0000950005-01-500511.txt : 20011009
0000950005-01-500511.hdr.sgml : 20011009
ACCESSION NUMBER: 0000950005-01-500511
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 6
CONFORMED PERIOD OF REPORT: 20010630
FILED AS OF DATE: 20010921
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: ADEPT TECHNOLOGY INC
CENTRAL INDEX KEY: 0000865415
STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559]
IRS NUMBER: 942900635
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-27122
FILM NUMBER: 1742284
BUSINESS ADDRESS:
STREET 1: 150 ROSE ORCHARD WAY
CITY: SAN JOSE
STATE: CA
ZIP: 95134
BUSINESS PHONE: 4084320888
10-K405
1
p14376_10k405.txt
10-K405
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended June 30, 2001 or
[ ] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________ to
____________________.
Commission file number: 0-27122
ADEPT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
California 94-2900635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 Rose Orchard Way, San Jose, California 95134
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code: (408) 432-0888
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on September
10, 2001 as reported on the Nasdaq National Market, was approximately
$44,973,291.33. Shares of common stock held by each officer and director and by
each person who owns 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of September 10, 2001, registrant had outstanding 13,184,453 shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2001 Annual Meeting to be
held on November 16, 2001 are incorporated by reference into Part III hereof.
PART I
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements.
Forward-looking statements are contained principally in the sections entitled
"Business," "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." These statements involve known
and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from any future
results, performances or achievements expressed or implied by the
forward-looking statements. Forward-looking statements include, but are not
limited to, statements about:
o marketing and commercialization of our products under development;
o our estimates regarding our capital requirements and our needs for
additional financing;
o plans for future products and services and for enhancements of existing
products and services;
o our ability to attract customers and the market acceptance of our
products;
o our intellectual property;
o our ability to establish relationships with suppliers, systems
integrators and OEMs for the supply and distribution of our products;
o plans for future acquisitions and for the integration of recent
acquisitions; and
o sources of revenues and anticipated revenues, including the
contribution from the growth of new products and markets.
In some cases, you can identify forward-looking statements by terms such as
"may," "intend," "might," "will," "should," "could," "would," "expect,"
"believe," "estimate," "predict," "potential," or the negative of these terms,
and similar expressions intended to identify forward-looking statements. These
statements reflect our current views with respect to future events and are based
on assumptions and subject to risks and uncertainties. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. We discuss many of these risks in this prospectus in greater detail
under the heading "Factors Affecting Future Operating Results." Also, these
forward-looking statements represent our estimates and assumptions only as of
the date of this Annual Report.
In this report, unless the context indicates otherwise, the terms " Adept,"
"we," "us," and "our" refer to Adept Technology, Inc., a California corporation,
and its subsidiaries.
This report contains trademarks and trade names of Adept and other
companies.
ITEM 1. BUSINESS
OUR COMPANY
We provide intelligent production automation systems to our customers in
many industries including the semiconductor, wireless communications, photonics,
food processing, automotive, life sciences and electronics industries. We
utilize our comprehensive product portfolio to provide automation solutions
consisting of high precision assembly components, material handling robotics and
application development software to meet our customer's increasingly complex
manufacturing requirements.
We offer our customers a comprehensive approach to automation that we call
Rapid Deployment Automation, or RDA, that reduces the time and cost to design,
engineer and launch products into high-volume production. Other benefits of our
RDA solution include increased manufacturing flexibility for future product
generations, less
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customized engineering and reduced dependence on production engineers. We intend
to continue to enhance our RDA capabilities by providing differentiated, value
added integrated systems to further penetrate - selected emerging markets.
We market and sell our products worldwide through more than 300 system
integrators, our direct sales force and original equipment manufacturers. This
global presence, when combined with our extensive service and support
infrastructure, enables us to effectively understand our customers' current and
future technological automation requirements.
We were incorporated in California in 1983. Our principal executive offices
are located at 150 Rose Orchard Way, San Jose, California 95134. Our telephone
number at that address is (408) 432-0888.
Recent Developments
On June 27, 2001, we signed a definitive agreement to acquire privately-held
CHAD Industries, Inc. in exchange for a combination of equity and cash to be
paid out over three years. Completion of the acquisition remains subject to
obtaining required approvals and other standard closing conditions. Completion
of the acquisition of CHAD is the latest step in Adept's ongoing photonics
automation strategy. The acquisition is expected to be completed in the second
quarter of fiscal 2002. CHAD's extensive experience developing and building
standardized precision workcells based on Adept software, controls and robot
systems was paramount in our acquisition decision. Adept plans to leverage
CHAD's expertise in small part feeding, precision tooling design, and the
handling of odd-form components to add capacity in photonics automation. CHAD's
initial role within Adept following completion of the acquisition will be to
develop process module tooling for both Adept NanoLine stage products and
NanoCell automated process ready platforms. In addition, Adept plans to support
and grow CHAD's existing odd-form standard machine business, which has been the
cornerstone of CHAD for the last two decades.
On February 18, 2001, Adept completed a public offering of its common stock.
Adept sold a total of 2,000,000 shares of common stock at a price of $18.00 per
share. The offering resulted in net proceeds to Adept of approximately $32.4
million, net of an underwriting discount of $2.5 million and offering expenses
of $1.1 million.
On July 21, 2000, we completed the acquisition of HexaVision Technologies
Inc., now named Adept Technology Canada Co., a Canadian corporation. HexaVision
was a machine vision research and development company. In connection with the
acquisition, we paid $5.5 million in cash, which includes transaction costs of
$0.4 million, and issued shares of our common stock to the shareholders of
HexaVision with a value of $1.1 million. On July 21, 2001, pursuant to the terms
of the share purchase agreement relating to the acquisition of HexaVision, we
issued 116,000 shares of our common stock to the former shareholders of
HexaVision with a value of $1.1 million, made cash payments totaling $3,500 and
released $313,000 in cash from an escrow account. In addition, a second payment
of approximately $1.3 million in cash is payable on the second anniversary
closing, contingent upon the achievement of certain operational milestones by
HexaVision. We have set aside restricted cash in the amount of $1.6 million for
future contingent payments including the payments made on July 21, 2001, and
such restricted cash is included in Other Assets on the June 30, 2001 balance
sheet. These contingent cash payments and share issuances will be accounted for
as additional purchase price when the contingencies are resolved. Any payments
made and shares issued will be allocated to goodwill. We have accounted for the
acquisition under the purchase method. We believe the acquisition of HexaVision
has already enhanced our machine vision products for all markets and will
facilitate our entry into the PC-based machine vision market. HexaVision's core
technology incorporates techniques to achieve accuracies up to 1/40th of a pixel
with machine vision measurement algorithms that has increased our performance in
critical and demanding applications such as vision servoing for the
microelectrical, fiber optic, semiconductor, metrology and photonics industries.
PRODUCTS AND TECHNOLOGY COMPRISING RAPID DEPLOYMENT AUTOMATION
OVERVIEW
Our vision of making automation easy to install is called Rapid Deployment
Automation, or RDA. We have developed a product strategy to enable RDA. This
product strategy includes simulation tools to help design automation systems,
application software packages which contain automation process knowledge, very
powerful
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software and hardware for real-time motion control and integrated sensing, and a
family of mechanisms for different applications.
[Chart illustrating our technology with respect to the following four levels of
RDA Approach:
RDA System Design Layer
RDA Process Knowleger Layer
RDA Real-time Control Layer
RDA Mechanical Component Layer]
MECHANICAL COMPONENTS
We provide a large number of automation mechanisms to address different
application needs. All of these mechanisms are controlled by the software and
hardware control architecture described below. This broad product line allows
system integrators and end users to develop automation solutions for many
industries and applications.
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ROBOT MECHANISM
We offer two floor standing Selective Compliance Assembly Robot Arm, or
SCARA, style robot mechanisms called the AdeptOne-XL and the AdeptThree-XL, as
well as two table top robot mechanisms called the Adept Cobra 600 and 800, all
of which are designed for assembly and material handling tasks. SCARA robots
utilize a combination of rotary and linear joints for high speed, high precision
material handling, assembly and packaging. The Adept-XL robots use direct-drive
technology. Direct-drive technology eliminates gears and linkages from the drive
train of the mechanism, thereby significantly increasing robot speed and
precision and improving the robot's product life, reliability and accuracy. The
Adept Cobra series robots are light-duty SCARA mechanisms that can be table
mounted and offer an efficient range of motions in limited space.
We also offer a family of linear modules called Adept SmartModules. These
single axis devices can be coupled together by the user to form application
specific custom robot mechanisms ranging from 2 to 4 axes. Adept SmartModules
are powered by Adept SmartAmps, which utilize the industry standard IEEE 1394
Firewire protocol to combine motion control signals and input/output signals for
transmission over a single high-speed cable. Adept SmartModules lowers costs and
installation time by reducing the amount of software programming and cabling
required in a workcell, or a robotic system that performs a specific automation
function. SmartModules are also offered in single-axis standalone versions,
which can operate without any additional controllers, saving cost and space for
simple applications.
We also offer a line of semiconductor wafer handling robots. These
mechanisms are sourced from Samsung Corporation. The AdeptVicron series is
designed for semiconductor wafer handling applications and consists of two
models: the AdeptVicron 300S (single arm) and 310D (dual arm) models which
handle up to 300mm wafers.
In 2001 we expanded our product line to include a family of 6 axis
articulated mechanisms, which are manufactured for us by Yaskawa Corporation.
The AdeptSix 300 is a tabletop robot ideally suited for precision assembly and
material handling applications. We also make available larger models and clean
room versions.
HIGH PRECISION MICRO POSITIONERS
Adept NanoStages are a series of advanced nanometer positioners for
alignment applications in fiber optic assembly and other high precision
applications. These devices increase the resolution of our mechanisms by a
factor of 1000, from 25 microns for our standard robots to 25 nanometers for our
standard micro positioners. Unlike many micro positioners, which were developed
for laboratory environments, these products are durable, production-ready
devices intended for integration into continuous production factory
environments. We are developing versions of these micro positioners for fiber
optic component assembly, fiber alignment, laser welding and semiconductor OEM
applications.
PROGRAMMABLE PARTS FEEDER
Part feeding has historically been accomplished by designing custom devices
that could only accommodate a single part or class of parts. The Adept Flex
Feeder 250 can be rapidly reconfigured through software to accommodate new
products and a wide variety of parts ranging from simple rectangular objects to
complex molded or machined parts, thus preserving the flexibility of the
workcell or production line. The Adept Flex Feeder 250 integrates machine
vision, software and motion control technology with a simple mechanical device
for separating parts from bulk. The Adept Flex Feeder 250 recirculates the parts
and separates them, relying on vision to identify individual parts.
ENVIRONMENTAL CONTROL PRODUCTS
We offer front end wafer handling solutions for both semiconductor OEMs and
end users. These offerings include both standard and customized products for
contamination control including robotics for wafer handling and transport. The
Adept Flexible Front End Systems, including the Adept FFE 200 and the Adept FFE
300, combine wafer sorting and wafer cassette handling load functions into one
compact integrated front-end system; reducing cycle times, process complexity
and cost. The Adept FFE 200/300 units combine value added wafer operations such
as wafer orientation, optical character recognition, or OCR, sort and merge into
a compact front-end system, eliminating the need for wafer sorters in the
factory.
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REAL TIME CONTROL PRODUCTS
MACHINE CONTROL SOFTWARE
Our V+ real-time programming language allows software developers to create
automation software systems and is the key enabling technology for our
intelligent automation approach. This programming environment provides a
high-level language coupled with a multitasking operating system and built-in
capability for integrating robots, machine vision, sensors, workcell control and
general communications. These capabilities enable the development of
sophisticated application software that can adaptively control mechanical
systems based upon real-time sensory input while simultaneously maintaining
communication with other factory equipment.
V+ offers the user approximately 300 instructions for programming an
intelligent automation workcell. It includes a trajectory generator and
continuous path planner, which compute the path of the robot's tool in real-time
based upon predefined data or sensory input. V+ also includes a number of
network communication facilities and supports a variety of standard
communication protocols. In addition, this software includes an operating system
specifically designed for factory automation and robot control. This operating
system allows V+ to execute dozens of tasks concurrently and permits control to
pass between tasks in a predictable manner, often several times per millisecond.
The V+ operating system also allows the installation of additional processors
into the controller and automatically reassigns tasks to optimize overall system
performance, providing a key scalability feature not found in other controllers.
An optional development environment for V+ is Windows 98, NT and 2000 based and
allows the customer to utilize industry standard personal computers.
SERVO SOFTWARE
The most basic level of our software architecture is the servo software,
which directs individual motors to follow motion commands generated from the
higher V+ software level. This software has been designed to control Adept
robots, standard robots manufactured by other companies, and many custom robotic
mechanisms built for special application. The servo software layer includes
advanced control, safety and diagnostic features.
GUIDANCE AND INSPECTION VISION PRODUCTS
AdeptVision is a line of machine vision products that are used for robot
guidance and inspection applications. For guidance applications, AdeptVision is
added into the controller by inserting a printed circuit board and enabling the
vision system software. The integration of our controller and vision systems
software enables high speed vision applications such as vision servoing. For
inspection applications such as gauging and dimensioning, the AdeptVision
product is sold as an integrated inspection vision system comprised of a
controller with the vision board and software.
AdeptVision features a unique tool for robot and machine guidance, the Adept
ObjectFinder 2000. ObjectFinder quickly recognizes parts that are randomly
positioned and have an unknown orientation ranging up to 360 degrees, as
compared with other solutions, which simply locate translated images with very
limited rotation. Our vision servoing ability is critical for precision
processes such as the assembly of electronic or fiber optic components. Our
machine vision software can also measure part dimensions for inspection
purposes. Machine vision can be used to acquire parts from stationary locations
or from conveyors. Cameras can be fixed in the workcell or attached to a robot.
We also offer HexSight, a shrink-wrapped library of machine vision software
tools for OEMs and dedicated machine vision integrators. HexSight includes the
ObjectFinder locator tool in addition to other general purpose image enhancement
and analysis algorithms. These tools run directly in a PC environment and can be
adapted to run in an OEM's custom software solution.
MACHINE CONTROLLERS
Our controller products are currently based on the VersaModule Eurocard, or
VME, bus architecture standard, but are migrating to a distributed control
architecture which depends on high-speed networks such as IEEE 1394
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Firewire, Ethernet, and DeviceNet, to link processors and sensors which may be
distributed around a workcell. A large array of controller configurations are
possible depending on the features selected by the customer. Our VME controllers
are configured in four, five, or ten slot chassis. All controllers include a
system processor module. Additional functionality can be incorporated by adding
printed circuit boards and additional software. For example, motion control is
added by inserting a motion control board. Printed circuit boards can be added
for machine vision and additional communication inputs and outputs. The
controller products are sold independently for machine control and inspection
vision applications and are also sold as a component of the robot systems. The
heart of our VME machine controllers is the AdeptWindows Controller board, or
AWC, a single slot central processing unit board based on Motorola 68040/060
processors. All AWC boards include solid-state, mass storage, direct ethernet
connectivity, DeviceNet industrial data network connectivity and international
safety circuitry.
Our AWC controller offers plug-and-play integration of personal computer
hardware and software for users of the Windows platform. Specifically, this new
technology allows customers to do all development work, including vision
applications, on personal computers using Windows 98, 2000 and NT operating
systems. This open architecture product allows customers to combine the features
of our AIM and V+ software products with other personal computer-based software
products using industry standard software tools such as Active X, Visual Basic,
and Visual C++. Finally, all of our controller products support the same Windows
NT-based graphical user interface and can execute the same application programs,
thereby allowing software development investments to be leveraged across a
number of applications.
The controller includes a number of technologically advanced capabilities
designed specifically to address the intelligent automation market. These
capabilities include special application specific integrated circuits for
controlling direct-drive motors, reading encoders, or sensors, and controlling
power up sequencing of complex high power systems. The controller also includes
safety circuits that meet domestic and international specifications and
technology to protect the controller from voltage spikes, electrical noise and
power brownouts. Additionally the controller features high wattage switching
power amplifiers, and networking circuitry for local area network and industrial
data networks.
In 2001, we began shipments of our newest controller, the Adept
SmartController. Designed to work with the Adept SmartAmp distributed servo
control network, SmartControllers offer reduced costs, the smallest form factor
in the industry, and simplified installation, wiring, and support costs while
maintaining compliance with domestic and international safety specifications.
PROCESS KNOWLEDGE PRODUCTS
Assembly Information Manager, or AIM software, simplifies the integration,
programming and operation of automation workcells and lines. AIM accomplishes
this goal by providing a formal method for capturing application specific
process knowledge and then allowing users lacking advanced programming expertise
to use this embedded knowledge to accomplish a specific task.
AIM simplifies the implementation of intelligent automation workcells by
combining a point and click graphical user interface with an icon-based
programming method that does not require advanced computer programming skills.
This method combines task-level statements with a high performance, real-time
database and a structure for representing process knowledge.
The AIM task level statements allow the developer to specify at a very high
level what operations the workcell is to perform, such as "insert a component
into a socket using vision to correct for irregularities". This command is
automatically coupled with data contained in the real-time database that
specifies the physical aspects of the workcell, such as the location of a part.
The information contained in the databases can be created or downloaded from a
computer or simulation system at any time. Finally, the AIM system automatically
invokes the routines that contain the process knowledge and dictate how the
specified operation will be performed. In this way, an AIM workcell can be
programmed by a person who understands as few as ten process actions rather than
hundreds of programming instructions or thousands of lines of conventional code.
We sell several application specific versions of AIM, including MotionWare,
which addresses motion applications such as those requiring sophisticated
conveyor tracking, and VisionWare, which simplifies the use of vision in both
guidance and inspection applications, as well as other packages which address
dispensing, packaging,
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flexible part feeding, semiconductor wafer handling and precision photonics
bonding operations. In addition, end users and system integrators, many of whom
have developed their own AIM application-specific packages, can add process
knowledge. AIM can be accessed via the Windows 98, 2000, and NT environments.
AIM programs are written in the V+ language.
SYSTEM DESIGN SOFTWARE
Adept provides simulation tools to help system integrators and end users
both design automation systems and evaluate product designs for ease of
manufacture. These tools are developed by our SILMA division, a developer of
simulation software. SILMA's products allow machines to be modeled with 3D
graphics and then animated in response to software control programs. Mechanisms
can be defined graphically and the mathematics necessary to animate them, known
as kinematic models, are generated automatically. Dynamics of mechanisms can
also be modeled, which enables machine cycle times to be accurately predicted.
SILMA products can either create new computer aided design, or CAD, geometry for
simulations, import CAD models from standard libraries of machines and
peripheral devices, or import models directly from common CAD systems. SILMA
products are available on both PC and several workstation platforms.
SILMA's newest product, Production PILOT, consists of three modules for
assembly automation process design, simulation, and analysis, built into an
easy-to-use, yet powerful, 3-D graphical simulation environment.
PILOT Yield allows assembly sequences to be analyzed for interferences and
to be scored for ease of automation. Pursuant to a sublicense agreement with
Adept Japan, which had entered into an agreement with Sony Corporation on March
24, 2000, we acquired the right to embed Sony Corporation's design for
assembly/disassembly capability, or DAC, product in PILOT Yield. DAC is an
assembly/disassembly and cost-effectiveness rating methodology or scoring system
used by designers to measure and analyze the effectiveness of their factory
assembly designs. It includes a scoring system that rates product designs for
ease of assembly and disassembly.
PILOT Cell allows the detailed animation of a workcell, checks for
collisions, and predicts actual production cycle times to an accuracy of better
than 5%. End user programs can be developed at a high level of abstraction in
PILOT Cell using our AIM software and later optimized at a detailed level using
Adept Digital Workcell.
PILOT Line allows multiple cells on an assembly line to be linked together
and provides discrete event simulation tools for analyzing how material flows
through the line based on the cycle times of individual workcells. This allows
production lines to be balanced to optimize throughput and eliminate
bottlenecks. We have found that balancing lines which have not been optimized
can increase throughput by 20% to 30%, increasing return on investment by this
amount.
The CimStation Inspection product simulates the operation of coordinate
measurement machines and generates programs that would be tedious to program
manually given the complex inspection tasks these machines perform.
Adept Digital Workcell allows engineers to program a workcell with actual
production software without the physical robot or cell hardware. Adept Digital
Workcell increases productivity by allowing the user to anticipate cycle times,
program logic errors, location errors, collision errors and motor overload
errors far earlier in the development process. In addition, Adept Digital
Workcell allows users to quickly generate alternative conceptual layouts and
cycletime estimates for project proposals.
PLATFORMS
In response to end customer and integrator needs, we now offer a growing
family of process ready platforms for the semiconductor and photonics markets.
These platform offerings include Flexible Front End systems for the
semiconductor tool market and Adept NanoCell for the photonics assembly market.
The NanoCell platform integrates all automation components on a single control
architecture and unified vibration damped mechanical base. Typical systems
include a material handling mechanism such as SmartModules or AdeptSix robot, MV
Controller, AdeptVision VXL, up to 3 multi axis Adept NanoStages, AIM software
and an integrated PC user interface. We also are pursuing a similar strategy in
the semiconductor wafer handling front-end market, where Adept Flexible Front
Ends typically include robots, contamination control, load ports, machine vision
and control software.
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Our OEMs, integrators and end users can quickly configure these standard
platforms to add specific manufacturing processes. Platform products represent a
further extension of our RDA strategy. For industries where high volumes of a
similar basic machine are needed, an integrated platform eliminates the time and
cost of designing equipment frames, assembling and validating control and
mechanism products and developing and debugging generic control software.
CUSTOMERS
We sell our products to system integrators, end users and OEMs. End users of
our products include a broad range of manufacturing companies in the
semiconductor, wireless communications, photonics, food, automotive, appliances,
life sciences and electronics industries. These companies use our products to
perform a wide variety of functions in assembly, material handling and precision
process applications, including mechanical assembly, printed circuit board
assembly, dispensing and inspection. No customer accounted for more than 10% of
our revenues in any of the past three years.
SALES, DISTRIBUTION AND MARKETING
SALES AND DISTRIBUTION
We market our products through system integrators, our direct sales force
and OEMs.
System Integrators. We ship a substantial portion of our products through
system integrators, and we view our relationships with these organizations as
important to our success. We have established relationships with over 300 system
integrators worldwide that provide expertise and process knowledge for a wide
range of specific applications. These relationships are mutually nonexclusive
and generally are not limited to specific geographical territories. In certain
international markets, the system integrators perform marketing and support
functions directly.
Direct Sales Force. We employ a direct sales force which directs its sales
efforts to end users to communicate the capabilities of our products and support
services and obtain up-to-date information regarding market requirements. Our
sales force possesses expertise in automation solutions and advises end users on
alternative production line designs, special application techniques, equipment
sources and system integrator selection. Our sales force works closely with
system integrators and OEMs to integrate our product line into their systems,
provide sales leads to certain system integrators and obtain intelligent
automation system quotes from system integrators for end users. As of June 30,
2001, our North American sales organization included approximately 24 employees.
We have seven North American sales and customer support offices located in San
Jose, California; Southbury, Connecticut; Southfield, Michigan; Livermore,
California; Charlotte, North Carolina; Cincinnati, Ohio; and Dallas, Texas. As
of June 30, 2001, our international sales organization included approximately
nine persons covering Europe, Singapore, and South Korea. We have eight
international sales and customer support offices located in Europe and the
Pacific Rim.
Some of our larger manufacturing end user customers have in-house
engineering departments that are comparable to a captive system integrator.
These captive engineering groups can establish a corporate integrator
relationship with us that offers benefits similar to those provided to our
system integrators.
OEMs. Our OEM customers typically purchase one standard product
configuration, which the OEM integrates with additional hardware and software
and sells under the OEM's label to other resellers and end users.
MARKETING
Our marketing organization, which consisted of 30 persons as of June 30,
2001, supports our system integrators, direct sales force and OEM customers in a
variety of ways. Our product management group works with end users, system
integrators, corporate integrators and our sales engineers to continually gather
input on product performance and end user needs. This information is used to
enhance existing products and to develop new products. Our marketing programs
group generates and qualifies new business through industry trade shows, various
direct marketing programs such as direct mail and telemarketing, public
relations efforts, internet marketing and advertising in industry periodicals.
This marketing team is responsible for tracking customers and prospects through
8
our marketing database. Our marketing group also publishes a document called the
MV Partner catalog, which lists software and hardware components that we have
certified as compatible with our product line. We also expend considerable
effort on the development of thorough technical documentation and user manuals
for our product line, and we view well-designed manuals as critical to
simplifying the installation, programming, use and maintenance of our products.
SERVICES AND SUPPORT
Our service and support organization, which consisted of approximately 101
full-time employees as of June 30, 2001, is designed to support our customers
from the design of our automation line through ongoing support of the installed
system. This organization included approximately 45 consulting and application
engineers/programmers based in a number of our sales offices in the U.S., Europe
and Asia. This team is experienced in applying our product line to solve a wide
array of application issues and operates toll-free telephone support lines to
provide advice on issues such as software programming structure, layout problems
and system installation. End users and system integrators can also hire these
experts on a consulting basis to help resolve new or difficult application
issues.
We also maintain a team of instructors, consisting of eight individuals as
of June 30, 2001, who develop training courses on subjects ranging from basic
system maintenance to advanced programming. These courses are geared both for
manufacturing engineers who design and implement automation lines and for
operators who operate and maintain equipment once it is in production, and are
taught in Adept offices and customer sites throughout the world.
Our field service organization, which consisted of 48 persons as of June 30,
2001, is based in eight service centers located in San Jose, California;
Cincinnati, Ohio; Massy, France; Dortmund, Germany; Arezzo, Italy; Kanagawa,
Japan; Seoul, South Korea and Singapore. In addition, we have service resources
located inside some key customers' facilities. Our field-based service engineers
maintain and repair our products at the end user's facilities. Personnel based
at these service centers also provide advice to customers on spare parts,
product upgrades and preventative maintenance.
BACKLOG
Our product backlog at June 30, 2001 was approximately $10.5 million, as
compared with approximately $20.9 million at June 30, 2000.
We have experienced a significant decline in orders during the last two
quarters of fiscal year 2001, reflecting substantial excess manufacturing
capacity across most of the industries we serve. In addition, our backlog has
historically been booked late in the quarter and shipped primarily in the
following quarter. Both the combination of a significant decline in activity due
to our customer's excess capacity status and timing of bookings contributed to
the change in backlog at June 30, 2001 as compared to June 30, 2000.
Increasingly our business is characterized by short-term order and shipment
schedules. Because orders constituting our current backlog are subject to
changes in delivery schedules and in certain instances may be subject to
cancellation without significant penalty to the customer, our backlog at any
date may not be indicative of demand for our products or actual net revenues for
any period in the future.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on the design of
intelligent automation products, which address the challenges of designing,
implementing, installing, operating and modifying automated production lines. We
intend to focus our research and development efforts on the development of an
integrated product line which further implements our RDA approach and which
reduces cost, enhances performance and improves ease of use.
We have devoted, and intend to devote in the future, a significant portion
of our resources to research and development programs. As of June 30, 2001, we
had 147 persons engaged in research, development and engineering. Our research,
development and engineering expenses were approximately $22.7 million for 2001,
9
$14.6 million for 2000 and $11.6 million for 1999 and represented 22.7% of net
revenues for 2001, 14.7% for 2000 and 13.3% for 1999.
MANUFACTURING
Our manufacturing activities include the selective assembly, testing and
configuration of our products. We believe that by performing these operations,
we can better ensure the quality and performance of our products. We outsource
low value added manufacturing operations, including standard and build-to-print
fabricated parts such as machinery, sheet metal fabrication and assembled
printed circuit boards. We also outsource some robot mechanisms. The purchased
robot mechanisms are tested to meet defined quality standards and then
configured into complete products which are tested again before shipment to the
customer. This strategy enables us to leverage product development,
manufacturing and management resources while retaining greater control over
product delivery, final product configuration and the timing of new product
introductions, all of which are critical to meeting customer expectations.
Our manufacturing organization has expertise in mechanical, electrical, and
software assembly and testing. Because outstanding quality and reliability over
the life of our products are key to customer satisfaction and customers' repeat
purchases of automation products, we believe our quality plans and organization
are a key part of our business strategy. Our manufacturing engineering
organization develops detailed instructions for all manufacturing and test
operations. These instructions are established in writing, implemented through
training of the manufacturing workforce and monitored to assure compliance. In
addition, our manufacturing organization works closely with vendors to develop
instructions and to remedy quality problems if they arise.
In February 2000, we were awarded ISO 9002 certification for our corporate
San Jose location from TUV Rheinland of North America, Inc. The ISO 9000 series
standards are internationally recognized quality management standards developed
by the International Organization for Standardization (ISO). ISO 9002
registration focuses on quality system requirements for a company's production,
delivery and servicing of products and services around the world.
COMPETITION
Our principal competition in the photonics industry for high precision micro
positioners are Newport Corporation, Axsys, Melles Griot Inc., Aerotech, and
Polytec PI, Inc. Historically, these companies have primarily marketed to the
research community to supply positioners for use in laboratory environments. We
also compete with Newport Corporation and various automation solution providers
to deliver semi-automatic and fully automatic manufacturing platforms for fiber
optic component assembly. This market is in its early stages of development and
is changing rapidly; therefore, new competitors could emerge with alternative
processes and solutions.
The market for intelligent automation products is highly competitive. We
compete with a number of robot companies, motion control companies, machine
vision companies and simulation software companies. Many of our competitors in
the robot market are integrated manufacturers of products that produce robotics
equipment internally for their own use and may also compete with our products
for sales to other customers.
Our principal competitors in the assembly robot and linear modules markets
include subsidiaries of Japanese companies, including Fanuc Ltd, Seiko
Instruments, Yamaha Corporation, Denso Corporation and Intelligent Actuator. We
also compete with a narrow group of European companies, principally Robert Bosch
GmbH, and some divisions of Parker Hannifin. In the material handling robot
market, we compete with the above companies, as well as manufacturers of 6-axis
robots including Motoman, Kawasaki Robotics, Inc., Reis Robotics, Kuka Robotics,
CRS Robotics Corporation and Asea Brown Boveri.
Our principal competition in the semiconductor atmospheric wafer handling
and contamination control market comes from Asyst Technologies, Inc. The
majority of Asyst's revenue comes from adaptive wafer handling and transfer
devices sold to end users. They have been the leader in wafer handling and
transfer and isolation technology in the semiconductor industry. Additional
competitors in the semiconductor robot market are Brooks Automation, Inc. and
Equip, a division of PRI Automation, Inc.
10
Our principal competitors in the market for motion control system include
Allen-Bradley Co., a subsidiary of Rockwell International Corporation, in the
United States, and Siemens AG in Europe. In addition, we face motion control
competition from two major suppliers of motion control boards, Galil Motion
Control, Inc. and Delta Tau Data Systems, Inc. These motion control boards are
purchased by end users which engineer their own custom motion control systems.
In the simulation software market, our competitors include Tecnomatix
Technologies, Inc., an Israel-based company which sells mostly to major
automotive manufacturers, and Deneb Robotics, Inc., a subsidiary of Dassault
Systemes. In the machine vision market, our primary competition is from Cognex
Corporation.
INTELLECTUAL PROPERTY
We primarily pursue patent, trademark and copyright protection for our
technology and products. We currently hold eight patents and three pending
patent applications in the United States and two patents and one pending patent
application outside of the United States. There can be no assurance that patents
will be issued from any of these pending applications or that any claims in
existing patents, or allowed from pending patent applications, will be
sufficiently broad to protect our technology.
ITEM 2. PROPERTIES
Our headquarters and principal research and development and manufacturing
facilities are located in a 92,000 square foot building we lease in San Jose,
California. The lease expires in December 2003 and provides for lease payments
of approximately $2.0 million in calendar year 2001 and $2.1 million in calendar
year 2002. We lease an additional 10,417 square feet in an adjacent building in
San Jose for our SILMA division. The lease expires in December 2003 and provides
for lease payments of approximately $233,000 in calendar year 2002. We lease a
12,000 square foot facility in Santa Barbara, California for our NanoMotion
operations, which commenced on June 1, 2000. The lease expires in May 2005 and
provides for lease payments of approximately $220,000 in calendar year 2002. We
lease a 17,000 square foot facility in Tucson, Arizona, which commenced in April
28, 2000. The lease expires in April 2005 and provides for lease payments of
approximately $137,000 in calendar year 2002. We also lease a facility in
Livermore, California consisting of 13,000 square feet that houses certain
research and development activities and exercised our option to lease an
additional 13,000 square feet adjacent to the current facility in August 1999.
This lease expires in October 2003 and provides for lease payments of
approximately $321,000 in calendar year 2002. We also lease a 75,000 square foot
facility in Livermore, California for certain research and development
activities, which commenced in March, 2001, with an option to lease an
additional 145,000 square foot location. The lease expires in 2011 and provides
for lease payments of $1.3 million in 2002 with a four percent annual increase
thereafter. We also lease a 10,500 square foot facility in Quebec City, Canada
for certain machine vision sales, research and development activities. The lease
expires in 2009 and provides for lease payments of approximately $50,000 in
2002. We also lease facilities for sales and/or customer training in Southbury,
Connecticut; Southfield, Michigan; Charlotte, North Carolina; Cincinnati, Ohio;
Dallas, Texas; Massy, France; Dortmund and Munich, Germany; Arezzo, Italy;
Kanagawa, Japan (through our joint venture); Kenilworth, United Kingdom; Seoul,
South Korea; Singapore; and Cerdanyola, Spain.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are party to various legal proceedings or claims,
either asserted or unasserted, which arise in the ordinary course of our
business. We have reviewed pending legal matters and believe that the resolution
of these matters will not have a material adverse effect on our business,
financial condition, or results of operations.
Some end users of our products have notified us that they have received a
claim of patent infringement from the Jerome H. Lemelson Foundation, alleging
that their use of our machine vision products infringes certain patents issued
to Mr. Lemelson. In addition, we have been notified that other end users of our
AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from Mr. Lemelson which refer to Mr. Lemelson's
patent portfolio and offer the end user a license to the particular patents.
Some of these end users have notified us that they may seek indemnification from
us for any damages or expenses resulting from this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
Adept's executive officers are:
NAME AGE POSITION
---- --- --------
Brian R. Carlisle 50 Chairman of the Board of Directors and Chief
Executive Officer
Bruce E. Shimano 52 Vice President, Research and Development, Secretary
and Director
John W. Schwartz 46 Treasurer, Director of Finance and Chief Accounting Officer
Marcy R. Alstott 44 Vice President, Operations
Michael W. Overby 44 Vice President, Finance and Chief Financial Officer
Brian R. Carlisle has served as Adept's Chief Executive Officer and Chairman
of the Board of Directors since he co-founded Adept in June 1983. From June 1980
to June 1983, he served as General Manager of the West Coast Division of
Unimation, Inc., a manufacturer of industrial robots, where he was responsible
for new product strategy and development for Unimation's electric robots,
control systems, sensing systems and other robotics applications. Mr. Carlisle
received B.S. and M.S. degrees in Mechanical Engineering from Stanford
University. Mr. Carlisle was President of the U.S. Robotic Industries
Association for 3 years, is currently a member of the Board of Directors for the
National Coalition for Manufacturing Sciences, served as General Chair in May
2000 for the IEEE International Conference on Robotics and Automation, and is on
the Board of the National Coalition for Advanced Manufacturing.
Bruce E. Shimano has served as our Vice President, Research and Development,
Secretary and a director since he co-founded Adept in June 1983. Prior to that
time, he was Director of Software Development at Unimation. Mr. Shimano received
B.S., M.S. and Ph.D. degrees in Mechanical Engineering from Stanford University.
John W. Schwartz joined Adept in December 2000 as Treasurer and Director of
Finance and has served as Adept's Chief Accounting Officer since April 2001.
From January 2000 to December 2000, Mr. Schwartz was self employed as an
attorney providing merger and acquisition and corporate transactional services.
From 1996 to 2000, he was a Senior Manager at Ernst & Young LLP providing
corporate tax consulting and tax controversy representation. From 1990 to 1996
he founded and managed a business law practice. Mr. Schwartz is an attorney and
Certified Public Accountant. He holds a B.S. in Business Administration from
University of Missouri-St. Louis, a Juris Doctorate from St. Louis University
School of Law, and a LL.M.-Taxation degree from Washington University School of
Law.
Marcy R. Alstott joined Adept in March 1998 as Vice President of Operations.
From August 1995 to March 1998, Ms. Alstott served as Program Director
responsible for switching product development at 3Com Corporation, a networking
company. Ms. Alstott has a B.S. in Mechanical Engineering from Purdue
University, an M.S. in Mechanical Engineering from Stanford University and an
M.B.A. from the University of Santa Clara.
Michael W. Overby has served as Adept's Vice President of Finance and Chief
Financial Officer since March 2000. From December 1999 to March 2000, Mr. Overby
held the position of Corporate Controller at Adept. Prior to joining Adept, Mr.
Overby was the financial executive for DG Systems, a leading provider of digital
distribution services to the broadcast advertising industry. From 1996 to 1998
he was Corporate Controller and Director of Information Systems at Inprise
Corporation, formerly Borland, a public software company. Mr. Overby holds a
B.S. in Business Administration from California Polytechnic State University.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"ADTK". The following table reflects the range of high and low sale prices as
reported on the Nasdaq National Market for the quarters identified below:
THREE MONTHS ENDED
JUN. 30, MAR. 31, DEC. 31, SEP. 30, JUN. 30, MAR. 31, DEC. 31, SEP. 30,
2001 2001 2000 2000 2000 2000 1999 1999
---- ---- ---- ---- ---- ---- ---- ----
High $ 14.50 $ 31.38 $ 53.25 $ 58.19 $ 47.50 $ 16.69 $ 7.97 $ 11.25
Low $ 7.45 $ 11.00 $ 12.38 $ 21.50 $ 8.75 $ 6.00 $ 5.44 $ 6.13
At June 30, 2001, there were approximately 264 shareholders of record.
To date, we have neither declared nor paid cash dividends on shares of our
common stock. We currently intend to retain all future earnings for our business
and do not anticipate paying cash dividends on our common stock in the
foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
In connection with our acquisition of HexaVision Technologies Inc., Adept
issued 116,000 shares of its common stock to the former shareholders of
HexaVision Technologies Inc., in July 2001 pursuant to an exemption from
registration under Regulation S under the Securities Act of 1933.
13
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in this
Form 10-K. The historical results are not necessarily indicative of future
results. On July 16, 1999, we completed the acquisition of BYE/Oasis
Engineering, Inc. in a pooling of interests transaction. The selected financial
data prior to June 30, 2000 has been restated to include the historical results
of BYE/Oasis Engineering, Inc. Fiscal 2001 results also include the financial
results of Pensar, NanoMotion and HexaVision subsequent to their acquisitions on
April 28, 2000, May 31, 2000 and July 21, 2000, respectively.
