EXHIBIT 10.1
[LOGO]
SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION
ACCOUNTS RECEIVABLE FINANCING AGREEMENT
This ACCOUNTS RECEIVABLE FINANCING AGREEMENT (the "Agreement"), dated as
of the Effective Date, is among Silicon Valley Bank, Specialty Finance Division
("Bank") on the one hand, and Tegal Corporation, a Delaware corporation, and
Tegal Japan, Inc., a corporation organized under the laws of Japan
(collectively, joint and severally "Borrower") on the other hand, whose address
is 2201 S. McDowell Blvd, Petaluma, CA 94954 and with a FAX number of (707) 765
- - 9311.
1. DEFINITIONS. In this Agreement:
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ACCOUNT DEBTOR" is defined in the California Uniform Commercial Code and
shall include any person liable on any Financed Receivable or Exim Financed
Receivable, such as a guarantor of the Financed Receivable or Exim Financed
Receivable and any issuer of a letter of credit or banker's acceptance.
"ADJUSTMENTS" are all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor for any Financed Receivable or Exim Financed Receivable.
"ADVANCE" is defined in Section 2.2.
"ADVANCE RATE" is 80%, net of deferred revenue and offsets related to each
specific Account Debtor, or another percentage as Bank establishes under Section
2.2.
"APPLICABLE RATE" is a rate per annum equal to the "Prime Rate" plus 1.00
percentage point.
"BORROWER AGREEMENT" is the Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement between Borrower and Bank.
"BORROWING BASE" has the meaning set forth in the Borrower Agreement.
"BORROWER'S BOOKS" are all Borrower's books and records including ledgers,
records regarding Borrower's assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.
"CODE" is the California Uniform Commercial Code as in effect from time to
time.
"COLLATERAL" is attached as Exhibit "A".
"COLLATERAL HANDLING FEE" is defined in Section 4.5.
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"COLLECTIONS" are all funds received by Bank from or on behalf of an
Account Debtor for Financed Receivables or Exim Financed Receivables.
"COMPLIANCE CERTIFICATE" is attached as Exhibit "B".
"EARLY TERMINATION FEE" is defined in Section 4.6.
"EFFECTIVE DATE" is the date in which Bank executes this Agreement.
"EVENT OF DEFAULT" is defined in Section 10.
"EXIM ADVANCE" is defined in Section 3.1.
"EXIM ADVANCE RATE" is 90%, net of deferred revenue and offsets related to
each specific Account Debtor, or another percentage as Bank establishes under
Section 3.1.
"EXIM BANK" is the Export-Import Bank of the United States.
"EXIM BANK EXPENSES" are all audit fees and expenses, reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Exim Loan Documents
(including appeals or Insolvency Proceedings) and the fees that the Bank pays to
the Exim Bank in consideration of the issuance of the Exim Guarantee.
"EXIM ELIGIBLE FOREIGN ACCOUNTS" are Accounts payable in United States
Dollars that arise in the ordinary course of Borrower's business from Borrower's
sale of Exim Eligible Foreign Inventory (i) that the Account Debtor does not
have its principal place of business in the United States and (ii) that have
been assigned and comply with all of Borrower's representations and warranties
in this Agreement; but Bank, in its good faith business judgment, may change
eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in
writing, Exim Eligible Foreign Accounts will not include:
(a) Accounts with terms of sales greater than 90 days;
(b) Accounts which are more than 60 calendar days past the original
due date, unless it is insured through Exim Bank export credit insurance
for comprehensive commercial and political risk, or through Exim Bank
approved private insurers for a comparable coverage, in which case 90
calendar days shall apply;
(c) Credit balances over 60 days from due date of the relevant
invoice;
(d) Accounts evidenced by a letter of credit until the date of
shipment of the items covered by the subject letter of credit;
(e) Accounts for which the Account Debtor is a military or defense
entity;
(f) Accounts for which Borrower owes the Account Debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts);
(g) Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval,
bill and hold, or other terms if Account Debtor's payment may be
conditional;
(h) Accounts for which the Account Debtor is Borrower's Affiliate,
officer, employee, or agent;
(i) Accounts in which the Account Debtor disputes liability or makes
any claim and Bank believes there may be a basis for dispute (but only up
to the disputed or claimed amount), or if the Account Debtor is subject to
an Insolvency Proceeding, or becomes insolvent, or goes out of business;
(j) Accounts generated by the sale of products purchased for
military purposes;
(k) Accounts generated by the sales of Inventory which constitute
defense articles or defense services;
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(l) Accounts excluded from the Borrowing Base under the Borrower
Agreement;
(m) Accounts that arise from the sales of items not in the ordinary
course of Borrower's business;
(n) Accounts not owned by Borrower or that are subject to any right,
claim or interest of another person other than the lien in favor of Bank;
(o) Accounts with respect to which an invoice has not been sent;
(p) Accounts billed and payable outside the United Stated unless
approved in writing by Exim Bank; and such Accounts are subject to the
following:
1. Each subsidiary or affiliate is a party to the Loan
Agreement;
2. All proceeds are remitted to the United States on a monthly
basis (excluding the retention of proceeds for the purpose of
funding local expenses);
3. Accounts are derived from eligible exports originating from
the United States;
4. Bank obtains a valid first priority security interest (or
equivalent) in the jurisdiction where the Accounts are located; and
5. Bank obtains a legal opinion from local counsel with regard
to the enforceability of such security interest.
