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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended February 28, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-12680
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ORYX TECHNOLOGY CORP.
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(Name of Small Business Issuer as specified in its charter)
Delaware 22-2115841
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 Auburn Street, Fremont, California 94538
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number, including area code: (510) 492-2080
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class On which registered
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Common Stock, $.001 par value NASDAQ/Pacific Exchange
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Common Stock Purchase Warrants NASDAQ/Pacific Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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(Title of class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of the Issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
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Issuer's revenues from continuing operations for its most recent fiscal
year were $8,449,000.
As of May 15, 1998, 13,124,821 shares of Common Stock and Preferred Stock
convertible into 52,515 shares of Common Stock of Registrant were outstanding.
The aggregate market value of the shares of Common Stock held by non-affiliates
of Registrant, based on the average of the closing bid and asked prices on April
30, 1998: $1 and $1-1/32 quoted by the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"), was approximately $12,543,561.(1)
13,124,821 shares of the Company's Common Stock were outstanding as of
April 30, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the definitive Proxy Statement to be delivered to stockholders in
connection with the 1998 Annual Meeting of Stockholders are incorporated by
reference into Part III.
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(1) For purposes of this Report, shares held by non-affiliates were
determined by aggregating the number of shares held by officers and directors
of the Registrant, and by others who, to Registrant's knowledge, own 5% or
more of Registrant's Common Stock including shares of Preferred Stock
convertible into Common Stock, and subtracting those shares from the total
number of shares outstanding. The price quotations supplied by NASDAQ
represent prices between dealers and do not include retail mark-up, mark-down
or commission and do not represent actual transactions.
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SOME OF THE INFORMATION IN THIS REPORT, INCLUDING THE DISCUSSION OF THE
COMPANY'S STRATEGY, PRODUCTION PLANS, DISTRIBUTION STRATEGIES AND VARIOUS
STATEMENTS CONCERNING THE COMPANY'S PLANS FOR EXPANSION AND EXPECTATIONS FOR
GROWTH FOR BOTH THE COMPANY AND THE MARKETS IN WHICH THE COMPANY COMPETES
CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISKS AND
UNCERTAINTIES DESCRIBED UNDER THE CAPTION "RISK FACTORS" SET FORTH IN PART I OF
THIS REPORT AND THOSE IDENTIFIED BY THE COMPANY FROM TIME TO TIME IN OTHER
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), PRESS
RELEASES AND OTHER COMMUNICATIONS.
PART I
BUSINESS
Item 1. DESCRIPTION OF BUSINESS
Introduction
Oryx Technology Corp. ("Oryx" or the "Company") restructured its operations
during fiscal 1998. Through fiscal 1998, the Company designed, manufactured and
marketed specialized components, analytical equipment and instrumentation
products for original equipment manufacturers ("OEMs") in the information
technology industry. This industry includes office equipment, computers,
telecommunications and consumer electronics. During fiscal 1998, the Company
operated three majority owned subsidiaries, as depicted below, focusing in three
distinct market segments: (i) power conversion products (Oryx Power Products
Corporation), (ii) electrical surge protection products (SurgX), and (iii)
materials analysis and test equipment and specialized materials products (Oryx
Instruments and Materials Corporation). During fiscal 1998 the Company embarked
upon a major restructuring program which resulted in the sale on February 27,
1998 of the test equipment portion of the business of Oryx Instruments and
Materials Corporation ("Instruments and Materials") and the sale on March 2,
1998 of substantially all of the assets of Oryx Power Products Corporation.
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| Oryx Technology |
| Corp. |
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|
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| | |
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| Oryx | | SurgX | | Oryx Instruments |
| Power Products | | Corporation | | and Materals |
| Corporation | | | | Corporation |
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- Power Conversion - Surge Protection - Instruments (Test Equipment)
Products Components - Specialized Materials
- Contract Manufacturing - Contract R&D
Effective with the 1999 fiscal year (ending February 28, 1999), the Company
has now restructured itself as a materials based business. Today, Oryx designs,
licenses and sells its proprietary technologies to provide electrostatic
discharge (ESD) protection and to coat materials used in the disk drive industry
(with Intragene, a patented process, and other ceramic metallization and joining
system products).
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| Oryx Technology |
| Corp. |
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|
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| |
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| Materials | | SurgX Corporation |
| Division | | |
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- Specialized Materials - Surge Protection
- Contract R&D Components
Oryx' customer base for its current product lines includes the following
OEMs: Akashic Memories, Cooper/Bussmann Corporation ("Bussmann"), DAS Devices
Inc., IBM Corporation, Read Rite Corp., Seagate Technology, Inc., Trace Storage
Technology Corp., and Western Digital Media Corporation. The Company currently
plans to market its existing product lines to these and other OEMs during fiscal
1999. The Company has also undertaken research programs with the Department of
Defense ("DoD") and plans to pursue further joint research programs with major
companies in or supporting the information technology industry.
The Company's predecessor, Advanced Technology, Inc. ("ATI"), was
incorporated on April 21, 1976 in New Jersey. On July 25, 1993, ATI formed the
Company as a wholly-owned Delaware subsidiary, and on September 29, 1993, ATI
merged into the Company.
SURGX CORPORATION
SurgX Corporation ("SurgX") is currently the principal subsidiary through
which the Company designs, manufactures and sells its surge protection
technology. The underlying technologies developed by SurgX are licensed
exclusively to two licenses, Bussmann, a division of Cooper Industries
("Bussmann") and Iriso, a Japanese connector manufacturer. Products manufactured
by these licensees utilizing SurgX's proprietary technology, are sold to OEMs in
the computer and electronics industries to provide protection against ESD events
through connectors and discretes at the printed circuit board level.
BACKGROUND
As the information technology industry increases capacity, speed and
performance, it is simultaneously moving toward faster circuit performance,
smaller chip geometries and using lower operating voltages. These developments
have been accompanied by increases in both product susceptibility to failure
from over-voltage threats as well as more widespread incidences of such threats.
Failure to address these problems can result in the destruction of chips and
circuitry. These threats can originate from inside or outside the products and
can arise from such factors as human body electrostatic discharge, induced
lightning effects, spurious line transients and other complex over-voltage
sources. During the last decade, new products emerged to address this need to
protect integrated circuits from ESD. Related specialized products range from
wrist straps worn by electronics assembly workers, to special anti-static
packaging of both components and sub-assemblies and on board level protection
devices such as diodes, varistors and other surge protection devices.
The global market for all surge protection devices is predicted to reach
$1.9 billion in calendar 1998, and is comprised of some mature devices such as
gas discharge tubes, varistors, "TVS" (transient voltage suppression), diodes
and thyristors. The key markets using surge protection devices and technologies
are telecommunication, automotive and computers. Sales of surge protection
devices are split between 40% for varistors, 40% for diodes, and 20% for gas
discharge tubes and surge resistor networks. Though proven for performance and
reliability, each of these technologies has only a narrow range of application.
In addition, none achieves the desired combination of high speed, elevated power
handling capability, low clamping voltage and low capacitance. Furthermore,
present conventional devices and methodologies are expensive for use on all
signal lines on a given circuit board. The major suppliers for surge protection
products include General Instrument Corp., Harris Semiconductor, Inc., Motorola
Corp., Panasonic, Shinko, and Siemens Components, Inc.
BUSINESS
In 1993, the Company assembled a product design team for the development
and manufacture of a family of specialized components designed to protect
integrated circuits, integrated circuit modules, and assembled printed circuit
boards. The Company completed preliminary prototypes of its SurgX-TM- products
in fiscal 1995 with first production releases being shipped in beginning
calendar year 1998.
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The proprietary SurgX technology for over-voltage protection is comprised
of a specialized polymer formulation containing inorganic solids, metal
particles and adhesion-promoting agents which can be tailored for use against
surge threats with different voltage and power levels. The Company continues to
optimize the electrical performance of the technology to stay abreast of the
fast changing requirements of the industry. In 1996, the formulations designed
in 1994 were modified to fit unique requirements of the Bussmann manufacturing
process, and to improve response voltage performance.
As part of its efforts to establish brand name recognition for its SurgX
product line, the Company intends to register unique names for its products with
different applications. For instance, the trademark SurgX-TM- was registered
with the US Patent and Trademark Office on March 17, 1998. The company is in
the process of filing statements for SurgTape-TM- which are due by July 20,
1998. SurgTape-TM- should be registered two months thereafter. The SurgAid-TM-
trademark registration, intended for use on SurgTape-TM- labels for ESD
protection of flex circuit applications was abandoned in 1998 and replaced with
SurgFlex-TM-. The company will start the trademark application process for
SurgFlex-TM- in May 1998. In 1997, SurgX filed a service mark application for
the SurgX logo design which was favorably received by SurgX customers.
The original two patents filed by the company in 1995 on manufacturing
processes, methods of making the SurgX compositions, materials and on devices
have been divided up by the patent office into 11 different inventions for
filings as individual patents. To date three of these patents have been filed
and a fourth is drafted for filing. In May 1998, the company received notice
from the Patent Office that the patent on the method of manufacturing has been
approved and will issue in August 1998. In 1997, foreign filings were initiated
in 10 countries plus Europe on the two original patents. Except for the grant
of both applications by Singapore, all of the foreign patents are in process. A
third patent on surface mount devices and connector component designs was filed
in the US in 1996, and in Europe in 1997. In 1998, two additional patents on
overvoltage protection inside the IC package were prepared for filing. As SurgX
products are commercialized, the company plans to review for filing the relevant
invention disclosures from 1996 and 1997. These disclosures cover significantly
proprietary art in devices, processes and materials.
SurgX's approach to the market had consisted of two parallel paths. The
first product group was based on board-level ESD protection, incorporating
SurgX's liquid polymer-based material into discrete ESD protection devices.
These products are now being produced and sold in limited quantities by Bussmann
and IRISO. The second product group, SurgTape, was intended to provide on-chip
protection by placing SurgX-based tape inside the IC package on the leadframe.
This product has not been commercially developed and development efforts have
been shifted to develop SurgTape for use in board level protection by applying
it on discrete ESD protection devices.
The Company is directing substantially all of its development effort to
achieve lower response voltage performance and cost reductions in manufacturing
and packaging processes for the board level protection product. It is the
Company's belief that if these improvements can be realized, it will expand the
number of markets which SurgX's technology can address. Efforts to develop
SurgTape for on-board level protection and laser machining techniques are
methods the Company is pursuing to achieve these objectives. However, there can
no assurances these technologies can be commercially developed or that customers
will accept these products as solutions for ESD protection.
The discrete diode is the primary market addressed by SurgX. This market is
forecast to be approximately $700 million in 1998 with a growth rate predicated
between 9% to 10% annually. To a lesser extent, SurgX will seek to participate
in the varistor market, approximately the same size as the diode segment. The
low capacitance requirement of ESD protection devices in many circuit designs
will provide the initial entry into this market segment. With further product
development, SurgX intends to address the larger, overall ESD protection market.
SurgTape was conceived as an inexpensive, on-board surge protection device
for direct installation into the IC package. Due to inconclusive initial
development trials, insufficient funding and the need to develop a more easily
manufacturable version of SurgTape-TM- as an improved alternative to current
board-level protection techniques, efforts to develop SurgTape-TM- for on-chip
protection have been suspended. Management believes that the development of low
cost, small size, and easy to use SurgTape-TM- or variation of SurgTape-TM-,
for application inside the integrated circuit package remains a viable
alternative to existing ESD protection devices; however, given the Company's
resource constraints, the Company will continue this development effort only if
technology improvements are realized and development funds are available. There
can be no assurance that SurgX will be able to raise development funding, that
SurgTape can be commercially developed, or that IC manufacturers will embrace
this technology and replace or supplement existing on-chip ESD protection
devices with SurgTape-TM-.
PRODUCTS AND DISTRIBUTION
In fiscal year 1996, a strategic review of the SurgX business was
undertaken as part of the Company's overall business review. The Company
determined that it would be more efficient to establish a relationship with an
experienced corporate partner who could provide the necessary high volume
manufacturing and distribution channels.
In fiscal year 1997, an exclusive, world wide (except for Japan) license
was granted to Bussmann for the manufacture and marketing of SurgX surface mount
and connector array components. In consideration for this license, Bussmann
paid $750,000 in development funding, and, subject to terms of the license
agreement, will pay royalties for approximately 11 years to SurgX based upon
Bussmann's sales of surface mount components and connectors. In September of
1997, this license agreement was amended, extending the term of the agreement to
20 years, granting the rights to Bussmann for SurgTape for board-level ESD
protection and providing SurgX with
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$1,700,000 (in the form of non-refundable minimum royalties) of funding for
the development and commercialization of SurgTape. If SurgTape is
successfully commercialized, this product will be marketed by Bussmann under
the SurgX trademark.
Bussmann is a leading manufacturer of fuses, and, prior to entering the
license agreement with SurgX, was seeking new circuit protection technology.
Bussmann's target market for SurgX is the rapidly growing electronics market.
Since the signing of the license agreement in July 1996, Bussmann has taken on
the manufacturing of SurgX components using liquid SurgX manufactured by SurgX
and the product launch with the Bussmann sales and marketing organization was
initiated in early calendar year 1998 with limited quantities currently being
shipped.
In November 1997, Iriso made an equity investment of $500,000 in SurgX in
exchange for an ownership interest of approximately 3%. In conjunction with this
equity investment, Iriso received a 15 year co-license to manufacture and sell
the Company's SurgX technology for board level ESD protection exclusively in
Japan. These products will be marketed under the SurgX trademarks. Iriso is
currently providing samples to prospective customers and plans the market launch
of SurgX surface mount and connector components in mid calendar year 1998.
In fiscal 1997, SurgX entered into two SurgTape milestone-based product
development agreements with two manufacturers of integrated circuits. While
SurgX completed the electrical proof of concept milestone with one such
manufacturer, the Company was unable to repeat this success with the second
manufacturers. Subsequently, these manufacturers did not commit additional
funding for any further development and substantially all development efforts
for SurgTape for on-chip protection have been abandoned. The two manufacturers
who funded the initial development expressed interest in testing and evaluating
SurgTape when the performance and design parameters are improved to the levels
required by their proprietary integrated circuits and their package
requirements.
After development efforts for the board level protection products are
successfully completed, management will renew efforts to investigate new
development contracts for on-chip protection with integrated circuit
manufacturers. However, there can be no assurance that SurgX will be able to
consummate any of these relationships, that any such relationship will be on
commercially advantageous terms to SurgX, or that any of the products will be
ultimately developed.
ORYX INSTRUMENTS AND MATERIALS CORPORATION
Prior to February 27, 1998 Oryx Instruments and Materials Corporation
("Instruments and Materials") designed, manufactured and marketed test
equipment, specialized materials and electromagnet systems for the hard disk
drive and semiconductor industries. On February 27, 1998, a third party acquired
8,000,000 shares of Class A Common Stock of Oryx Instruments and Materials
Corporation for a purchase price of $500,000. As part of the sale transaction,
Oryx Instruments and Materials then redeemed 8,000,000 shares of the Company's
10,000,000 share holdings of Class A Common Stock for an aggregate price of
$1,500,000. Terms of the 8,000,000 share stock redemption include $500,000 paid
on the closing, and $333,000 payable on February 27, 1999 and $667,000
payable on February 27, 2000, memorialized via a promissory note and stock
pledge agreement. As part of the sale, Oryx Instruments & Materials
distributed all the assets and liabilities of the Materials business segment
and certain other assets of Instruments business segment to the Company. The
Company retains an ownership interest of 19.9% in Instruments and Materials.
MATERIALS BUSINESS UNIT BACKGROUND
The Company currently owns and operates the former materials division of
Instruments and Materials. This division offers specialized materials assemblies
based upon the patented Intragene-TM- ceramic metallization and joining system.
The materials division product line consists of Intragene-TM--based
sputtering target assemblies and electromagnent systems. The sputtering target
assemblies have been sold into the rigid disk market since 1986 and are
considered one of the most reliable such assemblies in the market today.
Sputtering target assemblies are manufactured by materials companies and
sold to end-users as source materials for coating other materials via a vacuum
based process called sputtering. Sputtering is employed as the primary method
for depositing thin film functional and protective layers on rigid magnetic
media (hard disks), as well as in many semiconductor manufacturing operations.
Once a target is made, it must usually be incorporated into the sputtering
apparatus by joining it to a backing plate to make sound electrical, thermal and
mechanical contact. The bonding of a target to the backing plate, which is
usually made of copper, forms what is known as the "bonded target assembly."
The materials division manufactures these high quality sputtering target
assemblies based primarily on its patented Intragene-TM- metal to non-metal and
metal to metal joining process. The Intragene-TM- process is a proprietary
methodology developed by metallurgists and materials scientists at the Company
and has been granted six U.S. patents as well as national phase patents based on
two European patent applications and three Japanese patents. The Intragene-TM-
process facilitates the ability to metallize, solder or braze a wide range of
engineering ceramics, graphite and refractory metals. The materials division
also manufactures electromagnet systems which produce very accurate and high
level electromagnet fields. These products are sold to magnetic recording head
manufacturers who often utilize these systems for wafer plating.
The materials division employs personnel with extensive backgrounds in
engineering materials and joining. This has allowed it to develop several
approaches to bonding brittle solids of low to intermediate thermal expansion to
typical high-expansion backing plate
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materials such as copper and aluminum. The Company's experience in assembly,
design and stress reduction, combined with the ability to produce bonded target
assemblies, has enabled it to become a supplier of such products selling
directly to the thin-film magnetic media manufacturers.
The materials division's primary customers of the bonded targets are Fuji
Electric, Hyundai Electronics America (Max Media Corp.), Seagate Recording
Media, Inc. (formerly, Conner Peripherals and Seagate Magnetics), StorMedia
Corporation, Trace Technology, and Western Digital Media Corporation. Materials'
primary customers for the materials division's electromagnet system are DAS
Devices Inc, and Read Rite Corp.
The materials division derives substantially all of its revenue from rigid
magnetic media manufacturers. During the fourth quarter of fiscal 1998 the disk
drive industry experienced a significant slow down which had a direct impact on
the Company's sales. Demand for bonded sputtering target assemblies continues
to be suppressed as world-wide demand for rigid magnetic media are at low
levels. Management currently believes that demand for product will increase
toward the end of fiscal 1999 as the disk drive industry itself recovers.
Magnetic media manufacturers are presently working on new technologies
which could significantly reduce the demand for the Company's sputtering target
assemblies. Currently, magnetic media manufacturers are exploring Chemical Vapor
Deposition ("CVD") techniques as alternatives to the sputtering target assembly
due to expected superior product performance and reduced cost. The company is
exploring the feasibility of being a supplier of this new technology as well as
offering new synergistic products to its current customer base. There can be no
assurances that the Company will be able to develop and supply new products or
that its current products will not be rendered obsolete by new technologies.
The Company's operations in the ESD and materials businesses have been
partially funded through government contracts.
The Company has also undertaken research programs with the DoD, and has
been the recipient of four Phase I and two Phase II SBIR (Small Business
Innovative Research) contracts from NASA, two Phase I contracts from the DoD,
and one Phase I contract from the National Science Foundation during its
1992-1997 fiscal years, most of which involve applications of its Intragene-TM-
and related core technology. The contracts represent grants totaling over $2
million.
The Company recently was awarded two Phase II SBIR research and development
contracts. One such contract with the US Army Tank Automotive Comma in Warren,
Michigan, is valued at $600,000 and is for development of impact absorbing
materials. The other, from BMDO, monitored through the Office of Naval
Research, is geared toward the development of a fabrication protocol for the
high volume manufacturing of the Company's SurgX devices for ESD surge
suppression. This contract is valued at approximately $1.5 million with
one-half being provided as matching funds from Oryx or partner companies.
ORYX POWER PRODUCTS CORPORATION (DISCONTINUED OPERATION)
Oryx Power Products Corporation ("Power Products") designed, manufactured
and marketed custom and standard AC/DC switching power supplies and high density
DC/DC power conversion products for various electronics products, and provided
contract manufacturing services to OEMs. On March 2, 1998, Oryx's Power
Products business was sold in its entirety through a disposition of
substantially all of its assets and liabilities to Todd Power Products.
REGULATION AND ENVIRONMENTAL MATTERS
The Company is subject to various federal, state and local laws,
regulations and recommendations relating to safe working conditions, laboratory
and manufacturing practices, and the use and disposal of hazardous or
potentially hazardous substances. The Company believes that its facilities and
practices for controlling and disposing of the limited amount of waste and
potentially hazardous materials it produces comply with applicable environmental
laws and regulations. The development of any additional manufacturing operations
by the Company may require the Company to comply with government regulations
designed to protect the environment from wastes and emissions and from hazardous
substances, particularly with respect to the emission of air pollutants, the
discharge of cooling water, the disposal of residues and the storage of
hazardous substances. The extent of government regulation which might result
from any future legislation or administrative action cannot be accurately
predicted.
PATENTS AND PROPRIETARY RIGHTS
Proprietary protection for the Company's products, processes and know-how
is important to its business. The Company currently has numerous patents issued
and in process. The Company's policy is to file patent applications to protect
its technology, inventions and improvements as soon as practicable. The Company
also relies upon trade secrets, know-how and continuing technological innovation
to develop and maintain its competitive position.
The Company owns and will maintain six patents, which are associated with
the Intragene process. The Intragene patents expire in 1999 and 2000. The
Company plans to file improvement patent applications which may effectively
broaden proprietary protection. There can be no assurances, however, that such
improvement patent applications will be granted. The Company does not believe
that the expiration of such patents will have a materially adverse effect on its
competitive position relative to the marketing of its ceramic metallization and
bonding system products.
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EMPLOYEES
As of April 30, 1998, the Company employed 17 people on a full-time basis.
Included among full time employees are 2 executive officers, 2 managers and
executive personnel, 4 engineering personnel, 3 administrative personnel and 6
manufacturing personnel. The Company's employees are not covered by any
collective bargaining agreements, and the Company believes its employee
relations are satisfactory.
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RISK FACTORS
HISTORY OF UNPROFITABILITY; SUBSTANTIAL RECENT OPERATING LOSSES AND
ACCUMULATED DEFICIT
Since its initial public offering in April 1994, the Company has not been
profitable on a quarterly or annual basis except for the quarters ended May 31,
1996, August 31, 1996 and November 30, 1996. At February 28, 1998, the Company
had an accumulated deficit of $17,384,000. The Company expects that it will not
be profitable for the fiscal year ending February 28, 1999 and there can be no
assurance that the Company will be profitable thereafter.
RESTRUCTURING
In fiscal 1998, the Company undertook substantial restructuring of its
operations, such that the majority of the Company's activities may properly be
deemed "developmental." In the course of selling various business units
described above, the Company disposed of operations which had accounted for a
substantial majority of its revenues. While the Company believes that this
downsizing will substantially reduce its losses and enable it to focus on key
strategic businesses, the actual impact cannot be certain. In the absence of
increased sales from its remaining businesses, and key technology developments,
such restructuring may have sharply reduced the Company's revenues while not yet
creating opportunities to offset the lost revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $7,406,000 at February 28,
1997 to $1,501,000 at February 28, 1998 primarily due to operating losses. The
Company's ratio of current assets to current liabilities was 3.7:1 at February
28, 1997 and 1.6:1 at February 28, 1998. At February 28, 1998 the Company had
$129,000 outstanding under its Inventory credit line related to continuing
operations. In February 1998 and March 1998 the Company sold the business of its
Power Products subsidiary and its majority interest in Instruments and
Materials. These two actions substantially reduced the Company's on-going
operating losses and provided sufficient capital to meet its current fiscal 1999
operating plan. However, in the event the Company does not meet its current
operating plan and it requires additional equity or attempts to raise capital
through an asset sale or development contract, there can be no assurance that
such transactions can be effected in a timely manner to meet all of the
Company's needs, or at all, or that any such transaction will be on terms
acceptable to the Company or in the interest of its stockholders.
RISKS OF NEW PHASE OF DEVELOPMENT
During fiscal 1998, the Company amended its licensing agreement with
Bussmann, in addition to other considerations, to fund $1,700,000 for continued
development activities for SurgX's board level ESD protection technology. Prior
to fiscal 1999, the Company has invested substantially in the development of its
proprietary ESD surge protection. These funds were primarily exhausted in
February 1998 and the Company revamped its development efforts to bring its
operating costs in line with projected available funds. As a result of these
steps, substantially all development activities related to on-chip ESD
protection was halted. The Company believes it is employing adequate resources
to support product enhancements for on-board ESD and will increase development
efforts if development funds become available. To the extent additional
development is required, there can be no assurance that the Company will be able
to successfully raise the necessary development funds or that these enhancements
can be commercialized or developed into financially viable businesses.
Development results in the future will be influenced by numerous factors,
including the availability of funding, technological developments by the
Company, its customers and competitors, increases in expenses associated with
product development, market acceptance of the Company's products, the ability of
the Company successfully to control its costs of development, overhead and other
costs, the capacity of the Company to develop and manage the introduction of new
products, and competition.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH; INTERNAL CONTROL
DEFICIENCIES
In connection with the audit of fiscal year 1995, a reportable condition
was identified with respect to the Company's record keeping for equity
financing and share issuance transactions. In connection with the Company's
audit for the fiscal year ended February 29, 1996, the Company's independent
accountants identified a further reportable condition relating to physical
inventory procedures specifically with regard to substantial adjustments that
resulted from physical inventories taken during the fiscal year ended
February 29, 1996. The resulting adjustments were reflected in the fiscal
year 1996 financial statements. A reportable condition indicates that a
material error or irregularity may occur in the Company's quarterly and
year-end financial statements and may not be detected on a timely basis by
the Company's employees, thereby possibly resulting in a misstatement of the
Company's financial statements. Management has taken actions to resolve these
conditions and there have been no reportable conditions for the period ended
February 28, 1997 and February 28, 1998, respectively.
SIGNIFICANT CUSTOMER DEPENDENCE
The Company entered into two exclusive license agreements for use of its
SurgX technology for ESD protection on discrete components and connector arrays.
The Company receives a royalty equal to a percentage of each licensee's gross
profit on sales of products utilizing the SurgX technology. While the Company
has and will assist the licensees in their efforts to exploit this technology,
the Company's future royalties are based solely upon the successful sales,
marketing and manufacturing efforts of its licenses. While the license
agreements contains minimum annual royalty payment requirements for the licenses
to maintain their exclusive rights, there can be no assurances that the licenses
will pay the minimum royalty or that these minimum payments will provide enough
liquidity to continue to support the Company's operations. In the case of
Bussmann, minimum royalty payments through 2001 have been satisfied to maintain
exclusivity, and
7
<PAGE>
there can be no assurances that the Company will receive any royalty payments
from Bussmann through this time period since Bussmann would have to be
successful in selling products using SurgX to exceed the minimum royalty
payments, and at present, such sales have not yet been material.
RELIANCE ON THIRD PARTY MANUFACTURERS MAY DISRUPT OPERATIONS
The Company relies on third-party manufacturers for the supply of
substantially all key components for its products. In the case of the materials
division, it relies on one supplier for its raw materials for sputtering target
assemblies. While reliance on a single supplier, involves several risks,
including without limitation, a potential inability to obtain an adequate supply
of required components and reduced control over pricing, quality, cost, and
timely delivery of components, the Company believes its sole source arrangement
has provided a lower cost, higher quality product then sourcing material from
multiple sources. However, any inability to obtain adequate deliveries or any
other circumstances that would require the Company to seek alternative sources
of supply could lead to disruption of the operations of the Company, product
deficiencies, unanticipated and fluctuating expenses, unpredictable revenues,
and may have a material adverse effect on the Company's business and operations.
TECHNOLOGICAL CHANGES AFFECTING PRODUCTS AND PRODUCT DEVELOPMENT RISKS
The development design and manufacture of technology constantly undergoes
rapid and significant change. The Company's success will depend upon its
ability to maintain a competitive position with respect to its proprietary and
other enhanced technology and to continue to attract and retain qualified
personnel in all phases of its operations. The Company's business is, to a
large degree, dependent upon the enhancement of SurgX's current technology.
Critical to the Company's success and future profitability will be its capacity
to improve these technologies. Product development and enhancement involve
substantial research and development expenditures and a high degree of risk, and
there is no assurance that the Company's product development efforts will be
successful, will be accepted by the market, or that such development efforts can
be completed on a cost-effective or timely basis, or that there will be
sufficient funds to support development efforts. There can be no assurance that
future technological developments will not render existing or proposed products
of the Company uneconomical obsolete or that the Company will not be adversely
affected by competition or by the future development of commercially viable
products by others.
QUARTERLY FLUCTUATIONS OF OPERATING RESULTS
The Company's quarterly operating results have in the past been, and will
in the future be, subject to significant fluctuation. The Company's operating
results are impacted by numerous factors, such as, market acceptance of the
Company's SurgX' products; Bussmann's continued marketing, sales and financial
support of SurgX technology, containment of development costs, the level of
activity of the disk drive industry, purchasing patterns of OEMs and other
customers, delays in, or failure to receive, orders due to customer financial
difficulties, and overall economic trends. In addition, customer orders may
involve design in requirements, thus making the timing of customer orders
difficult to predict and uneven. Any delay or failure to receive anticipated
orders, or any deferrals or cancellation of existing orders, would adversely
affect the Company's financial performance. The Company's expense levels are
based in part on its expectations as to future revenues and, in particular, the
successful launch of SurgX products by Bussmann and the recovery of the disk
drive industry. The Company may be unable to adjust spending in a timely manner
to compensate for any delay in product development, or revenue shortfall, or the
recovery of the disk drive industry. Accordingly, operating results in any one
quarter could be materially adversely affected by, among other factors, a
failure to receive, ship or obtain customer acceptance of sufficient orders in
that quarter and any weakening in demand for the Company's products or delays in
acceptance of the SurgX's technology could have a material adverse effect on the
Company's operating results.
BACKLOG AND INVENTORY
Backlog at the beginning of a quarter typically does not include all sales
required to achieve the Company's sales and operating targets for a quarter,
which targets depend on the Company's shipping orders scheduled to be sold
during that quarter. The terms of customer purchase orders generally provide
that the customer may delay a substantial portion of the order with limited
notice and with little or no penalty. The Company has experienced rescheduling
in the past and expects that it will experience such changes in the future.
Moreover, as the Company transitions to a licensing operation for the majority
of its revenues, it will have far less direct control over shipments of products
resulting in revenues to it, and hence, less visibility as to financial
performance and projected earnings, if any. In such case, the Company will have
to rely on the success of its licensees, Bussmann and Iriso, in selling products
incorporating the Company's technology.
COMPETITION
The Company is engaged in certain highly competitive and rapidly changing
segments of the electronic components industry in which technological advances,
costs, consistency and reliability of supply are critical to competitive
position. In addition, the competition for recruitment of personnel in the
technologically-advanced manufacturing industry is continuous and highly
intense. The Company competes or may subsequently compete, directly or
indirectly, with a large number of companies which may provide products or
components comparable to those provided by the Company. In addition, many
present or prospective competitors are larger, better capitalized, more
established and have greater access to resources necessary to produce a
competitive advantage.
NO ASSURANCES OF PROTECTION FOR PATENTS AND PROPRIETARY RIGHTS; RELIANCE
ON TRADE SECRETS
8
<PAGE>
The Company relies on a combination of patent, copyright, trademark and
trade secret laws, non-disclosure agreements and other intellectual property
protection methods to protect its proprietary technology. There can be no
assurance that any existing or subsequently obtained patents will provide the
Company with substantial competitive advantages, or that challenges will not be
instituted against the validity or enforceability of any patents owned by the
Company, or if initiated, that such challenges will not be successful. To the
extent the Company wishes to assert its patent rights, there can be no assurance
that any claims of the Company's patents will be sufficient to protect the
Company's technology, and the cost of any litigation to uphold the validity of a
patent and prevent infringement can be substantial even if the Company prevails.
In addition, there can be no assurance that others will not independently
develop similar technologies, duplicate the Company's technology, or
legitimately design around the patented aspects of the Company's technology.
Competitors or potential competitors may have filed applications for or received
patents, and may obtain additional patents and proprietary rights relating to
technology competitive with that of the Company. Furthermore, if additional
patents do not issue from present or future patent applications, the Company may
be subject to greater competition.
In certain cases, the Company also relies on trade secrets to protect
proprietary technology and processes which it has developed or may develop in
the future. There can be no assurance that secrecy obligations will be honored
or that others will not independently develop similar or superior technology.
The protection of proprietary technology through claims of trade secrets status
has been the subject of increasing claims and litigation by various companies,
both in order to protect proprietary rights, and for competitive purposes, even
where proprietary claims are unsubstantiated. The prosecution of proprietary
claims or the defense of such claims is costly and uncertain given the rapid
development of the principles of law pertaining to this area.
NO DIVIDENDS ON COMMON STOCK
The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future. The future payment of dividends is directly dependent
upon future earnings of the Company, its financial requirements and other
factors to be determined by the Company's Board of Directors, as well as the
possible consent of lenders, underwriters or others. For the foreseeable
future, it is anticipated that any earnings which may be generated from the
Company's operations will be used to finance the growth of the Company and will
not be paid to holders of Common Stock.
RISK OF SIGNIFICANT DILUTION
The Company retained Yorkton Securities, Inc. ("Yorkton") to act as
placement agent pursuant to that certain Agency Agreement dated as of December
4, 1996 and amended as of January 23, 1997 (the "Agency Agreement"). Under the
terms of the Agency Agreement, the Company issued Yorkton warrants to purchase
90,730 and 72,800 shares of Common Stock for a per share exercise price of $1.90
(the "Yorkton Warrants"). The Yorkton Warrants are exercisable for a period of
five years from the date of each closing of the Regulation S offering.
On February 27, 1998 the Company entered into a financing arrangement which
provided the Company with a six month bridge loan for an amount up to
$1,000,000. In consideration for this loan, the Company issued warrants to
purchase 174,546 shares of Common Stock at a per share price of $1.15. The
Warrants are exercisable for a period of three years from the inception date of
the bridge loan agreement.
As a result of these and various other transactions previously entered by
the Company, as of February 28, 1998, there were convertible securities and
warrants and options of the Company currently outstanding for the conversion and
purchase of up to approximately 6,838,648 shares of Common Stock. These
represent significant additional potential dilution for existing stockholders of
the Company. These underlying shares of Common Stock are not included in
currently outstanding shares. In addition, as a result of the anti-dilution
provisions included in certain of these derivative securities, there may be
further dilution based on the price that the Company issues other securities in
the future.
VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated substantially
since the Company's initial public offering in April 1994. The Company believes
that a variety of factors could cause the price of the Company's Common Stock to
continue to fluctuate substantially, including, for example, announcements of
developments related to the Company's business, liquidity and financial
viability, fluctuations in the Company's operating results and order levels,
general conditions in the industries served by the Company, the technology
industry in general or the United States or worldwide economy, announcements of
technological innovations, new products or product enhancements by the Company
or its competitors, developments in patents or other intellectual property
rights, and developments in the Company's relationships with its customers,
distributors and suppliers. In addition, in recent years, the stock market in
general and the market for shares of small capitalization stocks in particular
has experienced extreme price fluctuations which have often been unrelated to
the operating performance of affected companies. Such fluctuations could
adversely affect the market price of the Company's Securities and ability to
obtain additional financing.
AUTHORIZATION OF PREFERRED STOCK
9
<PAGE>
The Board of Directors is authorized to issue shares of preferred stock and
to fix the dividend, liquidation, conversion, redemption and the rights,
preferences and limitation of such shares without any further vote or action of
the stockholders. Accordingly, the Board of Directors is empowered, without
stockholder approval, to issue preferred stock with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting power
of other rights of the holder of the Company's Common Stock. In the event of
issuance, the preferred stock could be utilized, under certain circumstances, as
a method of discouraging and delaying or preventing a change of control of the
Company. As of February 28, 1998, the Company had 4,500 shares of Preferred
Stock outstanding with an obligation to pay dividends thereon at the rate of
$0.25 per share. Although the Company has no present intention to issue any
additional shares of its preferred stock, there can be no assurance that the
Company will not do so in the future.
Item 2. DESCRIPTION OF PROPERTY
The Company presently operates its material business in two separate
facilities and SurgX and Corporate have been consolidated into one building. On
July 12, 1995, the Company entered into a lease agreement with SCI Limited
Partnership, for 3,600 square feet of manufacturing space located in Fremont,
California. The term of the lease is three years and lease payments are $3,510
per month including operating expenses. month, and the lease continues for a
period of five years. On August 12, 1996, SurgX entered into an agreement with
E.B.J. Partners LP to lease a 22,000 square foot facility in Fremont,
California. The monthly rental fee is $18,151 and the term of the lease expires
August 30, 2001. The Company also leases another smaller manufacturing space on
a short term basis.
Each of the properties described above is in satisfactory condition for the
purpose for which it is used.
Item 3. LEGAL PROCEEDINGS
The Company knows of no material litigation or claims pending, threatened
or contemplated to which the Company is or may become a party.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the Company's fiscal year ended February 28,
1998, no matters were submitted to a vote of security holders.
PART II
Item 5. MARKET FOR THE COMPANY'S UNITS, COMMON STOCK AND WARRANTS AND RELATED
STOCKHOLDER MATTERS
Since the Company's initial public offering of the Common Stock and
Warrants on April 6, 1994, the Company's Common Stock and Warrants have traded
principally on the NASDAQ Small Cap Market under the symbols "ORYX" AND "ORYXW,"
respectively. Prior to April 6, 1994, there was no public market for the
Company's securities. From April 6, 1994 through June 6, 1994, the Company had
Units which were also traded on NASDAQ, at which time the Company requested
withdrawal of such listing. The following table sets forth the high and low bid
quotations for the Common Stock and Warrants for the periods indicated, as
reported by NASDAQ. These quotations reflect prices between dealers, do not
include retail mark-ups, mark-downs or commissions and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
------------ --------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1997 Fiscal Year
- ----------------
1st Quarter $3-11/16 $1-1/4 $2-11/16 $0-1/2
2nd Quarter $4-1/16 $2-5/16 $3-5/8 $1-7/8
3rd Quarter $3-3/16 $2-1/8 $2-19/32 $1-1/2
4th Quarter $2-15/16 $2-1/16 $2-7/8 $1-9/16
1998 Fiscal Year
- ----------------
1st Quarter $2-7/16 $0-3/4 $2-1/4 $1-3/32
2nd Quarter $1-9/16 $0-13/16 $1-15/32 $0-3/16
3rd Quarter $2-3/16 $1-1/8 $2 $0-3/4
4th Quarter $1-17/32 $0-15/16 $1-13/32 $0-19/32
</TABLE>
On May 20, 1998, the per share closing price for the Common Stock was
$1.31, and for the Warrants was $0.56.
The Company's Common Stock and Warrants are also listed for trading on the
Pacific Exchange under the symbols "ORYX" and "ORYXW," respectively. Prior to
June 6, 1994, the Company's Units were also traded on the Pacific Exchange, at
which time the Company requested withdrawal of the listing for the Units. On
May 20, 1998, the closing sales prices for the Common Stock and Warrants, as
reported on the Pacific Exchange were the same as on NASDAQ.
10
<PAGE>
As of April 30, 1998 the number of record holders of the Company's Common
Stock and Warrants were approximately 107 and 12, respectively.
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The Company is also substantially restricted from the
payment of dividends under the terms of its Underwriting Agreement with J.W.
Charles, Inc. Future dividend policy will depend on the Company's earnings,
capital requirements, expansion plans, financial condition and other relevant
factors as well as the possible need to obtain the consent of any of its
lenders, J. W. Charles and placement agents, for its recent private offerings.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION IN THE SECTION "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS" CONTAINS TREND
ANALYSIS AND OTHER FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF RISK FACTORS,
INCLUDING, WITHOUT LIMITATION, THOSE SET FORTH ABOVE IN THE SECTION "RISK
FACTORS."
BUSINESS SEGMENTS
Through fiscal year 1998, the Company operated in three main business
segments through its subsidiaries: Power Products, Instruments and Materials,
and SurgX. In addition, a corporate segment included certain activities that
were not directly related to any other operations. The businesses were
segregated and operated separately. As noted above in Part I, during fiscal
year 1998, the Company embarked upon a major restructuring program. This
resulted in the sale on February 27, 1998 of most of the Company's majority
interest in Oryx Instruments and Materials Corporation and the sale on March 2,
1998 of substantially all of the assets of Power Products Corporation. As part
of the sale of its majority position in Instruments and Materials, the Company
retained certain assets from Instruments and Materials relating to sputtering
targets assembly. Management believes that the effect of these steps was to
staunch the flow of losses of these subsidiaries to enable the Company to
concentrate on its ESD protection business.
<TABLE>
<CAPTION>
Segment/Subsidiary Businesses
------------------ ----------
<S> <C>
SurgX Corporation - Surge Protection Components
Oryx Instruments and Materials - Specialized Materials
Corporation Assemblies
- Contract R&D
- Instruments (Test Equipment):
Sold 2/27/98
Discontinued Operation:
Oryx Power Products - Power Conversion Products
Corporation - Contract Manufacturing
</TABLE>
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS
For the fiscal year ended February 28, 1998, revenues from continuing
operations increased $1,979,000 or 30.6% from $6,470,000 for the year ended
February 28, 1997 to $8,449,000 for the year ended February 28, 1998. The
growth in revenues was primarily attributable to increased shipments of the
TTS-2000 process monitoring tool and sputtering target assemblies. Due to the
sale of the Company's instruments business, revenue for the 1999 fiscal year
will primarily be derived from the sale of sputtering target assemblies. Due to
the downturn in the disk drive industry, fiscal year 1999 target assemblies
revenues are anticipated to be lower than fiscal year 1998 levels of $4,678,000.
The Company also anticipates that royalty revenue from its SurgX technology for
fiscal year 1999 will be minimal since volume shipments from its licensees will
not occur until the end of fiscal year 1999.
The Company's gross profit increased $350,000 or 18.8 % from $1,865,000 for
the fiscal year ended February 28, 1997 to $2,215,000 for the year ended
February 28, 1998. Cost of sales as a percentage of revenues increased to 73.8%
for the year ended February 28, 1998 from 71.2% for the fiscal year ended
February 28, 1997. The increase in gross profit for the year ended February 28,
1997 was primarily attributable to reductions in manufacturing start-up costs at
SurgX and increases in shipments of sputtering target assemblies.
Operating expenses for the fiscal year ended February 28, 1998 increased
$516,000 or 8.3% from $6,205,000 for the fiscal year ended February 28, 1997 to
$6,721,000. This increase was primarily attributable to the funding of a
development project to commercialize SurgTape-TM- for use in on-chip ESD
protection. Due to inconclusive development results and the lack of available
development funds from potential customers, the Company suspended this effort
during the middle of the fiscal year 1998. In addition, the Company undertook
further reductions in development expenditures at the end of the fiscal year
1998. These resulted primarily in reductions in head count and outside
consulting services.
11
<PAGE>
Marketing and selling expenses increased $32,000 or 2.9%, from $1,109,000
for the fiscal year ended February 28, 1997 to $1,141,000 for the year ended
February 28, 1998. This increase is attributable to applications development
associated with the TTS-2000 process monitoring tool. The Company expects
selling and marketing expenses to decrease dramatically during fiscal year 1999
since primarily all of the Company's sales and marketing activities will be
carried out by SurgX's licensees.
General and administrative expenses decreased $28,000 or 1% from
$2,939,000 for the fiscal year ended February 28, 1997 to $2,911,000 for the
year ended February 28, 1998. This decrease in general and administrative
expenses primarily reflects the Company's reduced use of outside consultants.
The Company anticipates further reductions in general and administrative costs
during fiscal year 1999 as the Company's new corporate structure will not
require the same level of general and administrative support.
Research and development expenses increased $512,000 or 23.7% from
$2,157,000 for the fiscal year ended February 28, 1997 to $2,669,000 for the
year ended February 28, 1998. The increase in expenses was attributable to
costs associated with attempts to commercialize SurgTape-TM- for on-chip ESD
protection. Since these efforts have been suspended, the Company expects
research and development expenditures to decrease significantly in fiscal year
1999. In fiscal year 1998, SurgX recognized development funding of $1,307,000
received from third parties to assist in the development and commercialization
of certain products, as an offset to its R&D expenses. This compares to
$1,107,000 of development funding recorded in fiscal year 1997. The Company
expects research and development expenses will be at lower levels in fiscal year
1999 than in fiscal 1998 due to the cancellation of the on-chip development
program and recent cost reductions in general development expenditures. However,
if development-funding contracts can be obtained, the Company will increase its
research and development efforts to focus on alternative uses and additional
market opportunities for the SurgX technology. SurgX is currently exploring
various funding opportunities, however, there can be no assurances that SurgX
will be able to secure additional development funding.
Net interest expense increased $360,000 from $10,000 of interest income for
the fiscal year ended February 28, 1997 to $350,000 of net interest expense for
the year ended February 28, 1998, or 3,600%. This increase consisted of
interest expense, loan origination fees and the fair market value of issued
warrants attributable to obligations under the Accounts Receivable Batch
Facility and Inventory Line of Credit executed May 1997 and the Bridge Loan
Facility executed in February 1998.
During fiscal year 1998, the Company recorded a $1,383,000 gain on the sale
of part of its equity investment in DAS Devices, Inc. versus a recorded loss
of $20,000 in fiscal year 1997. During fiscal year 1997, DAS Devices, Inc.
completed a plan of recapitalization under new management involving the sale of
additional securities which reduced the Company's ownership interest in DAS
Devices, Inc. from 40% to approximately 5% on a fully diluted basis. During
fiscal year 1998, the Company sold, to qualified private investors, 2,000,000
shares of its Series A Preferred Stock holdings in DAS Devices for $1,400,000.
As of February 28, 1998 the Company retained ownership of 2,000,000 shares of
Series A Preferred Stock and 800,000 shares of Common Stock of DAS Devices, Inc.
During the 1999 fiscal year, the Company anticipates that it will
experience additional operating losses. The Company anticipates that its
materials business segment operating profits will not cover the operating losses
of SurgX and corporate expenses although these expenses have been reduced. The
Company anticipates being profitable in fiscal year 2000 as royalty revenue from
its SurgX technology is expected to increase with its licensees shipping
SurgX-TM- discrete devices and connectors in volume. However, there can be no
assurances that the Company's licensees will be able to successfully launch
SurgX-TM- products, that certain technology enhancements by SurgX currently
under development, will be realized, or that target assemblies will not be
rendered obsolete as a result of the adoption of new technologies by customers.
SEGMENT RESULTS
SURGX CORPORATION
<TABLE>
<CAPTION>
February 28, February 28,
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 83 $ 36
Cost of sales 0 282
Operating Expenses 2,705 1,741
Development Funding* (1,307) (1,107)
------ ------
*(Offset against R &D)
Operating Income (Loss) $(1,315) $(880)
------ ------
------ ------
</TABLE>
Cost of sales for fiscal year ended February 28, 1997 represents the costs
associated with establishing and testing the manufacturing process to sell SurgX
material to Bussmann pursuant to a license agreement executed in fiscal year
1997 as well as the costs associated with the sale of specialized test
equipment. Since start-up manufacturing costs were incurred in fiscal year 1997,
and the Bussmann product launch was delayed until the beginning of fiscal year
1999, there were no costs of sales recorded in fiscal year 1998. The Company
anticipates at the present time that there will be minimal, if any, costs of
sale incurred in fiscal year 1999 attributable to SurgX-TM--based product.
12
<PAGE>
Operating expenses increased $964,000 or 55.4% from $1,741,000 for the
fiscal year ended February 28, 1997 to $2,705,000 for the year ended February
28, 1998. The increase in operating expenses primarily reflects the costs
associated with SurgX development efforts for on-chip ESD protection. As noted
above, this development project was suspended during the 1998 fiscal year.
During fiscal year 1998, SurgX received $1,307,000 in development funding from
third parties compared to $1,107,000 of such funding in fiscal year 1997, an
increase of $200,000 or 18.1%. Due to the higher level of research and
development expenses associated with the on-chip ESD protection program, the
loss from operations increased $435,000 or 49.4% from $880,000 for the fiscal
year ended February 28, 1997 to $1,315,000 for the fiscal year ended February
28, 1998. While SurgX is looking to its customers, or to potential joint venture
partners, to continue to fund development efforts, there can be no assurance
that those efforts will be successful. In the event that SurgX is unable to
secure additional development funding, there can be no assurance that the
current or proposed level of development efforts for fiscal year 1998 can
continue or that any product, other than the Bussmann product, will be made
commercially available.
ORYX INSTRUMENTS AND MATERIALS CORPORATION
On February 27, 1998, a third party acquired 8,000,000 shares of Class A
Common Stock of Oryx Instruments and Materials Corporation for a purchase price
of $500,000. As part of the sale transaction, Oryx Instruments and Materials
then redeemed 8,000,000 shares of the Company's 10,000,000 share holdings of
Class A Common Stock for an aggregate price of $1,500,000. Terms of the
8,000,000 share stock redemption include $500,000 paid on the closing, and
$333,000 payable on February 27,1999 and $667,000 payable on February 27, 2000,
memorialized via a promissory note and stock pledge agreement. As part of the
sale, Oryx Instruments & Materials distributed all the assets and liabilities of
the materials business segment and certain other assets to the Company. A
deferred gain of approximately $646,000 was recorded by the Company on this
transaction. As a result of the transaction, the Company has fully reserved its
remaining 19.9% ownership investment in Oryx Instruments and Materials at
February 28, 1998.
