EXHIBIT 10.17
[LOGO OF IMPERIAL BANK]
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND/OR INVENTORY)
This Agreement is entered into between POWER INTEGRATIONS, INC. a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in amounts up to, but
not exceeding in the aggregate unpaid principal balance, the following
Borrowing Base: as modified by the Addendum to this Security and Loan
Agreement.
75.000% of eligible Accounts
40.000% of the Value of Inventory Eligible
Domestic finished goods Not to Exceed
$4,000,000.00 and in no event more than $8,000,000.00.
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (b) on or before
the tenth day of each month, interest on the average daily unpaid balance
of the Loan Account during the immediately preceding month at the rate of
No percent (0.000%) per annum in excess of the rate of interest which Bank
has announced as its prime lending rate ("Prime rate") which shall vary
concurrently with any change in such Prime Rate. Interest shall be
computed at the above rate on the basis of the actual number of days during
which the principal balance of the loan account is outstanding divided by
360, which shall for interest computation purposes be considered one year.
Such notice may be given verbally or in writing and should be effective
upon receipt by Borrower. The amount of interest payable each month by
Borrower shall not be less than a minimum monthly charge of $250.00. Bank
is hereby authorized to charge Borrower's deposit account(s) with Bank for
all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or
to be sold or to be leased, or for services rendered or to be
rendered no matter how evidenced, including accounts receivable,
contract rights, chattel paper, instruments, purchase orders,
notes, drafts, acceptances, general intangibles and other forms of
obligations and receivables.
B. "Inventory" means all of the Borrower's goods, merchandise and
other personal property which are held for sale or lease, including
those held for display or demonstration or out on lease or
consignment or to be furnished under a contract of service or are
raw materials, work in process or materials used or consumed, or to
be used or consumed in Borrower's business, and shall include all
property rights, patents, plans, drawings, diagrams, schematics,
assembly and display materials relating thereto.
C. "Collateral" means any and all personal property of Borrower which
is assigned or hereafter is assigned to Bank as security or in
which Bank now has or hereafter acquires a security interest.
D. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received
within 90 days from any invoice date, (2) all Accounts against
which the account debtor or any other person obligated to make
payment thereon asserts any defense, offset, counterclaim or other
right to avoid or reduce the liability represented by the Account
and (3) any Accounts if the account debtor or any other person
liable in connection therewith is insolvent, subject to bankruptcy
or receivership proceedings or has made an assignment for the
benefit of creditors or whose credit standing is unacceptable to
Bank and Bank has so notified Borrower. Eligible Accounts shall
only include such accounts as Bank in its sole discretion shall
determine are eligible from time to time.
E. "Value of Inventory" means the value of Borrower's inventory
determined in accordance with generally accepted accounting
principles consistently applied excluding, however, the amount of
progress payments, pre-delivery payments, deposits and any other
sums received by Borrower in anticipation of the sale and delivery
of inventory, all inventory on consignment or lease to others, and
all property on consignment or lease from others to Borrower.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security therefor
and all merchandise giving rise thereto, and hereby grants to Bank a
continuing security interest in all Borrower's inventory and in all
proceeds and products thereof, whether now owned or hereafter existing or
acquired, including all moneys in the Collateral Account referred to in
Section 6 hereof, as security for any and all obligations of Borrower to
Bank, whether now owing or hereafter incurred and whether direct,
indirect, absolute or contingent. So long as Borrower is indebted to Bank
or Bank is committed to extend credit to Borrower, Borrower will execute
and deliver to Bank such assignments, including Bank's standard forms of
Specific or General Assignment covering individual Accounts, notices,
financing statements, and other documents and papers as Bank may require in
order to affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts and inventory
proceeds, pursuant to paragraph 10, Borrower will collect with diligence
all Borrower's Accounts and inventory proceeds, provided that in the event
of a default by Borrower no legal action shall be maintained thereon or in
connection therewith without Bank's prior written consent. Any collection
of Accounts or inventory proceeds by Borrower, whether in the form of cash,
checks, notes, or other instruments for the payment of money (properly
endorsed or assigned where required to enable Bank to collect same), shall
be in trust for Bank, and Borrower shall keep all such collections separate
and apart from all other funds and property so as to be capable of
identification as the property of Bank and deliver said collections,
together with the proceeds of all cash sales, daily to Bank in the
identical form received. The proceeds of such collections when received by
Bank may be applied by Bank directly to the payment of Borrower's Loan
Account or any other obligation secured hereby. Any credit given by Bank
upon receipt of said proceeds shall be conditional credit subject to
collection. Returned items at Bank's option may be charged to Borrower's
general account. All collections of the Accounts and inventory proceeds
shall be set forth on an itemized schedule, showing the name of the account
debtor, the amount of each payment and such other information as Bank may
request.
