<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-K/A
(Amendment # 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
-------------------------------------------
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 0-15930
-------
SOUTHWALL TECHNOLOGIES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2551470
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1029 Corporation Way, Palo Alto, California 94303
------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (415) 962-9111
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
(Title of Class)
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
-------- --------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
1
<PAGE>
PART IV
=======
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this Form 10-K:
(a)(1) Index to Financial Statements. The following
Financial Statements of Southwall Technologies Inc. are filed
as part of this Form 10-K:
<TABLE>
<CAPTION>
Form 10-K
Page Number
-----------
<S> <C>
Report of Independent Accountants 17
Consolidated Balance Sheets as of
December 31, 1996 and 1995 18
Consolidated Statements of Operations
for the years ended December 31, 1996,
1995 and 1994 19
Consolidated Statements of Stockholders'
Equity for the years ended December 31,
1996, 1995 and 1994 20
Consolidated Statements of Cash Flows
for the years ended December 31, 1996,
1995 and 1994 21
Notes to Consolidated Financial Statements 22
</TABLE>
(a)(2) Index to Financial Statement Schedules. Schedules
have been omitted because they are not applicable or required, or
the information required to be set forth therein is included in
the Financial Statements or notes thereto.
(a)(3) Exhibits. Reference is made to the Exhibit Index on
--------
pages 37 through 42 of this Form 10-K.
(b) Reports on Form 8-K.
-------------------
None
For the purposes of complying with the amendments to the rules
governing Form S-8 (effective July 12, 1990) under the Securities Act of 1933,
the undersigned registrant hereby undertakes as follows:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has
34
<PAGE>
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered on the Form S-8 identified below, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
The preceding undertaking shall be incorporated by reference into
registrant's Registration Statements on Form S-8 Nos. 33-28599 (filed on May 9,
1989), 33-37247 (filed October 11, 1990), 33-42753 (filed on September 16,
1991), 33-51758 (filed on September 8, 1992) and 33-82138 (filed on July 28,
1994).
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the 14th day of
March, 1997.
SOUTHWALL TECHNOLOGIES INC.
By /s/Martin M. Schwartz
---------------------
Martin M. Schwartz
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities
indicated, as of March 14, 1997.
Signature Title
--------- -----
/s/J. Larry Smart Chairman of the Board of Directors
- -----------------
J. Larry Smart)
/s/Martin M. Schwartz President, Chief Executive Officer
- --------------------- and Director (Principal Executive
(Martin M. Schwartz) Officer)
/s/L. Ray Christie Vice President, Chief Financial
- --------------------- Officer and Secretary (Principal Financial
(L. Ray Christie) and Accounting Officer)
/s/Bruce J. Alexander Director
- ---------------------
(Bruce J. Alexander)
/s/ Joseph B. Reagan Director
- ---------------------
(Joseph B. Reagan)
/s/ Walter C. Sedgwick Director
- ----------------------
(Walter C. Sedgwick)
36
<PAGE>
INDEX TO EXHIBITS FILED WITH
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1(1) Restated Certificate of Incorporation of the Company.
3.2(1) By-laws of the Company.
10.4(1) The Company's Management Incentive Plan.
10.23(1) Agreement, dated January 31, 1984, between the Company and Mitsui
Toatsu Chemicals, Inc., as amended (with certain confidential
information deleted therefrom and filed separately).
10.35(1) Lease Agreement for the facilities at 3941 East Bayshore Road,
dated March 20, 1979, between the Company and Straube Associates,
Inc.
10.36(1) Lease Agreement for the facilities at 3961 East Bayshore Road,
dated March 20, 1979, between the Company and Allan F. Brown and
Robert V. Brown.
10.40(1) Exclusive License Agreement, dated April 20, 1987, between the
Company and Massachusetts Institute of Technology.
10.41(1) Agreement, dated April 16, 1987, between the Company and the BOC
Group, Inc., and amending letter.
10.42(1) Form of Indemnity Agreement, dated April 21, 1987, between the
Company and each of its officers and directors.
10.52(2) Marketing and Distribution Agreement dated as of May 20, 1988,
among Mitsui Toatsu Chemicals, Inc. ("Mitsui"), Marubeni
Corporation ("Marubeni") and the Company, as amended.
10.53(2) Common Stock Purchase Agreement dated as of May 23, 1988, among
Mitsui, Marubeni and the Company.
10.57(2) Restated 1987 Stock Option Plan, as amended.
10.58(2) Employee Stock Purchase Plan, as amended.
10.59(3) Lease Agreement for the facilities at 3969-3975 East Bayshore
Road Palo Alto, California, dated January 1, 1989, between the
Company and Bay Laurel Investment Company.
10.60(3) Lease Agreements for the facilities at 3977-3995 East Bayshore
Road Palo Alto, California, dated January 1, 1989, between the
Company and Bay Laurel Investment Company.
</TABLE>
37
<PAGE>
<TABLE>
<S> <C>
10.62(3) Common Stock Sales Agreement, dated May 2, 1989, between the
Company and Monsanto Company.
