<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 31, 1999 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: 0-28236
INVISION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
94-3123544
(I.R.S. Employer Identification No.)
7151 GATEWAY BOULEVARD, NEWARK, CA 94560
(Address of principal executive offices, including zip code)
(510) 739-2400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
On March 31, 1999, there were 12,071,189 shares of the Registrant's Common
Stock outstanding.
<PAGE>
INVISION TECHNOLOGIES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C>
PART I: FINANCIAL INFORMATION
1. Consolidated Financial Statements (unaudited)
a. Consolidated Balance Sheets - March 31, 1999 and December 31, 1998.......................................3
b. Consolidated Statements of Income - Three months ended March 31, 1999 and 1998...........................4
c. Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and 1998.......................5
d. Notes to Consolidated Financial Statements ..............................................................6
2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......................8
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K............................................................................16
Signature Page .................................................................................................17
Exhibits .......................................................................................................18
</TABLE>
2
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,773 $ 10,462
Short-term investments 998 1,995
Restricted cash - 1,056
Accounts receivable 22,790 26,933
Inventories 12,459 11,825
Other current assets 1,660 1,731
------------ ------------
Total current assets 52,680 54,002
Long-term restricted cash 230 200
Property and equipment, net 8,107 8,035
Other assets 1,266 1,249
------------ ------------
$ 62,283 $ 63,486
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,867 $ 3,402
Accrued liabilities 6,800 6,331
Deferred revenue 513 1,496
Short-term debt 109 2,967
Current maturities of long-term obligations 736 895
------------ ------------
Total current liabilities 12,025 15,091
------------ ------------
Long-term obligations 1,484 1,565
------------ ------------
Stockholders' equity:
Preferred stock, no par value, 5,000,000 shares authorized; - -
no shares issued and outstanding
Common stock, $0.001 par value, 20,000,000 shares 12 12
authorized; 12,071,000 and 12,067,000 issued and outstanding
Additional paid-in capital 57,502 57,372
Deferred stock compensation expense (131) (131)
Accumulated deficit (7,744) (9,558)
Treasury stock, at cost (115,000 shares) (865) (865)
------------ ------------
Total stockholders' equity 48,774 46,830
------------ ------------
$ 62,283 $ 63,486
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Revenues $ 15,515 $ 15,880
Cost of revenues 8,524 8,174
------------ ------------
Gross profit 6,991 7,706
------------ ------------
Operating expenses:
Research and development 1,649 1,687
Sales and marketing 1,303 1,662
General and administrative 1,994 1,809
------------ ------------
Total operating expenses 4,946 5,158
------------ ------------
Income from operations 2,045 2,548
Interest expense (72) (58)
Interest and other income, net 161 234
------------ ------------
Income before provision for income taxes 2,134 2,724
Provision for income taxes 320 464
------------ ------------
Net income $ 1,814 $ 2,260
============ ============
Net income per share:
Basic $ 0.15 $ 0.19
============ ============
Diluted $ 0.14 $ 0.18
============ ============
Weighted average shares outstanding:
Basic 12,057 12,022
Diluted 12,739 12,905
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
INVISION TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
----------- ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 7,042 $ (61)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from (purchases of) short-term investments, net 997 3,028
Purchases of property and equipment (694) (521)
Long-term restricted cash (30) 1,254
----------- ------------
Net cash provided by investing activities 273 3,761
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term debt, net (2,858) (1,968)
Repayments of long-term debt (276) (39)
Proceeds from issuance of common stock, net 130 234
----------- ------------
Net cash used in financing activities (3,004) (1,773)
----------- ------------
Net increase in cash and cash equivalents for the period 4,311 1,927
Cash and cash equivalents at beginning of period 10,462 14,111
----------- ------------
Cash and cash equivalents at end of period $ 14,773 $ 16,038
=========== ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 48 $ 58
Taxes paid $ 250 $ 622
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying interim unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not contain all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the accompanying unaudited
consolidated financial statements reflect all adjustments (consisting only of
normal recurring adjustments) considered necessary for fair presentation.
These financial statements should be read in conjunction with the audited
consolidated financial statements of InVision Technologies, Inc. and its
subsidiaries (the "Company") as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, including notes
thereto, included in the Company's Annual Report on Form 10-K (Commission
File No. 0-20815).
Operating results for the three month period ended March 31, 1999 may not
necessarily be indicative of the results that may be expected for the year
ended December 31, 1999 or any other future period.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
NET INCOME PER SHARE
Basic earnings per share is computed by dividing income available to
common stockholders by the weighted-average common shares outstanding for the
period. Diluted earnings per share reflects the weighted-average common
shares outstanding plus the potential effect of dilutive securities or
contracts which are convertible to common shares such as options, warrants,
convertible debt and preferred stock (using the treasury stock method).
The following is a reconciliation between the components of the basic and
diluted net income per share calculations for the periods presented below (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
PER PER
SHARE SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per share:
Income available to common stockholders $ 1,814 12,057 $ 0.15 $ 2,260 12,022 $ 0.19
Effect of dilutive securities:
Options - 682 (0.01) - 883 (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Diluted net income per share:
Income available to common stockholders
plus assumed conversions $ 1,814 12,739 $ 0.14 $ 2,260 12,905 $ 0.18
========= ========== ========== ========== ========== ==========
</TABLE>
The computation of diluted net income per share for the three months
ended March 31, 1999 does not include shares issuable upon exercise of
options in the amount of 865,071 because to do so would have been
anti-dilutive for the periods presented.
6
<PAGE>
INVISION TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. ACCOUNTS RECEIVABLE
The components of accounts receivable consist of the following (in
thousands):
<TABLE>
<CAPTION>
MAR. 31, DEC. 31,
1999 1998
------------ ------------
<S> <C> <C>
Accounts receivable:
Billed $ 18,397 $ 20,412
Unbilled 4,274 6,183
Other receivables 119 338
------------ ------------
Total $ 22,790 $ 26,933
============ ============
</TABLE>
4. INVENTORIES
The components of inventory consist of the following (in thousands):
<TABLE>
<CAPTION>
MAR. 31, DEC. 31,
1999 1998
------------ ------------
<S> <C> <C>
Inventories:
Raw material and purchased components $ 7,908 $ 6,272
Work-in-process 4,183 4,365
Finished goods 368 1,188
------------ ------------
Total $ 12,459 $ 11,825
============ ============
</TABLE>
5. PROPERTY AND EQUIPMENT
The components of property and equipment consist of the following (in
thousands):
<TABLE>
<CAPTION>
MAR. 31, DEC. 31,
1999 1998
------------ ------------
<S> <C> <C>
Property and equipment:
Machinery and equipment $ 4,807 $ 4,705
Self constructed assets 4,184 3,697
Furniture and fixtures 1,078 1,078
Leasehold improvements 2,959 2,939
------------ ------------
Subtotal 13,028 12,419
Less: accumulated depreciation and amortization (4,921) (4,384)
------------ ------------
Total $ 8,107 $ 8,035
============ ============
</TABLE>
7
<PAGE>
INVISION TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR
IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF
THE COMPANY'S MAIN PRODUCT, INCLUDING THE LOSS OF THE COMPANY'S ORDER FROM
THE FAA OR THE FAILURE TO OBTAIN ADDITIONAL ORDERS, LOSS OF ANY OF THE
COMPANY'S SOLE SOURCE SUPPLIERS, INTENSE COMPETITION INCLUDING COMPETITION
FROM A NEW SUPPLIER OF A CERTIFIED PRODUCT THAT HAS NOW BEGUN ACCEPTING
ORDERS, RELIANCE ON LARGE ORDERS, CONCENTRATION OF THE COMPANY'S CUSTOMERS,
RISKS RELATED TO THE LENGTHY SALES CYCLES FOR THE COMPANY'S PRODUCTS,
BUDGETING LIMITATIONS OF THE COMPANY'S CUSTOMERS AND PROSPECTIVE CUSTOMERS,
RISKS INHERENT TO THE DEVELOPMENT AND PRODUCTION OF NEW PRODUCTS AND NEW
APPLICATIONS, AND CERTIFICATION OF CERTAIN OF THESE PRODUCTS, AS WELL AS
THOSE DISCUSSED IN "ITEM 1. BUSINESS" AND MORE PARTICULARLY IN THE "BUSINESS
RISKS" SECTION THEREOF IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31 1998.
OVERVIEW
InVision Technologies, Inc. ("InVision," or together with its
subsidiaries, the "Company") designs, manufactures and markets explosive
detection systems ("EDS") based on advanced computed tomography ("CT")
technology. InVision was formed in September 1990 to design and develop an
EDS based on CT technology and exited the development stage in 1995 upon the
first commercial sale of its product, the CTX 5000 system. Today the Company
markets its more advanced CTX 5500 system and its next generation CTX 9000
system, and has other products in development. To date, the Company's CTX
5000 system and the CTX 5500 system (together, the "CTX 5000 Series") are the
only explosive detection systems certified by the Federal Aviation
Administration ("FAA") currently deployed for use in the inspection of
checked luggage on commercial flights. Additionally, the Company's next
generation CTX 9000 system successfully completed FAA certification testing
in April 1999. The Company expects the FAA to order several CTX 9000 systems
this year for installation and operational testing at airports in the United
States. In the international market, the Company has already begun marketing
the CTX 9000 system and is seeing interest from both existing and potential
customers. Since its first sale in 1995, the Company has received orders for
a total of 169 CTX 5000 Series systems, of which a total of 159 had been
shipped as of March 31, 1999. For the three months ended March 31, 1999 and
1998, the Company had revenues of $15.5 million, and $15.9 million,
respectively, and as of March 31, 1999 had in backlog equipment orders and
service agreements of $14.5 million.
InVision's principal subsidiary, Quantum Magnetics, Inc. ("Quantum")
develops and commercializes patented and proprietary technology for
inspection, detection and analysis of explosives and other materials based on
quadrupole resonance ("QR") technology, a form of magnetic resonance, and
passive magnetic sensing. Its products, in the prototype stage, include
advanced detection systems for such markets as carry-on luggage screening,
drug detection, postal inspection, detection of concealed weapons and
landmine detection. Quantum is also a leading supplier of research and
development services in the area of QR technology and passive magnetic
sensing to a number of government agencies. Quantum was acquired by InVision
in 1997 in a pooling of interests transaction.
The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources for
research to enhance the performance, functionality and reliability of its CTX
5000 Series hardware and software as well as its next generation system, the CTX
9000 system. At March 31, 1999, the Company had 103 full-time employees engaged
in research and development activities while also using the services of 12
specialized contract employees and consultants in this area. Total research and
development expenditures by the Company are partially offset by amounts
reimbursed by the FAA and other government agencies and private entities under
research and development contracts and grants. The Company believes that
investment in research and development in absolute dollars will increase
substantially to meet its future needs regardless of the level of funding
received from research and development contracts and grants. During the three
months ended March 31, 1999 and 1998, the Company spent $4.6 million and $4.3
million, respectively, on research and development activities. Of these amounts,
$2.9 million and $2.6 million, respectively, were funded under research and
development contracts and grants. To the extent that research and development
contracts and grants receipts decline in the future, research and development
expenditures borne by the Company would increase, and the Company expects that
its results
8
<PAGE>
of operations would be adversely impacted. As of March 31, 1999, the Company
had in backlog research and development contracts and grants of $4.2 million.
The Company's revenues have principally consisted, and the Company
believes will continue to consist, of orders of multiple units from a limited
number of customers. For the three months ended March 31, 1999 and 1998,
$12.6 million, and $11.0 million, respectively, were generated from sales to
the Company's largest customer, the U.S. government, representing 81.2% and
69.2% of the Company's revenues, respectively. For the year ended December
31, 1998, revenues from the Company's largest customer, the U.S. government,
were approximately $37.9 million, or 59.9% of the Company's revenues.
