UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
Or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-35348
Intermolecular, Inc.
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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20-1616267
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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3011 N. First Street
San Jose, California
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95134
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(Address of Principal Executive Offices)
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(Zip Code)
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(408) 582-5700
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
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
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
o
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
x
Shares outstanding of the registrant’s common stock:
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Class
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Outstanding as of August 2, 2013
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Common stock, $0.001 par value
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45,221,847
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INTERMOLECULAR, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2013
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERMOLECULAR, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
(Unaudited)
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June 30, 2013
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December 31, 2012
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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79,812
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$
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78,283
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Short-term investments
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1,000
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—
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Accounts receivable, net of allowance for doubtful accounts of $170 as of June 30, 2013 and December 31, 2012
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4,370
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7,294
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Accounts receivable, due from related parties
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619
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1,036
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Inventory, current portion
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1,627
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1,631
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Prepaid expenses and other current assets
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1,257
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1,361
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Total current assets
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88,685
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89,605
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Inventory, net of current portion
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4,488
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3,160
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Property and equipment, net
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25,937
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24,058
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Intangible assets, net
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7,010
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6,671
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Other assets
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173
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191
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Total assets
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$
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126,293
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$
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123,685
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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744
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$
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971
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Accrued liabilities
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4,297
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3,386
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Accrued compensation and employee benefits
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2,702
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3,397
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Deferred revenue
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2,952
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2,301
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Related party deferred revenue
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2,795
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829
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Note payable
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25,000
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26,514
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Total current liabilities
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38,490
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37,398
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Deferred rent, net of current portion
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414
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624
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Other long-term liabilities
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53
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146
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Total liabilities
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38,957
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38,168
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Commitments and contingencies (note 5)
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Stockholders’ equity:
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Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued and outstanding as of June 30, 2013 and December 31, 2012
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—
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—
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Common stock, par value $0.001 per share—200,000,000 and 200,000,000 shares authorized as of June 30, 2013 and December 31, 2012, respectively; 45,135,794 and 44,046,970 shares issued and outstanding, respectively
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45
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44
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Additional paid-in capital
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190,826
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186,778
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Accumulated deficit
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(103,535
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)
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(101,305
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)
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Total stockholders’ equity
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87,336
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85,517
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Total liabilities and stockholders’ equity
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$
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126,293
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$
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123,685
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See accompanying notes to unaudited condensed consolidated financial statements
INTERMOLECULAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2013
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2012
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2013
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2012
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Revenue:
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Collaborative development program and services revenue
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$
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12,799
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$
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11,160
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$
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23,702
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$
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23,355
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Product revenue
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—
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2,057
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3,104
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2,735
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Licensing and royalty revenue
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3,809
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3,296
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7,235
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6,805
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Total revenue
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16,608
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16,513
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34,041
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32,895
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Cost of revenue:
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Cost of collaborative development program and services revenue
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7,080
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6,557
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13,738
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13,436
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Cost of product revenue
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—
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847
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1,133
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1,081
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Cost of licensing and royalty revenue
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60
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70
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112
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145
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Total cost of revenue
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7,140
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7,474
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14,983
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14,662
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Gross profit
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9,468
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9,039
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19,058
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18,233
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Operating expenses:
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Research and development
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5,448
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5,760
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11,620
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10,828
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Sales and marketing
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1,578
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1,272
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3,215
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2,512
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General and administrative
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3,042
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2,722
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6,034
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5,540
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Total operating expenses
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10,068
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9,754
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20,869
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18,880
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Loss from operations
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(600
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)
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(715
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(1,811
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)
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(647
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)
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Other income (expense):
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Interest expense, net
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(231
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(250
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(481
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(499
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Other income, net
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87
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12
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68
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6
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Total other income (expense), net
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(144
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(238
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(413
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)
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(493
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)
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Loss before provision for income taxes
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(744
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(953
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(2,224
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(1,140
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)
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Provision for income taxes
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—
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7
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6
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6
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Net loss
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(744
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(960
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)
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(2,230
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)
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(1,146
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)
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Net loss per share of common stock, basic and diluted
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$
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(0.02
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$
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(0.02
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$
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(0.05
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$
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(0.03
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)
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Weighted-average number of shares used in computing net loss per share of common stock, basic and diluted
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44,630,442
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42,650,369
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44,386,111
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42,445,853
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Related Party Transactions
The Condensed Consolidated Statements of Operations shown above include the following related party transactions:
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Three Months Ended June 30,
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Six Months Ended June 30,
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2013
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2012
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2013
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2012
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Revenue:
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Collaborative development program and services revenue
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$
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1,900
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$
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2,751
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3,812
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5,748
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Product revenue
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—
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1,379
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—
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1,379
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Licensing and royalty revenue
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1,358
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1,771
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2,724
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3,564
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Total revenue
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$
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3,258
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$
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5,901
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$
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6,536
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$
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10,691
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Cost of Revenue:
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Cost of collaborative development program and services revenue
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$
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—
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$
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27
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—
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30
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Total cost of revenue
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$
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—
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$
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27
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$
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—
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$
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30
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See accompanying notes to unaudited condensed consolidated financial statements
INTERMOLECULAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Loss
(In thousands)
(Unaudited)
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Three Months Ended June 30,
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Six Months Ended June 30,
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2013
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2012
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2013
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2012
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Loss for the period
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$
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(744
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)
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$
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(960
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)
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$
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(2,230
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)
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$
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(1,146
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)
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Other comprehensive loss
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—
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—
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—
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—
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Comprehensive loss for the period, net of income tax
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$
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(744
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)
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$
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(960
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)
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$
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(2,230
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)
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$
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(1,146
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)
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See accompanying notes to unaudited condensed consolidated financial statements
INTERMOLECULAR, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Six Months Ended June 30,
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2013
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2012
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Cash flows from operating activities:
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Net loss
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$
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(2,230
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)
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$
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(1,146
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)
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Adjustments to reconcile net loss to net cash provided by operating activities:
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Depreciation and amortization
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4,546
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3,852
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Stock-based compensation
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2,764
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1,754
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Impairment of long-lived assets
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—
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930
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Loss on disposal of property and equipment
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6
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—
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Changes in operating assets and liabilities:
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Prepaid expenses and other assets
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139
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858
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Inventory
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(931
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)
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(1,431
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)
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Accounts receivable
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3,341
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5,180
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Accounts payable
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(155
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)
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(274
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)
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Accrued and other liabilities
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(32
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)
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(1,062
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)
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Deferred revenue
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651
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(1,151
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)
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Related party deferred revenue
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1,966
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(4,930
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)
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Net cash provided by operating activities
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10,065
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2,580
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Cash flows from investing activities:
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Purchase of short-term investments
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(1,001
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)
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(2,201
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)
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Redemption of short-term investments
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1
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—
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Purchase of property and equipment
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(6,457
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)
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(1,833
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)
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Purchased and capitalized intangible assets
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(833
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)
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(595
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)
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Net cash used in investing activities
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(8,290
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)
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(4,629
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)
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Cash flows from financing activities:
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|
|
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Proceeds from debt
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25,000
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—
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Payment of debt
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(26,514
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)
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(344
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)
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Proceeds from exercise of common stock options
|
1,268
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|
968
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Net cash (used in) provided by financing activities
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(246
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)
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|
624
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Net increase (decrease) in cash and cash equivalents
|
1,529
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|
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(1,425
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)
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Cash and cash equivalents at beginning of period
|
78,283
|
|
|
81,002
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Cash and cash equivalents at end of period
|
$
|
79,812
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|
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$
|
79,577
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|
|
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Supplemental disclosure of cash flow information:
|
|
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|
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|
Cash paid for interest
|
$
|
442
|
|
|
$
|
656
|
|
|
Cash paid for income taxes, net of refunds received
|
$
|
—
|
|
|
$
|
28
|
|
|
Noncash investing activities:
|
|
|
|
|
Transfer of property and equipment to inventory
|
$
|
393
|
|
|
$
|
—
|
|
|
|
|
|
|
See accompanying notes to unaudited condensed consolidated financial statements
INTERMOLECULAR, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements of Intermolecular, Inc. and subsidiaries (the "Company") have been prepared without audit in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission ("SEC"). Accordingly, certain information and disclosures normally included in complete financial statements prepared in accordance with GAAP have been condensed or omitted. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the SEC on March 4, 2013.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The operating results for the
three and six months ended June 30, 2013
are not necessarily indicative of the results that may be expected for any other future interim period or full year. The condensed consolidated balance sheet as of
December 31, 2012
is derived from the audited consolidated financial statements as of the year then ended.
Use of Estimates
The preparation of the accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. Management uses estimates and judgments in determining recognition of revenues, valuations of accounts receivable, inventories, intangible assets, debt, capital stock, warrants and assumptions used in the calculation of income taxes and stock-based compensation, among others. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts such estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of cash, cash equivalents, short-term investments and accounts receivable. The Company’s cash, cash equivalents and short-term investments consist of demand deposits, money market accounts and certificates of deposit maintained with high quality financial institutions. The Company's accounts receivable consist of non-interest bearing balances due from credit-worthy customers.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The Company’s cash equivalents are comprised of money market funds and are maintained with high quality financial institutions.
Short-Term Investments
The Company considers all highly liquid investments purchased with a maturity between three and twelve months to be short-term investments. The Company has short-term investments consisting of certificates of deposit maintained with high quality credit institutions. The carrying value of these investments approximates their fair value due to the short term of their maturities.
Inventory
Inventories are stated at the lower of cost or market value, with cost determined on an average cost basis. Current inventories consist of work-in-process for products that are expected to be sold in the next twelve months. Noncurrent inventories consist of raw materials in the amount of
$3.7 million
and
$2.4 million
as of
June 30, 2013
and
December 31, 2012
, respectively, and work-in-process for products that are not expected to be sold during the next twelve months in the amount of
$0.8 million
as of
June 30, 2013
and
December 31, 2012
. Inventories in excess of salable amounts and spare parts inventories that are considered obsolete are recorded as a cost of revenue in the period in which they occur. The Company did not experience any material inventory impairments during the
three and six months ended June 30, 2013
and
2012
.
Impairment of Long-Lived Assets
The Company evaluates its long-lived assets, which consist of property and equipment and intangible assets, for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the estimated fair value of the asset. The Company had no impairment of long-lived assets during the
three and six months ended June 30, 2013
. During the
three and six months ended June 30, 2012
, the Company recorded
$0.9 million
of expense related to the impairment of assets that had supported a customer collaborative development program and platform prototypes for new application development.
Revenue Recognition
The Company derives its revenue from
three
principal sources: collaborative development programs and other services; product sales; and technology licensing and royalty fees. Revenue is recognized when all of the following criteria are met:
• Persuasive evidence of an arrangement exists;
• Delivery has occurred;
• The fee is fixed or determinable; and
• Collectability of the fee is probable.
Persuasive evidence of the arrangement represents a written contract signed by both the Company and the customer, or a
customer purchase order. The Company assesses whether a price is fixed or determinable by, among other things, reviewing
contractual terms and conditions related to payment terms. The Company assesses collectability based on factors such as the
customer's creditworthiness and past collection history, if applicable. If collection is not probable, revenue recognition is deferred until receipt of payment.
Collaborative development programs and other services
—The Company enters into collaborative development programs ("CDPs") and other research and development service agreements with customers under which the Company conducts research and development activities jointly with the customer. The agreements specify minimum levels of research effort required to be performed by the Company. Payments received under the agreements are not refundable if the research effort is not successful. The Company retains rights to certain elements of technology developed in the course of its performance, which the customer has an option to license in the future under the terms defined in the agreement. Most arrangements with customers have fixed monthly fees and requirements to provide regular reporting of research and development activities performed and revenue is recognized in a manner consistent with the fixed monthly fee. Payments received prior to performance are deferred and recognized as revenue when earned over future performance periods.
The Company considers arrangements that include specifically identified, dedicated equipment to contain a lease provision, as these arrangements convey the right to the customer to use specific equipment and provide the ability to the customer to direct the use of the equipment as well as control more than a minor amount of the output of the equipment. To date the Company has determined these arrangements to contain operating leases, with a lease term that corresponds to the term of the CDP arrangement. The amount of revenue allocated for the lease element is based on its relative fair value, but the impact of the allocation does not change the amount of revenue recognized for the total arrangement as the lease term is consistent with the CDP term. Operating lease income recorded in CDP and services revenue during the
six months ended June 30, 2013
and
2012
was
$4.3 million
and
$5.0 million
, respectively.
Future minimum operating lease payments associated with CDP arrangements that contain operating leases were
$3.3 million
and
$8.4 million
as of
June 30, 2013
and
December 31, 2012
, respectively.
Product maintenance and support services
—Included in collaborative development programs and other services revenue, these services entitle customers to receive product updates and enhancements or technical support and maintenance, depending on the offering. The related revenue is recognized ratably over the period the services are delivered.
Product revenue
—The Company recognizes revenue from the sale of products once delivery has occurred (title and risk of loss have passed to the customer), and customer acceptance, if required, has been achieved.
Licensing and royalty revenue
—The Company recognizes revenue for licenses to intellectual property when earned pursuant to the terms of the agreements. Time-based license revenue is recognized ratably over the license term. Licensing and royalty revenue that becomes triggered by specific customer actions, such as exercise of a license option or by sales volume, is recognized when it occurs based on royalty reports or other information received from the licensee. Minimum and prepaid royalties and license fees are recognized ratably over the related periods. Revenue on the sale of intellectual property is recognized in full when title transfers if there are no remaining deliverables related to the intellectual property purchase.
Multiple-element arrangements
—Certain of the Company’s customer arrangements involve the delivery or performance of multiple products, services or licenses. Product sale arrangements include product maintenance and support. Collaborative development programs and other research and development services include licenses of technology and may also include sales of products.
The Company evaluates whether a delivered element has value to the customer without the remaining undelivered elements by determining whether the delivered element could be sold by the Company, or resold by the customer, on a stand- alone basis. The Company concluded that all of its products and services deliverables have value to the customers on a stand-alone basis, as all these deliverables have been or could be sold and used by customers on a stand-alone basis. Intellectual property license arrangements have value on a stand-alone basis if the customer could purchase and use them without the remaining elements of the arrangement. For transactions entered into prior to January 1, 2011, the Company assessed whether there is objective and reliable evidence of fair values of all undelivered elements. Fair values of such elements are determined by reference to the Company-specific objective evidence, such as pricing of these elements when sold separately, substantive renewal prices for product maintenance and support and time-based licenses, or other available evidence. If the fair value of any undelivered elements in a multiple-element arrangement cannot be objectively determined, revenue is deferred until all elements are delivered, or until fair value can objectively be determined for any remaining undelivered elements. However, in situations where the undelivered elements are software-related hardware elements, the Company will recognize revenue under a proportional performance model when fair value for the hardware elements is not available, if the undelivered hardware elements are substantially similar products. If product maintenance and support and time-based licenses are the only undelivered elements without objective and reliable evidence of fair value, all revenue from the arrangement is amortized over the longer of the product maintenance and support term or license period. For purposes of classification in the consolidated statements of operations, revenue is allocated between collaborative development programs and services revenue, product revenue and licensing and royalty revenue based on objective and reliable evidence of fair value for any elements for which it
exists or based on the relative stated invoice amount for elements for which objective and reliable evidence of fair value does not exist.
For all transactions entered into after December 31, 2010, the Company recognizes revenue using estimated selling prices of the delivered goods and services based on a hierarchy of methods as required by GAAP. The Company uses vendor-specific objective evidence of selling price ("VSOE") for determination of estimated selling price of elements in each arrangement if available, and since third-party evidence ("TPE") is not available for those elements where vendor-specific objective evidence of selling price cannot be determined, the Company evaluates factors to determine its estimated selling prices ("ESP") for all other elements. In multiple-element arrangements where hardware and software are sold as part of the solution, revenue is allocated to the hardware and software as a group using the relative selling prices of each of the deliverables in the arrangement based upon the aforementioned selling price hierarchy.
Deferred Revenue
Deferred revenue represents amounts collected from customers for which the related revenue has not been recognized, because one or more of the revenue recognition criteria have not been met, net of the associated costs. The current portion of deferred revenue represents the amount that is expected to be recognized as revenue within one year from the balance sheet date. When deferred revenues are recognized as revenues, the associated deferred costs are also recognized as cost of revenues.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at invoiced amounts and unbilled contractually obligated amounts. Trade accounts receivable are presented net of allowances for doubtful accounts, if applicable, and do not bear interest. The allowance for doubtful accounts is based on the Company's assessment of the collectability of its customer accounts. The Company reviews the allowance by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect customers' ability to pay.
Concentration of Revenue and Accounts Receivable
Significant customers are those that represent more than 10% of the Company’s total revenue or accounts receivable. For each significant customer, including related parties, revenue as a percentage of total revenue and accounts receivable as a percentage of total accounts receivable are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
Accounts Receivable
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
As of
|
|
As of
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
December 31,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Customer A
|
13
|
%
|
|
29
|
%
|
|
12
|
%
|
|
25
|
%
|
|
10
|
%
|
|
*
|
|
|
Customer B
|
22
|
%
|
|
27
|
%
|
|
22
|
%
|
|
30
|
%
|
|
11
|
%
|
|
25
|
%
|
|
Customer C
|
15
|
%
|
|
14
|
%
|
|
16
|
%
|
|
14
|
%
|
|
*
|
|
|
*
|
|
|
Customer D
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
11
|
%
|
|
12
|
%
|
|
Customer E
|
*
|
|
|
—
|
%
|
|
17
|
%
|
|
—
|
%
|
|
*
|
|
|
40
|
%
|
|
Customer F
|
*
|
|
|
—
|
%
|
|
*
|
|
|
—
|
%
|
|
24
|
%
|
|
—
|
%
|
|
Customer G
|
*
|
|
|
*
|
|
|
*
|
|
|
*
|
|
|
12
|
%
|
|
*
|
|
*
less than 10%
Share-Based Compensation
The Company applies the fair value recognition and measurement provisions of ASC 718 Compensation — Stock Compensation. Stock-based compensation is recorded at fair value as of the grant date, determined using the Black-Scholes option-pricing model, and recognized as an expense over the employee’s requisite service period (generally the vesting period), which the Company has elected to amortize on a straight-line basis.
The Company accounts for stock options issued to nonemployees based on the fair value of the options determined using the Black-Scholes option-pricing model. The fair value of stock options granted to nonemployees is remeasured each reporting period as the stock options vest and the resulting change in value, if any, is recognized in the Company’s consolidated statements of operations during the period the related services are rendered.
Recent Accounting Pronouncements
In September 2011, the FASB issued an update to ASC 350 Intangibles-Goodwill and Other (“ASC 350”): Testing Goodwill for Impairment. The update gives an entity an option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. An entity has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the two-step goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. Under the amendments, an entity no longer is permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year as previously permitted by ASC 350. The Company adopted this update to ASC 350 in the first quarter of 2013 without any impact on its financial position, results of operations or cash flows.
2. Fair Value of Financial Instruments
The Company measures and reports its cash equivalents and short-term investments at fair value on a recurring basis. The Company does not have any financial liabilities that are measured and reported at fair value. The following tables set forth the fair value of the Company’s cash equivalents and short-term investments by level within the fair value hierarchy (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2013
|
|
|
Fair Value
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Assets:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
69,760
|
|
|
$
|
69,760
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Certificates of deposit
|
1,000
|
|
|
—
|
|
|
1,000
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
70,760
|
|
|
$
|
69,760
|
|
|
$
|
1,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
|
Fair Value
|
|
Level I
|
|
Level II
|
|
Level III
|
|
Assets:
|
|
|
|
|
|
|
|
|
Money market funds
|
$
|
70,488
|
|
|
$
|
70,488
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Certificates of deposit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total assets measured at fair value
|
$
|
70,488
|
|
|
$
|
70,488
|
|
|
$
|
—
|
|
|
$
|
—
|
|
3. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
Lab equipment and machinery
|
$
|
43,174
|
|
|
$
|
38,667
|
|
|
Leasehold improvements
|
3,394
|
|
|
2,873
|
|
|
Computer equipment and software
|
3,478
|
|
|
3,467
|
|
|
Furniture and fixtures
|
166
|
|
|
160
|
|
|
Construction in progress
|
6,698
|
|
|
5,964
|
|
|
Total property and equipment
|
56,910
|
|
|
51,131
|
|
|
Less accumulated depreciation
|
(30,973
|
)
|
|
(27,073
|
)
|
|
Property and equipment, net
|
$
|
25,937
|
|
|
$
|
24,058
|
|
On May 31, 2013, the Company entered into a loan and security agreement ("Loan Agreement") with Silicon Valley Bank ("SVB") pursuant to which SVB made available to the Company loans under a revolving line to refinance existing indebtedness (including the repayment of all remaining principal and accrued interest under the secured promissory note that the Company issued to Symyx Technologies, Inc. ("Symyx") in November 2011) and for working capital and general business purposes, in a principal amount of up to
$26.5 million
. Upon repayment, the Symyx note was terminated and Symyx released all security interests and other liens held as security in connection with the Symyx note. Under the Loan Agreement, and as of June 30, 2013, SVB held a security interest in substantially all of the Company's assets, excluding all intellectual property. As of
December 31, 2012
all tangible property and equipment was pledged as collateral against the note payable issued in connection with the closing of the asset purchase transaction with Symyx.
The following table presents depreciation expense included in the Condensed Consolidated Statement of Operations and includes amortization of leasehold improvements (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Depreciation expense
|
$
|
2,193
|
|
|
$
|
1,856
|
|
|
$
|
4,244
|
|
|
$
|
3,565
|
|
The Company maintained dedicated equipment to support contractual customer capacity requirements as part of certain collaborative development programs that are classified as lab equipment and machinery and had a net book value of
$2.2 million
and
$5.9 million
as of
June 30, 2013
and
December 31, 2012
, respectively.
4. Intangible Assets
Intangible assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
Patents issued
|
$
|
4,297
|
|
|
$
|
3,932
|
|
|
Patents pending
|
3,662
|
|
|
3,386
|
|
|
Trademarks
|
40
|
|
|
40
|
|
|
Total intangible assets
|
7,999
|
|
|
7,358
|
|
|
Less patent amortization
|
(989
|
)
|
|
(687
|
)
|
|
Intangible assets, net
|
$
|
7,010
|
|
|
$
|
6,671
|
|
Amortization commences upon patent issuance. The useful life of the patents, once approved, will not exceed
20 years
, and will depend on the nature of the patent. The average estimated amortization period of our current portfolio is approximately
17 years
from the date of patent issuance. The average estimated remaining amortization period of patents acquired as part of the Symyx asset purchase transaction is approximately
5 years
.
The following table presents patent amortization expense included in the Condensed Consolidated Statement of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Amortization expense
|
$
|
152
|
|
|
$
|
144
|
|
|
$
|
302
|
|
|
$
|
287
|
|
5. Commitments and Contingencies
Leases
The Company entered into an operating lease agreement in May 2010 that expires in May 2015. Rent expense is being recognized on a straight-line basis over the lease term.
The following table presents rent expense included in the Condensed Consolidated Statement of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Rent expense
|
$
|
324
|
|
|
$
|
324
|
|
|
$
|
648
|
|
|
$
|
648
|
|
Future commitments and obligations under this operating lease to be satisfied as they become due over the term are as follows (in thousands):
|
|
|
|
|
|
|
|
As of June 30, 2013:
|
|
|
|
Six months ending December 31, 2013
|
$
|
833
|
|
|
The years ending December 31,
|
|
|
|
2014
|
1,707
|
|
|
2015
|
728
|
|
|
Total
|
$
|
3,268
|
|
During
2013
, the Company has made payments in the amount of
$0.8 million
related to this operating lease.
Symyx Asset Purchase and Note Payable
In connection with the consummation of the Symyx asset purchase transaction in November 2011, the Company issued Symyx a secured promissory note in a principal amount equal to
$27.3 million
with a term of
24 months
and an interest rate equal to
4%
. The note was payable in quarterly installments, each in an amount equal to the greater of
$0.5 million
that quarter or the amount of accrued interest, with a balloon payment at maturity, if applicable. The note was also pre-payable by the Company at any time without penalty or premium, and was secured by tangible personal property, excluding intellectual property. On May 31, 2013, the Company used
$25.0 million
of the net proceeds from a revolving line with Silicon Valley Bank ("SVB") and
$1.5 million
of cash to retire and repay all remaining principal and accrued interest upon the note. Over the life of the Symyx note the Company paid a total of
$29.0 million
, of which approximately
$1.6 million
related to interest expense.
The following table presents payments made during the
three and six months ended June 30, 2013
in connection with the note payable to Symyx (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2013
|
|
Six Months Ended June 30, 2013
|
|
|
Principal
|
|
Interest
|
|
Total
|
|
Principal
|
|
Interest
|
|
Total
|
|
Symyx payments
|
$
|
26,277
|
|
|
$
|
176
|
|
|
$
|
26,453
|
|
|
$
|
26,516
|
|
|
$
|
437
|
|
|
$
|
26,953
|
|
Silicon Valley Bank Loan Agreement
On May 31, 2013, the Company entered into a loan and security agreement (“Loan Agreement”) with SVB pursuant to which SVB made available to the Company loans under a revolving line to refinance existing indebtedness (including the repayment of the Symyx note) and for working capital and general business purposes, in a principal amount of up to
$26.5 million
. Under the Loan Agreement, SVB funded an initial credit extension in the principal amount of
$25 million
on May 31, 2013 and agreed to fund, subject to customary conditions, additional credit extensions under the revolving line on or prior to November 30, 2013. The Loan Agreement has a financial covenant that requires the Company to maintain a certain level of liquidity, and as of
June 30, 2013
, the Company was compliant with the terms of that loan covenant. Prior to November 30, 2013, the Company has the option to convert all or any part of the outstanding advances under the revolving line into a term loan. This option to convert the revolving advances into a term loan can only be used once. The revolving line advances bear interest at a floating rate equal to the greater of
2.75%
or the prime rate (customarily defined) minus
0.50%
. The term loan would bear interest at a fixed rate equal to
3.25%
.
The Company is obligated to pay interest on the revolving line credit extensions on a monthly basis and is obligated to pay the principal amount of all outstanding principal and unpaid interest on credit extensions under the revolving line on November 30, 2013. During the three months ended June 30, 2013, the Company paid SVB
$2,000
of interest for the amounts drawn under the Loan Agreement during such period. For any amount converted into a term loan prior to November 30, 2013, the Company is obligated to pay interest at the applicable rate and
$0.5 million
of principal on a quarterly basis. The term loan would mature
three
years from the first day of the month after conversion occurs, but no later than November 30, 2016, and the Company would be obligated to pay all outstanding principal and accrued and unpaid interest on that date. At the Company's option, the Company may prepay the outstanding principal balance of the term loan in full or in part, subject to a pre-payment fee of
0.25%
of the outstanding principal balance of the term loan if the term loan is outstanding for less than one year. In the event of a termination of the revolving line for any reason before November 30, 2013, including the repayment of the loan upon any prepayment, the Company is obligated to pay a final payment fee equal to
0.25%
of the outstanding revolving advance being repaid.
6. Stockholders’ Equity
Stock-Based Compensation
The fair value of the employee stock options granted during the period was estimated on the respective grant date using a Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Expected term (in years)
|
6.0
|
|
|
5.7
|
|
|
6.0
|
|
|
6.0
|
|
|
Risk-free interest rate
|
1.0
|
%
|
|
0.9
|
%
|
|
1.1
|
%
|
|
1.2
|
%
|
|
Expected volatility
|
60
|
%
|
|
61
|
%
|
|
60
|
%
|
|
60
|
%
|
|
Expected dividend rate
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Stock-based compensation expense, net of estimated forfeitures, was included in the following line items on the Condensed Consolidated Statements of Operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Cost of revenue
|
$
|
398
|
|
|
$
|
246
|
|
|
$
|
772
|
|
|
$
|
530
|
|
|
Research and development
|
289
|
|
|
221
|
|
|
684
|
|
|
430
|
|
|
Sales and marketing
|
277
|
|
|
226
|
|
|
557
|
|
|
351
|
|
|
General and administrative
|
400
|
|
|
234
|
|
|
751
|
|
|
443
|
|
|
Total stock-based compensation
|
$
|
1,364
|
|
|
$
|
927
|
|
|
$
|
2,764
|
|
|
$
|
1,754
|
|
The following table presents stock-based compensation expense, net of estimated forfeitures, by grant type (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Stock options
|
$
|
950
|
|
|
$
|
844
|
|
|
$
|
1,968
|
|
|
$
|
1,638
|
|
|
Restricted stock awards and restricted stock units (RSUs)
|
414
|
|
|
83
|
|
|
796
|
|
|
116
|
|
|
Total stock-based compensation
|
$
|
1,364
|
|
|
$
|
927
|
|
|
$
|
2,764
|
|
|
$
|
1,754
|
|
The following table presents unrecognized compensation expense, net of estimated forfeitures, related to the Company’s equity compensation plans as of
June 30, 2013
, which is expected to be recognized over the following weighted-average periods, (in thousands, except for weighted-average period):
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Compensation
Expense
|
|
Weighted-
Average Period
(in years)
|
|
Stock options
|
$
|
7,408
|
|
|
2.6
|
|
RSUs
|
$
|
4,613
|
|
|
3.4
|
The following table presents details on grants made by the Company for the following periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
Shares Granted
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Shares Granted
|
|
Weighted-
Average Grant
Date Fair Value
|
|
Stock options
|
894,800
|
|
|
$
|
5.06
|
|
|
990,679
|
|
|
$
|
4.73
|
|
|
RSU
|
644,000
|
|
|
$
|
9.26
|
|
|
274,070
|
|
|
$
|
6.48
|
|
The total intrinsic value of stock options exercised for the
six months ended June 30, 2013
and
2012
was
$5.8 million
and
$4.8 million
, respectively.
Common Stock Warrants
As of
June 30, 2013
and
December 31, 2012
the Company had
912,368
outstanding warrants to purchase shares of common stock. Of these outstanding warrants,
90,000
were exercisable as of
June 30, 2013
and
December 31, 2012
.
Common Stock
As of
June 30, 2013
and
December 31, 2012
, the Company had reserved shares of common stock for issuance as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
December 31, 2012
|
|
Number of stock options outstanding
|
7,133,921
|
|
|
7,426,417
|
|
|
Number of RSUs outstanding
|
756,955
|
|
|
254,863
|
|
|
Shares available for future grant
|
5,936,086
|
|
|
5,001,956
|
|
|
Number of warrants outstanding
|
912,368
|
|
|
912,368
|
|
|
Total shares reserved
|
14,739,330
|
|
|
13,595,604
|
|
7. Net Loss per Share of Common Stock
The following table sets forth the computation of the Company’s basic and diluted net loss per share of common stock during the
three and six months ended June 30, 2013
and
2012
(in thousands, except for share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Net loss attributable to common stockholders
|
$
|
(744
|
)
|
|
$
|
(960
|
)
|
|
$
|
(2,230
|
)
|
|
$
|
(1,146
|
)
|
|
Shares used in computing net loss per share of common stock, basic and diluted
|
44,630,442
|
|
|
42,650,369
|
|
|
44,386,111
|
|
|
42,445,853
|
|
|
Net loss per share of common stock, basic and diluted
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.03
|
)
|
The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Stock options to purchase common stock
|
7,133,921
|
|
|
8,094,398
|
|
|
7,133,921
|
|
|
8,094,398
|
|
|
RSUs
|
756,955
|
|
|
266,810
|
|
|
756,955
|
|
|
266,810
|
|
|
Common stock subject to repurchase
|
—
|
|
|
7,500
|
|
|
—
|
|
|
7,500
|
|
|
Common stock warrants
|
912,368
|
|
|
912,368
|
|
|
912,368
|
|
|
912,368
|
|
8. Income Taxes
Income tax expense for the
six months ended June 30, 2013
was
$6,000
or
0.3%
on a pre-tax loss of
$2.2 million
. The difference between the Company's effective tax rate and the federal statutory rate of
35%
is primarily attributable to the differential in foreign taxes, non-deductible stock-based compensation expense, other currently non-deductible items and movement in its valuation allowance. The Company maintained a valuation allowance as of
June 30, 2013
against all of its deferred tax assets.
The Company intends to maintain a full valuation allowance until sufficient positive evidence exists to support its reduction.
9. Related Party Transactions
In March 2013, the Company amended the CDP agreement that it had entered into in March 2010 with a related party and that it and the related party had amended in March 2012. Under the amended agreement, the
two
companies will work together to conduct research and development and other activities. Depending on the output of the research and development, the primary rightholder will be the Company or the other party. However, if the other party is not the primary rightholder, it will be able to license the developed technology from the Company. The other party’s vice chairman of the board of directors is a director of the Company and is also a managing member of a significant shareholder of the Company. As of
June 30, 2013
, this shareholder was a beneficial owner of approximately
9.5%
of the Company’s common stock. As of
June 30, 2013
and
December 31, 2012
the Company had accounts receivable in the amount of
$0.1 million
and
$0.4 million
, respectively, and had a deferred revenue balance in the amount of
$0
and
$0.1 million
, respectively, related to the amended agreement. The following table presents related party revenue included in the Condensed Consolidated Statement of Operations from this amended agreement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Related party revenue
|
$
|
1,158
|
|
|
$
|
1,055
|
|
|
$
|
2,317
|
|
|
$
|
2,389
|
|
In November 2006, the Company entered into an Alliance Agreement with a related party that was a beneficial owner of approximately
8.5%
of the Company’s common stock as of
June 30, 2013
. The other party and the Company each have an independent board member that serves on both companies’ boards of directors. Under the agreement, the two companies will work together to conduct research and development and other activities with respect to materials and high productivity combinatorial technology for use in semiconductor applications. Depending on the output of the research and development, the primary rightholder could be either company. However, the party that is not the primary rightholder will be assigned the right to use the output property. Under the agreement, the other party will pay the Company fees for services and both parties may provide royalties to the other for licensed technology sold to third parties. Since November 2006, the agreement has been amended numerous times with the last amendment signed in April 2013. As of
June 30, 2013
and
December 31, 2012
the Company had accounts receivable in the amount of
$0.5 million
and
$0.6 million
, respectively, and had a deferred revenue balance in the amount of
$2.8 million
and
$0.7 million
, respectively, related to the amended agreement. The following table presents related party revenue and cost of revenue included in the Condensed Consolidated Statement of Operations from the amended agreement (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
Related party revenue
|
$
|
2,100
|
|
|
$
|
4,846
|
|
|
$
|
4,219
|
|
|
$
|
8,302
|
|
|
Related cost of revenue
|
$
|
—
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
30
|
|
10. Information about Geographic Areas
Revenue
Revenue by geography is based on the billing address of the customer. The following table sets forth revenue by geographic area (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
United States
|
$
|
11,822
|
|
|
$
|
12,351
|
|
|
$
|
24,844
|
|
|
$
|
24,399
|
|
|
Japan
|
3,746
|
|
|
3,317
|
|
|
7,807
|
|
|
6,882
|
|
|
APAC other
|
1,040
|
|
|
817
|
|
|
1,281
|
|
|
1,552
|
|
|
Europe and Middle East
|
—
|
|
|
28
|
|
|
109
|
|
|
62
|
|
|
Total
|
$
|
16,608
|
|
|
$
|
16,513
|
|
|
$
|
34,041
|
|
|
$
|
32,895
|
|
Long-Lived Assets
Substantially all of the Company’s long-lived assets are located in the U.S. An insignificant amount of long-lived assets reside in the Company’s foreign subsidiaries and branches in Hong Kong, Japan and Taiwan.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is provided in addition to the accompanying consolidated condensed financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. Our MD&A is organized as follows:
|
|
|
|
•
|
Overview
. Discussion of our business and overall analysis of financial and other highlights affecting the Company in order to provide context for the remainder of MD&A.
|
|
|
|
|
•
|
Strategy
. Our overall strategy.
|
|
|
|
|
•
|
Basis of Presentation
. A summary of the primary elements of our financial results.
|
|
|
|
|
•
|
Critical Accounting Estimates
. Accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.
|
|
|
|
|
•
|
Results of Operations
. An analysis of our financial results comparing the
three and six months ended June 30, 2013
to the
three and six months ended June 30, 2012
.
|
|
|
|
|
•
|
Liquidity and Capital Resources
. An analysis of changes in our balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.
|
The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q (“Form 10-Q”) and in our Annual Report on Form 10-K (the “2012 Form 10-K”) and subsequent quarterly reports on Form 10-Q, as filed with the Securities and Exchange Commission. This Form 10-Q contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. The statements contained in this Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are often identified by the use of words such as, but not limited to, “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” in Part II, Item 1A of this Form 10-Q and in our 2012 Form 10-K and subsequent quarterly reports on Form 10-Q. Furthermore, such forward-looking statements speak only as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We have pioneered a proprietary approach to accelerate research and development, innovation and time-to-market for the semiconductor and clean energy industries. Through paid collaborative development programs ("CDPs") with our customers, we develop proprietary technology and intellectual property ("IP") for our customers focused on advanced materials, processes, integration and device architectures. This technology enables our customers to bring optimized, high-volume manufacturing-ready integrated devices to market faster and with less risk than conventional approaches to research and development ("R&D"). We provide our customers with proprietary technology through various fee arrangements and grant them rights to associated IP, primarily through royalty-bearing licenses. Through paid CDPs and our own development, we have established a portfolio of greater than 1,000 patents and patent applications. Our proprietary approach is broadly applicable to high-volume integrated device markets, which include the markets for semiconductors, flat glass coatings and glass-based devices, solar cells, light-emitting diodes ("LEDs"), flat-panel displays, advanced batteries and other energy efficiency applications.
We were founded in 2004 and are headquartered in San Jose, California. Our total revenue increased to
$16.6 million
and
$34.0 million
for the three and six months ended
June 30, 2013
from
$16.5 million
and
$32.9 million
for the three and six months ended
June 30, 2012
. Our net loss decreased to
$0.7 million
for the three months ended
June 30, 2013
, from a net loss of
$1.0 million
for the three months ended
June 30, 2012
and increased to a net loss of
$2.2 million
during the six months ended June 30, 2013 from a net loss of
$1.1 million
during the six months ended June 30, 2012. Since inception, we have incurred net losses leading to an accumulated deficit of
$103.5 million
as of
June 30, 2013
.
In August 2013, one of our significant customers,
Elpida Memory, Inc. ("Elpida")
, was acquired by Micron Technology, Inc. (“Micron”), a leading provider of memory chips. As of June 30, 2013 we had $22.5 million in backlog from
Elpida, of which $2.5 million is scheduled to be recognized as revenue during 2013 with the balance scheduled to be recognized as revenue in periods beyond 2013. Of the $2.5 million in backlog to be recognized as revenue during 2013 that is attributable to Elpida, we received payment in the amount of $1.3 million in June 2013 for license fees for the three months ending September 30, 2013. Following the acquisition of Elpida by Micron, Elpida issued all of its equity to, and became a wholly-owned of subsidiary of, Micron. Our backlog from Elpida following the acquisition by Micron remains unchanged at $22.5 million as of June 30, 2013.
Strategy
Our mission is to drive our customers' success by transforming R&D and accelerating innovation in markets that derive competitive advantage from the interaction of materials science, processes, integration and device architecture. We currently target high-volume semiconductor and high-growth emerging clean energy markets, including DRAM, stand-alone non-volatile memory, embedded memory, complex logic, flat glass coatings and glass-based devices, solar cells, LEDs, displays and energy-efficiency technologies. Within these broad markets, we target customers that have track records of technological innovation, deploy significant resources and are pursuing technical advancements that are critical to their success and strategy, including ATMI, Elpida, Epistar, First Solar, GLOBALFOUNDRIES, Guardian Industries, Micron Technology, SanDisk, Taiwan Semiconductor Manufacturing Company (“TSMC”) and Toshiba. ATMI and Elpida have commenced shipping products incorporating technology developed through our CDPs and pay us licensing and royalty fees. To date, we have received the majority of our revenue from customers in DRAM, stand-alone non-volatile memory, complex logic, solar cells, and energy-efficiency applications in flat glass coatings and glass-based devices, and we have not yet received a material amount of revenue from customers in embedded memory, LEDs, displays and other energy-efficiency technologies.
Basis of Presentation
How We Generate Revenue
Our customer engagement process generates revenue in three ways: CDP and services revenue; product revenue; and licensing and royalty revenue. CDPs are our primary engagement model with customers and are structured to result in licensing and/or royalty revenue. When we initially engage with a customer, we generate revenue from micro-CDPs, CDPs and licensing of our high productivity combinatorial (“HPC”) platform. Our micro-CDPs are smaller, customer-paid programs that require significantly less investment from our team but allow us to demonstrate the capabilities of our HPC platform to a customer without requiring a customer to commit to a multi-year agreement. We use these micro-CDPs to demonstrate the capabilities and value of our HPC platform to these new customers, with the objective of engaging with these customers in a full CDP. When technology developed through CDPs is incorporated in commercialized products, we generate licensing and/or royalty revenue. In certain cases, we sell HPC processing tools to our customers who pay a recurring license fee to operate those tools with our combinatorial processing capabilities.
|
|
|
|
•
|
CDP and services revenue.
CDP revenue may include payments for full time equivalent employees, milestone payments, subscription payments for dedicated and shared workflow tools used in the CDP and reimbursed payments for consumables and outside services from third parties. Individual CDPs typically range from one to three years. Services revenue outside of CDPs is substantially comprised of support and maintenance fees and extended warranty agreements. CDP and services revenue is recognized in a manner consistent with activities performed.
|
|
|
|
|
•
|
Product revenue.
Product revenue consists of sales of our workflow hardware and embedded software. In support of our business strategy, we selectively sell our proprietary tools to increase opportunities for CDPs and licensing fees and royalties. Historically, we have not sold a significant number of our workflow products and we do not anticipate selling a significant number in the future. As our other revenue streams increase we expect our product revenue to decrease as a percentage of our overall revenue. Product revenue has been recognized upon shipment since January 1, 2011. Product sales that originated prior to January 1, 2011 were generally recognized on a straight-line basis over the maintenance period once delivery occurred (title and risk of loss passed to the customer), and customer acceptance, if required, was achieved.
|
|
|
|
|
•
|
Licensing and royalty revenue.
Licensing and royalty revenue consists of licensing fees and royalties for granting our customers rights to our proprietary technology and IP. Specifically, this includes licensing the HPC capabilities of our workflows, licensing our informatics and analysis software, and licensing fees and royalties on products that incorporate technology developed through our CDPs. In certain instances, minimum license fees and royalties may be guaranteed by customer contracts and are recognized as revenue ratably over the related periods. In the last three years, licensing and royalty revenue has generally been the fastest growing element of our revenue. Over the long term, we expect licensing and royalty revenue to be an increasing and significant component of our revenue.
|
Cost of Revenue
Our cost of revenue is variable and depends on the product mix and type of revenue earned in each period relating to our customer programs. As products are commercialized that incorporate technology developed through our CDPs, we expect our cost of revenue to decrease as a percentage of total revenue when licensing and royalty revenue become an increasing component of our revenue. As a result of our asset purchase transaction with Symyx Technologies, Inc. ("Symyx") in 2011, the amortization of acquired patents is being recorded in cost of revenue.
|
|
|
|
•
|
Cost of CDP and services revenue.
Our cost of CDP and services revenue is primarily comprised of salaries and other personnel-related expenses (including stock-based compensation) for our collaborative research and development scientists, engineers and development fab process operations employees. Additionally, our cost of revenue includes costs of wafers, targets, materials, program-related supplies, third-party professional fees and depreciation of equipment used in CDPs.
|
|
|
|
|
•
|
Cost of product revenue.