YEARS ENDED JUNE 30,
-----------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
RESULTS OF OPERATIONS: (IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues ....................................... $ 100,313 $ 99,212 $ 87,374 $ 105,440 $ 88,511
Cost of revenues ................................... 65,303 56,173 47,902 60,841 52,017
--------- --------- --------- --------- ---------
Gross margin ................................. 35,010 43,039 39,472 44,599 36,494
--------- --------- --------- --------- ---------
Operating expenses:
Research, development and engineering ........ 22,727 14,629 11,591 11,844 9,738
Selling, general and administrative .......... 36,002 29,503 24,676 26,890 22,758
Merger-related charges (1) ................... -- 988 -- -- --
Restructuring and other non-recurring charges -- -- -- 2,756 --
Amortization of goodwill and other intangibles 6,818 685 -- -- --
--------- --------- --------- --------- ---------
Total operating expenses ........................... 65,547 45,805 36,267 41,490 32,496
--------- --------- --------- --------- ---------
Operating income (loss) ............................ (30,537) (2,766) 3,205 3,109 3,998
Interest income, net ............................... 733 746 926 971 693
--------- --------- --------- --------- ---------
Income (loss) before provision for (benefit from)
income taxes .................................... (29,804) (2,020) 4,131 4,080 4,691
Provision for (benefit from) income taxes .......... 5,396 (593) 1,620 1,819 1,534
--------- --------- --------- --------- ---------
Net income (loss) .................................. $ (35,200) $ (1,427) $ 2,511 $ 2,261 $ 3,157
========= ========= ========= ========= =========
Net income (loss) per share:(2)
Basic ......................................... $ (3.02) $ (0.15) $ 0.27 $ 0.25 $ 0.36
========= ========= ========= ========= =========
Diluted ....................................... $ (3.02) $ (0.15) $ 0.26 $ 0.23 $ 0.34
========= ========= ========= ========= =========
Number of shares used in computing per share
amounts:(2)
Basic ......................................... 11,637 9,774 9,302 9,154 8,739
========= ========= ========= ========= =========
Diluted ....................................... 11,637 9,774 9,484 9,689 9,159
========= ========= ========= ========= =========
AS OF JUNE 30,
------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments $21,500 $20,437 $ 27,016 $20,939 $18,642
======= ======= ======== ======= =======
Working capital ................................. 39,784 46,593 47,614 45,928 39,703
======= ======= ======== ======= =======
Total assets .................................... 95,573 93,523 71,677 70,310 61,480
======= ======= ======== ======= =======
Long-term liabilities ........................... 1,284 1,222 -- 78 109
======= ======= ======== ======= =======
Total shareholders' equity ...................... 71,482 70,728 55,186 53,399 48,114
======= ======= ======== ======= =======
----------------
(1) In July 1999, we incurred charges of $988,000 relating to the acquisition
of BYE/OASIS.
(2) See Notes 1 and 8 of Notes to Consolidated Financial Statements for a
discussion of the computation of net income (loss) per share.
14
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
We operate and report financial results ending on the last Saturday of a 13 week
period for each of our first three fiscal quarters and at June 30 for our fiscal
year end. For convenience, we have indicated in this annual report on Form 10K
our fiscal quarters end on March 31, December 31 and September 30.
THREE MONTHS ENDED,
----------------------------------------------------------
JUN. 30, MAR. 31, DEC. 31, SEP. 30,
2001 2001 2000 2000
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues .................................. $ 20,745 $ 23,913 $ 28,034 $ 27,621
Cost of revenues .............................. 20,845 14,393 15,282 14,783
---------- ---------- ---------- ----------
Gross margin (loss) ........................... (100) 9,520 12,752 12,838
---------- ---------- ---------- ----------
Operating expenses:
Research, development and
engineering ................................. 7,671 5,182 5,008 4,866
Selling, general and administrative .......... 10,498 9,297 8,371 7,836
Merger-related charges (1) ................... -- -- -- --
Amortization of goodwill and
other intangibles .......................... 1,798 2,077 1,518 1,425
---------- ---------- ---------- ----------
Total operating expenses ...................... 19,967 16,556 14,897 14,127
---------- ---------- ---------- ----------
Operating income (loss) ....................... (20,067) (7,036) (2,145) (1,289)
Interest income, net .......................... 313 165 66 189
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes ............................. (19,754) (6,871) (2,079) (1,100)
Provision for (benefit from) income taxes ..... 568 4,828 385 (385)
---------- ---------- ----------
Net income (loss) ............................. $ (20,322) $ (11,699) $ (2,464) $ (715)
========== ========== ========== ==========
Net income (loss) per share:
Basic ........................................ $ (1.55) $ (.99) $ (.23) $ (.07)
========== ========== ========== ==========
Diluted ...................................... $ (1.55) $ (.99) $ (.23) $ (.07)
========== ========== ========== ==========
Number of shares used in computing
per share amounts:
Basic ........................................ 13,101 11,795 10,886 10,743
========== ========== ========== ==========
Diluted ...................................... 13,101 11,795 10,886 10,743
========== ========== ========== ==========
As a percentage of net revenues:
Net revenues .................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues .............................. 100.5 60.2 54.5 53.5
---------- ---------- ---------- ----------
Gross margin .................................. (0.5) 39.8 45.5 46.5
---------- ---------- ---------- ----------
Operating expenses:
Research, development and engineering ........ 37.0 21.6 17.9 17.6
Selling, general and administrative .......... 50.6 38.9 29.9 28.4
Merger-related charges (1) ................... -- -- -- --
Amortization of goodwill and other intangibles 8.6 8.7 5.4 5.2
---------- ---------- ---------- ----------
Total operating expenses ...................... 96.2 69.2 53.2 51.2
---------- ---------- ---------- ----------
Operating income (loss) ....................... (96.7) (29.4) (7.7) (4.7)
Interest income, net .......................... 1.5 .7 .3 .7
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes (95.2) (28.7) (7.4) (4.0)
Provision for (benefit from) income taxes ..... 2.8 20.2 1.4 (1.4)
---------- ---------- ----------
Net income (loss) ............................. (98.0)% (48.9)% (8.8)% (2.6)%
========== ========== ========== ==========
THREE MONTHS ENDED,
-------------------------------------------------------
JUN. 30, MAR. 31, DEC. 31, SEP. 30,
2000 2000 1999 1999
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues .................................. $ 28,058 $ 26,253 $ 24,267 $ 20,634
Cost of revenues .............................. 15,389 14,327 13,710 12,747
---------- ---------- ---------- ----------
Gross margin (loss) ........................... 12,669 11,926 10,557 7,887
---------- ---------- ---------- ----------
Operating expenses:
Research, development and
engineering ................................. 4,346 3,708 3,116 3,459
Selling, general and administrative .......... 7,405 7,450 7,391 7,257
Merger-related charges (1) ................... -- -- -- 988
Amortization of goodwill and
other intangibles .......................... 685 -- -- --
---------- ---------- ---------- ----------
Total operating expenses ...................... 12,436 11,158 10,507 11,704
---------- ---------- ---------- ----------
Operating income (loss) ....................... 233 768 50 (3,817)
Interest income, net .......................... 115 80 242 309
---------- ---------- ---------- ----------
Income (loss) before provision for
income taxes ............................. 348 848 292 (3,508)
Provision for (benefit from) income taxes ..... 98 254 117 (1,062)
---------- ---------- ---------- ----------
Net income (loss) ............................. $ 250 $ 594 $ 175 $ (2,446)
========== ========== ========== ==========
Net income (loss) per share:
Basic ........................................ $ .02 $ .06 $ .02 $ (.26)
========== ========== ========== ==========
Diluted ...................................... $ .02 $ .06 $ .02 $ (.26)
========== ========== ========== ==========
Number of shares used in computing
per share amounts:
Basic ........................................ 10,677 9,788 9,583 9,491
========== ========== ========== ==========
Diluted ...................................... 11,395 10,460 9,752 9,491
========== ========== ========== ==========
As a percentage of net revenues:
Net revenues .................................. 100.0% 100.0% 100.0% 100.0%
Cost of revenues .............................. 54.8 54.6 56.5 61.8
---------- ---------- ---------- ----------
Gross margin .................................. 45.2 45.4 43.5 38.2
---------- ---------- ---------- ----------
Operating expenses:
Research, development and engineering ........ 15.5 14.1 12.8 16.7
Selling, general and administrative .......... 26.4 28.4 30.5 35.2
Merger-related charges (1) ................... -- -- -- 4.8
Amortization of goodwill and other intangibles 2.5 -- -- --
---------- ---------- ---------- ----------
Total operating expenses ...................... 44.4 42.5 43.3 56.7
---------- ---------- ---------- ----------
Operating income (loss) ....................... .8 2.9 .2 (18.5)
Interest income, net .......................... .4 .3 1.0 1.5
---------- ---------- ---------- ----------
Income (loss) before provision for income taxes 1.2 3.2 1.2 (17.0)
Provision for (benefit from) income taxes ..... .3 .9 .5 (5.1)
---------- ---------- ---------- ----------
Net income (loss) ............................. .9% 2.3% .7% (11.9)%
========== ========== ========== ==========
(1) In July 1999, we incurred charges of $988,000 relating to the acquisition
of BYE/OASIS.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We provide intelligent production automation solutions to our customers in
many industries including the semiconductor, wireless communications, photonics,
food, automotive, life sciences and electronics industries. We utilize our
comprehensive portfolio of high precision mechanical components and application
development software to deliver automation solutions that meet our customer's
increasingly complex manufacturing requirements. We offer our customers a
comprehensive and tailored automation solution that we call Rapid Deployment
Automation that reduces the time and cost to design, engineer and launch
products into high-volume production. Our products currently include simulation
software, machine vision systems, machine controllers for robot mechanisms and
other flexible automation equipment, and a family of mechanisms including
robots, linear modules, vision-based flexible part feeders, as well as a line of
Cartesian scalable robots targeted for the electronics and assembly applications
markets. In recent years, we have expanded our robot product lines and developed
advanced software and sensing technologies that have enabled robots to perform a
wider range of functions. We recently announced a new line of robots expressly
designed for use in the semiconductor fabrication industry. We have also
expanded our channel of system integrators and our international sales and
marketing operations. As a result of these developments, the nature and
composition of our revenues have changed over time. Specifically, software
license and service revenues, although still relatively insignificant, have
increased as a percentage of total revenues in recent periods, and international
sales comprise between approximately 30%-40% of revenues on any given quarter.
We market and sell our products worldwide through more than 300 system
integrators, our direct sales force and OEMs. System integrators and OEMs add
application-specific hardware and software to our products, enabling us to
provide solutions to a diversified industry base, including the electronics,
communications, semiconductor, appliances, pharmaceutical, food processing and
automotive components industries. Due to a worldwide slowdown in disk drive
markets and to a lesser extent the communications and semiconductor markets, our
net revenues have declined in four of the last six fiscal quarters.
This discussion summarizes the significant factors affecting our
consolidated operating results, financial condition, liquidity and cash flow
during the three-year period ended June 30, 2001, referred to as fiscal 2001,
2000, and 1999. Unless otherwise indicated, references to any year in this
Management's Discussion and Analysis of Financial Condition and Results of
Operation refer to our fiscal year ended June 30. This discussion should be read
with the consolidated financial statements and financial statement footnotes
included in this Annual Report on Form 10-K.
During the three-year period ended June 30, 2001, we acquired four
companies: HexaVision Technologies, Inc. NanoMotion Incorporated, Pensar-Tucson,
Inc. and BYE/OASIS. These acquisitions are described below.
HEXAVISION
On July 21, 2000, we completed the acquisition of HexaVision Technologies
Inc., now named Adept Technology Canada Co., a Canadian corporation. HexaVision
is a machine vision research and development company. In connection with the
acquisition, we paid $5.5 million in cash, which includes transaction costs of
$0.4 million, and issued shares of our common stock to the shareholders of
HexaVision with a value of $1.1 million. On July 21, 2001, pursuant to the terms
of the share purchase agreement relating to the acquisition of HexaVision, we
issued 116,000 shares of our common stock to the former shareholders of
HexaVision with a value of $1.1 million, made cash payments totaling $3,500 and
released $313,000 in cash from an escrow account. In addition, a second payment
of approximately $1.3 million in cash is payable on the second anniversary
closing, contingent upon the achievement of certain operational milestones by
HexaVision. We have set aside restricted cash in the amount of $1.6 million for
future contingent payments including the payments made on July 21, 2001, and
such restricted cash is included in Other Assets on the June 30, 2001 balance
sheet. These contingent cash payments and share issuances will be accounted for
as additional purchase price when the contingencies are resolved. Any payments
made and shares issued will be allocated to goodwill. We have accounted for the
acquisition under the purchase method. We believe the acquisition of HexaVision
will enhance our machine vision products for all markets and facilitate our
16
entry into the PC-based machine vision market. HexaVision's core technology
incorporates techniques to achieve accuracies up to 1/40th of a pixel with
machine vision measurement algorithms that can increase our performance in
critical and demanding applications such as vision servoing for the
microelectrical, fiber optic, semiconductor, metrology and photonics industries.
NANOMOTION
On May 31, 2000, we completed the acquisition of NanoMotion Incorporated, a
California corporation. NanoMotion is a manufacturer of ultra-high precision
positioning and alignment devices. In connection with the acquisition, we issued
600,000 shares of our common stock to the shareholders of NanoMotion valued at
$21 per share, which was the fair market value of our common stock at May 31,
2000. The acquisition was accounted for as a purchase. We believe that our
acquisition of NanoMotion will enhance our ability to offer intelligent
automation solutions to the microelectrical, fiber optic, semiconductor,
metrology, and precision machining and photonics industries.
PENSAR
On April 28, 2000, we completed the acquisition of Pensar-Tucson, Inc., an
Arizona corporation. Pensar is a design and engineering company, which
integrates factory automation systems. In connection with the acquisition, we
issued 100,000 shares of our common stock to the shareholders of Pensar valued
at $11.75 per share, which was the fair market value of our common stock at
April 28, 2000. In addition, we paid $3,000,000 in cash, resulting in a total
purchase price of $4.2 million. The acquisition was accounted for as a purchase.
We believe that our acquisition of Pensar will enhance our ability to offer
standard solutions for microelectrical, fiber optic and photonics assembly
automation.
BYE/OASIS
On July 16, 1999, we completed the acquisition of BYE/OASIS Engineering,
Inc., a Texas corporation. BYE/OASIS is a manufacturer of environmental
filtering and control systems, which create a clean room environment inside a
semiconductor manufacturing machine or tool, and wafer cassette handling devices
for the microelectronics industry. In connection with the acquisition, we issued
720,008 shares of our common stock to the shareholders of BYE/OASIS. In
addition, we assumed outstanding options to acquire BYE/OASIS shares, which were
converted into options to acquire 185,361 shares of our common stock. The
acquisition constituted a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986. The acquisition was accounted for using the
pooling of interests method, and, accordingly, all prior period consolidated
financial statements have been restated to include the combined results of
operations, financial position and cash flows of BYE/OASIS. Prior to the merger,
BYE/ OASIS's fiscal year ended on September 30. In recording the business
combination, BYE/OASIS's prior period financial statements have been restated to
conform to our fiscal year. We believe this acquisition will broaden our factory
automation offerings in the wafer and microelectronic manufacturing industry and
enhance our experience and marketing and service infrastructure.
RESULTS OF OPERATIONS
Comparison of 2001 to 2000
Net Revenues. Our net revenues increased by 1.1% to $100.3 million in 2001
from $99.2 million in 2000, with all of the growth occurring in the first two
quarters. During the last two quarters of the year, we experienced reduced
demand in our core North American markets of Electronics & Mobile Phones,
Semiconductor, Photonics and Automotive as well as some softening in our base
business in Europe. We believe that substantial excess manufacturing capacity
across most of the industries we serve contributed to this decline in activity.
We expect this reduction in demand will adversely affect our sales in these
markets over at least the next several quarters. Although we have recently
experienced decreased demand in Photonics, in general, we continued to make
progress and revenues from this industry increased to 8% of total revenue in
fiscal year 2001, as compared to less than 1% of revenue in fiscal 2000.
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Our domestic sales were $63.9 million in 2001 compared to $54.3 million in
2000, an increase of 17.6%. The growth in domestic sales was principally
attributable to increased sales to customers in the photonics and OEM
industries.
Our international sales were $36.4 million in 2001 compared to $44.9 million
in 2000, a decrease of 18.9%. The general economic downturn has significantly
affected our European markets. This, coupled with pricing pressures due to the
strength of the U.S. dollar against the euro, contributed to lower sales in
2001. We may experience continued price pressure in European markets, which may
have a negative effect on future revenues.
Gross Margin. Gross margin as a percentage of net revenue was 34.9% in 2001
compared to 43.4% in 2000. The decrease in gross margin percentage is due
primarily to a $5.8 million inventory write-down, which was attributable to the
rapid decline in sales we experienced during the last quarter of fiscal 2001 and
associated lower forecasted demand for fiscal 2002. In addition, margins were
generally negatively impacted by a significant decline in revenue with customers
in our base business, especially the semiconductor industry, and significantly
reduced shipments in relation to a relatively fixed overhead cost structure. We
expect to continue to experience fluctuations in our gross margin percentage due
to changes in availability of components, changes in product configuration and
changes in sales mix.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 55.4% to $22.7 million, or 22.7% of net
revenues in 2001, from $14.6 million, or 14.7% of net revenues in 2000. The
increase for the period was attributable primarily to increased personnel costs
as research, development and engineering headcount increased 28% during the
first nine months of the year ending June 30, 2001 from June 30, 2000, with more
than half of these employees being hired as a result of our three acquisitions
during calendar year 2000. In addition, facilities expenses increased by $1
million or 422% attributable to the addition of the HexaVision facility, Santa
Barbara facility and the new Livermore building that was occupied during the
year ended June 30, 2001.
We spent much of fiscal 2001 in intense product development advancing our
line of controllers and integrating the products and technologies of the
acquisitions noted previously, and began releasing new products based on the
technologies resulting from our development efforts in the March and June
quarters. These new products include the Nanoline microstages for photonics
assembly and the HexSight and Adept AVI vision systems for high precision
assembly and material handling. In addition, we invested heavily in developing
new products for our base business including 6-axis robots, smaller and lower
cost Smart Series of controllers and Cartesian robots with integrated power
amplifiers. We also developed the NanoCell, a platform to integrate these
technologies, and developed two key processes for photonics assembly, epoxy
bonding and laser welding.
Over the past several years, we have been involved in several
federally-funded consortiums, which partially offset some of our research and
development expenses. We completed the last of these funded projects in early
2001. We do not anticipate entering into any such consortiums in fiscal year
2002. Funding from these consortiums were $49,000 and $309,000 for the years
ended June 30, 2001 and 2000, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 22.0% to $36.0 million or 35.9% of net
revenues in 2001 from $29.5 million or 29.7% of net revenues in 2000. The
increased level of spending was primarily attributable to increased headcount of
15% from June 30, 2000 to June 30, 2001 and compensation-related expenses and
additional costs from companies acquired. We expect that selling, general and
administrative expenses will decrease or remain flat through our efforts to
reduce expenses in response to the general decline in the industries we serve.
Merger-Related Charges. There were no merger-related charges in 2001.
Merger-related charges were $988,000 in 2000 relating to the acquisition of
BYE/OASIS and the closure of BYE/OASIS facilities in Texas. Merger-related
expenses were $558,000, expenses relating to the closure of facilities in Texas
were $195,000 and other non-recurring expenses relating to the acquisition were
$235,000.
Interest Income, Net. Interest income, net, in 2001 was $733,000 compared to
$746,000 in 2000, with higher average investable cash balances offset by lower
average yields.
18
Provision for (benefit from) Income Taxes. Our effective tax rate for 2001
was 18% as compared to (29%) for 2000. Our tax rate for 2001 differs from the
federal statutory income tax rate of 34% primarily due to the increase in
valuation allowance to fully offset Adept's deferred tax assets. In 2000, our
tax rate differed from the federal statutory rate of 34% primarily due to items
not deductible for income tax purposes.
Derivative Financial Instruments. Our product sales are predominantly
denominated in U.S. dollars. However, certain international operating expenses
are predominately paid in their respective local currency. Our foreign currency
hedging program is used to hedge our exposure to foreign currency exchange risk
on local international operational expenses and revenues. Realized and
unrealized gains and losses on forward currency contracts that are effective as
hedges of assets and liabilities are recognized in income. We recognized a gain
of $322,000 for the year ended June 30, 2001 and a loss of $50,000 for the year
ended June 30, 2000. Realized and unrealized gains and losses on instruments
that hedge firm commitments are deferred and included in the measurement of the
subsequent transaction; however, losses are deferred only to the extent of
expected gains on the future commitment at June 30, 2001. We have deferred
recognition of a transaction loss of $62,000, relating to foreign exchange
contracts treated as accounting hedges. We realized this transaction loss in the
first quarter of 2002.
Comparison of 2000 to 1999
Net Revenues. Our net revenues increased by 13.5% to $99.2 million in 2000
from $87.4 million in 1999. The increase in net revenues for 2000 over 1999 was
primarily due to strong demand in the semiconductor and electronic industries.
International sales, including sales to Canada and export sales, were $44.9
million or 45.2% of net revenues in 2000 as compared with $41.2 million, or
47.2% of net revenues, in 1999. International revenue as a percentage of total
net revenues decreased due to the addition of our semiconductor business whose
revenue was derived primarily from domestic sources in 2000. Domestic
semiconductor revenue was greater than our international semiconductor revenue
causing the total international revenue as a percent of total revenue to
decline.
Gross Margin. Gross margin as a percentage of net revenue was 43.4% in 2000
compared to 45.2% in 1999. The decrease in gross margin percentage was primarily
attributable to the increase in operational and manufacturing overhead expenses
related to supplier changes during the first quarter of fiscal 2000 and general
increases in component costs.
Research, Development and Engineering Expenses. Research, development and
engineering expenses increased by 26.2% to $14.6 million, or 14.7% of net
revenues in 2000, from $11.6 million, or 13.3% of net revenues in 1999. The
absolute dollar increase in expenses in 2000 was primarily due to increases in
payroll and related expenses of $2.0 million, increases in project and operating
expenses which were $1.1 million, partially offset by decreased spending in
outside services. Research, development and engineering expenses in 2000 were
partially offset by approximately $309,000 of third party development funding as
compared with $681,000 of third party development funding in 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 20.7% to $29.5 million or 29.7% of net
revenues in 2000 from $24.7 million or 28.2% of net revenues in 1999. The
increased level of spending was primarily attributable to increases in corporate
administration expenses of $1.6 million related to the opening of new sales
offices, increases in payroll and related expenses of $4.0 million due to
increased headcount from acquisition activity, and increases in travel expenses
of $446,000 associated with increased sales activity. The increases were
partially offset by decreased spending in outside services of $162,000 and
reduced spending in project supplies.
Merger-Related Charges. Merger-related charges were $988,000 in 2000
relating to the acquisition of BYE/OASIS and the closure of BYE/OASIS facilities
in Texas. Merger-related expenses were $558,000, expenses relating to the
closure of facilities in Texas were $195,000, and other non-recurring expenses
relating to the acquisition were $235,000.
Interest Income, Net. Interest income, net in 2000 was $746,000 compared to
$926,000 in 1999. The decrease was primarily as a result of a lower interest
yield rate on investments in 2000 compared to 1999.
Provision for (benefit from) Income Taxes. Our effective tax rate for 2000
was (29%) as compared to 39% for 1999. Our tax rate for 2000 differed from the
federal statutory income tax rate of 34% primarily due items not
19
deductible for income tax purposes. In 1999, our tax rate differed from the
federal statutory rate of 34% primarily due to future foreign losses not
utilized for U.S. federal and state tax purposes and foreign taxes, partially
offset by the benefits of federal and state tax credits.
IMPACT OF INFLATION
The effect of inflation on our business and financial position has not been
significant to date.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2001, we had working capital of approximately $39.8 million,
including $21.5 million in cash equivalents and short term investments.
During the year ended June 30, 2001, cash and short term investments
increased by approximately $1.1 million. Net cash used in operating activities
of $19.3 million was primarily attributable to the net loss adjusted by
depreciation, amortization, increase in valuation allowance for deferred taxes,
and a decrease in accounts receivables, offset by increased inventories. The
increase in inventories of $7.4 million during the year ended June 30, 2001
related primarily due to new product introductions and decrease of sales, less a
$4.8 million provision for inventory in the fourth quarter of fiscal 2001,
resulting in a net increase in inventory of $2.6 million. This write-down was
due to the rapid decline in activity we experienced during the fourth quarter of
fiscal 2001, as well as our current sales outlook for fiscal 2002.
Cash used in investing activities during the year ended June 30, 2001
included $7.1 million in cash paid as part of the purchase price for the
acquisition of HexaVision, which was completed during the first quarter. We
added $8.5 million in fixed assets and capital equipment, of which $3.1 million
was related to computer equipment and software, $2.1 million was related to the
rollout of our enterprise resource planning software, $1.1 million was related
to test equipment for new product introductions, $0.7 million was related to the
buildout of our Livermore facility and $1.2 million was related to fixtures and
office equipment. In February 2001, we completed a public offering of 2,000,000
shares of common stock at $18.00 per share. Realized net proceeds to us were
$32.4 million. Cash flows from financing activities during the 12 months
consisted of the $32.4 million from the public offering, as well as $3.5 million
in proceeds from our employee stock incentive plan.
We continue to pursue multiple options to address our capital requirements
to take advantage of opportunities in the semiconductor and photonics markets,
which may include acquisitions of complimentary products, technologies, or
businesses. However, we believe that our existing cash and cash equivalent
balances as well as short-term investments and anticipated cash flow from
operations will be sufficient to support our normal capital requirements for at
least the next 12 months. If we pursue additional opportunities, we may seek
additional financing sources.
We currently anticipate net new capital expenditures of approximately $3.0
million in fiscal 2002.
On April 9, 2001, we signed a set of agreements establishing a revolving
line of credit with The CIT Group/Business Credit, Inc. to borrow up to the
lesser of $25.0 million or the sum of 85% of eligible domestic accounts
receivables, plus 90% of eligible foreign accounts receivables, less a dilution
reserve equivalent to one percent of eligible domestic and foreign accounts
receivables for every one percentage point in excess of a standard five percent
dilution rate. The agreements have an initial term of three years with automatic
renewals on identical terms thereafter unless terminated by the either party
within 60 days of the then current term. We are required to meet certain
restrictive covenants as defined by the new credit agreement. We were in
compliance with these covenants at June 30, 2001. To date, the Company has no
outstanding borrowings under this revolving line of credit.
NEW ACCOUNTING PRONOUNCEMENTS
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 141 - BUSINESS COMBINATIONS AND
NO. 142 - GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years
20
beginning after December 15, 2001. Under the new rules, goodwill (and intangible
assets deemed to have indefinite lives) will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statements. Other
intangible assets will be amortized over their useful lives.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of fiscal 2002. Application of the
non-amortization provisions of Statement No. 142 is expected to result in a
decrease in net loss of $7.5 million per year. During fiscal 2002, we will
perform the first of the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 and have not yet determined what
the effect of these tests will be on our earnings and financial position.
ACQUISITIONS
To expand our capabilities in the manufacturing and marketing of precision
robotics, simulation and motion control products for production environments,
automated material handling and assembly, and to strengthen our core business,
we completed the following acquisitions during the three year period ended June
30, 2001:
July 21, 2000 Acquisition of HexaVision Technologies Inc., a machine
vision research and development company. We believe the
acquisition of HexaVision will enhance our machine vision
products for all markets and facilitate our entry into the
PC-based machine vision market. HexaVision's core
technology incorporates techniques to achieve accuracies up
to 1/40th of a pixel with guidance vision algorithms that
can increase our performance in critical and demanding
applications such as vision servoing for the micro
electrical, fiber optic, semiconductory, metrology and
photonics industry.
May 31, 2000 Acquisition of NanoMotion Incorporated, a developer and
manufacturer of advanced nanometer and sub-nanometer
positioning and alignment systems. We believe this
acquisition will facilitate expansion of our leadership
role in precision robotics by adding NanoMotion's rugged,
production-ready micro and nano positioning mechanisms to
Adept's product offerings.
April 28, 2000 Acquisition of Pensar-Tucson Inc., a design/engineering
automation company specializing in advanced material
handling and assembly processes. We believe this
acquisition will expand our high precision and fiber optic
assembly offerings.
July 16, 1999 Acquisition of BYE/OASIS Engineering Incorporated, a
manufacturer of mini-environment/microenvironment systems
and SMIF interfaces for the microelectronics industry. We
believe this acquisition will broaden our factory
automation offerings in the wafer and microelectronic
manufacturing industry experience and marketing and service
infrastructure.
FACTORS AFFECTING FUTURE OPERATING RESULTS
RISKS RELATED TO OUR BUSINESS
YOU SHOULD NOT RELY ON OUR PAST RESULTS TO PREDICT OUR FUTURE PERFORMANCE
BECAUSE OUR OPERATING RESULTS FLUCTUATE DUE TO FACTORS WHICH ARE DIFFICULT TO
FORECAST, AND WHICH CAN BE EXTREMELY VOLATILE.
Our past revenues and other operating results may not be accurate indicators
of our future performance. Our operating results have been subject to
significant fluctuations in the past, and we expect this to continue in the
future. The factors that may contribute to these fluctuations include:
o fluctuations in aggregate capital spending, cyclicality and other
economic conditions domestically and internationally in one or more
industries in which we sell our products;
o changes in demand in the semiconductor and electronics industries;
21
o new product introductions by us or by our competitors;
o changes in product mix and pricing by us, our suppliers or our
competitors;
o availability of components and raw materials for our products;
o our failure to manufacture a sufficient volume of products in a timely
and cost-effective manner;
o our failure to anticipate the changing product requirements of our
customers;
o a change in market acceptance of our products or a shift in demand for
our products;
o changes in the mix of sales by distribution channels;
o exchange rate fluctuations;
o extraordinary events such as litigation or acquisitions; and
o slower than expected growth in the photonics industry.
Our gross margins may vary greatly depending on the mix of sales of lower
margin hardware products, particularly mechanical subsystems purchased from
third party vendors, and higher margin software products.
Our operating results may also be affected by general economic and other
conditions affecting the timing of customer orders and capital spending. For
example, our operations during the third and fourth quarters of fiscal 1998, the
first three quarters of fiscal 1999, the first quarter of fiscal 2000 and all of
fiscal 2001 were adversely affected by a continuing downturn in hardware
purchases by customers in the electronics industry, particularly disk-drive
manufacturers and to a lesser extent communication manufacturers. In addition,
we have experienced reduced demand during the last two quarters in our base
industries, especially the semiconductor industry, as OEMs reduced inventories
as they adjusted their businesses from a period of high growth to moderate
growth. We cannot estimate when or if a sustained revival in these key hardware
markets will occur.
We generally recognize product revenue upon shipment or, for certain
international sales, upon receipt by the customers. As a result, our net
revenues and results of operations for a fiscal period will be affected by the
timing of orders received and orders shipped during the period. A delay in
shipments near the end of a fiscal period, for example, due to product
development delays or delays in obtaining materials may cause sales to fall
below expectations and harm our operating results for the period.
In addition, our continued investments in research and development, capital
equipment and ongoing customer service and support capabilities result in
significant fixed costs that we cannot reduce rapidly. As a result, if our sales
for a particular fiscal period are below expected levels, our operating results
for the period could be materially adversely affected.
In the event that in some future fiscal quarter our net revenues or
operating results fall below the expectations of public market analysts and
investors, the price of our common stock may fall. We may not be able to
increase or sustain our profitability on a quarterly or annual basis in the
future.
SALES OF OUR PRODUCTS DEPEND ON THE CAPITAL SPENDING PATTERNS OF OUR CUSTOMERS,
WHICH TEND TO BE CYCLICAL; WE ARE CURRENTLY EXPERIENCING REDUCED DEMAND IN THE
ELECTRONICS AND SEMICONDUCTOR INDUSTRIES, WHICH MAY ADVERSELY AFFECT OUR
REVENUES.
Intelligent automation systems using our products can range in price from
$75,000 to several million dollars. Accordingly, our success is directly
dependent upon the capital expenditure budgets of our customers. Our future
operations may be subject to substantial fluctuations as a consequence of
domestic and foreign economic conditions, industry patterns and other factors
affecting capital spending. Although the majority of our international customers
22
are not in the Asia-Pacific region, we believe that any instability in the
Asia-Pacific economies could also have a material adverse effect on the results
of our operations as a result of a reduction in sales by our customers to those
markets. Domestic or international recessions or a downturn in one or more of
our major markets, such as the electronics, wireless communications,
semiconductor, appliances, pharmaceutical, food processing or automotive
components industries, and resulting cutbacks in capital spending would have a
direct, negative impact on our business. We are currently experiencing reduced
demand in some of the industries we serve including the electronics and
semiconductor industries and expect this reduced demand to adversely affect our
revenues for at least the first two quarters of fiscal 2002. During the third
and fourth quarter of fiscal 2001, Adept received fewer orders than expected,
experienced delivery schedule postponements on several existing orders and had
some order cancellations. Such changes in orders may adversely affect revenue
for future quarters.
We sell some of our products to the semiconductor industry, which is subject
to sudden, extreme, cyclical variations in product supply and demand. The
timing, length and severity of these cycles are difficult to predict. In some
cases, these cycles have lasted more than a year. Semiconductor manufacturers
may contribute to these cycles by misinterpreting the conditions in the industry
and over- or under-investing in semiconductor manufacturing capacity and
equipment. We may not be able to respond effectively to these industry cycles.
Downturns in the semiconductor industry often occur in connection with, or
anticipation of, maturing product cycles for both semiconductor companies and
their customers and declines in general economic conditions. Industry downturns
have been characterized by reduced demand for semiconductor devices and
equipment, production over-capacity and accelerated decline in average selling
prices. During a period of declining demand, we must be able to quickly and
effectively reduce expenses and motivate and retain key employees. Our ability
to reduce expenses in response to any downturn in the semiconductor industry is
limited by our need for continued investment in engineering and research and
development and extensive ongoing customer service and support requirements. The
long lead time for production and delivery of some of our products creates a
risk that we may incur expenditures or purchase inventories for products which
we cannot sell. A downturn in the semiconductor industry could therefore harm
our revenues and gross margin if demand drops or average selling prices decline.
Industry upturns have been characterized by abrupt increases in demand for
semiconductor devices and equipment and production under-capacity. During a
period of increasing demand and rapid growth, we must be able to quickly
increase manufacturing capacity to meet customer demand and hire and assimilate
a sufficient number of qualified personnel. Our inability to ramp-up in times of
increased demand could harm our reputation and cause some of our existing or
potential customers to place orders with our competitors.
MANY OF THE KEY COMPONENTS AND MATERIALS OF OUR PRODUCTS COME FROM SINGLE SOURCE
SUPPLIERS; THEIR PROCUREMENT REQUIRES LENGTHY LEAD TIMES OR SUPPLIES OF SUCH
COMPONENTS ARE LIMITED.
We obtain many key components and materials and some significant mechanical
subsystems from sole or single source suppliers with whom we have no guaranteed
supply arrangements. In addition, some of our sole or single sourced components
and mechanical subsystems incorporated into our products have long procurement
lead times. Our reliance on sole or single source suppliers involves certain
significant risks including:
o loss of control over the manufacturing process;
o potential absence of adequate supplier capacity;
o potential inability to obtain an adequate supply of required
components, materials or mechanical subsystems; and
o reduced control over manufacturing yields, costs, timely delivery,
reliability and quality of components, materials and mechanical
subsystems.
We depend on Sanmina Corporation for the supply of our circuit boards, NSK
Corporation for the supply of our linear modules, which are mechanical devices
powered by an electric motor that move in a straight line, and which can be
combined as building blocks to form simple robotic systems, Yaskawa Electric
Corp. for the supply of our 6-axis robots, Samsung Electronics Co., Ltd. for the
supply of semiconductor robots, Hirata Corporation for the supply
23
of our Adept Cobra 600 robot mechanism and Adept Cobra 800 robot mechanisms and
we are transitioning from Imaging Technology Incorporated to Matrox Electronic
Systems Ltd. for the supply of our computer vision processors, which are used to
digitize images from a camera and perform measurements and analysis. If any one
of these significant sole or single source supplier were unable or unwilling to
manufacture the components, materials or mechanical subsystems we need in the
volumes we require, we would have to identify and qualify acceptable
replacements. The process of qualifying suppliers may be lengthy, and additional
sources may not be available to us on a timely basis, on acceptable terms or at
all. If supplies of these items were not available from our existing suppliers
and a relationship with an alternative vendor could not be developed in a timely
manner, shipments of our products could be interrupted and reengineering of
these products could be required. In the past, we have experienced quality
control or specification problems with certain key components provided by sole
source suppliers, and have had to design around the particular flawed item. We
have also experienced delays in filling customer orders due to the failure of
certain suppliers to meet our volume and schedule requirements. Some of our
suppliers have also ceased manufacturing components that we require for our
products, and we have been required to purchase sufficient supplies for the
estimated life of its product line. Problems of this nature with our suppliers
may occur in the future.
In addition, some of the components that we use in our products are in short
supply. Many of our products have longer lives than those of the components and
materials included in our products. As a result, supplies of components for our
products may not be available throughout the life span of our products.
Disruption or termination of our supply sources could require us to seek
alternative sources of supply, and could delay our product shipments and damage
relationships with current and prospective customers, any of which could have a
material adverse effect on our business. If we incorrectly forecast product mix
for a particular period and we are unable to obtain sufficient supplies of any
components or mechanical subsystems on a timely basis due to long procurement
lead times, our business, financial condition and results of operations could be
substantially impaired. Moreover, if demand for a product for which we have
purchased a substantial amount of components fails to meet our expectations, we
would be required to write off the excess inventory. A prolonged inability to
obtain adequate timely deliveries of key components could have a material
adverse effect on our business, financial condition and results of operations.
BECAUSE OUR PRODUCT SALES ARE SEASONAL, WE MAY NOT BE ABLE TO MAINTAIN A STEADY
REVENUE STREAM.
Our product sales are seasonal. We have historically had higher bookings for
our products during the June quarter of each fiscal year and lower bookings
during the September quarter of each fiscal year, due primarily to the slowdown
in sales to European markets and summer vacations. In the event bookings for our
products in the June fiscal quarter are lower than anticipated and our backlog
at the end of the June fiscal quarter is insufficient to compensate for lower
bookings in the September fiscal quarter, our results of operations for the
September fiscal quarter and future quarters will suffer.
A significant percentage of our product shipments occur in the last month of
each fiscal quarter. Historically, this has been due in part, at times, to our
inability to forecast the level of demand for our products or of the product mix
for a particular fiscal quarter. To address this problem we periodically stock
inventory levels of completed robots, machine controllers and certain strategic
components. If shipments of our products fail to meet forecasted levels, the
increased inventory levels and increased operating expenses in anticipation of
sales that do not materialize could adversely affect our business.
ORDERS CONSTITUTING OUR BACKLOG ARE SUBJECT TO CHANGES IN DELIVERY SCHEDULES AND
CUSTOMER CANCELLATIONS RESULTING IN LOWER THAN EXPECTED REVENUES.
Backlog should not be relied on as a measure of anticipated activity or
future revenues, because the orders constituting our backlog are subject to
changes in delivery schedules and in certain instances are subject to
cancellation without significant penalty to the customer. We have in the past
experienced changes in delivery schedules and customer cancellations that
resulted in our revenues in a given quarter being materially less than would
have been anticipated based on backlog at the beginning of the quarter. We
experienced greater customer delays and cancellations in the second half of
fiscal 2001 compared to prior periods, and this increase may continue. Similar
delivery schedule changes and order cancellations may adversely affect our
operating results in the future.
24
BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, THEY MAY CEASE
PURCHASING OUR PRODUCTS AT ANY TIME.
We generally do not have long-term contracts with our customers and existing
contracts may be cancelled. As a result, our agreements with our customers do
not provide any assurance of future sales. Accordingly our customers are not
required to make minimum purchases and may cease purchasing our products at any
time without penalty. Because our customers are free to purchase products from
our competitors, we are exposed to competitive price pressure on each order. Any
reductions, cancellations or deferrals in customer orders could have a negative
impact on our financial condition and results of operations.