7. Until Bank exercises its rights to collect the Accounts or inventory
proceeds pursuant to paragraph 10, Borrower may continue its present
policies with respect to returned merchandise and adjustments. However,
Borrower shall immediately notify Bank of all* cases involving returns,
repossessions, and loss or damage of or to merchandise represented by the
Accounts or constituting inventory and of any credits, adjustments or
disputes arising in connection with the goods or services represented by
the Accounts or constituting inventory and, in any of such events, Borrower
will immediately pay to Bank from its own funds (and not from the proceeds
of Accounts or inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.**
Until payment is made as provided herein or until release by Bank from its
security interest, all merchandise returned to or
* material
** in excess of the borrowing base limit
Page 1 of 2
repossessed by Borrower shall be set aside and identified as the property
of Bank and Bank shall be entitled to enter upon any premises where such
merchandise is located and take immediate possession thereof and remove
same.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide indebtedness
incurred by the debtor named therein in the amount of the Account for
either merchandise sold or delivered (or being held subject to Borrower's
delivery instructions) to, or services rendered, performed and accepted by,
the account debtor; (iv) That there are or will be no defenses,
counterclaims, or setoffs which may be asserted against the Accounts; and
(v) any and all financial information, including information relating to
the Collateral, submitted by Borrower to Bank, whether previously or in the
future, is or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and at such times as Bank may
require, statements showing aging and reconciliation of the Accounts and
collections thereon, and reports as to the inventory and sales thereof;
(iii) Permit representatives of Bank to inspect the inventory and
Borrower's books and records relating to the Collateral and make extracts
therefrom at any reasonable time and to arrange for verification of the
Accounts, under reasonable procedures, acceptable to Bank, directly with
the account debtors or otherwise at Borrower's expense; (iv) Promptly
notify Bank of any attachment or other legal process levied against any of
the Collateral and any information received by Borrower relative to the
Collateral, including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of
the Collateral or the rights and remedies of Bank in respect thereto; (v)
Reimburse Bank upon demand for any and all legal costs, including
reasonable attorneys' fees, and other expense incurred in collecting any
sums payable by Borrower under Borrower's Loan Account or any other
obligation secured hereby, enforcing any term or provision of this
Security Agreement or otherwise or in the checking, handling and collection
of the Collateral and the preparation and enforcement of any agreement
relating thereto; (vi) Notify Bank of each location at which the inventory
is or will be kept, other than for temporary processing, storage or similar
purposes, and of any removal thereof to a new location and of each office
of Borrower at which records of Borrower relating to the Accounts are kept;
(vii) Provide, maintain and deliver to Bank policies insuring the
Collateral against loss or damage by such risks and in such amounts, forms
and companies as Bank may require and with loss payable solely to Bank,
and, in the event Bank takes possession of the Collateral, the insurance
policy or policies and any unearned or returned premium thereon shall at
the option of Bank become the sole property of Bank, such policies and the
proceeds of any other insurance covering or in any way relating to the
Collateral, whether now in existence or hereafter obtained, being hereby
assigned to Bank; (viii) Do all acts necessary to maintain, preserve and
protect all inventory, keep all inventory in good condition and repair and
not to cause any waste or unusual or unreasonable depreciation thereof, and
(ix) in the event the unpaid balance of Borrower's Loan Account shall
exceed the maximum amount of outstanding loans to which Borrower is
entitled under Section 1 hereof, Borrower shall immediately pay to Bank,
from its own funds and not from the proceeds of Collateral, for credit to
Borrower's Loan Account the amount of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and Inventory proceeds and may give notice of assignment to any
and all account debtors, and Borrower does hereby make, constitute and
appoint Bank its irrevocable, true and lawful attorney with power to
receive, open and dispose of all mail addressed to Borrower, to endorse the
name of Borrower upon any checks or other evidences of payment that may
come into the possession of Bank upon the Accounts or as proceeds of
Inventory; to endorse the name of the undersigned upon any document or
instrument relating to the Collateral; in its name or otherwise, to demand,
▇▇▇ for, ??? and give acquittances for any and all moneys due or to become
due upon the Accounts; to compromise, prosecute or defend any action, claim
or proceeding with respect thereto; and to do any and all things necessary
and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral in favor of any
secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any statement or representation made for the
purpose of obtaining credit hereunder prove false; (iii) Bank deem the
Collateral inadequate or unsafe or in danger of misuse; (iv) Borrower
become insolvent or make an assignment for the benefit of creditors; or (v)
Any proceeding be commended by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt or moratorium law or
statute; then in any such event, Bank may, at its option and without demand
first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank
at a place designated by Bank which is reasonably convenient to Borrower
and Bank, and Borrower waives all claims for damages due to or arising from
or connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by
law, or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the
Collateral at the place of sale, and upon terms and in such manner as Bank
may determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by Bank
shall be repaid by Borrower and secured hereby. Bank shall have the right
to enforce one or more remedies hereunder successively or concurrently, and
any such action shall not estop or prevent Bank from pursuing any further
remedy which it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all obligations
secured by this Security Agreement, Borrower hereby promises and agrees to
pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured
hereby and all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time subsequent
to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: see attached Addendum
Executed this 12th day of August, 1997
POWER INTEGRATIONS, INC.