The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. In the United States, the Company markets its CTX 5500 and CTX
9000 systems primarily through direct sales personnel. Internationally, the
Company utilizes both a direct sales force and authorized agents to sell its
products. For the three months ended March 31, 1999 and 1998 and the year
ended December 31, 1998, international sales represented 17.5%, 30.8% and
33.7%, respectively, of the Company's revenues.
The sales cycle of the Company's product line is often lengthy due to the
protracted approval process that typically accompanies large capital
expenditures and the time required to manufacture, install and assimilate the
product. Typically, six to twelve months may elapse between a new customer's
initial evaluation of the Company's product line and the execution of a
contract. Another three months to a year may elapse prior to shipment of the
product as the customer site is prepared and the system is manufactured.
During this period the Company expends substantial funds and management
resources but recognizes no associated revenue.
The Company recognizes revenue upon shipment unless extended acceptance
criteria exist, in which case revenue is recognized upon achievement of such
acceptance criteria. The Company typically requires customer deposits in
advance of shipment on customer purchase orders. Provision for estimated
installation, training and warranty costs is recorded at the time revenue is
recognized and adjusted periodically based on historical and anticipated
experience. Systems typically carry a one-year warranty.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, certain income and expenditure items from
the Company's consolidated statements of income expressed as a percentage of
revenues for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
--------- -------
<S> <C> <C>
Revenues 100.0 % 100.0 %
Cost of revenues 54.9 51.5
------ ------
Gross profit 45.1 48.5
------ ------
Operating expenses
Research and development 10.6 10.6
Sales and marketing 8.4 10.5
General and administrative 12.9 11.4
------ ------
Total operating expenses 31.9 32.5
------ ------
Income from operations 13.2 16.0
Interest expense (0.5) (0.4)
Income and other (expense), net 1.0 1.5
------ ------
Income before income taxes 13.7 17.1
Provision for income taxes 2.1 2.9
------ ------
Net income 11.6 % 14.2 %
------ ------
------ ------
</TABLE>
CURRENT QUARTER COMPARED TO PRIOR YEAR QUARTER
REVENUES. The Company's revenues are comprised of system revenues, which
include sales of the CTX 5000 Series, accessories, installation and
configuration, and maintenance related to product support. Revenues were $15.5
million for the first quarter of 1999, a decrease of 2.3% from the $15.9 million
in the first quarter of 1998. This decrease was primarily attributable to three
fewer units shipped in the first quarter of 1999 compared to the same quarter a
year ago, partially offset by the shipment of CTX 5500 upgrade kits to the FAA
and the commencement of maintenance related revenues in the domestic market. In
the first quarter of 1999, the Company shipped 13 units (11 units to the FAA and
2 units to an international customer) and the remaining 27 CTX 5500 upgrade kits
purchased by the FAA. In the first quarter of 1998, the Company shipped 16 units
(12 units to the FAA and 4 units to international customers). The Company
typically ships against a backlog of orders for its products. As of March 31,
1999, the Company had in backlog equipment orders and service agreements of
$14.5 million.
GROSS PROFIT. Cost of revenues primarily consists of purchased materials
procured for use in the assembly of the Company's products, as well as
manufacturing labor and overhead, warranty costs and costs associated with
service agreements. In any given period the Company's gross profit may be
affected by several factors, including revenue mix, product configuration,
location of the installation and complexity of integration into various airport
environments. Gross profit was $7.0 million in the first quarter of 1999, a
decrease of 9.3% from the $7.7 million in the first quarter of 1998. Gross
margins were 45.1% and 48.5%, respectively. The decrease in gross margins was
primarily due to higher manufacturing overhead costs per unit resulting from the
manufacture and shipment of three fewer units in the first quarter of 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation paid to personnel engaged in research and development
activities, amounts paid for outside services, and costs of materials utilized
in the development of hardware products, including prototype units. Research and
development expenditures by the Company are partially offset by amounts
reimbursed by the FAA and other government agencies and private entities under
research and development contracts and grants. These services are provided on
both a cost and cost plus basis. The Company believes that
10
<PAGE>
research and development expenses in absolute dollars will increase
substantially in the future regardless of the level of funding received from
the FAA and other government agencies and private entities.
Net research and development expenses were $1.6 million in the first
quarter of 1999 compared to $1.7 million in the same quarter in 1998. Gross
research and development expenses were $4.6 million in the first quarter of
1999, an increase of 5.9% from the $4.3 million in the first quarter of 1998.
Of these amounts, $2.9 million and $2.6 million, respectively, were funded by
research and development contracts and grants from the FAA and other
government agencies and private entities. To the extent that research and
development contracts and grants receipts decline in the future, research and
development expenditures borne by the Company would increase, and the Company
expects that its results of operations would be adversely impacted. The
Company capitalizes internally generated software costs in accordance with
Statement of Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting
for Costs of Computer Software to be Sold, Leased or Otherwise Marketed."
Under SFAS 86, software production costs for computer software that is to be
used as an integral part of the product or process are to be capitalized once
technological feasibility has been established for the software and all
research and development activities for the other components of the product
or process have been completed. Software development costs qualifying for
capitalization were insignificant in the first quarter of 1999 and 1998. As a
percentage of revenues, net research and development expenses were 10.6% in
the first quarter of 1999 and 1998. The increase in gross research and
development expenses is primarily the result of personnel additions and
increased spending on engineering materials and services.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
compensation paid to direct and indirect sales and marketing personnel,
consultant fees, travel related to the sales process, and other selling and
distribution costs. Sales and marketing expenses were $1.3 million in the
first quarter of 1999, a decrease of 21.6% from the $1.7 million in the first
quarter of 1998. As a percentage of revenues, sales and marketing expenses
were 8.4% in the first quarter of 1999, compared to 10.5% in the first
quarter of 1998. The decrease in sales and marketing expenses is primarily
the result of a decrease in commission expense due to changes in the
structure of sales incentive compensation plans and the Company's efforts to
reduce SG&A spending levels in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation paid to administrative personnel, including
directors, consultant fees, professional service fees, insurance, travel and
other general expenses. General and administrative expenses were $2.0 million
in the first quarter of 1999, an increase of 10.2% from the $1.8 million in
the first quarter of 1998. As a percentage of revenues, general and
administrative expenses were 12.9% in the first quarter of 1999, compared to
11.4% in the first quarter of 1998. The increase in general and
administrative expenses is primarily the result of personnel additions,
management bonuses and increased legal costs associated with the Vivid
litigation, partially offset by the Company's efforts to reduce SG&A spending
levels in 1999.
INTEREST EXPENSE. Interest expense increased to $72,000 in the first
quarter of 1999 from $58,000 in the first quarter of 1998. Interest expense
in the first quarter of 1999 and 1998 resulted primarily from debt financing
associated with the Company's working capital lines of credit, equipment term
loans and capital leases.
INTEREST AND OTHER INCOME, NET. Interest and other income, net, decreased
to $161,000 in the first quarter of 1999 from $234,000 in the first quarter
of 1998. The 1999 amount consists primarily of interest income for the
quarter on cash equivalents and short-term investments of $197,000, partially
offset by other expense (net) of $36,000. The 1998 amount consists primarily
of interest income for the quarter on cash equivalents and short-term
investments of $233,000 and results from the higher cash equivalent and
short-term investment balances in the first quarter of 1998 as compared to
the 1999 quarter.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for the
first quarter of 1999 and 1998 was 15% and 17%, respectively. The Company's
effective tax rate for the first quarter of 1999 and 1998 was lower than
statutory tax rates primarily due to the utilization of net operating loss
carryforwards. At December 31, 1998, the Company had federal net operating
loss carryforwards of approximately $6.0 million available to reduce future
federal taxable income and $1.7 million available to reduce state taxable
income. The Company's net operating loss carryforwards expire from 2005 to
2011.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through private sales of $16.5 million of Preferred and Common Stock (of
which $5.6 million represents indebtedness converted to equity), the sale of
$9.5 million of Common Stock in the Company's initial public offering in
April 1996, the sale of $21.2 million in the Company's follow-on offering in
May 1997 and short-term borrowings under working capital lines of credit. At
March 31, 1999, the Company had $15.8 million in cash, cash equivalents and
short-term investments, compared to $12.5 million at December 31, 1998.
Working capital was $40.7 million at March 31, 1999 compared to $38.9 million
at December 31, 1998.
11
<PAGE>
Net cash provided by operating activities was $7.0 million in the three
month period ended March 31, 1999, compared to $61,000 used in operating
activities in the same period of 1998. Cash provided by operating activities
in the first quarter of 1999 primarily resulted from net income of $1.8
million, the $0.6 million non cash effect from depreciation and amortization,
the release of restricted cash of $1.1 million, a $4.1 million decrease in
accounts receivable and a $0.9 million increase in accounts payable and
accrued liabilities, partially offset by a $1.0 million decrease in deferred
revenues and a $0.6 million increase in inventories. Cash used in operating
activities in the first quarter of 1998 primarily resulted from net income of
$2.3 million and the $0.3 million non cash effect from depreciation and
amortization, offset by a $1.0 million increase in accounts receivable, a
$0.4 million increase in other current assets, a $0.3 million increase in
inventories and a $0.9 million decrease in deferred revenues.
Net cash provided by investing activities was $273,000 in the three month
period ended March 31, 1999, compared to $3.8 million in the same period of
1998. Net cash provided by investing activities in the first quarter of 1999
primarily resulted from $1.0 million in proceeds on sales of short-term
investments (net of purchases), partially offset by $0.7 million in
acquisitions of capital equipment. Net cash provided by investing activities
in the first quarter of 1998 primarily resulted from $3.0 million in proceeds
on sales of short-term investments (net of purchases) and a $1.3 million
release of long-term restricted cash, partially offset by $0.5 million in
acquisitions of capital equipment. The Company has no significant capital
spending or purchase commitments other than normal purchase commitments and
commitments under leases.
Net cash used in financing activities was $3.0 million in the three month
period ended March 31, 1999, compared to $1.8 million in the same period of
1998. Net cash used in financing activities in the first quarter of 1999 was
primarily due to $3.1 million in repayments of debt financing (principally,
short-term borrowings under the lines of credit), partially offset by
$130,000 in proceeds from sales under the employee stock purchase plan and
exercises of incentive stock options. Net cash used in financing activities
in the first quarter of 1998 was primarily due to $2.0 million in repayments
of debt financing (principally, short-term borrowings under the lines of
credit), partially offset by $234,000 in proceeds from sales under the
employee stock purchase plan and exercises of incentive stock options.
In May 1999, the Company renewed its two one-year revolving line of
credit agreements with Silicon Valley Bank. The first agreement provides for
maximum borrowings of $5.0 million. The second agreement is partially
guaranteed by the Export-Import Bank of the United States and provides for
maximum borrowings in an amount up to the lower of the sum of 90% of eligible
export accounts receivable plus 70% of eligible raw materials and
work-in-process inventory designated for export customers, net of advance
payments and deposits, or $2.5 million. Borrowings under both agreements bear
interest at the bank's prime rate (7.75% at March 31, 1999) and are secured
by all of the Company's assets other than its intellectual property. The
agreements expire in April 2000 and require that the Company maintain certain
financial ratios and levels of tangible net worth and profitability and also
prohibit the Company from paying cash dividends. At March 31, 1999, the
Company was in compliance with the loan covenants. Proceeds of loans under
both lines of credit may be used for general corporate purposes. At March 31,
1999, the Company had an outstanding guarantee to a customer through issuance
of a letter of credit secured by the lines of credit totaling $0.5 million.
There were no outstanding borrowings under the lines of credit at March 31,
1999.
In May 1999, the Company renewed its committed equipment line of credit
agreement with Silicon Valley Bank that transforms into a term loan after
drawdown. The agreement expires in April 2000 and provides for borrowings up
to $0.5 million. Borrowings under this agreement bear interest at the bank's
prime rate (7.75% at March 31, 1999) plus 0.25% or the bank's prime rate plus
0.25% during the draw period and a fixed rate equal to 3.5% above the yield
of a 36 month Treasury Note (5.11% at March 31, 1999) during the amortization
period. Borrowings are secured by the assets purchased or financed. At March
31, 1999, the Company had no outstanding borrowings under the line of credit.
