights or applications for copyrights in favor of the Administrative Agent for the benefit of the Secured Parties, both on the Closing Date and thereafter.

“Corresponding Tenor” with respect to any Available Tenor means, as applicable, either a tenor (including overnight) or an interest payment period having approximately the same length (disregarding business day adjustment) as such Available Tenor.

“Czech Koruna” means the lawful currency of the Czech Republic.

“Daily Simple SOFR” means, for any day, SOFR, with the conventions for this rate (which will include a lookback) being established by the Administrative Agent in accordance with the conventions for this rate selected or recommended by the Relevant Governmental Body for determining “Daily Simple SOFR” for business loans; provided, that if the Administrative Agent decides that any such convention is not administratively feasible for the Administrative Agent, then the Administrative Agent, in consultation with the Borrower, may establish another convention in its reasonable discretion.

“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.

“Default” means any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.

“Defaulting Lender” means, subject to Section 2.26(c), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder, or (ii) pay to the Administrative Agent, any Issuing Bank, any Swingline Lender or any other Lender any other amount required to be paid by it hereunder (including in respect of its participation in Letters of Credit or Swingline Loans) within two (2) Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent or any Issuing Bank or Swingline Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public

 

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statement to that effect, (c) has failed, within three (3) Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.26(b)) upon delivery of written notice of such determination to the Borrower, each Issuing Bank, each Swingline Lender and each Lender.

“Disposition” means, with respect to any property, any sale, lease, sale and leaseback, assignment, conveyance, license, transfer or other similar disposition thereof, excluding any such transaction or series of related transactions that yields Net Cash Proceeds to any Group Member (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) of $1,000,000 or less. The terms “Dispose” and “Disposed of” shall have correlative meanings.

“Disqualified Assignee” means any Person that is a competitor of the Borrower and its Subsidiaries identified in writing on a list made available to the Administrative Agent from time to time (and any Affiliates thereof that are reasonably identifiable by name (it being understood that the Administrative Agent shall have no obligation to carry out due diligence in order to identify such Affiliates)) other than bona fide debt funds. Notwithstanding anything herein to the contrary, (x) the Administrative Agent shall be permitted to provide a copy of the list (as well as any supplements thereto) of the Disqualified Assignees to the Lenders and in no event shall a supplement to any such list apply retroactively to disqualify any Persons that have previously acquired an assignment or participation interest in the Loans or Commitments that was otherwise permitted prior to such permitted supplementation, and (y) if the Borrower supplements the list of “Disqualified Assignees”, such supplement shall become effective two (2) Business Days after the date that such written supplement is delivered to the Administrative Agent (and the Administrative Agent shall promptly thereafter make available such supplement to each Lender).

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event:

(a) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;

 

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(b) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock which is convertible or exchangeable solely at the option of the Borrower or a Restricted Subsidiary); or

(c) is redeemable at the option of the holder of the Capital Stock in whole or in part,

in each case on or prior to the date that is 91 days after the earlier of (a) the Maturity Date and (b) the last scheduled maturity date of any Incremental Facility; provided that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is redeemable at the option of the holder thereof prior to such date will be deemed to be Disqualified Stock.

“Dollar(s)” and the sign “$” means lawful money of the United States.

“Dollar Equivalent” of any currency at any date shall mean (a) if such currency is Dollars, the amount of such currency, or (b) if such currency is an Alternative Currency, the equivalent in such currency of Dollars, calculated on the basis of the Exchange Rate for such currency on or as of the most recent Computation Date.

“Domestic Subsidiary” means any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States.

“Early Opt-in Election” means, if the then-current Benchmark is the Adjusted LIBO Rate, the occurrence of:

 

  (1)

a notification by the Administrative Agent to (or the request by the Borrower to the Administrative Agent to notify) each of the other parties hereto that at least five (5) currently outstanding U.S. dollar-denominated syndicated credit facilities at such time contain (as a result of amendment or as originally executed) a SOFR-based rate (including SOFR, a term SOFR or any other rate based upon SOFR) as a benchmark rate (and such syndicated credit facilities are identified in such notice and are publicly available for review), and

 

  (2)

the joint election by the Administrative Agent and the Borrower to trigger a fallback from the Adjusted LIBO Rate and the provision by the Administrative Agent of written notice of such election to the Lenders.

“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clause (a) or (b) of this definition and is subject to consolidated supervision with its parent.

“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein and Norway.

“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

 

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“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.4 (subject to such consents, if any, as may be required under Section 10.4(b)(iii)).

“Eligible Currency” means any lawful currency other than Dollars that is readily available, freely transferable and convertible into Dollars in the international interbank market available to the Issuing Bank in such market and as to which a Dollar Equivalent may be readily calculated. If, after the designation by the Issuing Bank of any currency as an Alternative Currency, any change in currency controls or exchange regulations or any change in the national or international financial, political or economic conditions are imposed in the country in which such currency is issued, results in, in the reasonable opinion of the Issuing Bank, (a) such currency no longer being readily available, freely transferable and convertible into Dollars, (b) a Dollar Equivalent no longer being readily calculable with respect to such currency, (c) providing such currency is no longer practicable for the Issuing Bank in its reasonable business judgment or (d) such currency no longer being a currency in which the Issuing Bank is willing to issue or extend Letters of Credit in its reasonable business judgment (each of (a), (b), (c), and (d) a “Disqualifying Event”), then the Issuing Bank shall promptly notify the Administrative Agent, the Lenders and the Borrower thereof, and such country’s currency shall no longer be an Alternative Currency until such time as the Disqualifying Event(s) no longer exist.

“Environmental Laws” means any and all applicable foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, legally binding requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health (to the extent relating to exposure to harmful or deleterious substances) or the environment, as now or may at any time hereafter be in effect.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental investigation and remediation, costs of administrative oversight, fines, natural resource damages, penalties or indemnities), of the Borrower or any of its Subsidiaries directly or indirectly resulting from or based upon (i) any actual or alleged violation of any Environmental Law, (ii) the generation, use, handling, transportation, storage, treatment, disposal, release, or threatened release of any Materials of Environmental Concern, (iii) any actual or alleged exposure to any Materials of Environmental Concern, or (iv) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any Loan Party, is treated as a single employer under Section 414 of the Code or Title IV of ERISA.

“ERISA Event” means (a) any Reportable Event; (b) the existence with respect to any Plan of a non-exempt Prohibited Transaction; (c) any failure by any Single Employer Plan to satisfy the minimum funding standards (for purposes of Sections 412 or 430 of the Code or Section 302 of ERISA) applicable to such Single Employer Plan, whether or not waived; (d) a determination that any Single Employer Plan is in “at risk” status (within the meaning of Section 430 of the Code or Title IV of ERISA); (e) the institution by the PBGC of any proceeding to terminate a Plan or the incurrence by any Loan Party or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Single Employer Plan, including but not limited to the imposition of any Lien in favor of the PBGC or any Single Employer Plan; (f) the incurrence by any Loan Party or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by any Loan Party or any of its ERISA Affiliates of any notice, or the receipt by any

 

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Multiemployer Plan from any Loan Party or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, Insolvent, or in endangered or critical status (within the meaning of Section 432 of the Code or Section 305 or Title IV of ERISA).

“Escrow Funding Arrangement ” means any escrow arrangement relating to Indebtedness permitted to be incurred under this Agreement pursuant to which the Net Cash Proceeds of such Indebtedness are subject to customary escrow arrangements as reasonably determined by the Borrower pursuant to which, among other things, (a) the providers of such Indebtedness (or an agent or trustee on their behalf) (the “ Escrow Indebtedness Providers”) may, but are not required to, have “control” within the meaning of the UCC with respect to such escrowed Net Cash Proceeds and (b) such Escrow Indebtedness Providers agree that in the event that specified conditions subsequent are not satisfied by a date certain, such escrowed Net Cash Proceeds shall be promptly applied to the repayment of such Indebtedness.

“Erroneous Payment” has the meaning assigned to it in Section 9.15(a).

“Erroneous Payment Deficiency Assignment” has the meaning specified in Section 9.15(d).

“Erroneous Payment Impacted Class” has the meaning specified in Section 9.15(d).

“Erroneous Payment Return Deficiency” has the meaning specified in Section 9.15(d).

“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.

“Euro” means the single currency of the participating member states of the European Union.

“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.

“Event of Default” has the meaning set forth in Section 8.1.

“Exchange Act” means the Securities Exchange Act of 1934, as amended and in effect from time to time.

“Exchange Rate” shall mean, on any day, with respect to any Alternative Currency, the rate at which such Alternative Currency may be exchanged into Dollars, as set forth at approximately 11:00 a.m. (London time) on such date on the Reuters World Currency Page for such Alternative Currency. In the event that such rate does not appear on any Reuters World Currency Page, the Exchange Rate with respect to such Alternative Currency shall be determined by reference to such other publicly available service for displaying exchange rates as may be selected by the Administrative Agent or, in the event no such service is selected, such Exchange Rate shall instead be calculated on the basis of the arithmetical average of the spot rates of exchange of the Administrative Agent for such Alternative Currency on the London market at 11:00 a.m. (London time) on such date for the purchase of Dollars with such Alternative Currency, for delivery two (2) Business Days later; provided, that if at the time of any such determination, for any reason, no such spot rate is being quoted, the Administrative Agent may use any reasonable method it deems appropriate to determine such rate, and such determination shall be conclusive absent manifest error.

 

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“Excluded Property” means (a) property owned by any Excluded Subsidiary, Foreign Subsidiary or U.S. Pass Through Foreign Holdco; (b) any property to the extent that a grant of a security interest in such property pursuant to the Security Documents is prohibited by any Requirement of Law of a Governmental Authority, requires a consent not obtained of any Governmental Authority pursuant to such Requirement of Law or is prohibited by, or constitutes a breach or default under or results in the termination of or requires any consent not obtained under, any contract, license, agreement, instrument or other document evidencing or giving rise to such property or, in the case of any Investment Property, Pledged Stock or Pledged Note (as such terms are defined in the Guarantee and Collateral Agreement), any applicable shareholder or similar agreement, except to the extent that such Requirement of Law or the term in such contract, license, agreement, instrument or other document or shareholder or similar agreement providing for such prohibition, breach, default or termination or requiring such consent is ineffective under applicable law; (c) Vehicles (as defined in the Guarantee and Collateral Agreement) and title documents therefor; (d) any Capital Stock held by a Loan Party in (i) a joint venture, (ii) any direct holding company of one or more joint ventures; provided that such holding company does not engage in any business or own any assets other than owning the Capital Stock of joint ventures and (iii) any Excluded Subsidiary (other than U.S. Pass Through Foreign Holdcos which shall be governed by clause (g) in this definition of “Excluded Property”); (e) Excluded Real Property; (f) interests in real property leased, subleased or licensed to any of the Loan Parties; (g) 35% of the total outstanding voting Capital Stock of each new and existing Foreign Subsidiary and of each new and existing U.S. Pass Through Foreign Holdco; (h) any accounts (including all funds or assets held therein or security entitlements or other rights in respect of such account or the funds and/or assets held therein) subject to an Escrow Funding Arrangement; (i) any intent-to-use trademark applications to the extent and for so long as creation of a security interest therein would result in the loss by the pledgor thereof of any material rights therein or impair the validity thereof; (j) all Deposit Accounts (as defined in the UCC) that are used for solely and exclusively for the purpose of funding payroll, employee benefit, tax withholding or other fiduciary obligations to employees pursuant to applicable Requirements of Law or in the ordinary course of business; and (k) property owned on the Closing Date or thereafter acquired that is subject to a Lien permitted under Section 7.2(g) or securing a Capital Lease Obligation if the contract or other agreement in which such Lien is granted (or the documentation providing for such purchase money interest or Capital Lease Obligation) validly prohibits the creation of any other Lien on such property.

“Excluded Real Property” means real property owned by the Loan Parties as of the Closing Date and listed on Schedule 1.1(a); provided the Borrower may at any time, by written notice to the Administrative Agent, remove any or all real property from Schedule 1.1(a) (and at the time of such removal, such removed real property shall no longer constitute “Excluded Real Property”).

“Excluded Subsidiary” means (a) each direct or indirect Domestic Subsidiary of a Foreign Subsidiary, (b) each U.S. Pass Through Foreign Holdco, (c) each Unrestricted Subsidiary, (d) each Immaterial Subsidiary, and (e) each Subsidiary that is not a wholly owned Subsidiary of the Borrower or a Guarantor.

“Excluded Swap Obligation” means, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee Obligation of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee Obligation thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act at the time the Guarantee Obligation of such Guarantor becomes

 

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effective with respect to such related Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee Obligation or security interest is or becomes illegal.

“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.25) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.20, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.20(g) and (d) any withholding Taxes imposed under FATCA.

“Extension Agreement” has the meaning specified in Section 2.27(b).

“Extension Offer” has the meaning specified in Section 2.27(a).

“Extension Permitted Amendment” means the terms of an amendment to this Agreement and the other Loan Documents, effected pursuant to an Extension Agreement in connection with an Extension Offer pursuant to Section 2.27, providing for an extension of the Maturity Date applicable to the Accepting Lenders’ Loans and/or scheduled maturity dates and/or commitments and/or Loans of the applicable Extension Request Facility (such Loans or commitments being referred to as the “Extended Loans” or “Extended Commitments”, as applicable) and, in connection therewith, as applicable (a) an increase or decrease in the rate of interest (including through fixed interest rates and changes to the interest rate margins or rate floors) accruing on such Extended Loans, (b) in the case of Extended Loans that are Term Loans of any Facility, a modification of the scheduled amortization applicable thereto; provided that the weighted average life to maturity of such Extended Loans shall be no shorter than the remaining weighted average life to maturity (determined at the time of such Extension Offer) of the Term Loans of such Facility, (c) a modification of voluntary or mandatory prepayments applicable thereto; provided that in the case of Extended Loans that are Term Loans, such requirements may provide (i) that such Extended Loans may participate in any mandatory prepayments on a pro rata basis (or on a basis that is less than a pro rata basis) with the Loans of the applicable Extension Request Facility and any other outstanding facilities, but may not provide for mandatory prepayment requirements that are more favorable to the Extended Loans than those applicable to the Loans of the applicable Extension Request Facility and (ii) that voluntary prepayments may be allocated as directed by the Borrower among the outstanding facilities, (d) an increase or decrease in the fees payable to, or the inclusion of new fees or premiums to be payable to, the Accepting Lenders in respect of such Extension Offer or their Extended Loans or Extended Commitments and/or (e) an addition of any affirmative or negative covenants or other terms, provided that any such additional covenant or terms with which the Borrower and its Subsidiaries shall be required to comply prior to the latest scheduled maturity date of any Facility in effect immediately prior to such Extension Permitted Amendment for the benefit of the Accepting Lenders providing such Extended Loans or Extended Commitments shall also be for the benefit of all other Lenders.

 

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“Extension Request Facility” has the meaning defined in Section 2.27(a).

“Facility” means (a) the Revolving Facility, (b) any Incremental Facility and (c) any other credit facility made available to the Borrower pursuant to this Agreement (including, without limitation, any Replacement Facilities).

“FATCA” means 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), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.

“Federal Funds Rate” means, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or, if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. For purposes of this Agreement, the Federal Funds Rate shall not be less than zero percent (0%).

“Fee Letter” means that certain fee letter, dated as of the date hereof, executed by Truist Securities, Inc. (as successor in interest to SunTrust Robinson Humphrey, Inc.) and Truist Bank and accepted by the Borrower.

“First Amendment Effective Date” means December 10, 2021.

“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the Adjusted LIBO Rate. As of the First Amendment Effective Date, the Floor is zero percent (0.00%).

“Foreign Lender” means a Lender that is not a U.S. Person.

“Foreign Subsidiary” means any Subsidiary of the Borrower that is not a Domestic Subsidiary (including, for the avoidance of doubt, any Subsidiary of the Borrower that is a controlled foreign corporation under Section 957 of the Code).

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time.

“Governmental Authority” means the government of the United States or any other nation, or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Group Members” means the collective reference to the Borrower and its Restricted Subsidiaries.

 

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“Guarantee and Collateral Agreement” means the Guarantee and Collateral Agreement, dated as of the date hereof and substantially in the form of Exhibit C, made by the Loan Parties in favor of the Administrative Agent for the benefit of the Secured Parties.

“Guarantee Obligation” means, as to any Person (the “guaranteeing person”), any obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing Person that guarantees or in effect guarantees, or which is given to induce the creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of the guaranteeing person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (A) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (B) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

“Guarantor” means each Domestic Subsidiary of the Borrower other than (a) Excluded Subsidiaries and (b) joint ventures.

“Hedging Obligations” of any Person shall mean any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired under (i) any and all Hedging Transactions, (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Hedging Transactions and (iii) any and all renewals, extensions and modifications of any Hedging Transactions and any and all substitutions for any Hedging Transactions.

“Hedging Transaction” of any Person shall mean (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

 

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“Honor Date” has the meaning specified in Section 2.22(d).

“Immaterial Subsidiary” means any Subsidiary that (a) did not, as of the last day of the fiscal quarter of the Borrower most recently ended for which financial statements have been (or were required to be) delivered pursuant to Section 5.1(a) or Section 5.1(b), have assets with a value in excess of 5.0% of the Consolidated Assets or revenues representing in excess of 5.0% of total revenues of the Borrower and the Restricted Subsidiaries on a consolidated basis as of such date, and (b) taken together with all Immaterial Subsidiaries as of such date, did not have assets with a value in excess of 10% of Consolidated Assets or revenues representing in excess of 10.0% of total revenues of the Borrower and the Subsidiaries on a consolidated basis as of such date; provided that if the Consolidated Assets or revenues of any or all Immaterial Subsidiaries shall at any time exceed the limits set forth above, then the Borrower shall cause one or more Immaterial Subsidiaries to become a Guarantor in accordance with Section 5.9(c) so that such limits are not exceeded. Each Immaterial Subsidiary as of the Closing Date shall be set forth on Schedule 1.1(b).

“Incremental Amendment” has the meaning specified in Section 2.23(b).

“Incremental Facility” has the meaning specified in Section 2.23(a).

“Incremental Facility Closing Date” has the meaning specified in Section 2.23(b).

“Incremental Revolving Facility” has the meaning specified in Section 2.23(a).

“Incremental Term Facility” has the meaning specified in Section 2.23(a).

“Indebtedness” means, of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, which would, in accordance with GAAP be shown on the liability side of the balance sheet, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (g) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (f) above, (h) all obligations of the kind referred to in clauses (a) through (g) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; provided, if such Person has not assumed or become liable for such obligation, the amount of such Indebtedness shall be deemed to be the lesser of the fair market value of such property or the obligation being secured thereby, and (i) for the purposes of Section 8.1(e) only, all obligations of such Person in respect of Swap Agreements (provided the amount of such obligations shall be deemed to be the Net Mark-to-Market Exposure with respect thereto), but excluding (i) trade and other accounts payables incurred in the ordinary course of such Person’s business, (ii) accrued expenses and deferred compensation arrangements in the ordinary course of such Person’s business, (iii) advance payments in the ordinary course of such Person’s business, and (iv) conditional payment obligations (including, for the avoidance of doubt, earn-outs, post-closing purchase price adjustments and other similar contingent

 

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payments). The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.

“Indian Rupees” means the lawful currency of India.

“Insolvency” mean, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA.

“Insolvent” mean a condition of Insolvency.

“Intellectual Property” means, the collective reference to all rights, priorities and privileges relating to intellectual property, whether registered or unregistered, arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, mask works, inventions, designs, patents, patent licenses, trademarks, tradenames, domain names and other source indicators, trademark licenses, technology, trade secrets, know-how and processes, and all other intellectual property rights, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Interest Coverage Ratio” means, for any period, the ratio of (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense paid or payable in cash for such period.

“Interest Period” means with respect to any Eurodollar Borrowing, a period of one, three or six months; provided that:

(i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type), and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the immediately preceding Business Day;

(iii) any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and

(iv) no Interest Period may extend beyond the Maturity Date.

“Investments” means an advance, loan, extension of credit (by way of guaranty or otherwise, but excluding trade debt incurred in the ordinary course of business) or capital contribution to, or purchase of any Capital Stock, bonds, notes, loans, debentures or other debt securities of, or any assets constituting a business unit of, or any other similar investment in, any Person. The amount of any

 

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Investment by any Person on any date of determination shall be the acquisition price of the gross assets acquired (including any liability assumed by such Person to the extent such liability would be reflected on a balance sheet prepared in accordance with GAAP) plus all additional capital contributions or purchase price paid in respect thereof, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment minus the amount of all cash returns of principal or capital thereon, cash dividends thereon and other cash returns on investment thereon or liabilities expressly assumed by another Person (other than a Group Member) in connection with the sale of such Investment. Whenever the term “outstanding” is used in this Agreement with reference to an Investment, it shall take into account the matters referred to in the preceding sentence.

“IRS” means the United States Internal Revenue Service.

“ISDA Definitions” means the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. or any successor thereto, as amended or supplemented from time to time, or any successor definitional booklet for interest rate derivatives published from time to time by the International Swaps and Derivatives Association, Inc. or such successor thereto.

“Issuing Bank” means Truist Bank in its capacity as the issuer of Letters of Credit pursuant to Section 2.22, or such other Lender as the Borrower may from time to time select as an Issuing Bank hereunder pursuant to Section 2.22; provided that such Lender has agreed to be an Issuing Bank.

“Japanese Yen” means the lawful currency of Japan.

“Junior Indebtedness” means (a) unsecured debt securities issued by the Borrower or any Restricted Subsidiary, (b) unsecured term loans borrowed by the Borrower or any Restricted Subsidiary and (c) Indebtedness of any Restricted Subsidiary which is subordinated in right of payment to any Obligations. For the avoidance of doubt, Junior Indebtedness does not include (i) intercompany Indebtedness and (ii) Loans.

“LC Commitment” means that portion of the Aggregate Revolving Commitments that may be used by the Borrower for the issuance of Letters of Credit in an aggregate face amount not to exceed the LC Commitment Amount.

“LC Commitment Amount” means an amount equal to $35,000,000.

“LC Disbursement” means a payment made by the Issuing Bank pursuant to a Letter of Credit.

“LC Documents” means all applications, agreements and instruments relating to the Letters of Credit but excluding the Letters of Credit.

“LC Exposure” means, at any time, the sum of (i) the Dollar Equivalent of the aggregate undrawn amount of all outstanding Letters of Credit at such time, plus (ii) the Dollar Equivalent of the aggregate amount of all LC Disbursements that have not been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender shall be its Pro Rata Share of the total LC Exposure at such time. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the stated amount of such Letter of Credit in effect at such time; provided, that with respect to any Letter of Credit that, by its terms or any document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the Dollar Equivalent of the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

 

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“Left Lead Arranger” means Truist Securities, Inc., in its capacity as the left lead arranger and book runner.

“Lender-Related Hedge Provider” means any Person that, at the time it enters into a Hedging Transaction with any Loan Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Lender-Related Hedge Provider is Truist Bank or any of its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower of (x) the existence of such Hedging Transaction and (y) the methodology to be used by such parties in determining the obligations under such Hedging Transaction from time to time. In no event shall any Lender-Related Hedge Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Hedging Obligations except that each reference to the term “Lender” in Article IX and Section 10.3(b) shall be deemed to include such Lender-Related Hedge Provider. In no event shall the approval of any such Person in its capacity as Lender-Related Hedge Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent.

“Lenders” has the meaning set forth in the introductory paragraph hereof and shall include, where appropriate, the Swingline Lender, each Additional Lender, and each Replacement Lender.

“Letter of Credit” means any stand-by letter of credit issued pursuant to Section 2.22 by the Issuing Bank for the account of the Borrower pursuant to the LC Commitment.

“LIBOR” has the meaning specified in clause (a) of the definition of Adjusted LIBO Rate.

“Lien” means any mortgage, pledge, security interest, lien (statutory or otherwise), charge, encumbrance, hypothecation, assignment, deposit arrangement, or other arrangement having the practical effect of any of the foregoing or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever, in each case, in the nature of security (including any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing).

“Limited Condition Acquisition” means any Acquisition the consummation of which by the Borrower or any Subsidiary is not expressly conditioned on the availability of, or on obtaining, third party financing.

“Loan Documents” means, collectively, this Agreement, the Security Documents, the LC Documents, the Fee Letter, any promissory notes issued hereunder, any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing which the Borrower and the Administrative Agent agree in writing is a “Loan Document”, and any amendment, amendment and restatement, waiver, supplement or other modification to any of the foregoing.

“Loan Parties” means the Borrower and the Guarantors.

“Loans” means all Revolving Loans and Swingline Loans in the aggregate or any of them, as the context shall require, and shall include, where appropriate, any loan made pursuant to Section 2.23.

“Market Intercreditor Agreement” means an intercreditor agreement the terms of which are consistent with market terms governing security arrangements for the sharing of liens or arrangements relating to the distribution of payments, as applicable, at the time the intercreditor agreement is proposed to be established in light of the type of Indebtedness subject thereto.

 

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“Material Acquisition” means any Permitted Acquisition which involves aggregate consideration in excess of $200,000,000.

“Material Adverse Effect” means a material adverse effect on (a) the business, property, operations or financial condition of the Borrower and its Restricted Subsidiaries, taken as a whole or (b) the validity or enforceability of this Agreement or any of the other Loan Documents or the material rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder; provided, however, during the period from the Closing Date to one (1) year after the Closing Date, a Material Adverse Effect shall not be deemed to exist solely as a result of the coronavirus disease known as COVID-19 to the extent that the impacts of COVID-19 on the business, property, operations or financial condition of the Borrower and its Restricted Subsidiaries, taken as a whole, do not disproportionately impact the Borrower and its Restricted Subsidiaries, taken as a whole, relative to other similarly situated companies in the same industry as the Borrower that are operating in the United States.

“Material Transaction” means (a) any Acquisition or other Investment that results in a Person becoming a Restricted Subsidiary, (b) any Disposition (x) that results in a Restricted Subsidiary ceasing to be a Subsidiary of the Borrower or (y) of a business, business unit, line of business or division of the Borrower or a Restricted Subsidiary, or (c) any operational change, including any restructuring or costs savings initiative, consummated or undertaken by the Borrower or a Restricted Subsidiary.

“Materials of Environmental Concern” means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

“Maturity Date” means the earliest of (i) December 10, 2026, (ii) the date on which the Aggregate Revolving Commitments are terminated pursuant to Section 2.8 and (iii) the date on which all amounts outstanding under this Agreement have been declared or have automatically become due and payable (whether by acceleration or otherwise).

“Maximum Rate” has the meaning specified in Section 10.12.

“Modified Leverage Period” has the meaning specified in Section 6.1.

“Moody’s” means Moody’s Investors Service, Inc.

“Mortgages” means, collectively, each mortgage, deed of trust, trust deed, security deed, debenture, deed of immovable hypothec, deed to secure debt or other real estate security documents delivered by any Loan Party to the Administrative Agent from time to time, all in form and substance satisfactory to the Administrative Agent.

“Multiemployer Plan” means a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Cash Proceeds” means, (a) in connection with any Disposition, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received), net of (i) attorneys’ fees, accountants’ fees, investment

 

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banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset that is the subject of such Disposition (other than any Lien created pursuant to a Security Document) and other third-party fees and expenses actually incurred in connection therewith and (ii) Taxes paid or reasonably estimated to be payable as a result of such Disposition (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of Capital Stock or any incurrence of Indebtedness, the cash proceeds received from such issuance or incurrence, net of attorneys’ fees, investment banking fees, accountants’ fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith and, in the case of any Indebtedness that constitutes Permitted Convertible Indebtedness, the net cost of any Permitted Call Spread Transaction executed substantially concurrently with the pricing of such Permitted Convertible Indebtedness.

“Net Mark-to-Market Exposure” of any Person shall mean, as of any date of determination with respect to any Hedging Obligation, the excess (if any) of all unrealized losses over all unrealized profits of such Person arising from such Hedging Obligation. “Unrealized losses” shall mean the fair market value of the cost to such Person of replacing the Hedging Transaction giving rise to such Hedging Obligation as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date), and “unrealized profits” shall mean the fair market value of the gain to such Person of replacing such Hedging Transaction as of the date of determination (assuming such Hedging Transaction were to be terminated as of that date).

“Non-Consenting Lender” means any Lender that does not approve any consent, waiver or amendment that (i) requires the approval of all or all affected Lenders in accordance with the terms of Section 2.25 and (ii) has been approved by the Required Lenders.

“Non-Defaulting Lender” means, at any time, a Lender that is not a Defaulting Lender.

“Notice of Borrowing” means a Notice of Revolving Borrowing or a Notice of Swingline Borrowing, as context may require.

“Notice of Conversion/Continuation” has the meaning set forth in Section 2.7(b).

“Notice of Revolving Borrowing” has the meaning set forth in Section 2.3.

“Notice of Swingline Borrowing” has the meaning set forth in Section 2.4.

“Obligations” means (a) all amounts owing by the Loan Parties to the Administrative Agent, the Issuing Bank, any Lender (including the Swingline Lender) or the Arrangers pursuant to or in connection with this Agreement or any other Loan Document or otherwise with respect to any Commitment, Loan or Letter of Credit including, without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent, the Issuing Bank and any Lender (including the Swingline Lender) incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, (b) all Hedging Obligations owed by any Loan Party to any Lender-Related Hedge Provider, and (c) all Bank Product Obligations, together with all renewals, extensions, modifications or refinancings of any of the foregoing; provided, however, that with respect to any Guarantor, the Obligations shall not include any Excluded Swap Obligations.