---------------------------------------
(Name of Borrower)
BY: /s/
------------------------------------
IMPERIAL BANK (Authorized Signature and Title)
BY: /s/ BY: /s/
---------------------------------- ------------------------------------
Title (Authorized Signature and Title)
*If none, insert "None"
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ADDENDUM TO SECURITY AND LOAN AGREEMENT
("SECURITY AND LOAN AGREEMENT") BETWEEN
POWER INTEGRATIONS, INC. AND IMPERIAL BANK
DATED AUGUST 12, 1997
This Addendum is made and entered into August 12, 1997, between Power
Integrations, Inc. ("Borrower") and Imperial Bank ("Bank"). This Addendum
amends and supplements the Security and Loan Agreement. In the event of any
inconsistency between the terms herein and the terms of the Security and Loan
Agreement, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts and Inventory shall expire
on August 11, 1998, subject to Bank's right to renew said commitment in its sole
discretion. Any such renewal of the commitment shall not be binding upon Bank
unless it is in writing and signed by an officer of the Bank. All amounts
outstanding under the Security and Loan Agreement shall be due and payable in
full on the earlier of (i) the occurrence of a default under the Security and
Loan Agreement or this Addendum, or (ii) August 11, 1998.
2. Subject to the availability of the Borrowing Base and in reliance of the
representations and warranties of Borrower set forth herein, at any time and
from time to time from the date hereof through the business day immediately
prior to the expiration date in Section 1 above, Bank shall issue for the
account of Borrower such standby and commercial letters of credit ("Letters of
Credit") as Borrower may request, which request shall be made by delivering to
Bank a duly executed letter of credit application on Bank's standard form;
provided, however, that the outstanding and undrawn amounts under all such
Letters of Credit (i) shall not at any time exceed $8,000,000.00 and (ii) shall
be deemed to constituted outstanding for the purpose of calculating availability
under the Borrower Base. Unless Borrower shall have deposited with Bank cash
collateral in an amount sufficient to cover all undrawn amounts under each such
Letter of Credit and Bank shall have agreed in writing, no Letter of Credit
shall have an expiration date that is later than the expiration date in Section
1 above. All Letter of Credit shall be in form and substance acceptable to Bank
in its sole discretion and shall be subject to the terms and conditions of
Bank's form application and letter of credit agreement. Borrower will pay any
standard issuance and other fees that Bank notifies Borrower will be charged for
issuing and processing Letters of Credit for Borrower.
3. Subject to the availability of the Borrowing Base and in reliance on the
representations and warranties of Borrower set forth herein, at any time and
from time to time from the date hereof through the business day immediately
prior to the expiration date in Section 1 above, Bank shall arrange the purchase
by Borrower of foreign exchange futures contracts ("Exchange Contracts") as
Borrower may request, which request shall be made by delivering to Bank a duly
executed exchange contract application on Bank's standard form; provided,
however, that the maximum aggregate notional contract amount under all such
Exchange Contracts shall not at any time exceed $3,000,000.00 provided, further,
that 10% of the maximum aggregate notional contract amount under all such
Exchange Contracts shall be deemed to constituted outstanding for the purpose of
calculating availability under the Borrowing base. Unless Borrower shall have
deposited with Bank cash collateral in an amount sufficient to cover all undrawn
amounts under each such Exchange Contract and Bank shall have agreed in writing,
no Exchange Contract shall have a due date that is later than the expiration
date in Section 1 above. All Exchange Contacts shall be in form and substance
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form exchange contract application. Borrower will pay any
standard issuance and other fees that Bank notifies Borrower will be charges for
issuing and processing Exchange
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Addendum to Security and Loan Agreement
Dated August 12, 1997
Contract for Borrower. After and during the continuance of a default, Bank may,
in its sole and absolute discretion, terminate any or all of the Exchange
Contracts. Borrower agrees to indemnify and hold harmless Bank from and against
all loss, costs and expense associated with any such termination of any Exchange
Contract.
