-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IV+OW4NxqKm+EAJBWxFsUGvQORdwy6JFWhdtCB5z0vjzYCKKuE2j6VODCgmsyclL +9lwgE/bsJ9Swf4n8taFSQ== 0001072613-08-001172.txt : 20080514 0001072613-08-001172.hdr.sgml : 20080514 20080513173657 ACCESSION NUMBER: 0001072613-08-001172 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20080331 FILED AS OF DATE: 20080514 DATE AS OF CHANGE: 20080513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPIRE CORP CENTRAL INDEX KEY: 0000731657 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 042457335 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12742 FILM NUMBER: 08828783 BUSINESS ADDRESS: STREET 1: ONE PATRIOTS PARK CITY: BEDFORD STATE: MA ZIP: 01730-2396 BUSINESS PHONE: 6172756000 MAIL ADDRESS: STREET 2: ONE PATRIOTS PARK CITY: BEDFORD STATE: MA ZIP: 01730-2396 10-Q 1 form10-q_15913.txt SPIRE CORPORATION ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2008; 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: 0-12742 SPIRE CORPORATION ----------------- (Exact name of registrant as specified in its charter) Massachusetts 04-2457335 - ------------------------------- --------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) One Patriots Park, Bedford, Massachusetts 01730-2396 - ----------------------------------------- ---------- (Address of principal executive offices) (Zip Code) 781-275-6000 ------------ (Registrant's telephone number including area code) Indicate by "X" 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 by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer |_| Accelerated filer |_| Non-accelerated filer |_| Smaller reporting company |X| (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| The number of shares of the registrant's common stock outstanding as of May 2, 2008 was 8,330,688. ================================================================================ TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements: Unaudited Condensed Consolidated Balance Sheets as of March 31, 2008 and December 31, 2007...................................... 1 Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007.............. 2 Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007.............. 3 Notes to Unaudited Condensed Consolidated Financial Statements.. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................ 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 20 Item 4T. Controls and Procedures.......................................... 20 PART II. OTHER INFORMATION Item 1. Legal Proceedings................................................ 22 Item 1A. Risk Factors..................................................... 22 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...... 22 Item 3. Defaults Upon Senior Securities.................................. 22 Item 4. Submission of Matters to a Vote of Security Holders.............. 22 Item 5. Other Information................................................ 22 Item 6. Exhibits......................................................... 23 Signatures....................................................... 24 PART I FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31, 2008 2007 ------------ ------------ ASSETS Current assets - -------------- Cash and cash equivalents $ 2,196,000 $ 2,372,000 Restricted cash - current portion 380,000 391,000 ------------ ------------ 2,576,000 2,763,000 Accounts receivable - trade, net 8,738,000 12,766,000 Inventories, net 21,191,000 18,506,000 Deposits on equipment for inventory 2,003,000 2,475,000 Prepaid expenses and other current assets 631,000 542,000 ------------ ------------ Total current assets 35,139,000 37,052,000 Property and equipment, net 6,277,000 6,209,000 Intangible and other assets, net 866,000 851,000 Available-for-sale investments, at quoted market value (cost of $1,693,000 and $1,696,000 at 3/31/08 and 12/31/07, respectively) 1,693,000 1,800,000 Equity investment in joint venture 2,134,000 2,264,000 Deposit - related party 304,000 304,000 ------------ ------------ Total other assets 4,997,000 5,219,000 ------------ ------------ Total assets $ 46,413,000 $ 48,480,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities - ------------------- Current portion of capital lease obligation - related party $ 190,000 $ 486,000 Current portion of equipment line of credit 1,167,000 1,167,000 Accounts payable 3,923,000 2,909,000 Accrued liabilities 6,339,000 6,057,000 Current portion of advances on contracts in progress 21,465,000 23,599,000 ------------ ------------ Total current liabilities 33,084,000 34,218,000 Long-term portion of equipment line of credit 1,458,000 1,750,000 Long-term portion of advances on contracts in progress 1,765,000 1,950,000 Deferred compensation 1,693,000 1,800,000 Other long-term liabilities 72,000 60,000 ------------ ------------ Total long-term liabilities 4,988,000 5,560,000 ------------ ------------ Total liabilities 38,072,000 39,778,000 ------------ ------------ Stockholders' equity - -------------------- Common stock, $0.01 par value; 20,000,000 shares authorized; 8,328,688 and 8,321,188 shares issued and outstanding at March 31, 2008 and December 31, 2007, respectively 83,000 83,000 Additional paid-in capital 20,208,000 19,999,000 Accumulated deficit (11,950,000) (11,442,000) Accumulated other comprehensive income, net -- 62,000 ------------ ------------ Total stockholders' equity 8,341,000 8,702,000 ------------ ------------ Total liabilities and stockholders' equity $ 46,413,000 $ 48,480,000 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 1 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, ---------------------------- 2008 2007 ------------ ------------ Net sales and revenues - ---------------------- Sales of goods $ 11,375,000 $ 4,339,000 Contract research, service and license revenues 3,543,000 2,658,000 ------------ ------------ Total net sales and revenues 14,918,000 6,997,000 Costs of sales and revenues - --------------------------- Cost of goods sold 8,859,000 3,526,000 Cost of contract research, services and licenses 2,374,000 2,173,000 ------------ ------------ Total cost of sales and revenues 11,233,000 5,699,000 ------------ ------------ Gross Margin 3,685,000 1,298,000 Operating expenses - ------------------ Selling, general and administrative expenses 3,778,000 3,008,000 Internal research and development expenses 111,000 45,000 ------------ ------------ Total operating expenses 3,889,000 3,053,000 ------------ ------------ Loss from operations (204,000) (1,755,000) - -------------------- Interest income (expense), net (60,000) 18,000 Loss on equity investment in joint venture (130,000) -- Foreign exchange loss (114,000) (9,000) ------------ ------------ Total other income (expense), net (304,000) 9,000 ============ ============ Net loss $ (508,000) $ (1,746,000) - -------- ============ ============ Loss per share - basic and diluted $ (0.06) $ (0.21) - ---------------------------------- ============ ============ Weighted average number of common and common equivalent shares outstanding - basic and diluted 8,322,919 8,246,691 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 2 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, ---------------------------- 2008 2007 ------------ ------------ Cash flows from operating activities: - ------------------------------------- Net loss $ (508,000) $ (1,746,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 454,000 455,000 Loss on impairment of capital equipment -- 78,000 Loss on equity investment in joint venture 130,000 -- Deferred compensation (62,000) (1,000) Stock-based compensation 196,000 71,000 Decrease in accounts receivable reserves (21,000) (36,000) Decrease in inventory reserves (41,000) (157,000) Changes in assets and liabilities: Restricted cash 11,000 (1,000) Accounts receivable 4,049,000 987,000 Inventories (2,644,000) (3,161,000) Deposits, prepaid expenses and other current assets 383,000 1,249,000 Accounts payable, accrued liabilities and other liabilities 1,308,000 (1,275,000) Advances on contracts in progress (2,319,000) 1,012,000 ------------ ------------ Net cash provided by (used in) operating activities 936,000 (2,525,000) ------------ ------------ Cash flows from investing activities: - ------------------------------------- Proceeds from maturity of short-term investments -- 5,000,000 Purchase of property and equipment (493,000) (279,000) Increase in intangible and other assets (44,000) (28,000) ------------ ------------ Net cash provided by (used in) investing activities (537,000) 4,693,000 ------------ ------------ Cash flows from financing activities: - ------------------------------------- Principal payments on capital lease obligations - related parties (296,000) (210,000) Principal payments on equipment line of credit, net (292,000) -- Proceeds from exercise of stock options 13,000 104,000 ------------ ------------ Net cash used in financing activities (575,000) (106,000) ------------ ------------ Net increase (decrease) in cash and cash equivalents (176,000) 2,062,000 Cash and cash equivalents, beginning of period 2,372,000 1,536,000 ------------ ------------ Cash and cash equivalents, end of period $ 2,196,000 $ 3,598,000 ============ ============ Supplemental disclosures of cash flow information: - -------------------------------------------------- Interest received $ 9,000 $ 44,000 ============ ============ Interest paid $ 62,000 $ 1,000 ============ ============ Interest paid - related party $ 7,000 $ 25,000 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 3 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2008 AND 2007 1. DESCRIPTION OF THE BUSINESS Spire Corporation ("Spire" or the "Company") is a Massachusetts corporation incorporated in 1969. The Company's principal offices are located at One Patriots Park, Bedford, Massachusetts, and its phone number is (781) 275-6000. The Company's SEC filings are available through its website, www.spirecorp.com. The Company's common stock trades on the Nasdaq Global Market under the symbol "SPIR". The Company principally develops, manufactures and markets customized turnkey solutions for the solar industry, including manufacturing equipment and full turnkey lines for cell and module production and testing. The Company also offers through its subsidiary Spire Semiconductor concentrator cell and light-emitting diode ("LED") fabrication services and through its joint venture, Gloria Spire Solar, photovoltaic ("PV") system integration services. The Company also operates a line of business associated with advanced biomedical applications. The foundation for the Company's business is its industry-leading expertise in materials technologies and surface treatments; this proprietary knowledge enables the Company to further develop its offerings in solar equipment, optoelectronics and biomedical products and services. In the PV solar area, the Company develops, manufactures and markets specialized equipment for the production of terrestrial photovoltaic modules from solar cells. The Company's equipment has been installed in approximately 190 factories in 50 countries. In addition to the Company's cell and module manufacturing solutions, it has a device fabrication facility where it produces, under contract with its customers, gallium arsenide (GaAs) concentrator cells. Under the name Spire Semiconductor, this division produces GaAs concentrator cells, high performance LEDs, and other custom semiconductor foundry services for the Company's customers. In the biomedical area, the Company provides value-added surface treatments to manufacturers of orthopedic and other medical devices that enhance the durability, antimicrobial characteristics or other material characteristics of their products; develops and markets coated and uncoated hemodialysis catheters and related devices for the treatment of chronic kidney disease; and performs sponsored research programs into practical applications of advanced biomedical and biophotonic technologies. In July 2007, the Company entered into a joint venture with Gloria Solar Co., Ltd., a leading cell and module manufacturer in Taiwan, which designs, sells and manages installations of photovoltaic systems. The Company's 45% ownership stake in the joint venture, Gloria Spire Solar, LLC, was obtained through the contribution of its building integrated photovoltaic business to Gloria Solar. This transaction has allowed the Company to focus more of its attention on its core solar business, while continuing to expand the Spire brand name in the marketplace. The Company has been in the solar business for over 30 years and has been active in research and development in the space, with over $100 million of research and development conducted which has led to over 60 patents granted to date, as well as cell and module production, having been a pioneer in the early development of solar technology. This expertise has provided the platform and expertise for the Company's manufacturing equipment. Operating results will depend upon revenue growth and product mix, as well as the timing of shipments of higher priced products from the Company's solar equipment line. Export sales, which amounted to 61% of net sales and revenues for the quarter ending March 31, 2008, continue to constitute a significant portion of the Company's net sales and revenues. The Company has incurred significant operating losses in 2008, 2007 and 2006. Loss from operations, before gain on sales of trademarks, were $6.4 million and $8.3 million in 2007 and 2006, respectively. Loss from operations for the quarter ended March 31, 2008 was $204,000. These losses from operations have resulted in cash losses (loss from operations excluding gain on sales of trademark plus or minus non-cash adjustments) of approximately $5.9 million and $5.4 million in 2007 and 2006, respectively. The Company has funded these cash losses from cash receipts of $4.0 million from the sale of a solar PV module line along with the transfer of technology and rights to mark the modules with the Company's trademark in 2007 and $7.7 million from the sale of equity in 2006. For the quarter ended March 31, 2008, the cash gain (loss from operations plus or minus non-cash adjustments) was $452,000. As of March 31, 2008, the Company had unrestricted cash and cash equivalents of $2.2 million compared to unrestricted cash and cash equivalents of 4 $2.4 million as of December 31, 2007. While the Company believes it has inherent assets and technology that it could sell or license in the near term, there is no guarantee that the Company would be able to sell or license those assets on a timely basis and at appropriate values that would allow the Company to continue to fund its operating losses. The Company has developed several plans to mitigate cash losses primarily from increased revenues and, if required, potential cost reduction efforts and outside financing. As a result, the Company believes it has sufficient resources to continue as a going concern through at least March 31, 2009. 2. INTERIM FINANCIAL STATEMENTS The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted in accordance with such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes thereto for the year ended December 31, 2007, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. In the opinion of management, the accompanying unaudited, condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position as of March 31, 2008 and December 31, 2007 and the results of its operations and cash flows for the three months ended March 31, 2008 and 2007. The results of operations for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2008. The condensed consolidated balance sheet as of December 31, 2007 has been derived from audited financial statements as of that date. The accounting policies followed by the Company are set forth in Footnote 2 to the Company's consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2007. New Accounting Pronouncements - ----------------------------- In December 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141R ("FAS 141R"), BUSINESS COMBINATIONS, which revises FAS 141 and changes multiple aspects of the accounting for business combinations. Under the guidance in FAS 141R, the acquisition method must be used, which requires the acquirer to recognize most identifiable assets acquired, liabilities assumed, and non-controlling interests in the acquiree at their full fair value on the acquisition date. Goodwill is to be recognized as the excess of the consideration transferred plus the fair value of the non-controlling interest over the fair values of the identifiable net assets acquired. Subsequent changes in the fair value of contingent consideration classified as a liability are to be recognized in earnings, while contingent consideration classified as equity is not to be re-measured. Costs such as transaction costs are to be excluded from acquisition accounting, generally leading to recognizing expense, and, additionally, restructuring costs that do not meet certain criteria at acquisition date are to be subsequently recognized as post-acquisition costs. FAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently evaluating the impact that this issuance will have on its financial position and results of operation. In December 2007, the FASB issued SFAS No. 160 ("FAS 160"), NON-CONTROLLING INTEREST IN CONSOLIDATED FINANCIAL STATEMENTS - AN AMENDMENT OF ARB NO. 151. FAS 160 requires that a non-controlling interest in a subsidiary (i.e. minority interest) be reported in the equity section of the balance sheet instead of being reported as a liability or in the mezzanine section between debt and equity. It also requires that the consolidated income statement include consolidated net income attributable to both the parent and non-controlling interest of a consolidated subsidiary. A disclosure must be made on the face of the consolidated income statement of the net income attributable to the parent and to the non-controlling interest. Also, regardless of whether the parent purchases additional ownership interest, sells a portion of its ownership interest in a subsidiary or the subsidiary participates in a transaction that changes the parent's ownership interest, as long as the parent retains controlling interest, the transaction is considered an equity transaction. FAS 160 is effective for annual periods beginning after December 15, 2008. The Company is currently evaluating the impact, if any, that this standard will have on its financial position and results of operations. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("FAS 161"), DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES--AN AMENDMENT OF FASB STATEMENT NO. 133. FAS 161 requires enhanced disclosures about an entity's derivative and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged 5 items are accounted for under Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. FAS161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. FAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The Company is currently evaluating the impact that this issuance will have on its financial position and results of operation. 3. ACCOUNTS RECEIVABLE/ADVANCES ON CONTRACTS IN PROGRESS Net accounts receivable, trade consists of the following: March 31, 2008 December 31, 2007 -------------- ----------------- Amounts billed $ 7,810,000 $11,142,000 Retainage 8,000 8,000 Accrued revenue 1,129,000 1,846,000 ----------- ----------- 8,947,000 12,996,000 Less: Allowance for sales returns and doubtful accounts (209,000) (230,000) ----------- ----------- Net accounts receivable, trade $8,738,000 $12,766,000 =========== =========== Advances on contracts in progress $23,230,000 $25,549,000 =========== =========== Retainage represents revenues on certain United States government sponsored research and development contracts. These amounts, which usually represent 15% of the Company's research fee on each applicable contract, are not collectible until a final cost review has been performed by government auditors. Included in retainage are amounts expected to be collected after one year, which totaled approximately $8,000 at March 31, 2008 and December 31, 2007. The government's most recent audit was as of December 31, 2006, with no adverse impact. All other accounts receivable are expected to be collected within one year. Accrued revenue represents revenues recognized on contracts for which billings have not been presented to customers as of the balance sheet date. These amounts are billed and generally collected within one year. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to pay amounts due. The Company actively pursues collection of past due receivables as the circumstances warrant. Customers are contacted to determine the status of payment and senior accounting and operations management are included in these efforts as is deemed necessary. A specific reserve will be established for past due accounts over 60 days and over a specified amount, when it is probable that a loss has been incurred and the Company can reasonably estimate the amount of the loss. The Company does not record an allowance for government receivables and invoices backed by letters of credit as realizeability is reasonably assured. Bad debts are written off against the allowance when identified. There is no dollar threshold for account balance write-offs. While rare, a write-off is only recorded when all efforts to collect the receivable have been exhausted and only in consultation with the appropriate business line manager. In addition, the Company maintains an allowance for potential future product returns and rebates related to current period revenues. The Company analyzes the rate of historical returns when evaluating the adequacy of the allowance for sales returns and allowances. Returns and rebates are charged against the allowance when incurred. Advances on contracts in progress represent contracts for which billings have been presented to the customer, either as deposits or progress payments against future shipments, but revenue has not been recognized. 4. INVENTORIES Inventories, net of $313,000 and $354,000 of reserves at March 31, 2008 and December 31, 2007, respectively, consist of the following at: March 31, 2008 December 31, 2007 -------------- ----------------- Raw materials $ 4,860,000 $ 4,989,000 Work in process 7,624,000 12,951,000 Finished goods 8,707,000 566,000 ----------- ----------- $21,191,000 $18,506,000 =========== =========== 6 5. INCOME (LOSS) PER SHARE The following table provides a reconciliation of the denominators of the Company's reported basic and diluted income (loss) per share computations for the periods ended:
Three Months Ended March 31, ---------------------------- 2008 2007 --------- --------- Weighted average number of common and common equivalent shares outstanding - basic 8,322,919 8,246,691 Add: Net additional common shares upon assumed exercise of common stock options -- -- --------- --------- Adjusted weighted average number of common and common equivalents shares outstanding - diluted 8,322,919 8,246,691 ========= =========
For the three months ended March 31, 2008 and 2007, 208,847 and 101,050 shares, respectively, of common stock related to stock options were excluded from the calculation of dilutive shares because the inclusion of such shares would be anti-dilutive due to the Company's net loss position. In addition, for the three months ended March 31, 2007, 6,250 shares of common stock issuable relative to stock options were excluded from the calculation of diluted shares because their inclusion would have been anti-dilutive, due to their exercise prices exceeding the average market price of the stock for the period. 6. OPERATING SEGMENTS AND RELATED INFORMATION The following table presents certain operating division information in accordance with the provisions of SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information."