(s) Accounts billed in currencies other than U.S. Dollars, unless
approved in writing by Exim Bank;
(t) Accounts from foreign buyers 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);
(u) Accounts backed by letters of credit unacceptable to Bank in its
reasonable and good faith credit judgment;
(v) Accounts for which Bank or Exim Bank determines collection to be
doubtful, with Bank's determination of same to be reasonable;
(w) Accounts for which the items giving rise to such Account have
not been shipped and delivered to and accepted by the Buyer or the
services giving rise to such Account have not been performed by Borrower
and accepted by the Buyer or the Account does not represent a final sale;
(x) Accounts for which Borrower has made any agreement with the
Buyer for any deduction therefrom, except for discounts or allowances made
in the ordinary course of business for prompt payment, all of which
discounts or allowances are reflected in the calculation of the face value
of each respective invoice related thereto; and
(y) Accounts for which any of the items giving rise to such Account
have been returned, rejected or repossessed.
"EXIM FINANCED RECEIVABLES" are all those accounts, receivables, chattel
paper, instruments, contract rights, documents, general intangibles, letters of
credit, drafts, bankers acceptances, and rights to payment, and all proceeds,
including their proceeds (collectively "receivables"), which Bank finances and
makes an Exim Advance. An Exim Financed Receivable stops being an Exim Financed
Receivable (but remains Collateral) when the Exim Advance made for the Exim
Financed Receivable has been finally paid.
"EXIM GUARANTEE" is that certain Master Guarantee Agreement or other
agreement, as amended from time to time, the terms of which are incorporated
into this Agreement.
"EXIM LOAN DOCUMENTS" means this Agreement, any note or notes executed by
Borrower or any other agreement entered into in connection with this Agreement,
pursuant to which Exim Bank guarantees Borrower's obligations under this
Agreement.
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"EXISTING FACILITY" means that certain LOAN AND SECURITY AGREEMENT BETWEEN
BANK AND TEGAL CORPORATION AND _________________________ DATED AS OF JUNE 26,
2002 AND ANY NOTE OR NOTES EXECUTED BY TEGAL CORPORATION OR ANY OTHER AGREEMENT
ENTERED INTO IN CONNECTION WITH SUCH LOAN AND SECURITY AGREEMENT.
"EXPORT ORDER" is a written export order or contract for the purchase by
the buyer from the Borrower of any finished goods or services which are intended
for export.
"FACILITY" is an extension of credit by Bank to Borrower in order to
finance receivables with an aggregate Account Balance not exceeding the Facility
Amount.
"FACILITY AMOUNT" is $3,500,000 gross.
"FACILITY PERIOD" is the period beginning on this date and continuing
until January 16,2005 unless the period is terminated sooner by Bank with notice
to Borrower or by Borrower under Section 4.6.
"FINANCE CHARGES" is defined in Section 4.2.
"FINANCED RECEIVABLES" are all those accounts, receivables, chattel paper,
instruments, contract rights, documents, general intangibles, letters of credit,
drafts, bankers acceptances, and rights to payment, and all proceeds, including
their proceeds (collectively "receivables"), which Bank finances and make an
Advance. A Financed Receivable stops being a Financed Receivable (but remains
Collateral) when the Advance made for the Financed Receivable has been finally
paid.
"FINANCED RECEIVABLE BALANCE" is the total outstanding amount, at any
time, of all Financed Receivables and Exim Financed Receivables.
"GAAP" means United States generally accepted accounting principals.
"GOOD FAITH DEPOSIT" is defined in Section 4.9.
"GUARANTOR" means any guarantor of the Obligations.
"INELIGIBLE RECEIVABLE" is any accounts receivable:
(A) that is unpaid (90) calendar days after the invoice date; or
(B) that is owed by an Account Debtor that has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of
creditors, receivership, or Insolvency Proceeding or who has become
insolvent (as defined in the United States Bankruptcy Code) or who
is generally not paying its debts as they become due; or
(C) for which there has been any breach of warranty or representation in
Section 7 or any breach of any covenant in this Agreement; or
(D) for which the Account Debtor asserts any discount, allowance,
return, dispute, counterclaim, offset, defense, right of recoupment,
right of return, warranty claim, or short payment; or
(E) is not an Exim Eligible Foreign Account.
"INSOLVENCY PROCEEDING" are proceedings by or against any person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVOICE TRANSMITTAL" shows accounts receivable which Bank may finance
and, for each receivable, includes the Account Debtor's, name, address, invoice
amount, invoice date and invoice number and is signed by Borrower's authorized
representative.
"LOCKBOX" is described in Section 7.2.
"OBLIGATIONS" are all advances, liabilities, obligations, covenants and
duties owing, arising, due or payable by Borrower to Bank now or later under
this Agreement or any other document, instrument or agreement, account
(including those acquired by assignment) primary or secondary, such as all
Advances, Exim Advances, Finance Charges, Collateral Handling Fees, interest,
fees, expenses, professional fees and attorneys' fees or other.
