<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to ________________________
Commission file number 0-26946
INTEVAC, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
California 94-3125814
<S> <C>
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3550 Bassett Street, Santa Clara, California 95054
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (408) 986-9888
________________________________________________________________________________
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X ____________ No ___________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _________ No _________
APPLICABLE ONLY TO CORPORATE ISSUERS:
On March 30, 1996, approximately 12,250,959 shares of the Registrant's
Common Stock, no par value, were outstanding.
<PAGE> 2
INTEVAC, INC.
NO. INDEX PAGE
- - --- ----- ----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES
2.
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PART I--FINANCIAL INFORMATION
ITEM I--FINANCIAL STATEMENTS
INTEVAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS
Mar. 30, Dec. 31,
1996 1995
---------- ----------
Unaudited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents............................................ $ 14,119 $ 20,422
Short-term investments............................................... 2,571 ---
Accounts receivable, net of allowances of $560 and $461
at March 30, 1996 and December 31, 1995, respectively.............. 9,753 4,439
Inventories.......................................................... 18,308 16,468
Short-term note receivable........................................... 177 177
Prepaid expenses and other current assets............................ 348 503
Deferred tax asset................................................... 3,158 3,158
Net current assets of discontinued operations........................ 73 777
---------- ----------
Total current assets............................................. 48,507 45,944
Property, plant and equipment, net...................................... 4,637 3,479
Investments............................................................. 2,431 2,431
Goodwill and other intangibles.......................................... 2,946 ---
Deferred tax and other assets........................................... 83 83
---------- ----------
Total assets..................................................... $ 58,604 $ 51,937
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
Current liabilities:
Notes payable........................................................ $ 1,250 $ ---
Accounts payable..................................................... 2,233 2,681
Accrued payroll and related liabilities.............................. 1,189 1,075
Other accrued liabilities............................................ 3,804 4,668
Customer advances.................................................... 19,027 14,436
Net liabilities of discontinued operations........................... 1,153 1,757
---------- ----------
Total current liabilities........................................ 28,656 24,617
Long-term notes payable................................................. 730 ---
Shareholders' equity:
Common stock......................................................... 15,305 15,304
Retained earnings.................................................... 13,913 12,016
---------- ----------
Total shareholders' equity....................................... 29,218 27,320
---------- ----------
Total liabilities and shareholders' equity....................... $ 58,604 $ 51,937
========== ==========
</TABLE>
See accompanying notes.
3.
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INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------
Mar. 30, Apr. 1,
1996 1995
---------- ----------
Net revenues:
<S> <C> <C>
Disk, flat panel, and other.......................................... $ 15,126 $ 4,674
MBE.................................................................. --- 695
---------- ----------
Total net revenues...................................................... 15,126 5,369
Cost of net revenues:
Disk, flat panel, and other.......................................... 9,203 3,244
MBE.................................................................. --- 434
---------- ----------
Total cost of net revenues.............................................. 9,203 3,678
---------- ----------
Gross profit............................................................ 5,923 1,691
Operating expenses:
Research and development............................................. 1,379 340
Selling, general and administrative.................................. 1,887 871
---------- ----------
Total operating expenses........................................... 3,266 1,211
---------- ----------
Operating income........................................................ 2,657 480
Other income, net....................................................... 261 234
---------- ----------
Income from continuing operations before income taxes................... 2,918 714
Provision for income taxes.............................................. 1,021 247
---------- ----------
Income from continuing operations....................................... 1,897 467
Income from discontinued operations..................................... --- 1,335
---------- ----------
Net income.............................................................. $ 1,897 $ 1,802
========== ==========
Per share:
Income from continuing operations.................................... $ 0.15 $ 0.05
Net income........................................................... $ 0.15 $ 0.18
Shares used in per share amounts........................................ 12,631 10,295
</TABLE>
See accompanying notes.
4.
<PAGE> 5
INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
------------------------
Mar. 30, Apr. 1,
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................................. $ 1,897 $ 1,802
Adjustments to reconcile net income to net cash and cash equivalents
provided by (used in) operating activities:
Depreciation and amortization ..................................... 335 341
Loss on disposal of equipment ..................................... --- 22
Gain on disposition of discontinued operations .................... --- (1,398)
Changes in assets and liabilities ................................. (3,506) 1,504
-------- --------
Total adjustments ...................................................... (3,171) 469
-------- --------
Net cash and cash equivalents provided by (used in)
operating activities ................................................ (1,274) 2,271
INVESTING ACTIVITIES
Purchase of short-term investments ..................................... (2,571) (1,000)
Proceeds from sale of short-term investments ........................... --- 2,998
Investment in CT corporation ........................................... (1,074) ---
Purchase of property and equipment ..................................... (1,385) (745)
-------- --------
Net cash and cash equivalents provided by (used
in) investing activities ............................................ (5,030) 1,253
FINANCING ACTIVITIES
Proceeds from issuance of common stock ................................. 1 60
Repurchase of common stock ............................................. --- (7)
Redemption of redeemable Series 1 Preferred Stock ...................... --- (1,525)
-------- --------
Net cash and cash equivalents provided by (used
in) financing activities ............................................ 1 (1,472)
-------- --------
Net increase (decrease) in cash and cash equivalents ................... (6,303) 2,052
Cash and cash equivalents at beginning of period ....................... 20,422 9,268
-------- --------
Cash and cash equivalents at end of period ............................. 14,119 11,320
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION Cash paid (received) for:
Interest ............................................................ --- ---
Income taxes ........................................................ $ 1,850 ---
Income tax refund ................................................... --- ---
Other noncash changes:
Investment in CT corporation through assumption of
notes payable ....................................................... $ 1,980 ---
</TABLE>
See accompanying notes.
5.
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INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Intevac, Inc. ("Intevac" or the "Company") is a supplier of static
sputtering systems used to manufacture thin-film disks for computer hard disk
drives. The Company's principal product, the MDP-250B system, enables disk
manufacturers to achieve high coercivities, high signal-to-noise ratios, minimal
disk defects, durability and uniformity, all of which are necessary in the
production of high performance, high capacity disks. The Company sells its
static sputtering systems to both captive and merchant thin film disk
manufacturers. The Company sells and markets its products directly in the United
States, and through exclusive distributors in Japan, Taiwan and Korea. The
Company supports its customers in Southeast Asia through its wholly owned
subsidiary in Singapore.
The financial information for the three-month periods ended March 30,
1996 and April 1, 1995 are unaudited, but include all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial information set forth herein, in accordance
with generally accepted accounting principles for interim financial information,
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements. For further
information, refer to the Consolidated Financial Statements and footnotes
thereto included or incorporated by reference in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
The results for the three-month period ended March 30, 1996 are not
considered indicative of the results to be expected for any future period or for
the entire year.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 30, December 31,
1996 1995
----------- -----------
(in thousands)
<S> <C> <C>
Raw Materials $ 3,499 $ 2,900
Work in Progress 8,898 10,818
Finished Goods 5,911 2,750
----------- -----------
$ 18,308 $ 16,468
=========== ===========
</TABLE>
A significant portion of the finished goods inventory is represented by
completed units at customer sites undergoing installation and acceptance
testing.
3. INCOME TAXES
The effective tax rates used for the three-month periods ending March
30, 1996 and April 1, 1995 were 35% and 36%, respectively. This rate is based on
the estimated annual tax rate complying with Financial Accounting Standards No.
109, "Accounting for Income Taxes".
6.
<PAGE> 7
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from convertible
preferred stock (using the if-converted method) and from stock options and
warrants (using the treasury stock method). Pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins, common stock and common
equivalent shares issued by the Company at prices below the assumed initial
public offering (IPO) price during the twelve-month period preceding the date of
the initial filing of the registration statement have been included in the
calculation of common equivalent shares, using the treasury stock method based
on an assumed IPO price, as if they were outstanding for all periods presented
prior to the IPO date.
5. LINE OF CREDIT
During 1993, the Company entered into a Business Loan Agreement with a
bank, which was amended and restated in March 1996 and which provides for a
total of $10.0 million in available borrowings based on eligible receivables.
The agreement is for a revolving line of credit, which is available until March
13, 1997, when the outstanding principal will be payable. Interest on
outstanding amounts is due monthly. The line of credit bears interest, at the
option of the Company, at the prime rate, or the London Interbank Offering Rate
(LIBOR) plus two and one-half percent per annum. In the event of default,
interest on the outstanding loan increases to 5.00% over the prime rate.
As of March 30, 1996, no amounts were outstanding under the agreement.
The Company is required to maintain certain financial ratios and other financial
conditions. Substantially all of the Company's assets are pledged as collateral
on the borrowings.
6. SUBSEQUENT EVENTS
On May 3, 1996, the Company acquired San Jose Technology Corp. ("SJT")
for approximately $3.7 million cash. SJT is a supplier of systems used to
lubricate thin-film disks for computer hard disk drives. Lubrication is the
production step that typically follows disk sputtering in the manufacture of
thin-film disks.
7.
<PAGE> 8
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward looking statements
that are accompanied by cautionary statements that identify important factors
that could cause actual results to differ materially from those in the forward
looking statement.
OVERVIEW
Intevac is a leading supplier of static sputtering systems used to
manufacture thin film disks for computer hard disk drives. Sputtering is a
complex vacuum deposition process used to deposit multiple thin-film layers on a
disk. The Company has three primary sources of net revenues: sales of disk
sputtering systems, sales of system components and contract research and
development activities. The Company's disk sputtering systems, which generally
represent the majority of the Company's revenue, are sold to vertically
integrated disk drive manufacturers and to original equipment manufacturers that
sell disk media to disk drive manufacturers. Intevac's systems component
business consists primarily of sales of spare parts and after-sale service to
purchasers of the Company's disk sputtering systems, as well as sales of
components to other manufacturers of vacuum equipment. Contract research and
development revenues have been primarily derived from contracts with ARPA for
development projects for the flat panel industry.
Through the first quarter of 1995, the Company also received revenues
from the sales of molecular beam epitaxi ("MBE") systems. The Company acquired
the MBE business from Varian in February 1991 and sold the business to a third
party in October 1993. The Company does not expect any MBE revenues in the
future.
Income from discontinued operations represents results from the sales
of night vision products, primarily of night vision goggles and devices and the
sale of the night vision business to Litton Systems, Inc.
in May 1995.
On January 24, 1996, Intevac acquired Cathode Technology Corporation
("CTC"), a developer of advanced sputter source technology for the production of
disks used in computer hard disk drives, for $1.1 million in cash and $2.0
million in notes. Intevac intends to incorporate CTC's sputter technology into
its MDP-250 sputter system.
On May 3, 1996, Intevac acquired San Jose Technology Corp. ("SJT"), a
manufacturer of systems used to lubricate thin-film disks, for $3.7 million in
cash. The Company intends to explore means of integrating SJT's lubrication
systems with the Company's sputtering systems.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
Net revenues. Disk, flat panel and other net revenues consist primarily
of sales of the Company's disk sputtering systems and, to a lesser extent,
system components and contract research and development. Net revenues from the
sales of systems are recognized upon customer acceptance. System component sales
are recognized upon product shipment, and contract research and development is
recognized in accordance with contract terms, typically as costs are incurred.
MBE net revenues consist primarily of sales of used MBE equipment not included
in the sale of the MBE business. Net revenues increased by 182% to $15.1 million
for the three months ended March 30, 1996 from $5.4 million the three months
ended April 1, 1995. The increase in net revenues was primarily due to an
increase in the sales of disk sputtering systems.
There were no net revenues from the sale of MBE systems for the three
months ended March 30, 1996 as compared to net revenues of $0.7 million for the
three months ended April 1, 1995. The Company wound down the MBE business
following the exchange of substantially all of the assets related to this
business with a third party for stock in late 1993.
8.
<PAGE> 9
International sales increased by 770% to $6.7 million for the three
months ended March 30, 1996 from $0.8 million for the three months ended April
1, 1995. The increase in revenues from international sales was primarily due to
an increase in the sales of disk sputtering systems. International sales
constituted 45% of net revenues for the three months ended March 30, 1996 and
14% of net revenues for the three months ended April 1, 1995.
Gross margin. Cost of net revenues consist primarily of purchased
materials, fabrication, assembly, test, installation, international distributor
costs, warranty costs and, to a lesser extent, costs attributable to contract
research and development. Gross margin from disk, flat panel and other sales was
39.2% for the three months ended March 30, 1996 as compared to 30.6% for the
three months ended April 1, 1995. The improvement in gross margins was primarily
due to increased manufacturing efficiencies resulting from higher production
volume.
