<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NO. 0-11007
EMULEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 51-0300558
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
(Address of principal executive offices) (Zip Code)
(714) 662-5600
(Registrant's telephone number, including area code)
---------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of February 5, 1996, the registrant had 5,940,939 shares of common stock
outstanding.
<PAGE> 2
EMULEX CORPORATION AND SUBSIDIARIES
INDEX
PAGE
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1995 and July 2, 1995 2
Condensed Consolidated Statements of Operations
Three and six months ended December 31, 1995
and January 1, 1995 3
Condensed Consolidated Statements of Cash Flows
Six months ended December 31, 1995 and January 1, 1995 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
1
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
December 31, July 2,
1995 1995
------------- ---------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................................ $ 3,943 $ 10,308
Accounts and notes receivable, net............................... 9,014 12,896
Inventories, net................................................. 14,438 14,261
Prepaid expenses and other assets................................ 1,809 1,549
-------- ---------
Total current assets 29,204 39,014
Property, plant and equipment, net.................................... 8,108 8,451
Other assets.......................................................... 462 85
-------- ---------
$ 37,774 $ 47,550
======== =========
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of capitalized lease obligations 240 243
Accounts payable................................................. $ 5,192 $ 8,371
Accrued liabilities.............................................. 4,902 5,356
-------- ---------
Total current liabilities.................................... 10,334 13,970
Capitalized lease obligations, excluding
current installments............................................. 136 253
Deferred income taxes................................................. 2,649 2,649
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued; 150,000 shares designated as
Series A Junior Participating, $.01 par value; none issued... - -
Common stock, $.20 par value; 20,000,000 shares
authorized; 5,940,220 and 5,860,923 issued and
outstanding at December 31, 1995 and July 2, 1995,
respectively................................................. 1,188 1,172
Additional paid-in capital....................................... 6,372 6,014
Retained earnings................................................ 17,095 23,492
-------- --------
Total stockholders' equity............................................ 24,655 30,678
-------- --------
$ 37,774 $ 47,550
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ---------------------------
December 31, January 1, December 31, January 1,
1995 1995 1995 1995
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net revenues...................................... $ 12,672 $ 18,277 $ 23,120 $ 36,788
Cost of sales..................................... 8,648 10,518 15,802 21,499
--------- --------- --------- ---------
Gross profit................................. 4,024 7,759 7,318 15,289
Operating expenses:
Engineering and development 2,897 2,524 5,940 5,072
Selling and marketing 2,842 2,909 5,815 5,757
General and administrative 1,240 1,432 2,476 2,836
Amortization of goodwill..................... - 84 - 168
--------- --------- --------- ---------
Total operating expenses................. 6,979 6,949 14,231 13,833
--------- --------- --------- ---------
Operating income (loss).................. (2,955) 810 (6,913) 1,456
Nonoperating income............................... 39 630 129 727
--------- --------- --------- ---------
Income (loss) before income taxes........ (2,916) 1,440 (6,784) 2,183
Provision for (benefit from) income taxes......... - 144 (387) 218
--------- --------- --------- ---------
Net income (loss)............................ $ (2,916) $ 1,296 $ (6,397) $ 1,965
========= ========= ========= =========
Net income (loss) per common and
common equivalent share...................... $ (0.49) $ 0.21 $ (1.08) $ 0.32
======== ========= ========= =========
Weighted average number of common
and common equivalent shares................. 5,936 6,124 5,917 6,049
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 5
EMULEX CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31, January 1,
1995 1995
------------ ----------
<S> <C> <C>
Continuing Operations
Cash flows from operating activities:
Income (loss) from continuing operations.......................... $ (6,397) $ 1,965
Adjustments to reconcile net income (loss) from
continuing operations to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................ 1,144 1,562
Loss on disposal of property, plant and equipment......... 49 130
Provision for doubtful accounts........................... 50 31
Changes in assets and liabilities:
Accounts receivable.................................... 3,832 (1,497)
Inventories............................................ (177) 2,054
Accounts payable....................................... (3,179) (82)
Accrued liabilities.................................... (380) 221
Income tax receivable.................................. (19) 59
Long term deferred tax asset........................... (387) -
Deferred income taxes.................................. - 1,702
Deferred income........................................ - (1)
Prepaid expenses and other assets...................... (231) (125)
-------- --------
Net cash provided by (used in) operating activities....... (5,695) 6,019
-------- --------
Cash flows from investing activities:
Net proceeds from sale of property, plant and equipment........... 254 4
Additions to property, plant and equipment........................ (1,104) (1,137)
-------- --------
Net cash used in investing activities..................... (850) (1,133)
-------- --------
Cash flows from financing activities:
Principal payments under capital leases........................... (120) (141)
Proceeds from issuance of common stock............................ 374 505
-------- --------
Net cash provided by financing activities................. 254 364
-------- --------
Net cash provided by (used in) continuing operations................... (6,291) 5,250
Net cash used in discontinued operations............................... (74) (182)
-------- --------
Net increase (decrease) in cash and cash equivalents................... (6,365) 5,068
Cash and cash equivalents at beginning of period....................... 10,308 6,772
-------- --------
Cash and cash equivalents at end of period............................. $ 3,943 $ 11,840
======== ========
Supplemental disclosures:
Cash paid during the period (related to continuing and
discontinued operations) for:
Interest ......................................................... $ 23 $ 15
Income taxes...................................................... 128 2
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
EMULEX CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. In the opinion of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (which are normal recurring
accruals) necessary to present fairly the financial position as of December
31, 1995 and July 2, 1995, and the results of operations for the three and
six months ended December 31, 1995 and January 1, 1995 and the statements
of cash flows for the six months then ended. Interim results for the three
and six months ended December 31, 1995 are not necessarily indicative of
the results that may be expected for the year ending June 30, 1996.
References to dollar amounts are in thousands, unless otherwise specified.
2. Inventories
Inventories, net, are summarized as follows:
<TABLE>
<CAPTION>
December 31, July 2,
1995 1995
------------ --------
<S> <C> <C>
Raw materials $ 6,049 $ 9,223
Work in process 2,566 2,036
Finished goods 5,823 3,002
--------- --------
$ 14,438 $ 14,261
========= ========
</TABLE>
3. Net Income (Loss) per Share
Net income (loss) per common and common equivalent share was computed based
on the weighted average number of common and common equivalent shares
outstanding during the periods presented. The Company has granted certain
stock options which have been treated as common share equivalents in
computing both primary and fully diluted income per share. Common share
equivalents have been excluded from the calculation of both primary and
fully diluted loss per share for the three and six months ended December
31, 1995, as the effect would have been antidilutive. The primary and fully
diluted income (loss) per share computations are approximately the same.
5
<PAGE> 7
Part I. Item 2.
EMULEX CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(in thousands)
RESULTS OF OPERATIONS
The following table sets forth selected items from the Condensed Consolidated
Statements of Operations. This table should be read in conjunction with the
Condensed Consolidated Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
Percentage of Net Revenue Percentage of Net Revenue
For the Three Months Ended For the Six Months Ended
---------------------------- ---------------------------
December 31, January 1, December 31, January 1,
1995 1995 1995 1995
------------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
Net revenues................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 68.2 57.5 68.3 58.4
------ ------ ------ ------
Gross profit.............................. 31.8 42.5 31.7 41.6
Operating expenses:
Engineering and development............... 22.9 13.8 25.7 13.8
Selling and marketing..................... 22.4 15.9 25.2 15.6
General and administrative................ 9.8 7.9 10.7 7.7
Amortization of goodwill.................. - 0.5 - 0.5
------ ------ ------ ------
Total operating expenses.............. 55.1 38.1 61.6 37.6
------ ------ ------ ------
Operating income (loss)............... (23.3) 4.4 (29.9) 4.0
Nonoperating income............................ 0.3 3.5 0.6 1.9
------ ------ ------ ------
Income (loss) before income taxes..... (23.0) 7.9 (29.3) 5.9
Provision for (benefit from) income taxes...... - 0.8 (1.6) 0.6
------ ------ ------ ------
Net income (loss)......................... (23.0)% 7.1% (27.7)% 5.3%
====== ====== ====== =====
</TABLE>
NET REVENUES
Net revenues for the three and six month periods ended December 31, 1995 were
$12,672 and $23,120, respectively, as compared to $18,277 and $36,788 for the
same periods last fiscal year. These amounts represent a decrease in net
revenues compared to the prior year of $5,605, or 31 percent, for the three
month period and $13,668, or 37 percent, for the six month period. These
decreases in net revenues are primarily attributable to lower sales to original
equipment manufacturers (OEMs), which declined from the levels recorded in the
comparable periods a year ago by $5,475, or 56 percent, for the three month
period and by $14,665, or 69 percent, for the six month period. The lower level
of OEM sales resulted primarily from a collective $5,911, or 78 percent,
reduction in second quarter shipments to Xerox, Cisco Systems and Reuters when
compared to the second quarter a year earlier and a $13,349 reduction in
shipments to these same three customers for the six month period when compared
to the six month period of fiscal 1995. While Xerox took delivery of their new
generation of printer servers during the second quarter of the current year,
volumes were lower than a year earlier for the previous generation of printer
servers. Additionally, one product reached the end of its life cycle with Cisco
Systems in the fourth quarter of last fiscal year and, as anticipated, shipments
of that product have stopped. Sales to Reuters declined from the levels recorded
in the three and six month periods a year earlier due to the completion of
certain of Reuters' modernization projects in Europe. While Emulex believes that
it will be asked to participate in Reuters's future WAN applications in other
geographic regions, there can be no assurance that any such business will, in
fact, be awarded to Emulex.
From a product line perspective, when compared to the prior year, network access
revenues for the three and six month periods ended December 31, 1995 declined by
$4,323, or 44 percent, and $9,001, or 47 percent, respectively, and
6
<PAGE> 8
printer server revenues declined by $1,792, or 23 percent, and $6,624, or 41
percent, respectively. The Company's emerging Fibre Channel product line
contributed revenues of $209 and $341 for the three and six month periods ended
December 31, 1995. There were no shipments of Fibre Channel products in the same
periods a year earlier. For the three and six month periods ended December 31,
1995 other product lines increased by $301, or 55 percent and by $143, or 9
percent, respectively when compared to the comparable periods. Additionally, in
the first quarter of fiscal 1996, the Company sold $1,472 of memory devices that
had been engineered out of certain products.
GROSS PROFIT
Gross profit for the three and six month periods ended December 31, 1995 was
31.8 percent and 31.7 percent of net revenues, respectively, compared to 42.5
percent and 41.6 percent in the same periods in the prior fiscal year. The
decreases in gross profit percentages from the levels recorded a year earlier
are primarily due to a lower absorption of manufacturing overhead in the current
fiscal year which resulted from the lower level of production activity.
OPERATING EXPENSES
During the three and six month periods ended December 31, 1995, total operating
expenses increased by $30 and $398, respectively, when compared to the
comparable periods in the prior fiscal year. Engineering and development
expenses for the three and six month periods ended December 31, 1995 increased
in comparison to the prior fiscal year by $373, or 15 percent, and $868, or 17
percent, respectively. These increases in the current year reflect the Company's
continuing support for new product development programs despite the decline in
net revenues. Selling and marketing expenses were essentially flat, decreasing
by $67, or 2 percent, in the three month period ended December 3, 1995 and
increasing by $58, or 1 percent, for the six month period when compared to the
same periods in the prior year. General and administrative expenses declined in
comparison to a year earlier by $192, or 13 percent, for the three month period
and by $360, or 13 percent, for the six month period. These decreases resulted
from reductions in administrative staff and other cost control measures that
were implemented in the current fiscal year. Amortization of goodwill was $0 for
the three and six month periods ended December 31, 1995 compared to $84 and $168
in the same periods a year earlier. This decrease in amortization of goodwill is
due to the write off of goodwill and other intangible assets in the fourth
quarter of the prior fiscal year.
NONOPERATING INCOME
During the three and six month periods ended December 31, 1995, nonoperating
income decreased by $591, or 94 percent, and $598, or 82 percent, respectively,
when compared to the same periods a year earlier. These decreases for the three
and six month periods are primarily due to $538 of nonrecurring interest income
associated with a tax refund that was recognized in the second quarter of the
prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased by $6,365 during the first six
months of fiscal 1996 to $3,943. This decrease in available cash balances since
July 2, 1995 resulted primarily from the net loss experienced in the first six
months of the current year. Operating activities used $5,695 of cash in the six
month period ended December 31, 1995, compared to providing $6,019 of cash in
the same period a year earlier. Investing activities, which were limited to the
acquisition and disposition of property and equipment, used $850 of cash in the
first half of the current fiscal year compared to using $1,133 in the comparable
period a year ago. Financing activities, which were limited to payments under
capital lease obligations and proceeds from the exercise of employee stock
options, provided $254 of cash during the first six months of fiscal 1996
compared to providing $364 of cash for the same period last fiscal year.
Discontinued operations used $74 of cash in the first half of fiscal 1996
compared to using $182 of cash in the same period a year ago.
In addition to its cash balances, the Company has a line of credit of up to
$5,000 with Silicon Valley Bank. There were no borrowings under the line of
credit during the first six months of fiscal 1996. Under the terms of the line
of credit, the Company is required to grant Silicon Valley Bank a security
interest in its accounts receivable, inventories, equipment and other property
upon any borrowing. The line of credit with Silicon Valley Bank requires the
Company to satisfy certain financial and other covenants and conditions,
including prescribed levels of tangible net worth,
7
<PAGE> 9
profitability and liquidity. In the event the Company fails to comply with any
financial or other covenant in its loan agreement with Silicon Valley Bank, the
line of credit could become unavailable to the Company. In addition, after
borrowings have been made under the line of credit a failure to satisfy such
covenants would constitute an event of default, giving rise to the various
remedies available to a secured lender. There can be no assurance that the line
of credit will continue to be available to meet the Company's liquidity
requirements. The Company anticipates that borrowings under the line of credit
will be required during the last six months of fiscal 1996.