Our cost of product revenue primarily includes our cost of products sold. Our cost of product revenue will fluctuate based on the type of product and configuration sold. Historically, we have not sold a significant number of our workflow products and we do not anticipate selling a significant number in the future. Cost of product revenue has been recognized upon product shipment since January 1, 2011. For product sales that originated prior to January 1, 2011, our cost of product revenue was recognized in a similar manner as the corresponding product revenue and was generally recognized on a straight-line basis over the maintenance period. The variability in cost of product revenue as a percentage of revenue is related to the quantity and configuration of products sold during the period and the corresponding maintenance period over which product revenue and cost of product revenue is being recognized.
|
|
|
|
|
•
|
Cost of licensing and royalty revenue.
Our cost of licensing and royalty revenue is primarily comprised of the amortization of acquired patents and licensing obligations.
|
Research and Development
Our R&D expenses consist of costs incurred for development and continuous improvement of our HPC platform, expansion of software capabilities and application research and development that are not associated with customer programs. R&D costs include personnel-related expenses (including stock-based compensation expenses) for our technical staff as well as consultant costs, parts and prototypes, wafers, chemicals, supply costs, facilities costs, utilities costs related to laboratories and offices occupied by technical staff, depreciation on equipment used by technical staff, and outside services, such as machining and third-party R&D costs. Overhead costs that are not allocated to a customer program are recognized as expenses within R&D. We expect our R&D expenses will continue to increase for the foreseeable future as we continue to devote substantial internal resources to develop and improve our HPC platform and extend the applicability of our platform to a broader set of applications within the industries we serve.
Sales and Marketing
Our sales and marketing expenses consist primarily of personnel-related costs (including stock-based compensation) for our sales and marketing employees, as well as payments of commissions to our sales employees, facility costs and professional expenses. Professional expenses consist of external website and marketing communication consulting costs and market research. We expect that our sales and marketing expenses will continue to increase for the foreseeable future as we increase the number of our sales and marketing employees to support the growth in our business and as we incur increasing external marketing communication costs.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs (including stock-based compensation) as well as professional services and facilities costs related to our executive, finance, legal, human resources, management information systems and information technology functions. Professional services consist of outside accounting, information technology, consulting and legal costs. We also incur significant accounting and legal costs related to compliance with rules and regulations enacted by the Securities and Exchange Commission, including the costs maintaining compliance with Section 404 of the Sarbanes-Oxley Act, as well as insurance, investor relations and other costs associated with being a public company. In addition to these expenses, we expect that our general and administrative expenses will continue to increase for the foreseeable future.
Interest Expense, net
Interest expense primarily consists of interest accrued on our note payable to Symyx in connection with the Symyx asset purchase transaction that closed in November 2011 and the refinancing of the note payable to Symyx that was paid in full during the three months ended June 30, 2013 with a line of credit from Silicon Valley Bank. Interest income represents interest earned on our cash, cash equivalents and short-term investments. We expect interest income will vary each reporting period depending on our average investment balances during the period and market interest rates.
Critical Accounting Estimates
Our consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States and include our accounts and the accounts of our wholly-owned subsidiaries. The preparation of our consolidated financial statements requires our management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosures for contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expenses during the applicable periods. Management bases its estimates, assumptions and judgments on historical experience and on various other factors that management believed were reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our consolidated financial statements which, in turn, could change the results from those reported. Our management evaluates its estimates, assumptions and judgments on an ongoing basis.
There have been no material changes in the matters for which we make critical accounting estimates in the preparation of our condensed consolidated financial statements during the
three and six months ended June 30, 2013
as compared to those disclosed in our 2012 Form 10-K. For further information on our critical and other significant accounting policies, see our 2012 Form 10-K.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that have not yet been adopted that are expected to have any impact on our financial position, results of operations or cash flows.
Results of Operations
Comparison of the Three and Six Months Ended June 30, 2013 and 2012
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
|
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|
2013
|
|
2012
|
|
$ Change
|
|
% Change
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaborative development program and services revenue
|
$
|
12,799
|
|
|
$
|
11,160
|
|
|
$
|
1,639
|
|
|
15
|
%
|
|
$
|
23,702
|
|
|
$
|
23,355
|
|
|
$
|
347
|
|
|
1
|
%
|
|
Product revenue
|
—
|
|
|
2,057
|
|
|
(2,057
|
)
|
|
(100
|
)%
|
|
3,104
|
|
|
2,735
|
|
|
369
|
|
|
13
|
%
|
|
Licensing and royalty revenue
|
3,809
|
|
|
3,296
|
|
|
513
|
|
|
16
|
%
|
|
7,235
|
|
|
6,805
|
|
|
430
|
|
|
6
|
%
|
|
Total revenue
|
16,608
|
|
|
16,513
|
|
|
95
|
|
|
1
|
%
|
|
34,041
|
|
|
32,895
|
|
|
1,146
|
|
|
3
|
%
|
|
Cost of revenue:
|
7,140
|
|
|
7,474
|
|
|
(334
|
)
|
|
(4
|
)%
|
|
14,983
|
|
|
14,662
|
|
|
321
|
|
|
2
|
%
|
|
Gross profit
|
9,468
|
|
|
9,039
|
|
|
429
|
|
|
5
|
%
|
|
19,058
|
|
|
18,233
|
|
|
825
|
|
|
5
|
%
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
5,448
|
|
|
5,760
|
|
|
(312
|
)
|
|
(5
|
)%
|
|
11,620
|
|
|
10,828
|
|
|
792
|
|
|
7
|
%
|
|
Sales and marketing
|
1,578
|
|
|
1,272
|
|
|
306
|
|
|
24
|
%
|
|
3,215
|
|
|
2,512
|
|
|
703
|
|
|
28
|
%
|
|
General and administrative
|
3,042
|
|
|
2,722
|
|
|
320
|
|
|
12
|
%
|
|
6,034
|
|
|
5,540
|
|
|
494
|
|
|
9
|
%
|
|
Total operating expenses
|
10,068
|
|
|
9,754
|
|
|
314
|
|
|
3
|
%
|
|
20,869
|
|
|
18,880
|
|
|
1,989
|
|
|
11
|
%
|
|
Loss from operations
|
(600
|
)
|
|
(715
|
)
|
|
115
|
|
|
|
|
(1,811
|
)
|
|
(647
|
)
|
|
(1,164
|
)
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
(231
|
)
|
|
(250
|
)
|
|
19
|
|
|
|
|
(481
|
)
|
|
(499
|
)
|
|
18
|
|
|
|
|
Other income, net
|
87
|
|
|
12
|
|
|
75
|
|
|
|
|
68
|
|
|
6
|
|
|
62
|
|
|
|
|
Total other income (expense), net
|
(144
|
)
|
|
(238
|
)
|
|
94
|
|
|
|
|
(413
|
)
|
|
(493
|
)
|
|
80
|
|
|
|
|
Loss before provision for income taxes
|
(744
|
)
|
|
(953
|
)
|
|
209
|
|
|
|
|
(2,224
|
)
|
|
(1,140
|
)
|
|
(1,084
|
)
|
|
|
|
Provision for income taxes
|
—
|
|
|
7
|
|
|
(7
|
)
|
|
|
|
6
|
|
|
6
|
|
|
—
|
|
|
|
|
Net loss
|
$
|
(744
|
)
|
|
$
|
(960
|
)
|
|
$
|
216
|
|
|
|
|
$
|
(2,230
|
)
|
|
$
|
(1,146
|
)
|
|
$
|
(1,084
|
)
|
|
|
Revenue
Our revenue increased by $0.1 million, or 1%, to $16.6 million during the three months ended June 30, 2013 from $16.5 million during the three months ended June 30, 2012 due to increases in CDP and services revenue and licensing and royalty revenue offset by a decrease in product revenue.
Our revenue increased by $1.1 million, or 3%, to $34.0 million during the six months ended June 30, 2013 from $32.9 million during the six months ended June 30, 2012 due to increases in CDP and services revenue, product revenue and licensing and royalty revenue.
CDP and services revenue increased by $1.6 million, or 15%, to $12.8 million during the three months ended June 30, 2013 from $11.2 million during the three months ended June 30, 2012. This increase was primarily attributable to $1.6 million in revenue derived from the expansion of existing customer engagements, combined with $2.1 million in revenue derived from new customer engagements, including a government service contract, offset by a $2.1 million decrease in revenue from the scheduled completion and reduction of CDPs. Of the growth from the expansion of existing customer engagements, $2.1 million in revenue was derived from three CDPs.
CDP and services revenue increased by $0.3 million, or 1%, to $23.7 million during the six months ended June 30, 2013 from $23.4 million during the six months ended June 30, 2012. This increase was primarily attributable to $1.8 million in revenue derived from the expansion of existing customer engagements, combined with $2.2 million in revenue derived from new customer engagements, including a government service contract, offset by a $3.7 million decrease in revenue from the scheduled completion and reduction of certain CDPs. Of the growth from the expansion of existing customer engagements, $2.2 million in revenue was derived from four CDPs.
Product revenue decreased by $2.1 million during the three months ended June 30, 2013 from $2.1 million during the three months ended June 30, 2012 as there were no product sales during the three months ended June 30, 2013.
Product revenue increased by $0.4 million, or 13%, to $3.1 million during the six months ended June 30, 2013 from $2.7 million during the six months ended June 30, 2012. This increase was attributable to the sale of elements of a product workflow and embedded software.
Licensing and royalty revenue increased by $0.5 million, or 16%, to $3.8 million during the three months ended June 30, 2013 from $3.3 million during the three months ended June 30, 2012. This increase was primarily attributable to an increase in minimum license fees for the sales of products subject to licensing fees and royalties as guaranteed by customer contracts offset by a scheduled reduction in minimum license fee revenues.
Licensing and royalty revenue increased by $0.4 million, or 6%, to $7.2 million during the six months ended June 30, 2013 from $6.8 million during the six months ended June 30, 2012. This increase was primarily attributable to an increase in minimum license fees for the sales of products subject to licensing fees and royalties as guaranteed by customer contracts offset by a scheduled reduction in minimum license fee revenues.
The following table presents revenue by geographic region (based on invoiced locations) during the three and six months ended June 30, 2013 and 2012 in dollars (in thousands) and as a percentage of revenue for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
|
|
Revenues
|
|
% of Revenues
|
|
Revenues
|
|
% of Revenues
|
|
Revenues
|
|
% of Revenues
|
|
Revenues
|
|
% of Revenues
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
(in thousands)
|
|
|
|
United States
|
$
|
11,822
|
|
|
71
|
%
|
|
$
|
12,351
|
|
|
75
|
%
|
|
$
|
24,844
|
|
|
73
|
%
|
|
$
|
24,399
|
|
|
74
|
%
|
|
Japan
|
3,746
|
|
|
23
|
%
|
|
3,317
|
|
|
20
|
%
|
|
7,807
|
|
|
23
|
%
|
|
6,882
|
|
|
21
|
%
|
|
APAC other
|
1,040
|
|
|
6
|
%
|
|
817
|
|
|
5
|
%
|
|
1,281
|
|
|
4
|
%
|
|
1,552
|
|
|
5
|
%
|
|
Europe and Middle East
|
—
|
|
|
—
|
%
|
|
28
|
|
|
—
|
%
|
|
109
|
|
|
—
|
%
|
|
62
|
|
|
—
|
%
|
|
Total
|
$
|
16,608
|
|
|
100
|
%
|
|
$
|
16,513
|
|
|
100
|
%
|
|
$
|
34,041
|
|
|
100
|
%
|
|
$
|
32,895
|
|
|
100
|
%
|
Cost of Revenue
Cost of revenue decreased by $0.3 million, or 4%, to $7.1 million during the three months ended June 30, 2013 from $7.5 million during the three months ended June 30, 2012. This change is primarily attributable to a $0.8 million decrease in direct product cost consistent with product revenue from the three months ended June 30, 2012. This decrease was partially offset by an increase in CDP and services revenue from new and ongoing customer engagements, which resulted in a $0.5 million increase in direct labor, materials and other costs associated with these programs.
Cost of revenue increased by $0.3 million, or 2%, to $15.0 million during the six months ended June 30, 2013 from $14.7 million during the six months ended June 30, 2012. This change is primarily attributable to increased CDP and services revenue and product revenue recognized from new and ongoing customer engagements, which resulted in a $0.3 million increase in direct labor, materials and other costs associated with these programs.
Gross Margin
Our gross profit as a percentage of net revenues, or gross margin, has been and will continue to be affected by a variety of factors, including the mix of CDP and services revenue, product revenue, and licensing and royalty revenue recognized during the period. We achieve a higher gross margin on licensing and royalty revenue as compared to CDP and services and product revenue.
Gross margin for the three months ended June 30, 2013 was 57.0% compared to 54.7% for the three months ended June 30, 2012. This increase is primarily attributable to the growth in licensing and royalty revenue and increased CDP and services revenue relative to the cost of sales to support these customer engagements. To the extent that we are successful in growing our revenue and increasing licensing and royalty revenue as a percentage of revenue we expect our gross margins to increase as a percentage of total revenue.
Gross margin for the six months ended June 30, 2013 was 56.0% compared to 55.4% for the six months ended June 30, 2012. This increase is primarily attributable to the growth in licensing and royalty revenue, increased CDP and services
revenue, and increased product revenue relative to the cost of sales to support these customer engagements. To the extent that we are successful in growing our revenue and increasing licensing and royalty revenue as a percentage of revenue we expect our gross margins to increase as a percentage of total revenue.
Research and Development
Research and development expenses decreased by $0.3 million, or 5%, to $5.4 million during the three months ended June 30, 2013 from $5.8 million during the three months ended June 30, 2012. The change is primarily attributable to $0.6 million decrease in depreciation expense due to an asset impairment expense related to the retirement of assets previously supporting new application development during the three months ended June 30, 2012. These costs are partially offset by a $0.3 million increase in engineering parts and other expenses associated with new application development. Research and development expense included stock-based compensation of $0.4 million and $0.2 million during the three months ended June 30, 2013 and 2012, respectively.
Research and development expenses increased by $0.8 million, or 7%, to $11.6 million during the six months ended June 30, 2013 from $10.8 million during the six months ended June 30, 2012. The change is primarily attributable to $0.9 million in higher personnel costs as a result of increased headcount and higher stock-based compensation expense and $0.3 million in engineering parts and other expenses associated with new application development. These costs are partially offset by a $0.6 million decrease in depreciation expense due to an asset impairment expense related to the retirement of assets previously supporting new application development during the six months ended June 30, 2012. Research and development expense included stock-based compensation of $0.7 million and $0.4 million during the six months ended June 30, 2013 and 2012, respectively.
Sales and Marketing
Sales and marketing expenses increased by $0.3 million, or 24%, to $1.6 million during the three months ended June 30, 2013 from $1.3 million during the three months ended June 30, 2012. The change is primarily due to higher personnel costs related to increased wages, stock-based compensation and other related benefits. Sales and marketing expense included stock-based compensation of $0.3 million and $0.2 million during the three months ended June 30, 2013 and 2012, respectively.
Sales and marketing expenses increased by $0.7 million, or 28%, to $3.2 million during the six months ended June 30, 2013 from $2.5 million during the six months ended June 30, 2012. The change is primarily due to higher personnel costs related to increased wages, stock-based compensation and other related benefits. Sales and marketing expense included stock-based compensation of $0.6 million and $0.4 million during the six months ended June 30, 2013 and 2012, respectively.
General and Administrative
General and administrative expenses increased by $0.3 million, or 12%, to $3.0 million during the three months ended June 30, 2013 from $2.7 million during the three months ended June 30, 2012. This increase is primarily attributable to $0.3 million in higher personnel costs related to increased wages, stock-based compensation and other related benefits. General and administrative expense included stock-based compensation of $0.4 million and $0.2 million during the three months ended June 30, 2013 and 2012, respectively.
General and administrative expenses increased by $0.5 million, or 9%, to $6.0 million during the six months ended June 30, 2013 from $5.5 million during the six months ended June 30, 2012. This increase is primarily attributable to $0.7 million in higher personnel costs related to increased headcount, wages, stock-based compensation and other related benefits. These costs are partially offset by a $0.4 million decrease in professional fees and other administrative expenses. General and administrative expense included stock-based compensation of $0.8 million and $0.4 million during the six months ended June 30, 2013 and 2012, respectively.
Loss from Operations
Our operating loss decreased by $0.1 million to an operating loss of $0.6 million during the three months ended June 30, 2013 from an operating loss of $0.7 million during the three months ended June 30, 2012. To the extent we are successful in growing our revenue and increasing licensing and royalty revenue as a percentage of our total revenue, and if our expenses increase at a slower rate than our revenue, we expect that our income from operations will increase in the future. Our operating expenses increased by $0.3 million to $10.1 million during the three months ended June 30, 2013 from $9.8 million
during the three months ended June 30, 2012. We expect our operating expenses to continue to increase as we expand and invest in our business, making investments in both personnel and capital resources leading to increased depreciation expense.
Our operating loss increased by $1.2 million to an operating loss of $1.8 million during the six months ended June 30, 2013 from an operating loss of $0.6 million during the six months ended June 30, 2012. To the extent we are successful in growing our revenue and increasing licensing and royalty revenue as a percentage of our total revenue, and if our expenses increase at a slower rate than our revenue, we expect that our income from operations will increase in the future. Our operating expenses increased by $2.0 million to $20.9 million during the six months ended June 30, 2013 from $18.9 million during the six months ended June 30, 2012. We expect our operating expenses to continue to increase as we expand and invest in our business, making investments in both personnel and capital resources leading to increased depreciation expense.
Interest Expense, net
On May 31, 2013, we entered into a loan and security agreement with Silicon Valley Bank (“SVB”) and repaid the remaining principal and accrued interest under the secured promissory note that we issued to Symyx in November 2011.
Interest expense, net remained consistent at $0.2 million during the three months ended June 30, 2013 from the three months ended June 30, 2012 and is primarily comprised of interest expense associated with our note payable to Symyx and to a lesser extent interest on our new credit facility with SVB.
Interest expense, net remained consistent at $0.5 million during the six months ended June 30, 2013 from the six months ended June 30, 2012 and is primarily comprised of interest expense associated with our note payable to Symyx and to a lesser extent interest on our new credit facility with SVB.
Other Income, net
Other income, net for the three and six months ended June 30, 2013 and 2012 consisted of municipal development grant proceeds and foreign exchange gains and losses that were not significant during either period.
Provision for Income Taxes
Provision for income taxes during the three and six months ended June 30, 2013 and 2012 consisted of income taxes on our foreign entities and were not significant during either period.
Net Loss
Our net loss decreased by $0.2 million, to a net loss of $0.7 million during the three months ended June 30, 2013 from a net loss of $1.0 million during the three months ended June 30, 2012. The difference between operating loss and net loss during the three months ended June 30, 2012 was primarily related to interest expense associated with our note payable to Symyx and to a lesser extent interest expense associated with our new credit facility with SVB.
Our net loss increased by $1.1 million, to a net loss of $2.2 million during the six months ended June 30, 2013 from a net loss of $1.1 million during the six months ended June 30, 2012. The difference between operating loss and net loss during the three months ended June 30, 2012 was primarily related to interest expense associated with our note payable to Symyx and to a lesser extent interest expense associated with our new credit facility with SVB.
Liquidity and Capital Resources
Since inception, we have substantially financed our operations through private and public sale of equity securities and, to a lesser extent, cash flow from operations. As of June 30, 2013, we had $80.8 million of cash, cash equivalents and short-term investments, $50.2 million of net working capital, and debt outstanding of $25.0 million.
On May 31, 2013, we entered into a loan and security agreement (“Loan Agreement”) with SVB pursuant to which SVB made available to us loans under a revolving line to refinance existing indebtedness (including the repayment of the Symyx note) and for working capital and general business purposes, in a principal amount of up to $26.5 million. Under the Loan Agreement, SVB funded an initial credit extension in the principal amount of $25.0 million on May 31, 2013 and agreed to fund, subject to customary conditions, additional credit extensions under the revolving line on or prior to November 30, 2013. Prior to November 30, 2013, we have the option to convert all or any part of the outstanding advances under the revolving line into a three year term loan. Our option to convert the revolving advances into a term loan can only be used once. The revolving line advances bear
interest at a floating rate equal to the greater of 2.75% or the prime rate (customarily defined) minus 0.50%. The term loan would bear interest at a fixed rate equal to 3.25%.
In connection with our entry into the Loan Agreement, on May 31, 2013, we used $25.0 million of the net proceeds from the new revolving line and $1.5 million of cash to retire and repay all remaining principal and accrued interest upon the Symyx note, the balance of which was required to be repaid by November 2013. Upon repayment, the Symyx note was terminated and Symyx released all security interests and other liens held as security in connection with the note. Pursuant to the terms of the Symyx note, we were permitted to prepay the note at any time without penalty or premium. Accordingly, there were no early termination penalties or other penalties associated with the termination of the Symyx note.
We are obligated to pay interest on the revolving line credit extensions on a monthly basis and are obligated to pay the principal amount of all outstanding principal and unpaid interest on credit extensions under the revolving line on November 30, 2013. During the three months ended June 30, 2013, we paid SVB $2,000 of interest for the amounts drawn under the Loan Agreement during such period. For any amount converted into a term loan prior to November 30, 2013, we are obligated to pay interest at the applicable rate and $0.5 million of principal on a quarterly basis. The term loan would mature three years from the first day of the month after conversion occurs, but no later than November 30, 2016, and we would be obligated to pay all outstanding principal and accrued and unpaid interest on that date. At our option, we may prepay the outstanding principal balance of the term loan in full or in part, subject to a pre-payment fee of 0.25% of the outstanding principal balance of the term loan if the term loan is outstanding for less than one year. In the event of a termination of the revolving line for any reason before November 30, 2013, including the repayment of the loan upon any prepayment, we are obligated to pay a final payment fee equal to 0.25% of the outstanding revolving advance being repaid.
To date, we have incurred significant losses. During the six months ended June 30, 2013 and 2012, we incurred net losses of $2.2 million and $1.1 million, respectively. As of June 30, 2013, our accumulated deficit was $103.5 million.
We believe that we have the financial resources needed to meet business requirements for the next 12 months. Our future capital requirements will depend on many factors, including our rate of revenue growth, our expansion of our sales and marketing activities and overhead expenses, the timing and extent of our spending to support our R&D efforts and our ability to expand CDPs in the semiconductor and clean energy industries, whether we are successful in obtaining payments from customers, the financial stability of our customers, whether we can enter into additional collaborations in our target industries, the progress and scope of collaborative R&D projects performed by us and our customers, the effect of any acquisitions of other businesses or technologies that we may make in the future, the filing, prosecution and enforcement of patent claims, how much we need to develop or enhance our solutions or HPC platform and any necessary responses to competitive pressures. To the extent that existing cash and cash equivalents, short-term investments, and cash from operations are insufficient to fund our operations and repay our outstanding debt when it may become due, we may need to raise additional funds through public or private equity or debt financing. We may also seek to invest in or acquire complementary businesses, applications or technologies, any of which could also require us to seek additional equity or debt financing. Additional funds may not be available on terms favorable to us or at all. We maintain almost all of our cash in the United States and therefore are not subject to restrictions or tax obligations as we access the cash.
In February 2012, one of our significant customers, Elpida, filed for protection under the Corporate Reorganization Act in Japan. In August 2013, Elpida was acquired by Micron and issued all of its equity to, and became a wholly-owned of subsidiary of, Micron. Our backlog from Elpida remains unchanged at $22.5 million as of June 30, 2013. Following the acquisition of Elpida by Micron, we believe the uncertainty related to this backlog, as previously reported, has been reduced.
Cash Flows
The following summary of our cash flows for the periods indicated has been derived from our condensed consolidated financial statements included elsewhere in this filing (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
2013
|
|
2012
|
|
Net cash provided by operating activities
|
$
|
10,065
|
|
|
$
|
2,580
|
|
|
Net cash used in investing activities
|
$
|
(8,290
|
)
|
|
$
|
(4,629
|
)
|
|
Net cash (used in) provided by financing activities
|
$
|
(246
|
)
|
|
$
|
624
|
|
Cash Flows from Operating Activities
We experienced positive cash flows from operating activities during the
six months ended June 30, 2013
and
2012
of
$10.1 million
and
$2.6 million
, respectively.
Net cash provided by operating activities during the
six months ended June 30, 2013
of
$10.1 million
reflects a net loss of
$2.2 million
and non-cash charges of
$4.5 million
for depreciation and amortization and
$2.8 million
for stock-based compensation. Depreciation and amortization increased by
$0.7 million
from the year ago period due to a larger fixed asset install base and stock-based compensation increased by
$1.0 million
from the year ago period due to grants of options and restricted stock. Net operating assets and liabilities increased by
$5.0 million
primarily as the result of a
$2.6 million
increase in deferred revenue due to customer collections in advance of revenue and an increase of
$3.3 million
in accounts receivable as a result of customer collections. The increase in net operating assets and liabilities was offset by a decrease in inventory of
$0.9 million
primarily related to a workflow sale during the
six months ended June 30, 2013
and a decrease in accounts payable and accrued and other liabilities of
$0.2 million
. During the six months ended June 30, 2012 we impaired
$0.9 million
of long-lived assets which we did not have similar impairments during the six months ended June 30, 2013.
Cash Flows from Investing Activities
Our investing activities consist primarily of purchases and maturities of short-term investments, capital expenditures to purchase property and equipment and our investments in intangible assets relating to our patents and trademarks. In the future, we expect we will continue to make significant capital expenditures to support our expanding operations and incur costs to protect our investment in our developed technology and IP.
During the
six months ended June 30, 2013
, cash used in investing activities was
$8.3 million
as a result of the purchase of
$1.0 million
in certificates of deposit classified as short-term investments,
$6.5 million
in capital expenditures and
$0.8 million
in capitalized patent and trademark costs.
Cash Flows from Financing Activities
To date, we have financed our operations primarily with proceeds from the sale of our redeemable convertible preferred stock and proceeds received from our initial public offering. During the
six months ended June 30, 2013
we entered into a Loan Agreement with SVB to refinance existing indebtedness under the secured promissory note that we issued to Symyx in November 2011.
During the
six months ended June 30, 2013
, cash used in financing activities of
$0.2 million
was primarily related to principal payment of our note payable to Symyx in the amount of
$26.5 million
offset by the initial credit extension in the principal amount of
$25.0 million
from the SVB credit facility. In addition to the credit extension received from SVB, during the
six months ended June 30, 2013
, we experienced positive cash flow related to the issuance of common stock as a result of option exercises in the amount of
$1.3 million
.
Contractual Obligations and Commitments
The following summarizes our contractual obligations as of
June 30, 2013
(in thousands):
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Payments Due by Period
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|
|
Total
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|
Less Than
One Year
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|
1 - 3 Years
|
|
3 - 5 Years
|
|
More Than
5 Years
|
|
|
(in thousands)
|
|
Operating lease obligations
|
$
|
3,268
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|
|
$
|
833
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|
|
$
|
2,435
|
|
|
—
|
|
|
—
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|
|
Credit facility
|
25,000
|
|
|
25,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Contractual interest payments on credit facility
|
348
|
|
|
348
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|
|
—
|
|
|
—
|
|
|
—
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|
|
Purchase obligations(1)
|
734
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|
|
734
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|
|
—
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|
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—
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—
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Total
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$
|
29,350
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|
|
$
|
26,915
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|
|
$
|
2,435
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|
$
|
—
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$
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—
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(1) Purchase obligations consist of firm, non-cancelable agreements to purchase property and equipment and inventory related items.
Operating lease agreements represent our obligations to make payments under our non-cancelable lease agreement for our facility in San Jose, California. During the six months ended June 30, 2013, we made regular lease payments of $0.8 million under this operating lease agreement.
On May 31, 2013, we entered into the Loan Agreement with SVB pursuant to which SVB made available to us loans under a revolving line to refinance existing indebtedness (including the repayment of the promissory note that we issued to
Symyx in November 2011) and for working capital and general business purposes, in a principal amount of up to $26.5 million. Upon repayment, the Symyx note was terminated and Symyx released all security interests and other liens held as security in connection with the Symyx note. Under the Loan Agreement, SVB funded an initial credit extension in the principal amount of $25.0 million on May 31, 2013 and agreed to fund, subject to customary conditions, additional credit extensions under the revolving line on or prior to November 30, 2013. Prior to November 30, 2013, we have the option to convert all or any part of the outstanding advances under the revolving line into a term loan. Our option to convert the revolving advances into a term loan can only be used once. The revolving line advances bear interest at a floating rate equal to the greater of 2.75% or the prime rate (customarily defined) minus 0.50%. The term loan would bear interest at a fixed rate equal to 3.25%. As of June 30, 2013, the revolving line bears interest at 2.75% and the amount outstanding was $25.0 million.
We are obligated to pay interest on the revolving line credit extensions on a monthly basis and are obligated to pay the principal amount of all outstanding principal and unpaid interest on credit extensions under the revolving line on November 30, 2013. For any amount converted into a term loan prior to November 30, 2013, we are obligated to pay interest at the applicable rate and $0.5 million of principal on a quarterly basis. The term loan would mature three years from the first day of the month after conversion occurs, but no later than November 30, 2016, and we would be obligated to pay all outstanding principal and accrued and unpaid interest on that date. At our option, we may prepay the outstanding principal balance of the term loan in full or in part, subject to a pre-payment fee of 0.25% of the outstanding principal balance of the term loan if the term loan is outstanding for less than one year. In the event of a termination of the revolving line for any reason before November 30, 2013, including the repayment of the loan upon any prepayment, we are obligated to pay a final payment fee equal to 0.25% of the outstanding revolving advance being repaid.
Off-Balance Sheet Arrangements
As of
June 30, 2013
, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes.
Interest Rate Sensitivity
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our outstanding debt obligations. Our cash, cash equivalents and short-term investment accounts as of June 30, 2013 totaled $80.8 million, consisting of $79.8 million in cash and money market funds with maturities of less than three months from the date of purchase and $1.0 million in certificates of deposit with maturities of less than twelve months from the date of purchase. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of the interest rates in the United States. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our consolidated financial condition or our results of operation.
Our exposure to market risk also relates to the increase or decrease in the amount of interest expense we must pay on any outstanding debt instruments, primarily certain borrowings under our credit facility with SVB. The revolving line advances bear interest at a floating rate equal to the greater of 2.75% or the prime rate (customarily defined) minus 0.50%. As of June 30, 2013, the revolving line bears interest at 2.75% and the amount outstanding was $25.0 million. A hypothetical 1.00% basis point increase in the interest rate for a one year period on the amount outstanding at June 30, 2013 would result in an annual interest expense increase of approximately $250,000. Upon conversion of all or any part of the outstanding advances under the revolving line into a term loan pursuant to the Loan Agreement, the interest rate on our debt obligations with SVB would bear interest at a fixed rate equal to 3.25%. If converted, the fixed rate structure would mean that we would not have any further exposure to changes in our interest expense as a result of changes in rates. However, in the event we enter into other long-term debt arrangements, we could be subject to fluctuations in interest rates which could have a material impact on our future financial condition and results of operation. In addition, the Loan Agreement also includes several potential events of default such as payment default, material adverse change conditions and insolvency conditions that could cause interest to be charged at the rate that is otherwise applicable plus 5.0%. As of June 30, 2013, we were in compliance with the covenants in the Loan Agreement. If we are ever unable to meet the covenants in the Loan Agreement, we could also be required to renegotiate the terms of credit under the Loan Agreement, including the interest rate, and there can be no assurance that any renegotiated terms of credit would not materially impact our earnings.
Foreign Currency Exchange Risk
As we expand internationally, our consolidated results of operations and cash flows will become increasingly subject to fluctuations due to changes in foreign currency exchange rates. Our revenue is denominated in U.S. dollars. Our expenses are generally denominated in the currencies in which our operations are located, which is primarily in the United States, with an insignificant portion of expenses incurred in our wholly-owned subsidiaries in Hong Kong and Japan and our wholly-owned branch in Taiwan in their local currencies. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our consolidated financial statements. To date, we have not entered into any material foreign currency hedging contracts although we may do so in the future.
ITEM 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of
June 30, 2013
. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of
June 30, 2013
, our Chief Executive Officer and Interim Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and Interim Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
PART II — OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
From time to time, we may become involved in other legal proceedings and claims arising in the ordinary course of our business, including but not limited to legal proceedings and claims brought by employees or former employees relating to working conditions or other issues. We are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, we believe would individually or in the aggregate have a material adverse effect on our business, operating results, financial condition or cash flows.
ITEM 1A.
RISK FACTORS
We describe our business risk factors below. This description includes any material changes to and supersedes the description of the risk factors disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on March 4, 2013 ("2012 Form 10-K") and our Quarterly Report on Form 10-Q for the first quarter of 2013. You should carefully consider the risks described below together with the other information set forth in this Form 10-Q, which could materially affect our business, financial condition or future results. The risks described below are not the only risks facing our company. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and operating results.
We have marked with an asterisk (*) those risks described below that reflect material substantive changes from the risks described under “Risk Factors” included in our Quarterly Report on Form 10-Q for the first quarter of 2013.
Risks Related to Our Business, Financial Condition and Results of Operations
We have a limited operating history, which makes it difficult for investors to evaluate our current business and future prospects.*
We do not have a long history of operating results on which you can base your evaluation of our business. We are still proving our business model, and we have not yet demonstrated our ability to generate significant revenue, particularly licensing and royalty revenue which represented
21%
of total revenue in the
six months ended June 30, 2013
and 24%, 27% and 19% in fiscal years 2012, 2011 and 2010, respectively. As a result, it may be difficult for analysts and investors to evaluate our future prospects. If we do not generate significant licensing and royalty revenue, we may never achieve sustained profitability. Furthermore, because of our limited operating history and because the semiconductor and clean energy industries are rapidly evolving, we have limited experience in analyzing and understanding the trends that may emerge and affect our business. If we are unable to obtain significant licensing and royalty revenue from products that use or incorporate technology developed under our collaborative development programs ("CDPs"), our financial condition and results of operations would be materially and adversely affected.
Our operating results may fluctuate from quarter to quarter, which may make it difficult to predict our future performance.*
Our revenue, expenses and operating results have fluctuated, and may in the future continue to fluctuate significantly from quarter to quarter due to a number of factors, many of which are outside our control. Factors that may contribute to these fluctuations include the following, as well as other factors described elsewhere in this Form 10-Q:
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▪
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our dependence on a limited number of customers;
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▪
|
the length of our sales cycles for CDPs, which makes it difficult to predict the timing of new or expanded CDPs;
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▪
|
the length of our development cycles for CDPs, which makes it difficult to predict the timeframe in which technology developed under CDPs will be available for commercialization;
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▪
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fluctuations in the volume and prices of products manufactured and sold by our customers that use or incorporate technology developed under our CDPs ("CDP Products") and that generate licensing and royalty revenue for us;
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▪
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our revenue mix, which may vary from quarter to quarter as (i) we enter into new CDPs and related customer arrangements; (ii) existing CDPs, particularly for significant customers, are completed, extended, or undergo a change in scope; (iii) licensing arrangements take effect; (iv) we enter into product sale transactions and/or (v) we enter into IP sale transactions;
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▪
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the highly cyclical nature of and price volatility in the semiconductor industry;
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▪
|
the financial stability of any of our customers;
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▪
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the timing and extent to which we enter into new CDPs or complete, extend the duration, expand the scope or reduce the duration or scope of existing CDPs;
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▪
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one-time offsets to revenue associated with the vesting of contingent warrants issued to two of our customers that are currently outstanding;
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▪
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non-cash charges relating to stock-based compensation, amortization of intangible assets and impairment expenses related to inventory and long-lived assets;
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▪
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any involvement in significant litigation, and in particular intellectual property litigation;
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▪
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any payments resulting from our intellectual property indemnification policies and obligations;
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•
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any need for significant additional capital to finance our business;
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•
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any delay in shipments caused by shortages of components used or incorporated in products sold into the market, design errors or other manufacturing problems associated with such products;
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•
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warranty claims, product recalls and product liability for our HPC tools and for CDP Products; and
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•
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business interruptions such as earthquakes and other natural disasters.
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You should not rely on quarter-to-quarter comparisons to predict our future performance. Unfavorable changes in any of these or other factors may adversely affect our business, financial condition and results of operations.
We have incurred operating losses since our inception and may not be able to achieve or maintain sustained profitability.*
We have generated net losses each year since our inception, including
$2.2 million
in the
six months ended June 30, 2013
, and $0.8 million, $30.0 million and $1.8 million for the fiscal years ended December 31, 2012, 2011 and 2010, respectively. Our accumulated deficit as of
June 30, 2013
was
$103.5 million
. We will need to significantly increase revenue and operating margins (through greater licensing revenue and other mechanisms) to achieve sustained profitability, which we may not be able to accomplish.
Our ability to achieve and maintain profitability will depend, in large part, on our success in addressing the following four challenges, as well as the other risk factors in this Item 1A:
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•
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We may be unable to achieve broad customer acceptance of our HPC platform and approach as an alternative to conventional research and development activities.
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Historically, semiconductor companies have conducted R&D activities internally using conventional research methods, and they have vigorously protected the confidentiality of their R&D activities. In order for us to increase revenue, we must convince these companies that our technology and capabilities justify collaborating with us on their basic R&D programs. A significant cultural transition is required for a customer's internal R&D team to embrace us as a collaborative partner. This contributes to the long sales cycles we experience, and may require us to make significant investments in the expansion of our sales and marketing efforts. We must also convince potential customers in the clean energy industry that our HPC platform and approach are useful tools in an emerging industry. We cannot assure you we will achieve the levels of customer acceptance necessary for us to maintain and grow a profitable business. Failure to achieve the necessary customer acceptance to extend or add current or new customer relationships would adversely affect our revenue and profitability.
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•
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We may be unable to successfully collaborate with all of our customers to achieve the technological innovations sought by our customers.
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Even if we achieve sufficient levels of customer acceptance of our HPC platform as an effective tool for R&D,
we will not achieve significant revenue or profitability from a CDP if a project to which we have devoted technology and significant resources fails to produce any measurable success or value to our customers in the form of differentiated technology and intellectual property. CDPs are extremely complex and time-consuming to implement and costly to maintain. We rely to some degree on the efforts and resources of the customer. Differences of opinion over the implementation and management of the program may occur, which could lead to material delays and/or a failure to achieve the successful development of technology. In addition, there are a limited number of CDPs to which we can commit our resources at any given time. For a variety of reasons, including but not limited to insufficient R&D budgets of our customers or us, we may fail to achieve the technological innovations sought by our customers in a reasonable amount of time or at all. We do not know whether our customers will have sufficient resources to maintain or increase the level of investment in R&D required for a successful CDP. If a customer reduces the scope of its CDP with us, it will result in a greater concentration of risk of success being placed upon the remaining scope of our engagement, and we cannot guarantee that the remaining scope of the engagement will lead to a successful result. If a CDP does not generate sufficient revenue to recover the upfront costs and cash we invested in the CDP, this would adversely affect our results of operations.
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•
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Our customers may not be successful in commercializing products that use or incorporate technology and IP developed under our CDPs with them.
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If we are successful in developing valuable technology for our customers, they still face significant challenges in commercializing products that use or incorporate such technology. The markets for products related to our engagements are intensely competitive and are characterized by rapid technological change. These changes result in frequent product introductions, short product life cycles and the necessity of continually increasing product capabilities. We cannot assure you that our customers will dedicate the resources necessary to successfully execute their business strategies for these products. Our customers are not contractually obligated to us to make or sell any CDP Products. They may not have the financial strength to cost-effectively manufacture the CDP Products at high volume and in quantities sufficient to meet demand, or the competitiveness to market and sell the CDP Products in intensely competitive markets. They may experience delays in shipments caused by shortages of components incorporated in the CDP Products, design errors or other manufacturing problems associated with the CDP Products. A decline in demand or average selling prices in the end markets for CDP Products could result in declining sales revenue for our customers and could adversely affect our business and results of operations. Any failure of a customer to achieve market success for CDP Products could also negatively affect such customer's willingness to work with us on other collaborations and could more generally harm our reputation and business prospects. Even if a customer is able to successfully commercialize a CDP Product, there may be a significant delay before we receive any licensing or royalty revenue due to the complexities inherent in production and manufacturing in our target markets.
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•
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Existing and potential customers may be resistant to paying license and royalty fees; and we may face challenges in monitoring and enforcing royalty agreements with existing customers.
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Our royalty-bearing licenses with our customers lay the framework for ongoing royalty revenue from CDP Products. Although our R&D activities under CDPs generate revenue for us, in order to achieve profitability we must be able to structure, negotiate and enforce agreements for the calculation and payment of higher-margin license and royalty revenue. Unless we adequately demonstrate the value of our platform to our customers and potential customers, we may face resistance to structuring royalty arrangements in the future that are acceptable to us, or our customers and our potential customers may not agree to enter into royalty-bearing licenses with us at all.
If we are able to negotiate appropriate agreements, we will need to rely on our customers to make those payments on a timely basis. Licensing and royalty revenue we may receive in the future may be based on sales of CDP Products. In order to accurately report our financial results on a timely basis, we will need to receive timely, complete and accurate information from our customers regarding their sales and resulting payments they owe us. If the information that we receive is not accurate, we may not receive the full amount of revenue to which we are entitled under these arrangements on a timely basis, which could result in adjustments to our financial results in a
future period. Although we typically have audit rights with these parties, performing this type of audit could be harmful to our collaborative relationships, expensive and time-consuming and may not be sufficient to reveal any discrepancies in a timeframe consistent with our financial reporting requirements.
If a project to which we have devoted technology and significant resources fails to produce any measurable success or value to our customer in the form of differentiated technology and intellectual property that our customer can successfully commercialize, we may not earn licensing and royalty revenue sufficient to recover our upfront investment in the CDP, which could adversely affect our revenue and profitability.
In some cases, the revenue we receive from our customers during the development stage is not sufficient for us to fully recover our costs and cash invested in HPC platforms dedicated to customer engagements, and our business model relies on licensing and royalty revenue based on the sales by our customers in the end-markets of CDP Products. Our CDPs involve complex R&D, and our ability to develop the differentiated technology and intellectual property sought by our customers is inherently uncertain and difficult to predict. If a project fails to produce any measurable value to a customer, or if we are otherwise not successful in maintaining and managing a CDP, we may not receive sufficient amounts of licensing and royalty revenue to recover our upfront investment in the CDP.
We depend on a limited number of customers, and a loss of any of them, or a significant reduction in revenue from any of them, would adversely affect our business, financial condition and results of operations.*
Our customer base is highly concentrated. Revenue has historically come from a few customers, and we expect that revenue from a relatively small number of customers will continue to account for a high percentage of our revenue for the foreseeable future. Our three largest customers accounted for
55%
of revenue in the
six months ended June 30, 2013
, and 67% and 64% of our revenue in the fiscal years ended December 31, 2012 and 2011, respectively. Our largest customer accounted for
22%
, 28% and 29% of our revenue in each of these periods, respectively. Our concentration of customers is somewhat a reflection of the concentrated nature of manufacturers in the DRAM, flash memory and complex logic markets, and our revenue is and may continue to be heavily reliant on key high-volume customers. In addition, as with any of our customers, our profitability and success are dependent, in part, upon the receipt of licensing and royalty revenue on the sale of CDP Products by our customers, and we cannot control the timing of customer product introductions or their success or failure in the marketplace. The loss of any of these customers or a decrease or delay in the manufacturing or sales volumes of the CDP Products, or their failure to pay amounts due to us or renew or extend their existing relationships with us, and the related impact on our future anticipated licensing and royalty revenue, would materially and adversely affect our business, financial condition and results of operations, and we may not be able to replace the business from these customers.