Total Solar Biomedical Optoelectronics Company ---------------------------------------------------------------- For the three months ended March 31, 2008 - ----------------------------------------- Net sales and revenues $10,673,000 $ 2,808,000 $ 1,437,000 $14,918,000 Income (loss) from operations $ 328,000 $ (176,000) $ (356,000) $ (204,000) For the three months ended March 31, 2007 - ----------------------------------------- Net sales and revenues $ 3,594,000 $ 2,505,000 $898,000 $ 6,997,000 Loss from operations $ (583,000) $ (512,000) $ (660,000) $(1,755,000)
The following table shows net sales and revenues by geographic area (based on customer location): Three Months Ended March 31, ----------------------------------------------- 2008 % 2007 % ----------- ------ ---------- ------- United States $ 5,815,000 39% $3,211,000 46% Europe/Africa 5,219,000 35% 1,702,000 24% Asia 3,647,000 24% 1,997,000 29% Rest of the world 237,000 2% 87,000 1% ----------- ------ ---------- ------- $14,918,000 100% $6,997,000 100% =========== ====== ========== ======= Revenues from contracts with United States government agencies for the three months ended March 31, 2008 and 2007 were approximately $400,000 and $254,000, or 3% and 4% of consolidated net sales and revenues, respectively. One customer accounted for approximately 19% and three customers accounted for approximately 50% of the Company's gross sales during the three months ended March 31, 2008 and 2007, respectively. One customer represented 31% of trade account receivables at March 31, 2008 and two customer represented 46% of trade account receivables at December 31, 2007. 7 7. INTANGIBLE AND OTHER ASSETS Patents amounted to $130,000 net of accumulated amortization of $700,000, at March 31, 2008. Licenses amounted to $93,000, net of accumulated amortization of $232,000 at March 31, 2008. Patent cost is primarily composed of cost associated with securing and registering patents that the Company has been awarded or that have been submitted to, and the Company believes will be approved by, the government. License cost is composed of the cost to acquire rights to the underlying technology or know-how. These costs are capitalized and amortized over their useful lives or terms, ordinarily five years, using the straight-line method. There are no expected residual values related to these patents or licenses. For disclosure purposes, the table below includes future amortization expense for licenses and patents owned by the Company as well as $603,000 of estimated amortization expense on a five-year straight-line basis related to patents that remain pending as of the balance sheet date. Estimated amortization expense for the periods ending December 31, is as follows: Year Amortization Expense ----------------------------- -------------------- 2008 remaining 9 months $153,000 2009 171,000 2010 166,000 2011 159,000 2012 and beyond 177,000 -------------------- $826,000 ==================== Also included in other assets are approximately $40,000 of refundable deposits made by the Company at March 31, 2008. 8. AVAILABLE-FOR-SALE INVESTMENTS Available-for-sale securities consist of the following assets held as part of the Spire Corporation Non-Qualified Deferred Compensation Plan: March 31, 2008 December 31, 2007 ----------------- ----------------- Equity investments $1,410,000 $1,411,000 Government bonds 259,000 303,000 Cash and money market funds 24,000 86,000 ----------------- ----------------- $1,693,000 $1,800,000 ================= ================= These investments have been classified as long-term available-for-sale investments and are reported at fair value, with unrealized gains and losses included in accumulated other comprehensive loss, net of related tax effect. As of March 31, 2008, the net unrealized gain on these marketable securities was less than $1,000. Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" ("FAS 157"). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157," which provides a one year deferral of the effective date of FAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of FAS 157 with resprect to its financial assets and liabilities only. FAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The new standard provides a consistent definition of fair value which focuses on an exit price which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard also prioritizes, within the measurement of fair value, the use of market-based information over entity specific information and establishes a three-level hierarchy for fair value measurements based on the nature of inputs used in the valuation of an asset or liability as of the measurement date. The hierarchy established under FAS 157 gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). As required by FAS 157, the Company's available for sale investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The three levels of the fair value hierarchy under FAS 157, and its applicability to the Company's available for sale investments, are described below: 8 Level 1 - Pricing inputs are quoted prices available in active markets for identical investments as of the reporting date. As required by FAS 157, the Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably impact the quoted price. Level 2 - Pricing inputs are quoted prices for similar investments, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes investments valued at quoted prices adjusted for legal or contractual restrictions specific to these investments. Level 3 - Pricing inputs are unobservable for the investment, that is, inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability. Level 3 includes investments that are supported by little or no market activity. The following table presents the financial instruments carried at fair value as of March 31, 2008 by FAS 157 valuation hierarchy (as defined above).
Level 1 Level 2 Level 3 Total -------------------------------------------------------------------- Available for sale investments $1,377,000 $316,000 -- $1,693,000 Percent of total 81% 19% -- 100%
9. NOTES PAYABLE AND CREDIT ARRANGEMENTS The Company had a $2,000,000 Loan Agreement with Citizens Bank of Massachusetts which expired on June 26, 2007. On May 25, 2007, the Company and its wholly-owned subsidiary, Spire Semiconductor, LLC, entered into a Loan and Security Agreement (the "Equipment Credit Facility") with Silicon Valley Bank (the "Bank"). Under the Equipment Credit Facility, for a one-year period, the Company and Spire Semiconductor could borrow up to $3,500,000 in the aggregate to finance certain equipment purchases (including reimbursement of certain previously-made purchases). Each advance made under the Equipment Credit Facility would be due thirty-six (36) months from the date the advance is made. Advances made under the Equipment Credit Facility would bear interest at the Bank's prime rate, as determined, plus 0.5% and payable in thirty-six (36) consecutive monthly payments following the funding date of that advance. On March 31, 2008, the Company entered into a second Loan and Security Agreement (the "Revolving Credit Facility") with the Bank. Under the terms of the Revolving Credit Facility, the Bank agreed to provide the Company with a credit line up to $5,000,000. The Company's obligations under the Equipment Credit Facility are secured by substantially of its assets and advances under the Revolving Credit Facility are limited to 80% of eligible receivables and the lesser of 25% of the value of its eligible inventory, as defined, or $2,500,000 if the inventory is backed by a customer letter of credit. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of Prime Rate plus one percent (1.0%) or seven percent (7%) (7% at March 31, 2008). In addition, the Company agreed to pay to the Bank a collateral monitoring fee of $750 per month in the event the Company is in default of its covenants and agreed to the following additional terms: (i) $50,000 commitment fee; (ii) an unused line fee in the amount of 0.75% per annum of the average unused portion of the revolving line; and (iii) an early termination fee of 0.5% of the total credit line if the Company terminates the Revolving Credit Facility prior to 12 months from the Revolving Credit Facility's effective date. The Revolving Credit Facility, if not sooner terminated in accordance with its terms, expires on March 30, 2009. In addition the Company's existing Equipment Credit Facility was amended whereby the Bank granted a waiver for the Company's defaults for not meeting its December 31, 2007 quarter liquidity and profit covenants and for not meeting its January and February 2008 liquidity covenants. Further the covenants were amended to match the new covenants contained in the Revolving Credit Facility. The Company's interest rate under the Equipment Credit Facility was also modified from Bank Prime plus one half percent to the greater of Bank Prime plus one percent (1%) or seven percent (7%) (7% at March 31, 2008). Under the terms of the Equipment Credit Facility, as long as any commitment remains outstanding under the facility, the Company must comply with an adjusted quick ratio covenant and a minimum quarterly net income covenant. In addition, until all amounts under the credit facilities with the Bank are repaid, covenants under the credit facilities impose restrictions on the Company's ability to, among other things, incur additional indebtedness, create or permit liens on the Company's assets, merge, consolidate or dispose of assets (other than in the ordinary course of business), make dividend and other restricted payments, make certain debt or equity investments, make certain acquisitions, engage in certain transactions with affiliates or change the business conducted by the Company and its subsidiaries. Any failure by the Company to comply with the covenants and obligations under the credit facilities could result in an event of default, in which case the Bank may be entitled to declare all amounts owed to be due and payable immediately. The Company's obligations under the credit facilities are secured by substantially all of its assets. 9 At March 31, 2008, the Company's outstanding borrowings from the Equipment Credit Facility amounted to $2,625,000 and there were no borrowings from the Revolving Credit Facility. The Company was not in compliance with its covenants as of March 31, 2008, but not in default because a Bank waiver has been received. On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the Company's net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in the Company's interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, the Company's term loan balance will be factored in when calculating the Company's borrowing base under the Revolving Credit Facility. 10. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION On January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), Share-Based Payment ("Statement 123(R)") using the modified prospective method. Based on an analysis of the Company's historical data, for the three months ended March 31, 2008 and 2007, the Company applied 8% and 14% forfeiture rates, respectively, to stock options outstanding in determining its Statement 123(R) stock-based compensation expense which it believes are reasonable forfeiture estimates for the periods. The impact of Statement 123(R) on the Company's results of operations resulted in recognition of stock-based compensation expense of approximately $196,000 and $71,000 for the three months ended March 31, 2008 and 2007, respectively. The total non-cash, stock-based compensation expense included in the condensed consolidated statement of operations for the periods presented is included in the following expense categories:
Three Months Ended March 31, ------------------------------------ 2008 2007 ---------------- --------------- Cost of contract research, services and licenses $ 13,000 $ 5,000 Cost of goods sold 32,000 1,000 Administrative and selling 151,000 65,000 ---------------- --------------- Total stock-based compensation $196,000 $ 71,000 ================ ===============
At March 31, 2008 the Company had outstanding options under two stock option plans: the 1996 Equity Incentive Plan (the "1996 Plan") and the 2007 Stock Equity Plan (the "2007 Plan"). Both plans were approved by stockholders and provided that the Board of Directors may grant options to purchase the Company's common stock to key employees and directors of the Company. Incentive and non-qualified options must be granted at least at the fair market value of the common stock or, in the case of certain optionees, at 110% of such fair market value at the time of grant. The options may be exercised, subject to certain vesting requirements, for periods up to ten years from the date of issue. The 1996 Plan expired with respect to the issuance of new grants as of December 10, 2006. Accordingly, future grants may be made only under the 2007 Plan. A summary of options outstanding under the 2007 Plan and 1996 Plan as of March 31, 2008 and changes during the three-month period is as follows:
Average Weighted- Remaining Aggregate Number of Average Exercise Contractual Intrinsic Shares Price Life (Years) Value --------------- ------------------ --------------- ------------- Options Outstanding at December 31, 2007 495,177 $ 7.10 Granted 25,000 $12.75 Exercised (7,500) $ 1.78 Cancelled/expired (3,500) $ 9.60 --------------- ------------------ Options Outstanding at March 31, 2008 509,177 $ 7.44 7.47 $4,032,549 =============== ================== Options Exercisable at March 31, 2008 223,492 $ 5.94 5.96 $2,106,295 =============== ==================
10 No stock options were granted during the three months ended March 31, 2007. The per-share weighted-average fair value of stock options granted during the three months ended March 31, 2008 was $7.28 on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Expected Risk-Free Expected Expected Year Dividend Yield Interest Rate Option Life Volatility Factor --------- ---------------- -------------- ---------------- ------------------ 2008 -- 2.42% 4.5 years 70.69%
The risk free interest rate reflects treasury yields rates over a term that approximates the expected option life. The expected option life is calculated based on historical lives of all options issued under the plan. The expected volatility factor is determined by measuring the actual stock price volatility over a term equal to the expected useful life of the options granted. 11. COMPREHENSIVE LOSS Comprehensive loss includes certain changes in equity that are excluded from net loss and consists of the following:
For the Three Months Ended March 31, ------------------------------------ 2008 2007 ---------------- --------------- Net loss $(508,000) $(1,746,000) Other comprehensive income: Unrealized gain on available for sale marketable securities, net of tax -- 1,000 ---------------- --------------- Total comprehensive loss $(508,000) $(1,745,000) ================ ===============
12. SUBSEQUENT EVENTS On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the Company's net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in the Company's interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, the Company's term loan balance will be factored in when calculating the Company's borrowing base under the Revolving Credit Facility. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECTION AND OTHER PARTS OF THIS REPORT CONTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), WHICH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO OUR FUTURE PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS MAY BE IDENTIFIED BY THE USE OF WORDS SUCH AS "MAY", "COULD", "WOULD", "SHOULD", "WILL", "EXPECTS", "ANTICIPATES", "INTENDS", "PLANS", "BELIEVES", "ESTIMATES", AND SIMILAR EXPRESSIONS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS AND TIMING DESCRIBED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE FACTORS DISCUSSED OR REFERRED TO IN THIS REPORT AND IN THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007. THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN LIGHT OF THOSE FACTORS AND IN CONJUNCTION WITH OUR ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. OVERVIEW We principally develop, manufacture and market customized turnkey solutions for the solar industry, including manufacturing equipment and full turnkey lines for cell and module production and testing. We also offer through our subsidiary Spire Semiconductor concentrator cell and light-emitting diode ("LED") fabrication services and through our joint venture Gloria Spire Solar photovoltaic ("PV") system integration services. We also operate a line of business associated with advanced biomedical applications. The foundation for our business is our industry-leading expertise in materials technologies and surface treatments; this proprietary knowledge enables us to further develop our offerings in solar equipment, optoelectronics and biomedical products and services. 11 Our initial focus on high-energy physics led to the development of our first product, the SPI-PULSE electron beam generator, to support research in radiation effects testing. We moved into the space solar cell business after signing a contract to develop solar cell coverslip for radiation hardening. In addition, we began to develop a new technology based on ion implantation and pulsed electron beam annealing of silicon solar cells. As a result of the energy crisis in the early 1980s, which forced the United States to consider photovoltaics for terrestrial applications, we received our first terrestrial solar cell contract for low cost production using our ion implantation technology. We leveraged this knowledge to develop our state-of-the-art manufacturing equipment, in addition to our offerings in the optoelectronics and biomaterials industries. As photovoltaic cell and module manufacturers ramp up production to meet increasing demand, they will first need to acquire greater quantities of turnkey equipment in order to produce more photovoltaic cells and modules. We believe that we are one of the world's leading suppliers of the manufacturing equipment and technology needed to produce solar photovoltaic power systems. Our individual manufacturing equipment products and our SPI-LINETM integrated turnkey cell and module production lines can be highly scaled, customized, and automated with high throughput. These systems are designed to meet the needs of a broad range of customers ranging from manufacturers relying on mostly manual processes, to some of the largest photovoltaic manufacturing companies in the world. In addition to our cell and module manufacturing solutions, we have a device fabrication facility where we produce, under contract with our customers, gallium arsenide (GaAs) concentrator cells. The state-of-the-art semiconductor fabrication and foundry facility is the foundation of our solar cell process technology for silicon, polysilicon, thin film and GaAs concentrator cells. Under the name Spire Semiconductor, this division produces GaAs concentrator cells, high performance LEDs, and other custom semiconductor foundry services for our customers. In July 2007, we entered into a joint venture with Gloria Solar Co., Ltd., a leading cell and module manufacturer in Taiwan, which designs, sells and manages installations of photovoltaic systems. Our 45% ownership stake in the joint venture, Gloria Spire Solar, LLC, was obtained through the contribution of our building integrated photovoltaic business to Gloria Solar. This transaction has allowed us to focus more of our attention on our core solar business, while continuing to expand the Spire brand name in the marketplace. Capitalizing on our expertise in surface treatments, we also have a biomedical division which manufactures medical devices and provides advanced medical device surface treatment processes to our customers. Our medical device business develops, manufactures and sells premium products for vascular access in chronic kidney disease patients. Our surface treatment business modifies the surfaces of medical devices to improve their performance. We have been in the solar business for over 30 years and have been active in research and development in the space, with over $100 million of research and development conducted which has led to over 60 patents granted to date, as well as cell and module production, having been a pioneer in the early development of solar technology. This expertise has provided the platform and expertise for our manufacturing equipment. We have equipment deployed in approximately 50 countries. Operating results will depend upon revenue growth and product mix, as well as the timing of shipments of higher priced products from our solar equipment line. Export sales, which amounted to 61% of net sales and revenues for the three months ended March 31, 2008, continue to constitute a significant portion of our net sales and revenues. Results of Operations - --------------------- The following table sets forth certain items as a percentage of net sales and revenues for the periods presented:
Three Months Ended March 31, --------------------------------- 2008 2007 -------------- --------------- Net sales and revenues 100% 100% Cost of sales and revenues 75 81 -------------- --------------- Gross profit 25 19 Selling, general and administrative expenses 25 43 Internal research and development expenses 1 1 -------------- --------------- Loss from operations (1) (25) Other income (expense), net (2) -- -------------- --------------- Loss before income tax benefit (3) (25) Income tax benefit -- -- -------------- --------------- Net loss (3%) (25%) ============== ===============
12 OVERALL Our total net sales and revenues for the three months ended March 31, 2008 ("2008") were $14,918,000 as compared to $6,997,000 for the three months ended March 31, 2007 ("2007"), which represents an increase of $7,921,000 or 113%. The increase was primarily attributable to a $7,079,000 increase in solar sales and a $539,000 increase in optoelectronics sales. SOLAR BUSINESS UNIT Sales in our solar business unit increased 197% during 2008 to $10,673,000 as compared to $3,594,000 in 2007. The increase is the result of shipments of solar equipment reflecting the overall increase in activity in the solar power industry. We have focused our sales and marketing efforts on establishing ourselves as one of the premier suppliers of equipment to the solar power industry for the manufacture of photovoltaic power modules. BIOMEDICAL BUSINESS UNIT Revenues of our biomedical business unit increased 12% during 2008 to $2,808,000 as compared to $2,505,000 in 2007. The increase reflects increased revenues from our research and development contracts and orthopedics coatings services offset by reduced revenues from catheter products. OPTOELECTRONICS BUSINESS UNIT Revenues in our optoelectronics business unit increased 60% to $1,437,000 during 2008 as compared to $898,000 in 2007. The increase reflects an overall increase in optoelectronics activities attributable to a shift in product mix to larger scale commercial orders compared with smaller sized research and development projects. Three Months Ended March 31, 2008 Compared to Three Months Ended March 31, 2007 - ------------------------------------------------------------------------------- NET SALES AND REVENUES The following table categorizes our net sales and revenues for the periods presented:
Three Months Ended March 31, Increase --------------------------------- ------------------------- 2008 2007 $ % --------------- -------------- -------------- ------- Sales of goods $11,375,000 $4,339,000 $7,036,000 162% Contract research, services and license revenues 3,543,000 2,658,000 885,000 33% --------------- -------------- -------------- Net sales and revenues $14,918,000 $6,997,000 $7,921,000 113% =============== ============== ============== =======
The 162% increase in sales of goods for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 was primarily due to an increase in solar equipment revenues, partially offset by a decrease in catheter products sales. Solar equipment sales increased 210% in 2008 as compared to 2007 primarily due to an overall increase in solar power industry activity. Sales of catheters decreased approximately 3%. The 33% increase in contract research, services and license revenues for the three months ended March 31, 2008 as compared to the three months ended March 31, 2007 is primarily attributable to an increase in orthopedics, optoelectronics and government research and development activities. Revenue from our optoelectonics processing services (Spire Semiconductor) increased 64% in 2008 compared to 2007 as a result of an overall increase in optoelectronics activities attributable to a shift in product mix to larger scale commercial orders compared with smaller sized research and development projects. Revenues from our research and development activities increased 64% in 2008 as compared to 2007 primarily due to an increase in the number and value of contracts associated with funded research and development. Revenues from our orthopedic activities increased 8% in 2008 as compared to 2007. 13 COST OF SALES AND REVENUES The following table categorizes our cost of sales and revenues for the periods presented, stated in dollars and as a percentage of related sales and revenues:
Three Months Ended March 31, Increase ------------------------------------------------------ -------------------------- 2008 % 2007 % $ % -------------- ------ ------------- ------- -------------- -------- Cost of goods sold $ 8,859,000 78% $3,526,000 81% $5,333,000 151% Cost of contract research, services and licenses 2,374,000 67% 2,173,000 82% 201,000 9% -------------- ------------- -------------- Net cost of sales and revenues $11,233,000 75% $5,699,000 81% $5,534,000 97% ============== ============= ==============
Cost of goods sold increased 151% in 2008 as compared to 2007, primarily as a result of the 162% increase in related revenues. As a percentage of sales, cost of goods sold was 78% of sales of goods in 2008 as compared to 81% of sales in 2007. This reduction in the percentage of sales in 2008 is due to higher levels of revenue along with better utilization of solar manufacturing overhead. Cost of contract research, services and licenses increased 9% in 2008 as compared to 2007, primarily as a result of the 33% increase in related revenues and increased costs at our optoelectronics facility (Spire Semiconductor) along with increased costs of our contract research activities due to higher volumes. Cost of contract research, services and licenses as a percentage of revenue decreased to 67% of revenues in 2008 from 82% in 2007, primarily due to the increase in related revenues and better utilization of biomedical and its optoelectronic factory overhead. Cost of sales and revenues also includes approximately $45,000 and $6,000 of stock-based compensation for the three months ending March 31, 2008 and 2007, respectively, due to the adoption of SFAS 123(R) in 2006. OPERATING EXPENSES The following table categorizes the our operating expenses for the periods presented, stated in dollars and as a percentage of total sales and revenues:
Three Months Ended March 31, Increase ------------------------------------------------------ ------------------------- 2008 % 2007 % $ % -------------- ------ ------------- ------- ------------- -------- Selling, general and administrative $3,778,000 25% $3,008,000 43% $770,000 26% Internal research and development 111,000 1% 45,000 1% 66,000 147% -------------- ------------- ------------- Operating expenses $3,889,000 26% $3,053,000 44% $836,000 27% ============== ============= ==============
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense increased 26% in 2008 as compared to 2007, primarily as a result of an increase in stock-based compensation, professional services used by us and higher head count and related employee costs. In addition, commissions to our network of independent sales representatives related to sales of solar equipment were up due to increased sales and revenues. Selling, general and administrative expense decreased to 25% of sales and revenues in 2008 as compared to 43% in 2007. The reduction was primarily due to the 113% increase in sales and revenues partially offset by the 26% increase in expenses. Operating expenses includes approximately $151,000 and $65,000 of stock-based compensation for the three months ending March 31, 2008 and 2007, respectively, due to the adoption of SFAS 123(R) in 2006. INTERNAL RESEARCH AND DEVELOPMENT Internal research and development expense increased 147% in 2008 as compared to 2007, primarily as a result of our cost sharing contract with the National Renewable Energy Laboratory ("NREL") reducing 2007 costs. 14 OTHER INCOME (EXPENSE), NET We earned $9,000 and $44,000 of interest income for the quarters ended March 31, 2008 and 2007, respectively. The decreased interest income is due to lower cash balances held by us during 2008 compared with 2007. We incurred interest expense of $69,000 and $26,000 for the quarters ended March 31, 2008 and 2007, respectively. The increased interest expense is due to higher interest payments associated with the $3.5 million term loan outstanding with Silicon Valley Bank compared with 2007 interest expenses primarily associated with interest incurred on capital leases associated with the semiconductor foundry. We recorded a $130,000 loss on equity investment in joint venture with Gloria Solar for the quarter ended March 31, 2008. Due to the conversion of U.S. dollars into Japanese Yen, we lost approximately $114,000 and $9,000 during the quarters ended March 31, 2008 and 2007, respectively. INCOME TAXES We did not record an income tax benefit for the three months ended March 31, 2008 and 2007. A valuation allowance has been provided against the current period tax benefit due to uncertainty regarding the realization of the net operating loss in the future. NET INCOME We reported a net loss for the three months ended March 31, 2008 of approximately $508,000, compared to a net loss of $1,746,000 in 2007. The net loss decreased approximately $1,238,000 primarily due to the increase in sales and revenues and the improvement in gross margins. Liquidity and Capital Resources - -------------------------------
Decrease March 31, December 31, -------------------------- 2008 2007 $ % --------------- -------------- -------------- -------- Cash and cash equivalents $2,196,000 $2,372,000 $ (176,000) (7%) Working capital $2,055,000 $2,834,000 $ (779,000) (27%)
Cash and cash equivalents decreased slightly due to cash used in investing and financing activities, partially offset by cash provided by operating activities. The overall reduction in working capital is due to cash losses from operations and an additional investment in property and equipment of $493,000. We have historically funded our operating cash requirements using operating cash flow, proceeds from the sale and licensing of technology and proceeds from the sale of equity securities. We had a $2,000,000 Loan Agreement with Citizens Bank of Massachusetts which expired on June 26, 2007. On May 25, 2007, we and our wholly-owned subsidiary, Spire Semiconductor, LLC, entered into a Loan and Security Agreement (the "Equipment Credit Facility") with Silicon Valley Bank (the "Bank"). Under the Equipment Credit Facility, for a one-year period, we and Spire Semiconductor could borrow up to $3,500,000 in the aggregate to finance certain equipment purchases (including reimbursement of certain previously-made purchases). Each advance made under the Equipment Credit Facility would be due thirty-six (36) months from the date the advance is made. Advances made under the Equipment Credit Facility would bear interest at the Bank's prime rate, as determined, plus 0.5% and payable in thirty-six (36) consecutive monthly payments following the funding date of that advance. On March 31, 2008, we entered into a second Loan and Security Agreement (the "Revolving Credit Facility") with the Bank. Under the terms of the Revolving Credit Facility, the Bank agreed to provide us with a credit line up to $5,000,000. Our obligations under the Equipment Credit Facility are secured by substantially all of our assets and advances under the Revolving Credit Facility are limited to 80% of eligible receivables and the lesser of 25% of the value of our eligible inventory, as defined, or $2,500,000 if the inventory is backed by a customer letter of credit. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of Prime Rate plus one percent (1.0%) or seven percent (7%) (7% at March 31, 2008). In addition, we agreed to pay to the Bank a collateral monitoring fee of $750 per month in the event we are in default of our covenants and agreed to the following additional terms: (i) $50,000 commitment fee; (ii) an unused line fee in the amount of 0.75% per annum of the average unused portion of the revolving line; and (iii) an early termination 15 fee of 0.5% of the total credit line if we terminate the Revolving Credit Facility prior to 12 months from the Revolving Credit Facility's effective date. The Revolving Credit Facility, if not sooner terminated in accordance with its terms, expires on March 30, 2009. In addition, our existing Equipment Credit Facility was amended whereby the Bank granted a waiver for our defaults for not meeting our December 31, 2007 quarter liquidity and profit covenants and for not meeting our January and February 2008 liquidity covenants. Further the covenants were amended to match the new covenants contained in the Revolving Credit Facility. Our interest rate under the Equipment Credit Facility was also modified from Bank Prime plus one half percent to the greater of Bank Prime plus one percent (1%) or seven percent (7%) (7% at March 31, 2008). Under the terms of the Equipment Credit Facility, as long as any commitment remains outstanding under the facility, we must comply with an adjusted quick ratio covenant and a minimum quarterly net income covenant. In addition, until all amounts under the credit facilities with the Bank are repaid, covenants under the credit facilities impose restrictions on our ability to, among other things, incur additional indebtedness, create or permit liens on our assets, merge, consolidate or dispose of assets (other than in the ordinary course of business), make dividend and other restricted payments, make certain debt or equity investments, make certain acquisitions, engage in certain transactions with affiliates or change the business conducted by us and our subsidiaries. Any failure by us to comply with the covenants and obligations under the credit facilities could result in an event of default, in which case the Bank may be entitled to declare all amounts owed to be due and payable immediately. Our obligations under the credit facilities are secured by substantially all of our assets. At March 31, 2008, we had outstanding borrowings from the Equipment Credit Facility amounting to $2,625,000 and there were no borrowings from the Revolving Credit Facility. We were not in compliance with our covenants as of March 31, 2008, but not in default because a Bank waiver has been received. On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the our net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in our interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, our term loan balance will be factored in when calculating our borrowing base under the Revolving Credit Facility. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to pay amounts due. We actively pursues collection of past due receivables as the circumstances warrant. Customers are contacted to determine the status of payment and senior accounting and operations management are included in these efforts as is deemed necessary. A specific reserve will be established for past due accounts over 60 days and over a specified amount, when it is probable that a loss has been incurred and we can reasonably estimate the amount of the loss. We do not record an allowance for government receivables and invoices backed by letters of credit as realizeability is reasonably assured. Bad debts are written off against the allowance when identified. There is no dollar threshold for account balance write-offs. While rare, a write-off is only recorded when all efforts to collect the receivable have been exhausted and only in consultation with the appropriate business line manager. There are no material commitments by us for capital expenditures. At March 31, 2008, our accumulated deficit was approximately $11,950,000, compared to accumulated deficit of approximately $11,442,000 as of December 31, 2007. We have an effective shelf registration statement on file with the Securities and Exchange Commission allowing us to sell up to $60 million of common stock. We believe it is prudent to maintain shelf registration capacity in order to facilitate future capital raising activities. To date there have been no issuances of common stock under this shelf registration statement. We believe we have sufficient resources to finance our current operations for the foreseeable future from operating cash flow and working capital. We may, however, raise additional capital through the sale of equity securities, under the shelf registration statement or otherwise, under appropriate circumstances. Foreign Currency Fluctuation - ---------------------------- We sell only in U.S. dollars, generally against an irrevocable confirmed letter of credit through a major United States bank. Accordingly, we are not directly affected by foreign exchange fluctuations on our current orders. However, fluctuations in foreign exchange rates do have an effect on our customers' access to U.S. dollars and on the pricing competition on certain pieces of equipment that we sell in selected markets. We received Japanese yen in exchange for the sale of a license to our solar technology. In addition, purchases made and royalties received under our Consortium Agreement with our Japanese partner are in Japanese yen. We have committed to purchase certain pieces of equipment from European vendors; these commitments are denominated in Euros. We bear the risk of any currency fluctuations that may be 16 associated with these commitments. We do not believe that foreign exchange fluctuations will materially affect our operations. Related Party Transactions - -------------------------- We subleased 77,000 square-feet in a building leased by Mykrolis Corporation, who in turn leased the building from SPI-Trust, a Trust of which Roger Little, our Chairman of the Board, Chief Executive Officer and President, is the sole trustee and principal beneficiary. The 1985 sublease, originally was for a period of ten years, was extended for a five-year period expiring on November 30, 2000 and was further extended for a five-year period expiring on November 30, 2005. The sublease agreement provided for minimum rental payments plus annual increases linked to the consumer price index. Effective December 1, 2005, we entered into a two-year Extension of Lease Agreement (the "Lease Extension") directly with SPI-Trust. We assumed certain responsibilities of Mykrolis, the tenant under the former lease, as a result of the Lease Extension including payment of all building and real estate related expenses associated with the ongoing operations of the property. We will allocate a portion of these expenses to SPI-Trust based on pre-established formulas utilizing square footage and actual usage where applicable. These allocated expenses will be invoiced monthly and be paid utilizing a SPI-Trust escrow account of which we have sole withdrawal authority. SPI-Trust is required to maintain three (3) months of its anticipated operating costs within this escrow account. On December 1, 2006, we and SPI-Trust amended the Lease Extension to include the lease of an additional 15,000 square feet from SPI-Trust for a one-year term. The additional space was leased at a rate of $8.06 per square foot on annual basis. The additional space was used to expand our solar operations. On November 30, 2007, we entered into a new Lease Agreement (the "New Lease") with SPI-Trust, with respect to 144,230 square feet of space comprising the entire building in which we have occupied space since December 1, 1985. The term of the New Lease commenced on December 1, 2007 and continues for five (5) years until November 30, 2012. We have the right to extend the term of the New Lease for an additional five (5) year period. The annual rental rate for the first year of the Lease is $12.50 per square foot on a triple net basis, whereby the tenant is responsible for operating expenses, taxes and maintenance of the building. The annual rental rate increases on each anniversary by $0.75 per square foot. If we exercises our right to extend the term of the New Lease, the annual rental rate for the first year of the extended term will be the greater of (a) the rental rate in effect immediately preceding the commencement of the extended term or (b) the market rate at such time, and on each anniversary of the commencement of the extended term the rental rate will increase by $0.75 per square foot. We believe that the terms of the New Lease are commercially reasonable. Rent expense under the New Lease for the three months ended March 31, 2008 was $505,000. In conjunction with our acquisition of Spire Semiconductor in May 2003, SPI-Trust purchased from Stratos Lightwave, Inc. (Spire Semiconductor's former owner) the building that Spire Semiconductor occupies in Hudson, New Hampshire for $3.7 million. Subsequently, we entered into a lease for the building (90,000 square feet) with SPI-Trust whereby we agreed to pay $4.1 million to the SPI-Trust over an initial five-year term expiring in 2008 with an option for us to extend for five years. In addition to the rent payments, the lease obligates us to keep on deposit with SPI-Trust the equivalent of three months rent ($304,000 as of March 31, 2008.) The lease agreement does not provide for a transfer of ownership at any point. Interest costs were assumed at 7%. Interest expense was approximately $6,800 for the three months ended March 31, 2008. This lease has been classified as a related party capital lease and a summary of payments (including interest) follows:
Rate Per Security Year Square Foot Annual Rent Monthly Rent Deposit ------------------------------ ------------ --------------- ---------------- ------------ June 1, 2003 - May 31, 2004 $6.00 $ 540,000 $45,000 $135,000 June 1, 2004 - May 31, 2005 7.50 675,000 56,250 168,750 June 1, 2005 - May 31, 2006 8.50 765,000 63,750 191,250 June 1, 2006 - May 31, 2007 10.50 945,000 78,750 236,250 June 1, 2007 - May 31, 2008 13.50 1,215,000 101,250 303,750 --------------- $4,140,000 ===============
At March 31, 2008, $190,000 reflected the current portion of capital lease obligation - related party, in the consolidated balance sheet. 17 Critical Accounting Policies - ---------------------------- The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Among the significant estimates affecting our consolidated financial statements are those relating to revenue recognition, reserves for doubtful accounts and sales returns and allowances, reserve for excess and obsolete inventory, impairment of long-lived assets, income taxes, and warranty reserves. We regularly evaluate our estimates and assumptions based upon historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. To the extent actual results differ from those estimates, our future results of operations may be affected. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Refer to Footnote 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2007 for a description of our significant accounting policies. REVENUE RECOGNITION We derive our revenues from three primary sources: (1) commercial products including, but not limited to, solar energy manufacturing equipment, solar energy systems and hemodialysis catheters; (2) biomedical and semiconductor processing services; and (3) United States government funded research and development contracts. We generally recognizes product revenue upon shipment of products provided there are no uncertainties regarding customer acceptance, persuasive evidence of an arrangement exists, the sales price is fixed or determinable, and collectibility is reasonably assured. These criteria are generally met at the time of shipment when the risk of loss and title passes to the customer or distributor, unless a consignment arrangement exists. Revenue from consignment arrangements is recognized based on product usage indicating sales are complete. We utilize a distributor network to market and sell our hemodialysis catheters domestically. We generally recognizes revenue when the catheters are shipped to our distributors. Gross sales reflect reductions attributable to customer returns and various customer incentive programs including pricing discounts and rebates. Product returns are permitted in certain sales contracts and an allowance is recorded for returns based on our history of actual returns. Certain customer incentive programs require management to estimate the cost of those programs. The allowance for these programs is determined through an analysis of programs offered, historical trends, expectations regarding customer and consumer participation, sales and payment trends, and experience with payment patterns associated with similar programs that had been previously offered. An analysis of the sales return and rebate activity for the three months ended March 31, 2008, is as follows:
Rebates Returns Total --------------- -------------- -------------- Balance - December 31, 2007 $ 77,000 $10,000 $ 87,000 Provision 109,000 9,000 118,000 Utilization (100,000) (9,000) (109,000) --------------- -------------- -------------- Balance - March 31, 2008 $ 86,000 $10,000 $ 96,000 =============== ============== ==============
o Credits for rebates are recorded in the month of the actual sale. o Credits for returns are processed when we receive the actual returned merchandise. o Substantially all rebates and returns are processed no later than three months after our original shipment. The reserve percentage of inventory held by distributors over the past quarters has increased to approximately 9% at March 31, 2008, when compared to 8% at December 31, 2007. We perform various sensitivity analyses to determine the appropriate reserve percentage to use. To date, actual quarterly reserve utilization has approximated the amount provided. The total inventory held by distributors was approximately $987,000 at March 31, 2008. If sufficient history to make reasonable and reliable estimates of returns or rebates does not exist, revenue associated with such practices is deferred until the return period lapses or a reasonable estimate can be made. This deferred revenue will be recognized as revenue when the distributor reports to us that it has either shipped or disposed of the units (indicating that the possibility of return is remote). 18 Our OEM capital equipment solar energy business builds complex customized machines to order for specific customers. Most of these orders are sold on a FOB Bedford, Massachusetts (or EX-Works Factory) basis. It is our policy to recognize revenues for this equipment as the product is shipped to the customer, as customer acceptance is obtained prior to shipment and the equipment is expected to operate the same in the customer's environment as it does in our environment. When an arrangement with the customer includes future obligations or customer acceptance, revenue is recognized when those obligations are met or customer acceptance has been achieved. For arrangements with multiple elements, we allocate fair value to each element in the contract and revenue is recognized upon delivery of each element. If we are not able to establish fair value of undelivered elements, all revenue is deferred. We recognize revenues and estimated profits on long-term government contracts on the accrual basis where the circumstances are such that total profit can be estimated with reasonable accuracy and ultimate realization is reasonably assured. We accrue revenue and profit utilizing the percentage of completion method using a cost-to-cost methodology. A percentage of the contract revenues and estimated profits is determined utilizing the ratio of costs incurred to date to total estimated cost to complete on a contract by contract basis. Profit estimates are revised periodically based upon changes and facts, and any losses on contracts are recognized immediately. Some of the contracts include provisions to withhold a portion of the contract value as retainage until such time as the United States government performs an audit of the cost incurred under the contract. Our policy is to take into revenue the full value of the contract, including any retainage, as we perform against the contract because we have not experienced any substantial losses as a result of audits performed by the United States government. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, including fixed assets and intangible assets, are continually monitored and are evaluated at least annually for impairment. The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use of an asset and its eventual disposition. The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance. Our estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, changes to our business model or changes in our operating performance. If the sum of the undiscounted cash flows (excluding interest) is less than the carrying value, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. STOCK-BASED COMPENSATION On January 1, 2006, we adopted the fair value recognition provisions of Financial Accounting Standards Board ("FASB") Statement No. 123(R), Share-Based Payment ("Statement 123(R)") using the modified prospective method. In accordance with the modified prospective method, we have not restated our consolidated financial statements for prior periods. Under this transition method, stock-based compensation expense includes stock-based compensation expense for all of our stock-based compensation awards granted prior to, but not yet vested as of, January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation ("Statement 123"). Stock-based compensation expense for all stock-based compensation awards granted on or after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of Statement 123(R). The impact of Statement 123(R) on our results of operations resulted in recognition of stock option expense of approximately $196,000 and $71,000 for the three months ended March 31, 2008 and 2007, respectively. Contractual Obligations, Commercial Commitments and Off-Balance Sheet - --------------------------------------------------------------------- Arrangements - ------------ The following table summarizes our gross contractual obligations at March 31, 2008 and the maturity periods and the effect that such obligations are expected to have on our liquidity and cash flows in future periods:
Payments Due by Period ---------------------------------------------------------------------------------- Less than 2 - 3 4 - 5 More Than Contractual Obligations Total 1 Year Years Years 5 Years - -------------------------------------- ------------- ------------- ------------ ------------- ------------- Equipment Credit Facility (SVB) $2,841,000 $1,313,000 $1,528,000 -- -- Revolving Credit Facility (SVB) -- -- -- -- -- Purchase obligations $1,412,000 $1,405,000 $ 7,000 -- -- Capital leases: Related party capital lease $ 192,000 $ 192,000 -- -- -- Operating leases: Unrelated party operating leases $ 345,000 $ 135,000 $ 210,000 -- -- Related party operating lease $9,495,000 $1,839,000 $4,002,000 $3,654,000 --
