<PAGE>
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 [NO FEE REQUIRED]
For the quarterly period ended March 31, 1996
--------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______ to ________
Commission File Number: 0-15930
SOUTHWALL TECHNOLOGIES INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-2551470
- ----------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1029 Corporation Way, Palo Alto, California 94303
- ------------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 962-9111
--------------
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 March 31, 1996 there were 5,981,617 shares of the Registrant's Common
Stock outstanding.
This report, including all attachments, contains 12 pages.
1
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SOUTHWALL TECHNOLOGIES INC.
<TABLE>
<CAPTION>
INDEX
Page Number
-----------
<S> <C> <C>
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheet - March 31, 1996
and December 31, 1995.......................................... 3
Consolidated Statement of Operations -
three months ended March 31, 1996
and April 2, 1995 ............................................. 4
Consolidated Statement of Cash Flows -
three months ended March 31, 1996
and April 2, 1995 ............................................. 5
Consolidated Statement of Stockholders' Equity -
three months ended March 31, 1996.............................. 6
Notes to Consolidated Financial Statements..................... 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations............... 7
PART II OTHER INFORMATION
Item 1 Legal Proceedings.......... ................................... 10
Item 2 Changes in Securities.......................................... 10
Item 3 Defaults Upon Senior Securities................................ 10
Item 4 Submission of Matters to a Vote of Stockholders................ 10
Item 5 Other Information.............................................. 10
Item 6 Exhibits and Reports on Form 8-K............................... 10
Signatures..................................................... 11
</TABLE>
2
<PAGE>
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
- ----------------------------
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,390 $ 1,434
Short-term investments 1,679 2,132
Accounts receivable, net of allowance
for doubtful accounts of $620 and $534 7,235 5,288
Inventories 6,771 6,624
Other current assets 1,003 1,166
-------- --------
Total current assets 18,078 16,644
Property and equipment, net 15,530 15,518
Other assets 1,778 1,943
-------- --------
Total assets $ 35,386 $ 34,105
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,943 $ 3,236
Accrued compensation 1,435 1,413
Other accrued liabilities 2,088 2,170
Current portion of long-term debt 102 101
-------- --------
Total current liabilities 7,568 6,920
Long-term debt 2,829 2,890
Deferred income taxes 381 381
-------- --------
Total liabilities 10,778 10,191
-------- --------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value,
20,000 shares authorized:
Issued and outstanding: 6,917 and 6,917 7 7
Capital in excess of par value 47,204 47,206
Accumulated deficit (18,828) (19,339)
Less treasury stock of 935
and 981 (3,775) (3,960)
-------- --------
Total stockholders' equity 24,608 23,914
-------- --------
Total liabilities and
stockholders' equity $ 35,386 $ 34,105
======== ========
</TABLE>
See accompanying notes to financial statements.
3
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SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
Net product sales $10,533 $6,691
Other revenues 104 10
------- ------
Net revenues 10,637 6,701
------- ------
Costs and expenses:
Cost of product sales 7,409 4,602
Research & development 576 625
Selling, general and
administrative 2,100 1,844
------- ------
Total costs and expenses 10,085 7,071
------- ------
Income (loss) from operations 552 (370)
Interest income 43 54
Interest expense (65) (54)
------- ------
Income (loss) before income taxes 530 (370)
Provision for income taxes 19 -
------- ------
Net income (loss) $ 511 $ (370)
======= ======
Net income (loss) per share $.08 $ (.06)
======= ======
Weighted average shares of common
stock and common stock equivalents 6,690 5,847
======= ======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-------------------
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 511 $ (370)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 568 499
Decrease (increase) in accounts receivable (1,947) (921)
Decrease (increase) in inventories (147) (1,210)
Decrease (increase) in other current assets 163 (86)
(Decrease) increase in accounts payable
and accrued liabilities 740 1,204
------- -------
Cash provided by (used in) operating
activities (112) (884)
------- -------
Cash flows from investing activities:
Decrease (increase) in short-term investments 453 1,000
Expenditures for property and equipment
and other assets (415) (610)
------- -------
Net cash (used in) provided by investing
activities 38 390
------- -------
Cash flows from financing activities:
Proceeds from issuance of stock, net of
related costs 0 0
Increase in(reduction of) long-term debt (60) (46)
