<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1998
Commission File Number : 0-22511
RF MICRO DEVICES, INC.
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(Exact name of registrant as specified in its charter)
North Carolina 56-1733461
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7625 Thorndike Road
Greensboro, North Carolina 27409-9421
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(Address of principal executive offices, including zip code)
(336) 664-1233
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of November 1, 1998, there were 17,197,935 shares of the registrant's common
stock outstanding.
<PAGE> 2
RF MICRO DEVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Condensed Statements of Income--Three months
ended September 30, 1998 and 1997
Condensed Statements of Income--Six months
ended September 30, 1998 and 1997
Condensed Balance Sheets--September 30, 1998
and March 31, 1998
Condensed Statements of Cash Flows--Six months
ended September 30, 1998 and 1997
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
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Item 2. Changes in Securities and Use of Proceeds
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Product sales $ 31,415 $ 8,415
Engineering revenue -- 743
-------- --------
Total revenues 31,415 9,158
Operating costs and expenses:
Cost of goods sold 21,690 4,826
Research and development 3,224 2,099
Marketing and selling 2,520 1,321
General and administrative 1,122 565
-------- --------
Total operating costs and expenses 28,556 8,811
-------- --------
Income from operations 2,859 347
Other income (expense), net (183) 487
-------- --------
Income before income taxes 2,676 834
Income tax expense 321 18
-------- --------
Net income $ 2,355 $ 816
======== ========
Net earnings per share:
Basic $ .14 $ .05
Diluted $ .14 $ .05
Shares used in per share calculation :
Basic 16,311 15,919
Diluted 17,323 17,350
</TABLE>
See notes to Condensed Financial Statements.
<PAGE> 4
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
Revenues:
Product sales $ 54,667 $ 18,617
Engineering revenue 189 776
-------- --------
Total revenues 54,856 19,393
Operating costs and expenses:
Cost of goods sold 37,293 9,991
Research and development 6,000 4,168
Marketing and selling 4,696 2,804
General and administrative 1,991 1,057
-------- --------
Total operating costs and expenses 49,980 18,020
-------- --------
Income from operations 4,876 1,373
Other income (expense), net (28) 662
-------- --------
Income before income taxes 4,848 2,035
Income tax expense 821 45
-------- --------
Net income $ 4,027 $ 1,990
======== ========
Net earnings per share:
Basic $ .25 $ .18
Diluted $ .23 $ .12
Shares used in per share calculation :
Basic 16,222 11,151
Diluted 17,200 15,942
</TABLE>
See notes to Condensed Financial Statements
<PAGE> 5
RF MICRO DEVICES, INC.
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
(Unaudited) (Audited)
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,844 $ 16,360
Accounts receivable, net 14,908 6,993
Inventories 26,900 24,869
Other current assets 244 81
--------- ---------
Total current assets 58,896 48,303
Property and equipment, net 37,504 26,391
Construction in progress 20,450 14,917
Technology license 3,184 3,202
Other assets 1,179 551
--------- ---------
Total assets $ 121,213 $ 93,364
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities $ 17,941 $ 11,027
Income taxes payable 828 --
Current obligations under capital leases 4,645 3,050
Deferred revenue 247 --
--------- ---------
Total current liabilities 23,661 14,077
Obligations under capital leases, less current maturities 16,700 12,524
--------- ---------
Total liabilities 40,361 26,601
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, no par value; 50,000,000 shares authorized;
17,192,254 and 16,124,961 issued and outstanding at
September 30, 1998 and March 31, 1998, respectively 90,255 80,224
Deferred compensation (195) (225)
Accumulated deficit (9,208) (13,236)
--------- ---------
Total shareholders' equity 80,852 66,763
--------- ---------
Total liabilities and shareholders' equity $ 121,213 $ 93,364
========= =========
</TABLE>
See notes to Condensed Financial Statements.
<PAGE> 6
RF MICRO DEVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,027 $ 1,990
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 1,071 391
Change in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (7,915) (3,236)
Inventories (2,031) (10,160)
Other assets (791) (698)
Accounts payable 6,914 1,251
Accrued liabilities -- 136
Deferred revenue 247 --
Income taxes payable 828 (42)
-------- --------
Net cash provided (used) by operating activities 2,350 (10,368)
Cash flows from investing activities:
Purchase of capital equipment/leasehold improvements (3,359) (14,447)
Capitalization of Fab/construction costs (5,645) (14,447)
-------- --------
Net cash used by investing activities (9,004) (14,447)
Cash flows from financing activities:
Repayment of capital lease obligations (2,893) (133)
Net proceeds of long-term debt -- (645)
Issuance of common stock 31 38,152
Exercise of warrant 10,000 --
Decease in cash restricted for financing activities -- 12,228
-------- --------
Net cash provided from financing activities 7,138 49,602
-------- --------
Net increase in cash and cash equivalents 484 24,787
Cash and cash equivalents at the beginning of the period 16,360 2,330
-------- --------
Cash and cash equivalents at the end of the period $ 16,844 $ 27,117
======== ========
</TABLE>
See notes to Condensed Financial Statements.
<PAGE> 7
RF MICRO DEVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. However, certain
information or footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed, or omitted, pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion
of management, the statements include all adjustments (which are of a
normal and recurring nature) necessary for the fair presentation of the
results of the interim periods presented. These financial statements
should be read in conjunction with the Company's audited financial
statements for the year ended March 31, 1998.
The Company uses a 52- or 53-week fiscal year ending on the Saturday
closest to March 31 of each year. The Company's other fiscal quarters
end on the Saturday closest to June 30, September 30, and December 31
of each year. For purposes of this report (including the Unaudited
Condensed Financial Statements included herein), each fiscal year is
described as having ended on March 31, and each of the first three
quarters of each fiscal year is described as having ended on June 30,
September 30 and December 31.
In April, 1998, the AICPA issued Statement of Position 98-5, "Reporting
on the Costs of Start-Up Activities" ("SOP 98-5"), which is effective
for financial statements for fiscal years beginning after December 15,
1998. SOP 98-5 broadly defines start-up activities and requires that
start-up costs capitalized prior to adoption of SOP 98-5 be written off
as a cumulative effect of an accounting change and that any future
start-up costs be expensed as incurred. The Company is required to
adopt SOP 98-5 on or before April 1, 1999 and is currently evaluating
the impact of adoption.
2. RESEARCH AND DEVELOPMENT COSTS
The Company charges all research and development costs to expense as
incurred.
3. INCOME TAXES
The provision for income taxes has been recorded based on the current
estimate of the Company's annual effective tax rate. For periods with
taxable income, this rate differs from the federal statutory rate
primarily because of the utilization of net operating loss
carryforwards.
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4. INVENTORIES
The components of inventories are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
<S> <C> <C>
Raw materials $ 6,001 $ 6,356
Work in process 11,734 7,190
Finished goods 10,971 14,036
-------- --------
28,706 27,582
Inventory allowances (1,806) (2,713)
-------- --------
Total inventory $ 26,900 $ 24,869
======== ========
</TABLE>
5. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS 128"). SFAS 128 replaced
the calculation of primary and diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities, and only reflects actual common
shares outstanding. Diluted earnings per share is similar to the
previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented, and where
appropriate, restated to conform to SFAS 128 requirements.
6. PROPERTY AND EQUIPMENT
During the six months ended September 30, 1998, the Company entered
into capital lease agreements of approximately $5.8 million.
7. SHAREHOLDER'S EQUITY
In September 1998, TRW Inc. exercised a warrant covering 1,000,000
shares of common stock, resulting in proceeds to the Company of
$10,000,000.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
RF Micro Devices, Inc. (the "Company") designs, develops, manufactures, and
markets proprietary radio frequency integrated circuits ("RFICs") for wireless
communications applications such as cellular and personal communications
services ("PCS"), cordless telephony, wireless local area networks,
<PAGE> 9
wireless local loop, industrial radios, wireless security and remote meter
reading. The Company derives revenues from the sale of standard and
custom-designed products and services. To date, a significant portion of the
Company's revenues has been attributable to the sale of RFICs used in cellular
and PCS handsets. The Company offers a broad array of products, including
amplifiers, mixers and modulators/demodulators, that represent a substantial
majority of the RFICs required in wireless subscriber equipment. The Company
designs products using three distinct process technologies: gallium arsenide
heterojunction bipolar transistor ("GaAs HBT"), gallium arsenide metal
semiconductor field effect transistor ("GaAs MESFET") and silicon bipolar
transistor. For the three months ended September 30, 1998, 89.2% of the
Company's revenues was derived from the sale of GaAs HBT products. The Company
currently expects to continue to rely heavily on sales of GaAs HBT products in
future periods.