4. At no time will the sum of (i) all Letter of Credit outstanding, plus (ii)
10% of the maximum aggregate notional contract amount under all such Exchange
Contracts, plus (iii) direct borrowings, and plus (iv) the net amount due Bank
from any participation in equipment leases between Lighthouse Capital and
Borrower, exceed the aggregate sum of $8,000,000.00.
5. In addition to the provisions in the Security and Loan Agreement, Eligible
Accounts shall only include such accounts as Bank in its sole discretion shall
from time to time determine are eligible. Eligible Accounts shall also not
include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower;
b. Accounts due from a customer if more than twenty-five percent (25%) or
more of the aggregate amount of accounts of such customer have at that time
remained unpaid for more than ninety (90) days from the invoice date (CROSS
AGE);
c. Accounts representing ▇▇▇▇▇▇▇▇ for service or maintenance contracts or
for inventory or equipment on rent to the account debtor;
d. Salesman's accounts for promotional purposes;
e. The amount by which any one account exceeds twenty-five percent (25%)
of the total accounts receivable balance (CONCENTRATION);
f. Accounts where the account debtor is a seller to borrower, to the
extent that a potential offset exists (CONTRA);
g. Accounts where the account debtor is a governmental entity, agency or
instrumentality thereof.
6. Pursuant to the provisions in the Security and Loan Agreement and this
Addendum, Bank will advance up to forty percent (40%) of Eligible Inventory at
the request of Borrower made from time to time, up to a maximum amount
outstanding not to exceed the lesser of $4,000,000 or 50% of the Borrowing Base.
(Inventory Sublimit) Eligible Inventory is defined as completed silicon wafers
received from the fabrication plant, or packaged dies received from a third
party packaging company located at Borrower's chief executive office, less
reserves.
7. Borrower represents and warrants that:
a. There is no litigation or other proceeding pending or threatened
against or affecting Borrower, and Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or other governmental
or regulatory authority;
b. The balance sheet of Borrower dated as of June 30, 1997, and the
related profit and loss statement for the quarter then ended, a copy of which
has heretofore been delivered to Bank by Borrower, and all other statements and
data submitted in writing by Borrower to Bank in connection with its request for
credit are true and
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Addendum to Security and Loan Agreement
Dated August 12, 1997
correct, and said balance sheet and profit and loss statement truly present the
financial condition of Borrower as of the date thereof and the results of the
operations of Borrower for the period covered thereby, and have been prepared in
accordance with generally accepted accounting principles on a basis consistently
maintained. Since such date, there have been no material adverse changes.
Borrower has no knowledge of any liabilities, contingent or otherwise, at such
date not reflected in said balance sheet, and Borrower has not entered into any
special commitments or substantial contracts which are not reflected in said
balance sheet, other than in the ordinary and normal course of its business,
which may have a materially adverse effect upon its financial condition,
operations or business as now conducted;
c. Borrower has no liability for any delinquent state, local or federal
taxes, and, if Borrower has contracted with any government agency, Borrower has
no liability for renegotiation of profits;
d. Borrower, as of the date hereof, possesses all necessary trademarks,
trade names, copyrights, patents, patent rights, and licenses to conduct its
business as now operated, without any known conflict with valid trademarks,
trade names, copyrights, patents and license rights of others.
