-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F6FBzOE750vWcRgvUht5+jt88We+l6DGBbcWUJQeZhDvypK/3+Qx4HupFkcvnrCD NrKgQ/V31Ho8a7dvaielmw== 0000898430-96-001923.txt : 19960517 0000898430-96-001923.hdr.sgml : 19960517 ACCESSION NUMBER: 0000898430-96-001923 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHWALL TECHNOLOGIES INC /DE/ CENTRAL INDEX KEY: 0000813619 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 942551470 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15930 FILM NUMBER: 96565015 BUSINESS ADDRESS: STREET 1: 1029 CORPORATION WAY CITY: PALO ALTO STATE: CA ZIP: 94303 BUSINESS PHONE: 4159629111 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the quarterly period ended March 31, 1996 -------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ______ to ________ Commission File Number: 0-15930 SOUTHWALL TECHNOLOGIES INC. -------------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 94-2551470 - ----------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1029 Corporation Way, Palo Alto, California 94303 - ------------------------------------------- ------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 962-9111 -------------- 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 --- --- As of March 31, 1996 there were 5,981,617 shares of the Registrant's Common Stock outstanding. This report, including all attachments, contains 12 pages. 1 SOUTHWALL TECHNOLOGIES INC.
INDEX Page Number ----------- PART 1 FINANCIAL INFORMATION Item 1 Financial Statements: Consolidated Balance Sheet - March 31, 1996 and December 31, 1995.......................................... 3 Consolidated Statement of Operations - three months ended March 31, 1996 and April 2, 1995 ............................................. 4 Consolidated Statement of Cash Flows - three months ended March 31, 1996 and April 2, 1995 ............................................. 5 Consolidated Statement of Stockholders' Equity - three months ended March 31, 1996.............................. 6 Notes to Consolidated Financial Statements..................... 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............... 7 PART II OTHER INFORMATION Item 1 Legal Proceedings.......... ................................... 10 Item 2 Changes in Securities.......................................... 10 Item 3 Defaults Upon Senior Securities................................ 10 Item 4 Submission of Matters to a Vote of Stockholders................ 10 Item 5 Other Information.............................................. 10 Item 6 Exhibits and Reports on Form 8-K............................... 10 Signatures..................................................... 11
2 PART 1 FINANCIAL INFORMATION Item 1 Financial Statements - ---------------------------- CONSOLIDATED BALANCE SHEET (in thousands, except per share data)
March 31, 1996 December 31, 1995 -------------- ----------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 1,390 $ 1,434 Short-term investments 1,679 2,132 Accounts receivable, net of allowance for doubtful accounts of $620 and $534 7,235 5,288 Inventories 6,771 6,624 Other current assets 1,003 1,166 -------- -------- Total current assets 18,078 16,644 Property and equipment, net 15,530 15,518 Other assets 1,778 1,943 -------- -------- Total assets $ 35,386 $ 34,105 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,943 $ 3,236 Accrued compensation 1,435 1,413 Other accrued liabilities 2,088 2,170 Current portion of long-term debt 102 101 -------- -------- Total current liabilities 7,568 6,920 Long-term debt 2,829 2,890 Deferred income taxes 381 381 -------- -------- Total liabilities 10,778 10,191 -------- -------- Commitments and contingencies Stockholders' equity: Common stock, $.001 par value, 20,000 shares authorized: Issued and outstanding: 6,917 and 6,917 7 7 Capital in excess of par value 47,204 47,206 Accumulated deficit (18,828) (19,339) Less treasury stock of 935 and 981 (3,775) (3,960) -------- -------- Total stockholders' equity 24,608 23,914 -------- -------- Total liabilities and stockholders' equity $ 35,386 $ 34,105 ======== ========
See accompanying notes to financial statements. 3 SOUTHWALL TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share data) (Unaudited)
March 31, 1996 April 2, 1995 -------------- -------------- Net product sales $10,533 $6,691 Other revenues 104 10 ------- ------ Net revenues 10,637 6,701 ------- ------ Costs and expenses: Cost of product sales 7,409 4,602 Research & development 576 625 Selling, general and administrative 2,100 1,844 ------- ------ Total costs and expenses 10,085 7,071 ------- ------ Income (loss) from operations 552 (370) Interest income 43 54 Interest expense (65) (54) ------- ------ Income (loss) before income taxes 530 (370) Provision for income taxes 19 - ------- ------ Net income (loss) $ 511 $ (370) ======= ====== Net income (loss) per share $.08 $ (.06) ======= ====== Weighted average shares of common stock and common stock equivalents 6,690 5,847 ======= ======