 

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“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.

“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.25).

“Overnight Foreign Currency Rate” shall mean, for any amount payable in an Alternative Currency, the rate of interest per annum as determined by the Administrative Agent at which overnight or weekend deposits in such Alternative Currency (or if such amount due remains unpaid for more than three (3) Business Days, then for such other period of time as the Administrative Agent may elect) for delivery in immediately available and freely transferable funds would be offered by the Administrative Agent to major banks in the interbank market upon request of such major banks for such Alternative Currency as determined above and in an amount comparable to the applicable unpaid amount, plus any taxes, levies, imposts, duties, deductions, charges or withholdings imposed upon, or charged to, the Administrative Agent by any relevant correspondent bank in respect of such amount in such Alternative Currency; provided that, if the Overnight Foreign Currency Rate is less than zero, such rate shall be deemed to be zero for all purposes of this Agreement.

“Parent Company” means, with respect to a Lender, the “bank holding company” as defined in Regulation Y, if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.

“Participant” has the meaning set forth in Section 10.4(d).

“Participant Register” has the meaning set forth in Section 10.4(d).

“Patent Security Agreement” means any Patent Security Agreement executed by a Loan Party owning patents or licenses of patents in favor of the Administrative Agent for the benefit of the Secured Parties, both on the Closing Date and thereafter.

“Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, as amended and in effect from time to time.

“Payment Office” means the office of the Administrative Agent located at 303 Peachtree Street, N.E., Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the Lenders.

“Payment Recipient” has the meaning assigned to it in Section 9.15(a).

“PBGC” means the U.S. Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.

 

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“Permitted Acquisition” means any Acquisition by (i) the Borrower or any of its Subsidiaries of all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person or (ii) the Borrower or any of its Subsidiaries of no less than 100% of the capital stock, partnership interests, membership interests or equity of any Person (not owned directly or indirectly by the Borrower immediately prior to giving effect to such Acquisition), in each case, to the extent that:

(a) each of the following conditions precedent shall have been satisfied:

(i) the Administrative Agent shall receive not less than ten Business Days’ (or such shorter period as reasonably agreed by the Administrative Agent) prior written notice of such Acquisition (provided that such notice shall only be required for an Acquisition involving consideration in excess of $10,000,000), which notice shall include a reasonably detailed description of the proposed terms of such Acquisition;

(ii) the Borrower shall comply, and shall cause the Target to the extent applicable to comply, with the provisions of Section 5.9 of this Agreement or shall have made arrangements reasonably satisfactory to the Administrative Agent for compliance after the effectiveness of such Permitted Acquisition, as applicable; and

(iii) immediately after giving effect to such Acquisition and the incurrence of any Indebtedness in connection therewith, (A) no Event of Default shall then exist or would exist immediately after giving effect thereto, and (B) the Borrower shall be in compliance on a pro forma basis with the covenants set forth in Article VI recomputed for the most recently ended fiscal quarter of the Borrower for which financial statements have been delivered hereunder and for which information is available regarding the business being acquired; provided, however, solely with respect to a Limited Condition Acquisition, (x) no Event of Default existed as of the date the definitive acquisition agreement for such Limited Condition Acquisition is entered into and (y) the Borrower shall be in compliance on a pro forma basis as of the date the definitive acquisition agreement for such Limited Condition Acquisition is entered into with the covenants set forth in Article VI recomputed for the most recently ended fiscal quarter of the Borrower for which financial statements have been delivered hereunder and for which information is available regarding the business being acquired;

(b) such Acquisition shall not be hostile and shall have been approved by the board of directors (or other similar body) and/or the stockholders or other equityholders of the Target or the parent thereof; and

(c) any Person or assets, business or division acquired in accordance herewith shall be in the same business or lines of business (i) in which the Borrower and/or its Subsidiaries are then engaged or that are identified on Schedule 7.12 or (ii) that are reasonably related, incidental, ancillary, complementary (including related, complementary, synergistic or ancillary technologies) or similar thereto, or a reasonable extension, development or expansion thereof.

“Permitted Bond Hedge Transaction” means any bond hedge, capped call or similar option transaction entered into in connection with the issuance of Permitted Convertible Indebtedness for the purpose or having the effect of increasing the effective conversion price of such Permitted Convertible Indebtedness.

“Permitted Call Spread Transaction” means any Permitted Bond Hedge Transaction together with, if applicable, any Permitted Warrant Transaction.

 

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“Permitted Convertible Indebtedness” means any notes, bonds, debentures or similar instruments issued by the Borrower that are convertible into or exchangeable for (x) cash, (y) shares of the Borrower’s common stock or preferred stock or other equity securities that constitute Qualified Stock or (z) a combination thereof.

“Permitted Refinancing Indebtedness” has the meaning given to such term in Section 7.1(n).

“Permitted Warrant Transaction” means any warrant issued by the Borrower concurrently with the purchase, by the Borrower, of a Permitted Bond Hedge Transaction for the purpose of offsetting the cost of such Permitted Bond Hedge Transaction.

“Person” means any natural Person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“Plan” means, at a particular time, any employee pension benefit plan (as defined in Section 3(2) of ERISA) in respect of which a Loan Party or any ERISA Affiliate is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Platform” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.

“Pounds Sterling” means the lawful currency of the United Kingdom.

“Pro Rata Share” means with respect to any Class of Commitment or Loan of any Lender at any time, a percentage, the numerator of which shall be such Lender’s Commitment of such Class (or if such Commitment has been terminated or expired or the Loans have been declared to be due and payable, such Lender’s Revolving Credit Exposure), and the denominator of which shall be the sum of all Commitments of such Class of all Lenders (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders).

“Prohibited Transaction” has the meaning specified in Section 406 of ERISA or Section 4975 of the Code.

“Properties” has the meaning specified in Section 4.16.

“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.

“Qualified Stock” means, with respect to any Person, Capital Stock of such Person which is not Disqualified Stock.

“Recipient” means, as applicable, (a) the Administrative Agent, (b) any Lender and (c) the Issuing Bank.

“Recovery Event” means any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of any Group Member.

“Reference Time” with respect to any setting of the then-current Benchmark means (a) if such Benchmark is the Adjusted LIBO Rate, 11:00 a.m. (London time) on the day that is two London banking days preceding the date of such setting, and (b) if such Benchmark is not the Adjusted LIBO Rate, the time determined by the Administrative Agent in its reasonable discretion.

 

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“Refinanced Facility” has the meaning specified Section 10.2(b).

“Refinanced Revolving Facility” has the meaning specified Section 10.2(b).

“Refinanced Term Loans” has the meaning specified Section 10.2(b).

“Register” has the meaning specified in Section 10.4(c).

“Regulation D” means Regulation D of the Federal Reserve Board, as the same may be in effect from time to time, and any successor regulations.

“Regulation Y” means Regulation Y of the Federal Reserve Board, as the same may be in effect from time to time, and any successor regulations.

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the managers, administrators, trustees, partners, directors, officers, employees, agents, advisors or other representatives of such Person and such Person’s Affiliates.

“Relevant Governmental Body” means the Federal Reserve Board and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Federal Reserve Board and/or the Federal Reserve Bank of New York or any successor thereto.

“Replacement Facility” has the meaning specified in Section 10.2(b).

“Replacement Lender” has the meaning specified in Section 2.25.

“Replacement Revolving Facility” has the meaning specified in Section 10.2(b).

“Replacement Term Loans” has the meaning specified in Section 10.2(b).

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than those events as to which the thirty day notice period is waived under PBGC regulations.

“Required Lenders” means, at any time, Lenders holding more than 50% of the aggregate outstanding Revolving Commitments at such time or, if the Lenders have no Commitments outstanding, then Lenders holding more than 50% of the aggregate outstanding Revolving Credit Exposure at such time; provided that to the extent that any Lender is a Defaulting Lender, such Defaulting Lender and all of its Revolving Commitments and Revolving Credit Exposure shall be excluded for purposes of determining Required Lenders.

“Requirement of Law” for any Person shall mean any law, treaty, rule or regulation, or determination of a Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.

 

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“Responsible Officer” shall mean (x) with respect to certifying compliance with the financial covenants set forth in Article VI, the chief financial officer, corporate controller or the treasurer of the Borrower and (y) with respect to all other provisions, any of the chief executive officer, the president, the chief financial officer, the corporate controller, any vice president, general counsel, secretary, the treasurer or the assistant treasurer of the applicable Loan Party.

“Restricted Payment” has the meaning specified in Section 7.5.

“Restricted Subsidiary” means any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.

“Revolving Commitment” means, with respect to each Lender, the commitment of such Lender to make Revolving Loans to the Borrower and to acquire participations in Letters of Credit and Swingline Loans in an aggregate principal amount not exceeding the amount set forth with respect to such Lender on Schedule II (as amended on the First Amendment Effective Date), as such schedule may be amended pursuant to Section 2.23, or, in the case of a Person becoming a Lender after the First Amendment Effective Date, the amount of the assigned “Revolving Commitment” as provided in the Assignment and Acceptance executed by such Person as an assignee, or the joinder executed by such Person, in each case as such commitment may subsequently be increased or decreased pursuant to the terms hereof.

“Revolving Credit Exposure” means, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans, LC Exposure and Swingline Exposure.

“Revolving Facility” means the revolving credit facility made available to the Borrower pursuant to this Agreement.

“Revolving Loan” means a loan made by a Lender (other than the Swingline Lender) to the Borrower under its Revolving Commitment, which may either be a Base Rate Loan or a Eurodollar Loan.

“S&P” means Standard & Poor’s, a Standard & Poor’s Financial Services LLC business.

“Sanctioned Country” means, at any time, a country, region or territory that is, or whose government is, the subject or target of any Sanctions, including, without limitation, Crimea, Cuba, Iran, North Korea and Syria.

“Sanctioned Person” means, at any time, (a) any Person that is the subject or target of any Sanctions, (b) any Person located, organized, operating or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person.

“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State, (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom, or (c) any other relevant sanctions authority of a jurisdiction in which the Borrower, any Subsidiary, or any Lender conduct their businesses and to which any such Person are lawfully subject.

“Screen Rate” has the meaning specified in clause (a) of the definition of Adjusted LIBO Rate.

 

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“Secured Parties” means the Administrative Agent, the Lenders, the Issuing Bank, the Lender-Related Hedge Providers and the Bank Product Providers.

“Security Documents” means the collective reference to the Guarantee and Collateral Agreement, all Copyright Security Agreements, all Patent Security Agreements, all Trademark Security Agreements, the Mortgages, all UCC financing statements, fixture filings and stock powers, and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document.

“Singapore Dollars” means the lawful currency of Singapore.

“Single Employer Plan” means any Plan that is covered by Title IV of ERISA, but that is not a Multiemployer Plan.

“SOFR” means, with respect to any Business Day, a rate per annum equal to the secured overnight financing rate for such Business Day published by the SOFR Administrator on the SOFR Administrator’s Website at approximately 8:00 a.m. (New York City time) on the immediately succeeding Business Day.

“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of SOFR).

“SOFR Administrator’s Website” means the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.

“Solvent” means, as to any Person as of any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair saleable value of the assets such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, and (d) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“Special Flood Hazard Area” means an area that FEMA’s current flood maps indicate has at least a 1% chance of a flood equal to or exceeding the base flood elevation (a 100-year flood) in any given year.

“Subsidiary” means, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person (exclusive of any Affiliate in which such Person has a minority ownership interest). Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower or its successors.

 

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“Swap Agreement” means any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions.

“Swap Obligation” means, with respect to any Guarantor, any obligation to pay or perform under any Swap Agreement.

“Swingline Commitment” means the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding not to exceed $25,000,000.

“Swingline Exposure” means, with respect to each Lender, the principal amount of the Swingline Loans in which such Lender is legally obligated either to make a Base Rate Loan or to purchase a participation in accordance with Section 2.4, which shall equal such Lender’s Pro Rata Share of all outstanding Swingline Loans.

“Swingline Lender” means Truist Bank.

“Swingline Loan” means a loan made to the Borrower by the Swingline Lender under the Swingline Commitment.

“Target” means the Person, or business or substantially all of the assets of a Person or a division of a Person, intended to be acquired in a Permitted Acquisition.

“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees, or charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Term Loans” means any term loans made pursuant to this Agreement.

“Term SOFR” means, for the applicable Corresponding Tenor as of the applicable Reference Time, the forward-looking term rate based on SOFR that has been selected or recommended by the Relevant Governmental Body.

“Term SOFR Notice” means a notification by the Administrative Agent to the Lenders and the Borrower of the occurrence of a Term SOFR Transition Event.

“Term SOFR Transition Event” means the determination by the Administrative Agent that (a) Term SOFR has been recommended for use by the Relevant Governmental Body, (b) the administration of Term SOFR is administratively feasible for the Administrative Agent, or the Administrative Agent, in consultation with the Borrower, shall have established another convention in its reasonable discretion and (c) a Benchmark Transition Event has previously occurred resulting in a Benchmark Replacement in accordance with Section 2.16(b)-(f) that is not Term SOFR.

“Trademark Security Agreement” means any Trademark Security Agreement executed by a Loan Party owning registered trademarks or applications for trademarks in favor of the Administrative Agent for the benefit of the Secured Parties, both on the Closing Date and thereafter.

 

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“Type”, when used in reference to a Loan or a Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate.

“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.

“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.

“Unadjusted Benchmark Replacement” means the Benchmark Replacement excluding the Benchmark Replacement Adjustment.

“Uniform Commercial Code” or “UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York; provided that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of a security interest in any Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “Uniform Commercial Code” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.

“United States” or “U.S.” means the United States of America.

“Unrestricted Subsidiary” means any Subsidiary of the Borrower that is designated by the Borrower as an Unrestricted Subsidiary on or after the Closing Date pursuant to Section 5.10. Each Unrestricted Subsidiary as of the Closing Date shall be set forth on Schedule 1.1(c).

“U.S. Pass Through Foreign Holdco” means any Domestic Subsidiary substantially all of the assets of which consist of Capital Stock of one or more Foreign Subsidiaries that are controlled foreign corporations within the meaning of Section 957(a) of the Code and/or other U.S. Pass Through Foreign Holdcos.

“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.

“U.S. Tax Compliance Certificate” has the meaning set forth in Section 2.20(e)(ii).

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

“Withholding Agent” means the Borrower, any other Loan Party or the Administrative Agent, as applicable.

“Write-Down and Conversion Powers” means (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion

 

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powers are described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.

Section 1.2 Classifications of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., “Revolving Loan” or “Swingline Loan”) or by Type (e.g., “Eurodollar Loan” or “Base Rate Loan”) or by Class and Type (e.g. “Revolving Eurodollar Loan”). Borrowings also may be classified and referred to by Class (e.g., “Revolving Borrowing”) or by Type (e.g., “Eurodollar Borrowing”) or by Class and Type (e.g., “Revolving Eurodollar Borrowing”).

Section 1.3 Accounting Terms and Determination.

(a) Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time; provided that if the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn by the Borrower or the Administrative Agent (or the Required Lenders), as the case may be, or such provision amended in accordance herewith.

(b) When determining whether a Default or Event of Default pursuant to Section 8.1 shall be in existence after giving pro forma effect to a certain event, the covenant levels to be used in making such determination shall be those in effect as of the last day of the most recent fiscal quarter of the Borrower for which financial reports are required to have been delivered pursuant to Section 5.1.

(c) Notwithstanding any other provision contained herein, (a) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Accounting Standards Codification Section 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Loan Party or any Subsidiary of any Loan Party at “fair value”, as defined therein and (b) for all purposes of this Agreement and the other Loan Documents, including negative covenants, financial covenants and component definitions, GAAP will be deemed to treat operating leases and Capitalized Leases in a manner consistent with the treatment under GAAP as in effect prior to the issuance by the Financial Accounting Standards Board on February 25, 2016 of Accounting Standards Update No. 2016-02. In addition, in the case of any Permitted Convertible Indebtedness for which the embedded conversion obligation must be settled by paying solely cash, so long as substantially concurrently with the offering of such Permitted Convertible Indebtedness, the Borrower enters into a cash-settled Permitted Bond Hedge Transaction relating to such Permitted Convertible Indebtedness, notwithstanding any other provision contained herein, for so long as such Permitted Bond Hedge Transaction (or a portion thereof corresponding to the amount of outstanding Permitted Convertible Indebtedness) remains in effect, all computations of amounts and ratios referred to herein shall be made as if the amount of Indebtedness represented by such Permitted Convertible Indebtedness were equal to the face principal amount thereof without regard to any mark-to-market derivative accounting for such Indebtedness.

 

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(d) For purposes of calculating the maximum amount of Indebtedness permitted to be incurred under Sections 7.1(e), (k) or (o) or Restricted Payments permitted to be made under Section 7.5(e) or declared under Section 7.5(d), in each case solely in respect of the period between the signing of a definitive agreement for a Limited Condition Acquisition and consummation (or earlier termination or abandonment) of such Limited Condition Acquisition, such calculations shall be made giving pro forma effect to such Limited Condition Acquisition (including, for the avoidance of doubt, both (x) Consolidated EBITDA of or attributable to the target companies or assets associated with any such Limited Condition Acquisition and (y) Indebtedness for borrowed money the Borrower expects to incur to finance the Limited Condition Acquisition (if any)), as estimated or determined by the Borrower in good faith.

Section 1.4 Terms Generally. The definitions of terms herein and in the other Loan Documents shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the word “to” means “to but excluding”. Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein or in any other Loan Document shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein or in any other Loan Document to any Person shall be construed to include such Person’s successors and permitted assigns, (iii) the words “hereof”, “herein” and “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (iv) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement, (v) all references to a specific time shall be construed to refer to the time in the city and state of the Administrative Agent’s principal office, unless otherwise indicated and (vi) any definition of or reference to any law shall include all statutory and regulatory provisions consolidating, amending, or interpreting any such law and any reference to or definition of any law or regulation, unless otherwise specified, shall refer to such law or regulation as amended, modified or supplemented from time to time.

Section 1.5 Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its equity interests at such time.

Section 1.6 Benchmark Rates. LIBOR is intended to represent the rate at which contributing banks could obtain short-term borrowings from one another in the London interbank market. On March 5, 2021, the Financial Conduct Authority (“FCA”), the regulatory supervisor of LIBOR’s administrator, announced in a public statement the future cessation of the 35 LIBOR benchmark settings currently published by ICE Benchmark Administration. This public statement constitutes a Benchmark Transition Event. To the extent the Maturity Date goes beyond the cessation dates indicated in the FCA’s announcement, an alternate rate of interest will be determined at the appropriate time in accordance with Section 2.16(b) for any applicable tenors of LIBOR for deposits in U.S. Dollars. Upon the occurrence of

 

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a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, Section 2.16(b) and (c) provide the mechanism for determining an alternative rate of interest. The Administrative Agent will promptly notify the Borrower, pursuant to Section 2.16(e), of any change to the reference rates upon which the interest rates on Eurodollar Loans are based. However, the Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission or any other matter related to LIBOR for deposits in U.S. Dollars or other rates in the definition of “Adjusted LIBO Rate” or with respect to any alternative or successor rate thereto, or replacement rate thereof (including (i) any such alternative, successor or replacement rate implemented pursuant to Section 2.16(b) or (c), whether upon the occurrence of a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, and (ii) the implementation of any Benchmark Replacement Conforming Changes pursuant to Section 2.16(d)), including whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, the Adjusted LIBO Rate or have the same volume or liquidity as did LIBOR for deposits in U.S. Dollars prior to its discontinuance or unavailability.

Section 1.7 Leverage Calculations. If the availability of Indebtedness under this Agreement, or other incurrence of Indebtedness in compliance with this Agreement, is subject to pro forma compliance with a maximum Consolidated Leverage Ratio or a maximum Consolidated Secured Leverage Ratio, then, solely for the purposes of determining such availability or compliance, the cash proceeds of such Indebtedness, shall not be included in the calculation, if applicable, of unencumbered cash or Cash Equivalents included in the determination of the Consolidated Leverage Ratio or the Consolidated Secured Leverage Ratio (as applicable), but, for the avoidance of doubt, any repayment of Indebtedness from such cash proceeds shall be given pro forma effect.

ARTICLE II.

AMOUNT AND TERMS OF THE COMMITMENTS

Section 2.1 General Description of Facilities. Subject to and upon the terms and conditions herein set forth, (i) the Lenders hereby establish in favor of the Borrower a revolving credit facility pursuant to which each Lender severally agrees (to the extent of such Lender’s Revolving Commitment) to make Revolving Loans to the Borrower in accordance with Section 2.2; (ii) the Issuing Bank agrees to issue Letters of Credit in accordance with Section 2.22; (iii) the Swingline Lender may make Swingline Loans in accordance with Section 2.4; and (iv) each Lender agrees to purchase a participation interest in the Letters of Credit and the Swingline Loans pursuant to the terms and conditions hereof; provided that in no event shall the aggregate principal amount of all outstanding Revolving Loans, Swingline Loans and outstanding LC Exposure exceed the Aggregate Revolving Commitment Amount in effect from time to time.

Section 2.2 Revolving Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make Revolving Loans, ratably in proportion to its Pro Rata Share of the Aggregate Revolving Commitments, to the Borrower, from time to time during the Availability Period, in Dollars in an aggregate principal amount outstanding at any time that will not result in (a) the Dollar Equivalent of such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the Dollar Equivalent of the aggregate Revolving Credit Exposures of all Lenders exceeding the Aggregate Revolving Commitment Amount. During the Availability Period, the Borrower shall be entitled to borrow, prepay and reborrow Revolving Loans in accordance with the terms and conditions of this Agreement; provided that the Borrower may not borrow or reborrow should there exist a Default or Event of Default.

 

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Section 2.3 Procedure for Revolving Borrowings. The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Revolving Borrowing, substantially in the form of Exhibit D attached hereto (a “Notice of Revolving Borrowing”), (x) prior to 11:00 a.m. on the requested date of each Base Rate Borrowing and (y) prior to 12:00 p.m. three (3) Business Days prior to the requested date of each Eurodollar Borrowing. Each Notice of Revolving Borrowing shall be irrevocable and shall specify (i) the aggregate principal amount of such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) the Type of such Revolving Loan comprising such Borrowing and (iv) in the case of a Eurodollar Borrowing, the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Revolving Borrowing shall consist entirely of Base Rate Loans or Eurodollar Loans, as the Borrower may request. The aggregate principal amount of each Eurodollar Borrowing shall not be less than $1,000,000 or a larger multiple of $1,000,000, and the aggregate principal amount of each Base Rate Borrowing shall not be less than $1,000,000 or a larger multiple of $250,000; provided that Base Rate Loans made pursuant to Section 2.4 or Section 2.22(d) may be made in lesser amounts as provided therein. At no time shall the total number of Eurodollar Borrowings outstanding at any time exceed ten (10). Promptly following the receipt of a Notice of Revolving Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender’s Revolving Loan to be made as part of the requested Revolving Borrowing.

Section 2.4 Swingline Commitment.

(a) Subject to the terms and conditions set forth herein, the Swingline Lender may, in its sole discretion, make Swingline Loans in Dollars to the Borrower, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time not to exceed the lesser of (i) the Swingline Commitment then in effect and (ii) the difference between the Aggregate Revolving Commitment Amount and the Dollar Equivalent of the aggregate Revolving Credit Exposures of all Lenders; provided that the Swingline Lender shall not be required to make a Swingline Loan to refinance an outstanding Swingline Loan. The Borrower shall be entitled to borrow, repay and reborrow Swingline Loans in accordance with the terms and conditions of this Agreement.

(b) The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Swingline Borrowing, substantially in the form of Exhibit E attached hereto (a “Notice of Swingline Borrowing”), prior to 10:00 a.m. (or such later time as the Swingline Lender may agree in its sole discretion) on the requested date of each Swingline Borrowing. Each Notice of Swingline Borrowing shall be irrevocable and shall specify (i) the principal amount of such Swingline Borrowing, (ii) the date of such Swingline Borrowing (which shall be a Business Day) and (iii) the account of the Borrower to which the proceeds of such Swingline Borrowing should be credited. The Administrative Agent will promptly advise the Swingline Lender of each Notice of Swingline Borrowing. The aggregate principal amount of each Swingline Loan shall not be less than $500,000 or a larger multiple of $100,000, or such other minimum amounts agreed to by the Swingline Lender and the Borrower. The Swingline Lender will make the proceeds of each Swingline Loan available to the Borrower in Dollars in immediately available funds at the account specified by the Borrower in the applicable Notice of Swingline Borrowing not later than 1:00 p.m. on the requested date of such Swingline Borrowing.

(c) The Swingline Lender, at any time and from time to time in its sole discretion, may, but in no event no less frequently than once each calendar week shall, on behalf of the Borrower (which hereby irrevocably authorizes and directs the Swingline Lender to act on its behalf), give a Notice of Swingline Borrowing to the Administrative Agent requesting the Lenders (including the Swingline Lender) to make Base Rate Loans in an amount equal to the unpaid principal amount of any Swingline Loan. Each Lender will make the proceeds of its Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Swingline Lender in accordance with Section 2.6, which will be used solely for the repayment of such Swingline Loan.

 

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(d) If for any reason a Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Lender (other than the Swingline Lender) shall purchase an undivided participating interest in such Swingline Loan in an amount equal to its Pro Rata Share thereof on the date that such Base Rate Borrowing should have occurred. On the date of such required purchase, each Lender shall promptly transfer, in immediately available funds, the amount of its participating interest to the Administrative Agent for the account of the Swingline Lender.

(e) Each Lender’s obligation to make a Base Rate Loan pursuant to subsection (c) of this Section or to purchase participating interests pursuant to subsection (d) of this Section shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right that such Lender or any other Person may have or claim against the Swingline Lender, the Borrower or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of any Lender’s Revolving Commitment, (iii) the existence (or alleged existence) of any event or condition which has had or could reasonably be expected to have a Material Adverse Effect, (iv) any breach of this Agreement or any other Loan Document by any Loan Party, the Administrative Agent or any Lender or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If such amount is not in fact made available to the Swingline Lender by any Lender, the Swingline Lender shall be entitled to recover such amount on demand from such Lender, together with accrued interest thereon for each day from the date of demand thereof (x) at the Federal Funds Rate until the second Business Day after such demand and (y) at the Base Rate at all times thereafter. Until such time as such Lender makes its required payment, the Swingline Lender shall be deemed to continue to have outstanding Swingline Loans in the amount of the unpaid participation for all purposes of the Loan Documents. In addition, such Lender shall be deemed to have assigned any and all payments made of principal and interest on its Loans and any other amounts due to it hereunder to the Swingline Lender to fund the amount of such Lender’s participation interest in such Swingline Loans that such Lender failed to fund pursuant to this Section, until such amount has been purchased in full.

Section 2.5 [Reserved.]

Section 2.6 Funding of Borrowings.

(a) Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 2:00 p.m. to the Administrative Agent at the Payment Office; provided that the Swingline Loans will be made as set forth in Section 2.4. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on such proposed date, to an account designated by the Borrower to the Administrative Agent.

(b) Unless the Administrative Agent shall have been notified by any Lender prior to 5:00 p.m. one (1) Business Day prior to the date of a Eurodollar Borrowing or 2:00 p.m. on the date of a Base Rate Borrowing in which such Lender is to participate that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance on such assumption, may make available to the Borrower on such date a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of such Borrowing, the Administrative Agent shall be

 

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entitled to recover such corresponding amount on demand from such Lender together with interest (x) at the Federal Funds Rate until the second Business Day after such demand and (y) at the Base Rate at all times thereafter. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall immediately pay such corresponding amount to the Administrative Agent together with interest at the rate specified for such Borrowing. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its Pro Rata Share of any Borrowing hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.

(c) All Revolving Borrowings shall be made by the Lenders on the basis of their respective Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.

Section 2.7 Interest Elections.

(a) Each Borrowing initially shall be of the Type specified in the applicable Notice of Borrowing. Thereafter, the Borrower may elect to convert such Borrowing into a different Type or to continue such Borrowing, all as provided in this Section but subject to Section 2.16. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.

(b) To make an election pursuant to this Section, the Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing that is to be converted or continued, as the case may be, substantially in the form of Exhibit F attached hereto (a “Notice of Conversion/Continuation”) (x) prior to 11:00 a.m. one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing and (y) prior to 12:00 p.m. three (3) Business Days prior to a continuation of or conversion into a Eurodollar Borrowing. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Conversion/Continuation applies and, if different options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing), (ii) the effective date of the election made pursuant to such Notice of Conversion/Continuation, which shall be a Business Day, (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing, and (iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of “Interest Period”. If any such Notice of Conversion/Continuation requests a Eurodollar Borrowing but does not specify an Interest Period, the Borrower shall be deemed to have selected an Interest Period of one month. The principal amount of any resulting Borrowing shall satisfy the minimum borrowing amount for Eurodollar Borrowings and Base Rate Borrowings set forth in Section 2.3.