Research and development. Research and development expense consists
primarily of prototype materials, salaries and related costs of employees
engaged in ongoing research, design and development activities for disk
sputtering equipment, flat panel manufacturing equipment, and research by the
Advanced Technology Division. Company funded research and development expense
increased by 306% to $1.4 million for the three months ended March 30, 1996 from
$0.3 million for the three months ended April 1, 1995, representing 9.1% and
6.3%, respectively, of net revenue. The increase in research and development
expense was primarily the result of increased expense for the development of
disk sputtering products and flat panel display manufacturing machines and, to a
lesser extent, increased expense in the Advanced Technology Division.
Research and development expenses do not include costs of $0.4 million
in each of the three months ended March 30, 1996 and April 1, 1995, reimbursed
under the terms of a research and development cost sharing agreement with the
Company's Japanese flat panel manufacturing equipment ("D-Star") development
partner. On February 14, 1996, this research and development cost sharing
agreement was amended, to increase the Company's development partner's total
funding commitment from $4.3 million to $5.5 million. Under the terms of the
research and development cost sharing agreement, Intevac and its development
partner each pay half of all D-Star development costs. At March 30, 1996, $0.9
million of the $5.5 million development funding committed by the Company's
development partner remained to be spent on the D-Star development project, $0.6
million of which remains to be received from the Company's development partner.
Selling, general and administrative. Selling, general and
administrative expense consists primarily of selling, marketing, financial,
travel, management, legal and professional services. Domestic sales are made by
the Company's direct sales force whereas international sales are made by
distributors that typically provide sales, installation, warranty and ongoing
customer support. International distributor costs are included in cost of net
revenues. Selling, general and administrative expense increased by 117% to $1.9
million for the three months ended March 30, 1996 from $0.9 million for the
three months ended April 1, 1995 representing 12.5% and 16.2%, respectively, of
net revenue. The increase in selling, general and administrative expense was
primarily the result of increased expense associated with the marketing and
support of disk sputtering systems, and to a lesser extent, increased public
company costs subsequent to the Company's initial public offering in November
1995. Administrative headcount grew to 55 employees at March 30, 1996 from 34
employees at April 1, 1995.
Other income, net. Other income, net consists primarily of interest
income on the Company's short-term investments, and to a lesser extent, early
payment discounts on the purchase of inventories, goods and services. Other
income, net increased by 11% to $0.3 million for the three months ended March
30, 1996 from $0.2 million for the three months ended April 1, 1995, as the
result of increased interest income from higher cash balances, offset partially
by the Company shifting a portion of its cash and short-term investments into
tax exempt short-term investments with lower pretax yields.
Discontinued operations. In March 1995, the Company adopted a formal
plan to discontinue its night vision business. The Company sold its night vision
business to Litton Systems, Inc. in May of 1995. Accordingly, the results of
operations data for the three months ended April 1, 1995 reflect the night
vision
9.
<PAGE> 10
business as a discontinued operation. Net revenues included in discontinued
operations for the three months ended April 1, 1995 were $4.2 million. Included
in income from discontinued operations for the three months ended April 1, 1995
is a net gain after taxes of approximately $1.3 million, net of a reserve of
approximately $2.6 million to provide for estimated closing, environmental
remediation and warranty costs from the sale of the night vision business.
Provision for income taxes. Income tax expense as a percentage of
pretax income for the three months ended March 30, 1996 and April 1, 1995, was
35% and 36%, respectively. The Company's tax rate for these periods differs from
the applicable statutory rates primarily due to tax exempt interest income and
state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $1.3 million for the
three months ended March 30, 1996. The decrease was due primarily to increased
accounts receivable and increased inventory which were partially offset by
increased customer advances and net income.
The Company's investing activities used cash of $5.0 million for the
three months ended March 30, 1996. The decrease was due primarily to the
purchase of short-term investments, the purchase of fixed assets and the
Company's purchase of Cathode Technology Corporation.
The Company's financing activities provided cash of $1,000 for the
three months ended March 30, 1996. The increase was due primarily to the
exercise of stock options by employees.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
FLUCTUATION OF RESULTS OF OPERATIONS
The Company's operating results have historically been subject to
significant quarterly and annual fluctuations. The Company believes that its
operating results will continue to fluctuate on a quarterly and annual basis due
to a variety of factors. These factors include the cyclicality of the thin-film
disk manufacturing and disk drive industries, patterns of capital spending by
customers, the timing of significant orders, order cancellations and shipment
rescheduling, market acceptance of the Company's products, unanticipated delays
in design, engineering or production or in customer acceptance of product
shipments, changes in pricing by the Company or its competitors, the timing of
product announcements or introductions by the Company or its competitors, the
mix of systems sold, the relative proportions of sputtering systems, system
components and subassemblies, changes in product development costs, expenses
associated with acquisitions and exchange rate fluctuations. Over the last eight
quarters the Company's operating income (loss) as a percentage of net revenues
has fluctuated from approximately (32)% to 27% of net revenues. The Company
anticipates that its operating margin will continue to fluctuate. As a result,
the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
At times the Company has derived a significant proportion of its net
revenues from sales of its systems to manufacturers constructing new thin-film
disk fabrication facilities. The construction of new thin-film disk fabrication
facilities involves extremely large capital expenditures, resulting in few
thin-film disk fabrication facilities being constructed worldwide at any
particular time. A substantial investment is also required by disk manufacturers
to install and integrate additional thin-film disk manufacturing equipment in
connection with upgrading or expanding their existing fabrication facilities.
These costs are far in excess of the cost of purchasing the Company's system.
The magnitude of such capital expenditures has caused certain thin-film disk
manufacturers to forego purchasing significant additional thin-film disk
manufacturing equipment. Consequently, only a limited number of opportunities
for the Company to sell it systems may exist at any given time. According to a
September 15, 1995 report by TrendFOCUS, an independent market research firm,
there are 180 installed disk sputtering lines worldwide and only 13 companies in
the world with five or more installed disk sputtering lines. Therefore, winning
or losing an order from any particular customer can significantly affect the
Company's operating results. In addition, the Company's opportunities to
10.
<PAGE> 11
sell its systems are further limited by the fact that a substantial majority of
the manufacturers of thin-film disks have adopted an in-line approach as opposed
to the Company's static approach to thin-film disk manufacturing. Many of these
manufacturers have invested significant amounts of capital in their in-line
systems, and as such there may be significant resistance to change to a static
approach in the future.
The disk drive industry is cyclical and historically has experienced
periods of oversupply, resulting in significantly reduced demand for thin-film
disks and for the capital equipment used to manufacture such disks, including
the systems manufactured and marketed by the Company. In recent years, the disk
drive industry has experienced significant growth, which, in turn, has caused
significant growth in the capital equipment industry supplying manufacturers of
thin-film disks. There can be no assurance that such growth will continue. The
Company anticipates that a significant portion of new orders will depend upon
demand from thin-film disk manufacturers building or expanding fabrication
facilities, and there can be no assurance that such demand will exist. The
Company's business, financial condition and results of operations could be
materially adversely affected by downturns or slowdowns in the disk drive
market.
Due to all of the foregoing factors, the Company expects its quarterly
operating results to fluctuate significantly and may in certain quarters be
below the expectations of public market analysts and investors. In such event it
is likely the price of the Company's Common Stock would be materially adversely
affected.
COMPETITION
The Company believes that the principal competitive factors are system
performance and features, reliability and uptime, overall cost of ownership and
customer support. The Company believes that it competes favorably with respect
to each of these factors. The Company believes it is the principal United
States-based supplier of sputtering systems for thin-film disks.
The Company experiences intense competition worldwide from three
principal competitors, Ulvac, Leybold and Anelva, each of which is a large
manufacturer of complex vacuum equipment and thin-film disk manufacturing
systems and has sold a substantial number of thin-film disk sputtering machines
worldwide. Each of Ulvac and Leybold is a manufacturer of static and in-line
sputtering systems and Anelva is a manufacturer of static systems, and each has
substantially greater financial, technical, marketing, manufacturing and other
resources than the Company. The Company also experiences competition from other
manufacturers of in-line sputtering systems used in thin-film disk fabrication
facilities as well as the manufacturers of thin-film disks that have developed
the capability to manufacture their own sputtering systems. There can be no
assurance that the Company's competitors will not develop enhancements to, or
future generations of, competitive products that will offer superior price or
performance features or that new competitors will not enter the Company's
markets and develop such enhanced products. Furthermore, the failure of
manufacturers of thin-film disks currently using in-line machines and
manufacturers using internally developed sputtering systems to switch to static
sputtering systems in the future could adversely affect the Company's ability to
increase its sputtering system market share.
In addition, the Company's three principal competitors are based in
foreign countries and have cost structures and system prices based on foreign
currencies. Accordingly, currency fluctuations could cause the Company's
dollar-priced products to be less competitive than its competitors' products
priced in other currencies. Currency fluctuations could also increase the
Company's cost structure relative to those of its competitors, which could make
it more difficult for the Company to maintain its competitiveness. Given the
lengthy sales cycle and the significant investment required to integrate a disk
sputtering system into the manufacturing process, the Company believes that once
a thin-film disk manufacturer has selected a particular supplier's disk
sputtering equipment, the manufacturer generally relies upon that equipment for
the specific production line application and frequently will continue to
purchase its other disk sputtering equipment from the same supplier.
Accordingly, the Company expects to experience difficulty in selling to a
particular customer for a significant period of time if that customer selects a
competitor's disk sputtering equipment. Because of these competitive factors,
there can be no assurance that the Company will be able to compete successfully
in the future. Increased competitive pressure could cause the Company to lower
prices for its products, thereby adversely affecting the Company's business,
financial condition and results of operations.
11.
<PAGE> 12
SALES CHANNEL, CUSTOMERS AND MARKETING
The selling process for the Company's products is often a multi-level
and long-term process involving individuals from marketing, engineering,
operations, customer service and senior management. The process is lengthy and
involves making sample thin-film disks for the prospective customer and
responding to individual needs for moderate levels of machine customization.
Intevac sells static sputtering systems to both captive and merchant thin-film
disk manufacturers. Captive thin-film disk manufacturers produce disks to be
used in disk drives they manufacture, and merchant thin-film disk manufacturers
produce disks to be included in disk drives manufactured by third parties. The
Company sells and markets its products directly in the United States, and
through exclusive distributors in Japan (Matsubo), Taiwan (Scientek) and Korea
(Chung Song). The Company has established a wholly-owned subsidiary in Singapore
to support its customers in Southeast Asia.
Historically, a significant portion of the Company's revenues in any
particular period have been attributable to sales to a limited number of
customers. For example, Seagate, HMT Technology, and Matsubo accounted for 40%,
20% and 17%, respectively, of the Company's total net revenues in 1995, and
Trace Storage Technology, Matsubo, Seagate, Varian Associates and Komag
accounted for 25%, 15%, 13%, 12% and 10%, respectively, of the Company's total
net revenues during 1994. Western Digital, Matsubo and Trace Storage Technology
accounted for 21%, 14% and 11%, respectively, of the Company's total net
revenues during 1993. Historically, a significant portion of the Company's
revenues in any particular period have been attributable to sales to a limited
number of customers. The Company's largest customers change from period to
period as large thin-film disk fabrication facilities are completed and new
projects are initiated. The Company expects that sales of its products to
relatively few customers will continue to account for a high percentage of its
net revenues in the foreseeable future. For example, a majority of the Company's
current backlog represents orders from Seagate for a new facility Seagate is
constructing in Singapore. In the event Seagate experiences a delay in the
construction of the new facility or defers the completion of its construction,
the Company's net revenues and operating results could be materially adversely
affected. In addition, Seagate recently acquired Conner Peripherals, Inc. Conner
has significant disk media manufacturing operations, uses an internally
developed in-line disk sputtering system, and has never purchased a system from
the Company. There can be no assurance that the combined entity will not favor
Conner's internally developed disk sputtering system over the Company's system,
or delay, reduce or cease purchases of the Company's products for other reasons,
or that this acquisition will not otherwise have a material adverse effect on
the Company's business, financial condition and results of operations. None of
the Company's customers has entered into a long-term agreement requiring it to
purchase the Company's products. As purchases related to a particular new or
expanded fabrication facility are completed, sales to that customer may decrease
sharply or cease altogether. If completed contracts are not replaced on a timely
basis by new orders from the same or other customers, the Company's net revenues
could be adversely affected. The loss of a significant customer, any reduction
in orders from any significant customer or the cancellation of a significant
order from a customer, including reductions or cancellations due to customer
departures from recent buying patterns, financial difficulties of a customer or
market, economic or competitive conditions in the disk drive industry, could
materially adversely affect the Company's business, financial condition and
results of operations.
