Dolby Laboratories(DLB) - 2024 Q4 - Annual Results

Credit Agreement Introduction This Credit Agreement, dated November 14, 2024, is between Dolby Laboratories, Inc. as Borrower, its subsidiaries as Guarantors, and Bank of America, N.A. as Lender - This Credit Agreement is dated November 14, 2024, among Dolby Laboratories, Inc. as the Borrower, certain of its subsidiaries as Guarantors, and Bank of America, N.A. as the Lender[8] - The Borrower has requested, and the Lender has agreed to provide, loans and other financial accommodations based on the terms and conditions outlined in this agreement[10] ARTICLE I: DEFINITIONS AND ACCOUNTING TERMS This article defines all capitalized terms, establishes financial thresholds, and sets rules for accounting principles and interpretation Defined Terms This section defines all capitalized terms, including key financial thresholds and interest rate structures, for consistent agreement interpretation Key Financial Terms | Term | Definition/Amount | | :--- | :--- | | Commitment | $250,000,000 | | Closing Date | November 14, 2024 | | Maturity Date | November 14, 2029 | | Threshold Amount | $75,000,000 | Applicable Rate Structure | Level | Consolidated Leverage Ratio | Term SOFR | Base Rate | Commitment Fee | | :--- | :--- | :--- | :--- | :--- | | 1 | < 1.00 to 1.00 | 0.900% | 0.000% | 0.150% | | 2 | > 1.00 to 1.00 but < 1.75 to 1.00 | 1.150% | 0.150% | 0.175% | | 3 | > 1.75 to 1.00 but < 2.50 to 1.00 | 1.275% | 0.275% | 0.200% | | 4 | > 2.50 to 1.00 | 1.500% | 0.500% | 0.250% | - The initial Applicable Rate is set at Level 1 until the first Compliance Certificate is delivered for the fiscal quarter ending December 27, 2024; otherwise, Level 4 applies[17] Other Interpretive Provisions This section outlines rules for interpreting agreement language, including references to amended documents and the non-substantive nature of headings - References to any agreement, instrument, or law are construed as referring to such items as they may be amended, supplemented, or modified over time, subject to Loan Document restrictions[179] Accounting Terms This section mandates GAAP compliance for financial terms and data, provides for ratio amendments due to GAAP changes, and outlines pro forma calculations - Financial calculations will continue to treat operating leases as they were prior to ASU 842 implementation, regardless of new GAAP capitalization requirements[181] - If a change in GAAP affects financial ratio computations, the Borrower and Lender will negotiate in good faith to amend the ratio to preserve its original intent[181] ARTICLE II: COMMITMENT AND BORROWINGS This article details the Lender's commitment, procedures for borrowing, repayment, and termination of the credit facility Loans This section establishes the Lender's commitment to provide loans up to the specified Facility amount, allowing the Borrower to borrow, prepay, and reborrow funds - The Lender agrees to make loans up to a total outstanding amount of the Commitment ($250,000,000) during the Availability Period[37][189] Borrowings, Conversions and Continuations of Loans; Increases in Facility This section details procedures for new borrowings, loan conversions, continuations, and the process for increasing the total facility amount - The Borrower may request to increase the Facility by an aggregate amount not to exceed the Incremental Amount of $150,000,000, subject to Lender's sole discretion and other conditions[95][193] - Specific notice periods are required for borrowings: not later than 11:00 a.m. two Business Days prior for Term SOFR Loans and on the requested date for Base Rate Loans[191] Prepayments This section covers both optional and mandatory prepayments of loans, requiring immediate prepayment if total outstanding loans exceed the committed facility amount - The Borrower is required to immediately prepay loans if the Total Outstandings exceed the Facility amount at any time[194] Termination or Reduction of Commitment This section describes the Borrower's right to voluntarily terminate or permanently reduce the credit facility, which automatically terminates on the Maturity Date - The Borrower may permanently reduce the Facility in minimum increments of $10,000,000 with at least three Business Days' notice[195] - The Facility will automatically terminate on the Maturity Date, November 14, 2029[115][197] Repayment of Loans This section stipulates that the Borrower must repay the entire aggregate principal amount of all outstanding loans to the Lender on the Maturity Date - The Borrower is required to repay the aggregate principal of all outstanding Loans on the Maturity Date[198] Interest and Default Rate This section defines interest calculation for loans and specifies a higher Default Rate for all outstanding obligations upon a Specified Event of Default - If a Specified Event of Default occurs, all