RESULTS OF OPERATIONS
The following table sets forth the statement of operations data of the Company
expressed as a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
9/30/98 9/30/97 9/30/98 9/30/97
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of goods sold 69.0 52.7 68.0 51.5
Research and development 10.3 22.9 10.9 21.5
Marketing and selling 8.0 14.4 8.6 14.5
General and administrative 3.6 6.2 3.6 5.4
----- ----- ----- -----
Total operating costs and expenses 90.9 96.2 91.1 92.9
Income from operations 9.1 3.8 8.9 7.1
Other income (expense), net (0.6) 5.3 (0.1) 3.4
----- ----- ----- -----
Income before income taxes 8.5 9.1 8.8 10.5
Income tax expense (1.0) (0.2) (1.5) (0.2)
----- ----- ----- -----
Net income 7.5% 8.9% 7.3% 10.3%
===== ===== ===== =====
</TABLE>
REVENUES
Revenues increased 243.0% from $9.2 million for the three months ended September
30, 1997 to $31.4 million for the three months ended September 30, 1998. The
increase in revenues during the three months ended September 30, 1998 reflected
strong growth in both the GaAs HBT product line (a 312% increase over the second
fiscal quarter of 1998) and the silicon product line (a 207% increase over the
second fiscal quarter of 1998). In addition, commercial shipments from the
Company's wafer fabrication facility commenced in September, 1998 and
contributed $4.4 million (or 14%) of total revenues for the quarter. For the six
month period ended September 30, 1998, revenues increased 182.9% from $19.4
<PAGE> 10
million in the same period in fiscal 1998 to $54.8 million. This increase was
primarily attributable to increased shipments of the Company's GaAs three-volt
HBT power amplifiers used in a variety of applications.
International shipments accounted for $18.8 million or 60% revenues for the
three months ended September 30, 1998, compared to $6.3 million or 69% for the
three months ended September 30, 1997. Sales to South Korean customers totaled
$3.8 million, or 12.1% of revenues, compared to $2.6 million, or 11.1% of
revenues, for the prior quarter ended June 30, 1998, and $1.7 million or 18.5%
of revenues for the quarter ended September 30, 1997. Although the Company
experienced an increase in sales to South Korean customers in its second fiscal
quarter, this market remains unstable and there is no assurance that this trend
will continue or that the economic instability in Asia will not have a material
adverse effect on the Company's business, financial condition, or results of
operations.
GROSS PROFIT
The gross profit margin was 31.0% for the three months ended September 30, 1998
compared to 47.3% for the three months ended September 30, 1997. The decrease in
the gross profit margin was primarily attributable to significantly higher sales
volume and resultant reduced average selling prices based on volume pricing
agreements. For the six months ended September 30, 1998, the gross profit margin
decreased to 32.0% compared to 48.5% for the six months ended September 30,
1997. The decrease was primarily attributable lower average selling prices based
on volume pricing agreements.
The Company historically has experienced significant fluctuations in gross
profit margins. In certain cases, the Company believes that its gross profit
margins have been significantly affected by low manufacturing, assembly and test
yields, and there can be no assurance that future operating results will not be
similarly affected. Further, the Company sells products in intensely competitive
markets, and the Company believes that downward pressure on average selling
prices will continue to occur in the future. The Company currently expects that
its gross profit margins should improve as an increasing percentage of its GaAs
HBT products are fabricated at the Company's own wafer fabrication facility,
where production costs per wafer are anticipated to be lower.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September 30, 1998
increased 53.6% to $3.2 million, compared to $2.1 million for the three months
ended September 30, 1997. For the six months ended September 30, 1998, research
and development expenses increased 44.0% to $6.0 million, versus $4.2 million
for the six months ended September 30, 1997. These increases were primarily
attributable to increased salaries and benefits and recruiting expenses related
to increased headcount and additional spending on mask sets and outside services
for both standard and custom-designed products. Research and development
expenses as a percentage of total revenues decreased to 10.3% for the three
months ended September 30, 1998 from 22.9% for the three months ended September
30, 1997. As a percentage of revenues for the six months ended September 30,
1998, research and development expenses were 10.9% versus 21.5% for the six
months ended September 30, 1997. The Company plans to continue to make
substantial investments in research and development and expects that such
expenses will continue to increase in absolute dollar amounts in future periods.
<PAGE> 11
MARKETING AND SELLING
Marketing and selling expenses for the three months ended September 30, 1998
were $2.5 million, compared to $1.3 million for the three months ended September
30, 1997, an increase of 90.8%. For the six months ended September 30, 1998,
marketing and selling expenses were $4.7 million, compared to $2.8 million for
the six months ended September 30, 1997, an increase of 67.5%. These increases
were primarily attributable to increased salaries and benefits related to
increased headcount and to increased expenses associated with advertising and
commissions. Marketing and selling expenses as a percentage of revenue for the
three months ended September 30, 1998 decreased to 8.0% from 14.4% for the three
months ended September 30, 1997. For the six months ended September 30, 1998,
marketing and selling expenses were 8.6% of revenues, a decrease from 14.5% for
the six month period ended September 30, 1997.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September 30,
1998 were $1.1 million compared to $565,000 for the three months ended September
30, 1997, an increase of 98.6%. For the six months ended September 30, 1998,
general and administrative expenses rose 88.4%, to $1.9 million, up from $1.0
million for the six month period ended September 30, 1997. These increases were
attributable primarily to increased salaries and benefits related to headcount
increases, and to costs associated with being a public company. General and
administrative expenses as a percentage of revenues decreased to 3.6% for the
three months ended September 30, 1998 from 6.2% for the three months ended
September 30, 1997. As a percentage of revenues, general and administrative
expenses also decreased to 3.6% for the six month period ended September 30,
1998 from 5.4% for the six month period ended September 30, 1997.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the three months ended September 30, 1998
reflected a net expense total of $183,000 compared to net income of $487,000 for
the three months ended September 30, 1997. For the six months ended September
30, 1998, other income (expense), net reflected net expenses of $28,000 against
net income of $662,000 for the six months ended September 30, 1997. The decease
in other income during these periods is attributable to increased interest
expense incurred on borrowings related to the Company's wafer fabrication
facility.
INCOME TAX EXPENSE
The effective tax rates for the three month and the six month periods ending
September 30, 1998 were 12.0% and 17.0%, respectively, which are less than the
combined federal and state statutory rate of approximately 40% due to the use of
net operating loss carryforwards. Income tax expense for the three months and
six months ended September 30, 1998 was approximately $321,000 and $821,000,
respectively, as compared to $18,000 and $45,000 respectively for the
corresponding periods ended September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date through sales of equity and debt
securities, bank borrowings, capital equipment leases and revenues from product
sales. The Company completed its
<PAGE> 12
initial public offering in June 1997, and raised approximately $37.8 million,
net of offering expenses. As of September 30, 1998, the Company had working
capital of approximately $35.2 million, including $16.8 million in cash and cash
equivalents.
Operating activities generated $2.3 million in cash for the six month period
ended September 30, 1998. This was primarily attributable to net income of $4.0
million, an increase in accounts payable of $6.9 million, partially offset by an
increases in accounts receivable of $7.9 million and in inventories of $2.0
million. Cash used by operating activities for the six months ended September
30, 1997 was $10.4 million. The cash used by operating activities during this
period was primarily attributable to an increase in inventories and accounts
receivable, partially offset by net income of $2.0 million and an increase in
accounts payables of $1.2 million.
The $9.0 million dollars of cash used by investing activities for the six months
ended September 30, 1998 was related to the purchase of $3.3 million of capital
equipment, primarily for use in the Company's wafer fabrication facility, as
well as $5.6 million for the capitalization of wafer fabrication construction
costs. The $14.4 million of cash used by investing activities for the six months
ended September 30, 1997 was primarily related to expenditures associated with
the construction of the Company's GaAs HBT wafer fabrication facility, and for
wafer fabrication and general corporate capital equipment requirements.