WE ARE EXPANDING DEVELOPMENT OF INTELLIGENT AUTOMATION SOLUTIONS FOR THE
PHOTONICS INDUSTRY, AND OUR ENTRY INTO THIS INDUSTRY WILL REQUIRE US TO DEVELOP
SIGNIFICANT NEW CAPABILITIES AND MAY NOT BE SUCCESSFUL.
We are expanding development of our intelligent automation solutions
targeted at the photonics industry. We expect to devote significant financial,
engineering and management resources to expand our development and marketing of
these solutions. Our success in the photonics industry depends upon our ability
to, among other things:
o accurately determine the features and functionality that our photonics
customers require or prefer;
o successfully design and implement intelligent automation solutions that
include these features and functionality;
o enter into agreements with system integrators, manufacturers and
distributors; and
o achieve market acceptance for our photonics solutions.
Our photonics solutions may not achieve broad market acceptance for a variety of
reasons including:
o photonics companies may continue their current production methods and
may not adopt our intelligent automation solutions;
o photonics companies may determine that the costs and resources required
to switch to our intelligent automation solutions are unacceptable to
them;
o system integrators, manufacturers, and OEMs may not enter into
agreements with us; and
o competition from traditional, well-established photonics manufacturing
methods.
We have limited experience in developing and marketing products for the
photonics industry. If we do not successfully develop and achieve market
acceptance of products for the photonics industry, our ability to increase our
revenue may be limited and our business and our results of operations will
suffer.
WE CHARGE A FIXED PRICE FOR A CERTAIN PRODUCTS WHICH MAY MAKE US VULNERABLE TO
COST OVERRUNS.
Our operating results fluctuate when our gross margins vary. Our gross
margins vary for a number of reasons, including:
o the mix of products we sell;
o the average selling prices of products we sell;
o the costs to manufacture, market, service and support our new products
and enhancements;
o the costs to customize our systems; and
o our efforts to enter new markets.
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We charge a fixed price for certain of our products, including the products that
we added as a result of our acquisition of Pensar. If the costs we incur in
completing a customer order for these products exceed our expectations, we
generally cannot pass those costs on to our customer.
WE HAVE SIGNIFICANT FIXED COSTS WHICH ARE NOT EASILY REDUCED DURING A DOWNTURN.
We continue to invest in research and development, capital equipment and
extensive ongoing customer service and support capability worldwide. These
investments create significant fixed costs that we may be unable to reduce
rapidly if we do not meet our sales goals. Moreover, if we fail to obtain a
significant volume of customer orders for an extended period of time, we may
have difficulty planning our future production and inventory levels, which could
also cause fluctuations in our operating results.
IF OUR TARGETED PHOTONICS MARKET DEVELOPS MORE SLOWLY THAN WE EXPECT, OUR
REVENUE WILL NOT GROW AS FAST AS ANTICIPATED, IF AT ALL.
Segments of the photonics market that we target as an element of our growth
strategy are either emerging or rapidly changing and the potential size of these
market segments and the timing of their development are difficult to predict. If
our targeted segments of this market develop more slowly than we expect, our
ability to increase our revenue may be limited. We depend, in part, upon the
broad acceptance by photonic manufacturers of our material handling and
component assembly solutions, as well as our simulation software and robot
vision and motion control technology. Much of our acquisition and subsequent
development efforts have been directed toward this market, and a delay in the
evolution and growth of this market could significantly adversely impact the
return on these investments, or even prevent the realization of a return on
these investments.
WE RELY ON SYSTEMS INTEGRATORS AND OEMS TO SELL OUR PRODUCTS.
We believe that our ability to sell products to system integrators and OEMs
will continue to be important to our success. Our relationships with system
integrators and OEMs are generally not exclusive, and some of our system
integrators and OEMs may expend a significant amount of effort or give higher
priority to selling products of our competitors. In the future, any of our
system integrators or our OEMs may discontinue their relationships with us or
form additional competing arrangements with our competitors. The loss of, or a
significant reduction in revenues from, system integrators or OEMs to which we
sell a significant amount of our product could negatively impact our business,
financial condition or results of operations.
As we enter new geographic and applications markets, we must locate system
integrators and OEMs to assist us in building sales in those markets. We may not
be successful in obtaining effective new system integrators or OEMs or in
maintaining sales relationships with them. In the event a number of our system
integrators and/or OEMs experience financial problems, terminate their
relationships with us or substantially reduce the amount of our products they
sell, or in the event we fail to build an effective systems integrator or OEM
channel in any new markets, our business, financial condition and results of
operations could be adversely affected.
In addition, a substantial portion of our sales is to system integrators
that specialize in designing and building production lines for manufacturers.
Many of these companies are small operations with limited financial resources,
and we have from time to time experienced difficulty in collecting payments from
certain of these companies. As a result, we perform ongoing credit evaluations
of our customers. To the extent we are unable to mitigate this risk of
collections from system integrators, our results of operations may be harmed.
OUR PRODUCTS GENERALLY HAVE LONG SALES CYCLES AND IMPLEMENTATION PERIODS, WHICH
INCREASE OUR COSTS IN OBTAINING ORDERS AND REDUCES THE PREDICTABILITY OF OUR
EARNINGS.
Our products are technologically complex. Prospective customers generally
must commit significant resources to test and evaluate our products and to
install and integrate them into larger systems. Orders expected in one quarter
may shift to another quarter or be cancelled with little advance notice as a
result of the customers' budgetary constraints, internal acceptance reviews, and
other factors affecting the timing of customers' purchase decisions. In
addition, customers often require a significant number of product presentations
and demonstrations, in some instances evaluating equipment on site, before
reaching a sufficient level of confidence in the product's performance and
compatibility with the customer's requirements to place an order. As a result,
our sales process is often subject
26
to delays associated with lengthy approval processes that typically accompany
the design and testing of new products. The sales cycles of our products often
last for many months or even years. In addition, the time required for our
customers to incorporate our products into their systems can vary significantly
with the needs of our customers and generally exceeds several months, which
further complicates our planning processes and reduces the predictability of our
operating results. Longer sales cycles require us to invest significant
resources in attempting to make sales, which may not be realized in the near
term and therefore may delay the generation of revenue, or which may not be
realized at all.
IF WE ARE UNABLE TO IDENTIFY AND MAKE ACQUISITIONS, OUR ABILITY TO EXPAND OUR
OPERATIONS AND INCREASE OUR REVENUE MAY SUFFER.
In the latter half of fiscal 2000, a significant portion of our growth was
attributable to acquisitions of other businesses and technologies. We expect
that acquisitions of complementary companies, products and technologies in the
future will play an important role in our ability to expand our operations, hire
additional personnel and increase our revenue. We are currently reviewing
several possible acquisition candidates as part of our strategy to market
intelligent automation solutions targeted at the photonics industry. If we are
unable to identify suitable targets for acquisition or complete acquisitions on
acceptable terms, our ability to expand our service offerings and increase our
revenue may be impaired. Even if we are able to identify and acquire acquisition
candidates, we may be unable to realize the benefits anticipated as a result of
these acquisitions.
ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS, INCREASE OUR EXPENSES AND
ADVERSELY AFFECT OUR FINANCIAL CONDITION OR OPERATIONS.
During fiscal 2000, we acquired Pensar, NanoMotion and BYE/Oasis. In July
2000, we acquired HexaVision. These acquisitions introduced us to industries and
technologies in which we have limited previous experience. In the future we may
make material acquisitions of, or large investments in, other businesses that
offer products, services, and technologies that management believes will further
our strategic objectives. We cannot be certain that we would successfully
integrate any businesses, technologies or personnel that we might acquire, and
any acquisitions might divert our management's attention away from our core
business. Any future acquisitions or investments we might make would present
risks commonly associated with these types of transactions, including:
o difficulty in combining the product offerings, operations, or work
force of an acquired business;
o potential loss of key personnel of an acquired business;
o adverse effects on existing relationships with suppliers and customers;
o disruptions of our on-going businesses;
o difficulties in realizing our potential financial and strategic
position through the successful integration of the acquired business;
o difficulty in maintaining uniform standards, controls, procedures and
policies;
o potential negative impact on results of operations due to amortization
of goodwill, other intangible assets acquired or assumption of
anticipated liabilities;
o risks associated with entering markets in which we have limited
previous experience; and
o the diversion of management attention.
The risks described above, either individually or in the aggregate, could
significantly harm our business, financial condition and results of operations.
We expect that future acquisitions, if any, could provide for consideration to
be paid in cash, shares of our common stock, or a combination of cash and common
stock. In addition, we may issue additional equity in connection with future
acquisitions, which could result in dilution of our
27
shareholders' equity interest. Fluctuations in our stock price may make
acquisitions more expensive or prevent us from being able to complete
acquisitions on terms that are acceptable to us.
OUR INTERNATIONAL OPERATIONS MAY SUBJECT US TO DIVERGENT REGULATORY REQUIREMENTS
AND OTHER RISKS THAT MAY HARM OUR OPERATING RESULTS.
International sales were $36.4 million for the fiscal year ended June 30,
2001, $44.9 million for the fiscal year ended June 30, 2000 and $41.2 million
for the fiscal year ended June 30, 1999. This represented 36.3%, 45.2%, and
47.2% of net revenues for the respective periods. We also purchase some
components and mechanical subsystems from foreign suppliers. As a result, our
operating results are subject to the risks inherent in international sales and
purchases, which include the following:
o unexpected changes in regulatory requirements;
o political and economic changes and disruptions;
o transportation costs and delays;
o foreign currency fluctuations;
o export/import controls;
o tariff regulations and other trade barriers;
o higher freight rates;
o difficulties in staffing and managing foreign sales operations;
o greater difficulty in accounts receivable collection in foreign
jurisdictions; and
o potentially adverse tax consequences.
Foreign exchange fluctuations may render our products less competitive
relative to locally manufactured product offerings, or could result in foreign
exchange losses. In calendar 2001, the value of major European currencies has
dropped against the U.S. dollar. To date, we have not reflected that change in
currency value in our selling prices. In order to maintain a competitive price
for our products in Europe, we may have to provide discounts or otherwise
effectively reduce our prices, resulting in a lower margin on products sold in
Europe. Continued change in the values of European currencies or changes in the
values of other foreign currencies could have a negative impact on our business,
financial condition and results of operations.
In addition, duty, tariff and freight costs can materially increase the cost
of crucial components for our products. We anticipate that past turmoil in Asian
financial markets and the deterioration of the underlying economic conditions in
certain Asian countries may continue to have an impact on our sales to customers
located in or whose projects are based in those countries due to the impact of
restrictions on government spending imposed by the International Monetary Fund
on those countries receiving the International Monetary Fund's assistance. In
addition, customers in those countries may face reduced access to working
capital to fund component purchases, such as our products, due to higher
interest rates, reduced bank lending due to contractions in the money supply or
the deterioration in the customer's or our bank's financial condition or the
inability to access local equity financing.
Maintaining operations in different countries requires us to expend
significant resources to keep our operations coordinated and subjects us to
differing laws and regulatory regimes that may affect our service offerings and
revenue.
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WE MAY INCUR CURRENCY EXCHANGE-RELATED LOSSES IN CONNECTION WITH OUR RELIANCE ON
OUR SINGLE OR SOLE SOURCE FOREIGN SUPPLIERS.
We make yen-denominated purchases of certain components and mechanical
subsystems from certain of our sole or single source Japanese suppliers.
Depending on the amount of yen-denominated purchases, we may engage in hedging
transactions in the future. However, notwithstanding these precautions, we
remain subject to the transaction exposures that arise from foreign exchange
movements between the dates foreign currency export sales or purchase
transactions are recorded and the dates cash is received or payments are made in
foreign currencies. Our current or any future currency exchange strategy may not
be successful in avoiding exchange-related losses. Any exchange-related losses
or exposure may negatively affect our business, financial condition or results
of operations.
IF OUR HARDWARE PRODUCTS DO NOT COMPLY WITH STANDARDS SET FORTH BY THE EUROPEAN
UNION, WE WILL NOT BE ABLE TO SELL THEM IN EUROPE.
Our hardware products are required to comply with European Union Low
Voltage, Electro-Magnetic Compatibility, and Machinery Safety Directives. The
European Union mandates that our products carry the CE mark denoting that these
products are manufactured in strict accordance to design guidelines in support
of these directives. These guidelines are subject to change and to varying
interpretation. New guidelines impacting machinery design go into effect each
year. To date, we have retained TUV Rheinland to help certify that our
controller-based products, including some of our robots, meet applicable
European Union directives and guidelines. Although our existing certified
products meet the requirements of the applicable European Union directives, we
cannot provide any assurance that future products can be designed, within market
window constraints, to meet the future requirements. If any of our robot
products or any other major hardware products do not meet the requirements of
the European Union directives, we would be unable to legally sell these products
in Europe. Thus, our business, financial condition and results of operations
could be harmed. Such directives and guidelines could change in the future,
forcing us to redesign or withdraw from the market one or more of our existing
products that may have been originally approved for sale.
OUR HARDWARE AND SOFTWARE PRODUCTS MAY CONTAIN DEFECTS THAT COULD INCREASE OUR
EXPENSES EXPOSURE TO LIABILITIES AND HARM OUR REPUTATION AND FUTURE BUSINESS
PROSPECTS.
Our hardware and software products are complex and, despite extensive
testing, our new or existing products or enhancements may contain defects,
errors or performance problems when first introduced, when new versions or
enhancements are released or even after these products or enhancements have been
used in the marketplace for a period of time. We may discover product defects
only after a product has been installed and used by customers. We may discover
defects, errors or performance problems in future shipments of our products.
These problems could result in expensive and time consuming design modifications
or large warranty charges, expose us to liability for damages, damage customer
relationships and result in loss of market share, any of which could harm our
reputation and future business prospects. In addition, increased development and
warranty costs could reduce our operating profits and could result in losses.
The existence of any defects, errors or failures in our products could also
lead to product liability claims or lawsuits against us or against our
customers. A successful product liability claim could result in substantial cost
and divert management's attention and resources, which could have a negative
impact on our business, financial condition and results of operations. Although
we are not aware of any product liability claims to date, the sale and support
of our products entail the risk of these claims.
THE SUCCESS OF OUR BUSINESS DEPENDS ON OUR KEY EMPLOYEES.
We are highly dependent upon the continuing contributions of our key
management, sales, and product development personnel. In particular, we would be
adversely affected if we were to lose the services of Brian Carlisle, Chief
Executive Officer and Chairman of the Board of Directors, who has provided
significant leadership to us since our inception, or Bruce Shimano, Vice
President, Research and Development and a Director, who has guided our research
and development programs since inception. In addition, the loss of the services
of any of our senior managerial, technical or sales personnel could impair our
business, financial condition, and results of operations. We do not have
employment contracts with any of our executive officers and do not maintain key
man life insurance on the lives of any of our key personnel.
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OUR FUTURE SUCCESS DEPENDS ON OUR CONTINUING ABILITY TO ATTRACT, RETAIN AND
MOTIVATE HIGHLY-QUALIFIED MANAGERIAL, TECHNICAL AND SALES PERSONNEL.
Competition for qualified technical personnel in the intelligent automation
industry is intense. Our inability to recruit and train adequate numbers of
qualified personnel on a timely basis would adversely affect our ability to
design, manufacture, market and support our products.
In addition, our success will depend on our ability to hire and retain
experienced engineers, senior management and sales and marketing personnel.
Competition for these personnel is intense, particularly in geographic areas
recognized as high technology centers such as the Silicon Valley area, where our
principal offices are located, and other locations where we maintain design
sites. To attract and retain individuals with the requisite expertise, we may be
required to grant large option or other stock-based incentive awards, which may
be dilutive to shareholders. We may also be required to pay significant base
salaries and cash bonuses, which could harm our operating results. If we do not
succeed in hiring and retaining candidates with appropriate qualifications, we
will not be able to grow our business and our operating results will be harmed.
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS, WE COULD BE PREVENTED FROM HIRING
NEEDED PERSONNEL, INCUR LIABILITY FOR DAMAGES AND INCUR SUBSTANTIAL COSTS IN
DEFENDING OURSELVES.
Companies in our industry whose employees accept positions with competitors
frequently claim that these competitors have engaged in unfair hiring practices
or that the employment of these persons would involve the disclosure or use of
trade secrets. These claims could prevent us from hiring personnel or cause us
to incur liability for damages. We could also incur substantial costs in
defending ourselves or our employees against these claims, regardless of their
merits. Defending ourselves from these claims could divert the attention of our
management away from our operations.
OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY TECHNOLOGY MAY
SIGNIFICANTLY IMPAIR OUR COMPETITIVE ADVANTAGE.
Our success and ability to compete depend in large part upon protecting our
proprietary technology. We rely on a combination of patent, trademark and trade
secret protection and nondisclosure agreements to protect our proprietary
rights. The steps we have taken may not be sufficient to prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. The patent and trademark law and trade secret protection may not be
adequate to deter third party infringement or misappropriation of our patents,
trademarks and similar proprietary rights. In addition, patents issued to Adept
may be challenged, invalidated or circumvented. Our rights granted under those
patents may not provide competitive advantages to us, and the claims under our
patent applications may not be allowed. We may be subject to or may initiate
interference proceedings in the United States Patent and Trademark Office, which
can demand significant financial and management resources. The process of
seeking patent protection can be time consuming and expensive and patents may
not be issued from currently pending or future applications. Moreover, our
existing patents or any new patents that may be issued may not be sufficient in
scope or strength to provide meaningful protection or any commercial advantage
to us.
We may in the future initiate claims or litigation against third parties for
infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of our competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel.
WE MAY FACE COSTLY INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.
We have from time to time received communications from third parties
asserting that we are infringing certain patents and other intellectual property
rights of others or seeking indemnification against such alleged infringement.
For example, some end users of our products have notified us that they have
received a claim of patent infringement from the Jerome H. Lemelson Foundation,
alleging that their use of our machine vision products infringes certain patents
issued to Mr. Lemelson. In addition, we have been notified that other end users
of our AdeptVision VME line and the predecessor line of Multibus machine vision
products have received letters from the Lemelson Foundation which refer to Mr.
Lemelson's patent portfolio and offer the end user a license to the particular
patents.
30
As claims arise, we evaluate their merits. Any claims of infringement brought by
third parties could result in protracted and costly litigation, that damages for
infringement, and the necessity of obtaining a license relating to one or more
of our products or current or future technologies, which may not be available on
commercially reasonable terms or at all. Litigation, which could result in
substantial cost to us and diversion of our resources, may be necessary to
enforce our patents or other intellectual property rights or to defend us
against claimed infringement of the rights of others. Any intellectual property
litigation and the failure to obtain necessary licenses or other rights could
have a material adverse effect on our business, financial condition and results
of operations. Some of our end users have notified us that they may seek
indemnification from us for damages or expenses resulting from any claims made
by the Jerome H. Lemelson Foundation. We cannot predict the outcome of this or
any similar litigation which may arise in the future. Litigation of this kind
may have a material adverse effect on our business, financial condition or
results of operations.
RISKS RELATED TO OUR INDUSTRY
WE FACE INTENSE COMPETITION IN THE MARKET FOR INTELLIGENT AUTOMATION PRODUCTS.
The market for intelligent automation products is highly competitive. We
believe that the principal competitive factors affecting the market for our
products are:
o product functionality and reliability;
o customer service;
o price;
o delivery; and
o product features such as flexibility, programmability and ease of use.
We compete with a number of robot companies, motion control companies,
machine vision companies and simulation software companies. Many of our
competitors have substantially greater financial, technical and marketing
resources than us. In addition, we may in the future face competition from new
entrants in one or more of our markets.
Many of our competitors in the robot market are integrated manufacturers of
products that produce robotics equipment internally for their own use and may
also compete with our products for sales to other customers. Some of these large
manufacturing companies have greater flexibility in pricing because they
generate substantial unit volumes of robots for internal demand and may have
access through their parent companies to large amounts of capital. Any of our
competitors may seek to expand their presence in other markets in which we
compete.
Our current or potential competitors may develop products comparable or
superior in terms of price and performance features to those developed by us or
adapt more quickly than we can to new or emerging technologies and changes in
customer requirements. We may be required to make substantial additional
investments in connection with our research, development, engineering, marketing
and customer service efforts in order to meet any competitive threat, so that we
will be able to compete successfully in the future. We expect that in the event
the intelligent automation market expands, competition in the industry will
intensify, as additional competitors enter our markets and current competitors
expand their product lines. Increased competitive pressure could result in a
loss of sales or market share, or cause us to lower prices for our products, any
of which could harm our business.
WE OFFER PRODUCTS FOR MULTIPLE INDUSTRIES AND MUST FACE THE CHALLENGES OF
SUPPORTING THE DISTINCT NEEDS OF EACH OF OUR MARKETS.
We market products for the semiconductor, wireless communications,
photonics, food processing, automotive, lie sciences and electronics industries.
Because we operate in multiple industries, we must work constantly to understand
the needs, standards and technical requirements of several different industries
and must devote significant resources to developing different products for these
industries. Product development is costly and time consuming. Many of our
products are used by our customers to develop, manufacture and test their own
products. As a result, we must anticipate trends in our customers' industries
and develop products before our customers' products are commercialized. If we do
not accurately predict our customers' needs and future activities, we may invest
substantial resources in developing products that do not achieve broad market
acceptance. Our decision to
31
continue to offer products to a given market or to penetrate new markets is
based in part on our judgment of the size, growth rate and other factors that
contribute to the attractiveness of a particular market. If our product
offerings in any particular market are not competitive or our analyses of a
market are incorrect, our business and results of operations could be harmed.
WE MAY NOT BE ABLE TO KEEP UP WITH THE RAPID PACE OF TECHNOLOGICAL CHANGE AND
NEW PRODUCT DEVELOPMENT THAT CHARACTERIZE THE INTELLIGENT AUTOMATION INDUSTRY.
The intelligent automation industry is characterized by rapid technological
change and new product introductions and enhancements. Our ability to remain
competitive depends greatly upon the technological quality of our products and
processes compared to those of our competitors and our ability both to continue
to develop new and enhanced products and to introduce those products at
competitive prices and on a timely and cost-effective basis. We may not be
successful in selecting, developing and manufacturing new products or in
enhancing our existing products on a timely basis or at all. Our new or enhanced
products may not achieve market acceptance. Our failure to successfully select,
develop and manufacture new products, or to timely enhance existing technologies
and meet customers' technical specifications for any new products or
enhancements on a timely basis, or to successfully market new products, could
harm our business. If we cannot successfully develop and manufacture new
products or meet specifications, our products could lose market share, our
revenues and profits could decline, or we could experience operating losses. New
technology or product introductions by our competitors could also cause a
decline in sales or loss of market acceptance for our existing products or force
us to significantly reduce the prices of our existing products.
From time to time we have experienced delays in the introduction of, and
certain technical and manufacturing difficulties with, some of our products, and
we may experience technical and manufacturing difficulties and delays in future
introductions of new products and enhancements. Our failure to develop,
manufacture and sell new products in quantities sufficient to offset a decline
in revenues from existing products or to successfully manage product and related
inventory transitions could harm our business.
Our success in developing, introducing, selling and supporting new and
enhanced products depends upon a variety of factors, including timely and
efficient completion of hardware and software design and development,
implementation of manufacturing processes and effective sales, marketing and
customer service. Because of the complexity of our products, significant delays
may occur between a product's initial introduction and commencement of volume
production.
The development and commercialization of new products involve many difficulties,
including:
o the identification of new product opportunities;
o the retention and hiring of appropriate research and development
personnel;
o the determination of the product's technical specifications;
o the successful completion of the development process;
o the successful marketing of the product and the risk of having
customers embrace new technological advances; and
o additional customer service costs associated with supporting new
product introductions and/or effecting subsequent potential field
upgrades.
For example, we have recently released our new micro and nano positioning
mechanisms, NanoMotion process modules, SmartModules, Standard Platforms and
Semiconductor front-ends. These products include significant new networking,
hardware and software technology. The development of these products may not be
completed in a timely manner, and these products may not achieve acceptance in
the market. The development of these products has required, and will require,
that we expend significant financial and management resources. If we are unable
to continue to successfully develop these or other new products in response to
customer requirements or technological changes, our business may be harmed.
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IF WE FAIL TO ADEQUATELY INVEST IN RESEARCH AND DEVELOPMENT, WE MAY BE UNABLE TO
COMPETE EFFECTIVELY.
We have limited resources to allocate to research and development and must
allocate our resources among a wide variety of projects. Because of intense
competition in our industry, the cost of failing to invest in strategic products
is high. If we fail to adequately invest in research and development, we may be
unable to compete effectively in the intelligent automation markets in which we
operate.
IF WE DO NOT COMPLY WITH ENVIRONMENTAL REGULATIONS, OUR BUSINESS MAY BE HARMED.
We are subject to a variety of environmental regulations relating to the
use, storage, handling, and disposal of certain hazardous substances used in the
manufacturing and assembly of our products. We believe that we are currently in
compliance with all material environmental regulations in connection with our
manufacturing operations, and that we have obtained all necessary environmental
permits to conduct our business. However, our failure to comply with present or
future regulations could subject us to a variety of consequences that could harm
our business, including:
o the imposition of substantial fines;
o suspension of production; and
o alteration of manufacturing processes or cessation of operations.
Compliance with environmental regulations could require us to acquire
expensive remediation equipment or to incur substantial expenses. Our failure to
control the use, disposal, removal, storage, or to adequately restrict the
discharge of, or assist in the cleanup of, hazardous or toxic substances, could
subject us to significant liabilities, including joint and several liability
under certain statutes. The imposition of liabilities of this kind could harm
our financial condition.
WE RELY ON A CONTINUOUS SUPPLY OF ELECTRICAL POWER TO CONDUCT OUR OPERATIONS,
AND CALIFORNIA'S CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE
OUR EXPENSES.
California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below 1.5%,
California has on some occasions implemented, and may in the future continue to
implement, rolling blackouts throughout California. We currently do not have
backup generators or alternate sources of power in the event of a blackout, and
our current insurance does not provide coverage for any damages we or our
customers may suffer as a result of any interruption in our power supply. If
blackouts interrupt our power supply, we would be temporarily unable to continue
operations at our facilities. Any such interruption in our ability to continue
operations at our facilities could damage our reputation, harm our ability to
retain existing customers and to obtain new customers, and could result in lost
revenue, any of which could substantially harm our business and results of
operations.
FAILURE TO OBTAIN EXPORT LICENSES COULD HARM OUR BUSINESS.
We must comply with U.S. Department of Commerce regulations in shipping our
software products and other technologies outside the United States. Any
significant future difficulty in complying could harm our business, financial
condition and results of operations.
RISKS RELATED TO OUR STOCK
OUR STOCK PRICE HAS FLUCTUATED AND MAY CONTINUE TO FLUCTUATE WIDELY.
The market price of our common stock has fluctuated substantially in the
past. Between June 30, 2000 and June 30, 2001, the sales price of our common
shares, as reported on the Nasdaq National Market, has ranged from a low of
$7.45 to a high of $53.25. The market price of our common stock will continue to
be subject to significant fluctuations in the future in response to a variety of
factors, including:
o future announcements concerning our business or that of our competitors
or customers;
33
o the introduction of new products or changes in product pricing policies
by us or our competitors;
o litigation regarding proprietary rights or other matters;
o change in analysts' earnings estimates;
o developments in the financial markets;
o quarterly fluctuations in operating results; and
o general conditions in the intelligent automation industry.
Furthermore, stock prices for many companies, and high technology companies
in particular, fluctuate widely for reasons that may be unrelated to their
operating results. Those fluctuations and general economic, political and market
conditions, such as recessions, damage caused by terrorist actions or other
military actions, or international currency fluctuations, may adversely affect
the market price of our common stock.
WE MAY BE SUBJECT TO SECURITIES CLASS ACTION LITIGATION IF OUR STOCK PRICE IS
VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL COSTS, DISTRACT MANAGEMENT AND
DAMAGE OUR REPUTATION.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in the market price of their
securities. Companies, like us, that are involved in rapidly changing technology
markets are particularly subject to this risk. We may be the target of
litigation of this kind in the future. Any securities litigation could result in
substantial costs, divert management's attention and resources from our
operations and negatively affect our public image and reputation.
WE MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF WE ARE UNABLE TO
SECURE ADEQUATE FUNDS ON ACCEPTABLE TERMS, WE MAY BE UNABLE TO EXECUTE OUR
BUSINESS PLAN OR MAKE FUTURE ACQUISITIONS DEEMED ESSENTIAL TO OUR LONG TERM
STRATEGY.
If our capital requirements vary significantly from those currently planned,
we may require additional financing sooner than anticipated. If our existing
cash balances and cash flow expected from future operations are not sufficient
to meet our liquidity needs, we will need to raise additional funds. If adequate
funds are not available on acceptable terms or at all, we may not be able to
take advantage of market opportunities, develop or enhance new products, pursue
acquisitions that would complement our existing product offerings or enhance our
technical capabilities, execute our business plan or otherwise respond to
competitive pressures or unanticipated requirements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio. We maintain an investment policy which ensures the
safety and preservation of our invested funds by limiting default risk, market
risk and reinvestment risk. The table below presents principal cash flow amounts
and related weighted-average interest rates by year of maturity for our
investment portfolio.
2001 2002 2003 TOTAL
---- ---- ---- ----- FAIR
(IN THOUSANDS) VALUE
-------------- -----
Cash equivalents
Fixed rate...................... $ 15,953 -- -- $ 15,953 $ 15,953
Average rate.................... 4.20% -- -- 4.20%
Auction rate securities
Fixed rate...................... $ 2,800 -- -- $ 2,800 $ 2,800
Average rate.................... 3.89% -- -- 3.89%
---------- -- -- ----------
Total Investment Securities.. $ 18,753 -- -- $ 18,753 $ 18,753
========== == == ========== =========
Average rate.................... 4.16% -- -- 4.16%
34
We mitigate default risk by investing in high credit quality securities and
by positioning our portfolio to respond appropriately to a significant reduction
in a credit rating of any investment issuer of guarantor. Our portfolio includes
only marketable securities with active secondary or resale markets to ensure
portfolio liquidity and maintains a prudent amount of diversification. We
conduct business on a global basis. Consequently, we are exposed to adverse or
beneficial movements in foreign currency exchange rates. We enter into foreign
currency forward contracts to minimize the impact of exchange rate fluctuations
on certain foreign currency commitments and balance sheet positions and may
enter into foreign exchange forward contracts in the future. The realized gains
and losses on these contracts are deferred and offset against realized and
unrealized gains and losses when the transaction occurs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Financial Statement Schedules as of
June 30, 2001 and 2000 and for each of the three years in the period ended June
30, 2001 are included in Items 14(a)(1) and (2) included in this Annual Report
on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning our directors is
incorporated by reference from the section captioned "Election of Directors"
contained in our Proxy Statement related to the Annual Meeting of Shareholders
to be held on November 16, 2001 to be filed by us with the Securities and
Exchange Commission within 120 days of the end of our fiscal year pursuant to
General Instruction G(3) of Form 10-K, referred to as the Proxy Statement. The
information required by this item concerning executive officers is set forth in
Part I of this Report. The information required by this item concerning
compliance with Section 16(a) of the Exchange Act is incorporated by reference
from the section captioned "Section 16(a) Beneficial Ownership Reporting
Compliance" contained in the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
section captioned "Executive Compensation and Other Matters" contained in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
sections captioned "Compensation Committee Interlocks and Insider Participation"
and "Certain Transactions" contained in the Proxy Statement.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The financial statements (including the Notes thereto listed in the
Index to Consolidated Financial Statements (set forth in Item 8 of Part
II of this Form 10-K) are filed as part of this Annual Report on Form
10-K.
(a)(2) Financial Statement Schedules
The following financial statement schedule is included herein:
Schedule II - Valuation and Qualifying Accounts
Additional schedules are not required under the related schedule
instructions or are inapplicable, and therefore have been omitted.
(a)(3) Exhibits
2.1 Share Purchase Agreement among Marc Tremblay, Alain
Rivard, Eric St-Pierre, Pierre Boivin, 9044-0108 Quebec
Inc., Societe Innovatech Quebec et Chaudiere-Appalaches,
Sofinov, Societe Financiere d'Innovation Inc., Business
Development Bank of Canada, Christian Labbe, Patrick
Murphy and certain other shareholders named therein,
Adept Technology Canada Holding Co., and Registrant,
dated July 21, 2000 (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form
8-K/A filed with the Securities and Exchange Commission
on October 25, 2000).+
3.1 Amended and Restated Articles of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to
the Registrant's Registration Statement on Form S- 1
(No. 33-98816) (the "1995 Form S-1")).
3.2 Certificate of Amendment of Articles of Incorporation of
the Registrant filed with the Secretary of State of
California on November 17, 2000 (incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 (No. 333-48638)).
3.3 Bylaws of the Registrant, as amended to date
(incorporated by reference to Exhibit 3.4 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 2000) (the "2000 Form 10-K")).
4.1 Form of Stock Certificate (incorporated by reference to
Exhibit 4.2 to the 1995 Form S-1).
10.1* 1983 Stock Incentive Program, and form of agreements
thereto (incorporated by reference to Exhibit 10.1 to
the 1995 Form S-1).
10.2* 1993 Stock Plan as amended, and form of agreement
thereto (incorporated by reference to Exhibit 4.1 to the
Registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on November
20, 2000, No. 333-50292).
10.3* 1998 Employee Stock Purchase Plan as amended, and form
of agreements thereto (incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement
on Form S-8 filed with the Securities and Exchange
Commission on November 20, 2000, No. 333-50296).
10.4* 1995 Director Option Plan as amended, and form of
agreement thereto (incorporated by reference to Exhibit
10.4 to the Registrant's Form 10-K for the fiscal year
ended June 30, 1997 (the "1997 Form 10-K")).
37
10.5 Form of Indemnification Agreement between the Registrant
and its officers and directors (incorporated by
reference to Exhibit 10.5 to the 1995 Form S-1).
10.6 Office Building Lease between Registrant and Puente
Hills Business Center II dated May 20, 1993, as amended
(incorporated by reference to Exhibit 10.6.2 to the 1995
Form S-1).
10.7* Loan Payoff Plan dated August 3, 1993 between Registrant
and Charles Duncheon (incorporated by reference to
Exhibit 10.7 to the 1995 Form S-1).
10.8* Promissory Note between Registrant and Charles Duncheon
dated August 20, 1998 (incorporated by reference to
Exhibit 10.7.1 to the Registrant's Form 10-K for the
fiscal year ended June 30, 1999 (the "1999 Form 10-K")).
10.9* Promissory Note between Registrant and Richard Casler
dated April 16, 1999 (incorporated by reference to
Exhibit 10.7.2 to the 1999 Form 10-K).
10.10* Promissory Note between Registrant and Brian Carlisle
dated May 7, 1999 (incorporated by reference to Exhibit
10.7.3 to the 1999 Form 10-K).
10.11* Promissory Note between Registrant and Bruce Shimano
dated May 7, 1999 (incorporated by reference to Exhibit
10.7.4 to the 1999 Form 10-K).
10.12* Offer Letter between the Registrant and Marcy Alstott
dated February 19, 1998, as amended (incorporated by
reference to Exhibit 10.8 to the Registrant's Form 10-K
for the fiscal year ended June 30, 1998 (the "1998 Form
10-K")).
10.13* Promissory Note between Registrant and Marcy Alstott
dated April 27, 1998 (incorporated by reference to
Exhibit 10.8.1 to the 1998 Form 10-K).
10.14* Offer Letter between the Registrant and Kathleen Fisher
dated July 16, 1999 (incorporated by reference to
Exhibit 10.8.2 to the 1999 Form 10-K).
10.15* Promissory Note between Registrant and Kathleen Fisher
dated August 2, 1999 (incorporated by reference to
Exhibit 10.8.3 to the 1999 Form 10-K).
10.16 Lease Agreement dated as of April 30, 1998 between the
Registrant and the Joseph and Eda Pell Revocable Trust
dated August 18, 1989 (incorporated by reference to
Exhibit 10.9 to the 1998 Form 10-K).
10.17 Lease Agreement dated June 1, 1998 between the
Registrant and Technology Centre Associates LLC for the
premises located at 180 Rose Orchard Way, San Jose,
California (incorporated by reference to Exhibit 10.10
to the 1998 Form 10-K).
10.18 First Amendment to Lease Agreement dated June 1, 1998
between the Registrant and Technology Centre Associates
LLC dated July 31, 1998 (incorporated by reference to
Exhibit 10.10.1 to the 1998 Form 10-K).
10.19 Lease Agreement dated June 1, 1998 between Registrant
and Technology Centre Associates LLC for the premises
located at 150 Rose Orchard Way, San Jose, California
(incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the fiscal quarter ended
September 30, 2000 (the "2001 First Quarter Form
10-Q")).
10.20 Second Amendment to Lease Agreement dated March 31, 2000
between Registrant and Technology Centre Associates LLC
dated July 31, 1998 (incorporated by reference to
Exhibit 10.10.3 to the 2000 Form 10-K).
38
10.21 First Addendum to Lease Agreement dated August 18, 1999
between Registrant and Joseph and Eda Pell Revocable
Trust dated August 18, 1989 (incorporated by reference
to Exhibit 10.10.4 to the 2000 Form 10-K).
10.22 Lease Agreement dated April 28, 2000 between Registrant
and Michael and Diane Edwards for premises located in
Tucson, Arizona incorporated by reference to Exhibit
10.10.5 to the 2000 Form 10-K).
10.23 Lease Agreement dated May 19, 2000 between NanoMotion
Inc. and United Insurance Co. of America for premises
located at Santa Barbara, California (incorporated by
reference to Exhibit 10.10.6 to the 2000 Form 10-K).
10.24** Agreement between Registrant and Altron Systems
Corporation (acquired by Sanmina Corporation) dated
January 30, 1998 (incorporated by reference to Exhibit
10.27 to the 200 Form 10-K).
10.25 Agreement between Registrant and Ramix Incorporated
dated October 27, 1998 (incorporated by reference to
Exhibit 10.28 to the 2000 Form 10-K).
10.26 Robot Module Purchase and Service Agreement between
Registrant and NSK Corporation dated January 19, 1995
(incorporated by reference to Exhibit 10.29 to the 2000
Form 10-K).
10.27** Original Equipment Manufacturer Agreement between
Registrant and Hirata Corporation dated January 31, 1995
(incorporated by reference to Exhibit 10.31 to the 2000
Form 10-K).
10.28** Original Equipment Manufacturing Agreement between
Registrant and Samsung Electronics Co., LTD dated
February 26, 1999 (incorporated by reference to Exhibit
10.32 to the 2000 Form 10-K).
10.29** Sublicense Agreement between SILMA Division of
Registrant and Adept Japan Co., LTD dated September 26,
2000 (incorporated by reference to Exhibit 10.33 to the
2000 Form 10-K).
10.30** Original Equipment Manufacturing Agreement between
Registrant and Yaskawa Electric Corp. dated August 29,
2000 (incorporated by reference to Exhibit 10.34 to the
2000 Form 10-K).
10.31 Industrial R&D Lease Agreement dated October 31, 2000
between Registrant and Tri-Valley Campus I, LLC for
premises located at Livermore, California (incorporated
by reference to Exhibit 10.1 to the 2001 First Quarter
Form 10-Q).
10.32 Amendment No. 1 dated September 9, 1997 to Office
Building Lease between Registrant and Puente Hills
Business Center II dated May 20, 1993 (incorporated by
reference to Exhibit 10.3 to the 2001 First Quarter Form
10-Q).
10.33 Amendment No. 2 dated June 17, 1998 to Office Building
Lease between Registrant and Puente Hills Business
Center II dated May 20, 1993 (incorporated by reference
to Exhibit 10.4 to the 2001 First Quarter Form 10-Q).