For segment reporting purposes, Oryx Instruments and Materials will be
split between the instruments business segment (sold February 1998) and the
materials business segment (on going).
Material Business Segment
- Specialized Materials
- Contract R&D
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, February 28,
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 4,678 $ 4,240
Cost of Sales 3,300 2,900
----- -----
Gross Profit 1,378 1,340
----- -----
Operating Income(Loss) $ 1,378 $ 1,340
----- -----
----- -----
</TABLE>
Revenues for fiscal year 1998 increased $438,000 or 10.3% to $4,678,000 for
the year ended February 28, 1998 from $4,240,000 for the year ended February
28, 1997. The increase in revenue was primarily attributable to growth in the
sputtering target assemblies business which experienced increased demand as the
hard disk drive industry expanded manufacturing capacity.
Gross profit increased $38,000 or 2.8% from $1,340,000 for the year ended
February 28, 1997 to $1,378,000 for the year ended February 28, 1998. The
improvement in gross profit was primarily due to increased revenues.
Because the hard disk drive industry is experiencing a cyclical downturn in
calendar year 1998, the Company expects that the results of operations for
sputtering target assemblies in fiscal year 1999 will be adversely affected and
consequently that its gross profits and gross profit margins are likely to
decline in fiscal year 1999.
Instruments Business Segment (sold February 27, 1998)
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, February 28,
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 3,688 $ 2,194
Cost of Sales 2,934 1,423
----- -----
Gross Profit 754 771
Operating Expenses 3,073 3,422
----- -----
Operating Income(Loss) $(2,319) $( 2,651)
----- -----
----- -----
</TABLE>
Revenues for fiscal year 1998 increased $1,494,000 or 68.1% to $3,688,000
for the year ended February 28, 1998 from $2,194,000 for the year ended February
28, 1997. The increase in revenue was primarily attributable to growth in sales
volume of the TTS-2000 process monitoring tool.
13
<PAGE>
Gross profit decreased $17,000 or 2.2% from $771,000 for the fiscal year
ended February 28, 1997 to $754,000 for the fiscal year ended February 28, 1998.
The decrease in gross profit was primarily due to higher manufacturing costs
associated with creating a manufacturing infrastructure to support increased
systems sales, higher material costs, and increased warranty expense.
Operating expenses decreased $349,000 or 10.2% to $3,073,000 for the fiscal
year ended February 28, 1998 from $3,422,000 for the year ended February 28,
1997. This decrease was primarily a result of reduced development expenses for
such items as prototype materials and outside consultants.
The loss from operations for the year decreased $332,000 or 12.5% from
$2,651,000 for the fiscal year ended February 28, 1997 to $2,319,000 for the
year ended February 28, 1998.
CORPORATE
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, February 28,
(dollars in thousands) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating Expenses $ 2,250 $ 2,149
----- -----
Operating Income(Loss) $(2,250) $(2,149)
----- -----
----- -----
</TABLE>
The increase in operating expenses and loss from corporate operations of
$101,000 or 4.7% from $2,149,000 for the fiscal year ended February 28, 1997 to
$2,250,000 for the fiscal year ended February 28, 1998 primarily relates to
one-time severance costs associated with changes in management personnel.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased $5,905,000 or 79.7% from a surplus
of $7,406,000 at February 28, 1997, to a surplus of $1,501,000 at February 28,
1998. The Company's ratio of current assets to current liabilities was 3.7:1 at
February 28, 1997, and 1.6:1 at February 28, 1998.
Net cash used in operations for the year the ended February 28, 1998 was
$4,513,000 consisting of $3,687,000 from continuing operations and $826,000 from
discontinued operations. Net cash used in operations consists primarily of
operating losses offset by an increase in accrued liabilities. Net cash used in
operations for the fiscal year ended February 28, 1997, was $4,394,000
consisting of $6,645,000 from continuing operations offset by $2,251,000 of
funds provided by discontinued operations.
Net cash provided by investing activities was $1,062,000 from the fiscal
year ended February 28, 1998, primarily attributable to the Company's sale of
securities of DAS Devices, Inc. Net cash used in investing activities was
$956,000 for the fiscal year ended 1997 and consisted primarily of capital
expenditures. The Company does not expect to have material capital expenditures
for the year ended February 28, 1999.
Net cash provided by financing activities was $1,784,000 for the fiscal
year ended February 28, 1998. Cash provided by financing activities was
primarily from the sale of securities in SurgX to Iriso, the Company's Japanese
partner, and the accounts receivable financing pursuant to the Accounts
Receivable Revolving Batch Facility. This represents a decline of $2,040,000 or
53.3% from the net cash raised through financing activities in fiscal 1997.
Net cash provided by financing activities for fiscal year ended February
28, 1997 was $3,824,000 primarily from the issuance of common stock. In the
fiscal year ended February 28, 1997, the Company raised additional capital of
$4,143,000, net of issuance costs of $681,000, pursuant to private placement
offerings in which it issued and sold an aggregate of 2.8 million shares of its
common stock to certain qualified institutional investors under Regulation S of
the Securities Act of 1933, as amended. In consideration for these offerings,
the Company also issued warrants to its placement agent to purchase 32,000
shares of common stock at $1.375 per share and 163,530 shares of Common stock at
$1.90 per share. In September 1996, the placement agent exercised 100,000
warrants issued in connection with prior Regulation S financings, resulting in
proceeds to the Company of $137,500. In September 1996, the Company's
underwriters in its initial public offering exercised 100,000 unit purchase
warrants resulting in net proceeds of $371,000. Subject to terms of the unit
purchase warrant, 200,000 common shares and 100,000 warrants to purchase 190,000
shares of common stock at $3.50 per warrant were issued to the underwriters. In
December 1996, the Company repurchased and retired from the underwriters the
remaining 223,961 unit purchase warrants for $475,000 and 40,000 warrants to
purchase 76,000 common shares at $3.50 per warrant.
In May 1997, the Company secured a $5,500,000 borrowing facility. The
facility includes an Accounts Receivable Revolving Batch Facility and an
Inventory Line of Credit. The Accounts Receivable Revolving Batch Facility
allows the Company to factor up to $4,000,000 in receivable balances, provided
that any amount in excess of $3,500,000 must be supported by an equal amount of
unused availability under the Inventory Line of Credit. The Inventory Line of
Credit allows the Company to borrow up to $1,500,000 ($750,000 of which is
subject to an inventory appraisal). In February 1998, the Company augmented its
borrowing facility to include a six-month
14
<PAGE>
bridge loan for an amount up to $1,000,000 (the "Bridge facility"). In
consideration for this Bridge facility, the Company issued a warrant to purchase
174,456 of the Company's common shares at $1.15 per share. In March 1998, the
borrowing facility was amended to reduce the accounts receivable, batch facility
and inventory credit line to a maximum borrowing of $500,000 each.
The Company believes that existing cash on hand will be sufficient to meet
its currently anticipated working capital requirements through fiscal year 1999.
However, in the event the Company fails to meet its fiscal year 1999 operating
plan, the Company will need to secure additional funding by selling assets,
raising additional equity, or taking other steps to obtain the financing
necessary to continue operations at their currently anticipated levels. If the
Company requires additional equity financing or attempts to raise capital
through an asset sale, there can be no assurance that such transactions can be
effected in time to meet the Company's needs, if at all, or that any such
transaction will be on terms acceptable to the Company or in the interest of its
stockholders.
YEAR 2000 ISSUE
The Company has commenced, for all of its information systems, a year 2000
date conversion project to address all necessary code changes, testing and
implementation. The "Year 2000 Computer Problem" creates risk for the Company
from unforeseen problems in its own computer systems and from third parties with
whom the Company deals on financial transactions worldwide. Such failures of
the Company's and/or third parties' computer systems could have a material
impact on the Company's ability to conduct its business, and especially to
process and account for the transfer of funds electronically. Management has
not yet assessed the year 2000 compliance expense and related potential effect
on the Company's earnings.
ORYX POWER PRODUCTS CORPORATION (Discontinued operations)
On March 7, 1998, Todd Power Corporation, a New York corporation, ("Todd")
acquired substantially all of the properties, assets, rights, business and
certain liabilities of Oryx Power Products Corporation ("Power Products") for a
purchase price of $2,000,000 in cash and a contingent additional amount of up to
$4,000,000 to be calculated based upon future sales of certain of Power
Products' specified products to certain named customers during the fourteen
month period immediately following the sale. See note 6 of the Consolidated
Financial Statements. The disposal of Power Products has been accounted for as a
discontinued operation and accordingly the net assets held for disposal and
operating results of Power Products were segregated and reported as discontinued
operations. As the Company has estimated a loss on disposal, all losses were
recognized as if the transaction was completed as of February 28, 1998. Prior
year financial statements have been restated to reflect the discontinuance of
the Power Products operations. Revenue from Power Products were $10,00,000 and
$20,390,000 for the years ended February 28, 1998 and 1997 respectively. Income
(loss) from discontinued operations, net of taxes, were $(3,666,000) and
$2,348,000 for the years ended February 28, 1998 and 1997, respectively.
Item 7. FINANCIAL STATEMENTS
The response to this item is submitted in a separate section of this
report.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference from the
information under the caption "Election of Directors," with respect to
Directors, and under the caption "Management," with respect to Executive
Officers, contained in the Company's definitive Proxy Statement which will be
filed with the Commission in connection with the solicitation of proxies for the
Company's 1998 Annual Meeting of Stockholders (the "Proxy Statement").
Item 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information under the caption "Executive Compensation" to be contained in the
Proxy Statement.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" to be contained in the Proxy Statement.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
15
<PAGE>
The information required by this item is incorporated by reference to the
information under the caption "Certain Transactions" to be contained in the
Proxy Statement.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND SCHEDULES
The financial statements listed on the index to financial statements on
page F-1 are filed as part of this Form 10-KSB.
(b) REPORTS ON FORM 8-K
The Company filed with the Commission two Reports on Form 8-K subsequent to
the fiscal quarter ended February 28, 1998. The first such Report was filed on
March 16, 1998 for the purpose of reporting the sale of a majority interest in
Oryx Instruments & Materials Corporation. The second such Report was filed on
March 23, 1998 for the purpose of reporting the sale of Oryx Power Products
Corporation.
(c) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
<S> <C>
3.1 Certificate of Incorporation of the Registrant dated July 26,
1993(1)
3.2 Bylaws of the Registrant dated July 26, 1993(1)
3.3 Certificate of Amendment to Certificate of Incorporation dated
July 23, 1993(1)
3.3A Certificate of Amendment of Certificate of Incorporation dated
February 7, 1996(4)
4.1 Specimen Common Stock Certificate(1)
4.2 Specimen Common Stock Purchase Warrant(1)
4.3 Warrant Agency Agreement including Statement of Rights, Terms and
Conditions for Callable Stock Purchase Warrants(2)
4.4 Incentive and Nonqualified Stock Option Plan, as Amended(5)
4.4A 1996 Directors Stock Option Plan(5)
4.5 Form of Promissory Note issued to Series A Preferred Stock
investors(1)
4.6 Unit Purchase Warrant(1)
4.7 Form of Warrants issued to Yorkton Securities, Inc. in December
1996 and February 1997(7)
10.1 Lease Agreement with Renco Investment Company re: Fremont,
California office, a laboratory and manufacturing facility(1)
10.2 Lease Agreement with FINSA re: Reynosa, Mexico, manufacturing
facility(3)
10.3 Lease Agreement with Greer Enterprises re: Fremont, California
manufacturing facility(3)
10.4 Lease Agreement with Hospitak/Meditron re: McAllen, Texas,
warehouse facility(3)
10.5 Lease Agreement with Security Capital Industrial Trust re:
Fremont, California manufacturing facility(4)
10.6 Lease Agreement with OTR, State Teachers Retirement System of
Ohio re: Mt. Prospect, Illinois office(4)
10.7 Lease Agreement with E.B.J. Partners LP re: Fremont, California
office and manufacturing facility(11)
10.8 Letter of Separation Agreement with Andrew Wilson(11)
10.9 Letter of Employment Agreement with Mitchel Underseth(11)
10.10 Letter of Employment Agreement with Philip Micciche(11)
10.11 Letter of Employment and Non-Competition Agreement with Andrew
Intrater(1)
10.12 Agreement for the Purchase and Sale of Stock with Intek
Diversified Corporation(1)
10.13 Asset Purchase Agreement with Zenith Electronics Corporation(1)
10.14 Promissory Notes issued in interim debt financing(1)
10.15 Common Stock Purchase Warrants issued in interim debt
financing(3)
10.16 Placement Agency Agreement between the Company and Yorkton
Securities, Inc. dated February 8, 1996, as amended April 22,
1996(4)
10.17 Form of Subscription Agreement between the Company and various
investors in Yorkton Private Placement dated February 29, 1996
and May 13, 1996(4)
10.18 Offering Memorandum dated February 8, 1996 and Supplement thereto
dated April 22, 1996, relating to Yorkton private placement(4)
10.19 Settlement Agreement between the Company and Zenith Electronics
Corporation dated February 29, 1996, as amended April 16,
1996(4)
10.20 Agreement between the Company and Bussmann dated July, 1996(11)
10.21 Agreement between the Company and National Semiconductor dated
June 7, 1996(11)
10.22 Agreement between the Company and LSI Logic dated September 30,
1996(11)
10.23 Agency Agreement between the Company and Yorkton Securities, Inc.
dated December 4, 1996, as amended January 23, 1997(7)
10.24 Form of Subscription Agreement between the Company and various
investors in Yorkton Private Placement dated December 4, 1996(8)
16
<PAGE>
10.25 Asset Purchase Agreement relating to the acquisition of Power
Sensors Corporation by Oryx Power Products Corporation dated
December 19, 1996(6)
10.26 Stock Purchase and Reorganization Agreement by and among the
Company, Corus Investment, Ltd. and Oryx Instruments and
Materials Corporation Dated February 27, 1998(9)
10.27 Stockholders' Agreement Dated February 27, 1998(9)
10.28 Pledge Agreement Dated February 27, 1998(9)
10.29 Promissory Note Dated February 27, 1998(9)
10.30 Asset Purchase Agreement by and among the Registrant, Todd Power
Corporation and Oryx Power Products Corporation Dated March 2,
1998(10)
10.31 License Agreement with Iriso Electronics Limited*+
10.32 Stock Purchase Agreement with Iriso Electronics Limited*
10.33 Agreement with Office of Naval Research*
10.34 Das Devices Inc. Preferred Stock Purchase Agreement*
10.35 Arvind Patel Separation Agreement*
10.36 Amended Bussmann License Agreement*
10.37 Revolving Account Transfer and Purchase Agreement*+
10.38 First Amendment to Loan Agreement*+
10.39 Revolving Credit Promissory Note*+
10.40 Second Amendment to Loan Agreement*+
21 Subsidiaries of the Registrant(4)
23 Consent of Independent Accountants*
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule
27.3 Restated Financial Data Schedule
</TABLE>
* Filed herewith.
+ Confidential treatment has been requested with respect to certain portions
of these Exhibits. Such portions have been omitted from this filing and
have been filed separately with the Securities and Exchange Commission.
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (Registration No. 33-72104) which became effective on April 6,
1994 and is incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 27, 1995.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1995.
(4) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB (as Amended) for the fiscal year ended February 29, 1996.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8 (Registration No. 333-13887) filed with the Commission on October
10, 1996 and is incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on January 3, 1997.
(7) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on February 21, 1997.
(8) Previously filed as an exhibit to the Company's Registration Statement on
Form S-3 Registration No. 333-23317) which became effective on March 31,
1997 and is incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 16, 1998.
(10) Previously filed as an exhibit to the Company's Current Report on Form 8-K
filed with the Commission on March 23, 1998.
(11) Previously filed as an exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended February 28, 1997.
17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned thereunto duly
authorized on this 28th day of May, 1998.
ORYX TECHNOLOGY CORP.
By: /s/ Philip J. Micciche
----------------------
Philip J. Micciche,
President & CEO
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant, and in the capacities and on
the date indicated.
Signature Title Date
- --------- ----- ----
President, CEO
/s/ Philip J. Micciche and Director May 29, 1998
- ----------------------
Philip J. Micciche
Secretary, Treasurer May 29, 1998
/s/ Andrew Intrater and Director
- ----------------------
Andrew Intrater
Chief Financial May 29, 1998
/s/ Mitchel Underseth Officer and Director
- ----------------------
Mitchel Underseth
/s/ John H. Abeles Director May 29, 1998
- ----------------------
John H. Abeles
(signatures continued next page)
18
<PAGE>
(signatures continued from previous page)
Signature Title Date
- --------- ----- ----
/s/ Jay M. Haft Director May 29, 1998
- ----------------------
Jay M. Haft
/s/ Richard Hubbard Director May 29, 1998
- ----------------------
Richard Hubbard
/s/ Doug McBurnie Director May 29, 1998
- ----------------------
Doug McBurnie
/s/ Ted D. Morgan Director May 29, 1998
- ----------------------
Ted D. Morgan
19
<PAGE>
ORYX TECHNOLOGY CORP.
Index to Consolidated Financial Statements
February 28, 1998 and February 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet at February 28, 1998
and 1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statement of Operations for the
years ended February 28, 1998 and 1997. . . . . . . . . . . . . . . F-4
Consolidated Statement of Stockholders' Equity for the
years ended February 28, 1998 and 1997. . . . . . . . . . . . . . . F-5
Consolidated Statement of Cash Flows for the
years ended February 28, 1997 and 1997. . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Oryx Technology Corp.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Oryx
Technology Corp. and its subsidiaries at February 28, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
San Jose, California
May 22, 1998
F-2
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 722,000 $ 2,389,000
Accounts receivable, net of allowance for doubtful
accounts of $93,000 and $60,000 1,100,000 1,617,000
Inventories 397,000 2,132,000
Other current assets 670,000 73,000
Net assets of discontinued operations 1,060,000 3,900,000
------------ -------------
Total current assets 3,949,000 10,111,000
Property and equipment, net 490,000 1,200,000
Other assets 1,114,000 226,000
------------ -------------
$ 5,553,000 $ 11,537,000
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings $ 129,000 $ -
Capital lease obligations 16,000 38,000
Deferred revenue 874,000 450,000
Accounts payable 431,000 1,317,000
Accrued liabilities 998,000 900,000
------------ -------------
Total current liabilities 2,448,000 2,705,000
Deferred gain (Note 5) 646,000 -
Capital lease obligations, less current portion 12,000 35,000
------------ -------------
Total liabilities 3,106,000 2,740,000
------------ -------------
Commitments and contingencies (Notes 1 and 13)
Stockholders' equity:
Series A 2% Convertible Cumulative Preferred Stock,
$0.001 par value; 3,000,000 shares authorized;
4,500 shares issued and outstanding,
liquidation value $113,000 107,000 107,000
Common Stock, $0.001 par value; 25,000,000 shares
authorized; 13,124,821 and 12,961,692 issued
and outstanding 13,000 13,000
Additional paid-in capital 19,711,000 18,920,000
Accumulated deficit (17,384,000) (10,243,000)
------------ -------------
Total stockholders' equity 2,447,000 8,797,000
------------ -------------
$ 5,553,000 $ 11,537,000
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Net revenue $ 8,449,000 $ 6,470,000
Cost of sales 6,234,000 4,605,000
------------ ------------
Gross profit 2,215,000 1,865,000
------------ ------------
Operating expenses:
Marketing and selling 1,141,000 1,109,000
General and administrative 2,911,000 2,939,000
Research and development 2,669,000 2,157,000
------------ ------------
Total operating expenses 6,721,000 6,205,000
------------ ------------
Loss from operations (4,506,000) (4,340,000)
Interest income (expense), net (350,000) 10,000
Equity in loss of investee - (20,000)
Net gain on sales of investment 1,383,000 -
------------ ------------
Loss from continuing operations (3,473,000) (4,350,000)
Discontinued operations:
Income (loss) from discontinued operations (3,588,000) 2,348,000
Loss on disposal of discontinued operations (78,000) -
------------ ------------
Income (loss) from discontinued operations (3,666,000) 2,348,000
------------ ------------
Net loss (7,139,000) (2,002,000)
Dividends (2,000) (10,000)
------------ ------------
Net loss attributable to Common Stock $ (7,141,000) $ (2,012,000)
------------ ------------
------------ ------------
Basic and diluted loss per common share from continuing operations $ (0.26) $ (0.41)
Basic and diluted income (loss) per common share from discontinued
operations (0.28) 0.22
------------ ------------
Basic and diluted net loss per common share (Note 2 ) $ (0.54) $ (0.19)
------------ ------------
------------ ------------
Weighted average common shares used to compute
basic and diluted net loss per share (Note 2 ) 13,105,000 10,650,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Statement of Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SERIES A 2%
CONVERTIBLE CUMULATIVE ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 29, 1996 34,875 $ 832,000 9,228,668 $ 9,000 $ 13,629,000 $ (8,231,000) $ 6,239,000
Issuance of Common Stock and warrants
in private placements, net of issuance
costs of $681,000 - - 2,836,130 4,000 4,139,000 - 4,143,000
Issuance of Common Stock upon exercise
of options - - 187,318 - 230,000 - 230,000
Issuance of Common Stock upon exercise
of warrants - - 349,590 - 599,000 - 599,000
Issuance of warrants in exchange for
services - - - - 60,000 - 60,000
Repurchase of underwriter units - - - - (475,000) - (475,000)
Conversion of Preferred Stock to Common
Stock (30,375) (725,000) 366,875 - 738,000 - 13,000
Net Loss - - - - - (2,002,000) (2,002,000)
Preferred Stock dividend - - - - - (10,000) (10,000)
------- --------- ---------- -------- ------------ ------------ -----------
Balance at February 28, 1997 4,500 107,000 12,968,581 13,000 18,920,000 (10,243,000) 8,797,000
Proceeds from SurgX Corporation
subsidiary stock sale, net of issuance
costs of $15,000 - - - - 485,000 - 485,000
Issuance of Common Stock upon exercise
of warrants - - 156,240 - 213,000 - 213,000
Issuance of warrants in exchange for
financing services - - - - 93,000 - 93,000
Net Loss - - - - - (7,139,000) (7,139,000)
Preferred Stock dividend - - - - - (2,000) (2,000)
------- --------- ---------- -------- ------------ ------------ -----------
Balance at February 28, 1998 4,500 $ 107,000 13,124,821 $ 13,000 $ 19,711,000 $(17,384,000) $ 2,447,000
------- --------- ---------- -------- ------------ ------------ -----------
------- --------- ---------- -------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ORYX TECHNOLOGY CORP.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,139,000) $ (2,002,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss (income) from discontinued operations 3,666,000 (2,348,000)
Equity in loss of investee - 20,000
Gain on sale of investment (1,383,000) -
Value of warrants issued for services and debt issuance 93,000 60,000
Depreciation and amortization 458,000 248,000
Changes in assets and liabilities (net of effects from disposal of
subsidiaries):
Accounts receivable (483,000) (877,000)
Inventories 548,000 (1,546,000)
Other current assets (148,000) 105,000
Other assets 20,000 14,000
Deferred revenue 609,000 117,000
Accounts payable (622,000) (862,000)
Accrued liabilities 694,000 426,000
------------- -------------
Net cash used in continuing operating activities (3,687,000) (6,645,000)
Net cash provided by (used in) discontinued operations (826,000) 2,251,000
------------- -------------
Net cash used in operations (4,513,000) (4,394,000)
------------- -------------
Cash flows from investing activities:
Capital expenditures (321,000) (931,000)
Investment in development stage company - (25,000)
Net proceeds from sale of an investment 1,383,000 -
------------- -------------
Net cash provided by (used in) investing activities 1,062,000 (956,000)
------------- -------------
Cash flows from financing activities:
Accounts receivable financing 1,000,000 -
Borrowings from (repayment of) bank line of credit 129,000 (352,000)
Repayment of notes payable - (400,000)
Payment of capital lease obligations (38,000) (21,000)
Proceeds from sale of minority interest in SurgX Corp. 485,000 -
Proceeds from issuance of Common Stock and warrants, net - 4,143,000
Proceeds from exercise of options for Common Stock - 243,000
Proceeds from exercise of warrants for Common Stock 213,000 599,000
Repurchase of underwriter units - (475,000)
Payment of preferred stock dividend (2,000) (10,000)
Other (3,000) 97,000
------------- -------------
Net cash provided by financing activities 1,784,000 3,824,000
------------- -------------
Net decrease in cash and cash equivalents (1,667,000) (1,526,000)
Cash and cash equivalents at beginning of period 2,389,000 3,915,000
------------- -------------
Cash and cash equivalents at end of period $ 722,000 $ 2,389,000
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 298,000 $ 50,000
------------- -------------
------------- -------------
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital lease obligations $ 8,000 $ 54,000
------------- -------------
------------- -------------
</TABLE>
F-6
<PAGE>
Oryx Technology Corp.
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------------------
1. THE COMPANY
Oryx Technology Corp. ("Oryx" or the "Company"), a Delaware corporation,
and its subsidiaries manufacture assemblies used in the production of
computer memory disks, electromagnets, electrostatic discharge test
equipment, secondary ion mass spectrometer measurement devices, and are
developing products that provide electrostatic discharge protection.
In April 1994, the Company completed an initial public offering of 2.2
million shares of Common Stock which resulted in proceeds to the Company of
approximately $6.0 million, net of issuance costs of approximately $1.7
million. Since its initial public offering, the Company has completed a
number of private placement sales of its Common Stock. Common Stock sold
in private placement offerings during fiscal years 1997, 1996 and 1995
totaled approximately 2.8 million shares, 4.8 million shares and 0.9
million shares and resulted in net proceeds of $4,143,000, $4,759,000 and
$575,000, respectively.
The Company's cumulative losses and cash used in fiscal 1998 operations
result in uncertainty about the Company's future viability. However,
management believes the recent restructuring, the sale of a portion of the
Instruments and Materials business (see Note 5), and the sale of Oryx Power
Product Corporation ("Power Products") (see Note 6) will significantly
reduce operating losses, and the net proceeds generated from these
transactions and outstanding credit facilities will enable the Company to
continue as a going concern through February 28, 1999.
MANAGEMENT ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company's fiscal year ends on the last day of February. The year ended
February 28, 1998 is referred to as fiscal 1998.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Oryx
Technology Corporation and its wholly owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated.
F-7
<PAGE>
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with an original
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to ten years. Leasehold improvements are amortized using
the straight-line method over the shorter of the lease term or the
estimated useful lives of the assets. The Company periodically reviews the
recovery of property and equipment based upon estimated cash flows.
INTANGIBLE ASSETS
The cost of intangible assets is amortized using the straight line method
over the estimated useful lives of the assets, seventeen years for patents
and seven years for goodwill and purchased technology. The Company
periodically reviews recoverability of intangible assets based upon
estimated future cash flows. Intangible assets have been included in net
assets of discontinued operations.
EQUITY IN DAS DEVICE INC.
The fiscal 1997 consolidated statements of operations include charges of
$20,000 for the equity in net loss of an investee accounted for on the
equity method. As a result of additional outside investors in the
investee's common stock during fiscal 1997, the Company's net ownership in
the investee was reduced from 40% to less than 5%. As a result of this
reduction, the Company's investment was accounted for using the cost method
for the year ended February 28, 1998. In fiscal 1998, the Company sold 42%
of its holdings in DAS Device Inc. and realized a gain of $1,383,000.
REVENUE RECOGNITION
Revenues are generally recognized upon shipment of product. However, where
a shipment is subject to customer acceptance criteria, revenue is deferred
until customer acceptance. Revenue from research contracts in process is
recognized under the percentage of completion method.
INCOME TAXES
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The benefits from utilization of net operating loss
carryforwards will be reflected as part of the income tax provision if and
when realizable.
F-8
<PAGE>
NET LOSS PER SHARE
Basic earnings per share is computed by dividing loss available to common
stockholders by the weighted average common shares outstanding for the
period. Diluted earnings per share reflects the weighted average common
shares outstanding plus the potential effect of dilutive securities which
are convertible to common shares such as option, warrants, and preferred
stock. Due to the net losses from continuing operations incurred in fiscal
1998 and 1997, all common stock equivalents outstanding were considered
anti dilutive and were excluded from the calculations of diluted net loss
per share. No adjustments were made to net loss attributable to common
stock in the calculation of basic or diluted earnings per share in fiscal
1998 or 1997. Anti dilutive securities and common stock equivalents at
February 28, 1998 which could be dilutive in future periods include common
stock options to purchase 2,562,000 shares of common stock, warrants to
purchase 4,224,000 shares of common stock, 4,500 shares of Series A
preferred stock which may be converted into 53,000 shares of common stock
and the minority interest investment and subsidiary stock options to
purchase 304,000 shares in the Company's SurgX subsidiary which could
reduce the Company's share of profits in the calculation of earnings per
share in future periods.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130 ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
establishes standards for reporting and display of comprehensive income and
its components in a financial statement that is displayed with the same
prominence as other financial statements for the periods beginning after
December 15, 1997. Comprehensive income, as defined, includes all changes
in equity (net assets) during a period from nonowner sources including
unrealized gains and losses an available-for-sale securities.
Reclassification of financial statements for earlier periods for
comparative purposes is required. The Company will adopt SFAS 130 beginning
in fiscal 1999 and does not expect such adoption to have a material effect
on the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131 ("SFAS 131"), "Disclosure about
Segments of and Enterprise and Related Information." This statement
establishes standards for the way companies report information about
operations segments in annual financial statements for the periods
beginning after December 15, 1997. It also establishes standards for
related disclosures about products and services, geographic areas, and
major customers. It is not expected that adoption of SFAS 131 will have an
impact to the Company's consolidated financial statements.
F-9
<PAGE>
3. DETAILS OF BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Inventories:
Raw materials $ 84,000 $ 1,211,000
Work-in-progress - 153,000
Finished goods 313,000 768,000
--------- -----------
$ 397,000 $ 2,132,000
--------- -----------
--------- -----------
Property and equipment:
Machinery and equipment $ 459,000 $ 852,000
Furniture and fixtures 225,000 759,000
Automobiles 11,000 11,000
Leasehold improvements 105,000 225,000
--------- -----------
800,000 1,847,000
Less: Accumulated depreciation (310,000) (647,000)
--------- -----------
$ 490,000 $ 1,200,000
--------- -----------
--------- -----------
Accrued liabilities:
Compensation $ 316,000 $ 205,000
Professional fees 199,000 203,000
Warranty - 150,000
Facilities 31,000 72,000
Disposal related costs 138,000 -
Other 314,000 270,000
--------- -----------
$ 998,000 $ 900,000
--------- -----------
--------- -----------
</TABLE>
F-10
<PAGE>
4. ACQUISITION OF POWER SENSORS CORPORATION
In December 1996, the Company acquired certain assets and assumed certain
liabilities of Power Sensors Corporation ("PSC") in exchange for 600,000
shares of Class A Common Stock of Oryx Power Products Corporation, a
wholly-owned subsidiary of the Company. The stock issued represented
approximately 6% of the outstanding stock of Power Products at February 28,
1997. The acquisition was accounted for as a purchase; accordingly, the
purchase price and costs of the acquisition were allocated to the assets
and liabilities acquired based upon their estimated fair market values at
the date of acquisition as follows:
<TABLE>
<S> <C>
Current assets $ 338,000
Furniture and equipment 300,000
Research and development in process 670,000
Purchased technology 340,000
Goodwill 355,000
----------
Total assets 2,003,000
----------
Accounts payable and accrued liabilities 460,000
Capital lease assumed 268,000
Bank loans assumed 555,000
----------
Total liabilities 1,283,000
----------
Total purchase price $ 720,000
----------
----------
</TABLE>
The total purchase price was derived based on the estimated fair value of
the stock issued of $600,000 and acquisition expenses of $120,000. The
agreement allowed the holders of such stock, under certain conditions, on
the three year anniversary of the acquisition to require the Company to
redeem the stock issued for a promissory note of $1.5 million payable in
equal annual installments over four years commencing in the year 2000.
Accordingly, the stock was accounted for as mandatorily redeemable
securities at estimated fair value and accretes up to the redemption value
in accordance with the terms of the agreement. In connection with the
disposal of Power Products (see Note 6) the stock balance was included in
net assets from discontinued operations and the accretion of redemption
value in the amount of $189,000 and $37,000 for the years ended February
28, 1998 and 1997, respectively, were included in income (loss) from
discontinued operations.
On March 2, 1998, the Company disposed of Power Products, and accordingly,
the results of PSC as well as Power Products have been accounted for as a
discontinued operation (see Note 6).
F-11
<PAGE>
5. DISPOSITION
On February 27, 1998, a third party acquired 8,000,000 newly issued shares
of the authorized Class A Common Stock of Oryx Instruments and Materials
Corporation ("I&M") from I&M in exchange for $500,000 in cash (the "Sale").
Prior to the Sale, I&M was essentially a wholly owned subsidiary of the
Company.
As part of the Sale, I&M repurchased 8,000,000 of the 10,000,000 shares of
Class A Common Stock held by the Company for an aggregate redemption price
of $1,500,000 payable $500,000 in cash and a $1,000,000 in a non-interest
bearing note (the "Note Receivable"). The Note Receivable balance is
payable one-third on February 27, 1999 and two-thirds on February 27, 2000.
The transaction resulted in a gain of $646,000 for the Company, which is
being deferred until receipt of payments under the Note Receivable. As a
result of the transaction, the Company has fully reserved its remaining
19.9% ownership investment in I&M at February 28, 1998. The Note Receivable
is included in other assets at February 28, 1998.
Immediately prior to the repurchase, I&M distributed to the Company
substantially all of the assets and liabilities comprising the materials
business previously conducted by I&M as well as certain other assets. Net
assets retained by the Company totaled $1,300,000. Revenues from the sold
Instruments portion of I&M were $3,688,000 and $2,194,000 for the years
ended February 28, 1998 and 1997, respectively.
6. DISCONTINUED OPERATIONS
On March 2, 1998, the Company sold substantially all of the properties,
assets, rights, business and certain liabilities of Oryx Power Products
Corporation ("Power Products") for $2,000,000 in cash and a contingent
additional amount up to $4,000,000 to be calculated based upon sales of
certain specified products to specified customers during the fourteen month
period immediately following the closing of the transaction. The disposal
of Power Products has been accounted for as a discontinued operation and
accordingly the net assets held for disposal and operating results of Power
Products were segregated and reported as discontinued operations. As the
Company has estimated a loss on disposal, all losses were recognized as if
the transaction was completed as of February 28, 1998. Prior year financial
statements have been restated to reflect the discontinuance of the Power
Products operations. Revenue from Power Products were $10,022,000 and
$20,390,000 for the years ended February 28, 1998 and 1997, respectively.
F-12
<PAGE>
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Cash $ 13,000 $ 691,000
Accounts receivable 228,000 1,840,000
Inventory 2,571,000 2,663,000
Other current assets 95,000 98,000
---------- ----------
Current Assets 2,907,000 5,292,000
Property & equipment, net 1,158,000 1,474,000
Non current assets 632,000 909,000
---------- ----------
Total assets 4,697,000 7,675,000
Current liabilities (2,567,000) (2,284,000)
Non current liabilities ( 245,000) ( 854,000)
Mandatorily redeemable securities ( 825,000) ( 637,000)
---------- ----------
Total liabilities (3,637,000) (3,775,000)
---------- ----------
Net assets of discontinued operations $ 1,060,000 $ 3,900,000
----------- -----------
----------- -----------
</TABLE>
Income (loss) from discontinued operations are net of income taxes of
$25,000 and $40,000 for the years ended February 28, 1998 and 1997,
respectively. The tax benefit resulting from the loss on disposal of Power
Products was immaterial. Transaction costs related to the disposal were
$1,018,000.
7. FINANCING ARRANGEMENTS
On December 4, 1996, the Company entered into a credit facility with a
financial institution for borrowings of $530,000 bearing interest at 10.5%.
The credit facility is payable over 48 monthly payments of principal and
interest and is collaterized by specified manufacturing equipment. At
February 28, 1998, the Company had borrowings outstanding of $360,000 under
this facility which was included in net assets of discontinued operations.
At February 28, 1997, the Company had outstanding borrowings of $530,000
under a loan assumed in connection with PSC acquisition. The loan was
collaterized by business assets of the Company. During the year ended
February 28, 1998, the Company paid off the entire balance of this loan.
F-13
<PAGE>
In May 1997, the Company entered into a facility which included an Accounts
Receivable Revolving Batch Facility and an Inventory Line of Credit with a
financial institution. The Inventory Line of Credit provides for
borrowings of up to $1.5 million ($750,000 of which is subject to an
inventory appraisal). The Accounts Receivable Revolving Batch Facility
allows the Company to factor up to a maximum of $4 million, provided that
any amount in excess of $3.5 million is supported by an equal amount of
unused availability under the Inventory Line of Credit. Under the
facility, the Company is required to sell on an undiscounted, non recourse
basis all accounts receivable. In exchange, advances are available to the
Company up to 85% of the face amount of eligible accounts receivable (as
defined) up to a maximum amount of $4 million. Accounts receivable in the
amount of $1,100,000 at February 28, 1998 were due from lender. Financing
costs under the arrangement are equal to the greater of the institution's
base rate plus 1.25% or 7.0%. In March 1998, the agreement was amended to
reduce the Account Receivable Revolving Batch Facility and the Inventory
Credit Line to a maximum borrowings of $500,000 each. Under the amended
agreement, the Accounts Receivable Revolving Batch Facility expires in
March 1999 and the Inventory Line of Credit expires in May 1999.
At February 28, 1998, the Company had borrowings outstanding of $465,000
under the Inventory Line of Credit, of which $336,000 was included in net
assets of discontinued operations, and advances of $1,691,000 under the
Accounts Receivable Revolving Batch Facility, of which $691,000 related to
discontinued operations.
In February 1998, the Company entered into a bridge loan facility with a
financial institution for borrowings of amounts up to $1,000,000 bearing
interest at the institution's base rate plus 4% with a minimum of 7% per
annum. The facility expires on September 15, 1998. As consideration upon
signing the facility, the financial institution received warrants to
purchase 174,546 shares of common stock exercisable through February 2001
at an exercise price of $1.15. The Company recorded an expense of $93,000
upon issuance of the warrants. At February 28, 1998, there were no
borrowings under this credit facility.
8. SERIES A 2% CONVERTIBLE CUMULATIVE PREFERRED STOCK
The Company has authorized 3,000,000 shares of Preferred Stock with a par
value of $0.001 per share of which 45,000 of such shares are designated
Series A 2% Convertible Cumulative Preferred Stock (the Series A Stock).
Each share of Series A Stock may be converted, at the option of the holder,
into approximately 11.67 shares of Common Stock. As of February 28, 1998,
the Company had reserved 52,515 shares of Common Stock for issuance upon
conversion of the Series A Stock. The holders of Series A Stock are
entitled to receive a cumulative dividend of $0.50 per share per annum,
subject to any restrictions imposed by the Delaware General Corporation
Law. The dividend is payable semi-annually. In the event of
F-14
<PAGE>
liquidation and to the extent assets are available, the holders of the
Series A Stock are entitled to a liquidation preference distribution of
$25.00 per
share plus accrued but unpaid dividends. Each share of the Series A Stock
is entitled to one vote per share on all matters submitted to a vote of
stockholders of the Company.
9. STOCK PLANS AND WARRANTS
ORYX STOCK PLANS
In March 1993, the Company adopted the Incentive and Nonqualified Stock
Option Plan (the "1993 Plan"). The 1993 Plan, which expires in 2003,
provides for incentive as well as nonstatutory stock options. The Board of
Directors may terminate the 1993 Plan at any time at its discretion.
Options under the 1993 Plan are granted at prices determined by the Board
of Directors, subject to certain conditions. Generally, these conditions
require that the exercise price of options granted may not be below 110%
for persons owning more than 10% of the Company's capital stock and 100%
for options issued to other persons for incentive options, or 85% of the
fair market value of the stock at the date of grant for non statutory
options. Options granted to persons owning more than 10% of the Company's
capital stock may not have a term in excess of five years, and all other
options must expire within ten years. Options vest over a period
determined by the Board of Directors, generally four years, and are
adjusted pro rata for any changes in the capitalization of the Company,
such as stock splits and stock dividends.
In 1995 and 1996, the Company adopted the 1995 and 1996 Directors Stock
Option Plan (the "Directors' Plans"). The 1995 and 1996 Directors' Plan,
which expires in 2005 and 2006, respectively, provide for nonstatutory
stock options to be granted to nonemployee directors of the Company. The
Board of Directors may terminate the Directors' Plans at anytime at its
discretion. Options under the Directors' Plans are granted at prices
determined by the Board of Directors, subject to certain conditions more
fully described in the Directors' Plans. Generally, these conditions
require that the exercise price of options granted may not be below 110%
for persons owning more than 10% of the Company's capital stock and 100%
for options issued to other persons of the fair market valve of the stock
at the date of grant. Options must expire within ten years of grant. The
1995 and 1996 Directors' Plan provides that each nonemployee director
receive options to purchase 45,000 and 30,000 shares, respectively, of the
Company's Common Stock with 15,000 and 10,000, respectively, vested and
exercisable upon grant with the remainder vesting in equal annual
installments over a three year period. The Company has 225,000 shares
authorized under the 1995 Directors' Plan of which 195,000 options were
outstanding with an average exercise price of $1.56 per share as of
February 28, 1998. The Company has 120,000 shares authorized under the
1996
F-15
<PAGE>
Directors' Plan of which 90,000 options were outstanding with an average
exercise price of $1.77 per share as of February 28, 1998.
A summary of stock option activity under the 1993 Plan and the Directors'
Plans is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------
WEIGHTED-
SHARES AVERAGE
AVAILABLE EXERCISE
FOR PRICE
GRANT SHARES PER SHARE
<S> <C> <C> <C>
Balance at February 28, 1996 608,382 738,618 $1.54
Additional shares authorized 620,000 - -
Options granted (786,500) 786,500 $1.94
Options canceled 143,253 (143,253) $1.90
Options exercised - (187,318) $1.22
--------- ----------
Balance at February 28, 1997 585,135 1,194,547 $1.81
Additional shares authorized 1,000,000 - -
Options granted (1,530,000) 1,530,000 $1.54
Options canceled 162,621 (162,621) $1.96
Options exercised - - -
--------- ----------
Balance at February 28, 1998 217,756 2,561,926 $1.64
--------- ----------
--------- ----------
</TABLE>
The following table summarizes information about employee stock options
outstanding at February 28, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
WEIGHTED-AVERAGE
REMAINING WEIGHTED- WEIGHTED-
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - 1.38 911,040 8.3 $ 1.27 273,589 $ 1.14
$1.58 - 2.25 1,625,886 8.5 1.82 627,458 1.95
$2.38 - 3.00 25,000 6.2 2.95 18,770 2.95
--------- --------
Total 2,561,926 8.4 $ 1.64 919,817 $ 1.73
--------- --------
--------- --------
</TABLE>
F-16
<PAGE>
FAIR VALUE DISCLOSURES
Had compensation cost for the Plans been determined based on the fair value
of each stock option on its grant date, as prescribed in SFAS 123, the
Company's net loss and net loss per share in fiscal 1998 would have been
$7,491,000 and $0.57, respectively, and in fiscal 1997 would have been
$2,395,000 and $0.22, respectively.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants during the applicable period: dividend yields
of 0% for both periods; expected volatility of 77% for fiscal 1998 and 60%
for fiscal 1997; risk-free interest rate of 6.10% for fiscal 1998 and 6.29%
for fiscal 1997 for options granted; and a weighted average expected option
term of five years for both periods. The weighted average fair value of
options granted during fiscal years 1998 and 1997 was $0.87 and $0.73,
respectively. The weighted average fair value of options to purchase
common shares of the Company's subsidiaries were not material during fiscal
years 1998 and 1997.
SUBSIDIARY STOCK PLAN
In November 1995, the Company's subsidiary, SurgX Corporation, adopted
stock option plans under which the Board of Directors granted options to
management to purchase Class B common shares in the subsidiary at their
fair market values as determined by the Board of Directors. Class B common
shares authorized for issuance in the subsidiary are identical to the ten
million shares of Class A common shares owned by the Company, except the
Class A shares possess a liquidation preference. The Board of Directors
authorized 1.5 million shares of Class B common shares to be available for
issuance under this stock plan. Such options are not transferable except
in the event of a public offering of the subsidiary's stock or an
acquisition of the subsidiary, and may be repurchased by the Company at its
option. Grants under the plan are for amounts, vesting periods and option
terms established by the Company's Board of Directors. The Company's
ownership percentage of this subsidiary will change as a result of future
exercises of stock options and, to the extent this subsidiary contributes
profits, outstanding subsidiary stock options may dilute the Company's
share of profits in the calculation of earnings per share.
At February 28, 1998, there were 304,000 options to purchase shares of
SurgX Corporation class B common stocks of which 161,000 were vested. These
options had an average exercise price of $0.80 and an average remaining
contractual life of 7.4 years.
During fiscal 1998, the Company sold 333,000 Class A shares of SurgX
Corporation for net proceeds of $485,000. At February 28, 1998, there were
10,333,000 Class A common shares of SurgX Corporation outstanding and with
the exception of 333,000 shares of SurgX Corporation sold in fiscal 1998,
all of the subsidiary Class A shares outstanding were owned by the Company.
F-17
<PAGE>
WARRANTS
The following warrants at February 28, 1998, and the number of shares of
the Company's Common Stock which may be purchased at exercise, were
outstanding and exercisable at February 28, 1998:
<TABLE>
<CAPTION>
ORIGINAL ISSUABLE WARRANT WARRANT WARRANT
WARRANTS COMMON COMMENCEMENT EXPIRATION EXERCISE
OUTSTANDING SHARES DATE DATE PRICE
<S> <C> <C> <C> <C>
1,173,900 2,291,495 Oct. 1994 Oct. 1999 $3.50
37,500 37,500 Oct. 1994 Oct. 2004 $2.00
379,000 558,585 Nov. 1994 Oct. 2004 $2.00
322,551 322,551 Feb. 1996 Jan. 2001 $1.25
400,000 400,000 Feb. 1996 Mar. 2001 $1.00
100,000 100,000 Feb. 1996 Mar. 2001 $5.00
100,000 100,000 Apr. 1996 Mar. 2001 $1.31
90,730 90,730 Dec. 1996 Dec. 2001 $1.90
40,000 76,000 Dec. 1996 Apr. 1999 $3.50
72,800 72,800 Feb. 1997 Feb. 2002 $1.90
174,546 174,546 Feb. 1998 Feb. 2001 $1.15
--------- ---------
2,891,027 4,224,207
--------- ---------
--------- ---------
</TABLE>
In addition to the foregoing, in connection with the Company's initial
public offering, the Company sold to the underwriters, for an aggregate
price of $110, noncallable warrants ("Underwriters' Warrants") entitling
the holder to purchase from the Company 110,000 units at an exercise price
of $11.55 per unit, subject to dilution provisions. Each unit consisted of
two shares of Common Stock and one callable warrant to purchase one
additional share of Common Stock at an exercise price of $3.50 (also
subject to dilution provisions). As a result of subsequent dilutive
offerings, the Underwriters' Warrants were convertible into 323,916 units
at a exercise price of $3.71 per unit and each underlying warrant was
convertible into 1.9 common shares. During fiscal 1997, 100,000 units were
exercised resulting in proceeds of $371,000. In December 1996, the Company
repurchased and retired the remaining units in exchange for $475,000 and
40,000 warrants to purchase 76,000 shares at $3.50 per warrant, which may
be exercised through April 1999.
In connection with a bridge loan facility described in Note 7, in fiscal
1998 the Company issued to a financial institution 174,546 shares of common
stock exercisable through February 2001 at an exercise price of $1.15.
F-18
<PAGE>
In certain circumstances and defined time frames, the Company may call
certain of the above warrants. The terms of most warrants are subject to
adjustment in certain circumstances including antidilution protection.
10. RESEARCH CONTRACTS AND DEVELOPMENT FUNDING
The Company is party to certain research contracts which are accounted for
on a percentage of completion basis. Revenues and cost of sales recorded
under such contracts totaled $716,000 and $734,000 during fiscal 1998 and
$627,000 and $403,000 during fiscal 1997, respectively.
During fiscal 1998 and fiscal 1997, the Company received development
funding from third parties to assist in the commercialization of certain of
the Company's products. Such funding is recorded as an offset to research
and development expenses when contract specified technical milestones have
been achieved. During fiscal 1998 and fiscal 1997, $1,307,000 and
$1,107,000, respectively, was credited to research and development expenses
under these arrangements.
11. SALES TO MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company's customers are primarily in the office equipment,
semiconductor and computer disk drive manufacturing industries. The
Company maintains reserves for potential credit losses; historically, such
losses have been minor and within management's expectations. The Company's
accounts receivable are principally derived from sales in the United
States. All transactions are denominated in U.S. dollars. At February 28,
1998, 100% of the accounts receivable balance was due from the lender
described in Note 7.