As an example, in April 2013 our customer GLOBALFOUNDRIES, Inc. ("GLOBALFOUNDRIES") reduced the scope of its CDP with us to address its highest priority applications. Accordingly, we expect a reduction in the scope of R&D activities and associated CDP revenue beginning in 2013, which could adversely affect our business, financial condition and results of operations. In addition, our customer Elpida Memory, Inc. ("Elpida") filed for protection under the Corporate Reorganization Act in Japan in February 2012, and was subsequently acquired by Micron Technology, Inc. (“Micron”), a leading provider of memory chips, in July, 2013. Future filings for bankruptcy protection by existing customers or further consolidation among existing or potential customers may increase our dependence on a limited number of customers, which would subject us to additional risk for the reasons set forth above.
Our sales cycles are long, and we commit significant resources to a project before we have any commitment that a potential customer may agree to use our platform or service. One or more failures to enter into a CDP after we have devoted significant resources to a project could adversely affect our business, financial condition and results of operations.
Our sales efforts require us to educate our potential customers about the benefits of our solutions, which often requires significant time and expense, including a significant amount of our senior management's time and effort. Our sales cycles to date have typically ranged from 9 to 24 months and may be even longer in the future. Furthermore, we need to target those individuals within a customer's organization who have overall responsibility for the profitability of their products. These individuals tend to be senior management or executive officers. We may face difficulty identifying and establishing contact with these individuals. In addition, our customers' technology and product pipelines are highly confidential and they may choose to withhold certain information from us during the sales cycle to protect their own proprietary technology. Our ability to implement our HPC platform and methodology is heavily dependent upon the information provided to us by our customers. If our customers reveal the complexities of their specifications after we enter into a CDP with them, that complexity may cause delays unanticipated at the time we entered into the program. During our sales cycles, we incur significant expenses and, in
many cases, may begin to build new systems, configure, modify, expand or customize existing systems, develop software and design workflows to meet our customers' requirements prior to obtaining contractual commitments, without any assurance of resulting revenue. Where a potential customer engagement requires a new dedicated HPC platform, we may invest in new capacity ahead of a customer commitment. Our cycles to build, configure, modify, expand or customize the HPC platform to date have ranged from three to nine months and may be even longer in the future. Investment of time and expense in a particular customer engagement that does not ultimately result in material revenue will adversely affect our revenue and other results of operations. Other factors
impacting the length of our sales cycles include, but are not limited to, the following:
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•
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the limited number of customers that are appropriate sales targets for our platform and that are willing to enter into licensing agreements with us;
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•
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our ability to enter into CDPs with customers who are or will become market leaders in larger, growing market segments;
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•
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our customers' budgetary constraints and internal review procedures that must be completed to begin collaboration with us; and
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•
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the significant cultural transition required for a customer's internal R&D team to embrace us as a collaborative partner.
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Semiconductor industry technology is rapidly changing. If we are unable to anticipate trends in technology development and introduce new technologies reflecting the latest innovations, it could adversely affect our business, financial condition and results of operations.
Our customers expect us to stay ahead of the technology curve in their sectors and expect that the technology developed under our CDPs will help them develop new products that keep pace with or push the limits of technological innovation. We rely heavily on the judgment of our management and advisers to anticipate the technology trends in the semiconductor industry and we must continually devote significant engineering resources to keep up with the rapidly growing and evolving varieties of semiconductor architecture, materials, applications, processes and equipment used in semiconductor design and manufacturing. In particular, we must be prepared for the cost, technical complexity and timing of a proposed industry transition from 300mm to 450mm wafers.
These innovations are inherently complex and require long development cycles. If we are not able to accurately predict industry changes, or if we are unable to adapt our HPC platform to meet our customers' needs on a timely basis, our existing solutions will be rendered obsolete and our existing and potential customers may choose to develop their own solutions internally as an alternative to ours. If we lose customers, it could have a material adverse impact on our results of operations.
The semiconductor industry is highly cyclical, subject to significant downturns, price volatility, and other dynamics that make the industry very unpredictable. These factors can have a material adverse impact on our business both directly, and indirectly through the impact on our customers in the industry.
The semiconductor industry is highly cyclical and has been subject to significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity. The semiconductor industry also periodically experiences increased demand and production capacity constraints. The timing and length of these cycles is extremely difficult to predict, which makes it challenging for us to forecast our operating results, make business decisions and identify risks that may affect our business, financial condition and results of operations. In addition, the semiconductor industry has historically experienced price volatility. Because the substantial majority of our revenue comes from customers in semiconductor industry, we may experience significant fluctuations in operating results due to the cyclicality and price volatility of the industry.
The industry has also been affected in recent years by uncertainty in the credit markets. Future uncertainty may cause sudden changes in our customers' manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for products using or incorporating our technology by consumers, inventory levels relative to demand, and access to affordable capital. For example, pressures in the DRAM sector caused financial difficulties for our customer, Elpida.
Industry consolidation (including but not limited to consolidation of semiconductor manufacturing towards foundries and large-scale manufacturers, and the subsequent concentration of research and innovation in manufacturing process development) has increased in recent years, and we may continue to see high levels of consolidation in the future. This will
likely result in a smaller number of companies, but more large companies with greater financial resources - companies that may be less likely to become our customers than smaller companies with more limited R&D resources. Furthermore, if any of our existing customers is acquired, the acquiror may not continue to engage in a CDP with us or may choose to focus its product development and commercialization on technologies not covered by our CDP.
The clean energy industry in general is in a very early stage of development, and the solar industry may experience economic challenges. As a result, we may not earn significant revenue from our initiatives in this industry for an extended period.
The clean energy industry is comprised of several sectors including energy-efficient glass, solar cells, light emitting diodes ("LEDs"), flat-panel displays, advanced batteries and other energy-efficiency technologies. Most sectors of the clean energy industry are in the very early stages of development. Many of the associated technologies have not yet achieved commercial viability in comparison to available alternatives, and may never achieve widespread market adoption. Many of the associated technologies will require substantial investments of capital to achieve scale, which may not be available on attractive terms, if at all. Certain technologies may depend on government subsidies to be commercially viable, and those subsidies may not be available from federal and state governments facing increasing financial constraints. If sectors of the clean energy industry take an extended period to achieve market acceptance and to garner significant revenue, we may not earn material revenue from our initiatives in this area until market acceptance, if ever. Furthermore, it may be difficult for us to predict which clean energy companies and which technologies may become market leaders, and we may invest time and resources in collaborations with companies who are ultimately unsuccessful in the clean energy industry, which could adversely affect our operating results.
The solar industry may again experience a challenging environment as it has done in the recent past. The demand for solar products is also influenced by macroeconomic factors such as the global economic conditions, including the ongoing debt crisis in Europe. A global economic downturn that affects the availability of financing can slow enterprise solar projects; it can also affect individual customers, who may be reluctant to assume high up-front costs and will have more difficulty getting access to capital to cover those costs. Any negative market and industry trends could materially and adversely affect our existing and potential customers in the solar segment and ultimately have a negative impact on our clean energy business.
If a project to which we have devoted technology and significant resources fails to produce any measurable success or value to our customers in the form of differentiated technology and intellectual property that they may use in their products, we may not receive meaningful amounts of, or any, licensing and royalty revenue. In this case, we may not recover the upfront costs and cash invested in the CDP, which could adversely affect our results of operations. In addition, even if we successfully develop differentiated technology and intellectual property under a CDP that our customer is able to commercialize, there may be a significant delay before we receive any licensing or royalty revenue due to the complexities inherent in production and manufacturing in our target markets.
If we are unable to scale our development services to accommodate a greater volume of CDPs, our growth prospects would be limited and our business, financial condition and results could be adversely affected.
Our customers require a significant amount of individualized attention as well as dedicated lab space at our facilities for CDPs. We have limited space and internal capacity, both in terms of personnel as well as capital equipment resources, to meet these types of demands for our customers. In addition, because of the significant confidentiality concerns associated with the projects and products we work on and the restrictions on resource and information sharing we have implemented in response, we are not able to fully capitalize upon economies of scale. If the demand for our services and products exceeds our capacity to meet such demand, we may be required to turn down potential opportunities, which would cause us to lose potential revenue, and our potential customers may take their business to a competitor or decide to develop or expand internal R&D capabilities. If we are unable to scale our development services to meet demand, our growth may be hindered and our business and operating results could be adversely affected.
We may be unable to make the substantial R&D investments required to remain competitive in our business.
The semiconductor and clean energy industries require substantial investment in R&D to develop and bring to market new and enhanced technologies and products. To remain competitive, we anticipate that we will need to increase our levels of R&D expenditures to keep pace with the development efforts of our customers. We are continually working to develop and broaden our HPC platform, including our software and informatics capabilities, to address a wider range of markets and customers for multiple applications within semiconductors, flat glass, solar cells, LEDs, flat-panel displays, advanced batteries and other energy-efficiency technologies. This is an extremely complex and costly process. We expect R&D expenses to
increase in absolute dollars for the foreseeable future, due to the increasing complexity and number of platforms and solutions we plan to develop both for our customers and internally, the expansion of our customer base and any associated increase in upfront R&D costs.
Although we are making progress in certain areas, we have limited expertise and experience in other fields. We may be required to invest significantly greater resources than anticipated in our R&D efforts. If we are unable to build new systems, or configure, modify, expand or customize existing systems for these applications and develop our expertise to support these fields, our business growth might be limited, and our business and results of operations could be materially and adversely affected.
Our strategy includes conducting proprietary R&D efforts in collaboration with and on behalf of multiple customers. Any failure on our part to adequately protect against potential conflicts of interest and breaches of confidentiality by us would harm our reputation and our relationships with our customers, and our business prospects and operating results would be materially and adversely affected. Moreover, some customers may hesitate to grant us access to their proprietary information, which could impair our ability to provide value for such customers.
Our strategy includes conducting proprietary R&D efforts in collaboration with and on behalf of customers who in some cases may have overlapping interests and technologies. We seek to structure our collaborative agreements and business practices to minimize any potential conflicts among customers and the possibility of any breaches of confidentiality. We may need access to some of our customers' proprietary information, and they may be reluctant to share it with us because of the risk of a potential conflict between us and/or our customers and other potential customers and the risk of a breach of confidentiality. In an effort to address these significant potential conflict of interest and confidentiality concerns, we have implemented internal restrictions on resource and information sharing. However, we cannot ensure that our customers will perceive these measures to be adequate and effective, or that they will be, in all circumstances. Our failure to adequately and effectively address these concerns could result in our inability to attract new customers or retain existing customers, or lead to our having incomplete information with respect to existing customers that could impair our ability to fully address the customers' needs and demonstrate the value of our technology to the customers. Even though we make significant efforts to isolate each development activity from other development activities, we may fail to meet our contractual confidentiality commitments to one or more customers. Moreover, even if we meet these commitments, conflicts of interest between a customer and us, or between or among customers, could nevertheless arise. In either event, we may become involved in a dispute with our customers regarding the solutions developed during the collaboration or the rights to these solutions, including possible litigation. Disputes of this nature could harm the relationship between us and our customers, have a material adverse effect on our ability to enter into new CDPs and cause our revenue and operating results to decline significantly.
Our business strategy requires us to evaluate, integrate and develop elements of our customers' value chains, including development and manufacturing processes. Our ability to evaluate these effectively may sometimes depend on the cooperation from our customers' materials suppliers and equipment manufacturers as well as access to their data and tools. If these third parties do not cooperate with us or provide us access to the necessary data, materials, tools or equipment we may not be able to deliver effective solutions to our customers, which would adversely affect our business and results of operations.
We have to evaluate multiple elements of our customers' value chains to help them test and develop end products that meet their specifications, including the materials, tools and equipment used by them during the manufacturing process. Our ability to evaluate a customer's value chain effectively may sometimes depend on cooperation from such customer's materials suppliers and equipment manufacturers and on access to their data and tools. Our evaluation of the materials and equipment in the value chain must be unbiased to maintain credibility with our customers, and our evaluation sometimes results in recommendations that our customers change materials and tools providers or equipment manufacturers. Our recommendations may negatively impact our relationships with materials and tool providers and equipment manufacturers. Tensions in our relationships with these providers and manufacturers may cause these parties to limit or deny our access to their newest materials and equipment, which would in turn limit our ability to complete our development activities with our customers or control the quality of the combinatorial methods applied to our development efforts on their behalf, which would adversely affect our business and operations.
Failure of our suppliers to timely deliver sufficient quantities of the components or materials that we use in our collaborations may result in delays or other disruptions in executing our CDPs, which could adversely affect our business, financial condition and results of operations.
We have historically relied on a small number of contract manufacturing companies for the manufacture and assembly of a majority of our HPC tools. While we are not dependent on any single contract manufacturing company, key parts of our tools are currently available only from a limited number of sources. In addition, components of our capital equipment are available from only a few suppliers. If supplies from these vendors are delayed or interrupted for any reason, we may not be able to get equipment or components for our tools or our own research efforts in a timely fashion or in sufficient quantities or under acceptable terms, if at all. Even though alternative sources of supply would be available, it could be time-consuming and expensive for us to qualify new vendors and work with them to integrate our designs into the tools they manufacture for us. In addition, we depend upon our vendors to provide components of appropriate quality and reliability. Consequently, if supplies from these vendors were delayed or interrupted for any reason, it could materially and adversely affect our business.
Our future growth may present challenges to our management and administrative systems and resources, which could adversely affect our business, financial condition and results of operations.
In order to successfully expand our business we will need to continue to grow in all operational areas and to successfully integrate new employees. In particular, we expect continued growth as we expand our R&D capacity for current and additional CDPs. The expansion of our business may place a strain on our management, operational systems and facilities, which may make it difficult to implement our business strategy. The addition of new employees may also increase the likelihood of employee claims against us.
To effectively manage our operations and growth, we must continue to expend funds to enhance our operational, legal, financial and management controls, reporting systems and procedures and to attract and retain sufficient numbers of talented employees. If we are unable to implement these enhancements efficiently, effectively and quickly, then we will not be able to successfully grow our business as planned. Our future operating results will also depend on our management's ability to:
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improve our sales, marketing and customer support programs;
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enhance our operational and financial control systems;
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expand, train and manage our employee base and promptly replace departing employees with key skills; and
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effectively address new issues related to our growth as they arise.
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We may not manage our expansion successfully, which could materially and adversely affect our business, financial condition and results of operations.
Acquisitions may harm our business and operating results, cause us to incur debt or assume contingent liabilities or dilute our stockholders.
We have made and may in the future make strategic investments or acquisitions where there is an opportunity to expand the potential applications and reach of our capabilities, including our HPC platform. Exploring and implementing any investments or acquisitions may place strain upon our ability to manage our future growth and may divert management attention from our core development and licensing business. There are also other risks associated with this strategy. We cannot assure you that we will be able to make investments or acquire businesses on satisfactory terms, that any business acquired by us or in which we invest will be integrated successfully into our operations or be able to operate profitably, or that we will be able to realize any expected growth, synergies or benefits from such investments or acquisitions. Our relative inexperience in effecting such transactions heightens these risks. In addition, to finance any acquisitions or investments, we may utilize our existing funds, or might need to raise additional funds through public or private equity or debt financings. We may be unable to obtain financing to fund future acquisitions on attractive terms, or at all. Additionally, equity financings may result in dilution to our stockholders. We cannot predict the number, timing or size of investments or acquisitions, or the effect that any such transactions might have on our operating results.
Our financial obligation to Silicon Valley Bank (“SVB”) could adversely affect our financial health and our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.*
On May 31, 2013, we entered into a loan and security agreement (“Loan Agreement”) with SVB pursuant to which SVB made available to us loans under a revolving line to refinance existing indebtedness (including the repayment of all remaining principal and accrued interest under the secured promissory note that we issued to Symyx Technologies, Inc. in November 2011) and for working capital and general business purposes, in a principal amount of up to $26.5 million. Under the Loan Agreement, SVB funded an initial credit extension in the principal amount of $25.0 million on May 31, 2013 and agreed to fund, subject to customary conditions, additional credit extensions under the revolving line on or prior to November 30, 2013. Prior to November 30, 2013, we have the option to convert all or any part of the outstanding advances under the revolving line into a term loan. Our option to convert the revolving advances into a term loan can only be used once. The revolving line advances bear interest at a floating rate equal to the greater of 2.75% or the prime rate (customarily defined) minus 0.50%. The term loan would bear interest at a fixed rate equal to 3.25%.
We are obligated to pay interest on the revolving line credit extensions on a monthly basis and are obligated to pay the principal amount of all outstanding principal and unpaid interest on credit extensions under the revolving line on November 30, 2013. During the three months ended June 30, 2013, we paid SVB $2,000 of interest for the amounts drawn under the Loan Agreement during such period. For any amount converted into a term loan prior to November 30, 2013, we are obligated to pay interest at the applicable rate and $0.5 million of principal on a quarterly basis. The term loan would mature three years from the first day of the month after conversion occurs, but no later than November 30, 2016, and we would be obligated to pay all outstanding principal and accrued and unpaid interest on that date. At our option, we may prepay the outstanding principal balance of the term loan in full or in part, subject to a pre-payment fee of 0.25% of the outstanding principal balance of the term loan if the term loan is outstanding for less than one year. In the event of a termination of the revolving line for any reason before November 30, 2013, including the repayment of the loan upon any prepayment, we are obligated to pay a final payment fee equal to 0.25% of the outstanding revolving advance being repaid.
Our obligations to SVB will require us to dedicate a substantial portion of our cash flow from operations to payments on interest and principal, thus reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, execution of our business strategy and other general corporate purposes. Such limitations increase our vulnerability to adverse general economic and industry conditions and limit our flexibility in planning for, or reacting to, changes in the economy, our industry and new opportunities that may arise. In addition, we granted SVB a security interest in substantially all of our assets, excluding all intellectual property. Under the Loan Agreement, we cannot grant an interest in our intellectual property to any other person. We are also subject to certain affirmative and negative covenants under the Loan Agreement, including limitations on our ability to: undergo certain change of control events; dispose of our assets; merge or acquire other entities; create, incur, assume, guarantee or be liable with respect to indebtedness; grant liens on any assets; make any dividends in cash; and make or permit any payment on subordinated debt, in each case subject to certain exceptions. In addition, we are subject to a financial covenant under which, if our unrestricted cash, cash equivalents and other short-term investments are less than $60 million, we must maintain a ratio of our short-term assets (including cash, net accounts receivable and short-term investments) to certain liabilities (including our outstanding and owed obligations to SVB and any other liabilities maturing in less than one year) of 1.5:1.0. Under the Loan Agreement, subject to certain exceptions, we are also required to maintain with SVB our primary operating and other deposit accounts and securities accounts. The Loan Agreement also includes several potential events of default such as payment default, material adverse change conditions and insolvency conditions that could cause interest to be charged at the rate that is otherwise applicable plus 5.0%. Any uncured events of default may result in SVB's right to declare all outstanding obligations immediately due and payable and to exercise any other remedies permitted under the Loan Agreement. These obligations and restrictions may make it more difficult for us to borrow funds in the future to fund working capital, capital expenditures and other purposes, which could materially and adversely affect our business, financial condition and results of operations.
We may need additional capital in the future to finance our business.*
Our future capital requirements may be substantial as we continue to develop our business and expand our collaborative development efforts. Although we believe that, based on our current level of operations and anticipated growth, our existing cash, cash equivalents and marketable securities, as well as our access to capital pursuant to the Loan Agreement with SVB, will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months, we may need additional capital if our current plans and assumptions change. In particular we may be required to raise additional capital if we choose to expand our business through strategic investments or acquisitions. Our need for additional capital will depend on many factors, including our rate of revenue growth, our
expansion of our sales and marketing activities and overhead expenses, the timing and extent of our spending to support our R&D efforts and our ability to expand CDPs in the semiconductor and clean energy industries, whether we are successful in obtaining anticipated levels of payments from customers, the financial stability of our customers, whether we can enter into additional collaborations in our target industries and markets, the progress and scope of collaborative R&D projects performed by us and our customers, the effect of any acquisitions of other businesses or technologies that we may make in the future, the filing, prosecution, maintenance and enforcement of patent claims, how much we need to develop or enhance our solutions or HPC platform and any necessary responses to competitive pressures.
If our capital resources are insufficient to meet our capital requirements, and our revenue is insufficient to support any of these activities, then we will have to raise additional funds. If future financings involve the issuance of equity securities, our then-existing stockholders may suffer dilution. If we raise additional future debt financing, we may be subject to restrictive covenants similar or more restrictive than those we are subject to under the Loan Agreement with SVB, which would further limit our ability to conduct our business. We may not be able to raise sufficient funds on terms that are favorable to us, if at all. If we fail to raise sufficient funds and continue to incur losses, our ability to fund our operations, take advantage of strategic opportunities, develop products or technologies or otherwise respond to competitive pressures could be significantly limited. If this happens, we may be forced to delay or terminate R&D programs, curtail or cease operations, obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may not be able to successfully execute our business plan or continue our business.
If we lose one or more of our key personnel without obtaining adequate replacements in a timely manner or if we are unable to retain and recruit skilled personnel, our operations could become disrupted and the growth of our business could be delayed or restricted.
Our success depends, in large part, on the continued contributions of our senior management team, in particular, the services of Mr. David Lazovsky, our President and Chief Executive Officer, and Dr. Tony Chiang, our Chief Technology Officer. If we lose the services of Mr. Lazovsky or Dr. Chiang, it could slow the execution of our business plan, hinder our development processes and impair our sales efforts, and searching for a replacement could divert our other senior management's time and increase our operating expenses. In addition, our customers could become concerned about our future operations, which could harm our reputation.
None of our senior management is bound by written employment contracts to remain with us for a specified period. The loss of any of our senior management could harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. Upon hiring or promotion, new senior management personnel must spend a significant amount of time learning our technology, business model and management systems and their new roles, in addition to performing their regular duties. Accordingly, until new senior personnel become familiar with our technology, business model and systems or with their new roles, we may experience some disruption to our ongoing operations. Moreover, the loss of a member of our senior management or our professional staff would require the remaining management to divert attention to seeking a replacement.
Our future success and competitiveness depends on our ability to retain and motivate our unique team of highly skilled scientists and engineers, and to recruit and hire similarly qualified replacements for any who leave the company. These scientists and engineers have expertise across various disciplines, fields and technologies, including engineering, materials science, process development and integration, equipment, device process technologies and device integration. In addition, as we grow, we will have to continue to retain, attract and motivate qualified and talented personnel, including our scientists and engineers, management, sales and marketing and legal and finance personnel. Because our CDPs are customer-specific and project-specific and last for a significant period of time, the loss of key scientists or engineers or other personnel could have an adverse effect on a particular development program and on our ability to deliver results to a customer in a timely manner or at all. We do not know whether we will be able to retain all of these employees or hire appropriate replacements for any who leave the company, as we continue to pursue our business strategy. Competition for personnel is intense in the semiconductor and clean energy industries.
We may encounter difficulties in hiring qualified scientists and engineers because there is a limited pool of scientists and engineers with the specialized expertise required to understand and implement our platform in conjunction with our customers. Further, we may have difficulty or delays in obtaining deemed export licenses for some scientists and engineers who we may wish to hire, in obtaining visas permitting entry for some of our employees who are foreign nationals into the United States, and in obtaining visas permitting entry into other key countries for several of our key personnel, which could disrupt our ability to strategically locate our personnel. The loss of the services of key employees or our inability to retain,
attract and motivate qualified scientists and engineers could have a material adverse effect on our business, financial condition and results of operations.
If we cannot compete successfully in our industry, our results of operations and financial condition would be adversely affected.
Competition in our market may intensify in the future, which could slow our ability to grow or execute our strategy and could lead to increased pricing pressure, negatively impacting our revenue and ability to attain and maintain profitability. Our current and potential customers may choose to develop their own methods to accelerate R&D activities, including their own combinatorial development methods internally, particularly if we are slow in developing or deploying our solutions or improving them to meet market needs. We currently face indirect competition from the internal R&D groups of our current and potential customers, particularly those of our customers who work with us to develop knowledge of combinatorial methods and who may then use our methods independently. Several of them also design, develop, manufacture and market semiconductor products based on their own solutions or other architectures and develop their own intellectual property internally. They often compete with each other and with us in various applications. Our customers are generally much larger and have significantly greater resources than us. We also face indirect competition from university collaborations, consortia and alliance partnerships. In addition, there may be other providers of high-throughput or combinatorial solutions for the design of and accelerating R&D relating to integrated devices of which we are not aware and there may be new entrants to the industry in the future, particularly if acceptance of these solutions grows. In addition, we believe that the demand for solutions that address the need for better integration between the design and manufacturing processes may encourage direct competitors to enter into our market. Other potential competitors include fabrication facilities that may decide to offer solutions competitive with ours as part of their value proposition to their customers. If these potential competitors change the pricing environment or are able to attract industry partners or customers faster than we can, we may not be able to grow and execute our strategy as quickly or at all.
A substantial portion of our revenue is derived from business arrangements with related parties, and such arrangements could create conflicts of interest that could adversely affect our business and results of operations.*
Some of our customers and other business partners hold a significant stake in our capital stock. Related party transactions disclosed in our financial statements accounted for
$6.5 million
(
19.2%
) of our revenue in the
six months ended June 30, 2013
, and $21.1 million (31.6%), $21.0 million (39.0%) and $26.0 million (60.9%) of our revenue for the years ended December 31, 2012, 2011 and 2010, respectively. ATMI, which beneficially owned approximately
8.5%
of our outstanding stock as of
June 30, 2013
, accounted for
$4.2 million
(
12.4%
) of our revenue in the
six months ended June 30, 2013
, and $16.5 million (24.7%), $15.8 million (29.3%) and $22.1 million (51.8%) of our revenue during the years ended December 31, 2012, 2011 and 2010, respectively. For more information about these transactions, see Note 9 to our condensed consolidated financial statements in this Form 10-Q.
We believe that the transactions and agreements that we have entered into with related parties are on terms that are at least as favorable as could reasonably have been obtained at such time from unrelated third parties. However, these relationships could create, or appear to create, potential conflicts of interest when our board of directors is faced with decisions that could have different implications for us and our related parties or their affiliates. In addition, conflicts of interest may arise between us and our related parties and their affiliates. The appearance of conflicts, even if such conflicts do not materialize, might adversely affect the public's perception of us, as well as our relationship with other companies and our ability to enter into new relationships in the future, including new CDPs with competitors of such related parties, which could have a material adverse effect on our ability to do business.
We may be subject to warranty claims, product recalls and product liability.
From time to time, we may be subject to warranty or product liability claims relating to our HPC tools that could result in unanticipated expenses as we compensate affected customers for product quality issues. Although we maintain product liability insurance, the insurance is subject to significant deductibles and there is no guarantee that coverage will be available or adequate to protect against all such claims. Alternatively, we may elect to self-insure with respect to certain matters. If an HPC tool sold to our customers is recalled, we may incur repair and/or replacement costs, contract damage claims from our customers and reputational harm. Costs or payments made in connection with warranty and product liability claims and product recalls could materially and adversely affect our financial condition and results of operations.
Compliance with environmental, health and safety laws and regulations could increase costs or cause us to incur substantial liabilities.
We are subject to various foreign, federal, state and local environmental laws and regulations governing, among other matters, emissions and discharges of hazardous materials into the air and water, the use, generation, storage, handling, transportation and disposal of, and exposure to, hazardous materials and wastes, remediation of contamination and employee health and safety. In addition, under certain of these environmental laws, liability can be joint and several and without regard to comparative fault. Our operations involve the use of hazardous materials and produce hazardous waste, and we could become liable for any injury or contamination that could arise due to such use or disposal of these materials. Failure to comply with environmental laws and regulations could result in the imposition of substantial civil and criminal fines and sanctions, could require operational changes or limits or the installation of costly equipment or otherwise lead to third party claims. Future environmental laws and regulations, stricter enforcement of existing laws and regulations, or the discovery of previously unknown contamination or violations of such laws and regulations could require us to incur costs or become the basis for new or increased liabilities, which could impair our operations and adversely affect our business and results of operations.
Global or regional economic, political and social conditions could adversely affect our business, financial condition and results of operations.
We operate in multiple jurisdictions throughout the world and are subject to foreign business, political and economic risks. In particular, we are subject to risks arising from adverse changes in global economic conditions. Global economic uncertainties in the key markets of many of our customers may cause our customers to delay or reduce R&D and technology purchases and investments. The impact of this on us is difficult to predict, but if businesses defer using our HPC platform or licensing our technology, require fewer CDPs or development tools, or if consumers defer purchases of new products that use or incorporate technology developed under our CDPs, our revenue could decline. A decline in revenue would have an adverse effect on our results of operations and our financial condition.
In addition, some of our largest customers are located outside of the United States, primarily in Asia, which further exposes us to foreign risks. Also, a substantial portion of the consumer products market that serves as the end-market for the products we help our customers to develop is located in Asia. As a result, our operations are subject to substantial influence by political and economic conditions. Reduced end user demand as well as disruptions to the supply chain for our customers resulting from these or other events could lead to a reduction in our revenue and an adverse impact on our financial condition. Our licensing and royalty revenue is derived from sales of products that use or incorporate technology developed under our CDPs. To the extent that sales for these customer products are denominated in a foreign currency, an increase in the value of the U.S. dollar relative to such foreign currencies could adversely affect our licensing and royalty revenue irrespective of the volume of such products sold, which could adversely affect our business and operating results.
We derive a significant portion of our revenue from customers in foreign countries. We expect that a significant portion of our total future revenue will continue to be derived from companies based in foreign countries. If the U.S. dollar increases in value relative to the currencies in any of these countries, the cost of our CDPs, which have historically been billed in U.S. dollars, will be more expensive to existing and potential customers in those countries, which could adversely affect our ability to generate new or expand existing CDPs.
We are also subject to general geopolitical risks in connection with international operations, such as political, social and economic instability, terrorism, interference with information or communication of networks or systems, potential hostilities, changes in diplomatic and trade relationships, and disease outbreaks, and any disruptive effect these events would have on our business operations. Although to date we have not experienced any material adverse effect on our operations as a result of these types of regulatory, geopolitical, and other factors, we cannot assure investors that these factors will not have a material adverse effect on our business, financial condition, and operating results or require us to modify our current business practices. Inconsistencies among, and unexpected changes in, a wide variety of foreign laws and regulatory environments with which we are not familiar, including, among other issues, with respect to employees, protection of our intellectual property, and a wide variety of operational regulations and trade and export controls under domestic, foreign, and international law may also have unexpected, adverse impacts on our operations and financial condition.
Business interruptions could delay or prevent our business activities, which could have a material adverse effect on our business, financial condition and results of operations.
Our headquarters are located in the San Francisco Bay Area near known earthquake fault zones and are vulnerable to significant damage from earthquakes. We are also vulnerable to other types of natural disasters and other events that could disrupt our operations, such as cybersecurity breaches, terrorist acts and other events that may be beyond our control.
We do not carry insurance for earthquakes and we may not carry sufficient business interruption insurance to compensate us for losses that may occur. Our business can also be impacted if our customers experience business interruptions as a result of events such as the 2011 earthquake and tsunami in Japan. Any losses or damages we or our customers incur could have a material adverse effect on our cash flows and success as an overall business.
Our ability to use our net operating loss carryforwards to offset future taxable income, and our ability to use our tax credit carryforwards, may be subject to certain limitations.
Our ability to use our net operating loss carryforwards to offset future taxable income, and our ability to use our tax credit carryforwards, may be subject to certain limitations.
In general, a corporation that undergoes an “ownership change” under Section 382 of the Internal Revenue Code is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards (NOLs) to offset future taxable income and its ability to utilize tax credit carryforwards. As of December 31, 2012, we reported U.S. federal NOLs of approximately $37.6 million. In general, an “ownership change” occurs if the aggregate stock ownership of certain stockholders (generally, 5% shareholders, applying certain aggregation and look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally, three years). We have not determined whether an ownership change has occurred in the past. If we have experienced an ownership change in the past, our ability to utilize NOLs and tax credit carryforwards could be limited. Furthermore, future changes in our stock ownership, such as certain stock issuances and transfers between stockholders, some of which changes are outside of our control, could result in ownership changes under Section 382 of the Internal Revenue Code. For these reasons, we may not be able to utilize a material portion of our NOLs and tax credit carryforwards, even if we attain profitability.
According to the American Taxpayer Relief Act of 2012 (HR 8) signed into law on January 3, 2013, the federal research credit, which was allowed to expire on January 1, 2012, was retroactively extended through 2013. The federal research credit for the retroactive extensions will be reflected in the 2013 tax provision.
Specific Risks Relating to Our Intellectual Property
We may be unable to effectively protect our intellectual property, which would negatively affect our ability to compete.*
We depend on our proprietary HPC platform for our success and ability to compete. If others are able to reproduce our technology, our business will suffer significantly unless we can prevent them from competing with us. As of June 30, 2013, we owned or had exclusive licenses to 1,055 U.S. patents and patent applications (some of which also have foreign counterparts), which we believe protect our rights in our HPC platform and our rights in the technology developed under the CDPs. While we have been filing patent applications to seek protection for the further advancements of our HPC platform, patent laws provide only limited protection. Furthermore, we may not be able to sustain the high rate of patenting we maintained in the previous two years due to the expense and resource-intensiveness of the patenting process. We cannot assure you that all maintenance fees have been paid or that all filings have been made with the appropriate regulatory or governmental authorities with respect to any IP rights (including patents) registered or applied for outside of the U.S. that we purchase. Also, patent protection in foreign countries may be limited or unavailable where we need this type of protection.A more detailed description of how we protect our IP rights (including patents) is set forth in Part I, Item 1: “Business - Intellectual Property” of our 2012 Form 10-K.
The patent positions of technology companies, including ours, are often uncertain and involve complex legal and factual questions. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. We apply for patents covering our HPC platform and further advancements of our HPC platform as we deem appropriate. However, we may not obtain patents on all inventions for which we seek patents. Further, any patent claims we file for may be challenged during prosecution or any patent claims we are issued may be challenged after issuance. This may result in the claims being narrowed in scope or extinguished as a result of these challenges. Additional uncertainty may result from the recent passage of patent reform legislation by the United States Congress, legal precedent as handed down by the United States Federal Circuit and Supreme Court as they determine legal issues concerning the scope and construction of patent claims and inconsistent interpretation of patent laws by the lower courts. For these reasons, among others, our existing patents and any future patents we obtain may not be sufficiently effective in preventing others from practicing our technologies or from developing similar or superior products. In that case, our revenue and operating results could decline.
Our strategy includes obtaining patent protection for technology developed in collaboration with our customers. A
portion of our revenue from our customers derives from the licenses granted by us to our customers under these patents. In certain instances our ability to obtain patent protection may require customer approval. If the customer does not provide its approval, we cannot proceed with patent protection and the technology will be subject to trade secret protection only. If we are unable to obtain patent protection, we would not be able to enforce patent rights to the technologies in question.
We have developed in the past, and may develop in the future, patented technology with U.S. federal government funding. When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license authorizing the government to use the invention for non-commercial purposes. These rights may permit the government to disclose our confidential information to third parties and to exercise “march-in” rights to use or allow third parties to use our patented technology. The government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, U.S. government-funded technology may be subject to restrictions on transfer to foreign entities, and some U.S. government-funded data may be subject to public disclosure under the Freedom of Information Act.
Many of our customers and competitors have significant operations outside the United States. However, foreign laws may not afford us sufficient protections for our intellectual property, and we may not always seek patent protection outside the United States. We believe that our success depends, in part, upon our ability to obtain international protection for our IP rights. However, the laws of some foreign countries may not be as comprehensive as those of the United States and may not be sufficient to protect our proprietary rights abroad. Accordingly, our international competitors could obtain foreign patent protection for, and market overseas, products and technologies for which we are seeking patent protection in the United States.
Confidentiality agreements with employees and others may not adequately prevent disclosures of trade secrets and other proprietary information.
We rely in part on confidentiality and trade secret protection to protect our confidential and proprietary information and processes. However, trade secrets are difficult to protect. We have taken measures to protect our trade secrets and proprietary information, but these measures may not be effective. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual's relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that all rights in and to the inventions conceived by the individual in the course of rendering services to us shall be assigned to us. Nevertheless, employees, collaborators or consultants may still disclose or misuse our confidential information, and we may not be able to meaningfully protect such information or our trade secrets. In addition, others may independently develop substantially equivalent information or techniques or otherwise lawfully gain access to our trade secrets, and thereafter communicate this information to others without maintaining its confidentiality. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection or enforce our trade secrets could adversely affect our competitive business position.
Significant litigation over intellectual property in the industry may cause us to become involved in costly and lengthy litigation, which could subject us to liability, require us to stop licensing our developed technology or force us to develop new technology.
Whether or not patents are granted to us, litigation may be necessary to enforce our IP rights, to defend against a claim of infringement of IP rights of others or to determine the validity and scope of our proprietary rights or the proprietary rights of others. Because infringement is a fact-intensive inquiry, and because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing (or, in some cases, are not published until they issue as patents), we cannot be certain that we do not now, and will not in the future, infringe a third party's patent rights. We may also become party to claims by our customers to IP rights developed by us in connection with a CDP. If our customers become involved in disputes with third parties over allegations that our customers' practice of our IP rights infringes the IP rights of such third parties, it may also become necessary for us to become involved in such disputes.
Any claim, even if without merit, could be time consuming to defend, result in costly litigation, or require us to enter into licensing agreements, resulting in unexpected operating costs. Moreover, our opponents in any litigation may have significantly more resources with which to defend against or assert claims in the litigation. A successful claim of infringement against us in connection with the use of our technologies could force us to stop using our technologies that
incorporate the infringed IP; pay substantial monetary damages or royalties; grant cross-licenses to third parties relating to our own IP; obtain a license from the owner of the infringed IP, which may not be available to us on acceptable terms or at all; or re-engineer our platform or products to avoid further IP infringement, which may be technically impossible or commercially infeasible. The occurrence of any of these eventualities could adversely affect our business. Even if we are successful in defending such a claim, litigation could also divert our resources, including our managerial and engineering resources. Any infringement claim or other litigation against or by us could have a material negative effect on our business.
Our intellectual property indemnification policies and obligations may adversely impact our business and operating results.
Any assertion by a third party asserting ownership or other rights to technology developed under our CDPs could result in our customers becoming the target of litigation and we may be bound to indemnify our customers under the terms of our license agreements. These obligations could result in substantial expenses to us, which could have a material adverse effect on our business, financial condition and results of operations. In addition to the time and expense required for us to satisfy our support and indemnification obligations to our customers, any litigation could severely disrupt or shut down the business of our customers, which in turn could damage our relations with them and have a material adverse effect on our reputation, business, financial condition and results of operations.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile, which may cause the value of our common stock to decline and subject us to securities class action litigation.
The market price of our common stock could be subject to significant fluctuations. Market prices for securities of early stage companies have historically been particularly volatile. The stock markets in general have experienced price and volume fluctuations that have affected, and continue to affect, the market prices of equity securities of many companies. A portion of most future fluctuations in our stock price will likely be related to the risk factors described in this section. However, as is the case for many companies with volatile stock prices, price fluctuations may be disproportionate, or even unrelated, to their operating performance. In the past, many companies that have experienced volatility in the market price of their stock have become subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management's attention from other business concerns, which could seriously harm our business. Factors that could contribute to volatility in our stock price include but are not limited to the following:
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fluctuations in our financial results or outlook, or those of our customers or of companies perceived to be similar to us;
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changes in estimates of our financial results or recommendations by securities analysts;
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changes in market valuations of similar companies;
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changes in our capital structure, such as future issuances of securities or the incurring of debt;
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announcements by us or our competitors of significant contracts, acquisitions or strategic alliances; and
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litigation involving us, our general industry or both;
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additions or departures of key personnel;
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regulatory developments in the U.S., countries in Asia, and/or other foreign countries;
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investors' general perception of us; and
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general economic and political conditions in the US and globally, such as recessions, interest rate changes and international currency fluctuations
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We have incurred and will continue to incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations.
As a public company, we have incurred and will continue to incur significant accounting, legal and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We have incurred and will continue to incur costs associated with existing and evolving corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the Securities Exchange Commission, or SEC, and the exchange on which we list our common stock. These rules and regulations have substantially increased our financial and legal compliance costs and may cause further increases in the future. These rules and regulations also make it more expensive for us to maintain director and officer liability insurance.
If we experience material weaknesses or otherwise fail to maintain an effective system of internal controls in the future, we may not be able to accurately report our financial condition or results of operations, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
As a public company, we are required, under Section 404 of the Sarbanes-Oxley Act, to conduct a comprehensive evaluation of our disclosure controls and procedures over financial reporting. The results of this assessment need to be included in our annual report and we are required to disclose any material weaknesses identified by our management in our internal control over financial reporting, as well as an opinion from our independent registered public accounting firm on the effectiveness of our internal control over financial reporting. A material weakness is a control deficiency or combination of control deficiencies that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected.
We devoted significant resources to hiring personnel and compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 for the year ended December 31, 2012. In future years, we may need to devote more resources to Section 404 compliance, and we may not be able to complete our annual evaluations, testing and any required remediations in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. Lack of effective controls could severely inhibit our ability to accurately report our financial condition or results of operations. We cannot assure you that there will not be material weaknesses and significant deficiencies in our internal controls in the future. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm were to issue an adverse opinion on the effectiveness of our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.
The concentration of our capital stock ownership by our executive officers, directors and 5% stockholders will limit your ability to influence corporate matters.*
Our executive officers, directors, current five percent or greater stockholders and entities affiliated with them together beneficially owned approximately
74.0%
of our common stock outstanding as of
June 30, 2013
. Entities affiliated with Redpoint Ventures, entities affiliated with CMEA Ventures and entities affiliated with U.S. Venture Partners beneficially owned approximately
16.8%
,
14.5%
and
9.5%
, respectively, of our common stock outstanding as of
June 30, 2013
. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with concentrated stock ownership. Also, these stockholders, acting together, will be able to influence our management and affairs and determine the outcome of matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquiror from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders.
A significant portion of our total outstanding shares may be sold into the public market at any given time, which could cause the market price of our common stock to drop significantly, even if our business is doing well.*
If our existing stockholders sell, or if the market believes our existing stockholders will sell, substantial amounts of our common stock in the public market, the market price of our common stock could decline significantly. As of
June 30, 2013
, we had 45,135,794 shares of common stock outstanding. All of these shares can be resold at any time, subject in some cases to the volume limitations and other restrictions of Rule 144 promulgated under the Securities Act of 1933, as amended, or the Securities Act, and upon the lapse of our right of repurchase with respect to any unvested shares. Certain of our officers and directors sell shares from time to time pursuant to 10b5-1 automated sales plans, and investors may react negatively to
any insiders disposing of shares of our stock.
In addition, as of
June 30, 2013
, the holders of
18,080,142
shares of our common stock are entitled to certain rights with respect to the registration of such shares under the Securities Act. If we register such shares of common stock, these stockholders could sell those shares in the public market without being subject to the volume and other restrictions of Rule 144.