Foreign sales accounted for 20% of revenue in 1995, 40% in 1994, and
32% in 1993. The Company anticipates that foreign sales will continue to be a
significant portion of its revenues in the foreseeable future. In addition, the
Company has orders from Seagate, a domestic customer, to deliver and install a
significant number of machines in Seagate's newly constructed manufacturing
facility in Singapore. In order to effectively service customers located in
Singapore and the surrounding region, the Company has established a sales and
service operation in Singapore. Sales and operating activities outside of the
United States are subject to certain inherent risks, including fluctuations in
the value of the United States dollar relative to foreign currencies, tariffs,
quotas, taxes and other market barriers, political and economic instability,
12.
<PAGE> 13
restrictions on the export or import of technology, potentially limited
intellectual property protection, difficulties in staffing and managing
international operations and potentially adverse tax consequences. There can be
no assurance that any of these factors will not have a material adverse effect
on the Company's business, financial condition or results of operations. In
particular, although the Company's international sales have been denominated in
United States dollars, such sales and expenses may not be denominated in dollars
in the future, and currency exchange fluctuations in countries where the Company
does business could materially adversely affect the Company's business,
financial condition and results of operations.
Installing and integrating new sputtering systems into the thin-film
disk manufacturing process requires a substantial investment by a customer.
Sales of the Company's systems depend, in significant part, upon the decision of
a prospective customer to replace obsolete equipment or to increase
manufacturing capacity by upgrading or expanding existing manufacturing
facilities or constructing new manufacturing facilities, all of which typically
involve a significant capital commitment. Therefore, customers often require a
significant number of product presentations and demonstrations, as well as
substantial interaction with the Company's senior management, before making a
purchasing decision. Accordingly, the Company's systems typically have a lengthy
sales cycle during which the Company may expend substantial funds and management
time and effort with no assurance that a sale will result. Furthermore, the
Company's expense levels are based, in part, on its expectations as to future
net revenues. If revenue levels are below expectations, operating results are
likely to be adversely affected. Net income, if any, may be disproportionately
affected by a reduction in net revenues because a proportionately smaller amount
of the Company's expenses varies with its net revenues. The impact of these and
other factors on the Company's sales and operating results in any future period
cannot be forecasted with certainty.
RESEARCH AND DEVELOPMENT
The disk drive industry in general, and the thin film disk
manufacturing industry in particular, are characterized by rapid technological
change and evolving industry standards. The Company has invested substantial
amounts in research and development for its disk sputtering systems and flat
panel display manufacturing equipment. The Company's research and development
expenses in 1995, 1994 and 1993 were $2.6 million, $3.5 million and $3.1
million, respectively, and represented 6.1%, 17.2% and 14.0%, respectively, of
net revenues. The Company's ability to remain competitive has required and will
continue to require substantial investments in research and development to
advance its technologies. The failure to develop, manufacture and market new
systems, or to enhance existing systems, would have a material adverse effect on
the Company's business, financial condition and results of operations. In the
past, the Company has experienced delays from time to time in the introduction
of, and certain technical difficulties with, certain of its systems and
enhancements. In addition, the Company's competitors can be expected to continue
to develop and introduce new and enhanced products, any of which could cause a
decline in market demand for the Company's systems or a reduction in the
Company's margins as a result of intensified price competition.
Changes in the manufacturing processes for thin-film disks could also
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company anticipates continued changes in the
requirements of the disk drive industry and thin-film disk manufacturing
technologies. There can be no assurance that the Company will be able to
develop, manufacture and sell systems that respond adequately to such changes.
In addition, the data storage industry is subject to constantly evolving
technological standards. There can be no assurance that future technological
innovations will not reduce demand for thin-film disks. The Company's business,
financial condition and results of operations could be materially adversely
affected by any trend toward technology that would replace thin-film disks as a
storage medium.
The Company's success in developing and selling new and enhanced
systems depends upon a variety of factors, including accurate prediction of
future customer requirements, technology advances, cost of
13.
<PAGE> 14
ownership, introduction of new products on schedule, cost-effective
manufacturing and product performance in the field. The Company's new product
decisions and development commitments must anticipate the requirements for the
continuously evolving disk drive industry approximately two or more years in
advance of sales. Any failure to accurately predict customer requirements and to
develop new generations of products to meet those requirements would have a
sustained material adverse effect on the Company's business, financial condition
and results of operations. New product transitions could adversely affect sales
of existing systems, and product introductions could contribute to quarterly
fluctuations in operating results as orders for new products commence and orders
for existing products decline. There can be no assurance that the Company will
be successful in selecting, developing, manufacturing and marketing new products
or enhancements of existing products.
MANUFACTURING
In certain instances, the Company is dependent upon a sole supplier or
a limited number of suppliers, or has qualified only a single or limited number
of suppliers, for certain complex components or sub-assemblies utilized in its
products. In addition, the Company makes extensive use of suppliers serving the
semiconductor equipment business and such suppliers may choose to give priority
to their semiconductor equipment customers that are much larger than the
Company. Any prolonged inability to obtain adequate deliveries could require the
Company to pay more for inventory, parts and other supplies, seek alternative
sources of supply, delay its ability to ship its products and damage
relationships with current and prospective customers. Any such delay or damage
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's backlog was $45.6 million and $25.2 million at March 30,
1996 and April 1, 1995, respectively. The Company includes in its backlog only
those customer orders for systems, component parts and contract research and
development for which it has accepted signed purchase orders with assigned
delivery dates. In the case of a cancellation of a system order, the Company's
system sales contracts generally provide for a non-refundable deposit, depending
upon when the order is cancelled, typically 30%. The equipment requirements for
thin-film disk manufacturers cannot be determined with accuracy, and therefore
the Company's backlog at any certain date may not be indicative of future demand
for the Company's manufacturing systems.
Due to recent increases in backlog, the average time between order and
shipment of the Company's systems may increase substantially in the future. The
Company's ability to quickly increase its manufacturing capacity in response to
short-term increases in demand could be limited given the complexity of the
manufacturing process, the lengthy lead times necessary to obtain critical
components and the need for highly skilled personnel. The failure of the Company
to satisfy any such short-term increases in demand and to keep pace with
customer demand would lead to further extensions of delivery times, which could
deter customers from placing additional orders, and could adversely affect
product quality. There can be no assurance that the Company will be successful
in increasing its manufacturing capacity.
Orders in backlog are subject to cancellation, and although the Company
generally requires a deposit on orders for its systems, such deposits may not be
sufficient to cover the expenses incurred by the Company for the manufacture of
the cancelled systems or fixed operating expenses associated with such systems
to the date of cancellation. The Company may from time to time manufacture a
system in anticipation of an order that may not be placed during the period or
at all. In any given quarter in which such system is manufactured, the Company
will not receive funds to cover the manufacturing costs. Orders may be subject
to delay, deferral or rescheduling by a customer. From the date the Company
receives an order, it often takes more than six months before the net revenues
from such order are recognized and even longer before final payment is received.
The relatively long manufacturing cycles of many of the Company's products has
caused and could cause shipments of such products to be delayed from one quarter
to the next,
14.
<PAGE> 15
which could materially adversely affect the Company's business, financial
condition and results of operations for a particular quarter. Announcements by
the Company or its competitors of new products and technologies could cause
customers to defer purchases of the Company's existing systems, which would have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company's systems have a large number of components and are highly
complex. The Company may experience delays and technical and manufacturing
difficulties in future introductions or volume production of new systems or
enhancements. In addition, some of the systems built by the Company must be
customized to meet individual customer site or operating requirements. The
Company has limited manufacturing capacity and may be unable to complete the
development or meet the technical specifications of its new systems or
enhancements or to manufacture and ship these systems or enhancements in a
timely manner. Such an occurrence would materially adversely affect the
Company's business, financial condition and results of operations as well as its
relationships with customers. In addition, the Company may incur substantial
unanticipated costs early in a product's life cycle, such as increased cost of
materials due to expediting charges, other purchasing inefficiencies and greater
than expected installation and support costs which cannot be passed on to the
customer. Any of such events could materially adversely affect the Company's
business, financial condition and results of operations.
FPD MANUFACTURING EQUIPMENT
The Company has limited experience in the development, manufacture,
sale and marketing of flat panel display manufacturing equipment, having sold
one RTP system to date and having not yet completed development of its flat
panel display sputtering system. There can be no assurance that the market for
flat panel display manufacturing equipment targeted by the Company will develop
as quickly or to the degree the Company currently anticipates, or that the
Company's proposed flat panel display manufacturing equipment will achieve
customer acceptance or that the Company will achieve any net revenues from the
sale of its proposed flat panel display manufacturing equipment. There can be no
assurance the Company will receive additional customer sponsored research and
development funding in the future. The failure to receive additional customer
sponsored research and development funds could result in the Company internally
funding the development of such flat panel display manufacturing equipment, and
the costs of such research and development may have a material adverse effect on
the Company's results of operations. There can be no assurance that the Company
in any event will continue to fund research and development in the flat panel
display area.
MANAGEMENT OF EXPANDING OPERATIONS
The Company has recently experienced a period of rapid expansion in its
operations that has placed, and could continue to place, a significant strain on
the Company's management and other resources. The Company's ability to manage
its expanding operations effectively will require it to continue to improve its
operational, financial, and management information systems, and to train,
motivate and manage its employees. If the Company's management is unable to
manage its expanding operations effectively, the Company's results of operations
could be adversely affected.
PATENTS, INTELLECTUAL PROPERTY AND LICENSING
There can be no assurance that any of the Company's patent applications
will be allowed or that any of the allowed applications will be issued as
patents. There can be no assurance that any patent owned by the Company will not
be invalidated, deemed unenforceable, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages to the Company or
that any of the Company's pending or future patent applications will be issued
with claims of the scope sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop similar products, duplicate the
Company's products or design around the patents owned by the Company. In
addition, there can be no assurance that foreign patent rights, intellectual
property laws or the Company's agreements will protect the
15.
<PAGE> 16
Company's intellectual property rights. Failure to protect the Company's
intellectual property rights could have a material adverse effect upon the
Company's business, financial condition and results of operations.
There have also been substantial amounts of litigation in the
technology industry regarding intellectual property rights. The Company has from
time to time received claims that it is infringing third parties' intellectual
property rights. In August 1993, Rockwell International Corporation ("Rockwell")
sued the Federal government alleging infringement of certain patent rights with
respect to the contracts the Federal government has had with a number of
companies, including Intevac. The Federal government has notified Intevac that
it may be liable to the Federal government in connection with contracts for
certain products from the Company's discontinued night vision business. Although
the Company believes it will have no material liability to the Federal
government under these contracts, there can be no assurance that the resolution
of the claims by Rockwell with the Federal government will not have a material
adverse effect on the Company's business, operating results and financial
condition. There can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future patents,
trademarks, or other proprietary rights relating to the Company's disk
sputtering systems, flat panel manufacturing equipment or other products. Any
present or future claims, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. Any of the foregoing could have a material adverse effect
upon the Company's business, operating results and financial condition.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations
relating to the use, storage, discharge, handling, emission, generation,
manufacture, treatment and disposal of toxic or other hazardous substances,
chemicals, materials or waste. Any failure to comply with current or future
regulations could result in substantial civil penalties or criminal fines being
imposed on the Company or its officers, directors or employees, suspension of
production, alteration of its manufacturing process or cessation of operations.
Such regulations could require the Company to acquire expensive remediation or
abatement equipment or to incur substantial expenses to comply with
environmental regulations. Any failure by the Company to properly manage the
use, disposal or storage of, or adequately restrict the release of, hazardous or
toxic substances could subject the Company to significant liabilities.
POTENTIAL ACQUISITIONS
The Company's business strategy includes expanding its product lines
and markets through internal product development and acquisitions of technology
or companies, such as the acquisition of Cathode Technology Corporation in
January 1996, a developer of advanced sputter source technology for the
production of disks used in computer hard disk drives, and the acquisition of
San Jose Technology Corp. in May 1996, a manufacturer of systems used to
lubricate thin-film disks. Any future acquisition may result in potentially
dilutive issuance of equity securities, the incurrence of debt and contingent
liabilities and amortization expense related to intangible assets acquired, any
of which could materially adversely affect the Company's business, financial
condition and results of operations. In particular, the Company will not be able
to use the "pooling of interests" method of accounting in connection with any
acquisition consummated within at least two years following the Company's
initial public offering, which was completed in November, 1995 and the Company
will therefore be required to amortize any intangible assets acquired in
connection with any acquisition consummated during that period. In addition,
acquired businesses may be experiencing operating losses. Any acquisition will
involve numerous risks, including difficulties in the assimilation of the
acquired company's employees, operations and products, uncertainties associated
with operating in new markets and working with new customers, and the potential
loss of the acquired company's key employees.