The $7.1 million of cash provided by financing activities for the six month
period ended September 30, 1998 related primarily to the receipt of proceeds
from the exercise of a warrant covering 1,000,000 shares of common stock by TRW,
Inc., of $10.0 million, partially offset by $2.9 million in repayments of
capital lease obligations. The $49.6 million of cash provided by financing
activities for the six months ended September 30, 1997 related primarily to the
issuance of common stock in the Company's initial public offering, totaling
$37.8 million, as well as a reduction in restricted cash of $12.2 million set
aside for the purchase of wafer fabrication-related expenditures.
The Company maintains a secured credit facility with Silicon Valley Bank that
includes a $5.0 million working capital line of credit and a $10.0 million term
loan line of credit, both of which were amended during the quarter ended
September 30, 1998 to increase amounts available for borrowings. Borrowings
under the revolving line bear interest at prime plus 0%, payable monthly.
Borrowings under the term loan can be made in $2.5 million increments, and are
repayable in 60 monthly installments at the prime rate. Borrowings under the
working capital line bear interest at the prime rate, and can be made and repaid
at any time during the term of the agreement. At September 30, 1998, there was
no outstanding amount under either of these facilities. The Company is required
to maintain specified amounts of net worth and meet certain ratios with regard
to liquidity and debt to equity under this facility.
The Company currently has 8 capital lease facilities with 4 equipment financing
companies under which the Company has financed the cost of capital equipment and
leasehold improvements associated with its wafer fabrication facility. The
Company has financed an aggregate of $23.4 million of leased property under
these facilities. Lease terms range from 36 months to 60 months with effective
interest factors ranging from 8.6% to 11.1%. At September 30, 1998, the minimum
future lease payments under these leases (excluding interest) were $20.6
million.
In connection with the construction of its wafer fabrication facility, in
October 1998 the Company deposited approximately $3.9 million under an escrow
account in favor of the lessor of the facility in order to secure its payment
obligations under the lease related to the facility. The deposited amounts will
be released to the Company over time based on an agreed amortization schedule,
subject to acceleration in the event the Company meets specified financial
coverage ratios.
<PAGE> 13
The Company is currently engaged in construction activities related to the
second phase of its wafer fabrication facility. This phase is budgeted at
approximately $30 million and includes a clean room expansion and installation
of additional production equipment.
The Company currently has capital commitments totaling $8.9 million for
construction and equipment associated with the completion of the second phase of
the wafer fabrication facility, and $1.2 million for additional testing
equipment for the product test area, all of which are expected to be funded
through currently established lease facilities.
The Company expects to seek additional equity or debt financing during fiscal
year 1999 to finance a portion of the cost of the second phase of its wafer
fabrication facility and for other corporate requirements. There can be no
assurance that any additional equity financing will not be dilutive to the
holders of the Company's common stock. Further, there can be no assurance that
additional equity or debt financing, if required, will be available on
acceptable terms or at all.
YEAR 2000 ISSUES
The Company has evaluated all internal software and all current products against
anticipated Year 2000 concerns, and believes that its products and business will
not be substantially affected by the advent of the year 2000, and that it has no
significant exposure to contingencies related to the Year 2000 issue for the
products it has sold. The Company has initiated a project to upgrade all
internal software and to conduct testing on both its information technology
systems and its other equipment and machinery to further ensure that all aspects
of its business will be Year 2000 compliant. The Company believes that these
procedures, which are expected to be completed by December 31, 1998, will have
no material effect on the Company's customers and will not require any material
expenditures or other material diversion of resources.
The Company is currently contacting third parties with which it has material
relationships, including its material customers and suppliers, to attempt to
determine their preparedness with respect to Year 2000 issues and to analyze the
risk to the Company in the event such third parties experience significant
business interruptions as a result of Year 2000 noncompliance. The Company
expects to complete this review and analysis and to determine the need for
contingency planning in this regard by December 31, 1998.
Although the Company believes its planning efforts are adequate to address its
Year 2000 concerns, there can be no assurances that the Company will not
experience unanticipated negative consequences and material costs caused by
undetected errors or defects in the technology used in its internal systems, or
that the systems of third parties on which the Company relies will be made
compliant on a timely basis and will not have any material adverse effect on the
Company. The Company is currently unable to estimate the most reasonably likely
worst-case effects of the arrival of the year 2000 and does not currently have a
contingency plan in place for any such unanticipated negative effects. The
Company intends to analyze reasonably likely worst-case scenarios and the need
for such contingency planning once the upgrade and testing of internal systems
and review of third-party preparedness described above have been completed, and
expects to complete this analysis by June 30, 1999.
It is anticipated that the total costs related to the Year 2000 issue will
approximate $150,000, which is currently budgeted in the Company's Information
Technology expense budget. Of this amount, $75,000
<PAGE> 14
has already been spent to address this issue. To date, there have been no
material deferments of other IT projects resulting from the work taking place on
the Company's Year 2000 program.
RISKS AND UNCERTAINTIES
The preceding Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that relate to the Company's future plans, objectives,
estimates and goals. These statements are subject to numerous risks and
uncertainties, including probable variability in the Company's quarterly
operating results, dependence on a limited number of customers, manufacturing
capacity constraints, dependence on TRW Inc. as a supplier of GaAs HBT wafers
and economic turmoil in Asia and other areas of the world. These and other risks
and uncertainties are described in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission, and could cause actual
results and developments to be materially different from those expressed or
implied by any of the forward-looking statements included herein.
PART II - OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 14, 1998, the Company issued 1,000,000 shares of common
stock to an entity believed to qualify as an accredited investor upon the
exercise of warrants held by such entity in exchange for $10,000,000 in cash.
The Company issued these shares of common stock in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of RF Micro Devices, Inc. was held
July 28, 1998 (the "Annual Meeting"). At the Annual Meeting, Robert C. Fleming,
Erik H. van der Kaay, David A. Norbury, Albert E. Paladino, William J. Pratt,
Walter H. Wilkinson, Jr. and Terri D. Zinkiewicz were duly elected to the Board
of Directors of the Company and the selection of Ernst & Young LLP as
independent accountants for the year ending March 31, 1999 was ratified. Votes
cast by the shareholders of the Company at the Annual Meeting are as follows:
Nominees for Director Shares Voted in Favor Shares Withheld Broker Non-Votes
Robert C. Fleming 13,649,341 10,300 --
Erik H. van der Kaay 13,650,341 9,300 --
David A. Norbury 13,656,341 3,300 --
Albert E. Paladino 13,649,341 10,300 --
William J. Pratt 13,656,341 3,300 --
Walter H. Wilkinson, Jr 13,649,341 10,300 --
Terri D. Zinkiewicz 13,650,341 9,300 --
<PAGE> 15
Ratification of the selection of Ernst & Young LLP:
Shares Voted in Favor Shares Voted Against Shares Abstaining Broker Non-Votes
13,637,807 17,984 3,850 --
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4.5 First Amended and Restated Loan and Security
Agreement, dated July 14, 1998 between RF Micro
Devices and Silicon Valley Bank
Exhibit 27.1 Financial Data Schedule
(b) Report on Form 8-K
The Company did not file any reports on 8-K during the three months
ended September 30, 1998.
<PAGE> 16
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.
RF Micro Devices, Inc.
Dated: November 9, 1998 /s/ David A. Norbury
---------------------------------------------
DAVID A. NORBURY
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 9, 1998 /s/ William A. Priddy, Jr.
---------------------------------------------
WILLIAM A. PRIDDY, JR.
Vice President, Finance and Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 17
RF MICRO DEVICES, INC.
INDEX TO EXHIBITS
SEQUENTIAL
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule
<PAGE> 1
FIRST AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
$5,000,000 WORKING CAPITAL LINE OF CREDIT
$10,000,000 TERM LOAN
PROVIDED BY
SILICON VALLEY BANK
TO
RF MICRO DEVICES, INC.
JULY 14, 1998
<PAGE> 2
This FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is entered
into as of July 14, 1998, by and between SILICON VALLEY BANK, a
California-chartered bank with its principal place of business at 3003 Tasman
Drive, Santa Clara, CA 95054 and with a loan production office located at
Wellesley Office Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing
business under the name Silicon Valley East ("Bank"), and RF MICRO DEVICES, a
North Carolina corporation with its principal place of business at 7625
Thorndike Road, Greensboro, NC 27409 ("Borrower").
