-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, pxlTDyd25eagkY6qnAIa8XZBwl3pXgR7tICvLcLgL+jy4P+yoJnz4yO3kbO/7kE1 BKb/BbrWPXmxSTs3BzM6LQ== 0000891618-95-000186.txt : 19950417 0000891618-95-000186.hdr.sgml : 19950417 ACCESSION NUMBER: 0000891618-95-000186 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950411 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEGATEST CORP CENTRAL INDEX KEY: 0000745213 STANDARD INDUSTRIAL CLASSIFICATION: 3821 IRS NUMBER: 942422195 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17393 FILM NUMBER: 95528128 BUSINESS ADDRESS: STREET 1: 1321 RIDDER PARK DR CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084379700 MAIL ADDRESS: STREET 1: 1321 RIDDER PARK DR CITY: SAN JOSE STATE: CA ZIP: 95131 10-Q 1 FORM 10-Q FOR MEGATEST CORPORATION 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 1995 COMMISSION FILE NUMBER 0-17393 MEGATEST CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2422195 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1321 RIDDER PARK, SAN JOSE, CALIFORNIA 95131 (408) 437-9700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ The number of shares outstanding of the Registrant's Common Stock as of February 28, 1995, was 7,180,176. =============================================================================== 2 MEGATEST CORPORATION FORM 10-Q SIX MONTHS ENDED FEBRUARY 28, 1995 INDEX
Page ---- PART I: FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at February 28, 1995 and August 31, 1994 . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three-month and six-month periods ended February 28, 1995 and February 28, 1994 . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the six-month periods ended February 28, 1995 and February 28, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . 9 PART II: OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . 12 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 13 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2 3 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEGATEST CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT) (UNAUDITED) ASSETS
FEBRUARY 28, AUGUST 31, 1995 1994 ------------ ----------- Current assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 2,743 $ 19,404 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . -- 10,069 Accounts receivable, less allowances of $262 and $262 . . . . . . . . . 19,860 23,064 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,930 23,531 Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,832 3,532 Prepaid expenses and other current assets . . . . . . . . . . . . . . . 706 668 -------- -------- Total current assets . . . . . . . . . . . . . . . . . . . . . . 59,071 80,268 Property & equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 16,565 12,122 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,000 8,693 -------- -------- Total assets . . . . . . . . . . . . . . . . . $ 86,636 $101,083 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,100 $ -- Current portion of long-term obligations . . . . . . . . . . . . . . . 54 66 Accounts payable and accrued liabilities . . . . . . . . . . . . . . . 14,734 18,075 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,842 4,198 Customer advances and deferred revenues . . . . . . . . . . . . . . . . 4,351 2,083 -------- -------- Total current liabilities . . . . . . . . . . . . . . . . . . . 26,081 24,422 -------- -------- Long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . 388 414 -------- -------- Stockholders' equity: Common stock: $0.001 par value per share; Shares outstanding: 7,180 and 7,171 . . . . . . . . . . . . . . . . . 7 7 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 80,670 80,656 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (20,510) (4,416) -------- --------- Total stockholders' equity . . . . . . . . . . . . . . . . . . 60,167 76,247 -------- --------- Total liabilities and stockholders' equity . . $ 86,636 $ 101,083 ======== =========
The accompanying notes are an integral part of these financial statements. 3 4 MEGATEST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED FEBRUARY 28, SIX MONTHS ENDED FEBRUARY 28, ------------------------------- ----------------------------- 1995 1994 1995 1994 ---- ---- ---- ---- Product sales . . . . . . . . . . . . . . . . $ 18,247 $ 23,103 $ 30,449 $ 45,325 Development revenues . . . . . . . . . . . . -- 188 -- 413 --------- --------- -------- -------- Net revenues . . . . . . . . . . . . 18,247 23,291 30,449 45,738 --------- --------- -------- -------- Cost of sales . . . . . . . . . . . . . . . 12,923 12,820 21,036 24,865 Engineering and product development . . . . . 5,054 3,823 9,474 7,580 Selling, general and administrative . . . . . 4,617 4,228 9,097 8,636 Write-off of acquired in-process technology . -- -- 8,837 -- --------- --------- -------- -------- Total costs and expenses . . . . . . 22,594 20,871 48,444 41,081 --------- --------- -------- -------- Income (loss) from operations . . . . . . . . (4,347) 2,420 (17,995) 4,657 Other income/(expense) . . . . . . . . . . . 19 370 353 504 --------- --------- -------- -------- Income (loss) before income taxes . . . . . . (4,328) 2,790 (17,642) 5,161 (Provision) benefit for income taxes . . . . 700 (699) 1,548 (1,292) --------- --------- -------- -------- Income (loss) before accounting change . . . (3,628) 2,091 (16,094) 3,869 Cumulative effect of adopting new accounting for income taxes . . . . . -- -- -- 1,700 --------- --------- --------- -------- Net income (loss) . . . . . . . . . . . . . . $ (3,628) $ 2,091 $ (16,094) $ 5,569 ========= ========= ========= ======= Income (loss) per share before accounting change . . . . . . . . . . . . $ (0.51) $ 0.29 $ (2.24) $ 0.55 ========= ========= ========= ======= Net income per share . . . . . . . . . . . . $ (0.51) $ 0.29 $ (2.24) $ 0.79 ========= ========= ========= ======= Average common and common equivalent shares outstanding . . . . . . . . . . . . 7,179 7,319 7,177 7,044 ========= ========= ========== =======
The accompanying notes are an integral part of these financial statements. 4 5 MEGATEST CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED FEBRUARY 28, ----------------------------- 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($ 16,094) $ 5,569 Reconciliation to net cash provided by (used for) operating activities: Cumulative effect of change in accounting for income taxes . . . . . . . . . . -- (1,700) Write-off of acquired in-process technology . . . . . . . . . . . . . . . . . 8,837 -- Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 -- Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 2,066 1,476 Provision for deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . (300) Changes in: Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,204 1,904 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,738) (1,541) Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . (38) (486) Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . (5,441) 2,770 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,356) -- Customer advances and deferred revenues . . . . . . . . . . . . . . . . . 2,268 (687) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (477) -------- -------- Net cash provided by (used for) operating activities . . . . . . . . . . . . . . . (10,534) 6,828 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of tester product line and related technology . . . . . . . . . . . . . (13,897) -- Investment in equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . (1,500) -- Purchases of restricted investments . . . . . . . . . . . . . . . . . . . . . . . . -- (7,747) Proceeds from sale of short-term investments . . . . . . . . . . . . . . . . . . . 10,069 (2,560) Property and equipment purchases . . . . . . . . . . . . . . . . . . . . . . . . . (5,471) (2,323) Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (404) -- ----------- -------- Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . . (11,203) (12,630) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Sale of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 13,617 Borrowings under notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 5,100 Repayments of long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . (38) (6) -------- -------- Net cash used for financing activities . . . . . . . . . . . . . . . . . . . . . . 5,076 13,611 -------- -------- Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . (16,661) 7,809 CASH AND CASH EQUIVALENTS: Beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,404 17,278 -------- -------- End of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,743 $ 25,087 ======== ========
The accompanying notes are an integral part of these financial statements. 5 6 MEGATEST CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements as of February 28, 1995 and for the three-month and six-month periods ended February 28, 1995 and February 28, 1994 have been prepared on substantially the same basis as the annual consolidated financial statements and reflect all adjustments (consisting of only normal recurring adjustments) which are necessary for a fair statement of the results for the periods presented. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosures necessary to present the statements in accordance with generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended August 31, 1994. NOTE 2 - INVENTORIES Inventories consisted of the following:
FEBRUARY 28, 1995 AUGUST 31, 1994 ----------------- --------------- Purchased parts . . . . . . . . . . . . . . . . $ 8,557 $ 5,705 Assemblies in process . . . . . . . . . . . . . 9,090 8,285 Finished goods . . . . . . . . . . . . . . . . 14,283 9,541 -------- -------- Inventories. . . . . . . . . . . . . . $ 31,930 $ 23,531 ======== ========
NOTE 3 - INCOME TAXES Effective September 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for Income Taxes." The cumulative effect of adopting FAS 109 resulted in a one-time credit to net income of $1,700, or $0.24 per share for fiscal 1994. FAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or income tax returns. In estimating future tax consequences, FAS 109 generally considers all expected future events other than enactments of changes in the tax law or rates. In applying the provisions of FAS 109, management fully reserved net deferred tax assets that may be realized beyond one year after the balance sheet date because of the uncertainty regarding their realization. The resulting reduction in the valuation allowance for deferred tax assets of $300 has been reflected as an increase in the benefit for income taxes. NOTE 4. ACQUISITION On November 22, 1994, the Company acquired the 1149 Tester product line and follow-on in-process technology (the "Product Line") of Micro Component Technology, Inc. ("MCT"). The assets acquired include substantially all of the equipment, inventory and intellectual property including the follow-on in-process technology, and the assumption of certain liabilities associated with the Product Line. Of the amount paid, $2,000 was placed in escrow (i) to indemnify the Company in the event of a breach of any of the representations and warranties made by MCT in the purchase agreement, (ii) to secure performance of MCT's obligations under the purchase agreement, and (iii) to insure against any shortfalls discovered in the equipment or inventory intended to be acquired through the Company's post-closing audit of the assets acquired. 6 7 MEGATEST CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) The acquisition of the Product Line has been accounted for as a purchase and, accordingly, the results of operations and cash flows of the Product Line have been included only from the date of acquisition. Excluding the one-time write-off of in-process technology of $8,837, the results of operations for the Product Line from the date of acquisition through February 28, 1995 were not material to Megatest's results of operations for the six-month period ended February 28, 1995. The total purchase price of the acquisition was as follows: Cash paid to MCT $ 12,800 Other acquisition costs 1,097 --------- $ 13,897 =========
The allocation of the Company's purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed is based on preliminary estimates from information currently available. A final allocation of the purchase price will be determined during the year when appraisals and other studies are completed. The preliminary purchase price allocation is summarized as follows: Inventories $ 5,661 Property and equipment 1,038 In-process technology 8,837 Goodwill 461 -------- Assets acquired 15,997 -------- Accounts payable 1,903 Accrued warranty 197 -------- Liabilities assumed 2,100 -------- Net assets acquired $ 13,897 ========
The in-process technology was charged to income during the quarter ended November 30, 1994. In addition, the Company purchased 315,790 shares of MCT's nonvoting Series A Preferred Stock at a price of $4.75 per share for a total of $1,500 cash on November 23, 1994. The investment in equity securities is included in other assets at February 28, 1995 and is stated at cost, which approximates fair value. NOTE 5. NOTES PAYABLE On December 15, 1994, the Company obtained a $7,500 domestic bank line of credit which expires in January 1996. The agreement provides for borrowings up to the lesser of 80% of eligible domestic accounts receivable or the $7,500 committed credit amount. In addition, on February 9, 1995, the Company obtained an additional $5,000 line of credit guaranteed by the Export-Import Bank of the United States to support export sales. This agreement provides for borrowings up to the lesser of 90% of eligible foreign accounts receivable plus 70% of eligible inventory to support such receivables, or the $5,000 committed credit amount. Borrowings under these lines bear interest at prime (9.0% at February 28, 1995) plus 1.0% and 0.5% for the domestic and foreign lines of credit, respectively, and are collateralized by a security interest in substantially all of the Company's previously unencumbered tangible and intangible assets. The terms of the credit agreements require, among other terms, minimum amounts of tangible net worth, minimum ratios of current assets to current liabilities, and maximum ratios of indebtedness to net worth. The credit agreements preclude the Company from taking certain actions without prior bank approval. Transactions subject to such prohibition include the declaration of cash dividends, certain significant asset acquisitions or dispositions, incurrence of certain additional indebtedness, and changing the nature of the Company's business. At February 28, 1995, the Company had borrowed $5,100 under these lines of credit, but was in violation of certain covenants. Subsequent to February 28, 1995, the Company received a waiver of such non-compliance and amended certain financial covenants for the duration of the agreements. As amended, the credit agreements require the Company to maintain quarterly profitability beginning with the quarter ending May 31, 1995. 