<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______to ______
Commission file number: 0-25862
AG ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
California 94-2776181
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4425 Fortran Drive, San Jose, California 95134-2300
(Address of principal executive offices and zip code)
Registrant's telephone number: (408) 935-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares outstanding of the Registrant's Common Stock, no par value,
was 6,126,136 at July 31, 1998.
<PAGE> 2
AG ASSOCIATES, INC.
INDEX
<TABLE>
<CAPTION>
Description Page Number
- ------------------------------------------------------------------------------------- -----------
<S> <C>
Part I: Financial Information
Item 1: Financial Statements
Condensed Consolidated Statements of Operations for the Three and Nine
Month Periods Ended June 30, 1998 and 1997 3
Condensed Consolidated Balance Sheets as of June 30, 1998 and September
30, 1997 4
Condensed Consolidated Statements of Cash Flows for the Nine Month Periods
Ended June 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
Item 3: Quantitative and Qualitative Disclosure About Market Risk 14
Part II: Other Information
Item 1: Legal Proceedings 15
Item 2: Changes in Securities and Use of Proceeds 15
Item 3: Defaults Upon Senior Securities 15
Item 4: Submission of Matters to a Vote of Security Holders 15
Item 5: Other Information 15
Item 6: Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
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<PAGE> 3
AG ASSOCIATES, INC.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 8,776 $13,380 $37,778 $33,653
Cost of sales 7,207 8,445 26,282 23,508
-------- -------- -------- --------
Gross profit 1,569 4,935 11,496 10,145
Operating expenses:
Research and development 4,001 3,895 11,735 9,922
Selling, general and administrative 2,381 2,295 6,887 6,379
-------- -------- -------- --------
Total operating expenses 6,382 6,190 18,622 16,301
-------- -------- -------- --------
Loss from operations (4,813) (1,255) (7,126) (6,156)
Interest income (expense), net (46) 93 20 279
Other income, net 22 15 75 79
-------- -------- -------- --------
Loss before income taxes (4,837) (1,147) (7,031) (5,798)
Provision (benefit) for income taxes -- (298) 6 (1,461)
-------- -------- -------- --------
Net loss $(4,837) $( 849) $(7,037) $(4,337)
======== ======== ======== ========
Basic net loss per share $( 0.80) $( 0.14) $( 1.16) $( 0.73)
Diluted net loss per share $( 0.80) $( 0.14) $( 1.16) $( 0.73)
Shares used in basic per share computations 6,075 5,985 6,081 5,967
Shares used in diluted per share computations 6,075 5,985 6,081 5,967
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
AG ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
-------- --------
(unaudited) (*)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 3,171 $ 2,485
Short-term investments -- 1,672
Accounts receivable, net 6,380 13,415
Inventories 12,220 11,676
Income taxes refundable 155 1,652
Deferred tax assets 2,219 2,221
Prepaid expenses and other current assets 1,454 896
-------- --------
Total current assets 25,599 34,017
Property and equipment, net 9,900 8,493
Deferred tax assets 437 437
-------- --------
Total assets $ 35,936 $ 42,947
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit $ 4,268 --
Accounts payable 3,427 $ 6,272
Accrued liabilities 2,408 2,997
Product warranty reserves 887 1,687
Current portion of capital lease obligations 87 194
-------- --------
Total current liabilities 11,077 11,150
Capital lease obligations 151 275
Shareholders' equity
Common stock 36,352 36,139
Net unrealized loss on short-term investments -- (10)
Accumulated deficit (11,644) (4,607)
-------- --------
Total shareholders' equity 24,708 31,522
-------- --------
Total liabilities and shareholders' equity $ 35,936 $ 42,947
======== ========
</TABLE>
(*) Derived from audited financial statements.
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
AG ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended June 30,
--------------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(7,037) $(4,337)
Reconciliation to net cash used in
operating activities:
Depreciation and amortization 2,042 2,079
Deferred income taxes 2 (1,461)
Deferred stock compensation -- 17
Changes in assets and liabilities:
Accounts receivable 7,035 (2,142)
Inventories (544) 2,045
Prepaid expenses and other current assets (558) 729
Accounts payable (2,845) 185
Accrued liabilities and warranty reserves (1,389) (238)
Customer advances and deferred revenue -- (245)
Income taxes refundable 1,497 --
-------- --------
Net cash used in operating activities (1,797) (3,368)
Cash flows from investing activities:
Purchases of short-term investments (305) (8,675)
Maturities of short-term investments 1,987 13,979
Capital expenditures (3,449) (2,161)
-------- --------
Net cash provided by (used in) investing activities (1,767) 3,143
Cash flows from financing activities:
Repayment of capital lease obligations (231) (227)
Increase in short term borrowings 4,268 --
Employee stock transactions 213 63
-------- --------
Net cash provided by (used in) financing activities 4,250 (164)
-------- --------
Net increase (decrease) in cash and equivalents 686 (389)
Cash and equivalents at beginning of period 2,485 1,996
-------- --------
Cash and equivalents at end of period $ 3,171 $ 1,607
======== ========
Supplemental schedule of noncash financing activities:
Assets acquired under capital leases -- 496
======== ========
Supplemental disclosure of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 77 $ 59
======== ========
Income taxes $(1,497) $(1,153)
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
AG ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
(Unaudited)
NOTE 1 - Basis of Presentation
The financial statements have been prepared by AG Associates, Inc. (the
"Company") pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). While the quarterly financial information contained in this
filing is unaudited, the financial statements presented reflect all normal
recurring adjustments which the Company considers necessary for a fair
presentation of the financial position, results of operations and cash flows for
all interim periods presented. The results for interim periods are not
necessarily indicative of the results to be expected for the entire year. The
information included in this report should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in the Company's
1997 Annual Report on Form 10-K.
NOTE 2 - Net Loss Per Share Information
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 requires a dual presentation of basic
and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is
computed by dividing net income (loss) by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue stock were exercised
or converted into common stock. Prior period amounts are the same under SFAS 128
as previously reported.
<TABLE>
<CAPTION>
Three months ended June 30, Nine months ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss $(4,837) $( 849) $(7,037) $(4,337)
======= ======= ======= =======
Share used in calculation:
Weighted average common shares outstanding
used in calculation of basic net loss per
share 6,075 5,985 6,081 5,967
Dilutive effect of stock options 0 0 0 0
------- ------- ------- -------
Shares used in calculation of diluted net loss
per share 6,075 5,985 6,081 5,967
======= ======= ======= =======
Basic net loss per share $( 0.80) $( 0.14) $( 1.16) $( 0.73)
======= ======= ======= =======
Diluted net loss per share $( 0.80) $( 0.14) $( 1.16) $( 0.73)
======= ======= ======= =======
</TABLE>
For the three and nine month periods ending June 30, 1998, options to purchase
1,099,170 shares of common stock at prices ranging from $3.00 to $16.82, and
options to purchase 882,713 shares of common stock at prices ranging from $4.44
to $16.82, respectively, were outstanding but not included in the calculation of
diluted net loss per share. For the three and nine month period ending June 30,
1997, options to purchase 619,128 shares of common stock at prices ranging from
$5.25 to $16.82, and options to purchase 478,823 shares of common stock at
prices ranging from $5.75 to $16.82, respectively, were outstanding but not
included in the calculation of diluted net loss per share. In accordance with
SFAS 128, these shares were not included because such options would be
anti-dilutive due to the Company's net loss position for the periods presented.
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<PAGE> 7
AG ASSOCIATES, INC.
NOTE 3 - Inventories
Inventories, valued at the lower of cost (first-in, first-out) or market,
consist of:
<TABLE>
<CAPTION>
(in thousands)
June 30, September 30,
1998 1997
------- -------
<S> <C> <C>
Raw materials $ 7,492 $ 7,500
Work-in-progress 4,728 4,176
------- -------
Total $12,220 $11,676
======= =======
</TABLE>
Inventories are shown net of reserves for obsolete, slow-moving and non-salable
inventory of $3,152,000 and $3,666,000 at June 30, 1998 and September 30, 1997,
respectively.
NOTE 4 - Line of Credit
In June 1998, the Company borrowed $4,268,000 under a $12,000,000 line of credit
with a bank. The borrowings are collateralized by primarily all of the Company's
assets, bears interest at prime (8.50% at June 30, 1998) plus 1.0% per annum and
are due June 23, 2000.
NOTE 5 - Litigation
The Company is currently involved in an intellectual property litigation. On
April 24, 1997, Applied Materials, Inc. ("Applied Materials") filed a complaint
against the Company and AST Elektronik GmbH and AST Elektronik U.S.A.
(collectively, "AST") in the United States District Court for the Northern
District of California, San Jose Division, Case No. CV97-20375 RMW. Applied
Materials subsequently amended its complaint. Applied Materials currently
alleges that the Company's products infringe on four Applied Materials patents
relating to Rapid Thermal Processing ("RTP") processes and heater head design
and seeks a permanent injunction against infringement, an award of damages for
infringement, treble damages for intentional and willful infringement,
attorneys' fees and costs of suit. On July 23, 1997, the Company answered
Applied Materials' complaint and counterclaimed for declaratory relief that the
Company's products do not infringe the patents and that the patents are invalid.
On October 3, 1997, the Company filed a counterclaim in the United States
District Court for Northern California, San Jose Division against Applied
Materials for infringement of one of the Company's RTP process patents. On
October 27, 1997, Applied Materials answered the counterclaim by alleging that
it does not infringe the Company's patent and that the patent is invalid. The
Company subsequently amended its complaint to assert that Applied Materials
infringed three additional patents. Applied Material moved to dismiss these
claims. On July 1, 1998, the court dismissed the claims for infringement of the
three additional patents without prejudice to their being refiled in a separate
action. The Company is considering filing claims against Applied Materials with
respect to these patents in a separate action. The trial on Applied Materials
claims and the Company's counterclaims is set for March 1, 1999. Management
believes Applied Materials' claims are without merit and intends to defend the
Company vigorously, and that the Company's claims against Applied Materials are
meritorious. However, there can be no assurance that this litigation will be
resolved in favor of the Company, and, in any event, litigation could result in
significant expense to the Company and could divert the efforts of the Company's
technical and management personnel from other tasks, whether or not such
litigation is determined in favor of the Company. In particular, the Company
expects to incur increased legal expenses in fiscal 1998 and fiscal 1999. In the
event of an adverse ruling in any such litigation, the Company might be required
to pay substantial damages, cease the manufacture, use and sale of infringing
products, discontinue the use of certain processes or expend significant
resources to develop non-infringing technology or obtain licenses to the
infringing technology.
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<PAGE> 8
AG ASSOCIATES, INC.
NOTE 6 - New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board adopted Statements of
Financial Accounting Standards No. 130 (Reporting Comprehensive Income), which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from non-owner sources; and No.
131 (Disclosures about Segments of an Enterprise and Related Information), which
establishes annual and interim reporting standards for an enterprise's business
segments and related disclosures about its products, services, geographic areas,
and major customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion set forth in this Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended. These
forward-looking statements are subject to significant risks and uncertainties,
including those identified in the section labeled "Factors That May Affect
Future Results" and in the Company's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, that may cause actual results to differ
materially from those discussed in such forward-looking statements. The Company
has identified with a preceding asterisk ("*") various sentences within this
Form 10-Q which contain such forward-looking statements, and words such as
"believes," "anticipates," "expects," "future," "intends" and similar
expressions are also intended to identify such forward-looking statements. In
addition, the section labeled "Factors That May Affect Future Results," which
has no asterisks for improved readability, consists primarily of forward-looking
statements. The Company undertakes no obligation to publicly release the results
of any revisions to these forward-looking statements which may be made to
reflect events or circumstances occurring after the date hereof. Readers are
urged to carefully review and consider the various disclosures made by the
Company in this report and in the Company's other reports filed with the SEC,
including its Form 10-K, that attempt to advise interested parties of the risks
and factors that may affect the Company's business.
Factors That May Affect Future Results
The Company's business, financial condition and results of operations are
subject to the following risks.
RAPID TECHNOLOGICAL CHANGE AND DEVELOPMENT RISKS. The Company derives
substantially all of its revenue from a single line of rapid thermal processing
products. The rapid thermal processing ("RTP") industry is subject to rapid
technological change, and the Company and its competitors continuously seek to
introduce new products that provide improved process results and manufacturing
performance at prices acceptable to RTP customers. There can be no assurance
that the Company can develop new products more quickly than its competitors or
that the Company's products will have better price/performance characteristics
than competitors' products. During the second and third quarters of fiscal 1998,
the Company shipped beta units of its new Starfire(R) 200mm and Starfire 300mm
RTP systems, which are intended to provide RTP capabilities for the 0.18 and
0.25 micron line widths previously unavailable from the Company's products.
Initial margins on the Starfire RTP systems are expected to be lower than
current Heatpulse production systems, and the Starfire RTP systems may not
achieve market acceptance or deliver anticipated reductions in customers' cost
of ownership.
SEMICONDUCTOR INDUSTRY VOLATILITY. The semiconductor industry has
historically been cyclical and subject to unexpected periodic downturns
associated with sudden changes in supply and demand. During the first three
quarters of 1998, the Company's business, financial conditions and operating
results were adversely impacted by a sudden downturn in the semiconductor
equipment industry caused, in part, by economic instability in Asia. This
downturn has had an adverse effect on the Company's backlog and may result in
the Company having lower net sales for the fourth quarter of fiscal 1998
compared to net sales in the first, second and third quarters of fiscal 1998. In
addition, the Company's continuation of a high level of research and development
spending on its new products and competitive pressures will continue to affect
the Company's overall profitability. The Company cannot predict industry
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<PAGE> 9
AG ASSOCIATES, INC.
cycles and their effect on the RTP market, rate of orders for the Company's
products or the degree to which the Company's new products will achieve market
acceptance. In particular, the semiconductor industry may experience a prolonged
downturn as a result of economic instability in Asia. For these reasons, the
Company's analysts' and investors' expectations with respect to the Company's
new orders, net sales and operating results with respect to future quarters may
not be met.