19 Purchase obligations include all open purchase orders outstanding regardless of whether they are cancelable or not. Included in purchase obligations are raw material and equipment needed to fulfill customer orders. Capital lease and Credit Facility obligations outlined above include both the principal and interest components of these contractual obligations. We closed our Japanese yen account during the first quarter of 2008. Total foreign exchange loss for the quarter ended March 31, 2008 of approximately $114,000 is reflected in other income (expense), net in the accompanying unaudited condensed consolidated statement of operations. Outstanding letters of credit totaled approximately $250,000 at March 31, 2008. The letters of credit principally secure performance obligations, and allow holders to draw funds up to the face amount of the letter of credit if we do not perform as contractually required. These letters of credit expire through 2008 and are 100% secured by cash. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk to which we are subject consists of the risk of loss arising from adverse changes in market interest rates and foreign exchange rates. Exposure to market rate risk for changes in interest rates relates to our investment portfolio. We have not used derivative financial instruments in our investment portfolio. We seek to place our investments with high-quality issuers and we have policies limiting, among other things, the amount of credit exposure to any one issuer. We seek to limit default risk by purchasing only investment-grade securities. We do not believe we have any material market risk with respect to our financial instruments. ITEM 4T. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures - ------------------------------------------------ Our management, under the supervision of and with the participation of the Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report, March 31, 2008. Based on its evaluation, and taking into consideration the material weaknesses in internal control over financial reporting referenced below, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of March 31, 2008. As previously reported in our Annual Report on Form 10-K, as filed with the Securities & Exchange Commission (SEC) on March 31, 2008, in connection with our assessment of the effectiveness of our internal control over financial reporting at the end of our last fiscal year, management identified material weaknesses in the internal control over financial reporting as of December 31, 2007. We had an ineffective control environment. This has been previously disclosed in prior filings. Efforts to remediate deficiencies were impeded by an evolving control environment brought on by the rapid expansion in our business over the past twelve months. We did not maintain an effective financial reporting process, ensure timely and accurate completion of financial statements and we did not maintain effective monitoring controls including reconciliations and analysis of key accounts. We did not have a sufficient level of staffing with the necessary knowledge, experience and training to ensure the completeness and accuracy of our financial statements. Specifically, the financial reporting organization structure was not adequate to support the size, complexity or activities of our Company. This affected our ability to maintain effective monitoring controls and related segregation of duties over automated and manual transactions processes. Specifically, inadequate segregation of duties led to untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective supervision and reviews. We did not maintain effective controls over our IT environment. Specifically, we did not perform a review of restricted user access in our application software system and file server critical worksheet directories. We lacked sufficient business continuity and back up polices and procedures. As a result of the foregoing, management has concluded that our internal control over financial reporting was not effective as of December 31, 2007. 20 Changes in Internal Control Over Financial Reporting - ---------------------------------------------------- Except as described below, there have been no changes during our fiscal quarter ended March 31, 2008 in our internal control over financial reporting that may have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management is actively addressing the above noted material weaknesses and other operational, financial and internal control remediation efforts are also underway. New policies and procedures are being created and existing policies and procedures are being reviewed and will be modified as part of our documentation and testing of internal control over financial reporting. Management believes these new internal control policies and procedures, when fully implemented, along with the training of key personnel and testing of these key controls will be effective in remediating these material weaknesses. In February 2008, we hired a Director of Financial Reporting who will have the primary responsibility for the financial close and reporting process and our internal control and monitoring environment related to financial reporting. We implemented new IT policies and procedures and progress was made in addressing the controls over our IT environment. 21 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS During the second quarter of 2005 a suit was filed by Arrow International, Inc. against Spire Biomedical, Inc., our wholly owned subsidiary, alleging patent infringement by us. The complaint claims one of our catheter products induces and contributes to infringement when medical professionals insert it. We have responded to the complaint denying all allegations and have filed certain counterclaims. The discovery process in this case has continued and is nearly complete. We filed a motion for summary judgment, asserting patent invalidity resulting from plaintiff's failure to follow the administrative procedures of the U.S. Patent and Trademark Office ("USPTO") which failure has remained uncorrected. On August 4, 2006, the Court granted our motion and dismissed this lawsuit without prejudice. Plaintiffs applied to revive the applicable patent, which application was granted by the USPTO in August 2006. Plaintiffs refiled their lawsuit against us in September 2006. We have filed our answer and resumed our defense. The parties have been working to conclude discovery. Based on information presently available to us, we believe that we do not infringe any valid claim of the plaintiff's patent and that, consequently, we have meritorious legal defenses with respect to this action in the event it were to be reinstated. The parties have agreed to limit any potential damages to us to a pre-specified royalty rate. In an amended complaint filed on December 28, 2006, in the Eastern Division of the U.S. District Court for the Southern District of Ohio, the wife and executor of the estate of Darrell Adams, deceased, alleged that the failure of a hemodialysis catheter manufactured by us contributed to his death. In the quarter ended March 31, 2008, the case was settled between the parties. Our product liability insurance covered the settlement and all legal expenses, less our deductible. ITEM 1A. RISK FACTORS There have been no material changes in the Risk Factors described in Part I, Item 1A ("Risk Factors") of our Annual Report on Form 10-K for the year ended December 31, 2007. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION On May 13, 2008, the Bank amended each of the Equipment Credit Facility and the Revolving Credit Facility, modifying the our net income profitability covenant requirements in exchange for a three quarters percent (0.75%) increase in our interest rate and waiver restructuring fee equal to one half percent (0.5%) of amounts outstanding under the Equipment Credit Facility and committed under the Revolving Credit Facility. In addition, our term loan balance will be factored in when calculating our borrowing base under the Revolving Credit Facility. 22 ITEM 6. EXHIBITS 10(z) Amended and Restated Deferred Compensation Plan with Roger G. Little dated as of January 1, 2005. 10(aa) First Loan Modification Agreement, dated March 31, 2008, to the Loan and Security Agreement, dated May 25, 2007, among Spire Corporation, Bandwidth Semiconductor, LLC and Silicon Valley Bank. 10(ab) Loan and Security Agreement, dated March 31, 2008, among Spire Corporation, Spire Solar, Inc., Spire Biomedical, Inc., Spire Semiconductor, LLC and Silicon Valley Bank. 31.1 Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to ss.302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer and Treasurer pursuant to ss.302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer and Treasurer pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002. 23 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. Spire Corporation Dated: May 13, 2008 By: /s/ Roger G. Little ------------------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President Dated: May 13, 2008 By: /s/ Christian Dufresne ------------------------------------- Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer 24 EXHIBIT INDEX Exhibit Description - ------- ----------- 10(z) Amended and Restated Deferred Compensation Plan with Roger G. Little dated as of January 1, 2005. 10(aa) First Loan Modification Agreement, dated March 31, 2008, to the Loan and Security Agreement, dated May 25, 2007, among Spire Corporation, Bandwidth Semiconductor, LLC and Silicon Valley Bank. 10(ab) Loan and Security Agreement, dated March 31, 2008, among Spire Corporation, Spire Solar, Inc., Spire Biomedical, Inc., Spire Semiconductor, LLC and Silicon Valley Bank. 31.1 Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to ss.302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer and Treasurer pursuant to ss.302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer and Treasurer pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002. 25 EX-10.(Z) 2 exh10-z_15913.txt AMENDED AND RESTATED DEFERRED COMPENSATION PLAN EXHIBIT 10(z) ------------- SPIRE CORPORATION NON-QUALIFIED DEFERRED COMPENSATION PLAN FOR ROGER LITTLE Amended and Restated Effective as of January 1, 2005 This SPIRE CORPORATION NON-QUALIFIED DEFERRED COMPENSATION PLAN FOR ROGER LITTLE (the "Plan") was entered into and effective as of 1st day of January, 2002, by Spire Corporation, a corporation duly organized and existing under the laws of the State of Massachusetts (the "Company"). The Plan has been amended and restated as of January 1, 2005, to comply with Section 409A of the Internal Revenue Code and its regulations. RECITALS: WHEREAS, the Board of Directors of the Company (the "Board") recognizes that Roger Little has contributed to the growth and success of the Company, and desires to assure the Company of his continued employment and to compensate him therefor; and WHEREAS, the Board has determined that this Plan will reinforce and encourage Mr. Little's continued attention and dedication to the Company; and WHEREAS, the Board has determined that this Plan must be amended and restated to comply with Section 409A of the Internal Revenue Code. NOW, THEREFORE, in consideration of the premises and mutual covenants set forth herein, the Company hereby amends and restates the Plan pursuant to the following terms and provisions. 1. Definitions. 1.1. Accounting Date means the last day of each calendar month and such other date or dates as the Committee may designate from time to time as an Accounting Date. 1.2. Accounting Period means each period beginning on the day following an Accounting Date and ending on the following Accounting Date. 1.3. Amounts Not Subject to Section 409A means any Tax-Deferred Contributions or Employer Contributions that were made before January 1, 2005. 1.4. Amounts Subject to Section 409A means any Tax-Deferred Contributions or Employer Contributions that were made on or after January 1, 2005. 1.5. Beneficiary means the person or persons designated by the Participant, upon such forms as shall be provided by the Committee, to receive payments of the vested portion of the Participant's Accounts after the Participant's death. If the Participant shall fail to designate a Beneficiary, or if for any reason such designation shall be ineffective, or if such Beneficiary shall predecease the Participant or die simultaneously with him, then the Beneficiary shall be, in the following order of preference: (a) the Participant's surviving spouse, or (b) the Participant's estate. 1.6. Change of Control (a) For Amounts Not Subject to Section 409A: shall mean approval by the shareholders of the Company of (a) a reorganization, merger, consolidation or other form of corporate transaction or series of transactions, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, (b) a liquidation or dissolution of the Company or (c) the sale of all or substantially all of the assets of the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned). (b) For Amounts Subject to Section 409A: means the occurrence of any of the following: (i) any one person, or more than one person acting as a group, acquires ownership of equity securities of the Company that, together with equity securities held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the equity securities of the Company; provided, however, that if any one person, or more than one person acting as a group, is considered to own more than 50% of the total fair market value or total voting power of the equity securities of the Company, the acquisition of additional equity securities by the same person or persons will not be considered a Change of Control under this Plan. An increase in the percentage of equity securities of the Company owned by any one person, or persons acting as a group, as a result of a transaction in which the Company acquires its equity securities in exchange for property will be treated as an acquisition of equity securities of the Company for purposes of this clause (i); or (ii) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by the person or persons) all or substantially all of the assets from the Company. Notwithstanding anything to the contrary in this Plan, the following shall not be treated as a Change of Control under this Section 1.6: (A) a transfer of assets from the Company to a equity owner of the Company (determined immediately before the asset transfer); (B) a transfer of assets from the Company to an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company; (C) a transfer of assets from the Company to a person, or more than one person acting as a group, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding equity securities of the Company; or (D) a transfer of assets from the Company to an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a person described in (C) above. 1.7. Code shall mean the Internal Revenue Code of 1986, as amended, and successor tax laws. 1.8. Committee shall mean the persons designated by the Company as the Administrative Committee for the Plan, as it may from time to time be constituted, pursuant to Section 6.1. 1.9. Company shall mean Spire Corporation, a Massachusetts corporation, its successors and assigns. 1.10. Deferral Agreement shall mean the agreement entered into by the Participant in accordance with Section 2.1 hereof pursuant to which the Participant shall elect the amount of his Tax-Deferred Contributions (if any) for the Plan Year. 1.11. Disability shall mean a disability as that term is defined in the Long Term Disability Plan of the Company, if any, or if there is no Long Term Disability Plan, disability shall mean a physical or mental condition that renders, or is expected to render, the Participant permanently and totally unable to perform his usual duties or any comparable duties for the Company. The determination of the existence of a Disability shall be made by the Committee and shall be final and binding upon the Participant and all other parties. The Committee may require the submission of such medical evidence, as it may deem necessary in order to arrive at its determination. 1.12. Effective Date of Plan shall mean January 1, 2002; however, the Plan is amended and restated effective January 1, 2005. 1.13. Eligible Compensation shall mean the base salary and bonuses paid by the Company to the Participant for the Plan Year. 2 1.14. Employer Contributions shall mean any contributions credited to the Participant's Account in accordance with Section 2.2 of the Plan. 1.15. Employer Contribution Account means the account maintained under the Plan for the Participant that is credited with Employer Contributions. Separate sub-accounts shall be kept for Amounts Subject to Section 409A and Amounts Not Subject to Section 409A. 1.16. Investment Funds means those investment options that shall from time to time be made available as investment options under the Plan, as determined by the Committee. 1.17. Leave of Absence shall mean any absence authorized by the Company under its standard personnel practices. 1.18. Normal Retirement Age shall mean the date on which the Participant reaches the age of sixty-five. 1.19. Participant shall mean Roger Little. 1.20. Participant's Account means the total amount credited to the account maintained in the Plan in accordance with the provisions of the Plan for the Participant as of any Accounting Date, and which consists of his Tax-Deferred Contributions Account and his Employer Contributions Account. 1.21. Plan shall mean the Spire Corporation Non-Qualified Deferred Compensation Plan for Roger Little, as herein set forth and as it may be amended from time to time. 1.22. Plan Year shall mean each calendar year that begins on or after January 1, 2002. 1.23. Section 409A means Section 409A of the Code. 1.24. Separation from Service means, as to each Participant's subaccount, the earliest date on which a Participant has incurred a separation from service, within the meaning of Section 409A(a)(2) of the Code, with the Service Recipient. 1.25. Service Recipient means the person for whom the services resulting in the rights to compensation were performed, and with respect to whom the legally binding right to compensation arises, and all persons with whom such person would be considered a single employer under Section 414(b) of the Code (employees of a controlled group of corporations), and all persons with whom such person would be considered a single employer under Section 414(c) of the Code (employees of partnerships, proprietorships, etc. or other entities under common control). 1.26. Specified Employee shall mean any Participant who, at the time of his or her Separation from Service, is a "key employee", within the meaning of Section 416(i) of the Code, of any Service Recipient any of the stock in which is publicly traded on an established securities market or otherwise. The determination as to whether a Participant is a Specified Employee shall be determined in a manner consistent with applicable Treasury Regulations under Section 409A. 1.27. Tax-Deferred Contributions means the contributions credited to the Participant's Account under Section 2.1 of the Plan. 1.28. Tax-Deferred Contributions Account means the account maintained by the Company under the Plan for the Participant that is credited with the Participant's Tax-Deferred Contributions. Separate sub-accounts shall be kept for Amounts Subject to Section 409A and Amounts Not Subject to Section 409A. 1.29. Trust means Spire Corporation Non-Qualified Deferred Compensation Plan Trust for Roger Little between the Company and the Trustee. 1.30. Trustee shall mean the persons or entity that shall from time to time be serving as the Trustee of the Trust. 1.31. Unforeseeable Emergency 3 (a) For Amounts Not Subject to Section 409A: shall mean an unanticipated emergency, such as a sudden and unexpected illness or accident of the Participant or a dependent of the Participant or loss of the Participant's property due to casualty, that is caused by an event beyond the control of the Participant and that would result in severe financial hardship if the withdrawal were not permitted. The need to pay the Participant's child's or grandchild's tuition to college and the desire to purchase a home shall not be considered unforeseeable emergencies. (b) For Amounts Subject to Section 409A: shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant's spouse, the Participant's Beneficiary, or the Participant's dependent (as defined in Section 152 of the Code, without regard to Section 152(b)(1), (b)(2) and (d)(1)(B); loss of the Participant's property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster); or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Whether an Unforeseeable Emergency has occurred shall be determined by the Committee based on the relevant facts and circumstances of each case. 2. Contributions. 2.1. Tax-Deferred Contributions. The Participant, so long as he remains a Participant, may elect (pursuant to a Deferral Agreement furnished by the Committee prior to the beginning of the Plan Year and in accordance with Committee rules) to reduce and defer receipt pursuant to this Plan of an amount not to exceed one hundred percent (100%) (in whole percentages) of his base salary and any bonuses earned during the Plan Year. Deferral Agreements are effective on a Plan Year basis, and must be filed before the beginning of the Plan Year to which they relate. Deferral Agreements may not be amended or revoked after the beginning of the Plan Year. The Company shall withhold, by payroll deduction, the Eligible Compensation deferred pursuant to this Section 2.1 (if any) from the current Eligible Compensation payments of the Participant and credit such withheld amounts to the Participant's Tax-Deferred Contributions Account under the Plan. The Deferral Agreement may not be amended or revoked during the Plan Year for which it is made. 2.2. Employer Contributions. For each Plan Year, the Company shall credit to the Participant's Employer Contribution Account an amount not exceeding Two Hundred Fifty Thousand Dollars and No Cents ($250,000), which may, in the Company's discretion, be credited in equal monthly installments throughout the Plan Year as of the first day of each calendar month. The Company hereby agrees that the amount to be credited for the Plan Year beginning on January 1, 2002 shall be $250,000, which shall be credited in equal monthly installments of $20,833.33 as of the first day of each calendar month. In each Plan Year commencing on or after January 1, 2003, the Company shall credit the full $250,000 to the Participant's Employer Contribution Account, unless the Board determines, reasonably and in good faith, that there is insufficient Available Cash (as hereinafter defined) to make such contribution in full, in which case the Company shall contribute to the Participant's Employer Contribution Account the full amount of Available Cash. If in any Plan Year the Company fails to make the full contribution due to a lack of Available Cash, the Company shall make catch-up contributions in each subsequent Plan Year in an amount equal to all Available Cash remaining after deducting the $250,000 contribution for the then current Plan Year, until such time as the amount credited by the Company to the Participant's Employer Contribution Account equals $250,000 times the number of Plan Years that have elapsed. The term "Available Cash" with respect to any Plan Year shall mean the excess of the gross receipts of the Company from whatever source for the Plan Year immediately preceding the current Plan Year over the sum of the following amounts: (a) the amount of cash disbursed during the Plan Year immediately preceding the current Plan Year to make payments then due on accrued liabilities and obligations of the Company and to pay capital expenditures and ordinary and necessary costs and expenses incident to the operation of the Company's business; and (b) the amount which the Board allocates to reasonable reserves to pay costs, expenses and liabilities of the type described in clause (a) for which the Board does not, reasonably and in good faith, expect the Company to have the necessary cash at the time such payments are required to be made. In addition, for each Plan Year, the Company may credit to the Participant's Employer Contribution Account such additional contributions, if any, as the Company shall determine based upon such criteria (including but not limited to those listed above) as the Company, in its discretion, shall from time to time determine. 3. Vesting. 3.1. Participant's Account. The Participant's interest in his Participant's Account shall be fully vested and nonforfeitable at all times. 4 4. Investment of Participant's Account and Trust. 4.1. Investment. Amounts credited to a Participant's Account shall be contributed by the Company to the Trust as soon as practicable after they are so credited. The value of a Participant's Account shall be measured as if amounts credited to such Account were actually invested in the Investment Funds selected by the Participant in accordance with the Plan, and shall be credited with gains and losses allocable thereto at such times and in such manner as shall be determined by the Committee reasonably and in good faith. The Participant shall elect on the Participant Election and Enrollment Form the portion of the Participant's Account, in whole percentages, that are to be treated as if invested in each of the Investment Funds. A Participant may, as of the first day of each calendar quarter and in such manner as shall be permitted by the Committee, change such election as to the investments upon which the value of his Participant's Account is to be measured. The Company may direct the Trustees that the assets of each Trust be invested in any one, or combination, of the Investment Funds, or in any other investments determined by the Company, notwithstanding the Participant's election as to the manner in which the value of his Account is to be measured. In the event that the Investment Funds are those that are part of a life insurance policy, then the value of the Participant's Account shall be measured as if it were invested in the Investment Funds selected by the Participant within a life insurance policy which could be acquired by the Company or Trust in accordance with the Plan, and shall be reduced by all cost of insurance and other policy costs, expenses and other charges (including any potential charges) that are or would be incurred if such Policy were maintained. In no event, however, shall the Company be required to purchase or continue to maintain any such life insurance policies, or to invest any amounts within the life insurance policy in accordance with the Participant's election with regard to the manner in which the value of his Account is to be measured. 5. Distributions. 5.1. Timing of Distributions. (a) Participant's Account. The vested portion of the Participant's Account, less any applicable tax withholding, shall be distributed to the Participant commencing upon the Participant's termination of employment with the Company for any reason, including the Participant's death, Disability or Separation from Service. However, with respect to Amounts Subject to Section 409A, payments commencing upon the Participant's termination of employment must also qualify as a Separation from Service. In no event shall any distributions of Amounts Subject to Section 409A be made under the Plan on account of the Separation from Service of any Participant that is a Specified Employee before the date that is 6 months after the date of the Participant's Separation from Service or, if earlier, the date of the Participant's death, or as otherwise permitted without violating the requirements of Section 409(A)(a)(2) of the Code. The distribution shall commence as soon as administratively practicable after the first day of the calendar month immediately following the date of the termination of Participant's employment or Separation from Service with the Company but in no event later than thirty (30) days after such termination. (b) Acceleration of Distributions. Distribution shall be accelerated upon the following occurrences: (i) Hardship Distributions. Upon the written request of the Participant and in the event the Committee determines that an Unforeseeable Emergency" has occurred with respect to the Participant, the Participant may withdraw the lesser of (1) the amount necessary to meet the emergency or (2) the value of the Participant's Account; (ii) Change of Control. In the event of a Change of Control, the full amount of the Participant's Account shall be distributed to the Participant as soon as administratively practicable following the Change of Control, unless the Board of Directors of the Company as constituted immediately prior to the Change of Control shall otherwise provide (and then only to the extent it will not violate Section 409A for Amounts Subject to Section 409A) but in no event later than ten (10) days after such Change of Control; or (iii) Callable Rights. For Amounts Not Subject to Section 409A, the Participant may request all or a portion of his Tax-Deferred Contributions Account, and his vested Employer Contributions Account, for reasons other than an Unforeseeable Emergency, subject to the following restrictions: (1) only eighty percent (80%) of the amount requested by the Participant, less applicable tax withholding, shall be distributed to the Participant and the remaining twenty percent (20%) of the amount requested shall be forfeited, and (2) no further Tax-Deferred Contributions or Employer Contributions shall be made under the Plan on behalf of the Participant. Callable Rights shall not apply for Amounts Subject to Section 409A. 5 For Amounts Subject to Section 409A, in no event shall the acceleration of the time or schedule of any payment under the Plan be permitted, except to the extent that such acceleration would not violate Section 409A of the Code and the Treasury Regulations thereunder. 