16.
<PAGE> 17
POSSIBLE VOLATILITY OF STOCK PRICE
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, failure to meet securities analysts' expectations, general conditions
in the disk drive and thin-film media manufacturing industries and the worldwide
economy, announcements of technological innovations, new systems or product
enhancements by the Company or its competitors, fluctuations in the level of
cooperative development funding, acquisitions, changes in governmental
regulations, developments in patents or other intellectual property rights and
changes in the Company's relationships with customers and suppliers could cause
the price of the Company's Common Stock to fluctuate substantially. In addition,
in recent years the stock market in general, and the market for small
capitalization and high technology stocks in particular, has experienced extreme
price fluctuations which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely affect the market price
of the Company's Common Stock.
CONCENTRATION OF STOCK OWNERSHIP
As of March 30, 1996, the present directors and their affiliates and
executive officers, in the aggregate, own beneficially approximately 78% of the
Company's outstanding shares of Common Stock. As a result, these shareholders,
acting together, are able to effectively control all matters requiring approval
by the shareholders of the Company, including the election of a majority of the
directors and approval of significant corporate transactions.
17.
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
Exhibit 10.12 Amended and Restated Loan Agreement,
dated March 14, 1996
Exhibit 11.1 Computation of Net Income Per Share
Exhibit 27 Financial Data Schedule
(b) On January 24, 1996, the registrant filed a report on Form 8-K,
regarding the acquisition of Cathode Technology Corporation.
18.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
INTEVAC, INC.
Date: May 10, 1996 By: /s/ CHARLES B. EDDY III
-------------------------------------------
Charles B. Eddy III
Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
19.
<PAGE> 20
EXHIBIT INDEX
EXHIBIT
NUMBER
- - ------
10.12 Amended and Restated Loan Agreement, dated March 14, 1996
11.1 Computation of Net Income Per Share
27 Financial Data Schedule
20.
<PAGE> 1
EXHIBIT 10.12
- - --------------------------------------------------------------------------------
INTEVAC, INC.
AMENDED AND RESTATED LOAN AGREEMENT
- - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION .................................. 1
1.1 Definitions ............................................. 1
1.2 Accounting Terms ........................................ 8
2. LOAN AND TERMS OF PAYMENT ..................................... 8
2.1 Advances ................................................ 8
2.2 LIBOR Option ............................................ 9
2.3 Interest Rates, Payments, and Calculations .............. 10
2.4 Crediting Payments ...................................... 10
2.5 Fees .................................................... 10
2.6 Additional Costs ........................................ 11
2.7 Term .................................................... 11
3. CONDITIONS OF ADVANCES ........................................ 11
3.1 Conditions Precedent to Initial Advance ................. 11
3.2 Conditions Precedent to all Advances .................... 11
4. REPRESENTATIONS AND WARRANTIES ................................ 12
4.1 Due Organization and Qualification ...................... 12
4.2 Due Authorization; No Conflict .......................... 12
4.3 No Prior Encumbrances ................................... 12
4.4 Merchantable Inventory .................................. 12
4.5 Name; Location of Chief Executive Office ................ 12
4.6 Litigation .............................................. 12
4.7 No Material Adverse Change in Financial Statements ...... 12
4.8 Solvency ................................................ 12
4.9 Regulatory Compliance ................................... 12
4.10 Environmental Condition ................................. 13
4.11 Taxes ................................................... 13
4.12 Subsidiaries ............................................ 13
4.13 Government Consents ..................................... 13
4.14 Full Disclosure ......................................... 13
5. AFFIRMATIVE COVENANTS ......................................... 13
5.1 Good Standing ........................................... 13
5.2 Government Compliance ................................... 14
5.3 Financial Statements, Reports, Certificates ............. 14
5.4 Inventory; Returns ...................................... 14
5.5 Taxes ................................................... 14
5.6 Insurance ............................................... 15
5.7 Principal Depository .................................... 15
5.8 Quick Ratio ............................................. 15
5.9 Debt-Net Worth Ratio .................................... 15
5.10 Tangible Net Worth ...................................... 15
5.11 Profitability ........................................... 15
5.12 1995 Financial Year Audit ............................... 15
5.13 Further Assurances ...................................... 16
6. NEGATIVE COVENANTS ............................................ 16
6.1 Dispositions ............................................ 16
6.2 Change in Business ...................................... 16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
6.3 Mergers or Acquisitions ................................. 16
6.4 Indebtedness ............................................ 16
6.5 Encumbrances ............................................ 16
6.6 Distributions ........................................... 16
6.7 Investments ............................................. 16
6.8 Transactions with Affiliates ............................ 17
6.9 Subordinated Debt ....................................... 17
6.10 Compliance .............................................. 17
7. EVENTS OF DEFAULT ............................................. 17
7.1 Payment Default ......................................... 17
7.2 Covenant Default ........................................ 17
7.3 Material Adverse Change ................................. 17
7.4 Attachment .............................................. 17
7.5 Insolvency .............................................. 18
7.6 Other Agreements ........................................ 18
7.7 Subordinated Debt ....................................... 18
7.8 Judgments ............................................... 18
7.9 Misrepresentations ...................................... 18
8. BANK'S RIGHTS AND REMEDIES .................................... 18
8.1 Rights and Remedies ..................................... 18
8.2 Power of Attorney ....................................... 19
8.3 Bank Expenses ........................................... 19
8.4 Remedies Cumulative ..................................... 19
8.5 Demand; Protest ......................................... 19
9. NOTICES ....................................................... 19
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER .................... 20
11. GENERAL PROVISIONS ............................................ 20
11.1 Successors and Assigns .................................. 20
11.2 Indemnification ......................................... 21
11.3 Time of Essence ......................................... 21
11.4 Severability of Provisions .............................. 21
11.5 Amendments in Writing, Integration ...................... 21
11.6 Counterparts ............................................ 21
11.7 Survival ................................................ 22
11.8 Confidentiality ......................................... 22
</TABLE>
ii
<PAGE> 4
This AMENDED AND RESTATED LOAN AGREEMENT is entered into as of March 14,
1996, by and between SILICON VALLEY BANK ("Bank") and INTEVAC, INC.
("Borrower").
RECITALS
Borrower and Bank are parties to certain loan agreements under which
Borrower has obtained credit from Bank. Borrower wishes to continue to obtain
credit from Bank, and Bank desires to continue to provide credit to Borrower.
This Agreement sets forth the terms on which Bank will lend to Borrower, and
Borrower will repay the loan to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by Borrower, whether or not earned by performance, and any and all
credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books relating
to any of the foregoing.
"Advance" or "Advances" means an Advance under the
Revolving Facility.
"Affiliate" means, with respect to any Person, any
Person that owns or controls directly or indirectly such Person, any Person
that controls or is controlled by or is under common control with such Person,
and each of such Person's senior executive officers, directors, and partners.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents, and Bank's reasonable attorney's fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Borrowing Base" has the meaning set forth in Section
2.1 hereof.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California are authorized
or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Committed Line" means Ten Million Dollars
($10,000,000).
"Contingent Obligation" means, as applied to any
Person, any direct or indirect liability, contingent or otherwise, of that
Person with respect to (i) any indebtedness, lease, dividend, Letter of Credit
or other obligation of another, including, without limitation, any such
obligation directly or indirectly guaranteed, endorsed, co-made or discounted
or sold with recourse by that Person, or in respect of which that Person is
otherwise directly or indirectly liable; (ii) any obligations
<PAGE> 5
with respect to undrawn Letters of Credit issued for the account of that
Person; and (iii) all obligations arising under any interest rate, currency or
commodity swap agreement, interest rate cap agreement, interest rate collar
agreement, or other agreement or arrangement designated to protect a Person
against fluctuation in interest rates, currency exchange rates or commodity
prices; provided, however, that the term "Contingent Obligation" shall not
include endorsements for collection or deposit in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
as determined by such Person in good faith; provided, however, that such amount
shall not in any event exceed the maximum amount of the obligations under the
guarantee or other support arrangement.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on the
consolidated balance sheet of Borrower and its Subsidiaries, as at such date,
plus, to the extent not already included therein, all outstanding Advances made
under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the end of
a given day.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon thirty (30) days prior written notification
thereof to Borrower in accordance with the provisions hereof. Unless otherwise
agreed to by Bank, Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within (90) days
of invoice date;
(c) Accounts with respect to which the account debtor is an
officer, employee, or agent of Borrower;
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is an
Affiliate of Borrower;
(f) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, except for Eligible
Foreign Accounts;
(g) Accounts with respect to which the account debtor is the
United States or any department, agency, or instrumentality of the United
States, except to the extent Borrower has filed notices under the Assignment of
Claims Act in a form acceptable to Bank.
2
<PAGE> 6
(h) Accounts with respect to which Borrower is liable to the
account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of any amounts owing to the account debtor
against amounts owed to Borrower;
(i) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed
twenty-five percent (25%) of all Accounts, to the extent such obligations
exceed the aforementioned percentage, except for the accounts of Seagate for
which the applicable percentage shall be fifty percent (50%) and as pre-approved
by Bank in writing;
(j) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes, in
its sole discretion, that there may be a basis for dispute (but only to the
extent of the amount subject to such dispute or claim), or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(k) Accounts the collection of which Bank reasonably determines to
be doubtful.
"Eligible Foreign Accounts" means Accounts with respect to which the
account debtor does not have its principal place of business in the United
States and that are: (1) covered by credit insurance in form and amount, and by
an insurer satisfactory to Bank less the amount of any deductible(s) which may
be or become owing thereon; or (2) supported by one or more letters of credit
in favor of Bank as beneficiary, in an amount and of a tenor, and issued by a
financial institution, acceptable to Bank; or (3) that Bank approves on a
case-by-case basis including those Accounts of Matsubo (which Bank has
pre-approved).
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect from
time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and Letters of
Credit, (b) all obligations evidenced by notes, bonds, debentures or similar
instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy Code,
as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products intended
for sale or lease or to be furnished under a contract of service, of every kind
and description now or at any time hereafter owned by or in the custody or
possession, actual or constructive, of Borrower, including such inventory as is
temporarily out of its custody or possession or in transit and including any
returns upon any accounts or other proceeds, including insurance proceeds,
resulting from the sale or disposition of any of the foregoing and any
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documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"LIBOR Supplement" means that certain LIBOR Supplement to Agreement
between Borrower and Bank of even date herewith.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, the LIBOR
Supplement, any note or notes executed by Borrower, and any other agreement
entered into between Borrower and Bank in connection with this Agreement, all
as amended or extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means March 13, 1997.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing
or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Bank
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in the
Schedule;
(c) Indebtedness to trade creditors and with respect to surety bonds
and similar obligations incurred in the ordinary course of business;
(d) Subordinated Debt;
(e) Indebtedness of Borrower to any Subsidiary and Contingent
Obligations of any Subsidiary with respect to obligations of Borrower (provided
that the primary obligations are not prohibited hereby), and Indebtedness of
any Subsidiary to any other Subsidiary and Contingent Obligations of any
Subsidiary with respect to obligations of any other Subsidiary (provided that
the primary obligations are not prohibited hereby);
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(f) Indebtedness secured by Permitted Liens;
(g) Capital leases or indebtedness incurred solely to
purchase equipment which is secured in accordance with clause (c) of "Permitted
Liens" below and is not in excess of the lesser of the purchase price of such
equipment or the fair market value of such equipment on the date of
acquisition; and
(h) Extensions, refinancings, modifications, amendments and
restatements of any of items of Permitted Indebtedness (a) through (g) above,
provided that the principal amount thereof is not increased or the terms
thereof are not modified to impose more burdensome terms upon Borrower or its
Subsidiary, as the case may be.