10.34 First Amendment to Export-Import Bank of the United
States Working Capital Guarantee Program Borrower
Agreement dated April 5, 2001 between Registrant, the
Export-Import Bank of the United States and The CIT
Group/Business Credit, Inc. dated July 10, 2001.
10.35 Export-Import Bank of the United States Working Capital
Guarantee Program Borrower Agreement dated April 5, 2001
between Registrant, the Export-Import Bank of the United
States and The CIT Group/Business Credit, Inc.
10.36 Loan and Security Agreement (Non-Exim Facility) dated
April 5, 2001 between Registrant and The CIT
Group/Business Credit, Inc.
39
10.37 Loan and Security Agreement (Exim Facility) dated April
5, 2001 between Registrant and The CIT Group/Business
Credit, Inc.
21.1 Subsidiaries of the Registrant (incorporated by
reference to the Exhibit 21.1 to the 2000 Form 10-K).
23.1 Consent of Independent Auditors regarding Adept
Technology, Inc.
24.1 Power of Attorney (See Signature Page to this Annual
Report on Form 10-K).
------------------
* Management contract or compensatory plan or arrangement.
** Confidential treatment has been requested as to certain portions of this
exhibit. An unredacted version of this exhibit has been filed separately
with the SEC.
+ Schedules have been omitted and will be provided to the SEC upon request.
(B) REPORTS ON FORM 8-K.
On May 8, 2001, a Form 8-K was filed by Adept announcing its financial
results for its third quarter ending March 31, 2001.
On June 29, 2001, a Form 8-K was filed by Adept announcing the signing
of a definitive agreement to acquire CHAD Industries, Inc.
On July 27, 2001, a Form 8-K was filed by Adept announcing a press
release related to a cost reduction program and a revision to its
business outlook for its fourth quarter ending June 30, 2001
On August 2, 2001, a Form 8-K was filed by Adept announcing its
financial results for its fourth quarter and fiscal year ended June 30,
2001.
(C) EXHIBITS.
See Item 14(a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES.
See Item 14(a)(2) above.
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ADEPT TECHNOLOGY, INC.
By: /s/ Michael W. Overby
----------------------
Michael W. Overby
Vice President, Finance and
Chief Financial Officer
Date: September 19, 2001
41
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Brian R. Carlisle and Michael W. Overby
and each of them, his or her true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution, to sign any and all
amendments (including post-effective amendments) to this Annual Report on Form
10-K and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, or any of
them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Brian R. Carlisle Chairman of the Board of Directors and Chief September 19, 2001
--------------------- Executive Officer (Principal Executive Officer)
(Brian R. Carlisle)
/s/ Michael W. Overby Vice President, Finance and Chief Financial September 19, 2001
--------------------- Officer (Principal Financial and Accounting
(Michael W. Overby) Officer)
/s/ Bruce E. Shimano Vice President, Research and Development, September 19, 2001
-------------------- Secretary and Director
(Bruce E. Shimano)
/s/ Ronald E. F. Codd Director September 19, 2001
---------------------
(Ronald E. F. Codd)
/s/ Michael P. Kelly Director September 19, 2001
--------------------
(Michael P. Kelly)
/s/ Cary R. Mock Director September 19, 2001
----------------
(Cary R. Mock)
/s/ John E. Pomeroy Director September 19, 2001
-------------------
(John E. Pomeroy)
42
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADEPT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young, LLP, Independent Auditors....................................... 44
Consolidated Balance Sheets at June 30, 2001 and June 30, 2000........................... 45
Consolidated Statements of Operations for each of the three years in the period
ended June 30, 2001..................................................................... 46
Consolidated Statements of Cash Flows for each of the three years in the period
ended June 30, 2001..................................................................... 47
Consolidated Statements of Shareholders' Equity for each of the three years in the period
ended June 30, 2001..................................................................... 48
Notes to Consolidated Financial Statements............................................... 49
43
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders and Board of Directors
Adept Technology, Inc.
We have audited the accompanying consolidated balance sheets of Adept
Technology, Inc. as of June 30, 2001 and 2000, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended June 30, 2001. Our audits also included the
financial statement schedule listed in the Index as Item 14(a)(2). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Adept Technology, Inc. at June 30, 2001 and 2000, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements as a
whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
San Jose, California
July 30, 2001
44
ADEPT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, JUNE 30,
2001 2000
---- ----
ASSETS (IN THOUSANDS)
Current assets:
Cash and cash equivalents................................................. $ 18,700 $ 13,487
Short-term investments.................................................... 2,800 6,950
Accounts receivable, less allowance for doubtful accounts of $742 in
2001 and $637 in 2000................................................ 21,272 25,527
Inventories, net.......................................................... 17,750 15,153
Deferred tax and other current assets..................................... 2,069 7,049
-------- --------
Total current assets.................................................. 62,591 68,166
Property and equipment at cost................................................. 34,520 25,675
Less accumulated depreciation and amortization................................. 23,789 20,092
-------- --------
Property and equipment, net.................................................... 10,731 5,583
Goodwill and other intangibles, net............................................ 16,332 16,963
Other assets................................................................... 5,919 2,811
-------- --------
Total assets.......................................................... $ 95,573 $ 93,523
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................... $ 10,369 $ 10,841
Accrued payroll and related expenses...................................... 5,267 4,727
Accrued warranty.......................................................... 2,072 1,915
Deferred revenue.......................................................... 2,061 1,511
Taxes payable and other accrued liabilities............................... 3,038 2,579
-------- --------
Total current liabilities............................................. 22,807 21,573
Long term liabilities:
Deferred income tax and other long term liabilities....................... 1,284 1,222
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value: 5,000 shares authorized, none issued and
outstanding............................................................... - -
Common stock, no par value: 70,000 shares authorized, 13,165 shares issued
and outstanding in 2001, and 10,677 shares in 2000......................... 103,138 67,184
Retained earnings (accumulated deficit)....................................... (31,656) 3,544
--------- --------
Total shareholders' equity............................................ 71,482 70,728
-------- --------
Total liabilities and shareholders' equity............................ $ 95,573 $ 93,523
======== ========
See accompanying notes.
45
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JUNE 30,
-------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues...................................................... $100,313 $99,212 $87,374
Cost of revenues.................................................. 65,303 56,173 47,902
------- ------- -------
Gross margin...................................................... 35,010 43,039 39,472
Operating expenses:
Research, development and engineering....................... 22,727 14,629 11,591
Selling, general and administrative......................... 36,002 29,503 24,676
Merger-related charges...................................... - 988 -
Amortization of goodwill and other intangibles.............. 6,818 685 -
------- ------- -------
Total operating expenses.......................................... 65,547 45,805 36,267
------- ------- -------
Operating (loss) income........................................... (30,537) (2,766) 3,205
Interest income................................................... 745 1,031 967
Interest and other expense........................................ 12 285 41
------- ------- -------
(Loss) income before provision for (benefit from) income taxes.... (29,804) (2,020) 4,131
Provision for (benefit from) income taxes......................... 5,396 (593) 1,620
------- ------- -------
Net (loss) income................................................. $(35,200) $(1,427) $ 2,511
======== ======= =======
Net (loss) income per share:
Basic....................................................... $ (3.02) $ (0.15) $ 0.27
======== ======== ========
Diluted..................................................... $ (3.02) $ (0.15) $ 0.26
======== ======== ========
Number of shares used in computing per share amounts:
Basic....................................................... 11,637 9,774 9,302
======= ======= =======
Diluted..................................................... 11,637 9,774 9,484
======= ======= =======
See accompanying notes.
46
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
-------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS)
OPERATING ACTIVITIES
Net (loss) income...................................................... $ (35,200) $ (1,427) $ 2,511
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation........................................................ 3,646 3,140 3,154
Amortization........................................................ 6,818 843 79
Provision for inventory............................................. 4,839 1,256 (399)
Deferred taxes...................................................... 4,971 (834) 300
(Gain)/loss on disposal of property and equipment................... 37 (50) (37)
Tax benefit from stock plans........................................ - 591 164
Changes in operating assets and liabilities, net of effects of
acquisitions:
Accounts receivable.............................................. 4,358 (5,581) 1,668
Inventories...................................................... (7,436) (4,846) 3,706
Other current assets............................................. 303 (152) (1,106)
Other assets..................................................... (1,024) (1,279) (404)
Accounts payable................................................. (1,207) 3,695 762
Accrued expenses................................................. (226) 2,071 (710)
Accrued restructuring and nonrecurring charges................... - - (1,019)
Taxes payable and other accrued liabilities...................... 803 (1,068) 1,048
-------- -------- --------
Net cash (used in) provided by operating activities................. (19,318) (3,641) 9,717
-------- -------- --------
INVESTING ACTIVITIES
Business acquisitions............................................... (7,050) (3,250) -
Purchase of property and equipment.................................. (8,523) (2,406) (2,469)
Proceeds from the sale of property and equipment.................... - 116 187
Purchases of short-term available-for-sale investments.............. (36,500) (44,117) (31,206)
Sales of short-term available-for-sale investments.................. 40,650 52,367 27,306
-------- -------- --------
Net cash (used in) provided by investing activities................. (11,423) 2,710 (6,182)
--------- -------- --------
FINANCING ACTIVITIES
Proceeds from issuance of common stock, net......................... 32,424 - -
Proceeds from employee stock incentive program and employee
stock purchase plan, net of repurchases and cancellations........ 3,530 2,602 2,306
Revolving bank line of credit....................................... - - (470)
Repurchase of common stock.......................................... - - (3,194)
-------- -------- --------
Net cash (used in) provided by financing activities................. 35,954 2,602 (1,358)
-------- -------- --------
Increase in cash and cash equivalents................................... 5,213 1,671 2,177
Cash and cash equivalents, beginning of period.......................... 13,487 11,816 9,639
-------- -------- --------
Cash and cash equivalents, end of period................................ $ 18,700 $ 13,487 $ 11,816
======== ======== ========
Supplemental disclosure of noncash activities:
Inventory capitalized into property and equipment including related tax $ - $ 228 $ 561
Cash paid during the period for:
Interest............................................................... $ 12 $ - $ 41
Taxes paid (refunded) ................................................. $ (264) $ 1,373 $ (189)
See accompanying notes.
47
ADEPT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RETAINED
COMMON STOCK EARNINGS/ TOTAL
------------------------------- (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
------ ------ -------- ------
(IN THOUSANDS)
Balance at June 30, 1998........................... 9,443 $50,279 $ 3,120 $53,399
Common stock issued under employee stock
incentive program and employee
stock purchase plan...................... 466 2,306 - 2,306
Repurchase of shares........................ (450) (2,534) (660) (3,194)
Tax benefit from stock plans................ - 164 - 164
Net income and comprehensive income......... - - 2,511 2,511
------ -------- ------- --------
Balance at June 30, 1999........................... 9,459 50,215 4,971 55,186
Common stock issued under employee stock
incentive program and employee
stock purchase plan...................... 518 2,602 - 2,602
Tax benefit from stock plans................ - 591 - 591
Common stock issued for acquisitions........ 700 13,776 - 13,776
Net loss and comprehensive loss............. - - (1,427) (1,427)
------ -------- ------- --------
Balance at June 30, 2000........................... 10,677 67,184 3,544 70,728
Common stock issued under employee stock
incentive program and employee stock
purchase plan............................ 488 3,530 - 3,530
Common stock issued in conjunction with
follow-on offering (less issuance
costs of $1,056) ........................ 2,000 32,424 - 32,424
Net loss and comprehensive loss............. - - (35,200) (35,200)
------ -------- ------- --------
Balance at June 30, 2001........................... 13,165 $ 103,138 $( 31,656) $ 71,482
====== ========= ======== ========
See accompanying notes.
48
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Adept Technology, Inc. ("Adept" or the "Company") was incorporated under the
laws of the state of California on June 14, 1983. The Company designs,
manufactures and sells factory automation components and systems for the fiber
optic, wireless communications and semiconductor industries throughout the
world.
Basis of Presentation
The notes to the Company's consolidated financial statements are for the
three year period ended June 30, 2001. Unless otherwise indicated, references to
any year in these Notes to Consolidated Financial Statements refer to the
Company's fiscal year ended June 30.
Follow-on offering
On February 18, 2001, Adept completed a public offering of its common stock.
Adept sold a total of 2,000,000 shares of common stock at a price of $18.00 per
share. The offering resulted in net proceeds to Adept of approximately $32.4
million, net of an underwriting discount of $2.5 million and offering expenses
of $1.1 million.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign Currency Translation
The Company applies Financial Accounting Standards Board Statement No. 52
("SFAS 52"), "Foreign Currency Translation," with respect to its international
operations, which are sales and service entities. All monetary assets and
liabilities are remeasured at the current exchange rate at the end of the
period, nonmonetary assets and liabilities are remeasured at historical exchange
rates, and revenues and expenses are remeasured at average exchange rates in
effect during the period. Translation losses resulting from the process of
remeasuring foreign currency financial statements into U.S. dollars were
$119,000 in 2001, $394,000 in 2000 and $87,000 in 1999. Transaction losses were
$326,000 in 2001, $17,000 in 2000 and $52,000 in 1999.
Cash, Cash Equivalents and Short-term Investments
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Short-term
investments in marketable securities consist principally of debt instruments
with maturities between three and 12 months. Investments are classified as
held-to-maturity, trading, or available-for-sale at the time of purchase.
At June 30, 2001 and 2000, all of the Company's investments in marketable
securities were classified as available-for-sale and were carried at fair market
value, which approximated cost. Fair market value is based on quoted market
prices on the last day of the year. The cost of the securities is based upon the
specific identification method.
49
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
JUNE 30,
--------
2001 2000
---- ----
(IN THOUSANDS)
Cash and cash equivalents
Cash..................................... $ 2,747 $ 9,096
Money market funds....................... 15,953 1,166
Municipal notes and bonds................ - 3,225
-------- --------
Cash and cash equivalents..................... $ 18,700 $ 13,487
======== ========
Short-term investments
Auction rate securities.................. $ 2,800 $ 3,500
Market auction preferred stock........... - 3,450
-------- --------
Short-term investments........................ $ 2,800 $ 6,950
======== ========
Realized gains or losses, interest, and dividends are included in interest
income. Realized and unrealized gains or losses from available-for-sale
securities were not material in 2001, 2000 or 1999.
Comprehensive Income
For the three years in the period ended June 30, 2001, there were no
significant differences between the Company's comprehensive (loss) income and
its net (loss) income.
Loans to Employees
Loans to employees are summarized as follows:
JUNE 30,
--------
2001 2000
---- ----
(IN THOUSANDS)
Short-term loans to employees.................. $ 80 $ 856
Long-term loans to employees................... 415 617
------- -------
$ 495 $ 1,473
======= =======
Short-term loans to employees are included in other current assets.
Long-term loans to employees are included in other assets.
Inventories
Inventories are stated at the lower of standard cost, which approximates
actual (first-in, first-out method) or market (estimated net realizable value).
The components of inventories are as follows:
JUNE 30,
--------
2001 2000
---- ----
(IN THOUSANDS)
Raw materials................................ $ 7,397 $ 6,097
Work-in-process.............................. 4,908 3,036
Finished goods............................... 5,445 6,020
--------- ---------
$ 17,750 $ 15,153
========= =========
During the fourth quarter of fiscal 2001, the Company recorded an additional
inventory provision of $5.8 million for excess and obsolete inventory.
50
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Credit Facility
On April 9, 2001, the Company signed a set of agreements establishing a
revolving line of credit with The CIT Group/Business Credit, Inc. to borrow up
to the lesser of $25.0 million or the sum of 85% of eligible domestic accounts
receivables, plus 90% of eligible foreign accounts receivables, less a dilution
reserve equivalent to one percent of eligible domestic and foreign accounts
receivables for every one percentage point in excess of a standard five percent
dilution rate. The agreements have an initial term of three years with automatic
renewals on identical terms thereafter unless terminated by the either party
within 60 days of the then current term. The Company is required to meet certain
restrictive covenants as defined by the new credit agreement. The Company was in
compliance with these covenants at June 30, 2001. To date, the Company has no
outstanding borrowings under this revolving line of credit.
Property and Equipment
Property and equipment are recorded at cost.
The components of property and equipment are summarized as follows:
JUNE 30,
2001 2000
---- ----
(IN THOUSANDS)
Cost:
Machinery and equipment...................... $14,922 $ 13,303
Computer equipment........................... 14,779 8,975
Office furniture and equipment............... 4,819 3,397
------- ---------
34,520 25,675
Accumulated depreciation and amortization.... 23,789 20,092
------- ---------
Net property and equipment................... $10,731 $ 5,583
======= =========
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which range from three to five years.
Revenue Recognition
The Company recognizes revenue on products when title and risk of loss are
transferred, which generally is at the time of shipment. For certain
international sales where title and risk of loss are transferred at the
customer's site, revenue is recognized upon receipt of product by the customer.
A provision for the estimated cost to repair or replace products under warranty
at the time of sale is recorded in the same period as the related revenues.
The Company recognizes software revenue, primarily related to its simulation
software products, in accordance with the American Institute of Certified Public
Accountants' Statement of Position 97-2 ("SOP 97-2") on Software Revenue
Recognition. License revenue is recognized on shipment of the product provided
that no significant vendor or post-contract support obligations remain and that
collection of the resulting receivable is deemed probable by management.
Insignificant vendor and post-contract support obligations are accrued upon
shipment. Service revenue includes training, consulting and customer support.
Revenues from training and consulting are recognized at the time the service is
performed.
Deferred revenue primarily relates to software support contracts sold. The
term of the software support contract is generally one year, and the Company
recognizes the associated revenue on a pro rata basis over the life of the
contract.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, auction rate securities
and trade receivables. The Company places its cash equivalents and short-
51
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
term investments with high credit-quality financial institutions. The Company
invests its excess cash in commercial paper, readily marketable debt instruments
and collateralized funds of U.S., state and municipal government entities. Adept
has established guidelines relative to credit ratings, diversification and
maturities that seek to maintain safety and liquidity.
The Company manufactures and sells its products to system integrators, end
users and OEMs in diversified industries. The Company performs ongoing credit
evaluations of its customers and does not require collateral. However, the
Company may require customers to make payments in advance of shipment or to
provide a letter of credit. The Company provides reserves for potential credit
losses, and such losses have been within management's expectations.
Amounts charged to bad debt expense were $214,000, $516,000 and $389,000 in
2001, 2000 and 1999, respectively.
Research, Development and Engineering Costs
Research, development and engineering costs, other than purchased computer
software, are charged to expense when incurred. The Company has received third
party funding of $49,000 in 2001, $309,000 in 2000, and $681,000 in 1999. The
Company has offset research, development and engineering expenses by the third
party funding as the Company retains the rights to any technology that is
developed.
Goodwill and Other Intangible Assets
The excess of the purchase price over the fair value of identifiable net
assets of acquired companies is allocated to goodwill and amortized over three
to four years. Other intangible assets primarily represent developed technology
and assembled workforce. Goodwill and other intangible assets totaled $16.3
million and $16.9 million at June 30, 2001 and June 30, 2000, respectively, and
is presented net of accumulated amortization of $7.5 million and $0.7 million at
June 30, 2001 and June 30, 2000. The recoverability of goodwill and other
intangible assets has been evaluated to determine whether current events or
circumstances warrant adjustments to the carrying value. Management believes
that no significant impairment of goodwill and other intangible assets was
indicated.
Software Development Costs
The Company capitalizes software development costs incurred subsequent to
the time the product reaches technical feasibility. All capitalized
internally-developed software costs and purchased software costs are amortized
to the cost of revenues on a straight-line basis based on the estimated useful
lives of the products or the ratio of current revenue to the total of current
and anticipated future revenue, whichever is greater. Capitalized
internally-developed software and purchased software are stated at the lower of
amortized cost or net realizable value.
Advertising Costs
Advertising costs are expensed in the period incurred. Advertising costs
were $307,000 in 2001, $224,000 in 2000 and $143,000 in 1999. The Company does
not incur any direct response advertising costs.
Income Taxes
The liability method is used to account for income taxes. Deferred tax
assets and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Stock-Based Compensation
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", which provides an alternative to APB Opinion No. 25 ("Opinion
25"), "Accounting for Stock Issued to Employees", in accounting for stock issued
to employees. The
52
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Company has elected to account for stock-based compensation to employees in
accordance with Opinion 25, providing only pro forma disclosure required by SFAS
123.
Net Income (Loss) Per Share
SFAS No. 128, "Earnings Per Share" ("EPS"), requires the presentation of
basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing
net income (loss) available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then participates in the earnings of the Company.
Dilutive common equivalent shares consist of stock options calculated using the
treasury stock method.
Merger-Related Charges
In July 1999, the Company incurred charges of $988,000 relating to the
acquisition of BYE/OASIS and the closure of BYE/OASIS facilities in Texas.
Included in this amount were merger-related expenses of $558,000, expenses
relating to the closure of facilities in Texas of $195,000, and other expenses
relating to the acquisition of $235,000.
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill (and intangible assets deemed
to have indefinite lives) will no longer be amortized but will be subject to
annual impairment tests in accordance with the Statements. Other intangible
assets will be amortized over their useful lives.
The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of fiscal 2002. Application of
the non-amortization provisions of Statement No. 142 is expected to result in a
decrease in net loss of $7.5 million per year. During fiscal 2002, the Company
will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and the
financial position of the Company.
Reclassification
Certain amounts presented in the financial statements of prior years have
been reclassified to conform to the current presentation for 2001.
2. MERGERS AND ACQUISITIONS
During the three-year period ended June 30, 2001, Adept acquired four
companies: HexaVision Technologies Inc., NanoMotion Incorporated, Pensar-Tucson,
Inc. and BYE/OASIS. These acquisitions are described below.
HexaVision Technologies Inc.
On July 21, 2000, Adept acquired HexaVision Technologies Inc., now named
Adept Technology Canada Co. ("HexaVision"), a Canadian corporation. HexaVision
is a machine vision research and development company. Under the terms of the
purchase agreement, Adept initially paid $5.5 million in cash, which includes
transaction costs of $0.4 million. On July 21, 2001, pursuant to the terms of
the share purchase agreement relating to the acquisition of HexaVision, Adept
issued 116,000 shares of its common stock to the former shareholders of
HexaVision with a value of $1.1 million, made cash payments totaling $3,500 and
released $313,000 in cash from an escrow account upon resolution of certain
contingencies. In addition, a second payment of approximately $1.3 million in
cash is payable on the second anniversary closing, contingent upon the
achievement of certain operational milestones by HexaVision. The Company has set
aside restricted cash in the amount of $1.6 million for future contingent
payments, and such restricted cash is included in Other Assets on the June 30,
2001 balance sheet. These
53
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
contingent cash payments and share issuances will be accounted for as additional
purchase price when the contingencies are resolved. Any payments made and shares
issued will be allocated to goodwill. The acquisition of HexaVision has been
accounted for under the purchase method of accounting. Adept has included the
results of operations of HexaVision in Adept's results of operations beginning
July 21, 2000.
The purchase price of HexaVision was allocated, based on fair value, to
tangible assets, goodwill and other intangible assets. Goodwill represents the
excess of the purchase price of the net tangible and intangible assets acquired
over their fair value. Other intangible assets primarily represent developed
technology and assembled workforce and non-compete covenants. The allocation of
the purchase price is based upon an independent valuation of the assets and
liabilities of HexaVision.
For the HexaVision acquisition, below is a table of the acquisition cost,
purchase price allocation and annual amortization of the intangible assets
acquired:
ANNUAL
AMORTIZATION AMORTIZATION
(IN THOUSANDS) ACQUISITION COST LIFE OF INTANGIBLES
-------------- ---------------- ---- --------------
Cash $ 5,085
Transaction costs..................... 352
----------------
Total acquisition cost........... $ 5,437
================
Purchase Price Allocation
Net liabilities assumed............ $ (629)
Developed and core technology...... 201 30 months $ 80
Non-compete covenant............... 130 30 months 52
Assembled workforce................ 177 30 months 71
Goodwill........................... 5,558 30 months 2,223
---------------- ----------------
Total............................ $ 5,437 $ 2,426
================ ================
The following unaudited pro forma summary results of operations data has
been prepared assuming that the HexaVision acquisition had occurred at the
beginning of the period presented. The consolidated results are not necessarily
indicative of results of future operations nor of results that would have
occurred had the acquisitions been consummated as of the beginning of the period
presented. As the acquisition was completed on July 21, 2000, pro forma results
for the fiscal year ended June 30, 2001 would not differ materially from the
actual results.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000
====
Net revenues.......................... $ 99,311
Net loss.............................. $ (5,502)
Basic and diluted net loss per share.. $ (0.56)
NanoMotion
On May 31, 2000, the Company completed the acquisition of NanoMotion
Incorporated, a California corporation. NanoMotion is a manufacturer of
ultra-high precision positioning and alignment devices for nanometer-scale
movement, positioning and alignment for the fiber optic, semiconductor and
metrology, or precision machining, markets. In connection with the acquisition,
the Company issued 600,000 shares of its common stock valued at $21 per share to
the shareholders of NanoMotion which was the fair market value of Adept's common
stock at May 31, 2000. The acquisition of NanoMotion was accounted for as a
purchase, and the financial results of NanoMotion have been included in Adept's
consolidated financial results since May 31, 2000.
54
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Pensar
On April 28, 2000, the Company completed the acquisition of Pensar-Tucson,
Inc., an Arizona corporation. Pensar is a design and engineering company which
integrates factory automation systems. In connection with the acquisition, the
Company issued 100,000 shares of its common stock valued at $11.75 per share to
the shareholders of Pensar, which was the fair market value of Adept's common
stock at April 28, 2000. In addition, the Company paid $3,000,000 in cash. The
financial results of Pensar have been included in Adept's financial results
since April 28, 2000.
The purchase prices of NanoMotion and Pensar were allocated, based on an
independent valuation, to goodwill and other intangible assets. Goodwill
represents the excess of the purchase price of the net tangible and intangible
assets acquired over their estimated fair value. Other intangible assets
primarily represent developed technology and assembled workforce.
For the NanoMotion and Pensar acquisitions, below is a table of the
acquisition cost, purchase price allocation and annual amortization of the
intangible assets acquired, in thousands:
ANNUAL
AMORTIZATION
ACQUISITION AMORTIZATION OF
COST LIFE INTANGIBLES
---- ---- -----------
Common stock.......................................... $ 13,776
Cash.................................................. 3,250
Transaction costs..................................... 83
---------
Total acquisition cost........................... $ 17,109
=========
Purchase Price Allocation
Net tangible assets................................. $ 230
Developed and core technology....................... 1,120 4 years $ 280
Non-compete covenant................................ 380 4 years 95
Assembled workforce................................. 480 3-4 years 131
Goodwill............................................ 15,658 3-4 years 4,474
Deferred tax liability.............................. (759)
--------- -------
Total............................................ $ 17,109 $ 4,980
========= =======
BYE/OASIS
On July 16, 1999, the Company completed the acquisition of BYE/OASIS
Engineering, Inc., a Texas corporation. BYE/OASIS is a leading manufacturer of
environmental filtering and control systems and wafer cassette handling devices
for the microelectronics industry. In connection with the acquisition, the
Company issued 720,008 shares of its common stock to the shareholders of
BYE/OASIS. In addition, the Company assumed outstanding options to acquire
BYE/OASIS shares, which were converted into options to acquire 185,361 shares of
Adept's common stock. The acquisition was intended to constitute a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986. The
acquisition was accounted for using the pooling of interests method and
accordingly all prior period consolidated financial statements have been
restated to include the combined results of operations, financial position and
cash flows of BYE/OASIS.
Prior to the merger, BYE/OASIS's fiscal year ended on September 30.
BYE/OASIS's prior period financial statements have been restated to conform to
Adept's year-end.
The following information presents certain income statement data of the
separate companies for the periods preceding the merger:
55
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1999
----
Net sales
Adept................................... $ 82,027
BYE/OASIS............................... 5,347
---------
Total sales.......................... $ 87,374
=========
Net (loss) income
Adept................................... $ 2,622
BYE/OASIS............................... (111)
---------
Total net income (loss).............. $ 2,511
=========
Revenue generated for the period from July 1, 1999 through July 16, 1999 (date
of acquisition) was not significant.
CHAD Industries, Inc.
On June 27, 2001, the Company signed a definitive agreement to acquire
privately-held CHAD Industries, Inc. in exchange for a combination of equity and
cash to be paid out over three years. Completion of the acquisition remains
subject to obtaining required approvals and other standard closing conditions.
3. DERIVATIVE FINANCIAL INSTRUMENTS
The Company's product sales are predominantly denominated in U.S. dollars.
However, certain international operating expenses are predominately paid in
their respective local currency. A foreign currency hedging program is used to
hedge the Company's exposure to foreign currency exchange risk on local
international operational expenses and revenues. Realized and unrealized gains
and losses on forward currency contracts that are effective as hedges of assets
and liabilities are included under SG&A in the statement of operations. A gain
of $322,000 was recognized for the year ended June 30, 2001 and a loss of
$50,000 for the year ended June 30, 2000. Realized and unrealized gains and
losses on instruments that hedge firm commitments are deferred and included in
the measurement of the subsequent transaction; however, losses are deferred only
to the extent of expected gains on the future commitment at June 30, 2001. The
Company has deferred recognition of a transaction loss of $62,000, relating to
foreign exchange contracts treated as accounting hedges. The Company realized
this transaction loss in the first quarter of 2002.
4. COMMITMENTS AND CONTINGENCIES
Commitments
The Company's lease on its primary facility will expire in December 2003.
Future minimum lease payments under non-cancelable operating leases are as
follows:
LEASES
(IN THOUSANDS)
--------------
Fiscal Year
2002......................................... $ 5,363
2003......................................... 7,326
2004......................................... 6,442
2005......................................... 5,200
2006......................................... 4,705
Later years.................................. 26,094
---------
Total minimum lease payments................... $ 55,130
=========
Rent expense net of sublease income of $16,000, $18,480 and $312,000 was
$4,102,000 in 2001, $3,019,000 in 2000 and $2,507,000 in 1999.
56
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Contingencies
Some end users of the Company's products have notified the Company that they
have received a claim of patent infringement from the Jerome H. Lemelson
Foundation, alleging that their use of the Company's machine vision products
infringes certain patents issued to Mr. Lemelson. In addition, the Company has
been notified that other end users of the Company's AdeptVision VME line and the
predecessor line of Multibus machine vision products have received letters from
Mr. Lemelson which refer to Mr. Lemelson's patent portfolio and offer the end
user a license to the particular patents. Certain end users have notified the
Company that they may seek indemnification from the Company for damages or
expenses resulting from this matter. The Company cannot predict the outcome of
this or any similar litigation, which may arise in the future. However, the
Company believes the ultimate resolution of these matters will not have a
material adverse effect on its financial position, results of operations or cash
flows.
The Company has from time to time received communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others, or seeking indemnification against alleged
infringement. While it is not feasible to predict or determine the likelihood or
outcome of any actions brought against it, the Company believes the ultimate
resolution of these matters will not have a material adverse effect on its
financial position, results of operations or cash flows.
5. SHAREHOLDERS' EQUITY
Preferred Stock
The Board of Directors has the authority to issue, without further action by
the shareholders, up to 5,000,000 shares of preferred stock in one or more
series and to fix the price, rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting a series or the designation of such series,
without any further vote or action by the Company's shareholders. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the shareholders and may adversely affect the market price of,
and the voting and other rights of, the holders of common stock.
Common Stock
In August 2000, the Board of Directors amended the Company's Restated
Articles of Incorporation, approving an increase in the number of authorized
shares of its common stock from 25,000,000 to 70,000,000 shares. The
shareholders approved this amendment on November 10, 2000.
Stock Option Plans
The Company's 1993 Stock Plan (the "1993 Plan") was adopted by the Board of
Directors in April 1993 and approved by the shareholders of the Company in June
1993. The 1993 Plan provides for grants of incentive stock options to employees
(including officers and employee directors) and nonstatutory stock options to
employees (including officers and employee directors) and consultants of the
Company. In general, options and common stock purchased pursuant to stock
purchase rights granted under the 1993 Plan vest and become exercisable starting
one year after the date of grant, with 25% of the shares subject to the option
exercisable at that time and an additional 1/48th of the shares subject to the
option becoming exercisable each month thereafter. Upon the voluntary or
involuntary termination of employment (including as a result of death or
disability) by a holder of unvested shares of the Company's common stock
purchased pursuant to stock purchase rights granted under the 1993 Plan, the
Company may exercise an option to repurchase such shares at their original issue
price. The terms of the options granted under the 1993 Plan generally may not
exceed ten years. The Board of Directors determines the exercise price of the
options which must be at least equal to the fair market value of the common
stock on the date of grant.
On August 12, 1999, the Board of Directors authorized an increase of
1,000,000 shares issuable under the 1993 Plan which was approved by the
shareholders in November 1999. In August 2000, the 1993 Plan was amended by
57
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
the Board of Directors to increase the number of shares authorized for issuance
under the 1993 Plan by an additional 1,000,000 shares. This amendment was
approved by the Company's shareholders on November 10, 2000.
The Company's 1995 Director Option Plan (the "Director Plan") was adopted by
the Board of Directors and approved by the shareholders of the Company in
October 1995. The option grants under the Director Plan are automatic and
nondiscretionary, and the exercise price of the options is at the fair market
value of the Company's common stock on the date of grant. A total of 150,000
shares of common stock has been reserved for issuance under the Director Plan.
During both years ended June 30, 2001 and 2000, 12,000 options were granted and
no options were exercised.
The options may be exercised at the time or times determined by the Board of
Directors.
In August 1998, the Company offered all employees holding options the
opportunity to exchange their outstanding options for options with exercise
prices equal to the then fair market value of the company's common stock. Under
the August 1998 offer, options to purchase 367,827 shares with exercise prices
exceeding $7.00 per share were exchanged for similar options exercisable at
$7.00 per share. The vesting schedule of all exchanged options was delayed by 12
months and the expiration date of the exchanged options will be August 2008. The
effect of the exchange has been included in the table in 1999 activity for
options granted and canceled.
The following table summarizes option activities under the Company's stock
option plans:
OPTIONS
---------------------------------------------------------------
AVAILABLE NO. OF SHARES AGGREGATE WEIGHTED AVERAGE
FOR GRANT OUTSTANDING PRICE EXERCISE PRICE
--------- ----------- ----- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Balance at June 30, 1998................ 1,076 1,192 $ 10,096 $ 8.47
Granted............................... (913) 913 5,757 6.31
Canceled.............................. 451 (451) (5,156) 11.43
Exercised............................. -- (250) (1,199) 4.80
----- ------ ---------
Balance at June 30, 1999................ 614 1,404 9,498 6.76
Additional shares authorized.......... 1,000 -- -- --
Granted............................... (845) 845 5,765 6.83
Canceled.............................. 197 (197) (1,268) 6.45
Exercised............................. -- (308) (1,518) 4.92
----- ------ ---------
Balance at June 30, 2000................ 966 1,744 12,477 7.15
Additional shares authorized.......... 1,000 -- -- --
Granted............................... (844) 844 16,285 19.29
Canceled.............................. 122 (122) (2,584) 21.18
Exercised............................. -- (252) (1,370) 5.44
----- ------ ---------
Balance at June 30, 2001................ 1,244 2,214 $ 24,808 $ 11.21
===== ========= ==========
The following table summarizes information concerning outstanding and
exercisable options at June 30, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------ ----------- ---- ----- ----------- -----
(SHARES IN THOUSANDS)
$ 0.33 - $ 6.38 451 7.63 $ 4.92 201 $ 4.67
$ 6.44 - $ 7.00 605 6.67 $ 6.78 448 $ 6.74
$ 7.03 - $ 9.93 511 8.92 $ 8.66 108 $ 8.51
$ 9.94 - $ 23.75 579 8.82 $ 20.05 141 $ 17.56
$24.00 - $ 49.75 68 9.16 $ 35.87 7 $ 26.50
---- ---
$ 0.33 - $ 49.75 2,214 8.02 $ 11.21 905 $ 8.32
===== ===
58
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Employee Stock Purchase Plan
The 1998 Employee Stock Purchase Plan (the "1998 ESPP") has overlapping
12-month offering periods that begin every six months, starting on the first
trading day on or after May 1 and November 1 of each year. Each 12-month
offering period is divided into two six-month purchase periods. The plan allows
eligible employees, through payroll deductions, to purchase shares of the
Company's common stock at 85% of fair market value on either the first day of
the offering period or the last day of the purchase period, whichever is lower.
The plan includes a provision for an annual automatic increase in the number of
shares reserved for issuance by the lesser of (i) 300,000, (ii) 3% of common
stock outstanding on the last day of the prior fiscal year, or (iii) a lesser
amount as may be determined by the Board of Directors.
In May 2000, the Board approved an amendment to the 1998 ESPP for 24-month
offering periods including four six-month purchase periods, effective May 1,
2001 and approved an amendment to the 1998 ESPP to provide for an annual
automatic increase in the number of shares reserved for issuance by the lesser
of (i) 600,000, (ii) 3% of common stock outstanding on the last day of the prior
fiscal year, or (iii) a lesser amount as may be determined by the Board of
Directors.
As of June 30, 2001, 537,000 shares of the Company's common stock were
issued under the 1998 ESPP and 624,000 shares remain unissued under the 1998
ESPP.
Repurchase of Company's Stock
In August 1998, the Board of Directors authorized the Company to repurchase
up to 450,000 shares of the Company's common stock on the open market or in
privately negotiated transactions at prices not to exceed $8.50 per share and a
total purchase price not to exceed $3,825,000. During 1999, the Company
repurchased 450,000 shares at an average purchase price of $7.10 per share.
There were no repurchases of the Company's stock during 2001 or 2000.
Stock Based Compensation
At June 30, 2001, the Company had three stock-based compensation plans as
described above. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its compensation plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
ESPP. If compensation cost for the Company's stock-based compensation plans had
been determined consistent with Statement of Financial Accounting Standards No.
123 ("SFAS 123"), the Company's net income (loss) and net income (loss) per
share would have been adjusted to the pro forma amounts indicated below:
JUNE 30,
--------
2001 2000 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net (loss) income
As reported...............................($35,200) ($1,427) $ 2,511
Pro forma................................($43,165) ($5,532) $ 190
Basic net (loss) income per share
As reported...............................($ 3.02) ($ .15) $ .27
Pro forma................................($ 3.71) ($ .57) $ .02
Diluted net (loss) income per share
As reported...............................($ 3.02) ($ .15) $ .26
Pro forma................................($ 3.71) ($ .57) $ .02
Because the method of accounting prescribed by SFAS 123 has not been applied
to options granted prior to July 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
59
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for grants during the years ended June 30, 2001, 2000 and 1999:
risk-free interest rates of 3.83% for 2001, 6.04% for 2000, and 4.84% for 1999;
a dividend yield of 0% for all three years; a weighted-average expected life of
8.6 years for 2001, 3.1 years for 2000 and 3.5 years for 1999; and a volatility
factor of the expected market price of the Company's common stock of 1.54 for
2001, 1.02 for 2000 and .99 for 1999. The weighted average grant date fair value
of options was $18.86 for options granted in 2001, $6.65 in 2000 and $3.83 in
1999.