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"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate. Notwithstanding the foregoing, for purposes of this
Agreement, the Prime Rate shall not be less than 4.25%.
"RECONCILIATION DAY" is the last calendar day of each month.
"RECONCILIATION PERIOD" is each calendar month.
"TANGIBLE NET WORTH" shall mean the excess of total assets over total
liabilities, determined in accordance with GAAP, with the following adjustments:
(A) there shall be excluded from assets: (i) notes, accounts receivable
and other obligations owing to Borrower from its officers or other
Affiliates, and (ii) all assets which would be classified as
intangible assets under GAAP, including without limitation goodwill,
licenses, patents, trademarks, trade names, copyrights, capitalized
software and organizational costs, licenses and franchises; and
(B) there shall be excluded from liabilities all 50% of all
consideration received after the effective date of this Agreement
for equity securities and indebtedness which is subordinated to the
Obligations under a subordination agreement in form specified by
Bank or by language in the instrument evidencing the indebtedness
which Bank agrees in writing is acceptable to Bank in its good faith
business judgment.
2. FINANCING OF ACCOUNTS RECEIVABLE.
2.1. REQUEST FOR ADVANCES. During the Facility Period, Borrower may
offer accounts receivable to Bank if there is not an Event of
Default. Borrower will deliver an Invoice Transmittal (in the form
of Exhibit C) for each accounts receivable it offers. Bank may rely
on information in or with the Invoice Transmittal. The Bank shall
not make any Advances prior to Borrower transferring all of its cash
in its primary operating account at California Bank & Trust ("CBT")
from CBT to Bank.
2.2. ACCEPTANCE OF ACCOUNTS RECEIVABLE. Bank is not obligated to
finance any accounts receivable. Bank may approve any Account
Debtor's credit before financing any receivable. When Bank accepts a
receivable, it will pay Borrower the Advance Rate times the face
amount of the receivable (the "Advance"). Bank may, in its
discretion, change the percentage of the Advance Rate. When Bank
makes an Advance, the receivable becomes a "Financed Receivable."
All representations and warranties in Section 7 must be true as of
the date of the Invoice Transmittal and of the Advance and no Event
of Default exists would occur as a result of the Advance. There
shall be Advances for no more than 12 invoices at any one time
outstanding. At no time shall the sum of all outstanding Advances
plus Exim Advances exceed the Facility Amount.
3. EXIM ADVANCES; OVERADVANCES.
3.1 EXIM ADVANCES SUBLIMIT.
(a) During the Facility Period, Borrower may offer Exim
Eligible Foreign Accounts to Bank if there is not an Event of
Default. Borrower will deliver an Invoice Transmittal for each Exim
Eligible Foreign Account it offers. Bank may rely on information in
or with the Invoice Transmittal. The Bank shall not make any Exim
Advances prior to Borrower transferring all of its cash in its
primary operating account at CBT from CBT to Bank.
(b) Bank is not obligated to finance any Exim Eligible Foreign
Accounts. Bank may approve any Account Debtor's credit before
financing any receivable. When Bank accepts a receivable in
connection with an Exim Advance, the Bank will pay Borrower the Exim
Advance Rate times the face amount of the receivable (the "Exim
Advance"). Bank may, in its discretion, change the percentage of the
Exim Advance Rate. When Bank makes an Exim Advance, the receivable
becomes a "Exim Financed Receivable." All representations and
warranties in Section 7 must be true as of the date of the Invoice
Transmittal and of the Advance and no Event of Default exists would
occur as a result of the Advance. There shall be Exim Advances for
no more than 12 invoices at any one time outstanding. The total
amount of Exim Advances outstanding at any one time may not exceed
$2,800,000. The aggregate amount of outstanding Exim Advances shall
reduce the amount otherwise available to be borrowed under the
Facility Amount.
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(c) To obtain an Exim Advance, Borrower must notify Bank
(which notice is irrevocable) by facsimile no later than 3:00 p.m.
Pacific time 1 Business Day before the day on which the Exim Advance
is to be made. The notice must be in the form of Exhibit C and shall
be accompanied by any Export Orders. The notice must be signed by a
Responsible Officer or designee. In addition, the Exim Guarantee
must be in full force and effect.
3.2 OVERADVANCES.
If Borrower's Obligations under Section 2.1 and 3.1 exceed the
Facility Amount, Borrower must immediately pay Bank the excess.
4. COLLECTIONS, FINANCE CHARGES, REMITTANCES AND FEES. The Obligations shall be
subject to the following fees and Finance Charges. Fees and Finance Charges may,
in Bank's discretion, be charged as an Advance or Exim Advance, and shall
thereafter accrue fees and Finance Charges as described below. Bank may, in its
discretion, charge fee and Finance Charges to Borrower's deposit account
maintained with Bank.
4.1. COLLECTIONS. Collections will be credited to the Financed Receivables
Balance, but if there is an Event of Default, Bank may apply Collections
to the Obligations in any order it chooses. If Bank receives a payment for
both a Financed Receivable or an Exim Financed Receivable and a
non-Financed receivable or a non-Exim Financed Receivable, the funds will
first be applied to the Financed Receivable or the Exim Financed
Receivable, as the case may be, and if there is not an Event of Default,
the excess will be remitted to the Borrower, subject to Section 4.10.