7 8 MEGATEST CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 6. STOCKHOLDER LITIGATION On December 6, 1994, the Company, its Chief Executive Officer and its former Chief Financial Officer were named as defendants in a complaint filed in the United States District Court for the Northern District of California by a stockholder who claims to represent a class of stockholders that purchased shares of the Company's common stock between May 18, 1993 and December 5, 1994. The complaint is based on provisions of federal securities laws and seeks equitable relief and unspecified damages for losses allegedly resulting from, among other things, improper disclosure. On April 7, 1995, the parties filed with the Court a stipulation seeking a voluntary dismissal of the action without prejudice. NOTE 7. SUBSEQUENT EVENTS On March 6, 1995, the Company borrowed an additional $3,400 under the domestic line of credit, thereby reaching the maximum amount available under that line. An additional $1,300 remained available for future borrowing under the foreign line of credit as of February 28, 1995, based on eligible foreign accounts receivable and inventory on such date. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Overview In the second quarter of fiscal 1995, Megatest reported net revenues of $18.2 million. While the Company reported record incoming orders during the quarter, many of such orders were received late in the quarter or were for shipment in a later quarter, and thus could not be converted to revenue during the second quarter. As a result, the Company reported a net loss of $3.6 million for the three months ended February 28, 1995. During the second quarter of fiscal 1995, the Company continued its operating cost reduction efforts, including the implementation of a 10% salary reduction for all salaried employees which ended February 28, 1995. Excluding one-time charges totaling approximately $1.4 million (see Cost of Sales and Engineering and Product Development discussions, below), the costs related to the 1149 product line acquired in November 1994, and product material expenses, the Company's base operating spending for the second quarter of fiscal 1995 was 4% and 15% below second and fourth quarters, respectively, of fiscal 1994. Acquisition of Product Line On November 22, 1994, the Company acquired the 1149 Tester product line and follow-on in-process technology (the "Product Line") from Micro Component Technology, Inc. ("MCT") for $12.8 million. In addition, the Company incurred acquisition related expenses of $1.1 million. The purchase of the Product Line included substantially all of the assets and intellectual property and the assumption of certain liabilities, approximating $2.1 million, associated with the Product Line. The Product Line features a low cost logic IC test system that is expected to complement the Company's Polaris logic test systems, and opens markets in which the Company has not previously participated with its existing products, such as FPGAs, PLDs and certain microcontrollers. As a result of the acquisition of the Product Line, the Company incurred a one-time write-off of in-process technology of $8.8 million, which contributed to the Company's first quarter loss. Excluding the one-time write-off of in-process technology, the results of operations for the Product Line from the date of acquisition through February 28, 1995 were not material to Megatest's results of operations. Net Revenues The Company's net revenues for the three-month and six-month periods ended February 28, 1995 decreased 21.6% and 33.4%, respectively, from the corresponding periods in the prior fiscal year. The Company experienced declines in sales in all geographic areas and in all product lines during the first quarter of fiscal 1995, and believes such declines were due primarily to delayed orders from its customers. Of the $18.2 million in total net revenue in the second quarter of fiscal 1995, 30% consisted primarily of revenue from sales of spare parts and service contracts. Cost of Sales and Gross Margin on Product Sales Gross margin as a percent of net revenues for the three-month and six-month periods ended February 28, 1995 was 29.2% and 30.9%, respectively. For the second quarter, the 29.2% gross margin represents a decline of 16 percentage points from the same period of fiscal 1994, and a decline of 4.3 percentage points from the first quarter of fiscal 1995. The low gross margin in the second quarter of fiscal 1995 resulted primarily from the low shipment level, as manufacturing spending could not be scaled back in proportion to the decline in revenues from the anticipated rate of sales. In addition, the Company increased inventory reserves by $0.9 million for certain components which the Company plans to upgrade to higher performance levels to better match customer requirements. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Engineering and Product Development Expense Engineering and product development expenses for the three-month and six-month periods ended February 28, 1995 increased 32.2% and 25.0%, respectively, from the corresponding periods in fiscal 1994. As a percentage of net revenue, engineering and product development expenses increased 11 percentage points to 27.7% from the corresponding three-month period of fiscal 1994, and increased 15 percentage points to 31.1% from the corresponding six-month period of fiscal 1994. The increase in engineering and product development expenditures includes $0.5 million related to the Product Line, $0.5 million of certain costs associated with accelerated development of the Company's new Vega Series logic testers, and the Company's continuing commitment to maintaining a high level of engineering and product development effort. The Company intends to continue to invest significant resources in the development of next generation products for both memory and logic applications. Selling, General and Administrative Expenses Selling, general and administrative expenses for the second quarter of fiscal 1995 increased 9% from the same quarter of the prior fiscal year. For the six months ended February 28, 1995, selling, general, and administrative expenses increased 5% from the corresponding six-month period of fiscal 1994. The year-to-year increase in dollar expenditures was attributable primarily to increased hiring and employee compensation, and the addition of the Product Line. Selling, general and administrative expenses are expected to continue to increase both sequentially and year-to-year. Other Income and Expense Other income was minimal for the quarter ended February 28, 1995, compared to $0.4 million for the same quarter in fiscal 1994. Other income consists primarily of interest income from the investment of the Company's cash balances offset by interest expense on notes payable. The decrease in net interest income in the second quarter of fiscal 1995 is attributable to lower cash balances and the interest expense incurred on line-of-credit borrowings necessitated by the Product Line acquisition and net cash used for operations in the first and second quarters of fiscal 1995. Income Taxes The Company's effective tax rate for the second quarter of fiscal 1995 was 16% compared to 25% for the same quarter of the prior fiscal year. The reduction in the rate was primarily attributable to adjustments to the deferred tax valuation allowance associated with the Company's lower than anticipated earnings during the quarter. The Company anticipates that the quarterly effective tax rate for the remainder of fiscal 1995 and for fiscal 1996 will be approximately 20% to 25%. Net Income/(Loss) The Company had a net loss of $3.6 and $16.1 million for the three-month and six-month periods ended February 28, 1995, versus net income of $2.1 million and $5.6 million, respectively, for the corresponding periods in the prior fiscal year. The year-to-date net loss included an $8.8 million write-off in the first quarter of in-process technology associated with the purchase of the 1149 tester product line from MCT on November 22, 1994. Net income for last year's first quarter included a gain of $1.7 million related to the adoption of FAS 109, "Accounting for Income Taxes." The per share loss was $.51 for the three-month period and $2.24 for the six-month period ended February 28, 1995, versus net income per share of $.29 and $0.55, respectively, for the same periods last year. 10 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES The Company's total current assets were 2.3 times total current liabilities at February 28, 1995, compared to 3.3 times at August 31, 1994 and 4.1 times at February 28, 1994. In November 1994, the Company used $13.9 million of its available cash to acquire the Product Line and made a $1.5 million investment in MCT Preferred Stock. The MCT acquisition included $5.7 million of 1149 Tester inventory, $1.0 million of equipment and other fixed assets, and the assumption of $2.1 million of trade payables, warranty and other liabilities associated with the 1149 Tester product line. Accounts receivable decreased $3.2 million during the first six months of fiscal 1995 due to the low revenue level recorded for the first and second quarters and to continued emphasis on receivables management. Excluding inventory acquired from MCT, inventories increased $2.7 million during the first six months of fiscal 1995, primarily due to the low shipment level and demonstration units at customer sites. The Company continues to monitor inventory levels carefully based on current and projected sales levels and has implemented programs to reduce inventory going forward. Investing activities used $11.2 million in the first half of fiscal 1995, compared to $12.6 million in the comparable period last year. Excluding cash payments to acquire the Product Line and MCT Preferred Stock, investing activities consisted primarily of purchases of $5.5 million of property and equipment, offset by the sale of $10.1 million of short-term investments to fund the Product Line acquisition. Financing activities provided $5.1 million in the first half of fiscal 1995, representing borrowings under the Company's lines of credit. At February 28, 1995, the Company's cash, cash equivalents and short-term investments were $2.7 million, compared to $29.5 million at August 31, 1994. The decrease primarily reflects the cash used to acquire the Product Line from MCT and to fund operations during the first and second quarters. On December 15, 1994, the Company obtained a $7,500 domestic bank line of credit which expires in January 1996. The agreement provides for borrowings up to the lesser of 80% of eligible domestic accounts receivable or the $7.5 million committed credit amount. In addition, on February 9, 1995, the Company obtained an additional $5.0 million line of credit guaranteed by the Export-Import Bank of the United States to support export sales. This agreement provides for borrowings up to the lesser of 90% of eligible foreign accounts receivable plus 70% of eligible inventory to support such receivables, or the $5.0 million committed credit amount. Borrowings under these lines bear interest at prime (9.0% at February 28, 1995) plus 1.0% and 0.5% for the domestic and foreign lines of credit, respectively, and are collateralized by a security interest in substantially all of the Company's previously unencumbered tangible and intangible assets. The terms of the credit agreements require, among other terms, minimum amounts of tangible net worth, minimum ratios of current assets to current liabilities, and maximum ratios of indebtedness to net worth. The credit agreements preclude the Company from taking certain actions without prior bank approval. Transactions subject to such prohibition include the declaration of cash dividends, certain significant asset acquisitions or dispositions, incurrence of certain additional indebtedness, and changing the nature of the Company's business. At February 28, 1995, the Company had borrowed $5.1 million under these lines of credit, but was in violation of certain covenants. Subsequent to February 28, 1995, the Company received a waiver of such non-compliance and amended certain financial covenants for the duration of the agreements. As amended, the credit agreements require the Company to maintain quarterly profitability beginning with the quarter ending May 31, 1995. The Company believes that its cash flow from operations, together with its cash balances and funds available under working capital lines of credit, will provide sufficient financing resources to meet both working capital and capital expenditure requirements through fiscal 1995 based on recent order rates and anticipated revenue levels. However, the Company is also in discussions with several lenders to secure asset-based long-term debt financing to further enhance its liquidity and to provide additional flexibility to fund future growth. 11 12 PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On December 6, 1994, the Company, its Chief Executive Officer and former Chief Financial Officer were named as defendants in a complaint filed in the United States District Court for the Northern District of California by a stockholder who claims to represent a class of stockholders that purchased shares of the Company's common stock between May 18, 1993 and December 5, 1994. The complaint is based on provisions of federal securities laws and seeks equitable relief and unspecified damages for losses allegedly resulting from, among other things, improper disclosure. On April 7, 1995, the parties filed with the Court a stipulation seeking a voluntary dismissal of the action without prejudice. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Annual Meeting of Stockholders of the Company, held on January 12, 1995 in San Jose, California, the Stockholders (i) elected members of the Company's Board of Directors; (ii) approved amendments to the Company's 1990 Stock Option Plan increasing the number of shares reserved for issuance thereunder by 1,000,000 shares and limiting the number of shares issuable under options granted under the Plan to an employee in any fiscal year; (iii) did not approve a proposed amendment to the Company's Restated Certificate of Incorporation to eliminate cumulative voting; and (iv) ratified the Company's appointment of Price Waterhouse as independent auditors. The vote for nominated directors was as follows:
NOMINEE FOR WITHHELD --------------------- --------- ------------- John E. Halter 4,943,869 74,493 James W. Bagley 4,969,472 48,890 Stephen J. Bisset 4,969,397 48,965 Winston H. Chen, Ph.D. 4,969,472 48,890 David A. Hodges 4,969,422 48,940 Steven J. Sharp 4,411,963 606,399
The vote for amending the 1990 Stock Option Plan was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES --------------- ------------- ----------- ------------- 3,478,036 631,020 1,815 907,491
The vote for amending the Restated Certificate of Incorporation was as follows:
BROKER FOR AGAINST ABSTAIN NON-VOTES --------------- ------------- ----------- ------------- 2,349,156 1,757,432 4,283 907,491
The vote for ratifying the appointment of Price Waterhouse was as follows:
FOR AGAINST ABSTAIN --------------- ------------- ----------- 4,993,858 21,771 2,733
12 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits
Exhibit No. Description ----------- ----------- 10.11 Loan and Security Agreement between the Registrant and Bank of the West dated February 9, 1995. 10.12 Borrower Agreement between the Registrant and Bank of the West dated February 10, 1995. 11.1 Statement regarding computation of per share earnings. 27.1 Financial Data Schedule.