outstanding obligations will accrue interest at the Default Rate, which is 2% per annum higher than the otherwise applicable rate[55][199] Fees This section outlines the fees payable by the Borrower, primarily the Commitment Fee, calculated on the daily unused portion of the credit facility - A Commitment Fee is payable quarterly on the daily unused amount of the Facility, calculated using the Commitment Fee rate from the 'Applicable Rate' definition[200] ARTICLE III: TAXES, YIELD PROTECTION AND ILLEGALITY This article addresses tax obligations, legal changes affecting loan terms, and mechanisms for determining interest rates Taxes This section requires the Borrower to make all payments free of foreign tax deductions and to pay additional amounts if withholding is legally required Illegality This section addresses situations where changes in law make certain loan types illegal, leading to suspension of obligations or conversion to permissible loan types Inability to Determine Rates; Successor Rates This section outlines procedures if the Term SOFR rate cannot be determined, providing for suspension of Term SOFR loans and implementation of a Successor Rate Increased Costs This section protects the Lender from financial detriment due to changes in law or regulations, requiring the Borrower to compensate for increased costs ARTICLE IV: CONDITIONS PRECEDENT TO BORROWINGS This article specifies the conditions that must be met for the credit agreement to become effective and for all subsequent borrowings Conditions to Effectiveness This section lists the conditions that must be satisfied before the credit agreement becomes effective, including executed documents, legal opinions, and no material adverse effect - Effectiveness is contingent upon the Lender receiving executed Loan Documents, necessary corporate authorizations, satisfactory legal opinions, and officer's certificates[221][223] - A key condition is that no Material Adverse Effect has occurred since September 29, 2023[223] Conditions to all Borrowings This section outlines the ongoing conditions required for any borrowing, ensuring representations and warranties remain true and no default exists - Each borrowing is conditional upon the representations and warranties being true and correct in all material respects at the time of the borrowing[225] - No Default or Event of Default may exist at the time of a proposed borrowing or would result from it[225] ARTICLE V: REPRESENTATIONS AND WARRANTIES This article contains the Loan Parties' assurances regarding their legal status, financial condition, operations, and compliance with various laws Corporate Status and Authority These sections contain the Loan Parties' representations regarding their legal status, corporate power, and the binding nature of the agreement Financial Condition and Operations These sections represent the financial health and operational status of the Loan Parties, warranting accurate financial statements and absence of material adverse effects Compliance and Legal Matters This group of sections covers representations on various compliance topics, including environmental laws, insurance, taxes, ERISA, and anti-corruption laws ARTICLE VI: AFFIRMATIVE COVENANTS This article outlines the ongoing obligations of the Borrower and Loan Parties, including financial reporting, notices, and operational compliance Financial Statements This section obligates the Borrower to provide the Lender with regular financial reports, including audited annual and unaudited quarterly statements Financial Reporting Deadlines | Report | Deadline | | :--- | :--- | | Audited Annual Financials | Within 90 days after fiscal year-end | | Unaudited Quarterly Financials | Within 45 days after each of the first three fiscal quarter-ends | Certificates; Other Information This section requires the Borrower to deliver a Compliance Certificate and other information, such as SEC filings and 'know your customer' documentation Notices The Borrower is required to promptly notify the Lender of significant events, including any Default, Material Adverse Effect, or material ERISA Event Operational and Corporate Covenants This group of covenants requires the Loan Parties to maintain standard business practices, including tax payments, legal existence, and proper use of loan proceeds - The proceeds from borrowings are to be used for general corporate purposes and must not contravene any law or loan document[279] Covenant to Guarantee Obligations This section mandates that new Significant Subsidiaries (not Excluded Subsidiaries) must become Guarantors by executing a Joinder Agreement within 60 days ARTICLE VII: NEGATIVE COVENANTS This article imposes restrictions on the Loan Parties, limiting their ability to incur liens, additional debt, or undergo fundamental corporate changes Liens This covenant generally prohibits the Loan Parties