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 June 29, 1997
/_/ 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 June 29, 1997 there were 7,366,596 shares of the Registrant's Common Stock
outstanding.
This report, including all attachments, contains 13 pages.
1
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SOUTHWALL TECHNOLOGIES INC.
INDEX
Page Number
-----------
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements:
Consolidated Balance Sheet - June 29, 1997
and December 31, 1996.......................................... 3
Consolidated Statement of Operations -
three month and six month periods ended
June 29, 1997 and June 30, 1996................................ 4
Consolidated Statement of Cash Flows -
six months ended June 29, 1997
and June 30, 1996 ............................................. 5
Consolidated Statement of Stockholders' Equity -
six months ended June 29, 1997................................. 6
Notes to Consolidated Financial Statements..................... 7
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations .............. 9
PART II OTHER INFORMATION
Item 1 Legal Proceedings.............................................. 13
Item 2 Changes in Securities.......................................... 13
Item 3 Defaults Upon Senior Securities................................ 13
Item 4 Submission of Matters to a Vote of Stockholders................ 13
Item 5 Other Information.............................................. 13
Item 6 Exhibits and Reports on Form 8-K............................... 13
Signatures .................................................... 14
2
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PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
June 29, 1997 December 31, 1996
------------- -----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 10,057 $ 7,419
Short-term investments 7 7
Accounts receivable, net of allowance
for doubtful accounts of $819 and $682 9,706 7,097
Inventories 9,364 8,406
Other current assets 960 828
-------- --------
Total current assets 30,094 23,757
Property and equipment, net 21,954 17,223
Other assets 1,488 1,529
-------- --------
Total assets $ 53,536 $ 42,509
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,458 $ 2,635
Accrued compensation 1,617 2,141
Other accrued liabilities 1,537 1,954
Current portion of long-term debt 1,191 1,181
-------- --------
Total current liabilities 7,803 7,911
Long-term debt 10,986 6,591
Deferred income taxes 410 410
-------- --------
Total liabilities 19,199 14,912
-------- --------
Commitments
Stockholders' equity:
Common stock, $.001 par value,
20,000 shares authorized:
Issued and outstanding: 7,636 and 6,917 8 7
Capital in excess of par value 51,767 46,673
Notes receivable (436) (596)
Accumulated deficit (15,544) (16,912)
Less treasury stock of 330 and 390 (1,458) (1,575)
-------- --------
Total stockholders' equity 34,337 27,597
-------- --------
Total liabilities and
stockholders' equity $ 53,536 $ 42,509
======== ========
See accompanying notes to consolidated financial statements.
3
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SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Net revenues $ 11,684 $ 10,990 $ 22,539 $ 21,627
-------- -------- -------- --------
Costs and expenses:
Cost of sales 7,609 7,548 14,589 14,957
Tempe start up costs 370 -- 548 --
Research & development 727 575 1,434 1,151
Selling, general and
administrative 2,384 2,107 4,545 4,207
-------- -------- -------- --------
Total costs and expenses 11,090 10,230 21,116 20,315
-------- -------- -------- --------
Income from operations 594 760 1,423 1,312
Interest income (expense) net 48 (10) 15 (32)
-------- -------- -------- --------
Income before income taxes 642 750 1,438 1,280
Provision for income taxes 40 46 70 65
-------- -------- -------- --------
Net income $ 602 $ 704 $ 1,368 $ 1,215
======== ======== ======== ========
Net income per share $ 0.08 $ .10 $ .18 $ .18
======== ======== ======== ========
Weighted average shares of common
stock and common stock equivalents 7,766 7,107 7,485 6,934
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
4
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SOUTHWALL TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
----------------
June 29, 1997 June 30, 1996
------------- -------------
Cash flows from operating activities:
Net income $ 1,368 $ 1,215
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,256 1,144
Decrease (increase) in accounts receivable (2,609) (2,221)
Decrease (increase) in inventories (958) (130)
Decrease (increase) in other current assets (132) 445
(Decrease) increase in accounts payable
and accrued liabilities (25) 654
-------- --------
Cash provided by (used in) operating
activities (1,100) 1,107
-------- --------
Cash flows from investing activities:
Decrease (increase) in short-term investments -- 1,127
Expenditures for property and equipment
and other assets (5,946) (1,482)
-------- --------
Net cash (used in) provided by investing
activities (5,946) (355)
-------- --------
Cash flows from financing activities:
Increase in (reduction of) long-term debt 4,405 (71)
Collection of stock option loans 160 --
Sale of common stock, net 4,931 --
Issuance of treasury stock, net 188 672
-------- --------
Net cash (used in) provided by financing activities 9,684 601
-------- --------
Net increase (decrease) in cash and cash
equivalents 2,638 1,353
Cash and cash equivalents, beginning of year 7,419 1,434
-------- --------
Cash and cash equivalents, end of period $ 10,057 $ 2,787
======== ========
Supplemental schedule of non-cash investing
and financing activities:
Treasury stock used for payment of interest $ 93 $ 93
See accompanying notes to consolidated financial statements.
5
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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
Six Months Ended June 29, 1997
(in thousands)
(Unaudited)
<CAPTION>
Common Stock Capital in Total
------------ excess of Notes Accumulated Treasury Stockholders'
Shares Amount par value Receivable Deficit Stock Equity
------ ------ --------- ---------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance; December 31, 1996 6,917 $7 $46,673 $(596) $(16,912) $(1,575) $27,597
Interest paid with stock 31 62 93
Exercise of options 52 124 1 125
Stock option loans 160 160
Sale of stock, net 667 1 4,930 4,931
Sales to employees under 9 54 63
Stock Purchase Plan
Net income 1,368 1,368
----- -- ------- ------ --------- -------- -------
Balance; June 29, 1997 7,636 $8 $51,767 $(436) $(15,544) $(1,458) $34,337
===== == ======= ====== ========= ======== =======
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
6
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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, 1996. 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 June 29, 1997 and
December 31, 1996, consisted of the following:
June 29, 1997 December 31, 1996
------------- -----------------
Raw materials $3,862 $2,869
Work-in-process 2,406 1,848
Finished goods 3,096 3,689
------ ------
Total $9,364 $8,406
====== ======
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 to supply the
minimum quantities required by this agreement.
The Company began occupying a new leased facility located in Tempe,
Arizona, on June 27, 1997, and is currently installing the equipment
required for the manufacturing of anti-reflective film. The Company
estimates that it will cost approximately $14.5 million to equip this
facility.
The Company has also secured financing from a combination of borrowing
from lending institutions and an equity sale to a major investor to
finance this expansion and anticipated related working capital
requirements. On December 16, 1996, the Company borrowed $5 million
from an institutional lender. On April 9, 1997, the Company signed an
agreement with Teijin Limited of Japan
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(Teijin), a major raw material supplier of the Company, which included
arrangements for additional financing for the new manufacturing
facility and for related potential working capital growth. Teijin
purchased 667,000 shares of the Company's common stock at a price of
$7.50 per share, and guaranteed a loan through Sanwa Bank for an
additional $10 million. Teijin also received warrants to purchase
158,000 shares of common stock at a price of $9.00 per share at any
time within three years of the date of the agreement. The stock
purchase transaction of approximately $5 million was completed on April
28, 1997. In addition, a loan agreement with Sanwa Bank was signed on
May 2, 1997, and the Company received the first $5 million of funding
on May 6, 1997. The remaining $5 million of loan funding is scheduled
for November 6, 1997. The loan is for a period of seven and one half
(7.5) years, with a four (4) year interest only grace period, payable
semi annually at an interest rate of BBA Libor, fixed semi annually,
plus seven sixteenths percent. In addition, a loan guarantee fee of
nine sixteenths percent (.5625%) per annum is payable to Teijin on the
same payment schedule as the loan interest payments.
8
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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.
General
The Company has experienced significant fluctuations in quarterly
results of operations. Revenues have varied from quarter to quarter due
to the seasonal buying patterns for the Company's Heat Mirror(TM)
products, which typically have been strongest in the second and third
quarters. Sales of the Company's energy conservation products are
significantly influenced by the residential and commercial construction
industries, and reduction in construction has generally resulted in a
reduction in the sales of the Company's Heat Mirror products. In
addition, operating results have historically varied from quarter to
quarter as a function of the utilization of the Company's production
machines. Manufacturing inefficiencies have resulted from the
development and introduction of new products and the changing mix of
products manufactured. Primarily as a result of these factors and in
view of the Company's strategy of developing additional applications
for its thin-film technology, and its ongoing practice of upgrading its
manufacturing processes, the Company may continue to experience
quarterly fluctuations in its results of operations.
The Company believes that it must continue to increase revenues to
remain profitable. Although the Company is in the process of expanding
it's capacity and is seeking to expand existing applications, to
develop new applications and to continue to expand international
marketing and sales efforts, there can be no assurance that the Company
will be able to continue to increase revenues. Additionally, there is
significant risk inherent in the expansion project currently in process
and there can be no assurances that the Company will be successful in
completing this project when scheduled or that start-up costs and
initial production will be completed in accordance with the Company's
current plans.
Six Months Ended June 29, 1997 and June 30, 1996
Net revenue increased to $22.5 million for the first six months of
1997, compared to $21.6 million for the similar period of 1996. The
increase was due primarily to a $1.5 million increase in sales of
anti-reflective film compared to the similar period last year. Net
sales of energy conservation products decreased by $.6 million compared
to the same period last year, primarily due to discontinued products
which were sold during the first quarter of 1996.
Cost of sales, including Tempe start up costs, for the first half of
1997 was 67% of net revenue, compared to 69% for the similar period of
1996. Cost for 1997 includes approximately $.5 million or 2% of net
revenues for start up costs of a new manufacturing facility in Tempe,
Arizona. The percentage decrease was primarily attributable to
production efficiency improvements which have resulted in increased
throughputs and improved yields from major production equipment on most
products. Most of these improvements have taken place cumulatively over
the nine month period beginning in October 1996
9
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through June 30, 1997. There were also some operational problems that
occurred during the first quarter of 1996, and higher cost of certain
metals used in the coating process for most of the Company's products
during the first half of 1996.
Research and development expenses, as a percent of net revenue, were 6%
for the first six months of 1997, compared to 5% for the similar period
in 1996. The absolute dollars increased to $1.4 million in 1997 from
$1.2 million in 1996. The increase was primarily attributable to higher
new product development, primarily in film for laminated glass
products, including film for the automotive and California Series
commercial and residential markets.
Selling, general and administrative expense, as a percent of net
revenue, increased to 20% in the first six months of 1997, from 19% for
the similar period in 1996. The absolute dollars increased to $4.5
million in 1997 from $4.2 million in 1996. The increase was primarily
attributable to increased headcount to broaden selling coverage and to
handle increased order processing requirements, accompanied by
increased advertising and promotions expense.
Net interest income increased in 1997 compared to 1996 due to an
increased amount of money invested and to capitalization of interest
expense related to the construction in progress of the new
manufacturing facility in Tempe.
As a result of the factors discussed above, the Company reported
pre-tax income of $1.4 million for the first six months of 1997,
compared to pre-tax income of $1.3 million for the similar period in
1996.
Three Months Ended June 29, 1997 and June 30, 1996
Net product sales increased to $11.7 million for the second quarter of
1997, compared to $11.0 million for the similar period of 1996. The
increase was due primarily to a $.5 million increase in sales of
anti-reflective film and small increases in several other electronics
products totaling $.2 million. Sales of energy conservation products
was essentially flat with the same period last year.
Cost of sales for the second quarter of 1997 was 68% of net revenue,
compared to 69% for the similar period of 1996. Cost for 1997 includes
approximately $.4 million or 3% of net revenues for start up costs of a
new manufacturing facility in Tempe, Arizona. Start up costs are
expected to increase in the third quarter 1997, and initial production
inefficiencies are also anticipated through the end of the year. The
percentage decrease in cost of sales from 1996, excluding start up
costs, was primarily attributable to production efficiency improvements
which have resulted in increased throughputs and higher yields from
major production equipment on most products. Most of these improvements
have taken place cumulatively over the nine month period beginning in
October 1996 through June 30, 1997. During the second quarter 1997, the
Company absorbed some higher costs from inefficiencies and waste
resulting from the scale up for production of new variations of its
Heat Mirror XIR(TM) product being sold into the automotive window films
market, which partially offset the improvements mentioned above. These
scale up inefficiencies are anticipated to continue to some extent at
least into the third and fourth quarters of 1997.
Research and development expenses, as a percent of net revenue, were 6%
for the second quarter of 1997, compared to 5% for the similar period
in 1996. The absolute dollars increased to $.7 million in 1997 from $.6
million in 1996. The increased expense was primarily attributable to
higher new product
10
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development, primarily in film for laminated glass products, including
film for the automotive and California Series commercial and
residential markets.
Selling, general and administrative expense, as a percent of net
revenue, increased to 20% in the second quarter of 1997, from 19% for
the similar period in 1996. The absolute dollar increase from $2.1
million in 1996 to $2.4 million in 1997, is primarily attributable to
increased headcount to broaden selling coverage and to handle increased
order processing requirements, accompanied by increased advertising and
promotions expense.
Net interest income increased in 1997 compared to 1996 due to an
increased amount of money invested and to capitalization of interest
expense related to the construction in progress of the new
manufacturing facility.
As a result of the factors discussed above, the Company reported
pre-tax income of $.6 million for the second quarter of 1997, compared
to pre-tax income of $.8 million for the similar period in 1996.
Liquidity and Capital Resources
At June 29, 1997, the Company's net working capital was $22.3 million
compared with $15.8 million at December 31, 1996. On December 16, 1996,
the Company borrowed $5 million from an institutional lender for
partial financing of the new manufacturing facility in Tempe, Arizona.
On April 9, 1997, the Company signed an agreement with Teijin Limited
of Japan (Teijin), a major raw material supplier of the Company, which
included arrangements for additional financing for the new
manufacturing facility and for related potential working capital
growth. Teijin purchased 667,000 shares of the Company's common stock
at a price of $7.50 per share, and guaranteed a loan through Sanwa Bank
for an additional $10 million. Teijin also received warrants to
purchase 158,000 shares of common stock at a price of $9.00 per share
at any time within three years of the date of the agreement. The stock
purchase transaction of approximately $5 million was completed on April
28, 1997. In addition, a loan agreement with Sanwa Bank was signed on
May 2, 1997, and the Company received the first $5 million of funding
on May 6, 1997. The remaining $5 million of loan funding is scheduled
for November 6, 1997. The new manufacturing facility is currently in
process and is on schedule for startup in late September or early
October 1997, and will be dedicated initially to the production of
anti-reflective film product to fulfill the supply requirements of the
supply agreement with Sony. Prior to the borrowing required to finance
the new facility, the Company had financed itself through cash flow
from operations and its existing cash balances.
From December 31, 1996, to June 29, 1997, cash and short-term
investments increased by $2.6 million. Major increases were derived
primarily from financing activities, as stated above, totaling $9.7
million, net of debt repayments, and net income of $1.4 million. Major
uses of cash were capital expenditures of $5.9 million and increased
accounts receivable by $2.6 million. The increase in accounts
receivable is primarily attributable to the increase in shipments
billed in June 1997 by $2.0 million compared to December 1996.
Additions to property and equipment were approximately $4.6 million
during the second quarter of 1997, including $4.1 million on capital
plant and equipment for the new manufacturing facility mentioned above.
