UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date
of
Report (Date of earliest event reported): April 28, 2005
Southwall
Technologies Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
(State
or other jurisdiction of incorporation)
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0-15930
(Commission
File Number)
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94-2551470
(I.R.S.
Employer Identification No.)
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3975
East Bayshore Road
Palo
Alto, California 94303
(Address
of principal executive offices)
(650) 962-9111
(Registrant's
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see
General
Instruction A.2 below):
o
Written
communications pursuant to Rule
425 under the Securities Act (17 CFR 230.425)
o
Soliciting
material pursuant to Rule
14a-12 under the Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement
communications pursuant
to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement
communications
pursuant to Rule 13e-4(c) under Exchange Act (17 CFR 240.13e-4(c))
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Item
1.01.
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Entry
into a Material Definitive
Agreement.
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On
April
28, 2005, Southwall Technologies Inc. ("Southwall") entered into a Credit
Agreement (the "Credit Agreement") with Wells Fargo HSBC Trade Bank, N.A.
(the
"Bank") The Credit Agreement provides for two facilities. All amounts borrowed
under both facilities under the Credit Agreement must be repaid on or before
May
31, 2006.
The
first
facility is revolving line of credit under which Southwall may from time
to time
borrow up to $3 million, subject to satisfaction of certain conditions.
Amounts
borrowed under the first facility bear interest at the prime rate minus
1.75%
per annum or LIBOR plus 1% per annum, at Southwall's option. The Company
borrowed approximately $3.0 million from this facility on April 28,
2005.
The
second facility is a formula line under which Southwall may from time to
time
borrow up to $3 million, subject to certain conditions, with advances of
up to
80% of eligible accounts receivable. Amounts borrowed under the second
facility
bear interest at the prime rate minus 0.25% per annum. Southwall may not
borrow
under the second facility until after June 30, 2005, and only if the following
financial covenants are met:
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net
income after taxes of at least $1.00 for each of the fiscal quarters
ended
March 31, 2005 and June 30, 2005;
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year-to-date
net income after taxes of at least $750,000 for the six months
ended June
30, 2005; and
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a
ratio ("EBITDA Coverage Ratio") of net profit before tax plus
interest
expense (net of capitalized interest expense), depreciation expense
and
amortization expense ("EBITDA") to total interest expense plus
current
maturity of long-term debt and subordinated debt of at least
1.1 to 1.0
for the six months ended June 30,
2005.
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In
addition, if Southwall activates the second facility, all borrowings under
both
facilities under the Credit Agreement are subject to the satisfaction of
the
additional following financial covenants:
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a
ratio of total liabilities to tangible net worth of not greater
than 2.5
to 1.0 from June 30, 2005 through December 30, 2005, and not
greater than
2.0 to 1.0 from and after December 31, 2005, where tangible net
worth
means total shareholders' equity plus subordinated indebtedness
less all
intangible assets less assets that the Bank determines would
be of small
value in a liquidation;
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year-to-date
net income after taxes of not less than $1.00 as of June 30,
2005 and each
fiscal quarter end thereafter; and
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an
EBITDA Coverage Ratio of not less than 1.5 to 1.0 for the year
ended
December 31, 2005.
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All
borrowings under both facilities under the Credit Agreement are secured
by the
inventory, receivables, raw material, works in progress and the like of
Southwall. In addition, the first facility under the Credit Agreement is
secured
by a letter of credit posted by Needham & Company, one of Southwall's
stockholders.
The
terms
of the Credit Agreement, among other things, limit the ability of Southwall
to
(i) incur, assume or guarantee additional indebtedness in excess of $13.5
million (other than pursuant to the Credit Agreement), (ii) pay dividends
or
repurchase stock (except up to $0.6 million per year of dividends on preferred
stock), (iii) incur liens upon the collateral pledged to the bank, (iv)
make any
loans or advances to, or investments in, any person or entity outside the
ordinary course of business, (v) merge, consolidate, sell or otherwise
dispose
of substantially all or a substantial or material portion of Southwall's
assets,
(vi) enter into transactions with affiliates, and (vii) make acquisitions
other
than up to an amount of $3 million and (viii) to make capital expenditures
in
any fiscal year in excess of $1.5 million.
The
Credit Agreement provides for events of default, which include, among others,
(a) nonpayment of amounts when due (with no grace periods), (b) breach
of
Southwall's representations or covenants or other agreements in the Credit
Agreement or related documents, (c) payment defaults or accelerations of
other
indebtedness of Southwall, (d) a failure to pay certain judgments, (e)
the
occurrence of any event or condition that Bank believes impairs or is
substantially likely to impair the prospects of payment or performance
by
Southwall, and (f) certain events of bankruptcy, insolvency or reorganization.
Generally, if an event of default occurs, the bank may declare all outstanding
indebtedness under the Credit Agreement to be due and payable.
The
foregoing description does not purport to be a complete statement of the
parties' rights and obligations under the Credit Agreement and the transactions
contemplated thereby or a complete explanation of the material terms
thereof.
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Item
1.02.
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Termination
of a Material Definitive
Agreement.
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On
April
28, 2005, Southwall repaid all obligations outstanding under its credit
agreements with Pacific Business Funding dated December 18, 2003, as amended
April 29, 2004. Principal and interest then outstanding under these agreements
of approximately $3.0 million was repaid with amounts borrowed under the
Credit
Agreement. In connection with this repayment, PBF will release its security
interests in Southwall's assets.
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Item
2.03.
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Creation
of a Direct Financial Obligation or an Obligation under an Off-Balance
Sheet Arrangement of a
Registrant.
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As
described in Item 1.01 above, Southwall borrowed approximately $3.0 million
under the Credit Agreement on April 28, 2005
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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 hereunto
duly authorized.
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SOUTHWALL
TECHNOLOGIES INC.
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| By: | /s/ Thomas G. Hood | |
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Thomas G. Hood |
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Chief
Executive Officer
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Date: May
2, 2005
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