8. Borrower agrees that so long as it is indebted to Bank, it will not,
without prior written consent of Bank:
a. Make any substantial change in the character of its business;
b. Create, incur, assume or permit to exist any indebtedness for borrowed
monies other than loans from Bank except for indebtedness (i) fully subordinated
in form and substance satisfactory to Bank to debt due Bank, (ii) equipment
leases, and (iii) obligations now existing as shown in financial statement dated
June 30, 1997, excluding those being refinanced by Bank; or sell or transfer,
either with or without recourse, any accounts or notes receivable or any monies
due or to become due;
c. Create, incur, or assume any mortgage, pledge, encumbrance, lien or
charge of any kind (including the charge upon property at any time purchased or
acquired under conditional sale or other title retention agreement) upon any
asset now owned or hereafter acquired by it, other than liens (i) for taxes not
delinquent, (ii) in Bank's favor, and (iii) for equipment leased from parties
other than Bank;
d. Make any loans or advances to any person or other entity other than in
the ordinary and normal course of its business as now conducted or make any
investment in the securities of any person or other entity other than
investments in accordance with the current investment policy of the Borrower as
disclosed to the Bank on Schedule A, with such changes thereto requested by the
Borrower as may be acceptable to the Bank; or guarantee or otherwise become
liable upon the obligation of any person or other entity, except by endorsement
of negotiable instruments for deposit or collection in the ordinary and normal
course of its business;
e. Purchase or otherwise acquire the assets or business of any person or
other entity; or liquidate, dissolve, merge or consolidate, or commence any
proceedings therefore; or except in the ordinary and normal course of its
business, sell (including without limitation the selling of any property or
other asset accompanied by the leasing back of the same) any assets including
any fixed assets, any property, or other assets necessary for the continuance of
its business as now conducted;
f. Declare or pay any dividend or make any other distribution on any of
its capital stock now outstanding or hereafter issued or purchase, redeem or
retire any of such stock.
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Addendum to Security and Loan Agreement
Dated August 12, 1997
9. All financial covenants and financial information referenced herein shall
be interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a monthly basis except
were noted otherwise.
10. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, it will:
a. At all times maintain a quick ratio (meaning all cash plus accounts
receivable divided by current liabilities less deferred revenue) of at least one
to one (1.00:1.00);
b. At all times maintain a maximum ratio of total liabilities (meaning all
liabilities, excluding deferred revenue and long term indebtedness fully
subordinated to debt due Bank) to tangible net worth (meaning all assets
excluding any value for goodwill, trademarks, patents, copyrights, organization
expense and other similar intangible items, less total liabilities, plus long
term indebtedness fully subordinated to debt due Bank) not to exceed one to one
(1.00:1:00);
c. Measured on a quarterly basis on the last day of each fiscal quarter
maintain after tax profitability;
d. As soon as it is available, but not later than 15 days after and as of
the end of each month, deliver to Bank: (i) a listing of aged accounts
receivable and accounts payable from invoice date; (ii) inventory summary; and
(iii) Borrowing Base Certificate certified by an officer of Borrower; in form
satisfactory to Bank;
e. As soon as it is available, but not later than 30 days after and as of
the end of each month, deliver to Bank: (i) financial statement consisting of a
balance sheet, profit and loss statement and cash flow statement, and (ii)
Compliance Certificate certified by an officer of Borrower; in form satisfactory
to Bank;
f. As soon as it is available, but not later than 90 days after the end of
Borrower's fiscal year, deliver to Bank a report of audit of Borrower's
financial statements together with changes in financial position certified
without negative qualification by an independent certified public accountant
selected by Borrower but acceptable to Bank;
g. Upon Bank's reasonable Borrower shall deliver to Bank, budgets, sales
projections, operating plans, or other financial exhibits;
h. Upon Bank's reasonable request, and not less frequently than semi-
annually per calendar year, Borrower shall deliver to Bank executed originals of
Bank's standard form Patent Security Agreement and Trademark Security Agreement,
each with appropriate insertions and schedules sufficient for perfecting Bank's
security interest in all patents, patent licenses, trademarks and trademark
licenses to which Borrower then has any right, title or interest;
i. Permit representatives of Bank to conduct an audit of Borrower's books
and records relating to the Collateral and make extracts therefrom with
results satisfactory to Bank, provided that Bank shall use its best efforts to
not interfere with the conduct of Borrower's business, and to the extent
possible, to arrange for verification of all Accounts directly with the
persons obligated thereon or otherwise, all under reasonable procedures
acceptable to Bank and at Borrower's sole expense; provided further that,
prior to an Event of Default, Borrower shall not be responsible for the
expense of more than one audit in any fiscal year;
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Addendum to Security and Loan Agreement
Dated August 12, 1997
j. Maintain and preserve all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties, equipment and
facilities in good order and repair; conduct its business or partnership,
maintain and preserve its existence;
k. Maintain public liability, property damage and workers compensation
insurance and insurance on all its insurable property against fire and other
hazards with responsible insurance carriers to the extent usually maintained by
similar businesses. Borrower shall provide evidence of property insurance in
amounts and types acceptable to Bank, and certificates naming Bank Loss Payee;
l. Pay and discharge, before the same become delinquent and before
penalties accrue thereon, all taxes, assessments and governmental charges upon
or against it or any of its properties, and any of its other liabilities at any
time existing, except to the extent and so long as:
(i) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
affect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(ii) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by
it adequate with respect thereto.
