-----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, GyYjuJRCBsn907cM08X0Iu5vlC2l98LA8ETSneycnPxZRHf5NxDzR6KBThrOWrSn r2RctqukZ9JPwPHQZx/JpA== 0001072613-09-001255.txt : 20090814 0001072613-09-001255.hdr.sgml : 20090814 20090814165645 ACCESSION NUMBER: 0001072613-09-001255 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20090630 FILED AS OF DATE: 20090814 DATE AS OF CHANGE: 20090814 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: 091016716 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 form10q_16546.txt FORM 10-Q DATED JUNE 30, 2009 ================================================================================ 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 June 30, 2009; 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 incorporation or organization) Identification Number) 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 check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes |_| 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 August 10, 2009 was 8,334,688. ================================================================================ TABLE OF CONTENTS Page ---- PART I. FINANCIAL INFORMATION Item 1. Unaudited Condensed Consolidated Financial Statements: Unaudited Condensed Consolidated Balance Sheets as of June 30, 2009 and December 31, 2008 ............................. 1 Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008 ......... 2 Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008 ................... 3 Notes to Unaudited Condensed Consolidated Financial Statements... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 25 Item 4T. Controls and Procedures ........................................ 25 PART II. OTHER INFORMATION Item 1. Legal Proceedings .............................................. 27 Item 1A. Risk Factors .................................................... 27 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds...... 27 Item 3. Defaults Upon Senior Securities ................................ 27 Item 4. Submission of Matters to a Vote of Security Holders ............ 27 Item 5. Other Information .............................................. 27 Item 6. Exhibits ....................................................... 27 Signatures ..................................................... 28 PART I FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
June 30, December 31, 2009 2008 ------------ ------------ ASSETS Current assets - -------------- Cash and cash equivalents $ 3,463 $ 5,971 Restricted cash - current portion 1,542 4,167 ------------ ------------ 5,005 10,138 Accounts receivable - trade, net 5,464 8,098 Inventories, net 16,955 16,855 Deferred cost of goods sold 19,429 17,088 Deposits on equipment for inventory 2,191 3,419 Prepaid expenses and other current assets 529 424 Current assets of discontinued operations and assets held for sale 1,417 1,854 ------------ ------------ Total current assets 50,990 57,876 Property and equipment, net 5,904 6,075 Intangible and other assets, net 752 480 Available-for-sale investments, at quoted market value (cost of $1,658 and $1,859 at June 30, 2009 and December 31, 2008, respectively) 1,636 1,434 Equity investment in joint venture 450 1,473 Deposit - related party 300 300 Non-current assets of discontinued operations and assets held for sale 368 380 ------------ ------------ Total other assets 3,506 4,067 ------------ ------------ Total assets $ 60,400 $ 68,018 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities - ------------------- Current portion of equipment and revolving line of credit $ 2,667 $ 2,667 Accounts payable 6,059 4,842 Accrued liabilities 6,901 8,150 Current portion of advances on contracts in progress 33,613 34,509 Liabilities of discontinued operations 883 873 ------------ ------------ Total current liabilities 50,123 51,041 Long-term portion of equipment line of credit -- 583 Long-term portion of advances on contracts in progress 6 1,149 Deferred compensation 1,636 1,434 Other long-term liabilities 448 293 ------------ ------------ Total long-term liabilities 2,090 3,459 ------------ ------------ Total liabilities 52,213 54,500 ------------ ------------ Stockholders' equity Common stock, $0.01 par value; 20,000,000 shares authorized; 8,334,688 and 8,330,688 shares issued and outstanding on June 30, 2009 and December 31, 2008, respectively 83 83 Additional paid-in capital 21,124 20,774 Accumulated deficit (12,998) (6,914) Accumulated other comprehensive loss (22) (425) ------------ ------------ Total stockholders' equity 8,187 13,518 ------------ ------------ Total liabilities and stockholders' equity $ 60,400 $ 68,018 ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 1 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- ---------------------------- 2009 2008 2009 2008 ------------ ------------ ------------ ------------ Net sales and revenues - ---------------------- Sales of goods $ 19,028 $ 12,579 $ 27,550 $ 22,679 Contract research, service and license revenues 3,145 3,375 6,010 6,918 ------------ ------------ ------------ ------------ Total net sales and revenues 22,173 15,954 33,560 29,597 ------------ ------------ ------------ ------------ Costs of sales and revenues - --------------------------- Cost of goods sold 18,127 8,364 25,985 16,237 Cost of contract research, services and licenses 2,269 2,342 4,433 4,716 ------------ ------------ ------------ ------------ Total cost of sales and revenues 20,396 10,706 30,418 20,953 Gross margin 1,777 5,248 3,142 8,644 Operating expenses - ------------------ Selling, general and administrative expenses 5,182 4,603 8,949 7,993 Internal research and development expenses 251 171 562 282 ------------ ------------ ------------ ------------ Total operating expenses 5,433 4,774 9,511 8,275 ------------ ------------ ------------ ------------ Gains on termination of contracts 200 -- 1,735 -- ------------ ------------ ------------ ------------ Income (loss) from continuing operations (3,456) 474 (4,634) 369 - ---------------------------------------- Interest expense, net (76) (48) (134) (108) Loss on equity investment in joint venture (743) (234) (1,023) (364) Foreign exchange (loss) gain (70) (294) 139 (408) ------------ ------------ ------------ ------------ Total other expense, net (889) (576) (1,018) (880) ------------ ------------ ------------ ------------ Loss from continuing operations before income tax provision (4,345) (102) (5,652) (511) - ----------------------------------------------------------- Income tax provision (14) -- (41) -- ------------ ------------ ------------ ------------ Loss from continuing operations (4,359) (102) (5,693) (511) - ------------------------------- Loss from discontinued operations, net of taxes (201) (167) (391) (281) ------------ ------------ ------------ ------------ Net loss $ (4,560) $ (269) $ (6,084) $ (792) - -------- ============ ============ ============ ============ Basic and diluted loss per share: From continuing operations after income taxes $ (0.52) $ (0.01) $ (0.68) $ (0.06) From discontinued operations, net of taxes (0.03) (0.02) (0.05) (0.04) ------------ ------------ ------------ ------------ Loss per share - basic and diluted $ (0.55) $ (0.03) $ (0.73) $ (0.10) ---------------------------------- ============ ============ ============ ============ Weighted average number of common and common equivalent shares outstanding - basic and diluted 8,334,688 8,330,029 8,333,915 8,326,474 ============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 2 SPIRE CORPORATION AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, ---------------------------- 2009 2008 ------------ ------------ Cash flows from operating activities: - ------------------------------------- Net loss $ (6,084) $ (792) Less: Net loss from discontinued operations (391) (281) ------------ ------------ Net loss from continuing operations (5,693) (511) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 712 1,037 Loss on equity investment in joint venture 1,023 364 Deferred compensation 403 (121) Stock-based compensation 326 409 Provision for accounts receivable reserves (26) (34) Provision for inventory reserve 141 150 Changes in assets and liabilities: Restricted cash 2,625 141 Accounts receivable 2,660 4,288 Inventories (241) (4,979) Deferred cost of goods sold (2,341) (401) Deposits, prepaid expenses and other current assets 1,123 (143) Accounts payable, accrued liabilities and other liabilities 123 1,997 Advances on contracts in progress (2,039) 1,754 ------------ ------------ Net cash (used in) provided by operating activities of continuing operations (1,204) 3,951 Net cash provided by operating activities of discontinued operations 86 162 ------------ ------------ Net cash (used in) provided by operating activities (1,118) 4,113 Cash flows from investing activities: - ------------------------------------- Purchase of property and equipment (529) (925) Increase in intangible and other assets (284) (33) ------------ ------------ Net cash used in investing activities of continuing operations (813) (958 Net cash used in investing activities of discontinued operations (18) (16) ------------ ------------ Net cash used in investing activities (831) (974) Cash flows from financing activities: - ------------------------------------- Principal payments on capital lease obligations - related parties -- (486) Principal payments on equipment line of credit (583) (584) Proceeds from exercise of stock options 24 21 ------------ ------------ Net cash used in financing activities (559) (1,049) ------------ ------------ Net (decrease) increase in cash and cash equivalents (2,508) 2,090 Cash and cash equivalents, beginning of period 5,971 2,372 ------------ ------------ Cash and cash equivalents, end of period $ 3,463 $ 4,462 ============ ============ Supplemental disclosures of cash flow information: - -------------------------------------------------- Interest paid $ 149 $ 110 ============ ============ Interest paid - related party $ -- $ 9 ============ ============ Interest received $ 14 $ 11 ============ ============ Income taxes paid $ 48 $ -- ============ ============
See accompanying notes to unaudited condensed consolidated financial statements. 3 SPIRE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2009 AND 2008 1. DESCRIPTION OF THE BUSINESS Spire Corporation ("Spire" or the "Company") develops, manufactures and markets highly-engineered products and services in three principal business areas: (i) capital equipment for the PV solar industry, (ii) biomedical and (iii) optoelectronics, generally bringing to bear expertise in materials technologies, surface science and thin films across all three business areas, discussed below. 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 200 factories in 50 countries. 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 it also develops and markets coated and uncoated hemodialysis catheters and related devices for the treatment of chronic kidney disease (referred to herein as the Company's "medical products business unit"); and performs sponsored research programs into practical applications of advanced biomedical and biophotonic technologies. The results and assets of the Company's medical products business unit are being presented herein as discontinued operations and assets held for sale. See Note 14. In the optoelectronics area, the Company provides custom compound semiconductor foundry and fabrication services on a merchant basis to customers involved in biomedical/biophotonic instruments, telecommunications and defense applications. Services include compound semiconductor wafer growth, other thin film processes and related device processing and fabrication services. The Company also provides materials testing services and performs services in support of sponsored research into practical applications of optoelectronic technologies. 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 and delivery of solar systems. Export sales, which amounted to 64% of net sales and revenues for the quarter ending June 30, 2009, continue to constitute a significant portion of the Company's net sales and revenues. The Company has incurred operating losses before non-recurring gains in 2009 and 2008. Loss from continuing operations, before gains on termination of contracts, was $3.7 million and $6.4 million for the three and six months ended June 30, 2009 and $267 thousand for the year ended December 31, 2008. For the six months ended June 30, 2009 and 2008, the cash (loss) gain (loss/gain from continuing operations less gains on termination of contract plus or minus non-cash adjustments) was $(3.6) million and $2.3 million. The gain in 2008 was primarily attributed to margins from the Company's solar business unit. As of June 30, 2009, the Company had unrestricted cash and cash equivalents of $3.5 million compared to unrestricted cash and cash equivalents of $6.0 million as of December 31, 2008. The Company has numerous options on how to fund future operational losses or working capital needs, including but not limited to sales of equity, bank debt provided it renegotiates its financial covenants or the sale or license of assets and technology, as it has done in the past; however, there are no assurances that the Company will be able to sell equity, obtain bank debt, or sell or license assets or technology on a timely basis and at appropriate values. The Company has developed several plans including cost containment efforts and outside financing to offset a decline in business due to a further deepening of the current global economic recession. As a result, the Company believes it has sufficient resources to finance its current operations through at least June 30, 2010. 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, 2008, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. 4 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 June 30, 2009 and December 31, 2008 and the results of its operations and cash flows for the three and six months ended June 30, 2009 and 2008. The results of operations for the three and six months ended June 30, 2009 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2009. The condensed consolidated balance sheet as of December 31, 2008 has been derived from audited financial statements as of that date. During the second quarter of 2008, the Company began pursing an exclusive sales process of our medical product group (the "Medical Unit"). Accordingly, the results of the Medical Unit are being presented herein as discontinued operations and assets held for sale. See Note 14. The significant accounting policies followed by the Company are set forth in Note 2 to the Company's consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31, 2008. New Accounting Pronouncements - ----------------------------- Effective January 1, 2008, the Company adopted SFAS No. 157, FAIR VALUE MEASUREMENTS ("FAS 157") relative to financial assets and liabilities. 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. Effective January 1, 2009, the Company adopted the provisions of FAS 157 with respect to its non-financial assets and non-financial liabilities. 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 adoption of FAS 160 did not have an impact on the Company's financial position or results of operations. In March 2008, the FASB issued SFAS 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 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. FAS 161 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 adoption of FAS 161 did not have an impact on the Company's financial position or results of operations. In June 2009, the FASB issued SFAS No. 168 ("FAS 168"), THE FASB ACCOUNTING STANDARDS CODIFICATION AND THE HIERARCHY OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. FAS 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles ("GAAP"), superseding existing FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force, and related accounting literature. FAS 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. FAS 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. The adoption of FAS 168 will have an impact on the Company's financial statements disclosures since all future references to authoritative accounting literature will be referenced in accordance with FAS 168. 5 3. ACCOUNTS RECEIVABLE/ADVANCES ON CONTRACTS IN PROGRESS Net accounts receivable, trade consists of the following: (in thousands) June 30, December 31, 2009 2008 ------------ ------------ Amounts billed $ 5,223 $ 6,711 Accrued revenue 581 1,790 ------------ ------------ 5,804 8,501 Less: Allowance for doubtful accounts (340) (403) ------------ ------------ Net accounts receivable - trade $ 5,464 $ 8,098 ============ ============ Advances on contracts in progress $ 33,619 $ 35,658 ============ ============ 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 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. 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 AND DEFERRED COSTS OF GOODS SOLD Inventories, net of $265 thousand and $154 thousand of reserves at June 30, 2009 and December 31, 2008, respectively, consist of the following at: (in thousands) June 30, December 31, 2009 2008 ------------ ------------ Raw materials $ 2,886 $ 3,517 Work in process 5,810 7,385 Finished goods 8,259 5,953 ------------ ------------ Net inventory $ 16,955 $ 16,855 ============ ============ Deferred cost of goods sold $ 19,429 $ 17,088 ============ ============ Deferred costs of goods sold represents costs on equipment that has shipped to the customer and title has passed. The Company defers these costs until related revenue is recognized. 5. LOSS PER SHARE The following table provides a reconciliation of the denominators of the Company's reported basic and diluted loss per share computations for the periods ended: 6
Three Months Six Months Ended June 30, Ended June 30, --------------------- --------------------- 2009 2008 2009 2008 --------- --------- --------- --------- Weighted average number of common and common equivalent shares outstanding - basic 8,334,688 8,330,029 8,333,915 8,326,474 Add: Net additional common shares upon assumed exercise of common stock options -- -- -- -- --------- --------- --------- --------- Adjusted weighted average number of common and common equivalents shares outstanding - diluted 8,334,688 8,330,029 8,333,915 8,326,474 ========= ========= ========= =========
For the three and six months ended June 30, 2009, 76,542 and 61,544 shares, respectively, and for the three and six months ended June 30, 2008, 168,834 and 188,760 shares, respectively, issuable relative to stock options were excluded from the calculation of diluted shares since their inclusion would have been anti-dilutive. In addition, for the three and six months ended June 30, 2009, 528,448 and 493,947 shares, respectively, and for the three and six months ended June 30, 2008, 39,500 and zero shares, respectively, 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 continuing operating division information in accordance with the provisions of SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information."
(in thousands) Total Solar Biomedical Optoelectronics Company ---------- ---------- ---------- ---------- For the three months ended June 30, 2009 - ---------------------------------------- Net sales and revenues $ 19,038 $ 2,252 $ 883 $ 22,173 Income (loss) from continuing operations $ (3,077) $ 238 $ (617) $ (3,456) For the three months ended June 30, 2008 - ---------------------------------------- Net sales and revenues $ 12,647 $ 1,927 $ 1,380 $ 15,954 Income (loss) from continuing operations $ 1,127 $ (14) $ (639) $ 474 For the six months ended June 30, 2009 - -------------------------------------- Net sales and revenues $ 27,611 $ 4,409 $ 1,540 $ 33,560 Income (loss) from continuing operations $ (5,311) $ 595 $ 82 $ (4,634) For the six months ended June 30, 2008 - -------------------------------------- Net sales and revenues $ 22,940 $ 3,840 $ 2,817 $ 29,597 Income (loss) from continuing operations $ 1,440 $ (76) $ (995) $ 369
The following table shows net sales and revenues by geographic area (based on customer location):
Three Months Ended June 30, Six Months Ended June 30, -------------------------------------------- -------------------------------------------- (in thousands) 2009 % 2008 % 2009 % 2008 % -------- -------- -------- -------- -------- -------- -------- -------- United States $ 7,916 36% 5,859 37% $ 14,741 44% 10,693 36% Europe/Africa 11,335 51 2,983 19 14,266 42 8,058 27 Asia 2,882 13 7,099 44 4,260 13 10,747 36 Rest of the world 40 -- 13 -- 293 1 99 1 -------- -------- -------- -------- -------- -------- -------- -------- $ 22,173 100% $ 15,954 100% $ 33,560 100% $ 29,597 100% ======== ======== ======== ======== ======== ======== ======== ========
Revenues from contracts with United States government agencies for the three months ended June 30, 2009 and 2008 were approximately $5.2 million and $353 thousand or 24% and 2% of consolidated net sales and revenues, respectively. Revenues from contracts with United States government agencies for the six months ended June 30, 2009 and 2008 were approximately $7.3 million and $753 thousand or 22% and 3% of consolidated net sales and revenues, respectively. 7 Two customers accounted for approximately 69% and one customer accounted for approximately 11% of the Company's gross sales during the three months ended June 30, 2009 and 2008, respectively. Two customers accounted for approximately 51% and one customer accounted for approximately 16% of the Company's gross sales during the six months ended June 30, 2009 and 2008, respectively. Two customers represented approximately 22% of trade account receivables at June 30, 2009 and two customers represented approximately 27% of trade account receivables at December 31, 2008. 7. INTANGIBLE AND OTHER ASSETS Patents amounted to $57 thousand and $68 thousand net of accumulated amortization of $692 thousand and $680 thousand, at June 30, 2009 and December 31, 2008, respectively. 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. 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. Amortization expense, relating to patents, was approximately $6 thousand and $8 thousand for the three months ended June 30, 2009 and 2008, respectively, and approximately $12 thousand and $17 thousand for the six months ended June 30, 2009 and 2008, respectively. For disclosure purposes, the table below includes future amortization expense for patents and licenses owned by the Company as well as estimated amortization expense related to patents that remain pending at June 30, 2009 of $445 thousand. This estimated expense for patents pending assumes that the patents are issued immediately, and therefore are being amortized over five years on a straight-line basis. Estimated amortization expense for the periods ending December 31, is as follows: Amortization (in thousands) Expense ----------------------------- ------------ 2009 remaining 6 months $ 56 2010 112 2011 106 2012 94 2013 and beyond 134 ------------ $ 502 ============ Also included in other assets are approximately $250 thousand of refundable deposits made by the Company at June 30, 2009 and $10 thousand at December 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: June 30, December 31, (in thousands) 2009 2008 ------------ ------------ Equity investments $ 1,316 $ 1,170 Government bonds 280 190 Cash and money market funds 40 74 ------------ ------------ $ 1,636 $ 1,434 ============ ============ These investments have been classified as available-for-sale investments and are reported at fair value, with unrealized gains and losses included in accumulated other comprehensive loss. As of June 30, 2009, the unrealized loss on these marketable securities was $22 thousand and as of December 31, 2008, the unrealized loss on these marketable securities was $425 thousand. 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. Effective January 1, 2009, the Company has adopted the provisions of FAS 157 with respect to its non-financial assets and non-financial liabilities. 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 8 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 application of FAS 157 in situations where the market for a financial asset is not active was clarified by the issuance of FASB Staff Position No. FAS 157-3, DETERMINING THE FAIR VALUE OF A FINANCIAL ASSET WHEN THE MARKET FOR THAT ASSET IS NOT ACTIVE, ("FAS 157-3") in October 2008. FAS 157-3 became effective immediately and did not significantly impact the methods by which the Company determines the fair values of its financial assets. 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: 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 related to the Company's non-qualified deferred compensation plan carried at fair value as of June 30, 2009 by FAS 157 valuation hierarchy (as defined above).