This brings the total capital investment to date on the new
manufacturing facility to $7.5 million, and the Company currently has
additional commitments for expenditures of approximately $4 million
during 1997 on this project, which when completed is expected to cost a
total of approximately $14.5 million. The Company
11
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anticipates total capital expenditures of approximately $2.5 million
during 1997 for general replacements and discretionary improvements of
current facilities.
At June 29, 1997, the Company had $10.1 million of cash and short-term
investments and a $6 million revolving line of credit, which is subject
to certain financial covenants, which at June 29, 1997 restricted the
amount available to the Company to $3.7 million. The revolving line of
credit expires June 5, 1998, but may be extended for additional one
year terms with the bank's approval. As of June 29, 1997, 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 1997.
Debt and equity financing concluded in December 1996 and during April
and May 1997, mentioned above, are expected to be adequate to satisfy
capital and operating requirements of the new manufacturing facility at
least through 1997.
12
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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 June 29, 1997.
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits -
10.88 Basic Agreement dated April 9, 1997, for the
sale of 667,000 shares of the Company's stock
to Teijin Limited, a Japanese corporation,
and for mutually beneficial cooperation and
collaboration between Teijin and Southwall
Technologies Inc.
10.89 Credit Agreement dated May 6, 1997, between
Sanwa Bank, Limited and Southwall
Technologies Inc.
10.90 Reimbursement and Security Agreement dated
May 6, 1997, between Teijin Limited, a
Japanese corporation, and Southwall
Technologies Inc.
10.91 Promissory Note dated May 6, 1997 obligating
Southwall Technologies Inc. to Sanwa Bank,
Limited in the amount of $10 million.
b) Reports of Form 8-K - None
13
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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: August 13, 1997
Southwall Technologies Inc.
By:/s/Martin M. Schwartz
---------------------
Martin M. Schwartz
President and
Chief Executive Officer
By:/s/L. Ray Christie
------------------
L. Ray Christie
Vice President and
Chief Financial Officer
14
EXHIBIT 10.88
BASIC AGREEMENT
REGARDING STOCK PURCHASE
BETWEEN SOUTHWALL/TEIJIN
This Basic Agreement (the "Agreement") is made as of April 9, 1997 by and
between Southwall Technologies Inc., a Delaware corporation whose principal
business offices are at 1029 Corporation Way, Palo Alto, California 94303
(hereinafter called "Southwall" or the "Company")
and
Teijin Limited, a Japanese corporation whose registered office is at 6-7,
Minami-honmachi 1-chome, Chuo-ku, Osaka 541, Japan (hereinafter called "Teijin"
or the "Purchaser").
WlTNESSETH:
WHEREAS, Teijin is the principal supplier of PET film for substrates of
Southwall's products, and Southwall and Teijin have had a productive working
relationship for almost ten (10) years;
WHEREAS, Southwall is in the process of building a new manufacturing plant
with two vacuum coaters and one solvent coater in Tempe, Arizona and desires to
secure the necessary funds to complete the new plant;
WHEREAS, Teijin has been seeking ways to expand its relationship with
Southwall and is willing to make an equity investment in Southwall and arrange
for a loan to Southwall for the completion of the new plant; and
WHEREAS, Southwall and Teijin now wish to set forth the terms and
conditions of the above-mentioned financing and other areas of cooperation
between the parties hereto;
NOW, THEREFORE, the parties hereto have agreed as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Article 1:
1.1.1 The term "Closing" shall mean the closing of the purchase and
sale of new shares of Southwall to Teijin as set forth in Article 3.
1.1.2 The term "Closing Date" shall mean April 28, 1997, or any other
date before May 30, 1997, which may be agreed by the parties hereto for the
Closing.
<PAGE>
1.1.3 The term "New Plant" shall mean Southwall's new electronics
products manufacturing plant with two vacuum coaters and one solvent coater in
Tempe, Arizona, which is under construction as of the date of this Agreement.
1.1.4 The term "GAAP" shall mean generally accepted United States
accounting principles, applied on a consistent basis.
1.1.5 The term "Securities Act" shall mean the Securities Act of 1933
or any successor law, and regulations and rules issued pursuant to that Act or
any successor law, all of which are effective in the United States of America.
1.1.6 The term "Parties" or "Party" shall collectively mean Southwall
and Teijin or either of them individually.
ARTICLE 2
PURPOSE OF THE AGREEMENT
2.1 The purpose of this Agreement is to set forth a general framework for
mutually beneficial cooperation between Southwall and Teijin.
2.2 The Parties will faithfully seek any and all possible collaboration
opportunities such as, but not limited to:
o Joint development of new products in Article 8;
o Jointly establish a new marketing network in the agreed territory
referred in Article 9; and
o Film supply from Teijin to Southwall under the most favored
conditions in Article 10.
ARTICLE 3
ISSUANCE OF SOUTHWALL'S NEW SHARES
3.1 It is agreed among the parties that Teijin may purchase or partly or
wholly sell Southwall shares in the open market, subject to proceedings and
regulations of the Securities Act and subject to the condition that Teijin will
notify Southwall in advance of any such purchase or sale of Southwall shares
through such market.
3.2 On the basis of the representations and warranties and agreements
contained herein, and subject to the terms and conditions of this Agreement, at
the Closing, Southwall will issue and sell to Teijin, and Teijin agrees to
purchase 667,000 shares of authorized but unissued common stock, par value
US$0.001 (the "Shares") at a price of US$7.50 per share (for an aggregate
purchase price of US$5,002,500.00).
2
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3.3 The Closing provided for in this Agreement will take place at the
office of Southwall at 10:00 a.m. (California time) on the Closing Date. In
consideration of the purchase of the Shares, Teijin shall pay the purchase price
of the Shares at the Closing by wire transfer to Southwall's bank account
designated by Southwall. Within twenty (20) business days of receipt of such
payment, Southwall shall deliver to Teijin a stock certificate or certificates
evidencing the Shares issued in the name of Teijin. As of the Closing Date,
Southwall shall issue and deliver to Teijin documentation evidencing ownership
of the Shares on the Closing Date.
It is agreed by the Parties that the failure to consummate the Closing on
the date and time and at the place determined under this paragraph will not
result in the immediate termination of this Agreement and will not relieve any
Party of any obligation under this Agreement. In this case, the Parties shall
deliberate in good faith for finding the best solution based upon the purpose of
this Agreement as prescribed in Article 2 of this Agreement.
3.4 It is further agreed by the Parties that in consideration of the
purchase of the Shares at a premium to the current market price for Southwall
Common Stock, Southwall shall issue to Teijin at the Closing a warrant to
purchase an additional 158,000 shares of Common Stock at a price of US$9.00 per
share, which may be exercised within a three (3) year period from the Closing
Date, which warrant shall be in the form attached hereto as Exhibit A.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES AND COVENANTS
BY SOUTHWALL
Southwall agrees to make the representations and warranties set forth on
Exhibit B hereto except as set forth on the Schedule of Exceptions attached
thereto as of the Closing Date.
ARTICLE 5
REPRSENTATIONS AND WARRANTIES BY TEIJIN
Teijin represents and warrants to Southwall as follows:
5.1.1 Teijin is a corporation duly organized, validly existing, and in
good standing under the laws of Japan.
5.1.2 This Agreement constitutes the legal, valid, and binding
obligation of Teijin, enforceable against Teijin in accordance with its terms.
Teijin has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement.
5.1.3 Teijin is acquiring the 667,000 shares as mentioned in Article 3
hereinabove for its own account and not with a view to their distribution within
the meaning of Section 2(11) of the Securities Act.
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Teijin agrees not to sell or transfer the above-mentioned 667,000 shares of
Southwall Common Stock for at least two (2) years after Closing without the
prior written consent of Southwall. In accordance with Securities Act these
shares shall be governed by Rule 144 and other applicable SEC regulations and
shall contain the appropriate legends.
After the said two (2) years, Teijin may sell such shares without the prior
written consent of Southwall.
ARTICLE 6
REGISTRATION RIGHTS
Each of the parties covenants and agrees as to the provisions as set forth
in Exhibit C hereto.
ARTICLE 7
LOAN
7.1 As soon as practicable after the effective date of this Agreement,
Teijin will make financing arrangement for Southwall in the mount of
US$10,000,000.00 as a part of investment fund of the New Plant of Southwall. A
binding loan agreement, letter of guarantee and related formal instruments, if
any, shall be negotiated as soon as possible and shall be executed subject to
the completion of the Closing.
7.2 Major financing conditions are as follows:
(1) Date of Execution: On or before May 6, 1997
(2) First Draw Down Date: May 6, 1997
(3) Expected First Draw Down Amount: US$5,000,000
(4) Second Draw Down Date: Within six (6) months of First Draw Down
Date
(5) Expected Second Draw Down Amount: Balance of Total Loan Amount
(6) Total Loan Amount: US$10,000,000.
(7) Financing Purpose: Investment fund required for building the New
Plant.
(8) Expected Lender: First class Japanese Bank or its United States
financing company designated by Teijin.
(9) Borrower: Southwall.
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(10) Grace Period: Four (4) years after the First Draw Down Date.
During this period, semi-annual, interest-only payments, including
guarantee fee.
(11) Repayments: Eight (8) semi-annual equivalent principal repayments,
plus accrued interest and guarantee fee starting forty-eight (48)
months after the First Draw Down Date.
(12) Interest rate, including guarantee fee: In total one (1) percent
per annum above six (6) months LIBOR rate by BBA.
(For the purpose of this Agreement, the six (6) months LIBOR rate means the
semi-annual floating rate, which shall first be the effective rate as of (2) two
business days before the date of draw down and thereafter each time to be
decided by the effective rate as of two (2) business days before the next six
(6) month period.)
(13) Security: Southwall shall secure this loan in a manner
satisfactory to Teijin based on mutually agreed upon valuation of
manufacturing equipment and other tangible and intangible assets
of the New Plant.
(14) Prepayment: Southwall may have the right to prepay this loan in
full or in part without any penalty at any time, provided that
Southwall shall notify Teijin and the lender bank at least six (6)
months prior to intended prepayment and will comply with
prepayment terms of the loan agreement and letter of guarantee.
ARTICLE 8
COLLABORATION IN TECHNOLOGY.
Southwall and Teijin will negotiate in good faith with respect to
collaboration on the development of polyester or any other new film substrate
products and/or processes at adequate facilities of Southwall in the United
States of America and/or Teijin in Japan as the case may be, or in such other
appropriate places as the parties may mutually agree.
Both Parties will commence collaboration discussions under this Article
within two (2) months after the Closing Date.
ARTICLE 9
SALE AND DISTRIBUTION OF SOUTHWALL PRODUCTS
Teijin may request Southwall to grant distribution rights for Southwall
products within certain territories, including Japan, subject to existing
contractual relationships. By deliberation Southwall may grant distribution
rights of agreed Southwall products to Teijin in the
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agreed territories. The terms and specific nature of such distribution rights
shall also be separately agreed upon by the Parties.
ARTICLE 10
MATERIAL SUPPLY
It is acknowledged that Teijin is the major supplier of PET film to
Southwall. In recognition of this status Southwall hereby acknowledges Teijin as
a Most Favored Supplier and, during the term of this Agreement, Southwall shall
grant Teijin the most preferential position in respect to Southwall's purchases
of PET film and/or other new films so long as the price, quality and other
supply conditions are competitive with those of other supplier(s).
ARTICLE 11
FAIR RELATIONSHIP
Nothing in this Agreement prohibits or restricts any fair and arm's length
competition between the Parties; provided, however, that if, at any time during
the term of this Agreement, either Party becomes aware of any additional
collaboration opportunity with regard to film substrate products, such Party
shall, to the extent possible and in accordance with the provision of paragraph
2.1 of this Agreement, offer to meet and confer with the other Party concerning
such an additional opportunity.
ARTICLE 12
TERM AND TERMINATION
12.1 This Agreement shall become effective as of the date first above
written subject to the approval of the respective Boards of Directors of
Southwall and Teijin and approval of governmental authorities of Japan and the
United States of America, if such governmental approval is necessary.
12.2 This Agreement may, with sixty (60) days prior written notice, be
terminated:
(a) by either Southwall or Teijin if a material breach of any
provisions of this Agreement has been committed by the other Party and such
breach has not been waived or cured within sixty (60) days after notice of such
breach;
(b) by mutual consent of Southwall and Teijin; or
(c) by either Southwall or Teijin if the Closing has not occurred
(other than through the failure of any Party) on or before May 30, 1997.
12.3 Unless earlier terminated under the preceding paragraph, this
Agreement shall be effective until the termination of the Loan Agreement
stipulated in Article 7 hereinabove or seven (7) years after the effective date
of this Agreement whichever occurs later. If Teijin
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owns 5% of the outstanding Common Stock of Southwall at the time of termination
of this Agreement, the Parties will enter into good faith negotiation regarding
further collaboration to benefit both Parties.
The provisions of paragraphs 13.1, 13.3 and 13.6 shall survive the
termination hereunder.
ARTICLE 13
GENERAL PROVISIONS
13.1 Except as otherwise expressly provided in this Agreement, each Party
will bear its respective expenses incurred in connection with the preparation,
execution and performance of this Agreement and the contemplated transactions,
including all fees and expenses of agents, representatives, legal counsel and
accountants.
In the event of early termination of this Agreement under paragraph 12.2,
the obligation of each Party to pay its own expenses will be subject to any
rights of such Party arising from a breach of this Agreement by the other Party.
13.2 Any public announcement or similar publicity with respect to this
Agreement or the contemplated transactions will not be issued without the prior
written consent of the other Party hereto, except as required by law.
13.3 Each Party will hold in confidence and not disclose to any of its own
personnel who do not have a need to know or to any third party any information
specifically marked as confidential which is received by it from the other Party
in connection with the transactions contemplated hereby, without the prior
written consent of the other Party.
The foregoing obligation of confidence shall extend for the term of this
Agreement and any extensions hereof and for a period of five (5) years
thereafter, provided; however, that the above confidentiality obligation shall
not apply to any information:
(a) which is or becomes part of the public domain other than
through breach of this Agreement or through the fault of the receiving Party;
(b) which is or becomes available to the receiving Party from a
source other than the disclosing Party, which source has no obligation to the
disclosing Party in respect thereof;
(c) which is made available by the disclosing Party in written
form to a third party which is not a subsidiary of the disclosing Party without
any confidentiality restrictions;
(d) which is required to be disclosed by law or governmental
order; or
(e) disclosure of which is mutually agreed to by the Parties.
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13.4 All notices, consents, requests, demands and other communications
authorized or required to be given pursuant to this Agreement shall be given in
writing:
If to Southwall: President
Southwall Technologies Inc.
1029 Corporation Way
Palo Alto, CA 94303
If to Teijin: General Manager
Films Planning & Administration Dept.
Teijin Limited
Iino Bldg.,
1-1, Uchisaiwaicho 2-Chome
Chiyoda-Ku, Tokyo 100
JAPAN
Notices under this Agreement shall be deemed effective on the earlier of:
actual receipt; one working day after dispatch when sent by telex, cable or by
telefax to the recipient's proper telex or telefax number, or when delivered by
hand, or ten (10) working days after being sent by air mail, certified or
registered mail, postage pre-paid, return receipt requested, addressed as set
out above (or as otherwise designated by any Party in writing by notice given in
accordance with this paragraph).
13.5 The provisions in this Agreement relating to the Shares will be
governed by California law; provisions concerning the loan documents
contemplated hereby will be governed by Japanese law unless Teijin agrees that
such provisions shall be governed by California law. All other agreements
contemplated hereby shall be governed according to the mutual agreement of the
parties.