Bank, in its sole and exclusive discretion, may apply Collections towards
the repayment of a Financed Receivable or an Exim Financed Receivable in
any order and in any manner as it sees fit.
4.2. FINANCE CHARGES. In computing Finance Charges on the Advances and
Exim Advances, all Collections received by Bank shall be deemed applied by
Bank on account of the Advances and Exim Advances 3 Business Days after
receipt of the Collections. Borrower will pay a finance charge (the
"Finance Charge"), which is equal to the Applicable Rate times the number
of days in the Reconciliation Period times the outstanding average daily
Financed Receivable Balance for that Reconciliation Period. After an Event
of Default, Advances and Exim Advances accrue interest at 5 percent above
the Applicable Rate effective immediately before the Event of Default.
4.3. [THIS SECTION INTENTIONALLY LEFT BLANK.]
4.4. [THIS SECTION INTENTIONALLY LEFT BLANK.]
4.5. COLLATERAL HANDLING FEE. On each Reconciliation Day, Borrower will
pay to Bank a collateral handling fee, equal to 0.50% per month of the
average daily Financed Receivable Balance outstanding during the
applicable Reconciliation Period. After an Event of Default, the
Collateral Handling Fee will increase an additional 0.50% effective
immediately before the Event of Default.
4.6. EARLY TERMINATION FEE. A fully earned, non-refundable early
termination fee equal to one percent (1%) of the Financed Receivable
Balance (such amount to be calculated on the date such early termination
fee is earned) on the date such early termination fee is due upon
voluntary or involuntary full payment of the Obligations and termination
of this Facility prior to twelve (12) months from the date of this
Agreement, unless the Obligations are paid in full from an initial advance
from a loan agreement with Bank.
4.7. ACCOUNTING. After each Reconciliation Period, Bank will provide an
accounting of the transactions for that Reconciliation Period, including
the amount of all Financed Receivables, Exim Financed Receivables, all
Collections, Adjustments, Finance Charges and the Collateral Handling Fee.
If Borrower does not object to the accounting in writing within 30 days it
is considered correct. All Finance Charges and other interest and fees
calculated on the basis of a 360-day year and actual days elapsed.
4.8. DEDUCTIONS. Bank may deduct fees, finance charges and other amounts
due from any Advances made or Collections received by Bank.
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4.9. GOOD FAITH DEPOSIT. Borrower has paid to Bank a Good Faith Deposit of
$20,000 to initiate Bank's due diligence review process.
4.10. ACCOUNT COLLECTION SERVICES. All Borrowers' receivables are to be
paid to the same address/or party and Borrower and Bank must agree on such
address. If Bank collects all receivables and there is not an Event of
Default or an event that with notice or lapse of time will be an Event of
Default, within FIVE (5) days of receipt of those collections, Bank will
give Borrower, the receivables collections it receives for receivables
other than Financed Receivables or Exim Financed Receivables and/or amount
in excess of the amount for which Bank has made an Advance or an Exim
Advance to Borrower, less any amount due to Bank, such as the Finance
Charge, Collateral Handling Fee and expenses or otherwise. This section
does not impose any affirmative duty on Bank to do any act other than to
turn over amounts. All receivables and collections are Collateral and if
an Event of Default occurs, Bank need not remit collections of Collateral
and may apply them to the Obligations.
4.11 EXIM BANK EXPENSES. On the date this Agreement is executed and
delivered, Borrower will pay all Exim Bank Expenses incurred through the
date hereof.
5. REPAYMENT OF CERTAIN OBLIGATIONS.
5.1. REPAYMENT ON MATURITY. Borrower will repay each Advance and Exim
Advance on the earliest of: (a) payment of the Financed Receivable or Exim
Financed Receivable in respect which the Advance or Exim Advance was made,
(b) the Financed Receivable or Exim Financed Receivable becomes an
Ineligible Receivable, (c) when any Adjustment is made to the Financed
Receivable or Exim Financed Receivable (but only to the extent of the
Adjustment if the Financed Receivable or Exim Financed Receivable is not
otherwise an Ineligible Receivable, or (d) the last day of the Facility
Period (including any early termination). Each payment will also include
all accrued Finance Charges on the Advance or Exim Advance and all other
amounts due hereunder.
5.2. REPAYMENT ON EVENT OF DEFAULT. When there is an Event of Default,
Borrower will, if Bank demands (or, in an Event of Default under Section
10(B), immediately without notice or demand from Bank) repay all of the
Obligations. The demand may, at Bank's option, include the Advance or Exim
Advance, as the case may be, for each Financed Receivable or Exim Financed
Receivable then outstanding and all accrued Finance Charges, Collateral
Handling Fees, attorneys and professional fees, court costs and expenses,
and any other Obligations.