The Company believes that existing cash, cash equivalents and short-term
investments together with available borrowings under its lines of credits and
funds expected to be generated from operations will be sufficient to finance
its working capital and capital expenditure requirements for at least the
next 12 months.
BUSINESS RISKS
HISTORY OF LOSSES; NO ASSURANCE OF CONTINUED PROFITABILITY. The quarter
ended March 31, 1997 was the Company's first profitable quarter since inception.
Although the Company has reported a profit in each subsequent quarter, there can
be no assurance that the Company will continue to be profitable on a quarterly
basis or annual basis. The Company's past operating results have been, and its
future operating results will be, subject to fluctuations resulting from a
number of factors, including the timing and announcement of orders, delays in
shipments caused by customer readiness or integration issues, the timing of new
or enhanced product offerings by the Company or its competitors and the
certification of certain of these products, the mix between sales to domestic
and international customers, market acceptance of any new or enhanced version
12
<PAGE>
of the Company's products, availability of key components, the Company's
ability to rapidly increase production, and fluctuations in demand driven by
general conditions impacting the aviation security industry beyond the
control of the Company. The Company's revenues in any period are generally
derived from a limited number of customers, a high percentage of which are
public agencies which are subject to legislative budgeting and other
limitations, including with respect to its largest customer, the U.S.
government, the risk that a substantial portion of the $100 million of funds
appropriated by Congress to purchase explosive detection systems equipment in
fiscal 1999 will not be used to purchase the Company's products. The Company
may also choose to reduce prices or increase spending in response to
competition or to pursue new market opportunities, all of which may adversely
affect the Company's business, financial condition and results of operations.
FLUCTUATIONS IN OPERATING RESULTS. The Company's quarterly revenues have
fluctuated significantly in the past and are expected to fluctuate
significantly in the future. These fluctuations are the result of a variety
of factors, including the Company's delivery cycle, variations in product
configuration, timing of orders, and suitability of client sites. The
Company's cost of revenues fluctuates from quarter to quarter consistent with
fluctuations in such revenues. In addition, the Company's gross margins may
be affected by, among other factors, the configuration of systems sold, the
mix between system and add-on sales, and the breakdown between domestic and
international sales.
PUBLIC AGENCY CONTRACT AND BUDGET CONSIDERATIONS. Substantially all of
InVision's customers and a high percentage of Quantum's research and
development customers to date have been public agencies or quasi-public
agencies. In contracting with public agencies, the Company is subject to
public agency contract requirements which vary from jurisdiction to
jurisdiction and are subject to budgetary processes and expenditure
constraints. Budgetary allocations for explosive detection systems are
dependent, in part, upon governmental policies which fluctuate from time to
time in response to political and other factors, including the public's
perception of the threat of commercial airline bombings. Many domestic and
foreign government agencies have experienced budget deficits that have led to
decreased capital expenditures in certain areas. The Company's results of
operations may be subject to substantial period-to-period fluctuations as a
result of these and other factors affecting capital spending. A reduction of
funding for explosive detection technology deployment could materially and
adversely affect the Company's business, financial condition or results of
operations. Future sales to public agencies will depend, in part, on the
Company's ability to meet public agency contract requirements, certain of
which may be onerous or even impossible for the Company to satisfy. In
addition, public agency contracts are frequently awarded only after formal
competitive bidding processes, which have been and may continue to be
protracted, and typically contain provisions that permit cancellation in the
event that funds are unavailable to the public agency. There can be no
assurance that the Company will be awarded any of the contracts for which its
products are bid or, if awarded, that substantial delays or cancellations of
purchases will not result from protests initiated by losing bidders.
YEAR 2000 COMPLIANCE
DEFINITION. The Year 2000 issue is the result of a common computer
programming convention that represents years in two digits (e.g. "98" for
"1998"). Beginning in the year 2000, these date code fields may need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. When the millennium date change occurs, these date sensitive systems
and products may recognize the year 2000 as the year 1900, or not at all.
This inability to recognize or properly treat the year 2000 may result in
system failure or cause systems to process critical operational or financial
information incorrectly.
Since the market for explosive detection systems certified by the FAA is
the Company's largest market and the FAA is the Company's largest customer,
the Company has determined to apply the FAA definition of Year 2000
compliance as stated in the FAA's Year 2000 Certificate of Compliance to all
of its products and operations:
Year 2000 compliant means information technology that accurately processes
date/time data (including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first
centuries, and the years 1998, 1999, 2000, and leap year calculations.
Furthermore, year 2000 compliant information technology, when used in
combination with other information technology, shall accurately process
date/time data if the other information technology properly exchanges date
and time data with it.
METHODOLOGY: ACHIEVING YEAR 2000 READINESS. In 1997, the Company began
Year 2000 product assessment and planning to identify and remediate any
compliance issues regarding product operation. In December 1998, the Company
instituted a more comprehensive Year 2000 project designed to identify and
assess the risks associated with its operations and infrastructure,
information systems, suppliers and customers that were not Year 2000
compliant, and to develop, implement, and test remediation and contingency
plans to mitigate these risks. The project, which is still in process,
comprises four phases: (1) identification of risks; (2) assessment of risks;
(3) development of remediation and contingency plans; and (4)
13
<PAGE>
implementation and testing.
THE STATUS OF THE COMPANY'S PRODUCTS.
CTX 9000 SYSTEM. The FAA has tested the current version of the CTX 9000
by applying its Year 2000 compliance definition as stated in the FAA Year
2000 (Y2K) Repair Process and Standards Handbook, as managed by a third-party
contracted by the FAA. The Company has been advised verbally by the FAA that
the CTX 9000 has passed the Year 2000 certification testing. The Company
expects to receive the formal document from the FAA that the CTX 9000 is
compliant with its Year 2000 compliance definition by the end of the second
quarter of 1999.
CTX 5500 SYSTEM AND UPGRADE KITS. The FAA has tested and certified that
the current version of the CTX 5500 and the CTX 5500 upgrade kit are
compliant with its Year 2000 compliance definition. This testing and
certification was performed using the FAA Year 2000 (Y2K) Repair Process and
Standards Handbook, as managed by a third-party contracted by the FAA. All
CTX 5500 systems shipped beginning in 1999 match the certified version. All
CTX 5500 systems purchased by the FAA and shipped prior to January 1, 1999,
have been upgraded to match the certified version. Other CTX 5500 systems
shipped prior to January 1, 1999 are not the same as the certified version
but will be upgraded to match the certified version by InVision at no charge
to the customer if under an InVision warranty or service contract. During the
first quarter of 1999 an additional minor Year 2000 problem was identified in
a data report with no system operational impact. The fix has already been
designed and tested. All CTX 5500 customers under an InVision warranty or
service contract will receive this additional fix at no charge.
CTX 5000 SYSTEM. Identification and assessment of risks and establishment
of fixes and upgrades have been completed for all released product software.
With respect to hardware the Company has recently completed a component
review for embedded chips, clocks and supplier testing of Year 2000
compliance and found no material compliance issues. Although it will not be
tested by the FAA, the fix for the CTX 5000 has been designed to meet the FAA
Year 2000 compliance definition and the Company plans to use a test plan on
the CTX 5000 similar to the one used by the FAA in certifying compliance of
the CTX 5500. The CTX 5000 Year 2000 fix is planned to be released by the end
of the second quarter of 1999. Customers under warranty or service contract
will receive this fix at no charge. Alternatively, CTX 5000 customers may
purchase a CTX 5500 upgrade kit which provides the compliance certified by
the FAA (and also offers other operational benefits). This upgrade kit has
been purchased and installed on all CTX 5000 systems previously purchased by
the FAA.
COMPANY INFRASTRUCTURE. With respect to the Company's internal
computerized systems in its manufacturing, information, facilities and
financial and administrative areas, the Company has completed phases one and
two (identification and assessment of risks) and is nearing the end stage of
phase three (development of remediation and contingency plans). Outside
consultants have been engaged to assist the Director of Quality Assurance and
the Executive Staff under the direction of the Chief Operating Officer to
complete this process, including the implementation of any necessary
solutions and the design of any necessary contingency plans. At this point in
its review, the Company is not currently aware of any Year 2000 problems
relating to systems operated by the Company which cannot be resolved which
could have a material adverse effect on the Company's business, results of
operations or financial condition. The Company expects to have all phases of
this portion of the project completed by the end of the second quarter of
1999.
SUPPLIERS AND CUSTOMERS. The Company has submitted a survey to all
current suppliers of products and services. Approximately two-thirds of these
suppliers have responded to date and the Company is in the process of
contacting the remaining by telephone. Based on our review of the responses
received, no significant problems have been identified. Even when completed,
where the information provided is not subject to verification by internal
testing, the Company is vulnerable to any failure by its major suppliers,
service providers and customers (including airports and airlines which are
the end-users of its products) to identify the full extent of and
successfully remedy their own internal Year 2000 issues. This failure could
have a material adverse effect on the Company's supplies, orders or
installation schedules. The Company is unable to estimate the nature or
extent of any potential adverse impact resulting from the failure of third
parties to achieve Year 2000 compliance. Moreover, such third parties, even
if Year 2000 compliant, could experience difficulties resulting from Year
2000 issues that may affect their suppliers, service providers and customers.
As a result, although the Company does not currently anticipate that it will
experience any material shipment delays from its major product suppliers or
any material sales delays from its major customers due to Year 2000 issues
based on information developed through the current stage of its Year 2000
project, these third parties may nonetheless experience Year 2000 problems.
Any such problems could have a material adverse effect on the Company's
results of operations and financial condition.
COSTS OF COMPLIANCE. Based on the status of the Company's efforts to date
to prepare for the Year 2000, the Company believes that the costs of
compliance with respect to both its products and its infrastructure,
including third party suppliers, will not exceed $500,000. As of March 31,
1999, approximately $115,000 had already been incurred.
RISKS OF NON-COMPLIANCE. The Company has not yet completed its
assessments, developed remediation or contingency plans for all problems, or
completely implemented or tested any of its remediation plans other than for
the CTX 5500 system and CTX 5500 upgrade. As the Year 2000 project continues,
the Company may discover additional Year 2000 problems, may not be able to
develop, implement, or test remediation and contingency plans, or may find
that the costs of these
14
<PAGE>
activities exceed current estimates of not more than $500,000. To the extent
the Company does not identify any material non-compliant systems operated by
the Company or by third parties, such as the Company's suppliers, service
providers or customers, the most reasonably likely worst-case scenario is a
systemic failure beyond the control of the Company, such as a prolonged
telecommunications or electrical failure, or a general disruption in the
United States or global business activities that could result in a
significant downturn. The Company believes that the primary business risks,
in the event of such failure or other disruption, would include but not be
limited to, loss of customers or orders, delays in installation, increased
operating costs, inability to obtain inventory on a timely basis, disruptions
in product shipments, or other business interruptions of a material nature,
as well as claims of mismanagement, misrepresentation, or breach of contract,
any of which could have a material adverse effect on the Company's business,
results of operations and financial condition.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.31 Amended and Restated Loan and Security Agreement dated
May 4, 1999, between the Registrant and Silicon Valley
Bank.
10.32 Amended and Restated Export-Import Bank Loan and
Security Agreement dated May 4, 1999, between the
Registrant and Silicon Valley Bank.
10.33 Negative Pledge Agreement, dated May 4, 1999, covering
all of the Registrant's Intellectual Property between
the Registrant and Silicon Valley Bank.
27 Financial Data Schedule.
(b) The Registrant filed no Reports on Form 8-K during the
quarter ended March 31, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INVISION TECHNOLOGIES, INC.