m. Maintain a standard and modern system of accounting in accordance with
generally accepted accounting principles on a basis consistently maintained;
permit Bank's representatives to have access to, and to examine its properties,
books and records at all reasonable times.
11. In addition to any other amounts due, or to become due, Borrower agrees to
pay a loan fee in the amount of five thousand dollars ($5,000.00) to Bank upon
signing of this Agreement, together with a documentation preparation.
12. Borrower will maintain substantially all its banking relationship with
Bank.
13. All obligations of Borrower shall be Secured by a perfected first priority
security interest in all corporate assets, excluding leased equipment. Specific
filing in first position on Borrower's intellectual property (excluding
MagneTek's rights to Borrower's technology for use inside the field pertaining
to lights, which the Bank has a specific filing in second position) with the
U.S. Patent & Trademark Office and the U.S. Copyright Office. Borrower agrees
to execute and deliver a mortgage for Borrower's intellectual property and
amendments appropriate and acceptable to Bank to perfect and maintain Bank's
security interest in all such intellectual property proceeds thereof.
14. If any interest payment, principal payment or principal balance payment due
from Borrower is delinquent ten (10) or more days, Borrower agrees to pay Bank a
late charge in the amount of 5% of the payment so due and unpaid, in addition to
the payment; but nothing in this provision is to be construed as any obligation
on the part of Bank to accept payment of any payment past due or less than the
total unpaid principal balance after maturity. All payments shall be applied
first to any late charges owing, then to interest and the remainder, if any, to
principal.
15. Should there be a default under the Security and Loan Agreement, the
General Security Agreement, or under any note executed by Borrower, all
obligations, loans and liabilities of Borrower to Bank, due or to become
5 of 7
Addendum to Security and Loan Agreement
Dated August 12, 1997
due, whether now existing or hereafter arising, shall, at the option of Bank,
become immediately due and payable without notice or demand, and Bank shall
thereupon have the right to exercise all of its default rights and remedies.
The default rate of interest shall be five percent per year in excess of the
rate otherwise charged.
16. Notice of Default. Borrower shall promptly notify Bank in writing of the
occurrence of any event of default hereunder or any event which upon notice and
lapse of time would be an event of default.
17. Miscellaneous Provisions. Failure or Indulgence Not Waiver. No failure or
delay on the part of Bank or any holder of Notes issued hereunder, in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof. All rights and
remedies existing under this agreement or any not issued in connection with a
loan that Bank may make hereunder, are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
18. Reference Provision.
a. Other than (i) non-judicial foreclosure and all matters in connection
therewith regarding security interests in real or personal property; or (ii) the
appointment of a receiver, or the exercise of other provisional remedies (any
and all of which may be initiated pursuant to applicable law), each controversy,
dispute or claim between the parties arising out of or relating to this Note
("Agreement"), which controversy, dispute or claim is not settled in writing
within thirty (30) days after the "Claim Date" (defined as the date on which a
party subject to the Agreement gives written notice to all other parties that a
controversy, dispute or claim exists), will be settled by a reference proceeding
in California in accordance with the provisions of Section 638 et seq. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such controversy,
dispute or claim is subject to the reference proceeding and except as set forth
above, the parties waive their rights to initiate any legal proceedings against
each other in any court or jurisdiction other than the Superior Court in the
County where the real property securing this Agreement, if any, is located or
Los Angeles County if none (the "Court"). The referee shall be a retired Judge
of the Court selected by mutual agreement of the parties, and if they cannot so
agree within forty-five (45) days after the Claim Date, the referee shall be
promptly selected by the Presiding Judge of the Court (or his representative).