(c) If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower shall have failed to deliver a Notice of Conversion/Continuation, then, unless such Borrowing is repaid as provided herein, the Borrower shall be deemed to have elected to convert such Borrowing to a Base Rate Borrowing. No Borrowing may be converted into, or continued as, a Eurodollar Borrowing if an Event of Default exists and the Administrative Agent or the Required Lenders shall have notified the Borrower in writing of their determination not to permit such conversion or continuation. No conversion of any Eurodollar Loan shall be permitted except on the last day of the Interest Period in respect thereof.

 

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(d) Upon receipt of any Notice of Conversion/Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

Section 2.8 Optional Reduction and Termination of Commitments.

(a) Unless previously terminated, all Revolving Commitments, Swingline Commitments and LC Commitments shall terminate on the Maturity Date.

(b) Upon at least three (3) Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent (which notice shall be irrevocable), the Borrower may reduce the Aggregate Revolving Commitments in part or terminate the Aggregate Revolving Commitments in whole; provided that (i) any partial reduction shall apply to reduce proportionately and permanently the Revolving Commitment of each Lender, (ii) any partial reduction pursuant to this Section shall be in an amount of at least $1,000,000 and any larger multiple of $1,000,000, and (iii) no such reduction shall be permitted which would reduce the Aggregate Revolving Commitment Amount to an amount less than the Dollar Equivalent of the aggregate outstanding Revolving Credit Exposure of all Lenders. Any such reduction in the Aggregate Revolving Commitment Amount below the principal amount of the Swingline Commitment and the LC Commitment shall result in a dollar-for-dollar reduction in the Swingline Commitment and the LC Commitment.

(c) With the written approval of the Administrative Agent, the Borrower may terminate (on a non-ratable basis) the unused amount of the Revolving Commitment of a Defaulting Lender, and in such event the provisions of Section 2.26 will apply to all amounts thereafter paid by the Borrower for the account of any such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts); provided that such termination will not be deemed to be a waiver or release of any claim that the Borrower, the Administrative Agent, the Issuing Bank, the Swingline Lender or any other Lender may have against such Defaulting Lender.

Section 2.9 Repayment of Loans. The outstanding principal amount of all Revolving Loans and Swingline Loans shall be due and payable in Dollars (together with accrued and unpaid interest thereon) on the Maturity Date.

Section 2.10 Evidence of Indebtedness.

(a) Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Revolving Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender, the Class and Type thereof and, in the case of each Eurodollar Loan, the Interest Period applicable thereto, (iii) the date of any continuation of any Loan pursuant to Section 2.7, (iv) the date of any conversion of all or a portion of any Loan to another Type pursuant to Section 2.7, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of the Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender’s Pro Rata Share thereof. Subject to the entries in the Register, the entries made in such records shall be prima facie evidence absent manifest error of the existence and

 

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amounts of the obligations of the Borrower therein recorded; provided that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement.

(b) This Agreement evidences the obligation of the Borrower to repay the Loans and is being executed as a “noteless” credit agreement. However, at the request of any Lender (including the Swingline Lender) at any time, the Borrower agrees that it will prepare, execute and deliver to such Lender a promissory note payable to the Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment permitted hereunder) be represented by one or more promissory notes in such form payable to the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

Section 2.11 Optional Prepayments. The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, without premium or penalty, by giving written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than (i) in the case of any prepayment of any Eurodollar Borrowing, 12:00 p.m. not less than three (3) Business Days prior to the date of such prepayment, (ii) in the case of any prepayment of any Base Rate Borrowing, not less than one (1) Business Day prior to the date of such prepayment, and (iii) in the case of any prepayment of any Swingline Borrowing, prior to 11:00 a.m. on the date of such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender’s Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.13(d); provided that if a Eurodollar Borrowing is prepaid on a date that is prior to the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to Section 2.19. Each partial prepayment of any Loan shall be in an amount that would be permitted in the case of an advance of a Revolving Borrowing of the same Type pursuant to Section 2.2 or, in the case of a Swingline Loan, pursuant to Section 2.4. Each prepayment of a Borrowing shall be applied ratably to the Loans comprising such Borrowing.

Section 2.12 Mandatory Prepayments. If at any time (i) other than as a result of fluctuations in currency exchange rates, the Dollar Equivalent of the aggregate Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitment Amount, as reduced pursuant to Section 2.8 or otherwise, or (ii) solely as a result of fluctuations in currency exchange rates, the Dollar Equivalent of the aggregate Revolving Credit Exposure of all Lenders exceeds 105% of the Aggregate Revolving Commitment Amount, as reduced pursuant to Section 2.8 or otherwise, then in each such case the Borrower shall immediately repay the Swingline Loans and the Revolving Loans in an amount equal to such excess, together with all accrued and unpaid interest on such excess amount and any amounts due under Section 2.19. Each prepayment shall be applied as follows: first, to the Swingline Loans to the full extent thereof; second, to the Base Rate Loans to the full extent thereof; and third, to the Eurodollar Loans to the full extent thereof. If, after giving effect to prepayment of all Swingline Loans and Revolving Loans, the Dollar Equivalent of the aggregate Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitment Amount, the Borrower shall Cash Collateralize its reimbursement obligations with respect to all Letters of Credit in an amount equal to such excess.

 

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Section 2.13 Interest on Loans.

(a) The Borrower shall pay interest on (i) each Base Rate Loan at the Base Rate plus the Applicable Margin in effect from time to time and (ii) each Eurodollar Loan at the Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan plus the Applicable Margin in effect from time to time.

(b) The Borrower shall pay interest on each Swingline Loan at the Base Rate plus the Applicable Margin in effect from time to time.

(c) Notwithstanding subsections (a) and (b) of this Section, if any Event of Default exists under Sections 8.1(a) or (f), the Loans and other Obligations under the Loan Documents not paid when due shall bear interest at a rate per annum equal to (i) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2.00% and (ii) in the case of any other Obligation, the rate then applicable to Base Rate Loans plus 2.00%, in each case, with respect to clauses (i) and (ii) above, from the date of such Event of Default until the earlier of the date such amount is paid in full (after as well as before judgment) and the date such Event of Default is cured or waived. All such default interest shall be payable from time to time on demand.

(d) Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Interest on all outstanding Base Rate Loans and Swingline Loans shall be payable quarterly in arrears on the last day of each March, June, September and December and on the Maturity Date. Interest on all outstanding Eurodollar Loans shall be payable on the last day of each Interest Period applicable thereto, and, in the case of any Eurodollar Loans having an Interest Period in excess of three months, on each day which occurs every three months after the initial date of such Interest Period, and on the Maturity Date. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof.

(e) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error. The Administrative Agent shall, at the written request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.13(e).

Section 2.14 Fees.

(a) The Borrower shall pay to the Administrative Agent for its own account fees in the amounts and at the times previously agreed upon in writing by the Borrower and the Administrative Agent.

(b) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at the Applicable Percentage per annum (determined daily in accordance with Schedule I) on the daily amount of the unused Revolving Commitment of such Lender during the Availability Period. For purposes of computing the commitment fee, the Revolving Commitment of each Lender shall be deemed used to the extent of the outstanding Revolving Loans and LC Exposure, but not Swingline Exposure, of such Lender.

 

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(c) The Borrower agrees to pay (i) to the Administrative Agent, for the account of each Lender, a letter of credit fee with respect to its participation in each Letter of Credit, which shall accrue at a rate per annum equal to the Applicable Margin for Eurodollar Loans then in effect on the Dollar Equivalent of the average daily amount of such Lender’s LC Exposure attributable to such Letter of Credit during the period from and including the date of issuance of such Letter of Credit to but excluding the date on which such Letter of Credit expires or is drawn in full (including, without limitation, any LC Exposure that remains outstanding after the Maturity Date) and (ii) to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate set forth in the Fee Letter on the Dollar Equivalent of the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the Availability Period (or until the date that such Letter of Credit is irrevocably cancelled, whichever is later), as well as the Issuing Bank’s standard fees with respect to issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder.

(d) The Borrower shall pay, to the applicable parties, on the Closing Date the fees in the Fee Letter that are due and payable on the Closing Date.

(e) Accrued fees under subsections (b) and (c) of this Section shall be payable quarterly in arrears on the last day of each March, June, September and December, commencing on September 30, 2020, and on the Maturity Date (and, if later, the date the Loans and LC Exposure shall be repaid in their entirety); provided that any such fees accruing after the Maturity Date shall be payable on demand.

Section 2.15 Computation of Interest and Fees. Interest hereunder based on the Administrative Agent’s prime lending rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Each determination by the Administrative Agent of an interest rate or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes.

Section 2.16 Inability to Determine Interest Rates.

(a) If, prior to the commencement of any Interest Period for any Eurodollar Borrowing:

(i) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant interbank market, adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate (including, without limitation, because the Screen Rate is not available or published on a current basis) for such Interest Period, provided that no Benchmark Transition Event, a Term SOFR Transition Event or Early Opt-In Election shall have occurred at such time or for such Interest Period, or

(ii) the Administrative Agent shall have received notice from the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Loans for such Interest Period,

then the Administrative Agent shall give written notice thereof (or telephonic notice, promptly confirmed in writing) to the Borrower and to the Lenders as soon as practicable thereafter. Until the Administrative

 

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Agent shall notify the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) the obligations of the Lenders to make Revolving Eurodollar Loans or to continue or convert outstanding Loans as or into Eurodollar Loans shall be suspended and (ii) all such affected Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Loans in accordance with this Agreement. Unless the Borrower notifies the Administrative Agent at least one (1) Business Day before the date of any Eurodollar Borrowing for which a Notice of Revolving Borrowing has previously been given that it elects not to borrow, continue or convert to a Eurodollar Borrowing on such date, then such Revolving Borrowing shall be made as, continued as or converted into a Base Rate Borrowing.

(b) Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) or (2) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (3) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.

(c) Notwithstanding anything to the contrary herein or in any other Loan Document and subject to the proviso below in this Section 2.16(c), if a Term SOFR Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then the applicable Benchmark Replacement will replace the then-current Benchmark for all purposes hereunder or under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings, without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document; provided that this Section 2.16(c) shall not be effective unless the Administrative Agent has delivered to the Lenders and the Borrower a Term SOFR Notice.

(d) In connection with the implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.

(e) The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event, a Term SOFR Transition Event or an Early Opt-in Election, as applicable, and its related Benchmark Replacement Date, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to Section 2.16(f) and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 2.16(b)-(f), including any determination with respect to a tenor, rate or

 

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adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 2.16(b)-(f).

(f) Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including Term SOFR or the Adjusted LIBO Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is or will be no longer representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is or will no longer be representative for a Benchmark (including a Benchmark Replacement) or a new tenor is established, then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to add such tenor or to reinstate such previously removed tenor.

(g) Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Eurodollar Borrowing of, conversion to or continuation of Eurodollar Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for a Borrowing of or conversion to Base Rate Loans. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of Base Rate.

Section 2.17 Illegality. If any Change in Law shall make it unlawful or impossible for any Lender to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Borrower and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Revolving Eurodollar Loans, or to continue or convert outstanding Loans as or into Eurodollar Loans, shall be suspended. In the case of the making of a Eurodollar Borrowing, such Lender’s Revolving Loan shall be made as a Base Rate Loan as part of the same Revolving Borrowing for the same Interest Period and, if the affected Eurodollar Loan is then outstanding, such Loan shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Eurodollar Loan if such Lender may lawfully continue to maintain such Loan to such date or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain such Eurodollar Loan to such date. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, use reasonable efforts to designate a different Applicable Lending Office if such designation would avoid the need for giving such notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion.

 

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Section 2.18 Increased Costs.

(a) If any Change in Law shall:

(i) impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate) or the Issuing Bank; or

(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes); or

(iii) impose on any Lender, the Issuing Bank or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by such Lender or any Letter of Credit or any participation therein;

and the result of any of the foregoing is to increase the cost to such Lender of making, converting into, continuing or maintaining a Eurodollar Loan or to increase the cost to such Lender or the Issuing Bank of participating in or issuing any Letter of Credit or to reduce the amount received or receivable by such Lender or the Issuing Bank hereunder (whether of principal, interest or any other amount),

then, from time to time, such Lender or the Issuing Bank may provide the Borrower (with a copy thereof to the Administrative Agent) with written notice and demand with respect to such increased costs or reduced amounts, and within thirty (30) days after receipt of such notice and a reasonably detailed written demand, the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amounts as will compensate such Lender or the Issuing Bank for any such increased costs incurred or reduction suffered.

(b) If any Lender or the Issuing Bank shall have determined that any Change in Law regarding capital or liquidity ratios or requirements has or would have the effect of reducing the rate of return on such Lender’s or the Issuing Bank’s capital (or on the capital of the Parent Company of such Lender or the Issuing Bank) as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender, the Issuing Bank or such Parent Company could have achieved but for such Change in Law (taking into consideration such Lender’s or the Issuing Bank’s policies or the policies of such Parent Company with respect to capital adequacy and liquidity), then, from time to time, such Lender or the Issuing Bank may provide the Borrower (with a copy thereof to the Administrative Agent) with written notice and demand with respect to such reduced amounts, and within thirty (30) days after receipt of such notice and a reasonably detailed written demand the Borrower shall pay to such Lender or the Issuing Bank, as the case may be, such additional amounts as will compensate such Lender, the Issuing Bank or such Parent Company for any such reduction suffered.

(c) A certificate of such Lender or the Issuing Bank setting forth the amount or amounts necessary to compensate such Lender, the Issuing Bank or the Parent Company of such Lender or the Issuing Bank, as the case may be, specified in subsection (a) or (b) of this Section shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error.

(d) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank under this Section for any increased costs or reductions incurred more than six (6) months prior to the date that such Lender or the Issuing Bank notifies the Borrower of such increased costs or reductions and of such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided, further, that if the Change in Law giving rise to such increased costs or reductions is retroactive, then such six-month period shall be extended to include the period of such retroactive effect.

 

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Section 2.19 Funding Indemnity. In the event of (a) the payment of any principal of a Eurodollar Loan prior to the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, (c) the failure by the Borrower to borrow, prepay, convert or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), or (d) the failure by the Borrower to make payment of any drawing under any Letter of Credit (or interest due thereon) denominated in an Alternative Currency on its scheduled due date or any payment thereof in a different currency, then, in any such event, the Borrower shall compensate each Lender and the Issuing Bank (as applicable), within thirty (30) days after written demand from such applicable Lender or Issuing Bank (which demand shall set forth in reasonable detail the basis for requesting such amount), for any loss (other than lost profits), cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan) (excluding the Applicable Margin) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow, convert or continue such Eurodollar Loan (excluding the Applicable Margin). A certificate as to any additional amount payable under this Section submitted to the Borrower by any Lender or the Issuing Bank (with a copy to the Administrative Agent) shall be conclusive, absent manifest error.

Section 2.20 Taxes.

(a) Defined Terms. For purposes of this Section 2.20, the term “Lender” includes Issuing Bank and the term “applicable law” includes FATCA.

(b) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Loan Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.

(c) Payment of Other Taxes by the Borrower. The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

(d) Indemnification by the Borrower. The Borrower shall indemnify each Recipient, within ten (10) Business Days after reasonably detailed written demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts

 

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payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) Business Days after a written demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.4(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).

(f) Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower or any other Loan Party to a Governmental Authority pursuant to this Section 2.20, the Borrower or other Loan Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(g) Status of Lenders.

(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.20(g)(ii)(A), (B) and (D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

(ii) Without limiting the generality of the foregoing,

 

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(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:

(i) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

(ii) executed copies of IRS Form W-8ECI;

(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E; or

(iv) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;

(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of

 

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copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and

(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.

(h) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.20 (including by the payment of additional amounts pursuant to this Section 2.20), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

(i) Survival. Each party’s obligations under this Section 2.20 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.

 

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Section 2.21 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.

(a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.18, 2.19 or 2.20, or otherwise) prior to 1:00 p.m. on the date when due, in immediately available funds, free and clear of any defenses, rights of set-off, counterclaim, or (subject to Section 2.20) withholding or deduction of taxes. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except payments to be made directly to the Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.18, 2.19, 2.20 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars or, to the extent expressly set forth in Section 2.22, the applicable Alternative Currency.

(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, unreimbursed LC Disbursements, interest and fees then due hereunder, such funds shall be applied as follows: first, to all fees and reimbursable expenses of the Administrative Agent then due and payable pursuant to any of the Loan Documents; second, to all reimbursable expenses of the Lenders and all fees and reimbursable expenses of the Issuing Bank then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders and the Issuing Bank based on their respective pro rata shares of such fees and expenses; third, to all interest and fees then due and payable hereunder, pro rata to the Lenders based on their respective pro rata shares of such interest and fees; and fourth, to all principal of the Loans and unreimbursed LC Disbursements then due and payable hereunder, pro rata to the parties entitled thereto based on their respective pro rata shares of such principal and unreimbursed LC Disbursements.

(c) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements or Swingline Loans that would result in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Credit Exposure and accrued interest and fees thereon than the proportion received by any other Lender with respect to its Revolving Credit Exposure, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Credit Exposure of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Credit Exposure; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this subsection shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Revolving Credit Exposure to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this subsection shall apply). The Borrower consents to the foregoing and

 

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agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation (including the Overnight Foreign Currency Rate in the case of Letters of Credit denominated in an Alternative Currency).

Section 2.22 Letters of Credit.

(a) During the Availability Period, the Issuing Bank, in reliance upon the agreements of the other Lenders pursuant to subsections (d) and (e) of this Section, agrees to issue, at the request of the Borrower, Letters of Credit denominated in Dollars or in an Alternative Currency for the account of the Borrower (or any Restricted Subsidiary, provided the Borrower is liable hereunder in respect of any such Letter of Credit (the Borrower hereby acknowledging that the issuance of Letters of Credit for the account of Restricted Subsidiaries inures to the benefit of the Borrower, and that the Borrower’s business derives substantial benefits from the businesses of such Restricted Subsidiaries)) on the terms and conditions hereinafter set forth; provided that (i) each Letter of Credit shall expire on the earlier of (A) the date one year after the date of issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (B) the date that is five (5) Business Days prior to the Maturity Date; (ii) each Letter of Credit shall be in a stated amount of the Dollar Equivalent of at least $10,000; (iii) the Borrower may not request any Letter of Credit if, after giving effect to such issuance, (A) the Dollar Equivalent of the aggregate LC Exposure would exceed the LC Commitment or (B) the Dollar Equivalent of the aggregate Revolving Credit Exposure of all Lenders would exceed the Aggregate Revolving Commitment Amount; and (iv) the Borrower shall not request, and the Issuing Bank shall have no obligation to issue, any Letter of Credit the proceeds of which would be made available to any Person (x) to fund any activity or business of or with any Sanctioned Person or in any Sanctioned Countries, that, at the time of such funding, is the subject of any Sanctions or (y) in any manner that would result in a violation of any Sanctions by any party to this Agreement. Each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank without recourse a participation in each Letter of Credit equal to such Lender’s Pro Rata Share of the aggregate amount available to be drawn under such Letter of Credit on the date of issuance. Each issuance of a Letter of Credit shall be deemed to utilize the Revolving Commitment of each Lender by an amount equal to the amount of such participation.

(b) To request the issuance of a Letter of Credit (or any amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall give the Issuing Bank and the Administrative Agent irrevocable written notice at least three (3) Business Days prior to the requested date (or such shorter period as the Issuing Bank may agree in a particular instance in its sole discretion) of such issuance specifying the date (which shall be a Business Day) such Letter of Credit is to be issued (or

 

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amended, renewed or extended, as the case may be), the expiration date of such Letter of Credit, the amount and currency of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. In addition to the satisfaction of the conditions in Article III, the issuance of such Letter of Credit (or any amendment which increases the amount of such Letter of Credit) will be subject to the further conditions that such Letter of Credit shall be in such form and contain such terms as the Issuing Bank shall approve and that the Borrower shall have executed and delivered any additional applications, agreements and instruments relating to such Letter of Credit as the Issuing Bank shall reasonably require; provided that in the event of any conflict between such applications, agreements or instruments and this Agreement, the terms of this Agreement shall control.

(c) At least two (2) Business Days prior to the issuance of any Letter of Credit, the Issuing Bank will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received such notice, and, if not, the Issuing Bank will provide the Administrative Agent with a copy thereof. Unless the Issuing Bank has received notice from the Administrative Agent, on or before the Business Day immediately preceding the date the Issuing Bank is to issue the requested Letter of Credit, directing the Issuing Bank not to issue the Letter of Credit because such issuance is not then permitted hereunder because of the limitations set forth in subsection (a) of this Section or that one or more conditions specified in Article III are not then satisfied, then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue such Letter of Credit in accordance with the Issuing Bank’s usual and customary business practices.

(d) The Issuing Bank shall examine all documents purporting to represent a demand for payment under a Letter of Credit promptly following its receipt thereof. The Issuing Bank shall notify the Borrower and the Administrative Agent of such demand for payment and whether the Issuing Bank has made or will make a LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to such LC Disbursement. The Borrower shall be irrevocably and unconditionally obligated to reimburse the Issuing Bank for any LC Disbursements paid by the Issuing Bank in respect of such drawing, without presentment, demand or other formalities of any kind. Such reimbursement shall be in Dollars, unless, in the case of a Letter of Credit denominated in an Alternative Currency, (i) the Issuing Bank (at its option) shall have specified in such notice that it will require reimbursement in such Alternative Currency, or (ii) in the absence of any such requirement for reimbursement in such Alternative Currency, the Borrower shall have notified the Issuing Bank promptly following receipt of the notice of drawing that the Borrower will reimburse the Issuing Bank in such Alternative Currency. In the case of any such reimbursement in Dollars of a drawing under a Letter of Credit denominated in an Alternative Currency, the applicable Issuing Bank shall notify the Borrower of the Dollar Equivalent of the amount of the drawing promptly following the determination thereof. If the Borrower shall have received notice from the Issuing Bank on or prior to 11:00 a.m. on the date of payment by the Issuing Bank under a Letter of Credit to be reimbursed in Dollars, not later than 4:00 p.m. on such date of payment by the Issuing Bank, or, if the Borrower shall have received notice later than 11:00 a.m. on the date of payment by the Issuing Bank under a Letter of Credit to be reimbursed in Dollars, not later than 11:00 a.m. on the immediately following Business Day, or the Applicable Time on the date of any payment by the Issuing Bank under a Letter of Credit to be reimbursed in an Alternative Currency (each such date, an “Honor Date”), the Borrower shall reimburse the Issuing Bank through the Administrative Agent in an amount equal to the amount of such drawing and in the applicable currency. In the event that (i) a drawing denominated in an Alternative Currency is to be reimbursed in Dollars and (ii) the Dollar amount paid by the Borrower, whether on or after the Honor Date, shall not be adequate on the date of that payment to purchase in accordance with normal banking procedures a sum denominated in the Alternative Currency equal to the drawing, the Borrower agrees, as a separate and independent obligation, to indemnify the Issuing Bank for the loss resulting from its inability on that date to purchase the

 

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Alternative Currency in the full amount of the drawing. If the Borrower fails to so reimburse the Issuing Bank by such time, the Administrative Agent shall promptly notify each Revolving Lender of the Honor Date and the amount of the unreimbursed drawing (expressed in Dollars in an amount equal to the Dollar Equivalent thereof in the case of a Letter of Credit denominated in an Alternative Currency). In such event, the Borrower shall be deemed to have timely given a Notice of Revolving Borrowing to the Administrative Agent requesting the Lenders to make a Base Rate Borrowing on the date on which such drawing is honored in an exact amount of the Dollar Equivalent due to the Issuing Bank; provided that for purposes solely of such Borrowing, the conditions precedent set forth in Section 3.2 hereof shall not be applicable and the minimum amount and multiples for Base Rate Borrowings specified in Section 2.3 hereof shall not be applicable. The Administrative Agent shall notify the Lenders of such Borrowing in accordance with Section 2.3, and each Lender shall make the proceeds of its Base Rate Loan included in such Borrowing available to the Administrative Agent in Dollars for the account of the Issuing Bank in accordance with Section 2.6. The proceeds of such Borrowing shall be applied directly by the Administrative Agent to reimburse the Issuing Bank for such LC Disbursement.

(e) If for any reason a Base Rate Borrowing may not be (as determined in the sole discretion of the Administrative Agent), or is not, made in accordance with the foregoing provisions, then each Lender (other than the Issuing Bank) shall be obligated to fund the participation that such Lender purchased pursuant to subsection (a) of this Section in an amount equal to its Pro Rata Share of such LC Disbursement on and as of the date which such Base Rate Borrowing should have occurred. Each Lender’s obligation to fund its participation shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right that such Lender or any other Person may have against the Issuing Bank or any other Person for any reason whatsoever, (ii) the existence of a Default or an Event of Default or the termination of the Aggregate Revolving Commitments, (iii) any adverse change in the condition (financial or otherwise) of the Borrower or any of its Subsidiaries, (iv) any breach of this Agreement by the Borrower or any other Lender, (v) any amendment, renewal or extension of any Letter of Credit or (vi) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. On the date that such participation is required to be funded, each Lender shall promptly transfer, in immediately available funds in Dollars, the amount of its participation to the Administrative Agent for the account of the Issuing Bank. Whenever, at any time after the Issuing Bank has received from any such Lender the funds for its participation in a LC Disbursement, the Issuing Bank (or the Administrative Agent on its behalf) receives any payment on account thereof, the Administrative Agent or the Issuing Bank, as the case may be, will distribute to such Lender its Pro Rata Share of such payment; provided that if such payment is required to be returned for any reason to the Borrower or to a trustee, receiver, liquidator, custodian or similar official in any bankruptcy proceeding, such Lender will return to the Administrative Agent or the Issuing Bank any portion thereof previously distributed by the Administrative Agent or the Issuing Bank to it.

(f) To the extent that any Lender shall fail to pay any amount required to be paid pursuant to subsection (d) or (e) of this Section on the due date therefor, such Lender shall pay interest to the Issuing Bank (through the Administrative Agent) on such amount from such due date to the date such payment is made at a rate per annum equal to the Federal Funds Rate; provided that if such Lender shall fail to make such payment to the Issuing Bank within three (3) Business Days of such due date, then, retroactively to the due date, such Lender shall be obligated to pay interest on such amount at the Base Rate.

(g) If at any time (i) other than as a result of fluctuations in currency exchange rates, the Dollar Equivalent of the aggregate LC Exposure of all Lenders exceeds the LC Commitment Amount, as reduced pursuant to Section 2.8 or otherwise, or (ii) solely as a result of fluctuations in currency exchange rates, the Dollar Equivalent of the aggregate LC Exposure of all Lenders exceeds 105% of the LC Commitment Amount, as reduced pursuant to Section 2.8 or otherwise, then in each case the

 

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Borrower shall Cash Collateralize its reimbursement obligations with respect to all Letters of Credit in an aggregate amount sufficient to reduce such LC Exposure as of such date of payment to an amount not to exceed 100% of the LC Commitment Amount then in effect. Additionally, if any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders demanding that its reimbursement obligations with respect to the Letters of Credit be Cash Collateralized pursuant to this subsection, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Issuing Bank and the Lenders, an amount in cash equal to 105% of the Dollar Equivalent of the aggregate LC Exposure of all Lenders as of such date plus any accrued and unpaid fees thereon; provided that such obligation to Cash Collateralize the reimbursement obligations of the Borrower with respect to the Letters of Credit shall become effective immediately, and such deposit shall become immediately due and payable, without demand or notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in Section 8.1(f). Any such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. The Borrower agrees to execute any documents and/or certificates to effectuate the intent of this subsection. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it had not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, with the consent of the Required Lenders, be applied to satisfy other obligations of the Borrower under this Agreement and the other Loan Documents. If the Borrower is required to Cash Collateralize its reimbursement obligations with respect to the Letters of Credit as a result of the occurrence of an Event of Default, such cash collateral so posted (to the extent not so applied as aforesaid) shall be returned to the Borrower within three (3) Business Days after all Events of Default have been cured or waived.

(h) Upon the request of any Lender, but no more frequently than quarterly, the Issuing Bank shall deliver (through the Administrative Agent) to each Lender and the Borrower a report describing the aggregate Letters of Credit then outstanding. Upon the request of any Lender from time to time, the Issuing Bank shall deliver to such Lender any other information reasonably requested by such Lender with respect to each Letter of Credit then outstanding.

(i) The Borrower’s obligation to reimburse LC Disbursements hereunder shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under all circumstances whatsoever and irrespective of any of the following circumstances:

(i) any lack of validity or enforceability of any Letter of Credit or this Agreement;

(ii) the existence of any claim, set-off, defense or other right which the Borrower or any Subsidiary or Affiliate of the Borrower may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons or entities for whom any such beneficiary or transferee may be acting), any Lender (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction;

 

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(iii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect;

(iv) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document to the Issuing Bank that does not comply with the terms of such Letter of Credit;

(v) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of set-off against, the Borrower’s obligations hereunder;

(vi) the existence of a Default or an Event of Default; or

(vii) any adverse change in the relevant exchange rates or in the availability of the relevant Alternative Currency to the Borrower or any Restricted Subsidiary or in the relevant currency markets generally.