We also registered approximately 13.8 million shares of our common stock subject to outstanding stock options and reserved for issuance under our equity plans. These shares can be freely sold in the public market upon issuance, subject to vesting restrictions and the lock-up restrictions described above.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
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staggered board of directors;
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authorizing the board to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;
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authorizing the board to amend our bylaws and to fill board vacancies until the next annual meeting of the stockholders;
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prohibiting stockholder action by written consent;
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limiting the liability of, and providing indemnification to, our directors and officers;
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eliminating the ability of our stockholders to call special meetings; and
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requiring advance notification of stockholder nominations and proposals.
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Section 203 of the Delaware General Corporation Law prohibits, subject to some exceptions, “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-year period following the date that the stockholder became an interested stockholder.
These and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws could discourage potential takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) Sales of Unregistered Securities
None.
(b) Use of Proceeds from Public Offering of Common Stock
On November 17, 2011, the Securities and Exchange Commission ("SEC") declared effective our registration statement on Form S-1 (File No. 333-175877), as amended, filed in connection with the initial public offering of our common stock. Pursuant to the registration statement, we issued and sold 5,681,796 shares of our common stock and Symyx Technologies, Inc. ("Symyx"), a wholly-owned subsidiary of Accelrys, Inc., sold 3,968,204 shares of our common stock, each at a public offering price of $10.00 per share. After deducting underwriting discounts, commissions and offering expenses paid or payable by us, our net proceeds from the offering were approximately $49.2 million.
There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC on November 18, 2011 pursuant to Rule 424(b). Following the date on which the SEC declared effective the registration statement, we used a portion of the net proceeds of our initial public offering to pay Symyx $1.4 million in satisfaction of our agreement to reimburse Symyx for 50% of their underwriter discounts and commissions. In addition, in connection with an agreement for the purchase of intellectual property and the termination of our royalty obligations under an existing license agreement, we issued a promissory note to Symyx upon the consummation of our initial public offering. Between our initial public offering and May 31, 2013, we used an aggregate of
$4.0 million
of the net proceeds of our initial public offering to repay the principal and accrued interest on the note when due and payable in accordance with the terms of the note. On May 31, 2013, we repaid Symyx an aggregate of $26.5 million for all remaining principal and accrued interest on the note through the use of $1.5 million of the net proceeds of our initial public offering and $25 million of the net proceeds from our new revolving line of credit with Silicon Valley Bank. Pursuant to our loan and security agreement with Silicon Valley Bank (the “Loan Agreement”), a portion of the net proceeds of our initial public offering will be used to pay interest on the revolving line credit extensions on a monthly basis and a portion of the net proceeds of our initial public offering may be used to pay the principal amount of all outstanding principal and unpaid interest on credit extensions under the revolving line on November 30, 2013. For any amount we elect to convert into a term loan prior to November 30, 2013, a portion of the net proceeds of our initial public offering will be used to pay interest at the applicable rate and $0.5 million of principal on a quarterly basis. The term loan would mature three years from the first day of the month after conversion occurs, but no later than November 30, 2016, and we may use a portion of the net proceeds of our initial public offering to pay all outstanding principal and accrued and unpaid interest on that date. In the meantime, we invest any unused portion of the proceeds from our initial public offering in short and intermediate-term, interest-bearing obligations, investment-grade instruments, or guaranteed obligations of the U.S. government.
ITEM 6.
EXHIBITS
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Exhibit
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Incorporated by Reference
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Filed
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Number
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Exhibit Description
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Form
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Date
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Number
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Herewith
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2.1
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Asset Purchase Agreement by and between Intermolecular, Inc. and Symyx Technologies, Inc. dated as of July 28, 2011 (1)
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S-1/A
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09/09/11
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2.1
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3.1
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Amended and Restated Certificate of Incorporation of Intermolecular, Inc.
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10-K
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03/16/12
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3.1
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3.2
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Amended and Restated Bylaws of Intermolecular, Inc.
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10-K
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03/16/12
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3.2
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4.1
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Specimen Common Stock Certificate
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S-1/A
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11/07/11
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4.1
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4.2
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Warrant to purchase shares of common stock issued to Timane S.a.r.l. dated June 20, 2008
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S-1
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07/29/11
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4.2
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4.3
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Form of warrant to purchase shares of common stock issued to Toshiba Corporation and SanDisk Corporation dated March 15, 2010
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S-1/A
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10/26/11
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4.3
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4.4
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Fourth Amended and Restated Investor Rights Agreement dated as of March 4, 2011, by and among Intermolecular, Inc. and certain stockholders named therein, as amended by Amendment No. 1 to Fourth Amended and Restated Investor Rights Agreement dated as of June 14, 2011
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S-1
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07/29/11
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10.1
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4.5
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Secured Promissory Note, issued by the Company to Symyx Technologies, Inc. on November 23, 2011
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10-K
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03/16/12
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4.5
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10.24 †
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Amendment No. 2 to the Collaborative Development Program Agreement, effective July 1, 2013, by and between GLOBALFOUNDRIES Inc. and Intermolecular, Inc.
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10.25 †
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Second Extension to the Advanced Memory Agreements, effective as of April 1, 2013, by and between Elpida Memory, Inc. and Intermolecular, Inc.
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10.26
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Loan and Security Agreement between Intermolecular, Inc. and Silicon Valley Bank, dated as of May 31, 2013.
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8-K
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06/03/13
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10.1
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X
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10.27 †
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Collaborative Development Agreement, effective April 1, 2013, by and between Micron Technology, Inc. and Intermolecular, Inc.
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31.1
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Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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31.2
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Certification of Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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32.1
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Certification of Chief Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Interim Chief Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Extension Schema Document
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase Document
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(1) All exhibits, schedules and similar attachments to this exhibit have been omitted. Copies of such exhibits, schedules and similar attachments will be furnished supplementally to the SEC upon request.
† Certain portions have been omitted pursuant to a confidential treatment request. Omitted information has been filed separately with the SEC.
* Pursuant to Rule 406T of SEC Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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INTERMOLECULAR, INC.
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(Registrant)
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Date: August 7, 2013
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By:
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/s/ Reed K. Birnbaum
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Reed K. Birnbaum
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Interim Chief Financial Officer
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Amendment No. 2
to the Collaborative Development Program Agreement
GLOBALFOUNDRIES and Intermolecular
WHEREAS GLOBALFOUNDRIES Inc., an exempted company incorporated under the laws of the Cayman Islands, and having a registered address at PO Box 309, Ugland House, Grand Cayman KY1-1104, Cayman Islands (hereinafter referred to as "GLOBALFOUNDRIES" or “GF”) and INTERMOLECULAR, INC., a Delaware corporation located at 3011 North First Street, San Jose, California 95134 (hereinafter referred to as "Intermolecular" or “IM”) entered into a Collaborative Development Program agreement with an effective date of June 1, 2011 (“CDP Agreement”).
WHEREAS the CDP Agreement was subsequently amended with an effective date of April 22, 2012 (“Amendment No. 1”).
WHEREAS GLOBALFOUNDRIES and Intermolecular wish to modify the terms of the CDP Agreement (as amended by Amendment No. 1) by this Amendment No. 2 (this Amendment No. 2 hereinafter referred to as “Amendment”).
NOW THEREFORE, in consideration for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, GLOBALFOUNDRIES and Intermolecular agree to modify the terms of the CDP Agreement, as amended, as follows.
This Amendment shall be effective on the last date of the signatures of the authorized representatives below (“Amendment Effective Date”) except for Sections 7 and 9 of this Amendment which shall have an effective date of July 1, 2013.
Section 2.2 of the CDP Agreement is deleted in its entirety and replaced with the following:
2.2 FTEs & Quality of Work
.
For the second quarter of 2013, IM will provide an average of [***] FTEs to support the development activities in the Development Plan. For each subsequent quarter of the CDP Term beginning with the third quarter of 2013, IM will provide a minimum quarterly average of [***] FTEs to support the development activities in the Development Plan. The aforementioned FTEs will include at least [***] FTEs based in GF's facilities in [***].
Section 2.4 of the CDP Agreement is deleted in its entirety and replaced with the following:
2.4 Facilities & Workspace
. IM will provide adequate facilities and workspace for up to [***] GF employees at IM's HPC R&D Center in San Jose, CA and additional resources as are necessary to support IM's obligations pursuant to the Development Plan. IM will provide badge access, landline phone connection, internet access, and cubicle or office space. GF employees must complete IM's standard confidentiality and safety training prior to being able to work in IM's HPC R&D Center. IM will provide adequate facilities space for storage of GF wafers, materials, targets and any other assets required to enable the Development Plan.
IM shall ensure its employees comply in all material respects with all personnel, human resources, security and safety rules, procedures, and guidelines and regulatory requirements (collectively “Rules”) applicable to contractors that are resident at or visiting GF facilities while such employees are at such facilities. In particular, IM agrees to abide by security requirements as may apply to its employees while at the GF facilities. IM shall be responsible for the acts and omissions of IM personnel at GF facilities where such acts or omissions are in violation of the Rules.
Page 1 of 1
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Section 2.11 of the CDP Agreement is deleted in its entirety and replaced with the following:
2.11 Period of development activities in the Development Plan
. The initial period of all development activities in the Development Plan (“Initial Period”) shall expire on December 31, 2014 (“Expiration Date”). Notwithstanding the foregoing, GF in its sole discretion has the right to modify the Expiration Date by providing written notice to IM (“Cancellation Notice”). If a Cancellation Notice is provided, the Initial Period will expire one hundred and twenty days (120) calendar days after receipt of the Cancellation Notice by IM provided that the Initial Period shall not expire on or prior to June 1, 2014. . For avoidance of doubt, such modification shall not affect the rights and obligations of the parties pursuant to the terms of Section 11 (“Termination”).
Upon expiration of the Initial Period, the period of development activities shall automatically renew for successive periods of 12 months each unless either party provides written notice to the other party, given not less than 90 days prior to the expiration of the then-current period (the applicable period hereinafter referred to as the “CDP Term”), of its intent to not continue such development activities after such expiration. Notwithstanding the foregoing, if during said 90 day period, GF elects not to extend the CDP Term, GF shall provide IM written notice of non-renewal during said period. Such non-renewal shall be effective 90 days from such notice. Such expiration shall not impact termination of the Agreement which shall be solely governed by Section 11 (“Termination”).
Effective July 1, 2013, Section 4 of the CDP Agreement is deleted in its entirety and replaced with the following:
4
This section intentionally left blank.
Section 5 of the CDP Agreement is deleted in its entirety and replaced with the following:
5
This section intentionally left blank.
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7.
|
MODIFY SECTION 6.1 (D) & 6.1 (E)
|
Sections 6.1 (d) and 6.1 (e) of the CDP Agreement are deleted in their entirety and replaced with the following:
6.1 (d)
For each quarter beginning Q1 CY2012 and ending Q2 CY2013 -
$[***]
6.1 (e)
For each quarter beginning Q3 CY2013 and ending Q4 CY2013 -
$[***]
A new section 6.1 (f) is added as follows:
6.1 (f)
For each quarter beginning Q1 CY2014 and ending Q4 CY2014 -
$[***]
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9.
|
DELETE SECTION 6.2 AND MODIFY SECTION 6.3
|
Effective July 1, 2013, Section 6.2 of the CDP Agreement is deleted in its entirety and replaced with the following:
6.2. This section intentionally left blank.
The first paragraph of Section 6.3 of the Agreement is deleted in its entirety and replaced with the following:
Page 2 of 2
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
6.3 Royalties under IM licenses to GF based on CDP IP
. It is expected that GF or GF's Affiliates will develop, manufacture, have manufactured, distribute, lease, sell or otherwise dispose of (collectively “Commercialize”) Products that utilize, are derived from or incorporate (collectively “Based on”) the CDP IP developed as a result of conducting each Project (hereinafter “Project Products”). For all CDP IP developed during a Project (hereinafter “Project IP”), as partial consideration for the licenses granted in Section 3.5, GF shall pay IM a royalty as a percentage of gross revenues, excluding any bump and sort costs, from unrelated companies for Project Products Commercialized by GF and GF's Affiliates. The royalty percentage to be applied will depend on the Project Category as identified in the Development Plan. Each Project shall be associated with a Project Category prior to the commencement of such Project. If the Development Plan Success Factors are not met or exceeded as agreed upon by the Operating Committee, the royalty percentage will be adjusted in accordance with the guidelines provided by the Operating Committee. Notwithstanding the aforementioned, Annual Royalty Caps in Section 6.7 remain in effect.
This Amendment shall be deemed to be incorporated into the CDP Agreement and made a part thereof. All references to the CDP Agreement in any other document shall be deemed to refer to the CDP Agreement as modified by this Amendment. Except as modified by this Amendment, all of the terms and conditions of the CDP Agreement shall remain in full force and effect. In the event that the terms of this Amendment conflict with the terms of the CDP Agreement, the terms of this Amendment shall control.
This Amendment may be executed in any number of counterpart originals, each of which shall be deemed an original instrument for all purposes, but all of which shall comprise one and the same instrument. This Amendment may be delivered by electronic mail or facsimile, and a scanned version of this Amendment shall be binding as an original.
IN WITNESS WHEREOF
, the parties hereto have caused this Amendment to be executed by
their duly authorized representatives:
GLOBALFOUNDRIES Inc.
Intermolecular, Inc.
Date:
Date:
Name:
Name:
(Print)
(Print)
Title:
Title:
Page 3 of 3
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Second Extension to the Advanced Memory Agreements between Elpida and Intermolecular
This agreement (the “Second Extension”) is entered into and made effective as of April 1, 2013 (the “Effective Date”), by and between ELPIDA MEMORY, INC., a Japanese corporation operating at 2-1, Yaesu 2-chome, Chuo-ku, Tokyo 104-0028, Japan (“Elpida”), and INTERMOLECULAR, INC., a Delaware corporation operating at 3011 North First Street, San Jose, California 95134 (“Intermolecular”). Elpida and Intermolecular may be referred to individually as a “Party,” or collectively as the “Parties.”
WHEREAS,
Elpida and Intermolecular have entered into (i) the Advanced Memory Development Program Agreement, dated May 22, 2008; (“
Original Agreement
”); (ii) Exhibit C - Royalty Terms, dated August 18, 2008; (“
Amended Exhibit C
”); (iii) Supplemental Joint Development Agreement, dated January 27, 2009; (“
Supplemental Agreement
”); (iv) Amendment to the Supplemental Joint Development Agreement, dated May 25, 2009; (“
Supplemental Amendment
”); (v) Amendment to the Advanced Memory Agreements, dated July 29, 2010 (“
First Extension
”); and (vi) Amendment to the Advanced Memory Agreements, dated December 29, 2012 (“
First Fee Triggering Technology Agreement
”) (collectively, the “
Advanced Memory Agreements
”);
NOW THEREFORE
, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Elpida and Intermolecular agree as follows.
Section 1.0 of the Supplemental Agreement extended the Initial Term from September 1, 2009, until April 1, 2011 ("
Supplemental Term
"). Section 1.0 of the First Extension extended the Supplemental Term from April 1, 2011, for an additional two (2) years to April 1, 2013 ("
Amended Supplemental Term
"). This Second Extension shall extend the Amended Supplemental Term through September 30, 2013 (“
Extended Supplemental Term
”).
For continued CDP Services during the Extended Supplemental Term, Elpida agrees to make a first payment and a second payment to Intermolecular, each in the amount of [***] dollars and [***] cents (US $[***]). The first and second payments will be payable by Elpida on [***] for CDP Services during April, May and June 2013, and on [***], for CDP Services during July, August and September 2013, respectively. Intermolecular will continue to provide CDP Services commensurate in scope as previously provided to Elpida under the Advanced Memory Agreements, such that the foregoing payments will cover all Intermolecular FTEs and any HPC Workflow Subscription and Access Fee including, without limitation, access to IM Tools and Software.
This Second Extension shall be deemed to be incorporated into the Advanced Memory Agreements and made a part thereof. All references to the Advanced Memory Agreements in any other document shall be deemed to refer to the Advanced Memory Agreements as modified by this Second Extension. Except as modified by this Second Extension, all other terms and conditions of the Advanced Memory Agreements are unchanged by this Second Extension and shall remain in full force and effect subject to such terms. In the event that the terms of this Second Extension conflict with the terms of the Advanced Memory Agreements, the terms of this Second Extension shall control.
This Second Extension may be executed in any number of counterpart originals, each of which shall be deemed an original instrument for all purposes, but all of which shall comprise one and the same instrument. This Second Extension may be delivered by electronic mail or facsimile, and a scanned version of this Second Extension shall be binding as an original.
Page 1 of 1
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
IN WITNESS WHEREOF
, the Parties hereto have caused this Second Extension to be executed by their duly authorized representatives:
Elpida
Intermolecular
Date:
____________________________
Date:
____________________________
Signature:
____________________________
Signature:
____________________________
Name:
____________________________
Name:
____________________________
Title:
____________________________
Title:
____________________________
Page 2 of 2
[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT
(this “
Agreement
”) dated as of May __, 2013 (the “
Effective Date
”) between
SILICON VALLEY BANK
, a California corporation (“
Bank
”), and
INTERMOLECULAR, INC.
, a Delaware corporation (“
Borrower
”), provides the terms on which Bank shall lend to Borrower and Borrower shall repay Bank. The parties agree as follows:
1
ACCOUNTING AND OTHER TERMS
Accounting terms not defined in this Agreement shall be construed following GAAP. Calculations and determinations must be made following GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 13. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein.
2
LOAN AND TERMS OF PAYMENT
2.1
Promise to Pay
. Borrower hereby unconditionally promises to pay Bank the outstanding principal amount of all Credit Extensions and accrued and unpaid interest thereon as and when due in accordance with this Agreement.
2.1.1
Revolving Advances
.
(a)
Availability
. Subject to the terms and conditions of this Agreement, Bank shall make Advances not exceeding the Revolving Line. Amounts borrowed under the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date, reborrowed, subject to the applicable terms and conditions precedent herein.
(b)
Termination; Repayment
. Other than as provided in Section 12.1, the Revolving Line terminates on the Revolving Line Maturity Date, when the principal amount of all Advances, the unpaid interest thereon, and all other Obligations (other than any Obligations that specifically survive termination) relating to the Revolving Line shall be immediately due and payable.
2.1.2
Conversion of Revolving Advances to Term Loan
.
(a)
Availability
. So long as no Event of Default has occurred and is continuing, Borrower shall have the option, at any time prior to the Revolving Line Maturity Date, to convert all or any part of the outstanding Advances to a term loan (the “
Term Loan
”), subject to the terms and conditions set forth below (the “
Conversion
”). Borrower may only elect one (1) Conversion hereunder.
(b)
Repayment
. Borrower shall repay the Term Loan in quarterly principal payments of Five Hundred Thousand Dollars ($500,000) beginning on the first (1
st
) day of the first (1
st
) calendar quarter following the Conversion and continuing on the first (1
st
) day of each calendar quarter thereafter, plus quarterly payments of accrued but unpaid interest (each, a “
Term Loan Payment
”). Borrower's final Term Loan Payment, due on the Term Loan Maturity Date, shall include all outstanding principal and accrued and unpaid interest under the Term Loan. Once repaid, the Term Loan may not be reborrowed.
(c)
Voluntary Prepayment
. Borrower shall have the option to prepay the Term Loan in full or in part, provided Borrower (i) shall provide written notice to Bank of its election to prepay the Term Loan at least three (3) Business Days prior to such prepayment and (ii) pays, on the date of such prepayment, (a) all outstanding principal and accrued but unpaid interest, plus (b) the Prepayment Fee, plus (c) all other sums, including Bank Expenses, if any, that shall have become due and payable.
(d)
Mandatory Prepayment Upon an Acceleration
. If the Term Loan is accelerated following the occurrence and continuance of an Event of Default, Borrower shall immediately pay to Bank an amount equal to the sum of (i) all outstanding principal and accrued but unpaid interest, plus (ii) the Prepayment Fee, plus (iii) all other sums, including Bank Expenses, if any, that shall have become due and payable.
2.2
Payment of Interest on the Credit Extensions
.
(e)
Interest Rate
.
(ii)
Advances
. Subject to Section 2.2(b), the principal amount outstanding under the Revolving Line shall accrue interest at a floating per annum rate equal to the greater of one-half of one percentage point (0.50%) below the Prime Rate or two and three-quarters percent (2.75%), which interest shall be payable monthly in accordance with Section 2.2(d) below.
(iii)
Term Loan
. Subject to Section 2.2(b), the principal amount outstanding under the Term Loan shall accrue interest at a fixed per annum rate equal to three and one-quarter percent (3.25%), which interest shall be payable quarterly.
(f)
Default Rate
. At Bank's discretion, upon the occurrence and during the continuance of an Event of Default, Obligations shall bear interest at a rate per annum which is five percentage points (5.0%) above the rate that is otherwise applicable thereto (the “
Default Rate
”). Fees and expenses which are required to be paid by Borrower pursuant to the Loan Documents (including, without limitation, Bank Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.2(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Bank.
(g)
Adjustment to Interest Rate
. Changes to the interest rate of any Credit Extension based on changes to the Prime Rate shall be effective on the effective date of any change to the Prime Rate and to the extent of any such change.
(h)
Payment; Interest Computation
. Interest is payable monthly on the first calendar day of each month and shall be computed on the basis of a 360-day year for the actual number of days elapsed. In computing interest, (i) all payments received after 12:00 p.m. Pacific time on any day shall be deemed received at the opening of business on the next Business Day, and (ii) the date of the making of any Credit Extension shall be included and the date of payment shall be excluded; provided, however, that if any Credit Extension is repaid on the same day on which it is made, such day shall be included in computing interest on such Credit Extension.
2.3
Fees
. Borrower shall pay to Bank:
(a)
Good Faith Deposit
. Borrower has paid to Bank a deposit of Seven Thousand Five Hundred Dollars ($7,500) to initiate Bank's due diligence review process, which deposit will be applied to the Bank Expenses on the Effective Date, with any remainder returned to Borrower;
(b)
Termination Fee
. Upon termination of the Revolving Line for any reason prior to the Revolving Line Maturity Date, in addition to the payment of any other amounts then-owing, a termination fee in an amount equal to one-quarter of one percent (0.25%) of the amount of the outstanding Advance being repaid; provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from Bank; and
(c)
Bank Expenses
. All Bank Expenses (including reasonable attorneys' fees and expenses for documentation and negotiation of this Agreement
which fees for the documentation and negotiation of this Agreement will not exceed Seven Thousand Five Hundred Dollars ($7,500) as of the Effective Date so long as there are no protracted negotiations including more than two (2) turns of the documents) incurred through and after the Effective Date, when due (or, if no stated due date, upon demand by Bank).
(d)
Fees Fully Earned
. Unless otherwise provided in this Agreement or in a separate writing by Bank, Borrower shall not be entitled to any credit, rebate, or repayment of any fees earned by Bank pursuant to this Agreement notwithstanding any termination of this Agreement or the suspension or termination of Bank's obligation to make loans and advances hereunder. Bank may deduct amounts owing by Borrower under the clauses of this Section 2.3 pursuant to the terms of Section 2.4(c). Bank shall provide Borrower written notice of deductions made from the Designated Deposit Account pursuant to the terms of the clauses of this Section 2.3.
2.4
Payments; Application of Payments; Debit of Accounts.
(a)
All payments to be made by Borrower under any Loan Document shall be made in immediately available funds in Dollars, without setoff or counterclaim, before 12:00 p.m. Pacific time on the date when due. Payments of principal and/or interest received after 12:00 p.m. Pacific time are considered received at the opening of business on the next Business Day. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day, and additional fees or interest, as applicable, shall continue to accrue until paid.
(b)
Bank has the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied.
Borrower shall have no right to specify the order or the accounts to which Bank shall allocate or apply any payments required to be made by Borrower to Bank or otherwise received by Bank under this Agreement when any such allocation or application is not specified elsewhere in this Agreement.
(c)
Bank shall debit first Borrower's Designated Deposit Account, and then, if insufficient amounts are available in such account, Borrower's other accounts for principal and interest payments or any other amounts Borrower owes Bank when due. These debits shall not constitute a set-off.
2.5
Withholding
. Payments received by Bank from Borrower under this Agreement will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority (including any interest, additions to tax or penalties applicable thereto). The agreements and obligations of Borrower contained in this Section 2.5 shall survive the termination of this Agreement.
3
CONDITIONS OF LOANS
3.1
Conditions Precedent to Initial Credit Extension
. Bank's obligation to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, such documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate, including, without limitation:
(i)
duly executed original signatures to the Loan Documents;
(j)
duly executed original signatures to the Control Agreements;
(k)
the Operating Documents and long-form good standing certificates of Borrower and its Subsidiaries certified by the Secretary of State (or equivalent agency) of Borrower's and such Subsidiaries' jurisdiction of organization or formation and each jurisdiction in which Borrower and each Subsidiary is qualified to conduct business, each as of a date no earlier than thirty (30) days prior to the Effective Date;
(l)
duly executed original signatures to the completed Borrowing Resolutions for Borrower;
(m)
duly executed original signature to a payoff letter from Symyx, Inc.;
(n)
evidence that (i) the Liens securing Indebtedness owed by Borrower to Symyx, Inc. will be terminated and (ii) the documents and/or filings evidencing the perfection of such Liens, including without limitation any financing statements and/or control agreements, have or will, concurrently with the initial Credit Extension, be terminated;
(o)
certified copies, dated as of a recent date, of financing statement searches, as Bank may request, accompanied by written evidence (including any UCC termination statements) that the Liens indicated in any such financing statements either constitute Permitted Liens or have been or, in connection with the initial Credit Extension, will be terminated or released;
(p)
the Perfection Certificate of Borrower, together with the duly executed original signature thereto;
(q)
evidence satisfactory to Bank that the insurance policies and endorsements required by Section 6.5 hereof are in full force and effect, together with appropriate evidence showing lender loss payable and/or additional insured clauses and cancellation notice to Bank (or endorsements reflecting the same) in favor of Bank; and
(r)
payment of the fees and Bank Expenses then due as specified in Section 2.3 hereof.
3.2
Conditions Precedent to all Credit Extensions
. Bank's obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following conditions precedent:
(e)
timely receipt of an executed Payment/Advance Form;
(f)
the representations and warranties in this Agreement shall be true, accurate, and complete in all material respects on the date of the Payment/Advance Form and on the Funding Date of each Credit Extension; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, and no Event of Default shall have occurred and be continuing or result from the Credit Extension. Each Credit Extension is Borrower's representation and warranty on that date that the representations and warranties in this Agreement remain true, accurate, and complete in all material respects; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; and
(g)
Bank determines to its reasonable satisfaction that there has not been a Material Adverse Change.
3.3
Covenant to Deliver
. Borrower agrees to deliver to Bank each item required to be delivered to Bank under this Agreement as a condition precedent to any Credit Extension. Borrower expressly agrees that a Credit Extension made prior to the receipt by Bank of any such item shall not constitute a waiver by Bank of Borrower's obligation to deliver such item, and the making of any Credit Extension in the absence of a required item shall be in Bank's sole discretion.
3.4
Procedures for Borrowing
.
(a)
Advances
. Subject to the prior satisfaction of all other applicable conditions to the making of an Advance set forth in this Agreement, to obtain an Advance, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the Funding Date of the Advance. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person whom Bank believes is a Responsible Officer or designee. Bank shall credit Advances to the Designated Deposit Account. Bank may make Advances under this Agreement based on instructions from a Responsible Officer or his or her designee or without instructions if the Advances are necessary to meet Obligations which have become due.
(b)
Term Loan
. Subject to the prior satisfaction of all other applicable conditions to the making of a Credit Extension set forth in this Agreement, to elect the Conversion, Borrower shall notify Bank (which notice shall be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m. Pacific time on the date of the Conversion. Together with any such electronic or facsimile notification, Borrower shall deliver to Bank by electronic mail or facsimile a completed Payment/Advance Form executed by a Responsible Officer or his or her designee. Bank may rely on any telephone notice given by a person who Bank believes is a Responsible Officer or designee.
3.5
Post-Closing Obligations
. Borrower shall use commercially reasonable efforts to deliver the following to Bank within sixty (60) days after the Effective Date:
(a)
a landlord's consent in favor of Bank for each of Borrower's locations by the respective landlord thereof, together with the duly executed original signatures thereto; and
(b)
a bailee's waiver in favor of Bank for each location where Borrower maintains property with a third party, by each such third party, together with the duly executed original signatures thereto.
4
CREATION OF SECURITY INTEREST
4.1
Grant of Security Interest
. Borrower hereby grants Bank, to secure the payment and performance in full of all of the Obligations, a continuing security interest in, and pledges to Bank, the Collateral, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof.
Borrower acknowledges that it previously has entered, and/or may in the future enter, into Bank Services Agreements with Bank. Regardless of the terms of any Bank Services Agreement, Borrower agrees that any amounts Borrower owes Bank thereunder shall be deemed to be Obligations hereunder and that it is the intent of Borrower and Bank to have all such Obligations secured by the first priority perfected security interest in the Collateral granted herein (subject only to Permitted Liens that may have superior priority to Bank's Lien in this Agreement).
If this Agreement is terminated, Bank's Lien in the Collateral shall continue until the Obligations (other than inchoate indemnity obligations) are satisfied in full, and at such time, Bank shall, at Borrower's sole cost and expense, terminate its security interest in the Collateral and all rights therein shall revert to Borrower. In the event (x) all Obligations (other than inchoate indemnity obligations), except for Bank Services, are satisfied in full, and (y) this Agreement is terminated, Bank shall terminate the security interest granted herein upon Borrower providing cash collateral acceptable to Bank in its good faith business judgment for Bank Services, if any. In the event such Bank Services consist of outstanding Letters of Credit, Borrower shall provide to Bank cash collateral in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the face amount of all such Letters of Credit plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment), to secure all of the Obligations relating to such Letters of Credit.
4.2
Priority of Security Interest
. Borrower represents, warrants, and covenants that the security interest granted herein is and shall at all times continue to be a first priority perfected security interest in the Collateral (subject only to Permitted Liens. If Borrower shall acquire a commercial tort claim over One Hundred Fifty Thousand Dollars ($150,000), Borrower shall promptly notify Bank in a writing signed by Borrower of the general details thereof and grant to Bank in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to Bank.
4.3
Authorization to File Financing Statements
. Borrower hereby authorizes Bank to file financing statements, without notice to Borrower, with all appropriate jurisdictions to perfect or protect Bank's interest or rights hereunder.
5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1
Due Organization, Authorization; Power and Authority
. Borrower
is duly existing and in good standing in its jurisdiction of formation and is qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property requires that it be qualified except where the failure to do so could not reasonably be expected to have a material adverse effect on Borrower's business. In connection with this Agreement, Borrower has delivered to Bank a completed certificate completed certificates
each signed by Borrower, entitled “Perfection Certificate”. Borrower represents and warrants to Bank that (a) Borrower's exact legal name is that indicated on the Perfection Certificate and on the signature page hereof; (b) Borrower is an organization of the type and is organized in the jurisdiction set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth Borrower's organizational identification number or accurately states that Borrower has none; (d) the Perfection Certificate accurately sets forth Borrower's place of business, or, if more than one, its chief executive office as well as Borrower's mailing address (if different than its chief executive office); (e) Borrower (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction; and (f) all other information set forth on the Perfection Certificate pertaining to Borrower and each of its Subsidiaries is accurate and complete (it being understood and agreed that Borrower may from time to time update certain information in the Perfection Certificate after the Effective Date to the extent permitted by one or more specific provisions in this Agreement). If Borrower is not now a Registered Organization but later becomes one, Borrower shall promptly notify Bank of such occurrence and provide Bank with Borrower's organizational identification number.
The execution, delivery and performance by Borrower of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of Borrower's organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which Borrower or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or
Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect
)
or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which Borrower is bound. Borrower is not in default under any agreement to which it is a party or by which it is bound in which such default could reasonably be expected to have a material adverse effect on Borrower's business.
5.2
Collateral
. Borrower has good title to, rights in, and the power to transfer each item of the Collateral upon which it purports to grant a Lien hereunder, free and clear of any and all Liens except Permitted Liens. Borrower has no Collateral Accounts at or with any bank or financial institution other than Bank or Bank's Affiliates except for the Collateral Accounts described in the Perfection Certificate (as may be updated in writing after the Effective Date) delivered to Bank in connection herewith and which Borrower has taken such actions as are necessary to give Bank a perfected security interest therein, pursuant to the terms of Section 6.6(b).
The Collateral is not in the possession of any third party bailee (such as a warehouse) except as otherwise provided in the Perfection Certificate or permitted hereunder. None of the components of the Collateral shall be maintained at locations other than as provided in the Perfection Certificate or as permitted pursuant to Section 7.2.
Borrower is the sole owner of the Intellectual Property which it owns or purports to own except for (a) Intellectual Property which is jointly owned by Borrower and a third party in the ordinary course of business, (b) licenses permitted under Section 7.1, (c) over-the-counter software that is commercially available to the public, and (d) Intellectual Property licensed to Borrower by a third party. To the best of Borrower's knowledge, each Patent which it owns or purports to own and which is material to Borrower's business is valid and enforceable, and no part of the Intellectual Property which Borrower owns or purports to own and which is material to Borrower's business has been judged invalid or unenforceable, in whole or in part. To the best of Borrower's knowledge, no claim has been made that any part of the Intellectual Property violates the rights of any third party except to the extent such claim would not reasonably be expected to have a material adverse effect on Borrower's business.
Except as noted on the Perfection Certificate or as permitted hereunder, Borrower is not a party to, nor is it bound by, any Restricted License.
5.3
Reserved
.
5.4
Litigation
. Except to the extent Borrower has notified Bank in writing, there are no actions or proceedings pending or, to the knowledge of any Responsible Officer, threatened in writing by or against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Three Hundred Thousand Dollars ($300,000) or more.
5.5
Financial Statements; Financial Condition
. All consolidated financial statements for Borrower and any of its Subsidiaries delivered to Bank fairly present in all material respects Borrower's consolidated financial condition and Borrower's consolidated results of operations. Except to the extent Borrower has notified Bank in writing, there has not been any material deterioration in Borrower's consolidated financial condition since the date of the most recent financial statements submitted to Bank.
5.6
Solvency
. The fair salable value of Borrower's consolidated assets (including goodwill minus disposition costs) exceeds the fair value of Borrower's liabilities; Borrower is not left with unreasonably small capital after the transactions in this Agreement; and Borrower is able to pay its debts (including trade debts) as they mature.
5.7
Regulatory Compliance
. Borrower is not an “investment company” or a company “controlled” by an “investment company” under the Investment Company Act of 1940, as amended. Borrower is not engaged as one of its important activities in extending credit for margin stock (under Regulations X, T and U of the Federal Reserve Board of Governors). Borrower (a) has complied in all material respects with all Requirements of Law, and (b) has not violated any Requirements of Law the violation of which could reasonably be expected to have a material adverse effect on its business. None of Borrower's or any of its Subsidiaries' properties or assets has been used by Borrower or any Subsidiary or, to the best of Borrower's knowledge, by previous Persons, in disposing, producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each of its Subsidiaries have obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted.
5.8
Subsidiaries; Investments
. Borrower does not own any stock, partnership, or other ownership interest or other equity securities except for Permitted Investments.
5.9
Tax Returns and Payments; Pension Contributions
. Borrower has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except (a) to the extent such taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor, or (b) if such taxes, assessments, deposits and contributions do not, individually or in the aggregate, exceed Twenty-Five Thousand Dollars ($25,000).
To the extent Borrower defers payment of any contested taxes, Borrower shall (i) notify Bank in writing of the commencement of, and any material development in, the proceedings, and (ii) post bonds or take any other steps required to prevent the Governmental Authority levying such contested taxes from obtaining a Lien upon any of the Collateral that is other than a “Permitted Lien.” Except to the extent Borrower has notified Bank in writing, Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower in excess of Ten Thousand Dollars ($10,000). Borrower has paid all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not withdrawn from participation in, and has not permitted partial or complete termination of, or permitted the occurrence of any other event with respect to, any such plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
5.10
Use of Proceeds
. Borrower shall use the proceeds of the Credit Extensions solely to refinance existing Indebtedness to Symyx, Inc., as working capital and to fund its general business requirements and not for personal, family, household or agricultural purposes.
5.11
Full Disclosure
. No written representation, warranty or other statement of Borrower in any certificate or written statement given to Bank, as of the date such representation, warranty, or other statement was made, taken together with all such written certificates and written statements given to Bank, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained in the certificates or statements not misleading (it being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected or forecasted results).
5.12
Definition of “Knowledge
.
”
For purposes of the Loan Documents, whenever a representation or warranty is made to Borrower's knowledge or awareness, to the “best of” Borrower's knowledge, or with a similar qualification, knowledge or awareness means the actual knowledge, after reasonable investigation, of any Responsible Officer.
6
AFFIRMATIVE COVENANTS
Borrower shall do all of the following:
6.1
Government Compliance
.
(a)
Maintain its and all its Subsidiaries' legal existence and good standing in their respective jurisdictions of formation and maintain qualification in each jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on Borrower's business or operations. Borrower shall comply, and have each Subsidiary comply, in all material respects, with all laws, ordinances and regulations to which it is subject.
(b)
Obtain all of the Governmental Approvals necessary for the performance by Borrower of its obligations under the Loan Documents to which it is a party and the grant of a security interest to Bank in all of its property. Borrower shall promptly provide copies of any such obtained Governmental Approvals to Bank.
6.2
Financial Statements, Reports, Certificates
. Provide Bank with the following:
(c)
Quarterly Financial Statements
. At all times that Borrower is at or above the Liquidity Threshold, as soon as available, but no later than forty-five (45)
days after the last day of each quarter, a company prepared consolidated balance
sheet and income statement covering Borrower's consolidated operations for such quarter certified by a Responsible Officer and in a form acceptable to Bank (the “
Quarterly Financial Statements
”);
(d)
Monthly Financial Statements
. At all times that Borrower is below the Liquidity Threshold, as soon as available, but no later than thirty (30)
days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower's consolidated operations for such month certified by a Responsible Officer and in a form acceptable to Bank (the “
Monthly Financial Statements
”);
(e)
Monthly/Quarterly Compliance Certificate
. Within thirty (30) days after the last day of each month (or quarter, as applicable) and together with the Monthly Financial Statements (or Quarterly Financial Statements, as applicable), a duly completed Compliance Certificate signed by a Responsible Officer;
(f)
Monthly Liquidity Certificate
. Within thirty (30) days after the last day of each month, a duly completed certificate showing Borrower's cash, Cash Equivalents and other investments with maturities of fewer than 12 months determined according to GAAP signed by a Responsible Officer and in a form acceptable to Bank in Bank's reasonable discretion;
(g)
Annual Operating Budget and Financial Projections
. Within forty-five (45) days after the last day of each fiscal year of Borrower, third-party analyst reports from at least two different analysts in regard to financial projections for the following fiscal year;
(h)
Annual Audited Financial Statements
. As soon as available, but no later than one hundred eighty (180) days after the last day of Borrower's fiscal year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Bank in its reasonable discretion and a duly completed Compliance Certificate signed by a Responsible Officer;
(i)
Other Statements
. Within five (5) Business Days of delivery, copies of all material statements, reports and notices made available to Borrower's security holders or to any holders of Subordinated Debt (in each case other than any materials or information provided to such holder in its capacity as management, counsel or board member of Borrower);
(j)
S
EC Filings
. Within five (5) days of filing, copies of all periodic and other reports, proxy statements and other materials filed by Borrower with the SEC, any Governmental Authority succeeding to any or all of the functions of the SEC or with any national securities exchange, or distributed to its shareholders, as the case may be. Documents required to be delivered pursuant to the terms hereof (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which Borrower posts such documents, or provides a link thereto, on Borrower's website on the Internet at Borrower's website address;
(k)
Legal Action Notice
. A prompt report of any legal actions pending or threatened in writing against Borrower or any of its Subsidiaries that could result in damages or costs to Borrower or any of its Subsidiaries of, individually or in the aggregate, Three Hundred Thousand Dollars ($300,000) or more; and
(l)
Other Financial Information
. Other financial information reasonably requested by Bank.
6.3
Inventory; Returns
. Keep all Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its Account Debtors shall follow Borrower's customary practices as they exist at the Effective Date. Borrower must promptly notify Bank of all returns, recoveries, disputes and claims that involve more than Three Hundred Thousand Dollars ($300,000).
6.4
Taxes; Pensions
. Timely file, and require each of its Subsidiaries to timely file, all required tax returns and reports and timely pay, and require each of its Subsidiaries to timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower and each of its Subsidiaries, except for deferred payment of any taxes contested pursuant to the terms of Section 5.9 hereof or as otherwise permitted under Section 5.9 hereof, and shall deliver to Bank, on demand, appropriate certificates attesting to such payments, and pay all amounts necessary to fund all present pension, profit sharing and deferred compensation plans in accordance with their terms.
6.5
Insurance
.
(a)
Keep its business and the Collateral insured for risks and in amounts standard for companies in Borrower's industry and location and as Bank may reasonably request. Insurance policies shall be in a form, with financially sound and reputable insurance companies that are not Affiliates of Borrower. All property policies shall have a lender's loss payable endorsement showing Bank as lender loss payee. All liability policies shall show, or have endorsements showing, Bank as an additional insured. Bank shall be named as lender loss payee and/or additional insured with respect to any such insurance providing coverage in respect of any Collateral.
(b)
Proceeds payable under any property policy are, at Bank's option, payable to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying the proceeds of any casualty toward the replacement or repair of destroyed or damaged property; provided that any such replaced or repaired property (i) shall be of equal or like value as the replaced or repaired Collateral and (ii) shall be deemed Collateral in which Bank has been granted a first priority security interest, and (b) after the occurrence and during the continuance of an Event of Default, all proceeds payable under such casualty policy shall, at the option of Bank, be payable to Bank on account of the Obligations.
(c)
At Bank's request, Borrower shall deliver copies of insurance policies along with certificates of insurance and evidence of all premium payments. For the avoidance of doubt, providing Bank with a certificate of insurance shall be sufficient evidence of premium payments having been paid for the periods covered in such insurance certificate. Each provider of any such insurance required under this Section 6.5 shall agree, by endorsement upon the policy or policies issued by it or by independent instruments furnished to Bank, that it will give Bank thirty (30) days prior written notice before any such policy or policies shall be materially altered or canceled. If Borrower fails to obtain insurance as required under this Section 6.5 or to pay any amount or furnish any required proof of payment to third persons and Bank, Bank may make all or part of such payment or obtain such insurance policies required in this Section 6.5.
6.6
Operating Accounts
.
(a)
Maintain its primary operating accounts with Bank and Bank's Affiliates, including maintaining at all times a balance of not less than Ten Million Dollars ($10,000,000) in securities accounts maintained with Bank and Bank's Affiliates.
(b)
Provide Bank five (5) days prior written notice before establishing any Collateral Account at or with any bank or financial institution other than Bank or Bank's Affiliates. For each Collateral Account that Borrower at any time maintains, Borrower shall cause the applicable bank or financial institution (other than Bank) at or with which any Collateral Account is maintained to execute and deliver a Control Agreement or other appropriate instrument with respect to such Collateral Account to perfect Bank's Lien in such Collateral Account in accordance with the terms hereunder which Control Agreement may not be terminated without the prior written consent of Bank or upon the payment in full in cash of all Obligations (other than inchoate indemnity obligations). The provisions of the previous sentence shall not apply to (a) deposit accounts exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of Borrower's employees and identified to Bank by Borrower as such or (b) accounts securing Letters of Credit permitted hereunder.