(Purchase) issuance of treasury stock, net 90 0
------- -------
Net cash (used in) provided by financing activities 30 (46)
------- -------
Net increase (decrease) in cash and cash
equivalents ( 44) (540)
Cash and cash equivalents, beginning of year 1,434 1,144
------- -------
Cash and cash equivalents, end of period $ 1,390 $ 604
======= =======
Supplemental schedule of non-cash
investing and financing activities:
Treasury stock used for payment of interest $ 93 $ --
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Capital in Total
---------------- excess of Accumulated Treasury Stockholders'
Shares Amount par value Deficit Stock Equity
------ ------ --------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance; December 31, 1995 6,917 $7 $47,206 $(19,339) $(3,960) $23,914
Interest paid with Treasury stock 5 88 93
Exercise of Options (7) 97 90
Net income (loss) 511 511
----- -- ------- -------- ------- -------
Balance; April 2, 1995 6,917 $7 $47,204 $(18,828) $(3,775) $24,608
===== == ======= ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
SOUTHWALL TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
(Unaudited)
Note 1 - Interim Period Reporting:
----------------------------------
While the information presented in the accompanying consolidated financial
statements is unaudited, it includes all adjustments (consisting only of
normal recurring adjustments) which, in the opinion of management, are
necessary to present fairly the Company's financial position and results of
operations, and changes in financial position as of the dates and for the
periods indicated.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these consolidated financial statements be read in conjunction with the
financial statements contained in the Company's Form 10-K for the year
ended December 31, 1995. The results of operations for the interim periods
presented are not necessarily indicative of the operating results of the
full year.
Note 2 - Inventories:
---------------------
Inventories are stated at the lower of cost (determined by the first-in,
first-out method) or market. Inventories at March 31, 1996 and December
31, 1995, consisted of the following:
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Raw materials $2,570 $2,696
Work-in-process 1,303 989
Finished goods 2,898 2,939
------ ------
Total $6,771 $6,624
====== ======
</TABLE>
Note 3 - Commitments:
---------------------
During the first quarter of 1996, the Company and SONY Corporation signed
an Addendum #1 to Supply Agreement. Under the terms of the Amended
Agreement, among other things, SONY has agreed to increase its minimum
order of anti-reflective film beginning July 1, 1997 and extending through
December 31, 2000 and Southwall has agreed to install any necessary
additional manufacturing capacity by July 1, 1997.
The Company is currently planning and negotiating to equip a new facility
for the manufacturing of anti-reflective film. The Company estimates that
it will cost approximately $14 million to equip this facility. The Company
is also in negotiations with lending institutions to finance this
expansion.
Item 2 - Management's Discussion and Analysis of Financial Condition and
-------------------------------------------------------------------------
Results of Operations
---------------------
Except for the historical information contained herein, the matters
discussed in this Form 10-Q Report are forward-looking statements that
involve risks and uncertainties, including those discussed below and in the
Company's Annual Report on Form 10-K. Actual results may differ materially
from those projected. These forward-looking statements represent the
Company's judgment as of the date of the filing of this From 10-Q Report.
The Company disclaims, however, any intent or obligation to update these
forward-looking statements.
7
<PAGE>
Three Months Ended March 31, 1996 and December 31, 1995
-------------------------------------------------------
Net product sales increased to $10.5 million for the first three months of
1996, compared to $6.7 million for the similar period of 1995. Most of the
increase was due to $2.4 million of sales of our new anti-reflective film.
In addition, net product sales of energy conservation products was up by
$2.1 million and electronics products increased by approximately $.1
million, more than offsetting a $.7 million dollar decline in silver
reflector film sales and a $.2 million decrease in our discontinued
aerospace product sales.
Cost of product sales for the first quarter of 1996 was 70% of net product
sales, compared to 69% for the similar period of 1995. This percentage
increase was primarily attributable to some operational problems that
occurred during the quarter. These problems have been corrected and are
not expected to recur.
Research and development expenses, as a percent of net product sales, were
5% for the first three months of 1996, compared to 9% for the similar
period in 1995. The percentage decrease was primarily attributable to the
increase in net product sales. The absolute dollar decrease in 1996 is
attributable to lower new product development.
