United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ x ] Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934 For the Period Ended September 30, 1997
or
[ ] Transition Report Pursuant To Section 10 Or 15(D) Of The Securities
Exchange Act Of 1934 For The Transition Period From _______ To ______
Commission File Number 0-15449
CALIFORNIA MICRO DEVICES CORPORATION
------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2672609
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 Topaz Street, Milpitas, California 95035-5430
-------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(408) 263-3214
--------------
(Registrant's telephone number, including area code)
Not applicable
--------------
(Former name, former address, and former fiscal year if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by 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
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of September 30, 1997, there were outstanding 9,874,131 shares of
Issuer's Common Stock.
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements
Statements of Operations
Six Months Ended September 30, 1997 and 1996 2
Balance Sheets
September 30, 1997 and March 31, 1997 3
Statements of Cash Flows
Six Months Ended September 30, 1997 and 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
ii
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net product sales $ 7,954 $ 7,738 $16,062 $17,033
Technology related revenues 175 380 381 680
------- ------- ------- -------
Total revenues 8,129 8,118 16,443 17,713
Cost and expenses:
Cost of sales 5,847 4,921 11,112 11,145
Research and development 771 1,214 1,579 2,201
Selling, marketing and
administrative 1,981 2,009 3,997 4,161
------- ------- ------- -------
Total costs and expenses 8,599 8,144 16,688 17,507
------- ------- ------- -------
Operating income (loss) (470) (26) (245) 206
Other expense (income), net 145 (166) 254 (266)
------- ------- ------- -------
Net income (loss) $ (615) $ 140 $ (499) $ 472
======= ======= ======= =======
Net income (loss) per share $ (0.06) $ 0.01 $ (0.05) $ 0.04
======= ======= ======= =======
Weighted average common shares
and share equivalents
outstanding 9,837 10,908 9,797 10,964
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
BALANCE SHEETS
(Amounts in Thousands, Except Share Data)
<TABLE>
September 30, March 31,
1997 1997
------------- ----------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and short-term securities $ 594 $ 343
Short-term investments 5,438 6,467
Accounts receivable, less allowance for
doubtful accounts of $445 and $437 3,977 3,938
Inventories 9,812 8,843
Other current assets 563 874
------- -------
Total current assets 20,384 20,465
Property, plant & equipment, net 13,848 14,481
Restricted cash 3,386 2,903
Other long term assets 412 421
------- -------
Total assets $38,030 $38,270
======= =======
LIABILITIES & SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 2,520 $ 2,618
Accrued salaries and benefits 950 795
Other accrued liabilities 1,125 1,457
Deferred margin on shipments to distributors 665 576
Current maturities of long-term debt and
capital lease obligations 642 745
------- -------
Total current liabilities 5,902 6,191
Long-term debt, less current maturities 7,315 7,315
Capital lease obligations,
less current maturities 1,092 1,184
------- -------
Total liabilities 14,309 14,690
Shareholders' equity:
Common stock - no par value;
authorized 25,000,000; issued
and outstanding 9,874,131 52,610 51,939
Accumulated deficit (28,889) (28,359)
------- -------
Total shareholders' equity 23,721 23,580
Total liabilities and shareholders' equity $38,030 $38,270
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
<TABLE>
Six Months Ended
September 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (499) $ 472
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,403 1,082
Net (increase) in inventories (969) (1,139)
Net (increase) decrease in accounts receivable (39) 800
Net (increase) decrease in prepaid expenses - -
and other current assets 311 (167)
Net (decrease) in trade accounts payable
and other current liabilities (274) (1,913)
Net decrease in other long term assets 8 91
Increase (decrease) deferred margin on
distributor sales 89 (291)
------- -------
Net cash provided by (used in) operating activities 30 (1,065)
------- -------
Cash (used in) provided by investing activities:
Securities purchases (507) (2,042)
Securities sales 1,505 7,612
Capital expenditures (770) (4,646)
Net change in restricted cash (483) (79)
------- -------
Net cash (used in) provided by investing
activities (255) 845
------- -------
Cash flows from financing activities:
Repayments of capital lease obligations (195) (941)
Proceeds from issuance of common stock 671 950
------- -------
Net cash provided by financing activities 476 9
------- -------
Net increase (decrease) in cash and cash
equivalents 251 (211)
Cash and cash equivalents at beginning of period 343 1,512
------- -------
Cash and cash equivalents at end of period $ 594 $ 1,301
======= =======
Supplemental disclosures of cash flow information:
Interest paid $ 81 $ 513
Supplemental disclosures of non-cash investing and
financing activities:
Unrealized loss on securities $ (31) $ (28)
Capital expenditures financed through capital
lease obligations $ 92 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CALIFORNIA MICRO DEVICES CORPORATION
Notes to Financial Statements
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly California Micro Devices
Corporation's (the "Company") financial position as of September 30, 1997,
results of operations for the three and six month periods ended September 30,
1997 and 1996, and cash flows for the six-month periods ended September 30,
1997 and 1996. Results for the quarter are not necessarily indicative of
fiscal year results.