(in thousands) Level 1 Level 2 Level 3 Total ---------- ---------- ---------- ---------- Cash and short term investments $ 40 $ -- $ -- $ 40 Fixed income -- 331 -- 331 Equities 846 419 -- 1,265 ---------- ---------- ---------- ---------- Total available for-sale-investments $ 886 $ 750 $ -- $ 1,636 Percent of total 54% 46% -- 100%
9. NOTES PAYABLE AND CREDIT ARRANGEMENTS 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 $3.5 million in the aggregate to finance certain equipment purchases (including reimbursement of certain previously-made purchases). 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. The Equipment Credit Facility, if not sooner terminated in accordance with its terms, expires on June 1, 2010. 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 million. The Company's obligations under the Equipment Credit Facility were secured by substantially all of its assets and advances under the Revolving Credit Facility were limited to 80% of eligible receivables and the lesser of 25% of the value of its eligible inventory, as defined, or $2.5 million if the inventory is backed by a customer letter of credit. Interest on outstanding borrowings accrued at a rate per annum equal to the greater of Prime Rate plus one percent (1.0%) or seven percent (7%). In addition, the Company agreed to pay to the Bank a monthly collateral monitoring fee in the event the Company was in default of its covenants and agreed to the following additional terms: (i) $50 thousand 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 terminated the Revolving Credit Facility prior to 12 months from the Revolving Credit Facility's effective date. In addition, on March 31, 2008 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 covenants, as discussed below, 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 (0.5%) to the greater of Bank Prime plus one percent (1%) or seven percent (7%). 9 On May 13, 2008, the Bank amended 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 was to be factored in when calculating the Company's borrowing base under the Revolving Credit Facility. On March 31, 2009, the Bank extended the expiration of the Revolving Credit Facility under the same terms in order to allow both parties the time to negotiate an expansion of the credit limit contingent upon the Company qualifying for an Export-Import Bank loan guarantee. On June 22, 2009, the Company and its subsidiaries entered into two separate credit facilities with the Bank providing for credit lines of up to $8 million in the aggregate: (i) an Amended and Restated Loan and Security Agreement (the "Restated Revolving Credit Facility") pursuant to which the Bank agreed to provide the Company with a credit line of up to $3 million and (ii) an Export-Import Bank Loan and Security Agreement (the "Ex-Im Facility") pursuant to which the Bank agreed to provide the Company with a credit line of up to $5 million to be guaranteed by the Export-Import Bank of the United States (the "EXIM Bank"). Under the terms of the Restated Revolving Credit Facility, the Bank agreed to provide the Company with a credit line of up to $3 million. The Company's obligations under the Restated Revolving Credit Facility are secured by substantially all of the assets of the Company and its subsidiaries. Advances under the Restated Revolving Credit Facility are limited to 80% of eligible receivables. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of (i) the prime rate plus 1.75% or (ii) 7.75%; provided, however, that if the Company achieves positive net income over a trailing 3-month period, interest on outstanding borrowings drops and accrues during such period at a rate per annum equal to the greater of (i) the prime rate plus 0.75% or (ii) 6.75%. In addition, the Company agreed to pay the Bank a monthly collateral monitoring fee in the event the Company is in default of its covenants and agreed to the following additional terms: (i) $67.5 thousand 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 1.0% of the total credit line. In addition, under the Restated Revolving Credit Facility, the Company's existing Equipment Credit Facility with the Bank was amended whereby the Bank and the Company agreed that there would be no additional availability under such facility and, based on an outstanding principal amount of $1.2 million on June 22, 2009, the Company would continue to make monthly installments of principal of $97,222 plus accrued interest until the outstanding balance was paid in full on June 10, 2010. The Company's interest rate with respect to the outstanding balance was also modified so that interest accrues at a rate per annum equal to the greater of (i) the prime rate plus 1.75% or (ii) 7.75%. Under the terms of the Ex-Im Facility, the Bank agreed to provide the Company with a credit line up to $5 million for working capital to be guaranteed by the EXIM Bank. The Company's obligations under the Ex-Im Facility are secured by substantially all of the assets of the Company and its subsidiaries. Advances under the Ex-Im Facility are limited to (i) 90% of eligible receivables subject to a suitable foreign currency hedge agreement if applicable, plus (ii) 75% of all other eligible receivables billed in foreign currency, plus (iii) the lesser of 50% of the value of eligible inventory, as defined, or $3 million. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of (i) the prime rate plus 1.75% or (ii) 7.75%; provided, however, that if the Company achieves positive net income over a trailing 3-month period, interest on outstanding borrowings drops and accrues during such period at a rate per annum equal to the greater of (i) the prime rate plus 0.75% or (ii) 6.75%. In addition, in the event of an early termination, the Company agreed to pay the Bank an early termination fee of 1.0% of the total credit line. Under the Restated Revolving Credit Facility and the Ex-Im Facility, as long as any commitment remains outstanding under the facilities, the Company must comply with a minimum tangible net worth covenant and a minimum liquidity 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. 10 The Equipment Credit Facility principal balance outstanding was $1.2 million and $1.8 million at June 30, 2009 and December 31, 2008, respectively. The principal balance outstanding under the Restated Revolving Credit Facility (and the prior Revolving Credit Facility) was $1.5 million at June 30, 2009 and December 31, 2008. Under the credit facilities the Company was required to maintain a minimum tangible net worth (as defined) of $10.0 million; the Company's tangible net worth (as defined) at June 30, 2009 was $7.4 million. The Company was not in compliance with its credit facilities tangible net worth covenant as of June 30, 2009, but not in default, because a Bank waiver has been received. More likely than not, the Company will not be in compliance with its credit facilities tangible net worth covenant on a going forward basis. Accordingly, the Company has entered into discussions with the Bank to renegotiate and restructure the terms of its two credit facilities to more closely match its business model. Annual maturities of the Equipment Credit Facility and the Restated Revolving Credit Facility as of June 30, 2009 are as follows: (in thousands) Year Ending December 31, 2009 (remaining 6 months) $ 583 2010 2,084 ------------ Total equipment and revolving line of credit $ 2,667 ============ 10. STOCK OPTION PLAN AND STOCK-BASED COMPENSATION In accordance with SFAS No. 123(R), SHARE-BASED PAYMENT, the Company has recognized stock-based compensation expense of approximately $177 thousand and $213 thousand for the three months ended June 30, 2009 and 2008, respectively, and approximately $326 thousand and $409 thousand for the six months ended June 30, 2009 and 2008, 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 June 30, Six Months Ended June 30, --------------------- --------------------- (in thousands) 2009 2008 2009 2008 -------- -------- -------- -------- Cost of contract research, services and licenses $ 11 $ 14 $ 18 $ 27 Cost of goods sold 35 36 64 68 Administrative and selling 131 163 244 314 -------- -------- -------- -------- Total stock-based compensation $ 177 $ 213 $ 326 $ 409 ======== ======== ======== ========
At June 30, 2009, the Company had outstanding options under the 2007 Stock Equity Plan (the "Plan"). The Plan was 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. A summary of options outstanding under the Plan as of June 30, 2009 and changes during the six-month period is as follows:
Average Remaining Aggregate Weighted- Contractual Intrinsic Number of Average Life Value Shares Exercise Price (Years) (in thousands) ---------- ---------- ---------- ---------- Options Outstanding at December 31, 2008 606,177 $ 7.52 Granted 175,000 $ 5.93 Exercised (4,000) $ 1.78 Cancelled/expired (8,500) $ 7.78 ---------- ---------- Options Outstanding at June 30, 2009 768,677 $ 7.19 7.51 $ 307 ========== ========== Options Exercisable at June 30, 2009 399,412 $ 6.80 6.11 $ 285 ========== ==========
11 The per-share weighted-average fair value of stock options granted during the three and six months ended June 30, 2009 was $3.99 and $3.79, respectively, and $9.15 and $7.96 for the three and six months ended June 30, 2008, respectively, 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 -------- -------------- ------------- ----------- ----------------- 2009 -- 2.10% 4.5 years 82.8% 2008 -- 2.73% 4.5 years 70.6% 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 June 30, For the Six Months Ended June 30, ---------------------------- ---------------------------- (in thousands) 2009 2008 2009 2008 ------------ ------------ ------------ ------------ Net loss $ (4,560) $ (269) $ (6,084) $ (792) Other comprehensive income (loss): Unrealized gain (loss) on available for sale marketable securities, net of tax 356 (59) 403 (121) ------------ ------------ ------------ ------------ Total comprehensive loss $ (4,204) $ (328) $ (5,681) $ (913) ============ ============ ============ ============
12. GAINS ON TERMINATION OF CONTRACTS On August 29, 2008, the Company delivered to Principia Lightworks, Inc. ("Principia") a Notice of Breach and Pending Termination (the "Notice") of a certain Manufacturing Agreement, dated August 29, 2006, by and between Spire Semiconductor and Principia (the "Manufacturing Agreement"). Under the terms of the Manufacturing Agreement, Principia made an up-front payment for nonrecurring engineering and facility access costs and was required to make monthly facility availability payments throughout the term of the agreement. As a result of Principia's failure to make monthly facility availability payments in 2008, the Company has fully reserved $225 thousand against Principia's accounts receivable balance. The Company entered into a mutual standstill agreement with Principia, which expired on March 15, 2009. The purpose of the standstill was to give the parties additional time to negotiate a resolution. On March 27, 2009, Spire Semiconductor and Principia mutually agreed to terminate the Manufacturing Agreement for convenience and entered into a separation and novation agreement (the "Novation Agreement"). Under the terms of the Novation Agreement, both parties agreed to terminate technology licenses that were granted to each other under the terms of the Manufacturing Agreement and Spire Semiconductor was released from its production requirements to Principia. Principia was released from paying its future facility availability payments due under the Manufacturing Agreement but will be required to pay facility availability payments of $300 thousand. Spire Semiconductor holds 67,500 shares of Principia stock as collateral against the outstanding facility availability payments. During the three months ended March 31, 2009, the Company accelerated the amortization of deferred revenue and recognized $1.54 million as a gain on termination of contracts related to the termination of the Manufacturing Agreement. On June 18, 2009, the Company entered into a settlement agreement with Marubeni Corporation with respect to the License to Manufacture and Distribute Equipment Agreement (the "License Agreement") dated April 1, 2003 for the license of manufacturing and distribution in Japan of the Company's solar photovoltaic modular manufacturing equipment. Under the terms of the settlement agreement, both parties agreed to terminate the License Agreement including but not limited to the eighteen (18) month non-compete obligation. As a result of the settlement, the Company received a payment and recognized a gain on termination of contracts of $200 thousand in the second quarter of 2009. 12 13. LIQUIDATION OF JOINT VENTURE In July 2007, the Company entered into a joint venture with Gloria Solar Co., Ltd. and related entities ("Gloria Solar"), 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 (the "Joint Venture"), was obtained through the contribution of the Company's building integrated photovoltaic business to Gloria Solar. Gloria Solar owns the remaining 55% of the Joint Venture. The Joint Venture was formed for the purpose of pursuing the solar photovoltaic systems market within the United States. On June 3, 2009, the Company entered into a Liquidation Agreement, as amended (the "Liquidation Agreement"), with Gloria Solar pursuant to which the parties agreed to liquidate the Joint Venture. Under the terms of the Liquidation Agreement, the parties agreed to a specified allocation of the remaining assets of the Joint Venture after all liabilities have been paid, with each party receiving a share of project leads, intellectual property and remaining cash. The Company will assume responsibility for supporting the Joint Venture's existing client base, including the remaining warranties. As a result of the liquidation, the Company has formed Spire Solar Systems as a full-service organization, offering system designs and project management to domestic markets. Since the Joint Venture's inception, the Company has reported financial results of the Joint Venture one quarter in arrears. Due to the expected liquidation of the Joint Venture in the third quarter of 2009, the Company has reported losses this quarter on equity investment of its share of the Joint Venture's first and second quarter losses in 2009 of $310 thousand and $348 thousand, respectively. The Company has recorded an impairment charge of $85 thousand to reduce the value of the investment to the estimated proceeds from the liquidation. 14. DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE In accordance with SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS", the accompanying unaudited condensed consolidated balance sheets, statements of operations and cash flows present the results and assets of the Company's medical products business unit (the "Medical Products Business Unit") as discontinued operations and assets held for sale. During the second quarter of 2009, the Company began pursuing an exclusive sales process of the Medical Products Business Unit. The Company has (i) determined that the Medical Products Business Unit was a separate component of the Company's business as, historically, management reviewed separately the Medical Products Business Unit's financial results apart from the Company's ongoing continuing operations, (ii) eliminated the Medical Products Business Unit's financial results from ongoing operations and (iii) determined that the Company will have no further continuing involvement in the operations of the Medical Products Business Unit or cash flows from the Medical Products Business Unit after the sale. Not included in discontinued operations are certain indirect costs of the Medical Products Business Unit that have been reclassified to selling, general and administrative expense of $115 thousand and $162 thousand for the three months ended June 30, 2009 and 2008, respectively, and $234 thousand and $290 thousand for the six months ended June 30, 2009 and 2008, respectively. The assets and liabilities of the Medical Products Business Unit as of June 30, 2009 and December 31, 2008 are as follows:
(in thousands) June 30, December 31, 2009 2008 ---------- ---------- ASSETS OF DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE Current assets of discontinued operations and assets held for sale - ------------------------------------------------------------------ Accounts receivable - trade, net $ 524 $ 775 Inventories, net 843 1,021 Deposits on equipment for inventory 46 14 Prepaid expenses and other current assets 4 44 ---------- ---------- Total current assets of discontinued operations and assets held for sale 1,417 1,854 Property and equipment, net 9 14 Intangible and other assets, net 359 366 ---------- ---------- Total assets of discontinued operations and assets held for sale $ 1,785 $ 2,234 ========== ========== LIABILITIES OF DISCONTINUED OPERATIONS Current liabilities of discontinued operations - ---------------------------------------------- Accounts payable $ 477 $ 319 Accrued liabilities 406 554 ---------- ---------- Total current liabilities of discontinued operations 883 873 ---------- ---------- Total liabilities of discontinued operations $ 883 $ 873 ========== ==========
Condensed results of operations relating to the Medical Unit are as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ------------------------ ------------------------ (in thousands) 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Net sales and revenues $ 687 $ 931 $ 1,594 $ 1,826 Gross margin $ 196 $ 389 $ 403 $ 791 Loss from discontinued operations $ (201) $ (167) $ (391) $ (281)
13 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 THE ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2008 AND IN SUBSEQUENT PERIOD REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THIS REPORT. 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 have been in the solar business for over 30 years, initially pioneering developments in solar cell technology. Currently, we develop, manufacture, and market customized turnkey solutions for the solar industry, including individual pieces of manufacturing equipment and full turnkey lines for cell and module production and testing. We have been continually active in research and development in the space, with over $100 million of research and development conducted and 35 issued patents. This expertise has provided the platform for development of our manufacturing equipment and turnkey lines. We have equipment deployed in approximately 50 countries and have among our customers some of the world's leading solar manufacturers including First Solar, BP Solar, Canadian Solar, Trina Solar Energy, Evergreen Solar and Solaria Energia. As the solar market continues to expand, and photovoltaic cell and module manufacturers ramp production to meet increasing demand, they require more turnkey equipment to produce additional 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 customer base ranging from manufacturers relying on mostly manual processes, to some of the largest photovoltaic manufacturing companies in the world. With nearly 40 years since our incorporation and over 30 years in the solar market, we have been in a good position to capitalize on the market's growth. In July 2007, we entered into a joint venture with Gloria Solar Co., Ltd. and related entities ("Gloria Solar"), 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 (the "Joint Venture"), was obtained through the contribution of our building integrated photovoltaic business to Gloria Solar. Gloria Solar owns the remaining 55% of the Joint Venture. The Joint Venture was formed for the purpose of pursuing the solar photovoltaic systems market within the United States. On June 3, 2009, we entered into a Liquidation Agreement, as amended (the "Liquidation Agreement"), with Gloria Solar pursuant to which the parties agreed to liquidate the Joint Venture. Under the terms of the Liquidation Agreement, the parties agreed to a specified allocation of the remaining assets of the Joint Venture after all liabilities have been paid, with each party receiving a share of project leads, intellectual property and remaining cash. We will be taking responsibility over supporting the Joint Venture's existing client base, including the remaining warranties. As a result of the liquidation, we have formed Spire Solar Systems as a full-service organization, offering system designs and project management to domestic markets. See Note 13. In addition to our cell and module manufacturing solutions, our Spire Semiconductor subsidiary provides semiconductor foundry services and is currently developing triple-junction gallium arsenide ("GaAs") concentrator solar cells. This state-of-the-art semiconductor fabrication facility is the foundation of our solar cell process technology for silicon, polysilicon, thin-film, and GaAs concentrator cells. We also operate a small business line associated with advanced biomedical applications. The foundation for all of our business units is our industry-leading expertise in manufacturing, materials technologies and surface treatments; this proprietary knowledge enables us to further develop our offerings in each market we serve. During the second quarter of 2009, we began pursuing an exclusive sales process of our Medical Products Business Unit. Accordingly, the results and assets of the Medical Unit are being presented herein as discontinued operations and assets held for sale. See Note 14. 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 and delivery of solar systems. Export sales, which amounted to 64% of net sales and revenues for the six months ended June 30, 2009, continue to constitute a significant portion of our net sales and revenues. 14 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 June 30, Six Months Ended June 30, ------------------------- ------------------------- 2009 2008 2009 2008 ---------- ---------- ---------- ---------- Net sales and revenues 100% 100% 100% 100% Cost of sales and revenues 92 67 91 71 ---------- ---------- ---------- ---------- Gross profit 8 33 9 29 Selling, general and administrative expenses (24) (29) (26) (27) Internal research and development expenses (1) (1) (2) (1) Gains on termination of contracts 1 -- 5 -- ---------- ---------- ---------- ---------- Income (loss) from continuing operations (16) 3 (14) 1 Other expense, net (4) (4) (3) (3) ---------- ---------- ---------- ---------- Loss from continuing operations before income tax provision (20) (1) (17) (2) Income tax provision -- -- -- -- ---------- ---------- ---------- ---------- Loss from continuing operations (20) (1) (17) (2) Loss from discontinued operations, net of tax (1) (1) (1) (1) ---------- ---------- ---------- ---------- Net loss (21%) (2%) (18%) (3%) ========== ========== ========== ==========
OVERALL Our total net sales and revenues for the six months ended June 30, 2009 were $33.6 million as compared to $29.6 million for the six months ended June 30, 2008, which represents an increase of $4 million or 13%. The increase was primarily attributable to a $4.7 million increase in solar sales and a slight increase in biomedical sales, partially offset by a $1.3 million decrease in optoelectronics sales. SOLAR BUSINESS UNIT Sales in our solar business unit increased 20% during the six months ended June 30, 2009 to $27.6 million as compared to $22.9 million in the six months ended June 30, 2008. The increase is the result of sales in solar cell materials during 2009, partially offset by a decrease in solar equipment sales. We did not sell solar cell materials in 2008. BIOMEDICAL BUSINESS UNIT Revenues of our biomedical business unit increased 15% during the six months ended June 30, 2009 to $4.4 million as compared to $3.8 million in the six months ended June 30, 2008. The increase reflects increased revenues from our orthopedics coatings services partially offset by a decrease in revenue from research and development contracts. OPTOELECTRONICS BUSINESS UNIT Revenues in our optoelectronics business unit decreased 45% to $1.5 million during the six months ended June 30, 2009 as compared to $2.8 million in the six months ended June 30, 2008. The decrease reflects an overall decrease in optoelectronics activities attributable to a further deepening of the current global economic recession and to a lesser extent the termination of a contract as discussed below in Gains on Termination of Contracts. Three and Six Months Ended June 30, 2009 Compared to Three and Six Months Ended - ------------------------------------------------------------------------------- June 30, 2008 - ------------- NET SALES AND REVENUES The following table categorizes our net sales and revenues for the periods presented:
Three Months Ended June 30, Increase/(Decrease) ----------------------- ------------------------ (in thousands) 2009 2008 $ % ---------- ---------- ---------- ---------- Sales of goods $ 19,028 $ 12,579 $ 6,449 51% Contract research, services and license revenues 3,145 3,375 (230) (7%) ---------- ---------- ---------- Net sales and revenues $ 22,173 $ 15,954 $ 6,219 39% ========== ========== ==========