(b) Reports on Form 8-K On Form 8-K/A filed with the Commission on February 6, 1995, the Company amended its Form 8-K dated November 22, 1994 to provide financial statements and other proforma information regarding the assets it acquired from Micro Component Technology, Inc. on November 22, 1994. All other items specified by Part II of this report are inapplicable and accordingly have been omitted. 13 14 MEGATEST CORPORATION 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, in the City of San Jose and State of California, on April 11, 1995. MEGATEST CORPORATION Date: April 11, 1995 By: /s/ John E. Halter ----------------------- John E. Halter President Chief Executive Officer Date: April 11, 1995 By: /s/ Paul W. Emery II ----------------------- Paul W. Emery II Vice President, Finance Chief Financial Officer 14 EX-10.11 2 LOAN & SECURITY AGREEMENT DATED FEBRUARY 9, 1995 1 EXHIBIT 10.11 MEGATEST CORPORATION EXPORT-IMPORT BANK LOAN AND SECURITY AGREEMENT 2 TABLE OF CONTENTS Page 1. DEFINITIONS AND CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . 1 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 2 2.1 Revolving Advances . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.2 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.3 Interest Rates, Payments, and Calculations . . . . . . . . . . . . . 3 2.4 Crediting Payments . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.5 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.6 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.7 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2.8 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3. CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Conditions Precedent to Initial Advance . . . . . . . . . . . . . . 4 3.2 Conditions Precedent to all Advances . . . . . . . . . . . . . . . . 5 4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 5 4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . 5 4.2 Delivery of Additional Documentation Required . . . . . . . . . . . 5 4.3 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . 5 4.4 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 6 5.1 Domestic Loan Documents . . . . . . . . . . . . . . . . . . . . . . 6 6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.1 Domestic Loan Documents . . . . . . . . . . . . . . . . . . . . . . 6 6.2 Terms of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.3 Borrower Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.4 Notice in Event of Filing of Action for Debtor's Relief . . . . . . 6 6.5 Payment in Dollars . . . . . . . . . . . . . . . . . . . . . . . . . 6 6.6 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . 7 7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 7 7.1 Domestic Loan Documents . . . . . . . . . . . . . . . . . . . . . . 7 7.2 Loans to Shareholders or Affiliates . . . . . . . . . . . . . . . . 7 7.3 Ex-Im Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.1 Payment Default . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.2 Covenant Default; Cross Default . . . . . . . . . . . . . . . . . . 7 8.3 Ex-Im Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . 7 9. BANK'S RIGHTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . 7 9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . 7 9.2 Ex-Im Direction . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.3 Ex-Im Notification . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.4 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . 9
i 3 10. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . 9 10.1 Demand; Protest . . . . . . . . . . . . . . . . . . . . . . . . . . 9 10.2 Bank's Liability for Inventory . . . . . . . . . . . . . . . . . . . 9 10.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 9 11. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER . . . . . . . . . . . . . 10 13. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 10 13.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . 10 13.2 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13.3 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . 10 13.4 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . . . 10 13.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ii 4 This LOAN AND SECURITY AGREEMENT is entered into as of February 9, 1995, by and between BANK OF THE WEST ("Bank") and MEGATEST CORPORATION ("Borrower"). RECITALS A. Borrower has entered into a Loan and Security Agreement with Bank, together with related documents. B. Borrower and Bank desire in this Agreement to set forth their agreement with respect to a working capital facility to be guaranteed by Export-Import Bank of the United States. AGREEMENT The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION 1.1 Definitions. Except as otherwise defined, terms that are capitalized in this Agreement shall have the meaning assigned in the Domestic Loan Documents. As used in this Agreement, the following terms shall have the following definitions: "Bank Expenses" means all: reasonable costs or expenses (including reasonable attorneys' fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents, including any costs incurred in relation to opposing or seeking to obtain relief from any stay or restructuring order prohibiting Bank from exercising its rights as a secured creditor, foreclosing upon or disposing of Collateral, or such related matters; fees that Bank pays to Ex-Im Bank in consideration of the issuance of the Ex-Im Guarantee; and Bank's reasonable attorneys' fees and expenses incurred in amending, enforcing or defending the Loan Documents, whether or not suit is brought. "Borrower Agreement" means the Export-Import Bank of the United States Working Capital Guarantee Program Borrower Agreement between Borrower and Bank. "Borrowing Base" has the meaning set forth in Section 2.1 hereof. "Domestic Loan Documents" means the Loan and Security Agreement between Bank and Borrower dated as of December 15, 1994 as amended from time to time and the instruments and documents executed in connection with that Agreement. "Eligible Foreign Accounts" means those Accounts payable in United States Dollars that arise in the ordinary course of Borrower's business from Borrower's sale of Eligible Foreign Inventory (i) with respect to which the account debtor is not a resident of the United States; and (ii) that have been validly assigned and comply with all of Borrower's representations and warranties to Bank; provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank's reasonable judgment and upon notification thereof to the Borrower in accordance with the provisions hereof. Eligible Foreign Accounts shall not include the following: (a) Accounts that the account debtor has failed to pay within ninety (90) days of the original date of the invoice; (b) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower; 1 5 (c) Accounts with respect to which the account debtor is an Affiliate of Borrower; (d) Accounts with respect to which Borrower is liable to the account debtor for goods sold or services rendered by the account debtor to Borrower, but only to the extent of Borrower's liability to such account debtor; (e) Accounts with respect to which the account debtor disputes liability or makes any claim with respect thereto (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (f) Accounts generated by the sale of Products purchased for military purposes; (g) Accounts the collection of which Bank or Ex-Im Bank determines in its reasonable judgment to be doubtful; and (h) Accounts that are excluded from the Borrowing Base under the Borrower Agreement. "Eligible Foreign Inventory" means Inventory held by Borrower in the United States, other than Inventory that is excluded from the Borrowing Base under the Borrower Agreement. "Ex-Im Bank" means Export-Import Bank of the United States. "Ex-Im Committed Line" means Five Million Dollars ($5,000,000). "Ex-Im Guarantee" means that certain Master Guarantee Agreement No. CA-MGA-009 issued by Ex-Im Bank with respect to Borrower, as amended from time to time, the terms of which are incorporated by reference into this Agreement. "Loan Documents" means, collectively, this Agreement, any note or notes executed by Borrower, and any other agreement entered into between Borrower and Bank in connection with this Agreement, all as amended or extended from time to time. "Maturity Date" means the earlier of (i) the Maturity Date under the Domestic Loan Documents or (ii) July 31, 1995. 2. LOAN AND TERMS OF PAYMENT 2.1 Revolving Advances. Subject to the terms and conditions of this Agreement, Bank agrees to make revolving advances ("Advances") to Borrower in an amount not to exceed the lesser of the Ex-Im Committed Line or the Borrowing Base. For purposes of this Agreement "Borrowing Base" shall mean an amount equal to the sum of (i) ninety percent (90%) of the Eligible Foreign Accounts and (ii) seventy percent (70%) of Eligible Foreign Inventory. The value of Eligible Foreign Inventory for the purpose of calculating the Borrowing Base shall be the lesser of the cost or the wholesale fair market value of such Eligible Foreign Inventory. To evidence the Advances, Borrower shall execute and deliver to Bank on the date hereof a promissory note (the "Note") in substantially the form attached hereto as Exhibit B. Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 11:00 a.m. California time, on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Borrowing Certificate in substantially the form of 2 6 Schedule 2.1 hereto. In addition to the procedure set forth in the preceding sentence, Bank is authorized to make Advances under this Agreement, based upon written instructions received from a Responsible Officer or without instructions if in Bank's discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank will credit the amount of Advances made under this Section 2.1 to Borrower's deposit account. Amounts borrowed pursuant to this Section 2.1 may be repaid and re-borrowed at any time during the term of this Agreement so long as no Event of Default has occurred and is continuing. 2.2 Overadvances. If, at any time or for any reason, the amount of Obligations pursuant to this Agreement owed by Borrower to Bank pursuant to Section 2.1 of this Agreement is greater than the lesser of (i) the Borrowing Base or (ii) the Ex-Im Committed Line, at the option of Bank, (i) Borrower shall immediately pay to Bank, in cash, the amount of such excess, or (ii) Borrower shall furnish additional collateral to Bank in form and amount satisfactory to Bank and Ex-Im Bank. 2.3 Interest Rates, Payments, and Calculations. (a) Interest Rate. Except as specified to the contrary in any Loan Document, the Obligations under this Agreement shall bear interest, on the average Daily Balance, at a rate equal to One Half Percentage Point (0.5%) above the Prime Rate. (b) Default Rate. All Obligations shall bear interest, from and after the occurrence of an Event of Default, at a rate equal to five (5) percentage points above the rate that applied immediately prior to the occurrence of the Event of Default. (c) Payments. Interest hereunder shall be due and payable on the last Business Day of each calendar month during the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against Borrower's deposit account or against the Ex- Im Committed Line, in which case those amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. (d) Computation. In the event the Prime Rate is changed from time to time hereafter, the applicable rate of interest hereunder shall be increased or decreased contemporaneously with such change by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.4 Crediting Payments. The receipt by Bank of any wire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such wire transfer is of immediately available federal funds and is made to the appropriate deposit account of Bank or unless and until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 11:00 a.m. California time shall be deemed to have been received by Bank as of the opening of business on the immediately following Business Day. 2.5 Fees. Borrower shall pay to Bank the following fees: (a) Financial Examination and Appraisal Fees. Bank's reasonable fees and reasonable out-of-pocket expenses for Bank's initial audit of Borrower's Accounts and Inventory, and for each subsequent appraisal of Collateral and financial analysis and examination of Borrower performed from time to time by Bank or its agents; (b) Facility Fee. A facility fee equal to Twenty Five Thousand Dollars ($25,000), which fee shall be due and fully earned upon Bank's receipt of the Ex-Im Guarantee; 3 7 (c) Ex-Im Fee. A fee equal to Thirty Seven Thousand Dollars ($37,500), payable to Ex-Im Bank; and (d) Bank Expenses. On the Closing Date, Bank Expenses incurred through the Closing Date and, after the Closing Date, all Bank Expenses as they become due. 2.6 Increased Costs. In case any law, regulation, treaty or official directive or the interpretation or application thereof by any court or any governmental authority charged with the administration thereof or the compliance with any guideline or request of any central bank or other governmental authority (whether or not having the force of law): (a) subjects Bank to any tax with respect to payments of principal or interest or any other amounts payable hereunder by Borrower or otherwise with respect to the transactions contemplated hereby (except for taxes on the overall net income of Bank imposed by the United States of America or any political subdivision thereof); or (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit or similar requirement against assets held by, or deposits in or for the account of, or loans by, Bank; or (c) imposes upon Bank any other condition with respect to their performance under this Agreement, and the result of any of the foregoing is to increase the cost to Bank, reduce the income receivable by Bank or impose any expense upon Bank with respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to pay to Bank the amount of such increase in cost, reduction in income or additional expense as and when such cost, reduction or expense is incurred or determined, upon presentation by Bank of a statement in the amount and setting forth Bank's calculation thereof, which statement shall be deemed true and correct absent manifest error. 2.7 Term. This Agreement shall become effective upon acceptance by Bank and shall continue in full force and effect for a term ending on the Maturity Date, on which date all Obligations shall become immediately due and payable. Notwithstanding the foregoing, Bank shall have the right to terminate this Agreement immediately and without notice upon the occurrence of an Event of Default and Borrower shall have the right to terminate this Agreement immediately upon payment in full of its Obligations then outstanding hereunder. Notwithstanding any termination of this Agreement, all of Bank's security interest in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full, and no termination shall impair any right or remedy of Bank, nor shall any such termination relieve Borrower of any Obligation to Bank until all of the Obligations have been paid and performed in full. 2.8 Use of Proceeds. Borrower will use the proceeds of Advances only for the purposes specified in the Borrower Agreement. Borrower shall not use the proceeds of the Advances for any purpose prohibited by the Borrower Agreement. 3. CONDITIONS OF LOANS 3.1 Conditions Precedent to Initial Advance. The obligation of Bank to make the initial Advance is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, the following: (a) this Agreement and the Note, each duly executed by Borrower; 4 8 (b) a certificate of the secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; (c) the Ex-Im Guarantee; (d) such other documents, and completion of such other matters, as Bank may deem reasonably necessary or appropriate. 3.2 Conditions Precedent to all Advances. The obligation of Bank to make each Advance, including the initial Advance, is further subject to the following conditions: (a) timely receipt by Bank of the Borrowing Certificate as provided in Section 2.1; (b) timely receipt by Bank of a copy of the executed firm written export purchase order relating to the requested Advance, the payment terms of which shall be acceptable to Bank; except that up to twenty percent (20%) of the Committed Line may consist of Advances supported by a statement and breakdown of costs demonstrating that Advances are only for documented U.S. Costs associated with sales that will generate Eligible Foreign Accounts in lieu of a firm written purchase order; (c) timely receipt by Bank of an Export Certificate, as defined in the Borrower Agreement; (d) the Ex-Im Guarantee shall be in full force and effect; and (e) the representations and warranties contained in Section 5 shall be true and accurate in all material respects on and as of the date of such Borrowing Certificate and on the effective date of each Advance as though made at and as of each such date, and no Event of Default (or event that, but for the giving of notice or the lapse of time or both would constitute an Event of Default) shall have occurred and be continuing, or would result from such Advance. The making of each Advance shall be deemed to be a representation and warranty by Borrower on the date of such Advance as to the accuracy of the facts referred to in subsection (b) of this Section 3.2. 4. CREATION OF SECURITY INTEREST 4.1 Grant of Security Interest. Borrower hereby grants to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. 4.2 Delivery of Additional Documentation Required. Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all financing statements and other documents that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue perfected Bank's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.3 Power of Attorney. Borrower hereby irrevocably appoints Bank (and any of Bank's designated officers, or employees) as Borrower's true and lawful attorney, with power to: (a) send requests for verification of Accounts; (b) endorse Borrower's name on any checks or other forms of payment or security that may come into Bank's possession; (c) sign the name of Borrower on any of the documents described in Section 4.2; (d) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (e) make, settle, and adjust all claims under and decisions with 5 9 respect to Borrower's policies of insurance; and (f) settle and adjust disputes and claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable. The appointment of Bank as Borrower's attorney-in-fact, and each of Bank's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank's obligation to provide advances hereunder is terminated. 