13.6 Any disputes, controversy or claim arising out of or relating to this
Agreement, or breach, termination, invalidity thereof, shall be finally settled
by arbitration in accordance with the UNCITRAL Arbitration Rules as presently in
force. The number of arbitrators shall be three (3). The language to be used in
the arbitration shall be English. If Teijin initiates the arbitration the
location of the arbitration shall be San Francisco, California. If Southwall
initiates the arbitration the location of the arbitration shall be Tokyo, Japan.
13.7 Any failure of Southwall, on the one hand, or Teijin, on the other
hand, to comply with any obligation, covenant, agreement or condition herein may
be waived in writing by the other Party, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits waivers or consents
by or on behalf of either Party, such waiver or consent shall be given in
writing.
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13.8 This Agreement supersedes all prior agreements between the Parties
with respect to its subject matter (including the Letter of Intent between
Southwall and Teijin dated March 7, 1997) and constitutes the complete and
exclusive statement of the agreement between the Parties with respect to its
subject matter. This Agreement may not be amended, waived or modified except by
an instrument in writing executed by the Parties.
13.9 This Agreement shall be binding upon and shall inure to the benefit of
the Parties and their successors and assigns; provided, however, that neither
Party may assign any of its rights under this Agreement without the prior
written consent of the other Party.
13.10 If any term, covenant, restriction or provision of this Agreement is
held invalid or unenforceable by any court of competent jurisdiction, the
remaining terms, covenants, restrictions and provisions of this Agreement will
remain in full force and effect, and shall in no way be affected, impaired or
invalidated; it being the intent of the Parties that they would have executed
the remaining terms, covenants, restrictions and provisions without including
any of such which may be hereafter declared invalid, void or unenforceable.
13.11 Any failure or omission by the Parties in the performance of any
obligation under this Agreement shall not be deemed a breach of this Agreement
and shall not create any liability, if the same arises from any cause or causes
beyond the control of any of the Parties, including, but not limited to, the
following, which, for the purpose of this Agreement, shall be regarded as beyond
the control of each of the Parties: Act of God, fire, storm, flood, earthquake,
governmental regulation or direction, acts of the public enemy, war, rebellion,
insurrection, riot, invasion, strike or lockout; provided, however, that each
Party shall resume the performance whenever such causes are removed.
13.12 The headings of Articles in this Agreement are provided for
convenience only and will not affect its construction or interpretation.
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day first above
written.
FOR SOUTHWALL TECHNOLOGIES INC.
/s/ Martin M. Schwartz
----------------------------------------
Martin M. Schwartz
President and Chief Executive Officer
FOR TEIJIN LIMITED
/s/ H. Itagaki
----------------------------------------
Hiroshi Itagaki
President and Chief Executive Officer
<PAGE>
EXHIBIT A
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Void after
May 30, 2000
SOUTHWALL TECHNOLOGIES, INC.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
This Warrant is issued to Teijin Limited by Southwall Technologies, Inc., a
Delaware corporation (the "Company"), pursuant to the terms of that certain
Basic Agreement Regarding Stock Purchase Between Southwall and Teijin (the
"Stock Purchase Agreement") dated as of April 9, 1997 by and among the Company
and Teijin Limited, a Japanese corporation.
1. Purchase of Shares. Subject to the terms and conditions hereinafter set
forth, the holder of this Warrant is entitled, upon surrender of this Warrant at
the principal office of the Company (or at such other place as the Company shall
notify the holder hereof in writing), to purchase from the Company up to 158,000
fully paid and nonassessable shares of Common Stock of the Company, as more
fully described below. The shares of Common Stock issuable pursuant to this
Section 1 (the "Shares") shall also be subject to adjustment pursuant to Section
8 hereof.
2. Purchase Price. The purchase price for the Shares shall be $9.00 per
share. Such price shall be subject to adjustment pursuant to Section 8 hereof
(such price, as adjusted from time to time, is herein referred to as the
"Exercise Price").
3. Exercise Period. This Warrant is immediately exercisable and it shall
remain exercisable until and including May 30, 2000; provided, however, that in
the event of (a) the sale of all or substantially all the assets of the Company,
or (b) the merger of the Company into or consolidation with any other entity,
this Warrant shall, on the date of such event, no longer be exercisable and
become null and void. In the event of a proposed transaction of the kind
described above, the Company shall notify the holder of the Warrant at least
fifteen (15) days prior to the consummation of such event or transaction.
<PAGE>
4. Method of Exercise. While this Warrant remains outstanding and
exercisable in accordance with Section 3 above, the holder may exercise, in
whole or in part, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(i) the surrender of the Warrant, together with a duly executed
copy of the form of subscription attached hereto, to the Secretary of the
Company at its principal offices; and
(ii) the payment to the Company of an amount equal to the
aggregate Exercise Price for the number of Shares being purchased.
5. Net Exercise. In lieu of exercising this Warrant by paying the exercise
price in cash, the holder of this Warrant may elect to receive shares equal to
the value of this Warrant (or the portion thereof being canceled) by surrender
of this Warrant at the principal office of the Company together with notice of
such election, in which event the Company shall issue to the holder hereof a
number of shares of Common Stock computed using the following formula:
Y (A-B)
-------
X= A
Where
X-- The number of shares of Common Stock to be issued to the
holder of this Warrant.
Y-- The number of shares of Common Stock purchasable under this
Warrant.
A-- The fair market value of one share of the Company's Common
Stock.
B-- The Exercise Price (as adjusted to the date of such
calculations).
For purposes of this Paragraph 5, the fair market value of Common Stock
shall mean the average of the closing bid and asked prices of the Common Stock
quoted in the over-the-counter market in which the Common Stock is traded or the
closing price quoted on the Nasdaq Stock Market or on any exchange on which the
Common Stock is listed, whichever is applicable, as published in the Western
Edition of The Wall Street Journal for the ten trading days prior to the date of
determination of fair market value (or such shorter period of time during which
such stock was traded over-the-counter or on such exchange). If the Common Stock
is not traded on the over-the-counter market or on an exchange, the fair market
value shall be the price per share that the Company could obtain from a willing
buyer for shares of Common Stock sold by the Company from authorized but
unissued shares, as such price shall be determined in good faith by the
Company's Board of Directors.
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6. Certificates for Shares. Upon the exercise of the purchase rights
evidenced by this Warrant, one or more certificates for the number of Shares so
purchased shall be issued as soon as practicable thereafter, and in any event
within thirty (30) days of the delivery of the subscription notice.
7. Issuance of Shares. The Company covenants that the Shares, when issued
pursuant to the exercise of this Warrant, will be duly and validly issued, fully
paid and nonassessable and free from all taxes, liens, and charges with respect
to the issuance thereof.
8. Adjustment of Exercise Price and Number of Shares. The number of and
kind of securities purchasable upon exercise of this Warrant and the Exercise
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company
shall at any time prior to the expiration of this Warrant subdivide its Common
Stock, by split-up or otherwise, or combine its Common Stock, or issue
additional shares of its Common Stock as a dividend with respect to any shares
of its Common Stock, the number of Shares issuable on the exercise of this
Warrant shall forthwith be proportionately increased in the case of a
subdivision or stock dividend, or proportionately decreased in the case of a
combination. Appropriate adjustments shall also be made to the purchase price
payable per share, but the aggregate purchase price payable for the total number
of Shares purchasable under this Warrant (as adjusted) shall remain the same.
Any adjustment under this Section 8(a) shall become effective at the close of
business on the date the subdivision or combination becomes effective, or as of
the record date of such dividend, or in the event that no record date is fixed,
upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of any
reclassification, capital reorganization, or change in the Common Stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 8(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the holder of this Warrant, so that the holder of this
Warrant shall have the right at any time prior to the expiration of this Warrant
to purchase, at a total price equal to that payable upon the exercise of this
Warrant, the kind and amount of shares of stock and other securities and
property receivable in connection with such reclassification, reorganization, or
change by a holder of the same number of shares of Common Stock as were
purchasable by the holder of this Warrant immediately prior to such
reclassification, reorganization, or change. In any such case appropriate
provisions shall be made with respect to the rights and interest of the holder
of this Warrant so that the provisions hereof shall thereafter be applicable
with respect to any shares of stock or other securities and property deliverable
upon exercise hereof, and appropriate adjustments shall be made to the purchase
price per share payable hereunder, provided the aggregate purchase price shall
remain the same.
(c) Notice of Adjustment. When any adjustment is required to be made in
the number or kind of shares purchasable upon exercise of the Warrant, or in the
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Exercise Price, the Company shall promptly notify the holder of such event and
of the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of this Warrant.
9. No Fractional Shares or Scrip. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but in lieu of such fractional shares the Company shall make a cash
payment therefor on the basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the holder
shall not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
shareholder meetings, and such holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company.
11. Successors and Assigns. The terms and provisions of this Warrant and
the Stock Purchase Agreement shall inure to the benefit of, and be binding upon,
the Company and the holders hereof and their respective successors and assigns.
12. Amendments and Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of the shares of Common Stock issued or
issuable upon exercise of this Warrant. Any waiver or amendment effected in
accordance with this Section shall be binding upon each holder of any Shares
purchased under this Warrant at the time outstanding (including securities into
which such Shares have been converted), each future holder of all such Shares,
and the Company.
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<PAGE>
13. Transfer Procedure. Subject to the provisions of applicable securities
laws, and the written consent of the Company, the holder hereof may transfer all
or part of this Warrant or the Shares issuable upon exercise of this Warrant by
setting forth the name, address and taxpayer identification number of the
transferee and surrendering this Warrant to the Company for reissuance to the
transferee(s) (and the holder if applicable).
14. Governing Law. This Warrant shall be governed by the laws of the State
of California as applied to agreements among California residents made and to be
performed entirely within the State of California.
SOUTHWALL TECHNOLOGIES, INC.
By: /s/ Martin M. Schwartz
------------------------------------------
Martin M. Schwartz, President and Chief
Executive Officer
Address: Southwall Technologies, Inc.
1029 Corporation Way
Palo Alto, CA 94303
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<PAGE>
EXHIBIT B
ARTICLE 1
REPRESENATIONS AND WARRANTS OF
THE COMPANY
The Company hereby represents and warrants that, except as set forth on a
Schedule of Exceptions (the "Schedule of Exceptions"), which exceptions shall be
deemed to be representations and warranties as if made hereunder:
1.1 Organization. The Company is a duly organized and validly existing
corporation in good standing under the laws of the state of Delaware and is duly
qualified or registered to do business as a foreign corporation and is in good
standing in each jurisdiction which requires such qualification or registration
wherein it owns or leases any material properties or conducts any material
business, except where the failure so to qualify or register would not, in the
aggregate, have a material adverse effect on the Company. The Company has the
corporate power and authority to own its properties and conduct its business as
currently conducted.
1.2 Capitalization.
(a) The Company has duly authorized capital stock consisting of (i)
20,000,000 shares of Common Stock, $0.001 par value, of which 6,538,589 shares
were issued and outstanding on February 28, 1997 and 378,472 shares were held in
treasury, and (ii) 5,000,000 shares of Preferred Stock, none of which are issued
and outstanding on the date hereof or held in treasury. All such outstanding
shares of Common Stock are duly authorized, validly issued, fully paid and
nonassessable.
(b) The Company has the following outstanding securities which are
convertible into Common Stock as of March 31, 1997: the Convertible Subordinated
Note due May 31, 1999 to Monsanto Company, or its successors or assigns (the
"Monsanto Note"). The Monsanto Note is in the amount of US$2,650,000 and
convertible, prior to repayment, into shares of Southwall common stock at a
conversion price of US$10.00 per share, subject to certain anti-dilution
adjustments.
(c) The Company has adopted the following plans: (i) the Restated 1987
Stock Option Plan; (ii) the 1987 Employee Stock Purchase Plan; (iii) the 1997
Stock Incentive Plan; and (iv) the 1997 Employee Stock Purchase Plan. The
following information is provided as of March 31, 1997. With respect to the
Restated 1987 Stock Option Plan, a total of 2,275,000 shares have been reserved
for issuance, 563,050 shares have been issued and 1,659,237 shares remain
subject to outstanding options. With respect to the 1987 Employee Stock Purchase
Plan, 150,000 shares have been reserved for issuance, 125,213 shares have been
issued and no shares remain available for issuance because such plan terminated
in accordance with its terms, as of March 18, 1997. The 1997 Stock Incentive
Plan which supersedes the Restated 1987 Stock Option Plan was adopted by the
Board on March 20, 1997 and remains
<PAGE>
subject to stockholder approval and the 1997 Annual Meeting; 400,000 shares have
been reserved for issuance, and no options have been granted and no shares have
been issued. With respect to the 1997 Employee Stock Purchase Plan, which the
Board adopted on March 20, 1997 and which remaining subject to stockholder
approval at the 1997 Annual Meeting, 100,000 shares have been reserved for
issuance, and no shares have been issued. All such plans have been described in
a list previously delivered to Teijin (the "Stock Plans").
(d) All of the issued and outstanding securities of the Company have
been duly authorized and validly issued and are fully paid and nonassessable.
Except as described in this Section 1.2 or set forth in a list previously
delivered to Teijin, there is no other outstanding voting stock or other
outstanding rights to acquire voting stock. Except as set forth herein there are
no existing voting trusts, voting agreements or similar agreements between the
Company and any of its shareholders.
(e) Copies of the Company's Certificate of Incorporation and the
Company's Bylaws have been delivered by the Company to Teijin and are complete
and correct. The Company will furnish upon the request of Teijin true and
correct copies of any amendments to the foregoing instruments until this
Agreement is terminated.
1.3 Subsidiaries. The only direct or indirect subsidiaries of the Company
are those named in Exhibit 21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 or a list previously furnished to
Teijin, and the information relating to the organization of such subsidiaries,
set forth in such list is true and correct. Except as set forth in the SEC
Documents or a list furnished to Teijin, the Company is, directly or indirectly,
the record and beneficial owner of all of the outstanding shares of the
subsidiaries, free and clear of any claim, lien, encumbrance or agreement with
respect thereto, and no equity securities of such subsidiaries are required to
be issued by reason of any warrants, rights, options, calls, commitments or
other agreements.
1.4 Authorization and Approval. The Company has full corporate power and
authority to enter into and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery, and performance of
this Agreement by the Company have been duly authorized by all requisite
corporate action. This Agreement constitutes a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolveney and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies, and to limitations of public
policy as they may apply to Section 1.4 of Exhibit C to this Agreement. The
Company is not a party to, subject to, or bound by any agreement or any
judgment, order, writ, injunction, or decree of any court, governmental body, or
arbitrator which would conflict with or be breached by the execution, delivery
or performance by the Company of this Agreement or which would prevent the
carrying out of this Agreement. The execution and delivery of this Agreement
does not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under any
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provision of the Certificate of Incorporation or Bylaws of the Company or any
mortgage, indenture, lease or other agreement or instrument, permit, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, the effect of which would
have a material adverse effect on the Company as a whole or would materially
impair or restrict the Company's power to perform its obligations as
contemplated hereby. The Shares, when sold and delivered by the Company and paid
for by Teijin pursuant to this Agreement, will have been duly and validly
issued, will be fully paid and nonassessable, and will have the rights,
preferences, privileges and restrictions described in the Certificate of
Incorporation. The Common Stock issuable upon exercise, of the Warrants has been
duly and validly reserved, and, when issued in compliance with the provisions of
this Agreement and the Warrant, will be validly issued and will be fully paid
and nonassessable. The issuance and sale of shares of the Shares and Warrant to
Teijin under Article III of the Agreement hereof will not give rise to any
preemptive rights or rights of first refusal on behalf of any person or group.