Neither the Administrative Agent, the Issuing Bank, any Lender nor any Related Party of any of the foregoing shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to above), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any actual direct damages (as opposed to special, indirect (including claims for lost profits or other consequential damages), or punitive damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise due care when determining whether drafts or other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised due care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented that appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(j) Unless otherwise expressly agreed by the Issuing Bank and the Borrower when a Letter of Credit is issued and subject to applicable laws, (i) each standby Letter of Credit shall be governed by the “International Standby Practices 1998” (ISP98) (or such later revision as may be published by the Institute of International Banking Law & Practice on any date any Letter of Credit may be issued), (ii) each documentary Letter of Credit shall be governed by the Uniform Customs and Practices for Documentary Credits (2007 Revision), International Chamber of Commerce Publication No. 600 (or such later revision as may be published by the International Chamber of Commerce on any date any Letter of Credit may be issued) and (iii) the Borrower shall specify the foregoing in each letter of credit application submitted for the issuance of a Letter of Credit.

 

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(k) Any Issuing Bank may resign as an “Issuing Bank” hereunder upon 30 days’ prior written notice to the Administrative Agent, the Lenders and the Borrower; provided that on or prior to the expiration of such 30-day period with respect to such resignation, the relevant Issuing Bank shall have identified a successor Issuing Bank reasonably acceptable to the Borrower willing to accept its appointment as successor Issuing Bank, and the effectiveness of such resignation shall be conditioned upon such successor assuming the rights and duties of the resigning Issuing Bank. In the event of any such resignation as Issuing Bank, the Borrower shall be entitled to appoint from among the Lenders a successor Issuing Bank hereunder; provided, however, that no failure by the Borrower to appoint any such successor shall affect the resignation of the resigning Issuing Bank except as expressly provided above. The Borrower may terminate the appointment of any Issuing Bank as an “Issuing Bank” hereunder by providing a written notice thereof to such Issuing Bank, with a copy to the Administrative Agent. Any such termination shall become effective upon the earlier of (i) such Issuing Bank acknowledging receipt of such notice and (ii) the third Business Day following the date of the delivery thereof; provided that no such termination shall become effective until and unless the LC Exposure attributable to Letters of Credit issued by such Issuing Bank (or its Affiliates) shall have been reduced to zero. At the time any such resignation or termination shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the resigning or terminated Issuing Bank pursuant to Section 2.14(c). Notwithstanding the effectiveness of any such resignation or termination, the resigning or terminated Issuing Bank shall remain a party hereto and shall continue to have all the rights of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such resignation or termination, but shall not be required to issue any additional Letters of Credit.

Section 2.23 Incremental Facility.

(a) The Borrower may at any time or from time to time after the Closing Date, by notice to the Administrative Agent (whereupon the Administrative Agent shall promptly deliver a copy to each of the Lenders), request one or more tranches of term loans (each an “Incremental Term Facility”) or an increase in the amount of the Revolving Facility (each, an “Incremental Revolving Facility”; together with the Incremental Term Facilities, each an “Incremental Facility”); provided that (i) at the time of such request, no Event of Default shall have occurred and be continuing, (ii) the Borrower shall be in compliance with the covenants contained in Article VI determined on a pro forma basis as of the last day of the most recent period of the Borrower for which financial statements are available as if any term loans under such Incremental Facility had been outstanding and any revolving commitment under such Incremental Facility (to the extent available to make Loans) had been fully used on the last day of such period; provided, that, for an Incremental Facility that is requested in connection with the financing of a Limited Condition Acquisition, the pro forma financial covenant compliance condition in this clause (ii) shall be computed based on the immediately preceding four fiscal quarter period for which financial statements are available prior to the date on which the definitive acquisition agreement for such Limited Condition Acquisition is entered into and (iii) the aggregate principal amount of the Incremental Facilities shall not exceed the Available Incremental Amount (as determined as of the date of incurrence of any applicable Incremental Facility). Each Incremental Facility shall be in an aggregate principal amount that is not less than $25,000,000 (provided that such amount may be less than $25,000,000 if such amount represents all remaining availability under the limit set forth in the immediately preceding sentence).

(b) (i) Any Incremental Facility shall be ratably secured with the Loans, (ii) any Incremental Term Facility shall not mature earlier than the Maturity Date nor have amortization of greater than 5% of the original principal amount of such Incremental Term Facility per year (except with respect to any Incremental Term Facility to the extent required for such Incremental Term Facility to be tax fungible with (i.e., to be treated as part of the same issue as) a previously issued Incremental Term Facility in accordance with Treasury Regulation 1.1275-2(k)), (iii) the Applicable Margin, Applicable Percentage and the other terms and conditions applicable to any Incremental Revolving Facility shall be

 

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the same as those applicable to the Revolving Facility, (iv) the Applicable Margin relating to any Incremental Term Facility shall be determined by the Borrower and the Lenders providing such Incremental Term Facility and (v) any Incremental Term Facility shall otherwise be on terms and pursuant to documentation to be determined by the Borrower and the Persons willing to provide such Incremental Term Facility; provided that to the extent such terms and documentation are not consistent with the then existing Facilities (other than with respect to pricing, amortization and maturity) they shall be reasonably satisfactory to the Administrative Agent (it being agreed that Incremental Term Facilities may contain customary mandatory prepayments, voting rights and prepayment premiums). Each notice from the Borrower pursuant to this Section 2.23 shall set forth the requested amount and proposed terms of the relevant Incremental Facility and the Lenders or other Persons willing to provide the Incremental Facility. The Incremental Facility may be provided by any existing Lender or by any Eligible Assignee selected by the Borrower (any such other financial institution or fund being called an “Additional Lender”); provided that the Administrative Agent, the Swingline Lender, and the Issuing Bank shall have consented (not to be unreasonably withheld) to such Additional Lender’s providing such Incremental Facility if such consent would be required under Section 10.4 for an assignment of Loans to such Additional Lender. Commitments in respect of Incremental Facilities shall become Commitments under this Agreement pursuant to an amendment (an “Incremental Amendment”) to this Agreement and, as appropriate, the other Loan Documents, executed by the Borrower, each Lender agreeing to provide such Commitment, if any, each Additional Lender, if any, and the Administrative Agent pursuant to Section 10.2(b) hereof. The Incremental Amendment may, without need for the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions of this Section 2.23. The effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof (each, an “Incremental Facility Closing Date”) of each of the conditions set forth in Section 3.2 (it being understood that all references to the date of a Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit or similar language in such Section 3.2 shall be deemed to refer to the effective date of such Incremental Amendment) and such other conditions, if any, as the parties thereto shall agree; provided, however, that for an Incremental Facility that is requested in connection with the financing of a Limited Condition Acquisition, the effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof of only such conditions precedent as the parties thereto shall agree. The Borrower will use the proceeds of the Incremental Facilities for any purpose not prohibited by this Agreement. No Lender shall be obligated to provide any Incremental Facility, unless it so agrees. The Administrative Agent and the Lenders hereby agree that, other than with respect to any Incremental Revolving Facility, the minimum borrowing, pro rata borrowing and pro rata payment requirements contained elsewhere in this Agreement shall not apply to the transactions effected pursuant to this paragraph. Additionally, after giving effect to any Incremental Revolving Facility, each Lender’s and each Additional Lender’s, if any, Pro Rata Share of each of the Revolving Commitments and the Revolving Loans shall equal such Lender’s and such Additional Lender’s Pro Rata Share of the Aggregate Revolving Commitments after giving effect to such Incremental Revolving Facility; provided further, that in furtherance of the foregoing and on the Incremental Facility Closing Date, each Lender and each Additional Lender, if any, shall be deemed to have irrevocably sold, transferred, conveyed and assigned to each other Lender and each other Additional Lender, if any (and without, for the avoidance of doubt, increasing or decreasing the aggregate Commitments of such Lender or such Additional Lender after giving effect to such Incremental Revolving Facility), such portion of its Revolving Commitments and Revolving Loans such that, after giving effect to such assignment, each Lender and each Additional Lender, if any, shall hold a Pro Rata Share of each of the Revolving Commitments and Revolving Loans equal to such Lender’s or such Additional Lender’s Pro Rata Share of the Aggregate Revolving Commitments.

Section 2.24 Mitigation of Obligations. If any Lender requests compensation under Section 2.18, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.20, then such Lender shall use

 

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reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.18 or Section 2.20, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable out-of-pocket costs and expenses incurred by any Lender in connection with such designation or assignment.

Section 2.25 Replacement of Lenders. If (a) any Lender requests compensation under Section 2.18, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.20, (b) any Lender is a Defaulting Lender, (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.2(b), the consent of Required Lenders shall have been obtained but the consent of one or more of such other Lenders (each a “Non-Consenting Lender”) whose consent is required shall not have been obtained, (d) any Lender does not accept an Extension Offer, or (e) any Lender under a Refinanced Facility does not participate in the applicable Replacement Facility, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions set forth in Section 10.4(b)), all of its interests, rights (other than its existing rights to payments pursuant to Section 2.18 or 2.20, as applicable) and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender) (a “Replacement Lender”); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal amount of all Loans owed to it, accrued interest thereon, accrued fees and all other amounts payable to it hereunder from the assignee (in the case of such outstanding principal and accrued interest) and from the Borrower (in the case of all other amounts), (iii) in the case of a claim for compensation under Section 2.18 or payments required to be made pursuant to Section 2.20, such assignment will result in a reduction in such compensation or payments, and (iv) in the case of a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such terminated Lender was a Non-Consenting Lender. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

Section 2.26 Defaulting Lenders.

(a) Cash Collateral.

(i) At any time that there shall exist a Defaulting Lender, within two Business Days following the written request of the Administrative Agent or the Issuing Bank (with a copy to the Administrative Agent) the Borrower shall Cash Collateralize the Issuing Bank’s LC Exposure with respect to such Defaulting Lender (determined after giving effect to Section 2.26(b)(iv) and any Cash Collateral provided by such Defaulting Lender) in an amount not less than 105% of the Dollar Equivalent of the Issuing Bank’s LC Exposure with respect to such Defaulting Lender.

(ii) The Borrower, and to the extent provided by any Defaulting Lender, such Defaulting Lender, hereby grants to the Administrative Agent, for the benefit of the Issuing Bank, and agrees to maintain, a first priority security interest in all such Cash Collateral as security for the Defaulting Lenders’ obligation to fund participations in

 

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respect of Letters of Credit, to be applied pursuant to clause (iii) below. If at any time the Administrative Agent determines that Cash Collateral is subject to any right or claim of any Person other than the Administrative Agent and the Issuing Bank as herein provided, or that the total amount of such Cash Collateral is less than the minimum amount required pursuant to clause (i) above, the Borrower will, promptly upon demand by the Administrative Agent, pay or provide to the Administrative Agent additional Cash Collateral in an amount sufficient to eliminate such deficiency (after giving effect to any Cash Collateral provided by the Defaulting Lender).

(iii) Notwithstanding anything to the contrary contained in this Agreement, Cash Collateral provided under this Section 2.26(a) or Section 2.26(b) in respect of Letters of Credit shall be applied to the satisfaction of the Defaulting Lender’s obligation to fund participations in respect of Letters of Credit or LC Disbursements (including, as to Cash Collateral provided by a Defaulting Lender, any interest accrued on such obligation) for which the Cash Collateral was so provided, prior to any other application of such property as may otherwise be provided for herein.

(iv) Cash Collateral (or the appropriate portion thereof) provided to reduce any Issuing Bank’s LC Exposure shall no longer be required to be held as Cash Collateral pursuant to this Section 2.26(a) following (i) the elimination of the applicable LC Exposure (including by the termination of Defaulting Lender status of the applicable Lender), or (ii) the determination by the Administrative Agent and the Issuing Bank that there exists excess Cash Collateral; provided that, subject to Section 2.26(b) through (d) the Person providing Cash Collateral and each Issuing Bank may agree that Cash Collateral shall be held to support future anticipated LC Exposure or other obligations and provided further that to the extent that such Cash Collateral was provided by the Borrower, such Cash Collateral shall remain subject to the security interest granted pursuant to the Loan Documents.

(b) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:

(i) Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and in Section 10.2.

(ii) Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 10.7 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the Issuing Bank or Swingline Lender hereunder; third, to Cash Collateralize the Issuing Bank’s LC Exposure with respect to such Defaulting Lender in accordance with Section 2.26(a); fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro

 

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rata in order to (x) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement and (y) Cash Collateralize the Issuing Banks’ future LC Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.26(a); sixth, to the payment of any amounts owing to the Lenders, the Issuing Bank or Swingline Lender as a result of any judgment of a court of competent jurisdiction obtained by any Lender, the Issuing Bank or Swingline Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans or LC Disbursements in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made or the related Letters of Credit were issued at a time when the conditions set forth in Section 3.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and LC Disbursements owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or LC Disbursements owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in LC Disbursements and Swingline Loans are held by the Lenders pro rata in accordance with the Commitments under the applicable Facility without giving effect to sub-section (iv) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 2.26(b)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

(iii) (A) No Defaulting Lender shall be entitled to receive any commitment Fee pursuant to Section 2.14(b) for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).

(B) Each Defaulting Lender shall be entitled to receive letter of credit fees pursuant to Section 2.14(c) for any period during which that Lender is a Defaulting Lender only to the extent allocable to that portion of its LC Exposure for which it has provided Cash Collateral pursuant to Section 2.26(a).

(C) With respect to any commitment fee or letter of credit fee not required to be paid to any Defaulting Lender pursuant to clause (A) or (B) above, the Borrower shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in Letters of Credit or Swingline Loans that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below, (y) pay to each Issuing Bank and Swingline Lender, as applicable, the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to the Issuing Bank’s LC Exposure or Swingline Lender’s Swingline Exposure with respect to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.

 

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(iv) All or any part of such Defaulting Lender’s participation in Letters of Credit and Swingline Loans shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Pro Rata Shares of the Revolving Commitments (calculated without regard to such Defaulting Lender’s Revolving Commitment) but only to the extent that (x) the conditions set forth in Section 3.2 are satisfied at the time of such reallocation (and, unless the Borrower shall have otherwise notified the Administrative Agent at such time, the Borrower shall be deemed to have represented and warranted that such conditions are satisfied at such time), and (y) such reallocation does not cause the Dollar Equivalent of the aggregate Revolving Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Revolving Commitment. Subject to Section 10.18, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.

(v) If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under law, (x) first, prepay Swingline Loans in an amount equal to the Swingline Lender’s Swingline Exposure with respect to such Defaulting Lender and (y) second, Cash Collateralize the Issuing Banks’ LC Exposure with respect to such Defaulting Lender in accordance with the procedures set forth in Section 2.26(a).

(c) Defaulting Lender Cure. If the Borrower, the Administrative Agent, Swingline Lender and Issuing Bank agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit and Swingline Loans to be held pro rata by the Lenders in accordance with the applicable Commitments (without giving effect to Section 2.26(b)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.

(d) New Swingline Loans/Letters of Credit. So long as any Lender is a Defaulting Lender, (i) the Swingline Lender shall not be required to fund any Swingline Loans unless it is satisfied that it will have no Swingline Exposure after giving effect to such Swingline Loan and (ii) no Issuing Bank shall be required to issue, extend, renew or increase any Letter of Credit unless it is satisfied that it will have no LC Exposure after giving effect thereto.

Section 2.27 Extension Offers.

(a) The Borrower may, on one or more occasions, by written notice to the Administrative Agent, make one or more offers (each, an “Extension Offer”) to all the Lenders of one or more Facilities (each Facility subject to such an Extension Offer, an “Extension Request Facility”), in each case to extend the final maturity date of such Lenders’ respective Loans and commitments under such Facility to a later maturity date and to make one or more other Extension Permitted Amendments pursuant to procedures reasonably specified by the Administrative Agent and reasonably acceptable to the

 

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Borrower. Such Extension Offer shall set forth the terms and conditions of the requested Extension Permitted Amendments, the date on which the Extension Agreement (as defined below) is requested to become effective (which date shall be acceptable to the Administrative Agent) and such other principal terms on which the Borrower proposes to enter into the Extension Agreement. Extension Permitted Amendments shall become effective only with respect to the Loans and commitments of the Lenders of the Extension Request Facility that accept the applicable Extension Offer (such Lenders, the “Accepting Lenders”) and, in the case of any Accepting Lender, only with respect to such Lender’s Loans and commitments of such Extension Request Facility. No Lender shall have any obligation to accept any such Extension Offer.

(b) The Borrower, each Accepting Lender and the Administrative Agent shall execute and deliver an amendment agreement (the “Extension Agreement”) and such other documentation as the Administrative Agent shall reasonably specify to evidence the Extension Permitted Amendments and the terms and conditions thereof and such amendment will be effective to amend this Agreement and the other Loan Documents on the terms set forth therein without need for the consent of any other Lender; provided that no Extension Agreement may alter the rights of any Lender (other than the applicable Accepting Lenders) in any manner that would not be permitted under Section 10.2 without the consent of such Lender unless such consent shall have been obtained. The effectiveness of any Extension Agreement shall be subject to such conditions precedent as the parties thereto shall agree. The Administrative Agent and the Lenders hereby agree that the minimum borrowing, pro rata borrowing and pro rata payment requirements contained elsewhere in this Agreement shall not apply to the transactions effected pursuant to this paragraph.

(c) The Administrative Agent shall promptly notify each Lender as to the effectiveness of an Extension Agreement. Each Extension Agreement may, without the consent of any Lender other than the applicable Accepting Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to give effect to the provisions of this Section, including any amendments necessary to treat the applicable Loans and/or commitments of the Accepting Lenders as a new “Facility” of loans and/or commitments hereunder; provided that, in the case of any Extension Offer relating to Revolving Commitments or Revolving Loans, except as otherwise agreed to by the Issuing Bank and the Swingline Lender, (i) the allocation of the participation exposure with respect to any then-existing or subsequently issued or made Letter of Credit or Swingline Loan under the applicable Facility as between the commitments of such new “Facility” and the remaining Revolving Commitments under the applicable Facility shall be made on a ratable basis as between the commitments of such new “Facility” and the remaining Revolving Commitments under such Facility and (ii) the Availability Period and the Maturity Date, as such terms are used in reference to Letters of Credit or Swingline Loans, may not be extended without the prior written consent of the Issuing Bank and Swingline Lender, as applicable.

Section 2.28 Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due from the Borrower hereunder in the currency expressed to be payable herein (the “specified currency”) into another currency, the parties hereto agree, to the fullest extent that they may effectively do so, that the rate of exchange used shall be that at which in accordance with normal banking procedures the Administrative Agent could purchase the specified currency with such other currency at the Administrative Agent’s main Atlanta office on the Business Day preceding that on which final, non-appealable judgment is given. The obligations of the Borrower in respect of any sum due to the Administrative Agent, the Issuing Bank or any Lender hereunder shall, notwithstanding any judgment in a currency other than the specified currency, be discharged only to the extent that on the Business Day following receipt by the Administrative Agent, the Issuing Bank or such Lender of any sum adjudged to be so due in such other currency the Administrative Agent, the Issuing Bank or such Lender may in accordance with normal, reasonable banking procedures purchase the specified currency with such

 

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other currency. If the amount of the specified currency so purchased is less than the sum originally due to the Administrative Agent, the Issuing Bank or such Lender in the specified currency, the Borrower agrees, to the fullest extent that it may effectively do so, as a separate obligation and notwithstanding any such judgment, to indemnify the Administrative Agent, the Issuing Bank or such Lender against such loss, and if the amount of the specified currency so purchased exceeds (a) the sum originally due to the Administrative Agent, the Issuing Bank or any Lender in the specified currency and (b) any amounts shared with other Lenders as a result of allocations of such excess as a disproportionate payment to such Lender under Section 2.21, the Administrative Agent, the Issuing Bank or such Lender agrees to remit such excess to the Borrower.

ARTICLE III.

CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT

Section 3.1 Conditions to Effectiveness. The obligations of the Lenders (including the Swingline Lender) to make Loans and the obligation of the Issuing Bank to issue any Letters of Credit hereunder shall not become effective until the date on which each of the following conditions is satisfied (or waived in accordance with Section 10.2):

(a) The Administrative Agent shall have received payment of all fees payable on or prior to the Closing Date and, to the extent invoiced at least one Business Day prior to the Closing Date, reimbursement or payment of all reasonable and documented out-of-pocket expenses of the Administrative Agent, the Left Lead Arranger and their Affiliates (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and under any agreement with the Administrative Agent or the Left Lead Arranger.

(b) The Administrative Agent (or its counsel) shall have received the following, each to be in form and substance satisfactory to the Administrative Agent:

(i) a counterpart of this Agreement signed by or on behalf of each party hereto or written evidence satisfactory to the Administrative Agent (which may include telecopy or electronic transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement;

(ii) a certificate of the Secretary, Assistant Secretary, or other Responsible Officer of each Loan Party, attaching and certifying as to, and as applicable: (A) copies of the articles or certificate of incorporation, certificate of organization or limited partnership, or other registered organizational documents of each Loan Party, certified as of a recent date by the Secretary of State of the jurisdiction of organization of such Loan Party, (B) copies of its bylaws, partnership agreement, limited liability company agreement, or similar organizational document, (C) the resolutions of its board of directors or other equivalent governing body, or comparable organizational authorizations, authorizing the execution, delivery and performance of the Loan Documents to which it is a party, (D) the name, title and true signature of each officer of such Loan Party executing the Loan Documents to which it is a party, and (E) certificates of good standing from the Secretary of State of the jurisdiction of organization of such Loan Party;

(iii) a favorable written opinion of Ropes & Gray LLP, counsel to the Loan Parties, addressed to the Administrative Agent, the Issuing Bank and each of the Lenders, and covering such matters relating to the Loan Parties, the Loan Documents and the transactions contemplated therein as the Administrative Agent shall reasonably request;

 

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(iv) a certificate dated the Closing Date and signed by a Responsible Officer, certifying that after giving effect to the funding of any initial Revolving Borrowing, (x) no Default or Event of Default exist and (y) all representations and warranties of each Loan Party set forth in the Loan Documents are true and correct in all material respects;

(v) projections through December 31, 2020 prepared in good faith on the basis of the assumptions stated therein;

(vi) a duly executed Notice of Borrowing for any initial Revolving Borrowing;

(vii) if applicable, a duly executed funds disbursement letter, together with a report setting forth the sources and uses of the proceeds hereof;

(viii) a certificate, dated the Closing Date and signed by a Responsible Officer of the Borrower, confirming that the Borrower and its Subsidiaries on a consolidated basis are Solvent after giving effect to the funding of any initial Revolving Borrowing and the consummation of the transactions contemplated to occur on the Closing Date;

(ix) the Guarantee and Collateral Agreement, duly executed by the Borrower and each of the Guarantors, together with (A) UCC financing statements and other applicable documents under the laws of all necessary or appropriate jurisdictions with respect to the perfection of the Liens granted under the Guarantee and Collateral Agreement, as requested by the Administrative Agent in order to perfect such Liens, duly authorized by the Loan Parties, (B) copies of favorable UCC, tax, and judgment lien search reports in all necessary or appropriate jurisdictions and under all legal and trade names of the Loan Parties, as requested by the Administrative Agent, indicating that there are no prior Liens on any of the Collateral other than Liens permitted hereunder, (C) that certain perfection certificate, duly completed and executed by the Loan Parties, and (D) duly executed Patent Security Agreements, Trademark Security Agreements and Copyright Security Agreements;

(x) at least three (3) days prior to the date of this Agreement, all documentation and other information required by bank regulatory authorities or reasonably requested by the Administrative Agent or any Lender under or in respect of applicable “know your customer” and anti-money laundering Requirements of Law, including the Patriot Act and, if Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to Borrower; and

(xi) certificates of insurance, in form and detail acceptable to the Administrative Agent, describing the types and amounts of insurance (property and liability) maintained by any of the Loan Parties, in each case complying with the requirements set forth in Section 5.2 of the Guarantee and Collateral Agreement.

Without limiting the generality of the provisions of this Section, for purposes of determining compliance with the conditions specified in this Section, each Lender that has signed this Agreement shall be deemed to have consented to, approved of, accepted or been satisfied with each document or other matter required thereunder to be consented to, approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

 

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Section 3.2 Conditions to Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Revolving Borrowing and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit is subject to Section 2.26(d), as applicable, and the satisfaction of the following conditions:

(a) at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default or Event of Default shall exist;

(b) at the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, all representations and warranties of each Loan Party set forth in the Loan Documents shall be true and correct in all material respects (other than those representations and warranties that are expressly qualified by a Material Adverse Effect or other materiality, in which case such representations and warranties shall be true and correct in all respects);

(c) the Borrower shall have delivered the required Notice of Borrowing; and

(d) with respect to each issuance, amendment, renewal or extension of any Letter of Credit to be denominated in an Alternative Currency, such currency remains an Eligible Currency.

Each Revolving Borrowing and each issuance, amendment, renewal or extension of any Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in subsections (a) and (b) of this Section.

Section 3.3 Delivery of Documents. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article, unless otherwise specified, shall be delivered to the Administrative Agent for the account of each of the Lenders.

ARTICLE IV.

REPRESENTATIONS AND WARRANTIES

The Borrower represents and warrants to the Administrative Agent, each Lender and the Issuing Bank as follows:

Section 4.1 No Change. Since December 31, 2020, there has been no development or event that has had a Material Adverse Effect.

Section 4.2 Existence; Compliance With Law. Each Group Member (a) is duly organized or formed, validly existing and in good standing (in the case of Foreign Subsidiaries, solely to the extent such concepts, or the functional equivalent thereof, apply) under the laws of the jurisdiction of its organization or formation thereof, (b) has (i) all power and authority and (ii) all governmental licenses, authorizations consents and approvals, in each case, to own or lease its assets and carry on its business in which it is currently engaged, (c) is duly qualified and is licensed and, as applicable, in good standing (in the case of Foreign Subsidiaries, solely to the extent such concepts, or the functional equivalent thereof, apply) under the laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license and (d) is in compliance with all Requirements of Law, except in the case of (b)(ii), (c) and (d) when the failure to do so would not reasonably be expected to have a Material Adverse Effect.

 

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Section 4.3 Power; Authorization; Enforceable Obligations. Each Loan Party has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each Loan Party has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents except (i) consents, authorizations, filings and notices described on Schedule 4.3, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect, (ii) the filings referred to in Section 4.20, (iii) filings required under the Exchange Act in respect of the transactions contemplated hereby, and (iv) consents, authorizations, filings and notices required under the laws of the jurisdiction of organization of any Foreign Subsidiary in respect of the grant of a security interest in respect of its Capital Stock pursuant to the Guarantee and Collateral Agreement or any other Security Document. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

Section 4.4 No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law, any Loan Party’s organizational documents, or any material Contractual Obligation of any Loan Party, except for violations that would not reasonably be expected to have a Material Adverse Effect, and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Loan Documents).

Section 4.5 Litigation. There are no actions, suits, proceedings, claims, disputes or investigations of or before any Governmental Authority, pending or, to the knowledge of any Group Member, threatened in writing, at law or in equity, by or against the Borrower or any Restricted Subsidiary or against any of their properties or revenues that (a) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect or (b) purport to affect or pertain to this Agreement or any other Loan Document or any of the transactions contemplated hereby.

Section 4.6 No Default. No Group Member is in default under or with respect to any Contractual Obligation that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

Section 4.7 Ownership of Property; Liens. Except in each case as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, each Group Member has title in fee simple to, or a valid leasehold, subleasehold, license or other interest in, all its real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property, except for minor encumbrances and defects in title that do not materially interfere with its ability to conduct its business as currently conducted or to utilize such properties and assets for their intended purposes is subject to any Lien except as permitted by Section 7.2.

 

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Section 4.8 Intellectual Property. Except as would not reasonably be expected to have a Material Adverse Effect: each Group Member owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted; no claim has been asserted and is pending by any Person against any Group Member challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property of any Group Member, nor does the Borrower know of any valid basis for any such claim; and to the knowledge of the Borrower, no use by any Group Member of any of its Intellectual Property or the Collateral infringes on the intellectual property rights of any Person. Except as would not reasonably be expected to have a Material Adverse Effect, all necessary registration, maintenance, renewal and other relevant filing fees in connection with any of the Intellectual Property that is the subject of a registration or an application for registration have been timely paid, and all necessary documents, certificates and filings in connection with the Intellectual Property have been timely filed with the relevant Governmental Authority and internet domain name registrar(s) for the purpose of maintaining such Intellectual Property and all registrations and applications therefor.

Section 4.9 Taxes. Each Group Member has filed or caused to be filed all Federal and material state and other material Tax returns that are required to be filed and has paid all Taxes shown to be due and payable on said returns or on any material assessments made against it or any of its property and all other material Taxes imposed on it or any of its property by any Governmental Authority (except any such Taxes the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP (where GAAP requires such reserves) have been provided on the books of the relevant Group Member).

Section 4.10 Margin Regulations. No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used (a) for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect for any purpose that violates the provisions of the Regulations of the Federal Reserve Board or (b) for any purpose that violates the provisions of the Regulations of the Federal Reserve Board. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying “margin stock”.

Section 4.11 Labor Matters. Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group Member pending or, to the knowledge of the Borrower, threatened; (b) hours worked by and payment made to employees of each Loan Party have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have been, in all material respects, paid or accrued as a liability on the books of the relevant Group Member.

Section 4.12 ERISA. Except, in the aggregate, as would not reasonably be expected to result in a Material Adverse Effect, (a) each Loan Party and each of their respective ERISA Affiliates is in compliance with the applicable provisions of ERISA and the Code relating to Single Employer Plans and Multiemployer Plans and the regulations and published interpretations thereunder and (b) no ERISA Event has occurred.