4.4 Right to Inspect. Each of Bank and Ex-Im Bank (through any of their respective officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower's usual business hours, to inspect Borrower's Books, facilities and activities, and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, condition of, or any other matter relating to, the Collateral. Bank shall conduct semi-annual accounts receivable audits and physical inspections of the Inventory at Borrower's expense, the results of which audits shall be satisfactory to Bank. Borrower will cause its officers and employees to give their full cooperation and assistance in connection therewith. 5. REPRESENTATIONS AND WARRANTIES Borrower represents, warrants and covenants as follows: 5.1 Domestic Loan Documents. The representations and warranties contained in the Domestic Loan Documents are true and correct. 6. AFFIRMATIVE COVENANTS Borrower covenants and agrees that, until payment in full of the Obligations, Borrower shall do all of the following: 6.1 Domestic Loan Documents. Borrower shall comply in all respects with the provisions of the Domestic Loan Documents. 6.2 Terms of Sale. Borrower shall cause all sales of Products upon which Advances are based either to be (i) supported by one or more irrevocable letters of credit in an amount and of a tenor, naming a beneficiary and issued by a financial institution acceptable to Bank or (ii) on open account to creditworthy buyers that have been preapproved in writing by Bank and Ex-Im Bank. 6.3 Borrower Agreement. Borrower shall comply with all of the terms of the Borrower Agreement. 6.4 Notice in Event of Filing of Action for Debtor's Relief. Borrower shall promptly notify Bank in writing of the occurrence of any of the following: (1) Borrower begins or consents in any manner to any proceeding or arrangement for its liquidation in whole or in part or to any other proceeding or arrangement whereby any of its assets are subject generally to the payment of its liabilities or whereby any receiver, trustee, liquidator or the like is appointed for it or any substantial part of its assets (including without limitation the filing by Borrower of a petition for appointment as a debtor-in-possession under Title 11 of the U.S. Code); (2) Borrower fails to obtain the dismissal or stay on appeal within thirty (30) calendar days of the commencement of any proceeding arrangement referred to in (1) above; (3) Borrower begins any other procedure for the relief of financially distressed or insolvent debtors, or such procedure has been commenced against it, whether voluntarily or involuntarily, and such procedure has not been effectively terminated, dismissed or stayed within thirty (30) calendar days after the commencement thereof, or (4) Borrower begins any procedure for its dissolution, or a procedure therefor has been commenced against it. 6.5 Payment in Dollars. Borrower shall require payment in United States Dollars for the Products, unless Ex-Im Bank otherwise agrees in writing. 6 10 6.6 Further Assurances. At any time and from time to time Borrower shall execute and deliver such further instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 7. NEGATIVE COVENANTS Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower will not do any of the following, or enter into any agreement to do any of the following: 7.1 Domestic Loan Documents. Violate or otherwise fail to comply with any provision of the Domestic Loan Documents. 7.2 Loans to Shareholders or Affiliates. Without Ex-Im Bank's prior written consent, make any loans to any shareholder or entity affiliated with Borrower. As used in this Section 7.2, the term "loan" does not include salary, rent paid to an affiliated entity owned by the shareholders, or to other expenses incurred in the ordinary course of Borrower's business. 7.3 Ex-Im Guarantee. Take any action, or permit any action to be taken, that causes or, with the passage of time, could reasonably be expected to cause, the Ex-Im Guarantee to cease to be in full force and effect. 8. EVENTS OF DEFAULT Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 Payment Default. If Borrower fails to pay when due and payable, or when declared in accordance with the terms hereof due and payable, any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such accounts), fees and charges due Bank, taxes, reimbursement of Bank Expenses, or otherwise); 8.2 Covenant Default; Cross Default. If Borrower fails or neglects to perform, keep, or observe any material term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Domestic Loan Documents, the Borrower Agreement or the Loan Documents, or an Event of Default occurs under any of the Domestic Loan Documents or the Borrower Agreement; or 8.3 Ex-Im Guarantee. If the Ex-Im Guarantee ceases for any reason to be in full force and effect, or if the Ex-Im Bank declares the Ex-Im Guarantee void or revokes or purports to revoke any obligations under the Ex-Im Guarantee. 9. BANK'S RIGHTS AND REMEDIES 9.1 Rights and Remedies. Upon the occurrence of an Event of Default, Bank may, at is election, without notice and without demand, do any one or more of the following: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement or under any other agreement between Borrower and Bank; 7 11 (c) Settle or adjust disputes and claims directly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; (d) Notify customers of Borrower or other third parties to pay any amounts owing to Borrower directly to Bank; (e) Without notice to or demand upon Borrower, make such payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank may designate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which in Bank's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Bank a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Bank's rights or remedies provided herein, at law, in equity, or otherwise; (f) Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Bank; (g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this section 9.1, to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, 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 9.1, Borrower's rights under all licenses and all franchise agreements shall inure to Bank's benefit; (h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Bank determines is commercially reasonable; (i) Bank may credit bid and purchase at any public sale; and (j) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 9.2 Ex-Im Direction. Upon the occurrence of an Event of Default, Ex-Im Bank shall have a right to: (i) direct Bank to exercise the remedies specified in section 9.1 and (ii) request that Bank accelerate the maturity of any other loans to Borrower as to which Bank has a right to accelerate. 9.3 Ex-Im Notification. Bank shall have the right to immediately notify Ex-Im Bank in writing if it has knowledge of the occurrence of any of the following events: (1) any failure to pay any amount due under this Loan Agreement or the Note; (2) the Borrowing Base is less than the sum of outstanding Advances hereunder; (3) any failure to pay when due any amount payable to Bank by the Borrower under any loan(s) extended by Bank to Borrower; (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. In the event that it sends such a notification to Ex-Im Bank, Bank shall have the right to thereafter send Ex-Im Bank a written report on the status of the events covered by said notification on 8 12 each Business Day which occurs every thirty (30) calendar days after the date of said notification, until such time as Bank files a claim with Ex-Im Bank or said default or other events have been cured. Bank shall not have any obligation to make any Advances following said notification to Ex-Im Bank, unless Ex-Im Bank gives its written approval thereto. If directed to do so by Ex-Im Bank, Bank shall have a right promptly to exercise any rights it may have against Borrower to demand the immediate repayment of all amounts outstanding under the Loan Documents. 9.4 Remedies Cumulative. Bank's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. 10. WAIVERS; INDEMNIFICATION 10.1 Demand; Protest. Borrower waives demand, protest, notice of protest, 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 at any time held by Bank on which Borrower may in any way be liable. 10.2 Bank's Liability for Inventory. So long as Bank complies with its obligations, if any, under Section 9207 of the Code, Bank shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 10.3 Indemnification. Borrower agrees to defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated by this Agreement, and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement, or otherwise (including without limitation attorneys fees and expenses), except for losses caused by Bank's gross negligence or willful misconduct. 11. NOTICES Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by certified mail, postage prepaid, return receipt requested, or by prepaid telefacsimile to Borrower or to Bank, as the case may be, at its address set forth below: If to Borrower: Megatest Corporation 1321 Ridder Park Drive San Jose, CA 95131-2306 Attn: Melvin L. Flanagan Fax: (408) 451-3202
9 13 If to Bank: Bank of the West 50 West San Fernando St., 2nd Fl. San Jose, CA 95113 Attn: Daniel W. Corry Fax: (408) 947-5117
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. 12. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles of conflicts of law. Each of Borrower and Bank hereby submits to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. 13. GENERAL PROVISIONS 13.1 Successors and Assigns. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned by Borrower without Bank's prior written consent, which consent may be granted or withheld in Bank's sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participations in all or any part of, or any interest in Bank's rights and benefits hereunder. 13.2 Time of Essence. Time is of the essence for the performance of all obligations set forth in this Agreement. 13.3 Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 13.4 Amendments in Writing. This Agreement cannot be changed or terminated orally. Without the prior written consent of Ex-Im Bank, no material amendment of or deviation from the terms of this Agreement or the Note shall be made that would adversely affect the interests of Ex- Im Bank under the Ex-Im Guarantee, including without limitation the rescheduling of any payment terms provided for in this Agreement. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement, if any, are merged into this Agreement. 13.5 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, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 13.6 Survival. All covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as any Obligations remain outstanding. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 10.3 shall survive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. 10 14 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. MEGATEST CORPORATION By: /s/ MELVIN L. FLANIGAN -------------------------------- Title: Corporate Controller ------------------------------ By: --------------------------------- Title: ------------------------------ BANK OF THE WEST By: /s/ DANIEL W. CORRY ------------------------------ Daniel W. Corry Vice President 11 15 EXHIBIT A The Collateral shall consist of all right, title and interest of Borrower in and to the following: (a) All goods and equipment now owned or hereafter acquired, including, without limitation, all machinery, fixtures, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located; (b) All inventory, now owned or hereafter acquired, including, without limitation, all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products including such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of the above, and Borrower's Books relating to any of the foregoing; (c) All contract rights and general intangibles now owned or hereafter acquired, including, without limitation, goodwill, trademarks, servicemarks, trade styles, trade names, patents, patent applications, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind; (d) All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering of services by Borrower, whether or not earned by performance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by Borrower and Borrower's Books relating to any of the foregoing; (e) All documents, cash, deposit accounts, securities, letters of credit, certificates of deposit, instruments and chattel paper now owned or hereafter acquired and Borrower's Books relating to the foregoing; (f) All copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished, now owned or hereafter acquired; all trade secret rights, including all rights to unpatented inventions, know-how, operating manuals, license rights and agreements and confidential information, now owned or hereafter acquired; all mask work or similar rights available for the protection of semiconductor chips, now owned or hereafter acquired; all claims for damages by way of any past, present and future infringement of any of the foregoing; and (g) Any and all claims, rights and interests in any of the above and all substitutions for, additions and accessions to and proceeds thereof. 12 16 EXHIBIT B Revolving Promissory Note (Export-Import Line) $5,000,000 San Jose, California February __, 1995 FOR VALUE RECEIVED, the undersigned, Megatest Corporation (the "Borrower"), promises to pay to the order of Bank of the West ("Bank"), at such place as the holder hereof may designate, in lawful money of the United States of America, the aggregate unpaid principal amount of all advances ("Advances") made by Bank to Borrower under the terms of this Note, up to a maximum principal amount of Five Million Dollars ($5,000,000). Borrower shall also pay interest on the aggregate unpaid principal amount of such Advances at the rates and in accordance with the terms of the Export-Import Bank Loan and Security Agreement between Borrower and Bank of even date herewith, as amended from time to time (the "Loan Agreement") on the last Business Day of each month after an Advance has been made. The entire principal amount and all accrued interest shall be due and payable on July 31, 1995, or on such earlier date, as provided for in the Loan Agreement. Borrower irrevocably waives the right to direct the application of any and all payments at any time hereafter received by Bank from or on behalf of Borrower, and Borrower irrevocably agrees that Bank shall have the continuing exclusive right to apply any and all such payments against the then due and owing obligations of Borrower as Bank may deem advisable. In the absence of a specific determination by Bank with respect thereto, all payments shall be applied in the following order: (a) then due and payable fees and expenses; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable principal payments and optional prepayments. Bank is hereby authorized by Borrower to endorse on Bank's books and records each Advance made by Bank under this Note and the amount of each payment or prepayment of principal of each such Advance received by Bank; it being understood, however, that failure to make any such endorsement (or any errors in notation) shall not affect the obligations of Borrower with respect to Advances made hereunder, and payments of principal by Borrower shall be credited to Borrower notwithstanding the failure to make a notation (or any errors in notation) thereof on such books and records. Borrower promises to pay Bank all reasonable costs and reasonable expenses of collection of this Note and to pay all reasonable attorneys' fees incurred in such collection or in any suit or action to collect this Note or in any appeal thereof. Borrower waives presentment, demand, protest, notice of protest, notice of dishonor, notice of nonpayment, and any and all other notices and demands in connection with the delivery, acceptance, performance, default or enforcement of this Note, as well as any applicable statute of limitations. No delay by Bank in exercising any power or right hereunder shall operate as a waiver of any power or right. Time is of the essence as to all obligations hereunder. This Note is issued pursuant to the Loan Agreement, which shall govern the rights and obligations of Borrower with respect to all obligations hereunder. This Note shall be deemed to be made under, and shall be construed in accordance with and governed by, the laws of the State of California, excluding conflicts of laws principles. MEGATEST CORPORATION By: ----------------------------------- Title: -------------------------------- By: ----------------------------------- Title: -------------------------------- 13 17 SCHEDULE 2.1 BORROWING CERTIFICATE The undersigned hereby certifies as follows: I, ____________________________, am the duly elected and acting ____________________________ of Megatest Corporation ("Borrower"). This certificate is delivered pursuant to Section 2.1 of that certain Loan and Security Agreement (Export-Import Bank) dated as of December 21, 1994 (the "Loan Agreement") by and between Borrower and Bank of the West ("Bank"). The terms used in this Borrowing Certificate which are defined in the Loan Agreement have the same meaning herein as ascribed to them therein. Borrower is confirming its telephone request made on _____________, 19__ for an Advance as follows: (a) The date on which the Advance is to be made is ______________, 19__. (b) The amount of the Advance is to be $______________. As of the date of the telephone request for and Advance confirmed by this Borrowing Certificate, all representations and warranties of Borrower stated in the Loan Agreement are true, accurate and complete in all material respects and Borrower is in compliance with all terms and conditions of the Ex-Im Guarantee; provided, however, that those representations and warranties expressly referring to another date shall be true, accurate and complete in all material respects as of such date. IN WITNESS WHEREOF, this Borrowing Certificate is executed by the undersigned as of this _______ day of ______________, 199___. MEGATEST CORPORATION By: ------------------------------ Title: --------------------------- 14 18 SCHEDULE 1 TO EXPORT CERTIFICATE 1. Export Accounts Receivable $___________
Minus: __________ a. Open account receivables more than 90 $___________ days past invoice date; __________ b. Intercompany receivables; $___________ __________ c. Receivables covered by letters of credit, $___________ until the goods referenced in the L/C have been shipped; __________ d. Receivables which Eximbank or Bank of $___________ the West have designated uncollectible; __________ e. Receivables from buyers in countries in $___________ which Eximbank is unable to do business as designated in the Country Limitations Schedule, whether for commercial or political reasons; __________ f. Receivables payable in currency other $___________ than U.S. dollars; and __________ g. Receivables from a military buyer or $___________ receivables generated by the sale of defense articles or services.