STOCK PRICE VOLATILITY. The Company's common stock price has been and may
continue to be subject to significant volatility. For any given quarter, a
shortfall in the Company's announced revenue or earnings from the levels
expected by securities analysts or investors or sustained or increasing weakness
in the RTP market could have an immediate and adverse effect on the trading
price of the Company's common stock. The Company may not learn of, nor be able
to confirm, revenue or earnings shortfalls until late in the quarter or
following the end of the quarter. In general, the Company participates in a very
dynamic high technology industry, which can result in significant fluctuations
in the Company's common stock price at any time.
COMPETITION. The Company's ability to compete depends upon the Company's
ability to develop new RTP product features that enhance uniformity and
repeatability, improve process capability and flexibility and reduce cost of
ownership. The Company's competitors, many of whom have substantially greater
resources than the Company, also seek to compete in these areas. In addition,
the Company expects to see increased competition from batch furnace vendors as
those companies increase functionality available in such machines. Applied
Materials has made significant gains in the Company's market and had offered
certain functionality the Company was not able to provide with its products,
allowing Applied Materials to capture significant customers. Applied Materials
and AST are significantly larger companies with greater resources than the
Company. There are also larger Japanese and domestic companies that possess the
technical resources to enter the RTP market.
CLAIMS OF PATENT INFRINGEMENT. The Company is currently involved in an
intellectual property litigation. On April 24, 1997, Applied Materials filed a
complaint against the Company and AST in the United States District Court for
the Northern District of California, San Jose Division, Case No. CV97-20375 RMW.
Applied Materials subsequently amended its complaint. Applied Materials
currently alleges that the Company's products infringe on four Applied Materials
patents relating to RTP processes and heater head design and seeks a permanent
injunction against infringement, an award of damages for infringement, treble
damages for intentional and willful infringement, attorneys' fees and costs of
suit. On July 23, 1997, the Company answered Applied Materials' complaint and
counterclaimed for declaratory relief that the Company's products do not
infringe the patents and that the patents are invalid. On October 3, 1997, the
Company filed a counterclaim in the United States District Court for Northern
California, San Jose Division against Applied Materials for infringement of one
of the Company's RTP process patents. On October 27, 1997, Applied Materials
answered the counterclaim by alleging that it does not infringe the Company's
patent and that the patent is invalid. The Company subsequently amended its
complaint to assert that Applied Materials infringed three additional patents.
Applied Material moved to dismiss these claims. On July 1, 1998, the court
dismissed the claims for infringement of the three additional patents without
prejudice to their being refiled in a separate action. The Company is
considering filing claims against Applied Materials with respect to these
patents in a separate action. The trial on Applied Materials claims and the
Company's counterclaims is set for March 1, 1999. Management believes Applied
Materials' claims are without merit and intends to defend the Company
vigorously, and that the Company's claims against Applied Materials are
meritorious. However, there can be no assurance that this litigation will be
resolved in favor of the Company, and, in any event, litigation could result in
significant expense to the Company and could divert the efforts of the Company's
technical and management personnel from other tasks, whether or not such
litigation is determined in favor of the Company. In particular, the Company
expects to incur increased legal expenses in fiscal 1998 and fiscal 1999. In the
event of an adverse ruling in any such litigation, the Company might be required
to pay substantial damages, cease the manufacture, use and sale of infringing
products, discontinue the use of certain processes or expend significant
resources to develop non-infringing technology or obtain licenses to the
infringing technology.
INVENTORY OBSOLESCENCE. Because the Company's industry is subject to rapid
technological change, the Company has experienced, and expects to experience,
obsolescence of certain of its products as the Company and
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<PAGE> 10
AG ASSOCIATES, INC.
its competitors introduce new products with improved price/performance
characteristics. In particular, the Company discontinued its Heatpulse(R) 4100
product line in the quarter ended March 31, 1997 and consequently wrote down
$1.4 million of inventory in that quarter. During the quarter ended June 30,
1997, the Company, for the first time in its history, booked more orders for its
Heatpulse 8800 product line than its Heatpulse 8100 product line and this trend
has continued into the third quarter of fiscal 1998. To the extent sales of new
products do not offset, or generate lower margins than sales of older products,
the Company's business, results of operations and financial condition would be
materially adversely affected. In addition, the Company believes that the
Heatpulse 8100 product line will ultimately become obsolete as acceptance of the
Heatpulse 8800 and Starfire products increases and the current market conditions
persist.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. The Company's operating
results are subject to quarterly and other fluctuations due to a variety of
factors, including the volume and timing of orders received, potential
cancellation or rescheduling of orders, competitive pricing pressures, the
Company's ability to manage costs during periods of low or negative earnings
growth, the availability and cost of component parts and materials from the
Company's suppliers, the adequate forecasting of the mix of product demand due
to production lead times and capacity constraints, the timing of new product
announcements and introductions by the Company or its competitors, changes in
the mix of products sold, research and development expenses associated with new
product introductions, the timing and level of development costs, market
acceptance of new or enhanced versions of the Company's products, seasonal
customer demand, the cyclical nature of the semiconductor industry, the impact
of the Company's efforts to implement its evolving long-term strategy, the
uncertainties of ongoing negotiations and economic conditions generally or in
various geographic areas. In addition, because of the relatively high selling
prices of the Company's products, a significant portion of the Company's net
sales in any given period is derived from the sale of a relatively small number
of units, and a change, even though minor, in the number of units sold during a
quarter can result in a large fluctuation in net sales for the quarter.
EMPLOYEE RISK. Competition in recruiting personnel in the semiconductor
industry is intense. The Company believes that its future success will depend in
part on its ability to recruit and retain highly skilled management, marketing
and technical personnel. The Company believes it must provide personnel with a
competitive compensation package, which necessitates the continued availability
of stock options and requires ongoing shareholder approval of the Company's
stock compensation programs.
YEAR 2000 INFRASTRUCTURE RISK. The Company is currently in the process of
assessing its information technology infrastructure for Year 2000 compliance. A
cross-functional project team has been established, with three branches to
address the three primary areas of concern for the Company; infrastucture,
product, and material suppliers.
Year 2000 assessment of internal systems is scheduled for completion in the
first quarter of fiscal 1999, and repairs, if necessary, are scheduled to be
complete in the third quarter of fiscal 1999. The Company has identified that
the following systems will need to be evaluated:
<TABLE>
<S> <C>
Security systems Network equipment
Facility systems Printers, copiers, fax machines
Telephony Server tape backups
Servers Testing equipment
Personal computers Miscellaneous software
</TABLE>
The Company utilizes standard industry software packages and hardware common to
the semiconductor equipment industry. The Company's primary software system,
Dataworks, will undergo an upgrade in the second quarter of fiscal 1999, which
will bring that system to Year 2000 compliance. The Company does not anticipate
any material disruption in its operations as a result of any failure by the
Company to be in Year 2000 compliance. The Company will estimate the cost to
modify its systems to be Year 2000 compliant as part of its assessment phase,
however at present, the Company does not anticipate that the cost will be
material to its financial condition or results of operations.
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AG ASSOCIATES, INC.
Assessment of the Company's product Year 2000 compliance will be complete in the
first quarter of fiscal 1999, with repairs and remedial strategies, if
necessary, to be available to the Company's customers by the second quarter of
fiscal 1999. The Company is in the process of testing its products, using
Sematech's Year 2000 readiness standards and test scenarios, which includes a
minimum set of tests equipment manufacturers should perform in the evaluation of
their products. The Company does not anticipate any material disruption in its
operations as a result of any failure of Company's products to be in Year 2000
compliance.
The Company has established procedures for assessing Year 2000 compliance by the
Company's suppliers, and is scheduled to complete this assessment phase in the
second quarter of fiscal 1999. Suppliers will be surveyed and ranked into one of
the following four categories, 1) non-compliance by the supplier will cause the
Company to stop shipment of its products, 2) non-compliance by the supplier will
cause the Company to delay shipment of its products by one week or more, 3)
non-compliance by the supplier will cause the Company to delay shipment of its
products by less than one week, and 4) non-compliance by the supplier will have
no effect on shipment of the Company's products. Suppliers receiving a "1", "2",
or "3" ranking will be audited in depth, and if found to be Year 2000
non-compliant, must provide the Company with a remedial plan and demonstrate
adherence to that plan. Failure to meet these requirements to the satisfaction
of the Company will result in selection of a new supplier.
The Company has not found it necessary to delay or cancel any internal services,
programs, or projects as a result of its preparatory activities for Year 2000
compliance. The Company does not anticipate any material disruption in its
operations as a result of any internal or external failures to be in Year 2000
compliance, however the Company is prepared, as a worse-case scenario, for minor
delivery delays in both the receipt of materials and shipment of product. The
Company is also aware that San Jose City utilities are currently not Year 2000
compliant, and has prepared a plan for alternative sources of power.
Results of Operations
The following table sets forth items in the Company's Condensed Consolidated
Statements of Operations as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended June 30, Nine Months Ended June 30,
--------------------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of sales 82 63 70 70
---- ---- ---- ----
Gross profit 18 37 30 30
Operating expenses:
Research and development 46 29 31 29
Selling, general and administrative 27 17 18 19
---- ---- ---- ----
Total operating expenses 73 46 49 48
---- ---- ---- ----
Loss from operations (55) (9) (19) (18)
Interest income (expense), net * * * 1
Other income, net * * * *
---- ---- ---- ----
Loss before income taxes (55) (9) (19) (17)
Provision (benefit) for income taxes 0 (3) 0 (4)
---- ---- ---- ----
Net loss (55)% (6)% (19)% (13)%
==== ==== ==== ====
</TABLE>
- ----------
* less than 1%
Net Sales
Net sales for the three and nine months ended June 30, 1998 were $8.8 and $37.8
million respectively, compared to $13.4 and $33.7 million for the same periods
in fiscal 1997. The 34% decrease in sales for the three month period ended June
30, 1998 compared to the same period last fiscal year was due primarily to the
impact of the economic
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<PAGE> 12
AG ASSOCIATES, INC.
instability in Asia, the negative effects of which were first experience by the
Company in the second quarter of 1998. The 12% increase in sales for the nine
month period ended June 30, 1998 compared to the same period last fiscal year is
attributable to the semiconductor industry's recovery from the end of calendar
1996 which extended through the first quarter of fiscal 1998. *Net sales in the
fourth quarter of fiscal 1998 are not expected to improve, due to the current
market conditions.
The Company utilizes distributors in certain geographic regions. All of the
Company's sales in Japan are through Canon Sales Co., Inc. ("Canon"), and those
in Europe and Korea are through Metron Technology ("Metron"). Sales to
distributors generally result in a lower gross profit, caused by lower selling
prices, which are partially offset by reduced warranty and selling expenses. For
the three and nine month periods ended June 30, 1998, Canon represented 35% and
32% of net sales and Metron represented 17% and 13% of net sales respectively.
For the same period in the prior fiscal year, Canon represented 10% and 13% of
net sales and Metron represented 12% and 10% of net sales respectively.
International sales as a percentage of net sales increased for the three and
nine month periods ended June 30, 1998 to 55% and 50% respectively.
International sales as a percentage of net sales for the same periods last
fiscal year were 32% and 35% respectively. The increase in the percentage of the
Company's net sales represented by Canon, Metron, and international customers is
due to stronger business in Japan and Europe. *Based upon the geographic
locations of semiconductor manufacturers, the Company anticipates that
international sales in general will continue to account for a significant
portion of net sales in fiscal 1998. *However, international sales as a
percentage of net sales will vary on a quarterly basis depending on the timing
of orders and the relative strength of the Asian economies. See "Factors That
May Affect Future Results - Potential Fluctuations in Operating Results."
One end-user customer represented 16% of net sales for the three month period
ended June 30, 1998, but represented less than 1% of net sales for the same
period last fiscal year. For the nine month period ended June 30, 1998 one
end-user customer represented 16% of net sales as compared to 29% for the same
period in the last fiscal year. *The Company expects a significant portion of
its future sales to remain concentrated within a limited number of strategic
customers. *The Company expects increasing competition from Applied Materials, a
competitor who has substantially greater resources than the Company,
particularly in the sale of RTP systems designed for 0.25 micron line width
applications and the emerging 0.18 micron line width applications. In addition,
the Company has experienced, and continues to experience, competition from other
RTP equipment suppliers. *These competitors' impact on future sales cannot be
estimated. *As a result of competitive pressures, the Company may not be able to
retain its strategic customers, and such customers may cancel, reschedule or
significantly reduce the volume of orders and in the event orders are canceled,
such orders may not be replaced by other sales. See "Factors That May Affect
Future Results - Competition."