The condensed financial statements should be read in conjunction with the
financial statements included with the Company's annual report on Form 10-K for
the fiscal year ended March 31, 1997.
2. Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Inventories
-----------
The components of inventory consist of the following (amounts in thousands):
<TABLE>
September 30, March 31,
1997 1997
------------- -------------
<S> <C> <C>
Raw materials $ 930 $ 1,316
Work-in-process 5,288 3,821
Finished goods 3,594 3,706
-------- --------
$ 9,812 $ 8,843
======== ========
</TABLE>
4. Litigation
----------
Reference should be made to the Company's filings with the SEC, including
its reports on Form 10-K for its fiscal year ended March 31, 1997, and its
report on Form 10-Q for the quarter ending June 30, 1997. In addition to the
matters reported therein, the following legal proceedings have taken place:
The settlement of the putative shareholder's derivative suit was finalized,
and pursuant to that settlement the court dismissed the action with prejudice
on October 3, 1997.
The Company is a defendant or plaintiff in various other actions which
arose in the normal course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect
on the financial condition or overall trends in the results of operation of the
Company.
The Company believes that, with regard to these matters and those
previously reported, it has, to the best of its knowledge, made such
adjustments to its financial statements by means of reserves
5
<PAGE>
and expensing the costs thereof, that these matters will not have any
additional adverse impact on the Company's financial condition.
5. Net Income (loss) Per Share
---------------------------
Net income per share for each period is computed using the weighted
average number of common shares and dilutive common shares outstanding during
the periods. Net loss per share for each period is computed using the weighted
average number of common shares outstanding during the periods.
6. Adoption of FASB 128
--------------------
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. The impact will not result
in any change in primary earnings per share for the quarters ended
September 30, 1997 and 1996.
6
<PAGE>
ITEM 2. Management's Discussion And Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
---------------------
Results of Operations
Product sales for the quarter ended September 30, 1997, increased by
$216,000 or 3% compared to the quarter ended September 30, 1996. The increase
in product sales was primarily due to an increase in U.S. sales to computer,
telecommunications, workstation and foundry customers and a decease in Far East
sales to computer and telecommunications customers. Thin film products
accounted for 71% of product sales for the quarter ended September 30, 1997,
compared with 66% in the year ago quarter, with the increase primarily in lower
margin products.
Product sales for the six month period ended September 30, 1997, decreased
by $971,000, or 6%, also due to the decrease in Far East sales to computer and
telecommunications customers, partially offset by increased sales to U.S.
computer, medical, and foundry customers. For the six months ended September
30, 1997, thin film products represented 66% of sales, compared to
approximately 60% in the six months ended September 30, 1996.
Technology related revenue for the quarters ended September 30, 1997, and
September 30, 1996 related to engineering projects partially funded by Hitachi
Metals, Ltd. ("HML"). Technology revenues decreased due to fewer projects
being included in the joint development programs. This decrease amounted to
$206,000 and $300,000 as compared to the same quarter in fiscal year 1997 and
the six months ended September 30, 1997, respectively.
Gross margins on net product sales decreased overall from the quarter a
year ago from 36% to 26%, primarily due to three main factors. There was a
higher mix of lower margin standard products, a decrease in the shipments of
high margin custom products, and write off of obsolete products which,
combined, caused the drop in gross margins
Research and development expenditures decreased to $771,000 for the
September 30, 1997, quarter compared to $1,214,000 in the year earlier period
due primarily to reduced spending on materials and outside consulting.
Compared to a year ago, a greater proportion of research and development
programs involved design engineering efforts developing new products, with
less consumption of materials associated with the development of new
processes. Headcount and payroll increased in research and development
compared to a year ago.
Selling, marketing, and administrative costs decreased by $28,000 compared
to a year ago. Selling and marketing headcount have increased, and
administrative costs have decreased, primarily due to a decrease in legal
expenses.
As a result of the factors discussed above, operating loss for the quarter
ended September 30, 1997, was $470,000 compared to operating loss of $26,000
for the year earlier quarter.
Other income/expense for the current quarter was an expense of $145,000 as
compared to income of $166,000 in the fiscal 1997 quarter. This was due
primarily to reduced interest income from investments.
No income taxes were accrued for the quarters ended September 30, 1997, or
September 30, 1996, due to the availability of tax loss carry forwards and
current periods losses.
The weighted average common shares outstanding were 9.8 million shares and
9.9 million shares for the three and six months ended September 30, 1997,
respectively, compared to 10.9 million shares and 11.0 million shares,
respectively, in the year earlier periods. The decrease in weighted shares
outstanding is primarily due to the impact of the final settlement of
shareholders lawsuits which reduced the number of shares in the settlement by
891,304 shares. Net loss per share for each period is computed using the
weighted average number of common shares outstanding during the periods.