The 51% increase in sales of goods for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008 was primarily due to new sales in solar cell materials and increased solar equipment revenues. New sales of solar cell materials was $4.6 million in 2009. Solar equipment sales increased 16% in 2009 as compared to 2008 primarily due to revenue recognized from the completion of an automated module line in 2009. The 7% decrease in contract research, services and license revenues for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008 is primarily attributable to a decrease in optoelectronics and royalties, partially offset by an increase in orthopedics service and research and development activities. Revenue from our optoelectronics processing services (Spire Semiconductor) decreased 36% in 2009 compared to 2008 as a result of an overall decrease in optoelectronics activities attributable to a further deepening of the current global economic recession and to a lesser extent the termination of a contract with Principia Lightworks, Inc. in March 2009 (see Gains on Termination of Contracts). Revenue from royalties decreased 100% as a result of the termination of contract with Nisshinbo Industries, Inc. in November 2008. Revenues from our orthopedic activities increased 19% in 2009 as compared to 2008. This increase is primarily the result of revenue from a new customer added in the third quarter of 2008. Revenues from our research and development activities increased 11% in 2009 as compared to 2008 primarily due to an increase in the number and value of contracts associated with funded research and development. The following table categorizes our net sales and revenues for the periods presented:
Six Months Ended June 30, Increase/(Decrease) ----------------------- ------------------------ (in thousands) 2009 2008 $ % ---------- ---------- ---------- ---------- Sales of goods $ 27,550 $ 22,679 $ 4,871 21% Contract research, services and license revenues 6,010 6,918 (908) (13%) ---------- ---------- ---------- Net sales and revenues $ 33,560 $ 29,597 $ 3,963 13% ========== ========== ==========
The 21% increase in sales of goods for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008 was primarily due to new sales in solar cell materials, partially offset by decreased solar equipment revenues. New sales of solar cell materials was $6.1 million in 2009. Solar equipment sales decreased 5% in 2009 as compared to 2008 primarily due to an overall slow down in solar power industry activity. The 13% decrease in contract research, services and license revenues for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008 is primarily attributable to a decrease in optoelectronics, royalties and research and development activities, partially offset by an increase in orthopedics service. Revenue from our optoelectronics processing services (Spire Semiconductor) decreased 45% in 2009 compared to 2008 as a result of an overall decrease in optoelectronics activities attributable to a further deepening of the current global economic recession and to a lesser extent the termination of a contract with Principia Lightworks, Inc. in March 2009 (see Gains on Termination of Contracts). Revenue from royalties decreased 100% as a result of the termination of contract with Nisshinbo Industries, Inc. in November 2008. Revenues from our research and development activities decreased 10% in 2009 as compared to 2008 primarily due to an increase in the number and value of contracts associated with funded research and development. Revenues from our orthopedic activities increased 24% in 2009 as compared to 2008. This increase is primarily the result of revenue from a new customer added in the third quarter of 2008. 15 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 June 30, Increase/(Decrease) ------------------------------------------ ------------------- (in thousands) 2009 % 2008 % $ % -------- -------- -------- -------- -------- -------- Cost of goods sold $ 18,127 95% $ 8,364 66% $ 9,763 117% Cost of contract research, services and licenses 2,269 72% 2,342 69% (73) (3%) -------- -------- -------- Net cost of sales and revenues $ 20,396 92% $ 10,706 67% $ 9,690 91% ======== ======== ========
Cost of goods sold increased 117% for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008, primarily as a result of costs related to solar materials, costs related to the completion of an automated module line and a provision for a reserve of $279 thousand related to estimated costs to complete a solar project. As a percentage of sales, cost of goods sold was 95% of sales of goods in 2009 as compared to 66% of sales of goods in 2008. This increase in the percentage of sales in 2009 is due to the provision for a reserve of $279 thousand related to estimated costs to complete a solar project and low margin related to the completion of an automated module line along with an unfavorable utilization of solar manufacturing overhead. Cost of contract research, services and licenses decreased 3% for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008, primarily as a result of decreased costs at our optoelectronics facility (Spire Semiconductor) due to lower associated revenues, partially offset by increased costs of our contract research activities due to higher volumes. Cost of contract research, services and licenses as a percentage of revenue increased to 72% of revenues in 2009 from 69% in 2008, primarily due to unfavorable margin related to our optoelectronics facility, partially offset by favorable margins in orthopedic services in 2009. Cost of sales and revenues also includes approximately $46 thousand and $50 thousand of stock-based compensation for the three months ending June 30, 2009 and 2008, respectively. 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:
Six Months Ended June 30, Increase/(Decrease) ------------------------------------------ ------------------- (in thousands) 2009 % 2008 % $ % -------- -------- -------- -------- -------- -------- Cost of goods sold $ 25,985 94% $ 16,237 72% $ 9,748 60% Cost of contract research, services and licenses 4,433 74% 4,716 68% (283) (6%) -------- -------- -------- Net cost of sales and revenues $ 30,418 91% $ 20,953 71% $ 9,465 45% ======== ======== ========
Cost of goods sold increased 60% for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, primarily as a result of costs related to solar materials, costs related to the completion of an automated module line and a provision for a reserve of $279 thousand related to estimated costs to complete a solar project. As a percentage of sales, cost of goods sold was 94% of sales of goods in 2009 as compared to 72% of sales of goods in 2008. This increase in the percentage of sales in 2009 is due to the provision for a reserve of $279 thousand related to estimated costs to complete a solar project and low margin related to the completion of an automated module line along with an unfavorable utilization of solar manufacturing overhead. Cost of contract research, services and licenses decreased 6% for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, primarily as a result of decreased costs at our optoelectronics facility (Spire Semiconductor) due to lower associated revenues, partially offset by increased costs of our orthopedic services due to higher associated revenues. Cost of contract research, services and licenses as a percentage of revenue increased to 74% of revenues in 2009 from 68% in 2008, primarily due to unfavorable margin related to our optoelectronics facility, partially offset by favorable margins in orthopedic services in 2009. Cost of sales and revenues also includes approximately $82 thousand and $95 thousand of stock-based compensation for the six months ending June 30, 2009 and 2008, respectively. OPERATING EXPENSES The following table categorizes our operating expenses for the periods presented, stated in dollars and as a percentage of total sales and revenues: 16
Three Months Ended June 30, Increase ------------------------------------------ ------------------- (in thousands) 2009 % 2008 % $ % -------- -------- -------- -------- -------- -------- Selling, general and administrative $ 5,182 24% $ 4,603 29% $ 579 13% Internal research and development 251 1% 171 1% 80 47% -------- -------- -------- Operating expenses $ 5,433 25% $ 4,774 30% $ 659 14% ======== ======== ========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense increased 13% in the three months ended June 30, 2009 as compared to the three months ended June 30, 2008, primarily as a result of an increase in corporate staffing levels and related employee costs to support our overall growth. Selling, general and administrative expense decreased to 24% of sales and revenues in 2009 as compared to 29% in 2008. The decrease was primarily due to the absorption of selling, general and administrative overhead costs by the 39% increase in sales and revenues. Operating expenses includes approximately $131 thousand and $163 thousand of stock-based compensation for the three months ending June 30, 2009 and 2008, respectively. INTERNAL RESEARCH AND DEVELOPMENT Internal research and development expense increased 47% in the three months ended June 30, 2009 as compared to the three months ended June 30, 2008, primarily as a result of higher levels of research and development spent in the solar group. As a percentage of sales and revenue, internal research and development expenses remained at 1% of sales and revenues in 2009 and 2008. The following table categorizes our operating expenses for the periods presented, stated in dollars and as a percentage of total sales and revenues:
Six Months Ended June 30, Increase ----------------------------------------- ------------------- (in thousands) 2009 % 2008 % $ % -------- -------- -------- -------- -------- -------- Selling, general and administrative $ 8,949 26% $ 7,993 27% $ 956 12% Internal research and development 562 2% 282 1% 280 99% -------- -------- -------- Operating expenses $ 9,511 28% $ 8,275 28% $ 1,236 15% ======== ======== ========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense increased 12% in the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, primarily as a result of an increase in corporate staffing levels and related employee costs to support our overall growth. Selling, general and administrative expense decreased to 26% of sales and revenues in 2009 as compared to 27% in 2008. The decrease was primarily due to the absorption of selling, general and administrative overhead costs by the 13% increase in sales and revenues. Operating expenses includes approximately $244 thousand and $314 thousand of stock-based compensation for the six months ending June 30, 2009 and 2008, respectively. INTERNAL RESEARCH AND DEVELOPMENT Internal research and development expense increased 99% in the six months ended June 30, 2009 as compared to the six months ended June 30, 2008, primarily as a result of higher levels of research and development spent in the solar group. As a percentage of sales and revenue, internal research and development expenses increased slightly to 2% of sales and revenues in 2009 as compared to 1% in 2008. 17 GAINS ON TERMINATION OF CONTRACTS On August 29, 2008, we delivered to Principia Lightworks, Inc. ("Principia") a Notice of Breach and Pending Termination (the "Notice") of a certain Manufacturing Agreement, dated August 29, 2006, by and between Spire Semiconductor and Principia (the "Manufacturing Agreement"). Under the terms of the Manufacturing Agreement, Principia made an up-front payment for nonrecurring engineering and facility access costs and was required to make monthly facility availability payments throughout the term of the agreement. As a result of Principia's failure to make monthly facility availability payments in 2008, we have fully reserved $225 thousand against Principia's accounts receivable balance. We entered into a mutual standstill agreement with Principia, which expired on March 15, 2009. The purpose of the standstill was to give the parties additional time to negotiate a resolution. On March 27, 2009, Spire Semiconductor and Principia mutually agreed to terminate the Manufacturing Agreement for convenience and entered into a separation and novation agreement (the "Novation Agreement"). Under the terms of the Novation Agreement, both parties agreed to terminate technology licenses that were granted to each other under the terms of the Manufacturing Agreement and Spire Semiconductor was released from its production requirements to Principia. Principia was released from paying its future facility availability payments due under the Manufacturing Agreement but will be required to pay facility availability payments of $300 thousand. Spire Semiconductor holds 67,500 shares of Principia stock as collateral against the outstanding facility availability payments. During the three months ended March 31, 2009, we accelerated the amortization of deferred revenue and recognized $1.54 million as a gain on termination of contract related to the termination of the Manufacturing Agreement. On June 18, 2009, we entered into a settlement agreement with Marubeni Corporation with respect to The License to Manufacture and Distribute Equipment Agreement (the "License Agreement") dated April 1, 2003 for the license of manufacturing and distribution in Japan of our solar photovoltaic modular manufacturing equipment. Under the terms of the settlement agreement, both parties agreed to terminate the License Agreement including but not limited to the eighteen (18) month non-compete obligation. As a result of the settlement, we received a payment of $200 thousand in the second quarter of 2009. OTHER INCOME (EXPENSE), NET We earned $3 thousand and $2 thousand of interest income for the three months ended June 30, 2009 and 2008, respectively. We incurred interest expense of $79 thousand and $50 thousand for the three months ended June 30, 2009 and 2008, respectively. We recorded a loss of $743 thousand and $234 thousand on equity investment in joint venture with Gloria Solar for the three months ended June 30, 2009 and 2008, respectively. Since the Joint Venture's inception, we have reported financial results of the Joint Venture one quarter in arrears. Due to the expected liquidation of the Joint Venture in the third quarter of 2009, we have included in our reported losses on equity investment relating to the Joint Venture, the Joint Venture's second quarter 2009 losses of $348 thousand, first quarter losses of $310 thousand and impairment charge of $85 thousand to reduce the value of the investment to the estimated proceeds from the liquidation. See Note 13. We had a currency exchange loss of approximately $70 thousand and $294 thousand during the three months ended June 30, 2009 and 2008, respectively. We earned $14 thousand and $11 thousand of interest income for the six months ended June 30, 2009 and 2008, respectively. We incurred interest expense of $148 thousand and $119 thousand for the six months ended June 30, 2009 and 2008, respectively. We recorded a loss of $1.02 million and $364 thousand on equity investment in joint venture with Gloria Solar for the six months ended June 30, 2009 and 2008, respectively. Since the Joint Venture's inception, we have reported financial results of the Joint Venture one quarter in arrears. Due to the expected liquidation of the Joint Venture in the third quarter of 2009, we have included in our reported losses on equity investment relating to the Joint Venture, the Joint Venture's second quarter 2009 losses of $348 thousand, first quarter losses of $310 thousand, fourth quarter of 2008 losses of $280 thousand and impairment charge of $85 thousand to reduce the value of the investment to the estimated proceeds from the liquidation. See Note 13. We had a currency exchange gain of approximately $139 thousand and a currency exchange loss of $408 thousand during the six months ended June 30, 2009 and 2008, respectively. 18 INCOME TAXES We recorded a provision for income taxes of $14 thousand and $41 thousand for the three and six months ended June 30, 2009, respectively. We did not record an income tax provision or benefit in the three or six months ending June 30, 2008. 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. LOSS FROM DISCONTINUED OPERATIONS During the second quarter of 2009, we began pursuing an exclusive sales process of our Medical Products Business Unit. Accordingly, the results and assets of the Medical Products Business Unit are being presented herein as discontinued operations and assets held for sale. We recorded a loss from discontinued operations of $201 thousand and $167 thousand for the three months ended June 30, 2009 and 2008, respectively. We recorded a loss from discontinued operations of $391 thousand and $281 thousand for the six months ended June 30, 2009 and 2008, respectively. Not included in discontinued operations are certain indirect costs of the Medical Products Business Unit that have been reclassified to selling, general and administrative expense of $115 thousand and $162 thousand for the three months ended June 30, 2009 and 2008, respectively, and $234 thousand and $290 thousand for the six months ended June 30, 2009 and 2008, respectively. See Note 14. NET LOSS We reported a net loss for the three months ended June 30, 2009 and 2008 of approximately $4.56 million and $269 thousand, respectively. The net loss increased approximately $4.29 million primarily due to lower margins in solar equipment sales and to a lesser extent two quarters of losses from the Joint Venture and an impairment charge to reduce the value of the investment to the estimated proceeds from the liquidation (see Note 13), partially offset by gains on termination of contracts. We reported a net loss for the six months ended June 30, 2009 and 2008 of approximately $6.08 million and $792 thousand, respectively. The net loss increased approximately $5.29 million primarily due to lower margins in solar equipment sales and to a lesser extent two quarters of losses from the Joint Venture and an impairment charge to reduce the value of the investment to the estimated proceeds from the liquidation (see Note 13), partially offset by gains on termination of contracts. Liquidity and Capital Resources - ------------------------------- June 30, December 31, Decrease (in thousands) 2009 2008 $ % ---------- ---------- ---------- ---------- Cash and cash equivalents $ 3,463 $ 5,971 $ (2,508) (42%) Working capital $ 867 $ 6,835 $ (5,968) (87%) Cash and cash equivalents decreased due to cash used in operating activities, primarily the net loss, and to a lesser extent deferred cost of sales advances on contracts in progress. The overall reduction in working capital is due to a decrease in cash and restricted cash. 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. There are no material commitments by us for capital expenditures. At June 30, 2009, our accumulated deficit was approximately $13.0 million, compared to accumulated deficit of approximately $6.9 million as of December 31, 2008. We have numerous options on how to fund future operational losses or working capital needs, including but not limited to sales of equity, bank debt or the sale or license of assets and technology, as we have done in the past; however, there are no assurances that we will be able to sell equity, obtain bank debt, or sell or license assets or technology on a timely basis and at appropriate values. We have developed several plans including cost containment efforts and outside financing to offset a decline in business due to a further deepening of the current global economic recession. As a result, we believe we have sufficient resources to finance our current operations through at least June 30, 2010. LOAN AGREEMENTS 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 $3.5 million in the aggregate to finance certain equipment 19 purchases (including reimbursement of certain previously-made purchases). 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 $5.0 million. Our obligations under the Equipment Credit Facility were secured by substantially all of our assets and advances under the Revolving Credit Facility were limited to 80% of eligible receivables and the lesser of 25% of the value of our eligible inventory, as defined, or $2.5 million if the inventory is backed by a customer letter of credit. Interest on outstanding borrowings accrued at a rate per annum equal to the greater of Prime Rate plus one percent (1.0%) or seven percent (7.0%). In addition, we agreed to pay to the Bank a collateral monitoring fee of $750 per month in the event we were in default of our covenants and agreed to the following additional terms: (i) $50 thousand 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 we terminated the Revolving Credit Facility prior to 12 months from the Revolving Credit Facility's effective date. In addition, on March 31, 2008 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 covenants, as discussed below, contained in the Revolving Credit Facility. Our interest rate under the Equipment Credit Facility was also modified from Bank Prime plus one half percent (0.5%) to the greater of Bank Prime plus one percent (1.0%) or seven percent (7.0%). On May 13, 2008, the Bank amended the Equipment Credit Facility and the Revolving Credit Facility, modifying 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. 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 (7.0%). In addition, our term loan balance was to be factored in when calculating our borrowing base under the Revolving Credit Facility. On March 31, 2009, the Bank extended the expiration of the Revolving Credit Facility under the same terms for an additional sixty-one days, to expire on May 31, 2009. The purpose of the extension is to allow both parties the time to negotiate an expansion of the credit limit contingent upon our qualifying for an Export-Import Bank loan guarantee. On June 22, 2009, we entered into two separate credit facilities with the Bank providing for credit lines of up to $8 million in the aggregate: (i) an Amended and Restated Loan and Security Agreement (the "Restated Revolving Credit Facility") pursuant to which the Bank agreed to provide us with a credit line of up to $3 million and (ii) an Export-Import Bank Loan and Security Agreement (the "Ex-Im Facility") pursuant to which the Bank agreed to provide us with a credit line of up to $5 million to be guaranteed by the Export-Import Bank of the United States (the "EXIM Bank"). Under the terms of the Restated Revolving Credit Facility, the Bank agreed to provide us with a credit line of up to $3 million. Our obligations under the Restated Revolving Credit Facility are secured by substantially all of our assets. Advances under the Restated Revolving Credit Facility are limited to 80% of eligible receivables. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of (i) the prime rate plus 1.75% or (ii) 7.75%; provided, however, that if we achieve positive net income over a trailing 3-month period, interest on outstanding borrowings drops and accrues during such period at a rate per annum equal to the greater of (i) the prime rate plus 0.75% or (ii) 6.75%. In addition, we agreed to pay the Bank a monthly collateral monitoring fee in the event we are in default of our covenants and agreed to the following additional terms: (i) $67.5 thousand 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 1.0% of the total credit line. In addition, under the Restated Revolving Credit Facility, our existing Equipment Credit Facility with the Bank was amended whereby we agreed with the Bank that there would be no additional availability under such facility and, based on an outstanding principal amount of $1.2 million on June 22, 2009, we would continue to make monthly installments of principal of $97,222 plus accrued interest until the outstanding balance was paid in full on June 10, 2010. Our interest rate with respect to the outstanding balance was also modified so that interest accrues at a rate per annum equal to the greater of (i) the prime rate plus 1.75% or (ii) 7.75%. Under the terms of the Ex-Im Facility, the Bank agreed to provide us with a credit line up to $5 million for working capital to be guaranteed by the EXIM Bank. Our obligations under the Ex-Im Facility are secured by substantially all of our assets. Advances under the Ex-Im Facility are limited to (i) 90% of eligible receivables subject to a suitable foreign currency hedge agreement if applicable, plus (ii) 75% of all other eligible receivables billed in foreign currency, plus (iii) the lesser of 50% of the value of eligible inventory, as defined, or $3 million. Interest on outstanding borrowings accrues at a rate per annum equal to the greater of (i) the prime rate plus 1.75% or (ii) 7.75%; provided, however, that if we achieve positive net 20 income over a trailing 3-month period, interest on outstanding borrowings drops and accrues during such period at a rate per annum equal to the greater of (i) the prime rate plus 0.75% or (ii) 6.75%. In addition, in the event of an early termination, we agreed to pay the Bank an early termination fee of 1.0% of the total credit line. Under the Restated Revolving Credit Facility and the Ex-Im Facility, as long as any commitment remains outstanding under the facilities, we must comply with a minimum tangible net worth covenant and a minimum liquidity 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. 