Gross Profit
Gross profit for the three and nine month periods ended June 30, 1998 were $1.6
and $11.5 million respectively, compared to a gross profit of $4.9 and $10.1
million for the same period in fiscal 1997. Gross profit as a percentage of net
sales for the three and nine month periods ended June 30, 1998 was 18% and 30%
respectively, compared to 37% and 30% for the three and nine month periods ended
June 30, 1997. The decrease in gross margin for the three and nine month periods
ended June 30, 1998 compared to the same periods in fiscal 1997 was primarily
attributable to the decrease in unit selling prices resulting from an increase
in sales through the distribution channel. Distributors are given a significant
discount to the final price paid by the end-user customer, which is partially
offset by reduced warranty expenses and other costs in operating expenses. Also
contributing to the decrease in gross margin for the three and nine month
periods ended June 30, 1998 compared to the same periods in the prior year, was
the decrease in unit shipments which caused the Company's fixed manufacturing
costs to be spread over fewer units. *The Company expects increased competition
and market conditions to put downward pressure on gross margins in the fourth
quarter of fiscal 1998.
Research and Development Expenses
Research and development ("R&D") expenses were $4.0 and $11.7 million for the
three and nine month periods ended June 30, 1998, representing an increase of
$106,000 (3%) and $1.8 million (18%) respectively, when compared with the same
periods in fiscal 1997. As a percentage of net sales, R&D expenses were 46% and
31% for the three and nine
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<PAGE> 13
AG ASSOCIATES, INC.
month periods ended June 30, 1998, compared to 29% for both the three and nine
month periods ending June 30, 1997, reflecting lower net sales. R&D expenses are
primarily attributable to the continuing development of the Company's new
Starfire 0.18 micron 200mm and 300mm RTP systems. *The Company continues to
believe that significant investment in R&D is required to remain competitive,
particularly during the current semiconductor market slowdown and associated
decrease in customers' capacity demands. *The Company expects a portion of its
revenue during this slowdown to be realized from demand for its new products in
the R&D sector. See "Factors That May Affect Future Results - Rapid
Technological Change and Development Risks."
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses was $2.4 and $6.9 million
respectively for the three and nine month periods ended June 30, 1998,
representing an increase of $86,000 (4%) and $508,000 (8%) when compared with
the same periods in fiscal 1997. As a percentage of net sales, SG&A spending for
the three month period ending June 30, 1998 increased to 27% compared to 17% for
the same period in fiscal 1997, primarily due to the legal fees associated with
the Applied Materials intellectual property litigation, and lower sales levels.
As a percentage of net sales, SG&A spending for the nine month period ending
June 30, 1998 decreased to 18% compared to 19% for the same period in fiscal
1997, due to higher sales levels in fiscal 1997. *Through the remainder of the
fiscal year, SG&A spending in absolute dollars is expected to remain in line
with current levels; however, actual spending may fluctuate depending on, among
other things, the level of net sales and the sales channel for the Company's
products, that could result in higher commissions. *As a percentage of net
sales, SG&A spending may vary from quarter to quarter.
Interest Income (Expense), Net
Interest income (expense), net decreased to expense of $46,000 and income of
$20,000 for the three and nine month periods ended June 30, 1998, compared to
income of $93,000 and $279,000 respectively in the comparable periods in fiscal
1997. This decrease was primarily due to lower interest income earned on the
Company's cash and investments as a result of lower cash and investment
balances, and an increase in interest expense paid due to the Company's use of
its credit facility.
Provision (Benefit) for Income Taxes
The Company has recorded no tax benefit as a result of its net taxable losses
during the first, second and third quarters of fiscal 1998. For the third
quarter of fiscal 1998, the net loss was adversely impacted by the Company's
inability to record a credit for income taxes, which was the result of certain
changes to the tax laws. *For the remainder of fiscal 1998, the Company will not
record any benefit for income taxes to the extent it does not make a pre-tax
profit. *A significant change in income or loss from anticipated levels would
have a significant impact on the tax rate recorded by the Company.
Backlog
The Company's system backlog (consisting of systems scheduled for delivery
within the next twelve months) as of June 30, 1998 was approximately $12.1
million as compared to approximately $14.6 million at September 30, 1997 and
$10.9 million at March 31, 1998. The increase in backlog at June 30, 1998
compared to March 31, 1998 was due to the Company's continued success in
obtaining orders for its Starfire systems. The decrease in backlog as compared
to September 30, 1997 is attributable to the effects on the worldwide
semiconductor industry of the economic crisis in Asia. The Company includes in
its backlog customer purchase orders that have been accepted and to which
shipment dates have been assigned within the next twelve months. All orders are
subject to cancellation or delay with limited or no penalty. *Because of
possible changes in delivery schedules and additions and cancellations of
orders, the Company's backlog at any particular date is not necessarily
indicative of actual sales for any succeeding period. *Given the decrease in
backlog, the Company expects revenues for the fourth quarter of fiscal 1998 to
be lower than revenues for the period ended June 30, 1998; in addition, the
Company expects its results of operations to yield a net loss. *In addition, the
Company's net sales may decline further and the Company may incur increasing net
losses. See "Factors That May Affect Future Results Semiconductor Industry
Volatility."
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<PAGE> 14
AG ASSOCIATES, INC.
Liquidity And Capital Resources
As of June 30, 1998, the Company had cash, cash equivalents and short-term
investments of $3.2 million, compared to $4.2 million as of September 30, 1997.
The decrease of $1.0 million was primarily attributable to the increase in
capital expenditures in connection with the Company's new Starfire product
development and initial shipment, and a decrease in accounts payable. Working
capital decreased to $14.5 million at June 30, 1998 from $22.9 million at
September 30, 1997.
The Company's operating activities used cash of $1.8 million during the nine
month period ended June 30, 1998. The Company's net loss and depreciation and
amortization charges and a significant decreases in accounts receivable and
income taxes refundable, were partially offset by a decrease in accounts payable
and accrued liabilities, and an increase in inventories. The increase in
inventory was primarily due to the manufacture of Starfire 0.18 micron RTP
systems.
The Company's investing activities used cash of $1.8 million during the nine
month period ended June 30, 1998, due to capital expenditures of $3.4 million
primarily for Starfire internal RTP systems and improvements to the
manufacturing facility. *The Company currently anticipates that its capital
expenditures will be approximately $1.8 million in the fourth quarter of fiscal
1998, principally to support new product development and manufacturing cost
reductions. *However, the actual level of capital spending will be dependent on
a variety of factors, including the Company's business requirements and general
economic conditions.
Cash provided by financing activities was $4.3 million during the nine month
period ended June 30, 1998, consisting primarily of borrowing $4.3 million on
the Company's short term credit facility.
*The Company believes that current cash and short-term investment balances,
together with existing sources of liquidity, will satisfy the Company's
anticipated liquidity and working capital requirements through the next twelve
months. *However, due to the Asian economic crisis, the uncertain nature of the
semiconductor industry, competitive market conditions, the strong commitment to
developing the Company's next-generation products and the possible outcome of
current litigation with Applied Materials, liquidity and working capital
requirements are difficult to anticipate beyond the next twelve months. The
Company has received a commitment from a bank for a revolving credit facility of
up to $12 million. The facility's availability is contingent upon the Company
meeting a financial net worth covenant and certain accounts receivable
requirements. *There is no assurance that market conditions will allow the
Company to continue to qualify for the facility. *There can be no assurance that
additional financing, when required, will be available, or if available, can be
obtained on terms satisfactory to the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
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<PAGE> 15
AG ASSOCIATES, INC.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
The Company is currently involved in an intellectual property litigation.
On April 24, 1997, Applied Materials filed a complaint against the Company and
AST in the United States District Court for the Northern District of California,
San Jose Division, Case No. CV97-20375 RMW. Applied Materials subsequently
amended its complaint. Applied Materials currently alleges that the Company's
products infringe on four Applied Materials patents relating to RTP processes
and heater head design and seeks a permanent injunction against infringement, an
award of damages for infringement, treble damages for intentional and willful
infringement, attorneys' fees and costs of suit. On July 23, 1997, the Company
answered Applied Materials' complaint and counterclaimed for declaratory relief
that the Company's products do not infringe the patents and that the patents are
invalid. On October 3, 1997, the Company filed a counterclaim in the United
States District Court for Northern California, San Jose Division against Applied
Materials for infringement of one of the Company's RTP process patents. On
October 27, 1997, Applied Materials answered the counterclaim by alleging that
it does not infringe the Company's patent and that the patent is invalid. The
Company subsequently amended its complaint to assert that Applied Materials
infringed three additional patents. Applied Material moved to dismiss these
claims. On July 1, 1998, the court dismissed the claims for infringement of the
three additional patents without prejudice to their being refiled in a separate
action. The Company is considering filing claims against Applied Materials with
respect to these patents in a separate action. The trial on Applied Materials
claims and the Company's counterclaims is set for March 1, 1999. Management
believes Applied Materials' claims are without merit and intends to defend the
Company vigorously, and that the Company's claims against Applied Materials are
meritorious. However, there can be no assurance that this litigation will be
resolved in favor of the Company, and, in any event, litigation could result in
significant expense to the Company and could divert the efforts of the Company's
technical and management personnel from other tasks, whether or not such
litigation is determined in favor of the Company. In particular, the Company
expects to incur increased legal expenses in fiscal 1998 and fiscal 1999. In the
event of an adverse ruling in any such litigation, the Company might be required
to pay substantial damages, cease the manufacture, use and sale of infringing
products, discontinue the use of certain processes or expend significant
resources to develop non-infringing technology or obtain licenses to the
infringing technology.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
The following statement is provided pursuant to Rule 14a-5 promulgated
under the Securities Exchange Act of 1934, as amended: proxies
solicited by the Company for the Company's 1999 annual meeting of
shareholders will be voted in the discretion of the persons voting such
proxies with respect to all proposals presented by shareholders for
consideration at such meeting after December 12, 1998.
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<PAGE> 16
AG ASSOCIATES, INC.
Item 6. Exhibits and Reports on Form 8-K
A) Exhibits
<TABLE>
<S> <C>
Exhibit 10.50 Loan and Security Agreement, dated June 23, 1998, between the
Company and Silicon Valley Bank
Exhibit 27 Financial Data Schedule
</TABLE>
B) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
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<PAGE> 17
AG ASSOCIATES, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AG Associates, Inc.
(Registrant)
Dated: August 12, 1998 By: /s/ KIRK JOHNSON
-------------------------------------
Kirk Johnson
Chief Financial Officer
(Duly authorized officer and principal
financial officer)
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<PAGE> 18
AG ASSOCIATES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.50 Loan and Security Agreement, dated June 23, 1998, between the Company and Silicon Valley Bank
27 Financial Data Schedule
</TABLE>
-18-
<PAGE> 1
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EXHIBIT 10.50
LOAN AND SECURITY AGREEMENT, DATED JUNE 23, 1998,
BETWEEN THE COMPANY AND SILICON VALLEY BANK
<PAGE> 2
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
BORROWER: AG ASSOCIATES
ADDRESS: 4425 FORTRAN DRIVE
SAN JOSE, CA 95134
DATE: JUNE 23, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of
Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Silicon to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect
to any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon's indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other present or
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<PAGE> 3
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
future documents or agreements between Borrower and Silicon relating to Letters
of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Silicon now has, and will
continue to have, a first-priority perfected and enforceable security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times defend Silicon and the Collateral against all claims of others.
None of the Collateral now is or will be affixed to any real property in such a
manner, or with such intent, as to become a fixture. Borrower is not and will
not become a lessee under any real property lease pursuant to which the lessor
may obtain any rights in any of the Collateral and no such lease now prohibits,
restrains, impairs or will prohibit, restrain or impair Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Silicon, use its best efforts to cause
such third party to execute and deliver to Silicon, in form acceptable to
Silicon, such waivers and subordinations as Silicon shall specify, so as to
ensure that Silicon's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Silicon and the date hereof, there has
been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local
-3-
<PAGE> 4
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
taxes, assessments, deposits and contributions now or in the future owed by
Borrower. Borrower may, however, defer payment of any contested taxes, provided
that Borrower (i) in good faith contests Borrower's obligation to pay the taxes
by appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Silicon in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other steps
required to keep the contested taxes from becoming a lien upon any of the
Collateral. Borrower is unaware of any claims or adjustments proposed for any of
Borrower's prior tax years which could result in additional taxes becoming due
and payable by Borrower. Borrower has paid, and shall continue to pay all
amounts necessary to fund all present and future pension, profit sharing and
deferred compensation plans in accordance with their terms, and Borrower has not
and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could result in any liability of Borrower, including any
liability to the Pension Benefit Guaranty Corporation or its successors or any
other governmental agency. Borrower shall, at all times, utilize the services of
an outside payroll service providing for the automatic deposit of all payroll
taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Silicon as follows: Each Receivable with respect to which Loans are requested
by Borrower shall, on the date each Loan is requested and made, (i) represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services in the ordinary course of Borrower's business, and (ii) meet the
Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day. Together with each such schedule and
assignment, or later if requested by Silicon, Borrower shall furnish Silicon
with copies (or, at Silicon's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall request. In addition, Borrower shall deliver to
Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form, duly endorsed in blank, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its
discretion, require that all proceeds of Collateral be deposited by Borrower
into a lockbox account, or such other "blocked account" as Silicon may specify,
pursuant to a blocked account agreement in such form as Silicon may specify.
Silicon or its designee may, at any time, notify Account Debtors that the
Receivables have been assigned to Silicon.