The Company believes that its existing cash balances, facilities and equipment
leases, anticipated cash flows from operating activities and borrowings under
its line of credit will be sufficient to support its working capital needs and
capital expenditure requirements for the next twelve months. However, the
Company has recently experienced reductions in revenue levels and significant
losses from operations. The Company's ability to meet its future liquidity
requirements is dependent upon its ability to operate profitably or, in the
absence thereof, to draw on its line of credit and to arrange additional
financing. If the Company were to continue to experience losses, additional debt
or equity financing would be required within six to nine months. While the
Company expects to return to profitability, there can be no assurances that
revenues will return to the levels experienced in the prior fiscal year or that
the Company would be profitable at such revenue levels. Furthermore, there can
be no assurances that future requirements to fund operations will not require
the Company to draw on its line of credit and seek additional financing, or that
such line of credit or additional financing will be available on terms favorable
to the Company and its stockholders, or at all.
BUSINESS ENVIRONMENT AND RISK FACTORS
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The markets for the Company's products are characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. The Company believes that its future success will
depend in large part on its ability to enhance its existing products and to
introduce new products on a timely basis to meet changes in customer
preferences, emerging technologies and evolving industry standards. There can be
no assurance that the Company will be successful in developing, manufacturing
and marketing new products or product enhancements that respond to technological
changes or evolving industry standards, that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. Nor can there be any assurance that the Company will be able to
develop or license from third parties the underlying core technologies necessary
for new products and enhancements. Additionally, there can be no assurance that
services, products or technologies developed by others will not render the
Company's products or technologies uncompetitive or obsolete. If the Company is
unable, for technological or other reasons, to develop new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer preferences, the Company's business, results of
operations and financial condition could be materially and adversely affected.
RELIANCE ON OEMS, DISTRIBUTORS AND KEY CUSTOMERS
The Company's agreements with distributors and OEMs are typically non-exclusive
and in many cases may be terminated by either party without cause, and many of
the Company's distributors and OEMs carry, or have ready access to, competing
product lines. Therefore, there can be no assurance that any distributor or OEM
will continue to purchase the Company's products. The loss of or decline in
sales to important distributors or OEMs has in the past and would in the future
adversely affect the Company's business, results of operations and financial
condition.
EARLY STAGE OF THE FIBRE CHANNEL MARKET
8
<PAGE> 10
The Company has invested and continues to invest substantially in the
engineering of products to address the Fibre Channel market, which is at an
early stage of development. For the first six months of fiscal 1996,
approximately 30 percent of the Company's engineering and development
expenditures have been invested in Fibre Channel designs. There can be no
assurance that the Fibre Channel market will continue to expand or that the
Company's investment in Fibre Channel will achieve a profitable return.
COMPETITION
The markets for the Company's products are highly competitive and are
characterized by rapid technological advances, price erosion, frequent new
product introductions and evolving industry standards. The industry consists of
major domestic and international companies, many of which have substantially
greater financial, technical, marketing and distribution resources than the
Company, as well as emerging companies attempting to obtain a share of the
existing market. The Company's competitors continue to introduce products with
improved performance characteristics, and the Company will have to do the same
to remain competitive. The Company operates in a volatile and dynamic market,
and more aggressive market and product positioning by certain competitors could
have a material adverse effect on the Company's business, results of operations
and financial position.
RELIANCE ON THIRD PARTY SUPPLIERS
The Company's manufacturing process requires components supplied by outside
suppliers, some of which the Company obtains from single sources. There can be
no assurance that in the future the Company's suppliers will be able to meet the
Company's demand for such components in a timely and cost effective manner. The
Company's operating results and customer relationships could be adversely
affected by either an increase in prices for, or an interruption or reduction in
the supply of, any key components.
DEPENDENCE OF KEY PERSONNEL
The Company's success depends to a significant degree on the performance and
continued service of its senior management and certain key employees.
Competition for such highly skilled employees with technical, management,
marketing, sales product development and other specialized skills is intense,
and there can be no assurance that the Company will be successful in recruiting
and retaining such personnel. In addition, there can be no assurance that
employees will not leave the Company and, after leaving, compete against the
Company. The loss of key management, technical and sales personnel could have a
materially adverse effect on the Company's business, financial condition and
operating results.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Because the Company generally ships products within a short period after receipt
of an order, the Company typically does not have a material backlog of unfilled
orders, and revenues in any quarter are substantially dependent on orders booked
in that quarter. Typically the Company generates a large percentage of its
quarterly revenues in the last month of the quarter. Adding further to the
variability of sales are certain large OEM customers that tend to order
sporadically and in large amounts. A small variation in the timing of orders is
likely to adversely and disproportionately affect the Company's quarterly
results of operations as the Company's expense levels are based, in part, on its
expectations of future sales and only a small portion of the Company's expenses
vary directly with its sales. Therefore, the Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall.
Accordingly, any significant shortfall of demand in relation to the Company's
quarterly expectations or any material delay of customer orders could have an
immediate and adverse impact on the Company's quarterly results of operations
and financial condition.
9
<PAGE> 11
POSSIBLE VOLATILITY OF STOCK PRICE
As is the case with many technology based companies, the market price of the
Company's common stock has been, and is likely to continue to be, extremely
volatile. Factors such as new product introductions by the Company or its
competitors, fluctuations in the Company's quarterly operating results, the gain
or loss of significant contracts, pricing pressures and general conditions in
the computer market, and general events and circumstances beyond the Company's
control may have a significant impact on the market price of the Company's
common stock. In addition, the stock market recently has experienced significant
price and volume fluctuations which have particularly affected the market price
for many high technology companies like the Company.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of the Company was held on November 16, 1995.
The following members were elected to the Company's Board of Directors to hold
office for the ensuing year:
<TABLE>
<CAPTION>
Nominee In Favor Withheld
- ------- -------- --------
<S> <C> <C>
Fred B. Cox 5,023,210 32,950
Paul F. Folino 5,006,385 49,775
Michael P. Downey 5,023,385 32,775
Robert H. Goon 5,022,935 33,225
Gary E. Liebl 5,023,385 32,775
Don M. Lyle 5,023,335 32,825
</TABLE>
In addition, the stockholders of the Company voted on the selection of KPMG Peat
Marwick LLP as the Company's independent public accountants for fiscal year
1996. The number of shares voted for ratification was 5,032,911. The number of
shares voted against ratification was 3,075. The number of shares abstaining was
20,174.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit: 10.1 Loan and security agreement, dated as of March 31, 1994,
between Emulex Corporation, InterConnections, Inc.,
Emulex Europe Limited and Silicon Valley Bank, as amended
April 25, 1994, July 1, 1994, June 26, 1995, July 24,
1995, October 5, 1995 and January 18, 1996.
Exhibit: 27.1 Financial Data Schedule
(b) The registrant has not filed any reports on Form 8-K during the period for
which this report is filed.
10
<PAGE> 12
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.
Date: February 7, 1996
EMULEX CORPORATION
By: /s/ Paul F. Folino
------------------------------------------------
Paul F. Folino
President and Chief Executive Officer
By: /s/ Walter J. McBride
------------------------------------------------
Walter J. McBride
Sr. Vice President & Chief Financial Officer
(Principal Financial & Chief Accounting Officer)
11
<PAGE> 1
EXHIBIT 10.1
SILICON LOAN DOCUMENTS
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATE: MARCH 31, 1994
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK ("Silicon"), whose address is 3000 Lakeside Drive, Santa
Clara, California 95054-2895 and the borrowers named above (jointly and
severally referred to as the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address").
1. LOANS.
1.1 LOANS. Silicon, in its reasonable discretion, will make loans to the
Borrower (the "Loans") in amounts determined by Silicon in its reasonable
discretion up to the amount (the "Credit Limit") shown on the Schedule to this
Agreement (the "Schedule"), provided no Event of Default and no event which,
with notice or passage of time or both, would constitute an Event of Default has
occurred. The Borrower is responsible for monitoring the total amount of Loans
and other Obligations outstanding from time to time, and Borrower shall not
permit the same, at any time, to exceed the Credit Limit. If at any time the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, the Borrower shall immediately pay the amount of the excess to Silicon,
without notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rate shown on the Schedule hereto. Interest shall be payable monthly, on
the due date shown on the monthly billing from Silicon to the Borrower. Silicon
may, in its discretion, charge interest to Borrower's deposit accounts
maintained with Silicon*.
*; SILICON AGREES TO USE ITS STANDARD PROCEDURE TO PROVIDE WRITTEN CONFIRMATION
OF THE CHARGING OF ANY SUCH INTEREST, PROVIDED ANY FAILURE BY SILICON TO SO
NOTIFY THE BORROWER SHALL NOT AFFECT THE RIGHT OF SILICON TO CHARGE AND COLLECT
SUCH INTEREST.
1.3 FEES. The Borrower shall pay to Silicon a loan origination fee in the
amount shown on the Schedule hereto concurrently herewith. This fee is in
addition to all interest and other sums payable to Silicon and is not
refundable. *
* BORROWER SHALL ALSO PAY A COMMITMENT/UNUSED LINE FEE AS SET FORTH IN
PARAGRAPH 4 OF THE SECTION OF THE SCHEDULE TO LOAN AGREEMENT ENTITLED "OTHER
COVENANTS (SECTION 4.1)."
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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2. GRANT OF SECURITY INTEREST.
2.1 OBLIGATIONS. The term "Obligations" as used in this Agreement means the
following: the obligation to pay all Loans and all interest thereon when due,
and to pay and perform when due all other present and future indebtedness,
liabilities, obligations, guarantees, covenants, agreements, warranties and
representations of the Borrower to Silicon, whether joint or several, monetary
or non-monetary, and whether created pursuant to this Agreement or any other
present or future agreement or otherwise. 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.
2.2 COLLATERAL. * all of the Borrower's interest in the types of property
described below, whether now owned or hereafter acquired, and wherever located:
(a) All accounts, contract rights, chattel paper, letters of credit, documents,
securities, money, and instruments, and all other obligations now or in the
future owing to the Borrower; (b) All inventory, goods, merchandise, materials,
raw materials, work in process, finished goods, farm products, advertising,
packaging and shipping materials, supplies, and all other tangible personal
property which is held for sale or lease or furnished under contracts of service
or consumed in the Borrower's business, and all warehouse receipts and other
documents; and (c) All equipment, including without limitation all machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, materials, tools,
machine tools, office equipment, computers and peripheral devices, appliances,
apparatus, parts, dies, and jigs; (d) All general intangibles including, but not
limited to, deposit accounts, goodwill, names, trade names, trademarks and the
goodwill of the business symbolized thereby, trade secrets, drawings,
blueprints, customer lists, patents, patent applications, copyrights, security
deposits, loan commitment fees, federal, state and local tax refunds and claims,
all 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, all rights
to purchase or sell real or personal property, all rights as a li censor or
licensee of any kind, all royalties, licenses, processes, telephone numbers,
proprietary information, purchase orders, and all insurance policies and claims
(including without limitation credit, liability, property and other insurance),
and all other rights, privileges and franchises of every kind; (e) All books and
records, whether stored on computers or otherwise maintained; and (f) All
substitutions, additions and accessions to any of the foregoing, and all
products, proceeds and insurance proceeds of the foregoing, and all guaranties
of and security for the foregoing; and all books and records relating to any of
the foregoing. Silicon's security interest in any present or future technology
(including patents, trade secrets, and other technology) shall be subject to any
licenses or rights now or in the future granted by the Borrower to any third
parties in the ordinary course of Borrower's business; provided that if the
Borrower proposes to sell, license or grant any other rights with respect to any
technology in a transaction that, in substance, conveys a major part of the
economic value of that technology, Silicon shall first be requested ** .