10.63(3) Convertible Subordinated Note, Due May 31, 1999.
10.64(3) Warrants to Purchase Common Stock of Southwall Technologies Inc., void
after May 31, 1996.
10.65(3) Second Restated Registration Rights Amendment, Dated May 2,1989, among
the Company, Lockheed Corporation, Minnesota Mining and
Manufacturing Company, Mitsui Toatsu Chemicals, Inc. and Marubeni
Corporation, and Monsanto Company.
10.66(3) Non-exclusive License Agreement, dated March 9, 1989, between the
Company and the Massachusetts Institute of Technology (with certain
confidential information deleted).
10.69(4) Lease Agreement for the facilities at 1029 Corporation Way Palo
Alto, California, dated April 27, 1989, between the Company and C&J
Development, as amended.
10.71(5) Lease Agreement for the facilities at 3780 Fabian Way, Palo Alto,
California, dated June 11, 1990, between the Company and The Fabian
Building.
10.72(5) License Agreement between Mitsui Toatsu Chemicals, Inc. and the
Company, dated January 30, 1991.
10.74(6) License Agreement between the Company and the Dow Chemical Company,
dated February 1, 1993.
10.77(10) Fourth Amendment, dated March 3, 1993, between the Company and C&J
Development to the Lease for the facilities at 1029 Corporate Way
filed as exhibit number 10.69.
10.78(7) Amendment to property lease dated February 2, 1994 to extend lease
period on building at 3961 E. Bayshore Road, Palo Alto, California.
Original lease filed as exhibit number 10.36
10.79(7) Amendment to property lease dated April 4, 1994 to extend lease period
on building at 3941 E. Bayshore Road, Palo Alto, California.
Original lease filed as exhibit number 10.35.
10.80(8) Lease Agreement between Frank Gant, an individual, as Lessor and
Southwall Technologies Inc., a Delaware corporation, as Lessee
effective September 1, 1994.
10.81(8) Purchase Agreement among Southwall Technologies Inc., Southwall-
Sunflex, Inc., Sunflex, L.P., and Sunflex Partners effective October
31, 1994.
10.82(11) Supply Agreement between Sony Corporation and Southwall Technologies
Inc., effective October 23, 1995.
10.83 Addendum #1 To Supply Agreement between Sony Corporation and
</TABLE>
38
<PAGE>
<TABLE>
<S> <C>
Southwall Technologies Inc., with effective dates of April 1, 1996
and July 1, 1997(with certain confidential information deleted
therefrom and filed separately).
10.84* Lease Agreement between Chamberlain Development, L.L.C., as Lessor and
Southwall Technologies Inc., a Delaware corporation, as Lessee
effective May 1, 1997.
10.85 Purchase Agreement, dated April 29, 1996, between an equipment
supplier and Southwall Technologies Inc., (with certain confidential
information deleted therefrom and filed separately).
10.86* Agreement regarding separation of employment between Alfred V.
Larrenaga, an officer of the Company and Southwall Technologies
Inc., dated July 29, 1996 and amended October 29, 1996.
10.87* Loan and security agreement dated as of December 3, 1996, between
the Company as debtor and CIT Group/Equipment Financing, Inc.
21 (11) List of Subsidiaries of Southwall Technologies Inc.
23.1* Consent of Independent Accountants.
99.1(9) Letter, dated June 5, 1987, from the U.S. Department of the Air Force
to the SEC Pursuant to Rule 171.
</TABLE>
_________________
* Previously Filed with 10-K405.
(1) Filed as an exhibit to the Registration Statement on Form S-1 filed with the
Commission on April 27, 1987 (Registration No. 33- 13779) (the "Registration
Statement") and incorporated herein by reference.
(2) Filed as an exhibit to the Form 10-Q Quarterly Report for Quarter Ended June
30, 1988, filed with the Commission on August 15, 1988 and incorporated
herein by reference.
(3) Filed as an exhibit to the Form 10-Q Quarterly Report for Quarter Ended
July 2, 1989, filed with the Commission on August 16, 1989 and incorporated
herein by reference.
(4) Filed as an exhibit to the Form 10-K Annual Report 1989, filed with the
Commission on March 30, 1990 and incorporated herein by reference.
(5) Filed as an exhibit to the Form 10-K Annual Report 1990, filed with the
Commission on March 25, 1991 and incorporated herein by reference.
(6) Filed as an exhibit to the Form 10-K Annual Report 1992, filed with the
Commission on March 15, 1993 and incorporated herein by reference.
(7) Filed as an exhibit to the Form 10-Q Quarterly Report for Quarter Ended July
3, 1994, filed with the Commission on August 15, 1994 and incorporated
herein by reference.
(8) Filed as an exhibit to the Form 10-Q Quarterly report for Quarter Ended
39
<PAGE>
October 2, 1994, filed with the Commission on November 9, 1994 and
incorporated herein by reference.