RECITALS
Borrower has borrowed money from Bank pursuant to a Loan and Security Agreement
dated March 29, 1996 between Borrower and Bank, as such Loan and Security
Agreement was amended by a Loan Modification Agreement dated as of December 20,
1996, and as such Loan and Security Agreement was further amended by a Second
Loan Modification Agreement dated as of December 19, 1997 (the "Loan
Agreement"). In consideration of certain financial accommodations from Bank, and
Borrower's continuing obligations hereunder, Borrower and Bank agree to fully
amend and restate the Loan Agreement as follows:
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed
by Borrower and Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners and, for any Person
that is a limited liability company, such Person's managers and members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorney's fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents (including fees and expenses
of appeal or review, or those incurred in any Insolvency Proceeding), whether or
not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Borrowing Base" has the meaning set forth in Section 2.1.1
hereof.
"Business Day" means any day that is not a Saturday, Sunday,
or other day on which banks in the State of California are authorized or
required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A
attached hereto, but specifically excludes any contract rights, general
intangibles, license agreement, franchise agreements or license rights of
<PAGE> 3
the Borrower, or any other similar contracts or rights of the Borrower, now
owned or hereafter acquired, which, with Bank's written consent, prohibit the
granting by the Borrower of a security interest therein or the transfer,
conveyance or assignment by the Borrower of any right or interest therein. The
Schedule sets forth all rights presently or to be owned by Borrower, which
rights prohibit the granting by the Borrower of a security interest therein or
the transfer, conveyance or assignment by the Borrower of any right or interest
therein, and for which Bank has given its consent as of the date of this
Agreement.
"Committed Revolving Line" means FIVE MILLION AND NO/100THS
Dollars ($5,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Credit Extension" means each Advance, Letter of Credit, Term
Advance, Exchange Contract or any other extension of credit by Bank for the
benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon demand or within one year from the date of determination thereof unless
such Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means, with respect to a line of credit, the
aggregate principal balance of Credit Extensions made under that line of credit
that are owed at the end of a given day.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; provided, that
standards of eligibility may be fixed and revised from time to time by Bank in
Bank's reasonable judgment and upon notification thereof to Borrower in
accordance with the provisions hereof. Unless otherwise agreed to by Bank,
Eligible Accounts shall not include the following:
(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to which the account debtor is
an officer, employee, or agent of Borrower;
2
<PAGE> 4
(d) Accounts with respect to which goods are placed on
consignment, guaranteed sale, sale or return, sale on approval, bill and hold,
or other terms by reason of which the payment by the account debtor may be
conditional;
(e) Accounts with respect to which the account debtor is
an Affiliate (other than by virtue of being directly or indirectly under common
ownership or control with Borrower) of Borrower;
(f) Accounts with respect to which the account debtor is
a federal, state, or local governmental entity or any department, agency, or
instrumentality thereof.
(g) Accounts with respect to which Borrower is liable to
the account debtor for goods sold or services rendered by the account debtor to
Borrower, but only to the extent of the amounts owing from Borrower to the
account debtor;
(h) Accounts with respect to an account debtor, including
Subsidiaries and Affiliates, whose total obligations to Borrower exceed forty
percent (40%) of all Accounts, except with respect to Nokia, as to which the
percentage shall be fifty percent (50%), to the extent such obligations exceed
the aforementioned percentage, except as approved in writing by Bank;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Eligible Inventory" means that portion of Borrower's
Inventory that is located at Borrower's principal place of business or such
other locations as are permitted under Section 7.10 and that complies with the
representations and warranties set forth in Section 5.5.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in, which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"Exchange Contract" has the meaning set forth in Section
2.1.3.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money
or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or
3
<PAGE> 5
disposition of any of the foregoing and any documents of title representing any
of the above, and Borrower's Books relating to any of the foregoing.
"Investment" means any beneficial ownership (including stock,
partnership interest or other securities) of any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in
Section 2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note
or notes executed by Borrower, and any other agreement entered into between
Borrower and Bank in connection with this Agreement, all as amended or extended
from time to time.
"Material Adverse Effect" means a material adverse effect on
(I) the business operations or condition (financial or otherwise) of Borrower
and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the maturity date of the Term Loan.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by Borrower pursuant to this Agreement
or any other agreement, whether absolute or contingent, due or to become due,
now existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability, or
obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Payment Date" means the LAST BUSINESS DAY of each month.
"Periodic Payments" means all installments or similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Subordinated Debt; and
(d) Indebtedness to trade creditors incurred in the
ordinary course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in
the Schedule; and
4
<PAGE> 6
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Bank's security interests;
(c) Liens (i) upon or in any equipment acquired or held
by Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, provided that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens on Equipment leased by Borrower or any
Subsidiary pursuant to an operating or capital lease in the ordinary course of
business (including proceeds thereof and accessions thereto) incurred solely for
the purpose of financing the lease of such Equipment (including Liens pursuant
to leases permitted pursuant to Section 7.1 and Liens arising from UCC financing
statements regarding leases permitted by this Agreement); and
(e) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (d) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per annum,
most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, at any date as of which the amount
thereof shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means JULY 13, 1999.
"Schedule" means the schedule of exceptions attached hereto.
"Subordinate Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to Bank
(and identified as being such by Borrower and Bank).
"Subsidiary" means any corporation or partnership in which (i)
any general partnership interest or (ii) more than 50% of the stock of which by
the terms thereof ordinary voting power to elect the
5
<PAGE> 7
Board of Directors, managers or trustees of the entity shall, at the time as of
which any determination is being made, be owned by Borrower, either directly or
through an Affiliate.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries minus, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, and (ii) Total Liabilities.
"Term Advance" means a loan advance under the Term Loan.
"Term Loan" means a credit extension of up to TEN MILLION AND
NO/100THS Dollars ($10,000,000).
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
1.2 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
made hereunder shall be made in accordance with GAAP. When used herein, the
terms "financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of
Bank, in lawful money of the United States of America, the aggregate unpaid
principal amount of all Credit Extensions made by Bank to Borrower hereunder.
Borrower shall also pay interest on the unpaid principal amount of such Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Revolving Advances.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrower in an aggregate amount not
to exceed (i) the Committed Revolving Line or the Borrowing Base, whichever is
less, minus (ii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit) and minus (iii) the Foreign Exchange
Reserve. For purposes of this Agreement, "Borrowing Base" shall mean an amount
equal to EIGHTY percent (80%) of Eligible Accounts. Subject to the terms and
conditions of this Agreement, amounts borrowed pursuant to this Section 2.1.1
may be repaid and reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires a Revolving Advance, Borrower
will notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Revolving Advance is to be made. Each
such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of Exhibit B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer, or without instructions if in Bank's discretion such Advances are
necessary to meet Obligations which have become due and remain unpaid. Bank
shall be entitled to rely on any telephonic notice given by a person who Bank
reasonably believes to be a Responsible Officer, and Borrower shall indemnify
and hold Bank harmless for any damages or loss suffered by Bank as a result of
such reliance. Bank will credit the amount of Advances made under this Section
2.1.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
6
<PAGE> 8
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.2 Letters of Credit
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the account of
Borrower in an aggregate outstanding face amount not to exceed (i) the lesser of
the Committed Revolving Line or the Borrowing Base, whichever is less, minus
(ii) the then outstanding principal balance of the Advances; provided that the
aggregate face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) shall not in
any case exceed TWO MILLION FIVE HUNDRED THOUSAND Dollars ($2,500,000). Each
Letter of Credit shall have an expiry date no later than three hundred sixty
(360) days after the Revolving Maturity Date provided that Borrower's Letter of
Credit reimbursement obligation shall be secured by cash on terms acceptable to
Bank at any time after the Revolving Maturity Date if the term of this Agreement
is not extended by Bank. All Letters of Credit shall be in form and substance
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement. If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the equivalent of the
amount thereof
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit, other than
loss, cost, expense or liability arising out of the gross negligence or willful
misconduct of Bank.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrower of the equivalent of the amount thereof (plus cable charges)
in United States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable transfer to
the country of which it is the currency
(d) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Committed Revolving Line for letters of credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face amount of
such letter of credit. The amount of such reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Committed Revolving Line shall be reduced by the amount of
such reserve for so long as such letter of credit remains outstanding.