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4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral shall be delivered, in kind, by Borrower to Silicon in the original
form in which received by Borrower not later than the following Business Day
after receipt by Borrower, to be applied to the Obligations in such order as
Silicon shall determine; provided that, if no Default or Event of Default has
occurred, Borrower shall not be obligated to remit to Silicon the proceeds of
the sale of worn out or obsolete equipment disposed of by Borrower in good faith
in an arm's length transaction for an aggregate purchase price of $25,000 or
less (for all such transactions in any fiscal year). Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Silicon be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Silicon from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Silicon copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process. The foregoing
inspections and audits shall be at Borrower's expense and the charge therefor
shall be $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. Borrower will not enter into any agreement with any accounting
firm, service bureau or third party to store Borrower's books or records at any
location other than Borrower's Address,
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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without first obtaining Silicon's written consent, which may be conditioned upon
such accounting firm, service bureau or other third party agreeing to give
Silicon the same rights with respect to access to books and records and related
rights as Silicon has under this Loan Agreement. Borrower waives the benefit of
any accountant-client privilege or other evidentiary privilege precluding or
limiting the disclosure, divulgence or delivery of any of its books and records
(except that Borrower does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following: (i)
merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except for the sale of finished Inventory in the ordinary course of
Borrower's business, and except for the sale of obsolete or unneeded Equipment
in the ordinary course of business; (v) store any Inventory or other Collateral
with any warehouseman or other third party; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii)
make any loans of any money or other assets; (viii) incur any debts, outside the
ordinary course of business, which would have a material, adverse effect on
Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or
otherwise become liable with respect to the obligations of another party or
entity; (x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock; (xii) make
any change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; or (xiii)
pay total compensation, including salaries, fees, bonuses, commissions, and all
other payments, whether directly or indirectly, in money or otherwise, to
Borrower's executives, officers and directors (or any relative thereof) in an
amount in excess of the amount set forth on the Schedule; or (xiv) dissolve or
elect to dissolve. Transactions permitted by the foregoing provisions of this
Section are only permitted if no Default or Event of Default would occur as a
result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Silicon; or (ii) by Silicon at any time after
the occurrence of an Event of Default, without notice, effective immediately.*
The termination fee shall be due and payable on the effective date of
termination and thereafter shall bear interest at a rate equal to the highest
rate applicable to any of the Obligations.
*IF THIS AGREEMENT IS TERMINATED BY BORROWER OR BY SILICON UNDER THIS SECTION
6.2 PRIOR TO THE FIRST ANNIVERSARY DATE OF THIS AGREEMENT, BORROWER SHALL PAY TO
SILICON A TERMINATION FEE IN AN AMOUNT EQUAL TO ONE PERCENT (1.0%) OF THE
MAXIMUM CREDIT LIMIT. IF THIS AGREEMENT IS TERMINATED BY BORROWER OR BY SILICON
UNDER THIS SECTION 6.2 AFTER THE FIRST ANNIVERSARY DATE BUT PRIOR TO THE SECOND
ANNIVERSARY DATE OF THIS AGREEMENT, BORROWER SHALL PAY TO SILICON A TERMINATION
FEE IN AN AMOUNT EQUAL TO ONE-HALF OF ONE PERCENT (0.5%) OF THE MAXIMUM CREDIT
LIMIT. NO SUCH TERMINATION FEES SHALL BE CHARGED IF THE CREDIT FACILITY
HEREUNDER IS REPLACED WITH A NEW FACILITY FROM ANOTHER DIVISION OF SILICON
VALLEY BANK.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Without limiting the generality of the foregoing, if on the Maturity Date, or on
any earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for re-
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conveyances and such other documents as may be required to fully terminate
Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower's officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect; or (b) Borrower shall fail to pay
when due any Loan or any interest thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 Business Days after the date due; or (f) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or (l) revocation or termination of, or limitation
or denial of liability upon, any pledge of any certificate of deposit,
securities or other property or asset of any kind pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (m) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits his subordination agreement; or (n) there shall be a change in
the record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition; or (q) Silicon, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an event
prior to the effective date hereof of which Silicon had no knowledge on the
effective date or because of the occurrence of an event on or subsequent to the
effective date. Silicon may cease making any Loans hereunder during any of the
above cure periods, and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from
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time to time without notice other than oral announcement at the time scheduled
for sale. Silicon shall have the right to conduct such disposition on Borrower's
premises without charge, for such time or times as Silicon deems reasonable, or
on Silicon's premises, or elsewhere and the Collateral need not be located at
the place of disposition. Silicon may directly or through any affiliated company
purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability Borrower
may have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (g) Demand payment of, and collect any
Receivables and General Intangibles comprising Collateral and, in connection
therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower's
name on all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Borrower and remove therefrom payments
made with respect to any item of the Collateral or proceeds thereof, and, in
Silicon's sole discretion, to grant extensions of time to pay, compromise claims
and settle Receivables and the like for less than face value; (h) Offset against
any sums in any of Borrower's general, special or other Deposit Accounts with
Silicon; and (i) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Silicon with respect to the foregoing
shall be added to and become part of the Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations. Without limiting any of Silicon's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional four
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Silicon shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion. Any surplus shall be
paid to Borrower or other persons legally entitled thereto;
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Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Eligible Inventory" [NOT APPLICABLE].
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
Eligibility Requirements") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 days from its invoice date, (ii) the Receivable must not represent progress
billings, or be due under a fulfillment or requirements contract with the
Account Debtor, (iii) the Receivable must not be subject to any contingencies
(including Receivables arising from sales on consignment, guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the Receivable must not be owing from an Account Debtor with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the
Receivable must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Receivable must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon's satisfaction, with the United States Assignment of Claims Act),
(viii) the Receivable must not be owing from an Account Debtor located outside
the United States or Canada (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon), (ix) the Receivable must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise. Receivables owing from one Account Debtor will
not be deemed Eligible Receivables to the extent they exceed 25% of the total
eligible Receivables outstanding*. In addition, if more than 50% of the
Receivables owing from an Account Debtor are outstanding more than 90 days from
their invoice date (without regard to unapplied credits) or are otherwise not
eligible Receivables, then all Receivables owing from that Account Debtor will
be deemed ineligible for borrowing. Silicon may, from time to time, in its
discretion, revise the Minimum Eligibility Requirements, upon written notice to
the Borrower.
*PROVIDED, HOWEVER, SUCH PERCENTAGE SHALL BE 35% WITH RESPECT TO THE
FOLLOWING ACCOUNT DEBTORS: IBM CORPORATION AND INTEL CORPORATION.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 7.1 of this
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims under guaranties, security interests or other security held
by or granted to Borrower, all rights to indemnification and all other
intangible property of every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
"Permitted Liens" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"Reserves" means, as of any date of determination, such amounts as Silicon
may from time to time establish and revise in good faith reducing the amount of
Loans and Letters of Credit which would otherwise be available to Borrower under
the lending formula(s) provided in the Schedule: (a) to reflect events,
conditions, contingencies or risks which, as determined by Silicon in good
faith, do or may affect either (i) the Collateral or any other property which is
security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of Silicon in the Collateral (including the enforceability, perfection
and priority thereof), or (b) to reflect Silicon's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to Silicon is or may have been incomplete, inaccurate or
misleading in any material respect, or (c) in respect of any state of facts
which Silicon determines in good faith constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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account for the amount of any item of payment which is returned to Silicon
unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Silicon or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Silicon shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Silicon and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 WAIVERS. The failure of Silicon at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower's
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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ALL OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
BORROWER:
AG ASSOCIATES
BY____________________________________
PRESIDENT OR VICE PRESIDENT
BY____________________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY____________________________________
TITLE_________________________________
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<PAGE> 14
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SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: AG ASSOCIATES
ADDRESS: 4425 FORTRAN DRIVE
SAN JOSE, CA 95134
DATE: JUNE 23, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser
of: (i) $7,000,000 at any one time
outstanding (the "Maximum Credit
Limit"); or (ii) 85% of the amount of
Borrower's Eligible Receivables (as
defined in Section 8 above).
LETTER OF CREDIT SUBLIMIT
(Section 1.5): $4,000,000.
FOREIGN EXCHANGE
CONTRACT SUBLIMIT Up to $4,000,000 of the Credit Limit
(the "Contract Limit") may be utilized
for spot and future foreign exchange
contracts (the "Exchange Contracts").
The Credit Limit at any time shall be
reduced by the following amounts (the
"Foreign Exchange Reserve") on each day
(the "Determination Date"): (i) on all
outstanding Exchange Contracts on which
delivery is to be effected or settlement
allowed more than two business days from
the Determination Date, 10% of the gross
amount of the Exchange Contracts; plus
(ii) on all outstanding Exchange
Contracts on which delivery is to be
effected or settlement allowed within
two business days after the
Determination Date, 100% of the gross
amount of the Exchange Contracts. In
lieu of the Foreign Exchange Reserve for
100% of the gross amount of any Exchange
Contract, the Borrower may request that
Silicon debit the Borrower's bank
account with Silicon for such amount,
provided Borrower has immediately
available funds in such amount in its
bank account.
Silicon may, in its discretion,
terminate the Exchange Contracts at any
time (a) that an Event of Default occurs
or (b) that there is not sufficient
availability under the Credit Limit and
Borrower does not have available funds
in its bank account to satisfy the
Foreign Exchange Reserve. If either
Silicon or Borrower terminates the
Exchange Contracts, and without
limitation of the FX Indemnity
Provisions (as referred to below),
Borrower agrees to reimburse Silicon for
any and all fees, costs and expenses
relating thereto or arising in
connection therewith.
Borrower shall not permit the total
gross amount of all Exchange Contracts
on which delivery is to be effected and
settlement allowed in
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<PAGE> 15
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
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any two business day period to be more
than $2,000,000 (the "Settlement
Limit"), nor shall Borrower permit the
total gross amount of all Exchange
Contracts to which Borrower is a party,
outstanding at any one time, to exceed
the Contract Limit.
Notwithstanding the above, however, the
amount which may be settled in any two
(2) business day period may, in
Silicon's sole discretion, be increased
above the Settlement Limit up to, but in
no event to exceed, the amount of the
Contract Limit (the "Discretionary
Settlement Amount") under either of the
following circumstances (the
"Discretionary Settlement
Circumstances"):
(i) if there is sufficient
availability under the Credit Limit
in the amount of the Foreign
Exchange Reserve as of each
Determination Date, and Silicon in
advance shall reserve the full
amount of the Foreign Exchange
Reserve against the Credit Limit; or
(ii) if there is insufficient
availability under the Credit Limit
as to settlements within any two (2)
business day period, and if Silicon
is able to: (A) verify good funds
overseas prior to crediting
Borrower's deposit account with
Silicon (in the case of Borrower's
sale of foreign currency); or (B)
debit Borrower's deposit account
with Silicon prior to delivering
foreign currency overseas (in the
case of Borrower's purchase of
foreign currency);
Provided that it is expressly understood
that Silicon's willingness to adopt the
Discretionary Settlement Amount is a
matter of Silicon's sole discretion and
the existence of the Discretionary
Settlement Circumstances in no way means
or implies that Silicon shall be
obligated to permit the Borrower to
exceed the Settlement Limit in any two
business day period.
In the case of Borrower's purchase of
foreign currency, Borrower shall
instruct Silicon in advance upon
settlement either to treat the
settlement amount as an advance under
the Credit Limit, or to debit Borrower's
account for the amount settled.
The Borrower shall execute all standard
form applications and agreements of
Silicon in connection with the Exchange
Contracts, and without limiting any of
the terms of such applications and
agreements, the Borrower will pay all
standard fees and charges of Silicon in
connection with the Exchange Contracts.
Without limiting any of the other terms
of this Loan Agreement or any such
standard form applications and
agreements of Silicon, Borrower agrees
to indemnify Silicon and hold it
harmless, from and against any and all
claims, debts, liabilities, demands,
obligations, actions, costs and expenses
(including, without limitation,
attorneys' fees of counsel of Silicon's
choice), of every nature and
description, which it may sustain or
incur, based upon, arising out of, or in
any way relating to any of the Exchange
Contracts or any transactions relating
thereto or contemplated thereby
(collectively referred to as the "FX
Indemnity Provisions").
The Exchange Contracts shall have
maturity dates no later than the
Maturity Date.
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
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================================================================================
2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in
effect from time to time, plus 1.0% per
annum. Interest shall be calculated on
the basis of a 360-day year for the
actual number of days elapsed. "Prime
Rate" means the rate announced from time
to time by Silicon as its "prime rate;"
it is a base rate upon which other rates
charged by Silicon are based, and it is
not necessarily the best rate available
at Silicon. The interest rate applicable
to the Obligations shall change on each
date there is a change in the Prime
Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not Applicable.
================================================================================
3. FEES (Section 1.4):
Loan Fee: $25,000, payable concurrently herewith.
(Any Commitment Fee previously paid by
the Borrower in connection with this
loan shall be credited against this
Fee.)
Collateral Monitoring
Fee: $1,000, per calendar month, payable in
arrears (prorated for any partial
calendar month at the beginning and at
termination of this Agreement).
Unused Line Fee: Not Applicable.
================================================================================
4. MATURITY DATE
(Section 6.1): Two years from the date of this
Agreement, subject to automatic renewal
as provided in Section 6.1 above, and
early termination as provided in Section
6.2 above.
================================================================================
5. FINANCIAL COVENANTS
(Section 5.1): Borrower shall comply with all of the
following covenants. Compliance shall be
determined as of the end of each
calendar quarter, except as otherwise
specifically provided below:
MINIMUM TANGIBLE
NET WORTH: Borrower shall maintain a Tangible Net
Worth of not less than $15,000,000.
DEFINITIONS. For purposes of the foregoing financial
covenants, the following terms shall
have the following meanings:
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
"Current assets", "current liabilities"
and "liabilities" shall have the
meanings ascribed to them by generally
accepted accounting principles.