See accompanying notes to financial statements. 4 SOUTHWALL TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands) (Unaudited)
Three Months Ended ------------------- March 31, 1996 April 2, 1995 -------------- -------------- Cash flows from operating activities: Net income (loss) $ 511 $ (370) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 568 499 Decrease (increase) in accounts receivable (1,947) (921) Decrease (increase) in inventories (147) (1,210) Decrease (increase) in other current assets 163 (86) (Decrease) increase in accounts payable and accrued liabilities 740 1,204 ------- ------- Cash provided by (used in) operating activities (112) (884) ------- ------- Cash flows from investing activities: Decrease (increase) in short-term investments 453 1,000 Expenditures for property and equipment and other assets (415) (610) ------- ------- Net cash (used in) provided by investing activities 38 390 ------- ------- Cash flows from financing activities: Proceeds from issuance of stock, net of related costs 0 0 Increase in(reduction of) long-term debt (60) (46) (Purchase) issuance of treasury stock, net 90 0 ------- ------- Net cash (used in) provided by financing activities 30 (46) ------- ------- Net increase (decrease) in cash and cash equivalents ( 44) (540) Cash and cash equivalents, beginning of year 1,434 1,144 ------- ------- Cash and cash equivalents, end of period $ 1,390 $ 604 ======= ======= Supplemental schedule of non-cash investing and financing activities: Treasury stock used for payment of interest $ 93 $ --
See accompanying notes to financial statements. 5 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Three Months Ended March 31, 1996 (in thousands) (Unaudited)
Common Stock Capital in Total ---------------- excess of Accumulated Treasury Stockholders' Shares Amount par value Deficit Stock Equity ------ ------ --------- ----------- -------- ------------ Balance; December 31, 1995 6,917 $7 $47,206 $(19,339) $(3,960) $23,914 Interest paid with Treasury stock 5 88 93 Exercise of Options (7) 97 90 Net income (loss) 511 511 ----- -- ------- -------- ------- ------- Balance; April 2, 1995 6,917 $7 $47,204 $(18,828) $(3,775) $24,608 ===== == ======= ======== ======= =======
See accompanying notes to financial statements. 6 SOUTHWALL TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands) (Unaudited) Note 1 - Interim Period Reporting: ---------------------------------- While the information presented in the accompanying consolidated financial statements is unaudited, it includes all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the Company's financial position and results of operations, and changes in financial position as of the dates and for the periods indicated. Certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements contained in the Company's Form 10-K for the year ended December 31, 1995. The results of operations for the interim periods presented are not necessarily indicative of the operating results of the full year. Note 2 - Inventories: --------------------- Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. Inventories at March 31, 1996 and December 31, 1995, consisted of the following:
March 31, 1996 December 31, 1995 -------------- ----------------- Raw materials $2,570 $2,696 Work-in-process 1,303 989 Finished goods 2,898 2,939 ------ ------ Total $6,771 $6,624 ====== ======
Note 3 - Commitments: --------------------- During the first quarter of 1996, the Company and SONY Corporation signed an Addendum #1 to Supply Agreement. Under the terms of the Amended Agreement, among other things, SONY has agreed to increase its minimum order of anti-reflective film beginning July 1, 1997 and extending through December 31, 2000 and Southwall has agreed to install any necessary additional manufacturing capacity by July 1, 1997. The Company is currently planning and negotiating to equip a new facility for the manufacturing of anti-reflective film. The Company estimates that it will cost approximately $14 million to equip this facility. The Company is also in negotiations with lending institutions to finance this expansion. Item 2 - Management's Discussion and Analysis of Financial Condition and ------------------------------------------------------------------------- Results of Operations --------------------- Except for the historical information contained herein, the matters discussed in this Form 10-Q Report are forward-looking statements that involve risks and uncertainties, including those discussed below and in the Company's Annual Report on Form 10-K. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgment as of the date of the filing of this From 10-Q Report. The Company disclaims, however, any intent or obligation to update these forward-looking statements. 