7
<PAGE>
Liquidity and Capital Resources
Net cash and cash equivalents as of September 30, 1997, decreased $778,000
from March 31, 1997. This was due in part to the Company investing $770,000 in
new capital equipment. Inventory levels increased by $969,000 in anticipation
of new product orders for the P/Active( products. The increase in work-in
process inventories was partially offset by reductions in raw materials and
finished goods. Accounts payable and other liabilities dropped $274,000 during
the period ending September 30, 1997. Partially offsetting these items were
receipts from common stock purchases by employees through the exercise of
options and the Employee Stock Purchase Plan amounting to $671,000, and
depreciation and amortization of $1,403,000.
The Company has extended and revised its Line of Credit with a bank to July
31, 1998, to allow borrowing up to $3,000,000, at prime, with no collateral
required. The terms of the amended agreement require the Company to pay a
commitment fee equal to one-quarter percent (1/4%) per annum on the average
daily unused amount of the Line of Credit. In addition, the Company is
required to meet certain financial covenants during the term of the
agreement. Due to the loss for the six months ended September 30, 1997,
the Company is not in compliance with one of these covenants. However,
the Company foresees no need to borrow against this line, and since its
inception in 1995, there have been no borrowings against this Line of Credit.
Cautionary Statement
Statements included herein which are not historical facts are forward
looking statements. Such forward looking statements are made pursuant to the
safe harbor provisions of the Private/Securities Litigation Reform Act of
1995. The forward looking statements regarding revenues, orders and sales
involve a number of risks and uncertainties, including but not limited to,
demand for the Company's products, pricing pressures which could affect the
Company's gross margin or the ability to consummate sales, intense
competition within the industry, the need for the Company to keep pace with
technological developments and respond in a timely manner to changes in
customer needs, the Company's dependence on third party suppliers for
components for its products and the Company's dependence upon intellectual
property rights which, if not available to the Company, could have a material
adverse effect on the Company. These same factors, as well as others, such
as the continuing litigation involving the Company, could also affect the
liquidity needs of the Company.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Reference should be made to the Company's filings with the SEC, including
its reports on Form 10-K for its fiscal year ended March 31, 1997, and its
report on Form 10-Q for the quarter ending June 30, 1997. In addition to the
matters reported therein, the following legal proceedings have taken place:
The settlement of the putative shareholder's derivative suit was finalized,
and pursuant to that settlement the court dismissed the action with prejudice
on October 3, 1997.
The Company is a defendant or plaintiff in various other actions which
arose in the normal course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect
on the financial condition or overall trends in the results of operation of
the Company.
The Company believes that, with regard to these matters and those
previously reported, it has, to the best of its knowledge, made such
adjustments to its financial statements by means of reserves and expensing
the costs thereof, that these matters will not have any additional adverse
impact on the Company's financial condition.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibit Description
------- -----------
Exhibit 11 Computation of Per Share Earnings
(b) Form 8-K None
(c) Security Agreement Line of Credit (For EDGAR Filing Only)
(d) FDS Financial Data Schedule (For EDGAR
Filing Only)
9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALIFORNIA MICRO DEVICES CORPORATION
------------------------------------
(Registrant)
Date: November 6, 1997 /s/ John E. Trewin
--------------------------
John E. Trewin
Vice President and Chief Financial Officer
10
<PAGE>
EXHIBIT 11
CALIFORNIA MICRO DEVICES CORPORATION
Computation of Per Share Earnings
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
Three Months Ended Six Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ (615) $ 140 $ (499) $ 472
======= ======= ======= =======
PRIMARY:
Weighted average common shares
outstanding 9,837 10,503 9,797 10,434
Common equivalents attributable to options - 405 - 530
------- ------- ------- -------
Total weighted average common and common
equivalent shares outstanding 9,837 10,908 9,797 10,964
======= ======= ======= =======
Net income (loss) per share $ (0.06) $ 0.01 $ (0.05) $ 0.04
======= ======= ======= =======
FULLY DILUTED
Weighted average common shares 9,837 10,503 9,797 10,434
Common equivalent attributable to options - 459 - 558
------- ------- ------- -------
Total weighted average common and common
equivalent shares outstanding 9,837 10,962 9,797 10,992
======= ======= ======= =======
Net income (loss) per share $ (0.06) $ 0.01 $ (0.05) $ 0.04
======= ======= ======= =======
</TABLE>
11
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered into
as of July 10, 1997, by and between CALIFORNIA MICRO DEVICES CORPORATION, a
California corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION
("Bank").
RECITALS
--------
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms and
conditions of that certain Credit Agreement between Borrower and Bank dated as
of July 12, 1996, as amended from time to time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms and
conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1.(a) is hereby amended by deleting "July 31, 1997" as the
last day on which Bank will make advances under the Line of Credit, and by
substituting for said date "July 31, 1998," with such change to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the Credit
Agreement) and all other contracts, instruments and documents required by Bank
to evidence such change.