* THE TERM "COLLATERAL" SHALL MEAN
** TO GRANT ITS CONSENT TO ANY SUCH TRANSACTION, AND SILICON MAY WITHHOLD
SUCH CONSENT IN ITS REASONABLE DISCRETION
2.2A GRANT OF SECURITY INTEREST IN COLLATERAL. IF AN EVENT OF DEFAULT OCCURS
HEREUNDER AND ANY OBLIGATIONS ARE OUTSTANDING, THEN THE GRANT OF THE SECURITY
INTEREST SET FORTH IN THIS SECTION 2.2A SHALL AT SUCH TIME BECOME IMMEDIATELY
EFFECTIVE, WITHOUT ANY FURTHER ACTION REQUIRED BY BORROWER OR SILICON (THE
FOREGOING EVENTS THAT TRIGGER THE EFFECTIVENESS OF THE GRANT OF THE SECURITY
INTEREST IN THIS SECTION 2.2A SHALL BE REFERRED TO AS THE "SECTION 2.2A
CONDITION"). BORROWER AND SILICON AGREE THAT PRIOR TO THE OCCURRENCE OF THE
SECTION 2.2 CONDITION, THE PROVISIONS OF THIS SECTION 2.2A SHALL BE DEEMED NOT
TO BE IN EFFECT. UPON THE OCCURRENCE OF THE SECTION 2.2A CONDITION, THE
FOLLOWING SHALL BECOME EFFECTIVE:
THE BORROWER GRANTS SILICON A CONTINUING SECURITY INTEREST IN ALL OF THE
BORROWER'S INTEREST IN THE TYPES OF PROPERTY DESCRIBED BELOW, WHETHER NOW OWNED
OR HEREAFTER ACQUIRED, AND WHEREVER LOCATED (COLLECTIVELY, THE "COLLATERAL") AS
SECURITY FOR ALL OBLIGATIONS: (a) ALL ACCOUNTS, CONTRACT RIGHTS, CHATTEL PAPER,
LETTERS OF CREDIT, DOCUMENTS, SECURITIES, MONEY, AND INSTRUMENTS, AND ALL OTHER
OBLIGATIONS NOW OR IN THE FUTURE OWING TO THE BORROWER; (b) ALL INVENTORY,
GOODS, MERCHANDISE, MATERIALS, RAW MATERIALS, WORK IN PROCESS, FINISHED GOODS,
FARM PRODUCTS, ADVERTISING, PACKAGING AND SHIPPING MATERIALS, SUPPLIES, AND ALL
OTHER TANGIBLE PERSONAL PROPERTY WHICH IS HELD FOR SALE OR LEASE OR FURNISHED
UNDER CONTRACTS OF SERVICE OR CONSUMED IN THE BORROWER'S BUSINESS, AND ALL
WAREHOUSE RECEIPTS AND OTHER DOCUMENTS; AND (c) ALL EQUIPMENT, INCLUDING WITHOUT
LIMITATION ALL MACHINERY, FIXTURES, TRADE FIXTURES, VEHICLES, FURNISHINGS,
FURNITURE, MATERIALS, TOOLS, MACHINE TOOLS, OFFICE EQUIPMENT, COMPUTERS AND
PERIPHERAL DEVICES, APPLIANCES, APPARATUS, PARTS, DIES, AND JIGS; (d) ALL
GENERAL INTANGIBLES INCLUDING, BUT NOT LIMITED TO, DEPOSIT ACCOUNTS,
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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GOODWILL, NAMES, TRADE NAMES, TRADEMARKS AND THE GOODWILL OF THE BUSINESS
SYMBOLIZED THEREBY, TRADE SECRETS, DRAWINGS, BLUEPRINTS, CUSTOMER LISTS,
PATENTS, PATENT APPLICATIONS, COPYRIGHTS, SECURITY DEPOSITS, LOAN COMMITMENT
FEES, FEDERAL, STATE AND LOCAL TAX REFUNDS AND CLAIMS, ALL 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, ALL RIGHTS TO PURCHASE OR
SELL REAL OR PERSONAL PROPERTY, ALL RIGHTS AS A LICENSOR OR LICENSEE OF ANY
KIND, ALL ROYALTIES, LICENSES, PROCESSES, TELEPHONE NUMBERS, PROPRIETARY
INFORMATION, PURCHASE ORDERS, AND ALL INSURANCE POLICIES AND CLAIMS (INCLUDING
WITHOUT LIMITATION CREDIT, LIABILITY, PROPERTY AND OTHER INSURANCE), AND ALL
OTHER RIGHTS, PRIVILEGES AND FRANCHISES OF EVERY KIND; (e) ALL BOOKS AND
RECORDS, WHETHER STORED ON COMPUTERS OR OTHERWISE MAINTAINED; AND (f) ALL
SUBSTITUTIONS, ADDITIONS AND ACCESSIONS TO ANY OF THE FOREGOING, AND ALL
PRODUCTS, PROCEEDS AND INSURANCE PROCEEDS OF THE FOREGOING, AND ALL GUARANTIES
OF AND SECURITY FOR THE FOREGOING; AND ALL BOOKS AND RECORDS RELATING TO ANY OF
THE FOREGOING. SILICON'S SECURITY INTEREST IN ANY PRESENT OR FUTURE TECHNOLOGY
(INCLUDING PATENTS, TRADE SECRETS, AND OTHER TECHNOLOGY) SHALL BE SUBJECT TO ANY
LICENSES OR RIGHTS NOW OR IN THE FUTURE GRANTED BY THE BORROWER TO ANY THIRD
PARTIES IN THE ORDINARY COURSE OF BORROWER'S BUSINESS; PROVIDED THAT IF THE
BORROWER PROPOSES TO SELL, LICENSE OR GRANT ANY OTHER RIGHTS WITH RESPECT TO ANY
TECHNOLOGY IN A TRANSACTION THAT, IN SUBSTANCE, CONVEYS A MAJOR PART OF THE
ECONOMIC VALUE OF THAT TECHNOLOGY, SILICON SHALL FIRST BE REQUESTED TO RELEASE
ITS SECURITY INTEREST IN THE SAME, AND SILICON MAY WITHHOLD SUCH RELEASE IN ITS
REASONABLE DISCRETION.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
The Borrower represents and warrants to Silicon as follows, and the Borrower
covenants that the following representations will continue to be true, and that
the Borrower will comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. The Borrower, if a corporation, is and
will continue to be, duly authorized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. The 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 the
Borrower. The execution, delivery and performance by the Borrower of this
Agreement, and all other documents contemplated hereby have been duly and
validly authorized, are enforceable against the Borrower in accordance with
their terms, and do not violate any law or any provision of, and are not grounds
for acceleration under, any agreement or instrument which is binding upon the
Borrower.
3.2 NAME; TRADE NAMES AND STYLES. The name of the Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule hereto are
all prior names of the Borrower and all of Borrower's present and prior trade
names*. The Borrower shall give Silicon 15 days' prior written notice before
changing its name or doing business under any other name. The Borrower has
complied, and will in the future comply, with all laws relating to the conduct
of business under a fictitious business name.
* FOR THE PAST FIVE YEARS
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is the Borrower's chief executive office. In addition,
the Borrower has places of business and Collateral is located only at the
locations set forth on the Schedule to this Agreement. The Borrower will give
Silicon at least 15 days prior written notice before changing its chief
executive office or locating the Collateral at any other location.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. The 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 the 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 the following ("Permitted Liens"):
(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
in its reasonable discretion, which consent shall not be unreasonably withheld;
and (v) security interests being terminated substantially concurrently with this
Agreement. 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 on Silicon's then standard
form, 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 the 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. * Silicon will have, a perfected and enforceable security
interest in all of the Collateral, subject only to the Permitted Liens, and the
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.
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<PAGE> 4
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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* UPON THE EFFECTIVENESS OF SECTION 2.2A AND THE PERFECTION OF THE SECURITY
INTEREST OF SILICON IN THE COLLATERAL,
3.5 MAINTENANCE OF COLLATERAL. The Borrower will maintain the Collateral in
good working condition, and the Borrower will not use the Collateral for any
unlawful purpose. The Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. The Borrower has maintained and will maintain at the
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION AND STATEMENTS. 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 THE BORROWER AND
EMULEX CORPORATION, A DELAWARE CORPORATION (THE "PARENT"), AT THE TIMES AND FOR
THE PERIODS THEREIN STATED. SINCE THE LAST DATE COVERED BY ANY SUCH STATEMENT,
THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN THE FINANCIAL CONDITION OR BUSINESS
OF THE BORROWER OR THE PARENT. THE BORROWER IS NOW AND WILL CONTINUE TO BE
SOLVENT. THE BORROWER WILL PROVIDE SILICON: (i) WITHIN 5 DAYS AFTER THE EARLIER
OF THE DATE THE REPORT 10Q REGARDING THE PARENT IS FILED OR IS REQUIRED TO BE
FILED WITH THE SECURITIES EXCHANGE COMMISSION, SUCH 10-Q REPORT, A QUARTERLY
FINANCIAL STATEMENT PREPARED BY THE BORROWER REGARDING THE PARENT, AND A
COMPLIANCE CERTIFICATE IN SUCH FORM AS SILICON SHALL REASONABLY SPECIFY, SIGNED
BY THE CHIEF FINANCIAL OFFICER OF THE BORROWER AND THE PARENT, CERTIFYING THAT
THROUGHOUT SUCH QUARTER THE BORROWER AND THE PARENT WERE 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 ON THE
SCHEDULE AND SUCH OTHER INFORMATION AS SILICON SHALL REASONABLY REQUEST (THE
"COMPLIANCE CERTIFICATE"); AND (ii) WITHIN 5 DAYS AFTER THE EARLIER OF THE DATE
THE REPORT 10-K REGARDING THE PARENT IS FILED OR IS REQUIRED TO BE FILED WITH
THE SECURITIES EXCHANGE COMMISSION, SUCH 10-K REPORT, COMPLETE ANNUAL FINANCIAL
STATEMENTS, CERTIFIED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ACCEPTABLE TO
SILICON, AND A COMPLIANCE CERTIFICATE FOR THE QUARTER THEN ENDED.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. The Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and the 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 the Borrower. The Borrower may,
however, defer payment of any contested taxes, provided that the Borrower (i) in
good faith contests the 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. The Borrower is
unaware of any claims or adjustments proposed for any of the Borrower's prior
tax years which could result in additional taxes becoming due and payable by the
Borrower*. The 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 the 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 the Borrower, including, without
limitation, any liability to the Pension Benefit Guaranty Corporation or its
successors or any other governmental agency.
* OTHER THAN ANY ARISING PURSUANT TO THE TAX SHARING AGREEMENT DATED FEBRUARY
24, 1994 BETWEEN THE PARENT AND QLOGIC CORPORATION
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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3.9 COMPLIANCE WITH LAW. The 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 the Borrower, including, but not limited to,
those relating to the Borrower's ownership of real or personal property, conduct
and licensing of the Borrower's business, and 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 the Borrower's
knowledge) threatened by or against or affecting the Borrower in any court or
before any governmental agency (or any basis therefor known to the Borrower)
which may result, either separately or in the aggregate, in any material adverse
change in the financial condition or business of the Borrower, or in any
material impairment in the ability of the Borrower to carry on its business in
substantially the same manner as it is now being conducted. The Borrower will
promptly inform Silicon in writing of any claim, proceeding, litigation or
investigation in the future threatened or instituted by or against the Borrower
involving amounts in excess of $350,000.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. ADDITIONAL DUTIES OF THE BORROWER.
4.1 FINANCIAL AND OTHER COVENANTS. The Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule to this
Agreement.
4.2 OVERADVANCE; PROCEEDS OF ACCOUNTS. If for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit, without
limiting Silicon's other remedies, and whether or not Silicon declares an Event
of Default, Borrower shall remit to Silicon all checks and other proceeds of
Borrower's accounts and general intangibles, in the same form as received by
Borrower, within one day after Borrower's receipt of the same, to be applied to
the Obligations in such order as Silicon shall determine in its discretion.
4.3 INSURANCE. The 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. * 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 and absolute discretion, except that,
provided no Event of Default has occurred, Silicon shall release to the Borrower
insurance proceeds with respect to equipment totaling less than $350,000, which
shall be utilized by the 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
the Borrower fails to provide or pay for any insurance, Silicon may, but is not
obligated to, obtain the same at the Borrower's expense. The Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
* AT SUCH TIME THAT SILICON HAS PERFECTED ITS SECURITY INTEREST IN THE
COLLATERAL, ALL
4.4 REPORTS. The Borrower shall provide Silicon with such written reports with
respect to the Borrower (including without limitation budgets, sales
projections, operating plans and other financial documentation), as Silicon
shall from time to time reasonably specify.
4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times, and upon
one business day notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy the Borrower's accounting books
and records and Borrower's books and records relating to the Collateral. 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 audits shall be at Silicon's
expense, except that the Borrower shall reimburse Silicon for its reasonable out
of pocket costs for semi-annual accounts receivable audits by third parties
retained by Silicon, and Silicon may debit Borrower's deposit accounts with
Silicon for the cost of such semi-annual accounts receivable audits (in which
event Silicon shall send notification thereof to the Borrower)*. Notwithstanding
the foregoing, after the occurrence of an Event of Default all audits shall be
at the Borrower's expense.
* PROVIDED THAT IT IS AGREED THAT THE PER AUDIT CHARGE OF ANY SUCH AUDIT TO BE
CHARGED TO THE BORROWER SHALL NOT EXCEED $2,000, PROVIDED, FURTHER, THAT SILICON
AGREES TO SEND SUCH NOTIFICATION TO THE BORROWER SUBSTANTIALLY CONCURRENTLY WITH
ANY SUCH DEBIT OF BORROWER'S DEPOSIT ACCOUNTS
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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4.6 NEGATIVE COVENANTS. Except as may be permitted in the Schedule hereto, the
Borrower shall not, without Silicon's prior written consent, do any of the
following: (i) merge or consolidate with another corporation, except that the
Borrower may merge or consolidate with another corporation if the Borrower is
the surviving corporation in the merger and the aggregate value of the assets
acquired in the merger do not exceed 25% of Borrower's Tangible Net Worth (as
defined in the Schedule) as of the end of the month prior to the effective date
of the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens; (ii) acquire any
assets outside the ordinary course of business for an aggregate purchase price
exceeding 25% of Borrower's Tangible Net Worth (as defined in the Schedule) as
of the end of the month prior to the effective date of the acquisition; (iii)
enter into any other transaction outside the ordinary course of business (except
as permitted by the other provisions of this Section); (iv) sell or transfer any
Collateral, except for the sale of finished inventory in the ordinary course of
the Borrower's business, and except for the sale of obsolete or unneeded
equipment * in the ordinary course of business; (v) make any loans of any money
or any other assets; (vi) incur any debts, outside the ordinary course of
business, which would have a material, adverse effect on the Borrower or on the
prospect of repayment of the Obligations; (vii) guarantee or otherwise become
liable with respect to the obligations of another party or entity; (viii) pay or
declare any dividends on the Borrower's stock (except for dividends payable
solely in stock of the Borrower); (ix) redeem, retire, purchase or otherwise
acquire, directly or indirectly, any of the Borrower's stock; (x) make any
change in the Borrower's capital structure which has a material adverse effect
on the Borrower or on the prospect of repayment of the Obligations; or (xi)
dissolve or elect to dissolve. Transactions permitted by the foregoing
provisions of this Section are only permitted if no Event of Default and no
event which (with notice or passage of time or both) would constitute an Event
of Default would occur as a result of such transaction.