7 Three Months Ended March 31, 1996 and December 31, 1995 ------------------------------------------------------- Net product sales increased to $10.5 million for the first three months of 1996, compared to $6.7 million for the similar period of 1995. Most of the increase was due to $2.4 million of sales of our new anti-reflective film. In addition, net product sales of energy conservation products was up by $2.1 million and electronics products increased by approximately $.1 million, more than offsetting a $.7 million dollar decline in silver reflector film sales and a $.2 million decrease in our discontinued aerospace product sales. Cost of product sales for the first quarter of 1996 was 70% of net product sales, compared to 69% for the similar period of 1995. This percentage increase was primarily attributable to some operational problems that occurred during the quarter. These problems have been corrected and are not expected to recur. Research and development expenses, as a percent of net product sales, were 5% for the first three months of 1996, compared to 9% for the similar period in 1995. The percentage decrease was primarily attributable to the increase in net product sales. The absolute dollar decrease in 1996 is attributable to lower new product development. Selling, general and administrative expense, as a percent of net product sales, decreased to 20% in the first three months of 1996, from 28% for the similar period in 1995. The percentage decrease was primarily attributable to the increase in net product sales. The absolute dollar increase from $1.8 million in 1995 to $2.1 million in 1996, is attributable to increased sales and marketing expenses associated with the introduction of new products and expansion into the Pacific Rim. Interest income, decreased in 1996 compared to 1995 due primarily to a decrease in monies invested. As a result of the factors discussed above, the Company reported a pre-tax profit of $.5 million for the first three months of 1996, compared to a pre-tax loss of ($.4 million) for the similar period in 1995. The Company believes that it must continue to increase revenues to improve profitability. Although the Company is seeking to expand existing applications, to develop new applications and to expand international marketing and sales efforts, there can be no assurance that the Company will be able to increase revenues and remain profitable. Effective March 31, 1996, the Company terminated its lease of equipment and facilities in Southern California to laminate glass located. The Company will continue to market its California Series/TM/ clear solar shading laminated glass products, which will be laminated by a sub-contractor, but will no longer market other laminated products. The termination of this lease and discontinuance of the marketing of certain products, as well as the discontinuance of the aerospace product line discussed above, is not expected to have any adverse effect on future financial results. Liquidity and Capital Resources ------------------------------- At March 31, 1996, the Company's net working capital was $10.5 million compared with $9.7 million at December 31, 1995. The Company has financed itself through cash flow from operations and its existing cash balances. 8 From December 31, 1995, to March 31, 1996, cash and short-term investments decreased by $.5 million, while accounts receivable increased by $1.9 million. The increase in accounts receivable is primarily attributable to the increase in net revenues from $9.1 million in the fourth quarter of 1995 to $10.6 million in the first quarter of 1996, most of which occurred during the later portion of the quarter. Additions to property and equipment were approximately $.6 million during the first quarter of 1996. The Company anticipates total capital expenditures of approximately $2.5 million during 1996 for general replacements and discretionary improvements of current facilities. The Company also anticipates making commitments for an amount yet to be determined, but believed to be approximately $14 million to equip a new facility to be dedicated to the production of anti-reflective product and to fulfill the supply requirements of a supply agreement. At March 31, 1996, the Company had $3.1 million of cash and short-term investments and a $6 million revolving line of credit, which is subject to certain financial covenants, and which expires in February 1997, but may be extended for additional one year terms with the bank's approval. As of March 31, 1996, there were no borrowings under this line of credit. Existing working capital and cash generated from operations are expected to be adequate to satisfy the Company's capital and operating requirements of existing facilities at least through 1996. The Company is seeking financing for the planned new facility; however, there is no assurance that the Company will be successful. 