Selling, general and administrative expense, as a percent of net product
sales, decreased to 20% in the first three months of 1996, from 28% for the
similar period in 1995. The percentage decrease was primarily attributable
to the increase in net product sales. The absolute dollar increase from
$1.8 million in 1995 to $2.1 million in 1996, is attributable to increased
sales and marketing expenses associated with the introduction of new
products and expansion into the Pacific Rim.
Interest income, decreased in 1996 compared to 1995 due primarily to a
decrease in monies invested.
As a result of the factors discussed above, the Company reported a pre-tax
profit of $.5 million for the first three months of 1996, compared to a
pre-tax loss of ($.4 million) for the similar period in 1995.
The Company believes that it must continue to increase revenues to improve
profitability. Although the Company is seeking to expand existing
applications, to develop new applications and to expand international
marketing and sales efforts, there can be no assurance that the Company
will be able to increase revenues and remain profitable.
Effective March 31, 1996, the Company terminated its lease of equipment and
facilities in Southern California to laminate glass located. The Company
will continue to market its California Series/TM/ clear solar shading
laminated glass products, which will be laminated by a sub-contractor, but
will no longer market other laminated products.
The termination of this lease and discontinuance of the marketing of
certain products, as well as the discontinuance of the aerospace product
line discussed above, is not expected to have any adverse effect on future
financial results.
Liquidity and Capital Resources
-------------------------------
At March 31, 1996, the Company's net working capital was $10.5 million
compared with $9.7 million at December 31, 1995. The Company has financed
itself through cash flow from operations and its existing cash balances.
8
<PAGE>
From December 31, 1995, to March 31, 1996, cash and short-term investments
decreased by $.5 million, while accounts receivable increased by $1.9
million. The increase in accounts receivable is primarily attributable to
the increase in net revenues from $9.1 million in the fourth quarter of
1995 to $10.6 million in the first quarter of 1996, most of which occurred
during the later portion of the quarter.
Additions to property and equipment were approximately $.6 million during
the first quarter of 1996. The Company anticipates total capital
expenditures of approximately $2.5 million during 1996 for general
replacements and discretionary improvements of current facilities. The
Company also anticipates making commitments for an amount yet to be
determined, but believed to be approximately $14 million to equip a new
facility to be dedicated to the production of anti-reflective product and
to fulfill the supply requirements of a supply agreement.
At March 31, 1996, the Company had $3.1 million of cash and short-term
investments and a $6 million revolving line of credit, which is subject to
certain financial covenants, and which expires in February 1997, but may be
extended for additional one year terms with the bank's approval. As of
March 31, 1996, there were no borrowings under this line of credit.
Existing working capital and cash generated from operations are expected to
be adequate to satisfy the Company's capital and operating requirements of
existing facilities at least through 1996.
The Company is seeking financing for the planned new facility; however,
there is no assurance that the Company will be successful.
9
<PAGE>
PART II OTHER INFORMATION
Item 1 Legal Proceedings and Other Matters
The Company has been named a defendant in a lawsuit filed on April 5, 1996
by one of its customers in the United States District Court for the Eastern
District of New York. The lawsuit in federal court alleges certain
contractual violations by the Company and seeks relief in an aggregate
amount in excess of $35 million. The Company believes that this lawsuit is
without merit and intends to defend against it vigorously.
In addition, the Company is involved in certain other legal actions arising
in the ordinary course of business. The Company believes, however, that
none of these actions, either individually or in the aggregate, will have a
material adverse effect on the Company's business or its consolidated
financial position or results of operations.
Item 2 Changes in Securities
Not applicable
Item 3 Defaults upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of stockholders
No matters were submitted to a vote of security holders during
the quarter ended March 31, 1996.
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
1) Addendum #1 to Supply Agreement, between Southwall
Technologies Inc. and Sony Corporation, entered into as of
April 1, 1996.