F-19
<PAGE>
12. INCOME TAXES
Deferred income taxes reflect the tax effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
and income tax purposes. The Company provides a valuation allowance for
deferred tax assets when it is more likely than not, based on currently
available evidence, that some portion or all of the deferred tax assets
will not be realized. Management believes that the available objective
evidence creates sufficient uncertainly regarding the realizability of
deferred tax assets such that a full valuation allowance is required at
February 28, 1998.
Deferred tax assets (liabilities) comprise the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 28,
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 3,511,000 $ 2,438,000
Inventory reserves 149,000 60,000
R&D credit carryforwards 366,000 330,000
Intangibles - 283,000
Other 600,000 394,000
----------- -----------
Gross deferred tax assets 4,626,000 3,505,000
Fixed assets (36,000) (67,000)
----------- -----------
Net deferred tax assets 4,590,000 3,438,000
Deferred tax assets from discontinued
operations 750,000 763,000
----------- -----------
5,340,000 4,201,000
Valuation allowance (5,340,000) (4,201,000)
----------- -----------
Net deferred tax asset $ - $ -
----------- -----------
----------- -----------
</TABLE>
No provision for federal income taxes has been recorded because of losses
incurred.
At February 28, 1998, the Company had federal net operating loss
carryforwards of approximately $9,700,000 which may be utilized to reduce
future taxable income through 2013, subject to certain limitations. In
accordance with section 382 of the Internal Revenue Code, the amounts of
and the benefits from net operating losses that can be carried forward are
limited in certain circumstances, including a cumulative stock ownership
change of more than 50% over a three-year period. The Company's initial
public offering and subsequent private placements have triggered ownership
changes of greater than 50% and, accordingly, the future utilization of tax
carryforwards generated through the date of such offerings are limited.
F-20
<PAGE>
13. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating
lease agreements, which expire in various periods through 2002. The
Company also leases certain assets under long-term lease agreements that
are classified as capital leases. The total amount of assets acquired
under capital lease arrangements which are included in property and
equipment is $47,000 and $324,000 and accumulated amortization on such
assets totaled of $14,000 and $107,000, at February 28, 1998 and
February 28, 1997, respectively.
Future minimum lease obligations are payable as follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
YEAR ENDING FEBRUARY LEASES LEASES TOTAL
<S> <C> <C> <C>
1999 $ 21,000 $ 727,000 $ 748,000
2000 9,000 467,000 476,000
2001 - 358,000 358,000
2002 - 116,000 116,000
--------- ------------ ------------
Total minimum lease payments 30,000 $ 1,668,000 $ 1,698,000
Less amount representing interest (2,000) ------------ ------------
--------- ------------ ------------
Present value of minimum lease payments 28,000
Less current portion (16,000)
---------
Long-term portion of obligations
under capitalized leases $ 12,000
---------
---------
</TABLE>
Rental expense for the years ended February 28, 1998 and 1997 was $516,000
and $345,000, respectively.
14. SEGMENT INFORMATION
The Company groups its business into two operating segments and a corporate
segment: (i) Instruments and Materials includes specialized materials
produced through a patented bonding process and the Company's electrostatic
discharge and secondary ion mass spectrometer measurement devices; and
(ii) SurgX, a development stage operation that utilizes the Company's
patented technology that protects microchips and related products from
overvoltage.
The segment information has been restated to reflect the discontinuance of
operations of the Power Products segment (see Note 6). All results of
operations relating to the Instruments
F-21
<PAGE>
portion of Instruments and Materials segment prior to its disposition have
been included in the consolidated information (see Note 5).
Consolidated business segment information as of February 28, 1998 and
February 28, 1997, and for each of the years then ended is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Revenues:
Instruments and Materials
Instruments $ 3,688,000 $ 2,194,000
Materials 4,678,000 4,240,000
SurgX 83,000 36,000
Corporate - -
------------ ------------
$ 8,449,000 $ 6,470,000
------------ ------------
------------ ------------
Operating income/(loss):
Instruments and Materials
Instruments $ (2,319,000) $ (2,651,000)
Materials 1,378,000 1,340,000
SurgX (1,315,000) (880,000)
Corporate (2,250,000) (2,149,000)
------------ ------------
$ (4,506,000) $ (4,340,000)
------------ ------------
------------ ------------
Depreciation and amortization expense:
Instruments and Materials
Instruments $ 312,000 $ 181,000
Materials 43,000 37,000
SurgX 88,000 13,000
Corporate 15,000 17,000
------------ ------------
$ 458,000 $ 248,000
------------ ------------
------------ ------------
Identifiable assets:
Instruments and Materials :
Instruments (see Note 5) $ - $ 3,931,000
Materials 1,518,000 694,000
SurgX 375,000 507,000
Corporate 2,600,000 2,505,000
------------ ------------
4,493,000 7,637,000
Plus: Net assets of discontinued operations 1,060,000 3,900,000
------------ ------------
$ 5,553,000 $ 11,537,000
------------ ------------
------------ ------------
Capital expenditures:
Instruments and Materials :
Instruments (see Note 5) $ 98,000 $ 478,000
Materials 47,000 80,000
F-22
<PAGE>
SurgX 172,000 317,000
Corporate 4,000 56,000
------------ ------------
</TABLE>
F-23
<PAGE>
EXHIBIT 10.31
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
INTELLECTUAL PROPERTY RIGHTS
LICENSE AGREEMENT
BETWEEN
SURGX CORPORATION OF USA
(LICENSOR)
AND
IRISO ELECTRONIC COMPANY, LTD. OF JAPAN
(LICENSEE)
Dated OCTOBER , 1997
<PAGE>
INTELLECTUAL PROPERTY RIGHTS LICENSE AGREEMENT
On October 1997, SurgX Corporation, a Delaware corporation
having its principal office at 1100 Auburn Street, Fremont, California 94538
(hereinafter "Licensor") and IRISO Electronics Company, a Japanese
corporation having a principal office at 2-35-8 Kitamikata Takatsu-Ku,
Kawasaki Kanagawa, Japan 213 (hereinafter "Licensee") agree to replace their
original Agreement (Attachment 1) dated September 1, 1994 with this License
Agreement. The capital equipment ( Attachment 2) purchased by Oryx (by the
SurgX Division) under the September 1994 Agreement, that is presently in use
at SurgX Corporation but which is owned by IRISO will continue to be owned by
IRISO.
1. DEFINED TERMS.
1.1 "Improvements" shall mean those supplements, changes,
revisions, updates, advancements, corrections, and modifications to the
Technical Information or Licensed Intellectual Property Rights.
"Improvements" also includes manufacturing process improvements made during
the term of this Agreement which are necessary or useful for the manufacture,
use, or sale of Licensed Products.
1.2 "Licensed Intellectual Property Rights" means SurgX's
interest in any patents, patent applications, inventions (including the
inventions and patent applications listed on Attachment 1.2), the "SurgX"
trademark and trade name, Technical Information and copyrights owned,
controlled, applied for or obtained by SurgX at any time before or during the
term of this Agreement to the extent such rights are necessary or essential
for the manufacture, use and sale of the Licensed Products. Wherever used in
this Agreement, Licensed Intellectual Property Rights includes any such
rights relating to Improvements of SurgX.
1.3 "Licensed Products" means discrete components and connector
products described on Attachment 1.3 which utilize the Licensed Intellectual
Property Rights and incorporate the Liquid SurgX Polymer Material.
Specifically excluded are other SurgX products, such as, without limitation,
the family of products identified by SurgX as SurgTape, except for SurgTape
for use in Connector Arrays, SurgX Epoxy Packages, or custom SurgX
applications such as a layer in a printed circuit board and novel packaging,
including hybrid designs and multichip modules.
1.4 "Liquid Polymer Material" means the SurgX polymeric material
provided in a solvated liquid form that can be used to provide electrical
over-stress (EOS) or electrostatic discharge (ESD) protection for integrated
circuits (IC's). Specifically, the Liquid Polymer Material is covered by
the patent applications listed on Attachment 1.2.
1.5 SurgTape means a Tape which integrates the SurgX Material,
and which provides ESD and EOS protection for Integrated Circuits.
1.6 Training means providing technical staff selected by IRISO
with approximately 2 weeks of technical instruction on the manufacturing
process used to make connector and discrete components from Liquid SurgX. It
is anticipated that training will consist
<PAGE>
of approximately 2 sessions of 1 week each for IRISO in California, and a 1
week session with SurgX staff in Japan. IRISO travel expenses will be paid
for by IRISO, and SurgX travel expenses by SurgX.
1.7 "Technical Assistance" means providing a the appropriate
SurgX personnel to assist personnel of IRISO in becoming trained in the use
of Technical Information needed for the manufacture of SurgX discrete or
connector components.
1.8 "Technical Information" means trade secrets, know-how,
drawings, designs, specifications and industrial, commercial and scientific
information controlled by SurgX and disclosed to IRISO under this Agreement.
Whenever used in this Agreement, Technical Information includes any
information relating to Improvements of SurgX.
1.9 "Royalty Year" means a period of 12 months used to measure
the royalties payable to SurgX. The "First Royalty Year" is the 12 month
period which commences on the date of signing of the agreement.
1.10 "Territory" means Japan. SurgX has granted MCGRAW-EDISON
COMPANY 's subsidiary BUSSMANN a world wide exclusive license of SurgX Liquid
for discretes and connectors, except for Japan, where the license is
co-exclusive with IRISO.
1.11 "Gross Profit" means under United States generally accepted
accounting principles: (i) the aggregate sum of revenue recognized by IRISO
from sales or other dispositions of Licensed Products to unaffiliated third
parties net of freight out, returns and credits allowed and taken ("Net
Sales"); (ii) minus IRISO's cost of sales at standard costs including direct
and indirect labor and associated fringe benefits, scrap, perishable tooling,
supplies and maintenance on machinery and equipment (only costs associated
with the manufacture of Licensed Products will be included in standard
costs); (iii) plus or minus, as applicable, operating variances from standard
costs of sales; (iv) minus semi-variable costs equal to 5% of Net Sales for
selling commissions and distribution costs; (v) minus amortization associated
with incremental machinery and equipment used in the manufacture of the
Licensed Products (using a 10 year useful life); and (vi) minus amortization
associated with development costs incurred by SurgX and reimbursed by IRISO
as described in Section 3.3 hereof using a 5-year amortization period.
2. GRANT OF LICENSE (BUSINESS RIGHTS).
2.1 SurgX grants to IRISO, a license, to use Intellectual
Property Rights; and Technical Information for the manufacture, use and sale
of Licensed Products in Japan. SurgX also grants IRISO the right to sell any
such products to an original equipment manufacturer or to a value added
reseller in Japan that may incorporate any such products into goods that are
sold outside of Japan. SurgX further grants IRISO the right to sell any such
product to a Japanese company with an overseas manufacturing facility,
provided the sale of the SurgX takes place in Japan.
2.2 The license is a co-exclusive license with Bussmann.
<PAGE>
2.3 The license granted to IRISO under the terms of this
Agreement is for the manufacture, use and sale of Licensed Products for a
period of 15 years commencing on the date of signing of this agreement.
Thereafter the license granted to Licensee hereunder shall continue on a
nonexclusive basis, provided the royalties of paragraph 5.1 continue to be
paid.
2.4 SurgX also grants IRISO the right to SurgX's SurgTape
products for use in the manufacture of connector arrays.
3. DEVELOPMENT AND COMMERCIALIZATION OF THE LICENSED
PRODUCTS
3.1 In consideration for granting the license to IRISO, and in
lieu of a normal license fee, IRISO agrees to take an equity position in
SurgX Corporation of $500,000 at a market valuation of $15 million or $1.50
per share prior to the investment. The stock shares purchased Class A Common
Stock. This investment is for 3.23% of the total value of the company. The
$500,000 is to be paid by wire transfer on the signing of this Agreement by
both parties.
3.2 Upon execution of the Agreement both Parties will use good
faith reasonable efforts to develop the Licensed Products and bring them to
commercialization as soon as feasible. To do this SurgX will provide IRISO
with the following:
3.2.1 The Training, Technical Information and Technical
Assistance required to allow IRISO to manufacture the Licensed Products in
its facilities;
3.2.2 As soon as reasonably possible, a final report
documenting all processing requirements and procedures necessary for IRISO to
manufacture the Licensed Products; and
3.2.3 As soon as reasonably possible, the technology
necessary to improve the Licensed Products performance for broader product
application as follows:
(a) Trigger voltage < 100 V (Transmission Line Pulser
at 500V).
(b) Clamping voltage < 50 V (IEC 1004-2 ESD
Specification).
(c) Vmax < 200 (IEC 1004-2 ESD Specification at 12 kV).
3.3 To the extent that SurgX specifically undertakes any Licensed
Product modifications or enhancements at IRISO's written request (other than the
product modifications and enhancements described in Section 3.2.3 above which
will be undertaken by SurgX at its sole expense), IRISO shall reimburse SurgX
for its development costs as described below in conducting such modifications or
enhancements, including any additional capital equipment that SurgX requires to
perform such modifications and enhancements. The development costs incurred by
SurgX to be reimbursed by IRISO shall consist of direct and indirect labor and
associated fringe benefits of SurgX's employees and independent contractors as
allocated to the project, scrap, perishable tooling, supplies, maintenance on
machinery and equipment, capital
<PAGE>
equipment costs, material costs and travel costs. The development costs
incurred by SurgX will be amortized over a period of 5 years. The costs are
detailed in Attachment 3.3. The development costs and the capital equipment
costs incurred by IRISO will be amortized over a period of 10 years and the
annual amortization will be included in the cost structure of the Licensed
Products for the purpose of determining annual royalties based on Gross
Profits (or if annual royalties are based on net sales, the royalties based
on net sales will be reduced by an equivalent amount to account for the
annual amortization).
3.4 IRISO may utilize the SurgX trade name or trademark in
connection with the sale and promotion of the Licensed Products. IRISO may
also utilize its trade names or trademarks in conjunction with the SurgX
trade name or trademark in connection with the sale and promotion of the
Licensed Products. SurgX makes no representations or warranties regarding the
use or validity of such trademark name or trademarks within the Territory,
until registration of the mark in Japan is complete.
3.5 All Electrical Over-stress and or ESD materials,
formulations, processes for making formulations, electrodes, methods of
attaching electrodes to the polymer material, methods of attaching electrodes
to connectors and devices, and electrode designs inventions or other
intellectual property conceived or reduced to practice jointly by the
employees or independent contractors of the Parties, as a result of this
collaboration and during the term of this Agreement, shall be owned by SurgX
and shall be included in the license without charge to IRISO.
3.6 All connector inventions developed solely by IRISO belong to
IRISO.
3.7 All connector inventions developed jointly during the term
of this agreement will be shared in accordance with paragraphs 4.2 and 4.3.
3.8 All discrete components inventions developed during the term
of this agreement will be shared in accordance with paragraphs 4.2 and 4.3.
4. DISCLOSURE OF TECHNICAL INFORMATION.
4.1 SurgX shall disclose and furnish to IRISO all Technical
Information necessary or essential for the incorporation and use of Liquid
Polymer Material in the manufacture, use and sale of the Licensed Products.
Technical information shall be delivered as per the schedule of Attachment
4.1.
4.2 SurgX agrees to disclose to IRISO any Improvements made by
SurgX relating to the Licensed Intellectual Property Rights developed,
conceived or reduced to practice during the term of this Agreement and to
grant IRISO the right to use the Improvements in the manufacture, use and
sale of the Licensed Products at no additional cost under the same terms and
conditions of this Agreement for the term of this Agreement.
4.3 IRISO agrees to disclose to SurgX any Improvements made by
IRISO relating to the Licensed Intellectual Property Rights developed,
conceived or reduced to practice
<PAGE>
by IRISO during the term of this Agreement and to grant SurgX a worldwide,
royalty-free license to any such Improvements for the term of this Agreement.
5. ROYALTIES.
5.1 Commencing with the First Royalty Year, IRISO will be
responsible for setting pricing, and IRISO and SurgX agree to share the Gross
Margin Profit on all product revenue for SurgX protected parts. Sharing is
on an equal 50-50 basis for discrete components sales, and on 65-35 basis on
sales of connectors using SurgX liquid or SurgTape. For connectors with
SurgX Liquid or SurgTape IRISO will receive 65% of the Gross Profit and SurgX
will receive 35% of the Gross Profit. Gross Margin is defined as all direct
and indirect costs associated with the manufacture, distribution and sale to
the customer. SurgX will provide the SurgX liquid to IRISO at cost.
5.2 In order to maintain the exclusive nature of the license for
the 15 year exclusivity period described in Section 2.3, IRISO shall insure
that the annual royalties payable to SurgX are no less than the following
amounts ("Minimum Annual Royalties"):
Royalty Year Minimum Annual Royalties
[*] [*]
If in any Royalty Year, the royalties based on Gross Profit (or net sales, if
applicable) are less than the Minimum Annual Royalties, IRISO, at its option,
has the right to pay up the difference to a total equaling the respective
year's Minimum Annual Royalty. If IRISO elects not to pay up the difference
to a total equaling the respective year's Minimum Annual Royalty, then the
license granted hereunder shall become non-exclusive license for the
remaining term of this Agreement, provided the royalties of 5.1 continue to
be paid.
In order to avoid double taxation, when IRISO submits royalty payments IRISO
will include documentation regarding any Japanese taxed paid on such
royalties. If any additional documentation is required by SUrgX for taxes
IRISO will cooperate to provide SurgX with documentation.
6. PAYMENTS.
6.1 Royalties (including Minimum Annual Royalties) are due and
payable for each quarter of each Royalty Year within 45 days after each
quarter of each such Royalty Year. All payment shall be in US dollars.
Royalties are based on the sales orders for which IRISO has received
payment.
<PAGE>
7. MANUFACTURE AND SUPPLY OF LIQUID POLYMER MATERIAL.
7.1 At least 60 days prior to each delivery date, IRISO shall
deliver a forecast to SurgX of quantity requirements for the Liquid Polymer
Material.
7.2 Cost to manufacture SurgX are expected to declines with
volume, and, are expected to either increase or decrease with formulation
improvements. Attachment 7.2 provides preliminary estimates, and assumes
SurgX staffing and overhead costs will be shared by other SurgX products,
since initial Liquid SurgX volumes required by IRISO are not anticipated to
need the use of a continuously operating Liquid SurgX production line.
7.3 In order to assure IRISO can continue to manufacture, in the
event that SurgX is unable to meet the supply requirements of IRISO, SurgX
will be required to select an alternative contract manufacturer, and to
provide the selected manufacturer with the information necessary to allow the
manufacture of the Liquid SurgX material. Upon execution of this Agreement,
as a precautionary measure to insure all information relating to the
manufacture of the Liquid Polymer Material is available for contract
manufacturing, SurgX shall deliver all of the documents relating to the
manufacture of the Liquid Polymer Material to an escrow at Burns, Doane,
Swecker & Mathis.
8. TERMINATION.
8.1 In addition to all other remedies SurgX may have under the
law and elsewhere in this Agreement, SurgX may terminate this Agreement if
IRISO shall breach any of IRISO's obligations to SurgX hereunder, including
but not limited to the timely payment of any sum due to SurgX under the terms
of this Agreement, provided that SurgX shall first notify IRISO in writing of
any such breach and IRISO shall have thirty (30) days from the date of such
notice to cure such breach. Other examples of breach include but are not
limited to; selling outside the territory, disclosure of proprietary SurgX
information, and providing SurgX Liquid to other companies for manufacture of
components.
9. NOTICE. Any notice pursuant to this Agreement shall be in writing and
shall be delivered to:
If to Licensor: SurgX Corporation
Attention: Karen Shrier - Vice President
Operations
1100 Auburn Street
Fremont, CA 94538
Facsimile: (510) 492-2089
If to Licensee: IRISO Electronic Company
Attention: Sadao Sato - President
2-35-8 Kitamikata Takatsu-Ku
Kawasaki Kanagawa, Japan 213
Facsimile: 44-811-6350
<PAGE>
If to Licensee: IRISO Electronic Company
Attention: Yujiro Sugaya - General Manager
2-35-8 Kitamikata Takatsu-Ku
Kawasaki Kanagawa, Japan 213
Facsimile: 44-811-6350
10. DISPUTE RESOLUTION
10.1 In the event of any dispute the parties agree to have their
top executive management meet and discuss resolution of any dispute. No
legal action will be taken by either party until after such meetings. Any
dispute or claim arising out of, or in connection with this Agreement that is
not settled to the mutual satisfaction of the Parties within thirty (30) days
(or such longer period as may be mutually agreed upon) from the date that
either party informs the other in writing that such dispute or disagreement
exists, shall be submitted for Arbitration in accordance with the Rules of
Arbitration of the International Chamber of Commerce. The location of
dispute resolution by mediation, arbitration or legal action will be the
country of the party originally requesting resolution of the dispute.
11. MISCELLANEOUS.
11.1 Entire Agreement. This Agreement constitutes the entire
agreement between the Parties and supersedes all prior agreements,
negotiations or discussions between them regarding the subject matter.
SURGX CORPORATION IRISO ELECTRONIC COMPANY
Name: Name:
-------------------------- -----------------------
Title: Title:
-------------------------- -----------------------
<PAGE>
SCHEDULE OF ATTACHMENTS
ATTACHMENT 2: Capital Equipment
ATTACHMENT 1.2 Invention: Licensed Polymer Material
ATTACHMENT 1.3 Licensed Products
ATTACHMENT 3.3 Cost Calculation for Liquid Polymer Material
ATTACHMENT 4.1 Delivery Schedule for Technical Information
ATTACHMENT 7.2 Preliminary Liquid SurgX Cost Estimates
<PAGE>
EXHIBIT 10.32
SURGX CORPORATION
CLASS A COMMON STOCK PURCHASE AGREEMENT
THIS CLASS A COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made
and entered into as of the day of July 1997, between SurgX Corporation, a
Delaware corporation (the "Company"), and Iriso Electronics Limited ("Iriso").
WHEREAS, the Company desires to sell Three Hundred Thirty-Three Thousand
Three Hundred Thirty-Three (333,333) of its authorized but unissued shares of
Series A Common Stock (such shares being sometimes referred to herein as the
"Shares") to Iriso for cash consideration of $1.5000015 per share in United
States currency in accordance with the terms hereof; and
WHEREAS, Iriso desires to purchase the Shares from the Company.
IT IS HEREBY AGREED AS FOLLOWS:
1.0 BASIC TERMS OF PURCHASE AND SALE.
1.1 PURCHASE AND SALE OF CLASS A COMMON STOCK. Subject to the terms
and conditions of this Agreement, Iriso agrees to purchase from the Company, and
the Company agrees to sell and issue to Iriso at the Closing, Three Hundred
Thirty-Three Thousand Three Hundred Thirty-Three (333,333) shares of the
Company's authorized but unissued Class A Common Stock for cash at a purchase
price equal to $1.5000015 per share, with the aggregate amount to be paid by
Iriso at the Closing.
1.2 CLOSING. The closing with respect to the purchase and sale of
the Shares hereunder (the "Closing") shall be held at the offices of the Company
on or about July __, 1997 at 10:00 a.m., or at such other time and place as the
Company and Iriso may mutually agree.
1.3 PAYMENT AND DELIVERY. At the Closing, the Company shall deliver
to Iriso a certificate representing the Shares, against delivery to the Company
by Iriso of a check payable to the order of the Company in the amount of Five
Hundred Thousand Dollars ($500,000) (or such funds may be deposited in the
Company's bank account by wire transfer), or any combination thereof.
2.0 REPRESENTATIONS OF IRISO.
Iriso represents and warrants that:
2.1 Iriso understands that the Shares are highly speculative and that
there can be no assurance as to what return, if any, there may be on its
purchase. Iriso has evaluated the risks of making this investment in the
Shares, has determined that such investment is consistent with its investment
objectives, has the ability to bear the economic risk of such investment and can
afford a complete loss of the purchase price of the Shares. Iriso understands
that the Company is in the development stage and has little or no revenues and
may not have any revenues for a considerable
<PAGE>
period of time, if ever. Iriso understands further that the Company is a
private subsidiary of a public corporation, Oryx Technology Corp., and that
the Company is controlled by Oryx Technology Corp.
2.2 Iriso has made an informed, independent judgment with respect to
the desirability of purchasing the Shares from the Company. Iriso has,
independently and without reliance upon the Company or any representations or
statements made by the Company or its representatives, made its own analysis and
decision to acquire the Shares. Iriso has had access to all the books and
records of the Company which it deems necessary to make its decision to purchase
the Shares.
2.3 Iriso is acquiring the Shares for its own account for investment
purposes only and not with a view to, or for resale in connection with, any
"distribution" thereof for purposes of the Securities Act of 1933, as amended
(the "Act").
2.4 Iriso understands that the Shares must be held indefinitely
unless subsequently registered under the Act and qualified under applicable
state securities laws or unless an exemption from such registration and
qualification is applicable to any subsequent transfer. Iriso hereby agrees
that the Shares will not be sold without registration under the Act and
qualification under applicable state securities laws or exemption therefrom.
Iriso understands that the Company has no present plans for registration or
qualification of the Shares and that the Company has no obligation to register
or to qualify the Shares for any future sale.
2.5 Iriso understands that the certificates evidencing the Shares to
be held by it will bear the legend set forth below and may bear certain
additional legends required under applicable state securities law:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY SALE, TRANSFER,
PLEDGE OR OTHER DISPOSITION THEREOF MAY BE MADE ONLY (i) IN A
TRANSACTION REGISTERED UNDER SAID ACT OR (ii) IF AN EXEMPTION
FROM REGISTRATION UNDER SAID ACT OR ACT IS AVAILABLE AND IS
ESTABLISHED TO THE SATISFACTION OF THE ISSUER.
Iriso understands and agrees that any and all share certificates issued by the
Company to it in connection with the proposed acquisition may bear the
restrictive legends hereinabove described. Iriso further agrees that the
Company shall not be liable for any refusal to transfer the Shares upon the
books of the Company, except in compliance with the terms and conditions of such
restrictions.
2.6 Iriso further understands that there is no market for the Shares
and there may never be a market for the Shares, and that even if a market
develops for the Shares, as a result of the foregoing restrictions on transfer
and the representations and warranties hereunder, Iriso may not be able to sell
or dispose of the Shares, and that Iriso may thus have to bear the risk of its
investment in the Shares for a substantial period of time, or forever.
2.7 Iriso acknowledges that no one is acting as its representative in
this acquisition.
<PAGE>
2.8 Iriso is an "Accredited Investor" as that term is defined in
Section 501(a) of Regulation D promulgated under the Act. Specifically, Iriso
is a corporation not formed for the specific purpose of acquiring the Shares,
with total assets in excess of $5,000,000.
2.9 Iriso has carefully considered, and has, to the extent it deems
necessary, discussed with the Iriso's own professional legal, tax and financial
advisers the suitability of an investment in the Shares for Iriso's particular
tax and financial situation, and Iriso has determined that the Shares are a
suitable investment.
2.10 The offer to sell the Shares was directly communicated to Iriso
by the Company. At no time was Iriso presented with or solicited by any
leaflet, newspaper or magazine article, radio or television advertisement, or
any other form of general advertising or solicited or invited to attend a
promotional meeting otherwise than in connection and concurrently with such
communicated offer.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SurgX Corporation
By: __________________________________
Name:
Title:
Iriso Electronics Limited
By:
_____________________________________
Name:
Title:
Address:
<PAGE>
<TABLE>
<CAPTION>
<S><C>
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AWARD/CONTRACT 1. THIS CONTRACT IS A RATED ORDER UNDER DP AS (15 CFR 36X) RATING PAGE OF PAGES
XXXXXXX 1 20
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2. CONTRACT XXXXXXXXXXXX 3. EFFECTIVE DATE 4. XXXXXXXXXXXXXXXXXXXXXXXXXXXXX
M00014-97-C-0386 SEE BLOCK 20C 97PRO7477-XX/XX JUL 1997/ XXX 312 JZ
- ----------------------------------------------------------------------------------------------------------------------------------
5. ISSUED BY CODE N00014 6. ADMINISTERED BY XXXXX CODE 30507A
---------- -----------------------------------
OFFICE OF NAVAL RESEARCH DCMC SAN FRANCISCO
ONR 251: WADE WARGO (703)698-2574 1265 BORREGAS AVENUE
BALLSTON TOWER ONE SUNNYVALE, CA 94089-1388
800 NORTH QUINCY STREET
ARLINGTON, VA 22217-5550
- ----------------------------------------------------------------------------------------------------------------------------------
7. NAME AND ADDRESS OF CONTRACTOR (No., street, city, county, State and ZIP Code) 8. DELIVERY
See SECTION F of Schedule
ORYX TECHNOLOGY CORPORATION / / FOR XXX / / OTHER (See below)
47341 BAYSIDE PARKWAY
FREMONT, CA 94538 ----------------------------------------------
9. DISCOUNT FOR PROMPT
PAYMENT
N.A.
----------------------------------------------
10. SUBMIT INVOICES (4 ITEM
- ----------------------------------------------------------------------------------- copies unless otherwise SEE SECTION 8.1.
CODE XXXXX FACILITY CODE specified) TO THE ADDRESS
SHOWN / /
- ----------------------------------------------------------------------------------------------------------------------------------
11. SHIP XXXXX FOR CODE N00014 12. PAYMENT WILL BE MADE BY CODE SC1004
-------------- -----------------
PROGRAM OFFICER DFAS COLUMBUS CENTER
SEE SECTION F-DELIVERIES OR PERFORMANCE DFAS CO VAN NUYS DIVISION
PO BOX 182157
COLUMBUS, OH 43218-2157
- ----------------------------------------------------------------------------------------------------------------------------------
13. AUTHORITY FOR USING OTHER THAN FULL AND OPEN COMPETITION: 14. ACCOUNTING AND APPROPRIATION DATA
/ / 10 U.S.C. XXXX (N/A ) / / 41 U.S.C.(25XXXXX SEE ATTACHED FINANCIAL ACCOUNTING DATA SHEET(S)
- ----------------------------------------------------------------------------------------------------------------------------------
15A. ITEM NO. 15B. SUPPLIES/SERVICES 15C. QUANTITY 15D. UNIT 15E. UNIT PRICE 15F. AMOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
SEE SECTION B OF SCHEDULE
- ----------------------------------------------------------------------------------------------------------------------------------
15G. TOTAL AMOUNT OF CONTRACT $740,824.00
- ----------------------------------------------------------------------------------------------------------------------------------
16. TABLE OF CONTENTS
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ SEC. DESCRIPTION PAGE(S) /x/ SEC. DESCRIPTION PAGE(S)
- ----------------------------------------------------------------------------------------------------------------------------------
PART I - THE SCHEDULE PART II - CONTRACT CLAUSES
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ A SOLICITATION/CONTRACT FORM 1 /x/ I CONTRACT CLAUSES 9-20
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ B SUPPLIES OR SERVICES AND PRICES/COSTS 2 PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ C DESCRIPTION/SPECS/WORK STATEMENT 2 /x/ J LIST OF ATTACHMENTS 20
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ D PACKAGING AND MARKING 2 PART IV - REPRESENTATIONS AND INSTRUCTIONS
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ E INSPECTION AND ACCEPTANCE 2 /x/ K REPRESENTATIONS, CERTIFICATIONS AND 20
- --------------------------------------------------------------------- OTHER STATEMENTS OF OFFERORS
/x/ F DELIVERIES OR PERFORMANCE 3
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ G CONTRACT ADMINISTRATION DATA 3-6 L XXSTRS., CONDS. AND NOTICES TO OFFERORS
- ----------------------------------------------------------------------------------------------------------------------------------
/x/ H SPECIAL CONTRACT REQUIREMENTS 6-8 M EVALUATION FACTORS FOR AWARD
- ----------------------------------------------------------------------------------------------------------------------------------
CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE
- ----------------------------------------------------------------------------------------------------------------------------------
17. /xxx/ CONTRACTOR'S NEGOTIATED AGREEMENT (CONTRACTOR IS 18. / / AWARD (CONTRACTOR IS NOT REQUIRED TO SIGN THIS
REQUIRED TO SIGN THIS DOCUMENT DOCUMENT) YOUR OFFER OR SOLICITATION
AND RETAIN 2 COPIES TO ISSUING OFFICER) CONTRACTOR AGREES TO NUMBER_________, INCLUDING THE ADDITIONS OR CHANGES MADE BY YOU
FURNISH AND DELIVER ALL ITEMS OR PERFORM ALL THE SERVICES SET WHICH ADDITIONS OR CHANGES ARE SET FORTH IN FULL ABOVE, IS
FORTH OR OTHERWISE IDENTIFIED ABOVE AND ON ANY MATHEMATICS HEREBY ACCEPTED AS TO THE ITEMS LISTED ABOVE AND ON ANY
SHEETS FOR THE CONSIDERATION STATED HEREIN. THE RIGHTS AND MATHEMATICS SHEETS. THIS AWARD XXXXXXX THE CONTRACT WHICH
OBLIGATIONS OF THE PARTIES TO THIS CONTRACT SHALL BE SUBJECT CONSISTS OF THE FOLLOWING DOCUMENTS: (a) THE GOVERNMENT'S
TO AND GOVERNED BY THE FOLLOWING DOCUMENTS: (a) THIS SOLICITATION AND YOUR OFFER, AND (b) THIS AWARD/CONTRACT ACT.
AWARD/CONTRACT, (b) THE SOLICITATION, IF ANY, AND (c) SUCH NO FURTHER CONTRACTUAL DOCUMENT IS NECESSARY.
PROVISIONS, REPRESENTATIONS, CERTIFICATIONS, AND
SPECIFICATIONS, AS ARE ATTACHED OR INCORPORATED BY REFERENCE
HEREIN. (ATTACHMENTS ARE LISTED HEREIN.)
- ----------------------------------------------------------------------------------------------------------------------------------
19A. NAME AND TITLE OF SIGNER (TYPE OR PRINT) 20A. NAME OF CONTRACTING OFFICER
James Intrater, Director of Technology
- ----------------------------------------------------------------------------------------------------------------------------------
19B. XXXXXX 19C. DATE SIGNED 20B. UNITED STATES OF AMERICA 20C. DATE SIGNED
BY /s/ James Intrater 9/10/97 BY
---------------------------------------- ----------------------------------
(SIGNATURE OF PERSON AUTHORIZED TO SIGN) (SIGNATURE OF CONTRACTING OFFICER)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
ITEM ESTIMATED TOTAL ESTIMATED
NO. SUPPLIES/SERVICES COST FIXED FEE COST & FIXED FEE
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
0001 The Contractor shall furnish the necessary $729,745.00 $11,079.00 $740,824.00
personnel and facilities to conduct
research as described in Section C.
- --------------------------------------------------------------------------------------------------------
0002 Reports and Data in accordance with NSP
Exhibit A (DD Form 1423)
- --------------------------------------------------------------------------------------------------------
TOTAL ESTIMATED CONTRACT $729,745.00 $11,079.00 $740,824.00
CONSIDERATION:
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT
1. The Contractor shall conduct research in accordance with the proposal
described below which was submitted by the Contractor in response to
Department of Defense Program Solicitation Number 96.1, Small Business
Innovation Research (SBIR) Program:
Topic Number: BMD096-014
Title Proposed by Firm: Novel Surge Suppression Devices
Date: 30 DEC 1996
2. Section E, entitled "Phase II Work Plan", on pages 24 through 37 of the
above-described proposal are hereby incorporated into this contract by
reference.
SECTION D - PACKAGING AND MARKING
Preservation, packaging, packing and marking of all deliverable contract line
items shall conform to normal commercial packaging standards to assure safe
delivery at destination.
SECTION E - INSPECTION AND ACCEPTANCE
Inspection and acceptance of the deliverables under this contract will be
accomplished by the Program Officer designated in Section F of this contract,
who shall have at least thirty (30) days after contractual delivery for
acceptance.
CONTRACT NUMBER: N00014-97-C-0386 Page 2 of 20
<PAGE>
SECTION F - DELIVERIES OR PERFORMANCE
1. The research work under this contract shall be conducted during the
period from the effective date through 21 JUL 1999. A final report will be
prepared, submitted, reproduced, and distributed by sixty days thereafter
unless the contract is extended, in which case, the final report will be
prepared in accordance with the terms of such extension.
a. Item No. 0002 of Section B (Reports and Data) shall be delivered
within the time periods stated in Exhibit A, F.O.B. Destination.
2. Distribution, consignment and marking instructions for all contract line
items shall be in accordance with the following:
a. Item No. 0002 shall be shipped F.O.B. Office of Naval Research,
Arlington, Virginia 22217-5660, consigned to:
Program Officer
Office of Naval Research
Ballston Tower One
800 North Quincy Street
Arlington, VA 22217-5660
Attn: John Zolper, ONR 312
Ref: Contract N00014-97-C-0386
SECTION G - CONTRACT ADMINISTRATION DATA
1. NAPS 5252.232-9001 SUBMISSION OF INVOICES (COST REIMBURSEMENT,
TIME-AND-MATERIALS, LABOR-HOUR, OR FIXED PRICE INCENTIVE) (JUL 1992)
(a) "Invoice" as used in this clause includes contractor requests for
interim payments using public vouchers (SF 1034) but does not include
contractor requests for progress payments under fixed price incentive
contracts.
(b) The Contractor shall submit invoices and any necessary supporting
documentation, in an original and 4 copies, to the contract auditor at the
following address:
Defense Contract Audit Agency
Western Region
Eastern Bay Branch Office
39510 Paseo Padre Parkway, Suite 210
Fremont, CA 94538-2300
unless delivery orders are applicable, in which case invoices will be
segregated by individual order and submitted to the address specified in the
order. In addition, an information copy shall be submitted to the Program
Officer identified in Section F.2a of this contract. Following
CONTRACT NUMBER: N00014-97-C-0386 Page 3 of 20
<PAGE>
verification, the contract auditor will forward the invoice to the designated
payment office for payment in the amount determined to be owing, in
accordance with the applicable payment (and fee) clause(s) of this contract.
(c) Invoices requesting interim payments shall be submitted no more
than once every two weeks, unless another time period is specified in the
Payments clause of this contract. For indefinite delivery type contracts,
interim payment invoices shall be submitted no more than once every two weeks
for each delivery order. There shall be a lapse of no more than 30 calendar
days between performance and submission of an interim payment invoice.
(d) In addition to the information identified in the Prompt Payment
clause herein, each invoice shall contain the following information, as
applicable:
(1) Contract line item number (CLIN)
(2) Subline item number (SLIN)
(3) Accounting Classification Reference Number (ACRN)
(4) Payment terms
(5) Procuring activity
(6) Date supplies provided or services performed
(7) Costs incurred and allowable under the contract
(8) Vessel (e.g., ship, submarine or other craft) or system for
which supply/service is provided.
(e) A DD Form 250, "Material Inspection and Receiving Report" is
required only with the final invoice.
(f) A Certificate of Performance shall be provided with each invoice
submittal.
(g) The Contractor's final invoice shall be identified as such, and
shall list all other invoices (if any) previously tendered under this
contract.
(h) Costs of performance shall be segregated, accumulated and invoiced
to the appropriate ACRN categories to the extent possible. When such
segregation of costs by ACRN is not possible for invoices submitted with
CLINS/SLINS with more than one ACRN, an allocation ratio shall be established
in the same ratio as the obligations cited in the accounting data so that
costs are allocated on a proportional basis.
2. SUBMISSION OF INVOICES DIRECT TO PAYMENT OFFICE
a. Pursuant to DFARS 242.803(b)i)(C), if the cognizant Government
auditor has notified the contractor of its authorization to do so, the
contractor may submit interim vouchers under this contract direct to the
payment office shown in Block 12 of SF-26 instead of to the address shown in
subparagraph (b) of section G.1 above.
b. Such authorization does not extend to the first and final vouchers.
The contractor shall continue to submit first vouchers to the cognizant
auditor shown in subparagraph (b) of section G.1.
CONTRACT NUMBER: N00014-97-C-0386 Page 4 of 20
<PAGE>
above. The final voucher shall be submitted to the Administrative Contracting
Officer (SF-26 block 6) with a copy to the cognizant auditor.
3. METHOD OF PAYMENT
As consideration for the proper performance of the work and services required
under this contract, the Contractor shall be paid as follows:
a. Costs, as provided for under the contract clause entitled "Allowable
Cost and Payment", not to exceed the amount set forth as "Estimated Cost" in
Section B, subject to the contract clause entitled "Limitation of Cost" or
"Limitation of Funds", whichever is applicable.
b. A fixed fee in the amount set forth as "Fixed Fee" in Section B, in
accordance with the contract clause entitled "Fixed Fee", which shall be paid
upon completion of the work and services required under this contract and
upon final acceptance by the Contracting Officer, however, the Contractor may
bill on each voucher the amount of the fee bearing the same percentage to the
total fixed fee as the amount of cost billed bears to the total estimated
cost.
4. PROCURING OFFICE REPRESENTATIVES
a. In order to expedite administration of this contract, the Administrative
Contracting Officer should direct inquiries to the appropriate office listed
below. Please do not direct routine inquiries to the person listed in Block
20A of the Standard Form 26.
Contract Negotiator - Wade Wargo, ONR 251, (703)696-2574, DSN 426-2574
Program Officer (Inspection and Acceptance) - John Zolper, ONR 312,
(703)696-1437, DSN 426-1437
Security Matters - Ms. Jennifer Ramsey, ONR 93, (703)696-4618, DSN
426-4618
Patent Matters - Mr. Frank Nieman, ONR 00CC, (703)696-4007, DSN 426-4007
b. The Administrative Contracting Officer will forward invention disclosures
and reports directly to Patent Counsel (Code 00CC), Office of Naval Research,
Department of the Navy, Arlington, Virginia 22217-5660. The Patent Counsel
will return the reports along with a recommendation to the Administrative
Contracting Officer. The Patent Counsel will represent the Contracting
Officer with regard to invention reporting matters arising under this
contract.
5. TYPE OF CONTRACT
This is a cost-plus-fixed-fee COMPLETION contract.
6. INDIVIDUAL COMPENSATION CAPS
As required by Congressional enactment, individual compensation at a rate
in excess of $200,000 a year for contracts funded with Fiscal Year 1996
appropriations and individual
CONTRACT NUMBER: N00014-97-C-0386 Page 5 of 20
<PAGE>
compensation at a rate in excess of $250,000 a year for contracts funded with
Fiscal Year 1997 appropriations are unallowable costs under this contract and
may not be reimbursed from Government funds obligated hereto.
For purposes of applying the FY 96 compensation limitation, compensation
is as defined in FAR 31.205-6(a). For purposes of applying the FY 97
compensation limitation, compensation is as defined in DFARS
231.205-6(a)(2)(ii).
SECTION H - SPECIAL CONTRACT REQUIREMENTS
1. ONR 5252.235-9714 REPORT PREPARATION (DEC 1988)
Scientific or technical reports prepared by the Contractor and deliverable
under the terms of this contract will be prepared in accordance with format
requirements contained in ANSI Z39.18, Scientific and Technical Reports:
Organization, Preparation and Production.
2. ONR 5252.210-9708 METRICATION REQUIREMENTS (DEC 1988)
(a) All scientific and technical reports delivered pursuant to the terms
of this contract shall identify units of measurement in accordance with the
International System of Units (SI) commonly referred to as the "Metric
System". Conversion to U.S. customary units may also be given where
additional clarity is deemed necessary. Guidance for application of the
metric system is contained in the American Society of Testing Materials
document entitled "Standard Practice for Use of the International System of
Units (The Modernized Metric System)" (ASTM Designation E380-89A).
(b) This provision also applies to journal article preprints, reprints,
commercially published books or chapters of books, theses or dissertations
submitted in lieu of a scientific and/or technical report.
3. Special SBIR Requirements (Phase II)
A minimum of one-half of the SBIR Project shall be carried out by the
proposing firm. The primary employment of the principal investigator shall
be with the Contractor at the time of award and during the conduct of the
proposed effort. Primary employment means that more than one-half of the
principal investigator's time is spent with the Contractor. Deviations from
the above requirements shall be approved in writing by the Contracting
Officer.
The research or research and development work under this contract shall be
performed by the Contractor in the United States. "United States" means the
several states, the Territories and possessions of the United States, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands,
the Trust Territory of the Pacific Islands, and the District of Columbia.
CONTRACT NUMBER: N00014-97-C-0386 Page 6 of 20
<PAGE>
4. INVENTION DISCLOSURES AND REPORTS
The Contractor shall submit all invention disclosures and reports required by
the Patent Rights clause of this contract to the Administrative Contracting
Officer.
5. ONR 5252.242-9718 TECHNICAL DIRECTION (DEC 1988)
(a) Performance of the work hereunder is subject to the technical
direction of the Program Officer/COTR designated in this contract, or duly
authorized representative. For the purposes of this clause, technical
direction includes the following:
(1) Direction to the Contractor which shifts work emphasis between
work areas or tasks, requires pursuit of certain lines of inquiry, fills in
details or otherwise serves to accomplish the objectives described in the
statement of work;
(2) Guidelines to the Contractor which assist in the interpretation
of drawings, specifications or technical portions of the work description.
(b) Technical direction must be within the general scope of work stated
in the contract. Technical direction may not be used to:
(1) Assign additional work under the contract;
(2) Direct a change as defined in the contract clause entitled
"Changes";
(3) Increase or decrease the estimated contract cost, the fixed
fee, or the time required for contract performance;
(4) Change any of the terms, conditions or specifications of the
contract.
(c) The only individual authorized to in any way amend or modify any of
the terms of this contract shall be the Contracting Officer. When, in the
opinion of the Contractor, any technical direction calls for effort outside
the scope of the contract or inconsistent with this special provision, the
Contractor shall notify the Contracting Officer in writing within ten working
days after its receipt. The Contractor shall not proceed with the work
affected by the technical direction until the Contractor is notified by the
Contracting Officer that the technical direction is within the scope of the
contract.
(d) Nothing in the foregoing paragraphs may be construed to excuse the
Contractor from performing that portion of the work statement which is not
affected by the disputed technical direction.
6. ONR 5252.237-9705 KEY PERSONNEL (DEC 88)
(a) The Contractor agrees to assign to the contract tasks those persons
whose resumes were submitted with its proposal and who are necessary to
fulfill the requirements of the contract as "key personnel". No substitutions
may be made except in accordance with this clause.
CONTRACT NUMBER: N00014-97-C-0386 Page 7 of 20
<PAGE>
(b) The Contractor understands that during the first ninety (90) days of
the contract performance period, no personnel substitutions will be permitted
unless these substitutions are unavoidable because of the incumbent's sudden
illness, death or termination of employment. In any of these events, the
Contractor shall promptly notify the Contracting Officer and provide the
information described in paragraph (c) below. After the initial ninety (90)
day period the Contractor must submit to the Contracting Officer all proposed
substitutions, in writing, at least 30 days in advance (60 days if security
clearance must be obtained) of any proposed substitution and provide the
information required by paragraph (c) below.
(c) Any request for substitution must include a detailed explanation of
the circumstances necessitating the proposed substitution, a resume for the
proposed substitute, and any other information requested by the Contracting
Officer. Any proposed substitute must have qualifications equal to or
superior to the qualifications of the incumbent. The Contracting Officer or
his/her authorized representative will evaluate such requests and promptly
notify the Contractor in writing of his/her approval or disapproval thereof.
(d) In the event that any of the identified key personnel cease to
perform under the contract and the substitute is disapproved, the contract
may be immediately terminated in accordance with the Termination clause of
the contract.
The following are identified as key personnel:
James Intrater, Technical Director
Gerald Behling, Principal Investigator
Sam Guerriero, Assistant Principal Investigator
CONTRACT NUMBER: N00014-97-C-0386 Page 8 of 20
<PAGE>
SECTION I - CONTRACT CLAUSES
Cost-Plus-Fixed-Fee - Research and Development (SBIR) (MAR 1997) (1)
* Applies when contract action exceeds $10,000.
** Applies when contract action exceeds $100,000.
+ Applies when contract action exceeds $500,000.
x(DD 250).
(a) FAR 52.252-02 CLAUSES INCORPORATED BY REFERENCE (JUN 1988)
This contract incorporates the following clauses by reference, with the
same force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available.
I. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES: -
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------------
**FAR 52.202-01 Definitions (OCT 1995)
- ----------------------------------------------------------------------------------------------
**FAR 52.203-03 Gratuities (APR 1984)
- ----------------------------------------------------------------------------------------------
FAR 52.203-05 Covenant Against Contingent Fees (APR 1984)
- ----------------------------------------------------------------------------------------------
FAR 52.203-07 Anti-Kickback Procedures (JUL 1995)
- ----------------------------------------------------------------------------------------------
**FAR 52.203-12 Limitation on Payments to Influence Certain Federal
Transactions (JAN 1990)
- ----------------------------------------------------------------------------------------------
**FAR 52.204-4 Printing/Copying Double-Sided on Recycled Paper (JUN
1996)
- ----------------------------------------------------------------------------------------------
FAR 52.204-05 Women-Owned Business (OCT 1995)
- ----------------------------------------------------------------------------------------------
FAR 52.211-15 Defense Priority and Allocation Requirements (SEP 1990)
- ----------------------------------------------------------------------------------------------
FAR 52.215-02 Audit and Records - Negotiation (AUG 1996)
- ----------------------------------------------------------------------------------------------
+FAR 52.215-22 Price Reduction for Defective Cost or Pricing Data (OCT
1995)
- ----------------------------------------------------------------------------------------------
+FAR 52.215-24 Subcontractor Cost or Pricing Data (OCT 1995)
- ----------------------------------------------------------------------------------------------
FAR 52.215-26 Integrity of Unit Prices (JAN 1997)
- ----------------------------------------------------------------------------------------------
FAR 52.215-26 Alternate I (JAN 1997) (Applicable if action contracted under
Other Than Full and Open Competition)
- ----------------------------------------------------------------------------------------------
FAR 52.215-27 Termination of Defined Benefit Pension Plans (MAR 1996)
- ----------------------------------------------------------------------------------------------
FAR 52.215-33 Order of Precedence (JAN 1986)
- ----------------------------------------------------------------------------------------------
FAR 52.215-39 Reversion or Adjustment of Plans for Postretirement
Benefits Other than Pensions (PRB) (MAR 1996)
- ----------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 9 of 20
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
FAR 52.216-07 Allowable Cost and Payment (MAR 1997)
- ---------------------------------------------------------------------------------------------
FAR 52.216-08 Fixed Fee (MAR 1997)
- ---------------------------------------------------------------------------------------------
FAR 52.217-07 Option for Increased Quantity-Separately Priced Line Item
(MAR 1989)
- ---------------------------------------------------------------------------------------------
FAR 52.219-06 Notice of Total Small Business Set-Aside (JUL 1996)
- ---------------------------------------------------------------------------------------------
**FAR 52.219-08 Utilization of Small, Small Disadvantaged, and Women-
Owned Small Business Concerns (OCT 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.222-01 Notice to the Government of Labor Disputes (FEB 1997)
- ---------------------------------------------------------------------------------------------
**FAR 52.222-02 Payment for Overtime Premiums (JUL 1990) (Note: The
word "zero" is inserted in the blank space indicated by an
asterisk)
- ---------------------------------------------------------------------------------------------
FAR 52.222-03 Convict Labor (AUG 1996) (Reserved when FAR 52.222-20
Walsh-Healy Public Contracts Act is applicable)
- ---------------------------------------------------------------------------------------------
FAR 52.222-04 Contract Work Hours and Safety Standards Act - Overtime
Compensation (JUL 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.222-26 Equal Opportunity (APR 1984)
- ---------------------------------------------------------------------------------------------
*FAR 52.222-35 Affirmative Action for Special Disabled and Vietnam Era
Veterans (APR 1984)
- ---------------------------------------------------------------------------------------------
FAR 52.222-36 Affirmative Action for Handicapped Workers (APR 1984)
- ---------------------------------------------------------------------------------------------
*FAR 52.222-37 Employment Reports on Special Disabled Veterans and
Veterans of the Vietnam Era (JAN 1988)
- ---------------------------------------------------------------------------------------------
**FAR 52.223-02 Clean Air and Water (APR 1984)
- ---------------------------------------------------------------------------------------------
**FAR 52.223-14 Toxic Chemical Release Reporting (OCT 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.225-11 Restrictions on Certain Foreign Purchases (OCT 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.227-01 Authorization and Consent (JUL 1995) and Alternate 1
(APR 1984)
- ---------------------------------------------------------------------------------------------
**FAR 52.227-02 Notice and Assistance Regarding Patent and Copyright
Infringement (AUG 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.227-20 Rights in Data - SBIR Program (MAR 1994)
- ---------------------------------------------------------------------------------------------
FAR 52.228-07 Insurance - Liability to Third Persons (MAR 1996) (Further
to paragraph (a)(3), unless otherwise stated in this
contract, type and limits of insurance required are as stated
in FAR 28.307-2)
- ---------------------------------------------------------------------------------------------
FAR 52.232-09 Limitation on Withholding of Payments (APR 1984)
- ---------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 10 of 20
<PAGE>
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
**FAR 52.232-17 Interest (JUN 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.232-23 Assignment of Claims (JAN 1986) and Alternate I (APR
1984)
- ---------------------------------------------------------------------------------------------
FAR 52.232-25 Prompt Payment (JUN 1997)
- ---------------------------------------------------------------------------------------------
FAR 52.232-33 Mandatory Information for Electronic Funds Transfer
Payment (AUG 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.233-01 Disputes (OCT 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.233-03 Protest After Award (AUG 1996) and Alternate I (AUG
1996)
- ---------------------------------------------------------------------------------------------
FAR 52.242-01 Notice of Intent to Disallow Costs (APR 1984)
- ---------------------------------------------------------------------------------------------
+FAR 52.242-03 Penalties for Unallowable Costs (OCT 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.242-04 Certification of Indirect Costs (JAN 1997)
- ---------------------------------------------------------------------------------------------
**FAR 52.242-13 Bankruptcy (JUL 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.242-15 Stop Work Order (AUG 1989) and Alternate I (APR 1984)
- ---------------------------------------------------------------------------------------------
FAR 52.243-02 Changes Cost-Reimbursement (AUG 1987) and Alternate V
(APR 1984)
- ---------------------------------------------------------------------------------------------
FAR 52.244-02 Subcontracts (Cost Reimbursement and Letter Contracts
(FEB 1997) and Alternate 1 (AUG 1996)
- ---------------------------------------------------------------------------------------------
**FAR 52.244-05 Competition in Subcontracting (DEC 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.244-06 Subcontracts for Commercial Items and Commercial
Components (OCT 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.245-05 Government Property (Cost Reimbursement, Time and
Material or Labor-Hour Contracts) (JAN 1986) (As modified
by DoD Class Deviation 95-00001 dated 14 July 1995)
- ---------------------------------------------------------------------------------------------
FAR 52.245-09 Use and Charges (APR 1984) (Deviation) (DoD Class
Deviation 96-00007, dated 6 September 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.246-09 Inspection of Research and Development (Short Form)
(APR 1984)
- ---------------------------------------------------------------------------------------------
FAR 52.247-63 Preference for U.S. Flag Air Carriers (JAN 1997)
- ---------------------------------------------------------------------------------------------
FAR 52.249-06 Termination (Cost-Reimbursement) (SEP 1996)
- ---------------------------------------------------------------------------------------------
FAR 52.249-14 Excusable Delays (APR 1984)
- ---------------------------------------------------------------------------------------------
FAR 52.251-01 Government Supply Sources (APR 1984)
- ---------------------------------------------------------------------------------------------
FAR 52.253-01 Computer Generated Forms (JAN 1991)
- ---------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 11 of 20
<PAGE>
II. DEPARTMENT OF DEFENSE FAR SUPPLEMENT (DFARS) (48 CFR CHAPTER 2)
CLAUSES: -
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------------
DFARS 252.203-7001 Special Prohibition on Employment (NOV 1995)
- ---------------------------------------------------------------------------------------------
DFARS 252.204-7003 Control of Government Personnel Work Product (APR
1992)
- ---------------------------------------------------------------------------------------------
**DFARS 252.209-7000 Acquisition from Subcontractors subject to On-Site
Inspection under the Intermediate Range Nuclear Forces
(INF) Treaty (NOV 1995)
- ---------------------------------------------------------------------------------------------
+DFARS 252.215-7000 Pricing Adjustments (DEC 1991)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7013 Rights in Technical Data - Noncommercial Items (JUN
1995) and Alternate I (NOV 1995)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7014 Rights in Noncommercial Computer Software and
Noncommercial Computer Software Documentation (JUN
1995)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7018 Rights in Noncommercial Technical Data and Computer
Software - Small Business Innovation Research (SBIR)
Program (JUN 1995)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7019 Validation of Asserted Restrictions - Computer Software
(JUN 1995)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7030 Technical Data - Withholding of Payment (OCT 1988)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7036 Certification of Technical Data Conformity (MAY 1987)
- ---------------------------------------------------------------------------------------------
DFARS 252.227-7037 Validation of Restrictive Markings on Technical Data (NOV
1995)
- ---------------------------------------------------------------------------------------------
DFARS 252.231-7000 Supplemental Cost Principles (DEC 1991)
- ---------------------------------------------------------------------------------------------
DFARS 252.232-7006 Reduction or Suspension of Contract Payments upon
Finding of Fraud (AUG 1992)
- ---------------------------------------------------------------------------------------------
DFARS 252.235-7002 Animal Welfare (DEC 1991)
- ---------------------------------------------------------------------------------------------
DFARS 252.242-7000 Postaward Conference (DEC 1991)
- ---------------------------------------------------------------------------------------------
DFARS 252.245-7001 Reports of Government Property (MAY 1994)
- ---------------------------------------------------------------------------------------------
xDFARS 252.246-7000 Material Inspection and Receiving Report (DEC 1991)
- ---------------------------------------------------------------------------------------------
DFARS 252.251-7000 Ordering from Government Supply Sources (MAY 1995)
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 12 of 20
<PAGE>
(b) THE FOLLOWING TWO CLAUSES ARE APPLICABLE TO CONTRACTS EXCEEDING $100,000:
52.203-8 CANCELLATION, RESCISSION, AND RECOVERY OF FUNDS FOR ILLEGAL OR
IMPROPER ACTIVITY (JAN 1997)
(a) If the Government receives information that a contractor or a person
has engaged in conduct constituting a violation of subsection (a), (b), (c),
or (d) of Section 27 of the Office of Federal Procurement Policy Act (41
U.S.C. 423) (the Act), as amended by section 4304 of the 1996 National
Defense Authorization Act for Fiscal Year 1996 (Pub. L. 104-106), the
Government may--
(1) Cancel the solicitation, if the contract has not yet been awarded or
issued; or
(2) Rescind the contract with respect to which--
(i) The Contractor or someone acting for the Contractor has been
convicted for an offense where the conduct constitutes a violation of
subsection 27 (a) or (b) of the Act for the purpose of either--
(A) Exchanging the information covered by such subsections
for anything of value; or
(B) Obtaining or giving anyone a competitive advantage in
the award of a Federal agency procurement contract; or
(ii) The head of the contracting activity has determined, based
upon a preponderance of the evidence, that the Contractor or someone acting
for the Contractor has engaged in conduct constituting an offense punishable
under subsections 27(e)(1) of the Act.
(b) If the Government rescinds the contract under paragraph (a) of this
clause, the Government is entitled to recover, in addition to any penalty
prescribed by law, the amount expended under the contract.
(c) The rights and remedies of the Government specified herein are not
exclusive, and are in addition to any other rights and remedies provided by
law, regulation, or under this contract.
52.203-10 PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997)
(a) The Government, at its election, may reduce the price of a fixed-price
type contract and the total cost and fee under a cost-type contract by the
amount of profit or fee determined as set forth in paragraph (b) of this
clause if the head of the contracting activity or designee determines that
there was a violation of subsection 27 (a), (b), or (c) of the Office of
Federal Procurement Policy Act, as amended (41 U.S.C. 423), as implemented in
section 3.104 of the Federal Acquisition Regulation.
(b) The price or fee reduction referred to in paragraph (a) of this clause
shall be--
(1) For cost-plus-fixed-fee contracts, the amount of the fee
specified in the contract at the time of award;
(2) For cost-plus-incentive-fee contracts, the target fee specified
in the contract at the time of award, notwithstanding any minimum fee or "fee
floor" specified in the contract;
CONTRACT NUMBER: N00014-97-C-0386 Page 13 of 20
<PAGE>
(3) For cost-plus-award-fee contracts--
(i) The base fee established in the contract at the time of
contract award;
(ii) If no base fee is specified in the contract, 30 percent
of the amount of each award fee otherwise payable to the Contractor for each
award fee evaluation period or at each award fee determination point.
(4) For fixed-price-incentive contracts, the Government may--
(i) Reduce the contract target price and contract target
profit both by an amount equal to the initial target profit specified in the
contract award; or
(ii) If an immediate adjustment to the contract price and
contract target profit would have a significant adverse impact on the
incentive price revision relationship under the contract, or adversely affect
the contract financing provisions, the Contracting Officer may defer such
adjustment until establishment of the total final price of the contract. The
total final price established in accordance with the incentive price revision
provisions of the contract shall be reduced by an amount equal to the initial
target profit specified in the contract at the time of contract award and
such reduced price shall be the total final contract price.
(5) For firm-fixed-price contracts, by 10 percent of the initial
contract price or a profit amount determined by the Contracting Officer from
records or documents in existence prior to the date of the contract award.
(c) The Government may, at its election, reduce a prime contractor's price
or fee in accordance with the procedures of paragraph (b) of this clause for
violations of the Act by its subcontractors by an amount not to exceed the
amount of profit or fee reflected in the subcontract at the time the
subcontract was first definitively priced.
(d) In addition to the remedies in paragraphs (a) and (c) of this clause,
the Government may terminate this contract for default. The rights and
remedies of the Government specified herein are not exclusive, and are in
addition to any other rights and remedies provided by law or under this
contract.
(c) ADDITIONAL FAR AND DFARS CLAUSES
This contract incorporates the following checked clauses by reference,
with the same force and effect as if they were given in full text. Upon
request, the Contracting Officer will make their full text available.
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
FAR 52.204-02 Security Requirements (AUG 1996) (Applicable if contract will
generate or require access to classified information and DD
Form 254, Contract Security Classification Specification, is
issued to the contractor)
- --------------------------------------------------------------------------------------------------------
X FAR 52.209-06 Protecting the Government's Interest when Subcontracting
with Contractors Debarred, Suspended, or Proposed for
Debarment (JUL 1995) (Applicable to contracts exceeding
$25,000 in value)
- --------------------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 14 of 20
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
X FAR 52.215-31 Waiver of Facilities Capital Cost of Money (SEP 1987)
(Applicable if the Contractor did not propose facilities capital
cost of money in the offer)
- --------------------------------------------------------------------------------------------------------
FAR 52.217-09 Option to Extend the Term of the Contract (MAR 1989)
(In paragraph (a), insert " ", and in paragraph (c), insert " ").
(Applicable if contract contains line item(s) for option(s)).
(Complete the spaces in parentheses).
- --------------------------------------------------------------------------------------------------------
FAR 52.222-20 Walsh Healy Public Contracts Act (DEC 1996) (Applicable if
the contract includes deliverable materials, supplies, articles
or equipment in an amount that exceeds or may exceed $10,000)
- --------------------------------------------------------------------------------------------------------
FAR 52.222-28 Equal Opportunity Preaward Clearance of Subcontracts (APR
1984) (Applicable only when contract action exceeds
$1,000,000 or when any modification increases contract
amount to more than $1,000,000)
- --------------------------------------------------------------------------------------------------------
X FAR 52.223-06 Drug-Free Workplace (JAN 1997) (Applies when contract
action exceeds $100,000 or at any value when the contract is
awarded to an individual)
- --------------------------------------------------------------------------------------------------------
FAR 52.227-10 Filing of Patent Applications - Classified Subject Matter (APR
1984) (Applicable if contract is subject to FAR clauses
52.204-02 and either FAR 52.227-11 or FAR 52.227-12)
- --------------------------------------------------------------------------------------------------------
X FAR 52.227-11 Patent Rights - Retention by the Contractor (Short Form)
(JUN 1989) (Applicable if contractor is a small business or
nonprofit organization)
- --------------------------------------------------------------------------------------------------------
X FAR 52.232-20 Limitation of Cost (APR 1984) (Application only when contract
action is fully funded)
- --------------------------------------------------------------------------------------------------------
FAR 52.232-22 Limitation of Funds (APR 1984) (Applicable only when
contract action is incrementally funded)
- --------------------------------------------------------------------------------------------------------
FAR 52.239-01 Privacy or Security Safeguards (AUG 1996) (Applicable to
contracts for information technology which require security of
information technology, and/or are for the design,
development, or operation of a system of records using
commercial information technology services or support
services)
- --------------------------------------------------------------------------------------------------------
DFARS 252.203-7002 Display of DoD Hotline Poster (DEC 1991) (Applicable only
when contract action exceeds $5 million or when any
modification increases contract amount to more than $5
million)
- --------------------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 15 of 20
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
DFARS 252.204-7000 Disclosure of Information (DEC 1991) (Applies when
contractor will have access to or generate unclassified
information that may be sensitive and inappropriate for
release to the public)
- --------------------------------------------------------------------------------------------------------
X DFARS 252.205-7000 Provision of Information to Cooperative Agreement Holders
(DEC 1991) (Applicable only when contract action exceeds
$500,000 or when any modification increases total contract
amount to more than $500,000)
- --------------------------------------------------------------------------------------------------------
DFARS 252.209-7004 Reporting of Commercial Transactions with the Government
of a Terrorist Country (SEP 1994) (Applicable to contracts in
excess of $5,000,000)
- --------------------------------------------------------------------------------------------------------
X DFARS 252.215-7002 Cost Estimating System Requirements (DEC 1991)
(Applicable only to contract actions exceeding $500,000
awarded on the basis of certified cost or pricing data)
- --------------------------------------------------------------------------------------------------------
DFARS 252.223-7004 Drug-Free Work Force (SEP 1988) Applicable (a) if the
contract involves access to classified information; or (b) when
the contracting officer determines that the clause is necessary
for reasons of national security or for the purpose of
protection the health or safety of those using or affected by
the product of, or performance of, the contract
- --------------------------------------------------------------------------------------------------------
DFARS 252.223-7006 Prohibition on Storage and Disposal of Toxic and Hazardous
Materials (APR 1993) (Applicable if work requires, may
require, or permits contractor performance on a DoD
installation)
- --------------------------------------------------------------------------------------------------------
DFARS 252.225-7001 Buy American Act and Balance of Payments Program (JAN
1994) (Applicable if the contract includes deliverable supplies)
- --------------------------------------------------------------------------------------------------------
DFARS 252.225-7002 Qualifying Country Sources as Subcontractors (DEC 1991)
(Applicable when clause at DFARS 252.225-7001 applies)
- --------------------------------------------------------------------------------------------------------
DFARS 252.225-7008 Supplies to be Accorded Duty-Free Entry (DEC 1991)
(Applicable when clause at DFARS 252.225-7009 applies)
- --------------------------------------------------------------------------------------------------------
DFARS 252.225-7009 Duty Free Entry - Qualifying Country End Products and
Supplies (DEC 1991) (Applicable if contract includes
deliverable supplies)
- --------------------------------------------------------------------------------------------------------
DFARS 252.225-7010 Duty Free Entry - Additional Provisions (DEC 1991)
(Applicable when clause at DFARS 252.225-7009 applies)
- --------------------------------------------------------------------------------------------------------
DFARS 252.225-7016 Restriction on Acquisition of Ball and Roller Bearings (JUN
1997) (Applicable if contract includes deliverable supplies,
unless Contracting Officer knows that items being acquired
do not contain ball or roller bearings)
- --------------------------------------------------------------------------------------------------------
</TABLE>
CONTRACT NUMBER: N00014-97-C-0386 Page 16 of 20
<PAGE>
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
X DFARS 252.225-7026 Reporting of Contract Performance Outside the United States
(NOV 1995) (Applicable only when contract action exceeds
$500,000 or when any modification increases contract value
to more than $500,000)
- --------------------------------------------------------------------------------------------------------
X DFARS 252.227-7034 Patents - Subcontracts (APR 1984) (Applicable when clause
at FAR 52.227-11 applies)
- --------------------------------------------------------------------------------------------------------
X DFARS 252.227-7039 Patents - Reporting of Subject Inventions (APR 1990)
(Applies when clause at FAR 52.227-11 applies)
- --------------------------------------------------------------------------------------------------------
DFARS 252.249-7001 Notification of Substantial Impact on Employment (DEC 1991)
(Applies to all prime contracts valued at $5 million or more,
and to all contracts with subcontracts of $500,000 or more)
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(d) THE FOLLOWING CLAUSE IS APPLICABLE TO CONTRACT ACTIONS EXCEEDING
$100,000:
X DFARS 252.247-7023 Transportation of Supplies by Sea (NOV 1995)
- ---
(a) As used in this clause:
(1) "Components" means articles, materials, and supplies
incorporated directly into end products at any level of manufacture,
fabrication or assembly by the Contractor or any subcontractor.
(2) "Department of Defense" (DoD) means the Army, Navy, Air
Force, Marine Corps, and Defense agencies.
(3) "Foreign flag vessel" means any vessel that is not a
U.S.-flag vessel.
(4) "Ocean transportation" means any transportation aboard a
ship, vessel, boat, barge, or ferry through international waters.
(5) "Subcontractor" means a supplier, materialman, distributor
or vendor at any level below the prime contractor whose contractual
obligation to perform results from, or is conditioned upon, award of the
prime contract and who is performing any part of the work or other
requirement of the prime contract. However, effective May 1, 1996, the term
does not include a supplier, materialman, distributor or vendor of commercial
items or commercial components.
(6) "Supplies" means all property, except land and interests in
land, that is clearly identifiable for eventual use by or owned by the DoD at
the time of transportation by sea.
(i) An item is clearly identifiable for eventual use by
the DoD if, for example, the contract documentation contains a reference to a
DoD contract number or a military destination.
(ii) "Supplies" includes (but is not limited to) public
works; buildings and facilities; ships; floating equipment and vessels of
every character, type and description,
CONTRACT NUMBER: N00014-97-C-0386 Page 17 of 20
<PAGE>with parts, subassemblies, accessories and equipment; machine tools;
material; equipment; stores of all kinds; end items; construction materials;
and components of the foregoing.
(7) "U.S.-flag vessel" means a vessel of the United States or
belonging to the United States, including any vessel registered or having
national status under the laws of the United States.
(b) The Contractor shall employ United States-flag vessels in the
transportation by sea of any supplies to be furnished in the performance of
this contract. The Contractor and its subcontractors may request that the
Contracting Officer authorize shipment in foreign-flag vessels, or designate
U.S.-flag vessels, if the Contractor or a subcontractor believes that --
(1) U.S.-flag vessels are not available for timely shipment;
(2) The freight charges are inordinately excessive or unreasonable;
or
(3) Freight charges are higher than charges to private persons for
transportation of like goods.
(c) The Contractor must submit any request for use of other than
U.S.-flag vessels in writing to the Contracting Officer at least 45 days
prior to the sailing date necessary to meet its delivery schedules. The
Contracting Officer will process requests submitted after such date(s) as
expeditiously as possible, but the Contracting Officer's failure to grant
approvals to meet the shipper's sailing date will not of itself constitute a
compensable delay under this or any other clause of this contract. Requests
shall contain at a minimum --
(1) Type, weight, and cube of cargo.
(2) Required shipping date.
(3) Special handling and discharge requirements.
(4) Loading and discharge points.
(5) Name of shipper and consignee.
(6) Prime contract number; and
(7) A documented description of efforts made to secure U.S.-flag
vessels, including points of contact (with names and telephone numbers) of at
least two (2) U.S.-flag carriers contacted. Copies of telephone notes,
telegraphic and facsimile messages or letters will be sufficient for this
purpose.
(d) The Contractor shall, within thirty (30) days after each shipment
covered by this clause, provide the Contracting Officer and the Division of
National Cargo, Office of Market Development, Maritime Administration, U.S.
Department of Transportation, Washington, DC 20590, one copy of the rated on
board vessel operating carrier's ocean-bill-of-lading, which shall contain
the following information:
(1) Prime contract number;
(2) Name of vessel;
(3) Vessel flag of registry;
(4) Date of loading;
(5) Port of loading;
(6) Port of final discharge;
CONTRACT NUMBER: N00014-97-C-0386 Page 18 of 20
<PAGE>
(7) Description of commodity;
(8) Gross weight in pounds and cubic feet if available;
(9) Total ocean freight in U.S. dollars; and
(10) Name of the steamship company.
(e) The Contractor agrees to provide with its final invoice under this
contract a representation that to the best of its knowledge and belief:
(1) No ocean transportation was used in the performance of this
contract;
(2) Ocean transportation was used and only United States-flag
vessels were used for all ocean shipments under the contract.
(3) Ocean transportation was used, and the Contractor had the
written consent of the Contracting Officer for all non-U.S.-flag ocean
transportation; or
(4) Ocean transportation was used and some or all of the shipments
were made on non-U.S.-flag vessels without the written consent of the
Contracting Officer. The Contractor shall describe these shipments in the
following format:
<TABLE>
<CAPTION>
----------------------------------------------------
ITEM CONTRACT
DESCRIPTION LINE ITEMS QUANTITY
----------------------------------------------------
<S> <C> <C> <C>
Total
----------------------------------------------------
----------------------------------------------------
</TABLE>
(f) If the final invoice does not include the required representation,
the Government will reject it and return it to the Contractor as an improper
invoice for the purposes of Prompt Payment clause of this contract. In the
event there has been unauthorized use of non-U.S.-flag vessels in the
performance of this contract, the Contracting Officer is entitled to
equitably adjust the contract, based on the unauthorized use.
(g) The Contractor shall include this clause, including this paragraph
(g), in all subcontracts under this contract, which exceed the simplified
acquisition threshold in Part 13 of the Federal Acquisition Regulations.
(e) THE FOLLOWING CLAUSE IS APPLICABLE WHEN THE CONTRACTOR HAS MADE A
NEGATIVE RESPONSE TO THE INQUIRY IN THE REPRESENTATION AT DFARS 252.247-7022
AND THE CONTRACT ACTION IS FOR $100,000 OR MORE.
X DFARS 252.247-7024 NOTIFICATION OF TRANSPORTATION OF SUPPLIES BY SEA
- --- (NOV 1995)
(a) The Contractor has indicated by the response to the solicitation
provision, Representation of Extent of Transportation by Sea, that it did not
anticipate transporting by sea any supplies. If, however, after the award of
this contract, the Contractor learns that supplies, as defined in the
Transportation of Supplies by Sea clause of this contract, will be
transported by sea, the Contractor --
CONTRACT NUMBER: N00014-97-C-0386 Page 19 of 20
<PAGE>
(1) Shall notify the Contracting Officer of that fact; and
(2) Hereby agrees to comply with all the terms and conditions of
the Transportation of Supplies by Sea clause of this contract.
(b) The Contractor shall include this clause, including this paragraph
(b), revised as necessary to reflect the relationship of the contracting
parties, in all subcontracts hereunder, except (effective May 1, 1996)
subcontracts for the acquisition of commercial items or components.
SECTION J - LIST OF ATTACHMENTS
1. Exhibit A, entitled "Contract Data Requirements List" (DD 1423).
2. Attachment Number 1, entitled "Contract Data Requirements List -
Instructions for Distribution", 1 page.
3. Exhibit B, entitled, "Financial Accounting Data Sheet."
SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS
1. The Contractor's Representations and Certifications, dated 22 JUL 1997,
are hereby incorporated into this contract by reference.
CONTRACT NUMBER: N00014-97-C-0386 Page 20 of 20
<PAGE>
<TABLE>
<CAPTION>
<S><C>
XXXXXXXXXXXXXXX OMB No. XXXXXXX
(2 Data Items)
- ----------------------------------------------------------------------------------------------------------------------------------
Public reporting burden for this collection of information is estimated to average 440 hours per response, including the time for
reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing
the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information,
including suggestions for reducing this burden, to Washington Headquarters Services Directories for Information Operations and
Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget Paperwork
Reduction Project (0704-01XX), Washington, DC 20503.
- ----------------------------------------------------------------------------------------------------------------------------------
A. CONTRACT LINE ITEM NO. B. EXHIBIT C. CATEGORY
0002 A TOP / / TM / / OTHER /x/
- ----------------------------------------------------------------------------------------------------------------------------------
D. SYSTEM/ITEM E. CONTRACT/PR NO. F. CONTRACTOR
N00014-97-C-0386 ORYX TECHNOLOGY CORPORATION
- ----------------------------------------------------------------------------------------------------------------------------------
1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A001 Progress Report
- ----------------------------------------------------------------------------------------------------------------------------------
4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
See Section H.1 See Section F.2
- ----------------------------------------------------------------------------------------------------------------------------------
7. DD 250 RBQ 9. DEBT STATEMENT 10. FREQUENCY 12. DATE OF FIRST SUBMISSION 14. DISTRIBUTION
LT* REQUIRED as required -----------------------------------
b. COPIES
- ----------------------------------------------------------------------------------------------------------------------------------
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT SUBMISSION Final
* -----------------------------------
- ---------------------------------------------------------------------------------------------- ADDRESSEE Draft REQ REPRO
16. REMARKS -----------------------------------
* As required by the Program Officer, these reports, submitted periodically for the See Enclosure
purpose of reporting progress, may be in the form of a letter report, or a technical report. Number 1
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
15. TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
1. DATA ITEM NO. 2. TITLE OF DATA ITEM 3. SUBTITLE
A002 Final Report
- ----------------------------------------------------------------------------------------------------------------------------------
4. AUTHORITY (Data Acquisition Document No.) 5. CONTRACT REFERENCE 6. REQUIRING OFFICE
See Section H.1 See Section F.2
- ----------------------------------------------------------------------------------------------------------------------------------
7. DD 250 RBQ 9. DEBT STATEMENT 10. FREQUENCY 12. DATE OF FIRST SUBMISSION 14. DISTRIBUTION
DD* REQUIRED ONE/R See Section F -----------------------------------
b. COPIES
- ----------------------------------------------------------------------------------------------------------------------------------
8. APP CODE 11. AS OF DATE 13. DATE OF SUBSEQUENT SUBMISSION Final
See Section F -----------------------------------
- ---------------------------------------------------------------------------------------------- ADDRESSEE Draft REQ REPRO
16. REMARKS -----------------------------------
* DD250 required only for acceptance by the Program Officer designated in Section F.2. See Enclosure
Information copies of this report shall be distributed in accordance with Enclosure Number 1. Number 1
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
15. TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
G. PREPARED BY H. DATE L. APPROVED BY J. DATE
Wade Wargo / ONR251 07 AUG 1997 Lambert McCullough / ONR 251 Branch Head 07 AUG 1997
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
D Form 1423-2, JUN 90 Previous editions are obsolete Page of __ Pages
</TABLE>
Contract Number N00014-97-C-0386
<PAGE>
Attachment Number 1
Page 1 of 1
CONTRACT DATA REQUIREMENTS LIST
INSTRUCTIONS FOR DISTRIBUTION
DISTRIBUTION OF TECHNICAL REPORTS AND FINAL REPORT
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
NUMBER OF COPIES
-------------------------------------
UNCLASSIFIED/
DODAAD UNCLASSIFIED/ LIMITED AND
ADDRESSEE CODE UNLIMITED CLASSIFIED
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Program Officer N00014 1 1
- ---------------------------------------------------------------------------------------
Administrative Contracting Officer* S0507A 1 1
- ---------------------------------------------------------------------------------------
Director, Naval Research Laboratory N00173 1 1
ATTN: Code 2627
Washington, D.C. 20375-5326
- ---------------------------------------------------------------------------------------
Defense Technical Information Center S47031 2 2
8725 John J. Kingman Road
STE 0944
Ft. Belvoir, VA 22060-6218
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF REPORTS WHICH ARE NOT TECHNICAL REPORTS
The minimum distribution for reports which are not technical reports is as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
NUMBER OF COPIES
-------------------------------------
UNCLASSIFIED/
DODAAD UNCLASSIFIED/ LIMITED AND
ADDRESSEE CODE UNLIMITED CLASSIFIED
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Program Officer N00014 1 1
- ---------------------------------------------------------------------------------------
Administrative Contracting Officer* S0507A 1 1
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
*Send only a copy of the transmittal letter to the Administrative Contracting
Officer, do not send actual reports to the Administrative Contracting Officer.
CONTRACT NUMBER: N00014-97-C-0386 Page 22
<PAGE>
FINANCIAL ACCOUNTING DATA SHEET - NAVY
<TABLE>
<CAPTION>
PAGE 1 OF 1
- ----------------------------------------------------------------------------------------------------------------------------
1. CONTRACT NUMBER (CRITICAL) 2. SPMN (CRITICAL) 3. MOD (CRITICAL)
N0001-407C0366
- ----------------------------------------------------------------------------------------------------------------------------
6. LINE OF ACCOUNTING
------------------------------------------------------------------------------------------------------------
A. B. C. D. E. F. G. H. I.
CLIN/SLIN ACRN APPROPRIATION SUBHEAD OBJ PARM RFM SA AAA IT
(CRITICAL) (CRITICAL) (CRITICAL) CLA (CRITICAL)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0001 AA 9770400 WAAK 000 RA 353 0 068342 2D
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------
4. PR NUMBER
97PR07477-00
- ------------------------------------------------------------------------------------
6. LINE OF ACCOUNTING 7.
- --------------------------------
J. K.
PAA COST CODE
----------------------- NAVY INTERNAL
PROJ PDLI AMOUNT USE ONLY
UNIT MCC & SUF (CRITICAL) REF DOC/ACRN
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
000000 16601 000 B010 740,824.00 PR#97PR07477-00 FRC:BB0
- -------------------------------------------------
- -------------------------------------------------
PAGE TOTAL $740,824.00
GRAND TOTAL $740,824.00
- -------------------------------------------------
</TABLE>
- ------------------------------------------------------------------------------
PREPARED/AUTHORIZED BY: COMPTROLLER APPROVAL:
FOR FISCAL DATA AND SIGNATURE
BY _______________________FOR
COMPTROLLER, ONR CONTRACT
DATE: REVIEWED
DATE:
- ------------------------------------------------------------------------------
FAD1 Page 23
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is made as of September 11,
1997 by and between Oryx Technology Corp., a Delaware corporation ("Seller"),
and ("Buyer").
WHEREAS, Seller owns shares of the Series A Preferred Stock (the "Shares")
of DAS Devices, Inc., a Delaware corporation (the "Corporation"); and
WHEREAS, Buyer desires to purchase, and Seller desires to sell and transfer
the Shares to Buyer for cash consideration of Seventy Cents ($0.70) per share
pursuant to the terms hereof.
NOW, THEREFORE, Seller and Buyer agree as follows:
1. SALE OF SHARES. Subject to the terms and conditions set forth in
this Agreement, Seller hereby sells, conveys, transfers, assigns and delivers
the Shares to Buyer, and Buyer hereby purchases the Shares from Seller.
2. PURCHASE PRICE. In consideration of Seller's transfer and sale of
the Shares to Buyer pursuant to the terms hereof, Buyer shall pay to Seller
in cash on the date of the Closing (as defined in Section 3 below).
3. CLOSING. The closing of the transaction contemplated by this
Agreement (the "Closing") shall take place at the offices of Seller on or
before September 19, 1997, or at such other place or in such other manner as
the parties may agree. After the Closing, Buyer and Seller shall execute and
deliver any additional documents required to implement the terms and
conditions of this Agreement, if any.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to Buyer that as of the Closing:
4.1 Seller has good and marketable title, without liens of any
kind or nature whatsoever, to all of the Shares sold, assigned, conveyed
and/or transferred hereunder; and
4.2 Seller is the registered owner of the Shares.
5. REPRESENTATIONS AND WARRANTIES OF BUYER. As an inducement to Seller
to sell the shares to Buyer, and in order to establish the suitability for Buyer
of such an investment, Buyer hereby makes the following representations and
warranties, and authorizes Seller to rely upon the same:
5.1 Buyer has received all materials relating to the Corporation
which it has requested. The Corporation has answered all inquiries that
Buyer or its representatives have put to the Corporation relating to this
Agreement. Buyer has had access to all additional information necessary to
verify the accuracy of the information set forth in documents fumished to
Buyer,
1
<PAGE>
and has taken all the steps necessary to evaluate the merits and
risks of an investment in the Corporation.
5.2 Buyer's purchaser representative has such knowledge and
experience in finance, securities, investments and other business matters so
as to be able to protect its interests in connection with this transaction,
and its investment in the Corporation is not material when compared to its
total financial capacity.
5.3 Buyer understands the various risks of an investment in the
Corporation and can afford to bear such risks, including, but not limited to,
the risks of losing its entire investment.
5.4 Buyer has no need for liquidity of its investment in the
Corporation and can afford to hold the Shares for a substantial period of
time.
5.5 Buyer is fully aware that an investment in the Corporation
involves significant risks which it may have to bear for an indefinite
period of time.
5.6 Buyer understands that the Shares are being offered and sold
under an exemption from registration provided for in Section 4(2) of the Act
and Rule 144(k) promulgated thereunder, and under similar exemptions under
certain state securities laws. Additionally, Buyer understands that this
transaction has not been reviewed by, passed on or submitted to any Federal
or state agency or self-regulatory organization where an exemption is being
relied upon.
5.7 Buyer understands that the Shares are subject to a right of
first refusal in favor of the Corporation as provided under Article 10 of the
Corporation's Amended and Restated Bylaws, and the certificate representing
the Shares shall bear an appropriate legend reflecting such right of first
refusal.
5.9 The Shares purchased hereunder will be acquired by Buyer for
its own account for investment and not with a view to the distribution
thereof.
5.10 Except as has been specifically disclosed by Buyer to the
Corporation in writing, no sales commission or similar payments have been
paid or are or will be owed by Buyer to any third party in connection with
Buyer's purchase of the Shares.
6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO MUTUAL OBLIGATIONS. The respective obligations
of each of the parties hereto at the Closing are subject to the fulfillment
to their reasonable satisfaction of the following conditions precedent (or
mutual written waiver thereof) on or before the Closing:
(a) Consummation of the transactions contemplated hereby
shall not have been prohibited by any order, decree or judgment of any
United States court, governmental agency, or other regulatory agency or
commission having competent jurisdiction; or
2
<PAGE>
(b) There shall not have been promulgated, entered, issued or
determined to be applicable to this Agreement any law, regulation, order,
judgment or decree making the sale or purchase of the Shares as contemplated
hereby illegal.
6.2 CONDITIONS TO SELLER'S OBLIGATIONS. Seller's obligations as of the
Closing are subject to the fulfillment to the reasonable satisfaction of or
written waiver by Seller of the following conditions on or before the Closing:
(a) The representations and warranties of Buyer made in this
Agreement are correct in all material respects at and as of the Closing as
though such representations and warranties were made at and as of such time,
except as affected by the provisions hereof and the transactions contemplated
hereby; and
(b) Buyer shall have performed and complied in all material
respects with each covenant or condition required by this Agreement to be
performed or complied with by it prior to or at the Closing.
7. GENERAL.
7.1 ASSIGNMENT. This Agreement shall inure to the benefit of and
be binding upon the respective successors to and assigns of Seller
and Buyer. This Agreement shall not be assignable in whole or in part
without the prior written consent of the other party, which consent shall not
be unreasonably withheld.
7.2 FURTHER ASSURANCES. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as the other party hereto may reasonably request in order to carry
out the intent and purposes of this Agreement and the consummation of the
transactions contemplated hereby.
7.3 MISCELLANEOUS. This Agreement and the agreements executed at
the Closing, if any, embodies the entire agreement and understanding between
the parties hereto with respect to the subject matter hereof. This Agreement
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Agreement shall be construed in
accordance with and governed by the laws of the State of California, without
giving effect to the conflict of law principles thereof. If any term of this
Agreement or application thereof shall be invalid or unenforceable, the
remainder of this Agreement shall remain in full force and effect. This
Agreement may be executed in several counterparts, each of which is an
original but all of which shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement, effective as
of the date first above written.
3
<PAGE>
June 6, 1997
Arvind Patel
525 Alvarado
San Francisco, California
Re: SEPARATION AGREEMENT AND GENERAL RELEASE
Dear Arvind:
This letter summarizes the agreement ("Agreement") that we have reached
with respect to your employment with Oryx Technology Corp., a publicly traded
Delaware corporation ("the Company"). Upon execution of this letter
Agreement, you and the Company agree that the following sets forth the
complete understanding regarding the cessation of your employment with the
Company as President and Chief Executive Officer of the Company and in any
other capacity with the Company or any of its subsidiaries, excluding your
remaining as a member of the Board of Directors and Chairman of the Board.
In return for your execution of this Agreement, you have resigned as
President and CEO of the Company and as an employee of any and all of its
subsidiaries. You will remain as a member of the Company's Board of Directors,
assuming the position as Chairman. In that capacity, you will be responsible for
assisting the Company by helping it to raise money and providing strategic
direction. You will report to and work with Phil Micciche, the new President and
CEO of the Company. In consideration of the release of all your claims and your
other obligations as set forth in this Agreement, the Company agrees to provide
you with 12 months severance payments payable through April 24, 1998 equivalent
to your monthly salary as of April 25, 1997, regardless of whether you obtain
other employment. The Company will continue your health care coverage through
the earlier of (i) April 25, 1998 or (ii) you have found full time other
employment. All severance payments will be made on the same schedule as
compensation is paid to the Company's employees. You cease being a full time
employee at April 25, 1997.
Your 1996 stock option for 200,000 shares is hereby accelerated to
become fully vested. In addition, you hold one additional separate fully
vested non-statutory stock option for 100,000 shares of Company stock with an
exercise price of $1.94, representing the closing bid price on the NASDAQ
system on April 24, 1997. All of your options are hereby modified to have a
term of ten years for their exercise from their grant date. You understand
that failure to exercise the options within a limited period of time after
you have ceased being an employee will cause them to be treated as
non-statutory options. All of your options are set forth as EXHIBIT 1
attached hereto. You agree that you have no other options than those in such
EXHIBIT 1, AND THAT AS OF THE DATE HEREOF, 341,659 OF YOUR OPTIONS HAVE
VESTED, INCLUDING THE 100,000 RECENTLY GRANTED OPTIONS. You agree to vote all
shares or equity securities which you own or control, directly or
<PAGE>
Arvind Patel
June 6, 1997
Page 2
indirectly, of the Company, including any successor corporation which acquires
the Company or into which the Company may be merged and where the Company is not
the surviving entity, held by you or any person who succeeds to your ownership
of the shares in any and all matters as to which the shares are to be voted or a
stockholder consent is solicited as recommended or directed by the Board of
Directors of the Company (determined on the majority vote of the Board).
You agree that you shall not solicit, or attempt to influence, directly or
indirectly, the vote of any stockholder contrary to or inconsistent with any
decision or position taken by the Board of Directors, including but not limited
to the Board's decision to change the Company's plans to fund or manage the
Company's SurgX operations. You agree to support any such decision of the Board
and to support fully the slate of nominees of the Board of Directors for the
1997 annual meeting and thereafter. You understand that satisfying the
obligations set forth in this paragraph is a condition precedent to the
Company's obligation to make the severance payments described above and that if
you fail to honor such obligations, the Company will be under no further
obligation and have no further liability to continue to make the severance
payments.
You may keep your voice mail at the Company until the earlier of April
25, 1998 or you obtain employment at another company. Subject to Phil
Micciche's prior approval in each instance, secretarial assistance may be
available for your use on Company business by the Company. You may retain the
fax machine in your possession.
You understand and agree that you are otherwise ineligible to receive
any severance, continued health care coverage, stock, or stock options in the
Company and that the aforementioned amounts represent more than the Company
is obligated to provide you. You further agree that this offer is made as a
part of a settlement specific to you. You agree that you have returned all
Company owned property in your actual or constructive possession to the
Company.
In consideration for the benefits described above, you, on behalf of
yourself, your agents, assignees, attorneys, heirs, executors, and
administrators, hereby release the Company and its successors, assigns, parents,
subsidiaries, divisions, affiliates, officers, directors, shareholders,
employees, agents, and representatives from:
(a) any and all claims, liens, demands, causes of action, obligations,
damages and liabilities, known or unknown, of any nature whatsoever, that you
may have now or may hereafter claim to have against the Company or its
successors, assigns, parents, subsidiaries, divisions, affiliates, officers,
directors, shareholders, employees, agents, and representatives, arising
directly or indirectly out of, or in any way connected with or based upon, or
related in any way to, any and all claims under any state or federal
discrimination statute including, but not limited to, age, physical or mental
disability, medical condition, and any other claims covered
<PAGE>
Arvind Patel
June 6, 1997
Page 3
under the California Fair Employment and Housing Act, the federal Age
Discrimination in Employment Act (as amended by the Older Workers' Benefit
Protection Act), and any claims of wrongful termination under state or federal
law, including claims for expenses and attorneys' fees in connection with such
claims; and
(b) any and all claims, liens, demands, causes of action, obligations,
damages and liabilities, known or unknown, of any nature whatsoever, that you
may have now or may hereafter claim to have against the Company or its
successors, assigns, parents, subsidiaries, divisions, affiliates, officers,
directors, shareholders, employees, agents, and representatives, arising
directly or indirectly out of, or in any way connected with or based upon, or
related in any way to your employment with the Company, the termination of your
employment, or to any physical or mental harm or distress from such employment
or termination of such employment, including, without limitation, any and all
claims under California or federal statutory or decisional law pertaining to
wrongful discharge, discrimination, or breach of public policy.
You waive all rights and remedies under Section 1542 of the California
Civil Code, which provides as follows:
A general release does not extend to claims which the
creditor does not know or suspect to exist in its favor at
the time of executing the release, which if known by it must
have materially affected its settlement with the debtor.
Notwithstanding the foregoing or any other provision of this Agreement,
nothing herein changes the Company's obligations to indemnify you as required
under California Labor Code Section 2802 or any applicable Company insurance
policy affecting its officers, directors, and/or employees. You agree that if
the facts with respect to which this Agreement is executed are found hereafter
to be different from the facts which you now believe to be true, you expressly
accept and assume the risk of such possible differences in facts and agree that
this Agreement shall be and remain effective notwithstanding such differences in
facts.
You understand and agree that during the course of your employment, you
had access to proprietary or confidential information belonging to the
Company. You understand and agree that you will not disclose, transfer,
publish or otherwise use, either directly or indirectly, any of such
information.
You and the Company agree that confidentiality of the existence and
terms of this Agreement is of the essence. You shall not disclose the terms
and this Agreement, including without limitation, the nature and payment of
consideration referred to in this Agreement, to any third party other than
your legal counsel, tax advisor, and/or members of your immediate family. You
further agree to make no voluntary statements regarding this Agreement except
as may be
<PAGE>
Arvind Patel
June 6, 1997
Page 4
necessary for the purposes of audit, taxation returns or other disclosures
required by law or as may be reasonably necessary to conduct personal financial
business, and to take no other action whatsoever which might reasonably be
expected to result in any disclosure whatsoever concerning this Agreement. You
also agree not to advise, assist or influence in any manner whatsoever any other
past, present or future employee of the Company in asserting any claim against
the Company or in filing, preparing to file or prosecuting any lawsuit, charges,
complaints, petitions or other accusatory pleadings against the Company with any
governmental agency or in any court, provided, however, that providing testimony
or documents pursuant to a valid subpoena shall not be considered a breach of
this provision.
In the event that any dispute arises with respect to the interpretation,
enforcement or alleged breach of this Agreement, you and the Company agree to
resolve such dispute through arbitration conducted before a single arbitrator
according to the arbitration rules of the American Arbitration Association. The
arbitration will be held in Palo Alto, California, and the prevailing party
shall be entitled to recover its reasonable costs and attorneys' fees incurred
in connection with such arbitration.
This Agreement shall inure to the benefit of and be binding upon each of
the parties hereto and upon their successors, heirs and assigns.
This Agreement is entered into by each party hereto without any admission
of liability to each other, but solely for the purpose of avoiding further
uncertainty, controversy and legal expense. Without limiting the foregoing,
neither this Agreement nor any consideration paid by either party therefor, nor
anything contained in this Agreement, shall be taken or construed to be an
inference of admission by the Company with respect to any claims that could be
alleged.
You and the Company both warrant that no promise, inducement or agreement
not expressed herein has been made in connection with this Agreement; that this
Agreement constitutes the entire agreement between them, and cancels and
supersedes all prior communications or understandings between them with respect
to the subject matter of this Agreement. This Agreement may only be varied or
modified by a written document executed by you and the Company.
You acknowledge that you are aware that under the Older Workers' Benefit
Protection Act, you have twenty-one (21) calendar days to decide whether to
enter into this Agreement. You acknowledge and agree that you have been
allowed twenty-one (21) calendar days to consider this Agreement or if you
execute it prior to the expiration of that twenty-one (21) day period, you
voluntarily waived any time remaining. You further acknowledge that you are
aware that under the Older Workers' Benefit Protection Act you may revoke
this Agreement within seven (7) calendar days after it is signed. You
further agree that this Agreement shall not be
<PAGE>
Arvind Patel
June 6, 1997
Page 5
effective until after this revocation period has expired and that you are aware
that in the event you timely exercise your right of rescission, you will have no
rights under this Agreement.
You acknowledge and agree that you have had had the opportunity to consult
with the advisor of your choice with respect to the matters which are the
subject of this Agreement. You further agree that you have entered into this
Agreement freely and voluntarily.
This Agreement shall in all respects be interpreted, enforced and governed
under the laws of the State of California.
In the event that any provision of this Agreement be declared or be
determined in a court of competent jurisdiction to be illegal, invalid or
unenforceable, the legality, validity and enforceability of the remaining parts,
terms or provisions shall not be affected thereby, and said illegal,
unenforceable or invalid part, term or provision shall be deemed not to be a
part of this Agreement.
Please indicate your acceptance of this Agreement by executing below on the
signature line. A fully executed copy of this Agreement will be returned to you
for your records.
ORYX TECHNOLOGY CORP.