5.2. Form of Distribution. The distribution to the Participant shall be made in cash either (i) in a lump sum distribution or (ii) in up to twenty (20) consecutive quarterly installments, as elected by the Participant. Each quarterly installment shall be equal to the remaining value of the Participant's Account being distributed multiplied by a fraction, the numerator of which is 1 and the denominator of which is the number of quarterly installments remaining to be paid. The Participant may elect, on a form provided by the Committee, the form in which his Participant's Account is to be distributed under this Section 5.2; provided, however, that no such election, or change in any election, shall be given effect unless it is made at least one year prior to the date on which distribution of the Participant's Account commences. In the event that the Participant fails to make an election, then distribution shall be made in the form of a lump sum. For Amounts Subject to Section 409A, the Participant shall elect the form of distribution of benefits on a form filed before the beginning of the Plan Year to which they relate. 5.3. Distribution to Beneficiary. If a Participant dies before distribution of the entire vested portion of the Participant's Accounts has been made to him, the remaining vested portion of his Participant's Account, less applicable withholding taxes, shall be distributed to the Participant's Beneficiaries in a lump sum distribution in cash. 5.4. Participant Elections. For Amounts Subject to Section 409A, the following rules shall apply with respect to any of the foregoing elections: (i) any change in the Participant's election shall not take effect until at least 12 months after the date on which the election is made; (ii) in the case of a payment other than on account of the Participant's death or Disability or on account of an Unforeseeable Emergency, the first payment with respect to which such election is made must be deferred for a period of not less than 5 years from the date such payment otherwise would have been made; and (iii) any election must be made not less than 12 months prior to the date that the first payment is scheduled to be paid. For purposes of the foregoing rules, the term "payment" refers to each separately identified amount (i.e., an amount that may be objectively determined) to which a Participant is entitled to payment under the Plan on a determinable date, and includes amounts applied for the benefit of the Participant. Payments in the form of installments shall be treated as a right to series of separate payments. 5.5. Delay in Distributions. For Amounts Subject to Section 409A, payment of benefits under the Plan may be delayed to the extent permitted without violating the requirements of Section 409A of the Code, or the Treasury Regulations thereunder, as follows, provided that the Committee treats all payments to similarly situated Participants on a reasonably consistent basis: (i) Payments Subject to Code Section 162(m). A payment may be delayed if the Service Recipient reasonably anticipates that if the payment was made as scheduled, the Service Recipient's deduction with respect to such payment would not be permitted due to the application of Section 162(m) of the Code. In such an event, the payment shall be made in the first taxable year of the Service Recipient in which the Service Recipient reasonably anticipates, or should reasonably anticipate, that if the payment were made in that year, the deduction of such payment would not be barred by the application of Section 162(m) of the Code. In the event this provision is subsequently removed from the Plan, the removal must be effective only with respect to amounts deferred after the Plan is amended to remove the provision. (ii) Payments That Would Violate Federal Securities Laws or Other Applicable Law. A payment may be delayed if the Service Recipient reasonably anticipates that the maker of the payment would violate a Federal securities law or other applicable law. In such an event, payment shall be made at the earliest date at which the Service Recipient reasonably anticipates that the making of the payment would not cause such violation. (iii) Other Events or Conditions. A payment may be delayed upon such other events and conditions as the IRS may prescribe in generally applicable published guidance. 6. Administration. 6.1. Administrative Committee. The Company shall appoint a Committee for the administration of the Plan consisting of one or more persons. Any Committee member may, but need not, be an officer or employee of the Company and each shall serve until his successor shall be appointed in like manner. Any member of the Committee may resign by delivering his written resignation to the Company. The Company may remove any member of the Committee at any time. 6 6.2. Powers and Duties. The Committee generally shall be responsible for the management, operation, interpretation and administration of the Plan. The Committee shall: (a) Establish procedures for allocation of responsibilities of the Plan which are not allocated herein; (b) Construe all terms, provisions, conditions and limitations of the Plan and make all factual determinations relating to the Plan; (c) Correct any defect, supply any omission, or reconcile any inconsistency that may appear in the Plan and make all factual determinations relating to the Plan; (d) Determine the amount, manner, and time of payment of any benefits hereunder and prescribe procedures to be followed by the Participants and/or his Beneficiary to obtain benefits; and (e) Perform such other functions and take such other actions as may be required by the Plan or as may be necessary or advisable to accomplish the purposes of the Plan. The Company shall furnish the Committee with all data and information available which the Committee may reasonably require in order to perform its functions hereunder. The Committee may rely without question upon any such data or information furnished by the Company. Any interpretation or other decision made by the Committee shall be final, binding and conclusive upon all persons in the absence of clear and convincing evidence that the Committee acted arbitrarily and capriciously. 6.3. Agents. The Committee may appoint a Secretary who may, but need not, be a member of the Committee, and may employ such agents for clerical and other services, and such counsel, accountants and other professional advisors as may be required for the purpose of administering the Plan. The Committee may rely on all tables, valuations, reports, certificates and opinions furnished by its agents. 6.4. Procedures. A majority of the Committee members shall constitute a quorum for the transaction of business. No action shall be taken except upon a majority vote of the Committee. An individual shall not vote or decide upon any matter relating solely to himself or vote in any case in which his individual right or claim to any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act, and the remaining members cannot agree on an issue, the Company shall appoint a temporary substitute member to exercise all of the powers of the disqualified member concerning the matter in which he is disqualified. 6.5. Claims Procedure. In the event that the Participant or his Beneficiary claims to be entitled to benefits under the Plan and the Board determines that such claim should be denied in whole or in part, the Board shall, in writing, notify such claimant within ninety (90) days of receipt of such claim that his claim has been denied, setting forth the specific reasons for such denial. Such notification shall be written in a manner reasonably expected to be understood by the Participant or Beneficiary and shall set forth the pertinent sections of the Plan relied on, and where appropriate, an explanation of how the claimant can obtain review of such denial. Within sixty (60) days after the mailing or delivery by the Committee of such notice, such claimant may request, by mailing or delivery of written notice to the Committee, a review and/or hearing by the Committee of the decision denying the claim. If the claimant fails to request such a review and/or hearing within such sixty (60) day period, it shall be conclusively determined for all purposes of this Plan that the denial of such claim by the Committee is correct. If such claimant requests a hearing within such sixty (60) day period, the Committee shall designate a time (which time shall not be less than seven (7) nor more than sixty (60) days from the date of such claimant's notice to the Committee) and a place for such hearing, and shall promptly notify such claimant of such time and place. A claimant or his authorized representative shall be entitled to inspect all pertinent Plan documents and to submit issues and comments in writing. If only a review is requested, the claimant shall have sixty (60) days after filing a request for review to submit additional written material in support of the claim. After such review and/or hearing, the Committee shall promptly determine whether such denial of the claim was correct and shall notify such claimant in writing of its determination with sixty (60) days after such review and/or hearing or after receipt of any additional information submitted. 6.6. Indemnification. The Company shall indemnify each Committee member against any liability or loss sustained by reason of any act or failure to act made in good faith, including, but not limited to, those in reliance on certificates, reports, tables, opinions or other communications from any company or agents chosen by the Committee in 7 good faith. Such indemnification shall include attorneys' fees and other costs and expenses reasonably incurred in defense of any action brought by reason of any such act or failure to act. 6.7. Participant Bound. Any action with respect to the Plan taken by the Committee, the Company or the Trustee or any action authorized by or taken at the direction of the Committee, the Company or the Trustee shall be conclusive upon the Participant and/or his Beneficiaries entitled to benefits under the Plan. 6.8. Receipts and Release. Any payment to the Participant and/or his Beneficiary in accordance with the provisions of the Plan shall, to the extent thereof, be in full satisfaction of all claims against the Company, the Committee and the Trustee under the Plan, and the Committee may require such Participant or Beneficiary, as a condition precedent to such payment, to execute a receipt and release to such effect. If the Participant and/or his Beneficiary is determined by the Committee to be incompetent by reason of physical or mental disability (including minority) to give a valid receipt and release, the Committee may cause the payment or payments becoming due to such person to be made to another person for his or her benefit without responsibility on the part of the Committee, the Company or the Trustee to follow the application of such funds. 7. Miscellaneous. 7.1. Unfunded Plan. The obligations of the Company under this Plan shall be paid from the general assets of the Company and not from any particular fund. It is intended that this Plan shall constitute an "unfunded" plan for a select group of management or highly compensated employees under the Employee Retirement Income Security Act of 1974, as amended. If the Company purchases any life insurance policies, or makes any other investments, either directly or through the Trust, such policies (and any amounts invested by the Participating Company therein) and any other investments of the Company or the Trust shall be subject to the claims of the Company's creditors. Nothing contained in this Plan shall be interpreted to grant to the Participant or his Beneficiary, any right, title or interest in any property of the Company or the Trust. 7.2. Successor Plan. In the event that the Participant ceases to participate in this Plan, but commences participation under any other non-qualified deferred compensation plan maintained by the Company (the "Successor Plan"), then the Participant's Account under this Plan shall, in the discretion of the Company and so long as the Participant consents, cease to be governed by this Plan and instead shall be governed by the provisions of the Successor Plan. 7.3. Impact on Other Participant Benefits. This Plan shall not be construed to impact or cause the denial of any benefits to which the Participant may be entitled under any other welfare or benefit plan of the Company. 7.4. Other Plans. Payments made to the Participant under this Plan shall not be includable as salary or compensation for purposes of determining the amount of employee benefits under any other retirement, pension, profit-sharing or welfare benefit plans of the Company. 7.5. Tax Withholding. The Committee and/or the Trustee shall withhold from any contribution to, amounts accumulated under, or distribution from, the Plan or Trust such amounts as the Committee or the Trustee shall be determined to be appropriate for Federal, State or local taxes attributable thereto. 7.6. Governing Law. To the extent not preempted by the laws of the United States, the construction, validity and administration of the Plan shall be governed by the laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law therein. 7.7. No Assignment. The right to receive payment of any benefits under the Plan shall not be transferred, assigned or pledged other than to the Participant's Beneficiary following the Participant's death. 7.8. Severability. If any provision of this Plan is found, held or deemed to be void, unlawful or unenforceable under any applicable statute or other controlling law, the remainder of the Plan shall continue in full force and effect. 7.9. Headings and Subheadings. Headings and subheadings in this Plan are for reference only. In the event of a conflict between a heading or subheading and the content of an article or paragraph, the content shall control. 7.10. Gender. The masculine, as used herein, shall be deemed to include the feminine and the singular to include plural, except where the context requires a different construction. 8 7.11. Amendment and Termination. (a) General Rule. This Plan may be amended or terminated in any respect at any time by the Company with the consent of the Participant; provided, however, that no amendment or termination of the Plan shall be effective to reduce any benefits that accrue before the adoption of such amendment or termination. In the event that the Plan is terminated, then, to the extent permitted without violating the requirements of Section 409A for Amounts Subject to Section 409A, distributions shall be made to the Participant and/or his Beneficiary of the vested portion of the Participant's Account in a single lump sum payment as soon as practicable following such termination, notwithstanding any elections by the Participant with regard to the timing or form of in which benefits are to be paid. If and to the extent that the Company does not accelerate the timing of distributions on account of the termination of the Plan pursuant to the preceding sentence, payment of any remaining benefits under the Plan shall be made at the same times and in the same manner as such distributions would have been made based upon the most recent effective elections made by Participants and Beneficiaries, and the terms of the Plan, as in effect at the time the Plan is terminated. (b) Termination and Liquidation Subject to Certain Conditions. If and to the extent otherwise permitted by Section 409A and the Treasury Regulations thereunder, the Company may terminate and liquidate the Plan if the following requirements are met: (i) the termination and liquidation does not occur proximate to a downturn in the financial health of any Service Recipient; (ii) the Company and the other Service Recipients terminate and liquidate all agreements, methods, programs and other arrangements sponsored by the Service Recipients that would be aggregated with any terminated and liquidated agreements, methods, programs, and other arrangements under Section 1.409A-1(c) of the Treasury Regulations if the Participant had deferrals of compensation under all of the agreements, methods, programs, and other arrangements that are terminated and liquidated; (iii) no payments in liquidation of the Plan are made within 12 months of the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan, other than payments that would be payable under the terms of the Plan if the action to terminate and liquidate the Plan had not been taken; (iv) all payments are made within 24 months of the date the Company takes all necessary action to irrevocably terminate and liquidate the Plan; and (v) neither the Company nor any other Service Recipient adopts a new plan that would be aggregated with any terminated and liquidated plan under applicable Treasury Regulations if the same Participant participated in both plans, at any time within three years following the date that the Company takes all necessary action to irrevocably terminate and liquidate the Plan. 7.12. No Employment Contract. This Plan does not constitute a contract of employment or impose on the Participant or the Company any obligations to retain the Participant as an employee, to change the status of the Participant's employment, or to change the Company's policies regarding termination of employment. 7.13. Limited Restriction on Setting Aside or Reserving Assets. Notwithstanding the foregoing, for Amounts Subject to Section 409A, if the Participant is an "applicable covered employee", then no amounts credited to that Participant's Account shall be transferred to a trust or otherwise set aside or reserved pursuant to any other arrangement during any "restricted period" with respect to a single-employer defined benefit plan (a "DB Plan"). For these purposes: (a) "restricted period" means (A) any period during which the DB Plan is in at-risk status, as defined in Section 430(i) of the Code; (B) any period in which the plan sponsor of the DB Plan is a debtor in a case under Title 11, United States Code, or similar Federal or State law, and (C) the 12 month period beginning on the date which is six months before the termination date of the DB Plan if, as of the termination date, the assets of the DB Plan are not sufficient for pay all benefit liabilities (within the meaning of Section 4041 of ERISA) under the DB Plan; (b) "applicable covered employee" means any (A) covered employee of the plan sponsor of the DB Plan; (B) covered employee of any member of a controlled group that includes the plan sponsor, and (C) former employee who was a covered employee at the time of termination of employment with the plan sponsor of the DB Plan or any member of a controlled group that includes the plan sponsor; and 9 (c) "covered employee" means an individual described in Section 162(m)(3) of the Code or an individual subject to the requirements of Section 16(a) of the Securities Exchange Act of 1934. 7.14. Compliance with Section 409A. With respect to Amounts Subject to Section 409A, and to the extent the Committee otherwise deems necessary, this Plan shall be construed in an manner consistent with the applicable requirements of Section 409A, and the Committee, in its sole discretion and without the consent of any Participant or Beneficiary, may amend the provisions of this Plan if and to the extent that the Committee determines that such amendment is necessary or appropriate to comply with the applicable requirements of Section 409A of the Code. IN WITNESS WHEREOF, the Company has caused the Plan to be executed the day and year first above written. AGREED: By: /s/ Roger G. Little ----------------------------- Name: Roger G. Little SPIRE CORPORATION By: /s/ Christian Dufresne ----------------------------- Name: Christian Dufresne Title: CFO & Treasurer 10 EX-10.(AA) 3 exh10-aa_15913.txt FIRST LOAN MODIFICATION AGREEMENT EXHIBIT 10(aa) -------------- FIRST LOAN MODIFICATION AGREEMENT This First Loan Modification Agreement (this "Loan Modification Agreement") is entered into as of March 31, 2008, by and between (i) SILICON VALLEY BANK, a California-chartered bank, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 ("Bank") and (ii) SPIRE CORPORATION ("Spire"), a Massachusetts corporation, and SPIRE SEMICONDUCTOR, LLC, f/k/a BANDWITH SEMICONDUCTOR, LLC ("Semiconductor"), a Delaware limited liability company (Spire and Semiconductor, are referred to herein, individually, jointly, severally and collectively, as the "Borrower"). 1. DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of May 25, 2007, evidenced by, among other documents, a certain Loan and Security Agreement dated as of May 25, 2007, between Borrower and Bank (as amended, the "Loan Agreement"). Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement. 2. DESCRIPTION OF COLLATERAL. Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement (together with any other collateral security granted to Bank, the "Security Documents"). Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the "Existing Loan Documents". 3. DESCRIPTION OF CHANGE IN TERMS. A. Modifications to Loan Agreement. 1 The Loan Agreement shall be amended by deleting the following provision appearing as Section 2.2(a) thereof: " (a) Interest Rate. Subject to Section 2.2(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a floating per annum rate equal to one half of one percentage point (0.5%) above the Prime Rate, which interest shall be payable monthly." and inserting in lieu thereof the following: " (a) Interest Rate. Subject to Section 2.2(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a floating per annum rate equal to one half of one percentage point (0.5%) above the Prime Rate, which interest shall be payable monthly. Commencing on the 2008 Closing Date, and subject to Section 2.2(b), the principal amount outstanding for each Equipment Advance shall accrue interest at a floating per annum rate equal to one percentage point (1.0%) above the Prime Rate, which interest shall be payable monthly." 2 The Loan Agreement shall be amended by deleting the following provision appearing as Section 6.7 entitled "Financial Covenants": "6.7 Financial Covenants. Borrower shall maintain, at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis: (a) Adjusted Quick Ratio. An Adjusted Quick Ratio of at least: (i) 1.0 to 1.0 as of the last day of each of the months ending May 31, 2007, and June 30, 2007; and (ii) 1.5 to 1.0 as of the last day of the month ending July 31, 2007, and as of the last day of each month thereafter. Notwithstanding the foregoing, the failure of Borrower to comply with this financial covenant during any such month shall not constitute an Event of Default provided that: (a) during any quarter in which Borrower maintains Net Income (tested as of the last day of each quarter) of less then One Dollar ($1.00), Borrower's Unrestricted Cash is greater than or equal to one and one-quarter times (1.25x) the outstanding principal amount of the Equipment Line at all times during such month, or (b) during any quarter in which Borrower maintains Net Income (tested as of the last day of each quarter) of at least One Dollar ($1.00), Borrower's Unrestricted Cash is greater than or equal to one times (1.0x) the principal amount of the outstanding Equipment Line at all times during such month. (b) Minimum Quarterly Net Income. Borrower shall maintain Net Income of at least: (i) ($1,500,000.00) as of the last day of the quarter ending June 30, 2007, (ii) $1.00 as of the last day of the quarter ending September 30, 2007, and (iii) $250,000.00 as of the last day of the quarter ending December 31, 2007, and as of the last day of each quarter thereafter." and inserting in lieu thereof the following: "6.7 Financial Covenants. Borrower shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries: (a) Liquidity. The ratio of (x) (i) Borrower's unrestricted cash and Cash Equivalents at Bank plus (ii) eighty percent (80%) of Eligible Accounts (as defined in the Revolving Line Loan Agreement) plus (iii) the lesser of (1) twenty-five percent (25%) of Borrower's Eligible Inventory (as defined in the Revolving Line Loan Agreement) or (2) $2,500,000 to (y) all outstanding Credit Extensions, including reserves, shall be greater than 2.00:1.00; and (b) Profitability. A minimum Net Income, on a trailing six (6) month basis, of (i) not less than ($1,000,000), for each monthly period beginning on the Effective Date through and including May 31, 2008; and (ii) not less than $1.00, for each monthly period beginning June 1, 2008 and thereafter." 3 The Loan Agreement shall be amended by inserting the following new provision to appear as Section 8.10 thereof: "8.10 Revolving Line Loan Agreement. An Event of Default (as such term is defined under the Revolving Line Loan Agreement) occurs under the Revolving Line Loan Agreement." 4 The Loan Agreement shall be amended by inserting the following new definitions to appear alphabetically in Section 13.1 thereof: 2 " "2008 Closing Date" is March 31, 2008. "Net Income" means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period. "Revolving Line Loan Agreement" is that certain Loan and Security Agreement by and between Borrower and Bank as of the 2008 Closing Date, as may be amended from time to time." 5 The Loan Agreement shall be amended by deleting the following subsection (d) of the definition of "Permitted Investments" appearing in Section 13.1 thereof: " (d) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year;" and inserting in lieu thereof: " (d) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in Subsidiaries (with the exception of Gloria Spire Solar, LLC) not to exceed One Hundred Thousand Dollars ($100,000) in the aggregate in any fiscal year;" 6 The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof: ""Prime Rate" is Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. and inserting in lieu the following: ""Prime Rate" is the greater of (i) six percent (6.0%), and (ii) Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. 7 The Compliance Certificate appearing as Exhibit C to the Loan Agreement is hereby replaced with the Compliance Certificate attached as Exhibit A hereto. B. Waivers. 1 Bank hereby waives Borrower's existing defaults under the Loan Agreement by virtue of Borrower's failure to comply with the: (i) Adjusted Quick Ratio financial covenant set forth in Section 6.7(a) thereof as of the months ended November 30, 2007, December 31, 2007, January 31, 2008, and February 29, 2008 (required prior to this Loan Modification Agreement), and (ii) Minimum Quarterly Net Income financial covenant set forth in Section 6.7(b) as of the month ended December 31, 2007 (required prior to this Loan Modification Agreement). Bank's waiver of Borrower's compliance of said affirmative covenants shall apply only to the foregoing specific periods. 