(If there is no corresponding balance for an ineligible account, certify this fact by checking the space next to the account designation.) 2. Total Ineligible Accounts $___________ 3. Eligible Export Accounts Receivable (Line 1 less Line 2) $___________ 4. Funds Available Against Export Accounts Receivable (90% of Line 3) $___________ 5. Total Export Related Inventory as of ______________ (Valued at $___________ lower of cost or market)
1 19 Minus: __________ a. Inventory not physically located in the $___________ U.S.; __________ b. Demonstration inventory or inventory $___________ sold on consignment; __________ c. Inventory consisting of proprietary $___________ software; __________ d. Inventory which is damaged, obsolete, $___________ returned, defective, recalled, or unfit for further processing; __________ e. Inventory which has been previously $___________ exported from the U.S. __________ f. Inventory which constitutes defense $___________ articles or defense services; __________ g. Inventory destined for shipment to a $___________ country in which Eximbank is unable to do business as designated in the Country Limitations Schedule, whether for commercial or political reasons; and __________ h. Any inventory to be incorporated into $___________ Items whose sale would result in an ineligible Account Receivable.
(If there is no corresponding balance for an ineligible account, certify this fact by checking the space next to the account designation.) 6. Total Ineligible Inventory: $___________ 7. Eligible Inventory (Line 5 less Line 6) $___________ 8. Total Firm Written Export Purchase Orders and Sales Contracts $___________ Covering Existing Inventory 9. Funds Available Against Inventory (The Lesser of (a) Line 8 or $___________ (b) 70% of Line 7) 10. Total Funds Available (Lesser of (a) Line 4 plus Line 9 or $___________ (b) $5,000,000) 11. Eximbank Loan Balance Presently Outstanding $___________ 12. Availability $___________
2 20 Revolving Promissory Note $5,000,000 San Jose, California February ____, 1995 FOR VALUE RECEIVED, the undersigned, Megatest Corporation (the "Borrower"), promises to pay to the order of Bank of the West ("Bank"), at such place as the holder hereof may designate, in lawful money of the United States of America, the aggregate unpaid principal amount of all advances ("Advances") made by Bank to Borrower under the terms of this Note, up to a maximum principal amount of Five Million Dollars ($5,000,000). Borrower shall also pay interest on the aggregate unpaid principal amount of such Advances at the rates and in accordance with the terms of the Export-Import Bank Loan and Security Agreement between Borrower and Bank of even date herewith, as amended from time to time (the "Loan Agreement") on the last Business Day of each month after an Advance has been made. The entire principal amount and all accrued interest shall be due and payable on July 31, 1995, or on such earlier date, as provided for in the Loan Agreement. Borrower irrevocably waives the right to direct the application of any and all payments at any time hereafter received by Bank from or on behalf of Borrower, and Borrower irrevocably agrees that Bank shall have the continuing exclusive right to apply any and all such payments against the then due and owing obligations of Borrower as Bank may deem advisable. In the absence of a specific determination by Bank with respect thereto, all payments shall be applied in the following order: (a) then due and payable fees and expenses; (b) then due and payable interest payments and mandatory prepayments; and (c) then due and payable principal payments and optional prepayments. Bank is hereby authorized by Borrower to endorse on Bank's books and records each Advance made by Bank under this Note and the amount of each payment or prepayment of principal of each such Advance received by Bank; it being understood, however, that failure to make any such endorsement (or any errors in notation) shall not affect the obligations of Borrower with respect to Advances made hereunder, and payments of principal by Borrower shall be credited to Borrower notwithstanding the failure to make a notation (or any errors in notation) thereof on such books and records. Borrower promises to pay Bank all reasonable costs and reasonable expenses of collection of this Note and to pay all reasonable attorneys' fees incurred in such collection or in any suit or action to collect this Note or in any appeal thereof. Borrower waives presentment, demand, protest, notice of protest, notice of dishonor, notice of nonpayment, and any and all other notices and demands in connection with the delivery, acceptance, performance, default or enforcement of this Note, as well as any applicable statute of limitations. No delay by Bank in exercising any power or right hereunder shall operate as a waiver of any power or right. Time is of the essence as to all obligations hereunder. This Note is issued pursuant to the Loan Agreement, which shall govern the rights and obligations of Borrower with respect to all obligations hereunder. PA1\365270.02 February 9, 1995 21 This Note shall be deemed to be made under, and shall be construed in accordance with and governed by, the laws of the State of California, excluding conflicts of laws principles. MEGATEST CORPORATION By: Title: By: Title: PA1\365270.02 February 9, 1995 4 EX-10.12 3 BORROWER AGREEMENT DATED FEBRUARY 10, 1995 1 EXHIBIT 10.12 October 1, 1994 EXPORT-IMPORT BANK OF THE UNITED STATES WORKING CAPITAL GUARANTEE PROGRAM BORROWER AGREEMENT THIS BORROWER AGREEMENT (this "Agreement") is made and entered into by the entity identified as the Borrower on the signature page hereof (the "Borrower") and is acknowledged by the institution identified as the Lender on the signature page hereof (the "Lender"). RECITALS A. The Lender shall make a loan (the "Loan") to the Borrower for the purpose of providing the Borrower with pre-export working capital to finance the manufacture or purchase and subsequent export sale of the Items (as hereinafter defined). B. The Loan shall be in a principal amount (the "Loan Amount") not to exceed at any time outstanding the amount specified in item (5)(A) of the Loan Authorization Agreement between the Lender and the Export-Import Bank of the United States ("Eximbank") (or Loan Authorization Notice provided to Eximbank by the Lender in the case of a Loan under Delegated Authority) which is attached hereto as Annex A and incorporated herein. C. The Loan shall be evidenced by a valid and enforceable promissory note payable by the Borrower to the order of the Lender (the "Note") and shall be made pursuant to a written agreement related solely thereto between the Borrower and the Lender (the "Loan Agreement"). D. A condition precedent to the making of the Loan by the Lender is that Eximbank guarantee the payment of ninety percent (90%) of the Loan Amount and all interest accrued thereon, subject to the terms and conditions of a master guarantee agreement (the "Master Guarantee Agreement") between Eximbank and the Lender. E. In consideration for and as a condition precedent to the Lender's making the Loan and Eximbank's entering into the Master Guarantee Agreement, the Borrower shall execute this Agreement for the benefit of the Lender and Eximbank. NOW, THEREFORE, the Borrower hereby agrees as follows: 2 ARTICLE I DEFINITIONS "Accounts Receivable" shall mean those trade accounts from the sale of the Items due and payable to the Borrower in the United States and any notes, drafts, letters of credit or insurance proceeds supporting payment thereof. "Availability Date" shall mean the date set forth in item (10) of the Loan Authorization Agreement or, if such date is not a Business Day, the next Business Day thereafter. "Borrowing Base" shall mean the Collateral Value as discounted by the applicable Disbursement Rate(s). "Borrowing Base Certificate" shall mean the certificate in form provided by the Lender and executed by the Borrower setting forth the Borrowing Base supporting one or more Disbursements. "Business Day" shall mean any day on which the Federal Reserve Bank of New York is open for business. "Buyer" shall mean an entity which has entered into one or more Export Orders with the Borrower. "Closing Date" shall mean the date on which the Loan Documents are executed by the Borrower. "Collateral" shall mean the property of the Borrower in which the Borrower has granted to the Lender a valid and enforceable security interest as security for the payment of all principal and interest due under the Loan, and which is identified in item (6) of the Loan Authorization Agreement, including all proceeds (cash and non-cash) thereof. "Collateral Value" shall mean at any given time the value of all Collateral against which Disbursements may be made as set forth in item (5)(C) of the Loan Authorization Agreement, valued according to Generally Accepted Accounting Principles. "Country Limitation Schedule" shall mean the schedule published by Eximbank and attached to this Agreement as Annex C which sets forth on a country by country basis whether and under what conditions Eximbank will provide coverage for the financing of export transactions to countries listed therein. "Disbursed Amount" shall mean the aggregate outstanding amount of the Disbursements. 2 3 "Disbursement" shall mean an advance of the Loan from the Lender to the Borrower under the Loan Agreement. "Disbursement Rate" shall mean the rate specified in item (5)(C) of the Loan Authorization Agreement for each category of Collateral. "Dollars" or "$" shall mean the lawful money of the United States of America. "Export Certificate" shall mean the certificate in the form of Annex B to this Agreement executed by the Borrower. "Export Order" shall mean a written export order or contract for the purchase by the Buyer from the Borrower of any of the Items. "Generally Accepted Accounting Principles" shall mean the accounting principles issued by the American Institute of Certified Public Accountants. "Guarantors" shall mean those persons or entities, if any, identified in item (3) of the Loan Authorization Agreement who shall jointly and severally guarantee the Borrower's obligation to repay all amounts outstanding under the Note. "Inventory" shall mean the raw materials, work-in-process and finished goods purchased or manufactured by the Borrower for resale. "Items" shall mean the finished goods or services which are intended for export, as specified in item (4)(A) of the Loan Authorization Agreement. "Letter of Credit" shall mean an irrevocable letter of credit subject to UCP 500, payable in the United States or at the issuing bank and issued for the benefit of the Borrower on behalf of a Buyer in connection with the purchase of the Items. "Loan Documents" shall mean the Note, the Loan Agreement, this Agreement and any other instrument, agreement or document previously, simultaneously or hereafter executed by the Borrower or any Guarantors evidencing, securing, guaranteeing or in connection with the Loan. "Revolving Loan" shall mean a Loan under which amounts disbursed and repaid may be disbursed again until the Availability Date. "Transaction Specific Loan" shall mean a Loan under which amounts disbursed and repaid may not be disbursed again. 3 4 "U.S." or "United States" shall mean the United States of America and its territorial possessions. "U.S. Content" shall mean with respect to any Item all the labor, materials and services which are of U.S. origin or manufacture, and which are incorporated into an Item in the United States. ARTICLE II OBLIGATIONS OF THE BORROWER Until payment in full of the Loan, the Borrower agrees to the following: Section 2.1 Use of Disbursements. The Borrower shall use Disbursements only for the purpose of enabling the Borrower to finance the cost of manufacturing, purchasing or selling the Items. The Borrower may not use Disbursements for the purpose of: (a) servicing any of the Borrower's pre-existing or future indebtedness unrelated to the Loan; (b) acquiring fixed assets or capital goods for use in the Borrower's business; (c) acquiring, equipping or renting commercial space outside of the United States; or (d) paying the salaries of non-U.S. citizens or non-U.S. permanent residents who are located in offices outside the United States. In addition, Disbursements may not be used to finance the manufacture, purchase or sale of any of the following: (a) Items to be sold to a Buyer located in a country in which Eximbank is legally prohibited from doing business as designated in the Country Limitation Schedule; (b) that part of the cost of the Items which is not U.S. Content unless such part is not greater than fifty percent (50%) of the cost of the Items and is incorporated into the Items in the United States; (c) defense articles or defense services; or (d) without Eximbank's prior written consent, any Items to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities. Section 2.2 Certificates. In order to receive a Disbursement under a Transaction Specific Loan, the Borrower shall deliver to the Lender a Borrowing Base Certificate current within the past five (5) calendar days. In order to receive a Disbursement under a Revolving Loan, the Borrower shall have delivered to the Lender a Borrowing Base Certificate current within