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. The Equipment Credit Facility principal balance outstanding was $1.2 million and $1.8 million at June 30, 2009 and December 31, 2008, respectively. The principal balance outstanding under the Restated Revolving Credit Facility (and the prior Revolving Credit Facility) was $1.5 million at June 30, 2009 and December 31, 2008. Under the credit facilities we were required to maintain a minimum tangible net worth (as defined) of $10.0 million; our tangible net worth (as defined) at June 30, 2009 was $7.4 million. We were not in compliance with our credit facilities tangible net worth covenant as of June 30, 2009, but not in default, because a Bank waiver has been received. More likely than not, we will not be in compliance with our credit facilities tangible net worth covenant on a going forward basis. Accordingly, we have entered into discussions with the Bank to renegotiate and restructure the terms of our two credit facilities to more closely match our business model. GAINS ON TERMINATION OF CONTRACTS On August 29, 2008, we delivered to Principia Lightworks, Inc. ("Principia") a Notice of Breach and Pending Termination (the "Notice") of a certain Manufacturing Agreement, dated August 29, 2006, by and between Spire Semiconductor and Principia (the "Manufacturing Agreement"). Under the terms of the Manufacturing Agreement, Principia made an up-front payment for nonrecurring engineering and facility access costs and was required to make monthly facility availability payments throughout the term of the agreement. As a result of Principia's failure to make monthly facility availability payments in 2008, we have fully reserved $225 thousand against Principia's accounts receivable balance. We entered into a mutual standstill agreement with Principia, which expired on March 15, 2009. The purpose of the standstill was to give the parties additional time to negotiate a resolution. On March 27, 2009, Spire Semiconductor and Principia mutually agreed to terminate the Manufacturing Agreement for convenience and entered into a separation and novation agreement (the "Novation Agreement"). Under the terms of the Novation Agreement, both parties agreed to terminate technology licenses that were granted to each other under the terms of the Manufacturing Agreement and Spire Semiconductor was released from its production requirements to Principia. Principia was released from paying its future facility availability payments due under the Manufacturing Agreement but will be required to pay facility availability payments of $300 thousand. Spire Semiconductor holds 67,500 shares of Principia stock as collateral against the outstanding facility availability payments. During the three months ended March 31, 2009, we accelerated the amortization of deferred revenue and recognized $1.54 million as a gain on termination of contract related to the termination of the Manufacturing Agreement. On June 18, 2009, we entered into a settlement agreement with Marubeni Corporation with respect to The License to Manufacture and Distribute Equipment Agreement (the "License Agreement") dated April 1, 2003 for the license of manufacturing and distribution in Japan of our solar photovoltaic modular manufacturing equipment. Under the terms of the settlement agreement, both parties agreed to terminate the License Agreement including but not limited to the eighteen (18) month non-compete obligation. As a result of the settlement, we received a payment of $200 thousand in the second quarter of 2009. 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. In addition, purchases made and royalties received under our Consortium Agreement with Nisshinbo are in Japanese yen. In addition, we received Japanese yen related to the termination 21 of the Consortium Agreement in 2008. We have committed to purchase certain pieces of equipment from European and Japanese vendors; these commitments are denominated in Euros and Yen, respectively. We bear the risk of any currency fluctuations that may be associated with these commitments. We attempt to hedge known transactions when possible to minimize foreign exchange risk. Foreign exchange gain (loss) included in other income (expense) was $(70) thousand and $(294) thousand for the three months ended June 30, 2009 and 2008, respectively and $139 thousand and $(408) thousand for the six months ended June 30, 2009 and 2008, respectively. Related Party Transactions - -------------------------- On November 30, 2007, we entered into a Lease Agreement (the "Bedford Lease") with 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, 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 Bedford 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 Bedford 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 exercise our right to extend the term of the Bedford 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 Bedford Lease are commercially reasonable. Rent expense under the Bedford Lease was $505 thousand for both the three months ended June 30, 2009 and 2008 and was $1.0 million for both the six months ended June 30, 2009 and 2008. In May 2003, Spire Semiconductor leased a building (90 thousand square feet) in Hudson, New Hampshire from SPI-Trust whereby we agreed to pay $4.1 million to SPI-Trust over an initial five-year term expiring in May 2008 with an option for us to extend for five years. In addition to the rent payments, the lease obligated us to keep on deposit with SPI-Trust the equivalent of three months rent. The lease agreement did not provide for a transfer of ownership at any point. Interest costs were assumed at 7%. Interest expense was approximately $1.6 thousand and $8.4 thousand for the three and six months ended June 30, 2008, respectively. This lease was classified as a related party capital lease and a summary of payments (including interest) follows: Rate Per Annual Monthly Security Year Square Foot Rent Rent Deposit - -------------------------------------------------------------------------------- (in thousands, except rate per square foot) June 1, 2003 - May 31, 2004 $ 6.00 $ 540 $ 45 $ 135 June 1, 2004 - May 31, 2005 7.50 675 56 169 June 1, 2005 - May 31, 2006 8.50 765 64 191 June 1, 2006 - May 31, 2007 10.50 945 79 236 June 1, 2007 - May 31, 2008 $ 13.50 $ 1,215 $ 101 $ 304 ----------- $ 4,140 =========== Upon the expiration of the lease in May 2008, we did not exercise our option to extend the lease for an additional 5 years. On May 20, 2008, we agreed with SPI-Trust to continue the current lease, under the current terms and conditions on a month-to-month basis for a maximum of three (3) months beyond the current term. On August 29, 2008, we entered into a new Lease Agreement (the "Hudson Lease") with SPI-Trust, with respect to 90 thousand square feet of space comprising the entire building in which Spire Semiconductor has occupied space since June 1, 2003. The term of the Hudson Lease commenced on September 1, 2008, and continues for seven (7) years until August 31, 2015. We have the right to extend the term of the Hudson Lease for an additional five (5) year period. The annual rental rate for the first year of the Hudson 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 exercise our right to extend the term of the Hudson 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. In addition, we are required to deposit with SPI-Trust $300 thousand as security for performance by us for our covenants and obligations under the Hudson Lease. SPI-Trust is responsible, at its sole expense, to make certain defined tenant improvements to the building. We believe that the terms of the Hudson Lease are commercially reasonable and reflective of market rates. The lease agreement does not provide for a transfer of ownership at any point. The Hudson Lease is classified as a related party operating lease. Rent expense under the Hudson Lease for the three and six months ended June 30, 2009 was $332 thousand and $664 thousand, respectively. 22 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 Note 2 of the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2008 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 recognize 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. Our OEM capital equipment solar energy business builds complex customized machines to order for specific customers. Most orders are sold on a FOB Bedford, Massachusetts (or EX-Works Factory) basis and other orders are sold on a CIP or on rare situations a DDU basis. It is our policy to recognize revenues for this equipment as title of the product has passed 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. ALLOWANCE FOR DOUBTFUL ACCOUNTS We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to pay amounts due. We actively pursue 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 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 realizability 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. 23 IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets, such as property and equipment and amortizable intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The determination of recoverability is based on fair value. If the fair value is less than the carrying value, we recognize an impairment loss to operations in the period in which impairment is determined. Impairment is measured as the amount by which the carrying value exceeds the fair value of the asset. STOCK-BASED COMPENSATION We account for our stock-based compensation plans in accordance with the fair value recognition provisions of SFAS No. 123(R), SHARE-BASED payment ("Statement 123(R)"). We use the Black-Scholes option pricing model as our method for determining the fair value of stock option grants. Statement 123(R) requires the fair value of all share-based awards that are expected to vest to be recognized in the statements of operations over the service or vesting period of each award. We use the straight-line method of attributing the value of stock-based compensation expense for all stock option grants. On November 10, 2005, the FASB issued FASB Staff Position SFAS 123R-3, TRANSITION ELECTION RELATED TO ACCOUNTING FOR TAX EFFECTS OF SHARE-BASED PAYMENT AWARDS. We have elected to adopt the alternative transition method provided by the FASB Staff Position for calculating the tax effects (if any) of stock-based compensation expense pursuant to Statement 123(R). The alternative transition method includes simplified methods to establish the beginning balance of the additional paid-in capital pool related to the tax effects of employee stock-based compensation, and to determine the subsequent impact to the additional paid-in capital pool and the consolidated statements of operations and cash flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of Statement 123(R). WARRANTY We provide warranties on certain products and services. Our warranty programs are described below: Spire Solar Equipment warrants solar energy module manufacturing equipment sold for a total of 360 days, the first 90 days of which include the replacement of defective component parts and the labor to correct the defect and the next 270 days of which include only the cost of defective component parts. Spire Biomedical warrants that any of its catheter products found to be defective will be replaced. No warranty is made that the failure of the product will not occur, and we disclaim any responsibility for any medical complications. Spire Biomedical warrants that its services only will meet the agreed upon specifications. Spire Semiconductor warrants that its products will meet the agreed upon specifications. We provide for the estimated cost of product warranties, determined primarily from historical information, at the time product revenue is recognized. Should actual product failure warranties differ from our estimates, revisions to the estimated warranty liability would be required. The changes in the product warranties for the six months ended June 30, 2009, are as follows: (in thousands) Balance at December 31, 2008 $ 495 Provision charged to income 470 Usage (248) -------- Balance at June 30, 2009 $ 717 ======== Contractual Obligations, Commercial Commitments and Off-Balance Sheet - --------------------------------------------------------------------- Arrangements - ------------ The following table summarizes our gross contractual obligations at June 30, 2009 and the maturity periods and the effect that such obligations are expected to have on our liquidity and cash flows in future periods: 24
Payments Due by Period ------------------------------------------------------------------------ Less than 2 - 3 4 - 5 More Than Contractual Obligations Total 1 Year Years Years 5 Years - ---------------------------------------- ------------ ------------ ------------ ------------ ------------ (in thousands) Equipment Credit Facility (SVB) $ 1,216 $ 1,216 -- -- -- Restated Revolving Credit Facility (SVB) $ 1,500 $ 1,500 -- -- -- Purchase obligations $ 11,983 $ 11,766 $ 217 -- -- Operating leases: Unrelated party operating leases $ 200 $ 124 $ 76 -- -- Related party operating leases $ 15,533 $ 3,155 $ 6,838 $ 3,766 $ 1,774
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. Equipment Credit Facility obligations outlined above include both the principal and interest components of these contractual obligations. Outstanding letters of credit totaled $1.6 million and $4.2 million at June 30, 2009 and December 31, 2008, respectively. The letters of credit secure performance obligations and purchase commitments, 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 2010 and are 100% secured by cash, short-term investments and the Revolving Credit Facility. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required as we are a smaller reporting company. 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, June 30, 2009. 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 June 30, 2009. As previously reported in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on March 31, 2009, 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, 2008. We have an ineffective control environment. This has been previously disclosed in prior filings. Management has designed and implemented some effective controls, however, these controls are not sufficient and are not operating effectively. Efforts to remediate deficiencies were impeded by an evolving control environment brought on by the rapid expansion in our business. 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. In addition, certain finance positions were staffed with individuals who did not possess the level of accounting knowledge, experience and training in the application of US GAAP commensurate with our financial reporting requirements. Specifically, the financial reporting organization structure was not adequate to support the size, complexity or activities of our Company. 25 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 timely review of restricted user access in our application software system and we did not consistently follow our defined back up polices and procedures. As a result of the foregoing, management concluded that our internal control over financial reporting was not effective as of December 31, 2008. Management is actively addressing operational and internal control remediation efforts. New policies and procedures have been created and existing policies and procedures have been reviewed and modified as part of our documentation of internal control over financial reporting. Management believes these new controls, policies and procedures, training of key personnel, and testing of these key controls will be effective in remediating these material weaknesses. Management reports quarterly to our Audit Committee on the status of the remediation effort. Management has partially addressed the need for additional experienced staff with the addition of a Director of Financial Reporting (February 2008) who has the primary responsibility for the financial close and reporting process and monitoring environment related to financial reporting. We also hired a Senior Financial Analyst, CPA (July 2008) who is actively involved in the financial close and reporting process and assisting us in our remediation efforts. In addition, we hired a Corporate Controller (April 2009) who will add accounting knowledge, experience and applications of US GAAP. These positions will help us address the identified weakness in the knowledge and experience required for completeness and accuracy of our financial statements and will also help improve our overall financial close and reporting process. In connection with the findings of our review related to the November 2008 restatement of our previously issued financial statements for the fourth quarter and fiscal 2007 included in our Annual Report on From 10-K for the fiscal year ended December 31, 2007 and our previously issued financial statements included in the Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2008 and June 30, 2008, management and the Audit Committee reviewed the additional internal control procedures and processes that have been implemented since the original date of the error and have identified additional remediation steps to address the material weakness of untimely reporting of customer contract changes. We have implemented new internal controls and enhanced accounting policies, as well as improved sales policies and procedures relating to customer contract management and order fulfillment. Changes in Internal Control Over Financial Reporting - ---------------------------------------------------- Except as described above, there have been no changes during our fiscal quarter ended June 30, 2009 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. 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., a wholly owned subsidiary of the Company, alleging that Company's sales of its Pourchez RetroTM catheter infringed U.S. Patent 6,872,198 owned by Arrow. Arrow alleged that the Company's sales of its Pourchez RetroTM catheter infringed U.S. Patent 6,872,198 owned by Arrow. The complaint claimed Retro catheter product induced and contributed to infringement when medical professionals inserted it. The Company responded to the complaint denying all allegations and filed certain counterclaims. The Company also 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"). On August 4, 2006, the Court granted the Company's motion and dismissed this lawsuit without prejudice. Plaintiffs applied to revive the applicable patent, which application was granted by the USPTO later in August 2006. Plaintiffs refiled their lawsuit against the Company on August 31, 2006. On July 10, 2009, the Federal District Court for the District of Massachusetts granted summary judgment in favor of Spire Biomedical on the ground that the asserted claims of the `198 patent were invalid for obviousness. Arrow and Spire Biomedical have agreed that neither party will appeal the court's ruling thereby ending the suit. 26 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, 2008. 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 On May 21, 2009, we held a Special Meeting in Lieu of Annual Meeting of Stockholders. At the meeting, stockholders voted on the following: PROPOSAL NUMBER 1 The number of directors was fixed at eight, leaving one vacancy. Udo Henseler, David R. Lipinski, Mark C. Little, Roger G. Little, Michael J. Magliochetti, Guy L. Mayer and Roger W. Redmond were elected to the Board of Directors to hold office until the 2010 annual meeting of the stockholders. The results for Proposal Number 1 were as follows:
- ------------------------------------------------------------------------------------------------------------------ Shares Shares Voting Against Shares Broker Nominee Voting For or Authority Withheld Abstaining Non-Votes - ------------------------------------------------------------------------------------------------------------------ Udo Henseler 6,438,987 363,503 -- -- - ------------------------------------------------------------------------------------------------------------------ David R. Lipinski 6,436,150 366,340 -- -- - ------------------------------------------------------------------------------------------------------------------ Mark C. Little 6,168,184 634,306 -- -- - ------------------------------------------------------------------------------------------------------------------ Roger G. Little 6,215,173 587,317 -- -- - ------------------------------------------------------------------------------------------------------------------ Michael J. Magliochetti 6,438,038 364,452 -- -- - ------------------------------------------------------------------------------------------------------------------ Guy L. Mayer 6,438,121 364,369 -- -- - ------------------------------------------------------------------------------------------------------------------ Roger W. Redmond 6,440,782 361,708 -- -- - ------------------------------------------------------------------------------------------------------------------
ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS 2.3 Gloria Spire Solar LLC Liquidation Agreement, dated May 29, 2009, by and among Gloria Solar (Delaware) Company, Ltd., Gloria Solar Co., Ltd., Gloria Spire Solar, LLC and Spire Corporation.* 2.4 First Amendment to the Gloria Spire Solar, LLC Liquidation Agreement, dated June 2, 2009, by and among Gloria Solar (Delaware) Company, Ltd., Gloria Solar Co., Ltd., Gloria Spire Solar, LLC and Spire Corporation.* 10(af) Amended and Restated Loan and Security Agreement, dated June 22, 2009, among Spire Corporation, Spire Solar, Inc., Spire Biomedical, Inc., Spire Semiconductor, LLC and Silicon Valley Bank. 10(ag) Export-Import Bank Loan and Security Agreement, dated June 22, 2009, 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. ________________ * The Company agrees to furnish supplementally to the Securities and Exchange Commission (the "Commission") a copy of any omitted schedule or exhibit to this agreement upon request by the Commission. 27 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: August 14, 2009 By: /s/ Roger G. Little --------------------------------------- Roger G. Little Chairman of the Board, Chief Executive Officer and President Dated: August 14, 2009 By: /s/ Christian Dufresne --------------------------------------- Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer 28 EXHIBIT INDEX Exhibit Description - ------- ----------- 2.3 Gloria Spire Solar LLC Liquidation Agreement, dated May 29, 2009, by and among Gloria Solar (Delaware) Company, Ltd., Gloria Solar Co., Ltd., Gloria Spire Solar, LLC and Spire Corporation. * 2.4 First Amendment to the Gloria Spire Solar, LLC Liquidation Agreement, dated June 2, 2009, by and among Gloria Solar (Delaware) Company, Ltd., Gloria Solar Co., Ltd., Gloria Spire Solar, LLC and Spire Corporation. * 10(af) Amended and Restated Loan and Security Agreement, dated June 22, 2009, among Spire Corporation, Spire Solar, Inc., Spire Biomedical, Inc., Spire Semiconductor, LLC and Silicon Valley Bank. 10(ag) Export-Import Bank Loan and Security Agreement, dated June 22, 2009, 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. _______________________ * The Company agrees to furnish supplementally to the Securities and Exchange Commission (the "Commission") a copy of any omitted schedule or exhibit to this agreement upon request by the Commission. 29 EX-2.3 2 exh2-3_16546.txt GLORIA SPIRE SOLAR, LLC LIQUIDATION AGREEMENT EXHIBIT 2.3 ----------- GLORIA SPIRE SOLAR, LLC LIQUIDATION AGREEMENT This Liquidation Agreement (this "Agreement") is made this 29th day of May, 2009 (the "Effective Date"), by and among Gloria Solar (Delaware) Company, Ltd., a Delaware corporation with its principal office at No. 498, Sec. 2, Bentian Road, Annan District, Taiwan City 709, Taiwan, Republic of China ("Gloria (Delaware)"), Gloria Solar Co., Ltd., a corporation incorporated in the Republic of China with its principal office at No. 498, Sec. 2, Bentian Road, Annan District, Taiwan City 709, Taiwan, Republic of China ("Gloria (Taiwan)"), Gloria Spire Solar, LLC, a limited liability company organized under the laws of the State of Delaware in the United States of America with its principal office at One Patriots Park, Bedford, Massachusetts 01730-2396, U.S.A. ("GSS"), and Spire Corporation, a corporation organized under the laws of the Commonwealth of Massachusetts in the United States of America with its principal office at One Patriots Park, Bedford, Massachusetts 01730-2396, U.S.A. ("Spire"). Gloria (Delaware), Gloria (Taiwan), GSS, and Spire, are collectively referred to as the "Parties" in this Agreement and individually referred to as a "Party." WHEREAS, the Parties entered into a series of agreements related to the formation and governance of GSS, an entity jointly owned by Gloria (Delaware) and Spire, on or about July 31, 2007; WHEREAS, the Parties desire to liquidate and dissolve GSS; WHEREAS, pursuant to Section 12.02 of the Operating Agreement, dated July 31, 2007 and as amended on December 28, 2007, by and among Spire, Gloria (Delaware) and GSS (the "Operating Agreement"), Spire and Gloria (Delaware), constituting the holders of at least eighty percent (80%) of the currently outstanding membership units, have authorized the liquidation and dissolution of GSS; WHEREAS, pursuant to Section 4.06(k) of the Operating Agreement, the Managing Board (as defined in the Operating Agreement), including one Spire Manager and one Gloria (Delaware) Manager, have authorized the liquidation and dissolution of GSS; WHEREAS, following provision for existing and potential future liabilities, the Parties shall cause the Managing Board to distribute GSS's assets in liquidation to Gloria (Delaware) and Spire in accordance with Section 12.03 of the Operating Agreement and as provided herein; and WHEREAS, in connection with such liquidation and dissolution, each Party desires to release the other Party from any claims related to the relationship between the Parties from July 31, 2007 to the present, and to establish the obligations which will govern the Parties hereafter. NOW THEREFORE, in consideration of the obligations, covenants, and conditions contained herein, the receipt and sufficiency of which is hereby agreed and acknowledged, the Parties hereto agree to be bound by the terms and conditions as set forth herein: 2 1. DEFINITIONS. For purposes of this Agreement, the following words and phrases shall have the respective meanings as follows: 1.1 "AFFILIATE" means a Person who, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the Person specified. For purposes of this Agreement, "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person. 1.2 "ASSET PURCHASE AGREEMENT" means the Asset Purchase Agreement, dated as of July 31, 2007, entered into by and between Spire and Gloria (Taiwan). 1.3 "CONTRIBUTION AGREEMENT" means the Contribution Agreement, dated as of July 31, 2007, by and among Spire, Gloria (Taiwan), and Gloria (Delaware). 1.4 "DAYS" OR "DAYS" means all calendar days, regardless of whether such days are legal holidays under the laws of the United States or any State or the laws of Taiwan, the Republic of China. 1.5 "INTELLECTUAL PROPERTY" means, for the purposes of this Agreement, any and all patent rights, copyright rights, mask work rights, trade secret rights, common law confidential information rights, SUI GENERIS database rights, and all other intellectual and industrial property rights of any sort throughout the world (including any application therefor), as well as any idea, concept, discovery, invention, development, technology, work of authorship, trade secret, software, firmware, tool, process, technique, know-how, data, plan, device, apparatus, architecture, specification, design, circuit, layout, mask work, algorithm, program, code, documentation, or other material or information, tangible or intangible, whether or not it may be patented, copyrighted, or otherwise protected (including all versions, modifications, enhancements, and derivative works thereof existing at the time of the grant). 1.6 "MEMBER" or "MEMBERS" means either or both of Spire and Gloria (Delaware), as the context may require, or a person or entity with an ownership interest in GSS. 1.7 "MEMBERSHIP INTEREST" means a Member's entire equity interest in GSS, including the Membership Units (as such are defined in the Operating Agreement) owned by such Member and any right of such Member to the return of Capital Contributions and any interest thereon. 1.8 "SPIRE TRADEMARK LICENSES" means both the Trademark License Agreement between Spire and GSS and the Trademark License Agreement between Spire and Gloria (Taiwan), both dated as of July 31, 2007. 3 1.9 "SUBLEASE" means the Sublease between Spire and GSS dated on or about December 26, 2007. 1.10 "TECHNOLOGY" means the know-how and developed means for surveying, designing, and implementing complete PV systems, for customers, including, but not limited to, commercial, government, and utility entities, that comprises protectable Intellectual Property. This shall include all aspects of design of the system per the customer request including, but not limited to: site survey; permit and funding application support; module design and specification; BOS specification; IPP financing arrangements; subcontractor selection and contracting methods; and final inspection methods. 1.11 "TECHNOLOGY LICENSE AGREEMENT" means that certain Technology License Agreement between Spire and GSS, dated as of July 31, 2007. 1.12 "TRANSACTION DOCUMENTS" means the Operating Agreement, the Contribution Agreement, the Spire Trademark Licenses, and the Technology License Agreement. 1.13 "TRANSITIONAL SERVICES AGREEMENT" means the Transitional Services Agreement between Spire and GSS dated as of July 31, 2007. 2. OPTION TO ASSUME GSS PROJECTS; ASSUMPTION OF GSS'S WARRANTY OBLIGATIONS; TERMINATION OF THE TRANSACTION DOCUMENTS 2.1 DISTRIBUTION OF THE CURRENT ASSETS AND LIABILITIES OF GSS. Pursuant to Section 12.03 of the Operating Agreement, the Parties agree that the current assets and the liabilities of GSS assumed herein shall be distributed to Spire and Gloria (Delaware) as follows: 2.1.1 Assumption by each Party of GSS Projects and Prospective Projects. Pursuant to the schedule at Schedule 2.1.1(a), the Parties agree that the Party designated as indicated at Schedule 2.1.1(a) shall be the sole Party herein to pursue such solar power generating facility design, engineering, or construction contracts (each, a "Project"). As consideration for any such assumption, the Party assuming the Project will pay the other Party a royalty fee based on the percentage indicated at Schedule 2.1.1(a), pursuant to the conditions stated at schedule 2.1.1(a), multiplied by the revenue generated by the particular Project as received from the customer or any third party on account of such Project, multiplied by that Party's Membership Interest in GSS. Pursuant to the schedule at Schedule 2.1.1(b), the Party designated therein shall have the exclusive option, to the exclusion of the other signatories to this Agreement (the "Non-optionee Parties"), for the one hundred twenty (120) day period after the Dissolution Date (as defined below), to enter into negotiations with the customers indicated at Schedule 2.1.1(b) for the prospective projects (the 4 "Prospective Projects") listed therein. The Non-optionee Parties shall not communicate with, or interfere in any way, with the designated Party's ability to negotiate for the Prospective Projects during the period of exclusivity provided in the previous sentence. No royalties or other consideration shall be paid for any income earned on Prospective Projects. With respect to any projects or prospects that are not Projects or Prospective Projects and/or for any Prospective Project after the period of exclusivity provided above (the "Other Projects"), any Party shall be able to pursue such Other Projects with no liability or obligation to the other Parties. Notwithstanding the foregoing, the Party assuming any Project or Prospective Project shall not be liable to any other Party for losses, damages or claims arising from: (i) assumed Projects, regardless of whether such Projects are completed, and regardless of whether such Projects generate anticipated revenue; and (ii) for any Projects or Prospective Projects, or Other Projects that are not assumed. In the event that no Party assumes any Project that is currently ongoing or potential project that is in the bidding stage, the Parties shall take reasonable steps to wind up such Project or potential Project on behalf of GSS prior to the Dissolution Date, including, but not limited to, formally withdrawing bids or bid bonds. 2.1.2 Assumption of GSS's warranty obligations. For each of the completed GSS projects itemized in Schedule 2.1.2, the Party indicated therein shall assume all of GSS's warranty obligations for such project in exchange for payment from GSS of the agreed value of the respective warranty obligation actually assumed by Spire as detailed in Schedule 2.1.2. 2.1.3 Termination of GSS Employees. All GSS employees (the "Terminated Employees") shall be offered severance compensation ("Severance Payments") in an amount equal to four weeks of base pay, in consideration for signing respective severance agreements in writing. 2.1.4 Distribution of remaining assets. After all matters regarding the winding up of GSS pursuant to Sections 12.02 and 12.03 of the Operating Agreement have been accomplished, and the reserve amount provided in Section 2.2 below has been set aside, all remaining assets of GSS shall be distributed to the Members in accordance with Schedule 2.1.4 (Distribution of Assets). All Technology owned by GSS at the Dissolution Date shall be distributed to each Member, with each Member taking an undivided, individual joint ownership interest in all such Technology; the Parties are free to use such Technology without accounting to the other Parties. 2.2 RESPONSIBILITY FOR REMAINING LIABILITIES. Each Member of GSS shall be indemnified and held harmless (the "Indemnified Party") by the other Member (the "Indemnifying Party") for and against any Losses (as defined at Section 11.02.a. of the Operating Agreement) arising out of or resulting from: (a) the 5 breach of any representation or warranty made by the Indemnifying Party in this Agreement; or (b) the breach of any covenant or agreement made by the Indemnifying Party that, despite the termination of the Operating Agreement and the liquidation of GSS, survives (including such survival due to operation of law or any other reason), in which case such obligation shall be indemnified fully by the Party that was originally responsible for such covenant or agreement (and if neither party was so responsible, then ratably by Gloria (Delaware) in the amount of 55% and by Spire in the amount of 45%). Nothing contained herein shall be construed to create any third party beneficiaries or new obligations in favor of third parties. As a measure of protection against any such future claims, Spire and Gloria (Delaware) shall open a joint escrow account with Silicon Valley Bank, in the amount of One Hundred Thousand U.S. Dollars ($100,000.00) (the "Escrow Account"), funded from the GSS remaining assets, which shall be available for the payment of post-dissolution claims. The signature of both Spire and Gloria (Delaware) shall be required for any disbursal from such account. On the date that is ninety (90) days after the Dissolution Date, the Parties shall take reasonable steps to distribute any amount remaining in such account to Spire and Gloria (Delaware) in proportion to each Party's Membership Interest. 2.3 TERMINATION OF THE TRANSACTION DOCUMENTS. 2.3.1 TERMINATION OF THE OPERATING AGREEMENT. As of the effective date of GSS's dissolution (the "Dissolution Date"), the Parties agree and acknowledge that the Operating Agreement will be terminated, with no further obligations between the Parties except as provided herein. The Parties agree and acknowledge that the standstill provisions of Section 7.02 of the Operating Agreement do not apply to this Agreement, and are hereby mutually terminated, to the degree that they would be applicable. 2.3.2 TERMINATION OF THE TRADEMARK LICENSES. As of the Dissolution Date, the Parties agree and acknowledge that the Trademark Licenses will be terminated, and that GSS, Gloria (Delaware) and Gloria (Taiwan) will have no further ability to use the Spire Licensed Marks and the Gloria Licensed Marks thereafter, except that each of the Licensees may continue to use the Licensed Marks pursuant to the provisions of Section 7.4 of the Trademark Agreement, for ninety (90) days after the Dissolution Date. In furtherance of this Agreement, the Parties agree and acknowledge that none of GSS, Gloria (Taiwan) and Gloria (Delaware) shall exercise their respective rights to continue the duration of the respective Trademark Licenses pursuant to the provisions of Section 7.3 of the respective Trademark Licenses. 2.3.3 TERMINATION OF THE TECHNOLOGY LICENSE AGREEMENT. As of the Dissolution Date, the Parties agree and acknowledge that the Technology License Agreement shall be terminated pursuant to Section 5.1(a). 2.3.4 TERMINATION OF THE CONTRIBUTION AGREEMENT. As of the Dissolution 6 Date, the Parties agree and acknowledge that the Contribution Agreement shall be terminated pursuant to Section 7.01(E), and that, based on the Release in Section 2.4 below, no representations and warranties contained in the Contribution Agreement, including, but not limited to, those listed at Section 6.01, shall survive the termination of the Contribution Agreement. 2.4 RELEASE. With the exception of those on-going obligations as set forth herein, including Section 2.2 hereof, between the Parties in relation to the Transaction Documents, in consideration of the mutual promises contained herein, all of the Transaction Documents shall be terminated as of the Dissolution Date, and each Party hereby releases and forever discharges the other, and its respective officers, directors, partners, managers, members, employees and agents, successors and assigns (all in their official and individual capacities), including, but not limited to, the Managers of GSS, from any and all suits, claims, demands, debts, sums of money, damages, interest, attorneys' fees, expenses, actions, causes of action, judgments, accounts, promises, contracts, agreements (each, a "Claim"), and any and all claims of law or in equity, whether now known or unknown, which the releasing Party now has or ever has had related to or arising out of the other Party's performance and termination of the Transaction Documents, including, but not limited, any such claims arising out of the Parties' obligations as Members of GSS, and each Party shall indemnify the other Parties and hold them harmless for any such claim. The release provided here, effective as of the Effective Date, shall be extended through the Dissolution Date by the Parties' signature of the Release Extension in substantially the same form as attached hereto at Schedule 2.4, contingent on, and in partial consideration for, the receipt of the assets pursuant to Section 2.1.4, above. 2.5 DISSOLUTION SCHEDULE. The Parties shall use reasonable efforts to carry out the orderly winding up of GSS according to the schedule provided at Schedule 2.5. The Parties agree and acknowledge that the items and dates stated therein are targets only, and as such do not create any binding obligation on either Party other than as provided affirmatively in the text of this Agreement (separate from Schedule 2.5). 7 3. POST-TERMINATION RELATIONSHIP 3.1 TECHNOLOGY AND INTELLECTUAL PROPERTY. As of the Dissolution Date, neither Spire nor Gloria (Delaware) will have the right to use the other's Technology or Intellectual Property (as separate and distinct from the joint ownership interest in the Technology distributed above at Section 2.1.4) for any purpose; provided, however, that Spire or Gloria (Delaware) shall have a royalty-free, non-exclusive, limited-term license to use the other's Technology for the express purpose of performing any assumed GSS warranty obligations (either itself or through an Affiliate or agent). The term of each Party's respective license shall expire concurrent with the expiration of the last of the respective Party's assumed GSS warranty obligations. 3.2 COMPETITION AND SOLICITATION. Notwithstanding any provision in any of the Transaction Documents, including, but not limited to, Section 5.10 of the Contribution Agreement, Section 5.12 of the Asset Purchase Agreement, and Article 9 of the Operating Agreement, nothing shall prevent any Party from competing with any other, in any lawful way, 3.3 SUBLEASE. The Parties agree and acknowledge that the term of the Sublease has expired, such that the Sublease is currently on a month-to-month basis. As of the Dissolution Date, the Sublease shall expire, unless terminated earlier by a written agreement between Spire and GSS. GSS covenants to quit and surrender to Spire the Sublease Premises (as defined in the Sublease), broom clean, in such order and condition as is required under the Sublease. If GSS or any of its property remains on the Sublease Premises beyond ten (10) working days of the expiration or earlier termination of the Sublease, such holding over shall not be deemed to create any tenancy at will, but GSS shall be a tenant at sufferance only and shall pay rent at a daily rate equal to two and one-half times the total of the Fixed Rent and Additional Rent (as both terms are defined in the Sublease) due under the Sublease, and other charges due thereunder and shall, in addition, perform and observe all other obligations and conditions to be performed or observed by GSS under the Sublease. In addition, GSS shall indemnify and hold Spire harmless from and against any and all liability, loss, cost, damage, and expenses suffered or incurred by Spire arising out of, or resulting from, any failure on the part of GSS to yield up the Sublease Premises when and as required under the Sublease. The foregoing shall survive the expiration or early termination of this Agreement. 3.4 TRANSITIONAL SERVICES AGREEMENT. Spire shall continue to provide the Services, as defined in the Transitional Services Agreement, at the current rate being paid pursuant to Section 2.1 of the Transitional Services Agreement, but the Parties agree and acknowledge that, pursuant to Section 1.3 of the Transitional Services Agreement, the Transitional Services Agreement shall terminate, with no further obligation by Spire to provide any such Services, as of the Dissolution Date, unless agreed otherwise by Spire and GSS, in writing, prior to such date. 3.5 PRESS RELEASES. Other than one (1) press release which each Party may issue, at 8 its discretion, within a reasonable time after the Dissolution Date, but only after providing a copy of the text to the other Parties, in writing, no fewer than three (3) business days prior to the release, and which press release shall not make any negative or derogatory statements about the other Party, and an 8-K filing which Spire is obligated to make, which text will be provided, in writing, in advance, to the other Parties, Spire shall not provide or release any information about the other Parties, and the other Parties shall not provide or release any information about Spire, except as provided herein, after the Dissolution Date. 3.6 CONFIDENTIAL INFORMATION. All Confidential Information, as such is defined in the Transaction Documents, that has been disclosed by one Party to another (as listed at Schedule 3.6), shall be returned to the disclosing Party within ten (10) days of the Effective Date of this Agreement, and shall not be used by the Party to whom it was disclosed thereafter except as provided herein. 3.7 INDEMNIFICATION. Other than as provided elsewhere herein, each Party shall have the obligation to indemnify and hold the other Party harmless in any circumstance where the indemnified Party is a subject to any claim, controversy, assertion of damages, action, or suit from any third party (the "Liability") which arises from the negligent actions or misconduct of the indemnifying Party, and from any such fines or penalties as may be levied against the indemnified Party. Such obligation may be mitigated or void in instances where, and to the extent that, the indemnified Party engaged in negligent actions or misconduct of its own accord which has preponderantly contributed to the Liability. 3.8 RESOLUTION OF DISPUTES. Any dispute between the Parties shall be referred to the International Chamber of Commerce, and any hearing shall be held in San Francisco, California. The proceedings will be conducted by three (3) arbitrators, one appointed by each Party, and the third appointed by those arbitrators. The dispute shall be governed by the rules of arbitration of the International Chamber of Commerce. All such judgments as shall be rendered by the arbitration panel shall be final and binding on the Parties. Costs of the arbitration shall be initially shared by the Parties, except that, after an arbitration decision, the arbitrators shall award to the Party which substantially prevails, attorneys' fees and arbitration expenses. Judgment upon any award made in arbitration may be entered and enforced in any court of competent jurisdiction. This arbitration provision shall not prevent either Party from initiating an action in any court of competent jurisdiction, in the event that such Party is in need of injunctive relief related to irreparable harm that otherwise might arise in connection with the subject matter of this Agreement. 4. PAYMENT 4.1 If any payment payable hereunder by any Party to another Party is not paid when due, the same shall also bear interest from the date when the same was payable until the date paid at the lesser of: (a) eighteen percent (18%) per annum; or (b) the highest lawful rate of interest which the Party to whom payment is owed may 9 charge without violating any applicable law. The Party who is obligated to make payment shall also be liable for all costs of collection, including attorneys' fees, in the event that the Party to whom payment is owed seeks to enforce the provisions of this Section 4.1. 5. GENERAL 5.1 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties relating to the subject matter involved. All prior or contemporaneous written or oral communications, agreements, or understandings between the Parties and relating to the subject matter as contained in the Transaction Documents, are superseded by this Agreement. 5.2 AMENDMENTS. No change, amendment, or modification of this Agreement shall be binding upon the Parties unless made in writing, executed by the Parties. 5.3 TITLES. The titles of each of the Articles and Sections of this Agreement shall not be construed as limiting the intent of the subject matter they introduce. 5.4 GOVERNING LAW. The interpretation, construction, and the remedies for the enforcement or breach of this Agreement shall be controlled by the laws of the State of Delaware, regardless of the applicable provisions regarding the principles of the conflicts of laws. 5.5 SEVERABILITY. In the event that an arbitrator or court holds that a provision of this Agreement is in violation of applicable law, such provision shall be enforced only to the extent it is not in violation of law. All other provisions of this Agreement shall remain in full force and effect. 5.6 WAIVER. No waiver shall be valid against the other Party unless made in writing and signed by the Party against whom enforcement of such waiver is sought, and only to the extent expressly specified. 5.7 EXECUTION IN COUNTERPARTS AND BY FACSIMILE. This Agreement may be executed in as many counterparts as may be required. The signature on any counterpart which is transmitted by facsimile to the other Party shall be deemed the same as an original signature. 5.8 NOTICE. Where this Agreement shall require that notice be given by one Party to the other or for any other communication between the Parties, such notice shall be in English and given by certified mail, express delivery service, or via facsimile transmission, to the address provided above, or as otherwise provided or changed hereinafter, in writing. 