9 PART II OTHER INFORMATION Item 1 Legal Proceedings and Other Matters The Company has been named a defendant in a lawsuit filed on April 5, 1996 by one of its customers in the United States District Court for the Eastern District of New York. The lawsuit in federal court alleges certain contractual violations by the Company and seeks relief in an aggregate amount in excess of $35 million. The Company believes that this lawsuit is without merit and intends to defend against it vigorously. In addition, the Company is involved in certain other legal actions arising in the ordinary course of business. The Company believes, however, that none of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's business or its consolidated financial position or results of operations. Item 2 Changes in Securities Not applicable Item 3 Defaults upon Senior Securities Not applicable Item 4 Submission of Matters to a Vote of stockholders No matters were submitted to a vote of security holders during the quarter ended March 31, 1996. Item 5 Other Information Not applicable Item 6 Exhibits and Reports on Form 8-K (a) Exhibits 1) Addendum #1 to Supply Agreement, between Southwall Technologies Inc. and Sony Corporation, entered into as of April 1, 1996. 2) Report of First Amendment to Loan and Security Agreement, dated March 22, 1996 (b) Reports of Form 8-K - None 10 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. Dated: May 9, 1996 By:/s/Martin M. Schwartz --------------------- Martin M. Schwartz President and Chief Executive Officer By:/s/Alfred V. Larrenaga ---------------------- Alfred V. Larrenaga Sr. Vice President and Chief Financial Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 MAR-31-1996 1,390 1,679 7,855 (620) 6,771 18,078 35,470 (19,940) 35,386 7,568 0 0 0 7 24,601 35,386 10,533 10,637 7,409 10,085 0 0 (22) 530 19 511 0 0 0 511 .08 .08
EX-99.1 3 ADDENDUM #1 TO SUPPLY AGMT ADDENDUM #1 TO SUPPLY AGREEMENT This Addendum #1 to Supply Agreement (the "Addendum") is entered into as of April 1, 1996 by and between Southwall Technologies Inc. ("Seller"), a Delaware corporation, and Sony Corporation ("Buyer"), a Japanese corporation. WHEREAS, the parties have entered into a Supply Agreement dated October 23, 1995 (the "Supply Agreement") where Seller agreed to supply to Buyer and Buyer agreed to purchase from Seller certain Products (as defined in the Supply Agreement); and WHEREAS, subject to the conditions set forth herein, the parties wish to enter into this Addendum to, among other things, establish certain pricing and minimum quantity requirements for the Products during an extended term of the Supply Agreement. NOW THEREFORE, in consideration of the premises and the covenants contained in this Addendum and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Buyer shall pay Seller a surcharge equal to one dollar per square foot ($1/sq. ft.) of Products that are shipped to Buyer commencing on April 1, 1996 and continuing until four million dollars (US$4,000,000) has been paid by Buyer. 2. Seller shall expand its production capacity so it can be capable of manufacturing and supplying at least three million square feet (3,000,000 sq.ft.) of Product per year by June 30, 1998. 3. During the period from April 1, 1996 to June 30, 1997, Section 2.4 of the Supply Agreement entitled "Best Efforts" shall be deleted in its entirety and the following new Section 2.4 shall be substituted in lieu thereof: 2.4 Best Efforts. In addition to, and not in limitation of Section 2.2 of ------------ this Agreement, in exchange for the foregoing exclusivity, Buyer agrees to use its best efforts to sell and market Products for the Computer Monitor CRT Applications throughout the world. Without limiting the foregoing, Buyer expects to and will use best efforts to purchase the following amounts of Products: (i) two million square feet (2,000,000 sq. ft.) for the period beginning on October 23, 1995 and ending on April 22, 1997, (ii) three hundred fifty thousand square feet (350,000 sq. ft.) for the period beginning on April 23, 1997 and ending on June 30, 1997. 4. The parties have agreed that during the term of the Supply Agreement, which shall be extended in accordance with Section 6 of this Addendum the following terms (in addition to those set forth in the Supply Agreement and not expressly amended herein) shall govern the sale and purchase of Products commencing as of July 1, 1997 and continuing until December 31, 2000 and continuing thereafter for successive one year terms until terminated by either party as set forth herein (the "Extended Term"), provided, however, that nothing contained in this Section 4 shall govern the sale and purchase of Products prior to July 1, 1997. a. Prices payable by Buyer for the Products during the Extended Term shall be as set forth on Exhibit A to this Addendum. During the Extended Term, Exhibit A replaces the prices set forth in Exhibit II to the Supply Agreement in its entirety. Prices are based on Seller's fully loaded manufacturing cost per square foot of Products plus a sliding scale gross margin percentage. The Prices of the Products applicable during every quarter which begins with January, April, July and October respectively shall be determined during the immediately preceding quarter in accordance with the Pricing Formula as set forth on Exhibit A to this Addendum. Seller shall submit to Buyer the documents which prove Seller's manufacturing cost of the Products so that the parties hereto can determine the applicable unit price of