1.5 SEC Filings and Financial Statements. The Company has heretofore
furnished to Teijin copies of its Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, and all other registration statements, reports and
proxy statements filed by the Company with the Securities and Exchange
Commission ("SEC") on or after January 1, 1996 ("SEC Documents"). Each of the
SEC Documents was prepared and filed in substantial compliance with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder. Each of the SEC Documents was complete and correct in all material
respects as of its date, and, as of its date, did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which made, not misleading. The consolidated financial
statements and the notes thereto contained in the SEC Documents are correct and
complete and fairly present the consolidated financial position of the Company
and its subsidiaries on the respective dates thereof and the results of
operations for the periods then ended, and the balance sheets and notes thereto
contained therein show and properly reflect all material liabilities of the
Company and its consolidated subsidiaries on the respective dates thereof,
except for various claims and lawsuits against the Company now pending, the
total liability from which would not, in the judgment of the Company, materially
adversely affect the business, properties, or financial condition of the Company
and its subsidiaries, taken as a whole. Each such financial statement complies
as to form in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto, and
was prepared in conformity with generally accepted accounting principles
consistently applied (except, in the case of unaudited statements, as permitted
by the SEC for its Quarterly Reports on Form 10-Q).
1.6 Litigation. There is no action, suit, proceeding or investigation
pending or to Southwall's knowledge threatened against the Company that
questions the validity of this Agreement, or the right of the Company to enter
into such agreement, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in any
material adverse changes in the assets, condition, affairs or prospects of the
3
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Company, financially or otherwise, or any change in the current equity ownership
of the Company,
1.7 No Pending Transactions. The Company is not a party to or bound by any
agreement (i) to merge or consolidate with, or acquire all or substantially all
of the property and assets of, any other person, (ii) to sell, lease, or
exchange all or any substantial part of its property and assets to any other
person, or (iii) except as otherwise disclosed to Teijin or as contemplated by
this Agreement, to issue, grant or sell any voting stock or rights to acquire
voting stock in any transaction where Teijin would, upon completion of the
transaction, own five percent (5%) or more of all outstanding Voting Stock.
1.8 No Material Adverse Changes. Except as otherwise disclosed herein or in
the SEC Documents, since December 31, 1996, there has not been any material
adverse change in the financial condition or in the operations, properties,
assets or liabilities of the Company and its subsidiaries, taken as a whole,
whether or not arising in the ordinary course of business.
1.9 Dividends. Since December 31, 1996, the Company has not made any
declaration, setting aside or payment to the holders of its Common Stock of any
dividends or other distributions in respect of the Common Stock or agreed to
take any such action (other than repurchases under employee stock plans).
1.10 Intellectual Property Rights. Except as disclosed in the SEC Documents
filed prior to the execution of this Agreement, to its knowledge the Company and
its subsidiaries own or possess adequate rights to use all material patents,
trademarks, trade names, service marks, trade secrets, copyrights and other
proprietary industrial property rights as are necessary in connection with the
business of the Company, the lack of which would have a material adverse effect
on the Company and its subsidiaries taken as a whole, and the Company does not
have any knowledge of any conflict with the rights of the Company and its
subsidiaries therein or any knowledge of any conflict by them with the rights of
others therein which would have a material adverse effect on the Company and its
subsidiaries taken as a whole.
1.11 Compliance with Laws. To the Company's best knowledge, the business of
the Company and its subsidiaries is not being conducted in material violation of
any applicable law, rule or regulation (including environmental regulations),
judgment, decree or order of any governmental entity which is material to the
conduct of the Company's business, except for any violations which, individually
or in the aggregate, will not have a material adverse effect on the business
condition of the Company and its subsidiaries taken as a whole. There are no
judgments or outstanding orders, injunctions, decrees, stipulations or awards
(whether rendered by a court or administrative agency or by arbitration) against
the Company or any subsidiary or against any of the respective properties or
business which will, individually or in the aggregate, have a material adverse
effect on the business condition of the Company and its subsidiaries taken as a
whole.
4
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1.12 Disclosure.
(a) No representation or warranty made by the Company in this
Agreement, and no statement contained in any certificate, list or other
instrument specified in this Agreement (when read together and taken as a
whole), contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances under which they are made, not misleading.
(b) Notwithstanding the foregoing, Teijin shall be deemed to have
knowledge of all information set forth in the SEC Documents. Any facts disclosed
in the SEC Documents or in response to any particular representation contained
herein shall be deemed to have been disclosed to Teijin in connection with all
other applicable representations contained herein.
ARTICLE II
COVENANTS OF THE COMPANY
Until the termination of this Agreement or until Teijin shall no longer
hold 5% of the outstanding Common Stock of the Company, the Company covenants
and agrees as follows:
2.1 Rule 144. With a view to making available to Teijin the benefits of
Rule 144 promulgated under the Securities Act, any other similar rules or
regulations of the SEC which may at any time permit Teijin to sell or distribute
without registration the Shares and shares of Common Stock issued upon exercise
of the Warrant, the Company agrees to use its best efforts to file with the SEC
in a timely manner all reports and other documents required to be filed under
the Exchange Act.
2.2 Future SEC Filings. The Company shall promptly provide to Teijin copies
of all SEC Documents (excluding exhibits) filed with the SEC after the Closing
Date.
2.3 Stock Exchange Listing. The Company will use its best efforts to obtain
the listing on the Nasdaq National Market of the Shares and the shares of Common
Stock which Teijin may acquire upon exercise of the Warrant.
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EXHIBIT C
ARTICLE I
REGISTRATION RIGHTS
1.1 Rights to Demand Registration.
(a) If at any time and from time to time, Teijin shall request the
Company in writing to register under the Securities Act the Shares or any shares
of Common Stock issued upon exercise of the Warrant and held by Teijin (the
shares subject to such request herein referred to as the "Registrable Shares"),
the Company shall use all reasonable efforts to cause the Registrable Shares
specified in such request (which must be at least such percentage of the
aggregate shares of Common Stock then outstanding as is reasonably anticipated
to result in an offering with aggregate gross proceeds to Teijin in excess of
$7,500,000, or such lesser percentage if it constitutes all shares of voting
stock held by Teijin at such time) to be registered as soon as reasonably
practicable so as to permit the sale thereof and in connection therewith prepare
and file, on such appropriate form as the Company in its discretion shall
determine, a registration statement under the Securities Act to effect such
registration and seek to have such registration statement become effective as
promptly as practicable; provided, however, that each such request shall:
(i) specify the number of Registrable Shares intended to be
offered and sold,
(ii) express the present intention of Teijin to offer or cause
the offering of such Registrable Shares for distribution,
(iii) describe the nature or method of the proposed offer and
sale thereof, and
(iv) contain the undertaking of Teijin to provide all such
information and materials and take all such action as may be required in order
to permit the Company to comply with all applicable requirements of the SEC and
to obtain any desired acceleration of the effective date of such registration
statement.
(b) Upon any registration becoming effective pursuant to this Section
1.1, the Company shall use its best efforts to keep such registration statement
current for a period of 90 days. Notwithstanding the foregoing, (i) the Company
shall not be obligated to cause any special audit to be undertaken in connection
with any such registration, (ii) the Company shall be entitled to postpone for a
reasonable period of time, but not in excess of 120 calendar days, the filing of
any registration statement otherwise required to be prepared and filed by it if
the Company at the time it receives a request for registration, reasonably
believes in good faith, and discloses to Teijin the reasons for such belief,
that it would be disadvantageous to
<PAGE>
the Company for such filing to be made at the time requested by Teijin in which
event the Company may delay the preparation and filing of a registration
statement for a period of up to 120 days and (iii) the Company shall not be
obligated to file a registration statement pursuant to this Section 1.1 during
the 90-day period following the effectiveness of any registration statement
filed by the Company in connection with an underwritten primary offering of its
securities. The obligation of the Company to register any Registrable Shares on
demand by Teijin in accordance with this Section 1.1 shall expire after
registration statements filed by reason of such demands have become effective on
four separate occasions, and in no event shall Teijin be entitled to request
more than two demand registration statements hereunder in any 12-month period.
The Company shall not be obligated to file any registration statement if the
number of shares of Common Stock to be registered for sale would exceed ten
percent (10%) of the aggregate shares of Common Stock then outstanding. In
connection with any demand offering under this section 1.1 involving an
underwriting of shares of the Company's capital stock, the Company shall select
the underwriters subject to the reasonable consent of Teijin.
1.2 The Company's Obligations. As to each offering of Common Stock covered
by a registration statement referred to in Section 1.1, the Company shall:
(a) Use its best effort to have such registration statement declared
effective as promptly as reasonably practicable on or after such time and date
as specified by Teijin and will promptly notify Teijin and its underwriters, if
any, and confirm such advice in writing (i) when such registration statement has
become effective, (ii) when any post-effective amendment to any such
registration statement becomes effective and (iii) of any request by the SEC for
any amendment or supplement to such registration statement or any prospectus
relating thereto or for additional information;
(b) Furnish to Teijin or the underwriters such number of copies of any
prospectus (including any preliminary prospectus) in conformity with the
requirements of the Securities Act, as Teijin may reasonably request in order to
effect the offering and sale of the shares of Common Stock being offered and
sold by Teijin, but only while the Company is required under the provisions
hereof to cause the registration statement to remain current;
(c) Use the best efforts to register or qualify not later than the
effective date of such registration statement the shares of Common Stock held by
Teijin registered thereunder under the "blue sky" laws of such states as Teijin
may reasonably request; provided, however, that the Company shall not be
obligated to qualify as a foreign corporation or as a dealer in securities or to
execute or file any general consent to service of process under the laws of any
such state where it is not at such time so qualified or subject; and
(d) For a period of at least 90 days from the effective date of the
registration statement, keep such registration statement in effect and current
and from time to time amend or supplement the registration statement and the
prospectus in connection therewith in compliance with the Securities Act and the
rules and regulations adopted thereunder to permit the sale or distribution of
the shares with respect to which such registration statement shall have become
effective. If at any time the SEC should institute or threaten to institute any
proceedings
2
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for the purpose of issuing, or should issue a stop order suspending the
effectiveness of any such registration statement, the Company will promptly
notify Teijin and will use its best efforts to prevent the issuance of any such
stop order or to obtain the withdrawal thereof as soon as possible. The Company
will advise Teijin promptly of any order or communication of any public board or
body addressed to the Company suspending or threatening to suspend the
qualification of any of the shares of Common Stock for sale in any Jurisdiction.
1.3 Expenses. The out-of-pocket costs and expenses incurred in connection
with any registration pursuant to Section 1.1 shall be borne by Teijin, provided
that Teijin shall not be required to reimburse the Company for compensation of
the Company's officers and employees, regular audit expenses, and normal
corporate costs. The costs and expenses of any such registration shall include,
without limitation, the reasonable fees and expenses of the Company's counsel
and its accountants and all other out-of-pocket costs and expenses of the
Company incident to the preparation, printing and filing under the Securities
Act of the registration statement and all amendments and supplements thereto and
the cost of furnishing copies of each preliminary prospectus, each final
prospectus and, each amendment or supplement thereto to underwriters, dealers
and other purchasers of the securities so registered, the costs and expenses
incurred in connection with the qualification of such securities so registered
under the "blue sky" laws of various jurisdictions, the fees and expenses of the
Company's transfer agent and all other costs and expenses of complying with the
foregoing provisions of this Article I.
1.4 Indemnification.
(a) In the case of any offering registered pursuant to Section 1.1, the
Company hereby indemnifies and agrees to hold harmless Teijin, any underwriter
(as defined in the Securities Act) of shares offered by Teijin, and each person,
if any, who controls Teijin or any such underwriter within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities, joint or several, to which any such persons may be subject, under
the Securities Act or otherwise, and to reimburse any of such persons for any
legal or other expenses reasonably incurred by them in connection with
investigating any claims or defending against any actions, insofar as such
losses, claims, damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
registration statement under which such Registrable Shares were registered under
the Securities Act pursuant to this Article I, any prospectus contained therein,
if used during the period appropriate for such prospectus, or any amendment or
supplement thereto, or the omission or alleged omission to state therein (if so
used) a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except insofar as such losses, claims, damages or liabilities arise
out of or are (x) based upon any such untrue statement or omission or alleged
untrue statement or omission made in reliance upon information furnished to the
Company in writing by Teijin or any underwriter for Teijin specifically for use
therein, or (y) made in any preliminary prospectus, and the prospectus contained
in the registration statement, as declared effective or in the form filed by the
Company with the SEC pursuant to Rule 424 under the Securities Act shall have
corrected such statement or omission and a copy of such prospectus shall not
have been sent or otherwise delivered to such person at or prior to the
confirmation of such sale to such person.
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1.5 Participation. The Company will permit counsel and other
representatives of Teijin to participate in meetings in connection with the
preparation of each registration statement referred to in Section 1.1. Before
filing the registration statement or amendments or supplements thereto, the
Company shall furnish to Teijin copies of all such documents proposed to be
filed. The Company shall promptly deliver to Teijin copies of the registration
statement and amendments thereto as filed with the SEC and upon the
effectiveness of the registration statement such number of copies of the
prospectus included in such registration statement as Teijin may reasonably
request.
1.6 Proposed Distribution. As to each registration statement referred to in
Section 1.1, Teijin will provide the Company with a description of the proposed
method or methods of distribution of securities from time to time contemplated
by Teijin, and the Company shall include such description in the registration
statement and file any and all amendments and supplements necessary in
connection therewith.
1.7 Prior Registration Rights. Notwithstanding the foregoing, however, the
registration rights granted to Teijin in this Article I are subject to the
registration rights granted by the Company to certain investors under agreements
entered into by the Company prior to the date of this Agreement. The Company has
made available to Teijin copies of such prior registration rights.
1.8 Termination of Registration Rights. Teijin shall not be entitled to
exercise any right provided for in this Article 1 after the two (3) year period
following the issuance of the shares.
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EXHIBIT 10.89
CREDIT AGREEMENT
This CREDIT AGREEMENT (the "Agreement"), dated as of May 6, 1997 is made
between Southwall Technologies Inc., a Delaware corporation (the "Company"), and
The Sanwa Bank, Limited, San Francisco Branch (the "Bank").
In consideration of the premises and mutual covenants set forth below, the
parties agree as follows:
ARTICLE I
INTERPRETATIONS AND DEFINITIONS
Section 1.01 Definitions. The following terms are used in this Agreement
with the following respective meanings:
"Agreement" means this Credit Agreement, dated as of May 6, 1997 between
the Bank and the Company, as amended from time to time in accordance with its
terms.
"Applicable Rate" means the LIBOR Rate plus the Applicable Spread.
"Applicable Spread" means 0.4375%.
"Bank" means The Sanwa Bank, Limited, San Francisco Branch.
"Business Day" means each day other than Saturday, a Sunday or a day on
which commercial banks in San Francisco, California, New York, New York or
London are authorized or required by law to close.
"Company" means Southwall Technologies Inc., a Delaware corporation.
"Company's Account" shall mean account number 5153-11059 at the Japanese
Banking San Francisco Branch of Sanwa Bank California.
"Default" means any condition or event which constitutes an Event of
Default or which with notice, lapse of time or both would, unless cured or
waived, constitute an Event of Default.
