1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended Commission file number: 0-15895
June 30, 1995
DIGITAL MICROWAVE CORPORATION
(Exact name of registrant specified in its charter)
Delaware 77-0016028
(State or other jurisdiction (IRS employer
of incorporation or organization) identification number)
170 Rose Orchard Way
San Jose, CA 95134
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (408) 943-0777
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
------------------------------ -----------------------------
Common Stock - $0.01 par value 13,586,190
Page 1 of 19
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INDEX
PAGE
COVER PAGE 1
INDEX 2
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11-18
SIGNATURE 19
Page 2 of 19
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PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS 06/30/95 03/31/95
------ -------- --------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 3,625 $ 1,919
Restricted cash 658 1,100
Accounts receivable - net 35,038 32,513
Inventories 45,981 E46,732
Tax refund receivable 1,820 1,820
Other current assets 4,985 4,524
-------- --------
Total current assets 92,107 88,608
PROPERTY AND EQUIPMENT, NET 13,805 13,977
-------- --------
Total assets $105,912 $102,585
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Lines of credit $15,987 $11,731
Current maturities of note payable 3,334 3,333
Current maturities of capital lease obligations 783 776
Accounts payable 25,866 26,373
Income taxes payable 1,656 1,629
Other accrued liabilities 17,929 17,770
-------- --------
Total current liabilities 65,555 61,612
LONG-TERM LIABILITIES:
Note payable, net of current maturities 4,444 5,556
Capital lease obligations, net of current maturities 612 806
-------- --------
Total liabilities 70,611 67,974
STOCKHOLDERS' EQUITY 35,301 34,611
-------- --------
Total liabilities and stockholders' equity $105,912 $102,585
======== ========
See accompanying Notes to Condensed Consolidated Financial Statements
Page 3 of 19
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DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
----------------------------
1995 1994
---------- ----------
Net sales $ 39,693 $ 34,280
Cost of sales 29,708 23,639
---------- ----------
Gross profit 9,985 10,641
---------- ----------
OPERATING EXPENSES:
Research and development 2,952 2,659
Selling, general and administrative 6,473 5,850
---------- ----------
Total operating expenses 9,425 8,509
---------- ----------
Operating income 560 2,132
OTHER INCOME (EXPENSE):
Interest and other income (expense), net 380 25
Interest expense (671) (76)
---------- ----------
Income before provision for
income taxes 269 2,081
Provision for income taxes 27 208
---------- ----------
Net income $ 242 $ 1,873
========== ==========
Net income per share $ 0.02 $ 0.14
========== ==========
Weighted average common & common
equivalent shares outstanding 13,823 13,567
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements
Page 4 of 19
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DIGITAL MICROWAVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
June 30,
------------------------
1995 1994
---- ----
Cash flows from operating activities:
Net income $ 242 $ 1,873
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 1,684 1,484
Provision for valuation reserves 1,070 407
Provision for warranty reserve 282 434
Changes in assets and liabilities:
Increase in restricted cash 443 --
Increase in accounts receivable (2,648) (2,353)
Increase in inventories (162) (3,949)
Increase in other current assets (520) (988)
Decrease in accounts payable (507) (803)
Increase (decrease) in other accrued liabilities (103) 4,170
-------- --------
Net cash (used for) provided by operating activities (219) 275
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (1,541) (1,678)
-------- --------
Cash flows from financing activities:
Borrowings from (repayments) to bank - net 3,145 2,000
Payment of capital lease obligations (187) (201)
Sale of common stock 447 768
-------- --------
Net cash provided by financing activities 3,405 2,567
-------- --------
Effect of exchange rate changes on cash 61 (3)
-------- --------
Net increase in cash and cash equivalents 1,706 1,161
Cash and cash equivalents at beginning of year 1,919 3,362
-------- --------
Cash and cash equivalents at end of period $ 3,625 $ 4,523
======== ========
See accompanying notes to Condensed Consolidated Financial Statements.
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DIGITAL MICROWAVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Digital Microwave Corporation and its wholly-owned subsidiaries.
Intercompany accounts and transactions have been eliminated.