The referee shall be appointed to sit as a temporary judge, with all of the
powers of a temporary judge, as authorized by law, and upon selection should
take and subscribe to the oath of office as provided for in Rule 244 of the
California Rules of Court (or any subsequently enacted Rule). Each party shall
have one peremptory challenge pursuant to CCP (S)170.6. The referee shall (a)
be requested to set the matter for hearing within sixty (60) days after the
Claim Date and (b) try any and all issues of law or fact and report a statement
of decision upon them, if possible, within ninety (90) days of the Claim Date.
Any decision rendered by the referee will be final, binding and conclusive and
judgment shall be entered pursuant to CCP (S)644 in any court in the State of
California having jurisdiction. Any party may apply for a reference proceeding
at any time after thirty (30) days following notice to any other party of the
nature of the controversy, dispute or claim, by filing a petition for a hearing
and/or trial. All discovery permitted by this Agreement shall be completed no
later than fifteen (15) days before the first hearing date established by the
referee. The referee may extend such period in the event of a party's refusal to
provide requested discovery for any reason whatsoever, including, without
limitation, legal objections raised to such discovery or unavailability of a
witness due to absence or illness. No party shall be entitled to "priority" in
conducting discovery. Depositions may be taken by either party upon seven (7)
days written notice, and request for production or inspection of documents shall
be responded to within ten (10) days after service. All disputes relating to
discovery which cannot be resolved by the parties shall be submitted to the
referee whose decision shall
6 of 7
Addendum to Security and Loan Agreement
Dated August 12, 1997
be final and binding upon the parties. Pending appointment of the referee as
provided herein, the Superior Court is empowered to issue temporary and/or
provisional remedies, as appropriate.
b. Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of all hearings, the order of presentation of evidence, and
all other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee. The party making such a request shall have the obligation to
arrange for and pay for the court reporter. The costs of the court reporter at
the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in accordance
with existing case law and the statutory laws of the State of California. The
rules of evidence applicable to proceedings at law in the State of California
will be applicable to the reference proceeding. The referee shall be empowered
to enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon the
parties. The referee shall issue a single judgment at the close of the reference
proceeding which shall dispose of all of the claims of the parties that are the
subject of the reference. The parties hereto expressly reserve the right to
contest or appeal from the final judgment or any appealable order or appealable
judgment entered by the referee. The parties hereto expressly reserve the right
to findings of fact, conclusions of law, a written statement of decision, and
the right to move for a new trial or a different judgment, which new trial, if
granted, is also to be a reference proceeding under this provision.
d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted), any
dispute between the parties that would otherwise be determined by the reference
procedure herein described will be resolved and determined by arbitration. The
arbitration will be conducted by a retired judge of the Court, in accordance
with the California Arbitration Act, (S)1280 through (S)1294.2 of the CCP as
amended from time to time. The limitations with respect to discovery as set
forth herein above shall apply to any such arbitration proceeding.
This Addendum is executed by and on behalf of the parties as of the date first
above written.
Power Integrations, Inc. Imperial Bank
By: By:
-------------------------- --------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. Le Deit
Its: Vice President Finance & Administration Its: Assistant Vice President
7 of 7
Assignment and Assumption Agreement
Between
Power Integrations, Inc., a California corporation
and
Power Integrations, Inc., a Delaware corporation
and
Imperial Bank
and
Imperial Bancorp
This Assignment and Assumption Agreement dated as of September 23, 1997
("Assumption Agreement") by and between Power Integrations, Inc., a California
corporation ("California"), Power Integrations, Inc., a Delaware corporation
("Delaware"), Imperial Bank ("Bank"), and Imperial Bancorp ("Bancorp").
RECITALS
--------
A. The Bank has made certain credit facilities available to California.
B. California has requested that the Bank consent to the merger of
California into Delaware.
C. The Bank has agreed to consent to the above merger of California into
Delaware, but only on the terms of this Agreement.
Now, therefore the parties hereby agree as follows:
1. California hereby assigns and Delaware hereby assumes all the obligations
of California pursuant to that Loan and Security Agreement with Addendum, dated
August 12, 1997 (the "Credit Agreement"), executed by California in favor of the
Bank; the General Security Agreement (Tangible and Intangible Property), dated
February 15, 1995 (the "Security Agreement"), executed by California in favor of
Bank; the Patent Security Agreement dated February 15, 1995 ("Patent Agreement")
executed by California in favor of Bank; the Trademark Security Agreement dated
February 15, 1995 ("Trademark Agreement") executed by California in favor of
Bank; the Warrant To Purchase Stock dated February 27, 1995, Warrant To Purchase
Stock dated August 7, 1995, Common Stock Purchase Warrant dated November 17,
1995, Warrant To Purchase Stock dated April 15, 1996 ("Warrant Agreements")
executed by California in favor of Bancorp; and all other documents executed by
California in favor of the Bank or Bancorp (the Credit Agreement, the Security
Agreement, the Patent Agreement, Trademark Agreement, the Warrant Agreements,
and related documents thereto executed by California in favor of Bank or Bancorp
hereby collectively referred to as the "Loan Documents")
2. Wherever the name Power Integrations, Inc. appears in any Loan Documents it
shall mean Delaware.