"Permitted Investment" means;
(a) Investments existing on the Closing Date disclosed in
the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank, and (iv) any Investments permitted by
Borrower's investment policy, as amended from time to time, provided that such
investment policy (any such amendment thereto) has been approved by Bank;
(c) Investments consisting of the endorsement of negotiable
instrument for deposit or collection or similar transaction in the ordinary
course of business;
(d) Investments accepted in connection with Transfers
permitted by Section 6.1;
(e) Investments (whether consisting of the purchase or
securities, loans, capital contribution, or otherwise) of Subsidiaries in or to
other Subsidiaries or in Borrower;
(f) Investments consisting of (i) compensation of
employees, officers and directors of Borrower or its Subsidiaries so long as
the Board of Directors of Borrower determines that such compensation is in the
best interests of Borrower, (ii) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business, and (iii)
loans to employees, officers or directors relating to the purchase of equity
securities of Borrower or its Subsidiaries pursuant to employee stock purchase
plans or agreements approved by Borrower's Board of Directors;
(g) Investments (including debt obligations) received in
connection with the bankruptcy or reorganization of customers or suppliers and
in settlement of delinquent obligations of, and other disputes with, customers
or suppliers arising in the ordinary course of business;
(h) Investments pursuant to or arising under currency
agreements or interest rate agreements entered into in the ordinary course of
business;
(i) Investments consisting of notes receivable of, or
prepaid royalties and other credit extensions, to customers and suppliers who
are not Affiliates, in the ordinary course of business; provided that this
paragraph (i) shall not apply to Investments by Borrower in any Subsidiary;
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(j) Investments constituting acquisitions permitted under Section 6.3;
(k) Deposit accounts of Borrower in which Bank has a Lien prior to any
other Lien; and
(l) Investments made in accordance with Borrower's investment policy,
as reviewed by Bank and approved from time to time by Borrower's board of
directors.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule;
(b) Liens for taxes, fees, assessments or other governmental charges or
levies, either not delinquent or being contested in good faith by appropriate
proceedings, provided the same have no priority over any of Bank's security
interests;
(c) Liens (i) upon or in any equipment acquired or held by Borrower or
any of its Subsidiaries to secure the purchase price of such equipment or
indebtedness incurred solely for the purpose of financing the acquisition of
such equipment, or (ii) existing on such equipment at the time of its
acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any Subsidiary pursuant to
an operating or capital lease in the ordinary course of business (including
proceeds thereof and accessions thereto) incurred solely for the purpose of
financing the lease of such Equipment (including Liens pursuant to leases
permitted pursuant to Section 6.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement);
(e) Leases or subleases and license and sublicenses granted to others
in the ordinary course of Borrower's business not interfering in any material
respect with the business of Borrower and its Subsidiaries taken as a whole,
and any interest or title of a lessor, licensor or under any lease or license;
(f) Liens on assets (including the proceeds thereof and accessions
thereto) that existed at the time such assets were acquired by Borrower or any
Subsidiary (including Liens on assets of any corporation that existed at the
time it became or becomes a Subsidiary); provided such Liens are not granted in
contemplation of or in connection with the acquisition of such asset by
Borrower or a Subsidiary;
(g) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 7.8;
(h) Easements, reservations, rights-of-way, restrictions, minor defects
or irregularities in title and other similar charges or encumbrances affecting
real property not constituting a Material Adverse Effect;
(i) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payments of customs duties in connection with the
importation of goods;
(j) Liens that are not prior to the Lien of Bank which constitute rights
of set-off of a customary nature of banker's Liens with respect to amounts on
deposit, whether arising by operation of law or by contract, in connection with
arrangement entered into with banks in the ordinary course of business;
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(k) Earn-out and royalty obligations existing on the date hereof or
entered into in connection with an acquisition permitted by Section 6.3;
(l) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a), (c), (d), (e), (f) and (k) above, provided that any extension,
renewal or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; and
(m) Liens on insurance proceeds in favor of insurance companies
granted solely as security for financed premiums.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such announced
rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount thereof shall
be determined, the consolidated cash, cash-equivalents, accounts receivable and
investments with maturities not to exceed twelve (12) months of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances, as specified in Section 2.1 hereof.
"Schedule" means the schedule of exceptions, if any, attached hereto.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i) any
general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the Board of Directors,
managers or trustees of the entity shall, at the time as of which any
determination is being made, be owned by Borrower, either directly or through
an Affiliate.
"Tangible Net Worth" means at any date as of which the amount thereof
shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts
attributable to (a) goodwill, (b) intangible items such as unamortized debt
discount and expense, patents, trade and service marks and names, copyrights
and research and development expenses except prepaid expenses, including, but
not limited to, any Investments that Borrower has made in Cathode Technology
Corporation or 601 California Avenue, and (c) all reserves not already deducted
from assets, and (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the amount thereof
shall be determined, all obligations that should, in accordance with GAAP be
classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding
Subordinated Debt.
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1.2 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Advances. Subject to and upon the terms and conditions of
this Agreement, Bank agrees to make Advances to Borrower in an aggregate amount
not to exceed the lesser of (i) the Committed Line minus the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) and minus the outstanding amount of the Foreign Exchange Reserve, or
(ii) the Borrowing Base minus the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) and minus the
outstanding amount of the Foreign Exchange Reserve. For purposes of this
Agreement, "Borrowing Base" shall mean an amount equal to Three Million Dollars
($3,000,000), provided that if the aggregate outstanding Advances exceed Three
Million Dollars ($3,000,000), "Borrowing Base" shall mean an amount equal to
eighty percent (80%) of Eligible Accounts. Subject to the terms and conditions
of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid
and reborrowed at any time during the term of this Agreement.
Whenever Borrower desires an Advance, Borrower will notify Bank by
facsimile transmission or telephone no later than 3:00 p.m. California time, on
the Business Day that the Advance is to be made. Each such notification shall
be promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit A hereto or a LIBOR Rate Advance Form as attached to the LIBOR
Supplement. Bank is authorized to make Advances under this Agreement or under
the LIBOR Supplement, based upon instructions received from a Responsible
Officer, or without instructions if in Bank's discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Advances made under this Section
2.1 to Borrower's deposit account.
The Revolving Facility shall terminate on the Maturity Date, at which
time all Advances under this Section 2.1 and other amounts due under this
Agreement shall be immediately due and payable.
2.1.1 Letters of Credit.
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate face amount not to exceed (i) the
Committed Line minus the then outstanding principal balance of the Advances
minus the outstanding amount of the Foreign Exchange Reserve or (ii) the
Borrowing Base minus the then outstanding principal balance of the Advances
minus the outstanding amount of the Foreign Exchange Reserve; provided that the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letter of Credit) shall not in any case exceed Five Million Dollars
($5,000,000). Each such Letter of Credit shall have an expiry date no later than
the Maturity Date, provided that Borrower's Letter of Credit reimbursement
obligation shall be secured by cash on terms acceptable to Bank at any time
after the Maturity Date if the term of this Agreement is not extended by Bank.
All such Letters of Credit shall be, in form and substance, acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of
Bank's form of application and letter of credit agreement.
(b) The obligation of Borrower to immediately
reimburse Bank for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms of this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrower shall indemnify, defend and hold Bank
harmless from any
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loss, cost, expense or liability, including, without limitation, reasonable
attorneys' fees, arising out of or in connection with any Letters of Credit.
2.1.2 Letter of Credit Reimbursement; Reserve.
(a) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such Letter of Credit, Bank shall treat such demand as an
advance to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(b) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a reserve under
the Committed Line for Letters of Credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face amount of
such Letter of Credit. The amount of such reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Committed Line shall be reduced by the amount of such
reserve for so long as such Letter of Credit remains outstanding.
2.1.3 Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may
utilize up to One Million Dollars ($1,000,000) for foreign exchange contracts
(the "Exchange Contracts"), pursuant to which Bank shall sell to or purchase
from Borrower foreign currency on a spot or future basis. All Exchange
Contracts must provide for delivery of settlement on or before the Maturity
Date. The limit available at any time shall be reduced by the following amounts
(the "Foreign Exchange Reserve") on each day (the "Determination Date"): (i) on
all outstanding Exchange Contracts on which delivery is to be effected or
settlement allowed more than two business days from the Determination Date, 10%
of the gross amount of the Exchange Contracts; plus (ii) on all outstanding
Exchange Contracts on which delivery is to be effected or settlement allowed
within two business days after the Determination Date, 100% of the gross amount
of the Exchange Contracts. In lieu of the Foreign Exchange Reserve for 100% of
the gross amount of any Exchange Contract, Borrower may request that Bank treat
such amount as an Advance under the Committed Line.
(b) Bank may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs or (b) that there is
no sufficient availability under the Committed Line and Borrower does not have
available funds in its bank account to satisfy the Foreign Exchange Reserve. If
Bank terminates the Exchange Contracts, and without limitation of any
applicable indemnities, Borrower agrees to reimburse Bank for any and all fees,
costs and expenses relating thereto or arising in connection therewith.
(c) Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected and settlement allowed
in any two business day period to be more than One Million Dollars ($1,000,000)
nor shall Borrower permit the total gross amount of all Exchange Contracts to
which Borrower is a party, outstanding at any one time, to exceed One Million
Dollars ($1,000,000).
(d) Borrower shall execute all standard form applications
and agreements of Bank in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the Exchange Contracts.
2.2 LIBOR Option. Borrower shall be entitled to request Advances in
accordance with the LIBOR Supplement, which shall govern all LIBOR Advances, as
defined therein.
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2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average Daily Balance, at a rate equal to
the Prime Rate or the rate specified in the LIBOR Supplement.
(b) Default Rate. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on the
thirteenth calendar day of each month during the term hereof. Bank shall, at
its option, charge such interest, all Bank Expenses, and all Periodic Payments
against any of Borrower's deposit accounts or against the Committed Line, in
which case those amounts shall thereafter accrue interest at the rate then
applicable hereunder. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interest hereunder shall be increased
or decreased effective as of 12:01 a.m. on the day the Prime Rate is changed,
by an amount equal to such change in the Prime Rate. All interest chargeable
under the Loan Documents shall be computed on the basis of a three hundred
sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment shall be immediately applied to conditionally
reduce Obligations, but shall not be considered a payment on account unless such
payment is of immediately available federal funds or unless and until such
check or other item of payment is honored when presented for payment.
Notwithstanding anything to the contrary contained herein, any wire transfer or
payment received by Bank after 12:00 noon California time shall be deemed to
have been received by Bank as of the opening of business on the immediately
following Business Day. Whenever any payment to Bank under the Loan Documents
would otherwise be due (except by reason of acceleration) on a date that is not
a Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable
for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. A Facility Fee equal to Seven Thousand Three
Hundred Sixty-one Dollars ($7,361), which fee shall be due on the Closing Date
and shall be fully earned and nonrefundable;
(b) Financial Examination and Appraisal Fees. Bank's customary fees
and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and for
each appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon the date hereof, all Bank Expenses incurred
through the Closing Date, including reasonable attorneys' fees and expenses,
incurred in connection with the preparation and negotiation of this Agreement,
and after the date hereof, all Bank Expenses upon delivery to Borrower of an
invoice therefor.
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2.6 Additional Costs. In case any change in any law,
regulation, treaty or official directive or the interpretation or application
thereof by any court or any governmental authority charged with the
administration thereof or the compliance with any guideline or request of any
central bank or other governmental authority (whether or not having the force
of law), in each case after the date of this Agreement:
(a) subjects Bank to any tax with respect to
payments of principal or interest or any other amounts payable hereunder by
Borrower or otherwise with respect to the transactions contemplated hereby
(except for taxes on the overall net income of Bank imposed by the United States
of America or any political subdivision thereof);
(b) imposes, modifies or deems applicable any
deposit insurance, reserve, special deposit or similar requirement against
assets held by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with
respect to its performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank
the amount of such increase in cost, reduction in income or additional expense
as and when such cost, reduction or expense is incurred or determined, upon
presentation by Bank of a statement of the amount and setting forth Bank's
calculation thereof, all in reasonable detail, which statement shall be deemed
true and correct absent manifest error, provided, however, that Borrower shall
not be liable for any such amount attributable to any period prior to the date
one hundred and eighty (180) days prior to the date of such certificate.
2.7 Term. This Agreement shall become effective on the
Closing Date and, subject to Section 11.7, shall continue in full force and
effect for a term ending on the Maturity Date. Notwithstanding the foregoing,
Bank shall have the right to terminate its obligation to make Advances under
this Agreement immediately and without notice upon the occurrence and during the
continuance of an Event of Default.
3. CONDITIONS OF ADVANCES
3.1 Conditions Precedent to Initial Advance. The obligation
of Bank to make the initial Advance is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with
respect to incumbency and resolutions authorizing the execution and delivery of
this Agreement;
(c) the LIBOR Supplement;
(d) payment of the fees and Bank Expenses then due
specified in Section 2.5 hereof; and
(e) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Advances. The obligation of
Bank to make each Advance, including the initial Advance, is further subject to
the following conditions:
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(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in Section 4
shall be true and correct in all material respects on and as of the date of
such Payment/Advance Form and on the effective date of each Advance as though
made at and as of each such date, and no Event of Default shall have occurred
and be continuing, or would result from such Advance. The making of each
Advance shall be deemed to be a representation and warranty by Borrower on the
date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants (subject to the disclosures
and exceptions set forth in Borrower's prospectus dated November 21, 1995) as
follows:
4.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws
of its state of incorporation and qualified and licensed to do business in, and
is in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
4.2 Due Authorization; No Conflict. The execution, delivery,
and performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement to which it is a party or by which it is bound, which
default could have a Material Adverse Effect.