Section 4.13 Investment Company Act. No Loan Party is an “investment company”, or a company “controlled by” an “investment company” as defined in the Investment Company Act of 1940.

 

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Section 4.14 Subsidiaries. As of the Closing Date, (a) Schedule 4.14 sets forth the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by any Loan Party and (b) except as set forth on Schedule 4.14, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options or similar equity awards granted to current or former employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of any Subsidiary.

Section 4.15 Use of Proceeds. The proceeds of the Loans shall be used for working capital and general corporate purposes, including to finance acquisitions and fund Restricted Payments.

Section 4.16 Environmental Matters. Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect:

(a) the facilities and properties owned, leased or operated by any Group Member (the “Properties”) do not contain, and to the knowledge of the Borrower, have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation by any Group Member of, or could give rise to liability of any Group Member under, any Environmental Law;

(b) no Group Member has received any written or, to the knowledge of the Borrower, oral notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by any Group Member (the “Business”), nor does the Borrower have knowledge or reason to believe that any such notice is being threatened;

(c) Materials of Environmental Concern have not been transported or disposed of from the Properties during the last five years by any Group Member or, to the knowledge of the Borrower, other Person or, to the knowledge of the Borrower, any prior time in violation of, or in a manner or to a location that could give rise to liability of any Group Member under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties during the last five years by any Group Member or, to the knowledge of the Borrower, other Person or, to the knowledge of the Borrower, any prior time in violation of, or in a manner that could give rise to liability of any Group Member under, any applicable Environmental Law;

(d) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which any Group Member is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding against any Group Member or, to the knowledge of the Borrower, other Person under any Environmental Law with respect to the Properties or the Business;

(e) there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Group Member in connection with the Properties or otherwise in connection with the Business, during the last five years or, to the knowledge of the Borrower, any prior time in violation of or in amounts or in a manner that could give rise to liability of any Group Member under Environmental Laws;

 

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(f) the Properties and all operations at the Properties are in compliance, and have in the last five years and, to the knowledge of the Borrower, at all prior times been in compliance, with all Environmental Laws, and there is no contamination at, under or about the Properties that could give rise to liability of any Group Member or violation of any Environmental Law with respect to the Properties or the Business; and

(g) no Group Member has assumed any liability by contract or, to the knowledge of the Borrower, operation of law, of any other Person under Environmental Laws.

Section 4.17 Accuracy of Information, Etc. No factual written statement or information contained in this Agreement, any other Loan Document or any other document or certificate furnished by or on behalf of any Group Member to the Administrative Agent, the Lenders, or any of them on or prior to the Closing Date, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents (other than, for the avoidance of doubt, any estimates, projections or pro forma information), when taken as a whole, contained as of the date such statement, information, document or certificate was so furnished, any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein not materially misleading in light of the circumstances when made. The projections and pro forma information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such projections as they relate to future events are subject to significant uncertainties, many of which are beyond the control of the Borrower and not to be viewed as fact or a guarantee of performance and that actual results during the period or periods covered by such projections may differ from the projected results set forth therein by a material amount.

Section 4.18 Financial Statements. The audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as of December 31, 2019 and the related statements of income and cash flow for the fiscal year ending on such date as heretofore furnished to the Administrative Agent, are complete and correct in all material respects and fairly present in all material respects the financial condition of the Borrower and its Subsidiaries, on a consolidated basis, on such date. Such financial statements, including the related schedules and notes thereto, have been prepared in conformity with GAAP applied on a consistent basis, and all liabilities, direct and contingent, of the Borrower on a consolidated basis with its Subsidiaries on such date required to be disclosed pursuant to GAAP are disclosed in such financial statements.

Section 4.19 Insurance. All policies of insurance of any kind or nature owned by or issued to each Group Member, including policies of life, fire, theft, product liability, public liability, property damage, other casualty, employee fidelity, workers’ compensation, employee health and welfare, property and liability insurance, are (a) in full force and effect except to the extent commercially reasonably determined by the Borrower not to be necessary pursuant to clause (b) of this Section 4.19 or which are not material to the Group Member’s overall coverage and (b) are of a nature and provide such coverage as in the reasonable opinion of the Borrower, is sufficient and is customarily carried by companies of the size and character of the Group Members.

Section 4.20 Security Documents.

(a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Stock are delivered to the Administrative Agent (together with a properly completed and signed stock

 

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power or endorsement), and in the case of the other Collateral described in the Guarantee and Collateral Agreement, when financing statements and other filings specified on Schedule 4.20(a) in appropriate form are filed in the offices specified on Schedule 4.20(a) together with payment of any filing or recordation fees, or, with respect to after-acquired property, when the requirements set forth in Section 5.9 have been complied with, the Administrative Agent shall have a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral (except for registration of and application for Intellectual Property filed outside the United States) to the extent such Lien can be perfected by the filing of financing statements under the applicable UCC, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except (x) in the case of Collateral other than Pledged Stock, Liens permitted by Section 7.2 and (y) in the case of Collateral constituting Pledged Stock, inchoate Liens arising by operation of law), in each case, to the extent required by the Guarantee and Collateral Agreement.

(b) To the extent applicable, each of the Mortgages, if any, entered into pursuant to Section 5.9(d) is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable Lien on the property described therein, and when the Mortgages are filed in the appropriate offices, each such Mortgage shall constitute a Lien on, and security interest in, all right, title and interest of the Loan Parties in the subject property, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person (except Liens permitted by Section 7.2).

Section 4.21 Solvency. After giving effect to the occurrence of the Closing Date and the incurrence of all Indebtedness and Obligations being incurred in connection herewith, the Borrower and its Subsidiaries on a consolidated basis are Solvent.

Section 4.22 Sanctions and Anti-Corruption Laws.

The Borrower has implemented and maintains in effect policies and procedures designed (in its reasonable business judgment) to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents (in their respective capacities as such) with Anti-Corruption Laws and applicable Sanctions, and the Borrower and its Subsidiaries and to the knowledge of the Borrower their respective directors, officers, employees and agents (in their respective capacities as such), are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects. None of (a) the Borrower or any Subsidiary or to the knowledge of the Borrower any of their respective directors, officers or employees, or (b) to the knowledge of the Borrower, any duly appointed agent of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the credit facility established hereby, is a Sanctioned Person, in each case where such status as a Sanctioned Person would violate applicable Sanctions. No borrowing of any Loan or Letter of Credit or use by any Group Member thereof will violate Anti-Corruption Laws or applicable Sanctions.

Section 4.23 Affected Financial Institutions. Neither the Borrower nor any Subsidiary is an Affected Financial Institution.

ARTICLE V.

AFFIRMATIVE COVENANTS

Until the Commitments have expired or been terminated and all Obligations (other than contingent obligations as to which no claim has been made by the Person entitled thereto) have been paid in full and all Letters of Credit shall have expired or terminated, in each case without any pending draw, or all such Letters of Credit shall have been cash collateralized to the satisfaction of the Issuing Bank, and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that, it shall and shall cause each of its Restricted Subsidiaries to:

 

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Section 5.1 Financial Statements. Furnish to the Administrative Agent (who shall provide to each Lender):

(a) promptly after available, but in any event not later than 60 days after the end of each fiscal year of the Borrower (or, if applicable, any later date (not to exceed 120 days after the end of the applicable fiscal year of the Borrower) to which the SEC has extended the applicable deadline for the Borrower to file disclosure reports containing such financial statements), commencing with the fiscal year ending on or about December 31, 2020, a copy of the audited consolidated balance sheet of the Borrower and its Restricted Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case, in comparative form the figures for the previous year, reported on without a going concern qualification or qualification arising out of the scope of the audit, by independent certified public accountants of nationally recognized standing (except for any qualification pertaining to the maturity of any Indebtedness occurring within twelve (12) months of the date of the relevant audit);

(b) promptly after available, but in any event not later than 40 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower (or, if applicable, any later date (not to exceed 60 days after the end of the applicable fiscal quarter year of the Borrower) to which the SEC has extended the applicable deadline for the Borrower to file disclosure reports containing such financial statements), commencing with the fiscal quarter ended on or about March 31, 2020, the unaudited consolidated balance sheet of the Borrower and its Restricted Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case, in comparative form the figures for the previous year, certified by a Responsible Officer, on behalf of the Borrower, as being fairly stated in all material respects; and

(c) promptly after available, but in any event not later than 60 days after the end of each fiscal year of the Borrower, a detailed consolidated budget of the Borrower and its Subsidiaries in reasonable detail for that fiscal year as customarily prepared by management of the Borrower for its internal use consistent in scope with the financial statements provided pursuant to Section 5.1(a) (but including, in any event, a projected consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow and projected income for such following fiscal year).

All such financial statements shall be prepared in reasonable detail and in accordance with GAAP applied (except (i) as approved by such accountants or officer, as the case may be, and disclosed in reasonable detail therein and (ii) with respect to unaudited statements, the absence of footnote disclosure and subject to year-end audit adjustments) consistently throughout the periods reflected therein.

The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders and each Issuing Bank materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on the Platform and (b) certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. The Borrower hereby agrees that (w) at the Administrative Agent’s request, all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word

 

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“PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC”, the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers, the Issuing Bank and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute confidential information, they shall be treated as set forth in Section10.12); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information”; and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information”. Notwithstanding the foregoing, the Borrower shall be under no obligation to mark any Borrower Materials “PUBLIC.”

Section 5.2 Certificates; Other Information. Furnish to the Administrative Agent which shall make such item available to each Lender (or, in the case of clauses (f) and (g), to the relevant Lender):

(a) concurrently with the delivery of any financial statements pursuant to Section 5.1(a) or (b), (i) a certificate of the Borrower stating that the Responsible Officer executing such certificate on behalf of the Borrower has no knowledge of any Default or Event of Default except as specified in such certificate, (ii) commencing with the quarter ending September 30, 2020, a Compliance Certificate containing all information and calculations necessary for determining compliance by the Borrower with Article VI, including supporting calculations in reasonable detail, (iii) in the case of quarterly or annual financial statements, to the extent not previously disclosed to the Administrative Agent, (1) a description of any change in the jurisdiction of organization of any Loan Party, (2) a description of any Domestic Subsidiary acquired or created, including name and jurisdiction of organization, (3) a description of any Person that has become a Loan Party, in each case since the date of the most recent report delivered pursuant to this clause (iii) (or, in the case of the first such report so delivered, since the Closing Date) and (4) notice of any amount in excess of $2,000,000 payable under or in connection with any of the Collateral being evidenced by any Instrument, Certificated Security or Chattel Paper (each as defined in the Guarantee and Collateral Agreement), (iv) (A) a summary of the pro forma adjustments necessary to eliminate the accounts of Unrestricted Subsidiaries (if any) from such financial statements, (B) a list identifying each subsidiary of the Borrower as a Restricted Subsidiary or an Unrestricted Subsidiary as of the date of delivery of such Compliance Certificate or confirmation that there is no change in such information since the later of the Closing Date and the date of the last such list, and (C) a list identifying each subsidiary of the Borrower which is an Immaterial Subsidiary and certifying that each Subsidiary set forth on such list individually qualifies as an Immaterial Subsidiary and that all such Subsidiaries in the aggregate do not exceed the limitation set forth in clause (b) of the definition of the term “Immaterial Subsidiary”, and (v) stating whether any change in GAAP or the application thereof has occurred since the date of the mostly recently delivered audited financial statements of the Borrower and its Restricted Subsidiaries, and, if any change has occurred, specifying the effect of such change on the financial statements accompanying such Compliance Certificate;

(b) concurrently with the delivery of any financial statements pursuant to Section 5.1, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Restricted Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter;

(c) within five Business Days after the same are filed, copies of all financial statements and reports that the Borrower makes to, or files with, the SEC including any press release providing earnings guidance;

 

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(d) to the Administrative Agent on behalf of each Lender promptly following receipt thereof, copies of any documents described in Sections 101(k) or 101(l) of ERISA that, following reasonable request of the Administrative Agent (which right to request shall be exercised no more than once during a 12-month period), any Loan Party or any ERISA Affiliate shall have promptly requested from the administrator or sponsor of a Multiemployer Plan with respect to such Multiemployer Plan;

(e) promptly after the furnishing thereof, copies of any notice of default delivered by the Borrower or any Subsidiary in respect of any Indebtedness having an aggregate outstanding principal amount of $20,000,000 or more;

(f) promptly, subject to applicable confidentiality agreements of the Group Members (which confidentiality agreements shall not be entered into for the purpose of avoiding disclosure under this clause (f)) or Requirements of Law, such reasonably available additional information regarding the business, legal, financial or corporate affairs of the Group Members as any Lender through the Administrative Agent may from time to time reasonably request; and

(g) promptly following any request therefor, information and documentation reasonably requested by the Administrative Agent or any Lender (including an updated Beneficial Ownership Certification if the Persons identified in a previously delivered Beneficial Ownership Certification have changed) for purposes of compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the USA Patriot Act and the Beneficial Ownership Regulation, as applicable.

Documents required to be delivered pursuant to Section 5.1, Section 5.2 or Section 5.7 may be delivered electronically and if so delivered, shall be deemed to have been delivered to, and received by, the Administrative Agent and Lenders on the date (i) on which the Borrower posts such documents, or provides a link thereto, on the Borrower’s website on the Internet, (ii) on which such documents are posted on the Borrower’s behalf on Intralinks or another relevant website, if any, to which each Lender and the Administrative Agent have access (whether a commercial or governmental third-party website or whether sponsored by the Administrative Agent) or (iii) on which the Borrower has filed such reports with the SEC via the EDGAR filing system; provided, that at the request of the Administrative Agent, the Borrower shall provide by electronic mail electronic versions (i.e., soft copies) of such documents.

Section 5.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations in respect of Taxes, assessments and governmental charges or levies of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP, or, in the case of Foreign Subsidiaries, with generally accepted accounting principles in effect from time to time in their respective jurisdiction of organization, with respect thereto have been provided on the books of the Borrower and its Restricted Subsidiaries.

Section 5.4 Maintenance of Existence; Compliance with Laws. (a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.3 or Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Requirements of Law except to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect.

 

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Section 5.5 Maintenance of Property; Insurance. (a) Keep all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted except as would not reasonably be expected to have a Material Adverse Effect, (b) maintain with financially sound and reputable insurance companies insurance on its material property in at least such amounts and against at least such risks (but including in any event public liability and product liability) as are usually insured against in the same general area by companies engaged in the same or a similar business, (c) take all reasonable and necessary steps, including, in any proceeding before the United States Patent and Trademark Office or the United States Copyright Office, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the Intellectual Property, including, filing of applications for renewal, affidavits of use and affidavits of incontestability, except in each case to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect and (d) if (x) any improved portion of any real property subject to a Mortgage is at any time located in a Special Flood Hazard Area with respect to which flood insurance has been made available under the National Flood Insurance Program and (y) the Administrative Agent shall have delivered notice(s) to the relevant Loan Party pursuant to applicable flood insurance laws and regulations stating that such mortgaged property is located a Special Flood Hazard Area with respect to which such flood insurance has been made available, then the Borrower shall, or shall cause such Loan Party to (i) maintain, or cause to be maintained, with a financially sound and reputable insurer, flood insurance in an amount and otherwise sufficient to comply with all applicable rules and regulations promulgated pursuant to the National Flood Insurance Program and (ii) deliver to the Administrative Agent evidence of such compliance in form and substance reasonably acceptable to the Administrative Agent.

Section 5.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities and (b) permit representatives of the Administrative Agent or any Lender through the Administrative Agent, in each case, subject to the limitations of reasonable confidentiality agreements not entered into for the purpose of avoiding obligations under this Section 5.6, to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time upon reasonable notice and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Group Members with officers and managerial employees of the Group Members and with their independent certified public accountants; provided that an officer of the Borrower shall be provided reasonable opportunity to participate in any such discussion with the accountants; provided further that such inspections shall be coordinated through the Administrative Agent so that in the absence of an Event of Default, not more than one such inspection shall occur in any calendar year. The Administrative Agent and the Lenders agree to use reasonable efforts to coordinate and manage the exercise of their rights under this Section 5.6 so as to minimize the disruption to the business of the Borrower and its Restricted Subsidiaries resulting therefrom.

Section 5.7 Notices. Upon a Responsible Officer learning of the same, promptly give notice to the Administrative Agent of:

(a) the occurrence of any Default or Event of Default;

(b) the filing or commencement of any litigation or proceeding against any Loan Party (i) in which the amount (excluding any amounts paid or covered by insurance as to which the relevant insurance company has not denied coverage) is $20,000,000 or more, (ii) in which injunctive or similar relief is sought which would reasonably be expected to have a Material Adverse Effect or (iii) which relates to any Loan Document;

(c) the occurrence of any ERISA Event that, alone or together with any other ERISA Event(s) that have occurred, has had or would reasonably be expected to have a Material Adverse Effect; and

 

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(d) the occurrence of any Material Adverse Effect on the aggregate value of the Collateral or on the security interests created by the Security Documents.

Each notice pursuant to this Section 5.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Loan Party proposes to take with respect thereto.

Section 5.8 Environmental Laws. Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect:

(a) comply with, and take all commercially reasonable steps to ensure compliance by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply with and maintain, and take all commercially reasonable steps to ensure that all tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws; and

(b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws; provided, however, that no Loan Party shall be deemed in violation of this Section 5.8(b) if it promptly challenges any such order or directive and pursues such challenge or challenges, and the pendency of such challenges, in the aggregate could not reasonably be expected to have a Material Adverse Effect.

Section 5.9 Additional Collateral, etc.

(a) (1) With respect to any property acquired after the Closing Date by any Loan Party (other than (x) any real property or property described in paragraph (b) below, (y) any property constituting Excluded Property and (z) any property with respect to which the Administrative Agent determines that the cost or burden of subjecting such property to a Lien under the Security Documents is disproportionate to the value of the collateral security afforded thereby) or (2) upon the designation of any Unrestricted Subsidiary that is a Domestic Subsidiary as a Restricted Subsidiary (which is not an Excluded Subsidiary), as to which the Administrative Agent, for the benefit of the Secured Parties, does not have a perfected Lien, promptly upon request by the Administrative Agent (i) execute and deliver to the Administrative Agent such amendments to the Security Documents or such other documents as the Administrative Agent reasonably deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a security interest in such property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority (subject to (x) in the case of Collateral other than Pledged Stock, Liens permitted by Section 7.2 and (y) in the case of Collateral constituting Pledged Stock, inchoate Liens arising by operation of law) security interest under the laws of the United States in such property, including the filing of Uniform Commercial Code financing statements in such domestic jurisdictions as may be required by the Security Documents or by law or as may be reasonably requested by the Administrative Agent.

(b) Promptly (and in any event not later than 45 days after the delivery of any financial statements under Section 5.1(a) or 5.1(b), with respect to Capital Stock of any Subsidiary included in such financial statements, which period may be extended by the Administrative Agent from time to time in its discretion), cause (A) all of the Capital Stock (other than Excluded Property) owned by any Loan Party to be pledged to the Administrative Agent, pursuant to an amendment to the Security Documents and/or the schedules thereto if reasonably requested by the Administrative Agent, and (B) together therewith, (x) the original certificates evidencing such pledged Capital Stock to be delivered to the Administrative Agent, together with appropriate powers executed in blank and (y) if and to the extent reasonably requested by the Administrative Agent, the Administrative Agent to receive legal opinions of counsel to the Borrower reasonably acceptable to the Administrative Agent covering such matters in respect of such pledges as the Administrative Agent so requests.

 

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(c) Promptly (and in no event later than 45 days after the delivery of any financial statements under Section 5.1(a) or 5.1(b), with respect to any Subsidiary included in such financial statements, which period may be extended by the Administrative Agent from time to time in its discretion), cause (i) each of the Borrower’s direct or indirect Domestic Subsidiaries (other than an Excluded Subsidiary), to become a Guarantor and Grantor (as defined in the Guarantee and Collateral Agreement) by executing and delivering a joinder or assumption agreement to the Guarantee and Collateral Agreement in a form reasonably requested by the Administrative Agent if such Subsidiary is not then a Guarantor, (ii) to be delivered to the Administrative Agent a certificate of a Responsible Officer of such Subsidiary, attaching and certifying as to, and as applicable: (w) its articles or certificate of incorporation, certificate of organization or limited partnership, or other registered organizational documents, certified as of a recent date to the delivery thereof by the Secretary of State of the jurisdiction of organization of such Subsidiary, (x) its bylaws, partnership agreement, limited liability company agreement, or similar organizational document, (y) resolutions of its board of directors or other equivalent governing body and authorizations authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true signature of each officer of such Subsidiary executing the Loan Documents to which it is a party, and (z) certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of organization of such Subsidiary, and (iii) if and to the extent reasonably requested by the Administrative Agent, to be delivered to the Administrative Agent opinions of counsel to the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, covering such matters in respect of such new Guarantor and Grantor as the Administrative Agent so requests.

(d) With respect to any fee simple interest in any real property having a fair market value (together with improvements thereof) in the good faith estimation of the Borrower of at least $10,000,000 acquired after the Closing Date by any Loan Party (other than any such real property subject to a Lien expressly permitted by Section 7.2(g)), promptly and in any event within 90 days after such acquisition (or such later times as the Administrative Agent may agree in its sole discretion), (i) execute and deliver a Mortgage, in favor of the Administrative Agent, for the benefit of the Secured Parties, covering such real property, creating a Lien on such real property prior and superior in right to all other Liens on such real property (except Liens permitted by Section 7.2), (ii) if reasonably requested by the Administrative Agent, provide the Administrative Agent, for the benefit of the Secured Parties, with (1) title searches in respect of such real property as well as a current map or plat of an as-built survey thereof, together with a surveyor’s certificate, (2) title insurance policies reasonably satisfactory in form and substance to the Administrative Agent, (3) recently prepared environmental site assessment reports, in each case together with letters executed by the environmental firms preparing such environmental reports, in form and substance satisfactory to the Administrative Agent, authorizing the Administrative Agent and the Lenders to rely on such reports, and (4) any consents or estoppels reasonably deemed necessary by the Administrative Agent in connection with such Mortgage, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent, (iii) deliver a “Life-of-Loan” Federal Emergency Management Agency Standard Flood Hazard Determination and evidence of Federal Flood Insurance satisfying the requirements of Section 5.5 and (iv) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. Notwithstanding anything to the contrary in this Agreement or the Loan Documents, no Mortgage will encumber improved real property that is located in Special Flood Hazard Area in which flood insurance has been made available under the National Flood Insurance Act of 1968, except to the extent that the applicable Loan Party maintains flood insurance with respect to such improved real property in compliance with the requirements of Section 5.5.

 

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(e) Without limiting the foregoing, the Borrower will, and will cause each other Loan Party to, execute any and all further documents, financing statements, agreements and instruments, and take all such further actions, which may be required under any applicable law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents or to grant, preserve, protect or perfect the Liens created by the Security Documents or the validity or priority of any such Lien, all at the expense of the Loan Parties. The Borrower also agrees to provide to the Administrative Agent, from time to time upon request, evidence reasonably satisfactory to the Administrative Agent as to the perfection and priority of the Liens created or intended to be created by the Security Documents. Notwithstanding the foregoing, anything in this Agreement or any other Loan Document to the contrary, no Loan Party will be required to deliver control agreements with respect to the Collateral or to take any action necessary under the laws of any foreign jurisdiction to create or perfect a Lien or, in each case, be considered in breach of or non-compliance with any representation or warranty or covenant herein or in any Loan Document as a result thereof.

Section 5.10 Designation of Subsidiaries. The board of directors (or equivalent governing body) of the Borrower may at any time after the Closing Date designate (or redesignate) any Subsidiary (or in connection with any contemplated Investment, a Person that upon such Investment and but for designation as an Unrestricted Subsidiary would be a Restricted Subsidiary) as an Unrestricted Subsidiary or any Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) immediately before and after such designation, no Default or Event of Default shall have occurred and be continuing (including after giving effect to the reclassification of Investments in, Indebtedness of and Liens on the assets of, the applicable Restricted Subsidiary or Unrestricted Subsidiary), (ii) the Borrower shall be in pro forma compliance with Article VI hereof, (iii) as of the date of the designation thereof, no Unrestricted Subsidiary shall own any Capital Stock in any Restricted Subsidiary of the Borrower or hold any Indebtedness of or any Lien on any property of the Borrower or its Restricted Subsidiaries, and (iv) as of the date of the designation thereof, no Unrestricted Subsidiary shall own any item of material Intellectual Property unless such Intellectual Property is no longer economically practicable to maintain or useful in the conduct of the business of the Borrower and the Restricted Subsidiaries, as determined in the exercise of the Borrower’s or the applicable Restricted Subsidiary’s reasonable business judgment. The designation of any subsidiary as an Unrestricted Subsidiary shall constitute an Investment by the Borrower (or its applicable Restricted Subsidiary) therein at the date of designation in an amount equal to the portion of the fair market value of the net assets of such Restricted Subsidiary attributable to the Borrower’s (or its applicable Restricted Subsidiary’s) equity interest therein as reasonably estimated by the Borrower (and such designation shall only be permitted to the extent such Investment is permitted under Section 7.6). The designation of any Unrestricted Subsidiary as a Restricted Subsidiary shall constitute the making, incurrence or granting, as applicable, of Investments of such Subsidiary, Indebtedness of such Subsidiary, and Liens on the assets of such Subsidiary existing at such time; provided that upon any re-designation of any Unrestricted Subsidiary as a Restricted Subsidiary, the Borrower shall be deemed to continue to have an Investment in the resulting Restricted Subsidiary in an amount (if positive) equal to (a) the Borrower’s “Investment” in such Restricted Subsidiary at the time of such re-designation, less (b) the portion of the fair market value of the net assets of such Restricted Subsidiary attributable to the Borrower’s equity therein at the time of such re-designation.

Section 5.11 Anti-Corruption Laws and Sanctions. Maintain in effect and enforce policies and procedures designed (in its reasonable business judgment) to ensure compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents (in their respective capacities as such) with Anti-Corruption Laws and applicable Sanctions.

 

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Section 5.12 Margin Regulations. Not to use any of the proceeds of any Loans or any other extensions of credit hereunder (a) for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect for any purpose that violates the provisions of the Regulations of the Federal Reserve Board or (b) for any purpose that violates the provisions of the Regulations of the Federal Reserve Board.

Section 5.13 Post-Closing Obligations. The Borrower shall deliver, or cause to be delivered, the agreements, instruments and other documents set forth on Schedule 5.13 within the applicable time periods specified therein or in each case, such later date as may be agreed by the Administrative Agent in its sole discretion.

ARTICLE VI.

FINANCIAL COVENANTS

Until the Commitments have expired or been terminated and all Obligations have been paid in full (other than contingent obligations as to which no claim has been made by the Person entitled thereto) and all Letters of Credit shall have expired or terminated, in each case without any pending draw, or all such Letters of Credit shall have been cash collateralized to the satisfaction of the Issuing Bank, and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that, it shall not, and shall not permit any of its Restricted Subsidiaries to:

Section 6.1 Consolidated Leverage Ratio. Commencing with the fiscal quarter ending on or around September 30, 2020, (a) permit, on the last day of any fiscal quarter, the Consolidated Leverage Ratio for the four consecutive fiscal quarters of the Borrower ending with such fiscal quarter end date to exceed 3.00:1.00 or (b) solely to the extent that a Material Acquisition occurs during any fiscal quarter in which the Consolidated Leverage Ratio is tested (the fiscal quarter in which such Material Acquisition occurs, the “Applicable Fiscal Quarter”), permit, on the last day of such Applicable Fiscal Quarter and on the last day of each of the immediately following three fiscal quarters (such period of time, the “Modified Leverage Period”), the Consolidated Leverage Ratio for the four consecutive fiscal quarters of the Borrower ending with each such fiscal quarter end date to exceed 3.50:1.00 (it being understood and agreed that after the Modified Leverage Period ends, the Borrower shall be required to maintain the minimum Consolidated Leverage Ratio set forth in the preceding clause (a) unless another Material Acquisition occurs and this clause (b) applies for such Material Acquisition).

Section 6.2 Interest Coverage Ratio. Permit, on the last day of any fiscal quarter beginning with September 30, 2020, the Interest Coverage Ratio for the four consecutive fiscal quarters of the Borrower ending with such fiscal quarter end date to be less than 3.00:1.00.

ARTICLE VII.