Dated: June _, 1997 By /s/ Phil Micciche
----------------------------------------
Phil Micciche
President and Chief Executive Officer
Dated: June 9, 1997 By /s/ Arvind Patel
----------------------------------------
Arvind Patel
EXHIBIT 1 Schedule and Copy of Options
<PAGE>
INTELLECTUAL PROPERTY RIGHTS
LICENSE AGREEMENT
SURGX CORPORATION
(LICENSOR)
MCGRAW-EDISON COMPANY
(LICENSEE)
<PAGE>
INTELLECTUAL PROPERTY RIGHTS LICENSE AGREEMENT
THIS AGREEMENT, effective as of August ____, 1997 (the "Effective
Date"), is by and between SURGX CORPORATION, a Delaware corporation, having its
principal office at 1100 Auburn St., Fremont, California 94538 (hereinafter
"Licensor") and MCGRAW-EDISON COMPANY, a Delaware corporation, having a
principal office at 114 Old State Road, Ellisville, Missouri 63178 (hereinafter
"Licensee").
WHEREAS, Licensor has been engaged in the development of products, with
respect to which it is possessed of certain proprietary rights and engineering
production knowledge essential to or helpful in the manufacture of the Licensed
Products as defined herein, and owns, has or may have in the future the right to
grant licenses with respect to certain inventions, copyrights, and other
industrial and intellectual property, technical and production data, and other
secret and confidential information relating to the manufacture of the Licensed
Products;
WHEREAS, Licensee desires to obtain from Licensor certain patent rights,
technical assistance, technical and production know-how, and services of
technical representatives, including drawings, designs, and specifications,
formulae, data, information and engineering assistance relating to Licensed
Products, to the extent the same is possessed by Licensor, and Licensor has the
right to grant the same, to assist Licensee in manufacturing and selling the
Licensed Products as hereinafter set forth;
WHEREAS, Licensor is willing to provide Licensee with the technical
assistance, technical and production know-how, and services of technical
representatives, in connection with the manufacture and sale of Licensed
Products hereunder, to the extent and upon the terms and conditions hereinafter
set forth;
WHEREAS, Licensor is willing to direct its technical competence to
certain projects to advance certain technologies to hopefully urge the toward
commercialization; and Licensee is desirous of having that occur; and
WHEREAS, the parties wish to expand on some of the understandings
reached in their July 1996 Intellectual Property Rights License Agreement and
delete or add more appropriate terms and conditions thereto;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, Licensor and Licensee covenant and agree as
follows:
1. DEFINED TERMS.
1.1 "AFFILIATE" means any person controlling, controlled by (either
directly or indirectly) or under common control with Licensee or Licensor as
applicable.
1.2 "AGREEMENT" means this Intellectual Property Rights License
Agreement between Licensee and Licensor and all attachments, exhibits,
schedules, lists or other documents expressly called out herein.
1.
<PAGE>
1.3 "CONFIDENTIAL INFORMATION" has the meaning set forth in Section
12.1.
1.4 "DISCLOSING PARTY" shall mean a Party or an Affiliate thereof
that discloses Confidential Information to the other Party or an Affiliate
thereof.
1.5 "GROSS PROFIT" means under United States generally accepted
accounting principles: (i) the aggregate sum of revenue recognized by Licensee,
its Affiliates and any sublicensee from sales or other dispositions of Licensed
Products to unaffiliated third parties net of freight out, returns and credits
allowed and taken ("Net Sales"); (ii) minus Licensee's cost of sales at standard
costs including direct and indirect labor and associated fringe benefits, scrap,
perishable tooling, supplies and maintenance on machinery and equipment (only
costs associated with the manufacture of Licensed Products will be included in
standard costs); (iii) plus or minus, as applicable, operating variances from
standard costs of sales; (iv) minus semi-variable costs equal to 5% of Net Sales
for selling commissions and distribution costs; (v) minus amortization
associated with incremental machinery and equipment used in the manufacture of
the Licensed Products (using a 10 year useful life); and (vi) minus amortization
associated with development costs incurred by Licensor and reimbursed by
Licensee as described in Section 3.3 hereof using a 5-year amortization period.
1.6 "IMPROVEMENTS" shall mean those supplements, changes, revisions,
updates, advancements, corrections, and modifications to the Technical
Information or Licensed Intellectual Property Rights including developments in
Microgap technology and any manufacturing process improvements made during the
term of this Agreement which are necessary or useful for the manufacture, use or
sale of Licensed Products.
1.7 "LICENSEE COMPONENTS" means the materials, components and
processes of Licensee which are not covered by the Licensed Intellectual
Property Rights which, in combination with the SurgeTape Material and SurgeTape,
form the Licensed Products.
1.8 "LICENSED INTELLECTUAL PROPERTY RIGHTS" shall mean, solely with
respect to Licensed Products, Licensor's interest in any patents, patent
applications, inventions (including but not limited to the inventions and patent
applications listed on Attachment 1.5), the "SurgX" trademark, the SurgeTape
trademark, Technical Information and copyrights owned, controlled, conceived,
developed and applied for or obtained by Licensor at any time before or during
the term of this Agreement to the extent such rights are necessary or essential
for the manufacture, use and sale of the Licensed Products. Wherever used in
this Agreement, Licensed Intellectual Property Rights includes any such rights
relating to Improvements of Licensor.
1.9 "LICENSED PRODUCTS" means discrete components and connector
products described on Attachment 1.6 which utilize the Licensed Intellectual
Property Rights and incorporate either the SurgeTape Material or SurgeTape.
1.10 "SURGETAPE MATERIAL" means a polymeric provided in a solvated
liquid form that can be used to provide electrical overstress (EOS) or
electrostatic discharge (ESD) protection for integrated circuits (IC's). The
SurgeTape Material can be applied between signal lines and the ground plane of
an electrical board assembly, a connector and other applications where it can be
positioned between signal lines and ground. The SurgeTape Material has a high
impedance, and
2.
<PAGE>
low leakage state during normal circuit operation. During an EOS or an ESD
event, the SurgeTape Material has a low impedance state that shunts the
offending charge to the ground plane. The capacitance of the devices using
SurgeTape Material is typically less than 1 picofarad. The mechanical
flexibility and the semiconducting characteristics of the SurgeTape Material
allow for a wide variety of packaging concepts, including arrays in which a
common ground is used with multiple signal lines. Specifically, the SurgeTape
Material is covered by the patent applications listed on Attachment 1.5.
1.11 The SurgeTape Material shall specifically exclude ICs and
applications therefor and other SurgX products, such as, without limitation, the
family of products identified by Licensor as SurgX Epoxy Packages or custom
SurgX applications such as a layer on a printed circuit board and novel
packaging, including hybrid designs and multichip modules.
1.12 "SURGETAPE" means a flexible film of proprietary polymer-based
material that can be applied between signal lines and a ground plane that has a
high impedance and low leakage state during normal circuit operation. During an
electrical overstress (EOS) or electrostatic discharge (ESD) event, the polymer
has a low impedance state that shunts the offending charge to the ground plane.
Specifically, SurgeTape is covered by the patent applications listed on
Attachment 1.5.1, if any.
1.13 "ICS" means an interconnected array of active and passive
elements integrated with a single semiconductor substrate or deposited or
deposited on the substrate by a continuous series of compatible processes, and
capable of performing at least one complete electronic circuit function.
Abbreviated.
1.14 "MICROGAP" means properties of and technics for forming gaps in a
substrate which may be filled with SurgeTape Material to provide voltage surge
suppression properties.
1.15 "MINIMUM ANNUAL ROYALTIES" has the meaning set forth in Section
5.2.
1.16 "PARTIES" shall mean McGraw-Edison Company and SurgX Corporation.
1.17 "RECEIVING PARTY" has the meaning set forth in Section 12.2.
1.18 "ROYALTY YEAR" means a period of twelve (12) months used to
measure the royalties payable to Licensor. The "First Royalty Year" is the
twelve (12) month period which commenced on ____________________ _____, 1997,
the "Second Royalty Year" is the twelve (12) month period which immediately
follows the "First Royalty Year", and so on for subsequent Royalty Years.
1.19 "TECHNICAL ASSISTANCE" means providing the appropriate Licensor
personnel to assist personnel of Licensee in becoming trained in the use of
Technical Information to be delivered or provided hereunder to the extent such
Technical Information is necessary or essential for the manufacture, use or sale
of Licensed Products and Improvements thereto.
1.20 "TECHNICAL INFORMATION" means trade secrets, know-how, drawings,
designs, specifications and industrial, commercial and scientific information
controlled by Licensor and
3.
<PAGE>
disclosed to Licensee under this Agreement. Whenever used in this Agreement,
Technical Information includes any information relating to Improvements of
Licensor.
1.21 "TERRITORY" means worldwide.
2. GRANT OF LICENSE.
2.1 Licensor grants to Licensee an exclusive license with respect to
SurgeTape Material and SurgeTape, both within the Territory, and both to use (i)
the Licensed Intellectual Property Rights; and (ii) the Technical Information,
solely to manufacture, use, and sell these as Licensed Products.
2.1.1 Licensed Products shall include application of SurgeTape
to ICs if Licensor grants a license to an unaffiliated third party for
application of SurgeTape to ICs.
2.2 Subject to Section 5.2 hereof, the exclusive license granted to
Licensee under Section 2.1 of this Agreement shall be for a period of twenty
(20) years commencing on the first day of the month in which Licensee makes its
initial sale of a Licensed Product. Thereafter, the exclusive license granted to
Licensee hereunder shall continue on a nonexclusive basis. Notwithstanding the
provisions of Section 2.1, Licensee will permit Licensor to grant a
non-exclusive license to Iriso Electronics Company, Ltd., a Japanese corporation
("lriso") allowing Iriso to manufacture, use and sell Licensed Products,
excluding ICs, in Japan incorporating or utilizing the Licensed Intellectual
Property Rights to utilize the Technical Information, provided that Iriso shall
have no right to sell any Licensed Products (a) outside of Japan or (b) to a
distributor that would sell any Licensed Products outside of Japan. However,
Licensor may grant Iriso the right to sell Licensed Products to an original
equipment manufacturer or to an added value reseller in Japan that may
incorporate such Licensed Products into goods that are sold outside of Japan.
2.3 Licensee is not authorized to grant a sublicense to any third
party without Licensor's prior written consent; PROVIDED, HOWEVER, that Licensee
may grant a sublicense to any of its Affiliates without Licensor's prior written
consent. No Affiliate or sublicensee may be granted a sublicense pursuant to the
terms of this Agreement unless it shall first agree in writing to be bound by
all of the terms of this Agreement. The revenues and costs of any Affiliate or
sublicensee, directly related to any sublicense properly granted hereunder and
falling within the definition of Gross Profit, shall be aggregated with the
revenues and costs of Licensee for the purpose of determining the royalties
payable to Licensor pursuant to Section 5.1 hereof.
3. DEVELOPMENT AND COMMERCIALIZATION OF THE LICENSED PRODUCTS AND PRODUCT
MODIFICATIONS.
3.1 In partial consideration for the licenses granted to Licensee in
Section 2 and in partial consideration of the development of the Licensed
Products and product modifications and enhancements as described in this Section
3, Licensee has previously paid Licensor the amount of One Hundred Thousand
Dollars ($100,000). In addition, Licensee has paid Licensor an additional Six
Hundred Fifty Thousand Dollars ($650,000) by check delivered to Licensor on July
16, 1996; receipt of which Seven Hundred Fifty Thousand Dollars ($750,000) total
is hereby acknowledged by Licensor. Licensee further agrees to pay Licensor One
Million Seven
4.
<PAGE>
Hundred Thousand Dollars ($1,700,000) which shall be credited as
non-refundable prepaid minimum royalties for Royalty Years one to four. Such
One Million Seven Hundred Thousand Dollar ($1,700,000) payment shall be made
in six (6) equal monthly installments on the first day of each calendar month
beginning on August 1, 1997, with the first actual payment on September 1,
1997 including the payments for August 1997 and September 1997.
3.3 Upon execution of the Agreement, both Parties will use their good
faith reasonable efforts to develop the Licensed Products and bring them to
commercialization as soon as feasible within the agreed period therefor. It is
understood by Licensee, in particular with respect to production and utilization
of SurgeTape, that commercialization may not be possible in spite of the
Parties' efforts. In connection therewith, Licensor will provide Licensee with
the following:
3.3.1 During the term of this Agreement, Training, Technical
Information and Technical Assistance required to allow Licensee to manufacture
the Licensed Products in its facilities to the extent that commercialization of
the Licensed Products, particularly the SurgeTape, has been proven feasible by
Licensor;
3.3.2 As soon as reasonably possible, a final report
documenting all processing requirements and procedures necessary for Licensee to
manufacture the Licensed Products to the extent that commercialization of the
Licensed Products, particularly the SurgeTape, has been proven feasible by
Licensor; and
3.3.3 As soon as reasonably possible, the technology necessary
to improve the SurgeTape Material for broader product application as follows:
(a) Trigger voltage = 200 V.
(b) Clamping voltage = 25 V.
3.3.4 Within six (6) months of the Effective Date of this
Agreement, those deliverables concerning laser-formed microgap technology set
forth in Attachment 3.3.4.
3.3.5 Within six (6) months of the Effective Date of this
Agreement, those deliverables concerning SurgeTape set forth in Attachment
3.3.4.
3.3.6 The six (6) month duration set forth in Sections 3.3.4
and 3.3.5 may be adjusted upon mutual approval by the Parties as necessary to
focus resources to suit priorities that may shift as development activities
proceed.
3.4 Licensor also agrees to work at its own expense toward and expend
commercially reasonable efforts in developing information, processes, techniques
and means for commercializing the manufacture of SurgeTape for six (6) months
after the Effective Date hereof. Licensor shall not be penalized or deemed to
have breached any obligation under this Agreement if it fails to develop viable
methods and means for commercializing the manufacture of SurgeTape.
5.
<PAGE>
3.5 To the extent that Licensor specifically undertakes any Licensed
Product modifications or enhancements at Licensee's written request (other than
the product modifications and enhancements described in Section 3.3.3 above
which will be undertaken by Licensor at its sole expense), Licensee shall
reimburse Licensor for its development costs as described below in conducting
such modifications or enhancements, including any additional capital equipment
that Licensee requires to perform such modifications and enhancements. The
development costs incurred by Licensor to be reimbursed by Licensee shall
consist of direct and indirect labor and associated fringe benefits of
Licensor's employees and independent contractors as allocated to the project,
scrap, perishable tooling, supplies, maintenance on machinery and equipment,
capital equipment costs, material costs and travel costs. The development costs
incurred by Licensor will be amortized over a period of five (5) years and
capital equipment cost incurred by Licensee will be amortized over a period of
ten (10) years and the annual amortization will be included in the cost
structure of the Licensed Products for the purpose of determining annual
royalties based on Gross Profits (or if annual royalties are based on net sales,
the royalties based on net sales will be reduced by an equivalent amount to
account for the annual amortization).
3.7 All inventions or other intellectual property conceived or
reduced to practice jointly by the employees or independent contractors of the
Parties, as a result of this collaboration and during the term of this
Agreement, shall be jointly owned by the Parties and shall be included in the
license without charge to Licensee, provided that all expenses incurred to file,
obtain, maintain, register or perfect any patents or other intellectual property
right based on such joint inventions or intellectual property is equally shared
by the Parties. If one joint invention owner declines to contribute its share of
expenses to file, issue and maintain a patent based thereon or to register or
perfect a right in the jointly created intellectual property, the Party paying
such expenses shall own the resultant patent or intellectual property right paid
for. In any event, the joint owner of an invention or other intellectual
property right under this Section 3.7 shall have no duty of accounting to the
other joint owner. Licensee shall not grant a sublicense in such jointly owned
inventions or intellectual property without the prior written consent of
Licensor.
3.8 Licensee may utilize the SurgX and SurgeTape trademarks in
connection with the sale and promotion of the respective Licensed Products to
which they apply. Licensee may also utilize its trade names or trademarks in
conjunction with the SurgX and SurgeTape trademarks in connection with the sale
and promotion of the Licensed Products, provided that no composite trademarks
are formed thereby. Licensor and Licensee shall enter into a Trademark License
Agreement, that defines the permitted uses of the SurgX and SurgeTape
trademarks, in the form attached hereto as Attachment 3.8 before Licensee may
use these Licensor trademarks.
4. DISCLOSURE OF TECHNICAL INFORMATION.
4.1 Licensor shall disclose and furnish to Licensee all Technical
Information necessary or essential for the incorporation and use of SurgeTape
Material and SurgeTape in the manufacture, use and sale of the Licensed
Products. Disclosure of Technical Information, to the extent such Technical
Information is in documentary or fixed form, shall be by delivery of two copies
of the most recent versions thereof. Delivery of Technical Information shall be
completed in compliance with the schedule of Attachment 4.1.
6.
<PAGE>
4.2 To the extent that Technical Information is not available in
documentary or fixed form, disclosure shall be made by Licensor, at its expense,
providing Technical Assistance to Licensee, including training and consultation
normally sufficient to demonstrate the practical use of the Technical
Information, and to communicate information applicable thereto in such detail as
to reasonably permit Licensee to understand and make full use thereof in the
establishment and operation of a production capability for Licensed Products,
and to exercise the rights and licenses granted herein. Such Technical
Assistance will be performed at the request of Licensee, consistent with the
Technical Information delivery schedule of Attachment 4.1, by qualified Licensor
technical personnel, at Licensee's manufacturing plants and locations. During
such visits, Licensor personnel shall observe such rules and regulations as are
applicable to employees of Licensee, and Licensor shall indemnify Licensee from
any liability which might be asserted or claimed against Licensee, arising out
of said visits by Licensor's personnel, including personal injury to or property
damage caused by such personnel. Licensee will provide, at no cost to Licensor,
reasonable facilities for such training and Technical Assistance, including
access to office space, secretarial support and local phone use for Licensor
personnel engaged in such training and Technical Assistance. Notwithstanding
Section 2.3 hereof, Licensee may not sublicense the rights contained in this
Section 4.2 without the specific prior written approval of Licensor.
4.3 By arrangement with Licensor, Licensee may, at its expense, send
qualified personnel to Licensor's establishment for training for the purpose of
enabling Licensor to demonstrate and Licensee's employees to observe, the
manufacturing and engineering operations and the application and use of
Technical Information pertaining to the Licensed Products. The identity and
number of any such personnel, and the date and duration of each such visit shall
be such as Licensor and Licensee mutually agree. During such visits, Licensee's
personnel shall observe such rules and regulations as are applicable to
employees of Licensor, and Licensee shall indemnify Licensor from any liability
which might be asserted or claimed against Licensor arising out of said visits
by Licensee's personnel, including personal injury to or property damage caused
by such personnel. Licensor will provide, at no cost to Licensee, reasonable
facilities for such training, including access to office space, secretarial
support and local phone use for Licensee's personnel engaged in such training.
4.4 After delivery of the Technical Information pursuant to
Attachment 4.1, Licensee's personnel may direct correspondence or telephone
inquiries to Licensor's personnel requesting reasonable amounts of Technical
Assistance and oral explanation concerning Licensor's method of manufacturing,
Technical Information or operation of the Licensed Products, and Licensor agrees
to promptly respond to such inquiries and to supply such assistance to the
extent it is in the possession of, or known to, Licensor, and at the place and
times upon which the Parties may mutually agree.
4.5 Licensor agrees to promptly notify Licensee of any defect or
error discovered in the Technical Information, and of any corrective action,
revisions or customer notice made by Licensor with regard thereto.
4.6 During the term of this Agreement, Licensor shall promptly
disclose and deliver to Licensee any Improvements conceived or reduced to
practice in whole or in part by Licensor. Licensor also agrees to promptly
deliver sufficient information to allow Licensee to incorporate
7.
<PAGE>
such Improvements into the Licensed Products. During the term of this
Agreement, Licensee shall promptly deliver to Licensor any Improvements
conceived or reduced to practice in whole or in part by Licensee. Licensee
also agrees to promptly deliver sufficient information to allow Licensor to
incorporate such Improvements into the Licensed Products.
5. ROYALTIES.
5.1 Commencing with the First Royalty Year, Licensee shall pay to
Licensor an annual royalty for the licenses granted herein equal to Twenty five
percent (25%) of the Gross Profit recognized by Licensee, its Affiliates and any
sublicensee on the sale of Licensed Products during the relevant Royalty Year.
The Parties acknowledge that it is their desire to ultimately convert this
royalty to a royalty based upon net sales of the Licensed Products (instead of
Gross Profit) but they do not have sufficient experience to currently calculate
the appropriate royalty rate. Therefore, the Parties agree that after four (4)
years from the Effective Date of this Agreement, they shall discuss in good
faith a royalty rate based on net sales which provides the same economic
allocation as that intended by the royalty based on Gross Profit. Unless both
Parties execute a written amendment to this Agreement setting forth the terms of
the royalty based on net sales, any promises, agreements or understandings made
by the Parties during their discussions and negotiations will not be binding on
the Parties. If the Parties do not execute a written amendment to this Agreement
setting forth the terms of the royalty based on net sales, then Licensee shall
continue to pay Licensor an annual royalty based on Gross Profit as described
above.
5.2 In order to maintain the licenses granted to it under Section 2.1
hereof, including the exclusivity of the exclusive license for its twenty (20)
year period as described in Section 2.3, Licensee shall insure that the annual
royalties payable to Licensor are no less than the following amounts ("Minimum
Annual Royalties"):
<TABLE>
<CAPTION>
Royalty Year Minimum Annual Royalties
<S> <C>
1st $0
2nd $200,000
3rd $500,000
4th and 5th $1,000,000 (each Royalty Year)
6th through 20th $2,500,000 (each Royalty Year)
</TABLE>
If in any Royalty Year after the fourth, the royalties based on Gross Profit
(or net sales, if applicable) are less than the Minimum Annual Royalties,
Licensee, at its option, has the right to pay up the difference to a total
equaling the respective year's Minimum Annual Royalty. If Licensee elects not
to pay up the difference to a total equaling the respective year's Minimum
Annual Royalty, then the exclusive license granted hereunder shall become a
fully non-exclusive license for the remaining term of this Agreement, subject
to the rights of the Licensor to terminate this Agreement as set forth in
Section 14.4. In the event the exclusive license reverts to a non-exclusive
license because Licensee elects not to pay the Minimum Annual Royalties, the
Licensee shall no longer be liable for payment of Minimum Annual Royalties but
shall continue to be liable for royalties based on the Gross Profit (or net
sales, if applicable) of Licensed Products sold.
8.
<PAGE>
5.3 As a matter of convenience, to protect Licensor's Licensed
Intellectual Property Rights and as an acknowledgment that Licensee is not
currently in the business of producing any resettable electrostatic discharge
protection products or products incorporating any resettable electrostatic
discharge protection products, Licensee agrees that the royalty under this
Section 5 shall apply to all resettable electrostatic discharge protection
products which are covered by (a) the Licensed Intellectual Property Rights or
(b) Improvements of Licensee.
5.4 Subject to Section 5.3, nothing in this Agreement shall be deemed
to prohibit Licensee from conceiving, reducing to practice, developing, making,
using, marketing or otherwise distributing or promoting products competitive
with the Licensed Products produced hereunder, provided that Licensee does not
breach any provision of Section 12 or disparage the Licensed Products produced
hereunder in doing so.
6. PAYMENTS.
6.1 Royalties (including Minimum Annual Royalties) are due and
payable for each quarter of each Royalty Year within forty five (45) days after
the end of each quarter of each such Royalty Year.
6.2 All payments payable by Licensee to Licensor are assigned by
Licensor and shall be paid in U.S. dollars by Licensee to Oryx Technology
Corporation, 4731 Bayside Parkway, Fremont, California 94538.
7. RECORDS, REPORTS AND INSPECTION.
7.1 Licensee shall at all times keep complete and proper records of
all Licensed Products manufactured, used or sold by Licensee, its Affiliates and
any sublicensee. Sales or dispositions shall be considered as made on the date
of the invoice or shipment, whichever occurs first.
7.2 Within forty five (45) days after the end of each quarter of each
Royalty Year during the term of this Agreement, Licensee shall send to Licensor
a full statement in writing identifying separately the total number of pieces in
each product category of Licensed Products sold by Licensee, its Affiliates and
any sublicensee during the preceding quarter of such Royalty Year, together with
a computation of royalties due Licensor.
7.3 Licensor shall have the right, upon giving at least thirty (30)
days' advance notice, at any time during normal business hours, to audit the
records of Licensee, any sublicensee and any Affiliate to which Licensee has
granted a sublicense by having an independent auditor examine the books and
records of Licensee, any sublicensee and any Affiliate to which Licensee has
granted a sublicense relating to the computation of royalties on the Licensed
Products. Licensee, any sublicensee and any Affiliate to which Licensee has
granted a sublicense shall keep the records available for inspection for three
(3) years after expiration of the Royalty Year in which they are made and
Licensor's right to audit the records of Licensee, any sublicensee and any
Affiliate to which Licensee has granted a sublicense shall not extend beyond
such three year period. Licensor shall, and shall cause its independent auditor
to maintain the confidentiality of all information, books and records examined
during such audit. Licensor will bear the expense of
9.
<PAGE>
any such audit unless the audit shows an underpayment of more than five
percent (5%) for the applicable period, in which case Licensee shall bear the
expense of the audit.
8. WARRANTY.
8.1 Licensor warrants that it has the right to grant a license to the
rights licensed hereunder and that there are no outstanding assignments, grants,
licenses, encumbrances or obligations inconsistent with licenses granted under
this Agreement.
8.2 To the knowledge of Licensor and its Affiliates as of the
Effective Date, Licensor warrants that the Licensed Intellectual Property Rights
do not interfere with, infringe upon, misappropriate or otherwise conflict with
any intellectual property rights of third parties and Licensor and its
Affiliates have never received any charge, complaint, claim or notice alleging
any such interference, infringement, misappropriation or violation. To the
knowledge of Licensor and its Affiliates, no third party has interfered with,
infringed upon, misappropriated or otherwise come into conflict with any of the
Licensed Intellectual Property Rights.
9. INDEMNIFICATION.
9.1 Licensor agrees to indemnify Licensee, its agents, employees,
officers, directors and representatives (the "Licensee Group") against any and
all losses and expenses arising from any claims, demands, actions, suits, or
prosecution (collectively, a "Claim") that may be initiated against the Licensee
Group by an unaffiliated third party relating to infringement claims
(specifically including claims that may arise from the patents described in
Attachment 9.1 hereof) which are the result of the incorporation or combination
of the SurgeTape Material or SurgeTape with Licensee Components in the Licensed
Products manufactured, used or sold by Licensee in the Territory, pursuant to
the terms of this Agreement. Licensor will have no such obligation (i) unless it
is promptly notified by Licensee of any Claim or threat of a Claim PROVIDED,
HOWEVER, that delay or failure to so notify shall not relieve Licensor of its
indemnity obligations unless and to the extent Licensor is thereby damaged, (ii)
unless upon Licensor's request and expense, Licensee cooperates reasonably in
any such Claim, (iii) to the extent the Claim involves specifications provided
by Licensee or any change or addition to or modification of such Licensed
Intellectual Property Rights or any use or application thereof different from
the commercial uses and applications of Licensor as of the date of this
Agreement or (iv) for any settlement Licensor does not approve in advance in
writing. Licensee, at its sole cost and expense, may elect to join Licensor to
defend such Claim so long as Licensee is an exclusive licensee hereunder. If any
resolution of such a Claim results in the payment of a royalty by Licensee to a
third party as necessary to make, use, or sell Licensed Products, such royalty
shall be allocated to Gross Profit to the extent such royalty accrues on the
manufacture, use or sale of the Licensed Products (or if royalties are based on
net sales rather than Gross Profit, twenty five percent (25%) of such third
party royalties shall be deducted from and credited against any royalties
otherwise due to Licensor under this Agreement).
9.2 Licensee agrees to indemnify Licensor, its agents, employees,
officers, directors and representatives (the "Licensor Group") against any and
all losses and expenses arising from any claims, demands, actions, suits or
prosecution (collectively, a "Claim") that may be initiated against the Licensor
Group by an unaffiliated third party relating to infringement claims which
10.
<PAGE>
are the result of the use or sale of Licensee Components which are
incorporated in the Licensed Products manufactured, used or sold by Licensee
in the Territory pursuant to the terms of this Agreement. Licensee will have
no such obligation (i) unless it is promptly notified by Licensor of any Claim
or threat of a Claim PROVIDED, HOWEVER, that delay or failure to so notify
shall not relieve Licensee of its indemnity obligations unless and to the
extent Licensee is thereby damaged, (ii) unless upon Licensee's request and
expense Licensor cooperates reasonably in any such Claim and (iii) for any
settlement Licensee does not approve in advance in writing. Licensor, at its
sole cost and expense, may elect to join Licensee to defend such Claim. If any
resolution of such a Claim results in the payment of a royalty by Licensor to
a third party as necessary to make, use or sell Licensed Products (other than
the patent rights specified in Attachment 1.5 to the extent such patent rights
are incorporated in the Licensed Products), such royalty shall be allocated to
Gross Profit to the extent such royalty accrues on the manufacture, use or
sale of the Licensed Products (or if royalties are based on net sales rather
than Gross Profit, twenty five (25%) of such third party royalties shall be
deducted from and credited against any royalties otherwise due to Licensor
under this Agreement).
10. IMPROVEMENTS.
10.1 Licensor agrees to disclose to Licensee any Improvements made by
Licensor relating to the Licensed Intellectual Property Rights and where
applicable, the Optional Licensed Intellectual Property Rights, developed,
conceived or reduced to practice by Licensor during the term of this Agreement
and to grant Licensee the right to use the Improvements in the manufacture, use
and sale of the Licensed Products at no additional cost under the same terms and
conditions of this Agreement for the term of this Agreement.
10.2 Licensee agrees to disclose to Licensor any Improvements made by
Licensee, its Affiliates or any sublicensee relating to the Licensed
Intellectual Property Rights and where applicable, the Optional Licensed
Intellectual Property Rights, developed, conceived or reduced to practice by
Licensee during the term of this Agreement and to grant Licensor a worldwide,
royalty-free license to any such Improvements for the term of this Agreement. To
the extent that any such Improvement as made by Licensee can only be used or
sold with reference to the Licensed Products or such Improvement constitutes an
enhancement or improvement to the SurgeTape Material or SurgeTape, Licensor
shall have the full right to sublicense such Improvement. Conversely, to the
extent any such Improvement has uses both with reference to the Licensed
Products and other products of Licensee, Licensor shall have no right to
sublicense such Licensee Improvement without the prior written consent of
Licensee.
11. MANUFACTURE AND SUPPLY OF SURGETAPE MATERIAL AND SURGETAPE.
11.1 Pursuant to the terms of a Supply Agreement to be negotiated and
entered into by the Parties, Licensor shall manufacture, or have manufactured
for it, and shall sell to Licensee all of Licensee's forecasted requirements for
the SurgeTape Material and SurgeTape at a price equal to Licensor's cost for
such material as defined on Attachment 11.1. In the event the Parties are unable
in good faith to negotiate and enter into a Supply Agreement, the terms and
conditions of the supply arrangement will be governed by this Section 11. At
least four (4) months prior to each delivery date, Licensee shall deliver a
forecast to Licensor of Licensee's quantity requirements for the SurgeTape
Material and SurgeTape. Licensee shall act in a commercially
11.
<PAGE>
reasonable manner to schedule orders to avoid creating production capacity
problems for Licensor. The SurgeTape Material and SurgeTape delivered to
Licensee shall be F.O.B. Licensee's manufacturing facility in the Continental
United States. Licensor shall use reasonable commercial efforts to deliver the
SurgeTape Material and SurgeTape by the applicable delivery date. All customs,
duties, costs, taxes, insurance premiums and other expenses related to
transportation and delivery shall be at Licensee's expense. Licensor agrees to
deliver SurgeTape Material and SurgeTape to Licensee in conformity with
Licensee's forecast, free of material and workmanship defects and meeting the
Parties' mutually agreed upon quality control requirements.
11.2 Licensee shall have the right, upon giving at least thirty (30)
days' advance notice, at any time during normal business hours, to audit
Licensor's records by having an independent auditor examine the books and
records of Licensor relating to the cost of the SurgeTape Material and
SurgeTape. Licensor shall keep the records available for inspection for three
years after each date of delivery of the SurgeTape Material and SurgeTape and
Licensee's right to audit Licensor's records shall not extend beyond such three
year period. Licensee shall, and shall cause its independent auditor to,
maintain the confidentiality of all information, books and records examined
during such audit. Licensee shall bear the expense of any such audit unless the
audit shows an overpayment of more than 5% for the applicable period, in which
case Licensor shall bear the cost of the audit.
11.3 Licensee shall have the right to self-manufacture the SurgeTape
Material or SurgeTape if: (i) Licensor fails to meet its obligations under the
Supply Agreement, or under this Section 11 if the Parties have not entered into
a Supply Agreement, with regard to delivering Licensee's forecasted requirements
for the SurgeTape Material or SurgeTape under the terms and conditions of the
Supply Agreement, or under this Section 11 if the Parties have not entered into
a Supply Agreement (unless such failure is a result of a breach or anticipatory
breach of this Agreement by Licensee), and such failure continues for a period
of sixty (60) days after written notice thereof to Licensor, or (ii) Licensor
becomes insolvent, or a case or proceeding under bankruptcy, insolvency or
similar law is commenced by or against Licensor, but not by Licensee or a party
acting in its behalf, and is not dismissed within forty five (45) days or
Licensor makes a general assignment for the benefit of creditors. If Licensee
has the right to self-manufacture the SurgeTape Material or SurgeTape pursuant
to Section 11.3(i) or (ii) hereof, Licensee shall exercise its right to
self-manufacture the SurgeTape Material or SurgeTape by giving written notice
thereof to Licensor and immediately upon receipt of such notice Licensor shall
provide Licensee with any and all Technical Information and Technical Assistance
to allow Licensee to manufacture the SurgeTape Material or SurgeTape. If any
event of force majeure disrupts the supply of SurgeTape Material or SurgeTape to
Licensee which disruption continues for a period of sixty (60) days, then,
notwithstanding Section 22.2, Licensor shall find an alternate source to supply
the SurgeTape Material or SurgeTape to Licensee or shall allow Licensee to
self-manufacture the SurgeTape Material or SurgeTape; PROVIDED, HOWEVER, that
the foregoing shall apply only during the time period that the disruption in the
supply of SurgeTape Material or SurgeTape as a result of an event of force
majeure continues.
11.4 Upon execution of this Agreement, as a precautionary measure to
insure all information relating to the manufacture of the SurgeTape Material or
SurgeTape is available to Licensee in the event Licensee exercises its right to
self-manufacture the SurgeTape Material or SurgeTape, Licensor shall deliver all
of the documents relating to the manufacture of the SurgeTape Material or
12.
<PAGE>
SurgeTape that are necessary for Licensee to self-manufacture the SurgeTape
Material or SurgeTape to an escrow agent mutually agreed to by the parties, it
being understood by Licensee that Licensor may not have and may not develop any
documents or information relating to the successful manufacture of SurgeTape.
The escrow agent shall hold all of such documents in escrow pursuant to the
terms of an Escrow Agreement between the parties. The Escrow Agreement shall
provide that the escrow agent will not disclose such documents to Licensee
unless and until Licensee issues its written notice to both Licensor and the
escrow agent that it is exercising its right to self-manufacture the SurgeTape
Material or SurgeTape and Licensor has not provided the escrow agent with notice
within ten (10) days thereafter that it is disputing Licensee's right to
self-manufacture the SurgeTape Material or SurgeTape. Licensor and Licensee
shall enter into an Escrow Agreement in the form attached hereto as Attachment
11.4.
12. NONDISCLOSURE.
12.1 Prior to and during the term of this Agreement, the Parties have
made and will make certain disclosures to each other regarding information which
is proprietary and confidential to them in their businesses (the "Confidential
Information"). In order to constitute Confidential Information, information
being disclosed must either be in writing and marked as being proprietary or
confidential or, if given orally, must be identified as proprietary when stated
and confirmed in writing to be proprietary within thirty (30) days of the
original oral disclosure. In particular, Licensee recognizes that the Licensed
Intellectual Property Rights and the confidential nature, thereof are critical
to the business of Licensor and that Licensor would not enter into this
Agreement without assurance that such technology and information and the value
thereof will be protected as provided in this Section 12 and elsewhere in this
Agreement. Accordingly, each party agrees as follows:
12.2 The party receiving such information (the "Receiving Party")
agrees (i) to hold the Disclosing Party's Confidential Information in confidence
and to take all reasonable precautions to protect such Confidential Information
(including, without limitation, all precautions the Receiving Party employs with
respect to its confidential materials), (ii) not to divulge any such
Confidential Information or any information derived therefrom to any third
person, (iii) not to make any use whatsoever at any time of such Confidential
Information except as expressly authorized in this Agreement, and (iv) not to
remove or export from the United States or reexport any such Confidential
Information or any direct product thereof (e.g., Licensed Products by whomever
made) to Afghanistan, the Peoples' Republic of China or any Group Q, S, W, Y or
Z country (as specified in Supplement No. 1 to Section 770 of the U.S. Export
Administration Regulations, or a successor thereto) or otherwise except in
compliance with and with all licenses and approvals required under applicable
export laws and regulations, including without limitation, those of the U.S.
Department of Commerce. Any employee given access to any such Confidential
Information must have a legitimate "need to know" and shall have executed the
standard form of the confidentiality agreement of the Receiving Party. Without
granting any right or license, the Disclosing Party agrees that the foregoing
clauses (i), (ii) and (iii) shall not apply with respect to information the
Receiving Party can document (i) is in or (through no improper action or
inaction by the Receiving Party or any Affiliate, sublicensee, agent or
employee) enters the public domain, or (ii) was rightfully in its possession or
known by
13.
<PAGE>
it prior to receipt from the Disclosing Party, or (iii) was rightfully
disclosed to it by another person without restriction, (iv) was disclosed by
the Disclosing Party to a third party on an unrestricted nonconfidential
basis, or (v) was independently developed by the Receiving Party by persons
without access to such information and without use of any Confidential
Information of the Disclosing Party. If the Receiving Party believes that
information that a Disclosing Party has identified as Confidential Information
is no longer Confidential Information due to the circumstances in the
immediately preceding sentence, the Receiving Party shall establish same by
clear and convincing evidence prior to making a disclosure of such
information. Each party's obligations under this Section 12.2 (except under
clause (iv) of the first sentence) shall terminate five (5) years after the
termination of this Agreement.
12.3 Immediately upon any termination or expiration of the Receiving
Party's license under Section 13, the Receiving Party will turn over to the
Disclosing Party all Confidential Information of the Disclosing Party and all
documents or media containing any such Confidential Information and any and all
copies or extracts thereof.
12.4 Licensor recognizes that Licensee may have a need to furnish
Technical Information received hereunder to third parties in the exercise of
rights granted hereunder, and to customers (e.g., OEM) incorporating Licensed
Products into other equipment. Licensee may disclose such Technical Information
to any such third party for its use in the exercise of the rights granted by
Licensor hereunder, solely for the benefit of Licensee, provided such disclosure
is made to such third parties under a written agreement containing restrictions
on disclosure and use equivalent to those contained in this Section 12.
13. TERM.
13.1 This Agreement shall begin on the Effective Date. This Agreement
shall remain in effect, unless terminated at an earlier date pursuant to Section
14 herein, for a period of twenty (20) years or until the expiration of or
failure to maintain the last issuing patent which is included in Licensed
Intellectual Property Rights, whichever is greater. Notwithstanding the
foregoing, Licensee shall have the option to extend the term of this Agreement
on a year-to-year basis by providing written notice of its election to extend
the term within sixty (60) days prior to the expiration of the initial term or
any extended term. Any extension of this Agreement shall be subject to all terms
and conditions herein, provided that Licensee shall be obligated to pay only
seventy five percent (75%) of the royalties that it would have been obligated to
pay during the initial term of this Agreement.
14. TERMINATION.
14.1 This Agreement may be terminated at any time prior to the
expiration of its normal term by the mutual written agreement of the Parties.
14.2 This Agreement may be terminated by Licensor upon written notice
to Licensee if Licensee fails to make any payment when due hereunder and such
lack of timely payment is not remedied within thirty (30) days from written
notice thereof. However, the Licensor may not terminate the Agreement to the
extent there is a bona fide dispute as to the amount of royalties
14.
<PAGE>
due, provided the amount of royalties not in dispute are paid by Licensee
within the thirty (30) day cure period.
14.3 This Agreement may be terminated by either party upon written
notice to the other party:
14.3.1 immediately, if the other party defaults under or
breaches any of the terms of this Agreement and such default or breach is not
remedied within a period of sixty (60) days after written notification thereof
(except breach of the payment obligation, as set out above); or
14.3.2 immediately, if a material provision of this Agreement is
held invalid or unenforceable by the determination of a court of competent
jurisdiction; or
14.4 This Agreement may be terminated by Licensor upon thirty (30)
days' prior notice to Licensee given within the one (1) year period following
the applicable Royalty Year and the payment of Seven Hundred Fifty Thousand
Dollars ($750,000) to Licensee in the event:
14.4.1 Licensee has failed to pay the Minimum Annual Royalties
applicable to the Second or Third Royalty Year and has not cured within the
thirty (30) day notice period; or
14.4.2 Licensee has failed to pay a minimum of One Million
Dollars ($1,000,000) in royalties to Licensor each year during the Fourth
through Tenth, inclusive, Royalty Years and has not cured such default within
the thirty (30) day notice period.
14.5 If this Agreement is terminated pursuant to Section 14.4 above,
the Licensee shall retain a license to manufacture, use and sell the Licensed
Products under the Licensed Intellectual Property Rights or Optional Licensed
Intellectual Property Rights if applicable, but such license shall be limited to
the manufacture, use and sale of Licensed Products to those customers of
Licensee who have previously purchased Licensed Products (such customers to be
derived by a customer/product sales history and Licensee may sell to any such
existing customer only those pieces in each product category of the Licensed
Products that such customer had purchased from Licensee prior to the termination
of this Agreement). During the term of such limited license and until the
expiration of the term of this Agreement under Section 13 hereof: (i) Licensee
shall continue to pay Licensor royalties based on Gross Profit (or net sales, if
applicable) as provided in Section 5.1; and (ii) Licensee may continue to obtain
SurgeTape Material according to the terms of Section 11.
15. RIGHTS AFTER TERMINATION OR EXPIRATION.
15.1 Except to the extent necessary for Licensee to exercise its
rights under Section 14.5, upon the termination of this Agreement under Sections
14.1, 14.2, 14.3 or 14.4, Licensee shall: (i) immediately cease all further use
of Technical Information and manufacture of Licensed Products, but shall be
allowed to continue to use or sell Licensed Products manufactured prior to the
date of termination of this Agreement provided, Licensee continues to pay
Licensor any royalties relating to such use or sales; (ii) Licensee shall cease
all use of the Licensed Intellectual Property Rights and if applicable, (iii)
Licensee will return to Licensor or destroy and provide Licensor a complete list
of all Technical Information, including all specifications and drawings, and all
copies thereof.
15.
<PAGE>
15.2 Termination or expiration of this Agreement (i) shall not release
Licensee from its obligation to make payment in full of all royalties which have
accrued to that date, (ii) shall not relieve the Parties from all other
obligations or liabilities under this Agreement which expressly extend beyond
the termination or expiration and (iii) shall not be construed as a waiver of
any rights, claims (including claims for damages), or obligations that have
accrued up to and including the date of termination or expiration. In
particular, it is understood that Sections 3.4, 5, 6, 7, 9, 12, 15, 16 and 20
hereof shall survive any termination or expiration of this Agreement.
16. LITIGATION AND FILING MATTERS.
16.1 Licensor retains the sole right and discretion to file and
prosecute patent applications, maintain patents and apply for intellectual
property rights in the Territory relating to the Licensed Intellectual Property
Rights, or any Improvements, but not joint inventions. At Licensee's request
while Licensee remains an exclusive licensee hereunder, Licensor will discuss
its decision on these matters with Licensee, but Licensee will not attempt to
file or prosecute any such patent applications or maintain any such patent (i)
except as Licensor may, in its sole discretion, approve in writing and (ii)
except that Licensee may continue maintenance of licensed patents issued in the
Territory if Licensor elects not to do so. Licensor's existing relevant patents
and patent applications in the Territory are listed on Attachment 1.5.
16.2 If Licensee becomes aware of any product or activity of any third
party that involves infringement or violation of any Licensed Intellectual
Property Right or Optional Licensed Intellectual Property Rights in the
Territory, then Licensee shall promptly notify Licensor in writing of such
infringement or violation. Licensor may in its discretion take or not take
whatever action it believes is appropriate; if Licensor elects to take action,
Licensee will reasonably cooperate therewith at Licensor's expense. Licensor
will indemnify Licensee for any damages, expenses, costs and fees in connection
with Licensor's actions under this Section 16.2.
If Licensor does not, within ninety (90) days after receipt of such a
notice of a patent infringement within the scope of Licensee's license
hereunder, commence action directed towards restraining or enjoining such patent
infringement, Licensee, so long as it is an exclusive licensee hereunder may
take such legally permissible action as it deems necessary or appropriate to
enforce Licensor's patent rights and restrain such infringement. Licensor agrees
to cooperate reasonably in any such action initiated by Licensee including
supplying essential documentary evidence and making essential witnesses then in
Licensor's employment available. As part of such cooperation, Licensee may join
Licensor as a party, if the need arises, although such joinder shall be entirely
at Licensee's expense. Licensee will indemnify Licensor for any damages,
expenses, costs and fees in connection with Licensee's actions under this
Section 16.2. Nothing in this Section 16.2 allows Licensee or requires Licensor
to disclose the Licensed Intellectual Property Rights or Optional Licensed
Intellectual Property Rights except the patent rights set forth in Attachment
1.5.
If Licensor solely initiates and prosecutes any such an action under
this Section 16.2, all legal expense (including court costs and attorneys' fees)
shall be for Licensor's account and it shall be entitled to all amounts awarded
by way of judgment, settlement or compromise.
16.
<PAGE>
Licensee may join, solely at its own expense, an action prosecuted by
Licensor and any amounts awarded by way of judgment shall be allocated between
Licensor and Licensee as the court shall determine each party has been damaged.
In the event Licensor elects not to initiate suit and if Licensee solely
initiates and prosecutes such an action, all legal expenses (including court
costs and attorneys' fees) shall be for Licensee's account and it shall be
entitled to all amounts awarded by way of judgment, settlement, or compromise.
16.3 Licensee understands that Licensor has not conducted
comprehensive patent searches in all of the countries in the Territory.
16.4 INCIDENTAL AND CONSEQUENTIAL DAMAGES. NEITHER PARTY WILL BE
LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES OR FOR LOST PROFITS WITH RESPECT TO ANY
SUBJECT MATTER OF THIS AGREEMENT EXCEPT A BREACH OF SECTION 12. NOTWITHSTANDING
THE FOREGOING, THIS SECTION 16.4 SHALL NOT LIMIT THE INDEMNITY OBLIGATION OF THE
PARTIES UNDER SECTION 9 WITH RESPECT TO CLAIMS OF THIRD PARTIES.
16.5 LIMITATION OF OBLIGATIONS AND LIABILITY. LICENSOR WILL NOT BE
LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT,
NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR COST OF PROCUREMENT OF
SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR FOR ANY AMOUNTS AGGREGATING
IN EXCESS OF AMOUNTS PAID TO IT HEREUNDER.
17. WAIVER OF DEFAULT.
17.1 The failure of either party at any time to enforce or require
performance of any of the provisions of this Agreement, or to exercise any right
or option herein provided, shall in no way be construed to be a waiver of that
or any other provision of this Agreement or to affect the right of such party
thereafter to enforce each and every such provision. All waivers shall be in
writing and signed by the waiving party. No waiver by either party of any
default of the other party shall be held to be a waiver of any other or
subsequent default.
18. RELATIONSHIP OF PARTIES.
18.1 It is agreed that the Parties are independent contractors and not
partners, joint venturers or otherwise affiliated. Neither party has any right
or authority to assume, create or incur any liability or obligation of any kind,
express or implied, against, in the name of, or on behalf of the other party.
19. NOTICE.
19.1 Any notice pursuant to this Agreement shall be in writing and
shall be deemed given (i) when delivered by hand or mail, (ii) when transmitted
by telecopier, with confirmation of receipt; provided that a copy is sent at
about the same time by registered or certified mail,
17.
<PAGE>
return receipt requested, or (iii) three days after being sent by Express
Mail, Federal Express or other express delivery service, to the addressee at
the following addresses or telecopier numbers (or to such other address or
telecopier number as a party may specify from time to time by notice):
If to Licensor: SurgX Corporation
Attention: President
1100 Auburn St.
Fremont, CA 94538
Facsimile: (510) 492-2080
if to Licensee: Bussmann Division of McGraw-Edison Company
Attention: President
114 Old State Road
Ellisville, MO 63178
Facsimile: (314) 527-1497
with copy to: Cooper Industries, Inc.
