<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 30, 1999
Or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) For the transition period from to
Commission file number: 0-20993
DTM CORPORATION
(Exact name of registrant as specified in its charter)
Texas 74-2487065
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1611 Headway Circle, Building 2, Austin, Texas 78754
(Address of principal executive offices) (Zip Code)
(512) 339-2922
(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 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
--- ---
As of October 15, 1999, the latest practicable date, the Registrant had
6,973,503 outstanding shares of Common Stock.
================================================================================
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DTM Corporation
Condensed Consolidated Statements of Operations (unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Products $ 6,568 $ 5,063 $ 20,216 $ 16,624
Service and support 1,068 839 2,991 2,591
---------- ---------- ---------- ----------
7,636 5,902 23,207 19,215
Cost of sales:
Products 3,090 2,779 9,171 10,289
Service and support 911 602 2,071 1,632
---------- ---------- ---------- ----------
4,001 3,381 11,242 11,921
---------- ---------- ---------- ----------
Gross Profit 3,635 2,521 11,965 7,294
Operating expenses:
Selling, general and 2,654 2,876 8,845 8,227
administrative
Research and development 706 850 2,156 2,693
Provision for litigation settlement - - - 1,700
---------- ---------- ---------- ----------
3,360 3,726 11,001 12,620
---------- ---------- ---------- ----------
Operating income (loss) 275 (1,205) 964 (5,326)
Other income (expense):
Interest expense, net (26) (10) (54) (30)
Gain on sale of assets - 258 129 258
---------- ---------- ---------- ----------
(26) 248 75 228
---------- ---------- ---------- ----------
Income (loss) before income taxes 249 (957) 1,039 (5,098)
Income tax expense (68) - (289) -
---------- ---------- ---------- ----------
Net income (loss) $ 181 $ (957) $ 750 $ (5,098)
========== ========== ========== ==========
Basic and diluted
earnings (loss) per share $ 0.03 $ (0.15) $ 0.11 $ (0.81)
========== ========== ========== ==========
Weighted-average number of shares
outstanding 6,989,265 6,286,851 6,737,404 6,286,851
========== ========== ========== ==========
</TABLE>
See accompanying notes.
1
<PAGE>
DTM Corporation
Condensed Consolidated Balance Sheets (unaudited)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 671 $ 429
Accounts receivable, net 6,354 5,186
Inventory 3,492 3,456
Prepaid expenses and other 466 262
------------- ------------
Total current assets 10,983 9,333
Property, net 1,331 1,388
Capitalized software development costs, net 457 629
Patent and license fees, net 785 956
------------- ------------
Total assets $ 13,556 $ 12,306
============= ============
Liabilities and shareholders' equity
Current liabilities:
Line of credit $ 925 $ -
Accounts payable 2,884 3,090
Due to shareholder - 909
Deferred revenues and customer deposits 2,140 2,185
Employee and agent compensation 883 891
Income taxes 289 -
Accrued litigation settlement - stock portion - 400
Total current liabilities 7,121 7,475
Shareholders' equity:
Common stock, 6,973,503 shares outstanding at September 30, 1999
and 6,286,851a t December 31, 1998 1 1
Additional paid-in capital 54,016 53,161
Accumulated deficit (47,585) (48,335)
Accumulated other comprehensive income 3 4
------------- ------------
Total shareholders' equity 6,435 4,831
------------- ------------
Total liabilities and shareholders' equity $ 13,556 $ 12,306
============= ============
</TABLE>
See accompanying notes.
2
<PAGE>
DTM Corporation
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
Operating activities:
Net income (loss) $ 750 $(5,098)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,063 1,525
Provision for doubtful accounts 44 -
Provision for obsolescence 91 675
Provision for litigation settlement - 400
Gain on disposal of equipment (129) (258)
Changes in assets and liabilities used in operating activities:
Accounts receivable (1,212) 1,001
Inventory (127) 1,056
Prepaid expenses and current assets (204) 203
Accounts payable (206) (423)
Due to shareholder - (2)
Deferred revenues (45) 562
Income taxes 289 -
Accrued litigation settlement - 1,244
Employee and agent compensation (8) (329)
------- -------
Net cash provided by operating activities 306 556
Investing activities:
Purchases of property (667) (1,184)
Capitalized software development costs (99) (231)
Patent and license expenditures (49) (121)
Proceeds from sale of equipment 281 1,016
------- -------
Net cash (used in) investing activities (534) (520)
Financing activities:
Proceeds from short-term borrowings 3,025 500
Repayments of short-term borrowings (2,100) (675)
Repayments of due to shareholder (454) -
------- -------
Net cash provided by (used in) financing activities 471 (175)
Effect of foreign exchange rate changes (1) 100
------- -------
Net change in cash 242 (39)
Cash at the beginning of the period 429 2,050
------- -------
Cash at the end of the period $ 671 $ 2,011
======= =======
Noncash items:
Conversion of settlement liability into common stock $ 400 $ -
Conversion of portion of due to shareholder into common stock $ 455 $ -
</TABLE>
See accompanying notes.
3
<PAGE>
DTM Corporation
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
DTM Corporation ("DTM" or the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and notes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months and nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the consolidated
financial statements and related footnotes of the Company for the year ended
December 31, 1998 as disclosed in the Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 31, 1999.
2. Inventory
Inventory consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------------------
<S> <C> <C>
Raw materials and purchased parts $ 2,996 $ 1,809
Finished goods 691 1,776
---------------------------------
3,687 3,585
Reserve for obsolesence (195) (129)
---------------------------------
$ 3,492 $ 3,456
=================================
</TABLE>
3. Financing Arrangements
In June 1999, the Company entered into a $2.5 million credit facility with
a bank. This line of credit is collateralized solely by the Company's assets.
Borrowings under this line of credit bear interest at the bank's prime rate plus
2% and mature in June 2000. All customer remittances are applied against any
outstanding borrowings. The borrowing base includes a percentage of eligible
domestic and international trade accounts receivable and finished goods
inventories of the parent company. The inclusion of inventories in the borrowing
base is further limited to $500,000. At September 30, 1999, the borrowing base
was approximately $2.4 million and the outstanding loan balance was
approximately $925,000.
This line of credit requires the Company to maintain at least $3.2 million
in tangible net worth. At September 30, 1999, the Company's tangible net worth,
as defined in the loan agreement, was approximately $5.2 million.
4. Contingencies
In the ordinary course of business, the Company becomes involved in legal
proceedings and claims. The Company also has been involved in litigation with
regards to its patents. In one such instance, the Company has initiated patent
infringement litigation in France, Germany and Italy against a competitor and
against one of that competitor's customers. The Company also initiated patent
infringement litigation in Japan against the competitor's distributor in the
Pacific Rim. In each of these cases, the Company alleges that the competitor is
selling rapid prototyping systems in Europe and Japan that make unauthorized use
of selective laser sintering technology covered by the European and Japanese
patents under which the Company has exclusive rights, and in each case the
Company is seeking injunctive relief and damages. It is anticipated that this
litigation will be pursued in conjunction with European and Japanese proceedings
in
4
<PAGE>
DTM Corporation
Notes to Condensed Financial Statements
(Unaudited)
which the competitor has opposed the validity of those European and Japanese
patents. Hearings have begun in the German, French, Italian and Japanese
lawsuits. It is not possible at this time to predict the outcome of these
proceedings.
In September 1999, the Japanese court issued a preliminary injunction
against this competitor's distributor in the Pacific Rim which bars the sale of
the competitor's infringing rapid prototyping system in Japan. The Japanese
court also seized an infringing system in the distributor's possession. Prior to
this ruling, DTM was required to place 20 million Yen, approximately $200,000,
on deposit with the court in case the ruling was reversed and damages caused by
the preliminary injunction could be proved. The competitor has informed DTM that
it intends to file motions to appeal the preliminary injunction and to begin the
main trial on the infringement claim. It is not possible at this time to predict
the impact, if any, the recent events may have on the outcome of these
proceedings.
DTM has been informed by this competitor that it has obtained the worldwide
right to enforce certain U.S. patents and that it may bring patent infringement
litigation against the Company in U.S. courts. It is not possible at this time
to predict the outcome of this possible action, although the Company has
conducted a review of the patents in question and believes that it is not
infringing or would have valid defenses to claims such competitor may make
regarding selective laser sintering. If such a lawsuit is filed, the Company
intends to defend itself vigorously. However, a ruling that would have the
effect of allowing the competitor to sell rapid prototyping systems in the U.S.
without a license from DTM could have a material adverse effect on the Company's
business and financial performance.
5. Common Stock
On February 4, 1999, the Company issued 334,485 shares of common stock in
satisfaction of the final $400,000 portion of the 1998 settlement of the
shareholder class action litigation. On June 11, 1999, the Company issued
352,167 shares of common stock in satisfaction of a $455,000 portion of its Due
to Shareholder obligation.
At September 30, 1999, the Company had reserved 1,260,493 shares of common
stock for issuance in connection with the 1999 Stock Option Plan (907,755
shares) and for exercise of outstanding options issued in connection with the
IPO in May 1997 under a prior plan (352,738 shares). The 1999 Stock Option Plan
was approved by Shareholders at the May 25, 1999 Annual Meeting.
6. Stock Option Plans
At September 30, 1999, there were 940,838 option shares outstanding at a
weighted average exercise price of $2.39 per share. A summary of information
about stock options outstanding and exercisable at September 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Weighted-Average Options Options
Exercise Price Outstanding Exercisable
-------------- ----------- -----------
<S> <C> <C>
$ 1.25 322,000 -
$ 1.47 54,000 -
$ 2.00 100,000 35,000
$ 2.06 59,100 20,685
$ 2.23 332,334 332,334
$ 8.03 53,000 37,100
$ 13.53 17,264 17,264
$ 14.67 3,140 3,140
------- -------
Total 940,838 445,523
======= =======
</TABLE>
5
<PAGE>
DTM Corporation
Notes to Condensed Financial Statements
(Unaudited)
During the nine months ended September 30, 1999, 382,500 option shares were
granted to employees and a Director at a weighted average exercise price of
$1.28 per share. The 1999 grants were made at exercise prices equal to the
market value of the DTM common stock on the date of the grant and vest over
three years. In this same period, no options were exercised and 76,883 option
shares were canceled.
7. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except share and per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Numerator for both basic and
diluted earnings per share:
Net income (loss) $ 181 $ (957) $ 750 $ (5,098)
========== ========== ========== ==========
Denominator:
Denominator for basic earnings
per share -- weighted average
shares 6,973,503 6,286,851 6,721,642 6,286,851
Effect of dilutive securities:
Employee stock options 15,762 - 15,762 -
Dilutive potential common shares
Denominator for diluted earnings
per share -- weighted average
shares and assumed conversions 6,989,265 6,286,851 6,737,404 6,286,851
========== ========== ========== ==========
Basic earnings (loss) per share $ 0.03 $ (0.15) $ 0.11 $ (0.81)
========== ========== ========== ==========
Diluted earnings (loss) per share $ 0.03 $ (0.15) $ 0.11 $ (0.81)
========== ========== ========== ==========
</TABLE>
8. Geographic and Customer Information
The following is a summary of geographic area data for the interim periods
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues from external
customers:
North America $ 3,206 $ 3,133 $ 10,727 $ 9,186
Europe $ 2,951 $ 1,905 8,036 6,853
PacRim $ 1,479 $ 864 4,444 3,176
---------- ---------- ---------- ----------
$ 7,636 $ 5,902 $ 23,207 $ 19,215
========== ========== ========== ==========
</TABLE>
6
<PAGE>
DTM Corporation
Notes to Condensed Financial Statements
(Unaudited)
9. Comprehensive Income
The difference between comprehensive income (loss) and net income (loss)
for the periods presented is comprised of the effect of currency translation
adjustments and hedging activity in accordance with Financial Accounting
Standards Board Statement No. 52, "Foreign Currency Translation." The
accumulated balance of foreign currency and hedging activity, excluded from net
income (loss), is presented in the Condensed Consolidated Balance Sheets as
"Accumulated other comprehensive income." The following table sets forth the
computation of comprehensive income (loss) for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 181 $ (957) $ 750 $ (5,098)
Cummulative translation
adjustment:
Beginning of period (156) (166) 4 (167)
End of period 3 (67) 3 (67)
---------- ---------- ---------- ----------
Change in period 159 99 (1) 100
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 340 $ (858) $ 749 $ (4,998)
========== ========== ========== ==========
</TABLE>
10. New Accounting Standards
In June 1999, the Accounting Standards Board issued Statement of Financial
Accounting Standards Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities- Deferral of the Effective Date of Financial Accounting
Standards Board ("FASB") Statement No. 133." This Statement defers adoption of
FASB Statement No. 133 until January 1, 2001.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair market value of
the derivative will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of the derivative's change in fair value will be
immediately recognized in earnings.