"Dollars" and the sign "$" mean the lawful currency of the United States of
America.
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"Effective Date" means, in respect of this Agreement, the later of (i) May
6, 1997, and (ii) the date on which this Agreement, after having been executed
by the Company and the Bank, shall have been delivered to the Bank and all
conditions precedent as presented in Article IV of this Agreement have been met.
"Equity Securities" of any person shall mean (i) all common stock,
preferred stock, participations, shares, partnership interests or other equity
interests in and of such person, and (ii) all warrants, options and other rights
to acquire any of the foregoing.
"Event of Default" has the meaning set forth in Section 7.01.
"Federal Funds Rate" shall mean the Bank's Federal Funds Rate, as announced
by the Bank from its San Francisco Branch office from time to time.
"Final Maturity Date" shall mean November 5, 2004. If such date is not a
Business Day then the Final Maturity Date shall be the next preceding Business
Day.
"Governmental Authority" means any national, state or local government, any
political subdivision or any governmental, judicial, public or statutory
instrumentality, authority, body or entity, including the Federal Deposit
Insurance Corporation, any central bank or any comparable authority.
"Governmental Rule" means any law, rule, regulation, ordinance, order, code
interpretation, judgment, decree, directive, guideline, policy or similar form
of decision of any Governmental Authority.
"Guarantor" shall mean Teijin Limited, a Japan corporation.
"Guaranty" means that certain Guaranty, written in japanese and governed by
the laws of Japan, to be executed by Guarantor on or before the Effective Date
in the form of Exhibit B attached to this Agreement, as amended from time to
time in accordance with its terms.
"Interest Payment Date" means the last day of every Interest Period.
"Interest Period" means the period beginning on the date of the first
disbursement of the Loan pursuant to Section 2.01 of this Agreement and ending
on and including November 6, 1997 and subsequent 6-month periods beginning on
the most recent Interest Payment Date and ending on and including each May 6 and
November 6 to and including the Final Maturity Date; provided, however (i) no
Interest Period will extend beyond the Final Maturity Date, and (ii) if an
Interest Period would end on a day that is not a Business Day, such Interest
Period shall be extended to the next Business Day.
"LIBOR Rate" means the US$ LIBOR BBA which appears on Telerate Page 3750 or
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such applicable page as may be designated from time to time as of 11:00 a.m.
London time on the day that is two (2) Business Days preceding the first day of
the applicable Interest Period, for the number of months in such Interest
Period.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement or preferential
arrangement, charge, or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform Com-
mercial Code or comparable law of any jurisdiction to evidence any of the
foregoing).
"Loan" shall mean the aggregate amount advanced by the Bank to the Company
under this Agreement.
"Loan Documents" shall mean this Agreement, the Note, the Guaranty and such
other certificates, agreements, instruments, financing statements and other
documents as are delivered to the Bank from time to time in connection with the
Loan, this Agreement or any other Loan Document.
"Note" means a promissory note made as of May 6, 1997 by the Company in the
form of Exhibit A attached to this Agreement, as amended from time to time in
accordance with its terms.
"Second Disbursement" shall have the meaning as set forth in section 2.01
of this Agreement.
Section 1.02 Interpretation. In this Agreement, the singular includes the
plural and the plural the singular; words importing any gender include the other
genders; references to statutes are to be construed as including all statutory
provisions consolidating, amending or replacing the statute referred to; the
words "including", "includes" and "include" shall be deemed to be followed by
the words "without limitation"; references to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications to such instruments, but only to the extent such amendments and
other modifications are not prohibited by the terms of this Agreement.
ARTICLE 11
THE LOAN
Section 2.01 Terms and Conditions of Loan. Subject to the terms and
conditions of this Agreement, the Bank hereby agrees to extend the Loan to the
Company and the Company hereby agrees to borrow the Loan from the Bank. The
principal amount of the Loan will be advanced in two equal disbursements of
$5,000,000.00 each to the Company's
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Account. The first disbursement will be made on the Effective Date or as soon as
reasonably possible thereafter and the second disbursement will be made on
November 6, 1997, or if November 6, 1997 is not a Business Day, the next day
which is a Business Day ("Second Disbursement"). Each disbursement will be made
not later than 12:00 noon (San Francisco time) on the day such disbursement
occurs.
Section 2.02 Repayment of Principal. Installments of principal of the Loan
shall be due and payable by the Company as follows:
Date Amount Payable
---- --------------
May 6, 2001 $1,250,000.00
November 6, 2001 $1,250,000.00
May 6, 2002 $1,250,000.00
November 6, 2002 $1,250,000.00
May 6, 2003 $1,250,000.00
November 6, 2003 $1,250,000.00
May 6, 2004 $1,250,000.00
The outstanding principal amount of the Loan together with all accrued and
unpaid interest thereon shall be due and payable by the Company on the Final
Maturity Date.
Section 2.03 Interest. The unpaid principal amount of the Loan shall bear
interest until paid in full at the Applicable Rate, payable in arrears to the
extent accrued on each Interest Payment Date.
Section 2.04 Prepayments. Until the date which is the first anniversary of
the Effective Date, the Company shall have no right to prepay all or any portion
of the Loan. From and after the date which is the first anniversary of the
Effective Date, the Company may prepay all or any portion of the Loan; provided,
however that any such prepayment of the Loan (i) shall be in a principal amount
of not less than $100,000, (ii) shall include payment of accrued interest on
such prepaid principal, (iii) shall be made only upon at least four (4) Business
Days prior written notice to Bank, and (iv) shall include payment by the Company
of all amounts required to be paid by the Company pursuant to Section 3.02 of
this Agreement by reason of any prepayment which is made on a date which is not
an Interest Payment Date (which amounts required to be paid under Section 3.02
do not include any prepayment premium or similar penalty). Additionally, no
partial prepayments shall be permitted if a Default shall have occurred and be
continuing. In the event of any partial prepayment of the Loan, such partial
prepayment shall be applied first to the unamortized portion of the principal
due and payable on the Final Maturity Date and then to that portion of the
principal due and payable in installments as provided herein in reverse
chronological order.
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Section 2.05 Payments; Calculations.
(a) The Company shall make each payment due under this Agreement not later
than 11:30 a.m. (San Francisco time) on the date when due in lawful money of the
United States of America in immediately available funds to the Bank.
Notwithstanding the foregoing, the Company hereby authorizes the Bank to
transfer, or cause the transfer of, the amount of such payment to the Bank's
account on the date when due from the Company's Account; provided, however (i)
it shall be the Company's sole responsibility to ensure that there are
sufficient funds in the Company's Account to make all such payments when due,
and (ii) nothing contained in clause (i) above shall relieve the Company from
making any payment when due hereunder.
(b) Calculations. All computations of interest in respect of the Loan shall
be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest is payable.
(c) Business Day. If any payment hereunder to the Bank shall fall due on a
day that is not a Business Day, then such due date shall be extended to the next
succeeding Business Day, and such extension shall be taken into account in the
computation of interest, fees or other amounts due.
Section 2.06 Overdue Interest. In the event that the principal amount of
the Loan, any interest or any other amount payable by the Company under or
pursuant to this Agreement or any other Loan Document is not paid when due,
whether at stated maturity, by acceleration or otherwise, the Company shall pay
on demand interest on such unpaid amount (to the extent permitted by applicable
law) from the date such amount is due until the date such amount is paid in full
at a rate of two percent (2%) per annum plus the greater of the (1) Applicable
Rate or (2) the Federal Funds Rate at the time such payment became due. Each
change in the Federal Funds Rate shall be effective as of the opening of
business on the day such change occurs.
Section 2.07 Payments. All payments hereunder shall be made without set-off
or counterclaim, free and clear of all claims an without any deductions
whatsoever to the account of the Bank from time to time designated to the
Company in immediately available funds.
ARTICLE III
LEGAL RESTRICTIONS; YIELD PROTECTIONS
Section 3.01 Increased Costs. If after the date of this Agreement, the
adoption of any applicable Governmental Rule, any change in any applicable
Governmental Rule or in the interpretations or administration of any applicable
Governmental Rule by any
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<PAGE>
Governmental Authority charged with its interpretation or administration or
compliance by the Bank with any request, directive, guideline or policy (whether
or not having the force of law) of any such Governmental Authority:
(a) shall subject the Bank to any tax, duty or other change with respect to
the Loan or shall change the basis of taxation of payments to the Bank of the
principal of, or interest on, the Loan or any other amounts due under this
Agreement or the Note in respect of such Loan (except for changes in the rate of
taxation on the overall net income of the Bank imposed by the jurisdiction which
the Bank is located); or
(b) shall impose, modify or deem applicable any reserve (including any
imposed by the Board of governors of the Federal Reserve System), special
deposit or similar requirement against assets of, deposits with or for the
account, or credit extended by, the Bank or shall impose on the Bank or the
relevant market to increase the cost to or to impose a cost on the Bank of
making, maintaining or funding the Loan, or to reduce the amount of any sum
received or receivable by the Bank under this Agreement or the Note,
then, within 15 days after demand by the Bank, the Company shall pay to the Bank
such additional amount or amounts as will reimburse the Bank for such increased
cost or reduction.
Section 3.02 Funding Losses. The Company shall reimburse the Bank within 15
days after demand for any losses, costs or expenses (including, without
limitation, breakage costs and the like) incurred or expended by it in
connection with any payment or prepayment (including any prepayment or payment
resulting from acceleration) in respect of the Note or any portion thereof made
on a date other than the last day of the then current Interest Period. Such loss
may include the difference, as reasonably determined by the Bank, between (i)
(a) in the case of any voluntary repayment, the interest at the Applicable Rate
less Applicable Spread that would have accrued on the portion of the Loan
repaid, or (b) in the case of any required repayment, the Bank's cost of
obtaining funds in an amount equal to the sum being repaid or prepaid, and (ii)
any lesser amount which would have been realized by the Bank in reemploying the
funds so received in repayment or prepayment by placing such funds on deposit
for a comparable period in the relevant market, in each case during the period
from the date of repayment or prepayment (as the case may be) to the end of the
then current Interest Period. The certificate of the Bank with respect to
reimbursement under this Section 3.02 as to the amount of any loss, cost or
expense incurred or to be incurred by it shall show the amount payable and in
reasonable detail the calculations used to determine in good faith such amount
and shall be conclusive absent manifest error. The Bank hereby agrees to use
reasonable commercial efforts to minimize any losses, costs or expenses incurred
or expended for which the Bank seeks reimbursement pursuant to this Section
3.02. The Company hereby agrees that following an Event of Default by the
Company hereunder and the acceleration of the maturity of the Loan by the Bank,
a tender of payment of the amount necessary to satisfy the entire indebtedness
of the Loan made at any time by the Company or by anyone on behalf of the
Company shall be deemed a voluntary prepayment hereunder.
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Section 3.03. Indemnification. The Company shall indemnify, defend and hold
harmless the Bank, and each of the Bank's shareholders, directors, officers,
employees, agents, successors and assigns (collectively, the "Indemnitees"),
against any and all losses, liabilities, obligations, damages, claims,
assessments, judgments, costs and expenses (collectively, the "Losses") that may
be imposes on, incurred by or asserted against any Indemnitee resulting from,
arising out of or relating to this Agreement, the Note or any other Loan
Document; provided, however, that the Company shall not indemnify, defend and
hold harmless the Indemnitees from any Losses that are the result of the gross
negligence or willful acts of any Indemnitee. Any Indemnitee seeking
indemnification pursuant to this Section shall give notice to the Company within
a reasonable time of the assertion of any claim that could result in a Loss. The
Company, at its expense, shall have the right to assume the defense of such
claim with counsel reasonably satisfactory to the Indemnitee, including, without
limitation, the right to compromise or settle such claim. If the Company, within
a reasonable time after receipt of the notice of such claim, fails to defend the
Indemnitee, then such Indemnitee shall have the right to undertake the defense,
compromise or settlement of such claim on its own behalf, and for the account
and risk of the Company. The provisions of this Section shall survive the
termination of the Note and the repayment of all amounts owned hereunder.
ARTICLE IV.
CONDITIONS PRECEDENT
Section 4.01. The obligation of the Bank to make the Loan to the Company is
subject to satisfaction (as determined solely by the Bank), on or before the
Effective Date, of the following conditions precedent:
(a) the Agreement and the Note shall have been duly executed by the
Company, and delivered to the Bank and the Guaranty shall have been duly
executed by the Guarantor and delivered to the Bank;
(b) the Bank shall have received the Certificate or Articles of
Incorporation of the Company, certified as of a recent date prior to the
Effective Date by the Secretary of State (or comparable official) of its
jurisdiction of incorporation;
(c) the Bank shall have received a Certificate of Good Standing (or
comparable certificate) for the Company, certified as of a recent date prior to
the Effective Date by the Secretary of State (or comparable official) of its
jurisdiction of incorporation;
(d) the Bank shall have received evidence that all approvals,
authorizations, consents and permission for the performance by the Company and
the Guarantor of their respective obligations have been obtained and that all
other regulatory requirements have been complied with has been delivered to the
Bank.
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<PAGE>
(e) the Bank shall have received a certificate of the Secretary of the
Company certifying the names and true signatures of each such person authorized
to sign each Loan Document to be delivered by the Company to the Bank under this
Agreement;
(f) each of the representations and warranties of the Company contained in
this Agreement or in any other Loan Document shall be true and correct in all
material respects as of the Effective Date;
(g) no Default shall have occurred and be continuing as of the Effective
Date; and
(h) the Bank shall have received such other documents, agreements,
instruments, certificates and opinions as the Bank may reasonably require.
Section 4.02. The Bank's obligation to make the Second Disbursement is
subject to the following conditions:
(a) On the date of the Second Disbursement, the following shall be true and
correct:
(i) the representations and warranties of the Company set forth in
Article V and any other Loan Documents are true and correct in all
material respects as if made on such date (except for representations
and warranties expressly made as of a specified date, which shall be
true as of such date);
(ii) No Default has occurred and is continuing or will result from Bank
making the Second Disbursement;
(iii) All of the Loan Documents are in full force and effect; and
(b) The Bank shall have received a notice of drawing substantially in the
form of Exhibit C attached to this Agreement. Such notice shall have been
received four (4) Business Days prior to November 6, 1997.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
The Company, at the date of its acceptance hereof and throughout the term
of the Agreement, represents and warrants to the Bank as follows:
Section 5.01. Corporate Authorization. The Company has full power and
authority to accept and perform this Agreement and the Note, and each of the
foregoing instruments constitutes a legal, valid and binding obligation of the
Company enforceable in accordance
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with its terms.
Section 5.02. Governmental and Other Approvals. All consents, licenses,
approvals or authorizations of, exemption from or registrations with any
authority required in connection with the performance of its obligations
hereunder and under the Note and the other Loan Documents have been obtained.
Section 5.03. Litigation. Except as otherwise disclosed to the Bank in
writing or otherwise disclosed in the Company's most recent Form 10K filed with
the Securities and Exchange Commission, there are no material litigation,
arbitration or administrative proceedings presently pending before any court,
tribunal or regulatory authority nor threatened against the Company which would
have a material adverse effect on the Company.
Section 5.04. Obligatory Effect. The obligations of the Company hereunder
and under the Note constitute direct, unconditional and general obligations of
the Company and will continue to rank at least pari passu with all other
unsecured and unsubordinated liabilities of the Company.