(9) Filed as Exhibit No. 28.1 to Post-Effective Amendment No. 1 to the
Registration Statement, filed with the Commission on June 9, 1987 and
incorporated herein by reference.
(10) Filed as an exhibit to the Form 10-K Annual Report 1994, filed with the
Commission on March 2, 1995 and incorporated herein by reference.
(11) Filed as an exhibit to the Form 10-K Annual Report 1995, filed with the
Commission on March 19, 1996 and incorporated herein by reference.
40
<PAGE>
EXHIBIT 10.83
ADDENDUM #1 TO SUPPLY AGREEMENT
This Addendum #1 to Supply Agreement (the "Addendum") is entered into as of
April 1, 1996 by and between Southwall Technologies Inc. ("Seller"), a Delaware
corporation, and Sony Corporation ("Buyer"), a Japanese corporation.
WHEREAS, the parties have entered into a Supply Agreement dated October 23,
1995 (the "Supply Agreement") where Seller agreed to supply to Buyer and Buyer
agreed to purchase from Seller certain Products (as defined in the Supply
Agreement); and
WHEREAS, subject to the conditions set forth herein, the parties wish to
enter into this Addendum to, among other things, establish certain pricing and
minimum quantity requirements for the Products during an extended term of the
Supply Agreement.
NOW THEREFORE, in consideration of the premises and the covenants contained
in this Addendum and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Buyer shall pay Seller a surcharge equal to one dollar per square foot
($1/sq.ft.) of Products that are shipped to Buyer commencing on April 1, 1996
and continuing until four million dollars (US$4,000,000) has been paid by Buyer.
2. Seller shall expand its production capacity so it can be capable of
manufacturing and supplying at least three million square feet (3,000,000
sq.ft.) of Product per year by June 30, 1998.
3. During the period from April 1, 1996 to June 30, 1997, Section 2.4 of the
supply Agreement entitled "Best Efforts" shall be deleted in its entirety and
the following new Section 2.4 shall be substituted in lieu thereof:
2.4 Best Efforts. In addition to, and not in limitation of Section 2.2 of
------------
this Agreement, in exchange for the foregoing exclusivity, Buyer agrees to use
its best efforts to sell and market Products for the Computer Monitor CRT
Applications throughout the world. Without limiting the foregoing, Buyer
expects to and will use best efforts to purchase the following amounts of
Products: (i) two million square feet (2,000,000 sq.ft.) for the period
beginning on October 23, 1995 and ending on April 22, 1997, (ii) three hundred
fifty thousand square feet (350,000 sq.ft.) for the period beginning on April
23, 1997 and ending on June 30, 1997.
<PAGE>
4. The parties have agreed that during the term of the Supply Agreement,
which shall be extended in accordance with Section 6 of this Addendum the
following terms (in addition to those set forth in the Supply Agreement and not
expressly amended herein) shall govern the sale and purchase of Products
commencing as of July 1, 1997 and continuing until December 31, 2000 and
continuing thereafter for successive one year terms until terminated by either
party as set forth herein (the "Extended Term"), provided, however, that nothing
contained in this Section 4 shall govern the sale and purchase of Products prior
to July 1, 1997.
a. Prices payable by Buyer for the Products during the Extended Term
shall be as set forth on Exhibit A to this Addendum. During the Extended Term,
Exhibit A replaces the prices set forth in Exhibit II to the Supply Agreement in
its entirety. Prices are based on Seller's fully loaded manufacturing cost per
square foot of Products plus a sliding scale gross margin percentage. The Prices
of the Products applicable during every quarter which begins with January,
April, July and October respectively shall be determined during the immediately
preceding quarter in accordance with the Pricing Formula as set forth on Exhibit
A to this Addendum. Seller shall submit to Buyer the documents which prove
Seller's manufacturing cost of the Products so that the parties hereto can
determine the applicable unit price of the Products in accordance with the
Pricing Formula.
b. Section 2.2 of the Supply Agreement entitled "Exclusivity" shall
be deleted in its entirety.
c. Section 2.4 of the Supply Agreement entitled "Best Efforts" shall
be deleted in its entirety and the following new Section 2.4 shall be
substituted in lieu thereof:
2.4 Best Efforts.
------------
(a) Buyer agrees to use its best efforts to sell and market
Products for the Computer Monitor CRT Applications throughout the world. Without
limiting the foregoing, Buyer agrees to buy from Seller and Seller commits to
sell product from any of Seller's manufacturing equipment to Buyer the following
minimum quantities of Products during the Extended Term: (i) one and a half
million square feet (1,500,000 sq.ft) during the period beginning July 1, 1997
and ending on December 31, 1997 and (ii) three million square feet (3,000,000
sq.ft) for each twelve (12) month period thereafter.
(b) In the event that Buyer fails to purchase from Seller such
quantities of the Product as it has committed in Section 2.4(a) above within the
period of time set forth therein, Buyer shall pay to Seller as liquidated
damages an amount equal to one half of the applicable unit price of the Products
during the last quarter of the respective period of time set forth in Section
2.4(a) above for the quantities of Products not purchased by Buyer.