6.7
Financial Covenants
. Maintain at all times that Borrower is below the Liquidity Threshold, to be measured as of the last day of each month, on a consolidated basis with respect to Borrower and its Subsidiaries:
(a)
Adjusted Quick Ratio
. A ratio of Quick Assets to Current Liabilities of at least 1.5 to 1.0.
6.8
Protection of Intellectual Property Rights
.
(a)
(i) Protect, defend and maintain the validity and enforceability of its material Intellectual Property; (ii) promptly advise Bank in writing of material infringements or any other event that could reasonably be expected to materially and adversely affect the value of its Intellectual Property material to its business; and (iii) not allow any Intellectual Property material to Borrower's business to be abandoned, forfeited or dedicated to the public without Bank's written consent provided that nothing in this section shall prevent Borrower from electing to not pursue the prosecution of a patent application based on Borrower's business determination with respect to such patent application.
(b)
Simultaneous with Borrower's delivery of Compliance Certificates under Section 6.2(c), provide written notice to Bank of any Restricted Licenses (other than over-the-counter software that is commercially available to the public or Restricted Licenses with respect to which Borrower has already provided written notice to Bank) entered into by Borrower or
under which Borrower is bound. Borrower shall take such commercially reasonable steps as Bank requests to obtain the consent of, or waiver by, any person whose consent or waiver is necessary for (i) any Restricted License to be deemed “Collateral” and for Bank to have a security interest in it that might otherwise be restricted or prohibited by law or by the terms of any such Restricted License, whether now existing or entered into in the future, and (ii) Bank to have the ability in the event of a liquidation of any Collateral to dispose of such Collateral in accordance with Bank's rights and remedies under this Agreement and the other Loan Documents.
6.9
Litigation Cooperation
. From the date hereof and continuing through the termination of this Agreement, make available to Bank, without expense to Bank, Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Bank may deem them reasonably necessary to prosecute or defend any third-party suit or proceeding instituted by or against Bank with respect to any Collateral or relating to Borrower.
6.10
Access to Collateral; Books and Records
. Allow Bank, or its agents, at reasonable times, on three (3) Business Days' notice (provided no notice is required if an Event of Default has occurred and is continuing), to inspect the Collateral and audit and copy Borrower's Books. Such inspections or audits shall be conducted no more often than once every twelve (12) months unless an Event of Default has occurred and is continuing in which case such inspections and audits shall occur as often as Bank shall determine is necessary. The foregoing inspections and audits shall be at Borrower's expense, and the charge for each such audit shall be the lesser of (a) $850 per person per day (or such higher amount as shall represent Bank's then-current standard charge for the same), plus reasonable out-of-pocket expenses or (b) Five Thousand Dollars ($5,000) per audit. In the event Borrower and Bank schedule an audit more than ten (10) days in advance, and Borrower cancels or seeks to reschedule the audit with less than ten (10) days written notice to Bank, then (without limiting any of Bank's rights or remedies), Borrower shall pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to compensate Bank for the anticipated costs and expenses of the cancellation or rescheduling.
6.11
Formation or Acquisition of Subsidiaries
. Notwithstanding and without limiting the negative covenants contained in Sections 7.3 and 7.7 hereof, at the time that Borrower or any Guarantor forms any direct or indirect Subsidiary or acquires any direct or indirect Subsidiary after the Effective Date, Borrower and such Guarantor shall (a) cause such new Subsidiary (if a Domestic Subsidiary) to provide to Bank a Guaranty, (b) provide to Bank appropriate certificates and powers and financing statements, pledging all of the direct or beneficial ownership interest in such new Domestic Subsidiary, in form and substance satisfactory to Bank in Bank's reasonable discretion, and (c) provide to Bank all other documentation in form and substance satisfactory to Bank in Bank's reasonable discretion, which in its reasonable opinion is appropriate with respect to the execution and delivery of the applicable documentation referred to above. Any document, agreement, or instrument executed or issued pursuant to this Section 6.11 shall be a Loan Document.
6.12
Further Assurances
. Execute any further instruments and take further action as Bank reasonably requests to perfect or continue Bank's Lien in the Collateral or to effect the purposes of this Agreement.
7
NEGATIVE COVENANTS
Borrower shall not do any of the following without Bank's prior written consent:
7.1
Dispositions
. Convey, sell, lease, transfer, assign, or otherwise dispose of (collectively, “
Transfer
”), or permit any of its Subsidiaries to Transfer, all or any part of its business or property, except for Transfers (a) of Inventory in the ordinary course of business; (b) of worn‑out or obsolete Equipment that is, in the reasonable judgment of Borrower or such Subsidiary, no longer economically practicable to maintain or useful in the ordinary course of business of Borrower or such Subsidiary; (c) consisting of Permitted Liens and Permitted Investments; (d) consisting of the sale or issuance of any stock of Borrower permitted under Section 7.2 of this Agreement; (e) consisting of Borrower's use or transfer of money or Cash Equivalents (i) in the ordinary course of its business for the payment of ordinary course business expenses in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents or (ii) in connection with transactions expressly and specifically permitted under this Agreement; and (f) of licenses for the use of the property of Borrower or its Subsidiaries in the ordinary course of business (other than licenses that could result in a legal transfer of title of the licensed property).
7.2
Changes in Business, Management, Ownership, or Business Locations
. (a) Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower and such Subsidiary, as applicable, or reasonably related thereto; (b) liquidate or dissolve; or (c) (i) fail to provide notice to Bank of any Key Person departing from or ceasing to be employed by Borrower within five (5) Business Days after his or her departure from Borrower; or (ii) permit or suffer any Change in Control.
Borrower shall not, without at least thirty (30) days prior written notice to Bank: (1) add any new offices or business locations, including warehouses (unless such new offices or business locations contain less than Fifty Thousand Dollars ($50,000) in Borrower's assets or property) or deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Fifty Thousand Dollars ($50,000) to a bailee at a location other than to a bailee and at a location already disclosed in the Perfection Certificate, (2) change its jurisdiction of organization, (3) change its organizational structure or type, (4) change its legal name, or (5) change any organizational number (if any) assigned by its jurisdiction of organization. If Borrower intends to deliver any portion of the Collateral valued, individually or in the aggregate, in excess of Three Hundred Fifty Thousand Dollars ($350,000) to a bailee, and Bank and such bailee are not already parties to a bailee agreement governing both the Collateral and the location to which Borrower intends to deliver the Collateral, then Borrower shall use commercially reasonable efforts to have such bailee execute and deliver a bailee agreement in form and substance satisfactory to Bank in Bank's reasonable discretion.
7.3
Mergers or Acquisitions
. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of a Person, except for the following which shall be permitted so long as no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement:
(a)
any Subsidiary may merge or consolidate with (i) Borrower provided that Borrower is the surviving entity, and (ii) one or more other Subsidiaries; and
(b)
Borrower or any Subsidiary may acquire, all or substantially all of the capital stock or property of another Subsidiary
.
(c)
Borrower or any Subsidiary may acquire all or substantially all of the assets or equity interests (by purchase, merger or otherwise) of another Person or division of another Person (a “
Permitted Acquisition
”) so long as (A) Bank shall receive at least twenty (20) days' prior written notice of such Permitted Acquisition, which notice shall include a reasonably detailed description of such Permitted Acquisition; (B) such Permitted Acquisition shall only involve assets located in the United States and comprising a business, or those assets of a business, of the type engaged in by the Borrower and its Subsidiaries as of the date hereof (or any business reasonably related or ancillary thereto or a reasonable extension thereof, as determined in good faith by the board of directors); (C) Borrower is the surviving legal entity; (D) no additional Indebtedness or liabilities shall be incurred, assumed or otherwise be reflected on a consolidated balance sheet of the Borrower and target after giving effect to such Permitted Acquisition, except unsecured Subordinated Debt with respect to which no payments are permitted until the latter of the Maturity Date or payment in full of the Obligations; provided, that before and after giving effect to such Permitted Acquisition the Borrower is in
pro forma
compliance with each covenant set forth in Section 6.7 hereof; (E) the sum of all consideration shall not exceed Five Million Dollars ($5,000,000) in the aggregate per twelve-month period; and (F) Borrower shall have complied with Section 6.11 in regard to any new Subsidiary that results from such Permitted Acquisition.
7.4
Indebtedness
. Create, incur, assume, or be liable for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness.
7.5
Encumbrance
. Create, incur, allow, or suffer any Lien on any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, permit any Collateral not to be subject to the first priority security interest granted herein, or enter into any agreement, document, instrument or other arrangement (except with or in favor of Bank) with any Person which directly or indirectly prohibits or has the effect of prohibiting Borrower or any Subsidiary from assigning, mortgaging, pledging, granting a security interest in or upon, or encumbering any of Borrower's or any Subsidiary's Intellectual Property, except as is otherwise permitted in Section 7.1 hereof and the definition of “Permitted Liens” herein.
7.6
Maintenance of Collateral Accounts
. Maintain any Collateral Account except pursuant to the terms of Section 6.6(b) hereof.
7.7
Distributions; Investments
. (a) Pay any dividends or make any distribution or payment or redeem, retire or purchase any capital stock
;
provided that (i) Borrower may convert any of its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange thereof; (ii) Borrower may pay dividends solely in common stock; and (iii) Borrower may repurchase the stock of former employees, directors, officers or consultants pursuant to stock repurchase agreements so long as an Event of Default does not exist at the time of such repurchase and would not exist after giving effect to such repurchase, provided that the aggregate amount of all such repurchases does not exceed Two Hundred Fifty Thousand
Dollars ($250,000) per twelve month period; or (b) directly or indirectly make any Investment (including, without limitation, by the formation of any Subsidiary) other than Permitted Investments, or permit any of its Subsidiaries to do so.
7.8
Transactions with Affiliates
. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrower, except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm's length transaction with a non-affiliated Person other than equity investments or Subordinated Debt.
7.9
Subordinated Debt
. (a) Make or permit any payment on any Subordinated Debt, except under the terms of the subordination, intercreditor, or other similar agreement to which such Subordinated Debt is subject, or (b) amend any provision in any document relating to the Subordinated Debt which would increase the amount thereof, provide for earlier or greater principal, interest, or other payments thereon, or adversely affect the subordination thereof to Obligations owed to Bank.
7.10
Compliance
. Become an “investment company” or a company controlled by an “investment company”, under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Credit Extension for that purpose; fail to (a) meet the minimum funding requirements of ERISA, (b) prevent a Reportable Event or Prohibited Transaction, as defined in ERISA, from occurring, or (c) comply with the Federal Fair Labor Standards Act, the failure of any of the conditions described in clauses (a) through (c) which could reasonably be expected to have a material adverse effect on Borrower's business; or violate any other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower's business, or permit any of its Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan which could reasonably be expected to result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency.
8
EVENTS OF DEFAULT
Any one of the following shall constitute an event of default (an “
Event of Default
”) under this Agreement:
8.1
Payment Default
. Borrower fails to (a) make any payment of principal or interest on any Credit Extension when due, or (b) pay any other Obligations within three (3) Business Days after such Obligations are due and payable (which three (3) Business Day cure period shall not apply to payments due on the Revolving Line Maturity Date). During the cure period, the failure to make or pay any payment specified under clause (b) hereunder is not an Event of Default (but no Credit Extension will be made during the cure period);
8.2
Covenant Default
.
(a) Borrower fails or neglects to perform any obligation in Sections 6.2, 6.4, 6.5, 6.6, 6.7, 6.8(b), 6.10, or 6.11 or violates any covenant in Section 7; or
(b) Borrower fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any Loan Documents, and as to any default (other than those specified in this Section 8) under such other term, provision, condition, covenant or agreement that can be cured, has failed to cure the default within ten (10) days after the occurrence thereof; provided, however, that if the default cannot by its nature be cured within the ten (10) day period or cannot after diligent attempts by Borrower be cured within such ten (10) day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional period (which shall not in any case exceed thirty (30) days) to attempt to cure such default, and within such reasonable time period the failure to cure the default shall not be deemed an Event of Default (but no Credit Extensions shall be made during such cure period). Cure periods provided under this section shall not apply, among other things, to financial covenants or any other covenants set forth in clause (a) above;
8.3
Material Adverse Change
. A Material Adverse Change occurs;
8.4
Attachment; Levy; Restraint on Business
.
(a) (i) The service of process seeking to attach, by trustee or similar process, any funds of Borrower or of any entity under the control of Borrower (including a Subsidiary) in excess of Two Hundred Fifty Thousand Dollars ($250,000), or
(ii) a notice of lien or levy is filed against any of Borrower's assets by any Governmental Authority, and the same under subclauses (i) and (ii) hereof are not, within ten (10) days after the occurrence thereof, discharged or stayed (whether through the posting of a bond or otherwise); provided, however, no Credit Extensions shall be made during any ten (10) day cure period; or
(b) (i) any material portion of Borrower's assets is attached, seized, levied on, or comes into possession of a trustee or receiver, or (ii) any court order enjoins, restrains, or prevents Borrower from conducting all or any material part of its business;
8.5
Insolvency
(a) Borrower is unable to pay its debts (including trade debts) as they become due or otherwise becomes insolvent; (b) Borrower begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within forty-five (45) days (but no Credit Extensions shall be made while any of the conditions described in clause (a) exist and/or until any Insolvency Proceeding is dismissed);
8.6
Other Agreements
. There is, under any agreement to which Borrower or any Guarantor is a party with a third party or parties, (a) any default resulting in a right by such third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount individually or in the aggregate in excess of Five Hundred Dollars ($500,000); or (b) any breach or default by Borrower or Guarantor, the result of which could have a material adverse effect on Borrower's or any Guarantor's business;
8.7
Judgments; Penalties
. One or more fines, penalties or final judgments, orders, or decrees for the payment of money in an amount, individually or in the aggregate, of at least Five Hundred Dollars ($500,000) (not covered by independent third-party insurance as to which liability has been accepted by such insurance carrier) shall be rendered against Borrower by any Governmental Authority, and the same are not, within ten (10) days after the entry, assessment or issuance thereof, discharged, satisfied, or paid, or after execution thereof, stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay (provided that no Credit Extensions will be made prior to the satisfaction, payment, discharge, stay, or bonding of such fine, penalty, judgment, order, or decree);
8.8
Misrepresentations
. Borrower or any Person acting for Borrower makes any representation, warranty, or other statement now or later in this Agreement, any Loan Document or in any writing delivered to Bank or to induce Bank to enter this Agreement or any Loan Document, and such representation, warranty, or other statement, when taken as a whole, is incorrect in any material respect when made;
8.9
Subordinated Debt
. Any document, instrument, or agreement evidencing any Subordinated Debt shall for any reason be revoked or invalidated or otherwise cease to be in full force and effect other than pursuant to the terms therein, any Person (other than Bank) shall be in breach thereof or contest in any manner the validity or enforceability thereof or deny that it has any further liability or obligation thereunder, or the Obligations shall for any reason be subordinated or shall not have the priority contemplated by this Agreement or the applicable subordination or intercreditor agreement;
8.10
Guaranty
. (a) Any guaranty of any Obligations terminates or ceases for any reason to be in full force and effect; (b) any Guarantor does not perform any obligation or covenant under any guaranty of the Obligations; (c) any circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8 occurs with respect to any Guarantor other than the dissolution of any immaterial Subsidiary into Borrower or another Subsidiary of Borrower; or (d) the liquidation, winding up, or termination of existence of any Guarantor; or
8.11
Governmental Approvals.
Any Governmental Approval shall have been (a) revoked, rescinded, suspended, modified in an adverse manner or not renewed in the ordinary course for a full term or (b) subject to any decision by a Governmental Authority that designates a hearing with respect to any applications for renewal of any of such Governmental Approval or that could result in the Governmental Authority taking any of the actions described in clauses (a) and (b) above, and such decision or such revocation, rescission, suspension, modification or non-renewal causes, or could reasonably be expected to cause, a Material Adverse Change.
9
BANK'S RIGHTS AND REMEDIES
9.1
Rights and Remedies
. Upon the occurrence and during the continuance of an Event of Default, Bank may, without notice or demand, do any or all of the following:
(a)
declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank);
(b)
stop advancing money or extending credit for Borrower's benefit under this Agreement or under any other agreement between Borrower and Bank;
(c)
for any Letters of Credit, demand that Borrower (i) deposit cash with Bank in an amount equal to (x) if such Letters of Credit are denominated in Dollars, then at least one hundred five percent (105.0%); and (y) if such Letters of Credit are denominated in a Foreign Currency, then at least one hundred ten percent (110.0%), of the Dollar Equivalent of the aggregate face amount of all Letters of Credit remaining undrawn (plus all interest, fees, and costs due or to become due in connection therewith (as estimated by Bank in its good faith business judgment)), to secure all of the Obligations relating to such Letters of Credit, as collateral security for the repayment of any future drawings under such Letters of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in advance all letter of credit fees scheduled to be paid or payable over the remaining term of any Letters of Credit;
(d)
terminate any FX Contracts;
(e)
verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that Bank considers advisable, and notify any Person owing Borrower money of Bank's security interest in such funds;
(f)
make any payments and do any acts it considers necessary or reasonable to protect the Collateral and/or its security interest in the Collateral;
(g)
apply to the Obligations (i) any balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or the account of Borrower;
(h)
ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. Except to the extent expressly prohibited by the terms of Borrower's existing contracts, licenses and other agreements with third parties (“Existing Contracts”) and provided such Existing Contracts permit Borrower to do so without incurring a financial liability, Bank is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower's labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with Bank's exercise of its rights under this Section, Borrower's rights under all licenses and all franchise agreements inure to Bank's benefit;
(i)
place a “hold” on any account maintained with Bank and/or deliver a notice of exclusive control, any entitlement order, or other directions or instructions pursuant to any Control Agreement or similar agreements providing control of any Collateral;
(j)
demand and receive possession of Borrower's Books; and
(k)
exercise all rights and remedies available to Bank under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof).
9.2
Power of Attorney
. Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact, exercisable upon the occurrence and during the continuance of an Event of Default, to: (a) endorse Borrower's name on any checks or other forms of payment or security; (b) sign Borrower's name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms Bank determines reasonable; (d) make, settle, and adjust all claims under Borrower's insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of Bank or a third party as the Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to sign Borrower's name on any documents necessary to perfect or continue the perfection of Bank's security interest in the Collateral regardless of whether an Event of Default has occurred until all Obligations (other than inchoate indemnity obligations) have been satisfied in full and Bank is under no further obligation to make Credit Extensions hereunder. Bank's foregoing appointment as Borrower's attorney in fact, and all of Bank's
rights and powers, coupled with an interest, are irrevocable until all Obligations (other than inchoate indemnity obligations) have been fully repaid and performed and Bank's obligation to provide Credit Extensions terminates.
9.3
Protective Payments
. If Borrower fails to obtain the insurance called for by Section 6.5 or fails to pay any premium thereon or fails to pay any other amount which Borrower is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, Bank may obtain such insurance or make such payment, and all amounts so paid by Bank are Bank Expenses and immediately due and payable, bearing interest at the then highest rate applicable to the Obligations, and secured by the Collateral. Bank will make reasonable efforts to provide Borrower with notice of Bank obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by Bank are deemed an agreement to make similar payments in the future or Bank's waiver of any Event of Default.
9.4
Application of Payments and Proceeds Upon Default
. If an Event of Default has occurred and is continuing, Bank shall have the right to apply in any order any funds in its possession, whether from Borrower account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. Bank shall pay any surplus to Borrower by credit to the Designated Deposit Account or to other Persons legally entitled thereto; Borrower shall remain liable to Bank for any deficiency. If Bank, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Bank shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by Bank of cash therefor.
9.5
Bank's Liability for Collateral
. So long as Bank complies with reasonable banking practices regarding the safekeeping of the Collateral in the possession or under the control of Bank, Bank shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.
9.6
No Waiver; Remedies Cumulative
. Bank's failure, at any time or times, to require strict performance by Borrower of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of Bank thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. Bank's rights and remedies under this Agreement and the other Loan Documents are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank's exercise of one right or remedy is not an election and shall not preclude Bank from exercising any other remedy under this Agreement or other remedy available at law or in equity, and Bank's waiver of any Event of Default is not a continuing waiver. Bank's delay in exercising any remedy is not a waiver, election, or acquiescence.
9.7
Demand Waiver
. Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable.
10
NOTICES
All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail or facsimile transmission; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, facsimile number, or email address indicated below. Bank or Borrower may change its mailing or electronic mail address or facsimile number by giving the other party written notice thereof in accordance with the terms of this Section 10.
If to Borrower:
Intermolecular, Inc.
3011 North First Street
San Jose, CA 95134
Attn: Peter Eidelman, CFO
Email: peidelman@Intermolecular.com
Website URL: www.intermolecular.com
With copies to:
Patrick Pohlen
Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
Email: patrick.pohlen@lw.com
Haim Zaltzman
Latham & Watkins LLP
505 Montgomery Street, Suite 2000
San Francisco, CA 94111
Email: haim.zaltzman@lw.com
If to Bank:
Silicon Valley Bank
2400 Hanover Street
Palo Alto, CA 94304
Attn: Megan Willard
Fax: (650) 494-1377
Email: mwillard@svb.com
11
CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE
California law governs the Loan Documents without regard to principles of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of the State and Federal courts in Santa Clara County, California; provided, however, that nothing in this Agreement shall be deemed to operate to preclude Bank from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of Bank. Borrower expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and Borrower hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Borrower and Bank hereby waive personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower or Bank at the respective address set forth in, or subsequently provided by Borrower or Bank in accordance with, Section 10 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower's or Bank's actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL
.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES' AGREEMENT TO WAIVE THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial by jury is not enforceable, the parties hereto agree that any and all disputes or controversies of any nature between them arising at any time shall be decided by a reference to a private judge, mutually selected by the parties (or, if they cannot agree, by the Presiding Judge of the Santa Clara County, California Superior Court) appointed in accordance with California Code of Civil Procedure Section 638 (or pursuant to comparable provisions of federal law if the dispute falls within the exclusive jurisdiction of the federal courts), sitting without a jury, in Santa Clara
County, California; and the parties hereby submit to the jurisdiction of such court. The reference proceedings shall be conducted pursuant to and in accordance with the provisions of California Code of Civil Procedure §§ 638 through 645.1, inclusive. The private judge shall have the power, among others, to grant provisional relief, including without limitation, entering temporary restraining orders, issuing preliminary and permanent injunctions and appointing receivers. All such proceedings shall be closed to the public and confidential and all records relating thereto shall be permanently sealed. If during the course of any dispute, a party desires to seek provisional relief, but a judge has not been appointed at that point pursuant to the judicial reference procedures, then such party may apply to the Santa Clara County, California Superior Court for such relief. The proceeding before the private judge shall be conducted in the same manner as it would be before a court under the rules of evidence applicable to judicial proceedings. The parties shall be entitled to discovery which shall be conducted in the same manner as it would be before a court under the rules of discovery applicable to judicial proceedings. The private judge shall oversee discovery and may enforce all discovery rules and orders applicable to judicial proceedings in the same manner as a trial court judge. The parties agree that the selected or appointed private judge shall have the power to decide all issues in the action or proceeding, whether of fact or of law, and shall report a statement of decision thereon pursuant to California Code of Civil Procedure § 644(a). Nothing in this paragraph shall limit the right of any party at any time to exercise self-help remedies, foreclose against collateral, or obtain provisional remedies. The private judge shall also determine all issues relating to the applicability, interpretation, and enforceability of this paragraph.
This Section 11 shall survive the termination of this Agreement.
12
GENERAL PROVISIONS
12.1
Termination Prior to Revolving Line Maturity Date; Survival
. All covenants, representations and warranties made in this Agreement continue in full force until this Agreement has terminated pursuant to its terms and all Obligations (other than inchoate indemnity obligations) have been satisfied. So long as Borrower has satisfied the Obligations (other than inchoate indemnity obligations, any other obligations which, by their terms, are to survive the termination of this Agreement, and any Obligations under Bank Services Agreements that are cash collateralized in accordance with Section 4.1 of this Agreement), this Agreement may be terminated prior to the Revolving Line Maturity Date by prior written notice from Borrower to Bank and payment by Borrower of all outstanding Obligations (other than inchoate indemnity obligations), including any amounts owed under Section 2.3(b). Those obligations that are expressly specified in this Agreement as surviving this Agreement's termination shall continue to survive notwithstanding this Agreement's termination.
12.2
Successors and Assigns
. This Agreement binds and is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights or obligations under it without Bank's prior written consent (which may be granted or withheld in Bank's discretion). Unless an Event of Default has occurred and is continuing, Bank shall only assign any interest in the Loan Documents to any Eligible Assignee. For purposes hereof, an “Eligible Assignee” is (a) any bank organized under the Federal Reserve System, or (b) any commercial bank, insurance company, investment or mutual fund or other entity that is an “accredited investor” (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses and is not a competitor of Borrower; provided that neither the Borrower nor any Affiliate of the Borrower shall be an Eligible Assignee.
12.3
Indemnification
. Borrower agrees to indemnify, defend and hold Bank and its directors, officers, employees, agents, attorneys, or any other Person affiliated with or representing Bank (each, an “
Indemnified Person
”) harmless against: (i) all obligations, demands, claims, and liabilities (collectively, “
Claims
”) claimed or asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (ii) all losses or expenses (including Bank Expenses) in any way suffered, incurred, or paid by such Indemnified Person as a result of, following from, consequential to, or arising from transactions between Bank and Borrower contemplated by the Loan Documents (including reasonable attorneys' fees and expenses), except for Claims and/or losses directly caused by such Indemnified Person's gross negligence or willful misconduct.
This Section 12.3 shall survive until all statutes of limitation with respect to the Claims, losses, and expenses for which indemnity is given shall have run.
12.4
Time of Essence
. Time is of the essence for the performance of all Obligations in this Agreement.
12.5
Severability of Provisions
. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.
12.6
Correction of Loan Documents
. Bank may correct patent errors and fill in any blanks in the Loan Documents consistent with the agreement of the parties.
12.7
Amendments in Writing; Waiver; Integration
. No purported amendment or modification of any Loan Document, or waiver, discharge or termination of any obligation under any Loan Document, shall be enforceable or admissible unless, and only to the extent, expressly set forth in a writing signed by the party against which enforcement or admission is sought. Without limiting the generality of the foregoing, no oral promise or statement, nor any action, inaction, delay, failure to require performance or course of conduct shall operate as, or evidence, an amendment, supplement or waiver or have any other effect on any Loan Document. Any waiver granted shall be limited to the specific circumstance expressly described in it, and shall not apply to any subsequent or other circumstance, whether similar or dissimilar, or give rise to, or evidence, any obligation or commitment to grant any further waiver. The Loan Documents represent the entire agreement about this subject matter and supersede prior negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter of the Loan Documents merge into the Loan Documents.
12.8
Counterparts
. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, is an original, and all taken together, constitute one Agreement.
12.9
Confidentiality
. In handling any confidential information, Bank shall exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made: (a) to Bank's Subsidiaries or Affiliates (such Subsidiaries and Affiliates, together with Bank, collectively, “
Bank Entities
”); (b) to prospective transferees or purchasers of any interest in the Credit Extensions (provided, however, that any prospective transferee or purchaser shall have entered into an agreement containing provisions substantially the same as those in this Section); (c) as required by law, regulation, subpoena, or other order; (d) to Bank's regulators or as otherwise required in connection with Bank's examination or audit; (e) as Bank considers appropriate in exercising remedies under the Loan Documents; and (f) to third-party service providers of Bank so long as such service providers have executed a confidentiality agreement with Bank with terms no less restrictive than those contained herein. Confidential information does not include information that is either: (i) in the public domain or in Bank's possession when disclosed to Bank, or becomes part of the public domain (other than as a result of its disclosure by Bank in violation of this Agreement) after disclosure to Bank; or (ii) disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information.
Bank Entities may use anonymous forms of confidential information for aggregate datasets, for analyses or reporting, and for any other uses not expressly prohibited in writing by Borrower. The provisions of the immediately preceding sentence shall survive termination of this Agreement.
12.10
Attorneys' Fees, Costs and Expenses
. In any action or proceeding between Borrower and Bank arising out of or relating to the Loan Documents, the prevailing party shall be entitled to recover its reasonable attorneys' fees and other costs and expenses incurred, in addition to any other relief to which it may be entitled.
12.11
Electronic Execution of Documents
. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, any state law based on the Uniform Electronic Transactions Act.
12.12
Captions
. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.
12.13
Construction of Agreement
. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.
12.14
Relationship
. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm's-length contract.
12.15
Third Parties
. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any persons other than the express parties to it and their respective
permitted successors and assigns; (b) relieve or discharge the obligation or liability of any person not an express party to this Agreement; or (c) give any person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.
13
DEFINITIONS
13.1
Definitions
. As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the words “includes” and “including” are not limiting, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. As used in this Agreement, the following capitalized terms have the following meanings:
“
Account
” is any “account” as defined in the Code with such additions to such term as may hereafter be made, and includes, without limitation, all accounts receivable and other sums owing to Borrower.
“
Account Debtor
” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.
“
Advance
” or “
Advances
” means a revolving credit loan (or revolving credit loans) under the Revolving Line.
“
Affiliate
” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person's senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person's managers and members.
“
Agreement
” is defined in the preamble hereof.
“
Bank
” is defined in the preamble hereof.
“
Bank Entities
” is defined in Section 12.9.
“
Bank Expenses
” are all audit fees and expenses, costs, and expenses (including reasonable attorneys' fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or Insolvency Proceedings) or otherwise incurred with respect to Borrower.
“
Bank Services
” are any products, credit services, and/or financial accommodations previously, now, or hereafter provided to Borrower or any of its Subsidiaries by Bank or any Bank Affiliate, including, without limitation, any letters of credit, cash management services (including, without limitation, merchant services, direct deposit of payroll, business credit cards, and check cashing services), interest rate swap arrangements, and foreign exchange services as any such products or services may be identified in Bank's various agreements related thereto (each, a “
Bank Services Agreement
”).
“
Borrower
” is defined in the preamble hereof.
“
Borrower's Books
” are all Borrower's books and records including ledgers, federal and state tax returns, records regarding Borrower's assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.
“
Borrowing Resolutions
” are, with respect to any Person, those resolutions substantially in the form attached hereto as
Exhibit D
.
“
Business Day
” is any day that is not a Saturday, Sunday or a day on which Bank is closed.
“
Change in Control
” means any event, transaction, or occurrence as a result of which (a) any “person” (as such term is defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of Borrower, is or becomes a beneficial owner (within the meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of Borrower, representing forty-nine percent (49%) or more of the combined voting power of Borrower's then outstanding securities; (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the Board of Directors of Borrower (together with any new directors whose election by the Board of Directors of Borrower was approved by a vote of not less than two-thirds of the directors then still in office who
either were directions at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office.
“
Claims
” is defined in Section 12.3.
“
Code
” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of California; provided, that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, Bank's Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of California, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.
“
Collateral
” is any and all properties, rights and assets of Borrower described on
Exhibit A
.
“
Collateral Account
” is any Deposit Account, Securities Account, or Commodity Account.
“
Commodity Account
” is any “commodity account” as defined in the Code with such additions to such term as may hereafter be made.
“
Compliance Certificate
” is that certain certificate in the form attached hereto as
Exhibit C
.
“
Contingent Obligation
” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co‑made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.
“
Control Agreement
” is any control agreement entered into among the depository institution at which Borrower maintains a Deposit Account or the securities intermediary or commodity intermediary at which Borrower maintains a Securities Account or a Commodity Account, Borrower, and Bank pursuant to which Bank obtains control (within the meaning of the Code) over such Deposit Account, Securities Account, or Commodity Account.
“
Conversion
” is defined in Section 2.1.2(a).
“
Copyrights
” are any and all copyright rights, copyright applications, copyright registrations and like protections in each work of authorship and derivative work thereof, whether published or unpublished and whether or not the same also constitutes a trade secret.
“
Credit Extension
” is any Advance, Term Loan, or any other extension of credit by Bank for Borrower's benefit under this Agreement.
“
Current Liabilities
” are all outstanding and owed obligations and liabilities of Borrower to Bank, plus, without duplication, the aggregate amount of Borrower's Total Liabilities that mature within one (1) year.
“
Default Rate
” is defined in Section 2.2(b).
“
Deposit Account
” is any “deposit account” as defined in the Code with such additions to such term as may hereafter be made.
“
Designated Deposit Account
” is the multicurrency account denominated in Dollars, account number *******____, maintained by Borrower with Bank.
“
Dollars
,
”
“
dollars
” or use of the sign “
$
” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.
“
Dollar Equivalent
” is, at any time, (a) with respect to any amount denominated in Dollars, such amount, and (b) with respect to any amount denominated in a Foreign Currency, the equivalent amount therefor in Dollars as determined by Bank at such time on the basis of the then-prevailing rate of exchange in San Francisco, California, for sales of the Foreign Currency for transfer to the country issuing such Foreign Currency.
“
Domestic Subsidiary
” means a Subsidiary organized under the laws of the United States or any state or territory thereof or the District of Columbia, but excluding any Subsidiary whose sole purpose is a holding company for a Foreign Subsidiary.
“
Effective Date
” is defined in the preamble hereof.
“
Equipment
” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.
“
ERISA
” is the Employee Retirement Income Security Act of 1974, and its regulations.
“
Event of Default
” is defined in Section 8.
“
Exchange Act
” is the Securities Exchange Act of 1934, as amended.
“
Foreign Currency
” means lawful money of a country other than the United States.
“
Foreign Subsidiary
” means any Subsidiary which is not a Domestic Subsidiary.
“
Funding Date
” is any date on which a Credit Extension is made to or for the account of Borrower which shall be a Business Day.
“
FX Contract
” is any foreign exchange contract by and between Borrower and Bank under which Borrower commits to purchase from or sell to Bank a specific amount of Foreign Currency on a specified date.
“
GAAP
” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.
“
General Intangibles
” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.
“
Governmental Approval
” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.
“
Governmental Authority
” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.
“
Guarantor
”
is any Person providing a Guaranty in favor of Bank.
“
Guaranty
” is any guarantee of all or any part of the Obligations, as the same may from time to time be amended, restated, modified or otherwise supplemented.
“
Indebtedness
” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, and (d) Contingent Obligations.
“
Indemnified Person
” is defined in Section 12.3.
“
Insolvency Proceeding
” is any proceeding by or against any Person under the United States Bankruptcy Code, or any other bankruptcy or insolvency law, including assignments for the benefit of creditors, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief.
“
Intellectual Property
” means, with respect to any Person, all of such Person's right, title, and interest in and to the following:
(a)
its Copyrights, Trademarks and Patents;
(b)
any and all trade secrets and trade secret rights, including, without limitation, any rights to unpatented inventions, know-how, operating manuals;
(c)
any and all source code;
(d)
any and all design rights which may be available to such Person;
(e)
any and all claims for damages by way of past, present and future infringement of any of the foregoing, with the right, but not the obligation, to sue for and collect such damages for said use or infringement of the Intellectual Property rights identified above; and
(f)
all amendments, renewals and extensions of any of the Copyrights, Trademarks or Patents.
“
Inventory
” is all “inventory” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation all merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products, including without limitation such inventory as is temporarily out of Borrower's custody or possession or in transit and including any returned goods and any documents of title representing any of the above.
“
Investment
” is any beneficial ownership interest in any Person (including stock, partnership interest or other securities), and any loan, advance or capital contribution to any Person.
“
Key Person
” is each of Borrower's (a) Chief Executive Officer, who is David Lazovsky as of the Effective Date, (b) Chief Financial Officer, who is Peter Eidelman as of the Effective Date, and (c) Chief Technology Officer, who is Tony Chiang as of the Effective Date.
“
Letter of Credit
” is a standby or commercial letter of credit issued by Bank upon request of Borrower based upon an application, guarantee, indemnity, or similar agreement.
“
Lien
” is a claim, mortgage, deed of trust, levy, charge, pledge, security interest or other encumbrance of any kind, whether voluntarily incurred or arising by operation of law or otherwise against any property.
“
Liquidity Threshold
” means that the sum of Borrower's (i) unrestricted cash, (ii) Cash Equivalents and (iii) other investments with maturities of fewer than 12 months determined according to GAAP, in each case limited to amounts located in the United States, is equal to or greater than Sixty Million Dollars ($60,000,000).
“
Loan Documents
” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, any Bank Services Agreement, the Stock Pledge Agreement, any subordination agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other present or future agreement by Borrower and/or any Guarantor with or for the benefit of Bank in connection with this Agreement or Bank Services, all as amended, restated, or otherwise modified.
“
Material Adverse Change
” is (a) a material impairment in the perfection or priority of Bank's Lien in the Collateral or in the value of such Collateral; (b) a material adverse change in the business, operations, or condition (financial or otherwise) of Borrower; or (c) a material impairment of the prospect of repayment of any portion of the Obligations. In determining whether a “Material Adverse Change” has occurred under clause (b) or (c) above, Bank's primary, though not sole, consideration will be whether Borrower has or will have sufficient cash resources to repay the Obligations as and when due.
“
Monthly Financial Statements
” is defined in Section 6.2(b).
“
Obligations
” are Borrower's obligation to pay when due any debts, principal, interest, fees, Bank Expenses, and other amounts Borrower owes Bank now or later, whether under this Agreement, the other Loan Documents, or otherwise, including, without limitation, any interest accruing after Insolvency Proceedings begin and debts, liabilities, or obligations of Borrower assigned to Bank, and the performance of Borrower's duties under the Loan Documents.
“
Operating Documents
” are, for any Person, such Person's formation documents, as certified by the Secretary of State (or equivalent agency) of such Person's jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Effective Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.
“
Patents
” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of the same.
“
Payment/Advance Form
” is that certain form attached hereto as
Exhibit B
.
“
Perfection Certificate
” is defined in Section 5.1.
“
Permitted Indebtedness
” is:
(a)
Borrower's Indebtedness to Bank under this Agreement and the other Loan Documents;
(b)
Indebtedness existing on the Effective Date and shown on the Perfection Certificate;
(c)
Subordinated Debt;
(d)
unsecured Indebtedness to trade creditors incurred in the ordinary course of business;
(e)
Indebtedness incurred as a result of endorsing negotiable instruments received in the ordinary course of business;
(f)
Indebtedness secured by Liens permitted under clauses (a) and (c) of the definition of “Permitted Liens” hereunder;
(g)
letters of credit issued by any Person other than Bank in an aggregate amount not to exceed One Hundred Thousand Dollars ($100,000); and
(h)
extensions, refinancings, modifications, amendments and restatements of any items of Permitted Indebtedness (a) through (g) above, provided that the principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower or its Subsidiary, as the case may be.
“
Permitted Investments
” are:
(a)
Investments (including, without limitation, Subsidiaries) existing on the Effective Date and shown on the Perfection Certificate;
(b)
Investments consisting of Cash Equivalents;
(c)
Investments consisting of the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of Borrower;
(d)
Investments consisting of deposit accounts in which Bank has a perfected security interest;
(e)
Investments accepted in connection with Transfers permitted by Section 7.1;
(f)
Investments consisting of the creation of a Subsidiary for the purpose of consummating a merger transaction permitted by Section 7.3 of this Agreement, which is otherwise a Permitted Investment;
(g)
Investments (i) by Borrower in Subsidiaries not to exceed One Million Dollars ($1,000,000) in the aggregate in any twelve (12) month period and (ii) by Subsidiaries in other Subsidiaries or in Borrower;
(h)
Investments consisting of (i) travel advances and employee relocation loans and other employee loans and advances in the ordinary course of business, and (ii) loans to employees, officers or directors relating to the purchase of equity securities of Borrower or its Subsidiaries pursuant to employee stock purchase plans or agreements approved by Borrower's Board of Directors;
(i)
Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course of business;
(j)
Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who are not Affiliates, in the ordinary course of business; provided that this paragraph (j) shall not apply to Investments of Borrower in any Subsidiary; and
(k)
Joint ventures or strategic alliances in the ordinary course of Borrower's business consisting of licenses permitted under Section 7.1, the development of technology or the providing of technical support, provided that any cash investments by Borrower do not exceed One Million Dollars ($1,000,000) in the aggregate in any twelve month period.
“
Permitted Liens
” are:
(a)
Liens existing on the Effective Date and shown on the Perfection Certificate or arising under this Agreement and the other Loan Documents;
(b)
Liens for taxes, fees, assessments or other government charges or levies, either (i) not due and payable or (ii) being contested in good faith and for which Borrower maintains adequate reserves on its Books,
provided
that no notice of any such Lien has been filed or recorded under the Internal Revenue Code of 1986, as amended, and the Treasury Regulations adopted thereunder;
(c)
purchase money Liens (i) on Equipment acquired or held by Borrower incurred for financing the acquisition of the Equipment securing no more than One Hundred Thousand Dollars ($100,000) in the aggregate amount outstanding, or (ii) existing on Equipment when acquired,
if
the Lien is confined to the property and improvements and the proceeds of the Equipment;
(d)
Liens of carriers, warehousemen, suppliers, or other Persons that are possessory in nature arising in the ordinary course of business so long as such Liens attach only to Inventory, securing liabilities in the aggregate amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000) and which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto;
(e)
Liens to secure payment of workers' compensation, employment insurance, old-age pensions, social security and other like obligations incurred in the ordinary course of business (other than Liens imposed by ERISA);
(f)
Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (c),
but
any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase;
(g)
leases or subleases of real property granted in the ordinary course of Borrower's business (or, if referring to another Person, in the ordinary course of such Person's business), and leases, subleases, non-exclusive licenses or sublicenses of personal property (other than Intellectual Property) granted in the ordinary course of Borrower's business (or, if referring to another Person, in the ordinary course of such Person's business),
if
the leases, subleases, licenses and sublicenses do not prohibit granting Bank a security interest therein;
(h)
licenses permitted under Section 7.1;
(i)
Liens arising from attachments or judgments, orders, or decrees in circumstances not constituting an Event of Default under Sections 8.4 and 8.7;
(j)
Liens in favor of other financial institutions arising in connection with Borrower's deposit and/or securities accounts held at such institutions, provided that Bank has a perfected security interest in the amounts held in such deposit and/or securities accounts; and
(k)
Liens on cash collateral in an amount not to exceed 100% of the Dollar Equivalent of the aggregate face amount of all letters of credit permitted under clause (g) of “Permitted Indebtedness”.
“
Person
” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.
“
Prepayment Fee
” shall be an amount equal to one-quarter of one percent (0.25%) of the outstanding principal balance of the Term Loan if the Term Loan is outstanding one (1) year or less.
“
Prime Rate
” is the rate of interest per annum from time to time published in the money rates section of The Wall Street Journal or any successor publication thereto as the “prime rate” then in effect; provided that if such rate of interest, as set forth from time to time in the money rates section of The Wall Street Journal, becomes unavailable for any reason as determined by Bank, the “Prime Rate” shall mean the rate of interest per annum announced by Bank as its prime rate in effect at its principal office in the State of California (such Bank announced Prime Rate not being intended to be the lowest rate of interest charged by Bank in connection with extensions of credit to debtors).
“
Quarterly Financial Statements
” is defined in Section 6.2(a).
“
Quick Assets
” is, on any date, Borrower's and its Subsidiaries' consolidated unrestricted cash and Cash Equivalents located in the United States, net accounts receivable (as included in Borrower's financial statements, which reflects billed and unbilled accounts receivable less any reserves therefore), and investments with maturities of fewer than 12 months determined according to GAAP that are located in the United States.
“
Registered Organization
” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.
“
Requirement of Law
” is as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
“
Responsible Officer
” is any of the Chief Executive Officer, President, Chief Financial Officer and Controller of Borrower.