NEGATIVE COVENANTS

Until the Commitments have expired or been terminated and all Obligations (other than contingent obligations as to which no claim has been made by the Person entitled thereto) have been paid in full and all Letters of Credit shall have expired or terminated, in each case without any pending draw, or all such Letters of Credit shall have been cash collateralized to the satisfaction of the Issuing Bank, and all LC Disbursements shall have been reimbursed, the Borrower covenants and agrees with the Lenders that, it shall not, and shall not permit any of its Restricted Subsidiaries to:

 

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Section 7.1 Indebtedness. Create, issue, incur, assume, become liable in respect of or suffer to exist any Indebtedness thereof, except:

(a) Indebtedness of any Loan Party pursuant to any Loan Document;

(b) intercompany Indebtedness incurred pursuant to any Investment permitted by Section 7.6(f), (l) or (m);

(c) Guarantee Obligations incurred in the ordinary course of business or with respect to Indebtedness permitted pursuant to this Agreement;

(d) Indebtedness outstanding on the Closing Date and listed on Schedule 7.1(d);

(e) Indebtedness (including Capital Lease Obligations) secured by Liens permitted by Section 7.2(g) in an aggregate outstanding principal amount not to exceed at any time (x) $50,000,000, plus (y) an amount such that, subject to Section 1.3(d) (to the extent applicable) immediately after giving effect to the incurrence of any such Indebtedness and the use of proceeds thereof, the Consolidated Secured Leverage Ratio, calculated on a pro forma basis for the period of four consecutive fiscal quarters most recently ended for which financial statements have been delivered hereunder prior thereto, would not exceed 2.75:1.00;

(f) Indebtedness of the Borrower or any Restricted Subsidiaries in respect of workers’ compensation claims, self-insurance obligations, customs, appeal, performance, bid and surety bonds and completion guaranties, deferred insurance premiums, and similar obligations, in each case in the ordinary course of business;

(g) Indebtedness of the Borrower or any Restricted Subsidiaries arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn by the Borrower or such Restricted Subsidiary in the ordinary course of business against insufficient funds, so long as such Indebtedness is promptly repaid;

(h) letters of credit issued for the account of the Borrower or any Restricted Subsidiaries, so long as the sum of (i) the aggregate undrawn face amount thereof, (ii) any unreimbursed obligations in respect thereof and (iii) the aggregate amount of pledges and deposits made pursuant to Section 7.2(t) below does not exceed the LC Commitment Amount at any time;

(i) Indebtedness of a joint venture as long as such Indebtedness is non-recourse to the Borrower or any other Restricted Subsidiary of the Borrower (other than a Restricted Subsidiary the sole assets of which are the equity interests in one or more joint ventures); provided that notwithstanding the foregoing joint ventures may create, incur or assume Indebtedness with recourse to the Borrower or any other Restricted Subsidiary of the Borrower not to exceed $50,000,000 in an aggregate principal amount at any one time outstanding;

(j) Indebtedness incurred by any Foreign Subsidiary in an aggregate outstanding principal amount for all such Foreign Subsidiaries at the close of business on any day not to exceed $50,000,000;

(k) secured Indebtedness of the Borrower or any Restricted Subsidiaries (which may be guaranteed by the Guarantors) containing, in the good faith judgment of the Borrower, then current market terms and conditions for similarly situated companies (but which terms and conditions shall not directly and explicitly restrict the ability of the Group Members to perform their obligations under the

 

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Loan Documents in any material respect or the ability of the Borrower to repay the Loans); provided that (i) no Event of Default exists or would result from the incurrence thereof, (ii) subject to Section 1.3(d) (to the extent applicable) immediately after giving effect to the incurrence of any such Indebtedness and the use of proceeds thereof the Consolidated Secured Leverage Ratio calculated on a pro forma basis for the period of four consecutive fiscal quarters most recently ended for which financial statements have been delivered, would not exceed 2.75:1.00, (iii) in the case of syndicated or bilateral credit agreements, indentures or note purchase agreements, any negative or financial covenants applicable to such agreements that are more restrictive (with respect to any indenture or note purchase agreement, taken as a whole) than those contained in this Agreement shall be deemed to be incorporated in this Agreement, mutatis mutandis, (iv) the final scheduled maturity date of such Indebtedness is no earlier than the Maturity Date and the weighted average life to maturity of such Indebtedness is equal to or longer than the remaining average weighted life of the Revolving Facility (other than for nominal amortization of 5% or less of the principal amount of such Indebtedness per year) and (v) such Indebtedness shall not be guaranteed by any Person that is not a Guarantor and shall not be secured by any assets other than the Collateral; provided, further, any Indebtedness incurred by a Restricted Subsidiary that is not a Guarantor shall, together with any Indebtedness incurred by a Restricted Subsidiary that is not a Guarantor in reliance on clause (o), not exceed $100,000,000 at any one time outstanding;

(l) Indebtedness of the Borrower or any of its Restricted Subsidiaries acquired pursuant to a Permitted Acquisition (or Indebtedness assumed at the time of a Permitted Acquisition of an asset securing such Indebtedness); provided that such Indebtedness was not incurred in connection with, or in anticipation or contemplation of, such Permitted Acquisition;

(m) contingent obligations with respect to customary indemnification obligations in favor of sellers (and Affiliates or assignees thereof) in connection with Acquisitions permitted under Section 7.6 and purchasers (and Affiliates or assignees thereof) in connection with Dispositions permitted under Section 7.4;

(n) provided that no Event of Default shall have occurred and be continuing or would occur as a consequence thereof, Indebtedness which serves to refund, replace, extend repurchase, redeem or refinance any Indebtedness permitted under paragraphs (d), (e), (k), (l) or (o) of this Section, or any Indebtedness issued to so refund, replace, extend, repurchase or refinance such Indebtedness, including, in each case, additional Indebtedness incurred to pay premiums (including tender premiums), defeasance costs and fees and expenses in connection therewith (collectively, the “Permitted Refinancing Indebtedness”) at or prior to its respective maturity; provided, however, that:

(i) the weighted average life to maturity of such Permitted Refinancing Indebtedness shall not be shorter than the weighted average life to maturity of such refinanced Indebtedness at the time of such refunding or refinancing;

(ii) to the extent such Permitted Refinancing Indebtedness refinances Indebtedness subordinated or pari passu to the Obligations, such Permitted Refinancing Indebtedness is subordinated or pari passu to the Obligations at least to the same extent as the Indebtedness being refunded or refinanced;

(iii) such Permitted Refinancing Indebtedness shall not be in a principal amount in excess of the principal amount of, premium, if any, accrued interest on, and related fees and expenses of, the Indebtedness being refunded, replaced, extended, repurchased, redeemed or refinanced (including any premium, expenses, costs and fees incurred in connection with such refund, replacement or refinancing);

 

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(iv) the obligors in respect of such Permitted Refinancing Indebtedness (including in their capacities as primary obligor and guarantor) were obligors in respect of the Indebtedness being refinanced; and

(v) any Liens securing such Permitted Refinancing Indebtedness are not extended to any property which does not secure the Indebtedness being refinanced and, if the Liens securing the Indebtedness being refinanced are subject to intercreditor arrangements with the Lenders, any Liens securing such Permitted Refinancing Indebtedness are subject to intercreditor arrangements at least as favorable (taken as a whole) to the Administrative Agent and the Lenders as the intercreditor arrangements applicable to the Indebtedness being refinanced;

(o) unsecured Indebtedness of the Borrower or any of its Restricted Subsidiaries and unsecured Guarantee Obligations of any Guarantor in respect of such unsecured Indebtedness; provided that (i) no Event of Default exists or would result from the incurrence thereof and (ii) subject to Section 1.3(d) (to the extent applicable) immediately after giving effect to the incurrence of any such Indebtedness and the use of proceeds thereof, the Consolidated Leverage Ratio, calculated on a pro forma basis for the period of four consecutive fiscal quarters most recently ended for which financial statements have been delivered prior thereto, would not exceed 3.00:1.00; provided, that (x) such Indebtedness shall not be guaranteed by any Person that is not a Guarantor and (y) any Indebtedness incurred by a Restricted Subsidiary that is not a Guarantor shall, together with any Indebtedness incurred by a Restricted Subsidiary that is not a Guarantor in reliance on clause (k), not exceed $100,000,000 at any one time outstanding;

(p) to the extent constituting Indebtedness, obligations under treasury, depositary or other cash management services entered into in the ordinary course of business; and

(q) Indebtedness in respect of letters of credit in an aggregate face amount not exceeding $5,000,000 (or such greater amount solely to the extent resulting from fluctuations in currency exchange rates) at any one time outstanding.

Section 7.2 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, whether now owned or hereafter acquired, except:

(a) Liens for Taxes not yet due or that are being contested in good faith by appropriate proceedings; provided that reserves with respect thereto (if required by, and to the extent required by, GAAP) are maintained on the books of the Borrower or its Restricted Subsidiaries, as the case may be, in conformity with GAAP (or, in the case of Foreign Subsidiaries, generally accepted accounting principles in effect from time to time in their respective jurisdiction of organization);

(b) landlord’s, carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, supplier, construction or other like Liens in the ordinary course of business that are not overdue for a period of more than 45 days or that are being bonded or contested in good faith by appropriate proceedings;

(c) (i) pledges or deposits made in connection with workers’ compensation, unemployment insurance and other social security legislation and similar laws or regulations, and (ii) Liens (A) of a collecting bank arising in the ordinary course of business under Section 4-210 of the Uniform Commercial Code in effect in the relevant jurisdiction covering only the items being collected upon or (B) in favor of a banking institution or financial intermediary, encumbering amounts credited to deposit or securities accounts (including the right of set-off) arising in the ordinary course of business in connection with the maintenance of such accounts;

 

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(d) pledges and deposits to secure the performance of bids, contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds, utility payments and other obligations of a like nature incurred in the ordinary course of business;

(e) zoning restrictions, survey exceptions and such matters as an accurate survey would disclose, mortgage rights, easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, do not materially interfere with the ordinary conduct of the business of the Borrower or its Subsidiaries, taken as a whole;

(f) Liens in existence on the Closing Date and listed on Schedule 7.2(f) and extensions, renewals and replacements of any such Liens so long as the principal amount of Indebtedness or other obligations secured thereby is not increased and so long as such Liens are not extended to any other property of the Borrower or any of its Restricted Subsidiaries;

(g) Liens securing Indebtedness of the Borrower or any other Restricted Subsidiary incurred pursuant to Section 7.1(e) to finance the acquisition of fixed or capital assets; provided that (i) such Liens shall be created within 180 days of the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and proceeds thereof and (iii) the amount of Indebtedness secured thereby is not increased and extensions, renewals and replacements of any such Liens so long as the principal amount of Indebtedness or other obligations secured thereby is not increased and so long as such Liens are not extended to any other property of the Borrower or any of its Restricted Subsidiaries;

(h) Liens (i) created pursuant to the Loan Documents or (ii) granted in favor of the Issuing Bank pursuant to arrangements designed to eliminate the Issuing Bank’s risk with respect to any Defaulting Lender’s or Defaulting Lenders’ participation in Letters of Credit, as contemplated by Section 2.26;

(i) any interest or title of a lessor under any lease entered into by the Borrower or any other Restricted Subsidiary in the ordinary course of its business and covering only the assets so leased;

(j) Liens with respect of leases, licenses, sublicenses or subleases granted to others not interfering in any material respect with the businesses of the Borrower or any of its Subsidiaries;

(k) Liens with respect to operating leases not prohibited under this Agreement and entered into in the ordinary course of business;

(l) Liens so long as the aggregate outstanding principal amount of the obligations secured thereby does not exceed (as to the Borrower and all Subsidiaries) 5.0% of Consolidated Assets as determined as of the last day of the most recent fiscal period for which financial statements have been delivered hereunder prior to the incurrence thereof;

(m) Liens on the assets of Foreign Subsidiaries securing Indebtedness permitted under Section 7.1(j);

(n) receipt of progress payments and advances from customers in the ordinary course of business to the extent the same creates a Lien on the related inventory and proceeds thereof;

 

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(o) Liens on the assets of joint ventures and their Subsidiaries (and Restricted Subsidiaries the sole assets of which are the equity interests in one or more joint ventures) securing obligations of such Persons that are not prohibited by Section 7.1;

(p) attachment, judgment or other similar Liens securing judgments or decrees not constituting an Event of Default under Section 8.1(h) or securing appeal or other surety bonds related to such judgments or decrees;

(q) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business;

(r) statutory Liens and rights of offset, revocation, refund or chargeback arising in the ordinary course of business of the Borrower and its Restricted Subsidiaries;

(s) cash collateral supporting letters of credit permitted pursuant to Section 7.1 in an aggregate amount not exceeding 105% of the aggregate fact amounts thereof;

(t) pledges of cash or Cash Equivalents or deposits of cash or Cash Equivalents made to support any obligations of the Group Members (including cash collateral to secure obligations under letters of credit permitted pursuant to Section 7.1(h)) so long as (without duplication) the sum of (i) the aggregate undrawn face amount of letters of credit permitted pursuant to Section 7.1(h) above, (ii) any unreimbursed obligations in respect of letters of credit permitted pursuant to Section 7.1(h) above and (iii) the aggregate amount of such pledges and deposits does not exceed the limit set forth in Section 7.1(h);

(u) Liens on the Collateral securing Indebtedness (and interest and related obligations) permitted under clause (k) of Section 7.1 as long as such Liens are subject to a Market Intercreditor Agreement or an intercreditor agreement otherwise reasonably satisfactory to the Administrative Agent;

(v) Liens on property or assets acquired pursuant to a Permitted Acquisition, or on property or assets of a Restricted Subsidiary of the Borrower in existence at the time such Restricted Subsidiary is acquired pursuant to a Permitted Acquisition; provided that (i) any Indebtedness that is secured by such Liens is permitted to exist under Section 7.1(l), and (ii) such Liens are not incurred in connection with, or in contemplation or anticipation of, such Permitted Acquisition and do not attach to any other asset of the Borrower or any of its Restricted Subsidiaries and extensions, renewals and replacements of any such Liens so long as the principal amount of Indebtedness or other obligations secured thereby is not increased and so long as such Liens are not extended to any other property of the Borrower or any of its Restricted Subsidiaries;

(w) Liens securing obligations in respect of cash pooling, treasury, depositary and other cash management arrangements entered into in the ordinary course of business;

(x) Liens arising in connection with Escrow Funding Arrangements;

(y) Liens securing Indebtedness incurred to finance deferred insurance premiums permitted under Section 7.1(f), provided that such Liens shall be permitted only with respect to unearned premiums and dividends which may become payable under the relevant insurance policies and loss payments which reduce the unearned premiums under such insurance policies; and

 

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(z) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods.

Section 7.3 Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its property or business, except that:

(a) any Subsidiary may be merged, consolidated with or into or transferred to the Borrower (provided that the Borrower shall be the continuing or surviving Person) or with, into or to any other Subsidiary (provided that, if any such Subsidiary is a Guarantor, either (x) (i) the Guarantor shall be the continuing or surviving Person or (ii) simultaneously with the applicable merger or consolidation, the continuing Person shall become a Guarantor or (y) if the continuing or surviving Person will not be a Guarantor, the Investment of the assets of the Loan Party in and to the Subsidiary that is not a Loan Party is permitted under Section 7.6);

(b) any Subsidiary that is not a Loan Party may be merged, consolidated, amalgamated, liquidated, wound-up or dissolved or all or substantially all of its property or business Disposed of with, into or to a Restricted Subsidiary that is not a Loan Party;

(c) any Restricted Subsidiary may Dispose of any or all of its assets to the Borrower or any Guarantor (upon voluntary liquidation or otherwise);

(d) any Disposition otherwise permitted pursuant to Section 7.4 may be completed; and

(e) any Permitted Acquisition otherwise permitted pursuant to Section 7.6 may be completed.

Section 7.4 Disposition of Property. Dispose of any of its property, including Intellectual Property, whether now owned or hereafter acquired, or, in the case of any Restricted Subsidiary, issue or sell any shares of such Restricted Subsidiary’s Capital Stock to any Person, except:

(a) the Disposition of property that the Borrower or any Restricted Subsidiary reasonably determines is obsolete, surplus, worn out, or no longer useful in its business, or is replaced in the ordinary course of business, including the lease or sublease of excess or unneeded real property;

(b) the Disposition of inventory, internally manufactured test systems or cash or Cash Equivalents in the ordinary course of business;

(c) Dispositions permitted by Section 7.3, Restricted Payments permitted by Section 7.5 and Investments permitted by Section 7.6;

(d) the Disposition or issuance of any Restricted Subsidiary’s Capital Stock to the Borrower or any Guarantor;

(e) assignments and licensing and cross-licensing arrangements of technology or other Intellectual Property in the ordinary course of business or the discontinuance, forfeiture, abandonment or other disposition of any item of Intellectual Property that is no longer economically practicable to maintain or useful in the conduct of the business of the Borrower and the Restricted Subsidiaries, as determined in the exercise of the Borrower’s or the applicable Restricted Subsidiary’s reasonable business judgment;

 

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(f) the Disposition of any property or assets, or the issuance of any Restricted Subsidiaries’ Capital Stock, (i) to any Loan Party and (ii) by any Restricted Subsidiary that is not a Guarantor to any other Restricted Subsidiary that is not a Guarantor;

(g) transfers of property as a result of any Recovery Event;

(h) leases, occupancy agreements and subleases of property in the ordinary course of business;

(i) the Disposition of receivables and customary related assets pursuant to factoring programs on customary market terms for such transactions and with respect to receivables of, and generated by, Foreign Subsidiaries;

(j) the Disposition of other property (other than receivables and customary related assets) having a net book value not to exceed 25.0% of Consolidated Assets (as determined as of the last day of the most recent fiscal period for which financial statements have been delivered hereunder prior to the Disposition thereof) in the aggregate during any fiscal year of the Borrower; provided, however, with respect to any such Dispositions of property pursuant to this clause (j) having a net book value in excess of 10.0% of the Consolidated Assets (as determined as of the last day of the most recent fiscal period for which financial statements have been delivered hereunder prior to the Disposition thereof), such Dispositions shall only be permitted if (x) not less than 75% of the aggregate sale price from such Disposition shall be paid in cash or Cash Equivalents and (y) the Borrower shall be in pro forma compliance with each of the financial covenants set forth in Article VI after giving effect to such Disposition and recomputed for the most recently ended fiscal quarter of the Borrower for which financial statements have been delivered hereunder; provided, however, that for the purposes of this clause (j), the following shall be deemed to be Cash Equivalents: (A) any liabilities (as shown on the Borrower’s most recent balance sheet provided hereunder or in the footnotes thereto) of the Borrower or such Restricted Subsidiary, other than liabilities that are by their terms subordinated to the payment in cash of the Obligations, that (i) are assumed by the transferee with respect to the applicable Disposition or (ii) are otherwise cancelled or terminated in connection with the transaction with such transferee (other than intercompany debt owed to the Borrower or its Restricted Subsidiaries) and, in each case, for which the Borrower and all of its Restricted Subsidiaries shall have been validly released by all applicable creditors in writing and (B) any securities, notes or other obligations or assets received by the Borrower or the applicable Restricted Subsidiary from such transferee that are converted by the Borrower or such Restricted Subsidiary into Cash Equivalents (to the extent of the Cash Equivalents received) within 180 days following the closing of the applicable Disposition;

(k) Disposition of assets acquired pursuant to a Permitted Acquisition that constitute “non-core assets” within 365 days after the consummation of such Permitted Acquisition; provided, that not less than 75% of the aggregate sale price from such Disposition shall be paid in cash or Cash Equivalents;

(l) Dispositions of Unrestricted Subsidiaries; and

(m) discounts, adjustments or forgiveness of accounts receivable and other contract claims in the ordinary course of business or in connection with collection or compromise thereof.

Section 7.5 Restricted Payments. (A) Declare or pay any dividend (other than dividends payable solely in Qualified Stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of the Borrower or any Restricted

 

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Subsidiary of the Borrower, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any Restricted Subsidiary of the Borrower; or (B) make or offer to make any payment, prepayment, repurchase or redemption of or otherwise defease or segregate funds with respect to the principal of any Junior Indebtedness (other than (i) scheduled payments of principal, (ii) customary mandatory prepayments, mandatory repurchases and mandatory redemptions and (iii) refinancing thereof from the Net Cash Proceeds of Indebtedness permitted by Section 7.1 or Capital Stock of the Borrower other than Disqualified Stock) ((A), and (B), collectively, “Restricted Payments”), except that:

(a) any Restricted Subsidiary may make Restricted Payments to any Loan Party;

(b) any Restricted Subsidiary may make Restricted Payments to the Group Member that is its parent company so long as, in the case of any Restricted Payment made by a Loan Party, such parent company is also a Loan Party;

(c) any Restricted Subsidiary may make Restricted Payments with respect to the Capital Stock of such Restricted Subsidiary; provided that each Group Member shareholder of such Restricted Subsidiary receives at least its ratable share thereof;

(d) the Borrower may make Restricted Payments of the type described in clause (A) set forth in the introductory paragraph of this Section 7.5, within 60 days after the date of declaration thereof, as long as at such declaration date (x) no Default or Event of Default existed (or would exist if such Restricted Payment were made on such date) and (y) subject to Section 1.3(d) (to the extent applicable) and giving pro forma effect to such declared Restricted Payment, the Borrower shall be in compliance with each of the financial covenants in Article VI, calculated on a pro forma basis for the period of four consecutive fiscal quarters ended prior to such declaration date for which financial statements have been delivered hereunder prior thereto;

(e) as long as (x) no Default or Event of Default exists immediately before or after giving effect thereto, (y) subject to Section 1.3(d) (to the extent applicable) and immediately after giving effect to such Restricted Payment, the Borrower shall be in compliance with Section 6.2 (calculated on pro forma basis for the period of four consecutive fiscal quarters most recently ended for which financial statements have been delivered hereunder prior thereto), and (z) subject to Section 1.3(d) (to the extent applicable) and after giving effect to such Restricted Payment, the Consolidated Leverage Ratio, calculated on pro forma basis for the period of four consecutive fiscal quarters most recently ended for which financial statements have been delivered hereunder prior thereto, would not exceed 2.25:1.00, the Borrower may make Restricted Payments of the type described in clause (B) set forth in the introductory paragraph of this Section 7.5;

(f) the Borrower and its Restricted Subsidiaries may make Investments permitted by Section 7.6;

(g) the Borrower may deliver common stock or preferred stock or other equity securities that constitute Qualified Stock of the Borrower to holders upon conversion or exchange of any convertible preferred stock of the Borrower; and

(h) the Borrower may enter into any Permitted Bond Hedge Transaction.

Section 7.6 Investments. Make any Investment except:

(a) extensions of trade credit in the ordinary course of business;

 

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(b) Investments in cash or Cash Equivalents;

(c) Guarantee Obligations (of Indebtedness or otherwise) not prohibited by Section 7.1;

(d) loans and advances to employees or directors of any Group Member in the ordinary course of business (including for travel, entertainment and relocation expenses);

(e) promissory notes and other noncash consideration received in connection with Dispositions permitted by Section 7.4(j);

(f) intercompany Investments by (i) any Group Member in the Borrower or any Person that, prior to such investment, is a Guarantor, (ii) by any Subsidiary that is not a Guarantor in any other Subsidiary that is not a Guarantor, (iii) a Loan Party consisting of the contribution or transfer of Capital Stock of a Foreign Subsidiary held by such Loan Party to a Foreign Subsidiary and (iv) by any Loan Party in any Subsidiary that is not a Loan Party; provided that the aggregate amount of Investments permitted under clause (iv) shall not exceed 5.0% of Consolidated Assets as determined as of the last day of the most recent fiscal quarter for which financial statements have been delivered hereunder prior to the making thereof;

(g) Investments consisting of Indebtedness permitted by Section 7.1 (other than clause (b) thereof);

(h) prepaid expenses and lease, utility, workers, compensation, performance and other similar deposits made in the ordinary course of business;

(i) Investments (including debt obligations) received in the ordinary course of business by the Borrower or any Restricted Subsidiary in connection with the bankruptcy or reorganization of suppliers and customers or in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising out of the ordinary course of business;

(j) Investments listed on Schedule 7.6(j) as of the First Amendment Effective Date;

(k) Hedging Transactions permitted by Section 7.8;

(l) (x) Permitted Acquisitions and (y) Investments in connection with actual or contemplated Permitted Acquisitions; provided that the aggregate amount of Investments permitted by Loan Parties in non-Loan Parties under this sub-clause (y) shall not exceed 25.0% of Consolidated Assets as determined as of the last day of the most recent fiscal quarter for which financial statements have been delivered hereunder prior to the making thereof;

(m) in addition to Investments otherwise expressly permitted by this Section, Investments by the Borrower or any of its Restricted Subsidiaries in an aggregate amount not to exceed 10.0% of Consolidated Assets as determined as of the last day of the most recent fiscal quarter for which financial statements have been delivered hereunder prior to the making thereof;

(n) Investments permitted by Section 7.5; and

(o) Investments by the Borrower in any Permitted Bond Hedge Transaction.

 

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Section 7.7 Transactions with Affiliates. Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than transactions among Group Members) unless such transaction (a) is otherwise permitted under this Agreement, (b) is upon fair and reasonable terms substantially as favorable to the relevant Group Member than would be obtainable in a comparable arm’s length transaction with a Person that is not an Affiliate; or (c) involves any Lender or Agent (or their Affiliates) in its capacity as Lender or Agent under this Agreement.

Section 7.8 Swap Agreements. Enter into any Hedging Transactions for speculative purposes (rather than risk mitigation); provided, however, that for the avoidance of doubt this Section 7.8 shall not prohibit any Permitted Call Spread Transaction.

Section 7.9 Accounting Changes. Make, or permit any of its Restricted Subsidiaries to make, any significant change in accounting treatment or reporting practices, except as required by GAAP, or permit the fiscal year of the Borrower to end on a day other than December 31.

Section 7.10 Negative Pledge Clauses. Enter into or permit to exist or become effective any agreement that prohibits or limits (other than a dollar limit; provided that such dollar limit is sufficient in amount to allow at all times the Liens to secure the obligations under the Loan Documents in full) the ability of the Borrower or any Domestic Subsidiary that is a Restricted Subsidiary to create, incur, assume or suffer to exist any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby or any other secured obligation permitted by Section 7.2(c), (d), (g), (t), or (v) (in which case, any prohibition or limitation shall only be effective against (x) in the case of purchase money Liens or Capital Lease Obligations, the assets financed thereby and proceeds thereof and (y) in the case of other secured obligations, the specific assets subject to the Lien securing such obligation), (c) (i) any agreements governing Indebtedness permitted by Section 7.1(k) and any Guarantee Obligations with respect thereto or any Permitted Refinancing Indebtedness in respect thereof (provided that such prohibitions or limitations contained in any agreement referred to in this clause (c)(i) are not materially more restrictive, when taken as a whole, than Section 7.2 hereof) and (ii) any agreement governing any Indebtedness existing as of the Closing Date and any agreement governing any Permitted Refinancing Indebtedness of such Indebtedness existing as of the Closing Date (provided that such prohibitions or limitations contained therein are not materially more restrictive, when taken as whole, than those (if any) in the agreement governing such Indebtedness as of the Closing Date), (d) customary provisions in joint venture agreements and similar agreements and any agreement with respect to Indebtedness primarily incurred to finance the acquisition of an interest in a joint venture that restrict the transfer or encumbrance of assets of, or equity interests in, the applicable joint ventures, (e) any agreement governing letters of credit issued in accordance with Section 7.1(h) or Bank Products, or Hedging Transactions, in any such case, containing provisions not more restrictive that the provisions of this Agreement, (f) licenses or sublicenses by the Borrower and its Restricted Subsidiaries of Intellectual Property in the ordinary course of business (in which case, any prohibition or limitation shall only be effective against the Intellectual Property subject thereto), (g) customary restrictions in any agreements governing Indebtedness of a joint venture which prohibit the pledge of the assets of, or equity interests in, such joint venture, (h) customary restrictions and conditions contained in any agreement relating to the Disposition of any property permitted under or not prohibited by Section 7.4 pending the consummation of such Disposition and (i) restrictions that exist in any agreement in effect at the time a Subsidiary becomes a Subsidiary of Borrower, so long as such agreement was not entered into in contemplation of such Person becoming a Subsidiary and such restriction applies only to the assets of such Subsidiary.

 

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Section 7.11 Clauses Restricting Subsidiary Distributions. Enter into or permit to exist or become effective any contractual consensual encumbrance or restriction on the ability of any Restricted Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Restricted Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Loan Party, (b) make loans or advances to, or other Investments in, the Borrower or any other Loan Party or (c) transfer any of its assets to the Borrower or any other Loan Party, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, any agreements governing Indebtedness permitted by Section 7.1(k) or (o) and any agreement governing Permitted Refinancing Indebtedness in respect thereof (provided that such prohibitions or limitations contained therein, when taken as a whole, are not materially more restrictive than the equivalent restrictions in this Agreement) and any agreement governing any Indebtedness existing as of the Closing Date and any agreement governing any Permitted Refinancing Indebtedness of such Indebtedness existing as of the Closing Date (provided that such prohibitions or limitations contained therein are, when taken as a whole, are not materially more restrictive than those in the agreement governing such Indebtedness as of the Closing Date), (ii) customary provisions in joint venture agreements and similar agreements that restrict the transfer of equity interests in joint ventures (in which case such restrictions shall relate only to assets of, or equity interests in, such joint venture or any holding company which may hold the Capital Stock of such joint venture), (iii) any restrictions regarding licenses or sublicenses by the Borrower and its Restricted Subsidiaries of Intellectual Property in the ordinary course of business (in which case such restriction shall relate only to such Intellectual Property); (iv) restrictions and conditions contained in agreements relating to the sale of all or a substantial part of the capital stock or assets of any Restricted Subsidiary pending such sale, provided such restrictions and conditions apply only to the capital stock or assets to be sold and such sale is permitted hereunder, (v) with respect to restrictions described in clause (a) of this Section 7.11, restrictions contained in agreements governing Indebtedness permitted by Section 7.1 hereof, (vi) with respect to restrictions described in clause (c) of this Section 7.11, restrictions contained in agreements governing Indebtedness permitted by Section 7.1(i) (as long as such restrictions apply to the property financed thereby) and (k) hereof (as long as such restrictions apply only to the assets of the applicable joint venture), (vii) any restriction existing by reason of any holder of a Lien permitted by Section 7.2 restricting the transfer of the property subject thereto, (viii) any restriction and condition contained in any agreement relating to the Disposition of any property not prohibited by Section 7.4 pending the consummation of such Disposition, (ix) any restriction in any agreement in effect at the time a Subsidiary becomes a Subsidiary, so long as such agreement was not entered into in connection with or in contemplation of such person becoming a Subsidiary, (x) any restriction in any instrument governing Indebtedness assumed in connection with any Permitted Acquisition and permitted pursuant to Section 7.1(l), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person or the properties or assets of the Person so acquired, and (xi) any encumbrances or restrictions imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the contracts, instruments or obligations referred to in clauses (iv), (ix) or (x) above; provided that such amendments or refinancings are no more materially restrictive with respect to such encumbrances and restrictions than those prior to such amendment or refinancing; provided further that this Section 7.11 shall not apply to encumbrances or restrictions pursuant to the terms governing Indebtedness of any Foreign Subsidiary provided that such encumbrances or restrictions shall be limited to the assets of such Foreign Subsidiary.