5.9 ASSIGNMENT. This Agreement and all of its covenants, terms, and conditions shall bind and inure to the benefit of the Parties hereto and their respective heirs, devisees, and successors, however the Parties agree that: 10 5.9.1 No Party may assign this Agreement, nor any of its rights and obligations hereunder, to any third party without the prior, written permission of the other Party, which permission shall not be unreasonably delayed, conditioned, or denied, except for its sale of all, or substantially all, of its assets, or the sale of all of the equity of either Party; and 5.9.2 Any Party may assign its obligations to perform any warranty or any Project, Prospective Project, or Other Project, pursuant to this Agreement, together with the rights, obligations, and licenses hereunder, to any Affiliate, by giving the other Parties thirty (30) days' prior, written notice. [SIGNATURES APPEAR ON THE NEXT PAGE] [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 11 IN WITNESS WHEREOF, the Parties hereto signify their acknowledgment, endorsement, and agreement of and with every covenant above and cause this Agreement to be executed by their respective authorized representatives as of the date first stated above: GLORIA SOLAR (DELAWARE) COMPANY, LTD. SPIRE CORPORATION By: /s/ Sam Wu By: /s/ Rodger W. LaFavre -------------------- ----------------------- Rodger W. LaFavre Its: Its: Chief Operating Officer Date: May 29, 2009 Date: May 29, 2009 GLORIA SOLAR CO., LTD. GLORIA SPIRE SOLAR, LLC By: /s/ Sam Wu By: /s/ Sam Wu --------------------- ------------------------ Its: CEO Its: CEO Date: May 29, 2009 Date: May 29, 2009 EX-2.4 3 exh2-4_16546.txt FIRST AMENDMENT TO THE LIQUIDATION AGREEMENT EXHIBIT 2.4 ----------- FIRST AMENDMENT TO THE LIQUIDATION AGREEMENT This Amendment (the "Amendment") to the Liquidation Agreement, dated on or about May 29, 2009 (the "Liquidation Agreement"), is made this 2nd day of June, 2009, with an effective date of May 29, 2009 (the "Effective Date"), and is by and among Gloria Solar (Delaware) Company, Ltd., a Delaware corporation with its principal office at No. 498, Sec. 2, Bentian Road, Annan District, Taiwan City 709, Taiwan, Republic of China ("Gloria (Delaware)"), Gloria Solar Co., Ltd., a corporation incorporated in the Republic of China with its principal office at No. 498, Sec. 2, Bentian Road, Annan District, Taiwan City 709, Taiwan, Republic of China ("Gloria (Taiwan)"), Gloria Spire Solar, LLC, a limited liability company organized under the laws of the State of Delaware in the United States of America with its principal office at One Patriots Park, Bedford, Massachusetts 01730-2396, U.S.A. ("GSS"), and Spire Corporation, a corporation organized under the laws of the Commonwealth of Massachusetts in the United States of America with its principal office at One Patriots Park, Bedford, Massachusetts 01730-2396, U.S.A. ("Spire"). Gloria (Delaware), Gloria (Taiwan), GSS, and Spire, are collectively referred to as the "Parties" in this Amendment and individually referred to as a "Party." WHEREAS, the Parties wish to make certain amendments to the Liquidation Agreement; and WHEREAS, the Parties wish to clarify the status of that certain Trademark License Agreement, dated as of July 31, 2007, by and between Spire and Gloria (Taiwan) (the "Spire - Gloria Trademark License"). NOW, THEREFORE, in consideration of the obligations, covenants, and conditions contained herein, including, but not limited to, each Party's release of the other, as provided herein, and for the extension of the Spire - Gloria Trademark License, the receipt and sufficiency of which is hereby agreed and acknowledged, the Parties hereby agree to be bound by the terms and conditions as set forth herein: 1. Section 1 of the Liquidation Agreement shall be amended to include the following definition: "1.14 "GLORIA TRADEMARK LICENSE" means the Trademark License Agreement between Gloria (Taiwan) and GSS dated as of July 31, 2007." 2. Section 2.3.2 of the Liquidation Agreement is hereby deleted and restated in its entirety to read as follows: "2.3.2 TERMINATION OF THE TRADEMARK LICENSES. As of the Dissolution Date, the Parties agree and acknowledge that the Gloria Trademark License will be terminated, and that the Spire Trademark License with GSS shall also be terminated, after which GSS will have no further ability to use the Spire Licensed Marks and the Gloria Licensed Marks (as defined in the respective Trademark Licenses) thereafter. The Parties hereby agree that the Spire Trademark License to Gloria (Taiwan) will be amended, such that it will be a non-exclusive, fully 2 paid up license for the Permitted Use, for an additional period of ten (10) years from the Effective Date, with no right thereafter for any extension pursuant to Section 7.3 therein or otherwise." 3. Each Party's release of the other Parties, as provided at Section 2.4 of the Liquidation Agreement, shall extend to all actions contemplated herein. 4. This Amendment and the Liquidation Agreement (as amended hereby) constitute the entire agreement of the Parties hereto with respect to the subject matter hereof and supersede all prior agreements and undertakings, both written and oral, among the Parties with respect to the subject matter hereof and thereof. Except as amended by this Amendment, the Liquidation Agreement shall continue in full force and effect. 5. This Amendment may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. 6. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Liquidation Agreement. 7. The provisions of this Amendment shall be binding upon and inure to the benefit of the Parties and their respective heirs, executors, successors and permitted assigns. [SIGNATURES APPEAR ON THE NEXT PAGE] [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the Parties hereto have executed this Amendment as of the date first above written. GLORIA SOLAR (DELAWARE) COMPANY, LTD. SPIRE CORPORATION By: /s/ Sam Wu By: /s/ Rodger W. LaFavre ---------------- ------------------------ Rodger W. LaFavre Its: Its: Chief Operating Officer Date: June 2, 2009 Date: June 2, 2009 GLORIA SOLAR CO., LTD. GLORIA SPIRE SOLAR, LLC By: /s/ Sam Wu By: /s/ Sam Wu ---------------- ---------------- Its: CEO Its: CEO Date: June 2, 2009 Date: June 2, 2009 EX-10.AF 4 exh10af_16546.txt AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT EXHIBIT 10(af) -------------- AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this "Agreement") is entered into as of June 22, 2009, with an Effective Date as of May 31, 2009 (the "Effective Date") by and 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"). This Agreement amends and restates in its entirety (i) that certain Loan and Security Agreement, dated as of March 31, 2008, as amended by a certain Waiver and First Loan Modification Agreement dated May 13, 2008, and as further amended by a certain Second Loan Modification Agreement, dated as of April 8, 2009 (collectively, the "Prior Revolving Loan Agreement") and (ii) that certain Loan and Security Agreement dated as of May 25, 2007, between Borrower and Bank, as amended by a certain First Loan Modification Agreement dated as of March 31, 2008, and as further amended by a certain Second Loan Modification Agreement, dated as of May 13, 2009 (collectively, the "Prior Equipment Line Loan Agreement", and together with the Prior Revolving Loan Agreement, the "Prior Loan Agreement"). 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, jointly and severally, 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. 2.1.5 Equipment Loan. (a) Payments. Borrower is obligated to the Bank for the Equipment Advance (as defined in the Second Amendment to the Prior Equipment Loan Agreement and defined herein as the "Equipment Loan"), made by Bank to Borrower pursuant to the Prior Equipment Loan Agreement. Borrower acknowledges that, as of the Effective Date, the outstanding principal amount of the Equipment Loan is approximately $1,263,900.00. Borrower acknowledges there is no availability under the Equipment Loan, and no other advances in respect of the Equipment Loan will be made hereunder. Borrower shall continue to pay the Equipment Loan in equal monthly installments of principal of $97,222.22, plus accrued interest, and with a final payment of all remaining principal amounts outstanding under the Equipment Loan and accrued interest thereon on or before June 10, 2010. The Equipment Loan, when repaid, may not be reborrowed. (b) Mandatory Prepayment Upon an Acceleration. If the Equipment Loan is accelerated following the occurrence of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal plus accrued and unpaid interest on the Equipment Loan and (ii) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts. -2- (c) Prepayment. So long as no Event of Default has occurred and is continuing, Borrower shall have the option to prepay all, but not less than all, of the Equipment Loan, provided Borrower (i) delivers written notice to Bank of its election to prepay the Equipment Loan at least thirty (30) days prior to such prepayment, and (ii) pays, on the date of such prepayment (A) all outstanding principal plus accrued and unpaid interest and (B) all other sums, if any, that shall have become due and payable, including interest at the Default Rate with respect to any past due amounts. 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; (i) 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 and three-quarters percent (1.75%); provided, however, that during a Net Income Threshold Period, 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 three-quarters percent (0.75%). (ii) Equipment Loan. Subject to Section 2.3(b), the principal amount outstanding under the Equipment Loan shall accrue interest at a floating per annum rate equal to the Prime Rate plus one and three-quarters percent (1.75%), which interest shall be payable monthly in accordance with Section 2.3(f) below. (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. (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 Sixty Seven Thousand Five Hundred Dollars ($67,500.00), payable on the Effective Date; -3- (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. 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 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) duly executed revised Perfection Certificates; (f) a landlord's consent executed by each landlord of the Borrower, as required by Bank, in favor of Bank; (g) Borrower shall have delivered a bailee's/warehouseman's waiver executed by each bailee, if any, of Borrower as required by Bank, in favor of Bank; (h) a legal opinion of Borrower's counsel dated as of the Effective Date together with the duly executed original signatures thereto; (i) 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 (j) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof. -4- 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 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 or the EXIM Loan 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. Notwithstanding the foregoing, it is expressly acknowledged and agreed that the security interest created in this Agreement only with respect to Export-Related Accounts Receivable, Export-Related Inventory and Export-Related General Intangibles (as such terms are defined in the EXIM Loan Agreement) is subject to and subordinate -5- to the security interest granted to Bank in the EXIM Loan Agreement with respect to such Export-Related Accounts Receivable, Export-Related Inventory and Export-Related General Intangibles. 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 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. -6- 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). 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. -7- 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. (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. -8- 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, bi-weekly on the 15th day (or, if not a Business Day, the Business Day immediately preceding the 15th day) and the last Business Day of each month), 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 for accounts under both this agreement and the EXIM Loan Agreement (aged by invoice date), and the general ledger, (D) monthly inventory reports for Inventory under both this Agreement and the EXIM Agreement, 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) as soon as available, and in any event within sixty (60) days after 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 and as amended or modified, together with any related business forecasts used in the preparation of such annual financial projections; (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; and (vii) as soon as available, and in any event within fifteen (15) days after the end of each month (or more frequently upon Bank's request), copies of account statements for any Deposit Accounts, Securities Accounts or Commodity Accounts of Borrower held at financial institutions other than Bank (for clarity, Borrower is permitted to maintain its accounts only in accordance with Section 6.8 hereof). (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 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 endorsements, 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 -9- 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 greater than or equal to Five Million Dollars ($5,000,000.00), 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 pay, 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. 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, or at the direction of EXIM Bank), 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 $850 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, -10- 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' 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, N.A., provided that the balance in such account shall at no time exceed Twenty Five Thousand Dollars ($25,000); provided further, that such balance in such account may exceed such amount only with the prior- written consent of the Bank, granted in Bank's sole discretion, on a case-by-case basis; (ii) Borrower is permitted to maintain Spire Corporation's account no. 113759-490-7 with RBS Citizens, National Association (the "Spire RBS Account"); provided that (A) the balance in the Spire RBS Account shall at no time exceed Twenty Five Thousand Dollars ($25,000); provided further, that such balance in the Spire RBS Account may exceed such amount only with the prior-written consent of the Bank, granted in Bank's sole discretion, on a case-by-case basis; and (B) as soon as possible, and in any event no later than September 30, 2009, Borrower shall provide Bank with evidence satisfactory to Bank, in its sole discretion, that Borrower has closed the Spire RBS Account, and the proceeds of such Spire RBS Account shall have been transferred to an account maintained at Bank. Notwithstanding the foregoing, prior to the closure of the Spire RBS Account, if any Account Debtors remit funds or payments to the Spire RBS Account (including, without limitation, Hyundai Heavy Industries Co., Ltd., Aesculap AG, TATA BP Solar India Ltd., Ormco Corporation and Zimmer Inc.), such funds or payments shall be held in trust for Bank, and Borrower shall promptly, and in any event within forty-eight (48) hours of receipt thereof, transfer all such funds and/or payments to an account of Borrower maintained at Bank in accordance with Section 6.3(c) hereof; in the event Borrower timely complies with foregoing transfer requirements, any such additional amounts in such Spire RBS Account shall not be deemed to cause a violation of the Dollar-balance limitation described in clause (ii)(A) above. (iii) Borrower is permitted to maintain Spire Semiconductor, LLC's account no. 330400-908-8 with RBS Citizens, National Association; provided that (A) on a weekly basis, on the last Business Day of each week, and in any event when the aggregate balance in such account exceeds One Hundred Thousand Dollars ($100,000), transfer such excess amounts in such account to Bank for deposit into such account as Bank shall specify; and (B) as soon as possible, and in any event not later than August 31, 2009, Borrower shall provide Bank with evidence satisfactory to Bank, in its sole discretion, that Borrower has closed such account, and the proceeds of -11- such account shall have been transferred to an account maintained at Bank. In any event, Borrower shall promptly notify its Account Debtors to remit payments to Borrower's Collateral Account maintained at Bank; and (iv) Each of Spire Corporation and Spire Semiconductor, LLC is permitted to open one (1) new account at RBS Citizens, National Association or Bank of America, N.A. provided that the balance in each such Deposit Account shall at no time exceed Twenty Five Thousand Dollars ($25,000) per account. (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 (other than the accounts described in clauses (a)(i) through (a)(iv) above), 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. Borrower shall maintain at all times, to be certified by the Borrower as of the last day of each month, unless otherwise noted, on a consolidated basis with respect to Borrower and its Subsidiaries: (a) Minimum Tangible Net Worth. Tangible Net Worth of not less than (i) from April 30, 2009 through May 31, 2009, Eight Million Five Hundred Thousand Dollars ($8,500,000.00), (ii) from June 1, 2009 through June 30, 2009, Ten Million Dollars ($10,000,000.00), (iii) from July 1, 2009 through and including August 31, 2009, Eleven Million Dollars ($11,000,000.00), and (iv) from September 1, 2009 and each monthly period thereafter, Twelve Million Dollars ($12,000,000.00), which requirements shall increase by an amount equal to sixty percent (60%) of proceeds received by the Borrower from the issuances of equity after the Effective Date and the principal amount of Subordinated Debt. (b) Minimum Liquidity. A minimum Liquidity of not less than Four Million Dollars ($4,000,000.00) at any time. 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 -12- 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 ($10,000.00) 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 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; 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; and -13- 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 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 Extensions 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 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); -14- 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; 8.10 EXIM Guarantee. If the EXIM Guarantee ceases for any reason to be in full force and effect, or if the EXIM Bank declares the EXIM Guarantee void or revokes any obligations under the EXIM Guarantee; 8.11 EXIM Default. After the effective date of the EXIM Agreement, the occurrence of an Event of Default under the EXIM Agreement or the EXIM Loan Documents; or 8.12 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 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 -15- 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 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, -16- 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 (collectively, "Communication"), other than Advance requests made pursuant to Section 3.4, by any party to this Agreement or any other Loan Document must be in writing and be delivered or sent by facsimile at the addresses or facsimile numbers listed below. Bank or Borrower may change its notice address by giving the other party written notice thereof. Each such Communication 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, registered or certified mail, return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by facsimile transmission (with such facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 10); (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 or facsimile number indicated below. Advance requests made pursuant to Section 3.4 must be in writing and may be in the form of electronic mail, delivered to Bank by Borrower at the e-mail address of Bank provided below and shall be deemed to have been validly served, given, or delivered when sent (with such electronic mail promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 10). Bank or Borrower may change its address, facsimile number, or electronic mail address by giving the other party written notice thereof in accordance with the terms of this Section 10. -17- If to Borrower: Spire Corporation Spire Semiconductor, LLC Spire Solar, Inc. Spire Biomedical, Inc. c/o 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: Mr. Jay Tracy Fax: 617.969.4395 Email: jtracy@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. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALL SPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK'S RIGHTS AGAINST BORROWER OR ITS PROPERTY. 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. -18- 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 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. Thirty Thousand Dollars ($30,000)); 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 shall continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (including, without limitation, Obligations incurred under the EXIM Loan Agreement) (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 -19- 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 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 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 jointly and severally 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 12.11 shall be null and void. If any payment is made to a Borrower in contravention of this Section 12.11, 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. 12.12 Borrower Agreement; Cross-Collateralization; Cross-Default; Conflicts. Both this Agreement and the Borrower Agreement shall continue in full force and effect, and all rights and remedies under this Agreement and the Borrower Agreement are cumulative. The term "Obligations" as used in this Agreement and in the Borrower Agreement shall include without limitation the obligation to pay when due all loans made pursuant to the Borrower Agreement (the "EXIM Loans") and all interest thereon and the obligation to pay when due all Advances made pursuant to the terms of this Agreement and all interest thereon. Without limiting the generality of the foregoing, the security interest granted herein covering all "Collateral" as defined in this Agreement and as defined in the Borrower Agreement shall secure all EXIM Loans and all Advances and all interest thereon, and all other Obligations. Any Event of Default under this Agreement shall also constitute a default under the Borrower Agreement, and any default under the Borrower Agreement shall also constitute an Event of Default under this Agreement. In the event Bank assigns its rights under this Agreement and/or under any note evidencing EXIM Loans and/or its rights under the Borrower Agreement and/or under any note evidencing Advances, to any third party, including, without limitation, the EXIM Bank, whether before or after the occurrence of any Event of Default, Bank shall have the right (but not any obligation), in its sole discretion, to allocate and apportion Collateral to the Borrower Agreement and/or note assigned and to specify the priorities of the respective security interests in such Collateral between itself and the assignee, all without notice to or consent of the Borrower. Should any term of the Agreement conflict with any term of the Borrower Agreement, the more restrictive term in either agreement shall govern Borrower. 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 -20- 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. "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 Agreement" is defined in the EXIM Loan Agreement. "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 eighty percent (80%) of Eligible Accounts, 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. -21- "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. "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. -22- "Dollars," "dollars" and "$" each mean lawful money of the United States. "Effective Date" is the May 31, 2009. "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; (d) Accounts billed and/or payable outside of the United States; (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); -23- (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; (t) Accounts for which Bank in its good faith business judgment determines collection to be doubtful; and (u) without the prior written approval of Bank, in its sole discretion, Accounts of Spire Semiconductor, LLC. "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. "ERISA" is the Employee Retirement Income Security Act of 1974, and its regulations. "Event of Default" is defined in Section 8. "EXIM Availability Amount" is the Availability Amount as such term is defined in the EXIM Loan Agreement. "EXIM Loans" is defined in Section 12.17. "EXIM Loan Agreement" is that certain Export-Import Loan and Security Agreement by and between Bank and the Borrower, executed as of the date hereof. "EXIM Loan Documents" are all documents and agreements executed in connection with the EXIM Loan Agreement, including, without limitation, the EXIM Borrower Agreement and the EXIM Promissory Note, as each may be amended from time to time. "Foreign Currency" means lawful money of a country other than the United States. "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. -24- "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 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" is, as of any date of measurement, Borrower's (i) unrestricted cash at Bank plus (ii) the Availability Amount plus (iii) the EXIM Availability Amount". "Liquidity Event" is, as of any date of measurement, the occurrence of either (i) Borrower's unrestricted cash held at Bank is less than the aggregate outstanding Obligations owed by Borrower to Bank OR (ii) Borrower's Net Income for the trailing six (6) months then ended is less than One Hundred Thousand Dollars ($100,000). -25- "Loan Documents" are, collectively, this Agreement, the EXIM Loan Documents, 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. "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. "Net Income Threshold Period" is the period beginning with the month following the date that Borrower provides evidence satisfactory to Bank, in its sole discretion, that Borrower has maintained Net Income, based on a trailing three (3) month period ending on the date of measurement, of at least One Dollar ($1.00) (the "Net Income Threshold") and ending on the earlier of (i) the occurrence of an Event of Default, (ii) the first day after which Bank determines, in its sole discretion, that Borrower has failed to maintain the Net Income Threshold; or (iii) the date that Borrower actually failed to maintain the Net Income Threshold, as Bank shall determine, in its sole discretion, based on the Borrower's Compliance Certificate and financial statements delivered in accordance with Section 6.2 hereof. "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, the EXIM 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, including, without limitation, the EXIM Loan Agreement; (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; -26- (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, for which no further Investments shall be permitted) not to exceed Twenty Five Thousand Dollars ($25,000.00) 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; (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 -27- 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. "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 Three Million Dollars ($3,000,000). "Revolving Line Maturity Date" is May 31, 2010. "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. -28- "Subsidiary" means, with respect to any Person, any Person of which more than fifty percent (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. "Tangible Net Worth" is, on any date, the consolidated total assets of Borrower minus (a) any amounts attributable to (i) goodwill, (ii) intangible items including unamortized debt discount and expense, patents, trade and service marks and names, copyrights and research and development expenses except prepaid expenses, (iii) notes, accounts receivable and other obligations owing to Borrower from its officers or other Affiliates, and (iv) reserves not already deducted from assets, minus (b) Total Liabilities, plus (c) Subordinated Debt plus (d) outstanding preferred stock (including, without limitation, outstanding preferred warrants) of the Borrower. "Total Liabilities" is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness. "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.] -29- 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 Dufresne Title: President and Chief Executive Officer Title: Treasurer and Chief Financial Officer SPIRE SOLAR, INC. By: /s/ Roger G. Little By: /s/ Christian Dufresne ------------------------------ ----------------------- Name: Roger G. Little Name: Christian Dufresne Title: President and Chief Executive Officer Title: Treasurer and Chief Financial Officer SPIRE BIOMEDICAL, INC. By: /s/ Roger G. Little By: /s/ Christian Dufresne ------------------------------ ----------------------- Name: Roger G. Little Name: Christian Dufresne Title: President and Chief Executive Officer Title: Treasurer and Chief Financial Officer SPIRE SEMICONDUCTOR, LLC f/k/a BANDWIDTH 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 Dufresne Title: President and Chief Executive Office Title: Treasurer and Chief Financial Officer BANK: SILICON VALLEY BANK By: /s/ Jay T. Tracy ----------------------- Name: Jay T. Tracy Title: Vice President Effective Date: June 22, 2009