2. Section 1.1.(c) is hereby deleted in its entirety, and the following
substitute therefor:
"(c) Borrowing and Repayment. Borrower may from time to
time during the term of the Line of Credit borrow, partially or
wholly repay its outstanding borrowings, and reborrow, subject
to all of the limitations, terms and conditions contained herein
or in the Line of Credit Note; provided however, that the total
outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder,
as set forth above.
Notwithstanding the foregoing, Borrower shall maintain a zero
balance on advances under the Line of Credit for a period of
at least thirty (30) consecutive days during the term of the
Line of Credit."
3. Section 1.2.(c) is hereby renumbered as Section 1.2.(d) and the
following is hereby added as Section 1.2.(c):
"(c) Unused Commitment Fee. Borrower shall pay to Bank
a fee equal to one-quarter percent (1/4%) per annum (computed
on the basis of a 360-day year, actual days elapsed) on the
average daily unused amount of the Line of Credit, which fee
shall be calculated on a quarterly basis by Bank and shall be
due and payable by Borrower in arrears within five (5) days
after each billing is sent by Bank."
4. Section 1.4 is hereby deleted in its entirety, without substitution.
5. Section 3.1.(b) (iv) and (v) are hereby deleted in its entirety,
without substitution.
6. Section 4.9. is hereby renumbered as Section 4.10. and the following
is hereby added as Section 4.9:
"SECTION 4.9 FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except
to the extent modified by the definitions herein):
12
<PAGE>
(a) Maximum Funded Liabilities divided by Tangible Net Worth not at
any time greater than 0.60 to 1.0, with "Funded Liabilities" defined
as bank or leasing debt, and with "Tangible Net Worth" defined as
the aggregate of total stockholders' equity plus subordinated debt
less any intangible assets.
(b) Quick Ratio not at any time less than 1.4 to 1.0, with "Quick
Ration" defined as the aggregate of unrestricted cash, unrestricted
marketable securities and receivable convertible into cash divided
by total current liabilities.
(c) Net income after taxes not less that $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less
than $1.00 on a rolling two quarter basis.
(d) EBITDA Coverage Ratio not less than 1.5 to 1.0 as of each fiscal
year end, with "EBITDA" defined as net profit before tax plus
interest expense (net of capitalized interest expense), depreciation
expense and amortization expense, and with "EBITDA Coverage
Ratio" defined as EBITDA divided by the aggregate of total interest
expense plus the prior period current maturity of long-term debt and
the prior period current maturity of subordinate debt."
7. The following is hereby added to the Credit Agreement as Section 5.5:
"SECTION 5.5 DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend
or distribution either in cash, stock or any other property on
Borrower's stock now or hereafter outstanding, nor redeem, retire,
repurchase or otherwise acquire any shares of any class of Borrower's
stock now or hereafter outstanding.
8. Except as specifically provided herein, all terms and conditions of the
Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
9. Borrower hereby remakes all representations and warranties contained in
the Credit Agreement and reaffirms all covenants set forth therein. Borrower
further certifies that as of the date of this Amendment there exists no Event
of Default as defined in the Credit Agreement, nor any condition, act or event
which with the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
CALIFORNIA MICRO DEVICES WELLS FARGO BANK,
CORPORATION NATIONAL ASSOCIATION
By: /s/ John E. Trewin By: /s/ Mark Schroenrock
Title: Vice President and CFO Vice President.
13
<PAGE>
Exhibit A
(Please initial - /s/JET /s/MS)
WELLS FARGO BANK REVOLVING LINE OF CREDIT NOTE
- --------------------------------------------------------------------------------
$3,000,000.00 Oakland, California
July 10, 1997
FOR VALUE RECEIVED, the undersigned CALIFORNIA MICRO DEVICES CORPORATION
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at East Bay RCBO, One Kaiser Plaza Suite
850, Oakland, CA 94612, or at such other place as the holder hereof may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of $3,000,000.00, or so much thereof
as may be advanced and be outstanding, with interest thereon, to be computed on
each advance from the date of its disbursement as set forth herein.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) at a
rate per annum equal to the Prime Rate in effect from time to time. The "Prime
Rate" is a base rate that Bank from time to time establishes and which serves
as the basis upon which effective rates of interest are calculated for those
loans making reference thereto. Each change in the rate of interest hereunder
shall become effective on the date each Prime Rate change is announced within
Bank.
(b) Payment of Interest. Interest accrued on this Note shall be payable
on the last day of each month, commencing July 31, 1997.
(c) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on
the basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of the Credit Agreement between Borrower and Bank defined below;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made
hereon by or for any Borrower, which balance may be endorsed hereon from time
to time by the holder. The outstanding principal balance of this Note shall
be due and payable in full on July 31, 1998.
(b) Advances. Advances hereunder, to the total amount of the principal
sum available hereunder, may be made by the holder at the oral or written
request of (i) JOHN TREWIN or JOHN CLARDY, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made
to or for the benefit of each Borrower regardless of the fact that persons
other than those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.