The Company has not yet determined what the effect of Statement of
Financial Accounting Standards No. 133 will be on its earnings and financial
position and has not yet determined the timing or method of adoption. However,
the Statement could increase volatility in earnings and comprehensive income.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Business Environment and Risk Factors
The following discussion and analysis should be read in conjunction with
the information set forth under the Company's Unaudited Condensed Consolidated
Financial Statements and notes thereto, as well as the section below under the
heading "Risk Factors That May Affect Future Results and Safe Harbor Statement."
The Company's future operating results may be affected by various trends and
factors, which are beyond the Company's control. These include, among other
factors, changes in general economic conditions, rapid or unexpected changes in
technologies and uncertain business conditions that affect the rapid prototyping
and rapid tooling industry. Accordingly, past results and trends should not be
used by investors to anticipate future results or trends.
With the exception of historical information, the matters discussed below
under the heading "Results of Operations" and "Liquidity and Capital Resources"
may include forward-looking statements that involve risks and uncertainties. All
statements, trends and other information contained in this Quarterly Report on
Form 10-Q relative to markets for the Company's products and trends in revenue,
gross margin and anticipated expense levels constitute forward-looking
statements. These forward-looking statements generally can be identified by the
use of words such as "anticipate", "believe", "plan", "estimate", "expect",
"intend", "may", and "should" and other similar terminology. The Company wishes
to caution readers that a number of important factors, including those
identified in the section entitled "Risk Factors That May Affect Future Results
and Safe Harbor Statement" as well as factors discussed elsewhere in this report
and in the Company's other reports filed with the Securities and Exchange
Commission, could affect the Company's actual results and cause actual results
to differ materially from those forward-looking statements.
Overview
DTM Corporation designs, develops, manufactures, markets and supports, on
an international basis, rapid prototyping and rapid tooling systems and related
powdered sintering materials and services. The Company's Sinterstation Systems
and powdered sintering materials are based on proprietary and patented selective
laser sintering technology. DTM was incorporated in 1987 and completed its
initial public offering ("IPO") of Common Stock in May 1997. Since 1992, DTM has
shipped over 275 Sinterstation Systems worldwide.
The Company's selective laser sintering process uses laser energy to sinter
powdered material to create solid objects that aid in the design and manufacture
of products. The Company's Sinterstation Systems employ a combination of
software and hardware to produce functional models, patterns, injection-molding
tooling and metal parts from a variety of powdered materials. Customers input
designs into the Sinterstation Systems in the form of CAD drawings. The
functional models are used to verify a design's form and fit. The patterns can,
in turn, be used for secondary processes such as the production of non-durable
molds and investment casting. The Company's RapidTool process employs selective
laser sintering along with a furnace cycle to produce steel/copper composite
mold inserts that are used by the injection molder to produce production parts
in quantity. A variant of the RapidTool process is the production of mold
inserts in the Sinterstation System from a copper-reinforced thermoplastic-based
material system, without the need for a furnace cycle. These inserts produced
with this product are used by the injection molder to produce short-run
production parts. Sinterstation Systems also can be used in combination with the
Company's RapidTool process with a furnace cycle to produce metal parts.
The Company's Sinterstation Systems are purchased by manufacturers,
universities, military and defense organizations and by service bureaus. These
service bureaus utilize rapid prototyping equipment to provide services to other
companies involved in product development. The Company distributes its products
in the United States, Canada, Western Europe and certain Pacific Rim and South
American countries. In the United States and Canada, the Company employs a
direct sales force. In Germany, DTM GmbH, a wholly owned subsidiary, distributes
DTM's products. DTM GmbH is a sales and service organization whose efforts are
augmented by sales agents in France, Italy, Portugal, Spain and Sweden. In
8
<PAGE>
the United Kingdom, DTM (UK) LTD., a wholly owned subsidiary, distributes and
services DTM's products. The Company also distributes its goods and provides
services in the Pacific Rim and South America through a network of independent
agents, including agents in Brazil, China, India, Japan, Singapore, South Korea
and Taiwan.
DTM's Sinterstation Systems typically include hardware, material handling
equipment, documentation, licenses for using DTM supplied software, licenses for
using DTM-supplied powdered sintering materials and installation. They can be
configured for use with a single sintering powder or for any combination of
thermoplastic, foundry sands or metal sintering powders. DTM typically offers
its Sinterstation Systems packaged with a 12-month warranty and preventive
maintenance contract, installation services, training services and an initial
supply of sintering materials. DTM offers a wide range of proprietary sintering
materials and software that optimizes their use in the Sinterstation System.
The total value of a packaged offering is allocated among its various
components: systems and related equipment sintering materials, immediate
services and deferred services. Revenues from the sale of products are
recognized when title has transferred to the customer, the Company's remaining
obligations are insignificant and collection of the related receivable is
probable, which, typically, is upon shipment. The Company defers from three to
six percent of the revenues, excluding certain accessories, from each
Sinterstation System sale to cover the cost of a one-year warranty period. This
deferred amount represents the Company's estimate of the cost of providing such
warranty and preventive maintenance service and is recognized ratably as service
and support revenue over the 12-month warranty period. Upon expiration of the
12-month warranty period discussed above, the Company offers for sale to its
customers an annual maintenance contract, the revenues from which are recognized
ratably as service and support revenue over the related support period.
The introduction of the new Sinterstation 2500plusTM in August of 1998 was
the culmination of a year-long project to design a system with a lower
manufactured cost that would permit the Company to be more price competitive
while improving its gross margins. Mainly as a result of the Sinterstation 2500
plus, product gross margins improved to approximately 50% beginning in the
fourth quarter of 1998. These higher gross margins allowed the Company to become
profitable beginning in the fourth quarter of 1998.
On February 12, 1999, an investment partnership of independent investors
affiliated with Proactive Finance Group, LLC ("Proactive") acquired BFGoodrich's
interest in DTM, which at that time represented a 47.7% interest. In June 1999,
Proactive increased its ownership interest in DTM to 50.3%.
9
<PAGE>
Results Of Operations
The following table sets forth for the three months and nine months ended
September 30, 1999 and 1998 certain income statement data as a percentage of our
total revenues and certain sales data.
<TABLE>
<CAPTION>
Third Third Nine Nine
Quarter Quarter Months Months
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Gross profit 47.6 42.7 51.6 38.0
Selling, general and
administrative 34.8 48.7 38.1 42.8
Research and development 9.2 14.4 9.3 14.0
Provision for litigation
settlement - - - 8.8
Operating income 3.6 (20.4) 4.2 (27.7)
Gain on sales of equipment - 4.4 0.6 1.3
Interest expense (0.3) (0.2) (0.2) (0.2)
Income (loss) before income taxes 3.3 (16.2) 4.5 (26.5)
Income tax expense (0.9) - (1.2) -
Net income (loss) 2.4 (16.2) 3.2 (26.5)
Revenues components:
Product sales 86.0 85.8 87.1 86.5
Service and support revenues 14.0 14.2 12.9 13.5
Total 100.0 100.0 100.0 100.0
Gross margin details:
Products 53.0 45.1 55.6 38.1
Service and support 14.7 28.2 30.8 37.0
Total 47.6 42.7 51.6 38.0
Revenues from external customers:
North America 42.0 53.1 46.2 47.8
Europe 38.6 32.3 34.6 35.7
Pacific Rim 19.4 14.6 19.1 16.5
Total 100.0 100.0 100.0 100.0
</TABLE>
Comparison of the Three Months and Nine Months Ended September 30, 1999 and 1998
Revenues. Revenues increased 29.4% to $7.6 million in third quarter of
1999, compared to $5.9 million in the third quarter of 1998. For the first nine
months of 1999, revenues increased 20.8% to $23.2 million, compared to $19.2
million in the in the first nine months of 1998. The increase in revenues was
primarily due to higher unit volumes of Sinterstation Systems and powdered
materials.
Unit shipments of Sinterstation Systems increased by 45.5% in the third
quarter of 1999 and increased by 23.1% in the first nine months of 1999,
compared to the comparable periods of 1998. Average machine and accessory
revenue per Sinterstation System sold decreased by 13.7% in the third quarter of
1999 and decreased by 9.9% in the first nine months of 1999, compared to the
comparable periods of 1998. These decreases in average revenues realized was
primarily due to a trend toward lower pricing overall, regional pricing
differences and a trend toward fewer accessories ordered from DTM.
Shipments of Sinterstation Systems increased the installed base by 30.6% in
the third quarter of 1999 and by 31.8% in the first nine months of 1999 over the
average installed base in the comparable periods of 1998. Revenues derived from
Sintering Materials increased by 39.6% in the third quarter of 1999 and
increased by 55.0% in the first nine months of 1999, compared to the comparable
periods of
10
<PAGE>
1998. The volume of Sintering materials sold in these periods has increased in
line with the growth in the installed base. Revenues derived from these
consumables have increased by more than the increase in the installed base. This
reflects the higher pricing associated with the 1997-1998 introduction of high
performance materials for durable plastic parts that are also believed to be
more productive for the user.
Revenues derived from services provided to the installed base increased by
27.3% in the third quarter of 1999 and increased by 15.4% in the first nine
months of 1999, compared to the comparable prior year periods of 1998. Year-to-
date, DTM's services revenues have not increased in line with the growth in the
installed base. It is believed that this continuing trend reflects the election
of customers, especially service bureaus, to perform the repair and maintenance
of the machines themselves.
In the third quarter of 1999, revenues derived from customers in North
America comprised 42.0% of total revenues and increased 2.3% to $3.2 million,
compared to $3.1 million in the third quarter of 1998. For the first nine months
of 1999, revenues derived from customers in North America comprised 46.2% of
total revenues and increased 16.8% to $10.7 million, compared to $9.1 million in
the first nine months of 1998.
In the third quarter of 1999, international revenues comprised 58% of total
revenues and increased 60.0% to $4.4 million, compared to $2.8 million in the
third quarter of 1998. For the first nine months of 1999, international revenues
comprised 53.8% of total revenues and increased 24.4% to $12.5 million, compared
to $10.0 million in the first nine months of 1998.
Revenues in past periods may not be indicative of revenues in the future,
which may be affected by other business environment and risk factors discussed
below, as well as other factors included elsewhere herein.
Gross Profit. Gross profit was $3.6 million, or 47.6% of revenues, in the
third quarter of 1999, compared to $2.5 million, or 42.7% of total revenues, in
the third quarter of 1998. . For the first nine months of 1999, gross profit was
$12.0 million, or 51.6% of total revenues, compared to $7.3 million, or 38.0% of
total revenues, in the first nine months of 1998. For the third quarter of 1999
and for the first nine months of 1999, the increase in gross profit primarily
was due to higher unit volumes of Sinterstation Systems and sintering materials.
For the third quarter of 1999 and for the first nine months of 1999 the increase
in product gross margin to over 50% was primarily due to the decrease in the
cost of materials to manufacture the Sinterstation 2500plusTM, compared to the
model that it replaced. Product gross profit for the third quarter of 1999 was
approximately $100,000 lower than expected primarily due to a supplier quality
issue that has since been corrected. Services gross profit was $160,000 lower
than expected in the third quarter of 1999 and services gross margin dropped
below 30% to 14.7%, primarily due to an unusual grouping of repairs on older
models.
Past gross margins are not necessarily indicative of future gross margins.
Currency changes, changes in mix and changes in material and labor costs, may
have an adverse effect on gross margins
Selling, General and Administrative Expense. Selling, general and
administrative expense was $2.7 million, or 34.8% of revenues, in the third
quarter of 1999, compared to $2.9 million, or 48.7% of revenues, in the third
quarter of 1998. The decrease as a percentage of total revenues during the third
quarter of 1999 primarily was due to the growth in total revenues, while
decreasing selling, general and administrative expense by 7.7%. Selling, general
and administrative expense was $8.8 million, or 38.1% of revenues, in the first
nine months of 1999, compared to $8.2 million, or 42.8% of revenues, in the
first nine months of 1998. The decrease as a percentage of total revenues during
the first nine months of 1999 primarily was due to a proportionately higher
growth in total revenues, while limiting selling, general and administrative
expense to a 7.5% increase. Selling, general and administrative expense may vary
as a percentage of revenues in the future.