EX-10.AG 5 exh10ag_16546.txt EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT EXHIBIT 10(ag) -------------- EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT THIS EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT (this "EXIM Agreement") entered into as of June 22, 2009, with an effective date of May 31, 2009 (the "Effective Date") by and 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 will lend to Borrower and Borrower will repay Bank. The parties agree as follows: 1. ACCOUNTING AND OTHER TERMS -------------------------- (a) Borrower and Bank are parties to that certain Amended and Restated Loan and Security Agreement dated as of the date hereof (as may be amended from time to time, the "Domestic Agreement"), together with related documents executed in conjunction therewith, (as may be amended from time to time, the "Domestic Loan Documents"). (b) Borrower and Bank desire in this EXIM Agreement to set forth their agreement with respect to a working capital facility to be guaranteed by the EXIM Bank. (c) Accounting terms not defined in this EXIM Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this EXIM Agreement shall have the meanings set forth in Section 13 of the Domestic Agreement. All other terms contained in this EXIM 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, jointly and severally, 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 EXIM Agreement. 2.1.1 Revolving EXIM Advances. (a) Availability. Subject to the terms and conditions of this EXIM Agreement and to deduction of Reserves, Bank will make EXIM Advances to Borrower up to the Availability Amount. Amounts borrowed under the Revolving Line 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 earlier of (i) the Revolving Line Maturity Date or (ii) the termination of the Domestic Agreement, when the principal amount of all EXIM 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) Letters of Credit. Subject to the terms of this EXIM Agreement, Bank shall issue or have issued Letters of Credit for Borrower's account. 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 reimburse Bank for all drawings made under Letters of Credit immediately upon the date of such drawing. 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. Borrower agrees to execute any further documentation in connection with the Letters of Credit as Bank may reasonably request. 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 EXIM Agreement, such Letters of Credit, and the Letter of Credit Application. (b) Maximum Amount. The maximum face amount of all Letters of Credit issued hereunder, together with the aggregate amount of outstanding Credit Extensions made pursuant to Section 2.1.1, shall not exceed the Revolving Line. 2.2 Overadvances. If at any time or for any reason the total of all outstanding Credit Extensions made pursuant to this EXIM Agreement exceeds the Availability Amount (such excess amount being an "Overadvance"), Borrower shall immediately pay the amount of the excess to Bank, without notice or demand. Without limiting Borrower's obligation to repay to Bank the amount of any 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; EXIM 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 and three-quarters percent (1.75%); provided, however, that beginning with the month following the date that Borrower provides evidence satisfactory to Bank, in its sole discretion, that Borrower has maintained Net Income, based on the trailing three (3) month period ending on the date of measurement, of at least One Dollar ($1.00), then, 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 three-quarters percent (0.75%). (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. (e) Debit of Accounts. Bank may debit 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 Day's interest, at the interest rate applicable to the EXIM Advances, 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 be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to Bank in its reasonable 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, payable in accordance with the terms and conditions of the Domestic Agreement; (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; and -2- (c) Bank Expenses. All Bank Expenses (including reasonable and documented attorneys' fees and expenses for documentation and negotiation of this EXIM Agreement) incurred through and after the Effective Date, when due. 2.5 Use of Proceeds. Borrower will use the proceeds of the EXIM Advances only for the purposes specified in the EXIM Borrower Agreement. Borrower will not use the proceeds of the EXIM Advances for any purpose prohibited by the EXIM Borrower Agreement. 2.6 EXIM Guaranty. To facilitate the financing of Eligible EXIM Accounts, the EXIM Bank has agreed to guarantee the EXIM Loans made under this EXIM Agreement, pursuant to a Master Guarantee Agreement, Loan Authorization Agreement and (to the extent applicable) Delegated Authority Letter Agreement (collectively, the "EXIM Guaranty"). If, at any time after the EXIM Guaranty has been entered into by Bank, for any reason other than due to any action or inaction of Borrower under the EXIM Guaranty, (a) the EXIM Guaranty shall cease to be in full force and effect, or (b) if the EXIM Bank declares the EXIM Guaranty void or revokes any obligations thereunder or denies liability thereunder, Borrower shall immediately repay all outstanding EXIM Advances hereunder, and Borrower shall cash collateralize all issued and undrawn letters of credit issued by Bank, if any. If, at any time after the EXIM Guaranty has been entered into by Bank, for any reason other than as described in the foregoing sentence, (x) the EXIM Guaranty shall cease to be in full force and effect, or (y) the EXIM Bank declares the EXIM Guaranty void or revokes any obligations thereunder or denies liability thereunder, any such event shall constitute an Event of Default under this EXIM Agreement. Nothing in any confidentiality agreement, in this EXIM Agreement or in any other agreement, shall restrict Bank's right to make disclosures and provide information to the EXIM Bank in connection with the EXIM Guaranty. 2.7 EXIM Borrower Agreement. Borrower shall execute and deliver a Borrower Agreement, in the form specified by the EXIM Bank (attached hereto as Annex A), in favor of Bank and the EXIM Bank, together with an amendment thereto approved by the EXIM Bank to conform certain terms of such Borrower Agreement to the terms of this EXIM Agreement (as amended, the "EXIM Borrower Agreement"). When the EXIM Borrower Agreement is entered into by Borrower and the EXIM Bank and delivered to Bank, this EXIM Agreement shall be subject to all of the terms and conditions of the EXIM Borrower Agreement, all of which are hereby incorporated herein by this reference. From and after the time Borrower and the EXIM Bank have entered into the EXIM Borrower Agreement and delivered the same to Bank, Borrower expressly agrees to perform all of the obligations and comply with all of the affirmative and negative covenants and all other terms and conditions set forth in the EXIM Borrower Agreement as though the same were expressly set forth herein. In the event of any conflict between the terms of the EXIM Borrower Agreement (if then in effect) and the other terms of this EXIM Agreement, whichever terms are more restrictive shall apply. Borrower acknowledges and agrees that it has received a copy of the Loan Authorization Agreement which is referred to in the EXIM Borrower Agreement. If the EXIM Borrower Agreement is entered into by Borrower and the EXIM Bank and delivered to Bank, Borrower agrees to be bound by the terms of the Loan Authorization Agreement, including, without limitation, by any additions or revisions made prior to its execution on behalf of EXIM Bank. Upon the execution of the Loan Authorization Agreement by EXIM Bank and Bank, it shall become an attachment to the EXIM Borrower Agreement. Borrower shall reimburse Bank for all fees and all out of pocket costs and expenses incurred by Bank with respect to the EXIM Guaranty and the EXIM Borrower Agreement, including, without limitation, all facility fees and usage fees, and Bank is authorized to debit any of Borrower's deposit accounts with Bank for such fees, costs and expenses when paid by Bank. 2.8 Withholding. Payments received by Bank from Borrower hereunder will be made free and clear of any withholding taxes. Specifically, however, if at any time any governmental authority, applicable law, regulation or international agreement requires Borrower to make any such withholding or deduction from any such payment or other sum payment hereunder to Bank, Borrower hereby covenants and agrees that the amount due from Borrower with respect to such payment or other sum payable hereunder will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction, Bank receives a net sum equal to the sum which it would have received had no withholding or deduction been required and Borrower shall pay the full amount withheld or deducted to the relevant governmental authority. Borrower will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower has made such withholding payment provided, however, that Borrower need not make any withholding payment if the amount or validity of such withholding payment is contested in good faith by appropriate and timely proceedings and as to which payment in full is bonded or reserved against by Borrower. The agreements and obligations of Borrower contained in this Section 2.8 shall survive the termination of this Agreement. -3- 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 Bank shall have received, 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) the Economic Impact Certification, Loan Authorization Notice and EXIM Bank Application Form, in each case duly executed and together with original signatures, as applicable; (c) duly executed original signatures to the completed Borrowing Resolutions for Borrower; (d) a legal opinion of Borrower's counsel dated as of the Effective Date together with the duly executed original signatures thereto; (e) payment of the fees and Bank Expenses then due as specified in Section 2.4 hereof; and (f) delivery of all such other documents as Bank reasonably deems necessary or appropriate. 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) timely receipt of any export purchase order and an EXIM Borrowing Base Certificate relating to the request; (b) except as otherwise provided in Section 3.4, timely receipt of an executed Transaction Report; (c) 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; (d) in Bank's sole discretion, since the date of this EXIM Agreement, there has not been any material impairment in the general affairs, management, results of operation, 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; and (e) the EXIM Guaranty shall be in full force and effect. 3.3 Covenant to Deliver. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this EXIM A 3.4 greement as a condition to any Credit Extension. Borrower expressly agrees that the extension of a Credit Extension 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 extension in the absence of a required item shall be in Bank's reasonable discretion. 3.5 Procedures for Borrowing. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this EXIM Agreement, to obtain an EXIM Advance, 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 EXIM Advance. Together with such notification, Borrower must promptly deliver to Bank by electronic mail or facsimile a completed Transaction Report (if required) executed by a Responsible Officer or his or her designee. Bank shall credit EXIM Advances to the Designated Deposit Account. Bank may make Advances under this EXIM 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- 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 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 EXIM 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 EXIM Agreement, with such writing to be in form and substance reasonably satisfactory to Bank. Notwithstanding the foregoing, it is expressly acknowledged and agreed that the security interest created in this EXIM Agreement in all of the Collateral (with the exception of Export-Related Accounts Receivable, Export-Related Inventory and Export-Related General Intangibles) is subject to and subordinate to the security interest granted to Bank in the Domestic Agreement and the security interest created in the Domestic Agreement with respect to such Export-Related Accounts Receivable, Export-Related Inventory and Export-Related General Intangibles is subject to and subordinate to the security interest granted to Bank in this EXIM Agreement with respect to such Export-Related Accounts Receivable, Export-Related Inventory and any Export-Related General Intangibles. 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 ------------------------------ Borrower represents and warrants as follows: 5.1 Domestic Loan Documents. The representations and warranties contained in the Domestic Loan Documents, which are incorporated into this EXIM Agreement by reference, are true and correct, and shall survive the termination of the Domestic Agreement. 5.2 EXIM Borrower Agreement. The representations and warranties contained in the EXIM Borrower Agreement, which are incorporated by reference into this EXIM Agreement, are true and correct in all material respects. 5.3 Accounts Receivable. (a) For each Account with respect to which EXIM Advances are requested, on the date each EXIM Advance is requested and made, such Account shall meet the Minimum EXIM Eligibility Requirements set forth in Section 13 below. (b) All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the 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. All sales and other transactions underlying or giving rise to each 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 an Eligible EXIM Account in any EXIM Borrowing Base Certificate. To Borrower's knowledge, all signatures and endorsements on all documents, instruments, and agreements relating to all Accounts are genuine, and all such documents, instruments and agreements are legally enforceable in accordance with their terms. -5- 6. AFFIRMATIVE COVENANTS --------------------- Borrower shall do all of the following: 6.1 Domestic Loan Documents. Borrower shall comply in all material respects with the terms and provisions of the Domestic Loan Documents, which terms and provisions are incorporated into this EXIM Agreement and shall survive the termination of the Domestic Agreement, which shall include, without limitation, compliance with the financial reporting requirements set forth in the Domestic Agreement and the financial covenants set forth in the Domestic Agreement. 6.2 EXIM Borrower Agreement. Borrower shall comply with all of the terms of the EXIM Borrower Agreement, including without limitation, the delivery of an EXIM Borrowing Base Certificate within five (5) days after the end of each week (monthly, within five (5) days after the end of each month during a Streamline Period) any and all notices required pursuant to the EXIM Borrower Agreement. In the event of any conflict or inconsistency between any provision contained in the EXIM Borrower Agreement with any provision contained in this EXIM Agreement, the more strict provision, with respect to Borrower, shall control. 6.3 Terms of Sale. Borrower will, if required by EXIM Bank or Bank, cause all sales of products on which Credit Extensions are based to be (i) supported by one or more irrevocable letters of credit in an amount and of a matter, naming a beneficiary and issued by a financial institution acceptable to Bank and negotiated by Bank. 6.4 Reporting Requirements. Borrower shall deliver all reports, certificates and other documents to Bank as provided in the EXIM Borrower Agreement, including, without limitation, an EXIM Borrowing Base Certificate on a monthly basis, purchase orders and any other information that Bank and EXIM Bank may reasonably request. In addition, Borrower shall comply with the reporting requirements set forth in the Domestic Loan Documents. 6.5 EXIM Insurance. If required by Bank, Borrower will obtain, and pay when due all premiums with respect to, and maintain uninterrupted foreign credit insurance. In addition, if requested by Bank, Borrower will execute in favor of Bank an assignment of proceeds of any insurance policy obtained by Borrower and issued by EXIM Bank insuring against comprehensive commercial and political risk (the "EXIM Bank Policy"). The insurance proceeds from the EXIM Bank Policy assigned or paid to Bank will be applied to the balance outstanding under this EXIM Agreement. Borrower will immediately notify Bank and EXIM Bank in writing upon submission of any claim under the EXIM Bank Policy. 6.6 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 EXIM Agreement. 7. NEGATIVE COVENANTS ------------------ Borrower shall not do any of the following without Bank's prior written consent: 7.1 Domestic Loan Documents. Violate or otherwise fail to comply with any provisions of the Domestic Loan Documents, which provisions are incorporated into this EXIM Agreement by reference, and shall survive the termination of Domestic Agreement. 7.2 EXIM Borrower Agreement. Violate or otherwise fail to comply with any provision of the EXIM Borrower Agreement, including, without limitation, the negative covenants set forth therein. 7.3 EXIM Guaranty. Take any action, or permit any action to be taken, that causes or, with the passage of time, could cause, the EXIM Guaranty to cease to be in full force and effect. 8. EVENTS OF DEFAULT ----------------- Any one of the following shall constitute an event of default (an "Event of Default") under this EXIM 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 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); -6- 8.2 Covenant Default. (a) Borrower fails or neglects to perform any obligation in 7; or (b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this EXIM 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 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 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); 8.4 Domestic Default. The occurrence of an Event of Default under the Domestic Loan Documents. The terms and provisions of Sections 6.2, 6.3, 6.4, 6.5, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 and Section 7 of the Domestic Agreement (including the cure provisions for such Sections contained in Section 8.2 thereof) are hereby incorporated by reference and shall survive the termination of the Domestic Agreement. 8.5 EXIM Guaranty. If the EXIM Guaranty ceases for any reason to be in full force and effect, or if the EXIM Bank declares the EXIM Guaranty void or revokes any obligations under the EXIM Guaranty. 9. BANK'S RIGHTS AND REMEDIES -------------------------- 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 to the extent not prohibited by applicable law: (a) declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.3 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 EXIM Agreement or under any other agreement between Borrower and Bank; (c) demand that Borrower (i) deposit 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) 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; (e) 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; (f) 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; -7- (g) 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; (h) 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; (i) demand and receive possession of Borrower's Books; and (j) 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 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 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 Accounts Collection. When an Event of Default occurs and continues, Bank may notify any Person owing Borrower money of Bank's security interest in the funds and verify the amount of the Account. Borrower must collect all payments in trust for Bank and, if requested by Bank, immediately deliver the payments to Bank in the form received from the account debtor, with proper endorsements for deposit. 9.4 Protective Payments. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this EXIM 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. 9.5 Application of Payments and Proceeds. Unless an Event of Default has occurred and is continuing, Bank may apply any funds in its possession, whether from Borrower account balances, payments, or proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, first, to Bank Expenses, including without limitation, the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Bank in the exercise of its rights under this EXIM Agreement; second, to the interest due upon any of the Obligations; and third, to the principal of the Obligations and any applicable fees and other charges, in such order as Bank shall determine in its sole discretion. Any surplus shall be paid to Borrower or other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. 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 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. -8- 9.6 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. 9.7 No Waiver; Remedies Cumulative. Bank's failure, at any time or times, to require strict performance by Borrower of any provision of this EXIM 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 EXIM 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. 9.8 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. 9.9 EXIM Direction. Upon the occurrence of an Event of Default, EXIM Bank shall have right to (i) direct Bank to exercise the remedies specified in Section 9.1 hereof and (ii) request that Bank accelerate the maturity of any other loans to Borrower. 