<PAGE>
(c) In the event that Seller fails to sell to Buyer such quantities of
the Products as it has committed in Section 2.4(a) above within the period of
time set forth therein, Seller shall pay to Buyer as liquidated damages an
amount equal to one half of the applicable unit price of the Products during the
last quarter of the respective period of time set forth in Section 2.4(a) above
for the quantities of Products not supplied by Seller.
d. The following Section 2.11 shall be added to the Supply Agreement to
reflect the Seller's obligation regarding discounts and contribution fees during
the Extended Term:
2.11 Discounts and Contribution Fee.
------------------------------
(a) In the event that Buyer purchases the Products over three million
square feet (3,000,000 sq.ft.) during each twelve (12) month period of the
Extended Term, Seller agrees to pay to Buyer, as a volume discounts of the price
of Products, an amount equal to two percent (2%) of the sales price received by
Seller (less any allowances actually made and taken for returns; shipping and
insurance costs actually paid; sales, use, value-added and similar taxes and
duties and similar governmental assessments on Products as shipped) for the
quantities of the Products in excess of three million square feet (3,000,000
sq.ft).
(b) In the event that Seller sells the products, which are substantially
similar to the Products, to third parties during the Extended Term, Seller
agrees to pay to Buyer, as a contribution fee of Buyer's providing idea and
advice for selling such products, an amount equal to two percent (2%) of the
sales price received by Seller (less any allowances actually made and taken for
returns; shipping and insurance costs actually paid; sales, use, value-added and
similar taxes and duties and similar governmental assessments on products as
shipped) for such products sold by Seller to third parties.
(c) Discounts or contribution fees shall be paid either in U.S. dollars
or in shares of common stock of Seller valued at one and a half (1.5) times the
average closing price of Seller's stock for the last ten (10) trading days on
Nasdaq (at Buyer's option). Discounts or contribution fees are payable within
forty-five (45) days of each calendar quarter with respect to discounts or
contribution fee-bearing sales occurring in that quarter.
5. This Addendum shall be effective as of April 1, 1996, provided, however,
Section 4 of this Addendum shall not be effective until July 1, 1997.
6. Section 4.1 of the Supply Agreement which sets forth the term of the Supply
Agreement shall be replaced with the following provision: Unless terminated
earlier as provided herein, this Agreement shall continue in effect until
December 31, 2000, and
3
<PAGE>
shall thereafter be extended for successive one year terms until terminated by
either party upon at least six (6) months prior written notice to the other
party.
7. Except as expressly amended by this Addendum, the provisions of the Supply
Agreement shall remain in full force and effect.
8. Capitalized terms used in this Addendum and not otherwise defined in this
Addendum shall have the meanings provided in the Supply Agreement.
9. This Addendum may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Addendum as of the date first above
written.
SELLER BUYER
By: /s/ Martin M Schwartz By: /s/ Yasuhiro Hosozawa
------------------------------- ----------------------------------
Name: Martin M Schwartz Name: YASUHIRO HOSOZAWA
----------------------------- --------------------------------
Title: President/CEO Title: General Manager
---------------------------- -------------------------------
4
<PAGE>
PRICING FORMULA
REVISED
--------------------------------------------------------------------------
7/1/97
Gross Gross
Cost/1/ Price Margin Margin
------- ------- ------- ------
$/ft/2/ $/ft/2/ $/ft/2/ %
[ ]*
(1) cost equals fully loaded manufacturing cost
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT 10.85
CONTRACT
for
SPUTTER ROLL COATERS
between
SOUTHWALL TECHNOLOGIES INC.
1029 Corporation Way
Palo Alto, CA 94303
USA
Herein referred to as the "Buyer"
and
[*]
herein referred to as the "Seller"
CONTRACT NO: C9871SGE
DATE: April 29 1996
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
This Contract ("Contract") dated as of April 29 1996, is made by and between
Southwall Technologies Inc. (herein referred to as the "Buyer") and [*]
("Seller").
WHEREAS, Buyer desires to acquire two sputter roll coaters from Seller which
Buyer intends to combine with Buyer's technology.
NOW, THEREFORE, the parties hereto agree as follows:
1. SCOPE OF CONTRACT
1.1 Subject to the terms and conditions of this Contract, the Buyer agrees to
buy from the Seller, and the Seller agrees to sell to the Buyer, one
Sputter Roll Coater (hereinafter referred to as the "Coater") conforming
to the specification titled "Sputtering Roll Coater" attached hereto as
Exhibit A (the "Specification") together with all documentation specified
therein, together with an option to buy an identical machine (subject to
common parts supplied with the first machine) within 12 months of the
signing of this contract.
2. PRICE
The Contract Price of the Coaters as stipulated in Item 1.1 is US
$2,812,000 (two million eight hundred twelve thousand US dollars) for the
first machine and US $2,488,000 (two million four hundred eighty eight
thousand US dollars) for the second machine provided the second machine
is ordered within 12 months of the date of this contract. Details of the
price are set forth on Exhibit D.