While the financial information furnished is unaudited, the financial
statements included in this report reflect all adjustments (consisting
only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the results of operations for the
interim periods covered and of the financial condition of the Company at
the date of the interim balance sheet. The results for interim periods
are not necessarily indicative of the results for the entire year. The
condensed consolidated financial statements should be read in connection
with the Digital Microwave Corporation financial statements included in
the Company's annual report and Form 10-K for the year ended March 31,
1995.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments with an original maturity of
three months or less from date of purchase to be cash equivalents.
RESTRICTED CASH AND INVESTMENTS
The Company is required to segregate and maintain certain cash balances
as security for letters of credit provided to secure performance or bid
bonds under some of the Company's revenue contracts. As of June 30, 1995,
the Company was required to segregate and maintain $0.7 million which is
included as restricted cash in the accompanying balance sheet.
Page 6 of 19
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INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market where cost includes material, labor and manufacturing overhead.
Inventories consist of:
(In thousands)
June 30, 1995 March 31, 1995
------------- --------------
Raw materials 17,551 $16,506
Work in process 20,556 20,977
Finished goods 7,874 9,249
------- -------
$45,981 $46,732
======= =======
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares (stock options) outstanding during
the period.
LITIGATION AND CONTINGENCIES
The Company is subject to legal proceedings and claims that arise in
the normal course of its business. In the opinion of management, these
proceedings will not have a material adverse effect on the financial
position and results of operations of the Company.
RELATIONSHIP WITH E-PLUS MOBILFUNK GmbH (E-PLUS)
In November 1993, the Company entered into an agreement with Siemens AG
to supply SPECTRUMTM II digital microwave radios to E-Plus. As of March
31, 1995, the Company had not yet obtained acceptance of SPECTRUMTM II
from E-Plus, and, as a result, recorded significant reserves for
product discounts on interim equipment and other related costs. In July
1995, the Company received final acceptance from E-Plus, as well as,
agreement to begin delivery and installation of the SPECTRUMTM II
equipment.
Page 7 of 19
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth items from the Condensed Consolidated Statements
of Operation as percentages of net sales:
Three Months Ended
June 30,
-----------------------
1995 1994
---- ----
Net sales 100.0% 100.0%
Cost of sales 74.8 69.0
----- -----
Gross profit 25.2 31.0
Research & development 7.5 7.7
Selling, general & administrative 16.3 17.1
----- -----
Operating income 1.4 6.2
Other income (expense), net (0.7) (0.1)
----- -----
Income before tax 0.7 6.1
Provision for income taxes 0.1 0.6
----- -----
Net income 0.6% 5.5%
===== =====
Net sales in the first quarter of fiscal year 1996 were $39.7 million, a 16%
increase from $34.3 million reported in the same quarter of fiscal year 1995.
The increase was primarily due to higher product shipment resulting from higher
shippable backlog at the beginning of the quarter.
During the first quarter, the Company received $36.0 million in bookings
shippable over the next twelve months. The twelve month backlog at the end of
June 30, 1995 was $87.0 million compared to $93.0 million at March 31, 1995 and
$80.5 million at June 30, 1994. Of the $87.0 million backlog at June 30, 1995,
$12.9 million relates to orders under the E-Plus contract.
Gross margin as a percentage of net sales for the first quarter of fiscal 1996
was 25.2% compared to 31.0% in the similar quarter of fiscal 1995. These lower
margins were due to ongoing pricing pressure, shipments of interim product to
E-Plus at no margin due to delays in acceptance of SPECTRUMTM II equipment,
higher costs related to provisions for excess and obsolete inventory, rework
expenses and manufacturing costs related to the startup of SPECTRUMTM II
production.
Research and development expenses were $3.0 million in the first quarter of
fiscal 1996 compared to $2.7 million in the same quarter of fiscal 1995. The
increase of $0.3 million was primarily due to the continued development efforts
on the SpectrumTM II product line. The Company expects spending for research and
development to continue to increase throughout fiscal 1996 as it believes its
success in the market is
Page 8 of 19
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dependent upon the timely development and introduction of high quality new
products. As a percentage of sales, research and development expenses decreased
slightly from 7.7% in the first quarter of fiscal 1995 to 7.5% in the similar
quarter of fiscal 1996 as a result of higher sales.