2) Report of First Amendment to Loan and Security Agreement,
dated March 22, 1996
(b) Reports of Form 8-K - None
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 9, 1996
By:/s/Martin M. Schwartz
---------------------
Martin M. Schwartz
President and
Chief Executive Officer
By:/s/Alfred V. Larrenaga
----------------------
Alfred V. Larrenaga
Sr. Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,390
<SECURITIES> 1,679
<RECEIVABLES> 7,855
<ALLOWANCES> (620)
<INVENTORY> 6,771
<CURRENT-ASSETS> 18,078
<PP&E> 35,470
<DEPRECIATION> (19,940)
<TOTAL-ASSETS> 35,386
<CURRENT-LIABILITIES> 7,568
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 24,601
<TOTAL-LIABILITY-AND-EQUITY> 35,386
<SALES> 10,533
<TOTAL-REVENUES> 10,637
<CGS> 7,409
<TOTAL-COSTS> 10,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (22)
<INCOME-PRETAX> 530
<INCOME-TAX> 19
<INCOME-CONTINUING> 511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 511
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
<PAGE>
ADDENDUM #1 TO SUPPLY AGREEMENT
This Addendum #1 to Supply Agreement (the "Addendum") is entered into as of
April 1, 1996 by and between Southwall Technologies Inc. ("Seller"), a Delaware
corporation, and Sony Corporation ("Buyer"), a Japanese corporation.
WHEREAS, the parties have entered into a Supply Agreement dated October 23,
1995 (the "Supply Agreement") where Seller agreed to supply to Buyer and Buyer
agreed to purchase from Seller certain Products (as defined in the Supply
Agreement); and
WHEREAS, subject to the conditions set forth herein, the parties wish to
enter into this Addendum to, among other things, establish certain pricing and
minimum quantity requirements for the Products during an extended term of the
Supply Agreement.
NOW THEREFORE, in consideration of the premises and the covenants contained
in this Addendum and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Buyer shall pay Seller a surcharge equal to one dollar per square foot
($1/sq. ft.) of Products that are shipped to Buyer commencing on April 1, 1996
and continuing until four million dollars (US$4,000,000) has been paid by Buyer.
2. Seller shall expand its production capacity so it can be capable of
manufacturing and supplying at least three million square feet (3,000,000
sq.ft.) of Product per year by June 30, 1998.
3. During the period from April 1, 1996 to June 30, 1997, Section 2.4 of the
Supply Agreement entitled "Best Efforts" shall be deleted in its entirety and
the following new Section 2.4 shall be substituted in lieu thereof:
2.4 Best Efforts. In addition to, and not in limitation of Section 2.2 of
------------
this Agreement, in exchange for the foregoing exclusivity, Buyer agrees to use
its best efforts to sell and market Products for the Computer Monitor CRT
Applications throughout the world. Without limiting the foregoing, Buyer expects
to and will use best efforts to purchase the following amounts of Products: (i)
two million square feet (2,000,000 sq. ft.) for the period beginning on October
23, 1995 and ending on April 22, 1997, (ii) three hundred fifty thousand square
feet (350,000 sq. ft.) for the period beginning on April 23, 1997 and ending on
June 30, 1997.
<PAGE>
4. The parties have agreed that during the term of the Supply Agreement, which
shall be extended in accordance with Section 6 of this Addendum the following
terms (in addition to those set forth in the Supply Agreement and not expressly
amended herein) shall govern the sale and purchase of Products commencing as of
July 1, 1997 and continuing until December 31, 2000 and continuing thereafter
for successive one year terms until terminated by either party as set forth
herein (the "Extended Term"), provided, however, that nothing contained in this
Section 4 shall govern the sale and purchase of Products prior to July 1, 1997.
a. Prices payable by Buyer for the Products during the Extended Term shall
be as set forth on Exhibit A to this Addendum. During the Extended Term, Exhibit
A replaces the prices set forth in Exhibit II to the Supply Agreement in its
entirety. Prices are based on Seller's fully loaded manufacturing cost per
square foot of Products plus a sliding scale gross margin percentage. The Prices
of the Products applicable during every quarter which begins with January,
April, July and October respectively shall be determined during the immediately
preceding quarter in accordance with the Pricing Formula as set forth on Exhibit
A to this Addendum. Seller shall submit to Buyer the documents which prove
Seller's manufacturing cost of the Products so that the parties hereto can
determine the applicable unit price of the Products in accordance with the
Pricing Formula. In no event shall the price of the Products exceed seven
dollars per square foot (US$7/sq. ft.).
b. Section 2.2 of the Supply Agreement entitled "Exclusivity" shall be
deleted in its entirety.