Date: May 14, 1999 /s/ SERGIO MAGISTRI
-------------------
Dr. Sergio Magistri
President and Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
Date: May 14, 1999 /s/ TIM BLACK
-------------
Tim Black
Chief Operating Officer and Acting Chief
Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
Date: May 14, 1999 /s/ JIM B. ROBBINS
------------------
Jim B. Robbins
Corporate Controller
(PRINCIPAL ACCOUNTING OFFICER)
17
<PAGE>
Exhibit 10.31
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
INVISION TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1 ACCOUNTING AND OTHER TERMS...............................................................4
2 LOAN AND TERMS OF PAYMENT................................................................4
2.1 Credit Extensions...............................................................4
2.2 Interest Rate, Payments.........................................................6
2.3 Fees............................................................................6
2.4 Additional Costs................................................................6
3 CONDITIONS OF LOANS......................................................................6
3.1 Conditions Precedent to Initial Credit Extension................................6
3.2 Conditions Precedent to all Credit Extensions...................................6
4 CREATION OF SECURITY INTEREST............................................................7
4.1 Grant of Security Interest......................................................7
5 REPRESENTATIONS AND WARRANTIES...........................................................7
5.1 Due Organization and Authorization..............................................7
5.2 Collateral......................................................................7
5.3 Litigation......................................................................7
5.4 No Material Adverse Change in Financial Statements..............................7
5.5 Solvency........................................................................7
5.6 Regulatory Compliance...........................................................7
5.7 Subsidiaries....................................................................8
5.8 Full Disclosure.................................................................8
6 AFFIRMATIVE COVENANTS....................................................................8
6.1 Clean-Up Period.................................................................8
6.2 Government Compliance...........................................................8
6.3 Financial Statements, Reports, Certificates.....................................8
6.4 Inventory; Returns..............................................................9
6.5 Taxes...........................................................................9
6.6 Insurance.......................................................................9
6.7 Primary Accounts................................................................9
6.8 Financial Covenants.............................................................9
6.9 Further Assurances..............................................................9
7 NEGATIVE COVENANTS......................................................................10
7.1 Dispositions...................................................................10
7.2 Changes in Business, Ownership, Management or Business Locations...............10
7.3 Mergers or Acquisitions........................................................10
7.4 Indebtedness...................................................................10
7.5 Encumbrance....................................................................10
7.6 Distributions; Investments.....................................................10
7.7 Transactions with Affiliates...................................................10
7.8 Subordinated Debt..............................................................10
7.9 Compliance.....................................................................11
8 EVENTS OF DEFAULT.......................................................................11
8.1 Payment Default................................................................11
8.2 Covenant Default...............................................................11
8.3 Material Adverse Change........................................................11
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
8.4 Attachment.....................................................................11
8.5 Insolvency.....................................................................11
8.6 Other Agreements...............................................................12
8.7 Judgments......................................................................12
8.8 Misrepresentations.............................................................12
9 BANK'S RIGHTS AND REMEDIES..............................................................12
9.1 Rights and Remedies............................................................12
9.2 Power of Attorney..............................................................12
9.3 Accounts Collection............................................................13
9.4 Bank Expenses..................................................................13
9.5 Bank's Liability for Collateral................................................13
9.6 Remedies Cumulative............................................................13
9.7 Demand Waiver..................................................................13
10 NOTICES.................................................................................13
11 CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER.............................................14
12 GENERAL PROVISIONS......................................................................14
12.1 Successors and Assigns.........................................................14
12.2 Indemnification................................................................14
12.3 Time of Essence................................................................14
12.4 Severability of Provision......................................................14
12.5 Amendments in Writing, Integration.............................................14
12.6 Counterparts...................................................................14
12.7 Survival.......................................................................15
12.8 Confidentiality................................................................15
12.9 Effect of Amendment and Restatement............................................15
12.10 Attorneys' Fees, Costs and Expenses............................................15
13 DEFINITIONS.............................................................................15
13.1 Definitions....................................................................15
</TABLE>
3
<PAGE>
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is dated May 4,
1999, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and INVISION TECHNOLOGIES, INC. ("Borrower"),
whose address is 7151 Gateway Boulevard, Newark, California 94560.
RECITALS
A. Bank and Borrower are parties to that certain Loan and
Security Agreement dated February 20, 1997, as amended (collectively, the
"Original Agreement").
B. Borrower and Bank desire in this Agreement to set forth their
agreement with respect to continue amortizing the Term Loans and a working
capital and equipment line and to amend and restate in its entirety without
novation the Original Agreement in accordance with the provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. THIS AGREEMENT SHALL BE CONSTRUED TO
IMPART UPON BANK A DUTY TO ACT REASONABLY AT ALL TIMES.
2 LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS.
Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.
2.1.1 REVOLVING ADVANCES.
(a) Bank will make Advances not exceeding (i) the Committed Revolving
Line, minus (ii) the amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), and minus (iii) the Foreign Exchange
Reserve. Amounts borrowed under this Section may be repaid and reborrowed during
the term of this Agreement.
(b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to reliance.
(c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.
2.1.2 LETTERS OF CREDIT.
Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the Committed Revolving Line minus (ii) the outstanding
principal balance of the Advances minus the Foreign Exchange Reserve; however,
the face amount of outstanding Letters of Credit (including drawn but
4
<PAGE>
unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed
$4,000,000. Each Letter of Credit will have an expiry date of no later than 180
days after the Revolving Maturity Date, but Borrower's reimbursement obligation
will be secured by cash on terms acceptable to Bank at any time after the
Revolving Maturity Date if the term of this Agreement is not extended by Bank.
2.1.3 FOREIGN EXCHANGE SUBLIMIT.
If there is availability under the Committed Revolving Line and the
Borrowing Base, then Borrower may enter in foreign exchange forward contracts
with the Bank under which Borrower commits to purchase from or sell to Bank a
set amount of foreign currency more than one business day after the contract
date (the "FX Forward Contract"). Bank will subtract 10% of each outstanding FX
Forward Contract from the foreign exchange sublimit which is a maximum of
$3,000,000 (the "FX Sublimit"). The total FX Forward Contracts at any one time
may not exceed 10 times the amount of the FX Sublimit. Bank may terminate the FX
Forward Contracts if an Event of Default occurs.
2.1.4 EQUIPMENT ADVANCES.
(a) Through April 20, 2000 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. The Equipment Advances
may only be used to finance or refinance Equipment and may not exceed 100% of
the invoice. Softcosts (consisting of taxes, shipping, warranty charges, freight
discounts and installation expense) may constitute up to 20% of the aggregate
Equipment Advances.
(b) Interest accrues from the date of each Equipment Advance at the
rate in Section 2.2(a) and is payable monthly until the Equipment Availability
End Date occurs. Equipment Advances outstanding on the Equipment Availability
End Date are payable in 36 equal monthly installments of principal, plus accrued
interest, beginning on the 20th of each month following the Equipment
Availability End Date and ending on April 20, 2003 (the "Equipment Maturity
Date"). Equipment Advances when repaid may not be reborrowed.
(c) To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 3:00 p.m. Pacific time 1
Business Day before the day on which the Equipment Advance is to be made. The
notice in the form of Exhibit B (Payment/Advance Form) must be signed by a
Responsible Officer or designee and include a copy of the invoice for the
Equipment being financed.
2.1.5 TERM LOAN #1.
(a) The outstanding amount under the Term Loan #1 will continue to
amortize and be payable as follows:
(b) Borrower will pay 50 equal installments of principal plus Interest
of $11,041.72 (the "Term Loan #1 Payment"). Each Term Loan #1 Payment is payable
on the 29th of each month during the term of the loan. Borrower's final Term
Loan #1 Payment, due on June 29, 2003, includes all outstanding Term Loan #1
principal and accrued interest.
2.1.6 TERM LOAN #2.
(a) The outstanding amount under the Term Loan # 2 will continue to
amortize and be payable as follows:
(b) Borrower will pay 31 equal installments of principal plus Interest
of $17,846.62 (the "Term Loan #2 Payment"). Each Term Loan #2 Payment is payable
on the 29th of each month during the term of the loan. Borrower's final Term
Loan # 2 Payment, due on November 29, 2001, includes all outstanding Term Loan
#2 principal and accrued interest.
5
<PAGE>
2.2 INTEREST RATE, PAYMENTS.
(a) Interest Rate. (i) Advances accrue interest on the outstanding
principal balance at a per annum rate equal to the Prime Rate; (ii) Prior to the
Equipment Availability End Date, Equipment Advances accrue interest on the
outstanding principal balance at a per annum rate of 0.25 percentage points
above the Prime Rate. Following the Equipment Availability End Date, Borrower
shall have the option of electing either variable rate equal to 0.25 percentage
points above the Prime Rate or a fixed rate equal to the Treasury Rate plus 350
basis points; (iii) the Term Loan # 1 accrues interest at a per annum rate fixed
at 8.99 percent; and (iv) the Term Loan #2 accrues interest at a per annum rate
fixed at 9.03 percent. For all fixed rate Obligations, any prepayment must
include a Prepayment Fee. After an Event of Default, Obligations accrue interest
at 5 percent above the rate effective immediately before the Event of Default.
The interest rate increases or decreases when the Prime Rate changes. Interest
is computed on a 360 day year for the actual number of days elapsed.
(b) Payments. Interest due on the Committed Revolving Line is payable
on the 20th of each month. Interest due on the Equipment Advances is payable on
the 20th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number _____________________________ for principal and
interest payments or any amounts Borrower owes Bank. Bank will notify Borrower
when it debits Borrower's accounts. These debits are not a set-off. Payments
received after 12:00 noon Pacific time are considered received at the opening of
business on the next Business Day. When a payment is due on a day that is not a
Business Day, the payment is due the next Business Day and additional fees or
interest accrue.
2.3 FEES.
Borrower will pay:
(a) Facility Fee. A fully earned, non-refundable Facility Fee of
$12,500 for the Committed Revolving Line due on the Closing Date; and
(b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.
2.4 ADDITIONAL COSTS.
If any law or regulation increases Bank's costs or reduces its income
for any loan, Borrower will pay the increase in cost or reduction in income or
additional expense.
3 CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION.
Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:
(a) timely receipt of any Payment/Advance Form; and
(b) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.
6
<PAGE>
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as
Collateral. If this Agreement is terminated, Bank's lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations.
Additionally, Borrower agrees that for all Accounts from the Federal Aviation
Administration ("FAA"), Borrower will cause the payee to assign its payment
rights to Bank and have the assignment acknowledged under the Assignment of
Claims Act of 1940 (31 U.S.C. 3727).
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND AUTHORIZATION.
Borrower and each Subsidiary is duly existing and in good standing in
its state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.
The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound. Borrower is not in default under any agreement to which or by which it is
bound in which the default could cause a Material Adverse Change.
5.2 COLLATERAL.
Borrower has good title to the Collateral, free of Liens except
Permitted Liens. All Inventory is in all material respects of good and
marketable quality, free from material defects.
5.3 LITIGATION.
Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.
5.4 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.
All consolidated financial statements for Borrower, and any Subsidiary,
delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.
5.5 SOLVENCY.
The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.
5.6 REGULATORY COMPLIANCE.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" under the Investment Company Act. Borrower is not engaged
as one of its important activities in
7
<PAGE>
extending credit for margin stock (under Regulations G, T and U of the
Federal Reserve Board of Governors). Borrower has complied with the Federal
Fair Labor Standards Act. Borrower has not violated any laws, ordinances or
rules, the violation of which could cause a Material Adverse Change. None of
Borrower's or any Subsidiary's properties or assets has been used by Borrower
or any Subsidiary or, to the best of Borrower's knowledge, by previous
Persons, in disposing, producing, storing, treating, or transporting any
hazardous substance other than legally. Borrower and each Subsidiary has
timely filed all required tax returns and paid, or made adequate provision to
pay, all taxes, except those being contested in good faith with adequate
reserves under GAAP. Borrower and each Subsidiary has obtained all consents,
approvals and authorizations of, made all declarations or filings with, and
given all notices to, all government authorities that are necessary to
continue its business as currently conducted.
5.7 SUBSIDIARIES.
Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.
5.8 FULL DISCLOSURE.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statements contained in the certificates or statements not misleading.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 CLEAN-UP PERIOD.