Compensation cost is estimated for the fair value of the employees' purchase
rights using the Black-Scholes model with the following assumptions for rights
granted in 2001, 2000 and 1999: a dividend yield of 0% for all three years;
expected life of 6 months for all three years; expected volatility of 1.17 for
2001, 1.02 for 2000 and .99 for 1999; and a risk-free interest rate of 5.6% for
2001, 5.81% for 2000 and 4.78% for 1999. The weighted average fair market value
of the purchase rights granted was $8.19 for rights granted in 2001, $3.35 for
2000 and $3.11 for 1999.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
6. EMPLOYEE SAVINGS AND INVESTMENT PLAN
In May 1988, the Company adopted a 401(k) savings and investment plan in
which employees are eligible to participate. During 1999, the Company's matching
contributions were suspended for part of the year to reduce costs. The Company's
matching contributions were $600,000 in 2001, $274,000 in 2000 and $125,000 in
1999.
7. INCOME TAXES
The provision for (benefit from) income taxes consists of the following:
YEAR ENDED JUNE 30,
-----------------------------------------
2001 2000 1999
------------- ------------- -----------
(IN THOUSANDS)
Current:
Federal..................................... $ - $ 161 $ 285
State....................................... - (86) 184
Foreign..................................... 425 166 851
------ ------ ------
Total current................................. 425 241 1,320
Deferred:
Federal..................................... 4,033 (515) 389
State....................................... 938 (319) (89)
------ ------ ------
Total deferred................................ 4,971 (834) 300
------ ------ ------
Provision for (benefit from) income taxes..... 5,396 ($593) $1,620
====== ====== ======
The difference between the provision for (benefit from) income taxes and the
amount computed by applying the federal statutory income tax rate to (loss)
income before provision for (benefit from) income taxes is explained below:
60
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
YEAR ENDED JUNE 30,
--------------------------------
2001 2000 1999
-------- -------- --------
(IN THOUSANDS)
Tax at federal statutory rate ......................... ($10,133) ($ 687) $ 1,404
State taxes, net of federal benefit ................... (1,387) (33) 63
Foreign taxes ......................................... 436 441 562
Tax credits ........................................... (1,082) (791) (350)
Merger and acquisition related expenses ............... 1,373 255 --
Non-deductible meals, entertainment and exchange losses 65 125 81
Change in valuation allowance .......................... 16,179 -- --
Other ................................................. (55) 97 (140)
-------- -------- --------
Provision for (benefit from)income taxes .............. $ 5,396 ($ 593) $ 1,620
======== ======== ========
Significant components of the Company's deferred tax assets and liabilities are
as follows:
JUNE 30,
--------
2001 2000
---- ----
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards.............................. $ 7,469 $ 367
Tax credit carryforwards...................................... 2,813 1,626
Inventory valuation accounts.................................. 3,239 1,238
Warranty reserves............................................. 799 734
Depreciation /amortization.................................... 910 208
Other accruals and reserves not currently deductible for tax
purposes.................................................... 3,275 2,672
Capitalized research and development expenses................. 660 -
Other......................................................... 192 237
-------- -------
Total deferred tax assets..................................... 19,357 7,082
Valuation allowance........................................... (18,794) (888)
-------- -------
Net deferred tax assets....................................... 563 6,194
-------- -------
Deferred tax liabilities:
Purchased intangibles......................................... (563) (759)
Foreign earnings.............................................. - (463)
-------- -------
Net deferred tax liabilities.................................. (563) (1,222)
-------- -------
Total net deferred tax assets..................................... $ - $ 4,972
======== =======
For financial reporting purposes, the Company's deferred tax assets have
been fully offset by a valuation allowance due to uncertainties about the
Company's ability to generate future taxable income. The change in the valuation
allowance was a net increase of approximately $17,900,000 for 2001 and $52,000
for 2000.
In 2001, the tax benefits associated with employee stock options provide a
deferred benefit of approximately $848,000, which has been offset by the
valuation allowance. The deferred tax benefit associated with the employee stock
options will be credited to additional paid-in capital when realized.
At June 30, 2001, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $20.9 million, which will begin to
expire in 2002 if unused. The Company had net operating loss carryforwards for
state income tax purposes of approximately $6.6 million, which will begin to
expire in 2002 if unused. The Company also had credit carryforwards of
approximately $2.8 million, which will begin to expire in
61
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
2002 if unused. Utilization of a portion of the net operating loss carryforwards
and the tax credit carryforwards is limited to approximately $300,000 per year.
Pretax income (losses) from foreign operations was approximately ($754,000)
in 2001, $267,000 in 2000, and $1.5 million in 1999.
8. NET INCOME (LOSS) PER SHARE
Net (loss) income per share is calculated as follows:
YEAR ENDED JUNE 30,
-------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net (loss) income................................. $(35,200) $(1,427) $2,511
======== ======= ======
Basic:
Weighted-average shares outstanding........... 11,637 9,774 9,302
========= ======= ======
Net (loss) income per share................... $ (3.02) $ (0.15) $ 0.27
======== ======== =======
Diluted:
Weighted-average shares outstanding........... 11,637 9,774 9,302
Effect of dilutive securities:
Stock options.............................. - - 182
------- ------- ------
Weighted-average shares outstanding........... 11,637 9,774 9,484
========= ======= ======
Net (loss) income per share................... $ (3.02) $ (0.15) $ 0.26
======== ======== =======
Stock options to purchase 160,480 shares of common stock were outstanding
during the year ended June 30, 1999, but were not included in the calculations
of diluted earnings per share because the option's exercise price was greater
than the average market price of the Company's common stock during those years.
If the Company had reported net income for the year ended June 30, 2001 or June
30, 2000, the calculation of diluted net income per share would have included
approximately 1,963,000 and 1,658,000, respectively, additional common
equivalent shares relating to outstanding employee stock options not included
above (determined using the treasury stock method).
9. SEGMENT INFORMATION
The Company has three reportable business segments, the Assembly and
Material Handling ("AMH") operations segment, the Semiconductor operations
segment and the SILMA Software operations segment.
The AMH operations segment provides intelligent automation software and
hardware products for assembly, material handling and packaging applications.
The Semiconductor operations segment provides semiconductor contamination
control products, such as, standard and customized products for contamination
control (mini and micro environments), wafer integration and front-end wafer
handling and transport solutions for semiconductor OEMs. In addition, the
segment provides end users guidance and inspection vision products and robots to
end users.
The SILMA Software ("SILMA") operations segment provides 3-D graphical
simulation tools for assembly process design, simulation and analysis.
The reportable segments are each managed separately because they manufacture
and distribute distinct products with different production processes.
The Company evaluates performance and allocates resources based on segment
revenues and segment operating income (loss). Segment operating income (loss)
comprises income before unallocated research and development
62
ADEPT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
expenses, unallocated selling, general and administrative expenses, amortization
of intangibles, interest income, interest and other expenses and income taxes.
Management does not fully allocate research and development expenses and
selling, general and administrative expenses when making capital spending
decisions, expense funding decisions or assessing segment performance. There
were no intersegment sales or transfers between segments.
Segment information for total assets and capital expenditures is not
presented as such information is not used in measuring segment performance or
allocating resources among segments.
YEAR ENDED JUNE 30,
-------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS)
Revenue:
Assembly and Material Handling operations............ $ 80,474 $ 81,454 $ 74,858
Semiconductor operations............................. 14,085 12,438 5,347
SILMA Software operations............................ 5,754 5,320 7,169
-------- -------- --------
Total revenue.................................... $100,313 $ 99,212 $ 87,374
======== ======== ========
Operating (loss) income:
Assembly and Material Handling operations............ $ 4,281 $ 19,378 $ 18,803
Semiconductor operations............................. 1,479 1,674 (207)
SILMA Software operations............................ (926) (548) 2,372
-------- -------- --------
Segment profit (loss) ............................... 4,834 20,504 20,968
Unallocated research, development and engineering
and selling, general and administrative........... (35,371) (23,270) (17,763)
Interest income...................................... 745 1,031 967
Interest expense..................................... (12) (285) (41)
-------- -------- --------
(Loss) income before provision for (benefit from)
income taxes...................................... $(29,804) $ (2,020) $ 4,131
======== ======== ========
Management also assesses the Company's performance, operations and assets by
geographic areas, and therefore revenue and long-lived assets are summarized in
the following table:
YEAR ENDED JUNE 30,
-------------------
2001 2000 1999
---- ---- ----
(IN THOUSANDS)
Revenue:
United States...................... $ 63,896 $ 54,320 $ 46,119
Germany............................ 10,523 12,865 12,701
France............................. 12,445 12,665 10,991
Other European countries........... 10,537 13,575 12,955
All other countries................ 2,912 5,787 4,608
-------- -------- --------
$100,313 $ 99,212 $ 87,374
======== ======== ========
Long-lived assets:
United States...................... $ 32,557 $ 24,888 $ 7,099
All other countries................ 426 469 473
-------- -------- --------
Total long-lived assets....... $ 32,983 $ 25,357 $ 7,572
======== ======== ========
Total long-lived assets................. $ 32,983 $ 25,357 $ 7,572
Other current assets.................... 62,590 68,166 64,105
-------- -------- --------
Total consolidated assets..... $ 95,573 $ 93,523 $ 71,677
======== ======== ========
No single customer accounted for more than 10% of the Company's net revenue
in 2001, 2000 and 1999.
63
SCHEDULE II
ADEPT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE ADDITIONS
AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) OF PERIOD
----------- --------- -------- -------------- ---------
Year ended June 30, 1999:
Allowance for doubtful accounts $462 $389 $135 $716
Year ended June 30, 2000:
Allowance for doubtful accounts 716 516 595 637
Year ended June 30, 2001:
Allowance for doubtful accounts 637 214 109 742
-------------------
(1) Includes write offs net of recoveries.
EX-10
3
p14376_ex10-34.txt
EXHIBIT 10.34/FIRST AMENDMENT TO AGREEMENT
FIRST AMENDMENT TO EXPORT-IMPORT BANK OF THE
UNITED STATES WORKING CAPITAL GUARANTEE
PROGRAM BORROWER AGREEMENT
THIS FIRST AMENDMENT TO EXPORT-IMPORT BANK OF THE UNITED STATES WORKING
CAPITAL GUARANTEE PROGRAM BORROWER AGREEMENT (this "Amendment"), is entered into
by and among Adept Technology, Inc., a California corporation ("Borrower") and
The CIT Group/Commercial Services, Inc. on behalf of its affiliate The CIT
Group/Business Credit, Inc. ("Lender"), and shall be deemed effective as of July
10, 2001.
RECITALS
Whereas, Borrower executed an Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement dated as of April 5, 2001
(the "Borrower Agreement") in favor of the Export-Import Bank of the United
States ("Ex-Im Bank") and Lender as a condition to Lender's entry into the Loan
and Security Agreement (EXIM Facility) and Loan and Security Agreement (Non-EXIM
Facility) with Borrower each dated as of April 5, 2001 (collectively, the "CIT
Loan Agreements"); and
Whereas, Borrower and Lender wish to amend the Borrower Agreement to
permit the Borrower to undertake acquisitions of other business entities within
the same industry as Borrower without Ex-Im Bank's and Lender's prior written
consent so long as Borrower satisfies certain financial conditions.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises, covenants and conditions hereinafter set forth, the parties
hereto agree as follows:
ARTICLE 1
AMENDMENT
1.1 DEFINITIONS. Capitalized terms used but not defined in this
Amendment shall have the meanings given them in the Borrower Agreement.
1.2 AMENDMENTS TO BORROWER AGREEMENT. The Borrower Agreement is hereby
amended by inserting the following text at the end of Section 2.15:
"; provided that if no Event of Default (as defined in the Loan
Agreement) has occurred unless such Event of Default has been cured to the
extent permitted herein Borrower may undertake acquisitions of other business
entities within the same industry as Borrower without Lender's prior written
approval, so long as (i) immediately after giving effect to such acquisition,
Borrower's Aggregate Excess Availability (as defined in the Loan Agreement) plus
unrestricted and unencumbered (other than liens in favor of Lender) cash
equivalents and cash (in U.S. Dollars in domestic bank accounts) of the Borrower
and its subsidiaries is no less than $7,500,000, (ii) the proforma financial
projections (which shall be in form and substance reasonably acceptable to the
Lender) of the Borrower and its subsidiaries on a consolidated basis after
giving effect to any such acquisition reflects that the proforma consolidated
unrestricted and unencumbered (other than liens in favor of Lender) cash
equivalents and cash (in U.S. Dollars in domestic bank accounts) of the Borrower
and its subsidiaries plus the Borrower's Aggregate Excess Availability will be
positive over the 12 months immediately following the completion of any such
acquisition, and (iii) Borrower executes any and all documents or agreements or
performs such acts as Lender may reasonably require to preserve Lender's
perfected first priority security interest in the assets of Borrower and its
rights and remedies under the Loan Agreement and applicable law."
ARTICLE 2
MISCELLANEOUS
2.1 HEADINGS. The headings in this Amendment are intended solely for
convenience and shall not be construed as limiting or expanding the terms of
this Amendment.
2.2 COUNTERPARTS. This Amendment may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument. All counterparts shall be deemed an original of this
Amendment.
2.3 REAFFIRMATION OF LOAN AGREEMENT. Except as modified by the terms
herein, the Borrower Agreement and the CIT Loan Agreements remain in full force
and effect. If there is any conflict between the terms and provisions of this
Amendment and the terms and provisions of the Borrower Agreement and the CIT
Loan Agreements, the terms and provisions of this Amendment shall govern.
2.4 GOVERNING LAW. This Amendment shall be governed by, and construed
in accordance with, the law of the state California.
2.5 ATTORNEYS' FEES; COSTS. Borrower agrees to pay, on demand, all
reasonable attorneys' fees and costs incurred in connection with the
negotiation, documentation and execution of this Amendment. If any legal action
or proceeding shall be commenced at any time by any party to this Amendment in
connection with its interpretation or enforcement, the prevailing party or
parties in such action or proceeding shall be entitled to reimbursement of its
reasonable attorneys' fees and costs in connection therewith, in addition to all
other relief to which the prevailing party or parties may be entitled.
2.6 WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY ACTION, SUIT, PROCEEDING OR
2
OTHER LITIGATION BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR
IN CONNECTION WITH THIS AMENDMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMISSIONS OF LENDER, EX-IM
BANK, OR ANY OTHER PERSON, RELATING TO THIS AMENDMENT.
[SIGNATURE PAGE FOLLOWS]
3
IN WITNESS WHEREOF, the parties executed this Amendment to be effective
as of the date first written above.
ADEPT TECHNOLOGY, INC.
By: /s/ John W. Schwartz
Name: John W. Schwartz
Title: Director of Finance
THE CIT GROUP/COMMERCIAL
SERVICES, INC. on behalf of its affiliate
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Dale George
-----------------
Name: Dale George
Title: Account Manager
4
EX-10
4
p14376_ex10-35.txt
EXHIBIT 10.35/BORROWER AGREEMENT
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 Borrower on the signature page hereof ("Borrower") in
favor of the Export-Import Bank of the United States ("Ex-Im Bank") and the
institution identified as Lender on the signature page hereof ("Lender").
RECITALS
Borrower has requested that Lender establish a Loan Facility in favor
of Borrower for the purposes of providing Borrower with pre-export working
capital to finance the manufacture, production or purchase and subsequent export
sale of Items.
It is a condition to the establishment of such Loan Facility that Ex-Im
Bank guarantee the payment of ninety percent (90%) of certain credit
accommodations subject to the terms and conditions of a Master Guarantee
Agreement, the Loan Authorization Agreement, and to the extent applicable, the
Delegated Authority Letter Agreement.
Borrower is executing this Agreement for the benefit of Lender and
Ex-Im Bank in consideration for and as a condition to Lender's establishing the
Loan Facility and Ex-Im Bank's agreement to guarantee such Loan Facility
pursuant to the Master Guarantee Agreement.
NOW, THEREFORE, Borrower hereby agrees as follows:
ARTICLE I
DEFINITIONS
1.01 Definition of Terms. As used in this Agreement, including the Recitals to
this Agreement and the Loan Authorization Agreement, the following terms shall
have the following meanings:
"Accounts Receivable" shall mean all of Borrower's now owned or
hereafter acquired (a) "accounts" (as such term is defined in the UCC), other
receivables, book debts and other forms of obligations, whether arising out of
goods sold or services rendered or from any other transaction; (b) rights in, to
and under all purchase orders or receipts for goods or services; (c) rights to
any goods represented or purported to be represented by any of the foregoing
(including unpaid sellers' rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods); (d)
moneys due or to become due to such Borrower under all purchase orders and
contracts for the sale of goods or the performance of services or
both by Borrower (whether or not yet earned by performance on the part of
Borrower), including the proceeds of the foregoing; (e) any notes, drafts,
letters of credit, insurance proceeds or other instruments, documents and
writings evidencing or supporting the foregoing; and (f) all collateral security
and guarantees of any kind given by any other Person with respect to any of the
foregoing.
"Advance Rate" shall mean the rate specified in Section 5(C) of the
Loan Authorization Agreement for each category of Collateral.
"Business Day" shall mean any day on which the Federal Reserve Bank of
New York is open for business.
"Buyer" shall mean a Person that has entered into one or more Export
Orders with Borrower.
"Collateral" shall mean all property and interest in property in or
upon which Lender has been granted a Lien as security for the payment of all the
Loan Facility Obligations including the Collateral identified in Section 6 of
the Loan Authorization Agreement and all products and proceeds (cash and
non-cash) thereof.
"Commercial Letters of Credit" shall mean those letters of credit
subject to the UCP payable in Dollars and issued or caused to be issued by
Lender on behalf of Borrower under a Loan Facility for the benefit of a
supplier(s) of Borrower in connection with Borrower's purchase of goods or
services from the supplier in support of the export of the Items.
"Country Limitation Schedule" shall mean the schedule published from
time to time by Ex-Im Bank and provided to Borrower by Lender which sets forth
on a country by country basis whether and under what conditions Ex-Im Bank will
provide coverage for the financing of export transactions to countries listed
therein.
"Credit Accommodation Amount" shall mean, the sum of (a) the aggregate
outstanding amount of Disbursements and (b) the aggregate outstanding face
amount of Letter of Credit Obligations.
"Credit Accommodations" shall mean, collectively, Disbursements and
Letter of Credit Obligations.
"Debarment Regulations" shall mean, collectively, (a) the
Governmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 53 Fed. Reg. 19204 (May 26, 1988), (b) Subpart 9.4 (Debarment,
Suspension, and Ineligibility) of the Federal Acquisition Regulations, 48 C.F.R.
9.400-9.409 and (c) the revised Governmentwide Debarment and Suspension
(Nonprocurement) regulations (Common Rule), 60 Fed. Reg. 33037 (June 26, 1995).
"Delegated Authority Letter Agreement" shall mean the Delegated
Authority Letter Agreement, if any, between Ex-Im Bank and Lender.
"Disbursement" shall mean, collectively, (a) an advance of a working
capital loan from Lender to Borrower under the Loan Facility, and (b) an advance
to fund a drawing under a Letter
2
of Credit issued or caused to be issued by Lender for the account of Borrower
under the Loan Facility.
"Dollars" or "$" shall mean the lawful currency of the United States.
"Effective Date" shall mean the date on which (a) the Loan Documents
are executed by Lender and Borrower or the date, if later, on which agreements
are executed by Lender and Borrower adding the Loan Facility to an existing
working capital loan arrangement between Lender and Borrower and (b) all of the
conditions to the making of the initial Credit Accommodations under the Loan
Documents or any amendments thereto have been satisfied.
"Eligible Export-Related Accounts Receivable" shall mean an
Export-Related Account Receivable which is acceptable to Lender and which is
deemed to be eligible pursuant to the Loan Documents, but in no event shall
Eligible Export-Related Accounts Receivable include any Account Receivable:
(a) that does not arise from the sale of Items in the ordinary course
of Borrower's business;
(b) that is not subject to a valid, perfected first priority Lien in
favor of Lender;
(c) as to which any covenant, representation or warranty contained in
the Loan Documents with respect to such Account Receivable has been breached;
(d) that is not owned by Borrower or is subject to any right, claim or
interest of another Person other than the Lien in favor of Lender;
(e) with respect to which an invoice has not been sent;
(f) that arises from the sale of defense articles or defense services;
(g) that is due and payable from a Buyer located in a country with
which Ex-Im Bank is prohibited from doing business as designated in the Country
Limitation Schedule;
(h) that does not comply with the requirements of the Country
Limitation Schedule;
(i) that is due and payable more than one hundred eighty (180) days
from the date of the invoice;
(j) that is not paid within sixty (60) calendar days from its original
due date, unless it is insured through Ex-Im Bank export credit insurance for
comprehensive commercial and political risk, or through Ex-Im Bank approved
private insurers for comparable coverage, in which case it is not paid within
ninety (90) calendar days from its due date;
(k) that arises from a sale of goods to or performance of services for
an employee of Borrower, a stockholder of Borrower, a subsidiary of Borrower, a
Person with a controlling interest in Borrower or a Person which shares common
controlling ownership with Borrower;
3
(l) that is backed by a letter of credit unless the Items covered by
the subject letter of credit have been shipped;
(m) that Lender or Ex-Im Bank, in its reasonable judgment, deems
uncollectible for any reason;
(n) that is due and payable in a currency other than Dollars, except as
may be approved in writing by Ex-Im Bank;
(o) that is due and payable from a military Buyer, except as may be
approved in writing by Ex-Im Bank;
(p) that does not comply with the terms of sale set forth in Section 7
of the Loan Authorization Agreement;
(q) that is due and payable from a Buyer who (i) applies for, suffers,
or consents to the appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a substantial part of
its property or calls a meeting of its creditors, (ii) admits in writing its
inability, or is generally unable, to pay its debts as they become due or ceases
operations of its present business, (iii) makes a general assignment for the
benefit of creditors, (iv) commences a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt
or insolvent, (vi) files a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesces to, or fails to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) takes any action for the purpose of effecting
any of the foregoing;
(r) that arises from a bill-and-hold, guaranteed sale, sale-and-return,
sale on approval, consignment or any other repurchase or return basis or is
evidenced by chattel paper;
(s) for which the Items giving rise to such Account Receivable have not
been shipped and delivered to and accepted by the Buyer or the services giving
rise to such Account Receivable have not been performed by Borrower and accepted
by the Buyer or the Account Receivable otherwise does not represent a final
sale;
(t) that is subject to any offset, deduction, defense, dispute, or
counterclaim or the Buyer is also a creditor or supplier of Borrower or the
Account Receivable is contingent in any respect or for any reason;
(u) for which Borrower has made any agreement with the Buyer for any
deduction therefrom, except for discounts or allowances made in the ordinary
course of business for prompt payment, all of which discounts or allowances are
reflected in the calculation of the face value of each respective invoice
related thereto; or
(v) for which any of the Items giving rise to such Account Receivable
have been returned, rejected or repossessed.
4
"Eligible Export-Related Inventory" shall mean Export-Related Inventory
which is acceptable to Lender and which is deemed to be eligible pursuant to the
Loan Documents, but in no event shall Eligible Export-Related Inventory include
any Inventory:
(a) that is not subject to a valid, perfected first priority Lien in
favor of Lender;
(b) that is located at an address that has not been disclosed to Lender
in writing;
(c) that is placed by Borrower on consignment or held by Borrower on
consignment from another Person;
(d) that is in the possession of a processor or bailee, or located on
premises leased or subleased to Borrower, or on premises subject to a mortgage
in favor of a Person other than Lender, unless such processor or bailee or
mortgagee or the lessor or sublessor of such premises, as the case may be, has
executed and delivered all documentation which Lender shall require to evidence
the subordination or other limitation or extinguishment of such Person's rights
with respect to such Inventory and Lender's right to gain access thereto;
(e) that is produced in violation of the Fair Labor Standards Act or
subject to the "hot goods" provisions contained in 29 US.C.ss.215 or any
successor statute or section;
(f) as to which any covenant, representation or warranty with respect
to such Inventory contained in the Loan Documents has been breached;
(g) that is not located in the United States;
(h) that is demonstration Inventory;
(i) that consists of proprietary software (i.e. software designed
solely for Borrower's internal use and not intended for resale);
(j) that is damaged, obsolete, returned, defective, recalled or unfit
for further processing;
(k) that has been previously exported from the United States;
(l) that constitutes defense articles or defense services;
(m) that is to be incorporated into Items destined for shipment to a
country as to which Ex-Im Bank is prohibited from doing business as designated
in the Country Limitation Schedule;
(n) that is to be incorporated into Items destined for shipment to a
Buyer located in a country in which Ex-Im Bank 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 on terms of a
letter of credit confirmed by a bank acceptable to Ex-Im Bank; or
(o) that is to be incorporated into Items whose sale would result in an
Account Receivable which would not be an Eligible Export-Related Account
Receivable.
5
"Eligible Person" shall mean a sole proprietorship, partnership,
limited liability partnership, corporation or limited liability company which
(a) is domiciled, organized, or formed, as the case may be, in the United
States; (b) is in good standing in the state of its formation or otherwise
authorized to conduct business in the United States; (c) is not currently
suspended or debarred from doing business with the United States government or
any instrumentality, division, agency or department thereof; (d) exports or
plans to export Items; (e) operates and has operated as a going concern for at
least one (1) year; (f) has a positive tangible net worth determined in
accordance with GAAP; and (g) has revenue generating operations relating to its
core business activities for at least one year.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
and the rules and regulations promulgated thereunder.
"Export Order" shall mean a written export order or contract for the
purchase by the Buyer from Borrower of any of the Items.
"Export-Related Accounts Receivable" shall mean those Accounts
Receivable arising from the sale of Items which are due and payable to Borrower
in the United States.
"Export-Related Accounts Receivable Value" shall mean, at the date of
determination thereof, the aggregate face amount of Eligible Export-Related
Accounts Receivable less taxes, discounts, credits, allowances and Retainages,
except to the extent otherwise permitted by Ex-Im Bank in writing.
"Export-Related Borrowing Base" shall mean, at the date of
determination thereof, the sum of (a) the Export-Related Inventory Value
multiplied by the Advance Rate applicable to Export-Related Inventory set forth
in Section 5(C)(1) of the Loan Authorization Agreement, (b) the Export-Related
Accounts Receivable Value multiplied by the Advance Rate applicable to
Export-Related Accounts Receivable set forth in Section 5(C)(2) of the Loan
Authorization Agreement, (c) if permitted by Ex-Im Bank in writing, the
Retainage Value multiplied by the Retainage Advance Rate set forth in Section
5(C)(3) of the Loan Authorization Agreement and (d) the Other Assets Value
multiplied by the Advance Rate applicable to Other Assets set forth in Section
5(C)(4) of the Loan Authorization Agreement.
"Export-Related Borrowing Base Certificate" shall mean a certificate in
the form provided or approved by Lender, executed by Borrower and delivered to
Lender pursuant to the Loan Documents detailing the Export-Related Borrowing
Base supporting the Credit Accommodations which reflects, to the extent included
in the Export-Related Borrowing Base, Export-Related Accounts Receivable,
Eligible Export-Related Accounts Receivable, Export-Related Inventory and
Eligible Export-Related Inventory balances that have been reconciled with
Borrower's general ledger, Accounts Receivable aging report and Inventory
schedule.
"Export-Related General Intangibles" shall mean those General
Intangibles necessary or desirable to or for the disposition of Export-Related
Inventory.
"Export-Related Inventory" shall mean the Inventory of Borrower located
in the United States that has been purchased, manufactured or otherwise acquired
by Borrower for resale pursuant to Export Orders.
6
"Export-Related Inventory Value" shall mean, at the date of
determination thereof, the lower of cost or market value of Eligible
Export-Related Inventory of Borrower as determined in accordance with GAAP.
"Final Disbursement Date" shall mean, unless subject to an extension of
such date agreed to by Ex-Im Bank, the last date on which Lender may make a
Disbursement set forth in Section 10 of the Loan Authorization Agreement or, if
such date is not a Business Day, the next succeeding Business Day; provided,
however, to the extent that Lender has not received cash collateral or an
indemnity with respect to Letter of Credit Obligations outstanding on the Final
Disbursement Date, the Final Disbursement Date with respect to an advance to
fund a drawing under a Letter of Credit shall be no later than thirty (30)
Business Days after the expiry date of the Letter of Credit related thereto.
"GAAP" shall mean the generally accepted accounting principles issued
by the American Institute of Certified Public Accountants as in effect from time
to time.
"General Intangibles" shall mean all intellectual property and other
"general intangibles" (as such term is defined in the UCC) necessary or
desirable to or for the disposition of Inventory.
"Guarantor" shall mean each Person, if any, identified in Section 3 of
the Loan Authorization Agreement who shall guarantee (jointly and severally if
more than one) the payment and performance of all or a portion of the Loan
Facility Obligations.
"Guaranty Agreement" shall mean a valid and enforceable agreement of
guaranty executed by each Guarantor in favor of Lender.
"Inventory" shall mean all "inventory" (as such term is defined in the
UCC), now or hereafter owned or acquired by Borrower, wherever located,
including all inventory, merchandise, goods and other personal property which
are held by or on behalf of Borrower for sale or lease or are furnished or are
to be furnished under a contract of service or which constitute raw materials,
work in process or materials used or consumed or to be used or consumed in
Borrower's business or in the processing, production, packaging, promotion,
delivery or shipping of the same, including other supplies.
"ISP" shall mean the International Standby Practices-ISP98,
International Chamber of Commerce Publication No. 590 and any amendments and
revisions thereof.
"Issuing Bank" shall mean the bank that issues a Letter of Credit,
which bank is Lender itself or a bank that Lender has caused to issue a Letter
of Credit by way of guarantee.
"Items" shall mean the finished goods or services which are intended
for export from the United States, as specified in Section 4(A) of the Loan
Authorization Agreement.
"Letter of Credit" shall mean a Commercial Letter of Credit or a
Standby Letter of Credit.
"Letter of Credit Obligations" shall mean all outstanding obligations
incurred by Lender, whether direct or indirect, contingent or otherwise, due or
not due, in connection with the issuance or guarantee by Lender or the Issuing
Bank of Letters of Credit.
7
"Lien" shall mean any mortgage, security deed or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, security title, easement or encumbrance, or preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever (including any lease or title retention agreement, any financing
lease having substantially the same economic effect as any of the foregoing, and
the filing of, or agreement to give, any financing statement perfecting a
security interest under the UCC or comparable law of any jurisdiction) by which
property is encumbered or otherwise charged.
"Loan Agreement" shall mean a valid and enforceable agreement between
Lender and Borrower setting forth the terms and conditions of the Loan Facility.
"Loan Authorization Agreement" shall mean the Loan Authorization
Agreement entered into between Lender and Ex-Im Bank or the Loan Authorization
Notice setting forth certain terms and conditions of the Loan Facility, a copy
of which is attached hereto as Annex A.
"Loan Authorization Notice" shall mean the Loan Authorization Notice
executed by Lender and delivered to Ex-Im Bank in accordance with the Delegated
Authority Letter Agreement setting forth the terms and conditions of each Loan
Facility.
"Loan Documents" shall mean the Loan Authorization Agreement, the Loan
Agreement, this Agreement, each promissory note (if applicable), each Guaranty
Agreement, and all other instruments, agreements and documents now or hereafter
executed by Borrower or any Guarantor evidencing, securing, guaranteeing or
otherwise relating to the Loan Facility or any Credit Accommodations made
thereunder.
"Loan Facility" shall mean the Revolving Loan Facility, the Transaction
Specific Loan Facility or the Transaction Specific Revolving Loan Facility
established by Lender in favor of Borrower under the Loan Documents.
"Loan Facility Obligations" shall mean all loans, advances, debts,
expenses, fees, liabilities, and obligations for the performance of covenants,
tasks or duties or for payment of monetary amounts (whether or not such
performance is then required or contingent, or amounts are liquidated or
determinable) owing by Borrower to Lender, of any kind or nature, present or
future, arising in connection with the Loan Facility.
"Loan Facility Term" shall mean the number of months from the Effective
Date to the Final Disbursement Date as originally set forth in the Loan
Authorization Agreement.
"Master Guarantee Agreement" shall mean the Master Guarantee Agreement
between Ex-Im Bank and Lender, as amended, modified, supplemented and restated
from time to time.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, assets, operations, prospects or financial or other condition of
Borrower or any Guarantor, (b) Borrower's ability to pay or perform the Loan
Facility Obligations in accordance with the terms thereof, (c) the Collateral or
Lender's Liens on the Collateral or the priority of such Lien or (d) Lender's
rights and remedies under the Loan Documents.
8
"Maximum Amount" shall mean the maximum principal balance of Credit
Accommodations that may be outstanding at any time under the Loan Facility
specified in Section 5(A) of the Loan Authorization Agreement.
"Other Assets" shall mean the Collateral, if any, described in Section
5(C)(4) of the Loan Authorization Agreement.
"Other Assets Value" shall mean, at the date of determination thereof,
the value of the Other Assets as determined in accordance with GAAP.
"Permitted Liens" shall mean (a) Liens for taxes, assessments or other
governmental charges or levies not delinquent, or, being contested in good faith
and by appropriate proceedings and with respect to which proper reserves have
been taken by Borrower; provided, that, the Lien shall have no effect on the
priority of the Liens in favor of Lender or the value of the assets in which
Lender has such a Lien and a stay of enforcement of any such Lien shall be in
effect; (b) deposits or pledges securing obligations under worker's
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) deposits or pledges securing bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of Borrower's business; (d) judgment Liens that
have been stayed or bonded; (e) mechanics', workers', materialmen's or other
like Liens arising in the ordinary course of Borrower's business with respect to
obligations which are not due; (f) Liens placed upon fixed assets hereafter
acquired to secure a portion of the purchase price thereof, provided, that, any
such Lien shall not encumber any other property of Borrower; (g) security
interests being terminated concurrently with the execution of the Loan
Documents; (h) Liens in favor of Lender securing the Loan Facility Obligations;
and (i) Liens disclosed in Section 6(D) of the Loan Authorization Agreement.
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability partnership, joint venture, trust, unincorporated
organization, association, corporation, limited liability company, institution,
public benefit corporation, entity or government (whether national, federal,
provincial, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof), and shall
include such Person's successors and assigns.
"Principals" shall mean any officer, director, owner, partner, key
employee, or other Person with primary management or supervisory
responsibilities with respect to Borrower or any other Person (whether or not an
employee) who has critical influence on or substantive control over the
transactions covered by this Agreement.
"Retainage" shall mean that portion of the purchase price of an Export
Order that a Buyer is not obligated to pay until the end of a specified period
of time following the satisfactory performance under such Export Order.
"Retainage Accounts Receivable" shall mean those portions of Eligible
Export-Related Accounts Receivable arising out of a Retainage.
9
"Retainage Advance Rate" shall mean the percentage rate specified in
Section 5(C)(3) of the Loan Authorization Agreement as the Advance Rate for the
Retainage Accounts Receivable of Borrower.
"Retainage Value" shall mean, at the date of determination thereof, the
aggregate face amount of Retainage Accounts Receivable, less taxes, discounts,
credits and allowances, except to the extent otherwise permitted by Ex-Im Bank
in writing.
"Revolving Loan Facility" shall mean the credit facility or portion
thereof established by Lender in favor of Borrower for the purpose of providing
pre-export working capital in the form of loans and/or Letters of Credit to
finance the manufacture, production or purchase and subsequent export sale of
Items pursuant to Loan Documents under which Credit Accommodations may be made
and repaid on a continuous basis based solely on the Export-Related Borrowing
Base during the term of such credit facility.
"Special Conditions" shall mean those conditions, if any, set forth in
Section 13 of the Loan Authorization Agreement.
"Specific Export Orders" shall mean those Export Orders specified in
Section 5(D) of the Loan Authorization Agreement.
"Standby Letter of Credit" shall mean those letters of credit subject
to the ISP or UCP issued or caused to be issued by Lender for Borrower's account
that can be drawn upon by a Buyer only if Borrower fails to perform all of its
obligations with respect to an Export Order.
"Transaction Specific Loan Facility" shall mean a credit facility or a
portion thereof established by Lender in favor of Borrower for the purpose of
providing pre-export working capital in the form of loans and/or Letters of
Credit to finance the manufacture, production or purchase and subsequent export
sale of Items pursuant to Loan Documents under which Credit Accommodations are
made based solely on the Export-Related Borrowing Base relating to Specific
Export Orders and once such Credit Accommodations are repaid they may not be
reborrowed.
"Transaction Specific Revolving Loan Facility" shall mean a Revolving
Credit Facility established to provide financing of Specific Export Orders.
"UCC" shall mean the Uniform Commercial Code as the same may be in
effect from time to time in the jurisdiction in which Borrower or Collateral is
located.
"UCP" shall mean the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No. 500
and any amendments and revisions thereof.
"U.S." or "United States" shall mean the United States of America and
its territorial possessions.
10
"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.
"Warranty" shall mean Borrower's guarantee to Buyer that the Items will
function as intended during the warranty period set forth in the applicable
Export Order.
"Warranty Letter of Credit" shall mean a Standby Letter of Credit which
is issued or caused to be issued by Lender to support the obligations of
Borrower with respect to a Warranty or a Standby Letter of Credit which by its
terms becomes a Warranty Letter of Credit.
1.02 Rules of Construction. For purposes of this Agreement, the following
additional rules of construction shall apply, unless specifically indicated to
the contrary: (a) wherever from the context it appears appropriate, each term
stated in either the singular or plural shall include the singular and the
plural, and pronouns stated in the masculine, feminine or neuter gender shall
include the masculine, the feminine and the neuter; (b) the term "or" is not
exclusive; (c) the term "including" (or any form thereof) shall not be limiting
or exclusive; (d) all references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations; (e)
the words "this Agreement", "herein", "hereof", "hereunder" or other words of
similar import refer to this Agreement as a whole including the schedules,
exhibits, and annexes hereto as the same may be amended, modified or
supplemented; (f) all references in this Agreement to sections, schedules,
exhibits, and annexes shall refer to the corresponding sections, schedules,
exhibits, and annexes of or to this Agreement; and (g) all references to any
instruments or agreements, including references to any of the Loan Documents, or
the Delegated Authority Letter Agreement shall include any and all
modifications, amendments and supplements thereto and any and all extensions or
renewals thereof to the extent permitted under this Agreement.
1.03 Incorporation of Recitals. The Recitals to this Agreement are incorporated
into and shall constitute a part of this Agreement.
ARTICLE II
OBLIGATIONS OF BORROWER
Until payment in full of all Loan Facility Obligations and termination
of the Loan Documents, Borrower agrees as follows:
2.01 Use of Credit Accommodations. (a) Borrower shall use Credit Accommodations
only for the purpose of enabling Borrower to finance the cost of manufacturing,
producing, purchasing or selling the Items. Borrower may not use any of the
Credit Accommodations for the purpose of: (i) servicing or repaying any of
Borrower's pre-existing or future indebtedness unrelated to the Loan Facility
(unless approved by Ex-Im Bank in writing); (ii) acquiring fixed assets or
capital goods for use in Borrower's business; (iii) acquiring, equipping or
renting commercial space outside of the United States; (iv) paying the salaries
of non U.S. citizens or non-U.S. permanent residents who are located in offices
outside of the United States; or (v) in connection with a Retainage or Warranty
(unless approved by Ex-Im Bank in writing).
11
(b) In addition, no Credit Accommodation may be used to finance the manufacture,
purchase or sale of any of the following:
(i) Items to be sold or resold to a Buyer located in a country
as to which Ex-Im Bank is prohibited from doing business as designated in the
Country Limitation Schedule;
(ii) 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;
(iii) defense articles or defense services; or
(iv) without Ex-Im Bank'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.
2.02 Loan Documents and Loan Authorization Agreement. (a) Each Loan Document and
this Agreement have been duly executed and delivered on behalf of Borrower, and
each such Loan Document and this Agreement are and will continue to be a legal
and valid obligation of Borrower, enforceable against it in accordance with its
terms.