the Products in accordance with the Pricing Formula. In no event shall the price of the Products exceed seven dollars per square foot (US$7/sq. ft.). b. Section 2.2 of the Supply Agreement entitled "Exclusivity" shall be deleted in its entirety. c. Section 2.4 of the Supply Agreement entitled "Best Efforts" shall be deleted in its entirety and the following new Section 2.4 shall be substituted in lieu thereof: 2.4 Best Efforts. ------------ (a) Buyer agrees to use its best efforts to sell and market Products for the Computer Monitor CRT Applications throughout the world. Without limiting the foregoing, Buyer agrees to buy from Seller and Seller commits to sell product from any of Seller's manufacturing equipment to Buyer the following minimum quantities of Products during the Extended Term: (i) one and a half million square feet (1,500,000 sq. ft.) during the period beginning July 1, 1997 and ending on December 31, 1997 and (ii) three million square feet (3,000,000 sq. ft.) for each twelve (12) month period thereafter. (b) In the event that Buyer fails to purchase from Seller such quantities of the Product as it has committed in Section 2.4(a) above within the period of time set forth therein, Buyer shall pay to Seller as liquidated damages an amount equal to one half of the applicable unit price of the Products during the last quarter of the respective period of time set forth in Section 2.4(a) above for the quantities of Products not purchased by Buyer. 2 (c) In the event that Seller fails to sell to Buyer such quantities of the Products as it has committed in Section 2.4(a) above within the period of time set forth therein, Seller shall pay to Buyer as liquidated damages an amount equal to one half of the applicable unit price of the Products during the last quarter of the respective period of time set forth in Section 2.4(a) above for the quantities of Products not supplied by Seller. d. The following Section 2.11 shall be added to the Supply Agreement to reflect the Seller's obligation regarding discounts and contribution fees during the Extended Term: 2.11 Discounts and Contribution Fee. ------------------------------ (a) In the event that Buyer purchases the Products over three million square feet (3,000,000 sq. ft.) during each twelve (12) months period of the Extended Term, Seller agrees to pay to Buyer, as a volume discounts of the price of Products, an amount equal to two percent (2%) of the sales price received by Seller (less any allowances actually made and taken for returns; shipping and insurance costs actually paid; sales, use, value-added and similar taxes and duties and similar governmental assessments on Products as shipped) for the quantities of the Products in excess of three million square feet (3,000,000 sq. ft.). (b) In the event that Seller sells the products, which are substantially similar to the Products, to third parties during the Extended Term, Seller agrees to pay to Buyer, as a contribution fee of Buyer's providing idea and advice for selling such products, an amount equal to two percent (2%) of the sales price received by Seller (less any allowances actually made and taken for returns; shipping and insurance costs actually paid; sales, use, value-added and similar taxes and duties and similar governmental assessments on products as shipped) for such products sold by Seller to third parties. (c) Discounts or contribution fees shall be paid either in U.S. dollars or in shares of common stock of Seller valued at one and a half (1.5) times the average closing price of Seller's stock for the last ten (10) trading days on Nasdaq (at Buyer's option). Discounts or contribution fees are payable within forty-five (45) days of each calendar quarter with respect to discounts or contribution fee-bearing sales occurring in that quarter. 5. This Addendum shall be effective as of April 1, 1996, provided, however, Section 4 of this Addendum shall not be effective until July 1, 1997. 6. Section 4.1 of the Supply Agreement which sets forth the term of the Supply Agreement shall be replaced with the following provision: Unless terminated earlier as provided herein, this Agreement shall continue in effect until December 31, 2000, and 3 shall thereafter be extended for successive one year terms until terminated by either party upon at least six (6) months prior written notice to the other party. 7. Except as expressly amended by this Addendum, the provisions of the Supply Agreement shall remain in full force and effect. 8. Capitalized terms used in this Addendum and not otherwise defined in this Addendum shall have the meanings provided in the Supply Agreement. 