Section 7.12 Lines of Business. Enter into any material business, either directly or through any Restricted Subsidiary, except for those businesses (a) in which the Borrower and its Restricted Subsidiaries are engaged on the date of this Agreement or are identified on Schedule 7.12 or (b) that are reasonably related, incidental, ancillary, complementary (including related, complementary, synergistic or ancillary technologies) or similar thereto, or a reasonable extension, development or expansion thereof.

 

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Section 7.13 Use of Proceeds. Use the proceeds of the Loans for purposes other than those described in Section 4.15. The Borrower will not, and will not permit any Subsidiary to, request any Loan or Letter of Credit or, directly or knowingly indirectly, use the proceeds of any Loan or any Letter of Credit (i) to fund any activities or business of or with any Person, or in any country or territory, that, at the time of such funding, is the subject of Sanctions or (ii) in furtherance of an offer, payment, promise to pay or authorization of the payment or giving of money or anything else of value to any Person in violation of applicable Anti-Corruption Laws.

ARTICLE VIII.

EVENTS OF DEFAULT

Section 8.1 Events of Default. If any of the following events (each, an “Event of Default”) shall occur and be continuing on or after the occurrence of the Closing Date:

(a) the Borrower shall fail to pay in the currency required hereunder (i) any principal of any Loan or of any reimbursement obligation in respect of any LC Disbursement, when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment or otherwise; (ii) any interest on any Loan payable under this Agreement when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three (3) Business Days; or (iii) any fee or any other amount (other than an amount payable under the preceding clauses (i) and (ii) of this Section or an amount related to a Bank Product Obligation) payable under this Agreement or any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of five (5) Business Days; or

(b) any representation or warranty made or deemed made by any Group Member herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect (except that such materiality qualifier shall not be applicable to any representations, warranties, certificates or statements that already are qualified or modified by materiality in the text thereof) on or as of the date made or deemed made; or

(c) any Group Member shall default in the observance or performance of any agreement contained in clause (i) of Section 5.4(a) (with respect to the Borrower only), Section 5.7(a), Section 5.13, Article VI or Article VII of this Agreement; or

(d) any Group Member shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 consecutive days after the earlier of (i) notice thereof from the Administrative Agent or the Required Lenders to the Borrower or (ii) any Responsible Officer of the Borrower becomes aware of such default; or

(e) any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation with respect to principal of any Indebtedness described in clause (a), (c) or (e) of the definition thereof, but excluding the Loans or any intercompany Indebtedness) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or

 

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condition exist (excluding, in the case of any Permitted Convertible Indebtedness, any event or condition that would permit the holder or beneficiary of such Permitted Convertible Indebtedness to convert such Permitted Convertible Indebtedness into cash, shares of the Borrower’s common stock or a combination thereof, in each case to the extent permitted hereunder), the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) (x) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount (or the Net Mark-to-Market Exposure, as applicable) of which exceeds in the aggregate $20,000,000, and (y) shall cease to constitute an Event of Default following the cure or waiver of any such default under such Indebtedness prior to the exercise of any remedies by the Administrative Agent or the Required Lenders pursuant to this Section 8.1; or

(f) (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or undischarged for a period of 60 consecutive days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the board of directors (or equivalent governing body) of the Borrower shall authorize any action set forth in clause (i) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (vi) or any Group Member shall make a general assignment for the benefit of its creditors; or

(g) (i) an ERISA Event shall have occurred; (ii) a trustee shall be appointed by a United States district court to administer any Single Employer Plan; (iii) the PBGC shall institute proceedings to terminate any Single Employer Plan(s); (iv) any Loan Party or any of their respective ERISA Affiliates shall have been notified by the sponsor of a Multiemployer Plan that it has incurred or will be assessed Withdrawal Liability to such Multiemployer Plan and such entity does not have reasonable grounds for contesting such Withdrawal Liability or is not contesting such Withdrawal Liability in a timely and appropriate manner; or (v) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (v) above, such event or condition, together with all other such events or conditions, if any, would reasonably be expected to have a Material Adverse Effect; or

(h) one or more judgments or decrees shall be entered against any Group Member imposing thereon in the aggregate a liability (excluding any amounts paid or covered by insurance as to which the relevant insurance company has not denied coverage) of $20,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 60 days from the entry thereof; or

 

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(i) any of the Loan Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or Liens created by the Loan Documents with respect to a material portion of the Collateral shall cease to be enforceable and of the same effect and priority purported to be created thereby, other than, in any such case, by reason of the release thereof in accordance with the terms of the Loan Documents; or

(j) a Change in Control shall occur or exist;

then, and in every such event (other than an event with respect to the Borrower described in subsection (f) of this Section) and at any time thereafter during the continuance of such event, the Administrative Agent may, and upon the written request of the Required Lenders shall, by notice to the Borrower, take any or all of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitment of each Lender shall terminate immediately, (ii) declare the principal of and any accrued interest on the Loans, and all other Obligations owing hereunder, to be, whereupon the same shall become, due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, (iii) exercise all remedies contained in any other Loan Document, and (iv) exercise any other remedies available at law or in equity; provided that, if an Event of Default specified in subsection (f) shall occur, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon, and all fees and all other Obligations shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.

Section 8.2 Application of Proceeds from Collateral. All proceeds from each sale of, or other realization upon, all or any part of the Collateral by any Secured Party after an Event of Default arises shall be applied as follows:

(a) first, to the reimbursable expenses of the Administrative Agent incurred in connection with such sale or other realization upon the Collateral, until the same shall have been paid in full;

(b) second, to the fees and other reimbursable expenses of the Administrative Agent, the Swingline Lender and the Issuing Bank then due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;

(c) third, to all reimbursable expenses, if any, of the Lenders then due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;

(d) fourth, to the fees and interest then due and payable under the terms of this Agreement, until the same shall have been paid in full;

(e) fifth, to the aggregate outstanding principal amount of the Loans, the LC Exposure, the Bank Product Obligations and the Hedging Obligations that constitute Obligations, until the same shall have been paid in full, allocated pro rata among the Secured Parties based on their respective pro rata shares of the aggregate amount of such Loans, LC Exposure, Bank Product Obligations and Hedging Obligations;

(f) sixth, to additional cash collateral for the aggregate amount of all outstanding Letters of Credit until the aggregate amount of all cash collateral held by the Administrative Agent pursuant to this Agreement is at least 105% of the Dollar Equivalent of the LC Exposure after giving effect to the foregoing clause fifth; and

 

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(g) seventh, to the extent any proceeds remain, to the Borrower or as otherwise provided by a court of competent jurisdiction.

All amounts allocated pursuant to the foregoing clauses third through fifth to the Lenders as a result of amounts owed to the Lenders under the Loan Documents shall be allocated among, and distributed to, the Lenders pro rata based on their respective Pro Rata Shares; provided that all amounts allocated to that portion of the LC Exposure comprised of the aggregate undrawn amount of all outstanding Letters of Credit pursuant to clauses fifth and sixth shall be distributed to the Administrative Agent, rather than to the Lenders, and held by the Administrative Agent in an account in the name of the Administrative Agent for the benefit of the Issuing Bank and the Lenders as cash collateral for the LC Exposure, such account to be administered in accordance with Section 2.22(g). All cash collateral for LC Exposure shall be applied to satisfy drawings under the Letters of Credit as they occur; if any amount remains on deposit on cash collateral after all letters of credit have either been fully drawn or expired, such remaining amount shall be applied to other Obligations, if any, in the order set forth above.

Notwithstanding the foregoing, (a) no amount received from any Guarantor (including any proceeds of any sale of, or other realization upon, all or any part of the Collateral owned by such Guarantor) shall be applied to any Excluded Swap Obligation of such Guarantor and (b) Bank Product Obligations and Hedging Obligations shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may request, from the Bank Product Provider or the Lender-Related Hedge Provider, as the case may be. Each Bank Product Provider or Lender-Related Hedge Provider that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article IX hereof for itself and its Affiliates as if a “Lender” party hereto.

ARTICLE IX.

THE ADMINISTRATIVE AGENT

Section 9.1 Appointment of the Administrative Agent.

(a) Each Lender irrevocably appoints Truist Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other Loan Documents by or through any one or more sub-agents or attorneys-in-fact appointed by the Administrative Agent. The Administrative Agent and any such sub-agent or attorney-in-fact may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions set forth in this Article shall apply to any such sub-agent, attorney-in-fact or Related Party and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent.

(b) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith until such time and except for so long as the Administrative Agent may agree at the request of the Required Lenders to act for the Issuing Bank with respect thereto; provided that the Issuing Bank shall have all the benefits and immunities (i) provided to the Administrative Agent in this Article with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term “Administrative Agent” as used in this Article included the Issuing Bank with respect to such acts or omissions and (ii) as additionally provided in this Agreement with respect to the Issuing Bank.

 

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(c) It is understood and agreed that the use of the term “agent” herein or in any other Loan Document (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties.

Section 9.2 Nature of Duties of the Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing; (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it, its sub-agents or its attorneys-in-fact with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2) or in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final non-appealable judgment. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents or attorneys-in-fact except to the extent that a court of competent jurisdiction determines in a final and non-appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof (which notice shall include an express reference to such event being a “Default” or “Event of Default” hereunder) is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent may consult with legal counsel (including counsel for the Borrower) concerning all matters pertaining to such duties.

Section 9.3 Lack of Reliance on the Administrative Agent. Each of the Lenders, the Swingline Lender and the Issuing Bank acknowledges that it has, independently and without reliance upon the Administrative Agent, the Issuing Bank or any other Lender and based on such documents and

 

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information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders, the Swingline Lender and the Issuing Bank also acknowledges that it will, independently and without reliance upon the Administrative Agent, the Issuing Bank or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own credit analysis, appraisals and decisions in taking or not taking any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Loan Parties. Each Lender represents and warrants that (i) the Loan Documents set forth the terms of a commercial lending facility and (ii) it is engaged in making, acquiring or holding commercial loans in the ordinary course and is entering into this Agreement as a Lender for the purpose of making, acquiring or holding commercial loans and providing other facilities set forth herein as may be applicable to such Lender, and not for the purpose of purchasing, acquiring or holding any other type of financial instrument, and each Lender agrees not to assert a claim in contravention of the foregoing. Each Lender represents and warrants that it is sophisticated with respect to decisions to make, acquire and/or hold commercial loans and to provide other facilities set forth herein, as may be applicable to such Lender, and either it, or the Person exercising discretion in making its decision to make, acquire and/or hold such commercial loans or to provide such other facilities, is experienced in making, acquiring or holding such commercial loans or providing such other facilities.

Section 9.4 Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act unless and until it shall have received instructions from such Lenders, and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement.

Section 9.5 Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, posting or other distribution) believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts.

Section 9.6 The Administrative Agent in its Individual Capacity. The bank serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms “Lenders”, “Required Lenders”, and any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The bank acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder.

 

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Section 9.7 Successor Administrative Agent.

(a) The Administrative Agent may resign at any time by giving 30 days prior written notice thereof to the Lenders and the Borrower (or, if a successor Administrative Agent has been appointed in accordance with the terms hereof prior to the end of such 30-day period, such shorter period of time). Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to approval by the Borrower provided that no Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a commercial bank organized under the laws of the United States or any state thereof or a bank which maintains an office in the United States. Any resignation by the Administrative Agent pursuant to this Section shall also constitute its resignation as an Issuing Bank and Swingline Lender. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder: (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Issuing Bank and Swingline Lender; (ii) the retiring Issuing Bank and Swingline Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents (other than its confidentiality obligations under Section 10.11); and (iii) the successor Issuing Bank shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangement satisfactory to the retiring Issuing Bank to effectively assume the obligations of the retiring Issuing Bank with respect to such Letters of Credit.

(b) Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If, within 60 days after written notice is given of the retiring Administrative Agent’s resignation under this Section, no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 60th day (i) the retiring Administrative Agent’s resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents (other than its confidentiality obligations under Section 10.11) and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Borrower and the Required Lenders appoint a successor Administrative Agent as provided above (with the approval of the Borrower if so required pursuant to the terms above). After any retiring Administrative Agent’s resignation hereunder, the provisions of this Article shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent.

Section 9.8 Withholding Tax. To the extent required by any applicable law, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any applicable withholding tax. If the Internal Revenue Service or any authority of the United States or any other jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.

 

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Section 9.9 The Administrative Agent May File Proofs of Claim.

(a) In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or any Revolving Credit Exposure shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:

(i) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans or Revolving Credit Exposure and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Bank and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Bank and the Administrative Agent and its agents and counsel and all other amounts due the Lenders, the Issuing Bank and the Administrative Agent under Section 10.3) allowed in such judicial proceeding; and

(ii) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same.

(b) Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the Issuing Bank to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Bank, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 10.3.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the Issuing Bank any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.

Section 9.10 Authorization to Execute Other Loan Documents. Each Lender hereby authorizes the Administrative Agent to execute on behalf of all Lenders all Loan Documents (including, without limitation, the Security Documents and any subordination agreements or intercreditor agreements contemplated by, or expressly permitted by, this Agreement) other than this Agreement.

Section 9.11 Collateral and Guaranty Matters. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion:

(a) to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon the termination of all Commitments, the Cash Collateralization of all reimbursement obligations with respect to Letters of Credit in an amount equal to 105% of the Dollar Equivalent of the aggregate LC Exposure of all Lenders, and the payment in full of all Obligations (other than contingent indemnification obligations as to which no claim has been made by the Person entitled thereto and Cash Collateralized reimbursement obligations), (ii) to the extent necessary or appropriate to permit consummation of any transaction not prohibited by any Loan Document, or (iii) if approved, authorized or ratified in writing in accordance with Section 10.2;

 

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(b) to release any Loan Party from its obligations under the applicable Security Documents if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder or in connection with the change in status of any Subsidiary which has become an Excluded Subsidiary;

(c) to subordinate any Lien on any property granted to or held by the Administrative Agent under any Security Document to the holder of any Lien on such property that is permitted by Section 7.2(g); and

(d) to enter into any Market Intercreditor Agreements or arrangements reasonably satisfactory to the Administrative Agent in order to effectuate the intent of Section 7.1(k).

Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release its interest in particular types or items of property, to release any Loan Party from its obligations under the applicable Security Documents pursuant to this Section, or to enter into a Market Intercreditor Agreement. In each case as specified in this Section, at the Borrower’s expense, the Administrative Agent is authorized to and shall execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the Liens granted under the applicable Security Documents, or to release such Loan Party from its obligations under the applicable Security Documents, in each case in accordance with the terms of the Loan Documents and this Section.

Section 9.12 Co-Documentation Agents; Co-Syndication Agents. Each Lender hereby designates Barclays Bank PLC and Silicon Valley Bank as Co-Documentation Agents and agrees that the Co-Documentation Agents shall have no duties or obligations under any Loan Documents to any Lender or any Loan Party. Each Lender hereby designates Citizens Bank, National Association and HSBC Bank USA, National Association as Co-Syndication Agents and agrees that the Co-Syndication Agents shall have no duties or obligations under any Loan Documents to any Lender or any Loan Party.

Section 9.13 Right to Realize on Collateral and Enforce Guarantee. Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent and each Lender hereby agree that (i) no Lender shall have any right individually to realize upon any of the Collateral or to enforce the Security Documents, it being understood and agreed that all powers, rights and remedies hereunder and under the Security Documents may be exercised solely by the Administrative Agent, and (ii) in the event of a foreclosure by the Administrative Agent on any of the Collateral pursuant to a public or private sale or other disposition, the Administrative Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and the Administrative Agent, as agent for and representative of the Lenders (but not any Lender or Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Administrative Agent at such sale or other disposition.

Section 9.14 Secured Bank Product Obligations and Hedging Obligations. No Bank Product Provider or Lender-Related Hedge Provider that obtains the benefits of Section 8.2, the Security Documents or any Collateral by virtue of the provisions hereof or of any other Loan Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any

 

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Collateral) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision of this Article to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Bank Product Obligations and Hedging Obligations unless the Administrative Agent has received written notice of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Bank Product Provider or Lender-Related Hedge Provider, as the case may be.

Section 9.15 Erroneous Payments.

(a) If the Administrative Agent notifies a Lender, Issuing Bank or Secured Party, or any Person who has received funds on behalf of a Lender, Issuing Bank or Secured Party (any such Lender, Issuing Bank, Secured Party or other recipient, a “Payment Recipient”) that the Administrative Agent has determined in its sole discretion (whether or not after receipt of any notice under Section 9.15(b)) that any funds received by such Payment Recipient from the Administrative Agent or any of its Affiliates were erroneously transmitted to, or otherwise erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Lender, Issuing Bank, Secured Party or other Payment Recipient on its behalf) (any such funds, whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise, individually and collectively, an “Erroneous Payment”) and demands the return of such Erroneous Payment (or a portion thereof), such Erroneous Payment shall at all times remain the property of the Administrative Agent and shall be segregated by the Payment Recipient and held in trust for the benefit of the Administrative Agent, and such Lender, Issuing Bank or Secured Party shall (or, with respect to any Payment Recipient who received such funds on its behalf, shall cause such Payment Recipient to) promptly, but in no event later than two (2) Business Days thereafter, return to the Administrative Agent the amount of any such Erroneous Payment (or portion thereof) as to which such a demand was made, in same day funds (in the currency so received), together with interest thereon in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such amount is repaid to the Administrative Agent in same day funds at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect. A notice of the Administrative Agent to any Payment Recipient under this Section 9.15(a) shall be conclusive, absent manifest error.

(b) Without limiting Section 9.15(a), each Lender, Issuing Bank or Secured Party, or any Person who has received funds on behalf of a Lender, Issuing Bank or Secured Party, hereby further agrees that if it receives a payment, prepayment or repayment (whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise) from the Administrative Agent (or any of its Affiliates) (x) that is in a different amount than, or on a different date from, that specified in a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates), or (z) that such Lender, Issuing Bank or Secured Party, or other such recipient, otherwise becomes aware was transmitted, or received, in error or by mistake (in whole or in part) in each case:

(i) (A) in the case of immediately preceding clauses (x) or (y), an error shall be presumed to have been made (absent written confirmation from the Administrative Agent to the contrary) or (B) an error has been made (in the case of immediately preceding clause (z)), in each case, with respect to such payment, prepayment or repayment; and

 

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(ii) such Lender, Issuing Bank or Secured Party shall (and shall cause any other recipient that receives funds on its respective behalf to) promptly (and, in all events, within one Business Day of its knowledge of such error) notify the Administrative Agent of its receipt of such payment, prepayment or repayment, the details thereof (in reasonable detail) and that it is so notifying the Administrative Agent pursuant to this Section 9.15(b).

(c) Each Lender, Issuing Bank or Secured Party hereby authorizes the Administrative Agent to set off, net and apply any and all amounts at any time owing to such Lender, Issuing Bank or Secured Party under any Loan Document, or otherwise payable or distributable by the Administrative Agent to such Lender, Issuing Bank or Secured Party from any source, against any amount due to the Administrative Agent under immediately preceding Section 9.15(a) or under the indemnification provisions of this Agreement.

(d) In the event that an Erroneous Payment (or portion thereof) is not recovered by the Administrative Agent for any reason, after demand therefor by the Administrative Agent in accordance with immediately preceding Section 9.15(a), from any Lender or Issuing Bank that has received such Erroneous Payment (or portion thereof) (and/or from any Payment Recipient who received such Erroneous Payment (or portion thereof) on such Lender’s or Issuing Bank’s behalf, as applicable) (such unrecovered amount, an “Erroneous Payment Return Deficiency”), upon the Administrative Agent’s notice to such Lender or Issuing Lender at any time, (i) such Lender or Issuing Bank shall be deemed to have assigned its Loans (but not its Commitments) of the relevant Class with respect to which such Erroneous Payment was made (the “Erroneous Payment Impacted Class”) in an amount equal to the Erroneous Payment Return Deficiency (or such lesser amount as the Administrative Agent may specify) (such assignment of the Loans (but not Commitments) of the Erroneous Payment Impacted Class, the “Erroneous Payment Deficiency Assignment”) at par plus any accrued and unpaid interest (with the assignment fee to be waived by the Administrative Agent in such instance), and is hereby deemed to execute and deliver an Assignment and Assumption (or, to the extent applicable, an agreement incorporating an Assignment and Assumption by reference pursuant to a Platform as to which the Administrative Agent and such parties are participants) with respect to such Erroneous Payment Deficiency Assignment, and such Lender or Issuing Bank shall deliver any promissory notes evidencing such Loans to the Borrower or the Administrative Agent, (ii) the Administrative Agent as the assignee Lender shall be deemed to acquire the Erroneous Payment Deficiency Assignment, (iii) upon such deemed acquisition, the Administrative Agent as the assignee Lender shall become a Lender or Issuing Bank, as applicable, hereunder with respect to such Erroneous Payment Deficiency Assignment and the assigning Lender or assigning Issuing Bank shall cease to be a Lender or Issuing Bank, as applicable, hereunder with respect to such Erroneous Payment Deficiency Assignment, excluding, for the avoidance of doubt, its obligations under the indemnification provisions of this Agreement and its applicable Commitments which shall survive as to such assigning Lender or assigning Issuing Bank, and (iv) the Administrative Agent may reflect in the Register its ownership interest in the Loans subject to the Erroneous Payment Deficiency Assignment. The Administrative Agent may, in its discretion, sell any Loans acquired pursuant to an Erroneous Payment Deficiency Assignment and upon receipt of the proceeds of such sale, the Erroneous Payment Return Deficiency owing by the applicable Lender or Issuing Bank shall be reduced by the net proceeds of the sale of such Loan (or portion thereof), and the Administrative Agent shall retain all other rights, remedies and claims against such Lender or Issuing Bank (and/or against any recipient that receives funds on its respective behalf). For the avoidance of doubt, no Erroneous Payment Deficiency Assignment will reduce the Commitments of any Lender or Issuing Bank and such Commitments shall remain available in accordance with the terms of this Agreement. In addition, each party hereto agrees that (a) except to the extent that the Administrative Agent has sold a Loan (or portion thereof) acquired pursuant to an Erroneous Payment Deficiency Assignment, and irrespective of whether the Administrative Agent may be equitably subrogated, the

 

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Administrative Agent shall be contractually subrogated to all the rights and interests of the applicable Lender, Issuing Bank or Secured Party under the Loan Documents with respect to each Erroneous Payment Return Deficiency and (b) the Administrative Agent is authorized to set off, net and apply any and all amounts at any time owing to such Payment Recipient under any Loan Document, or otherwise payable or distributable by the Administrative Agent to such Payment Recipient from any source, against any amount due to the Administrative Agent under this Section 9.15 or under the indemnification provisions of this Agreement.

(e) The parties hereto agree that an Erroneous Payment shall not pay, prepay, repay, discharge or otherwise satisfy any Obligations owed by the Borrower or any other Loan Party, except, in each case, to the extent such Erroneous Payment is, and solely with respect to the amount of such Erroneous Payment that is, comprised of funds received by the Administrative Agent from the Borrower or any other Loan Party for the purpose of making such Erroneous Payment.

(f) To the extent permitted by applicable law, no Payment Recipient shall assert any right or claim to an Erroneous Payment, and hereby waives, and is deemed to waive, any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Erroneous Payment received, including without limitation waiver of any defense based on “discharge for value” or any similar doctrine.

(g) Each party’s obligations, agreements and waivers under this Section 9.15 shall survive the resignation or replacement of the Administrative Agent, any transfer of rights or obligations by, or the replacement of, a Lender or Issuing Bank, the termination of the Commitments and/or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.

(h) Notwithstanding anything to the contrary herein or in any other Loan Document, this Section 9.15 will not increase or otherwise alter the Loan Parties’ obligations or liabilities under the Loan Documents.

ARTICLE X.

MISCELLANEOUS

Section 10.1 Notices.

(a) Written Notices.

(i) Except in the case of notices and other communications expressly permitted hereunder to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy or electronic transmission (subject to clause (b) below), as follows:

 

To the Borrower:    Teradyne, Inc.
   600 Riverpark Drive
   North Reading, Massachusetts 01864
   Attention: Charles J. Gray, Vice President and General Counsel
   Telecopy Number: (978) 370-2290
   E-mail: charles.gray@teradyne.com

 

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With a copies to (for

Information purposes only):

    Ropes & Gray LLP
   Prudential Tower, 800 Boylston Street
   Boston, Massachusetts 02199
   Attention: Michael Lee
   E-mail: Michael.Lee@ropesgray.com
To the Administrative Agent:   

For Notices of Borrowing

and Notices of Conversion/ Continuation:

    Truist Bank
   303 Peachtree Street, 25th Floor
   Mail Code GA-ATL-7662
   Atlanta, Georgia 30308
   Attention: Agency Services
   Telecopy Number: (801) 453-4108
   E-mail: agency.services@truist.com
For All Other Notices:    Truist Bank
   One Montgomery Tower, Suite 2800
   San Francisco, California 94104-5532
   Attention: Portfolio Manager
   Telecopy Number: (310) 420-1126
   E-mail: Alfonso.Brigham@truist.com

With a copies to (for

Information purposes only):

    Choate, Hall & Stewart LLP
   Two International Place
   Boston, Massachusetts 02110
   Attention: Sean M. Monahan
   Telecopy Number: (617) 248-4000
   E-mail: smonahan@choate.com
To the Issuing Bank:    Truist Bank
   Attn: Standby Letter of Credit Dept.
   245 Peachtree Center Ave., 17th FL
   Atlanta, GA 30303
   Telephone: (800) 951-7847
To the Swingline Lender:    Truist Bank
   303 Peachtree Street, 25th Floor
   Mail Code 7662
   Atlanta, Georgia 30308
   Attention: Agency Services
   Telecopy Number: (801) 453-4108
   E-mail: Agency.Services@suntrust.com

 

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To any other Lender:    the address set forth in the Administrative Questionnaire or the Assignment and Acceptance executed by such Lender

Any party hereto may change its address, telecopy number or e-mail for notices and other communications hereunder by notice to the other parties hereto. All such notices and other communications sent to any party hereto in accordance with the provisions of this Agreement or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, four (4) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail, to the extent provided in clause (b) below and effective as provided in such clause; provided that notices and other communications to the Administrative Agent and an Issuing Bank pursuant to Article II shall not be effective until actually received by such Person. In no event shall a voice mail message be effective as a notice, communication or confirmation hereunder.

(ii) Any agreement of the Administrative Agent, the Issuing Bank or any Lender herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent, the Issuing Bank and each Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent, the Issuing Bank and the Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent, the Issuing Bank or any Lender in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent, the Issuing Bank or any Lender to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent, the Issuing Bank or any Lender of a confirmation which is at variance with the terms understood by the Administrative Agent, the Issuing Bank and such Lender to be contained in any such telephonic or facsimile notice.

(b) Electronic Communications.

(i) Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender or the Issuing Bank if such Lender or such Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving, or is unwilling to receive, notices by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

(ii) Unless the Administrative Agent otherwise prescribes, (A) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the

 

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“return receipt requested” function, as available, return e-mail or other written acknowledgement) and (B) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (A) of notification that such notice or communication is available and identifying the website address therefor; provided that, in the case of clauses (A) and (B) above, if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.

(iii) The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Issuing Bank and the other Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar electronic system.

(iv) THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” NEITHER THE ADMINISTRATIVE AGENT NOR ANY OF ITS RELATED PARTIES WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS IN THE COMMUNICATIONS (AS DEFINED BELOW) AND FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties have any liability to any Loan Party or any of their respective Subsidiaries, any Lender, any Issuing Bank or any other Person or entity for losses, claims, damages, liabilities or expenses of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses, whether or not based on strict liability (whether in tort, contract or otherwise), arising out of any Loan Party’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of the Administrative Agent or such Related Party; provided, however, that in no event shall the Administrative Agent or any Related Party have any liability to any Loan Party or any of their respective Subsidiaries, any Lender, any Issuing Bank or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages) arising out of any Loan Party’s or the Administrative Agent’s transmission of Communications. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Loan Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to this Section, including through the Platform.