(b) Borrower shall comply with all of the terms and conditions of the Loan
Documents, this Agreement and the Loan Authorization Agreement.
2.03 Export-Related Borrowing Base Certificates and Export Orders. In order to
receive Credit Accommodations under the Loan Facility, Borrower shall have
delivered to Lender an Export-Related Borrowing Base Certificate as frequently
as required by Lender but at least within the past thirty (30) calendar days and
a copy of the Export Order(s) (or, for Revolving Loan Facilities, if permitted
by Lender, a written summary of the Export Orders) against which Borrower is
requesting Credit Accommodations. If Lender permits summaries of Export Orders,
Borrower shall also deliver promptly to Lender copies of any Export Orders
requested by Lender. In addition, so long as there are any Credit Accommodations
outstanding under the Loan Facility, Borrower shall deliver to Lender at least
once each month no later than the twentieth (20th) day of such month or more
frequently as required by the Loan Documents, an Export-Related Borrowing Base
Certificate.
2.04 Exclusions from the Export-Related Borrowing Base. In determining the
Export-Related Borrowing Base, Borrower shall exclude therefrom Inventory which
is not Eligible Export-Related Inventory and Accounts Receivable which are not
Eligible Export-Related Accounts Receivable. Borrower shall promptly, but in any
event within five (5) Business Days, notify Lender (a) if any then existing
Export-Related Inventory no longer constitutes Eligible Export-Related Inventory
or (b) of any event or circumstance which to Borrower's knowledge would cause
Lender to consider any then existing Export-Related Accounts Receivable as no
longer constituting an Eligible Export-Related Accounts Receivable.
2.05 Financial Statements. Borrower shall deliver to Lender the financial
statements required to be delivered by Borrower in accordance with Section 11 of
the Loan Authorization Agreement.
12
2.06 Schedules, Reports and Other Statements. Borrower shall submit to 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. Borrower shall also furnish to Lender promptly
upon request such information, reports, contracts, invoices and other data
concerning the Collateral as Lender may from time to time specify.
2.07 Additional Security or Payment. (a) Borrower shall at all times ensure that
the Export-Related Borrowing Base equals or exceeds the Credit Accommodation
Amount. If informed by Lender or if Borrower otherwise has actual knowledge that
the Export-Related Borrowing Base is at any time less than the Credit
Accommodation Amount, Borrower shall, within five (5) Business Days, either (i)
furnish additional Collateral to Lender, in form and amount satisfactory to
Lender and Ex-Im Bank or (ii) pay to Lender an amount equal to the difference
between the Credit Accommodation Amount and the Export-Related Borrowing Base.
(b) For purposes of this Agreement, in determining the Export-Related
Borrowing Base there shall be deducted from the Export-Related Borrowing Base
(i) an amount equal to twenty-five percent (25%) of the outstanding face amount
of Commercial Letters of Credit and Standby Letters of Credit and (ii) one
hundred percent (100%) of the face amount of Warranty Letters of Credit less the
amount of cash collateral held by Lender to secure Warranty Letters of Credit.
(c) Unless otherwise approved in writing by Ex-Im Bank, for Revolving Loan
Facilities (other than Transaction Specific Revolving Loan Facilities), Borrower
shall at all times ensure that the outstanding principal balance of the Credit
Accommodations that is supported by Export-Related Inventory does not exceed
sixty percent (60%) of the sum of the total outstanding principal balance of the
Disbursements and the undrawn face amount of all outstanding Commercial Letters
of Credit. If informed by Lender or if Borrower otherwise has actual knowledge
that the outstanding principal balance of the Credit Accommodations that is
supported by Inventory exceeds sixty percent (60%) of the sum of the total
outstanding principal balance of the Disbursements and the undrawn face amount
of all outstanding Commercial Letters of Credit, Borrower shall, within five (5)
Business Days, either (i) furnish additional non-Inventory Collateral to Lender,
in form and amount satisfactory to Lender and Ex-Im Bank, or (ii) pay down the
applicable portion of the Credit Accommodations so that the above described
ratio is not exceeded.
2.08 Continued Security Interest. Borrower shall not change (a) its name or
identity in any manner, (b) the location of its principal place of business, (c)
the location of any of the Collateral or (d) the location of any of the books or
records related to the Collateral, in each instance without giving thirty (30)
days prior written notice thereof to Lender and taking all actions deemed
necessary or appropriate by Lender to continuously protect and perfect Lender's
Liens upon the Collateral.
2.09 Inspection of Collateral. Borrower shall permit the representatives of
Lender and Ex-Im Bank to make at any time during normal business hours
inspections of the Collateral and of Borrower's facilities, activities, and
books and records, and shall cause its officers and employees to give full
cooperation and assistance in connection therewith.
13
2.10 General Intangibles. Borrower represents and warrants that it owns, or is
licensed to use, all General Intangibles necessary to conduct its business as
currently conducted except where the failure of Borrower to own or license such
General Intangibles could not reasonably be expected to have a Material Adverse
Effect.
2.11 Notice of Certain Events. Borrower shall promptly, but in any event within
five (5) Business Days, notify Lender in writing of the occurrence of any of the
following:
(a) Borrower or any Guarantor (i) applies for, consents to or suffers the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or similar fiduciary of itself or of all or a substantial part of its
property or calls a meeting of its creditors, (ii) admits in writing its
inability, or is generally unable, to pay its debts as they become due or ceases
operations of its present business, (iii) makes a general assignment for the
benefit of creditors, (iv) commences a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt
or insolvent, (vi) files a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesces to, or fails to have
dismissed within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) takes any action for the
purpose of effecting any of the foregoing;
(b) any Lien in any of the Collateral, granted or intended by the Loan
Documents to be granted to Lender, ceases to be a valid, enforceable, perfected,
first priority Lien (or a lesser priority if expressly permitted pursuant to
Section 6 of the Loan Authorization Agreement) subject only to Permitted Liens;
(c) the issuance of any levy, assessment, attachment, seizure or Lien,
other than a Permitted Lien, against any of the Collateral which is not stayed
or lifted within thirty (30) calendar days;
(d) any proceeding is commenced by or against Borrower or any Guarantor
for the liquidation of its assets or dissolution;
(e) any litigation is filed against Borrower or any Guarantor which has
had or could reasonably be expected to have a Material Adverse Effect and such
litigation is not withdrawn or dismissed within thirty (30) calendar days of the
filing thereof; (f) any default or event of default under the Loan Documents;
(g) any failure to comply with any terms of the Loan Authorization
Agreement;
(h) any material provision of any Loan Document or this Agreement for any
reason ceases to be valid, binding and enforceable in accordance with its terms;
(i) any event which has had or could reasonably be expected to have a
Material Adverse Effect; or
(j) the Credit Accommodation Amount exceeds the applicable Export-Related
Borrowing Base.
14
2.12 Insurance. Borrower will at all times carry property, liability and other
insurance, with insurers acceptable to Lender, in such form and amounts, and
with such deductibles and other provisions, as Lender shall require, and
Borrower will provide evidence of such insurance to Lender, so that Lender is
satisfied that such insurance is, at all times, in full force and effect. Each
property insurance policy shall name Lender as loss payee and shall contain a
lender's loss payable endorsement in form acceptable to Lender and each
liability insurance policy shall name Lender as an additional insured. All
policies of insurance shall provide that they may not be cancelled or changed
without at least ten (10) days' prior written notice to Lender and shall
otherwise be in form and substance satisfactory to Lender. Borrower will
promptly deliver to Lender copies of all reports made to insurance companies.
2.13 Taxes. Borrower has timely filed all tax returns and reports required by
applicable law, has timely paid all applicable taxes, assessments, deposits and
contributions owing by Borrower and will timely pay all such items in the future
as they became due and payable. Borrower may, however, defer payment of any
contested taxes; provided, that Borrower (a) in good faith contests Borrower's
obligation to pay such taxes by appropriate proceedings promptly and diligently
instituted and conducted; (b) notifies Lender in writing of the commencement of,
and any material development in, the proceedings; (c) posts bonds or takes any
other steps required to keep the contested taxes from becoming a Lien upon any
of the Collateral; and (d) maintains adequate reserves therefor in conformity
with GAAP.
2.14 Compliance with Laws. Borrower represents and warrants that it has complied
in all material respects with all provisions of all applicable laws and
regulations, including those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, the payment
and withholding of taxes, ERISA and other employee matters, safety and
environmental matters.
2.15 Negative Covenants. Without the prior written consent of Ex-Im Bank and
Lender, Borrower shall not (a) merge, consolidate or otherwise combine with any
other Person; (b) acquire all or substantially all of the assets or capital
stock of any other Person; (c) sell, lease, transfer, convey, assign or
otherwise dispose of any of its assets, except for the sale of Inventory in the
ordinary course of business and the disposition of obsolete equipment in the
ordinary course of business; (d) create any Lien on the Collateral except for
Permitted Liens; (e) make any material changes in its organizational structure
or identity; or (f) enter into any agreement to do any of the foregoing.
2.16 Reborrowings and Repayment Terms. (a) If the Loan Facility is a Revolving
Loan Facility, provided that Borrower is not in default under any of the Loan
Documents, Borrower may borrow, repay and reborrow amounts under the Loan
Facility until the close of business on the Final Disbursement Date. Unless the
Revolving Loan Facility is renewed or extended by Lender with the consent of
Ex-Im Bank, Borrower shall pay in full the outstanding Loan Facility Obligations
and all accrued and unpaid interest thereon no later than the first Business Day
after the Final Disbursement Date.
(b) If the Loan Facility is a Transaction Specific Loan Facility, Borrower
shall, within two (2) Business Days of the receipt thereof, pay to Lender (for
application against the outstanding Loan Facility Obligations and accrued and
unpaid interest thereon) all checks, drafts, cash and other
15
remittances it may receive in payment or on account of the Export-Related
Accounts Receivable or any other Collateral, in precisely the form received
(except for the endorsement of Borrower where necessary). Pending such deposit,
Borrower shall hold such amounts in trust for Lender separate and apart and
shall not commingle any such items of payment with any of its other funds or
property.
2.17 Cross Default. Borrower shall be deemed in default under the Loan Facility
if Borrower fails to pay when due any amount payable to Lender under any loan or
other credit accommodations to Borrower whether or not guaranteed by Ex-Im Bank.
2.18 Munitions List. If any of the 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), Borrower shall send a written
notice promptly, but in any event within five (5) Business Days, of Borrower
learning thereof to Lender describing the Items(s) and the corresponding invoice
amount.
2.19 Suspension and Debarment, etc. On the date of this Agreement neither
Borrower nor its Principals are (a) debarred, suspended, proposed for debarment
with a final determination still pending, declared ineligible or voluntarily
excluded (as such terms are defined under any of the Debarment Regulations
referred to below) from participating in procurement or nonprocurement
transactions with any United States federal government department or agency
pursuant to any of the Debarment Regulations or (b) indicted, convicted or had a
civil judgment rendered against Borrower or any of its Principals for any of the
offenses listed in any of the Debarment Regulations. Unless authorized by Ex-Im
Bank, Borrower will not knowingly enter into any transactions in connection with
the Items with any person who is debarred, suspended, declared ineligible or
voluntarily excluded from participation in procurement or nonprocurement
transactions with any United States federal government department or agency
pursuant to any of the Debarment Regulations. Borrower will provide immediate
written notice to Lender if at any time it learns that the certification set
forth in this Section 2.19 was erroneous when made or has become erroneous by
reason of changed circumstances.
ARTICLE III
RIGHTS AND REMEDIES
3.01 Indemnification. Upon Ex-Im Bank's payment of a Claim to Lender in
connection with the Loan Facility pursuant to the Master Guarantee Agreement,
Ex-Im Bank may assume all rights and remedies of Lender under the Loan Documents
and may enforce any such rights or remedies against Borrower, the Collateral and
any Guarantors. Borrower shall hold Ex-Im Bank and 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 Borrower or its agent to
Ex-Im Bank or Lender in connection with the Loan Facility, this Agreement, the
Loan Authorization Agreement or any other Loan Documents or (b) any material
breach by Borrower of the terms and conditions of this Agreement, the Loan
Authorization Agreement or any of the other Loan Documents. Borrower also
acknowledges that any statement, certification or representation made by
Borrower in connection with the Loan Facility is subject to the penalties
provided in Article 18 U.S.C. Section 1001.
16
3.02 Liens. Borrower agrees that any and all Liens granted by it to Lender are
also hereby granted to Ex-Im Bank to secure Borrower's obligation, however
arising, to reimburse Ex-Im Bank for any payments made by Ex-Im Bank pursuant to
the Master Guarantee Agreement. Lender is authorized to apply the proceeds of,
and recoveries from, any property subject to such Liens to the satisfaction of
Loan Facility Obligations in accordance with the terms of any agreement between
Lender and Ex-Im Bank.
ARTICLE IV
MISCELLANEOUS
4.01 Governing Law. This Agreement and the Loan Authorization Agreement and the
obligations arising under this Agreement and the Loan Authorization Agreement
shall be governed by, and construed in accordance with, the law of the state
governing the Loan Documents.
4.02 Notification. All notices required by this Agreement shall be given in the
manner and to the parties provided for in the Loan Agreement.
4.03 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.
4.04 Waiver of Jury Trial. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION BROUGHT TO RESOLVE
ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT,
THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR ANY OTHER AGREEMENT,
DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH
OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR
WRITTEN), OR ACTIONS OR OMISSIONS OF LENDER, EX-IM BANK, OR ANY OTHER PERSON,
RELATING TO THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT OR ANY OTHER LOAN
DOCUMENT.
17
IN WITNESS WHEREOF, Borrower has caused this Agreement to be duly
executed as of the 5th day of April, 2001.
Adept Technology, Inc.
(Name of Borrower)
By: /s/ Michael W. Overby
------------------------
(Signature)
Name: Michael W. Overby
----------------------
(Print or Type)
Title: V.P. and CFO
--------------
(Print or Type)
ACKNOWLEDGED:
The CIT Group/Commercial Services, Inc.
on behalf of its affiliate The CIT Group/Business Credit, Inc.
(Name of Lender)
By: /s/ Kelly Wu
---------------
(Signature)
Name: Kelly Wu
----------
(Print or Type)
Title: VP
----
(Print or Type)
18
ANNEXES:
Annex A - Loan Authorization Agreement or Loan Authorization Notice
ON FILE WITH CIT
19
[NOT APPLICABLE]
CONSENT OF GUARANTORS
Each of the undersigned as a Guarantor of the obligations of Borrower
to the Lender executing the foregoing Agreement hereby agrees that the foregoing
Agreement, each of their respective Guaranty Agreements and each other Loan
Documents may be assigned to the Export-Import Bank of the United States.
-------------------------------
[INDIVIDUAL GUARANTOR]
[CORPORATE GUARANTOR]
By:____________________________
Name:__________________________
Title:_________________________
20
EX-10
5
p14376_ex10-36.txt
EXHIBIT 10.36/LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT
(NON-EXIM FACILITY)
This Agreement is between the undersigned Borrower and the undersigned Lender
concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. PARTIES
1.1 "BORROWER" is identified in Section 10.5(B) and includes successors
and assigns. If more than one Borrower is specified in Section 10.5(B), all
references to Borrower shall mean each of them, jointly and severally,
individually and collectively, and the successors and assigns of each.
1.2 "LENDER" shall mean THE CIT GROUP/BUSINESS CREDIT, INC. and its
agents, designees, representatives, successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("REVOLVING LOANS") in
amounts requested by Borrower from time to time, but not in excess of the then
existing Net Availability and provided the requested loan would not cause the
outstanding Obligations to exceed the Maximum Credit. Subject to the terms and
conditions set forth in this Agreement, Revolving Loans may be Prime Rate Loans,
LIBOR Loans or any combination thereof.
(a) "MAXIMUM CREDIT" shall have the meaning set forth in
Section 10.1(a).
(b) "GROSS AVAILABILITY" is at any time (i) the product of the
outstanding amount of Eligible Accounts multiplied by the Eligible Accounts
Percentage set forth in Section 10.1(b) minus (ii) Reserves.
(c) "NET AVAILABILITY" shall mean an amount equal to the then
Gross Availability minus the aggregate amount of all Obligations other than the
then outstanding principal balance of EXIM Revolving Loans (as defined in
Section 10.7).
(d) "ELIGIBLE ACCOUNTS" shall mean the accounts created by
Borrower in the ordinary course of business which are and remain acceptable to
Lender and (1) which have not remained unpaid for more than the number of days
after the invoice date set forth in Section 10.1(d); (2) which are absolutely
owing to Borrower and payment is not conditional or contingent (such as
consignments, guaranteed sales or right of return or other similar terms); (3)
which are owed by an account debtor having a chief executive office or principal
place of business is located in the United States and such accounts are not
"Eligible Accounts" under and as defined in the EXIM Loan Agreement; (4) which
do not arise from progress billings, retainages or bill and hold sales; (5)
which are not subject to contras, setoffs, counterclaims or disputes and with
respect to which there are no other facts existing or threatened which would
impair or delay the collectibility of all or any portion thereof, or which might
result in any adverse change in the account debtor's financial condition; (6)
with respect to which the goods
-1-
giving rise thereto were not at the time of the sale subject to any liens except
those permitted in this Agreement; (7) which are not due from any (x) entity
affiliated (directly or indirectly) with Borrower, or (y) any officer, employee,
shareholder or agent of Borrower or any affiliate thereof; (8) with respect to
which there has been compliance with the Assignment of Claims Act or similar
State or local law, if applicable, if the account debtor is the United States or
any domestic governmental unit; (9) with respect to which Borrower has delivered
to Lender such documents as Lender may have requested pursuant to Section 5.9
hereof and Lender shall have received satisfactory verifications of such
accounts; (10) the account debtor owing such accounts (together with such
account debtor's affiliates) does not owe more than twenty percent (20%) of all
Eligible Accounts (the amount exceeding twenty percent (20%) shall not be
eligible); (11) which are owed by an account debtor if more than fifty percent
(50%) of the accounts owed by such account debtor are unpaid after the invoice
date for more than the number of days set forth in Section 10.1 (D); and (12)
which are owed by an account debtor deemed creditworthy at all times by Lender
in its reasonable business judgment.
(e) Intentionally Deleted.
(f) Lender shall have a continuing right to reduce Gross
Availability by implementing reserves ("RESERVES"), and to increase and decrease
such Reserves, if and to the extent that, in Lender's sole judgment reasonably
exercised, such Reserves are necessary to protect Lender against any state of
facts which does, or would, with notice or passage of time or both, constitute
an Event of Default or have an adverse effect on any Collateral.
2.2 Intentionally Deleted.
2.3 Borrowing of LIBOR Loans. Upon not less than three (3) Eurodollar
Business Days' irrevocable written notice from Borrower to Lender (each, a
"NOTICE OF LIBOR BORROWING"), Borrower shall have the right, subject to the
terms and conditions of this Agreement, to request on that portion of any Loan
be made as LIBOR Loans, to request that any LIBOR Loans be continued as LIBOR
Loans or to request that all or any portion of the Prime Rate Loans be converted
into LIBOR Loans, which notice shall in each case specify:
(i) the date on which such LIBOR Loans are to be made or
continued as such or the date on which such Prime Rate Loans are to be
converted into LIBOR Loans, as applicable (which day shall in each case
be a Eurodollar Business Day);
(ii) the aggregate principal amount of such loans that are to
be made or continued as, or converted into, LIBOR Loans, as applicable
(which, in the case of each such LIBOR Loan, shall be at least equal to
$1,000,000 or any larger multiple of $1,000,000); and
(iii) the Interest Period applicable to such LIBOR Loan.
If Borrower shall not have delivered a Notice of LIBOR Borrowing with respect to
any outstanding LIBOR Loan as set forth above in this paragraph within three (3)
Eurodollar Business Days' prior to the end of the Interest Period for such LIBOR
Loan, such LIBOR Loan
-2-
shall, without any further action required by Borrower or Lender, be converted
into a Prime Rate Loan effective from and after the last day of such Interest
Period. Notwithstanding the foregoing, (x) no more than three (3) separate
Interest Periods in respect of LIBOR Loans may be outstanding at any one time,
and (y) upon the occurrence and during the continuance of an Event of Default,
Borrower shall not have the right to submit a Notice of LIBOR Borrowing and all
then existing LIBOR Loans shall be converted to Prime Rate Loans.
Notwithstanding anything to the contrary contained herein, Lender (or any
participant, if applicable) shall not be required to purchase United States
Dollar deposits in the London interbank market or from any other applicable
LIBOR market or source or otherwise "match fund" to fund LIBOR Loans, but any
and all provisions hereof relating to LIBOR Loans shall be deemed to apply as if
Lender (and any participant, if applicable) had purchased such deposits to fund
any LIBOR Loans. Lender shall be entitled to charge the Borrower a $500 fee upon
the first effective day of any such election for a LIBOR Loan.
2.4 Additional Provisions Relating to LIBOR Loans.
(a) If, after the date of this Agreement, any change in any
law or the application of the requirements thereof (whether such change occurs
in accordance with the terms of such law as enacted, as a result of amendment or
otherwise), any change in the interpretation or administration of any law by any
governmental authority, or compliance by Lender with any request or directive
(whether or not having the force of law) of any governmental authority (each, a
"CHANGE OF LAW"):
(i) shall subject Lender to any tax, duty or other
charge with respect to any LIBOR Loan, or shall change the basis of
taxation of payments by Borrower to Lender on such LIBOR Loan under
this Agreement (except for changes in the rate of taxation on the
overall net income of Lender); or
(ii) shall impose, modify or hold applicable any
reserve, special deposit or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by Lender for any LIBOR
Loan; or
(iii) shall impose on Lender any other condition
related to any LIBOR Loan;
and the effect of any of the foregoing is to increase the cost to Lender of
making, renewing, or maintaining any such LIBOR Loan or to reduce any amount
receivable by Lender hereunder; then Borrower shall from time to time, upon
demand by Lender, pay to Lender additional amounts sufficient to reimburse
Lender for such increased costs or to compensate Lender for such reduced
amounts. A certificate as to the amount of such increased costs or reduced
amounts, submitted by Lender to Borrower shall, in the absence of manifest
error, be conclusive and binding on Borrower for all purposes.
(b) If, after the date of this Agreement, Lender determines
that (i) any Change of Law affects the amount of capital required or expected to
be maintained by Lender or any entity controlling Lender (a "CAPITAL ADEQUACY
REQUIREMENT") and (ii) the amount of capital
-3-
maintained by Lender or such entity which is attributable to or based upon the
extensions of credit under this Agreement must be increased as a result of such
Capital Adequacy Requirement (taking into account Lender's or such entity's
policies with respect to capital adequacy), Borrower shall pay to Lender or such
entity, upon demand of Lender, such amounts as Lender or such entity shall
determine are necessary to compensate Lender or such entity for the increased
costs to Lender or such entity of such increased capital. A certificate of
Lender setting forth in reasonable detail the computation of any such increased
costs, delivered by Lender to Borrower shall, in the absence of manifest error,
be conclusive and binding on Borrower for all purposes.
(c) If on or prior to the first day of any Interest Period for
any LIBOR Loan:
(i) Lender determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR" in Section 3.1 are not being
provided in the relevant amounts for the relevant maturities for
purposes of determining rates of interest for LIBOR Loans as provided
in this Agreement, or
(ii) Lender determines, which determination shall be
conclusive, that LIBOR will not adequately and fairly reflect the cost
to Lender of making or maintaining any LIBOR Loan for such Interest
Period,
then Lender shall give prompt notice of such determination to Borrower and, so
long as such condition remains in effect, the Lender shall be under no
obligation to make additional LIBOR Loans, to continue LIBOR Loans or to convert
Prime Rate Loans into LIBOR Loans, and Borrower shall, on the last day or days
of the then current Interest Period or Periods for the outstanding LIBOR Loans,
either prepay such LIBOR Loans or convert such LIBOR Loans into Prime Rate Loans
in accordance with Section 2.3.
(d) Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful or, by reason of a Change of Law, impossible
for Lender to honor its obligation to make or maintain LIBOR Loans, then Lender
shall promptly notify Borrower of such event and Lender's obligation to make or
to continue LIBOR Loans, or to convert Prime Rate Loans into LIBOR Loans shall
be suspended until such time as Lender may again make and maintain LIBOR Loans.
(e) If all or a portion of the outstanding principal amount of
the Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a LIBOR
Loan, shall be automatically converted to a Prime Rate Loan on the next
succeeding Business Day.
(f) The Borrower agrees to indemnify and to hold Lender
(including any participant ) harmless from any loss or expense which Lender or
such participant may sustain or incur as a consequence of: (i) an Event of
Default due to Borrower's failure to make payment of the principal amount of or
interest on any LIBOR Loans, as and when the same shall be due and payable in
accordance with the terms of this Agreement, including, but not limited to, any
such loss or expense arising from interest or fees payable by Lender or such
participant to lenders of
-4-
funds obtained by either of them in order to maintain the LIBOR Loans hereunder;
(ii) default by the Borrower in making a borrowing or conversion after the
Borrower has given a Notice of LIBOR Borrowing; (iii) any prepayment of LIBOR
Loans on a day which is not the last day of the Interest Period applicable
thereto, including, without limitation, prepayments arising as a result of the
application of the proceeds of Collateral to the Revolving Loans; and (iv)
default by the Borrower in making any prepayment after the Borrower had given
notice to Lender thereof. The determination by Lender of the amount of any such
loss or expense, when set forth in a written notice to the Borrower, containing
Lender's calculations thereof in reasonable detail, shall be conclusive on the
Borrower in the absence of manifest error. Calculation of all amounts payable
under this paragraph with regard to LIBOR Loans shall be made as though Lender
had actually funded the LIBOR Loans through the purchase of deposits in the
relevant market and currency, as the case may be, bearing interest at the rate
applicable to such LIBOR Loans in an amount equal to the amount of the LIBOR
Loans and having a maturity comparable to the relevant interest period;
provided, however, that Lender may fund each of the LIBOR Loans in any manner
Lender sees fit and the foregoing assumption shall be used only for calculation
of amounts payable under this paragraph. In addition, notwithstanding anything
to the contrary contained herein, Lender shall apply all proceeds of Collateral
and all other amounts received by it from or on behalf of the Borrower (A)
initially to the Prime Rate Loans and (B) subsequently to LIBOR Loans; provided,
however, (1) upon the occurrence of an Event of Default or (2) in the event the
aggregate amount of outstanding Loans exceeds Net Availability or the applicable
maximum levels set forth therefor, Lender may apply all such amounts received by
it to the payment of Obligations in such manner and in such order as Lender may
elect in its reasonable business judgment. In the event that any such amounts
are applied to Revolving Loans which are LIBOR Loans, such application shall be
treated as a prepayment of such loans and Lender shall be entitled to
indemnification hereunder. This covenant shall survive termination of this
Agreement and payment of the outstanding Obligations.
2.5 Accommodations. Lender may, in its sole discretion reasonably
exercised, issue or cause to be issued, from time to time at Borrower's request
and on terms and conditions and for purposes satisfactory to Lender, credit
accommodations consisting of letters of credit, bankers' acceptances,
merchandise purchase guaranties or other guaranties or indemnities for
Borrower's account ("ACCOMMODATIONS"). Any payments made by Lender in connection
with the Accommodations shall constitute additional Revolving Loans to Borrower.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest shall accrue on the principal amount of the
Revolving Loans at the following rates: (i) during such periods as any such
Obligation is a Prime Rate Loan, at a fluctuating rate per annum equal to the
per annum rate set forth as the Interest Rate in Section 10.3(A); and (ii)
during such periods as any such Obligation is a LIBOR Loan, for each Interest
Period, at the per annum rate set forth as the Interest Rate in Section 10.3(B).
The Interest Rate on all Prime Rate Loans shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate (as
defined below) effective as of the date of each such change. Interest on all
Obligations shall be calculated upon the closing daily outstanding principal
balances in the loan account(s) of Borrower for each day during the immediately
-5-
preceding month and shall be payable by Borrower on the first day of each month
and, in the case of LIBOR Loans, additionally on the last day of each Interest
Period. On and after any Event of Default or termination hereof, interest on all
Obligations shall accrue at a rate equal to two percent (2%) per annum in excess
of the Interest Rate otherwise payable until such time as all Obligations are
paid in full. In no event shall charges constituting interest exceed the rate
permitted under any applicable law or regulation, and if any provision of this
Agreement is in contravention of any such law or regulation, such provision
shall be deemed amended to conform thereto.
(b) For purposes of this Section 3.1 and each other place
where such terms appear, the following terms shall have the respective meanings
set forth below:
"EURODOLLAR BUSINESS DAY" shall mean any Business Day on which
commercial lending institutions are open for international business
(including dealings in United States Dollar deposits) in London.
"EUROCURRENCY RESERVE REQUIREMENTS" for any day, as applied to
a LIBOR Loan, shall mean the aggregate (without duplication) of the
maximum rates of reserve requirements (expressed as a decimal fraction)
in effect with respect to Lender and/or any present or future lender or
participant on such day (including, without limitation, basic,
supplemental, marginal and emergency reserves under Regulation D or any
other applicable regulations of the Board of Governors of the Federal
Reserve System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such
Board) maintained by Lender and/or participants (such rate to be
adjusted to the nearest one sixteenth of one percent (1/16 of 1%) or,
if there is not a nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%)).
"INTEREST PERIOD" shall mean, with respect to any LIBOR Loan,
a one month, two month or three month period commencing on the date
such LIBOR Loan is made or the date on which any Obligation begins to
bear interest based upon LIBOR and ending one month, two months or
three months thereafter, as applicable, as the Borrower may elect in
the applicable Notice of LIBOR Borrowing. Notwithstanding the foregoing
(i) no Interest Period may end after the initial Term or, if
applicable, any renewal Term; (ii) each Interest Period that would
otherwise end on a day which is not a Eurodollar Business Day shall end
on the next succeeding Eurodollar Business Day or, if such next
succeeding Eurodollar Business Day falls in the next succeeding
calendar month, on the next preceding Eurodollar Business Day, (iii)
any Interest Period that begins on the last Eurodollar Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month, at the end of such Interest
Period) shall end on the last Eurodollar Business Day of a calendar
month, and (iv) no Interest Period for any LIBOR Loan shall have a
duration of less than one month and, if the Interest Period for any
such LIBOR Loan would otherwise be a shorter period, such LIBOR Loan
shall not be available under this Agreement for such period.
-6-
"LIBOR" shall mean, at any time of determination, and subject
to availability, for each applicable Interest Period, a variable rate
of interest equal to: (a) at Lender's election (i) the applicable LIBOR
quoted to Lender by The Chase Manhattan Bank (or any successor
thereof), or (ii) the rate of interest determined by Lender at which
deposits in U.S. dollars are offered for the relevant Interest Period
based on information presented on Telerate Systems at Page 3750 as of
11:00 A.M. (London time) on the day which is two (2) Business Days
prior to the first day of such Interest Period, provided that, if at
least two such offered rates appear on the Telerate System at Page 3750
in respect of such Interest Period, the arithmetic mean of all such
rates (as determined by Lender) will be the rate used; divided by (b) a
number equal to 1.0 minus the aggregate (but without duplication) of
the rates (expressed as a decimal fraction) of Eurocurrency Reserve
Requirements in effect on the day which is two (2) Business Days prior
to the beginning of such Interest Period.
"LIBOR LOANS" shall mean Revolving Loans that bear interest at
rates based on LIBOR.
"NOTICE OF LIBOR BORROWING" shall have the meaning given to
that term in Section 2.3 of this Agreement.
"PRIME RATE" is the rate of interest publicly announced by
Chase Manhattan Bank in New York, New York, or its successors and
assigns, from time to time as its prime rate or similar such
designation (such rate is not intended to be the lowest rate of
interest charged by such bank to its borrowers).
"PRIME RATE LOANS" shall mean loans that bear interest at
rates based upon the Prime Rate.
3.2 Fees. Borrower shall pay to Lender:
(a) Closing Fee. A closing fee fully earned and payable at
closing in the amount set forth in Section 10.3(D).
(b) Intentionally Deleted.
(c) Collateral Management Fee. A collateral management fee
fully earned and payable at closing and on each anniversary thereof in the
amount set forth in Section 10.3(f).
(d) Unused Line Fee. An unused line fee payable monthly, on
the first day of each month, in arrears, for each month at the rate per annum
set forth in Section 10.3(G), calculated upon the amount, if any, by which the
Unused Line Fee Basis exceeds the average outstanding daily principal balance
during the preceding month of all Revolving Loans, EXIM Revolving Loans and
Accommodations. The "Unused Line Fee Basis" means an amount equal to (i) for the
period beginning on the Closing Date through and including March 31, 2002,
$20,000,000, (ii) for the period beginning on April 1, 2002 through and
including March 31, 2003, $22,500,000, and (iii) beginning on April 1, 2003 and
at all times thereafter, the Maximum Credit.
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SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and performance
in full of all Obligations, Borrower hereby grants to Lender a continuing
security interest in, and lien upon, the Collateral.
4.2 "OBLIGATIONS" shall mean any and all Revolving Loans, EXIM
Revolving Loans and all other indebtedness, liabilities and obligations of every
kind, nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or after
the commencement of any case with respect to Borrower under the United States
Bankruptcy Code or any similar statute, whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary, liquidated
or unliquidated, secured or unsecured, original, renewed or extended and whether
arising directly or howsoever acquired by Lender including from any other entity
outright, conditionally or as collateral security, by assignment, merger with
any other entity, participations or interests of Lender in the obligations of
Borrower to others, assumption, operation of law, subrogation or otherwise and
shall also include all amounts chargeable to Borrower under this Agreement or in
connection with any of the foregoing.
4.3 "COLLATERAL" shall mean all of the following property of Borrower:
(a) All of the Borrower's now owned and hereafter acquired:
(i) accounts (as defined in the UCC), and any and all other receivables (whether
or not specifically listed on schedules furnished to Lender), including, without
limitation, all accounts created by, or arising from, all of the Borrower's
sales, leases, rentals of goods or renditions of services to its customers,
including but not limited to, those accounts arising under any of the Borrower's
trade names or styles, or through any of the Borrower's divisions; (ii) any and
all instruments, documents, chattel paper (including electronic chattel paper);
(iii) unpaid seller's or lessor's rights (including rescission, replevin,
reclamation, repossession and stoppage in transit) relating to the foregoing or
arising therefrom; (iv) rights to any goods represented by any of the foregoing,
including rights to returned, reclaimed or repossessed goods; (v) reserves and
credit balances arising in connection with or pursuant hereto; (vi) guarantees,
supporting obligations, payment intangibles and letter of credit rights; (vii)
insurance policies or rights relating to any of the foregoing; (viii) all rights
to payment, including those arising in connection with bank and non-bank credit
cards and including any electronic media and software, pertaining to any and all
of the foregoing; (ix) notes, deposits or property of account debtors securing
the obligations of any such account debtors to the Borrower; and (x) cash and
non-cash proceeds (as defined in the UCC) of any and all of the foregoing
(herein "ACCOUNTS");
(b) All of the Borrower's now owned and hereafter acquired
inventory (as defined in the UCC) and including, without limitation, all
additions, substitutions and replacements thereof, wherever located, together
with all goods and materials used or usable in manufacturing, processing,
packaging or shipping same in all stages of production - from raw materials
through work-in-process to finished goods - and all proceeds thereof of whatever
sort (herein "INVENTORY");
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(c) to the extent related to the license granted to Lender
under Section 7.2 or as necessary, appropriate or desirable as determined by
Lender for the disposition of the Accounts and Inventory, all present and
hereafter acquired general intangibles (as defined in the UCC);
(d) Intentionally Deleted.
(e) All present and future documents (as defined in the UCC)
and any and all warehouse receipts, bills of lading, shipping documents, chattel
paper, instruments and similar documents, all whether negotiable or not and all
goods and Inventory relating thereto and all cash and non-cash proceeds of the
foregoing (herein "DOCUMENTS OF TITLE"); and
(f) All books and records of Borrower pertaining to any of the
foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower will, at its expense as Lender requests,
direct that all remittances and all other proceeds of Collateral be sent to a
lock box designated by Lender, and deposited into a bank account selected by
Lender with arrangements with the bank providing that all funds deposited in the
bank account are to be transferred solely to Lender. Borrower shall bear all
risk of loss of any funds deposited into such account. In connection therewith,
Borrower shall execute such lock box agreements as Lender shall specify. All
collections and all other proceeds of Collateral received by Borrower shall be
held in trust for Lender and immediately remitted to Lender in kind.
5.2 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due to any loan account of
Borrower maintained by Lender. Interest, fees for Accommodations, the Unused
Line Fee and any other amounts payable by Borrower to Lender based on a per
annum rate shall be calculated on the basis of actual days elapsed over a
360-day year.
5.3 Payments. All Obligations shall be payable at Lender's Office set
forth in Section 10.5(A) or at such other place as Lender may expressly
designate in writing. Lender shall apply all proceeds of Collateral received by
Lender and all other payments in respect of the Obligations to the Revolving
Loans or to any other Obligations then due, in whatever order or manner Lender
shall determine, upon the date of Lender's receipt of advice from Lender's bank
that such remittances or other payments have been credited to Lender's account
or in the case of remittances or other payments received directly in kind by
Lender, upon the date of Lender's deposit thereof at Lender's bank, subject to
final payment and collection. In consideration thereof, Lender will charge the
Borrower's account with Collection Days which shall mean the number of days set
forth in Section 10.3(C) to provide for the deposit, clearance and collection of
checks or other instruments representing the proceeds of Collateral, the amount
of which has been credited to the Borrower's loan account, and for which
interest may be charged on the aggregate amount of such deposits, at the rate
provided for in Section 10.3(a). For purposes of this Agreement, "BUSINESS DAY"
shall mean any day on which Lender and Lender's banks are open.
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5.4 Loan Account Statements. Lender shall, monthly, render to Borrower
a loan account statement which shall be considered correct and binding upon
Borrower as an account stated, except to the extent that Lender receives, within
ninety (90) days after the mailing of such statement, written notice from
Borrower of any specific exceptions to that statement.
5.5 Direct Collections. Lender may, at any time, (a) after the
occurrence of an Event of Default (unless such Event of Default has been cured
to the extent permitted hereunder), notify any account debtor that the Accounts
and other Collateral have been assigned to Lender and that payment thereof is to
be made to the order of and directly to Lender, (b) send, or cause to be sent by
its designee, requests (which may identify the sender by a pseudonym) for
verification by telephone, in writing or otherwise of Accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, (c) after the occurrence of an Event of Default (unless
such Event of Default has been cured to the extent permitted hereunder), demand,
collect or enforce payment of any Accounts or such other Collateral, but without
any duty to do so, and Lender shall not be liable for any failure to collect or
enforce payment thereof, (d) after the occurrence of an Event of Default (unless
such Event of Default has been cured to the extent permitted hereunder), take or
bring, in the name of Lender or Borrower, all actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of, or other
realization upon, the Collateral, and (e) after an Event of Default, (i) change
the address for delivery of Borrower's mail and to receive and open mail
addressed to Borrower and (ii) extend the time of payment of, compromise or
settle (for cash, credit, return of merchandise), and upon any terms or
conditions, any and all Accounts or other Collateral and discharge or release
the account debtor or other obligor. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the Accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.6 Attorney-in-Fact. Borrower hereby appoints Lender as Borrower's
attorney-in-fact and authorizes Lender at Borrower's sole expense to exercise at
any time in Lender's discretion reasonably exercised all or any powers necessary
for Lender to obtain information about the Collateral or to enforce Lender's
rights which appointment and authorization shall be irrevocable until the
Obligations have been paid in full and Lender has no further obligation to
provide financial accommodations to Borrower.