3 4. FEES. Borrower shall pay to Bank a modification fee equal to Ten Thousand Dollars ($10,000), which fee shall be due on the date hereof and shall be deemed fully earned as of the date hereof. Borrower shall also reimburse Bank for all reasonable legal fees and expenses incurred in connection with this amendment to the Existing Loan Documents. 5. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above. 6. RATIFICATION OF LOAN DOCUMENTS. Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations. 7. NO DEFENSES OF BORROWER. Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder. 8. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower's representations, warranties, and agreements, as set forth in the Existing Loan Documents. Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect. Bank's agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations. Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations. It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing. No maker will be released by virtue of this Loan Modification Agreement. 9. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 4 This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the date first written above. BORROWER: BANK: SPIRE CORPORATION SILICON VALLEY BANK By: /s/ Roger G. Little By: /s/ Karen Dunn ----------------------------- ------------------------- Name: Roger G. Little Name: Karen Dunn Title: Chief Executive Officer Title: Relationship Manager By: /s/ Christian Dufresne ----------------------------- Name: Christian Dufresne Title: Chief Financial Officer SPIRE SEMICONDUCTOR, LLC, f/k/a BANDWITH SEMICONDUCTOR, LLC By: /s/ Roger G. Little ----------------------------- Name: Roger G. Little Title: Chief Executive Officer By: /s/ Christian Dufresne ----------------------------- Name: Christian Dufresne Title: Chief Financial Officer 5 EX-10.(AB) 4 exh10-ab_15913.txt LOAN AND SECURITY AGREEMENT EXHIBIT 10(ab) -------------- LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT (this "Agreement") dated as of the Effective Date between (i) SILICON VALLEY BANK, a California corporation with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at One Newton Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462 ("Bank"), and (ii) SPIRE CORPORATION, a Massachusetts corporation, SPIRE SOLAR, INC., a Massachusetts corporation, SPIRE BIOMEDICAL, INC., a Massachusetts corporation, each with offices located at One Patriots Park, Bedford, Massachusetts 01730, and SPIRE SEMICONDUCTOR, LLC, a Delaware limited liability company (formerly known as Bandwidth Semiconductor, LLC), with offices at 25 Sagamore Park Road, Hudson, NH 03051 (jointly and severally, individually and collectively, the "Borrower"), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows: 1 ACCOUNTING AND OTHER TERMS Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. 2 LOAN AND TERMS OF PAYMENT 2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement. 2.1.1 Revolving Advances. (a) Availability. Subject to the terms and conditions of this Agreement and to deduction of Reserves, Bank shall make Advances not exceeding the Availability Amount. Amounts borrowed hereunder may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein. (b) Termination; Repayment. The Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations relating to the Revolving Line shall be immediately due and payable. 2.1.2 Letters of Credit Sublimit. (a) As part of the Revolving Line, Bank shall issue or have issued Letters of Credit for Borrower's account. Such aggregate amounts utilized hereunder shall at all times reduce the amount otherwise available for Advances under the Revolving Line. The face amount of outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed One Million Five Hundred Thousand Dollars ($1,500,000) inclusive of the Credit Extensions made pursuant to Sections 2.1.3 and 2.1.4. If, on the Revolving Line Maturity Date, there are any outstanding Letters of Credit, then on such date Borrower shall provide to Bank cash collateral in an amount equal to 105% of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to said Letters of Credit. All Letters of Credit shall be in form and substance acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank's standard Application and Letter of Credit Agreement (the "Letter of Credit Application"). Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. Borrower further agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit guarantied by Bank and opened for Borrower's account or by Bank's interpretations of any Letter of Credit issued by Bank for Borrower's account, and Borrower understands and agrees that Bank 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. (b) The obligation of Borrower to immediately reimburse Bank for drawings made under Letters of Credit shall be absolute, unconditional, and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, such Letters of Credit, and the Letter of Credit Application. (c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign Currency. If a demand for payment is made under any such Letter of Credit, Bank shall treat such demand as an Advance to Borrower of the equivalent of the amount thereof (plus fees and charges in connection therewith such as wire, cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency. (d) To guard against fluctuations in currency exchange rates, upon the issuance of any Letter of Credit payable in a Foreign Currency, Bank shall create a reserve (the "Letter of Credit Reserve") under the Revolving Line in an amount equal to ten percent (10%) of the face amount of such Letter of Credit. The amount of the Letter of Credit Reserve may be adjusted by Bank from time to time to account for fluctuations in the exchange rate. The availability of funds under the Revolving Line shall be reduced by the amount of such Letter of Credit Reserve for as long as such Letter of Credit remains outstanding. 2.1.3 Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may enter into foreign exchange contracts with Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency (each, a "FX Forward Contract") on a specified date (the "Settlement Date"). FX Forward Contracts shall have a Settlement Date of at least one (1) FX Business Day after the contract date and shall be subject to a reserve of ten percent (10%) of each outstanding FX Forward Contract in a maximum aggregate amount equal to One Hundred Fifty Thousand Dollars ($150,000) (the "FX Reserve"). The aggregate amount of FX Forward Contracts at any one time plus Credit Extensions made pursuant to Sections 2.1.2 and 2.1.4 may not exceed ten (10) times the amount of the FX Reserve. Any amounts needed to fully reimburse Bank will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances. 2.1.4 Cash Management Services Sublimit. Borrower may use up to One Million Five Hundred Thousand Dollars ($1,500,000), inclusive of the Credit Extensions made pursuant to Sections 2.1.2 and 2.1.3, for Bank's cash management services which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in Bank's various cash management services agreements (collectively, the "Cash Management Services"). Any amounts Bank pays on behalf of Borrower for any Cash Management Services will be treated as Advances under the Revolving Line and will accrue interest at the interest rate applicable to Advances. 2.2 Overadvances. If, at any time the sum of (a) the outstanding amount of any Advances (including any amounts used for Cash Management Services) plus (b) the face amount of any outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit and any Letter of Credit Reserve, plus (c) the FX Reserve (such sum being an "Overadvance"), exceeds the lesser of either the Revolving Line or the Borrowing Base, Borrower shall immediately pay to Bank in cash such Overadvance. Without limiting Borrower's obligation to repay Bank any amount of the Overadvance, Borrower agrees to pay Bank interest on the outstanding amount of any Overadvance, on demand, at the Default Rate. 2.3 Payment of Interest on the Credit Extensions. (a) Interest Rate; Advances. Subject to Section 2.3(b), the principal amount outstanding under the Revolving Line shall accrue interest at a per annum rate equal to the Prime Rate plus one percent (1.00%). (b) Default Rate. Immediately upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.00%) above the rate that is otherwise applicable thereto (the "Default Rate"). Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank. (c) Adjustment to Interest Rate. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change. (d) 360-Day Year. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. 2 (e) Debit of Accounts. Bank may debit any of Borrower's deposit accounts, including the Designated Deposit Account, for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off. (f) Payment; Interest Computation; Float Charge. Interest is payable monthly on the last calendar day of each month. In computing interest on the Obligations, all Payments received after 12:00 p.m. Pacific time on any day shall be deemed received on the next Business Day. In addition, so long as any principal or interest with respect to any Credit Extension remains outstanding, Bank shall be entitled to charge Borrower a "float" charge in an amount equal to three (3) Business Days interest, at the interest rate applicable to the Credit Extensions on all Payments received by Bank. The float charge for each month shall be payable on the last day of the month. Bank shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to Bank in its good faith business judgment, and Bank may charge Borrower's Designated Deposit Account for the amount of any item of payment which is returned to Bank unpaid. 2.4 Fees. Borrower shall pay to Bank: (a) Commitment Fee. A fully earned, non-refundable commitment fee of Fifty Thousand Dollars ($50,000), payable on the Effective Date; (b) Letter of Credit Fee. Bank's customary fees and expenses for the issuance or renewal of Letters of Credit, upon the issuance, each anniversary of the issuance, and the renewal of such Letter of Credit by Bank; (c) Termination Fee. Subject to the terms of Section 12.1, a termination fee; (d) Unused Revolving Line Facility Fee. A fee (the "Unused Revolving Line Facility Fee"), payable monthly, in arrears, on a calendar year basis, in an amount equal to three-quarters of one percent (0.75%) per annum of the average unused portion of the Revolving Line, as determined by Bank. The unused portion of the Revolving Line, for the purposes of this calculation, shall include amounts reserved under the Cash Management Services Sublimit for products provided and under the Foreign Exchange Sublimit for FX Forward Contracts. Borrower shall not be entitled to any credit, rebate or repayment of any Unused Revolving Line Facility Fee previously earned by Bank pursuant to this Section notwithstanding any termination of the Agreement, or suspension or termination of Bank's obligation to make loans and advances hereunder; (e) Collateral Monitoring Fee. For any month or any portion thereof in which a Liquidity Event has occurred or is continuing, a collateral monitoring fee, payable monthly, in arrears, on the last day of each month, in the amount of Seven Hundred Fifty Dollars ($750); and (f) Bank Expenses. All Bank Expenses (including reasonable attorneys' fees and expenses, plus expenses, for documentation and negotiation of this Agreement) incurred through and after the Effective Date, when due. 3 CONDITIONS OF LOANS 3.1 Conditions Precedent to Initial Credit Extension. Bank's obligation to make the initial Credit Extension is subject to the condition precedent that Borrower shall consent to or have delivered, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation: (a) duly executed original signatures to the Loan Documents to which it is a party; (b) its Operating Documents and a good standing certificate of each Borrower certified by the Secretary of State of the Commonwealth of Massachusetts and the State of Delaware, as applicable, as of a date no earlier than thirty (30) days prior to the Effective Date; (c) duly executed original signatures to the completed Borrowing Resolutions for Borrower; (d) certified copies, dated as of a recent date, of financing statement searches, as Bank shall request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in 3 any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released; (e) the Perfection Certificates executed by Borrower; (f) a landlord's consent executed by each landlord of the Borrower in favor of Bank; (g) a legal opinion of Borrower's counsel dated as of the Effective Date together with the duly executed original signatures thereto; (h) evidence satisfactory to Bank that the insurance policies required by Section 6.7 hereof are in full force and effect, together with appropriate evidence showing loss payable and/or additional insured clauses or endorsements in favor of Bank; and (i) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof. 3.2 Conditions Precedent to all Credit Extensions. Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following: (a) except as otherwise provided in Section 3.4, timely receipt of an executed Transaction Report; (b) the representations and warranties in Section 5 shall be true in all material respects on the date of the Transaction Report and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Default or Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties in Section 5 remain true in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and (c) in Bank's sole discretion, there has not been any material impairment in the general affairs, management, results of operations, financial condition or the prospect of repayment of the Obligations, or there has not been any material adverse deviation by Borrower from the most recent business plan of Borrower presented to and accepted by Bank. 3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower's obligation to deliver such item, and any such Credit Extension in the absence of a required item shall be made in Bank's sole discretion. 3.4 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance (other than Advances under Sections 2.1.2 or 2.1.4), Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with such notification, Borrower must promptly deliver to Bank by electronic mail or facsimile a completed Transaction Report executed by a Responsible Officer or his or her designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. 4 CREATION OF SECURITY INTEREST 4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever 4 located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens that may have superior priority to Bank's Lien under this Agreement). If Borrower shall acquire a commercial tort claim, Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank. If this Agreement is terminated, Bank's Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are repaid in full in cash. Upon payment in full in cash of the Obligations and at such time as Bank's obligation to make Credit Extensions has terminated, Bank shall, at Borrower's sole cost and expense, release its Liens in the Collateral and all rights therein shall revert to Borrower. 4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank's interest or rights hereunder, including a notice that any disposition of the Collateral, by either Borrower or any other Person, shall be deemed to violate the rights of Bank under the Code. Such financing statements may indicate the Collateral as "all assets of the Debtor" or words of similar effect, or as being of an equal or lesser scope, or with greater detail, all in Bank's discretion. 5 REPRESENTATIONS AND WARRANTIES Each Borrower represents and warrants as follows: 5.1 Due Organization, Authorization; Power and Authority. Each Borrower is duly existing and in good standing as a Registered Organization in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower's business. In connection with this Agreement, each Borrower has delivered to Bank a completed certificate signed by such Borrower, entitled "Perfection Certificate". Each Borrower represents and warrants to Bank that (a) such Borrower's exact legal name is that indicated on such Perfection Certificate and on the signature page hereof; (b) such Borrower is an organization of the type and is organized in the jurisdiction set forth in its respective Perfection Certificate; (c) each Perfection Certificate accurately sets forth such Borrower's organizational identification number or accurately states that such Borrower has none; (d) each Perfection Certificate accurately sets forth such Borrower's place of business, or, if more than one, its chief executive office as well as such Borrower's mailing address (if different than its chief executive office); (e) each Borrower (and each of its respective predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to such Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that each Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If any Borrower is not now a Registered Organization but later becomes one, such Borrower shall promptly notify Bank of such occurrence and provide Bank with such Borrower's organizational identification number. The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower's organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect or (v) constitute an event of default under any material agreement by which Borrower is bound. Other than defaults of the Borrower under the Equipment Line that (X) have been previously disclosed to Bank and (Y) have been waived by Bank, Borrower is not in default under any agreement to which it is a party or by which it is bound in which the default could reasonably be expected to have a material adverse effect on Borrower's business. 5.2 Collateral. Borrower has good title to, has rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no deposit accounts other than the deposit accounts with Bank, the deposit accounts, if any, described in the Perfection Certificate delivered to Bank in connection herewith, or of which Borrower has given 5 Bank notice and taken such actions as are necessary to give Bank a perfected security interest therein. The Accounts are bona fide, existing obligations of the Account Debtors. The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2. In the event that Borrower, after the date hereof, intends to store or otherwise deliver any portion of the Collateral to a bailee, then Borrower will first receive the written consent of Bank and such bailee must execute and deliver a bailee agreement in form and substance satisfactory to Bank in its sole discretion. All Inventory is in all material respects of good and marketable quality, free from material defects. Borrower is the sole owner of its intellectual property, except for non-exclusive licenses granted to its customers in the ordinary course of business. Each patent is valid and enforceable and no part of the intellectual property has been judged invalid or unenforceable, in whole or in part, and to the best of Borrower's knowledge, no claim has been made that any part of the intellectual property violates the rights of any third party. Borrower is not a party to, nor is bound by, any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower's interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank's right to sell any Collateral. Borrower shall provide written notice to Bank within ten (10) days of entering or becoming bound by any such license or agreement which is reasonably likely to have a material impact on Borrower's business or financial condition (other than over-the-counter software that is commercially available to the public). Borrower shall take such steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (x) all such licenses or agreements to be deemed "Collateral" and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such license or agreement, whether now existing or entered into in the future, and (y) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank's rights and remedies under this Agreement and the other Loan Documents. 5.3 Accounts Receivable; Inventory. (a) For each Account with respect to which Advances are requested, on the date each Advance is requested and made, such Account shall be an Eligible Account. (b) All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Eligible Accounts are and shall be true and correct and all such invoices, instruments and other documents, and all of Borrower's Books are genuine and in all respects what they purport to be. Whether or not an Event of Default has occurred and is continuing, Bank may notify any Account Debtor owing Borrower money of Bank's security interest in such funds and verify the amount of such Eligible Account. All sales and other transactions underlying or giving rise to each Eligible Account shall comply in all material respects with all applicable laws and governmental rules and regulations. Borrower has no knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor whose accounts are Eligible Accounts in any Transaction Report. To the best of Borrower's knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Eligible Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms. (c) For any item of Inventory consisting of Eligible Inventory in any Transaction Report, such Inventory (i) consists of finished goods, in good, new, and salable condition, which is not perishable, returned, consigned, obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom inventory, works in progress, packaging or shipping materials, or supplies; (ii) meets all applicable governmental standards; (iii) has been manufactured in compliance with the Fair Labor Standards Act; (iv) is not subject to any Liens, except the first priority Liens granted or in favor of Bank under this Agreement or any of the other Loan Documents; and (v) is located at the locations identified by Borrower in the Perfection Certificate where it maintains Inventory (or any location permitted under Section 7.2). 5.4 Litigation. Except as set forth on Schedule 5.4 attached hereto, there are no actions or proceedings pending or, to the knowledge of the Responsible Officers, threatened in writing by or against Borrower or any of its Subsidiaries involving more than One Hundred Thousand Dollars ($100,000). 6 5.5 No Material Deviation in Financial Statements. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and Borrower's consolidated results of operations. There has not been any material deterioration in Borrower's consolidated financial condition since the date of the most recent financial statements submitted to Bank. 5.6 Solvency. The fair salable value of Borrower's assets (including goodwill minus disposition costs) exceeds the fair value of its liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature. 5.7 Regulatory Compliance. Borrower is not an "investment company" or a company "controlled" by an "investment company" under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has complied in all material respects with the Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries is a "holding company" or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company" as each term is defined and used in the Public Utility Holding Company Act of 2005. Borrower has not violated any laws, ordinances or rules, the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower's or any of its Subsidiaries' properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have 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 their respective businesses as currently conducted. 5.8 Subsidiaries; Investments. Borrower does not own any stock, partnership interest or other equity securities except for Permitted Investments. 5.9 Tax Returns and Payments; Pension Contributions. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower. Borrower may defer payment of any contested taxes, provided that Borrower (a) in good faith contests its obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (b) notifies Bank in writing of the commencement of, and any material development in, the proceedings, (c) posts bonds or takes any other steps required to prevent the governmental authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a "Permitted Lien". 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 all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 5.10 Use of Proceeds. Borrower shall use the proceeds of the Credit Extensions solely as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes. 5.11 Full Disclosure. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results). 6 AFFIRMATIVE COVENANTS Borrower shall do all of the following: 6.1 Government Compliance. 7 (a) Maintain its and all its Subsidiaries' legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower's business or operations. Borrower shall comply, and have each Subsidiary comply, with all laws, ordinances and regulations to which it is subject, noncompliance with which could have a material adverse effect on Borrower's business. (b) Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank. 6.2 Financial Statements, Reports, Certificates. (a) Borrower shall provide Bank with the following: (i) monthly within fifteen (15) days after the end of such period (or, during a Liquidity Event, weekly on the last Business Day of such week), and with each request for a Credit Extension, a Transaction Report (and any schedules related thereto); (ii) within fifteen (15) days after the end of each month, (A) monthly accounts receivable agings, aged by invoice date, (B) monthly accounts payable agings, aged by invoice date, backlog reports and outstanding or held check registers, if any, (C) monthly reconciliations of accounts receivable agings (aged by invoice date), and the general ledger, (D) monthly inventory reports for Inventory, computed on a first-in, first-out basis, valued at the lower of cost or market (in accordance with GAAP), or such other Inventory reports as are requested by Bank in its good faith business judgment, and (E) outstanding purchase orders; (iii) as soon as available, and in any event within thirty (30) days after the end of each month, monthly unaudited financial statements; (iv) within thirty (30) days after the end of each month a monthly Compliance Certificate signed by a Responsible Officer, 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 Bank shall reasonably request, including, without limitation, a statement that at the end of such month there were no held checks; (v) within thirty (30) days prior to the end of each fiscal year of Borrower, (A) annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower, and (B) annual financial projections for the following fiscal year (on a monthly basis) as approved by Borrower's board of directors, together with any related business forecasts used in the preparation of such annual financial projections; and (vi) as soon as available, and in any event within one hundred fifty (150) days following the end of Borrower's fiscal year, annual financial statements audited by independent certified public accountants acceptable to Bank. Notwithstanding the foregoing, during a Liquidity Event, Borrower shall be required to provide Bank with the Transaction Report required pursuant to clause (a)(i) above on a weekly basis, as of the last Business Day of such month. (b) In the event that Borrower becomes subject to the reporting requirements under the Securities Exchange Act of 1934, as amended, within five (5) days after filing, all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission or a link thereto on Borrower's or another website on the Internet. 