4.3 No Prior Encumbrances. Borrower has good and indefeasible
title to the Collateral, free and clear of Liens, except for Permitted Liens.
4.4 Merchantable Inventory. All Inventory is in all material
respects of good and marketable quality, free from all material defects.
4.5 Name; Location of Chief Executive Office. Borrower has
not done business under any name other than that specified on the signature
page hereof. The chief executive office of Borrower is located at the address
indicated in Section 9 hereof.
4.6 Litigation. There are no actions or proceedings pending
by or against Borrower or any Subsidiary before any court or administrative
agency in which an adverse decision could have a Material Adverse Effect.
Borrower does not have knowledge of any such pending or threatened actions or
proceedings.
4.7 No Material Adverse Change in Financial Statements. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material respects
Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
4.8 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature.
4.9 Regulatory Compliance. Borrower and each Subsidiary has
met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to
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result in Borrower's incurring any liability that could have a Material Adverse
Effect. Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940.
Borrower is not engaged principally, or as one of the important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulations G, T and U of the Board of
Governors of the Federal Reserve System). Borrower has complied with all the
provisions of the Federal Fair Labor Standards Act. Borrower has not violated
any statutes, laws, ordinances or rules applicable to it, violation of which
could have a Material Adverse Effect.
4.10 Environmental Condition. Except as disclosed in Borrower's
prospectus dated November 21, 1995, none of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with applicable
law; to the best of Borrower's knowledge, none of Borrower's properties or
assets has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection statute
has attached to any revenues or to any real or personal property owned by
Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has
received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other governmental agency
concerning any action or omission by Borrower or any Subsidiary resulting in the
releasing, or otherwise disposing of hazardous waste or hazardous substances
into the environment.
4.11 Taxes. Borrower and each Subsidiary have filed or caused to be
filed all tax returns required to be filed, and have paid, or have made
adequate provision for the payment of, all taxes reflected therein.
4.12 Subsidiaries. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
4.13 Government Consents. Borrower and each Subsidiary have obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of their respective businesses as currently
conducted.
4.14 Full Disclosure. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained in such certificates
or statements not misleading (it being recognized by Bank, except as provided
in Section 5.12, that the projections and forecasts provided by Borrower are
not viewed as facts and that the actual results during the period or periods
covered by any such projections or forecasts may differ from the projected or
forecasted results).
5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
5.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with
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prudent management of Borrower's business, in force all licenses, approvals and
agreements, the loss of which could have a Material Adverse Effect.
5.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect.
5.3 Financial Statements, Reports, Certificates. Borrower
shall deliver to Bank: (a) as soon as available, but in any event within
forty-five (45) days after the end of each fiscal quarter, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, certified by a Responsible Officer; (b) as soon
as available, but in any event within ninety (90) days after the end of
Borrower's fiscal year, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) within five (5) days
upon becoming available, copies of all statements, reports and notices sent or
made available generally by Borrower to its security holders or to any holders
of Subordinated Debt and all reports on Form 10-K and 10-Q filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice thereof,
a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more; and (e) such budgets, sales
projections, operating plans or other financial information as Bank may
reasonably request from time to time.
Within twenty (20) days after the last day of each month in which the
outstanding Advances under this Agreement exceed Three Million Dollars
($3,000,000), Borrower shall deliver to Bank a Borrowing Base Certificate
signed by a Responsible Officer in substantially the form of Exhibit B hereto,
together with aged listings of accounts receivable and accounts payable.
Borrower shall deliver to Bank with the quarterly financial statements
a Compliance Certificate signed by a Responsible Officer in substantially the
form of Exhibit C hereto.
As a condition to Borrower's requesting any Advances that would cause
the aggregate outstanding balance of cash Advances to exceed One Million
Dollars ($1,000,000), Bank shall have a right to audit Borrower's Accounts at
Borrower's expense.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than annually unless an Event of Default has occurred and is
continuing.
5.4 Inventory; Returns. Borrower shall keep all Inventory
in good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Two Hundred Thousand Dollars ($200,000).
5.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law,
and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof; and Borrower will make, and will
cause each Subsidiary to make, timely payment or deposit of all material tax
payments and withholding taxes required of it by applicable laws, including,
but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability,
and local, state, and federal income taxes, and will, upon request, furnish
Bank with proof satisfactory
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to Bank indicating that Borrower or a Subsidiary has made such payments or
deposits; provided that Borrower or a Subsidiary need not make any payment if
the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower.
5.6 Insurance.
(a) Borrower, at its expense, shall keep its business
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's ownership and use of its assets in amounts and of a type
that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as reasonably satisfactory to Bank.
All such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional
loss payee thereof and all liability insurance policies shall show the Bank as
an additional insured, and shall specify that the insurer must give at least
twenty (20) days notice to Bank before canceling its policy for any reason.
Upon Bank's request, Borrower shall deliver to Bank certified copies of such
policies of insurance and evidence of the payments of all premiums therefor.
After the occurrence of an Event of Default, all proceeds payable under any
such policy shall, at the option of Bank, be payable to Bank to be applied on
account of the Obligations.
5.7 Principal Depository. Borrower shall maintain its
principal depository and operating accounts with Bank.
5.8 Quick Ratio. Borrower shall maintain, as of the last day
of each fiscal quarter, a ratio of Quick Assets to Current Liabilities
(excluding non-refundable customer deposits) of at least 1.75 to 1.00.
5.9 Debt-Net Worth Ratio. Borrower shall maintain, as of the
last day of each fiscal quarter, a ratio of Total Liabilities (excluding
non-refundable customer deposits) less Subordinated Debt to Tangible Net Worth
plus Subordinated Debt of not more than 1.00 to 1.00.
5.10 Tangible Net Worth. Borrower shall maintain, as of the
last day of each fiscal quarter, a Tangible Net Worth of not less than Twenty
Million Dollars ($20,000,000) plus, fifty percent (50%) of net profit after
taxes, plus seventy-five percent (75%) of new equity proceeds without a
reduction for net losses.
5.11 Profitability. Borrower shall have a minimum net profit
of One Million Five Hundred Thousand Dollars ($1,500,000) at the end of each
fiscal year. Borrower shall not suffer two consecutive quarterly losses.
5.12 1995 Financial Year Audit. The audited consolidated
financial statements of Borrower for the fiscal year ending December 31, 1995
delivered to Bank in accordance with Section 5.3 hereto shall not materially
differ from those prepared by Borrower and delivered to Bank immediately prior
to the Closing Date. In the event such financial statements materially differ,
Borrower and Bank shall execute such documents, as Bank deems appropriate, to
provide Bank with a first priority security interest in all of Borrower's
personal property. For purposes of this Section 5.12, Bank shall determine in
its sole discretion whether such financial statements differ in any material
respect.
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5.13 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
6. NEGATIVE COVENANTS
Borrower covenants and agrees that, without the prior written
consent of Bank, which may be withheld in Bank's sole discretion, so long as
any credit hereunder shall be available and until payment in full of the
outstanding Obligations or for so long as Bank may have any commitment to make
any Advances, Borrower will not do any of the following:
6.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; or (iii) Transfer of worn-out or
obsolete Equipment, or Equipment financed by other vendors; (iv) Transfers
which constitute liquidation of Investments permitted under Section 6.7; and
(v) other Transfers not otherwise permitted by this Section 6.1 not exceeding
One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year.
6.2 Change in Business. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or suffer a material change in
Borrower's ownership. Borrower will not, without thirty (30) days prior written
notification to Bank, relocate its chief executive office.
6.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to
acquire, all or substantially all of the capital stock or property of another
Person where the aggregate consideration paid in any fiscal year with respect
to such mergers, consolidations and acquisitions exceeds Eight Million Dollars
($8,000,000) or where the cash payments made in connection with such mergers,
consolidations or acquisitions during the twelve month period following the
date of this Agreement exceed Five Million Dollars ($5,000,000); provided that
this Section 6.3 shall not apply to (i) the purchase of inventory, equipment or
intellectual property rights in any transaction valued at less than One Hundred
Thousand Dollars ($100,000) in the ordinary course of business or (ii)
transactions among Subsidiaries or among Borrower and its Subsidiaries in which
Borrower is the surviving entity.
6.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
6.5 Encumbrances. Create, incur, assume or suffer to exist
any Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any accounts receivable, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
6.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock; provided, that (i) Borrower may declare and make any
dividend payment or other distribution payable in its equity securities, (ii)
Borrower may convert any of its convertible securities into other securities
pursuant to the terms of such convertible securities or otherwise in exchange
therefor, and (iii) Borrower may repurchase stock for so long as an Event of
Default has not occurred, and will not exist after giving effect to such
repurchase.
6.7 Investments. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments.
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6.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a nonaffiliated
Person except for transactions with a Subsidiary that are upon fair and
reasonable terms and transactions constituting Permitted Investments.
6.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
6.10 Compliance. Become an "investment company" controlled
by an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could have a Material Adverse Effect, or permit any of its
Subsidiaries to do any of the foregoing.
7. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an
Event of Default by Borrower under this Agreement:
7.1 Payment Default. If Borrower fails to pay the principal
of, or any interest on, any Advances when due and payable; or fails to pay any
portion of any other Obligations not constituting such principal or interest,
including without limitation Bank Expenses, within thirty (30) days of receipt
by Borrower of an invoice for such other Obligations;
7.2 Covenant Default. If Borrower fails to perform any
obligation under Sections 5.8, 5.9, 5.10, 5.11 or 5.12 or violates any of the
covenants contained in Article 6 of this Agreement, or fails or neglects to
perform, keep, or observe any other material term, provision, condition,
covenant, or agreement contained in this Agreement, in any of the Loan
Documents, or in any other present or future agreement between Borrower and
Bank and as to any default under such other term, provision, condition,
covenant or agreement that can be cured, has failed to cure such default within
ten (10) days after Borrower receives notice thereof or any officer of Borrower
becomes aware thereof; provided, however, that if the default cannot by its
nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrower be cured within such ten (10) day period, and such default
is likely to be cured within a reasonable time, then Borrower shall have an
additional reasonable period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
7.3 Material Adverse Change. If there occurs a material
adverse change in Borrower's business or financial condition, or if there is a
material impairment of the prospect of repayment of any portion of the
Obligations;
7.4 Attachment. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within thirty
(30) days, or if Borrower is enjoined, restrained, or in any way prevented by
court order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
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material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within twenty (20) days after Borrower receives notice
thereof, provided that none of the foregoing shall constitute an Event of
Default where such action or event is stayed or an adequate bond has been
posted pending a good faith contest by Borrower (provided that no Advances will
be required to be made during such cure period);
7.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is
commenced against Borrower and is not dismissed or stayed within thirty (30)
days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
7.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity of
any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
7.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
7.8 Judgments. If a judgment or judgments for the payment of money in
an amount, individually or in the aggregate, of at least Five Hundred Thousand
Dollars ($500,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
7.9 Misrepresentations. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set
forth herein or in any certificate delivered to Bank by any Responsible Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or
any other Loan Document.
8. BANK'S RIGHTS AND REMEDIES
8.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due
and payable (provided that upon the occurrence of an Event of Default described
in Section 7.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank; and
(c) Demand that Borrower (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
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(e) Without notice to Borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank, or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank.
8.2 Power of Attorney. Effective only upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice
or bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices
to account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the Accounts directly with account debtors, for
amounts and upon terms which Bank determines to be reasonable. The appointment
of Bank as Borrower's attorney in fact, and each and every one of Bank's rights
and powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and Bank's obligation to provide Advances
hereunder is terminated.
8.3 Bank Expenses. If Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Revolving Facility as Bank deems necessary to protect Bank
from the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type discussed in Section 5.6 of this Agreement, and take any
action with respect to such policies as Bank deems prudent. Any amounts so
paid or deposited by Bank shall constitute Bank Expenses, shall be immediately
due and payable, and shall bear interest at the then applicable rate
hereinabove provided. Any payments made by Bank shall not constitute an
agreement by Bank to make similar payments in the future or a waiver by Bank of
any Event of Default under this Agreement.