* OR OBSOLETE INVENTORY
4.7 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 the Borrower, the Borrower shall, without expense to Silicon, make
available the Borrower and its officers, employees and agents and the 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.
4.8 VERIFICATION. Silicon may, from time to time, following prior notification
to Borrower, verify directly with the respective account debtors the validity,
amount and other matters relating to the Borrower's accounts, by means of mail,
telephone or otherwise, either in the name of the Borrower or Silicon or such
other name as Silicon may reasonably choose, provided that no prior notification
to Borrower shall be required following an Event of Default.
4.9 EXECUTE ADDITIONAL DOCUMENTATION. The Borrower agrees, at its expense, on
request by Silicon, to execute all documents in form satisfactory to Silicon, 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 all of the transactions contemplated by this Agreement *.
* , AS APPLICABLE IF AND WHEN SILICON HAS FILED UCC FINANCING STATEMENTS
AGAINST THE BORROWER OR TAKEN ANY OTHER MEASURE IN ORDER TO PERFECT ITS SECURITY
INTEREST IN THE COLLATERAL
5. TERM.
5.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule hereto (the "Maturity Date").
5.2 EARLY TERMINATION. This Agreement may be terminated, without penalty,
prior to the Maturity Date as follows: (i) by the 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.
5.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, the 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
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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performed in full; provided that, without limiting the fact that Loans are
subject to the reasonable 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 the 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, Silicon shall promptly deliver to
the Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate any of Silicon's security
interests.
6. EVENTS OF DEFAULT AND REMEDIES.
6.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and the Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by the Borrower or
any of the Borrower's officers, employees or agents, now or in the future, shall
be untrue or misleading in any material respect; or (b) the 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
exceed the Credit Limit; or (d) the 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) the
Borrower shall fail to pay or 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 is made on all or any part
of the Collateral which is not cured within * days after the occurrence of the
same; or (g) Dissolution, termination of existence, insolvency or business
failure of the 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 the 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 (h) the commencement of any proceeding against the 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 ** days after the date commenced; (i) 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 (j) 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 (k) the 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 (l) there shall be a change in the record
or beneficial ownership of an aggregate of more than **** of the outstanding
shares of stock of the Borrower, in one or more transactions, compared to the
ownership of outstanding shares of stock of the Borrower in effect on the date
hereof, without the prior written consent of Silicon; or (m) the Borrower shall
generally not pay its debts as they become due; or the 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. Silicon may cease making any Loans hereunder during any of the above cure
periods, and thereafter if an Event of Default has occurred.
* 20
** 45
*** PROVIDED THAT WITH RESPECT TO THE COMMENCEMENT OF ANY PROCEEDING AGAINST
ANY SUCH THIRD PARTY 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, ANY SUCH PROCEEDING SHALL NOT
BE CURED BY THE DISMISSAL THEREOF WITHIN 45 DAYS AFTER THE DATE COMMENCED
**** A CONTROLLING INTEREST
6.2 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 the Borrower), may do any one or
more of the following: (a) Cease making Loans or otherwise extending credit to
the 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
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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any Obligation; (c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose the Borrower hereby authorizes Silicon
without judicial process to enter onto any of the 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 or all of the Collateral by Court
process, the 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) (intentionally not used); and (iii) any
requirement that Silicon retain possession of and not dispose of any such
Collateral until after trial or final judgment; (d) Require the 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 the
Borrower, and to remove the Collateral to such locations as Silicon may deem
advisable; (e) Require Borrower to deliver to Silicon, in kind, all checks and
other payments received with respect to all accounts and general intangibles,
together with any necessary indorsements, within one day after the date
received by the Borrower; (f) 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 the Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge; (g) 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 any 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 the 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 the Borrower of any liability the Borrower may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale; (h) Demand payment of, and collect any accounts and general
intangibles comprising Collateral and, in connection therewith, the Borrower
irrevocably authorizes Silicon to endorse or sign the Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to the 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 accounts and the like for less than face value; (i) Offset against any
sums in any of Borrower's general, special or other deposit accounts with
Silicon; and (j) Demand and receive possession of any of the 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.
6.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. The 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 the
Borrower at least * days prior to the sale, and, in the case of a public sale,
notice of the sale is published at least * 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, nonspecific 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 the Borrower any and all information
concerning the same. Silicon may employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
* TEN
6.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, the 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 the
Borrower, and at the Borrower's expense, to do any or all of the following, in
the Borrower's name or otherwise: (a) Execute on behalf of the Borrower any
documents that Silicon may, in its sole and
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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absolute discretion, deem advisable in order to perfect and maintain Silicon's
security interest in the Collateral, or in order to exercise a right of the
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 the 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 the
Borrower, any invoices relating to any account, 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 the 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 accounts 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 the
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,
the 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 the Borrower pursuant to this Agreement and any other
present or future agreements. Silicon shall exercise the foregoing powers in a
commercially reasonable manner. 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 the Borrower.
6.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the 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 the
Borrower or other persons legally entitled thereto; the 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 or other disposition 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.
6.6 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 the 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.
7. GENERAL PROVISIONS.
7.1 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by regular first-class mail, or
certified mail return receipt requested, addressed to Silicon or the 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. All notices shall be
deemed to have been given upon delivery in the case of notices personally
delivered to the Borrower or to Silicon, or at the expiration of two business
days following the deposit thereof in the United States mail, with postage
prepaid.
7.2 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.
7.3 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 the Borrower and Silicon and supersede all prior
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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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.
7.4 WAIVERS. The failure of Silicon at any time or times to require the
Borrower to strictly comply with any of the provisions of this Agreement or any
other present or future agreement between the 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 thereto. None of the provisions of
this Agreement or any other agreement now or in the future executed by the
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 officer of Silicon and delivered to the Borrower.
The 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 the
Borrower is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.
7.5 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 the
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 *.
* WITH RESPECT TO THE TRANSACTIONS AND ACTIONS OF SILICON ASSOCIATED WITH THE
LETTERS OF CREDIT AND THE EXCHANGE CONTRACTS (AS SUCH TERMS ARE DEFINED IN THE
SCHEDULE TO LOAN AGREEMENT ATTACHED HERETO).
7.6 AMENDMENT. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by the Borrower and a duly authorized
officer of Silicon.
7.7 TIME OF ESSENCE. Time is of the essence in the performance by the
Borrower of each and every obligation under this Agreement.
7.8 ATTORNEYS FEES AND COSTS. The 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; 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 the 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 the 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 the 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 the 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.
7.9 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 the parties hereto; provided, however, that
the 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 the
Borrower from its liability for the Obligations.
7.10 JOINT AND SEVERAL LIABILITY. If the 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.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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7.11 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in this
Agreement for convenience. The Borrower acknowledges 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. 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
the Borrower under any rule of construction or otherwise.
7.12 MUTUAL WAIVER OF JURY TRIAL. THE 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 THE BORROWER, OR ANY CONDUCT, ACTS
OR OMISSIONS OF SILICON OR THE BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR THE
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and the
Borrower shall be governed by, and in accordance with, the laws of the State of
California. Any undefined term used in this Agreement that is defined in the
California Uniform Commercial Code shall have the meaning assigned to that term
in the California Uniform Commercial Code. As a material part of the
consideration to Silicon to enter into this Agreement, the Borrower (i) agrees
that all actions and proceedings relating directly or indirectly hereto shall,
at Silicon's option, be litigated in courts located within California, and that
the exclusive venue therefor shall be Orange 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 the 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.
BORROWER:
EMULEX CORPORATION
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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SILICON VALLEY BANK
BY_______________________________
TITLE______________________________
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SILICON LOAN DOCUMENTS
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SCHEDULE TO LOAN AND SECURITY AGREEMENT -.S.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATE: MARCH 31, 1994
CREDIT LIMIT
(Section 1.1): An amount not to exceed * the lesser of:
(i) $5,000,000 at any one time outstanding; OR
(ii) 75% of the Net Amount of Borrower's accounts, which Silicon in
its ** discretion deems eligible for borrowing,
provided, however, that the minimum amount of a Loan
shall be $100,000.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX CORPORATION, A
CALIFORNIA CORPORATION ("EMULEX"), INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
** REASONABLE
"Net Amount" of an account means the gross amount of the account, minus
all applicable sales, use, excise and other similar
taxes and minus all discounts, credits and allowances
of any nature granted or claimed.
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 outstanding for more than 90
days from the invoice date, accounts subject to any
contingencies, accounts owing from an account debtor
outside the United States (the "Foreign Accounts")
(unless pre-approved by Silicon in its discretion, or
backed by a letter of credit satisfactory to Silicon,
or FCIA insured satisfactory to Silicon)*, accounts
owing from one account debtor to the extent they
exceed 25% of the total eligible accounts outstanding,
accounts owing from an affiliate of Borrower, and
accounts
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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owing from an account debtor to whom Borrower is or
may be liable for goods purchased from such account
debtor or otherwise. In addition, if more than 50% of
the accounts owing from an account debtor are
outstanding more than 90 days from the invoice date or
are otherwise not eligible accounts, then all accounts
owing from that account debtor will be deemed
ineligible for borrowing.
* (PROVIDED THAT PRIOR TO OCCURRENCE OF THE SECTION 2.2A CONDITION,
FOREIGN ACCOUNTS SHALL NOT BE DEEMED INELIGIBLE BY
VIRTUE OF THE LOCATION OF THE ACCOUNTS DEBTORS
RELATING THERETO OUTSIDE OF THE UNITED STATES
(REFERRED TO AS THE "EXPANDED FOREIGN ACCOUNTS
ELIGIBILITY"), WITH THE UNDERSTANDING AND AGREEMENT
THAT AFTER THE OCCURRENCE OF THE SECTION 2.2A
CONDITION, THE EXPANDED FOREIGN ACCOUNTS ELIGIBILITY
SHALL IMMEDIATELY CEASE TO BE EFFECTIVE)
LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from time
to time during the term of this Agreement issue
letters of credit for the account of the Borrower
("Letters of Credit"), in an aggregate amount at any
one time outstanding * not to exceed $1,000,000, upon
the request of the Borrower, provided that, on the
date the Letters of Credit are to be issued, Borrower
has available to it Loans in an amount equal to or
greater than the face amount of the Letters of Credit
to be issued. Prior to the issuance of any Letters of
Credit, Borrower shall execute and deliver to Silicon
Applications for Letters of Credit and such other
documentation as Silicon shall specify (the "Letter of
Credit Documentation"). Fees for the Letters of Credit
shall be as provided in the Letter of Credit
Documentation.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
The Credit Limit set forth above and the Loans available under this
Agreement at any time shall be reduced by the face
amount of Letters of Credit from time to time
outstanding.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $1,000,000 of the Credit 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, 20% 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
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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for 100% of the gross amount of any Exchange Contract,
the Borrower may request that Silicon debit the
Borrower's bank account with Silicon for such amount,
provided Borrower has immediately available funds in
such amount in its bank account.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
Borrower may provide, by written notification to Silicon, instructions
to terminate any of the Exchange Contracts, except
that Borrower may not terminate an Exchange Contract
within two business days of the date delivery is to be
effected or settlement allowed. Further, 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 referred
to 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 $500,000, nor shall Borrower permit the
total gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to
exceed $1,000,000.
The 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, the Borrower will
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.
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus .50% 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
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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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.
LOAN ORIGINATION FEE
(Section 1.3): $25,000 per annum payable and due in advance. (Any Commitment
Fee previously paid by the Borrower in connection with
this loan shall be credited against this Fee.)
MATURITY DATE
(Section 5.1): APRIL 5, 1996. Silicon agrees to use reasonable efforts to
review the maturity of this credit facility on an
annual basis approximately one year prior to the then
applicable Maturity Date, although any failure by
Silicon to undertake any such review shall have no
effect whatsoever on the then applicable Maturity
Date. Borrower acknowledges and agrees that any
decision by Silicon to extend the Maturity Date shall
be in Silicon's sole and absolute discretion, that any
extension thereof shall only be accomplished by
written notification to Borrower from Silicon, and
that Silicon's agreement to use reasonable efforts to
review the maturity of this credit facility shall not
mean or imply that Silicon will decide to extend the
Maturity Date at such time.
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): SEE EXHIBIT A ATTACHED HERETO
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Emulex,
InterConnections, Inc. and Emulex Europe Limited, on a
consolidated basis, may do the following, provided
that, after giving effect thereto, no Event of Default
has occurred and no event has occurred which, with
notice or passage of time or both, would constitute an
Event of Default, and provided that the following are
done in compliance with all applicable laws, rules and
regulations: (i) repurchase shares of Borrower's stock
pursuant to any employee stock purchase or benefit
plan, provided that the total amount paid by Borrower
for such stock does not exceed $1,000,000 in any
fiscal year, (ii) make employee loans in an aggregate
amount outstanding at any time not to exceed $200,000
and (iii) make loans to subsidiary corporations of
Borrower and/or any Obligor (as defined in the
Security Agreement of even date herewith) in an
aggregate amount per subsidiary or Obligor not to
exceed $500,000 and in a total aggregate amount not to
exceed $2,000,000.