“
Restricted License
” is any material license or other agreement with respect to which Borrower is the licensee (a) that prohibits or otherwise restricts Borrower from granting a security interest in Borrower's interest in such license or agreement or any other property, or (b) for which a default under or termination of could interfere with the Bank's right to sell any Collateral.
“
Revolving Line
” is an aggregate principal amount equal to Twenty-Six Million Five Hundred Thousand Dollars ($26,500,000).
“
Revolving Line Maturity Date
”
is November 30, 2013.
“
SEC
” shall mean the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.
“
Securities Account
” is any “securities account” as defined in the Code with such additions to such term as may hereafter be made.
“
Stock Pledge Agreement
” is that certain Stock Pledge Agreement executed and delivered by Borrower to Bank dated as of the Effective Date.
“
Subordinated Debt
” is indebtedness incurred by Borrower subordinated to all of Borrower's now or hereafter indebtedness to Bank (pursuant to a subordination, intercreditor, or other similar agreement in form and substance satisfactory to Bank entered into between Bank and the other creditor), on terms acceptable to Bank.
“
Subsidiary
” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such
corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless the context otherwise requires, each reference to a Subsidiary herein shall be a reference to a Subsidiary of Borrower.
“
Term Loan
” is defined in Section 2.1.2(a).
“
Term Loan Maturity Date
” is the date which is thirty-six (36) months from the Conversion, but no later than November 30, 2016.
“
Term Loan Payment
” is defined in Section 2.1.2(b).
“
Total Liabilities
” is on any day, obligations that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness.
“
Trademarks
” means any trademark and servicemark rights, whether registered or not, applications to register and registrations of the same and like protections, and the entire goodwill of the business of Borrower connected with and symbolized by such trademarks.
“
Transfer
” is defined in Section 7.1.
[
Signature page follows.
]
IN WITNESS WHEREOF
, the parties hereto have caused this Agreement to be executed as of the Effective Date.
BORROWER:
INTERMOLECULAR, INC.
By_________________________________________
Name:______________________________________
Title:_______________________________________
BANK:
SILICON VALLEY BANK
By________________________________________
Name:_____________________________________
Title:______________________________________
EXHIBIT A - COLLATERAL DESCRIPTION
The Collateral consists of all of Borrower's right, title and interest in and to the following personal property:
All goods, Accounts (including health-care receivables), Equipment, Inventory, contract rights or rights to payment of money, leases, license agreements, franchise agreements, General Intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether tangible or electronic), cash, deposit accounts, fixtures, letters of credit rights (whether or not the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether now owned or hereafter acquired, wherever located; and
all Borrower's Books relating to the foregoing, and any and all claims, rights and interests in any of the above and all substitutions for, additions, attachments, accessories, accessions and improvements to and replacements, products, proceeds and insurance proceeds of any or all of the foregoing.
Notwithstanding the foregoing, the Collateral does not include: (a) more than 65% of the presently existing and hereafter arising issued and outstanding shares of capital stock owned by Borrower of any Foreign Subsidiary which shares entitle the holder thereof to vote for directors or any other matter; (b) any interest of Borrower as a lessee or sublessee under a real property lease; (c) rights held under a license that are not assignable by their terms without the consent of the licensor thereof (but only to the extent such transfer is unenforceable under applicable law); (d) any interest of Borrower as a lessee under an Equipment lease if Borrower is prohibited by the terms of such lease from granting a security interest in such lease or under which such an assignment or Lien would cause a default to occur under such lease;
provided, however
, that upon termination of such prohibition, such interest shall immediately become Collateral without any action by Borrower or Bank; or (e) any Intellectual Property; provided, however, the Collateral shall include all Accounts
and all proceeds of Intellectual Property. If a judicial authority (including a U.S. Bankruptcy Court) would hold that a security interest in the underlying Intellectual Property is necessary to have a security interest in such Accounts and such property that are proceeds of Intellectual Property, then the Collateral shall automatically, and effective as of the Effective Date, include the Intellectual Property to the extent necessary to permit perfection of Bank's security interest in such Accounts and such other property of Borrower that are proceeds of the Intellectual Property.
EXHIBIT B - LOAN PAYMENT/ADVANCE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS NOON PACIFIC TIME
Fax To: (650) 494-1377
Date: _____________________
LOAN PAYMENT
:
INTERMOLECULAR, INC.
From Account #________________________________
To Account #__________________________________________________
(Deposit Account #)
(Loan Account #)
Principal $____________________________________
and/or Interest $________________________________________________
Authorized Signature:
Phone Number:
Print Name/Title:
LOAN ADVANCE
:
Complete
Outgoing Wire Request
section below if all or a portion of the funds from this loan advance are for an outgoing wire.
From Account #________________________________
To Account #__________________________________________________
(Loan Account #)
(Deposit Account #)
Amount of Advance $___________________________
All Borrower's representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the request for an advance; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date:
Authorized Signature:
Phone Number:
Print Name/Title:
OUTGOING WIRE REQUEST
:
Complete only if all or a portion of funds from the loan advance above is to be wired.
Deadline for same day processing is noon, Pacific Time
Beneficiary Name: _____________________________
Amount of Wire: $
Beneficiary Bank: ______________________________
Account Number:
City and State:
Beneficiary Bank Transit (ABA) #:
Beneficiary Bank Code (Swift, Sort, Chip, etc.):
(For International Wire Only)
Intermediary Bank:
Transit (ABA) #:
For Further Credit to:
Special Instruction:
By signing below, I (we) acknowledge and agree that my (our) funds transfer request shall be processed in accordance with and subject to the terms and conditions set forth in the agreements(s) covering funds transfer service(s), which agreements(s) were previously received and executed by me (us).
Authorized Signature: ___________________________
2
nd
Signature (if required): _______________________________________
Print Name/Title: ______________________________
Print Name/Title: ______________________________________________
Telephone #:
Telephone #:
EXHIBIT C
COMPLIANCE CERTIFICATE
TO:
SILICON VALLEY BANK
Date:
FROM: INTERMOLECULAR, INC.
The undersigned authorized officer of Intermolecular, Inc. (“Borrower”) certifies that under the terms and conditions of the Loan and Security Agreement between Borrower and Bank (the “Agreement”):
(1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below; (2) there are no Events of Default; (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date; (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement; and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.
Attached are the required documents supporting the certification. The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.
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Please indicate compliance status by circling Yes/No under “Complies” column.
|
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Reporting Covenant
|
Required
|
Complies
|
|
|
|
|
|
Quarterly financial statements with
Compliance Certificate
|
Quarterly within 45 days (when above Liquidity Threshold)
|
Yes No
|
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Monthly financial statements with
Compliance Certificate
|
Monthly within 30 days (when below Liquidity Threshold)
|
Yes No
|
|
Annual financial statement (CPA Audited) + CC
|
FYE within 180 days
|
Yes No
|
|
10‑Q, 10‑K and 8-K
|
Within 5 days after filing with SEC
|
Yes No
|
|
Monthly Certificate of cash, Cash Equivalents and short-term investments
|
Monthly within 30 days
|
Yes No
|
|
At least two analyst reports in regard to financial projections
|
Within 45 days after FYE
|
Yes No
|
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Financial Covenant
|
Required
|
Actual
|
Complies
|
|
|
|
|
|
|
Maintain on a Monthly Basis:
|
|
|
|
|
Minimum Adjusted Quick Ratio*
|
1.50:1.00
|
_____:1.00
|
Yes No
|
* To be tested only when Borrower's domestic unrestricted cash, Cash Equivalents and short-term investments total less than $60,000,000.
[Continued on following page.]
The following financial covenant analysis and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.
Attached is a summary of any Restricted Licenses (other than over-the-counter software that is commercially available to the public or Restricted Licenses with respect to which Borrower has already provided written notice to Bank) entered into by Borrower or under which Borrower is bound.
The following are the exceptions with respect to the certification above: (If no exceptions exist, state “No exceptions to note.”)
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
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Intermolecular, Inc.
By:
Name:
Title:
|
BANK USE ONLY
Received by: _____________________
AUTHORIZED SIGNER
Date: _________________________
Verified: ________________________
AUTHORIZED SIGNER
Date: _________________________
Compliance Status: Yes No
|
Schedule 1 to Compliance Certificate
Financial Covenants of Borrower
In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.
Dated:
____________________
|
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I.
|
Adjusted Quick Ratio
(Section 6.7(a)) * To be tested only when Borrower's domestic unrestricted cash, Cash Equivalents and short-term investments total less than $60,000,000.
|
Required:
_____:1.00
Actual:
|
|
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|
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A.
|
Aggregate value of the unrestricted cash and Cash Equivalents of Borrower and its Subsidiaries located in the United States
|
$
|
|
B.
|
Aggregate value of the net accounts receivable of Borrower and its Subsidiaries
|
$
|
|
C.
|
Aggregate value of the Investments with maturities of fewer than 12 months
of Borrower and its Subsidiaries located in the United States
|
$
|
|
D.
|
Quick Assets (the sum of lines A through C)
|
$
|
|
E.
|
Aggregate value of Obligations to Bank
|
$
|
|
F.
|
Aggregate value of liabilities that should, under GAAP, be classified as liabilities on Borrower's consolidated balance sheet, including all Indebtedness, and not otherwise reflected in line E above that matures within one (1) year
|
$
|
|
G.
|
Current Liabilities (the sum of lines E and F)
|
$
|
|
H.
|
Adjusted Quick Ratio (line D divided by line G)
|
|
Is line H equal to or greater than 1.50:1:00?
No, not in compliance
Yes, in compliance
EXHIBIT D
BORROWING RESOLUTIONS
[see attached]
COLLABORATIVE DEVELOPMENT AGREEMENT
THIS COLLABORATIVE DEVELOPMENT AGREEMENT
(“Agreement”)
is entered into and effective as of the 1
st
day of April, 2013 (the “Effective Date”), by and between
Micron Technology, Inc.
, a Delaware corporation with offices located at 8000 S. Federal Way, Boise, Idaho 83716 (“Micron”) and
Intermolecular, Inc.
, a Delaware corporation with offices located at 3011 North First Street, San Jose, California 95134 (“Intermolecular”).
WHEREAS
Intermolecular and Elpida Memory, Inc., a Japanese corporation with offices located at 2-1, Yaesu 2-chome, Chuo-ku, Tokyo 104-0028, Japan (“Elpida”), have entered into certain agreements: Advanced Memory Development Program Agreement, dated May 22, 2008 (“Original Agreement”); Exhibit C - Royalty Terms, dated August 18, 2008 (“Amended Exhibit C”); Supplemental Joint Development Agreement, dated January 27, 2009 (“Supplemental Agreement”); Amendment to the Supplemental Joint Development Agreement, dated May 25, 2009 (“Supplemental Amendment”); Amendment to the Advanced Memory Agreements, dated July 29, 2010 (“First Extension”); First Fee Triggering Technology Agreement, dated December 29, 2012 (“First Fee Triggering Technology Agreement”); Second Extension to the Advanced Memory Agreements between Elpida and Intermolecular, effective as of the 1
st
day of April, 2013 (“Second Extension”); and any additional agreements or amendments involving Intermolecular and Elpida related to any of the foregoing (collectively, the “[***]”);
WHEREAS
, Intermolecular and Micron wish to establish a business relationship that would complement and, in connection with a potential acquisition of Elpida by Micron, ultimately supersede the business relationship reflected by the [***] between Intermolecular and Elpida;
NOW THEREFORE
, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows:
Definitions and Interpretive Matters
|
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1.1
|
Definitions
. For purposes of this Agreement, the definitions set forth in this Section 1.1 shall apply to the respective capitalized terms used herein.
|
(a)
“Affiliate(s)” shall mean and include any legal entity, whether such entity exists or qualifies as an Affiliate as of the Effective Date or thereafter, which directly or indirectly Controls or is under common Control with the applicable party, and any partnership in which such entity is a partner with the applicable party. For purposes of the foregoing definition, “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of another entity, whether through legal or beneficial ownership of voting securities, through funding arrangements, through membership, by contract, or otherwise.
(b)
“Agreement Minimum Term” shall have the meaning set forth in Section 12.1.
(c)
“Authorized Representative” shall mean an officer or employee of a Party who has the authority to sign on behalf of, and bind, such Party to perform the obligations set forth in this Agreement, including any Development Programs and Project SOWs hereunder.
(d)
“Background IP” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, all Intellectual Property Rights that are (i) owned, licensed or otherwise solely controlled by a party (
i.e.
Intermolecular or Elpida) or its Affiliates as of November 13, 2007; or (ii) created, conceived or reduced to practice by a party's or its Affiliates' employees, contractors or agents without reliance upon, use of, or benefit of the other party's or its Affiliate's Background IP or Confidential Information.
(e)
“CDA Fees” shall mean the fees set forth in a Development Program as payable by Micron to Intermolecular in consideration for the Services performed by Intermolecular, as referenced in Section 10.1.
(f)
“CDP Developed Technology” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, any Intellectual Property Rights developed pursuant to the Demonstration Agreement, Letter Agreement or an agreed upon Collaborative Development Program, including the Critical Parameter Set.
(g)
“Certain Memory Companies” shall mean [***]and [***], and the subsidiaries and Affiliates of the foregoing.
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(h)
“Certain Memory Company License” shall have the meaning set forth in Section 6.12(b).
(i)
“Change of Control” of a Party shall mean (i) any event or series of related events whereby an entity that did not previously own fifty percent (50%) or more becomes the beneficial owner of fifty percent (50%) or more of all then-outstanding voting securities of such Party or otherwise has Control over such Party; (ii) a merger or consolidation of such Party with or into another entity, other than a merger or consolidation that results in the owners of the voting securities of such Party immediately prior to such merger or consolidation owning securities that represent immediately after such merger or consolidation fifty percent (50%) or more of the total combined voting power of the entity that survives such merger or consolidation or the parent of the entity that survives such merger or consolidation; or (iii) the sale, disposition or liquidation of all or substantially all of the assets used in the business of a Party. For purposes of the foregoing definition, “Control” shall be deemed to exist if the applicable entity possesses, directly or indirectly, the power to direct or cause the direction of management or policies of such Party, whether through legal or beneficial ownership of voting securities, through funding arrangements, by contract or otherwise.
(j)
“Closing” shall mean such time as when Elpida issues all of its equity to and becomes a wholly-owned subsidiary of Micron.
(k)
“Confidential Information” shall have the meaning set forth in Section 15.1 with reference to the Nondisclosure Agreement.
(l)
“Deliverables” shall have the meaning set forth in Section 3.2.
(m)
“Development Program(s)” shall have the meaning set forth in Section 3.1(a).
(n)
“Draft” shall have the meaning set forth in Section 11.2(f).
(o)
“DRAM Field” shall mean [***].
(p)
“[***] Program Duration” shall have the meaning set forth in Section 2.4.
(q)
“[***]-Micron Sublicenses” shall have the meaning set forth in Section 2.3.
(r)
“Filing Requests” shall have the meaning set forth in Section 11.2(a).
(s)
“General Field” shall mean and include all activities related to [***] or [***]capable of [***] - with the [***]of [***]that do not [***]a [***]and that [***]on an [***]where no [***]of the [***]is [***]of [***]and [***]that enable [***] - where such activities include without limitation [***] and any other [***].
(t)
“General Sublicense Rights” shall mean that Micron has the right, but [***]the [***], to grant sublicenses to any other [***], without requiring any [***] or [***], where such sublicenses include, in [***], some or all of the rights [***]by [***](with the [***] of the right to grant [***]) under the respective license grant from[***].
(u)
“High Productivity Combinatorial Technology” shall mean [***] directed to [***] and [***] that use [***] or [***] on a [***] for the purpose of creating [***] in [***] across such [***] of a [***], for the [***] or [***], or [***] of [***] or more [***] or [***] on such [***].
(v)
“HPC Technology” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, all techniques, methodologies, processes, test vehicles, synthetic procedures, technology, systems, or combination thereof, without reference to any Elpida Confidential Information, used for the simultaneous, parallel, or rapid serial: (i) design, (ii) synthesis, (iii) processing, (iv) process sequencing, (v) process integration, (vi) device integration, (vii) analysis, or (viii) characterization of more than two (2) compounds, compositions, mixtures, processes, or synthesis conditions, or the structures derived from such on a single wafers. It is understood that such test vehicles include physical and or electrical characterization devices such as test structures or chips, used in the design, process development, manufacturing process qualification, and manufacturing process control of integrated circuit devices, but do not include test wafers previously used in research and development using nominally uniform processing of a wafer. It is also understood that HPC Technology does not include the use of commercially available equipment in commercial manufacturing for nominally uniform processing of one or more identical integrated circuits on a single substrate, or the use of such equipment in research and development for nominally uniform processing of one or more integrated circuits on a single substrate. For the avoidance of doubt, HPC Technology does not include Intellectual Property Rights in and to Elpida Inventions and IM Inventions (defined in Section 3.3 of the Original Agreement) or Background IP of Elpida.
(w)
“HPC Derivatives” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, all HPC Technology improvements, derivatives and modifications developed by either [***] or both parties
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(
i.e.
Intermolecular and/or Elpida) during the course of any CDP or based on IM provided tools, software or information enabling the use of HPC Technology.
(x)
“HPC Feedback” shall have the meaning set forth in Section 6.10(a).
(y)
“Legacy Meaning as set forth in the Advanced Memory Agreements” shall mean the identical, verbatim meaning and interpretation of certain defined terms as they are defined in the Advanced Memory Agreements between Intermolecular and [***], including with respect to any and all defined terms used within such definitions. By way of example, the Legacy Meaning of a definition that includes the term “parties” shall refer thereby to the original parties to the Advanced Memory Agreements, namely, Intermolecular and [***], and shall not be reinterpreted as applying to Micron.
(z)
“IM Inventions” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, any CDP Developed Technology that is [***], and [***], and [***] for such [***] and/or [***], except as [***] to [***] a [***], such as [***] or [***], and all [***] and [***]thereto.
(aa)
“Informatics Software” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, the IM software platform enabling the operation of the Dry and Wet Workflows and the gathering and sharing of CDP related information through a web-based interface.
(bb) “Initial Information Set” shall mean Technology sufficient to identify and reflect all [***] by [***]to [***] in Section 6 that relates to the subject matter of the Development Programs available as of the Effective Date.
(cc) “Intellectual Property” or “IP” shall mean and include Patent Rights and Non-Patent Rights, but not Trademark Rights.
(dd) “Intermolecular Background Intellectual Property” shall mean and include all right, title and interest of Intermolecular in and to the “CDP Developed Technology” and the “Background IP”, together with all other Intellectual Property that is owned by Intermolecular or its Subsidiaries (except to the extent and during the period portions of such Intellectual Property have been exclusively licensed, in a grant prior to the Effective Date, to a Third Party), or licensable by Intermolecular or its Subsidiaries without incurring a payment obligation to a third party, as of the Effective Date or at any time during the term of this Agreement, but excluding Intellectual Property directed to any Technology developed, conceived or first reduced to practice in connection with and during the course of any Project SOWs under this Agreement, and further excluding “HPC Technology”, “HPC Derivatives” and “Informatics Software”. In the event Intermolecular has the ability, conditioned upon or subject to the incurring of a payment obligation to a third party, to grant a license or sublicense with respect to additional Intellectual Property, then Intermolecular agrees to provide notice to Micron of such Intellectual Property, and such Intellectual Property shall be deemed Intermolecular Background Intellectual Property conditioned upon Micron's written notice and full satisfaction of such payment obligation to the third party.
(ee) “JDA” shall have the meaning set forth in Section 2.4.
(ff) “Joint Inventions” shall have the Legacy Meaning as set forth in the Advanced Memory Agreements, namely, any CDP Developed Technology that is not determined in ownership through the application of Section 3.3.1 or 3.3.2 of the Original Agreement. Such CDP Developed Technology shall be [***] and/or [***] for forming [***], including [***] and/or [***] for [***] and/or [***] of [***] and/or [***] for [***], and all [***] and [***] thereto.
(gg) “Limited Sublicense Rights” shall mean that Micron has the right, but [***] the [***], to grant sublicenses to [***] and all [***], without any [***] from or [***] to [***], where such sublicenses include, in [***], some or all of the rights [***] by [***] (with the [***] of the right to grant [***]) under the respective license grant from Intermolecular.
(hh) “Material Solution Set” shall mean and include any and all [***] and [***] in connection with any [***] (
e.g.
any [***]) between Intermolecular, on the one hand, and [***] or Micron on the other hand, that meet or have appeared reasonably likely to meet a [***] of [***] or Micron (hereinafter “Satisfactory Materials”), including reasonable variations and technical equivalents of the foregoing, and/or [***] utilized in connection with any such [***]. The Parties will attempt to [***] the anticipated Material Solution Set in each Project SOW, and Micron may [***] additional such Satisfactory Materials for inclusion during and within a reasonable time after the performance of Services under a Project SOW, and any such [***] and [***] so [***] shall be deemed [***], without limitation, in the Material Solution Set.
(ii) “Micron Background IP” shall mean any and all Intellectual Property owned or controlled by Micron as of the Effective Date. Micron Background IP shall also mean and include all other Intellectual Property owned or
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controlled by Micron at any time during the term of this Agreement with the sole exception of the Patent Foreground.
(jj) “Micron Competitor” shall mean and include any legal entity, as well as its Subsidiaries and Affiliates, for which more than [***] ([***]) of the [***] of the legal entity or of any of its Subsidiaries or Affiliates [***] from the manufacture or sale of Memory Products (defined below) within the preceding [***], and shall be deemed to include without limitation [***]and any [***]in [***] that makes or sells Memory Products, and any successor-in-interest of any of the foregoing companies or of the Memory Products business of any of the foregoing companies, as well as any legal entity that [***] a significant portion of its [***] in connection with [***] of [***] and that does not [***] a significant portion of its [***] from [***] or [***] (which entities shall be expressly deemed to include without limitation [***]and [***], but which shall be expressly deemed to exclude [***]and [***]). For purposes of this definition, “Memory Products” shall mean one or more integrated circuits that are used [***]for [***]including, for example and without limitation, any [***] or [***], whether as [***], [***] or [***].
(kk) “Micron JDA Partner(s)” shall mean and include any legal entity, whether such entity exists or qualifies as a Micron JDA Partner as of the Effective Date or thereafter, in connection with which Micron is [***] to a [***].
(ll) “Micron JV Entity” and “Micron JV Entities” shall mean a joint venture entity that is [***]by Micron and at least one additional entity, wherein (i) Micron has an [***] or [***]of at least [***] ([***]%) in the joint venture entity, and (ii) the joint venture entity is [***] by one or more [***] by and among Micron and at least one other entity.
(mm) “Micron JV Partner(s)” shall mean and include any legal entity or entities with whom Micron owns a Micron JV Entity.
(nn) “Non-Patent Foreground” shall mean all [***] in and to any and all [***] developed, conceived or first reduced to practice, whether by [***] or by the [***], in connection with and during the course of any [***].
(oo) “Non-Patent Rights” shall mean any and/or all of the following rights: (i) trade secrets and rights in proprietary information and/or know-how; (ii) copyrights, copyright registrations and applications therefor, including moral rights and rights in software, and all other rights corresponding thereto throughout the world; (iii) mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts, architectures or topology; (iv) industrial designs and any registrations and applications therefor throughout the world; (v) all rights in databases and data collections throughout the world; (vi) rights in all applications for United States and foreign patents, including without limitation applications for reissues, divisions, provisionals, continuations and continuations-in-part, as well as applications for registered utility models; and (vii) any similar, corresponding or equivalent rights or other intellectual property rights anywhere in the world in and to Technology, but excluding any Patent Rights and Trademark Rights.
(pp) “Party” shall refer to Micron or Intermolecular respectively, and “Parties” shall refer to Micron and Intermolecular collectively.
(qq) “Patent Foreground” shall mean all [***] in and to any and all [***] developed, conceived or first reduced to practice, whether by [***] or by the [***] [***], in connection with and during the course of any Project SOWs.
(rr) “Patent Prosecution” shall mean: (i) preparing, filing and prosecuting patent applications of all types in furtherance of receiving issued patents; (ii) maintaining such patent applications and patents issuing therefrom, and (iii) managing any interference, reexamination, reissue, opposition, derivation or other administrative proceedings relating to the foregoing.
(ss) “Patent Review Committee” shall have the meaning set forth in Section 11.1(a).
(tt) “Patent Rights” shall mean any and all rights associated with any and all United States issued patents, foreign issued patents and registered utility models.
(uu) “Preexisting Intermolecular Licenses” shall have the meaning set forth in Section 6.2.
(vv) “Program Committee” shall have the meaning set forth in Section 4.1.
(ww) “Program Manager(s)” shall have the meaning set forth in Section 4.2.
(xx) “Program Minimum Term” shall have the meaning set forth in Section 12.3.
(yy) “Project SOW(s)” shall have the meaning set forth in Section 3.2.
(zz) “Reduced Program Minimum Term” shall have the meaning set forth in Section 2.4.
(aaa) “Services” shall have the meaning set forth in Section 3.2.
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(bbb) “Subsidiary” and “Subsidiaries” shall mean and include any legal entity, whether such entity exists or qualifies as a Subsidiary as of the Effective Date or thereafter, which is (i) directly or indirectly more than fifty percent (50%) owned by the applicable party; or (ii) under the Control (defined below) of the applicable party. For purposes of the foregoing definition, “Control” shall be deemed to exist if the applicable party possesses, directly or indirectly, the power to direct or cause the direction of management or policies of another entity, whether through legal or beneficial ownership of voting securities, through funding arrangements, by contract or otherwise.
(ccc) “[***] Fee(s)” shall mean a certain fee set forth in a Project SOW to be conditioned upon Intermolecular satisfying certain [***]for Deliverables, as well as upon [***]of a [***], all as referenced in Section 5.1 of Addendum 1 and Addendum 2.
(ddd) “Technology” shall mean all documentation, know-how, data, data bases, formulae, algorithms, software, processes, improvements, inventions, developments, and discoveries (whether or not patentable), techniques, methods, content, technical information, engineering, production and other designs, drawings, schematics, recipes, plans, tooling requirements, and other information, technology, and materials, all of which are identified or identifiable in tangible form (including, without limitation, fixed in any tangible or electronic means of expression).
(eee) “Third Party” and “Third Parties” shall mean any entity other than Micron and Intermolecular.
(fff) “Third Party License” shall have the meaning set forth in Section 6.13(a).
(ggg) “Trademark Rights” shall mean any and all rights associated with trademarks, service marks, trade names, trade dress, domain names, logos and similar rights, and the goodwill associated therewith, whether registered or unregistered.
(hhh) “Unrelated Third Party” and “Unrelated Third Parties” shall mean Third Parties other than the following: all Micron subsidiaries, Micron Affiliates, [***] (where, for purposes of this definition only, [***] expressly excludes [***]and [***] and [***].
(iii) “Unrelated Third Party License” shall have the meaning set forth in Section 6.12(a).
1.2
Certain Interpretive Matters
.
(a)
Interpretation of Certain Terms
. Unless the context requires otherwise: (i) all references to Sections, Development Programs and Project SOWs in this Agreement are to Sections, Development Programs and Project SOWs of or to this Agreement; (ii) each accounting term not otherwise defined in this Agreement has the meaning commonly applied to it in accordance with U.S. GAAP; (iii) words in the singular include the plural and vice versa, commensurate with the context in which they are used, and the headings of the Sections in this Agreement are provided for convenience of reference only and shall not be deemed to constitute a part hereof; (iv) the term “including” means “including without limitation”; (v) the terms “herein,” “hereof,” “hereunder” and words of similar import shall mean references to this Agreement as a whole and not to any individual Section or portion hereof; (vi) all references to $ or dollar amounts will be to lawful currency of the United States of America; (vii) all references to “day” or “days” will mean calendar days; (viii) all references to “business day” will mean a day other than a Saturday, Sunday, or a U.S. federal holiday; (ix) all references to “quarter(ly)”, “month(ly)” or “year(ly)” will mean Micron's fiscal quarter, fiscal month or fiscal year, respectively; and (x) the term “and/or” shall mean both the conjunctive and disjunctive forms such that a list of items connected by “and/or” shall mean every combination of the listed items, including combinations having only a single one of the listed items.
(b)
No Application of Contra Proferentem
. No provision of this Agreement will be interpreted in favor of, or against, either Party by reason of the extent to which any such Party or its counsel participated in the drafting thereof or by reason of the extent to which any such provision is inconsistent with any prior draft of this Agreement or such provision.
Relation to [***] and the Advanced Memory Agreements
2.1
Relation to Advanced Memory Agreements.
Intermolecular and Micron acknowledge it is their mutual intent for the present Agreement to set forth any and all rights and obligations as between Intermolecular, on the one hand, and Micron and [***] on the other hand, as of Closing. Intermolecular and Micron further acknowledge it is their mutual intent for the Advanced Memory Agreements to terminate in their entirety with no surviving rights or obligations thereunder, as of Closing, with the sole exception of the [***]. Upon receipt of a written request from
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[***], Intermolecular agrees to execute such document(s) as are reasonably necessary to terminate the Advanced Memory Agreements in their entirety with no surviving rights or obligations thereunder, effective as of Closing, with the sole exception of the [***] - such that the present Agreement shall effectively supersede the Advanced Memory Agreements entirely and set forth any and all related rights and obligations between Intermolecular, on the one hand, and Micron and [***], on the other hand, with the sole exception of the [***]. Intermolecular and Micron agree that, in the event the Advanced Memory Agreements do not terminate as of Closing, this Agreement will nevertheless supersede the Advanced Memory Agreements and govern all rights and responsibilities (including any payment obligations) as between Intermolecular, on the one hand, and Micron and [***] on the other hand, with the sole exception of the [***]. With the sole exception directed to the [***] [***], Intermolecular expressly waives any right to enforce the Advanced Memory Agreements in a manner contrary to this Section. In the event that Closing occurs then, following receipt by Micron of a post-Closing written request from Intermolecular, Micron agrees to [***] a [***] to Intermolecular, in substantially the same form as the form of [***] attached hereto as [***]. [***] shall be a [***] of this Section 2 of the Agreement and Micron may disclose the terms of this Agreement to [***], notwithstanding any confidentiality obligation or use restriction to the contrary.
2.2
[***] Payments to Intermolecular.
With the sole exception of payments made by [***] to Intermolecular pursuant to the [***], any and all amounts payable by [***] to Intermolecular on or after [***] (including pursuant to the [***]) shall be [***] to Micron and [***] in Micron's discretion with respect to any [***] by Micron to Intermolecular under this Agreement, including any Development Program and Project SOW hereunder. Notwithstanding anything to the contrary in this Agreement, such [***] shall supersede and [***] any [***] to Intermolecular on the part of Micron (rather than being applied for purposes of a [***] after Micron makes [***]). Specifically, any and all such [***] by [***] to Intermolecular during any particular [***] shall be [***] to Micron with respect to any [***] by Micron to Intermolecular during such [***] and, as applicable (pursuant to the following sentence), during subsequent [***]. In the event that the [***] by [***] for any particular [***] exceed the [***] by Micron for such [***], the excess value [***] by [***] shall [***] to subsequent [***] (as [***]), indefinitely, until such time as the [***] may be [***] to Micron. For the avoidance of doubt, notwithstanding anything to the contrary in this Agreement, Micron shall not have any obligation to make any [***] to Intermolecular with respect to any particular [***] except to the extent the [***] by Micron during such [***], on the one hand, exceed the [***] by [***] during such [***], together with any [***], on the other hand.
2.3
[***] [***] to Micron.
Notwithstanding anything to the contrary in the Advanced Memory Agreements, any [***] from [***]to [***]and its subsidiaries in connection with the Advanced Memory Agreements granted during the period [***] has [***] [***] from Intermolecular (including pursuant to [***] of the [***], and [***] of the [***]), including any [***] granted pursuant to [***] of the [***] [***] (collectively the “[***]-Micron [***]”), shall not cause [***] or Micron to incur any fee, royalty or other obligation to Intermolecular under the Advanced Memory Agreements. Intermolecular expressly waives any right under the Advanced Memory Agreements to receive any consideration from [***] or Micron in connection with the [***]-Micron [***]. There will not be any payment obligation of Micron to Intermolecular in connection with the [***]-Micron [***] except as may be expressly set forth in this Agreement. For the avoidance of doubt, Intermolecular acknowledges and agrees that the Advanced Memory Agreements do not place any inherent limitation on the term of the [***] has the right to grant pursuant to [***] and [***] of the [***], such that [***] may grant such [***] to Micron for a [***].
2.4
Reduced Program Minimum Term.
Notwithstanding anything to the contrary in this Agreement, in the event that the certain [***] between Micron and [***], effective [***] [***] (the “[***]”), expires or terminates and is not renewed, and at the time of such expiration or termination (i) [***] has not occurred, and (ii) the Advanced Memory Agreements are still in effect, then the [***] Program Minimum Term (defined in Section 12.3) shall be replaced by the Reduced Program Minimum Term (defined below) for purposes of Micron's right to terminate a Development Program under Section 12.3 of this Agreement, and Micron may exercise its termination right upon fourteen (14) days' written notice to Intermolecular. The “Reduced Program Minimum Term” shall be calculated by subtracting the duration of the post-Effective Date period for which Intermolecular provides services to [***] (the “[***] Program Duration”, where such period commences on the Effective Date and ends on the date when Intermolecular ceases to provide services to [***]), from two years. (If the result of the foregoing calculation is a negative number, the Reduced Program Minimum Term shall be deemed to be zero (0) days.) Upon termination or
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expiration of the [***], Micron may provide written notice to Intermolecular of such termination or expiration and Intermolecular shall, in turn, provide written notice to Micron of the length of time of the [***] Program Duration, such that the Reduced Program Minimum Term may be calculated at that time. At the time Intermolecular ceases to provide services to [***], Intermolecular shall also provide written notice to Micron to confirm such cessation of services. The foregoing process and calculation shall be carried out in a manner consisten with the intent of the Parties that the sum of (i) the [***] Program Duration, (ii) the duration of the Development Program in Addendum 1, and (iii) the duration of the Development Program in Addendum 2, shall be the equivalent of at least [***] cumulative years (which may be counted concurrently, rather than consecutively).
2.5
Non-Circumvention.
Intermolecular shall not, and shall cause its Affiliates or Subsidiaries not to, engage in any transaction or conduct, including any act or omission, the principal purpose of which is to circumvent or to evade the observance or performance of this Section 2, including without limitation with respect to the Parties' intent for the Advanced Memory Agreements to terminate in their entirety as of Closing. Intermolecular will at all times in good faith observe and perform the provisions of this Section 2 in furtherance of the Parties' intent reflected herein. Any attempt by Intermolecular to circumvent or evade the observation, performance or intent of this Section 2 shall be deemed a material breach of this Agreement.
Section 3
Development Programs
3.1
Development Programs.
(a)
Program Framework
. Any services provided by Intermolecular hereunder shall be organized by and subject to the terms of a framework of development programs (hereinafter “Development Program(s)”) that are described more fully in Addendum 1 and Addendum 2 hereto. The Development Programs are attached hereto as Addendum 1 and Addendum 2 and incorporated by reference, and any subsequent Development Programs may be attached hereto as additional addenda upon execution of a written amendment by the Parties. Upon written notice to Intermolecular, Micron may [***], including as identified in Section 7 of Addendum 1 and Addendum 2, as between the [***] in Micron's discretion.
(b)
General [***]
. Intermolecular will provide the services in connection with the Development Programs [***] to Micron. Specifically, Intermolecular will [***] with any [***] within the [***] on any matters that use [***] which are substantially similar to the [***]. Intermolecular will [***] with any [***] on any matters related to [***] that use [***] which are substantially similar to the [***].
3.2
Project SOWs.
Intermolecular shall provide the services as well as the materials, devices, products, reports and other deliverables to Micron as set forth in any project statement of work issued under a Development Program of this Agreement from time to time, referred to herein individually as a “Project SOW” and collectively as “Project SOWs”. The services to be provided by Intermolecular as set forth in any Project SOWs may be separately or collectively referred to herein as the “Services”, as the context may dictate. The materials, devices, products, reports and other deliverables to be provided by Intermolecular as set forth in any Project SOWs may be separately or collectively referred to herein as the “Deliverables”, as the context may dictate. Intermolecular shall render the Services and provide the Deliverables in accordance with the applicable Project SOW. Any Project SOW duly executed by Authorized Representatives of both Parties pursuant to Section 4.3 below shall be incorporated into this Agreement as if fully set forth herein.
3.3
Change Orders.
The Services and Deliverables and the CDA Fees associated with such Services and Deliverables may be amended or modified by change orders that are agreed to in writing by the Authorized Representatives of both Parties (“Change Order(s)”). Thereafter, the applicable Project SOW(s) shall be deemed to include the terms described in the respective Change Order(s).
3.4
Time and Location for Performance of Services.
All Services shall be performed at the time and place agreed upon by the Parties as set forth in the applicable Project SOW.
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Section 4
Development Program Committees
4.1
Committee Membership.
The Parties shall form and operate a committee for each Development Program (hereinafter the “Program Committee(s)”), which shall each consist of six (6) members. Micron shall appoint three (3) members of each Program Committee and Intermolecular shall appoint three (3) members of each Program Committee. The three (3) members appointed by Micron shall consist of the Program Manager of Micron, an Authorized Representative of Micron, and one (1) other representative of Micron. The three (3) members appointed by Intermolecular shall consist of the Program Manager of Intermolecular, an Authorized Representative of Intermolecular, and one (1) other representative of Intermolecular. The initial members of the Program Committee may be identified in the respective Development Program. The Program Committee shall generally review and provide guidance and recommendations to the Parties with respect to the activities of the Parties under the respective Development Program.
4.2
Program Manager
. Micron and Intermolecular shall each appoint one (1) program manager for each Development Program (the “Program Manager(s)”). The initial Program Managers may be identified in the respective Development Program. At any time upon notice to the other Party, a Party may at its sole discretion replace its Program Manager(s). Each Program Manager for a Party shall:
(a)
serve as principal liaison with the other Party's Program Manager;
(b)
coordinate and supervise its personnel as required in order for such Party to perform its responsibilities and obligations under the relevant Project SOW(s);
(c)
supervise the work of its personnel and the execution of its Party's responsibilities under the relevant Project SOW(s);
(d)
coordinate with the other Party's Program Manager with respect to the day-to-day operations of the Development Program and the Project SOW(s), including the preparation of the applicable reports contemplated in this Agreement, and the prompt disclosure of any Filing Requests to be submitted to the Patent Review Committee; and
(e)
resolve issues related to the Project SOW(s) or escalate such issues to the appropriate management of each Party as necessary.
4.3
Approval of Project SOWs.
The Program Committee may review and revise each proposed Project SOW related to its respective Development Program. Such review and revision shall continue with respect to each such proposed Project SOW until the Program Committee accepts the content of such Project SOW or finally rejects such proposed Project SOW. A proposed Project SOW shall not be deemed accepted by the Program Committee unless and until it is signed by an Authorized Representative of each Party and a fully executed copy is delivered to each Party. Any proposed Project SOW so signed and delivered by the Parties shall be deemed a Project SOW under this Agreement and the applicable Development Program.
Section 5
Notification of Status
5.1
The Intermolecular Program Manager(s) will submit a written report to Micron from time-to-time at intervals specified in the applicable Project SOW or as mutually agreed to by the Program Managers of Intermolecular and Micron, but in no event less often than [***] per calendar [***], with respect to the progress of all activities undertaken in performance of any Project SOWs under the applicable Development Program. Such reports shall also include any other information reasonably requested by Micron.
5.2 Intermolecular agrees to notify Micron promptly in writing of any factor, occurrence, or event coming to Intermolecular's attention that may: 1) affect Intermolecular's ability to fulfill Intermolecular's obligations under this Agreement; 2) affect Intermolecular's ability to meet the requirements of any Development Program or Project SOW issued under this Agreement; or 3) cause any material delay in Intermolecular's delivery of any Deliverables. Without limiting the foregoing, such notice shall be given in the event of any loss or reassignment of key employees, any claim that Intermolecular's performance of the Services violates the rights of a third party, any threat of strike, or any major
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equipment failure.
Section 6
Licenses
6.1
[***] License to “[***]” and “[***]” within the [***] with [***] Effect. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries an [***], worldwide, [***], irrevocable, [***]right and license, with [***], under and to all Intellectual Property in or to the “[***]” and/or “[***]”, to practice the foregoing in any manner within the [***], including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through the use of such Intellectual Property, wherein the present license shall [***]upon the [***]of (i) [***]of the Advanced Memory Agreements or (ii) [***] of the [***] of certain licenses granted by Intermolecular to [***] in connection with [***] of the [***] [***] and [***] of the [***], and shall [***] cover the conduct of Micron [***], whether [***] or [***]. The [***] nature of the foregoing license to Micron shall be [***]only to the extent of any existing [***]granted by Intermolecular to [***] prior to the Effective Date. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***].
6.2
[***] License to “[***]” and “[***]” outside the [***] and within the [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries an [***], worldwide, [***], irrevocable, [***] right and license, with [***], under and to all Intellectual Property in or to the “[***]” and/or “[***]”, to practice such Intellectual Property in any manner that is both outside the [***] and within the [***], at any time, whether past, present or future, including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through the use of such Intellectual Property. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***]. The [***] nature of the foregoing license to Micron [***]to [***]within [***]after the [***]to [***]in the [***]and/or [***]without [***]or [***]limited to the [***]of a [***]for [***]that do not [***]and that [***]on an [***]where no [***]of the [***]is [***]and [***] that [***]the [***]of [***].
6.3
[***] License to “[***]” and “[***]” outside the [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries a [***], worldwide, [***], irrevocable, [***]right and license, with [***], under and to all Intellectual Property in or to the “[***]” and/or “[***]”, to practice such Intellectual Property in any manner outside the [***] at any time, whether past, present or future, including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through the use of such Intellectual Property. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***].
6.4
[***]License to [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries a [***], worldwide, [***], irrevocable, [***]right and license, with [***], under and to all [***] in [***], to practice the foregoing in any manner at any time, whether past, present or future, including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through the use of the [***], to the extent reasonably necessary for Micron to enjoy the full benefit and exercise of the [***]. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***].
6.5
[***]License to [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries a [***], worldwide, [***], irrevocable, [***] right and license, with [***], under and to all [***] in [***] to Micron, [***]or their Subsidiaries at any time, to practice the foregoing in any manner at any time, whether past, present or future, including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through the use of the [***]. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***].
6.6
[***] [***]License within the [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries an [***], worldwide, irrevocable, [***], [***], [***]right and license, with [***], under and to all [***], to practice such [***] in any manner within the [***] at any time, including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through
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the use of [***].
6.7
[***]License outside the [***].
Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron a [***], worldwide, irrevocable, [***], [***], [***]right and license, with [***], under and to all [***], to practice such [***] in any manner outside the [***] at any time, including the right to make, have made, use, import, lease, offer for sale, sell, as well as to practice products or processes embodying or produced through the use of [***].
6.8
[***] License and [***]and [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries a [***], worldwide, [***]right and license, with [***], under and to all [***] of Intermolecular and its Subsidiaries in or to [***], [***], [***] and [***], to practice such Intellectual Property for so long as any Development Program remains in effect and for [***] thereafter. Subject to the foregoing [***], the license grant in this Section 6.8 shall [***] to the provision of [***]and [***] by [***] to any [***] under a [***] that is directed to the use of such Intellectual Property. For purposes of this Section 6.8, Micron's [***] with respect to [***] may only cover such [***] to the extent they are [***] with Micron in furtherance of a [***] and only for such purpose. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***]. Intermolecular and its Subsidiaries [***]Micron and its Subsidiaries [***]Intermolecular [***] its Subsidiaries [***]or [***], or [***]or [***]to [***]or [***]at [***]or [***]Micron or its Subsidiaries under [***]Intermolecular or its Subsidiaries at any time [***]and/or [***].