the past thirty (30) calendar days. Additionally, in order to receive the first Disbursement related to any particular 4 5 Export Order, the Borrower shall deliver to the Lender an Export Certificate covering the Items described in such Export Order. Section 2.3 Exclusions from the Borrowing Base. In determining the amount of a requested Disbursement, the Borrower shall exclude from the Borrowing Base the following: (a) any Inventory which is not located in the United States; (b) any demonstration Inventory or Inventory sold on consignment; (c) any Inventory consisting of proprietary software; (d) any Inventory which is damaged, obsolete, returned, defective, recalled or unfit for further processing; (e) any Inventory which has been previously exported from the United States; (f) any Inventory which constitutes defense articles or defense services or any Accounts Receivable generated by sales of such Inventory; (g) any Inventory which is to be incorporated into Items destined for shipment to, and any Account Receivable in the name of a Buyer located in, a country in which Eximbank is legally prohibited from doing business as designated in the Country Limitation Schedule; (h) any Inventory which is to be incorporated into Items destined for shipment to, and any Account Receivable in the name of a Buyer located in, a country in which Eximbank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, unless and only to the extent that such Items are to be sold to such country terms of a Letter of Credit confirmed by a bank acceptable to Eximbank; (i) any Inventory which is to be incorporated into Items whose sale would result in an ineligible Account Receivable; (j) any Account Receivable with a term in excess of net one hundred eighty (180) days; (k) any Account Receivable which is more than sixty (60) calendar days past the original due date, unless it is insured through Eximbank export credit insurance for comprehensive commercial and political risk, or through Eximbank approved private insurers for comparable coverage, in which case ninety (90) calendar days shall apply; 5 6 (l) any intra-company Account Receivable or any Account Receivable from a subsidiary of the Borrower, from a person or entity with a controlling interest in the Borrower or from an entity which shares common controlling ownership with the Borrower; (m) any Account Receivable evidenced by a Letter of Credit, until the date of shipment of the Items covered by the subject Letter of Credit; (n) any Account Receivable which the Lender or Eximbank, in its reasonable judgment, deems uncollectible for any reason; (o) any Account Receivable payable in a currency other than Dollars; and (p) any Account Receivable from a military Buyer, except as may be approved by Eximbank. Section 2.4 Schedules, Reports and Other Statements. The Borrower shall submit to the Lender in writing each month (a) an Inventory schedule for the preceding month and (b) an Accounts Receivable aging report for the preceding month detailing the terms of the amounts due from each Buyer. The Borrower shall also furnish to the Lender promptly upon request such information, reports, contracts, invoices and other data concerning the Collateral as the Lender may from time to time specify. Section 2.5 Additional Security or Payment. The Borrower shall at all times ensure that the Borrowing Base exceeds the Disbursed Amount. If informed by the Lender or if the Borrower otherwise has actual knowledge that the Borrowing Base is at any time less than the Disbursed Amount, the Borrower shall, within five (5) Business Days, either (a) furnish additional security to the Lender, in form and amount satisfactory to the Lender and Eximbank, or (b) pay to the Lender an amount equal to the difference between the Disbursed Amount and the Borrowing Base. Section 2.6 Continued Security Interest. The Borrower shall notify the Lender in writing within five (5) Business Days if (a) the Borrower changes its name or identity in any manner, (b) the Borrower changes the location of its principal place of business, (c) the nature of any of the Collateral is changed or any of the Collateral is transferred to another location or (d) any of the books or records related to the Collateral are transferred to another location. The Borrower shall execute such additional financing statements or other documents as the Lender may reasonably request in order to maintain its perfected security interest in the Collateral. Section 2.7 Inspection of Collateral. The Borrower shall permit the representatives of the Lender and Eximbank to make at any time during normal business hours reasonable inspections of the Collateral and of the Borrower's facilities, activities, and books and records, and shall cause its officers and employees to give full cooperation and assistance in connection therewith. 6 7 Section 2.8 Notice of Debtor's Relief, Dissolution and Litigation. The Borrower shall notify the Lender in writing within five (5) Business Days of the occurrence of any of the following: (a) a proceeding in bankruptcy or an action for debtor's relief is filed by, against, or on behalf of the Borrower; (b) the Borrower fails to obtain the dismissal or termination within thirty (30) calendar days of the commencement of any proceeding or action referred to in (a) above; (c) the Borrower begins any procedure for its dissolution or liquidation, or a procedure therefore has been commenced against it; or (d) any material litigation is filed against the Borrower. Section 2.9 Insurance. The Borrower shall maintain insurance coverage in the manner and to the extent customary in businesses of similar character. Section 2.10 Merger or Consolidation. Without the prior written consent of Eximbank and the Lender, the Borrower shall not (a) merge or consolidate with any other entity, (b) sell, lease, transfer or otherwise dispose of any substantial part of its assets, or any part of its assets which are essential to the conduct of its business or operations, (c) make any material change in its organizational structure or identity, or (d) enter into any agreement to do any of the foregoing. Section 2.11 Repayment Term and Reborrowings. The Borrower shall pay in full the outstanding Loan Amount and all accrued and unpaid interest thereon no later than the first Business Day after the Availability Date. If the Loan is a Revolving Loan, provided that the Borrower is not in default under any of the Loan Documents, the Borrower may borrow, repay and reborrow amounts under the Loan until the close of business on the Availability Date. If the Loan is a Transaction Specific Loan, the Borrower shall, within two (2) Business Days of the receipt thereof, pay to the Lender (for application against the outstanding Loan Amount and accrued and unpaid interest thereon) all checks, drafts, cash and other remittances it may receive in payment or on account of the Accounts Receivable or any other Collateral, in precisely the form received (except for the endorsement of the Borrower where necessary). Pending such deposit, the Borrower shall not commingle any such items of payment with any of its other funds or property, but will hold them separate and apart. Section 2.12 Cross Default. The Borrower shall be deemed in default under the Loan if the Borrower fails to pay when due any amount payable to the Lender under any loan to the Borrower not guaranteed by Eximbank. 7 8 Section 2.13 Financial Statements. The Borrower shall provide quarterly financial statements to the Lender no later than ninety (90) days after the end of each quarter. This is in addition to any other financial statements that may be required by the Lender under the Loan Agreement. Section 2.14 Taxes, Judgments and Liens. The Borrower shall remain current on all of its Federal, state and local tax obligations. In addition, the Borrower shall notify the Lender in the event of (i) any judgment against the Borrower, or (ii) any lien is filed against any of the assets of the Borrower. ARTICLE III RIGHTS AND REMEDIES Section 3.1 Indemnification. Upon Eximbank's payment of a claim to the Lender in connection with the Loan pursuant to the Master Guarantee Agreement, Eximbank shall assume all rights and remedies of the Lender under the Loan Documents and may enforce any such rights or remedies against the Borrower, the Collateral and any Guarantors. Additionally, the Borrower shall hold Eximbank and the Lender harmless from and indemnify them against any and all liabilities, damages, claims, costs and losses incurred or suffered by either of them resulting from (a) any materially incorrect certification or statement knowingly made by the Borrower or its agent to Eximbank or the Lender in connection with the Loan, this Agreement or any of the other Loan Documents or (b) any material breach by the Borrower of the terms and conditions of this Agreement or any of the other Loan Documents. ARTICLE IV MISCELLANEOUS Section 4.1 Governing Law. This Agreement is made under the laws of the State of New York, United States of America, and for all purposes shall be governed by and construed in accordance with such laws without giving effect to the conflict of law principles thereof. Section 4.2 Notification. All notifications required by this Agreement shall be given in the manner provided in the Loan Agreement. Section 4.3 Partial Invalidity. If at any time any of the provisions of this Agreement becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, the validity nor the enforceability of the remaining provisions hereof shall in any way be affected or impaired. 8 9 IN WITNESS WHEREOF, the Borrower has caused this Agreement to be duly executed as of the 10th day of February, 1995. Megatest Corporation - - ----------------------------- (Name of Borrower) By /s/ Mel Flanigan --------------------------- (Signature) Name Mel Flanigan ------------------------- (Print or Type) Title Corp. Controller ------------------------ ACKNOWLEDGED: Bank of the West - - ----------------------------- (Name of lender) By /s/ Daniel Corry --------------------------- (Signature) Name Daniel Corry ------------------------- (Print or Type) Title Vice President ------------------------ Guaranteed Loan No. AP068442XX ANNEXES: A - Loan Authorization Agreement B - Export Certificate C - Country Limitation Schedule 9 10 ANNEX A LOAN AUTHORIZATION AGREEMENT THIS LOAN AUTHORIZATION AGREEMENT (this "Agreement") is made and entered into by and between the institution identified as the Lender on the signature page hereof (the "Lender") and the Export-Import Bank of the United States ("Eximbank") . This Agreement sets forth the specific terms and conditions of the Loan known as Guaranteed Loan No. AP068442XX which is guaranteed by Eximbank pursuant to the Master Guarantee Agreement dated January 19, 1995, between Eximbank and the Lender. The capitalized terms used herein shall have the meanings set forth in the Master Guarantee Agreement. (1) Lender's Name and Address: Bank of the West 50 W. San Fernando Street San Jose, CA 95113 Contact Person: Mr. Daniel Corry Telephone Number: (408) 998-7913 Telefax Number: (408) 947-5117 (2) Borrower's Name and Address: Megatest Corporation 1321 Ridder Park Drive San Jose, CA 95131 Contact Person: Mr. Melvin L. Flanagan Telephone Number: (408) 437-9700 Telefax Number: (408) 451-3202 (3) Guarantor's Name and Address: The guarantee shall be valid and enforceable, and shall be guarantee of payment and not of collection; if more than one guarantor, their obligations shall be joint and several. None (4) The Items to be financed: A. The Items: Semiconductor Testing Equipment B. Are Performance Guarantees (e.g. bid bonds, performance bonds, surety bonds, stand-by letters of credit) to be issued to foreign Buyers? Yes: ; No: X ----- ----- (5) Loan Amount, Disbursement Terms and Conditions, and Disbursement Rates: A. Loan Amount: $5,000,000.00 11 B. Disbursement Terms and Conditions: (1) As specified herein, up to 20% of the Loan Amount may be in the form of Disbursements that are made without a related firm Export Order, however, prior to any such Disbursement the Borrower shall deliver to the Lender a written statement, with a supporting breakdown of costs, to the effect that Disbursements are only for documented U.S. costs associated with export sales. (2) Except for (1) above, each Disbursement may be made only against firm written export purchase orders which are delivered to the Lender prior to each Disbursement. C. Disbursement Rates by Categories of Collateral: (1) Inventory: 70 percent of the value of the Borrower's Export-related Inventory; and (2) Accounts Receivable: 90 percent of the value of the Borrower's eligible export-related Accounts Receivable. D. The Loan is a Revolving Loan. (6): Security Interests in the Collateral: Valid and enforceable, perfected first priority security interests in all export-related Accounts Receivable and all Export-related Inventory, and the proceeds thereof. To the extent applicable, "Export-related Inventory" shall mean all of the Borrower's inventory which is intended to be sold pursuant to Export Orders. Unless the Export-related Inventory can be effectively segregated, for purposes of claim recoveries under the Master Guarantee Agreement, the Export-related Inventory will be determined on a pro-rata basis comparing, as of the date of default, the amount outstanding under the Loan and the aggregate amount outstanding under all other short-term Inventory financing, of the Borrower. (7): Terms of Sale: Export sales financed under the Loan shall be on one of the following terms: (i) Letters of Credit; (ii) open account terms for creditworthy Buyers which have been preapproved in writing by Eximbank and the Lender. (8) Lender's Interest Rate: Prime plus .5 percent. (9) Facility Fee: The Lender shall pay the Facility Fee equal to $37,500.00 (0.75% of the Loan Amount) due the earlier of five (5) Business Days of the Closing Date or February 28, 1995. (10) Availability Date: July 31, 1995. (11) Special Conditions: (See attached.) (12) Country-Limitations: (Effective November 13, 1994, see attached.) 