Selling, general and administrative expenses in the first quarter of fiscal 1996
increased to $6.5 from $5.8 million in the first quarter of fiscal 1995. The
increase was the result of investments in sales and sales support personnel in
Asia and South America. As a percentage of sales, spending decreased from 17.1%
in the first quarter of fiscal 1995 to 16.3% in the first quarter of fiscal 1996
primarily as a result of higher sales. The Company expects selling, general and
administrative expenses to increase from itOs current level in order to support
the SpectrumTM II introduction and continuous spending in Asia.
Other income (expense), net, was 0.7% expense in the first quarter of fiscal
1996 compared to 0.1% of expense in the same quarter of fiscal 1995. This was
attributable to the increase in interest expense on the line of credit and note
payable. Other income increased due to favorable foreign exchange gains related
to receivables denominated in foreign currencies due to the weakening of the
U.S. dollar.
The Company's effective tax rate for both the first quarter of fiscal 1996 and
1995 was 10%. This is less than the statutory rate primarily because of the
realization of certain temporary differences and the reversal of the related
valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
Total assets of $105.9 million at June 30, 1995 increased by approximately $3.3
million from $102.6 million at March 31, 1995, principally due to increases in
cash and accounts receivable. Accounts receivable increased from $32.5 million
at March 31, 1995 to $35.0 million at June 30, 1995 due to higher sales.
Total liabilities increased by $2.6 million from $68.0 million at March 31, 1995
to $70.6 million at June 30, 1995 primarily due to borrowings of $4.3 million
under existing lines of credit. This was offset by payments of $1.1 million on
notes payable and lower accounts payable of $0.5 million.
At June 30, 1995, the Company's principal sources of liquidity consisted of $3.6
million in cash and revolving bank credit facilities that provide up to $35.0
million in credit, of which approximately $25.0 million was available. Of the
$25.0 million available credit, $16.0 million was outstanding at June 30, 1995.
The Company's lines of credit and term note payable require the maintenance of
certain financial covenants, including minimum tangible net worth and
profitability requirements. As of June 30, 1995, the Company was in compliance
with the covenants.
The Company expects to require additional financing, including possibly equity
financing , in the current fiscal year to provide liquidity and to maintain
compliance with covenants in existing credit agreements. Management believes
that additional
Page 9 of 19
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financing can be obtained; however, there can be no assurance that financing
will be available to meet future needs or that the Company will continue to
maintain compliance with its debt covenants. In the event that additional
financing is not available, management will implement plans to reduce the
CompanyOs cash requirements through a combination of reductions in working
capital expenditures, equipment purchases and operating expenditures. Management
believes these plans combined with existing cash balances and other sources of
liquidity will be sufficient to maintain compliance with existing loan covenants
and enable the Company to meet its cash requirements through fiscal 1996;
however, there can be no assurance that the Company can implement these plans or
that it can do so without adversely impacting the Company's operations.
Page 10 of 19
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: For a list of exhibits to this Form 10Q, see the exhibit index
located on pages 12 to 15.
(b) Report on Form 8-K: None
Page 11 of 19
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
3.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (File
No. 33-13431)
3.2 Amended and Restated Bylaws. (incorporated by reference to Exhibit
3.2 to the Company's Annual Report on Form 10-K for the year ended
March 31, 1993.)
4.1 Form of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year
ended March 31, 1988).
4.2 Rights Agreement dated as of October 24, 1991 between the Company and
Manufacturers Hanover Trust Company of California, including the
Certificate of Designations for the Series A Junior Participating
Preferred Stock (incorporated by reference to Exhibit 1 to the
CompanyOs Current Report on 8-K filed on November 5, 1991).
10.1+ Digital Microwave Corporation 1984 Stock Option Plan, as amended and
restated on June 11, 1991. (incorporated by reference to Exhibit 10.1
to the Company's Annual Report on Form 10-K for the year ended March
31, 1991).
10.2+ Form of Installment Incentive Stock Option Agreement (incorporated by
reference to Exhibit 28.2 to the Company's Registration Statement on
Form S-8 (File No. 33-43155).