3. TERMS OF PAYMENT
The Contract Price for each machine shall be paid by Buyer as follows:
(i) 10% within 30 days following the execution of the Contract; and
(ii) 10% on commencement of assembly or 18th September 1996 whichever is
earlier.
(iii) 70% upon the shipment of the Coater to USA following the date the
Coater has passed the portion of [*] Acceptance Test (as defined herein)
applicable to the items manufactured or provided by Seller.
(iv) 10% after final acceptance in the buyers factory or 120 days following
shipment whichever is earliest.
2
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
4. DELIVERY
Exhibit B hereto sets forth the production schedule for the first machine to be
met by Seller with respect to actions required to be taken or items to be
delivered by Seller (the "Sellers Production Schedule") and the production
schedule to be met by Buyer with respect to actions required to be taken or
items to be delivered by Buyer (the "Buyer's Production Schedule). Seller shall
use its best efforts to meet the Seller's Production Schedule. The first Coater
shall be available for the conducting of [*] Acceptance Tests in [*], not later
than the date set forth in the Seller's Production Schedule. In the event that
Seller fails to meet the Seller's Production Schedule, Seller shall pay to Buyer
a late penalty equal to 1% of the Contract Price for each machine for each week
of delay of each machine from the dates specified in the Seller's Production
Schedule (prorated in the case of a delay of less than a week) up to an
aggregate maximum of 5% of the Contract Price of the first machine. In the event
that Seller fails to meet the Seller's Production Schedule as a result of the
Buyer's failure to meet the Buyer's obligations, Seller shall be entitled to a
delay of equal duration to such delay of Buyer without liability for any late
penalty for such period. The Seller will promptly notify the Buyer of any such
delays as and when they occur and of the resultant delays in the Seller's
Production Schedule.
The delivery of the second machine will be 9 months from order but will be
subject to confirmation. All other Terms of their Agreement shall apply to the
second machine, but dates will be adjusted to reflect its order date.
5. ACCEPTANCE TESTS
Each Coater will be subjected to partial acceptance testing prior to shipment
[*] to USA and after installation at Southwall's facilities in USA. In the first
case, Seller shall promptly notify Buyer when each Coater is ready for
commencement of partial acceptance tests. As soon as practicable thereafter,
Seller and the Buyer shall jointly conduct the acceptance tests specified in
Exhibit C hereto, (the "Acceptance Tests"). If the Buyer determines that the
Coater has not passed all of the Acceptance tests, Buyer shall so notify the
Seller in writing and specify in reasonable detail the deficiencies and the
basis for that determination. Seller shall as soon as possible after receipt of
any notice of deficiency correct any such deficiency and notify Seller when the
Coater is ready to be retested and the foregoing test procedure will be
repeated. The [*] Acceptance Tests" shall mean the Acceptance Tests conducted
[*] prior to shipment of the Coater to USA and the term "USA Acceptance Tests"
shall mean the Acceptance Tests conducted at Southwall's facilities after the
Coater is installed. The Coater shall not be deemed to have passed [*]
Acceptance Tests until the Buyer (i) is personally satisfied that the Coater has
passed all of the criteria of all Acceptance Tests and (ii) Buyer has delivered
to Seller a notice to that effect.
6. IMPORT LICENSE
Any import licence required for importation of the Coater into USA is the
responsibility of the Buyer. In the event that Buyer fails to obtain such an
import licence, and as a result the Seller is unable meet the Seller's
Production Schedule, Seller shall not be required to pay any resultant
3
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
penalties under Section 4 and Seller shall be entitled to payment of the entire
Contract Price for the Coater pursuant to Section 3 notwithstanding the fact
that the Coater has not been shipped, been installed, passed the Buyer's
Acceptance Tests or been commissioned. Seller agrees to cooperate with Buyer's
reasonable requests for information and documentation regarding Seller and the
Coater in connection with Buyer's attempts to receive all necessary import
licences and authorizations for the importation to USA. Seller shall be
responsible for, and shall obtain at Seller's expense any export licences or
other governmental approvals required for the export of the Coater.
7. IMPORT DUTIES
All import duty, local taxes etc., levied by the USA authorities on the Coater's
arrival in USA shall be the responsibility of the Buyer.
8. WARRANTY
The Seller warrants that the Coater will conform to and operate in accordance
with the Specifications and that all parts and components provided by Seller be
free from defects in material and workmanship during the warranty period.
Defects and deficiencies will be repaired and replaced free of charge during the
warranty period. Parts replaced will become the property of the Seller. The
warranty period will commence upon shipment of the Coater _______ expire upon
the earlier of (i) 12 months from the date the Coater passes the Buyer's
Acceptance Tests in USA or (ii) 15 months from the date the Coater passes [*]
Acceptance Tests.