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<PAGE> 18
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
FINANCIAL COVENANTS
(Section 4.1): Borrower shall cause Parent to comply with all of the
following covenants on a consolidated basis.
Compliance shall be determined as of the end
of each quarter, except as otherwise
specifically provided below:
QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick Assets" to
current liabilities of not less than 1.50 to
1 through and including the end of the
Parent's first fiscal quarter of 1995 on
October 2, 1994. Thereafter, through and
including the end of the Parent's third
fiscal quarter of 1995 on April 2, 1995,
Parent shall maintain a ratio of "Quick
Assets" to current liabilities of not less
than 1.75 to 1 period ending. Thereafter,
Parent shall maintain a ratio of "Quick
Assets" to current liabilities of not less
than 2.00 to 1.
TANGIBLE NET WORTH: Parent shall maintain a tangible net worth of not
less than $20,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Parent shall maintain a ratio of total liabilities
to tangible net worth of not more than .75
to 1.
PROFITABILITY Parent shall not incur a loss (after taxes) for the third
fiscal quarter of the 1994 ending March 27,
1994 in excess of $250,000; and Parent shall
not incur a loss (after taxes) for the 1994
fiscal year ending July 3, 1994 in excess of
$10,500,000.
DEFINITIONS: "Current assets," and "current liabilities" shall have
the meanings ascribed to them in accordance
with generally accepted accounting
principles.
"Tangible net worth" means the excess of total assets over total
liabilities, determined in accordance with
generally accepted accounting principles,
excluding however 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.
"Quick Assets" means cash on hand or on deposit in banks, readily
marketable securities issued by the United
States, readily marketable commercial paper
rated "A-1" by Standard & Poor's Corporation
(or a similar rating by a similar rating
organization), certificates of deposit and
banker's acceptances, and accounts
receivable (net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset ratio
deferred revenues shall not be counted as
current liabilities. For purposes of the
above debt to tangible net worth ratio,
deferred revenues shall
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<PAGE> 19
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
not be counted in determining total
liabilities but shall be counted in
determining tangible net worth for purposes
of such ratio. For all other purposes
deferred revenues shall be counted as
liabilities in accordance with generally
accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing
covenants do not include indebtedness which
is subordinated to the indebtedness to
Silicon under a subordination agreement in
form specified by Silicon or by language in
the instrument evidencing the indebtedness
which is acceptable to Silicon.
OTHER COVENANTS
(Section 4.1): 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. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within 20 days
after the end of each month, Borrower shall
provide Silicon with a Borrowing Base
Certificate in such form as Silicon shall
specify, and an aged listing of Borrower's
accounts receivable and accounts payable.
3. INDEBTEDNESS. Without limiting any of the foregoing terms or
provisions of this Agreement, Borrower shall
not in the future incur indebtedness for
borrowed money, except for (i) indebtedness
to Silicon, (ii) indebtedness incurred in
the future for the purchase price of or
lease of equipment in an aggregate amount
not exceeding $2,500,000 annually, on a
joint basis for Emulex, InterConnections,
Inc. and Emulex Europe Limited (the "Joint
Borrower"), (iii) the creation of trade
payable obligations in the ordinary course
of business and (iv) the making of loans by
the Joint Borrower to its subsidiaries
and/or any Obligor (as defined in the
Security Agreement of even date herewith) in
an amount not to exceed $500,000 per
subsidiary or Obligor at any time
outstanding and not to exceed $2,000,000 in
the aggregate at any time outstanding.
4. COMMITMENT/UNUSED LINE FEE. If the average outstanding daily
principal balance of all Loans in any
quarter shall be less than the Credit Limit,
Borrower shall pay to Silicon, in accordance
with its standard billing practice relating
to fees of this type payable in arrears, a
commitment/unused line fee equal to .25% per
annum upon the amount by which the Credit
Limit exceeds the average outstanding daily
principal balance of all Loans in respect of
such quarter.
5. SEC FILINGS AND COMMUNICATIONS. Without limitation of the
provisions of Section 3.7 hereof, Borrower
agrees to provide to Silicon all filings
made with the Securities and Exchange
Commission (the "SEC") regarding Borrower or
Parent or any affiliate of Borrower or
Parent, and copies of all notices or
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<PAGE> 20
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
other communication from the SEC relating
thereto, within 5 days of such filing or
receipt of such notice or other
communication.
6. UCC-1 NOT TO BE FILED ABSENT DEFAULT; DOCUMENTS REGARDING PUERTO
RICO COLLATERAL. Silicon shall not file the
UCC-1 Financing Statements being provided to
Silicon concurrently herewith unless a
Section 2.2A Condition has occurred.
Borrower agrees to execute and deliver to
Silicon, or to cause the appropriate
affiliate of Borrower or Parent, including,
without limitation, Emulex Caribe, Inc., to
execute and deliver to Silicon, the Puerto
Rico Documentation (as referred to below) in
a prompt manner after delivery thereof to
any such party for execution, provided
Silicon agrees not to file or record the
Puerto Rico Documentation unless a Section
2.2A Condition has occurred. As used herein
the term "Puerto Rico Documentation" shall
mean any and all documents, agreements and
instruments that Silicon determines are
necessary or desirable, in its discretion,
in connection with the granting and
perfecting of the security interest of
Silicon in the Collateral of Borrower, or in
any property of any affiliate of Borrower or
Parent, including, without limitation,
Emulex Caribe, Inc., located in or relating
to Puerto Rico. Without limiting any other
term or provision hereof, Borrower agrees to
reimburse Silicon for all costs and expenses
in connection with the preparation of the
Puerto Rico Documentation.
7. COLLATERAL ASSIGNMENT REGARDING INTELLECTUAL PROPERTY COLLATERAL.
Borrower shall execute and deliver to
Silicon three originals of Silicon's
standard form of security agreement relating
to Collateral consisting of intellectual
property items, which form is entitled
"Collateral Assignment, Patent Mortgage and
Security Agreement" (the "Copyright
Assignment"), provided that Silicon agrees
not to record the Copyright Assignment with
the United States Patent and Trademark
office or with the United States Copyright
office until an Event of Default has
occurred and any Obligations are
outstanding, and, provided, further, it is
understood and agreed that the terms and
provisions of the Copyright Assignment shall
not be considered to be effective until the
effectiveness of the Section 2.2A Condition.
In connection therewith, at such time that
Silicon seeks to so record such agreement,
Borrower agrees to effect registration with
the United States Copyright office of
Collateral consisting of copyrightable
subject matter in accordance with the
provisions set forth in the Copyright
Assignment, and, without limitation of the
other obligations of Borrower herein and
therein, to take all other actions in order
to assist Silicon in the perfection of its
security interest in such items of
Collateral.
8. NEGATIVE PLEDGE. Except as otherwise permitted hereunder,
Borrower shall not hereafter grant a
security
-8-
<PAGE> 21
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
interest in any of its present or future
Collateral, other than for liens on capital
equipment relating to obligations incurred
pursuant to paragraph 3 above.
9. SHAREHOLDER DEBT TO BE SUBORDINATED. All indebtedness of Borrower owing to
any and all of its shareholders or related
parties shall be subordinated in favor of
Silicon pursuant to written subordination
agreements in Silicon's standard form.
10. INITIAL AUDIT. The first, semi-annual audit referred to in Section 4.5 of
this Agreement shall be completed prior to
the making of any Loans hereunder.
BORROWER:
EMULEX CORPORATION
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE____________________________
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<PAGE> 22
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN
AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATE: APRIL 25, 1994
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement
between them, dated March 31, 1994 (the "Loan Agreement"), as follows:
1. REVISED CREDIT LIMIT. The section of the Schedule to Loan Agreement
entitled "Credit Limit (Section 1.1)" is hereby deleted and replaced with the
following:
"CREDIT LIMIT
(Section 1.1): An amount not to exceed * the lesser of:
(i) $5,000,000 at any one time outstanding; OR
(ii) 75% of the Net Amount of Borrower's accounts, which Silicon in
its ** discretion deems eligible for borrowing,
provided, however, that the minimum amount of a Loan
shall be $100,000.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX CORPORATION, A
CALIFORNIA CORPORATION ("EMULEX"), INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
** REASONABLE
"Net Amount" of an account means the gross amount of the account, minus
all applicable sales, use, excise and other similar
taxes and minus all discounts, credits and allowances
of any nature granted or claimed.
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<PAGE> 23
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
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 outstanding for more than 90 days from the
invoice date, accounts subject to any contingencies,
accounts owing from an account debtor outside the
United States (the "Foreign Accounts") (unless
pre-approved by Silicon in its discretion, or backed
by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon)*, accounts owing from
one account debtor to the extent they exceed 25% of
the total eligible accounts outstanding, accounts
owing from an affiliate of Borrower, and accounts
owing from an account debtor to whom Borrower is or
may be liable for goods purchased from such account
debtor or otherwise. In addition, if more than 50% of
the accounts owing from an account debtor are
outstanding more than 90 days from the invoice date or
are otherwise not eligible accounts, then all accounts
owing from that account debtor will be deemed
ineligible for borrowing.
* (PROVIDED THAT PRIOR TO OCCURRENCE OF THE SECTION 2.2A CONDITION, FOREIGN
ACCOUNTS BILLED IN THE UNITED STATES SHALL NOT BE
DEEMED INELIGIBLE BY VIRTUE OF THE LOCATION OF THE
ACCOUNT DEBTORS RELATING THERETO OUTSIDE OF THE UNITED
STATES (REFERRED TO AS THE "EXPANDED FOREIGN ACCOUNTS
ELIGIBILITY"), WITH THE UNDERSTANDING AND AGREEMENT
THAT AFTER THE OCCURRENCE OF THE SECTION 2.2A
CONDITION, THE EXPANDED FOREIGN ACCOUNTS ELIGIBILITY
SHALL IMMEDIATELY CEASE TO BE EFFECTIVE)
LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from time
to time during the term of this Agreement issue
letters of credit for the account of the Borrower
("Letters of Credit"), in an aggregate amount at any
one time outstanding * not to exceed $1,000,000, upon
the request of the Borrower, provided that, on the
date the Letters of Credit are to be issued, Borrower
has available to it Loans in an amount equal to or
greater than the face amount of the Letters of Credit
to be issued. Prior to the issuance of any Letters of
Credit, Borrower shall execute and deliver to Silicon
Applications for Letters of Credit and such other
documentation as Silicon shall specify (the "Letter of
Credit Documentation"). Fees for the Letters of Credit
shall be as provided in the Letter of Credit
Documentation.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS, INC. AND
EMULEX EUROPE LIMITED)
The Credit Limit set forth above and the Loans available under this Agreement at
any time shall be reduced by the face amount of
Letters of Credit from time to time outstanding.
FOREIGN EXCHANGE
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<PAGE> 24
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
CONTRACT SUBLIMIT Up to $1,000,000 of the Credit 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, 20% 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, the Borrower may request that
Silicon debit the Borrower's bank account with Silicon
for such amount, provided Borrower has immediately
available funds in such amount in its bank account.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS, INC. AND
EMULEX EUROPE LIMITED)
Borrower may provide, by written notification to Silicon, instructions to
terminate any of the Exchange Contracts, except that
Borrower may not terminate an Exchange Contract within
two business days of the date delivery is to be
effected or settlement allowed. Further, 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 referred
to 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
$500,000, nor shall Borrower permit the total gross
amount of all Exchange Contracts to which Borrower is
a party, outstanding at any one time, to exceed
$1,000,000.
The 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, the Borrower will 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
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<PAGE> 25
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
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.
CORPORATE CREDIT
CARD SUBLIMIT Up to $10,000 of the Credit Limit * may be utilized for advances
under corporate credit cards to be issued by Silicon
for Borrower, provided that at the time of the
issuance of any such credit cards Borrower has
available to it Loans in an amount equal to or greater
than $10,000. Further, after the issuance of any such
credit cards, the Credit Limit shall be permanently
reduced by $10,000 while any of such credit cards
remain available for use or there remain any
outstanding Obligations thereunder.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)"
2. MODIFICATION TO REPORTING. Paragraph 2 of the section of the
Schedule to the Loan Agreement entitled "Other Covenants (Section 4.1)" is
hereby deleted and replaced with the following:
"2. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within 20 days
after the end of each month, Borrower shall provide Silicon with a
Borrowing Base Certificate in such form as Silicon shall specify,
and an aged listing of Borrower's accounts receivable."
3. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY_______________________________
PRESIDENT OR VICE PRESIDENT BY_____________________________
TITLE__________________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
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<PAGE> 26
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER:
INTERCONNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
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<PAGE> 27
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN
AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED AS OF: JULY 1, 1994
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement
between them, dated March 31, 1994, as amended by that Amendment to Loan
Agreement dated April 25, 1994 (the "Loan Agreement"), as follows:
1. REVISED PROFITABILITY COVENANT. The profitability covenant set forth
in the section of the Schedule to Loan Agreement entitled "Financial Covenants
(Section 4.1)" is hereby deleted and replaced with the following:
"Profitability Parent shall not incur a loss (after taxes) for the third
fiscal quarter of the 1994 ending March 27, 1994 in
excess of $250,000; and Parent shall not incur a loss
(after taxes from continuing operations) for the 1994
fiscal year ending July 3, 1994 in excess of
$10,500,000."
2. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
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<PAGE> 28
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY_______________________________
PRESIDENT OR VICE PRESIDENT BY___________________________
TITLE________________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
-16-
<PAGE> 29
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN
AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED: JUNE 26, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement
between them, dated March 31, 1994, as amended by that Amendment to Loan
Agreement dated April 25, 1994, and as amended by that Amendment to Loan
Agreement dated July 1, 1994 (as so amended and as otherwise amended or modified
from time to time, the "Loan Agreement"), as follows, effective as of the date
hereof.