Section 5.05. Disclosure of Defaults. To the best knowledge of the Company
(i) the Company is not in default in any material respect in the performance,
observance, or fulfillment of any of the obligations, covenants, or conditions
contained in any agreement or instrument to which it is a party, and (ii) no
Event of Default has occurred and no event has occurred which, with the giving
of notice of lapse or time or both, would constitute an Event of Default.
Section 5.06. Financial Statements. To the best knowledge of the Company,
the most recent balance sheet and statement of income and retained earnings and
changes in financial position of the Company as delivered to the Bank are true
and correct in all material respects, do not omit any material facts or
information and no material adverse change has occurred in the financial
condition of the Company since the date of such financial statements.
Section 5.07. Full Disclosure. Except as otherwise disclosed to the Bank in
writing or otherwise disclosed in the Company's most recent Form 10K filed with
the Securities and Exchange Commission, there is no fact known to the Company
which has or could have a material adverse effect on the ability of the Company
to pay the principal of or the interest on the Note or otherwise perform its
material obligations under the Loan Documents.
Section 5.08. No Conflicts. The making and performance by the Company of
this Agreement and the Note will not (either immediately or with passage of time
or the giving of notice, or both):
(a) violate any charter or by-law provisions of the Company, or violate any
laws
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or result in a default under any contract, agreement or instrument to which the
Company is a party or by which the Company or its property is bound; or
(b) result in the creation or imposition of any Lien upon any of the assets
of the Company except Liens in favor of the Bank or the Guarantor.
Section 5.09. Taxes. The Company has filed all federal state and local tax
returns and other reports which it is required by all Governmental Rules to file
prior to the date hereof and which are material to the conduct of its business,
has paid or caused to be paid all taxes, assessments and other governmental
charges that are due and payable prior to the date hereof, and has made adequate
provisions for the payment of such taxes, assessments or other charges accrued
but not yet payable. The Company has no knowledge of any deficiency or
additional assessment in a materially important amount in connection with any
taxes, assessments or charges which is not provided for on its books.
Section 5.10. ERISA Obligations. To the best knowledge of the Company, the
Company has satisfied the minimum funding standards under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with respect to
each and every one of its employee benefit plans, is in compliance in all
material respects with the presently applicable provisions for ERISA and has not
incurred any liability to the Pension Benefit Guaranty Corporation, or to any
plan under Title IV of ERISA, other than to any employer plan to which the
Company is a party, there exists no unfunded vested liability.
Section 5.11. Margin Regulations. The Company is not engaged in the
business of extending credit for the purpose of purchasing or carrying any
margin stock or margin securities (within the meanings of Regulations G, U and X
or the Board of Governors of the Federal Reserve System), and or carry any
margin stock or margin securities or to extend credit to others for the purpose
of purchasing or carrying any margin stock or margin securities.
Section 5.12. Survival of Representations and Warranties. All of the
foregoing representations and warranties shall survive until all of the
Company's obligations hereunder and under each of the other Loan Documents have
been satisfied in full.
ARTICLE VI.
COVENANTS
By its acceptance hereof, the Company agrees to undertake throughout the
term of the Loan as follows:
Section 6.01. Consents. The Company agrees to maintain, renew or obtain all
necessary permissions, consents, approvals, licenses an registrations required
in connection herewith.
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<PAGE>
Section 6.02. Financial Statements. The Company agrees to deliver to the
Bank:
(a) as soon as available, and in no event later than 100 days after the
close of each fiscal year of the Company, a copy of the audited consolidated
financial statements of the Company for such fiscal year, prepared by
independent certified public accountants of recognized national standing; and
(b) as soon as available and in no event later than ten (10) Business Days
after they are sent, made available or filed, copies of (1) all registration
statements and reports filed by the Company or any of its subsidiaries with any
securities exchange or the securities and Exchange Commission (including,
without limitation, all 10-Q, 10-K and 8-Q reports); and all reports, proxy
statements and financial statements sent or made available by the Company or any
of its subsidiaries to its security holders.
Section 6.03. Compliance with Law. The Company will use due diligence in
order to comply in all material respects with all material Governmental Rules
the noncompliance with which would materially and adversely affect the business,
financial condition or consolidated results of operations of the Company, except
where the necessity of compliance is contested in good faith by appropriate
proceedings and to which appropriate reserves have been established on the books
of the Company in accordance with generally accepted accounting principles.
Section 6.04. Maintenance of Assets and Insurance. The Company will
maintain all of its assets material to the Company's business in good condition
and repair (normal wear and tear excepted), and will pay and discharge or cause
to be paid and discharged when due the cost of repairs to and maintenance of the
same, and will pay or cause to be paid all rental and mortgage payments due on
such assets. The Company shall maintain, or cause to be maintained, insurance on
all of its assets and activities, in such forms and amounts as are normal and
customary for the business in which the Company engages and as may be reasonably
satisfactory to the Bank. Each such insurance policy shall contain a provision
whereby it cannot be canceled except after 30 days written notice to the Bank
and the Company. The Company will furnish to the Bank, upon demand, such
evidence of insurance as the Bank may reasonably require.
Section 6.05. Taxes and Assessments. The Company shall pay or cause to be
paid when due all taxes, assessments, charges and levies imposed upon it or upon
any of its properties or assets or which it is required to withhold and pay
over, except where contested in good faith by appropriate proceedings with
adequate reserves therefore having been set aside on its books. The Company
shall pay or cause to be paid all such taxes, assessment, charges and levies
forthwith whenever foreclosure on any Lien that attached in connection wherewith
(or security therefor) appears imminent. Without in any way limiting the
foregoing, the Company shall pay in a timely fashion all charges and assessments
required of it under ERISA.
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<PAGE>
Section 6.06. Corporate Existence. The Company shall take all steps
necessary to preserve its corporate existence and franchises and of its business
and all material agreements to which it is subject and shall continue to conduct
its business substantially in the manner in which it is currently being
conducted.
Section 6.07. Notice of Litigation. The Company shall give the Bank written
notice within 30 days of: (i) the institution of any litigation or proceeding to
which the Company is a party if an adverse decision therein would require it to
pay more than $100,000 or deliver assets the value of which exceeds such sum
(whether or not the claim is considered to be covered by insurance), or (ii) the
institution of any other suit or proceeding involving it that might materially
and adversely affect its operations, financial condition, property or business.
Section 6.08. Payment of Indebtedness. The Company shall pay when due (or
within applicable grace periods) all indebtedness due to third persons except
(i) when the amount thereof is being contested in good faith by appropriate
proceedings and with adequate reserves therefor begin set aside on the Company's
books, or (ii) when the non-payment of such indebtedness would not have a
material adverse effect on the Company's business or the ability of the Company
to perform its obligations under this Agreement and the other Loan Documents.
Section 6.09. Notice of Default. The Company shall notify the Bank within 5
days after it becomes aware of the occurrence of any Event of Default or of any
fact, conditions or event that with the giving of notice or the passage of time,
or both, could become an Event of Default, or of the failure of the Company to
observe any of its undertakings hereunder.
Section 6.10. Sale of Assets. Without the prior written consent of the
Bank, which consent shall not be unreasonably withheld or delayed, the Company
shall not sell, transfer, lease or otherwise dispose of all or substantially all
of its business or assets.
Section 6.11. Margin Stock. The Company shall not directly or indirectly
apply any part of the proceeds of the Loan to the purchasing or carrying of any
margin stock or margin securities (within the meanings of Regulations G, U and X
or the Board of Governors of the Federal Reserve System).
Section 6.12. No Untrue Statements. The Company shall not knowingly furnish
to the Bank any certificate or other document that will contain any untrue
statement of material fact or that will omit to state a material fact necessary
to make it not misleading in light of the circumstances under which it was
furnished.
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<PAGE>
Section 6.13. General Information. The Company shall furnish to the Bank
such other information regarding the condition or operations, financial or
otherwise, of the Company as the Bank may from time to time reasonably request.
Section 6.14. Stock Acquisitions. Without the prior written consent of the
Bank, which consent shall not be unreasonably withheld or delayed, the Company
shall not agree to or otherwise permit the acquisition (other than by the
Guarantor) by any person or group of persons (within the meaning of Section 13
or 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
but exclusive of the holdings of any person who is a director of the Company on
the date of this Agreement and exclusive of the holdings of any person or group
of persons which has reported or may report on Schedule 13G under the Exchange
Act and has not ceased to be eligible to report on Schedule 13G pursuant to Rule
13d-1 of the Exchange Act) of beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under the Exchange
Act) of more than fifty percent (50%) or more of the outstanding Equity
Securities of the Company entitled to vote for members of the board of
directors. The Company shall endeavor to provide the Bank with as much advance
notice as reasonably possible of any acquisition of Equity Securities which
requires the prior written consent of the Bank under this Section 6.14.
ARTICLE VII.
EVENTS OF DEFAULT
Section 7.01. Events of Default The occurrence of any one or more of the
following events shall constitute "Events of Default":
(a) the Company fails to pay any installment of interest or principal
within five (5) days when due hereunder; or
(b) the Company fails to make any payment due to the Bank hereunder or
under any of the other Loan Documents to which the Company is a party (other
than payments referred to in subsection (a) above), within five (5) Business
Days after written notice from the Bank;
(c) any material representation or warranty made by the Company in any Loan
Document or which is contained in any certificate, document, opinion, or
financial or other statement furnished by the Company at any time or in
connection with any Loan Document shall prove to have been incorrect in any
material respect on or as of the date made; or
(d) at any time it becomes unlawful (i) for the Company to perform any or
all of its material obligations hereunder, or (ii) for the Guarantor to perform
any or all of its material obligations under the Guaranty; or
(e) the Company or the Guarantor shall suspend or discontinue its business
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<PAGE>
operations whether voluntarily or involuntarily; or
(f) the Company or the Guarantor shall (i) commence a voluntary case or
other proceeding seeking liquidation, reorganization, or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other similar
law now or in the future in effect, (ii) seek the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, (iii) make a general assignment for the
benefit of creditors, (iv) fail generally to pay its debts as they become due or
(v) take any corporate action to authorize any of the foregoing; or
(g) an involuntary case or other proceeding shall be commenced against the
Company or the Guarantor seeking liquidation, reorganization or other relief
with respect to it or its debts under any bankruptcy, insolvency or other
similar law now or in the future in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
other proceeding shall remain undismissed and unstayed for a period of 90 days;
or any order for relief shall be entered against the Company or the Guarantor
under the federal bankruptcy laws as now or in the future in effect; or
(h) the Company shall fail duly to perform or observe in any material
respect any other material term, covenant or agreement contained in this
Agreement or any other Loan Document to which the Company is a party and such
failure is not remedied within 30 days after receipt by the Company of a written
notice from the Bank requiring such remedy; provided, however if such failure by
the Company is of a type that cannot be cured or corrected within such 30 day
period, no Event of Default shall occur by reason thereof so long as the Company
commences to cure or correct such failure promptly at the beginning of such 30
day period and thereafter diligently prosecutes the same to completion within 60
days; or
(i) the Company shall suffer any material adverse change to its financial
condition or its business activities as currently conducted.
Section 7.02. Remedies. Upon the occurrence and continuation of any Event
of Default specified in Section 7.01 (f) or (g) the entire principal amount of
the Loan outstanding, together with accrued interest thereon and all other sums
payable hereunder or under the Note shall be immediately and automatically due
and payable; and upon the occurrence and continuance of any other Event of
Default, the Bank may at any time declare the entire principal amount of the
Loan together with accrued interest thereon and all other amounts payable
hereunder to be immediately due and payable, whereupon then same shall be
immediately due and payable. All notices of dishonor, presentment or any other
notice not expressly called for by this Agreement or the Note are hereby waived
in connection with the foregoing.
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<PAGE>
Section 7.03. Default Expenses. The Company will assume and pay upon demand
of the Bank all costs and expenses, including, but not limited to reasonable
attorney's fees, incurred by the Bank (including those incurred in any
bankruptcy proceeding) as a result of a Default.
ARTICLE VIII.
MISCELLANEOUS.
Section 8.01. Notices. All notices and other communications provided for
under this Agreement shall be in writing and shall be personally delivered or
sent by first class United States mail, by nationally recognized overnight
courier such as Federal Express or DHL, or by telecopy or by other means of
telecommunication, to the following addresses:
The Company: Southwall Technologies Inc.
1029 Corporation Way
Palo Alto, CA 94303
Attn: Martin Schwartz
Telephone: (415) 962-9111
Facsimile: (415) 967-8713
The Bank: The Sanwa Bank, Limited
San Francisco Branch
444 Market Street, 18th Floor
San Francisco, CA 94111
Attn: Mr. Tadahiko Kanayama
Telephone: (415) 597-5210
Facsimile: (415) 788-5459
with a copy
to the Guarantor: Teijin Limited
1-1, Uchisaiwaicho
2-Chome
Chioyada-ku
Tokyo, Japan
Attn: General Manager,
Films Planning and Administration Department
Telephone: 011-81-3-3506-4291
Facsimile: 011-81-3-3506-4378
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section. All such notices and communications shall be deemed received
(i) if personally delivered, upon delivery, (ii) if sent by first class United
States mail, following deposit in the mail with first
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class postage prepaid, upon receipt, (iii) if sent by courier service with next
Business Day delivery charges prepaid, upon receipt, and (iv) if sent by telex,
telecopy or similar form of telecommunications, upon receipt. With respect to
copies of notices to the Borrower to be sent to the Guarantor, the Bank shall
endeavor to provide copies of notices sent to the Borrower solely with respect
to Article VII of this Agreement; provided, however, the Bank's failure to
provide a copy of any such notice to the Guarantor shall not (i) affect the
validity of any such notice given by the Bank to the Borrower as provided
herein, or (ii) affect any of the rights or remedies that the Bank has or may
have against the Borrower or the Guarantor arising from or relating to any of
the Loan Documents.
Section 8.02. Amendments and Waivers; Cumulative Remedies. None of the
terms of this Agreement may be waived, altered or amended except by a written
consent from the Bank. No failure or delay on the part of the Bank in exercising
any right, power or privilege under this Agreement or the Note shall operate as
a waiver of such right, power or privilege under this Agreement or the Note
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies provided in and contemplated
by this Agreement and the other Loan Documents are cumulative and not exclusive
of any rights or remedies provided by law.
Section 8.03. Headings. The article and section headings used in this
Agreement have been inserted for convenience of reference only and do not
constitute matters to be considered in interpreting this Agreement.
Section 8.04. Miscellaneous Expenses. The Company will assume and pay upon
demand from the Bank all costs and expenses, including, but not limited to
reasonable attorney's fees and documentation costs, incurred by the Bank as a
result of the preparation of Loan Documents and advancement of the Loan to the
Company.
Section 8.05. Severability. Any provisions of this Agreement or the Note
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or the Note, and any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction.
Section 8.06. Governing Law and Jurisdiction. The validity, construction
and performance of the Agreement and the Note shall be governed by and construed
in accordance with the laws and regulations of the State of California. The
Company and the Bank hereby submit to the non-exclusive jurisdiction of the
courts of the State of California for the purpose of any claim, dispute or
difference relating to this Agreement, or the Note.
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<PAGE>
Section 8.07. Additional Assurances. From time to time, the Company shall
execute and deliver to the Bank such additional documents and provide such
additional information as the Bank may reasonably require to carry out the terms
of this Agreement.
Section 8.08. Entire Agreement. This Agreement, together with the other
Loan Documents to which Company is a party, constitutes the entire agreement
among the parties with respect to the subject matter contained herein and
therein, and supersedes any prior agreements or understanding among the parties,
whether written or oral.