from creating or allowing any Liens on their property or assets, with a detailed list of Permitted Liens Indebtedness This section restricts the ability of the Loan Parties to incur additional debt, providing a list of permitted indebtedness including certain unsecured and Priority Indebtedness - The company is permitted to incur Priority Indebtedness up to the greater of 10% of Consolidated Net Tangible Assets or $150,000,000[292] Fundamental Changes This covenant limits major corporate changes, generally prohibiting mergers, dissolutions, or the sale of substantially all assets, with specific exceptions Financial Covenant This section establishes the primary financial performance metric, requiring the Consolidated Leverage Ratio not to exceed a specific threshold at each fiscal quarter-end Financial Covenant Requirement | Covenant | Requirement | | :--- | :--- | | Consolidated Leverage Ratio | Must not be greater than 3.00 to 1.00 | Sanctions & Anti-Corruption Laws These covenants prohibit the use of loan proceeds for any activities that would violate sanctions administered by authorities like OFAC or breach anti-corruption laws ARTICLE VIII: EVENTS OF DEFAULT AND REMEDIES This article defines specific events that constitute a default and outlines the Lender's remedies, including termination of commitment and loan acceleration Events of Default This section defines specific events constituting a default, including payment failures, covenant violations, cross-defaults, insolvency, and change of control - An Event of Default includes failure to pay principal or interest, breach of covenants, incorrect representations, and insolvency[304] - A cross-default on other indebtedness is triggered if the amount exceeds the Threshold Amount of $75,000,000[171][306] - A Change of Control, as defined in Article I, constitutes an Event of Default[308] Remedies upon Event of Default Upon an Event of Default, this section grants the Lender the right to terminate commitments and declare all outstanding loans and amounts immediately due ARTICLE IX: CONTINUING GUARANTY This article establishes the absolute and unconditional guaranty provided by each Guarantor for the Borrower's obligations, detailing the terms and conditions Guaranty This section establishes that each Guarantor provides an absolute and unconditional joint and several guarantee for all 'Included Obligations', acting as a guarantee of payment Guaranty Terms and Conditions These sections detail the mechanics of the guaranty, including Lender's rights, Guarantors' waivers of defenses, subrogation, and conditions for release - A 'keepwell' provision requires Qualified ECP Guarantors to provide financial support to other Loan Parties to ensure their obligations under swap contracts can be met, for purposes of the Commodity Exchange Act[327] ARTICLE X: MISCELLANEOUS This article covers general administrative and legal provisions, including amendments, notices, expenses, assignments, confidentiality, and governing law Amendments, Notices, and Expenses This group of sections covers administrative and legal boilerplate, specifying amendment requirements, notice procedures, and indemnification for Lender's expenses Assignments, Confidentiality, and Setoff These sections address the transferability of the agreement, confidentiality of information, and the Lender's right to set off deposits upon an Event of Default Governing Law; Jurisdiction; Etc. This section establishes that the agreement is governed by New York law and specifies New York courts as the venue for legal proceedings - The agreement is governed by the law of the State of New York[351] Waiver of Jury Trial This section contains an irrevocable waiver by all parties of their right to a trial by jury in any legal proceeding related to the credit agreement SCHEDULES AND EXHIBITS This section lists and briefly describes the supplementary schedules and exhibits that form an integral part of the Credit Agreement Schedule 1.01(a): Certain Addresses for Notices; Lender's Office This schedule provides the official contact information and addresses for delivering notices to the Borrower, other Loan Parties, and the Lender Exhibit A: Form of Compliance Certificate This exhibit provides the template for the Compliance Certificate, including the detailed calculation for the Financial Covenant (Consolidated Leverage Ratio) Exhibit B: Form of Joinder Agreement This exhibit contains the form of the Joinder Agreement to be executed by any new subsidiary required to become a Guarantor Exhibit C: Form of Loan Notice This exhibit provides the template for the Loan Notice that the Borrower must use to request new borrowings, conversions, or continuations of loans Exhibit D: Form of Notice of Loan Prepayment This exhibit contains the form that the Borrower must use to notify the Lender of its intention to prepay outstanding loans