8.4 Remedies Cumulative. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under applicable law. No exercise by Bank of one right or
remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
8.5 Demand; Protest. Borrower waives demand, protest, notice
of protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Bank on which Borrower may in any way be liable.
9. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
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If to Borrower: Intevac, Inc.
3550 Basset Street
Santa Clara, CA 95054
Attn: Chief Financial Officer
FAX: (408) 727-5739
If to Bank: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054
Attn: Mike Field
FAX: (408) 748-9478
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
10. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in
accordance with, the internal laws of the State of California, without regard
to principles of conflicts of law. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND
AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
11. GENERAL PROVISIONS
11.1 Successors and Assigns.
(a) This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participations in all or any part of, or any interest in
Bank's obligations, rights and benefits hereunder, subject to the provisions of
this Section 11.1.
(b) Bank may sell, negotiate or grant
participations to other financial institutions in all or part of the
obligations of the Borrower outstanding under the Loan Documents, without
notice to or the approval of Borrower; provided that any such sale, negotiation
or participation shall be in compliance with the applicable federal and state
securities laws and the other requirements of this Section 11.1.
Notwithstanding the sale, negotiation or grant of participations, Bank shall
remain solely responsible for the performance of its obligations under this
Agreement, and Borrower shall continue to deal solely and directly with Bank in
connection with this Agreement and the other Loan Documents.
(c) The grant of a participation interest shall be
on such terms as Bank determines are appropriate, provided only that (1) the
holder of such a participation interest shall not have any of the rights of
Bank under this Agreement except, if the participation agreement so
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provides, rights to demand the payment of costs of the type described in
Section 2.6, provided that the aggregate amount that the Borrower shall be
required to pay under Section 2.6 with respect to any ratable share of the
Committed Line or any Advance (including amounts paid to participants) shall
not exceed the amount that Borrower would have had to pay if no participation
agreements had been entered into, and (2) the consent of the holder of such a
participation interest shall not be required for amendments or waivers of
provisions of the Loan Agreement other than those which (i) increase the amount
of the Committed Line, (ii) extend the term of this Agreement, (iii) decrease
the rate of interest or the amount of any fee or any other amount payable to
Bank under this Agreement, (iv) reduce the principal amount payable under this
Agreement, or (v) extend the date fixed for the payment of principal or
interest or any other amount payable under this Agreement.
(d) Bank may assign, from time to time, all or any
portion of the Committed Line to an Affiliate of Bank or to The Federal Reserve
Bank or, subject to the prior written approval of Borrower (which approval will
not be unreasonably withheld), to any other financial institution; provided,
that (i) the amount of the Committed Line being assigned pursuant to each such
assignment shall in no event be less than $400,000 and shall be an integral
multiple of $200,000 and (ii) the parties to each such assignment shall execute
and deliver to Borrower an assignment agreement in a form reasonably acceptable
to each. Upon such execution and delivery, from and after the effective date
specified in such assignment agreement (x) the assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such assignment agreement, have the rights and
obligations of a Bank hereunder and (y) Bank shall, to the extent that rights
and obligations hereunder have been assigned by it pursuant to such assignment
agreement, relinquish its rights and be released from its obligations under this
Agreement (other than pursuant to this Section 11.1(d)), and, in the case of an
assignment agreement covering all or the remaining portion of Bank's rights and
obligations under this Agreement, Bank shall cease to be a party hereto. In the
event of an assignment hereunder, the parties agree to amend this Agreement to
the extent necessary to reflect the mechanical changes which are necessary to
document such assignment. Each party shall bear its own expenses (including
without limitation attorneys' fees and costs) with respect to such an amendment.
11.2 Indemnification. Borrower shall defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
11.3 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
11.4 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
11.5 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
11.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
21
<PAGE> 25
11.7 Survival. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations (excluding Obligations under Section 2.6 and 11.2 to the extent
they remain inchoate at the time the outstanding payment Obligations are paid
in full) remain outstanding. The obligations of Borrower to indemnify Bank with
respect to the expenses, damages, losses, costs and liabilities described in
Section 11.2 shall survive until all applicable statute of limitations periods
with respect to actions that may be brought against Bank have run.
11.8 Confidentiality. In handling any confidential information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Bank in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order (iv) as may be required in connection with the
examination, audit or similar investigation of Bank and (v) as Bank may deem
appropriate in the exercise of its remedies under this Agreement. Confidential
information hereunder shall not include information that either: (a) is in the
public domain or in the knowledge or possession of Bank when disclosed to Bank,
or becomes part of the public domain after disclosure to Bank through no fault
of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not
have actual knowledge that such third party is prohibited from disclosing such
information. Notwithstanding any provision of this Agreement to the contrary,
neither Borrower nor any of its Subsidiaries will be required to disclose,
permit the inspection, examination, copying or making extracts of, or
discussions of: any document, information or other matter (i) prior to the
occurrence of an Event of Default that constitutes non-financial trade secrets
or non-financial proprietary information (provided that the terms of agreements
that generate Accounts shall not be deemed to be "non-financial trade secrets or
non-financial proprietary information"), or (ii) in respect to which disclosure
to Bank (or designated representative) is then prohibited by (a) law, or (b) an
agreement binding upon Borrower or any Subsidiary that was not entered into by
Borrower or such Subsidiary for the primary purpose of concealing information
from Bank.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
INTEVAC, INC.
By: CBE
----------------------------------
Title: CFO
-------------------------------
SILICON VALLEY BANK
By: T. VERTIS
----------------------------------
Title: V.P.
-------------------------------
22
<PAGE> 26
EXHIBIT A
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ______________________
FAX#: (408) 496-2426 TIME: ______________________
_______________________________________________________________________________
FROM: __________________________________________________________________
CLIENT NAME (BORROWER)
REQUESTED BY: __________________________________________________________
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE: __________________________________________________
PHONE NUMBER: __________________________________________________________
FROM ACCOUNT # ____________________ TO ACCOUNT # _____________________
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
PRINCIPAL INCREASE (ADVANCE) $_________________________________
PRINCIPAL PAYMENT (ONLY) $_________________________________
INTEREST PAYMENT (ONLY) $_________________________________
PRINCIPAL AND INTEREST (PAYMENT) $_________________________________
OTHER INSTRUCTIONS: ____________________________________________________
________________________________________________________________________
All representations and warranties of Borrower stated in the Loan
Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Loan
Payment/Advance Form; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
_______________________________________________________________________________
_______________________________________________________________________________
BANK USE ONLY
TELEPHONE REQUEST:
The following person is authorized to request the loan payment
transfer/loan advance on the advance designated account and is known to me.
_______________________________________ ___________________________
Authorized Requester Phone #
_______________________________________ ___________________________
Received By (Bank) Phone #
_______________________________________
Authorized Signature (Bank)
_______________________________________________________________________________
23
<PAGE> 27
EXHIBIT B
BORROWING BASE CERTIFICATE
(Applicable When Borrowing Exceeds $3,000,000)
- - -------------------------------------------------------------------------------
Borrower: Intevac, Inc. Lender: Silicon Valley Bank
Commitment Amount: $10,000,000
- - -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due (Distributors over 60) $_________
5. Balance of 50% over 90 day accounts $_________
6. Concentration Limits $_________
7. Foreign Accounts $_________
8. Governmental Accounts $_________
9. Contra Accounts $_________
10. Promotion or Demo Accounts $_________
11. Intercompany/Employee Accounts $_________
12. Other (please explain on reverse) $_________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_________
14. Eligible Accounts (#3 minus #13) $__________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $__________
BALANCES
16. Maximum Loan Amount $10,000,000
17. Total Funds Available (Lesser of #16 or #15) $__________
18. Present balance owing on Line of Credit $__________
19. Outstanding under Sublimits
(Letters of Credit and Foreign Exchange Contracts $__________
20. RESERVE POSITION (#17 minus #18 minus #19) $__________
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete
and correct, and that the information reflected in this Borrowing Base
Certificate complies with the representations and warranties set forth in the
Loan and Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS:
----------------------
BANK USE ONLY
Rec'd By: ___________
Auth. Signer
___________________ Date: _______________
Verified: ___________
Auth. Signer
By: ______________________
Authorized Signer Date: _______________
_____________________
----------------------
24
<PAGE> 28
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: INTEVAC, INC.
The undersigned authorized officer of Intevac, Inc. hereby certifies
that in accordance with the terms and conditions of the Loan Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending __________ with all required covenants except as noted below
and (ii) all representations and warranties of Borrower stated in the Agreement
are true and correct in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
- - ------------------ -------- --------
<S> <C> <C>
Quarterly financial statements Quarterly within 45 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P agings Monthly within 20 days* Yes No
A/R Audit Annual Yes No
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
- - ------------------ -------- ------ --------
Maintain on a Quarterly Basis:
Minimum Quick Ratio** 1.75:1.0 ___:1.0 Yes No
Minimum Tangible Net Worth*** $20,000,000**** $______ Yes No
Maximum Debt**/Tangible Net Worth*** 1.0:1.0 ___:1.0 Yes No
Profitability: Quarterly ***** $______ Yes No
Yearly $1,500,000 $______ Yes No
</TABLE>
* when outstanding obligations exceed $3,000,000
** excluding deferred revenues from customer advances
*** For calculation purposes, investments in 601 California Avenue and
Cathode Technology considered intangible.
**** plus 50% of NPAT plus 75% of new equity without deducting for net losses
***** Borrower shall not suffer two consecutive quarterly losses.
COMMENTS REGARDING EXCEPTIONS: See Attached.
---------------------------------------
Sincerely, BANK USE ONLY
_________________________________ Received by: __________________________
SIGNATURE AUTHORIZED SIGNER
_________________________________ Date: _________________________________
TITLE
Verified: _____________________________
_________________________________ AUTHORIZED SIGNER
DATE
Date: _________________________________
Compliance Status: Yes No
---------------------------------------
25
<PAGE> 29
LIBOR SUPPLEMENT TO AGREEMENT
This LIBOR Supplement to Agreement (the "Supplement") is a supplement
to the Loan Agreement (the "Agreement") dated as of March 14, 1996, between
Silicon Valley Bank ("Bank") and Intevac, Inc. ("Borrower"), and forms a part
of and is incorporated into the Agreement. Except as otherwise defined in this
Supplement, capitalized terms shall have the meanings assigned in the Agreement.
1. Definitions.
"Business Day" means a day of the year (a) that is not a
Saturday, Sunday or other day on which banks in the State of California or the
City of London are authorized or required to close and (b) on which dealings
are carried on in the interbank market in which Bank customarily participates.
"Interest Period" means for each LIBOR Rate Advance, a period of
approximately one, two or three months as the Borrower may elect, provided that
the last day of an Interest Period for a LIBOR Rate Advance shall be determined
in accordance with the practices of the LIBOR interbank market as from time to
time in effect, provided, further, in all cases such period shall expire not
later than the applicable Maturity Date.
"Interest Rate" shall mean as to: (a) Prime Rate Advances, a rate equal
to the Prime Rate; and (b) LIBOR Rate Advances, a rate of Two and One Half
Percent (2 1/2%) per annum in excess of the LIBOR Rate (based on the LIBOR Rate
applicable for the Interest Period selected by the Borrower).
"LIBOR Base Rate" means, for any Interest Period for a LIBOR Rate
Advance, the rate of interest per annum determined by Bank to be the per annum
rate of interest at which deposits in United States Dollars are offered to Bank
in the London interbank market in which Bank customarily participates at 11:00
A.M. (local time in such interbank market) two (2) Business Days before the
first day of such Interest Period for a period approximately equal to such
Interest Period and in an amount approximately equal to the amount of such
Advance.
"LIBOR Rate" shall mean, for any Interest Period for a LIBOR Rate
Advance, a rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) equal to (i) the LIBOR Base Rate for such Interest Period divided by
(ii) 1 minus the Reserve Requirement for such Interest Period.
"LIBOR Rate Advances" means any Advances made or a portion thereof on
which interest is payable based on the LIBOR Rate in accordance with the terms
hereof.
"Prime Rate Advances" means any Advances made or a portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
hereof.
"Regulatory Change" means, with respect to Bank, any change on or after
the date of this Agreement in United States federal, state or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives or requests applying to a class of
lenders including Bank of or under any United States federal or state, or any
foreign, laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.
"Reserve Requirement" means, for any Interest Period, the average
maximum rate at which reserves (including any marginal, supplemental or
emergency reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the
1
<PAGE> 30
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by Bank by reason of any Regulatory Change against (i) any
category of liabilities which includes deposits by reference to which the LIBOR
Rate is to be determined as provided in the definition of "LIBOR Base Rate" or
(ii) any category of extensions of credit or other assets which include
Advances.