14
<PAGE>
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of July 12,
1996, as amended from time to time (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an "Event of Default"
under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default as defined in
the Credit Agreement, the holder of this Note, at the holder's option, may
declare all sums of principal and interest outstanding hereunder to be
immediately due and payable without presentment, demand, notice of non-
performance, notice of protest, protest or notice of dishonor, all of which
are expressly waived by each Borrower, and the obligation, if any, of the
holder to extend any further credit hereunder shall immediately cease and
terminate. Each Borrower shall pay to the holder immediately upon demand
the full amount of all payments, advances, charges, costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and
all allocated costs of the holder's in-house counsel), expended or incurred
by the holder in connection with the enforcement of the holder's rights
and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related
to this Note, including without limitation, any action for declaratory
relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, including any of the foregoing
incurred in connection with any bankruptcy proceeding (including without
limitation, any adversary proceeding, contested matter or motion brought
by Bank or any other person) relating to any Borrower or any other person
or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the state of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
CALIFORNIA MICRO DEVICES CORPORATION
By: /s/ John E. Trewin
Title: Vice President and CFO
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CREDIT AGREEMENT
THIS AGREEMENT is entered into as of July 12, 1996, by and between
CALIFORNIA MICRO DEVICES CORPORATION, a California corporation ("Borrower"),
and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITAL
-------
Borrower has requested from Bank the credit accommodation described below,
and Bank has agreed to provide said credit accommodation to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
---------
THE CREDIT
----------
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make advances to Borrow from time to time up to and
including July 31, 1997, not to exceed at any time the aggregate principal
amount of Three Million Dollars ($3,000,000.00) ("Line of Credit"), the
proceeds of which shall be used to finance working capital requirements.
Borrower's obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note substantially in the form of Exhibit A
attached hereto ("Line of Credit Note"), all terms of which are
incorporated herein by this reference.
(b) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue sight
commercial letters of credit for the account of Borrower and in favor of
suppliers to finance inventory purchases (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
sole discretion; and provided further, that the aggregate undrawn amount of
all outstanding Letters Of Credit shall not at any time exceed One Million
Dollars ($1,000,000.00). Each Letter of Credit shall be issued for a term
not to exceed one hundred eighty (180) days, as designated by Borrower;
provided however, that no Letter of Credit shall have an expiration date
subsequent to the maturity date of the Line of Credit. The undrawn amount
of all Letters of Credit shall be reserved under the Line of Credit and
shall not be available for borrowings thereunder. Each Letter of Credit
shall be subject to the additional terms and conditions of the Letter of
Credit Agreement and related documents, if any, required by Bank in
connection with the issuance thereof (each, a "Letter of Credit Agreement"
and collectively, "Letter of Credit Agreements"). Each draft paid by Bank
under a Letter of Credit shall be deemed an advance under the Line of
Credit and shall be repaid by Borrower in accordance with the terms and
conditions of this Agreement applicable to such advances; provided however,
that if advances under the Line of Credit are not available, for any reason, at
the time any draft is paid by Bank, then Borrower shall immediately pay to Bank
the full amount of such draft, together with interest thereon from the date
such amount is paid by Bank to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances under the Line of
Credit. In such event Borrower agrees that Bank, in its sole discretion,
may debit any demand deposit account maintained by Borrower with Bank for
the amount of any such draft.
(c) Borrowing and Repayment. Borrower may from time to time during the
term on the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowing under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.
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SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
(b) Computation and Payment. Interest shall be computed on the basis of a
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, upon the payment or negotiations by Bank of
each draft under any Letter of Credit and upon the occurrence of any other
activity with respect to any Letter of Credit (including without limitation,
the transfer, amendment or cancellation of any Letter of Credit) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
SECTION 1.3. COLLECTION OF PAYMENTS.
Borrower authorizes Bank to collect all interest and fees due under the
Line of Credit by charging Borrower's demand deposit account number 4491-057923
with Bank, or any other demand deposit account maintained by Borrower with
Bank, for the full amount thereof. Should there be insufficient funds in
any such demand deposit account to pay all such sums when due, the full amount
of such deficiency shall be immediately due and payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank, Borrower hereby
grants to Bank security interests of first priority in all Borrower's Asset
Management Account #324141733 at Bank, and all proceeds thereof.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrower shall reimburse Bank immediately upon
demand for all costs and expenses incurred by Bank in connection with any
of the foregoing security, including without limitation, filing and recording
fees and costs of appraisals, audits and title insurance.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank
subject to this Agreement.
SECTION 2.1. LEGAL STATUS.
Borrower is a corporation, duly organized and existing and in good standing
under the laws of the State of California, and is qualified or licensed to do
business (and is in good standing as a foreign corporation, if applicable) in
all jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on Borrower.
SECTION 2.2 AUTHORIZATION AND VALIDITY.
This Agreement, the Line of Credit Note, and each other document, contract
and instrument required hereby or at any time hereafter delivered to Bank in
connection herewith (collectively, the "Loan Documents") have been duly
authorized, and upon their execution and delivery in accordance with the
provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.