12 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, in duplicate, as of the 10th day of February 1995. Bank of the West EXPORT-IMPORT BANK OF THE - - ------------------------------------ UNITED STATES (Name of Lender) By /s/ Daniel Corry By /s/ James W. Crist - - ------------------------------------ ------------------------------------ (Signature) (Signature) Name Daniel Corry Name James W. Crist - - ------------------------------------ ------------------------------------ (Print) (Print) Title Vice President Title Vice President - - ------------------------------------ ------------------------------------ Guaranteed Loan No. AP068442XX 13 SPECIAL CONDITIONS AP068442XX I. NEGATIVE COVENANTS: Loans to Stockholders and Affiliates. Without Eximbank's prior written consent, the Borrower shall not make any loans to any stockholder or entity affiliated with the Borrower. With respect to this Special Condition, the term "loan" does not include salary, rent paid to an affiliated entity owned by the stockholders, or to other expenses incurred in the ordinary course of business. II. WARRANTIES, REPRESENTATIONS AND OTHER COVENANTS: The Borrower warrants, represents, covenants and agrees that: Export Credit Insurance Policy ("Policy"). It shall obtain a Policy acceptable to Eximbank for comprehensive commercial and political risks, (in the event that open account terms of sales are indicated in Item 7 of the Loan Authorization Agreement) and shall assign such policy to the Lender. Coverage under such Policy shall be in full force and effect as of the date of each Disbursement under the Loan and until all amounts outstanding have been repaid. The proceeds of such Policy paid to the Lender pursuant to the assignment shall be applied first toward reducing any amount then outstanding under the Loan. 14 ANNEX B EXPORT CERTIFICATE Date:_____________________ [NAME OF LENDER] [ADDRESS OF LENDER] Re: $_______________ [Revolving][Transaction Specific] Loan (the "Loan") from __________________________________________ (the "Lender") to ____________________________ (the "Borrower") guaranteed by the Export-Import Bank of the United States ("Eximbank") under Master Guarantee Number______________. Guaranteed Loan No._________________. Ladies and Gentlemen: We hereby certify for the benefit of the Lender and Eximbank with respect to the items described in Export Order ___________________________________ [insert number and/or date, as applicable] (the "Items") as follows: 1 . U.S. Content. Check the applicable box: / / The U.S. Content of the Items is equal to or greater than fifty percent (50%) of the cost of the Items. / / The U.S. Content of the Items is less than fifty percent (50%) of the cost of the Items. If so, indicate below what percentage of the cost of the Items constitutes U.S. Content: Item Percentage of U.S. Content 15 2. Munitions List. Only the following Items are articles, services, or related technical data that are listed on the United States Munitions List (part 121 of title 22 of the Code of Federal Regulations): Item Invoice Amount (If none, the word "NONE" must be inserted in order for this Certificate to be considered complete.) 3. Defense Articles. The Buyer is not a military entity and the Items are not defense articles or defense services. 4. Country Limitation Schedule. (a) The Items are not being exported to a country in which Eximbank is legally prohibited from doing business as designated in the Country Limitation Schedule. (b) The Items are to be exported to the following countries in which Eximbank coverage is not available for commercial reasons as designated in the Country Limitation Schedule, the sale of such Items must be on terms of a Letter of Credit issued or confirmed by a bank acceptable to Eximbank. (If none, the word "NONE" must be inserted in order for this Certificate to be considered complete.) 5. Nuclear Exports. The Items do not consist of technology, fuel, equipment, materials or goods and services to be used in the construction, alteration, operation or maintenance of nuclear power, enrichment, reprocessing, research or heavy water production facilities, unless the prior consent of Eximbank has been obtained. We have attached hereto a copy of the Export Order referenced above. With knowledge that the Lender and Eximbank will rely on the certifications and representations made in this certificate, we agree to be liable for any damages suffered by the Lender's and/or Eximbank's reliance on such certifications and representations. We further understand that this certification is subject to the penalties provided in Article 18 U.S.C. Section 1001. All capitalized terms not defined in this Certificate shall have the meanings set forth in the Borrower Agreement executed in connection with the Loan. 2 16 _______________________ (NAME OF BORROWER) By:_________________________ (Signature) Name:________________________ (Print orType) Title:________________________ (Print or Type) Enclosures 3 17 Page 1 of 11 ANNEX C EXPORT-IMPORT BANK OF THE UNITED STATES COUNTRY LIMITATION SCHEDULE Special Conditions Pertaining to Ex-Im Bank Loan & Guarantee Programs and Export Credit Insurance EFFECTIVE November 13, 1994 It is agreed that pursuant to the provisions of Ex-Im Bank loans and guarantees and Ex-Im Bank export credit insurance policies, the country limitation schedule has been amended effective November 13, 1994. This revision supersedes the August 1, 1994 country limitation schedule and any amendments thereto. Insureds, and brokers will be notified of any amendments to this country limitation schedule in writing. A full revision is generally completed every six months to one year. All special conditions should be reviewed as many have been amended. GENERAL CONDITIONS Exceptions to any condition or limitation contained herein must be obtained in writing from Ex-Im Bank. Ex-Im Bank reserves the right to set additional conditions for any particular buyer or issuing bank including the right to set a different percentage of coverage. Ex-Im Bank also reserves the right to reject any particular application. The sector where the risk lies (public or private) and the country of the obligor, or guarantor if there is one, will generally be used for determining appropriate country limitations and exposure fee. The following insurance policies are affected by this country limitation schedule: SHORT-TERM COMPREHENSIVE: CS, EBD, ELC, ENB, ENV, ESC, ESM(ST), ESS, ETM(ST), FB, FB-E, FV, MSC(ST), MSC-E(ST). SHORT-TERM POLITICAL RISKS ONLY: ESP, ESSP, FP, MCP(ST). MEDIUM-TERM: All medium-term and lease-policy types, ESM(MT), ETM(MT), MCP(MT), MRP, MSC(MT), MSC-E(MT), MTR, MTR-E. Effective Date of this Endorsement November 13, 1994 No. CLS-11/94 12:01 A.M. E.S.T. 18 Page 2 of 11 EXPORT-IMPORT BANK OF THE U.S. COUNTRY LIMITATION SCHEDULE EFFECTIVE November 13, 1994
PUBLIC SECTOR RISK PRIVATE SECTOR RISK COUNTRY ST MT LT ST MT LT NOTES Afghanistan X X X X X X Albania X X X X X X Algeria X X X X X #1, #2 Angola X X X X X X Anguilla #2 Antigua & Barbuda X X X #2 Argentina #7b Armenia X X X X X X Aruba #2, #10 Australia Austria Azerbaijan X X X X X X Bahamas Bahrain Bangladesh X X X #2 Barbados #2 Belarus X X X X X X Belgium Belize #7a Benin X X X X #2, #5 Bermuda Bhutan #2, #5 Bolivia X #2, #6 Botswana Bosnia-Hercegovina X X X X X X Brazil X X X British Virgin Is. Brunei Bulgaria X X X #2, #6 Burkina Faso X X X X X X Burundi X X X X X X Cambodia X X X X X X #8 Cameroon X X X X X X Canada Cape Verde Is. X X X X X X Cayman Is.
ST = SHORT-TERM, MT = MEDIUM-TERM, LT = LONG-TERM, X = SUPPORT NOT AVAILABLE 19 Page 3 of 11 EXPORT-IMPORT BANK OF THE U.S. COUNTRY LIMITATION SCHEDULE EFFECTIVE November 13, 1994
PUBLIC SECTOR RISK PRIVATE SECTOR RISK COUNTRY ST MT LT ST MT LT NOTES Central African Rep. X X X X X X Chad X X X X X X Chile China, People's Rep. X X X #3 Colombia Comoros X X X X X X Congo X X X X X X Cook Islands X #2, #5 Costa Rica X #7b Cote d'Ivoire X X X X X X Croatia X X X X X X Cuba X X X X X X #8 Cyprus Czech Republic #2, #5 Denmark Djibouti X X X X X X Dominica #2 Dominican Rep. X #6, #7a Ecuador X #6, #7a Egypt #2 El Salvador Equatorial Guinea X X X X X X Eritrea X X X X X X Estonia X #2, #5, #6 Ethiopia X X X X X X Fiji #2 Finland France Gabon X X X #7a Gambia X X X X X X Georgia X X X X X X Germany Ghana #6, #7a Greece Grenada #2 Guatemala #7b
ST = SHORT-TERM, MT = MEDIUM-TERM, LT = LONG-TERM, X = SUPPORT NOT AVAILABLE 20 Page 4 of 11 EXPORT-IMPORT BANK OF THE U.S. COUNTRY LIMITATION SCHEDULE EFFECTIVE November 13, 1994
PUBLIC SECTOR RISK PRIVATE SECTOR RISK COUNTRY ST MT LT ST MT LT NOTES Guinea X X X X X X Guinea-Bissau X X X X X X Guyana X X X #2, #5 Haiti X X X X X X Honduras X X X X #2, #5 Hong Kong Hungary #2, #5 Iceland India Indonesia Iran X X X X X X #8 Iraq X X X X X X #8 Ireland Israel Italy Jamaica X #7a Japan Jordan #2, #5 Kazakhstan X X X #2, #6 Kenya X X X X X X Kiribati #2 Korea, North X X X X X X #8 Korea, South Kuwait Kyrgyzstan X X X X X X Laos X X X X X X #8 Latvia X #2,#5,#6 Lebanon X #2,#5,#6 Lesotho #7b Liberia X X X X X X Libya X X X X X X #8 Liechtenstein Lithuania X #2,#5,#6 Luxembourg Macao #2 Macedonia X X X X X X
ST = SHORT-TERM, MT = MEDIUM-TERM, LT = LONG-TERM, X = SUPPORT NOT AVAILABLE 21 Page 5 of 11 EXPORT-IMPORT BANK OF THE U.S. COUNTRY LIMITATION SCHEDULE EFFECTIVE November 13,1994
PUBLIC SECTOR RISK PRIVATE SECTOR RISK COUNTRY ST MT LT ST MT LT NOTES Madagascar X X X X X X Malawi X X X X X X Malaysia Maldive Islands #2 Mali X X X X X X Malta Marshall Islands X X #2, #5 Mauritania X X X X X X Mauritius Mexico Micronesia #2 Moldova X X X X X X Monaco Mongolia X X X X #2, #6 Montserrat #2 Morocco #7b Mozambique X X X X X X Myanmar X X X X X X #8 Namibia #2 Nauru #2 Nepal X #2 Netherlands Neth Antilles New Zealand Nicaragua X X X X X X Niger X X X X X X Nigeria X X X X X X #8 Norway Oman Pakistan #7b Palau X X X X #2, #6 Panama #7b Papua New Guinea #2 Paraguay #7a Peru X #2, #5 Philippines #4
ST = SHORT-TERM, MT = MEDIUM-TERM, LT = LONG-TERM, X = SUPPORT NOT AVAILABLE 22 Page 6 of 11 EXPORT-IMPORT BANK OF THE U.S. COUNTRY LIMITATION SCHEDULE EFFECTIVE November 13, 1994
PUBLIC SECTOR RISK PRIVATE SECTOR RISK COUNTRY ST MT LT ST MT LT NOTES Poland #2, #5 Portugal Qatar Romania X X X #2, #6 Russia X X X X #2, #6 Rwanda X X X X X X St. Kitts-Nevis #2 St. Lucia #2 St. Vincent-Gren. #2 Sao Tome & Principe X X X X X X Saudi Arabia Senegal X X X X X X Serbia X X X X X X #8 Seychelles #7b Sierra Leone X X X X X X Singapore Slovakia #2, #5 Slovenia X X #2, #5 Solomon Islands #2 Somalia X X X X X X South Africa #2 Spain Sri Lanka #2, #5 Sudan X X X X X X #8 Suriname X X X X X X Swaziland Sweden Switzerland Syria X X X X X X #8 Taiwan Tajikistan X X X X X X Tanzania X X X X X X Thailand Togo X X X X X X Tonga #2 Trinidad & Tobago #7a
ST = SHORT-TERM, MT = MEDIUM-TERM, LT = LONG-TERM, X = SUPPORT NOT AVAILABLE 23 Page 7 of 11 EXPORT-IMPORT BANK OF THE U.S. COUNTRY LIMITATION SCHEDULE EFFECTIVE November 13, 1994
PUBLIC SECTOR RISK PRIVATE SECTOR RISK COUNTRY ST MT LT ST MT LT NOTES Trinidad & Tobago #7a Tunisia Turkey Turkmenistan X X X X #2, #6 Turks & Caicos Is. #2 Uganda X X #2, #5 Ukraine X X X X X X United Arab Emirates #9 United Kingdom Uruguay #7b Uzbekistan X X X X #2, #6 Vanuatu #2 Vatican City Venezuela X X X #2 Vietnam X X X X X X #8 Western Samoa #2 Yemen X X X X X X Zaire X X X X X X Zambia X X X X X X Zimbabwe #7b