1. REVISED QUICK RATIO. The "Quick Asset Ratio" financial covenant set
forth in the section of the Schedule to Loan Agreement entitled "Financial
Covenants (Section 4.1)" is hereby amended to read as follows:
"QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick Assets"
to current liabilities of not less than 1.50
to 1 through and including the end of the
Parent's first fiscal quarter of 1995 on
October 2, 1994. Thereafter, Parent shall
maintain a ratio of "Quick Assets" to
current liabilities of not less than 1.75 to
1."
2. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
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<PAGE> 30
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY_______________________________
PRESIDENT OR VICE PRESIDENT BY_______________________
TITLE____________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
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<PAGE> 31
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED: JULY 24, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement
between them, dated March 31, 1994, as amended by that Amendment to Loan
Agreement dated April 25, 1994, and as amended by that Amendment to Loan
Agreement dated July 1, 1994, as amended by that Amendment to Loan Agreement
dated June 26, 1995 (as so amended and as otherwise amended or modified from
time to time, the "Loan Agreement"), as follows, effective as of the date
hereof.
1. REVISED QUICK RATIO. The "Quick Asset Ratio" financial covenant set
forth in the section of the Schedule to Loan Agreement entitled "Financial
Covenants (Section 4.1)" is hereby amended effective as of June 28, 1995 to read
as follows:
"QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick Assets"
to current liabilities of not less than 1.50 to 1."
2. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
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<PAGE> 32
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY_______________________________
PRESIDENT OR VICE PRESIDENT BY_________________________
TITLE______________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
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<PAGE> 33
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN
AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED: OCTOBER 5, 1995
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement
between them, dated March 31, 1994, as amended by that Amendment to Loan
Agreement dated April 25, 1994, as amended by that Amendment to Loan Agreement
dated July 1, 1994, as amended by that Amendment to Loan Agreement dated June
26, 1995 and as amended by that Amendment to Loan Agreement dated July 24, 1995
(as so amended and as otherwise amended or modified from time to time, the "Loan
Agreement"), as follows, effective as of September 18, 1995.
1. REVISED SCHEDULE. The Schedule to Loan Agreement is hereby deleted
and replaced with the Schedule to Loan Agreement as attached hereto.
2. REVISED SECTION 4.5. Section 4.5 of the Loan Agreement is hereby
amended in its entirety to read as follows:
"4.5 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At all reasonable times,
and upon one business day notice, Silicon, or its agents, shall have
the right to inspect the Collateral, and the right to audit and copy
the Borrower's accounting books and records and Borrower's books and
records relating to the Collateral. 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 audits
shall be at Silicon's expense, except that the Borrower shall reimburse
Silicon for its reasonable out of pocket costs for annual accounts
receivable audits by third parties retained by Silicon, and Silicon may
debit Borrower's deposit accounts with Silicon for the cost of such
annual accounts receivable audits (in which event Silicon shall send
notification thereof to the Borrower)*. Notwithstanding the
foregoing, after the occurrence of an Event of Default all audits shall
be at the Borrower's expense.
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
* PROVIDED THAT IT IS AGREED THAT THE PER AUDIT CHARGE OF ANY SUCH
AUDIT TO BE CHARGED TO THE BORROWER SHALL NOT EXCEED $2,000, PROVIDED,
FURTHER, THAT SILICON AGREES TO SEND SUCH NOTIFICATION TO THE BORROWER
SUBSTANTIALLY CONCURRENTLY WITH ANY SUCH DEBIT OF BORROWER'S DEPOSIT
ACCOUNTS"
3. FEE. Borrower shall pay to Silicon a fee in the amount of $12,500 in
connection with this Amendment, which shall be in addition to all interest and
all other amounts payable hereunder and which shall not be refundable.
4. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower, and
the other written documents and agreements between Silicon and the Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements between
Silicon and the Borrower shall continue in full force and effect and the same
are hereby ratified and confirmed.
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY_______________________________
PRESIDENT OR VICE PRESIDENT BY_______________________________
TITLE____________________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER: BORROWER:
INTERCONNECTIONS, INC. EMULEX EUROPE LIMITED
BY_______________________________ BY_______________________________
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY_______________________________ BY_______________________________
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
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<PAGE> 35
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATE: OCTOBER 5, 1995
CREDIT LIMIT
(Section 1.1): An amount not to exceed * the lesser of:
(i) $5,000,000 at any one time outstanding; OR
(ii) 75% of the Net Amount of Borrower's accounts, which Silicon in its
** discretion deems eligible for borrowing,
provided, however, that the minimum amount
of a Loan shall be $100,000.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX CORPORATION, A
CALIFORNIA CORPORATION ("EMULEX"),
INTERCONNECTIONS, INC. AND EMULEX EUROPE
LIMITED)
** REASONABLE
"Net Amount" of an account means the gross amount of the account, minus
all applicable sales, use, excise and other
similar taxes and minus all discounts,
credits and allowances of any nature granted
or claimed.
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
outstanding for more than 90 days from the
invoice date, accounts subject to any
contingencies, accounts owing from an
account debtor outside the United States
(the "Foreign Accounts") (unless
pre-approved by Silicon in its discretion,
or backed by a letter of credit satisfactory
to Silicon, or FCIA insured satisfactory to
Silicon)*, accounts owing from one
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<PAGE> 36
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
account debtor to the extent they exceed 25%
of the total eligible accounts outstanding,
accounts owing from an affiliate of
Borrower, and accounts owing from an account
debtor to whom Borrower is or may be liable
for goods purchased from such account debtor
or otherwise. In addition, if more than 50%
of the accounts owing from an account debtor
are outstanding more than 90 days from the
invoice date or are otherwise not eligible
accounts, then all accounts owing from that
account debtor will be deemed ineligible for
borrowing.
* (PROVIDED THAT PRIOR TO OCCURRENCE OF THE SECTION 2.2A CONDITION,
FOREIGN ACCOUNTS BILLED IN THE UNITED STATES
SHALL NOT BE DEEMED INELIGIBLE BY VIRTUE OF
THE LOCATION OF THE ACCOUNT DEBTORS RELATING
THERETO OUTSIDE OF THE UNITED STATES
(REFERRED TO AS THE "EXPANDED FOREIGN
ACCOUNTS ELIGIBILITY"), WITH THE
UNDERSTANDING AND AGREEMENT THAT AFTER THE
OCCURRENCE OF THE SECTION 2.2A CONDITION,
THE EXPANDED FOREIGN ACCOUNTS ELIGIBILITY
SHALL IMMEDIATELY CEASE TO BE EFFECTIVE)
LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from time
to time during the term of this Agreement
issue letters of credit for the account of
the Borrower ("Letters of Credit"), in an
aggregate amount at any one time outstanding
* not to exceed $1,000,000, upon the request
of the Borrower, provided that, on the date
the Letters of Credit are to be issued,
Borrower has available to it Loans in an
amount equal to or greater than the face
amount of the Letters of Credit to be
issued. Prior to the issuance of any Letters
of Credit, Borrower shall execute and
deliver to Silicon Applications for Letters
of Credit and such other documentation as
Silicon shall specify (the "Letter of Credit
Documentation"). Fees for the Letters of
Credit shall be as provided in the Letter of
Credit Documentation.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
The Credit Limit set forth above and the Loans available under this
Agreement at any time shall be reduced by
the face amount of Letters of Credit from
time to time outstanding.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $1,000,000 of the Credit 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, 20% 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
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<PAGE> 37
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
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, the
Borrower may request that Silicon debit the
Borrower's bank account with Silicon for
such amount, provided Borrower has
immediately available funds in such amount
in its bank account.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
Borrower may provide, by written notification to Silicon, instructions
to terminate any of the Exchange Contracts,
except that Borrower may not terminate an
Exchange Contract within two business days
of the date delivery is to be effected or
settlement allowed. Further, 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 referred to 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
$500,000, nor shall Borrower permit the
total gross amount of all Exchange Contracts
to which Borrower is a party, outstanding at
any one time, to exceed $1,000,000.
The 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,
the Borrower will 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.
CORPORATE CREDIT
CARD SUBLIMIT Up to $10,000 of the Credit Limit * may be utilized for
advances under corporate credit cards to be
issued by Silicon for Borrower, provided
that at the time of the issuance of any such
credit cards Borrower
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<PAGE> 38
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
has available to it Loans in an amount equal
to or greater than $10,000. Further, after
the issuance of any such credit cards, the
Credit Limit shall be permanently reduced by
$10,000 while any of such credit cards
remain available for use or there remain any
outstanding Obligations thereunder.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)"
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus .50% 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.
LOAN ORIGINATION FEE
(Section 1.3): SEE AMENDMENT TO LOAN AGREEMENT. (Any Commitment Fee
previously paid by the Borrower in
connection with this loan shall be credited
against this Fee.)
MATURITY DATE
(Section 5.1): SEPTEMBER 17, 1996.
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): See Exhibit A to the Schedule to the Loan and Security
Agreement dated March 31, 1994.
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Emulex,
InterConnections, Inc. and Emulex Europe
Limited, on a consolidated basis, may do the
following, provided that, after giving
effect thereto, no Event of Default has
occurred and no event has occurred which,
with notice or passage of time or both,
would constitute an Event of Default, and
provided that the following are done in
compliance with all applicable laws, rules
and regulations: (i) repurchase shares of
Borrower's stock pursuant to any employee
stock purchase or benefit plan, provided
that the total amount paid by Borrower for
such stock does not exceed $1,000,000 in any
fiscal year, (ii) make employee loans in an
aggregate amount outstanding at any time not
to exceed $200,000 and (iii) make loans to
subsidiary corporations of Borrower and/or
any Obligor (as defined in the Security
Agreement of even date herewith) in an
aggregate amount per subsidiary or
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<PAGE> 39
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Obligor not to exceed $500,000 and in a
total aggregate amount not to exceed
$2,000,000.
FINANCIAL COVENANTS
(Section 4.1): Borrower shall cause Parent to comply with all of the
following covenants on a consolidated basis.
Compliance shall be determined as of the end
of each quarter, except as otherwise
specifically provided below:
QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick Assets" to
current liabilities of not less than 1.15 to
1, prior to December 31, 1995. On and after
December 31, 1995 and prior to June 30,
1996, Parent shall maintain a ratio of
"Quick Assets" to current liabilities of not
less than 1.50 to 1. On and after June 30,
1996, Parent shall maintain a ratio of
"Quick Assets" to current liabilities of not
less than 1.75 to 1.
TANGIBLE NET WORTH: Parent shall maintain a tangible net worth of not less
than $27,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Parent shall maintain a ratio of total liabilities to
tangible net worth of not more than .75 to
1.
PROFITABILITY Parent shall not incur a loss (after taxes) for the
1996 fiscal year. Further, Parent shall not
incur a loss (after taxes) for any 1996
fiscal quarter other than for a single
fiscal quarter in 1996 in which Borrower may
incur a loss (after taxes) provided such
loss does not exceed $3,800,000.
DEFINITIONS: "Current assets," and "current liabilities" shall have
the meanings ascribed to them in accordance
with generally accepted accounting
principles.
"Tangible net worth" means the excess of total assets over total
liabilities, determined in accordance with
generally accepted accounting principles,
excluding however 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.
"Quick Assets" means cash on hand or on deposit in banks, readily
marketable securities issued by the United
States, readily marketable commercial paper
rated "A-1" by Standard & Poor's Corporation
(or a similar rating by a similar rating
organization), certificates of deposit and
banker's acceptances, and accounts
receivable (net of allowance for doubtful
accounts).
DEFERRED REVENUES: For purposes of the above quick asset ratio deferred
revenues shall not be counted as current
liabilities. For purposes of the above debt
to tangible net worth ratio, deferred
revenues shall not be counted in determining
total liabilities but shall be counted in
determining tangible net
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<PAGE> 40
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
worth for purposes of such ratio. For all
other purposes deferred revenues shall be
counted as liabilities in accordance with
generally accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing covenants
do not include indebtedness which is
subordinated to the indebtedness to Silicon
under a subordination agreement in form
specified by Silicon or by language in the
instrument evidencing the indebtedness which
is acceptable to Silicon.
OTHER COVENANTS
(SECTION 4.1): 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. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within 20 days
after the end of each month when any
Obligations are outstanding, Borrower shall
provide Silicon with a Borrowing Base
Certificate in such form as Silicon shall
specify, and an aged listing of Borrower's
accounts receivable. Borrower shall also
supply such a Borrowing Base Certificate and
an aged listing of Borrower's accounts
receivable five days prior to such time that
Borrower requests a Loan under this
Agreement if no Obligations had been
outstanding prior to the request for any
such Loan.
3. INDEBTEDNESS. Without limiting any of the foregoing terms or
provisions of this Agreement, Borrower shall
not in the future incur indebtedness for
borrowed money, except for (i) indebtedness
to Silicon, (ii) indebtedness incurred in
the future for the purchase price of or
lease of equipment in an aggregate amount
not exceeding $2,500,000 annually, on a
joint basis for Emulex, InterConnections,
Inc. and Emulex Europe Limited (the "Joint
Borrower"), (iii) the creation of trade
payable obligations in the ordinary course
of business and (iv) the making of loans by
the Joint Borrower to its subsidiaries
and/or any Obligor (as defined in the
Security Agreement of even date herewith) in
an amount not to exceed $500,000 per
subsidiary or Obligor at any time
outstanding and not to exceed $2,000,000 in
the aggregate at any time outstanding.