"Tangible Net Worth" shall mean the
excess of total assets over total
liabilities, determined in accordance
with generally accepted accounting
principles, with the following
adjustments:
(A) there shall be excluded from
assets: (i) notes, accounts
receivable and other obligations
owing to the Borrower from its
officers or other Affiliates, and
(ii) all assets which would be
classified as intangible assets
under generally accepted accounting
principles, including without
limitation goodwill, licenses,
patents, trademarks, trade names,
copyrights, capitalized software and
organizational costs, licenses and
franchises
(B) there shall be excluded from
liabilities: all indebtedness which
is subordinated to the Obligations
under a subordination agreement in
form specified by Silicon or by
language in the instrument
evidencing the indebtedness which is
acceptable to Silicon in its
discretion.
================================================================================
6. REPORTING.
(Section 5.3):
Borrower shall provide Silicon with the
following:
1. Monthly Receivable agings, aged by
invoice date, within fifteen days after
the end of each month.
2. Monthly accounts payable agings, aged by
invoice date, within fifteen days after
the end of each month.
3. Monthly reconciliations of Receivable
agings (aged by invoice date),
transaction reports, and general ledger,
within fifteen days after the end of
each month.
4. Monthly perpetual inventory reports for
the Inventory valued on a first-in,
first-out basis at the lower of cost or
market (in accordance with generally
accepted accounting principles) or such
other inventory reports as are
reasonably requested by Silicon, all
within fifteen days after the end of
each month.
5. Monthly outstanding or held check
registers within thirty days after the
end of each month.
6. Monthly unaudited financial statements,
as soon as available, and in any event
within thirty days after the end of each
month.
7. Monthly Compliance Certificates, within
thirty days after the end of each month,
in such form as Silicon shall reasonably
specify, signed by the Chief Financial
Officer of Borrower, certifying that as
of the end of such month Borrower was in
full compliance with all of the terms
and conditions of this Agreement, and
setting forth calculations showing
compliance with the financial covenants
set forth in this Agreement and such
other information as Silicon shall
reasonably
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<PAGE> 18
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
request, including, without limitation,
a statement that at the end of such
month there were no held checks.
8. Quarterly unaudited financial
statements, as soon as available, and in
any event within forty-five days after
the end of each fiscal quarter of
Borrower.
9. Annual operating budgets (including
income statements, balance sheets and
cash flow statements, by month) for the
upcoming fiscal year of Borrower within
thirty days prior to the end of each
fiscal year of Borrower.
10. Annual financial statements, as soon as
available, and in any event within 120
days following the end of Borrower's
fiscal year, certified by independent
certified public accountants acceptable
to Silicon.
================================================================================
7. COMPENSATION
(Section 5.5): Without Silicon's prior written consent,
Borrower shall not pay total
compensation, including salaries,
withdrawals, fees, bonuses, commissions,
drawing accounts and other payments,
whether directly or indirectly, in money
or otherwise, during any fiscal year to
all of Borrower's executives, officers
and directors (or any relative thereof)
as a group in excess of 115% of the
total amount thereof in the prior fiscal
year.
================================================================================
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): See Representations and Warranties of
Borrower dated _____.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): See Representations and Warranties of
Borrower dated _____.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): See Representations and Warranties of
Borrower dated _____.
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Representations and Warranties of
Borrower dated _____.
MATERIAL ADVERSE
LITIGATION (Section 3.10): None
================================================================================
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with
all of the following additional
covenants:
1. BANKING RELATIONSHIP. Borrower shall
at all times maintain its primary
banking relationship with Silicon.
2. COPYRIGHT FILINGS. Borrower has
previously executed and delivered to
Silicon that certain Collateral
Assignment, Patent
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<PAGE> 19
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Mortgage and Security Agreement dated
_________________ (the "Intellectual
Property Agreement"). Within 90 days
after the date hereof, Borrower shall
(i) cause all of its unregistered
software and other copyrightable assets
to be filed for registration with the
United States Copyright Office (the
"Copyrights"), (ii) cause the
Intellectual Property Agreement to be
amended to include such Copyrights and
(iii) cause such amendment to filed in
the Copyright Office.
Borrower: Silicon:
AG ASSOCIATES SILICON VALLEY BANK
By_______________________________ By_______________________________
President or Vice President Title_____________________________
By_______________________________
Secretary or Ass't Secretary
-6-
<PAGE> 20
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE
BORROWER: AG ASSOCIATES,
A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF
CALIFORNIA
DATE: JUNE 23, 1998
I, the undersigned, Secretary or Assistant Secretary of the above-named
borrower, a corporation organized under the laws of the state set forth above,
do hereby certify that the following is a full, true and correct copy of
resolutions duly and regularly adopted by the Board of Directors of said
corporation as required by law, and by the by-laws of said corporation, and that
said resolutions are still in full force and effect and have not been in any way
modified, repealed, rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank
("Silicon"), from time to time, such sum or sums of money as, in the
judgment of the officer or officers hereinafter authorized hereby, this
corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
loan agreements, security agreements, notes, financing statements, and
other documents and instruments providing for such loans and evidencing
and/or securing such loans, with interest thereon, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said loan agreements, security agreements, and other
documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all
indebtedness of this corporation to Silicon, whether arising pursuant to
this resolution or otherwise, to grant, transfer, pledge, mortgage, assign,
or otherwise hypothecate to Silicon, or deed in trust for its benefit, any
property of any and every kind, belonging to this corporation, including,
but not limited to, any and all real property, accounts, inventory,
equipment, general intangibles, instruments, documents, chattel paper,
notes, money, deposit accounts, furniture, fixtures, goods, and other
property of every kind, and to execute and deliver to Silicon any and all
grants, transfers, trust receipts, loan or credit agreements, pledge
agreements, mortgages, deeds of trust, financing statements, security
agreements and other hypothecation agreements, which said instruments and
the note or notes and other instruments referred to in the preceding
paragraph may contain such provisions, covenants, recitals and agreements
as Silicon may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy
of these resolutions and a certificate of the Secretary or Ass't Secretary
of this corporation as to the officers of this corporation and their
offices and signatures, and continue to conclusively rely on such certified
copy of these resolutions and said certificate for all past, present and
future transactions until written notice of any change hereto or thereto is
given to Silicon by this corporation by certified mail, return receipt
requested.
FOREIGN EXCHANGE CONTRACTS
RESOLVED, that this corporation enter into contracts for the purchase
and/or sale of foreign exchange, on either a spot or forward basis, with
Silicon, from time to time, and in such amounts as, in the judgment of the
officer or officers hereinafter authorized hereby, this corporation may
require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
documents and instruments evidencing the contracts of this corporation with
Silicon for the purchase or sale of foreign exchange, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said documents and instruments and all other related
agreements.
-1-
<PAGE> 21
SILICON VALLEY BANK CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE
- --------------------------------------------------------------------------------
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all of such
obligations regarding the foreign exchange contracts of this corporation to
Silicon, whether arising pursuant to this resolution or otherwise, to
grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to
Silicon, or deed in trust for its benefit, any property of any and every
kind, belonging to this corporation, including, but not limited to, margin,
securities, any and all real property, accounts, inventory, equipment,
general intangibles, instruments, documents, chattel paper, notes, money,
deposit accounts, furniture, fixtures, goods, and other property of every
kind, and to execute and deliver to Silicon any and all grants, transfers,
trust receipts, loan or credit agreements, pledge agreements, mortgages,
deeds of trust, financing statements, security agreements and other
hypothecation agreements, which said instruments and the other documents
and instruments referred to in the preceding paragraph may contain such
provisions, covenants, recitals and agreements as Silicon may require and
said authorized officers may approve, and the execution thereof by said
authorized officers shall be conclusive evidence of such approval.
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
<S> <C> <C>
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
______________________________ _________________________________ X___________________________
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or
Assistant Secretary on the date set forth above.
__________________________________________________
Secretary or Assistant Secretary
-2-
<PAGE> 22
COAST BUSINESS CREDIT
NOTICE TO BANK OF SECURITY INTEREST
<PAGE> 23
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
NOTICE OF SECURITY INTEREST
June 23, 1998
Certified Mail, Return Receipt Requested
__________________________
__________________________
__________________________
Re: AG ASSOCIATES
Ladies and Gentlemen:
Notice is hereby given that your above-named customer has granted a
security interest in all of its present and future deposit accounts maintained
with your institution, general and special, and of every other kind, to Silicon
Valley Bank, 3003 Tasman Drive, Santa Clara, California 95054.
Please contact the undersigned at 408-654-1070, if you have any
questions about this matter.
Sincerely yours,
Silicon Valley Bank
By______________________________
Title_______________________
AG ASSOCIATES
By______________________________
Title_______________________
-1-
<PAGE> 24
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
BORROWER: AG ASSOCIATES
ADDRESS: 4425 FORTRAN DRIVE
SAN JOSE, CA 95134
DATE: JUNE 23, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(jointly and severally, the "Borrower"), whose chief executive office is located
at the above address ("Borrower's Address"). The Schedule to this Agreement (the
"Schedule") shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts
determined by Silicon in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing, and subject to deduction of any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of
Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its sole
discretion, issue or arrange for the issuance of letters of credit for the
account of Borrower, in each case in form and substance satisfactory to Silicon
in its sole discretion (collectively, "Letters of Credit"). The aggregate face
amount of all outstanding Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the issuance of
Letters of Credit, together with such additional fee as Silicon's letter of
credit department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon
harmless from any loss, cost, expense, or liability, including payments made by
Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising
out of or in connection with any Letters of Credit. Borrower agrees to be bound
by the regulations and interpretations of the issuer of any Letters of Credit
guarantied by Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for Borrower's
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower
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<PAGE> 25
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
understands that Letters of Credit may require Silicon to indemnify the issuing
bank for certain costs or liabilities arising out of claims by Borrower against
such issuing bank. Borrower hereby agrees to indemnify and hold Silicon harmless
with respect to any loss, cost, expense, or liability incurred by Silicon under
any Letter of Credit as a result of Silicon's indemnification of any such
issuing bank. The provisions of this Loan Agreement, as it pertains to Letters
of Credit, and any other present or future documents or agreements between
Borrower and Silicon relating to Letters of Credit are cumulative.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to Silicon a security interest in
all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower covenants
that the following representations will continue to be true, and that Borrower
will at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and
will continue to be, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation. Borrower is and will continue
to be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) do not violate Borrower's articles or certificate
of incorporation, or Borrower's by-laws, or any law or any material agreement or
instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Silicon 30 days' prior written notice before changing its
name or doing business under any other name. Borrower has complied, and will in
the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Silicon now has, and will
continue to have, a first-priority perfected and enforceable security interest
in all of the Collateral, subject only to the Permitted Liens, and Borrower will
at all times defend Silicon and the Collateral against all claims of others.
None of the Collateral now is or will be affixed to any real property in such a
manner, or with such intent, as to become a fixture. Borrower is not and will
not become a lessee under any real property lease pursuant to which the lessor
may obtain any rights in any of the Collateral and no such lease now prohibits,
restrains, impairs or will prohibit, restrain or impair Borrower's right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lien or otherwise),
Borrower shall, whenever requested by Silicon, use its best efforts to cause
such third party to execute and deliver to Silicon, in form acceptable to
Silicon, such waivers and subordinations as Silicon shall specify, so as to
ensure that Silicon's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately advise Silicon in writing of any material
loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to Silicon and the date
-3-
<PAGE> 26
hereof, there has been no material adverse change in the financial condition or
business of Borrower. Borrower is now and will continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, including, but not limited to, those
relating to Borrower's ownership of real or personal property, the conduct and
licensing of Borrower's business, and all environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform Silicon in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to purchase
or carry any "margin stock" or to extend credit to others for the purpose of
purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Silicon as follows: Each Receivable with respect to which Loans are requested
by Borrower shall, on the date each Loan is requested and made, (i) represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services in the ordinary course of Borrower's business, and (ii) meet the
Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon as follows: All statements made and all
unpaid balances appearing in all invoices, instruments and other documents
evidencing the Receivables are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower's books and
records are and shall be genuine and in all respects what they purport to be,
and all signatories and endorsers have the capacity to contract. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and endorsements on all documents, instruments, and agreements
relating to all Receivables are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Silicon transaction reports and loan requests, schedules and assignments of
all Receivables, and schedules of collections, all on Silicon's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit Silicon's security interest and other rights in all of
Borrower's Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein. Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day. Together with each such schedule and
assignment, or later if requested by Silicon, Borrower shall furnish Silicon
with copies (or, at Silicon's request, originals) of all contracts, orders,
invoices, and other similar documents, and all original shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Receivables, and
Borrower warrants the genuineness of all of the foregoing. Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall request. In addition, Borrower shall deliver to
Silicon the originals of all instruments, chattel paper, security agreements,
guarantees and other documents and property evidencing or securing any
Receivables, immediately upon receipt thereof and in the same form as received,
with all necessary indorsements, all of which shall be with recourse. Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until a Default or an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust for
Silicon, and Borrower shall immediately deliver all such payments and proceeds
to Silicon in their original form,
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<PAGE> 27
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
duly endorsed in blank, to be applied to the Obligations in such order as
Silicon shall determine. Silicon may, in its discretion, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or such
other "blocked account" as Silicon may specify, pursuant to a blocked account
agreement in such form as Silicon may specify. Silicon or its designee may, at
any time, notify Account Debtors that the Receivables have been assigned to
Silicon.