6.9
[***] License related to R[***], [***] and [***]
. Intermolecular and its Subsidiaries agree to grant and hereby grant to Micron and its Subsidiaries a [***], worldwide, [***], [***]right and license, with [***], under and to all [***] of Intermolecular and its Subsidiaries in or to [***] [***], [***], [***] and [***] disclosed to Micron, [***] or their Subsidiaries at any time, to practice such [***]. Upon completion of Micron's [***]of the [***]set forth in Section 10.2, the present license will be [***].
6.10
[***] Licenses to [***].
(a)
[***] License
. [***] may elect to deliver to [***] certain written and verbal [***] related to [***] (the “[***]”). Such [***] will be deemed [***] [***]. Subject to the foregoing, [***] agrees to grant and hereby grants to [***] a [***], worldwide, [***], [***] right and license, under and to all [***] of [***] in or to the [***], to practice such [***].
(b)
[***] License
. [***] agrees to grant and hereby grants to [***] a [***], worldwide, [***] right and license under and to any [***] of [***] in or to [***] conceived and reduced to practice after the Effective Date of this Agreement by any [***] employee previously assigned to work on a Development Program with [***], to practice any method and process claims under such [***] for so long as any Development Program remains in effect and for [***] thereafter.
6.11
[***] of Licenses Granted.
With respect to Patent Rights, the licenses granted in this Section 6 shall [***]the [***] of each licensed patent, except to the extent expressly set forth in this Section 6 to the contrary. With respect to Non-Patent Rights, the licenses granted in this Section 6 are and shall be [***], except to the extent expressly set forth in this Section 6 to the contrary.
6.12
[***]for Certain [***]Licenses
. Notwithstanding anything to the contrary in this Agreement, in no event shall [***] right to grant any licenses and/or sublicenses be subject to any [***]or [***] of [***].
(a)
Unrelated Third Parties
. Subject to Section 6.12(b) below, in the event (i) [***] enters into an agreement with Unrelated Third Parties that [***] to such Unrelated Third Parties that include [***] to the [***] and/or [***] under [***](an “Unrelated Third Party License”), and (ii) more than [***] ([***]) of the [***]licensed in the Unrelated Third Party License comprise [***] to the [***] and/or [***], and (iii) [***] actually receives [***] from such Unrelated Third Parties as consideration for such [***]licenses, then [***]shall [***]to [***] ([***]) of such [***]within forty-five (45) days after [***]it.
(b)
Certain Memory Companies
. Notwithstanding, Section 6.12(a) above, in the event (i) [***] enters into an agreement with Certain Memory Companies that [***] to such Certain Memory Companies that include [***] to the [***] and/or [***] under [***] (a “Certain Memory Company License”), and (ii) more than [***] [***] of the
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[***] in the Certain Memory Company License comprise [***] to the [***] and/or [***], and (iii) [***] actually receives [***] from such Certain Memory Companies as consideration for such [***], then [***] shall [***] to [***] [***] [***] ([***]) of such [***] within forty-five (45) days after [***] it.
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(c)
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Notwithstanding the foregoing Sections 6.12(a) and 6.12(b):
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(i) in no event shall any Unrelated Third Party License or Certain Memory Company License require any [***] or [***] of [***];
(ii) in no event shall any agreement entered into by [***] prior to the Effective Date give rise to any [***] from [***] to [***] under this Section 6.12; and
(iii) in no event shall any litigation settlement by [***] give rise to any [***] [***] from [***] to [***] under this Section 6.12.
(d)
In the event [***] identifies an opportunity for [***] to offer [***] to a Third Party related to the [***] and/or [***], [***] may consider whether or not to pursue such a [***] on a case-by-case basis.
6.13
[***]for [***]Licenses
.
(a)
In the event (i) [***]enters into an agreement with a Third Party other than [***]Subsidiaries or Affiliates that [***]a [***]license to such Third Party (a “Third Party License”), and (ii) more than [***] [***] ([***]) of the [***]licensed under such Third Party License comprise [***], and (iii) [***]actually receives [***]from such Third Party as consideration for such Third Party License, then [***]shall [***]to [***] [***] ([***]) of such [***]within forty-five (45) days after [***]it.
(b)
Notwithstanding the foregoing Section 6.13(a):
(i)
in no event shall any Third Party License to the [***] for [***] solely outside the [***] of [***] require any [***] or [***] of [***]; and
(ii)
in no event shall any agreement entered into by [***]prior to the Effective Date give rise to any [***]from [***]to [***]under this Section 6.13.
(iii)
in no event shall any litigation settlement by [***]give rise to any [***]from [***]to [***]under this Section 6.13.
Section 7
Technology Transfer
7.1
Within thirty (30) days of the Effective Date of this Agreement, Intermolecular shall provide to Micron the Initial Information Set. Intermolecular shall make its Representatives (as that term is defined in the Nondisclosure Agreement) available to Micron upon request, and shall use reasonable efforts to answer questions, address requests for clarifications, and provide explanations regarding the Initial Information Set.
Section 8
Intellectual Property Ownership
(a)
Intermolecular shall solely own all right, title, and interest in and to the [***], except to the extent Intermolecular passes on Filing Request(s) during the Draft and Micron becomes the Selecting Party pursuant to Section 11 below.
(b)
Intermolecular shall not assign or license any right, title or interest in or to the [***] [***] to any [***] for use in relation to the field of [***], except with the prior written consent of Micron in Micron's sole discretion. Intermolecular may license the [***] to [***] for use solely outside the field of [***] [***] and may license the [***] to any other entity for use solely outside the [***]. Intermolecular shall comply with Section 6.13 above with respect to any permitted license in or to the [***].
(c)
Intermolecular reserves all rights not expressly granted to Micron herein. Except as may be expressly set forth in this Agreement, this Agreement does not, and shall not be deemed to, whether by implication, estoppel, operation of law or otherwise, assign, grant or otherwise transfer to Micron or any other entity any right, title, interest, license or any other privilege in or to any Intellectual Property or Trademark Rights of Intermolecular.
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8.2
Micron
.
(a)
Notwithstanding Section 8.1 above, to the extent Intermolecular passes on Filing Request(s) during the Draft and Micron becomes the Selecting Party, pursuant to Section 11 below, Micron shall solely own all right, title, and interest in the [***] related to such Filing Request(s).
(b)
Micron shall solely own all right, title, and interest in and to the [***], except to the extent Micron may assign such [***] to Intermolecular as a result of the Draft pursuant to Section 11 below. Intermolecular agrees to assign and hereby assigns to Micron all such right, title, and interest in the [***] that Intermolecular may possess, now or in the future.
(c)
Micron reserves all rights not expressly granted to Intermolecular herein. Except as may be expressly set forth in this Agreement, this Agreement does not, and shall not be deemed to, whether by implication, estoppel, operation of law or otherwise, assign, grant or otherwise transfer to Intermolecular or any other entity any right, title, interest, license or any other privilege in or to any Intellectual Property or Trademark Rights of Micron, including without limitation with respect to the Micron Background IP and any Technology developed solely by Micron in connection with any Project SOW. With respect to any Micron Background IP that may be disclosed to Intermolecular or Intermolecular's Permitted Subcontractors in connection with this Agreement, Intermolecular and Intermolecular's Permitted Subcontractors shall not use such Micron Background IP for any purpose other than to provide the Services to Micron. Nothing in this Agreement shall be construed to preclude, prohibit, restrict or otherwise limit Micron in any way from granting to any entity any licenses or rights to or under any Intellectual Property of Micron, in Micron's sole discretion.
Section 9
[Intentionally Omitted.]
Section 10
Fees and Payment
10.1
Fees Set Forth in Development Programs and Project SOWs
. In consideration of the Services performed by Intermolecular, Micron shall pay to Intermolecular the applicable CDA Fees as set forth in the Development Programs, as well as any applicable [***] Fees as may be set forth in a respective Project SOW.
10.2
Up-Front [***] Fee
. Micron shall pay to Intermolecular a fee in the amount of [***] US dollars, which shall be due on the Effective Date and payable in twelve (12) equal installments (of [***] US dollars each) on the first day of each calendar quarter after the Effective Date over a period of three years.
10.3
Payment.
With respect to any fee payments and installments pursuant to Section 10.1 or 10.2 above, Intermolecular shall issue an invoice to Micron on or after the date the applicable portion of such fee is due and payable. Micron shall, within [***] days of receipt of each such invoice, pay Intermolecular the fees set forth in such invoice, but only to the extent such fees, on the one hand, exceed the total of any amounts payable by [***] to Intermolecular during the same calendar quarter, together with any [***] pursuant to Section 2.2 above, on the other hand. For any disputed invoice, Micron shall pay the undisputed portion within [***] days of receipt of such invoice.
10.4 All payments due to Intermolecular under this Agreement shall be made by bank wire transfer as follows:
To: [***]Routing & Transit #: [***]Swift Code: [***]For credit of: Intermolecular, Inc.
Credit account #: [***]By order of: [Name of Sender] To: [***]or another U.S. bank account designated by IM.
10.5
Late payments
. Any undisputed portion of an invoice that is not paid when due pursuant to section 10.3 shall bear simple interest at a rate of one and a half percent (1.5%) per month or the highest rate allowed by law, whichever is less.
10.6
Taxes
. Each Party shall be responsible for the payment of its own tax liability arising from activities under this Agreement in accordance with applicable law. The Parties will cooperate in a commercially reasonable manner to minimize each Party's respective tax liability resulting from activities under this Agreement.
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Section 11
Patent Procedures
11.1
Patent Review Committee
.
(a)
The Parties shall establish a patent review committee comprising two (2) representatives of each Party (the “Patent Review Committee”). Each Party may designate three (3) representatives in connection with the Patent Review Committee, such that each Party may have an alternate or substitute member available at any given time, but only two (2) such representatives of each Party shall vote in meetings of the Patent Review Committee. At any time upon written notice to the other Party, a Party may at its sole discretion replace any member(s) of the Patent Review Committee that such Party has appointed. The initial members of the Patent Review Committee shall be identified in the respective Development Program.
(b)
The Patent Review Committee shall develop and implement policies consistent with this Agreement regarding the submission of invention disclosure forms by IMI and the consideration of such disclosures by the Patent Review Committee.
11.2
Filing Requests and Draft
.
(a)
Filing Requests
. With respect to [***] developed by Intermolecular solely or by the Parties jointly, each Party shall be entitled to submit a written notice accompanied by an invention disclosure form to the Patent Review Committee, requesting permission to file a patent application (hereinafter “Filing Request(s)”) for inventions directed to [***], [***], [***], [***], and [***] of [***] any of the foregoing, solely to the extent that all claim elements of such inventions would be [***] of [***] or other similar means (hereinafter “[***]Inventions”) when practiced in connection with a [***] [***].
(b)
Meetings.
The Patent Review Committee shall meet at least [***] per [***] during the term of a Development Program hereunder, which meetings may be conducted telephonically, except as may be otherwise agreed by mutual consent.
(c)
Separating Requests.
In the event the Patent Review Committee makes an initial determination that an invention disclosure describes multiple different inventions that should not all be the subject of a single patent application, then the Patent Review Committee shall direct that such invention disclosure be divided into a corresponding number of separate invention disclosures and Filing Requests, such that the invention described in any single invention disclosure could be the subject of a single patent application.
(d)
Eligibility for Draft.
The Patent Review Committee shall review, during their meetings, the Filing Requests that are awaiting a determination of the committee. A Filing Request may be deemed to be directed to a [***]Invention by a majority vote of the Patent Review Committee during a meeting. The Patent Review Committee may also postpone consideration of a Filing Request until the subsequent meeting, upon a majority vote, so that the Filing Request may be supplemented with additional information. If either of the foregoing votes is not held or does not pass during a meeting, then a Filing Request shall be deemed to be directed to a [***]Invention on the date that is [***] business days following the meeting during which the Patent Review Committee first reviews such Filing Request, and shall become eligible for the filing of a related patent application at such time, unless any member of the Patent Review Committee provides written notice to the Patent Review Committee within such time that the Filing Request is objected to on the grounds that it is not directed to a [***] Invention. Any such notice shall set forth in reasonable detail the substantive basis for the objection. Upon receipt of such notice, the Patent Review Committee will consider and determine in good faith whether or not the Filing Request qualifies as a [***] Invention, and will not unreasonably delay or withhold its determination. Filing Requests that have been objected to but are determined by a majority vote of the Patent Review Committee to be directed to [***] Inventions shall become eligible for the filing of a related patent application at the time of such vote. Filing Requests that have been objected to and have not been determined to be directed to [***] Inventions shall not be eligible for the filing of a related patent application and shall not be subject to the Draft at any time, such that the related Technology shall remain [***].
(e)
Completeness of Invention Disclosures.
A Filing Request that has become eligible for the filing of a related patent application shall become subject to the Draft upon a majority vote of the Patent Review Committee that the information provided in connection with such Filing Request, including the related invention disclosure, is sufficiently complete to proceed with the filing of a patent application. The Patent Review Committee may
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postpone consideration of a Filing Request until the subsequent meeting, upon a majority vote, so that the Filing Request may be supplemented with additional information.
(f)
Draft Process.
For each Filing Request that is or becomes subject to the Draft during a meeting of the Patent Review Committee pursuant to the foregoing Section, the Intermolecular members of the Patent Review Committee shall have the option during such meeting to select such Filing Request for Patent Prosecution by Intermolecular, or to pass. In the event Intermolecular passes, the Micron members of the Patent Review Committee shall have the option during the subsequent meeting to select such Filing Request for Patent Prosecution by Micron, or to pass. The foregoing options, by Intermolecular then Micron, are referred to collectively herein as the “Draft.” In the event both Parties have passed on a Filing Request, it shall no longer be subject to the Draft at any time, such that the related Technology shall remain [***].
11.3
Patent Prosecution
. In the event a Filing Request is selected by a Party during the Draft, that Party (the “Selecting Party”) shall have the sole right anywhere in the world to conduct Patent Prosecution solely in its name with respect to the invention disclosed therein, and including with respect to any related divisional, continuation, continuation-in-part, reissue, or foreign counterpart applications. The following shall apply with respect to all Patent Prosecution under this Agreement:
(a)
Costs
. All costs, fees and other amounts, including attorney fees, incurred in connection with Patent Prosecution of an invention that a Party has selected in accordance with the Draft shall be borne solely by the Selecting Party.
(b)
Intermolecular as Selecting Party
. In the case of each Filing Request for which Intermolecular becomes the Selecting Party, Micron shall [***] to [***] of [***], and [***] in and to the [***] that is the subject of the Filing Request, so as to permit Intermolecular to conduct Patent Prosecution and obtain all Patent Rights therein solely in Intermolecular's name. Notwithstanding anything to the contrary in this Agreement, Intermolecular may use and disclose such Non-Patent Foreground solely to the extent necessary to conduct such Patent Prosecution, and Intermolecular agrees that such Non-Patent Foreground, and any information related to [***] or [***] that has not been disclosed in a patent filing prior to the Effective Date, shall be deemed Micron Confidential Information in all other respects [***] of such [***] by Intermolecular. Intermolecular shall not dedicate any such Non-Patent Foreground to the public, including without limitation by disclosing but not claiming such Non-Patent Foreground in a patent application. Such [***]by [***] to Intermolecular shall be deemed effective upon preparation of the related patent application by Intermolecular and before such application is filed. Micron's obligation to [***] shall be conditioned upon Intermolecular [***] to Micron and its Subsidiaries under and to all such [***], which [***] shall be effective simultaneous with such [***], and shall be [***] and [***], with [***], consisting of an [***] to [***] such [***]in [***]within the [***] at [***] and a [***] to [***] such [***]in [***]the [***]at [***]. Intermolecular shall use reasonable efforts to keep Micron informed as to the status of Patent Prosecution for which Intermolecular is the Selecting Party, including by providing Micron the opportunity to review and comment on complete copies of all documents, including patent applications and office action responses, a reasonable time in advance of submission by Intermolecular and, upon request, by providing to Micron copies of documents that Intermolecular receives from the United States Patent and Trademark Office and any foreign patent offices, within a reasonable time upon receipt.
(c)
Micron as Selecting Party.
In the case of each Filing Request for which Micron becomes the Selecting Party, Micron shall have the right to conduct Patent Prosecution and obtain all Patent Rights therein.
(d)
Reasonable Assistance.
For a period of [***] following the date the relevant Draft option was exercised, each Party shall execute further instruments as may be reasonably requested by the other Party, at no cost to the other Party, to the extent reasonably necessary to perfect the rights, title and other interests set forth herein, including to enable the other Party to undertake Patent Prosecution related to the Filing Request(s) for which it is the Selecting Party.
(e)
Failure to Prosecute or Maintain
. In the event Intermolecular fails to, or decides not to, file a patent application in a manner that provides a priority date for a United States patent application related to any Filing Request(s) within [***] after the date on which Intermolecular exercised the relevant Draft option and became the Selecting Party, then Intermolecular shall promptly notify Micron in writing of such failure or decision and [***]to [***]of [***]and [***]and [***]the [***] that is the subject of the Filing Request(s), so as to permit Micron to conduct Patent Prosecution and obtain all Patent Rights therein or to maintain the subject matter as [***]. In
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addition, in the event that Intermolecular has timely filed a patent application related to a Filing Request, or has received an issued patent related thereto, but then elects to abandon any such patent application or issued patent, Intermolecular shall promptly notify Micron in writing at least [***] in advance of any final action in relation thereto. Upon request by Micron, Intermolecular shall [***]to [***]of [***]and [***]and [***] the patent application or issued patent, as the case may be, and Micron shall thereafter have the right to proceed with Patent Prosecution for such patent application, or to maintain such issued patent, at its own cost and for its own benefit.
(f)
No Pre-Draft Patent Prosecution.
A Party may not conduct any Patent Prosecution with respect to any [***] developed by Intermolecular solely, or by the Parties jointly, unless and until such Party becomes a Selecting Party following the Draft of a Filing Request for such [***].
Section 12
Term and Termination
12.1
Term of Agreement
. This Agreement shall commence on the Effective Date hereof, shall remain in effect for a minimum period of three (3) years (the “Agreement Minimum Term”), and shall continue in effect thereafter unless and until terminated in accordance with the terms of this Agreement.
12.2
Termination of Agreement after Certain Time
. Micron may terminate this Agreement, and/or any Development Program or Project SOW issued under this Agreement, effective as of the end of the Agreement Minimum Term or thereafter:
(a)
for cause in the event Intermolecular fails to provide Services in accordance with the timeframes or other requirements set forth in the applicable Project SOW or any other breach of this Agreement or related Project SOW by Intermolecular that Intermolecular fails to cure within [***] from the date of receipt by Intermolecular of written notice of such breach;
(b)
by written notice to Intermolecular upon completion of the provision of Services under all Project SOWs issued under a Development Program or this Agreement; or
(c)
for any reason or no reason upon [***] written notice to Intermolecular, which notice may be provided prior to the end of the Agreement Minimum Term.
12.3
Termination of Development Program after Certain Time
. Micron may terminate either Development Program (and any Project SOWs thereunder) set forth in Addendum 1 or Addendum 2, [***] Development Programs, effective as of two (2) years after the Effective Date (the “Program Minimum Term”), or as of the Reduced Program Minimum Term pursuant to Section 2.4 above, or thereafter:
(a)
for cause in the event Intermolecular fails to provide Services in accordance with the timeframes or other requirements set forth in the applicable Project SOW or any other breach of the Agreement, Development Program or Project SOW by Intermolecular that Intermolecular fails to cure within [***] from the date of receipt by Intermolecular of written notice of such breach;
(b)
by written notice to Intermolecular upon completion of the provision of Services under all Project SOWs issued under the Development Program; or
(c)
for any reason or no reason upon [***] written notice to Intermolecular, which notice may be provided prior to the end of the Program Minimum Term.
12.4
Termination of Project SOW
. Micron may individually terminate any Project SOW issued under this Agreement by written notice to Intermolecular upon completion of the provision of Services under such Project SOW.
12.5
Termination for Bankruptcy or Dissolution
Either Party may terminate this Agreement at any time upon written notice to the other Party in the event of any of the following: (i) the other Party files a petition in bankruptcy or is adjudicated as bankrupt or insolvent; (ii) the other Party makes an assignment for the benefit of creditors or an arrangement pursuant to applicable bankruptcy law; (iii) the other Party discontinues or dissolves all of its business; or (iv) the other Party has a receiver appointed for all of its business.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
12.6
Consequences of Termination
.
(a)
Termination of this Agreement shall also terminate any and all Development Programs and Project SOWs issued under this Agreement.
(b)
Upon any termination of this Agreement or any Development Program and/or Project SOW, Intermolecular shall: (i) return to Micron all data, records, or materials of whatever nature or kind, including, but not limited to, all materials incorporating Confidential Information (as defined in Section 15) provided by Micron and any copies thereof or notes relating thereto; (ii) deliver to Micron a written report describing and explaining all work performed in connection with the Agreement or the applicable Project SOW (whether completed or in progress); and (iii) furnish to Micron all work in progress including all incomplete work. Any termination of this Agreement or any Development Program and/or Project SOW shall not impair Micron's right to continue activities related to the subject matter of the foregoing.
(c)
In addition to the requirements provided for within Section 12.6(b), upon any termination of this Agreement or any Project SOW pursuant to Section 12.2(b), Section 12.2(c), Section 12.3(b), Section 12.3(c) or Section 12.4, Intermolecular shall submit to Micron a final, itemized invoice for any fees or expenses incurred under each Project SOW affected by such termination. Subject to Intermolecular's compliance with this Section 12.6, Micron shall pay Intermolecular for all valid fees and expenses incurred through the termination date under each Project SOW affected by such termination.
(d)
Survival. In the event of any termination of this Agreement or a Development Program and except as otherwise expressly indicated in this Agreement, including in any Development Program or Project SOW hereunder, the Parties' rights and obligations under Sections 2.3, 3.1, 6, 8, 10.1 (solely as to any [***] Fees and CDA Fees then due and payable), 10.2, 10.6, 11.3, 12.6(b), 12.6(c), 14.1, 15, 16, 17, 20 and 21 shall survive such termination and continue in effect. For the avoidance of doubt, termination of this Agreement shall not result in the termination of any [***] by Micron pursuant to Section 2.1 above, which [***] may survive such termination and continue in effect in accordance with its terms.
Section 13
Independent Contractor
13.1
Independent Contractor.
Intermolecular agrees to perform all Services as an independent contractor and not as an employee or agent of Micron, and all persons employed by Intermolecular to perform all or any portion of the Services shall be the employees or agents of Intermolecular and not the employees or agents of Micron.
13.2
No Agency, etc.
Nothing herein shall be deemed to cause this Agreement to create an agency, partnership, or joint venture between the Parties.
13.3
No Authority to Bind Micron.
Intermolecular shall not have the authority to make any commitment or enter into any contract on behalf of Micron, without Micron's express written authorization.
Section 14
Intermolecular Personnel
14.1
Intermolecular Personnel.
Intermolecular shall bear sole responsibility for payment of compensation to Intermolecular's personnel, including without limitation with respect to any inventor remuneration program of Intermolecular related to invention disclosures or patent applications. Intermolecular shall pay and report, for all personnel engage in the provision of Services hereunder, federal and state income tax withholding and other taxes or required withholdings, social security taxes, and unemployment insurance applicable to such personnel as employees of Intermolecular. Intermolecular shall bear sole responsibility for any health or disability insurance, retirement benefits, or other welfare or pension benefits (if any) to which such personnel may be entitled. Intermolecular agrees to defend, indemnify, and hold harmless Micron, Micron's officers, directors, employees and agents, and the administrators of Micron's benefit plans from and against any claims, liabilities, or expenses relating to such compensation, tax, insurance, or benefit matters. Micron shall notify Intermolecular of any such claim promptly after it is brought to Micron's attention. Micron shall cooperate with Intermolecular in the defense and resolution of such claims, and Micron shall not settle or otherwise dispose of such claims without Intermolecular's prior written consent,
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
which consent Intermolecular shall not unreasonably withhold or delay.
14.2
Removal.
Micron shall have the right, at any time and without prior notice, to remove from involvement with a Development Program or from any Micron facility any employee(s) or Permitted Subcontractor(s) of Intermolecular whom Micron determines, in its sole judgment, to be performing unsatisfactorily or to be in violation of Micron policies. Micron may thereafter request that Intermolecular replace such employee(s) or Permitted Subcontractor(s) with alternate employee(s) or Permitted Subcontractor(s) acceptable to Micron and having appropriate skills and training for the provision of the relevant Services at no additional charge to Micron, and Intermolecular shall immediately fulfill such request.
14.3
Micron Safety and Security Policies.
Intermolecular shall ensure that Intermolecular's employees and Permitted Subcontractors who perform Services at any Micron facility shall comply with all Micron safety and security regulations and policies (including, without limitation, Micron's Safety and Security Policy and Micron's Electronic Information Security Policy) while performing the Services. Micron shall make these regulations and policies available upon Intermolecular's request.
14.4
Written Agreements
. Intermolecular shall obtain and maintain in effect written agreements (such as confidentiality agreements, assignment of inventions and rights, etc.) with each of Intermolecular's personnel and Permitted Subcontractors who perform all or any part of the Services. Such agreements shall contain terms sufficient for Intermolecular to comply with all provisions of this Agreement, including the applicable Development Program and Project SOW.
14.5
No Third Party Beneficiaries.
This Agreement is enforceable only by Intermolecular and Micron. The terms of this Agreement are not a contract or assurance regarding compensation, continued employment, or benefit of any kind to any of Intermolecular's personnel or Permitted Subcontractors assigned to the Services, or any beneficiary of any such personnel, and no such personnel (or any beneficiary thereof) shall be a third party beneficiary under or pursuant to the terms of this Agreement or any Development Program or Project SOW issued under this Agreement.
Section 15
Confidentiality
15.1
Nondisclosure Agreement
. Micron and Intermolecular shall abide by the terms of that certain Mutual Nondisclosure Agreement between Micron and Intermolecular dated [***], as previously amended as of [***] (the “Nondisclosure Agreement”), which Nondisclosure Agreement is incorporated herein by reference. Except as otherwise provided in this Agreement, Micron and Intermolecular agree that the Nondisclosure Agreement shall govern the confidentiality, non-disclosure, and non-use obligations between the Parties respecting the information provided or disclosed pursuant to this Agreement or any Project SOW. To the extent there is a conflict between this Agreement and the Nondisclosure Agreement regarding confidentiality, non-disclosure, and non-use obligations between the Parties, then the terms of this Agreement shall control.
15.2
Continued Effect
. If the Nondisclosure Agreement is terminated or expires, and is not replaced, such Nondisclosure Agreement shall continue with respect to Confidential Information provided in connection with this Agreement, notwithstanding such expiration or termination, for the duration of the term of this Agreement or until a new Nondisclosure Agreement is entered into between the Parties.
15.3
Confidentiality
. This Agreement and its terms shall be deemed the Confidential Information of both Parties under the Nondisclosure Agreement. In addition, Intermolecular agrees that Micron Confidential Information (as defined and provided for within the Nondisclosure Agreement) also shall mean and be deemed to include any information observed, obtained, or perceived by Intermolecular or any of its personnel or Permitted Subcontractors while at any Micron facility or while accessing any Micron networks or databases, or otherwise disclosed by Micron personnel, in connection with the Services regardless of whether such information is labeled or otherwise identified as confidential. Intermolecular shall use Micron Confidential Information solely in accordance with the terms of this Agreement and the Nondisclosure Agreement and solely for the purpose of providing the Services to Micron.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
15.4
Intermolecular Permitted Disclosures
. Intermolecular may disclose Micron's Confidential Information to Permitted Subcontractors provided that, in each case, such disclosures are limited to only that Confidential Information necessary to fulfill Intermolecular's obligations under this Agreement and any Project SOW. Intermolecular shall monitor such Permitted Subcontractors to ensure that they are not inappropriately disclosing or using Confidential Information in violation of the terms of the Nondisclosure Agreement, as modified by this Agreement or any Project SOW, and Intermolecular shall remain liable for any unauthorized disclosure or use of Confidential Information by any such Permitted Subcontractor.
15.5
Micron Permitted Disclosures
. Notwithstanding anything in the Nondisclosure Agreement, Micron may disclose Intermolecular Confidential Information to the Representatives (as that term is defined in the Nondisclosure Agreement) of a Micron Subsidiary, Micron Affiliate, [***], [***] and/or a [***] who have a need to know the information in connection with his or her job duties. Each Representative of such a [***], [***] and [***] who receives such information will be subject to a written agreement or professional obligation that prevents the unauthorized disclosure of Intermolecular's Confidential Information.
15.6
Intermolecular Permission regarding [***]
. Notwithstanding anything to the contrary in any other agreement, Intermolecular hereby wishes to grant permission to [***] to disclose any information and data of Intermolecular, including to the extent the foregoing is confidential, non-public and/or proprietary, to Micron and its Subsidiaries. Accordingly, Intermolecular expressly waives any right to enforce any confidentiality obligations and use restrictions against [***], under any agreement involving Intermolecular and [***], in connection with any disclosure of information by [***] to Micron. [***] shall be a third party beneficiary of this Section 15.6 of the Agreement.
Section 16
Representations and Warranties
16.1 Intermolecular represents and warrants that:
(a)
Intermolecular has the right and authority to enter into this Agreement, and to fully perform its obligations hereunder;
(b)
Intermolecular shall perform the Services in a professional manner consistent with the degree of care, skill, and judgment that is consistent with generally accepted industry standards for similar types of engagements, but in any event with not less than reasonable care, skill, and judgment;
(c)
Intermolecular's performance of the Services does not and shall not violate any applicable law, rule, or regulation, or any Third Party Intellectual Property or Trademark Rights;
(d)
Intermolecular is the lawful owner or licensee of all Intellectual Property used, or disclosed to Micron, by Intermolecular or Intermolecular's Permitted Subcontractors in connection with any Project SOW, and Intermolecular has the full right and authority to make the assignments and waivers, and to grant the licenses and rights, provided for within this Agreement; and
(e)
each Intermolecular Permitted Subcontractor who may have or receive access to Micron Confidential Information is subject to a written agreement that prevents disclosure and unauthorized use of the Confidential Information.
16.2 Micron represents and warrants that it has the right and authority to enter into this Agreement, and to fully perform its obligations hereunder.
16.3
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES EXPRESSLY PROVIDED FOR WITHIN THIS AGREEMENT, THE PARTIES HERETO EXPRESSLY DISCLAIM ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, STATUTORY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR ARISING BY STATUTE OR FROM A COURSE OF DEALING, USAGE, TRADE, PRACTICE, OR CUSTOM.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Section 17
Indemnification
17.1
Indemnification of Micron.
Intermolecular, on behalf of Intermolecular and Intermolecular's directors, officers, employees, agents, Permitted Subcontractors and permitted assigns, hereby agrees to indemnify, defend, and hold harmless Micron, its Subsidiaries, and their respective officers, directors, employees, and agents from and against any and all claims, demands, and actions brought by any third party, and any and all liabilities, damages, court costs, attorneys fees, or other expenses resulting therefrom, arising out of or relating to:
(a)
any injuries or other employment or work-related claims suffered by Intermolecular's employees or Permitted Subcontractors on Micron's or any Third Party's premises, except for those caused by the gross negligence or willful misconduct of Micron;
(b)
any injuries or other employment or work-related claims suffered by Micron's or any Third Party's employees caused by the action or inaction of Intermolecular or Intermolecular's employees or Permitted Subcontractors;
(c)
any damage to Micron's or any third party's facilities, equipment, or other property caused by the action or inaction of Intermolecular or Intermolecular's employees or Permitted Subcontractors; or
(d)
the Services performed by Intermolecular or Intermolecular's employees or Permitted Subcontractors hereunder, including, but not limited to, any claim or suit brought against Micron by any Third Party alleging that any Technology provided or disclosed by Intermolecular or Intermolecular's Permitted Subcontractors to Micron infringes any Intellectual Property of said Third Party.
17.2
Notice.
Micron agrees to give Intermolecular prompt notice of any such claim, demand, or action and agrees to provide reasonable assistance and cooperation at Intermolecular's expense in defense and settlement thereof. If Intermolecular is obligated under this Section to defend Micron against a claim, then Intermolecular shall take control of the defense and investigation of the claim. Micron may participate, at its own expense, in such defense. No settlement of a claim that involves a remedy other than payment of money by Intermolecular shall be agreed to and entered without the consent of Micron, which consent Micron shall not unreasonably withhold or delay.
17.3 Intermolecular's liability under Section 17.1(d) with respect to an infringement claim shall be limited to the extent the but-for cause of the alleged infringement is: (i) use of the Technology provided or disclosed to Micron by Intermolecular or Intermolecular's Permitted Subcontractors in combination with any equipment or device that is not provided or disclosed to Micron by Intermolecular or Intermolecular's Permitted Subcontractors, (ii) Intermolecular's conduct necessary to comply with the specifications provided by Micron for the Deliverables, or (iii) any modification made by Micron to the Technology provided or disclosed to Micron by Intermolecular or Intermolecular's Permitted Subcontractors.
Section 18
Limitation of Liability
18.1
EXCEPT FOR ANY BREACH OF CONFIDENTIALITY, WARRANTY OR INDEMNITY BY INTERMOLECULAR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL EITHER PARTY BE LIABLE UNDER OR IN RELATION TO THIS AGREEMENT FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, INDIRECT, PUNITIVE OR EXEMPLARY DAMAGES WHATSOEVER, OR LOST PROFITS, HOWEVER CAUSED, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
18.2
EXCEPT FOR ANY BREACH OF CONFIDENTIALITY OR WARRANTY, AND EXCEPT FOR ANY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT WILL [***] LIABILITY TO [***]FOR EACH CLAIM UNDER THIS AGREEMENT EXCEED THE [***] OF THE ACTS OR OMISSIONS GIVING RISE TO SUCH CLAIM OR, IN MICRON'S DISCRETION, FROM THE TIME MICRON FIRST RECEIVES NOTICE OF SUCH CLAIM.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Section 19
Assignment, Change of Control and Subcontract
19.1
Assignment
.
(a)
Intermolecular shall not assign or transfer this Agreement or any of Intermolecular's rights, duties, or obligations under this Agreement or any Project SOW (including by merger, operation of law, Change of Control, or through the transfer of all or substantially all of the equity, assets, or business of Intermolecular), to any Third Party [***], except with Micron's prior written consent, in Micron's sole discretion. Subject to the foregoing, Intermolecular shall not assign or transfer this Agreement or any of Intermolecular's rights, duties, or obligations under this Agreement or any Project SOW (including by merger, operation of law, Change of Control, or through the transfer of all or substantially all of the equity, assets, or business of Intermolecular), to any other Third Party, except with Micron's prior written consent, which consent shall not be unreasonably delayed or withheld. Intermolecular shall provide written notice to Micron at least [***] prior to any proposed assignment or transfer of this Agreement.
(b)
Any consent by Micron related to Section 19.1(a) may be conditioned upon a proposed assignee of Intermolecular undertaking all of the obligations of Intermolecular under this Agreement to Micron's satisfaction, and any consent withheld in connection with such condition shall not be deemed unreasonable. Any subsequent proposed Assignment of this Agreement by a permitted assignee of Intermolecular shall remain subject to the terms set forth this Section 19. Any purported assignment by Intermolecular or its permitted assignee in violation of this Section 19 shall be null and void and have no effect, and shall be deemed a material breach of this Agreement.
(c)
Micron may assign or transfer this Agreement without any obligation to obtain consent from Intermolecular. Subject to the foregoing provisions in this Section 19, this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by each Party and the permitted successors and assigns of each Party.
19.2
Change of Control
.
(a)
In the event of any Change of Control of Intermolecular with respect to a [***], Micron may terminate this Agreement upon written notice to Intermolecular.
(b)
A Change of Control of Intermolecular with respect to an entity that is [***] a [***] will not, on its own, give rise to any right of termination on the part of Micron, subject to the other terms of this Agreement. Any Change of Control of Intermolecular shall not be construed to grant or transfer any right or license under this Agreement to any entity (including the new beneficial owner of Intermolecular).
19.3
Permitted Subcontractors.
Intermolecular shall not subcontract any of Intermolecular's duties or obligations under this Agreement without the prior written consent of Micron in each instance. If Micron consents to Intermolecular subcontracting any of Intermolecular's duties or obligations hereunder, Intermolecular shall require all such personnel (the “Permitted Subcontractor(s)”) by written agreement to: (a) grant assignments and licenses to Micron of Intellectual Property to the same extent as such grants by Intermolecular under this Agreement; (b) indemnify, defend and hold harmless Micron to the same extent as required of Intermolecular by Section 12; (c) abide by the confidentiality provisions of Section 15, and (d) abide by all other provisions of this Agreement that apply to Intermolecular and could be relevant to a Permitted Subcontractor. Intermolecular shall ensure that Micron is and shall be a third party beneficiary of each such written agreement with Permitted Subcontractors. Intermolecular is and agrees to be jointly and severally responsible and liable for the acts and omissions of any and all Permitted Subcontractors.
Section 20
General
20.1
Governing Law
. The validity, interpretation, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of [***] as if it were made and entered into in the State of [***] and without giving effect to such State's conflict of laws principles. Intermolecular hereby consents to the exclusive jurisdiction and venue of the State and Federal courts of the State of [***] for any dispute involving this Agreement, provided however that the Parties [***]to [***] any disputes before such courts.
20.2
Compliance with Laws and Regulations
. Intermolecular shall observe and comply with all pertinent laws, ordinances, rules, and regulations related to the Services and shall procure and maintain in force, at Intermolecular's sole expense, all registrations, permits, licenses, and approvals required by law or governmental authority to provide
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the Services. Intermolecular shall ensure that any Services performed in the United States are performed by personnel who are authorized to work in the United States.
20.3
Waiver
. Any waiver of any kind by a Party, of a breach of this Agreement, shall be effective only to the extent set forth in writing, and shall not operate or be construed as a waiver of any subsequent or other breach. Any delay or omission in exercising any right, power, or remedy pursuant to a breach or default by a Party shall not impair any right, power, or remedy which either Party may have with respect to a future breach or default. The failure of a Party to enforce any provision of the Agreement shall not constitute a waiver of such provision or the right of such Party to enforce such provision or any other provision.
20.4
Notice
. Any notice, communication or statement relating to this Agreement shall be in writing and deemed to have been given upon delivery in person, by verified facsimile transmission, or by registered or certified mail, postage prepaid, return receipt requested, to the address, or facsimile number of the respective Party below:
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To Micron at
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To Intermolecular at:
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Micron Technology, Inc.
8000 S. Federal Way
Boise, Idaho 83716-9632
Attention: [***]Fax: [***]
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Intermolecular Inc.
3011 North First Street
San Jose, California 95134
Attention: General Counsel
Fax: (408) 582-5401
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With a copy to
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With a copy to
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Micron Technology, Inc.
8000 S. Federal Way
Boise, Idaho 83716-9632
Attention: [***]Fax: [***]
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Intermolecular Inc.
3011 North First Street
San Jose, California 95134
Attention: Chief Executive Officer
Fax: (408) 582-5179
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20.5
Costs and Attorneys' Fees
. The prevailing Party in any action brought by either Party to enforce the terms and conditions of this Agreement shall be entitled to receive from the other Party the prevailing Party's reasonable costs and expenses of such action, including attorneys' fees and expert witness fees incurred in connection with such action, in addition to any other relief it may be awarded.
20.6
Section 365(n) of the United States Bankruptcy Code
. If this Agreement or the licenses granted hereunder should ever become subject to bankruptcy proceedings, all rights and licenses granted under this Agreement by one Party to the other Party are, and shall otherwise be deemed to be, licenses of rights to “intellectual property” as defined in Section 365(n) of the United States Bankruptcy Code. As a licensee of rights, a Party shall retain and may fully exercise all of the rights under Section 365(n) of the United States Bankruptcy Code. If any proceeding is instituted by or against a Party seeking to adjudicate it bankrupt, or insolvent, or seeking liquidation, winding up, reorganization, insolvency or reorganization, or relief of debtors, or seeking an entry of an order of relief, or the appointment of a receiver, trustee or other similar official for it or any substantial part of its property, or a Party takes any action to authorize any of the foregoing actions, the other Party shall have the right to retain and enforce its rights under this Agreement as provided for under Section 365(n) of the United States Bankruptcy Code.
20.7
Severability
. If it is determined by a court of competent jurisdiction as part of a final non-appealable ruling, or by government action that any provision of this Agreement (or part thereof) is invalid, illegal, or otherwise unenforceable, such provision shall be enforced as nearly as possible in accordance with the stated intention of the Parties, while the remainder of this Agreement shall remain in full force and effect and bind the Parties according to its terms, and any such determination shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent any provision (or part thereof) cannot be enforced in accordance with the stated intentions of the Parties, such provision (or part thereof) shall be deemed not to be a part of this Agreement; provided that in such event the Parties shall use their commercially reasonable efforts to negotiate, in good faith, a substitute, valid and enforceable provision that most nearly effects the Parties' intent in entering into this Agreement.
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[***] Certain information in this document has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
20.8
Publicity
. Except to the extent expressly required by law, Intermolecular shall not disclose to third parties (including denial or confirmation thereof) the existence or terms of this Agreement, nor the fact that Micron is purchasing or has purchased any goods or Services from Intermolecular, without the prior written consent of Micron in each instance. In the event that Intermolecular believes that it is required by law to disclose any such information, Intermolecular shall notify Micron as soon as reasonably possible and, at the same time as such notification, or as soon thereafter as possible, provide Micron with a copy of any intended disclosure. Intermolecular shall not make such intended disclosure without the prior written consent of Micron, which consent Micron shall not unreasonably withhold or delay. Intermolecular further agrees not to advertise, reference, reproduce, or display Micron's name or any Micron trademark without Micron's prior written consent in each instance.
20.9
Counterparts and Facsimiles
. This Agreement may be executed in any number of counterpart originals, each of which shall be deemed an original instrument for all purposes, but all of which shall comprise one and the same instrument. This Agreement shall be enforceable in accordance with its terms when signed by an Authorized Representative of both Parties. This Agreement may be delivered by facsimile or email and a facsimile or scanned copy of this Agreement shall be binding as an original.
20.10
Modifications and Amendments
. No modification of, or amendment to, this Agreement shall be effective unless it is in a writing signed by both Parties that expressly references this Agreement. This Agreement shall not be supplemented or modified by any course of dealing or other trade usage.
20.11
Integration
. This Agreement, together with any attachments, sets forth the entire agreement and understanding of the Parties relating to the subject matter hereof and merges all prior or contemporaneous understandings (whether written, oral, or implied) with respect thereto. To the extent that the terms and conditions contained in any purchase orders, confirmations, invoices, or other documents conflict with those of this Agreement, including any Development Program or Project SOW, the terms and conditions of this Agreement shall control unless the Parties expressly agree otherwise in a written instrument identified as an amendment and signed by both Parties.