Section 8.09. Bank-Company Relationship. The Loan Documents do not create
and the parties do not intend to create a joint venture, partnership, trust or
other business or fiduciary relationship between the Company and the Bank, other
than that of debtor and creditor.
Section 8.10. Waiver of Jury Trial. THE COMPANY AND THE BANK EACH WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OF OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. COMPANY AND BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS.
Section 8.11. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Company and the Bank and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights under any Loan Document without the prior written consent of the
Bank. The Bank may, without the consent of the Company, negotiate, pledge,
hypothecate, or grant participations in this Agreement or in any of its rights
under this Agreement. The Company shall accord full recognition to any such
assignment, and all rights and remedies of the Bank in connection with the
interest so
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assigned shall be as fully enforceable by such assignee or participant as they
were by the Bank before such assignment. In connection with any proposed
assignment, Bank may disclose to the proposed assignee or participant any
information that the Company is required to deliver to the Bank pursuant to this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
date first written above.
COMPANY:
Southwall Technologies Inc.
By: /s/ Martin Schwartz
------------------------
Name: Martin Schwartz
Title: President
BANK:
The Sanwa Bank, Limited,
San Francisco Branch
By: /s/ Tadahiko Kanayama
------------------------
Name: Tadahiko Kanayama
Title: General Manager
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EXHIBIT A TO CREDIT AGREEMENT
PROMISSORY NOTE
us$10,000,000.00 May 6, 1997
San Francisco, California
FOR VALUE RECEIVED, Southwall Technologies, Inc. (the "Company") hereby
unconditionally promises to pay at the times set forth in the Agreement referred
to below and in any event on Final Maturity Date to the order of The Sanwa Bank,
Limited, San Francisco Branch (the "Bank") the principal amount of Ten Million
United States Dollars (US$10,000,000.00). The Company promises to pay interest
on the unpaid principal amount of the Loan at such interest rates and on such
dates as are provided for in the Agreement.
All such principal and interest (including interest on overdue principal
and, to the extent permitted by law, overdue interest and any and all other
amounts payable by the Company under the terms of the Agreement and which are
not paid when due) shall be payable in lawful money of the United States of
America at the times and places, and in accordance with the payment terms
contained in the Agreement. Principal may be prepaid only in accordance with the
terms and conditions set forth in the Agreement.
Each payment made on account of the principal of the Loan shall be recorded
by the Bank on its books and, prior to any transfer of this Promissory Note (the
"Note"), endorsed by the Bank on the schedule attached to this Note or any
continuation of such schedule (provided that the failure by the Bank to make, or
any error in making, any such endorsement shall not limit or otherwise affect
the obligations of the Company under this Note with respect to the Loan).
This Note is the Promissory Note referred to, and is entitled to the
benefits of, that certain Credit Agreement dated as of May 6, 1997 (as it may be
amended from time to time) between the Company and the Bank (the "Agreement").
Terms defined in the Agreement are used in this Note with respective meanings
assigned to those terms in the Agreement.
This Note shall be construed in accordance with and governed by the laws of
the State of California applicable to contracts made and performed in the State
of California.
Southwall Technologies, Inc.
By:__________________________
Name: Martin Schwartz
Title: President
<PAGE>
EXHIBIT B TO CREDIT AGREEMENT
Form of Guaranty
<PAGE>
EXHIBIT C TO CREDIT AGREEMENT
NOTICE OF BORROWING
To: The Sanwa Bank, Limited
San Francisco Branch
Fax: (415) 788-5459
Attn: Mr. Shunji Endo
Reference is made to that certain Credit Agreement, dated as of May 6, 1997
(the "Agreement") between Southwall Technologies Inc. (the "Company") and The
Sanwa Bank, Limited, San Francisco Branch (the "Bank"). Unless otherwise
indicated, all terms defined in the Agreement have the same respective meanings
when used herein.
Pursuant to Section 4.02 of the Agreement, the Company hereby irrevocably
requests the Second Disbursement ($5,000,000.00) upon the following terms:
(a) The date of the requested Second Disbursement is to be November 6,
1997 ("Disbursement Date").
(b) The representations and warranties of the Company set forth in Article
V of the Agreement and any other Loan Documents, after giving effect
to the requested Second Disbursement, are and will be true and correct
in all material respects as if made on the Disbursement Date (except
for representations and warranties expressly made as of a specified
date, which shall be true as of such date);
(c) No Default has occurred and is continuing or will result from the Bank
making the Second Disbursement; and
(d) All of the Loan Documents are in full force and effect.
Please disburse the proceeds of the requested Second Disbursement to the
Company's Account.
IN WITNESS WHEREOF, the Company has executed this Notice of Borrowing on
the date set forth above.
SOUTHWALL TECHNOLOGIES, INC.
By:__________________________
Name:____________________
Title: __________________
EXHIBIT 10.90
REIMBURSEMENT AND SECURITY AGREEMENT
This REIMBURSEMENT AND SECURITY AGREEMENT, dated as of May 6, 1997 (this
"Agreement"), is made by SOUTHWALL TECHNOLOGIES, INC., a Delaware corporation
(the "Grantor"), and TEIJIN LIMITED, a Japanese corporation, as secured party
(the "Secured Party").
PRELIMINARY STATEMENTS:
(1) The Secured Party has entered into that certain Guarantee Agreement
Regarding 10 Million US$ Credit Facility, dated as of the date hereof (said
agreement, as it may hereafter be amended or otherwise modified from time to
time, the "Guaranty Agreement"; the terms defined therein and not otherwise
defined herein are used herein as therein defined), under which the Secured
Party has agreed to provide LENDER with a letter of guarantee (the "Letter of
Guarantee") as an inducement to extend a LOAN to the Grantor.
(2) It is a condition precedent to the making of the guarantee by the
Secured Party under the Guaranty Agreement that the Grantor shall have agreed to
the reimbursement and security interest contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce the
Secured Party to make the guarantee under the Guaranty Agreement, the Grantor
hereby agrees with the Secured Party as follows.
SECTION 1. Reimbursement; Assignment and Grant of Security Interest.
(a) The Grantor hereby agrees to reimburse the Secured Party on demand for
and in the amount of any payment made by the Secured Party to LENDER under the
Letter of Guarantee. All payments made by the Grantor under this Agreement shall
be made by the Grantor free and clear of and without deduction for any and all
present and future taxes, levies, charges, deductions and withholdings,
excluding, in the case of the Secured Party, any of the foregoing imposed on or
measured by its net income or gross receipts by the jurisdiction (or any
political subdivision thereof) under the laws of which the Secured Party is
organized or maintains a lending office ("Taxes"). To the extent applicable law
requires a deduction or withholding for Taxes, then the gross amount of such
payment made by the Grantor shall be increased at the Grantor's sole cost and
expense such that the net payment to the Secured Party or its assignee equals
that amount which the Secured Party or its assignee would have received if such
deduction or withholding were not made. In addition, the Grantor shall pay upon
demand any stamp or other taxes, levies or charges of any jurisdiction with
respect to the execution, delivery, registration, performance and enforcement of
this Agreement.
<PAGE>
Upon request by the Secured Party, the Grantor shall furnish evidence
satisfactory to the Secured Party that all requisite authorizations and
approvals by, and notices to and filings with, governmental authorities and
regulatory bodies have been obtained and made and that all requisite taxes,
levies and charges have been paid. Any amounts payable by the Grantor to the
Secured Party hereunder not paid upon demand shall bear interest at an annual
rate equal to the six (6) months LIBOR rate established by BBA at the time of
non-payment plus five percent (5%).
(b) The Grantor hereby assigns to the Secured Party for its benefit, and
hereby grants to the Secured Party for its benefit a security interest in, all
of the Grantor's right, title and interest in and to Grantor's property set
forth on Exhibit A attached hereto (the "Collateral"), and all proceeds of any
and all of the foregoing Collateral. The list of Collateral may be amended from
time to time by mutual agreement of the parties; provided, however, that the
Secured Party shall have no obligation to agree to the amendment of the list of
Collateral if it believes that such amendment would impair the security interest
in the Grantor's property created hereunder.
SECTION 2. Security for Obligations. This Agreement secures the payment of
all obligations of the Grantor now or hereafter existing under the Guaranty
Agreement and under this Agreement (all such obligations being the
"Obligations").
SECTION 3. Representations, Warranties and Covenants. The Grantor
represents and warrants as follows.
(a) The Grantor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware; the Grantor has the
lawful power to own its properties and to engage in the businesses it conducts,
and is duly qualified and in good standing as a foreign corporation in the
jurisdictions wherein the failure to so qualify would have a material adverse
effect on the Grantor or its business or prospects.
(b) The Grantor is not in default with respect to any of its existing
indebtedness, and the making and performance of this Agreement will not
(immediately or with the passage of time, the giving of notice, or both):
(i) violate the articles of incorporation, by-laws or other
organizational of the Grantor or violate any laws or result in a default under
any contract, agreement, or instrument to which the Grantor is a party or by
which the Grantor or any of its property is bound; or
(ii) result in the creation or imposition of any security interest in,
or lien or encumbrance upon, any of the assets of the Grantor, other than in
favor of the Secured Party.
2
<PAGE>
(c) The Grantor has the power and authority to enter into and perform this
Agreement and to incur the obligations herein provided for, and has taken all
actions necessary to authorize the execution, delivery, and performance of this
Agreement.
(d) This Agreement is valid, binding, and enforceable in accordance with
its terms.
(e) The chief place of business and chief executive office of the Grantor
and the office where the Grantor keeps its records concerning the Collateral,
are located at 1029 Corporation Way, Palo Alto, California 94303.
(f) The Grantor is, or as soon as practicable following the Closing will
be, the legal and beneficial owner of the Collateral free and clear of any lien,
security interest, option or other charge or encumbrance except for the security
interest created by this Agreement and Permitted Liens. No effective financing
statement or other document similar in effect covering all or any part of the
Collateral is on file in any recording office, except such as may have been
filed in favor of the Secured Party relating to this Agreement and Permitted
Liens. As used herein, "Permitted Liens" means (i) liens to secure taxes,
assessments or charges not yet due or which are being contested in good faith
and by appropriate proceedings and for which adequate reserves are maintained;
(ii) carriers', mechanics', warehousemen's artisans', repairmen's or similar
liens arising in the ordinary course of business which are not overdue or which
are being contested in good faith and by appropriate proceedings and for which
adequate reserves are maintained; and (iii) liens and encumbrances which (A)
existed on property acquired by the Grantor before the time of its acquisition
and was not created in anticipation of such event, or (B) were taken or retained
by the seller of such property to secure all or part of its price or created
solely for the purpose of securing indebtedness representing, or incurred to
finance or refinance the cost of such property; provided that no such Lien shall
extend to or cover any property of the Grantor other than the property so
acquired and improvements on such property.
(g) This Agreement creates a valid and perfected first priority security
interest in the Collateral (other than with respect to Permitted Liens given
priority as a matter of law), securing the payment of the Obligations, and all
filings and other actions necessary or desirable to perfect and protect such
security interest have been duly taken.
(h) No consent of any other person or entity and no authorization, approval
or other action by, and no notice to or filing with, any governmental authority
or regulatory body is required (i) for the grant by the Grantor of the
assignment and security interest granted hereby or for the execution, delivery
or performance of this Agreement by the Grantor, (ii) for the perfection or
maintenance of the assignment and security interest created hereby (including
the first priority nature of such assignment and security interest) or (iii)
except as required by applicable law, for the exercise by the Secured Party of
its rights and remedies hereunder.
3
<PAGE>
(i) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.
(j) Grantor shall pay Secured Party a risk bearing commission as a
Guarantee Fee (hereinafter called "Guarantee Fee") at the rate of 0.5625% per
year on the outstanding amount of the principal amount of the LOAN, as specified
in the Guaranty Agreement.
(k) The Guarantee Fee shall be paid by Grantor in arrears on each Interest
Payment Date (as such term is defined in the Guaranty Agreement) for the period
commencing either on and including the date of the First Draw-Down, or on and
including the immediately preceding Interest Payment Date up to and including
the date immediately preceding such relevant Interest Payment Date, as specified
in the Guaranty Agreement.
(l) The Guarantee Fee shall accrue daily and shall be computed on the basis
of a year of three hundred and sixty (360) days and the actual number of days
elapsed.
(m) Guarantee Fee payments shall be made by wire transfer by Grantor to
Secured Party in US Dollars to Secured Party's Account No. 403-401 with The
Sanwa Bank, Limited, Osaka Head Office.
(n) Any taxes, charges, or other expenses with respect to each Guarantee
Fee payment made to Secured Party by Grantor shall be borne by Grantor.
Nevertheless, Grantor may deduct withholding tax duly levied on Guarantee Fee
payments to the extent that a tax credit will be obtained by such party under
the convention for the avoidance of double taxation between the governments of
U.S.A. and Japan. Grantor shall secure for Secured Party a tax receipt
acceptable to Japanese tax authorities for said tax purpose and will send it to
Secured Party within thirty (30) days after such payment.
(o) During the term of the LOAN, as specified in the Guaranty Agreement,
Grantor shall maintain the following financial covenants, as measured on a
quarterly basis as of the last day of each fiscal quarter of Grantor from
financial data publicly reported in Grantor's Form 10-Q and Form 10-K Reports
filed with the Securities and Exchange Commission, or from supporting data for
such reports:
(1) Minimum Quick Ratio: 1.00 to 1.00
Minimum Quick Ratio is defined as Cash and Equivalents plus Short
Term Investments plus Accounts Receivables to Total Current
Liabilities.
(2) Minimum Tangible Net Worth: $24,000,000 and to increase annually
by 50% of annual Net After Tax Profits, such increases to be
cumulative. Grantor shall remain profitable in each fiscal year.
4
<PAGE>
Tangible Net Worth is defined as Stockholders Equity plus
Subordinated Debt minus Intangible Assets (including Goodwill,
Patents and Licenses).
Net After Tax Profits is defined as Net Operating Income minus
recorded Tax Provision for the period, excluding any extraordinary
adjustments due to changes in accounting rules as provided by the
Financial Accounting Standard Board or for recording of Net
Operating Loss Carryforward or other tax assets or liabilities
relating to prior year results or activities.
Maximum Debt to Tangible Net Worth ratio: 0.65 to 1.00
Debt is defined as Total Liabilities minus Subordinated Debt.
Grantor shall provide to Secured Party a quarterly certificate,
signed by a responsible officer of Grantor, together with a copy
of the current quarter's Form 10-Q Report as early as reasonably
possible but no later than sixty (60) days following the last day
of the fiscal quarter, or following the end of Grantor's fiscal
fourth quarter, a copy of the Form 10-K Report, as early as
reasonably possible but no later than one hundred and twenty (120)
days following the last day of the fiscal quarter.
(p) In the event of any actual or expected default by Grantor in any
payment of principal or interest on the LOAN or of any actual or expected
default by Grantor in any financial covenants in Section 3(o), Grantor shall
immediately give a written notice of such actual or expected default to Secured
Party. Such notice shall include detailed information on the LOAN including the
payment amount and due date for the payment which is or may become in default.
SECTION 4. Further Assurances.