4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any
Collateral shall be delivered, in kind, by Borrower to Silicon in the original
form in which received by Borrower not later than the following Business Day
after receipt by Borrower, to be applied to the Obligations in such order as
Silicon shall determine; provided that, if no Default or Event of Default has
occurred, Borrower shall not be obligated to remit to Silicon the proceeds of
the sale of worn out or obsolete equipment disposed of by Borrower in good faith
in an arm's length transaction for an aggregate purchase price of $25,000 or
less (for all such transactions in any fiscal year). Borrower agrees that it
will not commingle proceeds of Collateral with any of Borrower's other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section limits
the restrictions on disposition of Collateral set forth elsewhere in this
Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in full,
or agree to do any of the foregoing, except that Borrower may do so, provided
that: (i) Borrower does so in good faith, in a commercially reasonable manner,
in the ordinary course of business, and in arm's length transactions, which are
reported to Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Silicon be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Silicon from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but is
not obligated to, obtain the same at Borrower's expense. Borrower shall promptly
deliver to Silicon copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
Business Day's notice, Silicon, or its agents, shall have the right to inspect
the Collateral, and the right to audit and copy Borrower's books and records.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process.
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The foregoing inspections and audits shall be at Borrower's expense and the
charge therefor shall be $500 per person per day (or such higher amount as shall
represent Silicon's then current standard charge for the same), plus reasonable
out of pocket expenses. Borrower will not enter into any agreement with any
accounting firm, service bureau or third party to store Borrower's books or
records at any location other than Borrower's Address, without first obtaining
Silicon's written consent, which may be conditioned upon such accounting firm,
service bureau or other third party agreeing to give Silicon the same rights
with respect to access to books and records and related rights as Silicon has
under this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records (except that Borrower
does not waive any attorney-client privilege).
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following: (i)
merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except for the sale of finished Inventory in the ordinary course of
Borrower's business, and except for the sale of obsolete or unneeded Equipment
in the ordinary course of business; (v) store any Inventory or other Collateral
with any warehouseman or other third party; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii)
make any loans of any money or other assets; (viii) incur any debts, outside the
ordinary course of business, which would have a material, adverse effect on
Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or
otherwise become liable with respect to the obligations of another party or
entity; (x) pay or declare any dividends on Borrower's stock (except for
dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Borrower's stock; (xii) make
any change in Borrower's capital structure which would have a material adverse
effect on Borrower or on the prospect of repayment of the Obligations; or (xiii)
pay total compensation, including salaries, fees, bonuses, commissions, and all
other payments, whether directly or indirectly, in money or otherwise, to
Borrower's executives, officers and directors (or any relative thereof) in an
amount in excess of the amount set forth on the Schedule; or (xiv) dissolve or
elect to dissolve. Transactions permitted by the foregoing provisions of this
Section are only permitted if no Default or Event of Default would occur as a
result of such transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Silicon may deem them reasonably necessary in order
to prosecute or defend any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the "Maturity Date"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three Business Days after written
notice of termination is given to Silicon; or (ii) by Silicon at any time after
the occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by Silicon under this Section 6.2,
Borrower shall pay to Silicon a termination fee in an amount equal to two
percent (2.0%) of the Maximum Credit Limit. The termination fee shall be due and
payable on the effective date of termination and thereafter shall bear interest
at a rate equal to the highest rate applicable to any of the Obligations.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to the face amount of all such Letters of Credit plus all interest, fees
and cost due or to become due in connection therewith, to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon's then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon's security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that, without limiting the fact that Loans are subject to the discretion of
Silicon, Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly deliver to Borrower
termination statements, requests for reconveyances and such other documents as
may be required to fully terminate Silicon's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Borrower shall give
Silicon
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immediate written notice thereof: (a) Any warranty, representation, statement,
report or certificate made or delivered to Silicon by Borrower or any of
Borrower's officers, employees or agents, now or in the future, shall be untrue
or misleading in a material respect; or (b) Borrower shall fail to pay when due
any Loan or any interest thereon or any other monetary Obligation; or (c) the
total Loans and other Obligations outstanding at any time shall exceed the
Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured; or (e) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 Business Days after the date due; or (f) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (h)
Borrower breaches any material contract or obligation, which has or may
reasonably be expected to have a material adverse effect on Borrower's business
or financial condition; or (i) Dissolution, termination of existence, insolvency
or business failure of Borrower; or appointment of a receiver, trustee or
custodian, for all or any part of the property of, assignment for the benefit of
creditors by, or the commencement of any proceeding by Borrower under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or (j) the commencement of any proceeding against Borrower or
any guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect, which is not cured
by the dismissal thereof within 30 days after the date commenced; or (k)
revocation or termination of, or limitation or denial of liability upon, any
guaranty of the Obligations or any attempt to do any of the foregoing, or
commencement of proceedings by any guarantor of any of the Obligations under any
bankruptcy or insolvency law; or (l) revocation or termination of, or limitation
or denial of liability upon, any pledge of any certificate of deposit,
securities or other property or asset of any kind pledged by any third party to
secure any or all of the Obligations, or any attempt to do any of the foregoing,
or commencement of proceedings by or against any such third party under any
bankruptcy or insolvency law; or (m) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the Obligations
other than as permitted in the applicable subordination agreement, or if any
Person who has subordinated such indebtedness or obligations terminates or in
any way limits his subordination agreement; or (n) there shall be a change in
the record or beneficial ownership of an aggregate of more than 20% of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Silicon; or (o) Borrower shall
generally not pay its debts as they become due, or Borrower shall conceal,
remove or transfer any part of its property, with intent to hinder, delay or
defraud its creditors, or make or suffer any transfer of any of its property
which may be fraudulent under any bankruptcy, fraudulent conveyance or similar
law; or (p) there shall be a material adverse change in Borrower's business or
financial condition; or (q) Silicon, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an event
prior to the effective date hereof of which Silicon had no knowledge on the
effective date or because of the occurrence of an event on or subsequent to the
effective date. Silicon may cease making any Loans hereunder during any of the
above cure periods, and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time
thereafter, Silicon, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following: (a) Cease making Loans or otherwise extending credit to
Borrower under this Agreement or any other document or agreement; (b) Accelerate
and declare all or any part of the Obligations to be immediately due, payable,
and performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any of
Borrower's premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Silicon seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any
bond and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession; (ii) any demand for
possession prior to the commencement of any suit or action to recover possession
thereof; and (iii) any requirement that Silicon retain possession of, and not
dispose of, any such Collateral until after trial or final judgment; (d) Require
Borrower to assemble any or all of the Collateral and make it available to
Silicon at places designated by Silicon which are reasonably convenient to
Silicon and Borrower, and to remove the Collateral to such locations as Silicon
may deem advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Silicon shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Silicon obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Silicon shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and
the Collateral need not be located at the place of disposition. Silicon may
directly or through any affiliated company
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purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability Borrower
may have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (g) Demand payment of, and collect any
Receivables and General Intangibles comprising Collateral and, in connection
therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower's
name on all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Borrower and remove therefrom payments
made with respect to any item of the Collateral or proceeds thereof, and, in
Silicon's sole discretion, to grant extensions of time to pay, compromise claims
and settle Receivables and the like for less than face value; (h) Offset against
any sums in any of Borrower's general, special or other Deposit Accounts with
Silicon; and (i) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Silicon with respect to the foregoing
shall be added to and become part of the Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations. Without limiting any of Silicon's rights and
remedies, from and after the occurrence of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional four
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Borrower any and all information concerning the same. Silicon shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without
limiting Silicon's other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents) at
any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower's expense, to do any or all of the following, in
Borrower's name or otherwise, but Silicon agrees to exercise the following
powers in a commercially reasonable manner: (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion, deem advisable in order
to perfect and maintain Silicon's security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
present and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or
other lien, or assignment or satisfaction of mechanic's, materialman's or other
lien; (d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Silicon's
possession; (e) Endorse all checks and other forms of remittances received by
Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security
interest and adverse claim in or to any of the Collateral, or any judgment based
thereon, or otherwise take any action to terminate or discharge the same; (g)
Grant extensions of time to pay, compromise claims and settle Receivables and
General Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give Silicon the same rights of access and other rights with respect
thereto as Silicon has under this Agreement; and (k) Take any action or pay any
sum required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall Silicon's rights under the foregoing power of attorney or any of Silicon's
other rights under this Agreement be deemed to indicate that Silicon is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
of the Collateral shall be applied by Silicon first to the reasonable costs,
expenses, liabilities, obligations and attorneys' fees incurred by Silicon in
the exercise of its rights under this Agreement, second to the interest due upon
any of the Obligations, and third to the principal of the Obligations, in such
order as Silicon shall determine in its sole discretion. Any surplus shall be
paid to Borrower or other persons legally entitled thereto; Borrower shall
remain liable to Silicon for any deficiency. If, Silicon, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon shall
have the option, exercisable at any time, in its sole discretion, of either
reducing the Obligations by the principal amount of purchase price or deferring
the
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reduction of the Obligations until the actual receipt by Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon is open for business.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 2.1 above.
"Default" means any event which with notice or passage of time or both, would
constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Eligible Foreign Inventory" See Schedule attached hereto.
"Eligible Foreign Receivables" See Schedule attached hereto.
"Eligible Inventory" [NOT APPLICABLE].
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
Eligibility Requirements") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 days from its invoice date, (ii) the Receivable must not represent progress
billings, or be due under a fulfillment or requirements contract with the
Account Debtor, (iii) the Receivable must not be subject to any contingencies
(including Receivables arising from sales on consignment, guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the Receivable must not be owing from an Account Debtor with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the
Receivable must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Receivable must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon's satisfaction, with the United States Assignment of Claims Act),
(viii) the Receivable must not be owing from an Account Debtor located outside
the United States or Canada (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon), (ix) the Receivable must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise. Receivables owing from one Account Debtor will
not be deemed Eligible Receivables to the extent they exceed 25% of the total
eligible Receivables outstanding. In addition, if more than 50% of the
Receivables owing from an Account Debtor are outstanding more than 90 days from
their invoice date (without regard to unapplied credits) or are otherwise not
eligible Receivables, then all Receivables owing from that Account Debtor will
be deemed ineligible for borrowing. Silicon may, from time to time, in its
discretion, revise the Minimum Eligibility Requirements, upon written notice to
the Borrower.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 7.1 of this
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against Silicon, rights to purchase or sell
real or personal property, rights as a licensor or licensee of any kind,
royalties, telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation life insurance, key
man insurance, credit insurance, liability insurance, property insurance and
other insurance), tax refunds and claims, computer programs, discs, tapes and
tape files, claims
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility fees, termination fees, minimum interest
charges and any other sums chargeable to Borrower under this Agreement or under
any other present or future instrument or agreement between Borrower and
Silicon.
"Permitted Liens" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens consented to in writing by Silicon, which consent shall not be
unreasonably withheld; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course of
business and securing obligations which are not delinquent; (vii) liens incurred
in connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Borrower, all guaranties and other security
therefor, all merchandise returned to or repossessed by Borrower, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"Reserves" means, as of any date of determination, such amounts as Silicon
may from time to time establish and revise in good faith reducing the amount of
Loans and Letters of Credit which would otherwise be available to Borrower under
the lending formula(s) provided in the Schedule: (a) to reflect events,
conditions, contingencies or risks which, as determined by Silicon in good
faith, do or may affect either (i) the Collateral or any other property which is
security for the Obligations or its value, (ii) the assets, business or
prospects of Borrower or any Guarantor or (iii) the security interests and other
rights of Silicon in the Collateral (including the enforceability, perfection
and priority thereof), or (b) to reflect Silicon's good faith belief that any
collateral report or financial information furnished by or on behalf of Borrower
or any Guarantor to Silicon is or may have been incomplete, inaccurate or
misleading in any material respect, or (c) in respect of any state of facts
which Silicon determines in good faith constitutes an Event of Default or may,
with notice or passage of time or both, constitute an Event of Default.
Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Silicon on account of the Obligations three Business Days after
receipt by Silicon of immediately available funds, and, for purposes of the
foregoing, any such funds received after 12:00 Noon on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Silicon's sole discretion reversed and re-applied, to the
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower's Loan account, in which event they will bear interest at the same rate
applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Silicon or Borrower at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. Notices to Silicon shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and Silicon and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 WAIVERS. The failure of Silicon at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon and
delivered to Borrower. Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Silicon, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Silicon, but nothing herein shall relieve Silicon from
liability for its own gross negligence or willful misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Borrower and a duly authorized
officer of Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower
of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Borrower; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Borrower's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Borrower. In satisfying Borrower's obligation
hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon's attorneys, Levy, Small & Lallas,
but Borrower acknowledges and agrees that Levy, Small & Lallas is representing
only Silicon and not Borrower in connection with this Agreement. If either
Silicon or Borrower files any lawsuit against the other predicated on a breach
of this Agreement, the prevailing party in such action shall be entitled to
recover its reasonable costs and attorneys' fees, including (but not limited to)
reasonable attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. All attorneys' fees and
costs to which Silicon may be entitled pursuant to this Paragraph shall
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SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
immediately become part of Borrower's Obligations, shall be due on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and Silicon; provided, however,
that Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of Silicon, and any prohibited assignment
shall be void. No consent by Silicon to any assignment shall release Borrower
from its liability for the Obligations.
9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Loan Agreement, or any other
present or future document or agreement, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or cause
of action. The one-year period provided herein shall not be waived, tolled, or
extended except by the written consent of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. The term
"including", whenever used in this Agreement, shall mean "including (but not
limited to)". This Agreement has been fully reviewed and negotiated between the
parties and no uncertainty or ambiguity in any term or provision of this
Agreement shall be construed strictly against Silicon or Borrower under any rule
of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN
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<PAGE> 35
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
AG ASSOCIATES
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
SILICON:
SILICON VALLEY BANK
BY_______________________________
TITLE______________________________
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<PAGE> 36
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
BORROWER: AG ASSOCIATES
ADDRESS: 4425 FORTRAN DRIVE
SAN JOSE, CA 95134
DATE: JUNE 23, 1998
This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.