Section 21
General Release and Waiver
21.1
EACH PARTY, FOR ITSELF AND ITS SUBSIDIARIES AND FOR ANY SUCCESSORS AND ASSIGNS OF THE FOREGOING, TO THE FULL EXTENT THE FOREGOING HAVE ANY RIGHT TO GRANT THIS RELEASE, HEREBY RELEASES, ACQUITS AND FOREVER DISCHARGES THE OTHER PARTY AND ITS SUBSIDIARIES AND AFFILIATES, AND ALL OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, CONSULTANTS, ADVISORS AND ATTORNEYS OF ANY OF THE FOREGOING, IN EVERY COUNTRY OF THE WORLD, FROM ALL CLAIMS, COUNTERCLAIMS, CAUSES OF ACTION, JUDGMENTS, LIENS, DAMAGES, LOSSES AND LIABILITIES OF EVERY KIND WHICH AROSE PRIOR TO THE EFFECTIVE DATE, WHETHER KNOWN OR UNKNOWN, WHETHER SUSPECTED OR UNSUSPECTED AND WHETHER ACTUAL OR CONTINGENT, AS OF THE EFFECTIVE DATE. THE RELEASES IN THIS SECTION 21 APPLY ONLY TO THE PERIOD OF TIME BEFORE THE EFFECTIVE DATE.
21.2
THE RELEASES IN THIS SECTION 21 ARE BASED UPON EACH PARTY'S EXPRESS, INFORMED, KNOWING AND VOLUNTARY WAIVER AND RELINQUISHMENT TO THE FULLEST EXTENT PERMITTED BY LAW. IN CONNECTION WITH SUCH RELEASES, THE PARTIES ACKNOWLEDGE THAT THEY MAY HAVE SUSTAINED DAMAGES, LOSSES, COSTS OR EXPENSES WHICH ARE PRESENTLY UNKNOWN AND UNSUSPECTED AND THAT SUCH DAMAGES, LOSSES, COSTS OR EXPENSES AS MAY HAVE BEEN SUSTAINED MAY GIVE RISE TO ADDITIONAL DAMAGES, LOSSES, COSTS OR EXPENSES IN THE FUTURE. THE PARTIES FURTHER ACKNOWLEDGE THAT THEY HAVE NEGOTIATED THIS AGREEMENT TAKING INTO ACCOUNT PRESENTLY UNKNOWN AND UNSUSPECTED CLAIMS, COUNTERCLAIMS, CAUSES OF ACTION, JUDGMENTS, LIENS, DAMAGES, LOSSES AND LIABILITIES OF EVERY KIND, AND THE PARTIES VOLUNTARILY AND WITH FULL KNOWLEDGE OF THE SIGNIFICANCE, EXPRESSLY WAIVE AND RELINQUISH ANY AND ALL RIGHTS THEY MAY HAVE UNDER ANY STATE OR FEDERAL STATUTE,
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RULE OR COMMON LAW PRINCIPLE, IN LAW OR EQUITY, RELATING TO LIMITATIONS ON RELEASES AND/OR GENERAL RELEASES.
21.3
WITHOUT LIMITING THE FOREGOING, THE PARTIES HEREBY EXPRESSLY WAIVE AND RELEASE THE PROTECTION OF CALIFORNIA CIVIL CODE, SECTION 1542, INCLUDING ANY RIGHTS AND BENEFITS ARISING THEREUNDER, WHICH STATES:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
21.4
THE PARTIES HERETO HAVE READ AND UNDERSTOOD THIS SECTION 21, AND EXPRESSLY ACKNOWLEDGE THEIR UNDERSTANDING THAT THEY MAY HEREAFTER DISCOVER FACTS DIFFERENT FROM, OR IN ADDITION TO, THOSE WHICH ARE CURRENTLY KNOWN OR BELIEVED TO BE TRUE WITH RESPECT TO THE CLAIMS AND LIABILITIES RELEASED HEREIN, AND EXPRESSLY AGREE THAT THE RELEASES GRANTED IN THIS SECTION 21 SHALL BE AND REMAIN IN EFFECT AS A FULL AND COMPLETE RELEASE OF ANY AND ALL RESPECTIVE CLAIMS AND LIABILITIES, NOTWITHSTANDING ANY SUCH DIFFERENT OR ADDITIONAL FACTS. EACH PARTY EXPRESSLY ASSUMES THE RISK OF ANY EXISTING BUT AS YET UNKNOWN CLAIMS AND LIAIBLITIES, AS WELL AS THE RISK OF ANY SUCH DIFFERENT OR ADDITIONAL FACTS, AND AGREES THAT THIS AGREEMENT SHALL NOT BE SUBJECT TO TERMINATION OR RESCISSION BY REASON OF ANY DIFFERENCE IN THE FACTS.
IN WITNESS WHEREOF
, the Parties hereto have executed this Agreement as of the Effective Date.
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MICRON TECHNOLOGY, INC.
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INTERMOLECULAR, INC.
The undersigned hereby represents and warrants that he or she has the authority to sign on behalf of, and bind, Intermolecular to perform the obligations set forth herein.
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By:
Name:
Title:
Date:
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By:
Name:
Title:
Date:
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ADDENDUM 1
DRAM Development Program
Section 1
Introduction
1.1 The DRAM Development Program set forth in this Addendum 1 (herein, the “DRAM Program”) to the Collaborative Development Agreement, shall be incorporated by reference into the Agreement as a Development Program. Any Project SOW issued under this DRAM Program in accordance with Section 4.3 of the Agreement shall relate primarily to DRAM technology. To the extent of any conflict between the terms and conditions of the Agreement or this DRAM Program on the one hand and a Project SOW on the other hand, the terms and conditions of such Project SOW shall control.
Section 2
Definitions
2.1
Definitions
. For the Development Program set forth in this Addendum 1 (referred to herein as the “DRAM Program”), the definitions set forth in this Section 1.1 shall apply to the respective capitalized terms used herein. Capitalized terms used but not defined in this Addendum 1 shall have the meaning as may be set forth in the Agreement, or else their ordinary meaning.
(a)
“DRAM” technology shall mean and refer generally to Dynamic Random Access Memory.
(b)
One (1) “FTE” shall mean one (1) or more IMI employees or Permitted Subcontractor who work collectively on Project SOWs under the DRAM Program for approximately [***] hours per year.
(c)
One (1) “FTE Month” shall mean [***] hours of work on a Project SOW, on a monthly basis, by one or more Intermolecular employees and/or Permitted Subcontractors.
(d)
“Production Threshold” shall mean, with respect to DRAM wafers that include Deliverables that satisfy one or more Triggers as specified in a Project SOW, the commercial production by Micron of more than [***] such production wafers [***]for at [***] [***] [***] (but excluding any DRAM wafers manufactured in Micron's [***], or which are [***] or [***]), combined with the acceptance by Micron of [***] for such wafers reflecting total [***] of at least [***] [***] [***].
(e)
“Project Category” shall have the meaning as set forth in Section 4.1.
(f)
“Project Manager” shall have the meaning as set forth in Section 6.1.
(g)
“[***] Threshold” shall have the meaning as set forth in Section 5.4(a).
(h)
“Trigger(s)” shall mean one or more technical criteria for Deliverables, set forth in a Project SOW, each of which must be satisfied by Intermolecular, among other things, in order to give rise to an [***]of [***] to [***] a corresponding part, or all, of the related [***] Fee to Intermolecular.
Section 3
Project SOWs
3.1 The DRAM Program will include any Project SOWs issued in accordance with Section 4.3 of the Agreement that relate primarily to DRAM technology.
3.2 Each Project SOW shall contain the following information:
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(a)
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the estimated start date and end date;
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(b)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW;
(c)
a description of the Services and Deliverables to be provided by Intermolecular to Micron, including related milestones and deadlines;
(d)
identification of the Project Category that shall apply to the Project SOW, as determined in accordance with Section 4.2 below;
(e)
identification of the amount of any [***] Fee determined in accordance with Section 5 below, and of the related Trigger(s).
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Section 4
Project Categories
4.1
Naming
. Each Project SOW shall identify the applicable project category as one of the following, as mutually agreed by the Parties: Category A, Category B1, Category B2 or Category C (each, the “Project Category”).
4.2
Category Determination
. During review and revision of each proposed Project SOW by the Program Committee for the DRAM Program pursuant to Section 4.3 of the Agreement, the Parties may mutually determine the applicable Project Category with reference to the following non-binding guidelines (set forth in sub-paragraphs (a)-(d) of this Section), as well as to the general value of accomplishing the Project SOW. In addition, the greater the amount of development work previously accomplished by either Party, or both, related to the subject matter of a Project SOW shall weigh more heavily in favor of the application of a lower Project Category (
e.g.
Category B1 instead of Category B2). Intermolecular agrees that it will not unreasonably delay or withhold its acceptance of any Project SOW Micron proposes for Category A.
(a)
Category A
. A Project SOW will generally be determined to fall within Category A to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is approximately [***] months or less;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is approximately [***] or less; and
(iii)
the scope of the Project SOW is directed to [***] or [***] to technology, including without limitation [***]and [***]and [***].
(b)
Category B1
. A Project SOW will generally be determined to fall within Category B1 to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is greater than [***] months and approximately [***] months or less;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is greater than [***] and approximately [***] or less; and
(iii)
the scope of the Project SOW is directed to [***] or [***] to technology, including without limitation [***]and [***]and [***]and [***]including [***]of [***]and[***].
(c)
Category B2
. A Project SOW will generally be determined to fall within Category B2 to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is greater than [***] months and approximately [***] months or less;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is greater than [***] and approximately [***] or less; and
(iii)
the scope of the Project SOW is directed to [***] or [***] to technology, including without limitation [***]and [***]and [***]and [***]including [***]of [***]and[***].
(d)
Category C
. A Project SOW will generally be determined to fall within Category C to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is greater than [***] months;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is greater than [***]; and
(iii)
the scope of the Project SOW is directed to [***] [***], including without limitation [***] of [***], [***] and [***].
4.3
Additional Requirements for Category C
.
(a)
Within [***] [***]months after Effective Date, the Parties shall communicate in good faith to identify a first proposed Project SOW determined to fall within Category C (which would be satisfied with respect to an initial Project SOW as described in Section 5.3 below).
(b)
After acceptance of an initial Project SOW for Category C pursuant to Section 4.3 of the Agreement, and for so long as this DRAM Program remains in effect, the Parties shall use commercially reasonable efforts to
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ensure that at all times [***] Project SOW for Category C is [***] or is being [***] in good faith.
Section 5
Success Fees
5.1
[***]Fee Determination
. In accordance with the determination of Project Category pursuant to Section 4.2 above, the Parties shall mutually determine a corresponding [***], to be conditioned in part upon Intermolecular satisfying certain technical criteria for Deliverables set forth in a Project SOW (“[***]Fee”), as follows:
(a)
Category A
. Project SOWs for Category A will not include any [***]. Intermolecular will provide Services and Deliverables to Micron in connection with Project SOWs for Category A [***], except for the [***] related to this DRAM Program and as otherwise expressly set forth in the Agreement or this DRAM Program.
(b)
Category B1
. Project SOWs for Category B1 may include a [***]Fee selected from the range of [***] [***]$[***] to [***] ($[***]dollars per year, payable for [***] years.
(c)
Category B2
. Project SOWs for Category B2 may include a [***]Fee selected from the range of [***] [***] to [***] [***]dollars per year, payable for [***] years.
(d)
Category C
. Project SOWs for Category C may include a [***]Fee of [***] dollars [***] per year, with a default payment period of [***] years. In the event an applicable [***] Threshold related to one or more Triggers is satisfied more than [***] [***] prior to the related deadline set forth in an applicable Project SOW, the default payment period related to such Triggers(s) that have been satisfied early shall be increased by [***] [***], such that the related [***]Fee or corresponding portion thereof (in the case of multiple Triggers where fewer than all have been satisfied) shall be payable for [***] years. In the event an applicable [***] Threshold related to one or more Triggers is satisfied more than [***] [***] after the related deadline set forth in an applicable Project SOW, the default payment period related to such Trigger(s) that have been satisfied late shall be decreased by [***] [***], such that the related [***]Fee or corresponding portion thereof shall be payable for only [***] years.
5.2
Custom [***]Fee for [***] Node
. Notwithstanding the default [***]Fee amounts set forth in Section 5.1 above, any initial Project SOW related to a [***] DRAM node that is determined to fall within Category B2 or Category C shall have a [***]Fee of [***] dollars [***]$[***] per year, payable for [***] years.
5.3
[***]Fee for [***] Node
. Notwithstanding the default [***]Fee amounts set forth in Section 5.1 above, the overall [***]Fee for any initial Project SOW related to a [***] DRAM node that is determined to fall within Category C shall be divided among three (3) equal Triggers, corresponding to [***] dollars [***]$[***] each, per year, payable for a period of five (5) years, where any [***] in connection with each Trigger is subject to satisfaction of the [***]Threshold relative to such Trigger. The Parties anticipate that the three (3) Triggers with respect to such a [***] DRAM node would relate to (i) a [***] that satisfies certain technical criteria, that is [***] a [***] Micron has [***] on [***] in a Micron [***] before the Effective Date, and that is [***]a [***] [***] included in Micron's [***] [***] as of the Effective Date (for clarity, [***]and [***] based [***] are not currently on such [***]), whether such [***] is developed by Intermolecular entirely for Micron or in part for [***] under the Advanced Memory Agreements; (ii) a [***] material that satisfies certain technical criteria, that is not a [***] Micron has [***] on [***] in a Micron [***] before the Effective Date, and that is [***]a [***] included in Micron's [***] [***] as of the Effective Date, whether developed by Intermolecular entirely for Micron or in part for [***] under the Advanced Memory Agreements; and (iii) a specific [***] that satisfies certain technical criteria, that is not a [***] Micron has [***] on [***] in a Micron [***] before the Effective Date, and that is used in [***] in combination with (i) or (ii) above, whether developed by Intermolecular entirely for Micron or in part for [***] under the Advanced Memory Agreements; as would be set forth in any accepted Project SOW in further specific detail for each such Trigger. To the extent the Parties learn after the Effective Date that a particular [***] or [***] has been [***] on [***] in a Micron [***] before the Effective Date, or is included in Micron's [***] [***] as of the Effective Date, they may nevertheless agree to pursue such development under Category C (or under a lower Project Category, such as Category B2, in accordance with Section 4.2 above based on the amount of development work previously accomplished by Micron).
5.4
Conditions for [***] Obligations
.
(a)
[***]Threshold
. Any obligation under a Project SOW for Micron to pay Intermolecular a [***]Fee, in whole or in part (in the case of multiple Triggers) shall arise only upon satisfaction by Intermolecular of the respective
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Trigger(s) identified in such Project SOW and satisfaction by Micron of the respective Production Threshold for each such Trigger (collectively the “[***]Threshold”). Conversely, the [***]Threshold shall be satisfied and Micron shall have an obligation to pay Intermolecular any applicable [***]Fee, in whole or part, only upon satisfaction of the applicable Trigger(s) and the Production Threshold.
(b)
Triggers
. Any obligation of Micron to pay Intermolecular a [***]Fee identified in a Project SOW shall be conditioned upon Intermolecular's satisfaction of certain technical criteria for Deliverables (the “Trigger(s)”) set forth in such Project SOW. A Project SOW for Category B2 or Category C may include multiple Triggers, consisting of several distinct criteria capable of independent satisfaction, such that Intermolecular's satisfaction of each individual Trigger shall give rise to an obligation for Micron to pay a corresponding portion of the overall [***]Fee (calculated by dividing the Success Fee by the number of Triggers, or as otherwise set forth in a Project SOW), subject to satisfaction of the related Production Threshold and provided that the total number of Triggers for any Project SOW shall not exceed four (4). As an example, for illustrative purposes only, a hypothetical Project SOW for Category B2 may have a [***]Fee of [***] per year, payable for [***] years, and may be determined to have three (3) Triggers. In this example, assuming that Intermolecular satisfies a first Trigger and related Production Threshold initially and satisfies a second Trigger and related Production Threshold one year later, but never satisfies the third Trigger, then Micron would [***] of [***] per year, payable for [***] years, upon satisfaction of the first Trigger and Production Threshold, and one year later Micron would [***] a second, separate [***] of [***] per year, payable for [***] years, upon satisfaction of the second Trigger and Production Threshold, but the full [***]Fee would not be payable by Micron because Intermolecular failed to satisfy the third Trigger and Production Threshold.
(c)
Production Threshold
. Any obligation of Micron to pay Intermolecular a [***]Fee identified in a Project SOW, or a portion thereof (in the case of multiple Triggers), shall be conditioned upon Micron's satisfaction of a Production Threshold once Intermolecular has provided Micron with the Deliverables satisfying one or more Triggers. Micron shall notify Intermolecular within [***] of Micron's initial satisfaction of a Production Threshold related to a Project SOW. Micron will also use reasonable efforts to respond to written inquiries from Intermolecular at reasonable intervals, regarding the timing of any initial product qualification with respect to which Deliverables that satisfy one or more Triggers from a Project SOW are included for the first time in DRAM wafers. Notwithstanding anything to the contrary in the Agreement, this Development Program or any Project SOW, in no event shall Micron ever have an obligation to pay more than a single [***]Fee to Intermolecular in connection with any Project SOW, regardless of Micron's use of related Deliverables, Technology and Intellectual Property in any manner. Similarly, notwithstanding anything to the contrary in the Agreement, this Development Program or any Project SOW, in no event shall Micron ever have an obligation to pay any amount to Intermolecular with respect to any Technology provided by Intermolecular to [***] or Micron relating to [***] or any [***], as referenced in Section [***] of the [***] (except solely to the extent of any eventual [***] by Micron in relation to the [***] [***] referenced in Section 2.1 of the Agreement).
Section 6
Project Management
6.1
Project Managers
. Prior to commencement of Services under a Project SOW, Micron and Intermolecular will each appoint by written notice to the other Party a principal point of contact to serve as its project manager (respectively, the “Project Manager”), or else the applicable Program Manager may also serve as the Project Manager. Each Party may from time to time change its Project Manager at its discretion by providing written notice to the other Party. Each Project Manager will generally:
(a)
coordinate and act as a liaison with the other Party related to the Project SOW;
(b)
oversee the progress of Services and Deliverables related to the Project SOW;
(c)
provide input regarding the frequency of meetings related to the Project SOW;
(d)
monitor resource usage related to the Project SOW; and
(e)
attempt to resolve any disputes or disagreements between the Parties to the extent practicable, and escalate any other disputes or disagreements as set forth in Section 6.2 below.
6.2
Dispute Escalation
.
(a)
If either Party believes that the other Party is failing to perform its obligations under a Project, its
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Project Manager will provide written notice (the “Dispute Notice”) to the Project Manager of the other Party of the perceived failure. Upon receipt of such notice, the Project Managers will promptly discuss the possibility of a mutually agreed corrective action plan to address the perceived failure.
(b)
If the Project Managers cannot agree upon a corrective action plan in writing within [***] of receipt of the Dispute Notice, or such other period as may be mutually agreed by the Project Managers, each Project Manager will escalate the issue to his or her respective DRAM Program Manager (if the DRAM Program Manager is a different person from the Project Manager). Upon escalation of an issue to the DRAM Program Managers, they will in turn promptly discuss the possibility of a mutually agreed corrective action plan.
(c)
If a corrective action plan has not been agreed upon in writing within [***] of a Dispute Notice or any such plan does not fully resolve the perceived failure, then each Party may seek any remedies available to it.
6.3
Development Records
. Intermolecular shall maintain records for each Project SOW in sufficient detail and in good scientific manner as will properly reflect all related Technology, including all work done and results achieved in the performance of Services and development of the Deliverables thereunder (including information sufficient to establish dates of conception and reduction to practice of inventions).
At least [***] during the course of a Project SOW, Intermolecular will disclose all such Technology and records to Micron by depositing related materials to a
particular repository specified by and accessible to Micron.
6.4 The initial members of the Patent Review Committee for the DRAM Program shall be as follows:
(a)
Micron members: [***] and [***]; and
(b)
Intermolecular members: Imran Hashim, Aubrey Helms and Sandeep Jaggi.
Section 7
Intermolecular Resources
7.1
Intermolecular Personnel
.
(a)
Subject to Micron's payment of the CDA Fees in accordance with Section 8 below, Intermolecular shall provide at all times sufficient hourly services from employees and Permitted Subcontractors, equivalent to approximately [***] FTEs, to perform the Project SOWs for Micron under this DRAM Program. Intermolecular shall not be required to provide hourly services of its employees and Permitted Subcontractors in an amount that exceeds the equivalent number of FTEs as may be specified in such Project SOW.
(b)
To facilitate the efficient performance of Project SOWs, Intermolecular will provide the same personnel to Micron under the foregoing Section, to the extent possible, who have worked previously in connection with the [***].
(c)
Any access of Intermolecular employees or Permitted Subcontractors to Micron Confidential Information shall be on a strict need-to-know basis for performance of a Project SOW and in accordance with other applicable restrictions in this Agreement (the “Authorized Personnel”). Intermolecular shall use all necessary means to ensure that physical and electronic materials constituting or reflecting Micron Confidential Information shall be accessible only to such Authorized Personnel and only while being used for the performance of a Project SOW hereunder.
7.2
Facilities and Workspace
.
(a)
Intermolecular will provide adequate facilities and workspace for up to [***] Micron employees at Intermolecular's research and development center in San Jose, California, and additional resources as are necessary to support Intermolecular's obligations pursuant to the DRAM Program. Intermolecular will provide access to clean room facilities, badge access, land-line phone connections, Internet access, and cubicle or office space for such Micron employees, who may be required by Intermolecular to complete Intermolecular's standard confidentiality and safety training (which shall not exceed [***]) prior to receiving access to Intermolecular's research and development center.
(b)
Intermolecular will provide adequate facilities space for storage of Micron wafers, materials, targets and any other assets reasonably provided by Micron to Intermolecular in furtherance of the DRAM Program.
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7.3
Informatics Access
. Intermolecular agrees to provide Micron with timely access to all development records in accordance with Section 6.3 above by allowing [***] Micron designees to have concurrent access to Informatics software during the DRAM Program, which licenses to Informatics software are hereby granted to Micron by Intermolecular. Intermolecular will provide the necessary hosting, maintenance and support of hardware and software related to Informatics to ensure that industry-standard up-time, security and back-up protocols are provided.
7.4
Other Resources
. Intermolecular shall ensure that appropriate and sufficient resources are allocated at all times during the DRAM Program for the purpose of performing the Project SOWs hereunder, including without limitation with respect to equipment, wafers, test vehicles, facilities and personnel. Such resources will include the following [***] and [***]:
(a)
[***]: [***] platform, including [***], [***], and [***] chambers; and
(b)
[***]: Including [***] processing tools based at IMI, physical characterization and metrology tools and electrical test (E-test) equipment.
Section 8
Fees, Payment and Costs
8.1
CDA Fees
. In consideration of the Services performed by Intermolecular in connection with this DRAM Program, CDA Fees shall become due and payable from Micron to Intermolecular, subject to Section 2.2 of the Agreement, on the first day of each calendar quarter, in the amount of [***] dollars ($[***]) for each such calendar quarter for so long as the DRAM Program remains in effect, beginning on the first day of the first calendar quarter after the Effective Date. The amount of the CDA Fees due in connection with the final calendar quarter, during which the DRAM Program expires or terminates, shall be reduced proportionally to the extent the DRAM Program is in effect for less than the full calendar quarter.
8.2
[***]Fees
. Any applicable [***]Fee as may be set forth in a Project SOW hereunder, conditioned upon satisfaction of the respective [***], shall be payable in equal installments on the first day of each calendar quarter, commencing on the first day of the first calendar quarter after such [***] has been satisfied, and shall be payable in accordance with Section 10.1, 10.3, 10.4, 10.5 and 10.6 of the Agreement.
8.3
Out of Pocket Costs.
Subject to Micron's prior written approval, Micron will provide or reimburse Intermolecular for consumables, such as substrates, mask sets, materials, and targets, process kits and cleaning, and outsourced metrology and characterization not supported internally by Intermolecular. Micron may elect instead to provide any of the foregoing items to Intermolecular, in Micron's discretion.
8.4
Costs
. Except as may be expressly set forth in a Project SOW, Micron and Intermolecular will each bear their own respective costs associated with the DRAM Program and Project SOWs hereunder.
Section 9
Term and Termination
9.1
Term
. The DRAM Program shall commence on the Effective Date and shall continue in effect thereafter unless and until terminated in accordance with the terms of the Agreement or this DRAM Program.
9.2
Option to Convert
. In the event the Parties are unable, by exercising commercially reasonable efforts in good faith, to accept a Project SOW for Category C within [***] of the Effective Date, as a result of their compliance with Section 4.3(a) of this DRAM Program and in accordance with Section 4.3 of the Agreement, then Micron shall have the option to convert any or all of the Intermolecular resources previously allocated for the DRAM Program towards one or more other Development Programs (
e.g.
the NVM Program).
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ADDENDUM 2
NVM Development Program
Section 1
Introduction
1.1 The NVM Development Program set forth in this Addendum 2 (herein, the “NVM Program”) to the Collaborative Development Agreement, shall be incorporated by reference into the Agreement as a Development Program. Any Project SOW issued under this NVM Program in accordance with Section 4.3 of the Agreement shall relate primarily to NVM technology. To the extent of any conflict between the terms and conditions of the Agreement or this NVM Program on the one hand and a Project SOW on the other hand, the terms and conditions of such Project SOW shall control.
Section 2
Definitions
2.1
Definitions
. For the Development Program set forth in this Addendum 2 (referred to herein as the “NVM Program”), the definitions set forth in this Section 1.1 shall apply to the respective capitalized terms used herein. Capitalized terms used but not defined in this Addendum 2 shall have the meaning as may be set forth in the Agreement, or else their ordinary meaning.
(a)
“NVM” technology shall mean and refer generally to non-volatile memory.
(b)
One (1) “FTE” shall mean one (1) or more IMI employees or Permitted Subcontractor who work collectively on Project SOWs under the NVM Program for approximately [***] [***] hours per year.
(c)
One (1) “FTE Month” shall mean [***] hours of work on a Project SOW, on a monthly basis, by one or more Intermolecular employees and/or Permitted Subcontractors.
(d)
“Production Threshold” shall mean, with respect to wafers that include Deliverables that satisfy one or more Triggers as specified in a Project SOW, the commercial production by Micron of more than [***] such production wafers [***]for at [***] [***] [***] (but excluding any wafers manufactured in Micron's [***], or which are [***] or [***]), combined with the acceptance by Micron of [***] [***] for such wafers reflecting total [***] of at least [***] [***].
(e)
“Project Category” shall have the meaning as set forth in Section 4.1.
(f)
“Project Manager” shall have the meaning as set forth in Section 6.1.
(g)
“[***] Threshold” shall have the meaning as set forth in Section 5.2(a).
(h)
“Trigger(s)” shall mean one or more technical criteria for Deliverables, set forth in a Project SOW, each of which must be satisfied by Intermolecular, among other things, in order to give rise to an [***]of [***] to [***] a corresponding part, or all, of the related [***]Fee to Intermolecular.
Section 3
Project SOWs
3.1 The NVM Program will include any Project SOWs issued in accordance with Section 4.3 of the Agreement that relate primarily to NVM technology.
3.2 Each Project SOW shall contain the following information:
(a)
the estimated start date and end date;
(b)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW;
(c)
a description of the Services and Deliverables to be provided by Intermolecular to Micron, including related milestones and deadlines;
(d)
identification of the Project Category that shall apply to the Project SOW, as determined in accordance with Section 4.2 below;
(e)
identification of the amount of any [***]Fee determined in accordance with Section 5.4 below, and of the related Trigger(s).
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Section 4
Project Categories
4.1
Naming
. Each Project SOW shall identify the applicable project category as one of the following, as mutually agreed by the Parties: Category A, Category B1, Category B2 or Category C (each, the “Project Category”).
4.2
Category Determination
. During review and revision of each proposed Project SOW by the Program Committee for the NVM Program pursuant to Section 4.3 of the Agreement, the Parties may mutually determine the applicable Project Category with reference to the following non-binding guidelines (set forth in subparagraphs (a)-(d) of this Section), as well as to the general value of accomplishing the Project SOW. Development work previously accomplished by either Party, or both, related to the subject matter of a Project SOW shall weigh in favor of the application of a lesser Project Category (
e.g.
Category B1 instead of Category B2). Intermolecular agrees that it will not unreasonably delay or withhold its acceptance of any Project SOW Micron proposes for Category A.
(a)
Category A
. A Project SOW will generally be determined to fall within Category A to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is approximately [***] months or less;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is approximately [***] or less; and
(iii)
the scope of the Project SOW is directed to [***] or [***] to technology, including without limitation [***]and [***] and [***].
(b)
Category B1
. A Project SOW will generally be determined to fall within Category B1 to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is greater than [***] months and approximately [***] months or less;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is greater than [***] and approximately [***] or less; and
(iii)
the scope of the Project SOW is directed to [***] or [***] to technology, including without limitation [***]and [***]and [***]and [***]including [***]of[***]and[***].
(c)
Category B2
. A Project SOW will generally be determined to fall within Category B2 to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is greater than [***] months and approximately [***] months or less;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is greater than [***] and approximately [***] or less; and
(iii)
the scope of the Project SOW is directed to [***] or [***] to technology, including without limitation [***]and [***]and [***]and [***]including [***]of [***]and [***].
(d)
Category C
. A Project SOW will generally be determined to fall within Category C to the extent:
(i)
the duration (
i.e.
the period between the estimated start date and end date) of the Project SOW is greater than [***] months;
(ii)
the estimated number of FTE Months required for Intermolecular to complete the Project SOW is greater than [***] and
(iii)
the scope of the Project SOW is directed to [***] [***], including without limitation [***] of [***], [***] and [***].
Section 5
Success Fees
5.1
[***]Fee Determination
. In accordance with the determination of Project Category pursuant to Section 4.2 above, the Parties shall mutually determine a corresponding [***], to be conditioned in part upon Intermolecular satisfying certain technical criteria for Deliverables set forth in a Project SOW (“[***]Fee”), as follows:
(a)
Category A
. Project SOWs for Category A will not include any [***]. Intermolecular will provide
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Services and Deliverables to Micron in connection with Project SOWs for Category A at [***], except for the [***] related to this NVM Program and as otherwise expressly set forth in the Agreement or this NVM Program.
(b)
Category B1
. Project SOWs for Category B1 may include a [***]Fee selected from the range of [***] ($[***] to [***] [***]$[***]dollars per year, payable for [***] years.
(c)
Category B2
. Project SOWs for Category B2 may include a [***] selected from the range of [***] ($[***] to [***] [***]$[***]dollars per year, payable for [***] years.
(d)
Category C
. Project SOWs for Category C may include a [***] of [***] dollars [***] per year, with a default [***] period of five (5) years. In the event an applicable [***]Threshold related to one or more Triggers is satisfied more than [***] [***] prior to the related deadline set forth in an applicable Project SOW, the default [***] period related to such Triggers(s) that have been satisfied early shall be increased by [***] [***], such that the related [***]Fee or corresponding portion thereof (in the case of multiple Triggers where fewer than all have been satisfied) shall be payable for [***] years. In the event an applicable [***]Threshold related to one or more Triggers is satisfied more than [***] [***] after the related deadline set forth in an applicable Project SOW, the default payment period related to such Trigger(s) that have been satisfied late shall be decreased by [***], such that the related [***]Fee or corresponding portion thereof shall be payable for only [***] years.
5.2
Conditions for [***]Fee Obligations
.
(a)
[***]Threshold
. Any obligation under a Project SOW for Micron to pay Intermolecular a [***]Fee, in whole or part (in the case of multiple Triggers) shall arise only upon satisfaction by Intermolecular of one or more Triggers identified in such Project SOW and satisfaction by Micron of the Production Threshold (collectively the “[***]Threshold”). Conversely, the [***]Threshold shall be satisfied and Micron shall have an obligation to pay Intermolecular any applicable [***]Fee, in whole or part, only upon satisfaction of the applicable Trigger(s) and the Production Threshold.
(b)
Triggers
. Any obligation of Micron to pay Intermolecular a [***]Fee identified in a Project SOW shall be conditioned upon Intermolecular's satisfaction of certain technical criteria for Deliverables (the “Trigger(s)”) set forth in such Project SOW. A Project SOW for Category B2 or Category C may include multiple Triggers, consisting of several distinct criteria capable of independent satisfaction, such that Intermolecular's satisfaction of each individual Trigger shall give rise to an obligation for Micron to pay a corresponding portion of the overall [***]Fee (calculated by dividing the Success Fee by the number of Triggers, or as otherwise set forth in a Project SOW), subject to satisfaction of the related Production Threshold and provided that the total number of Triggers for any Project SOW shall not exceed four (4). As an example, for illustrative purposes only, a hypothetical Project SOW for Category B2 may have a [***]Fee of [***] per year, [***] for five (5) years, and may be determined to have three (3) Triggers. In this example, assuming that Intermolecular satisfies a first Trigger and related Production Threshold initially and satisfies a second Trigger and related Production Threshold one year later, but never satisfies the third Trigger, then Micron would [***] of [***] per year, payable for five (5) years, upon satisfaction of the first Trigger and related Production Threshold, and one year later Micron would [***] a second, separate [***] of [***] per year, [***] for five (5) years, upon satisfaction of the second Trigger and related Production Threshold, but the full [***] would not be payable by Micron because Intermolecular failed to satisfy the third Trigger and related Production Threshold.
(c)
Production Threshold
. Any obligation of Micron to pay Intermolecular a [***]Fee identified in a Project SOW, or a portion thereof (in the case of multiple Triggers), shall be conditioned upon Micron's satisfaction of a Production Threshold once Intermolecular has provided Micron with the Deliverables satisfying one or more Triggers. Micron shall notify Intermolecular within [***] of Micron's initial satisfaction of a Production Threshold related to a Project SOW. Micron will also use reasonable effortsto respond to written inquiries from Intermolecular at reasonable intervals, regarding the timing of any initial product qualification with respect to which Deliverables that satisfy one or more Triggers from a Project SOW are included for the first time in production wafers. Notwithstanding anything to the contrary in the Agreement, this Development Program or any Project SOW, in no event shall Micron ever have an obligation to pay more than a single [***]Fee to Intermolecular in connection with any Project SOW, regardless of Micron's use of related Deliverables, Technology and Intellectual Property in any manner. Similarly, notwithstanding anything to the contrary in the Agreement, this Development Program or any Project SOW, in no event shall Micron ever have an obligation to pay any amount to Intermolecular with respect to any Technology provided by Intermolecular to [***] or Micron relating to [***] or any [***], as referenced in [***] of the [***] (except solely to the extent of any eventual [***] by Micron in relation to the [***] referenced in Section
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2.1 of the Agreement).
Section 6
Project Management
6.1
Project Managers
. Prior to commencement of Services under a Project SOW, Micron and Intermolecular will each appoint by written notice to the other Party a principal point of contact to serve as its project manager (respectively, the “Project Manager”), or else the applicable Program Manager may also serve as the Project Manager. Each Party may from time to time change its Project Manager at its discretion by providing written notice to the other Party. Each Project Manager will generally:
(a)
coordinate and act as a liaison with the other Party related to the Project SOW;
(b)
oversee the progress of Services and Deliverables related to the Project SOW;
(c)
provide input regarding the frequency of meetings related to the Project SOW;
(d)
monitor resource usage related to the Project SOW; and
(e)
attempt to resolve any disputes or disagreements between the Parties to the extent practicable, and escalate any other disputes or disagreements as set forth in Section 6.2 below.
6.2
Dispute Escalation
.
(a)
If either Party believes that the other Party is failing to perform its obligations under a Project, its Project Manager will provide written notice (the “Dispute Notice”) to the Project Manager of the other Party of the perceived failure. Upon receipt of such notice, the Project Managers will promptly discuss the possibility of a mutually agreed corrective action plan to address the perceived failure.
(b)
If the Project Managers cannot agree upon a corrective action plan in writing within [***]of receipt of the Dispute Notice, or such other period as may be mutually agreed by the Project Managers, each Project Manager will escalate the issue to his or her respective NVM Program Manager (if the NVM Program Manager is a different person from the Project Manager). Upon escalation of an issue to the NVM Program Managers, they will in turn promptly discuss the possibility of a mutually agreed corrective action plan.
(c)
If a corrective action plan has not been agreed upon in writing within [***] of a Dispute Notice or any such plan does not fully resolve the perceived failure, then each Party may seek any remedies available to it.
6.3
Development Records
. Intermolecular shall maintain records for each Project SOW in sufficient detail and in good scientific manner as will properly reflect all related Technology, including all work done and results achieved in the performance of Services and development of the Deliverables thereunder (including information sufficient to establish dates of conception and reduction to practice of inventions).
At least [***] during the course of a Project SOW, Intermolecular will disclose all such Technology and records to Micron by depositing related materials to a
particular repository specified by and accessible to Micron.
6.4 The initial members of the Patent Review Committee for the NVM Program shall be as follows:
(a)
Micron members: [***] and [***]; and
(b)
Intermolecular members: Prashant Phatak, Aubrey Helms and Sandeep Jaggi.
Section 7
Intermolecular Resources
7.1
Intermolecular Personnel
.
(a)
Subject to Micron's payment of the CDA Fees in accordance with Section 8 below, Intermolecular shall provide at all times sufficient hourly services from employees and Permitted Subcontractors, equivalent to approximately [***] FTEs, to perform the Project SOWs for Micron under this NVM Program. Intermolecular shall not be required to provide hourly services of its employees and Permitted Subcontractors in an amount that exceeds the equivalent number of FTEs as may be specified in such Project SOW.
(b)
To facilitate the efficient performance of Project SOWs, Intermolecular will provide the same personnel to Micron under the foregoing Section, to the extent possible, who have worked previously in connection
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with the [***].
(c)
Any access of Intermolecular employees or Permitted Subcontractors to Micron Confidential Information shall be on a strict need-to-know basis for performance of a Project SOW and in accordance with other applicable restrictions in this Agreement (the “Authorized Personnel”). Intermolecular shall use all necessary means to ensure that physical and electronic materials constituting or reflecting Micron Confidential Information shall be accessible only to such Authorized Personnel and only while being used for the performance of a Project SOW hereunder.
7.2
Facilities and Workspace
.
(a)
Intermolecular will provide adequate facilities and workspace for up to [***] Micron employees at Intermolecular's research and development center in San Jose, California, and additional resources as are necessary to support Intermolecular's obligations pursuant to the NVM Program. Intermolecular will provide access to clean room facilities, badge access, land-line phone connections, Internet access, and cubicle or office space for such Micron employees, who may be required by Intermolecular to complete Intermolecular's standard confidentiality and safety training (which shall not exceed [***]) prior to receiving access to Intermolecular's research and development center.
(b)
Intermolecular will provide adequate facilities space for storage of Micron wafers, materials, targets and any other assets reasonably provided by Micron to Intermolecular in furtherance of the NVM Program.
7.3
Informatics Access
. Intermolecular agrees to provide Micron with timely access to all development records in accordance with Section 6.3 above by allowing [***] Micron designees to have concurrent access to Informatics software during the NVM Program, which licenses to Informatics software are hereby granted to Micron by Intermolecular. Intermolecular will provide the necessary hosting, maintenance and support of hardware and software related to Informatics to ensure that industry-standard up-time, security and back-up protocols are provided.
7.4
Other Resources
. Intermolecular shall ensure that appropriate and sufficient resources are allocated at all times during the NVM Program for the purpose of performing the Project SOWs hereunder, including without limitation with respect to equipment, wafers, test vehicles, facilities and personnel. Such resources will include the following HPC Tools and non-HPC Tools:
(a)
[***]: [***] platform, including [***], P[***], and [***] chambers; and
(b)
[***]: Including [***] processing tools based at IMI, physical characterization and metrology tools and electrical test (E-test) equipment.
Section 8
Fees, Payment and Costs
8.1
CDA Fees
. In consideration of the Services performed by Intermolecular in connection with this NVM Program (and/or any reallocation of resources pursuant to Section 9.2 below), CDA Fees shall
become due and payable from Micron to Intermolecular, subject to Section 2.2 of the Agreement, on the first day of each calendar quarter, in the amount of [***] dollars ($[***]) for each such calendar quarter for so long as the NVM Program remains in effect, beginning on the first day of the first calendar quarter after the Effective Date. The amount of the CDA Fees due in connection with the final calendar quarter, during which the NVM Program expires or terminates, shall be reduced proportionally to the extent the NVM Program is in effect for less than the full calendar quarter. Notwithstanding anything to the contrary in this Section 8.1, and subject to Section 2.2 of the Agreement, no amount of CDA Fees shall become payable by Micron (i.e. Micron shall not have any obligation to provide actual payment to Intermolecular of any amounts, despite such amounts being due) until the first day of the first calendar quarter after any Project SOW is accepted under this NVM Program, at which time such first payment by Micron shall include the full amount of any CDA Fees that have previously become due under this Section 8.1. Intermolecular agrees that it will not unreasonably delay or withhold its acceptance of the first Project SOW under this NVM Program, and that any such delay or withholding would be deemed a material breach of this NVM Program and the Agreement.
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8.2
[***]Fees
. Any applicable [***]Fee as may be set forth in a Project SOW hereunder, conditioned upon satisfaction of the respective [***], shall be payable in equal installments on the first day of each calendar quarter, commencing on the first day of the first calendar quarter after such [***]has been satisfied, and shall be payable in accordance with Section 10.1, 10.3, 10.4, 10.5 and 10.6 of the Agreement.
8.3
Out of Pocket Costs.
Subject to Micron's prior written approval, Micron will provide or reimburse Intermolecular for consumables, such as substrates, mask sets, materials, and targets, process kits and cleaning, and outsourced metrology and characterization not supported internally by Intermolecular. Micron may elect instead to provide any of the foregoing items to Intermolecular, in Micron's discretion.
8.4
Costs
. Except as may be expressly set forth in a Project SOW, Micron and Intermolecular will each bear their own respective costs associated with the NVM Program and Project SOWs hereunder.
Section 9
Term and Termination
9.1
Term
. The NVM Program shall commence on the Effective Date and shall continue in effect thereafter unless and until terminated in accordance with the terms of the Agreement or this NVM Program.
9.2
Option to Convert
. Micron shall at any time have the option to convert the resources allocated for the NVM Program towards another Development Program (
e.g.
the DRAM Program).
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Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, David E. Lazovsky, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Intermolecular, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: August 7, 2013
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/s/ DAVID E. LAZOVSKY
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David E. Lazovsky
President and Chief Executive Officer
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Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Reed Birnbaum, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Intermolecular, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date: August 7, 2013
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/s/ REED BIRNBAUM
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Reed Birnbaum
Interim Chief Financial Officer
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Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Intermolecular, Inc. (the "Company") on Form 10-Q for the three months ended June 30, 2013, as filed with the Securities and Exchange Commission (the "Report"), David E. Lazovsky, President and Chief Executive Officer of the Company, does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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•
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The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: August 7, 2013
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By:
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/s/ DAVID E. LAZOVSKY
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Name:
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David E. Lazovsky
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Title:
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President and Chief Executive Officer
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________________________________________________________________________________________________________________________
A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Intermolecular, Inc. (the "Company") on Form 10-Q for the three months ended June 30, 2013, as filed with the Securities and Exchange Commission (the "Report"), Reed Birnbaum, Interim Chief Financial Officer of the Company, does hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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•
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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•
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The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: August 7, 2013
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By:
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/s/ REED BIRNBAUM
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Name:
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Reed Birnbaum
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Title:
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Interim Chief Financial Officer
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________________________________________________________________________________________________________________________
A signed original of this written statement required by Rule 13a-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Form 10-Q), irrespective of any general incorporation language contained in such filing.