2.1.3 Foreign Exchange Contract; Foreign Exchange Settlements.
(a) Subject to the terms of this Agreement, Borrower may enter
into foreign exchange contracts (the "Exchange Contracts") not to exceed an
aggregate amount of ONE MILLION DOLLARS ($1,000,000) (the "Contract Limit"),
pursuant to which Bank shall sell to or purchase from Borrower foreign currency
on a spot or future basis. Borrower shall not request any Exchange Contracts at
any time it is out of compliance with any of the provisions of this Agreement.
All Exchange Contracts must provide for delivery of settlement on or before the
Revolving Maturity Date. The amount available under the Committed Revolving Line
at any time shall be reduced by the following amounts (the "Foreign Exchange
Reserve") on any given day (the "Determination Date"): (i) on all outstanding
Exchange Contracts on which delivery is to be effected or settlement allowed
more than two business days after the Determination Date, 10% of the gross
amount of the Exchange Contracts; plus (ii) on all outstanding Exchange
Contracts on which delivery is to be effected or settlement allowed within two
business days after the Determination Date, 100% of the gross amount of the
Exchange Contracts.
(b) Bank may, in its discretion, terminate any existing
Exchange Contracts at any time (a) that an Event of Default occurs and is
continuing or (b) that there is no sufficient availability under the Committed
7
<PAGE> 9
(c) Borrower shall not permit the total gross amount of
all Exchange Contracts on which delivery is to be effected and settlement
allowed in any two business day period to be more than FIFTY THOUSAND DOLLARS
($50,000) (the "Settlement Limit") nor shall Borrower permit the total gross
amount of all Exchange Contracts to which Borrower is a party, outstanding at
any one time, to exceed the Contract Limit. Notwithstanding the above, however,
the amount which may be settled in any two (2) business day period may be
increased above the Settlement Limit up to, but in no event to exceed, the
amount of the Contract Limit under either of the following circumstances:
(i) if there is sufficient availability under
the Committed Revolving Line in the amount of the Foreign Exchange Reserve as of
each Determination Date, provided that Bank in advance shall reserve the full
amount of the Foreign Exchange Reserve against the Committed Revolving Line; or
(ii) if there is insufficient availability under
the Committed Revolving Line, as to settlements within any two (2) business day
period, provided that Bank, in its sole discretion, may: (A) verify good funds
overseas prior to crediting Borrower's deposit account with Bank (in the case of
Borrower's sale of foreign currency); or (B) debit Borrower's deposit account
with Bank prior to delivering foreign currency overseas (in the case of
Borrower's purchase of foreign currency).
(d) In the case of Borrower's purchase of foreign
currency, Borrower in advance shall instruct Bank upon settlement either to
treat the settlement amount as an advance under the Committed Revolving Line, or
to debit Borrower's account for the amount settled.
(e) Borrower shall execute all standard form applications
and agreements of Bank in connection with the Exchange Contracts and, without
limiting any of the terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the Exchange Contracts.
(f) Without limiting any of the other terms of this
Agreement or any such standard form applications and agreement of Bank, Borrower
agrees to indemnify Bank and hold it harmless, from and against any and all
claims, debts, liabilities, demands, obligations, actions, costs and expenses
(including, without limitation, reasonable attorney's fees of counsel of Bank's
choice), of every nature and description which it may sustain or incur, based
upon, arising out of, or in any way relating to any of the Exchange Contracts or
any transactions relating thereto or contemplated thereby, other than claims,
debts, liabilities, demands, obligations, actions, costs and expenses arising
out of the gross negligence or willful misconduct of Bank.
2.1.4 Term Loan.
(a) Subject to and upon the terms and conditions of this
Agreement, at any time from the Closing Date through December 31, 1998, Bank
agrees to make advances (each a "Term Advance" and collectively, the "Term
Advances") to Borrower in an aggregate outstanding amount not to exceed the Term
Loan. Each Term Advance must be in a minimum amount of TWO MILLION FIVE HUNDRED
THOUSAND AND NO/100THS Dollars ($2,500,000).
(b) Interest shall accrue from the date of each Term
Advance at the rate equal to the Prime Rate and shall be payable monthly on the
Payment Date of each month through December 31, 1998. Any Term Advances that are
outstanding on December 31, 1998 will be payable in SIXTY (60) equal monthly
installments of principal, plus all accrued and unpaid interest, on the Payment
Date of each month commencing JANUARY 31, 1999 and ending on DECEMBER 31, 2003.
Borrower's final Term Loan payment shall include all outstanding Term Loan
principal plus all accrued and unpaid interest. Term Advances, once repaid, may
not be reborrowed.
(c) When Borrower desires to obtain a Term Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 3:00 p.m. Pacific time one (1)
Business Day before the day on which the Term Advance is to be made. Such notice
shall be substantially in the form of Exhibit B. The notice shall be signed by a
Responsible Officer or its designee.
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2.2 Overadvances. If, at any time or for any reason, the
amount of Obligations owed by Borrower to Bank pursuant to Sections 2.1.1, 2.1.2
and 2.1.3 of this Agreement is greater than the lesser of (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in
Section 2.3(b), any Advances shall bear interest on the average Daily Balance at
a rate equal to the Prime Rate.
(b) Default Rate. All Obligations shall bear
interest, from and after the occurrence of an Event of Default, at a rate equal
to five (5) percentage points above the interest rate applicable immediately
prior to the occurrence of the Event of Default.
(c) Payments. Interest hereunder shall be due
and payable on the Payment Date of each month during the term hereof. Borrower
hereby authorizes Bank to debit any accounts with Bank, including, without
limitation, Account Number 700696970 for payments of principal and interest due
on the Obligations and any other amounts owing by Borrower to Bank. Bank will
notify Borrower of all debits which Bank makes against Borrower's accounts. Any
such debits against Borrower's accounts in no way shall be deemed a set-off. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.
(d) Computation. In the event the Prime Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
shall be increased or decreased effective as of 12:01 a.m. on the day the Prime
Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an
Event of Default, Bank shall credit a wire transfer of funds, check or other
item of payment to such deposit account or Obligation as Borrower specifies.
After the occurrence of an Event of Default, the receipt by Bank of any wire
transfer of funds, check, or other item of payment shall be immediately applied
to conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon Pacific time shall be
deemed to have been received by Bank as of the opening of business on the
immediately following Business Day. Whenever any payment to Bank under the Loan
Documents would otherwise be due (except by reason of acceleration) on a date
that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Facility Fee. (i) a Committed Revolving Line
facility fee of TWELVE THOUSAND FIVE HUNDRED DOLLARS ($12,500), payable in 12
installments of $1,042, with the first installment due on the delivery of this
Agreement, and the remaining 11 installments to be paid on the Payment Date of
each month commencing June, 1998, and (ii) a Term Loan facility fee of TWENTY
FIVE THOUSAND DOLLARS ($25,000), payable in 12 installment of $2,083, with the
first installment due on the delivery of this Agreement, and the remaining 11
installments to be paid on the Payment Date of each month commencing June, 1998,
which fees shall be fully earned and non-refundable;
(b) Financial Examination and Appraisal Fees.
Bank's customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank,
including, without limitation, upon the date hereof, all Bank Expenses incurred
through the date hereof, including reasonable attorneys' fees and
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(b) Financial Examination and Appraisal Fees. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due,
2.6 Additional Costs. In case any change in any law, regulation, treaty
or official directive or the interpretation or application thereof by any court
or any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law), in each case
after the date of this Agreement:
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost
to Bank, reduce the income receivable by Bank or impose any expense upon Bank
with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees
to pay to Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and setting
forth Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct absent manifest error. Bank agrees that it will
allocate all such increased costs among its customers similarly affected in good
faith and in a manner consistent with Bank's customary practices.
2.7 Term. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Revolving Maturity
Date. Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence, and during the continuance, of an Event of
Default. Notwithstanding termination, Bank's Lien on the Collateral shall remain
in effect for so long as any Obligations are outstanding.