9. This Addendum may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute and deliver this Addendum as of the date first above written. SELLER BUYER By: /s/ MARTIN M. SCHWARTZ By: /s/ YASUHIRO HOSOZAWA ---------------------- --------------------- Name: Martin M. Schwartz Name: Yasuhiro Hosozawa --------------------- -------------------- Title: President/CEO Title: General Manager -------------------- ------------------ 4 EX-99.2 4 FIRST AMEND. TO LOAN & SECURITY AGMT FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT ---------------------------------------------- This First Amendment to Loan and Security Agreement is entered into on this 22nd day of March 1996, by and between Silicon Valley Bank ("Bank") and Southwall Technologies, Inc., ("Borrower"). RECITALS -------- Borrower and Bank are parties to that certain Loan and Security Agreement dated as of February 28, 1995, as amended by that certain Loan Modification Agreement dated as of October 3, 1995 and as may have been and may in the future be further amended (the "Loan Agreement"). The parties desire to amend the Loan Agreement in accordance with the terms of this Amendment. NOW, THEREFORE, the parties agree as follows: 1. Section 1.1 of the Loan Agreement is hereby amended by replacing the defined term Committed Line in its entirety as follows: "'Committed Line' means Six Million Dollars ($6,000,000)." 2. Section 1.1 of the Loan Agreement is hereby further amended by adding a new subsection (16) to the defined term Eligible Foreign Accounts as follows: "(16) Sekurit Saint-Gobain." 3. Section 1.1 of the Loan Agreement is hereby further amended by replacing the defined term Maturity Date in its entirety with the following: "'Maturity Date' means February 5, 1997." 4. Section 2.1 of the Loan Agreement is hereby amended by replacing the numerical reference to Three Million Dollars ($3,000,000) contained therein with "Two Million Five Hundred Thousand Dollars ($2,500,000)." 5. Section 6.10 of the Loan Agreement is hereby amended to read in its entirety as follows: "6.10 Tangible net Worth. Borrower shall maintain as of the last day ------------------ of each fiscal quarter a Tangible Net Worth of not less than Twenty Four Million Dollars ($24,000,000)." 6. Section 6.11 of the Loan Agreement is hereby amended to read in its entirety as follows: "6.11 Profitability. Borrower shall not suffer a loss exceeding Seven ------------- Hundred and Fifty Thousand Dollars ($750,000) for the fiscal quarter ending March 31, 1996. Beginning with the fiscal quarter ending June 30, 1996, Borrower shall have a net profit of at least One Dollar ($1.00) for each fiscal quarter. Borrower shall have a net profit of at least One Dollar ($1.00) for each fiscal year." 7. Exhibit C of the Loan Agreement is hereby replaced by Exhibit C attached to this Amendment. 1 8. Exhibit D of the Loan Agreement is hereby replaced by Exhibit D attached to this Amendment. 9. Conditions Precedent to Effectiveness. The effectiveness of this ------------------------------------- Amendment is subject to the conditions precedent that: (a) Borrower shall have paid to Bank: (i) a nonrefundable fee equal to Fifteen Thousand Dollars ($15,000), provided that Bank shall increase such fee if Borrower does not establish its primary deposit accounts at Bank in accordance with Section 6.7 of the Loan Agreement within a reasonable time; and (ii) all Bank Expenses incurred through the date hereof, including reasonable attorneys' fees and expenses. (b) Bank shall have received, in form and substance satisfactory to Bank: (i) a certificate of the secretary of Borrower with respect to incumbency and resolutions authorizing the execution, delivery and performance of this Amendment, and confirming that the copies of the Articles of Incorporation and By Laws previously delivered to Bank have not been amended and remain in full force and effect; (ii) a Dunn & Bradstreet report for Sekurit Saint-Gobain in a form and content satisfactory to Bank; (iii) a copy of this Amendment duly executed by Borrower; (iv) a copy of the Affirmation of Guaranty of even date herewith duly executed by the Borrower and the guarantors listed thereunder; and 10. No Defenses of Borrower. Borrower agrees, as of this date, that it has ----------------------- no defenses against the obligations to pay any amounts under the Indebtedness. 11. Interpretation. Unless otherwise defined, all capitalized terms in -------------- this Amendment shall be as defined in the Loan Agreement. Except as amended, the Loan Agreement remains in full force and effect. 12. Representations. Borrower represents and warrants that the --------------- Representations and Warranties contained in the Loan Agreement are true and correct as of the date of this Amendment, and that no Event of Default has occurred and is continuing. 13. Counterparts. This Amendment to Loan and Security Agreement may be ------------ executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. 2 IN WITNESS WHEREOF, the undersigned have executed this Amendment to Loan and Security Agreement as of the first date above written. SOUTHWALL TECHNOLOGIES, INC. By: /s/ ALFRED V. LARRENAGA -------------------------------------- Title: Senior Vice President and CEO ---------------------------------- SILICON VALLEY BANK By: /s/ JULIE SCHNEIDER ------------------------------------- Title: Commercial Banking Officer --------------------------------- 3 -----END PRIVACY-ENHANCED MESSAGE-----