Research and Development Expense. Research and development expense was
$706,000, or 9.2% of revenues, in the third quarter of 1999, compared to
$850,000, or 14.4% of revenues, in the third quarter of 1998. Research and
development expense was $2.2 million, or 9.3% of revenues, in the first nine
months of 1999, compared to $2.7 million, or 14.0% of revenues, in the first
nine months of 1998. The higher 1998 expense levels were primarily due to costs
associated with multiple significant new product development
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projects that were commenced in 1997 and culminated in 1998 with the
introduction of several new material systems and the new Sinterstation Model
2500plusTM. The Company plans to continue its commitment to research and
development at approximately 10% of revenues, as the Company believes that the
markets for its products are characterized by technological innovation for
hardware, software and powdered materials. Research and development expense may
increase in absolute dollars in future periods, and such expenditures may vary
as a percentage of sales.
There can be no assurance that the Company's research and development
efforts will result in commercially successful new technology and products in
the future, and those efforts may be already affected by other factors which are
beyond the Company's control.
Provision For Litigation Settlement. In 1998, DTM settled the shareholder
class action lawsuit pending against it. The charge to its second quarter of
1998 statement of operations in the amount of $1.7 million, consisted of $3.0
million, the proposed value of the settlement, and $200,000 in other costs, net
of the insurance recovery of $1.5 million. There was no corresponding charge in
1999.
Gain on Sale of Assets. In the third quarter of 1998, the Company announced
a program to sell used Sinterstation 2500 and 2000 systems that had been used
internally for development and support activities or under a discontinued rental
program. That program was completed in the second quarter of 1999 and realized
gains of $553,000 and proceeds from the sales of $1.1 million. In the third
quarter of 1999, the Company recognized no gains from the sale of assets,
compared to $258,000 in gains recognized the third quarter of 1998. For the
first nine months of 1999, gains recognized were $129,000, compared to $258,000
in the first nine months of 1998.
Interest Expense. Net interest expense for the third quarter of 1999 was
$26,000, compared to $10,000 for the third quarter of 1998. Net interest expense
for the first nine months of 1999 was $54,000, compared to $30,000 in the first
nine months of 1998.
Income Taxes. As a result of the February 1999 change in control of DTM,
utilization of net operating loss carryforwards will be subject to additional
annual limits of approximately $600,000. In the first nine months of 1999, the
Company provided for income taxes at an estimated 28% annual effective rate.
There was no tax provision in the first nine months of 1998.
At September 30, 1999, DTM had approximately $9.1 million of federal net
operating loss carryforwards. These net operating loss carryforwards begin to
expire in 2002. DTM has not recognized any benefit from the future use of loss
carryforwards for these periods due to uncertainties regarding the realization
of deferred tax assets based upon the taxable earnings history.
Net Income (Loss). The Company had net income of $181,000 in the third
quarter of 1999, compared to a net loss of $957,000 in the third quarter of
1998. This $1.1 million favorable change was primarily due to increased unit
volumes, substantially improved product gross margins and lower operating
expenses in 1999. For the first nine months of 1999, the Company had net income
of $750,000, compared to a net loss of $5.1 million in the first nine months of
1998. This $5.8 million favorable change was primarily due to increased unit
volumes, substantially improved gross margins and flat operating expenses in
1999 and the 1998 provision for litigation of $1.7 million. Net income as a
percentage of revenue was 2.4% for the third quarter of 1999 and 3.2% for the
first nine months of 1999, compared to losses in the comparable periods of 1998.
Earnings per share were $0.03 in the third quarter of 1999, compared to a
loss per share of $0.15 in the third quarter of 1998. Earnings per share were
$0.11 in the first nine months of 1999, compared to a loss per share of $0.81 in
the first nine months of 1998.
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Liquidity and Capital Resources
During the first nine months of 1999, operating activities provided
$306,000 in net cash, compared to $556,000 provided in the comparable period of
1998.
Accounts receivable, less allowance, represented approximately 75 days of
quarter sales at September 30, 1999, compared to 54 days at December 31, 1998.
This increase in days of quarter sales outstanding was primarily due to third
quarter sales being heavily weighted to the end of the quarter. Inventory, less
allowance, represented approximately 79 days quarter costs on hand at September
30, 1999, compared to 75 at December 31, 1998. This was a planned increase to
allow for higher expected production activity in the fourth quarter.
At September 30, 1999, the Company had sold out of Sinterstation Systems
and had a backlog of $1.6 million.
The Company's investing activities include expenditures for patents and
licenses, capitalized software costs and furniture and equipment, principally
consisting of the Company's Sinterstation Systems built for internal use.
Capital expenditures for the nine months ended September 30, 1999 were $815,000.
No significant investments are planned for the balance of 1999.
DTM obtained a $2.5 million credit facility with Silicon Valley Bank in the
second quarter of 1999. The one-year credit facility accrues interest at prime
plus 2% per annum and is secured by the corporate assets of DTM. At September
30, 1999, approximately $925,000 was outstanding under this facility and
approximately $1.5 million was available to be borrowed.
In the second quarter of 1999, DTM repaid a due to shareholder liability of
approximately $909,000. DTM satisfied this liability by making a payment of
$454,274 in cash borrowed under the new credit facility with Silicon Valley Bank
and by issuing 352,167 additional shares of DTM common stock. After the
transaction, DTM Acquisition Company, L.P. owns approximately 50.3% of the
outstanding capital stock of DTM.
The Company believes that it has the financial resources needed to meet
business requirements, including capital expenditures, working capital
requirements, the debt obligations outstanding and operating lease commitments
for facilities and equipment through December 31, 1999. However, there can be no
assurance that this will be the case.
New Accounting Standard
In June 1998, the Accounting Standards Board issued Statement of Financial
Accounting Standards Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years beginning
after June 15, 1999. The Statement permits early adoption as of the beginning of
any fiscal quarter after its issuance. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair market value of the derivative
will either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of the derivative's change in fair value will be immediately
recognized in earnings.
The Company has not yet determined what the effect of Statement of
Financial Accounting Standards Statement No. 133 will be on its earnings and
financial position and has not yet determined the timing or method of adoption.
However, the Statement could increase volatility in earnings and comprehensive
income.
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Year 2000 Plan
Many currently installed computer systems and software products are coded to
accept only two-digit entries in date code fields. These date code fields will
need to accept four-digit entries to distinguish 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists concerning the potential effects associated with
such compliance.
The Company has evaluated its Sinterstation Systems and believes that it
will have no exposures with respect to the Year 2000 issue.
The Company has replaced its internal information technology with packaged
software solutions which purport to comply with Year 2000 requirements. This
project cost approximately $150,000. This cost includes internal costs, but
excludes the costs to upgrade and replace systems in the normal course of
business.
The Company has performed an evaluation of its non-information systems
(embedded technology such as microcontrollers) and does not believe that it has
material exposures in this area with respect to the Year 2000 issue.
The Company has not made inquires of its key venders as to their status
with respect to the Year 2000 compliance issues. There can be no assurance that
Year 2000 compliance issues at these venders may not cause these venders to
disrupt the Company's production plans.
Based upon available information, the Company does not believe any material
exposure to significant business interruption exists as a result of Year 2000
compliance issues, or that the cost of the remedial actions will have a material
adverse effect on its business, financial condition or results of operations of
the Company. Accordingly, the Company has not adopted any formal contingency
plan in the event its Year 2000 compliance project is not completed in a timely
manner.
The estimates and conclusions set forth herein regarding Year 2000
compliance contain certain forward-looking statements and are based on
management's estimates of future events and information provided by third
parties. There can be no assurance that such estimates and information provided
will prove to be accurate. Risks to completing the Year 2000 compliance project
include the availability of resources, the Company's ability to discover and
correct potential Year 2000 problems and the ability of suppliers and other
third parties to bring their systems into Year 2000 compliance.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS AND SAFE HARBOR STATEMENT
Investors are cautioned that this Quarterly Report on Form 10-Q contains
forward-looking statements that involve risks and uncertainties, including the
following: (i) the Company's plans, strategies, objectives, expectations and
intentions are subject to change at any time at the discretion of management and
the Board of Directors; (ii) the Company's plans and results of operations will
be affected by the Company's ability to manage its growth and working capital;
and (iii) the Company's business is highly competitive and the entrance of new
competitors or the expansion of the operations by existing competitors in the
Company's markets could adversely affect the Company's plans and results of
operations. In addition, the Company identifies the risk factors discussed below
which may affect the Company's actual results and may cause actual results to
differ materially from those contained in forward looking statements.
Limited Operating History and Profitability
The Company was incorporated in 1987 and shipped its first Sinterstation
Systems in 1992. The Company realized its first profitable quarter in the
fourth quarter of 1998. Prior to the fourth quarter of 1998, the Company had
been unprofitable from its inception; most recently recognizing net losses of
approximately $7.3 million for the year ended December 31, 1997 and $5.1 million
for the nine months ended September 30, 1998. There can be no assurance that the
Company can maintain profitability in the future.
Possible Delisting of Securities from The Nasdaq National Market; Limited
Liquidity of Trading Market
Shares of the Company's Common Stock are quoted on the National Market
System ("NMS") of The Nasdaq Stock Market ("Nasdaq"). Nasdaq has recently
promulgated new rules that make continued listing of companies on the NMS more
difficult and has significantly increased its enforcement efforts with regard to
the Nasdaq standards for such listing. The Company has been having difficulty
maintaining one such standard, the $5.0 million market value of public float
requirement. The Company is on notice from Nasdaq that it must come into
compliance with rule by November 30, 1999 or the listing of its securities on
NMS would not be continued. Public float is defined for purposes of this
calculation as shares that are not held directly or indirectly by any officer or
director of the Company or any person who is the beneficial owner of more than
10 percent of the total shares outstanding. On October 25, 1999, the Company's
public float was believed to be no less than 3,460,146 shares of Common Stock
and the minimum bid price was $1.031 per share. This resulted in a market value
of public float of $3,567,000, 29% below the required amount to meet the Nasdaq
NMS rule. At that time, the minimum bid price would have had to have been $1.445
to meet the Nasdaq NMS rule. The Company plans to seek an appeal of any attempt
by Nasdaq to delist the Company's securities from the NMS. However, there can be
no assurance that such an appeal would be successful.
In addition, Nasdaq also requires companies whose stock is included for
quotation on the NMS maintain $4,000,000 in net tangible assets and a minimum
bid price of $1.00. As of September 30, 1999, the Company had net tangible
assets of $6,435,000, for such purpose and the minimum bid price was in excess
of $1.00. On October 18, 1999, the minimum bid price dipped below $1.00. While
the Company believes it is currently in compliance with these requirements, if
the Company fails to continue to satisfy these requirements, its Common Stock
may be delisted from the NMS.
If the Company is delisted from the NMS, it may choose to list its Common
Stock on the Nasdaq SmallCap Market, the OTC Bulletin Board or some other
quotation medium, such as the Pink Sheets, depending on its ability to meet the
specific listing requirements. If the Company is delisted from the NMS, it is
unlikely that the Company would be able to have its Common Stock included for
quotation on the Nasdaq SmallCap Market. As a result, an investor would find it
more difficult to dispose of, or to obtain accurate quotations of the price of,
the Company's Common Stock.
Additionally, if the Company's Common Stock is not traded on a national
securities exchange or on Nasdaq, it may be subject to so-called "penny stock"
rules that impose additional sales practice and market-making requirements on
broker-dealers who sell or make a market in such securities.
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Consequently, the delisting of the Company's Common Stock from the NMS could
adversely affect the ability or willingness of broker-dealers who sell or make a
market in the Company's Common Stock and the ability of investors of the
Company's Common Stock to sell their securities in the secondary market. Such
delisting may also have the adverse effect of reducing the visibility, liquidity
and prestige of the Company's Common Stock.
Future Capital Needs; Uncertainty of Additional Financing; Possibility of
Significant Dilution
The Company's future capital requirements will depend on a number of
factors, including its profitability, growth rate, working capital requirements,
expenses associated with protection of its patents and other intellectual
property and costs of future research and development activities. Developing
technology companies such as DTM typically need large amounts of capital to fund
growth. However, the Company's cash requirements may vary materially from those
now planned as a result of unforeseen changes that could consume a significant
portion of the available resources before that time.