2.8 Cancellation of Existing Indebtedness. Upon Borrower's compliance
with the provisions of Section 3.1 hereof and the effectiveness of this
Agreement pursuant to Section 12.9 hereof, (i) Borrower's Obligations pursuant
to that certain Loan and Security Agreement dated March 29, 1996, as amended,
between Borrower and Bank shall be replaced in their entirety with the
Obligations of Borrower created under this Agreement, and (ii) all of Borrower's
Indebtedness to Bank, if any, pursuant to (a) that certain Working Capital
Promissory Note dated March 29, 1996 in the maximum principal amount of TEN
MILLION AND NO/100THS DOLLARS ($10,000,000), and (b) that certain Third
Equipment Line Promissory Note dated December 19, 1997 in the maximum principal
amount of FIVE MILLION AND NO/100THS DOLLARS ($5,000,000) shall become
outstanding Obligations under this Agreement.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
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(d) such other documents, and completion of such
other matters, as Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The
obligation of Bank to make each Credit Extension, including the initial Credit
Extension, is further subject to the following conditions:
(a) timely receipt by Bank of the
Payment/Advance Form as provided in Section 2.1; and
(b) the representations and warranties contained
in Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Credit
Extension as though made at and as of each such date, and no Event of Default
shall have occurred and be continuing, or would result from such Credit
Extension. The making of each Credit Extension shall be deemed to be a
representation and warranty by Borrower on the date of such Credit Extension as
to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt repayment of
any and all Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Except as set forth
in the Schedule, such security interest constitutes a valid, first priority
security interest in the presently existing Collateral, and will constitute a
valid, first priority security interest in Collateral acquired after the date
hereof. Borrower acknowledges that Bank may place a "Hold" on any Deposit
Account pledged as Collateral to secure the Obligations.
4.2 Delivery of Additional Documentation Required.
Borrower shall from time to time execute and deliver to Bank, at the request of
Bank, all Negotiable Collateral, all financing statements and other documents
that Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the conduct of its business or its
ownership of property requires that it be so qualified.
5.2 Due Authorization; No Conflict. The execution,
delivery, and performance of the Loan Documents are within Borrower's powers,
have been duly authorized, and are not in conflict with nor constitute a breach
of any provision contained in Borrower's Articles of Incorporation or Bylaws,
nor will they constitute an event of default under any material agreement to
which Borrower is a party or by which Borrower is bound. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts
are bona fide existing obligations. The property giving rise to such Eligible
Accounts has been delivered to the account debtor or to the account
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debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor that is included in any Borrowing
Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all
material respects of good and marketable quality, free from all material
defects.
5.6 Name; Location of Chief Executive Office. Except as
disclosed in the Schedule, Borrower has not done business under any name other
than that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
5.7 Litigation. Except as set forth in the Schedule,
there are no actions or proceedings pending by or against Borrower or any
Subsidiary before any court or administrative agency in which an adverse
decision could have a Material Adverse Effect or a material adverse effect on
Borrower's interest or Bank's security interest in the Collateral. Borrower does
not have knowledge of any such pending or threatened actions or proceedings.
5.8 No Material Adverse Change in Financial Statements.
All consolidated financial statements related to Borrower and any Subsidiary
that have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Bank.
5.9 Solvency. Borrower is solvent and able to pay its
debts (including trade debts) as they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary
has met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in Borrower's
incurring any liability that could have a Material Adverse Effect. Borrower is
not an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940. Borrower is not
engaged principally, or as one of the important activities, in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any
Subsidiary's properties or assets has ever been used by Borrower or any
Subsidiary or, to the best of Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower or any Subsidiary; and neither Borrower nor any
Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock,
partnership interest or other equity securities of any Person, except for
Permitted Investments.
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5.14 Government Consents. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.15 Full Disclosure. No representation, warranty or other
statement made by Borrower in any certificate or written statement furnished to
Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of
all outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain in force, and shall cause each of its Subsidiaries to maintain in
force, to the extent consistent with prudent management of Borrower's business,
all licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Borrower shall comply,
and shall cause each Subsidiary to comply, with all statutes, laws, ordinances
and government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. (i)
Borrower shall deliver to Bank:
(a) as soon as available, but in any event
within forty-five (45) days after the end of each fiscal quarter, a company
prepared consolidated balance sheet and income statement, complying with
Securities and Exchange Commission regulations, covering Borrower's consolidated
operations during such period, certified by an officer of Borrower reasonably
acceptable to Bank;
(b) as soon as available, but in any event
within thirty (30) days after the end of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during such period, certified by an officer of Borrower reasonably
acceptable to Bank;
(c) as soon as available, but in any event
within one hundred twenty (120) days after the end of Borrower's fiscal year,
audited consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an unqualified opinion on such
financial statements of an independent certified public accounting firm
reasonably acceptable to Bank;
(d) within five (5) days of filing, copies of
all statements, reports and notices sent or made available generally by Borrower
to its security holders or to any holders of Subordinated Debt and all reports
on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission;
(e) promptly upon receipt of notice thereof, a
report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of One Hundred Thousand Dollars ($100,000) or more; and
(f) such budgets, sales projections, operating
plans or other financial information as Bank may reasonably request from time to
time.
(g) Within thirty (30) days after the last day
of each month in which any Advances are outstanding, and otherwise within
forty-five (45) days after the end of each fiscal quarter, Borrower shall
deliver
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to Bank a Borrowing Base Certificate signed by a Responsible Officer in
substantially the form of Exhibit C hereto, together with aged listings of
accounts receivable.
(h) Within thirty (30) days after the last day
of each month, Borrower shall deliver to Bank with the monthly financial
statements a Compliance Certificate signed by a Responsible Officer in
substantially the form of Exhibit D hereto.
(ii) Bank shall have a right from time to time hereafter
to audit Borrower's Accounts at Borrower's expense, provided that such audits
will be conducted no more often than every TWELVE (12) months unless an Event of
Default has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory
in good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrower and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement. Borrower
shall promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Bank, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the
Collateral insured against loss or damage by fire, theft, explosion, sprinklers,
and all other hazards and risks, and in such amounts, as ordinarily insured
against by other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the Collateral in
amounts and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in
such form, with such companies, and in such amounts as reasonably satisfactory
to Bank. All such policies of property insurance shall contain a lender's loss
payable endorsement, in a form satisfactory to Bank, showing Bank as an
additional loss payee thereof and all liability insurance policies shall show
the Bank as an additional insured, and shall specify that the insurer must give
at least twenty (20) days notice to Bank before canceling its policy for any
reason. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All proceeds
payable under any such policy shall, at the option of Bank, be payable to Bank
to be applied on account of the Obligations.
6.7 Principal Depository. Borrower shall maintain its
principal depository account and some portion of its excess funds with Bank.
6.8 Current Ratio. If Borrower does not request Term
Advances of at least FIVE MILLION Dollars ($5,000,000) on or prior to December
31, 1998, Borrower shall maintain, as of the last day of each calendar month
commencing January 31, 1999, a ratio of Current Assets to Current Liabilities of
at least 1.5 to 1.0.
6.9 Tangible Net Worth. Borrower shall maintain, as of
the last day of each calendar month, a Tangible Net Worth of not less than SIXTY
THREE MILLION Dollars ($63,000,000); provided, however, that this covenant shall
not apply after December 31, 1998 if Borrower does not request Term Advances of
at least FIVE MILLION Dollars ($5,000,000) on or prior to December 31, 1998.
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6.10 Minimum Debt Service. Borrower shall maintain, as of
the last calendar day of each month through December 31, 1999, a three-month
rolling Debt Service ratio of at least 1.25 to 1.00, and as of the last calendar
day of each month from January 31, 1999, a three-month rolling Debt Service
ratio of at least 1.50 to 1.00. "Debt Service" is defined as earnings before
interest and taxes plus depreciation and amortization, divided by total interest
plus current portion of long term debt.
6.11 Leverage. Borrower shall maintain, as of the last
calendar day of each month, a ratio of Total Liabilities to Tangible Net Worth
of not more than 1.0 to 1.0.
6.12 Further Assurances. At any time and from time to time
Borrower shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Credit
Extensions, Borrower will not do any of the following:
7.1 Dispositions. Convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
Subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of Inventory in the ordinary course of business; (ii)
Transfers of non-exclusive licenses and similar arrangements for the use of the
property of Borrower or its Subsidiaries; or (iii) Transfers of worn-out or
obsolete Equipment.
7.2 Change in Business. Engage in any business, or permit
any of its Subsidiaries to engage in any business, other than the businesses
currently engaged in by Borrower and any business substantially similar or
related thereto (or incidental thereto), or undergo a material change in
Borrower's ownership, management or directors. Borrower will not, without thirty
(30) days prior written notification to Bank, relocate its chief executive
office.