10.3+ Form of installment Non-qualified Stock Option Agreement
(incorporated by reference to Exhibit 28.3 to the Company's
Registration Statement on Form S-8 (File No. 33-43155)).
10.4* Private Label Agreement dated January 16, 1990 between the Company
and the Network Systems Division of American Telephone & Telegraph
Company. (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1990).
10.5 Lease of premises located at 170 Rose Orchard Way, San Jose,
California (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K for the year-ended March 31,
1991).
10.6 Lease of premises located at 130 Rose Orchard Way, San Jose,
California. (incorporated by reference to Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1991).
10.7 Lease of premises located at 110 Rose Orchard Way, San Jose,
California. (incorporated by reference to Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1991).
Page 12 of 19
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10.8 Microelectronics Technology, Inc. Stock Purchase Agreement dated as
of March 9, 1984 (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (File No. 33-13431).
10.9 Microelectronics Technology, Inc. Development Agreement dated as of
March 9, 1984 (incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1 (File No. 33-13431).
10.10* Agreement dated July 17, 1990 between the Company and In-Flight Phone
Corporation. (incorporated by reference to Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1991).
10.11 Form of Indemnification Agreement between the Company and its
directors and certain officers (incorporated by reference to Exhibit
10.16 to the Company's Registration Statement on Form S-1 (File No.
33-13431).
10.12* Technology Transfer & Marketing Agreement dated October 2, 1987
between Microelectronics Technology Inc. and the Company
(incorporated by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended March 31, 1988).
10.13* Business Agreement dated August 28, 1987 between Sungmi Telecom
Electronics Co., Ltd. and the Company (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1988).
10.14* Technical License Agreement dated August 28, 1987 between Sungmi
TeleCom Electronics Co., Ltd. and the Company (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form
10-K for the year ended March 31, 1988).
10.15 Agreement of Purchase and Sale of Stock dates as of March 29, 1989
between Optical Microwave Networks Inc. and the Company (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the year ended March 31, 1989).
10.16 Agreement of Purchase and Sale of Stock dated as of March 30, 1989
between the Company and Microelectronics Technology, Inc. (Taiwan)
and Microelectronics Technology, Inc. (USA) (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the year ended March 31, 1989).
10.17 Shareholders' Agreement of Optical Microwave Networks Inc. dated as
of March 30, 1989 (incorporated by reference to Exhibit 10.22 to the
Company's Annual Report on Form 10-K for the year ended March 31,
1989).
10.18 License Agreement dated as of March 30, 1989 among the Company,
Optical Microwave Networks, Inc., Microelectronics Technology, Inc.
(Taiwan) and Microelectronics Technology, Inc. (USA) (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended March 31, 1989).
Page 13 of 19
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10.19 Shareholders' Agreement of DMC TeleCom (Malaysia) Sdn.Bhd .dated as
of February 9, 1991. (incorporated by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for the year ended March 31,
1991).
10.20 Technology Transfer Agreement dates as of February 9, 1991 between
the Company and DMC TeleCom (Malaysia) Sdn. Bhd. (incorporated by
reference to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the year ended March 31, 1991).
10.21* Teaming Agreement dated November 20, 1991 between DMC TeleCom U.K.
Ltd. and AT&T Network Systems Deutschland GmbH. (incorporated by
reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the year ended March 31, 1992).
10.22 Loan and Security Agreement dated June 25, 1992 between the Company
and CoastFed Business Credit Corporation. (incorporated by reference
to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the
year ended March 31, 1992).
10.23 Accounts Collateral Security Agreement dated June 25, 1992 between
the Company and CoastFed Business Credit Corporation. (incorporated
by reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended March 31, 1992).
10.24 Letter of Credit Collateral Agreement dated June 25, 1992 between the
Company and CoastFed Business Credit Corporation. (incorporated by
reference to Exhibit 10.24 to the Company's Annual Report on Form
10-K for the year ended March 31, 1992).
10.25 Letter Agreement dated June 23, 1993 between the Company and CoastFed
Business Credit Corporation (incorporated by reference to Exhibit
10.25 to the Company's Annual Report on Form 10-K for the year ended
March 31, 1993).