Attention: General Counsel P.O. Box 4446
Houston, Texas 77210 USA Facsimile: (713) 209-8991
20. DISPUTE RESOLUTION.
20.1 Any dispute or claim arising out of, or in connection with, this
Agreement which is not settled to the mutual satisfaction of the Parties within
thirty (30) days (or such longer period as may be mutually agreed upon) from the
date that either party informs the other in writing that such dispute or
disagreement exists, shall be submitted to mediation conducted by a mediator
mutually acceptable to the Parties. In the event the Parties cannot resolve the
dispute or claim through mediation, then the claim or dispute shall be finally
settled by binding arbitration in the counties of Alameda, San Mateo or Santa
Clara, California in accordance with the rules of the American Arbitration
Association by three (3) arbitrators appointed in accordance with said rules in
effect on the date that such notice is given. The decision of the arbitrators
shall be final and binding upon the Parties and judgment upon any award rendered
by all or a majority of the arbitrators may be entered in any court of competent
jurisdiction. Each party shall bear the cost of preparing its case. The cost of
the arbitration, including the fees and expenses of the arbitrators, will be
shared equally by the Parties unless the arbitrators' award otherwise provides.
The Parties agree that, any provision of applicable law notwithstanding, they
will not request, and the arbitrators shall not have authority to award punitive
damages against any party or Parties. Either party may request a court to
provide interim or provisional relief and such a request shall not be deemed
incompatible with the agreement to arbitrate or as a waiver of that agreement.
21. ASSIGNMENT.
21.1 This Agreement shall be binding upon the Parties and their
permitted successors and assigns. Licensor may assign or delegate any of its
rights or obligations under this Agreement to an Affiliate with notice to
Licensee provided the Licensor remains liable for its
18.
<PAGE>
performance under this Agreement. Licensee may assign or delegate any of its
rights or obligations under this Agreement to an Affiliate with notice to
Licensor provided Licensee remains liable for its performance under this
Agreement. Except for assignments to Affiliates as described above, neither
party may assign any of its rights or obligations to a third party without the
prior written consent of the other party which consent shall not be
unreasonably withheld or delayed.
22. MISCELLANEOUS.
22.1 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the substantive laws of Delaware and the United States
without regard to conflicts of laws provisions thereof and without regard to the
United Nations Convention on Contracts for the International Sale of Goods.
Subject to Section 20 and unless otherwise elected by Licensor in writing for
the particular instance (which Licensor may do at its option), the sole
jurisdiction and venue for actions related to the subject matter hereof shall be
the U.S. federal courts having within their jurisdiction the location of
Licensor's principal place of business. Both parties consent to the jurisdiction
of such courts and agree that process may be served in the manner provided
herein for giving of notices or otherwise as allowed by California or federal
law. In any action or proceeding to enforce rights under this Agreement, the
prevailing party shall be entitled to recover costs and attorneys' fees.
22.2 FORCE MAJEURE. Neither party hereto shall be responsible for any
failure to perform its obligations under this Agreement (other than obligations
to pay money or obligations under Sections 9, 12 or 16) if such failure is
caused by acts of God, war, strikes, revolutions, lack or failure of
transportation facilities, laws or governmental regulations or other causes
which are beyond the reasonable control of such party. Obligations hereunder,
however, shall in no event be excused but shall be suspended only until the
cessation of any cause of such failure. In the event that such force majeure
should obstruct performance of this Agreement for more than three (3) months,
the parties hereto shall consult with each other to determine whether this
Agreement should be modified. The party facing an event of force majeure shall
use its best endeavors in order to remedy that situation as well as to minimize
its effects. A case of force majeure shall be notified to the other party by
telex or telefax within five (5) days after its occurrence and shall be
confirmed by a letter.
22.3 EXPORT CONTROL. Each party hereby agrees to comply with all
export laws and restrictions and regulations of the Department of Commerce or
other United States or foreign agency or authority, and not to knowingly export,
or allow the export or re-export of any Licensed Intellectual Property Rights or
Licensed Products or derivative of the Licensed Intellectual Property Rights or
the Licensed Products or any direct product thereof in violation of any such
restrictions, laws or regulations, or, without all required licenses and
authorizations, to Afghanistan, the Peoples' Republic of China or any Group Q,
S, W, Y or Z country specified in the then current Supplement No. 1 to Section
770 of the U.S. Export Administration Regulations (or any successor supplement
or regulations).
22.4 SEVERABILITY. If any provision of this Agreement is held
illegal, invalid or unenforceable by a court of competent jurisdiction, that
provision will be limited or eliminated to
19.
<PAGE>
the minimum extent necessary so that this Agreement shall otherwise remain in
full force and effect and enforceable.
22.5 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the Parties and supersedes all prior agreements, including but
not limited to the parties' July 1996 Intellectual Property Rights License
Agreement, negotiations or discussions between them regarding the subject matter
hereof.
22.6 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer
any rights or remedies upon any person or entity other than the Parties and
their respective successors and permitted assigns.
22.7 HEADINGS. The section headings contained in this Agreement and
in the attachments are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement.
22.8 AMENDMENTS AND WAIVERS. No amendment of any provision of this
Agreement or any Attachments hereto shall be valid unless it is in writing and
signed by each party.
22.9 INCORPORATION OF SCHEDULES. The attachments identified in this
Agreement are incorporated by reference and made a part of this Agreement.
22.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
On the date indicated below, each party by an authorized representative
executes this Agreement in duplicate, each of which shall be considered an
original.
AGREED TO ON BEHALF OF AGREED TO ON BEHALF OF
SURGX CORPORATION BY MCGRAW-EDISON COMPANY BY
Name: Name:
---------------------------- -----------------------------
Title: Title:
---------------------------- -----------------------------
Date: Date:
---------------------------- -----------------------------
20.
<PAGE>
ATTACHMENT 1.5
INVENTION: LICENSED POLYMER MATERIAL
The inventions constituting the SurgeTape Material are covered by the following
patent applications and any continuations, divisionals, continuations in part,
as well as foreign counterparts which may be assigned to Licensor, it being
understood that these patents and applications cover inventions which may be
broader than those used solely in the SurgeTape Material:
Patent Application File Date
020327-002 07/14/94 SurgX Devices
020327-003 07/14/94 SurgX Manufacturing and ESD Devices
020327-005 01/22/96 Printed Circuit Board Designs for ESD
(list SurgeTape patent applications here)
<PAGE>
ATTACHMENT 1.6
The term "Licensed Products" shall mean: Discrete products to be mounted on
printed circuit boards for the purpose of providing ESD protection, which
discrete products are manufactured by depositing SurgeTape Material on a rigid
substrate such as a FR-4 printed circuit board or a ceramic substrate. Examples
of such discrete products include 1206, 0805, 0603 surface mount packages and
board mounted network array packages. Such discrete products shall also include
discrete arrays for placement on or in connectors such as R J, D-subminiature
and other connectors.
Licensed Products shall include other SurgX products, such as, without
limitation, the family of products identified by SurgX as SurgTape (including
discrete components and connector arrays made from SurgTape), SurgX Epoxy
Packages, or custom SurgX applications such as a layer in a printed circuit
board and novel packaging, including hybrid designs and multichip modules.
<PAGE>
ATTACHMENT 3.3.4
SURGX / SURGETAPE MANUFACTURING PROCESS DEVELOPMENT
DELIVERABLE DATE
----------- ----
1. Project Definition
- Project Statement: A concise statement of the Middle of month 1
projects purpose that helps establish
agreement of the overall goal.
- Project objectives: What do we plan to have at
the end of the project.
- Work breakdown structure: Listing of the human
resources, facilities, equipment and
materials/supplies, including the amount and
cost.
- Resource requirements: Listing of the human
resources, facilities, equipment and
materials/supplies, including the amount and
cost.
2. DETAILED PROJECT PLAN
- Responsibility assignment matrix: Listing of Middle of month 1
person(s) responsible for each task of the
work breakdown structure list.
- Grant chart showing the anticipated start and
completion date of each task:
3. PROJECT MONITORING AND CONTROL
- Reporting of progress, potential problems and Monthly
potential opportunities, project
modifications.
- Revised Gantt Chart
- Project expense report
- Test reports and lab notes
4. PROPOSED MANUFACTURING METHOD
- Practical manufacturing process flow and End of month 6
procedures.
- Identify potential raw material and equipment
suppliers.
5. LASER MACHINING OF SURG-X DEVICES
- Identify up to three appropriate substrate
materials (surface mount and connector
components).
<PAGE>
- Recommend optimum gap geometry and electrode
materials with respect to performance and
manufacturability for filled and untilled
polymers.
- Specify filled and untilled polymers used, and
encapsulants, if any.
- Propose practical manufacturing process flow.
- Identify potential vendors and equipment
suppliers.
- Target trigger voltages -< 50V, 150V, 450V1.
- All test reports and lab notes.
2.
<PAGE>
ATTACHMENT 3.8
TRADEMARK LICENSE AGREEMENT
<PAGE>
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement") is effective as of this ___
day of August, 1997 ("Effective Date"), by an between SURGX CORPORATION
("Licensor"), a Delaware corporation, having offices at 1100 Auburn Street,
Fremont, California 94538, and MCGRAW-EDISON COMPANY ("Licensee"), a Delaware
corporation, having offices at 114 Old State Road, Ellisville, Missouri 63178.
In consideration of the mutual covenants and promises contained herein, the
parties hereto agree as follows:
1. DEFINITIONS.
The following terms shall have the meanings set forth below:
(a) "AFFILIATE" means any person controlling, controlled by (either
directly or indirectly) or under common control with Licensee.
(b) "LICENSE AGREEMENT" shall mean the Intellectual Property Rights
License Agreement, of even Effective Date herewith, entered into by the parties
hereto.
(c) "LICENSED MARKS" shall mean solely the trademark SurgX-Registered
Trademark- and the trademark SurgeTape-TM- PROVIDED, HOWEVER, that the
appearance and/or style of either trademark may change from time to time in
Licensor's sole discretion. As of the Effective Date hereof, the trademark
SurgX-Registered Trademark- is the subject of trademark registration and pending
applications 74/461054. Trademark SurgeTape-TM- is a common law trademark for
which an application to register has not yet been submitted.
(d) "PRODUCT" shall mean the "Licensed Products" as defined in the
License Agreement.
(e) "TERRITORY" shall mean the world.
2. LICENSE RIGHT GRANTED.
(a) In partial consideration of the consideration set forth in the
License Agreement, Licensor hereby grants to Licensee, and Licensee accepts,
upon the terms and conditions set forth herein, a non-transferable (subject to
Section 9 herein), non-sublicensable (subject to Section 9 herein), royalty-free
license to use the Licensed Mark in the Territory solely in connection with the
Product.
(b) Licensee hereby acknowledges and agrees that, except as set forth
herein, Licensee has no rights, title or interest in or to the Licensed Marks
and that all use of the Licensed Marks by Licensee shall inure to the benefit of
Licensor. Licensee shall not have the right to use either of the Licensed Marks
as a trade name, company name, trade style or fictitious business name.
<PAGE>
(c) Licensee understands and agrees that it does not have the right
to use the Licensed Marks in any manner that conflicts with the rights of any
third party. If, in Licensor's sole determination, Licensee's use of the
Licensed Mark infringes the rights of any third party or weakens or impairs
Licensor's rights in the Licensed Mark, including but not limited to the
creation of a composite mark, then Licensee agrees to immediately terminate or
modify such use in accordance with Licensor's instructions. In the event
Licensee fails to terminate or modify such use as directed by Licensor, Licensor
may terminate this Agreement and the license granted hereunder.
(d) Licensee acknowledges that it is often difficult, particularly in
foreign countries, to obtain clear, registered title to trademarks. Accordingly,
Licensee agrees that the rights granted herein exist only to the extent that
Licensor owns such rights, and (except as specifically set forth herein or in
the License Agreement) no warranty, express or implied, is made with respect
thereto or to the Licensed Mark or with respect to the rights of any third
parties that may conflict with the rights granted herein. If the laws of any
country included in the Territory require that a trademark be registered prior
to use in order to fully protect the owner of the trademark, the license granted
herein with respect to the Licensed Mark shall not extend to such country until
the Licensed Mark has been registered there at Licensor's expense under
appropriate classes relating to the Product. Licensor and Licensee shall
cooperate in constituting Licensee as a registered user (or its equivalent) of
the Licensed Mark in each of the countries comprising the Territory in which
such Licensed Mark is registered or may be registered, and in which such
registered user filing is required. Any expenses for constituting Licensee as a
registered user in any country shall be borne by Licensee.
(e) Licensor agrees to defend, indemnify and hold Licensee harmless
from any and all costs and expenses (including reasonable attorney's fees),
liabilities, damages or other loss resulting from or relating to an infringement
by the Licensed Marks of any trademark, service mark or trade name right of a
third party; provided that (i) Licensor is promptly notified of any and all
threats, claims and proceedings related thereto; provided, further that no delay
on the part of Licensee to notify Licensor shall relieve Licensor from its
indemnity obligations hereunder unless (and then solely to the extent) the
Licensor is thereby damaged; (ii) Licensor shall have sole control of the
defense and/or settlement thereof; (iii) upon Licensor's request and expense,
Licensee immediately ceases use of the offending Licensed Mark; and (iv) upon
Licensor's request and expense, Licensee provides Licensor with reasonable
assistance and information available to Licensee for such defense. The foregoing
obligation of Licensor does not apply to the extent any liabilities, costs or
expenses result from (a) Licensee continuing the allegedly infringing activity
after being notified thereof or after being informed of modifications that would
have avoided the alleged infringement or (b) if Licensee's use of the Licensed
Mark is not strictly in accordance with the terms and provisions of this
Agreement.
3. QUALITY STANDARDS.
(a) Licensor shall have the right to control the quality of the
Products sold under the Licensed Mark solely as provided herein. Licensee shall
furnish to Licensor, at no expense to Licensor, pre-production samples of the
Product in the form that Licensee intends to manufacture and sell under either
of the Licensed Marks to allow Licensor to review the quality of the Product,
which shall be of a quality at least equal to that of Licensee's other fuse
products
2.
<PAGE>
in production. Thereafter, upon the request of Licensor, Licensee shall
furnish, at no expense to Licensor, production samples of the Product Licensee
intends to sell under each of the Licensed Marks to allow Licensor to monitor
the quality of the Product.
(b) Licensee agrees to adopt the level of quality as set forth in
Section 3(a) hereof for the Product manufactured and sold under the Licensed
Marks as the minimum standard of quality for the Product.
(c) Licensor shall have the right to request Licensee to make any
changes and/or corrections to the Product manufactured and sold by Licensee
under the Licensed Mark as may be required to maintain the quality standard
prescribed by Licensor in Section 3(a) above, and Licensee agrees to make and
incorporate said changes or corrections at Licensee's sole cost and expense.
(d) Licensee shall utilize the Licensed Marks in accordance with
Section 3.5 of the License Agreement. Upon Licensor's request, Licensee shall
furnish to Licensor, at no expense to Licensor, samples of all literature and
materials containing the Licensed Mark that Licensee distributes or intends to
distribute. Licensor shall have the right to control the quality of all
marketing materials bearing the Licensed Mark and Licensee's use of the Licensed
Mark solely as provided herein. If Licensor believes that the Licensed Mark is
being used in a manner that could diminish License's rights in or protection of
the Licensed mark, Licensee agrees, at Licensee's sole cost and expense, to make
whatever reasonable changes and/or corrections Licensor deems necessary to
protect the Licensed Mark.
(e) Licensee agrees that it shall not engage, participate or
otherwise become involved in any activity or course of action that diminishes
and/or tarnishes the image and/or reputation of the Licensed Marks.
(f) Licensee agrees to comply with all applicable local, state,
federal and foreign laws and, at all times, to conduct its activities under this
Agreement in a lawful manner.
(g) Licensee agrees to use the Licensed Marks in accordance with and
only on or in connection with the Product.
4. USE AND DISPLAY OF LICENSED MARK.
(a) Licensee acknowledges and agrees that the presentation and image
of the Licensed Marks should be uniform and consistent with respect to all
services, activities and products associated with the Licensed Marks.
Accordingly, Licensee agrees to use the Licensed Marks solely in the manner
which Licensor shall specify from time to time in Licensor's sole discretion. In
particular, Licensee agrees to use the Licensed Marks as adjectives, coupled at
least the first time they are used in marketing material, brochures,
advertisements, manuals or other documents with a generic term (for example:
SurgX-Registered Trademark- liquid) and not as verbs or nouns.
(b) All usage by Licensee of the Licensed Marks shall include the
registered or common law trademark symbol and shall be in the following form, as
appropriate: SurgX-Registered Trademark- or SurgeTape-TM-. All marketing
materials printed, distributed or electronically transmitted by
3.
<PAGE>
Licensee and containing the Licensed Marks shall include the appropriate one
of the following notices:
1) SurgX-Registered Trademark- is a registered trademark of SurgX
Corporation, or
2) SurgeTape-TM- is a trademark of SurgX Corporation.
5. TERM AND TERMINATION.
(a) This Agreement shall commence on the Effective Date and shall
continue in effect for a period coterminous with the term of the License
Agreement, unless earlier terminated in accordance with the terms and conditions
set forth herein.
(b) This Agreement shall automatically terminate upon termination
(for whatever reason) of the License Agreement. If under the License Agreement
Licensor extends to Licensee a sell-off period within which to sell the Product
to certain existing customers of Licensee, Licensee shall have the right to
continue using the Licensed Marks in connection with its marketing and
distribution efforts only for such Products and only for the duration of such
sell-off period.
(c) This Agreement and the license granted herein may be terminated
by Licensor if licensee fails to perform or comply with a material provision of
this Agreement and such breach or default is not cured by Licensee within thirty
(30) days after written notice of termination is received by License.
(d) Except as expressly set forth in Section 5(b) above, Licensee
shall immediately cease all use of the Licensed Mark upon expiration or
termination of this Agreement.
6. COOPERATION AND PROTECTION.
(a) Licensee agrees to reasonably cooperate with and assist Licensor
in protecting and defending the Licensed Marks and shall promptly notify
Licensor in writing of any infringements, claims or actions by others (which
come to the attention of Licensee) in derogation of either of the Licensee
Marks; PROVIDED, HOWEVER, that Licensor shall have the sole right to determine
whether any action shall be taken on account of any such infringement, claim or
action. Licensee shall not take any action on account of any such infringement,
claim or action without the prior written consent of Licensor.
(b) Licensee agrees not to apply for registration of the Licensed
Mark (or any mark confusingly similar thereto) anywhere in the Territory.
Licensor may elect to apply for registration of the Licensed mark in a
particular country(ies) within the Territory at its expense, and, in such event
and if applicable, Licensee agrees to reasonably assist and cooperate with
Licensor in connection therewith.
7. INDEMNIFICATION.
Licensee agrees to defend, indemnify and hold Licensor harmless from and
against any and all costs and expenses (including reasonable attorneys' fees),
liabilities, damages or other
4.
<PAGE>
loss arising out of Licensee's actions or omission to act under this Agreement
or Licensee's organization, business or activities.
8. INDEPENDENT CONTRACTORS.
The parties hereto are independent contractors and are not partners, joint
venturers or otherwise affiliated, and neither party has any right or authority
to bind the other in any way.
9. ASSIGNMENT.
Licensee may not assign this Agreement or any of its rights or obligations
under this Agreement without the prior written consent of Licensor; PROVIDED,
HOWEVER, Licensee may assign or delegate any of its rights or obligations under
this Agreement to an Affiliate with notice to Licensor (and without Licensor's
consent), provided Licensee remains liable for its performance under this
Agreement.
10. NOTICE.
Any notice pursuant to this Agreement shall be in writing and shall be
deemed given (i) when delivered by hand or mail, (ii) when transmitted by
telecopies, with confirmation of receipt; provided that a copy is sent at about
the same time by registered or certified mail, return receipt requested, or
(iii) three (3) days after being sent by Express Mail, Federal Express or other
express delivery service, to the addressee at the following addresses or
telecopier numbers (or to such other address or telecopier number as a party may
specify from time to time by notice):
If to Licensor: SurgX Corporation
Attention: President
1100 Auburn Street
Fremont, CA 94538
Facsimile: (510) 492-2080
If to Licensee: Bussmann Division of McGraw-Edison Company
Attention: President
114 Old State Road
Ellisville, MO 63178
Facsimile: (314) 527-1497
with copy to: Cooper Industries, Inc.
Attention: General Counsel
P.O. Box 4446
Houston, TX 77210
Facsimile: (713) 209-8991
11. GENERAL.
(a) AMENDMENT, MODIFICATION AND WAIVER. The failure of either party
to enforce its rights or to require performance by the other party of any term
or condition of this
5.
<PAGE>
Agreement shall not be construed as a waiver of such rights or of its right to
require future performance of that term or condition. Any amendment or
modification of this Agreement or any waiver of any breach of any term or
condition of this Agreement must be in a writing signed by both parties in
order to be effective, and any such waiver shall not be construed as a waiver
of any continuing or succeeding breach of such term or condition, a waiver of
the term or condition itself or a waiver of any right under this Agreement.
(b) GOVERNING LAW. This Agreement shall be governed and interpreted
under the laws of the State of Delaware without regard to the conflicts of
interest provisions thereof.
(c) HEADINGS. Headings and captions are for convenience of reference
only and shall not be deemed to interpret, supersede or modify any provision of
this Agreement.
(d) SEVERABILITY. In the event that any provision of this Agreement
shall be determined to be illegal or unenforceable, that provision will be
limited or eliminated to the minimum extent necessary so that this Agreement
shall otherwise remain in full force and effect and enforceable.
(e) ENTIRE AGREEMENT. Upon execution by both parties, this Agreement
shall constitute the entire agreement between the parties with respect to the
subject matter hereof and supersedes all discussions, negotiations, agreements
and past dealings, either oral or written, between or among the parties relating
to the subject matter hereof, including but not limited to the Trademark
Agreement having an Effective Date of _______________, 1996 by and between the
parties hereto.
(f) DISPUTE RESOLUTION. Any dispute or claim arising out of, or in
connection with, this Agreement which is to settled to the mutual satisfaction
of the parties within thirty (30) days (or such longer period as may be mutually
agreed upon) from the date that either party informs the other in writing that
such dispute or disagreement exists, shall be submitted to mediation conducted
by a mediator mutually acceptable to the parties. In the event the parties
cannot resolve the dispute or claim through mediation, then the claim or dispute
shall be finally settled by binding arbitration in the counties of Alameda, San
Mateo or Santa Clara, California, in accordance with the rules of the American
Arbitration Association by three (3) arbitrators appointed in accordance with
said rules in effect on the date that such notice is given. The decision of the
arbitrators shall be final and binding upon the parties and judgment upon any
award rendered by all or a majority of the arbitrators may be entered in any
court of competent jurisdiction. Each party shall bear the cost of preparing its
case. The cost of the arbitration, including the fees and expenses of the
arbitrators, will be shared equally by the parties unless the arbitrators' award
otherwise provides. The parties agree that, any provision of applicable law
notwithstanding, they will not request, and the arbitrators shall not have
authority to award punitive damages against any party or parties. Either party
may request a court to provide interim or provisional relief and such a request
shall not be deemed incompatible with the agreement to arbitrate or as a waiver
of that agreement.
(g) SURVIVAL. Sections 2(e), 5(b), 6(b), 7, 1 l(b) and 1 l(f) hereof
shall survive the termination of this Agreement.
6.
<PAGE>
(h) COUNTERPARTS. This Agreement may be executed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument, and all such counterparts together shall be deemed an
original of this Agreement.
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be executed by their authorized representatives as of the date first above
written.
SURGX CORPORATION MCGRAW-EDISON COMPANY
By By
Printed Name Printed Name
Title Title
7.
<PAGE>
ATTACHMENT 4.1
DELIVERY SCHEDULE FOR
TECHNICAL INFORMATION
1. SurgX Specification and Manufacturing Procedures Control Documents
2. R5-11 Environmental Test Results
3. SurgX ESD QC Test Procedure
All items to be delivered on or before July 22, 1996.
<PAGE>
ATTACHMENT 9.1
526 0848 Foldback Switching Material and Devices
514 2263 Surface Mount Device with Overvoltage Protection Feature
5189 387 Surface Mount Device with Foldback Switching Overvoltage
Protection Feature
506 8634 Overvoltage Protection Device and Material
497 7357 Overvoltage Protection Device and Material
524 8517 Paintable/Coatable Overvoltage Protection Devices and Devices
Made Therefrom
<PAGE>
ATTACHMENT 11.1
Licensor's cost of the SurgeTape Material shall equal Licensor's standard costs
for the SurgeTape Material including direct and indirect labor and associated
fringe benefits, scrap, perishable tooling, supplies, and maintenance on
machinery and equipment. Only costs directly associated with the manufacture of
SurgeTape Material will be included in standard costs.
<PAGE>
ESCROW AGREEMENT
BETWEEN
SURGX CORPORATION
(LICENSOR)
AND
MCGRAW-EDISON COMPANY
(LICENSEE)
AND
BURNS, DOANE, SWECKER & MATHIS
(ESCROW AGENT)
<PAGE>
ESCROW AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Representations of Licensor to Licensee . . . . . . . . . . . . . . . 2
3. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Disputes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Payment to Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . 3
6. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
7. Waiver, Amendment or Modification; Severability . . . . . . . . . . . 3
8. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
9. Limitation on Escrow Agent's Responsibility and Liability . . . . . . 3
10. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
</TABLE>
Schedule A Description of Materials Containing the Escrow Information
Relating to the Manufacture of the Liquid Polymer Material
and SurgeTape
<PAGE>
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of July 12, 1996 by and among SurgX Corporation,
having its principal offices at 47341 Bayside Parkway, Fremont, California
(hereinafter the "Licensor"); McGraw-Edison Company, a Delaware corporation
having its principal offices at 114 Old State Road Ellisville, Missouri
(hereinafter the "Licensee"); and Burns, Doane, Swecker & Mathis, LLP, a law
firm having an office at 3000 Sand Hill Road, Building 4, Suite 160, Menlo Park,
California (hereinafter the "Escrow Agent").
WITNESSETH:
WHEREAS, the Licensor and the Licensee have entered into a Intellectual
Property Rights License ("License Agreement"), a copy of which is appended
hereto and made a part hereof, pursuant to which the Licensor has agreed to
license to the Licensee patents, patent applications, information, technology
and rights relating to Licensed Products which incorporate the SurgeTape
Material; and
WHEREAS, it is the policy of the Licensor not to disclose the information
to allow another party to self-manufacture the SurgeTape Material including
technical and production know-how, drawings, designs, specifications, formulas,
data, trade secrets and other information relating to the manufacture of the
SurgeTape Material ("Escrow Information") except as provided in an applicable
Escrow Agreement; and
WHEREAS, Licensor and Licensee agree that upon the occurrence of certain
events described in Section 3(a) hereof, the Licensee shall be able to obtain
the Escrow Information for the SurgeTape Material, and accordingly, the Licensor
agrees to deliver said Escrow Information to the Escrow Agent; and
WHEREAS, capitalized terms not otherwise defined herein shall have the
meaning set forth in the License Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the Licensor, the Licensee and the Escrow Agent hereby act
and agree as follows:
1. DEPOSITS
The Escrow Agent agrees to accept from the Licensor the Escrow Information
(as more fully described in Schedule A hereto) and revisions thereof as provided
in Section 2 hereof. The Escrow Agent will issue to the Licensor a receipt for
the Escrow Information upon delivery. The Escrow Information held by the Escrow
Agent shall remain the exclusive property of the Licensor, and the Escrow Agent
shall not use the Escrow Information or disclose the same to any third party
except as specifically provided for herein. The Escrow Agent will hold the
Escrow Information in safekeeping at its offices hereinabove indicated unless
and until the Escrow Agent receives notice pursuant to the terms of this
Agreement that the Escrow Agent is to deliver the
<PAGE>
Escrow Information to Licensee, in which case the Escrow Agent shall deliver
the Escrow Information to Licensee, subject, however, to the provisions of
this Escrow Agreement.
2. REPRESENTATIONS OF LICENSOR TO LICENSEE
Licensor represents and warrants to Licensee that: (i) the Escrow
Information constitutes all of the information necessary to allow a reasonably
skilled engineer, without reference to any other material or the help of any
other person to manufacture the SurgeTape Material; and (ii) Licensor will
promptly supplement the Escrow Information delivered hereunder with all
Improvements thereof developed by Licensor from time to time pursuant to the
License Agreement so that the Escrow Information constitutes the most current
information available relating to the manufacture of the SurgeTape Material.
3. NOTICE OF DEFAULT
(a) The Licensor shall be deemed to be in default of its
responsibilities to Licensee for purposes of this Escrow Agreement if: (i)
Licensor fails to meet the obligations referred to in Section 11.3(i) of the
License Agreement; (ii) Licensor becomes insolvent, or a case or proceeding
under bankruptcy, insolvency or similar law is commenced by or against Licensor
and is not dismissed within 45 days or Licensor makes a general assignment for
the benefit of creditors; or (iii) if any event of force majeure disrupts the
supply of SurgeTape Material to Licensee which disruption continues for a period
of 60 days and Licensor fails to find an alternate source to supply the
SurgeTape Material to Licensee or allow Licensee to self-manufacture the
SurgeTape Material. Licensee shall give a sworn statement (the "Notice of
Default") to Licensor of any such default by the Licensor stating that such
default has not been cured with a copy of such notice to the Escrow Agent.
(b) If the Licensor desires to dispute the Notice of Default, the
Licensor shall, within ten business (10) days after the receipt of the copy of
the Notice of Default from the Licensee, deliver to Licensee a sworn statement
(the "Affidavit") saying that no default has occurred or such default has been
cured and Licensor shall provide a copy of such Affidavit to the Escrow Agent,
whereupon the provisions of Section 4 hereof will become applicable. If the
Escrow Agent receives the Affidavit within said ten (10) business days, the
Escrow Agent shall continue to hold the Escrow Information in accordance with
this Escrow Agreement. If the Escrow Agent does not receive the Affidavit within
said ten (10) business days, the Escrow Agent is authorized and directed to
deliver the Escrow Information to the Licensee.
(c) Following a release of the Escrow Information as provided in
Section 3, Licensee shall have the non-exclusive right to use the released
material as and only as authorized by Section 11 of the License Agreement.
Additionally, Licensee shall be required to maintain the confidentiality of the
related materials and technology in accordance with the terms of the License
Agreement.
4. DISPUTES
(a) In the event that Licensor files the Affidavit with the Escrow
Agent in the manner and within the time period set forth in Section 3(b) hereof,
the Escrow Agent shall not release the Escrow Information to Licensee except in
accordance with (i) a final decision of the
2.
<PAGE>
arbitration panel as hereinafter provided, or (ii) receipt of an agreement
with notarized signatures of both Licensor and Licensee, authorizing the
release of the Escrow Information to Licensee.
(b) Disputes arising under this Agreement shall be referred
immediately to, and finally settled by, binding arbitration pursuant to the
provisions of Section 20 of the License Agreement. The Escrow Agent shall give
prompt effect to any authenticated arbitration award. This agreement to
arbitrate shall survive termination of this Agreement.
5. PAYMENT TO ESCROW AGENT
As payment for its services hereunder, the Licensor shall reimburse the
Escrow Agent for its reasonable out-of-pocket expenses incurred in connection
with the discharge by the Escrow Agent of its duties and responsibilities under
this Escrow Agreement.
6. TERMINATION
This Escrow Agreement shall terminate on the termination of the License
Agreement or upon the mutual written agreement of Licensor and Licensee.
7. WAIVER, AMENDMENT OR MODIFICATION; SEVERABILITY
This Escrow Agreement shall not be waived, amended, or modified except by
the written agreement of all the parties hereto. Any invalidity, in whole or in
part, of any provision of this Escrow Agreement shall not affect the validity of
any other of its provisions.
8. NOTICES
All notices required to be given hereunder shall be in writing and shall be
deemed given if delivered personally (upon recipient's actual receipt), if
mailed by certified or registered mail, return receipt requested (upon the date
of delivery to recipient), or if by nationally recognized air courier which
confirms delivery (upon date of delivery to the recipient), to the parties at
their respective addresses hereinabove written, or at such other address as
shall be specified hereinabove in writing to all other parties.
9. LIMITATION ON ESCROW AGENT'S RESPONSIBILITY AND LIABILITY
(a) The Escrow Agent shall maintain the Escrow Information in a safe
and shall provide the same degree of care for the Escrow Information as it
maintains for its valuable documents and those of its customers lodged in the
same location.
(b) The Escrow Agent shall be protected in acting upon any written
notice, request, waiver, consent, receipt or other paper or document furnished
to it, not only in assuming its due execution and the validity and effectiveness
of its provisions but also as to the truth and acceptability of any information
therein contained, which it in good faith believes to be genuine and what it
purports to be.
(c) In no event shall the Escrow Agent be liable for any act or
failure to act under the provisions of this Escrow Agreement except where its
acts are the result of its gross
3.
<PAGE>
negligence or willful misconduct. The Escrow Agent shall have no duties except
those which are expressly set forth herein, and it shall not be bound by any
notice of a claim, or demand with respect thereto, or any waiver,
notification, amendment, termination or rescission of this Escrow Agreement,
unless in writing received by it, and, if its duties are affected, unless it
shall have given its prior written consent thereto.
(d) The Licensor and Licensee hereby agree, jointly and severally, to
indemnify the Escrow Agent against any loss, liability, or damage (other than
any caused by the gross negligence or willful misconduct of the Escrow Agent),
including reasonable costs of litigation and counsel fees, arising from and in
connection with the performance of its duties under this Agreement. The Licensor
and Licensee will not bring a suit or file a claim against the Escrow Agent for
any act or failure to act under the provisions of this Escrow Agreement except
where its acts are the result of its gross negligence or willful misconduct.
10. COUNTERPARTS
This Escrow Agreement may be executed in any number of counterparts with
the same effect as if the signatures to each counterpart were upon a single
instrument, and all such counterparts together shall be deemed an original of
this Escrow Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be duly executed as of the year and date first above written.
SURGX CORPORATION ("LICENSOR")
Attest:
By:
- --------------------------------- ------------------------------
MCGRAW-EDISON COMPANY ("LICENSEE")
Attest:
By:
- --------------------------------- ------------------------------
BURNS, DOANE, SWECKER & MATHIS
("ESCROW AGENT")
Attest:
By:
- --------------------------------- ------------------------------
4.
<PAGE>
EXHIBIT 10.37
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.
REVOLVING ACCOUNT TRANSFER
AND PURCHASE AGREEMENT
(BATCH)
THIS REVOLVING ACCOUNT TRANSFER AND PURCHASE AGREEMENT (Batch) (this
"Agreement") dated as of March 2, 1998 is entered into by and between ORYX
TECHNOLOGY CORP., a Delaware corporation ("[*]"), SURGX CORPORATION, a Delaware
corporation ("Surgx") (both collectively referred to herein as "Seller") and
[*], a [*] corporation doing business as [*] ("[*]"). In consideration of the
mutual covenants and agreements contained herein, Seller and [*] hereby agree
as follows:
SECTION 1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. The following definitions shall apply throughout this
Agreement:
"ACCOUNT PAYMENT" means that portion of the purchase price paid by [*]
to Seller from time to time for the Accounts purchased hereunder.
"ACCOUNT PAYMENT BASE" means an amount equal to 85% of Eligible
Accounts.
"ACCOUNT(s)" means the right of Seller to payment for goods sold or
leased or for services rendered which are not evidenced by a
promissory note or chattel paper, together with anything else
defined as an "account" in the UCC, whether now existing or
hereafter created or arising.
"ACCOUNT DEBTOR" means the person or entity which is obligated on an
Account.
"AFFILIATE" means with respect to any person or entity in question,
any other person or entity owned or controlled by, or which owns or
controls or is under common control or is otherwise affiliated with
such person or entity in question.
"AVAILABILITY POOL" means, at the time of determination thereof,
the maximum amount available for an Account Payment to Seller, as
determined in accordance with the Availability Certificate.
"AVAILABILITY CERTIFICATE" means a certificate in the form of SCHEDULE
A attached hereto duly executed by an authorized officer of Seller.
"BASE RATE" means the per annum variable rate (based on a year
consisting of 360 days and actual days elapsed) established from
time to time by [*]without notice to Seller as its Base Rate for
purposes of calculating variable discounts under [*]'s account
transfer agreements.
"BATCH BALANCE" means, at the time of determination thereof; (i)
the sum of all Account Payments paid by to Seller, PLUS all fees,
expenses and Discounts owing by Seller hereunder which are deducted
from the Availability Pool from time to time, LESS (ii) the amount
of all payments and collections received by on the Accounts
purchased hereunder. If the amount in clause (ii) is greater than
the sum of the amounts in clause (i), the Batch Balance shall be a
negative number.
"BILL OF SALE" means the Bill of Sale in the form attached hereto as
SCHEDULE A-1 duly executed by an authorized officer of Seller.
"COLLATERAL" has the meaning given it in SUBSECTION 8.1.
"COLLECTION REPORT" means a report that provides the daily
collection activity detailed by transaction which is in form and
detail satisfactory to [*], such detail to include the customer's
name, payment date, invoice number and amount of payment for each
transaction.
"CONCENTRATION LIMIT" means the maximum amount of Accounts owing by
any single Account Debtor that may qualify as Eligible Accounts.
The Concentration Limit for any Account Debtor shall be $25,000.00
unless [*], in [*]'s reasonable discretion, consents otherwise;
provided, however, in no event shall the Concentration Limit for
any Account Debtor exceed twenty-five percent (25%) of the Eligible
Accounts.
1
<PAGE>
"DEBIT ACCOUNT" means Account No. [*] that Seller has with [*] over
which [*] shall have express written authority to debit pursuant to
the terms of the Agreement.
"DEFAULT RATE" means a per annum rate of interest equal to the Base
Rate, plus six and one-half percent (6.5%).
"DISCOUNT" has the meaning given it in SUBSECTION 4.1.
"DISCOUNT RATE" means a variable discount rate equal to the Base
Rate in effect on such day, plus one and twenty-five hundredths
percent (1.25%) per annum, provided, however, in no event shall the
Discount Rate be less than seven percent (7%) per annum and upon
the occurrence of an Event of Default, the Discount Rate shall
automatically be equal to the Default Rate. If the Base Rate
changes after the date hereof, the Discount Rate shall be
automatically increased or decreased, as the case may be, without
notice to Seller from time to time as of the effective time of each
change in the Base Rate.
"DISPUTED ACCOUNTS" has the meaning given it in SUBSECTION 9.5.
"ELIGIBLE ACCOUNTS" means, at the time of determination thereof,
all Accounts purchased hereunder EXCEPT the following: (i) any
Account which by its terms is payable more than thirty (30) days
from the invoice date, unless otherwise agreed to in writing by [*];
(ii) any Account which has been outstanding for more than ninety
(90) days from the invoice date; (iii) to the extent that the
aggregate outstanding amount owed by any single Account Debtor
exceeds the Concentration Limit, any amount in excess of the
Concentration Limit owed by such Account Debtor; (iv) any Account
that is owed by an Account Debtor which is an Affiliate of Seller
or an officer or employee of Seller; (v) any Account that arises
out of a sale made, goods shipped or services performed outside of
the United States or that is owed by an Account Debtor located
outside the United States unless such Account Debtor is subject to
the jurisdiction of courts in the United States with respect to
such Account and unless otherwise agreed to in writing by [*]; (vi)
any Account that is owed by an Account Debtor which is a creditor
or supplier of Seller; (vii) any Account that is owed by an Account
Debtor which has asserted any defense or offset or which has
contested any liability with respect to such Account; (viii) any
Account owed by an Account Debtor to Seller if more than 25% (in
dollar amount) of such Account Debtor's Accounts owing to Seller
are outstanding for more than ninety (90) days from the invoice
date; (ix) any Account the Account Debtor of which is the United
States or any department, agency or instrumentality thereof, unless
the right to payment under such Account is assigned to [*] in full
compliance with the Assignment of Claims Act of 1940, as amended
(31 U.S.C. 3727); (x) any Account the Account Debtor of which is
any state or any department, agency or subdivision thereof unless
the right to payment under such Account is assigned to [*] in full
compliance with such state's laws pertaining to the assignment of
claims, if any; (xi) any Account with respect to which Seller has
furnished a payment and/or performance bond and that portion of any
Account representing retainage; (xii) any Account owing by an
Account Debtor for which there has been instituted a proceeding in
bankruptcy or a reorganization under the United States Bankruptcy
Code or other law, whether state or federal, now or hereafter
existing for the relief of debtors; (xiii) any Account with respect
to which goods are placed on consignment or other terms by reason
of which payment by the Account Debtor may be conditioned; and
(xiv) any Account (or portion of an Account) which [*] may
designate from time to time, in its reasonable discretion, for
exclusion from Eligible Accounts. In addition to the foregoing,
(1) an Account shall not be deemed an Eligible Account unless each
of the representations and warranties set forth in SECTION 7 of
this Agreement are true and correct (and remain true and correct at
all times) with respect to such Account, and (2) the gross face
amount payable pursuant to the invoice related to an Account shall
be used for purposes of determining the amount of an Account.
"ENVIRONMENTAL LAWS" means any and all federal, state and local
laws, regulations, rules, orders, licenses, agreements or other
governmental restrictions relating to the environment or to
emissions, discharges or releases of pollutants or industrial,
toxic or hazardous substances into the environment, or otherwise
relating to the manufacture, processing, treatment, transport or
handling of pollutants or industrial, toxic or hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
"ERISA PLAN" means any pension benefit plan subject to Title IV of
ERISA maintained by Seller or any Affiliate thereof with respect to
which Seller or any Affiliate has a fixed or contingent liability.
"EVENT OF DEFAULT" has the meaning given it in SECTION 12.
"FACILITY AMOUNT" means the amount of $500,000.00.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting
Standards Board (or any generally recognized successor),
consistently applied throughout the period involved.
"INDEMNIFIED CLAIMS" means any and all claims, demands, actions,
causes of action, judgments, suits, liabilities, obligations,
losses, damages and consequential damages, penalties, fines, costs,
fees, expenses and disbursements (including without limitation,
fees and expenses of attorneys and other professional
2
<PAGE>
consultants and experts in connection with any investigation or
defense) of every kind or nature, known or unknown, existing or
hereafter arising, foreseeable or unforeseeable, which may be
imposed upon, threatened or asserted against or incurred or paid by
any Indemnified Person at any time and from time to time, because
of or resulting from, in connection with or in any way relating to
or arising out of the purchase of any Account hereunder or any
other transaction, act, omission, event or circumstance in any way
connected with or contemplated by this Agreement or the other
Purchase Documents or any action taken or omitted by any such
Indemnified Person under or in connection with any of the foregoing
(including but not limited to any investigation, litigation,
proceeding, enforcement of [*]'s rights or defense of [*]'s
actions related to or arising out of this Agreement, the other
Purchase Documents, or the Account Payments or use of the proceeds
thereof), whether or not any Indemnified Person is a party hereto;
provided, however, the term "Indemnified Claims" shall not include
losses incurred by [*] from the financial inability of the Account
Debtors to pay Accounts.
"INDEMNIFIED PERSONS" shall collectively mean [*] and its officers,
directors, shareholders, employees, attorneys, representatives,
agents, Affiliates, successors and assigns.
"INVENTORY" means all goods, now owned or hereafter acquired by
Seller and wherever located, which are held for sale or lease or
are to be furnished under any contract of service (including, but
not limited to raw materials, work in process, finished goods and
materials used or consumed in the manufacture or production
thereof, goods in which Seller has an interest in mass or a joint
or other interest or rights of any kind, and goods which have been
returned to or repossessed or stopped in transit by Seller) and
anything else defined as "inventory" in the UCC.
"INVOICES AND RELATED DATA" has the meaning given it in SUBSECTION
6.5.
"OBLIGATIONS" means all indebtedness, obligations and liabilities
owing by Seller to [*] arising under this Agreement and the other
Purchase Documents, and all other indebtedness, obligations and
liabilities owing by Seller to [*], whether presently existing or
hereafter arising, direct or indirect, primary or secondary, joint,
several, or joint and several, fixed or contingent, and whether
originally payable to [*] or to a third party and subsequently
acquired by [*] (including, without limitation, all indebtedness,
obligations and liabilities of Seller to [*] arising by promissory
note, indemnity, guaranty, letter of credit or as established by
law or by a court of competent jurisdiction); provided, that the
term "Obligations" does not include any Discounts.
"PURCHASE DOCUMENTS" means this Agreement and the documents,
agreements and instruments required by [*] to be executed and
delivered in connection herewith (including, without limitation,
all documents, agreements and instruments evidencing, securing,
governing, guaranteeing and/or pertaining to the Obligations owing
hereunder).
"REMITTANCE ADDRESS" means P.O. Box 60000, San Francisco, CA
94160-3270
"RESERVE" has the meaning given it in SUBSECTION 5.1.
"SALES JOURNAL" means a report that will provide the daily sales
activity of Seller detailed by transaction which is in form and
detail satisfactory to [*], such detail to include the customer's
name, date of sale, invoice number and sales amount for each
transaction.
"SUBORDINATED DEBT" means indebtedness owing by Seller to a
creditor other than [*] which has been subordinated and subject in
right of payment to the prior payment of all indebtedness and
obligations now or hereafter owing by Seller to [*], such
subordination to be evidenced by a written agreement between Seller
and the subordinated creditor which is in form and substance
satisfactory to [*].
"TANGIBLE NET WORTH" means, as of any date, the amount by which, on
a consolidated basis, [*]'s total assets exceeds its total
liabilities, plus Subordinated Debt, less any intangible assets (as
defined by GAAP, including, without limitation, trademarks,
patents, copyrights, goodwill, covenants not to compete and
customer lists), less deferred charges.
"TERM" has the meaning given it in SUBSECTION 14.4.
"TERMINATION EVENT" means (a) the occurrence with respect to any
ERISA Plan of (i) a reportable event described in Sections
4043(b)(5) of ERISA or (ii) any other reportable event described in
Section 4043 of ERISA other than a reportable event not subject to
the provision for 30-day notice to the Pension Benefit Guaranty
Corporation pursuant to a waiver by such corporation under Section
4043(a) of ERISA, (b) the withdrawal of Seller or any Affiliate of
Seller from any ERISA Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA,
or (c) any event or condition which might constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of
a trustee to administer, any ERISA Plan.
"UCC" means the Uniform Commercial Code as in effect in the State of
[*], as amended from time to time.
3
<PAGE>
1.2 CONSTRUCTION. Terms defined in the UCC which are used and not
otherwise defined herein shall have the meanings given them in the
UCC. The terms defined in this Agreement which refer to a
particular agreement, instrument or document also refer to and
include all renewals, extensions and modifications of such
agreement, instrument or document. All addenda, exhibits and
schedules attached to this Agreement are a part hereof for all
purposes. Words in the singular form shall be construed to include
the plural and vice versa, unless the context otherwise requires.
1.3 CALCULATIONS AND DETERMINATIONS. The Batch Balance shall be
increased by the amount of each Account Payment from the date each
such payment is made by [*] to Seller and shall be decreased within
3 business days after [*] receives and deposits the proceeds of
collection of Accounts. If such collections cause the Batch
Balance to be a negative amount, such negative amount shall be
algebraically subtracted in computing the Availability Pool in line
14 of the Availability Certificate so as to increase the
Availability Pool. The purchase price for Accounts in SUBSECTION
2.2 shall be calculated, insofar as determining the increase in the
Availability Pool for the purpose of such calculation, by taking
into consideration such Accounts and the collections thereof
without giving effect to the concurrent fluctuations in the
Availability Pool based on other factors, including without
limitation, Account Payments, fees, Discounts, expenses and the
collections of other Accounts. For the purpose of SUBSECTION 14.5,
the amount of "Gross Sales" on and after the Termination Date, as
set forth in each Availability Certificate prepared on or after the
Termination Date, shall be deemed to be zero. Unless otherwise
expressly provided herein or unless [*] otherwise consents, all
financial statements and reports furnished to [*] hereunder shall
be prepared and all financial computations and determinations
pursuant hereto shall be made in accordance with GAAP.
SECTION 2. PURCHASES OF ACCOUNTS AND ACCOUNT PAYMENTS
2.1 ACCOUNT PAYMENTS. Subject to the terms of this Agreement, Seller
agrees to offer for sale from time to time and [*] agrees to
purchase all Accounts of Seller. It is the intention of the
parties hereto that all Accounts sold to [*] from time to time
hereunder will be considered and sold as one account or batch. The
Account Payment paid to Seller at any time hereunder shall be an
amount up to the Availability Pool at such time, as requested by
Seller on the most recent Availability Certificate delivered to [*]
(or as determined by [*] on or after the Termination Date pursuant
to SUBSECTION 14.5).
PURCHASE PRICE. Except as set forth herein, the purchase price for
Accounts which are Eligible Accounts at the time of their sale to
[*] is the amount of increase in the Availability Pool on the date
of, and as a result of, such sales, PLUS the amount of increase in
the Availability Pool when such Eligible Accounts are collected,
LESS the respective Discount. The consideration provided by [*] to
Seller for the purchase of any Accounts which are not Eligible
Accounts at the time of their sale to [*]is the contingent increase
in, and the amount of any increase in, the Availability Pool if and
when such Accounts are collected, LESS the respective Discount;
provided, however, if any such Accounts become Eligible Accounts
after their sale to [*], the consideration for the purchase of such
Accounts shall also include the amount of increase in the
Availability Pool resulting from such Accounts becoming Eligible
Accounts. All Accounts purchased during any time in which the
Account Payment Base exceeds the Facility Amount shall be deemed to
be ineligible Accounts for which the purchase price shall be as
provided in the second sentence of this SUBSECTION 2.2, and for
this purpose such ineligible Accounts may become Eligible Accounts
if and to the extent that the Account Payment Base no longer
exceeds the Facility Amount.