4. [INTENTIONALLY LEFT BLANK]
5. SEC FILINGS AND COMMUNICATIONS. Without limitation of the
provisions of Section 3.7 hereof, Borrower
agrees to provide to Silicon all filings
made with the Securities and Exchange
Commission (the "SEC") regarding Borrower or
Parent or any affiliate of Borrower or
Parent, and copies of all notices or other
communication from the SEC relating thereto,
within 5 days of such filing or receipt of
such notice or other communication.
6. UCC-1 NOT TO BE FILED ABSENT DEFAULT; DOCUMENTS REGARDING PUERTO
RICO COLLATERAL. Silicon shall not file the
UCC-1
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<PAGE> 41
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Financing Statements being provided to
Silicon concurrently herewith unless a
Section 2.2A Condition has occurred.
Borrower agrees to execute and deliver to
Silicon, or to cause the appropriate
affiliate of Borrower or Parent, including,
without limitation, Emulex Caribe, Inc., to
execute and deliver to Silicon, the Puerto
Rico Documentation (as referred to below) in
a prompt manner after delivery thereof to
any such party for execution, provided
Silicon agrees not to file or record the
Puerto Rico Documentation unless a Section
2.2A Condition has occurred. As used herein
the term "Puerto Rico Documentation" shall
mean any and all documents, agreements and
instruments that Silicon determines are
necessary or desirable, in its discretion,
in connection with the granting and
perfecting of the security interest of
Silicon in the Collateral of Borrower, or in
any property of any affiliate of Borrower or
Parent, including, without limitation,
Emulex Caribe, Inc., located in or relating
to Puerto Rico. Without limiting any other
term or provision hereof, Borrower agrees to
reimburse Silicon for all costs and expenses
in connection with the preparation of the
Puerto Rico Documentation.
7. COLLATERAL ASSIGNMENT REGARDING INTELLECTUAL PROPERTY COLLATERAL.
Borrower shall execute and deliver to
Silicon three originals of Silicon's
standard form of security agreement relating
to Collateral consisting of intellectual
property items, which form is entitled
"Collateral Assignment, Patent Mortgage and
Security Agreement" (the "Copyright
Assignment"), provided that Silicon agrees
not to record the Copyright Assignment with
the United States Patent and Trademark
office or with the United States Copyright
office until an Event of Default has
occurred and any Obligations are
outstanding, and, provided, further, it is
understood and agreed that the terms and
provisions of the Copyright Assignment shall
not be considered to be effective until the
effectiveness of the Section 2.2A Condition.
In connection therewith, at such time that
Silicon seeks to so record such agreement,
Borrower agrees to effect registration with
the United States Copyright office of
Collateral consisting of copyrightable
subject matter in accordance with the
provisions set forth in the Copyright
Assignment, and, without limitation of the
other obligations of Borrower herein and
therein, to take all other actions in order
to assist Silicon in the perfection of its
security interest in such items of
Collateral.
8. NEGATIVE PLEDGE. Except as therwise permitted hereunder, Borrower
shall not hereafter grant a security
interest in any of its present or future
Collateral, other than for liens on capital
equipment relating to obligations incurred
pursuant to paragraph 3 above.
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<PAGE> 42
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
9. SHAREHOLDER DEBT TO BE SUBORDINATED. All indebtedness of Borrower
owing to any and all of its shareholders or
related parties shall be subordinated in
favor of Silicon pursuant to written
subordination agreements in Silicon's
standard form.
BORROWER:
EMULEX CORPORATION
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE____________________________
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<PAGE> 43
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
AMENDMENT TO LOAN
AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATED: JANUARY 18, 1996
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrowers named above (jointly and severally referred
to as the "Borrower").
The Parties hereby agree to amend the Loan and Security Agreement between
them, dated March 31, 1994, as amended by that Amendment to Loan Agreement
dated April 25, 1994, as amended by that Amendment to Loan Agreement dated July
1, 1994, as amended by that Amendment to Loan Agreement dated June 26, 1995, as
amended by that Amendment to Loan Agreement dated July 24, 1995, and as amended
by that Amendment to Loan Agreement dated October 5, 1995 (as so amended and as
otherwise amended or modified from time to time, the "Loan Agreement"), as
follows, effective as of December 27, 1995.
1. REVISED SCHEDULE. The Schedule to Loan Agreement is hereby deleted and
replaced with the Schedule to Loan Agreement as attached hereto.
2. REVISED SECTION 2.2A. Section 2.2A of the Loan Agreement is hereby
amended in its entirety to read as follows:
"2.2A Grant of Security Interest in Collateral. If (I) an Event of
Default occurs hereunder and any Obligations are outstanding (the
"Section 2.2A Condition Regarding Default") or (II) Silicon makes any
Loans to Borrower (the "Section 2.2A Condition Regarding Loans"),
then the grant of the security interest set forth in this Section
2.2A shall at such time become immediately effective, without any
further action required by Borrower or Silicon, provided that
Borrower shall nonetheless be required to take such additional
actions and execute such additional documentation as Silicon
determines are necessary or desirable in its discretion to implement
such grant of a security interest and to permit Silicon to perfect
such security interest (the foregoing events that trigger the
effectiveness of the grant of the security interest in this Section
2.2A shall be jointly and severally referred to as the "Section 2.2A
Condition"), provided, further, that if, and only if, the Additional
Financial Conditions (as defined below) are satisfied, as determined
by Silicon, then the Section 2.2A Condition shall only consist of the
Section 2.2A Condition Regarding Default and the Section 2.2A
Condition Regarding Loans shall no longer be considered to be an
event that constitutes a Section 2.2A Condition. Borrower and
Silicon agree that prior to the occurrence of the Section 2.2
Condition, the provisions of this
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<PAGE> 44
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Section 2.2A shall be deemed not to be in effect. The term
"Additional Financial Conditions" as used herein shall mean that in
each of two successive fiscal quarters after December 31, 1995 the
Parent, on a consolidated basis, shall have attained profits (after
taxes) of at least $1,000,000 per quarter and that Parent, on a
consolidated basis, shall have maintained a ratio of "Quick Assets"
to current liabilities of not less than 1.50 to 1 (the financial
terms referenced in this definition shall be defined as such terms
are defined and used in the section of the Schedule to the Loan
Agreement entitled "Financial Covenants (Section 4.1)").
Upon the occurrence of the Section 2.2A Condition, the following
shall become effective:
The Borrower grants Silicon a continuing security interest in all of
the Borrower's interest in the types of property described below,
whether now owned or hereafter acquired, and wherever located
(collectively, the "Collateral") as security for all Obligations:
(a) All accounts, contract rights, chattel paper, letters of credit,
documents, securities, money, and instruments, and all other
obligations now or in the future owing to the Borrower; (b) All
inventory, goods, merchandise, materials, raw materials, work in
process, finished goods, farm products, advertising, packaging and
shipping materials, supplies, and all other tangible personal
property which is held for sale or lease or furnished under contracts
of service or consumed in the Borrower's business, and all warehouse
receipts and other documents; and (c) All equipment, including
without limitation all machinery, fixtures, trade fixtures, vehicles,
furnishings, furniture, materials, tools, machine tools, office
equipment, computers and peripheral devices, appliances, apparatus,
parts, dies, and jigs; (d) All general intangibles including, but not
limited to, deposit accounts, goodwill, names, trade names,
trademarks and the goodwill of the business symbolized thereby, trade
secrets, drawings, blueprints, customer lists, patents, patent
applications, copyrights, security deposits, loan commitment fees,
federal, state and local tax refunds and claims, all 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,
all rights to purchase or sell real or personal property, all rights
as a licensor or licensee of any kind, all royalties, licenses,
processes, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without
limitation credit, liability, property and other insurance), and all
other rights, privileges and franchises of every kind; (e) All books
and records, whether stored on computers or otherwise maintained; and
(f) All substitutions, additions and accessions to any of the
foregoing, and all products, proceeds and insurance proceeds of the
foregoing, and all guaranties of and security for the foregoing; and
all books and records relating to any of the foregoing. Silicon's
security interest in any present or future technology (including
patents, trade secrets, and other technology) shall be subject to any
licenses or rights now or in the future granted by the Borrower to
any third parties in the ordinary course of Borrower's business;
provided that if the Borrower proposes to sell, license or grant any
other rights with respect to any technology in a transaction that, in
substance, conveys a major part of the economic value of that
technology, Silicon shall first be requested to release its security
interest in the same, and Silicon may withhold such release in its
reasonable discretion;
PROVIDED, HOWEVER, that if a Section 2.2A Condition consisting only
of a Section 2.2A Condition Regarding Loans has occurred and the
grant of the security interest as referred to herein is then
effective, and if the Borrower subsequently satisfies the Additional
Financial Conditions and no Section 2.2A Condition consisting of a
Section 2.2A Condition Regarding Default has occurred, then Silicon
agrees that the grant of the security interest as set forth herein
shall no longer be considered to be effective, subject, however, to
the reinstatement of the security interest upon the occurrence of a
Section 2.2A Condition consisting of a Section 2.2A Condition
Regarding Default as otherwise set forth above. It is understood
and agreed that the satisfaction of the Additional Financial
Conditions shall not diminish or affect the rights of Silicon
hereunder upon the occurrence of a Section 2.2A Condition consisting
of a Section 2.2A Condition Regarding Default."
3. NOTICE OF INTENT TO BORROW; ADDITIONAL DOCUMENTATION AND ACTIONS.
Borrower hereby agrees that it shall provide to Silicon written notice of its
intent to request a Loan at least two weeks prior to the proposed date of
borrowing. At the time of giving such notice, Borrower agrees to execute such
additional documentation and take such additional actions as Silicon determines
in its discretion are necessary or desirable in connection with the grant of
the security interest as set forth in Section 2.2A hereof. In connection with
the foregoing, Borrower further agrees to cause all guarantors of the
Obligations to take such actions and execute such documentation as Silicon
determines in its discretion are necessary or desirable relating to such
guaranties and any grant of a security interest by such guarantor parties in
favor of Silicon, including, without limitation, with respect to Emulex Caribe,
Inc., the execution and delivery of the Puerto Rico Documentation.
4. FEE. Borrower shall pay to Silicon a fee in the amount of $2,500 in
connection with this Amendment, which shall be in addition to all interest and
all other amounts payable hereunder and which shall not be refundable.
-32-
<PAGE> 45
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and the other written documents and agreements between Silicon and the Borrower
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms
and provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and
the same are hereby ratified and confirmed.
BORROWER: SILICON:
EMULEX CORPORATION SILICON VALLEY BANK
BY BY
------------------------------- -----------------------------
PRESIDENT OR VICE PRESIDENT TITLE
--------------------------
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER: BORROWER:
INTERCONNECTIONS, INC. EMULEX EUROPE LIMITED
BY BY
------------------------------- -------------------------------
PRESIDENT OR VICE PRESIDENT PRESIDENT OR VICE PRESIDENT
BY BY
------------------------------- -------------------------------
SECRETARY OR ASS'T SECRETARY SECRETARY OR ASS'T SECRETARY
-33-
<PAGE> 46
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
GUARANTORS' CONSENT
The undersigned, guarantors, acknowledge that their consent to the foregoing
Amendment is not required, but the undersigned nevertheless do hereby consent
to the foregoing Amendment and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and to any and
all other present and future documents and agreements between or among the
foregoing parties. Nothing herein shall in any way limit any of the terms or
provisions of the Continuing Guaranty executed by the undersigned in favor of
Silicon, which is hereby ratified and affirmed and shall continue in full force
and effect.
Guarantor Signature: Emulex Corporation, a Delaware corporation
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex Caribe, Inc.
By
--------------------------
Title
-----------------------
Guarantor Signature: Computer Array Development, Inc.
By
--------------------------
Title
-----------------------
Guarantor Signature: Highspeed Communications, Inc.
By
--------------------------
Title
-----------------------
Guarantor Signature: Digital House, Ltd.
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex Foreign Sales Corporation
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex S.A.R.L.
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex Italia S.r.l.
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex GmbH
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex Canada Inc.
By
--------------------------
Title
-----------------------
Guarantor Signature: Emulex Australia PTY. Limited
By
--------------------------
Title
-----------------------
-34-
<PAGE> 47
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: EMULEX CORPORATION
3535 HARBOR BOULEVARD
COSTA MESA, CALIFORNIA 92626
INTERCONNECTIONS, INC.
14711 NE 29TH PLACE
BELLEVUE, WASHINGTON 98007
EMULEX EUROPE LIMITED
MULBERRY BUSINESS PARK, FISHPONDS ROAD
WOKINGHAM, BERKSHIRE
UNITED KINGDOM RG11 2QY
DATE: JANUARY 18, 1996
CREDIT LIMIT
(Section 1.1): An amount not to exceed * the lesser of:
(i) $5,000,000 at any one time outstanding; OR
(ii) 75% of the Net Amount of Borrower's accounts, which Silicon in
its ** discretion deems eligible for borrowing,
provided, however, that the minimum amount of a Loan
shall be $100,000.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX CORPORATION, A
CALIFORNIA CORPORATION ("EMULEX"), INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
** REASONABLE
"Net Amount" of an account means the gross amount of the account, minus
all applicable sales, use, excise and other similar
taxes and minus all discounts, credits and allowances
of any nature granted or claimed.