10.26* Product Acquisition Agreement dated as of September 23, 1992 between
the Company and Microelectronics Technology, Inc. (incorporated by
reference to Exhibit 10.26 to the Company's Annual Report on Form
10-K for the year ended March 31, 1993).
10.27* Product Acquisition Agreement dated as of December 28, 1992 between
the Company and Microelectronics Technology, Inc. (incorporated by
reference to Exhibit 10.27 to the Company's Annual Report on Form
10-K for the year ended March 31, 1993).
10.28* Teaming Agreement dated as of November 16, 1993 between the Company
and Siemens AG (including the Supply Agreement dated November 16,
1993 between Siemens AG and E-Plus Mobilfunk GmbH). (incorporated by
reference to Exhibit 10.29 to the CompanyOs Annual Report on Form
10-K for the year ended March 31, 1994).
10.29 Amendment to Loan Documents between the Company and CoastFed Business
Credit Corporation dated as of July 28, 1994 (incorporated by
Page 14 of 19
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reference to Exhibit (1) to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994).
10.30 Amended and Restated Accounts and Inventory Collateral Security
Agreement between the Company and CoastFed Business Credit
Corporation dated as of July 28, 1994 (incorporated by reference to
Exhibit (2) to the CompanyOs Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994.).
10.31 Loan Agreement dated October 28, 1994 (incorporated by reference to
Exhibit 10.1 to the CompanyOs Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994).
10.32 Agreement on Exchange of Interim Equipment dated October 27, 1994
(incorporated by reference to the CompanyOs Quarterly Report on Form
10-Q for the quarter ended December 31, 1994).
10.33+ Digital Microwave Corporation 1994 Stock Incentive Plan.
(incorporated by reference to the Registration Statement on Form S-8
filed with the Commission on October 17, 1994).
10.34 Loan Agreement dated March 21, 1995 between the Company and Bank of
the West (incorporated by reference to Exhibit 10.34 to the CompanyOs
Annual Report on Form 10-K for the year ended March 31, 1995).
10.35 Amendment to Loan Agreement dated March 31, 1995 between the Company
Heller Financial, Inc. (incorporated by reference to Exhibit 10.35 to
the CompanyOs Annual Report on Form 10-K for the year ended March 31,
1995).
10.36 Amendment to Loan Agreement dated April 4, 1995, between the Company
and CoastFed Business Credit Corporation.
27.1 Financial data schedule
+ Management Contract or Compensatory Plan or Arrangement.
* Confidential treatment of certain portions of this exhibit has been
requested.
16
[COAST LOGO]
AMENDMENT TO LOAN DOCUMENTS
BORROWER: DIGITAL MICROWAVE CORPORATION
ADDRESS: 170 ROSE ORCHARD WAY
SAN JOSE, CALIFORNIA
DATE: APRIL 4, 1995
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between COASTFED
BUSINESS CREDIT CORPORATION ("Coast"), whose address is 12121 Wilshire Blvd.,
Suite 1111, Los Angeles, California and the borrower named above (the
"Borrower"), with reference to the following facts:
A. The parties entered into that certain Loan and Security Agreement
dated June 25, 1992 (as amended, the "Loan Agreement"), and that certain
Amended and Restated Accounts Collateral Security Agreement, dated March 14,
1995 (as amended, the "Accounts Agreement"), and that certain Letter of
Credit Collateral Agreement, dated June 25, 1992 (the "LC Agreement"). (This
Amendment, the Loan Agreement, the Accounts Agreement, the LC Agreement, all
prior amendments signed by Borrower and Coast, and all other written documents
and agreements between Coast and the Borrower are referred to herein
collectively as the "Loan Documents". Capitalized terms used but not defined in
this Amendment, shall have the meanings set forth in the Loan Agreement.)
B. The Parties desire to amend the Loan Documents as herein set forth.
The parties agree as follows:
1. EXTENSION. The term of the Loan Agreement is hereby extended for one
year, and accordingly, the date "June 30, 1995" in Section 8 of the Loan
Agreement is hereby amended by replacing said date with the date "June 30,
1996".