7.3 Mergers or Acquisitions. Merge or consolidate, or
permit any of its Subsidiaries to merge or consolidate, with or into any other
business organization, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person.
7.4 Indebtedness. Create, incur, assume or be or remain
liable with respect to any Indebtedness, or permit any Subsidiary so to do,
other than Permitted Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to
exist any Lien with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 Investments. Directly or indirectly acquire or own,
or make any Investment in or to any Person, or permit any of its Subsidiaries so
to do, other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly
enter into or permit to exist any material transaction with any Affiliate of
Borrower except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-affiliated
Person.
7.9 Subordinated Debt. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Bank's prior written consent.
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7.10 Inventory. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of the
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, Borrower shall keep the Inventory only at the location set
forth in Section 10 hereof and such other locations of which Borrower gives Bank
prior written notice and as to which Borrower signs and files a financing
statement where needed to perfect Bank's security interest.
7.11 Compliance. Become an "investment company" controlled
by an "investment company", within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Credit Extension for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail
to comply with the Federal Fair Labor Standards Act or violate any law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.
7.12 Negative Pledge. Without Banks prior written consent,
which consent shall not be unreasonably withheld, sell, transfer, assign,
mortgage, pledge, lease, grant a security interest in, or encumber any of
Borrower's intellectual property, including, without limitation, the following:
(a) Any and all trade secrets, and any and all
intellectual property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(b) Any and all design rights which may be
available to Borrower now or hereafter existing, created, acquired or held;
(c) All patents, patent applications and like
protections including, without limitation, improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, including without limitation the patents and patent applications;
(d) Any trademark and service mark rights,
whether registered or not, applications to register and registrations of the
same and like protections, and the entire good will of the business of Borrower
connected with and symbolized by such trademarks;
(e) Any and all claims for damages by way of
past, present and future infringements of any of the intellectual property
rights identified above, with the right, but not the obligation, to sue for and
collect such damages for said use or infringement of such intellectual property
rights;
(f) All licenses or other right to use any of
the Copyrights, Patents or Trademarks, and all license fees and royalties
arising from such use to the extent permitted by such licenses or rights;
(g) All amendments, extensions, renewals and
extensions of any of the Copyrights, Trademarks or Patents; and
(h) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due,
any of the Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation
under Sections 6.3, 6.7, 6.8, 6.9, 6.10 or 6.11 or violates any of the covenants
contained in Article 7 of this Agreement, or
16
<PAGE> 18
(b) If Borrower fails or neglects to perform,
keep, or observe any other material term, provision, condition, covenant, or
agreement contained in this Agreement, in any of the Loan Documents, or in any
other present or future agreement between Borrower and Bank and as to any
default under such other term, provision, condition, covenant or agreement that
can be cured, has failed to cure such default within ten (10) days after
Borrower receives notice thereof or any officer of Borrower becomes aware
thereof; provided, however, that if the default cannot by its nature be cured
within the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to cure
such default, and within such reasonable time period the failure to have cured
such default shall not be deemed an Event of Default (provided that no Credit
Extensions will be required to be made during such cure period);
8.3 Material Adverse Change. If there (i) occurs a
material adverse change in the business, operations, or condition (financial or
otherwise) of the Borrower, or (ii) is a material impairment of the prospect of
repayment of any portion of the Obligations or (iii) is a material impairment of
the value or priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrowers assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, and the same is not
paid within ten (10) days after Borrower receives notice thereof, provided that
none of the foregoing shall constitute an Event of Default where such action or
event is stayed or an adequate bond has been posted pending a good faith contest
by Borrower (provided that no Credit Extensions will be required to be made
during such cure periods);
8.5 Insolvency. If Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against Borrower and is not dismissed or stayed within ten (10)
days (provided that no Credit Extensions will be made prior to the dismissal of
such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any
agreement to which Borrower is a party with a third party or parties resulting
in a right by such third party or parties, whether or not exercised, to
accelerate the maturity of any Indebtedness in an amount in excess of One
Hundred Thousand Dollars ($100,000) or that could have a Material Adverse
Effect;
8.7 Subordinated Debt. If Borrower makes any payment on
account of Subordinated Debt, except to the extent such payment is allowed under
any subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment
of money in an amount, individually or in the aggregate, of at least Fifty
Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation
or material misstatement exists now or hereafter in any warranty or
representation set forth herein or in any certificate delivered to Bank by any
Responsible Officer pursuant to this Agreement or to induce Bank to enter into
this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during
the continuance of an Event of Default, Bank may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
17
<PAGE> 19
(a) Declare all Obligations, whether evidenced
by this Agreement, by any of the other Loan Documents, or otherwise, immediately
due and payable (provided that upon the occurrence of an Event of Default
described in Section 8.5 all Obligations shall become immediately due and
payable without any action by Bank);
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement or under any other agreement
between Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with
Bank in an amount equal to the amount of any Letters of Credit remaining
undrawn, as collateral security for the repayment of any future drawings under
such Letters of Credit, and Borrower shall forthwith deposit and pay such
amounts, and (ii) pay in advance all Letters of Credit fees scheduled to be paid
or payable over the remaining term of the Letters of Credit;
(d) Liquidate any Exchange Contracts not yet
settled and demand that Borrower immediately deposit cash with Bank in an amount
sufficient to cover any losses incurred by Bank due to liquidation of the
Exchange Contracts at the then prevailing market price;
(e) Settle or adjust disputes and claims
directly with account debtors for amounts, upon terms and in whatever order that
Bank reasonably considers advisable;
(f) Without notice to or demand upon Borrower,
make such payments and do such acts as Bank considers necessary or reasonable to
protect its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection therewith.
With respect to any of Borrower's owned premises, Borrower hereby grants Bank a
license to enter into possession of such premises and to occupy the same,
without charge, for up to one hundred twenty (120) days in order to exercise any
of Bank's rights or remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to Borrower set off and apply
to the Obligations any and all (i) balances and deposits of Borrower held by
Bank, or (ii) indebtedness at any time owing to or for the credit or the account
of Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Collateral. Bank is hereby granted a license or other
right, solely pursuant to the provisions of this Section 9.1, to use, without
charge, Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section 9.1, To the
extent not in violation of any license or franchise agreement to which Borrower
is a party, now or hereafter existing, Borrowers rights under all licenses and
all franchise agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or
private sale, or both, by way of one or more contracts or transactions, for cash
or on terms, in such manner and at such places (including Borrower's premises)
as Bank determines is commercially reasonable;
(j) Bank may credit bid and purchase at any
public sale; and
(k) Any deficiency that exists after disposition
of the Collateral as provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence
and during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as Borrowers
true and lawful attorney to: (a) send requests for verification of Accounts or
notify
18
<PAGE> 20
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. At any time from the date of
this Agreement, Bank may notify any Person owing funds to Borrower of Bank's
security interest in such funds and verify the amount of such Account. Borrower
shall collect all amounts owing to Borrower for Bank, receive in trust all
payments as Bank's trustee, and immediately deliver such payments to Bank in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts
or furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts
so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank
complies with reasonable banking practices, Bank shall not in any way or manner
be liable or responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage thereto occurring or arising in any manner or fashion from any
cause; (c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under
this Agreement, the Loan Documents, and all other agreements shall be
cumulative. Bank shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No exercise by Bank
of one right or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and for
the specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which Borrower may in any way
be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
19
<PAGE> 21
If to Borrower RF Micro Devices, Inc.
7625 Thorndike Road
Greensboro, NC 27409
Attn: William Priddy, VP - Finance
FAX: 910-664-0839
If to Bank Silicon Valley Bank
40 William Street, Suite 350
Wellesley, MA 02181
Attn: James C. Maynard, SVP
FAX: 781-431-9906
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION
OF THE COURTS AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWER AND BANK
EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties; provided, however, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to Borrower to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall defend, indemnify and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank
as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.