6. POWER OF ATTORNEY. Borrower irrevocably appoints Bank and its successors and
assigns it attorney-in-fact and authorizes Bank, regardless of whether there has
been an Event of Default, to:
(A) sell, assign, transfer, pledge, compromise, or discharge all or any
part of the Financed Receivables or Exim Financed Receivables:
(B) demand, collect, sue, and give releases to any Account Debtor for
monies due and compromise, prosecute, or defend any action, claim,
case or proceeding about the Financed Receivables or Exim Financed
Receivables, including filing a claim or voting a claim in any
bankruptcy case in Bank's or Borrower's name, as Bank chooses;
(C) prepare, file and sign Borrower's name on any notice, claim,
assignment, demand, draft, or notice of or satisfaction of lien or
mechanics' lien or similar document;
(D) notify all Account Debtors to pay Bank directly;
(E) receive, open, and dispose of mail addressed to Borrower;
(F) endorse Borrower's name on check or other instruments;
(G) execute on Borrower's behalf any instruments, documents, financing
statements to perfect Bank's interests in the Financed Receivables
and Collateral; and
(H) do all acts and things necessary or expedient.
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7. REPRESENTATIONS, WARRANTIES AND COVENANTS.
7.1. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants for
each Financed Receivable and each Exim Financed Receivable:
(A) It is the owner with legal right to sell, transfer and assign it;
(B) The correct amount is on the Invoice Transmittal and is not
disputed;
(C) Payment is not contingent on any obligation or contract and it has
fulfilled all its obligations as of the Invoice Transmittal date;
(D) It is based on an actual sale and delivery of goods and/or services
rendered, due to Borrower, it is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free
of any liens, security interests and encumbrances;
(E) There are no defenses, offsets, counterclaims or agreements for
which the Account Debtor may claim any deduction or discount;
(F) It reasonably believes no Account Debtor is insolvent or subject to
any Insolvency Proceedings;
(G) It has not filed or had filed against it Insolvency Proceedings and
does not anticipate any filing;
(H) Bank has the right to endorse and/ or require Borrower to endorse
all payments received on Financed Receivables and Exim Financed
Receivables and all proceeds of Collateral; and
(I) No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statement contained in the certificates or
statement not misleading.
7.1.1 ADDITIONAL REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants as follows:
(A) Borrower is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified. The execution,
delivery and performance of this Agreement has been duly authorized,
and does not conflict with Borrower's organizational documents, nor
constitute an Event of Default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to
which or by which it is bound.
(B) Borrower has good title to the Collateral, free and clear of all
liens. The Accounts in any report submitted to Bank, are bona fide,
existing obligations and the service or property has been performed
or delivered to the Account Debtor or its agent (subject only to
installation and warranty obligations arising in the ordinary course
of Borrower's business), for immediate shipment to and unconditional
acceptance by the Account Debtor. Borrower has no notice of any
actual or imminent Insolvency Proceeding of any Account Debtor.
(C) All inventory is in all material respects of good and marketable
quality and free from material defects.
(D) Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower
is not engaged as one of its important activities in extending
credit for margin stock (under Regulations G, T and U of the Federal
Reserve Board of Governors). Borrower has complied with the Federal
Fair Labor Standards Act. Borrower has not violated any laws,
ordinances or rules. None of Borrower's properties or assets has
been used by Borrower, to the best of Borrower's knowledge, by
previous persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower
has timely filed all required tax returns and paid, or made adequate
provision to pay, all taxes. Borrower has obtained all consents,
approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted.
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(E) Borrower will use the proceeds of the Exim Advances only for the
purposes specified in the Borrower Agreement. Borrower will not use
the proceeds of the Exim Advances for any purpose prohibited by the
Borrower Agreement.
7.2. AFFIRMATIVE COVENANTS. Borrower will do all of the following:
(A) Maintain its corporate existence and good standing in its
jurisdictions of incorporation and maintain its qualification in
each jurisdiction necessary to Borrower's business or operations.
(B) Give Bank at least 10 days prior written notice of changes to its
name, organization, chief executive office or location of records.
(C) Pay all its taxes including gross payroll, withholding and sales
taxes when due and will deliver satisfactory evidence of payment if
requested.
(D) Provide a written report within 10 days, if payment of any Financed
Receivable or Exim Financed Receivable does not occur by its due
date and include the reasons for the delay.
(E) Give Bank copies of all Forms 10-K, 10-Q and 8-K (or equivalents)
within 5 days of filing with the Securities and Exchange Commission,
while any Financed Receivable or Exim Financed Receivable is
outstanding.
(F) Execute any further instruments and take further action as Bank
requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
(G) Provide Bank with a Compliance Certificate no later than 30 days
following each month end when there is a positive Financed
Receivable Balance or as requested by Bank.
(H) When there is a positive Financed Receivable Balance, provide Bank
with, as soon as available, but no later than 30 days following each
Reconciliation Period, a company prepared balance sheet and income
statement, prepared under GAAP, consistently applied, covering
Borrower's operations during the period together with an aged
listing of accounts receivable and accounts payable along with a
deferred revenue report; provided, however, that such deferred
revenue report shall be provided to Bank upon each Advance or Exim
Advance if such Advances or Exim Advances occur more than once per
month or if more than one Advance or Exim Advance is made per month.
(I) Immediately notify, transfer and deliver to Bank all collections
Borrower receives for Financed Receivables or Exim Financed
Receivables.