2. AMENDMENTS TO ACCOUNTS AGREEMENT. The Accounts Agreement is amended as
follows:
(a) Section 2.4 of the Accounts Agreement which presently reads as follows:
"2.4 THE STREAMLINED FACILITY. Loans under the Streamlined
Facility shall be in an amount up to 50% of the Net Amount of each
Eligible Account, but in no event shall the Borrower's Accounts Loan
Balance during any calendar quarter in which the Streamlined Facility is
in effect exceed $10,000,000. If Borrower's Accounts Loan Balance shall
at any time exceed either said percentage or said dollar amount,
CoastFed, in its sole and absolute discretion, may require Borrower to
repay such excess to CoastFed upon demand, or require Borrower to
immediately deliver such additional security to CoastFed as may be
satisfactory to CoastFed."
Page 16 of 19
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is amended to read as follows:
"2.4 THE STREAMLINED FACILITY. Loans under the Streamlined
Facility shall be in an amount up to the following:
"(a) up to 80% of the Net Amount of each Eligible Account; plus
"(b) up to the lesser of (i) 25% of value of Borrower's Eligible
Inventory, or (ii) $5,000,000.
"If Borrower's Accounts Loan Balance or Inventory Loan Balance shall at any
time exceed the foregoing percentages or dollar amounts, CoastFed, in its
sole and absolute discretion, may require Borrower to repay such excess to
CoastFed upon demand. Borrower shall execute a Designation of Inventory
describing the Inventory and setting forth the value thereof, in form and
substance satisfactory to CoastFed, prior to any Loans being made with
respect to Inventory pursuant to this Section 2.4. As provided above in
Section 1.2(e), in all said Designations of Inventory and in all other
reports Borrower provides to CoastFed with respect to Borrower's Inventory,
Borrower shall clearly delineate and exclude Inventory which is Bank
Collateral. As used in Section 2.4(b) above, "value" of Inventory means
Borrower's cost thereof or the wholesale market value thereof, whichever is
lower."
(b) Section 2.6 of the Accounts Agreement which presently reads as follows:
"2.6 LOAN BALANCES. The aggregate amount of Borrower's outstanding
indebtedness to CoastFed on account of Loans made pursuant to Section 2.4
or 2.5(a) above shall be referred to herein as "Borrower's Accounts Loan
Balance." The aggregate amount of Borrower's outstanding indebtedness to
CoastFed on account of Loans made pursuant to Section 2.5(b) above shall
be referred to herein as "Borrower's Inventory Loan Balance."
is amended to read as follows:
"2.6 LOAN BALANCES. The aggregate amount of Borrower's
outstanding indebtedness to CoastFed on account of Loans made pursuant to
Section 2.4(a) or 2.5(a) above shall be referred to herin as "Borrower's
Accounts Loan Balance." The aggregate amount of Borrower's outstanding
indebtedness to CoastFed on account of Loans made pursuant to Section
2.4(b) or 2.5(b) above shall be referred to herein as "Borrower's
Inventory Loan Balance."
(c) The sentence in Section 7.5 of the Accounts Agreement which
presently reads as follows:
"Borrower shall not sell, lease or otherwise transfer or dispose of any of
the Inventory, other than sales in the ordinary course of its business;
provided that in no event shall Borrower make any sales of Inventory which
would result in Borrower's Inventory Loan Balance exceeding the percentages
of value of the Inventory set forth in Section 2.5 above."
is amended by changing "Section 2.5" therein to read: "Section 2.4 or 2.5".
3. EFFECTIVE DATE. All of the amendments to the Loan Documents provided
herein shall be effective on the date hereof.
Page 17 of 19
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4. REPRESENTATIONS TRUE. Borrower represents and warrants to Coast that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Coast and the Borrower, and
the other written documents and agreements between Coast and the Borrower 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. Except as herein expressly amended, all of the terms
and provisions of the Loan Agreement, and all other documents and agreements
between Coast and the Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed.
Borrower: Coast:
DIGITAL MICROWAVE CORPORATION COASTFED BUSINESS CREDIT CORPORATION
By Carl A. Thomsen By Bay Fetner
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Vice President Title Vice President
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By
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Secretary or Ass't Secretary
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGITAL MICROWAVE CORPORATION
Date: August 10, 1995 By /s/ Carl A. Thomsen
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Carl A. Thomsen
Vice President and Chief Financial Officer
Page 19 of 19