ST = SHORT-TERM, MT = MEDIUM-TERM, LT = LONG-TERM, X = SUPPORT NOT AVAILABLE 24 Page 8 of 11 Notes: #1. Short-term cover is limited to government-owned banks and SONATRACH. #2. Discretionary credit limits are withdrawn. Cover not available unless specified in a special buyer credit limit or issuing bank credit limit endorsement. Cover not available under short-term political risks only policies unless specified in a country limit of liability endorsement. #3. Bank of China, China International Trust and Investment Corporation,or People's Construction Bank of China as obligor or guarantor. Ex-Im Bank will consider other financial institutions. #4. Except for selected transactions with the Development Bank of the Philippines, the guarantee of the Department of Finance is required for public sector medium- and long-term transactions. Before taking action on private or public sector medium- or long-term cases, Ex-Im Bank will obtain the advice of the Department of Finance to the status of internal Philippine approvals. For public sector medium- and long-term transactions Ex-Im Bank will also obtain a statement of the willingness of the Department of Finance to serve as guarantor. #5. Ex-Im Bank cover/support for private sector transactions is limited to transactions with a commercial bank as obligor or guarantor unless otherwise specified by Ex-Im Bank. #6. Ex-Im Bank cover/support public sector transactions is limited to transactions which commit the full faith and credit of the government unless otherwise specified by Ex-Im Bank. #7. Discretionary credit limits and coverage under short-term political risks only policies shall be the lesser of the limits authorized in the policy or: a. $ 50,000 b. $100,000 Higher limits will be considered upon application for a special buyer credit limit, issuing bank credit limit, or country limit of liability. #8. Support legally prohibited. #9. Transactions in Sharjah, Fujairah, Ras Al-Khaimah, Umm Al-Qaywayn, and Ajman require the guarantee of the federal government. #10. Longer than short-term public sector transactions require the government of Aruba as the borrower. 25 PAGE 9 OF 11 INFORMATION SUPPLEMENT ON MEDIUM- AND LONG-TERM PROGRAMS "OPEN FOR COVER" versus "OFF-COVER". The attached Country Limitation Schedule indicates where Ex-Im Bank is "open for cover" and where Ex-Im Bank is "off- cover". The Schedule is organized along three dimensions: the country where the risk lies, sector (public sector or private sector), and term of total exposure (including both disbursement period and repayment term). Ex-Im Bank defines "public sector" as including those obligors or guarantors which are at least 50% owned, directly or indirectly, by the government. Where the CLS presents an X mark, Ex-Im Bank is "off-cover", and is therefore not willing to consider approval of routine transactions. These "off-cover" determinations are due to economic and/or political risks associated with the country. WHERE EX-IM BANK IS OPEN FOR COVER. The "open for cover" designation refers to the possibility, rather than the certainty, of Ex-Im Bank support in particular cases. Proposed obligors, guarantors, and transaction structures under medium- and long-term programs are all subject to case-by-case Bank approval. Approval depends on the case-by-case application of Bank policies, particularly the Bank's determination of reasonable assurance of repayment. The following paragraphs provide very general guidance to the application of policies in markets where Ex-Im Bank is on-cover. - - - IDENTIFICATION OF OBLIGOR OR GUARANTOR. Ex-Im Bank will approve a final commitment, a preliminary commitment (PC), or a medium-term insurance policy or commitment (MTIP or MTIC), only if a specific obligor or guarantor has been identified. Ex-Im Bank may approve an indicative letter of interest (LI) for a proposed transaction, subject to the condition that an obligor or guarantor is identified at the time the LI is converted to a final commitment. PC, MTIP, or MTIC; and Ex-Im Bank can accept the credit risk of the proposed obligor or guarantor. - - - INFORMATION REQUIREMENTS REGARDING OBLIGORS OR GUARANTORS. Ex-Im Bank requires that obligors or guarantors offer "reasonable assurance of repayment." To process applications for final commitments, PCs. MTIPS, and MTICs, Ex-Im Bank will first require information on proposed obligors and guarantors. Such information includes financial statements and credit references. Engineering data is required for long-term transactions. Generally, Ex-Im Bank will require more detailed information regarding obligors or guarantors when processing relatively large transactions, or transactions with obligors or guarantors with which Ex-Im Bank has had no favorable direct credit experience. Ex-Im Bank's application form and program literature specify the Bank's standard information requirements. - - - SOVEREIGN GUARANTEES FOR PUBLIC SECTOR BUYERS OR OBLIGORS. For most cases involving proposed public sector buyers or obligors, Ex-Im Bank will routinely require a sovereign guarantee. This is particularly true when the public sector obligor is dependent on government budget support or otherwise lacks financial and operating independence. - - - PRIOR HOST GOVERNMENT REVIEW OF SOVERIGN CASES IN SOME COUNTRIES. In some countries, Ex-Im Bank requires prior review of proposed public sector cases by government authorities responsible for providing the sovereign guarantee, before Ex-Im Bank will begin processing action. - - - TEMPORARY SUSPENSION OF COVER. In countries where the CLS indicates that Ex-Im Bank is "open for cover", Ex-Im Bank may, under certain circumstances, temporarily suspend cover. This is most likely to be the case for public sector obligors and guarantors only, but may involve all obligors and guarantors. In such an event, Ex-Im Bank will advise applicants as quickly as possible. - - - LARGE TRANSACTIONS IN SMALLER MARKETS. Relatively large transactions in smaller economies, even when sovereign guaranteed, will be subject to special Ex-Im Bank review. Ex-Im Bank will review the potential 26 PAGE 10 OF 11 macroeconomic impacts of the transaction, in terms of higher debt burden and improved debt repayment capacity. - - - PRIVATE COMPANIES. Ex-Im Bank will accept the direct credit risks of private buyers, if available information suggests that these buyers offer a "reasonable assurance of repayment." For closely-held companies, Ex-Im Bank may require financial information from owners. For holding companies, Ex-Im Bank may require financial information on operating components, and may require their counter-guarantee. - - - COMMERCIAL BANK GUARANTEES. Ex-Im Bank may require the guarantees of acceptable commercial banks in the event that information available to Ex-Im Bank on proposed private buyers suggests that these buyers by themselves do not offer a "reasonable assurance of repayment." - - - LIMITED RECOURSE PROJECTS. Ex-Im Bank will consider limited-recourse project finance structures (those without full recourse to an acceptable, established obligor or guarantor), but only after a comprehensive review of project features. These features shall include the financial commitment of the project's equity shareholders over the life of the proposed Ex-Im Bank commitment, the experience and capacity of project participants, including suppliers and offtakers; project cash flow coverage of foreign currency debt service; and security structures, including hard currency external payments arrangements. Ex-Im Bank will review only well-developed proposals, and will require project sponsors to fund review of project proposals by consultants retained by the Bank. Significant changes to proposed structures may be required. - - - POLITICAL-ONLY COVER. Ex-Im Bank's standard guarantee and insurance cover is "comprehensive", under which Ex-Im Bank will pay claims resulting from both commercial and political perils. Ex-Im Bank also offers a narrower form of coverage, under "political-only" cover. Ex-Im Bank's guarantee agreements and insurance policies describe in detail and or define the specific risks which are subject to this form of coverage. The following is intended as a summary: For long-term transactions, Ex-Im Bank covers default arising from three "core" perils: transfer risk, expropriation, and political violence. Transfer risk involves borrowers' inability to acquire foreign exchange through legal foreign exchange markets. Expropriation involves the government's confiscation of assets or ownership, or arbitrary or discriminatory intervention in business operations. Political violence involves war, revolution, insurrection, and other such acts. Under medium-term insurance policies, Ex-Im Bank also covers defaults arising from other defined risks. Suppliers and/or lenders choosing political-only cover must be prepared to assume broad commercial risks associated with the borrower's capacity. Ex-Im Bank's political-only cover does not cover defaults arising from the borrower's capacity to withstand domestic or international commercial market disruptions, or currency devaluation or depreciation. If suppliers and/or lenders are unable to assume these and other commercial risks, then Ex-Im Bank comprehensive cover would be a more appropriate form of coverage. Political-only cover is offered only for private buyers or borrowers, those which are not subject to the administration of government authorities, and for which it is possible to distinguish between commercial perils and political- risk perils. Political-only cover is the only form of coverage 27 Page 11 of 11 available from Ex-Im Bank for borrowers which are effectively controlled by suppliers and/or lenders participating in transactions. Political-only cover is available only in those countries where Ex-Im Bank is "open for cover" for private sector risk. WHERE EX-IM BANK IS OFF COVER FOR COUNTRY CREDIT REASONS. Ex-Im Bank will not consider routine transactions in countries and sectors (public or private) where the country limitation schedule indicates that the Bank is off-cover (where there is an X). However, three special categories of transactions may be eligible for Ex-Im Bank support, under restrictive conditions, subject to additional special review: - - - BORROWERS ON INTERNATIONAL CAPITAL MARKETS. Individual borrowers (either public sector or private sector) with a strong record of independent access to private international capital markets, absent external (including sovereign) guarantees. The fee grade assigned, and the extent of Ex-Im Bank support, will take into account information related to the borrower's capital market financings and ratings. For Ex-Im Bank to consider such borrowers, information on the borrower's internationally-traded securities, including their credit ratings, face values and coupons, recent market values, and recent yields, must accompany the application. - - - INSULATED PROJECT FINANCE STRUCTURES. Ex-Im Bank's approval in "off-cover" markets/sectors of limited-recourse structures depends on the establishment of structures which do not require the financial or operating commitments of host government agencies and which are effectively insulated from government involvement. Furthermore, these structures must involve the channeling of project foreign exchange earnings through offshore payments and escrow mechanisms. In some country environments, the only acceptable limited- recourse structures may be "enclave" projects which are almost completely insulated from the broader country environment. The fee grade assigned, and the extent of Ex-Im Bank support, will take into account project structure and other conditions. - - - SECURED LONG-RANGE AIRCRAFT LEASES. Ex-Im Bank approval of asset-secured long-range aircraft lease transactions requires that the airline's country of registry become a signatory to international conventions protecting aircraft property rights. Ex-Im Bank approval for aircraft transactions in off-cover markets is more likely for privately-owned airlines with established operating records. Depending on the nature of transaction participants and structures, Ex-Im Bank may also require offshore payments and escrow mechanisms, or may provide a reduced percentage of cover. Aircraft transactions are subject to special fees and covenants. Because these transactions are subject to individual special review, Ex-Im Bank will not approve letters of interest (LIs) for them. It should be noted that these exceptions do not apply in countries where Ex-Im Bank is legally prohibited from operating. EX-11.1 4 STATEMENT REGARDING COMPUTATION OF PER SHARE EARN. 1 EXHIBIT 11.1 MEGATEST CORPORATION STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
THREE MONTHS ENDED: SIX MONTHS ENDED: ------------------- ----------------- FEBRUARY 28, 1995 FEBRUARY 28, 1995 ----------------- ----------------- Weighted average number of common shares outstanding . . . . . . 7,179 7,177 Common share equivalents: Dilutive effect of stock options . . . . . . . . . . . . . . . -- -- -------- ---------- Total average common and common equivalent shares . . . . . . . . 7,179 7,177 ======== ========== Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (3,628) $ (16,094) ======== ========== Net income per common and common equivalent share . . . . . . . $ (0.51) $ (2.24) ======== ==========
FEBRUARY 28, 1994 FEBRUARY 28, 1994 ----------------- ----------------- Weighted average number of common shares outstanding . . . . . . 7,141 6,855 Common share equivalents: Dilutive effect of stock options . . . . . . . . . . . . . . . 178 189 --------- --------- Total average common and common equivalent shares . . . . . . . . 7,319 7,044 ======== ======== Income before accounting change . . . . . . . . . . . . . . . . . $ 2,091 $ 3,869 ======= ======= Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,091 $ 5,569 ======= ======= Income per common and common equivalent share before accounting change . . . . . . . . . . . . . . . $ 0.29 $ 0.55 ======== ======== Net income per common and common equivalent share . . . . . . . $ 0.29 $ 0.79 ======== ========
15 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 1000 6-MOS AUG-31-1995 SEP-01-1994 FEB-28-1995 2743 0 20122 (262) 31930 59071 16565 0 86636 26081 388 7 0 0 60160 86636 30449 30449 21036 21036 27408 0 (353) (17642) (1548) (16094) 0 0 0 (16094) (2.24) (2.24) PP&E IS SHOWN NET OF ACCUMULATED DEPRECIATION.
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