(J) Borrower will remit all payment's for Accounts to the Bank by the
close of business on each Friday along with a detailed cash receipts
journal and shall immediately notify and direct all of the
Borrower's Account Debtor's to make all payment's for Borrower's
Accounts to a lockbox account established with a third party
acceptable to Bank ("Lockbox") or to wire transfer payments to a
cash collateral account that Bank controls. It will be considered an
immediate Event of Default if the Lockbox is not set-up and
operational within 45 days from the date of this Agreement.
(K) Borrower will allow Bank to audit Borrower's Collateral, including
but not limited to Borrower's Accounts, at Borrowers expense, no
later than 90 days of the execution of this Agreement and every six
months thereafter. Provided, however, if an Event of Default has
occurred, Bank may audit Borrower's Collateral, including but not
limited to Borrower's Accounts at Bank's sole discretion and without
notification and authorization from Borrower.
(L) Provide Bank with, as soon as available, but no later than 120 days
after the last day of Borrower's fiscal year, either (i) audited
consolidated financial statements prepared under GAAP, consistently
applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm
reasonably acceptable to Bank or (ii) a copy of the Borrower's most
recently filed United States income tax return.
(M) Provide Bank with inventory reports reasonably requested by Bank.
Each Exim Advance shall be supported by Export Orders in connection
with such advance.
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(N) Borrower shall deliver all reports, certificates and other documents
to Bank as provided in the Borrower Agreement, including, without
limitation, copies of Export Orders and any other information that
Bank and Exim Bank may reasonably request.
(O) Borrower will keep all inventory in good and marketable condition,
free from material defects except for inventory for which adequate
reserves have been made in accordance with GAAP, which reserves have
been, and at all times will be with respect to Exim Eligible
Inventory. Returns and allowances between Borrower and its Account
Debtors will follow Borrower's customary practices as they exist at
execution of this Agreement. Borrower must promptly notify Bank of
all returns, recoveries, disputes and claims, that involve more than
$100,000.00.
(P) If required by Bank, Borrower will obtain, with respect to Accounts
that are otherwise ineligible under Exim borrowing criteria and
where Borrower has requested or obtained an Advance, and pay when
due all premiums with respect to, and maintain uninterrupted foreign
credit insurance. In addition, Borrower will execute in favor of
Bank an assignment of proceeds of any insurance policy obtained by
Borrower and issued by Exim Bank insuring against comprehensive
commercial and political risk (the "EXIM Bank Policy"). The
insurance proceeds from the EXIM Bank Policy assigned or paid to
Bank will be applied to the balance outstanding under this
Agreement. Borrower will immediately notify Bank and Exim Bank in
writing upon submission of any claim under the Exim Bank Policy.
Then Bank will not be obligated to make any further Credit
Extensions to Borrower based on Exim Eligible Foreign Accounts
without prior approval from Exim Bank.
(Q) Borrower will comply with all terms of the Borrower Agreement. If
any provision of the Borrower Agreement conflicts with any provision
contained in this Agreement, the more strict provision, with respect
to the Borrower, will control; provided, however, any action or
event that is permitted hereunder shall be deemed to satisfy any
requirement for consent of Bank under the Borrower Agreement.
(R) Borrower will, if required by Exim Bank or Bank, cause all sales of
products on which the Exim Advances are based to satisfy at least
one of the following: (i) be supported by one or more irrevocable
letters of credit in an amount and of matter, naming a beneficiary
and issued by a financial institution acceptable to Bank and
negotiated by Bank, (ii) be for any Account which satisfies all of
the requirements to constitute an Exim Eligible Foreign Account, or
(iii) where the Accounts from the Buyer exceed twenty-five percent
(25%) of all Exim Eligible Foreign Accounts, to be preapproved in
writing, by Bank or Exim Bank.
(S) Borrower shall maintain a minimum Tangible Net Worth as follows:
(i) During the period commencing on April 1, 2003 and continuing
through June 30, 2003, $8,800,000;
(ii) During the period commencing on July 1, 2003 and continuing
through September 31, 2003, $8,000,000;
(iii) During the period commencing on October 1, 2003 and continuing
through December 31, 2003, $7,000,000; and
(iv) Commencing on January 1, 2004 and at all times thereafter,
$6,500,000.
Increases in this minimum Tangible Net Worth covenant based on
consideration received for equity securities and subordinated debt
of the Borrower shall be effective as of the end of the month in
which such consideration is received, and shall continue effective
thereafter. Increases in this minimum Tangible Net Worth Covenant
based on net income shall be effective on the last day of the fiscal
quarter in which said net income is realized, and shall continue
effective thereafter. In no event shall this minimum Tangible Net
Worth covenant be decreased.
7.3. NEGATIVE COVENANTS. Borrower will not do any of the following without
Bank's prior written consent:
(A) Assign, transfer, sell or grant, or permit any lien or security
interest in the Collateral except to Orin Hirschman ("Hirschman")
with respect to Borrower's intellectual property.
(B) Convey, sell, lease, transfer or otherwise dispose of the
Collateral.
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(C) Create, incur, assume, or be liable for any indebtedness.
(D) Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to
purchase or carry margin stock, or use the proceeds of any Advance
for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, or
permit any of its subsidiaries to do so.
(E) Violate or fail to comply with any provision of the Borrower
Agreement or take an action, or permit any action to be taken, that
causes, or could be expected to cause, the Exim Guarantee to not be
in full force and effect. Notwithstanding the introductory sentence
to this Section 7, at no time will Bank give or be required to give
its consent to the actions set forth in this Section 7.3.