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SECTION 2.3. NO VIOLATION.
The execution, delivery and performance by Borrower of each of the Loan
Documents do not violate any provision of any law or regulation, or contravene
any provision of the Articles of Incorporation or By-Laws of Borrower, or
result in any breach of or default under any contract, obligation, indenture
or other instrument to which Borrower is a party or by which Borrower may be
bound.
SECTION 2.4 LITIGATION.
There are no pending, or to the best of Borrower's knowledge threatened,
actions, claims, investigations, suits or proceedings by or before any
governmental authority, arbitrator, court or administrative agency which could
have a material adverse effect on the financial condition or operation of
Borrower other than those disclosed by Borrower to Bank in writing prior to the
date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT.
The financial statement of Borrower dated March 31, 1996, a true copy of
which has been delivered by Borrower to Bank prior to the date hereof, (a) is
complete and correct and presents fairly the financial condition of Borrower,
(b) discloses all liabilities of Borrower that are required to be reflected or
reserved against under generally accepted account principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared in
accordance with generally accepted account principles consistently applied.
Since the date of such financial statement there has been no material adverse
change in the financial condition of Borrower, nor has Borrower mortgaged,
pledged, grant a security interest in or otherwise encumbered any of its
assets or properties except in favor of Bank or as otherwise permitted by
Bank in writing.
SECTION 2.6. INCOME TAX RETURNS.
Borrower has no knowledge of any pending assessments or adjustments of its
income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION.
There is no agreement, indenture, contract or instrument to which Borrower
is a party or by which Borrower may be bound that requires the subordination in
right of payment of any of Borrower's obligations subject to this Agreement to
any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES.
Borrowers possesses, and will hereafter possess, all permits, franchises
and licenses required and rights to all trademarks, trade names, patents, and
fictitious names, if any, necessary to enable it to conduct the business in
which it is now engaged in compliance with applicable law.
SECTION 2.9. ERISA.
Borrower is in compliance in all material respects with all applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable
Event as defined in ERISA has occurred and is continuing with respect to any
Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each plan will be
able to fulfill its benefit obligations as they come due in accordance with
the Plan documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS.
Borrower is not in default on any obligation for borrowed money, any
purchase money obligation or any other material lease, commitment, contract,
instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS.
Except as disclosed by Borrower to Bank in writing prior to the date
hereof, Borrower is in compliance in all material respects with all applicable
Federal or state environmental, hazardous waste, health and safety statutes,
any rules or regulations adopted pursuant thereto, which govern or affect
any of Borrower's
18
<PAGE>
operations and/or properties, including without limitation, the Comprehensive
Environmental Response, compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, the Federal Toxic Substances Control Act and the
California Health and Safety code, as any of the same may be amended, modified
or supplemented from time to time. None of the operations of Borrower
is the subject of any Federal or state investigation evaluating whether any
remedial action involving a toxic or hazardous waste or substance into the
environment. Borrower has no material contingent liability in connection with
any release of any toxic or hazardous waste or substance into the environment.
ARTICLE III
-----------
CONDITIONS
----------
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT.
The obligation of Bank to extend any credit contemplated by this Agreement
is subject to the fulfillment to Bank's satisfaction of all of the following
conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) General Pledge Agreement and Addendum.
(v) UCC Financing Statement covering collateral as described in
Section 1.4.
(vi) Continuing Commercial Letter of Credit Agreement.
(vii) Such other documents as Bank may require under any other
Section of this Agreement.
(c) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of
the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT.
The obligation of Bank to make each extension of credit requested by
Borrower hereunder shall be subject to the fulfillment to Bank's satisfaction
of each of the following conditions:
(a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
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<PAGE>
ARTICLE IV
----------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS.
Punctually pay all principal, interest, fees or other liabilities due under
any of the Loan Documents at the times and place in the manner specified
therein.
SECTION 4.2. ACCOUNTING RECORDS.
Maintain adequate books and records in accordance with generally accepted
accounting principles consistently applied, and permit any representative of
Bank, at any reasonable time, to inspect, audit and examine such books and
records, to make copies of the same, and to inspect the properties of Borrower.
SECTION 4.3. FINANCIAL STATEMENTS.
Provide to Bank all of the following, in form and detail satisfactory to
Bank:
(a) not later than 120 days after and as of the end of each fiscal year,
an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank to include balance sheet and income statement,
statement of cashflow and all footnotes;
(b) not later than 45 days after and as of the end of each fiscal quarter,
a financial statement of Borrower, prepared by Borrower, to include balance
sheet and income statement;
(c) from time to time such other information as Bank my reasonably
request.
SECTION 4.4. COMPLIANCE.
Preserve and maintain all licenses, permits, governmental approvals,
rights, privileges and franchises necessary for the conduct of its business;
and comply with the provisions of all documents pursuant to which Borrower is
organized and/or which govern Borrower's continued existence and with the
requirements of all laws, rules, regulations and orders of any governmental
authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE.