SILICON AGREEMENT;
CROSS-COLLATERALIZATION;
CROSS-DEFAULT: Silicon and the Borrower are parties to
that certain Loan and Security Agreement
dated June 23, 1998 (as amended from
time to time, the "Silicon Agreement").
This Agreement and the Silicon Agreement
shall continue in full force and effect,
and all rights and remedies under this
Agreement and the Silicon Agreement are
cumulative. The term "Obligations" as
used in this Agreement and the Silicon
Agreement shall include without
limitation the obligation to pay when
due all Loans made pursuant to this
Agreement (the "Exim Loans") and all
interest thereon and the obligation to
pay when due all Loans made pursuant to
the Silicon Agreement (the "Silicon
Loans") and all interest thereon.
Without limiting the generality of the
foregoing, all "Collateral" as defined
in this Agreement and as defined in the
Silicon Agreement shall secure all Exim
Loans and all Silicon Loans and all
interest thereon, and all other
Obligations relating thereto. Any Event
of Default under this Agreement shall
also constitute an Event of Default
under the Silicon Agreement and any
Event of Default under the Silicon
Agreement shall also constitute an Event
of Default under this Agreement. In the
event Silicon assigns its rights under
this Agreement and/or under any Note
evidencing Exim Loans, and/or its rights
under the Silicon Agreement and/or under
any Note evidencing Silicon Loans to any
third party, including without
limitation the Export-Import Bank of the
United States ("Exim Bank"), whether
before or after the occurrence of any
Event of Default, Silicon shall have the
right (but not any obligation), in its
sole discretion, to allocate and
apportion Collateral to the Agreement
and/or Note assigned and to specify the
priorities of the respective security
interests in such Collateral between
itself and the assignee, all without
notice to or consent of the Borrower.
================================================================================
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of:
(i) $5,000,000 at any one time
outstanding; or (ii) the amounts set
forth in the Borrowing Base (as defined
below).
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<PAGE> 37
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
"Borrowing Base" shall mean an amount
equal to the sum of (1) eighty-five
percent (85%) of the Eligible Foreign
Accounts (as defined below) and (ii)
sixty percent (60%) of Eligible Foreign
Inventory (as defined below). The value
of Eligible Foreign Inventory for the
purpose of calculating the Borrowing
Base shall be the lesser of the cost or
the wholesale fair market value of such
Eligible Foreign Inventory.
"Eligible Foreign Accounts" means those
Accounts payable in United States
Dollars that arise in the ordinary
course of Borrower's business from
Borrower's sale of Eligible Foreign
Inventory (i) to account debtors located
outside of the United States that have
been preapproved by Silicon; (ii) that
have been validly assigned to Silicon
and comply with all of Borrower's
representations and warranties to
Silicon; and (iii) unless otherwise
approved by Silicon in writing, that are
supported by an irrevocable letter of
credit issued by a financial
institution, and containing terms,
acceptable to Silicon; provided that
standards of eligibility may be fixed
and revised from time to time by Silicon
in Silicon's reasonable judgment and
upon notification thereof to the
Borrower in accordance with the
provisions hereof.
As of the date hereof the following
account debtors have been approved for
financing on an open account basis
(except as otherwise indicated): Canon
Sales - Japan; Motorala - Subject to
Exim Bank Country Limitation Schedule;
IBM Corporation - Subject to Exim Bank
Country Limitation Schedule; Intel
Corporation - Subject to Exim Bank
Country Limitation Schedule; Lucky
Goldstar - South Korea (letter of credit
backed or documentary collections only);
Nan-Ya Plastics Corporation - South
Korea (letter of credit backed only);
TSMC - Taiwan; Metron Technology -
Subject to Exim Bank Country Limitation
Schedule; SGS Thomson - France; Northern
Telecom - Subject to Exim Bank Country
Limitation Schedule; and Toshiba
Microelectronics - Japan.
Eligible Foreign Accounts shall not
include the following:
(a) Accounts with terms of sale greater
than ninety (90) days;
(b) Accounts billed or payable outside
the United States;
(c) Accounts that the account debtor has
failed to pay within sixty (60) days of
the original due date of the invoice if
not insured through foreign credit
insurance acceptable to Silicon;
Accounts that the account debtor has
failed to pay within ninety (90) days of
the original due date of the invoice if
insured through foreign credit insurance
acceptable to Silicon;
(d) Accounts billed in currencies other
than United States Dollars, unless
pre-approved by Silicon;
(e) Accounts generated by the sale of
products to military buyers or generated
by defense articles or services;
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(f) Accounts from foreign account
debtors in countries where Exim Bank is
legally prohibited from doing business
or in which Exim Bank coverage is not
available (as designated in the Country
Limitation Schedule attached hereto);
(g) Accounts with respect to which the
account debtor is an officer, employee,
or agent of Borrower;
(h) Accounts with respect to which the
account debtor is an affiliate of
Borrower;
(i) Accounts supported by a letter of
credit issued by a financial
institution, and containing terms, not
acceptable to Silicon, or if Borrower
does not use Silicon as the negotiating
bank under a letter of credit
transaction;
(j) Accounts with open account terms of
trade not approved by Silicon;
(k) Accounts evidenced by a letter of
credit, until the date of shipment of
the items covered by the subject letter
of credit;
(l) Accounts the collection of which
Silicon or Exim Bank determines in its
reasonable judgment to be doubtful; and
(m) Accounts that are excluded from the
Borrowing Base under the Exim Borrower
Agreement (as defined below).
"Eligible Foreign Inventory" means
Inventory consisting of raw materials,
work in process and finished goods that
is held by Borrower in the United States
for resale and shipment outside of the
United States and is acceptable to
Silicon, the sale of which will generate
an Eligible Foreign Account.
Notwithstanding any of the foregoing,
and without limiting the fact that the
determination of which accounts and
inventory are eligible for borrowing is
a matter of Silicon's discretion, the
following will not be deemed eligible
for borrowing: accounts or inventory
which are not subject to the Borrower
Agreement dated June __, 1998 between
Silicon and the Borrower, a copy of
which is attached hereto, and including
the annexes attached thereto
(collectively referred to as the "Exim
Borrower Agreement") with respect to the
guarantee by the Export Import Bank of
the United States in favor of Silicon.
AGREEMENT SUBJECT
TO EXIM BORROWER
GUARANTEE; COSTS: This Agreement is subject to all of the
terms and conditions of the Exim
Borrower Agreement (including without
limitation any attachments and annexes
thereto) which are hereby incorporated
herein by this reference. Borrower
expressly agrees to perform all of the
obligations and comply with all of the
affirmative and negative covenants and
all other terms and conditions set forth
in the Exim Borrower Agreement as though
the same were expressly set forth
herein, and all of the same are hereby
incorporated herein by this reference.
In the event of any conflict between the
terms of the Exim
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Borrower Agreement and the other terms
of this Agreement, whichever terms are
more restrictive shall apply. Borrower
shall reimburse Silicon for all fees and
all out of pocket costs and expenses
incurred by Silicon with respect to the
Exim Borrower Agreement, including
without limitation all facility fees and
usage fees, and Silicon is authorized to
debit Borrower's account with Silicon
for such fees, costs and expenses when
paid by Silicon.
================================================================================
2. INTEREST.
INTEREST RATE (Section 1.2):
A rate equal to the "Prime Rate" in
effect from time to time, plus 1.0% per
annum. Interest shall be calculated on
the basis of a 360-day year for the
actual number of days elapsed. "Prime
Rate" means the rate announced from time
to time by Silicon as its "prime rate;"
it is a base rate upon which other rates
charged by Silicon are based, and it is
not necessarily the best rate available
at Silicon. The interest rate applicable
to the Obligations shall change on each
date there is a change in the Prime
Rate.
MINIMUM MONTHLY
INTEREST (Section 1.2): Not Applicable.
================================================================================
3. FEES (Section 1.4):
Loan Fee: $75,000, payable concurrently herewith.
(Any Commitment Fee previously paid by
the Borrower in connection with this
loan shall be credited against this
Fee.)
Collateral Monitoring
Fee: Not Applicable.
Unused Line Fee: Not Applicable.
================================================================================
4. MATURITY DATE
(Section 6.1): One year from the date of this
Agreement.
================================================================================
5. FINANCIAL COVENANTS
(Section 5.1): Not Applicable.
================================================================================
6. REPORTING. (Section 5.3):
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SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
Borrower shall comply with the reporting
requirements of the Silicon Agreement,
as in effect from time to time. Further,
Borrower shall provide to Silicon such
reports and other information as may be
required in connection with the Exim
Guarantee, the Exim Borrower Agreement
and as Silicon may in its discretion
determine to be necessary or desirable
in connection with this Agreement,
including, without limitation, the
reports attached hereto as Exhibit A,
which shall be delivered to Silicon
within fifteen (15) days after the end
of each month.
================================================================================
7. COMPENSATION
(Section 5.5): Without Silicon's prior written consent,
Borrower shall not pay total
compensation, including salaries,
withdrawals, fees, bonuses, commissions,
drawing accounts and other payments,
whether directly or indirectly, in money
or otherwise, during any fiscal year to
all of Borrower's executives, officers
and directors (or any relative thereof)
as a group in excess of 115% of the
total amount thereof in the prior fiscal
year.
================================================================================
8. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): See Representations and Warranties of
Borrower dated _____.
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): See Representations and Warranties of
Borrower dated _____.
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): See Representations and Warranties of
Borrower dated _____.
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Representations and Warranties of
Borrower dated _____.
MATERIAL ADVERSE
LITIGATION (Section 3.10): None.
================================================================================
9. OTHER COVENANTS
(Section 5.1): Borrower shall at all times comply with
all of the following additional
covenants:
1. BANKING RELATIONSHIP. Borrower shall
at all times maintain its primary
banking relationship with Silicon.
2. COPYRIGHT FILINGS. Borrower has
previously executed and delivered to
Silicon that certain Collateral
Assignment, Patent Mortgage and Security
Agreement dated _________________
(the"Intellectual Property Agreement").
Within 90 days after the date hereof,
Borrower shall (i) cause all of its
unregistered software and other
copyrightable assets to be filed for
registration
-5-
<PAGE> 41
SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
with the United States Copyright Office
(the "Copyrights'), (ii) cause the
Intellectual Property Agreement to be
amended to include such Copyrights and
(iii) cause such amendment to filed in
the Copyright Office.
Borrower: Silicon:
AG ASSOCIATES SILICON VALLEY BANK
By_______________________________ By________________________________
President or Vice President Title_____________________________
By_______________________________
Secretary or Ass't Secretary
-6-
<PAGE> 42
- --------------------------------------------------------------------------------
SILICON VALLEY BANK
CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE (EXIM)
BORROWER: AG ASSOCIATES,
A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE
OF CALIFORNIA
DATE: JUNE 23, 1998
I, the undersigned, Secretary or Assistant Secretary of the above-named
borrower, a corporation organized under the laws of the state set forth above,
do hereby certify that the following is a full, true and correct copy of
resolutions duly and regularly adopted by the Board of Directors of said
corporation as required by law, and by the by-laws of said corporation, and that
said resolutions are still in full force and effect and have not been in any way
modified, repealed, rescinded, amended or revoked.
RESOLVED, that this corporation borrow from Silicon Valley Bank
("Silicon"), from time to time, such sum or sums of money as, in the
judgment of the officer or officers hereinafter authorized hereby, this
corporation may require.
RESOLVED FURTHER, that any officer of this corporation be, and he or she is
hereby authorized, directed and empowered, in the name of this corporation,
to execute and deliver to Silicon, and Silicon is requested to accept, the
loan agreements, security agreements, notes, financing statements, and
other documents and instruments providing for such loans and evidencing
and/or securing such loans, with interest thereon, and said authorized
officers are authorized from time to time to execute renewals, extensions
and/or amendments of said loan agreements, security agreements, and other
documents and instruments.
RESOLVED FURTHER, that said authorized officers be and they are hereby
authorized, directed and empowered, as security for any and all
indebtedness of this corporation to Silicon, whether arising pursuant to
this resolution or otherwise, to grant, transfer, pledge, mortgage, assign,
or otherwise hypothecate to Silicon, or deed in trust for its benefit, any
property of any and every kind, belonging to this corporation, including,
but not limited to, any and all real property, accounts, inventory,
equipment, general intangibles, instruments, documents, chattel paper,
notes, money, deposit accounts, furniture, fixtures, goods, and other
property of every kind, and to execute and deliver to Silicon any and all
grants, transfers, trust receipts, loan or credit agreements, pledge
agreements, mortgages, deeds of trust, financing statements, security
agreements and other hypothecation agreements, which said instruments and
the note or notes and other instruments referred to in the preceding
paragraph may contain such provisions, covenants, recitals and agreements
as Silicon may require and said authorized officers may approve, and the
execution thereof by said authorized officers shall be conclusive evidence
of such approval.
RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy
of these resolutions and a certificate of the Secretary or Ass't Secretary
of this corporation as to the officers of this corporation and their
offices and signatures, and continue to conclusively rely on such certified
copy of these resolutions and said certificate for all past, present and
future transactions until written notice of any change hereto or thereto is
given to Silicon by this corporation by certified mail, return receipt
requested.