5.7 Liability. Borrower hereby releases and exculpates Lender, its
officers, agents and employees from any liability arising from any acts under
this Agreement or in furtherance thereof except for gross negligence or willful
misconduct. Lender will not have any liability to Borrower for lost profits or
other special or consequential damages.
5.8 Administration of Accounts. After written notice by Lender to
Borrower or without notice after an Event of Default, Borrower shall not (a)
amend, modify, settle or compromise any of the Accounts, (b) release, in whole
or in part, any account debtor or other person liable for the payment of any
other Collateral or (c) grant any credits, discounts, allowances, deductions,
return authorizations or the like with respect to any Account or any other
Collateral.
5.9 Documents. Borrower shall deliver to Lender, as Lender may request,
all documents, schedules, invoices, proofs of delivery, purchase orders,
statements, contracts and all
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other information evidencing or relating to the Collateral, in form and
substance satisfactory to Lender and duly executed by Borrower. Borrower will
promptly report to Lender all credits, discounts, allowances, deductions, return
authorizations or the like. In no event shall any schedule or confirmatory
assignment (or the absence thereof or omission of any of the Accounts or other
Collateral therefrom) limit or in any way be construed as a waiver, limitation
or modification of the security interests or rights of Lender or the warranties,
representations and covenants of Borrower under this Agreement.
5.10 Access. Lender shall have access (a) upon 2 Business Days written
notice from Lender to Borrower and during reasonable business hours (absent an
Event of Default) and (b) after an Event of Default (unless cured to the extent
permitted hereunder) at any time during normal business hours to all of the
premises where Collateral is located for the purposes of inspecting or copying
the Collateral, and Borrower's books and records. Lender, at no charge, may use
such of Borrower's personnel, equipment, including computer equipment, programs,
printed output and computer readable media, supplies and premises for the
collection of Accounts and realization on other Collateral. Borrower hereby
authorizes all accountants and third parties to disclose and deliver to Lender,
at Borrower's expense, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Borrower which authorization shall be irrevocable until the Obligations have
been paid in full and Lender has no further obligation to provide financial
accommodations to Borrower.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall: (a) keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied; (b) at its expense on or before the fifteenth
(15th) day of each month, deliver to Lender (i) true and complete monthly agings
of its Accounts and accounts payable; (ii) monthly Inventory reports; and (iii)
internally prepared interim financial statements consisting of a statement of
profit and loss, a balance sheet and statement of cash flow; (c) within 45 days
of the end of each fiscal quarter but concurrent with Borrower's quarterly
filings with the Securities and Exchange Commission, Borrower's internally
prepared financial statements consisting of a statement of profit and loss, a
balance sheet and statement of cash flow; (d) annually, as soon as available,
but in no event later than ninety (90) days after the end of Borrower's fiscal
year, deliver audited financial statements consisting of a statement of profit
and loss, a balance sheet and statement of cash flow accompanied by the report
and opinion thereon of independent certified public accountants reasonably
acceptable to Lender; (e) promptly upon request, provide financial statement
projections consisting of a statement of profit and loss, a balance sheet and
statement of cash flow in a format reasonably acceptable to Lender; and (f)
promptly notify Lender in writing of any loss, damage, investigation, action,
suit, proceeding or claim relating to a material portion of the Collateral or
which may result in any material adverse change in Borrower's business, assets,
liabilities or condition, financial or otherwise. All of the foregoing shall be
in such form, and together with such information, as Lender may reasonably
request.
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6.2 Books and Records. Borrower's (a) books and records concerning
Accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.5(c), and (b) other places of business and the
only other locations of Collateral (including, without limitation, Borrower's
Inventory), are and shall be at the addresses set forth in Section 10.5(e)
hereof, except Borrower may change such locations or open a new place of
business after thirty (30) days prior written notice to Lender. Borrower shall
execute and deliver, or cause to be executed and delivered, to Lender such
financing statements, amendments and other agreements as Lender may reasonably
require.
6.3 Title; Liens. Borrower has, and at all times will continue to have,
good and marketable title to all of the Collateral, free and clear of all liens,
security interests, claims or encumbrances of any kind except in favor of Lender
or as set forth on Schedule A hereto.
6.4 Disposition of Assets. Borrower shall not directly or indirectly:
(a) sell, lease, transfer, assign or otherwise dispose of any Collateral or any
material portion of its other assets (other than sales of Inventory in the
ordinary course of business); (b) consolidate with, or merge with or into, any
other entity or permit any other entity to consolidate with or merge with or
into Borrower; or (c) form or acquire any interest in any firm, corporation or
other entity; provided that if no Event of Default has occurred unless such
Event of Default has been cured to the extent permitted herein Borrower may
undertake acquisitions of other business entities within the same industry as
Borrower without Lender's prior written approval, so long as (i) immediately
after giving effect to such acquisition, Borrower's Aggregate Excess
Availability plus unrestricted and unencumbered (other than liens in favor of
Lender) cash equivalents and cash (in U.S. Dollars in domestic bank accounts) of
the Borrower and its subsidiaries is no less than $7,500,000, (ii) the proforma
financial projections (which shall be in form and substance reasonably
acceptable to the Lender) of the Borrower and its subsidiaries on a consolidated
basis after giving effect to any such acquisition reflects that the proforma
consolidated unrestricted and unencumbered (other than liens in favor of Lender)
cash equivalents and cash (in U.S. Dollars in domestic bank accounts) of the
Borrower and its subsidiaries plus the Borrower's Aggregate Excess Availability
will be positive over the 12 months immediately following the completion of any
such acquisition, and (iii) Borrower executes any and all documents or
agreements or performs such acts as Lender may reasonably require to preserve
Lender's perfected first priority security interest in the assets of Borrower
and its rights and remedies under this Agreement and applicable law.
6.5 Insurance. Borrower shall at all times maintain, with insurers
reasonably acceptable to Lender, adequate insurance (including, without
limitation, at the option of Lender, flood insurance) with respect to the
Collateral and other assets. All insurance shall be in such form, substance,
amounts and coverage as may be satisfactory to Lender and shall provide for
thirty (30) days' prior written notice to Lender of cancellation or reduction of
coverage. Lender may adjust or settle any claim or other matter under or arising
pursuant to such insurance on the Collateral. Borrower shall provide evidence of
such insurance and a lender's loss payable endorsement satisfactory to Lender.
Lender may obtain, at Borrower's expense, such insurance should Borrower fail to
do so. Borrower shall deliver to Lender all proceeds of insurance received by
Borrower on the Collateral. Lender may apply any insurance proceeds received to
the cost of repairs to, or replacement of, any Collateral and/or, at Lender's
option, to payment of or as security for any of the Obligations in any order or
manner as Lender determines.
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6.6 Compliance With Laws. Borrower is, and at all times will, continue
to be in material compliance with the requirements of all laws, rules,
regulations and orders of any governmental authority relating to its business.
All of Borrower's Inventory shall be produced in accordance with the
requirements of the Federal Fair Labor Standards Act of 1938, as amended and all
rules, regulations and orders related thereto. Borrower shall pay and discharge
all taxes, assessments and governmental charges against Borrower or any
Collateral when due, unless the same are being contested in good faith. Lender
may establish Reserves for the amount contested and penalties which may accrue
thereon. Borrower shall not be deemed to have breached any provision of this
Section 6.6 if (i) the failure to comply with the requirements of this Section
6.6 resulted from good faith error or innocent omission, (ii) Borrower promptly
commences and diligently pursues a cure of such breach, and (iii) such failure
is cured within (30) days following Borrower's receipt of notice of such
failure, or if such breach cannot in good faith be cured within thirty (30)
days, then such breach is cured within a reasonable time frame based upon the
extent and nature of the breach and the necessary remediation, and in conformity
with any applicable consent order, consensual agreement and applicable law.
6.7 Accounts. All statements made and all unpaid balances and other
information appearing in the invoices, agreements, proofs of rendition of
services and delivery of goods and other documentation relating to the Accounts,
and all confirmatory assignments, schedules, statements of account and books and
records with respect thereto, are true and correct and in all respects what they
purport to be.
6.8 Equipment. Borrower shall keep its equipment in good order and
repair, ordinary wear and tear excepted.
6.9 Financial Covenants. Borrower shall maintain positive EBITDA
measured quarterly and calculated on a trailing four quarter basis; provided
that the above EBITDA requirement shall only be tested as of the end of a fiscal
quarter if, at any time in the following fiscal quarter, the sum of Borrower's
unrestricted and unencumbered (other than liens in favor of Lender) cash
equivalents and cash (in U.S. Dollars in domestic bank accounts) plus Borrower's
Aggregate Excess Availability was less than $7,500,000. "EBITDA" for any fiscal
period of Borrower means the net income of Borrower for such fiscal period, plus
interest expense, depreciation and amortization and provision for income taxes
for such fiscal period, and minus non-recurring miscellaneous income and plus
non-recurring and non-cash miscellaneous expenses, all calculated in accordance
with generally accepted accounting principles.
6.10 Affiliated Transactions. Borrower will not, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; (b) declare, pay or make any cash dividend,
redemption or other cash distribution on account of any shares of any class of
stock of Borrower now or hereafter outstanding; (c) make any payment on the
principal amount of, or interest on, any indebtedness owing to any officer,
director, shareholder, or affiliate of Borrower; (d) make any loans or advances
to any officer, director, employee, shareholder or affiliate of Borrower; or (e)
enter into any sale, lease or other transaction with any officer, director,
employee, shareholder or affiliate of Borrower on terms that are less favorable
to Borrower than those which might be obtained at the time from persons who are
not an officer, director, employee, shareholder or affiliate of Borrower.
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6.11 Fees and Expenses. Borrower shall pay, on Lender's demand, all
reasonable costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defenses asserted by, or
against, Lender, including, but not limited to, the following: (a) all filing or
recording taxes and fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees; (b) all title insurance and other insurance premiums,
appraisal fees, fees incurred in connection with any environmental report, audit
or survey and search fees; (c) all fees as then in effect relating to the wire
transfer of loan proceeds and other funds and fees then in effect for returned
checks and credit reports; (d) all reasonable expenses and costs heretofore and
from time to time hereafter incurred by Lender during the course of periodic
field examinations of the Collateral and Borrower's operations including field
examiner travel, food and lodging, plus a per diem charge at the rate set forth
in Section 10.3(h) for Lender's examiners in the field and office; and (e) the
reasonable costs, disbursements and fees of in-house and outside counsel to
Lender, including but not limited to such reasonable fees and disbursements
incurred as a result of a workout, restructuring, reorganization, liquidation,
insolvency proceeding or litigation between the parties hereto, any third party
and in any appeals arising therefrom.
6.12 Further Assurances. At the request of Lender, at Borrower's sole
expense, Borrower shall execute and deliver, or cause to be executed and
delivered, to Lender such agreements, documents and instruments, including
waivers, consents and subordination agreements from mortgagees or other holders
of security interests or liens, landlords or bailees, and do, or cause to be
done, such further acts as Lender, in its discretion reasonably exercised, deems
necessary to effectuate the provisions and purposes of this Agreement. Borrower
hereby authorizes Lender to file financing statements or amendments against
Borrower in favor of Lender with respect to the Collateral without Borrower's
signature and to file as financing statements any carbon, photographic or other
reproduction of this Agreement. Without limiting the foregoing, the obligation
of Lender to make the initial advance hereunder is subject to, among other
things, the delivery or satisfaction in Lender's discretion reasonably exercised
of each of the following conditions, agreements and documents as applicable: (a)
a blocked or Lender bank account established for the proceeds of Collateral; (b)
the EXIM Loan Agreement has been executed by all the parties thereto and all the
conditions precedent therein have been satisfied; (c) Lender shall have received
the written waiver of the Export-Import Bank with respect to such matters as
Lender deems necessary or appropriate; (d) all Export-Import Bank approvals,
guaranties, waivers and other documentation shall have been executed and
delivered by all parties thereto and Lender shall be satisfied that the
Export-Import Bank Working Capital Guarantee Program is in effect with respect
to the Exim Revolving Loans; (e) on a best efforts basis, landlord waivers on
all of Borrower's domestic leased locations; (f) first priority lien on all of
the Collateral; (g) perfection in consigned Inventory to the extent requested by
Lender; (h) the Lender's satisfaction with the financial condition of the
Borrower and an updated examination of the books and records of the Borrower;
(i) the absence of any material adverse change in the financial condition,
business, prospects, profitability, assets (including, without limitation, the
Collateral) or operations of the Borrower as determined by Lender in its sole
discretion
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reasonably exercised; and (j) receipt by the Borrower of the proceeds from the
secondary common stock offering, which became effective on February 16, 2001.
6.13 Environmental Condition. None of Borrower's properties or assets
has ever been designated or identified pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site or a candidate
for closure pursuant to any environmental protection statute. No lien arising
under any environmental protection statute has attached to any revenues or to
any real or personal property owned by Borrower. Borrower has not received a
summons, citation, notice or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing, or otherwise exposing of,
hazardous waste or hazardous substances into the environment. Borrower is, and
will continue to be, in material compliance with all statutes, regulations,
ordinances and other legal requirements pertaining to the production, storage,
handling, treatment, release, transportation or disposal of any hazardous waste
or hazardous substance.
6.14 State of Incorporation. If Borrower is a corporation, it is duly
organized, existing and in good standing under the laws of the state set forth
in Section 10.5(F).
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination of this Agreement or, at Lender's option, upon or at any
time after the occurrence or existence of any one or more of the following
"EVENTS OF DEFAULT":
(a) Borrower fails to pay when due any of the Obligations
within five (5) Business Days of the due date thereof; provided that nothing
contained herein shall prohibit Lender from charging such amounts to the
Borrower's loan account on the due date thereof;
(b) Breach by Borrower of any warranty, representation or
covenant contained herein or in any other written agreement between Borrower and
Lender (other than the Exim Loan Agreement), provided that, in the absence of
fraud, conversion and gross misrepresentation, such breach by Borrower of any of
the warranties, representations or covenants referred in this clause (b) shall
not be deemed to be an Event of Default unless and until such breach shall
remain unremedied to Lender's satisfaction for a period of seven (7) Business
Days from the date of such breach;
(c) Intentionally Deleted.
(d) Any judgment or judgments aggregating in excess of the
amount set forth in Section 10.5 (G) except to the extent such judgments are
fully covered by insurance without a reservation of rights or any injunction or
attachment is obtained against Borrower, which remains unstayed for a period of
ten (10) days (provided that such period shall be extended during such time as
any such judgment is being contested in good faith and by appropriate
proceedings so long as there has been no execution on any of Borrower's assets
by the judgment creditor);
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(e) Borrower ceases to exist or the usual business of Borrower
ceases or is suspended;
(f) Any acquisition by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
or by any person, of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act), directly or indirectly, of more than 50% of the issued and
outstanding capital stock of Borrower having the right to vote for the election
of directors of Borrower; or more than one-third of the persons who were
directors of Borrower on the first day of any period consisting of twelve (12)
consecutive calendar months (the first of which twelve (12) month periods
commencing on the first day of the month during which this Agreement was
executed), cease, for any reason other that death or disability, to be directors
of Borrower, and the board of directors as thereafter constituted is not
reasonably acceptable to Lender;
(g) Borrower becomes insolvent, makes an assignment for the
benefit of creditors, makes or sends notice of a bulk transfer or calls a
general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against Borrower, provided that any
such petition or application filed against Borrower shall not be deemed an Event
of Default if such proceeding is controverted within ten (10) days and dismissed
and vacated within thirty (30) days of commencement, except in the event that
any of the actions sought in any such proceeding shall occur or Borrower shall
take action to authorize or effect any of the actions in any such proceeding;
(i) The indictment of Borrower under any criminal statute or
the commencement of (A) any criminal proceedings against Borrower or (B) civil
proceedings (under the Racketeer Influenced and Corrupt Organizations statutes,
18 U.S.C. ss.1961 et seq.) against Borrower pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of Borrower which forfeiture Lender believes could
reasonably be expected to have a material adverse effect on either of the
following: (x) Borrower's business or (y) Collateral with a market value in
excess of $250,000;
(j) Any default or event of default occurs on the part of
Borrower under any material agreement, document or instrument to which Borrower
is a party or by which Borrower or any of its property is bound which default or
event of default Lender believes may have a material adverse effect on the
Collateral or Borrower's business; or
(k) Any Event of Default under, and as defined in, the EXIM
Loan Agreement shall occur.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all default rights and remedies provided in
this Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code (the "UCC") and
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other applicable law, all of which rights and remedies may be exercised without
notice to Borrower (except as otherwise required by applicable law), all such
notices being hereby waived, except such notice as is expressly provided for
hereunder or is not waivable under applicable law. All rights and remedies of
Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all Obligations and demand immediate
payment thereof, (b) with or without judicial process or the aid or assistance
of others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (c) require
Borrower, at Borrower's expense, to assemble and make available to Lender the
Collateral at any place and time designated by Lender, (d) collect, foreclose,
receive, appropriate, setoff and realize upon any or all Collateral, or (e)
sell, lease, transfer, assign, or otherwise dispose of any or all Collateral
(including, without limitation, entering into contracts with respect thereto),
by public or private sales at any exchange, broker's board, any office of Lender
or elsewhere) at such prices and/or terms as Lender may deem reasonable, for
cash, upon credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit terms
or for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, ten (10) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required. Lender is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
tradenames, trademarks and advertising matter, or any intellectual property of a
similar nature as it pertains to the Collateral, in advertising for sale and
selling, collecting on or otherwise disposing of any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of any of the Obligations, in whole or
in part, and in such order as Lender may elect, whether or not then due.
Borrower shall remain liable to Lender for the payment of any deficiency
together with interest at the highest rate provided for herein and all costs and
expenses of collection or enforcement, including reasonable attorneys' fees and
legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its
option, cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on, or
existing with respect to, the Collateral and pay any amount, incur any expense
or perform any act which, in Lender's sole judgment, is necessary or appropriate
to preserve, protect, insure, maintain, or realize upon the Collateral. Lender
may charge Borrower's loan account for any amounts so expended, such amounts to
be repayable by
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Borrower on demand. Lender shall be under no obligation to effect such cure,
payment, bonding or discharge, and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT. IN NO EVENT
WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL
DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to
the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.5(a) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.5(A) is located and Borrower waives any
objection based on FORUM NON CONVENIENS and any objection to venue in connection
therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission
or otherwise, be deemed to have expressly or impliedly waived any of its rights
or remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to, or waiver of, any such right or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.6 from the date hereof and shall be deemed
automatically renewed, as of the end of the initial or any renewal term (each a
"TERM"), based on the same terms and provisions for successive terms of equal
duration thereafter unless terminated by either party giving the other written
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notice at least sixty (60) days' prior to the end of the then current Term.
Neither this Agreement nor the EXIM Loan Agreement may be terminated singly.
9.2 Termination. Borrower may also terminate this Agreement by giving
Lender at least sixty (60) days prior written notice and payment in full of all
of the Obligations as provided herein, including any unpaid fees. If termination
is other than at the end of a Term, than Borrower shall also pay Lender the
Early Termination Fee set forth in Section 10.3(I) hereof. Sixty days after
receipt of such early termination notice, Lender need not make any further loans
or accommodations. Lender shall also have the right to terminate this Agreement
at any time upon or after the occurrence of an Event of Default. If Lender
terminates this Agreement upon or after the occurrence of an Event of Default,
Borrower shall pay Lender forthwith, in full, all Obligations, including the
Early Termination Fee, and any unpaid fees. Notwithstanding anything to the
contrary herein, the Borrower shall not be required to pay the Early Termination
Fee if (a) no Event of Default has occurred and is continuing at the time the
Obligations are paid in full and (b) the funds utilized to pay the Obligations
in full are (i) the proceeds of a public offering of the stock of Borrower
and/or (ii) from cash not obtained through a refinancing.
9.3 Termination Indemnity Deposit. Upon termination of this Agreement
by Borrower, as permitted herein, in addition to payment of all Obligations
which are not contingent, Borrower shall deposit such amount of cash collateral
as Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any open
Accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.5(A) and to Borrower at its chief executive office set forth in
Section 10.5(C), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by facsimile,
immediately upon receipt; if by overnight delivery service, one day after
dispatch; and if by first class or certified mail, three (3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement contains
the entire agreement of the parties as to the subject matter hereof, all prior
commitments, proposals and negotiations concerning the subject matter hereof
being merged herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged, orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon, and inure to the benefit of, each of the parties hereto
and their respective successors and assigns, except that any obligation of
Lender under this Agreement shall not be assignable nor inure to the successors
and assigns of Borrower.
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9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full.
9.8 Usage. All terms used herein which are defined in the UCC shall
have the meanings given therein unless otherwise defined in this Agreement and
all references to the singular or plural herein shall also mean the plural or
singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth in
Section 10.5(a) below is located.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1
(a) Maximum Credit (including
any sums advanced under the
EXIM Loan Agreement): $25,000,000
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 85% provided that the
Dilution Percentage does not exceed 5%. The Dilution
Percentage is the sum of Borrower's credits, allowances,
discounts, write-offs, contra-accounts and offsets and
deductions which reduce the value of Accounts divided by
gross invoices. The Dilution Percentage shall be
calculated on a rolling 90 day average. If the Dilution
Percentage exceeds 5%, then the Eligible Accounts
Percentage shall be reduced at Lender's discretion by such
excess Dilution Percentage and Lender may create a Reserve
for such excess.
(c) Intentionally Deleted.
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days
(e) Intentionally Deleted.
10.2 Intentionally Deleted.
10.3 Interest, Fees & Charges:
(a) Prime Rate Loan Interest Rate: Prime Rate plus .50% per annum
(b) LIBOR Loan Interest Rate: LIBOR plus 3.25% per annum
(c) Collection Days: One (1) Business Day
(d) Closing Fee: $200,000
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(e) Intentionally Deleted.
(f) Collateral Management Fee: $50,000
(g) Unused Line Fee: 0.50% per annum
(h) Field Examination per diem charge
per examiner: Not Applicable
(i) Early Termination Fee:
First year of closing: 2.0% of the Maximum Credit
Second year of closing: 1.0% of the Maximum Credit
Third year of closing: 1.0% of the Maximum Credit
10.4 Intentionally Deleted.
10.5 Offices and Locations
(a) Lender's Office: 300 S. Grand Avenue
3rd Floor
Los Angeles, CA 90071
(b) Borrower: Adept Technology, Inc.
(c) Borrower's Chief Executive Office: 150 Rose Orchard Way
San Jose, CA 95134
(d) Intentionally Deleted.
(e) Borrower's Other Offices and Locations
of Collateral: 2575 N. Dragoon St.
Tucson, Arizona 95745
(f) Borrower's State of Incorporation: California
(g) Judgment Amount $400,000
10.6 Term: Three (3) Years
10.7 As used in this Agreement, the following terms have the meanings
set forth below:
(a) "EXIM LOAN AGREEMENT" means that certain Loan and Security
Agreement (EXIM Facility) dated the date hereof between Borrower and The CIT
Group/Commercial Services, Inc. (on behalf of its affiliate, Lender).
(b) "EXIM REVOLVING LOANS" means the "Revolving Loans" under
and as defined in the EXIM Loan Agreement.
(c) "AGGREGATE EXCESS AVAILABILITY" means, at any time, the
sum of (i) Borrower's excess Net Availability under this Agreement and (ii)
Borrower's excess Net Availability under the EXIM Loan Agreement.
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IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this 5th day of April, 2001.
LENDER: BORROWER:
THE CIT GROUP/ ADEPT TECHNOLOGY, INC.
BUSINESS CREDIT, INC.
By: /s/ Kelly Wu By: /s/ Michael W. Overby
--------------- -----------------------
Title: VP Title: VP and CFO
---- ------------
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SCHEDULE A
PERMITTED LIENS
Secured Party UCC Filing No. Types of Collateral
------------- -------------- -------------------
Zions Credit Corporation Arizona Filing: 0974310-0 Leased Equipment
filed 6/30/97
Zions Credit Corporation Arizona Filing: 01008530-0 Leased Equipment
filed 3/17/98
Telogy, Inc. California Filing: 0016760535 Leased Equipment
filed 6/8/00
Zions Credit Corporation California Filing: 0017160255 Leased Equipment
filed 6/12/00
Zions Credit Corporation California Filing: 0017160245 Leased Equipment
filed 6/12/00
A-1
EX-10
6
p14376_ex10-37.txt
EXHIBIT 10.37/LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT
(EXIM FACILITY)
This Agreement is between the undersigned Borrower and the undersigned Lender
concerning loans and other credit accommodations to be made by Lender to
Borrower.
SECTION 1. PARTIES
1.1 "BORROWER" is identified in Section 10.5(B) and includes successors
and assigns. If more than one Borrower is specified in Section 10.5(B), all
references to Borrower shall mean each of them, jointly and severally,
individually and collectively, and the successors and assigns of each.
1.2 "LENDER" shall mean THE CIT GROUP/BUSINESS CREDIT, INC. and its
agents, designees, representatives, successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms and conditions
contained herein, make revolving loans to Borrower ("REVOLVING LOANS") in
amounts requested by Borrower from time to time under this Agreement, but not in
excess of the then existing Net Availability and provided the requested loan
would not cause the outstanding Obligations to exceed the Maximum Credit.
Subject to the terms and conditions set forth in this Agreement, Revolving Loans
may be Prime Rate Loans, LIBOR Loans or any combination thereof.
(a) "MAXIMUM CREDIT" shall have the meaning set forth in
Section 10.1(A).
(b) "GROSS AVAILABILITY" is at any time (i) the product of the
outstanding amount of Eligible Accounts multiplied by the Eligible Accounts
Percentage set forth in Section 10.1(B) minus (ii) Reserves.
(c) "NET AVAILABILITY" shall mean an amount equal to the then
Gross Availability minus the aggregate amount of all Revolving Loans.
(d) "ELIGIBLE ACCOUNTS" shall mean the accounts created by
Borrower in the ordinary course of business which are and remain acceptable to
Lender and (1) which have not remained unpaid for more than the number of days
after the invoice date set forth in Section 10.1(D); (2) which are absolutely
owing to Borrower and payment is not conditional or contingent (such as
consignments, guaranteed sales or right of return or other similar terms); (3)
the accounts are eligible under Export-Import Bank's Working Capital Guarantee
Program (including any waivers granted by Export-Import Bank); (4) which do not
arise from progress billings, retainages or bill and hold sales; (5) which are
not subject to contras, setoffs, counterclaims or disputes and with respect to
which there are no other facts existing or threatened which would impair or
delay the collectibility of all or any portion thereof, or which might result in
any adverse change in the account debtor's financial condition; (6) with respect
to which the goods giving rise thereto were not at the time of the sale subject
to any liens except those permitted in this Agreement; (7) which are not due
from any (x) entity affiliated (directly
-1-
or indirectly) with Borrower, or (y) any officer, employee, shareholder or agent
of Borrower or any affiliate thereof; (8) such accounts are denominated only in
United States dollars and are payable in the United States; (9) with respect to
which Borrower has delivered to Lender such documents as Lender may have
requested pursuant to Section 5.9 hereof and Lender shall have received
satisfactory verifications of such accounts; (10) the account debtor owing such
accounts (together with such account debtor's affiliates) does not owe more than
twenty percent (20%) of all Eligible Accounts (the amount exceeding twenty
percent (20%) shall not be eligible); (11) which are owed by an account debtor
if more than fifty percent (50%) of the accounts owed by such account debtor are
unpaid after the invoice date for more than the number of days set forth in
Section 10.1 (d); (12) which are owed by an account debtor deemed creditworthy
at all times by Lender in its reasonable business judgment; (13) such accounts
are owed by account debtors located in countries on Export-Import Bank's
approved list and, if required by Export-Import Bank, are insured by foreign
credit insurance acceptable to Export-Import Bank and Lender and assigned to
Lender; and (14) such accounts are not owed by an account debtor that is a
defense or military agency of a foreign government.
(e) Intentionally Deleted.
(f) Lender shall have a continuing right to reduce Gross
Availability by implementing reserves ("RESERVES"), and to increase and decrease
such Reserves, if and to the extent that, in Lender's sole judgment reasonably
exercised, such Reserves are necessary to protect Lender against any state of
facts which does, or would, with notice or passage of time or both, constitute
an Event of Default or have an adverse effect on any Collateral.
2.2 Intentionally Deleted.
2.3 Borrowing of LIBOR Loans. Upon not less than three (3) Eurodollar
Business Days' irrevocable written notice from Borrower to Lender (each, a
"NOTICE OF LIBOR BORROWING"), Borrower shall have the right, subject to the
terms and conditions of this Agreement, to request on that portion of any Loan
be made as LIBOR Loans, to request that any LIBOR Loans be continued as LIBOR
Loans or to request that all or any portion of the Prime Rate Loans be converted
into LIBOR Loans, which notice shall in each case specify:
(i) the date on which such LIBOR Loans are to be made or
continued as such or the date on which such Prime Rate Loans are to be
converted into LIBOR Loans, as applicable (which day shall in each case
be a Eurodollar Business Day);
(ii) the aggregate principal amount of such loans that are to
be made or continued as, or converted into, LIBOR Loans, as applicable
(which, in the case of each such LIBOR Loan, shall be at least equal to
$1,000,000 or any larger multiple of $1,000,000); and
(iii) the Interest Period applicable to such LIBOR Loan.
If Borrower shall not have delivered a Notice of LIBOR Borrowing with respect to
any outstanding LIBOR Loan as set forth above in this paragraph within three (3)
Eurodollar
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Business Days' prior to the end of the Interest Period for such LIBOR Loan, such
LIBOR Loan shall, without any further action required by Borrower or Lender, be
converted into a Prime Rate Loan effective from and after the last day of such
Interest Period. Notwithstanding the foregoing, (x) no more than three (3)
separate Interest Periods in respect of LIBOR Loans may be outstanding at any
one time, and (y) upon the occurrence and during the continuance of an Event of
Default, Borrower shall not have the right to submit a Notice of LIBOR Borrowing
and all then existing LIBOR Loans shall be converted to Prime Rate Loans.
Notwithstanding anything to the contrary contained herein, Lender (or any
participant, if applicable) shall not be required to purchase United States
Dollar deposits in the London interbank market or from any other applicable
LIBOR market or source or otherwise "match fund" to fund LIBOR Loans, but any
and all provisions hereof relating to LIBOR Loans shall be deemed to apply as if
Lender (and any participant, if applicable) had purchased such deposits to fund
any LIBOR Loans. Lender shall be entitled to charge the Borrower a $500 fee upon
the first effective day of any such election for a LIBOR Loan.
2.4 Additional Provisions Relating to LIBOR Loans.
(a) If, after the date of this Agreement, any change in any
law or the application of the requirements thereof (whether such change occurs
in accordance with the terms of such law as enacted, as a result of amendment or
otherwise), any change in the interpretation or administration of any law by any
governmental authority, or compliance by Lender with any request or directive
(whether or not having the force of law) of any governmental authority (each, a
"CHANGE OF LAW"):
(i) shall subject Lender to any tax, duty or other
charge with respect to any LIBOR Loan, or shall change the basis of
taxation of payments by Borrower to Lender on such LIBOR Loan under
this Agreement (except for changes in the rate of taxation on the
overall net income of Lender); or
(ii) shall impose, modify or hold applicable any
reserve, special deposit or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by Lender for any LIBOR
Loan; or
(iii) shall impose on Lender any other condition
related to any LIBOR Loan;
and the effect of any of the foregoing is to increase the cost to Lender of
making, renewing, or maintaining any such LIBOR Loan or to reduce any amount
receivable by Lender hereunder; then Borrower shall from time to time, upon
demand by Lender, pay to Lender additional amounts sufficient to reimburse
Lender for such increased costs or to compensate Lender for such reduced
amounts. A certificate as to the amount of such increased costs or reduced
amounts, submitted by Lender to Borrower shall, in the absence of manifest
error, be conclusive and binding on Borrower for all purposes.
(b) If, after the date of this Agreement, Lender determines
that (i) any Change of Law affects the amount of capital required or expected to
be maintained by Lender or any
-3-
entity controlling Lender (a "CAPITAL ADEQUACY REQUIREMENT") and (ii) the amount
of capital maintained by Lender or such entity which is attributable to or based
upon the extensions of credit under this Agreement must be increased as a result
of such Capital Adequacy Requirement (taking into account Lender's or such
entity's policies with respect to capital adequacy), Borrower shall pay to
Lender or such entity, upon demand of Lender, such amounts as Lender or such
entity shall determine are necessary to compensate Lender or such entity for the
increased costs to Lender or such entity of such increased capital. A
certificate of Lender setting forth in reasonable detail the computation of any
such increased costs, delivered by Lender to Borrower shall, in the absence of
manifest error, be conclusive and binding on Borrower for all purposes.
(c) If on or prior to the first day of any Interest Period for
any LIBOR Loan:
(i) Lender determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR" in Section 3.1 are not being
provided in the relevant amounts for the relevant maturities for
purposes of determining rates of interest for LIBOR Loans as provided
in this Agreement, or
(ii) Lender determines, which determination shall be
conclusive, that LIBOR will not adequately and fairly reflect the cost
to Lender of making or maintaining any LIBOR Loan for such Interest
Period,
then Lender shall give prompt notice of such determination to Borrower and, so
long as such condition remains in effect, the Lender shall be under no
obligation to make additional LIBOR Loans, to continue LIBOR Loans or to convert
Prime Rate Loans into LIBOR Loans, and Borrower shall, on the last day or days
of the then current Interest Period or Periods for the outstanding LIBOR Loans,
either prepay such LIBOR Loans or convert such LIBOR Loans into Prime Rate Loans
in accordance with Section 2.3.
(d) Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful or, by reason of a Change of Law, impossible
for Lender to honor its obligation to make or maintain LIBOR Loans, then Lender
shall promptly notify Borrower of such event and Lender's obligation to make or
to continue LIBOR Loans, or to convert Prime Rate Loans into LIBOR Loans shall
be suspended until such time as Lender may again make and maintain LIBOR Loans.
(e) If all or a portion of the outstanding principal amount of
the Obligations shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), such outstanding amount, to the extent it is a LIBOR
Loan, shall be automatically converted to a Prime Rate Loan on the next
succeeding Business Day.
(f) The Borrower agrees to indemnify and to hold Lender
(including any participant ) harmless from any loss or expense which Lender or
such participant may sustain or incur as a consequence of: (i) an Event of
Default due to Borrower's failure to make payment of the principal amount of or
interest on any LIBOR Loans, as and when the same shall be due and payable in
accordance with the terms of this Agreement, including, but not limited to, any
such
-4-
loss or expense arising from interest or fees payable by Lender or such
participant to lenders of funds obtained by either of them in order to maintain
the LIBOR Loans hereunder; (ii) default by the Borrower in making a borrowing or
conversion after the Borrower has given a Notice of LIBOR Borrowing; (iii) any
prepayment of LIBOR Loans on a day which is not the last day of the Interest
Period applicable thereto, including, without limitation, prepayments arising as
a result of the application of the proceeds of Collateral to the Revolving
Loans; and (iv) default by the Borrower in making any prepayment after the
Borrower had given notice to Lender thereof. The determination by Lender of the
amount of any such loss or expense, when set forth in a written notice to the
Borrower, containing Lender's calculations thereof in reasonable detail, shall
be conclusive on the Borrower in the absence of manifest error. Calculation of
all amounts payable under this paragraph with regard to LIBOR Loans shall be
made as though Lender had actually funded the LIBOR Loans through the purchase
of deposits in the relevant market and currency, as the case may be, bearing
interest at the rate applicable to such LIBOR Loans in an amount equal to the
amount of the LIBOR Loans and having a maturity comparable to the relevant
interest period; provided, however, that Lender may fund each of the LIBOR Loans
in any manner Lender sees fit and the foregoing assumption shall be used only
for calculation of amounts payable under this paragraph. In addition,
notwithstanding anything to the contrary contained herein, Lender shall apply
all proceeds of Collateral and all other amounts received by it from or on
behalf of the Borrower (A) initially to the Prime Rate Loans and (B)
subsequently to LIBOR Loans; provided, however, (1) upon the occurrence of an
Event of Default or (2) in the event the aggregate amount of outstanding Loans
exceeds Net Availability or the applicable maximum levels set forth therefor,
Lender may apply all such amounts received by it to the payment of Obligations
in such manner and in such order as Lender may elect in its reasonable business
judgment. In the event that any such amounts are applied to Revolving Loans
which are LIBOR Loans, such application shall be treated as a prepayment of such
loans and Lender shall be entitled to indemnification hereunder. This covenant
shall survive termination of this Agreement and payment of the outstanding
Obligations.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Interest shall accrue on the principal amount of the
Revolving Loans at the following rates: (i) during such periods as any such
Obligation is a Prime Rate Loan, at a fluctuating rate per annum equal to the
per annum rate set forth as the Interest Rate in Section 10.3(A); and (ii)
during such periods as any such Obligation is a LIBOR Loan, for each Interest
Period, at the per annum rate set forth as the Interest Rate in Section 10.3(B).
The Interest Rate on all Prime Rate Loans shall increase or decrease by an
amount equal to each increase or decrease, respectively, in the Prime Rate (as
defined below) effective as of the date of each such change. Interest on all
Obligations shall be calculated upon the closing daily outstanding principal
balances in the loan account(s) of Borrower for each day during the immediately
preceding month and shall be payable by Borrower on the first day of each month
and, in the case of LIBOR Loans, additionally on the last day of each Interest
Period. On and after any Event of Default or termination hereof, interest on all
Obligations shall accrue at a rate equal to two percent (2%) per annum in excess
of the Interest Rate otherwise payable until such time as all Obligations are
paid in full. In no event shall charges constituting interest exceed the rate
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permitted under any applicable law or regulation, and if any provision of this
Agreement is in contravention of any such law or regulation, such provision
shall be deemed amended to conform thereto.
(b) For purposes of this Section 3.1 and each other place
where such terms appear, the following terms shall have the respective meanings
set forth below:
"EURODOLLAR BUSINESS DAY" shall mean any Business Day on which
commercial lending institutions are open for international business
(including dealings in United States Dollar deposits) in London.
"EUROCURRENCY RESERVE REQUIREMENTS" for any day, as applied to
a LIBOR Loan, shall mean the aggregate (without duplication) of the
maximum rates of reserve requirements (expressed as a decimal fraction)
in effect with respect to Lender and/or any present or future lender or
participant on such day (including, without limitation, basic,
supplemental, marginal and emergency reserves under Regulation D or any
other applicable regulations of the Board of Governors of the Federal
Reserve System or other governmental authority having jurisdiction with
respect thereto, as now and from time to time in effect, dealing with
reserve requirements prescribed for Eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such
Board) maintained by Lender and/or participants (such rate to be
adjusted to the nearest one sixteenth of one percent (1/16 of 1%) or,
if there is not a nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%)).
"INTEREST PERIOD" shall mean, with respect to any LIBOR Loan,
a one month, two month or three month period commencing on the date
such LIBOR Loan is made or the date on which any Obligation begins to
bear interest based upon LIBOR and ending one month, two months or
three months thereafter, as applicable, as the Borrower may elect in
the applicable Notice of LIBOR Borrowing. Notwithstanding the foregoing
(i) no Interest Period may end after the initial Term or, if
applicable, any renewal Term; (ii) each Interest Period that would
otherwise end on a day which is not a Eurodollar Business Day shall end
on the next succeeding Eurodollar Business Day or, if such next
succeeding Eurodollar Business Day falls in the next succeeding
calendar month, on the next preceding Eurodollar Business Day, (iii)
any Interest Period that begins on the last Eurodollar Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month, at the end of such Interest
Period) shall end on the last Eurodollar Business Day of a calendar
month, and (iv) no Interest Period for any LIBOR Loan shall have a
duration of less than one month and, if the Interest Period for any
such LIBOR Loan would otherwise be a shorter period, such LIBOR Loan
shall not be available under this Agreement for such period.