9. CHANGE ORDERS
In the event that, during the design or construction of the Coater, the Seller
determines that it is necessary to make a change in construction or design which
will change some aspect of the Specification forming part of this Contract, then
the Seller will immediately notify the Buyer in writing of such a change, the
reason for it, and the implications on performance, cost and shipment. The Buyer
will respond promptly to such notices and, when agreed to in writing by both
parties, any such changes will become an integral part of the Specification and
this Contract. Any increase in cost as a result of such agreed upon changes
shall be borne by the Seller and shall not increase the Contract Price specified
in Section 2. Any decrease in cost as a result of such agreed upon changes shall
reduce the Contract Price and all payments specified in Section 3 shall be
adjusted accordingly.
In the event that, during the design, construction or assembly and completion of
acceptance tests of the Coater, the Buyer determines that it is necessary to
make a change in construction or design which will change some aspect of the
Specification forming part of this Contract, then the Buyer will immediately
notify the Seller in writing of such a change. The Seller will respond promptly
to such notice with information on the implications on performance, cost and
shipment time of such changes. When agreed to in writing by both parties, any
such changes will become an integral part of the Specification and of this
Contract. Any increase in cost as a result of such
4
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
agreed upon changes shall be borne by the Buyer and shall increase the Contract
Price and all payments specified in Section 3 shall be adjusted accordingly.
10. ASSIGNMENT
The rights and obligations of the parties under this Contract may not be
assigned or transferred, except (i) rights to payment of money may be assigned
and (ii) this Contract and the rights and obligations hereunder may be assigned
to an acquirer of all or substantially all the assets, business or stock of a
party.
11. TERM AND TERMINATION
11.1 If a party materially breaches a material provision of this Contract, the
other party may terminate this Contract upon 30 days' written notice unless
the breach is cured within the notice period. The failure of either Coater
to pass any of the Acceptance Tests within 60 days of the commencement of
the Acceptance Test shall be deemed a material breach of this Contract by
Seller.
11.2 At any time prior to the shipment of either Coater, Buyer may cancel this
Contract for any reason upon 30 days prior written notice; provided that
Buyer pays to Seller a cancellation fee equal to the difference between (i)
the product of the Contract Price multiplied by the Completion Percentage
on the date of such notice, minus (ii) the amount of the Contract Price
previously paid to Seller; provided, however, that if the amount in (ii)
above is greater than the amount in (i) above, Seller shall refund to Buyer
the amount of such excess within 30 days of such written notice and shall
be entitled to no other cancellation fee. The Completion Percentage means
that percentage which reflects the degree to which the design, construction
and assembly of the Coater has been completed and shall be determined by
the mutual agreement of the parties. Upon payment of the cancellation fee,
Buyer shall own all right, title and interest in the Coaters and all parts
and components thereof, whether or not assembled.
11.3 In the event of any termination of this Contract, Sections 8 and 11 through
14 shall survive, along with any cause of action for breach of this
Contract prior to termination (except, that if pursuant to Section 11.2 the
Buyer terminates this Agreement, Section 14.9 shall not survive
termination).
11.4 Except as provided in Section 11.2, neither party shall incur any liability
whatsoever for any damage, loss or expenses of any kind suffered or
incurred by the other arising from or incident to any termination of this
Contract (or any part thereof) by such party which complies with the terms
of the Contract whether or not such party is aware of any such damage, loss
or expenses.
11.5 Termination is not the sole remedy under this Contract and, whether or not
termination is effected, all other remedies will remain available.
5
<PAGE>
12. INCIDENTAL AND CONSEQUENTIAL DAMAGES
NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY
SUBJECT MATTER OF THIS CONTRACT, EXCEPT AS PROVIDED IN SECTION 4 HEREOF.
13. INDEPENDENT CONTRACTORS
The parties are independent contractors and not partners, joint ventures or
otherwise affiliated and neither has any right or authority to bind the other in
any way.
14. MISCELLANEOUS
14.1 Amendment and Waiver
--------------------
Except as otherwise expressly provided herein, any provision of this
Contract may be amended and the observance of any provision of this
Contract may be waived (either generally or any particular instance and
either retroactively or prospectively) only with the written consent of the
parties.
14.2 Governing Law and Legal Actions
-------------------------------
This Contract shall be governed by and construed under the laws of the
State of California and the United States without regard to conflicts of
laws provisions thereof, and without regard to the United Nations
Convention on Contracts for the International Sale of Goods. Unless
otherwise elected by Buyer in writing for a particular instance (which
Buyer may do at its option), the sole jurisdiction and venue for actions
related to the subject matter hereof shall be the California state and US
federal courts having within their jurisdiction the location of Buyer's
principal place of business. Both parties consent to the jurisdiction of
such courts and agree that process may be served in the manner provided
herein for giving of notices or otherwise as allowed by California or
federal law. In any action or proceeding to enforce rights under this
Contract, the prevailing party shall be entitled to recover costs and
attorneys; fees.
14.3 Headings
--------
Headings and captions are for convenience only and are not to be used in
the interpretation of this Contract.