2.3 NOTICE OF SALES. In connection with the initial sale of Accounts
hereunder, Seller shall deliver to [*] a signed and completed
Availability Certificate and a Bill of Sale which has a detailed
aging of Accounts attached thereto, all in form and detail
satisfactory to [*]. Seller must give prior written notice to [*]
of any subsequent sales of Accounts by delivering to [*] a properly
completed Availability Certificate, together with (i) Seller's
Sales Journal listing each Account originated or generated since
the date of the previous Availability Certificate; (ii) Seller's
Collection Report listing all collections received on Accounts
since the date of the previous Availability Certificate, and (iii)
Seller's Debit/Credit memo journal listing all returns, deductions
and disputes on Accounts since the date of the previous
Availability Certificate.
2.4 VERIFICATION. Promptly after receiving each Availability
Certificate and other reports required by SUBSECTION 2.3, [*]
shall, based upon such Availability Certificate and such other
information provided or otherwise available to [*], verify and, if
necessary, redetermine the Availability Pool, which verification or
redetermination, as the case may be, shall take effect immediately
and remain in effect until the next such verification or
redetermination. If all conditions precedent to the sale of
Accounts and the Account Payment requested by such Availability
Certificate have been met, then [*] will on the date specified in
such request purchase the subject Accounts and pay the appropriate
Account Payment to Seller by wire or ACH transfer to an account of
Seller, as designated in writing by Seller. [*]'s acceptance of the
Accounts offered for sale by Seller from time to time hereunder
shall be evidenced by [*] adjusting the Availability Pool as a
result of the purchase of such Accounts. In the event [*] does not
receive an appropriately completed Availability Certificate and the
other reports required by SUBSECTION 2.3, [*] shall have no
obligation to verify the Availability Pool, purchase any further
Accounts or pay any additional Account Payments until such time as
[*] shall have received such information.
2.5 SALE OF ACCOUNTS. Seller hereby sells, transfers, assigns and
otherwise conveys to [*] (as a sale by Seller and a purchase by [*],
and not as security for any of the Obligations), without recourse
except to the limited extent expressly provided herein, all right,
title, and interest of Seller in and to the Accounts represented by
the invoices listed on the attachments to any Bill of Sale or
Availability Certificate delivered to [*] pursuant
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to this Agreement, together with all related rights (but not
obligations) of Seller with respect thereto, including all contract
rights, guarantees, letters of credit, liens in favor of Seller,
collateral, insurance and other agreements and arrangements of
whatever character from time to time supporting or securing payment
of such Accounts, all of the Invoices and Related Data (as defined
in SUBSECTION 6.5) with respect to such Accounts and right, title
and interest of Seller in any related goods, including Seller's
rights and remedies under Article 2, Part 7 of the UCC. The
foregoing sale, transfer, assignment and conveyance does not
constitute and is not intended to result in an assumption by [*] of
any obligation of Seller or any other person in connection with
Accounts or related rights or under any agreement or instrument
relating thereto. Seller agrees to execute and deliver such bills
of sale, assignments, letters of credit, notices of assignment,
financing statements (including continuation statements) under the
UCC and other documents, and make such entries and markings in its
books and records, and to take all such other actions (including
the negotiation, assignment or transfer of negotiable documents,
letters of credit or other instruments) as [*] may request to
further evidence or protect the sale and assignments of Accounts
and related rights to [*] hereunder, as well as [*]'s interest in
any returned goods.
2.6 EXCESS BATCH BALANCE. The Batch Balance shall not at any time
exceed the lesser of (i) the Account Payment Base, and (ii) the
Facility Amount. If for any reason the Batch Balance should ever
exceed the Account Payment Base or the Facility Amount, whichever
is less, all Accounts purchased by [*] while such excess exists and
continues shall be deemed to be ineligible Accounts for which the
purchase price shall be as provided in the second sentence of
SUBSECTION 2.2, and for this purpose such ineligible Accounts may
become Eligible Accounts if and to the extent that such excess no
longer exists.
SECTION 3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT. [*]'s obligation hereunder to purchase any
Accounts or pay any Account Payment the purchase of any such
Accounts (including the first purchase) under the terms and
conditions of Agreement shall be subject to the conditions
precedent that as of the date of any such purchase or payment and
after giving effect thereto: (i) [*] has received this Agreement
and all other Purchase Documents which have all been appropriately
executed by Seller and all other proper parties; (ii) all
representations and warranties made in this Agreement and the other
Purchase Documents are true on and as of the date of such Account
Payment (except to the extent such representations and warranties
are with respect to financial statements which are delivered to [*]
that speak as of a particular date and to the extent that the facts
upon which such representations and warranties are based have been
changed by the transactions contemplated in this Agreement) as if
such representations and warranties had been made as of the date of
such purchase of Accounts and Account Payment; (iii) Seller has
performed and complied with agreements and conditions required in
the Purchase Documents to be performed or complied with by it on or
prior to the date of such purchase of Accounts and Account Payment;
(iv) no Event of Default, or an event with which the passage of
time or the giving of notice, or both, shall become an Event of
Default, has occurred hereunder or under any of the other Purchase
Documents; (v) there has been no material adverse change in
Seller's financial condition or its business since the date of the
most recent financial statements of Seller supplied to [*]; (vi)
such purchase of Accounts or Account Payment shall not be
prohibited by any law or a regulation or any order of any court or
governmental agency or authority; and (vii) [*] shall have received
all fees and expenses owing hereunder.
SECTION 4. DISCOUNTS, FEES, EXPENSES AND TAXES
4.1 DISCOUNTS. The purchase price for the Accounts will be reduced by
a discount (the "Discount"). The Discount will be computed on a
daily basis by multiplying the Batch Balance by the Discount Rate
in effect from day to day. Seller hereby authorizes [*], in [*]'s
sole discretion, to make the adjustment to the purchase price of
the Accounts from time to time (but not less frequently than
monthly) which is attributable to the Discount by (i) reducing the
Availability Pool; (ii) deducting the Discount from any Account
Payment; (iii) debiting the Debit Account, or (iv) using any
combination of the foregoing.
4.2 [INTENTIONALLY OMITTED]
4.3 SERVICING FEE. Seller hereby agrees to pay a monthly servicing fee
on the first day of each calendar month during the Term equal to
one tenth of one percent (.10%) based on the average daily Batch
Balance during the immediately preceding month. If the first
calendar month covers less than a full month, the servicing fee for
such month shall be prorated. Seller hereby authorizes [*], in [*]'s
sole discretion, to collect the servicing fee (i) by reducing
the Availability Pool by the amount of such fee; (ii) by deducting
such fee from the first Account Payment after such fee is due;
(iii) by debiting the Debit Account, or (iv) by using any
combination of the foregoing. Such fee shall be paid to [*] so
long as this Agreement is in effect. This authorization shall not
affect Seller's obligation to pay such sums to [*] when due.
Seller and acknowledge and agree that the availability fee is
reasonable compensation to [*] for continuing to make the facility
available under the terms of this Agreement and for no other
purpose.
4.4 [INTENTIONALLY OMITTED]
4.5 ATTORNEYS' FEES. Seller agrees to pay or reimburse [*] upon demand
for all reasonable attorneys' fees, court costs and other expenses
incurred by [*] (whether or not litigation is commenced or judgment
issued, and if litigation is commenced whether at trial or any
appellate level) in preparation, negotiation, and enforcement of
this Agreement and protecting or enforcing its ownership interest
in the Accounts or its
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security interest in the Collateral, in collecting the Accounts, or
in the representation of [*] in connection with any bankruptcy
case or insolvency proceeding involving Seller, the Collateral or
any Account Debtor. Seller hereby authorizes [*], in [*]'s sole
discretion, to collect such fees, costs and expenses (i) by
reducing the Availability Pool; (ii) by deducting such amounts from
any Account Payment(s); (iii) by debiting the Debit Account, or
(iv) by using any combination of the foregoing. This authorization
shall not affect Seller's obligation to pay such sums to [*]on
demand.
4.6 EXPENSES. [*] shall be entitled to reimbursement upon demand for
all out of pocket expenses incurred by in the course of performing
its functions with respect to this Agreement, including without
limitation, the following: lock box charges, long-distance
telephone charges, postage, credit reports, wire transfers, check
copying charges, overnight mail delivery, UCC and tax lien searches
and filing fees. Seller hereby authorizes [*], in [*]'s sole
discretion, to collect such expenses (i) by reducing the
Availability Pool; (ii) by deducting such amounts from any Account
Payment(s); (iii) by debiting the Debit Account, or (iv) by using
any combination of the foregoing. This authorization shall not
affect Seller's obligation to pay such sums to [*] on demand.
4.7 DEFAULT RATE. All past due amounts owed by Seller to [*]
hereunder, including but not limited to past due fees and expenses,
shall bear interest at the Default Rate and shall be payable on
demand. Seller hereby authorizes [*], in [*]'s sole discretion, to
collect such amounts by (i) reducing the Availability Pool; (ii)
deducting such amounts from Account Payment(s); (iii) debiting the
Debit Account, or (iv) using any combination of the foregoing.
Upon the occurrence of an Event of Default, all Obligations shall
bear interest at the Default Rate. This authorization shall not
affect Seller's obligation to pay such sums to [*] on demand.
4.8 TAXES. All taxes and governmental charges of any kind imposed with
respect to the sale of goods or rendering of services relating to
the Accounts shall remain for the account of, and be paid by,
Seller.
SECTION 5. RESERVE
5.1 ESTABLISHMENT OF RESERVE. At any time after the occurrence of an
Event of Default hereunder, [*] may, at its election, withhold and
accumulate all or any portion of any Account Payment to maintain a
reserve ("Reserve") in an amount that [*] reasonably deems
necessary to collect any Obligations which may become due by Seller
to [*].
5.2 OFFSET AGAINST RESERVE. Seller hereby authorizes [*] to offset,
without prior notice to Seller, and charge against the Reserve any
and all Obligations which Seller may owe to [*].
5.3 DISTRIBUTION OF THE RESERVE. To the extent an Event of Default for
which [*] established the Reserve is cured in a manner reasonably
acceptable to [*] and [*] has not exercised [*]'s rights to
terminate this Agreement because of such Event of Default, [*] will
increase the Availability Pool by the amount of the Reserve and
will no longer be entitled to withhold and accumulate Account
Payments pursuant to SUBSECTION 5.1 or to offset and charge against
the Reserve pursuant to SUBSECTION 5.2, provided that [*]'s rights
under SECTION 5 shall be reinstituted if a subsequent Event of
Default occurs.
SECTION 6. REPRESENTATIONS AND WARRANTIES OP SELLER
Each Seller represents and warrants with respect to such Seller, and upon each
delivery to [*] of an Availability Certificate further represents and warrants
as of the date of delivery of the Availability Certificate, to [*] as follows:
6.1 EXISTENCE. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the state of its
incorporation and is qualified and authorized to do business and is
in good standing in all states in which such qualification and good
standing are necessary. Seller has all requisite power and
authority to execute this Agreement and the other Purchase
Documents to which Seller is a party.
6.2 NO VIOLATION OF LAW. The execution, delivery and performance by
Seller of this Agreement and the other Purchase Documents to which
Seller is a party do not and will not constitute a violation of any
applicable law or of Seller's articles or certificate of
incorporation or Bylaws or any material breach of any other
document, agreement or instrument to which Seller is a party or by
which Seller is bound.
6.3 BINDING OBLIGATIONS. The execution, delivery and performance of
the Agreement and the other Purchase Documents to which Seller is a
party have been duly authorized by all necessary corporate action
by Seller and constitute legal, valid and binding obligations of
Seller enforceable against Seller in accordance with their
respective terms, except as may be limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific
remedies may generally be limited by equitable principles.
6.4 EXECUTIVE OFFICE. The address set forth below Seller's signature
hereon is Seller's mailing address, its chief executive office,
principal place of business and the office where all of the books
and records concerning the Accounts are maintained.
6.5 POSSESSION OF INVOICES AND RELATED DATA. Seller has and will
retain possession of the following in trust for the benefit of [*]
(collectively, the "Invoices and Related Data"): (a) true and
correct copies of all
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invoices evidencing each Account sold to [*] hereunder; (b)
evidence of delivery of all goods or completion of all services
relating to each such Account; and (c) a current listing of all
open and unpaid Accounts sold to [*] hereunder, together with the
names, addresses, contact persons and telephone numbers of each
Account Debtor until such time as [*] picks up or, at [*]'s
request, Seller delivers to [*], the Invoices and Related Data.
Although the Invoices and Related Data are in the possession of
Seller, ownership thereof is transferred to [*] contemporaneously
with the purchase of the related Accounts.
6.6 TRUE AND CORRECT INFORMATION. All information provided by Seller
to [*] during its evaluation of the transactions anticipated by and
in connection with this Agreement, including applications, reports,
financial statements, and the statements made therein were true and
correct at the time made and remain true and correct at the time
that this Agreement is executed, except to the extent the financial
statements speak as of a particular date.
6.7 TAXES. Seller has filed all federal, state and local tax reports
and returns required by any law or regulation to be filed by it and
has either duly paid all taxes, duties and charges indicated due on
the basis of such returns and reports, or made adequate provision
for the payment thereof, and the assessment of any material amount
of additional taxes in excess of those paid and reported is not
reasonably expected. There is no tax lien notice against Seller
presently on file, judgment entered against Seller or levy on or
attachment of its property outstanding or reasonably anticipated.
6.8 FULL DISCLOSURE. There is no fact which Seller has not disclosed
to [*] in writing which could materially adversely affect the
properties, business or financial condition of Seller, the Accounts
sold hereunder or any of the Collateral, or which is necessary to
be disclosed in order to keep any of the representations and
warranties contained herein or in any other Purchase Document from
being misleading.
6.9 ERISA COMPLIANCE. Seller is in compliance with ERISA concerning
Seller's ERISA Plan, if any, or is not required to contribute to
any "multi-employer plan" as defined in Section 4001 of ERISA.
6.10 COMPLIANCE WITH LAWS. Seller is conducting its business in
material compliance with all applicable laws, including but not
limited to applicable Environmental Laws and the Fair Labor
Standards Act and has and is in compliance with all licenses and
permits required under any such laws. Seller does not have any
known material contingent liability under any Environmental Law.
Seller will continue to comply in all material respects with all
Environmental Laws now or hereafter applicable to Seller and shall
obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits,
licenses and other authorizations necessary for its operations.
Seller will promptly furnish to [*] all written notices of
violation, complaints, penalty assessments, suits or other
proceedings received by Seller with respect to any alleged
violation of or non-compliance with any Environmental Laws.
6.11 ASSUMED NAMES. Except as may be listed on SCHEDULE B attached
hereto, Seller does business under no trade or assumed names.
SECTION 7. ACCOUNTS
As to the Accounts of each Seller, such Seller hereby represents and warrants to
[*] with respect to each Account offered for sale by such Seller to [*]
hereunder as follows:
7.1 OWNER. Seller is the sole owner of such Account, which Account is
free and clear of any liens, claims, equities and encumbrances
whatsoever, and upon the purchase by [*] of such Account, [*] will
own such Account free and clear of any liens, claims, equities and
encumbrances whatsoever and the consideration received by Seller
from [*] for such Account is fair and adequate.
7.2 AUTHORITY TO SELL. Seller is the sole obligee under such Account
and has full power and is duly authorized to sell, assign and
transfer such Account to [*] hereunder, and, except as such Account
is disclosed to as an ineligible Account concurrently with the
sale of such Account to [*], the date of sale of such Account is
not more than 30 days after the date of the original invoice
relating to such Account.
7.3 FULL PAYMENT EXPECTED. Seller has no knowledge of any fact which
would lead it to expect that, at the date of sale of such Account
to [*], such Account will not be paid in the full stated amount
when due, except as such Account is disclosed to [*] as an
ineligible Account.
7.4 BONA FIDE ACCOUNT. Such Account is valid and enforceable and
arises out of a bona fide sale or lease of conforming goods or the
bona fide rendition of services by Seller, and all underlying goods
have been delivered to the Account Debtor, or all underlying
services have been rendered by Seller, in complete fulfillment of
all of the terms and conditions of a fully executed, delivered and
unexpired contract or purchase order with the Account Debtor, and
the Account Debtor has accepted the goods or services to which the
Account relates, except as such Account is otherwise disclosed to
[*] as an ineligible Account. Such Account constitutes the legal,
valid and binding payment obligation of the Account Debtor,
enforceable in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally), except as such Account
is disclosed to [*]as an ineligible Account.
7.5 PAYABLE IN U.S. DOLLARS. Such Account is denominated and payable only
in United States dollars.
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7.6 ACCOUNT IS NOT PAST DUE. Such Account is current and not past due
as of the date of sale of such Account to [*] (except as such
Account is otherwise disclosed to [*] as an ineligible Account),
has not been paid by or on behalf of the Account Debtor in whole or
in part, and, if it is an Eligible Account, is not and will not be
subject to any dispute, recision, setoff, recoupment, defense or
claim by the Account Debtor, whether relating to price, quality,
quantity, workmanship, delay in delivery, setoff, counterclaim or
otherwise, and, if it is an Eligible Account, the Account Debtor
has not and will not claim any defense of any kind or character
(other than bankruptcy or insolvency arising after the date of such
sale of such Account to hereunder) against payment of such Account.
7.7 U.S. ACCOUNT DEBTOR. As of the date of purchase by [*] of such
Account, the Account Debtor with respect to such Account is located
(within the meaning of Section 9-103 of the UCC) and has its
principal executive offices within the United States, except as
such Account is disclosed to [*] as an ineligible Account
concurrently with the sale of such Account to [*].
7.8 REMITTANCE ADDRESS. The invoice related to such Account sets forth
as its sole address for payment the Remittance Address.
SECTION 8. COLLATERAL
8.1 GRANT OF SECURITY INTEREST. In order to secure the payment of all
Obligations, Seller hereby grants to a security interest in and
lien upon all of Seller's right, title and interest in and to (a)
all Accounts not purchased hereunder and all present and future
contracts, contract rights, chattel paper, documents, instruments,
drafts, acceptances, deposit accounts and general intangibles now
or hereafter owned by Seller (including, without limitation, the
Reserve), all money and other funds of Seller which may now or
hereafter come into the possession, custody or control of [*] and
in any case where an account arises from the sale of goods, all of
Seller's right, interest and interest in such goods (including,
without limitation, all returned or repossessed goods and all of
Seller's rights of stoppage in transit, replevin and reclamation as
unpaid vendor); (b) all Inventory and all accessions thereto and
products thereof and documents therefor; (c) all books and records
pertaining to the foregoing, including but not limited to computer
programs, data, certificates, records, circulation lists,
subscriber lists, advertiser lists, supplier lists, customer lists,
customer and supplier contracts, sales orders, and purchasing
records; and (d) all proceeds of the foregoing, including without
limitation, all insurance payable by reason of loss or damage
(collectively, the "Collateral").
8.2 PERFECTION. Seller agrees to comply with all applicable laws in
order to perfect [*]'s security interest in and to the Collateral,
to execute any financing statement(s) or additional documents as [*]
may require and to deliver to [*] landlord and or mortgagee lien
waivers with respect to each site where Inventory is located and
which is either leased by Seller or has been mortgaged by Seller,
upon request by [*].
8.3 REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to [*]
as follows with respect to the Collateral:
(a) Seller has not executed any other security agreement currently
affecting the Collateral or any financing statement regarding
the Collateral (other than those in favor of [*] and those
covering leased equipment or otherwise disclosed to and
consented by [*] in writing), and no financing statement
executed by Seller is now on file which covers any of the
Collateral (other than in favor of [*], those to be released
with the closing of this facility, those that may cover Power
Products' equipment located in Mexico, those covering leased
equipment or as otherwise disclosed to and consented by [*] in
writing);
(b) All Collateral is and will be owned by Seller, free and clear
of all other liens, encumbrances, security interests and
claims (except as otherwise consented by [*] in writing), and
shall be kept at address set forth below Seller's signature
hereon and at such other addresses as may be listed in
SCHEDULE C attached hereto, and Seller shall not (without the
written consent of [*]) remove the Collateral therefrom except
for the purpose of selling or leasing Inventory in the
ordinary course of business.
8.4 EXISTING SECURITY INTEREST. In the event a security interest has
heretofore been granted and given to by Seller in a prior
agreement(s) or document(s) to secure certain obligations, then in
such event, and notwithstanding anything in this Agreement to the
contrary, the lien and security interest herein granted and given
to [*] hereunder is in renewal and continuation, and not in
extinguishment of, all such prior liens and security interests and
continue to be valid and subsisting liens and security interests to
secure all prior, existing and future Obligations.
SECTION 9. COVENANTS
So long as this Agreement shall be in effect or any of the Obligations shall be
outstanding, Seller agrees and covenants that, unless [*] shall otherwise
consent in writing:
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9.1 SALE OF ACCOUNTS. Subject to the terms and conditions of this
Agreement, Seller will sell to [*] hereunder all Accounts existing
at the time of each Availability Certificate permitted or required
to be delivered to under SUBSECTION 9.14.
9.2 BOOKS AND RECORDS. Seller will maintain its books and records in
accordance with GAAP, applied on a consistent basis, at its chief
executive office set forth in SUBSECTION 6.4.
9.3 NO OTHER LIENS. Seller will not execute any security agreement or
financing statement covering any of the Accounts purchased
hereunder or the Collateral, other than (i) liens and security
interests securing indebtedness owing to [*], (ii) pledges or
deposits to secure the payment of obligations under any worker's
compensation laws or similar laws, (iii) deposits to secure the
payment of public or statutory obligations, (iv) mechanic's,
carriers', workman's, repairman's or other liens arising by
operation of law in the ordinary course of business which secure
obligations that are not overdue or are being contested in good
faith and for which Borrower has established adequate reserves in
accordance with generally accepted accounting principles, (v) liens
securing purchase money indebtedness permitted hereunder provided
such lien does not extend beyond the property purchased with such
indebtedness, (vi) liens securing capital leases provided such lien
does not extend beyond the property subject to such lease, and
(vii) liens and security interest existing as of the date hereof
which have been disclosed to and approved by [*] in writing
(including those financing statements covering leased equipment).
9.4 NOTICE OF FALSE REPRESENTATION. Seller agrees to notify [*]
immediately of any breach by Seller of any representation, warranty
or covenant contained herein or in the event any representation or
warranty made herein becomes false at any time.
9.5 NOTICE OF DISPUTED ACCOUNT. Seller agrees to notify [*]
immediately of the assertion by any Account Debtor of any dispute
or other claim (including any defense or offset asserted by any
Account Debtor) with respect to any Account sold to [*] hereunder,
or with respect to any related goods or services ("Disputed
Accounts"). Upon [*]'s request, Seller agrees to settle, at its
own expense and for the benefit of [*], all Disputed Accounts;
provided, that any such settlement shall be made only with the
prior written consent of [*].
9.6 RIGHT OF INSPECTION. Seller agrees to permit [*] to visit its
properties and installations and to examine, audit and make and
take away copies or reproductions of Seller's books and records, at
all reasonable times. Seller also agrees to pay all costs
associated with any such audits, which are currently $700.00 per
day, per person, plus out-of-pocket expenses, but prior to an Event
of Default, Seller shall not be required to pay for more than one
such audit per fiscal quarter.
9.7 NOTICE OF MATERIAL CHANGE/LITIGATION. Seller shall promptly notify
[*] in writing (a) any material adverse change in Seller's
financial condition or its business, and (b) any litigation or
claims affecting Seller which could materially adversely affect the
financial condition of Seller.
9.8 NOTICE OF NAME OR ADDRESS CHANGE. Seller will notify [*] in
writing 30 days prior to any change in (a) the name of Seller or
any of the names under which it is conducting business as specified
on SCHEDULE B, (b) the address of Seller's chief executive office
or principal place of business as described in SUBSECTION 6.4, (c)
the location of the office where the records concerning Accounts
are maintained, (d) the opening of any new place of business or
location where Collateral may be kept, and (e) the closing of any
of its existing places of business or locations described on
SCHEDULE C. Seller agrees to execute and deliver to
financing statements and such other documents as [*] may request in
order to obtain and/or maintain a perfected security interest in
the Collateral.
9.9 TAXES. Seller will pay and discharge when due all assessments,
taxes, governmental charges and levies, of every kind and nature,
imposed upon Seller or its properties, income or profits, prior to
the date penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Seller's
property, income or profits: provided, however, Seller will not be
required to pay and discharge any such assessment, tax, charge,
levy or claim so long as (i) same shall be contested in good faith
by appropriate judicial, administrative or other legal proceedings
timely instituted, and (ii) Seller shall have established adequate
reserves with respect to such contested assessment, tax, charge,
levy or claim in accordance with generally accepted accounting
principles, consistently applied.
9.10 LIQUIDATIONS; MERGERS. Seller shall not merge or consolidate with
or into any other entity (except a merger of Surgx into [*] or into
another subsidiary of [*]) or liquidate, dissolve or otherwise
cease conducting business.
9.11 SALE OF ASSETS. Seller shall not sell, transfer or otherwise
dispose of its assets, other than (i) inventory in the ordinary
course of its business, and (ii) as necessary to replace obsolete
equipment.
9.12 TRANSFER OF OWNERSHIP. [*] shall not permit the sale, pledge or
other disposition of any ownership interest in Surgx.
9.13 PROPER REPORTING. Seller agrees to properly reflect the effect of
this Agreement, and all sales of Accounts related thereto, in all
financial reports and disclosures, written or otherwise, provided
to Seller's creditors
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and other interested parties. Seller specifically agrees that all
Accounts purchased by [*] hereunder will be excluded from Seller's
reported accounts receivable balances.
9.14 DELIVERY OF AVAILABILITY CERTIFICATE. Seller shall deliver to
[*] an updated Availability Certificate (i) with each request for
an Account Payment, and (ii) on a weekly basis throughout the Term,
whether or not Seller requests an Account Payment, in each instance
accompanied by the related reports described in SUBSECTION 2.3.
9.15 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE AGING. Seller agrees to
deliver to [*] within three (3) days after each week, an Accounts
Receivable aging report and an Accounts Payable aging report, in
form and detail satisfactory to [*].
9.16 FINANCIAL STATEMENTS. Seller agrees to furnish to [*] (a) within
90 days after the last day of each fiscal year of Seller a
consolidated statement of income and a consolidated statement of
cash flows of Seller for such fiscal year, and a consolidated
balance sheet of Seller as of the last day of such fiscal year,
together with an auditor's report thereon by an independent
certified public accountant (if Seller generally obtains such an
auditor's report), (b) within 45 days after the last day of each
fiscal quarter of Seller, an unaudited consolidated statement of
income and statement of cash flows of Seller for such fiscal
quarter, and an unaudited consolidated balance sheet of Seller as
of the last day of such fiscal quarter, and (c) within 30 days
after the last day of each month, monthly unaudited consolidated
statements of income and statements of cash flows of Seller and any
affiliates for each month an unaudited balance sheets of Seller and
any affiliates as of the end of each month. Seller represents and
warrants that each such statement of income and statement of cash
flows will fairly present, in all material respects, the results of
operations and cash flows of Seller for the period set forth
therein, and that each such balance sheet will fairly present, in
all material respects, the financial condition of Seller as of the
date set forth therein, all in accordance with GAAP, (or, with
respect to unaudited financial statements, in the notes thereto).
Seller also agrees to furnish to [*], upon request, such additional
financial and business information concerning Seller and its
business as [*] may reasonably request, including copies of its
Form 941 returns filed with the Internal Revenue Service and
evidence of payment of related taxes.
9.17 FINANCIAL COVENANTS. Seller agrees to maintain the following
financial covenant while this Agreement remains in effect:
(a) TANGIBLE NET WORTH. At the end of each fiscal quarter, the
Tangible Net Worth, calculated on a pro forma basis (i.e., add
back purchased Accounts and factored balance), of not less than
$2,500,000.00; provided, however, Seller shall have an opportunity
to cure any breach of this financial covenant within 25 five days
from the earlier of (i) the date which [*] is due to receive
financial statements which would show a violation of this
covenant, or (ii) the date of [*]'s receipt of financial
statements showing a violation of such covenant.
SECTION 10. RIGHTS OF
10.1 NOTIFICATION OF ACCOUNT DEBTORS. [*] shall have the right at any
time (i) after the occurrence of an Event of Default and without
notice to Seller, (ii) if [*] believes in good faith the prospect
for payment or performance under this Agreement and the other
Purchase Documents is impaired, or (iii) [*] in good faith believes
Seller is not diligently pursuing appropriate collection efforts
against a particular Account Debtor which is delinquent
(collectively, the "Notification Events"), to notify any or all
Account Debtors of the sale of the Accounts to [*] and to direct
such Account Debtors to make payment of all amounts due or to
become due to Seller directly to [*] to enforce collection of any
Accounts purchased hereunder or collection of any of the Collateral
and to adjust, settle or compromise the amount or payment thereof.
agrees to attempt to give prior notice to Seller of [*]'s
notification of Account Debtors based upon clause (i) in the
foregoing sentence but [*] shall have no liability for failure to
provide any such notice and Seller's obligations hereunder and the
provisions of this Agreement shall not be affected by [*]'s failure
to give any such notice. [*] agrees to give prior written notice to
Debtor if [*] notifies Account Debtors as a result of the
Notification Events described in clause (ii) and (iii) in the first
sentence of this Subsection, and to only notify the Account Debtor
which is delinquent if notification is based solely on clause (iii).
10.2 COLLECTIONS. All payments and collections of Accounts received by
[*]shall belong to [*] as owner of the Accounts.
10.3 RIGHT TO COLLECT. After the occurrence of any Notification Event,
Seller authorizes [*] to collect, sue for and give releases for and
in the name of Seller or [*] in [*]'s sole discretion, all amounts
due on Accounts sold to [*] hereunder. Seller specifically
authorizes [*] to endorse, in the name of Seller, all checks,
drafts, trade acceptances or other forms of payment tendered by
Account Debtors in payment of Accounts sold to hereunder and made
payable to Seller. [*] shall have no liability to Seller for any
mistake in the application of any payment received with respect
to any Account, IT BEING THE SPECIFIC INTENT OF THE PARTIES HERETO
THAT [*]SHALL HAVE NO LIABILITY HEREUNDER FOR ITS OWN NEGLIGENCE,
except for its own gross negligence and willful misconduct. After
the occurrence of any Notification Event, Seller hereby waives
notice of nonpayment of any Account sold to [*] hereunder as well
as any and all other notices with respect to such Accounts, demands
or presentations for payment and agrees that [*] may extend, renew
or modify from time to time the payment of, or vary, reduce the
amount
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payable under or compromise any of the terms of, any Account
purchased by [*], in each case without notice to or the consent of
Seller. After the occurrence of any Notification Event, Seller
further authorizes (or its designee) to open and remove the
contents of any post office box of Seller which [*] believes
contains mail relating to Accounts, and in connection therewith or
otherwise, to receive, open and dispose of mail addressed to Seller
which [*] believes may relate to Accounts, and in order to further
assure receipt by [*] (or its designee) of mail relating to such
Accounts, to notify other parties including customers and postal
authorities to change the address for delivery of such mail
addressed to Seller to such address as may designate. [*]agrees
to use reasonable measures to preserve the contents of any such
mail which does not relate to the Accounts of Seller and to deliver
same to Seller (or, at the election of [*], to notify Seller of the
address where Seller may take possession of such contents;
provided, if Seller does not take possession of such contents
within 30 days after notice from [*] to take possession thereof, [*]
may dispose of such contents without any liability to Seller).
10.4 POWER OF ATTORNEY. Seller hereby irrevocably appoints [*] (and any
employee, agent or other person designated by [*], any of whom may
act without joinder of the others) as Seller's attorneys-in-fact in
Seller's name, place, place and stead, to take, after the
occurrence of any Notification Event, all actions, execute and
deliver all notices, negotiate such instruments and other
documents, as may be necessary or advisable to permit [*] (or its
designee) to take any and all of the actions described in this
Agreement or to carry out the purpose and intent thereof, as fully
and for all intents and purposes as Seller could itself do, and
hereby ratifies and confirms all that said attorneys-in-fact may do
or cause to be done by virtue hereof, including, without
limitation; (i) to demand, collect, sue for, recover, receive and
give acquittance and receipts for moneys due and to become due
under the Accounts purchased hereunder or the Collateral, and (ii)
to file any claims or take any action or institute any proceedings
which [*] may deem necessary or appropriate for the collection
and/or preservation of the Accounts purchased hereunder and the
Collateral or otherwise to enforce the rights of [*] with respect
to the Accounts purchased hereunder and the Collateral. This power
of attorney is irrevocable and deemed coupled with an interest.
10.5 UCC FILINGS. Seller hereby authorizes [*] to file, with or without
the signature of Seller, one or more financing or continuation
statements, and amendments thereto, relating to the Collateral.
Seller further agrees that a carbon, photographic or other
reproduction of this Agreement or any financing statement
describing any Collateral is sufficient as a financing statement
and may be filed in any jurisdiction may deem appropriate.
10.6 RIGHT TO PERFORM. If Seller fails to perform any agreement or
obligation provided herein or in any of the other Purchase
Documents (including without limitation, the payment and discharge
of any taxes, liens or encumbrances affecting the Collateral), [*]
may itself perform, or cause performance of, such agreement or
obligation, and the expenses of [*]incurred in connection therewith
shall be a part of the Obligations, secured by the Collateral and
payable by Seller on demand.
10.7 RIGHT OF SETOFF. [*] shall have the right of setoff against the
Obligations at any and all times and in any and all proceedings and
instances including, but not limited to, bankruptcy,
reorganization, receivership or insolvency of Seller, without prior
notice to Seller.
SECTION 11. SERVICING
11.1 APPOINTMENT OF SERVICING AGENT. [*] hereby appoints Seller as
servicing agent for [*] for the purpose of expediting the
collection of past due Accounts purchased by [*] hereunder.
Seller, as servicing agent, agrees to maintain an active, on-going
and regular dialog with each delinquent Account Debtor. Seller
further agrees, as servicing agent, to utilize all powers,
influences, rights and to take every action within its control in
accordance with its customary practices and applicable law to
expedite the collection of the past due Accounts purchased by [*]
hereunder and direct such payments exclusively to the Remittance
Address. [*] reserves the right to terminate Seller as [*]'s
servicing agent at any time with or without cause or notice to
Seller.
11.2 PROTECTION OF [*]'S RIGHTS. Seller, as servicer, shall take no
action which, nor omit to take any action the omission of which,
would substantially impair the rights of [*] in any Accounts
purchased hereunder by [*]. Seller, as servicer, agrees to defend
at its expense [*]'s ownership of the Accounts sold hereunder.
11.3 PROCEEDS OR RETURNED GOODS RECEIVED BY SELLER. All amounts and
proceeds (including instruments and writings) received by Seller at
any time in respect of any Accounts purchased hereafter shall be
received in trust for the benefit of [*] hereunder, shall be
segregated from other funds of Seller and shall be promptly paid
over to [*] in the same form as so received (with any necessary
endorsement) to be applied in the same manner as payments received
directly by [*]. If any goods relating to an Account purchased by
[*] hereunder shall be returned to or repossessed by Seller, Seller
shall give prompt notice thereof to [*] and shall hold such goods
in trust for [*], separate and apart from Seller's own property,
and such goods shall be owned solely by [*] and be subject to [*]'s
direction and control. Seller shall properly store and protect
such goods and agrees to cooperate fully with [*] in any subsequent
disposition thereof for the benefit of [*]. The provisions of
this Subsection shall survive the termination of this Agreement.
11.4 DELIVERY OF INVOICES AND RELATED DATA. The Invoices and Related
Data, although owned by [*], shall remain in Seller's possession
and held in trust by Seller for the benefit of [*]. Seller agrees
to deliver the
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Invoices and Related Data to [*] upon [*]'s request and to allow [*]
to visit its offices to inspect, make copies or take the originals
thereof, along with any computer data related thereto, at all
reasonable times.
11.5 ADDITIONAL DOCUMENTATION; TERMINATION. Seller will furnish to [*],
upon request, any and all papers, documents and records in its
possession or control related to Accounts purchased by [*]
hereunder, or related to Seller's business relationship with the
respective Account Debtors, and agrees to cooperate fully with [*]
in all matters related to collection of Accounts purchased by [*]
hereunder. [*] reserves the right to terminate such servicing
relationship at any time with or without cause and without notice
to Seller.
SECTION 12. EVENTS OF DEFAULT
An event of default ("Event of Default") shall be deemed to have occurred
hereunder upon the occurrence of one or more of the following:
(a) Seller shall fail to pay as and when due any Obligations owed
to [*].
(b) Seller shall breach any covenant or agreement made herein, in any
of the other Purchase Documents or in any other agreement now or
hereafter entered into between Seller and [*].
(c) Any warranty or representation made herein or in any of the other
Purchase Documents shall be false or misleading in any material
respect when made.
(d) The occurrence of an event of default under any of the other
Purchase Documents or any other agreement now or hereafter
entered into between Seller and [*].
(e) Any report, certificate, schedule, financial statement, profit
and loss statement or other statement furnished by Seller, or
by any other person on behalf of Seller, to [*] is not true
and correct in any material respect.
(f) The occurrence of any event which permits the acceleration of
the maturity of any indebtedness in excess of $50,000.00 owing
by Seller to any third party under any agreement or
undertaking.
(g) The filing of a voluntary or involuntary case by or against
Seller under the United States Bankruptcy Code or other
present or future federal or state insolvency, bankruptcy or
similar laws, or the appointment of a receiver, trustee,
conservator or custodian for a substantial portion of Seller's
assets and, with respect to an involuntary case, the case is
consented to by Seller or is not dismissed within 60 days
after the effective date thereof.
(h) Seller shall become insolvent, make a transfer in fraud of
creditors or make an assignment for the benefit of creditors.
(i) The filing or commencement of any involuntary lien,
garnishment, attachment or the like shall be issued against or
with respect to the Collateral.
(j) Seller shall have a federal or state tax lien filed against any
of its properties.
(k) The Collateral or any portion thereof is taken on execution or
other process of law.
(l) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as
amended) in excess of $50,000 exists with respect to any ERISA
Plan of Seller, or (ii) any Termination Event occurs with
respect to any ERISA Plan of Seller and the then current value
of such ERISA Plan's benefit liabilities exceeds the then
current value of such ERISA Plan's assets available for the
payment of such benefit liabilities by more than $50,000.
(m) If any of the obligations of any guarantor under the Purchase
Documents is limited or terminated by operation of law or by
the guarantor, or any such guarantor becomes the subject of an
insolvency proceeding.
(n) The entry against Seller of a final and nonappealable judgment
for the payment of money in excess of $50,000 (not covered by
insurance satisfactory to [*] in its sole discretion).
(o) The occurrence of an Event of Default under that certain Loan
Agreement dated May 29, 1997 between [*] and [*], as may be
amended from time to time.
Upon the occurrence of an Event of Default described in subsections (g) or (h)
of this Section, all of the Obligations owing by Seller to [*] (including but
not limited to all fees and discounts owed hereunder) shall thereupon be
automatically and immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, or any other notice or
declaration of any kind, all of which are hereby expressly waived by Seller.
Upon the occurrence of any other Event of Default, [*], at its option, at any
time and from time to time may without notice to Seller declare any or all of
the Obligations owing by Seller to [*] (including but not limited to all fees
and discounts owed hereunder) immediately due and payable, all without demand,
presentment, notice of demand or of dishonor and nonpayment, or any notice or
declaration of any kind, all of which are hereby expressly waived by
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Seller. After the occurrence of any Event of Default, any obligation of [*]
to purchase any further Accounts hereunder, to pay any further Account
Payments hereunder (except as provided in SUBSECTION 14.5) or to make loans
under any other agreement with Seller may be terminated by [*] at [*]'s
option to be exercised in its sole discretion.
SECTION 13. REMEDIES AND APPLICATION OF PROCEEDS
13.1 REMEDIES. In addition to, and without limitation of, the foregoing
provisions of this Agreement, if an Event of Default shall have
occurred and be continuing, [*] may from time to time in its
discretion, without limitation and without notice except as
expressly provided below, do any one or more of the following:
(a) Terminate this Agreement; provided that any such termination
shall be subject to SUBSECTIONS 11.3, 14.4, 14.5 AND 14.8.
(b) Exercise in respect of the Collateral, in addition to other
rights and remedies provided for herein, under the other
Purchase Documents or otherwise available to it, all the
rights and remedies of a secured party on default under the
UCC (whether or not the UCC applies to the affected
Collateral).
(c) Require Seller to, and Seller hereby agrees that it will at
its expense, assemble all or part of the Collateral as
directed by [*] and make it available to [*] at a place to be
designated by [*] which is reasonably convenient to both
parties.
(d) Reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest created
hereby by any available judicial procedure.
(e) Dispose of, at its office, on the premises of Seller or
elsewhere, all or any part of the Collateral, as a unit or in
parcels, by public or private proceedings.
(f) Buy the Collateral, or any part thereof, at any public sale,
or at any private sale if the Collateral is of a type
customarily sold in a recognized market or is of a type which
is the subject of widely distributed standard price quotations.
(g) Apply by appropriate judicial proceedings for appointment of a
receiver for the Collateral, or any part thereof, and Seller
hereby consents to any such appointment.
(h) At [*]'s discretion, retain the Collateral in satisfaction of
the Obligations whenever the circumstances are such that [*]
is entitled to do so under the UCC or otherwise.
Seller agrees that, to the extent notice of sale shall be required
by law, at least five (5) days notice to Seller of the time and
place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. [*] shall
not be obligated to make any sale of Collateral regardless of
notice of sale having been given. [*] may adjourn any public or
private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned.
13.2 APPLICATION OF PROCEEDS. If any Event of Default shall have occurred
and be continuing, [*] may in its discretion apply any Reserve, and
any cash proceeds received by [*] in respect of any sale of,
collection from, or other realization upon all or any part of the
Collateral, to any or all of the following in such order as [*] may
elect:
(a) To the repayment of reasonable costs and expenses, including
reasonable attorneys' fees and legal expenses, incurred by [*]
in connection with (i) the administration of this Agreement;
(ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any
Collateral; (iii) the exercise or enforcement of any of the
rights of [*] hereunder, or (iv) the failure of Seller to
perform or observe any of the provisions hereof.
(b) To the payment of the Obligations and the reimbursement of [*]
for the amount of any obligations of Seller paid or discharged
by [*], and of any expenses of [*] payable by Seller
hereunder or under the other Purchase Documents.
(c) By holding the same as Collateral.
(d) To the payment of any other amounts required by applicable law
(including, without limitation, Part 5 of Article 9 of the UCC
or any successor or similar, applicable statutory provision).
(e) To the payment or other satisfaction of any liens and other
encumbrances upon any of the Collateral.
(f) By delivery to Seller or to whomsoever shall be lawfully
entitled to receive the same or as a court of competent
jurisdiction shall direct.
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SECTION 14. MISCELLANEOUS
14.1 EQUITABLE RELIEF. Seller acknowledges that in the event that
Seller commits any act or omission which prevents or unreasonably
interferes with: (a) [*]'s exercise of the rights and privileges
arising under the power of attorney granted under this Agreement;
or (b) [*]'s perfection of or levy upon the security interest
granted in the Collateral, including any seizure of any Collateral,
such conduct will cause immediate severe, incalculable and
irrevocable harm and injury for which there is no adequate remedy
at law, and shall constitute sufficient grounds to entitle [*] to
an injunction, writ of possession, or other applicable relief in
equity, and to make such application for such relief in any court
of competent jurisdiction, without any prior notice to Seller.
14.2 CUMULATIVE RIGHTS. All rights, remedies and powers granted to [*]
in this Agreement, or in any other instrument or agreement given by
Seller to [*] or otherwise available to [*] in equity or at law, or
accumulative and may be exercised singularly or concurrently with
such other rights as [*]may have. These rights may be exercised
from time to time as to all or any part of the Accounts purchased
hereunder or the Collateral as [*] in its discretion may determine.
[*] shall not be deemed to have waived any of its rights and
remedies unless the waiver is in writing and signed by [*]. A
waiver by [*] of a right or remedy under this Agreement on one
occasion is not a waiver of the right or remedy on any subsequent
occasion. The purchase of Accounts by [*] during the continuance
of an Event of Default shall not obligate [*] to make any further
purchases during the continuation of such Event of Default.
14.3 NOTICES. Any notice or communication with respect to this
Agreement shall be in writing sent by (i) personal delivery; (ii)
expedited delivery service with proof of delivery; (iii) United
States mail, postage prepaid, registered or certified mail, or (iv)
prepaid telegram, telex or telecopy, addressed to each party
thereto at its address set forth below their signature hereon or to
such other address or to the attention of such other person as
hereafter shall be designated in writing by the applicable party
sent in accordance herewith. Any such notice or communication
shall be deemed to have been given either at the time of personal
delivery or, in the case of delivery service or mail, as of the
date of first attempted delivery at the address and in the manner
provided herein, or in the case of telegram, telex or telecopy,
upon receipt. Seller hereby agrees that [*] may publicize the
transaction contemplated by this Agreement in newspapers, trade and
similar publications including without limitation, the publication
of a "tombstone".
14.4 TERM. The term of this Agreement shall be for one (1) year from
the date hereof (the "Term"). Seller acknowledges that it shall
have no right to terminate this Agreement prior to the end of the
Term, that termination of this Agreement by Seller at any time
prior to the end of the Term would result in the loss by of
benefits under this Agreement and that the damages incurred by [*]
as a result of such early termination are and would be difficult
and impractical to ascertain. Therefore, in the event this
Agreement is terminated by Seller for any reason or by [*] because
of an Event of Default during the Term, Seller shall pay to [*] an
early termination fee, as liquidated damages, in the amount of
three percent (3%) of the Facility Amount. Notwithstanding the
foregoing, in the event that [*] Base Rate exceeds the Prime Rate
published in THE WALL STREET JOURNAL by more than 100 basis points
for more than 30 consecutive days (the "Rate Termination Event"),
Seller shall have the right for 30 days after such event to
terminate this Agreement without payment of the termination fee;
provided, however, Seller must notify [*] in writing of its
intention to so terminate within 10 days after the occurrence of a
Rate Termination Event.
14.5 TERMINATION. Upon termination of this Agreement, Seller shall be
entitled to receive from [*] the remainder, if any, of the purchase
price for the Accounts provided for in SUBSECTION 2.2 which has not
theretofore been paid to Seller, in accordance with the following
provisions:
(a) [*] shall pay to Seller, within one (1) business day after the
termination date of this Agreement (the "Termination Date"),
an amount equal to any remaining Availability Pool as of the
Termination Date, less any Discounts, costs and expenses to
which [*] is entitled hereunder. As additional collections
are received after the Termination Date with respect to
Accounts sold on or before the Termination Date, [*] will on
a weekly basis during the 180 day period following the
Termination Date recompute the remaining Availability Pool and
disburse such amount to Seller, less any Discounts, costs and
expenses to which [*] is entitled hereunder. The final
computation and disbursement, if any, will be made as of the
180th day following the Termination Date, and any final
payment due to Seller will be paid within five (5) business
days following such 180th day.
(b) The provision of SUBSECTION 14.5(a) shall be subject to the
following: (i) [*] shall have no obligation to make any
computation or to pay any amount pursuant to SUBSECTION
14.5(a) if Seller shall not have provided such information as
[*] reasonably requests for the purpose of computing the
remaining Availability Pool; and (ii) [*]'s obligation to pay
any amount to Seller pursuant to SUBSECTION 14.5(a) is subject
to [*]'s rights under SECTION 5.
(c) The representations, covenants, agreements, indemnities and
other provisions of the following sections and SUBSECTIONS OF
THIS AGREEMENT shall continue to be effective during the
180-day period referred to in SUBSECTION 14.5(a) and shall
also continue to be effective thereafter to the extent that
other provisions of this Agreement provide for their
survival: 4.1, 4.4 - 4.7, 5 - 8, 9.2 -9.10, 9.13, 9.15 and 10
- 14.
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In lieu of the above provisions in this SUBSECTION 14.5, after
termination of this Agreement, [*] may sell, and Seller may
purchase, all outstanding Accounts purchased hereunder by [*] if
both parties agree to such action at a mutually agreeable price.
14.6 NOTICE OF OFFER. Seller hereby agrees that in the event (a) Seller
receives a written proposal either during or at the end of the Term
from a third party to provide financing or factoring ("Proposed
Refinancing"), (b) the terms of the Proposed Refinancing are
acceptable to Seller, and (c) Seller is considering accepting the
Proposed Refinancing from the offeror (the "Offeror"), Seller will
provide [*] in writing an outline of the complete terms and
conditions of the Proposed Refinancing. Seller agrees not to
accept the Proposed Refinancing from the Offeror until at least
five (5) business days after delivery of the foregoing item to [*].
14.7 SEVERABILITY. Each and every provision, condition, covenant and
representation contained in this Agreement is, and shall be
construed, to be a separate and independent covenant and agreement.
If any term or provision of this Agreement shall to any extent be
invalid or unenforceable, the remainder of the Agreement shall not
be affected thereby.