Future operating results will depend, in part, on the Company's ability to
obtain and manage capital sufficient to finance its business. To the extent that
funds expected to be generated from the Company's operations are insufficient to
meet current or planned operating requirements or to maintain its listing on the
Nasdaq NMS, the Company will seek to obtain additional funds through bank
facilities, equity or debt financing, collaborative or other arrangements with
corporate partners and others from other sources. Additional funding may not be
available when needed or on terms acceptable to the Company, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. If adequate funds are not available, the Company may be
required to delay or to eliminate certain expenditures or to license to third
parties the rights to commercialize technologies that the Company would
otherwise seek to develop itself. In addition, in the event that the Company
obtains any additional funding, such financing may have a substantially dilutive
effect on the holders of the Company's securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
Quarterly Fluctuations in Operating Results
The Company's revenues and operating results have varied substantially from
quarter to quarter and may continue to do so. DTM typically experiences a
relatively long lead-time, often from six to 24 months, to complete a
Sinterstation System sale and has historically experienced no backlog.
Furthermore, new product introductions, seasonality of customer buying patterns
and other factors can cause fluctuations in quarterly results. These
fluctuations have precluded, and may continue to preclude, the Company from
managing its inventories effectively from quarter to quarter. Further, a
majority of the sales of the Company's Sinterstation Systems occur at the end of
the quarter, often in the last weeks of the quarter. Accordingly, the Company's
ability to forecast the timing and amount of specific sales is limited, and the
deferral or loss of one or more significant sales could materially adversely
affect operating results in a particular quarter. The current 12-week
manufacturing cycle of the new Sinterstation System Model 2500plusTM also
negatively impacts the Company's ability to control its inventories. The failure
of the Company to complete a particular Sinterstation System sale in any given
quarter can have a material adverse effect on the Company's business and
financial performance for that quarter and quarterly fluctuations could cause a
material adverse effect on the price at which the Company's Common Stock trades.
The tendency for a large number of the Company's sales made during a quarter to
be completed at or near the end of the quarter also hinders the Company's
ability to predict sales, control sales prices and enforce its standard terms.
Emerging Rapid Prototyping Market
The market for rapid prototyping products and services, such as those
marketed by the Company, remains in an early stage of development and includes
multiple, competing technologies, many of which are not yet fully developed.
Participants in this market are moving to address new applications, many of
which may not yet be known or accepted by potential users. Rapid prototyping
requires that a CAD file describe a design and organizations who are not
currently using CAD are not, generally, potential customers for rapid
prototyping products and services. Significant education of the end user in both
CAD modeling and rapid prototyping in general has in some cases been a
prerequisite to product acceptance. It is
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not clear at this time which one or more technologies will gain broad market
acceptance. There can be no assurance that DTM will emerge as a market leader,
or even a major market participant, as the market evolves and matures.
Emerging Rapid Tooling Market
The market for rapid tooling products and services, such as those marketed
by the Company, is in an even earlier stage of development than rapid
prototyping. Participants in this market, including the Company, are moving to
address new applications, many of which may not yet be known or accepted by
potential users. The companies who use traditional-machining methods to make
tooling have made large capital investments in traditional equipment and have
mature infrastructures for doing so. They may be highly resistant both on
financial and cultural bases to adopting new technologies. There can be no
assurance that rapid tooling technologies will evolve to the point that the
perceived value will overcome those obstacles. There can be no assurance that
DTM will emerge as a market leader, or even a major market participant, as the
market evolves and matures.
Competition
The market for rapid prototyping systems is intensely competitive. In
marketing its Sinterstation Systems, the Company experiences competition from
many sources. Certain of the Company's competitors are better known and have
greater financial, research and development, production and marketing resources
than DTM. The principal worldwide competitors are 3D Systems Corporation and
Stratasys, Inc. EOS GmbH Electro Optical Systems is a significant competitor
outside of North America. Competition has increased as a result of the
introduction of new products or product enhancements by these competitors and
the entry into the industry by other companies. Increased competition has in the
past resulted, and may in the future continue to result, in price reductions,
reduced margins and loss of market share, all of which have materially adversely
affected the Company's business and financial results.
Limited Product Company
The Company currently offers one model of Sinterstation Systems for sale.
The sale of Sinterstation Systems comprised 61% of revenues in the year ended
December 31, 1998 and 66% of revenues in each of the years ended December 31,
1997 and 1996. The remaining revenues were comprised of sales of powdered
sintering materials, spare parts and services to the installed base of
Sinterstation owners. The Company's Sinterstation Systems are priced at the
premium end of the range of today's rapid prototyping products and are sold on
the basis of performance and suitability to specific applications. In a downturn
or a soft market, the Company's dependence upon a limited range of products, as
opposed to a wide range of products at different price points, has caused the
Company's financial performance to be adversely affected and may continue to do
so.
Intellectual Property And Proprietary Rights
In pursuing protection for its proprietary rights in its Sinterstation
Systems, materials and related technology, the Company currently relies on a
combination of patent, copyright, trademark and trade secret rights, as well as
contractual provisions. The Company typically seeks patent protection for its
selective laser sintering technology, including, where deemed appropriate, the
selective laser sintering process, its Sinterstation Systems and the materials
used in its Sinterstation Systems. However, patent protection may not always be
available. There can be no assurance that patents will be issued under any or
all of the patent applications to which the Company has rights. In addition, the
laws of various countries in which the Company's products may be sold may not
protect the Company's products and intellectual property rights to the same
extent as the laws of the United States.
The Company is currently involved in significant litigation with a
competitor, EOS GmbH Electro Optical Systems in Germany, France, Italy and
Japan, with regard to the Company's proprietary rights. If DTM is unsuccessful
in their litigation, its competitive position would harmed.
In addition, the Company can give no assurance that the issued patents to
which it holds rights will be adequate to protect its interests or, if
challenged, held valid. The Company's competitors could develop
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non-infringing systems, materials or technologies that are equivalent or
superior to those of the Company. A competitors currently does and others also
may practice technology covered by DTM's patents or other legal or contractual
protections regardless of the fact that it is legally protected. Any litigation
to enforce the Company's intellectual property rights would be expensive, time-
consuming, may divert management resources and may not be adequate to protect
the Company's business. While DTM defends its intellectual property vigorously,
there can be no assurance that it will be successful in its various litigation
in many countries. If the Company were unsuccessful in enforcing its
intellectual property rights or other contractual rights in the context of
third-party offers to sell selective laser sintering systems or sintering
powders or if the Company were found to have violated state or federal antitrust
laws, the Company's future revenues might be adversely affected. For example, a
court granted a temporary summary judgment against the Company in 1997, ruling
that a customer had been given an implied personal license by DTM to one of
DTM's patented sintering materials. Although the summary judgment was stayed in
connection with a settlement agreement in this case, there can be no assurance
that intellectual property claims against the Company in the future will not
have a material adverse effect on the Company's business, financial performance
and results of operations.
Furthermore, unrelated third parties hold many patents and pending patent
applications under which the Company is not a licensee that relate to the design
and manufacture of rapid prototyping systems and materials. If such a third
party brought infringement litigation against the Company, and if the Company
was not successful in defending such litigation or in obtaining a license, the
Company's business and financial performance could be materially adversely
affected. The Company has been threatened with such litigation by a competitor.
Certain key intellectual property used in the selective laser sintering
process is licensed to the Company by The University of Texas System. As a
licensee, the Company's rights to practice the technology are not absolute. The
University of Texas could terminate, attempt to terminate or amend the license
if the Company could be shown to be in material default of the terms of the
license. Even if DTM has a basis for objection, defense of its rights as a
licensee could be costly and the outcome would be uncertain. Loss of significant
rights as a licensee under this license could have a material adverse effect on
the Company's business and financial performance.
Dependence on Key Personnel
The Company's success depends to a substantial extent on a relatively few
key management employees. Losing the services of one or more key employees could
have a material adverse effect on the Company's business and financial
performance. The Company's success also depends on its ability to continue to
attract highly talented technical personnel. Candidates with appropriate
training and expertise may be in short supply in the geographic areas where the
Company is attempting to recruit personnel. The Company has put in place
incentive compensation plans intended to provide motivation for continued
employment of key employees. The Company can give no assurance that it will be
able to retain employees or continue to attract, assimilate and retain other
skilled personnel.
Dependence on Third Party Suppliers
The Company subcontracts for manufacture of Sinterstation System components,
powdered sintering materials and accessories from single-source, third-party
suppliers. A disruption in supply or failure of a supplier to remain competitive
in functionality or price could have a material adverse effect on the Company's
sales or reputation for timely delivery, and, hence, on the Company's business,
financial performance and results of operations.
International Operations
Revenues from customers located outside the U.S. represented 58%, 53%, 60%
and 50% of the Company's total revenues in the first nine months of 1999 and the
years 1998, 1997 and 1996, respectively. The Company believes that continued
growth and profitability will require expansion of its sales in international
markets. This expansion may be costly and time-consuming and may not generate
returns for a significant period of time, if at all.
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Fluctuations in exchange rates as well as interest rates have significantly
affected DTM's sales in foreign markets. In particular, a strengthening U.S.
dollar has adversely affected the price competitiveness of DTM's products and
services in the international markets. A significant and increasing portion of
international sales are denominated in currencies other than U.S. dollars,
thereby exposing the Company to gains and losses on non-U.S. currency
transactions. There can be no assurance that any hedging activity by the Company
to limit currency exchange risk will be successful in avoiding exchange-related
losses. Nor can there be assurance that the Company's exposure to risks
associated with international operations will not continue to have a material
adverse effect on its liquidity, capital resources and results of operations.
The regulatory environment, including import/export laws, protective trade
policies and currency controls of foreign governments, also could materially
adversely affect the Company's business and financial performance.
Control of the Company
Proactive currently controls approximately 50.3% of the outstanding Common
Stock. At this percentage, Proactive could control elections of the Company's
Board of Directors and could control or substantially affect the outcome of most
matters submitted to the Company's shareholders for their vote or consent.
Proactive could also cause, prevent or delay a change in control of the Company.
Product Liability
Products as complex as those offered by the Company may contain undetected
defects or errors when first introduced or as enhancements are released that,
despite testing by the Company, are not discovered until after the product has
been installed and used by customers, which could result in delayed market
acceptance of the product or damage to the Company's reputation and business.
The Company attempts to include provisions in its agreements with customers that
are designed to limit the Company's exposure to potential liability for damages
arising out of defects or errors in the Company's products. However, the nature
and extent of such limitations vary from customer to customer and it is possible
that such limitations may not be effective as a result of unfavorable judicial
decisions or laws enacted in the future. The sale and support of the Company's
products entails the risk of product liability claims. Any such claim brought
against the Company, regardless of its merit, could result in material expense
to the Company, diversion of management time and attention, and damage to the
Company's business reputation and its ability to retain existing customers or
attract new customers.
Year 2000 Compliance
The Company has replaced its internal information technology and certain
non-information systems to meet Year 2000 compliance. There can be no assurance
that the Company has identified all significant Year 2000 problems. The Company
has not developed any formal contingency plan should they arise. Unforeseen Year
2000 problems, if not fixed, could have a material adverse effect on the
Company's business financial condition and results of operations. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Year 2000."
Possible Issuance of Preferred Stock
The Company's Articles of Incorporation authorize the issuance of up to
3,000,000 shares of Preferred Stock, $0.001 par value ("Preferred Stock"), the
terms of which would be determined by the Board of Directors at the time of
issuance, without further shareholder approval. The Board of Directors would
determine whether these shares would carry voting rights, preferences in the
payment of dividends, sinking fund provisions and liquidation, redemption or
conversion rights, if any. The Company has no current plans to issue Preferred
Stock. However, if such stock is issued in the future, the rights of the holders
of Common Stock could be materially adversely affected. It is possible that the
Board of Directors could grant future holders of Preferred Stock rights that
could restrict the Company's ability to merge or sell its assets to a third
party, resulting in preservation of the control of the Company by its then
current owners. The Preferred Stock provisions of the Company's Articles of
Incorporation could inhibit a third party from acquiring a significant amount of
the Common Stock, thereby delaying or preventing changes of the management or
control of the Company, and possibly materially adversely affecting the Common
Stock price as a result.