<PAGE>
14.4 Notices
-------
Notices under this Contract shall be sufficient only if personally
delivered, delivered by a major commercial rapid delivery courier service
or mailed by certified or registered mail, return receipt requested to a
party at its addresses set forth in the signature block below or as amended
by notice pursuant to this subsection. If not received sooner, notice by
mail shall be deemed received 5 days after deposit in the US and __________
14.5 Risk of Loss
------------
Upon shipment from Seller's factory [*] all risk of loss and damage to the
Coaters shall pass immediately to Buyer. Title to the Coaters shall pass
upon payment in full of the Contract price.
14.6 Arbitration
-----------
Except that either party may seek equitable or similar relief from a court,
any dispute, controversy or claim arising out of or in relation to this
Contract or at law, or the breach, termination or invalidity thereof, that
cannot be settled amicably by agreement of the parties hereto, shall be
finally settled by arbitration in accordance with the arbitration rules of
the International Chamber of Commerce ("ICC"), Paris, then in force by one
or more arbitrators appointed in accordance with said rules; provided,
however, that arbitration proceedings may not be instituted until the party
alleging breach of this Contract by the other party has given the other
party not less than sixty (60 days) to remedy any alleged breach and the
other party has failed to do so. The appointing authority shall be the ICC
Court of Arbitration. The place of arbitration shall be New york City. All
documents and agreements relative to any such dispute shall be read,
interpreted and construed from the [*] versions thereof. The award rendered
shall be final and binding upon both parties. Judgement upon the award may
be entered in any court having jurisdiction, or application may be made to
such court for judicial acceptance of the award and/or an order of
enforcement as the case may be.
14.7 Insurance and Indemnity
-----------------------
Each party hereto shall effect at its own expense accident insurance for
those of its personnel sent to the other party pursuant to this Contract
and shall indemnify the other party for any and all damages and claims
resulting from personal injury or deal of its own personnel. Each party
hereto shall also obtain insurance at its own expense covering personal
injury, death or property damage to it or to any third party that may
result from the work or services of personnel of the other party sent to
its plant under this Contract and shall indemnify the other party for all
such damages and claims. An indemnifying party's obligations shall be
conditioned upon (i) prompt notification of any claim or threat and (ii)
such party having the option to control any defence and settlement. If the
indemnifying party does not control defence or settlement, any settlements
shall be subject to its approval, which approval shall not be unreasonable
withheld. The foregoing
7
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
indemnities shall not be unreasonably withheld. The foregoing indemnities
shall not apply to injury, death or damage caused by the gross negligence
or wilful misconduct of the party seeking to be indemnified.
14.8 Licence Fees
------------
This is an agreement regarding the supply of two Coaters and no licences
of any sort are granted hereunder expressly or by implication except that
Buyer and its successors may use, repair, rebuild, obtain replacement
parts for, and take all other actions necessary or appropriate to
operating or maintaining the Coaters (or have others perform the
foregoing.) In the event that any third party is entitled to receive a
licence fee with respect to a component or technology supplied by the
Seller, Seller shall be responsible for any fees payable to such a third
party. Buyer shall not be responsible for any infringement or unauthorized
use with regard to any patent, utility model, trademark, design, copyright
or any other industrial property right, whether in [*] any other place in
respect of any component or technology supplied by the Seller. Nothing
herein contained shall be construed to be a transfer of any patent,
utility model, trademark, design, copyright or any other industrial
property right covering the goods, and all such rights are expressly
reserved to the true and lawful owners thereof. In case any dispute or
claim arises in connection with the above right or rights, Buyer may
cancel at its discretion any remaining shipment under this contract, if
any, and in any case shall be free from any liability arising therefrom,
and Seller shall be responsible for any and all loss or damage caused
thereby.
14.9 Payment Advance Guarantee
-------------------------
To secure the payments made by Buyer to Seller, at all times until the
Coaters have been shipped, Seller shall furnish Buyer with a bank
guarantee in the amount of the aggregate payment actually made by Buyer
hereunder from a bank, reasonably acceptable to Buyer, which will permit
Buyer to receive on demand an amount equal to any amount (without
interest) which is determined to be owing by Seller to Buyer as a result
of any breach or non-performance by Seller of the provisions of this
Contract.
14.10 Spare Parts
-----------
A certified Parts List will be supplied by Seller after the design stage
of the Contract to enable the Buyer to ascertain which parts are available
locally and which may be purchased from Seller. The price of spare parts
available from Seller will be determined by Buyer and Seller if and when
Buyer elects to purchase any spare parts.
14.11 Force Majeure
-------------
Neither party hereto shall be responsible for any failure to perform its
obligations under this Agreement (other than obligations to pay money) if
such failure is caused by acts of God, war, strikes, revolutions, lack or
failure of transportation facilities, laws or governmental
8
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
regulations or other causes which are beyond the reasonable control of such
party. Obligations hereunder, however, shall in no event be excused but
shall be suspended only until the cessation of any cause of such failure.
In the event that such force majeure should obstruct performance of this
Agreement for more than six (6) months, the parties hereto shall consult
with each other to determine whether this Agreement should be modified. The
party facing any event of force majeure shall use its best endeavors in
order to remedy that situation as well as to minimize its effects. A case
of force majeure shall be notified to the other party by telex or telefax
within five (5) days after its occurrence and shall be confirmed by a
letter.