<PAGE> 43
The undersigned further hereby certifies that the following persons are the
duly elected and acting officers of the corporation named above as borrower and
that the following are their actual signatures:
<TABLE>
<CAPTION>
NAMES OFFICE(S) ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
______________________________ _________________________________ x___________________________
______________________________ _________________________________ x___________________________
______________________________ _________________________________ x___________________________
______________________________ _________________________________ x___________________________
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or
Assistant Secretary on the date set forth above.
_____________________________________________
Secretary or Assistant Secretary
<PAGE> 44
SILICON VALLEY BANK
AMENDMENT TO LOAN DOCUMENTS
BORROWER: AG ASSOCIATES
DATE: JUNE 23, 1998
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower"), with reference
to the various loan and security agreements and other documents, instruments and
agreements between them, including but not limited to that certain _____________
dated _________, 19__ (as amended, collectively, the "Existing Loan Documents").
The Parties agree to amend the Existing Loan Documents, as follows:
1. PRESENT LOAN BALANCE. Borrower acknowledges that the present
unpaid principal balance of the Borrower's indebtedness, liabilities and
obligations to Silicon under the Existing Loan Documents, including interest
accrued through __________ is $_________________ (the "Present Loan Balance"),
and that said sum is due and owing without any defense, offset, or counterclaim
of any kind.
2. AMENDMENT TO EXISTING LOAN DOCUMENTS. The Existing Loan
Documents are hereby amended in their entirety to read as set forth in the Loan
and Security Agreement and Loan and Security Agreement (Exim Program) being
executed concurrently (collectively, the "New Loan Documents"). The Borrower
acknowledges that the Present Loan Balance shall be the opening balance of the
Loans pursuant to the New Loan Documents as of the date hereof, and shall, for
all purposes, be deemed to be Loans made by Silicon to the Borrower pursuant to
the New Loan Documents. Notwithstanding the execution of the New Loan Documents,
the following Existing Loan Documents shall continue in full force and effect
and shall continue to secure all present and future indebtedness, liabilities,
guarantees and other Obligations (as defined in the New Loan Documents): All
standard documents of Silicon entered into by the Borrower in connection with
Letters of Credit and/or Foreign Exchange Contracts; all security agreements,
collateral assignments and mortgages, including but not limited to those
relating to patents, trademarks, copyrights and other intellectual property; all
lockbox agreements and/or blocked account agreements; and all UCC-1 financing
statements and other documents filed with governmental offices which perfect
liens or security interests in favor of Silicon. In addition, in the event the
Borrower has previously issued any stock options, stock purchase warrants or
securities to Silicon, the same and all documents and agreements relating
thereto shall also continue in full force and effect.
<PAGE> 45
3. GENERAL PROVISIONS. This Amendment and the New Loan Documents
set forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof.
BORROWER: SILICON:
AG ASSOCIATES SILICON VALLEY BANK
BY_______________________________ BY_______________________________
PRESIDENT OR VICE PRESIDENT TITLE__________________________
BY_______________________________
SECRETARY OR ASS'T SECRETARY
<PAGE> 46
REPRESENTATIONS AND WARRANTIES
TO: Silicon Valley Bank
Commercial Finance Division
3003 Tasman Drive
Mail Sort NC491
Santa Clara, California 95054
The undersigned, _________________________________________, a
______________ corporation (the "Company") hereby represents and warrants to you
that the following information is true, accurate and complete. (The Company
acknowledges that your acceptance of these Representations and Warranties does
not imply any commitment on your part to enter into a loan transaction with the
Company, and that any such commitment may only be made by an express written
loan commitment, signed by one of your authorized officers.)
1. NAMES OF THE COMPANY
a. The exact corporate name of the Company as it appears in its Articles or
Certificate of Incorporation, including any amendments thereto, is as follows:
b. The federal employer identification number of the Company is as follows:
c. The Company was incorporated on ___________________, under the laws of the
State of _______________________ and is in good standing under those laws.
d. The following is a list of all other names (including fictitious names,
d/b/a's, trade names or similar names) currently used by the Company:
e. The following is a list of all other names (including fictitious names,
d/b/a's, trade names or similar names) previously used by the Company during the
prior eight years (but which are NOT currently used by the Company):
f. The following are the names of all corporations which have been merged
into the Company during the past eight years:
g. The following are the names and addresses of all entities from whom the
Company has acquired any personal property in a transaction not in the ordinary
course of business during the past six (6) years, together with the date of such
acquisition and the type of personal property acquired (e.g., equipment,
inventory, etc.):
<TABLE>
<CAPTION>
Street and
Mailing Date of Type of
Name Address Acquisition
---- ------- -----------
Property
- --------
<S> <C> <C> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
</TABLE>
<PAGE> 47
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
2. NAMES OF SUBSIDIARIES OF THE COMPANY.
a. The exact corporate name of each subsidiary of the Company as it appears
in its Articles or Certificate of Incorporation, including any amendments
thereto, is as follows:
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
b. The federal employer identification number of each subsidiary of the
Company is as follows:
<TABLE>
<CAPTION>
Name Number
---- ------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
c. The following is a list of the jurisdiction and date of incorporation of
each subsidiary of the Company:
</TABLE>
<TABLE>
<CAPTION>
Date of
Name Jurisdiction Incorporation
---- ------------ -------------
<S> <C> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
d. The following is a list of all other names (including fictitious names,
d/b/a's, trade names or similar names) used by each subsidiary of the Company
during the past eight years:
<TABLE>
<CAPTION>
Name Subsidiary
---- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
e. The following are the names of all corporations which have been merged
into a subsidiary of the Company during the eight years:
<TABLE>
<CAPTION>
Name Subsidiary
---- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
</TABLE>
<PAGE> 48
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
f. The following are the names and addresses of all entities from whom each
subsidiary of the Company has acquired any personal property in a transaction
not in the ordinary course of business during the past six (6) years, together
with the date of such acquisition and the type of personal property acquired
(e.g., equipment, inventory, etc.):
<TABLE>
<CAPTION>
Mailing Date of Type of
Name Address Acquisition Property
---- ------- ----------- --------
Subsidiary
- ----------
<S> <C> <C> <C> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
3. LOCATIONS OF COMPANY AND ITS SUBSIDIARIES.
a. The chief executive offices of the Company and its subsidiaries are
located at the following addresses:
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
b. During the past eight years, the Company's chief executive office and the
chief executive offices of its subsidiaries have been located at the following
additional addresses:
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
c. The following are all the locations in the United States where the Company
and its subsidiaries maintain any books or records relating to any of their
accounts receivable:
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
</TABLE>
<PAGE> 49
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
d. The following are all of the locations in the United States where the
Company and its subsidiaries maintain any equipment, fixtures or inventory:
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
Record Owners of above:
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
e. The following are all the locations in the United States where the Company
and its subsidiaries own, lease, or occupy any real property:
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
Record Owners of above:
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
f. The following are the names and addresses of all warehousemen or bailees
who have possession of any of the Company's inventory and the inventory of its
subsidiaries:
<TABLE>
<CAPTION>
Complete Street and Mailing Address COMPANY/
Names including County and Zip Code Subsidiary
----- ----------------------------- ----------
<S> <C> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
<PAGE> 50
Are Documents of Title Issued?
If So, Are They Negotiable?
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
g. The following are all locations in the United States at which the Company
and its subsidiaries do business in addition to locations listed above.
<TABLE>
<CAPTION>
Complete Street and Mailing Address, Company/
including County and Zip Code Subsidiary
----------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
h. The following are the states of the United States of America in which the
Company and its subsidiaries transact business.
<TABLE>
<CAPTION>
Company/
State Subsidiary
----- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
i. The following are the states of the United States in which the Company and
its subsidiaries are duly qualified and in good standing to transact business as
a foreign corporation.
<TABLE>
<CAPTION>
Company/
State Subsidiary
----- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
4. SPECIAL TYPES OF COLLATERAL
a. The following are all of the trademarks or trademark applications of the
Company and its subsidiaries (including any service marks, collective marks and
certification marks), together with the trademark numbers and dates of
registration with the U.S. Patent and Trademark Office, if applicable.
<PAGE> 51
<TABLE>
<CAPTION>
If Foreign
Trademark
What Company
Subsidiary Trademark Number Date Country?
- ---------- --------- ------ ---- --------
<S> <C> <C> <C> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
b. The following are all of the patents and patent applications of the
Company and its subsidiaries, together with the patent numbers, names of
inventors and dates of registration with the U.S. Patent and Trademark Office,
if applicable:
<TABLE>
<CAPTION>
If Foreign
COMPANY/ Patent Patent What
Subsidiary Name Number Date Inventor Country?
- ---------- ---- ------ ---- -------- --------
<S> <C> <C> <C> <C> <C>
(i) ________________________________________________________________________________________________________________
(ii) ________________________________________________________________________________________________________________
(iii) ________________________________________________________________________________________________________________
(iv) ________________________________________________________________________________________________________________
</TABLE>
c. The following are all of the copyrights and copyright applications of the
Company and its subsidiaries, together with the copyright numbers and dates of
registration with the U.S. Copyright Office, if applicable:
<TABLE>
<CAPTION>
If Foreign
Copyright
What COMPANY/
Copyright Number Date Country? Subsidiary
--------- ------ ---- -------- ----------
<S> <C> <C> <C> <C>
(i) ________________________________________________________________________________________________________________
(ii) ________________________________________________________________________________________________________________
(iii) ________________________________________________________________________________________________________________
(iv) ________________________________________________________________________________________________________________
</TABLE>
d. The following is a list of all software of the Company which is not
registered with the U.S. Copyright Office:
_____________________________________________________________________________
<PAGE> 52
_____________________________________________________________________________
e. The following are all of the Company's and its subsidiaries' licenses and
similar agreements to use trademarks (including any service marks, collective
marks and certification marks), patents and copyrights of others:
<TABLE>
<CAPTION>
Company/
Description of License Agreement Subsidiary
-------------------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
f. The following are all governmental permits and licenses held by the
Company and its subsidiaries:
<TABLE>
<CAPTION>
Company/
Description of License Subsidiary
---------------------- ----------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
g. The following are all of the motor vehicles registered in the name of the
Company and its subsidiaries:
<TABLE>
<CAPTION>
Model Serial State of Company/
Year Make Number Registration Subsidiary
---- ---- ------ ------------ ----------
<S> <C> <C> <C> <C>
(i) ___________________________________________________________________________________________
(ii) ___________________________________________________________________________________________
(iii) ___________________________________________________________________________________________
(iv) ___________________________________________________________________________________________
</TABLE>
h. The Company and its subsidiaries own the following kinds of assets, and
attached hereto is a schedule describing each such asset owned by the Company or
its subsidiaries and identifying by which party each asset is owned:
Franchise, marketing agreements
or similar agreements: Yes_____ No______
Stocks, Bonds or other securities: Yes_____ No______
Promissory notes, or other
instruments or evidence of
indebtedness in favor of such person: Yes_____ No______
<PAGE> 53
Leases of equipment, security agreements
naming such person as secured party, or
other chattel paper: Yes_____ No______
Aircraft: Yes_____ No______
Vessels, Boats or Ships: Yes_____ No______
Railroad Rolling Stock Yes_____ No______
i. The following are all banks or savings institutions at which the Company
and its subsidiaries maintain deposit accounts:
<TABLE>
<CAPTION>
Name of Account Branch COMPANY/
Institutions Number Address Subsidiary
------------ ------ ------- ----------
<S> <C> <C> <C>
(i) ________________________________________________________________________________________________________________
(ii) ________________________________________________________________________________________________________________
(iii) ________________________________________________________________________________________________________________
</TABLE>
5. OFFICERS OF THE COMPANY AND ITS SUBSIDIARIES
The following are the names and titles of the officers of the Company and its
Subsidiaries (indicate if also a director).
<TABLE>
<CAPTION>
Office/ Company/
Title Name of Officer Subsidiary
----- --------------- ----------
<S> <C> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
6. STOCKHOLDERS OF THE COMPANY AND ITS SUBSIDIARIES
Name Percentage Stock Ownership
---- --------------------------
<S> <C>
(i) _________________________________________________________________________
(ii) _________________________________________________________________________
(iii) _________________________________________________________________________
(iv) _________________________________________________________________________
</TABLE>
7. LEGAL COUNSEL.
<PAGE> 54
The following firm will represent the Company in connection with the
loan documents:
<TABLE>
<CAPTION>
Law Firm Attorney Telephone
-------- -------- ---------
<S> <C> <C>
</TABLE>
The undersigned undertakes to advise you of any change or modification
whatsoever with respect to any of the foregoing information. Until such notice
is received by you, you shall be entitled to rely upon all of the foregoing and
presume it is correct and accurate in all respects.
Date: ___________________. _____________________________________
By:__________________________________
Its:_______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10Q FOR THE PERIOD ENDING
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,171
<SECURITIES> 0
<RECEIVABLES> 7,283
<ALLOWANCES> 903
<INVENTORY> 12,220
<CURRENT-ASSETS> 25,599
<PP&E> 18,330
<DEPRECIATION> 8,430
<TOTAL-ASSETS> 35,936
<CURRENT-LIABILITIES> 11,077
<BONDS> 0
0
0
<COMMON> 36,352
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 35,936
<SALES> 37,778
<TOTAL-REVENUES> 37,778
<CGS> 26,282
<TOTAL-COSTS> 26,282
<OTHER-EXPENSES> 18,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (7,031)
<INCOME-TAX> 6
<INCOME-CONTINUING> (7,037)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,037)
<EPS-PRIMARY> (1.16)<F1>
<EPS-DILUTED> (1.16)
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