14.8 INDEMNITY. Seller hereby indemnifies and agrees to hold the
Indemnified Persons harmless against any breach by Seller of any
representation, warranty, covenant or agreement of Seller contained
in this Agreement, and against any claims or damages arising out of
the manufacture, sale, possession or use of, or otherwise relating
to, goods, or the performance of services, associated with or
relating to Accounts or related rights purchased (or with respect
to which a security interest is granted) hereunder. Seller also
hereby indemnifies and agrees to hold harmless and defend all
Indemnified Persons from and against any and all Indemnified
Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT
SUCH INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN
WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR
ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION
OF ANY INDEMNIFIED PERSON, but shall exclude any of the foregoing
resulting from such Indemnified Person's gross negligence or
willful misconduct. If Seller or any third party ever alleges any
gross negligence or willful misconduct by any Indemnified Person,
the indemnification provided for in this Section shall nonetheless
be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final
judgment as to the extent and affect of the alleged gross
negligence or willful misconduct. Upon notification and demand,
Seller agrees to provide defense of any Indemnified Claim and to
pay all costs and expenses of counsel selected by any Indemnified
Person in respect thereof. Any Indemnified Person against whom any
Indemnified Claim may be asserted reserves the right to settle or
compromise any such Indemnified Claim as such Indemnified Person
may determine in its sole discretion, and the obligations of such
Indemnified Person, if any, pursuant to any such settlement or
compromise shall be deemed included within the Indemnified Claims.
Except as specifically provided in this section, Seller waives all
notices from any Indemnified Person. The provisions of this
Section shall survive the termination of this Agreement.
14.9 BENEFITS; ASSIGNMENT. All grants, covenants and agreements
contained in this Agreement shall bind and inure to the benefit of
the parties hereto and their respective successors and assigns;
provided, however, that Seller may not delegate or assign any of
its duties or obligations under this Agreement without the prior
written consent of [*] and any assignment without such consent
shall be void. [*] RESERVES THE RIGHT TO ASSIGN ITS RIGHTS AND
OBLIGATIONS UNDER THIS AGREEMENT IN WHOLE OR IN PART TO ANY PERSON
OR ENTITY; provided, however, any assignee of [*]'s obligations
hereunder must have financial resources, liquidity and operational
expertiese comparable to [*]. To the extent [*] assigns its rights
and obligations hereunder to a third party, [*] shall thereafter
be released from such assigned obligations to Seller and such
assignment shall effect a novation between Seller and such third
party. Without limiting the generality of the foregoing, [*] may
from time to time grant participations in all or any part of the
Obligations to any person or entity on such terms and conditions as
may be determined by [*] in its sole and absolute discretion,
provided that the grant of such participation shall not relieve [*]
of its obligations hereunder nor create any additional obligations
of Seller. Seller consents to disclosing any financial and any
other information available to [*] concerning Seller to any
prospective participant or assignee as long as such prospect signs
an agreement to maintain the confidentiality of any such
information.
14.10 CAPTIONS. The captions in this Agreement are for convenience only
and shall not define or limit the provisions hereof.
14.11 GOVERNING LAW; VENUE; SUBMISSION TO JURISDICTION. THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS
OF LAWS THEREOF, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF
PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST GRANTED
HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL, ARE GOVERNED BY
THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF [*]. THIS
AGREEMENT IS PERFORMABLE BY THE PARTIES IN [*] COUNTY, [*].
SELLER AND [*] EACH AGREE THAT [*] COUNTY, [*] SHALL BE THE
EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING
UNDER OR RELATING TO THIS AGREEMENT, AND THAT SUCH COUNTY IS A
CONVENIENT FORUM IN WHICH TO DECIDE ANY SUCH DISPUTE OR CLAIM.
SELLER
15
<PAGE>
AND [*] EACH CONSENT TO THE PERSNAL JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN [*] COUNTY, [*] FOR THE LITIGATION OF
ANY SUCH DISPUTE OR CLAIM. SELLER IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
14.12 WAIVER OF JURY TRIAL. SELLER AND [*] EACH HEREBY IRREVOCABLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR ASSOCIATED
HEREWITH.
14.13 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER PURCHASE DOCUMENTS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES. THIS AGREEMENT ALSO AMENDS AND
SUPERSEDES ANY OF THE TERMS OF ANY PRIOR WRITTEN AGREEMENTS WITH
RESPECT TO THE MATTERS SET FORTH IN THIS AGREEMENT.
14.14 AMENDMENTS. No modification or amendment of or supplement to this
Agreement shall be valid or effective unless the same is in writing
and signed by the party against whom it is sought to be enforced.
14.15 EFFECTIVENESS OF AGREEMENT. This Agreement shall become effective
only upon acceptance by [*] at its offices in [*], [*] County, [*]
as evidenced by [*]'s signature hereon.
14.16 USURY SAVINGS. The parties hereto intend that the transactions
covered hereby are true sales according to the provisions of
Article [*], of the [*] Revised Civil Statutes (as more fully
described in SUBSECTION 14.17) and that none of the Obligations
under this Agreement or other Purchase Documents will constitute
loans or credit sales or interest on principal of a loan or credit
sale as determined under applicable laws; PROVIDED, HOWEVER, if
this Agreement or any of the other Purchase Documents are deemed to
require the payment or permit the payment, taking, reserving,
receiving, collection, or charging of any sums constituting
interest under applicable laws, the following provisions of this
Subsection will apply:
(a) It is the intention of the parties hereto to comply strictly
with applicable usury laws; accordingly, notwithstanding any
provision to the contrary in this Agreement or any of the
other Purchase Documents, in no event whatsoever shall this
Agreement or any of the other Purchase Documents require the
payment or permit the payment, taking, reserving, receiving,
collection or charging of any sums constituting interest under
applicable laws which exceed the maximum amount permitted by
such laws. If any such excess interest is called for,
contracted for, charged, taken, reserved, or received in
connection with this Agreement or any of the other Purchase
Documents, or in any communication by [*] or any other person
to Seller or any other person, or in the event all or part of
the principal or interest shall be prepaid or accelerated, so
that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for,
charged, taken, reserved, or received on the amount of
principal actually outstanding from time to time under this
Agreement or any of the other Purchase Documents shall exceed
the maximum amount of interest permitted by applicable usury
laws, then in any such event it is agreed as follows: (i) the
provisions of this Subsection shall govern and control; (ii)
neither Seller nor any other person or entity now or hereafter
liable for payments under this Agreement or any of the other
Purchase Documents shall be obligated to pay the amount of
such interest to the extent such interest is in excess of the
maximum amount of interest permitted by applicable usury laws;
(iii) any such excess which is or has been received
notwithstanding this subsection shall be credited against the
then unpaid principal balance of the Obligations under this
Agreement and the other Purchase Documents or, if this
Agreement or any of the other Purchase Documents has been or
would be paid in full by such credit, refunded to Seller, and
(iv) the provisions of this Agreement or any of the other
Purchase Documents, and any communication to Seller, shall
immediately be deemed reformed and such excess interest
reduced, without the necessity of executing any other
document, to the maximum lawful rate allowed under applicable
laws as now or hereafter construed by courts having
jurisdiction hereof or thereof. Without limiting the
foregoing, all calculations of the rate of interest contracted
for, charged, taken, reserved, or received in connection
herewith which are made for the purpose of determining whether
such rate exceeds the maximum lawful rate shall be made to the
extent permitted by applicable laws by amortizing, prorating,
allocating and spreading during the period of the full term of
this Agreement or any of the other Purchase Documents,
including all prior and subsequent renewals and extensions,
all interest at any time contracted for, charged, taken,
reserved, or received. The terms of this Subsection shall be
deemed to be incorporated into every Purchase Document.
(b) If at any time the rate at which any interest is payable on
any Obligation hereunder exceeds the Maximum Rate, the amount
outstanding hereunder shall bear interest at the Maximum Rate
only,
16
<PAGE>
but shall continue to bear interest at the Maximum Rate until
such time as the total amount of interest accrued hereunder
equals (but does not exceed) the total amount of interest
which would have accrued hereunder had there been no Maximum
Rate applicable hereto.
(c) Seller and [*] agree that [*] Rev. Civ. Stat. Ann art. [*]
(which regulates certain revolving loan accounts and revolving
tri-party accounts) shall not apply to any revolving loan
accounts created under this Agreement or maintained in
connection therewith.
(d) To the extent that the interest rate laws of the State of [*]
are applicable to this Agreement, the applicable interest rate
ceiling is the indicated (weekly) ceiling determined in
accordance with Article [*] of the [*] Revised Civil Statutes,
as amended, and, to the extent that this Agreement is deemed
an open end account as such term is defined in Article [*] of
the [*] Revised Civil Statutes, as amended, [*] retains the
right to modify the interest rate in accordance with
applicable law.
(e) As used in this Subsection; (i) the term "applicable law"
means the laws of the State of [*] laws or the United States
of America, whichever laws allow the greater interest, as such
laws now exist or may be changed or amended or come into
effect in the future, and (ii) the term "Maximum Rate" means,
at the time of determination, the maximum rate of interest
which, under applicable law, may then be charged on the
Obligations hereunder.
14.17 TRUE SALES. Seller and [*] acknowledge and agree that the sale of
Accounts contemplated and covered hereby are fully intended by the
parties hereto as true sales governed by the provisions of Article
[*] of the [*] Revised Civil Statutes and Section 9.102 of the [*],
as each may be amended from time to time, and, accordingly, legal
and equitable title in all of Seller's Accounts sold to and
purchased by [*]from time to time hereunder will pass to [*].
The undersigned have entered into this Agreement as of the date first written
above.
ORYX TECHNOLOGY CORP.
By: By:
------------------------------- --------------------------------
Name: Name: Philip Micciche
----------------------------- Title: Chief Executive Officer
Title:
-----------------------------
SURGX CORPORATION
By:
---------------------------------
Name: Philip Micciche
Title: Chief Executive Officer
Address: Address: 46713 Fremont Blvd.
--------------------------- --------------------------
--------------------------- Fremont, California
--------------------------- --------------------------
94538
--------------------------
Attn: --------------------------- Attn: --------------------------
Telecopy No. Telecopy No. (510) 249-1150
----------------------- --------------------------
17
<PAGE>
SCHEDULE A
TO REVOLVING ACCOUNT TRANSFER AND PURCHASE AGREEMENT (BATCH)
DATED MARCH 2, 1998
BY AND BETWEEN
([*]d/b/a [*]/[*]),
ORYX TECHNOLOGY CORP.
AND
SURGX CORPORATION
AVAILABILITY CERTIFICATE
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Seller Date
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Activity Amount
- -----------------------------------------------------------------------------------------------------------------
1. GROSS ACCOUNTS AS OF LAST CERTIFICATE
- -----------------------------------------------------------------------------------------------------------------
2. Add: Gross Sales since last certificate (Per attached Sales Journal) (+)
- -----------------------------------------------------------------------------------------------------------------
3. Deduct: Collections since last certificate (Per attached Collection Journal) (-)
- -----------------------------------------------------------------------------------------------------------------
4. Debit Memos (-)
- -----------------------------------------------------------------------------------------------------------------
5. Dilutive Credit Memos (-)
- -----------------------------------------------------------------------------------------------------------------
6. Credit Adjustments (-)
- -----------------------------------------------------------------------------------------------------------------
7. GROSS ACCOUNTS AS OF THIS CERTIFICATE (=)
- -----------------------------------------------------------------------------------------------------------------
8. Deduct: Ineligible Accounts (Per Attached) (-)
- -----------------------------------------------------------------------------------------------------------------
9. ELIGIBLE ACCOUNTS AS OF THIS CERTIFICATE (=)
- -----------------------------------------------------------------------------------------------------------------
10. Lesser of (i) Account Payment Base (line 9 x 85%), or (ii) $500,000.00
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
11. BEGINNING BATCH BALANCE (ENDING BATCH BALANCE AS OF LAST CERTIFICATE)
- -----------------------------------------------------------------------------------------------------------------
12. Deduct: Collections since last certificate (same as line 3) (-)
- -----------------------------------------------------------------------------------------------------------------
13. BATCH BALANCE BEFORE ANY ACCOUNT PAYMENT UNDER THIS CERTIFICATE (=)
- -----------------------------------------------------------------------------------------------------------------
14. AVAILABILITY POOL (LINE 10 LESS LINE 13)
- -----------------------------------------------------------------------------------------------------------------
15. Deduct: Account Payment Requested (-)
- -----------------------------------------------------------------------------------------------------------------
16. Fees, Discounts and Expenses (-)
- -----------------------------------------------------------------------------------------------------------------
17. REMAINING AVAILABILITY POOL (=)
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
18. ENDING BATCH BALANCE (sum of lines 13, 15 and 16)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Seller, for value received, hereby sells, assigns, transfers and sets over to
[*] ("[*]") the accounts receivable ("Accounts") represented by (a) the invoices
listed described on the account receivable aging attached to the Bill of Sale
(if any) being delivered concurrently herewith, or (b) the sales journal and
other records attached hereto relating to sales since the date of the last
Availability Certificate delivered by Seller to [*], all in accordance with and
subject to the terms and conditions set forth in that certain Revolving Account
and Purchase Transfer Agreement (Batch) dated March 2 ,1998 between Seller and
[*] (the "Purchase Agreement"), together with all Invoices and Related Data (as
such term is defined in the Purchase Agreement). The undersigned, as an
authorized officer of Seller, represents and warrants to [*] that (i) the
Accounts arise from the bona fide sales of Seller's products or billings for its
services, and are obligations of Seller's customers, payable at full value; (ii)
all goods and materials have been received by each of Seller's customers or all
services completed to each of customer's satisfaction for which the Accounts
arose; (iii) the goods or services meet the requirements of Seller's customers
(as to quality, quantity, delivery timeliness, etc.); (iv) the Accounts are not
subject to any known offsets, disputes or counterclaims, except as disclosed to
[*] in writing; (v) the Accounts are Eligible Accounts (as defined in the
Purchase Agreement), except as disclosed to [*] in writing; (vi) the Accounts
are payable according to terms disclosed and agreed to by [*]; (vii) the
Accounts remain unpaid when purchased by [*]; (viii) no Event of Default has
occurred under the Purchase Agreement or any other Purchase Document; (ix)
Seller has not converted any proceeds of previously purchased Accounts, and (x)
all representations and warranties contained in the Purchase Agreement and all
other Purchase Documents are true and correct as of the date hereof.
ORYX TECHNOLOGY CORP. SURGX CORPORATION
By: By:
-------------------------------- -------------------------------
Printed Name: Name:
---------------------- -----------------------------
Title: Title:
------------------------------ -----------------------------
18
<PAGE>
19
<PAGE>
SCHEDULE A-1
BILL OF SALE
The undersigned duly authorized corporate officer of ORYX TECHNOLOGY CORP.
and SURGX CORPORATION ("Seller"), on behalf of Seller, does hereby
irrevocably sell, assign, set-over and transfer to [*] ("[*]") doing
business as [*]/[*] all rights and proceeds of the accounts receivable
represented by the invoices described on the accounts receivable aging
attached hereto, together with all Invoices and Related Data, as such term is
defined in that certain Revolving Account Transfer and Purchase Agreement
(Batch) dated March 2, 1998 between [*] and Seller.
ORYX TECHNOLOGY CORP.
By:
------------------------------
Printed Name:
--------------------
Title:
---------------------------
Date:
---------------------------
SURGX CORPORATION
By:
----------------------------
Name:
---------------------------
Title:
---------------------------
20
<PAGE>
SCHEDULE B
TO
REVOLVING ACCOUNT TRANSFER AND PURCHASE AGREEMENT (BATCH)
DATED MARCH 2, 1998
BY AND BETWEEN
([*] D/B/A [*]/[*]),
ORYX TECHNOLOGY CORP.
AND
SURGX CORPORATION
Any trade or assumed names referenced in Subsection 6.11 are:
NONE
21
<PAGE>
SCHEDULE C
TO
REVOLVING ACCOUNT TRANSFER AND PURCHASE AGREEMENT (BATCH)
DATED MARCH 2, 1998
BY AND BETWEEN
([*] D/B/A [*]/[*]),
ORYX TECHNOLOGY CORP.
AND
SURGX CORPORATION
The addresses of any other locations of Collateral referenced in Subsection
8.3(b) are:
1100 Auburn Street
Fremont, CA 94538
22
<PAGE>
EXHIBIT 10.38
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
entered into by and between ORYX TECHNOLOGY CORPORATION, a Delaware
corporation ("Borrower"), ORYX INSTRUMENTS AND MATERIALS CORPORATION, SURGX
CORPORATION and ORYX POWER PRODUCTS CORPORATION (collectively the
"Guarantors") and [*] ("[*]").
WHEREAS, Borrower and [*] entered into that certain Loan Agreement
dated as of May 29, 1997, as amended from time to time (collectively, the
"Loan Agreement"); and
WHEREAS, the Loan Agreement currently governs (i) a revolving line
of credit in the maximum amount of $1,500,000.00 (the "Line of Credit")
provided by [*] to Borrower, as currently evidenced by that certain Revolving
Credit Promissory Note dated May 29, 1997 payable by Borrower to the order of
[*] in the stated principal amount of $1,500,000.00 (the "Revolving Note");
and
WHEREAS, the Loan Agreement, the Revolving Note and all other
documents evidencing, securing, governing, guaranteeing and/or pertaining to
the Revolving Note is hereinafter referred to collectively as the "Loan
Documents"; and
WHEREAS, the parties hereto now desire to modify the Loan Agreement
as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 The terms used in this Amendment to the extent not otherwise
defined herein shall have the same meanings as in the Loan Agreement.
ARTICLE II
AMENDMENTS
Section 2.01 Effective as of the date hereof, Subsection 12b of the Loan
Agreement is hereby amended in its entirety to read as follows:
"(b) INVENTORY MAINTENANCE CERTIFICATE. An Inventory Maintenance
Certificate, in the form attached hereto as Schedule A, signed by
an officer of the Borrower, within 3 days after the end of each
month."
Section 2.02 Effective as of the date hereof, Subsection 12c of the Loan
Agreement is hereby amended in its entirety to read as follows:
"(c) INVENTORY LISTING. A list of Borrower's inventory by
location and type (to include the following: raw materials, work
in process and finished goods) within 3 days after the end of
each month, in form and detail satisfactory to [*]."
ARTICLE III
NOTE
Section 3.01 The parties hereto acknowledge and agree that notwithstanding
this Amendment, the Revolving Note continues to evidence the indebtedness
arising under the Line of Credit.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, RATIFICATION AND REAFFIRMATION
Section 4.01 Borrower hereby represents and warrants that: (i) the
representations and warranties contained in the Loan Agreement are true and
correct on and as of the date hereof as though made on and as of the date
hereof, (ii) no event has occurred and is continuing that constitutes an
Event of Default or would constitute an Event of Default but for the
requirement of notice or lapse of time or both, and (iii) there are no claims
or offsets against, or defenses or counterclaims to, the Loan Documents, the
indebtedness evidenced thereby or the liens securing same (including without
limitation, any defenses or offsets resulting from or arising out of breach
of contract or duty, the amount of interest charged, collected or received on
the Loan Documents heretofore, or breach of any commitments or promises of
any type).
Section 4.02 The terms and provisions set forth in this Amendment shall
modify and supersede all inconsistent terms and provisions set forth in the
Loan Agreement, but except as expressly modified and superseded by this
Amendment, the terms and provisions of the Loan Agreement are ratified and
confirmed and shall continue in full force and effect, Borrower hereby
1
<PAGE>
agreeing that the Loan Agreement and the other Loan Documents are and shall
continue to be outstanding, validly existing and enforceable in accordance
with their respective terms.
Section 4.03 Guarantors previously executed those 3 certain guaranty
agreements (collectively the "Guaranty Agreements") each dated May 29, 1997,
executed by the Guarantors for the benefit of [*] to unconditionally
guarantee the payment and performance by Borrower of certain indebtedness
owing to [*] described therein, including without limitation, the
indebtedness evidenced by the Revolving Note. Guarantors, by executing this
Amendment, hereby consent to this Amendment and agree that, notwithstanding
the execution of this Amendment the obligations of the Guarantors under the
Guaranty Agreements remain in full force and effect with respect to the
Revolving Note and that this Amendment does not in any manner impair, alter
or modify the obligations of the Guarantors under the Guaranty Agreements.
Guarantors acknowledge and agree that there are no claims or offsets against,
or defenses or counterclaims to, the terms and provisions of the Guaranty
Agreements or the obligations created or evidenced thereby.
ARTICLE V
MISCELLANEOUS
Section 5.01 Each of the Loan Documents is hereby amended so that any
reference in the Loan Documents to the Loan Agreement shall mean a reference
to the Loan Agreement as amended hereby.
Section 5.02 This Amendment may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 5.03 The Agreement and this Amendment have been entered into in [*],
[*] and shall be performable for all purposes in [*], [*]. THE AGREEMENT, AS
AMENDED HEREBY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF [*]. Courts within the State of [*] shall have
jurisdiction over any and all disputes arising under or pertaining to the
Agreement, as amended hereby, and venue in any such dispute shall be the
courts located in [*], [*].
Section 5.04 This Amendment shall not become effective until executed by [*].
EXECUTED as of February ____, 1998.
BORROWER:
ORYX TECHNOLOGY CORPORATION
By: ________________________
Name: Philip Micciche
Title: Chief Executive Officer
GUARANTORS:
ORYX INSTRUMENTS AND MATERIALS
CORPORATION
By: __________________________
Name: Philip Micciche
Title: Chief Executive Officer
SURGX CORPORATION
By: __________________________
Name: Philip Micciche
Title: Chief Executive Officer
ORYX POWER PRODUCTS CORPORATION
By: __________________________
Name: Philip Micciche
Title: Chief Executive Officer
[*]:
By: __________________________
Name: [*]
Title: [*]
2
<PAGE>
EXHIBIT 10.39
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
REVOLVING CREDIT PROMISSORY NOTE
(INVENTORY)
$500,000.00 March 2, 1998
FOR VALUE RECEIVED, on or before May 28, 1999 ("Maturity Date"), the
undersigned and if more than one, each of them, jointly and severally
(hereinafter referred to as "Borrower"), promises to pay to the order of [*]
("[*]") at its offices in [*], [*], at [*], [*], [*], [*], the principal
amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) ("Total
Principal Amount"), or such amount less than the Total Principal Amount which
is outstanding from time to time if the total amount outstanding under this
Revolving Credit Promissory Note ("Note") is less than the Total Principal
Amount, together with interest at the rate set forth below on such portion of
the Total Principal Amount which has been advanced to Borrower from the date
advanced until paid.
INTEREST RATE. The unpaid principal amount of this Note shall bear interest
at a fluctuating rate per annum which shall from day to day be equal to the
lesser of (a) the Maximum Rate (as hereinafter defined), or (b) a rate
("Contract Rate"), calculated on the basis of the actual days elapsed but
computed as if each year consisted of 360 days, equal to the sum of (i) the
Base Rate of interest ("Base Rate") as established from time to time by [*]
(which may not be the lowest, best or most favorable rate of interest which
[*] may charge on loans to its customers) plus (ii) two percent (2.0%) each
change in the rate to be charged on this Note to become effective without
notice to Borrower on the effective date of each change in the Maximum Rate
or the Base Rate, as the case may be; provided, however, in no event shall
the Contract Rate be less than seven percent (7.0%) per annum; provided,
further that if at any time the Contract Rate shall exceed the Maximum Rate,
thereby causing the interest on this Note to be limited to the Maximum Rate,
then any subsequent reduction in the Base Rate shall not reduce the rate of
interest on this Note below the Maximum Rate until the total amount of
interest accrued on this Note equals the amount of interest which would have
accrued on this Note if the Contract Rate had at all times been in effect.
The term "Maximum Rate", as used herein, shall mean at the particular time in
question the maximum rate of interest which, under applicable law, may then
be charged on this Note. If such maximum rate of interest changes after the
date hereof, the Maximum Rate shall be automatically increased or decreased,
as the case may be, without notice to Borrower from time to time as of the
effective date of each change in such maximum rate. If applicable law ceases
to provide for such a maximum rate of interest, the Maximum Rate shall be
equal to the Base Rate, plus six and one-half percent (6.5%).
REPAYMENT TERMS. The principal of and all accrued but unpaid interest on this
Note shall be due and payable as follows:
(a) interest shall be due and payable monthly as it accrues,
commencing on the 15th day of March, 1998 and continuing on the
15th day of each successive month thereafter during the term of
this Note; and
(b) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the
Maturity Date.
Borrower authorizes [*] to effect all payments due under this Note and to
collect all sums due hereunder (whether by acceleration or otherwise) by
debiting Borrower's account number [*] at [*] (the "Debit Account") through
the Automated Clearing House system ("ACH"). Such authorization shall not
affect the obligations of Borrower to make all payments when due hereunder.
If on any payment date there are insufficient funds in the Debit Account to
make such payments in full, Borrower agrees to pay [*] on demand a $100.00
manual processing fee. All payments of principal or interest on this Note
shall be made in lawful money of the United States of America in immediately
available funds, and, if such payments are not made via ACH, shall be made at
[*]'s address indicated above, or such other place as the holder of this Note
shall designate in writing to Borrower. If any payment of principal of or
interest on this Note shall become due on a day which is not a Business Day
(as hereinafter defined), such payment shall be made on the next succeeding
Business Day and any such extension of time shall be included in computing
interest in connection with such payment. As used herein, the term "Business
Day" shall mean any day other than a Saturday, Sunday or any other day on
which [*]'s office in [*], [*]is closed. All regularly scheduled payments of
the indebtedness evidenced by this Note shall be applied first to any accrued
but unpaid interest then due and payable hereunder and then to the principal
amount then due and payable. The books and records of [*] shall be prima
facie evidence of all outstanding principal of and accrued and unpaid
interest on this Note. To the extent that any interest is not paid on or
before the fifth day after it becomes due and payable, [*] may, at its
option, add such accrued interest to the principal of this Note.
Notwithstanding anything herein to the contrary, upon an Event of Default (as
hereinafter defined) or at maturity, whether by acceleration or otherwise,
all principal of this Note shall, at the option of [*], bear interest at a
fixed rate equal to 18% per annum until paid.
PREPAYMENT PENALTY. Borrower may from time to time prepay all or any portion of
the outstanding principal balance of this Note without premium or penalty;
provided, however, if (a) the outstanding principal balance hereof is prepaid in
full, and (b) Borrower notifies [*] of Borrower's intention to terminate
financing under this Note prior to the Maturity Date, then, in addition to such
principal prepayment, there shall be due and owing by Borrower at such time a
prepayment penalty equal to 3.0% of the Total Principal Amount. Furthermore,
should Borrower notify [*] of Borrower's intention to voluntarily terminate the
Purchase Agreement (as hereinafter defined), it shall be deemed notification by
Borrower to [*] of Borrower's intention to voluntarily terminate financing under
this Note and to prepay this Note in full on the same day of the effective date
of termination of the Purchase Agreement, such prepayment to be subject to the
terms and conditions of the foregoing prepayment penalty. Notwithstanding the
foregoing, in the event the [*] Base Rate exceeds the Bank One, [*], N.A. Base
Rate by more than 100 basis points for more than 30 consecutive days (the "Rate
Termination Event"), Seller shall have the right for 30 days after such event to
terminate this Agreement without payment of the termination fee; provided,
however, Seller must notify [*] in writing of its intention to so terminate
within 10 days after the occurrence of a Rate Termination Event.
1
<PAGE>
LOAN DOCUMENTS. This Note is subject to the terms and conditions set forth
in that certain Loan Agreement dated May 29, 1997 by and between Borrower and
[*], as may be amended from time to time (the "Loan Agreement). This Note,
the Loan Agreement and all other documents evidencing, securing, governing,
guaranteeing and/or pertaining to this Note are hereinafter collectively
referred to as the "Loan Documents". The holder of this Note is entitled to
the benefits and security provided in the Loan Documents.
ADVANCES. Subject to the terms of the Loan Agreement, Borrower may request
advances and make payments hereunder from time to time, provided that it is
understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal
Amount. The unpaid balance of this Note shall increase and decrease with
each new advance or payment hereunder, as the case may be. This Note shall
not be deemed terminated or canceled prior to the Maturity Date, although the
entire principal balance hereof may from time to time be paid in full.
Subject to the terms of this Note and the other Loan Documents, Borrower may
borrow, repay and reborrow hereunder.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family or household purposes, and that all advances hereunder shall
be used solely for business, commercial, investment or other similar purposes.
EVENT OF DEFAULT. Borrower agrees that upon the occurrence of any one or
more of the following events of default ("Event of Default"):
(a) failure of Borrower to pay when due any installment of principal
of or interest on this Note or on any other indebtedness now or
hereafter owing by Borrower to [*]; or
(b) the occurrence of any event of default specified in any of the
other Loan Documents; or
(c) the occurrence of an event of default or the breach of any term
or covenant under that certain Revolving Account Transfer and
Purchase Agreement (Batch) dated March 2, 1998 between [*],
Borrower and Surgx Corporation, as may be amended from time to
time (the "Purchase Agreement") or if the Purchase Agreement
terminates or is terminated by either party for any reason; or
(d) the bankruptcy or insolvency of, the assignment for the benefit
of creditors by, or the appointment of a receiver for any of the
property of, or the liquidation, termination, dissolution or
death or legal incapacity of Borrower;
the holder of this Note may, at its option, without further notice or demand,
(i) declare the outstanding principal balance of and accrued but unpaid
interest on this Note at once due and payable, (ii) refuse to advance any
additional amounts under the Note, (iii) foreclose all liens securing payment
hereof, (iv) pursue any and all other rights, remedies and recourses
available to the holder hereof, including but not limited to any such rights,
remedies or recourses under the other Loan Documents, at law or in equity, or
(v) pursue any combination of the foregoing. The failure to exercise the
option to accelerate the maturity of this Note or any other right remedy or
recourse available to the holder hereof upon the occurrence of an Event of
Default hereunder shall not constitute a waiver of the right of the holder of
this Note to exercise the same at that time or at any subsequent time with
respect to such Event of Default or any other Event of Default. The rights,
remedies and recourses of the holder hereof, as provided in this Note and in
any of the other Loan Documents, shall be cumulative and concurrent and may
be pursued separately, successively or together as often as occasion
therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder hereof of any payment under this Note which is less
than the payment in full of all amounts due and payable at the time of such
payment shall not (i) constitute a waiver of or impair, reduce, release or
extinguish any right, remedy or recourse of the holder hereof, or nullify any
prior exercise of any such right, remedy or recourse, or (ii) impair, reduce,
release or extinguish the obligations of any party liable under any of the
other Loan Documents as originally provided herein or therein.
COMPLIANCE WITH USURY LAWS. This Note and the other Loan Documents are
intended to be performed in accordance with, and only to the extent permitted
by, all applicable usury laws. Accordingly, notwithstanding any provision to
the contrary in this Note or any of the other Loan Documents, in no event
whatsoever shall this Note or any of the other Loan Documents require the
payment or permit the payment, taking, reserving, receiving, collection or
charging of any sums constituting interest under applicable laws which exceed
the maximum amount permitted by such laws. If any such excess interest is
called for, contracted for, charged, taken, reserved, or received in
connection with this Note or any of the other Loan Documents, or in any
communication by [*] or any other person to Borrower or any other person, or
in the event all or part of the principal or interest shall be prepaid or
accelerated, so that under any of such circumstances or under any other
circumstance whatsoever the amount of interest contracted for, charged,
taken, reserved, or received on the amount of principal actually outstanding
from time to time under this Note or any of the other Loan Documents shall
exceed the maximum amount of interest permitted by applicable usury laws,
then in any such event it is agreed as follows: (i) the provisions of this
Section shall govern and control; (ii) neither Borrower nor any other person
or entity now or hereafter liable for payments under this Note or any of the
other Loan Documents shall be obligated to pay the amount of such interest to
the extent such interest is in excess of the maximum amount of interest
permitted by applicable usury laws; (iii) any such excess which is or has
been received notwithstanding this Section shall be credited against the then
unpaid principal balance of this Note and the other Loan Documents or, if
this Note or any of the other Loan Documents has been or would be paid in
full by such credit, refunded to Borrower, and (iv) the provisions of this
Note or any of the other Loan Documents, and any communication to Borrower,
shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the maximum lawful
rate allowed under applicable laws as now or hereafter construed by courts
having jurisdiction hereof or thereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken,
reserved, or received in connection herewith which are made for the purpose
of determining whether such rate exceeds the maximum lawful rate shall be
made to the extent permitted by applicable laws by amortizing, prorating,
allocating and spreading during the period of the full term of this Note or
any of the other Loan Documents, including all prior and subsequent renewals
and extensions, all interest at any time contracted for, charged, taken,
reserved, or received. The terms of this Section shall be deemed to be
incorporated into every other Loan Document.
2
<PAGE>
Borrower and [*] agree that Chapter [*] of the [*] Finance Code, formerly
Chapter [*] of the [*] Revised Civil Statutes (which regulates certain
revolving loan accounts and revolving tri-party accounts) shall not apply to
any revolving loan accounts created under this Note or maintained in
connection therewith.
To the extent that the interest rate laws of the State of [*] are applicable
to this Note, the applicable interest rate ceiling is the indicated (weekly)
ceiling determined in accordance with Article [*] of the [*] Revised Civil
Statutes, as amended, and, to the extent that this Note is deemed an open end
account as such term is defined in Article [*] of the [*] Revised Civil
Statutes, as amended, [*] retains the right to modify the interest rate in
accordance with applicable law. As used in this Note, the term "applicable
law" means the laws of the State of [*] laws or the United States of America,
whichever laws allow the greater interest, as such laws now exist or may be
changed or amended or come into effect in the future.
COSTS OF COLLECTION; WAIVERS. If this Note is placed in the hands of an
attorney for collection, or is collected in whole or in part by suit or
through probate, bankruptcy or other legal proceedings of any kind, Borrower
agrees to pay, in addition to all other sums payable hereunder, all costs and
expenses of collection, including but not limited to reasonable attorneys'
fees. Borrower and any and all endorsers and guarantors of this Note
severally waive presentment for payment, notice of nonpayment, protest,
demand, notice of protest, notice of intent to accelerate, notice of
acceleration and dishonor, diligence in enforcement and indulgences of every
kind and without further notice hereby agree to renewals, extensions,
exchanges or releases of collateral, taking of additional collateral
indulgences or partial payments, either before or after maturity.
RENEWAL AND EXTENSION. This Note is given in renewal and extension, but not
extinguishment, of all amounts left owing and unpaid under that certain
Revolving Credit Promissory Note dated May 29, 1997 executed and delivered by
Borrower and payable to the order of [*] in the stated principal amount of
$1,500,000.00.
GOVERNING LAW; VENUE; SUBMISSION TO JURISDICTION. THIS NOTE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF [*]
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THIS
NOTE IS PERFORMABLE IN [*], [*]. BORROWER AGREES THAT [*], SHALL BE
THE EXCLUSIVE VENUE FOR LITIGATION OF ANY DISPUTE OR CLAIM ARISING UNDER OR
RELATING TO THIS NOTE, AND THAT SUCH COUNTY IS A CONVENIENT FORUM IN WHICH TO
DECIDE ANY SUCH DISPUTE OR CLAIM. BORROWER CONSENTS TO THE PERSONAL
JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN [*], [*] FOR THE
LITIGATION OF ANY SUCH DISPUTE OR CLAIM. BORROWER IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
WAIVER OF JURY TRIAL. BORROWER HEREBY IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR
IN CONNECTION WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY OR
ASSOCIATED HEREWITH.
FINAL AGREEMENT. THIS NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN [*] AND BORROWER WITH RESPECT TO THE TRANSACTIONS
CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
BORROWER:
ORYX TECHNOLOGY CORP.
By: ________________________
Name: Philip Micciche
Title: Chief Executive Officer
3
<PAGE>
EXHIBIT 10.40
CONFIDENTIAL TREATMENT REQUESTED
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE PORTIONS OF THIS AGREEMENT
MARKED [*]. THE OMITTED PORTIONS OF THIS AGREEMENT HAVE BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
entered into by and between ORYX TECHNOLOGY CORP., a Delaware corporation
("Borrower") SURGX CORPORATION, a Delaware corporation ("Guarantor") and [*]
("[*]").
WHEREAS, Borrower and [*] entered into that certain Loan Agreement
dated as of May 29, 1997, as amended from time to time (collectively, the
"Loan Agreement"); and
WHEREAS, the Loan Agreement currently governs a revolving line of
credit in the maximum amount of $1,500,000.00 (the "Line of Credit") provided
by [*] to Borrower, as currently evidenced by that certain Revolving Credit
Promissory Note dated May 29, 1997 payable by Borrower to the order of [*] in
the stated principal amount of $1,500,000.00 (the "Revolving Note"); and
WHEREAS, the Loan Agreement, the Revolving Note and all other
documents evidencing, securing, governing, guaranteeing and/or pertaining to
the Revolving Note are hereinafter referred to collectively as the "Loan
Documents"; and
WHEREAS, the parties hereto now desire to modify the Loan Agreement
as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties, and agreements contained herein, and for other
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 The terms used in this Amendment to the extent not otherwise
defined herein shall have the same meanings as in the Loan Agreement.
ARTICLE II
AMENDMENTS
Section 2.01 Effective as of the date hereof, the definition of "Guarantors"
set forth in Section 1 of the Loan Agreement shall be amended to be SURGX
CORPORATION.
Section 2.02 Effective as of March 2, 1998, the definition of "Line of
Credit Amount" set forth in Section 1 of the Loan Agreement shall be
$500,000.00.
Section 2.03 Effective as of March 2, 1998, the definition of "Purchase
Agreement" set forth in Section 1 of the Loan Agreement shall be that certain
Revolving Account Transfer and Purchase Agreement ( Batch) dated March 2, 1998
between [*], Borrower and Guarantor, as may be amended from time to time.
Section 2.04 Effective as of the date hereof, a new Subsection 2b of the
Loan Agreement is hereby added to the Loan Agreement to read in its entirety
as follows:
"(b) TERM LOAN. Subject to the terms and conditions set forth
herein, [*] agrees to lend to Borrower, on a non-revolving basis
from time to time during the period commencing February 26, 1998
and continuing through the maturity date of the Note evidencing
this Credit Facility from time to time, an aggregate amount not
to
1
<PAGE>
exceed $1,000,000.00 (the "Term Loan"). The sums advanced
under the Term Loan shall be used for working capital purposes."
Section 2.05 Effective as of the date hereof, a new Subsection 6d is hereby
added to the Loan Agreement to read in its entirety as follows:
"(d) ORIGINATION FEE. Borrower agrees to pay [*] a facility fee equal
to $10,000.00 (the "Origination Fee") on the date of the initial
advance, if any, under the Term Loan. Borrower hereby authorizes
[*], in [*]'s sole discretion, to collect such Origination Fee
(i) by deducting such fee from the initial advance, if any,
under the Term Loan, (ii) by debiting the Debit Account, or
(iii) by using any combination of the foregoing. This
authorization does not affect Borrower's obligation to pay such
sums to [*] when due. Borrower and [*] acknowledge and agree
that the Origination Fee is reasonable compensation to [*] for
continuing to make the Term Loan available to Borrower and for
no other purpose."
Section 2.06 Effective as of the date hereof, Subsection 12b of the Loan
Agreement is hereby amended in its entirety to read as follows:
"(b) INVENTORY MAINTENANCE CERTIFICATE. An Inventory Maintenance
Certificate, in the form attached hereto as Schedule A, signed
by an officer of the Borrower, within 3 days after the end of
each month."
Section 2.07 Effective as of the date hereof, Subsection 12c of the Loan
Agreement is hereby amended in its entirety to read as follows:
"(c) INVENTORY LISTING. A list of Borrower's inventory by location
and type (to include the following: raw materials, work in
process and finished goods) within 3 days after the end of
each month, in form and detail satisfactory to [*]."
ARTICLE III
NOTE
Section 3.01 Contemporaneously with the execution hereof, Borrower agrees to
execute and deliver to [*] a promissory note (the "Term Note") in the stated
principal amount of $1,000,000.00, in form and substance satisfactory to [*],
to evidence the Term Loan. The Term Note shall be one of the "Notes", as
defined in the Loan Agreement, for all purposes.
Section 3.02 Contemporaneously with the execution hereof, Borrower agrees to
execute and deliver to [*] a promissory note (the "Modified Revolving Note")
in the stated principal amount of $500,000.00, in form and substance
satisfactory to [*], in amendment, extension and modification of the
Revolving Note.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, RATIFICATION AND REAFFIRMATION
Section 4.01 Borrower hereby represents and warrants that: (i) the
representations and warranties contained in the Loan Agreement are true and
correct on and as of the date hereof as though made on and as of the date
hereof, (ii) no event has occurred and is continuing that constitutes an
Event of Default or would constitute an Event of Default but for the
requirement of notice or lapse of time or both, and (iii) there are no claims
or offsets against, or defenses or counterclaims to, the Loan Documents, the
indebtedness evidenced thereby or the liens securing same (including without
limitation, any defenses or offsets resulting from or arising out of breach
of contract or duty, the amount of interest charged, collected or received on
the Loan Documents heretofore, or breach of any commitments or promises of
any type).
Section 4.02 The terms and provisions set forth in this Amendment shall
modify and supersede all inconsistent terms and provisions set forth in the
Loan Agreement, but except as expressly modified and superseded by this
Amendment, the terms and provisions of the Loan Agreement are ratified and
confirmed and shall continue in full force and effect, Borrower hereby
agreeing that the Loan Agreement and the other Loan Documents (except as set
forth in Section 4.03 below) are and shall continue to be outstanding,
validly existing and enforceable in accordance with their respective terms.
Section 4.03 [*] consents to the sale by Borrower of all of the capital stock
of Oryx Instruments and Materials Corporation ("I&M") to Oryx Instruments
Corp. and the sale of substantially all of the assets of Oryx Power Products
Corporation ("Power Products") to Todd Products and agrees that any such sale
shall not be an Event of Default under the Loan Agreement and the
2
<PAGE>
other Loan Documents. Once [*] receives a copy of the executed documents
evidencing each such sale and such sale has been completed, [*] agrees to
promptly release its security interest and liens in the assets of I&M and
Power Products (other than the accounts purchased by [*] from I&M and Power
Products) and release I&M and Power Products from their respective guarantees
of the Line of Credit.
Section 4.04 Guarantor previously executed that certain guaranty agreement
(the "Guaranty Agreement") dated May 29, 1997, for the benefit of [*] to
unconditionally guarantee the payment and performance by Borrower of certain
indebtedness owing to [*] described therein, including without limitation,
the indebtedness evidenced by the Revolving Note. Guarantor, by executing
this Amendment hereby consents to this Amendment and agrees that,
notwithstanding the execution of this Amendment and the Modified Revolving
Note (a) the obligations of the Guarantor under the Guaranty Agreement remain
in full force and effect with respect to the Revolving Note, as amended,
extended and modified by the Modified Revolving Note, and (b) the term
"Guaranteed Indebtedness" under the Guaranty Agreement also includes the
indebtedness owing under the Term Note. Guarantor acknowledges and agrees
that there are no claims or offsets against, or defenses or counterclaims to,
the terms and provisions of the Guaranty Agreement or the obligations created
or evidenced thereby.
ARTICLE V
MISCELLANEOUS
Section 5.01 Each of the Loan Documents is hereby amended so that any
reference in the Loan Documents to the Loan Agreement shall mean a reference
to the Loan Agreement as amended hereby.
Section 5.02 This Amendment may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 5.03 The Agreement and this Amendment have been entered into in [*],
[*] and shall be performable for all purposes in [*], [*]. THE AGREEMENT,
AS AMENDED HEREBY, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF [*]. Courts within the State of [*] shall have
jurisdiction over any and all disputes arising under or pertaining to the
Agreement, as amended hereby, and venue in any such dispute shall be the
courts located in [*], [*].
Section 5.04 This Amendment shall not become effective until executed by [*]
.
EXECUTED as of February 27, 1998.
BORROWER:
ORYX TECHNOLOGY CORP.
By: _________________________
Name: Philip Micciche
Title: Chief Executive Officer
GUARANTOR:
SURGX CORPORATION
By: _________________________
Name: Philip Micciche
Title: Chief Executive Officer
[*] :
3
<PAGE>
By: _________________________
Name: [*]
Title: [*]
4
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-85556, No. 333-07409 and No. 333-13887) and in
the Prospectus constituting part of the Registration Statement on Form S-3
(No. 333-11391 and No. 333-23317) of Oryx Technology Corp. of our report
dated May 22, 1998, appearing on Page F-2 of this Annual Report on Form
10-KSB for the year ended February 28, 1998.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
May 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ORYX TECHNOLOGY CORP. FOR THE YEAR ENDED FEBRUARY 28,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 722
<SECURITIES> 0
<RECEIVABLES> 1,193
<ALLOWANCES> 93
<INVENTORY> 397
<CURRENT-ASSETS> 3,949
<PP&E> 800
<DEPRECIATION> 310
<TOTAL-ASSETS> 5,553
<CURRENT-LIABILITIES> 2,448
<BONDS> 0
0
107
<COMMON> 19,724
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,553
<SALES> 8,449
<TOTAL-REVENUES> 8,449
<CGS> 6,234
<TOTAL-COSTS> 12,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 350
<INCOME-PRETAX> (3,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,473)
<DISCONTINUED> (3,666)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,141)
<EPS-PRIMARY> (.54)
<EPS-DILUTED> (.54)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ORYX TECHNOLOGY CORP. FOR THE THREE QUARTERS BEGINNING
MARCH 1, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> FEB-29-1996 FEB-28-1997 FEB-28-1997 FEB-28-1997
<PERIOD-START> MAR-01-1995 MAR-01-1996 MAR-01-1996 MAR-01-1996
<PERIOD-END> FEB-29-1996 MAY-31-1996 AUG-31-1996 NOV-30-1996
<CASH> 3,939 1,404 1,060 1,583
<SECURITIES> 0 0 0 0
<RECEIVABLES> 2,829 2,937 3,437 3,425
<ALLOWANCES> 139 173 212 197
<INVENTORY> 3,880 4,733 4,414 5,362
<CURRENT-ASSETS> 10,765 9,028 8,829 10,301
<PP&E> 1,953 2,468 3,140 3,520
<DEPRECIATION> 655 994 1,113 1,250
<TOTAL-ASSETS> 12,340 10,855 11,230 13,022
<CURRENT-LIABILITIES> 6,067 3,486 3,376 4,445
<BONDS> 0 0 0 0
0 0 0 0
832 832 179 107
<COMMON> 13,638 14,537 15,367 16,004
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 12,340 10,855 11,230 13,022
<SALES> 16,136 6,805 13,778 20,982
<TOTAL-REVENUES> 16,136 6,805 13,778 20,982
<CGS> 13,020 4,420 9,059 13,622
<TOTAL-COSTS> 19,771 6,511 13,112 20,149
<OTHER-EXPENSES> 195 20 20 20
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 16 8 (1)
<INCOME-PRETAX> (4,150) 258 638 814
<INCOME-TAX> 42 22 92 108
<INCOME-CONTINUING> (4,192) 236 546 706
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 1,433 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,799) 231 539 697
<EPS-PRIMARY> (.48) .02 .06 .07
<EPS-DILUTED> (.48) .01 .02 .02
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ORYX TECHNOLOGY CORP FOR THREE QUARTERS BEGINNING
MARCH 1, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1998 FEB-28-1998 FEB-28-1997
<PERIOD-START> MAR-01-1997 MAR-01-1997 MAR-01-1997 MAR-01-1996
<PERIOD-END> MAY-31-1997 AUG-31-1997 NOV-30-1997 FEB-28-1997
<CASH> 239 45 761 2,389
<SECURITIES> 0 0 0 0
<RECEIVABLES> 3,043 2,148 2,113 1,677
<ALLOWANCES> 108 240 281 60
<INVENTORY> 5,130 4,037 1,832 2,132
<CURRENT-ASSETS> 8,647 6,272 7,375 10,111
<PP&E> 4,138 4,390 4,438 1,847
<DEPRECIATION> 1,622 1,814 2,043 647
<TOTAL-ASSETS> 12,215 9,860 10,674 11,537
<CURRENT-LIABILITIES> 4,375 5,028 5,418 2,705
<BONDS> 0 0 0 0
684 732 778 0
107 107 107 107
<COMMON> 19,154 19,147 19,632 18,933
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITY-AND-EQUITY> 12,215 9,860 10,674 11,537
<SALES> 4,491 9,701 13,811 6,470
<TOTAL-REVENUES> 4,491 9,701 13,811 6,470
<CGS> 3,562 8,384 11,714 4,605
<TOTAL-COSTS> 6,976 14,727 20,158 10,810
<OTHER-EXPENSES> 0 0 0 20
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 8 72 166 (10)
<INCOME-PRETAX> (2,493) (5,098) (5,130) (4,350)
<INCOME-TAX> 3 23 42 0
<INCOME-CONTINUING> (2,496) (5,121) (5,172) (4,350)
<DISCONTINUED> 0 0 0 2,348
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,545) (5,216) (5,315) (2,012)
<EPS-PRIMARY> (.20) (.40) (.40) (.19)
<EPS-DILUTED> (.20) (.40) (.40) (.19)
</TABLE>