c. Section 2.4 of the Supply Agreement entitled "Best Efforts" shall be
deleted in its entirety and the following new Section 2.4 shall be substituted
in lieu thereof:
2.4 Best Efforts.
------------
(a) Buyer agrees to use its best efforts to sell and market Products
for the Computer Monitor CRT Applications throughout the world. Without limiting
the foregoing, Buyer agrees to buy from Seller and Seller commits to sell
product from any of Seller's manufacturing equipment to Buyer the following
minimum quantities of Products during the Extended Term: (i) one and a half
million square feet (1,500,000 sq. ft.) during the period beginning July 1,
1997 and ending on December 31, 1997 and (ii) three million square feet
(3,000,000 sq. ft.) for each twelve (12) month period thereafter.
(b) In the event that Buyer fails to purchase from Seller such
quantities of the Product as it has committed in Section 2.4(a) above within the
period of time set forth therein, Buyer shall pay to Seller as liquidated
damages an amount equal to one half of the applicable unit price of the Products
during the last quarter of the respective period of time set forth in Section
2.4(a) above for the quantities of Products not purchased by Buyer.
2
<PAGE>
(c) In the event that Seller fails to sell to Buyer such quantities of
the Products as it has committed in Section 2.4(a) above within the period of
time set forth therein, Seller shall pay to Buyer as liquidated damages an
amount equal to one half of the applicable unit price of the Products during the
last quarter of the respective period of time set forth in Section 2.4(a) above
for the quantities of Products not supplied by Seller.
d. The following Section 2.11 shall be added to the Supply Agreement to
reflect the Seller's obligation regarding discounts and contribution fees during
the Extended Term:
2.11 Discounts and Contribution Fee.
------------------------------
(a) In the event that Buyer purchases the Products over three million
square feet (3,000,000 sq. ft.) during each twelve (12) months period of the
Extended Term, Seller agrees to pay to Buyer, as a volume discounts of the price
of Products, an amount equal to two percent (2%) of the sales price received by
Seller (less any allowances actually made and taken for returns; shipping and
insurance costs actually paid; sales, use, value-added and similar taxes and
duties and similar governmental assessments on Products as shipped) for the
quantities of the Products in excess of three million square feet (3,000,000 sq.
ft.).
(b) In the event that Seller sells the products, which are
substantially similar to the Products, to third parties during the Extended
Term, Seller agrees to pay to Buyer, as a contribution fee of Buyer's providing
idea and advice for selling such products, an amount equal to two percent (2%)
of the sales price received by Seller (less any allowances actually made and
taken for returns; shipping and insurance costs actually paid; sales, use,
value-added and similar taxes and duties and similar governmental assessments on
products as shipped) for such products sold by Seller to third parties.
(c) Discounts or contribution fees shall be paid either in U.S.
dollars or in shares of common stock of Seller valued at one and a half (1.5)
times the average closing price of Seller's stock for the last ten (10) trading
days on Nasdaq (at Buyer's option). Discounts or contribution fees are payable
within forty-five (45) days of each calendar quarter with respect to discounts
or contribution fee-bearing sales occurring in that quarter.
5. This Addendum shall be effective as of April 1, 1996, provided, however,
Section 4 of this Addendum shall not be effective until July 1, 1997.
6. Section 4.1 of the Supply Agreement which sets forth the term of the Supply
Agreement shall be replaced with the following provision: Unless terminated
earlier as provided herein, this Agreement shall continue in effect until
December 31, 2000, and
3
<PAGE>
shall thereafter be extended for successive one year terms until terminated by
either party upon at least six (6) months prior written notice to the other
party.
7. Except as expressly amended by this Addendum, the provisions of the Supply
Agreement shall remain in full force and effect.
8. Capitalized terms used in this Addendum and not otherwise defined in this
Addendum shall have the meanings provided in the Supply Agreement.
9. This Addendum may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Addendum as of the date first above
written.
SELLER BUYER
By: /s/ MARTIN M. SCHWARTZ By: /s/ YASUHIRO HOSOZAWA
---------------------- ---------------------
Name: Martin M. Schwartz Name: Yasuhiro Hosozawa
--------------------- --------------------
Title: President/CEO Title: General Manager
-------------------- ------------------
4
<PAGE>
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
----------------------------------------------
This First Amendment to Loan and Security Agreement is entered into on this
22nd day of March 1996, by and between Silicon Valley Bank ("Bank") and
Southwall Technologies, Inc., ("Borrower").