Borrower will maintain a zero balance on the Committed Revolving Line
(exclusive of Letters of Credit Obligations) for a period of thirty (30)
consecutive days during the term of the Committed Revolving Line.
6.2 GOVERNMENT COMPLIANCE.
Borrower will maintain its and all Subsidiaries' legal existence and
good standing in its jurisdiction of formation and maintain qualification in
each jurisdiction in which the failure to so qualify could have a material
adverse effect on Borrower's business or operations. Borrower will comply, and
have each Subsidiary comply, with all laws, ordinances and regulations to which
it is subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or cause a Material Adverse Change.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.
(a) Borrower will deliver to Bank: (i) as soon as available, but no
later than 20 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form and certified by a Responsible Officer
acceptable to Bank; (ii) as soon as available, but no later than 120 days after
the last day of Borrower's fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm acceptable to Bank; (iii) within 5 days of filing, copies
of all statements, reports and notices made available to Borrower's security
holders or to any holders of Subordinated Debt and all reports on Form 10-K,
10-Q and 8-K filed with the Securities and Exchange Commission; (iv) a prompt
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 $100,000 or more; and (v) budgets, sales projections, operating plans or
other financial information Bank requests.
8
<PAGE>
(b) Within 20 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit C.
(c) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than annually unless (i)
there are no borrowings under the Committed Revolving Line and (ii) an Event of
Default has occurred and is continuing.
6.4 INVENTORY; RETURNS.
Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.
6.5 TAXES.
Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.
6.6 INSURANCE.
Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 days notice before canceling
its policy. At Bank's request, Borrower will deliver certified copies of
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank's option, be payable to Bank on account of the Obligations.
6.7 PRIMARY ACCOUNTS.
Borrower will maintain its primary depository and operating accounts
with Bank.
6.8 FINANCIAL COVENANTS.
Borrower will maintain, at such times there are outstanding Credit
Extensions, as of the last day of each month, otherwise as of the last day of
each quarter:
(i) QUICK RATIO (ADJUSTED). A ratio of Quick Assets to
Current Liabilities minus Deferred Maintenance Revenue of at least 1.25 to
1.00.
(ii) DEBT/TANGIBLE NET WORTH RATIO. A ratio of Total
Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated Debt
of not more than 1.00 to 1.00.
(iii) PROFITABILITY. Borrower will have a minimum net profit of
$1 for each quarter and fiscal year end.
6.9 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
9
<PAGE>
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DISPOSITIONS.
Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS LOCATIONS.
Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a material
change in its ownership of greater than 25%. Borrower will not, without at least
30 days prior written notice, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS.
Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement or result in a decrease of more than 25% of Tangible Net Worth; or
(ii) the merger or consolidation is (a) a Subsidiary into another Subsidiary or
(b) a Subsidiary into Borrower.
7.4 INDEBTEDNESS.
Create, incur, assume, or be liable for any Indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.
7.5 ENCUMBRANCE.
Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
any Collateral not to be subject to the first priority security interest granted
here.
7.6 DISTRIBUTIONS; INVESTMENTS.
Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock.
7.7 TRANSACTIONS WITH AFFILIATES.
Directly or indirectly enter or permit any material transaction with
any Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms no less favorable to Borrower than would be obtained in an
arm's length transaction with a non-affiliated Person.
7.8 SUBORDINATED DEBT.
Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent.
10
<PAGE>
7.9 COMPLIANCE.
Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that 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 other law or regulation, if the
violation could have a material adverse effect on Borrower's business or
operations or cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.
8 EVENTS OF DEFAULT
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations when due;
8.2 COVENANT DEFAULT.
If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, Exim Loan Documents, any Loan
Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the default
within 10 days after it occurs, or if the default cannot be cured within 10 days
or cannot be cured after Borrower's attempts within 10 day period, and the
default may be cured within a reasonable time, then Borrower has an additional
period (of not more than 30 days) to attempt to cure the default. During the
additional time, the failure to cure the default is not an Event of Default (but
no Credit Extensions will be made during the cure period);
8.3 MATERIAL ADVERSE CHANGE.
(i) If there occurs a material impairment in the perfection or priority
of the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.
8.4 ATTACHMENT.
If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);
8.5 INSOLVENCY.
If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);
11
<PAGE>
8.6 OTHER AGREEMENTS.
If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $100,000 or that could cause a Material Adverse Change;
8.7 JUDGMENTS.
If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or
8.8 MISREPRESENTATIONS.
If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on
12
<PAGE>
terms Bank determines reasonable; and (v) transfer the Collateral into the
name of Bank or a third party as the Code permits. Bank may exercise the
power of attorney to sign Borrower's name on any documents necessary to
perfect or continue the perfection of any security interest regardless of
whether an Event of Default has occurred. Bank's appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an
interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Credit Extensions terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.6, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, 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 held by Bank on which Borrower is
liable.
10 NOTICES
All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A party may change its notice address by giving the other party
written notice.
13
<PAGE>
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Agreement or any
rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Agreement.
12.4 SEVERABILITY OF PROVISION.
Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Agreement must be in writing and signed by
Borrower and Bank. This Agreement represents the entire agreement about this
subject matter, and supersedes prior negotiations or agreements. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties about the subject matter of this Agreement merge into this
Agreement and the Loan Documents.
12.6 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, are an original, and all taken together, constitute one Agreement.
14
<PAGE>
12.7 SURVIVAL.
All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.
12.10 ATTORNEYS' FEES, COSTS AND EXPENSES.
In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled.
13 DEFINITIONS
13.1 DEFINITIONS.
In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the
Committed Revolving Line.
"AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
"BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.
15
<PAGE>
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on Exhibit A.
"COMMITTED EQUIPMENT LINE" is a Credit Extension of up to $500,000.
"COMMITTED REVOLVING LINE" is an Advance of up to $5,000,000.
"CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.
"CREDIT EXTENSION" is each Advance under the Committed Revolving Line
of the Committed Exim Line, Equipment Advance, Letter of Credit, Term Loan,
Exchange Contract, or any other extension of credit by Bank for Borrower's
benefit.
"CURRENT LIABILITIES" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.
"DEFERRED MAINTENANCE REVENUE" is all amounts received in advance of
performance under maintenance contract and not yet recognized as revenue.
"ELIGIBLE ACCOUNTS" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5;
but Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:
(a) Accounts that the account debtor has not paid within 90 days of
invoice date;
(b) Accounts for an account debtor, 50% or more of whose Accounts have
not been paid within 90 days of invoice date;
(c) Credit balances over 90 days from invoice date;
(d) Accounts for an account debtor, including Affiliates, whose total
obligations to Borrower exceed 25% of all Accounts, for the amounts
that exceed that percentage, unless the Bank approves in writing;
(e) Accounts for which the account debtor does not have its principal
place of business in the United States;
(f) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality, except
for those accounts of the United States or any department, agency or
instrumentality thereto as to which the payee has assigned its rights
to
16
<PAGE>
payment thereto to Bank and the assignment has been acknowledged,
pursuant to the Assignment of Claims Act of 1940, as amended;
(g) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(h) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on
approval, bill and hold, or other terms if account debtor's payment may
be conditional;
(i) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(j) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
(k) Accounts for which Bank reasonably determines collection to be
doubtful.
"EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.
"EQUIPMENT ADVANCE" is defined in Section 2.1.4.
"EQUIPMENT AVAILABILITY END DATE" is defined in Section 2.1.4.
"EQUIPMENT MATURITY DATE" is defined in Section 2.1.4.
"ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.
"EXCHANGE CONTRACT" is defined in Section 2.1.3.
"EXIM LOAN DOCUMENTS" means the Amended and Restated Export-Import Bank
Loan and Security Agreement of even date and other related the related
documents, including the Borrower Agreement, between Borrower and Bank.
"GAAP" is generally accepted accounting principles.
"INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.
"INSOLVENCY PROCEEDING" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVENTORY" is 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 later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.
"INVESTMENT" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
17
<PAGE>
"LETTER OF CREDIT" is defined in Section 2.1.2.
"LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
"LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.
"MATERIAL ADVERSE CHANGE" is defined in Section 8.3.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including Exim Loan Documents, Letters
of Credit and Exchange Contracts and including interest accruing after
Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower
assigned to Bank.
"ORIGINAL AGREEMENT" has the meaning set forth in recital paragraph A.
"PERMITTED INDEBTEDNESS" is:
(a) Borrower's indebtedness to Bank under this Agreement or any other
Loan Document;
(b) Indebtedness existing on the Closing Date and shown on the
Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary course of
business; and
(e) Indebtedness secured by Permitted Liens.
"PERMITTED INVESTMENTS" are:
(a) Investments shown on the Schedule and existing on the Closing Date;
and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.
"PERMITTED LIENS" are:
(a) Liens existing on the Closing Date and shown on the Schedule or
arising under this Agreement or other Loan Documents;
(b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, IF they have no priority over
any of Bank's security interests;
(c) Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or
(ii) existing on equipment when acquired, IF the Lien is confined to the
property and improvements and the proceeds of the equipment;
(d) Leases or subleases and licenses or sublicenses granted in the
ordinary course of Borrower's business and any interest or title of a lessor,
licensor or under any lease or license, IF the leases, subleases, licenses and
sublicenses permit granting Bank a security interest;
18
<PAGE>
(e) Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), BUT any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase.
"PERSON" is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.
"PREPAYMENT FEE" is a fee on any portion of the Obligations with a
fixed interest rate (the "Fixed Obligations") paid before the payment due date.
"Base Interest Rate" means Bank's initial cost of funding the Fixed Obligations.
The Prepayment Fee is calculated as follows: First, Bank determines a "Current
Market Rate" based on what the Bank would receive if it loaned the amount on the
prepayment date in a wholesale funding market matching maturity, principal
amount and principal and interest payment dates (the aggregate payments received
are the "Current Market Rate Amount"). Bank may select any wholesale funding
market rate as the Current Market Rate. Second, Bank will take the prepayment
amount and calculate the present value of each principal and interest payment
which, without prepayment, the Bank would have received during the term of the
Fixed Obligations using the Base Interest Rate. The sum of the present value
calculations is the "Mark to Market Amount." Third, the Bank will subtract the
Mark to Market Amount from the Current Market Rate Amount. Any amount greater
than zero is the Prepayment Fee.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"QUICK ASSETS" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, net billed accounts receivable and
investments with maturities of fewer than 12 months determined according to
GAAP.
"RESPONSIBLE OFFICER" is each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"REVOLVING MATURITY DATE" is April 20, 2000.
"SCHEDULE" is any attached schedule of exceptions.
"SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's debt to Bank (and identified as subordinated by Borrower and Bank).
"SUBSIDIARY" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.
"TANGIBLE NET WORTH" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries MINUS, (i) 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, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.
"TERM LOAN #1" is a loan of $563,128.12
"TERM LOAN #2" is a loan of $571,092.15
"TERM LOAN #1 MATURITY DATE" is June 29, 2003.
"TERM LOAN #2 MATURITY DATE" is November 29, 2001.
19
<PAGE>
"TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.
"TREASURY RATE". Treasury Rate is the Treasury Yield Percentage based
on the average weekly yield (of the week ending figures) in the most recent
Federal Reserve Statistical Release on actively traded U.S. Treasury obligations
of similar maturity to the principal being repaid or if a Statistical Release is
not published, the arithmetic average (to the nearest .01%) of the per annum
yields to maturity for each Business Day during the week (ending at least two
Business Days before the determination is made) of all actively traded
marketable United States Treasury fixed interest rate securities with a constant
maturity of, or not more than 30 days longer or shorter than the average life of
the principal and interest payments that are being prepaid (excluding securities
that can be surrendered at face value to pay Federal estate tax, or which
provide for tax benefits to the holder).
BORROWER:
Invision Technologies, Inc.