IN WITNESS WHEREOF, the undersigned have executed this Contract as of the date
first set forth above.
SOUTHWALL TECHNOLOGIES INC. [*]
By /s/ R. L. Cormia By [*]
---------------- -----------------
Robert L. Cormia
Senior Vice President [*]
Technology
9
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT A
[ * ]
SPUTTERING ROLL COATER
[ * ]
* Confidential portions omitted and filed separately with the Commission.
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
ID Task Name Duration Start Finish
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1
2 Pre Design Order 0d 12/04/96 12/04/96
3 Contract Order 0d 20/04/96 29/04/96
4
5 Design 80d 15/04/96 18/08/96
6 Schematics 7w 15/04/96 31/05/96
7 Layout Drawings 7w 15/04/96 31/05/96
8 Cathode Design 38d 17/04/96 07/08/96
9 Visit 1d 17/04/96 17/04/96
10 Design Layout 4d 18/04/96 23/04/96
11 Design Review 2d 23/04/96 24/04/96
12 Southwall visit 2d 25/04/96 26/04/95
13 Design Review 1w 13/05/96 17/05/96
14 Design Review 1w 03/06/96 07/06/96
15 Define Long Lead Items 0d 17/05/96 17/05/96
16 Detail Drawings 80d 15/04/96 18/08/96
17 Start 0d 15/04/96 15/04/96
18 Complete 0d 16/08/96 16/08/96
19
20
</TABLE>
Page 1
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
ID Task Name Duration Start Finish
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
21 Manufacture 284d 22/04/96 29/05/97
22 Purchase components 90d 22/04/96 23/08/96
23 Order Long Lead Items 2w 22/04/96 03/05/96
24 Detail Manufacturer 277d 01/06/96 29/05/97
25 Face plate 60d 01/06/96 20/08/96
26 Material 8w 01/05/96 25/08/96
27 Fabrication 8w 26/06/96 20/08/96
28 Vessel 100d 01/05/96 17/09/96
29 Material 8w 01/05/96 25/06/96
30 Fabrication 8w 26/06/96 20/08/96
31 Polish/mte. 4w 21/08/96 17/09/96
32 Assembly Mte. No 1 75d 18/08/96 07/01/97
33 Vessel 3w 18/09/96 08/10/96
34 Mechanism End 0w 09/10/96 10/12/96
35 Source End 8w 09/10/96 03/12/96
36 Cathode Deliver 0d 10/12/96 10/12/96
37 Cathode Assy 3w 11/12/96 07/01/97
38 Pumping Group 8w 09/10/96 03/12/96
39 Services 7w 13/11/96 07/01/97
40 Electrics 8w 20/11/96 07/01/97
</TABLE>
Page 2
<PAGE>
EXHIBIT B
<TABLE>
<CAPTION>
ID Task Name Duration Start Finish
- -----------------------------------------------------------------------------
<C> <S> <C> <C> <C>
41 Test 8w 08/01/97 04/03/97
42 Strip & Package 3w 05/03/97 25/03/97
43 Ship to Oakland 4w 26/03/97 22/04/97
44 Deliver to Site 1w 23/04/97 28/04/97
45 Install 2w 30/04/97 13/05/97
46 Commission 2w 14/05/97 27/05/97
47 Customer Acceptance 2d 26/05/97 28/05/97
</TABLE>
Page 3
<PAGE>
EXHIBIT C
ACCEPTANCE TEST CRITERIA FOR STAR 1
1.0 INTRODUCTION
Comprehensive acceptance tests will be agreed between the buyer and the seller
to assure that the equipment meets the specifications set out in exhibit A.
2.0 CRITERIA
2.1 VACUUM
Ultimate pressure.
Time to base pressure.
Leak rate.
Polycold operation.
Gauging.
Gas load.
2.2 WINDING
Thin and thick substrate.
Tension ratios.
Speeds.
Modes.
Rewind arm function.
2.3 DRUM CHILLER
Temperature requirements.
Chiller operation.
2.4 MECHANISM
Mechanical end.
Cathode door movement.
Minichamber to drum, extraction,...
Lighting.
Fit cathodes and PEM sensors.
<PAGE>
2.5 CONTROL SYSTEM
Speed.
Mimics.
Handshakes.
2.6 GAS CONTROL SYSTEM
MFC operation.
<PAGE>
EXHIBIT D
<TABLE>
<CAPTION>
PRICE BREAKDOWN
MACHINE 1 MACHINE 2
<S> <C> <C>
ONE 1170 mm WIDE SPUTTER ROLL
COATING MACHINE INCLUDING $2,688,000 $2,414,000
INSTALLATION AND COMMISSIONING
PACKING AND CARRIAGE TO US PORT $74,000 $74,000
SPARE PARTS $50,000 -
TOTAL MACHINE PRICE $2,812,000 $2,488,000
</TABLE>