RECITALS
--------
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of February 28, 1995, as amended by that certain Loan Modification
Agreement dated as of October 3, 1995 and as may have been and may in the future
be further amended (the "Loan Agreement"). The parties desire to amend the Loan
Agreement in accordance with the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. Section 1.1 of the Loan Agreement is hereby amended by replacing the
defined term Committed Line in its entirety as follows:
"'Committed Line' means Six Million Dollars ($6,000,000)."
2. Section 1.1 of the Loan Agreement is hereby further amended by adding a
new subsection (16) to the defined term Eligible Foreign Accounts as follows:
"(16) Sekurit Saint-Gobain."
3. Section 1.1 of the Loan Agreement is hereby further amended by
replacing the defined term Maturity Date in its entirety with the following:
"'Maturity Date' means February 5, 1997."
4. Section 2.1 of the Loan Agreement is hereby amended by replacing the
numerical reference to Three Million Dollars ($3,000,000) contained therein with
"Two Million Five Hundred Thousand Dollars ($2,500,000)."
5. Section 6.10 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"6.10 Tangible net Worth. Borrower shall maintain as of the last day
------------------
of each fiscal quarter a Tangible Net Worth of not less than Twenty Four Million
Dollars ($24,000,000)."
6. Section 6.11 of the Loan Agreement is hereby amended to read in its
entirety as follows:
"6.11 Profitability. Borrower shall not suffer a loss exceeding Seven
-------------
Hundred and Fifty Thousand Dollars ($750,000) for the fiscal quarter ending
March 31, 1996. Beginning with the fiscal quarter ending June 30, 1996, Borrower
shall have a net profit of at least One Dollar ($1.00) for each fiscal quarter.
Borrower shall have a net profit of at least One Dollar ($1.00) for each fiscal
year."
7. Exhibit C of the Loan Agreement is hereby replaced by Exhibit C
attached to this Amendment.
1
<PAGE>
8. Exhibit D of the Loan Agreement is hereby replaced by Exhibit D
attached to this Amendment.
9. Conditions Precedent to Effectiveness. The effectiveness of this
-------------------------------------
Amendment is subject to the conditions precedent that:
(a) Borrower shall have paid to Bank:
(i) a nonrefundable fee equal to Fifteen Thousand Dollars ($15,000),
provided that Bank shall increase such fee if Borrower does not establish its
primary deposit accounts at Bank in accordance with Section 6.7 of the Loan
Agreement within a reasonable time; and
(ii) all Bank Expenses incurred through the date hereof, including
reasonable attorneys' fees and expenses.
(b) Bank shall have received, in form and substance satisfactory to Bank:
(i) a certificate of the secretary of Borrower with respect to
incumbency and resolutions authorizing the execution, delivery and performance
of this Amendment, and confirming that the copies of the Articles of
Incorporation and By Laws previously delivered to Bank have not been amended and
remain in full force and effect;
(ii) a Dunn & Bradstreet report for Sekurit Saint-Gobain in a form and
content satisfactory to Bank;
(iii) a copy of this Amendment duly executed by Borrower;
(iv) a copy of the Affirmation of Guaranty of even date herewith duly
executed by the Borrower and the guarantors listed thereunder; and
10. No Defenses of Borrower. Borrower agrees, as of this date, that it has
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no defenses against the obligations to pay any amounts under the Indebtedness.
11. Interpretation. Unless otherwise defined, all capitalized terms in
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this Amendment shall be as defined in the Loan Agreement. Except as amended, the
Loan Agreement remains in full force and effect.
12. Representations. Borrower represents and warrants that the
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Representations and Warranties contained in the Loan Agreement are true and
correct as of the date of this Amendment, and that no Event of Default has
occurred and is continuing.
13. Counterparts. This Amendment to Loan and Security Agreement may be
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executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment to Loan
and Security Agreement as of the first date above written.
SOUTHWALL TECHNOLOGIES, INC.
By: /s/ ALFRED V. LARRENAGA
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Title: Senior Vice President and CEO
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SILICON VALLEY BANK
By: /s/ JULIE SCHNEIDER
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Title: Commercial Banking Officer
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