8. ADJUSTMENTS. If any Account Debtor asserts a discount, allowance, return,
offset, defense, warranty claim, or the like (an "Adjustment") or if Borrower
breaches any of the representations, warranties or covenants set forth in
Section 7, Borrower will promptly advise Bank. Borrower will resell any
rejected, returned, returned, or recovered personal property for Bank, at
Borrower's expense, and pay proceeds to Bank. While Borrower has returned goods
that are Borrower property, Borrower will segregate and mark them "property of
Silicon Valley Bank." Bank owns the Financed Receivables and Exim Financed
Receivables and until receipt of payment, has the right to take possession of
any rejected, returned, or recovered personal property.
9. SECURITY INTEREST. Borrower grants to Bank a continuing security interest in
all presently and later acquired Collateral to secure all Obligations and the
performance of each of Borrower's duties hereunder. Any security interest will
be a first priority security interest in the Collateral; provided, however that
Bank's security interest in Borrower's intellectual property shall be a second
priority security interest solely behind Hirschman. Notwithstanding the
foregoing, when the debt owed by Borrower to Hirschman is converted to equity,
Bank's interest in Borrower's intellectual property will become a first priority
security interest.
10. EVENTS OF DEFAULT. Any one or more of the following is an Event of
Default.
(A) Borrower fails to pay any amount owed to Bank when due;
(B) Borrower files or has filed against it any Insolvency Proceedings or
any assignment for the benefit of creditors, or appointment of a
receiver or custodian for any of its assets;
(C) Borrower becomes insolvent or is generally not paying its debts as
they become due or is left with unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment attaches to the
Financed Receivables, Exim Financed Receivables or any Collateral;
(E) Borrower breaches any covenant, agreement, warranty, or
representation is an immediate Event of Default;
(F) Borrower is in default under any document, instrument or agreement
evidencing any debt, obligation or liability in favor of Bank its
affiliates or vendors regardless of whether the debt, obligation or
liability is direct or indirect, primary or secondary, or fixed or
contingent;
(G) An event of default occurs under any guaranty of the Obligations or
any material provision of any Guaranty is not valid or enforceable
or a guaranty is repudiated or terminated;
(H) A material default or Event of Default occurs under any agreement
between Borrower and any creditor of Borrower that signed a
subordination agreement with Bank;
(I) Any creditor that has signed a subordination agreement with Bank
breaches any terms of the subordination agreement; or
40
(J) (i) A material impairment in the perfection or priority of the
Bank's security interest in the Collateral; (ii) a material adverse
change in the business, operations, or conditions (financial or
otherwise) of the Borrower occurs; or (iii) a material impairment of
the prospect of repayment of any portion of the Advances occurs; or
(K) If the Exim Guarantee ceases for any reason to be in full force and
effect, or if the Exim Bank declares the Exim Guarantee void or
revokes any obligations under the Exim Guarantee.
11. REMEDIES.
11.1. REMEDIES UPON DEFAULT. When an Event of Default occurs, (1) Bank may
stop financing receivables or extending credit to Borrower; (2) at Bank's
option and on demand, all or a portion of the Obligations or, for to an
Event of Default described in Section 10(B), automatically and without
demand, are due and payable in full; (3) apply to the Obligations any (i)
balances and deposits of Borrower it holds, or (ii) any amount held by
Bank owing to or for the credit or the account of Borrower; and (4) Bank
may exercise all rights and remedies under this Agreement and the law,
including those of a secured party under the Code, power of attorney
rights in Section 6 for the Collateral, and the right to collect, dispose
of, sell, lease, use, and realize upon all Financed Receivables, Exim
Financed Receivables and Collateral in any commercial manner. Borrower
agrees that any notice of sale required to be given to Borrower is deemed
given if at least five days before the sale may be held.
11.2. DEMAND WAIVER. Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guaranties
held by Bank on which Borrower is liable.
11.3. DEFAULT RATE. If any amount is not paid when due, the amount bears
interest at the Applicable Rate plus five percent until the earlier of (a)
payment in good funds or (b) entry of a final judgment when the principal
amount of any money judgment will accrue interest at the highest rate
allowed by law.
11.4 EXIM DIRECTION; NOTIFICATION. Upon the occurrence and during the
continuance of an Event of Default, Exim Bank shall have right to (i)
direct Bank to exercise the remedies specified in Section 9.1 and (ii)
request that Bank accelerate the maturity of any other loans to Borrower.
Bank has the right to immediately notify Exim Bank in writing if it has
knowledge of any of the following events: (1) any failure to pay any
amount due under this Agreement; (2) the Borrowing Base is less than the
sum of the outstanding Credit Extensions; (3) any failure to pay when due
any amount payable to Bank under any loan owing by Borrower to Bank; (4)
the filing of an action for debtor's relief by, against or on behalf of
Borrower; (5) any threatened or pending material litigation against
Borrower, or any dispute involving Borrower. If Bank sends a notice to
Exim Bank, Bank has the right to send Exim Bank a written report on the
status of events covered by the notice every 30 days after the date of the
original notification, until Bank files a claim with Exim Bank or the
defaults have been cured (but no Advances may be required during the cure
period unless Exim Bank gives its written approval). If directed by Exim
Bank, Bank will have the right to exercise any rights it may have against
the Borrower to demand the immediate repayment of all amount outstandings
under the Exim Loan Documents.