6.3 Accounts Receivable. (a) Schedules and Documents Relating to Accounts. Borrower shall deliver to Bank Transaction Reports and schedules of collections, as provided in Section 6.2, on Bank's standard forms; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit Bank's Lien and other rights in all of Borrower's Accounts, nor shall Bank's failure to advance or lend against a specific Account affect or limit Bank's Lien and other rights therein. If requested by Bank, Borrower shall furnish Bank with copies (or, at Bank's request, originals) of all contracts, orders, invoices, and other similar documents, and all 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 Accounts. In addition, Borrower shall deliver to Bank, on its request, the originals of all 8 instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Accounts, in the same form as received, with all necessary indorsements, and copies of all credit memos. (b) Disputes. Borrower shall promptly notify Bank of all disputes or claims relating to Accounts. Borrower may forgive (completely or partially), compromise, or settle any Account for less than payment in full, or agree to do any of the foregoing so long as (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, in arm's-length transactions, and reports the same to Bank in the regular reports provided to Bank; (ii) no Default or Event of Default has occurred and is continuing; and (iii) after taking into account all such discounts, settlements and forgiveness, the total outstanding Advances will not exceed the lesser of the Revolving Line or the aggregate Borrowing Base. (c) Collection of Accounts. Borrower shall have the right to collect all Accounts, unless and until a Default or an Event of Default has occurred and is continuing. Collections of Accounts shall be deposited by Borrower into a lockbox account, or such other "blocked account" as Bank may specify, pursuant to a blocked account agreement in such form as Bank may specify in its good faith business judgment. Whether or not an Event of Default has occurred and is continuing, Borrower shall hold all Payments on, and proceeds of, Accounts in trust for Bank, and Borrower shall immediately deliver all such payments and proceeds to Bank in their original form, duly endorsed, to be applied to the Obligations pursuant to the terms of Section 9.4 hereof; provided, however, on any date in which Liquidity is equal to or greater than two and one-half (2.5) times the outstanding principal amount of the Obligations, and provided no Default has occurred, Bank shall transfer such amounts on such date to Borrower's Designated Deposit Account. (d) Returns. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower, Borrower shall promptly (i) determine the reason for such return, (ii) issue a credit memorandum to the Account Debtor in the appropriate amount, and (iii) provide a copy of such credit memorandum to Bank, upon request from Bank. In the event any attempted return occurs after the occurrence and during the continuance of any Event of Default, Borrower shall hold the returned Inventory in trust for Bank, and immediately notify Bank of the return of the Inventory. (e) Verification. Bank may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Accounts, either in the name of Borrower or Bank or such other name as Bank may choose. (f) No Liability. Bank shall not 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 an Account, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Account, or for settling any Account in good faith for less than the full amount thereof, nor shall Bank be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to an Account. Nothing herein shall, however, relieve Bank from liability for its own gross negligence or willful misconduct. 6.4 Remittance of Proceeds. Except as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising from the disposition of any Collateral to Bank 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 pursuant to the terms of Section 9.4 hereof; provided that, if no Default or Event of Default has occurred and is continuing, Borrower shall not be obligated to remit to Bank 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 Bank. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement. 6.5 Taxes; Pensions. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely file, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms. 9 6.6 Access to Collateral; Books and Records. At reasonable times, on one (1) Business Day's notice (provided no notice is required if an Event of Default has occurred and is continuing), Bank, or its agents, shall have the right, on a semi-annual basis (or more frequently, as Bank shall determine necessary in its sole discretion) to inspect the Collateral and the right to audit and copy Borrower's Books. The foregoing inspections and audits shall be at Borrower's expense, and the charge therefor shall be $750 per person per day (or such higher amount as shall represent Bank's then-current standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedules the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank's rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling. 6.7 Insurance. Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower's industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with companies, and in amounts that are satisfactory to Bank. All property policies shall have a loss payable endorsement showing Bank as an additional loss payee and waive subrogation against Bank, and all liability policies shall show, or have endorsements showing, Bank as an additional insured. All policies (or the loss payable and additional insured endorsements) shall provide that the insurer shall endeavor to give Bank at least twenty (20) days notice before canceling, amending, or declining to renew its policy. At Bank's request, Borrower shall deliver certified copies of policies and evidence of all premium payments. Proceeds payable under any property policy shall, at Bank's option, be payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty policy up to Two Hundred Fifty Thousand Dollars ($250,000) with respect to any loss, but not exceeding Five Hundred Thousand Dollars ($500,000) in the aggregate for all losses under all casualty policies in any one year, toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations. If Borrower fails to obtain insurance as required under this Section 6.7 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.7, and take any action under the policies Bank deems prudent. 6.8 Operating Accounts. (a) Subject to the following, maintain all of its and all of its Subsidiaries' domestic operating and other deposit accounts and securities accounts with Bank and Bank's Affiliates: (i) Borrower is permitted to maintain Spire Corporation's account no. 0000 2591 5267 with Bank of America, provided that the balance in such Deposit Account shall at no time exceed Twenty Five Thousand Dollars ($25,000); (ii) Borrower is permitted to maintain Spire Corporation's account nos. 113759-490-7 and 1165-123685 and Spire Semiconductor, LLC's account nos. 330400-908-9 and 330918-730-8 (collectively, the "Citizens' Accounts", provided that (A) on a weekly basis, on the last Business Day of each week, and in any event when the aggregate balance in the Citizens' Accounts exceeds One Hundred Thousand Dollars ($100,000) , transfer such amounts in the Citizens' Accounts to Bank for deposit into such account as Bank shall specify; and (B) within thirty (30) Business Days' after the Effective Date, Borrower shall have either closed the Citizen's Accounts or shall have entered into a blocked account agreement with RBS Citizens, N.A. in favor of Bank, in form and substance reasonably acceptable to Bank. In any event, Borrower shall promptly notify its Account Debtors to remit payments to Borrowers' Collateral Account maintained at Bank. (b) Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank's Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank's Lien in such Collateral Account in accordance with the terms hereunder. The provisions of the previous sentence shall not apply to deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower's employees and identified to Bank by Borrower as such. 6.9 Financial Covenants. 10 Borrower shall maintain at all times, to be tested as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries: (a) Liquidity. The ratio of (x) (i) Borrower's unrestricted cash and Cash Equivalents at Bank plus (ii) eighty percent (80%) of Eligible Accounts, plus (iii) the lesser of (1) twenty-five percent (25%) of Borrower's Eligible Inventory or (2) $2,500,000 to (y) all outstanding Credit Extensions and any other outstanding Obligations of Borrower owed to Bank, including reserves, shall be greater than 2.00:1.00; and (b) Profitability. A minimum Net Income, on a trailing six (6) month basis, of (i) not less than ($1,000,000), for each monthly period beginning on the Effective Date through and including May 31, 2008; and (ii) not less than $1.00, for each monthly period beginning June 1, 2008 and thereafter. 6.10 Protection of Intellectual Property Rights. Borrower shall: (a) protect, defend and maintain the validity and enforceability of its intellectual property; (b) promptly advise Bank in writing of material infringements of its intellectual property; and (c) not allow any intellectual property material to Borrower's business to be abandoned, forfeited or dedicated to the public without Bank's prior written consent. 6.11 Litigation Cooperation. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower. 6.12 Further Assurances. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's Lien in the Collateral or to effect the purposes of this Agreement. 7 NEGATIVE COVENANTS Borrower shall not do any of the following without Bank's prior written consent: 7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of (collectively, "Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c) in connection with Permitted Liens and Permitted Investments; and (d) of non-exclusive licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business; 7.2 Changes in Business, Management, Ownership, Control, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) if a Key Person ceases to hold such office with Borrower and a replacement satisfactory to Bank is not made within ninety (90) days thereafter. Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Ten Thousand Dollars ($10,000) in Borrower's assets or property), (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization; 7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower; provided that, in the case of a merger of a Subsidiary into Borrower, Borrower shall remain the surviving entity; 7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness; 7.5 Encumbrance. (a) Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or (b) enter into any agreement, document, instrument or other arrangement (except with or in favor of 11 Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower's or any Subsidiary's intellectual property, except as is otherwise permitted in Section 7.1 hereof and the definition of "Permitted Lien" herein; 7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account except pursuant to the terms of Section 6.8(b) hereof; 7.7 Distributions; Investments. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock; or (b) directly or indirectly make any Investment other than Permitted Investments and Investments existing as of the Effective Date and listed on Schedule 7.7 attached hereto; 7.8 Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person; 7.9 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof or adversely affect the subordination thereof to Obligations owed to Bank; and 7.10 Compliance. Become an "investment company" or a company controlled by an "investment company", under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension 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, if the violation could reasonably be expected to have a material adverse effect on Borrower's business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. 7.11 Subsidiaries. Permit any Subsidiary other than a Borrower to maintain assets in an aggregate amount in excess of Twenty Five Thousand Dollars ($25,000) outstanding at any time. 7.12 Joint Ventures. Permit any Investment (other than Investments described on Schedule 7.7 attached hereto) in any joint venture, including, without limitation, any additional Investment in Gloria Spire Solar, LLC. 8 EVENTS OF DEFAULT Any one of the following shall constitute an event of default (an "Event of Default") under this Agreement: 8.1 Payment Default. Borrower fails to (a) make any payment of principal or interest on any Credit Extension on its due date, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day grace period shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to cure the payment default is not an Event of Default (but no Credit Extension will be made during the cure period); 8.2 Covenant Default. (a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.5, 6.7, 6.8, 6.9 or violates any covenant in Section 7; or (b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has 12 failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Grace periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in subsection (a) above; 8.3 Material Adverse Change. A Material Adverse Change occurs; 8.4 Attachment; Levy; Restraint on Business. (a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under control of Borrower (including a Subsidiary) on deposit with Bank or any Bank Affiliate, or (ii) a notice of lien, levy, or assessment is filed against any of Borrower's assets by any government agency, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any such ten (10) day cure period; and (b) (i) any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting any part of its business; 8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while of any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed); 8.6 Other Agreements. There is (i) a default of the Borrower under the Equipment Line that has (a) not been previously disclosed to Bank and (b) not been previously waived or waived concurrently with the execution of this Agreement by Bank, or (ii) a default in any agreement to which Borrower is a party with a third party or parties resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or that could have a material adverse effect on Borrower's business; 8.7 Judgments. One or more judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Fifty Thousand Dollars ($50,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower and shall remain unsatisfied, unvacated, or unstayed for a period of ten (10) days after the entry thereof (provided that no Credit Extensions will be made prior to the satisfaction, vacation, or stay of such judgment, order, or decree); 8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement is incorrect in any material respect when made; 8.9 Subordinated Debt. A default or breach occurs under any agreement between Borrower and any creditor of Borrower that signed a subordination, intercreditor, or other similar agreement with Bank, or any creditor that has signed such an agreement with Bank breaches any terms of such agreement; or 8.11 Governmental Approvals. Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clause (a) above, and such decision or such revocation, rescission, suspension, modification or non-renewal (i) has, or could reasonably be expected to have, a Material Adverse Change, or (ii) adversely affects the legal qualifications of Borrower or any of its Subsidiaries to hold such Governmental Approval in any applicable jurisdiction and such revocation, rescission, suspension, modification or non-renewal could reasonably be expected to affect the status of or legal qualifications of Borrower or any of its Subsidiaries to hold any Governmental Approval in any other jurisdiction. 9 BANK'S RIGHTS AND REMEDIES 13 9.1 Rights and Remedies. While an Event of Default occurs and continues Bank may, without notice or demand, do any or all of the following: (a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); (b) stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank; (c) demand that Borrower (i) deposits cash with Bank in an amount equal to the aggregate amount of any Letters of Credit remaining undrawn, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all Letter of Credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit; (d) terminate any FX Forward Contracts; (e) settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, notify any Person owing Borrower money of Bank's security interest in such funds, and verify the amount of such account; (f) make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral. Borrower shall assemble the Collateral if Bank requests and make it available as Bank designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank's rights or remedies; (g) 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; (h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower's labels, patents, copyrights, mask works, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section, Borrower's rights under all licenses and all franchise agreements inure to Bank's benefit; (i) place a "hold" on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral; (j) demand and receive possession of Borrower's Books; and (k) exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof). 9.2 Power of Attorney. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower's name on any checks or other forms of payment or security; (b) sign Borrower's name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower's insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower's name on any documents necessary to perfect or continue the perfection of Bank's security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank's foregoing appointment as Borrower's attorney in fact, and all of 14 Bank's rights and powers, coupled with an interest, are irrevocable until all Obligations have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates. 9.3 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.7 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest applicable rate, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default. 9.4 Application of Payments and Proceeds. Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement. If an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, in its good faith business judgment, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor. 9.5 Bank's Liability for Collateral. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral. 9.6 No Waiver; Remedies Cumulative. Bank's failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by Bank and then is only effective for the specific instance and purpose for which it is given. Bank's rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay in exercising any remedy is not a waiver, election, or acquiescence. 9.7 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 guarantees held by Bank on which Borrower is liable. 10 NOTICES All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10. 15 If to Borrower: Spire Corporation One Patriot Park Bedford, Massachusetts 01730 Attn: Christian Dufresne Fax: 781-275-7470 Email: cdufresne@SpireCorp.com with a copy to: Greenberg Traurig LLP One International Place Boston, Massachusetts 02110 Attention: Bradley Jacobson, Esquire Fax: 617.310.9000 Email: jacobsonb@gtlaw.com If to Bank: Silicon Valley Bank One Newton Executive Park, Suite 200 2221 Washington Street Newton, Massachusetts 02462 Attn: Ms. Karen Dunn Fax: 617.969.4395 Email: kdunn@svb.com with a copy to: Riemer & Braunstein LLP Three Center Plaza Boston, Massachusetts 02108 Attention: Charles W. Stavros, Esquire Fax: 617.692.3441 Email: cstavros@riemerlaw.com 11 CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE Massachusetts law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Massachusetts; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower's actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, 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, THE LOAN DOCUMENTS 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. 12 GENERAL PROVISIONS 12.1 Termination Prior to Revolving Line Maturity Date. This Agreement may be terminated prior to the Revolving Line Maturity Date by Borrower, effective three (3) Business Days after written notice of termination is given to Bank. Notwithstanding any such termination, Bank's lien and security interest in the Collateral shall 16 continue until Borrower fully satisfies its Obligations. If such termination is at Borrower's election (regardless of the existence of any Event of Default), or at Bank's election due to the occurrence and continuance of an Event of Default, Borrower shall pay to Bank, in addition to the payment of any other expenses or fees then-owing, a termination fee in an amount equal to one percent (1.00%) of the Revolving Line Amount (i.e. Fifty Thousand Dollars ($50,000)); provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Silicon Valley Bank. 12.2 Successors and Assigns. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank's prior written consent (which may be granted or withheld in Bank's discretion). Bank has the right, without the consent of or notice to Borrower, to sell, transfer, negotiate, or grant participation in all or any part of, or any interest in, Bank's obligations, rights, and benefits under this Agreement and the other Loan Documents. 12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an "Indemnified Person") harmless against: (a) all obligations, demands, claims, and liabilities (collectively, "Claims") asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or Bank Expenses incurred, or paid by such Indemnified Person from, following, or arising from transactions between Bank and Borrower (including reasonable attorneys' fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person's gross negligence or willful misconduct. 12.4 Time of Essence. Time is of the essence for the performance of all Obligations in this Agreement. 12.5 Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision. 12.6 Correction of Loan Documents. Bank may correct patent errors and fill in any blanks in this Agreement and the other Loan Documents consistent with the agreement of the parties. 12.7 Amendments in Writing; Integration. All amendments to this Agreement must be in writing and signed by both Bank and Borrower. This Agreement and the Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of this Agreement and the Loan Documents merge into this Agreement and the Loan Documents. 12.8 Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 12.9 Survival. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations and any other obligations which, by their terms, are to survive the termination of this Agreement) have been satisfied. The obligation of Borrower in Section 12.3 to indemnify Bank shall survive until the statute of limitations with respect to such claim or cause of action shall have run. 12.10 Confidentiality. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank's Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, Bank shall use commercially reasonable efforts to obtain such prospective transferee's or purchaser's agreement to the terms of this provision); (c) as required by law, regulation, subpoena, or other order; (d) to Bank's regulators or as otherwise required in connection with Bank's examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that either: (i) is in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. Bank may use confidential information for any purpose, including, without limitation, for the development of client databases, reporting purposes, and market analysis, so long as Bank does not disclose Borrower's identity or the 17 identity of any person associated with Borrower unless otherwise expressly permitted by this Agreement. The provisions of the immediately preceding sentence shall survive the termination of this Agreement. 12.11 Attorneys' Fees, Costs and Expenses. In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled. 12.12 Borrower Liability. Either Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower hereby appoints the other as agent for the other for all purposes hereunder, including with respect to requesting Credit Extensions hereunder. Each Borrower hereunder shall be obligated to repay all Credit Extensions made hereunder, regardless of which Borrower actually receives said Credit Extension, as if each Borrower hereunder directly received all Credit Extensions. Each Borrower waives any suretyship defenses available to it under the Code or any other applicable law. Each Borrower waives any right to require Bank to: (i) proceed against any Borrower or any other person; (ii) proceed against or exhaust any security; or (iii) pursue any other remedy. Bank may exercise or not exercise any right or remedy it has against any Borrower or any security it holds (including the right to foreclose by judicial or non-judicial sale) without affecting any Borrower's liability hereunder. Notwithstanding any other provision of this Agreement or any other Loan Document, each Borrower irrevocably waives all rights that it may have at law or in equity (including, without limitation, any law subrogating Borrower to the rights of Bank under this Agreement) to seek contribution, indemnification or any other form of reimbursement from any other Borrower, or any other Person now or hereafter primarily or secondarily liable for any of the Obligations, for any payment made by Borrower with respect to the Obligations in connection with this Agreement, any other Loan Document or otherwise and all rights that it might have to benefit from, or to participate in, any security for the Obligations as a result of any payment made by Borrower with respect to the Obligations in connection with this Agreement or otherwise. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 12.12 shall be null and void. If any payment is made to a Borrower in contravention of this Section 12.12, such Borrower shall hold such payment in trust for Bank and such payment shall be promptly delivered to Bank for application to the Obligations, whether matured or unmatured. 