2. Requests for Advances; Confirmation of Initial Advances. Each
LIBOR Rate Advance shall be made upon the irrevocable written request of
Borrower received by Bank not later than 11:00 a.m. (Santa Clara, California
time) on the Business Day three (3) Business Days prior to the date such
Advance is to be made. Each such notice shall specify the date such Advance is
to be made, which day shall be a Business Day; the amount of such Advance, the
Interest Period for such Advance, and comply with such other requirements as
Bank determines are reasonable or desirable in connection therewith.
Each written request for a LIBOR Rate Advance shall be in the form of a
LIBOR Rate Advance Form as set forth on Exhibit A, which shall be duly executed
by a Responsible Officer.
3. Conversion/Continuation of Advances.
(a) Borrower may from time to time submit in writing a
request that Prime Rate Advances be converted to LIBOR Rate Advances or that
any existing LIBOR Rate Advances continue for an additional Interest Period.
Such request shall specify the amount of the Prime Rate Advances which will
constitute LIBOR Rate Advances (subject to the limits set forth below) and the
Interest Period to be applicable to such LIBOR Rate Advances. Each written
request for a conversion to a LIBOR Rate Advance or a continuation of a LIBOR
Rate Advance shall be substantially in the form of a LIBOR Rate
Conversion/Continuation Certificate as set forth on Exhibit B, which shall be
duly executed by a Responsible Officer. Subject to the terms and conditions
contained herein, three (3) Business Days after Bank's receipt of such a
request from Borrower, such Prime Rate Advances shall be converted to LIBOR
Rate Advances or such LIBOR Rate Advances shall continue, as the case may be
provided that:
(i) no Event of Default or event which with notice
or passage of time or both would constitute an Event of Default exists;
(ii) no party hereto shall have sent any notice of
termination of this Supplement or of the Agreement.
(iii) Borrower shall have complied with such
customary procedures as Bank has established from time to time for Borrower's
requests for LIBOR Rate Advances;
(iv) the amount of a LIBOR Rate Advance shall be
$500,000 or such greater amount which is an integral multiple of $50,000; and
(v) Bank shall have determined that the Interest
Period or LIBOR Rate is available to Bank which can be readily determined as of
the date of the request for such LIBOR Rate Advance.
Any request by Borrower to convert Prime Rate Advances to LIBOR Rate
Advances or continue any existing LIBOR Rate Advances shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Bank shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR Rate market to fund any LIBOR Rate Advances,
but the provisions hereof shall be deemed to apply as if Bank had purchased
such deposits to fund the LIBOR Rate Advances.
<PAGE> 31
(b) Any LIBOR Rate Advances shall automatically convert to
Prime Rate Advances upon the last day of the applicable Interest Period, unless
Bank has received and approved a complete and proper request to continue such
LIBOR Rate Advance at least three (3) Business Days prior to such last day in
accordance with the terms hereof. Any LIBOR Rate Advances shall, at Bank's
option, convert to Prime Rate Advances in the event that (i) an Event of
Default, or event which with the notice or passage of time or both would
constitute an Event of Default, shall exist, (ii) this Supplement or the
Agreement shall terminate, or (iii) the aggregate principal amount of the Prime
Rate Advances which have previously been converted to LIBOR Rate Advances, or
the aggregate principal amount of existing LIBOR Rate Advances continued, as
the case may be, at the beginning of an Interest Period shall at any time
during such Interest Period exceeds the Committed Line. Borrower agrees to
pay to Bank, upon demand by Bank (or Bank may, at its option, charge Borrower's
deposit account) any amounts required to compensate Bank for any loss
(including loss of anticipated profits), cost or expense incurred by such
person, as a result of the conversion of LIBOR Rate Advances to Prime Rate
Advances pursuant to any of the foregoing.
(c) On all Advances, Interest shall be payable by Borrower to
Bank monthly in arrears not later than the thirteenth day of each calendar month
at the applicable Interest Rate.
4. Additional Requirements/Provisions Regarding LIBOR Rate Advances; Etc.
(a) If for any reason (including voluntary or mandatory prepayment
or acceleration), Bank receives all or part of the principal amount of a LIBOR
Rate Advance prior to the last day of the Interest Period for such Advance,
Borrower shall immediately notify Borrower's account officer at Bank and, on
demand by Bank, pay Bank the amount (if any) by which (i) the additional
interest which would have been payable on the amount so received had it not
been received until the last day of such Interest Period exceeds (ii) the
interest which would have been recoverable by Bank by placing the amount so
received on deposit in the certificate of deposit markets or the offshore
currency interbank markets or United States Treasury investment products, as
the case may be, for a period starting on the date on which it was so received
and ending on the last day of such Interest Period at the interest rate
determined by Bank in its reasonable discretion. Bank's determination as to
such amount shall be conclusive absent manifest error.
(b) Borrower shall pay to Bank, upon demand by Bank, from time to
time such amounts as Bank may determine to be necessary to compensate it for
any costs incurred by Bank that Bank determines are attributable to its making
or maintaining of any amount receivable by Bank hereunder in respect of any
Advances relating thereto (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), in each case resulting from
any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
Bank under this Supplement in respect of any Advances (other than changes which
affect taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which such Bank has its principal office); or
(ii) imposes or modifies any reserve, special deposit or
similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of Bank (including any Advances or
any deposits referred to in the definition of "LIBOR Base Rate"); or
(iii) imposes any other condition affecting this Supplement (or
any of such extensions of credit or liabilities).
Bank will notify Borrower of any event occurring after the date of the
Agreement which will entitle Bank to compensation pursuant to this section as
promptly as practicable after it obtains knowledge
<PAGE> 32
thereof and determines to request such compensation. Bank will furnish Borrower
with a statement setting forth the basis and amount of each request by Bank for
compensation under this Section 4. Determinations and allocations by Bank for
purposes of this Section 4 of the effect of any Regulatory Change on its costs
of maintaining its obligations to make Advances or of making or maintaining
Advances or on amounts receivable by it in respect of Advances, and of the
additional amounts required to compensate Bank in respect of any Additional
Costs, shall be conclusive absent manifest error.
(c) Borrower shall pay Bank, upon the request of Bank, such amount or
amounts as shall be sufficient (in the sole good faith opinion of such Bank) to
compensate it for any loss, costs or expense incurred by it as a result of any
failure by Borrower to borrow a LIBOR Rate Advance on the date for such
borrowing specified in the relevant notice of borrowing hereunder.
(d) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof
by any governmental authority, central bank or comparable agency charged with
the interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of Bank or any person or entity controlling Bank (a
"Parent") as a consequence of its obligations hereunder to a level below that
which Bank (or its Parent) could have achieved but for such adoption, change or
compliance (taking into consideration its policies with respect to capital
adequacy) by an amount deemed by Bank to be material, then from time to time,
within 15 days after demand by Bank, Borrower shall pay Bank such additional
amount or amounts as will compensate Bank for such reduction. A statement of
Bank claiming compensation under this Section and setting forth the additional
amount or amounts to be paid to it hereunder shall be conclusive absent
manifest error.
(e) If at any time Bank, in its sole and absolute discretion,
determines that: (i) the amount of the LIBOR Rate Advances for periods equal to
the corresponding Interest Periods are not available to Bank in the offshore
currency interbank markets, or (ii) the LIBOR Rate does not accurately reflect
the cost to Bank of lending the LIBOR Rate Advance, then Bank shall promptly
give notice thereof to Borrower, and upon the giving of such notice Bank's
obligation to make the LIBOR Rate Advances shall terminate, unless Bank and
the Borrower agree in writing to a different interest rate Advances shall
terminate, unless Bank and the Borrower agree in writing to a different
interest rate applicable to LIBOR Rate Advances. If it shall become unlawful
for Bank to continue to fund or maintain any Advances, or to perform its
obligations hereunder, upon demand by Bank, Borrower shall prepay the Advances
in full with accrued interest thereon and all other amounts payable by Borrower
hereunder (including, without limitation, any amount payable in connection with
such prepayment pursuant to Section 4(a)).
4
<PAGE> 33
IN WITNESS WHEREOF, the undersigned have executed this LIBOR Supplement
to Agreement as of the first date above written.
INTEVAC, INC.
By: /s/
------------------------------------
Title: CFO
--------------------------------
SILICON VALLEY BANK
By: /s/
------------------------------------
Title: V.P.
--------------------------------
5
<PAGE> 34
EXHIBIT A
LIBOR RATE ADVANCE FORM
The undersigned hereby certifies as follows:
I, __________________, am the duly elected and acting ______________ of
Intevac, Inc. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain
LIBOR Supplement to Agreement together with the Loan Agreement by and between
Borrower and Silicon Valley Bank ("Bank") (the "Agreement"). The terms used in
this Borrowing Certificate which are defined in the Agreement have the same
meaning herein as ascribed to them therein.
Borrower hereby requests on _____________________, 19___ a LIBOR Rate
Advance (the "Advance") as follows:
(a) The date on which the Advance is to be made is
___________________, 19___.
(b) The amount of the Advance is to be ___________________
($___________), for an Interest Period of month(s).
All representations and warranties of Borrower stated in the Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Advance Form is executed by the
undersigned as of this ________________ day of _______________________, 19___.
INTEVAC, INC.
By: ________________________________
Title: _____________________________
For Internal Bank Use Only
===============================================================================
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
_______________________________________________________________________________
______%
===============================================================================
6
<PAGE> 35
EXHIBIT B
LIBOR RATE CONVERSION/CONTINUATION CERTIFICATE
The undersigned hereby certifies as follows:
I, ___________, am the duly elected and acting __________ of Intevac,
Inc. ("Borrower").
This certificate is delivered pursuant to Section 2 of that certain
LIBOR Supplement to Agreement together with the Loan Agreement by and between
Borrower and Silicon Valley Bank ("Bank") (the "Agreement"). The terms used in
this LIBOR Rate Conversion/Continuation Certificate which are defined in the
Agreement have the same meaning herein as ascribed to them therein.
Borrower hereby requests on ___________, 19__ a LIBOR Rate Advance (the
"Advance") as follows:
(a) ___ (i) A rate conversion of an existing Prime Rate Advance
from a Prime Rate Advance to a LIBOR Rate Advance; or
___ (ii) A continuation of an existing LIBOR Rate Advance as
a LIBOR Rate Advance;
[Check (i) or (ii) above]
(b) The date on which the Advance is to be made is ___________, 19__.
(c) The amount of the Advance is to be ___________ ($__________),
for an Interest Period of ________ month(s).
All representations and warranties of Borrower stated in the Agreement
are true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of such date.
IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate
is executed by the undersigned as of this ________ day of ___________, 19__.
INTEVAC, INC.
By: _________________________
Title: ______________________
For Internal Bank Use Only
===============================================================================
LIBOR Pricing Date LIBOR Rate LIBOR Rate Variance Maturity Date
- - -------------------------------------------------------------------------------
____%
===============================================================================
7
<PAGE> 1
INTEVAC, INC. EXHIBIT 11.1
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------
Mar. 30, Apr. 1,
1996 1995
---------- ----------
<S> <C> <C>
Shares used in Calculation of Net Income Per Share:
Average Common Shares outstanding.................................... 12,249 690
Net effect of dilutive stock options................................. 382 129
Shares related to SAB Nos. 55, 64 and 83:
Stock options...................................................... --- 217
Ordinary Shares issued............................................. 579
Series A convertible preferred shares as-if-converted................ --- 8,680
---------- ----------
12,631 10,295
========== ==========
Income from continuing operations...................................... $ 1,897 $ 467
========== ==========
Net income............................................................. $ 1,897 $ 1,802
========== ==========
Income per share from continuing operations............................ $ 0.15 $ 0.05
========== ==========
Net income per share................................................... $ 0.15 $ 0.18
========== ==========
</TABLE>
21.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 30, 1996 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS
ENDED MARCH 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-30-1996
<CASH> 14119
<SECURITIES> 2571
<RECEIVABLES> 10313
<ALLOWANCES> 560
<INVENTORY> 18308
<CURRENT-ASSETS> 48507
<PP&E> 6648
<DEPRECIATION> 2011
<TOTAL-ASSETS> 58604
<CURRENT-LIABILITIES> 28656
<BONDS> 730
0
0
<COMMON> 15305
<OTHER-SE> 13913
<TOTAL-LIABILITY-AND-EQUITY> 58604
<SALES> 15126
<TOTAL-REVENUES> 15126
<CGS> 9203
<TOTAL-COSTS> 9203
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<INCOME-TAX> 1021
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-PRIMARY> 0.15
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</TABLE>