12.3 Time of Essence. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
20
<PAGE> 22
12.5 Amendments in Writing, Integration. This Agreement
cannot be amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 Survival. All covenants, representations and
warranties made in this Agreement shall continue in full force and effect so
long as any Obligations remain outstanding. The obligations of Borrower to
indemnify Bank with respect to the expenses, damages, losses, costs and
liabilities described in Section 12.2 shall survive until all applicable statute
of limitations periods with respect to actions that may be brought against Bank
have run, provided that so long as the obligations set forth in the first
sentence of this Section 12.7 have been satisfied, and Bank has no commitment to
make any Credit Extensions or to make any other loans to Borrower, Bank shall
release all security interests granted hereunder and redeliver all Collateral
held by it in accordance with applicable law.
12.8 Confidentiality. In handling any confidential
information Bank shall exercise the same degree of care that it exercises with
respect to its own proprietary information of the same types to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Bank in connection with their
present or prospective business relations with Borrower, (ii) to prospective
transferees or purchasers of any interest in the Loans, provided that they have
entered into a comparable confidentiality agreement in favor of Borrower and
have delivered a copy to Borrower, (iii) as required by law, regulations, rule
or order, subpoena, judicial order or similar order and (iv) as may be required
in connection with the examination, audit or similar investigation of Bank.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
12.9 Effectiveness. This Agreement shall become effective
only when it shall have been executed by Borrower and Bank (provided, however,
in no event shall this Agreement become effective until signed by an officer of
Bank in California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument as of the date first set forth above.
"Borrower" "Bank"
RF MICRO DEVICES, INC SILICON VALLEY BANK, doing business
as SILICON VALLEY EAST
By: /s/ William Priddy, By: /s/ David A. Norbury for
---------------------------- ----------------------------------------
William Priddy, VP - Finance James C. Maynard SVP
SILICON VALLEY BANK
By: /s/ David A. Norbury
----------------------------
David A. Norbury, President By: /s/ William Priddy
----------------------------------------
Title: V.P.
-------------------------------------
(Signed in Santa Clara County, California)
21
<PAGE> 23
EXHIBIT A
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing;
(d) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof;
BUT SPECIFICALLY EXCLUDING any contract rights, general intangibles,
license agreement, franchise agreements or license rights of the Borrower, or
any other similar contracts or rights of the Borrower, now owned or hereafter
acquired, which, with Banks written consent, prohibit the granting by the
Borrower of a security interest therein or the transfer, conveyance or
assignment by the Borrower of any right or interest therein.
22
<PAGE> 24
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE:
---------------------
FAX #: (408) TIME:
----------------- -------------------
FROM:
---------------------------------------------------------------------------
BORROWER'S NAME
FROM:
---------------------------------------------------------------------------
AUTHORIZED SIGNER'S NAME
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE
PHONE:
--------------------------------------------------------------------------
FROM ACCOUNT # TO ACCOUNT #
------------------------- ------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
-------------------------- ---------------------
<S> <C> <C>
PRINCIPAL INCREASE (ADVANCE) $____________________
PRINCIPAL PAYMENT (ONLY) $____________________
INTEREST PAYMENT (ONLY) $____________________
PRINCIPAL AND INTEREST (PAYMENT) $____________________
OTHER INSTRUCTIONS:
----------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
All representations and warranties of Borrower stated in the Loan and Security
Agreement dated as of , 1998, as may be amended from time to time, are
true, correct and complete in all material respects as of the date of the
telephone request for and Advance confirmed by this Advance Request; provided,
however, that those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
such date.
BANK USE ONLY:
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
- ----------------------------------------
Authorized Requester
---------------------------
Authorized Signature (Bank)
Phone #
--------------------
23
<PAGE> 25
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: RF Micro Devices, Inc. Lender: Silicon Valley Bank
7625 Thorndike Road 3003 Tasman Drive
Greensboro, NC 27409 Santa Clara, CA 95054
Commitment Amount: $5,000,000
<TABLE>
<S> <C> <C>
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $_______
2. Additions (please explain on reverse) $_______
3. TOTAL ACCOUNTS RECEIVABLE $_______
ACCOUNTS RECEIVABLE DEDUCTIONS
4. Amounts over 90 days due $_______
5. Credit Balances Applied to Over 90-Day Accounts $_______
6. Balance of 50% over 90 day accounts $_______
7. Concentration Limits $_______
8. Governmental Accounts $_______
9. Contra Accounts $_______
10. Promotion or Demo Accounts $_______
11. Intercompany/Employee Accounts $_______
12. Other (please explain on reverse) $_______
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $_______
14. Eligible Accounts (#3 - #13) $_______
15. LOAN VALUE OF ACCOUNTS (80% of #14) $_______
BALANCES
16. Maximum Loan Amount $_______
17. Total Funds Available (Lesser of #16 or #15) $_______
18. Present balance owing on Line of Credit $_______
19. Outstanding under Sublimits (L/C, F/X ) $_______
20. RESERVE POSITIVE (#17 minus #18 and #19) $_______
</TABLE>
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement dated July 14, 1998, as may be amended from time to time,
between the undersigned and Silicon Valley Bank.
COMMENTS:
BANK USE ONLY
Rec'd By:
--------------------
Auth. Signer
Date:
------------------------
RF MICRO DEVICES, INC. Verified:
--------------------
Auth. Signer
By: Date:
---------------------------- ------------------------
Authorized Signer
24
<PAGE> 26
EXHIBIT D
COMPLIANCE CERTIFICATE
Borrower: RF Micro Devices, Inc. Lender: Silicon Valley Bank
7625 Thorndike Road 3003 Tasman Drive
Greensboro, NC 27409 Santa Clara, CA 95054
The undersigned authorized officer of RF Micro Devices, Inc. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement dated July 14, 1998 between Borrower and Bank, as amended
(the Agreement"), (i) Borrower is in complete compliance for the period ending
of all required conditions and terms except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true,
accurate and complete in all material respects as of the date hereof. Attached
herewith are the required documents supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principals (GAAP) and are consistent from one period to the
next except as explained in an accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies" column
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C> <C>
Quarterly financial statements Quarterly within 45 days Yes No
Monthly financial statements Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R Agings Quarterly with 45 days, unless Advances Yes No
are outstanding under the Agreement, in
which case monthly within 30 days
A/R Audit Initial and Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenants Required Actual Complies
------------------- -------- ------ --------
<S> <C> <C> <C> <C>
MAINTAIN ON A MONTHLY BASIS:
Current Ratio+ 1.5:1.0 _________:1.0 Yes No
Minimum TNW* $63,000,000 $____________ Yes No
Minimum 3-month rolling Debt Service
Coverage through 12/31/98 1.25:1.0 _________:1.0 Yes No
Minimum 3-month rolling Debt Service
Coverage 1/31/99 and thereafter 1.5:1.0 _________:1.0 Yes No
Maximum Leverage 1.0:1.0 _________:1.0 Yes No
</TABLE>
+ applicable only beginning January 31, 1999 if Borrower has not requested at
least $55,000,000 in Term Loan Advances on or prior to December 31, 1998
* ceases to apply after December 31, 1998 if Borrower has not requested at least
$5,000,000 in Term Loan Advances on or prior to December 31, 1998
Comments Regarding Exceptions:
25
<PAGE> 27
EXHIBIT D - PAGE 2
COMPLIANCE CERTIFICATE
On behalf of Borrower, the Officer further acknowledges that at any such time as
Borrower is out of compliance with any of the terms set forth in the Agreement,
including, without limitation, any of the financial covenants, Borrower cannot
receive any advances.
Sincerely, BANK USE ONLY
- -------------------------------- Received by:
Signature ------------------
Date:
-------------------------
- --------------------------------
TITLE Verified:
---------------------
- -------------------------------- Date:
DATE -------------------------
Compliance Status: Yes No
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND THE CONDENSED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 16,844
<SECURITIES> 0
<RECEIVABLES> 14,908
<ALLOWANCES> 0
<INVENTORY> 26,900
<CURRENT-ASSETS> 58,896
<PP&E> 59,999
<DEPRECIATION> 2,894
<TOTAL-ASSETS> 121,213
<CURRENT-LIABILITIES> 23,661
<BONDS> 0
0
0
<COMMON> 90,255
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 121,213
<SALES> 54,856
<TOTAL-REVENUES> 54,856
<CGS> 37,293
<TOTAL-COSTS> 37,293
<OTHER-EXPENSES> 12,687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (28)
<INCOME-PRETAX> 4,848
<INCOME-TAX> 821
<INCOME-CONTINUING> 4,027
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,027
<EPS-PRIMARY> .25
<EPS-DILUTED> .23
</TABLE>