By: /s/ Tim Black
---------------------------------------------------------------
Title: Chief Operating Officer
------------------------------------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ Pamela S. Doyle
---------------------------------------------------------------
Title: Senior Vice President, Corporate Services Division
------------------------------------------------------------
20
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's 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 documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, servicemarks, leases,
license agreements, franchise agreements, blueprints, drawings, purchase
orders, customer lists, route lists, infringements, claims, computer
programs, computer discs, computer tapes, literature, reports, catalogs,
design rights, income tax refunds, payments of insurance and rights to
payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
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;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All Borrower's Books relating to the foregoing and any and all claims,
rights and interests in any of the above and all substitutions for, additions
and accessions to and proceeds thereof.
The Collateral shall specifically exclude: copyrights, trademarks,
patents, and mask works including amendments, renewals, extensions, and all
licenses or other rights to use and all license fees and royalties from the
use; Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created,
acquired or held; All design rights which may be available to Borrower now
or later created, acquired or held; Any claims for damages (past, present or
future) for infringement of any of the rights above, with the right, but not
the obligation, to sue and collect damages for use or infringement of the
intellectual property rights above; all proceeds and products of the
foregoing, including all insurance, indemnity or warranty payments.
<PAGE>
EXHIBIT B
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: Invision Technologies, Inc.
-----------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
---------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-------------------------------------------------------
PHONE NUMBER:
---------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
---------------- ------------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $
---------------------------------
PRINCIPAL PAYMENT (ONLY) $
---------------------------------
INTEREST PAYMENT (ONLY) $
---------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
---------------------------------
OTHER INSTRUCTIONS:
---------------------------------------------------------
- ------------------------------------------------------------------------------
All Borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that 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)
<PAGE>
EXHIBIT C
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
3003 Tasman Drive
Santa Clara, CA 95054
FROM: INVISION TECHNOLOGIES, INC.
The undersigned authorized officer of Invision Technologies, Inc.
("Borrower") certifies that under the terms and conditions of the Amended and
Restated Loan and Security 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 in the Agreement are true and correct in all
material respects on this date. Attached are the required documents supporting
the certification. The Officer certifies that these are prepared in accordance
with Generally Accepted Accounting Principles (GAAP) consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The Officer acknowledges that no borrowings may be requested at any
time or date of determination that Borrower is not in compliance with any of the
terms of the Agreement, and that compliance is determined not just at the date
this certificate is delivered.
PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO
UNDER "COMPLIES" COLUMN.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
<S> <C> <C> <C>
Monthly financial statements + CC Monthly within 20 days Yes No
Annual (Audited) FYE within 120 days Yes No
10-Q, 10-K and 8-K Within 5 days after filing with SEC Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
<S> <C> <C> <C>
Maintain on a Quarterly Basis*:
Minimum Quick Ratio (Adjusted) 1.25:1.00 _____:1.00 Yes No
Maximum Debt/Tangible Net Worth 1.00:1.00 _____:1.00 Yes No
Profitability: Quarterly &
Annually $_________ Yes No
</TABLE>
*if no outstanding Credit Extensions including issued letters of credit,
otherwise on a monthly basis.
COMMENTS REGARDING EXCEPTIONS: See Attached.
Sincerely,
Invision Technologies, Inc.
- ---------------------------------------
SIGNATURE
- ---------------------------------------
TITLE
- ---------------------------------------
DATE
BANK USE ONLY
Received by:
---------------------------------------
AUTHORIZED SIGNER
Date:
----------------------------------------------
Verified:
------------------------------------------
AUTHORIZED SIGNER
Date:
----------------------------------------------
Compliance Status: Yes No
<PAGE>
Schedule of permitted investments:
Imatron Federal Systems, Inc.
InVision Foreign Sales, Inc.
InVision International, Inc.
Quantum Magnetics, Inc.
<PAGE>
Exhibit 10.32
AMENDED AND RESTATED EXPORT-IMPORT BANK LOAN AND
SECURITY AGREEMENT
INVISION TECHNOLOGIES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1 ACCOUNTING AND OTHER TERMS..........................................................................4
2 LOAN AND TERMS OF PAYMENT...........................................................................4
2.1 Advances...................................................................................4
2.2 Overadvances...............................................................................5
2.3 Interest Rate, Payments....................................................................5
2.4 Fees.......................................................................................5
2.5 Use of Proceeds............................................................................5
3 CONDITIONS OF LOANS.................................................................................5
3.1 Conditions Precedent to Initial Advance....................................................6
3.2 Conditions Precedent to all Advances.......................................................6
4 CREATION OF SECURITY INTEREST.......................................................................6
4.1 Grant of Security Interest.................................................................6
5 REPRESENTATIONS AND WARRANTIES......................................................................6
5.1 Domestic Loan Documents....................................................................6
6 AFFIRMATIVE COVENANTS...............................................................................6
6.1 Domestic Loan Documents....................................................................6
6.2 EXIM Insurance.............................................................................6
6.3 Borrower Agreement.........................................................................7
6.4 Terms of Sale..............................................................................7
6.5 Reporting Requirement......................................................................7
6.6 Further Assurances.........................................................................7
7 NEGATIVE COVENANTS..................................................................................7
7.1 Domestic Loan Documents....................................................................7
Violate or fail to comply with the Domestic Loan Documents..........................................7
7.2 Borrower Agreement.........................................................................7
7.3 Exim Agreement.............................................................................7
8 EVENTS OF DEFAULT...................................................................................7
8.1 Payment Default............................................................................8
8.2 Covenant Default...........................................................................8
8.3 Exim Guarantee.............................................................................8
9 BANK'S RIGHTS AND REMEDIES..........................................................................8
9.1 Rights and Remedies........................................................................8
9.2 Power of Attorney..........................................................................8
9.3 Accounts Collection........................................................................9
9.4 Bank Expenses..............................................................................9
9.5 Bank's Liability for Collateral............................................................9
9.6 Remedies Cumulative........................................................................9
9.7 Demand Waiver..............................................................................9
9.8 Exim Direction.............................................................................9
9.9 Exim Notification..........................................................................9
10 NOTICES............................................................................................10
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C> <C>
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.........................................................10
12 GENERAL PROVISIONS.................................................................................10
12.1 Successors and Assigns....................................................................10
12.2 Indemnification...........................................................................10
12.3 Time of Essence...........................................................................10
12.4 Severability of Provision.................................................................11
12.5 Amendments in Writing, Integration........................................................11
12.6 Counterparts..............................................................................11
12.7 Survival..................................................................................11
12.8 Confidentiality...........................................................................11
12.9 Effect of Amendment and Restatement.......................................................11
13 DEFINITIONS........................................................................................11
13.1 Definitions...............................................................................11
</TABLE>
3
<PAGE>
THIS AMENDED AND RESTATED EXPORT-IMPORT BANK LOAN AND SECURITY
AGREEMENT dated May 4, 1999, between SILICON VALLEY BANK ("Bank"), whose address
is 3003 Tasman Drive, Santa Clara, California 95054 and INVISION TECHNOLOGIES,
INC. ("Borrower"), whose address is 7151 Gateway Boulevard, Newark, California
94560.
RECITALS
A. Bank and Borrower are parties to that certain Export-Import
Bank Loan and Security Agreement dated February 20, 1997, as amended
(collectively, the "Original Agreement").
B. Borrower and Bank desire in this Exim Agreement to set forth
their agreement with respect to a working capital loan and to amend and restate
in its entirety without novation the Original Exim Agreement in accordance with
the provisions herein.
AGREEMENT
The parties agree as follows:
1 ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Exim Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation" in this or any Loan Document. This Exim Agreement shall be construed
to impart upon Bank a duty to act reasonably at all times.
2 LOAN AND TERMS OF PAYMENT
2.1 ADVANCES.
Borrower will pay Bank the unpaid principal amount of all Advances and
interest on the unpaid principal amount of the Advances.
2.1.1 REVOLVING ADVANCES.
Bank will make Advances not exceeding (i) the Exim Committed Line or
(ii) the Borrowing Base, whichever is less minus (ii) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit and minus (iii) the Foreign Exchange Reserve. Amounts borrowed under this
Section may be repaid and reborrowed during the term of this Exim Agreement.
(a) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Credit Extensions under this Exim
Agreement based on instructions from a Responsible Officer or his or her
designee or without instructions if the Credit Extensions are necessary to meet
Obligations which have become due. Bank may rely on any telephone notice given
by a person whom Bank believes is a Responsible Officer or designee. Borrower
will indemnify Bank for any loss suffered by Bank from that reliance.
(b) The Exim Committed Line terminates on the Exim Maturity Date, when
all Advances and other amounts due under this Exim Agreement are immediately
payable.
2.1.2 LETTERS OF CREDIT.
Bank will issue or have issued Letters of Credit for Borrower's
account, to serve as bid bonds when the Borrower has no export order, provided
that the Borrower submits to Bank a copy of request for proposal or other form
of invitation to bid, in form and substance acceptable to Bank. Letters of
Credit
4
<PAGE>
shall not exceed (i) the lesser of the Exim Committed Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances, but the
face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) may not
exceed $2,000,000. Each Letter of Credit will expire no later than 180 days
after the Revolving Maturity Date provided Borrower's Letter of Credit
reimbursement obligation is secured by cash on terms acceptable to Bank at
any time after the Exim Maturity Date if the term of this Agreement is not
extended by Bank.
2.1.3 FOREIGN EXCHANGE SUBLIMIT.
If there is availability under the Committed Revolving Line and the
Borrowing Base, then Borrower may enter in foreign exchange forward contracts
with the Bank under which Borrower commits to purchase from or sell to Bank a
set amount of foreign currency more than one business day after the contract
date (the "FX Forward Contract"). Bank will subtract 10% of each outstanding FX
Forward Contract from the foreign exchange sublimit which is a maximum of
$1,000,000 (the "FX Sublimit"). The total FX Forward Contracts at any one time
may not exceed 10 times the amount of the FX Sublimit. Bank may terminate the FX
Forward Contracts if an Event of Default occurs.
2.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1.1 exceed the lesser of
either (i) the Exim Committed Line or (ii) the Borrowing Base, Borrower must
immediately pay Bank the excess.
2.3 INTEREST RATE, PAYMENTS.
(a) Interest Rate. Advances accrue interest on the outstanding
principal balance at a per annum rate equal to the Prime Rate. After an Event of
Default, Obligations accrue interest at 5 percent above the rate effective
immediately before the Event of Default. The interest rate increases or
decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed.
(b) Payments. Interest due on the Exim Committed Line is payable on the
20th of each month. Bank may debit any of Borrower's deposit accounts including
Account Number __________________________ for principal and interest payments or
any amounts Borrower owes Bank. Bank will notify Borrower when it debits
Borrower's accounts. These debits are not a set-off. Payments received after
12:00 noon Pacific time are considered received at the opening of business on
the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.
2.4 FEES.
Borrower will pay:
(a) Bank Expenses. All Bank Expenses incurred through and after the
date of this Exim Agreement, (including reasonable attorneys' fees and expenses)
payable when due.
(b) Exim Fee. A fully earned, non-refundable facility Fee of $37,500
will be due on the Closing Date.
(c) Exim Bank Expenses. On the Closing Date, Exim Bank Expenses
incurred through the date hereof.
2.5 USE OF PROCEEDS.
Borrower will use the proceeds of the Advances only for the purposes
specified in the Borrower Agreement. Borrower will not use the proceeds of the
Advances for any purpose prohibited by the Borrower Agreement.
3 CONDITIONS OF LOANS
5
<PAGE>
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE.
Bank's obligation to make the initial Advance is subject to the
condition precedent that it receive the agreements, documents and fees it
requires.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES.
Bank's obligations to make each Advance, including the initial Advance,
is subject to the following:
(a) timely receipt of any export purchase order and a Borrowing Base
Certificate relating to the request;
(b) receipt of a Payment/Advance Form;
(c) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Advance and no Event of Default may have occurred and be continuing, or result
from the Advance. Each Advance is Borrower's representation and warranty on that
date that the representations and warranties of Section 5 remain true; and
(d) the Exim Guarantee will be in full force and effect.