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 outstanding for more than 90
days from the invoice date, accounts subject to any
contingencies, accounts owing from an account debtor
outside the United States (the "Foreign Accounts")
(unless pre-approved by Silicon in its discretion, or
backed by a letter of credit satisfactory to Silicon,
or FCIA insured satisfactory to Silicon)*, accounts
owing from one account debtor to the extent they
exceed 25% of the total eligible accounts
outstanding, accounts
-35-
<PAGE> 48
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
owing from an affiliate of Borrower, and accounts
owing from an account debtor to whom Borrower is or
may be liable for goods purchased from such account
debtor or otherwise. In addition, if more than 50%
of the accounts owing from an account debtor are
outstanding more than 90 days from the invoice date
or are otherwise not eligible accounts, then all
accounts owing from that account debtor will be
deemed ineligible for borrowing.
* (PROVIDED THAT PRIOR TO OCCURRENCE OF THE SECTION 2.2A CONDITION,
FOREIGN ACCOUNTS BILLED IN THE UNITED STATES SHALL
NOT BE DEEMED INELIGIBLE BY VIRTUE OF THE LOCATION OF
THE ACCOUNT DEBTORS RELATING THERETO OUTSIDE OF THE
UNITED STATES (REFERRED TO AS THE "EXPANDED FOREIGN
ACCOUNTS ELIGIBILITY"), WITH THE UNDERSTANDING AND
AGREEMENT THAT AFTER THE OCCURRENCE OF THE SECTION
2.2A CONDITION, THE EXPANDED FOREIGN ACCOUNTS
ELIGIBILITY SHALL IMMEDIATELY CEASE TO BE EFFECTIVE)
LETTER OF CREDIT SUBLIMIT Silicon, in its reasonable discretion, will from
time to time during the term of this Agreement issue
letters of credit for the account of the Borrower
("Letters of Credit"), in an aggregate amount at any
one time outstanding * not to exceed $1,000,000, upon
the request of the Borrower, provided that, on the
date the Letters of Credit are to be issued, Borrower
has available to it Loans in an amount equal to or
greater than the face amount of the Letters of Credit
to be issued. Prior to the issuance of any Letters
of Credit, Borrower shall execute and deliver to
Silicon Applications for Letters of Credit and such
other documentation as Silicon shall specify (the
"Letter of Credit Documentation"). Fees for the
Letters of Credit shall be as provided in the Letter
of Credit Documentation.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
The Credit Limit set forth above and the Loans available under this
Agreement at any time shall be reduced by the face
amount of Letters of Credit from time to time
outstanding.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $1,000,000 of the Credit 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, 20% 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
-36-
<PAGE> 49
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Contracts. In lieu of the Foreign Exchange Reserve
for 100% of the gross amount of any Exchange
Contract, the Borrower may request that Silicon
debit the Borrower's bank account with Silicon for
such amount, provided Borrower has immediately
available funds in such amount in its bank account.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)
Borrower may provide, by written notification to Silicon, instructions to
terminate any of the Exchange Contracts, except that
Borrower may not terminate an Exchange Contract
within two business days of the date delivery is to
be effected or settlement allowed. Further, 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 referred to 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 $500,000, nor shall Borrower permit the total
gross amount of all Exchange Contracts to which
Borrower is a party, outstanding at any one time, to
exceed $1,000,000.
The 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, the Borrower will 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.
CORPORATE CREDIT
CARD SUBLIMIT Up to $10,000 of the Credit Limit * may be utilized for advances
under corporate credit cards to be issued by Silicon
for Borrower, provided that at the time of the
issuance of any such credit cards Borrower has
available to it Loans in an amount equal to or
greater than $10,000. Further, after the issuance
-37-
<PAGE> 50
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
of any such credit cards, the Credit Limit shall be
permanently reduced by $10,000 while any of such
credit cards remain available for use or there
remain any outstanding Obligations thereunder.
* (ON AN AGGREGATE AND CONSOLIDATED BASIS FOR EMULEX, INTERCONNECTIONS,
INC. AND EMULEX EUROPE LIMITED)"
INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from
time to time, plus 1.00% 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.
LOAN ORIGINATION FEE
(Section 1.3): SEE AMENDMENT TO LOAN AGREEMENT. (Any Commitment Fee
previously paid by the Borrower in connection with
this loan shall be credited against this Fee.)
MATURITY DATE
(Section 5.1): SEPTEMBER 17, 1996.
PRIOR NAMES OF BORROWER
(Section 3.2): NONE
TRADE NAMES OF BORROWER
(Section 3.2): NONE
OTHER LOCATIONS AND ADDRESSES
(Section 3.3): NONE
MATERIAL ADVERSE LITIGATION
(Section 3.10): See Exhibit A to the Schedule to the Loan and Security
Agreement dated March 31, 1994.
NEGATIVE COVENANTS-EXCEPTIONS
(Section 4.6): Without Silicon's prior written consent, Emulex,
InterConnections, Inc. and Emulex Europe Limited, on
a consolidated basis, may do the following, provided
that, after giving effect thereto, no Event of
Default has occurred and no event has occurred which,
with notice or passage of time or both, would
constitute an Event of Default, and provided that the
following are done in compliance with all applicable
laws, rules and regulations: (i) repurchase shares
of Borrower's stock pursuant to any employee stock
purchase or benefit plan, provided that the total
amount paid by Borrower for such stock does not
exceed $1,000,000 in any fiscal year, (ii) make
employee loans in an aggregate amount outstanding at
any time not to exceed $200,000 and (iii) make loans
to subsidiary corporations of Borrower and/or any
Obligor (as defined in the Security Agreement of even
date herewith) in an aggregate amount per subsidiary
or Obligor not to exceed $500,000 and in a total
aggregate amount not to exceed $2,000,000.
-38-
<PAGE> 51
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
FINANCIAL COVENANTS
(Section 4.1): Borrower shall cause Parent to comply with all of the following
covenants on a consolidated basis. Compliance shall
be determined as of the end of each quarter, except
as otherwise specifically provided below:
QUICK ASSET RATIO: Parent shall maintain a ratio of "Quick Assets" to
current liabilities of not less than 1.00 to 1.
TANGIBLE NET WORTH: Parent shall maintain a tangible net worth of not
less than $20,000,000.
DEBT TO TANGIBLE
NET WORTH RATIO: Parent shall maintain a ratio of total liabilities to
tangible net worth of not more than 1.00 to 1.
PROFITABILITY Parent shall not incur a loss (after taxes) for the 1996
fiscal year in excess of $8,500,000.
DEFINITIONS: "Current assets," and "current liabilities" shall have
the meanings ascribed to them in accordance with
generally accepted accounting principles.
"Tangible net worth" means the excess of total assets over total
liabilities, determined in accordance with generally
accepted accounting principles, excluding however 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.
"Quick Assets" means cash on hand or on deposit in banks, readily
marketable securities issued by the United States,
readily marketable commercial paper rated "A-1" by
Standard & Poor's Corporation (or a similar rating by
a similar rating organization), certificates of
deposit and banker's acceptances, and accounts
receivable (net of allowance for doubtful accounts).
DEFERRED REVENUES: For purposes of the above quick asset ratio deferred
revenues shall not be counted as current liabilities.
For purposes of the above debt to tangible net worth
ratio, deferred revenues shall not be counted in
determining total liabilities but shall be counted in
determining tangible net worth for purposes of such
ratio. For all other purposes deferred revenues
shall be counted as liabilities in accordance with
generally accepted accounting principles.
SUBORDINATED DEBT: "Liabilities" for purposes of the foregoing covenants do
not include indebtedness which is subordinated to the
indebtedness to Silicon under a subordination
agreement in form specified by Silicon or by language
in the instrument evidencing the indebtedness which
is acceptable to Silicon.
OTHER COVENANTS
-39-
<PAGE> 52
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(Section 4.1): 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. MONTHLY BORROWING BASE CERTIFICATE AND LISTING. Within 20 days after
the end of each month when any Obligations are
outstanding, Borrower shall provide Silicon with a
Borrowing Base Certificate in such form as Silicon
shall specify, and an aged listing of Borrower's
accounts receivable. Borrower shall also supply such
a Borrowing Base Certificate and an aged listing of
Borrower's accounts receivable five days prior to
such time that Borrower requests a Loan under this
Agreement if no Obligations had been outstanding
prior to the request for any such Loan.
3. INDEBTEDNESS. Without limiting any of the foregoing terms or
provisions of this Agreement, Borrower shall not in
the future incur indebtedness for borrowed money,
except for (i) indebtedness to Silicon, (ii)
indebtedness incurred in the future for the purchase
price of or lease of equipment in an aggregate amount
not exceeding $2,500,000 annually, on a joint basis
for Emulex, InterConnections, Inc. and Emulex Europe
Limited (the "Joint Borrower"), (iii) the creation of
trade payable obligations in the ordinary course of
business and (iv) the making of loans by the Joint
Borrower to its subsidiaries and/or any Obligor (as
defined in the Security Agreement of even date
herewith) in an amount not to exceed $500,000 per
subsidiary or Obligor at any time outstanding and not
to exceed $2,000,000 in the aggregate at any time
outstanding.
4. [INTENTIONALLY LEFT BLANK]
5. SEC FILINGS AND COMMUNICATIONS. Without limitation of the provisions
of Section 3.7 hereof, Borrower agrees to provide to
Silicon all filings made with the Securities and
Exchange Commission (the "SEC") regarding Borrower or
Parent or any affiliate of Borrower or Parent, and
copies of all notices or other communication from the
SEC relating thereto, within 5 days of such filing or
receipt of such notice or other communication.
6. UCC-1 NOT TO BE FILED ABSENT SECTION 2.2A CONDITION; DOCUMENTS
REGARDING PUERTO RICO COLLATERAL. Silicon shall not
file the UCC-1 Financing Statements being provided to
Silicon concurrently herewith unless a Section 2.2A
Condition has occurred. Borrower agrees to execute
and deliver to Silicon, or to cause the appropriate
affiliate of Borrower or Parent, including, without
limitation, Emulex Caribe, Inc., to execute and
deliver to Silicon, the Puerto Rico Documentation (as
referred to below) in a prompt manner after delivery
thereof to any such party for execution, provided
Silicon agrees not to file or record the Puerto Rico
Documentation unless a Section 2.2A Condition has
occurred. As used herein the term "Puerto Rico
-40-
<PAGE> 53
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Documentation" shall mean any and all documents,
agreements and instruments that Silicon determines
are necessary or desirable, in its discretion, in
connection with the granting and perfecting of the
security interest of Silicon in the Collateral of
Borrower, or in any property of any affiliate of
Borrower or Parent, including, without limitation,
Emulex Caribe, Inc., located in or relating to
Puerto Rico. Without limiting any other term or
provision hereof, Borrower agrees to reimburse
Silicon for all costs and expenses in connection
with the preparation of the Puerto Rico
Documentation.
7. COLLATERAL ASSIGNMENT REGARDING INTELLECTUAL PROPERTY COLLATERAL.
Borrower shall execute and deliver to Silicon three
originals of Silicon's standard form of security
agreement relating to Collateral consisting of
intellectual property items, which form is entitled
"Collateral Assignment, Patent Mortgage and Security
Agreement" (the "Copyright Assignment"), provided
that Silicon agrees not to record the Copyright
Assignment with the United States Patent and
Trademark office or with the United States Copyright
office until a Section 2.2A Condition has occurred,
and, provided, further, it is understood and agreed
that the terms and provisions of the Copyright
Assignment shall not be considered to be effective
until the effectiveness of the Section 2.2A
Condition. In connection therewith, at such time that
Silicon seeks to so record such agreement, Borrower
agrees to effect registration with the United States
Copyright office of Collateral consisting of
copyrightable subject matter in accordance with the
provisions set forth in the Copyright Assignment,
and, without limitation of the other obligations of
Borrower herein and therein, to take all other
actions in order to assist Silicon in the perfection
of its security interest in such items of Collateral.
8. NEGATIVE PLEDGE. Except as otherwise permitted hereunder, Borrower
shall not hereafter grant a security interest in any
of its present or future Collateral, other than for
liens on capital equipment relating to obligations
incurred pursuant to paragraph 3 above.
9. SHAREHOLDER DEBT TO BE SUBORDINATED. All indebtedness of Borrower
owing to any and all of its shareholders or related
parties shall be subordinated in favor of Silicon
pursuant to written subordination agreements in
Silicon's standard form.
-41-
<PAGE> 54
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
BORROWER:
EMULEX CORPORATION
BY
-------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER:
INTERCONNECTIONS, INC.
BY
-------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
BORROWER:
EMULEX EUROPE LIMITED
BY
-------------------------------
PRESIDENT OR VICE PRESIDENT
BY
-------------------------------
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY
-------------------------------
TITLE
----------------------------
-42-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EMULEX
CORPORATION AND SUBSIDIARIES' CONDENSED CONSOLIDATED BALANCE SHEET, STATEMENT OF
OPERATIONS AND STATEMENT OF CASH FLOWS FOR THE SIX-MONTH PERIOD ENDED DECEMBER
31,1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 3,943
<SECURITIES> 0
<RECEIVABLES> 9,014
<ALLOWANCES> 0
<INVENTORY> 14,438
<CURRENT-ASSETS> 29,204
<PP&E> 8,108
<DEPRECIATION> 0
<TOTAL-ASSETS> 37,774
<CURRENT-LIABILITIES> 10,334
<BONDS> 136
0
0
<COMMON> 1,188
<OTHER-SE> 23,467
<TOTAL-LIABILITY-AND-EQUITY> 37,774
<SALES> 23,120
<TOTAL-REVENUES> 23,120
<CGS> 15,802
<TOTAL-COSTS> 15,802
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,784)
<INCOME-TAX> (387)
<INCOME-CONTINUING> (6,397)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,397)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