 

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Section 10.2 Waiver; Amendments.

(a) No failure or delay by the Administrative Agent, the Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent, the Issuing Bank and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or of any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by subsection (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or the issuance of a Letter of Credit shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent, any Lender or the Issuing Bank may have had notice or knowledge of such Default or Event of Default at the time.

(b) Except as otherwise provided in this Agreement, including, without limitation, as provided in Section 2.16 with respect to the implementation of a Benchmark Replacement or Benchmark Conforming Changes (as set forth therein) and Section 2.23, no amendment or waiver of any provision of this Agreement or of the other Loan Documents (other than the Fee Letter or any other fee letters entered into after the date hereof with the Administrative Agent), nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Required Lenders, or the Borrower and the Administrative Agent with the consent of the Required Lenders, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that, no amendment, waiver or consent shall:

(i) increase the Commitment of any Lender without the written consent of such Lender;

(ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees or other amounts payable hereunder, without the written consent of each Lender affected thereby (except (x) in connection with the waiver of applicability of any post-default increase in interest rates (which waiver shall be effective with the consent of the Required Lenders) and (y) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or fees for purposes of this clause (ii));

(iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or LC Disbursement or any fees or other amounts hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby;

(iv) (A) change Section 2.21(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender or (B) change Section 8.2 in a manner that would alter the pro rata sharing of payments or the order of application required thereby without the written consent of each Lender affected thereby;

 

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(v) change any of the provisions of this subsection (b) or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender affected thereby;

(vi) release all or substantially all of the Guarantors, or limit the liability of such Guarantors, under any guaranty agreement guaranteeing any of the Obligations, without the written consent of each Lender (except as expressly provided in Section 9.11);

(vii) release all or substantially all Collateral securing any of the Obligations, without the written consent of each Lender (except as expressly provided in Section 9.11);

(viii) release the Borrower from all or substantially all of its obligations under the Guarantee and Collateral Agreement without the written consent of each Lender (except as expressly provided in Section 9.11);

(ix) except as expressly permitted herein or in any other Loan Document, subordinate the Obligations hereunder or the Liens granted under the Security Documents, to any other Indebtedness or Lien, as the case may be, without the written consent of each Lender;

provided, further, that no such amendment, waiver or consent shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent, the Swingline Lender or the Issuing Bank without the prior written consent of such Person.

Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended, and amounts payable to such Lender hereunder may not be permanently reduced, without the consent of such Lender (other than reductions in fees and interest in which such reduction does not disproportionately affect such Lender). Notwithstanding anything contained herein to the contrary, this Agreement may be amended and restated without the consent of any Lender (but with the consent of the Borrower and the Administrative Agent) if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended and restated), the Commitments of such Lender shall have terminated (but such Lender shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3), such Lender shall have no other commitment or other obligation hereunder and such Lender shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement.

Notwithstanding the foregoing, this Agreement may be amended or amended and restated (x) with the written consent of the Administrative Agent, the Borrower and the Lenders providing the relevant Replacement Term Loans (as defined below) to permit the refinancing of all or a portion of the Loans outstanding under an Incremental Term Facility or any prior Replacement Facility (“Refinanced Term Loans”) with a replacement term loan tranche hereunder which shall be Loans hereunder (“Replacement Term Loans”); provided that (i) the aggregate principal amount of such Replacement Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loans plus fees

 

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and expenses in connection therewith, (ii) the weighted average life to maturity of such Replacement Term Loans shall not be shorter than the weighted average life to maturity of such Refinanced Term Loans at the time of such refinancing (except to the extent of nominal amortization for periods where amortization has been eliminated as a result of prepayment of the Refinanced Term Loans) and (iii) all other terms applicable to such Replacement Term Loans shall be substantially identical to or, taken as a whole, less favorable to the Lenders providing such Replacement Term Loans, than those applicable to such Refinanced Term Loans, except to the extent necessary to provide for covenants and other terms applicable to any period after the latest final maturity of any Loans in effect immediately prior to such refinancing and (y) with the written consent of the Administrative Agent, the Borrower and the Lenders providing the relevant Replacement Revolving Facility (as defined below) to permit the refinancing of any Refinanced Term Loans or the Revolving Facility (“Refinanced Revolving Facility” and collectively with Refinanced Term Loans, “Refinanced Facilities”) with a replacement revolving facility hereunder (“Replacement Revolving Facility” and collectively with Replacement Term Loans, “Replacement Facilities”); provided that (i) the aggregate principal amount of such Replacement Revolving Facility shall not exceed the aggregate principal amount of such Refinanced Term Loans or Aggregate Revolving Commitment Amount, as applicable, plus fees and expenses in connection therewith, (ii) the final maturity date of such Replacement Revolving Facility shall be no earlier than the final maturity date of the Refinanced Term Loans or the Maturity Date, as applicable, (iii) if refinancing or replacing Refinanced Term Loans, the Replacement Revolving Facility shall be fully drawn on the closing date thereof and the proceeds of the Replacement Revolving Facility shall be used to repay the outstanding Refinanced Term Loans, (iv) if refinancing or replacing a Refinanced Revolving Facility, the Replacement Revolving Facility shall refinance or replace the entire Refinanced Revolving Facility and shall be drawn on the closing date thereof to the extent necessary to repay, and the proceeds of such draw under the Replacement Revolving Facility shall be used to the extent necessary to repay, the outstanding amounts under the Refinanced Revolving Facility and (v) the Replacement Revolving Facility shall be on terms and pursuant to documentation to be determined by the Borrower, the Administrative Agent and the Persons willing to provide such Replacement Revolving Facility; provided that to the extent such terms and documentation are not consistent with the applicable Refinanced Facility (other than with respect to pricing), they shall be reasonably satisfactory to the Administrative Agent.

In addition, notwithstanding the foregoing, this Agreement, including this Section 10.2, and the other Loan Documents may be amended (or amended and restated) pursuant to Section 2.23 to add any Incremental Facility to this Agreement and (a) to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement (including the rights of the lenders under Incremental Facility to share ratably with the Revolving Facility in prepayments pursuant to Sections 2.11 and 2.12), the Guarantee and Collateral Agreement and the other Loan Documents with the Loans and the accrued interest and fees in respect thereof, (b) to include appropriately the Lenders holding such credit facility in any determination of the Required Lenders and (c) to amend other provision of the Loan Documents so that the Incremental Facility is appropriately incorporated (including this Section 10.2).

Notwithstanding anything to the contrary contained in this Section 10.2, the Administrative Agent and the Borrower, in their sole discretion, may collectively amend, modify or supplement any provision of this Agreement or any other Loan Document to (i) amend, modify or supplement such provision or cure any ambiguity, omission, mistake, error, defect or inconsistency, so long as such amendment, modification or supplement does not directly and adversely affect the obligations of any Lender or Issuing Bank and (ii) permit additional Domestic Subsidiaries (excluding any U.S. Pass Through Foreign Holdcos) of the Borrower to guarantee the Obligations and/or provide Collateral therefor. Such amendments shall become effective without any further action or consent of any other party to any Loan Document. Upon the request of the Borrower, the Administrative Agent shall release any Guarantor from the Guarantee and Collateral Agreement if such Guarantor ceases to qualify as a Guarantor (in accordance with the definition of such term as provided herein).

 

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Notwithstanding the foregoing, this Agreement may be amended in accordance with Section 2.27 (including as contemplated by an Extension Agreement in accordance with Section 2.27 evidencing Extension Permitted Amendments).

Notwithstanding the foregoing, Schedule 1.1(a) may be unilaterally amended by the Borrower to remove entries therefrom (but not, for the avoidance of doubt, to add entries thereto).

Section 10.3 Expenses; Indemnification.

(a) The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates (but limited, in the case of legal fees, charges, disbursements and expenses, to the actual reasonable and documented out-of-pocket fees, disbursements and other charges of one firm of outside counsel to all such Persons taken as a whole and, if necessary, of one local counsel in any relevant jurisdiction to all such Persons, taken as a whole and, solely in the case of an actual or potential conflict of interest, (x) one additional counsel to all affected Persons, taken as a whole, and (y) one additional local counsel to all affected Persons, taken as a whole, in each relevant jurisdiction), in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable and documented out-of-pocket costs and expenses incurred by the Administrative Agent, the Issuing Bank or any Lender (but limited, in the case of legal fees, charges, disbursements and expenses, to the actual reasonable and documented out-of-pocket fees, disbursements and other charges of one firm of outside counsel to all such Persons taken as a whole and, if necessary, of one local counsel in any relevant jurisdiction to all such Persons, taken as a whole and, solely in the case of an actual or potential conflict of interest, (x) one additional counsel to all affected Persons, taken as a whole, and (y) one additional local counsel to all affected Persons, taken as a whole, in each relevant jurisdiction) in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or any Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

(b) The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the Issuing Bank, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (but limited, in the case of legal fees and expenses, to the reasonable and documented out-of-pocket fees, disbursements and other charges of one firm of outside counsel to all Indemnitees taken as a whole and, if reasonably necessary, one local counsel in any relevant jurisdiction to all Indemnitees, taken as a whole and, solely in the case of an actual or potential conflict of interest, (x) one additional counsel to all affected Indemnitees, taken as a whole, and (y) one additional local counsel to all affected Indemnitees, taken as a whole, in each relevant jurisdiction) incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the Issuing

 

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Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence of Materials of Environmental Concern on any Properties, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from (x) the gross negligence or willful misconduct of such Indemnitee, (y) a claim brought by the Borrower or any other Loan Party against an Indemnitee for a material breach of such Indemnitee’s obligations hereunder or under any other Loan Document, or (z) any dispute solely among any Indemnitees, the Administrative Agent, or any of their respective Related Parties (other than claims against Administrative Agent, the Arrangers, or any Person or entity acting in a similar capacity acting pursuant to this Agreement or in its capacity as such) to the extent such disputes did not arise from any act or omission of the Borrower or its Affiliates. Subsection (b) hereof shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

(c) To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent, the Issuing Bank or the Swingline Lender under subsection (a) or (b) hereof, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s pro rata share (in accordance with its respective Revolving Commitment (or Revolving Credit Exposure, as applicable) determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.

(d) To the extent permitted by applicable law, no party to this Agreement shall assert, and each party to this Agreement hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or any Letter of Credit or the use of proceeds thereof; provided that nothing in this clause (d) shall relieve the Borrower of any obligation it may have to indemnify any Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.

(e) The Borrower shall not, without the prior written consent of the applicable Indemnitee, effect any settlement of any actual or prospective claim, litigation, investigation, arbitration or proceeding in respect of which such Indemnitee is a party and indemnity has been sought under this Section by such Indemnitee, unless such settlement (i) includes an unconditional release of such Indemnitee in form and substance reasonably satisfactory to such Indemnitee from all liability on claims that are the subject matter of such indemnity and (ii) does not include any statement as to or any admission of fault, culpability or a failure to act by or on behalf of any Indemnitee or any injunctive relief or other non-monetary remedy.

(f) All amounts due under this Section shall be payable not later than ten (10) days after a reasonably detailed written demand therefor.

 

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Section 10.4 Successors and Assigns.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, Loans and other Revolving Credit Exposure at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitments, Loans and other Revolving Credit Exposure at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B) in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans and Revolving Credit Exposure outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans and Revolving Credit Exposure of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Acceptance, as of the Trade Date) shall not be less than $5,000,000 with respect to Revolving Loans and in minimum increments of $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans, other Revolving Credit Exposure or the Commitments assigned.

 

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(iii) Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of such Lender or an Approved Fund of such Lender;

(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required unless such assignment is to a Lender, an Affiliate of such Lender or an Approved Fund of such Lender; and

(C) the consent of the Issuing Bank (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding), and the consent of the Swingline Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of the Revolving Commitments.

(iv) Assignment and Acceptance. The parties to each assignment shall deliver to the Administrative Agent (A) a duly executed Assignment and Acceptance, (B) a processing and recordation fee of $3,500, (C) an Administrative Questionnaire unless the assignee is already a Lender and (D) the documents required under Section 2.20(e).

(v) No Assignment to the certain Persons. No such assignment shall be made to (A) the Borrower or any of the Borrower’s Affiliates or Subsidiaries, (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B) or (C) any Disqualified Assignee.

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.

(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the Issuing Bank, the Swingline Lender and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Letters of Credit and Swingline Loans. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

 

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Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided that, except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. If the consent of the Borrower to an assignment is required hereunder (including a consent to an assignment which does not meet the minimum assignment thresholds specified above), the Borrower shall be deemed to have given its consent unless it shall object thereto by written notice to the Administrative Agent within ten (10) Business Days after notice thereof has actually been delivered by the assigning Lender (through the Administrative Agent) to the Borrower.

(c) The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices in Charlotte, North Carolina a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount (and stated interest) of the Loans and Revolving Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. Information contained in the Register with respect to any Lender shall be available for inspection by such Lender at any reasonable time and from time to time upon reasonable prior notice; information contained in the Register shall also be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. In establishing and maintaining the Register, the Administrative Agent shall serve as the Borrower’s agent solely for tax purposes and solely with respect to the actions described in this Section, and the Borrower hereby agrees that, to the extent Truist Bank serves in such capacity, Truist Bank and its officers, directors, employees, agents, sub-agents and affiliates shall constitute “Indemnitees”.

(d) Any Lender may at any time, without the consent of, or notice to, the Borrower, the Administrative Agent, the Swingline Lender or the Issuing Bank, sell participations to any Person (other than a natural person, the Borrower, any of the Borrower’s Affiliates or Subsidiaries, or a Disqualified Assignee) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Issuing Bank, the Swingline Lender and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.

Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or

 

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instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to the following to the extent affecting such Participant: (i) increase the Commitment of such Lender; (ii) reduce the principal amount of any Loan or LC Disbursement or reduce the rate of interest thereon, or reduce any fees payable hereunder; (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or LC Disbursement or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment; (iv) change Section 2.21(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby; (v) change any of the provisions of Section 10.2(b) or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder; (vi) release all or substantially all of the guarantors, or limit the liability of such guarantors, under any guaranty agreement guaranteeing any of the Obligations (except as expressly provided in Section 9.11); or (vii) release all or substantially all collateral (if any) securing any of the Obligations (except as expressly provided in Section 9.11). Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.18, 2.19, and 2.20 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section; provided that such Participant agrees to be subject to Section 2.24 as though it were a Lender. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.7 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.21 as though it were a Lender.

Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register in the United States on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under the Code or United States Treasury Regulations, including, without limitation, Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.

(e) A Participant shall not be entitled to receive any greater payment under Sections 2.18 and 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant shall not be entitled to the benefits of Section 2.20 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.20(e) and (f) as though it were a Lender.

(f) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including, without limitation, any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(g) The Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof

 

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relating to Disqualified Assignees. Without limiting the generality of the foregoing, the Administrative Agent shall not (i) be obligated to ascertain, monitor or inquire as to whether any Lender or Participant or prospective Lender or Participant is a Disqualified Assignee or (ii) have any liability with respect to or arising out of any assignment or participation of Loans or Commitments, or disclosure of confidential information, to any Disqualified Assignee.

Section 10.5 Governing Law; Jurisdiction; Consent to Service of Process.

(a) This Agreement and the other Loan Documents and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of New York.

(b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court for the Southern District of New York, and of the Supreme Court of the State of New York sitting in New York County, Borough of Manhattan, and of any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such District Court or New York state court or, to the extent permitted by applicable law, such appellate court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the court of any jurisdiction (i) for purposes of enforcing a judgment, (ii) in connection with exercising remedies against the Collateral in a jurisdiction in which such Collateral is located, or (iii) in connection with any pending bankruptcy, insolvency or similar proceeding in such jurisdiction.

(c) The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in subsection (b) of this Section and brought in any court referred to in subsection (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d) Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.

Section 10.6 WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF

 

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LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 10.7 Right of Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender and the Issuing Bank shall have the right, subject to the prior written consent of the Administrative Agent, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final), in any currency, of the Borrower at any time held or other obligations at any time owing by such Lender and the Issuing Bank to or for the credit or the account of the Borrower against any and all Obligations held by such Lender or the Issuing Bank, as the case may be, irrespective of whether such Lender or the Issuing Bank shall have made demand hereunder, to the extent such Obligations are due and payable; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.26(b) and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Banks, and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. Each Lender and the Issuing Bank agrees promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender or the Issuing Bank, as the case may be; provided that the failure to give such notice shall not affect the validity of such set-off and application. Each Lender and the Issuing Bank agrees to apply all amounts collected from any such set-off to the Obligations before applying such amounts to any other Indebtedness or other obligations owed by the Borrower and any of its Subsidiaries to such Lender or the Issuing Bank.

Section 10.8 Counterparts; Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the Fee Letter, the other Loan Documents, and any separate letter agreements relating to any fees payable to the Administrative Agent and its Affiliates constitute the entire agreement among the parties hereto and thereto and their affiliates regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. Delivery of an executed counterpart to this Agreement or any other Loan Document by facsimile transmission or by electronic mail in pdf format shall be as effective as delivery of a manually executed counterpart hereof.

Section 10.9 Survival. All covenants, agreements, representations and warranties made by the Borrower herein and by the Borrower and the other Loan Parties in the certificates, reports, notices or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.18, 2.19, 2.20, and 10.3, Article IX and the last sentence of the definition of Applicable Margin and

 

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Applicable Percentage shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.

Section 10.10 Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

Section 10.11 Confidentiality. Each of the Administrative Agent, the Issuing Bank and the Lenders agrees to take normal and reasonable precautions to maintain the confidentiality of any information relating to the Borrower or any of its Subsidiaries or any of their respective businesses, to the extent designated in writing as confidential and provided to it by the Borrower or any of its Subsidiaries, other than any such information that is available to the Administrative Agent, the Issuing Bank or any Lender on a non-confidential basis prior to disclosure by the Borrower or any of its Subsidiaries, except that such information may be disclosed (i) to any Related Party of the Administrative Agent, the Issuing Bank or any such Lender including, without limitation, accountants, legal counsel and other advisors who are informed of the confidential nature of such information and have agreed to receive such information subject to the terms of this Section or are otherwise bound by similar confidentiality obligations, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process (in which case such the Administrative Agent, the Issuing Bank, or the Lender, as applicable, agrees to inform the Borrower promptly thereof to the extent not prohibited by law, rule or regulation), (iii) to the extent requested by any regulatory agency or authority purporting to have jurisdiction over it (including any self-regulatory authority such as the National Association of Insurance Commissioners), (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, or which becomes available to the Administrative Agent, the Issuing Bank, any Lender or any Related Party of any of the foregoing on a non-confidential basis from a source other than the Borrower or any of its Subsidiaries, (v) in connection with the exercise of any remedy hereunder or under any other Loan Documents or any suit, action or proceeding relating to this Agreement or any other Loan Documents or the enforcement of rights hereunder or thereunder, (vi) subject to execution by such Person of an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, or (B) any actual or prospective party (or its Related Parties) to any swap or derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (vii) to any rating agency, (viii) to the CUSIP Service Bureau or any similar organization, or (ix) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information. In the event of any conflict between the terms of this Section and those of any other Contractual Obligation entered into with any Loan Party (whether or not a Loan Document), the terms of this Section shall govern. Each Arranger and each Co-Documentation Agent may, at its own expense, place customary tombstone announcements and advertisements or otherwise publicize its engagement hereunder (which may include the reproduction of any Loan Party’s name and logo and other publicly available information) in financial and other newspapers and journals and marketing materials describing its services hereunder. Further, each Arranger and each Co-Documentation Agent may provide to market data collectors, such as league table, or other service providers to the lending industry, information regarding the closing date, size, type, purpose of, and parties to, the credit facilities established hereunder.

 

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Section 10.12 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the “Charges”), shall exceed the maximum lawful rate of interest (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by a Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment (to the extent permitted by applicable law), shall have been received by such Lender.

Section 10.13 Waiver of Effect of Corporate Seal. The Borrower represents and warrants that neither it nor any other Loan Party is required to affix its corporate seal to this Agreement or any other Loan Document pursuant to any Requirement of Law, agrees that this Agreement is delivered by the Borrower under seal and waives any shortening of the statute of limitations that may result from not affixing the corporate seal to this Agreement or such other Loan Documents.

Section 10.14 Patriot Act. The Administrative Agent and each Lender hereby notifies the Loan Parties that, (a) pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of such Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Loan Party in accordance with the Patriot Act, and (b) pursuant to the Beneficial Ownership Regulation, it is required to obtain a Beneficial Ownership Certification.

Section 10.15 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower and each other Loan Party acknowledges and agrees and acknowledges its Affiliates’ understanding that (i) (A) the services regarding this Agreement provided by the Administrative Agent and/or the Lenders are arm’s-length commercial transactions between the Borrower, each other Loan Party and their respective Affiliates, on the one hand, and the Administrative Agent and the Lenders, on the other hand, (B) each of the Borrower and the other Loan Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate, and (C) the Borrower and each other Loan Party is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Administrative Agent and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower, any other Loan Party or any of their respective Affiliates, or any other Person, and (B) neither the Administrative Agent nor any Lender has any obligation to the Borrower, any other Loan Party or any of their Affiliates with respect to the transaction contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Loan Parties and their respective Affiliates, and each of the Administrative Agent and the Lenders has no obligation to disclose any of such interests to the Borrower, any other Loan Party or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and the other Loan Parties hereby waives and releases any claims that it may have against the Administrative Agent or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

 

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Section 10.16 Location of Closing. Each Lender and the Issuing Bank acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement to the Administrative Agent in New York. The Borrower acknowledges and agrees that it has delivered, with the intent to be bound, its executed counterparts of this Agreement and each other Loan Document, together with all other documents, instruments, opinions, certificates and other items required under Section 3.1, to the Administrative Agent in New York. All parties agree that the closing of the transactions contemplated by this Agreement has occurred in New York.

Section 10.17 Electronic Signatures. The words “execution,” “execute,” “signed,” “signature,” and words of like import in or related to this Agreement or any other document to be signed in connection with this Agreement and the transactions contemplated hereby shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act; provided that notwithstanding anything contained herein to the contrary the Administrative Agent is under no obligation to agree to accept electronic signatures in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it.

Section 10.18 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and

(b) the effects of any Bail-In Action on any such liability, including, if applicable (i) a reduction in full or in part or cancellation of any such liability, (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document or (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.

Section 10.19 Certain ERISA Matters.

(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that at least one of the following is and will be true:

(i) such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments or this Agreement,

 

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(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement,

(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement satisfies the requirements of subsections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement, or

(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.

(b) In addition, unless either (1) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (2) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Loan Party, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Loans, the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).

 

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Section 10.20 Acknowledgement Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Hedging Obligations or any other agreement or instrument that is a QFC (such support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):

(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.

(b) As used in this Section 10.20, the following terms have the following meanings:

“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.

“Covered Entity” means any of the following:

(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §252.82(b);

(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §47.3(b); or

(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. §382.2(b).

“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§252.81, 47.2 or 382.1, as applicable.

“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).

[Remainder of page intentionally blank; signature pages follow.]

 

- 124 -

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

TERADYNE, INC.
By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

TRUIST BANK,

as the Administrative Agent, as the Issuing Bank, as the Swingline Lender and as a Lender

By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

CITIZENS BANK, NATIONAL ASSOCIATION,

as a Lender

By:  

 

Name:  
Title  

 

[Signature Page to Credit Agreement]

HSBC BANK USA, NATIONAL ASSOCIATION,
as a Lender
By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

BARCLAYS BANK PLC,
as a Lender
By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

SILICON VALLEY BANK,
as a Lender
By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

PNC BANK, NATIONAL ASSOCIATION,

as a Lender

By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

FIFTH THIRD BANK, NATIONAL ASSOCIATION,
as a Lender
By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

BANK OF AMERICA, N.A.,

as a Lender

By:  

 

Name:  
Title:  

 

[Signature Page to Credit Agreement]

SCHEDULE I

 

Applicable Margin and Applicable Percentage

Pricing Level

   

Consolidated Leverage Ratio

   

Applicable Margin for
Eurodollar Loans

   

Applicable Margin for
Base Rate Loans

   

Applicable Percentage for
Commitment Fee

   

Applicable Percentage for
Letter of Credit Fees

I    Greater than or equal to 2.00:1.00    1.75% per annum    0.75% per annum    0.25% per annum    1.75% per annum
II    Less than 2.00:1.00 but greater than or equal to 1.50:1.00    1.50% per annum    0.50% per annum    0.20% per annum    1.50% per annum
III    Less than 1.50:1.00 but greater than or equal to 1.00:1.00    1.25% per annum    0.25% per annum    0.175% per annum    1.25% per annum
IV    Less than 1.00:1.00    1.00% per annum    0.00% per annum    0.15% per annum    1.00% per annum

Exhibit 21.1

Present Subsidiaries

 

Entity Name:

  

State or Jurisdiction Of

Incorporation

   Percentage of Voting
Securities Owned		  

Teradyne (Asia) Pte., Ltd.

   Singapore     100 %* 

Teradyne Canada Limited

   Canada     100 % 

Teradyne de Costa Rica S.R.L.

   Costa Rica     100 % 

Teradyne GmbH

   Germany     100 %* 

Teradyne Holdings Denmark ApS

   Denmark     100 %* 

Teradyne (India) Engineering Private Ltd.

   India     100 %* 

Teradyne International Holdings B.V.

   The Netherlands     100 % 

Teradyne International UK Holdings Ltd.

   United Kingdom     100 %* 

Teradyne Israel Limited

   Israel     100 % 

Teradyne Italia SrL

   Italy     100 %* 

Teradyne K.K.

   Japan     100 % 

Teradyne Korea Ltd.

   Korea     100 %* 

Teradyne Limited

   United Kingdom     100 %* 

Teradyne Malaysia Sdn. Bhd.

   Malaysia     100 %* 

Teradyne Philippines Limited

   Delaware     100 % 

Teradyne Robotics Holdings Denmark ApS

   Denmark     100 %* 

Teradyne SAS

   France     100 % 

Teradyne (Shanghai) Co., Ltd

   Peoples Republic of China     100 %* 

Teradyne Taiwan LLC

   Delaware     100 %* 

Teradyne Thailand Limited.

   Delaware     100 % 

Energid Technologies Corporation

   Florida     100 % 

GenRad, LLC

   Delaware     100 % 

Herco Technology Corp.

   California     100 % 

P.L.S.T., Inc. (f/k/a Perception Laminates, Inc.)

   California     100 % 

Eagle Test Systems, Inc.

   Delaware     100 % 

Nextest Systems Corporation

   Delaware     100 % 

Lemsys SA

   Switzerland     100 %* 

LitePoint Corporation

   Delaware     100 % 

LitePoint Europe A/S

   Denmark     100 %* 

LitePoint Technology Limited

   Hong Kong     100 %* 

LitePoint Technology (Shanghai) Company Ltd.

   Peoples Republic of China     100 %* 

LitePoint Vietnam Limited

   Socialist Republic of Vietnam     100 %* 

Mobile Industrial Robots A/S

   Denmark     100 %* 

Mobile Industrial Robots, Inc.

   Delaware     100 %* 

Mobile Industrial Robots GmbH

   Germany     100 %* 

Mobile Industrial Robots Pte. Ltd.

   Singapore     100 %* 

MiR Robots S.L.

   Spain     100 %* 

MiR Robots (Shanghai) Co. Ltd.

   Peoples Republic of China     100 %* 

Universal Robots A/S

   Denmark     100 %* 

Universal Robots (Spain) S.L.

   Spain     100 %* 

Universal Robots (Singapore) Pte. Ltd.

   Singapore     100 %* 

Universal Robots (India) Pte. Ltd.

   India     100 %* 

Universal Robots (Shanghai) Co. Ltd.

   Peoples Republic of China     100 %* 

Universal Robots (USA), Inc.

   Delaware     100 %* 

Universal Robots GmbH

   Germany     100 %* 

Universal Robots Mexico S.A. de C.V.

   Mexico     100 %* 

Universal Robots (UK) Ltd

   United Kingdom     100 %* 

UR Technology (Shanghai) Co. Ltd.

   People Republic of China     100 %* 

AutoGuide, LLC

   Delaware     100 % 

 

*

Indirect subsidiaries whose voting securities are 100% controlled by Teradyne, Inc.

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-256136; 333-188824; 333-177246; 333-159723; 333-155564; 333-149017; 333-143231; 333-134519; 333-116632; 333-101983; 333-68074; 333-56373; 333-32547; and 333-07177) of Teradyne, Inc. of our report dated February 23, 2022 relating to the financial statements and financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

February 23, 2022

EXHIBIT 31.1

CERTIFICATION

I, Mark E. Jagiela, certify that:

1. I have reviewed this annual report on Form 10-K of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 23, 2022

 

By:   /S/ MARK E. JAGIELA
  Mark E. Jagiela
  Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, Sanjay Mehta, certify that:

1. I have reviewed this annual report on Form 10-K of Teradyne, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 23, 2022

 

By:   /S/ SANJAY MEHTA
 

Sanjay Mehta

 

Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Teradyne, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark E. Jagiela, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/S/ MARK E. JAGIELA
Mark E. Jagiela
Chief Executive Officer

February 23, 2022

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Teradyne, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sanjay Mehta, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

/S/ SANJAY MEHTA

Sanjay Mehta

Chief Financial Officer

February 23, 2022