4 CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST.
Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents. Except for
Permitted Liens, any security interest will be a first priority security
interest in the Collateral. Bank may place a "hold" on any deposit account
pledged as Collateral.
5 REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DOMESTIC LOAN DOCUMENTS.
The representations and warranties contained in the Domestic Loan
Documents, which are incorporated into this Agreement, are true and correct.
6 AFFIRMATIVE COVENANTS
Borrower will do all of the following:
6.1 DOMESTIC LOAN DOCUMENTS.
Borrower will comply with all the provisions of the Domestic Loan
Documents.
6.2 EXIM INSURANCE.
If required by Bank, Borrower will obtain, and pay when due all
premiums with respect to, and maintain uninterrupted foreign credit insurance.
In addition, Borrower will execute in favor of Bank an assignment of proceeds of
any insurance policy obtained by Borrower and issued by Exim Bank insuring
against comprehensive commercial and political risk (the "EXIM Bank Policy").
The insurance proceeds from the EXIM Bank Policy assigned or paid to Bank will
be applied to the balance outstanding under this Exim Agreement. Borrower will
immediately notify Bank and Exim Bank in writing upon submission of any
6
<PAGE>
claim under the Exim Bank Policy. Then Bank will not be obligated to make any
further Credit Extensions to Borrower without prior approval from Exim Bank.
6.3 BORROWER AGREEMENT.
Borrower will comply with all terms of the Borrower Agreement. If any
provision of the Borrower Agreement conflicts with any provision contained in
this Exim Agreement, the more strict provision, with respect to the Borrower,
will control.
6.4 TERMS OF SALE.
Borrower will cause all sales of products on which the Credit
Extensions are based to be (i) supported by one or more irrevocable letters of
credit in an amount and of matter, naming a beneficiary and issued by a
financial institution acceptable to Bank or (ii) on open account to creditworthy
buyers that have written pre-approval from Bank and Exim Bank.
6.5 REPORTING REQUIREMENT.
(a) Borrower shall deliver all reports, certificates and other
documents to Bank as provided in the Borrower Agreement. In addition, Borrower
shall comply with the reporting requirements set forth in the Domestic Loan
Documents;
(b) At the time of each Advance and within 20 days after the last day
of each month, Borrower will deliver to Bank a Borrowing Base Certificate signed
by a Responsible Officer in the form of Exhibit C, with aged listings of
accounts receivable, accounts payable and inventory schedules together with
point of sales reports and sell through reports, unless there are no borrowings
under the Exim Committed Line including the issued Letters of Credits; and
(c) Bank has the right to audit Borrower's Collateral at Borrower's
expense, but the audits will be conducted no more often than semi-annually
unless (i) there are no borrowings under the Exim Committed Line including the
issued Letters of Credit and (ii) an Event of Default has occurred and is
continuing.
6.6 FURTHER ASSURANCES.
Borrower will execute any further instruments and take further action
as Bank requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Exim Agreement.
7 NEGATIVE COVENANTS
Borrower will not do any of the following:
7.1 DOMESTIC LOAN DOCUMENTS.
Violate or fail to comply with the Domestic Loan Documents.
7.2 BORROWER AGREEMENT.
Violate or fail to comply with any provision of the Borrower Agreement.
7.3 EXIM AGREEMENT.
Take an action, or permit any action to be taken, that causes, or could
be expected to cause, the Exim Guarantee to not be in full force and effect.
8 EVENTS OF DEFAULT
7
<PAGE>
Any one of the following is an Event of Default:
8.1 PAYMENT DEFAULT.
If Borrower fails to pay any of the Obligations when due;
8.2 COVENANT DEFAULT.
If Borrower violates any covenant in this Exim Agreement or in any of
the Domestic Loan Documents or the Borrower Agreement or an Event of Default
occurs under this Exim Agreement or the Domestic Loan Documents.
8.3 EXIM GUARANTEE.
If the Exim Guarantee ceases for any reason to be in full force and
effect, or if the Exim Bank declares the Exim Guarantee void or revokes any
obligations under the Exim Guarantee.
9 BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES.
When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:
(a) Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8 occurs all Obligations are immediately
due and payable without any action by Bank);
(b) Stop advancing money or extending credit for Borrower's benefit
under this Exim Agreement or under any other agreement between Borrower and
Bank;
(c) Settle or adjust disputes and claims directly with account debtors
for amounts, on terms and in any order that Bank considers advisable;
(d) Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;
(e) Apply to the Obligations any (i) balances and deposits of Borrower
it holds, or (ii) any amount held by Bank owing to or for the credit or the
account of Borrower;
(f) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral; and
(g) Dispose of the Collateral according to the Code.
9.2 POWER OF ATTORNEY.
Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors, (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on
8
<PAGE>
terms Bank determines reasonable; and (v) transfer the Collateral into the
name of Bank or a third party as the Code permits. Bank may exercise the
power of attorney to sign Borrower's name on any documents necessary to
perfect or continue the perfection of any security interest regardless of
whether an Event of Default has occurred. Bank's appointment as Borrower's
attorney in fact, and all of Bank's rights and powers, coupled with an
interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank's obligation to provide Advances terminates.
9.3 ACCOUNTS COLLECTION.
When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES.
If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.
9.5 BANK'S LIABILITY FOR COLLATERAL.
If Bank complies with reasonable banking practices it is not liable
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears
all risk of loss, damage or destruction of the Collateral.
9.6 REMEDIES CUMULATIVE.
Bank's rights and remedies under this Exim Agreement, the Loan
Documents, and all other agreements are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank's exercise of one
right or remedy is not an election, and Bank's waiver of any Event of Default is
not a continuing waiver. Bank's delay is not a waiver, election, or
acquiescence. No waiver is effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it was given.
9.7 DEMAND WAIVER.
Borrower waives demand, 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 held by Bank on which Borrower is
liable.
9.8 EXIM DIRECTION.
Upon the occurrence of an Event of Default, Exim Bank shall have right
to (i) direct Bank to exercise the remedies specified in Section 9.1 and (ii)
request that Bank accelerate the maturity of any other loans to Borrower.
9.9 EXIM NOTIFICATION.
Bank has the right to immediately notify Exim Bank in writing if it has
knowledge of any of the following events: (1) any failure to pay any amount due
under this Exim Agreement; (2) the Borrowing
9
<PAGE>
Base is less than the sum of the outstanding Credit Extensions; (3) any
failure to pay when due any amount payable to Bank under any Loan owing by
Borrower to Bank; (4) the filing of an action for debtor's relief by, against
or on behalf of Borrower; (5) any threatened or pending material litigation
against Borrower, or any dispute involving Borrower.
If Bank sends a notice to Exim Bank, Bank has the right to send Exim
Bank a written report on the status of events covered by the notice every 30
days after the date of the original notification, until Bank files a claim with
Exim Bank or the defaults have been cured (but no Credit Extensions may be
required during the cure period unless Exim Bank gives its written approval). If
directed by Exim Bank, Bank will have the right to exercise any rights it may
have against the Borrower to demand the immediate repayment of all amounts
outstanding under the Exim Loan Documents.
10 NOTICES
All notices or demands by any party about this Exim Agreement or any
other related agreement must be in writing and be personally delivered or sent
by an overnight delivery service, by certified mail, postage prepaid, return
receipt requested, or by telefacsimile to the addresses first written above. A
Party may change its notice address by giving the other Party written notice.
11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.
BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
12 GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS.
This Exim Agreement binds and is for the benefit of the successors and
permitted assigns of each party. Borrower may not assign this Exim Agreement or
any rights under it without Bank's prior written consent which may be granted or
withheld in Bank's discretion. Bank has the right, without the consent of or
notice to Borrower, to sell, transfer, negotiate, or grant participation in all
or any part of, or any interest in, Bank's obligations, rights and benefits
under this Exim Agreement.
12.2 INDEMNIFICATION.
Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE.
Time is of the essence for the performance of all obligations in this
Exim Agreement.
10
<PAGE>
12.4 SEVERABILITY OF PROVISION.
Each provision of this Exim Agreement is severable from every other
provision in determining the enforceability of any provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION.
All amendments to this Exim Agreement must be in writing. This Exim
Agreement represents the entire agreement about this subject matter, and
supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Exim Agreement merge into this Exim
Agreement and the Loan Documents.
12.6 COUNTERPARTS.
This Exim Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, are an original, and all taken together, constitute one Agreement.
12.7 SURVIVAL.
All covenants, representations and warranties made in this Exim
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 12.2 to indemnify Bank will survive until all
statutes of limitations for actions that may be brought against Bank have run.
12.8 CONFIDENTIALITY.
In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Exim Agreement. Confidential information does not include information
that either: (a) is in the public domain or in Bank's possession when disclosed
to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.
12.9 EFFECT OF AMENDMENT AND RESTATEMENT.
This Exim Agreement is intended to and does completely amend and
restate, without novation, the Original Exim Agreement. All advances or loans
outstanding under the Original Exim Agreement are and shall continue to be
outstanding under this Exim Agreement. All security interests granted under the
Original Exim Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Exim Agreement.
13 DEFINITIONS
13.1 DEFINITIONS.
Except as otherwise defined, terms that are capitalized in this Exim
Agreement will have the same meaning assigned in the Domestic Loan Documents. In
this Exim Agreement:
"ADVANCE" or "ADVANCES" is a loan advance (or advances) under the Exim
Committed Line.
"BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).
11
<PAGE>
"BORROWER AGREEMENT" is the Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement between Borrower and Bank.
"BORROWING BASE" is an amount equal to the sum of (i) ninety percent
(90%) of Exim Eligible Foreign Accounts plus (ii) seventy percent (70%) of the
Exim Eligible Foreign Inventory and work in process net of advance
payments/deposits minus (iii) twenty five percent (25%) of collateral
requirement on issuance of standby Letters of Credit to support bid and/or
performance bonds.
"BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.
"CLOSING DATE" is the date of this Exim Agreement.
"CODE" is the California Uniform Commercial Code.
"COLLATERAL" is the property described on EXHIBIT A.
"DOMESTIC LOAN DOCUMENTS" means that certain Amended and restated Loan
and Security Agreement of even date between Borrower and Bank.
"EXIM BANK" is the Export-Import Bank of the United States.
"EXIM BANK EXPENSES" are all audit fees and expenses; reasonable costs
or expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Exim Loan Documents
(including appeals or Insolvency Proceedings) and the fees that the Bank pays to
the Exim Bank in consideration of the issuance of the Exim Guarantee.
"EXIM COMMITTED LINE" is $2,500,000.
"EXIM ELIGIBLE FOREIGN ACCOUNTS" are Accounts payable in United States
Dollars that arise in the ordinary course of Borrower's business from Borrower's
sale of Eligible Foreign Inventory (i) that the account debtor does not have its
principal place of business in the United States and (ii) that have been
assigned and comply with all of Borrower's representations and warranties in;
BUT Bank may change eligibility standards by giving Borrower notice. Unless Bank
agrees otherwise in writing, Exim Eligible Foreign Accounts will not include:
(a) Accounts that the account debtor has not paid within 120 days of
invoice date;
(b) Accounts which are more than sixty (60) calendar days past the
original due date, unless it is insured through Exim Bank export credit
insurance for comprehensive commercial and political risk, or through
Exim Bank approved private insurers for a comparable coverage, in which
case ninety (90) calendar days shall apply;
(c) Credit balances over 90 days from invoice date;
(d) Accounts evidenced by a letter of credit until the date of shipment
of the items covered by the subject letter of credit;
(e) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality;
(f) Accounts for which Borrower owes the account debtor, but only up to
the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(g) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on
approval, bill and hold, or other terms if account debtor's payment may
be conditional;
12
<PAGE>
(h) Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent;
(i) Accounts in which the account debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is
subject to an Insolvency Proceeding, or becomes insolvent, or goes out
of business;
(k) Accounts generated by the sale of products purchased for military
purposes;
(l) Accounts generated by the sales of Inventory which constitute
defense articles or defense services;
(m) Accounts excluded from the Borrowing Base under the Borrower
Agreement.