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Shares Eligible for Future Sale; Probable Resale of Common Stock Issued in
connection with Settlement of Shareholder Class Action Litigation
Sales of shares of Common Stock into the market by Proactive, employees
exercising options or recipients of shares to be distributed in settlement of
the Company's shareholder class action litigation escrow could cause a decline
in the price of such stock. The shares of the Common Stock owned by Proactive
will be tradeable, subject to the resale limitations of Rule 144, as promulgated
by the U.S. Securities and Exchange Commission, that are applicable to an
affiliate of the Company, after a minimum of one year has elapsed from the date
on which Proactive acquired such shares. In addition, the Company has granted
Proactive certain demand registration rights and if the Company proposes to
register any of its securities under the Securities Act of 1933, whether for its
own account, for the account of other shareholders or for both, Proactive is
entitled to notice of such registration and is entitled to include its shares of
the Company's Common Stock in the registration.
DTM employees hold immediately exercisable options to purchase 445,523
shares of Common Stock. The Company registered the issuance and the sale of the
shares of Common Stock that would be issued upon exercise of options under the
stock option plans on a Form S-8 Registration Statements. As a result, the
Common Stock acquired by employees of DTM upon exercise of options outstanding
under the stock option plans will be freely tradable (subject to compliance with
certain provisions of Rule 144, in the case of affiliates of the Company).
The non-cash component of the settlement of the shareholder class action
resulted in the issuance of 334,485 shares of the Company's Common Stock into a
settlement escrow on February 4, 1999. Such shares are freely tradeable. This
holding comprised approximately 10% of the Company's public float at that time.
In a notice accompanying the first distribution to the class members, the escrow
agent stated that the escrow agent intends to sell the DTM shares into the
market prior to the final distribution to the recipients of the settlement.
Sales of Common Stock into the market by the escrow agent or, if distributed,
the recipients of the settlement could cause a decline in the price of such
stock.
Market Volatility
The Company's Common Stock is listed on the Nasdaq National Market System.
Historically, the stock market has experienced volatility that has particularly
affected the market price of common stock of technology-related companies. That
volatility sometimes has been unrelated to the operating performance of such
companies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Information related to quantitative and qualitative disclosures regarding
market risk is set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Risk Factors under Item 2 above.
Such information is incorporated by reference herein.
20
<PAGE>
PART II
Other Information
ITEM 1. LEGAL PROCEEDINGS
For a discussion of the legal proceedings to which the Company is subject,
please see Note 4 to the Notes to Consolidated Financial Statements with regard
to the consolidated financial statements for the three months and nine months
ended September 30, 1999 and 1998. The competitor which is described in that
note is EOS GmbH Electro Optical System of Planegg, Germany.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 10.21 Loan and Security Agreement with Silicon Valley
Bank, dated June 8, 1999
Exhibit 10.22 Loan and Security Agreement (Exim Program) with
Silicon Valley Bank, dated June 8, 1999.
Exhibit 27.1 Current Financial Data Schedule for the quarter
ended September 30, 1999
21
<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.
Dated: October 28, 1999
DTM CORPORATION
(Registrant)
By: /s/ John S. Murchison, III
--------------------------------------------
John S. Murchison, III
President and Chief Executive Officer
By: /s/ Geoffrey W. Kreiger
--------------------------------------------
Geoffrey W. Kreiger
Vice President of Finance, Treasurer and Secretary
22
<PAGE>
Index to Exhibits
-----------------
Number Description
- ------ -----------
10.21 Loan and Security Agreement with Silicon Valley Bank, dated June 8,
1999
10.22 Loan and Security Agreement (Exim Program) with Silicon Valley Bank,
dated June 8, 1999
27.1 Current Financial Data Schedule for the quarter ended September 30,
1999
<PAGE>
----------------------------------------------------------------------
Exhibit 10.21
Silicon Valley Bank
Schedule to
Loan and Security Agreement
Borrower: DTM Corporation
Address: 1611 Headway Circle, Building 2
Austin, Texas 78754
Date: June 8, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
Exim Agreement;
Cross-Collateralization;
Cross-Default: Silicon and Borrower are parties to that certain Loan
and Security Agreement (Exim Program) of even date
herewith (as amended from time to time, the "Exim
Agreement"). This Agreement and the Exim Agreement
shall continue in full force and effect, and all
rights and remedies under this Agreement and the Exim
Agreement are cumulative. The term "Obligations" as
used in this Agreement and the Exim Agreement shall
include without limitation the obligation to pay when
due all Loans made pursuant to this Agreement
(sometimes referred to herein as the "Silicon Loans")
and all interest thereon and the obligation to pay
when due all Loans made pursuant to the Exim Agreement
(the "Exim Loans") and all interest thereon. Without
limiting the generality of the foregoing, all
"Collateral" as defined in this Agreement and the Exim
Agreement shall secure all Exim Loans, all Silicon
Loans, all interest thereon, and all other
Obligations. Any Event of Default under this Agreement
shall also constitute an Event of Default under the
Exim Agreement, and any Event of Default under the
Exim Agreement shall also constitute an Event of
Default under this Agreement.
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of a total of
$1,500,000 at any one time outstanding (the "Maximum
Credit Limit"), or the sum or (a) and (b) below:
(a) 80% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above),
plus
(b) an amount not to exceed the lesser of:
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Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
(1) 40% of the value of Borrower's Eligible
Inventory (as defined in Section 8 above),
calculated at the lower of cost or market
value and determined on a first-in, first-
out basis;
or
(2) $500,000.
Letter of Credit
Sublimit
(Section 1.5): $500,000
Foreign Exchange
Contract Sublimit Up to $500,000 of the Credit Limit (the "Contract Limit")
may be utilized for spot and future foreign exchange
contracts (the "Exchange Contracts"). The Credit Limit
available at any time shall be reduced by the following
amounts (the "Foreign Exchange Reserve") on each day (the
"Determination Date"): (i) on all outstanding Exchange
Contracts on which delivery is to be effected or
settlement allowed more than two business days from the
Determination Date, 10% of the gross amount of the
Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or
settlement allowed within two business days after the
Determination Date, 100% of the gross amount of the
Exchange Contracts. In lieu of the Foreign Exchange
Reserve for 100% of the gross amount of any Exchange
Contract, Borrower may request that Silicon debit
Borrower's bank account with Silicon for such amount,
provided Borrower has immediately available funds in such
amount in its bank account.
Silicon may, in its discretion, terminate the Exchange
Contracts at any time (a) that an Event of Default occurs
or (b) that there is not sufficient availability under
the Credit Limit and Borrower does not have available
funds in its bank account to satisfy the Foreign Exchange
Reserve. If either Silicon or Borrower terminates the
Exchange Contracts, and without limitation of the FX
Indemnity Provisions (as defined below), Borrower agrees
to reimburse Silicon for any and all fees, costs and
expenses relating thereto or arising in connection
therewith.
Borrower shall not permit the total gross amount of all
Exchange Contracts on which delivery is to be effected
and settlement allowed in any two business day period to
be more than $250,000 (the "Settlement Limit"), nor shall
Borrower permit the total gross amount of all Exchange
Contracts to which Borrower is a party, outstanding at
any one time, to exceed the Contract Limit.
Notwithstanding the above, however, the amount which may
be settled in any two (2) business day period may, in
Silicon's sole discretion, be increased above the
Settlement Limit up to, but in no event to exceed, the
amount of the Contract Limit (the "Discretionary
Settlement
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Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
Amount") under either of the following circumstances (the
"Discretionary Settlement Circumstances"):
(i) if there is sufficient availability under the
Credit Limit in the amount of the Foreign Exchange
Reserve as of each Determination Date, and Silicon
in advance shall reserve the full amount of the
Foreign Exchange Reserve against the Credit Limit;
or
(ii) if there is insufficient availability under the
Credit Limit as to settlements within any two (2)
business day period, and if Silicon is able to: (A)
verify good funds overseas prior to crediting
Borrower's deposit account with Silicon (in the case
of Borrower's sale of foreign currency); or (B)
debit Borrower's deposit account with Silicon prior
to delivering foreign currency overseas (in the case
of Borrower's purchase of foreign currency);
provided that it is expressly understood that Silicon's
willingness to adopt the Discretionary Settlement Amount
is a matter of Silicon's sole discretion and the
existence of the Discretionary Settlement Circumstances
in no way means or implies that Silicon shall be
obligated to permit Borrower to exceed the Settlement
Limit in any two business day period.
In the case of Borrower's purchase of foreign currency,
Borrower shall instruct Silicon in advance upon
settlement either to treat the settlement amount as an
advance under the Credit Limit or to debit Borrower's
account for the amount settled.
Borrower shall execute all standard form applications and
agreements of Silicon in connection with the Exchange
Contracts, and without limiting any of the terms of such
applications and agreements, Borrower shall pay all
standard fees and charges of Silicon in connection with
the Exchange Contracts.
Without limiting any of the other terms of this Loan
Agreement or any such standard form applications and
agreements of Silicon, Borrower agrees to indemnify
Silicon and hold it harmless, from and against any and
all claims, debts, liabilities, demands, obligations,
actions, costs and expenses (including, without
limitation, attorneys' fees of counsel of Silicon's
choice), of every nature and description, which it may
sustain or incur, based upon, arising out of, or in any
way relating to any of the Exchange Contracts or any
transactions relating thereto or contemplated thereby
(collectively referred to as the "FX Indemnity
Provisions").
The Exchange Contracts shall have maturity dates no later
than the Maturity Date.
================================================================================
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Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
2. INTEREST.
Interest Rate
(Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 2.0% per annum. Interest shall
be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate"
means the rate announced from time to time by
Silicon as its "prime rate;" it is a base rate
upon which other rates charged by Silicon are
based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable
to the Obligations shall change on each date there
is a change in the Prime Rate.
Minimum Monthly
Interest (Section 1.2): N/A.
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Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
================================================================================
3. FEES (Section 1.4):
Loan Fee: $7,500, payable concurrently herewith.
Collateral Monitoring
Fee: $1,250, per month, payable in arrears (prorated
for any partial month at the beginning and at
termination of this Agreement).
Unused Line Fee In the event, in any calendar month (or portion
thereof at the beginning and end of the term
hereof), the average daily principal balance of
the Loans outstanding during the month is less
than the amount of the Maximum Credit, Borrower
shall pay Silicon an unused line fee in an amount
equal to 0.25% per annum on the difference between
the amount of the Maximum Credit and the average
daily principal balance of the Loans outstanding
during the month, which unused line fee shall be
computed and paid monthly, in arrears, on the
first day of the following month.
================================================================================
4. MATURITY DATE
(Section 6.1): One year from the date of this Agreement.
================================================================================
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with each of the following
covenant(s). Compliance shall be determined as of
the end of each month, except as otherwise
specifically provided below:
Minimum Tangible
Net Worth: Borrower shall maintain a Tangible Net Worth of
not less than $3,200,000
Definitions. For purposes of the foregoing financial covenants,
the following terms shall have the following
meanings:
"Liabilities" shall have the meanings ascribed to
them by generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of
total * assets over total * liabilities,
determined in accordance with generally accepted
accounting principles, with the following
adjustments:
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other
obligations owing to the Borrower from its
officers or other Affiliates, and (ii) all
assets which would be classified as
intangible assets under generally accepted
accounting principles, including without
limitation goodwill, licenses, patents,
-5-
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
trademarks, trade names, copyrights,
capitalized software and organizational
costs, licenses and franchises
(B) there shall be excluded from liabilities:
all indebtedness which is subordinated to the
Obligations under a subordination agreement
in form specified by Silicon or by language
in the instrument evidencing the indebtedness
which is acceptable to Silicon in its **
* consolidated
** reasonable business judgment
================================================================================
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Monthly Receivable agings, aged by invoice date, within
fifteen days after the end of each month.
2. Monthly accounts payable agings, aged by invoice date, *
and outstanding or held check registers, if any, within
** days after the end of each month.
* within fifteen days after the end of each month
** thirty
3. Monthly reconciliations of Receivable agings (aged by
invoice date), transaction reports, and general ledger,
within fifteen days after the end of each month.
4. Monthly perpetual inventory reports for the Inventory
valued on a first-in, first-out basis at the lower of
cost or market (in accordance with generally accepted
accounting principles) or such other inventory reports as
are reasonably requested by Silicon, all within fifteen
days after the end of each month.
5. Monthly unaudited financial statements, as soon as
available, and in any event within thirty days after the
end of each month.
6. Monthly Compliance Certificates, within thirty days after
the end of each month, in such form as Silicon shall
reasonably specify, signed by the Chief Financial Officer
of Borrower, certifying that as of the end of such month
Borrower was in full compliance with all of the terms and
conditions of this Agreement, and setting forth
calculations showing compliance with the financial
covenants set forth in this Agreement and such other
information as Silicon shall reasonably request,
including, without limitation, a statement that at the
end of such month there were no held checks.