12. FEES, COSTS AND EXPENSES. The Borrower will pay on demand all fees, costs
and expenses (including attorneys' and professionals fees with costs and
expenses) that Bank incurs from: (a) preparing, negotiating, administering, and
enforcing this Agreement or related agreement, including any amendments, waivers
or consents, (b) any litigation or dispute relating to the Financed Receivables,
the Exim Financed Receivables, the Collateral, this Agreement or any other
agreement, (c) enforcing any rights against Borrower or any guarantor, or any
Account Debtor, (d) protecting or enforcing its interest in the Financed
Receivables, Exim Financed Receivables or other Collateral, (e) collecting the
Financed Receivables, Exim Financed Receivables and the Obligations, and (f) any
bankruptcy case or insolvency proceeding involving Borrower, any Financed
Receivable, any Exim Financed Receivable, the Collateral, any Account Debtor, or
any Guarantor.
13. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER. California law governs this
Agreement. Borrower and Bank each submit to the exclusive jurisdiction of the
State and Federal courts in Santa Clara County, California.
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BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
14. NOTICES. Notices or demands by either party about this Agreement must be in
writing and personally delivered or sent by an overnight delivery service, by
certified mail postage prepaid return receipt requested, or by FAX to the
addresses listed at the beginning of this Agreement. A party may change notice
address by written notice to the other party.
15. GENERAL PROVISIONS.
15.1. SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
of successors and permitted assigns of each party. Borrower may not assign
this Agreement or any rights under it without Bank's prior written consent
which may be granted or withheld in Bank's discretion. Bank may, without
the consent of or notice to Borrower, sell, transfer, or grant
participation in any part of Bank's obligations, rights or benefits under
this Agreement.
15.2. INDEMNIFICATION. Borrower will indemnify, defend and hold harmless
Bank and its officers, employees, and agents against: (a) obligations,
demands, claims, and liabilities asserted by any other party in connection
with the transactions contemplated by this Agreement; and (b) losses or
expenses incurred, or paid by Bank from or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and
expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
15.3. TIME OF ESSENCE. Time is of the essence for performance of all
obligations in this Agreement.
15.4. SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability of
any provision.
15.5. AMENDMENTS IN WRITING, INTEGRATION. All amendments to this Agreement
must be in writing. This Agreement is the entire agreement about this
subject matter and supersedes prior negotiations or agreements.
15.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts and when
executed and delivered are one Agreement.
15.7. SURVIVAL. All covenants, representations and warranties made in this
Agreement continue in force while any Financed Receivable amount remains
outstanding. Borrower's indemnification obligations survive until all
statutes of limitations for actions that may be brought against Bank have
run.
15.8. CONFIDENTIALITY. Bank will use the same degree of care handling
Borrower's confidential information that it uses for its own confidential
information, but may disclose information; (i) to its subsidiaries or
affiliates in connection with their business with Borrower, (ii) to
prospective transferees or purchasers of any interest in the Agreement,
(iii) as required by law, regulation, subpoena, or other order, (iv) as
required in connection with an examination or audit and (v) as it
considers appropriate exercising the remedies under this Agreement.
Confidential information does not include information that is either: (a)
in the public domain or in Bank's possession when disclosed, or becomes
part of the public domain after disclosure to Bank; or (b) disclosed to
Bank by a third party, if Bank does not know that the third party is
prohibited from disclosing the information.
15.9. OTHER AGREEMENTS. This Agreement may not adversely affect Banks
rights under any other document or agreement. If there is a conflict
between this Agreement and any agreement between Borrower and Bank, Bank
may determine in its sole discretion which provision applies. Borrower
acknowledges that any security agreements, liens and/or security interests
securing payment of Borrower's Obligations also secure Borrower's
Obligations under this Agreement and are not adversely affected by this
Agreement. Additionally, (a) any Collateral under other agreements or
documents between Borrower and Bank secures Borrowers Obligations under
this Agreement and (b) a default by Borrower under this Agreement is a
default under agreements between Borrower and Bank.
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15.10. EXISTING CREDIT LINE. The Borrower agrees that it shall not be able
to borrow any amounts under its Existing Facility with Bank as of the
Effective Date of this Agreement. Borrower also agrees that all
outstanding obligations under the Existing Facility shall be paid in full
in cash on or prior to the date this Agreement becomes effective.
BORROWER: TEGAL CORPORATION
By /s/ Thomas R. Mika
----------------------------------
Title Executive Vice President & CFO
BORROWER: TEGAL JAPAN, INC.
By /s/ James McKibben
----------------------------------
Title President - Tegal Japan Inc.
BANK: SILICON VALLEY BANK
By /s/ R. Michael White
----------------------------------
Title Market Manager
Effective Date: January 16, 2003
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEGAL CORPORATION
(Registrant)
/s/ THOMAS R. MIKA
------------------
Thomas R. Mika
Chief Financial Officer
Dated: February 12, 2004
44