"LIBOR" shall mean, at any time of determination, and subject
to availability, for each applicable Interest Period, a variable rate
of interest equal to: (a) at Lender's election (i) the applicable LIBOR
quoted to Lender by The Chase Manhattan Bank (or any successor
thereof), or (ii) the rate of interest determined by Lender at which
deposits in U.S. dollars are offered for the relevant Interest Period
based on information presented
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on Telerate Systems at Page 3750 as of 11:00 A.M. (London time) on the
day which is two (2) Business Days prior to the first day of such
Interest Period, provided that, if at least two such offered rates
appear on the Telerate System at Page 3750 in respect of such Interest
Period, the arithmetic mean of all such rates (as determined by Lender)
will be the rate used; divided by (b) a number equal to 1.0 minus the
aggregate (but without duplication) of the rates (expressed as a
decimal fraction) of Eurocurrency Reserve Requirements in effect on the
day which is two (2) Business Days prior to the beginning of such
Interest Period.
"LIBOR LOANS" shall mean Revolving Loans that bear interest at
rates based on LIBOR.
"NOTICE OF LIBOR BORROWING" shall have the meaning given to
that term in Section 2.3 of this Agreement.
"PRIME RATE" is the rate of interest publicly announced by
Chase Manhattan Bank in New York, New York, or its successors and
assigns, from time to time as its prime rate or similar such
designation (such rate is not intended to be the lowest rate of
interest charged by such bank to its borrowers).
"PRIME RATE LOANS" shall mean loans that bear interest at
rates based upon the Prime Rate.
3.2 Fees. Borrower shall pay to Lender:
(a) Intentionally Deleted.
(b) Intentionally Deleted.
(c) Intentionally Deleted.
(d) Intentionally Deleted.
(e) EXIM Bank Fee. An Export-Import Bank facility fee, payable
at closing and on each anniversary thereof (other than an anniversary date which
is the last day of the term of this Agreement so long as the Agreement is
terminating on such date pursuant to Section 9.1), in the amounts required by
Export-Import Bank (currently 0.25% of the first $2,000,000 and 0.75% on the
remaining amount of the Maximum Credit), and shall reimburse Lender for any and
all fees, costs and expenses paid to Export-Import Bank by Lender in connection
with this transaction under the Export-Import Bank Working Capital Guarantee
Program.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment and performance
in full of all Obligations, Borrower hereby grants to Lender a continuing
security interest in, and lien upon, the Collateral.
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4.2 "OBLIGATIONS" shall mean any and all Revolving Loans and all other
indebtedness, liabilities and obligations of every kind, nature and description
owing by Borrower to Lender and/or its affiliates, including principal,
interest, charges, fees and expenses, however evidenced, whether as principal,
surety, endorser, guarantor or otherwise, whether arising under this Agreement
or otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal Term or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute, whether direct or indirect, absolute or contingent, joint or
several, due or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended and whether arising directly
or howsoever acquired by Lender including from any other entity outright,
conditionally or as collateral security, by assignment, merger with any other
entity, participations or interests of Lender in the obligations of Borrower to
others, assumption, operation of law, subrogation or otherwise and shall also
include all amounts chargeable to Borrower under this Agreement or in connection
with any of the foregoing.
4.3 "COLLATERAL" shall mean all of the following property of Borrower:
(a) All of the Borrower's now owned and hereafter acquired:
(i) accounts (as defined in the UCC), and any and all other receivables (whether
or not specifically listed on schedules furnished to Lender), including, without
limitation, all accounts created by, or arising from, all of the Borrower's
sales, leases, rentals of goods or renditions of services to its customers,
including but not limited to, those accounts arising under any of the Borrower's
trade names or styles, or through any of the Borrower's divisions; (ii) any and
all instruments, documents, chattel paper (including electronic chattel paper);
(iii) unpaid seller's or lessor's rights (including rescission, replevin,
reclamation, repossession and stoppage in transit) relating to the foregoing or
arising therefrom; (iv) rights to any goods represented by any of the foregoing,
including rights to returned, reclaimed or repossessed goods; (v) reserves and
credit balances arising in connection with or pursuant hereto; (vi) guarantees,
supporting obligations, payment intangibles and letter of credit rights; (vii)
insurance policies or rights relating to any of the foregoing; (viii) all rights
to payment, including those arising in connection with bank and non-bank credit
cards and including any electronic media and software, pertaining to any and all
of the foregoing; (ix) notes, deposits or property of account debtors securing
the obligations of any such account debtors to the Borrower; and (x) cash and
non-cash proceeds (as defined in the UCC) of any and all of the foregoing
(herein "ACCOUNTS");
(b) All of the Borrower's now owned and hereafter acquired
inventory (as defined in the UCC) and including, without limitation, all
additions, substitutions and replacements thereof, wherever located, together
with all goods and materials used or usable in manufacturing, processing,
packaging or shipping same in all stages of production - from raw materials
through work-in-process to finished goods - and all proceeds thereof of whatever
sort (herein "INVENTORY");
(c) to the extent related to the license granted to Lender
under Section 7.2 or as necessary, appropriate or desirable as determined by
Lender for the disposition of the Accounts and Inventory, all present and
hereafter acquired general intangibles (as defined in the UCC);
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(d) Intentionally Deleted.
(e) All present and future documents (as defined in the UCC)
and any and all warehouse receipts, bills of lading, shipping documents, chattel
paper, instruments and similar documents, all whether negotiable or not and all
goods and Inventory relating thereto and all cash and non-cash proceeds of the
foregoing (herein "DOCUMENTS OF TITLE"); and
(f) All books and records of Borrower pertaining to any of the
foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower will, at its expense as Lender requests,
direct that all remittances and all other proceeds of Collateral be sent to a
lock box designated by Lender, and deposited into a bank account selected by
Lender with arrangements with the bank providing that all funds deposited in the
bank account are to be transferred solely to Lender. Borrower shall bear all
risk of loss of any funds deposited into such account. In connection therewith,
Borrower shall execute such lock box agreements as Lender shall specify. All
collections and all other proceeds of Collateral received by Borrower shall be
held in trust for Lender and immediately remitted to Lender in kind.
5.2 Charges to Loan Account. At Lender's option, all payments of
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement, or in any other agreement now or hereafter existing between
Lender and Borrower, may be charged on the date when due to any loan account of
Borrower maintained by Lender. Interest and any other amounts payable by
Borrower to Lender based on a per annum rate shall be calculated on the basis of
actual days elapsed over a 360-day year.
5.3 Payments. All Obligations shall be payable at Lender's Office set
forth in Section 10.5(A) or at such other place as Lender may expressly
designate in writing. Lender shall apply all proceeds of Collateral received by
Lender and all other payments in respect of the Obligations to the Revolving
Loans or to any other Obligations then due, in whatever order or manner Lender
shall determine, upon the date of Lender's receipt of advice from Lender's bank
that such remittances or other payments have been credited to Lender's account
or in the case of remittances or other payments received directly in kind by
Lender, upon the date of Lender's deposit thereof at Lender's bank, subject to
final payment and collection. In consideration thereof, Lender will charge the
Borrower's account with Collection Days which shall mean the number of days set
forth in Section 10.3(C) to provide for the deposit, clearance and collection of
checks or other instruments representing the proceeds of Collateral, the amount
of which has been credited to the Borrower's loan account, and for which
interest may be charged on the aggregate amount of such deposits, at the rate
provided for in Section 10.3(a). For purposes of this Agreement, "BUSINESS DAY"
shall mean any day on which Lender and Lender's banks are open.
5.4 Loan Account Statements. Lender shall, monthly, render to Borrower
a loan account statement which shall be considered correct and binding upon
Borrower as an account stated, except to the extent that Lender receives, within
ninety (90) days after the mailing of such statement, written notice from
Borrower of any specific exceptions to that statement.
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5.5 Direct Collections. Lender may, at any time, (a) after the
occurrence of an Event of Default (unless such Event of Default has been cured
to the extent permitted hereunder), notify any account debtor that the Accounts
and other Collateral have been assigned to Lender and that payment thereof is to
be made to the order of and directly to Lender, (b) send, or cause to be sent by
its designee, requests (which may identify the sender by a pseudonym) for
verification by telephone, in writing or otherwise of Accounts and other
Collateral directly to any account debtor or any other obligor or any bailee
with respect thereto, (c) after the occurrence of an Event of Default (unless
such Event of Default has been cured to the extent permitted hereunder), demand,
collect or enforce payment of any Accounts or such other Collateral, but without
any duty to do so, and Lender shall not be liable for any failure to collect or
enforce payment thereof, (d) after the occurrence of an Event of Default (unless
such Event of Default has been cured to the extent permitted hereunder), take or
bring, in the name of Lender or Borrower, all actions, suits or proceedings
deemed by Lender necessary or desirable to effect collection of, or other
realization upon, the Collateral, and (e) after an Event of Default, (i) change
the address for delivery of Borrower's mail and to receive and open mail
addressed to Borrower and (ii) extend the time of payment of, compromise or
settle (for cash, credit, return of merchandise), and upon any terms or
conditions, any and all Accounts or other Collateral and discharge or release
the account debtor or other obligor. At Lender's request, all invoices and
statements sent to any account debtor, other obligor or bailee, shall state that
the Accounts and such other Collateral have been assigned to Lender and are
payable directly and only to Lender.
5.6 Attorney-in-Fact. Borrower hereby appoints Lender as Borrower's
attorney-in-fact and authorizes Lender at Borrower's sole expense to exercise at
any time in Lender's discretion reasonably exercised all or any powers necessary
for Lender to obtain information about the Collateral or to enforce Lender's
rights which appointment and authorization shall be irrevocable until the
Obligations have been paid in full and Lender has no further obligation to
provide financial accommodations to Borrower.
5.7 Liability. Borrower hereby releases and exculpates Lender, its
officers, agents and employees from any liability arising from any acts under
this Agreement or in furtherance thereof except for gross negligence or willful
misconduct. Lender will not have any liability to Borrower for lost profits or
other special or consequential damages.
5.8 Administration of Accounts. After written notice by Lender to
Borrower or without notice after an Event of Default, Borrower shall not (a)
amend, modify, settle or compromise any of the Accounts, (b) release, in whole
or in part, any account debtor or other person liable for the payment of any
other Collateral or (c) grant any credits, discounts, allowances, deductions,
return authorizations or the like with respect to any Account or any other
Collateral.
5.9 Documents. Borrower shall deliver to Lender, as Lender may request,
all documents, schedules, invoices, proofs of delivery, purchase orders,
statements, contracts and all other information evidencing or relating to the
Collateral, in form and substance satisfactory to Lender and duly executed by
Borrower. Borrower will promptly report to Lender all credits, discounts,
allowances, deductions, return authorizations or the like. In no event shall any
schedule or confirmatory assignment (or the absence thereof or omission of any
of the Accounts or other Collateral therefrom) limit or in any way be construed
as a waiver, limitation or
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modification of the security interests or rights of Lender or the warranties,
representations and covenants of Borrower under this Agreement.
5.10 Access. Lender shall have access (a) upon 2 Business Days written
notice from Lender to Borrower and during reasonable business hours (absent an
Event of Default) and (b) after an Event of Default (unless cured to the extent
permitted hereunder) at any time during normal business hours to all of the
premises where Collateral is located for the purposes of inspecting or copying
the Collateral, and Borrower's books and records. Lender, at no charge, may use
such of Borrower's personnel, equipment, including computer equipment, programs,
printed output and computer readable media, supplies and premises for the
collection of Accounts and realization on other Collateral. Borrower hereby
authorizes all accountants and third parties to disclose and deliver to Lender,
at Borrower's expense, all financial information, books and records, work
papers, management reports and other information in their possession regarding
Borrower which authorization shall be irrevocable until the Obligations have
been paid in full and Lender has no further obligation to provide financial
accommodations to Borrower.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender the
following, the truth and accuracy of which, and compliance with which, shall be
continuing conditions of the making of loans or other credit accommodations by
Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall: (a) keep and maintain
its books and records in accordance with generally accepted accounting
principles, consistently applied; (b) at its expense on or before the fifteenth
(15th) day of each month, deliver to Lender (i) true and complete monthly agings
of its Accounts and accounts payable; (ii) monthly Inventory reports; and (iii)
internally prepared interim financial statements consisting of a statement of
profit and loss, a balance sheet and statement of cash flow; (c) within 45 days
of the end of each fiscal quarter but concurrent with Borrower's quarterly
filings with the Securities and Exchange Commission, Borrower's internally
prepared financial statements consisting of a statement of profit and loss, a
balance sheet and statement of cash flow; (d) annually, as soon as available,
but in no event later than ninety (90) days after the end of Borrower's fiscal
year, deliver audited financial statements consisting of a statement of profit
and loss, a balance sheet and statement of cash flow accompanied by the report
and opinion thereon of independent certified public accountants reasonably
acceptable to Lender; (e) promptly upon request, provide financial statement
projections consisting of a statement of profit and loss, a balance sheet and
statement of cash flow in a format reasonably acceptable to Lender; and (f)
promptly notify Lender in writing of any loss, damage, investigation, action,
suit, proceeding or claim relating to a material portion of the Collateral or
which may result in any material adverse change in Borrower's business, assets,
liabilities or condition, financial or otherwise. All of the foregoing shall be
in such form, and together with such information, as Lender may reasonably
request. Borrower shall at its own expense and as frequently as requested
deliver to Lender and Export-Import Bank all reports required by Export-Import
Bank.
6.2 Books and Records. Borrower's (a) books and records concerning
Accounts and its chief executive office are and shall be maintained only at the
address set forth in Section 10.5(C), and (B) other places of business and the
only other locations of Collateral (including,
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without limitation, Borrower's Inventory), are and shall be at the addresses set
forth in Section 10.5(E) hereof, except Borrower may change such locations or
open a new place of business after thirty (30) days prior written notice to
Lender. Borrower shall execute and deliver, or cause to be executed and
delivered, to Lender such financing statements, amendments and other agreements
as Lender may reasonably require.
6.3 Title; Liens. Borrower has, and at all times will continue to have,
good and marketable title to all of the Collateral, free and clear of all liens,
security interests, claims or encumbrances of any kind except in favor of Lender
or as set forth on Schedule A hereto.
6.4 Disposition of Assets. Borrower shall not directly or indirectly:
(a) sell, lease, transfer, assign or otherwise dispose of any Collateral or any
material portion of its other assets (other than sales of Inventory in the
ordinary course of business); (b) consolidate with, or merge with or into, any
other entity or permit any other entity to consolidate with or merge with or
into Borrower; or (c) form or acquire any interest in any firm, corporation or
other entity; provided that if no Event of Default has occurred unless such
Event of Default has been cured to the extent permitted herein Borrower may
undertake acquisitions of other business entities within the same industry as
Borrower without Lender's prior written approval, so long as (i) immediately
after giving effect to such acquisition, Borrower's Aggregate Excess
Availability plus unrestricted and unencumbered (other than liens in favor of
Lender) cash equivalents and cash (in U.S. Dollars in domestic bank accounts) of
the Borrower and its subsidiaries is no less than $7,500,000, (ii) the proforma
financial projections (which shall be in form and substance reasonably
acceptable to the Lender) of the Borrower and its subsidiaries on a consolidated
basis after giving effect to any such acquisition reflects that the proforma
consolidated unrestricted and unencumbered (other than liens in favor of Lender)
cash equivalents and cash (in U.S. Dollars in domestic bank accounts) of the
Borrower and its subsidiaries plus the Borrower's Aggregate Excess Availability
will be positive over the 12 months immediately following the completion of any
such acquisition, and (iii) Borrower executes any and all documents or
agreements or performs such acts as Lender may reasonably require to preserve
Lender's perfected first priority security interest in the assets of Borrower
and its rights and remedies under this Agreement and applicable law.
6.5 Insurance. Borrower shall at all times maintain, with insurers
reasonably acceptable to Lender, adequate insurance (including, without
limitation, at the option of Lender, flood insurance) with respect to the
Collateral and other assets. All insurance shall be in such form, substance,
amounts and coverage as may be satisfactory to Lender and shall provide for
thirty (30) days' prior written notice to Lender of cancellation or reduction of
coverage. Lender may adjust or settle any claim or other matter under or arising
pursuant to such insurance on the Collateral. Borrower shall provide evidence of
such insurance and a lender's loss payable endorsement satisfactory to Lender.
Lender may obtain, at Borrower's expense, such insurance should Borrower fail to
do so. Borrower shall deliver to Lender all proceeds of insurance received by
Borrower on the Collateral. Lender may apply any insurance proceeds received to
the cost of repairs to, or replacement of, any Collateral and/or, at Lender's
option, to payment of or as security for any of the Obligations in any order or
manner as Lender determines.
6.6 Compliance With Laws. Borrower is, and at all times will, continue
to be in material compliance with the requirements of all laws, rules,
regulations and orders of any
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governmental authority relating to its business. All of Borrower's Inventory
shall be produced in accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations and orders related
thereto. Borrower shall pay and discharge all taxes, assessments and
governmental charges against Borrower or any Collateral when due, unless the
same are being contested in good faith. Lender may establish Reserves for the
amount contested and penalties which may accrue thereon. Borrower shall not be
deemed to have breached any provision of this Section 6.6 if (i) the failure to
comply with the requirements of this Section 6.6 resulted from good faith error
or innocent omission, (ii) Borrower promptly commences and diligently pursues a
cure of such breach, and (iii) such failure is cured within (30) days following
Borrower's receipt of notice of such failure, or if such breach cannot in good
faith be cured within thirty (30) days, then such breach is cured within a
reasonable time frame based upon the extent and nature of the breach and the
necessary remediation, and in conformity with any applicable consent order,
consensual agreement and applicable law.
6.7 Accounts. All statements made and all unpaid balances and other
information appearing in the invoices, agreements, proofs of rendition of
services and delivery of goods and other documentation relating to the Accounts,
and all confirmatory assignments, schedules, statements of account and books and
records with respect thereto, are true and correct and in all respects what they
purport to be.
6.8 Equipment. Borrower shall keep its equipment in good order and
repair, ordinary wear and tear excepted.
6.9 Financial Covenants. Borrower shall maintain positive EBITDA
measured quarterly and calculated on a trailing four quarter basis; provided
that the above EBITDA requirement shall only be tested as of the end of a fiscal
quarter if, at any time in the following fiscal quarter, the sum of Borrower's
unrestricted and unencumbered (other than liens in favor of Lender) cash
equivalents and cash (in U.S. Dollars in domestic bank accounts) plus Borrower's
Aggregate Excess Availability was less than $7,500,000. "EBITDA" for any fiscal
period of Borrower means the net income of Borrower for such fiscal period, plus
interest expense, depreciation and amortization and provision for income taxes
for such fiscal period, and minus non-recurring miscellaneous income and plus
non-recurring and non-cash miscellaneous expenses, all calculated in accordance
with generally accepted accounting principles.
6.10 Affiliated Transactions. Borrower will not, directly or
indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any person,
firm, corporation or other entity; (b) declare, pay or make any cash dividend,
redemption or other cash distribution on account of any shares of any class of
stock of Borrower now or hereafter outstanding; (c) make any payment on the
principal amount of, or interest on, any indebtedness owing to any officer,
director, shareholder, or affiliate of Borrower; (d) make any loans or advances
to any officer, director, employee, shareholder or affiliate of Borrower; or (e)
enter into any sale, lease or other transaction with any officer, director,
employee, shareholder or affiliate of Borrower on terms that are less favorable
to Borrower than those which might be obtained at the time from persons who are
not an officer, director, employee, shareholder or affiliate of Borrower.
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6.11 Fees and Expenses. Borrower shall pay, on Lender's demand, all
reasonable costs, expenses, filing fees and taxes payable in connection with the
preparation, execution, delivery, recording, administration, collection,
liquidation, enforcement and defense of the Obligations, Lender's rights in the
Collateral, this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any amendments,
waivers, supplements or consents which may hereafter be made or entered into in
respect hereof, or in any way involving claims or defenses asserted by, or
against, Lender, including, but not limited to, the following: (a) all filing or
recording taxes and fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees; (b) all title insurance and other insurance premiums,
appraisal fees, fees incurred in connection with any environmental report, audit
or survey and search fees; (c) all fees as then in effect relating to the wire
transfer of loan proceeds and other funds and fees then in effect for returned
checks and credit reports; (d) all reasonable expenses and costs heretofore and
from time to time hereafter incurred by Lender during the course of periodic
field examinations of the Collateral and Borrower's operations including field
examiner travel, food and lodging, plus a per diem charge at the rate set forth
in Section 10.3(h) for Lender's examiners in the field and office; and (e) the
reasonable costs, disbursements and fees of in-house and outside counsel to
Lender, including but not limited to such reasonable fees and disbursements
incurred as a result of a workout, restructuring, reorganization, liquidation,
insolvency proceeding or litigation between the parties hereto, any third party
and in any appeals arising therefrom.
6.12 Further Assurances. At the request of Lender, at Borrower's sole
expense, Borrower shall execute and deliver, or cause to be executed and
delivered, to Lender such agreements, documents and instruments, including
waivers, consents and subordination agreements from mortgagees or other holders
of security interests or liens, landlords or bailees, and do, or cause to be
done, such further acts as Lender, in its discretion reasonably exercised, deems
necessary to effectuate the provisions and purposes of this Agreement. Borrower
hereby authorizes Lender to file financing statements or amendments against
Borrower in favor of Lender with respect to the Collateral without Borrower's
signature and to file as financing statements any carbon, photographic or other
reproduction of this Agreement. Without limiting the foregoing, the obligation
of Lender to make the initial advance hereunder is subject to, among other
things, the delivery or satisfaction in Lender's discretion reasonably exercised
of each of the following conditions, agreements and documents as applicable: (a)
a blocked or Lender bank account established for the proceeds of Collateral; (b)
the Non-EXIM Loan Agreement has been executed by all the parties thereto and all
the conditions precedent therein have been satisfied; (c) Lender shall have
received the written waiver of the Export-Import Bank with respect to such
matters as Lender deems necessary or appropriate; (d) all Export-Import Bank
approvals, guaranties, waivers and other documentation shall have been executed
and delivered by all parties thereto and Lender shall be satisfied that the
Export-Import Bank Working Capital Guarantee Program is in effect with respect
to the Revolving Loans, and Borrower shall have paid all fees, costs and
expenses required by Export-Import Bank; (e) on a best efforts basis, landlord
waivers on all of Borrower's domestic leased locations; (f) first priority lien
on all of the Collateral; (g) perfection in consigned Inventory to the extent
requested by Lender; (h) the Lender's satisfaction with the financial condition
of the Borrower and an updated examination of the books and records of the
Borrower; (i) the absence of any material adverse change in the financial
condition, business, prospects, profitability, assets (including, without
limitation, the Collateral) or operations of the Borrower as determined by
Lender in its
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sole discretion reasonably exercised; and (j) receipt by the Borrower of the
proceeds from the secondary common stock offering, which became effective on
February 16, 2001.
6.13 Environmental Condition. None of Borrower's properties or assets
has ever been designated or identified pursuant to any environmental protection
statute as a hazardous waste or hazardous substance disposal site or a candidate
for closure pursuant to any environmental protection statute. No lien arising
under any environmental protection statute has attached to any revenues or to
any real or personal property owned by Borrower. Borrower has not received a
summons, citation, notice or directive from the Environmental Protection Agency
or any other federal or state governmental agency concerning any action or
omission by Borrower resulting in the releasing, or otherwise exposing of,
hazardous waste or hazardous substances into the environment. Borrower is, and
will continue to be, in material compliance with all statutes, regulations,
ordinances and other legal requirements pertaining to the production, storage,
handling, treatment, release, transportation or disposal of any hazardous waste
or hazardous substance.
6.14 State of Incorporation. If Borrower is a corporation, it is duly
organized, existing and in good standing under the laws of the state set forth
in Section 10.5(F).
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this Agreement as to
future loans and credit accommodations by Lender shall terminate automatically,
upon the termination of this Agreement or, at Lender's option, upon or at any
time after the occurrence or existence of any one or more of the following
"EVENTS OF DEFAULT":
(a) Borrower fails to pay when due any of the Obligations
within five (5) Business Days of the due date thereof; provided that nothing
contained herein shall prohibit Lender from charging such amounts to the
Borrower's loan account on the due date thereof;
(b) Breach by Borrower of any warranty, representation or
covenant contained herein or in any other written agreement between Borrower and
Lender (other than the Exim Loan Agreement), provided that, in the absence of
fraud, conversion and gross misrepresentation, such breach by Borrower of any of
the warranties, representations or covenants referred in this clause (b) shall
not be deemed to be an Event of Default unless and until such breach shall
remain unremedied to Lender's satisfaction for a period of seven (7) Business
Days from the date of such breach;
(c) Intentionally Deleted.
(d) Any judgment or judgments aggregating in excess of the
amount set forth in Section 10.5 (G) except to the extent such judgments are
fully covered by insurance without a reservation of rights or any injunction or
attachment is obtained against Borrower, which remains unstayed for a period of
ten (10) days (provided that such period shall be extended during such time as
any such judgment is being contested in good faith and by appropriate
proceedings so long as there has been no execution on any of Borrower's assets
by the judgment creditor);
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(e) Borrower ceases to exist or the usual business of Borrower
ceases or is suspended;
(f) Any acquisition by any group of persons (within the
meaning of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
or by any person, of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act), directly or indirectly, of more than 50% of the issued and
outstanding capital stock of Borrower having the right to vote for the election
of directors of Borrower; or more than one-third of the persons who were
directors of Borrower on the first day of any period consisting of twelve (12)
consecutive calendar months (the first of which twelve (12) month periods
commencing on the first day of the month during which this Agreement was
executed), cease, for any reason other that death or disability, to be directors
of Borrower, and the board of directors as thereafter constituted is not
reasonably acceptable to Lender;
(g) Borrower becomes insolvent, makes an assignment for the
benefit of creditors, makes or sends notice of a bulk transfer or calls a
general meeting of its creditors or principal creditors;
(h) Any petition or application for any relief under the
bankruptcy laws of the United States now or hereafter in effect or under any
insolvency, reorganization, receivership, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction now or hereafter in effect
(whether at law or in equity) is filed by or against Borrower, provided that any
such petition or application filed against Borrower shall not be deemed an Event
of Default if such proceeding is controverted within ten (10) days and dismissed
and vacated within thirty (30) days of commencement, except in the event that
any of the actions sought in any such proceeding shall occur or Borrower shall
take action to authorize or effect any of the actions in any such proceeding;
(i) The indictment of Borrower under any criminal statute or
the commencement of (A) any criminal proceedings against Borrower or (B) civil
proceedings (under the Racketeer Influenced and Corrupt Organizations statutes,
18 U.S.C. ss.1961 et seq.) against Borrower pursuant to which statute or
proceedings the penalties or remedies sought or available include forfeiture of
any of the property of Borrower which forfeiture Lender believes could
reasonably be expected to have a material adverse effect on either of the
following: (x) Borrower's business or (y) Collateral with a market value in
excess of $250,000;
(j) Any default or event of default occurs on the part of
Borrower under any material agreement, document or instrument to which Borrower
is a party or by which Borrower or any of its property is bound which default or
event of default Lender believes may have a material adverse effect on the
Collateral or Borrower's business; or
(k) Any Event of Default under, and as defined in, the
Non-EXIM Loan Agreement shall occur.
7.2 Remedies. Upon the occurrence of an Event of Default and at any
time thereafter, Lender shall have all default rights and remedies provided in
this Agreement, any other agreements between Borrower and Lender, the Uniform
Commercial Code (the "UCC") and
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other applicable law, all of which rights and remedies may be exercised without
notice to Borrower (except as otherwise required by applicable law), all such
notices being hereby waived, except such notice as is expressly provided for
hereunder or is not waivable under applicable law. All rights and remedies of
Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively, or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all Obligations and demand immediate
payment thereof, (b) with or without judicial process or the aid or assistance
of others, enter upon any premises on or in which any of the Collateral may be
located and take possession of the Collateral or complete processing,
manufacturing and repair of all or any portion of the Collateral, (c) require
Borrower, at Borrower's expense, to assemble and make available to Lender the
Collateral at any place and time designated by Lender, (d) collect, foreclose,
receive, appropriate, setoff and realize upon any or all Collateral, or (e)
sell, lease, transfer, assign, or otherwise dispose of any or all Collateral
(including, without limitation, entering into contracts with respect thereto),
by public or private sales at any exchange, broker's board, any office of Lender
or elsewhere) at such prices and/or terms as Lender may deem reasonable, for
cash, upon credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all of
the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit terms
or for future delivery, the Obligations shall not be reduced as a result thereof
until payment therefor is finally collected by Lender. If notice of disposition
of Collateral is required by law, ten (10) days prior notice by Lender to
Borrower designating the time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral is to be
made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required. Lender is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets,
tradenames, trademarks and advertising matter, or any intellectual property of a
similar nature as it pertains to the Collateral, in advertising for sale and
selling, collecting on or otherwise disposing of any Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to Lender's
benefit.
7.3 Application of Proceeds. Lender may apply the cash proceeds of
Collateral received by Lender from any sale, lease, foreclosure or other
disposition of the Collateral to payment of any of the Obligations, in whole or
in part, and in such order as Lender may elect, whether or not then due.
Borrower shall remain liable to Lender for the payment of any deficiency
together with interest at the highest rate provided for herein and all costs and
expenses of collection or enforcement, including reasonable attorneys' fees and
legal expenses.
7.4 Lender's Cure of Third Party Agreement Default. Lender may, at its
option, cure any default by Borrower under any agreement with a third party or
pay or bond on appeal any judgment entered against Borrower, discharge taxes,
liens, security interests or other encumbrances at any time levied on, or
existing with respect to, the Collateral and pay any amount, incur any expense
or perform any act which, in Lender's sole judgment, is necessary or appropriate
to preserve, protect, insure, maintain, or realize upon the Collateral. Lender
may charge Borrower's loan account for any amounts so expended, such amounts to
be repayable by
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Borrower on demand. Lender shall be under no obligation to effect such cure,
payment, bonding or discharge, and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 JURY TRIAL WAIVER. BORROWER AND LENDER EACH WAIVE ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF THEM AGAINST
THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT. IN NO EVENT
WILL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL
DAMAGES.
8.2 Counterclaims. Borrower waives all rights to interpose any claims,
deductions, setoffs or counterclaims of any kind, nature or description in any
action or proceeding instituted by Lender with respect to this Agreement, the
Obligations, the Collateral or any matter arising therefrom or relating thereto,
except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits and consents to
the nonexclusive jurisdiction of the State and Federal Courts located in the
State in which the office of Lender designated in Section 10.5(A) is located and
any other State where any Collateral is located with respect to any action or
proceeding arising out of this Agreement, the Obligations, the Collateral or any
matter arising therefrom or relating thereto. In any such action or proceeding,
Borrower waives personal service of the summons and complaint or other process
and papers therein and agrees that the service thereof may be made by mail
directed to Borrower at its chief executive office set forth herein or other
address thereof of which Lender has received notice as provided herein, service
to be deemed complete five (5) days after mailing, or as permitted under the
rules of either of said Courts. Any such action or proceeding commenced by
Borrower against Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the office of
Lender designated in Section 10.5(A) is located and Borrower waives any
objection based on FORUM NON CONVENIENS and any objection to venue in connection
therewith.
8.4 No Waiver by Lender. Lender shall not, by any act, delay, omission
or otherwise, be deemed to have expressly or impliedly waived any of its rights
or remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to, or waiver of, any such right or remedy which
Lender would otherwise have on any future occasion, whether similar in kind or
otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective upon execution and
delivery by Borrower and Lender and shall continue in full force and effect for
a term set forth in Section 10.6 from the date hereof and shall be deemed
automatically renewed, as of the end of the initial or any renewal term (each a
"TERM"), based on the same terms and provisions for successive terms of equal
duration thereafter unless terminated by either party giving the other written
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notice at least sixty (60) days' prior to the end of the then current Term.
Neither this Agreement nor the Non-EXIM Loan Agreement may be terminated singly.
9.2 Termination. Borrower may also terminate this Agreement by giving
Lender at least sixty (60) days prior written notice and payment in full of all
of the Obligations as provided herein, including any unpaid fees. If termination
is other than at the end of a Term, than Borrower shall also pay Lender the
Early Termination Fee set forth in Section 10.3(i) hereof. Sixty days after
receipt of such early termination notice, Lender need not make any further loans
or accommodations. Lender shall also have the right to terminate this Agreement
at any time upon or after the occurrence of an Event of Default. If Lender
terminates this Agreement upon or after the occurrence of an Event of Default,
Borrower shall pay Lender forthwith, in full, all Obligations, including the
Early Termination Fee, and any unpaid fees. Notwithstanding anything to the
contrary herein, the Borrower shall not be required to pay the Early Termination
Fee if (a) no Event of Default has occurred and is continuing at the time the
Obligations are paid in full and (b) the funds utilized to pay the Obligations
in full are (i) the proceeds of a public offering of the stock of Borrower
and/or (ii) from cash not obtained through a refinancing. The Early Termination
Fee payable under this Section 9.2 shall not be duplicative of the Early
Termination Fee payable under the Non-EXIM Loan Agreement.
9.3 Termination Indemnity Deposit. Upon termination of this Agreement
by Borrower, as permitted herein, in addition to payment of all Obligations
which are not contingent, Borrower shall deposit such amount of cash collateral
as Lender determines is necessary to secure Lender from loss, cost, damage or
expense, including reasonable attorneys' fees, in connection with any open
accommodations or remittance items or other payments provisionally credited to
the Obligations and/or to which Lender has not yet received final and
indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices, requests and
demands hereunder shall be (a) made to Lender at its address set forth in
Section 10.5(A) and to Borrower at its chief executive office set forth in
Section 10.5(C), or to such other address as either party may designate by
written notice to the other in accordance with this provision, and (b) deemed to
have been given or made: if by hand, immediately upon delivery; if by facsimile,
immediately upon receipt; if by overnight delivery service, one day after
dispatch; and if by first class or certified mail, three (3) days after mailing.
9.5 Severability. If any provision of this Agreement is held to be
invalid or unenforceable, such provision shall not affect this Agreement as a
whole but this Agreement shall be construed as though it did not contain the
particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This Agreement contains
the entire agreement of the parties as to the subject matter hereof, all prior
commitments, proposals and negotiations concerning the subject matter hereof
being merged herein. Neither this Agreement nor any provision hereof shall be
amended, modified or discharged, orally or by course of conduct, but only by a
written agreement signed by an authorized officer of Lender. This Agreement
shall be binding upon, and inure to the benefit of, each of the parties hereto
and
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their respective successors and assigns, except that any obligation of Lender
under this Agreement shall not be assignable nor inure to the successors and
assigns of Borrower.
9.7 Discharge of Borrower. No termination of this Agreement shall
relieve or discharge Borrower of its Obligations, grants of Collateral, duties
and covenants hereunder or otherwise until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full.
9.8 Usage. All terms used herein which are defined in the UCC shall
have the meanings given therein unless otherwise defined in this Agreement and
all references to the singular or plural herein shall also mean the plural or
singular, respectively.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State in which the office of Lender set forth in
Section 10.5(A) below is located.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1
(a) Maximum Credit: $10,000,000
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 90% provided that the
Dilution Percentage does not exceed 5%. The Dilution
Percentage is the sum of Borrower's credits,
allowances, discounts, write-offs, contra-accounts
and offsets and deductions which reduce the value of
Accounts divided by gross invoices. The Dilution
Percentage shall be calculated on a rolling 90 day
average. If the Dilution Percentage exceeds 5%, then
the Eligible Accounts Percentage shall be reduced at
Lender's discretion by such excess Dilution
Percentage and Lender may create a Reserve for such
excess.
(c) Intentionally Deleted.
(d) Maximum days after Invoice
Date for Eligible Accounts: 90 days
(e) Intentionally Deleted.
10.2 Intentionally Deleted.
10.3 Interest, Fees & Charges:
(a) Prime Rate Loan Interest Rate: Prime Rate plus .50% per annum
(b) LIBOR Loan Interest Rate: LIBOR plus 3.25% per annum
(c) Collection Days: One (1) Business Day
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(d) Intentionally Deleted.
(e) Intentionally Deleted.
(f) Intentionally Deleted.
(g) Intentionally Deleted.
(h) Field Examination per diem charge
per examiner: Not Applicable
(i) Early Termination Fee:
First year of closing: 2.0% of the Maximum Credit
Second year of closing: 1.0% of the Maximum Credit
Third year of closing: 1.0% of the Maximum Credit
10.4 Intentionally Deleted.
10.5 Offices and Locations
(a) Lender's Office: 300 S. Grand Avenue
3rd Floor
Los Angeles, CA 90071
(b) Borrower: Adept Technology, Inc.
(c) Borrower's Chief Executive Office: 150 Rose Orchard Way
San Jose, CA 95134
(d) Intentionally Deleted.
(e) Borrower's Other Offices and Locations
of Collateral: 2575 N. Dragoon St.
Tucson, Arizona 95745
(f) Borrower's State of Incorporation: California
(g) Judgment Amount $400,000
10.6 Term: Three (3) Years
10.7 As used in this Agreement, the following terms have the meanings
set forth below:
(a) "NON-EXIM LOAN AGREEMENT" means that certain Loan and
Security Agreement (Non-EXIM Facility) dated the date hereof between Borrower
and Lender.
(b) "AGGREGATE EXCESS AVAILABILITY" means, at any time, the
sum of (i) Borrower's excess Net Availability under this Agreement and (ii)
Borrower's excess Net Availability under the Non-EXIM Loan Agreement.
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IN WITNESS WHEREOF, Borrower and Lender have duly executed this
Agreement this ____ day of April, 2001.
LENDER: BORROWER:
THE CIT GROUP/COMMERCIAL ADEPT TECHNOLOGY, INC.
SERVICES, INC.
on behalf of its affiliate THE CIT GROUP/
BUSINESS CREDIT, INC.
By: /s/ Kelly Wu By: /s/ Michael W. Overby
--------------- ------------------------
Title: VP Title: VP and CFO
---- ------------
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SCHEDULE A
PERMITTED LIENS
Secured Party UCC Filing No. Types of Collateral
------------- -------------- -------------------
Zions Credit Corporation Arizona Filing: 0974310-0 Leased Equipment
filed 6/30/97
Zions Credit Corporation Arizona Filing: 01008530-0 Leased Equipment
filed 3/17/98
Telogy, Inc. California Filing: 0016760535 Leased Equipment
filed 6/8/00
Zions Credit Corporation California Filing: 0017160255 Leased Equipment
filed 6/12/00
Zions Credit Corporation California Filing: 0017160245 Leased Equipment
filed 6/12/00
A-1
EX-23
7
p14376_ex23-1.txt
CONSENT OF INDEPENENT AUDITORS
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 333-84393, 333-66993, 333-92525, 333-39065, 333-03656
333-50292 and 333-50296) pertaining to the BYE/OASIS Engineering, Inc. 1997
Stock Option Plan, 1998 Employee Stock Purchase Plan, 1993 Stock Plan, 1995
Employee Stock Purchase Plan and 1995 Director Option Plan of Adept Technology,
Inc. of our report dated July 30, 2001, with respect to the consolidated
financial statements and schedule of Adept Technology, Inc. included in the
Annual Report (Form 10-K) for the year ended June 30, 2001.
ERNST & YOUNG LLP
San Jose, California
September 17, 2001