3. Wherever the term Obligor, Borrower, the undersigned or other terms which
refer to California appear in the Loan Documents it shall mean Delaware.
4. The bank hereby consents to the merger of California into Delaware,
provided all the terms of this Agreement are complied with.
Page 1 of 3
5. The Bank's consent hereunder shall only be effective upon the occurrence of
all of the following, all in form and substance satisfactory to the Bank:
A. The receipt by the Bank of this Agreement executed by California and
Delaware.
B. If requested by Bank, UCC-1 Statements shall have been filed with the
California Secretary of State showing Delaware as the Debtor and the Bank as the
secured Party, and the Bank shall have received a return from the Secretary of
State of California showing the Bank as the only secured creditor of Delaware.
C. The receipt by the Bank, of Certificate of Incorporation of Delaware,
Good Standing Certificates of Delaware from the Secretary of State of Delaware
and Secretary of State of California.
D. The receipt by the Bank of a Corporate Resolution of Delaware,
authorizing Delaware to assume the obligations of California under the Loan
Documents.
E. If requested by Bank, Proof that Delaware has obtained the insurance
required by the Loan Documents and named the Bank as loss payee on such
insurance.
6. California and Delaware agree to provide Bank such other documentation as
the Bank may reasonable required to further the intent of this Agreement.
7. California and Delaware hereby acknowledge that the Warrants are held in
the name of Imperial Bancorp or registered assignees, and agree to do any and
all acts requested by Bank to transfer the Warrants to such holder.
8. Except as provided above, the Loan Documents remain unchanged and the
parties hereby confirm that the Loan Documents as may be modified by this
Agreement are in full force and effect.
Power Integrations, Inc. a Delaware corporation ("Delaware")
By: By:
---------------------------- ------------------------------
Title: Title:
------------------------ ---------------------------
Power Integrations, Inc. a California corporation ("California")
By: By:
---------------------------- ------------------------------
Title: Title:
------------------------ ---------------------------
(Signatures continued on next page)
Imperial Bank ("Bank") Imperial Bancorp ("Bancorp")
Page 2 of 3
By: By:
---------------------------- ------------------------------
Title: Title:
------------------------ ---------------------------
Page 3 of 3
September 10, 1997
Power Integrations, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, President and Chief Executive Officer
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President of Finance & Administration
Re: Bank's Consent
Gentlemen:
Power Integrations, Inc. ("Borrower") a California corporation has requested
Imperial Bank's ("Bank") consent, pursuant to that Security and Loan Agreement
dated August 12, 1997 between Borrower and Bank, with the attached Addendum
dated the same date, (the Security and Loan Agreement and the Addendum herein
collectively referred to as "Agreement") to the following: (i) selling its stock
through a public offering registered though the Securities Act of 1933
("Offering"), and (ii) to merge into Power Integrations, Inc. a Delaware
corporation ("Delaware").
Bank hereby consents to the Offering. Bank also hereby consents to the merger
of Borrower into Delaware on the condition that Borrower and Delaware execute
the attached Assignment and Assumption Agreement. In consideration of Bank
providing the above consent regarding the merger, Borrower hereby agrees that
they will, and will cause Delaware to, execute the attached Assignment and
Assumption prior to the merger of Borrower into Delaware. A failure of Borrower
or Delaware to execute the attached Assignment and Assumption Agreement will
cause the consent contained herein relating to the merger to be null and void.
Except as stated above, the Agreement shall remain unaltered and in full force
and effect. The above consent is specific as to content and time. This letter
is not a consent, amendment or waiver of any other term of the Agreement.
Please sign below to show your agreement with the foregoing and return the
original.
Sincerely,
▇▇▇▇▇▇▇ ▇. Le Deit
Assistant Vice President
Emerging Growth Industries
Agreed to and accepted:
Power Integrations, Inc.
_______________________________
Signature
_______________________________
Title