9.10 EXIM Notification. Bank has the right to immediately notify EXIM Bank in writing if it has knowledge of any of the following events: (1) any failure to pay any amount due under this EXIM Agreement; (2) the EXIM Borrowing Base is less than the sum of the outstanding Credit Extensions; (3) any failure to pay when due any amount payable to Bank under any Loan Documents owing by Borrower to Bank; (4) the filing of an action for debtor's relief by, against or on behalf of Borrower; or (5) any threatened or pending material litigation against Borrower, or any material dispute involving Borrower. If Bank sends a notice to EXIM Bank, Bank has the right to send EXIM Bank a written report on the status of events covered by the notice every thirty (30) days after the date of the original notification, until Bank files a claim with EXIM Bank or the defaults have been cured (but no EXIM Advances may be required during the cure period unless EXIM Bank gives its written approval). If directed by EXIM Bank, Bank will have the right to exercise any rights it may have against the Borrower to demand the immediate repayment of all amount outstanding under the EXIM Loan Documents. 10. NOTICES ------- All notices, consents, requests, approvals, demands, or other communication (collectively, "Communication"), other than EXIM Advance requests made pursuant to Section 3.4, by any party to this EXIM Agreement or any other Loan Document must be in writing and be delivered or sent by facsimile at the addresses or facsimile numbers listed below. Bank or Borrower may change its notice address by giving the other party written notice thereof. Each such Communication 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, registered or certified mail, return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by facsimile transmission (with such facsimile promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 10); (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 or facsimile number indicated below. EXIM Advance requests made pursuant to Section 3.4 must be in writing and may be in the form of electronic mail, delivered to Bank by Borrower at the e-mail address of Bank provided below and shall be deemed to have been validly served, given, or delivered when sent (with such electronic mail promptly confirmed by delivery of a copy by personal delivery or United States mail as otherwise provided in this Section 10). Bank or Borrower may change its address, facsimile number, or electronic mail address by giving the other party written notice thereof in accordance with the terms of this Section 10. -9- If to Borrower: Spire Corporation Spire Semiconductor, LLC Spire Solar, Inc. Spire Biomedical, Inc. c/o 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: Mr. Jay Tracy Fax: 617.969.4395 Email: jtracy@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 AND JURY TRIAL WAIVER ------------------------------------------ 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 EXIM 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 EXIM 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. NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALL SPECIFICALLY HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK'S RIGHTS AGAINST BORROWER OR ITS PROPERTY. TO THE 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 EXIM AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. -10- THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS EXIM AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL. 12. GENERAL PROVISIONS ------------------ 12.1 Termination Prior to Revolving Line Maturity Date. This EXIM 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 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 EXIM Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this EXIM 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 EXIM Agreement and the other Loan Documents. 12.3 Indemnification. Borrower agrees to indemnify, defend and hold Bank and EXIM Bank and each of its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank and/or EXIM 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 EXIM Agreement. 12.5 Severability of Provisions. Each provision of this EXIM 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 the Loan Documents consistent with the agreement of the parties. 12.7 Amendments in Writing; Integration. All amendments to this EXIM Agreement must be in writing signed by both Bank and Borrower. This EXIM 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 EXIM Agreement and the Loan Documents merge into this EXIM Agreement and the Loan Documents. 12.8 Counterparts. This EXIM 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 EXIM Agreement. 12.9 Survival. All covenants, representations and warranties made in this EXIM Agreement continue in full force until this EXIM 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 EXIM 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 any prospective transferee's or purchaser's agreement to the terms of this provision that any prospective transferee or purchaser shall have entered -11- into an agreement containing provisions substantially the same as those in this Section 12.9); (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 EXIM 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 is 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. 12.11 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 jointly and severally 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 EXIM 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 EXIM 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 EXIM 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 EXIM Agreement or otherwise but only until such time as the Bank has been paid in full. Any agreement providing for indemnification, reimbursement or any other arrangement prohibited under this Section 12.11 shall be null and void. If any payment is made to a Borrower in contravention of this Section 12.11, 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. 12.12 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. 12.13 EXIM Borrower Agreement; Cross-Collateralization; Cross-Default; Conflicts. Both this EXIM Agreement and the EXIM Borrower Agreement shall continue in full force and effect, and all rights and remedies under this EXIM Agreement and the EXIM Borrower Agreement are cumulative. The term "Obligations" as used in this EXIM Agreement and in the EXIM Borrower Agreement shall include without limitation the obligation to pay when due all loans made pursuant to the EXIM Borrower Agreement (the "EXIM Loans") and all interest thereon and the obligation to pay when due all EXIM Advances made pursuant to the terms of this EXIM Agreement and all interest thereon. Without limiting the generality of the foregoing, the security interest granted herein covering all "Collateral" as defined in this EXIM Agreement and as defined in the EXIM Borrower Agreement shall secure all EXIM Loans and all EXIM Advances and all interest thereon, and all other Obligations. Any Event of Default under this EXIM Agreement shall also constitute a default under the EXIM Borrower Agreement, and any default under the EXIM Borrower Agreement shall also constitute an Event of Default under this EXIM Agreement. In the event Bank assigns its rights under this EXIM Agreement and/or under any note evidencing EXIM Loans and/or its rights under the EXIM Borrower Agreement and/or under any note evidencing Advances, to any third party, including, without limitation, the EXIM Bank, whether before or after the occurrence of any Event of Default, Bank shall have the right (but not any obligation), in its sole discretion, to allocate and apportion Collateral to the EXIM Borrower Agreement and/or note assigned and to specify the priorities of the respective security interests in such Collateral between itself and the assignee, all without notice to or consent of the Borrower. Should any term of the EXIM Agreement conflict with any term of the EXIM Borrower Agreement, the more restrictive term in either agreement shall govern Borrower. -12- 13. DEFINITIONS ----------- 13.1 Definitions. Except as otherwise defined, terms that are capitalized in this EXIM Agreement shall have the meaning assigned in the Domestic Agreement. As used in this EXIM Agreement, the following terms have the following meanings: "Availability Amount" is (a) the lesser of (i) the Revolving Line or (ii) the EXIM Borrowing Base minus (b) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), and minus (c) the outstanding principal balance of any EXIM Advances. "Bank" is defined in the preamble hereof. "Borrower" is defined in the preamble hereof. "Buyer" is defined in the EXIM Borrower Agreement. "Capital Good" is defined in the EXIM Borrower Agreement. "Country Limitation Schedule" is defined in the EXIM Borrower Agreement "Credit Extension" is any EXIM Advance, Letter of Credit or any other extension of credit by Bank for Borrower's benefit. "Default Rate" is defined in Section 2.3(b). "Domestic Agreement" is defined in Section 1.1(a). "Domestic Loan Documents" is defined in Section 1.1(a). "Domestic Revolving Line" means the Revolving Line, as such term is defined in the Domestic Agreement. "Effective Date" is May 31, 2009. "Eligible EXIM Accounts" means Accounts arising in the ordinary course of Borrower's business from Non-U.S. Account Debtors and that meet all Borrower's representations and warranties in Section 5.3, conform in all respects to the EXIM Borrower Agreement, are denominated in U.S. Dollars payable in the United States and which Bank, in its good faith business judgment, shall deem eligible for borrowing, without limiting the fact that the determination of which Accounts are eligible for borrowing is a matter of Bank's good faith business judgment (the "Minimum EXIM Eligibility Requirements") are the minimum requirements for an Account to be an Eligible EXIM Account. Eligible EXIM Accounts shall not include: (a) Accounts that do not arise from the sale of Items in the ordinary course of Borrower's business; (b) Accounts that are not subject to a valid, perfected and enforceable first priority security in favor of Bank; (c) Accounts as to which any covenant, representation or warranty contained in the Loan Documents relating to such Account has been breached; (d) Accounts that are not owned by the Borrower, or are subject to any right, claim or interest of another party other than the Lien in favor of the Bank; (e) Accounts with respect to which an invoice has not been sent; (f) Accounts generated by the sale or provision of defense articles or services, subject to exceptions approved in writing by EXIM Bank; -13- (g) Accounts due and owing from a military Buyer, subject to exceptions approved in writing by EXIM Bank; (h) Accounts due and payable from a foreign Buyer located in a country with which EXIM Bank is legally prohibited from doing business as set forth on the Country Limitation Schedule, including Accounts (or the appropriate pro-rata portion thereof) generated from Items exported to a country that EXIM Bank may do business with as set forth in the Country Limitation Schedule, which are re-exported to a country with which EXIM Bank is legally prohibited from doing business as set forth in the Country Limitation Schedule; (i) Accounts that do not comply with the requirements of the Country Limitation Schedule; (j) Accounts that are due and payable more than one hundred eighty (180) days from the date of invoice; (k) Accounts that are not paid within sixty (60) calendar days from their original due date unless insured through EXIM Bank export credit insurance for comprehensive commercial and political risk, in which case ninety (90) days shall apply; (l) Accounts that arise from the sale of goods or performance of services for an employee, stockholder, or Subsidiary of Borrower; intra-company Accounts or any Accounts generated from a stockholder or any Person with a controlling interest in Borrower or which shares common controlling ownership with Borrower; (m) Accounts that are backed by a letter of credit where the Items covered by the subject letter of credit have not yet been shipped, or where the covered services have not yet been provided; (n) Accounts that Bank or EXIM Bank, in its reasonable judgment, deem uncollectible or unacceptable, including, without limitation, finance charges or late charges imposed on a foreign Buyer by Borrower as a result of such foreign Buyer's past due status; (o) Accounts denominated in non-U.S. Dollars, unless (i) subject to a Foreign Currency Hedge Agreement; or (ii) pre-approved in writing by EXIM Bank; (p) Accounts that do not comply with the terms of sale as set forth by EXIM Bank; (q) Accounts due and payable from a Buyer who becomes unable to pat its debts or whose ability to pay its debts becomes questionable, in the sole discretion of Bank and/or EXIM Bank; (r) Accounts arising from a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment or any other repurchase or return basis or that are evidenced by chattel paper; (s) Accounts for which the Items giving rise to such Accounts have not been shipped to the Buyer or when the Items are services, such services have not been performed or when the Export Order specifies a timing for invoicing the Items other than shipment or performance and the Items have not been invoiced in accordance with such terms of the Export Order, or the Accounts do not otherwise represent a final sale; (t) Accounts subject to any offset, deduction, defense, dispute, or counterclaim, or the Buyer is also a creditor or supplier of the Borrower, or the Accounts are contingent in any respect for any reason; (u) Accounts for which Borrower has made any agreement with the Buyer for any deduction therefrom except for discounts or allowances made in the ordinary course of business for prompt payment, all of which discounts or allowances are reflected in the calculation of the face value of each respective invoice related thereto; (v) Accounts for which any of the Items giving rise to such Accounts have been returned, rejected or repossessed; (w) Accounts that arise from the sale of Items that do not meet the EXIM Bank fifty percent (50%) U.S. Content requirement; and -14- (x) Accounts for which Bank or EXIM Bank, in each of its good faith business judgment, determines collection to be doubtful. Bank reserves the right at any time after the Effective Date to adjust the Minimum EXIM Foreign Eligibility Requirements in its good faith business judgment and establish new criteria to determine the foregoing. "Eligible EXIM Inventory" means at any time, the aggregate of Borrower's Inventory that (a) consists of (i) raw materials, (ii) work-in-process 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 of the Domestic Loan Agreement), that is intended for shipment outside the U.S., in each case that is subject to a valid Export Order. In no event shall Eligible EXIM Inventory include any Inventory: (a) that is not subject to a valid, perfected, and enforceable first priority Lien in favor of the Bank; (b) that is located at an address that has not been disclosed to the lender in writing; (c) that is not located in the United States, unless pre-approved by EXIM Bank in writing; (d) that is placed by the Borrower on consignment or held by the Borrower on consignment; (e) that is in the possession of a processor or bailee, or located on premises leased or subleased to the Borrower, or on premises subject to a mortgage in favor of a party other than the Bank, unless such processor or bailee or lessor or sublessor or mortgagee (as applicable) of such premises has executed and delivered all documentation which the Bank shall require to evidence its priority with respect to such Inventory as well as its right to gain access to such Inventory; (f) that is produced in violation of the Fair Labor Standards Act or subject to the "Hot Goods" provisions contained in 29 U.S. C. 215 or any successor statute or section; (g) as to which any covenant, representation, or warrant with respect to such Inventory contained in the Loan Documents has been breached; (h) that is an Item or is to be incorporated into Items that do not meet 50% U.S. Content requirements; (i) that is demonstration Inventory; (j) that consists of proprietary software (i.e., software designed solely for the Borrower's internal use and not intended for resale); (k) that is damaged, obsolete, returned, defective, recalled or unfit for further processing; (l) that has previously been exported from the U.S.; (m) that constitutes or will be incorporated into Items that constitute, defense articles or services; (n) that is an Item or will be incorporated into Items that will be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities unless with EXIM Bank's prior written consent; (o) that is an Item or to be incorporated into Items destined for shipment to a country with which EXIM Bank is legally prohibited from doing business as designed in the current Country Limitation Schedule, or that the Borrower has knowledge will be re-exported by a foreign Buyer to a country in which EXIM Bank is legally prohibited from doing business; -15- (p) that is an Item or is to be incorporated into Items destined for shipment to a buyer in a country in which EXIM Bank coverage is not available for commercial reasons as designated in the current Country Limitation Schedule, unless and only to the extent that such Inventory is sold to the foreign Buyer on terms of an irrevocable letter of credit confirmed by a bank acceptable to EXIM Bank; (q) that constitutes or is to be incorporated into Items whose sale would result in an Account that would not be an Eligible Export-Related Account Receivable; (r) that is included as eligible inventory under any other credit facility to which Borrower is a party; or (s) that is, or is to be incorporated into, an Item that is a Capital Good unless the transaction is in accordance with Section2 .14 "Economic Impact Approval" of the Borrower Agreement. Bank reserves the right at any time after the Effective Date to adjust the Eligible EXIM Inventory requirements in its good faith business judgment and establish new criteria to determine the foregoing. "Eligible Export-Related Accounts Receivable" is defined in the EXIM Borrower Agreement. "Event of Default" is defined in Section 8. "EXIM Advance" or "EXIM Advances" means an advance (or advances) under the Revolving Line. "EXIM Bank" means Export-Import Bank of the United States. "EXIM Borrower Agreement" is defined in Section 2.7. "EXIM Borrowing Base" is (a) ninety percent (90%) of Hedged Eligible EXIM Accounts; plus (b) seventy-five percent (75%) of all other Eligible EXIM Accounts billed in a Foreign Currency and not subject to a Foreign Currency Hedge Agreement; plus (c) the lesser of fifty percent (50%) of the value of Eligible Export Inventory (valued at the lower of cost or wholesale fair market value) or Three Million Dollars ($3,000,000) provided, however, that in no event shall Credit Extensions based on Eligible Export Inventory exceed the sum of sixty percent (60%) of all outstanding Credit Extensions under this EXIM Agreement plus the aggregate undrawn face value of all Letters of Credit, in each case as determined by Bank from Borrower's most recent EXIM Borrowing Base Certificate; provided, further, however, that Bank may decrease the foregoing amounts 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. "EXIM Borrowing Base Certificate" is that certain certificate describing the calculation of the EXIM Borrowing Base, provided to Borrower by Bank. "EXIM Guaranty" is defined in Section 2.5. "EXIM Loans" is defined in Section 12.13. "EXIM Note" is a certain Promissory Note of even date hereof, executed by Borrower in connection with this EXIM Agreement. "Export Order" is defined in the EXIM Borrower Agreement. "Export-Related Accounts Receivable" is defined in the EXIM Borrower Agreement. "Export-Related General Intangibles" is defined in the EXIM Borrower Agreement. "Export-Related Inventory" is defined in the EXIM Borrower Agreement. "Foreign Currency Hedge Agreement" means any agreement with respect to any swap, hedge, forward, future or derivative transaction or option or similar other similar agreement or arrangement, each of which is (i) for the purpose of hedging the foreign currency fluctuation exposure associated with Borrower's operations and Accounts, (ii) acceptable to Bank, in its reasonable discretion, and (iii) not for speculative purposes. -16- "Hedged Eligible EXIM Accounts" are Eligible EXIM Accounts in which (i) all invoices are denominated in Dollars, or (ii) all invoices are in foreign currencies that are subject to a Foreign Currency Hedge Agreement. "Items" is defined in the EXIM Borrower Agreement. "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(a). "Letter of Credit Application" is defined in Section 2.1.2(a). "Loan Documents" are, collectively, this EXIM Agreement, the Perfection Certificate, the Subordination Agreement, the Domestic Agreement, the Domestic Loan Documents, the EXIM Borrower Agreement, the EXIM Guaranty, the EXIM Note, 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 EXIM Agreement, all as amended, restated, or otherwise modified. "Minimum EXIM Eligibility Requirements" is defined in the defined term "Eligible EXIM Accounts". "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 EXIM Agreement, the Domestic Agreement, the other Loan Documents, or otherwise, including, without limitation, all obligations relating to letters of credit, cash management services, if any, 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. "Perfection Certificate" is defined in Section 5.1. "Prime Rate" is the greater of (i) six percent (6.00%) per annum, or (ii) Bank's most recently announced "prime rate," even if it is not Bank's lowest rate. "Revolving Line" is an EXIM Advance or EXIM Advances in an aggregate amount of up to Five Million Dollars ($5,000,000) outstanding at any time. "Revolving Line Maturity Date" is May 31, 2010. "Transfer" is defined in Section 7.1. "U.S. Content" is defined in the EXIM Borrower Agreement. [Signature page follows.] -17- IN WITNESS WHEREOF, the parties hereto have caused this EXIM 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 Dufresne Title: President and Chief Executive Officer Title: Treasurer and Chief Financial Officer SPIRE SOLAR, INC. By: /s/ Roger G. Little By: /s/ Christian Dufresne ----------------------------------- ----------------------------------- Name: Roger G. Little Name: Christian Dufresne Title: President and Chief Executive Officer Title: Treasurer and Chief Financial Officer SPIRE BIOMEDICAL, INC. By: /s/ Roger G. Little By: /s/ Christian Dufresne ----------------------------------- ----------------------------------- Name: Roger G. Little Name: Christian Dufresne Title: President and Chief Executive Officer Title: Treasurer and Chief Financial Officer SPIRE SEMICONDUCTOR, LLC f/k/a BANDWIDTH 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 Dufresne Title: President and Chief Executive Office Title: Treasurer and Chief Financial Officer BANK: SILICON VALLEY BANK By: /s/ Jay T. Tracy ----------------------------------- Name: Jay T. Tracy Title: Vice President
Effective Date: June 22, 2009 -18- EX-31.1 6 exh31-1_16546.txt 302 CERTIFICATION OF THE C.E.O. EXHIBIT 31.1 ------------ CERTIFICATION PURSUANT TO SS.302 OF THE SARBANES-OXLEY ACT OF 2002 I, Roger G. Little, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Spire Corporation (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 (the Company's fourth fiscal quarter in the case of an annual report) 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: August 14, 2009 By: /s/ Roger G. Little ------------------------------------------ Roger G. Little Chairman of the Board, Chief Executive Officer and President EX-31.2 7 exh31-2_16546.txt 302 CERTIFICATION OF THE C.F.O. EXHIBIT 31.2 ------------ CERTIFICATION PURSUANT TO SS.302 OF THE SARBANES-OXLEY ACT OF 2002 I, Christian Dufresne, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Spire Corporation (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 (the Company's fourth fiscal quarter in the case of an annual report) 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: August 14, 2009 By: /s/ Christian Dufresne -------------------------------------- Christian Dufresne, Ph. D. Chief Financial Officer and Treasurer EX-32.1 8 exh32-1_16546.txt 906 CERTIFICATION OF THE 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 June 30, 2009 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: August 14, 2009 By: /s/ Roger G. Little ---------------------------------------------- Roger G. Little Chairman of the Board 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 9 exh32-2_16546.txt 906 CERTIFICATION OF THE 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 June 30, 2009 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: August 14, 2009 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-----