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<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
7. Quarterly unaudited financial statements, as soon as
available, and in any event within forty-five days after
the end of each fiscal quarter of Borrower.
8. Annual operating budgets (including income statements,
balance sheets and cash flow statements, by month) for
the upcoming fiscal year of Borrower within thirty days
prior to the end of each fiscal year of Borrower.
9. Annual financial statements, as soon as available, and in
any event within 120 days following the end of Borrower's
fiscal year, certified by independent certified public
accountants acceptable to Silicon.
================================================================================
7. COMPENSATION
(Section 5.5):
================================================================================
8. BORROWER INFORMATION:
Prior Names of
Borrower
(Section 3.2): None
Prior Trade
Names of Borrower
(Section 3.2): None
Existing Trade
Names of Borrower
(Section 3.2): None
Other Locations and
Addresses (Section 3.3): None
Material Adverse
Litigation (Section 3.10): See Borrower's Annual Report on form 10-K to
the Securities Exchange Commission for the
period ended December 31, 1998.
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Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
================================================================================
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
(1) Banking Relationship. Borrower shall at all times
maintain its primary banking relationship with
Silicon.
(2) Patents, Trademarks and Copyrights. Concurrently
with the execution of this Agreement, Borrower shall
execute and deliver to Silicon, on Silicon's standard
form(s), any security agreement(s) and other
documentation which Silicon deems necessary for
filing in the United States Patent and Trademark
Office, the United States Copyright Office, and any
other governmental office, with respect to Borrower's
copyrights, patents, trademarks and related
collateral. Within 90 days after the date hereof,
Borrower shall (i) cause all of its computer
software, the licensing of which results in
Receivables, to be registered with the United States
Copyright Office, and (ii) execute such additional
security agreement(s) and
-8-
<PAGE>
Silicon Valley Bank Schedule to Loan and Security Agreement
----------------------------------------------------------------------
other documentation which Silicon deems necessary for
filing with respect to such additional registered
copyright(s).
Borrower: Silicon:
DTM CORPORATION SILICON VALLEY BANK
By /S/ JOHN S. MURCHISON, III By /S/ JOSEPH L. DEGROAT
------------------------------- -------------------------------
President or Vice President Title SVP R. MGR
----------------------------
By /S/ GEOFFREY W. KREIGER
------------------------------
Secretary or Ass't Secretary
-9-
<PAGE>
----------------------------------------------------------------
Silicon Valley Bank
Loan and Security Agreement
Borrower: DTM Corporation
Address: 1611 Headway Circle, Building 2
Austin, Texas 78754
Date: June 8, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.
1.3 Overadvances. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 Fees. Borrower shall pay Silicon the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 Letters of Credit. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit
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<PAGE>
Silicon Valley Bank Loan and Security Agreement
----------------------------------------------------------------
issued by Silicon for Borrower's account, and Borrower understands and agrees
that Silicon shall not be liable for any error, negligence, or mistake, whether
of omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require
Silicon to indemnify the issuing bank for certain costs or liabilities arising
out of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Silicon harmless with respect to any loss, cost, expense, or
liability incurred by Silicon under any Letter of Credit as a result of
Silicon's indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other present or future
documents or agreements between Borrower and Silicon relating to Letters of
Credit are cumulative.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by Silicon, use its best
efforts to cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall specify,
so as to ensure that Silicon's rights in the Collateral are, and will continue
to be, superior to the rights of any such third party. Borrower will keep in
full force and effect, and will comply with all the terms of,
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Silicon Valley Bank Loan and Security Agreement
----------------------------------------------------------------
any lease of real property where any of the Collateral now or in the future may
be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other * steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
* reasonable
3.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. Receivables.
4.1 Representations Relating to Receivables. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct * and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply * with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such
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documents, instruments and agreements are and shall be legally enforceable in
accordance with their terms.
* in all material respects
4.3 Schedules and Documents relating to Receivables. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day. Together with each such schedule and
assignment, or later if requested by Silicon, Borrower shall furnish Silicon
with copies (or, at Silicon's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall request. In addition, Borrower shall deliver
to Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.
4.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5. Remittance of Proceeds. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
* $25,000 or less (for all such transactions in any fiscal year). Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Silicon. Nothing in
this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
* $50,000
4.6 Disputes. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables*. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
* involving amounts in excess of $10,000
4.7 Returns. Provided no Event of Default has occurred and is continuing,
if any Account Debtor returns any Inventory to Borrower in the ordinary course
of its business, Borrower shall promptly determine the reason for such return
and promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 Verification. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
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4.9 No Liability. Silicon shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
5.3 Reports. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 Access to Collateral, Books and Records. At reasonable times, * and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
* during normal business hours,
5.5 Negative Covenants. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower's business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business; (v) store any Inventory
or other Collateral with any warehouseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent
basis; (vii) make any loans of any money or other assets*; (viii) incur any
debts, outside the ordinary course of business, which would have a material,
adverse effect on Borrower or on the prospect of repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity; (x) pay or declare any dividends on Borrower's stock
(except for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower's stock;
(xii) make any change in Borrower's capital structure which would have a
material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or (xiii) pay total compensation, including salaries, fees,
bonuses, commissions, and all other payments, whether directly or indirectly, in
money or otherwise, to Borrower's executives, officers and directors (or any
relative thereof) in an amount in excess of the amount set forth on the
Schedule; or (xiv) dissolve or elect to dissolve. Transactions permitted by the
foregoing provisions of this Section are only permitted if no Default or Event
of Default would occur as a result of such transaction.
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* , other than to employees, provided that the aggregate amount of such loans
outstanding to all employees at any time does not exceed $25,000
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, * may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
* in good faith,
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"), subject to
Section 6.3 below.
6.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon; or (ii) by Silicon at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to * , provided that no termination fee shall be charged if the credit
facility hereunder is replaced with a new facility from another division of
Silicon Valley Bank. The termination fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
* $25,000
6.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other non-
monetary Obligation which by its nature cannot be cured; or (e) Borrower shall
fail to perform any other non-monetary Obligation, which failure is not cured
within 5 Business Days after the date due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any
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guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or (l) revocation or termination of, or limitation
or denial of liability upon, any pledge of any certificate of deposit,
securities or other property or asset of any kind pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (m) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits his subordination agreement; or (n) there shall be a change in
the record or beneficial ownership of an aggregate of more than * of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition; or Silicon may cease making any Loans hereunder during any
of the above cure periods, and thereafter if an Event of Default has occurred.
* 30%
7.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems * reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to endorse or sign Borrower's name on all collections,
receipts, instruments and other documents, to take possession of and open mail
addressed to Borrower and remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables and
the like for less than face value; (h) Offset against any sums in any of
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Borrower's general, special or other Deposit Accounts with Silicon; and (i)
Demand and receive possession of any of Borrower's federal and state income tax
returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon's rights and remedies, from and
after the occurrence of any Event of Default, the interest rate applicable to
the Obligations shall be increased by an additional four percent per annum.
* commercially
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general, non-
specific terms; (iii) The sale is conducted at a place designated by Silicon,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, Silicon may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 Power of Attorney. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the
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reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth
in this Agreement, Silicon shall have all the other rights and remedies accorded
a secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. Definitions. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Eligible Inventory" means Inventory which Silicon, in its sole judgment,
deems eligible for borrowing, based on such considerations as Silicon may from
time to time deem appropriate. Without limiting the fact that the determination
of which Inventory is eligible for borrowing is a matter of Silicon's
discretion, Inventory which does not meet the following requirements will not be
deemed to be Eligible Inventory: Inventory which (i) consists of finished
goods, in good, new and salable condition which is not perishable, not obsolete
or unmerchantable, and is not comprised of raw materials, work in process,
packaging materials or supplies; (ii) meets all applicable governmental
standards; (iii) has been manufactured in compliance with the Fair Labor
Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Silicon's duly perfected, first priority security interest; and (vi) is situated
at a one of the locations set forth on the Schedule.
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
Eligibility Requirements") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more
than 90 days from its invoice date, (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon's satisfaction, with the United States
Assignment of Claims Act), (viii) the Receivable must not be owing from an
Account Debtor located outside the United States or Canada (unless pre-approved
by Silicon in its discretion in writing, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise. Receivables
owing from one Account Debtor will not be deemed Eligible Receivables to the
extent they exceed 25% of the total Receivables outstanding. In addition, if
more than 50% of the Receivables owing from an Account Debtor are outstanding
more than 90 days from their invoice date (without regard to unapplied credits)
or are otherwise not eligible Receivables, then all Receivables owing from that
Account Debtor will be deemed ineligible for borrowing. Silicon may, from time
to time, in its discretion, revise the Minimum Eligibility Requirements, upon
written notice to the Borrower.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every
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kind and description used in Borrower's operations or owned by Borrower and any
interest in any of the foregoing, and all attachments, accessories, accessions,
replacements, substitutions, additions or improvements to any of the foregoing,
wherever located.
"Event of Default" means any of the events set forth in Section 7.1 of this
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in
all litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
"Permitted Liens" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal * or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement ** , acknowledge that the security interest is
subordinate to the security interest in favor of Silicon, and agree not to take
any action to enforce its subordinate security interest so long as any
Obligations remain outstanding, and that Borrower agree that any uncured default
in any obligation secured by the subordinate security interest shall also
constitute an Event of Default under this Agreement.
* , replacement
** in form and substance acceptable to Silicon
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, securities accounts, investment
property, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
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"Reserves" means, as of any date of determination, such amounts as Silicon may
from time to time establish and revise in good faith reducing the amount of
Loans, Letters of Credit and other financial accommodations which would
otherwise be available to Borrower under the lending formula(s) provided in the
Schedule: (a) to reflect events, conditions, contingencies or risks which, as
determined by Silicon in good faith, do or may affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Receivables), (ii) the
assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Silicon in the Collateral (including the
enforceability, perfection and priority thereof); or (b) to reflect Silicon's
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Guarantor to Silicon is or may have been
incomplete, inaccurate or misleading in any material respect; or (c) in respect
of any state of facts which Silicon determines in good faith constitutes an
Event of Default or may, with notice or passage of time or both, constitute an
Event of Default.
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
may be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 Charges to Accounts. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
9.8 Waivers. The failure of Silicon at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between Borrower and Silicon shall not waive
or diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or
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employees, but only by a specific written waiver signed by an authorized officer
of Silicon and delivered to Borrower. * Borrower waives demand, protest, notice
of protest and notice of default or dishonor, notice of payment and nonpayment,
release, compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
* Except as otherwise provided herein, if at all,
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees
and costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations.
9.14 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 Limitation of Actions. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter
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of the applicable paragraph, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
The term "including", whenever used in this Agreement, shall mean "including
(but not limited to)". This Agreement has been fully reviewed and negotiated
between the parties and no uncertainty or ambiguity in any term or provision of
this Agreement shall be construed strictly against Silicon or Borrower under any
rule of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 Mutual Waiver of Jury Trial. Borrower and Silicon each hereby waive the
right to trial by jury in any action or proceeding based upon, arising out of,
or in any way relating to, this Agreement or any other present or future
instrument or agreement between Silicon and Borrower, or any conduct, acts or
omissions of Silicon or Borrower or any of their directors, officers, employees,
agents, attorneys or any other persons affiliated with Silicon or Borrower, in
all of the foregoing cases, whether sounding in contract or tort or otherwise.
Borrower:
DTM Corporation
By /s/ JOHN S. MURCHISON, III
-------------------------------
President or Vice President
By /s/ GEOFFREY W. KREIGER
-------------------------------
Secretary or Ass't Secretary
Silicon:
SILICON VALLEY BANK
By /s/ JOSEPH L. DEGROAT
-------------------------------
Title SVP R. MGR
-----------------------------
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EXHIBIT 10.22
Silicon Valley Bank
Schedule to
Loan and Security Agreement
(Exim Program)
Borrower: DTM Corporation
Address: 1611 Headway Circle, Building 2
Austin, Texas 78754
Date: June 8, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
Silicon Agreement;
Cross-Collateralization;
Cross-Default: Silicon and the Borrower are parties to that certain Loan
and Security Agreement of even date herewith, as amended
from time to time (the "Silicon Agreement"). This
Agreement and the Silicon Agreement shall continue in
full force and effect, and all rights and remedies under
this Agreement and the Silicon Agreement are cumulative.