12.13 Right of Set Off. Borrower hereby grants to Bank, a lien, security interest and right of set off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 13 DEFINITIONS 13.1 Definitions. As used in this Agreement, the following terms have the following meanings: "Account" is any "account" as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower. "Account Debtor" is any "account debtor" as defined in the Code with such additions to such term as may hereafter be made. "Advance" or "Advances" means an advance (or advances) under the Revolving Line. "Affiliate" of any Person is a Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members. "Agreement" is defined in the preamble hereof. 18 "Availability Amount" is (a) the lesser of (i) the Revolving Line or (ii) the amount available under the Borrowing Base minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit Reserve, minus (c) the FX Reserve, minus (d) any amounts used for Cash Management Services, and minus (e) the outstanding principal balance of any Advances. "Bank" is defined in the preamble hereof. "Bank Expenses" are all audit fees and expenses, costs, and expenses (including reasonable attorneys' fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower. "Borrower" is defined in the preamble hereof. "Borrower's Books" are all Borrower's books and records including ledgers, federal and state tax returns, records regarding Borrower's assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information. "Borrowing Base" is (a) eighty percent (80%) of Eligible Accounts plus (b) the lesser of (1) twenty-five percent (25%) of Borrower's Eligible Inventory, but in any event not to exceed Two Million Five Hundred Thousand Dollars ($2,500,000); or (2) fifty percent (50%) of the outstanding principal balance of all Credit Extensions made under the Revolving Line, in each case as determined by Bank from Borrower's most recent Transaction Report; provided, however, that Bank may decrease the foregoing amount and/or percentages in its good faith business judgment based on events, conditions, contingencies, or risks which, as determined by Bank, may adversely affect Collateral. "Borrowing Resolutions" are, with respect to any Person, those resolutions adopted by such Person's board of directors and delivered by such Person to Bank approving the Loan Documents to which such Person is a party and the transactions contemplated thereby, together with a certificate executed by its secretary on behalf of such Person certifying that (a) such Person has the authority to execute, deliver, and perform its obligations under each of the Loan Documents to which it is a party, (b) that attached as Exhibit A to such certificate is a true, correct, and complete copy of the resolutions then in full force and effect authorizing and ratifying the execution, delivery, and performance by such Person of the Loan Documents to which it is a party, (c) the name(s) of the Person(s) authorized to execute the Loan Documents on behalf of such Person, together with a sample of the true signature(s) of such Person(s), and (d) that Bank may conclusively rely on such certificate unless and until such Person shall have delivered to Bank a further certificate canceling or amending such prior certificate. "Business Day" is any day that is not a Saturday, Sunday or a day on which Bank is closed. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency or any State thereof having maturities of not more than one (1) year from the date of acquisition; (b) commercial paper maturing no more than one (1) year after its creation and having the highest rating from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; and (c) Bank's certificates of deposit issued maturing no more than one (1) year after issue. "Cash Management Services" is defined in Section 2.1.4. "Code" is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the Commonwealth of Massachusetts; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank's Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the Commonwealth of Massachusetts, the term "Code" shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes on the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions. "Collateral" is any and all properties, rights and assets of Borrower described on Exhibit A. "Collateral Account" is any Deposit Account, Securities Account, or Commodity Account. 19 "Commodity Account" is any "commodity account" as defined in the Code with such additions to such term as may hereafter be made. "Compliance Certificate" is that certain certificate in the form attached hereto as Exhibit C. "Contingent Obligation" is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but "Contingent Obligation" does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement. "Control Agreement" is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account. "Credit Extension" is any Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash Management Services, or any other extension of credit by Bank for Borrower's benefit. "Default" means any event which with notice or passage of time or both, would constitute an Event of Default. "Default Rate" is defined in Section 2.3(b). "Deferred Revenue" is all amounts received or invoiced in advance of performance under contracts and not yet recognized as revenue. "Deposit Account" is any "deposit account" as defined in the Code with such additions to such term as may hereafter be made. "Designated Deposit Account" is Borrower's deposit account, account number 700587370, maintained with Bank. "Dollars," "dollars" and "$" each mean lawful money of the United States. "Domestic Subsidiary" means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia. "Effective Date" is the date Bank executes this Agreement as indicated on the signature page hereof. "Eligible Accounts" means Accounts which arise in the ordinary course of Borrower's business that meet all Borrower's representations and warranties in Section 5.3. Bank reserves the right at any time after the Effective Date to adjust any of the criteria set forth below and to establish new criteria in its good faith business judgment. Eligible Accounts shall not include: (a) Accounts that the Account Debtor has not paid within ninety (90) days of invoice date regardless of invoice payment period terms; (b) Accounts owing from an Account Debtor, fifty percent (50%) or more of whose Accounts have not been paid within ninety (90) days of invoice date; (c) Accounts billed in the United States and owing from an Account Debtor which does not have its principal place of business in the United States, except for Eligible Foreign Accounts; 20 (d) Accounts billed and payable outside of the United States unless the Bank has a first priority, perfected security interest or other enforceable Lien in such Accounts; (e) Accounts owing from an Account Debtor to the extent that Borrower is indebted or obligated in any manner to the Account Debtor (as creditor, lessor, supplier or otherwise - sometimes called "contra" accounts, accounts payable, customer deposits or credit accounts), with the exception of customary credits, adjustments and/or discounts given to an Account Debtor by Borrower in the ordinary course of its business; (f) Accounts for which the Account Debtor is Borrower's Affiliate, officer, employee, or agent; (g) Accounts with credit balances over ninety (90) days from invoice date; (h) Accounts owing from an Account Debtor, including Affiliates, whose total obligations to Borrower exceed twenty-five (25%) of all Accounts, for the amounts that exceed that percentage, unless Bank approves in writing; (i) Accounts owing from an Account Debtor which is a United States government entity or any department, agency, or instrumentality thereof unless Borrower has assigned its payment rights to Bank and the assignment has been acknowledged under the Federal Assignment of Claims Act of 1940, as amended; (j) Accounts for demonstration or promotional equipment, or in which goods are consigned, or sold on a "sale guaranteed", "sale or return", "sale on approval", or other terms if Account Debtor's payment may be conditional; (k) Accounts owing from an Account Debtor that has not been invoiced or where goods or services have not yet been rendered to the Account Debtor (sometimes called memo billings or pre-billings); (l) Accounts subject to contractual arrangements between Borrower and an Account Debtor where payments shall be scheduled or due according to completion or fulfillment requirements where the Account Debtor has a right of offset for damages suffered as a result of Borrower's failure to perform in accordance with the contract (sometimes called contracts accounts receivable, progress billings, milestone billings, or fulfillment contracts); (m) Accounts owing from an Account Debtor the amount of which may be subject to withholding based on the Account Debtor's satisfaction of Borrower's complete performance (but only to the extent of the amount withheld; sometimes called retainage billings); (n) Accounts subject to trust provisions, subrogation rights of a bonding company, or a statutory trust; (o) Accounts owing from an Account Debtor that has been invoiced for goods that have not been shipped to the Account Debtor unless Bank, Borrower, and the Account Debtor have entered into an agreement acceptable to Bank in its sole discretion wherein the Account Debtor acknowledges that (i) it has title to and has ownership of the goods wherever located, (ii) a bona fide sale of the goods has occurred, and (iii) it owes payment for such goods in accordance with invoices from Borrower (sometimes called "bill and hold" accounts); (p) Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue (but only to the extent of such Deferred Revenue); but excluding Accounts owing from an Account Debtor with respect to which Borrower has received Deferred Revenue that are backed by a Letter-of-Credit acceptable to Bank. (q) Accounts that represent non-trade receivables or that are derived by means other than in the ordinary course of Borrower's business; (r) Accounts subject to chargebacks or others payment deductions taken by an Account Debtor (but only to the extent the chargeback is determined invalid and subsequently collected by Borrower); (s) Accounts in which the Account Debtor disputes liability or makes any claim (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; and (t) Accounts for which Bank in its good faith business judgment determines collection to be doubtful. 21 "Eligible Foreign Accounts" means those Accounts for which the Account Debtor does not have its principal place of business in the United States: (a) that are otherwise Eligible Accounts and backed by a Letter-of-Credit advised upon and acceptable to Bank; or (b) up to fifteen percent (15%) of such Accounts that are otherwise Eligible Accounts that are not backed by a Letter-of-Credit acceptable to Bank, and are approved by Bank in writing, on a case-by-case basis. "Eligible Inventory" means, at any time, the aggregate of Borrower's Inventory (valued at the lower of cost or wholesale fair market value) that (a) consists of (i) raw materials, (ii) work-in-progress Inventory, to the extent such work-in-progress Inventory is the subject of a purchase order, backed by a letter of credit acceptable to Bank, and (iii) finished goods, in good, new, and salable condition, which is not perishable, returned, consigned, obsolete, not sellable, damaged, or defective, and is not comprised of demonstrative or custom inventory, packaging or shipping materials, or supplies; (b) meets all applicable governmental standards; (c) has been manufactured in compliance with the Fair Labor Standards Act; (d) is not subject to any Liens, except the first priority Liens granted or in favor of Bank under this Agreement or any of the other Loan Documents; (e) is located at Borrower's principal place of business (or any location permitted under Section 7.2), and, in the case of Inventory in the possession of third parties, Bank has received written acknowledgment from such third parties of Borrower's ownership of such goods, in form and substance satisfactory to Bank; and (f) is otherwise acceptable to Bank in its good faith business judgment. "Equipment" is all "equipment" as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing. "Equipment Line" is that certain Loan and Security Agreement, dated as of May 25, 2007, between Borrower and Bank, as amended, amended and restated, modified or otherwise supplemented from time to time. "ERISA" is the Employee Retirement Income Security Act of 1974, and its regulations. "Event of Default" is defined in Section 8. "Foreign Currency" means lawful money of a country other than the United States. "Foreign Subsidiary" means any Subsidiary which is not a Domestic Subsidiary. "Funding Date" is any date on which a Credit Extension is made to or on account of Borrower which shall be a Business Day. "FX Business Day" is any day when (a) Bank's Foreign Exchange Department is conducting its normal business and (b) the Foreign Currency being purchased or sold by Borrower is available to Bank from the entity from which Bank shall buy or sell such Foreign Currency. "FX Forward Contract" is defined in Section 2.1.3. "FX Reserve" is defined in Section 2.1.3. "GAAP" is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "General Intangibles" is all "general intangibles" as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work, whether published or unpublished, any patents, trademarks, service marks and, to the extent permitted under applicable law, any applications therefor, whether registered or not, any trade secret rights, including any rights to unpatented inventions, payment intangibles, royalties, contract rights, goodwill, franchise agreements, purchase orders, customer lists, route lists, telephone numbers, domain names, claims, income and other tax refunds, security and other deposits, options to purchase or sell real or personal property, rights in all litigation presently or hereafter 22 pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind. "Governmental Approval" is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority. "Governmental Authority" is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization. "Indebtedness" is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations. "Indemnified Person" is defined in Section 12.3. "Insolvency Proceeding" is any proceeding 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. "Inventory" is all "inventory" as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returned goods and any documents of title representing any of the above. "Investment" is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person. "Key Person" is any of Borrower's Chief Executive Officer or Chief Financial Officer who are, as of the Effective Date, Roger Little and Christian Dufresne, respectively. "Letter of Credit" means a standby letter of credit issued by Bank or another institution based upon an application, guarantee, indemnity or similar agreement on the part of Bank as set forth in Section 2.1.2. "Letter of Credit Application" is defined in Section 2.1.2(a). "Letter of Credit Reserve" has the meaning set forth in Section 2.1.2(d). "Lien" is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property. "Liquidity Event" is, as of any date of measurement, either (i) Borrower's unrestricted cash and Cash Equivalents held at Bank is less than the aggregate outstanding Obligations owed by Borrower to Bank hereunder OR (ii) Borrower's Net Income for the trailing six (6) months is less than One Hundred Thousand Dollars ($100,000). "Loan Documents" are, collectively, this Agreement, the Equipment Line, the Perfection Certificate, any note, or notes or guaranties executed by Borrower, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement, all as amended, restated, or otherwise modified. "Material Adverse Change" is (a) a material impairment in the perfection or priority of Bank's Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; (c) a material impairment of the prospect of repayment of any portion of the Obligations or (d) Bank determines, based upon information available to it and in its reasonable judgment, that there is a reasonable likelihood that Borrower shall fail to comply with one or more of the financial covenants in Section 6 during the next succeeding financial reporting period. 23 "Net Income" means, as calculated on a consolidated basis for Borrower and its Subsidiaries for any period as at any date of determination, the net profit (or loss), after provision for taxes, of Borrower and its Subsidiaries for such period taken as a single accounting period. "Obligations" are Borrower's obligation to pay when due any debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank now or later, whether under this Agreement, the Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit (including reimbursement obligations for drawn and undrawn letters of credit), cash management services, and foreign exchange contracts, if any, and including interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrower's duties under the Loan Documents. "Operating Documents" are, for any Person, such Person's formation documents, as certified with the Secretary of State of such Person's state of formation on a date that is no earlier than 30 days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto. "Overadvance" is defined in Section 2.2. "Perfection Certificate" is defined in Section 5.1. "Permitted Indebtedness" is: (a) Borrower's Indebtedness to Bank under this Agreement and the other Loan Documents; (b) Indebtedness or reimbursement obligations existing on the Effective Date listed on Schedule 7.7 attached hereto; (c) Subordinated Debt; (d) unsecured Indebtedness to trade creditors and with respect to surety bonds and similar obligations incurred in the ordinary course of business; (e) Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business; (f) Indebtedness secured by Permitted Liens; (g) Indebtedness of any Borrower to any other Borrower; and (h) extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (h) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiaries, as the case may be. "Permitted Investments" are: (a) Investments listed on Schedule 7.7 attached hereto and existing on the Effective Date; (b) Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower; (c) Investments of Subsidiaries in or to other Subsidiaries or Borrower and Investments by Borrower in any Subsidiaries that is not a Borrower (with the exception of Gloria Spire Solar, LLC) not to exceed Twenty Five Thousand Dollars ($25,000) in the aggregate in any fiscal year; (d) Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower's board of directors; 24 (e) Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this clause (f) shall not apply to Investments of Borrower in any Subsidiary; (f) Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business; (g) Investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof; (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (iii) certificates of deposit maturing no more than one year from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $100,000,000.00 and having a senior unsecured rating of "A" or better by a nationally recognized rating agency (an "A Rated Bank"); (iv) time deposits maturing no more than 30 days from the date of creation thereof with A Rated Banks; and (v) mutual funds that invest solely in one or more of the investments described in clauses (i) through (iv) above; (h) Cash Equivalents; and (i) Investments consisting of intercompany loans by Borrower to any other Borrower in an amount not to exceed Five Hundred Thousand Dollars ($500,000.00) in the aggregate. "Permitted Liens" are: (a) Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents; (b) Liens for taxes, fees, assessments or other government charges or levies, either not delinquent or being contested in good faith and for which Borrower maintains adequate reserves on its Books, provided that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder; (c) purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of Equipment securing no more than Five Hundred Thousand Dollars ($500,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the Equipment; (d) statutory Liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other Persons imposed without action of such parties, provided, they have no priority over any of Bank's Lien and the aggregate amount of such Liens does not at any time exceed Two Hundred Fifty Thousand Dollars ($250,000.00); (e) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (e), but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase; and (f) Liens securing Permitted Indebtedness. "Person" is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency. "Prime Rate" is the greater of (i) six percent (6.00%) or (ii) Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. "Registered Organization" is any "registered organization" as defined in the Code with such additions to such term as may hereafter be made. 25 "Related Account Debtor" means, with respect to any Person, any Affiliate, relative, partner, shareholder, director, officer, of employee of such Person. "Requirement of Law" is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Reserves" means, as of any date of determination, such amounts as Bank may from time to time establish and revise in its good faith business judgment, reducing the amount of Advances and other financial accommodations which would otherwise be available to Borrower (a) to reflect events, conditions, contingencies or risks which, as determined by Bank in its good faith business judgment, do or may adversely affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Accounts), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Bank in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Bank's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Bank is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Bank determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default. "Responsible Officer" is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower "Revolving Line" is an Advance or Advances in an amount up to Five Million Dollars ($5,000,000). "Revolving Line Maturity Date" is March 30, 2009. "Securities Account" is any "securities account" as defined in the Code with such additions to such term as may hereafter be made. "Settlement Date" is defined in Section 2.1.3. "Subordinated Debt" is indebtedness incurred by Borrower subordinated to all of Borrower's now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank. "Subsidiary" means, with respect to any Person, any Person of which more than 50.0% of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person or one or more of Affiliates of such Person. "Transaction Report" is that certain report of transactions and schedule of collections in the form attached hereto as Exhibit D, containing, at a minimum, a summary for the relevant period for sales, collections, credit memos and other collateral adjustments, and including a Borrowing Base Certificate in the form attached hereto as Exhibit B. "Transfer" is defined in Section 7.1. "Unused Revolving Line Facility Fee" is defined in Section 2.4(d). [Signature page follows.] 26 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as a sealed instrument under the laws of the Commonwealth of Massachusetts as of the Effective Date. BORROWER: SPIRE CORPORATION By: /s/ Roger G. Little By: /s/ Christian Dufresne ---------------------------- ---------------------------- Name: Roger G. Little Name: Christian Dufresme Title: Chief Executive Officer Title: Chief Financial Officer SPIRE SOLAR, INC. By: /s/ Roger G. Little By: /s/ Christian Dufresne ---------------------------- ---------------------------- Name: Roger G. Little Name: Christian Dufresme Title: Chief Executive Officer Title: Chief Financial Officer SPIRE BIOMEDICAL, INC. By: /s/ Roger G. Little By: /s/ Christian Dufresne ---------------------------- ---------------------------- Name: Roger G. Little Name: Christian Dufresme Title: Chief Executive Officer Title: Chief Financial Officer SPIRE SEMICONDUCTOR, LLC f/k/a BANDWITH SEMICONDUCTOR, LLC By: Spire Corporation, a Massachusetts corporation, its sole Member and Manager By: /s/ Roger G. Little By: /s/ Christian Dufresne ---------------------------- ---------------------------- Name: Roger G. Little Name: Christian Dufresme Title: Chief Executive Officer Title: Chief Financial Officer BANK: SILICON VALLEY BANK By: /s/ Karen Dunn ---------------------------- Name: Karen Dunn Title: Relationship Manager Effective Date: 3/31/08 27 EX-31.1 5 exh31-1_15913.txt SECTION 302 CERTIFICATION OF C.E.O. EXHIBIT 31.1 ------------ CERTIFICATION PURSUANT TO ss.302 OF THE SARBANES-OXLEY ACT OF 2002 I, Roger G. Little, Chairman of the Board, Chief Executive Officer and President of Spire Corporation (the "Company"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the Company. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the Company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Dated: May 13, 2008 By: /s/ Roger G. Little -------------------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President EX-31.2 6 exh31-2_15913.txt SECTION 302 CERTIFICATION OF C.F.O. EXHIBIT 31.2 ------------ CERTIFICATION PURSUANT TO ss.302 OF THE SARBANES-OXLEY ACT OF 2002 I, Christian Dufresne, Chief Financial Officer and Treasurer of Spire Corporation (the "Company"), certify that: 1. I have reviewed this quarterly report on Form 10-Q of the Company. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report. 4. The Company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d - 15(f)) for the Company and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 5. The Company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Dated: May 13, 2008 By: /s/ Christian Dufresne ------------------------------------- Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer EX-32.1 7 exh32-1_15913.txt SECTION 906 CERTIFICATION OF C.E.O. EXHIBIT 32.1 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO ss.906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Spire Corporation (the "Company") on Form 10-Q (the "Report") for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof, I, Roger G. Little, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 13, 2008 By: /s/ Roger G. Little ------------------------------------- Roger G. Little Chief Executive Officer and President A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 8 exh32-2_15913.txt SECTION 906 CERTIFICATION OF C.F.O. EXHIBIT 32.2 ------------ CERTIFICATION PURSUANT TO 18 U.S.C. ss.1350, AS ADOPTED PURSUANT TO ss.906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Spire Corporation (the "Company") on Form 10-Q (the "Report") for the period ended March 31, 2008 as filed with the Securities and Exchange Commission on the date hereof, I, Christian Dufresne, Chief Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: May 13, 2008 By: /s/ Christian Dufresne ------------------------------------- Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----