(n) Accounts for which Bank or Exim Bank determines collection to be
doubtful.
"EXIM ELIGIBLE FOREIGN INVENTORY" is Borrower's Inventory purchased or
manufactured for resale located in the United States, other than Inventory that
is excluded under the Borrower Agreement and this Exim Agreement. Exim Eligible
Foreign Inventory will not include the following:
(a) Inventory not located in the United States;
(b) Any demonstration Inventory or Inventory sold on consignment;
(c) Inventory consisting of proprietary software;
(d) Inventory previously exported from the United States;
(e) Inventory which constitutes defense articles or defense services;
(f) Inventory destined for shipment to prohibited countries in which
Exim Bank is legally prohibited from doing business.
(g) Inventory destined for shipment to a county in which Exim
coverage is not available
(h) Inventory with offsetting claims;
(i) Inventory that is damaged, defective, obsolete, returned,
recalled or unfit for further processing; and
(j) Inventory which is to be incorporated into items whose sale would
result in an ineligible Account Receivable.
"EXIM GUARANTEE" is that certain Master Guarantee Agreement or other
agreement, as amended from time to time, the terms of which are incorporated
into this Exim Agreement.
"EXIM LOAN DOCUMENTS" is the Exim Agreement, the Domestic Loan
Documents, any note or notes executed by Borrower or any other agreement entered
into in connection with this Exim Loan Agreement, pursuant to which Exim Bank
guarantees Borrower's obligations under this Exim Agreement.
"EXIM MATURITY DATE" is April 20, 2000.
"EXPORT ORDER" is a written export order or contract for the purchase
by the buyer from the Borrower of any finished goods or services which are
intended for export.
"LOAN DOCUMENTS" are, collectively, this Exim Agreement, any note, or
notes or guaranties executed by Borrower or Guarantor, and any other present or
future agreement between Borrower and/or for the benefit of Bank in connection
with this Exim Agreement, all as amended, extended or restated.
13
<PAGE>
"MATERIAL ADVERSE CHANGE" is defined in The Domestic Loan Documents.
"OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
Exchange Contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.
"ORIGINAL EXIM AGREEMENT" has the meaning set forth in recital
paragraph A.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.
"SCHEDULE" is any attached schedule of exceptions.
BORROWER:
Invision Technologies, Inc.
By: /s/ Tim Black
---------------------------------------------------------------
Title: Chief Operating Officer
------------------------------------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ Pamela S. Doyle
---------------------------------------------------------------
Title: Senior Vice President, Corporate Services Division
------------------------------------------------------------
14
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All of Borrower's export-related Inventory and all export-related
Accounts arising therefrom, and
All proceeds, accessions, replacements, additions, together with
Borrower's Books relating to the foregoing and any and all claims, rights and
interests in any of the above and all substitutions therefor.
<PAGE>
EXHIBIT B
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: Invision Technologies, Inc.
-----------------------------------------------------------------------
CLIENT NAME (BORROWER)
REQUESTED BY:
---------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
AUTHORIZED SIGNATURE:
-------------------------------------------------------
PHONE NUMBER:
---------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
---------------- ------------------------------
REQUESTED TRANSACTION TYPE REQUESTED DOLLAR AMOUNT
- -------------------------- -----------------------
PRINCIPAL INCREASE (ADVANCE) $
---------------------------------
PRINCIPAL PAYMENT (ONLY) $
---------------------------------
INTEREST PAYMENT (ONLY) $
---------------------------------
PRINCIPAL AND INTEREST (PAYMENT) $
---------------------------------
OTHER INSTRUCTIONS:
---------------------------------------------------------
- ------------------------------------------------------------------------------
All Borrower's representations and warranties in the Amended and Restated
Export-Import Bank Loan and Security Agreement are true, correct and complete
in all material respects on the date of the telephone request for and Advance
confirmed by this Borrowing Certificate; but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of that 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)
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
COLLATERAL SCHEDULE
(FOREIGN A/R LINE OF CREDIT)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
BORROWER: INVISION TECHNOLOGIES, INC. BANK: SILICON VALLEY BANK
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
FOREIGN ACCOUNTS RECEIVABLE FROM EXPORT ACTIVITIES
1. Foreign Accounts Receivable Book Value as of ___________ $______________
2. Additions (please explain on reverse) $______________
3. TOTAL FOREIGN ACCOUNTS RECEIVABLE $______________
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Accounts over 120 days $____________
5. Balance of over 60 day accounts
unless insured through Exim Bank,
in which case 90 days applies. $____________
6. Credit Balances over 90 days $____________
7. Accounts not payable in the U.S. Dollars or
payable in other than U.S. Dollars $____________
8. Governmental and Military Accounts $____________
9. Contra Accounts $____________
10. Promotion, Demo or Consignment Accounts $____________
11. Intercompany/Employee and affiliate Accounts $____________
12. Accounts in the form of L/Cs, if subject items
have not yet been shipped by Borrower $____________
13. Accounts arising from Inventory not originally
located in and shipped from the U.S. $____________
14. Accounts arising from the sale of defense
articles or items $____________
15. Accounts of buyers located in or from countries
in which shipment is prohibited $____________
16. Excess of Credit Limit $____________
17. Other exclusions $____________
18. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $______________
19. Eligible Accounts (No. 3 - No. 18) $______________
20. Loan Value of Accounts (90%-Advance) $____________
INVENTORY
21. Inventory Book Value as of ____________________ $______________
22. Additions (please explain on reverse) $______________
23. TOTAL INVENTORY $______________
INVENTORY DEDUCTIONS
24. Obsolete Inventory $____________
25. Inventory not located in the U.S. $____________
26. Any Demo Inventory or Inventory sold on consignment $____________
27. Inventory consisting of proprietary software. $____________
28. Inventory previously exported from the United States $____________
29. Inventory which constitutes defense articles or
defense services. $____________
30. Inventory destined for shipment to prohibited countries $____________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
BORROWER: INVISION TECHNOLOGIES, INC. BANK: SILICON VALLEY BANK
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
31. Inventory destined for shipment to a county in which
Exim coverage is not available $____________
32. Inventory which is to be incorporated into items whose
sale would result in ineligible accounts receivable $____________
33. Inventory with offsetting claims $____________
34. Work in process $____________
35. Other (please explain on reverse) $____________
36. TOTAL INVENTORY DEDUCTIONS $____________
37. Eligible Inventory (No. 23 - No. 36) $____________
38. LOAN VALUE OF INVENTORY (70% OF NO. 37) $____________
BALANCES
39. Maximum Loan Amount $______________
40. Total Available Lesser of (No. 20 + No. 38 minus *) or No. 39 $______________
41. Present balance owing on Line of Credit $______________
42. Outstanding under Sublimits (L/C & FX) $______________
43. RESERVE POSITION (NO. 40 - (NO. 41 + 42) $______________
</TABLE>
* (25%) of Collateral requirement on issuance of standby Letters of Credit to
support bid and/or performance bonds.
The undersigned represents and warrants that as of the date hereof the
foregoing is true, complete and correct, that the information reflected in
this Collateral Schedule complies with the representations and warranties set
forth in the Amended and Restated Export-Import Bank Loan and Security
Agreement, between Borrower and Bank, and the Borrower Agreement, executed by
Borrower and acknowledged by Bank, each dated May 5, 1999, as may be amended
from time to time, as if all representations and warranties were made as of
the date hereof, and that Borrower is, and shall remain, in full compliance
with its agreements, covenants, and obligations under such agreements. Such
representations and warranties include, without limitation, the following:
Borrower is using disbursements only for the purpose of enabling Borrower to
finance the cost of manufacturing, purchasing or selling items intended for
export. Borrower is not using disbursements for the purpose of: (a) servicing
any of Borrower's unrelated pre-existing or future indebtedness; (b)
acquiring fixed assets or capital goods for the use of Borrower's business;
(c) acquiring, equipping, equipping or renting commercial space outside the
United States; or (d) paying salaries of non-U.S. citizens or non-U.S.
permanent residents who are located in the offices of the United States.
Additionally, disbursements are not being used to finance the manufacture,
purchase or sale of all of the following: (a) Items to be sold to a buyer
located in a country in which the Export Import Bank of the United States is
legally prohibited from doing business; (b) that part of the cost of the
items which is not U.S. Content unless such part is not greater than fifty
percent (50%) of the cost of the items and is incorporated into the items in
the United States; (c) defense articles or defense services or items directly
or indirectly destined for use by military organizations designed primarily
for military use (regardless of the nature or actual use of the items); or
(d) any items to be used in the construction, alteration, operation or
maintenance of nuclear power, enrichment, reprocessing, research or heavy
water production facilities.
Sincerely,
INVISION TECHNOLOGIES, INC.
By:____________________________________
Name:__________________________________
Title: ________________________________
Date:_________________
BANK USE ONLY
RECEIVED BY:___________________________
DATE:__________________________________
VERIFIED BY:___________________________
2
<PAGE>
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of May 4, 1999 by and between
Invision Technologies, Inc. ("Borrower") and Silicon Valley Bank ("Bank").
In connection with, among other documents, the Amended and Restated Loan and
Security Agreement (the "Loan Documents") being concurrently executed herewith
between Borrower and Bank, Borrower agrees as follows:
1. Borrower shall not sell, transfer, assign, mortgage, pledge,
lease, grant a security interest in, or encumber any of Borrower's
intellectual property, including, without limitation, the
following:
a. Any and all copyright rights, copyright applications,
copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or
unpublished and whether or not the same also constitutes a
trade secret, now or hereafter existing, created, acquired
or held;
b. All mask works or similar rights available for the
protection of semiconductor chips, now owned or hereafter
acquired;
c. Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or
held;
d. Any and all design rights which may be available to Borrower
now or hereafter existing, created, acquired or held;
e. All patents, patent applications and like protections
including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without
limitation the patents and patent applications;
f. Any trademark and servicemark rights, whether registered or
not, applications to register and registrations of the same
and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by such
trademarks, including without limitation;
g. Any and all claims for damages by way of past, present and
future infringements of any of the rights included above,
with the right, but not the obligation, to sue for and
collect such damages for said use or infringement of the
intellectual property rights identified above;
h. All licenses or other rights to use any of the Copyrights,
Patents, Trademarks or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by
such license or rights; and
i. All amendments, extensions, renewals and extensions of any
of the Copyrights, Trademarks, Patents, or Mask Works; and
j. All proceeds and products of the foregoing, including
without limitation all payments under insurance or any
indemnity or warranty payable in respect of any of the
foregoing;
2. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this
Negative Pledge Agreement.
3. Capitalized terms used but not otherwise defined herein shall have
the same meaning as in the Loan Documents.
<PAGE>
BORROWER:
Invision Technologies, Inc.
By: /s/ Tim Black
---------------------------------------------------------------
Name: Tim Black
-------------------------------------------------------------
Title: Chief Operating Officer
------------------------------------------------------------
BANK:
SILICON VALLEY BANK
By: /s/ Pamela S. Doyle
---------------------------------------------------------------
Name: Pamela S. Doyle
-------------------------------------------------------------
Title: Senior Vice President, Corporate Services Division
------------------------------------------------------------
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME AND STATEMENTS OF CASH FLOW
INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,773
<SECURITIES> 998
<RECEIVABLES> 22,790
<ALLOWANCES> 0
<INVENTORY> 12,459
<CURRENT-ASSETS> 52,680
<PP&E> 13,028
<DEPRECIATION> 4,921
<TOTAL-ASSETS> 62,283
<CURRENT-LIABILITIES> 12,025
<BONDS> 0
0
0
<COMMON> 12
<OTHER-SE> 48,762
<TOTAL-LIABILITY-AND-EQUITY> 62,283
<SALES> 15,515
<TOTAL-REVENUES> 15,515
<CGS> 8,524
<TOTAL-COSTS> 4,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 2,134
<INCOME-TAX> 320
<INCOME-CONTINUING> 1,814
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,814
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