The term "Obligations" as used in this Agreement and the
Silicon Agreement shall include without limitation the
obligation to pay when due all Loans made pursuant to
this Agreement (the "Exim Loans") and all interest
thereon and the obligation to pay when due all Loans made
pursuant to the Silicon Agreement (the "Silicon Loans")
and all interest thereon. Without limiting the generality
of the foregoing, all "Collateral" as defined in this
Agreement, as defined in the Silicon Agreement shall
secure all Exim Loans and all Silicon Loans and all
interest thereon, and all other Obligations relating
thereto. Any Event of Default under this Agreement shall
also constitute an Event of Default under the Silicon
Agreement, and any Event of Default under the Silicon
Agreement shall also constitute an Event of Default under
this Agreement. In the event Silicon assigns its rights
under this Agreement and/or under any Note evidencing
Exim Loans, and/or its rights under the Silicon Agreement
and/or under any Note evidencing Silicon Loans, to any
third party, including without limitation the Export-
Import Bank of the United States ("Exim Bank"), whether
before or after the occurrence of any Event of Default,
Silicon shall have the right (but not any obligation), in
its sole discretion, to allocate and apportion Collateral
to the Agreement and/or Note assigned and to specify the
priorities of the respective security interests in such
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Collateral between itself and the assignee, all without
notice to or consent of the Borrower.
================================================================================
1. Credit Limit
(Section 1.1): The unpaid principal balance of all Exim Loans and all
accrued interest thereon from time to time outstanding
may not exceed the lesser of (i) $1,000,000 at any one
time outstanding (the "Maximum Credit Limit"); or (ii)
80% of the amount of Borrower's Eligible Receivables (as
defined in Section 8 above).
Without limiting the fact that the determination of which
accounts are eligible for borrowing is a matter of
Silicon's discretion, the following will not be deemed
eligible for borrowing: accounts which are not subject to
the Borrower Agreement of even date herewith between
Silicon and the Borrower, a copy of which is attached
hereto, and including the annexes attached thereto
(collectively referred to as the "Exim Borrower
Agreement") with respect to the guarantee by the Export
Import Bank of the United States in favor of Silicon.
Agreement Subject
to Exim Borrower
Guarantee; Costs: This Agreement is subject to all of the terms and
conditions of the Exim Borrower Agreement (including
without limitation any attachments and annexes thereto)
which are hereby incorporated herein by this reference.
Borrower expressly agrees to perform all of the
obligations and comply with all of the affirmative and
negative covenants and all other terms conditions set
forth in the Exim Borrower Agreement as though the same
were expressly set forth herein, and all of the same are
hereby incorporated herein by this reference. In the
event of any conflict between the terms of the Exim
Borrower Agreement and the other terms of this Agreement,
whichever terms are more restrictive shall apply.
Borrower shall reimburse Silicon for all fees and all out
of pocket costs and expenses incurred by Silicon with
respect to the Exim Borrower Agreement, including without
limitation all facility fees and usage fees, and Silicon
is authorized to debit Borrower's account with Silicon
for such fees, costs and expenses when paid by Silicon.
================================================================================
2. Interest.
Interest Rate
(Section 1.2): A rate equal to the "Prime Rate" in effect from time to
time, plus 2.0% per annum. Interest shall be calculated
on the basis of a 360-day year for the actual number of
days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate;" it is a base
rate upon which other rates charged by Silicon are based,
and it is not necessarily the best rate available at
Silicon. The interest rate
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applicable to the Obligations shall change on each date
there is a change in the Prime Rate.
Minimum Monthly
Interest (Section
1.2): N/A.
================================================================================
3. Fees (Section 1.4):
Loan Fee: $15,000, payable concurrently herewith.
Collateral
Monitoring
Fee: N/A.
Unused Line Fee In the event, in any calendar month (or portion thereof
at the beginning and end of the term hereof), the average
daily principal balance of the Loans outstanding during
the month is less than the amount of the Maximum Credit,
Borrower shall pay Silicon an unused line fee in an
amount equal to 0.25% per annum on the difference between
the amount of the Maximum Credit and the average daily
principal balance of the Loans outstanding during the
month, which unused line fee shall be computed and paid
monthly, in arrears, on the first day of the following
month.
================================================================================
4. Maturity Date
(Section 6.1): One year from the date of this Agreement.
================================================================================
5. Financial Covenants
(Section 5.1): Borrower shall comply with each of the following
covenant(s). Compliance shall be determined as of the end
of each month, except as otherwise specifically provided
below:
Minimum Tangible
Net Worth: Borrower shall maintain a Tangible Net Worth of not less
than $3,200,000
Definitions. For purposes of the foregoing financial covenants, the
following terms shall have the following meanings:
"Liabilities" shall have the meanings ascribed to them by
generally accepted accounting principles.
"Tangible Net Worth" shall mean the excess of total *
assets over total * liabilities, determined in accordance
with generally accepted accounting principles, with the
following adjustments:
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(A) there shall be excluded from assets: (i) notes,
accounts receivable and other obligations owing to the
Borrower from its officers or other Affiliates, and (ii)
all assets which would be classified as intangible assets
under generally accepted accounting principles, including
without limitation goodwill, licenses, patents,
trademarks, trade names, copyrights, capitalized software
and organizational costs, licenses and franchises
(B) there shall be excluded from liabilities: all
indebtedness which is subordinated to the Obligations
under a subordination agreement in form specified by
Silicon or by language in the instrument evidencing the
indebtedness which is acceptable to Silicon in its **
* consolidated
** reasonable business judgment
================================================================================
6. Reporting.
(Section 5.3):
Borrower shall provide Silicon with the following:
1. Monthly Receivable agings, aged by invoice date,
within fifteen days after the end of each month.
2. Monthly accounts payable agings, aged by invoice date,
* and outstanding or held check registers, if any,
within ** days after the end of each month.
* within fifteen days after the end of each month,
** thirty
3. Monthly reconciliations of Receivable agings (aged by
invoice date), transaction reports, and general
ledger, within fifteen days after the end of each
month.
4. Monthly perpetual inventory reports for the Inventory
valued on a first-in, first-out basis at the lower of
cost or market (in accordance with generally accepted
accounting principles) or such other inventory reports
as are reasonably requested by Silicon, all within
fifteen days after the end of each month.
5. Monthly unaudited financial statements, as soon as
available, and in any event within thirty days after
the end of each month.
6. Monthly Compliance Certificates, within thirty days
after the end of each month, in such form as Silicon
shall reasonably specify, signed by the Chief
Financial Officer of Borrower, certifying that as of
the end of such month Borrower was in full compliance
with all of the terms and conditions of this
Agreement, and setting forth calculations
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showing compliance with the financial covenants set
forth in this Agreement and such other information as
Silicon shall reasonably request, including, without
limitation, a statement that at the end of such month
there were no held checks.
7. Quarterly unaudited financial statements, as soon as
available, and in any event within forty-five days
after the end of each fiscal quarter of Borrower.
8. Annual operating budgets (including income statements,
balance sheets and cash flow statements, by month) for
the upcoming fiscal year of Borrower within thirty
days prior to the end of each fiscal year of Borrower.
9. Annual financial statements, as soon as available, and
in any event within 120 days following the end of
Borrower's fiscal year, certified by independent
certified public accountants acceptable to Silicon.
================================================================================
7. Compensation
(Section 5.5):
================================================================================
8. Borrower Information:
Prior Names of
Borrower
(Section 3.2): None
Prior Trade
Names of Borrower
(Section 3.2): None
Existing Trade
Names of Borrower
(Section 3.2): None
Other Locations and
Addresses
(Section 3.3): None
Material Adverse
Litigation
(Section 3.10): See Borrower's Annual Report on form 10-K to the
Securities Exchange Commission for the period ended
December 31, 1998.
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9. Other Covenants
(Section 5.1): Borrower shall at all times comply with all of the
following additional covenants:
(1) Banking Relationship. Borrower shall at all times
maintain its primary banking relationship with
Silicon.
(2) Patents, Trademarks and Copyrights. Concurrently
with the execution of this Agreement, Borrower shall
execute and deliver to Silicon, on Silicon's standard
form(s), any security agreement(s) and other
documentation which Silicon deems necessary for
filing in the United States Patent and Trademark
Office, the United States Copyright Office, and any
other governmental office, with respect to Borrower's
copyrights, patents, trademarks and related
collateral. Within 90 days after the date hereof,
Borrower shall (i) cause all of its computer
software, the licensing of which results in
Receivables, to be registered with the United States
Copyright Office, and (ii) execute such additional
security agreement(s) and
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other documentation which Silicon deems necessary for
filing with respect to such additional registered
copyright(s).
Borrower: Silicon:
DTM CORPORATION SILICON VALLEY BANK
By /s/ JOHN S. MURCHISON, III By /s/ JOSEPH L. DEGROAT
------------------------------ ------------------------------
President or Vice President Title SVP R. MGR
---------------------------
By /s/ GEOFFREY W. KREIGER
------------------------------
Secretary or Ass't Secretary
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<PAGE>
--------------------------------------------------------------------
Silicon Valley Bank
Loan and Security Agreement
(Exim Program)
Borrower: DTM Corporation
Address: 1611 Headway Circle, Building 2
Austin, Texas 78754
Date: June 8, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of this
Agreement, and the same is an integral part of this Agreement. (Definitions of
certain terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.
1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon.
1.3 Overadvances. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 Fees. Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 Letters of Credit. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost,
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Silicon Valley Bank Loan and Security Agreement
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expense, or liability, including payments made by Silicon, expenses, and
reasonable attorneys' fees incurred by Silicon arising out of or in connection
with any Letters of Credit. Borrower agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guarantied by Silicon and
opened for Borrower's account or by Silicon's interpretations of any Letter of
Credit issued by Silicon for Borrower's account, and Borrower understands and
agrees that Silicon shall not be liable for any error, negligence, or mistake,
whether of omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments, or
supplements thereto. Borrower understands that Letters of Credit may require
Silicon to indemnify the issuing bank for certain costs or liabilities arising
out of claims by Borrower against such issuing bank. Borrower hereby agrees to
indemnify and hold Silicon harmless with respect to any loss, cost, expense, or
liability incurred by Silicon under any Letter of Credit as a result of
Silicon's indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other present or future
documents or agreements between Borrower and Silicon relating to Letters of
Credit are cumulative.
2. SECURITY INTEREST.
2.1 Security Interest. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 Corporate Existence and Authority. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will
continue to be qualified and licensed to do business in all jurisdictions in
which any failure to do so would have a material adverse effect on Borrower.
The execution, delivery and performance by Borrower of this Agreement, and all
other documents contemplated hereby (i) have been duly and validly authorized,
(ii) are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 Place of Business; Location of Collateral. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 Title to Collateral; Permitted Liens. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will
remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Silicon now has,
and will continue to have, a first-priority perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and
Borrower will at all times defend Silicon and the Collateral against all claims
of others. None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral and
no such lease now prohibits, restrains, impairs or will prohibit, restrain or
impair Borrower's right to remove any Collateral from the leased premises.
Whenever any Collateral is located upon premises in which any third party has an
interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien
or otherwise), Borrower shall, whenever requested by
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Silicon Valley Bank Loan and Security Agreement
--------------------------------------------------------------------
Silicon, use its best efforts to cause such third party to execute and deliver
to Silicon, in form acceptable to Silicon, such waivers and subordinations as
Silicon shall specify, so as to ensure that Silicon's rights in the Collateral
are, and will continue to be, superior to the rights of any such third party.
Borrower will keep in full force and effect, and will comply with all the terms
of, any lease of real property where any of the Collateral now or in the future
may be located.
3.5 Maintenance of Collateral. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.6 Books and Records. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 Financial Condition, Statements and Reports. All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no material adverse change in the financial condition or business
of Borrower. Borrower is now and will continue to be solvent.
3.8 Tax Returns and Payments; Pension Contributions. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other * steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
* reasonable
3.9 Compliance with Law. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 Litigation. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 Use of Proceeds. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. Receivables.