Maintain and keep in force insurance of the types and in amounts
customarily carried in lines of business similar to that of Borrower, including
but not limited to fire, extended coverage, public liability, flood, property
damage and worker's' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.
SECTION 4.6. FACILITIES.
Keep all properties useful or necessary to Borrower's business in good
repair and condition, and from time to time make necessary repairs, renewals
and replacements thereto so that such properties shall be fully and efficiently
preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES.
Pay and discharge when due any and all indebtedness, obligations,
assessments and taxes, both real and personal, including without limitation
Federal and state income taxes and state and local property taxes and
assessments, except such (a) as Borrower may in good faith contest or as to
which a bona fide dispute may arise, and (b) for which Borrower has made
provisions, to Bank's satisfaction, for eventual payment thereof in the event
Borrower is obligated to make such payment.
20
<PAGE>
SECTION 4.8. LITIGATION.
Promptly give notice in writing to Bank of any litigation pending or
threatened against Borrower with a claim in excess of $250,000.00.
SECTION 4.9. NOTICE TO BANK.
Promptly (but in no event more than five (5) days after the occurrence of
each such event or matter) give written notice to Bank in reasonable detail
of: (a) the occurrence of any Event of Default, or any condition, event or
act which with the giving of notice or the passage of time or both would
constitute an Event of Default; (b) any change in the name [or the
organizational structure] of Borrower [, or any action, claim, investigation,
suit or proceeding pending or asserted by or before any governmental
authority, arbitrator, court or administrative agency challenging or denying
Borrower's qualification for tax treatment as if it were a partnership for
income tax purposes]; (c) the occurrence and nature of any Reportable Event
or Prohibited Transaction, each as defined in ERISA, or any funding
deficiency with respect to any Plan; or (d) any termination or cancellation
of any insurance policy which Borrower is required to maintain, or any
uninsured or partially uninsured loss through liability or property damage,
or through fire, theft or any other cause affecting Borrower's property.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as Bank remains committed to
extend credit or Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS.
Use any of the proceeds of any credit extended hereunder except for the
purposes stated in Article I hereof.
SECTION 5.2. MERGER, CONSOLATION, TRANSFER OF ASSETS.
Merge into or consolidate with any other entity; make any substantial
change in the nature of Borrower's business as conducted as of the date
hereof; acquire all or substantially all of the assets of any other entity;
nor sell, lease, transfer or otherwise dispose of all or a substantial or
material portion of Borrower's assets except in the ordinary course of its
business.
SECTION 5.3. GUARANTIES.
Guarantee or become liable in any way as surety, endorser (other than as
endorser of negotiable instruments for deposit or collection in the ordinary
course of business), accommodation endorser or otherwise for, nor pledge or
hypothecate any assets of Borrower as security for, any liabilities or
obligations of any other person or entity, except any of the foregoing in favor
of Bank.
SECTION 5.4. LOANS, ADVANCES, INVESTMENTS.
Make any loans or advances to or investments in any person or entity,
except any of the foregoing existing as of, and disclosed to Bank prior to, the
date hereof, and additional investments in any person or entity in amounts not
to exceed an aggregate of $250,000.00 in any fiscal year.
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ARTICLE VI
----------
EVENTS OF DEFAULT
-----------------
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default
shall continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any
debt or other liability to any person or entity, including Bank.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors;
Borrower shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors
or any other relief under the Bankruptcy Reform Act, Title 11 of the United
States Code, as amended or recodified from time to time ("Bankruptcy Code"),
or under any state or Federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to
the Bankruptcy Code or any other applicable state or Federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against Borrower, or Borrower shall file an answer admitting the jurisdiction
of the court and the material allegations of any involuntary petition; or
Borrower shall be adjudicated a bankrupt, or an order for relief shall be
entered against Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or Federal laws relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in good
faith believes impairs, or is substantially likely to impair, the prospect of
payment or performance by Borrower of its obligations under any of the Loan
Documents.
(h) The dissolution or liquidation of Borrower; or Borrower, or any of
its directors, stockholders or members, shall take action seeking to effect the
dissolution or liquidation of Borrower.
SECTION 6.2. REMEDIES.
Upon the occurrence of any Event of Default: (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by Borrower; (b) the obligation, if any,
of Bank to extend any further credit under any of the Loan Documents shall
immediately cease and terminate; and (c) Bank shall have all
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rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any credit accommodation from Bank subject hereto and to exercise
any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
SECTION 7.1. NO WAIVER.
No delay, failure or discontinuance of Bank in exercising any right, power
or remedy under any of the Loan Documents shall affect or operate as a waiver
of such right, power or remedy; nor shall any single or partial exercise of
any such right, power or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power or
remedy. Any waiver, permit, consent or approval of any kind by Bank of any
breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES.
All notices, requests and demands which any party is required or may desire
to give to any other party under any provision of this Agreement must be in
writing delivered to each party at the following address:
BORROWER: CALIFORNIA MICRO DEVICES CORPORATION
215 Topaz Street
Milpitas, CA 95035
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
One Kaiser Plaza, Suite 850
Oakland, CA 94612
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES.