(a) The Grantor agrees that from time to time, at the expense of the
Grantor, the Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that the Secured Party may reasonably request, in order to perfect and
protect the assignment and security interest granted or purported to be granted
hereby or to enable the Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Grantor will: (i) if any Collateral shall be
evidenced by a promissory note or other instrument or chattel paper, promptly
notify the Secured Party thereof and, if requested, deliver and pledge to the
Secured Party hereunder such note or instrument or chattel paper duly endorsed
and accompanied by duly executed instruments of transfer or assignment, all in
form and substance reasonably satisfactory to the Secured Party; (ii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or desirable, or as the
Secured Party may
5
<PAGE>
reasonably request, in order to perfect and preserve the assignment and security
interest granted or purported to be granted hereby; and (iii) mark conspicuously
any Collateral and, at the request of the Secured Party, each of its records
pertaining to the Collateral with a legend, in form and substance reasonably
satisfactory to the Secured Party, indicating that such Collateral is subject to
the assignment and security interest granted pursuant hereto.
(b) The Grantor hereby authorizes the Secured Party to file one or
more financing or continuation statements, and amendments thereto, relating to
all or any part of the Collateral without the signature of the Grantor where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any party thereof shall be
sufficient as a financing statement where permitted by law.
(c) During the term of the LOAN, as specified in the Guaranty
Agreement, the amount of Grantor's inventory, consisting of raw materials,
work-in-process and finished goods ("Inventory"), that shall constitute a part
of the Collateral will at all times be an amount equal to the difference between
120% of the principal and accrued interest then owing under the LOAN and the net
value (defined as the purchase price for the equipment less accumulated
depreciation calculated at the rate of 10% per annum) of the equipment and
machinery that constitutes a part of the Collateral. The Secured Party agrees
that its security interest in Inventory shall be limited to Inventory having a
value equal to the amount described in the preceding sentence. The Grantor
acknowledges that, upon the occurrence of a Default, the Secured Party intends
to look to the components of the Inventory in the following order of priority:
finished goods, work-in-process and raw materials.
(d) The Secured Party agrees to execute such agreements and documents
that may be reasonably necessary to confirm the scope of its interest in the
Inventory upon the reasonable request of Grantor.
SECTION 5. Place of Perfection; Records. The Grantor shall keep its
chief place of business and chief executive offices and the offices where it
keeps its records concerning the Collateral, and the original copies of all
chattel paper or other documents or instruments that evidence the Collateral at
the locations therefor specified in Section 3(e) or, upon 30 days' prior written
notice to the Secured Party, at any other locations in a jurisdiction where all
action required by Section 4 shall have been taken with respect to the
Collateral. The Grantor will hold and preserve such records, and such chattel
paper, documents and instruments and will permit representatives of the Secured
Party at any time during normal business hours and upon reasonable notice to
inspect and make abstracts from such records, chattel paper, documents and
instruments.
SECTION 6. As to the Collateral.
(a) The Grantor shall at its expense:
6
<PAGE>
(i) properly maintain the Collateral and take all such action to
such end as may be from time to time reasonably requested by the Secured Party;
and
(ii) furnish to the Secured Party promptly upon receipt thereof
copies of all notices, requests and other documents received by the Grantor
relating to the Collateral, and from time to time (A) furnish to the Secured
Party such information and reports regarding the Collateral as the Secured Party
may reasonably request and (B) upon request of the Secured Party make to any
other party such demands and requests for information and reports or for action
as the Grantor is entitled to make, respecting the Collateral.
(b) The Grantor shall not:
(i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral (other
than a proposed sale or other disposition of obsolete or worn-out equipment, in
which events Grantor shall provide Secured Party with thirty (30) days advanced
written notice), or create or permit to exist any lien, security interest,
option or other charge or encumbrance upon or with respect to any of the
Collateral, except for the assignment and security interest under by this
Agreement or Permitted Liens; or
(ii) take any other action in connection with the Collateral
which would impair the value thereof or the interest or rights of the Grantor
therein or which would impair the interest or rights of the Secured Party
therein.
SECTION 7. Secured Party Appointed Attorney-in-Fact. The Grantor
hereby appoints the Secured Party the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time, after the Secured Party has notified the
Grantor of a Default under this Agreement and for so long as any such Default
exists, in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may deem necessary or advisable to accomplish
the purposes of this Agreement, including, without limitation:
(i) to ask, demand, collect, sue for, recover, compromise,
receive and give acquitance and receipts for moneys due and to become due under
or in connection with the Collateral;
(ii) to receive, endorse and collect any drafts or other
instruments, documents and chattel paper in connection therewith; and
(iii) to file any claims or take any action or institute any
proceedings which the Secured Party may deem necessary or desirable to enforce
the rights of the Secured Party with respect to any of the Collateral.
SECTION 8. Secured Party May Perform. If the Grantor fails to perform
any agreement contained herein after having a reasonable opportunity therefor,
the Secured Party may itself perform, or cause performance of, such agreement,
and the
7
<PAGE>
expenses of the Secured Party incurred in connection therewith shall be payable
by the Grantor under Section 11(b).
SECTION 9. The Secured Party's Duties. The powers conferred on the
Secured Party hereunder are solely to protect its interest in the Collateral and
shall not impose any duty upon it to exercise any such powers. Except for the
safe custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Secured Party shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against any parties or any other rights pertaining to any Collateral. The
Secured Party shall be deemed to have exercised reasonable care in the custody
and preservation of any Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Secured Party accords
its own property.
SECTION 10. Remedies. If after five (5) days' written notice the
Grantor fails to reimburse or pay any amounts due to the Secured Party under
Section 1(a) of this Agreement, or if the Grantor fails to observe or perform
any other material term of this Agreement which continues unremedied for a
period of thirty (30) days after written notice thereof (each a "Default"):
(a) The Secured Party may exercise any and all legal or equitable
rights and remedies of the Grantor in connection with or in respect of the
Collateral in any court or other tribunal of proper jurisdiction; the Grantor
and the Secured Party acknowledge and agree that the remedies of the Secured
Party under this Agreement are not subject to the arbitration provisions set
forth in Section 8.2 of the Guaranty Agreement;
(b) All payments received by the Grantor in connection or in respect
of the Collateral shall be received in trust for the benefit of the Secured
Party, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Secured Party in the same form as so received (with
any necessary endorsement);
(c) All payments made under or in connection with or in respect of the
Collateral, and all cash proceeds in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral, received by the
Secured Party may, in the discretion of the Secured Party, be held by the
Secured Party as collateral for, and/or then or at any time thereafter applied
(after payment of any amounts payable to the Secured Party pursuant to Section
11) in whole or in part by the Secured Party against, all or any part of the
Obligations in such order as the Secured Party shall elect. Any surplus of such
payments or cash proceeds held by the Secured Party and remaining after payment
in full of all the Obligations shall be paid over to the Grantor or to
whomsoever may be lawfully entitled to receive such surplus; and
(d) The Secured Party may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in
8
<PAGE>
effect in the State of California, at that time (the "Code") (whether or not the
Code applies to the affected Collateral).
SECTION 11. Indemnity and Expenses; Payments.
(a) The Grantor agrees to indemnify the Secured Party from and against
any and all claims, losses and liabilities (including reasonable attorneys'
fees) growing out of or resulting from this Agreement (including, without
limitation, enforcement of this Agreement), except claims, losses or liabilities
resulting from the Secured Party's gross negligence or willful misconduct.
(b) The Grantor will upon demand pay to the Secured Party the amount
of any and all reasonable out-of-pocket expenses, including the reasonable fees
and expenses of its counsel and of any experts and agents, which the Secured
Party may incur in connection with (i) the administration of this Agreement,
(ii) the custody or preservation of, or the sale of, collection from or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of the Secured Party hereunder or (iv) the failure by the
Grantor to perform or observe any of the provisions hereof.
SECTION 12. Amendments; etc. No amendment or waiver of any provision
of this Agreement, and no consent to any departure by the Grantor herefrom shall
in any event be effective unless the same shall be in writing and signed by the
Secured Party, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 13. Addresses for Notices. All notices and other
communications provided for hereunder shall be in writing (including telecopier,
telegraphic, telex or cable communication) and mailed, telecopied, telegraphed,
telexed, cabled or delivered to it, if to the Grantor, at its address at 1029
Corporation Way, Palo Alto, California 94303, Attention: Chief Executive
Officer, Facsimile 415/967-8713, and if to the Secured Party, at its address at
1-1, Uchisaiwaicho 2-Chome, Chiyoda-ku, Tokyo 100, Japan, Attention: General
Manager, Films Planning and Administration Dept., Facsimile 011-81-3-3506-4378,
or, as to either party, at such other address as shall be designated by such
party in a written notice to the other party. All such notices and other
communications shall be effective, if sent via facsimile, upon confirmation via
telephone of receipt of transmission in legible form, if sent via air courier
express delivery, upon the third business day after deposit for delivery with an
international air courier service, if sent via telegraph, telex or cable, when
delivered to the telegraph company, confirmed by telex answerback or delivered
to the cable company, respectively, or if mailed, upon the first business day of
the recipient that is after the tenth day after the date deposited into the U.S.
or Japanese mail, or if delivered, upon delivery.
SECTION 14. Continuing Assignment and Security Interest; Assignments
Under Credit Agreement. This Agreement shall create a continuing assignment of
and
9
<PAGE>
security interest in the Collateral and shall (i) remain in full force and
effect until the later of (X), the payment in full of the Obligations and all
other amounts payable under this Agreement and (Y) the expiration or termination
of the Guaranty Agreement, (ii) be binding upon the Grantor, its successors and
assigns, and (iii) inure, together with the rights and remedies of the Secured
Party hereunder, to the benefit of the Secured Party and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(iii), if the Secured Party assigns or otherwise transfers all or any portion of
its rights and obligations under the Guaranty Agreement to any other person or
entity, such other person or entity shall thereupon become vested with all the
benefits in respect hereof granted to the Secured Party herein or otherwise.
Upon the later of the payment in full of the Obligations and all other amounts
payable under this Agreement and the expiration or termination of the Guaranty
Agreement, the security interest granted hereby shall terminate and all rights
to the Collateral shall revert to the Grantor. Upon any such termination, the
Secured Party will, at the Grantor's expense, execute and deliver to the Grantor
such documents as the Grantor shall reasonably request to evidence such
termination.
SECTION 15. Governing Law; Terms. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, except to
the extent that the validity or perfection of the assignment and security
interest hereunder, or remedies hereunder, in respect of any particular
Collateral are governed by the laws of a jurisdiction other than the State of
California. Unless otherwise defined herein, terms used in Division 9 of the
Uniform Commercial Code in effect in the State of California are used herein as
therein defined.
SECTION 16. Waiver of Jury Trial. THE GRANTOR AND SECURED PARTY BOTH
HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS THEY MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE
OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE GRANTOR
AND SECURED PARTY.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
SOUTHWALL TECHNOLOGIES, INC.
By: /s/ L. Ray Christie
-----------------------------
Name: L. Ray Christie
---------------------------
Title: Vice President, Chief
--------------------------
Financial Officer
TEIJIN LIMITED
By: /s/ Shasaku Yasui
-----------------------------
Name: Shasaku Yasui
---------------------------
Title: Senior Managing Director
--------------------------
Member of the Board
11
<PAGE>
EXHIBIT A
1. Inventory in an amount as described in Section 4(c).
2. The following equipment and machinery located at the Southwall Technologies,
Inc. facility at 8175 S. Hardy Street, Tempe, Arizona 85284:
- --------------------------------------------------------------------------------
ITEMS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Custom Designed and Fabricated High Vacuum Planar Magnetron Sputter Roll Coating
System, known as PM5
- --------------------------------------------------------------------------------
15 Planar Magnetron Sputter Sources with Supported Fixed Flange, Gas Inlets,
Electrical Feedthrough, Water Cooling Connections, Backing Plates and Power
Adaption Modules, for use with PM5
- --------------------------------------------------------------------------------
Power Generation System for use with PM5
- --------------------------------------------------------------------------------
Vacuum Deposition Machine, known as PM6
- --------------------------------------------------------------------------------
Power Generation System for use with PM6
- --------------------------------------------------------------------------------
Trane Chiller RTHB-150 460 A, Process Chilling System
- --------------------------------------------------------------------------------
Water Cooled Dual Zone Chiller/Heater, Process Chilling System
- --------------------------------------------------------------------------------
Resistance Monitoring Equipment; Non-contact Resistance Monitoring
- --------------------------------------------------------------------------------
Solvent Based Tandem Coating Line
- --------------------------------------------------------------------------------
5500 SCFM Catalytic System with Allen-Bradley SLC502 PLC networked to coating
line
- --------------------------------------------------------------------------------
610 Slitter/Rewinder
- --------------------------------------------------------------------------------
Toray Sheeting Machine
- --------------------------------------------------------------------------------
EXHIBIT 10.91
PROMISSORY NOTE
US$10,000,000.00 May 6, 1997
San Francisco, California
FOR VALUE RECEIVED, Southwall Technologies Inc. (the "Company") hereby
unconditionally promises to pay at the times set forth in the Agreement referred
to below and in any event on Final Maturity Date to the order of The Sanwa Bank,
Limited, San Francisco Branch (the "Bank") the principal amount of Ten Million
United States Dollars (US$10,000,000.00). The Company promises to pay interest
on the unpaid principal amount of the Loan at such interest rates and on such
dates as are provided for in the Agreement.
All such principal and interest (including interest on overdue
principal and, to the extend permitted by law, overdue interest and any and all
other amounts payable by the Company under the terms of the Agreement and which
are not paid when due) shall be payable in lawful money of the United States of
America at the times and places, and in accordance with the payment terms
contained in the Agreement. Principal may be prepaid only in accordance with the
terms and conditions set forth in the Agreement.
Each payment made on account of the principal of the Loan shall be
recorded by the Bank on its books and, prior to any transfer of this Promissory
Note (the "Note"), endorsed by the Bank on the schedule attached to this Note or
any continuation of such schedule (provided that the failure by the Bank to
make, or any error in making, any such endorsement shall not limit or otherwise
affect the obligations of the Company under this Note with respect to the Loan).
This Note is the Promissory Note referred to, and is entitled to the
benefits of, that certain Credit Agreement dated as of May 6, 1997 (as it may be
amended from time to time) between the Company and the Bank (the "Agreement").
Terms defined in the Agreement are used in this Note with respective meanings
assigned to those terms in the Agreement.
This Note shall be construed in accordance with and governed by the
laws of the State of California applicable to contracts made and performed in
the State of California.
Southwall Technologies Inc.
By: /s/ Martin Schwartz
-------------------------------
Name: Martin Schwartz
Title: President
<PAGE>
Letter of Guarantee
Submitted to The Sanwa Bank (Headquarters)
Attn: The Sanwa Bank, Limited
Letter of Guarantee
With regard to the following loan extended by your San Francisco Office and
borrowed by Southwall Technologies, Inc., we, Teijin Limited, hereby jointly and
separately guarantee the performance of the borrower's obligations and will not
cause The Sanwa Bank, Limited any damage or loss.
When The Sanwa Bank, Limited requests Teijin any payment relating to the loan,
Teijin will promptly pay and perform based upon its obligation under this Letter
of Guarantee.
1. Amount of Loan:
US $10,000,000.00
2. Starting Date of Loan:
May 6, 1997
3. Ending Date of Loan:
November 6, 2004
April 30, 1997
Minamihonmachi-1 Chome 6-7
Chuou-Ku, Osaka
Teijin Limited
Hiroshi Itagaki
President & CEO
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-29-1997
<CASH> 10,057
<SECURITIES> 7
<RECEIVABLES> 10,525
<ALLOWANCES> (819)
<INVENTORY> 9,364
<CURRENT-ASSETS> 30,094
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0
0
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