4.1 Representations Relating to Receivables. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 Representations Relating to Documents and Legal Compliance. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct * and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the
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Silicon Valley Bank Loan and Security Agreement
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capacity to contract. All sales and other transactions underlying or giving rise
to each Receivable shall fully comply * with all applicable laws and
governmental rules and regulations. All signatures and endorsements on all
documents, instruments, and agreements relating to all Receivables are and shall
be genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
* in all material respects
4.3 Schedules and Documents relating to Receivables. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day. Together with each such schedule and
assignment, or later if requested by Silicon, Borrower shall furnish Silicon
with copies (or, at Silicon's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall request. In addition, Borrower shall deliver
to Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.
4.4 Collection of Receivables. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
4.5. Remittance of Proceeds. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred, Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
* or less (for all such transactions in any fiscal year). Borrower agrees that
it will not commingle proceeds of Collateral with any of Borrower's other funds
or property, but will hold such proceeds separate and apart from such other
funds and property and in an express trust for Silicon. Nothing in this Section
limits the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
* $50,000
4.6 Disputes. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables*. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
* involving amounts in excess of $10,000
4.7 Returns. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
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4.8 Verification. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 No Liability. Silicon shall not under any circumstances be responsible
or liable for any shortage or discrepancy in, damage to, or loss or destruction
of, any goods, the sale or other disposition of which gives rise to a
Receivable, or for any error, act, omission, or delay of any kind occurring in
the settlement, failure to settle, collection or failure to collect any
Receivable, or for settling any Receivable in good faith for less than the full
amount thereof, nor shall Silicon be deemed to be responsible for any of
Borrower's obligations under any contract or agreement giving rise to a
Receivable. Nothing herein shall, however, relieve Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 Financial and Other Covenants. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
5.3 Reports. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets, sales projections, operating plans and
other financial documentation), as Silicon shall from time to time reasonably
specify.
5.4 Access to Collateral, Books and Records. At reasonable times, * and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address, without first obtaining Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
* during normal business hours,
5.5 Negative Covenants. Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following:
(i) merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except for the sale of finished Inventory in the ordinary course of
Borrower's business, and except for the sale of obsolete or unneeded Equipment
in the ordinary course of business; (v) store any Inventory or other Collateral
with any warehouseman or other third party; (vi) sell any Inventory on a sale-
or-return, guaranteed sale, consignment, or other contingent basis; (vii) make
any loans of any money or other assets*; (viii) incur any debts, outside the
ordinary course of business, which would have a material, adverse effect on
Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or
otherwise become liable with respect to the obligations of another party or
entity; (x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock; (xii) make
any change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; or (xiii)
pay total compensation, including salaries, fees, bonuses, commissions, and all
other payments, whether directly or indirectly, in money or
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otherwise, to Borrower's executives, officers and directors (or any relative
thereof) in an amount in excess of the amount set forth on the Schedule; or
(xiv) dissolve or elect to dissolve. Transactions permitted by the foregoing
provisions of this Section are only permitted if no Default or Event of Default
would occur as a result of such transaction.
* , other than to employees, provided that the aggregate amount of such loans
outstanding to all employees at any time does not exceed $25,000
5.6 Litigation Cooperation. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 Further Assurances. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, * may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
* in good faith,
6. TERM.
6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"), subject to
Section 6.3 below.
6.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon; or (ii) by Silicon at any
time after the occurrence of an Event of Default, without notice, effective
immediately. If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to * provided that no termination fee shall be charged if the credit
facility hereunder is replaced with a new facility from another division of
Silicon Valley Bank. The termination fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate applicable to any of the Obligations.
* $25,000
6.3 Payment of Obligations. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other non-
monetary Obligation which by its nature cannot be cured; or (e) Borrower shall
fail to perform any other non-monetary Obligation, which failure is not cured
within 5 Business Days after the date due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of
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Silicon Valley Bank Loan and Security Agreement
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Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (j) the
commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or (k) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or (l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or (n) there shall be a change in the record or
beneficial ownership of an aggregate of more than * 20% of the outstanding
shares of stock of Borrower, in one or more transactions, compared to the
ownership of outstanding shares of stock of Borrower in effect on the date
hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition; or Silicon may cease making any Loans hereunder during any
of the above cure periods, and thereafter if an Event of Default has occurred.
* 30%
7.2 Remedies. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems * reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company purchase or lease any Collateral at
any such public disposition, and if permissible under applicable law, at any
private disposition. Any sale or other disposition of Collateral shall not
relieve Borrower of any liability Borrower may have if any Collateral is
defective as to title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General Intangibles
comprising Collateral and, in connection therewith, Borrower irrevocably
authorizes Silicon to
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Silicon Valley Bank Loan and Security Agreement
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endorse or sign Borrower's name on all collections, receipts, instruments and
other documents, to take possession of and open mail addressed to Borrower and
remove therefrom payments made with respect to any item of the Collateral or
proceeds thereof, and, in Silicon's sole discretion, to grant extensions of time
to pay, compromise claims and settle Receivables and the like for less than face
value; (h) Offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Silicon; and (i) Demand and receive possession of
any of Borrower's federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. All reasonable
attorneys' fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations. Without limiting
any of Silicon's rights and remedies, from and after the occurrence of any Event
of Default, the interest rate applicable to the Obligations shall be increased
by an additional four percent per annum.
* commercially
7.3 Standards for Determining Commercial Reasonableness. Borrower and
Silicon agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general, non-
specific terms; (iii) The sale is conducted at a place designated by Silicon,
with or without the Collateral being present; (iv) The sale commences at any
time between 8:00 a.m. and 6:00 p.m; (v) Payment of the purchase price in cash
or by cashier's check or wire transfer is required; (vi) With respect to any
sale of any of the Collateral, Silicon may (but is not obligated to) direct any
prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 Power of Attorney. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 Application of Proceeds. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion. Any surplus shall be
paid
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Silicon Valley Bank Loan and Security Agreement
--------------------------------------------------------------------
to Borrower or other persons legally entitled thereto; Borrower shall remain
liable to Silicon for any deficiency. If, Silicon, in its sole discretion,
directly or indirectly enters into a deferred payment or other credit
transaction with any purchaser at any sale of Collateral, Silicon shall have the
option, exercisable at any time, in its sole discretion, of either reducing the
Obligations by the principal amount of purchase price or deferring the reduction
of the Obligations until the actual receipt by Silicon of the cash therefor.
7.6 Remedies Cumulative. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any
rights or remedies shall not operate as a waiver thereof, but all rights and
remedies shall continue in full force and effect until all of the Obligations
have been fully paid and performed.
8. Definitions. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
--------------
"Affiliate" means, with respect to any Person, a relative, partner,
---------
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
------------
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
----------
"Default" means any event which with notice or passage of time or both, would
-------
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
---------------
"Eligible Receivables" means Receivables arising in the ordinary course of
--------------------
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
-------
Eligibility Requirements") are the minimum requirements for a Receivable to be
- ------------------------
an Eligible Receivable: (i) the Receivable must not be outstanding for more
than 90 days from its invoice date, (ii) the Receivable must not represent
progress billings, or be due under a fulfillment or requirements contract with
the Account Debtor, (iii) the Receivable must not be subject to any
contingencies (including Receivables arising from sales on consignment,
guaranteed sale or other terms pursuant to which payment by the Account Debtor
may be conditional), (iv) the Receivable must not be owing from an Account
Debtor with whom the Borrower has any dispute (whether or not relating to the
particular Receivable), (v) the Receivable must not be owing from an Affiliate
of Borrower, (vi) the Receivable must not be owing from an Account Debtor which
is subject to any insolvency or bankruptcy proceeding, or whose financial
condition is not acceptable to Silicon, or which, fails or goes out of a
material portion of its business, (vii) the Receivable must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon's satisfaction, with the United States
Assignment of Claims Act), (viii) the Receivable must not be owing from an
Account Debtor located outside the United States or Canada (unless pre-approved
by Silicon in its discretion in writing, or backed by a letter of credit
satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise. Receivables
owing from one Account Debtor will not be deemed Eligible Receivables to the
extent they exceed 25% of the total Receivables outstanding. In addition, if
more than 50% of the Receivables owing from an Account Debtor are outstanding
more than 90 days from their invoice date (without regard to unapplied credits)
or are otherwise not eligible Receivables, then all Receivables owing from that
Account Debtor will be deemed ineligible for borrowing. Silicon may, from time
to time, in its discretion, revise the Minimum Eligibility Requirements, upon
written notice to the Borrower.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 7.1 of this
----------------
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
-------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other busi-
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Silicon Valley Bank Loan and Security Agreement
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ness records, Deposit Accounts, inventions, designs, drawings, blueprints,
patents, patent applications, trademarks and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against Silicon, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape files, claims under guaranties, security interests or
other security held by or granted to Borrower, all rights to indemnification and
all other intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"Obligations" means all present and future Loans, advances, debts,
-----------
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
"Permitted Liens" means the following: (i) purchase money security interests
---------------
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal * or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement ** acknowledge that the security interest is subordinate
to the security interest in favor of Silicon, and agree not to take any action
to enforce its subordinate security interest so long as any Obligations remain
outstanding, and that Borrower agree that any uncured default in any obligation
secured by the subordinate security interest shall also constitute an Event of
Default under this Agreement.
* , replacement
** in form and substance acceptable to Silicon
"Person" means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
-----------
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, securities accounts, investment
property, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
"Reserves" means, as of any date of determination, such amounts as Silicon may
--------
from time to time establish and revise in good faith reducing the amount of
Loans, Letters of Credit and other financial accommodations which would
otherwise be available to Borrower under the lending formula(s) provided in the
Schedule: (a) to reflect events, conditions, contingencies or risks which, as
determined by Silicon in good faith, do or may affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation any increase in delinquencies of Receivables), (ii) the
assets, business or prospects of Borrower or any Guarantor, or (iii) the
security interests and other rights of Silicon in the Collateral (including the
enforceability,
-10-
<PAGE>
perfection and priority thereof); or (b) to reflect Silicon's good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate
or misleading in any material respect; or (c) in respect of any state of facts
which Silicon determines in good faith constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.
Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
may be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 Charges to Accounts. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Silicon or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Silicon shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
9.7 Integration. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Silicon and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
-----------------
understandings, representations or agreements between the parties which are not
- -------------------------------------------------------------------------------
set forth in this Agreement or in other written agreements signed by the parties
- --------------------------------------------------------------------------------
in connection herewith.
- -----------------------
9.8 Waivers. The failure of Silicon at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. * Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
* Except as otherwise provided herein, if at all,
-11-
<PAGE>
Silicon Valley Bank Loan and Security Agreement
--------------------------------------------------------------------
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 Amendment. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 Time of Essence. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
-----------------------------------
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
- --------------------------------------------------------------------
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
- --------------------------------------------------------------------------------
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
- ------------------------------------------------------------------------------
only Silicon and not Borrower in connection with this Agreement. If either
- ----------------------------------------------------------------
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees
and costs to which Silicon may be entitled pursuant to this Paragraph shall
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 Benefit of Agreement. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations.
9.14 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 Limitation of Actions. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 Paragraph Headings; Construction. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be
-12-
<PAGE>
Silicon Valley Bank Loan and Security Agreement
--------------------------------------------------------------------
governed by the laws of the State of California. As a material part of the
consideration to Silicon to enter into this Agreement, Borrower (i) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Silicon's option, be litigated in courts located within California,
and that the exclusive venue therefor shall be Santa Clara County; (ii) consents
to the jurisdiction and venue of any such court and consents to service of
process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Borrower may have
to object to the jurisdiction of any such court, or to transfer or change the
venue of any such action or proceeding.
9.18 Mutual Waiver of Jury Trial. Borrower and Silicon each hereby waive the
right to trial by jury in any action or proceeding based upon, arising out of,
or in any way relating to, this Agreement or any other present or future
instrument or agreement between Silicon and Borrower, or any conduct, acts or
omissions of Silicon or Borrower or any of their directors, officers, employees,
agents, attorneys or any other persons affiliated with Silicon or Borrower, in
all of the foregoing cases, whether sounding in contract or tort or otherwise.
Borrower:
DTM Corporation
By /s/ JOHN S. MURCHISON, III
------------------------------
President or Vice President
By /s/ GEOFFREY W. KREIGER
------------------------------
Secretary or Ass't Secretary
Silicon:
SILICON VALLEY BANK
By /s/ JOSEPH L. DEGROAT
------------------------------
Title SVP R. MGR
---------------------------
-13-
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS OF THIS QUARTERLY REPORT
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<FISCAL-YEAR-END> DEC-31-1999
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<INVENTORY> 3,492
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0
0
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<CGS> 3,090
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