Borrower shall pay to Bank immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable
attorneys' fees (to include outside counsel fees and all allocated costs of
Bank's in-house counsel), incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
Bank's continued administration hereof and thereof, and the preparation of
any amendments and waivers hereto and thereto, (b) the enforcement of Bank's
rights and/or the collection of any amounts which become due to Bank under
any of the Loan Documents, and (c) the prosecution or defense of any action
in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, and including any of the
foregoing incurred in connection with any bankruptcy proceeding relating to
Borrower.
SECTION 7.4. SUCCESSORS, ASSIGNMENT.
This Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties; provided however, that Borrower may not assign or transfer its
interest hereunder without Bank's prior written consent. Bank reserves the
right to sell, assign, transfer, negotiate or grant participations in all or
any part of, or any interest in, Bank's rights and benefits under each of the
Loan Documents. In connection therewith, Bank may disclose all documents and
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information which Bank now has or may hereafter acquire relating to any credit
extended by Bank to Borrower, Borrower or its business, or any collateral
required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT.
This Agreement and the other Loan Documents constitute the entire agreement
between Borrower and Bank with respect to any extension of credit by Bank
subject hereto and supersede all prior negotiations, communications,
discussions and correspondence concerning the subject matter hereof. This
Agreement may be amended or modified only by a written instrument executed
by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES.
This Agreement is made and entered into for the sole protection and benefit
of the parties hereto and their respective permitted successors and assigns,
and no other person or entity shall be a third party beneficiary of, or have
any direct or indirect cause of action or claim in connection with, this
Agreement or any other of the Loan Documents to which it is not a party.
SECTION 7.7. TIME.
Time is of the essence of each and every provision of this Agreement and
each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS.
If any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or any remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of which
when executed and delivered shall be deemed to be an original, and all of which
when taken together shall constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
SECTION 7.11. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any
of the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of a
Dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered
by the American Arbitration Association ("AAA") or such other administrator
as the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any Dispute
shall apply to any arbitration proceeding. All discovery activities shall be
expressly limited to matters directly relevant to the Dispute being arbitrated.
Judgment upon any award rendered in an arbitration may be entered in any court
having jurisdiction; provided however, that nothing contained herein shall be
deemed to
24
<PAGE>
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise of any such remedy shall not
waive the right of any party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less
shall be decided by a single arbitrator who shall not render an award of
greater than $5,000,000 (including damages, costs, fees and expenses).
By submission to a single arbitrator, each party expressly waives any right
or claim to recover more than $5,000,000. Any Dispute in which the amount
in controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberation.
(e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitration's (A) the arbitrators shall not have
the power to make any award which is not supported by substantial evidence or
which is based on legal error, (B) an award shall not be binding upon the
parties unless the findings of fact are supported by substantial evidence and
the conclusions of law are not erroneous under the substantive law of the state
of California, and (C) the parties shall have in addition to the grounds
referred to in the Federal Arbitration Act for vacating, modifying or
correcting an award the right to judicial review of (1) whether the findings
of fact rendered by the arbitrators are supported by substantial evidence,
and (2) whether the conclusions of law are erroneous under the substantive
law of the state of California. Judgment confirming an award in such a
proceeding may be entered only if a court determines the award is supported
by substantial evidence and not based on legal error under the substantive
law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations
of the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to
a referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualification required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
25
<PAGE>
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any Loan Documents or any relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
CALIFORNIA MICRO DEVICES WELLS FARGO BANK,
CORPORATION NATIONAL ASSOCIATION
By: /s/ John E. Trewin By: /s/ Mark Schoenrock
Title: Vice President and CFO Vice President
26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> $ 594
<SECURITIES> 5,438
<RECEIVABLES> 4,422
<ALLOWANCES> (445)
<INVENTORY> 9,812
<CURRENT-ASSETS> 20,384<F1>
<PP&E> 24,999
<DEPRECIATION> (11,151)
<TOTAL-ASSETS> $38,030<F2>
<CURRENT-LIABILITIES> 5,902
<BONDS> 0
0
0
<COMMON> 52,610
<OTHER-SE> (28,889)
<TOTAL-LIABILITY-AND-EQUITY> $38,030
<SALES> $ 7,954
<TOTAL-REVENUES> 8,129<F3>
<CGS> 5,847
<TOTAL-COSTS> 5,847
<OTHER-EXPENSES> 2,656<F4>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 241
<INCOME-PRETAX> (615)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ (615)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
<FN>
<F1>Includes other assets - 563.
<F2>Includes Restricted cash - 3,386; Other long term assets - 412.
<F3>Includes Technology related revenues - 175.
<F4>Includes Research and development - 771; Selling, marketing, and
administrative - 1,981; Interest (income) - (92) ;
Other (income)/expense - (4).
</FN>
</TABLE>
